Second Sudan Consortium 19- 20 March 2007

1. Second Sudan Consortium19- 20 March 2007 INTERGOVERMENTAL TRANSFERS Presentation: Mr. El Sheikh El Muck

2. Background • Transfer of resources between different levels of government had a long history in Sudan, however, only recently that equalization has been stated as an explicit objective of such transfers. One of the guiding principles in the Wealth Sharing Protocol WSP (2004) is that, the national wealth shall be shared equitably between different levels of government so as to allow enough resources for each level of government to exercise its constitutional competencies

3. The WSP makes reference to the development of comprehensive equalization criteria to be used in allocating intergovernmental grants. Section 6 of the WSP Agreement detailed the revenue assignments of the federal Government and the states Governments and section 8 outlined the factors that need to be considered in the equalization grants. These factors include: population; minimum expenditure responsibilities; human development index – social indicators; geographical areas; fiscal effort; and the effect of war factor.

4. The equalization objective of the envisioned intergovernmental transfers was subsequently formally enshrined in the Interim National Constitution Article 198 (2), as, ” that equalization grants from the National Revenue Fund (NRF) are promptly transferred to respective levels of government”. At least in theory, equalization grants are aimed at ensuring that the state governments have adequate resources to provide reasonably “comparable” levels of public services at reasonably “comparable” levels of taxation.

5. Three case studies of the Red Sea, Northern Kordofan and Gazira States concerning Public Expenditure Review PER were carried out by the World Bank and national consultants. The reports have drown attention to the key issues constraining substantial fiscal management, including capacity building, inadequate management of intergovernmental transfers, low budget credibility and mismatch of significant expenditure responsibilities without adequate resources in localities. Same case studies were undertaken for the three Darfur States. The problems are similar in nature to other Northern States, but often more pronounced due to the conflict. All these case studies were discussed and endorsed by the MNFE and the recommendation were taken into consideration. A detailed template of the federal budget format will be provided for all States to promote consistent reporting and enabling a consolidated budget.

6. On the basis of Wealth Sharing Agreement (WSA) and the Intern Transitional Constitution (INC) financial revenue have been allocated as follows: • Oil revenue produced in the south should be disbursed by 50%for each Federal Government and GOSS after deducting the administrative cost and cost oil share of the state oil produced • 50% of non oil Revenues collected in the South should be allocated for both the Federal Government & the GOSS • States have given the right to impose taxes to increase their Revenues • Establishment FFAMC where all revenues should be under supervision of the MoFNE.

7. Based on WSA and INC the National Economy was developed a number of procedures the most prominent one is re-classification of the budget. The budget constitutes three parts: • The Federal Government Transfers. • The GOSS Transfers. • The Northern State Governments Transfers

8. The re-classifications have been approved by the legislative institutions, which have also approved the Federal Government &GOSS and the Northern States allocations as follows: • The share of the Federal Government is 56 % of the total Revenues. • The share of the GOSS 16. %. • The share of the Northern States Government 28% of the total Revenue

9. 2007 Budget Indicators: • Part II: • GoSS Allocation: 296.2 Billion SD • out of which : • GoSS Contribution from Oil: 283.8. Billion SD • (b) Oil States Producers: 11.6 Billion SD • (c) Non Oil Transfers: 0.8 Billion SD

10. Part III: Northern States Allocation 602.3 Billion SD Current Transfer (specified) 75 Billion SD Current Transfer (non- specified) 288.6 Billion SD State Development 238.7 Billion

11. Measures Taken by Ministry of Finance and National Economy: • Establishment of National Revenue Fund (NRF) where all national revenues are deposited. • Abolishment of any disbursement from NRF before the reallocation to the three levels of Governments. • Bank of Sudan was instructed not to deduct any guarantees or standing order owed to the National Government from NRF and to limit that only to the National Government Accounts

12. Fixing the distribution dates on 14th and 28th monthly. • Preparation of Monthly Report by Chamber of Accounts as an independent body for the FFAMC. • Joint committee (MoFNE and FFAMC) was established to review the monthly report to avoid any deviation that may occur. • Lay out the principles of sharing oil revenues with GoSS. • Endorsement of the monthly shares by the Joint Committee established by the Presidency (GNU, GoSS) • Display the information of oil sharing arrangement on the media and websites on monthly basis.

13. Northern States: • Fixing of share of the Northern States on 28% as past by the legislative body. • Compensation from National Government if the actual revenues collected is below ceiling for the current transfer Historical Development of States Allocations and Transfers 2005 – 2007 in Absolute Figure (Billion Dinars): Allocations and Transfers in Absolute Figures (in billion SD)

14. As it is appeared in the diagram above, the trend of actual transfers is increasing .In 2004 it was 128.1 BSD increased to 370 BSD in 2005 (more than double) and increased to 653.5 BSD in 2006 and this is due to implementation of the CPA which gives the States more authorization and more financial allocations.