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N'Djaména, April 28, 2001
Mr. Horst Köhler
International Monetary Fund
Washington D.C., USA
Dear Mr. Köhler:
1. On behalf of the government of Chad, we are pleased to transmit to you the
attached memorandum of economic and financial policies (MEFP). It
describes developments during the second half of 2000 in the context of the first annual program
supported by a Poverty Reduction and Growth Facility (PRGF) arrangement, and outlines the
government's economic and financial policies and objectives for 2001.
2. As explained in the MEFP, the program was implemented in difficult
circumstances, including a worsening security situation related to intensified rebel fighting in the
northern part of the country, which required an increase in defense outlays, a persistent energy
crisis, a shortfall in external financing, and a temporary setback in reforms. As a result,
performance criteria for end-September 2000 relating to net credit to the government, the primary
fiscal deficit, and the reduction of domestic payments arrears were not met. In addition, the
government accumulated external payments arrears; thus, the related continuous performance
criterion was also not met.
3. Against this background, in November 2000, the government of Chad
introduced a policy package aimed at both strengthening transparency and good governance
(measures in this area constituted prior actions for the Initiative for Heavily Indebted Poor
Countries (HIPC) Initiative decision point) and correcting macroeconomic imbalances, while
catching up in the structural reforms area (which constituted additional prior actions for the
second review under the PRGF arrangement). The government has complied with all prior actions
in the area of transparency and governance, as well as those in the structural area. At the same
time, as some of the revenue and expenditure control measures were introduced with some delay,
the fiscal performance fell short of target at end-December 2000. Therefore, additional measures
are being introduced, as described in the MEFP. The government is making all possible efforts to
clear its external payments arrears and has contacted the relevant creditors to agree on an action
plan to settle any remaining arrears. On the basis of these actions, the government of Chad
requests waivers for nonobservance of the above-described performance criteria.
4. Erratic weather conditions threaten Chad with the worst famine in a decade.
The government has identified the associated emergency needs for food imports, much of which
will be satisfied by assistance from the international donor community. However, a significant
increase in balance of payments needs remains uncovered. Accordingly, the government of Chad
is requesting an increase of the arrangement by SDR 5.6 million (corresponding to 10 percent of
quota), to be disbursed upon the approval by the Executive Board of the second annual
5. The preparation of Chad's poverty reduction strategy paper (PRSP), in a fully
participatory manner and involving development partners, is on schedule, and we expect to
finalize it by the fall of 2001.
6. The government of Chad believes that its actions aimed at improving
transparency and governance, as well as at implementing an ambitious fiscal and structural
adjustment program, provide a basis both for an approval of continued Fund financial assistance
for the second-year program under the PRGF arrangement and for reaching the decision point
under the enhanced HIPC Initiative. The proposed enhanced quarterly program monitoring in the
MEFP demonstrates the government's commitment to the PRGF-supported program.
7. The third review under the PRGF arrangement will be completed by
end-December 2001 and will consider, inter alia, budget implementation in 2001 and actions in
the governance area. The government of Chad will provide the Fund with all information that the
Fund requests in connection with the implementation of the MEFP, and it will consult with the
Fund regarding the implementation of any major policy initiatives not considered during the
program discussions. The government of Chad believes that the policies set forth in the MEFP are
adequate to achieve the objectives of the program. During the arrangement period, the
government of Chad stands ready to take additional measures that may become appropriate to
ensure the achievement of the program's goals.
Very truly yours,
Mahamat Louani Goadi
Minister of Finance
Memorandum of Economic and Financial Policies
N'Djaména, April 28, 2001
I. Developments in 2000 under the PRGF-Supported
1. During 2000, the government of Chad aimed at implementing a
comprehensive program of economic, structural, and poverty-reducing reforms. This program
received support from the International Monetary Fund under a Poverty Reduction and Growth
Facility (PRGF) arrangement, approved on January 7, 2000. The first review of the program was
completed on July 25, 2000; on that occasion, Executive Directors also considered Chad's interim
PRSP and the preliminary document under the enhanced HIPC Initiative, and declared Chad
eligible for external debt relief.
