Statement by the World Bank, the UN, and the IMF on Sudan

Press Release No. 06/50
March 10, 2006

The World Bank, the United Nations, and the International Monetary Fund (IMF) issued the following statement today in Paris:

"On March 9-10, 2006, the first ever Sudan Consortium was held in Paris, France. The Sudanese delegation was led by the First Vice President Salva Kiir Mayardit and included 12 ministers and state ministers from the Government of National Unity (GNU) and the Government of Southern Sudan (GOSS). About 130 partners from the international community participated, including eight ministers of international development.

This brief summary highlights the emerging consensus and agreements on next steps:

The Sudan Consortium was successful in terms of meeting its key objectives, which are framed in terms of increasing both national, as well as international, funding for development purposes, with a focus on increased transparency of GNU and GOSS budgets and good governance. Important gains were made in building confidence and trust among partners. The policy dialogue on economic, structural, and institutional reforms at the Sudan Consortium—as summarized in the matrix and reported upon by the GNU and GOSS in their joint report that was circulated in advance—was central to the discussions. The broad conclusion was that progress is being made in implementation of the Comprehensive Peace Agreement (CPA), but that commitments on pro-poor development need to be implemented in order to ensure tangible results on the ground.

The enormity of the challenges faced were recognized—which ranged from the political and institutional complexities of attaining sustained peace in the Sudan, to the high expectations of people on the ground, and the need to find new ways to work effectively together in this new era.

On the implementation of the CPA, there was agreement that important progress has been made, although there have been delays and troubling areas remain. Particular attention was drawn to the need for effective functioning of the National Petroleum Commission and the Fiscal and Financial Allocation and Monitoring Commission, consistent with the spirit of the CPA.

It was agreed that the situation on the ground in Darfur remains critical and has created a sense of crisis, from not only a humanitarian perspective, but also more generally casting a cloud on the country as a whole, and on regional and international relations. Many donors noted the negative implications of the Darfur conflict on the partnership between the Sudanese parties and the international community, including with respect to meeting non-humanitarian funding requirements in other parts of the country. The commitment to continued humanitarian assistance was confirmed although the need for improved security and access on the ground was emphasized. The international community expressed serious concern at continuing violence in Darfur, called on all parties to the conflict to put an immediate end to hostilities on the ground, and welcomed the commitment of the national government to reaching an agreement in the African Union-led peace talks in Abuja. The leadership of the African Union both in the field (AMIS) and in the peace talks was widely recognized, while noting the urgency of improved security on the ground.

Many speakers highlighted the importance of addressing the development needs in Eastern Sudan, where the security situation remains tense. This should be part of the scale-up of pro-poor efforts assessed below:

On macro and structural policies, the achievement of the national authorities in successfully maintaining macroeconomic stability and strong economic growth in consultation with IMF staff in the context of successive Staff-Monitored Programs (SMPs) was recognized. In 2005, economic growth has remained robust (8 percent year on year), especially in the non-oil sector, and foreign direct investment reached US$2.4 billion. A further pick up in growth is projected for 2006. Inflation (seen by the Government as a pernicious tax on the poor) has been contained within single-digit levels and is targeted to fall slightly to 7.5 percent in 2006.

While overall economic trends were seen as favorable, there were some slippages and delays on budget execution and fiscal reforms in 2005. In particular, the unexpected subsidy on domestic fuels constituted a drag on the budget and reached near US$1 billion in 2005. There were also delays in improving budget classification and setting the basis for reporting along Government Finance Statistics Methodology (GFSM) lines, ostensibly related to capacity and other constraints.

An important theme of the Sudan Consortium meeting was transparency in the use of domestic resources and the need to increase pro-poor spending. One of the key features of the 2005 budget was the channeling of large transfers to the South as envisaged in the CPA and a substantial increase in transfers to the Northern states. While the appropriate definition and calculation of domestic pro-poor spending in Sudan are still at a preliminary stage in the context of the ongoing Public Expenditure Review (PER), it was agreed that pro-poor spending did increase in 2005 relative to 2004. However, participants recognized that poverty remains pervasive in the South and other regions. The 2006 fiscal framework shows a further increase in transfers to states and in pro-poor spending that approaches the commitments made in early 2005 by the GNU and the GOSS under the Joint Assessment Mission (JAM) conducted by the UN, the World Bank, and the IMF.

In Southern Sudan, the breadth of institution building achieved so far was commended; in particular, the establishment of the Legislative Assembly and the formation of caretaker GOSS and state governments, underpinned by the Interim Constitution for Southern Sudan provided the basis for the new government.

