## 1tcdea2023001 - 5.3 percent in 2022—ref lecting increasing f ood price pressures f rom the poor 2021 crop, the ## Source details **Canonical URL:** [1tcdea2023001 - 5.3 percent in 2022—ref lecting increasing f ood price pressures f rom the poor 2021 crop, the](https://www.imf.org/-/media/files/publications/cr/2023/english/1tcdea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1tcdea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1tcdea2023001.pdf.json) --- ### Macroeconomic outlook and projections - Real GDP growth: - 2022: expected to grow by 2½ percent. - 2023: projected 3.5 percent (Current DSA). - 2024: projected 3.7 percent (Current DSA). - 2025–29 (avg.): 3.6 percent (Current DSA). - Sectoral contributions: - Oil GDP growth: 2022: 5.6; 2023: 5.6; 2024: 2.0; 2025–29 (avg.): 1.3 (Current DSA). - Non-oil GDP growth: 2022: 0.2; 2023: 1.8; 2024: 3.1; 2025–29 (avg.): 4.1 (Current DSA). - Inflation: - Average inflation in 2021: -0.8 percent. - 2022: average inflation expected to rise to 5.3 percent. - Consumer prices: 7.2 percent y-o-y in September 2022 (vs. 1.0 percent in December 2021). - Food prices: 12.3 percent y-o-y in September 2022; 14.4 percent y-o-y by August 2022 (subsiding to 12.3 percent in September). - External sector: - Current account: CAB expected to improve to 2.7 percent of GDP in 2022 from -4.5 percent in 2021 (MEFP ¶20). - Trade balance: increase from 11.6 to 24.5 percent of GDP in 2022. - External position vulnerable to oil prices and donor financing support. - Public debt and fiscal aggregates: - Public debt: end-2020: 54.1 percent of GDP; end-2021: 55.9 percent of GDP. - Domestic debt: 2020: 27.6 percent of GDP; 2021: 30.4 percent of GDP. - Public debt projected to decline to about 40 percent of GDP in 2024. - Non-oil primary balance (NOPB) objective: bring NOPB down to about 5 percent of non-oil GDP by end of program period (MEFP, ¶22). ### Shocks, risks, and recent developments - Key shocks: - Poor 2021/2022 crop year; cereal production 2021/22: 2,620 tons (9.2 percent lower than five-year average). - War in Ukraine: higher imported cereals, fertilizer, and fuel prices. - Severe floods in July–October 2022 affecting more than 1.2 million people (Text) / more than 1 million persons (Annex). - Production disruptions in oil sector in 2021 and delayed resumption. - COVID-19: - Share with at least one vaccine dose: 1.5 percent in February 2022. - Donor-financed campaign target: 48 percent of adult population by end-2022; 21 percent of adult population fully vaccinated as of August 25. - Humanitarian indicators: - Net cereal deficit (Ministry of Agriculture): 308,960 tons. - Apparent food availability (CILSS): 141 kg/person/year, 11.3 percent below official consumption standard of 159 kg/person/year. - Estimated acutely food insecure (Dec 2021 CH): 970,000 in Phase 3/4. - Lean season acute food and nutritional insecurity: 2.1 million people; 1.3 million children with acute malnutrition. - Floods pushed additional 292,585 people under pressure (Ministry of Public Health and National Solidarity, August 18, 2022). ### Fiscal developments, program performance, and targets - 2021 fiscal outturns and drivers: - 2021 NOPB missed target by about 2.3 percentage points of non-oil GDP. - One-off increase in investment in military equipment: 1.7 percent of non-oil GDP. - Higher civil and military wage bill: 0.6 percent of non-oil GDP. - Domestic arrears clearance: CFAF 1.8 percent of non-oil GDP (vs. target 2.1 percent). - SDR uses in 2021: clearing domestic arrears CFAF 22 billion; paying retirees 2021 pensions CFAF 12 billion; clearing external debt technical arrears CFAF 15 billion. - 2022 H1 performance: - NOPB broadly in line with mission discussions; non-oil revenue slightly higher driven by VAT. - Oil revenue did not increase much in H1 2022; preliminary Q3 indicated a strong rebound. - Current spending higher: around CFAF 15 bill transferred to ONASA in 2022H1 out of CFAF 30 bill allocated. - Reimbursement of domestic arrears accelerated; authorities rolled over maturing T-bills and T-bonds at high interest rates. - Program performance vs. targets: - Continuous QPCs on non-accumulation of new external arrears and on non-contracting of new non-concessional external debt: met. - End-December 2021 and end-June 2022 QPC on NOPB: missed. - End-December 2021 QPC on stock of domestic arrears: missed. - Most indicative targets were missed; three structural benchmarks met; several SBs delayed or in implementation. - 2022 fiscal projections and use of oil revenue: - Overall fiscal balance projected to improve from -2.4 to +6.3 percent of non-oil GDP (MEFP). - Oil revenue projected to reach CFAF 976 billion in 2022. - Government aims to use higher oil revenue to rebuild buffers, repay domestic arrears, and reduce domestic and external debt. ### Debt treatment, DSA findings, and financing - G20 Common Framework (CF) outcomes: - Chad: first country to achieve a debt treatment agreement under the G20 CF. - G20 official CF creditors committed to reconvene if residual financing gaps reemerge and to contribute proportionally to bring the debt service-to-revenue ratio below 14 percent in 2024 if private creditor contribution insufficient. - Largest private creditor committed to reprofiling part of 2024 debt service; 2024 reprofiling terms reflected in baseline projections. - DSA key numbers and outlook: - Chad no longer in debt distress but at high risk of external debt distress under baseline absent full implementation of treatment. - Debt indicators (selected, as reported): - Total public debt (2021): US$6,296; 55.88 percent of GDP. - External (2021): US$2,869; 25.47 percent of GDP. - Domestic (2021): US$3,426; 30.41 percent of GDP. - Arrears (2021): US$676; 6.00 percent of GDP. - Outstanding PPG external debt at end-2021: US$2.9 billion. - Fund credit outstanding peaks at 504 percent of quota and 7.5 percent of GDP. - Total obligations based on existing and prospective credit peak at 0.8 percent of GDP and 2.5 percent of exports in 2027. - 69 percent of Fund-related debt service is due between 2026 and 2032. - DSA macro-fiscal baseline projections (selected): - Overall budget balance (commitment basis, incl. grants): 2022: -2.4; 2023: 6.3; 2024: 8.6; 2025–29 (avg.): 5.3 (Current DSA). - Revenue and grants (% of GDP): 2022: 20.6; 2023: 28.4; 2024: 31.5. - Of which oil revenues (% of GDP): 2022: 9.8; 2023: 17.6; 2024: 18.1. - Of which non-oil revenue (% of GDP): 2022: 9.6; 2023: 10.0; 2024: 10.3. - Stress tests: - Commodity prices shock: most extreme shock to PV of debt-to-GDP ratio. - Combined contingent liabilities shock: most extreme shock impacting debt service-to-revenue ratio. - Under baseline with agreed debt treatment, debt service-to-revenue ratio expected to fall below 14 percent in 2024 and risk of debt distress to be moderate by end of program. ### Banking sector performance and financial stability - Credit and liquidity: - Credit to private sector: +17.1 percent in 2021; contracted slightly during first five months of 2022 (-0.7 percent first five months 2022). - Gross credit and deposits in 2021: +18.4 percent and +13.7 percent respectively. - Liquidity: liquid assets equivalent to 102.1 percent of short-term liabilities at end-March 2022; liquidity weakened early 2022 but remained adequate. - Asset quality and capitalization: - NPL ratio: 26 percent in 2021; 28.5 percent in 2022Q1. - Banking sector CAR: 18 percent at end-2017 → 2.9 percent at end-2020 → 9.4 percent at end-March 2022. - Non-Covid NPLs generally well-provisioned. - Supervisory environment: - COBAC lifted forbearance measures in July 2022 and resumed regular onsite supervision; expected to provide more accurate assessment of banks’ health. - Public and large private banks: - Two systemic public banks: performance contracts, monthly debt repayments by Government; partial recapitalization of one public bank in 2021; further recapitalization needed. - Largest private bank: restructuring and recovery plan expected to enable compliance with prudential standards by end-2024. ### Key policy measures and staff recommendations - Fiscal policy and consolidation: - 2022: substantial improvement in NOPB while accommodating one-off food security costs. - 2023: continue consolidation through enhanced non-oil revenue mobilization and streamlining non-priority current spending; contain wage bill; streamline fuel and electricity subsidies. - Medium-term anchor: NOPB to improve by about 4.7 percentage points of non-oil GDP over 2022–24. - 2022 NOPB expected improvement by 2.5 percentage points to -7.5 percent of non-oil GDP; NOPB lower than envisaged at ECF request by about 1.6 percentage points due to one-off expenditures (0.5), in-kind transfers revaluation (0.6), and higher wage bill (1.2). - Revenue administration and VAT reforms: - Non-oil revenue: 9.6 percent of non-oil GDP in 2021; target to increase by about 1 percentage point by 2024. - VAT measures: streamline exemptions; establish VAT refund mechanism; increase active taxpayers by 20 percent in 2022; relocate tax administration with modern IT by end-2022; IT measures to allow e-filing and mobile payments. - VAT revenue currently less than 2 percent of GDP (potential >4 percent of GDP). - Wage bill and PFM reforms: - Target wage bill: bring to 7.8 percent of non-oil GDP by end-2024; contain at CFAF 491 billion in 2022. - Near-term measures: maintain index point value; refrain from discretionary increases; implement job ceilings and strengthen HR-payroll coordination (end-January 2023 SB). - PFM Reform Strategy for 2022-27 adopted on June 28, 2022. - IFMIS implementation: phase 1 complete; phase 2 ongoing; objective to decentralize payment orders and strengthen controls. - DAO reforms: issue Decree in January 2023 to limit DAO use; executive order to establish DAO ceiling at 18 percent of total primary spending in 2023. - Domestic arrears: - Authorities aim to reduce stock of domestic arrears by CFAF 95 billion in 2022 and gradually repay remaining stock over program period. - Recognized audited domestic arrears at end-2021: CFAF 354 billion; unaudited arrears: CFAF 39 billion. - Electricity sector and SOEs: - Improve financial viability of SNE; replace in-kind diesel transfers with monetary transfers under performance contract; adopt performance contract by end-December 2022. - Plan to phase out subsidies with appropriate transfers to vulnerable households; IMF/WB TA to support. - Anti-corruption, transparency, and governance: - Decree adopted to collect beneficial ownership information; prior action completed to publish procurement contracts with beneficial owners (publication to start in 2023; end-July 2023 SB). - Forensic audit of oil revenue including SHT to be conducted and published (end-June 2023 SB). - Ex-post compliance audit of COVID-19 expenses published June 3, 2022. ### Monitoring, conditionality, and program design - Program monitoring: - Semi-annual reviews based on QPCs, ITs, and SBs (MEFP, ¶59). - Quantitative conditionality adjusted for end-2022 and new targets set for 2023. - Definition of NOPB adjusted from December 2022 to exclude in-kind transfers to SNE. - Starting third review: two additional ITs on DAO (ceiling on use and floor on regularization). - Selected QPC and IT figures (cumulative, Billions of CFAF; as shown in Table excerpts): - End-Dec 2022 QPCs (selected): Floor on NOPB: -325; Ceiling on net domestic government financing: -831; Ceiling on stock of domestic payment arrears: 298. - End-March 2023 ITs (selected): Floor on NOPB: -95; Ceiling on net domestic government financing: 189; Ceiling on stock of domestic payment arrears: 288. - Indicative targets (selected): Floor on government tax revenue excl. oil (End-Dec 2022): 535; Ceiling on wages and salaries (End-Dec 2022): 500; Floor for poverty-reducing social spending (End-Dec 2022): 255. - Reporting and data transmission: - Monthly fiscal and revenue data due within 45 days of month-end; revisions to be forwarded within 14 days. - Detailed tables and memoranda for oil revenue, DAO regularization, external and domestic debt servicing, and monetary data to be provided per TMU timetable. ### Executive Board and staff views; program risks - Executive Board statement highlights: - Higher oil revenues improved government cashflow. - Pandemic, poor crop, war in Ukraine, and floods exacerbated food insecurity. - Political transition prolongation heightened social tensions; security volatile. - Quantitative program performance mixed; significant progress on structural reforms. - Debt treatment under G20 CF provides protection and brings risk of debt distress to moderate by end of program. - Staff appraisal and recommendations: - Use higher oil prices to build cash buffers, address food security with donor help, rebuild ONASA cereal stocks, and reduce reliance on expensive domestic financing. - Strengthen domestic revenue mobilization, contain wage bill, and streamline non-priority expenditures. - Accelerate governance, anti-corruption, PFM, and SOE reforms. - Completion of first and second reviews supported; waivers of non-observance of three performance criteria recommended; modification of end-December 2022 QPCs supported. - Program risks: - Possible resurgence of pandemic; decline in oil prices; protracted war in Ukraine; delays in political transition; spending overruns; delays in debt treatment; shortfalls in donor financing. - Mitigating factors: program policies (buffer accumulation) and close engagement with authorities, donors, and creditors. ### Annex I — Food security situation (selected statistics and interventions) - Production and availability: - Cereal production 2021/22: 2,620 tons (9.2 percent lower than five-year average). - Western Sahel provinces drop: 21.7 percent vs five-year average. - Net cereal deficit: 308,960 tons. - Apparent food availability (CILSS): 141 kg/person/year (11.3 percent below 159 kg/person/year standard). - Food insecurity and humanitarian needs: - 970,000 estimated acutely food insecure in Phase 3/4 (2021Q4 CH report). - 2.1 million in acute food and nutritional insecurity during lean season (June–August). - 1.3 million children suffering from acute malnutrition. - 3.6 million “under pressure” requiring resilience support. - Floods added 292,585 people under pressure. - National Response Plan (NRP) cost and financing: - Total NRP cost: CFAF 132 billion; CFAF 57 billion to address food insecurity. - Government committed CFAF 36 billion of SDR allocation to help ONASA rebuild stocks; CFAF 8.1 billion of SDR allocation used to help rebuild ONASA food stock. - ONASA stocks: 15,815 tons in stores; storage capacity: 40,000 tons; 100,000 tons recommended by CILSS. - External assistance (selected figures): - France: €5 million to ONASA for food acquisition; €1.5 million to improve ONASA efficiency. - EU financing for FAO projects: €44 million. - ECHO expected support to WFP: €40 million. - UN CERF release for Chad: US$8 million. - World Bank CERC: US$50 million requested and disbursed in August 2022; US$105mill grant under FSRP2 signed October 17. - AfDB grant: around US$4 million. - Islamic Development Bank: US$0.15million emergency assistance. - WFP estimated global short-term operational cost increase: US$29 million per month due to food and fuel price hikes. - WFP had reduced emergency rations by 50 percent for IDPs/refugees since June 2021 due to low funding. *International Monetary Fund staff report (Chad): First and Second Reviews under the Extended Credit Facility Arrangement; Executive Summary and selected sections (December 7, 2022). Prepared by Ljubica Dordevic and Joseph Ntamatungiro; IMF staff and World Bank staff estimates as presented in the cited chapter of the IMF country report.* ### 5.3 percent in 2022—ref lecting increasing f ood price pressures f rom the poor 2021 crop, the ### 1tcdea2023001 - 5.3 percent in 2022—ref lecting increasing f ood price pressures f rom the poor 2021 crop, the ### Macroeconomic outlook and projections - Real GDP growth: projected to recover gradually with a rebound in oil production and a slow pickup in non-oil growth. - Inflation: - Increased rapidly in 2022 on account of higher food prices. - Consumer prices increased by 7.2 percent y-o-y in September (vs. 1.0 percent in December 2021). - Food prices increased by 12.3 percent y-o-y in September. - Current account: - Expected to improve markedly in 2022, registering a surplus of 2.8 percent of GDP in 2022. - Expected to decline over the medium term as oil prices are expected to gradually recede. - Public debt: - Public debt at end-2021: 56 percent of GDP. - Public debt projected to decline to about 40 percent of GDP in 2024. - Recent historical indicators: - Average inflation in 2021: -0.8 percent (vs. +1.1 percent projected). - Consumer prices: 7.2 percent y-o-y in September 2022. - Current account deficit in 2021: estimated 4.5 percent of GDP (vs. projected 6.5 percent of GDP at time of ECF request). - International reserves dropped more than expected in 2021. ### Shocks, risks, and recent developments - Key shocks affecting the economy: - Poor 2021/2022 crop year leading to food insecurity and higher food prices. - Impact of the war in Ukraine on imported food and fertilizer prices. - Severe floods affecting more than 1.2 million people in October and November. - Production disruptions in the oil sector in 2021 and delayed resumption in some oil fields. - COVID-19: - Share of population with at least one vaccine dose: 1.5 percent in February 2022. - Donor-financed vaccination campaign aimed to vaccinate 48 percent of the adult population by end-2022; 21 percent of the adult population fully vaccinated as of August 25. - Security and political context: - Political transition extended by two years following the inclusive and sovereign national dialogue (ISND) held August 24–October 8. - ISND outcomes: extended transition, dissolved Military Transitional Council, designated President Deby as Transition President, and scheduled referendums ahead of general and presidential elections now postponed to 2024. - Increased internally displaced persons and continued inflows of refugees; Text Figure 1 reports displacement trends through 2022 (UNHCR, as of August 2022). ### Fiscal developments and program performance - 2021 fiscal performance: - 2021 non-oil fiscal deficit substantially higher than targeted due to spending overruns. - Non-oil primary balance (NOPB) missed target by about 2.3 percentage points of non-oil GDP. - Contributing factors to NOPB miss: - One-off increase in investment in military equipment: 1.7 percent of non-oil GDP. - Higher civil and military wage bill: 0.6 percent of non-oil GDP. - Higher transfers and subsidies. - Overall public debt increased from 54.1 percent of GDP at end-2020 to 55.9 percent of GDP at end-2021. - Stock of domestic debt increased from 27.6 to 30.4 percent of GDP. - Domestic arrears clearance: 1.8 percent of non-oil GDP (vs. target 2.1 percent of non-oil GDP). - Part of the 2021 SDR allocation used to finance arrears, ONASA food stock rebuilding, 2021 pensions, and clear external debt technical arrears. - Program performance under the ECF: - Continuous QPCs on non-accumulation of new external arrears and non-contracting of new non-concessional external debt were met. - End-December 2021 and end-June 2022 QPC on the non-oil primary balance missed. - End-December 2021 QPC on the stock of domestic arrears missed. - Most indicative targets were missed. - Significant progress on structural reforms. - 2022 H1 performance: - NOPB broadly in line with mission discussions. - Non-oil revenue slightly higher than projected, driven by higher VAT receipts. - Oil revenue did not increase much in H1 2022 but preliminary Q3 indicated a strong rebound expected to be sustained. - Current spending higher than envisaged to address security, political transition, and food security needs (around CFAF 15 bill transferred to ONASA in 2022H1 out of CFAF 30 bill allocated). - Reimbursement of domestic arrears accelerated; authorities rolled over maturing T-bills and T-bonds at high interest rates. ### Debt treatment, multilateral engagement, and financing - Chad became the first country to achieve a debt treatment agreement under the G20 Common Framework (CF). - Debt treatment details and assurances: - G20 official CF creditors committed to: - Providing Chad with adequate protection against downside risks (e.g., significant decline in oil prices) by reconvening without delay if residual financing gaps reemerge and providing necessary debt relief consistent with IMF-WBG DSA and program parameters. - Contributing, in proportion to their debt service, to bring the debt service to revenue ratio below the 14 percent threshold in 2024 if the main private creditor’s contribution is insufficient. - The largest private creditor committed to: - Providing adequate protection against downside risks and reprofiling part of the debt service due in 2024 to ensure public debt sustainability with high probability (i.e., at moderate risk of debt distress) by end of the program. - The 2024 reprofiling agreement terms with the main private creditor are reflected in baseline projections. - Implementation risks: - Debt restructuring under G20 CF provides adequate protection against downside risks but carries implementation risks and potential delays; creditors would need to reconvene if downside risks materialize. ### Key policy measures and staff recommendations - Fiscal policy: - 2022 aims at substantial improvement in the non-oil primary balance while accommodating one-off costs related to the food security crisis. - Fiscal consolidation to continue in 2023 through measures to enhance non-oil revenue mobilization and streamline non-priority current spending. - Measures include containing the wage bill and streamlining non-priority expenditures such as fuel and electricity subsidies. - Additional oil revenue expected to help rebuild buffers, repay domestic arrears, and reduce domestic and external debt. - Structural reforms: - Continued implementation to enhance public financial management and fiscal transparency, improve governance, and strengthen the banking sector. - Regional policy assurances: - Chad’s program supported by implementation of policies and reforms by CEMAC regional institutions aimed at supporting an increase in regional net foreign assets. - Fund staff stance: - Staff supports completion of the first and second reviews, waivers of non-observance of three performance criteria, and modification of end-December 2022 performance criteria, based on envisaged policies, reforms, corrective actions, and regional policy assurances established in the June 2022 union-wide paper. ### Executive Board statement excerpts and staff view - Deputy Managing Director and Acting Chair Mr. Kenji Okamura noted: - Higher oil revenues improved government cashflow. - Pandemic remains a concern; poor 2021 crop, Russia’s war in Ukraine, and recent floods exacerbated food insecurity. - Political transition prolongation heightened social tensions; security remains volatile. - Quantitative program performance mixed; significant progress on structural reforms. - Debt treatment agreement under the G20 Common Framework provides adequate protection against downside risks and brings risk of debt distress to moderate by end of program as required under IMF exceptional access policies. - Continued reform efforts are needed to enhance growth, poverty reduction, and resilience. *International Monetary Fund staff report (Chad): First and Second Reviews under the Extended Credit Facility Arrangement; Executive Summary and selected sections (December 7, 2022).