## _cr13319

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---

### Background and context
- Prepared following the secession of South Sudan in July 2011.
- Approved by the Council of Ministers and by Parliament on 20 July 2012.
- Preparation initiated before secession; governance structures remain based on the 2005 Interim National Constitution (INC) that underpinned the Comprehensive Peace Agreement (CPA).
- Historical context: alternation of civilian and military governments and two protracted North-South wars with heavy tolls on human life and economic resources.
- Post-secession priorities for authorities:
  - negotiations on economic and political relations with South Sudan;
  - addressing massive revenue shocks from loss of oil revenue share;
  - internal conflicts, resettlement and reintegration of millions of internally displaced persons (IDPs);
  - normalization of relations with the international development community to access post-conflict recovery and development assistance.
- Date on document: September 5, 2013.

### I-PRSP role, strengths, and next steps
- Provides a stock-taking of Sudan’s socioeconomic situation and a basis for designing and monitoring growth and poverty reduction policies.
- First comprehensive policy document assessing challenges and opportunities for poverty reduction as the centerpiece for setting priorities.
- Developed in consultations with nationals and the international community; moves toward more transparent and participatory planning.
- Government views I-PRSP as an important bridge to development partnership with the international development community.
- Multi-donor trust fund (MDTF) counterpart funding:
  - Government contributed 59 percent of overall allocated financing, and a similar disbursement percentage (as of end March 2013).
  - Government emphasis among projects: those benefiting underdeveloped rural areas and social services, including contributions to the Community Development Fund (CDF).
- Urgent need to define timelines and concrete next steps to move from the I-PRSP to a full PRSP.
- Staff periodic assessment focus areas:
  - extent to which policy priorities are reflected in budget preparation and execution;
  - share of poverty reducing expenditures in the executed budget;
  - definition of concrete next steps and milestones for developing a full PRSP using broad-based participatory processes.

### The participation process
- I-PRSP resulted from an encouraging participatory process but requires strengthening and greater inclusiveness for a full PRSP.
- Consultations held nationwide and with international stakeholders; participation largely with officials at federal, state and local governments and the few civil society organizations based in Khartoum.
- Constraints:
  - strong centralized planning practice with lack of mechanisms allowing broad participation;
  - limited numbers of independent and strong civil society organizations (CSOs).
- Staff recommendations for full PRSP process:
  - ensure the future PRSP steering committee has strong representation from CSOs and private sector organizations;
  - rely extensively on surveys and focus group discussions to obtain population views, including poor, remote and conflict-affected regions;
  - consider a nationwide campaign early in the PRSP process to inform the population and emphasize popular participation;
  - formalize and pre-plan process steps; detail and accelerate the roadmap provided at the end of the I-PRSP.

### Poverty diagnostics
- Principal data source: 2009 National Baseline Household Survey (NBHS), the only household consumption survey in recent years.
- Need for a new household survey to allow inter-temporal comparisons and provide a stronger foundation for the full PRSP.
- Key statistics from NBHS:
  - 46.5 percent of the population below the poverty line.
  - Urban poverty rate: 26.5 percent below the poverty line.
  - Rural poverty rate: 57.6 percent below the poverty line.
  - 45 percent of household heads have no formal education.
- Observations:
  - substantial regional disparities in poverty;
  - poverty rates correlate highly with education; highest for households whose head has no education and high for those with only some primary education.
- Staff suggestion: follow-up national household expenditure survey, possibly supplemented by surveys using the core welfare indicators questionnaire (CWIQ) methodology.

### The Interim Poverty Reduction Strategy — overarching challenges and four pillars
- Identified development challenges: war and peace, national unity, reintegration and reconciliation, multiple dimensions of poverty, unemployment, and severe regional disparities in income and access to services.
- I-PRSP anchors around four pillars:
  - (i) strengthening governance and the institutional capacity of the public sector;
  - (ii) reintegrating IDPs and other displaced populations;
  - (iii) developing human resources;
  - (iv) promoting economic growth and employment creation.

