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### I. Introduction and Context
- Internal security: MINURCAT mandate completed on December 31, 2010; more than 70,000 people fleeing violence in Libya have been repatriated to or via Chad.
- Political: President Déby in office since 1990 was reelected on April 25, 2011; president’s party and allies won 133 of 188 seats in the National Assembly on February 13, 2011. Local elections postponed until October.
- Government objectives: campaign platform of “renaissance” to transform Chad into a middle-income economy diversified away from oil via ambitious public investment and FDI-led industrialization.

### II. The 2010 Recovery — Key Findings
- Real GDP growth: reached 13 percent in 2010.
- Oil: temporary increase in oil production in 2010; oil reserves expected to be largely exhausted by 2030.
- Agriculture: agricultural production nearly doubled in 2010 due to favorable rains, government measures to provide agricultural inputs, and increased cultivated area.
- Cotton: cotton output remained low because of the dire financial condition of the cotton parastatal (Cotontchad).
- Prices: food and consumer prices declined in 2010.

### III. Fiscal Developments and Fiscal Balance
- Overall fiscal deficit (excluding grants, commitments basis): shrank from 21 percent of non-oil GDP in 2009 to about 11 percent of non-oil GDP in 2010.
- Non-oil primary deficit (NOPD): weakened from 28 percent to 31 percent of non-oil GDP in 2010; the 2010 NOPD target in the supplementary budget was overshot by 2½ percent of non-oil GDP.
  - Staff note: the original 2010 NOPD target was overshot by more than 12 percent of non-oil GDP mainly due to exceptional security spending and public investment.
- Spending surge: pre-election surge in domestically-financed public investment contributed to the NOPD overshoot.

### IV. Budget Execution and Public Financial Management (PFM)
- Emergency procedures (DAOs): accounted for over one quarter of domestically-financed spending (excluding wages and debt) in 2010; equivalent to 9.3 percent of non-oil GDP; DAOs awaiting regularization at end-2010 amounted to 4.3 percent of non-oil GDP.
- Procurement: share of contracts awarded without competitive tender fell from 85 percent in 2009 to 49 percent in 2010.
- Treasury float and arrears: half of the end-2010 treasury float (5.5 percent of non-oil GDP) slipped into arrears.
- Budget process improvements:
  - 2010 budget closed at end-February per organic budget law.
  - A new macro-framework prepared for the 2012 budget.
  - Some reduction in DAOs but extra-budgetary spending continued (examples: electricity company fuel subsidies; conventions allowing payments absent budget allocation).

### V. Public Debt and Financing
- Stock of public- and publicly-guaranteed debt: rose from 30.5 percent of GDP at end-2009 to 32.6 percent of GDP (or 53.3 percent of non-oil GDP) at end-2010.
- External debt: raised to 25 percent of GDP at end-2010, driven by a nonconcessional loan from Libya equivalent to 2.3 percent of non-oil GDP.
- BEAC statutory advances: debt to the Bank of Central African States increased to 5.3 percent of GDP (or 8.1 percent of non-oil GDP) at end-2010.
- Government contingent/exposure: government exposure assumed on the joint venture refinery equals 4.0 percent of 2010 GDP.
- Debt sustainability: updated analysis shows Baseline scenario risk of debt distress remains moderate.

### VI. External Sector and Reserves
- Current account: external current account deficit widened to 35 percent of GDP in 2010 because of high import content of investment spending (notably in the oil sector).
- Reserves: official reserves increased but reserve coverage of imports of goods and services (excluding oil-sector imports) weakened somewhat.
- REER: staff assessment places non-oil REER at 2–6 percentage points above the norm depending on approach; a modified methodology finds non-oil REER overvalued by close to 15 percent.

### VII. Monetary and Financial Developments
- Broad money: increased by 25 percent in 2010, in line with nominal GDP.
- Credit to the economy: grew 19 percent, broadly in line with nominal non-oil GDP.
- Banking limits: commercial bank financing was unavailable as banks reached limits of exposure to the state as a single borrower, raising financial stability concerns.

### VIII. Recent Outlook and Risks (2011–12 projections)
- 2011 GDP growth: projected to moderate to about 3 percent.
  - Oil production: expected to decline slightly in 2011 despite contribution from Bongor field.
  - Bongor: began producing 20,000 barrels per day (bpd) in June to feed the new oil refinery.
  - Non-oil GDP growth: projected to moderate to 3.6 percent in 2011.
- 2012 growth: expected to spike above 7 percent reflecting the refinery’s first full year of operation, new industrial projects (power station, cement factory), and a projected spike in crude oil production.
  - Doba field output expected to decline or remain at about 120,000 bpd, provided international oil prices remain high.
- Inflation: consumer price inflation (period average) not expected to exceed 2 percent in 2011 and 3 percent in 2012; consumer price inflation remained negative in Q1 2011 but some food prices reportedly rose in Q2 2011.
- Sectoral price pressures: prices of intermediate goods (e.g., cement) and wages of skilled labor reported to be rising due to public investment demand.
- Budget risk:
  - On current trend, NOPD at end-2011 would exceed the budget target by about 6 percentage points of non-oil GDP.
  - Through May 2011, non-oil revenue was 20 percent below expectations.
- Fiscal contingency: a sharp decline in oil prices is the main risk to the budget; without government deposits, such a shock could force fiscal tightening, investment slowdown, increased domestic arrears, and possible arrears to the central bank; government suppliers may be unable to service debts and banks’ nonperforming loans would rise.

### IX. Policy Priorities and PFM Reform (Restoring Budget Discipline)
- Core objective: strengthen PFM, especially spending controls, to restore budget discipline given procyclical oil-fuelled fiscal expansion.
- Observed drivers of fiscal expansion:
  - Domestically-financed capital spending rose from 2.1 percent of non-oil GDP in 2003 to 12.6 percent in 2008–10.
  - Primary current spending rose from 10.3 percent of non-oil GDP in 2003 to 29.4 percent in 2008–10.
  - Wage bill rose from 5.4 percent of non-oil GDP in 2003 to 9 percent in 2008–10.
- PFM weaknesses to address: overruns on exceptional security spending and public investment, execution via DAOs and extra-budgetary procedures, procurement shortcomings, inadequate alignment of spending with poverty reduction priorities, and opaque revenue regimes (e.g., oil refinery project).

### Box 2. Chad: Revisions to National Accounts
- New GDP estimates and methodology:
  - Authorities produced new estimates of GDP for 2005–10, consistent with the 1993 System of National Accounts.
  - Estimates compiled with assistance of AFRISTAT and AFRITAC Centre.
  - New estimates are based on the 2005 input-output structure and include the informal sector.
  - In Base 1995, oil-related construction was included and is treated as part of Secondary in Base 2005.
- Institutional and operational improvements:
  - Recommended changes to organization and staffing of INSEED accompany technical revisions.
  - These improvements should enable more reliable and timely estimates of economic activity.
- Usage and transition recommendations:
  - Ministry of finance and budget is already using the new GDP estimates for budget planning.
  - Staff recommended continuing to compile and publish 1995-based estimates alongside the new series for a period of time.

### Bank Stability, Financial Sector Development, and Business Environment
- Bank stability: staff recommended authorities seek new private capital for predominantly state-owned banks and work with other CEMAC members to reinforce COBAC’s legal framework and national offices’ powers to intervene in troubled banks.
- Single exposure limits: staff recommended aligning the single exposure limits with international standards; observation that the banks’ largest individual exposures are well above the regional limit (regional limit at 45 percent of capital).
- Risk management: Chadian banks advised to strengthen risk management to monitor portfolio concentration.
- Government debt instruments and treasury management:
  - Authorities completed a sale of over CFAF 100 billion of five-year bonds with a 6 percent coupon in July.
    - 63 percent of the issue was purchased by Chadian residents.
    - Two-thirds of the issue was purchased by banks, local and regional.
  - Staff view: predictable, regular issue of short-term paper would be more efficient than occasional placements of long-term savings bonds.
  - Recommendation: regular short-term issuance to meet monthly payment pressures, avoid domestic arrears, improve debt-management and financial sector development.
- Business environment: recommended tax and regulatory measures:
  - Reduce the corporate income tax rate from 40 percent to 35 percent.
  - Eliminate various special and administrative levies, especially those collected by ministries and other administrations.
  - Eliminate, or at least reduce the minimum corporate tax from 1.5 percent to 1 percent.
  - Remove needless administrative barriers to formal incorporation.
  - Establish a one stop shop for business services.
  - Maintain a forum for ongoing, regular business-government dialogue.
  - Staff Appraisal reiteration: establishment of a one stop shop for investors is a priority; regulatory actions should be supplemented by tax policy measures to strengthen incentives for private investment and foster compliance.
- Authorities’ views:
  - Welcomed FSAP attention but skeptical about private funding in a low-income environment; favor special-purpose financial institutions and a government role as bank shareholder.
  - Agree on urgency of corporate income tax reduction and consideration of eliminating special levies; reduction of minimum corporate income tax to be considered in the medium term for revenue reasons.

