## 1tcdea2021001 — Executive Summary and Program Document (Chad) ## Source details **Canonical URL:** [1tcdea2021001 — Executive Summary and Program Document (Chad)](https://www.imf.org/-/media/files/publications/cr/2021/english/1tcdea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1tcdea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1tcdea2021001.pdf.json) --- ### Context and key vulnerabilities - COVID-19 pandemic, oil-price volatility, heightened insecurity, and looming food crisis due to climate change strained an already vulnerable economy. - Structural fragilities: - Chad ranks 187th out of 189 on the 2020 Human Development Index and among the last two on the 2020 World Bank’s Human Capital Index. - Oil dependence: oil sector represents 80 percent of exports and almost 40 percent of government revenues. - Poverty rate: 48 percent at end 2020. - Refugees and IDPs: 520 thousand refugees and 400 thousand internally displaced (IDPs). - Political/donor shocks: death of the president in April 2021 and delayed donor support tightened treasury situation and threatened social stability. ### Program request, financing, and objectives - Authorities requested a 36-month arrangement under the Extended Credit Facility (ECF) with exceptional access under the PRGT. - Proposed access: SDR 392.56 million (about US$571 million or 280 percent of quota). - Program aims: - Support COVID-19 recovery while securing macroeconomic stability. - Advance structural reforms: strengthen governance, tackle corruption, support inclusive green growth and poverty reduction, address fragilities. - Restore debt sustainability via growth-friendly fiscal consolidation and an ambitious debt restructuring. ### Recent macroeconomic developments (selected indicators and dynamics) - Growth and sector performance: - Real GDP: 2019 3.0; 2020 -1.6; 2021 0.6 (current projection); 2022 2.2; 2023 3.1; 2024 3.6. - Non-oil GDP: 2019 2.0; 2020 -1.6; 2021 0.2; 2022 1.3; 2023 3.3; 2024 3.9. - Oil GDP: 2019 7.6; 2020 -1.5; 2021 2.3; 2022 2.3; 2023 2.0; 2024 2.4. - Oil production growth contracted by 1.5 percent in 2020 compared to 7.6 percent in 2019. - Inflation: - Average annual inflation rose to 4.5 percent in 2020 (from -1.0 percent in 2019). - Average annual inflation recorded 1 percent in August 2021. - External position: - Current account balance (incl. official transfers): 2019 -4.8 percent of GDP; 2020 -8.4 percent of GDP; projected 2021 -6.5; 2022 -5.8; 2023 -7.3; 2024 -7.9. - External PPG outstanding about US$3.0 billion at end-2020 (up from US$2.7 billion in 2019). - External payment arrears as of September 2021 about US$123 million (about 1 percent of GDP), mainly to bilateral creditors. - Pandemic scarring: - Pandemic-induced nominal GDP cumulative loss 2020–2024 estimated at US$5.4 billion (7.7 percent of cumulative nominal GDP). - PPP-adjusted GDP per capita ratio to advanced economies projected to drop from 3 percent in 2020 to as low as 2.7 percent by 2023. ### Fiscal developments (2020–2021) and program fiscal strategy - 2020 fiscal composition (percent of non-oil GDP — 2019 / 2020 Est.): - Oil Revenue: 6.4 / 10.6 - Non-oil Revenue: 9.4 / 9.1 - Current Expenditure: 12.5 / 15.2 - Wages and Salaries: 7.0 / 8.2 - Investment: 5.6 / 7.1 - Overall Balance (incl. grants, commitment): -0.8 / 1.9 - Non-oil primary balance (excl. grants, commitment): -4.8 / -8.1 - 2021 fiscal dynamics and estimates (percent of non-oil GDP — 2020 / 2021 Est. / 2021 Budget / 2021 Current Estimate): - Oil Revenue: 10.6 / 8.2 / 7.0 - Non-oil Revenue: 9.1 / 9.1 / 9.3 - Current Expenditure: 15.2 / 14.5 / 15.4 - Investment: 7.1 / 7.1 / 7.2 - Overall Balance (incl. grants, commitment): 1.9 / -1.3 / -3.4 - Non-oil primary balance (excl. grants, commitment): -8.1 / -6.9 / -7.7 - Program fiscal consolidation targets: - Cumulative fiscal consolidation of 4.0 percentage points of non-oil GDP through domestic tax revenue mobilization and expenditure restraint. - Program envisages additional consolidation of the NOPB of 3.6 percentage points of non-oil GDP over 2022-24. - Revenue measures targeted to increase tax revenues by 1.8 percentage points of non-oil GDP: - Strengthening VAT Collection: 0.8 - Streamlining Exemptions: 0.5 - Improving Customs Revenues: 0.5 - Expenditure-side adjustment of 1.8 (percent of non-oil GDP): containing current spending 1.7 (wage bill control 0.7; transfers and subsidies 1.0), prioritizing capital spending 0.1. - Capital expenditures expected to remain on average at 7 percent of non-oil GDP. - Social spending preserved at 34 percent of current spending over the program. ### Public debt, DSA findings, and restructuring needs - DSA findings (pre-restructuring baseline): - Public debt assessed as unsustainable; public debt classified as in distress. - External debt service-to-revenue ratio exceeds the 14 percent high-risk threshold in 2021-27 under the baseline; all external debt thresholds breached under extreme shocks. - PV of public debt to GDP threshold breached during 2021-26 under the baseline. - Financing needs and IMF role: - Staff estimates cumulative financing gap of US$1.662 billion during 2021-24. - Proposed 36-month ECF arrangement with access SDR 392.56 million (280 percent of quota) to fill around a third of the estimated financing gap. - Expected debt restructuring projected to generate about US$658 million in financing during 2021-24. - PRGT cumulative access will peak at 505 percent of quota (resulting in exceptional access under the PRGT); entire amount to be provided to the budget. - Debt treatment and creditor engagement: - Authorities decided in December 2020 to seek restructuring through the G20 Common Framework. - Official bilateral creditors engaged through a Creditor Committee; main private creditor formed a committee and hired advisors. - Authorities committed to finalize MOUs with official creditors and reach agreement with largest private creditor by first review. ### Financial sector developments and policy response - Banking sector indicators (select series): - Total bank regulatory capital to risk-weighted assets: 2019 6.7, 2020 4.5 - Non-performing loans to total loans: 2019 22.9, 2020 25.3 - Liquid assets to short-term liabilities: 2019 124.9, 2020 120.4 - BEAC and COBAC actions: - BEAC eased monetary policy since March 2020, provided liquidity, reduced haircuts, announced public securities’ program on secondary market (program ended September 2021). - COBAC measures: capital conservation buffer of 2.5 percent, restrictive dividend policy, ad-hoc reporting, adjustments to loan classification periods, and buffer minimum of 9.5 percent for the risk coverage ratio. - Banking vulnerabilities and remedial steps: - Capital adequacy ratio fell to about 4.5 percent in mid-2020 (below CAR threshold 9.5 percent). - Partial recapitalization of CBT of CFAF 4.5 billion (prior action); monthly repayments to public banks: CFAF 250 million to BCC and CFAF 500 million to CBT per month. - Financial inclusion: only nine percent of population has a bank account; plans to expand mobile money, microfinance, and bancarisation. ### Governance, transparency, and procurement measures - COVID-19 transparency measures: - Dedicated treasury account "Special Fund for the fight against the Coronavirus" created; COVID expenditures earmarked and separately reported. - Emergency procurement under Decree No. 1025/PR/MFB/2020 subject to ex-post compliance audit by a reputable international auditing firm; audit report for year 2020 to be finalized before end-2021; online publication expected by end-2021. - Prior action: on-line publication of full text of all COVID-19-related procurement contracts awarded through May 31, 2021. - Structural benchmark (SB) for end-March 2022: online publication of full text of all procurement contracts along with names and nationalities of beneficial owners of awarded legal entities. - Public Financial Management (PFM) reforms and benchmarks: - Adopt PFM strategy (SB end-June 2022); implement IFMS; prepare cashflow projections; reduce DAO to 18 percent of spending in 2022 and 15 percent by 2024; adopt TSA over medium term. - Anti-corruption measures: seek UN support to align penal code with UNCAC; design asset declaration regime; augment ANIF resources. - COVID-19 fiscal measures total cost: - CFAF 306.2 billion (5.9 percent of non-oil GDP), composed of: - Support to SMEs: CFAF 131.0 billion (2.5 percent of non-oil GDP), including business license fee reduction CFAF 4.0 billion (0.1 percent). - Clearance of domestic arrears: CFAF 110.0 billion (2.1 percent). - Subsidy to Agricultural Sector: CFAF 17.0 billion (0.3 percent). - Measures to Support Households: CFAF 175.2 billion (3.4 percent), including Solidarity Fund CFAF 100.0 billion (1.9 percent) and Youth Entrepreneurship Fund CFAF 30.0 billion (0.6 percent). ### Structural and growth-enhancing reforms - Tax and customs modernization: - VAT reforms: acquire new IT system; relocate large- and medium-firms directorates; introduce VAT refund system (SB end-February 2022); allocate VAT revenues to VAT escrow account at BEAC (end-February 2022). - Implement ASYCUDA Exemption Module (end-November 2022 SB); publish semi-annual note listing new tax exemptions (SB end-January 2022). - Wage bill and payroll reforms: - Biometric registration completed in 2021. - Implement employment ceilings for 2023 budget (SB end-August 2022); operationalize payroll controls using IFIMS; clean up payroll database. - Agreed arrears clearance: audit estimated arrears CFAF 515 billion (9.7 percent of non-oil GDP) in December 2019; CFAF 149 billion cleared under Jan 2020 strategy; expected CFAF 85 billion clearance in 2021 (CFAF 25 billion via T-bonds; CFAF 60 billion via Treasury resources). - SOE and electricity sector reforms: - Restructure SNE: replace diesel-in-kind transfers with monetary transfers under performance contract; legal framework amended to liberalize electricity production/distribution; 2020 budget provided tax incentives for green energy investment. - PIMA evaluation and Climate Change Policy Assessment (CCPA) to support climate-smart public investment. ### Program conditionality, monitoring, and disbursement schedule - Program monitoring: - Semi-annual QPCs, indicative targets (ITs), and structural benchmarks (SBs). - QPCs include: new external arrears, contracting/guaranteeing non-concessional external debt, non-oil primary fiscal balance; from second review: QPCs on domestic arrears; from third review: QPCs on net domestic government financing. - Adjustors for oil revenue and budget support fluctuations included. - Selected structural benchmarks and prior actions (timing): - Prior actions: partial recapitalization of CBT by CFAF 4.5 billion; online publication of all COVID-19-related procurement contracts as of May 31, 2021. - Quarterly oil sector note starting end-December 2021; ex-post COVID audit completed and published by end-December 2021; semi-annual list of new tax exemptions starting end-January 2022; allocate VAT revenues to VAT escrow account by end-February 2022; publish procurement contracts with beneficial owners by end-March 2022; finalize PFM strategy by end-June 2022; implement employment ceilings by end-August 2022; ASYCUDA exemption module by end-November 2022. - Disbursement phasing (SDR amounts): - Total SDR 392.56 million over three years. - Disbursements shall not exceed SDR 168.24 million in first twelve months and SDR 280.40 million in first twenty-four months. - First disbursement: SDR 56.08 million available upon approval. - Second disbursement: SDR 56.08 million available on or after [April 15], 2022, subject to program conditions. - Third disbursement: SDR 56.08 million available on or after [September 15], 2022, subject to program conditions. - Fourth disbursement: SDR 56.08 million available on or after [April 14], 2023, subject to program conditions. - Disbursement conditions tied to completion of reviews and observance of QPCs/ITs. ### Risks, scenarios, and upside - Key near-term downside risks: - Deterioration of pandemic and slower vaccine rollout; serious security incidents and social unrest; delays or imperfect implementation of debt restructuring; reform fatigue; shortfalls in donor financing. - Medium-term risks: - Drop in oil prices; deterioration in security or political disruptions; weak fiscal discipline (including wage bill overshoots in election year); delays in promised debt relief from private creditors. - Upside risk: - Higher-than-expected international oil prices. - Program scenarios and DSA stress tests: - Tailored commodity price stress test (20 percent oil price reduction) activated. - Under exports stress test, all four indicator thresholds are breached for the entire horizon; debt service-to-revenue ratio peaks at 22 percent under exports stress test. - DSA baseline shows debt benchmarks breached in 2021-26. ### Staff appraisal and policy recommendations (summary) - Staff supports the ECF request conditioned on: - Authorities’ commitment to reforms and fiscal consolidation to reduce debt vulnerabilities. - Successful debt restructuring under the G20 Common Framework to restore debt sustainability to moderate risk within the program period. - Implementation of structural reforms to strengthen governance, PFM, tax administration, and financial sector stability. - Fiscal policy prescriptions: - Balanced mix of domestic revenue mobilization and expenditure restraint, with strict wage bill control and protection of poverty-reducing social spending (34 percent of domestically financed primary spending). - Save oil windfalls if realized; contain non-priority spending in run-up to elections. - Banking sector recommendations: - Address vulnerabilities of two large public banks; further recapitalization for CBT may be needed; ensure financial sector stability as precondition for inclusion policies. *Source: 1tcdea2021001 — Executive Summary and supporting chapters (IMF staff report excerpts).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - The COVID-19 pandemic, volatility in oil prices, heightened insecurity, and a looming food crisis due to climate change have severely stressed an already vulnerable Chadian economy. - Two Rapid Credit Facility (RCF) disbursements in April and July 2020 allowed Chad to meet immediate financing and urgent balance of payment needs in the early stages of the pandemic. - The authorities requested Fund assistance under the ECF to support post-COVID recovery and reduce debt vulnerabilities through a combination of a debt workout and a multi-year fiscal consolidation program. - Political and donor-delivery shocks have tightened the treasury situation: the death of the president following renewed fighting with rebel groups in April and delayed delivery of donor support have threatened social stability. - Major structural fragilities described: - Insecurity, weak governance and corruption risks, climate change, and a difficult socio-political environment. - Chad ranks 187th out of 189 on the 2020 Human Development Index and scores among the last two countries on the 2020 World Bank’s Human Capital Index. - Oil dependence: oil sector represents 80 percent of exports and almost 40 percent of government revenues. - Poverty rate: 48 percent at end 2020. - Refugees and IDPs: 520 thousand refugees and 400 thousand internally displaced (IDPs). ### Program request and financing - Authorities requested a 36-month arrangement under the Extended Credit Facility (ECF) resulting in exceptional access under the PGRT. - Proposed access: SDR 392.56 million (about US$571 million or 280 percent of quota). - Program aims to meet large balance-of-payments and budget-support needs and to catalyze financial support from official donors. - Over the longer term, policies under the ECF program aim to put the economy on a balanced and sustainable path to growth and poverty reduction. ### Program pillars (objectives) - Support the recovery from the COVID-19 shock, while securing macroeconomic stability. - Advance the authorities’ structural reform agenda, including: - Strengthen governance and tackle corruption. - Support inclusive green growth and poverty reduction. - Address fragilities. - Restore debt sustainability via growth-friendly fiscal consolidation and an ambitious debt restructuring. ### Risks and scenarios - Key near-term downside risks: - Possible deterioration in the pandemic and related slowdown in GDP growth and reform implementation. - Serious security incidents and social unrest. - Delays in the implementation of debt restructuring. - Reform fatigue. - Shortfalls in donor financing. - Upside risk: - Higher-than-expected international oil prices. ### Recent economic developments and macro backdrop - Prior to the pandemic: non-oil growth projected to gradually increase and plateau at 4 percent starting 2021; inflation projected to remain below 3 percent; gradual reduction in public debt under continuing fiscal consolidation. - COVID-19, oil-price volatility, insecurity, floods, and low seasonal rainfall strained the economy and created large fiscal and external financing needs. - Oil sector performance: - Oil production growth contracted by 1.5 percent in 2020 compared to 7.6 percent in 2019, due to temporary interruption in activity of the third largest oil company and weaker production by other oil companies. - Non-oil activity: - Non-oil output contracted by 1.6 percent in 2020 compared to growth of 2.0 percent in 2019. - Agriculture and telecommunication sectors remained relatively resilient. - Inflation: - Average annual inflation rose to 4.5 percent in 2020 compared to -1.0 percent in 2019. - Average annual inflation recorded 1 percent in August 2021. - Vaccination plan: - National plan adopted in March 2021 aims to vaccinate about 6 million people (34 percent of the population) in four phases. - Vaccination kicked off in June with 200,000 doses of Sinopharm, later followed by 100,000 doses of Pfizer delivered under COVAX. - Plan’s total cost: US$76 million; funding: COVAX (73 percent), government (0.4 percent); remaining financing gap (about US$20 million) to be covered by the World Bank. ### Past program performance and public finances - Performance under the 2017-20 ECF-supported program was satisfactory: reviews completed on time and only one waiver requested. - Macroeconomic outcomes during 2016–19 (selected indicators from Text Table 1): - Real GDP: -5.6 (2016), -2.4 (2017), 2.3 (2018), 3.0 (2019). - Non-oil GDP: -6.0 (2016), -0.5 (2017), 0.3 (2018), 2.0 (2019). - Oil GDP: -3.4 (2016), -11.2 (2017), 12.7 (2018), 7.6 (2019). - Inflation: -1.6 (2016), -0.9 (2017), 4.0 (2018), -1.0 (2019). - Non-oil Revenue (percent of non-oil GDP): 8.4 (2016), 8.7 (2017), 8.1 (2018), 9.4 (2019). - Current Expenditure (percent of non-oil GDP): 18.0 (2016), 18.0 (2017), 16.5 (2018), 18.0 (2019). - Capital