AFRICAN DEVELOPMENT BANK GROUP PROJECT: INSTITUTIONAL SUPPORT TO PUBLIC FINANCE MANAGEMENT AND AID COORDINATION (PFAID) COUNTRY: REPUBLIC OF SOUTH SUDAN PROJECT APPRAISAL REPORT December 2012 OSFU UNIT Appraisal Team Head Unit: Mr. J. WAHOME, OIC, OSFU Regional Director: Mr. S. KONE, OIC, OREB Team Leader: Mr. J. WAHOME, OIC, OSFU
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AFRICAN DEVELOPMENT BANK GROUP
PROJECT: INSTITUTIONAL SUPPORT TO PUBLIC FINANCE MANAGEMENT
AND AID COORDINATION (PFAID)
COUNTRY: REPUBLIC OF SOUTH SUDAN
PROJECT APPRAISAL
REPORT
December 2012
OSFU UNIT
Appraisal Team
Head Unit: Mr. J. WAHOME, OIC, OSFU
Regional Director: Mr. S. KONE, OIC, OREB
Team Leader: Mr. J. WAHOME, OIC, OSFU
TABLE OF CONTENTS
Acronyms and Abbreviations, Currency Equivalents, Fiscal Year, Weights and Measures,
1.2 Project linkages with country strategy and objectives
1.3 Project Linkages with Aid Strategy of South Sudan
1.4 Rationale for Bank’s involvement
1.5 Institutional Arrangement and Donor Intervention in PFM
II – PROJECT DESCRIPTION
2.1 Project components
2.2 Technical solution retained and other alternatives explored
2.3 Project type
2.4 Project cost and financing arrangements
2.5 Project’s target area and Beneficiaries
2.6 Participatory process for project identification, design and implementation
2.7 Bank Group experience and lessons reflected in project design
2.8 Key performance indicators
III – PROJECT FEASIBILITY
3.1 Economic and financial performance
3.2 Environmental and Social impacts
IV – IMPLEMENTATION
4.1 Implementation arrangements
4.2 Monitoring
4.3 Governance
4.4 Sustainability
4.5 Risk management
4.6 Knowledge building
V – LEGAL INSTRUMENTS AND AUTHORITY
5.1 Legal instrument
5.2 Conditions associated with Bank’s intervention
5.3 Compliance with Bank Policies
VI – RECOMMENDATION
Tables
Table 2:1 Project components
Table 2.2: Project Cost Estimates by Component
Table 2.3: Sources of Financing
Table 2.4: Project Cost by Category of Expenditure
Table 2.5: Expenditure Schedule by major
Table 2.6: Expenditure by years
Table 4.1: Procurement arrangements
Table 4.2: Project Implementation Schedule
Annexes
Annex 1: Map of South Sudan
Annex 2: Comparative Socio Economic Indicators
Annex 3: Donor Interventions
Annex 4: Bank Support to Sudan and South Sudan
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i
ACRONYMS AND ABREVIATIONS
ACMU Aid Coordination and Management Unit, MoFEP
ACCA Association of Chartered Certified Accountants
ADB African Development Bank
ADF African Development Fund
ASYCUDA Automated System of Customs Data
AUHIP African Union High Level Implementation Panel
CBTF Capacity Building Trust Fund
CPA Comprehensive Peace Agreement
DFID/UK Department for Foreign and International Development (U.K.)
