## _cr0721

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### Background
- Chad is one of the poorest countries, landlocked and largely desert, with weak institutions and lack of infrastructure.
- Political developments:
  - Several coup attempts in the last two years; attacks across the Sudanese border in late 2005 and early 2006.
  - President Deby won elections on May 3, 2006, and was inaugurated on August 8, 2006.
- Human development and vulnerability:
  - Chad ranks 173 of 177 countries in the United Nation’s 2005 Human Development Index.
  - Refugees and displaced persons: about "250,000" refugees and "50,000" internally displaced people from Darfur; about "40,000" refugees from northern Central African Republic.
- Oil sector:
  - Chad–Cameroon pipeline construction and Doba region development began in 2001; production started in 2003.
  - Pipeline reached maximum capacity of "225,000 barrels per day" by end-2004.
  - Doba oil trades at a "US$10–12 discount from Brent crude".
  - Oil production accounts for almost half of GDP; majority of population depends on cotton, livestock, and small-scale agriculture.
- Growth prior to and following oil:
  - Since oil era began annual per capita GDP growth averaged almost "9 percent".
  - Investment in oil sector produced high growth early 2000s but weak public finance management and budget segmentation undermined fiscal outcomes.

### Recent developments and fiscal episode (2005–2006)
- Oil revenue and fiscal outcomes:
  - In 2005 oil revenue rose to almost "8 percent of GDP".
  - Overall domestic fiscal surplus increased and earmarked oil deposits accumulated.
  - Non-oil budget faced serious financing constraints, sharp fall in budget support, additional BEAC borrowing and new arrears.
- PRML revision and World Bank relations:
  - January 2006: authorities unilaterally amended the Petroleum Revenue Management Law (PRML), breaching agreements—World Bank froze Chad’s offshore escrow account and suspended disbursements.
  - April 2006 interim agreement and July 2006 subsequent agreement reestablished terms for 2006 and 2007 budgets and addressed use of temporary revenue surge in 2007.
  - Discussions on a new PRMP to cover all oil revenue were to be finalized in context of PRSP update in 2007.
- January–May 2006 episode:
  - Freezing of oil escrow account initially offset by repatriation of FGF resources, exploration license revenue, and initial income tax payments by oil companies.
  - 2006 budget operational in April; wages paid and discretionary spending focused on clearing 2005 arrears.
  - Exceptional security spending about "1.2 percent of GDP" in March–April 2006.
  - External debt service was halted but arrears of "0.4 percent of GDP at end-April" to Fund, World Bank, AfDB were cleared by mid-year.

### Petroleum revenue outlook and management
- Projected path:
  - Oil revenue projected to rise from "14 percent of GDP in 2006" to "45 percent of GDP in 2007", then fall to an average of less than "20 percent of GDP during 2008–09", then decline more gradually until fields exhausted by early-2030s.
- PRMP / PRML arrangements and changes:
  - Under Bank-supported PRMP, project-related revenue flow: 10 percent to a Future Generations Fund (FGF); 72 percent of royalties and 76.5 percent of dividends for priority spending; 4.5 percent of royalties for Doba region; remainder not earmarked.
  - January 2006 PRML revision abolished FGF, widened priority sectors, increased non-earmarked oil share from "13½ to 30 percent", allowed changing priority list by decree, extended law to all fields—contravened loan agreement and led to World Bank suspension.
  - April and July 2006 agreements committed to allocating at least "70 percent of all budgetary resources" (excluding oil revenue in excess of absorptive capacity) to an extended list of priority sectors including governance.
- Tax payment mechanics:
  - Profit tax paid in advance in equal quarterly installments; the advance equals income tax liabilities over the previous year and is netted against actual tax liability paid on March 31.

### Fiscal and public financial management (PFM) challenges
- Key fiscal strains and outcomes:
  - Weak PFM and budget segmentation resulted in increased domestic debt and arrears despite rising oil receipts.
  - Non-oil budget financing constraints led to central bank advances and new arrears.
- PRGF program performance:
  - First review under PRGF (approved February 2005) stalled by petroleum revenue management disputes.
  - Most quantitative performance criteria through June 2005 not observed due to above-programmed wage payments and 2004 arrears; non-oil primary balance and non-oil revenue indicative target were met.
  - Performance improved second half 2005: tighter supplementary budget, revised cash-flow plan, transfer of arrears to Debt Department, external arrears cleared; by end-December 2005 criteria on non-oil primary balance, external arrears, and new external debt met, but wage bill exceeded.
  - Structural criteria partially met with delays.
- PFM weaknesses and budget procedures:
  - Legal time limits for commitments not observed; payments carried over.
  - Excessive payments outside normal procedures including automatic debits on treasury accounts with commercial banks.
  - Different budget codes used by Budget and Treasury Departments complicating monitoring.
  - Segmentation/earmarking under PRML complicated fiscal management; oil budget surplus absorbed while ordinary budget incurred arrears and “borrowed” equivalent of "2.4 percent of GDP from the oil accounts".
- Arrears and irregular expenditure (January–May 2006, percent of non-oil GDP):
  - Wages: "0.4 0.0"
  - Goods and services: "0.6 0.2"
  - Transfers: "0.4 0.6"
  - Exceptional Security ...: "1.2"
  - Investment: "0.9 0.0"
  - Domestic debt: "0.0 0.8"
  - Total: "2.3 2.8"
  - In percent of total expenditure 1/: "29.3 35.4"

### External sector, monetary developments, and inflation
- External sector dominated by oil:
  - Terms of trade improved "112 percent during 2002-05" with further gain of "24 percent projected for 2006".
  - Current account moved from "a deficit of 100 per cent of GDP in 2002" to "a surplus of 1 percent of GDP in 2005".
- Inflation:
  - Annual average inflation "8 percent in 2005" (double the CEMAC average); drought-driven food price effects noted.
  - Inflation rebounded in first half 2006; sharp price increases for some food items and charcoal in March 2006 linked to security-related supply disruptions.
- Exchange rate and competitiveness:
  - Real effective exchange rate appreciated by "2 percent in 2004-2005".
  - Appreciation driven mainly by depreciation of the US dollar against the Euro and drought-affected consumer price fluctuations; eroded some competitiveness gains from 1994 devaluation.
- Monetary aggregates:
  - Broad money grew by "32 percent in 2005" (well above CEMAC "18 percent"), slowed to "19 percent" in 12 months to May 2006.
  - 2005 increase largely reflected sharp expansion in net domestic assets driven by rebound in credit to cotton sector.
- Financial sector vulnerabilities:
  - Commercial bank services limited to five largest cities; microfinance small but growing.
  - Of six commercial banks, only two rated “good” by COBAC; system vulnerable due to overexposure to parastatals.

### Budget framework and expenditure composition
- Segmented budgets and accounts:
  - Ordinary budget: government operational expenditure, debt service, some domestically financed investment; often receives less than mandated "42.6 percent" share of priority spending.
  - Oil budget: priority spending funded by earmarked oil revenue via separate commercial bank accounts; focused on priority sector investment in 2004–05.
  - HIPC budget: resources from difference between pre- and post-HIPC debt service, earmarked for priority spending; accumulated "0.8 percent of GDP in arrears to the HIPC budget at end-2005", reduced to "0.4 percent of GDP by end-May 2006".
- Fiscal table (Percent of non-oil GDP), selected series 2002–2006:
  - Supp. Budget Resources: "12.2 11.6 15.7 18.1 23.9"
  - Oil revenue: "0.0 0.0 4.2 7.8 13.9"
  - Non-oil revenue: "8.4 9.1 10.2 9.5 9.2"
  - Budget support: "3.8 2.5 1.3 0.8 0.8"
  - Domestic expenditure 1/: "10.8 12.5 14.5 16.2 20.7"
  - Current primary: "9.5 10.3 10.5 10.6 15.4"
  - Domestically financed investment: "1.3 2.1 3.5 4.1 5.0"
  - Overall balance 2/: "1.4 -0.8 1.2 1.9 3.2"
  - Oil budget: "0.0 0.0 1.7 2.0 0.0"
  - Ordinary budget: "2.0 -0.1 0.5 0.1 3.2"
  - HIPC budget: "-0.6 -0.7 -0.9 -0.2 0.0"
  - Financing: "-1.2 0.7 -2.8 -2.0 -0.4"
  - External debt service (net): "-1.4 -0.8 -1.6 -0.6 -1.7"
  - Net change in arrears: "-0.1 0.1 1.6 0.1 -2.8"
  - Memorandum items:
    - Non-oil primary balance: "-2.4 -3.2 -3.9 -5.1 -11.2"
    - Foreign-financed investment: "9.2 12.4 9.7 8.9 8.6"
    - Total investment: "10.5 14.6 13.2 13.0 13.6"

### Social and structural reforms; service delivery
- Modest progress:
  - Improvements in access to education, health, potable water, agricultural inputs.
  - Paved roads increased from "600 km to 900 km during 2004–05".
  - Limited progress in World Bank–supported reforms in electricity and cotton sectors, civil service and military reform.
- Governance and business climate:
  - Chad ranks among lowest in business climate and governance indicators; little follow-up on corruption cases.
- Household survey:
  - Completion and analysis of 2004 household survey pending to assess MDG progress; oil-financed priority spending will take time to affect poverty indicators.

### Debt sustainability assessment (joint IMF–World Bank DSA)
- Overall assessment:
  - Chad’s debt situation has improved but remains fragile; country faces a high risk of debt distress.
  - Baseline appears sustainable but entails significant risks (delays in HIPC/MDRI, sharp oil-price declines, weak fiscal discipline).
- Recent debt developments:
  - At end-2005 external public and publicly guaranteed (PPG) debt "CFA 880 billion ($1.6 billion)" or "27 percent of GDP".
  - 90 percent of external debt owed to multilateral institutions.
- Baseline assumptions and projections (selected baseline figures):
  - Real GDP growth (selected): 2006 1.3-1.2; 2007 7.4; 2008 0.8; 2009 2.5.
  - Oil production (millions barrels): 2006 55.4; 2007 47.5; 2008 56.6; 2009 50.3.
  - Oil prices (Brent, $ per barrel): 2006 65.2; 2007 52.0; 2008 49.5; 2009 43.2.
  - Oil revenues (CFAF billions): 2006 400; 2007 619; 2008 151; 2009 219.
  - Oil revenues (% of GDP): 2006 11.7; 2007 20.2; 2008 4.8; 2009 7.0.
- Threshold comparison (selected):
  - NPV of debt to GDP threshold: "30"; 2006 "16"; Average "18".
  - NPV of debt to exports threshold: "100"; 2006 "27"; Average "75".
  - Staff note: several alternative scenarios and bound tests produce ratios that breach thresholds.

### Medium-term framework and 2007 budget
- 2007 revenue outlook and fiscal stance:
  - Government’s oil revenues expected to rise to "31 percent of GDP in 2007" (mission summary) or projected in other tables as different percentages; staff recommends saving bulk of 2007 oil revenue not transferred to the budget.
  - Supplementary 2006 budget approved July 2006 incorporates oil revenues of "14 percent of GDP" and increases non-oil primary deficit from "5 percent of GDP in 2005" to "11 percent of GDP in 2006".
  - 2007 agreed budget allocates at least "70 percent of budgetary resources to priority sectors" per July 2006 MOU with World Bank.
  - 2007 non-oil primary deficit about "14.5 percent of GDP"; framework allows accumulation in oil revenue account equivalent to "15 percent of non-oil GDP" in 2007.
- Growth, inflation, external:
  - Real non-oil growth projected ~"6 percent in 2007", stabilizing around "4.5 percent" thereafter.
  - Staff expects decline in inflation to CEMAC target by end-2007 subject to risks.
- Risks and conditionality:
  - Risks from frontloading spending, uncertain absorptive capacity, and security environment.
  - Staff recommends saving excess 2007 oil revenue, strengthen non-oil revenue, and enforce fiscal discipline.

### Key quantitative figures and tables (selected exact values preserved)
- National income and real sector (annual percent change): GDP at constant prices: "8.5; 14.7; 31.3; 12.7; 12.2; 0.1"
- Money and credit (changes as percent of broad money stock): Net foreign assets: "36.2; -16.5; 6.0; 22.9; 13.4; ..."
- Broad money growth: "27.5; -3.1; 3.3; 8.0; 31.7; ..."
- Exports, f.o.b. annual percent changes: "-6.8; 171.8; 225.9; 31.2; 43.5; 17.4"
- Government finance (percent of GDP): Revenue: "8.4; 9.1; 14.4; 20.1; 17.3; 23.1"
  - Non-oil revenue: "8.4; 9.1; 10.2; 10.9; 9.5; 9.2"
- Consolidated fiscal operations (billions of CFA francs, 2002–2006 selected rows):
  - Revenue: "112.4; 124.6; 198.0; 299.8; 289.7; 341.3; 421.9"
  - Oil royalties, dividends, and income tax 2/: "0.0; 0.0; 57.7; 136.8; 130.4; 165.3; 253.5"
  - Expenditure: "280.3; 348.0; 336.8; 454.2; 404.9; 492.8; 543.3"
  - Domestically financed investment: "16.9; 28.9; 48.8; 82.7; 68.5; 103.4; 91.6"
  - Non-oil primary balance (excl. grants): "-32.5; -44.2; -53.0; -84.9; -86.2; -143.3; -203.7"
- Balance of payments (billions CFA francs, 2002–06 selected): Current account, incl. official transfers: "-1,390.5; -750.3; -110.9; -204.4; 26.5; -34.8"
- Gross official reserves (months of imports incl. oil): "1.1; 1.3; 1.1; 2.6; 1.3; 1.5"
- Public and publicly guaranteed external debt end-2005 (nominal): Total: "880.7" (billions CFA francs); Multilateral institutions: "794.2" (90.2 percent of total).

### Policy messages and IMF staff recommendations
- Overarching principle:
  - Oil revenue can lead to lasting poverty reduction only if its use accounts for macroeconomic and administrative absorptive capacity.
- Fiscal strategy:
  - Set fiscal policy within framework for long-term sustainability; adopt policy to save part of initial peak in oil receipts.
  - Promote non-oil growth and increase non-oil revenue.
- Public financial management:
  - PFM is in urgent need of strengthening; build track record of sound policy implementation and political stability to secure external support.
  - Implement unified budget and asset management system, Treasury Single Account at BEAC, and transparent routine dissemination of fiscal policies and outcomes.
- PRGF engagement:
  - Authorities want to resume PRGF first review discussions; satisfactory implementation of revised 2006 budget and PFM improvements would facilitate resumption.
  - Discussions should include a new medium-term macroeconomic framework reflecting revised revenue outlook and convincing structural reform agenda.
- Structural reforms:
  - Strengthen non-oil revenue, civil service, military, and public enterprise reform.
  - Reform electricity and cotton parastatals to eliminate subsidies; implement DTIS trade reforms.
  - Strengthen judiciary and anticorruption actions and improve statistical systems.

### Annex I — Short- and Long-Term PFM measures (selected actions and status)
- Short-term measures (selected):
  - Revised 2006 budget prepared and Law 025/PR/2006 signed July 19, 2006.
  - Ministerial order for 2007 budget timetable (Circular 843/PM/06 signed June 13, 2006).
  - Restrict exceptional expenditure procedures (Circular 006/PM/CAB/06 signed June 30, 2006).
  - Engage external auditors for treasury-verified arrears audit (bid received August 3; EC checking compliance).
  - Cash-flow plan completed June 15, 2006 and updated June 29, July 25, August 4.
  - Deposit of June 30 income tax by oil consortium to BEAC; instruction future payments to BEAC.
- Long-term measures (selected objectives and deadlines):
  - Unified budget management system consolidating ordinary, oil, HIPC, and donor budgets (2007).
  - Improve tax and customs revenue collections (2007).
  - Treasury Single Account fully reestablished and oil accounts integrated (2007–2008).
  - New fully computerized treasury accounting system compatible with CID by December 2008.
  - Review PRML to implement simpler transparent oil revenue management system covering indirect oil revenue (2007).

### Annex II — Letter from Minister of Finance Tolli (July 31, 2006) — selected commitments
- Government confirms intention to cooperate with IMF and requests IMF support to resume PRGF discussions.
- National Assembly approved supplementary 2006 budget on July 19, 2006; supplementary budget “takes into account the provisions agreed to with the IMF and the World Bank”.
- PRSP revision expected to be completed in 2007 to provide framework for oil revenue management.
- Government commits to consult IMF if security conditions or spending needs diverge materially and to provide periodic updates of cash-flow plan and required program data.
- Attachments listed: Consolidated Government Operations 2002–06; Quantitative Targets for Sept 30, 2006–Dec 31, 2006; Key Structural Measures for 2006.

### Staff appraisal — priorities, risks, and sequencing
- Political stability essential to use oil wealth for poverty reduction and enable policy implementation.
- Strengthen PFM urgently; staff supports authorities’ action program and calls for strong international assistance.
- Priorities and sequencing:
  - Elaborate 2007–09 MTEF in time for 2007 budget formulation.
  - New PRMP to be a key element in PRSP and in place for the 2008 budget.
  - Save a share of oil revenue to insure future financing as oil is exhausted.
  - Implement structural reforms to develop non-oil sector and raise non-oil revenue.
- Monitoring and data:
  - Close monitoring of price developments and improvements in statistical information on prices and wages recommended.
  - Chad’s macroeconomic statistics urgently need upgrading; follow-up on ROSC recommendations and seek technical assistance for national accounts and prices.

*Source: IMF staff report (Chad), content from the provided PDF chapter.*

### Executive Summary ......................................................................................................

