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The World Bank

The Global Crisis and Fiscal Impact on Sudan. Juba March 27, 2008. The World Bank. 1. Overview. 1. Global Outlook. 2. National Impact . SUDAN. 3. GoSS Fiscal . 4. MDTF. GoSS. 2. World Economy Facing Deep Downturn. 1. Global.

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The World Bank

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  1. The Global Crisis and Fiscal Impact on Sudan Juba March 27, 2008 The World Bank 1

  2. Overview 1. Global Outlook 2. National Impact SUDAN 3. GoSS Fiscal 4. MDTF GoSS 2

  3. World Economy Facing Deep Downturn 1. Global • World economic growth expected to contract by 0.5 to 1.0 percent in 2009 • World trade expected to contract for first time since 1982 3

  4. Anemic Global Growth Has Reversed Commodity Price Booms 1. Global

  5. Global Oil Markets 1. Global $/barrel Old baseline New baseline Newer baseline?? 5 Source: World Bank (DEC Prospects Group).

  6. Global Oil Markets 1. Global • Demand is weak given global recession, and with no significant global recovery expected this year, prices unlikely to rise • While OPEC is trying to manage aggregate supply, most members cannot afford further cut in their individual supply. • Large amount of uncertainty in the market, suggests conservative approach 6

  7. Sudan’s economy is slowing,but non-oil sectors could grow to partially offset losses coming from the oil economy 2. Nat’l 7 Source: IMF

  8. Balance of Payments Impact 2. Nat’l • Much lower foreign exchange inflows • lower oil export earnings • lower FDI inflows • Increase in current account deficit (double digit?) • Pressures on Sudanese Pound, with depreciation in last few months of • Very tight international reserves (currently less than 1 month import coverage)‏ •  As a result of above, recently CBOS has imposed new restrictions on foreign exchange transactions. • South hard-hit because of high import dependence 8

  9. Implications for 2009 GoSS Revenue 3. GoSS Source: World Bank staff estimates. 9

  10. Necessary Fiscal Adjustment: Overarching Principles 3. GoSS • Protect pro-poor capital expenditures • Avoid non-payment of salaries • Closely scrutinize recurrent expenditures, especially operational spending • Manage reserves conservatively • The prinicple to be used for fiscal adjustment is as much an “economic” as a “political” decision. Our analysis is largely based on economic considerations. • JDO has assumed a different set of principles and has come a slightly different set of recommendation. 10

  11. Some Options for Expenditure Management 3. GoSS • Reductions in Operating Costs • Reduce operating by 50% in local and foreign travels, training & workshops, fuel and vehicle maintenance; • 25% reduction in other operatig cost accross board; • Likely to yield a savings of SDG 274 million. • Salaries • Selective cuts in some security-related expenditures • Reduction in Gov’t employees; • Pay cuts on graduated scale; • Partial payment of salaries in Gov’t Development Bonds • Likely savings of SDG 522 million 11

  12. Some Options for Expenditure Management 3. GoSS • Capital Expenditure • MDTF to front load • Likely savings of SDG 146 million 12

  13. Illustrative Fiscal Adjustment and Remaining Financing Gap 3. GoSS One way to fund this gap is through fast Disbursing credit like budget Support opeartion Source: World Bank staff estimates. 13

  14. MDTF 4. MDTF • WB coming to Cabinet in a month’s time to review portfolio • Use of unallocated Phase 1 resources • Back-loading of GoSS contributions • Fast disbursing instrument for timely support • Possible complementary support from IFC 14

  15. Concluding Remarks • Impact of global crisis on Sudan via downward external and fiscal prospects • GoSS can moderate the growth and developmental impact of fiscal contraction by effectively managing expenditures • Fast-track MDTF to finance GoSS back-loading • Double efforts on developing non-oil growth strategy (CEM) and boost non-oil revenues 15

  16. Thank You 16

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