Expenditure (percent of non-oil GDP): 3.7 (2016), 4.4 (2017), 4.5 (2018), 5.6 (2019). - Overall Balance (incl. grants, commitment): -3.0 (2016), -0.9 (2017), 1.9 (2018), -0.8 (2019). - Non-oil Primary Balance (excl. grants): -4.4 (2016), -3.8 (2017), -4.2 (2018), -4.8 (2019). - Current Account Deficit (percent of GDP): -10.4 (2016), -7.1 (2017), -1.4 (2018), -4.9 (2019). - Public Debt (percent of GDP): 51.3 (2016), 50.3 (2017), 49.1 (2018), 44.3 (2019). - Despite progress, the DSA shows a significant deterioration of debt vulnerabilities; public debt assessed to be unsustainable. - In the DSA, the external debt service-to-revenue ratio exceeds its high-risk threshold of 14 percent in 2021-27 under the baseline; all external debt thresholds are breached under the most extreme shock; and the PV of public debt to GDP threshold is breached during 2021-26 under the baseline. ### Pandemic response, transparency, and governance commitments - Fund support included two RCFs in April and July 2020 and debt relief through the Catastrophe Containment and Relief Trust (CCRT). - Government commitments under RCFs to enhance transparency of COVID-19 spending: - Opened a dedicated treasury account titled "Special Fund for the fight against the Coronavirus" and established a committee headed by the Ministry of Finance and Budget. - COVID expenditures are earmarked in the budget and will have separate reporting. - Emergency procurement under Decree No. 1025/PR/MFB/2020 is subject to an ex-post compliance audit by a reputable international auditing firm, to be completed with the support of the Inspectorate of Public Finances within six months of the end of the fiscal year. The audit report for year 2020 is to be finalized before end-2021; online publication expected by end-2021. - On-line publication of the full text of all COVID-19-related procurement contracts awarded through May 31, 2021 is a prior action. Going forward, on-line publication of the full text of all procurement contracts, along with names and nationalities of beneficial owners of awarded legal entities, is a structural benchmark (SB) for March 2022. - Total cost of selected government COVID-19 response measures: CFAF 306.2 billion (5.9 percent of non-oil GDP), composed of: - Measures to Support SMEs: CFAF 131.0 billion (2.5 percent of non-oil GDP), including 50 percent reduction of business license fees CFAF 4.0 billion (0.1 percent). - Clearance of domestic arrears owed to suppliers: CFAF 110.0 billion (2.1 percent). - Subsidy to Agricultural Sector: CFAF 17.0 billion (0.3 percent). - Measures to Support Households: CFAF 175.2 billion (3.4 percent), including temporary provision of water & electricity CFAF 7.7 billion (0.1 percent), payment of death benefits CFAF 5.0 billion (0.1 percent), replenishment of National Food Distribution Program CFAF 25.0 billion (0.5 percent), hiring additional health workers CFAF 7.5 billion (0.1 percent), establishment of Solidarity Fund CFAF 100.0 billion (1.9 percent), establishment of Youth Entrepreneurship Fund CFAF 30.0 billion (0.6 percent). ### Policy priorities going forward - Put public finances on a more sustainable footing through growth-friendly fiscal consolidation. - Improve governance and tackle corruption. - Better address sources of fragilities: inequalities, social spending weaknesses, regional disparities. - Promote a friendly business environment and build a strong financial sector. - Implement an ambitious debt restructuring and complete remaining reforms tied to the ECF program. *Source: 1tcdea2021001 - EXECUTIVE SUMMARY* ### 11. The authorities allowed a widening of the fiscal deficit in 2020 to accommodate the ### 11. The authorities allowed a widening of the fiscal deficit in 2020 to accommodate the implementation of support measures and the recession-induced loss of tax revenues ### Fiscal developments and composition (2020–2021) - 2020 fiscal adjustments: - Non-oil revenues dropped by 0.3 percentage points to 9.1 percent of non-oil GDP. - Oil revenues increased by 4.2 percentage points to 10.6 percent of non-oil GDP (large tax payment from the largest oil company). - Current spending increased by 2.7 percentage points to 15.2 percent of non-oil GDP. - Capital spending increased by 1.5 percentage points to 7.1 percent of non-oil GDP. - Monthly wage bill increases driven by restoration of benefits, security deterioration, and new hires in the health sector. - Transfers and subsidies increased due to higher-than-expected electricity subsidy and COVID-19 related spending. - Domestically financed investments increased by 0.2 percentage points of non-oil GDP. - Non-oil primary balance (NOPB) widened by 3.3 percentage points to -8.1 percent of non-oil GDP. - 2021 preliminary fiscal dynamics: - Government faced a tight liquidity situation in H1 2021, resulting in spending cuts (mainly transfers and subsidies and domestically financed investment). - Security spending and the wage bill increased; social spending was under executed. - Government nearly depleted deposits at the BEAC and relied on domestic borrowing. - Text Table 4 (Chad: Fiscal Developments, percent of non-oil GDP) — 2019 / 2020 Est.: - Oil Revenue: 6.4 / 10.6 - Non-oil Revenue: 9.4 / 9.1 - Tax Revenue: 9.0 / 8.6 - Non-tax Revenue: 0.4 / 0.5 - Current Expenditure: 12.5 / 15.2 - Wages and Salaries: 7.0 / 8.2 - Goods and Services: 1.6 / 2.2 - Transfers and Subsidies: 2.6 / 3.7 - Investment: 5.6 / 7.1 - Domestically Financed: 3.0 / 3.2 - Foreign financed: 2.6 / 3.9 - Overall Balance (incl. grants, commitment): -0.8 / 1.9 - Non-oil primary balance (excl. grants, commitment): -4.8 / -8.1 ### Public external debt and arrears - Outstanding public and publicly guaranteed (PPG) external debt: - About US$3.0 billion at end-2020 (up from US$2.7 billion in 2019). - Increase driven by external debt disbursements and reclassification of debt owed to Angola (being repaid in kind). - Arrears and creditor engagement: - Chad is in arrears to the Republic of Congo and to Libya. - Authorities have arrears with BDEAC and have engaged with this creditor to seek an agreement to resolve and restructure this debt. ### Macroeconomic outlook and projections (selected) - Real GDP (Current Projections): - 2019: 3.0 - 2020: -1.6 - 2021: 0.6 - 2022: 2.2 - 2023: 3.1 - 2024: 3.6 - Non-oil GDP (Current Projections): - 2019: 2.0 - 2020: -1.6 - 2021: 0.2 - 2022: 1.3 - 2023: 3.3 - 2024: 3.9 - Oil GDP (Current Projections): - 2019: 7.6 - 2020: -1.5 - 2021: 2.3 - 2022: 2.3 - 2023: 2.0 - 2024: 2.4 - Current Account Balance (incl. official transfers) — Current Projections (percent of GDP): - 2019: -4.8 - 2020: -8.4 - 2021: -6.5 - 2022: -5.8 - 2023: -7.3 - 2024: -7.9 - Public Debt (Current Projections, percent of GDP): - 2019: 53.0 - 2020: 52.5 - 2021: 49.1 - 2022: 50.6 - 2023: 48.9 - 2024: 47.7 - External Debt (Current Projections, percent of GDP): - 2019: 24.6 - 2020: 26.3 - 2021: 26.1 - 2022: 27.7 - 2023: 28.3 - 2024: 28.2 ### Financial sector developments and policy response - Banking sector vulnerabilities (2020): - Capital adequacy ratio (CAR) fell to about 4.5 percent in mid-2020 (below CAR threshold 9.5 percent), compared to 6.7 percent in December 2019 (partly reflecting changes to Basel II reporting). - Liquidity ratio (liquid assets to short-term liabilities) remained broadly stable at 120 percent (124 percent in December 2019). - Non-performing loan ratio remained elevated at 25 percent by mid-2020. - Deposits and credit increased annually in December 2020 due to rises in both public and private sectors. - BEAC and COBAC measures: - BEAC eased monetary policy since March 2020: decreased policy rates, increased liquidity provision, reduced haircuts on private instruments for refinancing operations until 2021: Q1; resumed liquidity injections with maturities up to one year. - BEAC announced a public securities’ program on the secondary market (initially 6 months, extended 6 months starting March 1, 2021, ended September 2021). Chad initially unable to benefit due to rollover mechanism; after termination of rollover mechanism end-March, Treasury issued 5-year securities (CFAF 50 billion) and 2-year securities (CFAF 20.9 billion) under the program. - COBAC measures: banks to utilize a capital conservation buffer of 2.5 percent; restrictive dividend policy; ad-hoc reporting to monitor financial stability. - Additional COBAC measures include: (a) removing thresholds for immediate classification of restructured loans, (b) extending from 90 to 180 days the period for reclassification of sound loans to bad loans, and (c) raising buffer by only 1 percent and maintain a buffer minimum of 9.5 percent for the risk coverage ratio. - Text Table 6 (Financial Soundness Indicators, percent) — select series: - Total bank regulatory capital to risk-weighted assets: 2016 13.2, 2017 18.0, 2018 16.8, 2019 6.7, 2020 4.5 - Total capital (net worth) to assets: 2016 10.6, 2017 11.7, 2018 11.3, 2019 9.7, 2020 10.0 - Non-performing loans to total loans: 2016 20.9, 2017 25.8, 2018 28.6, 2019 22.9, 2020 25.3 - Non-performing loans net of provision to capital: 2016 53.2, 2017 63.3, 2018 70.1, 2019 50.8, 2020 59.7 - Liquid assets to short-term liabilities: 2016 155.0, 2017 188.9, 2018 117.9, 2019 124.9, 2020 120.4 ### External position and pandemic impact - 2020 external position: - Current account deficit nearly doubled to 8.4 percent of GDP. - Exports declined by about 7.8 percentage points of GDP due to a nearly 35 percent (y/y) decline in oil prices. - Trade surplus narrowed to 3 percent of GDP (from 10.7 percent of GDP in 2019). - Increased net transfers were insufficient to offset the narrowed trade surplus. - Current account deficit was largely financed through increased public sector borrowing, including two RCF disbursements. - Pandemic scarring (Box 1): - Pandemic-induced nominal GDP cumulative loss between 2020 and 2024 estimated at US$5.4 billion (7.7 percent of cumulative nominal GDP). - PPP adjusted GDP per capita ratio to advanced economies projected to drop from 3 percent in 2020 to as low as 2.7 percent by 2023, without improvement until end of projection period. - Survey evidence: over a six-month period (May-June 2020 and Jan-Feb 2021), share of households in the lowest quintile increased by 10 percentage points versus 3 percentage points for highest quintile. - Pandemic aggravated income and gender inequalities and may have persistent effects. ### Outlook, risks, and program objectives - Short- and medium-term outlook: - Output expected to grow by 0.6 percent in 2021 (down from 6.1 percent projected at time of RCF-2). - Inflation expected to weaken to 1 percent in 2021. - NOPB expected to narrow to -7.7 percent of non-oil GDP in 2021, mainly due to expenditure cuts. - Growth projected to pick up gradually to reach 3.6 percent by 2024, conditional on adequate reforms. - Inflation expected to remain around 3 percent target in medium term. - NOPB expected to narrow by 4.0 percent of non-oil GDP to -4.1 percent in 2024. - Current account deficit expected to widen to 7.9 percent of GDP by 2024. - Chad projected to register large external financing gaps averaging nearly 2.9 percent of non-oil GDP per year. - Key risks: - Near-term: more severe/protracted COVID-19 pandemic, delays in vaccine rollout leading to higher fiscal costs. - Medium-term: drop in oil prices; deterioration in security situation or political disruptions; weak fiscal discipline (including wage bill overshooting in an election year); reform fatigue; delays in promised debt relief assurances from private creditors; further donor disbursement delays. - Upside: oil prices sustained at higher-than-expected levels. - Program objectives under proposed 36-month ECF: - Advance structural reform agenda, including strengthening governance, to support growth and poverty reduction and address fragilities. - Reduce debt vulnerabilities via growth-friendly fiscal consolidation and an ambitious public debt restructuring. - Structural benchmarks specified through end-2022; additional reforms and conditionality to be detailed on a rolling basis at reviews. ### Fiscal strategy and targets (program) - Fiscal consolidation: - Program envisages cumulative fiscal consolidation of 4.0 percentage points of non-oil GDP through domestic tax revenue mobilization combined with expenditure restraint. - Aim: reduce budget dependence on oil revenues and free resources for pandemic-related needs in 2021 and priority investment and social spending while accommodating security spending. - 2021 fiscal expectations: - NOPB and overall balance expected to deteriorate to -7.7 percent of non-oil GDP and -3.4 percent of non-oil GDP, respectively, driven by lower oil revenue and increased expenditure to mitigate food crisis impacts. - Share of primary expenditure approved outside standard spending procedure (DAO) estimated to have dipped to 20 percent (from 21 percent in 2020). - Chad received an SDR allocation equivalent of US$193 million and mostly used it in 2021 to address urgent social needs, including food insecurity. - Text Table 7 (Chad: Fiscal Developments in 2021, percent of non-oil GDP) — 2020 / 2021 Est. / 2021 Budget / 2021 Current Estimate: - Oil Revenue: 10.6 / 8.2 / 7.0 - Non-oil Revenue: 9.1 / 9.1 / 9.3 - Tax Revenue: 8.6 / 8.8 / 8.9 - Non-tax Revenue: 0.5 / 0.3 / 0.3 - Current Expenditure: 15.2 / 14.5 / 15.4 - Wages and Salaries: 8.2 / 7.8 / 8.0 - Goods and Services: 2.2 / 1.8 / 2.5 - Transfers and Subsidies: 3.7 / 3.8 / 3.9 - Investment: 7.1 / 7.1 / 7.2 - Domestically Financed: 3.2 / 2.6 / 2.6 - Foreign financed: 3.9 / 4.5 / 4.6 - Overall Balance (incl. grants, commitment): 1.9 / -1.3 / -3.4 - Non-oil primary balance (excl. grants, commitment): -8.1 / -6.9 / -7.7 - Memorandum items: Nominal non-oil GDP (billion CFA francs) 527154 / 205337; CPI (annual average) 4.5 / 2.6 / 1.1 - 2022 budget orientation: - Strengthen non-oil revenues and fiscal discipline; unwind remaining COVID-19 emergency measures as crisis abates. - Better control of current spending, particularly the wage bill, while making room for higher social spending and allocating resources for elections and security. - NOPB projected to improve by 1.2 percentage points of non-oil GDP. - Overall balance projected to deteriorate by 1.9 percentage points of non-oil GDP to -1.3 percent of non-oil GDP due to projected lower oil prices. *Source: Chadian Authorities and IMF Staff Estimates (as presented in the supplied chapter).* ### 26. Significant fiscal adjustment is ### 1tcdea2021001 - 26. Significant fiscal adjustment is ### Fiscal adjustment (2022-24): targets and composition - Program target: additional consolidation of the NOPB of 3.6 percentage points of non-oil GDP over 2022-24. - Revenue measures targeted to increase tax revenues by 1.8 percentage points of non-oil GDP. - Strengthening VAT Collection: 0.8 (percent of non-oil GDP) - Streamlining Exemptions: 0.5 (percent of non-oil GDP) - Improving Customs Revenues: 0.5 (percent of non-oil GDP) - Expenditure-side adjustment of 1.8 (percent of non-oil GDP): - Containing Current Spending: 1.7 (percent of non-oil GDP) - Wage Bill Control: 0.7 (percent of non-oil GDP) - Transfers and Subsidies: 1.0 (percent of non-oil GDP) - Prioritizing Capital Spending: 0.1 (percent of non-oil GDP) - Capital expenditures expected to remain on average at 7 percent of non-oil GDP, above pre-pandemic levels. - Social spending preserved at 34 percent of current spending over the program. ### VAT, tax administration, and revenue mobilization - VAT revenues stood at around 1.5 percent of GDP in 2020. - Planned measures: - Acquire a new IT system. - Finalize relocation of large- and medium-sized firms directorates. - Introduce a VAT refund system (SB for end-February 2022). - Implement transfer of revenue collection from the treasury to a revenue administration body over the medium term. - Implement ASYCUDA Exemption Module to process customs exemptions requests and authorizations (end-November 2022 Structural Benchmark). - Finalize implementation of recommendations from the audit of the 47 exemption agreements and publish a semi-annual note listing all new tax exemptions (SB for end January 2022). ### Wage bill, payroll reforms, and arrears clearance - Wage bill context: - Large cuts in 2016 and early 2018 led to a 50 percent reduction in wages and benefits; benefits reinstated by early 2020. - Government and labor union signed a three-year Social Pact in October 2021; government to pay by July 2022 arrears accumulated between 2016 and 2020. - 2021 additional spending estimated at CFA13.3 billion (about 0.2 percent of non-oil GDP). - Agreed reforms to yield about 1 percent of non-oil GDP adjustment: - Set up and operationalize a civil service employees’ number and salary steering committee. - Define and implement a wage bill control action plan using IFIMS. - Clean up the payroll database. - Implement employment ceilings for the 2023 budget (SB for end August 2022). - Conduct a functional review to better control the wage bill. - Biometric registration of civil servants completed in 2021 to better manage payroll. - Domestic arrears: - Audit (December 2019) estimated arrears at about CFAF 515 billion (9.7 percent of non-oil GDP). - As part of January 2020 clearance strategy, CFAF 149 billion cleared (2.8 percent of non-oil GDP): - CFAF 70 billion cleared through bank loans (agreement with banks). - CFAF 79 billion paid using Treasury resources. - For 2021, expected clearance of CFAF 85 billion: - CFAF 25 billion via issuance of T-bonds following exit from rollover mechanism. - CFAF 60 billion using Treasury resources, CFAF 17 billion of which via the SDR allocation. - Part of the SDR allocation will be used to clear arrears owed to pensioners. ### Debt sustainability, restructuring, and financing needs - Debt sustainability analysis (pre-restructuring baseline) shows public debt unsustainable: - Debt service-to-revenue and PV of public debt to GDP projected above high-risk thresholds during specified periods (debt service-to-revenue during 2021-28; PV of public debt to GDP during 2020-26). - All external debt risk indicators exceed thresholds under extreme shock scenarios. - Public debt classified as in distress; authorities decided in December 2020 to seek restructuring through the G20 Common Framework. - Restoring debt sustainability depends on reducing debt service burden: - DSSI and CCRT contributed to closing financing gap in 2020-21 but are insufficient. - External financing needs projected to be met through additional financing from the Fund, the World Bank and other MDBs, and official bilateral partners. - A debt restructuring of part of external debt obligations will be necessary to bring risk from in debt distress to moderate risk of debt distress before end of program period. - Authorities agreed to publish new debt contracts to