## _cr1387

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### I. Security, humanitarian context, and political developments
- Security:
  - Security has been improving despite tensions across the Sahel region; episodes of ethnic strife along the Chad‑Libya border are still occasionally reported and developments in Mali and Nigeria point to elevated security threats.
  - Peace with Sudan holds and the pockets of the 2008 rebellion are reported to have disappeared.
- Humanitarian needs:
  - More than 300,000 refugees from the Darfur province of Sudan and from the CAR and over 100,000 internally displaced persons, including returnees from Libya, live in Chad (UNHCR figures cited).
  - The 2011 drought exposed over one million people to severe food insecurity.
  - The floods of 2012 affected 700,000 people and damaged a significant share of crops.
- Recent politics and social tensions:
  - Personnel changes among high-level civilian and military ranks.
  - A prolonged public sector strike in late July 2012 demanding wage increases of "100 percent over three years"; protests resumed in late October.

### II. Recent economic developments — growth, inflation, external position
- Overall summary:
  - Economic performance in 2011–12 marked by coming on stream of several large industrial projects.
  - A severe drought provoked a decline in agricultural production, causing a food security crisis and a sharp increase in inflation in late 2011.
  - Some fiscal consolidation in 2011 was largely reversed in 2012.
- 2011 outcomes:
  - Real GDP growth slowed to 1.7 percent in 2011.
  - Overall consumer price inflation accelerated to about 11 percent (year-on-year) at year’s end.
  - The overall balance of payments posted a surplus.
  - Non-oil primary deficit (NOPD) declined from 31.2 percent of non-oil GDP in 2010 to 28.1 percent in 2011 (short of the original budget target of 18.6 percent of non-oil GDP).
  - Broad money grew by 12 percent; credit to the economy increased by about 19 percent.
- 2012 rebound drivers and inflation:
  - Real GDP growth in 2012 estimated at 5.4 percent driven by industrial projects: full year of Djermaya refinery operation, opening of Baoré cement plant, favorable weather conditions aiding agriculture, CNPC field stabilizing oil production.
  - Inflation expected to drop to about 6 percent at year’s end as food prices ease.

### III. Food security — shocks, response, and resilience strategy
- 2011 drought impacts:
  - 50 percent drop in cereal production to 1.6 million tons; country in need of 455,000 tons.
  - Drying up of pastures and drinking-water for livestock.
  - 2.5 million Chadians exposed to food insecurity (WFP definition) from late 2011 until mid-2012; 1.2 million faced severe food insecurity (mainly in the Sahel zone).
- 2012 floods:
  - Floods covered seven percent of farm-land and affected 700,000 people in thirteen of Chad’s twenty-two regions.
- Humanitarian financing and response:
  - International community donated $386.2 million in food assistance (largest contributors: United States and the European Union).
  - Government mobilized CFAF 8.8 billion ($17.4 million) to distribute food; as of September 2012 allocated CFAF 1 billion ($2.0 million) for flood victims.
- Shift toward resilience:
  - Government and partners (FAO, WFP) adopted a strategy focusing on improving water management, warehouse capacity, and information systems.

### IV. Fiscal performance, 2012 slippages, and policy implications
- 2012 budget intentions and outturns:
  - 2012 budget aimed at NOPD below 20 percent of non-oil GDP; original target 19.7 percent.
  - Non-oil revenue collection through January–August 2012 was three percent lower than January–August 2011.
  - Domestically-financed non-interest expenditure (commitment basis) through August was seven percent higher than January–August 2011, including nearly six percent of non-oil GDP in extra-budgetary spending.
- October 2012 supplementary budget:
  - Revised NOPD target: 28.1 percent of non-oil GDP (compared with 19.7 percent in the original 2012 budget).
  - Overall deficit could reach 8 percent of non-oil GDP (compared with a small surplus in 2011).
  - Supplementary appropriations cover electricity company subsidies, other public enterprise subsidies, security spending, and large unidentified “centralized expenditure”, to be financed by drawing down deposits at the BEAC.
- Risks to revised target:
  - Supplementary budget may underestimate a likely non-oil revenue shortfall by about 1 percent of non-oil GDP.
  - Absent a major adjustment in the final quarter, the NOPD could exceed 29 percent of non-oil GDP.
- Boxed 2011 Article IV implementation summary:
  - Staff recommended containment of NOPD to about 26 percent of non-oil GDP in 2011; authorities adopted a higher NOPD target and fiscal policy reverted to expansionary stance in 2012.
  - PFM priority measures recommended; recourse to DAOs diminished in 2011 but increased in 2012.

### V. Public Financial Management (PFM), DAOs, and public enterprises
- DAOs and budget bypassing:
  - Primary causes: inadequate budget preparation and frequent use of emergency procedures (dépenses avant ordonnancement–DAOs).
  - DAO levels: January–August, 2012: CFAF 185 billion; 2011 full year: CFAF 128 billion.
  - DAOs equivalent to nearly 30 percent of all domestically financed spending (excluding wages and debt service).
  - Composition: bulk in investment and goods and services purchases.
- PFM reform status and shortcomings:
  - Measures initiated (closing nonessential government accounts; broadening treasury single account) largely not implemented; treasury cash flow plan postponed until 2013.
  - Procurement largely relies on non-competitive bids; the Loi de règlement has not been submitted to parliament.
- Subsidies to public enterprises and pricing:
  - Subsidies magnitude: 2011: 3.4 percent of non-oil GDP (8.8 percent of domestic non-wage primary spending); 2012 (preliminary): 4.8 percent of non-oil GDP (12.1 percent of domestic non-wage primary spending).
  - Recipients expanded to include cement plant, oil refinery, tractor assembly plant, fruit juice company.
  - Companies often sell below cost recovery; diesel price‑cost gap has been partly closed while gasoline subsidization continues.
  - Retail gasoline price differentials encourage smuggling: gasoline is 30 percent cheaper in Chad than in Cameroon and 50 percent cheaper than in the Central African Republic.
  - Current capacity use of the Djermaya refinery is about 20 percent.
- Authorities’ stance:
  - Authorities acknowledge problems with subsidization; considering adjustments to retail prices of cement and petroleum products and seeking export outlets for refinery excess production.
  - Given high electricity tariffs, authorities consider maintaining or increasing electricity subsidies pending planned investments.

### VI. Djermaya Oil Refinery — economic findings (FAD technical assistance, May 2012)
- Refinery facts:
  - Started production in June 2011 with processing capacity of 1 million tons per year.
  - Ownership: Société de Raffinage de N'Djaména (SRN) SA — CNPC (60 percent) and Chadian government via SNH (40 percent).
- Main findings:
  - Refinery is economically viable due to high international oil prices and high cost of imported fuel for a landlocked country.
  - Sustainability depends heavily on exporting a significant share of production to neighboring markets (Nigeria, Cameroon and the CAR).
  - Scope exists for limited retail price subsidies while retaining profits if exports absorb a significant share of output.