DRC Democratic Republic of Congo
EA Executing Agency
FSF Fragile States Facility
GoNU Government of National Unity
GPN General Procurement Notice
GRSS Government of the Republic of South Sudan
ICBPRGGP Institutional Capacity Building for Poverty Reduction and Good
Governance
ICT Information and Communication Technology
IMF International Monetary Fund
ISP Institutional Support Project
JDT Joint Donor Team
MDTF Multi Donor Trust Fund
MoHRD Ministry of Human Resource Development
MoFEP Ministry of Finance and Economic Planning
MTCDS Medium Term Capacity Development Strategy
NCP National Congress Party
NDP National Development Plan
N-JAM National Joint Assessment Mission
OAG Office of the Auditor General
OSFU Fragile States Unit
PC Project Coordinator
PCR Project Completion Report
PEFA Public Expenditure and Financial Accountability
PFAID South Sudan: Institutional Support to Public Finance
Management & Aid Coordination
PFM Public Financial Management
PIU Project Implementation Unit
PSC Project Steering Committee
SDR Special Drawing Rights
SPLA Sudan people’s Liberation Army
SS South Sudan
SSAS South Sudan Aid Strategy
SSCCSE South Sudan Center for Census, Statistics and Evaluation
SSDP South Sudan Development Plan
UA Units of Account
UNDP United Nations Development Program
UNICEF United Nations International Children’s Emergency Fund
USAID United States Agency for International Development
ii
Currency Equivalents: As at December 2011
South Sudan Currency Unit: South Sudanese Pound
1 Unit of Account (UA) = 1 Special Drawing Rights (SDR)
1 Unit of Account (UA) = 1.58212 US Dollar
1 Unit of Account (UA) = 1.18654 Euro
1 Unit of Account (UA) = 0.992989 GBP
1 Unit of Account (UA) = 4.18030 South Sudan Pound (SSP)
1 South Sudan Pound (SDP) = 1 Sudan (Khartoum) Pound
GOVERNMENT FINANCIAL YEAR
July 1 – June 30
Weights and Measures
1 metric tonne = 2204 Pounds (lbs)
1 Kilogramme (kg) = 2.200 lbs
1 meter (m) = 3.28 feet (ft)
1 millimeter (mm) = 0.03937 inch (“)
1 kilometer (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
iii
Client’s information
BENEFICIARY: Republic of South Sudan
EXECUTING AGENCY: Ministry of Finance and Economic Planning (MoFEP)
Financing plan
Source Amount (UA) Instrument
ADF/FSF
4.80 million
Grant
Timeframe - Main Milestones (expected)
Preparation
July 2011
Appraisal July 2011
Project approval December 2012
Effectiveness January 2013
Mid-term Review December 2013
Last Disbursement December 2014
Project Completion and Audit February 2015
iv
Project Summary
Paragraph Topics covered
Project
Overview
Program name: Institutional Support Project to Public Finance Management and Aid Coordination
(PFAID).
Geographic scope: Entire country
Expected Outputs: The project will contribute to: i) building state capacity and accountability in
PFM at the Central Government (GRSS), the State Governments and Counties; and ii)
improving aid coordination in support of the country’s PFM systems. Consistent with the
agreements reached with the GRSS, the operation will benefit the Office of the Auditor General (OAG)
and the following Departments in the MoFEP: i) the Accountant General; ii) Internal Audit; iii)
Customs and Excise; and iv) the Aid Coordination and Management Unit (ACMU). The selection of
these institutions reflects the negotiations undertaken by Bank staff with the South Sudanese
Authorities and priorities identified in the South Sudan Development Plan (SSDP), 2011-13, the
Medium Term Capacity Development Strategy (MTCDS) as well as the South Sudan Aid Strategy
(SSAS).
Implementation timeframe: January 2013-December 2014
Project cost: UA 4.80 million
Project direct beneficiaries: The project will build institutional and human capacities in the OAG and
selected Departments in the MoFEP, including the ACMU, the MoFEP. A direct outcome of a well-
functioning PFM system is enhanced provision of essential public services for the entire population,
including women and the vulnerable sections of the population.
Needs
Assessment
South Sudan (SS) gained independence on 09 July 2011. The new State has critical development
challenges stemming from the bloody and prolonged civil conflict with the North that started in 1955, a
year before Sudan’s independence from Egypt and the United Kingdom in 1956 and ending in 2005
with the signing of the Comprehensive Peace Agreement (CPA) on 9 January 2005 between the Sudan
People’s Liberation Movement (SPLM) and the National Congress Party (NCP). With respect to the
PFM capacity, all policies, systems, institutional arrangements and staffing need to be built almost from
scratch. Capacity building in PFM is rendered even more difficult by lack of long term technical
support to strengthen or build national institutions; lack of updated and disaggregated data to serve as a
basis for government strategies; and policies; lack of skills training facilities; and weak strategic co-
ordination between key national institutions. It is against this background that the Government of the
Republic of South Sudan (GRSS) made a request to the African Development Bank to assist in building
its capacity in PFM.