### Resuming Path Toward Debt Relief (HIPC) and Staff Steps
- Background:
  - Chad reached Decision Point under the Enhanced HIPC Initiative in May 2001 but has been unable to complete a review under an IMF financial arrangement since 2004.
  - A PRGF-supported program (2005) and an SMP (2009) went off track rapidly because of fiscal slippages.
- Authorities’ intent:
  - Eager to re-engage with IMF and World Bank to achieve the HIPC completion point quickly; plan an economic policy forum in late 2011.
- Agreed steps toward an SMP:
  - Adopt a supplementary budget to regularize extra-budgetary spending incurred in the first half of 2011.
  - Return to the quarterly NOPD path implied by the original 2011 budget law while ensuring effective spending allocations for social sectors.
  - Avoid DAO for spending that lacks prior budgetary appropriation or does not constitute a bona fide emergency.
- Staff technical note: timely provision of complete monthly fiscal accounts and reconciliation of treasury net credit to government with the monetary survey would be required to monitor an SMP.

### Staff Appraisal: Macroeconomic Context, Risks, and Policy Priorities
- Recent performance and outlook:
  - Higher oil prices relaxed financing constraints in short term, offering additional fiscal space.
  - Continued oil investment and recovery in agriculture yielded strong growth in 2010.
  - New industrial projects in oil refining, electrical generation, and cement production will contribute to stronger medium-term growth and help reduce cost of public and private investment.
- Fiscal and PFM priorities:
  - Rationalize fiscal policy, improve budget execution, strengthen procurement, reduce extra-budgetary spending.
  - Improve public financial management and address leakage of non-oil revenues, especially at customs.
  - Clear domestic arrears and continue servicing domestic debt.
- Medium-term fiscal framework recommendations:
  - Build savings cushion against oil price shocks; smooth expenditure (notably investment) to ensure sustainability; provide adequately for recurrent social spending.
- Public investment policy:
  - Rethink public investment policy to ensure macro stability; calibrate investment to reduce pressure on wages, prices, and external position.
  - Make a portion of investment outlays contingent on realization of optimistic oil or non-oil revenue forecasts.
  - Avoid resorting to nonconcessional borrowing, which could undermine debt sustainability and delay HIPC Completion Point.
- Private sector and sectoral reforms:
  - Encourage greater private sector participation in the cotton industry and broader private-sector reforms to boost diversification and job creation.
- Bank ownership and capital:
  - Government involvement in ownership and management of banks is excessive; new private partners’ capital would be beneficial.
- Program engagement:
  - Staff responding to authorities’ renewed interest in an SMP, which could pave the way to an ECF and the HIPC Completion Point; staff welcomed the proposed economic policy conference.

### Debt Sustainability Analysis — Key Assumptions, Findings, and Scenarios
- Overall assessment:
  - Staff’s assessment of debt vulnerability and risk of debt distress remains moderate, unchanged since the 2010 DSA.
  - Assumptions similar to 2010 DSA except for upward revision of current and projected oil prices.
  - Public and publicly-guaranteed external debt and debt service indicators remain well below indicative thresholds through the projection horizon.
  - Debt outlook highly sensitive to an oil price shock: a decline similar to 2009 would breach all debt and debt service ratios and keep them persistently above most thresholds.
  - Borrowing to finance major projects would jeopardize sustainability.
- Recent developments in public external debt:
  - 2010 external public debt-to-GDP ratio reached about 25 percent.
  - Rate of debt accumulation spiked partly due to low grant element of new borrowing (from Libya and China).
  - Overall fiscal deficit (excluding grants) dropped to around 12 percent of non-oil GDP in 2010 with rebound in oil prices.
- Recent developments in public domestic debt:
  - Public domestic debt estimated at about CFAF 87 billion (7½ percent of GDP) at end-2010.
  - Domestic arrears reduced in 2010; stock outstanding at end-2010 CFAF 3 billion (about 0.1 percent of GDP).
  - July 2011: sale of over CFAF 100 billion five-year savings bonds with a 6 percent coupon (63 percent purchased by Chadian residents; 67 percent by banks).
- Selected external public debt stock figures (end-2010, Billions of CFA francs):
  - Total: 1,066.8 (percent of GDP) 25.2
  - Multilateral: 757.7 (IMF: 8.3; World Bank/IDA: 439.5; African Development Fund/Bank: 208.7; EIB: 9.4; Others: 91.8)
  - Bilateral: 309.1 (Paris Club official debt: 32.0; Non-Paris Club official debt: 277.2 — China: 125.1; Libya: 96.2; India: 22.9)
- Baseline macro assumptions and projections (selected):
  - Non-oil GDP growth stabilizes at 3.7 percent in the long term.
  - Inflation stabilizes at a level consistent with the CEMAC convergence criterion of maximum 3 percent per year.
  - External current account remains in significant deficit until new pipeline and refinery operate for a full year in 2012.
  - External financing assumption: 5 percent of non-oil GDP, 70 percent grants and 30 percent loans from official creditors.
  - Baseline excludes HIPC and MDRI relief in absence of IMF arrangement.
  - Domestic financing assumptions: BEAC statutory advances reimbursed by 2014; no accrual of domestic arrears; issuance of domestic debt instruments with average maturity of one year, stock reaching about 11 percent of GDP by 2030.
- Selected baseline projections (annual averages and levels as reported):
  - Real GDP growth (percent per year): 2010 est. 13.0; 2011 Avg. 3.8; 2012 6.9; 2013 3.2; 2014 3.2; 2015 3.3; 2010–15 Avg. 5.6; 2016–30 Avg. 2.8
  - Consumer price inflation (percent per year): -2.1; 2.0; 5.0; 3.0; 3.0; 3.0; 2.3; 3.0
  - External current account balance (percent of GDP): -34.6; -23.9; -16.9; -11.7; -11.0; -10.1; -18.0; -7.4
  - Government revenue and grants (percent of non-oil GDP): 41.8; 46.7; 41.5; 37.6; 36.6; 34.1; 39.7; 29.1
  - Chadian crude oil price (US$/barrel): 73.6; 99.8; 98.8; 95.3; 93.0; 92.3; 92.1; 15.6
- Alternative scenarios and stress tests:
  - Continuation of current policies could quickly bring external PPG debt above thresholds; Historical scenario (Alternative Scenario A1) may breach two of five thresholds.
  - Oil price shock (two-standard-deviation lower oil price) would breach all indicative debt burden thresholds.
  - Major nonconcessional projects (airport $1 billion; East-West railroad $7.5 billion) financed above baseline could breach 30 percent of GDP threshold in 2015 and peak in 2023.
- Public debt recommendations:
  - Staff recommend issuing short-term treasury paper regularly to alleviate liquidity constraints and lead regional market development.
  - Authorities eager to issue instruments with maturities shorter than one year as soon as technically feasible.
- Debt distress classification: staff assessment finds Chad’s risk of debt distress is moderate under the baseline but sensitive to shocks.

### Progress toward HIPC Completion and Staff Recommendations
- HIPC and MDRI impact: would cut external debt in half in nominal terms; MDRI relief could total over $1 billion and imply reduction in debt service of about $40 million per year for about 30 years.
- Staff recommendations:
  - Strengthen PFM and adopt prudent fiscal policy to minimize debt distress risk and provide credible basis for IMF-supported program.
  - Subject major public investment proposals to independent evaluation and avoid nonconcessional borrowing.
  - Improve coordination for comprehensive, timely debt statistics.
  - Staff offered technical assistance on petroleum product pricing and taxation.
- Fiscal performance through June 2011:
  - Shortfall in non-oil revenue; higher-than-expected oil revenues; pressures on security expenditure.
  - NOPD for H1 2011 exceeded implied mid-year budget baseline by about 2 percentage points of non-oil GDP.
  - Estimated overall fiscal position in H1 2011: a surplus of about 3.2 percent of non-oil GDP.