### A. Strengthening governance and institutional capacity in the public sector
- Emphasizes inclusive governance and links between peace, security, national unity, economic growth and poverty reduction.
- Policy and institutional actions mentioned: conflict resolution and national reconciliation, protection of human, women’s and children’s rights and fundamental freedoms, right to vote in free and fair elections, rights of expression and free press, property rights, and decentralization.
- Limited tangible results so far, likely due to unstable macroeconomic environment and high inflation harming real growth and low-income households.
- Constitution and laws provide for federal and decentralized governance, but power remains largely centralized and sub-national governments are weak.
- Recommendations:
  - consolidate recent advances with further policy actions and specific indicators and targets in the full PRSP;
  - strengthen commitment, policy and institutional reforms, and public sector implementation capacity to improve governance and service delivery;
  - strengthen decentralized governance to reduce marginalization in conflict-affected states and improve distribution of growth dividends;
  - prioritize reforms of public financial management (PFM), civil service and capacity building at federal, state and local government levels to energize service delivery and lower overhead costs;
  - review and revise fiscal revenue allocation mechanism to provide more predictable streams of revenue for state and local governments consistent with their mandates;
  - strengthen local government autonomy to improve public spending and investment decision-making and enhance grassroots participation;
  - establish a transparent public procurement system, building on the Procurement Act of 2010.

### B. Reintegration of IDPs and other displaced populations
- Conflict created large numbers of IDPs and international refugees.
- IDP estimates range from 2 to 5 million people, concentrated in the Darfur states and substantial numbers in Khartoum and East Sudan.
- Reintegration objectives:
  - systematic reintegration into vibrant communities and sustainable livelihoods to enhance prospects of sustained peace and security, promote efficient use of human resources, and slow environmental degradation;
  - durable peace and agreements providing for local participation in governance and credible development programs are essential.
- Lessons: East Sudan peace agreement and development program offer experience but limited implementation hampered reintegration.
- International assistance needs:
  - financial and technical assistance from development partners is critical given large numbers, complex challenges and substantial costs;
  - forge an international partnership including aid agencies, development partners and relevant local and international NGOs to leverage international experience.

### C. Developing human resources
- Progress since CPA (2005): noticeable improvements in women’s rights, access to education at all levels, health care and water provision.
- Main challenges: service quality and regional disparities in education; poor health and nutrition outcomes with significant variation between states; historically low government expenditures for social services and recent revenue decline threatens further reductions.
- Policy priority: protect spending for social services amid likely retrenchment of expenditures to remain consistent with I-PRSP priorities.
- Education:
  - more females enrolled in tertiary education than males;
  - improvements in enrolment at all levels, with fast growth in pre-primary and tertiary education and in Darfur, Kordofan, Blue Nile, Kassala and Red Sea, but significant regional disparities persist;
  - challenges: relevance and low/declining quality of secondary and tertiary education and financing constraints;
  - recommendation: accelerate implementation of education sector priority actions in the I-PRSP policy matrix, including building schools/classrooms and increasing supply of good quality teachers.
- Health:
  - Sudan is lagging in health MDGs; malnutrition remains a major cause of child morbidity and mortality;
  - 30 percent of children under five are underweight.
  - Communicable diseases remain rampant; non-communicable diseases are on the rise; reduction in malaria incidence noted as a positive outcome of focused action.
  - Health expenditures are largely state-level and show significant disparities in per capita health expenditure and allocations to service delivery.
  - Recommendations:
    - harmonize health resource allocation between states and consider health status and financing ability in revenue sharing between states and the federal government;
    - implement health sector priority actions from the I-PRSP policy matrix, including investments in human resources and private sector partnerships.
- Water and sanitation:
  - significant gap to meet MDGs;
  - key challenges: inadequate implementation, poor management and coordination capacity, lack of resources for investment in conservation, water quality and monitoring, and low community awareness;
  - authorities working at federal and state levels with sector partners to narrow the gap; building and strengthening partnerships is crucial.
- Social protection:
  - Sudan has a social protection system including Zakat, government programs for vulnerable groups, assistance from relief agencies, the Community Development Fund (CDF), and health insurance.
  - CDF, funded from the government and an MDTF, is a community-driven mechanism for recovery and development in conflict-affected states, working closely with communities and local governments to design and implement infrastructure projects based on community needs.
  - CDF projects were very successful and cooperation between empowered communities and local government offers lessons for effective local governance.
  - Staffs encourage continued action in this context.

### D. Promotion of economic growth and employment creation
- Document text supplied cuts off at the beginning of section D; the I-PRSP identifies promotion of economic growth and employment creation as a core pillar and links it to the other pillars outlined above.

### Growth and employment strategy
- Rapid economic growth from non-natural resource sectors needed to significantly reduce current high rates of unemployment.
- I-PRSP focus: growth in agriculture and livestock, manufacturing and services, and emphasis on the role of the private sector.
- Employment-creation strategy organized under sub-pillars:
  - enabling macroeconomic environment for growth;
  - enabling environment for private sector growth;
  - enhancing productivity and growth in agriculture;
  - strengthening economic services for recovery and growth;
  - protection of natural resources and the environment.

