## 1. New Oil Price and Production Smoothing Mechanism (Lissage)

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---

### Background and context
- Since approval of the current ECF arrangement in June 2017, progress in stabilizing the economy, but challenges remain: weak administrative capacity and fragility.
- Security risks:
  - Boko Haram attacks in the Lake Chad region continue.
  - State of emergency declared in a rebel-prone province in the north and in two eastern provinces; extended to January 2020.
  - Borders with Libya, Sudan, and Central African Republic under heavy military guard since end-August.
  - Parliamentary elections expected in early 2020; presidential elections in 2021.
- Regional monetary/FX context:
  - BEAC enforcement of CEMAC forex regulation (repatriation and surrender of export proceeds within 150 days) faced resistance from oil and gas companies.
  - BEAC invited companies to identify issues and planned technical consultations to identify necessary flexibility.
  - BEAC maintained a tight monetary stance, reduced liquidity injections, and adopted a regulation to deal with banks excessively depending on BEAC refinancing.

### Recent economic developments (2019)
- Growth and inflation:
  - Overall growth expected to reach 3.0 percent compared to 2.4 percent in 2018.
  - Non-oil economic growth expected to reach 2 percent.
  - Oil GDP growth expected to be 7.6 percent.
  - Inflation in September: -2.1 percent y/y; expected to remain low for remainder of the year.
- Fiscal performance (first nine months of 2019):
  - Non-oil revenue, including tax revenues, in-line with the budget. Oil revenue in line with projections.
  - Social spending fell short of projections in Q3 due to difficulties disbursing allocated funds.
  - Wage bill slightly exceeded projections by 0.1 percent of non-oil GDP due to higher security spending (restitution of basic salaries to the military).
  - Deposits at the BEAC dropped during the first nine months in line with projections.
- Banking sector and financial indicators:
  - Deposits increased by 25.7 percent (first eight months).
  - Credit increased by 4.6 percent (first eight months).
  - BEAC refinancing declined from CFAF 160.0 billion in December 2018 to CFAF 93.7 billion.
  - Overdue loans decreased from 31.4 percent of total loans at end-2018 to 27 percent.
  - Provisions increased to 56.3 percent from 53 percent at end-2018.
- External debt and arrears:
  - Outstanding external arrears fell with a debt agreement with Angola in June.
  - Two bilateral creditors with outstanding arrears (both in CFAF): Equatorial Guinea and Republic of Congo.
  - Good faith efforts nearing completion to address arrears with Mega Bank.
  - Debt service-to-revenue ratio forecast to reach 12.8 percent in 2019 (LIC DSA benchmark vulnerability threshold: 14 percent).
  - Forecast for external debt in 2019 rose by 0.5 percent of GDP.
- External sector and reserves:
  - Current account deficit forecast to rise to 6.2 percent of GDP in 2019 from 3.4 percent of GDP in 2018, driven by FDI-financed imports linked to oil field developments.
  - Strong FDI inflows expected to allow net foreign assets to climb substantially in 2019 and beyond.
  - BEAC overperformed end-June 2019 projection for net foreign assets (a regional policy assurance) by about € 800 million.

### Program performance (under ECF)
- Overall assessment:
  - Program performance broadly satisfactory.
- Quantitative targets and indicators (end-June and end-September 2019):
  - All end-June quantitative performance criteria and the indicative target on social spending met.
  - Payments of domestic arrears have exceeded the target.
  - Use of emergency spending procedures (DAO) under control, but regularization low:
    - Regularization at 20 percent vs. target of 70 percent (memo items under program).
  - End-September: All but one end-September IT were met. Social spending target missed due to procurement/execution difficulties.
  - Use of DAO at 16 percent; regularization at 40 percent vs. target of 75 percent.
- Structural benchmarks (out of five SBs due by end-September):
  - Met: quarterly note on the oil sector; semi-annual note on exemptions.
  - Met with delay / partially implemented: VAT taxpayer list finalized and integrated into computerized system in October (was due end-September 2019); restructuring and funding plans for BCC and CBT not finalized.
  - Audit of domestic arrears progressing but delayed; deadline for adopting a clearance strategy (SB, end-November) likely to be missed. Authorities requested reset to end-December 2019.
- Selected quantitative outcomes (end-September 2019, cumulative, in billions of CFAF unless otherwise indicated):
  - Floor on non-oil primary budget balance: PC -125; Actual -122 (met). IT -190; Actual -181 (met).
  - Floor on customs revenue: PC 50; Actual 72 (met). IT 90; Actual 109 (met).
  - Ceiling on net domestic government financing excluding BEAC: PC -50; Actual -60 (met). IT -70; Actual -85 (met).
  - Ceiling on net government financing from the BEAC: PC 150; Actual 107 (met). IT 170; Actual 168 (met).
  - Ceiling on stock of domestic payment arrears: PC 140; Actual 130 (met). IT 120; Actual 119 (met).
  - Floor for poverty-reducing social spending (Indicative Target): PC 114; Actual 120 (met). IT 177; Actual 168 (not met).
  - Memo items:
    - Emergency spending procedures-DAO (Percent of primary spending): PC 22; Actual 14; IT 22; Actual 16.
    - Regularization of DAO (Percent of total DAO): PC 70; Actual 20; IT 75; Actual 40.
    - External concessional borrowing (US$ million): PC 525; Actual 178; IT 100; Actual 0 (noted).
    - Oil Revenue: PC 181; Actual 183; IT 271; Actual 266.
    - Grants: PC 0; Actual 0; IT (blank) Actual 230.

### Outlook, projections, and risks
- Baseline projections under current policies:
  - Non-oil growth projected to gradually increase and plateau at 4 percent starting 2021.
  - Inflation projected to remain below 3 percent.
  - Continuing fiscal consolidation expected to narrow the non-oil primary balance and reduce public debt gradually.
  - Current account deficit forecast to remain above 6 percent of GDP through 2024, driven by FDI-related imports.
- Key numerical projections and comparisons:
  - 2019 overall growth: 3.0 percent (2018: 2.4 percent).
  - 2019 current account deficit: 6.2 percent of GDP (2018: 3.4 percent).
  - Debt service-to-revenue ratio forecast for 2019: 12.8 percent (LIC DSA benchmark: 14 percent).
- Risks (tilted to the downside):
  - Domestic: worsening security situation; loosening of fiscal discipline (especially ahead of parliamentary elections); deterioration in public banks; high turnover of mid/high-level ministry officials.
  - External: lower-than-projected donor support could create a financing gap.
  - Specific regional/sector risk: oil and gas companies could retaliate against BEAC forex repatriation enforcement by cutting investments.
- Upside possibility:
  - Sustained pickup in oil prices could improve the fiscal position.

### Policy discussions and recommendations
- Policy focus for the fifth review:
  - (i) Safeguard fiscal consolidation to keep debt on a sustainable path.
  - (ii) Swiftly address weaknesses in public banks.
  - (iii) Advance the structural reform agenda.
- Fiscal consolidation details and recommendations:
  - 2019 fiscal deficit remains in line with target agreed at fourth review; overall balance will slightly deteriorate by 0.1 percent of non-oil GDP due to lower oil revenues.
  - Underlying non-oil primary balance (NOPB) remains at 4.2 percent of non-oil GDP.
  - Emphasis on strengthening domestic revenue mobilization and containing spending, particularly the wage bill.
  - Authorities to accelerate execution of social spending, especially in health and education.
  - Importance of limiting use of DAO and increasing DAO regularization, in line with targets.
  - Unused election spending should be saved and rolled into the 2020 budget.
- Specific revenue measures:
  - Impact of lower oil prices compared to budget reference price (US$64 vs. US$72) expected to be offset by higher oil profit tax payment by the main oil operator.
  - New VAT measures (enforcement of 15 percent penalty rate for non-compliant companies) expected to have positive revenue impact starting Q4 2019.
- Wage bill and security spending:
  - Wage bill expected to be slightly higher (0.2 percent of non-oil GDP) following restitution of basic salary to military.
  - Authorities agreed to offset this increase by reducing goods and services to keep it budget neutral.
- Banking sector:
  - Staff and authorities agreed on risks to the banking sector and need to address public bank positions (BCC and CBT restructuring and funding plans pending).

### New oil price and production smoothing mechanism (operational details)
- Objective: stabilize public expenditures against oil revenue volatility and gradually build buffers.
- Operational from 2020 with expected savings of at least CFAF 10 billion.
- Rules:
  - Set aside oil revenues until the fund reaches CFAF 40 billion (0.8 percent of non-oil GDP).
  - Funds available to cushion budget shortfalls when oil revenue comes in more than 10 percent below budgeted amounts (shortfalls roughly correspond to oil price reductions greater than US$5/bbl).
  - Baseline: CFAF 10 billion automatically paid into a special treasury account each year.
  - If oil revenue exceeds budget, 20 percent of the excess is paid into the special account, up to a maximum of CFAF 10 billion per year.
  - Budget uses conservative assumptions: price $3 below the World Economic Outlook (WEO) price and production 10 percent below forecast.
  - If oil revenue dips more than 10 percent below budget, the smoothing mechanism may finance budgeted expenditures subject to fund availability; funds may not be used for non-budgeted items or to extinguish debts.
- Distinction from CEMAC “reference balance”: the new mechanism requires accumulated resources to be saved to stabilize spending, whereas under the CEMAC rule surplus oil revenue can be used for debt repayment or arrears clearance.

### Debt trajectory and debt management
- Significant fiscal effort is essential to maintain debt on a downward trajectory and preserve fiscal space for domestic debt repayment and arrears clearance.
- Higher-than-anticipated oil revenues in 2020 are expected to facilitate the new domestic arrears’ clearance strategy.
- Authorities will aim to limit domestic debt rollover to 85 percent of securities in 2020 to improve bank liquidity and reduce domestic debt.
- Extending maturity of domestic debt profile is recommended to reduce rollover risk and moderate repayment needs.
- Policy on non-concessional borrowing:
  - Adhering to the zero-limit on non-concessional borrowing during the current program is a critical anchor to external debt sustainability.
  - Chad remains at high risk of external debt distress; efforts needed to identify high-yield projects that could attract alternative financing without undermining debt sustainability.
- Debt management weaknesses and recommended actions:
  - Weaknesses: low capacity, low resources, poor coordination, high operational risk (errors, omissions, unintentional arrears, loss of key personnel).
  - Urgent actions: (i) reform roles and structures of debt management, (ii) improve communication among responsible entities, (iii) augment resources applied to debt management.
  - External debt management benefits from a dedicated escrow account and monthly debt management coordination meetings.