### Technical Assistance for Data and Statistics
- Work program (selected timing):
  - Technical assistance for ECOSIT3: Second quarter 2012.
  - Capacity building in public expenditure management: Ongoing.
  - Participation in national economic policy forum: Q4 2011.
  - 2011 Article IV Consultation: June 2011; Board conclusion: September 2011.
  - Technical Assistance — Statistics: assist with implementation of new National Accounts framework: August 2011.
- Statistical issues — assessment:
  - "Data has serious shortcomings that significantly hamper surveillance."
  - Shortcomings most serious in government finance and balance of payments.
  - 2007 ROSC found statistical system weak and underfunded.
  - National Accounts revised to 1993 SNA for 2005–10 but compilation remains weak due to inadequate funding for INSEED.
  - IHPC covers only the capital city and reporting lag often exceeds two months.
  - Government finance data weaknesses create uncertainty about central government’s fiscal position; staff prepares estimates from disparate sources that may not reconcile with domestic bank financing.
  - Chad has yet to submit BOP and IIP data for 2006–08 to STA.
- Table of Common Indicators — selected timing (as of July 19, 2011):
  - Exchange Rates: Date of latest observation: Daily; Frequency of Data: Daily; Frequency of Reporting: D; Frequency of Publication: D.
  - International Reserve Assets and Reserve Liabilities: Date of latest observation: 12/2009; Date received: 03/2010; Frequency: M.
  - Reserve/Base Money: Date of latest observation: 4/2011; Date received: 7/2011; Frequency: M.
  - Broad Money: Date of latest observation: 4/2011; Date received: 7/2011; Frequency: M.
  - Consumer Price Index: Date of latest observation: 10/2010; Date received: 03/2011; Frequency: M.
  - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation: 03/2009; Date received: 04/2009; Frequency: Q.
  - GDP/GNP: Date of latest observation: 2009; Date received: 5/2010; Frequency: A.

### Recommendation on Article IV Consultation Cycle and Fund Relations
- Staff recommends the next Article IV consultation be held on the regular 12-month cycle; Chad is on the 12-month cycle. The next Article IV consultation expected by June 2012.
- Fund relations and financial position (selected facts):
  - Membership: Joined July 10, 1963; Article VIII.
  - Quota: 66.60 (SDR Million), 100.00 percent of quota.
  - Fund holdings of currency: 63.67 (SDR Million), 95.60 percent of quota.
  - Reserve Tranche Position: 2.93 (SDR Million), 4.40 percent of quota.
  - Net cumulative allocation (SDR Department): 53.62 (SDR Million), 100.00 percent of allocation; Holdings: 0.06 (SDR Million), 0.11 percent.
  - Outstanding Purchases and Loans: ECF Arrangements 7.82 (SDR Million), 11.74 percent of quota.
  - Projected payments to Fund (SDR Million): Principal 2011: 2.00; 2012: 2.68; 2013: 1.88; 2014: 0.84; 2015: 0.42. Charges/Interest 2011: 0.15; 2012: 0.31; 2013: 0.30; 2014: 0.30; 2015: 0.30. Total 2011: 2.15; 2012: 2.99; 2013: 2.18; 2014: 1.14; 2015: 0.72.
- Safeguards and BEAC issues:
  - BEAC safeguards assessment (completed July 6, 2009) found limited implementation of previous safeguards recommendations.
  - Action plan for 2010 agreed to reform governance and strengthen safeguards after Paris office fraud revelation.
  - Suspension of Fund disbursements to CEMAC countries from June through early August 2010; disbursements resumed thereafter.
  - A safeguards monitoring mission identified a new series of rolling benchmarks.

*Source: IMF staff report excerpts (Chad 2011 Article IV Report).*

### 1.  Selected Economic and Financial Indicators, 2009–16 ________________________________________ 23

### 1.  Selected Economic and Financial Indicators, 2009–16

### I. Introduction and Context
- Internal security: MINURCAT mandate completed on December 31, 2010; more than 70,000 people fleeing violence in Libya have been repatriated to or via Chad.
- Political: President Déby in office since 1990 was reelected on April 25, 2011; president’s party and allies won 133 of 188 seats in the National Assembly on February 13, 2011. Local elections postponed until October.
- Government objectives: campaign platform of “renaissance” to transform Chad into a middle-income economy diversified away from oil via ambitious public investment and FDI-led industrialization.

### II. The 2010 Recovery — Key Findings
- Real GDP growth: reached 13 percent in 2010.
- Oil: temporary increase in oil production in 2010; oil reserves expected to be largely exhausted by 2030.
- Agriculture: agricultural production nearly doubled in 2010 due to favorable rains, government measures to provide agricultural inputs, and increased cultivated area.
- Cotton: cotton output remained low because of the dire financial condition of the cotton parastatal (Cotontchad).
- Prices: food and consumer prices declined in 2010.

### III. Fiscal Developments and Fiscal Balance
- Overall fiscal deficit (excluding grants, commitments basis): shrank from 21 percent of non-oil GDP in 2009 to about 11 percent of non-oil GDP in 2010.
- Non-oil primary deficit (NOPD): weakened from 28 percent to 31 percent of non-oil GDP in 2010; the 2010 NOPD target in the supplementary budget was overshot by 2½ percent of non-oil GDP (noting a staff footnote that the original 2010 NOPD target was overshot by more than 12 percent of non-oil GDP mainly due to exceptional security spending and public investment).
- Spending surge: pre-election surge in domestically-financed public investment contributed to the NOPD overshoot.

### IV. Budget Execution and Public Financial Management (PFM)
- Emergency procedures (DAOs): accounted for over one quarter of domestically-financed spending (excluding wages and debt) in 2010; equivalent to 9.3 percent of non-oil GDP; DAOs awaiting regularization at end-2010 amounted to 4.3 percent of non-oil GDP.
- Procurement: share of contracts awarded without competitive tender fell from 85 percent in 2009 to 49 percent in 2010.
- Treasury float and arrears: half of the end-2010 treasury float (5.5 percent of non-oil GDP) slipped into arrears.
- Budget process improvements: 2010 budget closed at end-February per organic budget law; a new macro-framework prepared for the 2012 budget; some reduction in DAOs but extra-budgetary spending continued (examples: electricity company fuel subsidies; conventions allowing payments absent budget allocation).

### V. Public Debt and Financing
- Stock of public- and publicly-guaranteed debt: rose from 30.5 percent of GDP at end-2009 to 32.6 percent of GDP (or 53.3 percent of non-oil GDP) at end-2010.
- External debt: raised to 25 percent of GDP at end-2010, driven by a nonconcessional loan from Libya equivalent to 2.3 percent of non-oil GDP.
- BEAC statutory advances: debt to the Bank of Central African States increased to 5.3 percent of GDP (or 8.1 percent of non-oil GDP) at end-2010.
- Debt sustainability: updated analysis shows Baseline scenario risk of debt distress remains moderate.
- Government contingent/exposure: government exposure assumed on the joint venture refinery equals 4.0 percent of 2010 GDP.

### VI. External Sector and Reserves
- Current account: external current account deficit widened to 35 percent of GDP in 2010 because of high import content of investment spending (notably in the oil sector).
- Reserves: official reserves increased but reserve coverage of imports of goods and services (excluding oil-sector imports) weakened somewhat.
- REER: Chad’s real effective exchange rate remained broadly in line with the CEMAC region; staff assessment places non-oil REER at 2–6 percentage points above the norm depending on approach, and a modified methodology finds non-oil REER overvalued by close to 15 percent.

### VII. Monetary and Financial Developments
- Broad money: increased by 25 percent (2010), in line with nominal GDP.
- Credit to the economy: grew 19 percent, broadly in line with nominal non-oil GDP.
- Banking limits: commercial bank financing was unavailable as banks reached limits of exposure to the state as a single borrower, raising financial stability concerns.

