Public Information Notice: IMF Concludes Article IV Consultation with Chad
May 14, 1999
|Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.|
On March 29, 1999, the Executive Board concluded the Article IV consultation with Chad1.
In 1998, Chad made substantial progress in implementing its economic and financial reform program, which is supported by the third annual arrangement under an Enhanced Structural Adjustment Facility (ESAF). However, economic conditions were difficult because of an energy crisis triggered by chronic fuel shortages, and disruptions in transportation activity due to weather and a strike. Despite these difficulties, real GDP grew by about 7 percent in 1998, owing mainly to a good rainfall, which boosted foodstuff production to the record level of 2.1 million tons, an increase of 35 percent over 1997; however cotton seed output declined by some 16 percent. Activity rose by some 10 percent in the secondary sector, owing mainly to a strong 20 percent increase in manufacturing, and by only 3 percent in the services sector. Consumer prices increased by some 18 percent during the first nine months of the year, reflecting the combined effects of the drought of 1997 and the energy crisis; they then declined by 13 percent in the last quarter, as the new cereal crop arrived on the market, bringing inflation during the year to 3 percent.
Public finances continued to improve in 1998, but the prevailing economic conditions made achievement of fiscal targets difficult. The current budget balance recorded a surplus of 0.1 percent of GDP. Revenue reached 7.7 percent of GDP, increasing by 11 percent over 1997, owing mainly to more efficient customs operations. However, this was 1.3 percent of GDP less than envisaged in the budget, because of problems stemming in part from the energy crisis. Faced with revenue shortfalls, the authorities limited the increase in current expenditure to less than 3 percent over 1997, cut the nonpriority sectors’ budget by some 20 percent, and kept a tight control on the wage bill. By contrast, spending in the priority sectors of education and health was increased by 30 percent over 1997. With investment expenditure estimated at 8 percent of GDP, the overall deficit for 1998, on a commitment basis excluding grants, stood at 7.9 percent of GDP, compared with 10.2 percent in 1997. In 1998, the tight government cash flow situation was exacerbated by a substantial shortfall in disbursement of external budgetary aid—disbursements were about 30 percent of that envisaged in the budget. As a result, the netreduction in domestic arrears was only 0.4 percent of GDP, and net bank credit to the government was 0.3 percent of GDP higher than projected.
In 1998, the external current account deficit, excluding grants, declined to 17 percent of GDP, from 20 percent in 1997, owing to an improvement in the trade balance. The country’s terms of trade rose by about 2.5 percent. Export volumes rose by an estimated 13 percent, mainly reflecting buoyant cotton exports. The increase in import volumes was only 4 percent because of the petroleum-import and transportation problems. Net capital inflows amounted to about 12 percent of GDP and net foreign reserves are estimated to have declined by some US$10 million.
In 1998, progress was made in advancing structural reforms. In the energy sector, bids for the privatization of the electricity and water company were solicited, and the evaluation of the offers is underway. The new regulatory framework governing the telecommunications sector was put in place, and bids were solicited for granting a license to a private cellular phone company. In the sugar sector, the private investment bank entrusted with the privatization of the sugar company, SONASUT, has started its work and the solicitation of bids is scheduled for the second quarter of 1999. In the cotton sector, a consulting firm has been selected to study the separation of the oil and soap activities from the cotton company COTONCHAD, and a strategy to liberalize the sector will be prepared in the course of the first half of 1999 with technical assistance from the World Bank. In the banking sector, the privatization of Banque Tchadienne de Crédit et de Dépôts (BTCD), the nation’s largest commercial bank, is well advanced. Finally, the Farcha state-owned slaughterhouse was privatized, the Hotel du Chari put under private management, and Air Tchad will be liquidated.
At the end of 1998, the government adopted a report on the reform of the civil service, and has established a technical unit to develop concrete reform proposals regarding recruitment, pay, and promotion. Also, in view of the extremely precarious situation of Chad’s social security system, the government has decided to examine in depth the reorganization of the system.