* ### 9. While commercial banks’ solvency indicators improved, and credit grew strongly in ### 9. While commercial banks’ solvency indicators improved, and credit grew strongly in 2021, liquidity and loan quality weakened while credit slowed down during the first quarter of 2022 (Text Table 2). ### Banking sector performance and credit developments - Credit to the private sector: - Increased by 17.1 percent in 2021 after stagnating in 2020. - Contracted slightly during the first five months of 2022. - Liquidity: - Weakened during early 2022 but remained adequate, with liquid assets equivalent to 102.1 percent of short-term liabilities at end-March. - Loan quality: - NPL ratio at 26 percent in 2021; deteriorated to 28.5 percent in 2022Q1. - Capital adequacy: - Banking sector overall CAR declined from 18 percent at end-2017 to 2.9 percent at end-2020, then recovered strongly to 9.4 percent at end-March 2022. - Recovery owed in part to COBAC’s request that banks do not distribute dividends. - Capitalization may be overstated judged by CAR alone, as COVID measures may have helped some banks reduce provisions. - Non-Covid NPLs are generally well-provisioned. - Supervisory changes and outlook: - Lifting in July 2022 of forbearance measures implemented by COBAC (especially on classification of NPLs and restructured loans) and resumption of regular onsite supervision by COBAC expected to provide a more accurate assessment of banks’ health. ### Public and large private banks - Two systemic public banks: - Continue to implement performance contracts. - End-June 2022 monitoring: performed relatively well on governance. - Need to strengthen prudential ratios and commercial practices through development of new products. - Government continued monthly debt repayments to the two public banks and repayment of domestic arrears to the private sector. - Partial recapitalization of one public bank in 2021 supported its capital position; further recapitalization would be needed. - Largest private sector bank: - Pursued restructuring started in 2021, including increasing its capital. - Adopted a recovery plan deemed credible by COBAC, expected to enable compliance with all prudential standards by end-2024. ### External arrears, debt renegotiation, and creditor treatment - Progress reported on external arrears and renegotiations: - Restructuring agreement with the Republic of Congo signed in February 2022 (including extension of maturities). - Debt restructuring agreement with Libya expected to be concluded in the coming weeks (per source text). - Restructuring of official debt with Equatorial Guinea is under discussion. - All debts (including outstanding arrears) with BDEAC reprofilied in December 2021, extending maturities by one year. - Authorities reported all remaining external arrears were cleared, and new arrears were paid within the six-week grace period. - Authorities met with Belgian authorities to discuss a disputed claim presented by a Belgian company and continue steps in consultation with legal counsel. - BEAC’s statutory advances to CEMAC member states restructured: - Original repayment: 10 years starting in 2022. - Restructured repayment: spread from 2025-2051. - BEAC-contingent treatment and creditor contingent debt treatment noted in program context. ### Program performance (quantitative and structural benchmarks) - Quantitative performance criteria (QPC) and indicative targets (IT): - Two continuous QPCs were met. - End-December 2021 and end-June 2022 QPC on the non-oil primary balance (NOPB) were missed. - End-December 2021 QPC on stock of domestic arrears was missed. - Misses attributed to: - Higher investment in military equipment (security deterioration). - Higher spending on civil and military wage bill. - Higher transfers to address food security. - Liquidity constraints given oil revenue increases only in the third quarter. - End-December indicative targets on domestic financing and the wage bill were missed due to expenditure pressures. - End-June ITs on social spending and tax revenue were met. - End-June ITs on net domestic financing and wages and salaries were not met (higher military wage bill and food security spending). - Structural benchmarks (SBs): - Three SBs met: - Quarterly oil sector notes published for December 2021, March 2022, and June 2022 in line with template. - End-January SB on publication of semi-annual note on list of new tax exemptions met: authorities reported no new exemption granted, renewed, or extended during second half of 2021; list of extension of tax exemptions for 2022 published on July 27, 2022. - June 2022 SB on adoption of the PFM reform strategy met: strategy adopted on June 28. - Two SBs implemented with delays: - Ex-post compliance audit of COVID-19 expenses (end-December 2021 SB) implemented on June 3, 2022. - Allocation of 15 percent of VAT revenue to VAT escrow account at BEAC (end-February 2022 SB) started on June 22, 2022 after decree of March 24, 2022. - Three other SBs being implemented: - Publication of full text of central government procurement contracts including beneficial owners (end-March SB) could not be fully implemented because government currently does not collect beneficial owner information; decree adopted (prior action) to allow collection and periodic publication; publication to start in 2023 (end-July 2023 SB). - Implementation of employment ceilings per 2014 organic law postponed to end-December-2022 due to budget preparation timeline. - ASYCUDA exemption module deployment: deployed in three customs offices in early November 2022; expected fully operational by end-March 2023 after 2-3 more months of deployment in main offices. ### PRGT exceptional access criteria assessment - Criterion 1: - Chad is a fragile country with enormous development needs, low buffers, and exposure to major external shocks (including war in Ukraine spillovers and potential reversal of oil price increases). - Chad experiences an exceptionally large balance of payments financing need that cannot be met within normal limits given outstanding cumulative credit to the Fund. - Criterion 2: - Agreed debt restructuring envelope, other expected restructuring agreements with non-Paris Club/non-G20 bilateral creditors, proposed fiscal adjustment of 4.7 percent of non-oil GDP in 2022-24, and structural reforms projected to reduce risk of debt distress to moderate within program period. - Criterion 3: - Chad has per capita GDP below prevailing operational cutoff for assistance from IDA. - Criterion 4: - Staff assesses the program provides a reasonably strong prospect of success because of: - Authorities’ commitment to the program. - Updated policy assurances provided by BEAC. - Contingent debt treatment agreed by creditors, consistent with program parameters. - Program support by extensive TA to build capacity in Chadian administration. ### Medium-term macroeconomic outlook and risks - 2022 outlook: - Economic activity expected to grow by 2½ percent in 2022 after contracting in 2020 and 2021, driven by recovery in oil and non-oil production (mainly primary sector). (MEFP, ¶20) - Average inflation expected to rise to 5.3 percent in 2022 due to poor 2021 crop, impact of war in Ukraine, recent floods, and refugee influx. - Medium-term projections: - Oil production contracted about 11 percent in 2020–21; expected to bounce back in 2022–23 as one-off factors are not expected to recur and two new oil operators expected to reopen some fields. - Non-oil GDP growth expected to increase to 3.1 percent in 2023 and 4.1 percent in 2024. - Inflation projected to revert to the BEAC ceiling of 3 percent from 2024 onwards. - Current account and external position: - CAB expected to improve to 2.7 percent of GDP in 2022 from -4.5 percent in 2021, driven mainly by trade balance increase from 11.6 to 24.5 percent of GDP; stronger trade balance partially offset by increase in external debt service to private creditors. - Over medium term, current account expected to gradually worsen as oil prices decline. - External position remains vulnerable to oil prices and donor financing support. - Chad’s current account position improved from a 9.3 percent of GDP deficit in 2020 to a surplus in 2022 but expected to return to deficits of around 5.5 percent of GDP in the medium term. - Structural constraints and policy implications: - As a member of CEMAC currency union, monetary and exchange rate policy not available; fiscal policy should focus on building resilience via consolidation while protecting the vulnerable. - Structural reforms to improve competitiveness, business climate, governance, and banking system can significantly impact local businesses’ ability to compete. ### Fiscal policy stance and targets - Medium-term fiscal anchor: - Objective to bring NOPB down to about 5 percent of non-oil GDP by end of program period. (MEFP, ¶22) - 2024 NOPB projection revised downward from -4.1 to -5.3 percent of non-oil GDP, still entailing substantial adjustment of 4¾ percent of non-oil GDP compared to 2021 outcome. - Adjustment relies on improving non-oil revenue mobilization and containing non-priority current spending. - 2022 fiscal policy: - NOPB expected to improve by 2.5 percentage points of non-oil GDP to -7.5 percent, reflecting increase in non-oil revenue (VAT improvement) and containment of expenditures. - NOPB lower than envisaged at time of ECF request by about 1.6 percentage points due mainly to: - One-off expenditures for national response plan to ensure food security: 0.5 percent of non-oil GDP. - Accounting revaluation of in-kind transfers to energy sector: 0.6 percent of non-oil GDP. - Higher wage bill: 1.2 percent of non-oil GDP (realignment of military wages with minimum wage adopted by departing National Assembly in September 2021). - Goods and services and domestically financed investments expected to drop as non-priority expenditures are streamlined. - Domestically financed investment drop in 2022 offsets one-off increase in military investments during 2021 and brings such investment to a more sustainable path, complemented by strong rebound in externally financed investment. - A stronger adjustment in 2022 would not be advisable given persistent security and social tensions and deteriorating food insecurity situation. - Improvement in NOPB and higher oil revenue expected to contribute to substantial improvement in overall fiscal balance, from -2.4 to +6.3 percent of non-oil GDP. *Source: IMF staff report text as provided.* ### 21. The authorities will pursue their fiscal consolidation efforts in 2023, with a continued ### 21. The authorities will pursue their fiscal consolidation efforts in 2023, with a continued emphasis on strengthening non-oil revenue and prioritizing spending. ### Fiscal consolidation and revenue-enhancing reforms - Revenue-enhancing reforms will focus on addressing weaknesses in tax and customs administration through: - (i) improved VAT management, including streamlining tax exemptions and establishing a proper VAT refund mechanism; - (ii) modernization and strengthened collaboration between Customs and VAT administration, including greater use of information technology (IT) to achieve digitalization of tax filing and revenue collection through the banking system and mobile money; - (iii) better tax audits through strengthened collaboration between tax and customs administrations. - The draft budget law for 2023 will aim at efficiently streamlining non-priority current spending to create more space for social spending and investment. - The authorities will implement the recommendations of the Fund TA mission to contain the wage bill (see ¶28). - The authorities will strengthen budget implementation by ensuring that the use of emergency spending procedures is limited to actual emergency spending. - Compared to 2022 and taking into account about 0.4 percent of non-oil GDP is one-off spending to prepare the elections: - the NOPB is projected to improve by 0.7 percentage points of non-oil GDP; - the overall balance is projected to improve by 2.5 percentage points of non-oil GDP, backed by higher oil revenue. ### Use of higher oil revenue, buffers, and debt repayment - Given substantial downside risks, higher oil revenue should be used to build buffers and accelerate the payment of debt (MEFP, ¶23). - Take advantage of current high oil prices to build cash reserves in case downside risks materialize. - Higher oil prices would result in accelerated repayments to Glencore. - Higher net oil revenue will allow for a quicker reduction of the stock of T-bills and payment of domestic arrears. - If oil revenue remains high, discuss at the time of the third review: additional deposit accumulation at BEAC, additional accelerated repayment of domestic arrears, and additional high-priority spending over the medium term. ### Clearance of domestic arrears - Clearance of domestic arrears will contribute to strengthening the banking sector and the economic recovery (MEFP, ¶56). - The authorities aim to reduce the stock of domestic arrears by CFAF 95 billion in 2022, and gradually repay the remaining stock throughout the program period. - Since the 2019 audit estimated domestic arrears at CFAF 515 billion, other domestic arrears appear to have continued to arise in 2020 and 2021 and will need to be monitored closely. - Clearance of domestic arrears will help the private sector to pay their debt obligations to banks, improving liquidity and ability to lend. - It is noted that the new end-2022 NOPB projection (CFAF -415 billion) is in line with the ECF request once adjusted for oil revenue and grants as provided in the TMU (CFAF -4 13 billion). ### Public debt management and restructuring - Debt management reforms aim at lifting Chad’s debt carrying capacity (MEFP, ¶30). - Debt management weaknesses include low capacity, low resources, and poor coordination among entities intervening in debt contracting, management, and monitoring. - The authorities are committed to continue implementing IMF TA recommendations and augmenting resources allocated to debt management. - BEAC actions to avoid recurrence of delays in external debt service payments include: - (i) providing more flexibility in meeting the FOREX requirements on payments related to multilateral loans; - (ii) finding ways to accelerate payments for other loans. - Coordination and information exchange between national debt management divisions and BEAC have been strengthened by holding monthly debt meetings. - IMF TA over the next 24 months will aim at improving capacity in medium-term debt management strategies, establishing an investor relations program, improving planning and execution of government securities issuances, and improving debt recording, monitoring, and reporting processes. ### Fiscal structural reforms and governance: non-oil revenue mobilization - Non-oil revenue amounted to 9.6 percent of non-oil GDP in 2021, one of the lowest levels in the CEMAC region. - The government is committed to increase this ratio by about 1 percentage point by 2024 through tax administration reforms, including: - (i) enhancing transparency in tax exemptions; - (ii) modernizing VAT collection through greater use of IT and supporting e-filing and payment via banks and mobile phones; - (iii) increasing the number of active taxpayers through strengthened collaboration between tax and customs administrations. ### Tax exemptions and VAT management - Authorities committed to provide a comprehensive review of existent exemptions and publish a list of tax exemptions arising from special tax regimes (including investment codes, the mining code, and ad hoc agreements), comprising the companies’ name and the type and duration of each exemption (end-December 2022 SB). - Continue publishing semi-annually a note listing all new tax exemptions (including renewals and extensions of existing exemptions). - Authorities will evaluate the evolution of VAT receipts over the last three years and conduct an administrative audit of VAT declarations of companies listed in 2022 that are responsible for VAT withholding (end-December 2023 SB). - Recently established VAT refund mechanism and launch of the e-registration platform for taxpayers. - VAT revenue amounts to less than 2 percent of GDP in Chad, compared with a potential of more than 4 percent of GDP. - Authorities aim to increase the number of active taxpayers by 20 percent in 2022. - Relocation of the tax administration to a permanent building equipped with a modern IT system is expected by end-2022; facilitate electronic submission of tax returns for large taxpayers (end-January 2023 SB). - Modernization of IT systems will allow integration of tax administration into IFMIS and strengthen information exchange with customs. - Government will introduce and implement mobile phone tax payment for small taxpayers by end-December 2022. ### Wage bill containment and public wage reforms - Wage bill remains high; reducing it by 1 percentage point of non-oil GDP over the program period will require strong efforts. - Near-term measures: - (i) maintain the value of the index point (point d’indice) at its current level and refrain from discretionary increase in pay scales, allowances and the AGS (Augmentation Générale Spécifique) salary uprating and other components of overall compensation; - (ii) implement job ceilings by ministry and institution, and strengthen coordination between human resources and payroll departments through installing a civil service and payroll steering committee and a mechanism to exchange information regularly (end-January 2023 SB). - Medium-term measures: - (i) adopt a regulation to establish a consultation framework co-chaired by the ministers in charge of the Civil Service and Finance to draw up medium-term staffing plans and calibrate intake to training schools (end-August 2023 SB); - (ii) consider extension of the required tenure for promotion from 2 years to 3 years by revising the relevant law; - (iii) continue to strengthen human resource management and remove ghost workers (and ensure they are not rehired) by fully utilizing IFMIS. ### Public financial management (PFM) reforms and emergency spending procedures - Minister of Finance issued a circular in June reminding line ministries that DAOs should be limited to emergency spending; monthly meetings to speed up regularization. - Adopt a Decree in January 2023 to establish principles on use of DAO, including limiting DAO to certain spending categories and maximum regularization time period and monitoring/reporting requirements. - Issue an executive order to establish a ceiling on the use of DAO, equivalent to 18 percent of total primary spending in 2023, consistent with the new indicative target under the program (see ¶38). - Government—with IMF technical assistance—finalized and adopted in June its PFM Reform Strategy for 2022-27 (end-June 2022 SB), prioritizing computerization and decentralization of government procedures. - IMF resident advisor placed to support implementation of the PFM Reform Strategy. - Authorities will focus on strengthening cooperation between revenue agencies to improve tax compliance and modernizing public procurement. - Following PIMA recommendations, authorities will develop and consolidate a three-year public investment program (end-June 2023 SB). - Adopt strategy and timetable for progressive consolidation to a treasury single account (TSA) (end-September 2023 SB). - Over the medium term, aims include: - complete implementation of IFMIS; - improve budget preparation and execution, including introducing medium-term program budgeting with a pilot starting in 2023, and rationalizing transfers and subsidies; - enhance budget execution and controls by decentralizing payment orders and financial control to line ministries; - rationalize institutional and technical framework of cash management by 2023; - strengthen debt management. ### Repayment and auditing of domestic arrears - Authorities will cease repayment of unaudited domestic arrears and audit the remaining ones. - CFAF 14 billion repaid during the first half of 2022 mostly predated 2015 but had not been reported by line ministers when the June 2019 audit was conducted. - Authorities will strictly limit use of derogatory procedures for expenditure, sanction responsible ministries/authorizing officers, adopt quarterly engagement plans aligned with public procurement plans, and strengthen the role of Financial Controller. - Prioritize repayment of audited arrears and require line ministries to report any unaudited arrears immediately and include them in total arrears after verification. ### Financial sector and monetary policies - Continue implementing reform strategy to strengthen the banking sector and support economic recovery (MEFP, ¶56–57). - Progress on repayment of domestic arrears and continued monthly repayment of direct debt to one large systemic bank will help improve banking sector liquidity and free up banks’ resources to finance domestic activities. - Two public systemic banks will continue implementing restructuring and financing plans in their performance contracts. - COBAC’s unwinding of COVID-19-related special regulatory measures in July 2022 may further expose weaknesses in banks’ prudential ratios; government should closely monitor and public banks should update strategies to deal with high NPLs and provision adequately. - A review of regional policy assurances was conducted during a mission to CEMAC institutions in November 2022 and set forth in the December 2022 union-wide background paper. - Policy assurance on regional NFA at end June 2022 was met. - BEAC