### VIII. Recent Outlook and Risks (2011–12 projections)
- 2011 GDP growth: projected to moderate to about 3 percent.
  - Oil production: expected to decline slightly in 2011 despite contribution from Bongor field.
  - Bongor: began producing 20,000 barrels per day (bpd) in June to feed the new oil refinery.
  - Non-oil GDP growth: projected to moderate to 3.6 percent in 2011.
- 2012 growth: expected to spike above 7 percent reflecting the refinery’s first full year of operation, new industrial projects (power station, cement factory), and a projected spike in crude oil production. Doba field output expected to decline or remain at about 120,000 bpd, provided international oil prices remain high.
- Inflation: consumer price inflation (period average) not expected to exceed 2 percent in 2011 and 3 percent in 2012; consumer price inflation remained negative in Q1 2011 but some food prices reportedly rose in Q2 2011.
- Sectoral price pressures: prices of intermediate goods (e.g., cement) and wages of skilled labor reported to be rising due to public investment demand.
- Budget risk: on current trend, NOPD at end-2011 would exceed the budget target by about 6 percentage points of non-oil GDP; through May 2011, non-oil revenue was 20 percent below expectations.
- Fiscal contingency: a sharp decline in oil prices is the main risk to the budget. Without government deposits, such a shock could force fiscal tightening, investment slowdown, increased domestic arrears, and possible arrears to the central bank; government suppliers may be unable to service debts and banks’ nonperforming loans would rise.

### IX. Policy Priorities and PFM Reform (Restoring Budget Discipline)
- Core objective: strengthen PFM, especially spending controls, to restore budget discipline given procyclical oil-fuelled fiscal expansion.
- Observed drivers of fiscal expansion:
  - Domestically-financed capital spending rose from 2.1 percent of non-oil GDP in 2003 to 12.6 percent in 2008–10.
  - Primary current spending rose from 10.3 percent of non-oil GDP in 2003 to 29.4 percent in 2008–10.
  - Wage bill rose from 5.4 percent of non-oil GDP in 2003 to 9 percent in 2008–10.
- PFM weaknesses to address: overruns on exceptional security spending and public investment, execution via DAOs and extra-budgetary procedures, procurement shortcomings, inadequate alignment of spending with poverty reduction priorities, and opaque revenue regimes (e.g., oil refinery project).

*Source: IMF staff report excerpt (Chad 2011 Article IV Report).*

### Box 2. Chad: Revisions to National Accounts

### Box 2. Chad: Revisions to National Accounts

### New GDP estimates and methodology
- The Chadian authorities have produced new estimates of GDP for 2005–10, consistent with the 1993 System of National Accounts.
- The estimates were compiled with the assistance of AFRISTAT and AFRITAC Centre.
- The new estimates are based on the 2005 input-output structure of the economy and include the informal sector.
- In Base 1995, oil-related construction was included and is treated as part of Secondary in Base 2005.

### Institutional and operational improvements
- Recommended changes to the organization and staffing of the national statistical bureau (INSEED) accompany the technical revisions.
- These technical and institutional improvements should enable Chad to produce more reliable and timely estimates of economic activity.

### Usage and transition recommendations
- The ministry of finance and budget is already using the new GDP estimates for budget planning purposes.
- Staff recommended that the authorities continue to compile and publish 1995-based estimates alongside the new series for a period of time, until the new methodology is more widely adopted.

*Source: Box 2. Chad: Revisions to National Accounts (excerpt).*

### 29.      Regarding bank stability, staff

### _cr11302 - 29.      Regarding bank stability, staff

### Bank stability: observations and recommendations
- Staff recommended that the authorities seek new private capital for predominantly state-owned banks.
- Staff recommended working with the other CEMAC members to reinforce the regional regulator’s (COBAC) legal framework, and national offices’ powers, to intervene in troubled banks.
- Staff recommended aligning the single exposure limits with international standards.
- Staff suggested that Chadian banks strengthen their own risk management to monitor portfolio concentration.
- Observation: The banks’ largest individual exposures are well above the regional limit that in turn, at 45 percent of capital, is higher than international best practice suggests.

### Financial sector development: government debt instruments and treasury management
- Staff encouraged the authorities to take the lead in issuing government debt instruments on the regional government securities market.
- Transaction noted: In July, the authorities completed a sale of over CFAF 100 billion of five-year bonds with a 6 percent coupon.
  - Sixty-three percent of the issue was purchased by Chadian residents.
  - Two-thirds of the issue was purchased by banks, local and regional.
- Staff view: A predictable, regular issue of short-term paper would be more efficient than occasional placements of long-term savings bonds.
- Rationale and recommendation:
  - Given government spending commitments and the marked quarterly pattern of oil revenue inflows, good treasury management requires a short-term financing facility to meet monthly payment pressures and avoid running domestic arrears.
  - Regular short-term issuance would have advantages from debt-management and financial sector development perspectives.
- Additional recommendation in Staff Appraisal (paragraph 45): Chad could show leadership in the development of the regional money market by regularly issuing short-term treasury bills as soon as it is technically feasible; this would improve government liquidity management and reduce payment delays, and would also contribute to financial sector development by sending, CEMAC-wide, a clear market signal of a point on the yield curve.

### Business environment: recommended tax and regulatory measures
- Recommended tax measures:
  - Reduce the corporate income tax rate from 40 percent to 35 percent.
  - Eliminate various special and administrative levies, especially those collected by ministries and other administrations.
  - Eliminate, or at least reduce the minimum corporate tax from 1.5 percent to 1 percent.
- Recommended regulatory measures:
  - Remove needless administrative barriers to formal incorporation.
  - Establish a one stop shop for business services.
  - Maintain a forum for ongoing, regular business-government dialogue.
- Staff Appraisal (paragraph 43) reiteration: The establishment of a one stop shop for investors is a priority; regulatory actions should be supplemented by tax policy measures to strengthen incentives for private investment and foster compliance.

### Authorities’ views (financial sector and tax measures)
- Financial sector and FSAP:
  - Authorities welcomed the in-depth attention of the FSAP team.
  - Authorities expressed skepticism about the effectiveness of market signals and the private sector’s ability to provide funding in a low-income environment.
  - Authorities continue to favor special-purpose financial institutions and insist on a role for government as a bank shareholder.
  - Authorities took note of the call to work with other CEMAC members to strengthen the capacity and independence of the regional regulator.
- Tax measures:
  - Authorities agreed with the thrust of staff’s suggestions.
  - Authorities noted that:
    - A reduction, along with its harmonization at the CEMAC level, of the corporate income tax is of the utmost urgency.
    - The elimination of special and administrative levies will be considered in the very short term at the government level.
    - A reduction of the minimum corporate income tax will be considered in the medium term, mainly for revenue reasons.

### Resuming the path toward debt relief (HIPC) — background, staff steps, and authorities’ views
- Background:
  - Chad reached the Decision Point under the Enhanced HIPC Initiative in May 2001, but has been unable to complete a review under an IMF financial arrangement since 2004.
  - A PRGF-supported program (2005) and a staff-monitored program (SMP) (2009) went off track rapidly because of fiscal slippages.
  - Discussions on a possible SMP for 2010 were fruitless.
- Authorities’ intent:
  - Authorities are eager to re-engage in program discussions with the IMF and World Bank to achieve the HIPC completion point as quickly as possible.
  - Authorities plan to hold an economic policy forum in late 2011 to consider ideas contributing to an updated growth and poverty reduction strategy.
- Agreed steps toward an SMP (staff working with authorities):
  - Adopt a supplementary budget to regularize the extra-budgetary spending incurred in the first half of 2011.
  - Return to the quarterly NOPD path implied by the original 2011 budget law for the rest of the year, while ensuring effective spending allocations for social sectors (health and education).
  - Avoid emergency payment procedures (DAO) for spending that lacks prior budgetary appropriation or that does not constitute a bona fide emergency.
- Authorities’ view on HIPC:
  - Authorities suggested that the HIPC scenario should be accelerated, recognizing Chad’s special post-conflict circumstances and the progress in economic policy since peace was restored.
  - Authorities see benefits of closer collaboration with IMF and World Bank staffs in designing their long-term growth strategy and framing intended foreign-financed large infrastructure projects.
- Staff technical note (footnote): Timely provision of complete monthly fiscal accounts and a reconciliation of the treasury net credit to the government data with the monetary survey would be required to monitor an SMP.

