CHAD STARTS IMF PROGRAM BASED ON BUDGET REVISIONS

UNCLAS SECTION 01 OF 02 NDJAMENA 000282 SIPDIS SENSITIVE STATE FOR AF/C, EEB, S/USSES LONDON FOR POL -- LORD PARIS FOR POL -- KANEDA ADDIS ABABA FOR AU E.O. 12958: N/A TAGS: PREL ECON EFIN ECIN PGOV PREF CD SUBJECT: CHAD STARTS IMF PROGRAM BASED ON BUDGET REVISIONS REF: A) NDJAMENA 245, B) NDJAMENA 172 -------------- SUMMARY -------------- ¶1. (SBU) The IMF and GOC announced July 7 an agreement for a six-month IMF "Staff Monitored Program" to run April-October 2009, based on Chad's revised 2009 budget that meets IMF's requirements for better public revenue management in the face of diminished oil prices. The IMF-GOC agreement, after many months of negotiations, could lead to a formal IMF program, along with the possibility of other international finance assistance and major debt relief, in ¶2010. The revised budget, necessitated by the drop in oil prices that drastically and unexpectedly reduced GOC revenues this year, awaits final passage by the National Assembly. The head of the parliament's budget and finance committee was very optimistic that parliament would pass the GOC's revised budget, and the head of the "Oil Revenue Oversight Board" (AKA "The College") expressed satisfaction with the projected budget's provisions for "priority development sectors" (infrastructure, health, education). Chad's public finances are still shaky, as the GOC works creatively to avoid undermining major development-sector investment projects while waiting -- and hoping -- that world oil prices will rise enough by the beginning of 2010 to ensure a higher revenue flow from taxes on its crude next year and beyond. END SUMMARY. -------------- IMF AND GOC GET THE DEAL -------------- ¶2. (U) Minister of Finance Gata Ngoulou and IMF ResRep Joseph Karangwa held a press conference July 7 to announce the agreement of a six-month IMF "Staff Monitored Program" (SMP) that would run April to October 2009 (Ref B). Many months in negotiations, the agreement comes as result of GOC revisions to its budget. If the GOC successfully meets the program's requirements, along the lines of responsible public finance management, Chad would become eligible for a full IMF program, which could then lead to additional bilateral and multilateral financial assistance for the country as well as potential eligibility for Heavily Indebted Poor Country (HIPC) debt relief. -------------- PARLIAMENT POSITIVE ON BUDGET PASSAGE -------------- ¶3. (U) Head of the National Assembly's Budget and Finance Committee Ngarindo Milengar expressed optimism July 9 that the GOC's revised budget, scheduled for a July 30 vote, would be passed in parliament (Ref A). Ngarindo felt that the initial 2009 budget has been very ambitious based on a USD 60 per barrel price of oil. The revised budget, he noted, was calculated with a USD 29 per barrel price. Ngarindo said that he was not completely happy with the GOC's strong dependence on oil, however, believing that daily production was significantly lower than expected while Chad's traditional export sectors of agriculture and livestock were not being assisted. -------------- OIL OVERSIGHT CMTE ENGAGED -------------- ¶4. (U) The Head of the College of Oil Revenue Oversight Lamana Abdoulaye said July 8 that the College had participated in budget revision discussions, especially with regard to the GOC's priority sectors for development -- health, education, roads, etc. Lamana said that the revised 2009 budget allocated USD 156 million USD for these areas, compared with some USD 202 million initially while adding that the Ministry of Defense's allocation had not been reduced. Lamana stated that his job had also become more difficult with the completion of the work of the World Bank's International Advisory Group (IAG),which had an eight-year mandate to assure transparent management of the revenues of the Chad-Cameroon oil pipeline project, since the recommendations of the IAG often closely tracked with and reinforced the findings of the College. Lamana also noted that the College was in discussions with the GOC to expand its authority to take on responsibility for oversight of indirect oil resources -- taxes and customs -- in addition to its original directive to track dividend and royalty revenue. -------------- COMMENT -------------- NDJAMENA 00000282 002 OF 002 ¶5. (SBU) The GOC's budgetary woes began with the late 2008 steep decline in oil prices. The 2009 budget has already been drafted, based on a higher price of oil, which enabled the GOC to spend the first months of 2009 committing funding to numerous infrastructure projects. The revised budget, which expends 2008 surplus, draws on central bank lending and still leaves the GOC with a deficit, is a tentative first step to better fiscal management, one that has tacit IMF approval as indicated by the SMP agreement. The GOC's next steps will be watched closely, as responsible spending could lead to eligibility for significantly more international finance assistance. END COMMENT. ¶6. (U) Minimize considered. NIGRO