Country Brief

Country Brief last updated April 2008

Development Progress                                      

Basic facts

• Largest country in Africa, area wise. Borders 9 countries with 500 miles of coastal line on the Red Sea.
• Population 37 million, populationgrowth rate 2.5 in 2006.
• Per Capita Incomegrew from $340 in 2001 to $810 in 2006, spurred by oil revenues.
• Measured by the Human Development Index (2006) Sudan is ranked 141 out of 177 countries.
• Development inequality among regions: Khartoum and some Northern States along the Nile River have development indicators similar to Middle Income Countries (e.g. 84% net primary school enrollment) whereas Darfur, South and Three Areas are comparable to the lowest in the World.
• CPIA rating (2007) is 2.5.
• Transparency International ranking (2007) is 172 out of 179 countries.
• Doing Business ranking (2008) 143 out of 175 countries.

Key Issues

• Implementation of the Comprehensive Peace Agreement signed in 2005 between the Government of Sudan and the Sudan People Liberation Movement (SPLM)
• Resolution of the five-year Darfur conflict.
• Addressing development inequalities despite a booming oil economy.

Political background and recent Development

Sudan is the largest country in Africa by land area, with an estimated population of 37 million in 2006. It borders nine different countries with a coastal line of 500 miles on the Red Sea. Sudan became independent in 1956 and has been marred by on and off civil wars since. After more than 21 years of civil war, a Comprehensive Peace Agreement (CPA) was signed between the Government of Sudan and the main rebel movement, the Sudan People’s Liberation Movement (SPLM) on January 9, 2005. The CPA model was followed in the subsequent negotiations of other peace agreements such as the Darfur Peace and the Eastern Sudan Peace Agreements signed May 5 and October 14, 2006, respectively.

The CPA opened an unprecedented window of opportunity to turn the devastation of years of war, displacement, and underdevelopment into a new era of peace and prosperity. The CPA directly addresses the key causes of the conflict, and lays out the parties’ vision and commitment to accelerating development. Implementation of the CPA has been slow after initial progress in setting up the Government of National Unity (GoNU), the Government of South Sudan (GoSS), and two Multi-Donor Trust Funds (MDTFs) administered by the World Bank. Implementation delays escalated in a major crisis with the SPLM withdrawal from the GoNU on October 11, 2007. SPLM rejoined the GoNU at the beginning of 2008 after a cabinet reshuffle that brought into the GoNU key SPLM members, such as the Secretary General of the SPLM. The fifth population census, an element of the CPA which isa key precursor to the upcoming national elections is now under way after major threat of a boycott by the GoSS.

Whereas the Eastern Sudan Peace Agreement has held course, the Darfur Peace Agreement (DPA) by the GoNU and the Sudan Liberation Movement (SLM) signed in May 2006, under strong pressure from the African Union and the international community, has remained fragile because 2 other rebel groups refused to sign and have since grown in strength, and sub-divided. The UN reported that there has in fact been a dramatic upsurge in the violence since the agreement. Continued violence in the region and lack of support by Darfur rebel groups on one hand and the government delay in accepting the deployment of a UN peacekeeping mission in Darfur on the other hand have prevented implementation of vital elements of the DPA. For more than a year after the DPA was signed, the Sudanese government moved slowly on essential elements of the accord, including the plan to disarm the militias and allow a UN peacekeeping force into the region to replace the modest AU force.

It was only in September 2007 that Sudanese President Omar El Bashir agreed to a 26,000-strong hybrid UN-AU peacekeeping force to be deployed in Darfur. The meeting of many key Darfur rebels in Arusha in early August under the aegis of the AU and UN was supposed to arrive at a common negotiating position vis-à-vis Khartoum. Still, some important Darfur rebel leaders boycotted these talks, and boycotted also the subsequent talks with the Khartoum government which took place in Sirte, Libya in October 2007. Meanwhile, violence continues in the Region with accusations and counter accusations between Chad and Sudan of breach of each other’s border in the area of Darfur, thus complicating the fate of millions of internally displaced people and refugees. According to some estimates, the Darfur conflict has cost more than 200,000 lives and displaced 2.5 million people since it erupted in 2003. The wider international UN force has been very slow to deploy due to the lack of aviation, transport and logistic units. There are currently 9,000 troops on the ground.