### Staff appraisal: macroeconomic context, risks, and policy priorities
- Recent performance and outlook:
  - Higher oil prices have relaxed financing constraints in the short term, offering additional fiscal space for growth-enhancing and poverty-reducing spending.
  - Continued investment in the oil sector and an impressive recovery in agriculture yielded strong growth in 2010.
  - New industrial projects in oil refining, electrical generation, and cement production will contribute to stronger growth over the medium term and help reduce the cost of public and private investment.
- Fiscal and PFM priorities:
  - Rationalize fiscal policy and improve budget execution.
  - Build on steps already taken to improve budget preparation, strengthen procurement procedures, and reduce extra-budgetary spending.
  - Take strong measures to improve public financial management and address the leakage of non-oil revenues, especially at customs.
  - Follow through on plans to clear domestic arrears and continue to service domestic debt.
- Medium-term fiscal framework recommendations:
  - Greater focus is needed on building a savings cushion against oil price shocks, smoothing expenditure (in particular, investment spending) to ensure sustainability, and providing adequately for recurrent social spending (e.g., on staffing, equipping, and maintaining medical centers and schools).
- Public investment policy:
  - Rethink public investment policy to ensure macroeconomic stability and sustain growth.
  - Calibrate the investment program to reduce pressure on wages, prices, and the external position.
  - Make a portion of investment outlays contingent on the realization of optimistic oil or non-oil revenue forecasts to avoid abrupt stops.
  - Avoid pressure to resort to nonconcessional borrowing, which could undermine debt sustainability and reduce access to concessional resources, perhaps delaying the HIPC Completion Point.
- Private sector and sectoral reforms:
  - The private sector should operate more freely to contribute to growth, economic diversification, and job creation.
  - An in-depth restructuring of Cotontchad is essential; greater participation of the private sector in the cotton industry is needed for it to become a source of growth, rural development, and poverty reduction.
- Bank ownership and capital:
  - Government involvement in ownership and management of banks is excessive.
  - Provision of capital by new private partners would be beneficial.
- Program engagement:
  - Staff is responding to the authorities’ renewed interest in an SMP, which could pave the way to an ensuing program under the ECF and to the HIPC Completion Point.
  - Staff welcomed the proposed economic policy conference and plans to participate, alongside other international development partners, to help articulate policies that could be supported by an SMP and a subsequent ECF arrangement.

*IMF staff report excerpts as provided in the content unit.*

### 47.      Staff recommends that the next

### _cr11302 - 47.      Staff recommends that the next

### Recommendation on Article IV consultation cycle
- Staff recommends that the next Article IV consultation with Chad be held on the regular 12-month consultation cycle, in accordance with the decision on Article IV consultation cycles.
- Chad is on the 12-month cycle. The next Article IV consultation is expected to take place by June 2012.

### Fund relations and financial position (selected facts)
- Membership status: Joined: July 10, 1963; Article VIII.
- Quota: 66.60 (SDR Million), 100.00 percent of quota.
- Fund holdings of currency: 63.67 (SDR Million), 95.60 percent of quota.
- Reserve Tranche Position: 2.93 (SDR Million), 4.40 percent of quota.
- Net cumulative allocation (SDR Department): 53.62 (SDR Million), 100.00 percent of allocation; Holdings: 0.06 (SDR Million), 0.11 percent.
- Outstanding Purchases and Loans: ECF Arrangements 7.82 (SDR Million), 11.74 percent of quota.
- Latest ECF arrangements (examples): Feb 16, 2005–May 31, 2008: Amount Approved 25.20 (SDR Million), Amount Drawn 4.20 (SDR Million).
- Projected payments to Fund (SDR Million, based on existing use of resources and present holdings of SDRs): Principal 2011: 2.00; 2012: 2.68; 2013: 1.88; 2014: 0.84; 2015: 0.42. Charges/Interest 2011: 0.15; 2012: 0.31; 2013: 0.30; 2014: 0.30; 2015: 0.30. Total 2011: 2.15; 2012: 2.99; 2013: 2.18; 2014: 1.14; 2015: 0.72.

### Safeguards assessment and BEAC issues
- The Bank of the Central African States (BEAC) safeguards assessment completed July 6, 2009 found limited implementation of previous safeguards recommendations on financial reporting, internal audit, and internal control.
- Changing risk profile of BEAC foreign exchange holdings requires further actions to strengthen safeguards.
- Following revelation of Paris office fraud, an action plan for 2010 was agreed to reform governance and strengthen safeguards.
- Implementation delays and additional concerns from the first special audit triggered a suspension of Fund disbursements to CEMAC countries from June through early August 2010; disbursements resumed thereafter.
- A safeguards monitoring mission identified a new series of rolling benchmarks to address outstanding safeguards concerns.

### Exchange rate and reserve regime
- Exchange arrangement: Chad maintains an exchange system free from restrictions and multiple currency practices on payments and transfers for current international transactions; the BEAC common currency is the CFA franc.
- Historical notes: CFA franc devalued on January 12, 1994 (F 1 = CFAF 50 to F 1 = CFAF 100).
- Current peg: Since January 1, 1999, the CFA franc has been pegged to the euro at the rate of EUR 1 = CFAF 655.957.
- Repurchase of CFA franc banknotes exported outside the BEAC zone was suspended on August 2, 1993.

### HIPC and related disbursements
- Implementation of HIPC Initiative (Enhanced Framework): Decision point date May 2001.
- Assistance committed by all creditors (US$ Million): 170.00.
- Of which: IMF assistance (US$ million): 18.00 (SDR equivalent in millions: 14.25).
- Disbursement of IMF assistance (SDR Million): Assistance disbursed to the member 8.55; Interim assistance 8.55; Total disbursements 8.55.

### Technical assistance (selected entries and timing)
- STA (AFRITAC): National accounts, 2006 — August 2011.
- MCM: Banking system vulnerabilities — January 2011.
- FAD (AFRITAC): Tax administration — February 2011; September–October 2010; June–July 2010.
- FAD (AFRITAC): Public financial management — September 2010; January 2010; August–September 2009.
- STA: Balance of payments — May 2010.
- MCM (AFRITAC): Public debt — May 2010; November 2009; April 2009.
- FAD: Tax policy review — April–May 2010.
- FAD (AFRITAC): Treasury management — March 2009.

### Financial sector and program participation
- A joint IMF-World Bank FSAP for Chad was conducted during May 25–June 10, 2011, building on a regional FSAP for CEMAC during January 30–February 9, 2006.
- A ROSC Data Module mission visited Chad May 26–June 8, 2005.
- There has been no Fund Resident Representative in N’Djamena since October 2010.

*Source: CHAD 2011 ARTICLE IV REPORT — INFORMATIONAL ANNEX (staff report excerpts provided in the content unit).*

### 1. Technical assistance for data

### _cr11302 - 1. Technical assistance for data

### Work program, technical assistance, and missions
- Technical assistance for data collection and analysis of the new household survey (ECOSIT3): Second quarter 2012.
- Capacity building in public expenditure management: Ongoing.
- Note on PRSP: December 2011.
- Participation in national economic policy forum: Q4 2011.
- CAS: June 2012.

Fund work program in the next 18 months (selected items and timing)
- 2011 Article IV Consultation: June 2011; September 2011: Board conclusion of 2011 Article IV consultation.
- Staff visit to advise on the elaboration of the 2012 budget: September 2011.
- Participation in national economic policy forum: Q4 2011.
- 2012 Article IV Consultation: June 2012; September 2012: Board conclusion of 2012 Article IV consultation.
- Technical Assistance — Statistics: assist with implementation of new National Accounts framework: August 2011.
- Public financial management: FY2012.

Requests and expected deliveries
- Fund request to Bank:
  - Comments on the composition of the 2012 budget: Sept 2011.
  - Latest Household Survey data (ECOSIT3): Feb 2012.
  - Poverty Profile: April 2012.
- Bank request to Fund:
  - Macroeconomic projections and analyses for 2011 and the medium-term: June 2011.
  - Revised macroeconomic projections and analyses for 2011 and the medium-term: Sept 2011.
  - Information on nonconcessional financing of budget or projects: Ongoing.
- Joint products and missions:
  - Joint Bank-Fund Debt Sustainability Assessment: July 2011.
  - FSSA – Report submitted to Fund and Bank Boards: September 2011.

