## 1tcdea2019002 — 1. Chad’s Fragility ## Source details **Canonical URL:** [1tcdea2019002 — 1. Chad’s Fragility](https://www.imf.org/-/media/files/publications/cr/2019/1tcdea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1tcdea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1tcdea2019002.pdf.json) --- ### Background and fragility drivers - Under the ECF arrangement (approved in June 2017 for 160 percent of quota or SDR 224.32 million) and with donor financial support, the fiscal deterioration was stemmed, the economy bottomed out in 2017, and signs of stabilization emerged. - Poverty and social indicators: - GDP per capita: $812 in 2017. - Poverty rate: 45 percent. - Human Development Index rank: 186 out of 189 countries. - Security and humanitarian pressures: - Deadly terrorist activities persist, particularly in the Lake Chad region; last attack in N’djamena in 2015; ongoing Boko Haram attacks in Lake Chad area. - Since August 2018, armed-group attacks near Libya border required substantial military resources. - Chad hosts the largest number of refugees per capita in Africa. - Governance and capacity constraints: - Weak state capacity, protracted PFM issues, high turnover among mid and high-level officials. - Political developments: - New constitution (May 2018) moved Chad to a full presidential system. - Parliamentary elections postponed several times since 2016; expected later this year or in early 2020. ### Recent economic developments (highlights) - Oil and output: - Oil production rebounded in 2018 broadly in line with projections. - Non-oil GDP growth estimated at 0.5 percent (0.5 percent lower than projected). - Inflation and food prices: - Inflation: 4 percent in 2018 (picked up mainly due to higher water utility rates in May 2018 and higher services prices). - Food inflation: declined from 4.5 percent y-o-y in December to 2.7 percent in March 2019. - Fiscal performance (2018): - Non-oil revenue declined by CFA 18 billion in 2018 due to weak H2 performance. - Oil revenue increased from CFAF 200 billion in 2017 to CFAF 335 billion in 2018. - Government deposits at the BEAC increased by CFAF 130 billion (about 2.6 percent of non-oil GDP). - External arrears and debt: - Remaining reschedulable Libyan debt: $272 million (agreement-in-principle signed May 2018); about $63 million of arrears outstanding (notably ≈ $55 million to the Republic of Congo). - External position: - Current account deficit: 3.4 percent of GDP in 2018 (down from 6.6 percent in 2017). - NFA position at BEAC: around CFAF -138 billion at end-2018 (from about CFAF -257 billion at end-2017). - Banking sector: - Deposits stabilized y-o-y by December 2018 after sharp decline in 2017. - Credit increased by 0.6 percent; overdue loans reached 31.4 percent (28 percent in 2017). - BEAC refinancing: CFAF 199 billion in December 2017 → CFAF 160 billion in December 2018; all advances at penalty rate were paid. ### Program performance and reforms - Performance criteria and targets: - All performance criteria (PC) at end-December 2018 were met. - Ceilings on non-oil primary balance (NOPB) were met; continuous zero ceilings on new external arrears and nonconcessional borrowing met. - Missed indicative targets and corrective actions: - End-December ITs on social spending and DAO regularization missed (social spending shortfall partly due to wage bill reductions impacting education and health). - End-March: adjusted IT on floor of domestic arrears missed by about CFAF 7 billion; adjusted IT on social spending and DAO regularization missed. - Authorities’ corrective measures: social spending increased to over CFAF 86 billion in early June; plan to pay CFAF 30 billion in domestic arrears; high-level committee to monitor social spending operational and to meet monthly. - Structural benchmarks (up to end‑March 2019): - Out of six SBs: two met on time (oil sector note publication; VAT action plan adoption), one implemented with slight delay (decree to limit DAO adopted January 2019), one partially implemented (removal of tax exemptions based on audit of 47 conventions), two pending (reports on review/reorg plans for two public banks; domestic arrears clearance strategy). ### Outlook, projections, and key statistics (selected) - Growth and oil: - Oil production expected to continue to increase in 2019 and jump higher in 2020 as new technologies and fields come online. - Projected growth: 2 percent in 2019 reflecting increased government spending (public investment and domestic arrears payment). - Cotton sector contribution expected to rise starting 2020 after 2018 privatization. - External and fiscal outlook: - Current account projected to widen to 6.5 percent of GDP in 2019 with modest improvement in 2020–21; driving factors include lower oil price assumption and sustained oil production-related imports. - Large FDI inflows and recovery of capital grants expected to underwrite most of current account decline in 2019; NFA likely to improve to CFA -94 billion. - Macroeconomic projections (Real GDP growth and components; series presented as provided for 2017–2022 and beyond): - Real GDP growth (percent): -2.4, 3.5, 2.4, 4.6, 2.4, 6.1, 5.5, 4.9, 4.8, 5.4, 5.4. - Oil: -11.2, 15.2, 12.7, 12.7, 4.0, 16.8, 16.7, 8.2, 8.2, 10.6, 10.6. - Non-oil: -0.5, 1.5, 0.5, 3.0, 2.0, 3.8, 3.0, 4.0, 4.0, 4.0, 4.0. - Current account balance (including official transfers, percent of GDP): -6.6, -4.2, -3.4, -5.5, -6.5, -4.9, -5.9, -4.9, -6.2, -4.9, -4.9. - Government revenue and grants (percent of GDP): 17.1, 19.4, 18.3, 18.9, 18.9, 20.0, 20.9, 19.7, 21.5, 19.8, 22.2. - Oil revenue¹ (percent of GDP): 4.1, 6.3, 6.7, 6.8, 6.9, 7.5, 8.1, 7.2, 8.8, 7.1, 9.4. - Non-oil revenue (percent of GDP): 8.7, 8.3, 8.1, 8.8, 8.8, 9.2, 9.4, 9.6, 9.8, 9.9, 10.0. - Total expenditure (commitments basis, percent of GDP): 18.0, 18.3, 16.5, 18.7, 18.9, 18.4, 18.6, 18.0, 19.0, 17.4, 18.7. - Overall fiscal balance (commitment basis, percent of GDP): -0.9, 1.1, 1.9, 0.2, 0.0, 1.6, 2.3, 1.7, 2.5, 2.4, 3.5. - Memorandum — Chadian crude oil price (US$/barrel): 49.4, 66.2, 65.1, 67.3, 58.8, 63.4, 58.5, 60.8, 56.8, 59.0, 56.4. ¹ Oil revenue net of cash calls and transportation costs, before Glencore debt service ### Selected fiscal figures (Tables highlights, preserved as provided) - Total revenue and grants (CFAF billions, 2017–23 shown in table): 826, 944, 910, 1,000, 985, 1,130, 1,151, 1,186, 1,268, 1,275, 1,402, 1,559. - Revenue (CFAF billions): 620, 735, 737, 827, 819, 941, 968, 1,016, 1,096, 1,096, 1,222, 1,363. - Oil revenue (CFAF billions): 1, 200, 320, 335, 359, 362, 420, 449, 434, 517, 455, 591, 661. - Non-oil revenue (CFAF billions): 420, 414, 403, 468, 457, 521, 519, 582, 579, 641, 632, 702. - Expenditure (CFAF billions): 871, 887, 818, 989, 984, 1,038, 1,025, 1,086, 1,121, 1,123, 1,178, 1,249. - Investment (CFAF billions): 212, 274, 223, 323, 323, 344, 344, 380, 397, 405, 428, 475. - Non-oil GDP (CFAF billions, memorandum): 4,830; 4,995; 4,970; 5,290; 5,212; 5,637; 5,515; 6,035; 5,900; 6,449; 6,299; 6,732. - Poverty-reducing social spending (percent of non-oil GDP, memorandum): 2.0, 2.1, 4.2, 2.1, 4.1, 8? (table entries as provided). ### External sector highlights (selected) - Current account, excl. budget grants (CFAF billions): -442, -408, -327, -398, -470, -312, -416, -410, -482, -470, -514, -514. - Exports, f.o.b. (CFAF billions): 1,436, 1,855, 1,931, 2,072, 1,943, 2,301, 2,250, 2,401, 2,371, 2,593, 2,605, 2,745. - Of which oil (CFAF billions): 1,048, 1,446, 1,523, 1,649, 1,523, 1,841, 1,790, 1,919, 1,887, 2,072, 2,083, 2,183. - Financial and capital account (CFAF billions): 231, 312, 297, 390, 470, 388, 488, 489, 573, 486, 550, 599. - Change in official reserves (decrease +) (CFAF billions): -81, -171, -204, -135, -167, -120, -119, -104, -117, -42, -63, -113. ### IMF financing and capacity to repay (selected) - ECF disbursement schedule (percent of quota / Million SDR): 25.0 / 35.05 (Date of Board Approval); 25.0 / 35.05 (August 15, 2017); 25.0 / 35.05 (April 15, 2018); 25.0 / 35.05 (October 15, 2018); 20.0 / 28.04 (April 15, 2019); 20.0 / 28.04 (October 15, 2019); 20.0 / 28.04 (April 15, 2020). Total: 160.0 / 224.32. - Outstanding IMF credit based on existing and prospective drawings (SDR millions, selected): 286.1, 312.2, 304.1, 287.0, 257.4, 209.7, 152.6, 98.8, 54.0, 19.6, 2.8, 0.0. - IMF repayment capacity metrics: - Outstanding obligations to the IMF would peak at 3.6 percent of GDP and 10.8 percent of exports of goods and services in 2019. - Annual repayments will peak at 0.5 percent of GDP and 5.7 percent of tax revenue in 2025. ### Risks to the outlook (selected) - Domestic risks: - Worsening security situation; loss of fiscal discipline (overshooting wage bill); deterioration in banks; slowdown in reform momentum reducing non-oil growth and revenues. - External risks: - Surprise on oil prices (risks skewed to the upside with current oil prices above budgeted price); larger than projected donor support; profit tax revenues from largest oil operator could exceed projections; rise in oil revenue may precipitate slowdown in reforms and increase vulnerability to oil revenue fluctuations. - Program financing risk: - Most budget support planned for 2019 expected to be disbursed in Q4; delays could lower spending, increase net domestic financing, and reduce NFA. ### Banking sector — vulnerabilities, stress tests, and priorities - Structure and exposure: - Nine commercial banks; total assets about 20 percent of GDP (23 percent of non-oil GDP reported elsewhere). - Two public banks (CBT and BCC) represent around 45 percent of total assets, hold around 40 percent of total Government T-bills and T-bonds, and received around 92 percent of total BEAC refinancing to Chadian banks at end-2018. - Credit to private sector: 11.5 percent of GDP in 2018. - NPLs / overdue loans: 31.4 percent at end-2018. - Stress test results: - Moderate stress: sovereign and government-guaranteed debt haircuts most significant; system-wide capital requirement met but public banks disproportionately affected. - Severe stress: combination of sovereign debt haircut, guaranteed debt haircut, and rise in BEAC policy rate leads to aggregate capital becoming negative — banking sector not resilient under severe stress. - Policy priorities for banking stability: - Highest priority: address high level of NPLs. - Required actions: increase provisioning in banks with high NPLs; facilitate extra-judicial resolution of overdue loans; improve bank liquidity; implement reorganization and funding plans for CBT and BCC based on audits. - Timelines: preliminary reports shared with IMF staff (prior action); reorganization and funding plans expected to be adopted by decision-making bodies of the two banks before end-September 2019 (new SB). ### Policy framework — three overarching themes - Objective: move from crisis-management toward proactive policy to build fiscal and financial resilience and a stronger inclusive recovery. - Three main themes: - (i) building fiscal resilience to deal with short and medium-term vulnerabilities while raising social spending; - (ii) fostering sustainable and inclusive growth; - (iii) strengthening banking sector stability and its contribution to growth. ### Policy Theme I — Building fiscal resilience (selected measures) - Short-term priorities for 2019: - Improve non-oil revenue mobilization, maintain spending prudence, and reduce government domestic debt to contain pressure on banks. - Revenue measures already in 2019 budget: reform granting of tax exemptions (centralize at ministry of finance; prohibit tax exemptions on VAT); strengthen tax administration for personal and corporate income; revise ceiling for VAT “régime réel”. - Temporary exemption in May 2019 of a few imported basic food items from customs and tax duties to alleviate poor (not expected to have major revenue impact). - Budget envelope for social spending increased to 34 percent of primary spending in 2019. - Payment of recognized arrears set at CFAF 60 billion (CFAF 10 billion increase relative to third review). - Domestic financing policies: - Limit rollover of maturing securities to at most 85 percent under baseline; use additional budgetary resources to reduce government domestic debt. - Treasury to encourage longer maturity and lower interest rate debt instruments; recent shift to short-term maturities (T-bills) increased refinancing risks. ### Medium-term fiscal priorities and revenue mobilization - Target non-oil tax revenue to about 8.7 percent of non-oil GDP by 2020 under the program. - Focus: widen tax base, reform VAT collection system, improve customs compliance. - VAT-specific actions: - VAT revenue currently about 1 percent of non-oil GDP. - Time-bound plan (December 2018) to set up VAT refund mechanism and reduce VAT exemptions. - Plan to create VAT taxpayer list and apply 15 percent customs penalty to unregistered companies (new SB). - Control of tax exemptions: - Avoid renewing expiring exemptions or extending existing ones, particularly in oil production and refining. - Implement audit recommendations on 47 conventions; commit to periodically publish newly extended and renewed exemptions. ### Reducing reliance on oil revenue and smoothing volatility - Consider introducing a price-smoothing mechanism to reduce procyclicality of fiscal policy. - Example cited: a (5,1,2) smoothing mechanism. - Asymmetric implementation recommended (only when current price projection > smoothed price) until buffers sufficient. - Staff simulations suggest sufficient buffers could be accumulated by 2025 (Annex III). ### Policy Theme II — Fostering sustainable and inclusive growth - Constraints to growth and diversification: - Crisis legacies: large government domestic debt, domestic arrears, fragile banking sector. - Structural constraints: infrastructure gaps (notably electricity), inefficient spending, low human capital, poor business climate, weak governance, inadequate access to financial services. - Exogenous factors: insecurity, geography, climate. - Key actions: - Develop and implement clear, transparent domestic arrears clearance strategy (complete audits; prioritize payments; financing modalities: cash, securitization, discounts). - Reduce reliance on public banks financing of the budget; lower bank-sovereign nexus (85 percent rollover target for 2019). - Improve business climate (streamline SME creation, access to financing, electricity sector reform). - Close infrastructure gap: channel larger and more efficient capital spending to productive investments; seek concessional financing. - Governance improvements: strengthen PFM, anti-corruption framework, transparency in oil sector (publish revenues paid locally, transfers to communities, ensure oil-related expenditures reflected in government budget). - Promote financial inclusion: only 9 percent have a bank account; strengthen microfinance and mobile banking regulation; promote financial awareness. ### Policy Theme III — Strengthening banking sector stability - Immediate priorities: - Clear domestic arrears and pay down government domestic debt to improve bank liquidity and reduce NPLs. - Adopt reorganization and funding plans for CBT and BCC based on audits; improve governance in public banks. - Increase provisioning for banks with high NPLs; facilitate extra-judicial resolution mechanisms. - BEAC and COBAC to modernize monetary policy framework and activate inter-bank money market to ease liquidity and reduce government dependence on domestic bank refinancing. ### Monitoring, conditionality, and structural benchmarks (selected) - Program fully financed with firm assurances for next 12 months; most budget support planned for 2019 expected in Q4. - Understandings on modified PCs for end-June 2019 and new PCs/ITs/SBs through June 2020. - New SBs include: create and publish VAT taxpayer list; finalize second part of domestic arrears audit; adopt reorganization plans for two public banks; remove exemptions not in line with legal texts. - Prior actions: deliver reports of external consultants on review/reorg of two public banks; finalize and share interim audit of domestic arrears; start second audit. ### Staff appraisal and key recommendations (summary) - Context: - Chad is low-income with multi-dimensional fragility (insecurity, weak governance, tense social situation) that materially affects policy and recovery. - Important progress in restoring macro stability since 2014–15 shock, but non-oil recovery slower than projected due to crisis legacies and structural obstacles. - Program status: - Program broadly on track; all end-December 2018 PCs met. Some end‑March 2019 ITs (domestic arrears, poverty social spending) missed; corrective measures taken. - Major policy recommendations: - Improve non-oil revenue mobilization; more firmly reduce and better manage exemptions; implement VAT reforms per action plan; continue tax and customs administration reforms. - Clear domestic arrears (finalize audits; adopt transparent clearance strategy); refrain from repaying unverified arrears. - Reduce reliance on public banks’ financing of the budget; repay government domestic debt when possible to loosen bank-sovereign nexus. - Increase and protect social spending; ensure allocated resources are executed efficiently. - Implement asymmetric price-smoothing mechanism and strengthen cash flow projections, debt management, and DAO regularization. - Strengthen governance across sectors, improve PFM, and reinforce anti-corruption frameworks. - Complete reorganization of public banks and sustain steps agreed under program; long-term TA and resident experts recommended given high administrative turnover. - IMF Board recommendations: - Staff recommends completion of the fourth review under the ECF arrangement; support for modification of net domestic government financing PCs; completion of financing assurances review; conditionality for fifth review on implementation of critical regional policy assurances on NFA accumulation. *Source: International Monetary Fund — 1. Chad’s Fragility (IMF staff report excerpts from 1tcdea2019002).