Cablegate: South Sudan: Finance Minister Delivers a Sober 2008 Budget

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DE RUEHKH #2001/01 3480729
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P 140729Z DEC 07
FM AMEMBASSY KHARTOUM
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UNCLAS SECTION 01 OF 03 KHARTOUM 002001

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E.O. 12958: N/A
TAGS: ECON EFIN EAID PGOV SOCI IBRD SU
SUBJECT: South Sudan: Finance Minister Delivers a Sober 2008 Budget
Presentation

1. (SBU) Summary: GoSS Finance Minister Mawein delivered a sober
assessment of the governance challenges facing South Sudan on
December 10, when delivering the draft 2008 budget to the
Legislative Assembly (SSLA). Mawein identified a bloated workforce,
almost total dependence on oil revenues, and corruption as among the
serious problems that will not be corrected in the short term. The
balanced 2008 budget projects revenues of U.S. $1.71 billion (97%
from oil revenues) and expenditures of $1.708 billion (55% to pay
salaries). He urged the SSLA not to tamper with the proposed
budget, but legislators may be sorely tempted to reshape it to their
own liking. End Summary.

2. (U) On December 10, Government of South Sudan (GoSS) Minister of
Finance and Planning Kuol Athian Mawein presented the government's
proposed 2008 budget to the South Sudan Legislative Assembly. (He
had previously provided a background briefing to the donor community
on December 7.) Mawein characterized the GoSS development strategy
as seeking to reduce poverty by providing a framework for private
sector development and sustainable growth. The balanced 2008 draft
budget is designed to help establish this framework. Mawein urged
legislators to resist the temptation to tamper with budget
significantly, as they did in 2007.

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Challenges to Governance and Development
----------------------------------------

3. (U) Mawein was blunt in his assessment in the challenges the
GoSS faces in putting its fiscal house in order. He listed them
as:

1.) Lack of capacity,

2.) An excessive and unproductive government workforce - salaries
for 112,000 civilian GoSS employees will absorb 55% of
expenditures,

3.) Security - 49% of 2008 expenditures will go to the SPLA and
"other organized" security forces (e.g., police and prison guards),

4.) Low mobilization of domestic resources - 97% of projected
revenues will come from the GoSS share of Sudan's oil exports under
the Comprehensive Peace Agreement (CPA), and

5.) Widespread corruption - including procurement fraud, nepotism,
expense padding, and ghost workers.

Mawein stated frankly that these obstacles must be overcome before
the GoSS can achieve its development objectives and that doing so
will require a sustained effort over a number of years.

4. (SBU) Mawein outlined steps being taken to increase GoSS non-oil
revenues. (Note: GoSS officials - including President Kiir -
regularly express to us their discomfort at GoSS dependence on the
volatile and opaque CPA oil-revenue sharing system that is
effectively controlled by the Government of National Unity (GNU) in
Khartoum. End note.) The GoSS will begin collecting a
newly-enacted ten percent Personal Income Tax (PIT), starting with
government salaries. In addition, it plans to tighten
administration and enforcement of existing duties, especially
customs, currently the largest GoSS source of non-oil revenue.
Mawein suggested that non-oil revenue collection is plagued by
inefficiency and corruption. (Note: Under the CPA, only half of
these revenues will be kept by the GoSS, the other half going to the
GNU. End note.)

5. (U) The GoSS has begun to tighten personnel administration to
reduce exorbitant payroll costs. It is taking measures to identify
"ghost workers" and remove them from the payroll. It also is
examining options for large scale reductions in force, including DDR
from the SPLA. In briefing the donor community on December 7,
Mawein said that the GoSS does not want to discharge redundant
employees without first establishing alternative employment/incomes
for them. Many of these individuals deserve support due to their
service in the SPLA during the civil war. Mawein said that the GoSS
will be seeking donor support for this exercise.

6. (U) Mawein also described measures are or will be taken to
increase transparency and reduce corruption. The 2008 budget aims
to encompass all known financing needs to minimize the need for
supplementary requests. The GoSS plans to revise its procurement
system, including drafting a new Procurement Act, hiring a
Procurement Advisor (for which it might seek donor assistance), and
establish a registry for government contracts. In 2008, every
agency will receive a monthly report from the MinFin, comparing
expenditures with budget allocation. The Finance Minister also will

KHARTOUM 00002001 002 OF 003

make monthly progress reports to the Council of Ministers and
quarterly reports to the SSLA on budget execution.