Bank’s
Added Value
The proposed PFAID is the first operation submitted for consideration by the Board of Directors
to assist the independent state of South Sudan. The project will build and complement other Bank-
supported operations, such as the on-going Institutional Capacity Building for Poverty Reduction and
Good Governance Project (ICBPRGGP) and the support to Juba University provided under the
Governance Trust Fund. Further, the PFAID will complement the on-going capacity building support
by development partners. The Bank’s added value in supporting this project derives from a number of
factors, including: (i) the lessons and experiences gained in preparing and implementing Institutional
Support Projects (ISPs); and ii) the Bank’s long-standing experience in strengthening PFM in various
fragile and post-conflict countries in Africa. In addition, the Bank has gained considerable experience
in supporting capacity development and rebuilding PFM systems in countries neighboring South
Sudan, namely Kenya, Uganda, Tanzania and Rwanda. This experience is vital given that South Sudan
will borrow heavily from the financial systems and programmes from neighboring countries.
Knowledge
Management
The project will contribute to knowledge building to support the recovery and development efforts in
fragile and post-conflict countries, particularly with respect to the modalities of delivering institutional
capacity development projects in support of PFM systems. The findings could also be useful to all
fragile states in Africa, including Somalia, Central Africa Republic etc. The Bank will gather and
disseminate the knowledge generated through monitoring and evaluation reports, mid-term reviews and
Project Completion Reports.
v
Results Based Logical Framework
Country and Project Name: Republic of South Sudan- Institutional Support Project for Building Public Financial Management and Aid Coordination (PFAID).
Purpose of the Project: To Support the recovery and development efforts of South Sudan Development Plan, 2011-14.
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATION RISKS/MITIGATION MEASURES Indicator
(including CSI) Baseline Target
IMP
AC
T
Impact:
Poverty in South
Sudan is
reduced and aid
coordination
strengthened
-GDP annual growth
rate (%)
-Revenue/GDP ratio
-Estimated real
GDP growth of
5.5% in 2011
-Revenue reached
18.% of NGDP in
2011
-GDP growth rate
>6.5% by 2014
-Revenue/GDP ratio
increase to 24% by
December 2014
-Real GDP data
from the South
Sudan Center for
Census, Statistics
and Evaluation
-Government
publications in
2012/13/14
-World Bank and
IMF Surveys in
2012/13/14
Risk # 1: Consolidating peace and security country-
wide:
Despite the remarkable progress being made to
consolidate peace and security country-wide,
possibility of resurgence in instability cannot be
ruled out.
Mitigation: Mitigated by concerted efforts by GRSS
and international community, including the African
Union High Level Panel, especially through the on-
going negotiations on the sharing of oil-revenues,
citizenship and border security.
-Population below
poverty line decline
from 50.6% in 2011 to
46% in 2014
-Incidence of poverty
- 50.6 % of the
population below
poverty line in
2010
Results Based Logical Framework
vi
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATION RISKS/MITIGATION MEASURES
Indicator
(including CSI) Baseline Target
OU
TC
OM
ES
Outcome 1:
Enhanced
transparency
and
accountability in
use of public
finance
management
systems
Aggregate revenue
outturns compared to
original approved
budget (PI- 3)
-Stock and monitoring
of expenditure payment
arrears (PI-4)
-Public access to key
fiscal information (PI-
10)
-Effectiveness in
collection of tax
revenues (PI-20)
Performance
Indicator (PI)
ratings as captured
in 2010
Assessments of
South Sudan’s
PFM (see
accompanying
Technical Annex
of PFAID):
PI-3 – D (2010)
PI-7—D+ (2010)
PI-10—D (2010)
PI-15—D+ (2010
PI-3 C (2014)
PI-7-above C (2014)
PI-10 above C (2014)
PI-10 above C(2014)
-Bank assessment
of PEFA
-Publications by
GRSS, including
fiscal budget report
-World Bank
publications,
including
Integrated
Fiduciary
Assessments and
IMF Reports
Risk # 2: Weak procurement capacities. Weak
procurement could delay implementation of
operation.
