Juba — In August I requested the permission of this August House to withdraw the draft Budget for 2013/14 from the National Legislature as a result of the restructuring of government ministries and agencies. Please allow me, in accordance with the provisions of section 88(1) of the Constitution, to present the revised 2013/14 annual budget before this August House.
This budget both reflects the restructuring of governments, and the recommendations of this house on the original draft budget.
The overall objective of His Excellency the President's 2013/14 budget remains the same: 'Boosting social services and economic growth in a prudent and responsible manner'. Given the limited changes to the budget, I will not repeat the full details of the first speech. Instead I will provide a brief update of economic and budgetary performance for 2012/13; a recap of the key elements of the 2013/14 budget; and highlight the changes made since the previous draft budget was presented. Finally I will present the strategy for implementing the budget.
Before I do this, I wish to appeal to this August House, to the Honorable Members of Parliament, to the State Governors and State Legislative Assemblies, to my fellow National and State Ministers, and to the civil servants of the Republic of South Sudan, for their support in creating a strong and capable Ministry of Finance.
Over the past eight years, an expectation has been created. This expectation is that by applying pressure to the Minister of Finance, or to the Undersecretary Finance, or to the Accounts Department, your payment will be made faster. People have come to expect that the Ministry of Finance should provide financial support to businesses and individuals. There is even an expectation that the Ministry should act as a foreign currency bureau. All of these people who come to the Ministry following up payments and seeking support place a huge burden on the staff of the Ministry. They prevent the Ministry from working to establish effective payment procedures that work. If we are given the chance, I am certain we could ensure that the processes are working, so that payments submitted to the Ministry are paid in a timely manner, and that legitimate claims on the government are honored.
I am therefore asking this August House to support me in requesting the people of South Sudan, from politicians to farmers, to give the staff of the Ministry of Finance the space to focus on making the Ministry work for the people of South Sudan. If you wish to follow-up a payment request, please do so through the relevant spending agency. If you hear of people seeking financial support or foreign currency from the Ministry of Finance, please discourage them from doing so.
If we can do this, I am positive that by June 2014, I will be able to report to this August House that the Ministry is a new place of work, effective, efficient and delivering for the people of South Sudan.
UPDATE ON MACROECONOMIC AND BUDGET PERFORMANCE
Turning now to the 2013/14 Budget, I must commend my predecessor, and my ministry, for maintaining economic stability within the Republic of South Sudan throughout these difficult times. Inflation was not allowed to spiral out of control, and despite the prolonged liquidity crisis, the South Sudanese Pound remained stable. However, the shutdown of oil production and the necessary stabilization measures reduced the welfare of the population and delayed development.
Our tax revenues have increased significantly. Between July 2012 and June 2013 we have collected SSP 646 million in tax revenues compared to SSP 242 million for the full FY 2011/2012. In addition we have collected SSP 160 million in customs duties and fees; and SSP 109 million in other non-tax revenues remitted in 2012/13. Overall total non-oil revenues amounted to SSP 915 million, in excess of the budgeted SSP 867 million.
The government borrowed prudently and realized SSP 4.7 billion in foreign and domestic financing in the course of 2012/13. These include treasury bills of SSP 981 million, domestic commercial bank loans of SSP 100 million, loans from the Bank of South Sudan of SSP 1.56 billion and prepayment for oil sales of SSP 2.04 billion. All of these loans are scheduled to be repaid during 2013/14.
Central to the maintenance of economic stability was the reduction in government expenditure, as set out in the 2012/13 Austerity Budget, and seen in practice during the financial year. In 2012/13, spending totaled SSP 6.8 billion, about SSP 148 million over the annual budget of SSP 6.7 billion.
If the oil is not shut down again, our financial situation should improve markedly through this fiscal year. In this case, the austerity measures during this fiscal year will remain until January 2014 or soon after, when finances are expected to improve. Furthermore, planned spending increases for service delivery in the social sectors and much needed investment in the infrastructure and agriculture sectors will only take effect once additional funds become available.
This budget strikes the right balance between welfare and growth concerns on the one hand and inflation risks and stability on the other hand. Crucially, we must maintain expenditure within budgeted amounts to ensure crucial investments take place and macroeconomic stability is maintained. If the budget were to be increased beyond the recommendation, we would risk increased inflation that could threaten economic stability.