### Structural reforms, tax policy, and governance (key actions)
- Streamlining exemptions and strengthening tax administration:
  - Adjust and eliminate inefficient exemptions not in line with existing legislation, based on the 2017 audit of the 47 exemption agreements.
  - Reduce scope for discretionary extension of exemptions, particularly in the oil sector and refining activities.
  - Prepare a strategy for granting new exemptions (MEFP ¶25).
  - With IMF technical assistance, allocate new resources (building and software) to tax directorates in charge of large and medium firms (SB, April 2020).
- VAT administration:
  - VAT proceeds in Chad are among the lowest in Africa.
  - Progress: publication and integration of VAT taxpayer list in computerized system; 15 percent penalty rate applied on non-compliant taxpayers; published list of authorized firms eligible for VAT retention.
  - Staff recommended setting up a VAT refund mechanism at the BEAC by allocating 5 percent of VAT revenue to the dedicated account.
- Public Financial Management (PFM) reforms:
  - New PFM strategy to be implemented in 2020 to improve budgeting procedures, forecasting, and inter-agency coordination.
  - Authorities will issue a decree by year-end to reduce the ceiling on use of DAO (MEFP ¶28).
  - Once domestic arrears audits are finalized, adopt a strategy to clear them.
  - Improve cash management, including implementing a treasury single account (TSA) starting with a census of all government accounts in commercial banks.
  - Modernize procurement system (MEFP ¶33).
- Governance:
  - Continue implementing the United Nations Convention against Corruption (UNCAC).
  - Plan to establish a legislative framework for asset declaration.
  - Implementation of the AML/CFT framework led by ANIF, operational since 2009 but in need of human resources and greater coordination with regional institutions, particularly the COBAC.

### Banking sector and financial inclusion (priorities and allocations)
- Sovereign-bank nexus and vulnerabilities:
  - Large accumulation of domestic arrears and increase in domestic debt have weakened liquidity and asset quality, especially in two large public banks representing around 45 percent of total banking sector assets.
  - Authorities agree banks should properly classify loans and provision them in line with regulations.
  - Efforts to ease bank liquidity pressures include lowering rollover of domestic debt; payment of domestic arrears would also help.
- Public banks (BCC and CBT) reform:
  - Restructuring and funding plans expected to be adopted by end-November (prior action).
  - 2020 budget allocations: CFAF 3 billion for recapitalization of one bank and CFAF 9 billion to repay outstanding credit to both banks (MEFP ¶35).
  - Government committed to address audit-identified weaknesses, particularly governance; performance-based contracts to be signed with bank management (SB, March 2020).
- Financial inclusion:
  - Only 9 percent of the population in Chad has a bank account.
  - Mobile banking has potential but faces poor network connections and low literacy.
  - Following the 2018 revised CEMAC regulation for microfinance, several institutions faced difficulties and had to shut down or restructure.
  - Authorities requested additional support from the COBAC for the microfinance regulatory system.

### Program modalities, financing, and conditionality (highlights)
- Financing needs for 2019 and 2020 are covered (selected figures in US$ million and percent of quota preserved as presented):
  - Financing Gap (Million of US Dollars): 2017 192 ; 2018 362 ; 2019 228 ; 2020 163
  - Budget support: 2017 143 ; 2018 262 ; 2019 102 ; 2020 125
  - IMF financing: 2017 49 ; 2018 99 ; 2019 126 ; 2020 39
    - percent of quota: 2017 25 ; 2018 50 ; 2019 65 ; 2020 20
- Understandings on policy measures:
  - End-March ITs revised in line with updated macroframework.
  - Three prior actions (PAs): submission of 2020 budget; adoption of restructuring and funding plans of the two public banks; finalization of domestic arrears audit.
  - Authorities requested resetting end-November SB on arrears clearance strategy to end-December 2019.
  - Two new SBs for next year: signing performance contracts with management of the two public banks; allocating resources to tax directorates.
- Regional assurance:
  - BEAC provided updated policy assurance on end-December 2019 and end-June 2020 NFAs to support CEMAC countries’ Fund-supported programs and presented revised NFA projections.
  - BEAC reiterated commitment to adequately tight monetary policy, alongside member states’ fiscal adjustments.
  - BEAC continues to implement remaining recommendations of the 2017 safeguards assessment.

### Implementation status and staff appraisal
- Fifth review: staff supports completion of the fifth review and financing assurances review, conditional on adequate implementation of regional assurances.
- Supplement outcomes since staff report:
  - Authorities submitted a 2020 budget law in line with the ECF arrangement to the National Assembly on December 9, 2019.
  - Completed the audit of the remaining domestic arrears on November 25, 2019.
  - Executive boards of CBT and BCC adopted restructuring and funding plans on November 21, 2019 and November 26, 2019, respectively.
  - With these measures, all prior actions for this review have been met.
- Staff appraisal:
  - Chad faces a challenging environment: exposure to security and humanitarian shocks, weak administrative capacity, and fragility that constrain policymaking.
  - Despite challenges, the authorities remain committed to the program and to pursuing fiscal consolidation, debt-reduction efforts, PFM and governance reforms, banking sector restructuring, and measures to boost revenue and financial inclusion.

*Source: Chadian authorities; and IMF staff calculations.*

### 1. New Oil Price and Production Smoothing Mechanism (Lissage) _______________________________ 16

### 1. New Oil Price and Production Smoothing Mechanism (Lissage) _______________________________ 16

### Background and context
- Since the approval of the current ECF arrangement in June 2017, progress has been made in stabilizing the economy, but challenges persist, including weak administrative capacity and fragility.
- Security risks:
  - Boko Haram attacks in the Lake Chad region continue.
  - State of emergency declared in a rebel-prone province in the north and in two eastern provinces; extended to January 2020.
  - Borders with Libya, Sudan, and Central African Republic under heavy military guard since end-August.
  - Parliamentary elections expected in early 2020; presidential elections in 2021.
- Regional monetary/FX context:
  - BEAC enforcement of CEMAC forex regulation (repatriation and surrender of export proceeds within 150 days) has faced resistance from oil and gas companies.
  - BEAC invited companies to identify issues and planned technical consultations to identify necessary flexibility.
  - BEAC maintained a tight monetary stance, reduced liquidity injections, and adopted a regulation to deal with banks excessively depending on BEAC refinancing.

### Recent economic developments (2019)
- Growth and inflation:
  - Overall growth expected to reach 3.0 percent compared to 2.4 percent in 2018.
  - Non-oil economic growth expected to reach 2 percent.
  - Oil GDP revised upward; oil GDP growth expected to be 7.6 percent.
  - Inflation in September: -2.1 percent y/y; expected to remain low for remainder of the year.
- Fiscal performance (first nine months of 2019):
  - Non-oil revenue, including tax revenues, in-line with the budget. Oil revenue in line with projections.
  - Expenditure broadly consistent with budget except:
    - Social spending fell short of projections in Q3 due to difficulties disbursing allocated funds.
    - Wage bill slightly exceeded projections by 0.1 percent of non-oil GDP due to higher security spending (restitution of basic salaries to the military).
  - Deposits at the BEAC dropped during the first nine months in line with projections.
- Banking sector and financial indicators:
  - Deposits increased by 25.7 percent (first eight months).
  - Credit increased by 4.6 percent (first eight months).
  - BEAC refinancing declined from CFAF 160.0 billion in December 2018 to CFAF 93.7 billion.
  - Overdue loans decreased from 31.4 percent of total loans at end-2018 to 27 percent.
  - Provisions increased to 56.3 percent from 53 percent at end-2018.
- External debt and arrears:
  - Outstanding external arrears fell with a debt agreement with Angola in June.
  - Two bilateral creditors with outstanding arrears (both in CFAF): Equatorial Guinea and Republic of Congo.
  - Good faith efforts nearing completion to address arrears with Mega Bank.
  - Debt service-to-revenue ratio forecast to reach 12.8 percent in 2019 (LIC DSA benchmark vulnerability threshold: 14 percent).
  - Forecast for external debt in 2019 rose by 0.5 percent of GDP.
- External sector and reserves:
  - Current account deficit forecast to rise to 6.2 percent of GDP in 2019 from 3.4 percent of GDP in 2018, driven by FDI-financed imports linked to oil field developments.
  - Strong FDI inflows expected to allow net foreign assets to climb substantially in 2019 and beyond.
  - BEAC overperformed end-June 2019 projection for net foreign assets (a regional policy assurance) by about € 800 million.

### Program performance (under ECF)
- Overall assessment:
  - Program performance broadly satisfactory.
- Quantitative targets and indicators (end-June and end-September 2019):
  - All end-June quantitative performance criteria and the indicative target on social spending met.
  - Payments of domestic arrears have exceeded the target.
  - Use of emergency spending procedures (DAO) under control, but regularization low:
    - Regularization at 20 percent vs. target of 70 percent (memo items under program).
  - End-September: All but one end-September IT were met. Social spending target missed due to procurement/execution difficulties.
  - Use of DAO at 16 percent; regularization at 40 percent vs. target of 75 percent.
- Structural benchmarks (out of five SBs due by end-September):
  - Met: quarterly note on the oil sector; semi-annual note on exemptions.
  - Met with delay / partially implemented: VAT taxpayer list finalized and integrated into computerized system in October (was due end-September 2019); restructuring and funding plans for BCC and CBT not finalized.
  - Audit of domestic arrears progressing but delayed; deadline for adopting a clearance strategy (SB, end-November) likely to be missed. Authorities requested reset to end-December 2019.
- Selected quantitative outcomes (end-September 2019, cumulative, in billions of CFAF unless otherwise indicated — actuals shown relative to PCs/ITs in source table):
  - Floor on non-oil primary budget balance: PC -125; Actual -122 (met). IT -190; Actual -181 (met).
  - Floor on customs revenue: PC 50; Actual 72 (met). IT 90; Actual 109 (met).
  - Ceiling on net domestic government financing excluding BEAC: PC -50; Actual -60 (met). IT -70; Actual -85 (met).
  - Ceiling on net government financing from the BEAC: PC 150; Actual 107 (met). IT 170; Actual 168 (met).
  - Ceiling on stock of domestic payment arrears: PC 140; Actual 130 (met). IT 120; Actual 119 (met).
  - Floor for poverty-reducing social spending (Indicative Target): PC 114; Actual 120 (met). IT 177; Actual 168 (not met).
  - Memo items:
    - Emergency spending procedures-DAO (Percent of primary spending): PC 22; Actual 14; IT 22; Actual 16.
    - Regularization of DAO (Percent of total DAO): PC 70; Actual 20; IT 75; Actual 40.
    - External concessional borrowing (US$ million): PC 525; Actual 178; IT 100; Actual (noted) 0 in table.
    - Oil Revenue: PC 181; Actual 183; IT 271; Actual 266.
    - Grants: PC 0; Actual 0; IT (blank) Actual 230.