Mitigation: Mitigated by the coordinated provision
of technical assistance, institutional capacity
development assistance by various donors.
Risk # 3: Corruption that could derail
implementation of the operation or lead to shortfall
in donor funding for PFM reforms.
Mitigation: Government ownership and support for
ongoing PFM reforms and the desire to create the
enabling environment for economic growth and
poverty reduction. Vigilance of the anti-corruption
agency to investigate cases of corruption
Risk # 4 : The global economic slowdown reduces
the country’s economic growth and government
revenues
Mitigation: A credible and transparent
macroeconomic management system and improved
policy environment should strengthen GRSS’s
ability to respond to external shocks
Results Based Logical Framework
vii
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATION RISKS/MITIGATION MEASURES
Indicator (including CSI)
Baseline Target
Outcome 2:
Improved aid
coordination for
support to PFM
- Meetings of the GRSS
Donor Forum after the
implementation of the
South Sudan Aid
Coordination
Mechanism, 2011.
-Roll out of the Aid
Information
Management system
(AIMS).
-% of staff in Aid
Coordination and
Management Unit
(ACMU) with training
in aid and debt
management
- Irregular
meetings of the
Sector Working
Groups in 2011
-0%
-At least four meetings
of GRSS Donor Forum
each years, starting
2013
- Four (4) rounds of
aid reporting published
in accessible format.
-All five staff trained
in aid and debt
management and in
the use of Aid
management
Information Systems
(AIMS)
-At least 96 man-
months of consultancy
services provided
-Reports from
donors and the
MoFED, AfDB
supervision reports,
including quarterly
and semi-annual
reports of PFAID
-Aid Reports
published
-Fiscal budgetary
system reports
-Co-financed
projects as a % the
total aid-flow
annually
Risk # 5: Technical assistance does not deliver
sustainable capacity improvement due to insufficient
emphasis on skills transfer
Mitigation: Terms of Reference for project advisor
will contain specific requirements to transfer skills to
local counterparts with measurable indicators of
progress and success, which will be evaluated as part
of project implementation progress.
Results Based Logical Framework
viii
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATION RISKS/MITIGATION MEASURES
Indicator (including CSI)
Baseline Target
Outcome 3
Increased
mobilization of
tax-revenue by
2014 and
reduction in the
financing of the
budget by oil-
revenue
-Government
expenditures financed
by non-oil revenue in
2011
-Staff trained in PFM,
Auditing, customs and
excise, and specialized
management
.
-Less than 10% of
government total
expenditure was
financed by non-oil
revenue in 2011
-No staff has
received any
training on customs
and excise
operations and
management
-Increase financing of
government
expenditure by non-oil
revenue to more than
20% by end 2014
-At least 50% of the
staff in Customs and
Excise Department in
2012 receive training
in customs and excise
operations, and
management, auditing
and other PFM related
training
-At least five Senior
Officers undertake
secondment/high level
training on customs
management and
administration in
neighboring countries
- Data generated
from Automated
System Customs
data
(ASYCUDA++)
-Fiscal budget for
2012/13/14
- Reports by the
IMF, the World
Bank and the other
donors
-Bank’s annual
Country Policy and
Institutional
Assessments
(CPIA)
Results Based Logical Framework
ix
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATION RISKS/MITIGATION MEASURES
Indicator (including CSI)
Baseline Target
Outcome 4
Enhanced
operational
effectiveness and
productivity of
beneficiary
institutions
- Staff members trained in
PFM, auditing, aid co-
ordination and
management, customs and
excise, and in specialized
management.
