Identifier
Created
Classification
Origin
07NDJAMENA403
2007-05-10 09:32:00
CONFIDENTIAL
Embassy Ndjamena
Cable title:  

DONORS ASKED TO TELL CHAD TO REIN IN SPENDING

Tags:  PGOV EFIN EAID CD 
pdf how-to read a cable
VZCZCXYZ0015
RR RUEHWEB

DE RUEHNJ #0403/01 1300932
ZNY CCCCC ZZH
R 100932Z MAY 07
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC 5268
INFO RUEHLO/AMEMBASSY LONDON 1677
RUEHFR/AMEMBASSY PARIS 2157
RUEHYD/AMEMBASSY YAOUNDE 1531
RUEATRS/TREASURY WASHDC
RUEHBS/USEU BRUSSELS
C O N F I D E N T I A L NDJAMENA 000403 

SIPDIS

SIPDIS

PARIS AND LONDON FOR AFRICAWATCHERS

E.O. 12958: DECL: 05/08/2012
TAGS: PGOV EFIN EAID CD
SUBJECT: DONORS ASKED TO TELL CHAD TO REIN IN SPENDING

REF: (06) NJDAMENA 867

Classified By: DCM LUCY TAMLYN FOR REASONS 1.4(B) AND (D)

C O N F I D E N T I A L NDJAMENA 000403

SIPDIS

SIPDIS

PARIS AND LONDON FOR AFRICAWATCHERS

E.O. 12958: DECL: 05/08/2012
TAGS: PGOV EFIN EAID CD
SUBJECT: DONORS ASKED TO TELL CHAD TO REIN IN SPENDING

REF: (06) NJDAMENA 867

Classified By: DCM LUCY TAMLYN FOR REASONS 1.4(B) AND (D)


1. (C) Summary and action request: The IMF and the World
Bank have asked the United States and France to join them in
a new Multi-Donor Mission (MDM) to urge President Deby to
rein in military and infrastructure spending in order to
maintain Chad's solvency into 2008 and 2009. Chad's request
to purchase U.S. aircraft is one (but not the only) reason
for projected military overspending. While Chad's
overspending threatens its agreement with the World Bank to
spend 70 percent of revenues on poverty reduction, the World
Bank has signaled that they would like to be flexible on this
question. They are also hoping the donors will be better
positioned to know what "reasonable" spending on defense
looks like for a country in Chad's situation, and be willing
to say as much to the President. Comment and action request:
Washington guidance on the level of participation and the
U.S. position will be required for the MDM. From post's
perspective we should continue to urge the Government to
restrain spending, stay on track with spending 70 percent of
revenues on poverty reduction and engaging in the political
dialogue necessary to reduce the need for defense spending.
End summary.


2. (U) DCM participated with World Bank and IMF Chad
representatives in a video conference call with World Bank
and IMF (Washington) on May 7 to discuss a proposed MDM to
Chad which would include the United States, France, the
European Commission and the African Development Bank. A
similar MDM (reftel) visited Chad about a year ago and
concluded the July 2006 Memorandum of Understanding (MOU)
under which the Government of Chad (GOC) agreed to commit
70% of all revenues to priority sectors. (The U.S. was
represented at the Mission level.) The new MDM is
tentatively scheduled for the end of May/beginning of June

2007. Other participants on the call included: France
(Ministry of Finance and Ministry of Foreign Affairs);
Brussels (European Commission) and Tunisia (African
Development Bank).

FISCAL SLIPPAGE UNDERMINING 2007 BUDGET ...

--------------

3. (SBU) The IMF's David Andrews explained that the primary
problem was "fiscal slippage." Chad's fiscal deficit is now
projected at 20 percent of GDP - 5 percent higher than was
projected for the 2007 budget. The slippage was due to
higher military and infrastructure spending, each of which
was projected to come in at about $60 million over budget by
year's end. Andrews noted that they were also concerned that
some of the spending was "off-budget" and carried out beyond
the control of the Ministry of Finance. Because of higher
expenditures in 2007, Chad would face a serious financial
shortfall in 2008 and 2009.

...AND PRIORITY SECTOR FUNDING...
--------------

4. (SBU) In addition to the financial impact, increased
military spending meant that priority sector spending would
not reach 70 percent of revenues as stipulated in the 2006
GOC/World Bank MOU. Paradoxically, the only way now to meet
the 70 percent would be to increase priority sector spending
and send the budget further into the red. According to the
IMF, at lower levels (particularly at the Ministry of
Finance) GOC officials understood the need to rein in
spending, but did not have the power. The objective of the
MDM was to gain assurances from the highest level -- the
President if possible - that spending would be controlled.

.. BUT IMF AND WORLD BANK NEED DONORS TO WEIGH-IN ON SECURITY
SPENDING
-------------- --------------


5. (SBU) Andrews explained that, while security spending was
both throwing the budget off track in the medium term and
also throwing the 70 percent agreement off track, the IMF did
not have a mandate to look at security and sought the donor's
perspective. Information from partners involved in security
sector reform (France was mentioned) would be particularly
valuable. Andrews explained that the MDM would also provide
an opportunity to look at the amount donors envisaged putting
into Chad's resource envelope so that any financing gaps
would be evident. If the message to the President on the
need to limit spending came from donors representing all
sources of funding -- and showing a unified front, then it
would have more weight. Andrews noted that the GOC may think
that it does not need its international partners, but it will
need them after the medium term when oil revenue declines and
external support is required again.


6. (SBU) Marie Francoise Marie Nelly, acting World Bank
Country Director for Chad, updated participants on the three
pillars of the 2006 MOU. She explained that the main question
going forward from the World Bank's perspective was how to
handle Chad's performance in allocating 70 percent of
revenues for priority sectors. According to Marie Nelly, the
Bank was willing to be flexible on the 70 percent; the point
of the MDM was not to tell the GOC to cease spending on
security, but to determine what is reasonable.

NEXT STEPS
--------------


7. (SBU) World Bank President Wolfowitz will be calling
President Deby shortly to discuss the proposed MDM. The
composition of the Mission had not yet been determined, but
it was clear that it would need the participation of a
high-ranking Bank or Fund member (at least near the end of
the Mission). Draft terms of reference will be circulated to
donors for consideration. French and EC participants in the
Conference requested more information on the precise
objectives of the MDM.

COMMENT AND ACTION REQUEST
--------------


8. (C) The only way to perform the hat trick required of
stemming the budget hemorrhage and maintaining something
close to the 70 percent priority sector spending is to reduce
military spending. The Bank and the Fund see this as the
donor's business and seek donor participation to deliver this
message. While Chad's interest in purchasing U.S. aircraft
was not specifically mentioned at the video conference, the
IMF Representative informed DCM separately that the Minister
of Defense notified the IMF that the GOC intended to purchase
at least one C-130H in 2007/8 (purchase of other C-130's was
uncertain.) The IMF arrived at the military spending
projection for 2007 by plugging in the purchase of one $30
million C-130H aircraft ($20 million in 2007 and $10 million
in 2008).


9. (C) Buying fewer (or less expensive) aircraft would be
in the best interest of maintaining Chad's commitment to
priority sectors. Washington guidance on the level of
participation and the U.S. position will be required for the
MDM. From post's perspective we should continue to urge the
Government to restrain spending, stay on track with spending
70 percent of revenues on poverty reduction and engaging in
the political dialogue necessary to reduce the need for
defense spending.
WALL