Revenue and Financing
The 2013/14 budget consists of an overall resource envelope of SSP 17.3 billion, financed through a combination of oil revenue, non-oil revenue, loans and budget support from donors. If oil production returns to full capacity, income from oil will reach up to SSP 10.6 billion, and a stronger economy will help raise SSP 1.5 billion in non-oil revenue. Nevertheless, loans of SSP 4.9 billion will be required to bridge the remaining financing gap.
Current oil production is less than initial estimates for the budget. Assuming that production stays at this level for the next 12 months, overall government revenues from oil and non-oil could be in the range of SSP 9 billion compared to budgeted estimates of SSP 10.6 billion. This would not cover agency spending of SSP 9.2 billion and leave no financial margin for mandatory payments including debt repayments and oil transit fees.
It is therefore prudent to constrain our spending within the existing resource envelope. For these reasons, the overall resource envelope of SSP 17.3 billion and agency spending of SSP 9.2 billion remain unchanged. Moreover, the Ministry will carefully control spending by setting agency monthly spending limits on the basis of available resources.
Of SSP 17.3 billion, SSP 9.2 billion will be available for agency spending. The remainder will mainly go towards repaying loans taken up in 2012/13, paying arrears, rebuilding reserves, paying Sudan for pipeline use, and making agreed transfer payments to Sudan and oil producing states and communities.
This year's budget represents an increase of 2.58 billion compared to 2012/13. The additional funding will mainly go towards priorities identified by H.E. President Salva Kiir:
$1§ SSP 487 million towards improving health, education, water and other social services, especially in rural areas.
$1§ SSP 741 million towards boosting infrastructure, especially roads, but also water and power, and an SSP 130 million to agriculture.
$1§ SSP 541 forty one million to reversing selected austerity cuts, including housing allowances and block grants.
$1§ The budget allocations reflect these priorities. Spending on security and law enforcements decreases to 50% of the budget, from 58% in 2012/13. The share of spending on capital investment increases to 16% of the budget compared to 7% in 2012/13.
$1§ Transfers to states have also increased by 24%, reflecting the new and additional grants to states and counties.
Due to the gradual increases in oil revenue, loan repayments and high macro-economic uncertainty, monthly spending limits must remain at the austerity level of SSP 555 million per month during the first 6 months of 2013/14, and will increase to 985 million in January 2014 if sufficient resources are available.The budget for 2013/14 includes significant new investments in South Sudan's development, with specific allocations to improving social services, infrastructure, agriculture and livelihoods:
$1· Social services will receive a total of SSP 487 million in new funding for 2013/14.
$1· For education, an additional SSP 121 million will be available to support capitation grants for primary schools, operating grants for County Education Departments and school construction.
$1· For health, an additional SSP 148 million will be provided to finance operating grants for County Health Departments and hospitals, medical supplies and hospital infrastructure.
$1· The water sector will benefit from SSP 20 million in new operating grants for County Water Departments. In addition, grants worth SSP 127 million will be introduced to support small-scale County and Payam development projects, ensuring that more funds flows directly to the local level.
$1· Combined, these increases represent a major step forward in advancing the local services support agenda.
To improve large and small-scale infrastructure, new funding of SSP 741 million has been included in the 2013/14 budget. More than 50% of these additional resources (SSP 390 million) will be allocated to the maintenance and construction of roads and bridges, a top development priority. In addition to such large-scale projects, SSP 211 million will be added to the National Assembly's Constituency Development Fund to help finance small- scale local infrastructure based on citizen's needs. These additions to the budget will be complemented with targeted support to other infrastructure projects, for example to complete Juba airport, improve access to electricity, water, transport and housing. In total, the 2013/14 capital investment budget will be nearly three times as large as in 2012/13 and help close some key infrastructure gaps.
The budget also foresees additional resources of SSP 130 million earmarked for agriculture and job creation. These funds will help finance the implementation of a national effort for agricultural transformation in South Sudan, aimed at eliminating the food deficit. In this context, they can also support the creation of employment opportunities for youth and demobilized forces. Another key priority for the 2013/14 budget is to reverse selected austerity cuts worth SSP 541 million that had been introduced in 2012/13, including the reductions in housing allowances and block grants. In addition, the budget will enable South Sudan to address other priorities worth SSP 580 million, including preparations for the census, the elections and the constitutional review. Overall, the changes introduced in the 2013/14 budget will accelerate development progress in South Sudan. If oil production continues and sufficient additional resources can be mobilized, it will be possible to significantly increase spending in the second half of the fiscal year. With careful planning, more resources can then be allocated to social services, infrastructure, agriculture and livelihoods in a prudent, disciplined and accountable manner.
