Identifier
Created
Classification
Origin
06NDJAMENA1307
2006-11-07 07:53:00
UNCLASSIFIED
Embassy Ndjamena
Cable title:  

IMF-WORLD BANK TEAM PRESENTS GLOOMY REVIEW

Tags:  ECON EFIN ENRG PGOV CD 
pdf how-to read a cable
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ZNR UUUUU ZZH
R 070753Z NOV 06
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC 4548
INFO RUEHUJA/AMEMBASSY ABUJA 1313
RUEHDK/AMEMBASSY DAKAR 1214
RUEHLO/AMEMBASSY LONDON 1592
RUEHNM/AMEMBASSY NIAMEY 2856
RUEHFR/AMEMBASSY PARIS 2028
RUEHYD/AMEMBASSY YAOUNDE 1400
RUEHKL/AMEMBASSY KUALA LUMPUR 0053
RUEHLC/AMEMBASSY LIBREVILLE 0938
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS NDJAMENA 001307 

SIPDIS

SIPDIS

DEPT FOR AF, EB, ENERGY FOR CAROLYN GAY AND GEORGE PEARSON,
TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS,
DAKAR FOR FCS REPRESENTATIVE CYNTHIA GRIFFITH GREENE

E.O. 12958: N/A
TAGS: ECON EFIN ENRG PGOV CD
SUBJECT: IMF-WORLD BANK TEAM PRESENTS GLOOMY REVIEW


UNCLAS NDJAMENA 001307

SIPDIS

SIPDIS

DEPT FOR AF, EB, ENERGY FOR CAROLYN GAY AND GEORGE PEARSON,
TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS,
DAKAR FOR FCS REPRESENTATIVE CYNTHIA GRIFFITH GREENE

E.O. 12958: N/A
TAGS: ECON EFIN ENRG PGOV CD
SUBJECT: IMF-WORLD BANK TEAM PRESENTS GLOOMY REVIEW



1. (SBU) SUMMARY: The IMF-World Bank joint mission is
facing challenges in its attempts to work with Chadian
authorities to develop a medium-term expenditure framework
for oil revenue management, according to the mission's team
leaders. The GOC's inability to accept the realities of
dwindling oil production will hinder its ability to maintain
a sustainable national budget. The mission has also
identified a number of exceptional military expenses that
cannot be accounted for, and has pointed out that some of
these expenditures include the recently-received tax payments
from Chevron and Petronas. END SUMMARY.

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IMF-WORLD BANK TEAM: SOME GOODS NEWS...
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2. (SBU) On November 5, World Bank Chad-Cameroon country
manager Marie-Francoise Mary Nelly and Harry Snoek, leader of
the visiting IMF mission, met with the Ambassador to discuss
the recent activities of the IMF-World Bank joint mission.
The team, which arrived October 26 and is expected to be in
N'Djamena until mid-November, was tasked with assisting the
Chadian authorities to implement a medium-term expenditure
framework for the use of the country's oil revenues for
poverty reduction, and look to the development of a
stabilization fund to preserve the country's unspent revenues
(provisions laid out in the July 13 agreement between the
World Bank and GOC). Marie-Nelly noted that prior to the
team's arrival, the Bank and Fund informed the GOC of the
mission's objectives, and the GOC had agreed to cooperate
with the mission's activities.


3. (SBU) Snoek and Marie-Nelly stated that the GOC was
moving forward in some aspects of the July 13 agreement.
Specifically, Chadian authorities were scrupulously ensuring
that the proposed 2007 budget accorded 70 percent of the
country's budgetary resources to priority sectors that
focused on poverty reduction (according to the World Bank-GOC
agreement). They also noted that the GOC was making efforts

to program both direct (royalty payments) and indirect (tax
payments) oil revenues for the construction of roads, medical
clinics, and rural electrification projects. In addition,
the country appeared on its way to paying off its external
and internal arrears by 2010.