### VII. Medium-term oil, fiscal strategy, and vulnerabilities
- Oil production and revenue projections:
  - Oil production: 2011: 120,000 bpd; peak nearly 190,000 bpd in 2015 (based on CNPC, Exxon, and Griffiths information); production would start diminishing in 2016 absent new developments.
  - Staff estimates: government revenues from oil will rise to about 30 percent of non-oil GDP in 2015 and fall to about 20 percent of non-oil GDP by 2017.
  - Oil revenue over 2013–17 projected to be $5 billion higher than projected last year; $4 billion of that expected to come from new oil developments.
- Fiscal strategy recommended:
  - Objectives: smooth expenditure over medium term; save part of oil revenue to create a financial buffer of at least 15 percent of non-oil GDP by 2017; implement tax reforms to diversify revenue; keep investment and subsidies manageable; numeric anchor: reduce NOPD to 14–15 percent of non-oil GDP by 2017.
  - Expected outcomes: cushion to absorb an oil price shock similar to 2009 for at least one year; reduce public debt-to-GDP ratio from about 36 percent at end-2011 to about 32 percent by 2017 (assuming paced disbursement of external project loans).
- Feasibility and constraints:
  - New oil developments not expected to yield large government revenue increases until 2015; tight financing constraints in 2013–14.
  - Recommended stepwise tightening of the NOPD by 3–4 percentage points of non-oil GDP per year, starting with reduction to 25 percent of non-oil GDP in 2013.
  - Adjustment measures: eliminate arbitrary tax and customs exemptions; improve revenue administration; reduce subsidies and domestically-financed investment spending.

### VIII. Debt sustainability, Master Facility Agreement (MFA), and borrowing risks
- Recent public debt trends:
  - Public debt-to-GDP rose from just over 30 percent at end-2010 to about 36 percent at end-2011.
  - Increase driven mainly by domestic public debt and non-concessional government-guaranteed external debt financing government stakes in new enterprises.
- MFA terms and concerns:
  - MFA ($2 billion, or 18 percent of the 2012 GDP) with Eximbank of China: commercial terms; repayment secured through collateralization of oil export receipts.
  - Financial terms include interest rate of 1.5 percent and a risk fee of 4.0 percent (on top of the interest rate); tenor not to exceed 20 years including a grace period of five years; implied grant element is 1.8 percent.
  - Updated DSA conclusion: the $2 billion MFA exceeds the available space for new borrowing and, if implemented on current terms, entails a high risk of debt distress.
  - Alternative: phased implementation over ten years with sufficiently concessional terms could ensure sustainability thresholds are observed, but Chad would still face moderate risk due to low non-oil tax revenue/exports and oil price volatility.
- DSA baseline and stress results (selected):
  - Under the baseline (full MFA disbursed over 2012–17 on non-concessional terms), all external indebtedness indicators exceed critical thresholds — high risk of debt distress.
  - Export (oil price) shock: a two-standard-deviation lower oil price shock in 2013–14 would cause debt to breach all indicative debt burden thresholds.
  - Custom scenario: addition of a $7 billion railroad project implemented 2014–23 would cause PV debt-to-GDP to breach the 30 percent threshold in 2014 and peak at 78 percent in 2023 under commercial terms.
- Authorities’ views:
  - Authorities downplay concerns, expecting new oil developments to generate sufficient cash flow to meet MFA obligations and asserting high growth/externalities from investments.

### IX. Business climate, financial sector, and institutional constraints
- Business climate indicators:
  - IFC Doing Business 2013 rank: Chad 184th among 185 countries.
  - Transparency International 2011 CPI rank: Chad 168th out of 183 countries.
  - 2011 Mo Ibrahim index: Chad 52nd among 53 African countries.
- CNPT White Book identified obstacles (selected):
  - Key obstacles: lack of confidence in rule of law; inefficiency and unfairness in fiscal regime; structural weaknesses including shortage/high cost of energy, underdevelopment of finance and telecommunications, scarcity of qualified labor.
  - Selected suggestions preserved verbatim include legal environment, tax and customs, travel/logistics/telecom, and human capital reforms (see CNPT White Book items).
- Financial sector improvements and weaknesses:
  - Recapitalization of state-owned banks raised regulatory capital / risk-weighted assets from 6.7 percent to 19.7 percent.
  - Cost of recapitalization to the budget about ¼ percent of non-oil GDP.
  - At end-2011: broad money and private sector credit ratios were about 23.5 percent and just above 10 percent of non-oil GDP, respectively.
  - Access indicators: fewer than 25 depositors per 1000 adults vs. 200 for SSA; fewer than 3 borrowers per 1000 adults vs. 50 for SSA.
  - Deposit structure: demand deposits account for 85 percent of all deposits; 60 percent of bank assets have maturity < 1 month; 70 percent < 1 year.
  - Interest rates: government and some large enterprises 7–8 percent; small entrepreneurs 12–14 percent; individuals 15–20 percent.
  - Sectoral lending skewed toward construction and energy; oil and gas account for 4 percent of bank credit.
  - 2011 FSAP follow-up: two banks recapitalized; third being restructured; cash flow and debt management recommendations partially implemented; pension fund and other reforms pending.
- Recommendations to strengthen financial governance:
  - Continue holding capital buffers above minimum 8 percent.
  - Strengthen centralized credit registry; implement anti-money laundering framework.
  - Encourage greater private sector participation to dilute concentrated public‑sector exposure.

### X. Staff appraisal and policy recommendations (selected)
- Overarching assessment:
  - Improved security and strong oil receipts create an opportunity to address development and poverty reduction.
  - Need for a medium-term strategy to transform oil windfall into sustainable non-oil growth, market-oriented framework for new enterprises, and PFM reforms.
- Fiscal and PFM recommendations:
  - Anchor 2013 budget on medium-term fiscal sustainability and building a precautionary savings cushion.
  - Uphold the central role of the budget; press ahead with PFM reforms; strengthen institutional, technical, and human capacities of the Ministry of Finance and Budget (MFB); harmonize practices with CEMAC directives.
  - Reduce subsidies to public enterprises; ensure price setting consistent with cost recovery; establish regulatory framework for competition.
  - For the Djermaya refinery: find export outlets to increase capacity utilization and improve finances.
- Debt and borrowing guidance:
  - Calibrate public investment policy considering debt service capacity and vulnerability to oil price shocks.
  - As a low income country, seek highly concessional external loans.
  - Resolve incompatibility between the MFA and debt sustainability objectives.
- Food security:
  - Properly evaluate and budget the cost of food security measures, including replenishment of buffer stocks and multi-pronged resilience strategy.

