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Cablegate: Fy 2010 Prohibition On Assistance to Central Governments

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

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