Identifier
Created
Classification
Origin
08NDJAMENA547
2008-11-20 15:13:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ndjamena
Cable title:  

IMF HOLDS OUT HOPE FOR CHAD, BUT INSISTS ON FISCAL

Tags:  ECON EFIN IMF PGOV PREL US IBRD MASS CD 
pdf how-to read a cable
VZCZCXRO5838
PP RUEHGI RUEHMA RUEHROV
DE RUEHNJ #0547/01 3251513
ZNR UUUUU ZZH
P 201513Z NOV 08
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC PRIORITY 6608
INFO RUCNFUR/DARFUR COLLECTIVE PRIORITY
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY 0526
UNCLAS SECTION 01 OF 02 NDJAMENA 000547 

SENSITIVE
SIPDIS

LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON EFIN IMF PGOV PREL US IBRD MASS CD

SUBJECT: IMF HOLDS OUT HOPE FOR CHAD, BUT INSISTS ON FISCAL
DISCIPLINE

REF: A. NDJAMENA 534 AND PREVIOUS

B. NDJAMENA 427

NDJAMENA 00000547 001.2 OF 002


-----
SUMMARY
-----

UNCLAS SECTION 01 OF 02 NDJAMENA 000547

SENSITIVE
SIPDIS

LONDON AND PARIS FOR AFRICA WATCHERS

E.O. 12958: N/A
TAGS: ECON EFIN IMF PGOV PREL US IBRD MASS CD

SUBJECT: IMF HOLDS OUT HOPE FOR CHAD, BUT INSISTS ON FISCAL
DISCIPLINE

REF: A. NDJAMENA 534 AND PREVIOUS

B. NDJAMENA 427

NDJAMENA 00000547 001.2 OF 002


--------------
SUMMARY
--------------


1. (SBU) The November 18 debrief to the diplomatic
community by the visiting IMF delegation tracked what
delegation head Sukhwinder Singh had told Ambassador earlier
(Ref A). The IMF is trying to persuade the GoC to prepare
and live within budgets that are sustainable without oil
revenue, in marked contrast to the history of the last few
years, in which the GoC spent blithely, without respect for
budget allocations. If Chad creates a credible 2009 budget,
and shows some fiscal prudence over the next few months, the
IMF would consider putting in place a Staff-Monitored Program
sometime in 2009, which might lead to a more formal
relationship and eventually to debt forgiveness under the
Heavily Indebted Poor Countries Initiative (HIPC). The visit
seems to have fulfilled the IMF's modest goal of maintaining
a cordial relationship with Chad, even though it is not in a
position to put in place any sort of program until the GoC
demonstrates minimal fiscal discipline. We continue to be
impressed by the IMF's commitment to maintaining a dialogue
with the GoC, despite the latter's continued poor fiscal
performance, and its acknowledgement of the realities here.
END SUMMARY.

--------------
FISCAL MANAGEMENT WOULD PAVE WAY FOR FURTHER PROGRAMS
--------------


2. (SBU) On November 18, the IMF delegation in town since
November 5 to conduct Article IV consultations with the GoC,
debriefed the diplomatic community on its visit. The readout
was similar to what Sukhwinder Singh had told Ambassador
earlier (Ref A). The IMF is trying to persuade the GoC to
prepare and live within budgets that are sustainable without
oil revenue (which is by far Chad's largest source of
revenue),in marked contrast to the history of the last few

years, in which the GoC spent blithely, without respect for
budget allocations. If Chad creates a credible 2009 budget,
and shows some fiscal prudence over the next few months, the
IMF would consider putting in place a six-month,
Staff-Monitored Program sometime in 2009. Successful
implementation of a Staff-Monitored Program could lead to an
IMF program supported by the Poverty Reduction and Growth
Facility (PRGF),which in turn could help pave the way for
debt forgiveness under the Heavily Indebted Poor Countries
Initiative (HIPC). But these are big ifs, in light of the
GoC's recent fiscal imprudence.


