News Brief: IMF Completes Fourth Review of Performance Under Chad's PRGF Arrangement and Approves Requests for Extension of Commitment Period and Waiver of a Performance Criterion
October 21, 2002
The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Chad's performance under the Poverty Reduction and Growth Facility (PRGF) arrangement, and approved requests for extension of the commitment period and waiver for the nonobservance of one performance criterion. As a result, Chad will be able to draw up to SDR 5.4 million (about US$7 million).
Chad's three-year arrangement was approved on January 7, 2000 (see Press Release No. 00/1) for SDR 36.4 million (about US$48 million). This amount was augmented to SDR 47.6 million (about US$62 million). So far, Chad has drawn SDR 31.8 million (about US$42 million) under the arrangement (see News Brief No. 02/35).
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.
PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.
After the Executive Board discussion on Chad, Anne Krueger, First Deputy Managing Director and Acting Chair, said:
"Chad's economic performance has been good so far in 2002. Economic growth has been very strong, aided by the implementation of the oil pipeline project; inflation has declined as food production has normalized; and foreign reserves have risen despite low cotton prices. The large fiscal and current account deficits do not represent a risk as they reflect the acceleration of antipoverty spending and the construction of the pipeline. Moreover, these deficits are expected to narrow sharply in 2004 with the commencement of oil revenues.
"The fiscal stance will need to be significantly tightened in 2003 given the anticipated decline in external financing. Therefore, the program puts strong emphasis on domestic revenue mobilization. Total expenditure will need to decrease, but the program allows for an increase in expenditure in priority sectors for poverty reduction.
"Further efforts are needed to improve governance. To this end, there needs to be a consistent political commitment to implement the recommendations of the Supreme Court's audit of the contracts financed with the savings from the HIPC Initiative interim assistance, to accelerate the preparation and implementation of a new procurement code, to enhance transparency and accountability by systematically publishing all audits, and to implement the measures identified to improve budget preparation, monitoring, and control.
"With oil production expected to come on stream in early 2004, the challenge facing Chad is to put all necessary arrangements in place on time to ensure an efficient and transparent use of oil revenue for poverty reduction. It will be important that the authorities take action early in 2003 to define the modalities that will ensure the transparent use of oil revenue in accordance with the absorptive capacity of priority sectors. With a view to avoiding a real appreciation arising from large foreign exchange inflows, the government will review the role of fiscal policy over the medium term and develop sterilization instruments with the assistance of the BEAC.
"Progress in achieving the HIPC Initiative completion point has been satisfactory overall, despite delays in improving some health indicators and in finalizing the PRSP. Chad could reach the completion point in early 2004.
"In view of the overall performance under the program, and taking into consideration the renewed commitment of the authorities to strengthen further transparency in public resource management, Executive Directors granted a waiver for the nonobservance of one quantitative performance criterion; completed the fourth review under the PRGF arrangement; and approved the requested extension of the commitment period of the current arrangement to December 6, 2003," Ms. Krueger said.