A Joint World Bank Group and Sudan’s Ministry of Finance and Economic Planning Assessment on the Sudan (IPRSP)
Interim Poverty Reduction Strategy Paper. The importance of the IORSP that it is one of the basic conditions for foreign debt relief under the HIPC (Heavily Indebted Poor Countries) Initiative. In the first two parts of this review, the focus was on the issues of creating an enabling political and economic environment, agriculture as an engine of growth, human resources and education. In this part the attention is on health, water and sanitation, social welfare, security and protection, governance and other relevant issues.
Current Account Balance
Current account deficit narrowed to 6.5 percent of GDP in 2014 from nearly 9 percent in 2012 and 2013—reflecting an increase in exports and fiscal consolidation efforts. Despite progress, the current account deficit remained higher than the target of 3 percent of GDP. Exports grew by 18 percent in 2014, while imports increased by only 1.8 percent. Exports covered 65 percent of imports value in 2014 compared to 54 percent in 2013. However, the export sector remains facing critical structural rigidities and constrained supply capacity.
Sudan and IMF agreed on a new Staff-Monitored Program, SMP, covering the period January–December 2014 and the program was approved by the IMF Managing Director on March 2014.IMF conducted the third review for Sudan’s Staff-Monitored Program (SMP) on December 8–17 and concluded that performance under the authorities’ reform program is broadly satisfactory.
All end-September quantitative targets were met except for minor deviations on the net domestic assets of the Central Bank and reserve money growth reflecting additional credit to the agricultural sector.
Sudan has implemented previous SMPs over 14 years (1997–2010) and performance under these programs has been broadly satisfactory. Notable achievements under these programs include the maintenance of macroeconomic stability and the implementation of a reform agenda to improve capacity in economic management. However, some problems persist, including weak build-up of international reserves due to an insufficiently flexible exchange rate, rising expenditure pressures, slow implementation of reforms in domestic financing, arrears clearance, and public financial management.
Implications for PRSP
Growth remains as the most powerful and effective way of reducing poverty, though growth alone is not enough for reducing poverty. Sudan diversification of its economic sources of growth remains a challenge.
Economic stability is essential for sustaining growth.
The signaling effect of the government taking strong policy measures was also important in shoring the confidence in the economy. In the absence of these measures, the country would have likely experienced a strong inflation—a vicious depreciation cycle, a stronger loss of confidence, and a more extreme depletion of foreign reserves, which would have led to an even bigger economic recession and hardship and will deepen poverty rather than reducing it.
The fundamentals of economic stability have to be maintained. The exchange rate should be market determined. In fact, there are no realistic alternatives to address the foreign exchange shortage in the short term. Therefore, there is a need to use a combination of structural reforms and demonstrate exchange rate flexibility to commercial banks in foreign exchange transactions.
Shorter-term strategy—greater exchange rate flexibility is essential to reduce the gap between official and parallel market rates. Longer-term strategy—need to focus on the structural source of the foreign exchange shortfall. Containment of growth in the money supply consistent with the growth rate and inflation target is essential. Possible measures could include: (i) tightening monetary policy and further lowering central bank’s financing of the Government to help further lower inflation; (ii) enhancing the operational independence of the CBOS and to mandate it to
maintain price stability; (iii) sterilizing gold purchases by the CBOS to contain reserve money growth; (iv) enhancing coordination between the CBOS and MoFEP to improve liquidity forecasts and management; and (v) using reserve money as the nominal anchor. Building foreign reserves is among the essential measures that have to be undertaken and sustained. tracking pro-poor expenditures
Defining Pro-Poor Expenditures—Sudan Experience
A poverty reduction strategy that identifies priority public policies for growth and poverty reduction is the appropriate basis for the definition of pro-poor expenditures.
A pro-poor expenditures framework is defined as the one that addresses the main roots/correlates of poverty and identifies priority public actions for economic growth and poverty reduction. This includes spending on critical poverty reducing and welfare, improving economic and social services that tackle the deficiencies of the educational and health care system including the poor access and quality of education and health care; improving survival indicators (e.g., infant and maternal mortality); accelerating the process of recovery from conflict and integration; enhancing access to basic infrastructure; and reviving the stagnant agriculture sector, with services to improve the productivity and incomes of the associated labor force. Given the role that the state governments have in the provision of critical poverty reducing and welfare improving economic and social services, consideration should be given to examining resources available to state governments through the national revenue sharing mechanisms (Box 4.1). Measuring progress on pro-poor spending at
the sub-national/state level is therefore key to understanding pro-poor expenditure overall.
The definition of pro-poor spending adopted in this study builds on the IPRSP policies for prioractions for growth and poverty reduction.
These priorities represent public policy on governance, national reconciliation and integration, gender, education, health and water supply and sanitation, agriculture and infrastructure classified under the IPRSP four pillars of governance, reintegration of IDPs, human resource development, and economic growth promotion.
Non-budgetary expenditures such as Zakat and the Central Bank of Sudan micro-finance scheme are integral parts of pro-poor spending.
Zakat, which is an Islamic charity managed by the Chamber of Zakat, is a major social protection program. The IPRSP recognizes the importance of
social protection, but does not identify challenges, strategy and priority actions. There is no known assessment of Zakat and the Government of Sudan has identified the need to conduct a diagnostic analysis of the social protection sector as a first step to understand the strength and weakness of the current activities in the sector and to make an informed decision in social protection programming. The World Bank Group is providing support to the Government of Sudan to review the capacity and capability of current programming as well as gaps in benefits provided. The central Bank of Sudan is supporting micro-finance targeted toward small enterprise as a means of employment generation and poverty reduction.
There are data constraints related to misclassification and disaggregation of pro-poor data in public expenditures at both the Federal Ministry of Finance and Economic Planning level and the states. Most of these problems were resolved in this report without significant negative impact on the quality of public expenditures data used. However, further improvements are required in the public expenditures data recording by the Ministry of Finance and more importantly by the states. A note on the data issue is annexed in this report .
The last Sudan’s Public Expenditure Review (PER—World Bank 2007) developed a pro-poor spending definition.
The 2007 PER defined pro-poor spending as “expenditures that benefit the poor more than the non-poor; expenditures that actually reach the poor; and expenditures expected to have an impact on the welfare of the poor over time” (PER page 36). The report derived a definition for pro-poor spending for Sudan, which includes both federal expenditures (current and development) and states’ poverty reduction efforts. Federal expenditures include spending on basic health care; primary education; water supply and sanitation; parts of agriculture, irrigation and livestock; infrastructure (roads and bridges); energy and electricity (excluding Merowe Dam); and the social subsidy. The states’ efforts on poverty reduction are captured by including three-quarters of current and block transfers plus all development transfers including to war affected areas.
The pro-poor expenditures framework adopted in this status report is more comprehensive than the 2007 PER definition. While the PER definition is confined to budgetary expenditures at the federal and state level, the current definition extends its scope to include non-budgetary expenditures (e.g., Zakat and microfinance). Comprehensive pro-poor expenditure data was compiled from MoFEP’s budgeted and actual expenditures of the spending units at federal level. Budgeted and actual expenditures of the states and localities were compiled from the states yearly closed accounts. Data for social protection institutions was compiled from the annual reports of Zakat Fund, Social Insurance Fund, National Pension Fund and National Health Insurance for the period 2012 to 2014.