### XI. Projections, scenarios, and key indicators (selected numeric highlights)
- Real GDP (annual percentage change, selected years): 2011 0.5; 2012 5.4; 2013 7.7.
- Oil production (millions of barrels, selected sequence): 43.6; 44.7; 44.2; 43.6; 46.8; 42.0; 46.3; 59.4; 69.1; 65.7; 62.8.
- Chadian crude oil price (US$/barrel, selected years): 2011 97.7; 2012 103.7; 2013 100.1; 2014 92.6; 2015 88.4; 2016 84.8; 2017 82.4.
- Fiscal aggregates (percent of non-oil GDP, selected):
  - Revenue: 2011 46.5; 2012 40.3; 2013 36.2.
  - Non-oil primary balance (commitment basis, excl. grants): 2009 -28.1; 2010 -31.2; 2011 -28.1; 2012 -29.2; 2013 -25.0; target by 2017 -14–15 percent of non-oil GDP.
  - Total debt (percent of GDP): 2011 35.9; 2012 35.4; 2013 36.4.
- Debt sustainability scenarios (selected conclusions):
  - Baseline (full MFA $2 billion over 2012–17 on non-concessional terms): all external indebtedness indicators exceed critical thresholds — high risk of debt distress.
  - Alternative (prudent) scenario: MFA over ten years with grant element of 35 percent and scaled back other borrowing could keep indicators below thresholds, but Chad remains sensitive to shocks and faces moderate risk.
  - Stress tests: two-standard-deviation oil price shock in 2013–14 would breach all indicative debt burden thresholds.

### XII. Technical assistance, data quality, and surveillance
- Technical assistance and capacity building:
  - Planned technical assistance: ECOSIT3 household survey in Q2 2012; capacity building in public expenditure management (ongoing); technical assistance for national accounts (August 2011); PFM assistance FY2012.
  - Joint Bank-Fund Debt Sustainability Assessment: July 2011; FSSA report submitted September 2011.
- Data adequacy and shortcomings:
  - General assessment: data provision has capacity-related shortcomings but is broadly adequate for surveillance.
  - National accounts: moved from 1968 SNA to 1993 SNA for 2005–11; compilation remains weak due to inadequate funding for INSEED.
  - Price statistics: HCPI of rather good quality but covers only the capital and has reporting lags.
  - Government finance and balance of payments statistics: weaknesses create uncertainty about fiscal and external positions; customs-based data unreliable.
  - Reporting status: Chad participates in GDDS since September 24, 2002; limited reporting to STA; BEAC started SRF reporting in June 2012.
- Public Information Notice highlight:
  - PIN No. 13/50, May 14, 2013: IMF Executive Board concluded the 2012 Article IV Consultation with Chad on a lapse of time basis (conclusion date: December 14, 2012).

*Source: CHAD — INTERNATIONAL MONETARY FUND, content unit _cr1387 (selected excerpts).*

### INTRODUCTION ______________________________________________________________________________  4

### _cr1387 - INTRODUCTION ______________________________________________________________________________  4

### I. Introduction — security and humanitarian context
- Security has been improving despite tensions across the Sahel region; episodes of ethnic strife along the Chad-Libya border are still occasionally reported and developments in Mali and Nigeria point to elevated security threats.
- Peace with Sudan holds and the pockets of the 2008 rebellion are reported to have disappeared.
- Because of past armed conflicts, the 2011 drought, and the 2012 floods, many residents are in need of humanitarian assistance:
  - More than 300,000 refugees from the Darfur province of Sudan and from the CAR and over 100,000 internally displaced persons, including returnees from Libya, live in Chad (UNHCR figures cited).
  - The 2011 drought exposed over one million people to severe food insecurity.
  - The floods of 2012 affected 700,000 people and damaged a significant share of crops.
- Recent political developments: personnel changes among high-level civilian and military ranks; a prolonged public sector strike in late July 2012 demanding wage increases of "100 percent over three years" (authorities resisted; protests resumed in late October).

### II. Recent economic developments — growth, inflation, external position
- Overall summary:
  - Economic performance in 2011–12 marked by coming on stream of several large industrial projects.
  - A severe drought provoked a decline in agricultural production, causing a food security crisis and a sharp increase in inflation in late 2011.
  - Some fiscal consolidation in 2011 was largely reversed in 2012.
- 2011 specifics:
  - Real GDP growth slowed to 1.7 percent in 2011 as oil production resumed its downward trend and agricultural production was affected by the drought.
  - Overall consumer price inflation accelerated to about 11 percent (year-on-year) at year’s end.
  - The overall balance of payments posted a surplus, helped by high international crude oil prices and completion of several large, foreign-financed industrial projects.
- Fiscal 2011:
  - The non-oil primary deficit (NOPD) declined from 31.2 percent of non-oil GDP in 2010 to 28.1 percent in 2011 (short of the original budget target of 18.6 percent of non-oil GDP).
  - The overall fiscal balance (commitment basis, excluding grants) shifted from a double-digit deficit in 2010 to a small surplus in 2011.
  - Broad money grew by 12 percent.
  - Credit to the economy increased by about 19 percent.

Box 1 — Implementation of the 2011 Article IV Recommendations (summary of staff advice and outcomes)
- Fiscal policy and sustainability:
  - Staff called for a supplementary budget to contain the NOPD to about 26 percent of non-oil GDP in 2011.
  - Authorities adopted a supplementary budget with an NOPD target significantly higher than recommended; some reduction achieved relative to 2010, but fiscal policy reverted to expansionary stance in 2012.
- Public financial management (PFM):
  - Priority measures recommended: (i) restrict use of emergency spending procedures (DAO); (ii) eliminate payments to government suppliers in excess of budget allocations; (iii) observe the public procurement code; harmonize practices with CEMAC guidelines.
  - Recourse to DAOs diminished in 2011 but increased again in 2012, leading to a surge in extra-budgetary spending. No significant progress in other areas.
- Policy environment for new enterprises:
  - Staff advised ensuring newly created public enterprises (notably the oil refinery) operate on a commercial basis and are financially viable.
  - Authorities continue to interfere with pricing decisions, leading to losses and increasingly costly subsidies from the budget.
- Financial sector stability and development:
  - 2011 FSAP proposed measures to ensure stability (Box 7).
  - Authorities recapitalized two state-owned banks and a third is being restructured.
  - No progress on recommendations related to cash flow and public debt management, access to credit, legal/judicial framework, and the pension sector.

### 2012 — rebound and drivers
- Real GDP growth in 2012 estimated at 5.4 percent, driven by:
  - Coming on stream of several industrial projects, including a full year of operation of the Djermaya oil refinery (started mid-2011).
  - Opening of the Baoré cement plant.
  - Favorable weather conditions spurred recovery in agricultural output; main crops expected to increase if flood effects are contained.
  - Oil production expected to stabilize following first full year of production at the CNPC-operated field; Exxon-led consortium production and exports expected to continue downward.
- Inflation:
  - As the food crisis receded, inflation started to decline.
  - Food prices expected to ease in the last quarter and inflation to drop to about 6 percent at year’s end.