enhance debt transparency. - Financing gap and ECF access: - Staff estimates a cumulative financing gap of US$1.662 billion during 2021-24. - Proposed 36-month ECF arrangement with access set at SDR 392.56 million (280 percent of quota) to fill around a third of the estimated financing gap. - PRGT cumulative access will peak at 505 percent of quota, resulting in exceptional access under the PRGT; entire amount to be provided to the budget. - Exceptional access predicated on: (i) authorities’ commitment to reforms; (ii) satisfactory policy implementation under previous ECF; and (iii) an expected debt restructuring to reduce debt risk. ### Domestic debt management and rollover mechanism - Agreement reached to terminate the rollover mechanism for domestic debt (mechanism in place since 2018, initially 100 percent rollovers, reduced to 85 percent in 2020). - New agreement allows issuance of new securities with maturities between one to five years to ease treasury liquidity pressures. - Stock of existing government securities: CFAF 333 billion at end-2020 (6.3 percent of non-oil GDP), mostly 6-month T-bills; authorities started converting them to T-bonds with maturities between two and five years. - BEAC’s purchasing program on the secondary market supported Chad with CFA 145 billion until the program ended in September. ### Banking sector resilience and financial inclusion - Public banks vulnerabilities and remediation: - Roadmaps adopted under previous ECF: restructuring and funding plans for two systemic public banks and performance contracts. - Monthly repayments of arrears to public banks continued: CFAF 250 million to BCC and CFAF 500 million to CBT per month. - Partial recapitalization of CBT of CFAF 4.5 billion (prior action) to help address weak capital position. - Domestic banks remain weak with liquidity constraints and weak capital positions; one systemic bank showed progress, the other remained somewhat weak. - Financial sector development for diversification and inclusion: - Only nine percent of the Chadian population has a bank account. - Efforts to develop mobile money and microfinance to enhance financial inclusion. - Agreements to facilitate payments through mobile phones in 13 customs offices with no banking coverage, and for wage payments via mobile money in areas not covered by banks. - “Bancarisation” to channel government transactions through banks, expand account openings, and promote payments of wages, taxes and customs duties through mobile money. ### Public Financial Management, governance, and structural reforms - PFM reforms and benchmarks: - Implement a PFM strategy based on Fund TA recommendations (SB for end June 2022). - Adopt an integrated financial management system. - Prepare cashflow projections and treasury plans to improve treasury management and prevent accumulation of new arrears. - Gradually reduce Dépenses avant ordonnancement (DAO) to 18 percent of spending in 2022 and to 15 percent by 2024. - Over the medium term: adopt a Treasury Single Account; rationalize transfers and subsidies; conduct a PIMA evaluation of public investment with focus on climate-smart infrastructure. - Anti-corruption and procurement transparency measures: - Seek UN support to align penal code with UNCAC. - Design an asset declaration regime with IMF staff in line with international good practices. - Support activities of the National Agency for Financial Investigation (ANIF), including augmenting human resources. - Require publication online of the full text of all procurement contracts and names and nationalities of beneficial owners of awarded legal entities (SB for end March 2022), with Fund TA. - Complete and publish an ex-post audit of COVID-19-related expenses by a reputable international auditing firm (SB for end-December 2021). - Prior action: publish online the full text of all COVID-19-related procurement contracts awarded as of May 31, 2021. ### Business environment, SOE, and growth-enhancing reforms - Business climate constraints: weak access to electricity, burdensome regulatory environment, insufficient access to finance, governance, corruption, and transparency issues. - Planned reforms: - Regulations to facilitate investment in the electricity sector and restructure the national electricity company. - Modernization of tax administration and increased resource allocation to tax agencies. - Adopt and implement a reform strategy for SOEs including a framework to reduce transfers. - Streamline procedures for creation of SMEs. - Improve access to finance through microfinance and mobile money initiatives. - Continue transparency measures (regular publication of notes on the oil sector and all tax exemptions; SB for end December 2021 and January 2022). - Support National Youth Entrepreneurship Fund and seek technical assistance and financing from World Bank and AfDB. *Source: Chadian Authorities and IMF Staff Estimates (content unit 1tcdea2021001).* ### 43. The exceptional access criteria under the PRGT, which need to be met for access above ### 1tcdea2021001 - 43. The exceptional access criteria under the PRGT, which need to be met for access above ### Assessment of PRGT exceptional access criteria - The exceptional access criteria under the PRGT for access above 435 percent of quota are assessed to be met. - Criterion 1: - “The member is experiencing or has the potential to experience exceptional balance of payment pressures on the current account or capital account, resulting in a need for resources under the Trust that cannot be met within the normal limits.” - Finding: Chad is experiencing an exceptionally large balance of payments need that cannot be met within the normal limits, given the multiplicity and size of the shocks it has experienced, and since its outstanding credit to the Fund under the PRGT is at 291.9 percent of quota. - Criterion 2: - “Risks to the sustainability of public debt are adequately contained. Where the member’s debt is assessed to be unsustainable ex ante, access to resources in excess of the normal limits will only be made available if the combination of the member’s policies and financing from sources other than the Fund, which may include debt restructuring, restores public debt sustainability with high probability (i.e., to a point where application of the LIC-DSF would yield a rating of low or moderate overall risk of public debt distress) within 36 months from Board approval.” - Finding: The debt restructuring operation and related assurances, the proposed fiscal adjustment, and structural reforms are projected to reduce the risk of external and overall debt distress from in debt distress to moderate risk within the program period. - Policy: The authorities’ program involves structural fiscal reforms to mobilize non-oil revenues and streamline expenditure with the aim of achieving a 4 percentage points of non-oil GDP adjustment. - Criterion 3: - “The member does not meet the income criterion for presumed blending at the time of making a request for resources under this Trust in excess of the access limits”. - Finding: Chad has an income below the prevailing operational cutoff for assistance from IDA. - Criterion 4: - “The policy program of the member provides a reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment”. - Staff judgement supporting reasonably strong prospect of success is based on: - the commitment of the authorities to the program; - updated policy assurances provided by the BEAC; - authorities’ satisfactory performance under the previous program and continued strong commitment to reforms; - prior extensive TA and capacity built on fiscal and debt management; - official creditors’ assurances for a debt restructuring and credible process for restructuring liabilities to external private creditors; - program support by extensive TA to continue capacity buildup in the Chadian administration. ### Financing, debt restructuring, and sustainability - Development partners, including the World Bank, have provided financing assurances; commitments and progress towards debt restructuring render the program fully financed. - The authorities are seeking a debt restructuring to: - place debt service on a firm downward path; - bring the external risk rating to “moderate”; - ensure the program is fully financed. - Expected impact of restructuring: - The expected debt restructuring would significantly reduce external debt service and implies generating about US$658 million in financing during 2021-24. - Restoring a “moderate” rating within the program period and preserving it on a durable basis will require achieving a debt service-to-revenue ratio below 12.3 percent by the end of the ECF arrangement and maintaining this level for the remainder of the horizon in line with the LIC DSF’s criteria for a moderate rating “with some space”. - Creditor engagement and assurances: - Official bilateral creditors are being engaged through a Creditor Committee under the G20 Common Framework and have provided financing assurances through a joint statement (published on June 16) and committee discussions. - The main private creditor has established a creditor committee, hired advisors, and committed to negotiate in good faith. - Authorities commit to finalizing MOUs with official creditors and to reach an agreement on comparable terms with the largest private creditor by the time of the first review. - Chad has arrears to Libya and Republic of Congo deemed away under the policy on arrears to official bilateral creditors; financing assurances have been received from the G20/Paris Club creditors. - Negotiations with BDEAC are ongoing. ### Key financing figures and statistics - Financing Gap 2021-24 (US$ millions): 245, 537, 461, 419, Total 1,662. - Residual Gap (table): 658. - IMF ECF contribution (table): 80, 162, 164, 165, Total 571. - World Bank (table): 1, 75, 75, 75, 225. - Memorandum item — External debt service subject to treatment (table total): 945. - Other debt service/statements: - Debt service to private creditors (table total): 717. - Note: Table entries are staff estimates and projections. ### Program monitoring, conditionality, and capacity development - Program monitoring: - Semi-annual quantitative performance criteria (QPCs), indicative targets (ITs), and structural benchmarks (SBs) will monitor performance. - QPCs: new external arrears of the government and non-financial public enterprises; contracting or guaranteeing of non-concessional external debt; non-oil primary fiscal balance. - ITs: wage bill; net domestic government financing; tax revenues; stock of domestic arrears; social spending. - From second review: QPCs on domestic arrears. From third review: QPCs on net domestic government financing. - Adjustors are included to address fluctuations in oil revenue and budget support. - Standard continuous performance criteria will apply (e.g., no new or intensified restrictions on payments and transfers for current international transactions; no new multiple currency practices; no inconsistent bilateral payments agreements; no new or intensified import restrictions for BOP reasons). - Capacity development priorities: - Non-oil revenue mobilization: better VAT management, tax exemptions, improved oil revenue forecasting and management. - PFM reform: improved budgeting procedures, forecasting and coordination, rationalizing the wage bill, containing emergency spending procedures, strengthening treasury management, setting up social protection. - Statistics improvement: national accounts, BOP, public finance. - Climate Change Policy Assessment (CCPA) support: analyze and develop policy responses to economic impact of climate change. - Debt management and restructuring of systemic public banks. - BEAC policy assurances: - BEAC follow-up letter of December 2021 reiterated commitment to appropriate monetary policy stance and member state fiscal adjustment to support reserves build-up. - Corrective actions: (i) raised the policy rate (TIAO) by 25 basis points at an extraordinary MPC meeting in late November; (ii) agreed to increase the interest rate of liquidity absorptions to reduce excess liquidity, stimulate the interbank market, and improve monetary policy transmission. - BEAC will continue to work towards effective application of foreign exchange regulation, including implementing adaptations for the extractive sector from January 2022. - Regional assurances on regional NFA are considered critical for the success of Chad’s Fund-supported program. ### Risks, capacity to repay, and safeguards - Program risks (high): - Possible deterioration in the pandemic and related slowdown in GDP growth and reform implementation. - Serious security incidents. - Election-related expenditure over-runs. - Imperfect implementation of agreed debt restructuring. - Reform fatigue. - Shortfalls in donor financing. - Mitigation: close engagement with authorities and donors, comprehensive CD program. - Capacity to repay the Fund: - Currently assessed as adequate, contingent on successful implementation of key program measures, including envisaged debt restructuring. - Outstanding obligations to the Fund based on existing and prospective drawings would peak at over 7 percent of GDP in 2024. - Annual repayments will peak at 5 percent of tax revenues excluding grants in 2028. - Outstanding obligations to the Fund as a share of quota and as a share of GDP are both well above the median of PRGT UCT-quality arrangements occurring between 2010 and 2020. - Debt service to the Fund is currently close to median values but will rise steeply as repayments of emergency financing come due. - Capacity to repay is also affected by the capacity of other CEMAC countries to repay the Fund, given Chad’s share of BEAC reserves. - Safeguards: - BEAC has implemented priority recommendations from the 2017 safeguards assessment. - Alignment of BEAC’s secondary legal instruments with its Charter concluded; BEAC issued FY 2019 and FY 2020 audited financial statements in compliance with IFRS. - An updated safeguards assessment has been initiated under the four-year cycle for regional central banks. ### Staff appraisal and policy recommendations - Macroeconomic context and need for adjustment: - Chad’s economic situation has steadily worsened since the beginning of the pandemic due to combined shocks: COVID-19 pandemic, oil price volatility, climate change impacts on food security, terrorist attacks, and delays in donor support. - Given the large permanent shock, adjustment is essential to avoid wiping out gains from the previous ECF arrangement. - Authorities’ program objectives: - (i) support COVID recovery while securing macroeconomic stability; - (ii) restore debt sustainability via multi-year fiscal consolidation and ambitious debt restructuring; - (iii) advance structural reforms (strengthening governance, tackling corruption, addressing fragilities). - Success hinges on political ownership, fiscal restraint, and international assistance. - Fiscal policy stance and recommendations: - The authorities’ fiscal program is based on a balanced mix of revenue mobilization and expenditure rationalization and is appropriate. - Continued domestic revenue mobilization combined with fiscal discipline—especially on the wage bill—will reduce budget dependence on oil revenue and free resources for pandemic-related needs, investment, and social spending while accommodating security needs. - Non-priority spending should be contained in the run-up to elections; oil windfalls, if materialized, should be saved. - Banking sector: - Remaining vulnerabilities, notably from two large public banks, should be addressed. - Further recapitalization would be needed for the CBT. - Financial sector stability is a precondition for financial inclusion via mobile money, microfinance, and digitalization. - Governance and anti-corruption: - Strengthening rule of law and anti-corruption framework is critical to promote a friendly business environment. - Recommended measures include: - aligning domestic legislation with UNCAC; - strengthening key institutions to address poor implementation of anti-corruption laws; - bringing asset declaration regime in line with international good practices; - supporting ANIF activities, including by increasing human resources; - addressing weaknesses in the public procurement system. - Overall staff position: - Based on program strength, BEAC corrective actions, and regional policy assurances in the December 2021 union-wide paper, staff supports the authorities’ request for assistance under an ECF arrangement. - Proposal: completion of the first review under the ECF arrangement be conditional on implementation of critical policy assurances at the union level, as established in the December 2021 union-wide background paper. ### Chad’s climate vulnerabilities and green recovery (Box 2) - Climate vulnerability context: - Chad is very vulnerable to climate risks (droughts, floods, high winds, desertification). - Effects include tensions over access to natural resources; near disappearance of Lake Chad threatens the livelihood of some 40 million people from four bordering countries. - Climate change disproportionately impacts disadvantaged populations (including the poor and women). - Challenges: preserving environmental resources while adapting and mitigating climate change given limited resources and weak legal, regulatory, and institutional frameworks. - National Development Plan (2022-2026) and green recovery elements aligned with the ECF program: - (i) Restructuring of SNE (national electricity company): - Replace diesel generation transfers with monetary transfers under a performance contract tied to improved SNE financial position, improved revenue collection, reduction of production cost, and tariff adjustment. - World Bank plans sector reforms under a technical assistance project before end-2021. - (ii) Increasing access to electricity: - Legal framework amended to liberalize production and distribution of electricity. - 2020 budget law provided tax incentives for investment in green energy. - Expectation to streamline subsidies and tax exemptions system while encouraging private sector green projects. - (iii) IMF TA-supported initiatives: - Conduct a PIMA evaluation of public investment with objective of boosting climate-smart infrastructure (renewable energy, modernizing electric grid, public transport, improving digital infrastructure). - Conduct a Climate Change Policy Assessment (CCPA) to analyze and develop policy responses to economic impacts of climate change. - (iv) Financial inclusion to support green recovery: - Plans to improve access to finance through microfinance and mobile money initiatives. *Source: IMF staff report text provided in the content unit.