Macroeconomic background

The Sudanese economy continues to grow at a fast pace. Real economic growth, estimated at 10 percent in 2007, is among the highest in Africa. While exploitation of oil resources has facilitated an increase in national wealth, it has also complicated macroeconomic management with significant pressures toward internal and external imbalances, as well as a heightened concern for balanced growth in the non-oil sectors which are key for sustainable growth and poverty reduction efforts. On the internal side, oil revenue shortfalls and continued spending expansion, including new spending related to the CPA, have deteriorated the country’s fiscal position. The cash deficit averaged slightly more than 3 percent between 2005-07, compared to an average surplus of nearly 2 percent in 2002-04. By end 2007, the government also had roughly $1.3 billion in domestic arrears. Inflation has run about 8 percent for the past several years, though recent increases in world food prices has put significant upward pressure on price levels. On the external side, import growth has led to higher current account deficits, averaging 11 percent of GDP in 2005-07, and the real exchange rate appreciated rapidly. Though the latter has recently stabilized with the introduction of the new Sudanese pound, past appreciation has added to significant competitiveness concerns for non-oil exports, on top of existing trade policy and supply-side constraints to production. Sudan’s external debt remains large and arrears constrain access to longer-term development finance.

The Government of Southern Sudan (GoSS), which derives most of its revenues from oil revenues transfers from the Government of National Unity as per the CPA, is even more vulnerable to oil sector volatility. Its non oil revenue base is insignificant, though there is considerable tax and customs potential. In 2006, GoSS expenditures exceeded revenues by about $370 million, and exhausted its strategic reserves. Oil revenue transfers from the federal government were about $400 million less than budgeted, due largely to delays in expected new oil production. At the same time, payroll costs have swollen due to weak administrative controls, wage increases, and the absence of safety nets for war veterans and returnees.The continued rise in world oil prices is expected to improve GoSS’ revenues. According to the Ministry of Finance and National Economy, oil revenues amounted to $582 million in January 2008, out of which $223 million were transferred to the Southern Sudan government.

Social Development

The population growth rate is 2.6 percent, which is slightly above that of Sub-Saharan Africa at 2.1 percent. Poverty across the country is deep and widespread. Recent growth has not been broad-based, and in fact, it appears that inequality has risen. Large urban-rural and regional disparities, as reflected in public spending patterns, are closely related to conflict, isolation, deprivation, displacement, and chronic poverty. Key measures of human development in Sudan’s disadvantaged regions (including Darfur, the South, the Three Areas, and the East) are among the lowest in the world, though Khartoum and some Northern states along the Nile River show performance well above the sub-Saharan Africa average. The wealthiest five states show net primary school enrollment of 84%, the poorest five, 7%.

The need to address poverty and inequality to promote peace and stability has been recognized by policymakers, and comprehensive provisions for more equal sharing of resources characterize the CPA as well as the ESPA and the Darfur Peace Agreement (DPA). With the oil boom, the GoNU budget includes more transfers to the disadvantaged states to progressively correct the development inequalities. Social and infrastructure spending needs to be scaled up in the rest of the country, especially in the South and marginalized northern states, including Darfur.

World Bank assistance to Sudan

Sudan, which defaulted on its debt repayment in 1993, is ineligible to borrow from the International Development Association (IDA), the Bank’s institution that provides grants and credits on concessional terms. The World Bank was largely absent from Sudan for about a decade after it suspended disbursements in April 1993.