### Outlook, projections, and risks
- Baseline projections under current policies:
  - Non-oil growth projected to gradually increase and plateau at 4 percent starting 2021.
  - Inflation projected to remain below 3 percent.
  - Continuing fiscal consolidation expected to narrow the non-oil primary balance and reduce public debt gradually.
  - Current account deficit forecast to remain above 6 percent of GDP through 2024, driven by FDI-related imports.
- Key numerical projections and comparisons:
  - 2019 overall growth: 3.0 percent (2018: 2.4 percent).
  - 2019 current account deficit: 6.2 percent of GDP (2018: 3.4 percent).
  - Debt service-to-revenue ratio forecast for 2019: 12.8 percent (LIC DSA benchmark: 14 percent).
- Risks (tilted to the downside):
  - Domestic: worsening security situation; loosening of fiscal discipline (especially ahead of parliamentary elections); deterioration in public banks; high turnover of mid/high-level ministry officials.
  - External: lower-than-projected donor support could create a financing gap.
  - Specific regional/sector risk: oil and gas companies could retaliate against BEAC forex repatriation enforcement by cutting investments.
- Upside possibility:
  - Sustained pickup in oil prices could improve the fiscal position.

### Policy discussions and recommendations
- Policy focus for the fifth review:
  - (i) Safeguard fiscal consolidation to keep debt on a sustainable path.
  - (ii) Swiftly address weaknesses in public banks.
  - (iii) Advance the structural reform agenda.
- Fiscal consolidation details and recommendations:
  - 2019 fiscal deficit remains in line with target agreed at fourth review; overall balance will slightly deteriorate by 0.1 percent of non-oil GDP due to lower oil revenues.
  - Underlying non-oil primary balance (NOPB) remains at 4.2 percent of non-oil GDP.
  - To meet targets, emphasis on strengthening domestic revenue mobilization and containing spending, particularly the wage bill.
  - Authorities to accelerate execution of social spending, especially in health and education.
  - Importance of limiting use of DAO and increasing DAO regularization, in line with targets.
  - Unused election spending should be saved and rolled into the 2020 budget.
  - Specific revenue measures:
    - Impact of lower oil prices compared to budget reference price (US$64 vs. US$72) expected to be offset by higher oil profit tax payment by the main oil operator.
    - New VAT measures (enforcement of 15 percent penalty rate for non-compliant companies) expected to have positive revenue impact starting Q4 2019.
- Wage bill and security spending:
  - Wage bill expected to be slightly higher (0.2 percent of non-oil GDP) following restitution of basic salary to military.
  - Authorities agreed to offset this increase by reducing goods and services to keep it budget neutral.
- Banking sector:
  - Staff and authorities agreed on risks to the banking sector and need to address public bank positions (BCC and CBT restructuring and funding plans pending).

_*Source: Chadian authorities; and IMF staff calculations.*_

### 18.      The authorities remain committed to maintaining their consolidation efforts in 2020.

### 18.      The authorities remain committed to maintaining their consolidation efforts in 2020.

### Fiscal consolidation and 2020 budget
- The budget to be submitted to the National Assembly (prior action) will target a NOPB of 4.9 percent of non-oil GDP, 1.1 percent higher than the target agreed at the time of the fourth review as it includes transfers to the national electricity company (SNE).
- The SNE transfers, an off-budget transaction in the past, will be transparently reflected in the 2020 budget both on the revenue and expenditure sides, and will have no impact on the overall balance.
- The overall balance will significantly improve to 3.0 percent of non-oil GDP, as a result of higher oil revenues.
- Staff emphasized the importance of fiscal restraint in an election year, since Chad remains at high risk of external and overall debt distress under the DSA completed at the time of the Fourth Review.
- Table of commitment-basis indicators (as presented in source):
  - Non-oil primary balance (commitment basis, excl. grants): 4th Review -4.8% ; 5th Review -4.9% ; 4th Review -3.8% ; 5th Review -4.9%
  - Elections spending: 0.6% ; 0.6% ; 0.0% ; 0.0%
  - Transfers to the electricity company: 0.0% ; 0.0% ; 0.0% ; 1.0%
  - Underlying NOPD: -4.2% ; -4.2% ; -3.8% ; -3.9%
  - Overall balance: 0.0% ; -0.1% ; 2.3% ; 3.0%
  - Non-oil GDP: 52125 ; 16655 ; 155466 (labels correspond to 2019 2020 in source formatting)

### Revenue projections and composition
- Revenue will significantly increase in 2020:
  - Oil revenue boost: +2.7 percent of non-oil GDP, mainly from a significant increase in profit tax payment by the main oil operator.
  - Revenue counterpart to SNE transfers: about 1.0 percent of non-oil GDP.
  - Non-oil revenues: expected increase of +0.5 percent of non-oil GDP from measures to streamline tax exemptions, enhance tax and customs administration, and reform VAT.

### Expenditures and social spending
- Excluding the SNE transfers, 2020 expenditures would have been lower compared to the fourth review projections:
  - Wage bill: drop by 0.2 percent of non-oil GDP, despite new hires approved in the 2019 budget and a salary increase to the military.
  - Goods and services: expected to be lower.
  - SNE transfers: will increase expenditures by 1.0 percent of non-oil GDP.
- Social spending: authorities committed to an envelope for social spending of 34 percent of primary spending (excluding transfers to the electricity company).
- Staff recommendations:
  - Continue to repay domestic arrears, and step-up repayment in case of an oil revenue windfall.

### New oil price and production smoothing mechanism (Box 1)
- Objective: stabilize public expenditures against oil revenue volatility and gradually build buffers.
- Operational from 2020 with expected savings of at least CFAF 10 billion.
- Rules:
  - Set aside oil revenues until the fund reaches CFAF 40 billion (0.8 percent of non-oil GDP).
  - Funds available to cushion budget shortfalls when oil revenue comes in more than 10 percent below budgeted amounts (shortfalls roughly correspond to oil price reductions greater than US$5/bbl).
  - Baseline: CFAF 10 billion automatically paid into a special treasury account each year.
  - If oil revenue exceeds budget, 20 percent of the excess is paid into the special account, up to a maximum of CFAF 10 billion per year.
  - Budget uses conservative assumptions: price $3 below the World Economic Outlook (WEO) price and production 10 percent below forecast.
  - If oil revenue dips more than 10 percent below budget, the smoothing mechanism may finance budgeted expenditures subject to fund availability; funds may not be used for non-budgeted items or to extinguish debts.
- Distinction from CEMAC “reference balance”: the new mechanism requires accumulated resources to be saved to stabilize spending, whereas under the CEMAC rule surplus oil revenue can be used for debt repayment or arrears clearance.

### Debt trajectory and debt management
- Significant fiscal effort is essential to maintain debt on a downward trajectory and preserve fiscal space for domestic debt repayment and arrears clearance.
- Higher-than-anticipated oil revenues in 2020 are expected to facilitate the new domestic arrears’ clearance strategy.
- Authorities will aim to limit domestic debt rollover to 85 percent of securities in 2020 to improve bank liquidity and reduce domestic debt.
- Extending maturity of domestic debt profile is recommended to reduce rollover risk and moderate repayment needs.
- Policy on non-concessional borrowing:
  - Adhering to the zero-limit on non-concessional borrowing during the current program is a critical anchor to external debt sustainability.
  - Chad remains at high risk of external debt distress; efforts needed to identify high-yield projects that could attract alternative financing without undermining debt sustainability.
- Debt management weaknesses and recommended actions:
  - Weaknesses: low capacity, low resources, poor coordination, high operational risk (errors, omissions, unintentional arrears, loss of key personnel).
  - Urgent actions: (i) reform roles and structures of debt management, (ii) improve communication among responsible entities, (iii) augment resources applied to debt management.
  - External debt management benefits from a dedicated escrow account and monthly debt management coordination meetings.

### Structural reforms, tax policy, and governance
- Streamlining exemptions and strengthening tax administration:
  - Need to adjust and eliminate inefficient exemptions not in line with existing legislation, based on the 2017 audit of the 47 exemption agreements.
  - Reduce scope for discretionary extension of exemptions, particularly in the oil sector and refining activities.
  - Prepare a strategy for granting new exemptions (MEFP ¶25).
  - With IMF technical assistance, allocate new resources (building and software) to tax directorates in charge of large and medium firms (SB, April 2020).
- VAT administration:
  - VAT proceeds in Chad are among the lowest in Africa.
  - Progress: publication and integration of VAT taxpayer list in computerized system; 15 percent penalty rate applied on non-compliant taxpayers; published list of authorized firms eligible for VAT retention.
  - Staff recommended setting up a VAT refund mechanism at the BEAC by allocating 5 percent of VAT revenue to the dedicated account.
- Public Financial Management (PFM) reforms:
  - New PFM strategy to be implemented in 2020 to improve budgeting procedures, forecasting, and inter-agency coordination.
  - Authorities will issue a decree by year-end to reduce the ceiling on use of DAO (MEFP ¶28).
  - Once domestic arrears audits are finalized, adopt a strategy to clear them.
  - Improve cash management, including implementing a treasury single account (TSA) starting with a census of all government accounts in commercial banks.
  - Modernize procurement system (MEFP ¶33).
- Governance:
  - Authorities intend to continue implementing the United Nations Convention against Corruption (UNCAC).
  - Plan to establish a legislative framework for asset declaration, either via stand-alone implementing legislation or included in future anti-corruption legislation.
  - Implementation of the AML/CFT framework is led by the National Agency for Financial Investigation (ANIF), which is operational since 2009 but in dire need of human resources and greater coordination with regional institutions, particularly the COBAC.