Changes to Expenditure Allocations
The overall budget ceiling of SSP 9.2 billion remains unchanged. The effect of the restructuring of government on the budget is simple. Where agencies have been merged, their original budgets have been combined. In cases where a spending agency has been split, the budgets of the relevant programmes and directorates have been proportionally split between the new ministries, in full consultation with the concerned spending agency.
From reductions in the allocations for administration and finance of former ministries, and the costs of the offices and salaries of former ministers and deputy ministers, savings amounting in total to SSP 14,750,000 will be realized.
The following adjustments were made, funded through savings from the restructuring and deductions from reserves:
$1· Unfunded government units covered by Office of the President- SSP 4,750,000
$1· Establishment of Petroleum and Gas Commission - SSP 5,000,000
$1· Telecommunications and Postal Services -SSP 5,000,000 for postal services
$1· Gender, Child and Social Welfare - SSP 3,000,000 for welfare of street children
An additional SSP 6m of external loans from the World Bank to fund the Community Engagement Component of the Local Governance and Service Delivery Programme (LGSDP) was also included in the resource envelope.
Funding of States and Counties
States and local governments are responsible for delivering basic services to our citizens. Therefore SSP 436 million in additional funds have been assigned to transfers to states and counties to enable them take up these responsibilities fully.
I have already discussed increased conditional transfers to states for local service delivery in health, water and education. Block transfers to states will also increase significantly.
State block transfers have been restored to pre-austerity levels and the Sales Tax Adjustment Grant will increase by SSP 100 million in line with revenue projections. Assuming that oil production will resume, Unity and Upper Nile state will receive SSP 354 million in oil transfers; SSP 142 million for the 2 per cent due to states and SSP 212 million for the 3% due to communities.I am pleased to announce that funding for counties will also increase significantly in 2013/14. The vast majority of the sectoral conditional transfers I mentioned earlier - SSP 160 million, will be transferred to counties. In addition to the re-establishment of the County Development Grant, a new county block grant of SSP 50 million has been also introduced to support core administrative functions in counties. In 2013/14 there will also be a new Payam Development Grant of SSP 7 million funded by a loan from the World Bank.
It is crucial these funds are spent effectively by state and local governments, the Ministry of Finance has been working closely with the Local Government Board and the Education, Health and Water Ministries to develop guidelines to ensure the new transfers are budgeted for, reported on and spent properly alongside other state and county resources. A Local Government Public Financial Management Manual to guide all the financial operations of Counties has also been developed, and the training of counties is underway.
Donor Support in 2013/14
The Local Governance and Service Delivery Project is the first donor-funded project to be implemented through government systems. The main objective of this project is to improve local governance and service delivery in participating counties. This project will channel Payam Development Grants through Government financial systems to support small scale infrastructure projects identified by communities themselves. This project will also finance institutional strengthening and capacity building of local governments.
The project will be financed through a concessionary loan of $50 million from the World Bank International Development Association (IDA). The loan has a ten-year grace period and a 30 year repayment period. The charge payable on the withdrawn balance is 0.75% per year, and a maximum 0.5% per year for the un-withdrawn balance.
The Local Governance Service Delivery Project is starting off as a pilot intervention which will gradually be scaled up to reach national coverage as additional donor funding becomes available. This gradual expansion of the project will allow both national and local government capacity to be strengthened. We expect this project to attract more funding over the coming years as we develop government capacity, build confidence among donors to support the use of government systems and show tangible results of LGSDP on ground.
The Local Governance and Service Delivery Project is an extremely important project for South Sudan as it will not only help strengthen our local governance structures but it will deliver much needed services to rural areas. In order to implement this project by the end of the fiscal year, this loan must first be approved by September. The loan has been approved by the Council of Ministers along with the 2012-13 draft budget. I therefore urge you to approve this loan to enable the project to begin implementation and proceed with securing the remaining donor funding.
An important pillar of our engagement with the international community, which adds to our credibility, is our relationship with the International Monetary Fund. My ministry has been leading negotiations of an IMF staff monitored programme, which we hope to finalise by October.
The New Deal Compact and these associated initiatives will boost South Sudan's international credibility, highlight key reform achievements of the Government, and help to communicate South Sudan's progress abroad and at home. In turn, I am confident we can attract more funding for the South Sudan Partnership Fund; the Local Governance and Service Delivery Project; and budget support over the coming years as we build confidence among donors to support the use of government systems; and as we show results of Local Governance and Service Delivery Project on ground.
Strengthening Systems for Local Services and Public Infrastructure Investment
If this budget is to have a developmental impact we must ensure that the additional funds for infrastructure and local service delivery are spent effectively.
