IMF STILL "HOPEFUL" AS CHAD MISSES BUDGET TARGETS

UNCLAS SECTION 01 OF 03 NDJAMENA 000398

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SENSITIVE

STATE FOR AF/C AND S/USSES
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LONDON FOR POL - LORD
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ADDIS ABABA ALSO FOR AU

E.O. 12958: N/A
TAGS: PGOV ECON EPET EFIN IMF PREL IBRD CBD EAID CD
SUBJECT: IMF STILL "HOPEFUL" AS CHAD MISSES BUDGET TARGETS
AT START OF MID-TERM REVIEW

REF: A. NDJAMENA 338

B. NDJAMENA 286

C. NDJAMENA 282

D. NDJAMENA 135

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SUMMARY
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1. (SBU) IMF Chad chief Christian Josz, in Chad conducting a
review of the Fund's current Staff-Monitored Program, told
Ambassador September 11 that the GOC had not met its mid-term
program targets, citing extra-budgetary capital investment
and spending, as well as excessive reliance on credit and
lack of progress in the money-hemorrhaging and dysfunctional
electricity and cotton sectors as major areas of concern.
Josz said he was not surprised by Chad's performance, which
he attributed to political circumstances, especially tension
between two tendencies within the government on public
revenue management: the Prime Minister and Finance Minister
coming down on the side of responsible budget discipline in
cooperation with the IFIs, on the one hand, and the
Infrastructure Minister pushing ) so far successfully ) for
more extra-budgetary capital investment and spending, which
required recourse to credit, on the other. According to
Josz, the GOC's performance under the remainder of the
Staff-Monitored Program would determine the Fund's ability
and willingness to engage in any successor program. He
underlined that a successor program would also require
significant commitments from the World Bank, in
"macro-critical" sectors such as cotton and electricity, in
which it had the lead. Josz seemed doggedly "hopeful" that
he could get the GOC onto the track of budget reductions that
the international community has long recommended.


2. (SBU) The IMF's persistence and patience in continuing
its engagement with Chad are impressive, and we wish Josz and
his team well. And we agree with him that the GOC has indeed
made some progress in public revenue management -) but sadly
still not enough to put Chad on the road to stability and
fully "normalized" relationships with the Fund and especially
the Bank, without which Chad cannot hope to get debt relief.
One reason that the GOC continues to spend beyond its means
is the prospect of elections in 2010: President Deby is
likely to want to show that he is using Chad's oil revenues
for public benefit, not as an exercise in Responsible Public
Revenue Management 101. Another long-term threat to
improvements in Chad's public finance management is its
current campaign to increase charges for permits for foreign
workers, a move that if applied to the Consortium, would
cause it to scale back or end further investment in Chad's
oil production, which would in the end reduce Chad's major
source of revenue (Ref A). END SUMMARY.



3. (SBU) IMF Deputy Africa Division Chief Christian Josz and
his team, in N'Djamena for a mid-term evaluation of the GOC's
April-October 2009 IMF Staff-Monitored Program (SMP),briefed
the Ambassador September 11. Josz said that the GOC, based
on end-of-June budget figures, had not met its spending
targets under the SMP. He added that the GOC agreed with
this IMF assessment and that both sides would work together
to address current problems during the two-week IMF visit.


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RESPONSIBLE MANAGEMENT VS
INFRASTRUCTURE SPENDING
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4. (SBU) Josz specifically expressed concern that, at
mid-year, the GOC had already nearly exhausted its total
extra-budgetary spending allowed for the entire year under
the SMP. He said GOC spending was already at 150 million
USD, whereas the end-of year target was or 200 million USD in
the category of discretionary spending. Josz attributed half
of this year's discretionary spending to military purchases
in connection with countering the May rebel attacks, which he
called, "understandable." Josz registered "disappointment"

NDJAMENA 00000398 002.2 OF 003


that the other half of extra-budgetary outlays thus far was
for capital expenditures, which are expressly prohibited by
the SMP. Spending by the Ministry of Infrastructure was on
an upward, unsustainable trajectory, Josz said. He
highlighted the tension he perceived between the Minister of
Infrastructure, with his lack of respect for IMF goals, and
the Prime Minister and Finance Minister, who had been
championing strong relations with the IFIs and more
responsible public finance management.


5. (SBU) Josz said that, by the end of June, the GOC had
completely exhausted its 2008 surplus, had no more cash of
its own, and had begun to borrow from its 400 million USD
line of credit at the regional bank to finance government
spending. Josz expressed worry over the current situation,
as the 400 million USD amount had been intended to support
the GOC through both 2009 and 2010.

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UPBEAT ON 2010 BUDGET PREPARATIONS
--------------


6. (SBU) Josz said he was impressed with the GOC's 2010
budget preparations. He noted that a 2010 budget outline,
with suggested spending instructions from the Prime Minister,
had been sent to each ministry, and that this document
closely matched the IMF's proposals for 2010 Chadian national
spending. The main drawback in the document, Josz pointed
out, was that spending authority for the Ministry of
Infrastructure was not included. Josz said that he hoped to
come back in December to assist the GOC in finalizing the
2010 budget, provided that relations with the IMF would
remain positive enough to allow a return visit.

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CONDITIONS FOR FURTHER IMF PROGRAMS
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7. (SBU) Josz stated that for the GOC to qualify for a
successor program, it would have to rein in spending and meet
end-of-program targets outlined in the SMP. Without meeting
those goals, the GoC would have a difficult time convincing
Fund leadership to support further programs for Chad. Josz
emphasized that donor community support would be crucial to
further IMF programs, which would involve "macro-critical
reforms" in sectors like the money-hemorrhaging and
dysfunctional electricity and cotton, where the Fund did not
have competencies. Josz made clear that the World Bank would
have to be a key partner, because of its expertise in these
sectors. He added that Fund leadership was unlikely to want
to continue support to Chad without increased engagement from
the Bank. Josz noted that Mary Barton-Dock, World Bank
representative for Chad based in Yaounde, would be visiting
here in the coming weeks, but he indicated that he wondered
about the Bank's overall commitment to Chad given the absence
of a resident permanent Country Director.

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MILITARY SPENDING
AND THE C-130JS
--------------


8. (SBU) Josz said that he understood that Chad's improved
security situation meant that spending on military hardware
might well be less in the future than over the past 18
months. Josz added that he had been told that Chad was
well-armed and well-equipped except in the area of strategic
air transport and asked about the possible sale of U.S.
C-130Js to Chad. Ambassador described USG policy on
assisting Chad in the area of strategic air transport, and he
made clear that we were working with the GOC to find an
appropriate and adequate alternative to the pricey and
over-achieving (in the Chad context) C-130Js (Ref B).

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COMMENT
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9. (SBU) The IMF's persistence and patience in continuing

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its engagement with Chad are impressive, and we wish Josz and
his team well. And we agree with him that the GOC has indeed
made some progress in public revenue management -) but sadly
still not enough to put Chad on the road to stability and
fully "normalized" relationships with the Fund and especially
the Bank, without which Chad cannot hope to get debt relief.
One reason that the GOC continues to spend beyond its means
is the prospect of elections in 2010: President Deby is
likely to want to show that he is using Chad's oil revenues
for public benefit, not as an exercise in Responsible Public
Revenue Management 101. Another long-term threat to
improvements in Chad's public finance management is its
current campaign to increase charges for permits for foreign
workers, a move that if applied to the Consortium, would
cause it to scale back or end further investment in Chad's
oil production, which would in the end reduce Chad's major
source of revenue (Ref A). END COMMENT.


10. (U) Minimize considered.
NIGRO