VZCZCXYZ0002
PP RUEHWEB

DE RUEHKH #1649/01 2961235
ZNR UUUUU ZZH
P 231235Z OCT 07
FM AMEMBASSY KHARTOUM
TO SECSTATE WASHDC PRIORITY 8914

UNCLAS KHARTOUM 001649 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR AF/SPG AND EEB/IFD 
DEPARTMENT PASS TREASURY FOR OIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EAID PREL PGOV SU
SUBJECT: SOUTH SUDAN GOVERNMENT STRUGGLES TO CONSTRUCT A 
FISCAL FOUNDATION 
 
REF: A. KHARTOUM 1403 
 
     ¶B. KHARTOUM 1568 
 
 
------- 
Summary 
------- 
 
¶1.  (SBU) Budgetary planning by the Government of South Sudan 
(GoSS) is hampered by excessive personnel costs and 
dependence on unreliable revenue sources.  The GoSS is 
working to correct these deficiencies, but faces an uphill 
struggle given a lack of institutional capacity and likely 
resistance to needed, but potentially painful, reforms.  End 
Summary. 
 
--------------------------------------- 
GoSS Handicapped by Inadequate Capacity 
--------------------------------------- 
 
¶2.  (SBU) During a recent visit to Juba, Econoff discussed 
 
the fiscal challenges facing the autonomous Government of 
South Sudan with Moses Mabior, Coordinator of Foreign 
Assistance in the GoSS Ministry of Finance and Planning.  The 
Finance Ministry currently is in the process of drafting the 
2008 GoSS budget.  Mabior admitted that a lack of 
institutional capacity significantly handicaps the GoSS 
generally, including his Ministry's planning capacity.  He 
noted that the GoSS started from scratch in 2005, and thus 
lacks any significant historical base on which to make 
budgetary plans.  It -- along with the rest of the government 
-- also suffers from a critical lack of qualified personnel. 
 
-------------------------------- 
Expenditures ) Salaries Dominate 
-------------------------------- 
 
¶3.  (SBU) Mabior noted that spending on current consumption 
) especially salaries * dominates GoSS expenditures and has 
crowded out capital investment, with security-force 
expenditures accounting for 70 percent of GoSS personnel 
costs.  The GoSS has felt obligated to pursue a policy of 
&social employment8, intended to provide incomes for SPLA 
veterans of the civil war, war widows, and others considered 
by the Sudan Peoples Liberation Movement (SPLM) to be 
entitled to GoSS support.  The result is a bloated GoSS 
workforce, with a relatively small proportion of GoSS staff 
doing substantive work.  Government payrolls also are plagued 
by significant numbers of "ghost" workers who draw salaries, 
but are not present for work. 
 
¶4.  (SBU) To remedy this situation, Mabior said the GoSS 
plans a payroll-cleanup program that will purge the rolls of 
ghost workers and introduce new payroll procedures to prevent 
abuses.  Additionally, the Ministry of Labor, Public Services 
and Human Resources Development will start issuing ID cards 
to civil service employees in November.  The GoSS also plans 
to transfer excess security personnel and non-substantive 
civilian employees to programs that will train them either 
for productive work in the government or in the private 
sector. 
 
------------------------- 
Revenues ) Oil Dependence 
------------------------- 
 
¶5.  (U) Mabior said that the GoSS currently depends on 
volatile oil revenues for over 90 percent of its income. 
Under the wealth-sharing  provisions of the Comprehensive 
Peace Agreement (CPA) between Sudan,s ruling National 
Congress Party (NCP) and the opposition SPLM, oil revenues 
collected in the area governed by the SPLM are divided 
equally between the GoSS and the Government of National Unity 
(GNU) in Khartoum.  The price of Sudan,s oil exports can 
fluctuate widely.  For example, the price of a barrel of 
Sudanese oil dropped to only US$49 in February (admittedly an 
exceptionally low price, one month price) and rose to US$77 
in August.  Export volumes also have varied; although they 
gradually have increased over the course of 2007 as problems 
in shipping Dar-blend crude have been overcome.  The 
unpredictability of these revenues further complicates budget 
planning. 
 
