VZCZCXRO6732
OO RUEHGI RUEHTRO
DE RUEHNJ #0113/01 0911629
ZNR UUUUU ZZH
O 011629Z APR 09
FM AMEMBASSY NDJAMENA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6832
INFO RUEHDS/AMEMBASSY ADDIS ABABA PRIORITY 1025
RUEHYD/AMEMBASSY YAOUNDE PRIORITY 1744
RUEHKH/AMEMBASSY KHARTOUM PRIORITY 0531
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY 0585
RUEHLO/AMEMBASSY LONDON PRIORITY 1799
RUEHFR/AMEMBASSY PARIS PRIORITY 2358
RUEHGI/AMEMBASSY BANGUI PRIORITY 1562
RHMFISS/HQ USAFRICOM STUTTGART GE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 NDJAMENA 000113 
 
SIPDIS 
SENSITIVE 
 
STATE FOR AF/C AND AF/USSES 
NSC FOR GAVIN AND HUDSON 
LONDON FOR POL - LORD 
PARIS FOR POL - D'ELIA AND KANEDA 
ADDIS ABABA ALSO FOR AU 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EPET EFIN IMF IBRD CDB EAID PREL
EU, FR, CD 
SUBJECT: CHAD'S PUBLIC FINANCES (I):  PROBLEMS ARE DAUNTING 
 
REF: A. NDJAMENA 0099 
     ¶B. NDJAMENA 0079 
 
This cable is sensitive but Unclassified.  Not for Internet 
dissemination. 
 
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SUMMARY 
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¶1. (SBU) IMF Resident Representative Joseph Karangwa briefed 
Ambassador March 26 on the current troubled status of Chad's 
public finances, especially its public revenue management 
problems, from the IFI perspective.  He emphasized Chad's 
looming budgetary shortfall this year, as oil revenues are 
down nearly 80 percent from last year while GOC public 
spending remains high.  He outlined changes that the GOC 
would have to make in budgetary discipline and budgetary 
procedures for the IMF to succeed in a six-month 
(April-September) staff-monitored program, after which it 
could qualify for a "normal" six-month program.  Successful 
completion of six months of a staff-monitored IMF program 
could get the GOC up to USD 40-50 million per year of IMF 
budgetary assistance; successful completion of six months of 
a "normal" IMF program could make Chad eligible for HIPC 
bilateral debt relief and for multilateral (IFI) debt relief. 
 HIPC and multilateral debt relief would save the GOC some 
USD 60 million a year in debt service. The GOC needs to 
revise its 2009 budget, since the budget approved in December 
2008 is too optimistic on oil prices and does not reflect a 
revenue payment amendment with ESSO.   END SUMMARY. 
 
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OIL REVENUES DOWN 
----------------- 
 
¶2. (SBU) Karangwa said that Chad's 2009 budget needed urgent 
revision:  the current document was overly optimistic, in 
that it was based on a price for Chad crude of USD 60 per 
barrel; that price had now fallen to USD 20 per barrel.  The 
situation was further complicated by the unintended effect of 
a modification of payment schedules with ESSO in September 
¶2008.  The GOC was mulling other revenue sources -- boosting 
non-oil revenues; a USD 400 million surplus from 2008; 
opening a line of credit from the Bank of Central African 
States (BEAC); and a special arrangement with ESSO -- to 
manage funding through 2009.  But budget revisions were 
inevitable.  Not all current security spending and 
infrastructure spending were fully paid in advance, and the 
GOC kept adding projects and making new spending commitments. 
 Even if the GOC managed to make it through 2009, it would 
probably have to "mortgage its future" to achieve improved 
fiscal and budgetary health in 2010. 
 
