Transcript Joint Staff Assessment on Implementation of the JAM

Assessment of Progress
in Implementation
Briefing prepared by the Staffs of the World
Bank and the International Monetary Fund
Sudan Consortium
Khartoum, March 20 2007
Overview
1.
Government of National Unity (GNU):

Economic developments and outlook

Pro-poor spending efforts

Systemic constraints and priority steps

Three Areas
2.
Government of Southern Sudan (GOSS):

Budget efforts

Systemic constraints
3.
Trends in development financing
4.
Update on MDG prospects
1. Government of National Unity
Overview of Key Messages

High growth and some important pro-poor efforts in evidence, but
performance in 2006 was dominated by:

Serious shortcomings in fiscal decentralization and state and
local pro-poor efforts, especially in marginalized areas

Lags in some key structural reforms needed to promote
broad-based growth

The ongoing crisis in Darfur – large numbers of displaced
and vulnerable, requiring costly humanitarian efforts

Review of experience needed in order to learn lessons to
improve performance in 2007 and beyond
Government of National Unity
Macroeconomic Developments


Real GDP growth about 11 %,
bolstered by oil output, a good
harvest, and a continuing
boom in construction &
services.
However, inflation pressures
developed (12-month rate of
inflation rose from 5.6% at
end-2005 to 15.7% at end2006).
Growth remained strong...
12
(in percent)
10
Total
Nonoil
8
6
4
2
)
at
ed
05
20
06
(e
st
im
20
04
20
20
03
0
02
And the dinar appreciated by
21% in real terms (with
adverse impacts on poor
farmers and the size of SDD
transfers to the GOSS)
20

Government of National Unity
Structural reforms

Progress made on oil sector transparency,
budget classification, decentralisation and
reduction of domestic fuel subsidies

Pending reforms: fiscal reporting, audits of
Sudapet, rationalization of tax exemptions,
marketing monopolies for gum arabic….
Government of National Unity
Macroeconomic Prospects

Government Debt
 External – improved indicators reflect higher exports and GDP, but
nominal debt keeps rising and it remains unsustainable
 Domestic – deficit also financed by domestic borrowing (e.g.
bonds) and the inflation tax

Challenge is to address these imbalances (increasing fiscal and
external current account deficits)
 Fiscal deficit in 2007 could rise to 5-6% of GDP


Possible actions: rationalization of tax exemptions and revision of
spending increases (while protecting pro-poor spending and transfers
related to peace agreements
Real exchange rate appreciation pressures need to be offset by fiscal
restraint and removal of barriers to private sector growth.
Government of National Unity
Trends in Pro-Poor Spending*
Actual Non-South Expenditure Trends 2000-2007
GNU pro-poor allocations, excluding
transfers to the GOSS, estimated at
4.7% of GDP in 2006 :



Above 2005 level (4%), but well below
budget (5.7%), JAM commitments
(5.9%), and HIPC average (8%), and,
for example, neighboring Ethiopia
(19.1%) and Uganda (11.1%)
JAM expenditure performance –
overall 71%, 41% without
infrastructure
2007 budget promises jump in propoor share to 6.4% of GDP, mainly
through higher transfers to Northern
states
2500
2000
Billions SD

1500
1000
500
0
2000
2001
2002
2003
2004
2005
2006
2007
Budg.
Poverty Reducing
Non- Poverty Reducing
Non South total expenditure
… and relative to JAM commitments
7
6
1
Budget
JAM
JAM
Actual
JAM
2
Actual
3
Actual
4
JAM
* Caveat on definition.. work advancing
under PER, but still in-progress
% of GDP
5
0
2004
2005
2006
2007 Budg.
Government of National Unity
Trends in Pro-Poor Spending
GNU getting more money to sub-national level…
0
50
North
45
GOSS
% Execution
40
35
$ per capita
…but less than planned (2006)
30
25
20
-10
-20
15
10
5
-30
2000