### Executive Summary

### Background
- Chad is described as one of the poorest countries in the world, landlocked and largely desert, with weak institutions and a lack of infrastructure hindering development.
- Political instability: several coup attempts in the last two years; attacks across the Sudanese border in late 2005 and early 2006; President Deby won elections on May 3, 2006, and was inaugurated on August 8, 2006.
- Human development and vulnerabilities:
  - Chad ranks 173 of 177 countries in the United Nation’s 2005 Human Development Index.
  - Chad harbors about 250,000 refugees and 50,000 internally displaced people from the Darfur conflict and about 40,000 refugees from the northern part of the Central African Republic.
- Oil sector and recent history:
  - Construction of the Chad–Cameroon pipeline and development of the Doba region oil fields began in 2001; production started in 2003.
  - The pipeline reached its maximum capacity of 225,000 barrels per day by the end of 2004.
  - Doba oil trades at a US$10–12 discount from Brent crude.
  - Oil production accounts for almost half of GDP, while the bulk of the population depends on cotton, livestock, and small-scale agriculture.
- Macroeconomic context:
  - Investment in the oil sector led to high growth rates in the early 2000s; since the oil era began annual per capita GDP growth averaged almost 9 percent.
  - Despite the oil surge, weak public finance management and budget segmentation have undermined fiscal outcomes.

### Recent Developments
- Oil revenue and fiscal outcomes:
  - In 2005 oil revenue rose to almost 8 percent of GDP, the overall domestic fiscal surplus increased, and earmarked oil deposits were accumulated.
  - The non-oil budget faced serious financing constraints, including a sharp fall in budget support, resulting in additional central bank (BEAC) borrowing and new arrears.
- Pipeline and World Bank relations:
  - In January 2006, the authorities unilaterally amended the petroleum revenue management law (PRML), breaching agreements with the World Bank under the oil pipeline project.
  - The World Bank froze Chad’s oil offshore escrow account, which led to an interruption in oil revenue receipts.
  - An interim agreement in April 2006 focused on the use of petroleum revenue in 2006 and steps to strengthen public financial management.
  - A subsequent agreement in July 2006 lifted contractual remedies and addressed the use of an expected temporary surge in oil revenue in 2007.
  - Discussions on a new petroleum revenue management program (PRMP) covering all oil revenue were to begin later in 2006 and be finalized in the context of the preparation of a new Poverty Reduction Strategy Paper (PRSP) in 2007.
- Growth and output:
  - Construction of the pipeline and rising oil production pushed average total real GDP growth to over 16 percent during 2000–04.
  - In 2005 non-oil GDP rebounded sharply (weather-related agricultural recovery and cotton ginning); overall growth slowed to 12 percent as oil production stagnated.
  - Modest non-oil growth and a decline in oil output were expected to likely leave real GDP unchanged in 2006.

### Petroleum Revenue Outlook and Management
- Projected oil revenue path:
  - Oil revenue is projected to rise from 14 percent of GDP in 2006 to 45 percent of GDP in 2007, before falling to an average of less than 20 percent of GDP during 2008–09 and then falling more gradually until the fields are exhausted by the early-2030s.
- PRMP / PRML developments:
  - Under the World Bank–supported PRMP, project-related revenue should pass through an offshore escrow account and after deductions be earmarked: 10 percent for a Future Generations Fund (FGF); 72 percent of royalties and 76.5 percent of dividends for priority spending; 4.5 percent of royalties for the Doba region; remainder not earmarked.
  - The January 2006 PRML revision abolished the FGF, widened the definition of priority sectors, increased the share of non-earmarked oil revenue from 13½ to 30 percent, allowed changing the list of priority sectors by decree, and extended the law to all oil fields—actions that contravened the loan agreement and led to World Bank suspension of disbursements and freezing of the escrow account.
  - April and July 2006 agreements with the World Bank reestablished terms for 2006 and 2007 budgets and committed to allocating at least 70 percent of all budgetary resources (excluding oil revenue in excess of absorptive capacity) to an extended list of priority sectors, including governance.
  - The list of priority sectors and the design of a new PRMP were to be revised during the 2007 PRSP update.

### Fiscal and Public Finance Management Challenges
- Key fiscal strains and outcomes:
  - Weak public finance management and budget segmentation resulted in increased domestic debt and arrears despite rising oil receipts.
  - The non-oil budget experienced serious financing constraints, leading to central bank borrowing and new arrears.
- Performance under PRGF and program status:
  - The first review under the PRGF arrangement, approved in February 2005, was stalled by disagreements over petroleum revenue management.
  - Most quantitative performance criteria through June 2005 were not observed, largely owing to above-programmed wage payments and 2004 arrears; however, the non-oil primary balance performance criterion and the indicative target for non-oil revenue were met.
  - Performance improved during the second half of 2005 with a tighter supplementary budget, a revised cash-flow plan, transfer of the stock of arrears to the Debt Department, and clearance of external arrears; by end-December 2005, criteria on the non-oil primary balance, external arrears, and new external debt were met, but the wage bill criterion was exceeded.
  - Structural performance criteria were not fully met; two of three measures were implemented partially with delays.
- Data and statistical weaknesses:
  - Data provision for surveillance is adequate overall but has severe weaknesses and shortcomings in most macroeconomic statistics; a recent ROSC data module made recommendations for improvements.

### Key Policy Messages and Recommendations
- Use of oil revenue and poverty reduction:
  - The oil revenue will only lead to lasting poverty reduction if its use takes into account macroeconomic and administrative absorptive capacity.
  - A key pre-requisite is the formulation and annual updating, in close cooperation with the World Bank, the Fund, and other partners, of a realistic medium-term expenditure framework.
- Fiscal strategy:
  - Fiscal policy should be set within a framework for long-term fiscal sustainability, including a policy to save part of the initial peak in oil receipts.
  - Policies to promote non-oil growth and measures to increase non-oil revenue should support the fiscal strategy.
- Public financial management:
  - Public finance management (PFM) is in urgent need of strengthening.
  - Building a track record of sound policy implementation and political stability is important to secure crucial external support for the government’s action plan to strengthen PFM.
- PRGF engagement and conditions for resumption:
  - The authorities wish to resume discussions on the first review under the PRGF arrangement in the near future, viewing a close relationship with the Fund as critical for addressing macroeconomic challenges and for progress toward the HIPC completion point.
  - Satisfactory implementation of the revised 2006 budget and measures to improve PFM would facilitate resuming discussions on completing the first review under the PRGF arrangement later in the year.
  - Such discussions would need to include a new medium-term macroeconomic framework reflecting the new revenue outlook and a convincing structural reform agenda.

_Executive Summary, IMF staff report._

### 5.      External sector developments were also dominated by the oil sector. Following the

### 5. External sector developments were also dominated by the oil sector. Following the

### External sector and oil
- Completion of the construction phase of the oil project led to:
  - Decline in the current account deficit as investment-related imports fell and oil exports started (Table 6).
  - Terms of trade improved by "112 percent during 2002-05" with a further gain of "24 percent projected for 2006".
  - Current account balance shifted from "a deficit of 100 per cent of GDP in 2002" to "a surplus of 1 percent of GDP in 2005" (Table 1 and Figure 1).
- High foreign oil-sector investment and imports in percent of GDP during 2000-03 were followed by high oil production and exports ratios to GDP, an increase in government savings and domestically financed investment to non-oil GDP ratios, and an acceleration of real GDP growth until 2004.

### Inflation
- Inflation is very sensitive to food prices and has been higher than in other members of CEMAC.
- Annual average inflation:
  - "8 percent in 2005" (double the CEMAC average), mostly reflecting the impact of the 2004 drought on food prices during the first half of 2005 (Figure 2).
- Price dynamics:
  - Decline in prices started in August-September 2005 reflecting an excellent harvest, but this decline was short-lived.
  - Inflation rebounded in the first half of 2006; very sharp price increases for a few food items and charcoal in March appeared to reflect security concerns and related supply disruptions.
- Figure coverage: "January 2004-June 2006" month-on-month, year-on-year, and 12th month series depicted.

### Exchange rate and competitiveness
- The real effective exchange rate appreciated by "2 percent in 2004-2005" (Figure 3).
- Main drivers:
  - Drought-affected fluctuations in consumer prices had some impact.
  - The main factor was the depreciation of the US dollar against the Euro.
- Effect:
  - Upward trend of the real effective exchange rate has eroded some competitiveness gains from the 1994 devaluation, though to a lesser extent than in the CEMAC region as a whole.
- Non-oil exports:
  - Remained relatively stable in percent of GDP; decline in cotton exports through 2004 (reflecting financial problems of the state-owned cotton company) was offset by higher livestock exports.

### Monetary developments and financial sector
- Broad money:
  - After stagnating in 2003–04, broad money grew by "32 percent in 2005", well above the "18 percent" increase seen in the CEMAC as a whole and four times the program rate.
  - During the 12 months to May 2006, broad money growth slowed to "19 percent".
  - In Chad the 2005 increase largely reflected a sharp expansion in net domestic assets of the banking system, driven by a rebound in credit to the cotton sector (Table 5).
- Financial sector structure and vulnerabilities:
  - Chad’s financial system is among the least developed in the CEMAC region.
  - Commercial bank services available only in the five largest cities.
  - Microfinance sector is small but gaining importance.
  - Of the six commercial banks, only two are rated “good” by the Banking Commission of Central Africa (COBAC).
  - The system is vulnerable because of overexposure to parastatals.

### Fiscal developments and budget composition
- Oil and non-oil revenue:
  - Public spending increased following the start of oil revenue, which reached "almost 8 percent of GDP in 2005".
  - Non-oil revenue improved, bolstered by improved revenue administration and growth in the formal sector, stimulated by oil-related investment.
  - Sharp drop in donor budget support partly offset higher domestic revenue.
- Impact on spending and balances:
  - Net increase in resources financed higher spending, including investment, helping offset a decline in donor-financed investment.
  - Overall domestic surplus (commitment basis, excluding foreign-financed investment) was only slightly higher than before oil revenue started.
- Key fiscal figures (Percent of non-oil GDP), selected years 2002–2006 (from consolidated fiscal operations table):
  - Supp. Budget Resources: "12.2 11.6 15.7 18.1 23.9" (2002 2003 2004 2005 2006)
  - Oil revenue: "0.0 0.0 4.2 7.8 13.9"
  - Non-oil revenue: "8.4 9.1 10.2 9.5 9.2"
  - Budget support: "3.8 2.5 1.3 0.8 0.8"
  - Domestic expenditure 1/: "10.8 12.5 14.5 16.2 20.7"
  - Current primary: "9.5 10.3 10.5 10.6 15.4"
  - Domestically financed investment: "1.3 2.1 3.5 4.1 5.0"
  - Overall balance 2/: "1.4 -0.8 1.2 1.9 3.2"
  - Oil budget: "0.0 0.0 1.7 2.0 0.0"
  - Ordinary budget: "2.0 -0.1 0.5 0.1 3.2"
  - HIPC budget: "-0.6 -0.7 -0.9 -0.2 0.0"
  - Financing: "-1.2 0.7 -2.8 -2.0 -0.4"
  - External debt service (net): "-1.4 -0.8 -1.6 -0.6 -1.7"
  - Net change in arrears: "-0.1 0.1 1.6 0.1 -2.8"
  - Memorandum items:
    - Non-oil primary balance: "-2.4 -3.2 -3.9 -5.1 -11.2"
    - Foreign-financed investment: "9.2 12.4 9.7 8.9 8.6"
    - Total investment: "10.5 14.6 13.2 13.0 13.6"
- Expenditure composition (Figure 4, percent of non-oil GDP, 2002-05):
  - Priority sectors, non-priority sectors, non-oil primary balance (commitment basis, excl. grants), and domestically financed investment series shown.

### Arrears, budget procedures, and public financial management (PFM) weaknesses
- Despite revenue gains, domestic debt and arrears continued to accumulate due to poor budget discipline and weak PFM, including:
  - Failure to observe legal time limits for entering into commitments at the end of the fiscal year, resulting in payments carried over to subsequent years.
  - Excessive payments outside normal budgetary procedures, including automatic debits on treasury accounts with commercial banks.
  - Use of different budget codes by the Budget and Treasury Departments, complicating budget monitoring and focusing fiscal management on day-to-day treasury balances without adequate attention to commitments.
- Segmentation and earmarking under the PRML complicated fiscal management:
  - Overall domestic surplus occurred entirely on the “oil budget”; capacity constraints delayed priority sector investment and payments on projects, raising balances in oil revenue accounts at the BEAC to about "1.5 percent of GDP by the end of 2005".
  - Pressures on the ordinary budget: although non-oil revenue rose and the ordinary budget received its "13.5 percent share of rising oil revenues", this was more than offset by the decline in budget support. Current expenditures rose, including higher staffing and wage incentives in education and health; military salaries also rose sharply in 2005.
  - Resources for debt service had to be found on the ordinary budget’s financing accounts; central bank advances rose and the ordinary budget incurred substantial new arrears, largely cleared in early-2005. Subsequently the ordinary budget “borrowed” the equivalent of "2.4 percent of GDP from the oil accounts", new arrears were incurred and the stock of arrears increased.
- Arrears and irregular expenditure (January–May 2006, percent of non-oil GDP):
  - Wages: "0.4 0.0" (Arrears / Irregular expenditure? table shows categories—presented in source as rows.)
  - Goods and services: "0.6 0.2"
  - Transfers: "0.4 0.6"
  - Exceptional Security ...: "1.2"
  - Investment: "0.9 0.0"
  - Domestic debt: "0.0 0.8"
  - Total: "2.3 2.8"
  - In percent of total expenditure 1/: "29.3 35.4"

### Budget framework
- Chad’s overall budget links different categories of resources to specific expenditure through separate budgets and bank accounts with limited transfer flexibility.
- Sub-budgets:
  - Ordinary budget: government operational expenditure, debt service, some domestically financed investment; an important share covers priority spending though usually less than the mandated "42.6 percent".
  - Oil budget: priority spending funded by earmarked oil revenue executed through separate commercial bank accounts; government in 2004 and 2005 focused this budget on priority sector investment.
  - HIPC budget: resources from difference between debt service due before and after HIPC relief, earmarked for priority spending; government had accumulated "0.8 percent of GDP in arrears to the HIPC budget at end-2005", reduced to "0.4 percent of GDP by end-May 2006".

### January–May 2006 fiscal episode
- Revenue shortfall from freezing of the oil escrow account was initially offset by:
  - Repatriation of resources in the FGF, revenue from exploration licenses, and initial income tax payments by oil companies.
- Operational notes:
  - The 2006 budget did not become operational until April.
  - Wages were paid and discretionary expenditure focused on clearing 2005 arrears.
  - Intensification of rebel attacks in March and April prompted exceptional security spending of about "1.2 percent of GDP".
  - Payments outside regular procedures were substantial.
  - External debt service was halted, but arrears of "0.4 percent of GDP at end-April" to the Fund, the World Bank, and the African Development Bank (AfDB) were cleared by mid-year.

### Social and structural reforms, service delivery
- Progress in alleviating growth constraints modest:
  - Improvements in access to education, health, potable water, and agricultural inputs.
  - Length of paved roads increased from "600 km to 900 km during 2004–05".
  - Limited progress in World Bank–supported reforms in electricity and cotton sectors, civil service and military sector reform.
- Governance and business climate:
  - Chad ranks among the lowest countries in business climate and governance indicators; little follow-up on corruption cases.
- Household survey:
  - Completing analysis of the 2004 household survey will allow fuller assessment of progress toward the Millennium Development Goals; however, it will take time for oil-financed priority spending to be reflected in poverty indicators.

### CEMAC convergence criteria and debt relief
- Poor fiscal performance and inflation pressures have prevented Chad from meeting CEMAC convergence criteria.
- Selected indicators and compliance (1999–2005):
  - Basic fiscal balance (criterion: non negative): "3/ -2.0 -3.1 -2.4 -3.2 -3.4 -0.2 1.1" (Est./Est. columns per source).
  - Consumer price inflation (criterion: annual percentage change of 3 percent or less): "-8.0 3.8 12.4 5.2 -1.8 -5.4 7.9"
  - Public debt (criterion: 70 percent of GDP or less) 4/: "65.6 74.2 57.6 52.9 46.2 32.4 28.3"
  - Net change in government arrears (criterion: non positive) 5/: "-0.5 0.0 0.6 -0.1 0.1 0.9 0.1"
  - Total number of criteria violations: "1 3 3 2 2 2 2"
- Debt relief status and external debt:
  - Delay in reaching the completion point under the HIPC Initiative led to declining debt relief.
  - Available IMF interim relief was used by end-2005; Paris Club assistance suspended at end-September 2005 following delay in completing first review under the PRGF arrangement.
  - AfDB provided interim assistance until early-2006; World Bank interim assistance will reach its ceiling in 2007.
  - Chad’s external debt was equivalent to "47 percent of GDP at end-2005".
  - NPV of debt-to-exports ratio is estimated at "37 percent after HIPC relief".
  - External debt service after HIPC relief was "more than 7 percent of non-oil revenue in 2005".

### Petroleum revenue outlook (Box 4)
- At preparation of the Doba oil project, projected long-term implied well-head oil price was "US$12–17 per barrel".
- Actual price developments:
  - In 2005 the price increased to "US$33 per barrel" and profits soared.
  - Oil companies expected to pay income tax equivalent to "almost 4 percent of GDP in 2006", comprising taxes on 2005 profits (paid on March 31) plus an equal advance on 2006 income tax (paid in equal quarterly installments).
- Projection scenario:
  - Under current trends, total oil revenue could triple in 2007 before falling back in 2008–09.
  - Oil company profits expected to increase in 2006 in line with a higher average oil price, leading to much higher income tax payments in 2007, including significant advance on 2008 income taxes.
  - Assuming a moderate decline in oil prices and production, profits will decline in 2008-09; small decline in oil royalties and dividends but a sharp fall in net income tax payments reflecting regularization of significant advances paid in previous years.
  - Long-term production expected to gradually decline from "63 million barrels in 2005" to about "10 million barrels around 2020", indicating that, based on current prices, the importance of oil revenue would also gradually decline.
- Tax payment mechanics:
  - Under Chad’s tax legislation, profit tax is paid in advance in equal quarterly installments; the advance equals income tax liabilities over the previous year and is netted against the actual tax liability to be paid on March 31 of the following year.

