UNCLAS SECTION 01 OF 02 KHARTOUM 001824

DEPT FOR AF/SPG, EEB/IFD/OMA AND EEB/IFD/ODF
NSC FOR HUDSON AND PITTMAN
DEPT PLS PASS USAID FOR AFR/SUDAN
DEPT PLS PASS TREASURY FOR OIA, USED IMF AND USED WORLD BANK
ADDIS ABABA ALSO FOR USAU

SENSITIVE
SIPDIS

E.O.12958: N/A
TAGS: PREL PGOV EFIN ECON EAID SOCI SU
SUBJECT: FY 2009 GOVERNMENT OF NATIONAL UNITY BUDGET: REVENUES
DOWN, DEFICIT WAY UP

REF: KHARTOUM 1718


1. (U) SUMMARY. Sudan's FY 2009 budget reflects the impact of
falling global oil prices. Revenues are projected to decline about
15 percent, to 18.4 billion Sudanese Pounds (SDG), which is entirely
the result of dropping oil revenues. Total expenditures are to
remain unchanged from FY 2008 at approximately SDG 26 billion, but
despite this, transfers to the Government of South Sudan (GoSS) and
to regional states will fall 14 percent (from SDG 10.8 billion to
9.3 billion.) The fiscal deficit will almost double to 6.2 percent
of GDP. The budget is based on forecasted oil revenues that already
may be too optimistic, and it may have to be revised in the new
year. Septel will provide IMF/World Bank analysis of the broader
impact the global recession is having on Sudan's macro-economic
situation. END SUMMARY.


2. (U) On December 1, 2008 Sudan's National Assembly approved the
Government of National Unity's (GNU) FY 2009 budget (January
1-December 31, 2009). The FY '09 Budget projects total revenues of
SDG 18.37 billion (approx. USD 8.35 billion), expenditures of SDG
25.8 billion (USD 11.73 billion), and a net deficit of SDG 6.7
billion (6.2 percent of the country's GDP,) an 81 percent increase
from FY 2008. 55 percent of the deficit is to be financed by
foreign borrowing and 45 percent through domestic borrowing. Despite
criticism by opposition parties, the National Congress Party (NCP)
succeeded in getting approval of the FY 2009 budget using a
party-line majority vote.

Policy Objectives
--------------

3. (U) In his November 17 message introducing the FY 2009 budget to
the National Assembly, Minister of Finance and National Economy Dr.
Awad Ahmed Al-Jaz stated that the FY 2009 budget will meet the
following policy objectives:

- The budget aims at maintaining a positive economic growth rate of
8 percent;
- Maintaining an annual inflation rate at 8 percent, with the
flexibility and stabilization of the national currency exchange
rate;
- The continued decoupling of Sudan's economy from the U.S. dollar
and conversion to other currencies;
- Establishing new Comprehensive Peace Agreement (CPA) commissions;
South Sudan Referendum Commission.
- The budget will not increase taxes that will affect the ordinary
citizens; it will continue to subsidize electricity.
- Liquidation of the government's shares in public companies.
- To compensate for the sharp decline in oil prices, the budget will
raise duties on imported vehicles and indirect taxes on
telecommunication services.

Summary of the 2009 Budget
--------------

4. (U) (Figures in billions of Sudanese Pounds at the exchange rate
of U.S. $1:2.2 SDG)

Projetd Total FY 2009 Revenue SDG 18.37 billion

Of which:

Taxes SDG 8.15 billion
Grants SDG 0.85 billion
Oil revenues SDG 7.94 billion
Non-oil revenues SGD 1.48 billion

Total FY 2009 Expenditures SDG 25.8 billion

Of which:

Wages/salaries/insurance SDG 6.85 billion
Procurement of goods and services SDG 2.46 billion
Subsidies SDG 0.29 billion
Grants SDG 9.53 billion

Transfers to:
Northern States SDG 3.45 billion
GOSS SDG 3.23 billion


5. (U) The FY 2009 budget allocates SDG 108,247.887 for the various
CPA Commissions and the post-conflict construction/rehabilitation
funds:

-CPA Commissions = SDG 107,023.487
million
-Darfur Development/Rehabilitation = SDG 484 million

KHARTOUM 00001824 002 OF 002


-East Fund = SDG 374 million
-Unity Fund = SDG 366.4 million

Revenues Take a Hit
--------------

6. (SBU) According to the World Bank, the projected FY 2009
revenues of SDG 18.4 billion are a 15 percent drop from the previous
year (SDG 22 billion). This is the result of a projected 30 percent
decline in oil revenues (from SDG 11.3 billion in FY 2008 to SDG 7.9
billion.) At SDG 10.4 billion, total non-oil revenues will remain
virtually unchanged from FY '08.


7. (U) Dr. Babiker M. Tom, Chair of the Economic Committee oft the
National Assembly, expects that the FY 2009 budget may have to be
revised due to the successive decrease in oil prices. The FY 2009
budget is based on oil prices of $50/barrel for blocks 1, 2 and
$30/barrel for blocks 3/7. Sudan sells its oil at a discount from
the benchmark price of Brent crude, which already is below
$50/barrel.

Total Expenditures Steady, While Deficit Climbs Sharply
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------

8. (U) While total GoS expenditures will remain unchanged from FY
'08 at SDG 26 billion, Government of National Unity (GNU)
expenditures will increase by 12 percent, to SDG 17.2 billion.
Simultaneously, however, transfers to the GoSS and to the 16
northern state governments will fall to SDG 6.68 billion (-14
percent). The FY' 09 net deficit will balloon to SDG 8.5 billion,
or 81 percent larger that FY '08.

Security Trumps Peace Dividends
--------------

9. (U) Suliman Hamid, from the Sudan Communist Party and the chair
of the Democratic National Alliance (NDA) Parliamentary bloc,
criticized the budget. He noted that the GOS continues to heavily
fund its security services at the expense of development and
post-conflict reconstruction spending. He stated that the
government's gross expenditure has increased from SDG 26 billion in
FY 2008 to SDG 26.91 billion, with gross deficit of SDG 8.54
billion. The defense and security budget has increased by 40% from
SDG 4.8 billion in FY 2008 to SDG 6.7 billion in FY 2009. Defense
and security expenditures are 15 times, 13 times, and 67 times more
than that allocated for health, education and services respectively.


Comment
--------------

10. (SBU) The FY '09 budget reflects the difficult choices facing
Sudan as its oil bonanza ends (reftel). Finance Minister Al-Jaz is
considered a capable administrator, and he can be expected to
execute the budget as well as is possible under the circumstances.
But with the sharp drop in GoS revenues, his freedom to maneuver is
limited. With oil prices already below the estimates on which the
budget is based, it may require some significant revision in the
coming months. Faced with multiple challenges in the coming year,
the National Congress Party will find one of its key tools in
maintaining control - buying domestic support with generous largesse
- severely constrained.

ASQUINO