2001
2002
2003
2004
2005
2006
Federal
GOSS transfers
Northern state
transfers
GNU/PER work has improved poverty dimension in budget dialogue :
 Increased attention to defining pro-poor allocations in MOFNE
planning/execution analysis
 State case studies completed jointly with government in six states and
action plans agreed to address identified weaknesses.
 Serious analysis of budget deviations, both for pro-poor and overall
expenditures.
Government of National Unity
Pro-Poor Spending as Share of Non-South Budget
Actual average 2000/2004
2000-04
Federal
Pro-poor
12%
Propoor
Transfers
5%
NonPoverty
Reducing
83%
Actual average 2005/2006
Federal
Pro-poor
11%
NonPoverty
Reducing
77%
Federal Propoor
12%
Non- Poverty
Reducing
69%
Propoor
Transfers
12%
2005-06
2007
Budget
Pro-poor
Transfers
19%
Government of National Unity
Systemic Constraints

Unbalanced growth – economic expansion is not broad-based due to
administrative and regulatory constraints, tax induced distortions,
government supported marketing monopolies, lack of clarity on land
and property rights, adverse effects of appreciation on domestic
competiveness, and limited access to finance for the private sector.

Delays in fully operationalizing key CPA commissions, including NPC
and FFAMC, has prevented greater transparency in the use of public
resources

Continued insecurity in Darfur undermine efforts to realize JAM
priorities and distracts from needs of other marginalized parts of the
country, including the three areas
Government of National Unity
Priorities to Accelerate Progress
1.
Good Governance and Transparency:




2.
Basic Social Services:




3.
Public expenditure reforms & initiating fiscal reporting according to international standards
(GFS)
Full operationalization of the NPC and greater transparency in the oil sector
Improving information sharing and introducing participatory budgeting measures
Progress on fiscal decentralization – in particular, the legal framework, intergovernmental
transfers and state capacity
Realize constitutional commitment to free primary health care
Improve access to education through reform of teacher qualifications, investments in school
infrastructure and strengthening of parent-teacher associations
Deepen efforts to promote girls’ and women’s access to services
Improve resource availability and accountability measures at sub-national levels
Enhancing broad-based and equitable growth:




Improve productivity of traditional crops, reform marketing arrangements for livestock and
transition to free export market for gum arabic
Establish National Land Commission and review legislation and tenure agreements
Improve access to finance for the private sector, as well as agriculture financing
Support trade and private sector development, rationalise VAT, customs and profit tax
exemptions as well as import tariff rates
Progress in the Three Areas
As recognized in Paris, progress significantly behind CPA/JAM schedule:
 Development transfers increased but far short of JAM target
 Delays in 2006 included SKS State constitution and integrating civil service
Significant capacity constraints at state and locality level also prevent progress
Example of Southern Kordofan budget

Expenditure increasingly dominated by wages and salaries and development funding
severely constrained.
 Limited own revenue, due to security problems, weak collection capacity, depressed
economic activity.
US$ million
250
200
150
Development
transfers
100
CPA
50
JAM Spending Estimate
300
GNU
0
2004
2006
2006
2. Government of Southern Sudan
Overview of Key Messages

GOSS has made important progress including in terms of:
 Establishment of institutions at all levels since July 2006
 More active accountability (eg. Parliamentary engagement in
review during 2007 budget process)
 Capacity building efforts (eg. State Parliaments)

Sectoral programs launched, representing major partnerships
with international community through MDTF

Increased and renewed commitments in 200 Day Action Plan

However, delays in civil service appointments and some key
decisions created lags, and progress insufficient relative to the
scale of the task.
Government of Southern Sudan
Budget Efforts

2006 budget plans broadly consistent with JAM targets, and
included sector programs in infrastructure, health, education and
water and sanitation

Government finances characterized by weak management and
accountability –difficult to effectively track budget execution due to
the lack of a system of ex ante controls, significant extra-budgetary
expenditures and long lags in reporting – still no clarity on levels of
spending on, for example, the payroll – and lack of clarity around
new borrowing

Concerns partially alleviated by progress on “Paris Commitments”,
including :



Appointment of accounting and procurement agents
Single Treasury System operational since late 2006
Large MDTF co-financing of major sector programs, which follow
WB procedures for procurement and financial management
Southern Sudan
Systemic Constraints

Lack of capacity, including at lower levels of government, remains an
overriding constraint