2. Program implementation was carried out in difficult circumstances, including
a worsening security situation related to intensified rebel fighting in the northern part of the
country, which required an increase in defense outlays, and a persistent energy crisis. As a result,
real GDP increased by only 0.6 percent in 2000 after a similar small increase in 1999. Energy
shortages continued, and food production was considerably smaller than the year before, but
investment, mainly related to the Doba and Sedigi oil field projects, increased. The current
account deficit, excluding official transfers, is estimated to have widened to 16 percent of
GDP, compared with 14.9 percent under the program, mainly on account of higher imports
related to the above-mentioned oil sector projects. The higher deficit was in large part financed by
higher-than-expected foreign direct investment. Consumer prices increased by 3.8 percent
in 2000, after a decline of 8 percent in 1999, reflecting both weak food supply and an
increase in energy prices.
A. Performance at End-September 2000
3. Overall program implementation was broadly satisfactory until the early
summer of 2000, but it suffered a temporary setback in the second half of 2000. Governance
weakened temporarily. For reasons explained in part by emergency security needs, part of the
US$25 million petroleum agreement signing bonus that the government received in April 2000
from the consortium exploiting the Doba oil field was spent outside the provisions of the Law on
Petroleum Revenue Management—on non-priority sectors, and outside the budget. By
end-September 2000, more than half of the oil bonus had been spent, primarily on defense and
public enterprise subsidies. There were other instances when budget procedures were not
followed. Competitive bidding procedures were not always fully respected, especially for the
awarding of several major government contracts.
4. Program implementation also weakened. During the period
January-September 2000, the primary current fiscal deficit rose to CFAF 7.1 billion, compared
with CFAF 0.7 billion under the program. Higher-than-programmed government revenues
were more than offset by higher-than-programmed primary current expenditures (in part financed
by the aforementioned oil bonus). Domestic arrears were reduced by considerably less than
programmed; at the same time, net bank credit to the government exceeded the program target by
CFAF 3.2 billion. As a result, the associated performance criteria were missed.1 In addition, at the end of the year, the government started to build
up external payments arrears following the drying up of external financing. As a result, the
associated continuous performance criterion was not observed.
5. Structural reforms proceeded in some areas, but delays occurred in
others. Compliance with prudential regulations improved in the financial sector; while the
management of STEE, the water and electricity company, was privatized in September 2000. In
the cotton sector, after the introduction of a new pricing system in early 2000, under which prices
are determined in consultation with farmers on the basis of international prices and exchange rate
movements, reforms were slower than expected, in part for reasons outside the government's
control. As of end-September, the envisaged restructuring plan for the cotton company,
COTONTCHAD, as well as the study for spinning off its nonmainstream oil and soap activities,
had not been completed, and its general controller had not been nominated, owing to a lack of
financing. As a result, the related structural benchmarks were not observed at that time.
Benchmarks related to the establishment of a monitoring system for spending in education, the
launching of training programs in the rural sector, the reform of the civil service statutes, and the
evaluation of a decentralized administrative structure were also not observed as of
6. In view of these slippages, Chad's decision point document under the
enhanced HIPC Initiative could not be presented to the Executive Boards of the Fund and the
World Bank, and the completion of the second review of the PRGF-supported program was
B. Corrective Measures and Performance at
7. Against this background, the government introduced a series of measures,
aimed at improving transparency and governance and bringing the PRGF-supported program
broadly back on track. These measures were also intended to facilitate the presentation of Chad's
HIPC Initiative decision point document to the Executive Boards of the Fund and the Bank, and
constituted prior actions for the completion of the second review under the PRGF-supported
program. Transparency was improved through the following measures. First, the government
froze the rest of the oil bonus at its mid-October level of CFAF 7.2 billion (about US$10 million).
The freeze would last until the oversight committee (Collège de Contrôle et de
Surveillance des Revenus Pétroliers, CCSRP), the body that by law is to oversee the
spending of oil revenues, is created and made fully operational. The remainder will be spent, under
the oversight of the CCSRP, on priority sectors, and its use was included in the 2001 budget law.
Second, in December 2000, the government submitted a report on the use of the bonus to the
CCSRP; in a separate letter to the CCSRP, it also committed itself to undertaking an audit on the
use of the bonus as of December 31, 2000. Moreover, at an open parliament session in December
2000, the government answered questions related to the use of the bonus. Third, the government
provided the Fund and the Bank with full information on its fiscal and bank accounts, including
those on projects and outside the budget. These accounts have been integrated into the treasury
accounts and budget framework covered by the table of the financial operations of the
government (TOFE), as well as into the revised definition of net credit to government. Fourth, the
government has decided not to approve or execute any government spending outside the budget.
