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Monday, 19 February 2018

The Sudan Interim Poverty Reduction Strategy Paper (10)

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.

Pro-Poor Budgeting
The composition of pro-poor expenditures is analyzed to determine the underlying factors behind the aggregate trends noted above. The level of government (federal vs. state expenditure) and economic classification (current vs. development expenditure) are analyzed here while the following chapter examines sectoral pro-poor expenditures.
The composition of federal versus state expenditures shows that on average 58 percent of pro-poor expenditures occur at the state level. This expenditure pattern indicates an overall trend in propoor expenditures which is increasingly skewed toward the state level, where the responsibility of delivering basic services (including education, health and water) has been transferred to the subnational/state level since 2005 fiscal decentralization. The increasing state level pro-poor efforts over the period are largely explained by higher federal transfers to states (though declined
as share of total expenditures in 2012–2014 compared to the CPA period (2005–2011), reflecting the government‘s commitment to fiscal decentralization.
The breakdown of pro-poor expenditures into current and development support differs at the state level where the emphasis is on current spending. Current expenditures account for more than two thirds of state level spending, including 56 percent devoted to wages (Figure 6). A low share goes to pro-poor development spending on basic services including education, health and water, which states are entrusted to provide according to the fiscal decentralization policy. Within current expenditures the share allocated to nonwage is small (about 12 percent). This pattern of  expenditures leaves meager resources devoted to running expenses with the consequent result of poor sustainability and maintenance of development projects.
The dominance of current pro-poor spending over development spending, especially at the state level, raises concerns. Improving service delivery to the poor in the longer term requires investment in schools, clinics, roads and so on and the relative emphasis on current spending leaves little room for items that have a direct impact on the quality and sustainability of services (e.g., investments in facilities, equipment and capacity development).
In addition to budgeted pro-poor expenditures, safety net programs such as Zakat and microfinance programs are non-budgetary expenditures targeting the poor and administered by independent bodies outside the jurisdiction of the Ministry of Finance and Economic Planning. Zakat is an Islamic system, in which a compulsory religious tax is imposed on certain activities and the revenues are mainly distributed to poor and vulnerable groups. Zakat revenue is administered by an independent body (Zakat Chamber). Similarly the microfinance program which is targeting the poor, being under the jurisdiction of the Central Bank, is also outside the jurisdiction of Ministry of Finance and Economic planning. Zakat and microfinance expenditures have hovered around 0.4 percent of GDP.
Besides the public funds, budgetary and non-budgetary, there are other nonpublic funds expenditures. The two major sources considered here are the expenditures by the National Social Security Fund (NSSF), which is a contributory fund by the private sector and the workers, and the food and nutrition direct assistance provided mainly by the WFP and UNICEF targeting the internally displaced persons and the vulnerable population affected by the war. Both sources constitute around 0.7 percent of GDP during 2012–2014.
The above figures do not contain subsidies which will be discussed in details in the section related to social protection expenditures. Subsidies constitute a very significant share of GDP amounting to 2.2 percent on average during 2012–2014 which if added to the pro-poor public expenditures (budgetary and non-budgetary) will bring the total expenditures on pro-poor to around 6.0– 7.0 percent of GDP.

Implications for PRSP

There is a need for a measurable definition of pro-poor spending that effectively captures expenditures directed to the poor, and enable monitoring of government efforts. While identifying pro-poor spending is the first step, applying a measurable/working definition is vital towards formalizing monitoring in budget planning, implementation and execution, and reporting. The set of policies and priorities developed in the IPRSP anchored a definition of poverty-reducing allocations.
Further improvements are expected during the process of the PRSP preparation, including better monitoring of the actual use of the funds classified as pro-poor. Identification of pro-poor expenditures is highly context-dependent, and is most useful as a means to help guide and track government efforts when the conceptual framework is developed through a wide participatory discussion and is country-owned, underscoring the desirability for the PRSP to provide the framework. This report and the experience of some SSA countries in applying a pro-poor expenditures definition can also provide guidance.
The growth in pro-poor spending is a commendable achievement as it has occurred in the context of rapidly declining total expenditures. It will be important to protect and strengthen pro-poor spending as a policy reflected in the budget, especially given fiscal pressures. The formulation of a national poverty reduction strategy (PRSP) should help in this regard.
The need for improving the mechanisms for prioritizing pro-poor expenditures during the budget preparation and execution processes is vital for effective implementation of IPRSP. Pro-poor budget execution rates average only 80 percent of the planned amount. The low budget credibility is largely explained by the shortfall on development pro-poor spending. It seems that expenditures on development projects at both federal and state levels are treated as residual, depending on the
availability of the resources after meeting current expenses. This highlights the need for improving the mechanisms for further prioritizing development expenditures during the budget preparation and execution processes.
There is an urgent need to direct resources to development at the state and local levels, where responsibility for basic service delivery has been devolved. The low level of development expenditures at the state level is a cause for concern, and there is a need to direct resources to development at the state level, where it will directly benefit the poor. Improving service delivery to the poor requires investment in schools, clinics, roads and so on. The relative emphasis on wages also leaves meager resources devoted to running expenses with the consequent result of poor sustainability and maintenance of development projects. These efforts are to be guided by poverty mapping to ensure equity.
The current fiscal constraints in Sudan, following the loss of oil windfall underscore the importance of increasing expenditure efficiency and effective use of scare resources. The growth in pro-poor expenditures have occurred in the contest of rapidly declining total expenditures and revenues.
The fiscal space created by the oil boom has been rapidly declining. Within this constrained fiscal environment, an improvement in the efficiency of expenditures, including pro-poor spending should be supported. The M&E system is required to follow up the implementation of the PRSP

