CHAD: WORLD BANK AND IMF REPS ON PUBLIC REVENUE

UNCLAS SECTION 01 OF 04 NDJAMENA 000501 SENSITIVE SIPDIS STATE FOR AF/C NSC FOR GAVIN LONDON FOR LORD PARIS FOR POL - BAIN AND KANEDA E.O. 12958: N/A TAGS: PREL EAID EPET CH SUBJECT: CHAD: WORLD BANK AND IMF REPS ON PUBLIC REVENUE MANAGEMENT AND 2010 BUDGET REF: NDJAMENA 424 -------------- SUMMARY -------------- ¶1. (SBU) In a series of meetings in recent days, World Bank and IMF representatives have commented on their in-country programs and on Chad's public revenue management, generally considered by both IFIs to be below par. The IBRD's Mary Barton-Dock confirmed that the World Bank was ready to step up engagement with Chad once again in the sectors of health, education and water management, following President Deby's meetings in September with the World Bank Managing Director and subsequent meetings in Turkey with a technical Chadian delegation. The IMF's Joseph Karangwa said that his organization was pleased to see Chad's 2010 final draft budget "not dramatically larger" than the version that the GoC discussed with the Fund in September. But Karangwa was quick to add that improvements in composition -- with more spending for health and education and less on infrastructure -- would be desirable, and that the IMF would not be satisfied unless Chad "sticks to the figures it has laid out." ¶2. (SBU) The World Bank's decision to increase project activity in Chad is welcome news, especially given continued needs here with respect to poverty reduction. Despite Chad's low rankings on international economic indices and uneven ability to stick with IFI-stipulated reforms, Barton-Dock and Karangwa, both professionals, are willing to give Chad its due. The Bank and Fund will have to work closely to ensure that the GoC does not backslide on health and education commitments for 2010 and that Bank projects in health and education not "crowd out" or preempt GoC spending in those areas. Efforts to combat corruption and push for transparency must accompany all projects, whether government-funded or donor-supported. END SUMMARY. -------------- WORLD BANK: READY TO REENGAGE -------------- ¶3. (SBU) World Bank Country Director for Chad (resident in Cameroon) Mary Barton-Dock told Ambassador and DCM October 27 said that meetings between President Deby and IBRD Managing Director Ngozi Okonjo-Iweala in New York on the margins of the UNGA, and subsequent meetings in Istanbul between Chadian technical experts and the Managing Director, had both gone well enough that the two sides were poised to "get back to business," following the 2007 near-severance of working relations over Chad's mismanagement of oil revenues. Barton-Dock said that a team from the IBRD would travel to Chad shortly to discuss the GoC's "unimpressive" national strategy on how to restructure future relations with the Bank. ¶4. (SBU) The World Bank was interested in assisting Chad's health, education and water sectors, and eager to see the GoC make progress toward adhering to IMF-agreed spending targets (reftel),particularly with respect to poverty reduction. Barton-Dock termed Infrastructure Minister Younousmi, considered by most in the IC as one of the most prone in the Chadian government to pursuing extra-budgetary spending, as "at least honest," as he did not promise adherence to the budget and then apologize for not getting there after the fact. The World Bank had $28 million left from the time when it had curtailed assistance to Chad that it would like to devote to standing up clinics, hospitals, and schools. In addition, it hoped to pursue an old project to split the water and electricity sectors, as the water sector had the potential to be properly managed, whereas the electricity sector was problem-riddled and likely to stay that way. ¶5. (SBU) The Bank was considering making new money available for local development projects aimed at spurring decentralization. The likelihood of such funding would increase if Chad pursued legislative and municipal elections in 2010. Chad would also come in for a new tranche of International Development Association money in July 2011; it had not been in a position to spend much of its current IDA allotment. Chad was probably eligible for IDA food security moneys, considering poor harvest projections, but whether it would submit an application or adhere to standards for spending such funding remained to be seen. ¶6. (SBU) Barton-Dock said she had not had a chance to study NDJAMENA 00000501 002 OF 004 Chad's proposed 2010 budget in detail, but the Bank shared the concerns of the IMF that Chad's use of 2009 revenues had been troubling, particularly in that many health and education projects that existed in the budget were not being funded, and those health and education projects that did in the end receive money often received it late. Localities tried to keep things going and then got in over their heads when money from the central government did not arrive. Only eight per cent of health-related projects in the 2009 budget had been funded as planned, and 700 out of a planned-for 2000 new teachers placed in classrooms -- money not having been spent on teacher training. In general terms, the GoC tended to spend heavily on infrastructure, including building schools and hospitals, and neglect capacity-building of professionals. ¶7. (SBU) Barton-Dock stressed that among Chad's problems with project management were weakness in pilot projects; lack of follow-up by interested ministries; the large number of actors involved in decisionmaking; slow start-up; and lack of capacity for coordination. Human resource management also presented problems, with high turn-over and vacant positions in the bureaucracy. There was sometimes a lack of coherence between specific project goals and national strategies, and often lack of capacity for evaluation. Bureaucrats responded slowly to market activities. The signature process usually involved delays. Bid solicitation procedures were generally misunderstood. Internal controls were weak, and filing and archiving were faulty. Audit procedures were also frequently misunderstood. The Bank intended to send more frequent field missions to Chad to help streamline project structures and engage in joint supervision where possible. ¶8. (SBU) According to Barton-Dock, Infrastructure Minister Younousmi had told her that expenditures in the security area would likely remain high in the near term, as Chad did not plan to down-size its army on grounds that border control remained a priority. Special new patrols of the Sudan border might be necessary, and problems with CAR seemed to be on the increase. The need to incorporate Chadian rebels into the ANT was also a costly project. In Barton-Dock's