Press Release: IMF Approves Second Annual ESAF Loan for Chad
October 16, 1996
The International Monetary Fund (IMF) today approved a second annual loan for Chad under the enhanced structural adjustment facility (ESAF) 1 equivalent to SDR 16.52 million (about US$24 million), in support of the government's 1996/97 macroeconomic and structural adjustment program. The loan will be made in two equal installments, the first of which is available shortly. The three-year ESAF credit, for the equivalent of SDR 49.56 million (about US$71 million) was approved on September 1, 1995 (see Press Release No. 95/44).
Since mid-1994, Chad has been resolutely committed to a program of structural reform aimed at correcting internal and external imbalances and accelerating the pace of economic growth. The government has shown determination in carrying out these policies--especially the 1995/96 economic program supported by the ESAF--despite a climate of political uncertainty created by holding, in the first half of 1996, the first multiparty elections since independence. The authorities' efforts have been rewarded by a rebound in economic activity. Among the other achievements during the first year of the ESAF-supported program was a satisfactory fiscal performance and, on the structural side, progress in privatization.
Medium-Term Objectives and the 1996/97 Program
Chad's macroeconomic objectives for the period 1996-99 include achieving average real GDP growth of more than 5.5 percent a year; lowering the rate of inflation from the average of 10 percent projected for 1996 to less than 3.5 percent by 1999; and reducing the external current account deficit (excluding official transfers) from the 17 percent of GDP projected for 1996 to just less than 13 percent in 1999.
Consistent with the medium-term strategy, the 1996/97 economic program aims at economic growth of 6 percent in 1996 and 5 percent in 1997, with inflation declining from an average of 10 percent in 1996 to 4 percent in 1997. The external current account deficit, after widening to 17 percent of GDP in 1996, is expected to narrow to 15.7 percent in 1997.
To these ends, the 1996/97 program calls for continued consolidation of the government's finances, with the aim of reducing the overall fiscal deficit to 12.1 percent of GDP in 1997 from 14 percent in 1996. On the revenue side, efforts will focus on the reorganization of the tax directorate and on further improvements in customs efficiency, while on the expenditure side, overall spending, including the wage bill, will be strictly limited.
Chad's monetary policy will continue to be formulated at the regional level in close consultation with its partners in the regional Central Bank of Central African States. Among other things, the central bank will keep a prudent credit stance to prevent the resurgence of excess demand pressures, while consolidating the foreign exchange reserves at a regional level.
Structural policies under the program will be driven by the desire to promote the recovery and development of the private sector. Building on the experience gained from the 1995/96 privatization program, the government is now in a position to undertake the reform of Chad's largest state-owned enterprises. Studies on the modalities of privatization, including action plans, will be finalized for the cotton company COTONCHAD, the sugar company SONASUT, and the electricity and water company STEE. The post and telecommunications companies ONPT and TIT will be restructured in anticipation of the privatization of telecommunications activities.
Chad is among the poorest countries in terms of basic social indicators. In undertaking economic and structural reform, the government recognizes that the most powerful instrument for poverty alleviation is economic growth that increases employment and raises income levels. Where the reform program involves significant hardship, measures will be taken to soften the impact on the most vulnerable groups in society.
The Challenge Ahead
Chad's demonstrated determination to continue to strengthen economic and financial management and to undertake critical structural reform is the key to success of the program. Adequate assurances exist that the necessary exceptional external financing (other than that of the IMF and World Bank) will be available for 1996/97 to meet financing gaps.
Chad joined the IMF on July 10, 1963. Its quota 2 is SDR 41.3 million (about US$59 million), and its outstanding use of IMF credit currently totals SDR 39 million (about US$56 million).
Sources: Chadian authorities; and IMF staff estimates and projections.
1 The ESAF is a concessional IMF facility for assisting eligible low-income developing members that are undertaking economic reforms to strengthen their balance of payments and foster growth. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years, with a 5-year grace period.
2 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.