Identifier
Created
Classification
Origin
06KHARTOUM1927
2006-08-14 12:54:00
CONFIDENTIAL
Embassy Khartoum
Cable title:  

BUDGET SHORTFALL IN SUDAN

Tags:  EFIN EPET PGOV PREL SU 
pdf how-to read a cable
VZCZCXRO9689
PP RUEHROV
DE RUEHKH #1927 2261254
ZNY CCCCC ZZH
P 141254Z AUG 06
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 4135
INFO RUCNIAD/IGAD COLLECTIVE PRIORITY
C O N F I D E N T I A L KHARTOUM 001927 

SIPDIS

SIPDIS

FOR AF/SPG, EB/IFD/OMA, AND INR

E.O. 12958: DECL: 08/10/2011
TAGS: EFIN EPET PGOV PREL SU
SUBJECT: BUDGET SHORTFALL IN SUDAN


Classified By: P/E Chief E. Whitaker, Reason: Section 1.4 (b) and (d)

C O N F I D E N T I A L KHARTOUM 001927

SIPDIS

SIPDIS

FOR AF/SPG, EB/IFD/OMA, AND INR

E.O. 12958: DECL: 08/10/2011
TAGS: EFIN EPET PGOV PREL SU
SUBJECT: BUDGET SHORTFALL IN SUDAN


Classified By: P/E Chief E. Whitaker, Reason: Section 1.4 (b) and (d)


1. (C) Summary: Failure to achieve planned production levels
in petroleum output has created a budget shortfall for the
Khartoum government. The government is responding to the
financial crunch by borrowing, tapping the Oil Revenue
Stabilization Account, privatizing government companies,
deferring payment on construction projects, and selling oil
forward. Projections are that oil production will increase
by 200,000 barrels per day by the end of the year, but this
is open to question. End Summary.


2. (C) Professor Yagoub Ali Jangei (protect) of the
University of Khartoum School of Management Studies, met with
Pol/Econ Officer and Econ/Commercial Specialist on August 9.
Dr. Jangei is a advisor to the government budget committee.
He provided an overview of the economy, noting that exports
have increased from about $700 million in 1999 to $2.4
billion in 2005. Foreign direct investment has surged, with
$1.7 billion in 2005. Foreign exchange reserves are now
about $4 billion. In this rapidly growing economy, the
government budget has also mushroomed, going from about $1
billion in 2000 to $8.3 billion in 2006. As the budget
increased, the government also enjoyed something of a peace
dividend with the signing of the CPA, which reduced pressures
to grow military spending. Despite the growth in revenue,
however, the government now finds itself facing a budget
shortfall.

Oil Revenues Fall Short of Budget
--------------


3. (U) Jangei outlined the budget shortfall, noting that
revenues from oil, by far the largest source of income, have
not met projections despite high prices. The government's
budget for 2006 was based on oil production at 500,000
barrels per day. In fact, production has averaged closer to
300,000 bpd. Production of 200,000 bpd from new fields
scheduled to come on stream in late 2005 or early 2006 has
yet to commence. The increase in production is now expected
to come on line in late 2006.


4. (C) The government budget is based on a benchmark price of
$45 per barrel. Any amount realized above $45 is deposited
in the Oil Revenue Stabilization Account (ORSA),and is not
part of the budget. The 2006 budget projected revenue on the
assumption of oil production at 500,000 bpd at $45 per
barrel, so the recent high oil prices did not translate
directly into additional money for the budget. The shortfall
of 200,000 bpd results in a revenue shortfall of about $9
million per day.


5. (C) The government has initiated several responses to the
budget crunch. First, they drew down $100 million from the
ORSA, $50 million in the first quarter and $50 million in the
second quarter of 2006. Jangei said there are also plans to
sell shares in government-owned businesses, including Sudatel
(telecommunications). In addition, the government is
borrowing, both short term from banks and by issuing
government bonds. Jangei said that the government will be
deferring payment on construction projects to conserve funds
as well. And finally, he said that the government is
planning to sell oil forward, taking payment now to deliver
oil in January when the additional production of 200,000 bpd
is predicted to come on stream.

Other Economic Issues
--------------


6. (C) Turning to other economic issues, Jangei noted that
the government is planning a reduction in customs duties as a
step toward joining the WTO. Observing the concentration of
investment and growth in Khartoum, Jangei said that the
government is trying to pursue a policy of decentralization
and has increased transfers to state governments from
Sudanese Dinar 265 billion last year to SD 477 billion this
year. He stated that while human development indicators have
improved slightly in recent years, he finds it perplexing
that real development is not occurring as rapidly as it
should. He attributed this in part to corruption, but noted
that it is difficult to quantify corruption. Jangei said
that he would prefer to see U.S. investment in Sudan,
complaining that Chinese investment tends to bring in
second-rate technology and encourage corruption. Finally,
Jangei noted that the government wants to obtain HIPC status
in order to restructure and seek forgiveness from a portion
of its sovereign debt, but the Ministr of Finance and
National Eocnomy is pessimistic that this can be accomplished
soon.
HUME