### Food security — shocks, response, and resilience strategy
- 2011 drought effects:
  - 50 percent drop in cereal production to 1.6 million tons; country in need of 455,000 tons.
  - Drying up of pastures and drinking-water for livestock.
  - 2.5 million Chadians exposed to food insecurity (WFP definition) from late 2011 until mid-2012; 1.2 million faced severe food insecurity (mainly in the Sahel zone).
- 2012 floods:
  - Floods covered seven percent of farm-land and affected 700,000 people in thirteen of Chad’s twenty-two regions.
- Humanitarian response and financing:
  - In December 2011 the government declared a drought-related emergency and appealed for aid.
  - The international community donated $386.2 million in food assistance (largest contributors: United States and the European Union).
  - Government mobilized CFAF 8.8 billion ($17.4 million) to distribute food to regions in need.
  - As of September 2012, the government allocated CFAF 1 billion ($2.0 million) for flood victims.
- Shift in approach:
  - Government, with partners including FAO and WFP, adopted a strategy to strengthen resilience to weather shocks focusing on improving water management, warehouse capacity, and information systems.

### Fiscal performance and risks in 2012
- 2012 budget intentions and shortcomings:
  - The 2012 budget aimed at significant fiscal consolidation with an NOPD below 20 percent of non-oil GDP (as recommended in the 2011 Article IV).
  - The budget underestimated revenue collection problems (proliferation of arbitrary exemptions, customs weaknesses) and recurrent spending pressures (larger-than-budgeted energy bill—fuel subsidies for electricity generation—subsidies to public enterprises, security and investment spending).
  - Contingent provisions for the food security crisis were insufficient.
- Outturns through August 2012:
  - Non-oil revenue collection through August was three percent lower than January–August 2011.
  - Domestically-financed non-interest expenditure (commitment basis) through August was seven percent higher than January–August 2011, including nearly six percent of non-oil GDP in extra-budgetary spending (mainly investment and purchases of goods and services).
  - This performance signaled the annual budget NOPD target was beyond reach.
- October 2012 supplementary budget:
  - Revised NOPD target: 28.1 percent of non-oil GDP (compared with 19.7 percent in the original 2012 budget).
  - Overall deficit could reach 8 percent of non-oil GDP (compared with a small surplus in 2011).
  - Supplementary appropriations cover subsidies for the electricity company and other public enterprises, security spending, and large unidentified “centralized expenditure”, to be financed by drawing down deposits at the BEAC.
- Risks to the revised target:
  - Supplementary budget may underestimate a likely non-oil revenue shortfall by about 1 percent of non-oil GDP.
  - Additional spending may arise from wage pressures and subsidies to state-owned enterprises.
  - Absent a major adjustment in the final quarter, the NOPD could exceed 29 percent of non-oil GDP.

Box 3 — 2012 SMP discussions and the Master Facility Agreement (MFA)
- Authorities initiated discussions on a staff-monitored program (SMP) to build a track record for an ECF program in 2013; discussions were inconclusive as authorities decided to implement the MFA signed with the Eximbank of China in August 2011.
- Proposed SMP (April–December 2012) aimed at an NOPD target of 23 percent of non-oil GDP and included PFM measures: (i) reconciliation of net government position vis-à-vis banking system; (ii) preparation of monthly treasury cash-flow plan; (iii) provision of data on all contracts related to external investment projects; (iv) compilation and centralization of data on public external and domestic debt.
- Concerns about the MFA ($2 billion, or 18 percent of the 2012 GDP):
  - Borrowing terms fall short of standard concessionality requirement.
  - Collateralization of payment obligations subordinates other creditors, violates negative pledge clauses, and contravenes BEAC reserve surrender requirements.
  - Disbursement over a short period would nearly double Chad’s external debt and significantly raise the risk of debt distress, making it incompatible with debt sustainability objectives and problematic for HIPC Initiative objectives.
- Authorities informed staff in late June they intended to implement the MFA; position confirmed during the Article IV mission in September.

### III. Public Financial Management (PFM) — execution and reforms
- Main issues:
  - Budget overruns induced by weak treasury management and repeated use of emergency spending procedures (DAO).
  - PFM reforms stalled.
  - Subsidies to public enterprises surged.
  - The policy framework for public enterprises remains a challenge.
- Evidence:
  - Use of DAOs diminished in 2011 but surged again in 2012, leading to extra-budgetary spending increases.
  - Figure 3 (Budgets vs. Outcomes, 2008–2012) indicates divergence between original budgets and outcomes for government spending and the non-oil primary balance (percent of non-oil GDP).

*Source: CHAD — INTERNATIONAL MONETARY FUND, INTRODUCTION.*

### 12. Inadequate preparation of the budget and its bypassing with the frequent use of

### _cr1387 - 12. Inadequate preparation of the budget and its bypassing with the frequent use of

### Fiscal slippages and emergency procedures
- Primary causes: inadequate budget preparation and frequent use of emergency procedures allowing spending without prior budget authorization (dépenses avant ordonnancement–DAOs).
- DAO levels:
  - January–August, 2012: DAOs reached CFAF 185 billion.
  - 2011 full year: CFAF 128 billion.
  - DAOs equivalent to nearly 30 percent of all domestically financed spending (excluding wages and debt service).
- Composition of DAOs: investment and spending on goods and services accounted for the bulk.

### Public Financial Management (PFM) reforms and shortcomings
- Reforms initiated:
  - Streamlining treasury operations by closing nonessential government accounts.
  - Broadening the reach of the treasury single account.
- Implementation failures:
  - June 2012 in-depth review showed most intended measures not implemented.
  - Introduction of the treasury cash flow plan postponed until 2013.
  - Authorities backtracked on procurement improvements; procurement largely relies on non-competitive bids.
  - No progress on budget transparency; the report on past budget execution (Loi de règlement) has not been submitted to parliament and is delayed for many years.
- Authorities’ view: recognize PFM problems affect budget execution; see need to improve budget preparation, strengthen credibility, and eliminate repeated extra-budgetary spending; lack of technical capacity impedes implementation.