-Staff with professional
training in accountancy in
the MoFEP and OAG
--Annual audit
reports; availability
of reliable data and
regular reports on aid
by the aid
coordination and
management unit;
improved revenue
performance in
customs department;
efficient control
systems in the
Internal audit
department.
- Only 5 staff with
training at the level
of Association of
Chartered Certified
Accountant (ACCA)
-At least 300 staff
receives direct raining in
core PFM systems and
40% of trainees are
women.
At least 300 staff trained
in various aspects of
Customs and Excise
Department, including
use of ICT
Number, type and value
of ICT provided each
years
-20 more staff members
trained to attain ACCA.
-PEFA report for
2012/13/14
PFM progress reports
in 2012/13/14
-Supervision mission
reports
and Mid-term Report
of PFAID
- Annual Report of
the OAG
Results Based Logical Framework
x
RESULTS CHAIN
PERFORMANCE INDICATORS MEANS OF
VERIFICATION RISKS/MITIGATION MEASURES
Indicator (including CSI)
Baseline Target
Project management and
procurement courses
offered by the PCU
-No qualified staff
fully conversant with
the Bank’s project
management and
procurement
procedures
- At least two course each
year on Bank’s project
implementation
arrangement, including
financial management
and procurement
-At least 4 senior staff
trained on project
implementation and
management annually in
the Bank
Headquarters/Regional
offices over 2013 and
2014
- Reports from the
MOFEP and other
donors
-Quarterly,
supervision, mid-
term review Reports
of PFAID
-Annual Audit
Reports of the PFAID
KE
Y A
CT
IVIT
IES
ACTIVITIES of PFAID
1. PFM training for the Office of the Auditor General
and selected Departments in MoFEP
2. Provision of technical assistance to the Office of the
Auditor General and the following Departments in the MoFEP:
i) Internal Audit; iii) Aid Coordination and Management Union;
iii) Debt Management Directorate and v) Customs and Excise
Department.
3. Provision of office equipment, including computers,
printers, photocopiers, scanners, local area networks etc
INPUTS
ADF : UA4.80 Million
Implementation support supervision mission
xi
Project Implementation Schedule
Government of South Sudan: Institutional Support Project for Building Public Finance Management Systems and Improving Aid Coordination.
Activities/Years
2011 2012 2013 2014 2015 Action by
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Project Processing and Management
Grant Approval AfDB
Signing Protocol of Grant Agreement AfDB & GRSS
Project Effectiveness and Launching of Project AfDB & GRSS
Supervision and Monitoring AfDB
Mid-term Review AfDB &GRSS
Project Completion Report AfDB &GRSS
Submission of Final Audit Report AfDB/GRSS
Component of Project: Building PFM systems
A. Procurement and distribution of Goods * GRSS
B. Commencement of training activities GRSS
C. Recruitment and deployment of technical assistance GRSS
d. Procurement and installation of local area networks AfDB & GRSS
1
REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP
TO THE BOARD OF DIRECTORS ON A PROPOSED GRANT TO SOUTH SUDAN
FOR INSTITUTIONAL SUPPORT TO PUBLIC FINANCE MANAGEMENT
AND AID CO-ORDINATION (PFAID)
Management submits the following Report and Recommendation on a proposed Grant for UA 4.80
million to the Republic of South Sudan from Pillar III of the Fragile States Facility (FSF) to finance
the Institutional Support to Public Finance Management (PFM) and Aid Co-ordination (PFAID)1.
1. STRATEGIC THRUST AND RATIONALE
1.1 The proposed PFAID is the first operation submitted for consideration by the Bank
Group’s Board of Directors for the new state of South Sudan. The PFAID is essential given that
South Sudan’s development efforts have been constrained by low administrative capacity in the face
of high demands posed by fiscal and policy decentralization. The country has also been managing
substantial inflows of oil revenues and donor resources using limited institutional and human capacity.
