CHAD'S PUBLIC FINANCES (II): SEARCHING FOR

UNCLAS SECTION 01 OF 03 NDJAMENA 000115 SIPDIS SENSITIVE STATE FOR AF/C AND AF/USSES NSC FOR GAVIN AND HUDSON LONDON FOR POL - LORD PARIS FOR POL -D'ELIA AND KANEDA ADDIS ABABA ALSO FOR AU E.O. 12958: N/A TAGS: PGOV ECON EPET EFIN IMF IBRD CDB EAID PREL EU, FR, CD SUBJECT: CHAD'S PUBLIC FINANCES (II): SEARCHING FOR SOLUTIONS REF: A. NDJAMENA 113 ¶B. NDJAMENA 0099 ¶C. NDJAMENA 0079 This cable is Sensitive but Unclassified. Not for Internet dissemination. ¶1. (U) This is an action message. See para 11 below. -------------- SUMMARY -------------- ¶2. (SBU) Finance Minister Gata Ngoulou told Ambassador and DCM March 30 that Chad's public finances were in serious disarray, but that the budget picture was not yet "disastrous." Ngoulou pointed out that Chad's efforts to manage its public revenues responsibly had been undermined by the global economic crisis, especially the sudden and deep drop in international oil prices. Ngoulou stressed that Chad knew it needed help and was seeking assistance from partners -- the World Bank, IMF, ADB, and EU. Ngoulou reported that in recent weeks he had met with delegations focused on public finance from the IMF,s PEFA and AFRITAC, the World Bank, and the EIB. He expressed hope that members of the new U.S. administration would have time and advice for Chad in areas including customs, taxation, and budgeting, as well as public finance. ¶3. (SBU) Ngoulou confirmed that he was redrafting the current national budget with a view to significantly scaling back expenditures. He described a series of reorganizations in tax and customs collection procedures, as well as efforts to address corruption, which he though would net the government extra (and deserved) revenues. He conceded that the path of restraint would be politically challenging, but expressed strong personal commitment to staying the course of combatting corruption and achieving budgetary stringency. END SUMMARY. -------------- GETTING THE HOUSE IN ORDER? -------------- ¶4. (SBU) Finance Minister Gata Ngoulou indicated that that security and reconstruction needs after the events of February 2008 were responsible for current high levels of public expenditures, along with education, public health, and the need to complete some key capital projects. He confirmed that he was revising the most recent Chadian national budget, drafted in September 2008 when oil prices were high, in order to focus exclusively on necessities. A prolongued spell of low oil prices would be "catastrophic" for Chad's public finances, he predicted, as Chad depended on oil income for 70-80 percent of its total revenues. In addition to finding ways to pay for education and health care, the GoC was also trying to manage debt servicing according to World Bank schedules. Chad "needed extra means to pay necessary expenses," said the Minister. ¶5. (SBU) Ngoulou reported that the GoC said had taken a number of steps to respond to the current situation. First, the GoC had asked ESSO-Chad to agree to defer implemention of a 2008 repayment schedule for last fall,s "overpayment" to the GoC until July 2009, leaving ESSO-Chad's January and March payments larger than if deductions had been implemented immediately. The GOC was also making strenuous efforts to collect non-oil revenues. The Finance Ministry had reorganized tax and customs collection procedures, especially to capture more revenue from the "informal" sector, which Ngoulou defined as all but the largest enterprises (which were themselves already paying taxes). Ngoulou said he had bought the Customs Service boats to patrol the Chari River NDJAMENA 00000115 002 OF 003 against smugglers, and motor bikes for Customs agents to use in Ndjamena. He had also set up five new tax collection locations to reach more actors in the "informal" economy. ¶6. (SBU) Ngoulou pointed out that ceasing cash payments of salaries to bureaucrats and substituting transfers to bank accounts ("banquarisation" of salaries for public officials) would help address corruption, as would better scrutiny of existing bank accounts. According to Ngoulou, improved management of the military salary system had netted a savings of 1 billion CFA (USD 2 million) oveer the past three months. The GOC wanted to impose biometric identification mechanisms to improve accountability in all areas of public revenue management. Finally, Ngoulou said Chad had possibilities of financial help from the BEAC in the form of two lines of credit: one of 200 million CEFA (USD 400,000) consisting of Chad's own reserves (it was already drawing on these funds), and one of 130 billion CEFA (USD 260 million) that it could repay at 4 percent interest. Ngoulou said that he would try to resist drawing from this second line of credit if at all possible. -------------- LOOKING AHEAD -------------- ¶7. (SBU) Ngoulou indicated that he was looking forward to traveling to Washington for late-April Bank/Fund meetings, adding that he hoped to talk to U.S. officials in more detail about Chad,s program of economic reforms. Ambassador offered to request appropriate meetings. -------------- TECHNICAL ASSISTANCE BEING PROVIDED -------------- ¶8. (SBU) We have met with a number of the IFI teams in town recently to provide advice to the Chadians. Harry Snoek, Head of the IMF's AFRITAC (Regional Technical Assistance Center for Central Africa, located in Libreville),told us that his organization had given training to Chadian officials in areas ranging from debt servicing to banking supervision, budget planning and decentralization, management of customs, taxation and government accounting, and statistical methods. Snoek described Chad as seriously in need of advice and capable of absorbing most of what his organization could teach. AFRITAC is a Franco-German initiative within the IMF, under a general EU rubric. In addition to AFRITAC, the EU is providing aid to Chad's public finance sector through technical assistance to the Chadian Department of Budget and Public Investment in the area of database development and management. ¶9. (SBU) The IMF's PEFA (Public Expenditure and Financial Accountability) team also recently offered us an analysis of its own just-completed four-year program of assistance to Chad, which focused on strategic reform, integration of information-management systems, capacity development and external auditing. The PEFA team gave the GoC grades of "B" or "C" in most of its 28 sub-areas of budget management. The team noted that the GoC's greatest weakness lay in implementing external auditing, and made clear that additional assistance would be highly desirable in this area. -------------- COMMENT -------------- ¶10. (SBU) Ngoulou, who spent 25 years with the BEAC in Yaounde, has good ideas on how Chad stands the best chance of surviving the current difficult period, although his hopes depend on a return to higher petroleum revenues in the near future. We think it would be useful to talk to him in DC, NDJAMENA 00000115 003 OF 003 especially to ascertain if the USG could offer technical assistance to the GOC this year and next. -------------- ACTION REQUEST -------------- ¶11. (U) Action Request: That the Department arrange appropriate USG meetings for Ngoulou later this month, to get his take on Chad's public financial management sitiuation and to explore the possibility of U.S. technical assistance to the GOC's efforts to manage its public revenues more efficiently and responsibly. NIGRO