VZCZCXRO7673
OO RUEHROV RUEHTRO
DE RUEHKH #0224/01 0510845
ZNR UUUUU ZZH
O 200845Z FEB 09
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3004
INFO RUCNIAD/IGAD COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHAD/AMEMBASSY ABU DHABI 0039
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 02 KHARTOUM 000224 
 
DEPT FOR AF A A/S CARTER, AF/SPG, AF/E, EEB/IFD 
DEPT PLS PASS USAID FOR AFR/SUDAN 
DEPT PLS PASS TREASURY FOR OIA, USED IMF, USED WORLD BANK 
ADDIS ABABA ALSO FOR USAU 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PINS ECON EAID EFIN SU AE
SUBJECT: GNU CONTEMPLATES DIRECT BUDGET SUPPORT TO GOSS 
 
REF:  KHARTOUM 185 
 
¶1. (SBU) SUMMARY: According to GOSS Minister for Finance Kuol Athian 
Mawien, GNU Finance Minister Awad al Jaz has endorsed a draft 
proposal for direct budget support to the Government of Southern 
Sudan following two days of negotiations with his GOSS ministerial 
counterpart and the Fiscal Financial Allocations and Monitoring 
Commission (FFAMC) Chairman Mohammed Osman Ibrahim.  Because a final 
decision on this will not be forthcoming from President Bashir until 
the end of February, GOSS President Salva Kiir is planning to travel 
to the UAE to seek bilateral financing via development loans, while 
the GOSS continues to pursue commercial loan packages from banks in 
the region, including Citibank.  One immediate dividend from the 
GNU/GOSS economic talks: the GNU has released US$100 million in 
arrears to the South, enabling Juba to issue January back-pay to the 
totality of the region's civil service.  The GOSS does not appear to 
have begun serious consideration of austerity measures, which is 
troubling. END SUMMARY. 
 
Budget Support for the GOSS 
- - - - - - - - - - - - - - 
¶2. (SBU) GOSS Minister for Finance Mawien met with ConGen PolOff and 
Acting USAID Southern Sudan Director February 18 to discuss the GOSS 
budget crisis and review options through which a USAID-facilitated 
"Fiscal Forum" could assist the GOSS in identifying and implementing 
various austerity measures.  Mawien said he had recently concluded 
negotiations with Government of National Unity (GNU) Finance 
Minister Awad al Jaz and the Fiscal Financial Allocations and 
Monitoring Commission (FFAMC) Chairman Chairman Dr. Mohammed Osman 
Ibrahim to secure Khartoum's release of 2008 arrears owed to Juba 
(GNU Finance Ministry officials confirmed the same story to CDA 
Fernandez on February 19).  The GNU presently owes Juba an estimated 
US$265 million in revenue transfers.  Mawien successfully persuaded 
Al Jaz to release US$100 million of that total on February 16, 
enough to cover all of the South's civil service salaries for one 
month. With projected oil revenues able to meet only eight percent 
of the February GOSS budget (reftel), Juba needs every last cent it 
can get. 
 
¶3. (SBU) Al Jaz refused to release the remaining balance owed to 
Juba, citing the GNU's own economic woes.  He claimed that he could 
make three disbursements of US$50 million per month starting in 
February. Mawien retorted that the offer was insufficient (these 
arrears date to the 2008 fiscal year) and countered that the NCP is 
undermining its electoral chances if it does not act to swiftly 
assist Juba during its time of need. "The average Southerner will 
not understand that this is a global economic crisis.  They will 
assume it is a conspiracy by Khartoum, and that the NCP is acting to 
sink the SPLM," Mawien told him.  Not only would it undermine the 
CPA and cement the outcome of the 2011 Referendum, he continued, but 
also it would translate into a readily-understood campaign slogan 
during the elections.  According to Mawien, the FFAMC Chairman was 
particularly swayed by this argument, and responded favorably to 
Mawien's pitch that the GNU provide direct budget support to Juba 
for a three-month period "as a means of making unity attractive." 
 
¶4. (SBU) The GOSS Finance Minister claimed a reluctant Al Jaz was 
repeatedly steered back to the possibility of direct budget support 
by FFAMC Chairman Ibrahim, and that al Jaz eventually agreed to 
draft a letter to President Bashir urging that a decision on this 
budget support proposal be made during the next meeting of the GNU 
Presidency. The deal would cover GOSS payroll needs for a 
three-month period.  (NOTE: The next GNU Presidency meeting, slated 
for the end of February, is set for Juba - a first in the history of 
post-CPA Sudan. END NOTE.) 
 
