VZCZCXRO5838
PP RUEHGI RUEHMA RUEHROV
DE RUEHNJ #0547/01 3251513
ZNR UUUUU ZZH
P 201513Z NOV 08
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC PRIORITY 6608
INFO RUCNFUR/DARFUR COLLECTIVE PRIORITY
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY 0526

UNCLAS SECTION 01 OF 02 NDJAMENA 000547 
 
SENSITIVE 
SIPDIS 
 
LONDON AND PARIS FOR AFRICA WATCHERS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN IMF PGOV PREL US IBRD MASS CD
 
SUBJECT: IMF HOLDS OUT HOPE FOR CHAD, BUT INSISTS ON FISCAL 
DISCIPLINE 
 
REF: A. NDJAMENA 534 AND PREVIOUS 
     ¶B. NDJAMENA 427 
 
NDJAMENA 00000547  001.2 OF 002 
 
 
----- 
SUMMARY 
----- 
 
¶1.  (SBU)  The November 18 debrief to the diplomatic 
community by the visiting IMF delegation tracked what 
delegation head Sukhwinder Singh had told Ambassador earlier 
(Ref A).  The IMF is trying to persuade the GoC to prepare 
and live within budgets that are sustainable without oil 
revenue, in marked contrast to the history of the last few 
years, in which the GoC spent blithely, without respect for 
budget allocations.  If Chad creates a credible 2009 budget, 
and shows some fiscal prudence over the next few months, the 
IMF would consider putting in place a Staff-Monitored Program 
sometime in 2009, which might lead to a more formal 
relationship and eventually to debt forgiveness under the 
Heavily Indebted Poor Countries Initiative (HIPC).  The visit 
seems to have fulfilled the IMF's modest goal of maintaining 
a cordial relationship with Chad, even though it is not in a 
position to put in place any sort of program until the GoC 
demonstrates minimal fiscal discipline.  We continue to be 
impressed by the IMF's commitment to maintaining a dialogue 
with the GoC, despite the latter's continued poor fiscal 
performance, and its acknowledgement of the realities here. 
END SUMMARY. 
 
----------------------------------- 
FISCAL MANAGEMENT WOULD PAVE WAY FOR FURTHER PROGRAMS 
----------------------------------- 
 
¶2.  (SBU)  On November 18, the IMF delegation in town since 
November 5 to conduct Article IV consultations with the GoC, 
debriefed the diplomatic community on its visit.  The readout 
was similar to what Sukhwinder Singh had told Ambassador 
earlier (Ref A).  The IMF is trying to persuade the GoC to 
prepare and live within budgets that are sustainable without 
oil revenue (which is by far Chad's largest source of 
revenue), in marked contrast to the history of the last few 
years, in which the GoC spent blithely, without respect for 
budget allocations.  If Chad creates a credible 2009 budget, 
and shows some fiscal prudence over the next few months, the 
IMF would consider putting in place a six-month, 
Staff-Monitored Program sometime in 2009.  Successful 
implementation of a Staff-Monitored Program could lead to an 
IMF program supported by the Poverty Reduction and Growth 
Facility (PRGF), which in turn could help pave the way for 
debt forgiveness under the Heavily Indebted Poor Countries 
Initiative (HIPC).  But these are big ifs, in light of the 
GoC's recent fiscal imprudence. 
 
¶3.  (SBU) Chad needs to demonstrate progress in putting its 
fiscal house in order before the IMF can consider any type of 
program.  Chad's budget deficit, when one excludes oil 
revenues, is a whopping 30 percent of GDP, whereas a 
sustainable deficit level for Chad would be 4 percent -- a 
level at which the IMF said Chad had been operating just a 
few years ago.  In 2008, the wage bill alone is projected to 
consume all non-oil revenue.  (Much of the recent increase in 
the wage bill is attributed to the army, but there has also 
been an impressive increase in the total for civil-service 
salaries.)  This presents a huge problem for future fiscal 
sustainability.  While stressing that it is up to the 
Government to decide its priorities, the team is recommending 
civil-service reform and a reduction of the wage bill.  It is 
also recommending less spending in the health and education 
sectors, which it believes have reached their absorptive 
capacity, in favor of sectors where investment could produce 
growth, such as agriculture and livestock, roads and 
transportation, and energy. 
 
--------------------------- 
"CHAD ALWAYS ACCEPTS" - AND THEN 
--------------------------- 
 
¶4.  (SBU) Discussing the overall state of the economy, Singh 
characterized Chad's record during the past few years as "not 
good."  There has been very little progress in structural 
reform, infrastructure is weak, the business environment is 
poor, waste is unacceptably high, and even the petroleum 
sector is not very competitive.  Asked by the EU Ambassador 
whether Chad accepts the Fund's analysis, Singh responded 
that "Chad always accepts."  The problem is getting the GoC 
to acknowledge its expenses and figure out, realistically, 
how to accommodate them within its means.  A couple of 
 
NDJAMENA 00000547  002.2 OF 002 
 
 
examples: 
 
-- The GoC's draft 2009 budget shows security expenses of 
only 0.5 percent of GDP -- down from 15 percent in 2008. 
While such a cut would be laudable, the IMF doesn't find it 
credible. 
 
-- Chad's health and education ministers told the visiting 
team they want only money for recurrent costs to make their 
facilities function (e.g., to  staff the already built 
medical facilities and schools), as they do not need 
additional buildings.  Yet the day after the IMF debrief, the 
GoC/ruling party newspaper, Le Progres, reported that the 
Cabinet adopted a 2009 budget that includes more construction 
funds for schools, health clinics, and hospitals. 
 
¶5.  (U) While Singh acknowledged that Chad had been 
experiencing tough times (i.e., its internal and external 
political situation), he insisted that fiscal management is 
needed, preferably sooner rather than later.  The Fund has 
proposed "a trajectory" to reduce expenses to avoid Chad 
having to make drastic cuts in future years. 
 
¶6.  (U)  On the positive side, the team noted that Chad's 
financial sector is so small and has so little involvement 
with international banks that it has been virtually untouched 
by the international financial crisis, and its banks have 
remained very conservative in issuing loans. 
 
-------- 
STATISTICS 
-------- 
 
¶7.  (SBU) The IMF predicts that Chad's oil income will 
increase from USD 1.2 billion to USD 1.9 billion in 2008, but 
fall to USD 0.7 billion in 2009 as a result of lower oil 
prices and the GoC's September 2008 protocol with ESSO (Ref 
B), which advanced the payment of some taxes and royalties 
from 2009 to 2008.  It expects Chad's GDP to fall by 0.4 
percent in 2008, but to grow at 3.5 to 3.6 percent per year 
from 2009 through 2011, although it expects oil production to 
remain at 45-47 million barrels/year from 2008 on.  The IMF 
expects 2008 inflation of 7.5 percent, mostly due to the cost 
of imported foodstuffs, with only modest, 3 percent annual 
increases in subsequent years. 
 
---- 
COMMENT 
---- 
 
¶8.  (SBU) The visit seems to have fulfilled the IMF's modest 
goal of maintaining a cordial relationship with Chad, even 
though it is not in a position to put in place any sort of 
program until the GoC demonstrates even minimal fiscal 
discipline.  We continue to be impressed by the IMF's 
commitment to  maintaining a dialogue with the GoC, despite 
the latter's continued poor fiscal performance, and its 
acknowledgement of the realities here. 
 
¶9.  (U)  TRIPOLI MINIMIZE CONSIDERED. 
NIGRO