### Statistical issues — assessment and reporting
- General assessment:
  - "Data has serious shortcomings that significantly hamper surveillance."
  - Shortcomings most serious in government finance and balance of payments.
  - 2007 ROSC found the statistical system weak and suffering from shortage of financial and human resources.
  - GDDS metadata needs updating.
- National Accounts:
  - Authorities revised national accounts estimates, moving from the 1968 to the 1993 SNA, for 2005–10.
  - Compilation remains weak due to inadequate funding for Institut National de la Statistique, des Etudes Economiques et Démographiques (INSEED).
  - Dissemination could be improved by more timely releases and more detailed information.
- Price statistics:
  - Harmonized Consumer Price Index (IHPC) weaknesses in coverage and timeliness.
  - IHPC covers only the capital city and reporting lag often exceeds two months.
  - Regional authorities working to improve IHPC reliability in each CEMAC member.
- Government finance statistics:
  - Data weaknesses create uncertainty about the central government’s actual fiscal position and hamper debt sustainability analysis.
  - Staff prepares estimates of central government financial operations from disparate administrative sources that may not reconcile with domestic bank financing or changes in net indebtedness.
- Monetary statistics:
  - BEAC reports expected core monetary and financial indicators within the expected lag, albeit not in the latest reporting structure.
  - Key shortcoming: lack of clear reconciliation between domestic banking sector’s net credit to the government and implicit financing in weak government financial accounts.
  - Depository corporations’ survey omits a large number of microfinance operations.
- Balance of payments:
  - Weak customs-based data with coverage problems; customs data not relied upon for balance of payments or national income estimation.
  - Staff estimates current and capital flows from disparate administrative sources to supplement official BOP.
  - Chad has yet to submit BOP and IIP data for 2006–08 to STA.
  - STA recommended tighter coordination among CEMAC, INSEED, and other agencies; BEAC headquarters coordinating technical reforms.
- Data Standards and Quality:
  - Participant in the IMF’s General Data Dissemination System since September 24, 2002.
  - Data ROSC published on August 2007.
- Reporting to STA (optional):
  - Only international liquidity, monetary statistics, GDP, and prices currently reported to STA for publication in the International Financial Statistics.
  - Chad has not yet resumed reporting of detailed data for publication in the Government Finance Statistics Yearbook.
  - Annual fiscal data through 2001 have been reported and are included in the IFS database.
  - BEAC has yet to submit test monetary and financial statistics using standardized report forms.

### Table of Common Indicators — selected timing and frequency (as of July 19, 2011)
- Exchange Rates: Date of latest observation: Daily; Frequency of Data: Daily; Frequency of Reporting: D; Frequency of Publication: D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation: 12/2009; Date received: 03/2010; Frequency of Data/Reporting/Publication: M.
- Reserve/Base Money: Date of latest observation: 4/2011; Date received: 7/2011; Frequency: M.
- Broad Money: Date of latest observation: 4/2011; Date received: 7/2011; Frequency: M.
- Central Bank Balance Sheet: Date of latest observation: 4/2011; Date received: 7/2011; Frequency: M.
- Consolidated Balance Sheet of the Banking System: Date of latest observation: 4/2011; Date received: 7/2011; Frequency: M.
- Interest Rates: Date of latest observation: 6/2011; Date received: 7/2011; Frequency indicators: MI / QM / M (as listed).
- Consumer Price Index: Date of latest observation: 10/2010; Date received: 03/2011; Frequency: M.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation: 03/2009; Date received: 04/2009; Frequency: Q.
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation: 03/2009; Date received: 04/2009; Frequency: Q.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation: 12/2008; Date received: 04/2009; Frequency: Q.
- External Current Account Balance: Date of latest observation: 2007; Date received: 04/2009; Frequency: A.
- Exports and Imports of Goods and Services: Date of latest observation: 2007; Date received: 04/2009; Frequency: A.
- GDP/GNP: Date of latest observation: 2009; Date received: 5/2010; Frequency: A.
- Gross External Debt: Date of latest observation: 12/2008; Date received: 04/2009; Frequency: Bi-M.

### Debt sustainability analysis — key findings and background
- Overall assessment:
  - The staff’s assessment of Chad’s debt vulnerability and risk of debt distress remains moderate, unchanged since the 2010 DSA.
  - Assumptions are similar to 2010 DSA, except for an upward revision of current and projected oil prices.
  - Public and publicly-guaranteed external debt and debt service indicators remain well below indicative thresholds through the projection horizon.
  - Debt sustainability outlook highly sensitive to an oil price shock: a decline in oil price similar to 2009 would breach all debt and debt service ratios and keep them persistently above most thresholds.
  - Borrowing to finance major projects would jeopardize sustainability.
- Approved By: Jeffrey Lewis and Jan Walliser (IDA), Seán Nolan and Dhaneshwar Ghura (IMF).
- Prepared by staffs of the International Development Association and the International Monetary Fund: August 8, 2011.

### Recent developments in public external debt
- 2001–08: External public debt burden diminished considerably due to strong oil sector-driven growth and low borrowing.
- 2009: Despite sharp deterioration of fiscal position, external public debt decreased in nominal terms; overall fiscal deficit (excluding grants) reached about 22 percent of non-oil GDP and was largely financed by depleting government deposits and drawing statutory advances from the central bank; negative GDP shock in 2009 pushed up external public debt-to-GDP ratio.
- 2010:
  - Authorities borrowed abroad on nonconcessional terms and external debt picked up.
  - Rate of debt accumulation (year-to-year change in present value (PV) of debt relative to previous year’s GDP) spiked partly due to low grant element of new borrowing (from Libya and China).
  - External public debt-to-GDP ratio reached about 25 percent compared with 27½ percent anticipated in the 2010 DSA.
  - Overall fiscal deficit (excluding grants) dropped to around 12 percent of non-oil GDP with rebound in oil prices.
  - External current account deficit widened to 35 percent of GDP because of high import content of investment spending (notably in oil and energy sector).

### Status of debt relief initiatives and implications
- Chad reached Decision Point under Enhanced HIPC Initiative in May 2001 but failed to reach completion point due to poor macroeconomic policy performance and inability to meet fiscal targets and satisfactorily implement a PRGF program.
- 2005 PRGF expired in 2008 without reviews concluded; subsequent SMP efforts hindered by fiscal slippages.
- Meeting conditions for Enhanced HIPC Initiative and MDRI would cut external debt in half (in nominal terms).
- MDRI relief would cover full stock of debt owed to IDA, IMF, and AfDF remaining after Enhanced HIPC relief on disbursements before end-2004 (IMF and AfDF) and before end-2003 (IDA).
- In nominal terms, MDRI relief could total over $1 billion and imply reduction in debt service of about $40 million per year, for about 30 years.

### Recent developments in public domestic debt and market access
- Public domestic debt estimated at about CFAF 87 billion (7½ percent of GDP) at end-2010.
- Public domestic debt composition includes: central bank statutory advances (avances statutaires); treasury arrears (arriérés comptables); rescheduled debt (dettes conventionnées); legal payment obligations (engagements juridiques); and one small public bond issue.
- Authorities reduced domestic arrears in 2010; most domestic arrears outstanding at end-2009 were paid, bringing the stock outstanding to CFAF 3 billion (about 0.1 percent of GDP) at end-2010.
- In July 2011, authorities completed a sale of over CFAF 100 billion of five-year savings bonds with a 6 percent coupon.
  - 63 percent of the issue was purchased by Chadian residents.
  - 67 percent of the issue was purchased by banks, local and regional.

### Selected external public debt stock figures (Text Table 1, end-2010, Billions of CFA francs)
- Total: 1,066.8 (percent of GDP) 25.2
- Multilateral: 757.7
  - IMF: 8.3
  - World Bank/IDA: 439.5
  - African Development Fund/Bank: 208.7
  - EIB: 9.4
  - Others: 91.8
- Bilateral: 309.1
  - Paris Club official debt: 32.0
  - Non-Paris Club official debt: 277.2
    - China, People's Republic: 125.1
    - Libya: 96.2
    - India: 22.9

*Source: CHAD 2011 ARTICLE IV REPORT—INFORMATIONAL ANNEX (content unit: _cr11302 - 1. Technical assistance for data).*

### 6.      Chad is a weak policy performer for

### 6.      Chad is a weak policy performer for

### Policy performance and CPIA rating
- Chad’s rating on the World Bank’s Country Policy and Institutional Assessment (CPIA) is weak: "2.46 on average for 2008–10, on a scale from 1 to 6".
- CPIA trend: "declined from 2.88 in 2005 to 2.38 in 2010".
- Source noted: "2010 IDA Country Performance ratings (methodology and results)."

### Debt stock composition (selected indicators reported by Chadian authorities)
- Tot al (2006–2010): 122.3, 123.1, 142.7, 238.5, 286.9
- (Percent of GDP): 3.7, 3.7, 3.8, 7.1, 6.8
- Central Bank Statutory Advances: -, 17.0, 21.6, 141.6, 208.6
- Rescheduled debts: 71.8, 48.6, 56.8, 58.2, 67.9
- Treasury arrears: 24.8, 26.1, 41.1, 25.7, 3.1
- Legal commitments: 13.2, 12.5, 10.8, 10.1, 4.6
- Standing payment orders: 11.5, 18.1, 11.5, 2.1, 1.8
- National Savings Bond: 0.9, 0.9, 0.9, 0.9, 0.9
- Source: "Chadian authorities."

