VZCZCXRO0245
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #0100/01 0281122
ZNR UUUUU ZZH
R 281120Z JAN 10
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 0096
INFO RWANDA COLLECTIVE
SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 KINSHASA 000100 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAID EFIN ECON PGOV PREL CG
SUBJECT: FY 2010 PROHIBITION ON ASSISTANCE TO CENTRAL GOVERNMENTS 
WHOSE BUDGETS ARE NOT TRANSPARENT: DRC 
 
REF: STATE 1923; 09 KINSHASA 1112; KINSHASA 88; KINSHASA 24 
09 KINSHASA 967; 09 KINSHASA 961; 09 KINSHASA 320 
 
¶1. (U) The FY2010 USG foreign assistance package for the DRC 
includes funds that are considered assistance for the central 
government. In addition, the DRC required a waiver in 2009 under 
Section 7086 (C)(1)of the SFOAA.  Post therefore provides the 
following responses to the questions contained in Ref A. 
 
 
 
Improved Budget Transparency a Priority 
 
--------------------------------------- 
 
 
 
¶2. (SBU) Enhancing budget transparency, both in the budget 
formulation and execution process, remains a key priority for the 
government of the DRC (GDRC) as part of continuing, broader efforts 
to improve public financial management (PFM).  The GDRC, with the 
support of several donors, has taken some important, concrete steps 
over the past several years to improve PFM with a particular focus 
on the budget process.  These measures include improved 
implementation of the new budget-execution system, introduced in 
2003, that provides information on expenditure tracking, including 
required quarterly budget execution reports.  The GDRC has also 
greatly improved its compliance over the past year with measures 
enacted in 2008 on urgent spending procedures. Monthly budget 
execution tables are generated and published.  The draft and 
approved budgets as well as the quarterly budget expenditure 
reports are publically available, including on the Ministry of 
Budget's website. 
 
 
 
¶3. (SBU) The DRC's new three-year Poverty Reduction and Growth 
Facility (PRGF) arrangement with the IMF, approved in December 2009 
(ref B), prioritizes strengthened PFM and includes a series of 
measures to improve transparency, formulation, and execution of the 
budget process.  Structural measures in the PRGF aimed at enhancing 
budget formulation and execution include the adoption of an organic 
Public Finance law that will help harmonize and rationalize the 
budget process, eliminating extra-budgetary spending, strengthening 
capacity among provincial level officials, and improving fiscal 
reporting.  Additional measures contained in the PRGF related to 
improved transparency of revenues focus on implementation of the 
Extractive Industries Transparency Initiative by mid-March 2010 
(ref C) and publication of agreements between public and private 
enterprises as well as the results agreements under the mining 
contract review.  A key structural measure under the PRGF that has 
yet to be achieved is the approval by Parliament of the GDRC's 
draft public procurement law which aims to modernize and improve 
the transparency of the government procurement process. 
 
 
 
¶4. (U) Another important step in addressing improved budget 
transparency is in the area improved coordination and management of 
external assistance.  External assistance comprises a significant 
proportion of the DRC's annual budget -- 53 percent for the GDRC's 
draft 2010 budget.  With support from the World Bank, the GDRC and 
international donors agreed in June 2009 to a series of measures 
aimed at improving aid efficiency, including in the sharing of 
information on donor assistance to improve budget formulation. 
 
 
 
¶5. (SBU) The GDRC has also shown, for the first time in many years, 
greater political will to ensure a realistic budget.  Most 
recently, President Kabila refused to sign the DRC's 2010 approved 
by Parliament (ref D), citing unrealistic spending increases and 
revenue projections added by Parliament to the GDRC's draft budget. 
The additional spending related, in large part, to salary increases 
for elected officials.  The GDRC and both houses of Parliament 
worked for several weeks to harmonize the GDRC's original draft 
budget and that approved by Parliament in late 2009.  Parliament 
has now approved an amended budget that removes much of the 
spending increases; the newly approved budget will be sent to 
President Kabila for his signature.  Contacts at both the 
 
KINSHASA 00000100  002 OF 003 
 
 
Ministries of Finance and Budget told Econcouns in mid-January that 
the President's decision to return the budget as approved by 
Parliament was not politically motivated; rather, he genuinely 
sought to ensure a realistic budget that would not jeopardize the 
GDRC's progress towards HIPC completion point. (Comment: Post 
concurs with this view. End Comment)  The DRC's 2010 budget, which 
was drafted in close coordination with the IMF, thus represents the 
first time in many years that the GDRC will have adopted a budget 
based on realistic revenue projections and corresponding spending 
levels. 
 
