CHAD MISSES 70 PERCENT TARGET BUT WORLD BANK STILL

UNCLAS NDJAMENA 000531

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PREL CD
SUBJECT: CHAD MISSES 70 PERCENT TARGET BUT WORLD BANK STILL
HOPEFUL

REF: NDJAMENA 487


1. (SBU) SUMMARY: The World Bank and IMF concluded two
weeks of meetings with the Chadian government June 24,
pleased with the participation of all ministries and
opennness of the process. They brought senior Chadian
officials, including military, together for the first time to
focus on budget discipline and the failure of the procurement
system. It is a given that Chad has failed to meet its
undertaking to commit 70 percent of all revenues to poverty
reduction, but the World Bank was hopeful that Chad
(particularly in view of the improved security situation)
would turn over a new leaf in spending discipline -- enough
to keep it on track for HIPC loans. END SUMMARY.


2. (SBU) To get a read-out on the just-concluded two-week
series of meetings between the Chadian government and
visiting World Bank and IMF teams, the Ambassador on June 24
met with World Bank oil expert Marie-Francoise Marie Nelly
and Resident Representative Geoffrey Bergen and on June 25
with IMF Resident Representative Wayne Camard.

World Bank Sees Glass Half Full
--------------


3. (SBU) Marie Nelly and Bergen were appalled at what they
described as a "completely broken" procurement process in
Chad but, at the same time, delighted that, working with
Finance Minister Abbas Tolli, they had succeeded in bringing
the whole government, including the military, into open
discussions of the budget and procurement process. Chad had
completely failed to meet its undertaking in July 2006 to
allocate 70 percent of revenues to priority spending in 2007
("something under 60 percent"). What was worse, much of the
money being spent on infrastructure in education and health
was having little impact on poverty reduction. Construction
being undertaken went far beyond what had been called for in
the agreed projections. The Ministry of Infrastructure was,
effectively, not talking to the Ministries of Education and
Health, so that schools and clinics being built did not have
content (books, benches, tables, medicines, vaccines).


4. (SBU) The multi-donor team placed these hard facts before
the ministers, in the presence of the press, civil society,
and unions, so that the magnitude of failure was manifest to
all. The Ministry of Infrastructure, despite its implication
in the budget overrun, was cooperative and open throughout
the discussions. According to Bergen, these meetings were
the first occasion in Chad when all the ministries had been
brought together and confronted with the strategic picture.
The World Bank and IMF had walked the ministries through the
basic requirements of a three-year budget projection in a
variable revenue environment and of a transparent procurement
system. They followed through with a detailed analysis of
each sector, starting with education and health.


5. (SBU) Bergen said that construction costs on projects
undertaken by the Ministry of Infrastructure were on average
30 percent higher than for donor-financed construction. The
ministry had built 173 classrooms at a price that was perhaps
four times what it should have been. Bergen speculated that
some of this overrun was corruption -- into the minister's
pocket -- but much of it could have been laundered into
military purchases. Some of it was basic inefficiency. For
example, Marie Nelly pointed out that the newly built
classrooms were surrounded by fencing (400 kilometers of it),
most of which, at least in rural areas, was unnecessary.


6. (SBU) Marie Nelly said that the World Bank/IMF had
conducted long dicussions with the Minister of Defense
Mahamat Nour (until December a rebel leader) to try to get
the military on message, though with what success they were
not clear. Nour told them he was focused on two issues:
negotiations with rebels, and a census of the army that would
pave the way for a measured demobilization of the bloated
force. Nour said there were 60,000 troops in the Chadian
army -- far above the 32,000 figure which the World Bank had
been working with (9,000 of Nour's rebels were part of the
higher number). Bergen said that they had reviewed with Nour
the huge expense involved in demobilization and in

maintenance of the newly acquired military equipment.


7. (SBU) Looking ahead, Marie Nelly said that the key
element to success was a follow-up mechanism, to which the
government had agreed. The budget office will prepare
monthly reports on revenues and expenditures, the finance
ministry will do a monthly analysis of compliance with the
budget program, and the economic/planning ministry will
provide a three-monthly analysis of sectoral compliance with
multi-donor recommendations. The IMF will send out a team in
September or October to track these budgetary and
procurement/infrastructural requirements. The object is to
keep Chad on track to qualify for the HIPC completion point
by late 2008. Marie Nelly noted that HIPC was the principal
leverage left to the World Bank. One and a half billion
dollars would ride on it, equivalent to all the oil money
that had so far accrued to Chad.


8. (SBU) To the Ambassador's question about the role of the
"College" (Commission for Control and Oversight of Petroleum
Resources),Bergen said that the College had been too
narrowly defined in the past to have an effective oversight
role. However, the finance minister, who had previously
insisted on keeping the College within narrow confines, was
now saying that the College needed to cover the entire
budget. He believed that the College deserved U.S. support.

IMF Withholding Optimism
--------------


9. (SBU) In a separate, subsequent conversation, IMF rep
Wayne Camard said that, indeed, there had been some positive
developments during the multi-donor visit. Never before had
such a thorough and hard-hitting presentation been given to
all the ministries at a high level, with the press,
non-governmental organizations, and the unions present. The
military was opaque but, nonetheless, the IMF/World Bank had
come away with a fairly clear idea of the magnitude of
expenditures and a fairly clear forecast of coming
expenditures if the security situation remained as relatively
calm as it was now (not as fanciful a hope as it would have
seemed a few months ago). Minister of Finance Tolli appeared
to have Minister of Defense Nour on board. It was a given
that salaries would have to be raised 15 percent. A single
Treasury account had been established in which all inflows
and outflows would be open for view. There would be a
monthly ceiling on outflow. The ministers of defense and
infrastructure would know how much "pocket money" they would
have available each month, and, in theory, they would have
nothing more.


10. (SBU) It was possible that this scenario would be
followed, Camard said, but just as (or more) likely that it
would not be, and in the latter case, the World Bank did not
seem to have a fall-back plan, a Plan B. The World Bank's
principal remaining leverage for coaxing the Chadians to
follow fiscal discipline was the prospect of HIPC infusions.
However, the HIPC process required that Chad have at least
six months' compliance with agreed standards for a three-year
period, which in Chad's case elapsed in February 2008. The
IMF Board would meet at the end of 2007 and it was possible
that it would extend the period for a year, but only if Chad
had significantly changed its fiscal behavior.


11. (SBU) Camard noted that the World Bank's oil revenue
projections had been conservative. It had projected 58
dollars a barrel for 2007, falling in subsequent years, and
production also falling after 2008. Its projections saw
revenues peaking sharply in 2007 at over one billion dollars
(partly due to overpayment in 2007),falling to half that in
2008 and falling in each subsequent year. In fact, Camard
said, oil was now holding at 70 dollars a barrel and it could
conceivably go up -- leaving Chad in a much rosier income
situation, with consequences for any effort to maintain
fiscal discipline.


12. (SBU) Camard anticipated that an IMF team would come to
Chad in September to take a first look at compliance with
budget requirements, but that would be too early for a
complete picture, so another would perhaps come in November

for a thorough read-out just prior to a meeting of the IMF
Board. Meanwhile, the IMF's deputy managing director would
meet Deby at the AU summit in Accra at the beginning of July,
and the World Bank's Africa vice-president would meet Deby in
Chad July 15. The head of IMF's Africa division might come
to Chad in late July.
WALL