8. The government also introduced a package of corrective measures, with a
view to bringing its program supported by the PRGF arrangement broadly back on track. In the
area of revenue collection, the government introduced a series of measures to bring revenues
close to their program level. These included, inter alia, a series of measures to strengthen customs
administration and the collection of tax arrears. The government also implemented measures to
improve expenditure management through the simplification of the expenditure execution process,
which will help increase the efficiency of budget execution and improve expenditure tracking for,
inter alia, social sector spending. These measures arrested the worsening of the fiscal situation,
but fiscal performance still fell short of the revised targets for end-December 2000. The current
primary deficit reached 0.8 percent of GDP (compared with the original program target of
0.4 percent surplus) as result of a shortfall in revenue (0.4 percent of GDP) and a slippage
9. The tightening of the fiscal situation and major external debt payments falling
due led to an accumulation of external overdue payments of CFAF 5.7 billion
(equivalent to US$7.7 million) as of March 31, 2001. The government has been making all
possible efforts to service its external debt obligations, both to multilateral and bilateral creditors,
including the mobilization of additional revenues as described below. The government of Chad
has contacted all concerned creditors with a view to settling all outstanding overdue payments and
has agreed with most concerned creditors on a plan to settle all arrears according to a time-bound
schedule. Agreements with remaining creditors are expected to be completed prior to the
Executive Board meeting. All arrears will be cleared within the next 12 months.
10. Structural reforms were accelerated, ensuring a catch-up in the program's
structural reforms agenda. First, the successful bidder for the nomination of the controller general
for the cotton company, COTONTCHAD was announced in January 2001, and the study on the
spinning off and privatization of the company's oil and soap activities was completed in December
2000. Second, in the area of harmonizing the civil service and payroll files, the census of
the civil service was completed in November 2000; in addition, the payroll is being updated, using
the results of the census. Finally, an action plan to monitor commitments and actual spending in
the education sector was introduced in January 2001; a similar system was introduced in the
health sector at the same time. As a result, albeit with a delay, all associated structural
benchmarks were observed.
II. Economic and financial Policies in 2001
11. Real GDP growth is projected to increase to 8.2 percent in 2001,
spearheaded by private and public sector investment related to the projects in the Doba and
Sedigui oil fields; oil projects and their spillover effects will account for about two-thirds of this
increase. Consumer price inflation is projected to rise to 7.3 percent, chiefly reflecting price
pressures associated with the above-mentioned food shortages.
A. Fiscal Policies
12. The government's fiscal policies aim at turning the primary fiscal balance
(excluding elections, famine-related emergencies,2 and
spending financed by the Poverty Fund3) from a deficit of
CFAF 7.8 billion in 2000 (0.8 percent of GDP) into a small surplus of CFAF 2.5 billion in
2001 (0.2 percent of GDP). This would result from both a revenue effort and expenditure
restraint. The overall fiscal deficit, on a commitment basis and excluding grants, will reach CFAF
237 billion in 2001, the equivalent of 20.8 percent of GDP, reflecting a large increase in
foreign-financed investment, including for oil-related projects.
13. The fiscal program envisages an increase in fiscal revenues from CFAF 80
billion (8 percent of GDP) in 2000 to CFAF 96 billion (8.4 percent) in 2001. To
achieve this objective, the following measures are being taken, in addition to above-described
package of revenue measures introduced in November 2000: (i) the introduction of interest
payments on government deposits held with commercial banks before June 30, 2001 (with an
estimated impact of CFAF 750 million); (ii) the prohibition of all "exceptional"
exemptions from customs duties (these amounted to about CFAF 1 billion in 2000); and
(iii) the reinforcement of tax administration in a number of areas (para. 17). In particular, customs
administration will be streamlined following a functional and financial audit by an internationally
reputable firm, to be completed by December 2001 (para. 20); moreover, on-site inspections by
the joint tax-customs brigades will reinforce the system of chèques du
Trésor for public procurement, as well as the implementation of bilateral agreements
on tax exemptions. The taxation of the quasi-informal sector in the retail sales of petroleum
products will be reinforced also by the joint tax-customs brigades. In addition, as part of the Doba
oil project arrangement, the government expects to receive a payment related to the financial
settlement with ESSO of an estimated US$4.8 million (CFAF 3.3 billion).