 
 
But Weaknesses Remain 
 
--------------------- 
 
 
 
¶6. (SBU) At the same, weaknesses in the budget process remain.  A 
key structural challenge relates to the DRC's bifurcated budget 
process and lack of adequate coordination between the Ministries of 
Finance and Budget, as well as continuing fiscal pressures due to 
on-ongoing and often unpredictable security-related spending needs. 
Capacity, particularly at the provincial level, must also be 
enhanced to ensure proper budget planning and execution as the GDRC 
implements decentralization and transfer of budgetary resources to 
the provinces as mandated by the Constitution. 
 
 
 
¶7. (SBU) As noted in last year's submission, revenues and 
expenditures are detailed in the budget though the source of the 
revenues can be difficult to determine.  Wide-spread corruption and 
an opaque and duplicative tax structure continue to limit both the 
collection and transparency of reporting of actual revenues.  This 
is particularly true in the DRC's most important economic sector, 
mining.  As noted in Ref E, the GDRC Senate issued a report in 
September 2009 stating that between $350-$450 million in mining 
sector revenues were "lost" in 2008 due to fraud, mismanagement and 
corruption.  In increasing revenue projections in the GDRC's draft 
2010 budget, the National Assembly's and Senate's Economic and 
Financial Commissions (ECOFIN)had in fact argued that many official 
revenues go unreported. 
 
 
 
Background on the Budget Process 
 
--------------------------------- 
 
 
 
¶8. (U) As noted in refs G and F, the DRC's budget is publically 
available, including on the Ministry of Budget's website and in 
hard-copy, and openly debated in Parliament.  A summary of the 
draft budget is also publically available. 
 
The Ministry of Budget is required by law to submit quarterly 
reporting on the execution of the budget to the National Assembly. 
The budget has its basis in the DRC's broader development 
framework, including the government's Poverty Reduction Strategy 
Paper (PRSP) and President Kabila's Cinq Chantiers (or priority 
areas).  These in turn are implemented through the GDRC's Priority 
Action Plan (PAP).  This framework was developed in coordination 
with international partners and civil society.  The drafting of the 
budget, overseen by the Ministry of Budget, includes participation 
from all stakeholders: ministries, other public agencies, and civil 
society. Once approved by the Council of Ministers, the budget is 
submitted to the National Assembly for debate.  The IMF worked 
closely with both the executive and legislative branches to 
advocate for  a realistic 2010 budget.  The IMF continues to 
closely monitor the execution of the budget in line with the PRGF 
and GDRC spending and reporting procedures. 
 
 
 
¶9. (SBU) Comment:  Over the past year, the GDRC has shown greater 
political will and commitment to strengthened public financial 
management, including in the budget formulation and execution 
process.  As with many other priority areas for the GDRC, the 
mechanisms are now in place.  The key for continued improvements to 
the DRC's budget process, as part of broader PFM efforts, will be 
to fully implement and institutionalize the various measures and 
commitments contained in both the PRGF and already adopted by 
 
KINSHASA 00000100  003 OF 003 
 
 
various government decrees.  The GDRC at a senior level clearly 
understands the importance of ensuring a transparent and realistic 
budget in the context of the new IMF program.  Controlling 
spending, ensuring continued adherence to established emergency 
spending procedures, and better mobilization of revenues must 
continue to be addressed to ensure a transparent budget process. 
This will depend on resisting political pressures on spending as 
well as addressing longer-term capacity constraints and improving 
coordination among the key ministries.  We will work with the GDRC 
in an effort to encourage continued momentum in building on the 
progress made over the past year and in formalizing these new 
practices and measures.  End comment. 
GARVELINK