### DSA baseline scenario — recent outcomes (2010) and short-term factors
- Real GDP growth (2010): "13 percent".
- Non-oil primary deficit in 2010: "31 percent of non-oil GDP" (larger than in 2009 and nearly 3 points of non-oil GDP above the 2010 supplementary budget target).
- Libyan loan drawdown: authorities drew only "two-thirds of the $300 million nonconcessional budget support loan from Libyan Foreign Bank."

### Medium- and long-term outlook — oil sector and prices
- Doba field production history: "started in 2003, reached its peak of 61 million barrels in 2004", then "decline steadily to a negligible level beyond 2030."
- Chadian oil trades below international reference price due to quality discount and transport cost.
- Medium term oil price assumption: drop "from $99.8 per barrel (all discounts included) to about $92 per barrel in 2015–16" (aligned with IMF WEO average oil price).
- From 2017 onward: price assumed to "increase 3 percent per year in U.S. dollar terms".
- Bongor field: "one-third the size of the Doba oil field"; produces "20,000 barrels per day"; output "not for export, but feedstock for the oil refinery".

### Baseline fiscal adjustment assumptions and projections
- Total government revenue (percent of non-oil GDP): decline "from 44 percent of non-oil GDP in 2011 to 24 percent in 2030."
- Fiscal adjustment instruments: increased non-oil revenue effort; reduction and stabilization of investment outlays at "about 14 percent of non-oil GDP"; cuts in recurrent spending (notably exceptional security transfers and transfers to cover losses of state-owned enterprises).
- Authorities’ draft medium-term fiscal framework (through 2014): similar degree of fiscal adjustment as baseline, but with a "significantly better end-2011 fiscal position, higher oil revenues, and a strong improvement in non-oil revenues" enabling higher domestically-financed investment.

### Box 1 — Baseline Macroeconomic Assumptions (2011–30) — key assumptions and projections
- Non-oil GDP growth: projected to stabilize at "3.7 percent in the long term".
- Inflation: "stabilizes at a level consistent with the CEMAC convergence criterion of maximum 3 percent per year."
- External current account: "remains in significant deficit until the new pipeline and refinery (Chad-China joint-venture) are completed ... expected to operate for a full year in 2012", after which construction-related and refined petroleum product imports drop significantly.
- External financing assumptions: based on historical averages; "5 percent of non-oil GDP, 70 percent grants and 30 percent in loans from official multilateral and bilateral creditors."
- Average grant element: "declines over time".
- Baseline excludes HIPC and MDRI debt relief in the absence of an IMF arrangement and no target date for HIPC completion point.
- Domestic financing assumptions: reimbursement of BEAC statutory advances "by 2014 (as scheduled)"; "no accrual of domestic arrears"; issuance of domestic debt instruments with average maturity "of one year", stock reaching "about 11 percent of GDP by 2030."

### Selected baseline projections (annual averages and levels as reported)
- Real GDP growth (percent per year): 2010 est. "13.0"; 2011 Avg. "3.8"; 2012 "6.9"; 2013 "3.2"; 2014 "3.2"; 2015 "3.3"; 2010–15 Avg. "5.6"; 2016–30 Avg. "2.8"
- Oil growth (percent): 6.4, -1.8, 10.4, -4.9, -4.4, -4.5, 0.2, -5.2
- Non-oil growth (percent): 15.0, 5.3, 6.0, 5.3, 5.0, 5.0, 6.9, 3.7
- Consumer price inflation (percent per year): -2.1, 2.0, 5.0, 3.0, 3.0, 3.0, 2.3, 3.0
- External current account balance (percent of GDP): -34.6, -23.9, -16.9, -11.7, -11.0, -10.1, -18.0, -7.4
- Government revenue and grants (percent of non-oil GDP): 41.8, 46.7, 41.5, 37.6, 36.6, 34.1, 39.7, 29.1
  - Of which oil revenue: 26.5, 33.4, 26.3, 21.9, 20.7, 17.9, 24.4, 8.3
  - Of which grants: 2.7, 2.8, 3.5, 3.5, 3.5, 3.5, 3.2, 3.5
- Government expenditure (commitment basis): 50.4, 42.1, 36.1, 35.7, 34.1, 32.8, 38.5, 31.0
- Overall fiscal balance (incl. grants; cash basis): -6.7, 6.6, 4.1, 2.1, 2.5, 1.3, 1.7, -1.7
- Non-oil primary fiscal bal. (excl. grants; commitment): -31.5, -26.2, -19.2, -18.4, -16.6, -15.1, -21.2, -8.3
- Government deposits (percent of non-oil GDP): 4.1, 8.6, 11.3, 11.7, 12.0, 12.2, 10.0, 7.8
- Chadian crude oil price (US$/barrel): 73.6, 99.8, 98.8, 95.3, 93.0, 92.3, 92.1, 15.6
- Source: "Chadian authorities; and staff estimates and projections."

### External debt — baseline findings
- New borrowing composition: expected from "IDA, AfDB, other multilateral lenders, Paris Club and non-Paris Club lenders."
- Concessionality of borrowing: "projected to decline steadily over the 20-year horizon."
- Baseline trajectory (present value of external public- and publicly-guaranteed debt): "remains well below the 30 percent of GDP threshold, declining steadily from 22 percent to 12 percent in 2030."
- Debt and debt service relative to exports: "rise steadily relative to exports, but remain well below their respective thresholds."
- Debt and debt service relative to government revenue: "rise from 2011 to 2015–16 ... baseline remains well below the respective thresholds."
- Note on multilateral terms: "The terms of IDA, AfDB and other multilateral loans are concessional, with grant elements ranging from 35 percent to 52 percent."

### External debt — alternative scenarios and stress tests (key scenarios and results)
- Continuation of current policies: would "quickly bring the external public- and publicly-guaranteed (PPG) debt burden above the thresholds." If current account deficit remains far higher than FDI inflows in the oil sector (as in 2009), external PPG debt would "breach two of the five sustainability thresholds" (Historical scenario; Alternative Scenario A1).
- Oil price shock sensitivity: "the most extreme shock is a drop in export growth in 2011—12 proportional to a two-standard-deviation lower oil price (Most extreme shock ... and B2 Bound Test)." This shock "would send the debt on a path that would breach all indicative debt burden thresholds."
- Major nonconcessional projects (airport and East-West railroad): letters of intent for airport (estimated cost "$1 billion") and railroad ("$7.5 billion"). If undertaken above baseline, executed and financed over 10 years, and did not significantly accelerate growth, "the debt path would breach the 30 percent of GDP threshold in 2015 and peak in 2023," implying increased risk of debt distress. This would occur under either "typical terms (33 percent grant element) or most concessional terms (52 percent grant element)."
- Footnote: these projects "are tentative, and therefore not in the baseline ... no growth impact is assumed."

### Public debt — baseline findings and recommendations
- Inclusion of domestic debt: "does not alter the assessment of Chad’s debt sustainability."
- Domestic debt path: increases from "7½ percent of GDP in 2010 to 11¼ percent of GDP in 2030."
- Recommendation: "Staffs recommend that the authorities begin to issue short-term treasury paper on a regular basis, to alleviate liquidity constraints and demonstrate leadership in the development of a regional financial market."
- Authorities' interest: "eager to proceed, as soon as technically feasible, to issue instruments with maturities shorter than one year."
- Note on domestic borrowing: would include contemplated issuance "of short-term instruments on the regional CEMAC market, but their share of total domestic borrowing is not identified."

### Public debt — alternative scenarios and stress tests
- Fixed Primary Balance Scenario: "the resulting debt path would increase steeply, leading to an unmanageable debt and debt-service burden."
- Temporary shock to real GDP growth in 2011–12: would "also impair public debt sustainability (Most Extreme Shock ... and Bound Test B1)."

### The authorities’ views
- Authorities expressed "renewed determination to resume the path to debt relief."
- Requested recognition of "Chad’s special post-conflict circumstances and recent progress" and acceleration of steps toward HIPC completion point.
- Welcome "closer collaboration with staffs in designing their long-term growth strategy, including a framework for managing major capital projects and related financing."
- Authorities emphasize that "public investment is critical to growth, and that debt relief is needed to create fiscal space for additional development spending (including foreign-financed)."

