CHAD: IMF-WORLD BANK MISSION PRESENTS POSITIVE

UNCLAS NDJAMENA 001395

SIPDIS


DEPT FOR AF, EB, ENERGY FOR CAROLYN GAY AND GEORGE PEARSON,
TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS, USTR
FOR WILLIAM JACKSON

E.O. 12958: N/A
TAGS: ECON EFIN ENRG PGOV CD
SUBJECT: CHAD: IMF-WORLD BANK MISSION PRESENTS POSITIVE
SHORT-TERM OUTLOOK

REF: NDJAMENA 1228


1. SUMMARY: The latest IMF-World Bank Mission has presented
a fairly positive assessment of Chad's economic prospects,
but has also noted the need for progress in non-oil sectors,
particularly cotton, agriculture and livestock, and
telecommunications. While the country received a passing
grade during this review, the mission's conclusions have
also raised questions concerning the country's ability to
meet its short-term objectives before December, revisions of
the current Revenue Management Laws (which some members of
the international community appear to support),and the
World Bank's Plan for the Modernization of the National
Budget.

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IMF-WORLD BANK GIVES A PASS, FOR THE MOMENT
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2. On August 31st, a joint IMF-World Bank mission assigned
to assess Chad's Poverty Reduction and Growth Facility
(PRGF) progress briefed members of the international
community (which included representatives from the GOC,
European Commission, French Embassy, and UNDP) on their
conclusions. The head of the Mission, Pierre Van Den
Boogaerde, announced that the Chadian government would
receive a passing grade on this assessment of the program,
and had agreed to take specific short-term measures to limit
government spending, which included the freezing of certain
official travel and salary increases of government
officials. Van Den Boogaerde noted that the freeze would
allow the GOC to balance the budget for the current fiscal
year, even though the problem of perpetual salary arrears
and outstanding government expenditures from the past year
would have to be carried over to the following fiscal year.


3. At the same time, according to the Van Den Boogaerde,
financial assistance from the European Commission and the
African Development Bank, to be released before the end of
2005, should ease this year's budgetary shortfalls. The
PRGF will be re-evaluated in December, as well as in April,
when the country's HIPC-completion point progress will also
be determined. Van Den Boogaerde also noted that the
implementation of the recently-approval Budget Modernization
Plan (PAMFIP) would assist in reforming the budgetary
process, and said the IMF would explore what assistance it
could offer in accelerating the process. The World Bank
Chad-Cameroon Pipeline Representative, Marie-Francoise
Nelly, added that the Bank would convene a meeting in
N'Djamena in early-October of the international donors to
discuss external financial support for PAMFIP (see reftel).

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FOCUS ON NON-OIL SECTORS
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4. Citing the revenue shortfall in the oil sector from
lower-than-expected production, Van Den Boogaerde emphasized
the need for Chad to focus its efforts on reforming the non-
oil sector. He pointed to the GOC's agreement with the Bank
and Fund to move forward with the privatization of the
Cotton parastatal CotonTchad. This included implementing
the World Bank's proposed road map (which was approved by
the Government immediately before the arrival of the joint-
mission) that charted out the reform of the company's
internal organization, creation of a multi-year business
plan, and execution of a public tender in the international
markets. Van Den Boogaerde also highlighted good harvests
and increased livestock production expected for 2005.


5. Van Den Boogaerde said that the Government had agreed to
commence the privatization of its telecommunication and
electricity sector. He expressed optimism in the country's
ability to capitalize on the expansion of the current fiber
optic network in Doba, as well as begin the construction of
a topping plant to produce readily available diesel fuel.
He also noted the technical assistance that the European
Commission had provided Chad's agro-economy (particularly
with respect to its livestock sector),and the export
benefits that the United States provided through AGOA.

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REVISION OF THE OIL LAW
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6. Following Van Den Boogaerde's presentation, World Bank
Representative Noel Tshiani raised the question of revising
the current Revenue Management Laws, citing the existing
critique that the existing laws restricted the ability of
the Chadian government to fund changing social needs.
Representatives from the African Development Bank, the
French Embassy, and the UNDP all commented on whether the
existing priority sectors should be revised. The UNDP
Representative specifically noted that additional priorities
included enhancing the security of the state, particularly
the judiciary system. The EC said that the greater question
was the ability of the State to responsibly manage the
current oil revenues, and the kind of support the
international community could provide to augment the GOC's
budgetary capacity. Nevertheless, they noted that the
Chadian government had the right to change their own laws.

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GOC REACTIONS TO THE MISSION, BUDGET MODERNIZATION
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7. On September 5, E/C Officer met with Ibrahim Mollimi,
Secretary General for the Ministry of Finance, and Issene

SIPDIS
Mouhoro, Deputy Coordinator for the Cellule Economique (the
President's Economic Advisory body for Structural Programs)
to assess the GOC reaction to the IMF-World Bank Mission.
Both officials noted that the Government was very relieved
with the positive review it received regarding its PRGF, as
many officials had expressed concern following the revenue
shortfall and spending deficit in FY 2005. They were both
confident that the government would be able to adhere to the
spending freezes demanded by the IMF, and move forward with
the privatization of a number of sectors.


8. Both officials were also highly supportive of PAMFIP's
potential positive impact, but stated that implementation of
this mechanism needed to start soon, and required
international (and particularly U.S.) assistance. Mouroho
explained that while the Government maintained the ability
to manage part of the budgetary process (the receipt of
budgetary requests and the programming of resources),it
lacked the capacity to efficiently disperse the cash
payments to complete the spending transaction. Mouroho
argued that developing an Integrated Financial Management
System that connected and modernized all phases of the
budgetary process would solve the existing ineffectiveness
of the current system.


9. When E/C Officer noted the concerns that previous
Treasury teams had raised with the implementation of an
integrated financial system, Mollimi noted that the
Government examined the past failure of the system in
Burkina Faso, and said the Government had already sent a
technical team to Burkina Faso to examine the system there,
and would use the lessons from their experiences to ensure
that their integrated financial management system would be
fully functional in Chad. (NOTE: Past Treasury teams have
noted that a Integrated Financial Management System could be
counter-productive for Chad's budgetary reform needs, as the
country lacks the technical capacity to absorb such a
technologically sophistical system. END NOTE)

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COMMENT
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10. While the IMF's decision to continue the PRGF in Chad
is good news, the next several months will be crucial for
the future of the program. The country has to demonstrate
that it can make significant progress in the privatization
of several non-oil sectors if it wishes to see continued
economic support from the IFIs. The IMF's visit also
demonstrates that the international community will have to
address the future of the current Revenue Management Laws
and reform of the Chadian budgetary system. Clearly, there
are specific problems associated with the constraints of the
laws governing the spending of oil revenues, as well as the
system in place to disperse the oil revenues. The question
is how to reform the current arrangement to assure the
transparency of the current laws, and offer the most
practical structure for the Chadian budgetary system (which


is not necessarily evident from the proposed reform plan).
We will need to develop a formal response on both
initiatives in the coming months if we wish to influence the
direction of future discussions on these matters.


WALL


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