3. (SBU) Chad needs to demonstrate progress in putting its
fiscal house in order before the IMF can consider any type of
program. Chad's budget deficit, when one excludes oil
revenues, is a whopping 30 percent of GDP, whereas a
sustainable deficit level for Chad would be 4 percent -- a
level at which the IMF said Chad had been operating just a
few years ago. In 2008, the wage bill alone is projected to
consume all non-oil revenue. (Much of the recent increase in
the wage bill is attributed to the army, but there has also
been an impressive increase in the total for civil-service
salaries.) This presents a huge problem for future fiscal
sustainability. While stressing that it is up to the
Government to decide its priorities, the team is recommending
civil-service reform and a reduction of the wage bill. It is
also recommending less spending in the health and education
sectors, which it believes have reached their absorptive
capacity, in favor of sectors where investment could produce
growth, such as agriculture and livestock, roads and
transportation, and energy.

--------------
"CHAD ALWAYS ACCEPTS" - AND THEN
--------------


4. (SBU) Discussing the overall state of the economy, Singh
characterized Chad's record during the past few years as "not
good." There has been very little progress in structural
reform, infrastructure is weak, the business environment is
poor, waste is unacceptably high, and even the petroleum
sector is not very competitive. Asked by the EU Ambassador
whether Chad accepts the Fund's analysis, Singh responded
that "Chad always accepts." The problem is getting the GoC
to acknowledge its expenses and figure out, realistically,
how to accommodate them within its means. A couple of

NDJAMENA 00000547 002.2 OF 002


examples:

-- The GoC's draft 2009 budget shows security expenses of
only 0.5 percent of GDP -- down from 15 percent in 2008.
While such a cut would be laudable, the IMF doesn't find it
credible.

-- Chad's health and education ministers told the visiting
team they want only money for recurrent costs to make their
facilities function (e.g., to staff the already built
medical facilities and schools),as they do not need
additional buildings. Yet the day after the IMF debrief, the
GoC/ruling party newspaper, Le Progres, reported that the
Cabinet adopted a 2009 budget that includes more construction
funds for schools, health clinics, and hospitals.


5. (U) While Singh acknowledged that Chad had been
experiencing tough times (i.e., its internal and external
political situation),he insisted that fiscal management is
needed, preferably sooner rather than later. The Fund has
proposed "a trajectory" to reduce expenses to avoid Chad
having to make drastic cuts in future years.


6. (U) On the positive side, the team noted that Chad's
financial sector is so small and has so little involvement
with international banks that it has been virtually untouched
by the international financial crisis, and its banks have
remained very conservative in issuing loans.

--------------
STATISTICS
--------------


7. (SBU) The IMF predicts that Chad's oil income will
increase from USD 1.2 billion to USD 1.9 billion in 2008, but
fall to USD 0.7 billion in 2009 as a result of lower oil
prices and the GoC's September 2008 protocol with ESSO (Ref
B),which advanced the payment of some taxes and royalties
from 2009 to 2008. It expects Chad's GDP to fall by 0.4
percent in 2008, but to grow at 3.5 to 3.6 percent per year
from 2009 through 2011, although it expects oil production to
remain at 45-47 million barrels/year from 2008 on. The IMF
expects 2008 inflation of 7.5 percent, mostly due to the cost
of imported foodstuffs, with only modest, 3 percent annual
increases in subsequent years.

--------------
COMMENT
--------------


8. (SBU) The visit seems to have fulfilled the IMF's modest
goal of maintaining a cordial relationship with Chad, even
though it is not in a position to put in place any sort of
program until the GoC demonstrates even minimal fiscal
discipline. We continue to be impressed by the IMF's
commitment to maintaining a dialogue with the GoC, despite
the latter's continued poor fiscal performance, and its
acknowledgement of the realities here.


9. (U) TRIPOLI MINIMIZE CONSIDERED.
NIGRO