14. The government will complete, with the support of the Fund and the World
Bank, a study on the pricing and taxation of the Sedigui oil and gas field, on the basis of which it
will adopt a plan of pricing and taxation policy by September 30, 2001. The main principle of
these guidelines will be to use gains from this field to contribute both to a reduction of the
presently high electricity prices and to an increase in fiscal revenue starting in 2002.
15. Overall expenditure will rise from CFAF 203 billion in 2000
(20.3 percent of GDP) to CFAF 333 billion in 2001 (29.2 percent of GDP), mainly
on account of an increase in public investment programs. The total nonmilitary wage bill,
excluding wages financed by the remainder of the bonus and interim HIPC Initiative assistance, is
budgeted to rise from CFAF 40.0 billion in 2000 to CFAF 43.8 billion in 2001, reflecting
increases in priority social sectors (health and education), both in average wages (10 percent,
because the government will pay part of the previously frozen service-related entitlements) and in
employment. In all other nonmilitary sectors, nominal wages will rise in line with statutory
advances, and employment will be adjusted downward to reflect the results of the civil service
census completed in December 2000 (including the elimination of "ghost" workers).
The military wage bill will rise by about 13 percent to include a cost-of-living adjustment that has
not been changed in the last three years. The government is preparing an action plan to reduce
domestic arrears. It has already regularized part of its arrears toward state-owned enterprises; it is
now in the process of verifying the remaining stock of arrears with a view to establishing a
timetable for their settlement. In addition, the government has identified possible expenditure cuts
in nonpriority sectors, should there be a shortfall in revenues. These target nonwage current and
investment spending in nonsocial ministries (internal security, Ministry of Finance, etc.).
16. Unfavorable weather conditions have required the securing of emergency
food supplies to avert famine. The government, together with donors, has identified
66,000 tons of cereal (the equivalent of about US$24 million, or CFAF 16.5 billion) as an
emergency need for the most vulnerable groups in hard-hit areas. This amount is being covered by
food aid from the World Food Program (27,000 tons), bilateral donors, and the European
Union; contributions from the national budget of CFAF 2.1 billion (including the use of
CFAF 1 billion from the remainder of the oil bonus); and a requested increase of the
arrangement by SDR 5.6 million (corresponding to 10 percent of quota), to be disbursed upon the
approval by the Executive Board of the second annual program.
17. Structural measures in the fiscal area to strengthen revenue collection
include the following: (i) improving value-added-tax (VAT) administration and preparing the
extension of its base in the context of the 2002 budget; (ii) reinforcing the joint tax-customs
brigades by, inter alia, providing for additional transportation equipment; (iii) completing the
assignment to all economic agents of the personal tax identification number (NIF) by end-June
2001 and the exclusion from public procurement bidding, as well as from any supply and payment
orders, of firms without a NIF; (iv) completing the computerization of the customs database via
the use of SYDONIA; and (v) computerizing the large-taxpayers' unit by October 2001.
18. Budget control will be reinforced through the following measures: (i)
extension of the coverage of the cash treasury plan to 12 months, with regular updates of at least
twice a month, starting on April 1, 2001; (ii) the full implementation of the simplification of the
expenditure circuit adopted by a decree in December 2000 and January 2001 through, inter alia,
the publication of a new procedure handbook by May 30, 2001, and the computerization of the
expenditure circuit by December 2001; (iii) the treasury's receipt of information on the execution
of all public investment projects from the project managers on a monthly basis; (iv) starting on
March 1, 2001, an exclusive mandate to the Minister of Finance (or in his absence, the Director of
the Treasury) to authorize the opening of a bank account lodging government resources; and to
inform Fund staff of any such new account; and (v) the consolidation of government accounts
with commercial banks through the elimination of inactive accounts. In addition, a study will be
conducted on the guidelines for reforming budget elaboration, monitoring, and regulation
procedures by September 30, 2001, with the assistance of the Fund's Fiscal Affairs Department
and of the World Bank.