Challenges and Opportunities

Overall ,General education claims the highest share in pro-poor expenditures. Among the pro-poor sectors, education accounts for 28 percent followed by social protection and health around 22 percent
each and infrastructure about 16 percent. Higher education has the lowest share of pro-poor expenditures around 4 percent on average. A striking feature is the extremely low share of agriculture out of the total pro-poor expenditures, which is 5.6 percent on average, despite the fact that agriculture is the key sector to a broad base growth and the reduction of poverty 5.2 Growth and Development with Employment Creation: Agriculture Related Infrastructure

Public agriculture expenditure (PAE) is defined to include agriculture as well as agriculture related sectors like dams, and infrastructure. The definition of PAE adopted in this study draws on a technical note by AU-NEPAD issued in 2005 to assist countries in defining what to include in Public Agriculture Expenditures for measuring progress in Maputo Declaration of July 2003 that commits the African countries to agree to allocate at least 10 percent of national budgetary resources
for agricultural and rural development.4 To allow for further analysis, a distinction is made between the core agriculture sub sectors and the agriculture related infrastructure.
Agriculture is largely traditional and subsistent with low yields as evidenced by long term crop production trends, as well as low livestock productivity and off-take rates. Traditional farmers expand horizontally by increasing area planted to compensate for the low yields. Meanwhile, nomadic livestock herders continue to increase their herd numbers beyond the grazing capacity as a coping mechanism against the risks of diseases and drought. Livestock farming is dominated by traditional management systems that lack business orientation, thus limiting breeding, exploitation of markets and improved value chains. There is little use of improved varieties of seed with little fertilizer application in crops. Access to technology or extension services is poor and research is crippled by the small funding. The land tenure system—besides being a source of conflict—does not encourage sustainable use of land. The modern irrigated sector is at the brink of collapse due mainly to mismanagement, lack of institutional reforms and the deteriorated irrigation facilities.
This situation is exacerbated by weak market access due to poor infrastructure and high taxes particularly at the sub national governments level. The agro industrial base is loaded with constraints and most agriculture is exported as raw materials to limited markets. This situation does not serve the poor.
One of the blows to agriculture was the negligence of this sector during the oil period. The oil has shifted the structure of the economy in Sudan from an agrarian base where most of the population earns their livelihood to an oil growth driven economy. Following the oil boom, the share of
agriculture in GDP declined from 48 percent in 1997 to about 30 percent by 2010, while the services sectors share in the GDP started to increase gradually from around 40 percent in 1996/97 to peak at 48–50 percent in 2009–2011. Sudan did not use the oil windfall to invest in improvement of agriculture.
All indicators derived from Sudan National Baseline Household Survey (NBHS) of 2009 point to the importance of agriculture to poverty in Sudan. About 57.6 percent of the households below the poverty line live in the rural areas that are dominated by agriculture as the main source of livelihood. States at the bottom of the poverty rely on agriculture. For example, about 74 percent of North Darfur population, being the poorest state (with 69.4 percent of its population live below the poverty line) derives their livelihood from agriculture and livestock. About seventy per cent of the labor force is principally employed in agricultural or agriculture related activities.
The importance of agriculture was recognized by the IPRSP. Agriculture was part of the “promotion of economic growth and employment creation” pillar of the IPRSP. The actions proposed by the IPRSP relied on the Government plan “Agriculture Revitalization Program”. The main objectives of agriculture development were ambitious given time and resource availability and existing capacity: (i) increase agriculture growth (ii) increase agriculture productivity (iii) increase exports, particularly livestock and (iv) make agriculture production environmentally sustainable.
To achieve these objectives, the actions proposed were: assisting smallholder to become more productive by strengthening land rights, investing in research, providing access to financial services and link producers to modern supply chains for higher-value urban markets, rehabilitating the irrigated sector, improving quality of exports, improving livestock marketing and the quality of stock routes, improving access to credit, handling facilities and veterinary inspection and vaccination services; addressing environmental degradation and making agricultural systems more environmentally sustainable, rehabilitating the Gum Arabic Belt; and building the capacities of agro-industries. The strategy calls for more public investments for agriculture sector, particularly research.