Beginning in 2003, the Bank began to expand its support, as prospects for peace between the Government of Sudan and the SPLM improved. Working together with the Government of Sudan and the SPLM, the Bank and UN co-led a Joint Assessment Mission (JAM) of Sudan’s recovery, reconstruction and development needs in 2004 and 2005. The year-long assessment estimated total reconstruction and development needs of $4.3 billion in the North and $3.6 billion in Southern Sudan for the period from 2005 to 2007, with financing gaps of $1.2 and $1.4 billion, respectively.

The CPA specified that two Multi-Donor Trust Funds (MDTFs) – one for the National Government and one for the GoSS – be established to facilitate the coordination of external donor financing of Sudan’s reconstruction and development needs as laid out in the JAM.

In January 2005, donors and the authorities asked the World Bank to administer the MDTFs, particularly on account of the strong fiduciary checks and controls (financial management and procurement) associated with Bank policies and operational procedures. The two Sudan MDTFs were established in mid-2005, and donor contributions to fund MDTF activities now total $626 million, including a $10 million contribution from the World Bank’s operational surplus. At the start of implementation, MDTF-supported projects experienced unique challenges in reconciling the need for rapid delivery of results with the low capacity on the ground, particularly in the South, and the need to ensure adequate fiduciary controls and government ownership.

MDTF implementation has now picked up pace because of: (i) a legal agreement between the UN and the Bank to allow for direct MDTF implementation by UN agencies, (ii) increased Bank presence and staffing to support implementation of MDTF programs, and (iii) training activities to boost implementation capacity, particularly of GOSS. Of the $626 million received, the World Bank has entered into grant agreements amounting to $418 million out of which, $212 million has been disbursed as of April 22, 2008.

Major analytical work includes a Darfur Joint Assessment Mission (D-JAM), a Public Expenditure Review focusing on key fiscal management and policy issues, a Diagnostic Trade Integration Study, and a Country Integrated Fiduciary Assessment (CIFA). The Bank is also finalizing an Investment Climate Assessment (ICA) which focuses on private sector development (PSD) and the constraints faced by micro and small businesses. A LICUS project is under preparation to support public expenditure management reforms identified in the various diagnostic works.

Interim Strategy Note

A new Interim Strategy was discussed and approved by the Board on April 17, 2008. The Sudanese government has made comments on the document. The ISN identified three key areas for engagement in improved governance, access to basic human services, and sustainable and pro-poor economic growth and support the CPA.

Specifically, at the National level, the Bank will focus on reconstruction and development of war affected and marginalized areas while helping GoNU to adopt more pro-poor policies; in the South, the Bank will support the establishment of government fiduciary and administrative systems, and contribute to improved access to basic services and infrastructure.

The Bank has also produced a background document on the nature and extent of the underlying structural obstacles to the development of the Darfur Region. This background note establishes a knowledge base that should help future development planning for Darfur. The note identifies major obstacle to Darfur’s development as the lack of clear national policies and development projects to promote broad-based development and good governance compounded with geographic and demographics factors such as desertification and rapid population growth.

In all this, the main objective is to create the conditions to help sustain peace through pro-peace and pro-poor public investments. The main instruments for Bank support will continue to be the MDTFs, the LICUS trust fund and its planned successor, and analytical work, until IDA lending becomes possible following clearance of Sudan’s arrears. The third Sudan Consortium which is a forum for all the Sudan development partners to review progress of the CPA implementation and pledge funds is planned to be held in Oslo from May 5-7, 2008. It will also provide an opportunity for donors to pledge funding for the period 2008-2011.

Debt sustainability

Sudan’s debt prevents access to concessional finance that could help the country achieve the MDGs. Outstanding external debt stands at about $27 billion, up by $9 billion since end of 2000. This includes IDA arrears of $490 million to IDA, around $1.7 billion to the IMF and $180 million to the AfDB. A debt sustainability analysis suggest that, even assuming prudent macroeconomic policies and further increase in oil revenues, most of Sudan’s debt ratios remain above indicative threshold for sustainability.