### Private sector climate and investment
- Recent surveys and assessments indicate Sudan is not perceived to have a strong business climate.
  - Doing Business Report 2011 ranked Sudan as 154 out of 183 countries on the ease of doing business.
  - The scores improved to 140 in 2012.
- Private sector concerns: political instability, economic uncertainty, lack of transparency, lack of infrastructure, poor access to finance and taxation.
- Post-CPA investment: substantial external investment mainly in oil and service sectors; non-oil investments concentrated around Khartoum with limited investment in western, eastern and southern states.
- Government reviewed the Investment Encouragement Act (IEA); review was not sufficiently collaborative with the private sector and did not materially improve the business climate.

### Agriculture, natural resources and infrastructure
- With loss of oil fields and production to South Sudan, agriculture has regained role as a major source of growth.
- Under-utilized agricultural assets: rural labor, fertile land, water resources and irrigation infrastructure.
- Sector performance over last decade:
  - crop yields have declined;
  - livestock production depressed by high marketing and transport costs;
  - Gum Arabic export crop has fallen due to poor incentives and extension services affecting volume and quality.
- Overall sector suffers from low and declining productivity.
- Government strategy to revive agriculture is not sufficiently focused and implementation limited; staffs recommend new analytical work to prepare a focused sector strategy with clear priorities for the full PRSP.
- Infrastructure:
  - progress in rehabilitating infrastructure damaged by lack of maintenance, notable in hydroelectric power in Khartoum region;
  - significant expansion of telecommunications via PPP; government ownership declined to minority shareholding in one land-line telecommunications company;
  - lack of infrastructure and high costs continue to constrain socio-economic activity; large areas not connected to the national electricity grid;
  - plans for expanding road, rail, inland water transport, and power generation/transmission include PPP provisions, but implementation requires improved private sector climate, governance risk management, and public-sector PPP capacity.
- Environmental degradation:
  - long-term desertification, deforestation, soil erosion and biodiversity deterioration have negatively impacted poor livelihoods;
  - laws, policies and strategies exist but lack of human and financial resources has hampered implementation;
  - recommendation: conduct a sector status study and report to underpin prioritized action plans and address implementation capacity.

### Macroeconomic framework and past performance
- 1996–2010: authorities preserved macroeconomic stability in volatile circumstances with IMF staff-monitored program advice:
  - real GDP grew by about 4.5 percent on average during this period;
  - inflation remained in the single digit range;
  - fiscal and external accounts strengthened.
- South Sudan secession reversed this trend starting in 2011:
  - Sudan lost 75 percent of oil output, almost 60 percent of fiscal revenues and about two thirds of its current account payment capacity.
  - With limited external financing, the shock and delayed responses created sizable macroeconomic imbalances in 2011 and first half of 2012.
  - Corrective measures introduced by mid-2012; overall 2012 performance mixed.
  - Of particular concern: acceleration of inflation close to 50 percent largely due to inappropriate monetary policy driven by heavy monetization of the budget deficit.
- Fiscal space constrained by the permanent nature of the shock; staffs view enhanced domestic revenue mobilization (especially tax revenues, currently comparatively very low) as key to creating priority expenditure space while maintaining consistency with I-PRSP poverty priorities.

### Medium-term macroeconomic framework (MTF) and policy mix
- I-PRSP MTF objectives for 2013–15:
  - (i) sustaining an average growth rate of about 4 percent;
  - (ii) bringing down inflation to 10 percent;
  - (iii) reducing the overall budget deficit to 3 percent;
  - (iv) containing the current account deficit to 3.1 percent of GDP.
- Staffs view objectives as reasonably sound provided corrective policies address prevailing imbalances.
- Growth basis and risks:
  - MTF built on optimistic assumptions regarding oil output, royalties from pipeline transporting oil from South Sudan, and non-oil sector activity (agriculture, livestock, manufacturing).
  - Projected external financing envelope underpinning the I-PRSP needs clarification.
  - Growth faces challenges: volatile security situation, political transition, uncertainty around debt relief.
- Fiscal recommendations and expected impact:
  - increase revenue collection via tax-base expansion and improved revenue administration while eliminating tax exemptions and revenue earmarking; implementation could generate an annual average increase of 0.5 percentage points of GDP in the near-term;
  - spending-side focus: sizable compression through cutting non-priority spending, gradual elimination of energy subsidies, and prioritizing capital outlays;
  - recommended gradual action plan to reduce fiscal cost of price subsidies over 4-5 years to reduce inflationary impact while allowing time to establish social safety nets.
- Monetary policy:
  - restrict monetization of the fiscal deficit and cease long-term rescheduling of overdue temporary advances to government to reduce inflation; staffs welcome the policy shift but suggest realism in inflation targets given social context and pace of fiscal reforms.
- External sector:
  - authorities should eliminate multiple exchange rates and unify them while ensuring further flexibility in the official rate; staffs call for immediate unification to eliminate foreign exchange market distortions and ensure external stability.
- Structural reforms aimed at promoting non-oil exports, trade liberalization, and comprehensive public-sector restructuring including banks.