As a consequence, spending patterns continue to be governed by cash availability, and reflect the
institutions’ capacity for spending rather than their approved budget appropriations. South Sudan also
faces lack of capacity for tax administration and services delivery at the central, state and local level
which continues to be compounded by the huge influx of internally displaced people and refugees.
The proposed PFAID draws from, and is aligned with the Government’s core governance functions,
the SSDP, 2011-13, the Medium Term Capacity Development Strategy (MTCDS) and the South
Sudan Aid Strategy (SSAS) and therefore commands priority in the GRSS’s development priorities.
1.2 Project Linkages with Country Strategy and Objectives
1.2.1 The proposed operation has strong linkages with the South Sudan Development Plan
(SSDP), 2011-20132, which sets out a medium term agenda for reconstruction and development,
under the broad theme of “Realizing Freedom, Equality, Justice, Peace and Prosperity for All”. The
SSDP has four pillars that encapsulate the development objectives of South Sudan: i) economic
development; ii) social and human development3; iii) governance; and iv) conflict prevention and
security. The PFAID operation will assist in the implementation of the economic development and
governance pillars. The SSDP provides a framework for building the new nation of South Sudan, and
to guide international partners in programming support to the country. The ten states of South Sudan
will follow suit in developing their own state-level development plans in conformity with the
overarching vision articulated in the SSDP, 2011-13. Finally, the plan is supposed to serve as an
instrument for resource mobilization and policy dialogue.
1.2.2 Embedded in the SSDP is “The Medium-Term Capacity Development Strategy
(MTCDS)” that provides a strategic framework for planning and organizing institutional and human
capacity in support of the recovery and development priorities of South Sudan. The objective of the
MTCDS is to ensure that the GRSS can effectively address critical institutional capacity needs
required to implement the SSDP, 2011-13, including building public administration and management
1 This appraisal report of the South Sudan PFAID is accompanied by detailed annexes that elaborate on various aspects of
the project, including the South Sudan Development Agenda, the Medium Term Capacity Development Strategy, the 2011
Aid Strategy for the Republic of South Sudan, Assessment of the Challenges in Public Finance Management systems, and
the Implementation Arrangements, Procurement and Financial Policies and Procedures that will apply in implementing the
operation.. 2 See Directorate of Planning, Ministry of Finance and Economic Planning “South Sudan Development Plan, 2011-13”
Juba, 2011. 3 Also see Annex 2 on South Sudan – Comparative Social Indicators.
2
systems that facilitate the provision of public goods and services to the population under an
accountable and transparent system of governance which is a priority in the MTCDS.
1.2.3 The proposed PFAID is also consistent with the economic governance pillars of the Bank’s
Medium Term Strategy, 2008-2012, and the ADF-12 operational priorities, Bank’s Governance
Strategic Action Plan1, the Strategy for Enhanced Engagement in Fragile States
2, and most important,
the Guidelines on Administration of the Technical Assistance and Capacity Building (TCB) Program
of Pillar III Operations of the FSF3, all of which underscore the important role that good financial and
economic management play in supporting the recovery and development efforts of fragile states.
1.2.4 The PFAID will be implemented within the framework of the Cooperation Agreement4
that was signed between the Bank and the GRSS in September 2011. The first South Sudan
Interim CSP is under preparation.
1.3 Project Linkages with Aid Strategy of South Sudan
1.3.1 The PFAID is closely aligned to the South Sudan Aid Strategy (SSAS) 5
, whose central
objective is the effective management and coordination of aid-inflows into the country within a
Government-led framework. The Aid Coordination and Management Unit in the MoFEP are
responsible for implementing the SSAS. The Government attaches high priority to implementation of
the SSAS, given the current challenges in managing and coordinating development assistance. The
SSAS was formulated utilizing the lessons and experiences learned in the course of implementing the
2006 Aid Strategy. Consistent with the 2005 Paris Declaration on Aid Effectiveness and the Accra
Agenda for Action (AAA), the SSAS is guided by principles which include ensuring that the
development assistance accruing to South Sudan is: i) Government owned and led; ii) aligned with
Government’s policies as set out in SSDP; iii) use Government systems, as much as possible
including the existing institutions for public finance management (PFM); v) is coordinated and
harmonized through sectoral mechanisms; v) managed for achieving results and vi) based on the
principles of mutual accountability.