### Subsidization of public enterprises and sectoral pricing
- Magnitude of subsidies to public enterprises:
  - 2011: 3.4 percent of non-oil GDP (8.8 percent of domestic non-wage primary spending).
  - 2012 (preliminary): 4.8 percent of non-oil GDP (12.1 percent of domestic non-wage primary spending).
- Recipients expanded beyond traditional utilities and cotton parastatal to include:
  - Cement plant, oil refinery, tractor assembly plant, fruit juice company.
- Pricing: these companies sell products and services at prices significantly below cost recovery levels.
- Petroleum pricing and refinery:
  - Refinery at Djermaya began production in June 2011.
  - After opening, ex-refinery prices fixed well below cost recovery; retail prices reduced by about 50 percent.
  - Policy evolution allowed refinery to close price-cost gap, especially for diesel (the most widely consumed product); gasoline subsidization continues.
  - Relative retail price differences encouraging smuggling: gasoline is 30 percent cheaper in Chad than in Cameroon and 50 percent cheaper than in the Central African Republic.
  - Current capacity use of the refinery is about 20 percent.
- IMF technical assistance recommended finding an export outlet for excess production and allowing increased capacity use.
- Agriculture and related industries:
  - Agriculture receives price subsidies for fertilizers, direct support for microfinance, and mechanization support (locally assembled tractors).
  - Transformation enterprises (textiles, fruit processing) also receive subsidies.
- Authorities’ view on subsidies:
  - Authorities acknowledge continued subsidization is problematic.
  - Adjustments to retail prices of cement and petroleum products are being considered.
  - Finding export outlets for refinery excess production is seen as helpful.
  - Given exceptionally high electricity tariffs, authorities consider maintaining or increasing electricity subsidies and expect planned investments in power generation and distribution to improve the energy sector’s financial situation.
  - Intent to re-focus agricultural support to increase resilience to weather shocks.

### Djermaya Oil Refinery—economic findings (FAD technical assistance, May 2012)
- Refinery details:
  - Started production in June 2011 with processing capacity of 1 million tons per year.
  - Ownership: Société de Raffinage de N'Djaména (SRN) SA — CNPC (60 percent) and Chadian government via SNH (40 percent).
- Main findings:
  - Economic viability: refinery is economically viable due to high international oil prices and high cost of imported fuel for a landlocked country; integrated operation has potential to generate government revenues and profits for private operator.
  - Importance of exports: sustainability depends heavily on exporting a significant share of production to neighboring markets (Nigeria, Cameroon and the CAR).
  - Scope for limited retail price subsidies: possible to sell domestically at a discount relative to international prices and still generate profits and government revenue, contingent on exporting a significant share.

### Medium-term outlook: oil production, revenues, and vulnerabilities
- Oil production projection:
  - 2011: 120,000 bpd.
  - Peak nearly 190,000 bpd in 2015 (based on CNPC, Exxon, and Griffiths information).
  - Absent significant new developments, production would start diminishing already in 2016.
- Government oil revenue projections:
  - Staff estimates: government revenues from oil will rise to about 30 percent of non-oil GDP in 2015 and fall gradually to about 20 percent of non-oil GDP by 2017 (owing to projected drop in international oil prices and expected reversion of oil production to a downward trend).
- Medium-term fiscal space:
  - Oil revenue over the medium term (2013–17) projected to be $5 billion higher than projected last year; $4 billion of that expected to come from new oil developments.
- Vulnerabilities:
  - Oil accounts for more than 70 percent of fiscal revenues, about 90 percent of total exports of goods, and 35 percent of GDP.
  - Government revenue from oil (including corporate income tax) is more volatile than oil prices and export receipts (example: 50 percent drop in international oil prices in 2009 entailed nearly 75 percent drop in government oil revenues).
  - Revenue uncertainty also related to shift in early 2012 from collecting oil royalties in cash toward collecting them in kind and to different contract types with new producers (Griffiths production sharing; Exxon-led consortium and CNPC tax/royalty).
- Recommended medium-term fiscal strategy (Annex II summary):
  - Objectives:
    - Smooth expenditure over the medium term.
    - Save part of oil revenue to create a financial buffer of at least 15 percent of non-oil GDP by 2017 (from a very low level at end-2012, given expected draw-down of deposits implied by revised 2012 budget execution).
    - Implement tax reforms and other measures to improve business environment and diversify revenue sources away from oil.
    - Keep investment program and subsidies manageable given absorptive capacity and fiscal sustainability constraints and ensure sufficient resources for social spending programs.
  - Numerical anchor: reduction of the NOPD to 14–15 percent of non-oil GDP by 2017.
  - Expected outcomes: create cushion sufficient to absorb the impact of a negative oil price shock similar to 2009 for at least one year; reduce public debt-to-GDP ratio from about 36 percent at end-2011 to about 32 percent by 2017, assuming paced disbursement of external project loans.
- Feasibility and near-term constraints:
  - New oil developments not expected to yield large increase in government revenue until 2015; budget subject to tight financing constraints in 2013–14.
  - Recommended stepwise tightening of the NOPD by 3–4 percentage points of non-oil GDP per year, starting with reduction to 25 percent of non-oil GDP in 2013.
  - Adjustment measures include:
    - Increasing non-oil revenue: elimination of arbitrary tax and customs duty exemptions, measures to improve revenue administration, incentives for private companies to formalize.
    - Reducing subsidies and grants (mainly subsidies for public enterprises and exceptional security transfers) and domestically-financed investment spending (largely offset by additional foreign-financed investment spending under the MFA).
- Authorities’ view on medium term:
  - Authorities count on additional oil revenues to finance infrastructure and new enterprises, especially in energy.
  - Emphasize upside potential of new oil developments and are of the view that fiscal consolidation may not be necessary; not convinced of need to build a savings cushion.
  - Appreciated Fund assistance in developing capacity for oil revenue projections and interested in further cooperation.

### Debt sustainability, MFA, and borrowing risks
- Public debt trends:
  - Public debt-to-GDP ratio rose from just over 30 percent at end-2010 to about 36 percent at end-2011.
  - Increase driven mainly by domestic public debt and non-concessional government-guaranteed external debt financing government stakes in new enterprises (e.g., Djermaya refinery, Baoré cement plant).
- MFA details and risks:
  - MFA borrowing terms: commercial; repayment secured through collateralization of oil export receipts.
  - Financial terms include interest rate of 1.5 percent and a risk fee of 4.0 percent (on top of the interest rate). Tenor not to exceed 20 years, including grace period of five years. Implied grant element is 1.8 percent.
  - Updated DSA conclusion: the $2 billion MFA exceeds the available space for new borrowing and, if implemented on current terms, entails a high risk of debt distress.
  - Even accounting for growth impact of projects and fiscal adjustments to establish collateral, MFA entails high debt distress risk.
  - Alternative scenario: phased implementation of MFA over ten years and sufficiently concessional terms could ensure sustainability thresholds are observed; even then Chad would face moderate risk due to low non-oil tax revenue/exports and oil price volatility.
  - Ambitious investment plans financed by additional foreign borrowing (over and above 2011 MFA), such as a trans-Chadian railway, would not be consistent with debt sustainability absent further large oil discoveries.
- Authorities’ view on debt:
  - Authorities downplay concerns; consider new oil developments will generate sufficient cash flow to meet MFA obligations secured by oil export receipts.
  - Argue that using revised national accounts in the DSA would lower PV of debt-to-GDP ratios and imply more borrowing space.
  - Believe contemplated investments will yield significant positive economic externalities and higher impact on non-oil growth.