* ### 1. Chad’s Fragility __________________________________________________________________________________6 ### 1. Chad’s Fragility ### Background - Under the ECF arrangement (approved in June 2017 for 160 percent of quota or SDR 224.32 million) and with donor financial support, the deterioration in the fiscal position was stemmed, the economy bottomed out in 2017, and signs of stabilization emerged. - Chad is one of the poorest countries in the world with: - GDP per capita that collapsed to $812 in 2017; - poverty rate of 45 percent; - Human Development Index positioning Chad at 186 out of 189 countries. - Security and humanitarian concerns: - Deadly terrorist activities are still prevalent particularly in the Lake Chad region; last attack in N’djamena occurred in 2015 but Boko Haram has launched several attacks in the Lake Chad area since then. - Since August 2018, attacks by armed groups near the Libya border required substantial military resources. - Chad hosts the largest number of refugees per capita in Africa, intensifying the humanitarian crisis. - Governance and capacity constraints: - Weak state capacity and governance; protracted PFM issues and high turnover among mid and high-level officials complicate reform implementation and absorption capacity. - Political developments: - Adoption of a new constitution in May 2018 moved Chad to a full presidential system. - Parliamentary elections postponed several times since 2016; expected later this year or in early 2020. ### Recent Economic Developments - Oil and output: - Oil production rebounded in 2018 broadly in line with projections. - Non-oil GDP growth is estimated at 0.5 percent, 0.5 percent lower than projected. - Inflation and food prices: - Inflation picked up in 2018 to 4 percent, mainly due to higher water utility rates in May 2018 and higher prices in the services sectors. - Food inflation declined from 4.5 percent y-o-y in December to 2.7 percent in March 2019. - Fiscal performance (2018): - Non-oil revenue declined by CFA 18 billion in 2018 due to weak performance in H2. - Oil revenue increased from CFAF 200 billion in 2017 to CFAF 335 billion in 2018. - Domestic arrears repayment was lower than projected as clearance stalled in Q4; most budget support was disbursed at the very end of December. - Government deposits at the BEAC increased by CFAF 130 billion or about 2.6 percent of non-oil GDP. - External arrears and debt: - Repayment of the Libyan loan was in line with the agreement-in-principle signed in May 2018, which paves the way to rescheduling the remaining debt of $272 million. - About $63 million of arrears remain outstanding, particularly to the Republic of Congo (about $55 million). - External position: - Current account deficit declined to 3.4 percent of GDP in 2018 compared to 6.6 percent in 2017, reflecting higher oil exports. - NFA position at the regional central bank improved to around CFAF -138 billion at end-2018 (from about CFAF -257 billion at end-2017). - Banking sector: - By December 2018 deposits had stabilized y-o-y following a sharp decline in 2017. - Credit slightly increased by 0.6 percent, but overdue loans reached 31.4 percent (against 28 percent in 2017). - BEAC refinancing declined from CFAF 199 billion in December 2017 to CFAF 160 billion in December 2018; all advances at penalty rate were paid. ### Program Performance and Reforms - Program compliance: - All performance criteria (PC) at end-December 2018 were met. - Ceilings on non-oil primary balance (NOPB) were met largely due to spending discipline, particularly on the wage bill. - Continuous zero ceilings on new external arrears and nonconcessional borrowing were met. - Missed targets and corrective actions: - End-December indicative targets (ITs) on social spending and regularization of emergency spending procedures (DAO) were missed. - Social spending shortfall due to wage bill reductions disproportionately impacting education and health and weak procurement practices. - DAO regularization missed because of the large volume of DAO relative to ministry capacity. - End-March ITs: NOPB, customs revenue floor, and BEAC and non-BEAC financing ceilings were met; adjusted IT on floor of domestic arrears was missed by about CFAF 7 billion; adjusted IT on social spending and IT on DAO regularization were missed. - Authorities have taken corrective measures: social spending increased to over CFAF 86 billion in early June; plan to pay CFAF 30 billion in domestic arrears; a high-level committee to monitor social spending has been operationalized and will meet once a month. - Structural benchmarks (up to end-March 2019): - Out of six SBs: - Two were met on time: publication of the oil sector note and adoption of the VAT action plan. - One was implemented with slight delay: decree to limit the use of DAO (adopted January 2019). - One was partially implemented: removal of tax exemptions based on audit of 47 conventions. - Two pending: reports on review and reorganization plans for the two public banks, and preparation and adoption of the domestic arrears clearance strategy (progress underway on the first; arrears strategy awaiting conclusion of audit of unverified arrears). ### Outlook and Risks - Growth and oil: - Oil production is expected to continue to increase in 2019 before jumping to higher levels in 2020 as new extraction technologies are implemented and new fields start to produce. - Projected 2 percent growth in 2019 reflects an increase in government spending especially public investment and domestic arrears payment. - Cotton sector’s contribution to growth is expected to increase starting in 2020 following the 2018 privatization of the cotton public enterprise. - Fiscal and external projections: - Primary spending has been revised up slightly from 2021 onwards to reflect higher oil revenue projections and the need to raise spending for public services. - Current account is projected to widen to 6.5 percent of GDP in 2019 with a modest improvement in 2020-21, driven by a lower oil price assumption and sustained oil production-related imports. - Large FDI inflows and a recovery of capital grants are expected to underwrite most of the current account decline in 2019, likely allowing net foreign assets (NFA) to improve to CFA -94 billion. *Source: International Monetary Fund — 1. Chad’s Fragility* ### 20. The external position is expected to improve gradually over the medium term. Oil ### 1tcdea2019002 - 20. The external position is expected to improve gradually over the medium term. Oil ### External position and outlook - Oil production is expected to rise through 2025, supplemented by an expansion in cotton exports. - Imports are expected to rise moderately, reflecting higher domestic demand and planned increases in oil capital expenditures. - FDI is expected to increase and external debt amortization to fall. - With a lower current account deficit and strong financing, Chad’s NFA position at the BEAC is estimated to turn positive around 2020. ### Risks to the outlook - Main domestic risks: - Worsening of the security situation. - Loss of fiscal discipline including overshooting of the wage bill. - Further deterioration in the position of banks. - A slowdown in the reform momentum could lead to slower non-oil GDP growth and lower non-oil revenue. - External risks: - A surprise on oil prices (risks skewed to the upside with current oil prices above the budgeted price). - Larger than projected donor support could materialize (particularly from the World Bank), strengthening the NFA position. - Profit tax revenues from the largest oil operator could be larger than projected as the company starts to record more profits. - A rise in oil revenue may precipitate a slowdown in reform momentum and increase vulnerability to oil revenue fluctuations. ### Macroeconomic projections and key statistics (2017–2022) - Real GDP growth (percent): -2.4, 3.5, 2.4, 4.6, 2.4, 6.1, 5.5, 4.9, 4.8, 5.4, 5.4 - Oil: -11.2, 15.2, 12.7, 12.7, 4.0, 16.8, 16.7, 8.2, 8.2, 10.6, 10.6 - Non-oil: -0.5, 1.5, 0.5, 3.0, 2.0, 3.8, 3.0, 4.0, 4.0, 4.0, 4.0 - Current account balance, including official transfers (percent of GDP): -6.6, -4.2, -3.4, -5.5, -6.5, -4.9, -5.9, -4.9, -6.2, -4.9, -4.9 - Government revenue and grants (percent of GDP): 17.1, 19.4, 18.3, 18.9, 18.9, 20.0, 20.9, 19.7, 21.5, 19.8, 22.2 - Oil revenue¹ (percent of GDP): 4.1, 6.3, 6.7, 6.8, 6.9, 7.5, 8.1, 7.2, 8.8, 7.1, 9.4 - Non-oil revenue (percent of GDP): 8.7, 8.3, 8.1, 8.8, 8.8, 9.2, 9.4, 9.6, 9.8, 9.9, 10.0 - Grants (percent of GDP): 4.3, 4.8, 3.5, 3.3, 3.2, 3.4, 3.3, 2.8, 2.9, 2.8, 2.8 - Total expenditure (commitments basis, percent of GDP): 18.0, 18.3, 16.5, 18.7, 18.9, 18.4, 18.6, 18.0, 19.0, 17.4, 18.7 - Current expenditure (except interests, percent of GDP): 11.7, 10.5, 10.6, 11.1, 11.3, 10.7, 11.0, 10.4, 11.1, 10.0, 10.8 - Investment (percent of GDP): 4.4, 5.5, 4.5, 6.1, 6.2, 6.1, 6.2, 6.3, 6.7, 6.3, 6.8 - of which: Domestically financed investment (percent of GDP): 0.7, 1.7, 1.7, 2.2, 2.3, 2.2, 2.2, 2.2, 2.6, 2.2, 2.7 - Overall fiscal balance (commitment basis, percent of GDP): -0.9, 1.1, 1.9, 0.2, 0.0, 1.6, 2.3, 1.7, 2.5, 2.4, 3.5 - Non-oil primary balance (commitment basis, excl. grants, percent of non-oil GDP): -3.8, -3.8, -4.2, -4.5, -4.8, -3.7, -3.8, -3.0, -3.8, -2.3, -3.5 - Memorandum item — Chadian crude oil price (US$/barrel): 49.4, 66.2, 65.1, 67.3, 58.8, 63.4, 58.5, 60.8, 56.8, 59.0, 56.4 ¹ Oil revenue net of cash calls and transportation costs, before Glencore debt service ### Policy discussions — overarching themes - Objective: move from crisis-management toward proactive policy to build fiscal and financial resilience and a stronger inclusive recovery. - Three main themes: - (i) building fiscal resilience to deal with short and medium-term vulnerabilities while raising social spending; - (ii) fostering sustainable and inclusive growth; - (iii) strengthening banking sector stability and its contribution to growth. ### Policy Theme I — Building fiscal resilience - Short-term priorities for 2019: - Improve non-oil revenue mobilization, maintain spending prudence, and reduce government domestic debt to contain pressure on banks. - Revenue measures already taken in the 2019 budget include: - Reforming the granting of tax exemptions to prevent automatic renewal and centralizing exemptions at the ministry of finance; assess impact on revenue; prohibit tax exemptions on VAT. - Strengthening tax administration notably for personal income tax and corporate income. - Revising the ceiling for the application of the VAT “régime réel” (MEFP ¶21). - In May 2019, authorities temporarily exempted a few imported basic food items from customs and tax duties to help alleviate pressures on the poor (not expected to have a major impact on revenues). - Initiation of payment of oil tax revenue by the largest oil producer in 2019 is expected to help prevent a decline in total oil revenue; if oil prices remain at current levels, oil revenues should see further buoyancy. - Budget envelope for social spending increased to 34 percent of primary spending in 2019. - Payment of recognized arrears set at CFAF 60 billion (a CFAF 10 billion increase relative to the third review). - Amounts unspent on election preparation in 2019 to be transferred to the 2020 budget. - Security tensions likely to maintain pressure on military spending. - Domestic financing policies: - Limit rollover of maturing securities to at most 85 percent under the baseline and use additional budgetary resources to further reduce government domestic debt. - Treasury should enhance communication with banks to encourage debt instruments with longer maturity and lower interest rate. - Recent shift toward short-term maturities (T-bills) increased refinancing risks and borrowing costs. ### Medium-term fiscal priorities - Strong non-oil revenue mobilization is needed to create fiscal space for public spending needs. - Under the program, target increase in non-oil tax revenue to about 8.7 percent of non-oil GDP by 2020. - Focus areas: widen the tax base, reform VAT collection system, improve customs compliance. - Controlling tax exemptions: - Avoid renewing expiring exemptions on existing activities or extending existing exemptions, particularly in oil production and refining. - Continue adjusting and removing exemptions not in line with legal texts (based on 2017 audit of 47 exemptions). - Authorities committed to periodically publish a list of newly extended and renewed exemptions. - Increasing VAT revenues: - VAT revenue is about 1 percent of non-oil GDP, among the lowest in Africa. - Time-bound plan adopted in December 2018 includes setting up a VAT refund mechanism and reducing VAT exemptions. - Implement measures introduced in January 2018 requiring taxes to be paid through the banking system (“bancarisation des recettes”). - Plan to create a VAT taxpayer list and apply a 15 percent custom penalty rate to unregistered companies (new SB). - Improving customs revenues: - Improve control of the value of imports and transit operations. - Update database on the value of goods, ensure ASYCUDA is adequately set up, and train customs employees. - Account for delayed or missing containers on a daily basis. ### Reducing reliance on oil revenue and smoothing volatility - Consider introducing a simple price-smoothing mechanism to reduce procyclicality of fiscal policy. - Example: a (5,1,2) smoothing mechanism would reduce the impact of volatility in projected oil revenues on the budget and allow building fiscal buffers. - Asymmetric implementation (only when current price projection is higher than the smoothed price) recommended until sufficient buffers accumulated to absorb the average price shock in the past ten years. - Staff simulations suggest sufficient buffers could be accumulated by 2025 (Annex III). ### Increasing social and growth-enhancing expenditure - Development outcomes are weak; spending in health and education totals just 4.3 percent of GDP compared with 7.2 percent on average in LIDCs. - Sparse population and weak security conditions increase the cost and difficulty of delivering social services. - Improving spending efficiency is critical to strengthen economic and social impact of government spending. ### Public financial management (PFM) and capacity development - Further PFM improvements needed to control and monitor spending, prevent arrears accumulation, improve cash flow projections, debt management, and reduction and regularization of DAO. - Comply with CEMAC Directives: - Prepare monthly cash flow projections in the context of the 2020 budget, updated semi-annually. - Add information on investment plans to the 2020 budget. - Initiate discussions on setting a single treasury account, starting by taking stock of existing accounts in commercial banks. - Recognized need for capacity development (CD) and technical assistance focused on: - non-oil revenue mobilization; - better oil revenue projections and management; - tax policy; - public financial management (PFM); - debt management; - improving statistics and supporting anti-corruption efforts. - Given high administrative turnover, reliance on long-term experts recommended for knowledge transfer and institutional capacity development. - Need to strengthen management of reforms and coordination of technical assistance from various donors. ### Authorities’ views - Authorities reiterated commitment to prudent fiscal policy and limiting dependence on oil. - Aim to prepare budgets based on more conservative oil price projections than the WEO, but open to consider specific smoothing approaches (noting significant time needed to assess mechanisms). - Stressed difficulties in implementing exemption reforms given slow activity in the non-oil sector and perceived need for tax incentives for investment. - Emphasized need for more capacity development support to improve PFM given limited institutional capacity and high turnover. ### Policy Theme II — Fostering sustainable and inclusive growth; addressing crisis legacies - Constraints to inclusive growth: - Legacies from the crisis: large government domestic debt, large domestic arrears, fragile banking sector. - Structural constraints: infrastructure gaps (notably electricity), inefficient government spending, low human capital, poor business climate, weak governance, inadequate access to financial services. - Exogenous factors: insecurity, geography, and climate. - Key actions to address crisis legacies: - Develop and implement a clear and transparent domestic arrears clearance strategy. - Complete the audit of domestic arrears and initiate audit of remaining arrears (prior action). - Completion of the second audit (new SB) should enable preparation and adoption of a clearance strategy for the entire stock of verified arrears (new SB). - Strategy must explain prioritization and financing of arrears clearance (MEFP ¶32). - In the meantime, continue to pay recognized domestic arrears in line with the program and refrain from repaying arrears not recorded at the Treasury. - Reduce reliance on public banks’ financing of the budget and lower the bank-sovereign nexus. - Achieved primarily through a lower rollover rate of public securities to 90 percent in 2018 and to 85 percent in 2019. - Higher than expected revenues should be partly used to repay government domestic debt. *Sources: Chadian authorities; and IMF staff calculations.