US embassy cable - 05NDJAMENA1150

UNCLAS  NDJAMENA 001150 
 
SIPDIS 
 
SENSITIVE 
 
LONDON AND PARIS FOR AFRICA WATCHERS, TREASURY FOR OTA, 
ENERGY FOR GPERSON AND CGAY 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ENRG, EPET, PGOV, CD, Oil Revenue Management, Economic Trends 
SUBJECT: IFI'S WELCOME TREASURY ADVISOR, DISCUSS OIL 
REVENUE MANAGEMENT, PRGF, AND HIPC 
 
REF: NDJAMENA 402 
 
1.  (SBU) SUMMARY: The World Bank and International Monetary 
Fund resident representatives in Chad welcomed the prospect 
of a resident Treasury Advisor for the Revenue Management 
College during meetings with a visiting Treasury team, which 
included the prospective candidate for the mission.  The 
World Bank and IMF also described the need for revisions to 
the current Revenue Management laws which would address the 
shortcomings of the current statutes.  The IMF representative 
was optimistic about Chad's chances to receive a favorable 
review on its PRGF and HIPC programs in the near future.  The 
World Bank, however, is skeptical of a positive assessment in 
the near-term.  The World Bank also discussed its plans to 
modernize the Ministry of Finance's budgetary practices.  The 
Treasury team has doubts about the feasibility of these 
plans.  END SUMMARY. 
 
2.  (SBU) On July 11, the candidate for the resident Treasury 
Advisory position in Chad, Linda Gregory; Treasury Advisor 
Ken Torp; Office of Technical Assistance Director Michael 
Ruffner; and E/C officer met with IMF Resident Representative 
Wayne Camard and World Bank Representative Noel Tshiani to 
discuss the role of the Treasury Advisor at the Revenue 
Management College and to hear their views on oil revenue 
management and the IMF and World Bank programs in the 
country. 
 
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THE IFI'S VIEWS ON THE COLLEGE 
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3.  (SBU) Camard and Tshiani both welcomed Gregory and the 
USG intent to re-insert a resident Treasury Advisor to work 
with the Oil Revenue Management College.  They noted that the 
College needed to develop greater technical capacity to 
monitor the allocation of oil revenues and project 
implementation.  Tshiani said that while the College's role 
was to oversee the execution of projects and not recommend 
projects, it still required more assistance in streamlining 
its recommendation and procurement process, which is 
paper-heavy and needs more computerized approaches. 
 
4.  (SBU) They also pointed out that the management of 
expectations has been a critical problem for the College. 
According to Tshiani, most Chadians do not understand the 
College's role.  The College is essential for assurance of 
fiscal transparency.  This process will result in stronger 
procurement and project development procedures in the future. 
  The lack of understanding of the project approval process 
and its timeline by most Chadians is generating questions 
from an impatient public, which continues to ask how the oil 
revenues are being spent. 
 
5.  (SBU) Tshiani told the Treasury team that the College is 
still working to maintain its independence from GOC pressure, 
and is making some progress.  He pointed to the Prime 
Minister's demand for College member Dobian Assingar to be 
removed in March after he questioned how new oil revenues 
will be managed and described the GOC's restraint as an 
example of the College's independence.  (Comment: The 
Government dropped its pursuit of the issue after our 
intervention.  See Ref.  End Comment.)  Tshiani also said 
that the College's 2004 End-of-Year Report does criticize the 
GOC's usage of oil revenues, which is another demonstration 
that the College is trying to assert its oversight mandate 
and independence.  (The report has yet to be released 
publicly, but has been reviewed by World Bank officials 
privately.)  Nevertheless, both representatives noted that 
the Treasury Advisor would need to encourage the College to 
be politically independent and resist GOC interference in the 
College's oversight responsibilities. 
 
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CHANGES IN THE REVENUE MANAGEMENT LAWS 
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6.  (SBU) Cammard and Tshiani said that given the country's 
current fiscal problems, the current Revenue Management laws 
 
needed review.  They explained that the GOC had a point in 
noting that the inflexibility of the laws prevented the 
government from spending on certain priorities, such as 
government salaries, not technically covered under the laws' 
priority sectors.  Camard also noted that the stabilization 
fund was proving to be an ineffective mechanism, since it 
assumed that Chad would be able to provide an excess amount 
of revenues from oil production, which it has been unable to 
do thus far. 
 
