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Cablegate: Goss Budget: Fiscal Crisis Over but Corruption Looms

VZCZCXRO3204
OO RUEHROV RUEHTRO
DE RUEHKH #0036/01 0080851
ZNR UUUUU ZZH
O 080851Z JAN 10
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4992
INFO RUCNIAD/IGAD COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 02 KHARTOUM 000036

NSC FOR MGAVIN, LETIM
DEPT PLS PASS USAID FOR AFR/SUDAN
ADDIS ABABA ALSO FOR USAU

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PINR PGOV KDEM ENRG ECON SU

SUBJECT: GOSS BUDGET: FISCAL CRISIS OVER BUT CORRUPTION LOOMS

1. (SBU) Summary: There are precious few bright spots in the
Government of Southern Sudan's (GoSS) 2010 draft budget. On the
revenue side, the GoSS remains overly reliant on oil, deriving 98
percent of its income from oil transfers. Concerning expenditures,
the GoSS, as in the past, plans to spend the majority of its
resources on salaries (49 percent) and operating expenses (30
percent), leaving capital expenditures significantly under resourced
at only 21 percent of the budget. The capital budget and outstanding
liabilities for the Sudan People's Liberation Army (SPLA) remain off
the books. Extra-budgetary contracts have been deferred to out-years
and continue to threaten the entire budget. Senior GoSS officials
have complained that they are not able to exercise effective
oversight over the budget and the specter of corruption looms over
all. End Summary.

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FY 2009 - Overspending and Shortchanging
----------------------------------------

2. (U) As of September 2009, provisional income for the GoSS was
SDG 2.8 billion, putting the government on schedule to meet its
projected full year income of SDG 3.6 billion and signaling a clear
end to the fiscal crisis. This represents a dramatic improvement in
resources as earlier in the year the government was only forecast to
receive 80 percent of the last budgeted revenue due to the global
financial crisis and the related sharp downturn in oil prices.

3. (U) The government adopted a strict austerity plan during the
fiscal crisis. However, as soon as revenues rebounded, the GoSS
began to overspend. Moreover, there was no transparent allocation
of funds when revenues became available. As a result, powerful
ministries received more than was budgeted for them, while weaker
ministries were significantly short-changed.

4. (SBU) Ministries and agencies that received significantly more
than was budgeted for them include the Ministry of Finance (1,109
percent - reflecting the payment of grain contracts), the
President's Office (243 percent), the Ministry for Presidential
Affairs (224 percent), the Ministry of Cabinet Affairs (209 percent)
and the War Veterans Commission (495 percent). At the other end of
the spectrum, ministries and agencies that received significantly
less than their budget allocations include the Auditor General (35
percent), Ministry of Water and Irrigation (27 percent), Ministry of
Animal Resources and Fisheries (36 percent), the Disarmament
Demobilization and Reconciliation (DDR) Commission (17 percent), the
Southern Sudan Relief and Rehabilitation Commission (SSRC) (10
percent) and War Disabled Widows and Orphans Commission (10
percent). (Note: Percentages indicate share of what they should
have received by end September.)

------------------------------------
2010 Budget --- Missed Opportunities
------------------------------------

4. (SBU) In 2010, revenues are projected to increase 24 percent to
a total of SDG 4.5 billion. The budget, which is 98 percent reliant
on oil revenue, assumes an oil price of USD 60, and a drawdown of
all oil revenue stabilization account (ORSA) reserves.
Inexplicably, non-oil income is projected at a mere SDG 101 million,
which is less than was budgeted and less than what was realized in
2009. With its improved revenue, the GoSS plans to increase
expenditures by 876 million SDG, allocated almost entirely to more
spending on salaries and operating costs, continuing a trend of
overinvestment on recurrent costs and underinvestment in capital and
development.

5. (SBU) Roughly 1 in every 5 households in Southern Sudan receives
a government salary and salaries account for 49 percent of the 2010
budget. Expenditures on salaries increased in absolute terms
showing that the public sector reform and right sizing efforts are
not yet translating into budgetary space that can be allocated for
other expenditures, such as capital and development.

6. (SBU) The president's office budget includes a SDG 43 million
allocation for the President for discretionary "donations", four
times greater than last year's budget. The legislative assembly
includes SDG 135 million for the Constituency Development Fund
(CDF), which can be spent at the discretion of Members of Parliament
and includes a generous allowance for gratuities. Some MPs utilized
their CDF allocation last year for beneficial projects within their
constituencies. However, overall, many MPs lack the technical
capacity to manage such a program.

--------------------------------
2010 Budget - A Few Bright Spots

KHARTOUM 00000036 002 OF 002


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7. (SBU) In support of the 2008 commitment for increased
decentralization, the budget doubles the allocation at the county
level from SDG 20 million to SDG 40 million. This represents an
important step towards greater decentralization. For the first
time, there is also an allocation of SDG 20 million for a Pension
Fund in support of the pending passage of the Pensions Bill that
will hopefully allow the GOSS to expedite its public service reform
and right-sizing efforts. It is expected that this social safety
net will largely benefit SPLA war veterans over the short to medium
term.

-------------------------------
Extra Contracts Threaten Budget
-------------------------------

8. (SBU) The 2010 budget states that the GoSS has SDG 3.8 billion
in contractual obligations, which it intends to gradually tackle,
paying SDG 555 million in 2010, SDG 1.8 billion in 2011 and SDG 704
million in 2012. However, these reported contractual obligations do
not include several important liabilities, in particular, SPLA
contracts as well as those relating to the infamous 2008 dura
(grain) scandal.

9. (SBU) The GoSS ostensibly owes SDG 6.26 billion for grain
contracts. This is of course more than its entire expected revenue
stream of SDG 4.5 billion. However, much of these grains were never
delivered and the GoSS froze payment on these contracts in 2009.
According to the Minister of Finance, the GoSS has reviewed these
contracts and estimates that SDG 1.8 billion of these obligations
are legitimate and in 2010, the GoSS has allocated SDG 50 million
against the grain contracts. However, we have not seen the last of
the grain scandal yet. The GoSS has presented its findings from its
investigation into the matter to the Council of Ministers but has
yet to make the information publicly available. The government is
supposed to present the report to the SSLA this legislative session.


------------------------------------------
Corruption and Lack of Effective Oversight
------------------------------------------

10. (SBU) Members of the South Sudan Legislative Assembly (SSLA)
have complained that "real power" continues to rest in the executive
branch and that they are unable to exercise effective oversight over
government spending. Even within the executive branch, as noted
above, powerful ministries received more than was budgeted for them.
We continue to receive reports of new/new contracts being signed
by individual ministers, notwithstanding the tighter regulations put
in place following the grain scandal.

11. (SBU) For example, the budget includes payment for a SDG 137
million contract for the police, signed by the Minister of Internal
Affairs as opposed to the Minister of Finance. When questioned
about this matter during the Council of Ministers, the Minister of
Internal Affairs reportedly said that he had received verbal
approval from the Minister of Finance to conclude the contract.
Perhaps more disturbing, however, is the fact that the contracted
goods - uniforms, boots, and other supplies - have not arrived,
according to several sources. Sources complained that even when
issues such as the police contract are publicly raised, there is no
accountability.

12. (SBU) On a few occasions, responsible individuals have been
removed from their duties. However, more often than not, business
continues as usual. In the waning weeks of 2009, rumors abounded
that the Government was "getting serious" about tackling corruption
and that those guilty of misappropriation of funds would be required
to either pay back the monies or go to jail. We have yet to see any
evidence of this resolve.

WHITEHEAD

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