* ### Box 3. Chad: Rollover Mechanism for Chadian Government Securities ### Box 3. Chad: Rollover Mechanism for Chadian Government Securities ### Overview - The rollover mechanism was established in mid-2017. - Purpose: allowed banks suffering from liquidity stress to rollover maturing Chadian government securities, mainly backed by intraday credits from BEAC, helping avoid a sovereign default. - Context: implemented during a period of strong reluctance of some holders of Chadian government securities to renew maturities in mid-2017, reflecting high perceived risks for Chadian securities. ### Rollover mechanism stages and operational modality - Transition period: 2017-2020. - BEAC retained its role as lender of last resort with the technical tool of intraday credits. - The 2017-19 ECF-supported program targeted a progressive reduction in the average rollover rate from 100 percent in 2017 to 85 percent in 2020. - Intended outcomes: strengthen bank liquidity, particularly for weak public banks, and reduce banks’ exposure to BEAC financing. - Operational steps (sequence presented in the source): - (i) Intraday credit provided by BEAC to the bank in difficulty; - (ii) Purchase by the bank of the new debt security issued by Chad; - (iii) Payment by the Chadian treasury of the maturing government debt security; - (iv) Repayment by the bank of the intraday credit from the BEAC (interest free). ### Assessment of the arrangement since 2017 - The mechanism excluded Chad from issuing new government securities on the regional financial market despite signals that demand for Chadian securities had improved due to stronger public finances. - Chad was the only CEMAC country to reduce its stock of securities. - The mechanism was costly for the Treasury because: - It did not benefit from the fall in regional market interest rates; - It was unable to issue new securities at lower cost; - It continued rolling over maturities with weak banks subject to higher BEAC refinancing costs. ### Exiting the rollover mechanism - Under a February 2021 memorandum of understanding with BEAC, the Government decided to exit the rollover mechanism for domestic bank debt. - Exit outcomes and measures: - The exit allowed Chad's Treasury to access the CEMAC securities market and to mobilize more than the CFAF 100 billion proposed by BEAC (estimated at CFA 145 billion), under the CFAF 600 billion bond purchase program in the secondary market. - Phasing-out to be done with caution, including a restructuring of the current stock of short-term securities into longer-term maturity instruments, secured by the opening of an escrow account with BEAC. - The new arrangement satisfies the conditions necessary to cancel the risk weighting on government securities issued by Chad. *Source: IMF staff summary of "Box 3. Chad: Rollover Mechanism for Chadian Government Securities" from the provided document.* ### 1. Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with ### 1. Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with ### Immediate actions and publication requirements - Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with recapitalization plan that was approved by COBAC. - Publication on-line on an easily accessible governmental website of the full text of all COVID-19-related procurement contracts awarded by the central government, as of May 31, 2021. ### Structural benchmarks (schedules and requirements) - Quarterly, starting end-December 2021: - Publication of a quarterly note on the oil sector, in line with the template designed in consultation with Fund staff, including detailed information on debt service to Glencore. - End-December 2021: - Completion and publication of ex-post compliance audit of COVID expenses by a reputable international auditing firm. - Semi-annual, starting end-January 2022: - Publication of a semi-annual note which lists all new tax exemptions (including renewal and extension of exemptions). - End-February 2022: - Allocate VAT revenues in the VAT escrow account at the BEAC. - End-March 2022: - Publish on-line on an easily accessible governmental website the full text of all central government procurement contracts along with the names and nationalities of the beneficial owners of the awarded legal entities. - End-June 2022: - The government to finalize and adopt the PFM strategy, in line with IMF Technical Assistance. - End-August 2022: - Implement employment ceilings, in accordance with the provisions of the 2014 organic law on public finance. - End-November 2022: - Implementation of the ASYCUDA Exemption Module to process all customs exemptions requests and authorizations. ### Quantitative performance criteria (selected items and target timeline) - End-Dec 2021 QPCs / End-March 2022 ITs / End-June 2022 QPCs / End-Sept 2022 ITs / End-Dec 2022 QPCs (all figures in billions of CFAF unless otherwise indicated). - Selected QPC and IT items with reported values (preserve original formatting): - Floor on non-oil primary budget balance (NOPB): 2 -412-95-156-245-333 - Ceiling on net domestic government financing: 3 ............-35-120 - Ceiling on the stock of domestic payment arrears by the government: 4 ........381361341 - Indicative target — Ceiling on net domestic government financing: 3 4353-8........ - Indicative target — Ceiling on the stock of domestic payment arrears by the government: 4 391391............ - Indicative target — Floor on government tax revenue, excluding tax revenue from oil companies: 3 477110253391529 - Indicative target — Ceilling on wages and salaries: 425109219328437 - Indicative target — Floor for poverty-reducing social spending: 5 28476151234273 - Memorandum items (selected): - Emergency spending procedures-DAO (Percent of primary spending): 6 2018181818 - Floor on the regularization of emergency spending procedures-DAO (Percent of total DAO): 6 8050707070 - External concessional borrowing (US$ million): 000075 - Oil Revenue: 7 37497236373512 - Grants: 8 237 132026 ### Disbursement schedule and Fund access (key dates and amounts) - Three-year ECF arrangement: right to obtain disbursements in a total amount equivalent to SDR 392.56 million. - Disbursement phasing and conditions: - Disbursements shall not exceed the equivalent of SDR 168.24 million in the first twelve months, and the equivalent of SDR 280.40 million in the first twenty-four months. - First disbursement: SDR 56.08 million available upon approval of the arrangement, at the request of Chad. - Second disbursement: SDR 56.08 million available on or after [April 15], 2022 at the request of Chad and subject to program conditions. - Third disbursement: SDR 56.08 million available on or after [September 15], 2022 at the request of Chad and subject to program conditions. - Fourth disbursement: SDR 56.08 million available on or after [April 14], 2023 at the request of Chad and subject to program conditions. - Observance-linked review and disbursement conditionality: - Second disbursement conditioned on data as of December 31, 2021 and completion of the first program review. - Third disbursement conditioned on data as of June 30, 2022 and completion of the second program review. - Fourth disbursement conditioned on data as of December 31, 2022 and completion of the third program review. - Additional program constraints: - Chad will not request disbursements if ceilings on new external arrears or on contracting new non-concessional external debt are not observed. - Chad will not request disbursements if it imposes or intensifies restrictions on payments and transfers for current international transactions, introduces or modifies multiple currency practices, concludes bilateral payments agreements inconsistent with Article VIII, or imposes or intensifies import restrictions for balance of payments reasons. ### Indicators of capacity to repay and projected obligations (selected figures) - Table highlights (SDR millions, CFAF billions, and percentages as presented): - Date of Board Approval / Executive Board approval of the ECF arrangement: April 15, 2022; September 15, 2022; April 14, 2023; September 15, 2023; April 15, 2024; September 16, 2024. - Total SDR amount shown in schedule: 280.0392.56 (presented in table). - Fund obligations based on existing credit (Principal and Charges and interest) and on existing and prospective credit reported in SDR millions and CFAF billions as presented in the table. - Memorandum items (selected annual projections in CFAF billions): - Exports of goods and services (CFAF billions): 2,1692,1672,1742,2232,3502,4412,5612,6872,8222,9152,9442,9813,0253,0823,136 - External Debt service (CFAF billions): 1 147167166183204223172212170149158162161164177 - Nominal GDP (CFAF billions): 6,5936,8267,1637,5808,0558,5679,1259,71910,35410,99211,62712,32213,07613,89014,765 - Tax revenue (CFAF billions): 4785295926657458299039841,0711,1471,2291,3171,4121,5151,624 ### Risk Assessment Matrix (selected sources of risk, likelihood, impact, recommended responses) - Uncontrolled COVID-19 local outbreaks and subpar growth / Short to medium term / High / Potential impact: High - Recommended policy response: Prepare for more COVID-related measures and seek additional donor support. - Widespread social discontent and political instability / Short to medium term / Medium / Potential impact: Medium - Recommended policy response: Maintaining an active dialogue to make sure that progress is made on the wage bill strategy. - Rising commodity prices amid bouts of volatility / Short to medium term / Medium / Potential impact: Medium - Recommended policy response: Further develop non-oil revenue sources and implement a price smoothing mechanism for fiscal policy. - Intensified geopolitical tensions and security risks / Short to medium term / High / Potential impact: High - Recommended policy response: Protect social spending and seek donor support. - Higher frequency and severity of natural disasters related to climate change / Short to medium term / Medium / Potential impact: Medium - Recommended policy response: Prepare for mitigation and adaptation measures and seek donor support. - Delay/insufficient assurances from private creditors / Short to medium term / Medium / Potential impact: Medium - Recommended policy response: Financial and legal advisors to intensify discussions with private creditors. ### Letter of Intent and program objectives (key statements and commitments) - Date of Letter of Intent: November 24, 2021. - Government of Chad requests ECF arrangement under PRGT for an amount equivalent to SDR 392.56 million, or 280 percent of quota, to be disbursed in seven equal tranches over 36 months. - Program objectives: promote sustainable, green growth and poverty reduction; ensure fiscal and debt sustainability; improve governance and budgetary allocations to social sectors; strengthen the financial sector; implement structural reforms for economic diversification. - Commitments: - Provide the Trustee with requested information on program progress. - Consult with the Trustee on adoption of any appropriate measures or any revisions to policies in the MEFP. - Publication agreement: Government agrees to publication of the staff report for the new ECF arrangement, the Letter of Intent, the attached MEFP and TMU, on the IMF website. *Sources: Chadian authorities; and IMF Staff.* ### Introduction ### Introduction ### Background and program context - The Government successfully implemented the 2017-2020 economic and financial program supported by the IMF under the Extended Credit Facility (ECF). - The three-year ECF arrangement was approved on June 30, 2017. - Five reviews under the ECF were concluded without interruption; the 5th ECF review was completed on December 13, 2019. - The COVID-19 pandemic abruptly interrupted progress and led to large balance of payments and budgetary needs. - Chad received two disbursements in April and July 2020 under the “exogenous shock” window of the Rapid Credit Facility (RCF) totaling SDR 133.19 million (95 percent of quota). - The previous ECF arrangement was cancelled in view of practical difficulties to achieve the last disbursement (SDR 28.04 million, 20 percent of quota) and upon Board approval of the second RCF disbursement. - A new medium-term economic program for 2021-24 is being prepared and could be supported by a successor IMF arrangement; the MEFP outlines policies for 2021-24. ### Taking stock of the last ECF arrangement — substantive achievements and gaps - Achievements: - External debt sustainability restored through restructuring of oil-backed Glencore commercial debt on better conditions for the Government. - Non-oil primary deficit kept below 5 percent of non-oil GDP. - Non-oil revenue increased from 8.4 percent of non-oil GDP in 2016 to 9.4 percent of non-oil GDP in 2019 (0.6 percent point above program target). - Wage bill declined from 7.5 percent of non-oil GDP in 2016 to 7.0 percent of non-oil GDP in 2019 (0.2 percentage point better than the program target). - Debt stock declined from 51.2 percent of GDP in 2016 to 44.3 percent of GDP in 2019 (0.4 percentage point below program target). - Structural reforms with progress: audit of domestic arrears completed in December 2019; clearance strategy adopted January 2020; restructuring and funding plans for CBT and BCC adopted December 2019 and performance contracts signed March 2020; publication of the quarterly oil note improved oil sector transparency. - Shortcomings: - Limited progress on economic diversification and on increasing private investment pledged at the September 2017 Paris donor roundtable. - Indicative targets on the floor for poverty-reducing social spending were missed during most of the program period, due partially to an inadequate public procurement framework. - Slow progress on governance, PFM (including wage bill), and debt management. ### Recent developments (economic, fiscal, financial, and security) - Economic activity: - Real activity projected to grow 3.9 percent at the time of the 5th ECF review; actual real activity contracted by 1.6 percent in 2020. - Non-oil activity contracted -1.6 percent in 2020. - Annual average inflation is estimated at 4.5 percent in 2020, compared to -1.0 percent in 2019. - Labor and sectors: - INSEED survey: many respondents reported job loss due to COVID-19, with most income loss in the services sector. - Telecommunication sector sustained activity; high agricultural growth from prospects of a good crop year. - Budget execution and revenues: - Widening of the NOPB in 2020 due to COVID-19 impacts on revenues and higher expenditure needs. - VAT and customs performed well; overall non-oil revenue lower than projected in the original budget. - Oil revenue exceeded budget projections due to large corporate tax payments by a major oil company. - Expenditures higher than projected: health spending related to COVID-19, higher security spending, and the January 2020 agreement with labor unions reestablishing benefits to public sector workers. - National Assembly passed a revised 2020 budget law in August 2020 reflecting COVID-19 financing needs. - Debt and arrears: - Government continued to reduce stock of domestic debt in 2020; average roll-over rate roughly 91 percent. - Government deposits at the BEAC stabilized at CFAF 125 billion. - Total domestic arrears declined by CFAF 149.6 billion in 2020; CFAF 79.6 billion paid by the Treasury. - Independent audit set net stock of arrears at CFAF 485 billion (end-2019). - June 2020 agreement with local banks to clear CFAF 110 billion in domestic arrears to banks and other borrowers via CFAF 85 billion 8-year bank loan and issuing treasury bonds for CFAF 25 billion with maturities between 3-5 years; up to end-December, CFAF 70 billion cleared thanks to the loan. - Ministry of Finance monthly repayments of direct debt to BCC and CBT of CFAF 250 million and CFAF 500 million per month, respectively. - External creditors and arrears dialogue: - Debt service obligations being paid regularly except for already outstanding arrears. - Discussions underway to address outstanding arrears with Libya, the Republic of Congo and BDEAC. - Measures, including allocation of funds for external debt payment in an escrow account and monthly meetings of external debt service stakeholders, are expected to prevent recurrence of external arrears. - Banking sector: - Nonperforming loans ratio rebounded to 26 percent at end-2020 from 23 percent a year earlier. - Banking sector fragile: some banks face liquidity constraints and weak capital position. - Significant drop in sector’s capital adequacy ratio, largely due to COBAC’s move to Basel II reporting requirements. - Lending activity and deposits grew as of end-December, backed by private and public sector. - Delayed partial recapitalization of CBT amounting to CFA 4.5 billion to be completed soon (prior action). - Liquidity and 2021 developments: - First half of 2021: tight liquidity forced government spending cuts, mainly in domestically financed investment and transfers and subsidies; security spending and wage bill increased; social spending under-executed. - Government nearly depleted BEAC deposits and relied on domestic borrowing. - Government decided to use the entire SDR allocation of US$193 million; primarily used in 2021 for priority spending and to support economic recovery and food security. - Security and social environment: - Continued difficult security situation: intensified Boko Haram attacks in Lake Chad region; increased refugees and internally displaced people; aggravated humanitarian needs. - April 11 attack by a Libya-based terrorist group resulted in President Déby succumbing to wounds; an 18-month transition established under the Transitional Military Council and broad-based civilian government, ending with democratic, fair and free presidential and legislative elections. - Security concerns necessitated increased security spending. - Severe rain shortfall in 2021 increased food insecurity. - In October 2021 a “social pact” was signed with public sector labor unions reinstating some benefits cut after the post-2014 financial crisis. - Political transition: - Progress under the 18-month political transition in line with the roadmap adopted in July 2021. - National Transition Council installed on October 5; inclusive national dialogue prepared with participation of politico-military groups. - Transition government appealed to development partners to finance priority transition activities including national dialogue, revision of the constitution, and organization of elections. ### Outlook and risks (FY2022-24) - Main drivers and projections: - Medium-term outlook dependent on evolution of COVID-19 pandemic, oil prices and debt burden. - Non-oil growth projected to reach 3.8 percent in 2024. - Oil production will remain subdued over the medium-term. - Inflation will hover around 3 percent. - Significant balance of payment needs and budgetary financing gaps persist, averaging 2.6 percent of GDP per