Weak public financial management systems and controls pose a risk to
the whole development program, although important measures have been
taken in terms of outsourcing accounting, auditing and procurement
functions and establishing key oversight functions

Fiscal decentralization not operationalized given lack of clarity on
functions and finances at different levels of government, low transfers from
centre, below payroll needs, and low capacity in states and counties

Civil service effectiveness undermined by the lack of a functioning payroll,
shortages of qualified staff and the absence of proper procedures for
recruitment and incentives, and difficult working conditions

Productivity, investments and economic activity constrained by lack of
progress in clarifying key regulations and legislation, including on taxation
and property and land user rights
Government of Southern Sudan
Priorities to Accelerate Progress
1.
Building public institutions for good governance:

Establish the legislative and regulatory framework for the public service and
establish core capacities to enable the proper functioning of GOSS

Actively use and manage mechanisms for fiscal accountability , including through ex
ante approval of any extra-budgetary spending, and using appropriate systems and
structures for regular reviews of public expenditure and pro-poor spending by Cabinet,
Parliament and the public

Review existing transfer modalities and build local public financial management
capacity alongside operationalization of the Southern FFAMC
Support accountability roles of parliament, media and civil society

2.
Establishing basic infrastructure links,
activities and delivery of basic services:





enabling
productive
Enhance rural development efforts through transforming livelihood strategies from
subsistence to commercially oriented activities and provision of community services
Continue infrastructure investments – both major and rural roads
Expand education services at the county level through construction of multi-purpose
education centers and teacher training
Develop core systems and capacities for basic health care
Support Land Commission’s work, and adopt legislation to enable land markets to
function
3. Domestic and External Financing
of Development Efforts
What we know:
 Increased domestic efforts – increased share of JAM/pro-poor in
GNU spending : in 2006, about 22 percent of national budget (of
$9 billion).
 By now, firm commitments to MDTFs are close to Oslo pledges,
with additional donors also contributing.
 Other development efforts ongoing, eg USAID, EC
 Ongoing humanitarian operation very costly – Darfur largest in
the world and above US$1 billion in 2006
But several issues require further consideration
 Whether overall development assistance is in line with the Oslo
development pledges
 Financing needs for JAM Phase II – through 2011.
 Design of external borrowing strategy, for GNU and GOSS
4. Are MDG Prospects Improving
for the Sudanese People?

Despite several years of rapid growth and per capita income approaching
US$1,000 in 2006 (compared to US$150 in Ethiopia), limited improvements
evidenced

Major challenges persist in the sharp regional inequalities in outcomes and
limited access to services :
Net primary school attendance 53%, ranging from above 90% in River Nile
State to 4% in Unity State
 Births delivered by skilled personnel 55%, ranging from above 90 % in
Khartoum to less than 20% in North Bahr El Gazal
 Marked differences by household economic status – eg. primary enrolment,
below 5% for bottom wealth quintile, compared to above 80% for top quintile


Availability of new data from first nationwide Household Health Survey in two
decades provides new info on current status
Deeper analysis needed of trends and regional disparities, but preliminary
findings indicate that Sudan remains well behind target for most MDGs

Apart from HHS, limited progress in building better monitoring systems to track
progress in key indicators over time, including local monitoring activities
Acceleration needed to reach key MDGs
North-Primary attendance
South-Primary Attendance
Sudan-Primary Attendance
North-Delivery by Skilled Health Personnel
South-Delivery by Skilled Health Personnel
Sudan-Delivery by Skilled Health Personnel
120
100
80
60
40
20
0
2000
2006
Source: MICS 2000, UNICEF (2003, 2006)
Note: Education indicators for 2000 refer to net primary enrollment rates
2015
Conclusion

Progress made towards CPA / INC vision, but some
key structural and institutional reforms have lagged
Review
of
experience
usefully
reveals
implications for achieving poverty reduction and
MDGs

Efforts are now needed to ensure that the intended
scale-up for phase II of the JAM is achieved. This
will require:
 Accelerated reforms on the budget, fiscal
management and governance, pro poor growth
and service delivery
 Assurance of macro stability
 A sustainable solution to the Darfur crisis