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Viewing cable 06KHARTOUM1744, MAJOR SHORTFALL IN GOSS REVENUES LOOMS

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Reference ID Created Released Classification Origin
06KHARTOUM1744 2006-07-20 12:57 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Khartoum
VZCZCXRO6276
RR RUEHROV
DE RUEHKH #1744/01 2011257
ZNR UUUUU ZZH
R 201257Z JUL 06
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC 3809
INFO RUCNIAD/IGAD COLLECTIVE
UNCLAS SECTION 01 OF 02 KHARTOUM 001744 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: EFIN ECON PGOV SU
SUBJECT:  MAJOR SHORTFALL IN GOSS REVENUES LOOMS 
 
REF:  Khartoum 1168 
 
1.  (SBU) Summary:  Government of South Sudan (GoSS) revenues from 
petroleum transfers by Khartoum are falling far short of the 
projections used for the 2006 budget, leaving significant funding 
gaps.  The proximate cause appears to be World Bank reliance on 
projected numbers for transfers contained in Government of National 
Unity (GNU) budget projections.  Holdover funds from last year and 
the lack of capacity for the GoSS to spend the money may help close 
the gap.  However, the ability of the GoSS budget to fund the full 
range of its priorities is still uncertain, and recriminations have 
already begun.  End summary. 
 
------------------------ 
Missing the Revenue Mark 
------------------------ 
 
2.  (SBU) Conversations with local staff of the World Bank (IBRD), 
various technical experts, and GoSS ministers have revealed that the 
revenue figures upon which the GoSS formulated its 2006 budget may 
be  significantly off the mark.  The GoSS was expecting revenues of 
USD 1.3 billion, not including Multi-Donor Trust Fund (MDTF) 
disbursements and other donor flows, but monthly transfers to date 
from the GoNU indicate that the figure could be only half that 
amount. 
 
3.  (SBU) Experts from BearingPoint, the contractor that helped the 
GoSS Ministry of Finance prepare the budget, blame IBRD methodology. 
 The IBRD insisted that the GoSS use the figure of USD 1.3 billion 
from the 2006 GNU budget, because using a lower figure would be a 
disincentive for full transfer of this amount.  Bearing Point said 
that they, and others, pushed for using a figure based on average 
monthly transfers to date, approximately USD 60 million/month.  The 
more conservative approach also called for a two-tier budget in 
which top priorities were funded first, with additional items funded 
when and if money became available.  The same school of thought 
counseled a sizable reserve as well to cushion any unexpected 
shortfalls.  Ultimately, the IBRD approach prevailed. 
 
--------------- 
The End Results 
--------------- 
 
4.  (SBU) The Southern Sudanese Legislative Assembly's (SSLA) final 
approval of the budget brought surprises of its own (reftel).  The 
SSLA tacked on a last minute amendment that upped the budget for the 
Sudanese Peoples' Liberation Army from fifteen to forty percent of 
the budget, an increase from USD 200 million to USD 546 million. 
This effectively eliminated the reserves.  The final bill also 
abrogated the concept of "top-down" budgeting in favor of a 
decentralized "bottom-up" approach with increased input from the 
states.  This change of focus has further complicated the budgetary 
picture.  Should transfer funds come to as little as fifty percent 
of the original projection, this would make existing budget 
allocations largely meaningless. 
 
5.  (SBU) The implications for GoSS operations are significant. 
Salaries are protected so a shortfall would translate into reduced 
outlays for development and social priorities for a population 
increasingly unhappy with what it perceives as a lack of delivery on 
the part of the GoSS and international community.  The GoSS is 
currently hiring at the director and sub-director level, but 
continued shortfalls would also prevent the ministries from staffing 
up to the levels required to adequately support future delivery of 
services. 
 
------------------- 
Recrimination Ahead 
------------------- 
 
6.  (SBU) The blame game has already begun at various levels. 
Senior GoSS officials, including Salva Kiir, have publicly 
criticized the IBRD for being overly bureaucratic and slowing down 
MDTF disbursements for roads and other development projects.  MDTF 
officials say that much of criticism was based on misinformation and 
they are in the process of smoothing things over.  However, if such 
a significant shortfall materializes, there will likely be new 
recriminations and sharp differences of opinion in technical circles 
over how the revenue and budget projections came in so high above 
the mark.  One of the most problematic areas of CPA implementation, 
for the GoSS at least, has been the perceived lack of transparency 
by the GNU Ministry of Energy and Mining on production, contract, 
and auction figures.  The apparent discrepancy between initial 
projections and the actual transfer amount can only exacerbate this 
debate. 
 
--------------------------- 
Not Necessarily the Titanic 
--------------------------- 
 
7.  (SBU) An expatriate expert working with the GoSS Ministry of 
Finance and a consultant on financial economics have told us that 
 
KHARTOUM 00001744  002 OF 002 
 
 
while the budget situation is "a mess," the final outlook remains 
murky, but not necessarily as gloomy as it might seem.  At the end 
of December 2005, the GoSS reportedly had USD 500 million in 
holdover funds that it had been unable to spend, although this money 
may have been earmarked for the MDTF.  Although the GoSS is expected 
to expend available revenues more rapidly as the ministries staff 
up, the budget burn rate could continue to lag.  Transfers from the 
GNU may also increase as additional oil wells and pipelines come 
on-line, further closing the gap and addressing some of the issues 
above.  In sum, the final budget panorama is not yet painted. 
 
STEINFELD