### Banking sector and financial inclusion
- Sovereign-bank nexus and vulnerabilities:
  - Large accumulation of domestic arrears and increase in domestic debt have weakened liquidity and asset quality, especially in two large public banks representing around 45 percent of total banking sector assets.
  - Authorities agree banks should properly classify loans and provision them in line with regulations.
  - Efforts to ease bank liquidity pressures include lowering rollover of domestic debt; payment of domestic arrears would also help.
- Public banks (BCC and CBT) reform:
  - Restructuring and funding plans expected to be adopted by end-November (prior action).
  - 2020 budget allocations: CFAF 3 billion for recapitalization of one bank and CFAF 9 billion to repay outstanding credit to both banks (MEFP ¶35).
  - Government committed to address audit-identified weaknesses, particularly governance; performance-based contracts to be signed with bank management (SB, March 2020).
- Financial inclusion:
  - Only 9 percent of the population in Chad has a bank account.
  - Mobile banking has potential but faces poor network connections and low literacy.
  - Following the 2018 revised CEMAC regulation for microfinance, several institutions faced difficulties and had to shut down or restructure.
  - Authorities requested additional support from the COBAC for the microfinance regulatory system.

### Program modalities, financing, and conditionality
- Financing needs for 2019 and 2020 are covered:
  - Financing Gap (Million of US Dollars): 2017 192 ; 2018 362 ; 2019 228 ; 2020 163
  - Budget support: 2017 143 ; 2018 262 ; 2019 102 ; 2020 125
    - Multilateral: 2017 1 ; 2018 86 ; 2019 20 ; 2020 36 ; 8108 (source formatting retained)
    - Bilateral: 2017 56 ; 2018 59 ; 2019 34 ; 2020 17
  - IMF financing: 2017 49 ; 2018 99 ; 2019 126 ; 2020 39
    - percent of quota: 2017 25 ; 2018 50 ; 2019 65 ; 2020 20
  - Note in source: Disbursement from the AfDB in 2018 includes US$ 65 million planned for 2017 but disbursed in January 2018.
- Understandings on policy measures:
  - End-March ITs revised in line with updated macroframework.
  - Three prior actions (PAs): submission of 2020 budget; adoption of restructuring and funding plans of the two public banks; finalization of domestic arrears audit.
  - Authorities requested resetting end-November SB on arrears clearance strategy to end-December 2019.
  - Two new SBs for next year: signing performance contracts with management of the two public banks; allocating resources to tax directorates.
- Regional assurance:
  - BEAC provided updated policy assurance on end-December 2019 and end-June 2020 NFAs to support CEMAC countries’ Fund-supported programs and presented revised NFA projections.
  - BEAC reiterated commitment to adequately tight monetary policy, alongside member states’ fiscal adjustments.
  - BEAC continues to implement remaining recommendations of the 2017 safeguards assessment.

### Staff appraisal
- Chad faces a challenging environment: exposure to security and humanitarian shocks, weak administrative capacity, and fragility that constrain policymaking.
- Despite challenges, the authorities remain committed to the program and to pursuing fiscal consolidation, debt-reduction efforts, PFM and governance reforms, banking sector restructuring, and measures to boost revenue and financial inclusion.

*Italic: Source — 1tcdea2019004 - 18.      The authorities remain committed to maintaining their consolidation efforts in 2020.*

### 40.      Economic activity is recovering, and the outlook is favorable. Arrears clearance and

### 40.      Economic activity is recovering, and the outlook is favorable.

### Economic outlook and growth drivers
- Economic activity is recovering; arrears clearance and domestic debt repayment will further stimulate economic activity.
- The expected boost in oil production as a result of new technologies is welcome but should not deter important reforms to promote non-oil activity.
- Reforms to promote non-oil activity will increase resilience and ensure sustainable and broad-based growth.

### Fiscal policy priorities and revenue mobilization
- Prudent fiscal policy has been essential in putting public finances on a sustainable path and should be maintained in the run-up to the elections.
- Emphasis should continue on mobilizing domestic revenues.
- Key revenue measures:
  - Widen the tax base by streamlining exemptions and enforcing the new VAT measures.
  - Contain the wage bill, which is described as one of the highest in the CEMAC region.
  - Step-up efforts to meet the end-year social expenditure target.
  - Contain DAO use, and accelerate DAO regularization.

### Domestic arrears and clearance strategy
- Domestic arrears continue to be an impediment to economic activity.
- The audit needs to be finalized as soon as possible and the clearance strategy should be swiftly prepared and implemented beginning 2020.
- Clearance will significantly contribute to addressing banking vulnerabilities and supporting economic recovery.
- Oil windfalls should be used to help accelerate arrears repayment.

### Public debt management and borrowing policy
- Public debt has decreased, but vulnerabilities remain.
- Critical actions:
  - Maintain aggressive plans for reducing domestic debt, including issuing longer maturities to reduce rollover risk.
  - Maintain a zero limit for non-concessional borrowing under the current program to further strengthen the debt position.
  - Considering non-concessional borrowing (NCB) in the future will be contingent on an updated DSA and the quality and criticality of potential projects for which concessional financing is not available.

### Banking sector stability and reforms
- Sustained efforts are needed to safeguard banking sector stability.
- Adopt restructuring and funding plans for the two state banks to contain vulnerabilities.
- Signature of performance-based contracts is required to ensure successful execution of these plans.
- Limiting domestic debt rollover will help ease liquidity pressure.
- Enforce proper loan classification and adequate provisioning.

### Public financial management and governance
- The new PFM strategy is welcome and its implementation will modernize public finances management.
- Implementation of a TSA will be critical to help contain the emergence of new arrears.
- Addressing governance weaknesses is essential for private sector development and reducing the scope for corruption.

### Program risks, policy stance, and IMF engagement
- Risks to the program remain high but are manageable with a strong commitment from the authorities.
- Key policy messages:
  - Maintain fiscal discipline and stay the course with the reform agenda to contain fiscal risks, enhance economic efficiency, and improve governance.
  - Continued dialogue with the Fund and provision of capacity development by the IMF and other development partners will reinforce implementation capacity.
- Regional role:
  - Chad, though one of the smaller economies in the CEMAC region, continues to implement strong policies that support regional stability.
  - Strong implementation of agreed fiscal consolidation by the four countries already with Fund-supported programs and possible new IMF-supported programs with Equatorial Guinea and CAR would support a further recovery in BEAC net foreign asset position.

### IMF program status and conditionality
- Based on Chad’s performance under the program and the adequate implementation of regional policy assurances by the BEAC, staff supports the authorities’ request for the completion of the fifth review and financing assurances review.
- Staff proposes that completion of the sixth review be conditional on the implementation of critical policy assurances on NFAs at the union level, as established in the December 2019 union-wide background paper.

### Selected quantitative and program figures (highlights from program tables and schedules)
- Quantitative Performance Criteria and Indicative Targets (selected):
  - Floor on non-oil primary budget balance (NOPB): -252 (End-Dec 2019 QPC), -85 (End-Mar 2020 IT)
  - Floor on customs revenue: 130 (End-Dec 2019 QPC), 30 (End-Mar 2020 IT)
  - Ceiling on net domestic government financing excluding BEAC: -90 (End-Dec 2019 QPC), -10 (End-Mar 2020 IT)
  - Ceiling on net government financing from the BEAC: 124 (End-Dec 2019 QPC), 50 (End-Mar 2020 IT)
  - Ceiling on the stock of domestic payment arrears by the government: 100 (End-Dec 2019 QPC), 90 (End-Mar 2020 IT)
  - Floor for poverty-reducing social spending: 24 (End-Dec 2019 QPC), 159 (End-Mar 2020 IT)
  - Memo: Ceiling for the use of emergency spending procedures - DAO (Percent of primary spending): 22 (QPC), 22 (IT)
  - Memo: Floor for regularization of emergency spending procedures - DAO (Percent of total DAO): 80 (QPC), 50 (IT)
  - Memo: External concessional borrowing (US$ million): 127 (End-Dec 2019 QPC)
  - Memo: Oil Revenue: 359 (End-Dec 2019 QPC), 133 (End-Mar 2020 IT)
  - Memo: Grants: 54 (End-Dec 2019 QPC), 35 (End-Mar 2020 IT)
- ECF disbursement schedule (selected):
  - Amounts per tranche: 25.0 (Percent of Quota) / 35.0 (Million SDR) on dates including August 15, 2017; April 15, 2018; October 15, 2018; April 15, 2019; October 15, 2019; April 15, 2020.
  - Total: 160.0 (Percent of Quota) / 224.3 (Million SDR).
- Indicators of capacity to repay the Fund (selected):
  - Fund obligations based on existing and prospective credit (SDR millions), totals by year: 0.1 (2019), 2.4 (2020), 8.6 (2021), 17.4 (2022), 30.1 (2023), 48.1 (2024), 57.5 (2025), 54.2 (2026), 45.3 (2027), 34.8 (2028), 17.3 (2029), 3.2 (2030), 0.4 (2031), 0.5 (2032), 0.5 (2033).
  - Outstanding IMF credit based on existing and prospective drawings (SDR millions): 286.1 (2019), 312.2 (2020), 304.1 (2021), 287.0 (2022), 257.4 (2023), 209.7 (2024), 152.6 (2025), 98.8 (2026), 54.0 (2027), 19.6 (2028), 2.8 (2029), 0.0 (2030–2033).
  - Memorandum items: Exports of goods and services (CFAF billions) include 2,272 (2019), 2,345 (2020), 2,512 (2021), and projected increases to 4,057 (2033).
  - Nominal GDP (CFAF billions): 6,443 (2019), 6,880 (2020), 7,502 (2021), projected to 15,853 (2033).
  - Tax revenue (CFAF billions): 421 (2019), 477 (2020), 534 (2021), projected to 1,687 (2033).

*Source: IMF staff report and attachments contained in the Chad ECF program documents (November 2019).*

### 1.      This memorandum is an update and supplement to that of June 2019. It lays out the

### This memorandum: update and supplement to June 2019 — government reform strategy under the ECF arrangement

### Scope and purpose
- Lays out specific elements of the government’s reform strategy under the ECF arrangement.
- Describes recent economic developments, government efforts to implement policies agreed under the existing program, macroeconomic prospects, and the government’s policy and reform agenda for the rest of 2019 and for 2020.

### Commitments and priority reform areas
- Pursue ambitious reforms related to fiscal adjustment and the financial sector.
- Continue fiscal consolidation to reduce public debt to a sustainable level.
- Double efforts to address weaknesses in the banking sector.
- Persevere with structural reforms, notably in information technology (IT) and governance.