### External support, debt, and financing
- External support and debt relief are crucial for achieving medium-term poverty reduction goals in the I-PRSP.
- 2012 joint Bank-Fund debt sustainability analysis: Sudan remains in debt distress.
- Sudan’s external debt estimated at about US$43.2 billion—most of which is in arrears (including to the IMF and the World Bank)—and is unsustainable.
- Unresolved arrears have limited access to concessional financing.
- Arrears clearance and debt relief are critical for economic rebound and poverty reduction.
- Staffs welcome authorities’ intention to launch outreach with South Sudan to elicit creditor support for debt relief and encourage full implementation of a reform package (including in the context of an SMP) to garner creditor support.

### Implementation, monitoring and capacity
- Monitoring and evaluation are critical for PRS effectiveness.
- Technical Committee for I-PRSP preparation (Ministry of Finance, Central Bank of Sudan, national bureau of statistics, key line ministries) charged with monitoring and evaluation.
- Committee needs further empowerment: capacity building and addition of members from Cabinet Secretariat, offices of the President and Vice-President, and other national planning officials.
- Clear terms of reference for Committee work should be prepared and shared.
- Staffs recommend the Technical Committee prepare a monitoring and evaluation plan, collect data, and prepare an implementation progress report covering the first year.
- Implementation tasks for full PRSP: participatory process design, household survey data collection and analysis, and other analytical work; delays in these tasks would delay completion of the full PRSP.
- Domestic resource limits mean donor support will be critical for areas including reintegration of IDPs and refugees, capacity building, and conducting surveys and analytical work.

### Risks
- Risks are tilted to the downside amid difficult economic and political transition, unsettled civil conflicts, fragile international relations, weak administrative capacity, and delays in implementing the oil agreement (which President Bashir has threatened recently to put on hold).
- Upside factors:
  - visit of Sudan head of state to South Sudan;
  - donor conference in Doha;
  - U.S. invitation to ruling party to visit Washington, D.C.;
  - potential facilitation of security agreements on conflicts in Darfur, South Kordofan and the Blue Nile.
- Rapid initiation of key planned I-PRSP reforms could enhance credibility and help unlock international support.
- Building a track record of implementation of the medium-term reform program in the I-PRSP will facilitate re-engagement with the international community.

### Conclusions and key recommendations
- I-PRSP provides an integrated policy framework to accelerate poverty reduction, based on adequate analysis and sectoral/national plans under four pillars, including inclusive governance and institutional capacity.
- Staffs urge prompt implementation of short-term policies and continued track-record building for medium-term strategy implementation.
- Key priorities and actions:
  - promptly implement corrective macroeconomic policies and consider a successor SMP in 2013 to implement a second reform package;
  - enhance domestic revenue mobilization and reform tax policy/administration (potential near-term gain of 0.5 percentage points of GDP);
  - implement gradual energy subsidy reform over 4-5 years while building social safety nets;
  - unify exchange rates immediately to remove distortions and support external stability;
  - undertake focused analytical work for agriculture and environment sectors and prepare prioritized sector strategies and implementation capacity plans;
  - strengthen the Technical Committee for monitoring and evaluation and begin an initial implementation progress report covering the first year;
  - secure external support, clear arrears and pursue debt relief, coupled with full implementation of reforms to make debt relief feasible.
- For the full PRSP, critical actions include:
  - establishing a new National Baseline Household Survey (NBHS) as soon as possible;
  - strengthening participatory processes and sensitization;
  - conducting additional analytical work;
  - securing sustained donor support.

*Source: _cr13319 - 1.      This interim Poverty Reduction Strategy Paper (I-PRSP) was prepared (September 5, 2013). / _cr13319 - 18.      Sudan needs rapid economic growth to create employment and reduce poverty; this*

### 1.      This interim Poverty Reduction Strategy Paper (I-PRSP) was prepared

### _cr13319 - 1.      This interim Poverty Reduction Strategy Paper (I-PRSP) was prepared

### Background and context
- Prepared following the secession of South Sudan in July 2011.
- Approved by the Council of Ministers and by Parliament on 20 July 2012.
- Preparation of the I-PRSP was initiated before the secession of South Sudan.
- Governance structures for the new Sudan remain based on the 2005 Interim National Constitution (INC) that underpinned the Comprehensive Peace Agreement (CPA).
- Historical context: alternation of civilian and military governments and two protracted North-South wars with heavy tolls on human life and economic resources.
- Post-secession priorities for authorities: negotiations on economic and political relations with South Sudan, addressing massive revenue shocks from loss of oil revenue share, internal conflicts, resettlement and reintegration of millions of internally displaced persons (IDPs), and normalization of relations with the international development community to access post-conflict recovery and development assistance.
- Date on document: September 5, 2013.