7.  (SBU) The two representatives also addressed the point of 
whether to open the laws to permit the use of oil revenues 
for military expenditures.  Camard said that the government 
was facing a problem of keeping its military supplied, 
housed, and fed.  Unless the GOC could provide such items as 
uniforms, food supplies, and barracks for its military, the 
country would face a discontented military that would be 
destabilizing for social and economic improvement.  Tshiani 
also noted the Chadian military requires resources to 
facilitate the demobilization of its troops, and this 
activity should be supported by oil revenues. 
 
8.  (SBU) However, both representatives admitted revisions in 
the Revenue Management Laws, and the application of the laws 
to new revenues, would have to be monitored closely to 
prevent misuse of the oil revenues.  Tshiani pointed out that 
any changes in one aspect of the law may set a dangerous 
precedent for revising larger segments of the law.  He noted 
that the government, which is facing pressure from a host of 
constituencies, will obviously try to change the laws to 
satisfy them. 
 
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THE GOC BUDGET AND STATUS OF PRGF AND HIPC INITIATIVE 
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9.  (SBU) Camard addressed the budgetary situation.  He noted 
that an IMF team that arrived a few days earlier to assess 
the country's budgetary progress discovered that the 
management and execution of the budget in the first quarter 
of the year was extremely poor for non-oil revenues, and 
stated that the government's approval of projects when 
revenues did not exist resulted in a revenue shortfall.  He 
noted that the oil revenues, which account for ten to fifteen 
percent of the overall budget, did not necessarily help the 
situation, as oil production had actually dropped from 
200,000 barrels per day to 170,000 barrels. 
 
10.  (SBU) Camard did note the team's finding that following 
the first quarter, the GOC was much more effective in 
executing transactions and dispersing funds for the payment 
of salaries, military spending for efforts in the east, and 
covering the costs of the referendum.  He said that the IMF 
has determined that they would be able to work with the 
Ministry of the Finance to balance the budget (which amounted 
to 14 billion FCFA, or approximately 26 million USD in FY 05) 
through the creation of a supplementary budget.  At the same 
time, the IMF team noted they plan to work with the Ministry 
to develop an expenditure tracking system to ensure the 
proper accounting of revenues and expenditures. 
 
11.  (SBU) Camard also said that a second IMF team would come 
in early August to assess Chad's progress on its PRGF.  He 
said that he expects Chad will not receive a positive review 
during that period, but believes the country can obtain a 
favorable outcome during the review in April or May 2006 when 
specific modalities in the budgetary process are worked out. 
He also noted that he expects Chad to reach its HIPC 
completion point by early next year.  Tshiani was less 
optimistic about the country's chances under the two 
programs, pointing out that the IMF's optimism for the 
country's budget stems from the assumption that additional 
financial assistance will be immediately provided from the 
European Commission and the African Development Bank. 
Tshiani said that he believes Chad will not be receiving a 
 
SIPDIS 
favorable review from IFI's anytime soon. 
 
 
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REFORM OF THE MINISTRY OF FINANCE 
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12.  (SBU) Tshiani and Camard both noted progress was being 
made in modernizing the Ministry of Finance, but more 
resources and effort will be required to reform the Ministry 
and other institutions related to the budgetary process 
(including the Office of the Treasury and the College). 
Tshiani said that the World Bank has been working with the 
 
SIPDIS 
Ministry to implement a Financial Management System to help 
modernize and expedite the Ministry's activities.  He also 
stated that the Bank has provided a technical advisor to the 
Ministry to help implement this project.  The Treasury team 
asked if the Bank was pursuing the possibility of the 
technical integration of the College with the other relevant 
Ministries.  Tshiani said that while the Bank has not 
discussed this idea, it should be explored.  The Treasury 
team also pointed out that while a modernized financial 
system was an interesting idea, it still needed to be 
implemented properly and have resources devoted to its 
maintenance and up-keep. 
 
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COMMENT 
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13.  (SBU) The World Bank and IMF clearly welcome the return 
of a resident Treasury advisor, which will facilitate 
coordination between the advisor and the IFI's on programs 
that affect the College.  The importance of IMF and World 
Bank programs on the country's overall economic situation 
means that the Treasury Advisor will also have an 
understanding of the dynamics of the IFI's initiatives on the 
economy and the College's operations.  The Embassy and 
Resident Advisor will also need to closely monitor any 
intentions to re-evaluate the Revenue Management laws, 
especially how military spending or other designations and 
interpretations of priority sectors will meet the goal of 
poverty alleviation.  Any initiatives to modernize Chad's 
budgetary process will need to fit the Government's capacity 
to absorb and manage a computerization, the source of 
funding, and the resources available.  The problem of the 
Government's public relations efforts on the expenditure of 
the oil revenues remains, with most players, such as the 
IFI's preferring to push the problem to the College, rather 
than the Government. 
WALL 
 
 
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