year during 2021-24. - Policy needs and risks: - Donor support in the form of budget support will be necessary to help cover remaining gaps, along with debt restructuring to reduce the debt burden. - Risks include developments in the COVID-19 pandemic, oil prices, security, and the implementation of sound public policies. ### Medium-term policy framework and priorities (PND / Vision 2030) - The PND (2017-21) and Vision 2030 (“the Chad we want”) form the basis of policies to stabilize the economy, resume non-oil growth and build foundations for inclusive, sustainable, green and pro-business growth. - A mid-term review of the PND implementation was conducted in August 2020; a new PND (2022-26) was adopted in 2021. - Policies for 2022-26 build on: - (i) ensuring fiscal and debt sustainability; - (ii) strengthening public financial management (PFM) and debt management; - (iii) deepening structural reforms promoting economic diversification. ### Enhancing fiscal and debt sustainability — objectives and quantitative anchors - Fiscal adjustment strategy: - A phased fiscal adjustment will reduce the risk of debt distress over the medium term. - The non-oil primary balance will be the key indicator of fiscal adjustment and monitored as a quantitative performance criterion under the ECF-supported program. - Adjustment based on progressive increase in non-oil revenue and improvements in allocation of resources. - Reducing risk of debt distress from high to moderate will require bringing down debt service; Government actively engaged creditors on debt restructuring. - Non-oil revenue targets and measures: - Non-oil revenue declined from 9.4 percent of non-oil GDP in 2019 to 9.1 percent in 2020 due to COVID-19. - Program aims to increase non-oil tax revenue by some 1.8 percentage points of non-oil GDP by 2024, to 10.8 percent of non-oil GDP. - Gains predicated on improved VAT management and modernization of tax and customs administration including greater computerization and optimization of exemptions. - Expenditure rebalancing and composition: - Program aims to progressively reduce current primary expenditure (as percent of non-oil GDP) and raise investment spending. - Current primary spending projected to decline from 14 percent of non-oil GDP in 2020 to 12.4 percent by 2024. - Wage bill targeted to decline from 8.2 percent of non-oil GDP (96 percent of non-oil revenue) in 2020 to 7.3 percent of non-oil GDP (68 percent of non-oil revenue) by 2024, even accounting for the Social Pact. - Transfers and subsidies increased from 2.6 percent of non-oil GDP in 2019 to 3.7 percent of non-oil GDP in 2020; projected to slightly rise to 3.7 percent of GDP in 2021 due to CFAF 30 billion (0.6 percent of non-oil GDP) for presidential elections and phasing out of COVID-19 spending. - Transfers and subsidies will average 3.3 percent of non-oil GDP during 2022-24. - National Solidarity Fund (FNS) established in 2020 will protect poorest and most vulnerable to natural disasters; some mitigation of savings by FNS activities. - Short-term and medium-term measures to contain the wage bill and transfers to public entities are detailed in paragraphs 34-35 (in source). - Investment and social spending: - Investment spending expected to increase from 7.1 percent of non-oil GDP in 2020 to 7.5 percent by 2024; this is 1.9 percentage points above the pre-COVID-19 level of 2019. - In the context of the 2021 budget, social spending will represent at least 34 percent of domestically financed primary expenditure (excluding transfers to the electricity company), and investment increases by 10 percent relative to pre-COVID level of 2019. - Quarterly indicative targets as floors on spending in several ministries and institutions will be set; meeting targets will be facilitated by procurement system reform. - Social spending is defined in the attached TMU. - Domestic arrears clearance: - Government will pursue implementation of the domestic arrears clearance plan. - Remaining stock to be repaid over 7 years via securitization and cash payments for small obligations. - Annual amount to be cleared will depend on budgetary resources available. - Ministry will continue monthly repayments to CBT and BCC of CFAF 250 million and CFAF 500 million per month, respectively. - Exit of BEAC rollover mechanism and public securities program: - Minister of Finance signed an MoU with BEAC to exit the rollover mechanism for domestic bank debt. - Exit intended to allow Treasury access to CEMAC securities market and mobilize CFAF 145 billion under the CFAF 600 billion public securities program. - Phasing out will be cautious, including progressive restructuring of current short-term securities into longer-term securities and opening an escrow account with BEAC. *International Monetary Fund — Introduction (MEFP for 2021-24)* ### 26. The Government will seek the contribution of external creditors in reducing the risk of ### 26. The Government will seek the contribution of external creditors in reducing the risk of ### Debt restructuring, creditor engagement, and program financing - The Government appreciates the IMF debt relief under the CCRT and has also benefited from the Debt Service Suspension Initiative (DSSI) to a smaller-than-expected amount. - Despite envisaged fiscal adjustment, the debt service to Government revenue ratio would remain above the IMF-World Bank LIC DSA threshold of 14 percent until 2026. - Within the G20 common framework, the Government is engaging creditors on restructuring to provide a significant reduction in debt burden and bring the risk of debt distress to “moderate” by the end of the program period. - The Government seeks a restructuring that would: - close the program financing gaps; - bring the external debt service-to-revenue ratio below 12.3 percent to ensure space to absorb shocks to revenues without a deterioration in the risk rating. - Official bilateral creditors participating in the creditor committee have provided financing assurances. - Chad, supported by financial and legal advisors, is negotiating with private creditors. - The Government is determined to reach necessary restructuring agreements with both official and private creditors by the time of the first ECF arrangement review. ### Parameters and principles for debt treatment under the common framework - Supported by Fund-supported program financing, common framework official bilateral creditors and the debtor would discuss and agree a Memorandum of Understanding specifying: - (i) the reduction in debt service during the determined period; - (ii) the extension of the duration of payments where needed; - (iii) the reduction in the present value of payments. - These parameters will guide relief implementation by other official bilateral creditors and by private creditors through bilateral agreements following the comparability of treatment principle. ### 2021 budget design and fiscal priorities - The 2021 budget was approved by the National Assembly in December 2020 and designed to maintain fiscal prudence while supporting economic recovery in line with the proposed Fund-supported program. - Wage bill: - Government remains committed to a wage bill envelop of CFAF 425 billion in line with the 2021 budget. - Transfers and subsidies: - Transfers and subsidies envelop set at CFAF 206 billion reflecting unwinding of COVID-19 related emergency spending. - Transfers to the electricity company projected at CFAF 50 billion. - CFAF 30 billion allocated to cover the cost of the presidential election (April 2021). - Social sector and capital spending: - Allocations to social sectors to reach at least 34 percent of total primary spending (excluding transfers to the electricity company). - Government allocated CFAF 140 billion for domestically financed capital investment from the State’s own resources. - External resources for capital investment: CFAF 314 billion. - Non-oil primary balance (NOPB): - The NOPB will improve by around 0.4 percent of non-oil GDP to reach 7.7 percent of non-oil GDP. ### Tax and customs reforms — objectives and main drivers - Higher non-oil revenue will help reduce dependency on oil revenue. - Main driver: addressing weaknesses in tax and customs administration through: - (i) improved management of the VAT (current performance: 1.5 percent of GDP); - (ii) modernization of tax and customs administration, including greater use of IT and revenue collection through the banking system and mobile money; - (iii) better tax audits via strengthened collaboration between tax and customs administrations. ### VAT reform measures and benchmarks - VAT reforms will concentrate on factors behind low VAT performance: - Improve VAT control by placing it under the unit responsible for management of large and medium-sized enterprises; establish indicators to increase taxpayers and improve compliance (with Fund assistance). - Rationalize and improve transparency of tax exemptions: - Government will publish on a semiannual basis a list of all new exemptions (including renewal and extension) on the Ministry of Finance website (structural benchmark end January 2022). - Establish an effective VAT refund mechanism: - An account dedicated to VAT refunds was established with BEAC in 2019 but has not been operational as it has not been funded. - Government will start allocating all VAT revenue to this account for VAT refund to avoid accumulation of VAT credits (Structural benchmark for end February 2022). - An administrative audit of VAT credits will be conducted by end 2021 to assess the stock and nature of VAT credits. ### Customs modernization and payment systems - Customs administration improvements: - New customs building completed with World Bank assistance. - A scanner became operational in early October, expected to reduce revenue losses. - Payment of customs revenue through the banking system has been effective where banking operations exist. - For 13 customs offices with no banking coverage, an agreement with a local telecommunication company facilitates payments through mobile phones. - IMF technical assistance (2020-22) will support: - securing revenue collection through the banking system; - customs valuation control; - reinforced monitoring of customs exemptions. - ASYCUDA World installation: - Number of customs offices connected to the internet increased from 12 to 18. - With World Bank support, installation began in October 2021 to modernize customs services, improve customs duties application, limit abuse of exemptions, strengthen integration with taxation to improve VAT collection, facilitate interconnections with Cameroon, Niger and Sudan, and set the stage for a single window system. ### Tax Department modernization and IT rollout - Working conditions for the Tax Department: - Tax Department allocated premises left by Customs; permanent premises needed. - New resources (building and software) to tax directorates in charge of large and medium taxpayers will be allocated before end 2022. - Computerization under PROMOGRI and IFMS: - Computerization of the tax department will be organized under 12 modules. - First four modules (registration, monitoring of tax obligation, tele-filing procedures in LTO, electronic VAT monitoring for commercial activities) expected to be implemented by end- 2022. - Collaboration with Customs: - Use of ASYCUDA data will help Tax department in risk-based controls and identifying VAT evaders. - Customs should use the tax identification number (TIN) established by the Tax department. - Tax department will continue to update and publish the list of VAT taxpayers to be integrated into customs’ computerized system. - A 15 percent penalty will continue to be applied to importers not registered with the Tax department. ### Public Financial Management (PFM) reforms and strategy - Government will advance PFM reforms under updated Strategy for the Development and Modernization of Public Finance Management (SDMFP), updating the April 2013 SDMFP; prepared mid-2019 with IMF and World Bank support. - SDMFP will be adjusted with Fund assistance and adopted following a validation workshop by all concerned Government bodies (structural benchmark for end-June 2022). - Key short- and medium-term PFM reforms include: - (i) implementation of an integrated financial management system (IFMS); - (ii) wage bill management; - (iii) improving budget preparation and execution, including governance and public procurement; - (iv) medium-term program budgeting; - (v) rationalization of transfers and subsidies; - (vi) cash management; - (vii) debt management. ### Implementation of the Integrated Financial Management System (IFMS) - Ministry of Finance and Budget decided to acquire and implement IFMS with assistance of the Rwanda Cooperation Initiative (RCI). - IFMS objectives: - Achieve accountable and transparent PFM via integrated computerization of Government-wide financial transactions. - Provide consistency and transparency in the expenditure chain, efficiency gains in wage bill management, integration of debt management, and improvements in allocation and absorption of public resources, particularly for social sectors. - The 2021 budget is being executed based on the IFMS, with AFD support. ### Wage bill management — short-term measures and medium-term reforms - Short-term measures to contain the wage bill: - Continue to rationalize the wage bill and control recruitment within budget commitments. - Biometric census of civil servants conducted to establish a sound payroll database. - IFMS expected savings via: (i) updating payroll based on biometric census; (ii) avoiding undue benefit payments using biometric identification; (iii) strengthening security via controlled access rights versus prior SIGASPE system. - Agreement signed with a local telecommunication company for wage payments through mobile money in non-banked areas; 10 000 kiosks to be opened in the countryside to support job creation. - Governance: - A payroll monitoring committee will be established, chaired by the Finance Inspector General (IGF) with representatives from the payroll unit and civil service management and HR Directors; committee will monitor wage bill developments and payroll cleanup. - Medium-term structural reforms with IMF Fiscal Affairs Department assistance: - Improve budgeting of the wage bill: - Align procedures with Fiscal Affairs Department’s manual. - Set employment ceilings by ministries/institutions in accordance with the organic finance law (end-August 2022 structural benchmark) and develop a specific budget annex for the wage bill. - Improve reliability of information on payroll determinants per Fiscal Affairs recommendations. - Update and periodically check payroll file: - Reduce transmission times for individual paper files. - Redeploy payroll department activities to HRD of sector ministries and provinces. - Establish alert system for civil servant retirement (periodic exchanges with CNRT). - Facilitate communication of individual information from payroll to CNRT. - Increase security/reliability of administrative documents and conduct periodic payroll audits. ### Budget preparation, execution, and accounting reforms - Reforms will focus on: - (i) improving the expenditure chain and reducing emergency procedures (DAO); - (ii) implementing AFRITAC-recommended budget classification and improving accounting and fiscal reporting; - (iii) elaborating annual commitment plans and annual public procurement plans; - (iv) improving cash management. - IFMS contributions: - Cover all phases of the expenditure chain from commitment to payment, improving on CID system which only covers administrative part. - Government committed to reducing DAO use; DAO estimated at around 20 percent of primary spending in 2021 due to COVID-19 emergency spending, with regularization accelerated and DAO falling to 15 percent of primary spending by 2024. - Accounting and reporting: - Implement new economic classification of expenditure recommended by AFRITAC (September 2020). - Ensure consistency with Government chart of accounts and confirm IFMS alignment with budget classification. - Medium-term plan to upgrade State’s accountants’ network and Treasury organizational chart to transition to accrual accounting. - Forecasting and planning: - Produce quarterly commitments plans and annual public procurement plans to improve forecasting framework and avoid arrears accumulation. ### Public investment and cash management - Public Investment Program (PIP) improvements: - PIP should include only mature projects with available funding and be aligned with the new framework decree 2020/PR/2020 of October 8, 2020 on project prioritization and selection. - Criteria include economic efficiency, social, gender, regional equity, and environmental impact. - PIP should be in line with the MTDS; medium-term financing plans will be prepared to ensure PIP maintains debt sustainability. - A Public Investment Management Assessment (PIMA) could be conducted to assess the PIP supporting the PND. - Cash management improvements: - Cash Plan Committee will refine monthly cash flow plan; annual cash flow plans will be included in the budget and updated semi-annually (in line with CEMAC Directive). - Steps to establish a treasury single account (TSA), monitor current Treasury account at BEAC, and centralize public accounting operations, cash flow and public debt. - With IFMS installation, an electronic management platform will be used to manage payments. - Over medium term, finalize and operationalize TSA including creation of sub accounts for authorized accountants and repatriation of public resources from commercial banks to the TSA in a manner that does not disturb the local banking sector. *Source: IMF country document excerpt (chapter/section content).