- - - - - - - - -
...BUT MOSTLY BAD
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4. (SBU) Unfortunately, according to the team leaders, the
positive steps taken by the GOC were overshadowed by negative
trends in the planning of the budget. Simply put, the
Government appeared to be operating under intense political
pressure to realize investment projects for 2007 in amounts
that were unsustainable. Snoek stated that the GOC was
preparing its medium-term expenditure framework based on the
unsubstantiated premise that oil revenues would flow into
Chad's treasury into the future, permitting the country to
program and execute the same level of infrastructure
projects, as well take care of its recurring expenditures.
This view is hinged on the belief that oil prices would
remain high (which was not a guarantee) and that oil
production would continue at its current pace (also doubtful
as the country's reserves are expected to dry up by 2030).
As a result, the 2007 budget was already unsustainable Taken
together, the current programmed expenditures and the
projected oil revenue stream meant that the country would be
in a fiscal crisis by 2009 or 2010.


5. (SBU) Marie-Nelly said that while technicians appeared to
understand the need to limit programming of projects for the
coming years, authorities at the ministerial level did not
appear to "get it." She also noted that while the GOC had
previously expressed a willingness to maintain close
relations with the mission, the relations on the ground had
not been strong. Marie-Nelly said the Minister of Finance,
for instance, had not met regularly with the team, as he had
promised prior to the team's arrival. This was particularly
true in the Bank and Fund's proposal for a creation of a
stabilization fund to save unspent oil revenues for potential
future fiscal imbalances. According to Snoek, the GOC had
been very reluctant to discuss the matter, and there had been
little progress in the development of such a mechanism.
Marie-Nelly argued that the GOC was probably reluctant to
accept any proposal that required the GOC to safeguard
unspent revenues, as the pressures to spend the country's
revenues for present initiatives would be too great.

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-
GOC'S MILITARY EXPENDITURES USING CHEVRON, PETRONAS TAX
PAYMENTS
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-


6. (SBU) Snoek and Marie-Nelly both pointed out that
military expenditures were continuing, and were in many cases
unaccounted for. Most disturbing, according to Snoek, was
the inability by the Ministry of Finance to account for 160
million USD in defense spending (i.e., while the books show
the money was spent, it is unclear where the resources went).
Snoek pointed out that the Chadian budget laws permitted the
GOC to reserve resources for "exceptional" military
expenditures, such as reinforcing the efforts of the Chadian
national army in the East. In many cases, these expenditures
were not often documented. Marie-Nelly alluded also to
reports of "flows" outside the budget, in which resources
were being taken from certain sectors for defense spending,
which again were very difficult to track.


7. (SBU) Marie-Nelly added that some of the 281 million USD
tax payment made in October by oil consortium members Chevron
and Petronas were also being programmed for military and
defense spending. She noted that according to the July 13
agreement between the GOC and the World Bank, while the GOC
was required to commit all direct and indirect oil revenues
to poverty reduction for the 2007 budget, it was free to
spend the indirect revenues for 2006 on non-priority sectors,
such as security. As the tax payment fell under the 2006
fiscal year, the GOC was able to spend the tax payment on
security needs, and had appeared to have done so.

- - - -
COMMENT
- - - -


8. (SBU) The World Bank's and IMF's negative assessment of
the country's budgetary trends does not bode well for Chad's
financial stability in the coming years. If the country is
unable to execute a sustainable medium-term expenditure
framework, it will fall into the financial problems that it
faced in early 2005, as salary arrears grew and the country
was unable to manage its internal and external debts.
Continued instability in eastern Chad will only hurt matters,
as the GOC will continue to spend resources (including tax
revenues obtained from the American-led oil consortium) on
military needs, and divert resources from budget priorities.
Should the GOC be unable to agree with the Bank and the Fund
on the preparation of a sustainable budget, there could be
ramifications on GOC programs in other areas, such as the
country's Poverty Reduction and Growth Facility Review and
Chad's eligibility for debt relief under the Heavily Indebted
Poor Countries Initiative.
WALL