*Sources: Chadian authorities; and IMF staff estimates and projections.*

### 17.      Faced with mounting financing needs on the ordinary budget, the authorities

### Faced with mounting financing needs on the ordinary budget, the authorities

### Background and authorities' concerns
- The authorities perceived the original PRML as overly rigid and questioned the justification for the Future Generations Fund (FGF) given high current needs; growing balances in the FGF were accompanied by new domestic borrowing.
- The 2003 PRSP identified more priority areas than the PRML, including enhancing security (police and gendarmerie), de-mining, decentralization, and strengthening of the judiciary.
- The authorities felt the arrangements lacked flexibility to counter declining budget support or accommodate new priority needs, such as those stemming from large numbers of refugees, and that earmarking led to a complex and difficult-to-manage system.
- The PRML had only become fully effective by mid-2004; preparations for amendments had advanced and changes became effective in January 2006.

### PFM, PRML revision process, and immediate recommendations
- Staff noted difficulties also reflected weaknesses in public financial management (PFM) and failure to adhere to established budget execution procedures.
- Staff argued PFM needed to be strengthened to protect priority spending before any revision of the PRML; more time was needed to assess PRML operation.
- Interim staff recommendation: use the full flexibility under the PRML to shift priority current expenditure to the oil budget to reduce pressure on the ordinary budget.
- When authorities insisted on rapid revision, World Bank and Fund staffs proposed an accelerated structured review; amendments were implemented in January 2006.
- Multidonor mission in April 2006 agreed that, given needs for security expenditure after rebel attacks and for clearance of 2005 arrears, the 2006 budget could only be financed by allotting a larger share of oil revenue to general budget financing, as allowed under the amended PRML.
- It was agreed the list of priority sectors eligible for oil-revenue financing should be extended to better reflect PRSP development needs.

### Medium-term policy principles and priorities (inputs for PRSP update and PRML revision)
- Expenditure should be kept within the economy’s absorption capacity; projects and sector plans should include macroeconomic and administrative absorption capacity considerations in the context of a medium-term expenditure framework (MTEF).
  - Fund staff should participate in elaboration of the 2007-09 MTEF; the MTEF should be finalized in the near future to allow preparation for the 2007 budget.
  - At a minimum the MTEF should include an envelop of expenditure and indicative targets for non-oil revenue for 2007-09 consistent with macroeconomic and fiscal aggregates and government policy objectives.
- Expenditure plans must be geared to long-term fiscal sustainability: when oil revenue runs out non-oil revenue must be able to finance recurrent costs of oil-financed investments; raise the currently very low non-oil revenue-to-GDP ratio; phase expenditure carefully and build a buffer against shortfalls.
- Fiscal policy should be supported by sound PFM practices: adopt a unified budget and asset management system covering all government operations executed through a treasury single account at the BEAC.
- Fiscal policy implementation should be transparent and accountable: routine dissemination of fiscal policies and outcomes; strengthen oversight institutions and audits, including enhanced ex-post oversight for the Collège; corrective actions to address detected irregularities.
- The poverty reduction strategy, including priority sectors, should be based on the PRSP; the 2003 PRSP needs updating, including for the revised revenue outlook.
- Reforms to promote non-oil sector development should continue: improve efficiency of basic utilities; reform the cotton sector; build modern financial sector infrastructure; remove barriers to trade.

### Authorities’ stance and timing
- Authorities agreed with broad outlines of the medium-term strategy and planned a full assessment of development priorities and private sector promotion as part of the PRSP update expected to be completed in the second half of 2007.
- Authorities considered it premature to discuss a quantitative medium-term macroeconomic framework ahead of detailed discussions about the petroleum revenue outlook, the 2007-09 MTEF, and stabilization policy planned for September 2006 (under July agreement with the World Bank).
- Authorities agreed oil revenues in excess of immediate needs and absorptive capacity should be saved for future use but insisted any policy be flexible for unexpected emergencies and other needs.

### Structural reform priorities for non-oil sector development
- Trade reform: guided by the Diagnostic Trade Integration Study (DTIS) recommendations—overhaul customs administration; remove tariff exemptions and temporary surcharges on imports; eliminate export taxes.
- Cotton sector: little progress toward reform and privatization of state-owned cotton company; authorities seek donor assistance for a poverty and social impact analysis to resume reform.
- Electricity sector: supply shortfalls, high costs, and dependence on budget subsidies; authorities intend to accelerate discussions with the World Bank on reforms (including the telephone company) and prioritize road network expansion.
- Financial sector: authorities agreed with main recommendations of the regional FSAP and intend to cooperate with COBAC; in the short-run they will discuss moving toward a single treasury account with banks to avoid liquidity problems.

### Short-term policies and the revised 2006 budget (key statistics)
- The supplementary 2006 budget, approved by parliament in July, incorporates oil revenues of 14 percent of GDP, with the increase of 6 percent of GDP from 2005 largely reflecting income tax receipts.
- Expenditures rise correspondingly so that the non-oil primary deficit (on a commitment basis) would increase from 5 percent of GDP in 2005 to 11 percent of GDP in 2006.
- The budget allows significant acceleration of domestically-financed investment in H2 2006, especially in road building.
- The bulk of the increase in spending for the year as a whole reflects:
  - exceptional military expenditure (almost 2 percent of GDP), most of which has already taken place;
  - subsidies to the electricity and cotton parastatals (1.4 percent of GDP), to be eliminated by 2008 under World Bank-supported reform programs;
  - more accurate budgeting of utility costs to avoid arrears.
- The budget provides for clearance of 2005 domestic arrears; financing would include:
  - advances from the BEAC (1 percent of GDP);
  - use of end-2005 balances in the oil revenue accounts (mainly from the FGF—1.3 percent of GDP);
  - budget support from the AfDB (almost 1 percent of GDP).

### Inflation, monetary and absorption issues (observations)
- Taming inflation in the rest of 2006 is a concern; inflation in the first half of 2006 largely reflected supply-side developments and security concerns, with only a minor contribution from growth of non-oil GDP and recovery in private sector credit.
- Specific staff observations:
  - Higher inflation largely stemmed from higher prices for a small number of foods and charcoal, whose distribution appears hampered by rising insecurity.
  - Total public expenditure has been largely unchanged from 2003, despite a shift from foreign–financed projects to domestic spending.
  - While monetary expansion was rapid in 2005, it followed stagnation in previous years; velocity was only slightly lower in 2005 than in 2002.
  - The rise in broad money was driven by an increase in net domestic assets reflecting financing of the cotton sector; broad money growth slowed in the first half of 2006.

### Technical assistance, data, and program conditionality
- Chad urgently needs technical assistance in PFM and other areas to manage expected oil resources.
- Authorities appreciated Fund assistance but require further assistance to implement the PAMFIP (with broad local ownership), strengthen customs, and effect other improvements.
- Staff recommended authorities react promptly to the draft data ROSC report to develop a plan to strengthen the statistical database.
- Authorities requested a rapid resumption of the PRGF-supported program after resolution of the dispute with the World Bank.
  - Satisfactory implementation of the revised 2006 budget and measures to improve PFM, plus implementation of key structural reforms, could facilitate resumption of first review discussions in the near future.
  - HIPC completion point could be reached after at least six months of satisfactory performance under the PRGF-supported program.

### Staff appraisal: priorities and recommendations
- Political stability is essential to allow oil wealth to be used for poverty reduction and growth and to enable policy implementation, including sound fiscal management.
- Public financial management is in urgent need of strengthening to allow transparent, efficient, and effective use of public sector resources; staff supports the authorities’ action program and calls for strong international assistance.
- Government commitments needed: steady enforcement of laws and regulations and continuity in key administrative positions to promote lasting capacity.
- Staff urges authorities to account for absorptive capacity in managing the anticipated oil revenue windfall; reorient budget formulation toward long-term fiscal goals and develop an MTEF consistent with macroeconomic stability and administrative constraints.
  - The 2007-09 MTEF should be elaborated in time for formulation of the 2007 budget.
- A new PRMP should be a key element in the PRSP, incorporating the revised revenue outlook and aiming to support lasting poverty reduction and growth:
  - The new PRMP should be in place for the 2008 budget.
  - It should promote long-term fiscal sustainability and macroeconomic stability by keeping expenditure in line with absorptive capacity and saving a share of oil revenue to insure future financing as oil is exhausted.
  - It should include provisions for monitoring effective execution of expenditure and promote best PFM practices through implementation of a unified budget and assets management system, fostering transparency and accountability.
- Structural reforms remain critical to use the temporary oil windfall to develop a non-oil sector that can support poverty reduction once oil runs out:
  - Strengthen non-oil revenue, pursue civil service, military, and public enterprise reform.
  - Intensify efforts with the World Bank and other partners to reform electricity and cotton parastatals and eliminate budgetary subsidies.
  - Implement trade system reforms recommended by the DTIS.
  - Strengthen judiciary and anticorruption efforts, including pursuing corruption cases identified by oversight institutions.
- Membership in CEMAC and the fixed exchange rate regime has provided an important nominal anchor, but risks of real appreciation from the oil windfall increase urgency of structural reforms to improve competitiveness.
- Staff recommends close monitoring of price developments and improvements in statistical information on prices and wages.

*Source: IMF staff report (Chad), content from the provided PDF chapter.*

### 35.      Chad’s macroeconomic statistics are in urgent need of upgrading. The staff urges

### Chad’s macroeconomic statistics are in urgent need of upgrading. The staff urges

### Macroeconomic statistics and data quality
- Chad’s macroeconomic statistics are in urgent need of upgrading.
- The staff urges the authorities to quickly follow-up on the recommendations of the recent data ROSC.
- A key element in this regard is to provide adequate resources to the statistics institute.
- The staff recommends that the authorities seek technical assistance in strengthening the statistics, especially with regard to national accounts and prices.

### Budget execution, public financial management, and the PRGF-supported program
- Satisfactory execution of the revised 2006 budget and implementation of measures to strengthen PFM would help bring the PRGF-supported program back on track.
- Progress in these areas would facilitate a resumption of discussions on the first review under the PRGF arrangement and on a new medium-term macroeconomic program and a convincing structural reform agenda later in the year.

*Source: _cr0721 - 35. Chad’s macroeconomic statistics are in urgent need of upgrading. The staff urges*

### 37.      It is expected that the next Article IV consultation with Chad will be held in 24

### _cr0721 - 37.      It is expected that the next Article IV consultation with Chad will be held in 24

### Article IV consultation timing
- It is expected that the next Article IV consultation with Chad will be held in 24 months in accordance with the provisions applying to countries under Fund arrangements.

### National income and real sector (annual percentage change, unless otherwise specified)
- GDP at constant prices: 8.5; 14.7; 31.3; 12.7; 12.2; 0.1
- Oil GDP: 84.7; 253.9; 292.7; 26.9; 0.4; -8.2
- Non-oil GDP: 6.9; 6.0; -0.5; 6.4; 17.9; 3.5
- Consumer price index (average): 5.2; -1.8; -5.4; 3.0; 7.9; 7.9
- Real per capita GDP: 5.8; 4.8; 28.1; 10.0; 9.5; -2.4
- Real non-oil per capita GDP: 4.3; -3.2; -2.9; 3.9; 15.0; 0.9

### Money and credit (changes as percent of broad money stock at beginning of period)
- Net foreign assets of the banking system 1/: 36.2; -16.5; 6.0; 22.9; 13.4; ...
- Net domestic assets 1/: -11.0; 14.3; -2.1; -15.0; 19.5; ...
  - Of which: Net claims on central government 1/: -0.9; 5.9; -2.1; -20.0; 1.1; ...
  - Credit to nongovernment sector: -0.4; 10.1; -2.9; 10.0; 19.5; ...
- Broad money: 27.5; -3.1; 3.3; 8.0; 31.7; ...
- Income velocity of money (M2) 2/: 7.1; 7.5; 7.3; 7.1; 6.8; ...

### External sector (valued in CFA francs; selected series)
- Exports, f.o.b.: -6.8; 171.8; 225.9; 31.2; 43.5; 17.4
- Imports, f.o.b.: 193.1; -59.1; 22.0; -3.8; -7.4; 2.0
- Export volume: -3.4; 109.6; 212.9; 26.8; 4.9; -11.4
  - Non-oil-related exports: -3.4; 13.7; -35.3; 31.8; 10.4; 8.9
- Import volume: 196.1; -60.5; -8.1; -5.8; -14.6; -2.1
  - Non-oil-related imports: 38.3; 23.8; 35.7; 18.3; -25.9; 1.0
- Terms of trade: -0.5; 60.0; 2.7; -1.6; 29.3; 23.7
- Real effective exchange rate: 5.6; 2.8; -4.2; ...; 6.2; ...

### Investment and saving (percent of GDP, unless otherwise specified)
- Gross investment: 60.2; 52.4; 24.3; 19.1; 20.2; 20.5
  - Government: 10.1; 12.5; 7.8; 10.0; 7.0; 7.1
  - Private sector: 50.0; 39.8; 16.5; 9.1; 13.2; 13.4
  - Of which: Oil sector: 43.8; 31.6; 11.3; 5.9; 8.7; 8.7
- Gross national savings: -40.2; 5.0; 19.5; 11.6; 21.0; 19.5
  - Government: 0.0; 1.1; 5.0; 5.8; 4.0; 5.4
  - Private sector: -40.2; 3.8; 14.6; 5.8; 17.0; 14.1
- Current account balance, incl. official current transfers: -100.4; -47.4; -4.8; -7.5; 0.9; -1.0

### Government finance (percent of GDP)
- Revenue: 8.4; 9.1; 14.4; 20.1; 17.3; 23.1
  - Of which: Non-oil revenue: 8.4; 9.1; 10.2; 10.9; 9.5; 9.2
- Total expenditure: 20.9; 25.5; 24.5; 30.4; 24.2; 29.8
  - Current expenditure: 10.4; 11.0; 11.3; 12.1; 11.2; 16.2
  - Capital expenditure: 10.5; 14.6; 13.2; 18.3; 13.0; 13.6
- Non-oil primary balance (commitment basis, excl. grants) 3/: -2.4; -3.2; -3.9; -5.7; -5.1; -11.2
- Overall fiscal deficit (commitment basis, excl. grants): -12.5; -16.4; -10.1; -10.3; -6.9; -6.7

### External sector fiscal measures (selected)
- Current account balance
  - Excluding official current transfers: -102.3; -50.1; -7.9; -8.4; -1.2; -2.2
  - Excluding oil-related operations and official current transfers (percent of non-oil GDP): -15.8; -13.8; -25.0; 0.1; -14.2; -15.2

### Nominal aggregates (levels)
- Nominal GDP (billions of CFA francs): 1,385; 1,582; 2,332; 2,730; 3,110; 3,503
- Nominal non-oil GDP (billions of CFA francs): 1,342; 1,363; 1,375; 1,493; 1,676; 1,824
- Nominal GDP (millions U.S. dollars): 1,995; 2,728; 4,421; 5,143; 5,907; 6,707

### Consolidated fiscal operations (billions of CFA francs, 2002–06; selected rows)
- Revenue (2002–2006): 112.4; 124.6; 198.0; 299.8; 289.7; 341.3; 421.9
- Oil royalties, dividends, and income tax 2/: 0.0; 0.0; 57.7; 136.8; 130.4; 165.3; 253.5
- Non-oil tax revenue: 100.9; 113.4; 122.0; 138.2; 138.9; 158.8; 141.9
- Nontax revenue 3/: 11.6; 11.2; 18.3; 24.8; 20.4; 17.2; 26.6
- Expenditure (2002–2006): 280.3; 348.0; 336.8; 454.2; 404.9; 492.8; 543.3
  - Current expenditure: 140.0; 149.4; 154.7; 180.9; 187.3; 233.1; 295.5
  - Investment expenditure: 140.3; 198.6; 182.1; 273.2; 217.7; 259.7; 247.8
    - Domestically financed: 16.9; 28.9; 48.8; 82.7; 68.5; 103.4; 91.6
    - Foreign financed: 123.5; 169.7; 133.4; 190.5; 149.1; 156.2; 156.2
- Non-oil primary balance (excl. grants, commitment basis) 4/: -32.5; -44.2; -53.0; -84.9; -86.2; -143.3; -203.7
- Overall balance (excl. grants, commitments): -167.9; -223.4; -138.8; -154.4; -115.3; -151.5; -121.4
- Financing (2002–2006): 173.6; 219.8; 120.9; 170.9; 134.0; 152.3; 172.6
  - Domestic financing: 1.8; 20.5; -16.6; -37.5; -23.5; 19.1; 20.3
  - Central Bank (BEAC): 7.7; 8.9; -12.5; -27.1; 2.7; 26.5; 31.1
    - Of which: Oil revenue accounts 5/: 0.0; 0.0; -12.9; -22.3; -9.7; 27.5; 23.8
    - Of which: Advances (net): 0.6; 0.0; 11.1; -1.9; 15.4; 7.1; 16.7
    - Of which: IMF (net) 6/: 7.0; -6.4; -7.1; -1.7; -3.8; -8.2; -8.2
  - Foreign financing: 171.8; 199.3; 137.5; 208.4; 157.5; 133.2; 152.3
    - Grants: 84.9; 122.7; 69.4; 130.4; 104.2; 81.6; 95.4
    - Loans (net): 86.8; 76.6; 68.0; 78.0; 53.3; 51.5; 56.9
- Arrears (selected): Arrears: -6.5; 3.6; 21.6; -16.5; 4.2; 0.0; -51.2