maintained an appropriate monetary policy and liquidity stance, hiking its policy rate and tightening liquidity management. - Adaptation of FX regulation to the extractive sector came into effect in January 2022; BEAC is not yet enforcing sanctions for non-compliance pending resolution of technical difficulties raised by the sector. - BEAC to finalize adaptations to the extractive sector and continue discussions to finalize implementation of the framework for repatriation of rehabilitation funds. - COBAC normalized prudential regulations, ending temporary forbearance and increasing the capital conservation buffer by 50 basis points to 2.5 percent. - To contain risks associated with crypto assets in CEMAC, BEAC will lead an approach in collaboration with GABAC, COBAC, COSUMAF. - Regional assurances on NFA are critical for success of Fund-supported programs and to bolster external sustainability and resilience. ### Anti-corruption and other structural reforms - Governance and anti-corruption reforms need acceleration and strengthened implementation (MEFP, ¶52–55). - End-December 2021 SB on publication of a quarterly note on the oil sector was met; ex-post compliance audit of COVID-19 expenses published in June 2022. - Authorities will adopt a decree (prior action) allowing government to collect beneficial ownership information of legal persons bidding on central government procurement contracts and publish online full text of central government procurement contracts with names and nationalities of beneficial owners of awarded legal persons. - Authorities will conduct a forensic audit by an international auditing firm on oil revenue collected by the Treasury, including through the Societé des Hydrocarbures du Tchad (SHT), to identify corporate governance loopholes and publish the report (end-June 2023 SB). - Authorities intend to engage with IMF staff to design an asset declaration regime in line with international good practices, including in the context of upcoming constitutional reforms. ### Electricity sector transfers and transparency - Access to electricity was less than 11 percent of population in 2020; electricity tariffs significantly below cost of supply. - SNE receives in-kind transfers via the national refinery (SRN), reflected in the budget since 2020. - In the medium term, in-kind diesel transfers for electricity generation will be replaced by monetary transfers made in the context of a performance contract. - Authorities are implementing increased transparency on value of subsidies provided to the electricity sector, distinguishing subsidies provided from effective payments for public sector electricity consumption, aiming to phase out subsidies with appropriate transfers to households to mitigate impact on vulnerable ones. - Implementation will be supported by IMF and World Bank TA to improve data collection and reporting. ### National Development Plan (NDP) update - Authorities launched elaboration of 2022-2026 NDP in March 2022; completion delayed by pandemic, insecurity, climate-related shocks, and need to organize inclusive and sovereign national dialogue (ISND). - NDP will be finalized by the time of the third review next year and will align with the 2030 vision “the Chad we want”. - NDP aims: - (i) sustain stability of the economy; - (ii) improve access to basic goods and social services, including water, health, education, and energy; - (iii) build a strong economy while protecting the environment. - New NDP will emphasize development of a dynamic private sector. ### Program design and modalities; financing and conditionality - Program is fully financed with firm commitments for the next twelve months and good prospects thereafter (Text Table 3). - Budget support commitments are earmarked by the African Development Bank (AfDB), France, the EU and the World Bank. - Budget support is forecasted to be below its pre-pandemic average over the medium term. - Consistent with Fund policy on arrears to official bilateral creditors, arrears to Libya are deemed away; significant progress in finalizing a debt restructuring agreement with Libya. - Government requests waivers for missed end-December 2021 QPC on the NOPB and end-June 2022 QPCs on the NOPB and the stock of domestic arrears (MEFP, ¶18) and for modification of the end-December 2022 QPCs. - Corrective measures to strengthen budget procedures include: - (i) preparing and communicating to line ministries quarterly expenditure ceilings; - (ii) applying appropriate sanctions against circumventing the expenditure execution chain; - (iii) limiting the use of emergency expenditure procedures (DAO) and accelerating their regularization; - (iv) auditing unaudited domestic liabilities to prioritize repayment of validated arrears. - New indicative targets on emergency spending procedures and their regularization and conversion of the indicative target on net domestic financing to a QPC will help strengthen monitoring. - Modification of end-December 2022 QPCs was necessary to align them with the updated macroeconomic framework. *International Monetary Fund — Chapter content as provided in the source PDF.* ### 38. The program will continue to be monitored through semi–annual reviews based on ### 1tcdea2023001 - 38. The program will continue to be monitored through semi–annual reviews based on ### Monitoring, conditionality, and program design - The program will continue to be monitored through semi–annual reviews based on quantitative performance criteria, indicative targets, and structural benchmarks (MEFP, ¶59). - Quantitative performance criteria and indicative targets for end-2022 have been adjusted to reflect the updated macroeconomic framework, while new targets have been set for 2023. - The definition of the quantitative performance criterion related to the NOPB has been adjusted starting December 2022 to exclude in-kind transfers to SNE so as to avoid any ambiguity on their valorization. - Starting with the third review, quantitative conditionality will include two additional indicative targets related to emergency spending procedures (DAOs): (i) a ceiling on their use; and (ii) a floor on their regularization. ### Safeguards and Fund exposure - A fiscal safeguards’ review has started and will be conducted by the time of the third review. - Under Fund safeguards policy, such a review is necessary because: (i) 100 percent of Fund’s resources are expected be directed to budget support; and (ii) the cumulative normal access level maximum of 435 percent of quota is breached in the course of the arrangement. ### Risks and mitigation - Program risks remain elevated, including: - possible resurgence of the pandemic, - a decline in oil prices, - a protracted war in Ukraine, - further delays in the political transition leading to deterioration of the security situation and social tensions, - possible spending overruns or delays in reform implementation ahead of the elections, - delays in the implementation of debt treatment, and - shortfalls in donor financing. - Mitigating factors include policies under the program (including accumulation of liquidity buffers) and close engagement with the authorities, donors, and creditors. ### Capacity to repay the Fund and debt treatment - Chad’s capacity to repay the Fund is subject to risks and is expected to remain adequate, conditional on successful implementation of program conditionality, including implementation of the agreed debt treatment, and mitigation of downside risks (Table 7). - Key numerical projections and indicators: - Chad’s Fund credit outstanding peaks at 504 percent of quota and 7.5 percent of GDP. - Total obligations based on existing and prospective credit will peak at 0.8 percent of GDP and 2.5 percent of exports of goods and services in 2027. - 69 percent of Fund-related debt service is due between 2026 and 2032. - Chad’s debt service projections will be improved by implementation of the debt treatment by official and private creditors under the G20 Common Framework. - Chad’s repayment capacity has been enhanced by the increase in oil revenue stemming from elevated global oil prices and by the debt treatment provided by official and private creditors under the G20 CF. - Because Chad shares BEAC regional reserves, its capacity to repay the Fund is also affected by other CEMAC countries’ capacity to repay the Fund. ### Safeguards assessment of BEAC - The 2022 safeguards assessment update of BEAC was concluded in April 2022. - BEAC has maintained strong governance arrangements following legal reforms in 2017 and completed its multi-year initiative in 2019 to transition to International Financial Reporting Standards. - External audit arrangements continue to be robust. - BEAC should continue to strengthen its risk management and resilience framework. ### Staff appraisal: conditions, priorities, and recommendations - Key contextual challenges: - Covid-19 remains a concern with a low but improving vaccination rate. - Last year’s poor crop, the war in Ukraine and recent floods have exacerbated food insecurity. - Prolongation of the political transition has heightened social tensions and security remains volatile. - Delays in debt treatment and concessional financing in 2021 forced the government to rely heavily on expensive domestic borrowing and left limited cash reserves at end-2021. - Authorities’ stance: - The authorities reiterated their commitment to the ECF program. - Mixed program performance reflected external challenges and weaknesses in spending procedures and delays in reform implementation. - Fiscal and policy recommendations: - Take advantage of the sharp increase in oil prices to address pressing challenges while rebuilding buffers. - With donors’ help, address the food security crisis, including by providing support to the most vulnerable and using part of the SDR allocation to rebuild ONASA’s cereal stock. - Fiscal policy should be prudent and remain anchored by the objective of significantly reducing the NOPB over the medium term. - Use higher oil revenue to build cash buffers and reduce reliance on expensive domestic bank financing. - If oil prices remain elevated, consider greater repayment of domestic arrears and additional high-priority spending at the time of the third review. - Revenue, expenditure, and public enterprises: - Step up efforts to strengthen domestic revenue mobilization, contain the wage bill, and streamline non-priority expenditures, including fuel and electricity subsidies. - Implement recommendations of the recent Fund TA mission to ensure the wage bill-to-non-oil GDP ratio declines significantly over the next two years. - With World Bank and Fund technical assistance, improve the financial viability of SNE: increase operational and commercial performance, reduce reliance on fuel-fired power plants, increase access to electricity, and gradually adjust tariffs. - Public financial management and governance: - Contain elevated use of DAOs that contributed to 2021 and early-2022 spending overruns. - Prompt implementation of IFMS and decentralization of payment orders and financial control to line ministries are important. - Accelerate well-designed and sequenced governance and anti-corruption reforms to reduce misuse of resources and increase transparency and accountability. - Finalize the NDP to articulate an exhaustive strategy to promote sustained inclusive growth and poverty reduction with an increased focus on private sector development, governance, business climate, banking sector strengthening, and digitalization. - Debt treatment and creditor relations: - Staff welcome creditors’ agreement on a debt treatment that will, as required under the Fund’s exceptional access policies, make debt sustainable with high probability and a moderate risk of debt distress by the end of the program. - The agreement will help external debt service-to-revenue decline to sustainable levels in 2024 and beyond and provide protection during the program period against downside risks, such as a significant decline in oil prices. - Staff welcome progress in restructuring debt with non-G20 bilateral creditors and encourage continued good faith efforts to resolve outstanding external arrears. ### Program risks reiterated - Risks that could materially affect program outcomes include: - Further delays in implementing the political transition roadmap, exacerbating social and/or security tensions. - Higher oil revenue testing authorities’ ability to implement reforms ahead of elections. - A poor crop season and/or higher spillovers from the war in Ukraine and recent floods heightening food insecurity and social tensions. - On the upside, a successful inclusive national dialogue could ease security and social tensions. ### Board and review recommendations - Based on the strength of the authorities’ program and regional policy assurances established in the June 2022 union-wide paper, staff supports completion of the first and second reviews under the ECF arrangement. - Staff supports waivers of nonobservance of one end-December 2021 and two end-June 2022 QPCs and the proposed modification of the end-December 2022 QPCs. - Staff proposes that completion of the third review under the ECF arrangement be conditional on the implementation of critical policy assurances at the union level established in the December 2022 union-wide background paper. *Source: IMF staff report text provided in the content unit.* ### Annex I. Food Security S ituation in Chad ### Annex I. Food Security Situation in Chad ### Climate impacts on production and pastoral systems - Rainfall in 2021 was unevenly distributed over time and across Chad and stopped at a time when crops needed it most. - Cereal production during the 2021/22 crop year is estimated at 2,620 tons, 9.2 percent lower than the average of the previous five years. - Western Sahel provinces (Kanem, Bahr El Ghazel, Lake Chad and Hadjer Lamis) recorded a drop in production of 21.7 percent compared with their five-year average. - The drought reduced availability of pasture for livestock and led to an early drying up of water in ponds, resulting in early transhumant migrations that aggravated farmer-herder conflicts. - Note: According to the National Meteorological Agency, the rainfall trends over 1987-2021 in many provinces have been declining. Chad has been assessed as the most vulnerable country in the world to the climate-related shocks, based on the Notre Dame Global Adaptation Initiative (ND-GAIN) Country Index 2021. ### Food availability, prices, and nutritional outcomes - The Ministry of Agriculture estimates a net cereal deficit of 308,960 tons, based on the 2021/22 crop and net imports. - The Sahel-based Harmonized Framework (CILSS) estimates the apparent food availability at 141 kg/person/year, or 11.3 percent below the official consumption standard of 159 kg/person/year. - The nutritional situation is rated as “crisis” or “emergency” in most provinces located in the Sahelian and Saharan zones. - Based on the December 2021 Cadre Harmonisé (CH) report on the situation in 2021Q4, an estimated 970,000 Chadians were acutely food insecure in Phase 3 (crisis) and Phase 4 (emergency). - Since the last quarter of 2021, cereal prices have been rising, aggravating poverty caused by the COVID-19 pandemic. ### External shocks: war in Ukraine and 2022 floods - The war in Ukraine contributed to significant price increases for imported cereals, fertilizers, and other agricultural inputs, as well as imported fuel, increasing transportation costs for landlocked Chad. - UN agencies experienced rising operational costs due to higher food prices and energy prices, constraining their response capacity. - Chad experienced massive floods in July-October 2022, destroying crops and livelihoods and increasing food assistance needs. - WFP estimated in March 2022 that in the short term its operational costs will increase by US$29 million per month globally due to the combined effect of food and fuel price hikes. - WFP had already reduced emergency rations for internally displaced people and refugees by 50 percent since June 2021 in Chad because of low funding levels. - Following the onset of floods in 2022, WFP reprioritized some flexible funds originally allocated to other crisis response activities but additional financial resources were urgently needed. ### Government response and international assistance - The Government adopted a National Response Plan (NRP) to deal with food and nutritional insecurity. - The population in acute food and nutritional insecurity reached 2.1 million people during the lean season (June-August), with 1.3 million children suffering from acute malnutrition. - 3.6 million people would be classified as “under pressure” and require support to improve their resilience and strengthen their livelihoods. - The 2022 floods pushed an additional 292,585 people under the pressure of food insecurity (Ministry of Public Health and National Solidarity, August 18, 2022). - On June 1, 2022, President Mahamat Idriss Deby signed a decree declaring a national emergency on food and nutrition insecurity, calling for humanitarian assistance as identified in the NRP. - The total cost of interventions under the NRP could amount to CFAF 132 billion, including CFAF 57 billion to address food insecurity, expected to be covered with support from the international community. - The Government committed to use CFAF 36 billion of the SDR allocation to help ONASA rebuild its stocks and used part (CFAF 8.1 billion) of the SDR allocation to help rebuild the food stock maintained by ONASA. Key government and partner interventions (listed) - National Food Security Office (ONASA): 15,815 tons of cereals in stores (storage capacity of 40,000 tons; 100,000 tons recommended by CILSS). Interventions include free food distribution and food sales at subsidized prices. France supported ONASA with €5 million for food acquisition under its 2022 budget support and with €1.5 million to improve efficiency of operations. - UN agencies (WFP and FAO): Assistance under the Humanitarian Response Plan for 2022 targeting some 4 million in need, including 1 million refugees and IDPs. FAO expected to receive financing of €44 million from the EU for development projects in Kanem and Bahr El Ghazel. WFP expected to receive €40 million from ECHO. UN released US$8 million for Chad from its Central Emergency Response Fund (CERF). - World Bank: On May 4, Chad requested activation of Contingent Emergency Response Components (CERCs) in the amount of US$50 million as rapid relief; this was disbursed in August 2022. On October 17, Chad and the World Bank signed an agreement for a US$105mill grant as part of the second phase of the West Africa Food Systems Resilience Program (FSRP2). - African Development Bank (AfDB): On July 15 approved a grant of around US$4 million from its Transition Support Facility for the Agricultural Sector Support and Food Crisis Response Project. - International humanitarian NGOs (e.g., OXFAM and ACF): Provide food assistance, fertilizers and other agricultural inputs and tools. - Islamic Development Bank: On September 25 signed an agreement to provide US$0.15million for emergency food assistance to refugees in the East of the country. - United Arab Emirates: Provided food assistance in the context of recent floods. ### Fiscal and policy measures taken by authorities - Export ban on cereals and exemption of imported basic necessities from customs duties and taxes as exceptional measures. - Use of emergency spending procedures increased because of emergencies and contingencies; regularization rate lower than targeted. - Authorities are working with the IMF and other partners to strengthen food assistance for the vulnerable so that export restrictions can eventually be lifted. - The government requested IMF support (completion of reviews and disbursements) and has taken corrective actions to control expenditures after missing some NOPB and domestic arrears QPCs due to higher spending responding to security, social, and food security tensions. ### Key statistics and figures (preserved as in source) - 2,620 tons (cereal production in 2021/22 crop year). - 9.2 percent (lower than five-year average). - 21.7 percent (drop in production in Western Sahel provinces vs five-year average). - 308,960 tons (net cereal deficit, Ministry of Agriculture). - 141 kg/person/year (apparent food availability, CILSS). - 11.3 percent (below official consumption standard of 159 kg/person/year). - 159 kg/person/year (official consumption standard). - 970,000 (estimated acutely food insecure in Phase 3 and Phase 4, CH report, 2021Q4). - 2.1 million (people in acute food and nutritional insecurity during the lean season, June-August). - 1.3 million (children suffering from acute malnutrition). - 3.6 million (people “under pressure” requiring support). - 292,585 (additional people pushed under pressure by 2022 floods). - CFAF 132 billion (total cost of interventions under the NRP). - CFAF 57 billion (to address food insecurity within the NRP). - 15,815 tons (ONASA cereals in stores). - 40,000 tons (ONASA storage capacity). - 100,000 tons (storage recommended by CILSS). - CFAF 36 billion (government committed from the SDR allocation to help ONASA rebuild stocks). - €5 million (France support to ONASA for food acquisition). - €1.5 million (France support to improve ONASA efficiency). - €44 million (EU financing expected for FAO projects in Kanem and Bahr El Ghazel). - €40 million (ECHO expected support to WFP). - US$8 million (UN CERF release for Chad). - US$50 million (CERCs requested from the World Bank; disbursed in August 2022). - US$105mill (World Bank grant under FSRP2). - Around US$4 million (AfDB grant). - US$0.15million (Islamic Development Bank emergency assistance). - US$29 million per month (WFP estimated global short-term operational cost increase due to combined food and fuel price hikes). - 50 percent (reduction in emergency rations for IDPs and refugees by WFP since June 2021). - CFAF 8.1 billion (part of SDR allocation used to help rebuild ONASA food stock). *Prepared by Ljubica Dordevic and Joseph Ntamatungiro.