Press Release: IMF Approves US$7 Million Augmentation of PRGF Arrangement for Chad and US$6.8 Million Disbursement
January 16, 2002
The Executive Board of the International Monetary Fund (IMF) today completed the third review of Chad's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF)1 arrangement and approved an augmentation of the arrangement by SDR 5.6 million (about US$6.8 million) to address the consequences of the decline in global prices for cotton, Chad's main export commodity. Today's decision will enable Chad to draw up to SDR 5.4 million (about US$6.8 million) immediately from the IMF.
Chad's program was approved on January 7, 2000 (see Press Release No. 00/1) for SDR 36.4 million (about US$46 million). On May 16, 2001, this amount was augmented by SDR 5.6 million (about US$7 million) to address emergency food import needs. So far, Chad has drawn SDR 23.8 million (about US$30 million) under the arrangement (see Press Release No. 01/24).
After the Executive Board's discussion on Chad, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:
"The Fund commends the authorities on their broadly satisfactory performance under the PRGF arrangement in 2001, notwithstanding adverse external developments. Fiscal policy remained prudent, although the continued weakness in fiscal revenue performance is an area of concern. Governance and transparency improved, and good progress was made in structural reforms, notably in expenditure management and the reforms of the civil service, the procurement system, and the cotton sector. Social indicators also improved in health, education and basic infrastructure.
"The prospects for 2002 and beyond are very good. Economic growth is expected to remain strong, spearheaded by investment in the oil sector. For this prospect to materialize, however, the authorities will need to take steps to avoid the pitfalls of a dual economy, in which the oil sector would be segregated from the rest of the economy.
"A sharp decline in the price of cotton, Chad's main export product, will dampen Chad's short-term outlook. Even after a significant fiscal adjustment, an important financial gap would remain uncovered, for which the authorities have sought financial support from the international community, including from the Fund in the form of an augmentation in the PRGF arrangement by SDR 5.6 million. This will allow the reform of the cotton sector to continue as planned, notwithstanding unfavorable external developments.
"The 2002 budget is appropriately tailored toward poverty reduction while maintaining a prudent fiscal stance. This will help the authorities move toward meeting the quantitative completion point conditions under the enhanced HIPC Initiative. However, financing the much-needed poverty reducing measures will depend in large part on increased revenue collection. In this regard, the full implementation of the revenue measures included in the 2002 budget and of the recommendations of the international audit of the customs administration will be key.
"In addition to enhancing revenue collection, the program will focus on a further strengthening of public expenditure management by the computerization of the simplified expenditure circuit and the gradual introduction of a medium-term expenditure framework. In the area of governance, the program focuses on the completion of the audits of the five largest procurement contracts and the adoption of a national governance strategy. It will also be important to follow up on the findings of the recent audit of the use of the oil bonus.
"The preparation of the PRSP is close to completion, and Chad has employed a broad-based participatory process," Mr. Sugisaki said.
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be 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 each PRGF-supported program is consistent with a comprehensive framework of macroeconomic, structural, and social policies to foster growth and reduce poverty. The preparation of the full PRSP is well under way and is expected to be finalized in the spring of 2002. 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.