US embassy cable - 05NDJAMENA1395

UNCLAS  NDJAMENA 001395 
 
SIPDIS 
 
 
DEPT FOR AF, EB, ENERGY FOR CAROLYN GAY AND GEORGE PEARSON, 
TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA WATCHERS, USTR 
FOR WILLIAM JACKSON 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ENRG, PGOV, CD, Economic Trends 
SUBJECT: CHAD: IMF-WORLD BANK MISSION PRESENTS POSITIVE 
SHORT-TERM OUTLOOK 
 
REF:  NDJAMENA 1228 
 
1.  SUMMARY: The latest IMF-World Bank Mission has presented 
a fairly positive assessment of Chad's economic prospects, 
but has also noted the need for progress in non-oil sectors, 
particularly cotton, agriculture and livestock, and 
telecommunications.  While the country received a passing 
grade during this review, the mission's conclusions have 
also raised questions concerning the country's ability to 
meet its short-term objectives before December, revisions of 
the current Revenue Management Laws (which some members of 
the international community appear to support), and the 
World Bank's Plan for the Modernization of the National 
Budget. 
 
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IMF-WORLD BANK GIVES A PASS, FOR THE MOMENT 
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2.  On August 31st, a joint IMF-World Bank mission assigned 
to assess Chad's Poverty Reduction and Growth Facility 
(PRGF) progress briefed members of the international 
community (which included representatives from the GOC, 
European Commission, French Embassy, and UNDP) on their 
conclusions.  The head of the Mission, Pierre Van Den 
Boogaerde, announced that the Chadian government would 
receive a passing grade on this assessment of the program, 
and had agreed to take specific short-term measures to limit 
government spending, which included the freezing of certain 
official travel and salary increases of government 
officials.  Van Den Boogaerde noted that the freeze would 
allow the GOC to balance the budget for the current fiscal 
year, even though the problem of perpetual salary arrears 
and outstanding government expenditures from the past year 
would have to be carried over to the following fiscal year. 
 
3.  At the same time, according to the Van Den Boogaerde, 
financial assistance from the European Commission and the 
African Development Bank, to be released before the end of 
2005, should ease this year's budgetary shortfalls.  The 
PRGF will be re-evaluated in December, as well as in April, 
when the country's HIPC-completion point progress will also 
be determined.  Van Den Boogaerde also noted that the 
implementation of the recently-approval Budget Modernization 
Plan (PAMFIP) would assist in reforming the budgetary 
process, and said the IMF would explore what assistance it 
could offer in accelerating the process.  The World Bank 
Chad-Cameroon Pipeline Representative, Marie-Francoise 
Nelly, added that the Bank would convene a meeting in 
N'Djamena in early-October of the international donors to 
discuss external financial support for PAMFIP (see reftel). 
 
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FOCUS ON NON-OIL SECTORS 
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4.  Citing the revenue shortfall in the oil sector from 
lower-than-expected production, Van Den Boogaerde emphasized 
the need for Chad to focus its efforts on reforming the non- 
oil sector.  He pointed to the GOC's agreement with the Bank 
and Fund to move forward with the privatization of the 
Cotton parastatal CotonTchad.  This included implementing 
the World Bank's proposed road map (which was approved by 
the Government immediately before the arrival of the joint- 
mission) that charted out the reform of the company's 
internal organization, creation of a multi-year business 
plan, and execution of a public tender in the international 
markets.  Van Den Boogaerde also highlighted good harvests 
and increased livestock production expected for 2005. 
 
5.  Van Den Boogaerde said that the Government had agreed to 
commence the privatization of its telecommunication and 
electricity sector.  He expressed optimism in the country's 
ability to capitalize on the expansion of the current fiber 
optic network in Doba, as well as begin the construction of 
a topping plant to produce readily available diesel fuel. 
He also noted the technical assistance that the European 
Commission had provided Chad's agro-economy (particularly 
with respect to its livestock sector), and the export 
benefits that the United States provided through AGOA. 
 
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REVISION OF THE OIL LAW 
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6.  Following Van Den Boogaerde's presentation, World Bank 
Representative Noel Tshiani raised the question of revising 
the current Revenue Management Laws, citing the existing 
critique that the existing laws restricted the ability of 
the Chadian government to fund changing social needs. 
Representatives from the African Development Bank, the 
French Embassy, and the UNDP all commented on whether the 
existing priority sectors should be revised.  The UNDP 
Representative specifically noted that additional priorities 
included enhancing the security of the state, particularly 
the judiciary system.  The EC said that the greater question 
was the ability of the State to responsibly manage the 
current oil revenues, and the kind of support the 
international community could provide to augment the GOC's 
budgetary capacity.  Nevertheless, they noted that the 
Chadian government had the right to change their own laws. 
 
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GOC REACTIONS TO THE MISSION, BUDGET MODERNIZATION 
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7.  On September 5, E/C Officer met with Ibrahim Mollimi, 
Secretary General for the Ministry of Finance, and Issene 
 
SIPDIS 
Mouhoro, Deputy Coordinator for the Cellule Economique (the 
President's Economic Advisory body for Structural Programs) 
to assess the GOC reaction to the IMF-World Bank Mission. 
Both officials noted that the Government was very relieved 
with the positive review it received regarding its PRGF, as 
many officials had expressed concern following the revenue 
shortfall and spending deficit in FY 2005.   They were both 
confident that the government would be able to adhere to the 
spending freezes demanded by the IMF, and move forward with 
the privatization of a number of sectors. 
 
8.  Both officials were also highly supportive of PAMFIP's 
potential positive impact, but stated that implementation of 
this mechanism needed to start soon, and required 
international (and particularly U.S.) assistance.  Mouroho 
explained that while the Government maintained the ability 
to manage part of the budgetary process (the receipt of 
budgetary requests and the programming of resources), it 
lacked the capacity to efficiently disperse the cash 
payments to complete the spending transaction.  Mouroho 
argued that developing an Integrated Financial Management 
System that connected and modernized all phases of the 
budgetary process would solve the existing ineffectiveness 
of the current system. 
 
9.  When E/C Officer noted the concerns that previous 
Treasury teams had raised with the implementation of an 
integrated financial system, Mollimi noted that the 
Government examined the past failure of the system in 
Burkina Faso, and said the Government had already sent a 
technical team to Burkina Faso to examine the system there, 
and would use the lessons from their experiences to ensure 
that their integrated financial management system would be 
fully functional in Chad.  (NOTE: Past Treasury teams have 
noted that a Integrated Financial Management System could be 
counter-productive for Chad's budgetary reform needs, as the 
country lacks the technical capacity to absorb such a 
technologically sophistical system. END NOTE) 
 
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COMMENT 
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10.  While the IMF's decision to continue the PRGF in Chad 
is good news, the next several months will be crucial for 
the future of the program.  The country has to demonstrate 
that it can make significant progress in the privatization 
of several non-oil sectors if it wishes to see continued 
economic support from the IFIs.  The IMF's visit also 
demonstrates that the international community will have to 
address the future of the current Revenue Management Laws 
and reform of the Chadian budgetary system.  Clearly, there 
are specific problems associated with the constraints of the 
laws governing the spending of oil revenues, as well as the 
system in place to disperse the oil revenues.  The question 
is how to reform the current arrangement to assure the 
transparency of the current laws, and offer the most 
practical structure for the Chadian budgetary system (which 
 
 
is not necessarily evident from the proposed reform plan). 
We will need to develop a formal response on both 
initiatives in the coming months if we wish to influence the 
direction of future discussions on these matters. 
 
 
WALL 
 
 
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