CHAD: WORLD BANK, IMF ASSERT PROGRESS MADE, BUT

UNCLAS NDJAMENA 000768

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: ECON EFIN ENRG EPET PGOV CD
SUBJECT: CHAD: WORLD BANK, IMF ASSERT PROGRESS MADE, BUT
MORE IS NEEDED

REF: NDJAMENA 734


1. (SBU) SUMMARY: At the conclusion of their visit, the
joint IMF-World Bank stated that Chad's rectified 2006
budget is on its way to being finalized, and steps are being
taken to advance plans to assist the country's financial
system. Nevertheless, questions remain over specific
spending activities on security, and the IMF and World Bank
must work to convince GOC authorities on the benefits of a
stabilization fund to safeguard revenues for future needs as
well as the need to incorporate poverty reduction into the
Government's priorities. Public finance reform is essential
to ensuring that the country has the absorptive capacity to
manage future revenues. END SUMMARY.

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PROGESS MADE DURING IMF-WORLD BANK VISIT
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2. (SBU) On May 23, IMF and World Bank team leaders Harry
Snook and Marie-Francoise Mary Nelly briefed the
international community on the on-going technical
discussions between the team and GOC authorities following
the April 26 interim agreement between the Bank and GOC.
The team leaders stated that the preparation of the 2006
rectified budget, which was a necessary pre-condition for
the unfreezing of held oil royalty payments, was moving
along, and would be completed in mid-June. IMF
Representative Wayne Camard subsequently told E/C Officer on
May 26 that disagreements had emerged between the team and
the GOC over technical details of the budget, but both sides
hoped to resolve their differences in the coming days.


3. (SBU) Both Snook and Marie-Nelly stated the team had
positive discussions with GOC authorities on reform of the
public finance system. They stated that GOC officials
admitted the need to reform the cash-flow management system,
the disbursement of revenues from the public treasury to
respective ministries, and the execution by ministries of
resources at their disposal. They identified the tax
collection process as an area that required significant
reform, as the GOC currently lacked the resources to collect
and program tax revenues in the budgetary process. Snook
and Marie-Nelly stated that the planning matrix established
by the April multi-donor mission to chart out the reform of
the public finance system was complete, and added that the
Bank and IMF would look to members of the international
community to assist in the funding of the matrix and public
finance reform.

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QUESTIONS ON SECURITY SPENDING, STABILIZATION FUND
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4. (SBU) Snook and Marie-Nelly admitted that the GOC had
posted 32 billion FCFA (60 million USD) in extraordinary
security expenditures in the beginning of 2006. They stated
that the team would have to work with GOC authorities to
reflect this in the rectified budget to ensure that the
spending could be accounted for in the overall budget. This
would possibly entail spending cuts in other areas of the
budget to offset the security expenditures, but the final
determination would involve continued discussions between
the team and the GOC. Snook also noted that as long as the
GOC faced security concerns in Eastern Chad, the
international community should expect to see continued
spending on security needs.


5. (SBU) The team leaders noted that another point of
discussion was the need for a stabilization fund in the
Chadian budgetary system. The team leaders admitted that
the notion of a stabilization fund that would safeguard a
percentage of oil revenues for future spending needs would
be a tough sell. After all, the GOC opposed and eventually
eliminated the Fund for Future Generations due to concerns
that current spending needs were not being met.

Nevertheless, the team leaders stated that the Bank and the
IMF would continue to push this idea to the GOC, as they
felt a mechanism was needed to ensure that the GOC has
adequate financial resources in the event of a downturn in
oil revenues. They noted as well that the lack of absorptive
capacity demanded some form of reserve account to hold
funds.

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NEXT STEPS
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6. (SBU) Snook and Marie-Nelly said that the Bank and IMF
planned to return in mid-June to continue discussions on
public finance reform. Technical experts from the African
Development Bank, the European Union, and the United Nations
will also accompany the next technical team. During the
next visit, the technical team plans to examine the
integration of the country's Poverty Reduction and Strategy
Paper (PRSP) into the GOC policy-making process. This will
entail the planning of a workshop for officials from the GOC
and the international community to explore avenues for PRSP
integration into the budgetary process. According to the
team leaders, the team will continue the dialogue on reform
of the public finance system, and will hopefully be able to
begin execution of a rectified 2006 budget.

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COMMENT
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7. (SBU) Cooperation between GOC authorities and the
technical mission is a positive indication of improving
relations between Chadian and World Bank officials. There
appears to be some level of commitment to public finance
reform, and the subsequent visit could mean further movement
on GOC commitments on using oil revenues to reduce poverty.
Nevertheless, as Snook alluded to in the briefing, more
attacks in Eastern Chad will mean more spending on security
and military operations. As long of the GOC finds itself in
a climate of insecurity, it is unclear whether they will be
fully committed to poverty reduction and public finance
reform.


Wall