Staff Assessment of Progress in Implementation
IMF, World Bank and UN
Sudan Consortium
Paris, March 9 2006
Overview
1. Macroeconomic and fiscal developments and prospects
2. Systemic constraints and suggested next steps Government of National Unity Government of Southern Sudan
3. Development Financing – Trends and Prospects Domestic Efforts Trends in Donor Assistance Financing Requests
Economic Developments Good Performance In 2005
2
4
6
8
10
12
14
Dec
-02
Feb
-03
Apr
-03
Jun-
03
Aug
-03
Oct
-03
Dec
-03
Feb
-04
Apr
-04
Jun-
04
Aug
-04
Oct
-04
Dec
-04
Feb
-05
Apr
-05
Jun-
05
Aug
-05
Oct
-05
Dec
-05
Feb
-06
y/y average
12-month pt to pt
...while inflation was contained
0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006
(in percent)
Total
Nonoil
Growth remained strong...
Economic Developments Good Performance In 2005
1.0
1.5
2.0
2.5
3.0
3.5
2004 2005 2006
1000
1400
1800
2200
2600
3000
In months of imports (lhs)
In millions of U.S. dollars (rhs)
International reserves rose...
0
400
800
1200
1600
2000
2004 2005 2006
to the Southto Northern States
...as well as transfers to the South and Northern states
(in millions of U.S. dollars)
Economic DevelopmentsDifficulties and Delays Overruns in fiscal spending, mainly because of
the unplanned fuel subsidy
Non-concessional borrowing target exceeded by large margin
Public financial management: Government Finance Statistics (GFS), capacity building
ProspectsThe Government Program for 2006
Lower fiscal deficit, reduce fuel subsidies, reorient spending
2004 2005 2006
Total revenue 19.8 21.8 24.0 of which: oil 10.3 13.3 14.3Total expenditure 18.3 23.6 24.9 of which: fuel subsidies ... 3.5 1.8 Transfers to the South 0.4 2.8 4.0 Transfers to other states 1.2 3.6 4.3Balance 1.5 -1.8 -0.9
Memorandum items: Consolidated capital spending 5.0 5.5 6.9 Pro-poor expenditures ... 2.8 5.1
(In percent of GDP)
ProspectsKey economic reforms in government program
Protect tax base Revamp tax incentives (VAT and profit tax
holidays)
Improve fiscal transparency GFS classification and reporting
ProspectsKey economic reforms in government programPublic financial management
Establish rules and procedures for the Fiscal and Financial Allocation and Monitoring Commission
Conduct Public Expenditure Review to strengthen expenditure management and allocations
Improve oil sector transparency Publication of detailed oil sector data Audits of Sudapet Regular and transparent profit transfers from oil companies to
the treasury
Economic Key economic reforms in government program
Implement CPA related banking reforms Proceed with restructuring of the central bankEnable dual banking Introduce new Sudanese Pound
Commercial bank restructuring
Raise capital adequacy ratios and minimum capital requirements
Addressing Systemic Constraints: GNU Ongoing conflict in Darfur and tensions in the East undermine efforts
to realize JAM priorities, and threaten further instability
Slow, and in some cases incomplete, implementation of the CPA
Limited public resources available for basic service delivery and infrastructure, despite some progress Budgets for development (pro-poor) purposes still limited, and
below commitments, both by government and donors Record on budget execution is weak, especially to states and
Three Areas
Increasing implementation efforts in disadvantaged regions – including Three Areas – are needed to get progress on track
Keys to Accelerating Progress on Poverty Eradication: GNU
1. Improving governance and transparency = the CPA agenda, esp.
Effective decentralisation, building on the increased planned fiscal transfers, is critical to improved basic service delivery:
Transparency and predictability on mechanisms and amounts of resources to sub-national levels
Review allocation criteria to improve distribution Improve budget execution (combat, e.g., salary arrears) Build local and national government capacities for policy
development and service delivery
Facilitate more open and consultative governance National Petroleum Commission must begin effective operation
Keys to Accelerating Progress on Poverty Eradication: GNU
2. Supporting rural development – especially small farmers and firms Abolish the monopoly on raw Gum Arabic and on livestock exports Reform agenda: Gezira and semi-mechanized farming Develop sustainable support services, including credit, with private
sector Support private investment in disadvantaged regions; re-establish
land use rights
3. Enabling private sector development & trade more broadly Reduce bureaucratic barriers facing business registration, customs,
land use; and streamline port procedures and logistics/transport Reduce tariffs, clarify tax authority of different levels of government
and broaden the tax base Facilitate access to long-term financing for firms
Systemic Constraints: GOSS
Severe lack of capacity constrains progress on key priorities; still need to establish core capacities within key line agencies and the cabinet, and at lower levels of government
Weak public financial management systems and controls pose a risk to the whole development program
Absence of an effective payroll system for both security forces and public servants
Lack of clarity on decentralisation: expenditure and revenue
assignments, & links between central line agencies and lower levels
1. Building core capacities and establishing the public service Establish a recruitment policy, and a payroll system Implement anti-corruption safeguards Provide support to state and local level institutions Improving coordination of development policies and programs
2. Establishing a base for sound public financial management Urgently attend to key decisions, especially to formalise systems of
payment and accounting, and to enact and enforce transparent procedures including for procurement
Treasury Single Account, public finance legislation and procurement rules Establishing processes and accounting for intergovernmental transfers
3. Enabling productive activities and delivery of basic services Facilitating access to micro-credit Expand access to basic healthcare and education, based on emerging
sector programs
Keys to Accelerating Progress on Poverty Eradication: GOSS
Development Spending: Domestic and External
Assessed needs in the JAM were huge, but increased domestic revenue due to high growth and oil prices, coupled with pro-poor efforts, and support from international partners can meet the needs
For the GNU and the GOSS, the budget is critical not only as a means of actually financing priority programs, but as a central signal of domestic policy priorities
Increasing pro-poor spending is key: defining and measuring ‘pro-poor’ is fraught with difficulty, but working definition developed (see next session)
Assessment of the nature and level of trends since 2004, on both domestic and external fronts, is broadly positive
Increased Domestic Efforts GNU – in the context of high economic growth and rising revenue
measured pro-poor spending has increased significantly in absolute terms since 2004 (baseline, which was very low)
In 2005 budget, transfers to states and the South increased substantially over 2004
The 2006 fiscal framework shows a large increase in transfers to states, and an increase in pro-poor spending, that approaches JAM commitments
GOSS –
For 2005, a transition year – formal budget process cycle, but experience underlines the importance of getting systems established – for payments and reporting
For 2006, a promising process was launched, and sectoral ceilings show close correspondence with JAM priorities, as these continue to evolve.
