VZCZCXRO1620
PP RUEHROV
DE RUEHKH #2001/01 3480729
ZNR UUUUU ZZH
P 140729Z DEC 07
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 9562
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 03 KHARTOUM 002001 
 
SIPDIS 
 
DEPT FOR AF/SPG, EEB/IFD/ODF 
DEPT PLS PASS USAID FOR AFR/SUDAN 
DEPT PLS PASS TREASURY FOR OIA AND USED WORLD BANK 
 
SENSITIVE 
SIPDIS 
 
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. 
 
---------------------------------------- 
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. 
 
---------------- 
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. 
 
----------- 
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. 
 
------- 
Comment 
------- 
 
¶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