### I-PRSP role, strengths, and next steps
- The I-PRSP provides a stock-taking of Sudan’s socioeconomic situation and a basis for designing and monitoring growth and poverty reduction policies.
- First comprehensive policy document assessing challenges and opportunities for poverty reduction as the centerpiece for setting priorities.
- Developed in consultations with nationals and the international community; moves toward more transparent and participatory planning.
- The Government regards the I-PRSP as an important bridge to development partnership with the international development community.
- Multi-donor trust fund (MDTF) counterpart funding:
  - The Government contributed the lion’s share of MDTF allocations with 59 percent of overall allocated financing, and a similar disbursement percentage (as of end March 2013).
  - Government emphasis among projects: those benefiting underdeveloped rural areas and social services, including contributions to the Community Development Fund (CDF).
- Urgent need to define timelines and concrete next steps to move from the I-PRSP to a full PRSP.
- Staffs will periodically assess implementation, focusing on:
  - Extent to which policy priorities are reflected in budget preparation and execution.
  - Share of poverty reducing expenditures in the executed budget.
  - Definition of concrete next steps and milestones for developing a full PRSP using broad-based participatory processes.

### The participation process
- I-PRSP resulted from an encouraging participatory process but requires strengthening and greater inclusiveness for a full PRSP.
- Consultations were held with diverse groups nationwide and international stakeholders; however, participation was largely with officials at federal, state and local governments and the few civil society organizations based in Khartoum.
- Constraints noted:
  - Strong centralized planning practice with lack of mechanisms allowing broad participation.
  - Limited numbers of independent and strong civil society organizations (CSOs) to actively participate.
- Staff recommendations for full PRSP process:
  - Ensure the future PRSP steering committee has strong representation from CSOs and private sector organizations.
  - Rely extensively on surveys and focus group discussions to obtain population views, including poor, remote and conflict-affected regions.
  - Consider a nationwide campaign early in the PRSP process to inform the population and emphasize popular participation.
  - Formalize and pre-plan process steps; detail and accelerate the roadmap provided at the end of the I-PRSP.

### Poverty diagnostics
- Principal data source: 2009 National Baseline Household Survey (NBHS), the only household consumption survey in recent years.
- Need identified for a new household survey to allow inter-temporal comparisons and provide a stronger foundation for the full PRSP.
- Key statistics from NBHS:
  - 46.5 percent of the population below the poverty line.
  - Urban poverty rate: 26.5 percent below the poverty line.
  - Rural poverty rate: 57.6 percent below the poverty line.
  - 45 percent of household heads have no formal education.
- Observations:
  - Substantial regional disparities in poverty.
  - Poverty rates correlate highly with education; highest for households whose head has no education and high for those with only some primary education.
- Staff suggestion: follow-up national household expenditure survey, possibly supplemented by surveys using the core welfare indicators questionnaire (CWIQ) methodology.

### The Interim Poverty Reduction Strategy — overarching challenges and four pillars
- Identified related development challenges: war and peace, national unity, reintegration and reconciliation, multiple dimensions of poverty, unemployment, and severe regional disparities in income and access to services.
- I-PRSP anchors around four pillars:
  - (i) strengthening governance and the institutional capacity of the public sector;
  - (ii) reintegrating IDPs and other displaced populations;
  - (iii) developing human resources;
  - (iv) promoting economic growth and employment creation.

### A. Strengthening governance and institutional capacity in the public sector
- I-PRSP emphasizes inclusive governance and links between peace, security, national unity, economic growth and poverty reduction.
- Mentions policy and institutional actions in governance areas: conflict resolution and national reconciliation, protection of human, women’s and children’s rights and fundamental freedoms, right to vote in free and fair elections, rights of expression and free press, property rights, and decentralization.
- Limited tangible results so far, likely due to unstable macroeconomic environment and high inflation harming real growth and low-income households.
- Constitution and laws provide for federal and decentralized governance, but power remains largely centralized and sub-national governments are weak.
- Recommendations:
  - Consolidate recent advances with further policy actions and specific indicators and targets in the full PRSP.
  - Strengthen commitment, policy and institutional reforms, and public sector implementation capacity to improve governance and service delivery.
  - Strengthen decentralized governance to reduce marginalization in conflict-affected states and improve distribution of growth dividends.
  - Prioritize reforms of public financial management (PFM), civil service and capacity building at federal, state and local government levels to energize service delivery and lower overhead costs.
  - Review and revise fiscal revenue allocation mechanism to provide more predictable streams of revenue for state and local governments consistent with their mandates.
  - Strengthen local government autonomy to improve public spending and investment decision-making and enhance grassroots participation.
  - Establish a transparent public procurement system, building on the Procurement Act of 2010.