Regarding the GOSS budget, 2005 was a transition year. A formal budget was prepared and approved in late 2005, but experience underlines the importance of getting systems established—for payments and reporting. For 2006, a promising process was launched, and sectoral ceilings show close correspondence with JAM priorities, as these continue to evolve. The presentation of accounts by the GOSS for 2005 was especially welcome, while recognizing the need for strengthening of underlying systems of payments and accounts and public financial management in general. The role of development assistance and especially through the Multi-Donor Trust Funds (MTDFs) in establishing robust sectoral programs and introducing sound systems of financial management and procurement was also emphasized, as well as the need to formulate a strategy for the management of GOSS savings through the recruitment of fund managers on an internationally competitive basis and rules guiding the accumulation and drawdown of savings.

Overall progress in the Three Areas (Abyei, Southern Kordofan and Blue Nile), which were accorded special status in the CPA, has been limited. This was due mainly to insufficient progress on overall CPA implementation, which also contributed to national budgetary support for these areas in 2005 running at far below committed levels. The commitment of the GNU to scale-up efforts in the transitional areas of Abyei, Southern Kordofan, and Blue Nile is critical to enabling sustained peace in those areas.

The macro-structural commitments of the National Government and the Government of Southern Sudan for 2006 are encouraging. The program of the Government of National Unity (to be monitored by IMF staff) contemplates important measures to preserve economic stability, increase budget allocations to social and infrastructure projects, and lower the onerous fuel subsidy. Other commitments include rationalizing the system of tax incentives; establishing rules and procedures for the Fiscal and Financial Allocation and Monitoring Commission (the body that will oversee the allocation of transfers to the states), proceeding with the Public Expenditure Review, and beginning fiscal reporting according to GFSM. The latter involves commitments by the GNU and the GOSS to convert the 2006 budget to the GFSM 2001 classification by May 2006 and to produce regular budget execution reports along GFS lines from June 2006.

Two key challenges in the period ahead are proceeding with reforms in the area of public financial management. Transparency in budget processes and execution is critical at all levels of government, as well as strengthening public procurement, expenditure control, and auditing. Furthermore, information and coordination on transfers to the South (as envisaged in the peace agreement) is also critical to foster trust and transparency and facilitate the conduct of economic policies.

The commitments of the GNU under the IMF Staff Monitored Program to improve oil sector transparency were welcomed, including the publication of detailed oil sector data, the completion of audits of the state-oil company Sudapet, and regular transfers of state oil companies' profits to the treasury. The implementation of financial sector reforms is also critical, especially those related to the CPA provision on restructuring of the central bank and the introduction of a new national currency. The issue of the new currency attracted special attention, and the plan recently prepared by the Central Bank and its associated financing and technical assistance requirements were reviewed. There was an extensive discussion about appropriate financing modes, including the implications for the MDTFs.

Cross-cutting themes include the need to focus on women and children, and the importance of affirmative actions alongside mainstreaming to ensure appropriate attention to gender. The importance of providing space for civil society and non-governmental organizations (NGOs) was also emphasized. Concerns were expressed about the implications of the NGO law for effective operations. NGO statements emphasized their goals and potential contributions through constructive engagement in policy dialogue, recovery activities, the MDTFs and community based monitoring and evaluation.

The centrality of poverty eradication and the Millennium Development Goals to Sudan's development goals was reaffirmed. It was agreed that the keys to accelerating progress on poverty eradication on the part of the GNU revolve around four broad themes where concrete progress needs to be made in 2006:

1. Improving governance and transparency, which is underpinned by the CPA agenda. The priorities include the measures needed to ensure increases in public spending especially on basic infrastructure and social services, to benefit the poor, through

  • • Effective decentralization, building on the increased planned transfers to Northern states and Three Areas, is critical to increasing funds for basic service delivery:

    • Transparency and predictability on mechanisms and amounts of resources to sub-national levels; and in particular the rules underlying the distribution across states (to what extent allocations should be based on derivation of revenue) and improving the progressiveness of allocations in favor of disadvantaged states (e.g., in Darfur); as well as clarifying the roles of various institutions involved in this process.

    • Improving public financial management (especially procurement rules) and budget execution (e.g., salary arrears);

    • Building local and national government capacities for policy development, public expenditure and human resource management, and service delivery;

    • Facilitating more open and consultative governance; and,

    • Improving oil sector transparency, including the effective operations of the National Petroleum Commission in future oil sector reforms.

The commitment of the GNU and the Minister of Finance and National Economy to the ongoing Public Expenditure Review is also critical, and should facilitate progress in the foregoing areas; using the public sector reform program to "make decentralization work."

2. Adopt urgently needed measures to support rural development—especially small farmers and firms— foremost of which is to abolish the monopoly on raw Gum Arabic and on livestock exports. Other priorities discussed were Gezira, semi-mechanized farming, support services (with private sector involvement), private investment in disadvantaged regions, and the re-establishment of land use rights.

3. In order to promote private sector development and trade more broadly, bureaucratic barriers facing business registration, customs, and land use needs to be reduced, and procedures and logistics through Port Sudan streamlined. The government commitment to implement the tariff reform program and rationalize the tax system is also important to improve competitiveness and the business climate.