### Recent economic developments (findings)
- Oil production:
  - Rebounded in 2018 after a sharp decline in 2017; expected to expand by 3 percent in 2019.
- Non-oil growth:
  - Turned positive in 2018 with growth estimated at 0.5 percent.
  - Projected to grow 2 percent in 2019, driven by public investment, clearance of domestic arrears, and recovery of the cotton sector.
- Inflation:
  - Average inflation decelerated in 2019; end-year projected at 1 percent, down from 4 percent in 2018.
- Fiscal performance (first nine months of 2019):
  - Non-oil revenue mobilization in-line with the budget; non-oil tax revenue performance satisfactory.
  - Oil revenue slightly below program projections despite stronger production.
  - Fiscal expenditures broadly consistent with the budget except:
    - Social spending fell short in the third quarter.
    - The wage bill slightly exceeded projections due to higher security spending (restitution of salary to the military).
- Net government domestic financing:
  - Net domestic financing from banks broadly in line with projections; average roll-over rate roughly 87 percent versus the program target of 85 percent.
  - Government deposits at the BEAC decreased by CFAF 112 billion during the first nine months of the year.
  - Stock of domestic arrears reduced by CFAF 41 billion during the first nine months of 2019.
- External debt and arrears:
  - Progress in clearing arrears to external creditors; external obligations paid in a timely manner.
  - Obligations being paid in line with the May 2018 agreement-in-principle with the Libyan Foreign Bank.
  - Mid-July agreement signed with Angola on repayment of the February 2017 debt.
  - Discussions underway with Libya, Equatorial Guinea, the Republic of Congo and Mega Bank.
  - Measures to prevent recurrence of external arrears: allocation of funds in an escrow account and monthly meetings of external debt service stakeholders.
- Banking sector:
  - Deposits increased by 25.7 percent and credit by 4.6 percent through end-August 2019 (compared to end-2018).
  - Nonperforming loans to total loans dropped to 27 percent at end-August from 31.4 percent at end-December 2018.
  - BEAC refinancing declined from CFAF 160.0 billion in December 2018 to CFAF 93.7 billion in August 2019.
- Security and social context:
  - Security situation difficult due to Boko Haram attacks; state of emergency declared in three provinces; borders with Libya, Sudan and Central African Republic under heavy military guard.
  - Increase in security spending necessitated.
  - Social tensions moderated following implementation of the October 2018 agreement with public sector trade unions.
  - Parliamentary elections announced for 2019 will take place in early 2020.

### Program implementation and quantitative outcomes
- All performance criteria (PC) and the indicative target for end-June 2019 were met.
  - Non-oil primary balance (NOPB): deficit stood at CFAF 122 billion versus the quantitative performance criterion of CFAF 125 billion (ceiling met).
  - Customs revenue: CFAF 72 billion versus a target of CFAF 50 billion (floor exceeded).
  - Net domestic government financing from the BEAC: criterion met with a large margin.
  - Net domestic government financing excluding the BEAC: criterion met; roll-over of T-bills and T-bonds broadly in line with program objective of 85 percent.
  - Stock of domestic payment arrears: reduced to CFAF 130 billion against a target of CFAF 140 billion (criterion met).
  - Continuous zero ceiling on new external arrears of the government and non-financial public enterprises: met since the third ECF review.
  - Zero ceiling on contracting or guaranteeing new non-concessional external debt: met.
  - Indicative target on poverty-reducing social spending: reached for the first time.
- Emergency spending procedures (“dépenses avant ordonnancement”, DAO):
  - Use under control in line with the budget implementation decree of January 2019.
  - Regularization of DAO low at 20 percent at end-June versus a target of 70 percent; authorities commit to accelerate regularization to meet end-year target.
- End-September 2019 performance remained broadly in line with the program:
  - Non-oil primary deficit remained below program ceiling.
  - Customs revenue met.
  - Indicative target on net domestic financing from the BEAC met.
  - Indicative target on net domestic financing from banks met.
  - Stock of domestic payment arrears reduced by roughly CFAF 41 billion in the first nine months against a program target of CFAF 40 billion (IT met).
  - Poverty-reducing social spending missed at CFAF 168 million against CFAF 177 million; government committed to increase social spending in Q4 and monitoring committee established in June 2019 to ensure end-December 2019 target is met.
  - Use of DAO under control at 16 percent; regularization remained weak despite some improvement.

### Structural benchmarks and reforms
- Of five structural benchmarks through end-September:
  - Met: publication of the oil sector note (quarterly notes in template agreed with IMF staff).
  - Met: publication of the first semi-annual note listing all new exemptions (including renewal and extension of exemptions).
  - Met (in early October): creation and publication of the VAT taxpayer list, its integration in the computerized system of the customs department, and application of a customs penalty rate of 15 percent.
  - Pending/delayed: restructuring plan pending board adoption at BCC before end-September target date; funding plan under preparation. Restructuring and funding plans not yet adopted by CBT board.
  - Audit of remaining domestic arrears (expected end-September) will be completed at end-November (prior action).
- Additional progress:
  - Requested technical assistance from a merchant bank to develop an arrears clearance strategy; expected to be adopted by end-December (delayed by about a month due to additional time for arrears audit).
  - Decree 1607 of September 30 set up a technical committee responsible for tax exemptions to help meet the end-February 2020 structural benchmark: complete implementation of recommendations of the audit of the 47 exemption agreements to remove or modify those not compliant with legal texts or not correctly executed.

### Regional and institutional context
- BEAC and COBAC:
  - BEAC continuing implementation of remaining recommendations of the 2017 safeguards assessment.
  - BEAC’s full transition to IFRS for FY 2019 progressing broadly as planned.
  - Efforts underway to accelerate revisions to secondary legal instruments for alignment with the BEAC Charter.
- Regional assurances:
  - BEAC provided updated policy assurance on end-December 2019 and end-June 2020 NFAs in support of CEMAC countries’ Fund-supported programs.
  - BEAC presented a revised NFA projection reflecting strong performance through mid-2019 and reiterated commitment to an adequately tight monetary policy alongside fiscal adjustment by member states.

### Outlook and risks
- Medium-term outlook:
  - Non-oil growth projected to increase to 4 percent.
  - Oil production expected to increase due to new technologies.
  - Inflation expected to remain around 3 percent.
  - Fiscal deficit expected to gradually narrow and help improve the debt position.
- Key downside risks to positive prospects:
  - Non-realization of planned investments, particularly in the oil sector.
  - Breakdown of social peace.
  - Security shocks.
  - Climate shocks.

### Fiscal policy and financing plans (2019 and 2020)
- 2019:
  - Maintain NOPB target of 4.9 percent of non-oil GDP.
  - Fourth-quarter policies focus on mobilizing non-oil revenue and containing spending.
  - Emphasize strengthening non-oil revenue collection—customs and tax—and reducing smuggling.
  - New VAT measures expected to impact revenues starting last quarter of 2019.
  - Wage bill expected to reach CFAF 357 billion against a budgeted amount of CFAF 350 billion due to security spending (restitution of basic salary to the military); partially offset by payroll rationalization (removal of ghost workers, undue benefits, audit of diplomas), lower interest payments, and postponement of some investment projects.
  - Goods and services will be cut to offset wage bill increase.
  - Government committed to allocate adequate resources to social sectors to meet end-year target and to limit use of DAO and increase its regularization.
  - NOPB to be adjusted to account for unused 2019 budget allocations for legislative elections; unused balance to be allocated for 2020.
  - On financing side, an amount of CFAF 60 billion will be cleared.
- 2020:
  - Target NOPB of 4.9 percent of non-oil GDP.
  - Government commits to submit to the National Assembly a projected 2020 budget in line with IMF program parameters (prior action).
  - Oil revenues expected to significantly increase as the largest oil producer started to pay corporate tax revenue in 2019.
  - Aim to increase non-oil tax revenue from 8.2 percent of non-oil GDP in 2019 to 8.7 percent of non-oil GDP in 2020 by implementing:
    - (i) Better monitoring of VAT taxpayers and application of a 15 percent penalty on nonregistered importers;
    - (ii) Reduction of tax exemptions;
    - (iii) Greater “bancarisation” of revenue mobilization;
    - (iv) Improving collection of income tax by widening its base;
    - (v) Allocating new resources (building and software) to tax directorates in charge of large and medium taxpayers.
  - Wage bill management:
    - Government intends to keep the wage bill at a sustainable level.
    - 2019 wage bill mandated recruitment of civil servants (customs agents, teachers, judges, doctors) increasing the wage bill to CFAF 368 billion.
    - Government commits to corrective measures should the wage bill exceed the budgeted amount.
  - Social spending and investment:
    - Budget aims to ensure allocations to social sectors reach at least 34 percent of total primary spending (excluding transfers to the electricity company).
    - Investment to increase by 10 percent relative to the expected outcome in 2019 in line with the National Development Plan (PND).
  - Domestic bank financing for 2020:
    - Based on reduced rolling over of maturing treasury bills and bonds.
    - Roll-over rate capped at 85 percent on average for the year, or a net repayment of at least 15 percent of maturing treasuries.
    - Government will negotiate with banks an increase of treasury maturities to reduce domestic financing cost.
    - Government plans to participate in recapitalization of the two public banks under their restructuring and financing plans, including CFAF 3 billion allocated to CBT through issuance of Treasury bills and bonds.
  - Domestic arrears clearance:
    - Payment of audited arrears is key; planned 2020 and medium-term payments will follow the forthcoming arrears’ clearance strategy based on an independent audit (second stage initiated in early July 2019; audit completion prior action).
    - More domestic arrears payments than programmed possible if additional resources available.
  - External borrowing policy:
    - Government committed to refrain from contracting or guaranteeing new non-concessional external loans.
    - Ensure all external financing agreements are concessional (have at least 35 percent grant element, see TMU) and consistent with debt sustainability.
    - All draft loan agreements to be submitted for prior approval to the National Commission for Debt Analysis (CONAD), supported by Technical Team for Debt Sustainability Analysis (ETAVID).
    - Continue efforts to strengthen debt management with donor assistance and initiate a review of the IMF and World Bank debt sustainability analysis.