* ### 44. Additional progress will be made towards program budgeting. Progress has been made ### 1tcdea2021001 - 44. Additional progress will be made towards program budgeting. Progress has been made ### Program budgeting and medium-term frameworks - Progress made in mastering tools and developing/expanding the medium-term expenditure framework and medium-term budgetary framework. - In early October 2020, a workshop updated annual performance projects (PAP) of 28 sectoral ministries for the preparation of the 2021 budget law. - PAP preparation started in 5 “pilot” ministries: Health, Education, Infrastructure, Agriculture, and Finance and Budget, with assistance from the World Bank, UNICEF and the UNDP. Work was expanded in 2019 with assistance from the EU. ### Public procurement: efficiency, transparency, and sanctions - Strengthen capacity of the Public Procurement Regulatory Authority to ensure procurement code and regulations are respected. - Procurement code revised to remove constraints that limited absorption, including raising the threshold, simplifying the approval process, and promoting woman entrepreneurship. - Legal framework for sanctions on public procurement will be strengthened; deviations (including market segmentation) will be severely punished. - The General Directorate of Control of Public Procurement (DGCMP) will: - Continue publishing a quarterly bulletin. - From end-March 2022, start publishing the full text of all procurement contracts (including the names and nationalities of the beneficial owners of awarded legal entities) and ex post-delivery reports. - As a first step, assist the Ministry of Finance and Budget in publishing procurement contracts, names of beneficial owners, and ex post-delivery reports related to COVID-19 expenditures. - The US State Department will assist DGCMP in developing a website for publication of tenders with a bidding progress tracking tool. ### Rationalization of transfers and subsidies - Ministries instructed, in the context of the 2021 budget law, to reassess the pertinence of Chad’s participation in International Institutions and Organizations and retain only essential memberships. - Contributions to international institutions and organizations presented in sector ministry budgets. - Budget law calls for performance contracts with State Owned Enterprises (SOE) and public establishments to improve financial management. - Autonomous communities, regulation authorities, agencies, offices, public establishments, management committees, and projects on external financing eligible for national procedures must strictly comply with Public Procurement Code provisions. - With IMF technical assistance the Government will finalize and adopt a draft law on SOEs and public agencies and implementing regulations. - Over the medium-term: - Conduct an assessment of fiscal risks management. - Elaborate an appendix to the annual budget law dedicated to public entities (public agencies, SOEs) providing details on transfers and subsidies as well as own resources. ### National Electricity Company (SNE) transfers and reform - Since 2020, Government transfers to SNE are reflected in the budget. - Medium-term: replace diesel-in-kind transfers for electricity generation progressively by monetary transfers under a performance contract. - Performance contract will set performance indicators to improve SNE’s financial position, including sale recovery from private and public entities, reduction of production cost, and tariffs adjustment. - Restructuring of SNE is essential to attract investment in renewable energy with no resort to sovereign guarantees. - The World Bank plans sector reforms under a technical assistance project before end-2021 to help create conditions for cost-effective electricity access extension in a financially sustainable manner. - Government amended the legal framework to liberalize production and distribution of electricity and the 2020 budget law provided tax incentives for investment in green energy. ### Debt management and borrowing policy - Government committed to refrain from non-concessional borrowing and to maintain debt transparency. - All external financing agreements will be on concessional terms (at least 35 percent grant element, see TMU). - All draft loan agreements submitted for prior approval to the National Commission for Debt Analysis (CONAD), supported by the Technical Team for Debt Sustainability Analysis (ETAVID). - All new loan agreements examined by CONAD will be published on the website of the Ministry of Finance and Budget. - Details of all new contracted loans will be communicated to the debt management department as well as the IMF. ### Strengthening debt management capacity - Debt management weaknesses due to low capacity, low resources, and poor coordination will be addressed by implementing IMF technical assistance recommendations to: - Reform roles and structures of debt management. - Improve communication among entities responsible for contracting, disbursement, securities issuance, and debt service payment. - Augment resources applied to debt management. - World Bank and IMF expected to provide assistance to strengthen capacity at the Debt Directorate, including DSA analysis and quarterly publication of a public debt bulletin. - World Bank assisting in recording debt contracted by SOEs to improve debt coverage in the DSA. - EU assisting in upgrading the debt reporting system (SYGADE); UNCTAD providing training. - With IMF technical assistance, the Government will elaborate and publish a fiscal risks statement attached to the annual budget law. - Over the medium-term, an assessment of fiscal risks management will be conducted. ### Improving the business environment and economic diversification - UNECA completed diagnostic work (Industrialization and Economic Diversification Master Plan, PDIDE) demonstrating strong potential for economic diversification. - Measures to ensure a stable regulatory environment for SMEs, even-handed rule of law, and efficient government services. - Structural reforms envisaged: - Short term: (i) restructuring SNE; (ii) modernizing tax and customs administration. - Medium term: (i) adopt and implement a reform strategy for SOEs, including a framework to reduce transfers; (ii) streamline procedures for the creation of SMEs; (iii) improve access to financing; (iv) continue to improve transparency in the oil sector; (v) take measures to reduce corruption and strengthen the rule of law. - Observatory for the Business Environment and the National Competition Council (CNC) will be made operational. - National Youth Entrepreneurship Fund established and fully operational; seeking technical and financing assistance from the World Bank and African Development Bank. ### Transparency, governance, and anti-corruption measures - Implement the United Nations Convention against Corruption (UNCAC) alignment: seek UN support to align penal code and strengthen anti-corruption measures. - Engage with IMF staff to design an asset declaration regime in line with international good practices. - Constitution includes categories of public figures required to declare assets, but compliance low due to absence of an implementing law. - Responsibilities of anti-corruption bodies (IGF, IGE and the Chamber/Court of Accounts) to be clearly delineated; provide adequate resources; select anticorruption staff under merit-based system with stringent ethics standards and stiff penalties for breaches. - Support activities of the National Agency for Financial Investigation (ANIF), Chad’s FIU, including augmenting human resources. - Assess corruption risks during the transition period and craft an action plan to mitigate those risks; share with the Fund and publish by the first review. ### Transparency in COVID-19 resource use and procurement - Government committed to transparency in COVID-19 resources; will provide separate reporting and publish full text of all COVID-19-related procurement contracts awarded as of May 31, 2021 (prior action). - Emergency spending for urgently needed supplies committed according to Decree No. 1025/PR/MFB/2020 of May 29, 2020, derogating from public procurement rules; subjected to an ex-post compliance audit by a reputable international auditing firm, completed with support of the Inspectorate of Public Finances. - Audit will cover all COVID-related expenditures; auditing reports, including compliance analysis, will be published within a month upon completion on the Ministry of Finance and Budget website (end-December 2021 structural benchmark). - Full text of all procurement contracts, names and nationalities of beneficial owners of awarded legal entities, will be published on the Ministry of Finance and Budget website within 30 days of the award of any contract concluded under the fight against the coronavirus, as of end-March 2022. - Ex post-delivery reports for goods and services, including the list of suppliers and contractors, will be published within three months of the end of the execution period for each contract. - Government will extend commitments made for COVID-19 procurement transparency to all procurement contracts from end-March 2022 (structural benchmark) and will seek IMF technical assistance to meet this objective. ### Transparency in the oil sector - May 2019: EITI completed Chad’s assessment under the 2016 standards; Government will implement EITI board recommendations. - Government has disclosed contracts and licenses involving the petroleum sector with support from the World Bank and published, certified and verified annual financial reports for 2017-2018 for SHT and its subsidiaries. - Government will continue to publish quarterly notes on the oil sector (December 2021 Structural Benchmark, continuous). ### Strengthening the banking sector and financial inclusion - Timely repayment of Government bank debt obligations to support banking system liquidity and repayment of domestic arrears under the domestic arrears clearance plan. - Authorities committed to: - Enforcing performance contracts for two public banks (CBT and BCC) and supporting restructuring and funding plans (approved by COBAC/BEAC). - Treasury monthly repayment of direct debt to the CBT and BCC: CFAF 250 million to BCC and CFAF 500 million to CBT per month, respectively. - Partial recapitalization of CBT (CFAF 4.5 billion, prior action) based on the budget for 2021; BHT (CFAF 3 billion) and BAC (CFAF 2 billion) to be implemented in 2022. - Intention to carry out the partial recapitalization for CBT via treasury resources. - Medium-term commitments: - Reduce Government stakes in banks. - Support COBAC’s request for gradual capital restoration plans and make further capital available if reassessment shows weaknesses. - Explore increasing private sector participation in the capital of CBT. - Financial inclusion measures: - Improve access to financial services and strengthen financial inclusion by encouraging creation of strong and secure microfinance institutions. - Channel Government transactions through banks (“bancarisation”) to open accounts to greater numbers of users. - Promote payments of wages, taxes and customs duties through mobile money. - Strengthen governance and supervision frameworks for microfinance institutions and security for mobile money transactions. ### Program monitoring and reviews - Strengthen the Negotiation Committee in the Ministry of Finance and Budget; a permanent secretariat attached to the Committee to collect macro data and monitor structural reform implementation. - Committee to remain in constant communication with the IMF Resident Representative office and organize meetings between Authorities and IMF. - Program monitored through semi–annual reviews by the IMF Executive Board on the basis of quantitative performance criteria, indicative targets, and structural benchmarks (Tables 1 and 2 attached); indicators outlined in the Technical Memorandum of Understanding (TMU). - Review schedule: - First program review: based on end-December 2021 test dates; should be completed on or after April 15, 2022. - Second review: based on end-June 2022 test dates; should be completed on or after September 15, 2022. - Third review: based on end-December 2022 test dates; should be completed on or after April 14, 2023. - Fourth review: based on end-June 2023 test dates; should be completed on or after September 15, 2023. - Fifth review: based on end-December 2023 test dates; should be completed on or after April 15, 2024. - Sixth review: based on end-June 2024 test dates; should be completed on or after September 16, 2024. - Quantitative Performance Criteria (QPC) and Indicative Targets (IT) are detailed in Table 1 (in billions of CFAF, unless otherwise indicated) and adjustors for QPCs and ITs are defined in paragraph 23 of the TMU. *Source: 1tcdea2021001 - PDF chapter (Chad) excerpt.* ### 1. Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with ### 1tcdea2021001 - 1. Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with ### Prior actions and immediate transparency measures - Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with the recapitalization plan approved by COBAC. - Publication on-line on an easily accessible governmental website of the full text of all COVID-19-related procurement contracts awarded by the central government as of May 31, 2021. ### Structural benchmarks (timing and requirements) - Publication of a quarterly note on the oil sector, in line with the template designed in consultation with Fund staff, including detailed information on debt service to Glencore. - Frequency/timing: Quarterly, starting end-December 2021 - Completion and publication of ex-post compliance audit of COVID expenses by a reputable international auditing firm. - Timing: End- December 2021 - Publication of a semi-annual note which lists all new tax exemptions (including renewal and extension of exemptions). - Frequency/timing: Semi-annual, starting end-January 2022 - Allocate VAT revenues in the VAT escrow account at the BEAC. - Timing: End-February 2022 - Publish on-line on an easily accessible governmental website the full text of all procurement contracts by the central government along with the names and nationalities of the beneficial owners of the awarded legal entities. - Timing: End-March 2022 - The government to finalize and adopt the PFM strategy, in line with IMF Technical Assistance. - Timing: End-June 2022 - Implement employment ceilings, in accordance with the provisions of the 2014 organic law on public finance. - Timing: End- August 2022 - Implementation of the ASYCUDA Exemption Module to process all customs exemptions requests and authorizations. - Timing: End-November 2022 ### Technical Memorandum of Understanding (TMU) — reporting and scope - Purpose: spells out concepts, definitions, and data reporting procedures mentioned in the Letter of Intent (LOI) and Memorandum on Economic and Financial Policies (MEFP) of November 24, 2021; describes information requirements to monitor performance under the ECF arrangement. - Authorities will consult with the IMF before modifying measures in the TMU or adopting measures that deviate from program goals. - TMU sections include: - a) reporting procedures; - b) definitions and computation methods; - c) quantitative performance criteria; - d) indicative targets; - e) adjusters to quantitative performance criteria and indicative targets; - f) prior actions and structural benchmarks. - Reporting obligations: - Data on variables subject to QPCs and ITs, and progress on structural benchmarks, transmitted regularly per Attachment 1. - For continuous QPCs, any non-observance reported promptly. - Revisions to data forwarded to the IMF within 14 days after being made. - "Days" refer to calendar days unless specified otherwise. ### Key definitions and computation methods (selected) - Government: Central Government of the Republic of Chad comprising all executive bodies, institutions and any structure receiving special public funds and within the central government subsector per Government Finance Statistics Manual 2014. - Public nonfinancial enterprises (examples included for program monitoring): 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), Nouvelle Société des Textiles du Tchad (NSTT), Sociètè Nationale de Ciment (SONACIM Tchad), Société Industrielle de Materiels Agricoles et d’Assemblage des Tracteurs (SIMATRAC), Fonds d’Entretien Routier (FER). - Oil revenue is defined as the sum of: - (i) gross sales revenue of Government’s crude oil 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 on production; - (iii) statistical fees; - (iv) profit tax; - (v) dividends; - (vi) bonuses; - (vii) revenues from exploration duties; - (viii) surface tax; - (ix) access rights to the pipe; and - (x) any other flows of revenue paid by oil companies (settled in-kind and in-cash), except indirect duty and taxes. - Exceptional receipts paid by oil companies (definition in Paragraph 7) are excluded from oil revenue. - Tax revenue, excluding tax revenue from oil companies: includes all Government tax revenue except oil revenue as defined. - Exceptional receipts: payments to Government that include payments from resolution of protracted disputes between foreign companies and the Government, and payments from the sale or placement or privatization of Government’s assets, granting or renewal of licenses. - Total Government revenue = tax revenue + non-tax revenue (as defined in GFSM 2014, Chapter 5); breakdown will show oil revenue, tax revenue, and exceptional receipts. - Total Government expenditure: sum of expenditure on Government employees, goods and services, transfers, interest payments, and capital expenditure; recorded on a commitment basis unless otherwise stated; includes “dépenses avant ordonnancement” (DAO). - Dépenses avant ordonnancement (DAO): expenditures not going through standard spending procedure; two categories (relative to a budget credit line and those regardless of existence of a credit line). - Wages and salaries: compensation of all Government employees including ordinary or in-kind payment, allowances, bonuses, pension fund contributions, and other monetary or non-monetary payments; computed from the document “Masse salariale”. - Subsidies and Transfers: definitions and program monitoring references (“Tableau de 4 Phases”). - Debt definitions include loans, suppliers’ credits, and lease agreements; penalties and judicially awarded damages arising from contractual obligations that constitute debt are also debt. - Domestic debt: debt denominated in CFAF. - External debt: debt denominated in a foreign currency (i.e., a currency other than CFAF). - Concessional debt: includes a grant element of at least 35 percent; grant element calculated using discount rate of 5 percent per annum. - Domestic payment arrears: sum of (i) recognized expenditure payment arrears and (ii) domestic debt payment arrears not paid after due date; recognized expenditure payment arrears: outstanding amount in a payment order is classified as a recognized expenditure payment arrear 90 days after issuance of payment authorization. - External debt payment arrears: external debt obligations of Government and public non-financial enterprises not paid when due; excludes arrears for which creditor accepted in writing to negotiate alternatives and technical arrears less than six weeks. - Non–oil primary balance (NOPB) = total Government revenue (not including grants, oil revenue and exceptional receipts) minus primary expenditure on a commitment basis (total Government expenditure minus interest payments and foreign–financed capital expenditure). - Poverty–reducing social spending: public spending by ministries listed (i) National Education and Civic Promotion; (ii) Public Health, including military health services and National Solidarity; (iii) Women, Early Childhood Protection and National Solidarity; (iv) Production, Irrigation and Agricultural Equipment; (v) Livestock and Animal Production; (vi) Environment Water and Sanitation; (vii) Professional Training and small Job Promotion; (viii) Higher Education. - Domestic Government financing: issuance in CFAF to creditors, loans from BEAC (including support from the IMF), BDEAC, and CEMAC Member States, or any other debt contracted in CFAF; net Government domestic financing subdivided into net bank financing, net securitized financing, net Government financing from BEAC, and other non-bank financing. - 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 and benchmark transition - “Program reference rate” is based on staff’s “average projected rate” for the current LIBOR rate (three-month USD LIBOR) and is projected as 0.94 percent for the duration of the program. - Present value of loans with flexible interest rates will be calculated using the program reference rate plus the fixed spread specified in the loan contract; where variable rate is linked to another benchmark, a spread reflecting difference to current LIBOR (rounded to nearest 50 basis points) will be added. - LIBOR transition: LIBOR will be phased out by June 30, 2023, and will be replaced by a comparable benchmark, the Secured Overnight Financing Rate (SOFR). ### Quantitative performance criteria (QPCs) and indicative targets (summary) - Continuous QPCs require no non-observance at any point; any non-observance reported promptly. - QPCs include: - A zero ceiling on the accumulation of any new external payment arrears by the Government and public non-financial enterprises (debts guaranteed by the Government). This ceiling applies continuously. - A zero ceiling on new non-concessional external debt contracted or guaranteed by the Government and non–financial public enterprises, with a maturity of more than one year; this ceiling applies continuously and excludes IMF financing. Exclusions: (i) normal short–term credits for imports; (ii) debt contracted before the ECF arrangement and rescheduled during this arrangement to the extent rescheduling is assessed to improve the overall public debt profile in terms of key indicators in the DSA (based on consultation with IMF staff). - A floor for the non–oil primary balance (defined above). - With effect from the second review, QPCs will be set on the stock of domestic recognized expenditure payment arrears (as defined). - Starting from the third review, QPCs will be set on net domestic Government financing (as defined). *Sources: Chadian authorities and IMF staff.