* ### 7. While the COVID-19 pandemic has been contained, we intend to intensify our efforts ### 7. While the COVID-19 pandemic has been contained, we intend to intensify our efforts ### COVID-19 situation and vaccination - The number of COVID-19 cases has remained low by regional standards; the Omicron-linked upsurge in January 2022 subsided considerably since February. - Vaccination rollout initially slow: 0.8 percent of the population fully vaccinated at end-February 2022. - With support from WHO, the World Bank and other donors, a strengthened communication strategy and a massive vaccination campaign since March 24 led to 21 percent of the adult population fully vaccinated as of August 25. ### Recent macroeconomic developments - Growth and sectors - Growth was lower than projected in 2021, reflecting lower oil production and subdued non-oil sector activity due to pandemic scarring, adverse weather, and reduced official financing. - Oil production in 2021 was lower than estimated due to production interruptions at the second largest major oil company. - Inflation and food prices - Average inflation in 2021: -0.8 percent. - Food inflation increased to 14.4 percent y-o-y by August 2022, subsiding to 12.3 percent in September, driven by poor crop year and the war in Ukraine. - Fiscal revenues and expenditure (2021) - Oil revenue higher than projected despite lower production, thanks to higher oil prices. - Non-oil revenue mobilization exceeded targets due to good VAT performance. - Domestic investment exceeded projections mainly for renewal/reconstitution of military equipment. - Social spending fell short of projections owing to financing constraints. - Primary current spending slightly higher than projected due to a strong increase in the wage bill. - SDR allocation uses included: (i) clearing domestic arrears CFAF 22 billion; (ii) paying retirees 2021 pensions CFAF 12 billion; (iii) clearing external debt technical arrears CFAF 15 billion. - Fiscal developments (first half 2022) - Oil revenue significantly higher than projected under the ECF request due to surge in oil prices. - Non-oil revenue also higher, reflecting strong VAT receipts. - Spending higher than targeted to respond to security, social, and food security tensions; wage bill increased by realignment of military wages with minimum wage. - Domestically financed investment fell short due to financing constraints. - Higher spending only partly offset by higher non-oil revenue → lower non-oil primary balance and higher domestic financing. - External creditor relations and debt treatment - Technical arrears at end-2021 cleared in early 2022; external debt obligations paid timely. - Restructuring agreements finalized with several creditors, including BDEAC (end-December 2021) and the Republic of Congo (February 2022); discussions with Libya and Equatorial Guinea ongoing. - Signed MOU on debt restructuring with G-20 and Paris Club official creditors and an agreement in principle with the largest private creditor under the G20 Common Framework. - Debt treatment aims to bring external debt service-to-revenue ratio under 14 percent in 2024 and maintained below 12.3 percent on average over the medium term. - Domestic debt markets and securities - Exit of automatic reimbursement mechanism in February 2021 allowed access to CEMAC securities market; mobilized CFAF 145 billion under BEAC’s repurchase facility (July 2020–September 2021). - Share of longer-term securities (OTAs) in debt portfolio: 12 percent in March 2021; 28 percent in December 2021; 76 percent in October 2022. - Banking sector - Gross credit and deposits increased by 18.4 percent and 13.7 percent, respectively, in 2021. - Deposits grew +7.8 percent in first five months of 2022; credit to the private sector stalled (-0.7 percent) due largely to high provisioning needs. - Share of distressed loans: 26.3 percent at end-December 2021 (down from 27.9 percent at end-September 2021). - Banking sector capitalization reached 9.4 percent in March 2022 (above minimum requirement), but several banks, including two large public banks, need to strengthen capital positions. - Liquidity ratio: 102 percent at end-March 2022. - BEAC refinancing: CFAF 144.4 billion by May 2022. - Treasury monthly repayments of direct debt to BCC (CFAF 250 million) and CBT (CFAF 500 million); obligations to CBT exhausted in 2021; expected to exhaust BCC by August 2023. - Partial recapitalizations in 2021: CBT CFAF 4.5 billion, BHT CFAF 2.6 billion, BAC CFAF 2.9 billion. ### Program implementation (performance vs. targets) - Continuous ceilings met - Zero ceiling on new external arrears for government and non-financial public enterprises: met. - Zero ceiling on contracting or guaranteeing new non-concessional external debt: met. - End-December 2021 performance (QPCs and indicative targets) - QPC on non-oil primary balance (NOPB): missed — CFAF -526 billion vs adjusted target of -440 billion. - Indicative targets missed/met: - Net government domestic financing: missed — CFAF 306 billion vs adjusted target of CFAF -14 billion. - Poverty-reducing social spending: missed — CFAF 265 billion vs target CFAF 284 billion. - Wages and salaries: missed — CFAF 459 billion vs target CFAF 425 billion. - Government tax revenue excluding oil: met — CFAF 482 billion vs target CFAF 477 billion. - Stock of domestic payment arrears: not met — reduced to CFAF 393 billion vs adjusted target CFAF 363 billion. - End-June 2022 performance - QPC on NOPB: missed — CFAF -239 billion vs adjusted target of -209 billion. - QPC on stock of domestic arrears: missed — CFAF 335 billion vs adjusted ceiling CFAF 328 billion. - Indicative targets: - Net government domestic financing: missed — CFAF 41 billion vs adjusted target CFAF -114 billion. - Poverty-reducing social spending: met — CFAF 161 billion vs target CFAF 151 billion. - Wages and salaries: not met — CFAF 254 billion vs target CFAF 219 billion. - Government tax revenue excluding oil: met — CFAF 290 billion vs target CFAF 253 billion. - End-June 2022 performance broadly in line with revised end-June 2022 targets discussed with IMF staff during March mission due to delays from absence of agreement on debt treatment; government confident to meet revised end-December 2022 targets. - Emergency spending procedures (“dépenses avant ordonnancement”, DAO) - DAO represented 21 percent of primary spending in 2021 (target 20 percent); regularization of DAO was 7 percent (target 80 percent). - In first half of 2022, DAO represented 35 percent of primary spending; regularization limited to 13 percent. - Expected improvement with implementation of IT system SIGFIP and additional measures to reduce DAO use. - Structural reform agenda (eight structural benchmarks) - Met: continuous publication of quarterly oil sector note (published December, March, June 2022). - Delayed or unmet benchmarks: - Ex-post compliance audit of COVID expenses: not met by end-December 2021; publication completed with delay in June 2022. - Publication of semi-annual note listing all new tax exemptions: met (note published July 2022); commit to publish another by end-January 2023. - Allocation of some VAT revenue to VAT escrow at BEAC before end-February 2022: not met; allocation made in June 2022. - Publication online of full text of central government procurement contracts with beneficial ownership information: not met; Procurement Code does not require such information — government will issue a decree (prior action) to collect and publish beneficial ownership and contract texts. - Adoption of PFM strategy: met — council of ministers approved strategy in June 2022; resident advisor in place since September 2022 to begin implementation. - Implementation of employment ceilings per 2014 organic law postponed to end-December-2022 due to budget preparation timelines. - Implementation of ASYCUDA Exemption Module: not met by end-November SB; by November 2022 three customs offices have ASYCUDA World including Exemption Module; legal documents to be included in December 2022 and module deployed to other major offices by end-March 2023; IMF technical assistance planned. - Prior action completed on November 11, 2022: adoption of a regulation to make mandatory electronic declaration of VAT form for large taxpayers. - Waiver requests and budget discipline measures - Government requesting waivers for end-December 2021 and end-June 2022 QPCs on NOPB and for end-June 2022 QPC on stock of domestic arrears. - Measures to strengthen budgetary discipline: implementation of public finance management strategy and action plan; prepare and communicate quarterly expenditure ceilings to line ministries starting Q1 2023; apply appropriate sanctions per public finance management regulations against actors circumventing the expenditure execution chain. ### Regional policies and program alignment - ECF-supported program supports CEMAC objectives: balanced and sustainable path towards inclusive green growth and poverty reduction and restoring/preserving external stability for CEMAC. ### Outlook and risks (economic and financial policies for 2022 and remainder of program) - Short-term prospects for 2022 - Economic activity growth expected: 2.5 percent (about 2 percent non-oil sector growth; 5.6 percent oil GDP growth). - Inflation expected to rise to 5.3 percent. - Current account deficit expected to improve to 2.8 percent of GDP. - Trade balance: expected surplus of about 24.5 percent of GDP in 2022, compared to 11.6 percent of GDP in previous year, driven by exports increase from higher oil prices and only slight increase in imports; increase partially offset by higher debt service to commercial creditors linked to higher oil prices. - Medium-term outlook (2023–2024) - Non-oil growth projected to pick up in 2023, reaching 4.1 percent by 2024, conditional on program reforms being implemented. - Oil production will remain subdued despite higher oil prices due to lower investment prospects. - Inflation expected to return to CEMAC regional criterion of 3 percent by 2024. - Balance of payments and budgetary financing gaps during 2022-24 expected to be covered by budget support from development partners, ongoing debt treatment under G20 Common Framework, and IMF financing under the ECF program. - Envisaged debt reprofiling expected to bring debt burden to sustainable levels. - Key downside risks - Developments in the COVID-19 pandemic. - Oil prices volatility. - Maintenance of social peace and security. - Climate shocks (including recent floods putting pressure on food prices). - Delays in implementing debt restructuring agreements. ### Fiscal policy stance and adjustment path - Government commitment: pursue fiscal adjustment under the program. - Targeted adjustment: cumulative adjustment of about 4.7 percentage points for the NOPB from 2022–24. - Main measures: - Strengthen mobilization of non-oil revenues and streamline expenditures while promoting social spending and priority investment. - Increase non-oil tax revenues by about one percentage points of non-oil GDP through tax administration reforms. - Current expenditures to decline by 2¼ percentage points of non-oil GDP primarily via gradual reduction of the wage bill and subsidies to the electricity company. - Capital expenditures expected to remain on average at 6½ percent of non-oil GDP, above pre-pandemic levels. *Source: IMF staff report extract (chapter/section provided).* ### 23. Fiscal policy in 2022 is consistent with these medium-term objectives, while responding ### 1tcdea2023001 - 23. Fiscal policy in 2022 is consistent with these medium-term objectives, while responding ### Fiscal policy stance and 2022 outcomes - Non-oil revenue mobilization is projected to increase by 0.4 percentage point to 10 percent of non-oil GDP, mainly from measures to improve VAT efficiency and modernization of tax and customs administrations. - Expenditure policy: emphasis on keeping the wage bill under control and reducing non-essential current spending. - September 2021 realignment of military wages with the minimum wage means the wage bill will be higher than envisaged at the time of the request of an ECF-supported program; containment measures include: - containing other military remunerations; - using biometric census results to ensure some civil servants do not receive multiple salaries; - ensuring retiring civil servants immediately cease to receive their salaries. - Allocations in 2022: - CFAF 22 billion for financing the elections and the inclusive national dialogue; - CFAF 30 billion for the national response plan to ensure food security, including to allow ONASA to rebuild an adequate cereal stock. - Social spending preserved: will represent more than 34 percent of total primary spending (excluding transfers to the electricity company). - Fiscal balance outcomes and uses: - Overall fiscal deficit expected to improve by 8¾ percentage points to 6¼ percent of non-oil GDP in 2022, reflecting increase in oil revenue. - Oil revenue projected to reach CFAF 976 billion in 2022 thanks to favorable oil prices. - Increase in overall fiscal balance will be used to reduce domestic debt and build fiscal buffers. ### 2023 budget objectives and measures - The 2023 budget law will aim at a further reduction of the NOPB and at strengthening the prioritization of spending. - Measures to create fiscal space: - increase further non-oil revenue; - streamline non-priority expenditures; - implement Fund TA recommendations to contain the wage bill (see paragraph 35). - Tax administration and revenue measures to be pursued (see paragraphs 26–30), including increasing VAT and customs revenue. - One-off spending: despite 0.4 percent of non-oil GDP in one-off spending to prepare the elections, the NOPB would improve by 0.6 percentage points of non-oil GDP (note spacing preserved as in source), contributing, along with projected further increase in oil revenue, to an increase of 2.5 percentage points of non-oil GDP of the overall fiscal balance. ### Domestic debt management actions (to mitigate rollover risks) - Reduced stock of short-term T-bills (BTAs) to CFAF 162 billion at end-October (year implied in source). - Planned actions: - improve investor relations by consulting regularly with investors and primary dealers; - improve issuance predictability by regularly publishing quarterly issuance calendars; - extend treasury maturity by increasing share of T-bonds in domestic debt stock, helped by improved availability of data on public debt and public finances; - better planning of treasury issuances, based on cash management plans; - adequate staffing of the Division to be created to manage government securities issuance. - Assistance from AFRITAC Central contributed to these efforts. ### Tax and customs reforms — targets and key reforms - Non-oil revenue target: increase from 9.6 percent of non-oil GDP in 2021 to 10.7 percent of non-oil GDP in 2024. - Reform pillars: - improved VAT management, including streamlining tax exemptions and establishing a proper VAT refund mechanism; - modernization and strengthened collaboration, including greater use of information technology (IT) to achieve digitalization of tax filing and revenue collection through the banking system and mobile money; - better tax audits through strengthened collaboration between tax and customs administrations. Key VAT management measures - VAT potential and performance: - At end-2020, on-time declaration rate stood at 73 percent; rate of payment on time was 42 percent. - VAT revenue (at less than 2 percent of GDP) remains below potential (4.3 percent of GDP). - Recent actions and next steps: - Establishment of a large taxpayer office (LTO) and a medium-sized taxpayer office (MTO); registered 297 active large companies and 260 medium-sized companies; published list of active taxable persons. - Continue increasing active taxpayers and compliance, strengthen monitoring to improve on-time declaration and payment rates. - Establish, as part of the 2023 budget law, a proper framework for legal sanctions for non-compliant taxpayers. - With IMF assistance, a set of indicators was established to increase the number of taxpayers and improve compliance and effective tax payments. - VAT refund mechanism: - Since June 2022, an escrow account dedicated to VAT refunds with BEAC receives adequate funding and is operational; 15 percent of VAT revenue are automatically transferred to this account. - Establishment of a VAT credit refund mechanism and steps toward clearance of VAT credits, including evaluating VAT receipts over the last three years and auditing VAT declarations of companies listed in 2022 in charge of withholding VAT (new structural benchmark). - Tax exemptions and reduced rates: - Progress toward publishing a list of tax exemptions arising from special tax regimes (end-December 2022 SB). - Since 2020, several locally produced goods were subjected to a reduced VAT rate of 9 percent; government will examine possibility of phasing out the reduced VAT rate starting in 2023. - Aim at increasing the number of contributing VAT payers by 20 percent in 2022. Tax department modernization and IT - Renew efforts to grant tax administration additional resources to speed procedures and strengthen capacity. - Relocate Tax Department to premises left by the Treasury, to be equipped by December 2022 to handle computerization under PROMOGRI and benefit from IFMIS installation. - Computerization organized under 12 modules; first four modules (registration, monitoring of tax obligation, online filing procedures in LTO, and electronic VAT monitoring for commercial activities) expected by end- 2022. - First module, e-registration, in place since July 2022; circular on November 11, 2022 making electronic declaration of VAT mandatory for large taxpayers (prior action). - IT solutions for large taxpayers to submit returns electronically by end-January 2023 (structural benchmark). - Mobile phone application for small taxpayers to declare and pay some presumptive taxes by end-December 2022. - Continued development of quality human resources for tax department performance. Customs administration strengthening - Progress in 2021: out of 64 customs offices, 44 computerized; remaining to be computerized by 2023. - Migration to ASYCUDA World: three offices installed in November 2022; relevant legal documents to be incorporated in December 2022; deployment in other main offices by end-March 2023. - 2022 target: full payment of customs revenues through the banking system. - Issue a Code of Ethics for customs officers. - Agreement with Cameroonian Customs (June 2021) to strengthen information exchange and enhance customs revenue collection as 80 percent of Chad’s imports transit through Cameroon. - Ongoing discussions with partners in Sudan and Niger to strengthen cooperation. - IMF TA support on customs valuation control and reinforcement of monitoring of customs exemptions. Tax–customs collaboration - 2022 Budget law requires businesses to provide TIN on commercial documents; failure to provide TIN triggers: - withholding tax of 15 percent of value of imports (instead of 4 percent); - loss of deduction of VAT payments from the Treasury. - Tax administration maintained frequent communication with Customs; cross-checking of taxpayer files helped identify new taxpayers in 2021. - Once Tax Administration modernization is completed, government will work toward integrating computer systems of Customs and Tax Departments to speed up information exchange. ### Public Financial Management (PFM) reforms - Public Financial Reform Strategy (SRFP) 2022-27 adopted by Government (planned before end-June 2022) to modernize, digitalize and decentralize after delays. - SRFP updates the Strategy for the Development and Modernization of Public Finance Management (SDMFP) of April 2013; prepared mid-2019, adjusted December 2021 with IMF and World Bank support. - Key policy reforms for short and medium term: - implementation of an integrated financial management information system (IFMIS); - progressive territorial decentralization in the medium term; - strengthening wage bill management through IFMIS; - improving budget preparation, including introducing medium-term program budgeting with a pilot phase starting in 2023; - enhancing budget execution and controls, decentralizing payment orders and financial control to line ministries; - rationalization of expenditures, including transfers and subsidies; - full implementation and rationalization of institutional and technical framework of cash management by 2023; - strengthening debt management. - 2023 focus: - improving wage bill management; - strengthening links between revenue agencies to help identify non-compliers; - developing action plan for modernizing public procurement system and setting up a computer system for systemic monitoring of public contracts to improve accountability by 2023. - Following adoption of regulation on collection of beneficial ownership information (prior action), government will publish full text of central government procurement contracts along with names and nationalities of beneficial owners of awarded legal persons on an easily accessible government website (end-July 2023 SB). - Implementation supported by an FAD Resident Advisor (part time). IFMIS implementation and expected benefits - IFMIS implementation began in 2019 with Rwanda Cooperation Initiative (RCI) assistance. - Phase 1 completed: harmonized budget preparation and execution; since 2021, budget executed based on IFMIS with AFD support; wage bill for civil servants fully managed through IFMIS. - Phase 2 focuses on modernization of domestic revenue management and installation of accounting modules. - IFMIS aims to achieve effective, accountable, and transparent PFM across government transactions, strengthen links between revenue and other financial agencies to help identify non-compliers, and support reforms in expenditure chain, wage bill management, debt management, public procurement, and allocation/absorption of public resources for social sectors. DAO (emergency spending procedures) reforms and controls - Despite Single Window establishment (November 2021) and June 2022 circular reminding DAO use for emergencies and regularization within 60 days, DAO use remained elevated and regularization lagged. - Ministry of Finance will issue and adopt a Decree in January 2023 to establish principles on use of DAO (including limiting DAO to certain spending categories and maximum regularization time) and monitoring/reporting requirements. - Each January an executive order will establish a ceiling on DAO expenditure for the fiscal year, equivalent to 18 percent of total primary spending in 2023. - Additional measures to improve normal expenditure efficiency: - strengthen training of officials in line ministries and MoF on use of budget execution tools (cash plan, procurement plan, commitment plan) through SIGFIP with resident PFM advisor assistance; - adopt and enforce quarterly commitment plans in line with public procurement plans; - strengthen role of Financial Controller throughout expenditure chain and in analysis of expenditure sustainability. - Prepare a