Fiscal Federalism Comes to Sudan

UNCLAS SECTION 01 OF 02 KHARTOUM 000166

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E.O. 12958: N/A
TAGS: EFIN EAID ECON PREL SU
SUBJECT: Fiscal Federalism Comes to Sudan



1. (U) Summary: The Fiscal and Financial Allocation and Monitoring
Commission (FFAMC),created under the CPA, has the responsibility to
establish an entirely new, decentralized, federal, financial system.
The first transfers to the 25 state governments under this new
fiscal federalism are to take place in February, with monthly
allocations thereafter. The head of the FFAMC described the need to
build public awareness and understanding of the new system, as well
as the need to build capacity at the state and local levels. The
FFAMC faces challenges due to slow delivery of donor pledges,
limited government support, and its own need for training. End
Summary

Revenue Sharing Formula
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2. (U) The Chairman of the Fiscal and Financial Allocation
Commission (FFAMC),Ibrahim Moneim Mansour, met with Econ Officer
January 30 and provided an overview of the new fiscal system being
created for Sudan. Mansour terms the new model "fiscal federalism."
The Comprehensive Peace Agreement (CPA) mandated the
decentralization of government. In order to implement
decentralization a new mechanism to distribute revenues to the 25
state governments is being created. The new system applies to
funds defined as "National Revenues" (oil revenues are treated
separately). The basic formula is 55.2% of National Revenues are
allocated to the central government, and the remaining 45.8% to the
25 states. The portion going to the states has two parts: 40% of
the total is divided equally among the states. The remaining 60% is
allocated using a formula based on population of the state, number
of students, number of hospital beds, and efforts to raise revenue
locally. This allocation reflects the states' obligation to provide
for basic education and health services. (Comment: Under this new
system, the equitable distribution of funds depends on an accurate
census. While Mansour did not discuss impact of the census on the
fiscal system, it is yet another linkage between the census and the
long term success of the CPA. End comment.)

Fiscal Federalism Starts in February
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3. (U) The original intention was that the transfers to the states
begin with the new fiscal year, that is, January 1, 2007. However,
the Chairman said that due to the eleven days of holidays in late
December and early January, the initial transfers were delayed and
will now take place in February. The intention is that transfers
are to be made directly to the states, but in 2007, the transfers to
the ten Southern states will be made as a lump sum to the GOSS.
Beginning in 2008, all transfers will be made directly to each
state. Most states have accounts at the Central Bank of Sudan, so
the transfers will be made using these accounts. Each state will be
advised at the beginning of the year on the amount of the monthly
transfer, so that planning can be done.


4. (U) Chairman Mansour described several weaknesses that the FFMAC
has identified and is seeking to address. One serious weakness is
the lack of capacity at the local (county) level. FFMAC will make
transfers to the states, and the states are expected to see that the
appropriate transfers are made to the county level. The lack of
capacity at the county level, however, causes concern for the FFAMC
as to whether the funds will reach the programs for which they are
budgeted. Mansour noted that there are considerable differences
between states in their capacity to effectively utilize their
allocations. He said that he is also concerned that some states
will spend money carelessly early in the year, then expect the
central government to bail them out. He has warned the states that
this will not happen, and that they must plan on the basis of their
monthly allocations.


5. (U) Mansour says that the FFAMC itself is hard pressed to do its
work. It took the Commission over a year just to get its office up
and running. The Commission staff needs more training, more travel
funds and more vehicles. The government has furnished only one used
pickup and one used SUV to the commission. Mansour complained that
the World Bank and the Multidonor Trust Fund mechanism have been
slow to deliver assistance. Bilateral donors also have been slow to
help, although he said Norway was the exception. More money is
needed for publicity and public education. There is a need to
educate officials in the state governments on the operation of the
new fiscal system, as well as a need to communicate to the general
public the work of the FFAMC, fiscal federalism, and the CPA
process. The Chairman said that he would like to have his staff
travel to other federal countries, including Nigeria, South Africa,
and Australia, but the commission budget for such travel is only
$16,000.

Coordination with AEC desirable
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6. (U) The shift of resources to the state governments is a

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significant change in power in Sudan's political system.
The Chairman is concerned the slow pace in building public awareness
and understanding of the new system could impede its success.
Mansour said that he would like to improve communication with the
Wealth Sharing working group of the AEC as part of the effort to
improve understanding of the emerging fiscal federalism. Embassy
will try to arrange such a meeting in the next few days.

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