*Source: CHAD  INTERNATIONAL MONETARY FUND (excerpt).*

### 29. Chad’s business climate is widely perceived as unfavorable to the development of the

### Chad’s business climate is widely perceived as unfavorable to the development of the private sector

### Business climate and private sector structure
- IFC ranks Chad 184th among 185 countries in Doing Business 2013, with particularly low marks for starting a business, resolving insolvency, and paying taxes.
- Transparency International’s 2011 Corruption Perception Index ranks Chad 168th out of 183 countries.
- The 2011 Mo Ibrahim index places Chad at the 52nd position among 53 African countries.
- Most private enterprises operate informally; formal private companies operate in niches including telecoms, sugar refining, and tobacco processing.
- Local private sector: small and medium-sized enterprises operating at the fringes of the economy, and large enterprises often living off public contracts but eluding taxation.

### CNPT White Book — identified obstacles and selected suggestions (Box 6)
Findings on key obstacles:
- (i) lack of confidence in the rule of law;
- (ii) inefficiency and unfairness in the application of the fiscal regime;
- (iii) structural weaknesses, including shortages and the high cost of energy, underdevelopment of finance and telecommunications, and scarcity of qualified labor.

Selected suggestions (preserve original wording and categories):
- Legal environment:
  - Ensure business security (legal and judicial) which is a prerequisite to investment
  - Adopt more precise laws against abusive attribution of damages
  - Engage in arbitration before any legal proceedings under the OHADA system
  - Provide training for judges on the CIMA (Inter African Conference for the Insurance Market) Code
  - Adopt an anti-corruption law
- Tax and customs:
  - Update the current General Tax Code by integrating different finance acts
  - Develop a Fiscal Procedural Code and a Taxpayer Code
  - Establish a regular publishing of fiscal laws and as well as tax and customs schedules
  - Strengthen the rigor in revenue collection to reduce undue solicitation
  - Professionalize customs services and eliminate the pseudo-official customs brigades
  - Reduce the minimum presumptive tax and broaden its crediting beyond the corporate income tax
  - Create tax incentives to make staying in the informal sector unattractive
- Travel, logistics, and telecommunication:
  - Lower taxes on airplane tickets to 5 percent from the current average of 40 percent
  - Improve access to other sea ports (Cotonou, Port Sudan, etc.,) to create competition for Douala
  - Enable the use of the fiber optic connection by all licensed telecom operators
  - Foster the use of 3G technology to allow easy access to high-speed internet
  - Foster training in telecom and information and communication technologies (ICT)
- Human capital:
  - Create an engineering school in electromechanical engineering, petroleum, and mining
  - Ensure adequate social infrastructure for a skilled and healthy workforce to reduce labor costs

### Authorities’ views on business climate
- Authorities view information shortfalls about Chad as a factor in unfavorable scores and a deterrent to private investment.
- ANIE tasked to increase media outreach and promotion activities.
- Following endorsement of the CNPT White Book at the highest political level, authorities intend further consultation with the private sector to build consensus on a reform agenda.
- ANIE initiatives include opening a “one-stop window” to facilitate creation of new enterprises.

### Financial sector — recent improvements and remaining weaknesses
- Improvements since the 2011 FSAP owing to recapitalization of state-owned banks, strong growth of several private banks, and technological innovations (including mobile banking and increased use of modern means of payments).
- Ratio of regulatory capital to risk-weighted assets increased from 6.7 percent to 19.7 percent after recapitalization.
- Cost of bank recapitalization to the budget was about ¼ percent of non-oil GDP.
- At end-2011:
  - Ratios of broad money and private sector credit to non-oil GDP were about 23.5 percent and just above 10 percent of non-oil GDP, respectively.
  - Private deposits accounted for about a half of broad money.
  - All bank deposits (including government deposits) were below 15 percent of non-oil GDP.
- Other financial intermediation indicators:
  - Fewer than 25 depositors per 1000 adults (compared to 200 for SSA).
  - Fewer than 3 borrowers per 1000 adults (compared to 50 for SSA).
  - Less than 1 bank branch per 1000 km2.
- Deposit and maturity structure:
  - Demand deposits account for 85 percent of all deposits.
  - 60 percent of bank assets have a maturity of less than a month.
  - 70 percent of bank assets have a maturity of less than a year.
- Interest rates and access:
  - Government and some large enterprises receive credit at 7–8 percent (barely positive in real terms).
  - Small private entrepreneurs face interest rates of 12–14 percent.
  - Individuals face interest rates of 15–20 percent.
- Sectoral distribution of bank lending (April 2012): skewed toward construction and energy, commerce; oil and gas account for 4 percent of bank credit.
- The 2011 FSAP found that about 70–80 percent of gross loans were extended to the public sector (as of March 2011); this exposure has not changed significantly and remains a key risk.
- Most lending is short-term; resources for long-term financing are scarce.
- Islamic banking is currently non-existent but seen as a way to increase intermediation by tapping savings of Chad’s large Muslim population.

### 2011 FSAP main findings and follow-up (Box 7 — selected items)
- Banking sector stability:
  - Finding: two banks have a negative equity.
  - Recommendation: government should recapitalize the banks and prepare a viable business plan. Priority/Timeframe: High/Immediate.
  - Follow-up: Two of the three state banks recapitalized with public and foreign capital; third being restructured with state selling majority share to future acquiring foreign investor.
- Cash flow and public debt management:
  - Finding: Poor government cash flows management leads to financial vulnerabilities.
  - Recommendation: establish a treasury committee to monitor government’s cash position. Priority/Timeframe: High/Immediate.
  - Follow-up: Committee recommended inclusion of 45 additional accounts to the NPG, confirmed closure of 201 inactive government accounts, 7 others closed and balances transferred to the Treasury account. Treasury cash flow plan not yet elaborated; cash management remains limited to daily assessment.
- Access to financial services:
  - Finding: Access constrained by lack of adequate information on borrowers.
  - Recommendation: BEAC should develop an adequate credit reporting system; government should encourage accounting use by businesses. Priority/Timeframe: High/Medium term.
  - Follow-up: BEAC reducing delays in updating borrower information in the credit registry and encouraging banks to accelerate reporting; more needs to be done to encourage accounting use by businesses.
- Legal and judicial framework:
  - Finding: Business community has no confidence in the judicial system.
  - Recommendation: establish a credible inspector’s general office to investigate and prosecute corruption in the justice system and introduce arbitration and mediation for dispute settlement outside courts. Priority/Timeframe: High/Near term.
  - Follow-up: Application of banking regulation and commercial laws hampered by lack of capacity; government still needs to establish a credible inspector’s general office. A law limiting abusive practices (confiscation of bank accounts at BEAC) is being developed.
- Pension sector:
  - Findings: CNRT technically bankrupt for 20 years; CNPS has an overall surplus.
  - Recommendation: government should repay its debts to both funds and remain current on future obligations; conduct actuarial study. Priority/Timeframe: High/Near term.
  - Follow-up: Government has not paid its debts to the two funds; actuarial study has not yet been undertaken.

