2 Introduction The Minister of Finance of GoSS has already set out the Souths expenditure priorities for the medium term. In this presentation I will outline: –the cost of our expenditure needs from 2008 – 2011, based on these priorities. –the size of our funding gap, for which we are seeking donor pledges. –how we would like donor pledges to be channelled. –the fiscal challenges we face, and the measures we are putting in place to tackle them.
3 Cost of the Six Top Priorities The overall cost of the six top expenditure priorities is $6.4 billion from 2008 to This includes an allocation of $60 million for emerging priorities, such as Public Service reform and Organised Forces retrenchment. Security & Roads are the most expensive priorities. The Security costing has two components; it includes the annual budget allocation to the SPLA, and the cost of DDR. GoSS will finance the SPLA budget itself. It will not be asking donors for money for the SPLA.
4 Top Priorities Summary $m
5 Cost of Other Priorities The cost of all other priorities amounts to $4.9 billion, including a provision for reserves. These costs include the salaries and running costs of GoSS institutions, as well as block transfers to the States. The highest allocations are to: –Rule of Law ($1.1 billion, mainly on account of Organised Forces salaries) –Block transfers to States ($984 million)
6 Total Cost of GoSS Needs The total cost of GoSS needs for amounts to $11.3 billion. This is the sum of the six top expenditure priorities plus all other priorities. In sectoral terms, the greatest allocation is to infrastructure (23%), followed by security (21%). The next largest allocations are to Rule of Law, block transfers to States, Education & Health. A sizeable proportion of the Education & Health spending will take place at State & County level.
7 Sectoral Distribution of GoSS Needs 2008 – 2011 ($m)
8 Financing GoSS expenditure needs We have estimated that GoSS will be able to finance 77% of its expenditure needs for from its own resources. This amounts to $8.66 billion, 96% of which is expected to come from oil revenues. This is a small improvement compared to our current level of oil dependency of 99%. We are committed to raising our capacity for non-oil revenue generation, but we recognise it will take time before non-oil sources can yield significant revenues in the South.
9 Estimates for Oil Revenues GoSSs estimates for oil revenues amount to $8.326 billion. These estimates are for production from existing wells. We are concerned about the production profile from current wells, which shows production rising up to 2009, and declining from then on. Unless new wells come on stream, GoSS will start to face a budget problem after 2010.
10 Funding Gap GoSS is seeking $1.992 billion in new donor pledges for 2008 – 2011 to plug its funding gap. This amounts to just under $500 million p.a. These pledges are being requested in addition to ongoing donor development projects for 2008 – 2011, which amount to just over $600 million. The funding gap does not include humanitarian funding. GoSS would like donors to shift their humanitarian funding to recovery and development activities, in line with the GoSS priorities which have been outlined.
11 Aid Effectiveness Since 2006, GoSS has made significant progress in developing its aid management framework. We would like new donor pledges to be channelled according to the principles of the GoSS Aid Strategy, by: 1.ensuring that new pledges are directed to the priorities identified by GoSS. 2.avoiding concentration of funding in certain areas. 3.using harmonised funding & implementation mechanisms where possible. 4.availing projects for appraisal by the GoSS appraisal committee.
12 Distribution of New Pledges We would like 85% of new donor pledges to go to the six top expenditure priorities. The greatest share of new pledges should go to roads, followed by DDR and health. To avoid proliferation, we would like the majority of bilateral interventions to be restricted to projects of a sufficient size ($10 million or more) to warrant stand-alone implementation. Otherwise, we wish to encourage donors to use harmonised mechanisms wherever possible.
13 Proposed distribution of Pledges
14 Funding for Harmonised Mechanisms As I have said, we would like a significant proportion of our donor pledges to be channelled through harmonised mechanisms. In line with our funding gap, we have estimated the requirements of our main harmonised mechanisms for 2008 – 2011 to be as follows: –Multi Donor Trust Fund - South $751 million –Sudan Recovery Fund: $200 million –Capacity Building Trust Fund:$25 million The proposed activities of these mechanisms for 2008 – 2011 have been aligned to our priorities.
15 Front Loading of Donor Funds GoSS would like donors, as far as possible, to front-load their contributions for This will be essential if expenditures are to take place in the period 2008 – 2011, instead of spilling over to 2012 and beyond. Otherwise, we may once create unrealistic expectations for service delivery by Early contribution of funds is particularly important for funds committed to the MDTF.
16 GoSS Fiscal Issues For GoSS, managing substantial inflows of resources from a baseline of limited capacity has been extremely challenging. Fiscal management in was complicated by: –volatile and unpredictable revenue inflows from oil. –almost total dependency on oil as a revenue source. –an increase in fixed costs as a share of the budget, as a result of a burgeoning pay roll.
17 Oil Revenues have been volatile..
18 Salaries have grown as a share of expenditure…
19 Budget execution has been variable..
20 …but progress has now been made in developing the fiscal framework We have drafted the Public Financial Management Act. Budgets have been prepared and approved every year. We have a Single Treasury Account and clear payment procedures. We produce timely budget execution reports. Procurement regulations have been issued. Pay committees are overseeing salary payments at GoSS and State level. A Cash management system is in place.
21 GoSS has set a number of longer-term fiscal objectives.. 1.Reduce dependence on oil revenue. 2.Reform the Public Service, to improve efficiency and reduce the share of the wage bill in overall expenditures. 3.Execute the budget as planned. 4.Ensure full accountability & transparency for all spending. We have identified the activities we need to undertake to achieve these objectives, and the time frames in which we expect to achieve them.
22 …but we need PFM support. GoSS wishes to request donor support to build capacity & systems in the following areas : –payroll development and Public Service Reform –revenue –procurement –internal & external audit –accounting capacity –capacity development of State Ministries of Finance. Training needs are acute in all these areas, particularly customs, accounting & audit.
23 We are also committed to tackling corruption Our Anti-Corruption Strategy is in place. We have drafted our Anti-Corruption law. The Anti-Corruption Commission is fully staffed and is expanding its activities to State level. Anti-corruption investigations have been initiated in a number of cases. Our MDTF projects are currently being audited by the External Audit Agent. Our accounts for 2005 and 2006 will be audited once the Audit Chamber is re-appointed.
24 Conclusion GoSS is very fortunate to have oil revenues with which to finance its expenditures. Nonetheless, our needs are enormous, we face a number of fiscal challenges, and our capacity is still low. We therefore wish to request donors to assist us in 2008 – 2011 by: –Providing funds for our financing gap, in line with our priorities, and our aid management framework. –Building our capacity at GoSS and State level, particularly in key areas such as Public Service and Public Financial Management.