### Debt distress classification and conclusion
- Staff assessment based on external debt burden indicators: "Chad’s risk of debt distress is moderate."
- Public DSA finding: under the baseline scenario "Chad’s overall public sector debt dynamics are sustainable, in light of the current size, and expected evolution, of the domestic debt stock."
- Stress tests: "this year’s DSA yields roughly the same debt dynamics under the baseline scenario and sensitivity to shocks as last year’s, but stress test results remain a source of concern."

*Source: CHAD — 2011 ARTICLE IV REPORT—DEBT SUSTAINABILITY ANALYSIS (International Monetary Fund).*

### 21.      Progress toward the HIPC completion

### Progress toward the HIPC completion

### Debt vulnerabilities and HIPC/MDRI impact
- HIPC Initiative and MDRI debt relief would "cut external debt in half."
- Staff view: returning to the path to debt relief and successfully implementing an IMF-supported program would "substantially reduce Chad’s debt vulnerabilities."
- Updated DSA (Debt Sustainability Analysis) finds the "risk of debt distress remains moderate."

### Staff recommendations and policy priorities
- Strengthen public financial management and adopt a more prudent fiscal policy to:
  - Minimize direct risk of debt distress.
  - Provide a credible basis for an IMF-supported program (e.g., an SMP or ECF).
- Subject major public investment proposals to careful, independent evaluation.
- Avoid nonconcessional borrowing.
- Improve coordination among Chadian agencies to collect and disseminate comprehensive, timely and reliable debt statistics to facilitate sustainability analysis.
- Staff offered technical assistance on petroleum product pricing and taxation.

### Fiscal performance, vulnerabilities, and priorities
- Fiscal performance through June 2011:
  - Shortfall in non-oil revenue.
  - Higher-than-expected oil revenues.
  - Pressures on security-related expenditure.
- Execution of security spending: "Almost the full year’s worth of security spending was executed," while spending on health, education, and other social priorities lagged.
- Non-oil primary deficit (NOPD) for the first half of 2011 exceeded the implied mid-year budget baseline by about "2 percentage points of non-oil GDP."
- Estimated overall fiscal position in H1 2011: "a surplus of about 3.2 percent of non-oil GDP."
- Emergency procedures (dépense avant ordonnancement – DAO):
  - DAO still accounted for "over one quarter of domestically financed discretionary spending (9.3 percent of non-oil GDP)" in 2010.
  - DAOs awaiting regularization at end-2010: "4.3 percent of non-oil GDP."
- Share of contracts awarded without competitive tender fell from "85 percent in 2009 to 49 percent in 2010."

### Macro developments and outlook
- Real GDP growth: "13 percent" in 2010 (rebound from 2009 downturn).
- Oil sector and external balances:
  - External current account deficit widened to "35 percent of GDP" in 2010 due to high import content of investment spending.
- Oil production and prices (selected indicators reported in the source tables and narrative):
  - Oil production (millions of barrels): 2010 "44.7"; 2011 est./proj. "44.2" (table context).
  - Oil price (Doba crude, fob Kribi, $ per barrel): 2010 "73.6"; 2011 proj. "99.8" (table context).
- Monetary and credit aggregates:
  - Broad money increased by "25 percent" (in line with nominal GDP); credit to the economy grew "19 percent."
- Near-term outlook:
  - Slight decline in oil production and slower agricultural growth expected to moderate overall GDP growth at end-2011.
  - Growth expected to accelerate in 2012 partly from operation of the new oil refinery and new industrial projects in power and cement.
  - Inflation expected to remain subdued in 2011 and 2012.

### Fiscal strategy and structural reforms emphasized by Directors and authorities
- Directors urged:
  - Building savings buffer to smooth public spending given oil price volatility and projected medium-term decline in oil production.
  - Increase efforts to mobilize non-oil revenue and reduce the non-oil primary deficit to a sustainable position over the medium term.
  - Improve quality of infrastructure spending by better project selection and aligning public investment to absorptive capacity.
  - Make part of the public investment program contingent on realization of revenue plans.
  - Pursue prudent nonconcessional borrowing policy.
  - Promote non-oil growth and diversification; implement structural reforms to facilitate private investment and develop financial markets.
  - Strengthen regional bank supervisor’s bank resolution powers in cooperation with CEMAC members.
- Authorities’ commitments:
  - Resume a Fund-supported program (SMP) as a pathway to an Extended Credit Facility and to reach the HIPC Completion Point.
  - Strengthen budget discipline and public financial management; regularize extra-budgetary spending and ensure procurement procedures are followed.
  - Implement tax and customs administration reforms (including curbing exemptions); adopt measures to reduce the corporate tax burden and harmonize it at the CEMAC level.
  - Work with COBAC and CEMAC members on bank solvency and supervisory capacity.
  - Issued CFAF 100 billion five-year bonds at 6 percent coupon, with two-thirds of the issue purchased by Chadian residents (financial sector development step).

### Stress tests, sensitivity and DSA findings (high-level)
- The most extreme stress test used: reduction in export growth proportional to "a two standard devision drop in the oil price."
- Staff projections and tables illustrate alternative scenarios and bound tests for indicators including:
  - PV of debt-to-GDP ratio, PV of debt-to-exports ratio, PV of debt-to-revenue ratio, debt service-to-exports ratio, debt service-to-revenue ratio.
- Tables and sensitivity analyses cover baseline and alternative scenarios for 2010–2030, and bound tests including shocks to real GDP growth, export values (oil price), US dollar GDP deflator, net non-debt creating flows, combination shocks, and one-time nominal depreciation.

### Selected quantitative highlights from the DSA and fiscal tables (as reported)
- Public and publicly-guaranteed external debt (nominal, selected entries):
  - External debt (nominal) entries show values such as "23.6", "20.9", "23.0", "25.0", "23.7", "23.9", "23.2", "22.2", "21.3", "17.2", "12.5" (table context).
- PV of PPG external debt (selected years): "17.1", "21.6", "21.2", "21.5", "20.9", "20.2", "19.4", "16.0", "12.4" (table context).
- PV of public sector debt-to-revenue ratio (in percent, selected values): "105.9", "91.5", "74.3", "82.0", "85.6", "82.6", "83.8", "70.5", "53.1" (table context).
- Debt service-to-exports ratio (in percent, selected values): "1.5", "3.5", "2.1", "2.6", "2.1", "2.5", "4.1", "4.6", "4.8", "5.9", "6.8" (table context).
- Key fiscal aggregates (selected indicators from the PIN table):
  - Real GDP growth (annual): 2007 "1.8"; 2008 "14.6"; 2009 "-1.2"; 2010 "13.0"; 2011 "3.1" (Est./Proj. column header context).
  - CPI inflation (average): 2007 "-7.4"; 2008 "8.3"; 2009 "10.1"; 2010 "-2.1"; 2011 "2.0".
  - Current account balance (percent of GDP): 2007 "13.7"; 2008 "8.9"; 2009 "-17.2"; 2010 "-34.6"; 2011 "-23.6".
  - Total revenue and grants (percent of GDP): 2007 "44.3"; 2008 "52.0"; 2009 "30.7"; 2010 "41.8"; 2011 "47.0".
  - Non-oil primary balance, excluding grants (percent of non-oil GDP): 2007 "-22.1"; 2008 "-29.1"; 2009 "-28.1"; 2010 "-31.5"; 2011 "-26.2".
  - Overall fiscal balance, excluding grants, commitments basis (percent of non-oil GDP or CFAF context): 2007 "3.0"; 2008 "5.6"; 2009 "-20.9"; 2010 "-11.3"; 2011 "2.1".
  - Nominal GDP (Billions of CFAF): 2007 "3358"; 2008 "3741"; 2009 "3344"; 2010 "4230"; 2011 "4476".
  - Nominal non-oil GDP (Billions of CFAF): 2007 "1840"; 2008 "2003"; 2009 "2138"; 2010 "2584"; 2011 "2912".

### Key procedural and outreach items
- Statement by IMF Staff Representative: "September 7, 2011" — summarizes information available since staff report (SM/11/209).
- Public Information Notice (PIN) No. "11/127": release date "October 12, 2011" — Executive Board concluded the 2011 Article IV Consultation on "September 7, 2011."
- Authorities reaffirmed commitment to resume a Fund-supported program and to reach the HIPC Completion Point as soon as possible.

*Source: IMF staff report excerpts and tables in the 2011 Article IV Report — Debt Sustainability Analysis for Chad (statement dated September 7, 2011; Public Information Notice No. 11/127 dated October 12, 2011).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11302.pdf_