* ### 22. The indicative targets and memo items listed below are those specified in Table 1 of ### 22. The indicative targets and memo items listed below are those specified in Table 1 of the MEFP ### Indicative targets and assessment rules - All indicative targets assessed cumulatively from the beginning of the calendar year to the applicable test-dates specified in Table 1 of the MEFP (the assessment period). - Indicative targets: - A floor on Government tax revenue, excluding tax revenue from oil companies. - A ceiling on wages and salaries. Wages and salaries are defined in paragraph 11. - A ceiling on net domestic Government financing (as defined in para 19). The ceiling includes support from the IMF. QPCs will be set on net domestic Government financing starting from the third review. - A ceiling on the stock of domestic recognized expenditure payment arrears. Domestic arrears include: - (i) the stock of arrears established by an independent audit at CFAF 485 billion at end-2019; and - (ii) the stock of recognized expenditure payment arrears at the Treasury. Domestic recognized expenditure payment arrears at the Treasury are defined in paragraph 15. As of end-December 2020, the stock of recognized expenditure payment arrears at the Treasury was at CFAF 80 billion based on information in the Table "Reste à Payer" (prepared by the Treasury). - The ceiling set for end-December 2021 would be adjusted to reflect the end-September 2021 actual stock of arrears when final data is available. - QPCs will be set on the stock of domestic recognized expenditure payment arrears, starting from the second review. - A floor on poverty–reducing social spending equivalent to 34 percent of domestically financed primary spending financed by domestic resources (excluding transfers to the electricity company). Poverty–reducing social spending is defined in paragraph 18. ### Memo items - Emergency spending procedures (DAO) (20 percent of primary spending in 2021): on the use of emergency spending procedures (DAO) excluding the wage bill, military spending and debt service as a percent of primary spending excluding the wage bill and military spending (memo item). Military spending is spending by the Ministry of Defense, including Exceptional Security Expenses (DES) of section 88. - A floor on regularization of spending executed through emergency spending procedures (DAO). Regularization of DAO (as defined in paragraph 10) will be done within 45 days after the end of the quarter and as follows: 70 percent after the second quarter, 75 percent after the third quarter, and 80 percent after the fourth quarter. - External concessional borrowing (US$ million). - Oil revenue (US$ million). - Grants (US$ million). ### Adjustors to performance criteria and indicative targets - If total budgetary receipts and loans are lower than programmed 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 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 programmed because of higher oil revenue or additional budget support (excluding exceptional receipt), amounts excluding amounts placed in the Special Account must be used through adjustment of a combination of: - 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 domestic financing can be adjusted down by 50 percent of the excess amount; and - the ceiling on the stock of domestic recognized expenditure payment arrears can be adjusted down by 25 percent of the excess amount. - The non-oil primary balance can be adjusted downward by the same amount of budget grants provided to finance the presidential and parliamentary elections. - Should primary expenditure compression be needed, poverty-reducing social spending would be adjusted to the extent that it is reduced proportionally less than other domestically financed primary spending such that its ratio does not decline below 34 percent. ### Prior actions and structural benchmarks - Prior actions (Table 2 of the MEFP): - Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with the recapitalization plan that was approved by COBAC. - Publication on-line on an easily accessible governmental website of the full text of all COVID-19-related procurement contracts awarded by the central government, as of May 31, 2021. - Structural benchmarks (Table 2 of the MEFP): - Publish quarterly note on the oil sector, in line with the template designed in consultation with Fund staff, including detailed information on debt service to Glencore, quarterly, starting end-December 2021. The note issued at end-December will cover developments up to the end of the previous quarter (September 2021). - The note will comment on recent developments in the oil sector, including 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 by categories and types of payments, in-cash and in-kind, including information on the 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. - Publish a semi-annual note listing all new tax exemptions (including renewal and extension). The first list should be published by end-January 2022 and should cover the period June to December 2021. - Publish on-line the full text of all procurement contracts by the central government, along with the names and nationalities of the beneficial owners of the awarded legal entities, starting from end-March 2022. - Allocate VAT revenues in the VAT escrow account at the BEAC by end February 2022. - Completion and publication of an ex-post compliance audit of COVID expenses by a reputable international auditing firm by end December 2021. - Finalize and adopt the PFM strategy, in line with IMF Technical Assistance, by end June 2022. - Implement employment ceilings, in accordance with the provisions of the 2014 organic law on public finance, by end August 2022. - Implement the ASYCUDA Exemption Module to process all customs exemptions requests and authorizations by end November 2022. ### Reporting requirements and data to be provided (high-level) - Monthly, quarterly, and annual reporting obligations to the Ministry of Finance and Budget, BEAC, INSEED, and relevant directorates, with deadlines typically within 45 days of month- or quarter-end, or within 180 days/90 days/3 months for annual and special items as specified in Table 2. - Specific data items include: - Oil and non-oil revenue, by category; revenue collection situation; revenue position of revenue-collecting agencies. - Quarterly Oil Sector Note. - Budget execution data, including on poverty–reducing social spending, showing commitments, validations, authorizations of payment order, and cash payments. - Detailed budget execution tables (TOFE), comparative tables on budget execution, consolidated balance tables. - Detailed use of Government oil (4 million barrels) sold to the refinery, including exact amount of the subsidy to the electricity company. - Details by project financed domestically, execution of the investment budget by Ministry. - Information on DAO regularization (quarterly, within 60 days after the end of the quarter). - Tables on external debt, external debt arrears, servicing of domestic and external debt, new loans contracted or guaranteed, monetary survey, provisional monetary data from the BEAC, net banking system claims on the Government (NGP), consumer price index, GDP/GNP, balance of payments, gross external debt, and other macroeconomic and public finance indicators with specified periodicities and reporting lags. ### Baseline projections excerpt (Table 1) - Table 1 excerpt (Cumulative on annual basis) for 2021 (in CFAF billion): - Net oil Revenue: 74 15 42 64 37 49 7 (table entries presented as in source) - Budget grants: 0 0 0 2 3 3 - Budget loans: 0 0 0 0 0 0 - Exceptional Receipt: 0 0 0 0 0 0 - Total: 74 15 42 64 39 71 00 - Note: Net oil revenue is the sum of (i) the sake revenue of gov. oil net operating and transportation cost and (ii) oil tax revenues. Table units: in CFAF billion. ### Debt sustainability and recent debt developments - Chad’s public debt has worsened since the onset of the COVID-19 pandemic; downside risks increased given pandemic uncertainties and oil price volatility. - External PPG outstanding at end-2020: US$3.0 billion, about 26 percent of GDP. - External payment arrears outstanding as of September 2021: about US$123 million (about 1 percent of GDP), mainly to bilateral creditors (debt to the Republic of Congo about US$57 million; Libya about US$33 million). - Authorities announced intention to seek debt restructuring under the G20 Common Framework on December 14, 2020. - Chad is assessed as being in external and overall debt distress; ongoing debt restructuring is expected to restore debt sustainability and bring the risk rating to ‘moderate’ within the program period. - Relevant high-risk thresholds given Chad’s composite indicator score of 2.47: (i) 30 percent for PV of external debt-to-GDP; (ii) 140 percent for PV of debt-to-exports; (iii) 10 percent for debt service-to-exports; and (v) 14 percent for debt service-to-revenue ratio. - Staff assessment: Risk of external debt distress — In debt distress. Overall risk of debt distress — In debt distress. Granularity in the risk rating — Unsustainable. Application of judgement — No. Date: November 29, 2021. *Source: 1tcdea2021001 - Chapter 22 (Table 1 and related text).* ### 4. Chad has benefited from IDA financial support since 2013 and is also benefiting from debt ### 4. Chad has benefited from IDA financial support since 2013 and is also benefiting from debt ### IDA support, CCRT, and DSSI outcomes - IDA support since 2013 has been provided entirely in the form of grants, reflecting IDA’s policy to provide grants to countries at moderate and high risk of debt distress. - IDA commitments: over $1.5 billion. - IDA net flows: positive net flows of over half a billion USD over the past five years. - Chad benefited from debt relief under the CCRT on scheduled repayments to the Fund of SDR 10.1 million in 2020 and 2021. - DSSI actions: - Chad applied for debt suspension under the G20’s DSSI from all official bilateral and private commercial creditors. - Signed MOUs with France and Kuwait. - Requested official bilateral creditors to extend the DSSI to end-2021. - DSSI debt relief: US$1.2 million in 2020 and projected US$0.1 million in 2021. ### External debt stock: headline figures (2017–2020, US$ million unless otherwise indicated) - Multilateral: 2017: 695; 2018: 741; 2019: 848; 2020: 1,071 - IMF: 2017: 173; 2018: 262; 2019: 381; 2020: 586 - World Bank/IDA: 2017: 182; 2018: 175; 2019: 171; 2020: 170 - African Development Bank/ADF: 2017: 100; 2018: 95; 2019: 94; 2020: 109 - Other multilateral: 2017: 239; 2018: 208; 2019: 201; 2020: 206 - Official Bilateral: 2017: 734; 2018: 800; 2019: 661; 2020: 837 - Paris Club: 2017: 43; 2018: 108; 2019: 122; 2020: 122 - Non-Paris Club: 2017: 690; 2018: 692; 2019: 539; 2020: 715 - China: 2017: 226; 2018: 226; 2019: 218; 2020: 291 - Libya: 2017: 230; 2018: 272; 2019: 230; 2020: 263 - India: 2017: 38; 2018: 37; 2019: 37; 2020: 48 - Other bilateral: 2017: 114 (2018–2020 not listed) - Commercial: 2017: 127; 2018: 212; 2019: 202; 2020: 1158? (table shows 1106 and earlier lines for Glencore Energy) - Glencore Energy: 2017: 127; 2018: 211; 2019: 199?; 2020: 1155?; 1073? (source lists Glencore Energy line with multiple figures) - Total external debt stock: 2017: 2,702; 2018: 2,274; 2019: 2,452; 2020: 6,665?; 3,013? (table shows "Total2702274526653013" — preserve numeric tokens) - Percent of GDP: 2017: 25.6; 2018: 25.8; 2019: 24.6; 2020: 26.3 - Memorandum shares (of total): - Multilateral (share of total): 25.7; 27.0; 31.8; 35.5 - Bilateral (share of total): 27.2; 29.1; 24.8; 27.8 - Commercial (share of total): 47.1; 43.8; 43.5; 36.7 - Source for table: Country authorities, IMF and World Bank staff estimates ### Domestic rollover mechanism, exit agreement, and reprofiling - Rollover arrangement introduced in 2017 by BEAC to limit sovereign-bank risks: - Implied repayment of 10-15 percent of marketable debt falling due each year. - Roll-over of remaining 85-90 percent into 26-week T-bills (BTA). - Resulted in domestic debt profile being almost entirely composed of T-bills, exposing Chad to severe refinancing risk. - Agreement reached end-March 2021 to exit the rollover mechanism: - Allowed Chad to access the regional market. - Enabled benefit from the BEAC bond repurchase program until it expired in September 2021. - Mitigated severe liquidity pressures on the treasury during 2021. - Reprofiling of domestic debt in process: - Goal: convert T-bills (BTA) into long-term bonds (OTA). - First five-year bond successfully auctioned on March 31 (year implied by source). - A two-year bond was issued in August 2021. - Between April and September (2021), issuances were mostly at a one-year maturity due to lower market appetite after the President’s death in mid-April 2021. - Banks’ participation facilitated by incentives such as creation of an escrow account for OTA repayments. - Escrow account requirement: coupon and principal payments need to be deposited into an escrow account at BEAC at least 10 months before maturity; this reassures investors but generates a cost of carry as the escrow account is not remunerated. ### Glencore’s debt: history, restructurings, and features - June 2014: SHT contracted a loan for US$1.4 billion (around 10 percent of GDP) with Glencore Energy, repayable over 2014-18 through direct deductions from oil shipments; shortfalls could draw on oil royalties. - November 2015: first rescheduling agreement — three-year extension of maturities; marginal improvement but insufficient for sustainability. - June 2017: 2014-16 ECF cancelled; new ECF-approved program; decision to seek deeper restructuring with Glencore. - June 2018: second restructuring concluded — extension of maturities, lower interest rate, reduction in restructuring fees; restored external debt sustainability. - Restructured loan includes state-contingent mechanism tied to Doba oil price: - Upside scenarios: significant principal payment acceleration and raised interest payments in 2018-2019. - Downside scenario (manifested in 2020): limited debt service reduction (1 percent principal deferral). - Cumulative deferred amortization capped at US$75 million; when cap reached, Chad must provide cash, potentially necessitating unsustainable fiscal adjustments. - Lessons: 2015 and 2018 restructurings were protracted; state-contingent features limited impact; need for longer-lasting solutions and more symmetrical downside/upside parameters based on independent oil price projections if oil-cash sweep mechanism is maintained. - Note: complexity hinders proper accounting by the debt office and effective cash-management by the national Treasury; financial accounting related to government oil exports, operating costs and debt service to Glencore is outsourced to Ernst and Young. ### Public debt coverage and contingent liability stress tests - Public debt coverage includes central, state and local governments, and government-guaranteed external debt owed by SHT. - Most other public sector entities (other SOEs and local governments) do not have access to external financing. Exception: Ndjamena oil refinery (SRN), central government holds 40 percent, has two loans with CNPC Finance and EXIM Bank China. - External debt definition: external debt calculated on a currency basis; CFAF-denominated debt held by BDEAC and bilateral creditors in the currency union are not considered external debt. Debt owed to Angola reclassified as external (previously domestic) as it is repaid in kind. - Contingent liability stress test design: - Financial market contingent liabilities set at 5 percent of GDP (average cost to government of a financial crisis in a low-income country since 1980). - SOE contingent liability set at 9.5 percent of GDP, reflecting liabilities of SRN, SNE, and SONACIM from a 2019 SOE Census by the World Bank. - Total contingent liabilities (selected items): 15 percent of GDP (sum of components: 1.0 percent default shock?; SoE debt 9.5; PPP 0; Financial market 5 percent). - Note: table indicates a default value of 2 percent of GDP may be triggered under certain coverage gaps; country team customized values accordingly. ### Macroeconomic forecasts, baseline assumptions, and scenarios - DSA baseline consistent with requested ECF arrangement; reflects updated policies and financing