¶3. (SBU) Karangwa stated that oil revenue tracking was 
transparent and monies were generally managed in an 
accountable manner.  The IMF knew the amount of royalties and 
dividends the GOC received, Karangwa said, because those 
monies were deposited in a Citibank escrow account in London. 
 Lenders got their debts paid and revenues due to the GOC 
were officially transferred to the Chadian Treasury through 
the BEAC.  ESSO paid income tax and export fees directly to 
the GOC, also through Chad's account at BEAC, and these 
figures were available through ESSO, including on its 
website, updated regularly. 
 
------------ 
EXPENDITURES 
STAY STEADY 
----------- 
 
¶4. (SBU) The problem, according to Karangwa, was on the 
expenditure side.  The Fund did not dispute Chad's need to 
spend heavily on its own security, given the nature and 
extent of threats to that security, but it wanted such 
spending -- indeed all spending -- to be reflected 
 
NDJAMENA 00000113  002 OF 002 
 
 
appropriately in the Chadian budget.  Karangwa outlined the 
GOC's two main weaknesses:  budget discipline and budget 
procedures.  He said that the GOC had little budget 
discipline and was unable to spend its budget, separate from 
exigent circumstance like changes in security requirements, 
as passed by the National Assembly.  He also cited high 
levels of spending, irrespective of established priority 
spending areas.  Karangwa made clear that the GOC did not 
follow sound budget procedures, given that extra-budgetary 
spending occurred without scrutiny prior to managing expenses 
within the existing budget.  Karangwa claimed that this 
method of spending subverted the control of the Ministry of 
Finance.  Further, there were significant issues with public 
procurement, including massive abuse of direct contracting by 
individual ministries, as opposed to bidding by tenders, 
Karangwa estimated that 40 percent of the GOC's spending in 
2008 was extra-budgetary.  Karangwa said that the GOC had not 
made any satisfactory progress in addressing such 
deficiencies over the last three years, so previous IMF 
programs had failed. 
 
------------- 
RESTARTING AN 
IMF PROGRAM 
------------ 
 
¶5. (SBU) Karangwa stressed that the IMF would remain engaged 
and that a new mission led by new Chad Director Christian 
Josz would visit Chad April 2-15.  In Karangwa's view, Chad 
had much to gain if it could stay "on program" with the IMF. 
Successful completion of six months of a staff-monitored IMF 
program could get the GOC up to USD 40-50 million per year of 
IMF budgetary assistance.  Successful completion of six 
months of a "normal" IMF program could make Chad eligible for 
bilateral debt relief under the Highly Indebted Poor 
Countries (HIPC) program, as well as eligible for 
multilateral (World Bank, Africa Development Bank, etc.) debt 
relief.  Karangwa said that Chad had about USD 1.3 billion in 
total debt, of which 70-80 percent was owed to multilaterals. 
 HIPC and multilateral debt relief would save the GOC some 
USD 60 million a year in debt service. 
 
¶6. (SBU) Karangwa said that the GOC and IMF would need to 
reach an understanding on a revised 2009 budget, and that the 
GOC would have to show results in executing its budget, as 
revised and agreed with the IMF, for six months under a 
"staff-monitored" arrangement running from April to September 
¶2009. Karangwa said that there was little current budget 
assistance to the GOC and there would not be any large IMF or 
WB assistance without an IMF program.  The EU had money it 
could reprogram but was not currently providing robust budget 
assistance; the ADB would only likely add USD 25 million to 
existing assistance programs.  Karangwa said he did not see 
any critical piece of technical assistance that was not 
already covered through the IMF's AFRITEC and Public 
Expenditure and Financial Accountability (PEFA) programs and 
the EU's technical assistance to the Department of the 
Budget, but he added that the Minister of Finance would be in 
a better position to know if assistance gaps existed. 
 
------- 
COMMENT 
------- 
 
¶7. (SBU)  It seems to us that the IMF understands what is 
wrong with Chad's public finances and how to fix the 
problems.  Septel reports on our conversation with the 
Minister of Finance, who laid out the GOC's plan to confront 
its daunting budgetary problems. 
 
¶8. (U) Tripoli minimize considered. 
NIGRO