1. Sudan Assessing Pro-Poor Efforts through the Budget Sudan Consortium March 9, 2006

2. Motivation  Making investments in pro-poor development is central to averting the risk of future conflict and realising the shared goal of poverty eradication  Strong commitments to pro-poor budgets made in the JAM  Key indicators of progress on pro-poor spending 1. Changes in levels and efforts 2. Progress on fiscal decentralization

3. International Experience  Pro-poor spending: no easy and unique way to define and track, but tools exist to analyze the relationship between public expenditures and poverty no easy and unique way to define and track, but tools exist to analyze the relationship between public expenditures and poverty incremental approach often useful – start with available data and some basic analysis, then improve data, address analytical gaps and refine incremental approach often useful – start with available data and some basic analysis, then improve data, address analytical gaps and refine  Identifying pro-poor budget items does not lessen the need for: comprehensive analysis of budget expenditures comprehensive analysis of budget expenditures emphasis on program delivery – how effectively are the monies being spent emphasis on program delivery – how effectively are the monies being spent focus on budget execution relative to plans focus on budget execution relative to plans

4. A Working Definition for Sudan  JAM definition: “half of state transfers along with some education and health expenditures and a small but rising percentage of capital spending” (p. 53)  Revised working definition (for GNU) based on international PRSP/HIPC experience and detailed budget review: 1. Locally financed central development spending on pro-poor projects* 2. Central social subsidies 3. One-half current transfers to Northern states 4. Locally financed regional development spending on all projects 5. Total transfers to the Three Areas  Central pro-poor projects = all education, health, drinking water and sanitation, part of agriculture, most of basic infrastructure, and micro-productive opportunities Equals 36 percent of national development spending in 2005 and 2006 Equals 36 percent of national development spending in 2005 and 2006 *Similar to MOFNE PRSP Unit definition, except national current spending excluded from staff estimates

5. Definition Applied to 2006 GNU Budget

6. Increased Domestic Efforts: GNU GNU Pro-Poor Spending, JAM Estimates vs. Actual/Projected (US$ millions and % of GDP)

7. Pro-Poor Efforts: GOSS  Budget allocations are strongly pro-poor – up to 75 percent of spending (55 percent of budget) can be regarded as such  BUT challenges nonetheless: Establishing sound public financial management systems  key recommendations reflected in GOSS presentation Establishing sound public financial management systems  key recommendations reflected in GOSS presentation Managing revenue volatility over time given virtually total dependence on oil  savings strategy is key Managing revenue volatility over time given virtually total dependence on oil  savings strategy is key Ensuring security needs are met while avoiding excessive resources being directed to SPLA…  technical advice being provided under PER Ensuring security needs are met while avoiding excessive resources being directed to SPLA…  technical advice being provided under PER

8. GOSS Sectoral Allocations: Expenditure Share

9. Pro-Poor Spending, 2005 - 06 Pro-Poor Spending, JAM Estimates vs. Outturns and Projections, GNU and GOSS NOTE: Functional GOSS figures for 2005 not yet available.

10. How does Sudan Compare? Cross- Country Comparisons of Estimated 2005 Pro-Poor Spending Note: The definition of poverty-reducing expenditure varies across countries. Source: Sample of African countries that have reached HIPC decision point, preliminary figures taken from IMF and World Bank, August 2005, " HIPC Initiative - Status of Implementation" (Appendix Table 2A). 2006 budgeted

11. Fiscal Decentralization  Fiscal decentralization is one of Sudan’s key priorities, and challenging at technical as well as institutional level  Larger share of resources planned for transfer to sub-national governments  BUT challenges to be addressed: Improve equity of resource distribution to Northern states Improve equity of resource distribution to Northern states Ensure predictability of flows to sub-national : Ensure predictability of flows to sub-national : In 2005, expenditure performance only 86 percent compared to aggregate of 93 percentIn 2005, expenditure performance only 86 percent compared to aggregate of 93 percent Improve sub-national budgeting and reporting Improve sub-national budgeting and reporting Monitor and publish results as well as spending Monitor and publish results as well as spending

12. Total Transfers to Subnational Governments Note: Share to North includes non-NSSF funds (e.g., public institutions moved to Northern states). Source: MOFNE budget.

13. 2005 NSSF Transfers to Northern States: Distribution by State Source: Bannaga (2006) and Bank staff estimates.

14. 2005 NSSF Transfers to Northern States: Per Capita by State Source: Bannaga (2006) and Bank staff estimates.

15. Direction of Transfers to Sub-national Levels  Need to address lack of redistribution associated with current system Distribution of per capita amounts ranges from $10 for South Darfur to $50 for Northern StateDistribution of per capita amounts ranges from $10 for South Darfur to $50 for Northern State Total transfers reflect derivation of VAT revenueTotal transfers reflect derivation of VAT revenue Predominance of Khartoum and GeziraPredominance of Khartoum and Gezira  Critical role of FFAMC: Allocation formulae – transparency and predictabilityAllocation formulae – transparency and predictability Monitoring of flowsMonitoring of flows

16. Next steps  Review working definition and applications of pro- poor spending in the budget process, in coordination with ongoing development of Poverty Eradication Strategy  Operationalise the Fiscal and Financial Monitoring Commissions (GNU and Southern)  Improve planning, allocation, and monitoring of decentralized spending (e.g., PER state case studies)  Build capacity, including focus on public financial management