VZCZCXRO3200
OO RUEHROV RUEHTRO
DE RUEHKH #0033/01 0080850
ZNR UUUUU ZZH
O 080850Z JAN 10
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4988
INFO RUCNIAD/IGAD COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 02 KHARTOUM 000033 
 
NSC FOR MGAVIN, LETIM 
DEPT PLS PASS USAID FOR AFR/SUDAN 
ADDIS ABABA ALSO FOR USAU 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PINR PGOV KDEM ENRG ECON SU
 
SUBJECT:  GOSS BUDGET: FISCAL CRISIS OVER BUT CORRUPTION LOOMS 
 
¶1.  (SBU) Summary: There are precious few bright spots in the 
Government of Southern Sudan's (GoSS) 2010 draft budget.  On the 
revenue side, the GoSS remains overly reliant on oil, deriving 98 
percent of its income from oil transfers.  Concerning expenditures, 
the GoSS, as in the past, plans to spend the majority of its 
resources on salaries (49 percent) and operating expenses (30 
percent), leaving capital expenditures significantly under resourced 
at only 21 percent of the budget. The capital budget and outstanding 
liabilities for the Sudan People's Liberation Army (SPLA) remain off 
the books. Extra-budgetary contracts have been deferred to out-years 
and continue to threaten the entire budget.  Senior GoSS officials 
have complained that they are not able to exercise effective 
oversight over the budget and the specter of corruption looms over 
all. End Summary. 
 
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FY 2009 - Overspending and Shortchanging 
---------------------------------------- 
 
¶2.  (U) As of September 2009, provisional income for the GoSS was 
SDG 2.8 billion, putting the government on schedule to meet its 
projected full year income of SDG 3.6 billion and signaling a clear 
end to the fiscal crisis.  This represents a dramatic improvement in 
resources as earlier in the year the government was only forecast to 
receive 80 percent of the last budgeted revenue due to the global 
financial crisis and the related sharp downturn in oil prices. 
 
¶3.  (U) The government adopted a strict austerity plan during the 
fiscal crisis.  However, as soon as revenues rebounded, the GoSS 
began to overspend.  Moreover, there was no transparent allocation 
of funds when revenues became available.  As a result, powerful 
ministries received more than was budgeted for them, while weaker 
ministries were significantly short-changed. 
 
¶4.  (SBU) Ministries and agencies that received significantly more 
than was budgeted for them include the Ministry of Finance (1,109 
percent - reflecting the payment of grain contracts), the 
President's Office (243 percent), the Ministry for Presidential 
Affairs (224 percent), the Ministry of Cabinet Affairs (209 percent) 
and the War Veterans Commission (495 percent).  At the other end of 
the spectrum, ministries and agencies that received significantly 
less than their budget allocations include the Auditor General (35 
percent), Ministry of Water and Irrigation (27 percent), Ministry of 
Animal Resources and Fisheries (36 percent), the Disarmament 
Demobilization and Reconciliation (DDR) Commission (17 percent), the 
Southern Sudan Relief and Rehabilitation Commission (SSRC) (10 
percent) and War Disabled Widows and Orphans Commission (10 
percent).  (Note: Percentages indicate share of what they should 
have received by end September.) 
 
------------------------------------ 
2010 Budget --- Missed Opportunities 
------------------------------------ 
 
¶4.  (SBU) In 2010, revenues are projected to increase 24 percent to 
a total of SDG 4.5 billion.  The budget, which is 98 percent reliant 
on oil revenue, assumes an oil price of USD 60, and a drawdown of 
all oil revenue stabilization account (ORSA) reserves. 
Inexplicably, non-oil income is projected at a mere SDG 101 million, 
which is less than was budgeted and less than what was realized in 
¶2009.  With its improved revenue, the GoSS plans to increase 
expenditures by 876 million SDG, allocated almost entirely to more 
spending on salaries and operating costs, continuing a trend of 
overinvestment on recurrent costs and underinvestment in capital and 
development. 
 
