Identifier
Created
Classification
Origin
06KHARTOUM1744
2006-07-20 12:57:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Khartoum
Cable title:  

MAJOR SHORTFALL IN GOSS REVENUES LOOMS

Tags:  EFIN ECON PGOV SU 
pdf how-to read a cable
VZCZCXRO6276
RR RUEHROV
DE RUEHKH #1744/01 2011257
ZNR UUUUU ZZH
R 201257Z JUL 06
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC 3809
INFO RUCNIAD/IGAD COLLECTIVE
UNCLAS SECTION 01 OF 02 KHARTOUM 001744 

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON PGOV SU
SUBJECT: MAJOR SHORTFALL IN GOSS REVENUES LOOMS

REF: Khartoum 1168

UNCLAS SECTION 01 OF 02 KHARTOUM 001744

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON PGOV SU
SUBJECT: MAJOR SHORTFALL IN GOSS REVENUES LOOMS

REF: Khartoum 1168


1. (SBU) Summary: Government of South Sudan (GoSS) revenues from
petroleum transfers by Khartoum are falling far short of the
projections used for the 2006 budget, leaving significant funding
gaps. The proximate cause appears to be World Bank reliance on
projected numbers for transfers contained in Government of National
Unity (GNU) budget projections. Holdover funds from last year and
the lack of capacity for the GoSS to spend the money may help close
the gap. However, the ability of the GoSS budget to fund the full
range of its priorities is still uncertain, and recriminations have
already begun. End summary.

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Missing the Revenue Mark
--------------


2. (SBU) Conversations with local staff of the World Bank (IBRD),
various technical experts, and GoSS ministers have revealed that the
revenue figures upon which the GoSS formulated its 2006 budget may
be significantly off the mark. The GoSS was expecting revenues of
USD 1.3 billion, not including Multi-Donor Trust Fund (MDTF)
disbursements and other donor flows, but monthly transfers to date
from the GoNU indicate that the figure could be only half that
amount.


3. (SBU) Experts from BearingPoint, the contractor that helped the
GoSS Ministry of Finance prepare the budget, blame IBRD methodology.
The IBRD insisted that the GoSS use the figure of USD 1.3 billion
from the 2006 GNU budget, because using a lower figure would be a
disincentive for full transfer of this amount. Bearing Point said
that they, and others, pushed for using a figure based on average
monthly transfers to date, approximately USD 60 million/month. The
more conservative approach also called for a two-tier budget in
which top priorities were funded first, with additional items funded
when and if money became available. The same school of thought
counseled a sizable reserve as well to cushion any unexpected
shortfalls. Ultimately, the IBRD approach prevailed.

--------------
The End Results
--------------


4. (SBU) The Southern Sudanese Legislative Assembly's (SSLA) final
approval of the budget brought surprises of its own (reftel). The
SSLA tacked on a last minute amendment that upped the budget for the

Sudanese Peoples' Liberation Army from fifteen to forty percent of
the budget, an increase from USD 200 million to USD 546 million.
This effectively eliminated the reserves. The final bill also
abrogated the concept of "top-down" budgeting in favor of a
decentralized "bottom-up" approach with increased input from the
states. This change of focus has further complicated the budgetary
picture. Should transfer funds come to as little as fifty percent
of the original projection, this would make existing budget
allocations largely meaningless.


5. (SBU) The implications for GoSS operations are significant.
Salaries are protected so a shortfall would translate into reduced
outlays for development and social priorities for a population
increasingly unhappy with what it perceives as a lack of delivery on
the part of the GoSS and international community. The GoSS is
currently hiring at the director and sub-director level, but
continued shortfalls would also prevent the ministries from staffing
up to the levels required to adequately support future delivery of
services.

--------------
Recrimination Ahead
--------------


6. (SBU) The blame game has already begun at various levels.
Senior GoSS officials, including Salva Kiir, have publicly
criticized the IBRD for being overly bureaucratic and slowing down
MDTF disbursements for roads and other development projects. MDTF
officials say that much of criticism was based on misinformation and
they are in the process of smoothing things over. However, if such
a significant shortfall materializes, there will likely be new
recriminations and sharp differences of opinion in technical circles
over how the revenue and budget projections came in so high above
the mark. One of the most problematic areas of CPA implementation,
for the GoSS at least, has been the perceived lack of transparency
by the GNU Ministry of Energy and Mining on production, contract,
and auction figures. The apparent discrepancy between initial
projections and the actual transfer amount can only exacerbate this
debate.

--------------
Not Necessarily the Titanic
--------------


7. (SBU) An expatriate expert working with the GoSS Ministry of
Finance and a consultant on financial economics have told us that

KHARTOUM 00001744 002 OF 002


while the budget situation is "a mess," the final outlook remains
murky, but not necessarily as gloomy as it might seem. At the end
of December 2005, the GoSS reportedly had USD 500 million in
holdover funds that it had been unable to spend, although this money
may have been earmarked for the MDTF. Although the GoSS is expected
to expend available revenues more rapidly as the ministries staff
up, the budget burn rate could continue to lag. Transfers from the
GNU may also increase as additional oil wells and pipelines come
on-line, further closing the gap and addressing some of the issues
above. In sum, the final budget panorama is not yet painted.

STEINFELD