SUDAN Fiscal Trends, Constraints & Prospects Paris, March 9, 2006

Sudan-fiscal Trends Prospects Reforms Challenges

Fiscal trends—revenues Oil revenues have risen rapidly

Fiscal trends—revenues ...and non-oil revenues have shown an improving trend

Fiscal trends—revenues Oil fund savings have continued, after the CPA

Fiscal trends—expenditures Expenditures have risen rapidly in recent years

Fiscal trends—expenditures The fuel subsidy is high and does not benefit the poor Gasoline (benzene) prices have a low subsidy but Diesel (gasoil)—the main fuel—is heavily subsidized and the subsidy does not necessarily benefit the poor in agriculture or urban areas

Fiscal trends—space ...overall, despite increases in revenues, the fiscal space has shrunk because of the CPA and decentralization

Fiscal prospects—2006 Fiscal deficit falls: 1.8% of GDP in 2005 to 0.9% in 2006 Oil output up 70% in 2006, but lower quality of new crude means less than proportionate increase in govt. revenues Non-oil revenues rise on administrative improvements and exemptions removal Oil fund savings of 1.4% of GDP

Fiscal prospects—2006 High expenditure allocation to south (CPA) and northern states (decentralization) Significant increase in development expenditures at federal and state levels Fuel subsidy remains high

Fiscal prospects— macro-structural reforms Protect the tax base Revamp tax incentives (VAT and profit tax holidays) Oil transparency Regular and transparent profit transfers from oil companies to the treasury Capacity in public financial management Public Expenditure Review Improve fiscal transparency GFS reporting and operationalizing the FFAMC

Other fiscal reform challenges Address the fuel subsidy From a macroeconomic view, the increase in spending at all levels of govt. calls for sound expenditure management systems (GFS): Coordinate budget formulation and classification; design effective public procurement system Improve flow of information and reporting Ensure tracking and auditing