The 1999 economic growth is projected to be just above 1 percent on the grounds that food production will return to normal levels, and that cotton ginning will decline because of the fall of seed cotton output in 1998. Inflation is expected to remain at about 3.5 percent. The budget for 1999 targets a current surplus of 1.4 percent of GDP, and an overall budget deficit, on a commitment basis and excluding grants, of 8 percent. In 1999, the external current account deficit is expected to widen by some 4 percent of GDP to 21 percent of GDP, mainly reflecting a substantial increase in imports volumes related to the investments in the oil-export project. At the same time exports are expected to decline by 7 percent in real terms, as a result of the reduced cotton exports.
Executive Board Assessment
Directors noted that despite disruptions in economic activity caused by chronic fuel shortages and difficult conditions in the transportation sector, economic growth had increased markedly in 1998, owing to a booming agricultural sector, while inflation had remained broadly undercontrol, and the external current account deficit had been reduced. At the same time, Directors observed that revenue collection had been low, and that Chad had not met several end-September performance criteria, but they were encouraged that the authorities had taken remedial measures in the fourth quarter of 1998 to bring the program back on track. Directors therefore emphasized the need to strengthen adjustment efforts further in order to increase savings and investment and establish the conditions for sustained economic growth and financial viability.
Directors welcomed the progress made on budgetary management, especially expenditure control, while noting that revenue shortfalls, resulting partly from factors outside the authorities’ control, had prevented the achievement of the overall fiscal objectives for 1998. While welcoming the authorities’ commitment to consolidate the fiscal stance further in 1999, they noted that the revenue targets were quite ambitious. In this light, Directors urged the authorities to monitor the execution of the budget closely, focusing on their quarterly primary balance targets, and preserving budgetary allocations to the priority sectors. They emphasized the need to continue strengthening revenue collection—particularly by widening the tax base—and to enhance budgetary control through the reform of treasury procedures.
While noting that various structural reforms had been delayed in the first part of 1998, Directors welcomed the progress made in the privatization program for smaller companies. They were also encouraged by recent actions to advance the reforms of the electricity and sugar sectors, and urged the authorities to expeditiously conclude these reforms. Directors underscored the importance of liberalizing the cotton sector in the coming years, noting that reform of this sector has been subject to many delays. They also stressed the need to adjust producer prices and to mobilize the broad consensus needed to achieve fundamental reforms in this sector.
Directors expressed concern about the energy crisis, which had had a serious impact on the overall economy in 1998, and urged the authorities to seek a market-based solution to this problem in order to ensure a regular supply of petroleum products, thus avoiding the need for burdensome regulation.
Directors underscored the need for sound and timely core economic data, calling for improvements in the country’s economic database, particularly in the areas of balance of payments, banking, and government financial accounts.
|Chad: Selected Economic Indicators, 1994-991|
|Consumer prices (annual average)||41.3||9.5||11.3||5.6||4.3||3.3|
|In percent of GDP|
|Gross fixed investment||11.8||11.6||11.9||14.4||14.7||19.9|
|Gross domestic savings||-2.1||-5.1||-2.7||-1.5||0.3||1.0|
|Gross national savings||5.1||-0.1||1.3||1.3||2.9||3.3|
|In millions of U.S. dollars1|
|Current account balance (excluding grants)||-247||-253||-299||-305||-286||-392|
|Capital and financial account balance||136||150||197||228||206||269|
|Contribution to the official external reserves of the BEAC (end of period)2||111||184||188||143||126||157|
|Current account balance (in percent of GDP)3||-21.0||-17.6||-18.4||-20.1||-17.1||-21.2|
|Debt service (in percent of exports of goods and nonfactor services)||13.0||9.6||11.3||13.4||13.2||12.5|
|External debt (in percent of GDP)||60.0||55.8||56.4||60.8||56.7||60.6|
|Real effective exchange rate (end of period; percent of change)4||-32.7||7.2||6.8||-1.6||7.9||...|
|In percent of GDP1|
|Overall fiscal deficit (commitment basis)||-14.2||-11.9||-11.1||-10.2||-7.9||-8.0|
|Change in broad money (in percent)||66.3||36.0||20.2||-9.3||-5.7||6.2|
|Sources: Chadian authorities; and IMF staff estimates and projections.
|1Unless otherwise specified.|
|2The BEAC is the common central bank for six central African states: Cameroon, Central African Republic, Chad, Congo, Gabon, and Equatorial Guinea.|
|4Minus sign indicates depreciation of the CFA franc.|
1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.