VZCZCXRO5665
PP RUEHROV
DE RUEHKH #0211/01 0440740
ZNR UUUUU ZZH
P 130740Z FEB 07
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 6101
INFO RUCNIAD/IGAD COLLECTIVE
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 03 KHARTOUM 000211 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/SPG, AF/EPS, AND EB/IFD/ODF 
PLEASE PASS TO USAID FOR AFR 
 
E.O. 12958:  N/A 
TAGS: EFIN PGOV PINR ECON EAID SU
SUBJECT:  GOSS 2007 Budget Adopted 
 
REF: A) Khartoum 00133, B) Khartoum 00157 
 
¶1.  Summary:  The Southern Sudan Legislative Assembly (SSLA) adopted 
its 2007 budget on January 29 with a projected revenue level of USD 
1.536 billion.  The anticipated amount flows from oil, non-oil, and 
non-tax revenue sources, excluding donor grants.  The budget, as in 
2006, allocates over 40 percent of planned expenditures to the 
military, USD 555 million, and provides roughly similar amounts for 
social and infra-structure spending as in the FY 06 budget.  The 
Minister of Finance and Economic Planning (MOF) received harsh 
criticism for failing to provide information on expenditures, 
non-oil revenues, and missing reserves.  Key ministries saw cuts 
from the 2006 budget because of the failure to spend last year's 
allocations or poor performance. 
 
¶2.  The legislators are beginning to assert themselves as budgetary 
watchdogs and are demanding more accountability and results from the 
ministries.  The contentious budget review has turned up the heat on 
the MOF and raised the bar for performance by the GOSS.  A more 
in-depth analysis will follow separately.  End Summary. 
 
----------------------- 
Legislators Lambast MOF 
----------------------- 
 
¶3.  After a two-month delay, the embattled GOSS MOF, Arthur Akieun 
Chol, presented the FY 07 budget to the Southern Sudan Legislative 
Assembly (SSLA) on December 19, 2006, allowing for only a few days 
review before the holiday break.  The legislators reconvened in 
mid-January to finish their review.  (Note:  The budget is being 
sent electronically to AF/SPG separately.  End note.)  The MOF's 
political future has been under a cloud for several months following 
ongoing corruption investigations over questionable procurements by 
his ministry (REF B).  The latest scandal revolves around the 
missing USD 60 million reportedly given to the Sudan People's 
Liberation Movement (SPLM) by Khartoum to establish the Southern 
Sudan administration in the North.  SPLM Secretary General Pagan 
Amum has accused the MOF of failing to turn over all but USD 18 
million of those funds. 
 
¶4.  Unlike in FY 06, the SSLA critically reviewed the FY 07 budget 
and made substantial revisions based on performance and needs.  The 
MOF was grilled before the members and lambasted in the final budget 
review for failing to provide a full accounting for revenues and 
expenditures.  The SSLA questioned how the annual oil revenue in the 
projected budget remained constant at USD 1.3 billion despite the 
2006 increase in Sudan's oil production level and the rise in global 
oil prices.(Comment: the SSLA seems not to understand that the 
budget is prepared using a benchmark price for oil and with a 
reserve account created to smooth the fluctuations of revenues. End 
Comment.) 
 
¶5. The legislators also raised concerns about the unexplained 
withdrawal of USD 260 million from the Oil Revenue Stabilization 
Account, the omission of non-oil revenues (the South's estimated 
share of Customs revenue alone is USD 16 million), and the absence 
of any international aid management strategy.  The SSLA further 
criticized the MOF for preparing the budget with no input from the 
Bank of Southern Sudan (BOSS) and the corresponding lack of any 
fiscal, monetary, or taxation policies designed to promote economic 
growth and productivity.  The MOF was commended, however, for 
introducing a flat personal income tax of ten percent, which the 
SSLA is likely to make progressive up to twenty percent. 
 
¶6.  The legislators gave stern instruction to the Finance Ministry 
that it is to establish a mechanism for effective collection of tax 
revenues and ensure that the BOSS actively engages in the budget 
preparation process. 
 