### Consolidated government operations (percent of non-oil GDP, selected)
- Tax revenue (percent of non-oil GDP): 7.5; 8.3; 8.9; 9.3; 8.3; 8.7; 7.8
  - Income tax: 3.4; 4.0; 4.1; 3.6; 3.8; 3.5; 3.5
  - Taxes on goods and services: 1.5; 1.5; 1.9; 2.5; 1.6; 2.2; 1.4
  - Taxes on international trade: 2.3; 2.3; 2.5; 2.9; 2.5; 2.6; 2.4
- Revenue from oil sector (billions of CFA francs)
  - Oil royalties and dividends 1/: 0.0; 0.0; 49.8; 136.6; 130.3; 162.1; 181.2
    - Earmarked: 0.0; 0.0; 43.1; 118.1; 112.7; 113.5; 126.8
      - FFG 2/: 0.0; 0.0; 5.0; 13.7; 13.0; 0.0; 0.0
      - Stabilization account for priority spending 3/: 0.0; 0.0; 36.0; 98.9; 93.8; 105.4; 117.9
      - Oil producing region: 0.0; 0.0; 2.2; 5.6; 5.9; 8.1; 8.9
    - Non-earmarked: 0.0; 0.0; 6.7; 18.4; 17.6; 48.6; 54.4
- Expenditure from earmarked oil revenue (commitment basis) 5/: 0; 0; 28.2; 95.8; 88.7; 117.2; 126.8
  - Current expenditure (earmarked): 0; 0; 3.6; 42.9; 42.7; 58.4; 70.8
  - Investment expenditure (earmarked): 0; 0; 24.6; 53.0; 46.0; 58.8; 56.0

### Ordinary budget operations (billions of CFA francs, selected rows)
- Revenue: 112.4; 124.6; 147.9; 181.4; 176.9; 224.6; 291.9
  - Non-earmarked royalties and dividends: 0.0; 0.0; 7.7; 18.4; 17.6; 48.6; 54.4
  - Income tax on oil companies: ...; ...; ...; ...; ...; 69.1
  - Nontax revenue 2/: 11.6; 11.2; 10.0; 24.8; 6.8; 14.3; 11.5
- Expenditure: 272.1; 337.9; 296.7; 346.0; 312.7; 375.6; 413.6
  - Current expenditure: 135.3; 146.3; 147.3; 138.1; 143.7; 174.8; 221.7
  - Investment expenditure: 136.8; 191.6; 149.4; 207.9; 169.0; 200.8; 191.8
- Overall balance (excl. grants, commitments): -159.7; -213.3; -148.8; -164.6; -135.8; -151.0; -121.6
- Financing: 163.0; 209.6; 138.8; 181.1; 183.3; 147.3; 148.7
  - Domestic financing: 0.7; 19.7; -0.4; -20.6; 27.9; 10.9; -6.2
  - Use of FGF deposits: 0.0; 0.0; 0.0; 0.0; 19.3; 19.3
  - Foreign financing: 162.2; 189.9; 139.2; 201.7; 155.5; 136.4; 155.0

### Monetary survey (Billions of CFA francs; levels and percent changes)
- Net foreign assets (Dec/May series): 81.3; 50.3; 61.3; 76.8; 87.1; 96.7; 118.4; 86.6; 129.5; 102.7
  - Central bank: 71.6; 43.7; 62.4; 74.0; 70.4; 82.9; 114.4; 83.9; 98.6; 90.7
  - Commercial banks: 9.7; 6.6; -1.1; 2.7; 16.7; 13.8; 4.0; 2.6; 30.9; 12.0
- Net domestic assets: 109.3; 136.3; 132.4; 133.7; 151.2; 142.4; 95.5; 169.1; 153.9; 202.5
- Domestic credit: 155.3; 185.3; 176.3; 184.9; 193.3; 187.1; 137.1; 215.1; 201.6; 253.3
- Money and quasi money (M2): 188.2; 182.3; 188.3; 202.3; 231.6; 233.1; 210.1; 248.0; 269.4; 294.6
  - Currency outside banks: 116.8; 110.9; 109.7; 119.1; 133.1; 136.0; 124.1; 154.1; 171.3; 182.5
  - Demand deposits: 59.8; 60.2; 65.3; 67.4; 80.8; 78.6; 69.9; 77.9; 80.5; 95.1
  - Time and savings deposits: 11.6; 11.2; 13.3; 15.8; 17.7; 18.5; 16.1; 15.9; 17.5; 17.0
- Growth rates (changes in percent of beginning-of-period money stock, unless otherwise specified)
  - Net foreign assets: 36.2; -16.5; 6.0; 8.2; 13.7; 18.8; 22.9; 13.4; 17.3; 6.5
  - Net domestic assets: -11.0; 14.3; -2.1; 0.7; 10.0; 5.3; -15.0; 19.5; -6.3; 13.2
  - Money and quasi money: 27.5; -3.1; 3.3; 7.5; 23.0; 23.8; 8.0; 31.7; 8.4; 18.6

### Balance of payments (Billions of CFA francs, 2002—06; selected)
- Current account, incl. official current transfers: -1,390.5; -750.3; -110.9; -204.4; 26.5; -34.8
- Current account, excl. official current transfers: -1,417.4; -793.3; -183.8; -230.6; -35.8; -77.2
- Current account, excl. oil, incl official current transfers: -185.7; -145.0; -271.0; -967.9; -175.6; -235.3
- Trade balance, incl. oil sector: -978.4; -102.8; 679.8; 1,057.7; 1,211.1; 1,487.4
- Trade balance, excl. oil sector: -68.5; -30.6; -148.3; -127.1; -75.9; -70.4
- Exports, f.o.b. (of which): 128.9; 350.4; 1,142.1; 1,532.1; 1,639.2; 1,924.3
  - Cotton exports: 38.9; 45.1; 44.7; 65.1; 42.2; 53.5
  - Cattle exports: 59.5; 134.7; 159.4; 83.2; 168.0; 176.5
  - Oil and oil product exports 1/: 0.0; 136.8; 936.3; 1,343.8; 1,415.0; 1,679.6
- Imports, f.o.b. (of which): -1,107.3; -453.2; -462.3; -474.4; -428.1; -436.9
  - Pipeline and oil production-related: -909.9; -209.0; -108.2; -159.1; -128.0; -121.7
  - Emergency cereal imports: 0.0; 0.0; -12.1; -14.6; -12.1; -8.0
- Net services: -420.4; -439.8; -674.0; -213.0; -736.2; -844.0
  - Net services, excl. oil: -156.6; -159.6; -207.2; -165.6; -135.9; -149.1
- Net factor income: -41.5; -265.3; -231.5; -1,707.4; -543.2; -749.0
  - Net factor income, excl. oil: -10.4; -12.4; -30.2; -696.5; -58.7; -86.5
- Current transfers (net): 49.8; 57.6; 114.8; 21.3; 94.8; 70.8
  - Official (net): 26.9; 43.0; 72.9; 21.3; 62.3; 42.4
    - Of which: HIPC Initiative grants received: 9.5; 9.2; 6.4; 0.0; 8.1; ...
  - Private (net): 22.9; 14.6; 41.9; -4.9; 32.5; 28.4
- Financial and capital account: 1,373.8; 420.1; 162.2; 298.1; 61.4; 66.8
  - Capital transfers: 59.0; 81.1; 95.9; 107.4; 91.1; 81.6
  - FDI: 643.9; 414.0; 252.6; 175.3; 323.8; 323.8
    - FDI linked to oil production: 633.8; 599.9; 252.6; 147.8; 303.8; 274.0
  - Other medium-and long-term investment: 49.8; 45.7; 42.1; 63.2; 5.8; 15.3
- Overall balance: 36.3; -26.7; 17.5; 20.6; 23.5; 32.0
- Change in net reserves: -46.1; 27.9; -18.7; -51.1; -21.5; -46.3
  - Of which: Use of Fund resources (net): 7.0; -6.4; -7.1; -1.7; -3.8; -4.9
    - Drawings: 12.2; 4.2; 0.0; 6.6; 3.2; 3.3
    - Repayments: 5.2; 10.7; 7.1; 8.3; 7.0; 8.2
- Gross official reserves (months of imports (incl. oil sector)) 2/: 1.1; 1.3; 1.1; 2.6; 1.3; 1.5
- Gross official reserves (months of imports (excl. oil sector)) 2/: 3.6; 2.3; 1.6; 3.6; 1.7; 2.0
- Debt outstanding (billions of CFA francs): 732.8; 731.3; 756.6; 849.7; 880.7; ...
- Debt service/exports of goods and services 3/: 15.2; 4.4; 1.5; 1.9; 0.2; 1.8
- Debt service/government revenue 3/: 23.8; 13.8; 9.1; 12.2; 1.3; 8.5
- NPV of debt to exports after HIPC interim assistance: 190.6; 131.9; 49.5; 28.6; 37.2; 24.6
- CFA franc-U.S. dollar (period average): 694.6; 580.1; 527.6; ...; 526.6; ...
- CFA franc-SDR (period average): 930.7; 851.2; 812.7; ...; 786.4; ...

### External financing requirements and resources (2002–06, selected)
- Requirements: 1,550.7; 1,086.4; 180.6; 308.2; 7.4; 145.1
  - Current account excluding official transfers (deficit, +): 1,417.4; 793.3; 183.8; 230.6; 35.8; 77.2
  - Debt amortization, excl. IMF: 21.9; 13.2; 11.8; 19.9; 11.4; 18.3
  - Change in net foreign assets (increase, -) 1/: -53.1; 34.3; -11.6; -49.4; -17.7; -41.4
  - IMF repayments: 5.2; 10.7; 7.1; 8.3; 7.0; 8.2
- Resources: 130.2; 114.1; 114.8; 278.0; 115.0; 60.5
  - Official transfers (excl. multilateral HIPC Initiative assistance): 26.9; 43.0; 72.9; 120.5; 62.3; 42.4
    - Program grants: 10.5; 6.8; 4.6; 13.1; 13.1; 13.8
  - Long-term public loan disbursements: 89.9; 81.1; 56.7; 90.9; 71.2; 74.6
  - Debt relief: 14.2; 10.3; 6.4; 9.1; 8.7; 0.5
  - Multilateral HIPC Initiative assistance: 7.4; 7.8; 5.1; 5.8; 7.5; 0.5
- Financing gap (+): 0.00; 0.00; 0.00; 0.00; 0.00; 0.0

### Public and publicly guaranteed external debt outstanding by creditors at end-2005 (nominal stock)
- Total: 880.7 (billions of CFA francs); Percent of total: 100.0; Billions of CFA francs 3/: 0.0; Percent of total: ...
- Multilateral institutions: 794.2; 90.2; 0.0; ...
  - IMF: 45.4; 5.2; 0.0; ...
  - World Bank/IDA: 497.4; 56.5; 0.0; ...
  - African Development Fund: 177.3; 20.1; 0.0; ...
  - EDF/EIB 1/: 12.6; 1.4; 0.0; ...
  - Other: 61.5; 7.0; 0.0; ...
  - Islamic Development Bank: 25.4; 2.9; 0.0; ...
  - OPEC Fund: 14.6; 1.7; 0.0; ...
  - BADEA 1/: 12.9; 1.5; 0.0; ...
  - IFAD 1/: 8.7; 1.0; 0.0; ...
- Bilateral and commercial creditors: 86.5; 9.8; 0.0; ...
  - Paris Club official debt: 21.4; 2.4; 0.0; ...
    - Pre-cutoff-date debt: 21.4; 2.4; 0.0; ...
      - France: 15.9; 1.8; 0.0; ...
      - Germany: 0.3; 0.0; 0.0; ...
      - Italy: 2.6; 0.3; 0.0; ...
      - Netherlands: 0.5; 0.1; 0.0; ...
    - Post-cutoff-date debt: 2.1; 0.2; 0.0; ...
  - Non–Paris Club official debt: 65.2; 7.4; 0.0; ...
    - China: 15.4; 1.7; 0.0; ...
    - Saudia Arabia: 16.9; 1.9; 0.0; ...
    - Kuwait: 11.2; 1.3; 0.0; ...
    - Israel: 0.1; 0.0; 0.0; ...
    - Russia: 0.8; 0.1; 0.0; ...
    - Taïwan Province of China 2/: 20.8; 2.4; 0.0; ...
  - Commercial creditors: 0.0; 0.0; 0.0; ...
- Note: There were not arrears of principal by the end of 2005.

*Sources: Chadian authorities; Bank of Central African States (BEAC); and IMF staff estimates and projections.*

### 1. Population below US$1 a day (percent)...............

### _cr0721 - 1. Population below US$1 a day (percent)...............

### Millennium Development Goals (MDG) indicators — Chad (selected indicators and values)
- Population below US$1 a day (percent): (indicator header present; no numeric value provided)
- Poverty gap ratio at US$1 a day: (indicator header present; no numeric value provided)
- Share of income or consumption held by poorest 20 percent (percent): (indicator header present; no numeric value provided)
- Target 2 — Halve, between 1990 and 2015, the proportion of people suffering from hunger:
  - Prevalence of child malnutrition (percent of children under 5): 38.8 28.0 37.0 ..
  - Population below minimum level of dietary energy consumption (percent): 58.0 49.0 ... 33.0 [29.0]
- Goal 2 — Achieve universal primary education (Target 3: Ensure, by 2015, that children will be able to complete a full course of primary schooling):
  - Net primary enrollment ratio (in percent of relevant age group): 40 55 57 [100]
  - Percentage of cohort reaching grade 5: 51 59 60 46 [100]
  - Youth literacy rate (percent, ages 15–24): 48 ....... 38 [100]
- Goal 3 — Promote gender equality and empower women (Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education by 2015):
  - Ratio of girls to boys in primary and secondary education (percent): 41 45 58 58 [100]
  - Ratio of young literate females to males (percent, ages 15–24): ...... 42 42 ...
  - Share of women employed in the nonagricultural sector (percent): 4 ............
  - Proportion of seats held by women in the national parliament (percent): ... 16 26 ...
- Goal 4 — Reduce child mortality (Target 5: Reduce by two-thirds, between 1990 and 2015, the under-5 mortality rate):
  - Under-5 mortality rate (per 1,000): 203 200 200 200 [67.7]
  - Infant mortality rate (per 1,000 live births): 118 118 117 117 ...
  - Immunization against measles (percent of children under 12 months): 32 26 36 56 ...
- Goal 5 — Improve maternal health (Target 6: Reduce by three-fourths, between 1990 and 2015, the maternal mortality ratio):
  - Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,500 1,500 1,100 ... [375]
  - Proportion of births attended by skilled health personnel: ... 15 16 14 ...
- Goal 6 — Combat HIV/AIDS, malaria, and other diseases:
  - HIV prevalence among females (percent, ages 15–24): ...... 4 ...... 
  - Contraceptive prevalence rate (percent of women ages 15–49): ... 48 3 ...
  - Number of children orphaned by HIV/AIDS (thousands): ...... 73 96 ...
  - Incidence of tuberculosis (per 100,000 people): 101 ... 226 279 ...
  - Tuberculosis cases detected under DOTS (percent): ... 37 34 16 ...
- Goal 7 — Ensure environmental sustainability:
  - Forest area (percent of total land area): 11 ... 109 ...
  - Nationally protected areas (percent of total land area): ... 99 9 ...
  - CO2 emissions (metric tons per capita): ...... 0 ...... 
  - Proportion of population using solid fuels: ......... 95 ...
- Target 10 — Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation:
  - Access to improved water source (percent of population): 14 ... 34 ... [57]
  - Access to improved sanitation (percent of population): 6 ... 8 ... [59]
- Target 11 — Achieve by 2020 significant improvement for at least 100 million slum dwellers:
  - Access to secure tenure (percent of population): (indicator header present; no numeric value provided)
- Goal 8 — Develop a global partnership for development (selected indicators):
  - Unemployment rate of population ages 15–24 (total): (indicator header present; no numeric values provided)
  - Fixed-line and mobile telephones (per 1,000 people): 0.7 0.8 3.8 14.4 ...
  - Personal computers (per 1,000 people): ...... 0.5 6.4 ...
- Data sources listed: World Bank, World Development Indicators database April 2006; and UN Statistics Department, Millennium Indicators, May 2004.

### Social and Demographic Indicators (Table 10 — selected figures and comparisons)
- Population, mid-year (millions): 4.0 5.1 8.6 702.6 2,310.3
- Population growth rate (percent, annual average for period): 2.0 2.7 2.8 2.1 1.8
- Urban population (percent of population): 15.6 19.9 25.0 36.1 30.3
- Total fertility rate (births per woman): 6.3 7.2 6.2 5.1 3.7
- Poverty (percent of population):
  - National headcount index: ...... 64.0 ...... 
  - Urban headcount index: ...... 63.0 ...... 
  - Rural headcount index: ...... 67.0 ...... 
- Gross national income per capita (U.S. dollars): 230 210 250 490 450
- Public expenditure (percent of GDP):
  - Health: ...... 2.0 2.5 1.2
  - Education: ...... 2.5 3.4 2.7
- Net primary school enrollment rate (percent of age group):
  - Total: ...... 58 ... 78
  - Male: ...... 70 ... 84
  - Female: ...... 47 ... 72
- Access to an improved water source (percent of population):
  - Total: ...... 27 58 75
  - Urban: ...... 31 83 90
  - Rural: ...... 26 45 69
- Immunization rate (percent, under 12 months):
  - Measles: ... 75 58 86 4
  - DPT: ... 34 05 46 4
- Child malnutrition (percent, under 5 years): ... 35 28 04 4
- Life expectancy at birth (years):
  - Total: 40 44 48 46 58
  - Male: 39 43 47 45 57
  - Female: 42 46 50 47 59
- Mortality (per 1,000 live births):
  - Infant: 149 124 117 103 82
  - Under 5: ... 225 200 174 126
- Maternal mortality (modeled, per 100,000 live births): ...... 1,100 ...... 
- Births attended by skilled health staff (percent): ...... 16 0 38
- Data sources listed: World Bank, World Development Indicators Online, 2006; United Nations, Millennium Indicators, 2004.