19. The above-described policies will be fully reflected in a modified budget for
2001 that the government will submit to parliament before the discussion of this MEFP at the
Fund's Executive Board (a prior action under the program). This modified budget will also include
the government's program regarding the use of external debt relief under the enhanced HIPC
20. The government is strongly committed to further strengthening transparency
and governance. To this end, the following audits will be conducted: (i) the agreed audit of the
use of the oil bonus as of end-December 20004 by the
Accounting Office (Chambre des Comptes) of the Supreme Court—terms of reference for
this audit will be adopted before April 30, 2001, in consultation with Fund and Bank staff, and the
audit will be completed by September 30, 2001; (ii) a functional and financial audit of customs
administration—terms of reference for this audit will be adopted before June 15, 2001, and
the bidding procedures to recruit an internationally reputable firm will be launched by July 31,
2001; and (iii) audits of the five largest public procurement contracts—other than those
financed and monitored by the World Bank, the African Development Bank, and the European
Union—granted in 2001. The terms of reference of the first two audits of procurement
contracts signed in the first half of 2001 will be adopted before August 31, 2001, and the bidding
procedures to recruit an internationally reputable firm will be launched by October 15, 2001.
Audits mentioned in (ii) and (iii) will be carried out with financial support from the World Bank.
The results of the audits will be made public, and the associated after-audit follow-up measures
will be integrated into the overall reform of public procurement, to be carried out with assistance
by the World Bank (see para. 27).
21. Other measures to improve governance will include (i) submission to
parliament of the new civil service statutes in April 2001, and the computerization of the
harmonized civil service and payroll file by end-2001; (ii) publication in June 2001 of the first
quarterly public procurement bulletin, including a list of firms barred from bidding; and (iii)
inclusion of all stakeholders in the defining and monitoring of Chad's governance strategy to be
adopted in June 2001. All these measures will be implemented with assistance from the World
Bank. Furthermore, the government will accelerate implementation of the judicial reform through,
inter alia, the setting up of appellate and commercial courts.
C. Monetary Prospects
22. Monetary policy is conducted at the regional level by the Bank of the
Central African States (BEAC). The bank's key objective is to maintain price stability over the
medium term by maintaining the peg between the CFA franc and the euro, and to build up the
monetary zone's official reserves. It is expected that, reflecting the carryover of energy price
increases in 2000 as well as weak food supply, consumer prices will increase by about
7 percent on average in 2001, and that money supply will grow by about 19 percent.
Banking supervision will continue to be strengthened by the regional Central African Banking
D. External Outlook
23. The external current account deficit, excluding official transfers, is projected
to rise from 16 percent of GDP in 2000 to 40.7 percent of GDP in 2001, mainly
reflecting an increase in imports related to oil projects (17 percent of GDP) and
famine-related emergency food imports (2 percent of GDP). Exports will increase only slightly,
with the rise owing mainly to a projected increase in the price of the main export item, cotton.
The current account deficit will be financed mainly by foreign direct investment (19 percent of
GDP) and public sector project loans and grants (16 percent).
E. Structural reforms
24. In light of the shortages experienced in the supply of petroleum products at
the official prices and the existence of de facto uncontrolled prices on the domestic market, the
government has decided to liberalize the domestic price of petroleum products. To this end, it has
submitted to parliament a draft law liberalizing the domestic prices of petroleum products (a prior
action under the program). The mixed committee in charge of monitoring domestic prices of
petroleum products will monitor price movements on a regular basis, with a view to ensuring that
the market remains competitive.
25. The government will continue the reform of the cotton sector, which aims
to durably increase the producers' income and their productivity. This reform will involve the
disengagement of the state from COTONTCHAD, the liberalization of the sector, and the
introduction of accompanying measures to ensure the active participation of producer
organizations in the implementation of the reform. The government will privatize
COTONTCHAD's oil and soap activities by September 2001 and will complete its studies of the
possible disengagement scenarios by February 2002, aiming to a complete a full implementation of
the sector's reform strategy by mid-2002. The government will also complete the privatization of
its road maintenance agency (SNER) and will sign contracts on the exploitation of its air routes by
the end of 2001.
26. The government will also press on with the reform of the civil service.
Under the reform, the adequacy of civil servants' skills vis-à-vis the requirements of their
position will be reinforced, systematic evaluation of civil servants' performance will be regularly
conducted, and competitive recruitment and merit-based advancement will be introduced. The
reform is to be completed by January 2003.