------------------ 
Winners and Losers 
------------------ 
 
¶7.  The approved FY 07 budget total is USD 1.536 billion, of which 
USD 1.375 million was originally proposed by the MOF and USD 161 
million added by the legislators.  In comparison, the projected 
budget revenue for FY 06 was USD 1.304 billion, about 18 percent 
lower than that of FY 07.  Although the SSLA was concerned that the 
various GOSS ministries did not fully spend the allocated FY 06 
expenditure budget, mainly due to late disbursement of funds by the 
MOF, the Assembly allocated similar levels of budgetary resources to 
several of the GOSS entities.  The Assembly also issued instructions 
that timely disbursement be made to ensure accelerated project 
implementation to meet heightened public expectations. 
 
¶8.  The FY 06 and 07 projected revenue is as follows, (all amounts 
in USD): 
 
FY 2006   FY 2007 
 
KHARTOUM 00000211  002 OF 003 
 
 
 
Oil revenue  1.300 Billion  1.300 Billion 
 
Non-oil revenue 4 Million   219 Million 
 
Non-tax revenue 104 Thousand  17 Million 
 
Total:   1.377 Billion  1.533 Billion 
 
¶9.  The total budget is allocated to 12 budget sectors: 
accountability; economic functions; education; health; 
infrastructure; natural resources and rural development; public 
administration; rule of law; security; social and humanitarian 
affairs; transfers; and reserves.  Over 80 percent of the budget, 
however, was allocated to six key sectors during both fiscal years. 
The allocation for the six sectors was at 90 percent in FY 06, while 
it is reduced to 84 percent in FY 07.  The decline is due to reduced 
07 allocations in education and health. 
 
¶10.  Allocations for the six major sectors: 
 
      FY 06   FY07 
 
Sector  Amount Percent Amount Percent 
      USD M   USDM 
 
Security  528  42  555  43 
Infrastructure 279  22  309  24 
Transfers  116  9  125  10 
Education  137  11  112  9 
Rule of law 74  6  98  8 
Health  109  9  84  7 
 
Six Sectors 
 
Total   1.243 B 90  1.283 B 84 
 
Total GOSS 
FY Budget  1.377 B   1.536 B 
 
(Note: In the budget as published, expenditures do not equal 
revenues.  End note.) 
 
---------------------------------- 
Show us the Money, Spend the Money 
---------------------------------- 
 
¶11.  The legislators have also underscored that the Finance Ministry 
must improve its disbursement performance, following testimonies 
from various ministries that they were not given their allocated 
resources when requested.  Reportedly, the Ministry of Housing, 
Lands and Public Utilities, headed by Vice President Riek Machar, 
succeeded in spending about 86 percent of its FY 06 expenditure 
allocation, while only 45 and 11 percent of the allocations were 
spent by the Ministry of Health and the Disarmament, Demobilization, 
and Resettlement Commission, respectively.  The SSLA has directed 
that, in the future, the MOF must report progress to the assembly on 
a quarterly basis. 
 
¶12. Although the projected overall personnel level declined in FY 07 
by 44 percent (from 117 thousand in FY 06 to 65 thousand in FY 07) 
projected expenditures on personnel salary/wages rose by 192 percent 
(from USD 252,645 million in FY 06 to USD 737,535 million in FY 07). 
 The legislators noted that most ministries or agencies overspent on 
salaries/wages in FY 06.  The Finance Ministry is still expected to 
provide additional explanations on the personnel number and 
expenditure linkages. 
 
-------------------- 
The Role of the BOSS 
--------------------- 
 
¶13.  Even though the Comprehensive Peace Agreement (CPA) envisaged 
the BOSS to be central in depositing and transferring GOSS funds, 
only 34 percent of the FY 06 revenues were handled by it.  The 
remainder was deposited in various financial institutions in 
Khartoum, Nairobi, Geneva, and Abu Dhabi.  The SSLA has now directed 
that in the future the Finance Ministry is to deposit all GOSS funds 
in the BOSS before any payments are made in or out of the country. 
 
------------------------ 
Military Needs Trump All 
------------------------ 
 
¶14.  The military was the biggest winner in dollar amounts under the 
FY 07 budget, getting an additional 50 million on top of the 500 
million originally proposed by the MOF.  The legislators justified 
the increase as necessary to address the growing insecurity, 
specifically "the wanton murder of Southern Sudanese in cold blood 
 
KHARTOUM 00000211  003 OF 003 
 
 
by ambuscades (sic) on the roads throughout the summer...the 
shootout in Malakal in November, the incidents in Wau, Jonglei, and 
in various places..." as well as for "capacity building."  GOSS 
officials have told ConGen that while the military spending is huge, 
quarterly reporting will provide a means of accounting for how it is 
spent. 
 
POWERS