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. - - - - - - - - - - - - - - - - - - - - - PROGESS MADE DURING IMF-WORLD BANK VISIT - - - - - - - - - - - - - - - - - - - - - ¶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. - - - - - - - - - - - - - - - - - - - - - - - - - - QUESTIONS ON SECURITY SPENDING, STABILIZATION FUND - - - - - - - - - - - - - - - - - - - - - - - - - - ¶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. - - - - - - NEXT STEPS - - - - - - ¶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. - - - - COMMENT - - - - ¶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