* ### 36. Overcoming constraints to economic diversification and inclusive growth requires ### 36. Overcoming constraints to economic diversification and inclusive growth requires ### Key constraints and reform areas - Improving the business climate - Problematic areas (World Bank Doing Business Survey): paying taxes, starting a new business, getting electricity, trading across borders, protecting minority investors. - Recommended actions: streamline procedures for the creation of SMEs; improve access to financing for exporting companies; modernize tax administration; reform regulation to facilitate investment in the electricity sector. - Closing the infrastructure gap - Chad’s level and quality of infrastructure are among the lowest in the world, with some of the lowest access to electricity and access to internet and very poor transport infrastructure. - Recommendation: channel larger and more efficient capital spending to productive investments; seek concessional financing given debt vulnerabilities; identify projects with significant economic and development yield to attract alternative financing arrangements that do not undermine debt sustainability or breach debt conditionality under the ECF. - Addressing governance issues - Chad performs poorly on most governance and corruption measures relative to peers in sub-Saharan Africa. - Staff estimate growth payoffs from improved governance: - Increasing governance to the average of CEMAC countries could potentially raise GDP per capita growth in Chad by 0.6 percentage points. - Improvement to the average of sub-Saharan Africa would have an even larger growth impact of between 2.1 and 2.3 percentage points. - Recent legal steps: adoption of the United Nations Convention against Corruption (UNCAC), a new penal code, and a new money laundering law. - Recommended actions: strengthen fiscal governance through greater transparency and PFM reforms; address governance issues in public banks; strengthen the anti-corruption framework and ensure effective implementation. - Continuing to improve transparency of the oil sector - Recent progress: publication of oil contracts and of oil revenues, including those earmarked for debt servicing. - Further recommendations: publish more information including revenues paid locally and transfers to local communities; ensure all oil-related expenditures are reflected in the government budget (including making subsidies paid as oil transfers to the electricity company more transparent); improve management of oil revenues accruing from export of government oil to an offshore account. - Promoting financial inclusion - Indicator: only 9 percent of Chadians have a bank account. - Alternatives (mobile banking, microfinance) are at the embryonic stage. - Recommended actions: strengthen resilience of the financial sector and improve transparency; enhance regulatory system of microfinance institutions and mobile banking; promote financial awareness among the population. ### Authorities’ views (on diversification, governance, and banking) - Authorities recognize the importance of reenergizing the non-oil private sector and improving governance to diversify the economy. - Anti-corruption efforts noted: increased activity of the Inspection General of the State to promote good governance and combat corruption; plan to develop an effective asset declaration framework; implement a new money laundering law. - Authorities emphasize need for public investment in strategic sectors, notably electricity, constrained by limited concessional financing and the zero limit on nonconcessional borrowing under the Fund-supported program. - On banking sector resilience, authorities prioritize: - Continued clearance of domestic arrears. - Paying down government domestic debt in line with program parameters. - Implementing measures proposed to address vulnerabilities in the two public banks once audits are completed. ### Banking sector stability: vulnerabilities and planned actions - Key vulnerabilities and structure - Banking sector size: total assets are about 20 percent of GDP. - Two public banks represent around 45 percent of total assets, hold around 40 percent of total Government T-bills and T-bonds, and received around 92 percent of total BEAC refinancing to Chadian banks at end-2018. - Tight sovereign-bank nexus: main risks are government debt and domestic arrears; government faces potential contingent liabilities from banking sector. - Progress and required actions - Expected improvements: more rapid payment of government domestic debt and arrears to improve liquidity and private sector ability to pay debt to banks. - Prior actions and timelines: - Preliminary reports of external consultants on review and reorganization plans for the two public banks were shared with IMF staff; plans to finalize them in line with agreed terms of reference in June (prior action). - Reorganization and funding plans expected to be adopted by relevant decision-making bodies in the two banks before end-September 2019 (new SB). - Required features of bank plans: realistic assumptions; aim to sustainably improve intermediation services; address governance weaknesses. - Interim bank actions: improve liquidity positions; properly classify loans and provision accordingly; banks with high NPLs should adopt a clear strategy of increasing provisioning. - Additional measures to support banking contribution to growth - Highest priority: address the high level of NPLs. - Suggested actions (in collaboration with regional supervisory authorities): (i) increase provisioning in banks with high NPLs; (ii) facilitate extra-judicial resolution of overdue loans. - To ease liquidity: BEAC and COBAC efforts to modernize the monetary policy framework and activate the inter-bank money market; aim for a progressive reduction of government dependence on domestic banks refinancing. ### Financing, program modalities, and risks - Program financing and disbursements - The program is fully financed, with firm assurances in place for the next 12 months. - Most budget support planned for 2019 is expected to be disbursed in the fourth quarter. - Delays in external support disbursement could affect the program through lower spending, increased net domestic financing, and lower NFA. - Performance criteria and adjustments - Understandings reached on modified PCs for end-June 2019, new PCs for December 2019, ITs for December 2019 and March 2020 and June 2020, structural benchmarks, and prior actions. - PCs on net domestic financing were revised to reflect higher than expected stock of T-bills rolled over in first half of the year and slightly lower oil and non-oil revenues in Q1 2019. - Two prior actions related to review and reorganization of the two large public banks and the audit of domestic arrears were agreed. - New structural benchmarks (SBs): create and publish a VAT taxpayer list; finalize second part of audit of domestic arrears; adopt reorganization plans for the two public banks; remove exemptions not in line with legal texts. - SB on adoption of a domestic arrears clearance strategy is reset to end-September, once audit of unverified arrears is completed. - IT on regularization of DAO will be monitored through a memorandum item; authorities will aim to limit use of DAO via a decree (structural benchmark implemented in January 2019). - Variation in external flows accommodated through adjustors to domestic financing, the non-oil primary balance, and payment of domestic arrears (TMU ¶23). - Program risks - Major risks: slowdown in reform momentum; delays in domestic arrears clearance; delays in addressing banking sector vulnerabilities; insufficient allocation to social sectors; pressure to resort to nonconcessional borrowing; limited capacity slowing reforms. - Authors note authorities’ strong commitment to the program as a mitigating factor. - IMF repayment capacity metrics - Outstanding obligations to the IMF based on existing and prospective drawings would peak at 3.6 percent of GDP and 10.8 percent of exports of goods and services in 2019. - Annual repayments will peak at 0.5 percent of GDP and 5.7 percent of tax revenue in 2025. - Regional assurances and BEAC actions - BEAC provided updated policy assurance on end-December 2019 NFAs in support of CEMAC countries’ Fund-supported programs. - BEAC reiterated commitment to implement an adequately tight monetary policy to achieve the NFA projections. - BEAC continues to implement remaining recommendations of the 2017 safeguards assessment. - BEAC’s full transition to IFRS for FY 2019 is progressing broadly as planned. - Adoption of revised secondary legislations was extended beyond June 2018 for further consultation. ### Staff appraisal and policy recommendations - Macroeconomic context and outlook - Chad is a low-income country with multi-dimensional fragility (insecurity, weak governance, tense social situation) that materially affects policy and recovery. - Important progress has been made in restoring macro stability after the 2014-15 oil price shock, but the non-oil economic recovery is slower than originally projected in 2019 and the medium term due to crisis legacies and structural obstacles. - Program status - Program broadly on track; all end-December 2018 performance criteria were met. - At end-March 2019, indicative targets on domestic arrears and poverty social spending were missed; authorities made efforts to offset underperformance to meet end-June 2019 criteria. - Fiscal policy priorities - Focus on improving non-oil revenue mobilization and reducing government domestic debt in 2019 while building resilience over the medium term. - Specific measures: more firmly reduce exemptions and better manage extension and renewal of exemptions; implement VAT reforms in line with recently adopted action plan; continue reforms to tax and customs administration to improve compliance. - Addressing crisis legacies - Critical actions: clear domestic arrears in line with program objective; finalize audit of domestic arrears; develop a clear and transparent clearance strategy; reduce reliance on public banks’ financing of the budget to loosen bank-sovereign nexus. - Social spending - More emphasis needed on social spending to meet development goals: ensure allocated resources to social sectors are spent and security pressures do not lead to underspending; aim for more efficient use of resources to optimize impact. - Reducing vulnerability to oil revenue fluctuations - Staff proposed a price-smoothing mechanism to be implemented asymmetrically until sufficient buffers are accumulated. - Authorities should accelerate progress in cash flow projections, debt management, and regularization of DAO. - Summary recommendation - Improving governance in all sectors including public financial management is particularly important. - Strengthen anti-corruption framework; improve business climate (streamline procedures for creating businesses, access financing, reform electricity sector). - Continue implementing strategy to address public bank vulnerabilities; sustain efforts in agreed steps to review and reorganize public banks. - Staff recommends completion of the fourth review under the ECF arrangement, support for modification of net domestic government financing PCs, completion of financing assurances review, and conditionality for fifth review on implementation of critical regional policy assurances on NFA accumulation. *Source: IMF staff report excerpts from 1tcdea2019002 - 36. Overcoming constraints to economic diversification and inclusive growth requires* ### 60. Staff recommends that the next Article IV consultation for Chad be held on the 24- ### 1tcdea2019002 - 60. Staff recommends that the next Article IV consultation for Chad be held on the 24- ### Staff recommendation - Staff recommends that the next Article IV consultation for Chad be held on the 24-month cycle. ### Fiscal operations — key figures (Tables 1–3 highlights) - Total revenue and grants (CFAF billions, 2017–23 shown in table): 826, 944, 910, 1,000, 985, 1,130, 1,151, 1,186, 1,268, 1,275, 1,402, 1,559. - Revenue (CFAF billions): 620, 735, 737, 827, 819, 941, 968, 1,016, 1,096, 1,096, 1,222, 1,363. - Oil revenue (CFAF billions): 1, 200, 320, 335, 359, 362, 420, 449, 434, 517, 455, 591, 661. - Non-oil revenue (CFAF billions): 420, 414, 403, 468, 457, 521, 519, 582, 579, 641, 632, 702. - Expenditure (CFAF billions): 871, 887, 818, 989, 984, 1,038, 1,025, 1,086, 1,121, 1,123, 1,178, 1,249. - Current expenditure (CFAF billions): 659, 613, 595, 666, 661, 694, 681, 706, 724, 718, 750, 774. - Wages and salaries (CFAF billions): 376, 324, 319, 350, 350, 355, 355, 358, 358, 362, 362, 365. - Interest (CFAF billions): 92, 90, 67, 77, 71, 88, 76, 80, 69, 74, 68, 65. - Investment (CFAF billions): 212, 274, 223, 323, 323, 344, 344, 380, 397, 405, 428, 475. - Domestically financed investment (CFAF billions): 368, 384, 118, 118, 124, 124, 135, 152, 145, 168, 185. - Overall balance (incl. grants, commitment) (CFAF billions): -465, 792, 101, 92, 51, 011, 47, 152, 224, 310. (Note: table formatting preserved verbatim as provided.) - Non-oil primary balance (excl. grants, commitment) (CFAF billions): -183, -192, -211, -240, -251, -209, -211, -179, -227, -148, -218, -192. - Float from previous year (CFAF billions): -80, -12, -12, -43, -49, -75, -75, -79, -79, -91, -91, -80. - Float at end of period (CFAF billions): 12, 43, 49, 75, 75, 79, 79, 91, 91, 80, 80, 78. - Memo: Glencore loan (after restructuring) (CFAF billions): 51, 48, 30, 43, 36, 47, 39, 39, 32, 36, 32, 28. - Non-oil GDP (CFAF billions, memorandum): 4,830; 4,995; 4,970; 5,290; 5,212; 5,637; 5,515; 6,035; 5,900; 6,449; 6,299; 6,732. - Poverty-reducing social spending (percent of non-oil GDP, memorandum): 2.0, 2.1, 4.2, 2.1, 4.1, 8? (table entries as provided). (Source table contains a sequence: 202, 214, 182, 241, 241 — preserved as in source.) ### Fiscal ratios (percent of non-oil GDP, Table 3 highlights) - Total revenue and grants: 17.1, 18.9, 18.3, 18.9, 18.9, 20.0, 20.9, 19.7, 21.5, 19.8, 22.3, 23.2. - Revenue: 12.8, 14.7, 14.8, 15.6, 15.7, 16.7, 17.6, 16.8, 18.6, 17.0, 19.4, 20.2. - Oil (percent of non-oil GDP): 4.1, 6.4, 6.7, 6.8, 6.9, 7.5, 8.1, 7.2, 8.8, 7.1, 9.4, 9.8. - Non-oil (percent of non-oil GDP): 8.7, 8.3, 8.1, 8.8, 8.8, 9.2, 9.4, 9.6, 9.8, 9.9, 10.0, 10.4. - Expenditure: 18.0, 17.8, 16.5, 18.7, 18.9, 18.4, 18.6, 18.0, 19.0, 17.4, 18.7, 18.5. - Current: 13.7, 12.3, 12.0, 12.6, 12.7, 12.3, 12.4, 11.7, 12.3, 11.1, 11.9, 11.5. - Wages and salaries: 7.8, 6.5, 6.4, 6.6, 6.7, 6.3, 6.4, 5.9, 6.1, 5.6, 5.7, 5.4. - Interest: 1.9, 1.8, 1.3, 1.5, 1.4, 1.6, 1.4, 1.3, 1.2, 1.1, 1.1, 1.0. - Investment: 4.4, 5.5, 4.5, 4.5, 6.1, 6.2, 6.1, 6.2, 6.3, 6.7, 6.3, 6.8, 7.1 (table spans years and entries preserved as in source). ### Balance of payments — key figures (Table 4 highlights) - Current account, excl. budget grants (CFAF billions): -442, -408, -327, -398, -470, -312, -416, -410, -482, -470, -514, -514. - Trade balance (CFAF billions): 180, 483, 585, 582, 435, 725, 569, 710, 602, 729, 673, 784. - Exports, f.o.b. (CFAF billions): 1,436, 1,855, 1,931, 2,072, 1,943, 2,301, 2,250, 2,401, 2,371, 2,593, 2,605, 2,745. - Of which: oil (CFAF billions): 1,048, 1,446, 1,523, 1,649, 1,523, 1,841, 1,790, 1,919, 1,887, 2,072, 2,083, 2,183. - Imports, f.o.b. (CFAF billions): -1,256, -1,372, -1,346, -1,490, -1,507, -1,576, -1,681, -1,692, -1,769, -1,864, -1,933, -1,961. - Services (net) (CFAF billions): -1,037, -1,130, -1,191, -1,220, -1,187, -1,333, -1,278, -1,385, -1,360, -1,524, -1,460, -1,582. - Income (net) (CFAF billions): -78, -186, -145, -201, -188, -234, -222, -244, -234, -211, -254, -258. - Transfers (net) (CFAF billions): 493, 426, 424, 441, 470, 530, 515, 510, 511, 536, 527, 542. - Financial and capital account (CFAF billions): 231, 312, 297, 390, 470, 388, 488, 489, 573, 486, 550, 599. - Change in official reserves (decrease +) (CFAF billions): -81, -171, -204, -135, -167, -120, -119, -104, -117, -42, -63, -113. - Overall balance (CFAF billions): -211, -95, -30, -8, -175, 72, 79, 91, 163, 68, 86, (table entries preserved as provided). ### Monetary and financial indicators - Financial Soundness Indicators (selected, percent): Regulatory capital / Risk-weighted assets: 20.0, 18.1, 22.0, 13.4, 14.7, 13.2, 18.0, 18.1 (2011–2018Q3 series). - Gross credits in arrears / Gross banking loans: 7.6, 7.4, 9.8, 11.7, 17.0, 20.9, 25.8, 28.9. - Return on assets: 2.6, 2.2, 2.8, 2.1, 1.6, 1.4, 1.1. - Liquid assets / Total assets: 29.9, 31.8, 28.6, 30.8, 26.0, 23.1, 27.5, 18.8. ### IMF financing and capacity to repay (Tables 7–8 highlights) - ECF disbursement schedule (percent of quota / Million SDR): 25.0 / 35.05 (Date of Board Approval); 25.0 / 35.05 (August 15, 2017); 25.0 / 35.05 (April 15, 2018); 25.0 / 35.05 (October 15, 2018); 20.0 / 28.04 (April 15, 2019); 20.0 / 28.04 (October 15, 2019); 20.0 / 28.04 (April 15, 2020). Total: 160.0 / 224.32. - Fund obligations based on existing credit (SDR millions, 2019–2033 principal): 0.0, 2.0, 8.1, 17.0, 29.7, 47.7, 43.1, 36.9, 28.0, 17.5, 0.0, 0.0, 0.0, 0.0, 0.0. - Fund obligations based on existing and prospective credit — Total obligations (SDR millions, 2019–2033): 0.5, 2.6, 8.7, 17.6, 30.3, 48.3, 57.7, 54.4, 45.5, 35.0, 17.4, 3.4, 0.6, 0.6, 0.6. - Outstanding IMF credit based on existing and prospective drawings (SDR millions): 286.1, 312.2, 304.1, 287.0, 257.4, 209.7, 152.6, 98.8, 54.0, 19.6, 2.8, 0.0, 0.0, 0.0, 0.0. - Net use of IMF credit (SDR millions): 56.1, 26.0, -8.1, -17.0, -29.7, -47.7, -57.1, -53.8, -44.9, -34.4, -16.8, -2.8, 0.0, 0.0, 0.0. - Memorandum items (selected): Nominal GDP (CFAF billions): 6,446; 6,997; 7,552; 8,181; 8,659; 9,240; 9,867; 10,568; 11,281; 12,045; 12,860; 13,582; 14,332; 15,150; 15,977. ### Risk Assessment Matrix — identified risks and recommended responses (Table 9) - Domestic risks - Excess spending on the wage bill (Short to medium term/Medium likelihood; Potential Impact: Medium) - Risk: Further resort to arrears or borrowing from domestic banks could jeopardize non-oil growth and stability of banks. - Recommended policy response: Prioritizing efficient spending while protecting social sector spending. - Insufficient social spending (Medium to long term/High likelihood; Potential Impact: Medium) - Risk: Social tensions and weaker long-term non-oil growth potential due to underinvestment in human capital. - Recommended policy response: Improve budgetary execution of social spending; government hiring should target health and education. - Domestic and regional security threats (Short to medium term/High likelihood; Potential Impact: High) - Recommended policy response: Protect social spending and seek donor support. - Deterioration of public banks situation (Near term/Medium likelihood; Potential Impact: High) - Risk: Jeopardize banking sector stability and increase fiscal pressure from contingent liabilities and reduced rollover of treasuries. - Recommended policy response: Adopt and implement restructuring plans based on audit results. - External risks - Large swings in energy prices (Short to medium term/Medium likelihood; Potential Impact: High) - Risk: Fiscal health and debt sustainability hinge on oil prices. - Recommended policy response: Further develop non-oil revenue sources and implement a price smoothing mechanism for fiscal policy. - Intensification of security risks in multiple regions (Short to medium term/High likelihood; Potential Impact: Medium) - Recommended policy response: Protect social spending and seek donor support. - Sharp tightening of global financial conditions (Short term/Medium likelihood; Potential Impact: Medium) - Risk: Higher cost of Glencore debt following higher LIBOR; regional monetary tightening increasing domestic borrowing costs. - Recommended policy response: Avoid nonconcessional borrowing and reduce the amount and extend the maturity of domestic debt. - RAM explanatory notes: relative likelihood classifications — “low” <10 percent, “medium” 10–30 percent, “high” 30–50 percent. RAM reflects staff views at time of discussions with authorities; risks may interact and materialize jointly; “Short term (ST)” = within 1 year; “Medium term (MT)” = within 3 years. *Source: Chadian authorities; and IMF staff estimates and projections.