### Tax and customs reforms
- Tax and customs exemptions:
  - Government determined not to automatically renew expiring exemptions nor extend existing exemptions (including in oil refining, construction, and hospitality).
  - Commit to assess fiscal impact of all new requests for exemptions through a technical commission.
  - Publish on a semiannual basis a list of all new exemptions (including renewal and extension) on the Ministry of Finance website (existing structural benchmark).
  - Aim to start publishing analysis of the fiscal impact of exemptions in early 2020.
  - Continue follow-up on audit of 47 tax conventions; complete implementation of auditors’ recommendations by end-February 2020 to remove or amend non-compliant or incorrectly implemented exemptions (existing structural benchmark).
  - In early October, taxpayers benefiting from tax exemptions were given up to end-December 2019 to confirm compliance with the technical committee on tax exemptions under the 2019 budget law.
- VAT and non-oil revenue measures:
  - Revenue from VAT stands at about 1 percent of non-oil GDP.
  - Time-bound plan to strengthen the VAT regime (adopted December 2018) includes setting up a VAT refund mechanism and reducing VAT exemptions.
  - Government published list of companies allowed to withhold VAT to increase transparency and revenues.
  - Measures from January 2018 requiring taxes to be paid through the banking system (“bancarisation des recettes”) have shown promise in reducing leakages.
  - Government committed to allocate 5% of VAT revenue to the dedicated account with the BEAC for VAT refunds.

*This memorandum update and supplement to June 2019 describes Chad’s reform strategy, recent developments, program implementation, and policy plans under the ECF arrangement as presented in the source document.*

### 26.      We will also take administrative measures to improve tax and customs collection

### 26.      We will also take administrative measures to improve tax and customs collection

### Customs administration and non-oil tax administration
- Customs revenues
  - Migrate to new software (ASYCUDA World) to:
    - (i) allow more accurate application of duties;
    - (ii) shrink the abuse of customs exemptions;
    - (iii) strengthen integration of customs and taxation departments to improve VAT collection;
    - (iv) facilitate the interconnections with the custom offices in Cameroon, Niger and Sudan;
    - (v) set the stage for transition to a single window system.
- Non-oil taxes
  - Re-organize key elements of the tax directorate drawing on IMF TA recommendations to strengthen tax and customs administrations.
  - Directorate in charge of land and property tax has begun a new survey of potentially taxable properties, starting in N’Djamena.
  - New resources (building and software) will be allocated to tax directorates in charge of large and medium firms, in line with the recommendation of the July IMF technical assistance report on tax administration (structural benchmark, April 2020).
  - Tax and customs reforms will benefit from assistance of the recently posted IMF resident advisor for revenue administration.

### Structural reforms on Public Financial Management (PFM)
- PFM strategy and monitoring
  - New PFM reform strategy developed in May 2019 with assistance of the IMF and the World Bank; government seeks further TA missions and long-term resident experts and a policy dialogue framework with donors providing budget support.
  - New strategy will take account of 2017 PEFA conclusions, CEMAC reforms and donor TA recommendations; after a validation workshop the strategy will be adopted by the government and monitoring bodies established by decree before implementation starting from 2020.
- Expenditure chain and information systems
  - Commitment to reduce use of emergency spending procedures (DAO) and regularize DAO promptly to limit over-spending and accumulation of arrears.
  - For 2020, the limit on the DAO rate will be reduced to 20 percent.
  - Expenditure chain phases (commitment, validation, authorization of payment order, and cash payment) are implemented and monitored through CID, but CID, SIGASPE, and manual Treasury treatments show weaknesses and delays in accounting statements.
  - Decision to acquire and implement the integrated financial management system (IFMS) used in Rwanda; IFMS aims for effective, accountable and transparent Public Finance Management and will be operational in 2020 with Rwandan experts.
  - Objective: more consistently implement the expenditure chain to improve effective absorption of budgeted allocations, particularly for social sectors.

### Arrears clearance and cash management
- Arrears clearance
  - Adopt a clearance strategy for the entire stock of verified arrears (Reset structural benchmark, end-December 2019).
  - Strategy will:
    - explain factors for prioritizing clearance of arrears;
    - prioritize payments on the basis of economic and social impact and expected effect on the banking sector;
    - establish clear modalities for repayment;
    - include a credible plan to finance the clearance including external and domestic financing consistent with reducing debt vulnerabilities and improving financial stability;
    - incorporate public communication and outreach to rebuild private sector confidence.
  - Government seeks support from external development partners to clear the arrears.
- Cash management
  - Cash Plan Committee in charge of cash flow forecasts and management, monitoring the current Treasury account at the BEAC, and centralizing public accounting operations, cash flow and public debt.
  - A cash management plan with monthly forecasts (notably wage bill, and domestic and external debt service) has been developed.
  - Moving forward: refine monthly cash flow plan (to be included within the budget in line with CEMAC Directive and updated on a semi-annual basis), strengthen Committee responsiveness to update revenue and expenditure forecasts.
  - Steps to establish a single treasury account (TSA) starting with a census of all accounts in commercial banks that could be covered by the TSA.

### Public debt management
- Update debt management IT system.
- Adopt a medium-term debt strategy and strengthen debt monitoring.
- Minister of Finance and Budget to issue an order to facilitate functioning of CONAD and provide resources for CONAD’s functions.
- Seek follow-up TA support to improve debt management, strengthen institutions and provide adequate human and material resources.
- Continue to publish annual public debt management report and incorporate a section on short- to medium-term debt management strategy and risk analysis.
- Ensure external debt service is paid on time via mechanism under the escrow account; relevant officials to meet monthly to review payments and plan forthcoming ones.

### Public procurement and energy sector transfers
- Public procurement
  - Strengthen capacity of the Public Procurement Regulatory Authority.
  - Revise procurement code by May 2020 to remove constraints that have limited absorption, including raising the threshold and simplifying the approval process.
  - General Directorate of Control of Public Procurement will continue to publish a quarterly bulletin.
- State transfers to the National Electricity Company (SNE)
  - Starting 2020, budget will reflect transfers to SNE.
  - State transfer mechanism: SHT supplies diesel and electricity produced by SRN (up to 10 MW) via SHT selling up to 4 million barrels of crude oil a year to SRN from royalties-in-kind of the State at the selling price of $46.85 / barrel; SRN provides a portion of refined product to SNE.
  - State transfer to SNE amounted to CFAF 47 billion in 2018, and CFAF 52 billion in 2020.

### Banking sector reforms and financial inclusion
- Strengthening large public banks
  - Government committed to strengthen financial position of two large public banks (CBT and BCC).
  - Audit reports for CBT and BCC by external consultants completed at end-June; restructuring and funding plans were shared with BEAC, COBAC and IMF staff.
  - Plans adopted by the board of directors of BCC; CBT plans subject to review at COBAC’s request; updated plans expected to be adopted by end-November 2019 (prior action).
  - 2020 budget allocations to repay outstanding credits:
    - CFAF 3 billion (CFAF 250 million per month) to repay outstanding credits for BCC.
    - CFAF 6 billion (CFAF 500 million per month) to repay outstanding credits for CBT.
  - Government committed to address weaknesses, improve governance of the two public banks.
  - Goals of restructuring plans will feed into performance-based contracts in consultation with IMF staff which will be signed with management of CBT and BCC (structural benchmark, March 2020).
  - Interim requirements: banks will properly classify loans and provision adequately in line with existing banking regulations and improve liquidity positions.
- Financial inclusion
  - Strengthen financial inclusion by encouraging creation of microfinance institutions, “bancarisation” of state operations, opening of accounts by greater numbers, and promoting modern payment methods through mobile money.
  - Commitment to mitigate inefficiencies of existing initiatives.

### Governance, transparency, and business environment
- Anti-corruption and asset declarations
  - Implement United Nations Convention against Corruption (UNCAC) ratified in 2017; seek UN support to assess alignment of penal code with UNCAC and strengthen it where necessary.
  - Prepare implementing legislation for constitutional asset declaration obligations; drafting faces capacity constraints.
  - Delineate responsibilities of anti-corruption bodies (IGF, IGE and the Chamber of Accounts); provide adequate resources; select anti-corruption staff under merit-based system with stringent ethics standards and stiff penalties for breaches.
  - Support National Agency for Financial Investigation (ANIF) including augmenting human resources.
- Oil sector transparency
  - EITI completed Chad’s assessment under the 2016 standards in early May; EITI board recommendations will be implemented.
  - Significant progress in disclosing contracts and licenses in the petroleum sector with World Bank support.
  - Published certified and verified annual financial reports for 2017-2018 for SHT holding and subsidiaries.
- Business environment
  - Government recognizes importance of stable regulatory environment, rule of law and efficient government services to revive private sector.
  - Regional business climate conference hosted with World Bank expected end-November 2019 to develop ideas for improving business climate.

### Monitoring the program and performance indicators
- Negotiation Committee in Ministry of Finance and Budget will continue to monitor implementation and remain in constant communication with IMF staff in Washington and Resident Representative in Chad.
- Program monitored through bi–annual reviews by the IMF Executive Board based on performance criteria, indicative targets, and structural benchmarks as outlined in the attached TMU.
- The sixth review will be completed 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.

### Key quantitative targets and benchmarks (as presented)
- Selected QPCs and ITs (Table 1; values preserved as presented)
  - 1. Floor on non-oil primary budget balance (NOPB) -252-85
  - 2. Floor on customs revenue13030
  - 3. Ceiling on net domestic government financing excluding BEAC-90-10
  - 4. Ceiling on net government financing from the BEAC12450
  - 5. Ceiling on the stock of domestic payment arrears by the government10090
  - 6. Ceiling on new external arrears of the government and non-financial public enterprises00
  - 7. Ceiling on contracting or guaranteeing new non-concessional external debt by the government and non-financial public enterprises00
  - 8. Floor for poverty-reducing social spending24159
  - Memo item:
    - 9. Ceiling for the use of emergency spending procedures-DAO (Percent of primary spending)2222
    - 10. Floor for regularization of emergency spending procedures-DAO (Percent of total DAO)8050
    - 11. External concessional borrowing (US$ million)1270
    - 12. Oil Revenue359133
    - 13. Grants5435
- Prior actions (Table 2)
  - 1. Submit a 2020 budget in line with the program to the National Assembly (including a limit on DAO) — Due: Five business days before the Board meeting
  - 2. Based on the conclusion of the audit of BCC and CBT, adopt restructuring and funding plans for CBT and BCC — Due: Five business days before the Board meeting
  - 3. Complete audit of remaining domestic arrears — Due: Five business days before the Board meeting
- Structural benchmarks (Table 2; timing preserved as presented)
  - 1. Publication of a quarterly note on the oil sector, in line with the template agreed with the authorities, including detailed information on debt service to Glencore. — Quarterly, starting end-December 2019
  - 2. Adopt a clearance strategy of domestic arrears based on the audit results — Reset from end-November 2019; End-December 2019
  - 3. Publish a semi-annual note which lists all new exemptions (including renewal and extension of exemptions). — Semi-annual, starting end-January 2020
  - 4. Complete the implementation of the recommendations of the audit of the 47 exemption agreements with a view to removing or modifying those that do not comply with the legal texts or that have not been correctly executed — End-February 2020
  - 5. Sign a performance contract with the management of CBT and BCC — End-March 2020
  - 6. Allocate by ministerial decree new ressources (building and software) to tax directorates in charge of large and medium firms in line with FAD's recommendations. — End-April 2020

*Italicized final attribution line below.*  

*Source: 1tcdea2019004 - 26.      We will also take administrative measures to improve tax and customs collection*

### 2.      Data on all the variables subject to quantitative performance criteria (QPC) and

### 2.      Data on all the variables subject to quantitative performance criteria (QPC) and

### Data transmission and reporting
- Data on all variables subject to QPCs, indicative targets (ITs), and progress on structural benchmarks will be transmitted regularly to the IMF in accordance with Attachment 1.
- For continuous QPCs, the authorities will report any non-observance to the IMF promptly.
- Days refer to calendar days unless otherwise specified.
- Revisions to data will be forwarded to the IMF within 14 days after being made.
- Authorities will transmit any additional information or data not defined in this TMU but pertinent for assessing or monitoring program performance.