Donors have signaled that clearance of arrears will depend on progress on both the implementation of the CPA and the peaceful resolution of the Darfur conflict. Sudan is potentially eligible for debt relief under the HIPC initiative, but only once it has prepared an Interim Poverty Reduction Strategy Paper, and cleared its outstanding arrears. The Bank will continue its analytic work in assessing changes in Sudan’s debt sustainability as well as the level and structure of its debt, via the joint World Bank/IMF Debt Sustainability Analysis (DSA). An updated DSA is expected in September 2008.

Development Results

Since the creation of the two MDTFs for Sudan, 25 projects have been prepared and approved for a total commitment of $418 million, out of which $212 million ($127m for the South and $85m for the National) has been disbursed. The financial support provided through the two MDTFs is listed below with the project name and the corresponding grant amount. Below are some of the development results achieved through the two MDTFs.

The Rapid Impact Emergency Project (RIEP) in the South was the first approved project under the Southern Sudan MDTF. $27.2 million has so far been disbursed under the project, providing pharmaceuticals and medical supplies to over 1000 local health facilities, across the 10 states of Southern Sudan. RIEP has also financed the printing and delivery of nearly 1 million textbooks and 40,000 school kits to 2,600 primary schools. State Governors’ offices have been renovated and equipped, including the installation of communications equipment, generators, vehicles, office equipment, and furniture. An interim Project Accounting Agent is in place in South Sudan, and an international procurement agent has been contracted to establish a Procurement Division in GoSS, review and revise GoSS procurement policies, and to carry out the day to day procurement activities of GoSS for a period of two years. The RIEP model is now being replicated for the Three Areas Program targeting the transitional states of Abyei, South Kordofan and Blue Nile. Among other notable results in MDTF-S various projects are: 1) the development of a new secondary school syllabus; 2) the fast-track training of 1,200 teachers; 3) the rehabilitation of water systems, the hospital, the parliament and government ministries in Juba, and 4) the repair of 850 kilometers of roads. Contracts for delivery of water supply, education and health services at the state level by NGOs and private entities are signed or underway to be signed, and the drilling of boreholes have started in Jonglei and Upper Nile states.

At the National level, the new national currency mandated by the CPA has been successfully introduced with support from MDTF-National. The National MDTF supports the preparatory work for the CPA-mandated National Census, which is a key precursor to the upcoming national elections. The last Census was held in 1993. The Community Development Fund (CDF) has supported 64 sub-projects in education (42 sub-projects), health (9), and water (13) in the Kordofans, Blue Nile, and Kassala—all conflict affected areas. A second round of 137 community sub-projects (111 in education, 24 health, 1 water, 1 electricity) is under implementation, with 40 of these already complete of near completion. In addition, 392 solar-powered lighting systems have been installed in schools, health facilities, and other public places. A plan to replicate the CDF in the South is underway, given the success of the CDF project. The MDTF is also supporting the rebuilding of critical transport infrastructure in war-affected areas. De-mining of the Babanousa-Wau railway has been completed with MDTF counterpart funds from GoNU, opening up for MDTF-funded rehabilitation of the railway. Contracting is underway, as is the contracting for rehabilitating three major roads linking formerly GoS and SPLM-controlled localities in the Three Areas and the East.

Portfolio under the two Sudan MDTFs as of April 22, 2008 (Amount in US$)

*The 2 projects cover the whole country.

Contacts

Kenichi Ohashi

Country Director (based in Ethiopia)

P.O. Box 5515

Addis Ababa, Ethiopia

Tel (251-1) 62 77 00

Fax (251-1) 62 77 17

Email:kohashi@worldbank.org

Greg Toulmin
Country Program Coordinator
The World Bank
1818 H Street, NW
Tel: 202 458 1747
Fax: 202-473-5453 email:rtoulmin@worldbank.org

Asif Faiz (based in Khartoum)
Country Manager, Sudan Country Office
The World Bank
Plot 39, Street 39, Khartoum East
Khartoum II, Sudan
Tel: +(249) 155155021 or 22/23/24; ext 3002
Fax: +(249) 155155025 (fax)
email: afaiz@worldbank.org