IMF Briefs on Sudan's 2007 Budget

UNCLAS SECTION 01 OF 02 KHARTOUM 002738

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV IMF SU
SUBJECT: IMF Briefs on Sudan's 2007 Budget


1. Summary: Visiting IMF officials recently briefed the
international community on Sudan's national budget for 2007.
Sudan's macroeconomic indicators are sound, with inflation
stabilizing and growth continuing, although statistics remain
unreliable. Further work, however, is needed in the areas of tax
policy and data transparency. Fiscal restraint and monitoring
growth in monetary supply remain important. The 2007 budget is
ambitious, and projects a year-on-year inflation rate of 12 percent
and a real growth rate of 12 percent; the oil sector is expected to
expand by 60 percent during the year. The Government of Sudan
values its economic gains of the past few years, and continues to
work with the IMF to consolidate this success. End Summary.


2. On November 13, IMF Mission Chief for Sudan Enrique Gelbard
briefed representatives of the international community on Sudan's
national budget for FY 2007. Gelbard noted that Sudan had
participated in a Staff Monitored Program (SMP) for several years;
the IMF is "cautiously optimistic" that the Government of Sudan is
committed to macroeconomic stability and fiscal transparency. His
main points were as follows:

-- Sudan's macroeconomic indicators were sound since 2000, with
inflation stabilizing and growth continuing. Nonetheless, economic
data remained unreliable, although the Government is committed to
improving both the quality of statistics available and transparency;


-- While inflation remains in single digits, it did increase late in
2006 due to administered price increases for fuel and transport. On
a 12-month basis, the year will end with an inflation rate of
roughly 13 percent. There is still room to contain inflation, if
Sudan tightens fiscal and monetary policy;

-- Sudan would benefit from policy support for its fiscal regime.
Productivity increases during 2006 were lower than anticipated;
further action is needed on tax policy. Although revenues are
increasing, the rate of increase is slowing, with exemptions eroding
its base;

-- Indicators take time to respond to policy adjustments;
nonetheless, Sudan needs to exercise fiscal restraint and monitor
monetary growth closely;

-- The 2007 draft budget is ambitious; it includes scaling down
revenue exemptions and rationalizing its taxation system, which is
more complex than need be at present, with multiple grades. The IMF
provided technical assistance in administering tax reforms; the
government has endorsed these concepts and is implementing them
gradually.

-- For 2007, the Government projects an average monthly inflation
rate of 6.8 percent, with an end of period basis being approximately
12 percent. Although the Government seeks a lower rate, this will
require a series of adjustments. Real growth for 2006 is projected
to be 11 percent; the rate for 2007 is projected to be 12 percent.
The oil sector will see a 46 percent expansion in 2007 due to
increasing production (from 356,000 bpd to 520,000 bpd) and
estimated high market prices. The 2006 weighted production was
356,000 barrels per day; this is projected to increase to 520,000
for 2007.

-- The Government's spending plans for 2007 are ambitious,
especially in the area of capital spending. The IMF notes that the
Government should avoid incurring a non-oil fiscal deficit.

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Gov't Values Gains; is Receptive to IMF Advice
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3. According to Gelbard, the Sudanese government values the
macroeconomic gains of the past several years, and is receptive to
the recommendations of the IMF team. Many in the Government want to
reform more, although there are political restraints as to how far
and how fast further reforms can be made.

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Q and A Session Raises further Budget Information
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4. In response to questions posed, Gelbard confirmed that the 2007
national budget has line items for the East and for Darfur in
keeping with the Eastern Sudan and Darfur Peace Agreements. Asked
about central bank reforms, he noted that the Comprehensive Peace
Agreement (CPA) called for a central, federal banking facility with
a Southern branch that was fully related. He added that Sudan is
seen as having a single banking system with one currency. The IMF
is providing technical assistance to the central bank, including its
Southern portion. In response to a question regarding budgetary
support for pro-poor programs, Gelbard said that decreasing the
petroleum subsidy was not an anti-poor policy, provided savings were
used for pro-poor spending, such as on public transport subsidies.


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