### Definitions and computation methods — scope and entities
- "Government" refers to the central government of the Republic of Chad as defined in GFSM 2014, paragraphs 2.85 – 2.89.
- Public nonfinancial enterprises include: Société Tchadienne des Eaux (STE), Société Nationale d’Electricité (SNE), Société des télécommunications du Tchad (SOTEL), Société Tchadienne des Postes et de l’Epargne (STPE), Société des Hydrocarbures du Tchad (SHT), Compagnie Tchadienne de Textiles (COTEX), Sociètè Nationale de Ciment (SONACIM Tchad), CimenTchad, Société Industrielle de Materiels Agricoles et d’Assemblage des Tracteurs (SIMATRAC), Société Tchadienne d’Hydraulique (STH), Fonds d’Entretien Routier (FER).
- Control of a corporation is defined as the ability to make key financial and operating decisions (see GFSM 2014 paragraph 2.104–2.114).

### Fiscal definitions — revenues and expenditures
- Oil revenue is the sum of:
  - (i) gross sales revenue of government’s crude oils obtained through government’s equity participation in oil companies minus all costs incurred due to the equity participation (cash-call) and transportation cost associated with the sales of government’s crude oils,
  - (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,
  - (x) any other flows of revenue paid by oil companies (settled in-kind and in-cash),
  - except indirect duty and taxes.
- Authorities will notify IMF staff of changes in oil taxation systems and laws that may impact revenue flows.
- Exceptional receipts (excluded from oil revenue) are payments from:
  - resolution of protracted disputes between foreign companies and the Government in connection with tax obligations or legal obligations;
  - sale, placement, or privatization of Government’s assets, granting or renewal of licenses.
- Customs revenue: revenue from all levies and duties payable on goods entering the country or services delivered by nonresidents to residents (GFSM 2014, paragraph 5.84); recorded on a cash basis; for program monitoring, customs revenues are those recorded in the table “Situation des régies financières” of the Treasury.
- Total government revenue = sum of tax revenue and non-tax revenue (GFSM 2014, Chapter 5); the breakdown report will show oil revenue (paragraph 5), customs revenue (paragraph 6), and exceptional receipts (paragraph 7).
- Total government expenditure = wages and salaries, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and capital expenditure; categories recorded on a commitment basis unless otherwise stated; includes “dépenses avant ordonnancement” (DAO) (see paragraph 10).

### DAO, wages, subsidies, transfers
- Dépenses avant ordonnancement (DAO): expenditures not going through standard spending procedure (commitment, validation, authorization, cash payment).
  - Two categories:
    - DAOs relative to a credit line in the budget — can be regularized without difficulties.
    - DAOs regardless of existence of a credit line — regularization requires an Amended Financial Law (LFR) or ministerial order.
- Wages and salaries: compensation of all government employees (civil servants and armed/security forces); includes wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other monetary or non-monetary payment. For monitoring, computed from document “Masse salariale” (excludes compensations under certain contracts classified as Transfers).
- Subsidies: government current expenditure to enterprises based on production/activity; for 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 (including SNE not included in other categories); for monitoring, transfers refer to those reported in “Tableau de 4 Phases”.

### Debt definitions and concessionality
- “Debt” follows Guidelines on Public Debt Conditionality (Executive Board Decision No. 15688-(14/107)) and includes contracted or guaranteed commitments for which values have not been received; understood as a current liability created under a contractual arrangement requiring future payments in assets or services.
- Primary forms of debt:
  - i. Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements).
  - ii. Suppliers’ credits (deferred payment contracts).
  - iii. Lease agreements — debt equals present value (at lease inception) of all lease payments expected for the period, excluding payments for operation/repair/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 (not CFAF).
- Debt is concessional if it includes a grant element of at least 35 percent; non-concessional otherwise.
  - Grant element = (nominal value of loan − present value) / nominal value.
  - Present value calculated as discounted sum of all future debt service payments at contracting; discount rate used is 5 percent per annum.

### Arrears definitions
- Domestic payment arrears = recognized expenditure payment arrears + domestic debt payment arrears.
  - Recognized expenditure payment arrear: outstanding amount in a payment order (validated and certified) classified as a float; becomes a recognized expenditure payment arrear 90 days after issuance of payment authorization. Recognized arrears exclude domestic debt payment arrears and arrears on wages and salaries.
  - Unrecognized expenditure payment arrears: potential arrears not going through standard spending procedure — amount determined by an audit (paragraphs 24 and 25).
  - Domestic debt payment arrears: difference between contractual payable amount and amount actually paid after contractual payment deadline.
- External debt payment arrears: external debt obligations of the government and public non-financial enterprises not paid when due under contractual terms (allowing contractual grace periods); excludes arrears on external financial obligations for which creditor has accepted in writing to negotiate alternative schedules and excludes technical arrears less than six weeks.

### Non-oil primary balance and poverty-reducing spending
- Non–oil primary balance (NOPB) = total government revenue (excluding grants, oil revenue, and exceptional receipts) − primary expenditure on a commitment basis.
  - Primary expenditure = total government expenditure − interest payments on domestic and external debt − SNE transfers − foreign–financed capital expenditure.
- Poverty–reducing social spending comprises 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, (viii) Professional Training and Small Job Promotion.
  - Includes education spending in benefit of ministry of health in the amount of 7 CFAF billion.

### Domestic financing and program reference rate
- Domestic currency government financing: issuance in CFAF to creditors; loans from BEAC (including IMF support), BDEAC, CEMAC Member States, or any other CFAF debt.
- Net domestic currency financing subdivided into net bank financing, net securitized financing, net government financing from BEAC, and other non-bank financing.
  - Net bank financing = change in net government position towards domestic commercial banks (includes prepaid interest).
  - Net government financing from BEAC = change in net government position towards BEAC.
  - Net securitized financing = issuance of securitized government bonds and loans in CFAF to domestic and regional banks net of related amortizations since end of previous year.
- “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 of loans with flexible interest rate calculated using the program reference rate plus the fixed spread (basis points) specified in the loan contract.
  - If variable rate linked to a benchmark other than six-month USD LIBOR, add a spread reflecting difference between that benchmark and six-month USD LIBOR (rounded to the nearest 50 basis points).

### Quantitative Performance Criteria (QPC)
- Continuous QPCs require no non-observance at any point; any non-observance will be reported promptly.
- QPCs assessed cumulatively from the beginning of the calendar year to applicable test-dates (Table 1 of the MEFP).
- Specified QPCs:
  - A floor for the non–oil primary balance (definition in paragraph 17).
  - A floor on customs revenue (definition in paragraph 6).
  - A ceiling on net domestic government financing (excluding BEAC) — sum of net bank financing and net securitized financing (paragraph 19).
  - A ceiling on net government financing from BEAC (as defined in paragraph 19). The ceiling includes support from the IMF.
  - A ceiling on the stock of domestic recognized expenditure payment arrears.
    - As of end-December 2018, stock of recognized expenditure payment arrears was CFAF 160 billion (from Table “Reste à Payer” prepared by the Treasury).
    - Ceiling set for end-March 2020 will be adjusted to reflect end-December 2019 actual stock of arrears when final data is available.
  - A zero ceiling on the accumulation of any new external payment arrears by the government and public non-financial enterprises — applies continuously. Any non-observance must be 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 > one year — applies continuously and excludes IMF financing.
    - Debt is non-concessional if grant element < 35 percent (paragraph 14).
    - Exclusions: (i) normal short–term credits for imports; (ii) debt contracted before the ECF arrangement and rescheduled during this arrangement to the extent rescheduling improves overall public debt profile.

### Indicative targets and memo items
- Indicative targets assessed cumulatively from beginning of calendar year to applicable test-dates (Table 1 of the MEFP).
- Specified indicative targets and memo items:
  - A floor on poverty–reducing social spending equivalent to 34 percent of domestically financed primary spending in 2019 and 2020 (poverty–reducing spending defined in paragraph 18).
  - A ceiling 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:
    - 22 percent in 2019 and 20 percent in 2020 (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 will be done within 45 days after the end of the quarter as follows:
      - 70 percent after the second quarter,
      - 75 percent after the third quarter,
      - 80 percent after the fourth quarter.

### Adjustors to performance criteria and indicative targets
- Adjusters for QPCs are specified in Section E below.
- Adjusters for indicative targets and memo items are specified in Section E below.
- Unless stated otherwise, all QPCs and indicative targets are assessed cumulatively from beginning of calendar year to applicable test-dates (Table 1 of the MEFP).

