Joint Staff Assessment of Progress in Implementation: Focus on planning, budgets and execution in Southern Sudan

1. Joint Staff Assessment of Progress in Implementation:Focus on planning, budgets and execution in Southern Sudan International Monetary Fund and World Bank Sudan Consortium Juba, March 21 2007

2. Overview 1. Context: The MDG challenge 2. Key achievements 3. Systemic governance constraints and priority measures • Public Financial Management • Public Sector Management • Decentralisation 4. 2007 budget highlights and new emerging challenges

3. Southern Sudan : Scale of the Challenge • Major challenges include the low starting point, sharp regional inequalities in outcomes and extremely limited access to services : • Primary school attendance rate ranging from 45% in Western Equatoria to 4.3% in Unity, but with half the Southern States below 10% • Births delivered by skilled personnel ranging from 59% in Western Equatoria to less than 20% in North Bahr El Gazal Primary Attendance Rates, Southern Sudan, 2006

4. Rapid Progress Needed to Reach the MDGs

5. Overview of Key Messages • GOSS has made significant 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 some key decisions created lags, and progress insufficient relative to the scale of the goals and challenges  priorities • Building institutions for good governance • Establishing basic infrastructure links, enabling productive activities and delivery of basic services .

6. 3.Systemic Governance Constraints 1. Lack of capacity, including at lower levels of government, remains an overriding constraint 2. Weak public financial management systems and controls pose a risk to the whole development program  adverse effects on implementation of plans, accountability and transparency…. 3. 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 4. Fiscal decentralization not operationalized given lack of clarity on functions and finances at different levels of government and low capacity in states and counties

7. Progress on Paris CommitmentsPublic Financial Management • Appointment of accounting and procurement agents • Single Treasury System operational since late 2006 • Capacity building in PFM initiated; training facilities in accounting, budget and procurement being provided in GATC, Juba • Several major sector programs follow international (WB) procedures for procurement and financial management • Autonomous commissions in place with enhanced budgetary allocations and improved facilities. • Significant step up in inclusiveness, impact and level of the budget debate

8. Priorities Public Financial Management • Enact legal framework for PFM (Public Finance and Accountability Act under preparation) including for states • Step up efforts on budget implementation : • Fully operationalise cash management arrangements • Align cash release with budget priorities and commitments • Establish effective payroll control • Establish commitment control for capital expenditures • Cease extra-budgetary spending  require ex ante approval or supplementary appropriation measures • Capacity building in PFM and procurement at all levels

9. Priorities Public Financial Management • Reporting • More timely and accurate accounting and reporting mechanisms need to be in place • Quarterly reports to the SSLA on budget implementation (nothing now, planned from April) • Regularise public expenditure reviews of plans and actual spending for scrutiny by parliament, media and civil society • More generally, better dissemination of information, and support to accountability roles of parliament, media and civil society

10. Public sector management GoSS ministries and state governments established and operational with budget allocations, and staff in place under interim regulations: • An estimated 65,000 persons being on GoSS payroll, and estimated equal number in the states…. But actual number unknown, and no formal verification of the payroll and large numbers of unclassified staff… • In adequate information and reporting systems • Plus very large personnel costs… possibly unsustainable, including future pension obligations

11. PrioritiesPublic sector management • Compile formal and comprehensive payroll of regular and appointed staff, and verify numbers, at all levels of government • Results should inform measures to rationalise current payments • Streamlining of personnel numbers, at all levels, in light of needs and revealed numbers  develop appropriate redundancy rules and packages • Establish legislative and regulatory framework for the public service • Implement standardized administrative and personnel management processes • Operationalize autonomous commissions by formulation of regulations, adequate staffing and technical support • Extension of support to states • assist states in establishing legal framework for public sector management • formulate policy for integration and rationalization of state workforce • build capacity of GoSS staff for effective service delivery

