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
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SUMMARY
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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.

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IMF AND GOC GET THE DEAL
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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.

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PARLIAMENT POSITIVE ON BUDGET PASSAGE
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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.

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OIL OVERSIGHT CMTE ENGAGED
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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.

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COMMENT
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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