*1tcdea2019004 - 2.      Data on all the variables subject to quantitative performance criteria (QPC) and*

### 23.      To take into account factors or changes beyond the government’s control, the

### 23.      To take into account factors or changes beyond the government’s control, the

### Adjustments to quantitative performance criteria during the assessment period
- If total budgetary receipts and loans are lower than the programmed amount because of lower oil revenue or budget support:
  - The ceiling on the 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.
- Twenty percent of total surplus oil revenue—as defined in the Oil Price and Production Smoothing Law—will be deposited at the end of the year in the Special Account of the Treasury for Oil Price and Production Smoothing, up to CFAF 10 billion.
- If total budgetary receipts and loans are larger than the programmed amount because of higher oil revenue, additional budget support excluding grants to finance the parliamentary elections, or exceptional receipt:
  - Excluding amounts placed in the Special Account of the Treasury for Oil Price and Production Smoothing, additional resources must be used through adjustment of a combination of the following:
    - the floor for the non-oil primary balance can be adjusted down by up to 25 percent of the excess amount;
    - the ceiling on net financing from the BEAC can be adjusted down by 25 percent of the excess amount; and
    - the ceiling on the stock of domestic recognized expenditure payment arrears can be adjusted down by 50 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. Accordingly, the non-oil primary balance will be adjusted downward by any amount budgeted for elections in 2019 that remains unspent in 2019.
- For the purpose of the TMU, baseline oil revenue, budget support and exceptional receipts are shown in the text table (extracted figures shown in the source table):
  - Net Oil Revenue 1: 359133 (unit: in CFAF Billion context in table header)
  - Budget Grants: 5035
  - Budget Loans: 130
  - Exceptional Receipt: 00
  - Total: 422168
  - Note: "Net Oil Revenue is the sum of (i) the sale revenue of government oil net of operating and transportation cost and (ii) oil tax revenues." (in CFAF Billion)
- Should primary expenditure compression be needed:
  - Poverty-reducing social spending would be adjusted such that its ratio does not decline below 34 percent (i.e., it is reduced proportionally less than other domestically financed primary spending).

### Structural benchmarks and prior actions (summary)
- Prior Actions (specified in Table 2 of the MEFP):
  - Submit the 2020 budget to the National Assembly for approval in line with the program parameter.
  - Based on the conclusion of the audit of BCC and CBT, adopt restructuring and funding plans for CBT and BCC in coordination with the BEAC, COBAC and IMF staff.
  - Complete audit of remaining domestic arrears; coverage should include at least i) all remaining “Grand Travaux Presidentiels” and ii) all potential arrears not yet reviewed from the Infrastructure ministry.
- Structural benchmarks (Table 2 of the MEFP; outstanding SBs governed by the previous TMU):
  - Publication of a quarterly note on the oil sector, in line with the template agreed with IMF staff, including detailed information on debt service to Glencore, quarterly, starting end-December 2019. The note issued at end-December 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, reported by categories and corresponding types of payments: in-cash and in-kind. Other information includes 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.
  - In consultation with IMF staff, adopt a clearance strategy of domestic arrears based on the completed results of both audits by end-December 2019.
    - The clearance strategy should include transparent and objective factors for prioritization (including economic and social impact and the effect on the banking sector), address clearance modalities (cash payments, restructuring, securitization), and indicate the plan to finance clearance.
  - Complete implementation of recommendations of the audit of the 47 exemption conventions to remove or modify those not complying with legal texts or incorrectly executed, by end-February 2020.
  - Publication every six months of a list of all new, renewed or extended tax and customs exemptions for the previous six months. The first list: end-January covering July to December 2019.
  - Sign performance contracts with management of CBT and BCC by end-March 2020.
  - Allocate new resources (building and software) to tax directorates in charge of large and medium firms in line with FAD's recommendations, by end-April 2020.

### Data reporting requirements (Table 2 summary)
- Key data providers and periodicity (selected highlights):
  - Ministry of Finance and Budget (Treasury): Oil and Non–oil revenue, by category; Collection situation; Revenue position of revenue-collecting agencies — Monthly, within 45 days of month–end.
  - Ministry of Finance and Budget: Quarterly Oil Sector Note — Quarterly.
  - Ministry of Finance and Budget (General Budget Directorate, DGB): Budget execution data, including on poverty–reducing social spending — Monthly, within 45 days after month–end.
  - Detailed budget execution information for transfers in same classification as budget — Ministry of Finance and Budget (General Budget Directorate) — Monthly, within 45 days of month–end.
  - Details by project financed domestically, execution of the investment budget organized by Ministry — Ministry of Finance and Budget (General Budget Directorate) — Quarterly, within 45 days of the end of the quarter.
  - Information on DAO regularization — Ministry of Finance and Budget — Quarterly, within 60 days after the end of the Quarter.
  - Table on external debt (including those in local currency) with previous month’s due payments, payments made, and projected payments due for next 3 months broken down by creditors — Ministry of Finance and Budget — Monthly, within 45 days of month-end.
  - Information on external debt arrears (stock, repayments, rescheduling agreements) — Ministry of Finance and Budget — Monthly, within 45 days of month-end.
  - In case of missed external debt service payment: date of missed payment; amount; creditor — Ministry of Finance and Budget — Within 14 days of occurrence.
  - Details on servicing of the domestic debt and payment arrears of the government — Ministry of Finance and Budget (Debt Directorate, DCP) — Quarterly, within 45 days of the end of the quarter.
  - Provisional monetary data from the BEAC (Exchange rates, foreign reserves, assets and liabilities of monetary authorities, base money, broad money, central bank balance sheet, consolidated balance sheet of banking system, interest rates) — BEAC — Monthly, within 45 days of month–end.
  - Net banking system claims on the government (NGP) — BEAC — Monthly, within 30 days of month–end.
  - Consumer price index — INSEED — Monthly, within 45 days of month–end.
  - Gross domestic product and gross national product — Macroeconomic Framework Committee (SG MFB) — Annually, within 180 days of year end.
  - Balance of payments — BEAC — Annually, within 180 days of year end (preliminary data).
  - Gross external debt — Ministry of Finance and Budget (DGT Debt Directorate) — Annually, within 90 days of year end.
- Footnotes:
  - For end-December fiscal data, data should be reported 45 days after the end of the complementary period.
  - Debt tables include maturities and breakdown by currency and maturity.
  - Interest rate reporting includes both market-based and officially determined rates, including discounts, money market rates, and rates on treasury bills, bonds and other securities.

### Oil revenue reporting and table references
- Table 3. Chad: Summary of Oil Revenue (structure presented in source; key labels preserved):
  - Production and Export Overview: 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.

### Supplementary information and program assessment (Fifth Review update and program outlook)
- Supplement purpose:
  - Provides update on status of prior actions for the fifth review of the ECF arrangement since staff report (EBS/19/104) dated December 2, 2019.
- Key outcomes since staff report:
  - Authorities submitted a 2020 budget law in line with the ECF arrangement to the National Assembly on December 9, 2019.
  - Completed the audit of the remaining domestic arrears on November 25, 2019.
  - Executive boards of CBT and BCC adopted restructuring and funding plans based on audit conclusions on November 21, 2019 and November 26, 2019, respectively.
  - With these measures, all prior actions for this review have been met.
  - Approved by David Owen (AFR) and Martin Sommer (SPR). Prepared by the African Department in consultation with SPR and LEG. December 11, 2019.
- Table 8: Structural Benchmarks and Prior Actions for the Program 2019–20 (selected status):
  - Prior Actions:
    - Submit a 2020 budget in line with the program to the National Assembly (including a limit on DAO) — met.
    - Based on audit of BCC and CBT, adopt restructuring and funding plans for CBT and BCC — met.
    - Complete audit of remaining domestic arrears — met.
  - Structural Benchmarks (timing and status):
    - Publication of a quarterly note on the oil sector including detailed information on debt service to Glencore — Existing — Quarterly, starting end-December 2019.
    - Adopt a clearance strategy of domestic arrears based on audit results — Reset from end-November 2019 to End-December 2019.
    - Publish a semi-annual note listing all new exemptions (including renewal and extension) — Existing — Semi-annual, starting end-January 2020.
    - Complete implementation of recommendations of the audit of the 47 exemption agreements — Existing — End-February 2020.
    - Sign a performance contract with management of CBT and BCC — New — End-March 2020.
    - Allocate by ministerial decree new ressources (building and software) to tax directorates in charge of large and medium firms in line with FAD's recommendations — New — End-April 2020.

### Recent developments, outlook, and policy priorities (excerpts)
- Recent developments and outlook:
  - 2019: overall growth projected to pick up to 3.0 percent from 2.4 percent in 2018.
  - 2019: non-oil economic growth projected to reach 2.0 percent.
  - Inflation expected to remain below the CEMAC’s 3.0 percent convergence threshold.
  - Overall fiscal balance projected to attain -0.1 percent in 2019 against a surplus of 1.9 percent of GDP in 2018.
  - Public debt anticipated to decrease from 48.3 percent in 2018 to 44.4 percent of GDP in 2019.
  - Medium-term: growth expected to exceed 4 percent throughout the 2020- 2023 horizon while inflation would remain subdued.
  - Current account expected to remain in deficit owing mainly to FDI-related imports.
  - Authorities mindful of risks from security context and global oil price volatility.
- Program performance (mid-2019):
  - At end-June, all quantitative performance criteria (QPC) and the indicative target (IT) on social spending were met.
  - Out of five structural benchmarks under the review: two met, one implemented with delay, progress toward remaining SBs (audit of arrears and restructuring/financing plans for CBT and BCC).
  - SB on domestic arrears clearance strategy reset to end-December 2019.
- Fiscal and reform agenda going forward:
  - Fiscal policy remainder of 2019 oriented to maintain consolidation by achieving a non-oil primary balance (NOPB) of 4.2 percent by end-year.
  - Domestic revenue mobilization focused on non-oil revenue through customs measures and VAT improvements.
  - Authorities ready to adjust expenditures on goods and services to accommodate wage bill increases.
  - 2020 budget priorities: achieve a NOPB of 4.9 percent; streamline exemptions; improve VAT; contain spending via restructuring the wage bill while preserving infrastructure and social spending; strengthen cash management through a Treasury Single Account (TSA); reinforce public procurement and budgeting procedures; limit recourse to DAO.
  - Debt management: adopt a Medium-Term Debt Strategy (MTDS) prioritizing concessional loans and reinforce clearance of domestic arrears while limiting government borrowing from the banking system.
  - Financial sector: restructure CBT and BCC (recapitalization of CBT, governance improvements, performance-based contracts); deepen access to financial services via mobile banking and microfinance promotion.
  - Capacity development: implement consultation framework for partners to improve coordination and effectiveness of TA.
  - Structural reforms: strengthen National Agency for Financial Investigation, Inspectorate General of State, Inspectorate General of Finance; enforce United Nations Convention Against Corruption; publish annual financial reports of Société des Hydrocarbures du Tchad and disclose contracts/licenses; implement EITI recommendations to reinforce transparency in oil and mining sectors.

_International Monetary Fund — CHAD: Fifth Review under the Extended Credit Facility Arrangement — Supplementary Information (excerpted content unit)._

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1tcdea2019004.pdf_