BUT public financial management poses a major challenge
Significant Increases in Donor Assistance since CPA
Total Reported Donor Assistance to Sudan by Region, 2003-05 (US$ million)
0
200
400
600
800
1000
2003 2004 2005
US$ m
illio
ns
Darfur Southern Sudan Rest of Sudan
2004: Estimated figures based on FTS Geneva and Darfur Funding Overview; assumes Southern Sudan received all non-Darfur funding for 2004.2005: Recorded by UN for 2005, MDTF contributions, and US and EC reports.
Humanitarian Aid Still Dominates (especially in Darfur, also in the South)
Reported Donor Assistance to Sudan by Category and Region, 2005 (US$ million)
0
100
200
300
400
500
600
700
800
National Darfur Southern
Sudan
US$
Mill
ions Recovery
Unspecified
Development
Humanitarian
Source: World Bank staff estimates based on all funding recorded by UN for 2005, MDTF contributions, and reporting by US and EC.Note: MDTF commitments are included under Development.
Assessment of Financing Requests:GNU
The JAM assessed financing requests based on domestic pro-poor efforts and development needs staff endorse this approach, including progress against the Matrix
GNU financing request of US$ 386 million in 2006 is appropriate on a commitment basis
If full execution of the pro-poor GNU budget = external financing request would cover 22 percent of pro-poor needs
Somewhat less than the JAM estimate of 36 percent — that is, 4:1, not 2:1, ratio of domestic to external effort
Role of the MDTF – North. US$48 million of donor funds in 2005, nearly fully committed via approved full program proposals Staff support Government’s request that development financing be directed
through the MDTFs to allow for maximum ownership of program design and implementation, and to strengthen links with the domestic budget
GNU Development Financing Trends and Plans, 2005 – 06 (US$)
0
200
400
600
800
1000
1200
JAM Estimated External Financing NeedsProjected External Financing of Pro-Poor Programs of w hich MDTFUN Work Plan of w hich Recovery and Development
2005 2006
Assessment of Financing Request:GOSS
Based on the emerging program for 2006 and the strong pro-poor efforts evidenced in the budget, the GOSS’s financing request of US$300 million is appropriate, but again, on a commitment basis
Slower than expected disbursement of donor commitments in 2005 related to delays in CPA implementation, and practical problems and delays in partners in getting started in Juba; progress expected to accelerate in 2006
Assuming full financing of this request and full execution of pro-poor spending per the budget, the external share would be about 37 percent (close to JAM estimate of 41 percent)
The MDTF for the GOSS received US$99.2 million in 2005, and has committed all existing funds, indicating that replenishments are needed
GOSS Development Financing Trends and Plans, 2005 – 06 (US$)
0
200
400
600
800
1000
1200
1400
Total JAM Needs of which Externally FinancedExternally Financed Development Assistance of which MDTFUN Work Plan of which Recovery
2005 2006
Domestic share of pro-poor needs higher than JAM projections, 2006
Share of Pro-Poor Needs Covered by Own Efforts, JAM vs. Revised Estimates, 2006 (%)
6459
78
63
0
10
20
30
40
50
60
70
80
90
GNU GOSS
JAM Estimate
Revised Estimate
Conclusions1. Progress in CPA implementation, but delays on key
institutions and lags in donor assistance 2. Economic developments in 2005 broadly favorable 3. GNU pro-poor spending broadly in line with JAM
commitments, but negligible transfers to Three Areas4. The 2006 modified budget framework (agreed with the Fund)
and government commitments on macro-structural reforms are promising
5. Good effort by GOSS, but steps needed to improve transparency and increase spending on critical services
6. Financing framework and requests for external assistance in 2006 appropriate; resources in both MDTFs nearly fully committed
In SUM: call for accelerated progress on all fronts, deepening partnerships and mutual accountability