### B. Reintegration of IDPs and other displaced populations
- Conflict in Sudan and neighboring countries created large numbers of IDPs and international refugees.
- IDP estimates range from 2 to 5 million people, with concentration in the Darfur states and substantial numbers in Khartoum and East Sudan.
- Reintegration objectives:
  - Systematic reintegration into vibrant communities and sustainable livelihoods to enhance prospects of sustained peace and security, promote efficient use of human resources, and slow environmental degradation.
  - Durable peace and agreements providing for local participation in governance and credible development programs are essential for reintegration.
- Lessons: East Sudan peace agreement and development program offer experience, but limited implementation hampered reintegration.
- International assistance needs:
  - Financial and technical assistance from development partners is critical given large numbers, complex challenges and substantial costs.
  - Forge an international partnership including aid agencies, development partners and relevant local and international NGOs to leverage international experience.

### C. Developing human resources
- Progress since CPA (2005): noticeable improvements in women’s rights, access to education at all levels, health care and water provision.
- Main challenges:
  - Service quality and regional disparities in education.
  - Poor health and nutrition outcomes with significant variation between states.
  - Historically low government expenditures for social services; recent revenue decline threatens further reductions.
- Policy priority: protect spending for social services amid likely retrenchment of expenditures to remain consistent with I-PRSP priorities.
- Education:
  - Staffs welcome progress in promoting women’s education; more females enrolled in tertiary education than males.
  - Improvements in enrolment at all levels, with fast growth in pre-primary and tertiary education and in Darfur, Kordofan, Blue Nile, Kassala and Red Sea, but significant regional disparities persist.
  - Challenges: relevance and low/declining quality of secondary and tertiary education and financing constraints.
  - Recommendation: accelerate implementation of education sector priority actions in the I-PRSP policy matrix, including building schools/classrooms and increasing supply of good quality teachers.
- Health:
  - Sudan is lagging in health MDGs; malnutrition remains a major cause of child morbidity and mortality.
  - 30 percent of children under five are underweight.
  - Communicable diseases remain rampant; non-communicable diseases are on the rise; reduction in malaria incidence noted as a positive outcome of focused action.
  - Health expenditures are largely state-level and show significant disparities in per capita health expenditure and allocations to service delivery.
  - Recommendation: harmonize health resource allocation between states and consider health status and financing ability in revenue sharing between states and the federal government.
  - Implement health sector priority actions from the I-PRSP policy matrix, including investments in human resources and private sector partnerships.
- Water and sanitation:
  - Significant gap to meet MDGs.
  - Key challenges: inadequate implementation, poor management and coordination capacity, lack of resources for investment in conservation, water quality and monitoring, and low community awareness.
  - Authorities working at federal and state levels with sector partners to narrow the gap; building and strengthening partnerships is crucial.
- Social protection:
  - Sudan has established a social protection system including Zakat, government programs for vulnerable groups, assistance from relief agencies, the Community Development Fund (CDF), and health insurance.
  - The CDF, funded from the government and an MDTF, is a community-driven mechanism for recovery and development in conflict-affected states, working closely with communities and local governments to design and implement infrastructure projects based on community needs.
  - CDF projects were very successful and cooperation between empowered communities and local government offers lessons for effective local governance.
  - Staffs encourage continued action in this context.

### D. Promotion of economic growth and employment creation
- (Document text cuts off at the beginning of section D in the supplied content; the I-PRSP identifies promotion of economic growth and employment creation as a core pillar and links it to the other pillars outlined above.)

*Source: _cr13319 - 1.      This interim Poverty Reduction Strategy Paper (I-PRSP) was prepared (September 5, 2013).*

### 18.      Sudan needs rapid economic growth to create employment and reduce poverty; this

### 18.      Sudan needs rapid economic growth to create employment and reduce poverty; this

### Growth and employment strategy
- Rapid economic growth is needed from non-natural resource sectors to significantly reduce current high rates of unemployment.
- I-PRSP focus: growth in agriculture and livestock, manufacturing and services, and emphasis on the role of the private sector.
- I-PRSP employment-creation strategy organized under four sub-pillars:
  - enabling macroeconomic environment for growth;
  - enabling environment for private sector growth;
  - enhancing productivity and growth in agriculture;
  - strengthening economic services for recovery and growth; and
  - protection of natural resources and the environment.