* ### Annex I. Implementation of 2016 Article IV Recommendations ### Annex I. Implementation of 2016 Article IV Recommendations ### Summary of recommendations and implementation status - Implement cash-based budget management procedures to avoid the accumulation of new arrears. - Cash based budgeting was implemented for a short period to limit arrears accumulation. Arrears accumulation however continued into 2017, but with the implementation of the new program both domestic and external arrears accumulation has been limited. - Target medium-term non-oil primary deficits consistent with fiscal and debt sustainability and expand fiscal space through non-oil revenue mobilization efforts. - The non-oil primary balance floor was missed in 2016, largely due to a shortfall in non-oil revenue. Under the aegis of the new program non-oil primary deficits have remained within targets. Non-oil revenue mobilization has improved but recently lagged. - Define and implement a comprehensive strategy for clearing domestic arrears and avoid further accumulation going forward. - The comprehensive strategy for clearing domestic arrears is planned to be completed later this year. The reform and stabilization program supported by the IMF is an essential part of the strategy to avoid further accumulation. - Strengthen public financial management, including investment planning and execution, and enhance oil revenue transparency and integrity. - The strengthening of public financial management remains an ongoing priority under the program, with some areas of progress but much remaining room for improvement. Oil revenue transparency and integrity has improved considerably over the past two years. - Closely monitor the health of the banking system given its high direct and indirect exposure to government operations. - Efforts to reduce the tight link between the banking system and sovereign credit risk have begun. Reliance on banks’ financing has declined and progress is underway to clear domestic arrears which is expected to help improve banking system liquidity and reduce NPLs. - Foster inclusive growth and economic diversification by implementing the priorities of the upcoming 2016-2020 National Development Plan including improving the business environment and strengthening financial inclusion. - The National Development Plan was submitted in September 2017 and implementation has begun, but progress is uneven. ### Key implementation takeaways - Cash-based budgeting: implemented briefly; arrears continued into 2017; new program limited both domestic and external arrears accumulation. - Non-oil primary balance: floor missed in 2016 due to non-oil revenue shortfall; subsequently non-oil primary deficits have been within program targets though non-oil revenue mobilization has recently lagged. - Domestic arrears strategy: comprehensive strategy planned to be completed later this year; IMF-supported reform and stabilization program is central to avoiding further accumulation. - Public financial management (PFM) and oil revenue transparency: PFM strengthening is ongoing with partial progress; oil revenue transparency and integrity improved considerably over the past two years. - Banking sector risks: initial steps to reduce sovereign-banking linkages; reduced reliance on bank financing and arrears clearance expected to improve liquidity and reduce NPLs. - National Development Plan (2016-2020): submitted in September 2017; implementation started but uneven. *Source: Annex I. Implementation of 2016 Article IV Recommendations* ### 6. The Current Account model suggests a moderate overvaluation (Table 1). The EBA-Lite ### 6. The Current Account model suggests a moderate overvaluation (Table 1) ### Current account (CA) model findings - The EBA-Lite CA model is regarded as producing more relevant results for low-income countries than REER models for Chad. - The CA model finds a current account gap of -3 percent of GDP (current account weak relative to model-derived “norm”). - The empirical relationship between the current account and real exchange rate implies a real depreciation of 11 percent would be needed to facilitate exports and imports adjusting to close the gap. - Table 1 reported values: - Current account norm (percent of GDP): -2.9, 7.5, 2.1 (across models) - Underlying current account (percent of GDP): -5.8, -5.7, -5.7 - Current account gap (percent of GDP): -3.0, 4.7, -1.2 - Overvaluation (+) / undervaluation (-) (percent): -13.3, -7.8, 11.0, -16.8, 4.3, 47.5, 28.0 - Note: “The relationship between the current account gap and REER gap in all of the models is defined by a semi-elasticity of -0.28.” ### Intergenerational equity and investment-needs models - Bems & Carvalho model: - Suggests a medium-term current account balance of positive 7.5 percent of GDP to achieve intergenerational equity. - Araujo et al. model: - Recommends a more moderate medium-term current account target of 2.1 percent of GDP, recognizing that using future resources today may make sense if invested wisely. - Practical constraint: - Achieving even the more moderate investment-needs norm in Chad would require a devastating fiscal adjustment that would undermine higher social and growth-enhancing expenditure. ### REER and External Stability (ES) model signals - ES model (stable net international investment position): - Indicates only a moderate improvement of the current account would be needed. - REER model: - Suggests the exchange rate is undervalued and should rise. - Recent strong depreciation likely offsets previous excess currency strength common among commodity exporters. - Fit of REER models is less reliable given modeling difficulty and REER data quality issues for Chad. ### Staff overall assessment - Chad’s current account and real exchange rate appear weaker than implied by fundamentals and desirable policy settings at end-2018. - Staff assesses: - Current account gap in the range of 2.5 to 3.5 percent of GDP. - REER gap of -5 to -15 percent. - The CA model estimates are considered the median, most reliable and relevant for Chad. ### Structural reform priorities (given currency union membership) - Monetary and exchange rate policy are not options; fiscal policy focused on resilience and protecting the vulnerable. - Priority structural reforms to improve competitiveness: - Improvements to the business climate. - Governance enhancements. - Banking system reforms. - Intended outcome: increase local businesses’ ability to compete. ### Macro-financial linkages: overview of the financial sector - Financial depth and structure: - Nine commercial banks with total assets of CFAF 1,185 billion (19 percent of GDP). - Four banks include state participation; Commercial Bank of Tchad (CBT) and Banque Commerciale du Chari (BCC) represent around 45 percent of total assets and hold around 40 percent of all government T-bills and T-bonds. - Credit to the private sector: 11.5 percent of GDP in 2018. - 100 microfinance institutions (MFIs) with limited activity. - Two small private-sector pension funds and three insurance companies. - Oil sector dependence and fiscal links: - Oil sector generated 45 percent of government revenues in 2018. - Oil sector made up about 80 percent of exports in 2018. - Oil sector largely not integrated with the rest of the economy; fiscal channel transmits oil revenues via government spending. ### Key transmission channels from sovereign to banks - Government domestic arrears: - Recognized arrears rose to around 3.2 percent of GDP during the crisis; total stock larger and under audit. - Overdue loans increased to around 31 percent at end 2018 from around 12 percent at end 2014. - Government domestic debt: - Domestic debt held by banking sector increased to around 12 percent of non-oil GDP in 2018 (from 5.6 percent in 2014); around two thirds currently held by domestic banks. - Banks hold government guaranteed loans of around 1.4 percent of non-oil GDP. - Government deposits: - Government deposits in the banking sector declined by 11 percent between 2016 and 2018. - BEAC refinancing: - Banks’ refinancing at the BEAC increased from CFAF 10 billion in December 2014 to CFAF 160 billion in December 2018. - Credit and deposit trends: - Credit and deposit grew about 12 percent in 2014, shrank between 2015 and 2017, then stabilized in 2018. ### Banking sector metrics and vulnerabilities - Banking sector totals and ratios (end-2018 / related figures): - Total assets: 23% of non-oil GDP. - Total credit: 14.1% of non-oil GDP. - Non-oil GDP: CFAF 4.971 billion. - NPLs (non-performing loans): 31.4% (noted elsewhere as around 31 percent at end-2018). - Credits related to oil price shock: 5% of total credit. - Arrears, deposits: 4% of total deposits (figure context). - Deposits concentration: 76% of total deposits (figure context). - Liquidity needs: 3.2% of non-oil GDP. - SOEs exposure: - Banks’ credit to SOEs declined from around 8 percent in 2016 to around 3 percent in 2018 of total credit. - SOEs deposits increased from 3.3 percent in 2016 to 5.7 percent in 2018 of total deposits. - Clearance of public cotton company arrears: CFAF 54 billion. - Electricity and sugar enterprises have large arrears that could materialize as government liabilities. - Public banks and recapitalization risk: - Public banks disproportionately affected by sovereign shocks. - One small public bank (with joint foreign ownership) does not meet capital requirement and may need restructuring. ### Stress tests summary - Stress test design: - Scenarios: haircuts on government debt, overdue loans, NPLs, government guaranteed loans, recession-induced NPL increases, and rise in BEAC policy rate. - Data: banks’ balance sheets at end 2017. - Results: - Moderate stress: - Haircuts on sovereign debt and government guaranteed debt are the most significant shocks. - Overall banking system continues to meet capital requirement, but public banks are disproportionally affected. - Severe stress: - Haircut on sovereign debt, haircut on government guaranteed debt, and a rise in the BEAC policy rate are the most significant shocks. - The banking sector is not resilient; aggregate capital becomes negative under this scenario. - Caveat: - Stress tests are illustrative; upcoming audits and BEAC-conducted stress tests will reflect more recent developments and tailored assumptions. ### Policy recommendations and priorities - Highest priority: address the high level of NPLs. - Recommended policy actions: - Progress in clearing domestic arrears. - Authorities’ collaboration with regional supervisory authorities to address vulnerabilities in the two public banks as agreed under the program. - Adopt and begin implementing an action plan including: - (i) increasing provisioning in banks with high NPLs, and - (ii) facilitating extra-judicial resolution of overdue loans. - To ease bank liquidity: - Ongoing efforts by the BEAC and the COBAC to modernize the monetary policy framework and activate the inter-bank money market. - Aim for a progressive reduction of government dependence on domestic banks refinancing. *Source: 1tcdea2019002 - 6. The Current Account model suggests a moderate overvaluation (Table 1).* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Program status and financing - IMF ECF arrangement approved on June 30, 2017 covering June 30, 2017 through June 29, 2020. - Executive Board completed first review on April 13, second review on July 27, 2018, and third review on December 21, 2018. - Each review disbursed SDR 35.05 million; total disbursements under the program are SDR 140.20 million. - Government requests approval of the completion of the fourth review under the ECF-supported program. - Government requests modifications to: - the dates of structural benchmarks on the clearance strategy of domestic arrears and removal of tax exemptions on the 47 audited conventions; - the performance criteria (PCs) on net government financing from the BEAC and on net domestic government financing excluding BEAC. ### Macroeconomic developments and outlook - Non-oil economic activity began to recover in 2018 after contracting for a third straight year in 2017; non-oil growth in 2018 estimated at 0.5 percent. - Oil production rebounded in 2018 broadly in line with projections; government direct oil revenue in 2018 broadly in line with projections. - Inflation: peaked at 7.3 percent in May (y-o-y) and decelerated to 4.3 percent in December 2018. - Drivers of inflation: increase in price of fresh water from CFAF 105 to CFAF 200 per cubic meter decided in May 2018. ### Fiscal performance and revenue mobilization - 2018 fiscal developments marked by a decline in non-oil revenues and a lower than budgeted wage bill. - Tax revenue shortfall in 2018: about CFAF 30 billion. - Wage bill 2018: lower than budgeted by about CFAF 35 billion. - Net government domestic financing in 2018 broadly in line with program objectives; rollover rate for T-bills and T-bonds slightly higher than the 90 percent target; maturities shortening via six- and twelve-month T-bills. - Net domestic financing from the BEAC much lower than anticipated due to: - IMF third review disbursement credited in 2019; - increased deposits at the BEAC reflecting higher oil revenues and lower wage bill. - 2019 budget measures include: - elimination or revision of exemptions not compliant with legislation; - streamlining of income tax; - application of a customs penalty to importers without a tax identification number; - government commits to not renew expiring tax exemptions; - commitment not to extend or renew tax and customs exemptions for existing oil production and refining operations and to ensure all oil revenues are paid into the Treasury. - Spending priorities in 2019: - fiscal prudence including control over the wage bill; - greater resource allocation to social sectors and investments; - social ministries spending should be at least 34 percent of primary expenditures; - social spending committee chaired by the General Director of the Ministry of Finance established and operational; - increase in spending on social sectors reached 86 billion in early June (2019); - plan to pay CFAF 30 billion of domestic arrears. ### Arrears, external debt, and debt restructuring - Significant progress in clearing external arrears; since the third review all external debt obligations have been paid in a timely manner. - Principal of the Libyan loan for May, July and September maturities paid in line with agreement in principle signed with the Libyan Foreign Bank in May 2018. - Active discussions underway with Libya, Angola, Equatorial Guinea, the Republic of Congo and Mega Bank regarding outstanding arrears. - Funds dedicated for external debt payment placed in an escrow account; monthly meetings of relevant parties include IMF resident representative as observer. - Domestic arrears: - declined by about CFAF 45 billion in the second half of 2017; - stock of domestic arrears reduced further by CFAF 35 billion in 2018; - stock of domestic arrears reached CFAF 159 billion against an adjusted target of CFAF 163 billion (end-2018 adjusted criterion met with a small margin). - Government undertakes to: - finalize the ongoing audit of a significant amount of arrears and start a second audit of remaining obligations (prior action); - adopt a comprehensive clearance strategy for domestic arrears by end-November 2019 that will clearly establish the priorities and terms for clearing audited arrears and will be widely disseminated to the public. ### Program conditionality, performance criteria, and benchmarks - All performance criteria (PC) for completion of the fourth review were met. - Two indicative targets were not achieved: - poverty-reducing social spending target missed (impact of wage bill reduction and heavy public procurement process); - regularization of emergency spending procedures (DAO) missed. - Quantitative targets for end-March 2019 met except for DAO regularization, poverty-reducing social spending, and reduction of domestic arrears. - Corrective measures taken to meet end-June objectives. - Structural benchmarks (period up to end-March 2019): of six benchmarks, three implemented (one with delay); progress underway on remaining three. - Audit reports of the two public banks to be delivered to IMF staff and COBAC in June (prior action). - Removal of exemptions in line with the audit of 47 conventions: progress made; further actions to be taken by February 2020 to complete it (new structural benchmark). - Due to delay