1.4 Rationale for Bank’s Involvement
1.4.1 The proposed PFAID will contribute to building capacity and accountability in PFM at
the central government (GRSS), the State Governments and Counties. South Sudan is a fragile,
post-conflict country that was engulfed in a bloody civil conflict with the North (Sudan (Khartoum))
for nearly 50 years with few breaks, starting in 1955, a year before independence from Egypt and the
United Kingdom in 1956 and ending in 2005 with the signing of the Comprehensive Peace Agreement
(CPA) on 9 January 2005 between the Sudan People’s Liberation Movement (SPLM) and the National
Congress Party (NCP). Since the signing of the CPA in 2005, the authorities in SS have set out to
build the country almost from scratch by creating economic institutions and working towards
establishing an environment conducive to growth and stability.
1 African Development Bank “ Governance Strategic Directions and Action Plan (GAP), 2008-2012”
ADF/BD/WP/2008/40 or ADB/BD/WP/2008/70 2 African Development Bank “Strategy for Enhanced Engagement in Fragile States” ADF/BD/WP/2008?10 or
ADB/BD/WP/2008/37 3 African Development Bank “The Fragile States Facility (FSF): Guidelines on Administration of the Technical Assistance
and Capacity Building (TCB) Programs of Pillar III Operations” ADF/BD/WP/2010/44 or ADB/BD/WP/2010/75 4 See African Development Fund “Proposal for a Cooperative Agreement with the Republic of South Sudan Pending its
Membership in the Bank Group” July 2011. 5 Government of the Republic of South Sudan (2011) “Aid Strategy for the Government of South Sudan” Ministry of
Finance and Economic Planning (MoFEP), August, 2011.
3
1.4.2 Considerable progress has been made that culminated in the attainment of independence on 09
July 2011. As is the case with other fragile states in Africa, South Sudan faces formidable
development challenges, including the lack of institutional and human capacity that severely
constrains the implementation of its development agenda. Public administration at all levels lacks the
basic human, financial and logistical means to deliver services. Infrastructure services are also non-
existent in many parts of South Sudan. Moreover, a majority of civil servants have not had any formal
training for several years due to the prolonged civil conflict. Accordingly, the institutional and human
capacity in South Sudan is characterized by low level of productivity and service delivery that has
forced Non-Governmental Organizations, the United Nations Agencies, Funds and Programs, NGOs
and religious organizations to step in with the objective of covering the gaps.
1.4.3 The weak human resources base, combined with lack of systems, absence of a robust legal
framework, and weak institutions in South Sudan have proven to be the greatest challenge to the
development of the PFM systems in the country1. However, over the past three years there have been
notable improvements including: i) in the budget formulation process; ii) the introduction of an
integrated financial management system (IFMS) in the MoFEP; and iii) strengthening the support for
procurement agents. More recently, a draft Public Finance Management and Accountability Bill
was prepared by the Ministry of Legal Affairs and Constitutional Development, and submitted to
Parliament for consideration. Despite these efforts, substantial challenges remain in developing
functional PFM systems. The Minister of Finance and Economic Planning while presenting the budget
for fiscal year 2010 confirmed the current challenges by noting that corruption can undermine the best
budgets and that the greatest issues in South Sudan are irregular and over-priced procurements, self-
awarded allowances, and ghost workers, which are clear pointers to the continuing weaknesses in the
PFM system. The management and accountability of public sector resources therefore remains a
central issue in South Sudan.
1.4.4 There is also a need to improve transparency and accountability of the financial
resources that accrue to the ten (10) states of South Sudan. These resources could be significant,
particularly for states that have oil revenues. States also have the power to legislate to raise revenue
collection from the various sources and areas such as: i) State land and property tax and royalties; ii)
User charges and fees for state services; iii) State licenses; iv) State personal income tax; v) Levies on
tourism; iv) State enterprises and projects and national parks; vii) Stamp duties on State transactions,
and viii) other taxes that do not encroach on South Sudan Government taxes. Extending the PFM
support to the states and counties is therefore critical.