27. The government has launched an ambitious procurement reform, the main
provisions of which—adoption by the government of a new procurement code and its
implementation decrees—will be implemented by mid-2002. All the above reforms (indicated
in paras. 25–26) are being implemented with technical assistance and financing from the
World Bank and are covered by Bank conditionality; they do not form part of the structural
conditionality under the PRGF-supported program.
F. PRSP Process and HIPC Assistance
28. The preparation of a fully participatory poverty reduction strategy has been
proceeding according to the schedule laid out in the interim poverty reduction strategy paper
(PRSP). A national seminar will be held in N'Djaména in May 2001 to discuss the results
of the steps undertaken thus far (the poverty analysis, study on the perception of poverty,
preliminary sectoral analysis documents, and participatory consultations), and to define the main
priorities and objectives of the national poverty reduction strategy. The PRSP is expected to be
finalized by the fall of 2001. Work on the costing of the identified actions will also start after the
seminar, in order to ensure that they are reflected in the 2002 budget.
29. Data currently available on the poverty line in Chad are derived from a
partial survey. Sectoral administrative statistics are, however, reliable and regularly updated. A
household survey on income and expenditure will be launched in May 2001, with assistance from
the World Bank. The results of this survey will include the poverty line, as well as the main
poverty indicators (incidence, depth, and severity); data will start to become available around the
beginning of 2002 and will be continuously fed into the national poverty reduction strategy.
G. Use and Tracking of Resources Earmarked for
30. The government has prepared an additional budget, laying out the use of
expected HIPC Initiative interim assistance in 2001 (US$12.4 million, equivalent to CFAF 8.7
billion). Expenditures will be directed exclusively to priority social sectors, following official
budget procedures. Planned expenditures are as follows: (i) health (CFAF 1.5 billion); (ii)
education (CFAF 1.4 billion); (iii) governance (CFAF 1.3 billion); and (iv) other priority
sectors (CFAF 4.5 billion). In order to ensure an enhanced tracking of these expenditures, the
government has also taken three measures. First, it has opened a special account with the BEAC
where all HIPC Initiative-related resources are to be lodged. Second, the use of the resources will
be fully integrated into the budget, and budget lines associated with spending related to poverty
reduction will be flagged and monitored specifically. Furthermore, to highlight the
"additional" character of the use of HIPC Initiative resources, a column will be added
in the presentation of the finance law specifying the part of each "poverty-flagged"
budget line financed by these resources—for the 2001 budget, a similar approach has been
adopted for the use of the remainder of the bonus. Finally, an expenditure report, specifically
identifying expenditure financed by HIPC Initiative resources, will be prepared every six months
by a committee headed by the Minister of Finance. 5 These
reports will be made public and will be discussed during the periodic consultations updating the
poverty reduction strategy.
31. The government also reconfirms its commitment to use the remainder of
the oil bonus (CFAF 6.2 billion) exclusively on priority social sectors.6 In conformity with the Law on Petroleum Revenue Management,
these expenditures will be overseen by the CCSRP. These outlays are inscribed in the modified
2001 budget law, as follows: (i) health (CFAF 1.2 billion); (ii) education (CFAF
1.2 billion); (iii) governance (CFAF 1.1 billion); and (iv) other priority sectors
(CFAF 2.7 billion). These two resources—HIPC Initiative interim assistance and the
remainder of the bonus—constitute a virtual Poverty Fund, reflecting the
government's additional effort for poverty reduction.
H. Prior Actions
32. The following measures have been agreed to constitute prior actions for the
presentation of the new annual program under the PRGF arrangement:
- extension of the coverage of the treasury cashflow plan to 12 months;
- submission to parliament of a draft law to liberalize petroleum products prices; and
- submission of a modified budget law for 2001 to parliament.
I. Program Monitoring
33. Program implementation will continue to be monitored on a semiannual
basis, while performance criteria will be set on a quarterly basis, with associated quarterly
disbursements. The third review will take place before en-December 2001, and will focus on
budget execution and governance. Quantitative and structural performance criteria and structural
benchmarks are proposed for end-June 2001 and end-September 2001, while indicative targets
have been set for end-December 2001 and end-March 2002 (Table
1). The proposed quantitative performance criteria will comprise (i) a ceiling on the increase
in net credit from the banking system to the central government; (ii) a floor on the current primary
fiscal balance; (iii) a floor on total fiscal revenue (excluding grants); (iv) nonaccumulation
of central government external payments arrears; (v) a ceiling on new medium- and long term
nonconcessional external loans contracted or guaranteed by the government; (vi) a ceiling on net
change in external debt with a maturity of up to and less than one year. Indicative benchmarks are
proposed for (i) a floor on current expenditure on health; (ii) a floor on current expenditure on
education; and (iii) a ceiling on the total wage bill (including military). In addition, the reform
measures indicated in Table 2 of this appendix will serve as
performance criteria and structural benchmarks.