12. Decentralisation -- status • Constitutional framework established, but… • No clear strategy or policy, and no legislative framework for operationalisation – eg no assignment of functional expenditure responsibilities across levels of government • In 2006 and 2007, fiscal transfers to states made on very crude basis – equal absolute amounts (10m) without regard to population, needs or local revenue and other criteria … thus, for example, in 2006 block transfers below payroll needs to enable payment of teachers. • Southern FFAMC mandate is limited.. Responsibility for developing transfer formula etc not yet taken up • No budgets at state level, no fiscal calender and no reporting or accounting by states for monies received… general paucity of data. • Risk of over-centralisation of resources (in 2006, bias of public investments toward the centre (Juba)) and planning decisions (lack of state involvement) • Core capacity (for planning, implementation and reporting) at state and county levels is weak

13. PrioritiesDecentralisation • Strategy for transition to the ICSS vision of decentralization: • Determine functional and administrative roles for all three levels of government consistent with available financial, human resources and physical infrastructure • Clarify framework for fiscal decentralization • Criteria for transfers – need for debate on options (needs- versus incentive-based) • accountability mechanisms, • role of S-FFAMC, MOFEP, etc • Support states in designing legal and administrative frameworks consistent with the phased decentralization  roll-out capacity building

14. 4. Budget allocations • Discussions should be informed by analysis of 2006 performance relative to plans and goals • 2006 budget plan broadly consistent with JAM, but… evidence at mid-year suggested significant deviations in execution, with large extra-budgetary expenditures, misalignment relative to approved allocations, etc… Final year accounts, when available, require full analysis and scrutiny. • 2007 plans should be considered in this context

15. 2007 Budget Highlights

16. 2007 Budget : highlights • Large wage bill amounting to at least half of total budget • Capital spending of $450 million, of which about 10 m. is transfers to the states • Complemented on-budget by MDTF (additional 88 million) • No reserves rolled over from 2006 (cf at beginning of 2006, amounted to 460m), planned level for 2007 minimal (48m) • Real risks of running into aggregate deficit…

17. Emerging challenges • Revenue -- shortfall relative to needs, plus need to diversify the base  • Develop non-oil revenue base • Legislative framework and collection capacity needs to avoid disincentives to the nascent private sector • Significant challenges in meeting ambitious non-oil revenue targets  Risk of aggregate imbalances: budget anticipates rise in non-oil revenue – from less than 4 m. in 2006 to 235 m. in 2007

18. Emerging challengesDebt strategy • Short term borrowing for liquidity purposes is not justified -- it is expensive, and would not be needed if the public financial management system was operating effectively. • Potentially justified for projects with high enough economic and social rates of return, especially for large or “lumpy” investments expected to have high returns, but exceed current liquidity. However • only at concessional rates (grant element > 35%) and long maturity • systems need to be developed to govern and discipline borrowing decisions at the cabinet level, and subject to scrutiny by SSLA • every proposal should be subject to independent and professional scrutiny to ascertain the legal and financial soundness of the loan and • decisions need to be guided by, inter alia, repayment capacity.

19. Emerging challengesManagement of the defence budget Large budget allocation for defence, but SPLA currently operates without modern accounts, no payroll, and no system of procurement, or a fully functioning finance department that can provide oversight and ensure proper accounting and reporting.  Need to set up and design of a transparent public financial management system including cash management, payroll, payment system, procurement system, auditing and pension systems. Elements • Establishing the financial management rules and procurement regulations to govern the defence sector, linked to the overall regulations developed for the GOSS • Organizational structure, including a personnel management database, an electronic payroll • Rules and regulations to operationalize the system (manuals and procedures). • Capacity building

20. Conclusions • Southern Sudan has massive needs and faces enormous start-up costs in enabling the basic infrastructure and services required to get the economy going…. Needs exceed available revenue  critical role of sound planning, implementation and reporting to ensure best possible use of relatively scarce public resources. • 2007 an especially challenging year in making strategic choices, and implementing commitments on public financial and public sector management, and effectively putting recent innovations – like procurement agent and single treasury system – smoothly into effect.