VZCZCXRO7811
PP RUEHROV
DE RUEHKH #0166/01 0361159
ZNR UUUUU ZZH
P 051159Z FEB 07
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 6001
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 02 KHARTOUM 000166 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR AF/SPG, AF/EPS, EB/IFD, AND EB/ESC 
DEPT PLS PASS TO USAID FOR AFR 
 
E.O. 12958:  N/A 
TAGS: EFIN EAID ECON PREL SU
SUBJECT:  Fiscal Federalism Comes to Sudan 
 
 
¶1. (U) Summary:  The Fiscal and Financial Allocation and Monitoring 
Commission (FFAMC), created under the CPA, has the responsibility to 
establish an entirely new, decentralized, federal, financial system. 
 The first transfers to the 25 state governments under this new 
fiscal federalism are to take place in February, with monthly 
allocations thereafter.  The head of the FFAMC described the need to 
build public awareness and understanding of the new system, as well 
as the need to build capacity at the state and local levels.  The 
FFAMC faces challenges due to slow delivery of donor pledges, 
limited government support, and its own need for training.  End 
Summary 
 
Revenue Sharing Formula 
------------------------ 
 
¶2. (U) The Chairman of the Fiscal and Financial Allocation 
Commission (FFAMC), Ibrahim Moneim Mansour, met with Econ Officer 
January 30 and provided an overview of the new fiscal system being 
created for Sudan.  Mansour terms the new model "fiscal federalism." 
 The Comprehensive Peace Agreement (CPA) mandated the 
decentralization of government.  In order to implement 
decentralization a new mechanism to distribute revenues to the 25 
state governments is being created.   The new system applies to 
funds defined as "National Revenues" (oil revenues are treated 
separately).  The basic formula is 55.2% of National Revenues are 
allocated to the central government, and the remaining 45.8% to the 
25 states.  The portion going to the states has two parts:  40% of 
the total is divided equally among the states.  The remaining 60% is 
allocated using a formula based on population of the state, number 
of students, number of hospital beds, and efforts to raise revenue 
locally.  This allocation reflects the states' obligation to provide 
for basic education and health services.  (Comment:  Under this new 
system, the equitable distribution of funds depends on an accurate 
census.  While Mansour did not discuss impact of the census on the 
fiscal system, it is yet another linkage between the census and the 
long term success of the CPA.  End comment.) 
 
Fiscal Federalism Starts in February 
------------------------------------ 
 
¶3. (U) The original intention was that the transfers to the states 
begin with the new fiscal year, that is, January 1, 2007.  However, 
the Chairman said that due to the eleven days of holidays in late 
December and early January, the initial transfers were delayed and 
will now take place in February.  The intention is that transfers 
are to be made directly to the states, but in 2007, the transfers to 
the ten Southern states will be made as a lump sum to the GOSS. 
Beginning in 2008, all transfers will be made directly to each 
state.  Most states have accounts at the Central Bank of Sudan, so 
the transfers will be made using these accounts.  Each state will be 
advised at the beginning of the year on the amount of the monthly 
transfer, so that planning can be done. 
 
¶4. (U) Chairman Mansour described several weaknesses that the FFMAC 
has identified and is seeking to address.  One serious weakness is 
the lack of capacity at the local (county) level.  FFMAC will make 
transfers to the states, and the states are expected to see that the 
appropriate transfers are made to the county level.  The lack of 
capacity at the county level, however, causes concern for the FFAMC 
as to whether the funds will reach the programs for which they are 
budgeted.  Mansour noted that there are considerable differences 
between states in their capacity to effectively utilize their 
allocations.  He said that he is also concerned that some states 
will spend money carelessly early in the year, then expect the 
central government to bail them out.  He has warned the states that 
this will not happen, and that they must plan on the basis of their 
monthly allocations. 
 
¶5. (U) Mansour says that the FFAMC itself is hard pressed to do its 
work.  It took the Commission over a year just to get its office up 
and running.  The Commission staff needs more training, more travel 
funds and more vehicles.  The government has furnished only one used 
pickup and one used SUV to the commission.  Mansour complained that 
the World Bank and the Multidonor Trust Fund mechanism have been 
slow to deliver assistance.  Bilateral donors also have been slow to 
help, although he said Norway was the exception. More money is 
needed for publicity and public education. There is a need to 
educate officials in the state governments on the operation of the 
new fiscal system, as well as a need to communicate to the general 
public the work of the FFAMC, fiscal federalism, and the CPA 
process.  The Chairman said that he would like to have his staff 
travel to other federal countries, including Nigeria, South Africa, 
and Australia, but the commission budget for such travel is only 
$16,000. 
 
Coordination with AEC desirable 
------------------------------- 
 
¶6. (U) The shift of resources to the state governments is a 
 
KHARTOUM 00000166  002 OF 002 
 
 
significant change in power in Sudan's political system. 
The Chairman is concerned the slow pace in building public awareness 
and understanding of the new system could impede its success. 
Mansour said that he would like to improve communication with the 
Wealth Sharing working group of the AEC as part of the effort to 
improve understanding of the emerging fiscal federalism. Embassy 
will try to arrange such a meeting in the next few days. 
 
POWERS