¶5.  (SBU) Roughly 1 in every 5 households in Southern Sudan receives 
a government salary and salaries account for 49 percent of the 2010 
budget.  Expenditures on salaries increased in absolute terms 
showing that the public sector reform and right sizing efforts are 
not yet translating into budgetary space that can be allocated for 
other expenditures, such as capital and development. 
 
¶6.  (SBU) The president's office budget includes a SDG 43 million 
allocation for the President for discretionary "donations", four 
times greater than last year's budget.  The legislative assembly 
includes SDG 135 million for the Constituency Development Fund 
(CDF), which can be spent at the discretion of Members of Parliament 
and includes a generous allowance for gratuities.  Some MPs utilized 
their CDF allocation last year for beneficial projects within their 
constituencies.  However, overall, many MPs lack the technical 
capacity to manage such a program. 
 
-------------------------------- 
2010 Budget - A Few Bright Spots 
 
KHARTOUM 00000033  002 OF 002 
 
 
-------------------------------- 
 
¶7.  (SBU) In support of the 2008 commitment for increased 
decentralization, the budget doubles the allocation at the county 
level from SDG 20 million to SDG 40 million. This represents an 
important step towards greater decentralization.  For the first 
time, there is also an allocation of SDG 20 million for a Pension 
Fund in support of the pending passage of the Pensions Bill that 
will hopefully allow the GOSS to expedite its public service reform 
and right-sizing efforts.  It is expected that this social safety 
net will largely benefit SPLA war veterans over the short to medium 
term. 
 
------------------------------- 
Extra Contracts Threaten Budget 
------------------------------- 
 
¶8.  (SBU) The 2010 budget states that the GoSS has SDG 3.8 billion 
in contractual obligations, which it intends to gradually tackle, 
paying SDG 555 million in 2010, SDG 1.8 billion in 2011 and SDG 704 
million in 2012.  However, these reported contractual obligations do 
not include several important liabilities, in particular, SPLA 
contracts as well as those relating to the infamous 2008 dura 
(grain) scandal. 
 
¶9.  (SBU) The GoSS ostensibly owes SDG 6.26 billion for grain 
contracts. This is of course more than its entire expected revenue 
stream of SDG 4.5 billion. However, much of these grains were never 
delivered and the GoSS froze payment on these contracts in 2009. 
According to the Minister of Finance, the GoSS has reviewed these 
contracts and estimates that SDG 1.8 billion of these obligations 
are legitimate and in 2010, the GoSS has allocated SDG 50 million 
against the grain contracts.  However, we have not seen the last of 
the grain scandal yet.  The GoSS has presented its findings from its 
investigation into the matter to the Council of Ministers but has 
yet to make the information publicly available.  The government is 
supposed to present the report to the SSLA this legislative session. 
 
 
------------------------------------------ 
Corruption and Lack of Effective Oversight 
------------------------------------------ 
 
¶10.  (SBU) Members of the South Sudan Legislative Assembly (SSLA) 
have complained that "real power" continues to rest in the executive 
branch and that they are unable to exercise effective oversight over 
government spending.  Even within the executive branch, as noted 
above, powerful ministries received more than was budgeted for them. 
  We continue to receive reports of new/new contracts being signed 
by individual ministers, notwithstanding the tighter regulations put 
in place following the grain scandal. 
 
¶11.  (SBU) For example, the budget includes payment for a SDG 137 
million contract for the police, signed by the Minister of Internal 
Affairs as opposed to the Minister of Finance.  When questioned 
about this matter during the Council of Ministers, the Minister of 
Internal Affairs reportedly said that he had received verbal 
approval from the Minister of Finance to conclude the contract. 
Perhaps more disturbing, however, is the fact that the contracted 
goods - uniforms, boots, and other supplies - have not arrived, 
according to several sources.  Sources complained that even when 
issues such as the police contract are publicly raised, there is no 
accountability. 
 
¶12. (SBU) On a few occasions, responsible individuals have been 
removed from their duties.  However, more often than not, business 
continues as usual.  In the waning weeks of 2009, rumors abounded 
that the Government was "getting serious" about tackling corruption 
and that those guilty of misappropriation of funds would be required 
to either pay back the monies or go to jail.  We have yet to see any 
evidence of this resolve. 
 
WHITEHEAD