three-year public investment program (new end-June 2023 structural benchmark), linked to introduction of budgeting of investment expenditure in multi-year commitment authorization and payment appropriations. Addressing unvalidated domestic liabilities - Repayments of unvalidated domestic liabilities amounted to CFAF 14 billion in the first half of 2022; these were made through DAO and involved liabilities mostly accumulated before 2015 but not reported by line ministries during a 2019 audit. - Ministry of Finance actions: - request the Court of Accountants to conduct an external auditing of domestic payment arrears including the CFAF 14 billion reimbursed during the first half; - establish a monthly settlement plan in line with available cash; - sanction ministries/authorizing officers who initiate irregular expenditure based on audit results to avoid accumulation of unreported arrears. ### Strengthening wage bill management - Government committed to bring the wage bill back to 7.8 percent of non-oil GDP by end-2024 and to contain the wage bill at CFAF 491 billion in 2022. - Reforms and measures since 2021 contributing to containment: - civil servants’ wage bill management incorporated into IFMIS in 2021 to generate savings by avoiding undue benefit payments, better staff controls, and stricter access rights. - biometric census of civil servants: about 95 percent completed, with about 2,500 staff still to be verified; Inspector General of Finance to audit the census to strengthen accuracy and remove redundancies. - agreement with a local telecommunication company for wage payment through mobile money in areas not covered by banks; some 10 000 kiosks opened in the countryside. - commitment to rationalize the wage bill and control recruitment to the civil service within limits of commitments made in the budget as part of numerical replacements. *Source: 1tcdea2023001 - 23. Fiscal policy in 2022 is consistent with these medium-term objectives, while responding* ### 36. Steps will be taken to harmonize the payroll with civil service management. The ### 36. Steps will be taken to harmonize the payroll with civil service management. The ### Payroll harmonization and monitoring committee - The planned establishment of a payroll monitoring committee was delayed in 2021; the government intends to set it up by December 2022. - Committee composition and mandate: - Chaired by the Finance Inspector General (IGF). - Include representatives from the payroll unit (Ministry of Finance and Budget) and civil service management (Ministry of civil service) and the HR Directors of other ministries. - Meet at least once every quarter to monitor developments in the wage bill and civil service reforms, including the cleaning up and updating of the payroll, to ensure consistency and the attainment of wage bill objectives. - Will report on the wage bill developments quarterly to the Minister of Finance and Budget. - Legal and operational steps: - The government will formalize the legal framework of relations between the Human Resources and the Payroll departments for the maintenance of the payroll file according to the biometric census (new structural benchmark for end-January 2023). ### IMF technical assistance and immediate wage-bill policy guidance - IMF TA mission on the wage bill in April 2022 provided recommendations including: - (i) Limit wage bill growth by maintaining the value of the index point (point d’indice) at its current level, and refrain from any discretionary increases in pay scales, allowances, the AGS (Augmentation Générale Spécifique) salary uprating, and any other components of overall compensation; reduce replacement of civil servants leaving non-essential positions without harming public services. - (ii) Improve forward-looking wage bill management and coordination between the Ministry of Finance and the Civil Service Ministry. - A regulation will be adopted to establish a consultation framework co-chaired by the ministers in charge of the Civil Service and Finance, responsible for drawing up medium-term staffing plans for each ministerial department and for calibrating the number of new students entering relevant training schools and anticipated civil servant recruitment (new structural benchmark for end-August 2023). ### Medium-term structural reforms (wage bill budgeting and payroll management) - Strengthening the budgeting of the wage bill: - Align wage bill budget procedures with the recommendations of Fiscal Affairs Department’s manual. - Based on employment ceilings by ministries and institutions in accordance with the provisions of the organic finance law (end-December 2022 structural benchmark), prepare a specific budget annex for the wage bill presenting a consolidated vision for the public service and the evolution of the workforce by ministry or institution. - Improve reliability of information on determinants of changes in payroll and workforce flows, in accordance with IMF TA recommendations. - Updating and periodically checking the payroll file: - Generate monthly statement of the employees and payroll breakdown by department. - Conduct on-site/off-site documentary check on any irregularities. - Use IFMIS to automatically share new pensioners information with CNRT to ensure the timely termination of the payment of their wages. - Increase security/reliability for all administrative documents and acts (diplomas, advancements, etc.). - Conduct periodic audits of the payroll file. ### Territorial Decentralization - The government initiated a territorial decentralization program to ensure PFM reforms and associated measures benefit all provinces and reduce regional disparities. - Modernization and digitalization efforts expected to facilitate delivery of goods and services to citizens across provinces. - In January 2022, wage management based on the IFMIS was introduced in Moundou as a pilot case. ### Budget preparation and execution reforms (through 2023) - Reforms focus on: - (i) Improving the expenditure chain and reducing use of emergency procedures (DAO). - (ii) Implementing the new budget classification recommended by AFRITAC and improving accounting and fiscal reporting. - (iii) Elaborating annual commitment plans and annual public procurement plans. - (iv) Improving cash management. ### Accounting and fiscal reporting improvements (by 2023 and medium term) - Use new economic classification of expenditure recommended by the September 2020 AFRITAC TA mission; ensure consistency with Government chart of accounts and alignment of IFMIS with the budget classification. - Over the medium term, upgrade the State’s accountants’ network and organizational chart of the Treasury department to implement the transition to accrual accounting. ### Forecasting framework and macro-fiscal strengthening - Strengthen articulation of priority objectives with macroeconomic and budgetary constraints and budgetary programs by 2022. - Continue to strengthen macroeconomic framework and macro-fiscal function, consolidate multi-annual, annual and intra-annual forecasting and simulation capabilities for resources and budgetary charges, and strengthen identification, monitoring and management of fiscal risks by 2023. - Strengthen oil revenue forecasting tools, debt dynamics forecasting frameworks and the Medium-term Debt Management Strategy (MTDS) by end-2022. - Anchor macro-fiscal and programmatic frameworks on the National Development Plan (2022-2026). - Adopt strategy and timetable to progressively consolidate the Treasury Single Account (TSA) assisted by the resident advisor (new end-September 2023 SB). ### Public investment management - Continue to improve design and development of the public investment program (PIP) and consolidate a three-year public investment program (new end-June 2023 SB) as recommended by July 2018 IMF and May 2022 PIMA TA missions. - PIP inclusion criteria: projects must be mature with available funding; align projects with MTDS to maintain debt sustainability. - Rely on the National Commission for the Management of public investments (CONAGIP) to enhance efficiency, particularly in social sectors. - Follow framework decree 2020/PR/2020 of October 8, 2020 on project prioritization and selection including criteria on economic efficiency, social, gender, regional equity, and environmental impact. ### Cash management and Treasury Single Account (TSA) - Cash Plan Committee to refine monthly cash flow plan; annual cash flow plans included within the budget and updated semi-annually (in line with the CEMAC Directive). - Use electronic management platform with IFMIS for payment of expenses. - Over the medium term, finalize and operationalize the TSA including creation of sub accounts for authorized accountants and the repatriation of public resources from commercial banks to the TSA; repatriation to be done without disturbing the local banking sector. ### Medium-term program budgeting and procurement - Progress toward program budgeting: PAPs updated for 28 sectoral ministries; PAPs prepared in 5 “pilot” ministries (Health, Education, Infrastructure, Agriculture, and Finance and Budget) with technical assistance; program budgeting to be introduced in the 2023 budget law. - Public procurement modernization: - Strengthen capacity of the Public Procurement Regulatory Authority. - Develop action plan for modernizing public procurement based on in-depth diagnosis and a computer system for systemic monitoring of public contracts. - Procurement code revised in 2020 to raise thresholds, simplify approval, and promote woman entrepreneurship; legal framework for sanctions will be strengthened. - General Directorate of Control of Public Procurement (DGCMP) to continue publishing a quarterly bulletin. - With IMF Legal Department support in March 2022, adopt a regulation to allow the government to (i) collect beneficial ownership information of legal persons bidding on central government procurement contracts; and (ii) publish the full text of central government procurement contracts along with the names and nationalities of the beneficial owners of the awarded legal persons on an easily accessible governmental website (Prior Action). - After regulation adoption, publish the full text of central government procurement contracts (including the names and nationalities of the beneficial owners of awarded legal entities (end July 2023 SB). ### Rationalization of transfers and subsidies; SOE and public entity reforms - Transfers and subsidies recipients (autonomous communities, regulation authorities, agencies, offices, public establishments, management committees, and externally financed projects eligible for national procedures) must comply with the Public Procurement Code. - Submit by end-2022 to the National Transition Council draft legislations on public establishments and state-owned enterprises (SOEs) and adopt by June 2023 their implementing regulations (aim: improve financial management and accountability, and reduce transfers and subsidies). - Over the medium-term, conduct and publish an assessment of fiscal risks management in an appendix to the annual budget law dedicated to public entities; appendix to provide details on transfers and subsidies as well as own resources. ### Electricity sector (SNE) reforms and subsidy rationalization - Improving financial viability of the National Electricity Company (SNE) is a key priority; since 2020 Government transfers to SNE are reflected in the budget. - Medium-term changes: - Progressively replace in-kind transfers (diesel and HFO for electricity generation) with monetary transfers under a performance contract. - Distinguish between subsidies to the sector and payments for public sector electricity consumption. - IMF TA secured in early 2023 to assess subsidies to electricity and petroleum products and plan gradual removal while enhancing social transfers to protect vulnerable groups. - Adopt a performance contract by end-December 2022 setting performance indicators to improve SNE’s commercial and operational performance, revenue protection, billing and recovery rate improvements. - Competitive procurement for new generation projects and end unsolicited bids. - Support sector reforms with gradual tariff adjustments to ensure real tariffs do not decrease over time given relatively higher inflation. - Improve financial management of SNE to attract private investment, especially in renewable energy; resort to sovereign guarantees only when essential. - World Bank supporting sector reforms under an ongoing technical assistance project; legal framework amended to liberalize production and distribution of electricity; 2020 budget law provided tax incentives for investment in green energy. ### Debt management: policy and capacity strengthening - Government committed to refrain from non-concessional borrowing and to maintain debt transparency; all external financing to be on concessional terms (at least 35 percent grant element, see TMU). - All draft loan agreements submitted for prior approval to National Commission for Debt Analysis (CONAD) supported by ETAVID. - Continue to publish quarterly public debt statistics bulletin on Ministry of Finance and Budget website and maintain comprehensive and transparent database of debt contracts. - Strengthening debt management capacity by implementing IMF TA recommendations before end-June 2022 to: - (i) Reform roles and structures of debt management by creating a department in charge of public securities, bond issues and rating. - (ii) Improve communication among responsible entities (contracting, disbursement, issuing of securities, debt service payment). - (iii) Augment resources applied to debt management. - Technical assistance and capacity strengthening to be provided by the World Bank and IMF, including DSA analysis and quarterly public debt bulletin; World Bank assisting in recording debt contracted by SOEs. - EU to help upgrade debt reporting system (SYGADE); UNCTAD to provide staff training. - Agreement between the Treasury and BEAC includes procedural changes to process regular debt service payments with flexibility in meeting FOREX requirements; monthly debt meetings and strengthened information exchange to support implementation. ### Improving the business environment - Government aims to reform the business environment to attract private sector and promote inclusive growth and economic diversification; UNECA PDIDE diagnostics highlight strong potential for diversification. - Structural reforms envisaged: - Reform SNE; modernize tax and customs administration; adopt and implement SOE reform strategy including framework to reduce transfers; streamline procedures for creation of SMEs; improve access to financing; improve transparency in the oil sector; reduce corruption and strengthen rule of law. - Observatory for the Business Environment and the National Competition Council (CNC) to be made operational by June 2023. - Government established a National Youth Entrepreneurship Fund (now fully operational) and an Observatory for the promotion of gender equality and equity; will seek technical and financing assistance from World Bank and African Development Bank. ### Transparency, governance, and anti-corruption measures - Good governance, rule of law, and effective anti-corruption framework viewed as key to reviving private sector activity. - Implement United Nations Convention against Corruption (UNCAC) alignment after new constitution promulgation; seek UN support to align penal code with UNCAC. - Once new constitution adopted, engage IMF staff to design an asset declaration regime in line with international good practices (in particular the G20 High Level Principles on Asset Disclosure by Public officials), including in the context of upcoming constitutional reforms. - Constitution includes categories of public figures and State officials required to declare assets when taking up and leaving office; current compliance is very low partly 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; anticorruption staff to be selected under a merit-based system with stringent ethics standards or face stiff penalties. - Government committed to supporting National Agency for Financial Investigation (ANIF), Chad’s FIU, including augmenting its human resources. - Government will assess corruption risks during the transition period and craft an action plan to mitigate those risks, to be shared with the Fund and published by the time of the third review. *IMF: Excerpts from the chapter on payroll harmonization, public financial management, and institutional reforms.* ### 53. Consistent with its commitment to full transparency in the use of COVID-19 resources, ### 1tcdea2023001 - 53. Consistent with its commitment to full transparency in the use of COVID-19 resources, ### COVID-19 expenditures audit and transparency findings - The Government published on June 3, 2022, the ex-post compliance audit of COVID 19-related expenditures. - Independent auditor verifications: - All COVID-related resources had been recorded exhaustively and accurately in the dedicated special account. - Expenses financed from this account had been authorized under the same conditions as the operations of the General State Budget according to the emergency procedures. - Public procurement procedures were carried out in line with Decree No. 1025/PR/MFB/2020 of May 29, 2020, derogating from public procurement rules concluded in the context of the fight against the pandemic. - Weaknesses identified by the audit: - Validation of procurement needs. - Preparation of a database to record all procured supplies and monitor their use. - Weaknesses partly reflected urgency to procure goods to fight the pandemic and limited capacity. ### Oil sector transparency, EITI, and SHT audit commitments - Chad joined EITI in 2010 and is the first country to include oil transport and refining in the scope of its EITI reporting. - EITI Board status: - In May 2019, the EITI Board agreed that Chad has made “meaningful progress” in implementing the 2016 standards and will evaluate its implementation of the 2019 standards in December 2022. - Government disclosures and reporting: - Significant progress in disclosing contracts and licenses involving the petroleum sector with World Bank support. - Published, certified and verified annual financial reports for 2017-2018 for SHT (Société des Hydrocarbures du Tchad) and its subsidiaries. - Chad is one of 14 countries that published its EITI report 2019 under flexible measures. - Government will continue to publish quarterly notes on the oil sector to promote transparency (continuous structural benchmark). - Independent audit of SHT: - By end-2022, the Government will launch an international tender for the independent audit of the national oil company (SHT) to identify governance issues that allowed senior managers to embezzle more than CFAF 10 billion. - The audit will be conducted by an international audit firm in cooperation with the general finance inspectorate and the court of accountants. - The audit will make recommendations to prevent future embezzlement. - The audit report will be published (new structural benchmark, end-June 2023). ### Fiscal data dissemination and quality (TOFE and IFMIS) - Current status: - The Table of Financial Operations of the State (TOFE) is not in line with CEMAC requirements. - IMF technical assistance recommendations were delayed due to the pandemic and security issues over the past 2 years. - Commitments to improve data quality: - Adopt a decree to establish a TOFE Committee by end-December 2022 in line with the TOFE Decree 2016 to guide TOFE development and government financial statistics improvement, supported by IMF technical assistance. - Dedicate a team to develop TOFE, expand data collection and implement a detailed action plan to meet CEMAC requirements. - In the medium term, completion of the IFMIS, especially the accounting phase, will help improve data quality. ### Strengthening the banking sector (policy measures and commitments) - Rationale: Strengthening the financial sector supports growth and poverty reduction; focus on local and public banks to finance domestic activities. - Immediate and ongoing commitments: - Enforce performance contracts for the two public systemic banks (CBT and BCC) and support implementation of their restructuring and funding plans (approved by the COBAC/BEAC). - Treasury committed to continued monthly repayment of the direct debt to BCC of CFAF 250 million, to be fully repaid by August 2023. - Medium-term commitments: - Reduce Government stakes in banks. - Explore possibilities of increasing private sector participation in the capital of CBT. - Support COBAC’s request for gradual capital restoration plans to make further capital available if reassessment shows further weaknesses (given COVID-19 impact). - Monitoring: - The Ministry of Finance and Budget will monitor developments in distressed loans and assess the impact on the banking sector of recent BEAC policy tightening and COBAC’s unwinding of COVID-19-related special regulatory measures. - Domestic arrears and liquidity: - Timely repayment of Government bank debt obligations supports banking system liquidity and domestic arrears clearance plan to enable private sector debt repayment to banks. ### Financial inclusion and microfinance/mobile money measures - Objectives: - Improve access to financial services and strengthen financial inclusion. - Encourage creation of strong and secure microfinance institutions. - Channel Government transactions through banks (“bancarisation”) to increase account openings and use of modern payment methods. - Specific measures: - Promote payments of wages, taxes and customs duties through mobile money. - With COBAC support, strengthen governance, regulatory and supervisory frameworks for microfinance institutions and security for mobile money transactions. - Implement an effective AML/CFT regulatory and supervisory framework for microfinance institutions and mobile money. - Strengthen the loan resolution framework to reduce loan recovery risk and high loan rates. ### Program monitoring, review schedule, and institutional arrangements - Negotiation Committee: - Government will strengthen the Negotiation Committee based in the Ministry of Finance and Budget with a permanent secretariat to collect macroeconomic data and monitor structural reform implementation. - Committee will remain in constant communication with the IMF’s Resident Representative office in Chad and organize meetings between Authorities and the IMF. - Authorities will collaborate with Fund staff to ensure a fiscal safeguards’ review is finalized by the time of the