### PRGF quantitative performance criteria and indicative targets (Table 11 — selected figures)
- Floor on primary fiscal balance, excluding oil revenue (cumulative changes; billions of CFA francs): sample values shown: -19.3, -8.1, -44.4, -40.0, -80.8, -73.9, -97.7, -88.3
- Ceiling on total wage spending (including military): sample values shown: 21.9, 22.7, 43.9, 50.3, 65.8, 75.0, 87.7, 101.2
- Stock of conventional domestic debt: 115.7, 114.3, 113.7, 112.1, 116.0, 110.8, 117.6, 101.3, 108.0
- Continuous performance criteria (examples reported as 0.0 or small values):
  - Nonaccumulation of external payments arrears of the central government: ... 0.0 0.8 0.0 2.6 0.0 0.0 0.0 0.0
  - Central government contracting/guaranteeing of new nonconcessional external debt with maturities > one year: ... 0.0 repeated
  - Central government outstanding stock of external debt with maturity up to and including one year, except normal trade financing: ... 0.0 repeated
- Indicative targets — Total revenue (cumulative): ... 64.0 50.1 134.8 123.1 209.8 176.9 287.1 287.6
  - Oil revenue (cumulative): 0.0 30.5 20.1 63.6 50.1 101.2 65.9 136.8 130.4
  - Non-oil revenue (cumulative): 0.0 33.5 30.0 71.1 73.0 108.6 109.0 150.2 157.2
- Memorandum items (selected):
  - Repayments on conventional domestic debt: ... 1.4 2.0 3.6 -0.3 4.9 -1.9 14.3 7.6
  - Budgetary aid (excluding from the IMF): 0.0 13.1 0.0 13.1 13.1 30.8 13.1 30.8 13.1
  - Debt relief (including HIPC Initiative assistance): 0.0 2.6 2.2 5.0 2.5 6.7 5.3 9.1 8.7
- Notes:
  - The non-oil primary balance is defined as the difference between total non-oil revenue, excluding grants, and total expenditure, excluding interest on domestic and external debt and externally financed investments.
  - Exclusions and definitions for conventional debt and arrears are specified in source notes.

### Structural performance criteria and structural benchmarks (Table 12 — implementation status)
- Performance criteria and benchmarks with expected dates and status (selected items and statuses):
  - Publication and communication to the IMF of quarterly budget execution report (continuous, starting May 1, 2005): Non-observed, but implemented with a delay — first quarter report published on May 18, 2005 (three-week delay); second quarter with a one-day delay; third with a two-week delay; fourth produced on time.
  - Preparation and communication to the IMF of an action plan to eliminate treasury-verified domestic payment arrears (expected end-December 2005): Non-observed; authorities measured stock of domestic arrears and elaborated terms of reference for external audit expected by end-September 2006.
  - Creation of a payroll and civil service roster using computerized system (expected end-December 2005): Non-observed; not implemented due to need to strengthen security features of payroll software.
  - Adoption by Council of Ministers of the investment strategy for oil revenue allocated to the Fund for Future Generations (expected end-June 2005): Done — Investment Strategy approved by Investment Committee on April 27, 2005; Future Generations Fund eliminated by amended Petroleum Revenue Management Law; deposits repatriated by end of 2005.
  - Adoption of medium-term expenditure framework (MTEF) for priority sectors for 2006–08 (expected end-September 2005): Not done — MTEFs prepared but not adopted and transmitted with budget based on revised PRML approved February 20, 2006.
  - Publication of quarterly reports by Oil Revenue Control and Surveillance Board: Continuous — Partially done with delay; first and third reports published with delays; second included only partial information; the fourth not yet published.

### Progress toward HIPC Initiative completion point (Table 13 — December 2005 update)
- PRSP (Poverty Reduction Strategy Paper):
  - Status: In progress. PRSP adopted June 4, 2003; transmitted to Fund and World Bank on June 6, 2003; endorsed by Board of the Fund on November 17, 2003.
  - First implementation progress report finalized December 2004 and validated January 2005 — indicated mixed progress (Bank/Fund Joint Staff Advisory Note EDB/05/63, 6/13/05).
  - Second annual progress report finalized end-2005 and transmitted to Government for approval; authorities decided to revise the 2003 PRSP during 2006 aiming at completion in early 2007.
- Macroeconomic stability:
  - Status: Delayed. New PRGF approved February 16, 2005. First review delayed due to severe cash-flow crisis in 2005 and uncertain fiscal outlook for 2006.
- Governance — public expenditure management:
  - Status: In progress. Simplified expenditure circuit introduced January 2002; Integrated Finance Management Information System implemented; interfaces and full SYGASPE implementation not yet achieved; additional external financing required. First expenditure-tracking surveys in education and health completed May 2002; functional expenditure-tracking system designed and implementation launched.
- Governance — procurement, audits, budget settlement, commercial courts:
  - Status: In progress/completed items. Procurement code signed December 2003; implementation decrees adopted and published; eight quarterly bulletins issued; audits of largest contracts completed by Ernst and Young and Court of Account. Budget Settlement laws for 2000–2004 presented and adopted by Parliament (except 2000). Commercial courts established in N’Djamena and Bongor; others being finalized; judges appointed by decree.
- Governance strategy and action plan:
  - Status: In progress. Adopted August 2002; customs reform plan incorporated in PAMFIP; not fully implemented due to scarce financing.
- Priority sector targets and status (selected completed items):
  - Health: Ensure at least 75 percent of health districts and centers operational (target vs 68 percent in 1999): Completed — 89.2 percent of health districts and 79.7 percent of health centers operational at end-2003.
  - DPT3 vaccination and assisted-delivery rates: Completed — DPT3 estimated at 47 percent at end-2004; assisted-delivery rate estimated at 24 percent at end-2004.
  - HIV/AIDS and STDs: MASOCOT condom sales increased to 3168 million in 2003 (increase of 41.5 percent); treated cases of genital ulcers reached 44,545 per year; treatment of purulent urethritis reached 73,419 cases per year; net reduction in genital ulcers and purulent urethritis in 2003–2004 due to 274,113 HIV cases treated yearly since 1999.
  - Education: Gross primary enrollment rate targets exceeded — 69.3 percent for girls and 105.7 percent for boys in 2003–2004. Repeater rate reduced to 22.05 percent in 2003–2004.
  - Basic infrastructure: At end-2004, 61 percent of all-year road network usable throughout the year (target 50 percent); up from 43.5 percent at end-2001.
  - Rural development: Access to potable water reached 32 percent at end-2003 and 36 percent at end-2004 (target 32 percent). Share of agricultural families equipped with plows reached 26 percent by March 2005. Number of water points for livestock holders increased by 19.5 percent to 1,360 at end-2004 (baseline 1,138 in 2000).
- Note: For each indicator, understanding was reached on how to measure progress.

*Source: IMF staff compilation as presented in the provided PDF content unit.*

### Annex I: Short- and Long-Term Measures to Strengthen Public Finance Management (PFM)

### Annex I: Short- and Long-Term Measures to Strengthen Public Finance Management (PFM)

### Short-Term PFM Measures — Restore budget discipline
- Prepare a revised budget for 2006 that incorporates all indirect oil revenue and additional expenditure needs identified by the Multi-donor Mission (MDM) (M1, O1, A1.b). Status of implementation: Law 025/PR/2006 signed by President Deby on July 19 together with implementing decree 611/PR/PM/MF/06.
- Issue a ministerial order by the prime minister with a realistic timetable for 2007 budget preparation, giving the sector ministries sufficient time to adapt their budget programs to available budget envelopes. For the 2008 budget, issue a similar ministerial order by the end of December 2006, including adequate deadlines for macroeconomic framework completion, budget circulars dissemination, and medium-term expenditure framework (MTEF) and program budgets updates (M3, O2, A2.a,b). Status of implementation: Circular 843/PM/06 signed by Primer Minister Yoadimnadji on June 13, 2006.
- Restrict exceptional expenditure procedures (PSOP) to transportation and mission costs, external debt and wage payments, and exceptional cases (July 2006) (M7, O4, A4.a). A circular issued by the prime minister should remind the administration of this issue. Status of implementation: Circular 006/PM/CAB/06 signed by Prime Minister Yoadimnadji on June 30, 2006.
- Engage external auditors with EU financing to audit treasury-verified domestic payment arrears, with the aim of finalizing a settlement plan for arrears and domestic debt by the end of September 2006 (M8, O1, A1.a,b). Status of implementation: Bid received from an audit house on August 3. The EC Delegation is checking that the bid complies with EU rules, but the contract should be approved shortly. The auditing team is expected to arrive in late August.
- Adopt a MTEF for 2007–09, consistent with both Chad’s absorptive capacity and the 2007 budget, to be presented to parliament along with the 2007 budget (October 2006) (M1, O1, A1). Status of implementation: First version provided with the June 16, 2006 Lettre de Cadrage. Refinement expected following refinement of ministerial program budgets provided on July 20, 2006.
- Put in place the opening of credits for the 2007 budget on January 1, 2007, to start budget execution at the beginning of the fiscal year (M3, O2, A2.c).

### Short-Term PFM Measures — Improve cash management
- Prepare and implement a monthly cash-flow plan, based on monthly commitment plans for at least the health, education, and infrastructure ministries. The Treasury Committee will be responsible for updating the plan regularly and prepare the minutes of its weekly meetings, to be submitted to the minister of finance within 48 hours (June 2006) (M7, O1, A1.a,b). Status of implementation: The cash-flow plan was completed on June 15, 2006, and updated on June 29, July 25, and August 4.
- Gradually reestablish the treasury single account at the BEAC by:
  - disbursing all indirect petroleum revenue in the current account at the BEAC, from June 2006;
  - stopping the opening of new treasury accounts with the commercial banks in N’Djamena as of end-July 2006;
  - closing all treasury accounts with the commercial banks that have a positive balance or that are not subject to a convention on debt repayment (or other binding contract for treasury transactions), by end-September 2006;
  - sign a plan by end-December 2006, to suspend transactions through accounts with the commercial banks and pay off credit balances, with the aim of closing all accounts with the commercial banks before end-June 2007.
  - An updated list of all government accounts in commercial banks, and the respective reconciliation statements, should be made available no later than end-September 2006 (M7, O2, A2.a-d). Status of implementation: The June 30 payment of income tax by the oil consortium has been deposited to the BEAC; the General Directorate of the Treasury has instructed the consortium that future payments must be deposited into the BEAC.

### Short-Term PFM Measures — Limit the use of uncompetitive biddings and streamline procurement
- Get procurement plans, prepared by priority line ministries, approved by the general public procurement office (end-June 2006) (M14, O1, A1.e). Status of implementation: Procurement plans have been provided for four ministries. Priority sector ministries are said to have provided plans for oil-financed contracts to the College, which have not yet received by staff.
- Issue an instruction by the prime minister restating that all noncompetitive bidding not in compliance with the procurement code is forbidden and should stop immediately (M14, O1, A1.a). Status of implementation: Circular 008/PR/SGG/OCMP/) signed by Primer Minister Yoadimnadji on August 1, 2006.

### Short-Term PFM Measures — Monitoring budget execution
- By September 2006, audit government oil bank accounts transactions (escrow accounts and commercial bank accounts), and check the 2005 tax returns filed by oil companies by end-December 2006 (M12, O1, A1; M10, O1, A1.d).
- Review the budget nomenclature and its codification—including a fully fledged functional classification—to ensure consistency with a consolidated budget, and identify functions and subfunctions linked to the poverty reduction priorities defined in the Poverty Reduction Strategy Paper. A decree with the revised nomenclature should be issued by end-December 2006. (M3, O3, A3.a-g).
- Expand the computerized system (SYDONIA++) for custom administration—at least on the operations conducted in N’Djamena customs offices, which represent 90 percent of customs activities—to produce monthly statistics on imports and exports using harmonized code, on a detailed and consolidated basis, and by type of tax. The customs directorate should also prepare, and submit to the minister of finance, monthly reports showing reconciliation with treasury data (December 2006) (M3, O6, A6.a).
- Establish a computerized mapping table to reconcile the current treasury accounting system with the budget integrated system of expenditure (CID) in order to track spending from commitments to payments and facilitate producing the four-phase tables (December 2006) (M3, O5, A5.c(i)).

### Long-Term PFM Measures — Objective and overview
- Main medium-/long-term objective: updating and modernizing the current framework for preparing, executing, and monitoring a consolidated public sector budget by end-December 2008, so as to reduce budget fragmentation and optimize budget allocations.
- The objective requires measures across budget preparation, execution, monitoring, oversight, audits, and oil revenue management.

### Long-Term PFM Measures — Budget preparation, execution and monitoring
- Entrust the Ministry of Finance (MOF) with full responsibility for preparing and implementing a unified budget management system through the consolidation of the ordinary, oil, HIPC, and, when possible, donor budgets. Finance decisions on donor-financed projects should move from the Ministry of Planning to the MOF (2007).
- Improve tax and customs revenue collections. Although efforts have been made to collect tax and customs revenue, there is still some untapped tax revenue that could raise the level of receipts (only about 50 percent of local enterprises are taxed) (2007).
- By end-December 2007, have an established mechanism for better forecasting, accounting and controlling wages, pensions, and utility charges for each ministry that represents a large fraction of public expenditure.
- Develop a strategy to gradually reduce the causes of payments arrears by:
  - regulating the use of budget appropriations;
  - introducing mandatory mid-year budget review;
  - limiting appropriation carryovers from year to year;
  - meeting, then shortening, the additional authorized accounting period (2007).
- Expand the treasury’s accounting system to include all government finance transactions, including operations related to the oil revenue offshore account and donor-financed project funds, in a timely and reliable manner (2007).
- Streamline the ex ante control chain by removing redundant controls exercised by finance comptrollers and the Collège, and strengthen ex post controls, especially on-site audits, by:
  - coordinating the activities of agencies responsible for these controls;
  - developing methodologies based on risk analysis;
  - giving preference to auditing delivery of goods and services and combating corruption;
  - ensuring the sequencing, quality, and usefulness of reports and the effective application of sanctions (2007).
- Finalize the reestablishment of the Treasury Single Account (TSA) at BEAC by integrating oil revenue bank accounts (2007) and, if possible, donors project accounts in TSA subaccounts at the BEAC (2008).
- Develop a new fully computerized treasury accounting system compatible with the CID and other Ministry of Finance applications, to prepare comprehensive, reliable and timely budgets and finance reports tracking expenditure from commitment to payment (December 2008).
- Review the legal and accounting framework for PFM, setting a new budget organic law and public accounting regulations, including strict budget preparation rules and a timetable, harmonized budget and accounting classifications, responsibilities for expenditure and revenue forecasting, and responsibilities and processes for budget execution, control, and audit (December 2008).
- By end-December 2007, update the current computerized system for registering commitments and payment orders (CID), including the new budget classification component, and by end-December 2008, develop interfaces with the payroll, pensions, and external and internal debt management systems.

### Long-Term PFM Measures — Budget execution oversight and audits
- Establish control and audit procedures for tracking, at each stage of the expenditure cycle, a well-defined sample of poverty reduction spending. The sample would be defined on a risk-analysis basis. Controls and audits embedded in the tracking system could be performed by internal control bodies and, if necessary, with the assistance of reputed external auditors. Civil society participation would be ensured through Collège involvement in the audits, and the organization of regular meetings for presenting and discussing the results of the initiative, with the participation of line ministries and donors (2007).
- Publish the annual reports prepared by the audit bodies (Collège, Inspection Generale des Finance, Ministry of State Control, and National Audit Office), and include in all control and audit reports an assessment on the implementation of previous recommendations (2007).

### Long-Term PFM Measures — Oil revenue management
- Strengthen fiscal transparency, including through the Collège’s enhanced role in assessing the implementation of priority sector programs as a whole and in increasing public awareness on the use of oil revenue (2007).
- Review the PRML to implement a simpler and transparent oil revenue management system, covering indirect oil revenue (2007).

*Annex I: Short- and Long-Term Measures to Strengthen Public Finance Management (PFM).*

### Annex II. Letter from Minister of Finance Tolli to the Managing Director

### Annex II. Letter from Minister of Finance Tolli to the Managing Director

### Confirmation of cooperation and program context
- Date of letter: N’Djamena, July 31, 2006.
- Sender: Abbas Mahamat Tolli, Minister of Finance.
- Addressee: Mr. Rodrigo de Rato, Managing Director, International Monetary Fund.
- Purpose: Confirm Chad’s intention to cooperate with the IMF in the area of economic policy and request IMF support to meet program challenges and resume discussions on the PRGF-supported program as soon as possible.
- Reference documents and missions:
  - Memorandum of Economic and Financial Policies attached to the government’s letter of February 4, 2005.
  - Aide-mémoire of June 20, 2006 prepared by the visiting Fund mission; the government “agrees fully with the conclusions and recommendations” in that aide-mémoire.
  - Memorandum of understanding concluded with the World Bank regarding oil revenue management.

### Budget developments and oil revenue management
- National Assembly action: On July 19, 2006, the National Assembly approved the supplementary budget for fiscal 2006.
- The supplementary budget:
  - “Takes into account the provisions agreed to with the IMF and the World Bank” and the June 20, 2006 aide-mémoire.
  - Reflects the general agreement concluded July 13, 2006.
- World Bank memorandum provisions for 2007:
  - Calls for the allocation of 70 percent of budgetary resources to the sectors it identifies.
- PRSP revision:
  - A revised PRSP is being prepared and is “expected to be completed in 2007,” to provide a framework for oil revenue management based on projected revenue trends.
- Policy challenge identified:
  - Management of the windfall in oil revenue expected in coming years; need to craft a mechanism to include in expenditure an amount sufficient to make a lasting contribution to poverty reduction.
  - Necessity to build technical capacities of government staff to ensure additional resources are used “efficiently and rationally,” given complex macroeconomic and fiscal management issues raised by exceptional revenue.