### Private sector climate and investment
- Recent surveys and assessments, including Doing Business Reports, indicate Sudan is not perceived to have a strong business climate.
  - Doing Business Report 2011 ranked Sudan as 154 out of 183 countries on the ease of doing business.
  - The scores improved to 140 in 2012.
- Private sector concerns: political instability, economic uncertainty, lack of transparency, lack of infrastructure, poor access to finance and taxation.
- Post-CPA investment: substantial external investment mainly in oil and service sectors; non-oil investments concentrated around Khartoum with limited investment in western, eastern and southern states.
- Government reviewed the Investment Encouragement Act (IEA); review is welcome but was not sufficiently collaborative with the private sector and did not build effectively on other countries’ experiences, so the new IEA did not materially improve the business climate.

### Agriculture, natural resources and infrastructure
- With loss of oil fields and production to South Sudan, agriculture has regained role as a major source of growth.
- Sudan possesses under-utilized agricultural assets: rural labor, fertile land, water resources and irrigation infrastructure.
- Sector performance over last decade:
  - crop yields have declined;
  - livestock production depressed by high marketing and transport costs;
  - Gum Arabic export crop has fallen due to poor incentives and extension services affecting volume and quality.
- Overall sector suffers from low and declining productivity.
- Government strategy to revive agriculture is not sufficiently focused and implementation has been limited; staffs recommend new analytical work to take stock and prepare a focused sector strategy with clear priorities for the full PRSP.
- Infrastructure:
  - progress in rehabilitating infrastructure damaged by lack of maintenance, notable in hydroelectric power in Khartoum region;
  - significant expansion of telecommunications via PPP; government ownership declined to minority shareholding in one land-line telecommunications company.
  - lack of infrastructure and high costs continue to constrain socio-economic activity; large areas not connected to the national electricity grid.
  - Plans for expanding road, rail, inland water transport, and power generation/transmission include PPP provisions, but implementation requires improved private sector climate, governance risk management, and public-sector PPP capacity.
- Environmental degradation:
  - long-term desertification, deforestation, soil erosion and biodiversity deterioration have negatively impacted poor livelihoods.
  - I-PRSP notes laws, policies and strategies exist but lack of human and financial resources has hampered implementation.
  - Recommendation: conduct a sector status study and report to underpin prioritized action plans and address implementation capacity.

### Macroeconomic framework and past performance
- 1996–2010: authorities preserved macroeconomic stability in volatile circumstances with IMF staff-monitored program advice:
  - real GDP grew by about 4.5 percent on average during this period;
  - inflation remained in the single digit range;
  - fiscal and external accounts strengthened.
- South Sudan secession reversed this trend starting in 2011:
  - Sudan lost 75 percent of oil output, almost 60 percent of fiscal revenues and about two thirds of its current account payment capacity.
  - With limited external financing, the shock and delayed responses created sizable macroeconomic imbalances in 2011 and first half of 2012.
  - Corrective measures introduced by mid-2012; overall 2012 performance mixed.
  - Of particular concern: acceleration of inflation close to 50 percent largely due to inappropriate monetary policy driven by heavy monetization of the budget deficit.
- Fiscal space constrained by the permanent nature of the shock; staff view enhanced domestic revenue mobilization (especially tax revenues, currently comparatively very low) as key to creating priority expenditure space while maintaining consistency with I-PRSP poverty priorities.