¶6.  (SBU) Mabior indicated that the GoSS doubts that it is 
receiving all of the oil revenues to which it is entitled 
under the CPA (ref b).  Although the statistics published by 
Sudan,s Ministry of Finance indicate that the South receives 
half of the revenues earned from oil produced in the South, 
the GoSS questions the transparency of this arrangement on 
 
two grounds.  First, according to Mabior, the GoSS is not 
privy to the specifics of contracts that the GNU negotiated 
with foreign oil companies to develop the fields before the 
CPA.  The GoSS suspects that, under pressure to raise funds 
to pay for the war quickly, the GNU signed sweetheart deals 
with its foreign partners and the GoSS now is suffering the 
consequences.  Second, until the January 1956 North-South 
border finally is demarcated, it is impossible to know which 
oil fields actually lie in the South.  The GoSS suspects that 
it is not receiving all of the oil revenues to which it 
should be entitled. 
 
-------------------------------- 
Search for a Stable Revenue Base 
-------------------------------- 
 
¶7.  (SBU) To correct these weaknesses, the GoSS is slowly 
seeking to develop other, more stable, sources of revenue. 
Under the CPA, some taxes collected in the South by the GNU 
(e.g., VAT, customs duties, corporate income tax) are to be 
shared equally between the GNU and the GoSS, in the same way 
as oil revenues.  Mabior said that in July, the GNU and the 
GoSS agreed to establish a joint committee to monitor tax 
revenues, paralleling the existing committee that monitors 
oil revenues.  According to Mabior, a staff has begun 
compiling data, but committee members have yet to be named 
and tax revenues have yet to begin flowing to the GoSS.  When 
the committee does begin operation, revenues collected in the 
South will be divided retroactively, back to July 2007. 
(Comment:  Juba has been equally delinquent in sharing 
revenues with Khartoum.  End comment.) 
 
¶8.  (SBU) Simultaneously, the GoSS Finance Ministry is 
beginning to establish a tax-policy framework for the 
collection of revenues in the South.  The Ministry is in the 
final stages of preparing two pieces of key legislation:  1.) 
 Public Financial Management Act, and 2.) Revenue Act.  The 
Ministry hopes that both will be enacted by the end of this 
year.  (Note:  This goal is likely illusory, given the slow 
pace at which the South Sudan Legislative Assembly has been 
dealing with its legislative agenda so far.  End note.) 
 
---------------------- 
Critical Donor Support 
---------------------- 
 
¶9.  (U) Mabior praised donor assistance to Southern Sudan, 
including a U.S. Treasury advisor at the Ministry.   In 
briefing the quarterly donors group meeting in Juba in late 
September, new GoSS Finance Minister Kuol Athian Mawien said 
that his government will be looking to the donors for 
significant Disarmament, Demobilization, and Reintegration 
assistance at the next Sudan Consortium meeting to finance 
government payroll-cleanup plans.  Mabior said that the next 
Sudan Consortium has tentatively been set for late January. 
However, the current political conflict between the NCP and 
the SPLM has thrown planning into uncertainty. 
 
------- 
Comment 
------- 
 
¶10.  (SBU) The fiscal challenges facing the Government of 
South Sudan mirror closely those of the GNU in Khartoum, as 
outlined recently by the IMF (ref a).  However, the South 
probably faces them to an even greater degree: 
overdependence on volatile oil revenues, over-expenditure on 
consumption (especially salaries) and a lack of institutional 
capacity to compensate for or correct these weaknesses.  The 
GoSS is at least aware of and committed to tackling these 
issues.  However, the overall thinness of technical expertise 
in the civil service and the political resistance that is 
likely to face reforms such payroll-clean-up, will pose 
obstacles to implementation that will be difficult to 
overcome. 
POWERS