Balancing the budget in South Sudan

July 25, 2006 (JUBA) — In one of the poorest regions in the world, emerging from a devastating 21-year civil war – where everything is a priority – deciding how to spend your money is never going to be easy.

The new Ministry of Finance of southern Sudan – faced with unpredictable funding, a nascent bureaucracy, and the popular expectation of rapid economic growth – has taken up the almost impossible task of trying to spend its money wisely in an institutional and economic near-vacuum.

The Comprehensive Peace Agreement (CPA), signed between the southern Sudan People’s Liberation Movement/Army (SPLM/A) and the ruling National Congress Party (NCP) on 9 January 2005, foresees the equal sharing of southern oil wealth between north and south and provides southern Sudan with a substantial source of income for reconstruction.

The size of the oil revenues, however, is determined by the national Ministry of Energy and Mining and the Ministry of Finance – both controlled by the NCP. Its unpredictability represents an important obstacle to sound economic planning in the south.

Lucca Deng, chief economic advisor to the Ministry of Finance in southern Sudan, told IRIN that revenue is forecast at US $100 million per month and budgets had been developed accordingly. The Ministry of Energy and Mining recently claimed that oil production had gone down, however, and the monthly oil income fluctuated between $70 million and $80 million, squeezing southern budgets.

“The south is just a recipient of the information [on oil revenues]. It is in no position to verify the validity of this information,” Deng observed. On average, the southern share of Sudan’s oil revenue amounts to $750 million a year and accounts for half the $1.3 billion budget of the government of southern Sudan (GOSS) for 2006.

Of the estimated $750 million, approximately $530 million is earmarked for the SPLM/A, he added, leaving relatively little money for other sectors and ministries.

Despite the budgetary constraints, several ministries had submitted budgets that were five times larger than their share, a regional observer said. Other ministries included the salaries of thousands of civil servants that had yet to be recruited. “Some of these budgets are more like ‘wish-lists’ than realistic budgets,” he said.

An additional drain on the southern budget is 75,000 government employees in the south who are still on the payroll in the north. Their salaries are being deducted from the monthly share of the oil revenues for the GOSS. According to the observer, many of them might be so-called ‘ghost-workers’, who are receiving a salary without performing their duties, but verification of who these people are and what they do is difficult.

Not surprisingly, the GOSS is trying to reduce these numbers. Given the lack of transparency, however, a wholesale reduction of the number of northern-appointed government workers might potentially cut out key health or education officials and affect the fledgling delivery of essential services in the south.

“The GOSS is developing plans to cut the number of health workers of the Ministry of Health in Malakal by 75 percent,” an analyst said. “If done in a rush, this might severely affect the health-care provision in the town.”

Spending the money

With no formal state institutions and most of its economy destroyed, finding ways to spend the remaining money constructively is proving to be a challenge.

“It [the GOSS] has some difficulty in disbursing all the funds it has, which is a fundamental constraint. And it still faces constraints in terms of its payroll systems, procurement systems and other financial systems in terms of treasury functions, etcetera,” said David Gressly, the UN Deputy Resident and Humanitarian Coordinator for southern Sudan.

“So those are core functions that all need to be put in place as quickly as possible in order to make maximum use of the oil revenues already coming in.”

In addition, there are still very few people to execute the policies being developed by the new government. Various bilateral donors, the World Bank and UN agencies are giving technical assistance to the federal ministries to allow them to carry out core administrative functions.

“This assistance needs to be well coordinated, to avoid an overlap in assistance or a situation where various donors are pushing different agendas within the ministries,” Deng said.

“The people in the south realise their limitations,” he added. “You have a virgin government without a big bureaucracy, and they understand that technical assistance will help them to establish a good foundation for their institutions.”

Although the minister and two under-secretaries had been appointed, many top positions in the Ministry of Finance still had to be filled. The tasks and positions of the approximately 100 staff in the ministry had not yet been clearly designated, Deng observed, “but it is functioning”.

Another challenge facing the Ministry of Finance is the lack of a legal framework that allows it to function properly.

During the civil war, the South Sudan Coordination Council (SSCC) ruled government-controlled areas in the south, while the Sudan People’s Liberation Movement/Army (SPLM/A)’s civilian authority administrated the areas held by the former rebels.

“Right now, there are still two systems in place,” Deng said.
The Public Financial Management Act was being drawn up, he added, and the adoption of this legislation would expedite the ministry’s work.

Planning ahead

Because of the relatively weak capacity at the state and county levels, a large share of the financial planning has to be carried out at the federal level by the Ministry of Finance itself.

“The ministry has been given a huge task in terms of planning for the whole of southern Sudan,” Deng observed. “This has resulted in a very top-down kind of financial planning during the early stages,” he added.

The Minister of Finance and Economic Planning, Arthur Akuien Chol, recently announced that the government budgetary allocation to the states would total $356 million.

He warned, however, that most of the states did not have the capacity to plan for such large fund transfers and as a result development activities would be slow to take off. He also cautioned that budget utilisation might be slow, as most of the states had not drawn up clear development plans.

The UN Development Programme, aware of the limited availability of data and planning capacity at the state level, is supporting the identification of key priorities for 2006-11. “This is a very crucial and timely intervention for the states which needs to be facilitated to plan, based on their unique needs and realities,” said Philip Thon Leek, governor of Jonglei State.

More challenges to rebuild the economy

The lack of a functioning banking system is another impediment for the finance ministry in paying the civil servants, teachers and health workers who have to deliver the services across the vast territory of southern Sudan.

“Currently, the money is transferred to banks at state level and from there the money is paid out in cash,” an observer said.

But even if the money reaches the intended beneficiary, the lack of legal tender across southern Sudan can pose a problem. Soldiers in Western Equatoria State, for example, recently rejected their wages in Sudanese dinars and demanded to be paid in US dollars or Ugandan shillings – the common currencies in southwestern Sudan.

On 19 July, the Bank of Southern Sudan was inaugurated in Juba, however, and Elijah Malok, its president and deputy governor of the Sudanese Central Bank, expected it to facilitate financial transactions and boost economic growth across southern Sudan.

“The Bank of Southern Sudan is the bank of the GOSS, so the resources of the GOSS and the states will be handled through this bank,” Malok said. “The bank will shore up economic activity through the provision of micro-credit and investment that will be undertaken by the GOSS through loans, letters of credit and guarantees.

“In December, we are going to introduce one currency, the Sudanese pound, in the whole of Sudan,” he added. “Then we’ll have a definite medium of exchange that will facilitate trade within Sudan as well as foreign trade.”

Although the new banking system and currency would slowly improve economic efficiency, Malok urged that the structure of the economy needed to be improved, focusing on the development of infrastructure, skilled labour and the supply of electricity.

“Too much money is wasted because commodities are expensive, transport is expensive and labour is so difficult to get,” the president of the southern bank said.

Not surprisingly, with relatively few checks and balances in place to guarantee transparent handling of government revenues, rumours about the mishandling of public money have been rife in the Sudanese media.

Deng observed that there was little proof to sustain such claims, however, despite the fact that the Government of National Unity, the SSCC, the SPLM/A civil authority and the new GOSS had all spent public money on behalf of southern Sudan during the transitional year of 2005.

“Preliminary findings of an internal audit suggest that although the system of public finance was very weak, there don’t seem to have been large discrepancies in 2005,” Deng said. “But to establish whether real irregularities took place, an external audit is critical.”

(IRIN)