### Medium-term macroeconomic framework (MTF) and policy mix
- I-PRSP MTF objectives for 2013–15:
  - (i) sustaining an average growth rate of about 4 percent;
  - (ii) bringing down inflation to 10 percent;
  - (iii) reducing the overall budget deficit to 3 percent; and
  - (iv) containing the current account deficit to 3.1 percent of GDP.
- Staffs view objectives as reasonably sound provided corrective policies address prevailing imbalances.
- Growth basis and risks:
  - MTF built on optimistic assumptions regarding oil output, royalties from pipeline transporting oil from South Sudan, and non-oil sector activity (agriculture, livestock, manufacturing).
  - Projected external financing envelope underpinning the I-PRSP needs clarification.
  - Growth faces challenges: volatile security situation, political transition, uncertainty around debt relief.
- Fiscal recommendations and expected impact:
  - increase revenue collection via tax-base expansion and improved revenue administration while eliminating tax exemptions and revenue earmarking; implementation could generate an annual average increase of 0.5 percentage points of GDP in the near-term.
  - spending-side focus: sizable compression through cutting non-priority spending, gradual elimination of energy subsidies, and prioritizing capital outlays.
  - recommended gradual action plan to reduce fiscal cost of price subsidies over 4-5 years to reduce inflationary impact while allowing time to establish social safety nets.
- Monetary policy:
  - restrict monetization of the fiscal deficit and cease long-term rescheduling of overdue temporary advances to government to reduce inflation; staffs welcome the policy shift but suggest realism in inflation targets given social context and pace of fiscal reforms.
- External sector:
  - authorities should eliminate multiple exchange rates and unify them while ensuring further flexibility in the official rate; staffs call for immediate unification to eliminate foreign exchange market distortions and ensure external stability.
- Structural reforms intended to promote non-oil exports, trade liberalization, and comprehensive public-sector restructuring including banks.

### External support, debt, and financing
- External support and debt relief are crucial for achieving medium-term poverty reduction goals in the I-PRSP.
- 2012 joint Bank-Fund debt sustainability analysis: Sudan remains in debt distress.
- Sudan’s external debt estimated at about US$43.2 billion—most of which is in arrears (including to the IMF and the World Bank)—and is unsustainable.
- Unresolved arrears have limited access to concessional financing.
- Arrears clearance and debt relief are critical for economic rebound and poverty reduction.
- Staffs welcome authorities’ intention to launch outreach with South Sudan to elicit creditor support for debt relief and encourage full implementation of a reform package (including in the context of an SMP) to garner creditor support.

### Implementation, monitoring and capacity
- Monitoring and evaluation are critical for PRS effectiveness.
- Technical Committee for I-PRSP preparation (Ministry of Finance, Central Bank of Sudan, national bureau of statistics, key line ministries) charged with monitoring and evaluation.
- Committee needs further empowerment: capacity building and addition of members from Cabinet Secretariat, offices of the President and Vice-President, and other national planning officials.
- Clear terms of reference for Committee work should be prepared and shared.
- Staffs recommend the Technical Committee prepare a monitoring and evaluation plan, collect data, and prepare an implementation progress report covering the first year.
- Implementation tasks for full PRSP: participatory process design, household survey data collection and analysis, and other analytical work; delays in these tasks would delay completion of the full PRSP.
- Domestic resource limits mean donor support will be critical for areas including reintegration of IDPs and refugees, capacity building, and conducting surveys and analytical work.

### Risks
- Risks are tilted to the downside amid difficult economic and political transition, unsettled civil conflicts, fragile international relations, weak administrative capacity, and delays in implementing the oil agreement (which President Bashir has threatened recently to put on hold).
- Upside factors: visit of Sudan head of state to South Sudan, donor conference in Doha, U.S. invitation to ruling party to visit Washington, D.C., potential facilitation of security agreements on conflicts in Darfur, South Kordofan and the Blue Nile.
- Rapid initiation of key planned I-PRSP reforms could enhance credibility and help unlock international support.
- Building a track record of implementation of the medium-term reform program in the I-PRSP will facilitate re-engagement with the international community.

### Conclusions and key recommendations
- I-PRSP provides an integrated policy framework to accelerate poverty reduction, based on adequate analysis and sectoral/national plans under four pillars, including inclusive governance and institutional capacity.
- Staffs urge prompt implementation of short-term policies and continued track-record building for medium-term strategy implementation.
- Key priorities and actions:
  - promptly implement corrective macroeconomic policies and consider a successor SMP in 2013 to implement a second reform package;
  - enhance domestic revenue mobilization and reform tax policy/administration (potential near-term gain of 0.5 percentage points of GDP);
  - implement gradual energy subsidy reform over 4-5 years while building social safety nets;
  - unify exchange rates immediately to remove distortions and support external stability;
  - undertake focused analytical work for agriculture and environment sectors and prepare prioritized sector strategies and implementation capacity plans;
  - strengthen the Technical Committee for monitoring and evaluation and begin an initial implementation progress report covering the first year;
  - secure external support, clear arrears and pursue debt relief, coupled with full implementation of reforms to make debt relief feasible.
- For the full PRSP, critical actions include: establishing a new National Baseline Household Survey (NBHS) as soon as possible; strengthening participatory processes and sensitization; conducting additional analytical work; and securing sustained donor support.

*Source: _cr13319 - 18.      Sudan needs rapid economic growth to create employment and reduce poverty; this*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13319.pdf_