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Cablegate: Imf/World Bank Assign Numbers to Sudan's Economic

VZCZCXRO3469
RR RUEHGI RUEHMA RUEHROV
DE RUEHKH #1835 3580939
ZNR UUUUU ZZH
R 230939Z DEC 08 ZDK
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC 2596
INFO RUCNFUR/DARFUR COLLECTIVE

UNCLAS KHARTOUM 001835

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: EFIN ECON EAID PREL PGOV SOCI IBRD IMF SU
SUBJECT: IMF/WORLD BANK ASSIGN NUMBERS TO SUDAN'S ECONOMIC
CHALLENGES

REF: A. KHARTOUM 1718
B. KHARTOUM 1824

1. (SBU) SUMMARY. The global economic recession will severely
affect Sudan's economy, with South Sudan feeling a significantly
greater budget pinch, according to IMF/World Bank analysis. The
Bank/Fund calculate that Sudan's current account deficit will more
than double (from U.S. $3.9 billion to $8.1 billion) in 2009, due to
both declining oil revenues and falling foreign direct investment
(FDI) and remittances. The Government of National Unity (GNU)
budget deficit will swell from 4.7 billion Sudanese Pounds ($1=appx.
2.2 SDG) to SDG 8.5 billion (an 81 percent increase) in FY 2009, the
result of an anticipated 30 percent drop in oil revenues.
Government of South Sudan (GoSS) revenues likely will decline back
to FY 2006-2007 levels, roughly half of its FY 2008 windfall. END
SUMMARY.

2. (SBU) The Mission has been provided with a World Bank/IMF
power-point presentation that was delivered to the donor community
in Juba, outlining the IFIs most recent analysis of Sudan's current
macroeconomic situation. (Power point slides emailed to AF/SPG and
EEB/IFD/OMA.) The presentation adds quantitative detail to CDA
Fernandez's recent conversation with World Bank Country Director
Lawrence Clarke (ref. A).

Global Downturn Hits Sudan's Current Account
--------------------------------------------
3. (SBU) According to the Bank/Fund, the current global economic
recession will negatively affect both Sudan's balance of payments
situation, adding to its already unsustainable debt burden, and to
the GoS's fiscal deficit. According to Bank/Fund figures, FDI has
declined 31 percent since 2005 (from USD $3.5 billion to $2.4
billion in 2008) and is expected to continue falling to $2.0 billion
in 2009 and 2010. The IFIs expect FDI to begin to rise thereafter,
to $3.0 billion in 2012.

4. (SBU) The IFIs calculate that in 2009, Sudan will earn $3.3
billion less from oil exports than they had estimated in their
September Debt Sustainability Analysis. Including both falling
capital account flows and oil prices, the IFIs now estimate that
Sudan will face a Balance of Payments gap $4.1 billion greater than
they forecast only three months ago.

And Pinches the GoS Budget
--------------------------
5. (SBU) Falling world oil prices and stagnant output also are
having an impact on the GoS budget. (Budget analyzed in greater
detail ref. B.) GoS oil revenues are forecast to fall at least 30
percent in FY '09, reducing total GoS revenues by 15 percent. With
expenditures remaining unchanged from FY '08 at approximately SDG 26
billion (USD $11.73 billion), the fiscal deficit will balloon to SDG
6.7 billion or 6.2 percent of GDP, an 81 percent increase from FY
'08.

While the GoSS Faces Plunging Revenues
--------------------------------------
6. (SBU) While the GNU faces a 15 percent revenue drop, the GoSS
will see its revenues, derived almost exclusively from oil, plunge
by approximately 50 percent, from just over USD $3.0 billion in FY
'08 to a little more than $1.5 billion in FY '09. In principle,
this drop should be a difficult, but not disastrous, challenge as
2009 revenues will only be returning to their level in 2006 and
2007, from the abnormally high FY' 08. With good management, the
GoSS should be able to weather the storm. Unfortunately, sound
budget management has not proven to be the GoSS' strong suit. In
both 2007 and 2008, the GoSS significantly overspent in the first
half of the year and was saved from running major fiscal deficits
both years only by the late 2007-early 2008 oil-price surge.

Comment
-------
7. (SBU) These IFI numbers provide some rigor and detail to what was
already clear in general terms: Sudan's economy, both North and
South, will take a significant hit from the global economic
recession. Given its arrears to the IFIs, Sudan is unable to access
concessionary IFI lending or seek restructuring of what already is
regarded as an unsustainable debt burden. The growing BoP financing
gap will only add to the problem. Sudan is paying the price for its
growing dependence on oil as its main export. With Sudan already
facing multiple challenges in the coming year, the economic crunch
further limits the GoS's room to maneuver and adds yet another
variable to an already complex political equation.

ASQUINO

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