1If the spending of the oil bonus were to be excluded from
current primary expenditure, the target on the fiscal primary deficit would have been met.
2These account for about 1 percent of GDP.
3See paragraph 30.
4As mentioned, the use of the remainder of the bonus is
included in the 2001 budget law.
5In 2001, the report will also cover expenditure financed
with the remainder of the signing bonus.
6After the use of CFAF 1 billion on famine-related
expenditure (see para. 16).
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Technical Memorandum of Understanding
Relative to the Second Annual Program under the Arrangement
Supported by the Poverty Reduction and Growth Facility
This memorandum provides the definitions of the quantitative performance criteria and
benchmarks for the remainder of the three-year arrangement supported by the Fund under the
Poverty Reduction and Growth Facility (PRGF), which was approved by the Executive Board of
the IMF on January 7, 2000. These definitions may need to be revisited during program reviews,
so as to ensure that this memorandum continues to reflect best understanding between the
government of Chad and Fund staff. This memorandum also sets out the data-reporting
requirements for monitoring the program.
III. Quantitative Performance Criteria and
A. Government Finances
1. Total government revenue is defined as the sum of all tax and
nontax revenues, cumulative since the start of the calendar year, excluding proceeds from public
contract taxation, proceeds from sales of assets, and grants.
2. The primary current fiscal balance for program purposes is defined
as the difference between total revenue and current primary expenditures on a commitment basis,
excluding spending on elections and for food emergencies. Current primary expenditures equal
government expenditures less payments of interest on external and domestic debt and less capital
3. Under the program, a continuous performance criterion of no
accumulation of external arrears will apply. External arrears are defined as total obligations
of the government that have not been paid by the time they are due, excluding arrears on external
debt service pending the conclusion of debt-rescheduling agreements.
4. Reporting requirements. On a monthly basis, the following
indicators will be provided through, inter alia, the provision of treasury balance sheets,
with a delay not exceeding 45 days: (i) government revenue, total and main components;
and (ii) primary current expenditure, on a commitment basis and on a cash basis, total and
main components, with an explicit mention of expenditures of the Ministries of Health and
Education. Detailed data on repayment of domestic arrears and information on the remaining
stock of arrears carried over from previous years will also be transmitted on a monthly basis,
within 45 days of the end of each month. Monthly data on the public sector's scheduled
external debt service and actual payments on current maturities and on arrears, detailed by
creditor and compiled by the Debt Department of the Ministry of Finance, will be transmitted on a
quarterly basis within 45 days of the end of each quarter.
B. Net Credit of the Banking System to the Central
5. The ceiling on the cumulative change, from the beginning of the calendar
year, in net credit of the banking system to the central government, excluding net use of IMF
resources, constitutes a performance criterion. Net credit of the banking system to the
central government is defined as all government liabilities minus all assets held by the government
at the central bank, commercial banks, and other financial institutions, and excluding net use of
IMF resources. An exhaustive list of government accounts is provided in the attached table. The government will inform Fund staff within five days of any
opening of a new account.
6. The ceiling on the cumulative change, from the beginning of the calendar
year, on net credit of the banking system to the government will be adjusted upward by
75 percent of any shortfall in non-project-related external assistance cumulative since the
beginning of the calendar year (excluding IMF financing) relative to the programmed amounts.
Underlying the calculations is an average exchange rate of CFAF 698 per US$1 for
7. The ceiling on the cumulative change, from the beginning of the calendar
year, on net credit of the banking system to the government will be adjusted downward by any
shortfall in the actual net reduction of domestic payments arrears relative to the programmed
amount of CFAF 0 billion at end-June 2001, CFAF 6.7 billion at end-September
2001, and CFAF 7.0 billion at end-December 2001. The total annual amount of
arrears reduction is the sum of European Union funds earmarked to arrears reduction (CFAF
6,355 million, of which CFAF 2,600 million was received in 2000 and CFAF
3,755 million is expected in 2001) and the amount of "accounting
arrears"2 (arriérés comptables, i.e.,
expenditures that were actually committed but never paid) that are planned to be paid in the 2001
budget (CFAF 624 million). For 2001, the quarterly pattern of arrears reduction
takes into account the tight fiscal situation of the first semester. Arrears variations are calculated
as the total amount of committed expenditures (data provided by the Department of Budget of the
Ministry of Finance) minus the total amount of paid expenditures (data provided by the
Department of Treasury of the Ministry of Finance).