third review under the ECF arrangement. - IMF review schedule (program monitored through semi–annual reviews by the IMF Executive Board on the basis of QPCs, ITs, and structural benchmarks): - The third review will be based on end-December 2022 test dates and should be completed on or after April 14, 2023. - The fourth review will be based on end-June 2023 test dates and should be completed on or after September 15, 2023. - The fifth review will be based on end-December 2023 test dates and should be completed on or after April 15, 2024. - The sixth review will be based on end-June 2024 test dates and should be completed on or after September 16, 2024. ### Selected quantitative performance and indicative target figures (from tables) - End-Dec 2022 QPCs (selected rows): - 3. Floor on non-oil primary budget balance (NOPB): -325 - 4. Ceiling on net domestic government financing: -831 - 5. Ceiling on the stock of domestic payment arrears by the government: 298 - End-March 2023 ITs (selected rows): - 3. Floor on non-oil primary budget balance (NOPB): -95 - 4. Ceiling on net domestic government financing: 189 - 5. Ceiling on the stock of domestic payment arrears by the government: 288 - End-June 2023 QPCs (selected rows): - 3. Floor on non-oil primary budget balance (NOPB): -177 - 4. Ceiling on net domestic government financing: 0 - 5. Ceiling on the stock of domestic payment arrears by the government: 278 - Indicative targets (selected): - 6. Floor on government tax revenue, excluding tax revenue from oil companies (End-Dec 2022 QPCs): 535 - 7. Ceilling on wages and salaries (End-Dec 2022 QPCs): 500 - 8. Floor for poverty-reducing social spending (End-Dec 2022 QPCs): 255 - 11. Oil Revenue (net of Debt service to Glencore) (End-Dec 2022 QPCs): 744 - 12. Grants (memorandum items, End-Dec 2022 QPCs): 13 - Notes on interpretation: - All figures in Table 3 are in billions of CFAF; cumulative from the beginning of the year, except where otherwise indicated. - Footnotes define terms and adjustors as per the TMU. ### Structural benchmarks, prior actions, and timelines (selected) - Prior actions already met: - Adopt a decree to allow collection of beneficial ownership information of legal persons bidding on central government procurement contracts and publish full texts of central government procurement contracts with names and nationalities of beneficial owners. - Adopt a regulation to make mandatory for large taxpayers the electronic declaration of VAT form. - Revised structural benchmark: - Include in the draft 2023 budget law ceilings on the number of civil servants by ministry and institution. Due: End-December 2022. - Proposed new structural benchmarks and due dates (selected): - Publish a list of all exemptions arising from special tax regimes, including companies’ names and the type and duration of each exemption. Due: End-December 2022. - Take technical and legal measures to enable large taxpayers to submit their tax returns electronically. Due: End-January 2023. - Formalize legal framework of relations between Human Resources and Payroll departments for maintenance of the payroll file according to the biometric census. Due: End-January 2023. - Develop and consolidate a three-year public investment program. Due: End-June 2023. - Publish an audit report on oil revenue collected by the Treasury, including through SHT, conducted by an international auditing firm. Due: End-June 2023. - Periodic structural benchmarks: - Publish a quarterly note on the oil sector, including detailed information on debt service to Glencore. Quarterly, starting end-December 2021. - Publish a semi-annual note listing all new tax exemptions (including renewal and extension). Semi-annually, starting end-January 2022. - Publish on-line the full text of central government procurement contracts along with names and nationalities of beneficial owners. Semi-annual, starting end-July 2023. *Source: IMF staff summary of the Government of Chad Letter of Intent, Memorandum on Economic and Financial Policies, and Technical Memorandum of Understanding as provided in the supplied content.* ### 2. Data on all the variables subject to quantitative performance criteria (QPC) and indicative ### 2. Data on all the variables subject to quantitative performance criteria (QPC) and indicative targets (ITs) ### Reporting, transmission, and timetables - Data on all variables subject to QPCs and ITs and progress on structural benchmarks will be transmitted regularly to the IMF in accordance with the table shown in Table 2. - For continuous QPCs, the authorities will report any non-observance to the IMF promptly. - Days refer to calendar days unless otherwise specified. - Revisions to data will be forwarded to the IMF within 14 days after being made. - The authorities will transmit to IMF staff any information or data not defined in this TMU but pertinent for assessing or monitoring performance relative to the program objectives. ### Definitions and computation methods - "Government" refers to the Central Government of the Republic of Chad comprising all the executive bodies, institutions and any structure receiving special public funds and whose competence is included in the definition of central government subsector as defined in Government Finance Statistics Manual 2014. - Public nonfinancial enterprises (government–controlled corporations whose principal activity is the production of goods or nonfinancial services) monitored for the program comprise: 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), Socièté Nationale de Ciment (SONACIM Tchad), Société Industrielle de Materiels Agricoles et d’Assemblage des Tracteurs (SIMATRAC), Fonds d’Entretien Routier (FER), Société Nationale d’Exploitation Hôtelière (SONEXHO), Société Nationale des Mines et Géologies (SONAMIG), and Société Moderne des Abattoirs de Farcha (SMAF). - Oil revenue is defined as the sum of: - (i) the 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 duties and taxes. - Exceptional receipts are excluded from oil revenue (definition of exceptional receipts in Paragraph 7). - Tax revenue, excluding tax revenue from oil companies, is defined as all the Government 's tax revenue, with the exception of oil revenue as defined above. - Exceptional receipts are defined as payments to the Government from: - resolution of protracted disputes between foreign companies operating in Chad and the Government in connection with their tax obligations or potential violations to laws and standards or any other legal obligations; - the sale or placement or privatization of Government ’s assets or from the granting or renewal of licenses. - Total Government revenue = tax revenue + non-tax revenue (as defined in GFSM 2014, Chapter 5). Oil revenue, tax revenue (excluding oil), and exceptional receipts will be shown in the breakdown of total Government revenue report. - Total Government expenditure is the sum of: expenditure on Government employees (wages, salaries, allowances, bonuses, etc., as provided in the document “Masse salariale”); purchases of goods and services; transfers (including subsidies, grants, social benefits, and other expenses but excluding in-kind transfers to Société Nationale d’Electricité); interest payments; and capital expenditure. All categories are recorded on a commitment basis unless otherwise stated. Total Government expenditure also includes “dépenses avant ordonnancement” (DAO) which are not yet regularized. - Dépenses avant ordonnancement (DAO) = all expenditures which do not follow the standard spending procedure (commitment → validation → authorization of payment order → payment). - Wages and salaries = compensation of all Government employees (ordinary or in-kind), including civil servants and members of state institutions and of the armed and security forces; compensation includes wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other form of monetary or non–monetary payment. For program monitoring, data are computed from the document “Masse salariale”. - Subsidies and Transfers are defined in accordance with GFSM 2014 and, for program monitoring, refer to those reported in “Tableau de 4 Phases”. - Debt definitions: - Debt is defined in accordance with paragraph 8 of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 16919-(20/103)) and includes contracted or guaranteed commitments for which values have not been received. Debt denotes a current liability created under a contractual arrangement requiring future payments of assets or services. - Primary forms: (i) Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements); (ii) Suppliers’ credits; (iii) Lease agreements (debt = present value at inception of all lease payments expected for the period, excluding operation/repair/maintenance payments). - Penalties and judicially awarded damages arising from failure to pay under a contractual obligation that constitutes debt are also debt. - Domestic debt = any debt denominated in Central African Franc (CFAF). - External debt = any debt denominated in a foreign currency (other than CFAF). - Debt is concessional if it includes a grant element of at least 35 percent, and non-concessional otherwise. - Grant element = (nominal value − present value) / nominal value; present value at contracting date is the discounted sum of all future debt service payments. The discount rate used = 5 percent per annum. - Domestic payment arrears comprise: - recognized expenditure payment arrears; and - domestic debt payment arrears not paid after the due date (taking into account contractual grace periods). - Recognized expenditure payment arrear: outstanding amount in a payment order for an expenditure incurred, validated and certified and then created by the “Direction of Ordonnancement” is classified as a recognized expenditure payment arrear 90 days after issuance of the payment authorization. Recognized arrears exclude domestic debt payment arrears and arrears on wages and salaries. Unrecognized expenditure payment arrears are potential arrears that have not gone through the standard spending procedure. - External debt payment arrears = external debt obligations of the Government and public non-financial enterprises not paid when due per contractual terms (taking into account contractual grace periods). Excludes arrears for which the creditor has accepted in writing to negotiate alternative payment schedules and technical arrears less than six weeks. - Non–oil primary balance (NOPB) = total Government revenue (excluding grants, oil revenue and exceptional receipts) minus primary expenditure on a commitment basis, where primary expenditure = total Government expenditure − interest payments on domestic and external debt − foreign–financed capital expenditure. - Poverty–reducing social spending comprises public spending by ministries: (i) Ministry of Education; (ii) Ministry of Health; (iii) Ministry of Women; (iv) Ministry of Agriculture; (v) Ministry of Livestock; (vi) Ministry of Environment; (vii) Ministry of Water and Sanitation in Rural and Urban areas; (viii) Ministry of Professional Training; and (ix) Ministry of Higher Education. - Domestic Government financing = issuance of any instrument in CFAF to creditors, loans from BEAC (including support from the IMF), BDEAC, and CEMAC Member States, or any other debt contracted in CFAF. - Net Government domestic financing is subdivided into net bank financing, net securitized financing, net Government financing from BEAC, and other non-bank financing. - Net bank financing = change in the net Government position towards domestic commercial banks. - Net Government financing from BEAC = change in net Government position towards BEAC and includes disbursements by the IMF, net of amortization. - Net securitized financing includes issuance of Government Treasury bonds, Treasury bills (includes prepaid interest) and loans in CFAF to domestic and regional banks net of related amortizations since the end of the previous year. ### Quantitative Performance Criteria (QPC) - QPCs and ITs are those specified in Table 1 of the MEFP. Continuous QPCs require that at no point in time they are non-observed; any non-observance must be reported promptly. - QPCs are assessed cumulatively from the beginning of the calendar year to the applicable test-dates specified in Table 1 of the MEFP, unless stated otherwise. - QPCs listed: - 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. Any non-observance will be reported promptly with date, amount, and creditor. - A zero ceiling on new non-concessional external debt contracted or guaranteed by the Government and non–financial public enterprises, with a maturity of more than one year. This ceiling applies continuously and does not include IMF financing. Exclusions: (i) normal short–term credits for imports; and (ii) debt contracted before the ECF arrangement and rescheduled during this arrangement to the extent the 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. - A ceiling on the stock of domestic recognized expenditure payment arrears. Domestic arrears include: - the stock of arrears established by an independent audit at CFAF 485 billion at end-2019; and - the stock of recognized domestic payment arrears at the Treasury. As of end-December 2021, the stock of recognized expenditure payment arrears at the Treasury was at CFAF 106 billion based on information in the Table "Reste à Payer" (prepared by the Treasury). - A ceiling on net domestic Government financing, as defined in paragraph 21. - Standard continuous performance criteria that also apply: - not to impose new or intensify existing restrictions on the making of payments and transfers for current international transactions; - not to introduce new or intensify existing multiple currency practices; - not to conclude bilateral payments agreements that are inconsistent with the IMF’s Articles of Agreement (Article III); - not to impose new or intensify existing import restrictions for balance of payments reasons. ### Indicative targets and memorandum items - Indicative targets are specified in Table 1 of the MEFP and are assessed cumulatively from the beginning of the calendar year to applicable test-dates, unless stated otherwise. - Indicative targets listed: - A floor on Government tax revenue, excluding tax revenue from oil companies. - A ceiling on wages and salaries. - A floor on poverty–reducing social spending equivalent to 34 percent of domestically financed primary spending (excluding transfers to the electricity company). - A ceiling on 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. Military spending = spending by the Ministry of Defense, including Exceptional Security Expenses (DES) of section 88. - A floor on the regularization of spending executed through emergency spending procedures (DAO). Regularization of DAO 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. - Memorandum items: - Oil revenue (US$ million). - Grants (US$ million). - Election spending (CFAF billion). - Budget spending as part of the food security national response plan (CFAF billion). *Source: 1tcdea2023001 - 2. Data on all the variables subject to quantitative performance criteria (QPC) and indicative targets (ITs) (IMF).* ### 22. To take into account factors or changes beyond the Government ’s control, the following ### 22. To take into account factors or changes beyond the Government ’s control, the following ### Adjustments to quantitative performance criteria - If the total budgetary revenue and grants are lower than the programmed amount, because of lower oil revenue or budget support: - the ceiling on the stock of domestic payment arrears will be adjusted upward by the amount of the shortfall up to the planned arrears repayment amount. - the ceiling on net domestic financing will be adjusted upward by 25 percent of the shortfall not compensated for through reduction in arrears payment. - If the total budgetary revenue and grants are larger than the programmed amount, because of higher oil revenue (excluding debt service to Glencore), budget support, and/or exceptional receipts, the excess amounts –excluding the amounts placed in the Special Account of the Treasury for Oil Price and Production Smoothing—must be used through adjustment of a combination of the following elements: - the floor for the non-oil primary balance will be adjusted down by 25 percent of the excess amount; - the ceiling on net domestic financing will be adjusted down by 50 percent of the excess amount; and - the ceiling on the stock of domestic recognized expenditure payment arrears will be adjusted down by 25 percent of the excess amount. - If in 2022, the expenditures on the national response plan for food security are lower than the programmed amount, the floor for the non-oil primary balance will be adjusted upward by the amount of the expenditure shortfall. - If in 2023, the expenditures on the national response plan for food security are lower than the programmed amount, the floor for the non-oil primary balance will be adjusted upward by the amount of the expenditure shortfall. - 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. ### Special Account and oil revenue treatment - 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. ### Data reporting requirements (summary of Table 1) - Oil and non–oil revenue, by category; collection situation; revenue position of the revenue–collecting agencies: - Provider: Ministry of Finance and Budget (Treasury) - Periodicity and Target Date: Monthly, within 45 days of month–end - Quarterly Oil Sector Note: - Provider: Ministry of Finance and Budget - Periodicity: Quarterly - Budget execution data, including on poverty–reducing social spending, showing commitments, validations, authorizations of payment order, and cash payments; table showing the four phases; payroll table, including benefits: - Provider: Ministry of Finance and Budget (General Budget Directorate, DGB) - Periodicity and Target Date: Monthly, within 45 days after month–end - Table of expenditure before payment authorization; TOFE, on a cash basis; comparative table on budget execution, consolidated balance tables (changes in debts, claims, etc.); and consolidated Treasury balance: - Providers: Ministry of Finance and Budget; General Budget Directorate; DGTCP - Periodicity and Target Date: Monthly, within 45 days of month–end - Detailed budget execution information for transfers in the same classification as the budget: - Provider: Ministry of Finance and Budget (General Budget Directorate) - Periodicity and Target Date: Monthly, within 45 days of month–end - Detailed use of Government oil (4 million barrels) sold to the refinery, including the exact amount of the subsidy to the electricity company: - Providers: DGB; SHT - Periodicity and Target Date: Quarterly, within 45 days of the end of the quarter - Details by project financed domestically, execution of the investment budget, with the information organized by Ministry: - Provider: Ministry of Finance and Budget (General Budget Directorate) - Periodicity and Target Date: Quarterly, within 45 days of the end of the quarter - Information on DAO regularization: - Provider: Ministry of Finance and Budget - Periodicity and Target Date: Quarterly, within 60 days after the end of the Quarter - Details, by externally financed project; investment budget execution; information organized by Ministry: - Providers: Ministry of Finance and Budget (DGB); Ministry of Plan and International Cooperation (DGCI) - Periodicity and Target Date: Quarterly, within 45 days of the end of the quarter - Information on public procurement in the previous month and updating of payment maturity for the rest of the year: - Providers: Ministry of Finance and Budget (Financial Control)/SGG (OCMP/Procurement Directorate) - Periodicity and Target Date: Monthly, within 45 days of month–end - Table on external debt (including those in local currency). The table should include previous month’s due payments, payments made, and projected payments due for the next 3 months broken down by creditors: - Provider: Ministry of Finance and Budget - Periodicity and Target Date: Monthly, within 45 days of month-end - Information on external debt arrears (including those in local currency): updated list of stock of arrears broken down by creditors; information on repayment of arrears including amount paid and date on which payments were made; information on any rescheduling agreement on the stock of external arrears at the beginning of the program period: - Provider: Ministry of Finance and Budget - Periodicity and Target Date: Monthly, within 45 days of month-end - In case of missed external debt service payment the following information will be needed: i) the date of the missed payment; ii) amount of the missed payment and iii) creditor involved: - Provider: Ministry of Finance and Budget - Target Date: Within 14 days of occurrence - Details on the servicing of the domestic debt and payment arrears of the Government (including maturities): - Provider: Ministry of Finance and Budget (Debt Directorate, DCP) - Periodicity and Target Date: Quarterly, within 45 days of the end of the quarter - Details on the servicing of the external debt of the Government (including the breakdown by currency and maturity): - Provider: Ministry of Finance and Budget (DGTCP Debt Directorate) - Periodicity and Target Date: Quarterly, within 45 days of the end of the quarter - Details on new loans contracted or guaranteed by the Government and public non-financial companies: - Providers: Ministry of Finance and Budget (Debt Directorate); Ministry of Plan and International Cooperation (DGCI) - Target Date: Within 45 days of transaction completion - Monetary survey: - Provider: BEAC - Periodicity and Target Date: Monthly, within 45 days of month–end - Provisional monetary data from the BEAC (Exchange rates, foreign reserves, assets and liabilities of the monetary authorities, base money, broad money, central bank balance sheet, consolidated balance sheet of the banking system, interest rates): - Provider: BEAC - Periodicity and Target Date: Monthly, within 45 days of month–end - Balance of SDR account at month end: - Provider: BEAC NGP Committee - Periodicity and Target Date: Monthly, within 3 months of month–end - Net banking system claims on the Government (NGP): - Provider: BEAC - Periodicity and Target Date: Monthly, within 30 days of month–end - Consumer price index: - Provider: INSEED - Periodicity and Target Date: Monthly, within 45 days of month–end - Gross domestic product and gross national product: - Provider: Macroeconomic Framework Committee (SG MFB) - Periodicity and Target Date: Annually, within 180 days of year end - Balance of payments (External current account balance, exports and imports of goods and services, etc.): - Provider: BEAC - Periodicity and Target Date: Annually, within 180 days of year end (preliminary data) - Gross external debt: - Provider: Ministry of Finance and Budget DGT (Debt Directorate) - Periodicity and Target Date: Annually, within 90 days of year end - Notes: - For end-December fiscal data, data should be reported 45 days after the end of the complementary period. - Interest rates reported include both market-based and officially determined, including discounts, money market rates, and rates on treasury bills, and bonds and other securities. ### Oil revenue and memorandum items (Table 2 highlights) - Detailed tables and memorandum items include production volume (Barrel), export volume (Barrel), export value (CFAF), crude oil supplied to SRN (Barrel), crude oil received (By the Government (Barrel); By SHT (Barrel)), total oil revenue (CFAF), direct receipt (CFAF), net sales revenue (CFAF), and line items such as Profit Tax (in Cash), Statistical Fee, Surface Fee, Dividend, Bonus, Other Receipt in cash Total, Gross Government Crude Oil Sales Revenue (CFAF), Government / SHT splits, Average Selling Price in FCFA and in USD, Doba Discount (CFAF), and Glencore Debt components (Interest Payment, Principal Repayment, Restructuring Fee). - Oil sales until March 2017 section includes Government export volume (Barrel), export value (CFAF), average selling price (CFAF), transportation cost (CFAF), SHT participation cost (Cash-call), Glencore Debt items, and Memorandum Item Exchange Rate (CFAF/USD). ### Debt sustainability analysis — key findings - Chad’s debt ratios have improved from the last DSA (December 2021) due to higher oil prices and the debt treatment agreed by official and commercial creditors under the G20 Common Framework. - With the conclusion of this agreement, Chad is no longer in debt distress, but is at high risk of external debt distress as the external debt service-to-revenue ratio breaches its threshold in 2022-23. - This ratio is expected to decrease below the 14-percent threshold in 2024 on account of the debt treatment signed under the G20 Common Framework. - Downside risks remain high given the uncertainties around oil price volatility, increased insecurity, and social unrest due to the political transition, and possible shortfalls in financing. - The risk of debt distress is expected to be ‘moderate’ by the end of the program period as the debt service-to-revenue ratio is expected to be below the threshold of 14 percent in 2024. - The likelihood of this outcome is enhanced by the agreement on the contingent debt treatment and the implementation of the debt restructuring agreement with the main private creditor. - The PV of total public debt-to-GDP indicator is above the 35 percent high-risk benchmark in 2022-23. - Chad’s public debt is assessed to be sustainable, contingent on identified domestic and external funding sources together with ambitious fiscal consolidation. ### Debt coverage, contingent liabilities, and public debt composition - Public debt coverage includes central state debt and government guaranteed external debt owed by SHT; most other public sector entities do not have access to external financing except SRN (central government holds 40 percent; loans with CNPC Finance and EXIM Bank China). - Contingent liability stress test assumptions: - Financial market contingent liabilities: 5 percent of GDP. - SOE contingent liabilities: 9.5 percent of GDP (reflecting SRN, SNE, and SONACIM from 2017 SOE Census). - Size of domestic arrears in 2021: CFAF 393 billion (about 7.5 percent of non-oil GDP). - Authorities aim to reduce the stock of domestic arrears by CFAF 95 billion in 2022 (about 1.7 of non-oil GDP) and by CFAF 200 billion over 2022-24. - Audited domestic arrears at end-2021: CFAF 354 billion; unaudited arrears (Reste A Payer): CFAF 39 billion. - Evolution and composition of public debt: - Gross public debt increased from 54.1 percent of GDP at end-2020 to 55.9 percent of GDP in 2021. - Domestic debt rose from 27.6 percent of GDP in 2020 to 30.4 percent of GDP in 2021. - External debt decreased by about 1 percentage point of GDP to 25.5 percent of GDP in 2021. - At end-2021, outstanding PPG external debt stood at US$2.9 billion. - Public and publicly guaranteed (PPG) external debt composition is split between multilateral, bilateral, and commercial creditors; non-Paris Club creditors hold the largest share of official bilateral debt; nearly all commercial debt is held by one creditor. ### Selected numbers from Text Table and Table 1 (decomposition of public debt and debt service, 2021) - Total public debt (2021): 6296 (In US$), 100.00 (% total debt), 55.88 (% GDP) - External (2021): 2869 (In US$), 45.58 (% total debt), 25.47 (% GDP) - Domestic (2021): 3426 (In US$), 54.42 (% total debt), 30.41 (% GDP) - Arrears (2021): 676 (In US$), 10.73 (% total debt), 6.00 (% GDP) - Contingent liabilities (memo): 1963.11 (In US$), 1.74 (% ??? as presented) - Multilateral creditors (2021): 941 (In US$), 14.95 (% total debt), 8.35 (% GDP) - IMF (2021): 65 (In US$), 1.10 (% total debt), 0.33 (% GDP) - World Bank (2021): 163 (In US$), 2.59 (% total debt), 1.45 (% GDP) - Commercial creditors (2021): 949 (In US$), 15.08 (% total debt), 8.42 (% GDP) - Glencore Energy (2021): 926 (In US$), 14.70 (% total debt), 8.21 (% GDP) - Memo: Collateralized debt (2021): 926 (In US$), 14.70 (% total debt), 8.21 (% GDP) *Prepared by the Staff of the International Monetary Fund (IMF) and the International Development Association (IDA).* ### 5. No new arrears remain outstanding while discussions to restructure old outstanding ### 1tcdea2023001 - 5. No new arrears remain outstanding while discussions to restructure old outstanding ### Arrears, restructuring, and creditor engagement - No new external arrears accumulated; technical arrears at end-2021 were cleared within the six-week grace period in early 2022, meeting the ECF performance criterion on non-accumulation of new external arrears. - Two restructuring agreements finalized: one with BDEAC at end-December 2021, and one with the Republic of Congo in February 2022. - Negotiations with Libya have significantly progressed; an agreement is expected to be signed in the coming weeks. - Restructuring of official debt with Equatorial Guinea is currently under discussion. - Authorities engaged with Belgian officials regarding a claim by a Belgian company for a furnishing contract of a hotel in N'Djamena and intend to resolve the issue in good faith. - Official bilateral and main private creditors agreed on a debt treatment under the G20 Common Framework to restore debt sustainability consistent with a moderate risk of external debt distress; official creditors expected to sign an MOU in the coming days. - Authorities signed an agreement in principle with Glencore. Debt treatment envelope components: - Creditors committed to reconvene and address need for debt treatment based on IMF-WBG DSA and Creditor Committee Members’ collective assessment consistent with current ECF parameters. - Glencore agreed to reprofile part of the debt service due in 2024; official creditors will contribute proportionally if private creditor contribution is insufficient to bring the debt service-to-revenue ratio below 14 percent in 2024. - Official Creditor Committee Members will reconvene well before end-2024 to examine need for debt treatment for 2025-28 and will coordinate and share information on MOU implementation. ### Official creditors, IDA, and DSSI/CCRT support - Chad has benefited from IDA financial support since 2013, provided entirely in the form of grants. - IDA commitments exceeded $1.5 billion, with 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. - Under the G20 DSSI, Chad applied in 2020 for debt suspension from all official bilateral and private commercial creditors and signed MOUs with France and Kuwait; DSSI led to debt relief of US$1.2 million in 2020 and US$0.1 million in 2021. ### Domestic financing and marketable securities - Authorities relied on domestic borrowing to fill residual financing gaps in 2021, including utilization of BEAC’s public securities program which expired in September 2021. - Outstanding Treasuries rose significantly in 2022 despite high yields, with improvement in maturity profile. - Volume of outstanding securities reached CFAF 668 billion (8.8 percent of GDP) in October 2022. - Shift to longer-term securities (OTAs) increased their share in domestic debt portfolio from 12 percent in March 2021 to 76 percent in October 2022. - Stock of domestic securities issued by the Republic of Chad is expected to decline by CFAF 235 billion over the program period as the government prioritizes reducing costly debt service rather than accumulating large deposits at the central bank. - Increase in oil revenues is expected to support a gradual reduction in the total domestic financing stock during the program period. ### Macroeconomic forecasts and assumptions (DSA baseline) - Real GDP growth (Current DSA): - 2022: 2.5 - 2023: 3.5 - 2024: 3.7 - 2025-29 (avg.): 3.6 - Oil GDP (Current DSA): - 2022: 5.6 - 2023: 5.6 - 2024: 2.0 - 2025-29 (avg.): 1.3 - Non-oil GDP (Current DSA): - 2022: 0.2 - 2023: 1.8 - 2024: 3.1 - 2025-29 (avg.): 4.1 - Current account (incl. expected budget grants; percent of GDP) (Current DSA): - 2022: -4.5 - 2023: 2.8 - 2024: -1.4 - 2025-29 (avg.): -5.2 - Overall budget balance (commitment basis, including grants) (Current DSA): - 2022: -2.4 - 2023: 6.3 - 2024: 8.6 - 2025-29 (avg.): 5.3 - Revenue and grants (Current DSA, percent of GDP): - 2022: 20.6 - 2023: 28.4 - 2024: 31.5 - 2025-29 (avg.): 26.4 - Of which: oil revenues (Current DSA): - 2022: 9.8 - 2023: 17.6 - 2024: 18.1 - 2025-29 (avg.): 13.4 - Of which: non-oil revenue (Current DSA): - 2022: 9.6 - 2023: 10.0 - 2024: 10.3 - 2025-29 (avg.): 10.7 - Of which: grants (Current DSA): - 2022: 1.2 - 2023: 0.9 - 2024: 3.1 - 2025-29 (avg.): 2.3 - Grant element of new external borrowing (Current DSA, percent): 35.4, 39.4, 40.2, 40.9, 42.4 (as reported in table for projection years). ### Fiscal consolidation, social spending, and reforms - DSA assumes fiscal consolidation continues beyond program period at a gradual pace to strengthen non-oil revenue while maintaining public investment and protecting social spending. - Non-oil primary balance is projected to improve by about 4.7 percent of non-oil GDP from 2021 to the end of the program period. - Over 36 months, NOPB consolidation of about 4.7 percentage points of non-oil GDP is envisaged through mobilization of non-oil revenues and streamlining expenditures while promoting social spending. - Tax revenues targeted to increase by 1.1 percentage points of non-oil GDP. - Current primary expenditures projected to drop by 2.2 percentage points of non-oil GDP by gradually reducing the wage bill and other spending such as subsidies and transfers. - Capital expenditures expected to remain at an average of 6.2 percent of non-oil GDP. - DSA assumes a gradual improvement in social spending (34 percent of current spending over 2022-24). - Projected long-term improvements include mobilizing more non-oil revenues (digitizing customs procedures for livestock, streamlining tax exemptions) and increasing public investment to 6.7 percent of non-oil GDP by the end of the program. ### Debt-carrying capacity, stress tests, and risk assessment - Composite indicator (CI) indicates weak debt carrying capacity (CI Score 2.30; CI cutoff for medium capacity is 2.69). - CI components (selected): CPIA contributes 1.06 (46% of CI); import coverage of reserves contributes 1.05 (46%); remittances contribution 0.02 (1%); world economic growth contribution 0.39 (17%). - Relevant external debt burden high-risk thresholds: - PV of external debt-to-GDP: 30 percent - PV of debt-to-exports: 140 percent - Debt service-to-exports: 10 percent - Debt service-to-revenue: 14 percent - DSA relies on six standard stress tests and a customized oil commodity price shock stress test (one-standard-deviation decline in oil prices from 2022-2027 and a customized 50 percent shock). - External debt sustainability: - Chad’s risk of external debt distress is high. - External debt service-to-revenue ratio threshold is breached in 2022-23 under the baseline, mainly due to accelerated debt service to Glencore driven by a cash-sweep clause that increases with oil prices. - Debt treatment under the G20 Common Framework provides assurances that the ratio will fall below 14 percent in 2024 and remain at moderate risk (below 12.3 percent on average) from 2025 onwards. - Exports shock and commodity price shock are most relevant; exports stress test breaches three indicator thresholds (PV of debt-to-GDP, PV of debt-to-exports, debt service-to-exports) for the entire projection horizon. - Public debt sustainability: - Overall risk of public debt distress is high. - PV of total public debt-to-GDP peaked in 2021 at 52.2 percent, expected to decrease to 46.3 percent in 2022 and 39.3 percent in 2023, remaining above the 35 percent high-risk threshold until 2024 when it falls below. *Source: IMF staff and World Bank staff estimates as presented in the cited chapter of the IMF country report.* ### 21. Stress tests indicate that public debt is vulnerabl e to the combined contingent liabilities ### 21. Stress tests indicate that public debt is vulnerable to the combined contingent liabilities shock. The commodity prices shock is the most extreme shock to the PV of debt-to-GDP ratio. The tailored test for the combined contingent liability shock is the most extreme shock impacting the debt service-to-revenue ratio. ### Stress-test findings and scenarios - The commodity prices shock is identified as the most extreme shock to the PV of debt-to-GDP ratio. - The tailored test for the combined contingent liability shock is identified as the most extreme shock impacting the debt service-to-revenue ratio. - The most extreme stress test definition: "The most extreme stress test is the test that yields the highest ratio in or before 2032." The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most extreme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. - Under stress-test assumptions, "All the additional financing needs generated by the shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA." ### Risk rating and vulnerabilities (assessment) - Chad has a "high risk of external and overall risk of debt distress," but debt is described as sustainable under the baseline and debt-treatment assumptions. - Chad’s classification moved from "in debt distress" in the previous DSA (December 2021) to "high risk" of debt distress given the assessment under the current baseline and the debt treatment from official and private creditors that will provide relief if downside risks (including lower oil prices) materialize and a residual financing gap reemerges. - With high oil prices and therefore, oil revenues, there is no residual financing gap. - Downside risks identified: - Potential difficulties mobilizing needed domestic financing. - Regional insecurity. - Fragile socio-political environment. - Vulnerability to climate shocks. - Disruptions to oil production. - Exposure to spillovers from Russia’s war in Ukraine impacting food and fertilizer prices. ### Debt treatment, financing, and conditionality - The debt treatment agreed with official and public creditors under the G20 Common Framework is "vital to maintain debt sustainability." - The agreement ensures that if downside risks materialize and residual financing gaps reemerge, creditors will reconvene and address financing needs in a timely manner. - The terms agreed are said to "guarantee that the risk of debt distress is brought to 'moderate' by the end of the program period and will remain moderate beyond the program period in the medium term, under the ECF program’s assumptions." - This outcome is stated to be consistent with exceptional access policies that require restoring debt sustainability with high probability. - A "zero NCB limit" (zero non-concessional borrowing policy) is an important feature of debt conditionality under the ECF arrangement. ### Remaining financing needs and policy actions required - "Significant concessional financing and implementation of the debt treatment agreement will still be required to ensure a durable improvement to a moderate risk of external and overall debt distress by the end of the program in 2024." - While agreed debt treatment is expected to provide necessary fiscal space in a lower oil price scenario, "significant concessional financing commitments by multilateral and bilateral creditors over the longer term will be needed to avoid a recurrence of either external and/or domestic debt service problems." - The World Bank, through its Sustainable Development Finance Policy (SDFP), supports commitments to: - Improve the accuracy of debt transactions and payments recording and reporting, and transfer debt data currently in Excel to the new SYGADE-6 database. - Adopt an arrêté to ensure that annual debt reports are published on time (no later than 6 months after the end of the year), in addition to compliance with a zero non-concessional borrowing policy. - The government would also need to: - Further enhance debt management capacity and public debt transparency. - Strengthen fiscal policies including improving control of SOE liabilities. - Enhance domestic revenue mobilization and expenditure efficiency. - These policy measures are described as important to build resilience against adverse shocks to revenues (i.e., from oil production shocks, insecurity) and climatic conditions, which are likely to be a persistent challenge in Chad over the long term. ### Authorities’ views - "The authorities broadly agreed with the overall assessment of the country’s debt sustainability." - Debt sustainability is said to have been restored by concluded restructuring agreements, donors’ support, and the reforms envisaged under the ECF Arrangement. - "The authorities are committed to continue strengthening debt management." ### Key statistics, timelines, and program references - Program end target for durable improvement to moderate risk: "by the end of the program in 2024." - Previous DSA classification date referenced: "December 2021." - Time horizon used for most extreme stress-test selection: "in or before 2032." - Data system upgrade referenced: transfer debt data from Excel to "SYGADE-6 database." - Reporting deadline commitment: annual debt reports published "no later than 6 months after the end of the year." - Policy referenced: "zero non-concessional borrowing policy" (zero NCB limit). - World Bank policy referenced: "Sustainable Development Finance Policy (SDFP)." *Source: IMF staff report chapter text (1tcdea2023001).* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1tcdea2023001 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Fiscal adjustment and possible growth paths - 3-Year Adjustment in Primary Balance (Percentage points of GDP): distribution displayed across bins from "-4 .5" through "8.0 m or e" as labeled in source figure. - Projected 3-yr adjustment: 3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top quartile. - Baseline and multiplier scenarios shown for years 2016–2023 with multiplier values: Multiplier = 0.2, Multiplier = 0.4, Multiplier = 0.6, Multiplier = 0.8. - Historical and projected series referenced: Historical; Projected (Prev. DSA); Projected (Curr. DSA). ### External Debt Sustainability — Baseline Scenario, 2019–42 (Table 2 key figures) - External debt (nominal): 2019: 25.6; 2020: 26.4; 2021: 25.5; 2022: 23.8; 2023: 21.7; 2024: 21.6; 2025: 20.8; 2026: 20.3; 2027: 19.5; 2032: 16.1; 2042: 15.1; (percent of GDP). - Change in external debt: 2019: -0.6; 2020: 0.8; 2021: -0.9; 2022: -1.7; 2023: -2.0; 2024: -0.1; 2025: -0.8; 2026: -0.5; 2027: -0.8; 2032: -0.3; 2042: -0.1. - Identified net debt-creating flows (selected): 2019: 0.1; 2020: 4.3; 2021: -1.6; 2022: -7.7; 2023: -5.4; 2024: -2.4; 2025: -2.5; 2026: -1.8; 2027: -1.1; 2032: -5.8; 2042: -17.0; 2038: 3.8; 2042 (another column): -3.1. - Non-interest current account deficit: 2019: 3.6; 2020: 6.7; 2021: 3.9; 2022: -3.4; 2023: 0.9; 2024: 4.6; 2025: 3.8; 2026: 4.7; 2027: 5.0; 2032: -1.1; 2042: -14.0; additional entries: 6.6, 2.6. - Exports (percent of GDP): 2019: 35.4; 2020: 27.7; 2021: 34.5; 2022: 46.4; 2023: 44.2; 2024: 41.1; 2025: 39.2; 2026: 36.9; 2027: 34.9; 2032: 30.3; 2042: 25.0. - Imports (percent of GDP): 2019: 44.5; 2020: 43.8; 2021: 44.2; 2022: 45.2; 2023: 47.6; 2024: 48.1; 2025: 44.7; 2026: 43.3; 2027: 41.6; 2032: 31.1; 2042: 25.5. - Net FDI (negative = inflow): 2019: -4.3; 2020: -3.6; 2021: -3.8; 2022: -4.2; 2023: -6.0; 2024: -6.5; 2025: -6.2; 2026: -5.9; 2027: -5.5; 2032: -4.2; 2042: -2.5; additional values include -4.0, -5.3. - Endogenous debt dynamics (selected): 2019: 0.8; 2020: 1.1; 2021: -1.7; 2022: -0.1; 2023: -0.3; 2024: -0.5; 2025: 0.0; 2026: -0.6; 2027: -0.6; 2032: -0.4; 2042: -0.4. - Contribution from nominal interest rate: 2019: 0.7; 2020: 0.6; 2021: 0.6; 2022: 0.6; 2023: 0.5; 2024: 0.3; 2025: 0.7; 2026: 0.1; 2027: 0.1; 2032: 0.1; 2042: 0.1. - Contribution from real GDP growth: 2019: -0.9; 2020: 0.6; 2021: 0.3; 2022: -0.6; 2023: -0.8; 2024: -0.8; 2025: -0.7; 2026: -0.7; 2027: -0.7; 2032: -0.6; 2042: -0.5. - Contribution from price and exchange rate changes: 2019: 1.0; 2020: 0.0; 2021: -2.6. - Residual: 2019: -0.7; 2020: -3.5; 2021: 0.6; 2022: 5.9; 2023: 3.4; 2024: 2.3; 2025: 1.6; 2026: 1.3; 2027: 0.3; 2032: 5.5; 2042: 16.9; other entries include -3.5 and 2.2. - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (selected years): 20.8, 19.1, 17.4, 16.5, 15.2, 14.5, 13.4, 9.8, 9.6. - PV of PPG external debt-to-exports ratio (selected): 60.2, 41.0, 39.4, 40.0, 38.9, 39.3, 38.4, 32.2, 38.6. - PPG debt service-to-exports ratio (selected): 4.0, 6.4, 7.5, 8.7, 9.1, 6.9, 5.3, 4.2, 5.5, 3.1, 2.5. - PPG debt service-to-revenue ratio (selected): 11.3, 10.4, 16.8, 19.5, 18.4, 13.6, 10.9, 7.8, 10.6, 5.2, 4.0. - Gross external financing need (Million of U.S. dollars): 2019: 81.3; 2020: 527.4; 2021: 326.1; 2022: -424.6; 2023: -128.9; 2024: 119.5; 2025: -49.4; 2026: 46.2; 2027: 201.0; 2032: -903.6; 2042: -6188.3. - Key macroeconomic assumptions (selected): - Real GDP growth (percent): 2019: 3.4; 2020: -2.1; 2021: -1.1; 2022: 2.5; 2023: 3.5; 2024: 3.7; 2025: 3.4; 2026: 3.8; 2027: 3.7; 2032: 3.7; 2042: 3.9; other entries: 1.8, 3.5. - GDP deflator in US dollar terms (change in percent): 2019: -3.7; 2020: 0.0; 2021: 10.9; 2022: -1.5; 2023: -3.0; 2024: 1.4; 2025: 2.1; 2026: 2.4; 