4. Allocation of government and donor resources to, and service delivery in sectors key to poverty reduction such as water and sanitation, health and education.

For the GOSS, the keys to accelerated progress in poverty eradication were laid out in terms of efforts to ensure the development of basic infrastructure and social services, and pro-poor spending efforts, which require:

1. Building core capacities and establishing the public service, with short term measures to finalize and implement a recruitment policy and payroll system, implement anti-corruption safeguards, provide support to state and local level institutions, and improve coordination of development policies and programs.

2. Establishing a base for sound public financial management, especially to formalize systems of payment and accounting, and to enact and enforce transparent procedures including for procurement with specific priorities including establishment of a Treasury Single Account, public finance legislation and procurement rules, and establishing processes and accounting for intergovernmental transfers and create public expenditure management capacity at the state and local levels, along with measure to strengthen management of savings as noted above.

3. Establishing basic infrastructure links, enabling productive activities and delivery of basic services are all critical to pro-poor development. Access to basic healthcare and education needs to be expanded based on emerging sector programs.

The enormity of the agenda facing the Sudan underlines the importance of prioritization to address short, medium, and longer-term needs, and coordination of development assistance. Several donors raised the issue of integrating the needs internally displaced peoples and return to the design of sectoral programs.

The Sudan Consortium welcomed the commitments made by donors for funding and noted that the promises made last year in Oslo to support Phase 1 of the Interim Period (though end 2007) are on-track. Out of a total of US$4.5 billion pledged through 2007, about 38 percent has so far been reported. Overall reported assistance has increased significantly, from US$383 million in 2003 to over US$1.7 billion in 2005. While this was significantly driven by increased humanitarian assistance to Darfur, which peaked at US$890 million in 2004, assistance to Southern Sudan rose to US$680 million in 2005, with large shares of humanitarian and recovery support, alongside an increase in development assistance.

The tripling of total reported assistance to Southern Sudan since Oslo is evidence of donor commitment. The CPA appears to have been associated with an increase in the relative share of the South in total assistance to the Sudan, which rose from 20 percent in 2004 to about 40 percent in 2005. Moreover, in 2005, a much larger share of assistance to the South could be classified as recovery or development, which is consistent with the shift in focus in the agenda laid out in the JAM.

At the Paris meeting, donors confirmed their financial support for the Sudan, for both development and ongoing humanitarian needs, consistent with the pledges made in Oslo. The confirmed total support for 2006 is nearly US$1.8 billion, of which, roughly US$1 billion in humanitarian assistance. Several donors noted that the financing support was expected to be larger than what had been pledged in Oslo. In addition, several donors have come on board as new supporters of the two MDTFs (i.e., France, Egypt, and the League of Arab States).

It was agreed among partners and with the Sudanese, that development assistance, especially to marginalized areas, should not be conditional upon a peace agreement in Darfur. It was clear that a failure of the CPA and a failure to deliver peace dividends in the south would have broad adverse repercussions for the whole country. At the same time, it was agreed that early planning for post conflict financing of recovery and development needs should begin, to enable the dividends of peace to flow and to underpin sustainable development.

There was consensus that the MDTFs are a valuable vehicle to engage the GNU and GOSS on good governance, and leverage domestic resources in meeting medium to longer-term commitments outlined in the JAM. It was also agreed that there is a need to consider alternative mechanisms to bridge the existing recovery gap and complement efforts to deliver support through humanitarian interventions. During the past year, the MDTFs received about US$50 and US$100 million of actual donor disbursements for the North and South, respectively. The existing funds have been nearly fully committed in the sense of having approved full program proposals, and while efforts are needed now to ensure implementation and disbursements, replenishments are needed to support programs in 2006 and beyond. Consistent with the CPA and the desire of the Government as well as development partners to harmonise assistance, it was agreed that the resources for medium to longer-term development assistance be directed, as much as possible, through the MDTFs. This will help prioritize the use of resources consistent with the JAM and create appropriate links to the government budgets.

The next Sudan Consortium will be an occasion to revisit the commitments made, and deepen the dialogue. It is expected that future events should be held in Sudan and that the next Sudan Consortium meeting would take place in early October, 2006. The value of having discussions that are more specific at each Sudan Consortium was recognized. This next Sudan Consortium could usefully focus more on pro-poor spending definitions and trends, the adoption of Government Finance Statistics and reporting, and progress on the Public Expenditure Review and related areas. It may also be appropriate at that stage to review post conflict development planning for Darfur, including in light of lessons learnt from the experiences since the CPA.

Through the shared knowledge of issues and the policy agenda, the generosity of development partners, and most importantly, the leadership, concerted efforts, and resources of the Sudanese people, we see prospects for concrete progress in 2006 and beyond. "



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