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2007 Performance
----------------

7. (U) The GoSS appears poised to just barely achieve its 2007
fiscal targets, thanks to an upsurge in oil revenues in the last
half of the year. Last year, the SSLA significantly increased the
GoSS proposed expenditures, counting on non-oil revenue projections
that never materialized. Oil-revenues also lagged behind
expectations in the first half of the year. Mawein also blamed poor
budget execution and discipline for much of the problem, noting that
some ministries overspent their budgets early in the year and had to
be bailed out later with funds from the reserve.

8. (U) On the bright side, Mawein pointed to infrastructure
projects accomplished in 2007, increased school enrollment, several
agricultural projects, and somewhat accelerated DDR and IDP
repatriation.

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2008 Budget
-----------

9. (U) Mawein noted that he was presenting the SSLA with a balanced
budget and warned the Assembly that revenue projections in the
budget are the most that reasonably can be expected. Any increases
in appropriations made by the Assembly should be matched with cuts
elsewhere. Overall, budget spending equals $140 per capita in South
Sudan, more than most other countries in the region (e.g., Uganda's
is $75 per capita). Mawein also noted that the GoSS 2008 budget is
the first to be presented in Sudanese Pounds. (Note: For
convenience, the figures in this message are given in U.S. dollars,
at the rate of U.S. $1:2 Sudanese Pounds. End note.)

10. (U) Projected total revenues: $1.71 billion

Of which:

Oil revenues $1.66 billion
Non-oil revenues $5.0 million

Projected total expenditures: $1.708 billion

Of which:
Salaries $940 million
Operating costs $399 million
Capital investment $369 million

Mawein decried high operating costs, noting that the GoSS
hospitality budget is almost as much as that for training. More
positively, he noted that 75% of the capital expenditures will go to
construction, renovation, and GoSS contributions to Multidonor Trust
Fund (MDTF) projects. The budget allocates $78 million to the World
Bank-administered MDTF.

11. (U) 2008 GoSS budget broken down by appropriations to GoSS
agencies, grouped by functional sector:

Public Administration $109.5 million

Accountability $26.5 million
(Anti-Corruption Commission, Auditors Chamber, etc.)

Economic Functions $37.5 million

Infrastructure $259 million

Natural Resources and $98.5 million
Rural Development

Health $72 million
(including $3.15 million for HIV/AIDS)

Ministry of Education $110 million

SPLA $500 mi1lion

DDR $3.0 million

Demining $1.5 million

Social and $77.5 million
Humanitarian Affairs

KHARTOUM 00002001 003 OF 003

Rule of Law $253.5 million

12. (U) In addition, the Finance Ministry is to provide
approximately $159 million in block grants to South Sudan's ten
constituent states. An additional $5 million will be allocated to
the CPA-designated "three areas" of Abyei, Southern Blue Nile, and
Southern Kordofan. Line ministries (primarily Education) will
transfer about a further $86 million to states in targeted grants.
Mawein warned that the states are likely to press legislators for
increased budgetary support, but urged them to resist. (At the
December 7 briefing, some donors expressed disappointment at
reported reductions in health-related transfers.) The states must
do more to increase their own revenue-generating capacity, he said.

13. (U) The proposed budget also would begin to replenish the
government's financial reserves with $24 million in 2008. The
reserves were depleted in 2006 and 2007 to meet shortfalls that
Mawein blamed on poor budgetary discipline. Again, Mawein urged the
SSLA to resist the temptation to divert these funds to other
purposes.

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Comment
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14. (SBU) With the support of the Council of Ministers, the GoSS
Finance Ministry has made a good-faith effort to table a realistic
and responsible fiscal program for 2008. Given resource constraints
and the almost limitless need for more government services and
investment in South Sudan, it is impossible to please everyone, or
even anyone. It remains to be seen whether the SSLA can demonstrate
sufficient self-control to resist stirring the pot.

FERNANDEZ

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