### Request for IMF support and conditionality on changing circumstances
- The government requests IMF support for implementation and assessment of policy (as reflected in the supplementary budget for 2006 and the July 13, 2006 agreement).
- The government states it will consult the IMF:
  - If security conditions or spending needs diverge materially from the assumptions used in recent mission discussions.
  - Concerning any macroeconomic and fiscal measures that may prove necessary under materially different conditions.
  - Concerning any other measure that may substantially alter Chad’s economic performance in 2006.
- Commitments to transparency and reporting:
  - Periodic updates of the cash flow plan will be provided to the IMF.
  - Data required for assessing program implementation will be reported to the IMF regularly.

### Attachments and fiscal tables (listed in the letter)
- Table 1: Consolidated Government Operations 2002–06.
- Table 2: Quantitative Targets for September 30, 2006–December 31, 2006.
- Table 3: Key Structural Measures for 2006.

### Selected fiscal and implementation indicators and actions (from Tables and Table 3)
- Major structural measures and their implementation status:
  - Adoption by the government of a revised budget for 2006 in line with mission understandings: End-June 2006 — Done.
  - Issuance by the Prime Minister of a cabinet circular reinforcing fiscal legislation and payment procedures: End-June 2006 — Done.
  - Engage external auditors to audit treasury-verified domestic payments arrears and paid and unpaid arrears of 2005, with the aim to finalize a settlement plan by September 2006: End-July 2006 — Ongoing; “a bid has been received, the EC is checking compliance with EU rules.”
  - Complete the medium-term expenditure framework (MTEF) for 2007–09 (and obtain cabinet approval): End-July 2006 / End-September 2006 — Ongoing; “first version of the MTEF submitted with the 2007 Letter de Cadrage.”
  - Settle external arrears as soon as possible, as determined in the cashflow plan — Instructions to clear all external arrears by mid-August.
  - Publication and communication to the IMF of the quarterly budget execution report — Continuous; “Preliminary report on the second quarter of 2006 released by end-July.”
  - Publication of quarterly reports by the Oil Revenue Control and Surveillance Board on collection, allocation, and use of oil revenue — Continuous; “Ongoing; preliminary table on the second quarter of 2006 released.”
  - Priority sector ministries to prepare procurement plans for approval by the general public procurement office — End-July 2006 — Done for four priority sector ministries.
  - Issue a ministerial order providing guidelines and a timetable for preparation of the 2007 budget — End-June 2006 — Done.
  - Avoid new external arrears — Continuous; “The 28 July payment to the Fund is in the process.”
  - Replenish the government’s SDR holding account — Gradually, to be completed by end-October 2006; cash-flow plan provides necessary coverage by mid-August.
  - Maintain the SDR/debt-service-related balance “at a minimum equivalent to three months of debt service payments to the IMF” — Continuous.
  - Implement and regularly update a monthly cash-flow plan — Continuous; “Completed in June 15, 2006; updated in June 29, July 25, and August 4.”
  - Issue instruction to apply the new procurement law and eliminate non-competitive bidding inconsistent with the law — End-June 2006 — Done.
  - Restrict exceptional expenditure procedures to specified items and regularize documentation — Continuous; “A letter from the Minister of Finance provides instructions to spending units.”
  - Close all treasury accounts with commercial banks (excluding oil revenue accounts) that have a positive balance or that are not subject to a convention on debt repayment or other binding contract for treasury transactions — End-September 2006.
  - Finalize a list of all government accounts in commercial banks — End-September 2006.
  - Customs administration to provide monthly statistics on revenue collection by harmonized code and type of tax — End-December 2006.

### Performance criteria and indicative targets (high-level items from Table 2)
- Table 2 covers quantitative targets for the period September 30, 2006–December 31, 2006 (in billions of CFA francs; cumulative changes from the beginning of the calendar year, unless otherwise indicated).
- Examples of targets and indicators shown in Table 2:
  - Ceiling on total wage spending (including military): projected values include “87.7” and “117.7” (as presented in the table).
  - Nonaccumulation of external payments arrears of the central government: target “0.0” at specified dates.
  - Indicative target: Total revenue — indicative projections “315.0” and “409.6”; Oil revenue — “196.9” and “253.5”; Non-oil revenue — “118.1” and “156.0” (as presented in the table).
  - Memorandum items: Budgetary aid (excluding from the IMF) — “7.8” and “13.8”; Debt relief (including HIPC Initiative assistance) — “0.5” and “0.5” (as presented).

### Key institutional and IMF-related facts (from Appendix)
- The letter lists attachments and other IMF relations information (as of June 30, 2006), including:
  - Membership: Joined 7/10/63; Article VIII.
  - Quota: 56.00 (SDR million) — Fund holdings of currency 55.72; reserve position 0.28.
  - Outstanding ESAF and PRGF arrangements: 50.38 (SDR million) — 89.96 percent of quota.
  - PRGF arrangement approved 02/16/05 to 2/15/08: Amount approved 25.20 (SDR million); Amount drawn 4.20 (SDR million).
  - Projected obligations to the Fund (without HIPC assistance, in SDR millions): 2006 Principal 5.42; Charges/interest 0.30; Total 5.72. 2007 Principal 9.69; Charges/interest 0.55; Total 10.24. 2008 Principal 8.84; Charges/interest 0.50; Total 9.34. 2009 Principal 8.23; Charges/interest 0.46; Total 8.68. 2010 Principal 7.30; Charges/interest 0.42; Total 7.72.
  - HIPC Initiative: Decision point date May 2001; Total assistance (US$ million) 170.00; Fund assistance (SDR million) 14.25; Amount disbursed (Fund) 8.55 (SDR million).
  - Exchange rate arrangement: Member of BEAC; CFA franc pegged to the euro at the fixed rate EUR 1 = CFAF 655.97 since January 1, 1999; on June 5, 2006, the rate was CFAF 440.25 = SDR 1.
  - Safeguards assessment: BEAC assessment completed on August 30, 2004, with recommendations on accounting, publication of finance statements, formal guidelines for exceptional advances, internal audit enhancements, and follow-up mechanisms.
  - Resident representative: Mr. Camard since September 2004.

*Annex II: Letter from Minister of Finance Tolli to the Managing Director (Chad).*

### APPENDIX II: Chad: Relations with the World Bank Group

### APPENDIX II: Chad: Relations with the World Bank Group

### I. Partnership in Chad’s Development Strategy
- Oil offers a major opportunity for diversification and poverty reduction provided resources are well managed to avoid the “paradox of abundance.”
- The Petroleum Revenue Management Law (PRML) was adopted by the National Assembly on December 30, 1998, to regulate government revenue from Miandoum, Komé, and Bolobo (oil production started in July 2003).
- PRML original design and features:
  - Bulk of direct oil revenue (royalties and dividends) allocated to road construction, health, education, rural development, and water and environment (priority sectors) to enhance poverty reduction.
  - Creation of an oversight committee, Collège de Contrôle et de Surveillance des Ressources Pétrolières (CCSRP), with government, Parliament, and civil society representation to monitor petroleum revenue use.
  - Establishment of a fund for future generations (FFG) receiving 10 percent of direct revenue to be saved for the future.
- Government revisions to PRML (late December 2005) made without donors’ consultation; key changes:
  - Abolished the FFG and provided for repatriation of its balance by decree.
  - Expanded priority sectors financed by earmarked oil revenue to include energy, justice, territorial administration, and domestic security; government given authority to revise the list of priority sectors.
  - Increased share of oil revenue allocated to the general budget from 13½ percent (the original 15 percent net of the FFG) to 30 percent.
  - Extended PRML coverage to all oil fields to be developed in Chad.
  - Extended the mandate of the members of the Collège from three to nine years.
- World Bank response and reengagement timeline:
  - January 6, 2006: World Bank management suspended disbursements on Bank projects and froze transfers from the off-shore oil revenue escrow account.
  - January 29–February 1, 2006: World Bank and Government delegations met in Paris to discuss reengagement options.
  - March 24–April 6, 2006: Multipartner mission (France, Germany, United States, AfDB, EU, IMF, UNHCR, UNDP, World Bank) discussed PRSP implementation challenges including refugees from Darfur and security.
  - April 25, 2006: Interim agreement signed; Bank lifted suspension of disbursements. Government agreed to:
    - Adopt a 2006 revised budget law specifying that 70 percent of oil revenue will be used for priority poverty programs (excluding security).
    - Take parallel actions to strengthen monitoring, transparency, and accountability of oil revenue, public finance resources, and development assistance.
  - Parties agreed to prepare a comprehensive agreement to guide oil resource management.

### II. World Bank Country Assistance Strategy and IDA Portfolio
- PRSP endorsement:
  - World Bank Board endorsement: November 13, 2003.
  - IMF endorsement: November 17, 2003.
- PRSP strategic axes include good governance, sound macroeconomic management, rapid economic growth, strong non-oil sector growth, improved human capital, improved living conditions for vulnerable groups, and environmental preservation.
- World Bank CAS (endorsed December 11, 2003) supports two objectives aligned with PRSP:
  - Strengthening governance, including public resource management.
  - Ensuring inclusive, broad-based growth during oil production.
- IDA Portfolio focus: investments in health, education, energy, rural development, and transport; recent closures supported capacity building for public expenditure management, petroleum sector management, local development, environmental management, and petroleum exploitation.
- Historical policy support:
  - Three quick-disbursing policy reform operations totaling US$85 million from 1996 to 1999.
  - Institutional Reform Support Credit (IRSC) of US$25 million approved November 30, 2004, closed December 2005; IRSC supported reforms to:
    - Improve public sector governance (transparency, rule of law, participation).
    - Promote efficient resource use (procurement, civil service reform).
    - Promote sustainable rural growth via cotton sector reform.
  - Management of the Petroleum Economy Project (GEEP) supported implementation; closed in 2005.
- Contribution to petroleum sector:
  - June 6, 2000: World Bank Executive Board approved Petroleum Development and Pipeline Project with:
    - IBRD loan equivalent to US$39.5 million to the Republic of Chad.
    - US$14.2 million in A-Loans and up to US$42.7 million in B-Loans from IFC to the oil transportation company.
  - Complementary IDA-funded Petroleum Sector Management Capacity-Building Project: US$23.7 million.
  - Management of the Petroleum Economy Project: US$17.5 million (approved January 2000).
  - IBRD and IDA projects associated with pipeline construction closed in June 2005; successor capacity-building projects under preparation.
- Projects under preparation and pipeline:
  - Two capacity-building projects to strengthen public finance and petroleum sector management scheduled for Board presentation in FY07.
  - FY06–07 lending program includes an Urban Development Project.
  - Possible support under consideration: cotton sector reform program, a budget support operation, demobilization and reintegration of armed rebels and soldiers.
- Non-lending activities:
  - Annual public expenditure reviews since 2002.
  - Country Finance Accountability Assessment (2004).
  - Joint HIPC monitoring with IMF on public finance management—leading to a comprehensive PFM action plan in 2004.
  - Technical support for medium-term expenditure framework and program budgets in priority sectors.
  - Preparation of an education status report.
  - Poverty and Social Impact Analysis of cotton sector reforms.
  - Diagnostic Trade Integration Study finalized and disseminated in November 2005.
  - Technical assistance to PRSP Steering Committee for implementation and monitoring.
  - Development Policy Review/Poverty Assessment launched to be completed in FY07.
  - CAS progress report scheduled in FY07.

- Annex 1: Chad: IDA Portfolio (selected projects, sector, amount, approval date)
  - Petroleum Sector Capacity Building — Infrastructure — US$23.7 million — June 6, 2000
  - National Transport Program — Transport — US$67 million — October 26, 2000
  - Health Sector Support — Health — US$41.5 million — April 27, 2000
  - Second Population and AIDS — Multisector — US$24.6 million — July 12, 2001
  - Electricity and Water Services — Infrastructure — US$54.8 million — October 10, 2002
  - Education Sector Reform — Education — US$42.3 million — March 18, 2003
  - Agricultural Services and Producers Organization — Agricultural/Cotton — US$26.5 million — December 11, 2003
  - Local Development — Multisector — US$23 million — September 16, 2004
  - Emergency Locust Project — ESSD — US$10.8 million — November 30, 2004

### III. Bank–Fund Collaboration
- Division of responsibilities:
  - IMF leads macroeconomic framework dialogue, macroeconomic objectives and targets, and revenue mobilization (notably tax policies).
  - World Bank leads policy dialogue in education, health, electricity, water, rural development, transport, cotton sector, and energy sector reforms, in close collaboration with the Fund.
  - Fund monitors fiscal impact of reforms (wage bill increases, government subsidies to Cotontchad and the electricity company).
  - Bank leads poverty and social impact assessment in the cotton sector.
  - Joint dialogue and shared responsibility in governance, oil revenue management, and public finance management; close coordination across institutions.
- HIPC Initiative monitoring:
  - Bank and Fund share responsibility for monitoring completion point triggers.
  - Bank leads on health, education, rural development, and infrastructure triggers.
  - IMF leads on macroeconomic performance triggers.
  - Shared responsibility for governance-related triggers and close collaboration on PRSP dialogue.
- Contact person: Mr. Ali M. Khadr, Country Director for Chad, Africa Region — (202) 458-7860

### IV. Statistical Issues (Appendix III: summary of weaknesses and technical assistance)
- Overall assessment:
  - Data provision for surveillance adequate overall but with shortcomings in balance of payments, government finance, and monetary statistics.
  - ROSC data module mission (May–June 2005) found Chad’s statistical system weak with shortages of finance and human resources.
  - Identified weaknesses: inadequate funding for INSEED; weak source data for national accounts; insufficient coverage of government finance and monetary statistics; improper sectorization of public entities in datasets; absence of government finance statistics dissemination by Ministry of Economy and Finance; limited data and metadata accessibility.
- Institutional responsibilities:
  - INSEED: national accounts, consumer price index (CPI), population and certain social indicators.
  - Ministry of Finance: compiling fiscal data.
  - BEAC: monetary statistics and balance of payments statistics.
  - CPI published biweekly; other data disseminated periodically. BEAC disseminates monetary and finance statistics monthly via its website and re-disseminates other macroeconomic statistics regularly.
- Improvements and limitations:
  - Implementation of new national accounts in line with 1993 SNA in 1998; 1995 base year retained.
  - 1999 law adopted to regulate and enhance statistical activity.
  - Chad adopted the General Data Dissemination System (GDDS); metadata posted on Fund’s Dissemination Standards Bulletin Board since September 2002 but not updated annually—plans outdated.
- Real sector specifics:
  - New national accounts (1998) incorporated input-output table with nonmarket household production and improved informal activity coverage.
  - Source data for national accounts remain weak due to inadequate funding.
  - CPI is the only price index and uses outdated 1972 weights; need to continue efforts to produce a harmonized CPI for CEMAC with AFRISTAT support and complete planned household consumption survey.
- Public finance statistics:
  - Chad has not resumed reporting detailed data for Government Finance Statistics Yearbook.
  - Annual fiscal data to 2001 reported in IFS include significant discrepancies between deficit and total financing.
  - No comprehensive, systematic compilation of government finance statistics; quarterly Tableau des Opérations Financières de l’État is based on disparate sources.
  - Recommendation: establish systematic compilation procedures based on a unified set of accounting and administrative records after a comprehensive public accounting system review.
- Monetary sector:
  - BEAC reports monetary, interest rates, and exchange rate statistics for IFS, but timeliness needs improvement.
  - Significant delays in data compilation by national BEAC agency and in communication to BEAC headquarters.
  - Coverage limited to central bank and active commercial banks; microfinance corporations and other financial sector units excluded.
  - Net credit to government monetary and fiscal indicators not reconciled due to institutional coverage differences.
  - Large cross-border currency movements among CEMAC countries affect accuracy:
    - About 34 percent of banknotes issued in Chad by national BEAC directorate circulate in Cameroon.
    - Currency in circulation in Chad includes some 15 percent of banknotes from Cameroon and 6 percent of notes from the Central African Republic.
  - STA provided regional technical assistance to BEAC on monetary statistics, including migration to the Monetary and Finance Statistics Manual, regional workshops, and biannual French training seminars at the Joint Africa Institute.
- Balance of payments:
  - BEAC national agency compiles balance of payments for Chad; poor quality linked to inadequate staffing and resources.
  - Foreign trade data from DSEED based on customs declarations are unreliable, suffer coverage problems, and may be inconsistent with national accounts; BEAC does not fully use them.
  - Exports data estimated from line ministers’ data.
  - Areas needing improvement: imports, cotton and cattle exports, freight, public transfers.
  - Tighter coordination among CEMAC, DSEED, and other agencies required.
  - 2000 multisector technical assistance mission found compilation system conceptually sound under BPM5 but flawed in application due to undocumented sources/methods, understaffing, and lack of training; made specific recommendations.
- Poverty indicators:
  - Early 2003 household income and expenditure survey launched with World Bank assistance; results to provide poverty line definition and indicators (incidence, depth, severity).