assumptions. - Real GDP growth (annual percentage change): - 2017-2020: 0.3 - 2021: 0.6 - 2022: 2.2 - 2023: 3.1 - 2024: 3.6 - 2025-29 (avg.): 3.8 - Comparison with August 2020 DSA: 2021 revised down from 6.1 to 0.6 percent. - Oil GDP (annual percentage change): - 2021: 1.9; 2022: 2.3; 2023: 2.3; 2024: 2.0; 2025-29 avg.: 2.4; (August 2020 DSA had different values) - Non-oil GDP (annual percentage change): - 2021: 0.0; 2022: 0.2; 2023: 2.1; 2024: 3.3; 2025-29 avg.: 3.9 - Current account balance (incl. official transfers) (% of GDP): - 2021: -5.4; 2022: -6.5; 2023: -5.8; 2024: -7.3; 2025-29 avg.: -7.9; long-run avg: -5.4 - Overall budget balance (commitment basis, including grants): - 2021: 0.5; 2022: -3.4; 2023: 0.8; 2024: 0.2; 2025-29 avg.: 0.0; long-run avg: 0.9 - Revenue and grants (% of GDP): - 2021: 19.2; 2022: 19.2; 2023: 22.0; 2024: 21.3; 2025-29 avg.: 20.7; long-run avg.: 20.4 - Of which oil revenues: 2021: 7.0; 2022: 7.0; 2023: 9.1; 2024: 7.8; 2025-29 avg.: 6.7; long-run avg.: 5.6 - Of which non-oil revenue: 2021: 8.8; 2022: 9.3; 2023: 9.8; 2024: 10.3; 2025-29 avg.: 10.8; long-run avg.: 11.9 - Of which grants: 2021: 3.4; 2022: 3.0; 2023: 3.0; 2024: 3.2; 2025-29 avg.: 3.2; long-run avg.: 3.0 - Grant element of new external borrowing (Current DSA, percent): 2021-24: 35.4; 39.4; 40.2; 40.9; 42.4 (table heading indicates projection years) - Long-term assumptions: - Long-term real growth rate assumed: average 3.8 percent for 2025-29. - GDP deflator projected at 2.9 percent in the long run, consistent with BEAC objectives and historical data. - Baseline assumptions include gradual clearance of external arrears over 2021-26 and gradual repayment of audited domestic arrears (audited domestic arrears equivalent to approximately 8 percent of GDP; CFA 235 billion (3.6 percent of GDP) expected to be cleared during 2021-24). - Forecast risks: heightened uncertainty and downside risks from the pandemic, ongoing insecurity, frequent climatic shocks, dependence on oil, four recessions since 2006, and recent armed rebellion and military-led transition government developments. ### Financing assumptions and program financing strategy - DSA corresponds to a pre-restructuring scenario. - External financing assumptions: - Includes IDA19 grants consistent with Chad’s performance-based allocation averaging around $140 million between 2021 and 2022. - For FY2021, an additional $75 million committed through the IDA Refugee Window for Chad. - Subsequent annual IDA allocations assume a similar level as IDA19 performance-based allocation; actual financing depends on Chad’s reform performance and IDA replenishments. - New financing assumed starting in 2023 from AfDB and other partners, conditional on successful debt restructuring. - Given limited capacity to borrow on the regional debt market (especially after April 2021 events), debt strategy relies mainly on concessional external financing and grants. ### Fiscal adjustment strategy and policy implications - Projected four-year fiscal adjustment in the non-oil primary balance (NOPB) is ambitious but considered realistic: - Program targets consolidation of the NOPB of 4.0 percentage points of non-oil GDP over 36 months through mobilization of non-oil revenues and streamlining expenditures while promoting social spending. - Tax revenues targeted to increase by 1.9 percentage points of non-oil GDP. - Current expenditures expected to drop by 2.0 percentage points of non-oil GDP by gradually reducing the wage bill and subsidies to the electricity company. - Capital expenditures expected to remain at an average of 7.3 percent of non-oil GDP (above pre-pandemic levels). - Policy priorities to reduce future debt distress risk: - Strengthening expenditure controls. - Prudent increases and efficiency gains in social spending. - Improvements in public investment efficiency. - Greater transparency and oversight over debt management. - Social and climate context: - Chad ranks second to last in the World Bank’s Human Capital Index 2020. - About 6.5 million Chadians or 42 percent of the population are poor (national statistics). - Chad is highly vulnerable to climate change; social spending and spending on climate adaptation are among the lowest in the world. - Fiscal consolidation should protect and allow increased spending for critical social sectors and climate adaptation. *Source: IMF staff and country authorities (extracted from the provided chapter).* ### 15. The DSA assumptions incorporate a gradual increase in social spending (34 percent of ### 15. The DSA assumptions incorporate a gradual increase in social spending (34 percent of ### Social spending and public investment - The DSA assumptions incorporate a gradual increase in social spending (34 percent of current spending over 2021-24) within the overall fiscal consolidation. - The framework incorporates the government’s commitments to recruit additional staff in the health and education sectors, who will be deployed to underserved regions, while recruitments on other areas will be closely monitored. - The framework enables public capital expenditure to rise from a relatively modest level, which should be beneficial for growth and would enable Chad to address large infrastructure gaps. - Ensuring greater transparency and strengthening procedures and processes in critical sectors—health, education, energy, agriculture, transport, and public investment management—will help to promote better economic and social outcomes. - Poverty–reducing social spending, according to the latest general structure of Government, comprises public spending by the following ministries: (i) National Education and Civic Promotion; (ii) Public Health, including military health services and National Solidarity; (iii) Women, Early Childhood Protection and National Solidarity; (iv) Production, Irrigation and Agricultural Equipment; (v) Livestock and Animal Production; (vi) Environment Water and Sanitation; (vii) Professional Training and Small Job Promotion; and (viii) Higher Education. ### Country classification and stress test scenarios - The composite indicator (CI) based on October 2020 WEO projections and an update of the CPIA index to 2020 levels indicates weak debt carrying capacity for Chad. - The CI combines the CPIA score, external conditions as captured by world economic growth, and country-specific factors. The October 2020 data indicate weak debt carrying capacity, reflecting mainly a low CPIA, very low remittances, and a low level of foreign reserves. - A tailored commodity price stress test is activated for Chad. Debt service under the Glencore contract includes a mandatory amortization and interest payment plus a cash-sweep component that falls as the Doba oil price goes below a threshold. - Because oil prices have fallen so far in the baseline, this contingency is fully exercised even in the baseline and the standard commodity price shock scenarios. - The contract allows Chad to defer some mandatory payments as prices fall, but the cumulative deferred amortization is capped at $75 million. - A tailored stress test reflecting a 20 percent reduction in oil price is activated for Chad. ### External debt sustainability — key findings - The external debt service-to-revenue ratio threshold under the baseline scenario is breached. - The debt service-to-revenue ratio rises above 14 percent starting in 2021 due to lower revenue and associated higher borrowing in response to the pandemic. - This ratio is not expected to permanently drop below its threshold of 14 percent until after 2029, as the Glencore debt matures. - Under the baseline scenario, the other liquidity and solvency ratios remain below their thresholds. - Under stress tests, the thresholds for all indicators are breached. - Under the exports stress test, all four indicator thresholds are breached for the entire horizon. - For the present value of PPG external debt-to-GDP, present value of PPG external debt-to-exports, and debt service-to-exports ratios, levels approach those seen during the 2018 debt distress episode. - The debt service-to-revenue ratio—the factor that pushed Chad into debt distress in the past—peaks at 22 percent (under the exports stress test). - Text Table 4: Chad CI Score (October 2020, CI cutoff for medium debt carrying capacity is 2.69) - CPIA: Coefficient 0.382, 10-year average values (B) 2.72, CI Score components (A*B) = (C) 1.054, Contribution of components 42% - Real growth rate (in percent): Coefficient 2.72, 10-year average values (B) 2.5, CI Score components 0.073, Contribution 3% - Import coverage of reserves (in percent): Coefficient 4.05, 10-year average values (B) 31.3, CI Score components 1.275, Contribution 51% - Import coverage of reserves^2 (in percent): Coefficient -3.99, 10-year average values (B) 9.80, CI Score components -0.39, Contribution -16% - Remittances (in percent): Coefficient 2.02, 10-year average values (B) 0.00, CI Score components 0.000, Contribution 0% - World economic growth (in percent): Coefficient 13.52, 10-year average values (B) 3.5, CI Score components 0.471, Contribution 19% - CI Score: 2.47 — CI rating: Weak ### Public debt sustainability — key findings - The benchmark for public debt is breached in 2021-26 under the baseline. - Due to higher budget deficits related to the impact of the COVID-19 pandemic, the PV of total public debt-to-GDP ratio is projected to peak at 45 percent in 2022, above the 35 percent high-risk threshold associated with heightened public debt vulnerabilities with a weak debt carrying capacity. - The benchmark for public debt is also breached through 2030 for the most extreme contingency scenario. - The DSA assumes a normalization of the domestic issuance capacity which would partially fill the financing gap. ### Risk rating, restructuring, and financing needs - Chad is in debt distress. Classification changed to “in debt distress” from high risk of debt distress in the previous DSA (August 2020). - Given the impact of COVID and other shocks on growth and the widening of the fiscal and external imbalances, there is a large residual financing need that cannot be met with fiscal adjustment and grants alone. - Downside risks include: the economic impact of the pandemic, ongoing insecurity, and exposure to climatic shocks. - A deep debt restructuring under the Common Framework is underway and is expected to restore debt sustainability and bring the risk rating to ‘moderate’ within the program period. - Fund policies require that the envisaged debt restructuring should bring the risk of external debt distress back to a low or moderate level given the request for exceptional access and the current ‘in debt distress’ rating. - The envelope for the restructured debt will need to allow for a suitable buffer to absorb shocks; recent shocks stem from global oil price volatility, regional and domestic insecurity (hosting large numbers of internally displaced people and refugees), climatic shocks with droughts and flooding of increasing intensity, and the COVID-19 pandemic. - Given liquidity challenges, the debt restructuring envelope will need to close the 2022-24 residual financing gap. - The Chadian authorities have received financing assurances from the Common Framework creditor committee for a restructuring in line with these parameters and have taken important steps towards the required restructuring of debt held by private creditors. - Following debt restructuring, significant concessional financing will still be required to maintain a moderate risk of external and overall debt distress. - While restructuring is expected to reduce the annual financing gap, significant concessional financing commitments by multilateral and bilateral creditors will still be required over the longer-term to avoid a recurrence of either external and/or domestic debt service problems. - A zero NCB limit is an important part of the debt conditionality under the proposed Fund-supported program. - The government would also need to take action to further enhance debt management capacity and public debt transparency while strengthening fiscal policies. - In particular: improving control of SOE liabilities, enhancing domestic revenue mobilization and expenditure efficiency, and normalizing relations in the regional debt market. *Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1tcdea2021001.pdf* ### 24. The authorities broadly agreed with the overall assessment of the country’s debt ### 24. The authorities broadly agreed with the overall assessment of the country’s debt ### Debt sustainability assessment - Debt sustainability is expected to be restored through a deep debt restructuring, donor support, and the reforms contemplated under the Fund-supported program. - The authorities are committed to further improve debt management. - The authorities expect successful completion of debt restructuring to reduce external debt service-to-revenue from 14 to 12.3 percent. ### Recent macroeconomic developments and risks - Real GDP contracted by 1.6 percent in 2020. - The government cleared audited arrears for CFA 149 billion. - The country experienced institutional change since April 2021, with an 18-month transition period following the death of President Idriss DEBY ITNO; a transition road map was adopted in July 2021. - Major ongoing risks: continuing pandemic (including new variants), limited growth prospects in oil and non-oil sectors, climate-related shocks (drought, recurrent flooding), volatile security conditions, food insecurity, refugee and internally displaced persons pressures. ### Fiscal stance and targets - Fiscal policy for 2021 aims to implement a cumulative fiscal consolidation of 4 percent of non-oil GDP. - Medium-term revenue target: increase non-oil revenue from 9.1 percent to 10.8 percent of GDP by 2024. - Social spending commitment: reserve 34 percent of domestically financed primary spending for poverty-reducing social expenditure. - Policy priorities: maintain the wage bill, transfers, and subsidies efficiently adjusted to available resources; improve spending quality and allocation toward capital investments and social sectors. ### Policies and reforms under the new ECF program (2021–24) - Program anchor: triennial arrangement under the Extended Credit Facility (ECF), aligned with the 2022-26 National Development Plan (NDP). - Program focus areas: - Private sector and non-oil growth. - Enhancing fiscal and debt sustainability. - Strengthening public financial management (PFM) and debt management. - Economic diversification through structural reforms. - Prior actions completed: recapitalization steps for Commercial Bank Tchad (CBT) and online publication of all COVID-related public contracts. - Eight agreed structural benchmarks include: - An oil sector quarterly note including information on debt service to the private creditor Glencore. - Audit of COVID spending by a reputable international auditing firm. - Publication of all new tax exemptions. - Allocation of VAT revenue in the VAT escrow account at BEAC. ### Tax administration, VAT and customs measures - Tax and customs reforms aim to: - Improve VAT management and tax compliance. - Scale up infrastructure (buildings and software) and taxpayer monitoring. - Modernize tax services with increased IT and promote banking and mobile money services. - Strengthen customs operational frameworks and electronic transaction/banking services. - Operationalization of a VAT refund escrow account at BEAC is intended to improve VAT efficiency and clearance of VAT credits. ### Public financial management and debt management - Revamped Strategy for the Development and Modernization of PFM is being implemented; a committee chaired by the Finance Inspector General will monitor the wage bill and civil service reforms. - Debt management improvements noted: enhanced coordination between technical services, increased resources for debt management, creation of an escrow account, and regular meetings dedicated to external debt management. - The primary balance assumes debt relief under the CCRT as a capital grant (subject to availability of resources). ### Financial sector measures - Ongoing monthly repayments to public banks CBT and BCC and enforcement of performance contracts in line with restructuring plans. - Partial recapitalization of CBT will be finalized as required. - Pandemic effects: increase in NPLs and deterioration of bank liquidity and capital positions. - Authorities contemplate establishing a national debt recovery agency and request IMF technical assistance. - Medium-term commitments: - Reduce public stakes in banks. - Support COBAC’s request for gradual capital restoration plans. - Explore increasing private sector participation in the capital of CBT. - Reinforce supervision and governance of microfinance institutions and expand access through mobile money services. ### Structural reforms and governance - Reform priorities for diversification and inclusive growth: - Strengthen transparency and efficiency in public and electricity sectors. - Restructure and monitor performance of the national electricity company (SNE). - Operationalize the National Competition Council, the Observatory for the Business Environment, and UNCAC-related reforms. - Strengthen the National Agency for Financial Investigation and anti-corruption bodies. - Improve transparency and oversight in extractive industries based on the 2019 EITI assessment and recommendations. - Capacity building assistance is sought, notably for implementing UNCAC and other key reforms. ### Program financing and assumptions (selected figures and indicators drawn from the DSA) - Authorities expect the debt restructuring, donor support, and program reforms to restore debt sustainability. - Key DSA-related figures and targets referenced in the text and tables include: - Targeted reduction in external debt service-to-revenue from 14 to 12.3 percent following restructuring. - Historical and projected government revenue (excluding grants) and other aggregates underpinning the DSA (e.g., non-oil revenue target of 10.8 percent of GDP by 2024). - Gross external financing needs, PV of PPG external debt, PV of public debt, and debt service ratios are presented in accompanying DSA tables and stress-test figures. ### Conclusion and authorities’ request - The authorities value IMF and partner support and request Executive Directors’ approval for a three-year arrangement under the Extended Credit Facility to sustain the policy and reform agenda and to consolidate gains from the 2017-20 ECF arrangement. - The authorities stress that a swift and successful completion of debt restructuring is critical to restore policy space and support a durable recovery. *Source: 1tcdea2021001 - 24. The authorities broadly agreed with the overall assessment of the country’s debt* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1tcdea2021001.pdf_