1.4.5 The project will also assist in improving aid management and coordination. The MoFEP
does not have a well-functioning, staffed and equipped Aid Coordination and Management Unit
(ACMU). To strengthen the capacity of the ACMU, a number of challenges need to be addressed
including i) reviewing existing aid financing arrangements to ensure that there is appropriate
alignment with the priorities set in the SSDP, 2011-13; ii) having donors provide estimates of their
future aid commitments on a rolling three-year basis; iii) reduce current substantial fragmentation of
aid programs along with increased emphasis on multi-year commitments to priority programs; and iv)
in close collaboration with the donor community, strengthen arrangements for monitoring the status of
on-going donor funded projects and programs and for evaluating their effectiveness. To address these,
and other pressing concerns, the ACMU will need to implement a program of capacity building and
technical support over the two-year period, 2012-13.
1.4.6 Early action in strengthening the capacity of the ACMU is critical in order to position it to play
an important role in the preparation of the next National Development Plan starting 2014. The PFAID
will therefore provide technical assistance (TA) that will facilitate aid coordination principally through
1 See Government of the Republic of South Sudan “Public Finance Management Assessment: Based on the Public
Expenditure Financial Accountability Framework (PEFA)” September 2011.
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on-the-job training for the local counterparts and the transfer of skills with a view to improving aid
management and coordination and producing timely, accurate and reliable data and reports on aid
inflows and use. The TA will further assist in revitalizing the Donor Coordination Forum. The project
will also offer overseas training opportunities in aid management as well as provide the relevant
equipment and software.
1.4.7 The PFAID complements and adds value to Government and other development
partners’ efforts to address the challenges faced by South Sudan. The rationale for the PFAID is
three-fold: first the PFAID will assist in strengthening institutional capacity for managing the
country’s public finance systems and aid coordination. Severe organizational weaknesses in the
country’s PFM institutions and systems continue to seriously hamper the development and peace
building efforts of South Sudan. Second, by building the capacity of the OAG and key Departments in
the MoFEP, the project will help fight corruption and wasteful leakages of the scarce public sector
resources. Third, the project will help consolidate gains in financial and economic governance reform
supported under the Pillar III of the FSF and the ongoing ADF - financed Institutional Capacity
Building for Poverty Reduction and Good Governance and the support to Juba University.
1.4.8 Overall therefore, the PFAID will contribute to strengthening fiduciary standards while
ensuring that public resources are used for the intended purposes and reach the targeted beneficiaries.
The PFAID will also contribute to moving the country closer to achieving compliance with
international standards of financial management, including the use of internationally recognized
accounting and auditing systems and reporting standards through application of modern ICT.
1.5 Institutional Arrangement and Donor Intervention in PFM
A) Institutional Arrangement
1.5.1 Ministry of Finance (MoFEP): This project focuses on two main areas of governance in the
economy, namely: i) the public financial management system; and ii) aid coordination and
management in South Sudan. Within the PFM system, the project will support the Office of the
Auditor General (OAG) and four (4) functionally interlinked Departments in the MoFEP - Internal
Audit; Accountant General; and Customs and Excise Departments. Under aid co-ordination, the
PFAID will strengthen capacity of the Aid Coordination and Management Unit, in the MoFEP.
1.5.2 The MoFEP is headed by a Minister with two Deputy Ministers and two Under Secretaries and
1 Local costs are estimated in United States Dollars (US$) because during the appraisal of the PFAID operation, South
Sudan was in the process of introducing a new currency that was rolled out after independence in July 2011. 2 See African Development Bank “Policy on Expenditures Eligible for Bank Group Financing”
ADB/BD/WP/2007/106/Rev.1 - ADF/BD/WP/2007/72/Rev.1, 12 February 2008
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Table 2.4: Project Cost by Category of Expenditure (in 000)