in completing audit of domestic arrears, strategy for clearing arrears could not be adopted before end-March 2019; government will finalize audit underway and start second audit (prior action). ### Social, governance, and public sector measures - Social situation: - social tensions moderated after October 2018 agreement with public sector trade unions; - in January 2019 government restored 15 percent of benefits and bonuses cut in early 2018; - in November 2018 joint committee set up for payroll rationalization, removal of ghost workers, and audit of diplomas. - Commitments on governance and anti-corruption: - centrality of good governance and fight against corruption emphasized; - effective implementation of the United Nations Anti-Corruption Convention is a key element; - improve public investment program and seek concessional financing to support priority investments. - Emergency spending procedures (DAO): - government will ensure DAO use is in line with presidential decree that limits it to 22 percent of total primary spending as agreed with IMF staff; - regularization of DAO reached only 65 percent against a target of 80 percent (indicative target missed); authorities committed to accelerate regularization to meet end-of-year target. - Parliamentary elections allocation: if elections postponed to 2020, unspent 2019 budget allocation will be transferred to the 2020 budget. - Use of additional oil revenues: committed to use any additional oil revenues in line with agreed parameters of the IMF-supported program. ### Financial sector, liquidity, and vulnerabilities - Banking sector vulnerabilities remain elevated: - overdue loans reached 31.4 percent in December 2018 (against 28 percent in 2017). - credits slightly increased by 0.6 percent in December 2018 (y-o-y). - deposits stabilized (y-o-y) in December 2018 after sharp decline in 2017. - BEAC refinancing declined from CFAF 199 billion in December 2017 to CFAF 160 billion in December 2018; all advances at penalty rate were paid. - Government will continue to support CEMAC efforts to maintain appropriate monetary policy, reinforce regional foreign exchange reserves, and promote financial sector stability. - Transparency measures in oil sector capital flows: - provide all contracts and agreements with oil companies to relevant CEMAC bodies; - revise oil and mining codes to align with CEMAC foreign exchange regulations by end-2019; - repatriate foreign exchange revenues into local banking system by transferring balances from external accounts with Citibank to the treasury current account with the BEAC and ensure revenues channeled through these accounts are repatriated without delay. ### Security, humanitarian, and program implementation risks - Security situation deteriorated with intensified Boko Haram attacks around Lake Chad and armed group attacks in northern Chad near Libya border; led to increased security spending in Q4 2018 and early 2019. - Continued pressures from security and humanitarian tensions and involvement in regional peacekeeping add fiscal and economic pressures. - Government remains committed to program implementation and stands ready to take other measures as necessary; will consult with IMF on adoption of additional measures in advance of revisions to the MEFP. - Monitoring and transparency commitments: - government will provide all necessary information to Fund staff regularly and timely pursuant to the attached Technical Memorandum of Understanding (TMU); - government agrees to publication of the staff report, the letter of intent, the MEFP, and the TMU on the IMF website. *Letter of Intent, June 18, 2019.* ### 15. Performance at end-March 2019 remained broadly in line with the program. The non- ### 1tcdea2019002 - 15. Performance at end-March 2019 remained broadly in line with the program. The non- ### End‑March 2019 program performance - The non-oil primary deficit remained below the program ceiling. - Customs revenue target was met as the government sustained efforts to improve customs administration and limit fraud. - The IT on net domestic financing from the BEAC was met as draw down on government deposits was lower than anticipated. - The IT on net domestic financing from banks was met as the rollover of securities remained in line with the program objectives. - The IT on the repayment of domestic arrears was missed by a small margin: domestic arrears increased by about CFAF 7 billion in the first three months of the year. - The government is committed to rapidly offset this increase and meet the end-June 2019 target. - An ad-hoc commission was formed to clear CFAF 30 billion of domestic arrears. - The IT on poverty reducing social spending was missed, due in part to slow budget execution. - Preliminary data shows social spending increased since March and reached over CFAF 86 billion at June 10 to partly offset low execution in the first quarter. - The government is committed to accelerate the payment of spending commitments which have reached a total amount of CFAF 38 billion before the end of the month to meet end June target. - A high-level committee has been put in place to monitor social spending and identify specific social programs to prioritize; this committee is operationalized and will meet once a month going forward. ### Structural benchmarks and reform implementation (up to end‑March 2019) - Out of six structural benchmarks for the period up to end-March 2019: - Two were met. - One was partially implemented. - One was implemented with slight delays. - Two remain pending. - Details: (i) Publication of the oil sector note: met — government publishes quarterly notes on the oil sector in line with the IMF-agreed template. (ii) Action plan to improve VAT collection: adopted before end-December 2018 as envisaged. (iii) Removal of tax exemptions based on audit of 47 conventions: partially implemented by end-February 2019. - Out of the 47 conventions, 45 were audited. - 15 companies contested audit results; 7 were reestablished after verification by the ad hoc committee. - The remaining 8 conventions should be removed, although some firms have challenged the removal in court and they remain under judicial review. (iv) Decree on implementation of the 2019 budget law adopted on January 16, 2019 (slightly later than agreed): limits use of emergency spending procedures (DAO) at 22 percent of primary spending. (v) Review and reorganization plan for the two public banks (structural benchmark for end-February 2019): not implemented; preliminary reports shared with IMF staff are being finalized. (vi) Audit of domestic arrears delayed; arrears clearance strategy could not be adopted by end-March 2019. - Delay reasons: issues related to financing of the audit, longer-than-expected document review, authorities’ desire to closely follow and monitor audit progress. - An interim audit report identified a substantial amount of valid arrears, but a large amount of arrears likely remains unaudited. - Government committed to redouble efforts to ensure audit completion this year. ### BEAC and COBAC policy implementation - BEAC submitted new foreign exchange regulations to the UMAC ministerial committee and operationalized the new monetary policy framework by end-2018, consistent with December 2018 policy assurances. - The end-2018 projection for regional NFAs was exceeded. - BEAC provided an updated policy assurance on end-December 2019 NFAs in support of CEMAC countries’ Fund-supported programs: - Revised projection for end-December 2019 NFA presented. - Reiteration of commitment to implement adequately tight monetary policy to achieve NFA projections. - NFA assurances are critical for Chad’s program and regional external sustainability. ### Economic and financial policies for remainder of the program — overall priorities - Government priorities: - Strengthen stabilization and support recovery. - Achieve durable and inclusive growth. - Preserve adjustment in current spending of past three years. - Redirect resources to social sectors and public investment. - Reduce domestic debt to banks and arrears to suppliers. - Pursue prudent spending policy including on the wage bill. - Enhance non-oil revenue mobilization and transparency of oil revenue flows, and pursue effective taxation of the oil sector. ### Fiscal policy in 2019 and the medium term - Fiscal policy focus for remainder of 2019: - Raise non-oil revenues. - Increase social spending and productive investment. - Clear domestic arrears and pay down domestic debt. - Aim for predictable and transparent budget implementation with minimal use of emergency spending procedures. - May increase security spending if needed, committed to do so without undermining program objectives. - Oil revenues projections for 2019: remain broadly unchanged. - Lower-than-expected direct oil revenues following decline in oil prices since the third review will be broadly offset by: (i) lower Glencore debt service in line with contingencies included in the contract; and (ii) payment of oil profit tax revenues from the main oil operator. - In case of higher than projected oil revenues: used to increase buffers, pay down domestic debt and recognized domestic arrears; any remainder allocated to increase primary spending if necessary (see TMU). - Non-oil revenue strategy: - Non-oil revenue projections for 2019 slightly revised downward reflecting lower than expected outcome in 2018 and lower expected nominal growth. - Government commits to taking additional revenue measures this fiscal year if revenue performance does not improve by mid-year. - Measures in 2019 budget include: (i) centralizing granting of exemptions at the ministry of finance, assessing fiscal impact, prohibiting granting of tax exemptions to businesses that collect taxes (primarily VAT), and prohibiting automatic renewal of exemptions; (ii) increasing income tax revenues by improving collection and widening base; (iii) revision of ceiling for application of the VAT “régime réel”. - Under the economic program the government is targeting a gradual increase in non-oil tax revenue to a level of about 9 percent of non-oil GDP by 2020 and will take additional measures this year and next when needed. - In May 2019 the government temporarily exempted a few imported basic food items from customs and tax duties to help alleviate pressures on the poor; this is not expected to have a major impact on revenues, but the government is ready to take offsetting measures if necessary. - Domestically financed spending in 2019: - Government determined to maintain control of the wage bill while improving its management and commits to update and clean the payroll. - Commits to take new measures to control the wage bill if the monthly wage bill exceeds the budgeted amount. - Parliamentary elections planned in 2019 (date not set); CFAF 33 billion allocated to cover their cost. - If elections delayed to 2020, unspent amount transferred to 2020 budget. - Additional spending for elections only if external budget support secured or additional receipts (e.g., oil revenue higher than projected) and will be consistent with the program. - Government increased the budget envelope for social sectors within the 2019 budget and will ensure adequate execution by social ministries. - Medium-term budget design: - Commit to allocate more resources to health, education, and infrastructure while ensuring spending efficiency. - Consult external development partners and IMF staff on use of potential revenue windfall. - Debt management and rollover: - Plans to repay more debt to domestic banks to ease banking sector liquidity pressures. - In addition to paying maturities related to non-securitized debt, aim to repay at least 15 percent of maturing treasury bills and Treasury bonds (85 percent rollover rate on average for the year). - Aim to use additional budgetary revenues to further reduce domestic debt in 2019 consistent with program targets. - Effort to increase maturity of rolled over debt and move to longer maturities given projected fiscal improvement. ### Domestic arrears policy - Payment of domestic arrears is a priority; aim to reduce stock of recognized arrears by at least the program amount. - Plans to clear more domestic arrears recorded in the Reste-a-Payer to catch up for 2018 shortfall. - Government will pay only arrears registered in the “Reste à Payer” table prepared by the Treasury (CFAF 159 billion by end-December 2018) until other potential arrears are verified and a clearance strategy is adopted. - Government committed not to repay unrecognized arrears (arrears outside the ‘Restes à Payer’) before their audit is completed and a clearance strategy developed. ### External financing policy - Government committed to refrain from contracting or guaranteeing new non-concessional external loans. - All external financing agreements (project and budget support) will be concessional with at least 35 percent grant element (see TMU) and consistent with debt sustainability. - All draft loan agreements will be submitted for prior approval to the National Commission for Debt Analysis (CONAD), supported by ETAVID for technical and financial analysis. ### Tax and customs reforms and policies - Continued improvement of base and structure of oil and non-oil tax revenues. - Tax and customs exemptions: - Government committed to continue reducing exemptions in line with the 2019 budget. - Determined not to renew expiring exemptions on existing activities nor extend existing exemptions particularly in the oil sector (including oil refining), construction and hospitality. - Committed to systematically assess fiscal impact of all new exemption requests through a dedicated committee. - Starting from July 2019, government will publish on a semiannual basis a list of all new exemptions (including renewal and extension) on the Ministry of Finance website (existing structural benchmark). - Will aim to start publishing analysis of fiscal impact of these exemptions in early 2020. - Government will follow up on recommendations of the audit of 47 tax conventions and provide IMF staff with action taken for each of the 47 conventions. - Complete implementation of auditors’ recommendations by end-February 2020 to remove or amend exemptions not in line with legal texts or incorrectly implemented (modified structural benchmark). - Article 26 of the 2019 budget law amending Article 154 of the General Tax Code: - (i) any convention or agreement that may result in a special, total or partial exemption from duty, direct or indirect tax shall be subject to prior examination of a technical commission responsible for examining applications for exemptions; a decree will determine operating procedures. - (ii) tax and customs exemptions provided by the General Tax Code (CGI), the Customs Code, may be granted at the request of the taxpayer, by order of the Minister in charge of Finance and either the Minister in charge of Trade or the minister in charge of Plan. - Non-oil revenues and VAT: - VAT stands at about 1 percent of non-oil GDP. - Time-bound plan to strengthen VAT regime adopted in December 2018 includes setting up a VAT refund mechanism and reducing VAT exemptions. - Measures implemented in January 2018 requiring taxes to be paid through the banking system (“bancarisation des recettes”) have shown promise in reducing leakages. - By end-September 2019, the list of VAT taxpayers will be integrated in the computerized system and published, and a 15 percent penalty customs rate will be applied to incentivize taxpayers to acquire a tax ID (new Structural Benchmark). - Additional measures expected to widen base and reduce avoidance of income tax and stamp duties. - Administrative measures to improve tax and customs collection: - Customs revenues: migration to new software (ASYCUDA World) expected to: - allow more accurate application of duties; - shrink abuse of customs exemptions; - improve integration of customs and VAT systems to improve compliance; - facilitate interconnections with customs offices in Cameroon, Niger and Sudan; - set stage for transition to a single window system. - Non-oil taxes: re-organize key elements of the tax directorate drawing on IMF TA recommendations. - Directorate in charge of land and property tax has begun a new survey of potentially taxable properties starting in N’Djamena to improve application of the tax. ### Public Financial Management (PFM) and expenditure chain - Government emphasizes sound and transparent PFM as critical to program objectives. - Recent progress in budget execution, monitoring, reporting, and integration of CEMAC directives into Chadian legislation. - Continued collaboration with development partners for TA missions and long-term resident experts within the Ministry of Finance and Budget. - Expenditure chain improvements: - Commitment to reduce use of emergency spending procedures (“dépenses avant ordonnancement”, DAO) which intensified in past two years. - Government will regularize DAO as soon as possible after they occur to limit risks of over-spending and arrears accumulation. - Effective execution of the decree on the 2019 budget which set a limit of 22 percent of all primary spending excluding the wage bill, military spending and debt service; execution monitored quarterly. - Expenditure chain phases (commitment, validation, authorization of payment order, and cash payment) are implemented and monitored through the computerized system (CID). - With help of AFD, ministry launched implementation of the CIE, to be integrated with CID to improve monitoring of spending chain and issuance of accounting statements. - Aim to more consistently implement expenditure chain to improve absorption of budgeted allocations, particularly for social sectors. ### Arrears audit and clearance strategy (timeline and commitments) - Government committed to define a strategy to clear domestic arrears. - Decision to break down audit into two exercises to enable successful conclusion (prior action and new SB): - (i) First part includes potential arrears currently under the steering committee; to be finalized and adopted by the government by June 2019 (prior action). - (ii) Second part includes identifying potential arrears not audited (including remaining ones within the ministry of infrastructure and the “Grand Travaux Presidentiels”, and other line ministries), and launching their audit; planned to be finalized by end-September 2019 (new SB). *International Monetary Fund — 1tcdea2019002 (excerpt).