*Source: APPENDIX II: Chad: Relations with the World Bank Group (Staff Report for the 2006 Article IV Consultation — Supplementary Information, December 11, 2006).*

### 1.      This supplement reflects discussions with the authorities during a mission to

### _cr0721 - 1.      This supplement reflects discussions with the authorities during a mission to

### Recent developments
- Mission timing and purpose:
  - The mission to conclude the 2006 Article IV consultations took place from October 26 to November 15.
  - The mission consisted of Mr. Snoek (Head), Mr. Camard (Resident Representative), Mr. Melhado, Ms. Lacoche (all AFR), and Mr. Buissé (FAD). The mission worked closely with a concurrent World Bank mission.
- Political and security situation:
  - Armed opposition escalated attacks after the end of the rainy season in August, prompting the government to declare a State of Emergency and the UN to declare security phase IV for Eastern Chad and Phase III for N’Djamena.
  - The Darfur war is spilling over into eastern Chad; rebel activity in the north-east of the Central African Republic reportedly includes Chadian groups.
- Growth and inflation in 2006:
  - Higher real GDP growth in 2006: 1.3 percent.
  - Inflation during October 2005–06: 15 percent; excluding meat, inflation was 4.4 percent in the 12 months to October.
  - Main cause of high inflation: a 67 percent rise in meat prices over the same period.
- Fiscal outcomes and budgetary developments in 2006:
  - Settlement of an income tax dispute with two of the three companies in the oil consortium resulted in additional revenue equivalent to 8 percent of non-oil GDP (most of which was paid in October).
  - Non-oil primary deficit in 2006: 16.6 percent of GDP (compared with a target of 11.2 percent of GDP).
  - General wage increase extended retroactively to the first half of the year; expected excess in the wage bill compared with the end-2006 target of 0.3 percent of GDP.
  - New exceptional security expenditure estimated at 2.5 percent of GDP, bringing the annual total to 4.3 percent of GDP.
  - Domestically-financed capital spending increased by 1.3 percent of GDP.
  - Authorities expect to repay the 2005 exceptional advances from the central bank (BEAC) and some other domestic debt.
  - A second revised budget for 2006 would result in an end-year surplus in the oil revenue account of about 1.7 percent of GDP.
  - Structural steps: close the 2006 budget year promptly; improve monitoring of utility costs; enhance coordination with the procurement office; strengthen the Ministry’s oversight role. Movement towards a Treasury Single Account is slow.
  - Chad has not maintained a balance in its SDR account equivalent to at least three months of Chad’s financial obligations falling due to the Fund.
- Oil-revenue stabilization mechanism:
  - Authorities intend to establish an oil-revenue stabilization mechanism before end-2006.
  - The mechanism would be lodged at the central bank (BEAC) and include an oil account fully integrated in the budget process.
  - Annual transfers from the oil account would be limited to amounts approved in the budget and could only be changed after parliamentary approval of a revised budget.
  - Initially, separation of tax and royalty flows would continue to reflect current petroleum revenue management law and facilitate oversight by the college; arrangement could be reviewed in context of updated PRSP during 2007.

### Medium-term macroeconomic framework (2007–09)
- Oil revenue and fiscal stance:
  - Government’s oil revenues expected to rise to 31 percent of GDP in 2007 before falling to about 8.5 percent of GDP on average in the following two years.
  - Staff recommendation: save the bulk of 2007 oil revenue (not transferred to the budget) for gradual use over the long term to promote fiscal sustainability, raise non-oil revenues, and improve public financial management.
  - Authorities’ view: urgent development needs and population expectations argue for faster use of resources, especially for infrastructure.
  - Framework allows for a further small increase in the non-oil primary deficit (excluding exceptional security expenditure) in 2007, followed by adjustments in 2008-09, notably in current spending.
  - External grants and concessional project assistance projected to decline from 7.6 percent of GDP in 2006 to 6.3 percent in 2007 and 5.1 percent in 2009.
- Growth, inflation, and external sector:
  - Real non-oil growth projected to rise to about 6 percent by 2007, then stabilize around 4.5 percent subsequently.
  - Government savings would substantially increase in 2007, then decrease sharply mirroring the decline in oil revenues.
  - External current account: small surplus in 2007; expected to deteriorate over the medium term as oil revenues decrease and imports increase.
  - Framework assumes decline in inflation to the CEMAC target by end-2007.
- Fiscal policy measures and reforms:
  - Medium-term policies aim at substantial medium-term adjustment and continued fiscal consolidation; framework fully financed through 2009 assuming projected aid inflows.
  - Savings from exceptional oil revenue in 2007 to be gradually used; additional oil revenues above present estimates would be saved.
  - Policies to strengthen non-oil revenue projected to increase from 7.9 percent of GDP in 2006 to 8.5 percent in 2009.
  - Expenditure-side reforms: civil service and military reform; structural reform in the cotton and electricity sectors to gradually eliminate subsidies amounting to 2 percent of GDP in 2007.
  - Framework includes gradual repayment of domestic debt (a settlement plan will be prepared following a European Union-financed external audit).
- Debt sustainability risk:
  - Joint Bank-Fund DSA: Chad’s debt situation has improved but remains fragile; Chad faces a high risk of debt distress.
  - Baseline scenario appears sustainable but entails significant risks, including delays in full debt relief under HIPC and MDRI, sharper-than-expected declines in oil prices, or weak fiscal discipline.

### 2007 budget (as agreed by end of mission)
- Budget design and priorities:
  - 2007 budget formulated in line with the medium-term framework and allocates at least 70 percent of budgetary resources to priority sectors, in line with the Memorandum of Understanding between Chad and the World Bank of July 2006.
  - Initial authorities’ proposal entailed significantly higher spending; agreement reached to plan expenditures in line with prudent principles.
- Key aggregates and composition (selected items and percent of non-oil GDP unless stated otherwise):
  - Current expenditures in 2007, excluding exceptional security outlays, would exceed the 2006 expected outturn by about 1 percent of non-oil GDP.
  - Contingency for exceptional security expenditure of 1.1 percent of GDP in 2007 (compared with an expected level of 4.3 percent of GDP in 2006).
  - Resulting non-oil primary deficit in 2007: about 14.5 percent of GDP.
  - Overall investment expenditure would decline by about 0.7 percent of GDP compared with 2006 due to a fall in foreign-financed investment offsetting an increase in domestically-financed capital spending.
  - The non-oil deficit would allow accumulation of an amount equivalent to 15 percent of non-oil GDP in the oil revenue account.
- Absorptive capacity considerations:
  - Half of domestically-financed capital spending concerns road infrastructure (much co-financed by donors); sector specialists judge macroeconomic and technical absorption capacity constraints are less acute for these projects.
  - Preservation of macroeconomic stability supported by containment of current spending (notably the wage bill) and focus on projects aimed at raising quality of public spending.

### Staff appraisal — findings, risks, and policy recommendations
- Main findings:
  - Resurgence of conflict underlines challenges to effective use of oil revenues.
  - Large expenditure overruns in 2006, partly due to higher security expenditures, are a cause for concern.
  - Authorities’ agreement on a mechanism to save future excess oil revenues is welcome.
- Risks to fiscal outlook:
  - Fiscal outlook subject to risks from frontloading public spending, limited availability of data to assess absorptive capacity, and the unsettled security environment.
  - High up-front expenditure strategy requires vigilance: ensure spending does not exceed absorptive capacity and impose tight controls on new medium-term investment projects.
  - Medium-term framework must be reassessed if new security expenditure exceeds budgeted amounts.
- Public financial management:
  - Strengthening public financial management is crucial to ensure quality and control of expenditures; staff urges rapid progress with implementing the action plan in cooperation with the World Bank and other donors.
  - Key element: strengthen capacity to prepare comprehensive medium-term fiscal frameworks and ensure control over long-term commitments, including for counterpart funds, as multi-year investment projects increase.
- Debt outlook:
  - Chad’s debt situation has improved but remains fragile; country still faces a high risk of debt distress.
  - To strengthen the debt outlook: attain the HIPC completion point and maintain macroeconomic discipline.
  - Outlook would deteriorate substantially with a large drop in oil prices or if fiscal discipline does not prevail.
- Program outlook:
  - Provided the 2007 budget is approved as agreed and security stabilizes, discussions on the first and second reviews under the PRGF arrangement could resume in early 2007.

### Key statistics and selected economic indicators (highlights from tables)
- 2006 outcomes and 2007 agreed budget (selected items; units as in source):
  - Real GDP growth in 2006: 1.3 percent.
  - Non-oil GDP growth: 5.1 percent (staff report figure for 2006).
  - Consumer price index (average) 2006: 8.8 percent (staff report); October 2005–06 inflation cited as 15 percent in text (meat-driven).
  - Non-oil revenue (percent of GDP): 8.8 (2005), 9.2 (2006), 8.5 (2007 staff projection), 8.7 (2008), 8.9 (2009).
  - Oil revenue (percent of GDP): 8.7 (2005), 13.9 (2006), 22.2 (2007 budget table, in percent of GDP).
  - Non-oil primary balance (commitment basis, excl. grants): -6.0 (2005), -11.2 (2006), -16.6 (2006 revised), -14.5 (2007).
  - Exceptional security spending: 4.3 percent of GDP in 2006 (total), 2.5 percent of GDP new in 2006 (text), contingency of 1.1 percent of GDP in 2007 budget.
  - Balance of oil revenue account (memorandum): ... 1.7 (2006), 15.0 (2007 Jun. estimate), 5.8 (2007 Nov. estimate), 1.2 (2008), ...
- Fiscal aggregates (in billions of CFA francs, 2006–07 selected):
  - Total revenue 2006: 289.7; 2007 budget (Nov): 430.4.
  - Oil revenue 2006: 144.0; 2007 budget (Nov): 219.0.
  - Total expenditure 2006: 404.9; 2007 budget (Nov): 619.5.
  - Wages and salaries 2006: 101.2; 2007 budget (Nov): 147.5.
  - Investment expenditure 2006: 217.7; 2007 budget (Nov): 288.7.
  - Grants (2006): 104.2; projected grants in 2007 budget (Nov): 75.0.
- External sector and macro indicators (selected projections):
  - Real non-oil growth: about 6 percent in 2007; around 4.5 percent thereafter.
  - External current account: small surplus in 2007; deteriorates over medium term.
  - Nominal GDP (in billions of CFA francs): 3,104 (2005), 3,503 (2006), 3,420 (2007 staff report figure), 3,060 (2008 proj.), 3,178 (2009 proj.), 3,108 (subsequent).
  - Nominal non-oil GDP (in billions of CFA francs): 1,653 (2005), 1,824 (2006), 1,804 (2007), 1,990 (2008), 2,135 (2009), 2,301 (later).
  - Nominal GDP (in millions U.S. dollars): 5,896 (2005), 6,707 (2006), 6,519 (2007), 5,963 (2008), 6,225 (2009), 6,111 (later).

*Source: IMF staff supplement reflecting discussions with the authorities during the mission to conclude the 2006 Article IV consultations (October 26 to November 15).*

### 17.      This assessment presents a joint IMF-World Bank debt sustainability analysis using

### _cr0721 - 17.      This assessment presents a joint IMF-World Bank debt sustainability analysis using

### Debt sustainability assessment
- Chad’s debt situation has improved appreciably in recent years, but the outlook remains fragile and Chad faces a high risk of debt distress.
- The baseline scenario appears sustainable but entails significant risks:
  - Possible further delays in Chad’s receipt of full debt relief under the Highly Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).
  - Adverse shocks (e.g., sharper than expected decline in oil prices) or lack of fiscal discipline would substantially deteriorate debt burden indicators.
- Alternative scenarios and bound tests indicate substantial deterioration of debt indicators under adverse shocks.

### Recent debt developments
- Chad is eligible for the HIPC Initiative and reached the HIPC Decision Point in 2001; creditors agreed to a common reduction factor of 30 percent, resulting in HIPC debt relief of $170 million in NPV terms.
- Interim HIPC relief has been provided by Paris Club creditors and the IMF, IDA, and the AfDB Group; full relief is contingent on reaching the HIPC Completion Point.
- At end-2005:
  - External public and publicly guaranteed (PPG) debt stood at CFA 880 billion ($1.6 billion) or 27 percent of GDP.
  - This compares with CFA 732 billion and 53 percent of GDP at end-2002.
  - In NPV terms, the debt was only two thirds this amount since it is largely concessional: 90 percent is due to multilateral institutions and the remainder to bilateral creditors.
- Improvement attributed to strong growth in overall GDP from the oil sector and reduced government reliance on external financial support.

### Baseline assumptions and macroeconomic projections (Box 1)
- Oil production assumptions:
  - Expected to peak in 2007, followed by a gradual decline to one fifth that level by 2030, based on current proven oil reserves.
- Oil prices are expected to decline; investment cost recovery by companies and falling prices result in a sharp decline in oil revenues for the government.
- Baseline assumes:
  - Steady increase in non-oil GDP growth as oil production declines.
  - Agricultural sector is main source of growth, benefiting from infrastructure financed from oil revenue.
  - Non-oil revenues will grow as a percent of GDP and compensate for decline in oil revenues so non-oil primary balance can cover debt service.
  - Substantial medium-term adjustment and continued consolidation.
  - Chad will reach the HIPC Completion Point at end-2007.30
- Baseline shows relatively large residuals in 2006 and 2007 due to assumption that much of oil revenue will be used to accumulate reserves; residuals decline and turn negative as reserves are drawn down.

Key baseline projection figures (selected years and averages as presented)
- Real GDP growth (%): 2006 1.3-1.2, 2007 7.4, 2008 0.8, 2009 2.5, 2006-2013 4.5, 2014-2026 3.7
- Non-oil real GDP growth (%): 2006 5.1, 2007 5.9, 2008 4.5, 2009 4.6, 2006-2013 5.0, 2014-2026 5.3
- Nominal GDP growth (%): 2006 10.2-10.5, 2007 3.9-2.2, 2008 2.7, 2009 6.9, 2006-2013 5.3
- Nominal GDP level (billions of CFAF): 2006 3,420, 2007 3,060, 2008 3,178, 2009 3,108, 2006-2013 3,357, 2014-2026 5,953, Average 4,964
- Oil production (millions of barrels): 2006 55.4, 2007 47.5, 2008 56.6, 2009 50.3, 2006-2013 48.1, 2014-2026 20.1, Average 30.8
- Oil prices (Brent, $ per barrel): 2006 65.2, 2007 52.0, 2008 49.5, 2009 43.2, 2006-2013 47.3, 2014-2026 56.4, Average 52.9
- Oil revenues (CFAF billions): 2006 400, 2007 619, 2008 151, 2009 219, 2006-2013 292, 2014-2026 219, Average 247
- Oil revenues (% of GDP): 2006 11.7, 2007 20.2, 2008 4.8, 2009 7.0, 2006-2013 8.8, 2014-2026 4.2, Average 5.9
- Non-oil revenues (CFAF billions): 2006 153, 2007 173, 2008 191, 2009 211, 2006-2013 231, 2014-2026 735, Average 543
- Non-oil revenues (% of GDP): 2006 4.5, 2007 5.7, 2008 6.0, 2009 6.8, 2006-2013 6.8, 2014-2026 11.9, Average 10.0
- Non-oil primary balance (% of non-oil GDP) (Excluding grants and security spending): 2006 -12.3, 2007 -13.4, 2008 -12.1, 2009 -10.8, 2006-2013 -9.1, 2014-2026 -3.6, Average -5.7
- Sources: Chadian authorities and Fund staff estimates.

30. If Chad were to receive MDRI in 2008, the amount would be on the order $1.2 billion which translates into $574 million in NPV terms which is 9 percent of GDP and 18 percent of exports.

### External public and publicly guaranteed (PPG) debt DSA
- Baseline assumptions for external public debt:
  - Large fiscal surpluses in 2007 and 2008 (oil revenue peak) are saved and drawn down subsequently in line with absorptive capacity.
  - Chad rolls over maturing debt to finance investment needs for poverty reduction identified in the PRSP, but borrows only on concessional terms.
  - Anti-poverty policies attract a steady flow of grants from external donors.
- Resulting debt dynamics:
  - NPV of debt remains in a range of 15-20 percent of GDP, based on an average rate of growth of real GDP of about 4 percent for the period.
  - In terms of exports, the NPV value of debt stays within a range of 50-100 percent.
- Alternative scenarios analyzed:
  - A1: Key variables kept at historical averages (calculated over 2000-2005); current account deficit continues at the high level of 35 percent, leading to a gradual build up of debt despite higher direct investment inflows and real GDP growth.
  - A2: New public sector loans contracted on less favorable terms (interest on new borrowing is 2 percentage points higher than baseline), resulting in a higher NPV value of the debt stock.
- Bound tests:
  - Six standard bound tests applied; Chad’s debt position is most sensitive to a one-standard deviation drop in export proceeds in 2007 and 2008 (Test B2), which could result from a roughly 20 percent drop in oil prices.
  - GDP drop one standard deviation below the high historical average (Test B1) does not show much change from baseline because baseline real GDP growth in 2007 and 2008 is already at that level.

### Public debt DSA
- Domestic public debt:
  - Limited, equivalent to about 6 percent of GDP at end-2005.
  - Baseline expects the share of domestic debt in total to remain roughly the same.
- Total public debt sustainability:
  - Under baseline assumptions, NPV of debt remains in the 20–30 percent range.
  - Standard “no reform” alternative scenario would be “primary balance unchanged from 2006”; staff instead used a “no reform” scenario with primary expenditures remaining at their high 2007 level despite subsequent decline in oil revenue (shown as “no reform” in Figure 2 and as A2 in Table 2b).
  - Most extreme stress test: “permanently lower GDP growth” (A3) causes NPV of debt to GDP and to revenues to rise sharply.

### Threshold comparison
- LIC DSA framework classifies countries into three performance categories—strong, medium, poor—based on World Bank CPIA; thresholds vary by category.
- Chad’s CPIA score in 2005 was 2.9, placing Chad in the bottom quintile and characterizing Chad as a poor reformer with correspondingly low threshold values.
- Under baseline scenarios most indicators remain below these thresholds, but several alternative scenarios and bound tests produce ratios that breach thresholds.
- Selected indicative thresholds and Chad’s indicator values:
  - NPV of debt to GDP threshold: 30; 2006 16; 2016 19; 2026 15; Average 18
  - NPV of debt to exports threshold: 100; 2006 27; 2016 75; 2026 113; Average 75
  - NPV of debt to revenue threshold: 200; 2006 59; 2016 68; 2026 96; Average 75
  - Debt service to exports threshold: 15; 2006 13; 2016 74
  - Debt service to revenue threshold: 25; 2006 4; 2016 35; 2026 5
- Note: 1./ The thresholds used indicate the level at which countries with similar policies and institutions would have at least a 25 percent chance of a prolonged incident of debt distress in the coming year.