8. The ceiling on the cumulative change, from the beginning of the calendar
year, on net credit of the banking system to the central government will be adjusted upward by
75 percent of any shortfall in sales of assets proceeds relative to the programmed amount
(CFAF 3.0 billion).
9. Reporting requirements. The preliminary monthly balance sheet of
the BEAC-Tchad will be transmitted on a monthly basis, with a maximum delay of 45 days
following the end of each month. In addition, the preliminary table on net credit of the banking
system to the government (position nette du gouvernement, PNG), as calculated by the
BEAC-Tchad, will be submitted on a monthly basis within 30 days of the end of each
month. The government will ensure that the BEAC receives all necessary information in this
regard, including with respect to its operations with commercial banks.
C. New Nonconcessional External Debt
10. The performance criterion on new noncessional external debt with
maturities of more than one year contracted or guaranteed by the government applies not only to
debt as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign
Debt (Decision No 12274-(00/85) adopted August 24, 2000), but also to commitments
contracted or guaranteed for which value has not been received. Nonconcessional debt is defined
as debt with a grant element of less than 35 percent, calculated by using currency-specific
commercial interest reference rates. For loans with a maturity of at least 15 years, the 10-year
average commercial interest reference rate (CIRR), published by the Development Assistance
Committee of the Organization for Economic Cooperation and Development (OECD), should be
used to calculate the level of concessionality. For loans with shorter maturities, the six-month
average CIRR should be used. Debt rescheduling and debt reorganization are excluded from this
criterion, and so is the International Bank for Reconstruction and Development loan for the
Chad-Cameroon pipeline project. Nonconcessional new external debt with maturities of more than
one year will be zero throughout the program period.
11. Reporting requirements. The government of Chad will consult
with the Fund staff before assuming liabilities in circumstances where it is uncertain whether the
instrument in question falls under the performance criterion. Details of all new external debt,
including government guarantees, indicating terms of loans and creditors, will be provided on a
monthly basis within 30 days of the end of each month.
D. Short-Term External Debt
12. The performance criterion on net change in external debt with maturity of
up to and including one year contracted or guaranteed by the government applies to debt as
defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt
(Decision No 12274-(00/85) adopted August 24, 2000). Excluded is normal trade financing.
13. Reporting requirements. Data on all new short-term
borrowing and guarantees, including terms of loans and creditors, will be transmitted, with
detailed description, on a monthly basis, within four weeks of the end of each month.
E. Indicative Benchmarks
14. For program purposes, total wage spending by the government is
defined as the sum of the wage bill for regular employees and contractuals (including civil servants
and armed forces and embassy personnel), and of all personnel subsidies, pension-related
payments, representation allowances, and mission and transportation spending.
15. Total current expenditure in the health sector is defined as the sum
of wage, material, transfer, and subvention spending by the Ministry of Health, measured on a
16. Total current expenditure in the education sector is defined as the
sum of wage, material, transfer, and subvention spending by the Ministry of Education, measured
on a commitment basis.
17. Reporting requirements. Data on the wage bill will be provided
on a monthly basis, with a maximum delay of 45 days; data on current expenditure in health
and education sectors will be provided on a monthly basis, within 45 days of the end of
II. Other Data Requirements for Program Monitoring
18. Data on exports and imports, including volumes and prices,
compiled by the BEAC will be transmitted on a quarterly basis within 45 days of the end of
19. The monthly disaggregated consumer price index for
N'Djaména, compiled by the Statistics Department of the Ministry of Economic
Promotion, will be transmitted monthly within four weeks of the end of each month.
20. Documentation of all measures taken by the government will be
transmitted within five working days after the day of implementation.
1See Table 1 of the memorandum of economic and financial policies (MEFP).
2With the exception of arrears to the CNRT, which are
subject to a specific convention and treated as internal debt.
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