### Impediments to financial deepening and authorities’ initiatives
- Key impediments: inadequate infrastructure (electricity and telecommunication) and weaknesses in the legal system, including difficulty in exercising legal guarantees.
- Bankers’ emphasis: (i) strengthen legal and judicial framework to ensure fair treatment of lenders; (ii) improve land tenure system and develop a reliable cadastre to increase collateral pool.
- Authorities’ stance:
  - Satisfied with steps to improve state-owned banks; do not view large banks’ exposure to government as a problem, seeing government as a reliable client and source of liquidity/income.
  - Acknowledge need for stronger pension finances, credit registry, and legal/judicial improvements.
  - Initiatives underway: strategy to improve SME access to credit and lower borrowing cost; new approach for reimbursement to microfinance institutions while limiting government fund involvement; intention to turn state-owned development bank into a mortgage bank.

### Staff appraisal and policy recommendations (selected)
- Improved security, strong oil revenue receipts, and prospects for additional oil production create a unique opportunity to address development and poverty reduction.
- Need for a medium-term strategy to transform oil windfall into sustainable growth for the non-oil economy, market-oriented policy framework for new enterprises, and public financial management (PFM) reforms to optimize use of oil resources.
- Vulnerability to weather shocks highlighted by 2011 drought and recent floods; staff welcomes broadening of policy focus toward building resilience.
- Cost of implementing food security policies should be properly evaluated and provided for in the budget, including replenishment of buffer stocks and a multi-pronged resilience strategy.
- Fiscal concerns:
  - Relatively good fiscal performance in 2011 helped medium-term sustainability; weaker fiscal discipline in 2012 reignited concerns.
  - 2012 supplementary budget deviates from a sustainable path and entails a draw-down of deposits at the BEAC, delaying financial savings for oil price shocks.
- Recommendations on PFM and budgeting:
  - Uphold central role of the budget as fiscal policy instrument and press ahead with PFM reforms.
  - Strengthen institutional, technical, and human capacities of the Ministry of Finance and Budget (MFB).
  - Harmonize local practices with the new directives of the CEMAC.
- Public enterprises:
  - Reduce subsidies for public enterprises; ensure enterprises have freedom in price setting consistent with cost recovery; establish regulatory framework for competition.
  - For the oil refinery, find an export outlet for excess production to increase capacity utilization and improve financial condition.
- Debt and investment policy:
  - Public debt level manageable for now, but scaling up foreign debt-financed public investment raises elevated risk of debt distress.
  - Authorities encouraged to calibrate public investment policy considering debt service capacity and vulnerability to oil price shocks.
  - As a low income country, Chad should seek highly concessional terms for external loans.
  - Authorities encouraged to resolve incompatibility between the MFA and debt sustainability objectives.
- 2013 budget guidance:
  - Anchor on objective of medium-term fiscal sustainability and building a precautionary savings cushion.
  - Given expectation of significant increase in oil revenue from new oil projects, staff recommends an NOPD path less constraining than in the 2011 Article IV consultation.
  - From 2013 and over the medium term, gradual tightening of the NOPD required to offset expected long-term decline in oil revenues; gradual tightening would generate savings to serve as a cushion against an oil revenue shock and help smooth transition to the post-oil era.

*Source: IMF staff report excerpts on Chad (content unit: _cr1387 - 29. Chad’s business climate is widely perceived as unfavorable to the development of the).*

### 46. The publication of the White Book by the CNPT is an important step toward improving

### _cr1387 - 46. The publication of the White Book by the CNPT is an important step toward improving

### Business climate and White Book implementation
- Publication of the White Book by the CNPT is an important step toward improving Chad’s business climate.
- Authorities are encouraged to work closely with the business community to further the agenda outlined in the White Book, in particular by:
  - improving the legal environment for private enterprises;
  - making tax policy more business-friendly;
  - professionalizing tax and customs administration;
  - developing the key elements of infrastructure.

### Financial stability and banking sector risks
- Recapitalization of state-owned banks improved financial stability indicators.
- Concentrated exposure of banks to the public sector remains a source of risk.
- Short-term mitigation:
  - Banks are encouraged to continue holding capital buffers in excess of the required minimum 8 percent.
- Longer-term solutions:
  - Greater private sector participation should be encouraged to provide a durable solution to concentrated public-sector exposure.
  - Setting incentives for informal sector enterprises to migrate to the formal sector is recommended.

### Strengthening financial governance and risk management
- Recommended measures to contain and manage credit and governance risks include:
  - Strengthening the centralized credit registry to help contain credit risk.
  - Implementing the anti-money laundering framework to help strengthen governance.

*Source: Excerpt from IMF content unit _cr1387.*

### 48. Staff recommends that the next Article IV consultation with Chad be held on the

### _cr1387 - 48. Staff recommends that the next Article IV consultation with Chad be held on the

### Staff recommendation
- 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.

### Real economy — key growth projections (GDP at constant prices, annual percentage change)
- Total GDP: -1.21, 3.0, 3.1, 0.5, 7.4, 5.4, 7.7, 10.5, 8.2, 3.4, 3.5
- Oil GDP: -5.1, 6.4, -1.8, -2.5, 10.4, -1.3, 11.3, 27.3, 14.8, -4.6, -4.1
- Non-oil GDP: 0.0, 15.0, 3.6, 1.4, 6.0, 7.1, 6.8, 6.3, 6.2, 5.9, 5.7
- Consumer price index (period average): -2.1, -2.1, 2.0, 1.9, 5.0, 8.2, 3.0, 3.0, 3.0, 3.0, 3.0
- Consumer price index (end of period): 4.7, -2.2, ... , 10.8, ... , 6.0, 3.0, 3.0, 3.0, 3.0, 3.0

### Oil sector indicators
- WEO (US$/barrel): 61.8, 79.0, 106.3, 104.0, 105.3, 106.2, 105.1, 100.6, 96.4, 92.8, 88.9
- Chadian price (US$/barrel): 55.5, 73.6, 99.8, 97.7, 98.8, 103.7, 100.1, 92.6, 88.4, 84.8, 82.4
- Oil production (millions of barrels): 43.6, 44.7, 44.2, 43.6, 46.8, 42.0, 46.3, 59.4, 69.1, 65.7, 62.8