¶5. (SBU) Mawien said that upon his return to Juba he briefed Kiir on 
his success. Although the GOSS President was relieved to hear of Al 
Jaz's support, he directed Mawien to continue seeking the release of 
the remaining arrears in advance of Kiir's next meeting with Bashir 
and VP Taha, so as to unclutter an already full agenda on CPA 
implementation issues (to include border demarcation, census, forex 
stand-off, and Abyei.) 
 
Possible UAE Loans 
- - - - - - - - - 
¶6. (SBU) Although cautiously optimistic about NCP willingness to 
follow-through with direct budget support despite Al Jaz's notorious 
back-peddling on past commitments to the SPLM, Mawien said he and 
Kiir plan to travel to the United Arab Emirates in late March to 
follow-up on a yet-unfulfilled 2007 commitment by Abu Dhabi to 
provide a robust package of development assistance loans for the 
South.  "If we do not succeed in that effort, we will attempt to 
secure commercial assistance," he added in response to queries about 
 
KHARTOUM 00000224  002 OF 002 
 
 
potential GOSS austerity measures. 
 
Salaries Before Development 
- - - - - - - - - - - - - - 
¶7.  (SBU) While it remained unspoken, Mawien's emphasis on loans for 
the development sector amplified past comments by GOSS officials 
indicating that Juba may shift what funding it now has away from 
development initiatives in an attempt to meet payroll costs instead. 
The Minister repeatedly stressed during the meeting that he would 
like to see as many donor projects completed as possible in 2009, 
presumably to make up for wHat the GOSS will no longer be able to do 
on its own.  Discussions were already occurring, he said, with the 
Multi Donor Trust Fund Oversight Committee to expedite Phase Two 
funds disbursement. (NOTE: Joint Donor Office Head Michael Elmquist 
was pressed by MDTF member states on February 12 to front-load donor 
assistance in order to give the GOSS time to accrue the funds 
necessary for cost-sharing without delaying project implementation. 
Currently, the MDTF does not generally release funds unless Juba 
meets two-thirds of a project's cost up front. END NOTE.) 
 
ICC Indictment Provides SPLM No Leverage 
- - - - - - - - - - - - - - - - - - - - - 
¶8. (SBU) Mawien cautioned that the probable, forthcoming ICC 
indictment of President Bashir was unlikely to generate an avenue of 
opportunity for the SPLM's engagement with the NCP.  The NCP 
continues to pressure the SPLM to defend Bashir with the 
international community, and views SPLM demurrals on the issue as 
antagonistic.  "The NCP, like many in the international community, 
believes that the South has already disappeared into independence, 
and so they have abandoned commitments to making unity attractive," 
Mawien lamented. 
 
COMMENT 
- - - - 
¶9. (SBU) While GNU consideration of direct budget support to the 
South is interesting and will provide some temporary relief if 
implemented, Juba's emphasis on loans, rather than on the 
implementation of austerity measures, is troubling.  Seven 
ministries overspent their budgets by an average of 224 percent in 
the first half of the 2008 fiscal year.  While the GOSS has made 
commendable advances in its ability to track its budget since its 
establishment in 2005 (largely as a result of advisory assistance 
provided by USAID,) Mawien does not yet have a firm plan for curbing 
rampant off-budget spending.  Indeed, Mawien (and by extension Kiir) 
seem most focused on cobbling together a series of loans that help 
them survive month-to-month versus addressing the more systemic 
fiscal issues that have placed Juba in this crisis.  Since the major 
cause of the crisis, the sharp decline in oil revenues, will not be 
changing any time soon, the GOSS needs to do more than hope for a 
handout from Khartoum. The budget crisis will soon turn into a 
potentially explosive social crisis if the situation is not managed 
carefully.  We will urge the GOSS to look at ways of cutting-back 
spending, to include careful salary cuts, rather than driving itself 
deeply into debt and racking up salary arrears, which could lead to 
an erosion in confidence in the GOSS and provoke greater instability 
in an already volatile South Sudan. 
 
FERNANDEZ