CHAD: WORLD BANK AND IMF REPS ON PUBLIC REVENUE

UNCLAS SECTION 01 OF 04 NDJAMENA 000501

SENSITIVE
SIPDIS

STATE FOR AF/C
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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

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SUMMARY
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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.
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WORLD BANK: READY TO REENGAGE
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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

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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

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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).

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IMF: STILL PLUGGING FOR
STRINGENCY AND TRANSPARENCY
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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.

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COMMENT
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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