### Conclusions
- On balance, despite recent improvements, Chad appears to face a high risk of debt distress.
- Key risks to sustaining the baseline include:
  - Delays to HIPC Completion Point and MDRI delivery.
  - A sharper than expected decline in oil prices leading to lower export proceeds.
  - Failure to maintain fiscal discipline in the near to medium-term.
- Under the baseline, debt appears sustainable, but alternative scenarios and stress tests show vulnerabilities that could breach policy-dependent thresholds.

*Source: IMF-World Bank joint Debt Sustainability Analysis for Chad (content unit _cr0721 - 17).*

### 11. Chad’s debt situation has improved in recent years but remains fragile and the

### 11. Chad’s debt situation has improved in recent years but remains fragile and the country still faces a high risk of debt distress

### Debt outlook and policy imperatives
- "Chad’s debt situation has improved in recent years but remains fragile and the country still faces a high risk of debt distress."
- "To further solidify the debt situation, it is of utmost importance that Chad reaches soon the HIPC Completion Point."
- Required conditions to reach HIPC Completion Point:
  - "maintaining macroeconomic stability in the face of sharply fluctuating oil revenues in the near to medium term."
  - "speedy progress with the structural reform agenda reflected in the HIPC Completion Point Triggers."
- Longer-term objective:
  - "Such policies would permit the gradual diversification of the economy that is essential to ensure growth over the long term."

### Key indicators and projections (selected figures from staff simulations)
- NPV of external debt (selected values):
  - 2016: 17.9
  - 2017: 16.1
  - 2018: 16.7
  - 2019: 17.1
  - 2020: 18.4
  - 2021: 18.3
  - 2022: 18.5
  - 2023: 18.9
  - 2026: 14.8
- NPV of debt-to-exports (selected values):
  - 2016: 32.5
  - 2017: 27.3
  - 2018: 30.7
  - 2019: 33.0
  - 2020: 41.2
  - 2021: 50.1
  - 2022: 53.5
  - 2023: 74.9
  - 2026: 113.2
- Debt service-to-exports ratio (in percent) (selected values):
  - 2006: 5.8
  - 2007: 1.7
  - 2008: 1.5
  - 2009: 1.2
  - 2010: 2.2
  - 2011: 2.0
  - 2012: 2.5
  - 2013: 2.9
  - 2016: 7.3
- Total gross financing need (billions of U.S. dollars) (selected values):
  - 2006: 0.7
  - 2007: -0.1
  - 2008: -0.5
  - 2009: -0.6
  - 2010: -0.6
  - 2011: -0.3
  - 2012: 0.0
  - 2013: 0.3
  - 2014: 0.4
  - 2015: 0.6
  - 2016: 1.6
- Nominal GDP (billions of US dollars) (selected values):
  - 2006: 2.7
  - 2007: 4.4
  - 2008: 5.9
  - 2009: 6.5
  - 2016: 8.8
  - 2026: 18.0

### Identified debt-creating flows and dynamics (selected figures)
- Identified net debt-creating flows (selected values):
  - 2006: 8.6
  - 2007: -22.2
  - 2008: -18.2
  - 2009: -10.4
  - 2010: -10.7
  - 2011: -7.6
  - 2012: -1.6
  - 2013: 3.6
  - 2014: 4.3
  - 2015: 5.7
  - 2016: 1.6
- Non-interest current account deficit (selected values):
  - 2006: 49.5
  - 2007: 7.5
  - 2008: 0.7
  - 2009: 35.2
  - 2010: 33.5
  - 2011: -0.9
  - 2012: -3.5
  - 2013: 2.7
  - 2014: 6.3
  - 2015: 11.2
  - 2016: 11.3
- Exports and imports (selected values, percent of GDP where shown):
  - Exports (selected year values): 24.8, 51.0, 54.9, 58.9, 54.4, 51.8, 44.5, 36.6, 34.5, 25.3, 13.0
  - Imports (selected year values): 15.4, 15.2, 9.1, 8.8, 9.9, 10.0, 10.8, 10.8, 10.9, 10.9, 9.6
- Net FDI (negative = inflow) (selected values):
  - 2006: -26.2
  - 2007: -10.8
  - 2008: -10.4
  - 2009: -21.3
  - 2010: 14.6
  - 2011: -9.5
  - 2012: -7.8
  - 2013: -8.9
  - 2014: -8.1
  - 2015: -7.3
  - 2016: -6.6
  - 2026: -2.5

### Stress tests, alternative scenarios and sensitivity analyses (high-level)
- Figures and tables present alternative scenarios and bound tests for 2006-26, including:
  - Baseline, Historical scenario, Most extreme stress tests.
  - Public debt variants: Baseline, No Reform, Most extreme stress test.
  - Sensitivity scenarios include:
    - A1. Key variables at their historical averages in 2007-26.
    - A2. New public sector loans on less favorable terms in 2007-26 (assumes interest rate on new borrowing is by 2 percentage points higher than in the baseline).
    - B1–B6 bound tests (e.g., Real GDP growth shock, export value growth shock, US dollar GDP deflator shock, net non-debt creating flows shock, combination shocks, one-time 30 percent nominal depreciation).
- Representative scenario outcomes (selected entries from sensitivity tables):
  - NPV of debt-to-GDP ratio — Baseline: 27 (selected cell in table), A1: 16, A2: 16, B2: 16 (table shows scenario-by-year cell values across indicators).
  - NPV of debt-to-exports ratio — Baseline: 273 / 133 / 415 / 054 / 75 / 113 (table rows list multiple cell values across scenarios and years).
  - Ratio of debt service to exports — Baseline and scenario cell values shown (table entries capture scenario outcomes across 2006-2026).

### Public sector debt dynamics (selected values from public sector DSA)
- Public sector debt (in percent of GDP) (selected values):
  - 2003: 48.2
  - 2004: 41.9
  - 2005: 36.0
  - 2006: 26.6
  - Average 2006-11: 29.0
  - 2016: 27.7
- Change in public sector debt (selected values):
  - 2006: -6.3
  - 2007: -6.2
  - 2008: -6.0
  - 2009: -9.4
  - 2010: 2.4
- Primary deficit (selected values):
  - 2003: 5.3
  - 2004: -0.5
  - 2005: -4.9
- Revenue and grants (selected values):
  - 2003: 16.1
  - 2004: 14.5
  - 2005: 17.6
  - 2010: 48.7
  - Average 2006-11: 23.0
- Automatic debt dynamics, contribution from real GDP growth and price/exchange changes (selected values):
  - Automatic debt dynamics (2006-11 average): -14.2, -17.7, -6.9, -4.7, 3.5...
  - Contribution from real GDP growth (selected): -7.0, -12.1, -3.3, -0.5, 0.3...
  - Contribution from real exchange rate depreciation (selected): -6.9, -5.1, -2.0, -3.7, 2.3...

### Key macroeconomic and fiscal assumptions (selected)
- Real GDP growth (in percent) (selected values):
  - 2006: 14.7
  - 2007: 33.6
  - 2008: 8.6
  - 2009: 12.7
  - 2010: 11.5
  - 2011: 1.3
  - 2012: -1.2
  - 2013: 7.4
  - 2016: 5.7
  - 2026: 4.3
- GDP deflator in US dollar terms (change in percent) (selected values):
  - 2006: 19.2
  - 2007: 21.3
  - 2008: 22.8
  - 2009: 12.0
  - 2010: 11.9
  - 2011: 9.1
  - 2012: -7.4
  - 2013: -2.8
  - 2016: 2.9
  - 2026: 2.3
- Effective interest rate (percent) (selected values):
  - 2006: 1.4
  - 2007: 1.2
  - 2008: 0.8
  - 2009: 1.3
  - 2010: 0.3
  - 2011: 1.2
  - 2012: 1.5
  - 2013: 1.5
  - 2016: 1.2
  - 2026: 1.3
- Growth of exports of goods and services (US dollar terms, in percent) (selected values):
  - 2006: 166.9
  - 2007: 233.9
  - 2008: 43.6
  - 2009: 72.6
  - 2010: 103.1
  - 2011: 18.5
  - 2012: -15.4
  - 2013: -0.7
  - 2016: 2.8
  - 2026: 0.0
- Growth of imports of goods and services (US dollar terms, in percent) (selected values):
  - 2006: 48.1
  - 2007: 59.4
  - 2008: -20.3
  - 2009: 24.0
  - 2010: 33.7
  - 2011: 7.0
  - 2012: 3.0
  - 2013: 6.1
  - 2016: 6.5
  - 2026: 5.8
- Grant element of new public sector borrowing (in percent) (selected values):
  - 2012 onward: 34.6, 35.8, 35.8, 35.8, 35.8, 35.8, 35.6, 35.8, 35.8, 35.8

*Source: Staff projections and simulations as presented in the supplied IMF document.*

### 25.2 million (45 percent of quota). Chad reached its decision point under the Enhanced

### _cr0721 - 25.2 million (45 percent of quota). Chad reached its decision point under the Enhanced

### Macroeconomic performance and recent developments
- Real GDP growth:
  - 2001–03 average: 11 percent.
  - 2003: 14.7 percent.
  - 2004: 31.3 percent.
  - 2005: 8.6 percent.
  - 2006: 1.3 percent (staff projection: -1.2 percent? table shows -1.2 in 2006 column label; narrative: real GDP expected to grow by 1.3 percent in 2006).
- Oil sector:
  - Accounts for almost half of GDP.
  - Oil GDP annual changes: 2003: 253.9; 2004: 292.7; 2005: 2.1; 2006: -7.7; 2007 (staff projection column shows -20.1).
  - Oil production declined from 63.3 (2005) to 55.4 million barrels (2006) due to water in wells.
- Non-oil economy:
  - Non-oil GDP annual changes: 2003: 6.0; 2004: -0.5; 2005: 11.6; 2006: 5.1; 2007 (projection column shows 5.9).
  - Real non-oil growth expected to rise to about 6 percent by 2007, then stabilize around 4.5 percent in subsequent years (narrative).
- Inflation and prices:
  - 2004 drought pushed up prices; annual average inflation 2005: 8 percent (narrative).
  - CPI point-to-point October 2006: 15 percent (statement).
  - Table consumer prices: -1.8 (2003), -5.4 (2004), 7.9 (2005), 8.8 (2006), 4.0 (2007 projection).
- Exchange rate and monetary aggregates:
  - Real effective exchange rate: 2003: 2.8; 2004: -4.2; 2005: 6.2; 2006/2007: data shown as "...".
  - Broad money growth: stagnated in 2003–04; 2005: 32 percent (narrative); table shows change in broad money: -3.1 (2003), 3.3 (2004), 31.7 (2005), "..." thereafter. Monetary expansion slowed to about 28 percent by late 2006 (narrative).
  - BEAC discount rate (end of period) shown as 6.0 (2003), 6.0 (2004), 5.5 (2005), 5.5 (2006), 5.5 (2007).

### Fiscal developments and oil revenue management
- Fiscal outcomes and issues:
  - Start of oil revenue supported higher domestic spending during 2004–05, partly offsetting donor shortfalls.
  - Domestic debt and arrears continued to accumulate due to poor budget discipline and weak public finance management.
  - Budget segmentation and cash management complicated fiscal management.
- 2006 developments:
  - January 2006: authorities’ unilateral modification of the Petroleum Revenue Management Law led to World Bank contractual remedies and blocking of the offshore oil revenue escrow account.
  - March 2006: start of income tax payments by oil companies partly offset revenue loss.
  - July 2006: dispute with the World Bank settled.
  - October 2006: settlement of income tax dispute with two of three consortium companies resulted in additional revenue equivalent to 8 percent of non-oil GDP.
  - Non-oil primary deficit rose to 16.6 percent of GDP in 2006 (table shows non-oil primary balance as -16.6).
- 2007 budget and public financial management:
  - Draft 2007 budget allocates at least 70 percent of all budgetary resources to priority sectors (excluding security).
  - Budget formulated within a medium-term expenditure framework aimed at macro stability and fiscal sustainability.
  - Authorities prepared an action plan to strengthen public financial management supported by donors.
  - Authorities intend to establish a mechanism to save future excess oil revenues; Directors urged it be fully operational by end of March 2007.

### External sector and debt
- Trade and external accounts (table values, annual percentage changes unless otherwise indicated):
  - Exports, f.o.b.: 2003: 171.8; 2004: 225.9; 2005: 43.5; 2006: 18.7; 2007 projection: -10.2.
  - Imports, f.o.b.: 2003: -59.1; 2004: 2.0; 2005: -11.4; 2006: 2.6; 2007 projection: 0.6.
  - Terms of trade: 2003: 60.0; 2004: 2.7; 2005: 29.6; 2006: 28.8; 2007 projection: -17.7.
  - Current account deficit (percent of GDP, excluding official transfers): 2003: -50.1; 2004: -7.9; 2005: -0.9; 2006: 0.6; 2007 projection: 0.2.
- Debt indicators:
  - Total external public debt (percent of GDP): 2003: 50.2; 2004: 35.0; 2005: 27.0; 2006: 20.5; 2007 projection: 24.1.
  - Joint Bank-Fund DSA shows debt situation remains unsustainable; baseline scenario carries significant risks.
  - Authorities expect to repay some domestic debt and 2005 exceptional advances from BEAC (interest-costly). Debt relief from international community remains critical to reach HIPC completion point and qualify for MDRI.

### Financial sector and microfinance
- Banking system:
  - Financial health broadly satisfactory but vulnerable due to overexposure to government deposits.
  - Chad’s financial system among the least developed in the region.
- Microfinance:
  - Microfinance sector gaining importance; authorities set up a professional association and a microfinance department within the Ministry of Finance.
  - Licenses issued being verified and validated by COBAC in compliance with CEMAC regulations.

### Structural reforms, governance, and security constraints
- Binding constraints and vulnerabilities:
  - Business climate, governance, and socio-economic indicators remain among the lowest globally.
  - Major impediments: inadequate infrastructure, poor business climate, limited public financial management capacity, weak governance, resurgence of armed conflict.
  - Security deterioration linked to spillovers from Darfur; UN declared security phase IV for Eastern Chad and Phase III for N’Djamena; state of emergency declared in August 2006.
- Priority structural actions urged by Executive Directors:
  - Strengthen budgetary management, enforce laws and regulations, improve quality and transparency of expenditures, and enhance absorptive capacity.
  - Develop the non-oil sector: strengthen non-oil revenue, pursue civil service, military, and public enterprise reform.
  - In cooperation with World Bank and partners: implement reforms in electricity and cotton parastatals to eliminate budgetary subsidies.
  - Carry forward trade system reforms recommended by the Diagnostic Trade Integration Study.
  - Strengthen judiciary and anticorruption efforts; strengthen financial sector per regional FSAP recommendations and in cooperation with the Banking Commission of Central Africa.
  - Monitor price developments closely and improve statistical information on prices and wages; upgrade macroeconomic statistics and follow up on data ROSC recommendations.

### Policy recommendations and medium-term framework
- Use of oil windfall:
  - Directors urged authorities to seize the unique—but likely short-lived—opportunity from the oil revenue windfall to establish foundations for sustained growth and poverty reduction.
  - A considerable part of 2007 oil revenue will need to be saved for use in subsequent years.
  - Authorities intend to implement an oil-revenue stabilization mechanism lodged at the BEAC, with an oil account fully integrated into the budget process; College overseeing oil resources to continue tasks.
- Fiscal stance and safeguards:
  - 2007 budget and medium-term fiscal framework broadly supportive of macro stability but subject to risks from frontloading of spending and unsettled security environment.
  - Encourage vigilance to ensure spending does not exceed absorptive capacity and impose tight controls on new medium-term investment projects.
  - Rapid implementation of the authorities’ public financial management action plan, with strong donor support, is essential.
- Structural reform priorities:
  - Ambitious structural reforms vital for diversifying the economy and promoting non-oil development so poverty reduction can continue when oil runs out.
  - Strengthen non-oil revenue and pursue reforms in public enterprises, electricity and cotton sectors, and the trade system.

### Key statistics (selected table entries preserved exactly)
- Real GDP (annual percent changes): 2003: 14.7; 2004: 31.3; 2005: 8.6; 2006: 1.3; 2007: -1.2 (table column header shows 1/ for staff projections; narrative signals 2006 growth 1.3 and 2007 non-oil growth ~6 percent).
- Oil GDP (annual percent changes): 253.9; 292.7; 2.1; -7.7; -20.1.
- Non-oil GDP (annual percent changes): 6.0; -0.5; 11.6; 5.1; 5.9.
- Consumer prices (annual percent change): -1.8; -5.4; 7.9; 8.8; 4.0.
- Exports, f.o.b. (annual percent change): 171.8; 225.9; 43.5; 18.7; -10.2.
- Imports, f.o.b. (annual percent change): -59.1; 2.0; -11.4; 2.6; 0.6.
- Terms of Trade (annual percent change): 60.0; 2.7; 29.6; 28.8; -17.7.
- Current account deficit (percent of GDP, excl. official transfers): -50.1; -7.9; -0.9; 0.6; 0.2.
- Gross national savings (percent of GDP): 5.0; 19.5; 21.3; 23.4; 23.5.
- Gross domestic investment (percent of GDP): 52.4; 24.3; 20.2; 21.5; 21.1.
- Overall fiscal balance, excluding grants (commitment basis, percent of GDP): -16.4; -10.1; -7.0; -3.6; 8.5.
- Non-oil primary balance (percent of non-oil GDP): -3.2; -3.9; -6.0; -16.6; -14.5.
- Change in broad money (percent): -3.1; 3.3; 31.7; ...; ...
- Interest rate (BEAC discount rate, end of period): 6.0; 6.0; 5.5; 5.5; 5.5.
- Total external public debt (percent of GDP): 50.2; 35.0; 27.0; 20.5; 24.1.

*Source: IMF staff report and Executive Board discussion summarized in the December 18, 2006 Public Information Notice contained in the provided content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0721.pdf_