view, powerful ministries like Defense and Infrastructure found ways around the current spending freeze, whereas ministries such as Health and Education lost out because they adhered to it. ¶9. (SBU) Regarding debt relief, said Barton-Dock, President Deby remained convinced, erroneously, that HIPC debt relief could be granted on purely political grounds, without regard to Chad's fulfillment of economic pledges. The Bank shared the IMF's concerns that planned loans from Libya and China (reftel) would set Chad back even further in its quest for HIPC relief. Countries including DRC and Cameroon had decided to forgo foreign loan packages when forced to choose between them and HIPC, but the process of walking such arrangements back was difficult. ¶10. (SBU) Asked about the likelihood that President Deby might eventually take the advice of the IFIs and insist on budgetary stringency, Barton-Dock offered that Deby was assertive, unlike Cameroon's President Biya, who had essentially "stopped paying attention" to what went on in his nation, with the result that Cameroon was backsliding quickly. Barton-Dock described Gabon as "the newest failed state" in economic terms. CAR, by contrast, had an activist cabinet whose members recognized how serious their problems were and seemed to want to address them. ¶11. (SBU) Asked what role increased oil revenues might have on Chad's budget, Barton-Dock said that sticking to the existing budget should be the rule, regardless of whether the price of oil went up. Unfortunately, as soon as the GoC made more money, it spent it. As for the task of gauging future spending possibilities based on oil price projections, this was supposed to have been the role of Chad's Petroleum College. But that body had become so politicized that it was no longer independent. ¶12. (SBU) Barton-Dock indicated that an Independent Assessment Group evaluation of the Chad-Cameroon pipeline project was forthcoming. The document was somewhat critical of both Chad and the IBRD. The IAG, who reviewed Bank projects in the way that the OIG assessed State Department programs, had not originally supported President Zoellick's decision to pull out of Chad, but the Group had agreed to revise this judgment in the final assessment report. The NDJAMENA 00000501 003 OF 004 document asserted that technical, environmental and social aspects of pipeline project had been successful, where as the revenue portion was a failure because of lack of ownership by the GoC. Barton-Dock also noted that the Bank would shortly do a new survey of whether oil revenues had actually benefited the population of Chad. This effort would measure the percentage of people who had moved from below a Bank-set "poverty line" -- 55 per cent in 2003 -- to above it in 2009. ¶13. (SBU) Barton-Dock agreed to take back questions on how the U.S. could assist Chad with better public revenue management and anti-corruption efforts. Public expenditure reviews, particularly in the security sector, might be an option, as might assistance to the justice sector (beyond what the UN was already providing in Eastern Chad). -------------- IMF: STILL PLUGGING FOR STRINGENCY AND TRANSPARENCY -------------- ¶14. (SBU) The IMF's representative in Chad, Joseph Karangwa, chatted with us October 29 about Chad's 2010 draft budget, which he termed "not a bad effort overall." He made clear that the IMF would encourage Chad to reconsider the present composition of the budget, as more goods and services for health and education were necessary. Most importantly, Chad would need to stick to what it proposed in the budget -- which it had not managed to do in 2009. Asked whether he believed Chad was in a position to reduce defense spending in order to make room for more expenditures in poverty reduction, Karangwa replied that the IMF "was willing to be reasonable on defense spending," given Chad's difficulties with neighbors and the need to reintegrate returning rebel troops. The Fund was "looking for downward trends" rather than large-scale reductions in military spending the near term. Also, the Fund hoped for greater transparency in the defense budget, as spending in this sector was particularly prone to embezzlement. Karangwa advised that Chad aimed to devote 55 percent of its national budget to poverty reduction efforts, especially health, education and rural development. That many military expenditures were extra-budgetary made insisting that Chad adhere to this percentage something of a game. ¶15. (SBU) Asked whether Chad's business and human development indices for 2009 might beat 2008 figures, Karangwa said he did not think so. "TheChadians are hard to read," he continued. "Theyare isolated, inward-looking and neglected interationally." Eve if Chad stayed near the bottomof international measures of development, "the Chdians should not be treated like devils." Many mebers of the Government, inluding the Finance Minister, "were trying hard" and needed more international support. As for President Deby, he was indeed powerful, "but he is too reactive and suspicious to have a vision that will unite people." Deby was "constantly on the look-out," and might be expected to change members of his entourage suddenly, despite what appeared for the moment to be a period of calm. ¶16. (SBU) Karangwa said that he had spoken with the Deputy Finance Minister the day before about proposed loans from China and Libya (reftel),which the Fund continued to find very troubling in that their purposes were not clear and they appeared to be non-concessionary in nature. The terms of the planned loan from China's CNPC Financial in Hong Kong to the Chadian Ministry of Petroleum were for LIBOR plus three percent, making it a commercial venture that would render Chad ineligible for HIPC debt relief. The Ministry of Finance insisted that the loan had not yet been signed, contradicting other information that Karangwa had received regarding the status of the loan. -------------- COMMENT -------------- ¶17. (SBU) The World Bank's decision to increase project activity in Chad is welcome news, especially given continued needs here with respect to poverty reduction. Despite Chad's low rankings on international economic indices and uneven ability to stick with IFI-stipulated reforms, Barton-Dock and Karangwa, both professionals, are willing to give Chad its due. The Bank and Fund will have to work closely to ensure that the GoC does not backslide on health and education NDJAMENA 00000501 004 OF 004 commitments for 2010 and that Bank projects in health and education not "crowd out" or preempt GoC spending in those areas. Efforts to combat corruption and push for transparency must accompany all projects, whether government-funded or donor-supported. NIGRO