* ### 33. The government is committed to prepare and adopt a clearance strategy for the entire ### 1tcdea2019002 - 33. The government is committed to prepare and adopt a clearance strategy for the entire ### Clearance strategy for verified arrears - Government commitment: - Prepare and adopt a clearance strategy for the entire stock of verified arrears by end-November (modified SB). - Strategy will transparently explain factors for prioritizing clearance and prioritize payments based on economic and social impact and expected effect on the banking sector. - Repayment modalities to be established: - Cash payment. - Securitization of arrears. - Some discounts. - Financing and credibility: - Strategy to include a credible plan to finance clearance including external and domestic financing consistent with reducing debt vulnerabilities and improving financial stability. - Public communication and outreach is a key component to rebuild private sector confidence by reducing uncertainty about repayment of arrears. - Government expects support from Chad’s external development partners to be critical to clear the arrears. ### Cash management reforms - Institutional arrangements: - Cash Plan Committee responsible for cash flow forecasts and management, monitoring the current Treasury account at the BEAC, and centralizing public accounting operations, cash flow and public debt. - Cash management plan: - Includes monthly forecast of revenue and main expenditure (notably the wage bill, and domestic and external debt service). - Future focus: refine monthly cash flow plan and include it within the budget (in line with CEMAC Directive) starting with the 2020 budget, with semi-annual updates. - Strengthen Committee responsiveness to update revenue and expenditure forecasts. - Single Treasury Account (TSA): - Steps to establish a TSA, starting with a census of all accounts in commercial banks that could be covered by the TSA. ### Public debt recording and monitoring - Acknowledged weaknesses: - Past weak public debt management, monitoring and reporting led to misreporting of information on debt service to the IMF. - Planned actions: - Develop a medium-term debt strategy and strengthen debt monitoring. - Seek follow-up TA support to improve debt management. - Continue to publish the annual public debt management report and incorporate a section elaborating on short- to medium-term debt management strategy and risk analysis. - Ensure external debt service is paid on time and adequately reported to the Fund via payments in line with the escrow account mechanism. - Relevant officials to meet monthly (with IMF resident representative as observer) to review past payments and plan forthcoming ones. ### Public procurement and transfers to SNE - Procurement: - Intend to improve efficiency and transparency of public procurement by strengthening the capacity of the Public Procurement Regulatory Authority. - The General Directorate of Control of Public Procurement continues to publish a quarterly bulletin. - Transfers to the National Electricity Company (SNE): - State subsidy to SNE provided through the SHT, which sells up to 4 million barrels a year to the SRN from state royalties at the selling price of $46.85 / barrel and in proportion to the volume delivered. - SHT instructs SRN to withhold monthly charges equivalent to diesel tanks and MW delivered to SNE and pay the remainder to the Treasury. - SRN pays the State 60 percent of the difference between the selling price of crude oil abroad and the sale price to the SRN. - In 2018, the state subsidy to SNE amounts to $103 million or about CFAF 60 billion. - Transfers to SNE will be reflected transparently in the budget as early as 2021. ### Banking sector reforms - Overall objective: - Implement strategy to strengthen the position of public banks; address arrears and accelerate payment of debt owed to domestic banks to ease banking sector pressures. - Specific measures for two large public banks (CBT and BCC): - External consultants to complete audits and share final reports on review and reorganization plans with IMF staff and COBAC (prior action). - Reorganization and funding plans to be shared with IMF and COBAC staff before end-July and adopted by decision-making bodies of CBT and BCC before end-September 2019 (new SB). - Government committed to address identified weaknesses and improve governance; may reconsider the role of the government in the banks. - Bank-level requirements: - Banks should continue to improve liquidity positions. - Banks with large NPLs should adopt a clear strategy of increasing provisioning. - Financial inclusion and credit information: - Aim to increase financial inclusion by encouraging microfinance institutions and developing mobile money payments. - Facilitate access to credit via emergence of Credit Information Bureau (BIC) to collect, process and disseminate borrower information to all players (credit institutions, microfinance institutions and payment institutions). ### Governance, anti-corruption, and AML/CFT - UNCAC implementation: - Government committed to implement the United Nations Convention against Corruption (UNCAC), ratified by the National Assembly in 2017. - Will seek UN support to assess and strengthen penal code where necessary to criminalize acts of corruption in line with UNCAC. - Asset declaration: - Constitution requires high officials to declare assets, but compliance is very low partly due to absence of implementing legislation. - Government preparing legislation to strengthen implementation of asset declaration obligations. - AML/CFT: - New money laundering law enacted end of 2018; focus now on implementation of AML/CFT frameworks at the national level. ### Oil sector transparency - Recent progress: - EITI completed Chad’s assessment under the 2016 standards in early May. - Significant progress in disclosing contracts and licenses with World Bank support. - Published certified and verified annual financial reports for 2015-2016 for SHT holding and subsidiaries. - Audit of joint operations of two major oil companies launched with World Bank support. - Further commitments: - Improve transparency and management of oil revenues accruing from exports to an offshore account. ### Electricity access and sector reform - Access and constraints: - Only 9 percent of the population has access to electricity. - Low efficiency and high production cost of public electricity company require reforms to attract investment. - Government commitment: - Seek concessional financing to support investment to raise power generation capacity, transmission and distribution at lower cost. ### National Development Plan (NDP) and private sector - 2017-21 NDP implementation: - Progress in raising some financing for public investment from multilateral and regional creditors. - Private sector contribution remains lacking, partly due to government commitment not to provide sovereign guarantees on nonconcessional financing. - Private sector dialogue: - October 2018 national week of reflection called for actions to improve governance and anti-corruption framework, procurement transparency, access to internet and electricity, and transparent payment of domestic arrears. - Government began following up on recommendations. ### Program monitoring and Technical Memorandum of Understanding (TMU) - Monitoring arrangements: - Negotiation Committee in the Ministry of Finance and Budget will continue to monitor implementation; maintains communication with IMF staff and Resident Representative in Chad. - Program monitored through bi–annual IMF Executive Board reviews based on performance criteria, indicative targets, and structural benchmarks. - Fifth review on or after October 15, 2019; sixth review on or after April 15, 2020. - Government undertakes to adopt, in consultation with IMF staff, any new financial or structural measures necessary for program success. - TMU scope (summary of contents): - Reporting procedures; definitions and computation methods; quantitative performance criteria; indicative targets; adjusters to QPCs and ITs; structural benchmarks. - Data on QPCs and ITs and progress on structural benchmarks to be transmitted regularly per Attachment 1; revisions forwarded within 14 days. - Definition highlights: - "Government" refers to central government as per GFSM 2014 paragraphs 2.85–2.89. - Public nonfinancial enterprises listed include STE, SNE, SOTEL, STPE, SHT, COTEX, SONACIM Tchad, CimenTchad, SIMATRAC, STH, FER. - "Oil revenue" defined as sum of (i) gross sales revenue of government’s crude oils obtained through government’s equity participation minus costs due to equity participation (cash-call) and transportation costs, (ii) royalties, (iii) statistical fees, (iv) profit tax, (v) dividends, (vi) bonuses, (vii) revenues from exploration duties, (viii) surface tax, (ix) access rights to the pipe, and (x) any other flows of revenue paid by oil companies (settled in-kind and in-cash), except indirect duty and taxes; exceptional receipts excluded. - "Customs revenue" recorded on a cash basis and, for program monitoring, refers to amounts in the “Situation des régies financières” of the Treasury. - "Exceptional receipts" include payments from resolution of protracted disputes with foreign companies and payments from sale/placement/privatization of government assets or granting/renewal of licenses. - "Total government revenue" equals tax revenue plus non-tax revenue and includes oil revenue, customs revenue, and exceptional receipts as defined. - "Total government expenditure" equals wages and salaries, goods and services, transfers (including subsidies, grants, social benefits), interest payments, and capital expenditure; recorded on a commitment basis unless stated; includes “dépenses avant ordonnancement” (DAO). - DAO defined and categorized into two types: those relative to a budget credit line (regularizable) and those irrespective of budget credit line (requiring Amended Financial Law or ministerial order). - "Wages and salaries" computed from the document “Masse salariale” and include wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other monetary or non-monetary payment; “Masse salariale” excludes certain contract staff compensations classified as Transfers. *Source: IMF staff and Chadian authorities, excerpts from the Memorandum on Economic and Financial Policies and the Technical Memorandum of Understanding.* ### 12. Subsidies are defined as government current expenditure that are made to enterprises on ### 1tcdea2019002 - Definitions, Fiscal Targets, and TMU Provisions ### Definitions of Transfers and Subsidies - Subsidies: government current expenditure made to enterprises on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import. For program monitoring, subsidies refer to those reported in “Tableau de 4 Phases”. - Transfers: government current expenditure to individuals, private nonprofit institutions, nongovernmental foundations, corporations, or government units not included in other categories of transfers. For program monitoring, transfers refer to those reported in “Tableau de 4 Phases”. ### Capital Expenditure - Capital Expenditure: expenditure for acquisition of land, intangible assets, government stocks, and nonmilitary, nonfinancial assets, of more than a minimum value and to be used for more than one year in the process of production. Capital expenditure may be separated into a capital account or capital budget. ### Debt: Scope and Classification - Debt definition: as in paragraph 8 of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. 15688-(14/107), and includes contracted or guaranteed commitments for which values have not been received. Debt is a current (not contingent) liability created under a contractual arrangement through provision of assets or services and requires future payments in assets or services. - Primary forms of debt: - Loans: advances repayable in the future (including deposits, bonds, debentures, commercial loans, buyers’ credits), and temporary asset exchanges equivalent to fully collateralized loans (repurchase agreements, official swap arrangements). - Suppliers’ credits: contracts permitting deferred payment after delivery of goods or services. - Lease agreements: debt equals the present value (at inception) of all lease payments expected for the agreement period, excluding payments necessary for operation, repair, and maintenance. - Penalties and judicially awarded damages arising from failure to pay under a contractual obligation that constitutes debt are also debt. - Domestic debt: debt denominated in Central African Franc (CFAF). - External debt: debt denominated in a foreign currency (other than CFAF). - Concessionality threshold: debt is concessional if it includes a grant element of at least 35 percent and non-concessional if otherwise. - Grant element: the difference between the nominal value of the loan and its present value, expressed as a percentage of the nominal value of the loan. Present value at contract date is the discounted sum of all future debt service payments using a discount rate of 5 percent per annum. ### Arrears: Domestic and External - Domestic payment arrears: sum of (i) recognized expenditure payment arrears and (ii) domestic debt payment arrears. - Recognized expenditure payment arrear: outstanding amount in a payment order, validated and certified, classified as a float after Treasury authorization; classified as recognized expenditure payment arrear 90 days after issuance of payment authorization. Excludes domestic debt payment arrears and arrears on wage and salaries. - Unrecognized expenditure payment arrears: potential arrears not through standard spending procedure; determined by an audit of domestic arrears. - Domestic debt payment arrears: difference between amount required under contract/legal document and amount actually paid after the payment deadline. - External debt payment arrears: external debt obligations of the government and public non-financial enterprises not paid when due under contractual terms (accounting for contractual grace periods). Excludes arrears where creditor has accepted in writing to negotiate alternative schedules before the due date and excludes technical arrears less than six weeks. ### Non-Oil Primary Balance and Poverty-Reducing Social Spending - Non–oil primary balance (NOPB): on a commitment basis, difference between (i) total government revenue (not including grants, oil revenue and exceptional receipts), and (ii) primary expenditure, defined as total government expenditure minus interest payments on domestic and external debt and foreign–financed capital expenditure. - Poverty–reducing social spending: public spending by ministries: (i) National Education and Civic Promotion, (ii) Public Health, (iii) Women, Early Childhood Protection and National Solidarity, (iv) Production, Irrigation and Agricultural Equipment, (v) Livestock and Animal Production, (vi) Environment Water and Sanitation, and (viii) Professional Training and Small Job Promotion. Also includes education spending through the ministry of health in the amount of 7 CFAF billion. ### Domestic Currency Government Financing - Defined as issuance of any instrument in CFAF to creditors; loans from BEAC (including support from the IMF), BDEAC, and CEMAC Member States, or any other debt contracted in CFAF. - Net domestic currency financing subdivisions: - Net bank financing: change in net government position towards domestic commercial banks, includes prepaid interest. - Net securitized financing: issuance of securitized government bonds and loans in CFAF to domestic and regional banks net of related amortizations since the end of the previous year. - Net government financing from BEAC: change in net government position towards the BEAC. - Other non-bank financing. - Net claims definition: difference between government debts and its deposits in the Central Bank and commercial banks as defined by BEAC. ### Program Reference Rate - Program reference rate: staff’s average projected rate for the six-month USD LIBOR over the following 10 years identified as 3.22 percent for the duration of the program. - Present value calculation for loans with flexible interest rate: use program reference rate plus the fixed spread (in basis points) specified in the loan contract. If variable rate linked to another benchmark, add a spread reflecting the difference between that benchmark and six-month USD LIBOR (rounded to the nearest 50 basis points). ### Quantitative Performance Criteria (QPC) - Assessment: QPCs are cumulative from beginning of calendar year to applicable test-dates. Continuous QPCs must never be non-observed; any non-observance reported promptly to the IMF. Adjusters in Section E. - Specified QPCs: - A floor for the non–oil primary balance (defined in paragraph 17). - A floor on custom revenue (defined in paragraph 6). - A ceiling on net domestic government financing (excluding BEAC): sum of net bank financing and net securitized financing (para 19). Ceilings do not apply to new agreements on internal debt restructuring and arrears securitization and to credit from the banking sector used to pay arrears of the cotton public enterprise. - A ceiling on net government financing from BEAC (includes support from the IMF). - A ceiling on the stock of domestic recognized expenditure payment arrears. As of end-December 2018, the stock of recognized expenditure payment arrears was at CFAF 160 billion based on Treasury Table “Reste à Payer”. Ceilings for end-March and end-June 2019 adjusted upward to reflect end-December 2018 actual stock; ceilings for end-September and end-December 