The responsibility for delivering local services lies primarily with local governments, with state governments providing support and supervision, and national government setting the policy environment and providing funding. Strengthening the capacity of local governments to deliver services is therefore vital to South Sudan's long-term development. With time, it also will be critical to improve the delivery of the secondary services under the responsibility of the State Governments. To strengthen service delivery, six national ministries have agreed on a Joint Plan of Action that focuses on local governments and a select number of sectors.
To enhance basic service delivery, priority actions will be implemented in five broad areas: Improving policy and institutional coherence; building capacity for effective sector service delivery; enhancing human resources at local government and facility level; increasing and improving the equity and coherence of funding for decentralised service delivery; and strengthening transparency and accountability.
In this context, I urge State and County Governments to complete their budgets in line with the new guidance provided to them; to implement the new systems for managing transfers; and report regularly on the implementation of their budgets.
The governments systems of managing public investment need strengthening if the allocations to public infrastructure are to deliver results. In the past project selection has been poor; there have been delays in design of projects; procurement processes have been inefficient; cost overruns common; and many projects have not been completed. Furthermore, failure to operate and maintain assets effectively meant that past investments are wasted, resources diverted to reconstruction, and benefits to citizens are lower.
I plan to work with my colleagues to strengthen the processes for management of public investment in the following areas: prioritization of investment projects; project design and evaluation processes; independent appraisal of project proposals; integrated project selection and budgeting; monitoring of implementation; and finally, review and evaluation of completed projects and feedback to guide design of new investment programmes.
In order to ensure that the funds allocated to major projects in this budget are well spent, I will take steps to strengthen project implementation in the areas of procurement, commitment control, project management and oversight of contractors, and monitoring of implementation.
Maintaining and Strengthening Budget Discipline
I have already requested the support of this August House in limiting the number of people seeking assistance in the Ministry of Finance and following up personal claims on the Ministry premises. I am committed to ensuring this budget is implemented as planned, and this will involve discipline from all of us and the support of this August House. It is important that we demonstrate our discipline in the use of public funds, especially now that donors have started funding their activities through the budget.
This discipline involves strict adherence to payment procedures. Firstly if there is no appropriation, payments will not be processed; secondly we will only process payments that are within monthly limits of expenditure set by my ministry on the basis of resources available; thirdly we will work towards only making salary payments that have been generated through the South Sudan Electronic Payroll System (SSEPS); fourthly, we will also work towards ensuring that all vendors are paid directly, and stop all transfers of cash to spending agency bank accounts except for salaries.
Controlling expenditure in line with this budget is not just important for macroeconomic stability, it is important for ensuring that funds are available for development activities. Too often in the past my ministry has failed to make cash available for payments in crucial sectors such as health and education, whilst allowing other less developmental expenditures to take place. In the setting of monthly limits and processing of payments, my ministry will give priority to expenditures relating to basic services and public investment projects in the health, education, economic functions and infrastructure sectors.
Like my predecessor, I am committed to ensuring budget transparency, as it is crucial that we are accountable to the public at the county, state and national levels. We are committed to producing and making publicly available budgets and quarterly fiscal reports. We will make these available on a new website for the Ministry, which is under development.
As I said at the outset, this budget is based on the draft budget previously submitted to you. It accommodates both the recent restructuring of government and the comments made by you on the original draft budget. Therefore I request your support in expediting the passage of this budget.
The budget for the fiscal year 2013/14 shifts the focus back on growth and development whilst maintaining fiscal prudence - it will ensure that inflation and stability is maintained. In line with the Presidents priorities, resources have been allocated to improving social services, developing infrastructure and promoting agriculture.
We must continue to live within our means. Recent events have shown that continued flow of oil is far from guaranteed. Therefore, austerity measures will only be lifted once the government's financial situation has improved.
Approval of this budget is the first step, and the easiest step. Following its approval, I request the support of this August House, and that of my colleagues in the Council of Ministers, to ensure this budget is implemented as planned in a disciplined manner.
My ministry will strive to maintain expenditure within budgeted amounts for all spending agencies, however, all payments will be subject to cash availability. This will ensure investments in service delivery and infrastructure take place and macroeconomic Stability is maintained. Only then will the objective of 'Boosting social services economic growth in a prudent and responsible manner' be attained.
Allow me to therefore put before the National Legislature Assembly the revised draft 2013/2014 Budget, and the 2013/2014 Appropriation Bill for consideration approval by this August House.