2027: 2.7; 2032: 2.8; 2042: 2.9; additional: -1.6, 1.6. - Effective interest rate (percent): 2019: 2.5; 2020: 2.1; 2021: 2.6; 2022: 2.3; 2023: 2.1; 2024: 1.3; 2025: 3.2; 2026: 0.7; 2027: 0.7; 2032: 0.8; 2042: 0.8; other entries 3.3, 1.4. - Growth of exports of G&S (US dollar terms, in percent): 2019: 4.9; 2020: -23.5; 2021: 36.8; 2022: 35.7; 2023: -4.4; 2024: -2.1; 2025: 0.5; 2026: 0.1; 2027: 0.7; 2032: 2.8; 2042: 29.1; others: 0.7, 4.4. - Growth of imports of G&S (US dollar terms, in percent): 2019: 5.3; 2020: -3.7; 2021: 10.8; 2022: 3.1; 2023: 5.8; 2024: 6.1; 2025: -1.8; 2026: 3.0; 2027: 2.3; 2032: -1.7; 2042: 280.3; others: -0.5, 1.9. - Grant element of new public sector borrowing (in percent): entries include 36.8, 36.7, 46.3, 47.9, 52.3, 53.2, 48.7, 42.3, 47.3. - Government revenues (excluding grants, percent of GDP): 2019: 12.5; 2020: 16.9; 2021: 15.5; 2022: 20.7; 2023: 21.9; 2024: 20.7; 2025: 18.9; 2026: 19.6; 2027: 18.0; 2032: 18.0; 2042: 15.7; additional averages: 14.4, 19.2. - Aid flows (Million of US dollars): 2019: 236.0; 2020: 533.5; 2021: 193.7; 2022: 155.4; 2023: 375.9; 2024: 478.1; 2025: 398.5; 2026: 480.4; 2027: 514.6; 2032: 508.2; 2042: 797.9. - Grant-equivalent financing (in percent of GDP) and (in percent of external financing): selected entries include 1.5, 3.3, 3.5, 2.6, 2.8, 2.7, 2.0, 1.4 and 50.6, 68.4, 64.5, 74.1, 73.4, 72.8, 71.0, 62.7, 69.7. - Nominal GDP (Million of US dollars): sequence includes 10,993; 10,757; 11,800; 11,909; 11,962; 12,577; 13,282; 14,127; 15,038; 20,550; 38,908. - Nominal dollar GDP growth: -0.5; -2.1; 9.7; 0.9; 0.4; 5.1; 5.6; 6.4; 6.4; 6.6; 6.9; other entries: 0.1, 5.2. - Memorandum PV of external debt (in percent of GDP) reiterates values: 20.8, 19.1, 17.4, 16.5, 15.2, 14.5, 13.4, 9.8, 9.6. - PV of external debt in percent of exports: 60.2, 41.0, 39.4, 40.0, 38.9, 39.3, 38.4, 32.2, 38.6. - PV of PPG external debt (Million of US dollars) series includes: 2,453.4; 2,269.5; 2,082.0; 2,071.2; 2,020.5; 2,046.7; 2,015.7; 2,007.6; 3,748.7. ### Public Sector Debt — Baseline Scenario, 2019–42 (Table 3 key figures) - Public sector debt (percent of GDP): 2019: 52.3; 2020: 54.1; 2021: 55.9; 2022: 50.4; 2023: 43.7; 2024: 40.1; 2025: 36.4; 2026: 33.0; 2027: 31.0; 2032: 22.4; 2042: 17.5; 205?: 45.0; 203?: 32.9. - Change in public sector debt: 2019: 3.9; 2020: 1.7; 2021: 1.9; 2022: -5.5; 2023: -6.7; 2024: -3.6; 2025: -3.8; 2026: -3.4; 2027: -1.9; 2032: -1.4; 2042: -0.2. - Identified debt-creating flows (selected): 2019: -3.2; 2020: -1.7; 2021: 2.5; 2022: -8.5; 2023: -7.9; 2024: -4.7; 2025: -4.3; 2026: -4.1; 2027: -2.6; 2032: -1.4; 2042: -0.7; additional: 0.7, -3.7. - Primary deficit (percent of GDP): 2019: -0.4; 2020: -2.6; 2021: 0.7; 2022: -6.3; 2023: -7.9; 2024: -5.1; 2025: -5.2; 2026: -6.4; 2027: -5.0; 2032: -5.5; 2042: -3.4; other entries: 0.2, -5.9. - Revenue and grants (percent of GDP): 2019: 13.7; 2020: 20.7; 2021: 16.5; 2022: 21.4; 2023: 24.3; 2024: 22.5; 2025: 20.6; 2026: 21.3; 2027: 19.6; 2032: 19.2; 2042: 16.5; additional: 16.8, 20.7. - Of which: grants (percent of GDP): 1.2; 3.8; 1.0; 0.7; 2.4; 1.8; 1.7; 1.7; 1.6; 1.2; 0.8. - Primary (noninterest) expenditure (percent of GDP): 2019: 13.4; 2020: 18.1; 2021: 17.2; 2022: 15.1; 2023: 16.4; 2024: 17.4; 2025: 15.5; 2026: 14.9; 2027: 14.6; 2032: 13.7; 2042: 13.0; additional: 17.0, 14.8. - Automatic debt dynamics: 2019: -0.7; 2020: 0.8; 2021: 0.2; 2022: -5.0; 2023: -1.2; 2024: -1.2; 2025: -0.7; 2026: -1.3; 2027: -1.2; 2032: -0.9; 2042: -0.8. - Contribution from interest rate/growth differential: -1.4; 2.3; -1.1; -5.0; -1.2; -1.2; -0.7; -1.3; -1.2; -0.9; -0.8. - Contribution from average real interest rate (selected): 0.2; 1.2; -1.7; -3.7; 0.5; 0.3; 0.6; 0.0; 0.0; 0.0; -0.1. - Contribution from real GDP growth (selected): -1.6; 1.1; 0.6; -1.4; -1.7; -1.6; -1.3; -1.3; -1.2; -0.8; -0.7. - Other identified debt-creating flows: -2.1; 0.1; 1.6; 2.8; 1.2; 1.7; 1.6; 3.6; 3.6; 5.0; 3.5; -0.8; 3.6. - Debt relief (HIPC and other): -0.4 across several years. - Deposit accumulation/withdrawals: -1.6; 0.6; 1.9; 3.2; 1.6; 2.0; 2.0; 3.9; 3.9; 5.2; 3.5. - Residual: 7.1; 3.4; -0.6; 2.9; 1.2; 1.1; 0.6; 0.7; 0.6; 0.0; 0.5; 1.8; 0.7. - Sustainability indicators (selected): - PV of public debt-to-GDP ratio (selected): 52.2; 46.3; 39.3; 34.9; 30.7; 27.1; 24.9; 16.0; 12.1. - PV of public debt-to-revenue and grants ratio (selected): 316.1; 216.8; 161.9; 154.8; 148.8; 127.6; 127.2; 83.5; 73.2. - Debt service-to-revenue and grants ratio (selected): 20.3; 21.4; 21.3; 56.6; 65.3; 52.9; 48.1; 43.5; 40.0; 23.1; 11.3. - Gross financing need: 0.3; 1.9; 5.8; 5.8; 8.1; 6.8; 4.8; 2.8; 2.8; 2.7; -1.2; -1.6. - Key macro and fiscal assumptions (selected reiterating Table 2 values): Real GDP growth, average nominal interest rate on external debt, average real interest rate on domestic debt, real exchange rate depreciation, inflation rate (GDP deflator), growth of real primary spending. - Primary deficit that stabilizes the debt-to-GDP ratio (selected): -4.3; -4.4; -1.1; -0.7; -1.2; -1.6; -1.4; -3.0; -3.1; -4.1; -3.2; -3.3; -2.8. - PV of contingent liabilities (not included in public sector debt): 0.0 across listed years. ### Sensitivity Analysis for Key Indicators of Public and PPG External Debt, 2022–2032 (Table 4 highlights) - Baseline PV of debt-to-GDP ratio (selected years): 2022: 19; 2023: 17; 2024: 16; 2025: 15; 2026: 14; 2027: 13; 2028: 12; 2029: 11; 2030: 10; 2031: 10; 2032: 10. - Alternative Scenarios A1 (key variables at historical averages 2022–2032): PV of debt-to-GDP ratio rises across horizon with values including 19, 21, 24, 26, 29, 31, 32, 34, 36, 41, 45. - Bound Tests and Tailored Tests provided across indicators (B1–B6, C1–C4) with many series indicating breaches where bold values appear in original table; thresholds shown: e.g., Threshold 30 for one indicator, Threshold 140 for another, Threshold 10 and 14 for others. - Debt service-to-exports ratio, Debt service-to-revenue ratio, PV of debt-to-exports ratio, and PV of debt-to-GDP ratio all subjected to alternative, bound, and tailored scenarios across 2022–2032. ### Sensitivity Analysis for Public Debt, 2022–2032 (Table 5 highlights) - Baseline PV of Debt-to-GDP (selected): 2022: 46; 2023: 39; 2024: 35; 2025: 31; 2026: 27; 2027: 25; 2028: 23; 2029: 21; 2030: 19; 2031: 17; 2032: 16. - Alternative A1 (historical averages): PV of Debt-to-GDP increases notably across projection horizon with sample values: 46, 44, 45, 45, 48, 50, 52, 56, 59, 62, 66. - Bound Tests (B1–B6) and Tailored Tests (C1–C4) present many scenario paths for PV of Debt-to-GDP, PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio with benchmark and threshold comparisons; TOTAL public debt benchmark: 35 across listed periods. - Selected PV of Debt-to-Revenue Ratio baseline path: 217, 162, 155, 149, 128, 127, 116, 103, 97, 91, 84, 16 (multiple series in table). - Selected Debt Service-to-Revenue Ratio baseline path: 57, 65, 53, 48, 43, 40, 37, 33, 31, 28, 23. - Scenario outputs show potential large increases under adverse scenarios (e.g., Commodity price, Combined contingent liabilities), with many entries flagged as breaching benchmarks in source tables. ### Recent developments, fiscal actions, and program updates (supplementary information) - Adoption of decree allowing collection and publication of beneficial ownership information: Decree adopted on December 6; allows the government to (i) collect beneficial ownership information on central government procurement contracts; and (ii) publish full text of central government procurement contracts along with names and nationalities of beneficial owners of awarded legal persons on an easily accessible government website. - External arrears progress: Claim presented by Credendo (Belgian official export credit agency) is no longer in dispute; Chadian authorities engaging with Belgian authorities to reach agreement on restructuring this claim. - Draft budget law for 2023 submitted to parliament; differs from program fiscal projections: - Provides for a higher wage bill (+0.24 percent non-oil GDP) to accommodate reintegration commitments from the Inclusive National Dialogue; additional spending offset by savings on goods and services and transfers and subsidies. Requires an update to the proposed indicative target (ceiling) on the wage bill per revised Table 3 of the MEFP attached to the Supplementary LOI. - Identifies additional priority investment projects amounting to 4 percent of non-oil GDP in excess of program’s projections aimed at increasing resilience to floods and climate change. - Authorities reiterated commitment to quantitative targets under the Fund-supported program and stated additional investment will occur only if: (i) additional fiscal space can be created through savings on non-priority spending or enhanced revenue mobilization; or (ii) determined at the time of the third review under the ECF arrangement that there is room for additional investment. - Document context: FIRST AND SECOND REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA AND MODIFICATION OF PERFORMANCE CRITERIA—SUPPLEMENTARY INFORMATION AND SUPPLEMENTARY LETTER OF INTENT. Approved by Vitaliy Kramarenko (AFR) and Maria Gonzalez (SPR). Prepared by the African Department in consultation with LEG and SPR. Supplement provides update since staff report (EBS/22/118) on December 9, 2022. *Sources: Country authorities; and staff estimates and projections.* ### 5. These recent developments do not change the thrust of the staff appraisal. The ### These recent developments do not change the thrust of the staff appraisal. ### Changes in composition of 2023 current expenditures - Overall current expenditure envelope: unchanged. - Increase in the wage bill: CFAF 14 billion (0.24 percent of non-oil GDP). - Reductions in other current expenditure composition: - Non-priority goods and services: reduced by 0.17 percent of non-oil GDP. - Transfers and subsidies: reduced by 0.06 percent of non-oil GDP. - Rationale: increase in the wage bill is mainly the result of the conclusion of Inclusive National Dialogue, which provides for: - reintegration into the national army of members of participating politico-military groups; and - an increase in their representation in Parliament. ### Additional domestically financed investment projects (2023) - Focus and objectives: - Increase Chad’s resilience to floods and climate change (dikes, roads, pipelines, crossings). - Facilitate traffic in cities during all seasons and the flow of rain and flood water. - Facilitate access to regions cut off during the rainy season due to dilapidated crossing infrastructure or flooding. - Public investment management: projects will be subject to strong public investment management practices to support quality and effectiveness. - Fiscal consistency safeguards: - An explicit ceiling in the draft budget law on 2022H1 commitments to make them consistent with the program’s fiscal projection. - Restated commitment to achieving overall fiscal targets set under the Fund-supported program. - Alignment of execution of the 2023 domestic investment program with program targets in 2023H2—if necessary by: - a legislative act (supplementary budget law), or - a regulatory act. - Domestically financed investment will exceed current program projection only if additional fiscal space is created through: - savings on non-priority spending, or - enhanced revenue mobilization (including, as envisaged in the TMU, by adjusting the non-oil primary balance if oil revenue is higher than projected). - If additional fiscal space is not created, implementation of these additional investment projects will be postponed. ### Government commitments and implementation intent - Government reiterates commitment to the program’s fiscal objectives. - Timing of implementation of newly identified investment projects will be consistent with program’s fiscal objectives. - Authorities intend to continue discussions with the Fund and other financial partners on financing these projects consistent with program objectives. ### Key quantitative performance criteria and indicative targets (cumulative from beginning of the year; Billions of CFAF) - Quantitative Performance Criteria (QPCs) 1. Ceiling on new external arrears of the government and non-financial public enterprises: 0 0 0 0 0 2. Ceiling on contracting or guaranteeing new non-concessional external debt by the government and non-financial public enterprises: 0 0 0 0 0 3. Floor on non-oil primary budget balance (NOPB): -325 -95 -177 -248 -310 4. Ceiling on net domestic government financing: -831 189 0 -49 -254 5. Ceiling on the stock of domestic payment arrears by the government: 298 288 278 268 248 - Indicative Targets 6. Floor on government tax revenue, excluding tax revenue from oil companies: 535 142 286 433 588 7. Ceiling on wages and salaries: 500 128 255 383 510 8. Floor for poverty-reducing social spending: 255 68 132 195 258 9. Emergency spending procedures-DAO (Percent of primary spending): 35 18 18 18 18 10. Floor on the regularization of emergency spending procedures-DAO (Percent of total DAO): 70 55 75 80 80 - Memorandum items 11. Oil Revenue (net of Debt service to Glencore): 744 139 353 642 856 12. Grants: 13 0 0 0 64 13. Election spending: 0 0 7 14 22 ### Fiscal and financing context (selected figures from Revised Table 2) - Total revenue and grants (2020–2026 series, select entries shown in table header): 1,278 1,026 1,080 1,230 1,578 1,267 1,859 1,316 1,673 1,740 1,894 - Revenue (select): 1,043 868 1,015 1,061 1,530 1,080 1,676 1,114 1,527 1,593 1,746 - Oil and Non-oil breakdowns (select entries): - Oil: 562 374 513 512 976 466 1,067 426 851 835 904 - Non-oil: 481 495 502 548 554 613 609 688 676 758 842 - Expenditure (select): 1,177 1,206 1,205 1,187 1,226 1,256 1,354 1,314 1,340 1,412 1,386 - Current expenditure (select): 800 821 877 787 951 816 951 838 918 965 936 - Wages and salaries (select): 431 425 459 437 500 452 510 465 505 510 515 - Investment, domestically financed (select): 170 140 227 140 129 150 160 160 170 188 196 - Grants and budget support (select): Grants 235 158 65 169 48 188 184 201 146 147 148; Budget support 124 232 92 61 32 86 42 82 62 62 26 - Overall balance (incl. grants, commitment) (select): 101 -180 -125 423 521 250 523 333 295 08 - Non-oil primary balance (excl. grants, commitment) (select): -428 -412 -526 -333 -415 -307 -404 -262 -336 -288 -228 *Sources: Chadian authorities; and IMF staff estimates and projections.* ### 15. Budget spending as part of the food security national response plan30 ### 15. Budget spending as part of the food security national response plan30 ### Recent developments - Humanitarian and security situation - More than 576,000 refugees from neighboring countries. - 381,000 internally displaced persons. - More than 2 million people in severe food insecurity as of early December 2022. - Catastrophic floods have affected more than 1 million persons. - The emergency needs have caused a financing gap of $286.4 million. - Socioeconomic context and macro outcomes - Real GDP is expected to grow by 2.5 percent in 2022. - Inflation is projected at 5.2 percent in 2022. - Food prices have increased due to underperformance of the 2021/22 agriculture campaign, the impact of the war in Ukraine, and the humanitarian crisis. - Political transition - Completion of the Inclusive and Sovereign National Dialogue led to a second phase of the transition with a two-year term National Unity Government mandated to revise the electoral system, hold a referendum on the constitution and form of the state, and organize general elections. - Fiscal and financial sector status - Non-oil fiscal deficit (NOFD) exceeded its target in 2021 due to additional security-related spending; first half of 2022 performance was in line with target because of higher VAT revenues despite continued military and food security spending pressures. - Authorities pursuing reimbursement of domestic arrears, with accelerated payments though some maturing T-bonds and T-bills were rolled over. - Banks’ solvency has strengthened; liquidity remains adequate; overall capital adequacy ratio recovered after declining at end-2020; NPLs broadly well provisioned. - Resumption of regular onsite supervision by COBAC in July 2022 following lifting of pandemic-induced forbearance measures. - External sector - Favorable oil exports in 2022 will help improve the current account balance to 2.8 percent from -4.5 percent in 2021. ### Program implementation and fiscal execution - Implementation constraints and missed targets - Liquidity and public expenditure constraints from salary adjustments, defense equipment expenditures, replenishment of cereal banks, and humanitarian needs prevented smooth program implementation. - Quantitative performance criteria (QPC) missed: non-oil primary balance for end-December 2021 and end-June 2022; stock of domestic arrears for end-December 2021. - Corrective and containment measures taken by authorities - Strict limitation of derogatory expenditure procedures. - Sanctions against line ministries failing to duly report arrears. - Improvement of commitment procedures of public procurement. - Enhancement of the role of the financial controller. - Structural and governance reforms implemented under the program - Publication of a quarterly note on the oil sector. - Adoption of a PFM reform strategy. - Audit of COVID-19 expenditure by a reputable international firm. - Allocation of VAT revenue to an escrow account at the BEAC. - Progress towards procurement contract reforms (including beneficial owners), ceiling on recruitment of civil servants, and upgrading customs IT with ASYCUDA. - Governance reforms in banking and efforts to strengthen banks’ soundness and operational frameworks in line with COBAC recommendations. ### Economic outlook and risks - Projections - GDP growth is projected to exceed 3 percent over the medium-term. - Inflation will gradually decline from 5.2 percent in 2022 towards the regional convergence threshold of 3 percent by 2024. - Main downside risks - Oil volatility. - Delays in donor financing. - Deterioration in security conditions. - Effects of climate shocks on agriculture and livestock. - Policy view - Steadfast execution of the PND 2022-26 and gradual strengthening of the non-oil sector expected to enhance resilience. ### Fiscal policy and reform priorities for 2023–2024 - Fiscal consolidation objectives and measures - From 2023, emphasis on further reducing the non-oil primary deficit. - Fiscal measures in 2023: - Increase domestic revenue mobilization by 1 percent of non-oil GDP. - Reduce current spending by 2 ¼ percent of non-oil GDP. - Beyond 2023: - Aim to achieve a fiscal adjustment of 4.7 percent of non-oil GDP. - Return the wage bill to 7.8 percent of non-oil GDP by 2024. - Further streamline the wage bill towards 6.9 percent by 2026. - Medium-term fiscal consolidation intended to provide space for public investments, social spending, domestic arrear payments, and buffer accumulation. - Structural fiscal reforms (operational, administrative, territorial) - Operational priorities: - Streamline tax exemptions. - Reinforce budget and PFM procedures. - Modernize tax policy, VAT mechanisms and management. - Administrative priorities: - Reinforce coordination between tax and customs administrations. - Provide material resources to improve working conditions. - Territorial priorities: - Decentralize PFM procedures with a focus on computerization to increase efficiency and equitable treatment of civil servants. ### Debt management and transparency - Commitments and actions - Implement medium-term debt strategy integrating the public investment program. - Prioritize concessional loans to finance public investments. - Enhance debt transparency. - Institutional and operational steps to be taken: - Increase resources to the debt directorate. - Improve management of government securities, including programming and maturity. - Reinforce capacities for, and coordination between, entities involved in debt issues. - Authorities welcome technical support from the IMF and other partners. - Authorities supportive of the recent agreement under the G20 Common Framework and committed to its implementation. ### Monetary, financial sector, and inclusion policies - Regional central bank and regulatory stance - BEAC will maintain its policy stance to mitigate inflationary pressures and will advance implementation of FX regulation and cyber risks reforms. - Financial sector reforms and priorities - Continue working with regional institutions to reinforce banks’ operational frameworks, governance, and resilience. - Enhance governance and capital of the two main public banks and closely monitor banks’ asset quality. - Deepen financial inclusion by reinforcing microfinance institutions and payment systems through digitalization. - Some reforms supported by IMF technical assistance. ### Other structural reforms and governance - PND 2022-26 priorities - Improve business environment and economic diversification, including promotion of a green economy to bolster resilience, inclusiveness, and poverty reduction. - Governance and anti-corruption - Progress towards preparation of asset declaration regime for officials. - Publication of beneficial ownership information of legal persons or entities awarded public procurement contracts. - Align penal code with standards of the United Nations Convention Against Corruption (UNCAC) in context of post-transition constitution. - State-owned enterprises and transfers - Implementation efforts for legislations on SOEs and public establishments. - Completion of audit of the national hydrocarbon company SHT by an international firm. - Revision of the framework of transfers and subsidies to the national power operator SNE. - Climate commitments - Continued implementation of strategy for achieving the Nationally Determined Contribution, with support from CEMAC, AfDB, and World Bank. ### Concluding remarks - Authorities’ stance and requests - Authorities continue to take necessary steps to tackle the multi-faceted crisis while advancing the political transition. - Nonobservance of performance criteria attributed to very challenging circumstances. - In light of corrective measures and continued reforms, authorities request waivers of nonobservance for the missed criteria, modification of performance criteria, and completion of the first and second reviews under the ECF. - Executive Directors’ support to the completion of the first and second reviews and related requests will be appreciated. *Sources: Chadian authorities; and IMF Staff.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1tcdea2023001.pdf_