2019 set to offset lower repayment in 2018. - A zero ceiling on the accumulation of any new external payment arrears by the government and public non-financial enterprises (continuous). Any non-observance reported promptly with date, amount, and creditor. - A zero ceiling on new non-concessional external debt contracted or guaranteed by the government and non–financial public enterprises, with maturity more than one year (continuous). Excludes IMF financing. Non-concessional defined as grant element of less than 35 percent (Paragraph 14). Exclusions: (i) normal short–term credits for imports; (ii) debt contracted before the ECF arrangement and rescheduled during arrangement to the extent rescheduling is assessed to improve overall public debt profile. ### Indicative Targets and Memo Items - Assessment: cumulative from beginning of calendar year to applicable test-dates. Adjusters in Section E. - Specified indicative targets and memo items: - A floor on poverty–reducing social spending equivalent to 34 percent of domestically financed primary spending in 2019. Poverty–reducing social spending defined in paragraph 18. - A ceiling (22 percent) on the use of emergency spending procedures (DAO) excluding the wage bill, military spending and debt service as a percent of primary spending excluding the wage bill and military spending (memo item). Military spending is spending by the Ministry of Defense. - A floor on the regularization of spending executed through DAO (memo item). Regularization of DAO done within 45 days after the end of the quarter as follows: 70 percent after the second quarter, 75 percent after the third quarter, and 80 percent after the fourth quarter. ### Adjustors to Performance Criteria and Indicative Targets - Adjustors for factors beyond government control during the assessment period: - If total budgetary receipts and loans are lower than programmed due to lower oil revenue or budget support, then ceiling on stock of domestic payment arrears can be adjusted upward up to the planned arrears repayment amount. An increase in net domestic financing (either net domestic government financing excluding BEAC or net government financing from BEAC) could be envisaged up to 25 percent of the shortfall not compensated for through reduction in arrears payment. - If total budgetary receipts and loans are larger than programmed because of higher oil revenue, additional budget support excluding grants to finance parliamentary elections, or exceptional receipt: - the floor for the non-oil primary balance can be adjusted down by 25 percent of the excess amount; - the ceiling on net financing from the BEAC shall be adjusted down by 25 percent of the excess amount; - the ceiling on net domestic government financing excluding BEAC shall be adjusted down by 25 percent of the excess amount; and - the ceiling on the stock of domestic recognized expenditure payment arrears shall be adjusted down by 25 percent of the excess amount. - The non-oil primary balance can be adjusted downward by the same amount of budget grants provided to finance the parliamentary elections. - Should primary expenditure compression be needed, poverty-reducing social spending would be adjusted to the extent that it is reduced proportionally less than other domestically financed primary spending such that its ratio does not decline below 34 percent. ### Structural Benchmarks and Prior Actions - Prior Actions (specified in Table 2 of the MEFP): - Deliver to BEAC, COBAC and Fund staff the reports of external consultants on the review and reorganization of the two public banks (CBT and BCC). - Finalize and share with IMF staff the audit of all domestic arrears covered in the Interim Report from the auditor, which are being reviewed by the Steering Committee. Arrears validated by the Steering Committee shall be confirmed by the auditor. Start the audit of remaining arrears. Coverage of the audit should include at least i) all remaining “Grand Travaux Presidentiels” and ii) all potential arrears not yet reviewed from the Infrastructure ministry. The government will share the terms of reference and signed contract with the auditors with IMF staff. *Source: Excerpt from the TMU and MEFP provisions in the provided IMF text.* ### 25. Structural benchmarks are specified in Table 2 of the MEFP. Outstanding SBs are governed ### 1tcdea2019002 - 25. Structural benchmarks are specified in Table 2 of the MEFP. Outstanding SBs are governed ### Structural benchmarks and reporting requirements - Publication of a quarterly note on the oil sector, in line with the template agreed with the IMF staff, including detailed information on debt service to Glencore, quarterly, starting end-September 2019 (Table 2). - The note issued at end-September will cover developments up to the end of the previous quarter (June 2019). - The note will comment on recent developments in the oil sector, including information related to production, export, and new exploration over the previous quarter, and expectation and forecast for the next 6 months. - The note will provide a detailed account of the flow of oil revenue: - Oil revenue reported by categories and corresponding types of payments: in-cash (payment made in cash by oil companies) and in-kind (payment made in crude oil by oil companies). - Other information to include: sale of government-owned crude oils (gross sales revenue, volume sold, transaction prices), operating costs (“Cash-call”) to oil companies, transportation cost, interest payments, principal repayment, other related fees paid to service the Glencore loan, and the final amount of sales revenue accrued to the Treasury. - Create and publish a VAT taxpayer list and integrate it in the computerized system by end-September 2019 and apply a custom penalty rate of 15 percent for companies that are not registered. - Based on the conclusion of the audit of BCC and CBT, adopt restructuring and funding plans for CBT and BCC in coordination with BEAC, COBAC and Fund staff by end-September 2019. - Complete audit of remaining domestic arrears described in paragraph 24 by September 2019. - Adopt a clearance strategy of domestic arrears based on the completed results of both audits by end-November 2019. - The clearance strategy should include transparent and objective factors for prioritization, including economic and social impact, and the effect payment is expected to have on the banking sector. It should address clearance modalities, notably whether and how much the government will pay in cash, restructure and securitize. - The strategy should also indicate the plan to finance clearance. - Complete the implementation of the recommendations of the audit of the 47 exemption conventions with a view to removing or modifying those that do not comply with the legal texts or that have not been correctly executed, by end-February 2020. - Publication every six months of a list of all new, renewed or extended tax and customs exemptions during the previous six months. The first list should be published at end-July and should cover the period January to June 2019. ### Summary of data reporting (selected items and periodicities) - Oil and Non–oil revenue, by category; Collection situation; Revenue position of the revenue-collecting agencies: - Provider: Ministry of Finance and Budget (Treasury) - Periodicity/Target Date: Monthly, within 45 days of month–end - Quarterly Oil Sector Note: - Provider: Ministry of Finance and Budget - Periodicity: Quarterly - Budget execution data, including on poverty–reducing social spending, showing commitments, validations, authorizations of payment order, and cash payments: - Provider: General Budget Directorate (DGB) - Periodicity: Monthly, within 45 days after month–end - Detailed budget execution information for transfers in the same classification as the budget: - Provider: Ministry of Finance and Budget (General Budget Directorate) - Periodicity: Monthly, within 45 days of month–end - Details by project financed domestically, execution of the investment budget, organized by Ministry: - Provider: Ministry of Finance and Budget (General Budget Directorate) - Periodicity: Quarterly, within 45 days of the end of the quarter - Information on DAO regularization: - Provider: Ministry of Finance and Budget - Periodicity: Quarterly, within 60 days after the end of the Quarter - Information on public procurement in the previous month and updating of payment maturity for the rest of the year: - Provider: Ministry of Finance and Budget (Financial Control)/SGG (OCMP/Procurement Directorate) - Periodicity: Monthly, within 45 days of month–end - Table on external debt (including those in local currency), including previous month’s due payments, payments made, and projected payments due for the next 3 months broken down by creditors: - Provider: Ministry of Finance and Budget - Periodicity: Monthly, within 45 days of month-end - Information on external debt arrears (including those in local currency): updated list of stock of arrears broken down by creditors; repayment information; rescheduling agreements: - Provider: Ministry of Finance and Budget - Periodicity: Monthly, within 45 days of month-end - In case of missed external debt service payment the following information will be needed: i) the date of the missed payment; ii) amount of the missed payment and iii) creditor involved: - Provider: Ministry of Finance and Budget - Timing: Within 14 days of occurrence - Details on the servicing of the domestic debt and payment arrears of the government: - Provider: Ministry of Finance and Budget (Debt Directorate, DCP) - Periodicity: Quarterly, within 45 days of the end of the quarter - Details on the servicing of the external debt of the government: - Provider: Ministry of Finance and Budget DGTCP (Debt Directorate) - Periodicity: Quarterly, within 45 days of the end of the quarter - Details on new loans contracted or guaranteed by the government and public non-financial companies: - Providers: Ministry of Finance and Budget (Debt Directorate); Ministry of Plan and International Cooperation (DGCI) - Timing: Within 45 days of transaction completion - Monetary survey and provisional monetary data from the BEAC (Exchange rates, foreign reserves, assets and liabilities of the monetary authorities, base money, broad money, central bank balance sheet, consolidated balance sheet of the banking system, interest rates): - Provider: BEAC - Periodicity: Monthly, within 45 days of month–end - Balance of SDR account at month end: - Provider: BEAC - Periodicity: Monthly, within 3 months of month–end - Net banking system claims on the government (NGP): - Provider: BEAC - Periodicity: Monthly, within 30 days of month–end - Consumer price index: - Provider: INSEED - Periodicity: Monthly, within 45 days of month–end - Gross domestic product and gross national product: - Provider: Macroeconomic Framework Committee (SG MFB) - Periodicity: Annually, within 180 days of year end - Balance of payments (External current account balance, exports and imports of goods and services, etc.): - Provider: BEAC - Periodicity: Annually, within 180 days of year end (preliminary data) - Gross external debt: - Provider: Ministry of Finance and Budget DGT (Debt Directorate) - Periodicity: Annually, within 90 days of year end ### Oil revenue reporting (Table 2 summary and requirements) - Table 2 titled "Chad: Summary of Oil Revenue" lists categories and line items to be reported in CFAF and barrels, with columns for 2018 actual, 2019 projection, 2020 projection and unit (Million, Barrel, CFAF, US Dollar). - Line items include (as presented): Production Volume (Barrel), Export Volume (Barrel), Export Value (CFAF), Crude Oil supplied to SRN (Barrel), Crude Oil Received By the Government (Barrel), By SHT (Barrel), Total (Barrel), Total Oil Revenue (CFAF), Direct Receipt (CFAF), Net Sales Revenue (CFAF), Direct Receipt Profit Tax (in Cash) (CFAF), Statistical Fee (CFAF), Surface Fee (CFAF), Dividend (CFAF), Bonus (CFAF), Other Receipt in cash (CFAF), Total (CFAF), Gross Government Crude Oil Sales Revenue (Government CFAF, SHT CFAF), Net Sales Revenue (CFAF), Average Selling Price in FCFA (CFAF) and in USD (US Dollar), Doba Discount (US Dollar), Oil sales until March 2017 (Government Export Volume Barrel, Export Value CFAF, Average Selling Price CFAF, Transportation Cost CFAF), SHT Export Volume Barrel, Export Value CFAF, Average Selling Price CFAF, Transportation Cost CFAF, SHT participation cost (Cash-call) CFAF, Glencore Debt (Interest Payment CFAF, Principal Repayment CFAF, Restructuring Fee CFAF), Net Sales Revenue CFAF, Memorandum Item Exchange Rate CFAF/USD. ### Institutional relations, technical assistance, and publication practices - Relations with the IMF: - Membership Status: July 10, 1963 - Quota: 140.20 (SDR Million) equals 100.00 percent Quota - Fund holdings of currency (Exchange Rate): 137.00 (SDR Million) equals 97.72 percent - Reserve Tranche Position: 3.24 (SDR Million) equals 2.31 percent - SDR Department net cumulative allocation: 53.62 (SDR Million) equals 100.00 percent - Holdings: 0.25 (SDR Million) equals 0.46 percent - Outstanding Purchases and Loans: ECF Arrangements 230.05 (SDR Million) equals 164.08 percent Quota - Latest ECF arrangement: ECF Jun 30, 2017 to Jun 29, 2020; Amount Approved 224.32 (SDR Million); Amount Drawn 140.20 (SDR Million) - Overdue Obligations and Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Forthcoming Principal and Charges rows indicate forthcoming amounts for years 2019–2023 (Principal: 2.00 8.12 17.01 29.68; Interest: .045 0.61 0.61 0.61 0.61; Total: 0.45 2.61 8.73 17.62 30.29) as presented. - Implementation of HIPC Initiative and disbursements: - Assistance committed by all creditors: 170.12 (US$ Millions) - IMF assistance (US$ million): 18.02; SDR equivalent in millions: 14.26 - Completion point date: Apr 2015 - Disbursement of IMF assistance (SDR million): Assistance disbursed to the member 14.26; Interim assistance 8.55; Completion point balance 5.71; Additional disbursement of interest income 2.77; Total Disbursement 17.03 - Technical assistance focus areas: revenue administration, public financial management (PFM), debt management, and quality of macroeconomic data. Posting long-term experts and providing training recommended to enhance absorption capacity. - Numerous TA missions listed with Department, Purpose, and Time of Delivery across 2014–2019 (examples include AFC Public Debt Management – Institutional Framework April 2019; STABP Balance of Payments Statistics April 2019; AFC National Accounts April 2019; AFC Public Financial Management March 2019; AFC Macrofiscal January 2019; etc.). - Resident Representative: Mr. Joseph Ntamatungiro since September 2018. - IMF and World Bank coordination: - Exchange of macroeconomic framework updates, program status, technical assistance plans. - Joint products include joint Bank-Fund Debt Sustainability Assessments (DSA). - Active participation in the Financial and Technical Partners Committee (CPTF) and leadership in the thematic group “macroeconomics, public finance and private sector”. ### Statistical issues, data adequacy, and reporting status - General: Data provision has capacity-related shortcomings but is broadly adequate for surveillance. Scope for improvement in quality, coverage, and timeliness in most macroeconomic datasets. - National accounts: - Authorities are revising national accounts estimates, moving from the 1993 SNA to the 2008 SNA, rebasing GDP estimates using 2017 as the new base year (current base year 2005). - Final Annual National Accounts available until 2017. - Compilation remains weak due to inadequate funding for INSEED and high staff turnover. - Price statistics: - Harmonized Consumer Price Index (HCPI) base year 2014; index weights from the 2011 household consumption expenditure survey. - HCPI covers five major cities and methodology aligns with CEMAC and AFRISTAT; sometimes released with delays. - Government finance statistics: - Data weaknesses create uncertainty about central government’s fiscal position due to a deficient accounting system of Treasury transactions. - Staff prepares estimates from disparate administrative sources that may not reconcile with domestic bank financing or changes in net indebtedness. - Monetary statistics: - BEAC reports monetary and financial statistics monthly using standardized report forms (SRFs). - Shortcomings: lack of clear reconciliation between banking system net credit to government and implicit financing in weak government financial accounts; interest rate data to non-financial entities not available; depository corporations’ survey omits many microfinance operations. - Balance of payments: - Weak BOP data create uncertainty about actual external position; BEAC National Directorate for Chad prepares BOP data validated with a long lag (validated data stops in 2008). - BOP data through 2016 compiled based on BPM6 but significant imputation errors persist due to IT system breakdown. - Customs-based data unreliable; coverage problems. Staff must estimate flows from surveys and disparate administrative sources. Informal cross-border transaction coverage insufficient. IIP inconsistent with BOP and national accounts and monetary statistics. - IMF Statistics Department recommended tighter coordination among BEAC, INSEED, and other agencies; BEAC headquarters coordinating technical reforms. - Data Standards: - Chad participates in the IMF’s Enhanced General Data Dissemination Standard (e-GDDS). Metadata and plans for improvement posted on the IMF’s DSBB last updated in July 2002. - Reporting to STA (optional): - Only international liquidity, monetary statistics, GDP, and prices currently reported to STA for publication in IFS. - Chad has not yet resumed reporting detailed data for Government Finance Statistics Yearbook; annual fiscal data through 2001 reported and included in IFS database. - Chad has yet to submit BOP and IIP data to STA. ### Debt sustainability and risk assessment (Joint Bank-Fund DSA) - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity in the risk rating: Sustainable - Application of judgement: No - Key findings: - Chad’s risks of external and overall debt distress are high but have nonetheless declined in the past year. - All but one external debt sustainability indicators are below their respective thresholds from 2019 onwards. - The debt-to-revenue ratio moderately breaches its threshold under the baseline scenario. - Overall, total public debt vulnerabilities are elevated although the present value (PV) of the public debt-to-GDP ratio remains on a downward trajectory. - The DSA is based on projected continued fiscal prudence and an increase in non-oil revenues. - Following the restructuring in 2018, the new Glencore debt contract allows for lower debt service when oil prices are lower, helping contain the impact of low oil prices on debt sustainability. *Prepared by the Staffs of the International Monetary Fund (IMF) and the International Development Association (IDA).* ### 1. State and local debt has been added to the coverage of public debt. As in the previous ### 1tcdea2019002 - 1. State and local debt has been added to the coverage of public debt. As in the previous ### Coverage of public-sector debt and contingent liability stress tests - Coverage now includes: - central government - state and local government - state guaranteed external debt owed by the public oil company “Société des Hydrocarbures du Tchad” (SHT) - central bank (borrowed on behalf of the government) - Other public sector entities (including regions and other state-owned enterprises) do not have access to external financing. - The Ministry of Finance plans to complete a census of public sector enterprises by the end of the year to assess outstanding domestic borrowing; staff will use findings to include SOE debt in the DSA. - Contingent liability stress test design: - non-guaranteed SOEs, unaudited domestic arrears, and financial markets vulnerabilities are included. - contingent liabilities from financial markets set at 5 percent of GDP (represents average cost to government of a financial crisis in a low-income country since 1980). - customized domestic arrears stress set at 8 percent of GDP (in addition to standard amounts). - standard SoE debt included at 2 percent of GDP. - total of the customized stress components reported as 15 (percent of GDP) in Text Table 1 (2 + 3 + 4 + 5). ### Evolution and composition of external and domestic debt - External PPG debt developments: - external PPG debt rose over the past decade mainly due to external commercial borrowings related to oil (Glencore loans in 2013 and 2014). - falling oil prices over 2014-16 reduced revenues available to repay oil sales advances; debt restructured twice, most recently in early 2018. - At end-2018, outstanding PPG external debt stood at about $2.6 billion (27 percent of GDP). - CFAF-denominated debt held by BEAC, BDEAC, and bilateral creditors in the currency union amounts to 9.9 percent of GDP (not included in external debt, which is calculated on a currency basis). - Change in creditor composition (2008–2018): - share of external debt from multilaterals fell from about 87 percent in 2008 to 28 percent in 2018. - share of commercial debt rose to a peak in 2017 of 54 percent and trended down thereafter. - bilateral debt doubled over the decade but remains below commercial debt as a share of total. - Table 1 highlights external debt stock (2015–2018): - Total (Millions of $): 2015: 2,735; 2016: 2,622; 2017: 2,649; 2018e: 2,671. - (Percent of GDP): 2015: 25; 2016: 27; 2017: 25; 2018e: 25. - Commercial component (Millions of $): 2015: 1,481; 2016: 1,394; 2017: 1,272; 2018e: 1,199. - Note: Glencore loan accounts for about 98 percent of commercial debt stock in 2017. - External arrears: - Accumulated in 2016 and 2017; reduced considerably in 2018. - At end-2017 about $102 million (about 1 percent of GDP) remained outstanding. - Authorities reduced this stock to $63 million (notably about $55 million to the Rep. of Congo) by paying amounts to the Islamic Development Bank and through rescheduling with Libya and India. - Active discussions underway with Angola, Equatorial Guinea, Republic of Congo, European Investment Bank, and Mega Bank. - Domestic public debt trends: - Domestic public debt began to decline in recent years after a peak in 2015. - Debt to the BEAC (33.7 percent of total debt) was restructured and borrowing stopped. - Some local-currency debt is held within CEMAC region (about 8.9 percent of total debt owed to official bilateral partners and BDEAC). - Since 2017, domestic debt has been declining as authorities aim to loosen bank-sovereign nexus and reduce domestic arrears. - State and local debt amounts to less than 0.1 percent of GDP. - Text Table 2 (Domestic Debt Stock 2015–2018) highlights: - Total (Billions of CFA francs): 2015: 1,191.8; 2016: 1,482.2; 2017: 1,445.6; 2018: 1,424.1. - (Percent of GDP): 2015: 18.3; 2016: 24.4; 2017: 24.6; 2018: 23.1. - Central Bank financing (Percent of GDP): 2015: 38.1; 2016: 33.3; 2017: 33.2; 2018: 33.7. - Domestic arrears (Percent of total): 2015: 16.8; 2016: 12.8; 2017: 13.5; 2018: 11.2. - Treasury Bonds, Treasury Bills, BDEAC, and bilateral holdings (Republic of Congo, Equatorial Guinea, Cameroon) detailed in table. ### Macroeconomic forecast and financing assumptions - Baseline scenario assumptions: - Reflects policies and financing under the ECF arrangement and medium-term projections reflecting Glencore debt restructuring. - Growth projections revised down from previous DSA (December 2018): prior projections were 4.6 and 6.1 percent in 2019 and 2020 respectively; revised to 2.4 and 5.5 percent. - Non-oil recovery expected to be slower due to legacies from the crisis. - Ongoing revenue-led fiscal consolidation assumed to continue at gradual pace with spending control maintained. - Baseline assumes full clearance of external arrears in 2019 and gradual repayment of domestic arrears. - Financing and interest assumptions: - Externally financed investment unchanged. - Discount rate kept at 5 percent over forecast horizon. - Grant element of new borrowing assumed to decline gradually. - Shift towards short-term domestic debt; share of T-bills revised up; average interest rate on domestic debt revised upward slightly. - Realism and growth outlook: - Projected 3-year fiscal adjustment in line with historical LIC adjustment programs. - Fiscal multiplier tool suggests growth in 2020 could be optimistic given consolidation; staff expect catalytic effect outside immediate fiscal impulse. - Private sector confidence expected to improve with fiscal health, budget execution, clearing domestic arrears, and implementation of national development plan. - Private investment in oil sector expected to drive private-sector-led growth; public sector investment remains low. - Recent privatization of cotton public enterprise expected to strengthen private sector contribution. ### Debt sustainability analysis, stress tests, and scenarios - Country classification: - Composite indicator (CI) based on April 2019 WEO and updated CPIA to 2019 indicates weak debt carrying capacity for Chad. - CI score reported as 2.48; CI cutoff for medium debt carrying capacity is 2.69; CI rating: Weak. - Key CI component contributions: - CPIA: coefficient 0.385, 10-year average value 2.677, component 1.034 (42% contribution). - Real growth rate: coefficient 2.719, 10-year average 2.745, component 0.073 (3% contribution). - Import coverage of reserves: coefficient 4.052, average 32.207, component 1.315 (53% contribution). - Import coverage of reserves^2: coefficient -3.990, average 10.373, component -0.41 (-17% contribution). - Remittances: coefficient 2.022, average 0.000, component 0.000 (0%). - World economic growth: coefficient 13.520, average 3.559, component 0.481 (19%). - Stress tests employed: - Six standard stress tests plus a customized oil price shock. - Customized oil price shock: oil prices lower than baseline by 38 percent between 2020 and 2025; calibrated to account for contingency mechanisms under the Glencore debt contract that limit negative near-term effects. - Glencore contract features: - debt service includes mandatory amortization and interest plus cash sweep component that falls to zero as Doba oil price hits a certain price. - contract allows Chad to shift out some mandatory payments as prices fall. - in 2020 debt service will rise as grace period on mandatory amortization expires; contingencies alleviate debt service burden next few years and moderately raise it starting in 2023; by 2029 debt service returns to baseline as Glencore debt is retired. - External debt sustainability findings: - Under baseline, public external debt projected to gradually decline. - Present value of PPG external debt to GDP, PV PPG external debt to exports, and debt service to exports are well below thresholds under baseline. - Debt service to revenue ratio expected to drop below its threshold of 14 percent in 2019, rise moderately over medium term before dropping significantly as Glencore debt matures. - Under stress tests thresholds are breached for all indicators. - Export shock produces most extreme scenario for all indicators except debt service to revenue (commodity shock most extreme for that ratio). - Under export stress test: PV PPG external debt-to-GDP breached from 2021 until 2024; PV PPG external debt-to-exports breached from 2021 until 2026; debt service to exports breached from 2021 onwards. - Public debt sustainability findings: - Benchmark for public debt breached under baseline. - PV of total public debt-to-GDP ratio projected at end-2019 stands at 41 percent (about 6 percentage points above the 35 percent benchmark associated with heightened vulnerabilities with weak debt carrying capacity). - Indicator achieves below-threshold level by 2022 under baseline scenario. ### Risk rating, vulnerabilities, and policy implications - Risk ratings: - Chad assessed at high risk of external debt distress and high overall risk of public debt distress. - Debt vulnerabilities have declined significantly since program start due to Glencore rescheduling, projected oil recovery, and prudent fiscal policy. - Vulnerability detail: - Debt sustainability less vulnerable to oil price fluctuations than before restructuring due to Glencore contingency mechanisms. - In 2019 external debt service to Glencore expected around 64 percent of what was scheduled before late-2018 oil price dip. - In lower oil price scenario that includes contingencies, debt service to revenue ratio remains close to baseline. - CFAF-denominated debt held within BEAC, BDEAC, and bilateral creditors would weaken external DSA indicators if DSA were done on residency basis; these claims do not face currency risk but restructuring could still be difficult and rollover risk for securities held by non-residents remains. - Policy recommendations and priorities emphasized: - Maintain prudent fiscal policy including on external and domestic borrowing. - Continue efforts to clear remaining external and domestic arrears. - Strengthen inter-agency coordination and capacity to record and monitor public debt for better debt management. - Authorities prioritize conservative debt management and program commitment; they view improving non-oil economy growth performance as key to debt sustainability. - Authorities note difficulty in attaining concessional borrowing; they consider economic returns to projects like electrification and transportation sufficient to justify non-concessional terms but emphasize program commitment and conservative debt management as priority. *Source: 1tcdea2019002 (IMF).* ### 6. The authorities share staff’s views on a broadly favorable outlook while being ### 6. The authorities share staff’s views on a broadly favorable outlook while being ### Outlook and authorities' stance - The rise in oil production paired with the recovery in the non-oil sector, albeit at a slower pace, bode well for medium term growth. - The authorities remain committed to maintaining fiscal discipline regardless of future developments on oil markets while accelerating structural reforms. - The authorities will closely monitor security situations and take preventive measures to ensure a peaceful environment conducive for private investment. ### Policy and Reform Agenda for the Medium-Term - Overarching goal: achieve sustainable and inclusive growth through enhanced macroeconomic stability and implementation of the reform program. - Priorities for the period ahead: - Enhance fiscal policy. - Lift bottlenecks to the development of the non-oil sector and diversify the economy. - Address infrastructure gaps and improve the business climate, as envisaged under the National Development Plan (NDP). ### Fiscal Policy - Fiscal policy for 2019 and the medium term will be geared towards ensuring fiscal sustainability through: - Continued improvement in domestic revenue mobilization. - Greater spending efficiency. - Objectives for created fiscal space: - Increase public investment in infrastructure. - Meet social spending needs. - Clear arrears, in line with the program objectives. - Revenue mobilization measures: - Expand non-oil revenue through more efficient collection methods by streamlining tax and customs exemptions including on VAT. - Reform VAT and corporate income tax. - Strictly enforce legislation on importers. - Strengthen transparency and strict enforcement of tax collection in the oil sector. - Strengthen the IT system to improve customs and tax administrations. - Authorities are committed to enhancing fiscal resilience by building buffers. - Expenditure-side measures: - Continue prudent approach, including close monitoring of the wage bill. - Prioritize productive public investment, notably in infrastructure and education and health sectors. - Progress in clearance of domestic arrears despite pressures on public finances stemming from the fragile security situation. ### Public Financial Management (PFM) - PFM will be enhanced to improve efficiency and transparency in public resources management, including: - Strengthening monitoring and reporting. - Implementing CEMAC directives. - Enhancing cash management and the public procurement process. - Specific measures encompass: - (i) reducing the use of emergency spending procedures; - (ii) establishing a cash management plan; - (iii) implementing the Treasury Single Account (TSA); - (iv) capacity building notably in public procurement. - Arrears clearance: - Authorities are determined to adopt by November 2019 a comprehensive clearance strategy for resolving recognized domestic arrears, in line with the program objectives. - An audit will help assess the remaining arrears before payment. ### Financial Sector - Liquidity conditions in the banking sector have improved and recourse of banks to BEAC refinancing has declined. - The strategy of government arrears clearance should help reduce non-performing loans (NPLs) and reinforce banks’ contribution to the recovery. - Steps to address remaining banking vulnerabilities: - Implement recommendations of external consultants on review and reorganization plans for the two major public banks. - Work closely with regional institutions, BEAC and COBAC, to deepen the interbank money market. - Advance financial inclusion, including supporting the development of mobile banking. ### Capacity Building - Authorities acknowledge increased technical assistance (TA) from the IMF and development partners accompanying implementation of the ECF arrangement. - TA has covered: - Tax policy and domestic revenue mobilization. - Oil revenue projection and management. - Non-oil revenue mobilization. - Debt management. - Reform of the Treasury and PFM. - Given Chad being in fragile situation, the authorities are requesting long-term experts, notably in the area of PFM, to sustain the impact of capacity development and buttress coordination of TA and reform programs. ### Structural Reforms - Authorities will pursue structural reform agenda with priority areas: - Enhancing transparency and governance. - Improving the business climate. - Actions to facilitate private sector development: - Facilitate creation of SMEs by rationalizing related procedures. - Pursue financial sector reforms aimed at improving access of businesses to financing. - Governance measures: - Forcefully implement the United Nations Convention against Corruption (UNCAC) approved by the national assembly in 2017. - Implement the new anti-money laundering law to further improve the business climate. - To foster non-oil growth: - Authorities emphasize need to invest in the electricity sector, which requires significant resources. - Authorities call on development partners to avail necessary concessional financing given the zero limit on non-concessional borrowing under the ECF-supported program. - Transparency in the oil sector: - Recent publication of oil contracts and revenues, including those earmarked for debt servicing. - Publication of the financial statements of the state-owned oil company, Société des Hydrocarbures du Tchad (SHT). ### Conclusion and request - Authorities have made commendable progress in implementing sound policies and reforms to stabilize the economy and support recovery amid a difficult security environment. - Performance under the ECF arrangement continues to be satisfactory. - Authorities recognize remaining challenges, notably the imperative of increasing domestic revenue to finance public investment and diversify the economy away from oil dependency. - In view of Chad’s appreciable program performance in a difficult environment and the authorities’ continued commitment to the objectives of the program, the authorities request Executive Directors’ support for: - The completion of the Fourth Review under the Extended Credit Facility arrangement. - The request for modification of performance criteria. *Source: IMF staff and Chadian authorities text from chapter 6 of the referenced document.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1tcdea2019002.pdf_