### External sector (selected aggregates, percent of GDP unless noted)
- Overall balance of payments: -10.6, -4.2, 5.5, 3.4, 3.6, -2.1, 0.4, 0.9, 3.1, 2.7, 2.4
- Current account balance, including official transfers: -18.3, -3.5, -23.9, -1.0, -16.9, -1.1, -3.3, 0.7, 5.4, 3.1, 2.2
- External debt (in percent of GDP): 23.0, 25.0, 23.8, 26.4, 23.8, 27.6, 26.8, 25.2, 24.3, 25.5, 26.1
- NPV of external debt (percent of exports of goods and services): 39.7, 48.1, 38.4, 56.7, 41.7, 58.9, 61.5, 57.2, 52.6, 59.3, 65.3

### Fiscal sector — revenue, expenditure, and balances (percent of non-oil GDP unless otherwise indicated)
- Revenue: 25.2, 38.7, 44.0, 46.5, 38.0, 40.3, 36.2, 37.3, 41.3, 36.6, 33.2
  - Of which: non-oil revenue: 12.0, 12.5, 10.6, 11.0, 11.7, 10.4, 10.9, 11.6, 12.2, 12.5, 12.8
- Expenditure: 46.1, 49.9, 42.1, 44.9, 36.1, 49.5, 44.6, 41.9, 38.9, 35.8, 34.6
  - Current: 29.7, 29.6, 25.0, 25.8, 20.1, 25.6, 23.6, 23.0, 21.8, 19.4, 19.2
  - Capital: 16.5, 20.2, 17.2, 19.2, 16.0, 23.9, 21.0, 18.8, 17.1, 16.4, 15.3
- Non-oil primary balance (commitment basis, excl. grants): -28.1, -31.2, -26.2, -28.1, -19.2, -29.2, -25.0, -21.6, -18.5, -15.5, -14.5
- Overall fiscal balance (excl. grants, commitments basis): -20.9, -11.2, 1.8, 1.6, 1.9, -9.2, -8.4, -4.5, 2.3, 0.8, -1.4
- Overall fiscal balance (excl. grants, cash basis): -20.8, -9.3, 3.9, -2.3, 0.7, -6.9, -8.6, -4.6, 2.3, 0.7, -1.3
- Total debt (in percent of GDP): 30.5, 30.5, 29.5, 35.9, 27.9, 35.4, 36.4, 34.3, 31.7, 32.1, 32.2
  - Of which: domestic debt (percent of GDP, selected entries): 7.5, 5.5, 5.7, 9.5, 4.1, 7.8, 9.6, 9.1, 7.4, 6.7, 6.1

### Fiscal operations — central government (selected nominal flows, billions of CFA francs)
- Revenue (2009–2017 sequence shown in table): 540, 1,000, 1,280, 1,331, 1,189, 1,328, 1,298, 1,277, 1,436, 1,727, 1,666, 1,639
  - Oil revenue (2009–2017 sequence shown): 284, 676, 973, 1,017, 823, 963, 963, 892, 989, 1,218, 1,096, 1,005
  - Non-oil revenue (2009–2017 sequence shown): 256, 324, 308, 314, 366, 365, 335, 385, 447, 509, 570, 634
- Expenditure (2009–2017 sequence shown): 987, 1,289, 1,227, 1,284, 1,129, 1,604, 1,595, 1,574, 1,610, 1,630, 1,628, 1,707
- Net acquisition of nonfinancial assets (investment, billions of CFA francs): 353, 522, 500, 548, 500, 792, 770, 740, 725, 717, 747, 757
- Overall balance (excl. grants, commitment, billions of CFA francs): -447, -288, 544, 660, -276, -296, -297, -173, 97, 38, -68

### Monetary and banking sector (selected indicators)
- Net foreign assets (changes as percent of broad money stock at beginning of period): -80.2, 13.5, 42.1, 25.4, 25.1, -16.9, 9.3, 14.4, 31.2, 25.2, 21.6
- Net domestic assets: 81.3, 13.2, -29.4, -13.2, -16.0, 27.6, 0.1, -5.4, -22.3, -16.5, -13.1
  - Net claims on central government: 72.5, 8.7, -33.1, -19.2, -19.6, 10.0, -11.0, -13.6, -30.6, -25.1, -20.9
  - Credit to private sector (annual change): 5.5, 8.4, 3.7, 7.8, 3.6, 6.8, 6.9, 6.7, 6.9, 7.1, 7.3
- Broad money (annual change): 1.1, 26.8, 12.7, 12.2, 9.1, 10.8, 9.4, 9.0, 8.9, 8.7, 8.5
- Monetary survey (billions of CFA francs, 2009 snapshot): Net foreign assets 238.3; Net domestic assets 237.8; Money and quasi money 475.9; Credit to the economy 204.1

### Balance of payments — headline figures (billions of CFA francs, 2009–2017 series in table)
- Exports, f.o.b. (selected sequence): 1,320, 1,752, 2,153, 2,032, 2,016, 2,279, 2,291, 2,623, 3,021, 2,778, 2,608
  - Of which oil: 1,153, 1,602, 1,929, 1,836, 1,790, 2,058, 2,048, 2,348, 2,707, 2,453, 2,267
- Imports, f.o.b. (selected sequence): -946, -1,183, -1,723, -1,272, -1,405, -1,474, -1,599, -1,716, -1,716, -1,762, -1,688
- Trade balance, incl. oil sector (selected sequence): 374, 569, 430, 760, 611, 805, 693, 907, 1,304, 1,016, 921
- Gross official reserves (imputed, billions of U.S. dollars, selected sequence): 0.6, 0.6, 0.8, 1.0, 0.8, 1.2, 1.0, 1.1, 1.2, 1.6, 2.0

### Financial soundness and banking sector indicators (selected)
- Regulatory capital / Risk-weighted assets: 11.1, 13.3, 12.1, 6.7, 19.7 (years in table header)
- Gross nonperforming loans / Gross banking loans: 11.2, 8.0, 10.4, 12.1, 9.8
- Return on assets: 2.7, 3.9, 1.3, 3.7, 2.4
- Liquid assets / Total assets: 28.3, 19.6, 17.9, 18.2, 29.9
- Banks' ratings (number of banks rated): Solid or Good 6, 4, 4, 3, 5; Fragile 0, 1, 1, 1, 2; Critical 0, 1, 1, 2, 0; Not rated 1, 1, 2, 2, 1; Total 7, 7, 8, 8, 8

### Social and development indicators (selected Millennium Development Goals metrics)
- Mortality rate, infant (per 1,000 live births): 113.0, 109.0, 105.0, 101.0, 97.1, 34.6
- Mortality rate, under-5 (per 1,000): 208.0, 198.0, 189.0, 180.0, 169.0, 46.7
- Immunization, measles (% of children ages 12–23 months): 32.0, 26.0, 28.0, 32.0, 46.0, 65.0
- Improved water source (% of population with access): 39.0, 42.0, 45.0, 48.0, 51.0, 91.0
- Mobile cellular subscriptions (per 100 people): 0.0, 0.0, 0.1, 2.2, 31.8, 127.0

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

### ANNEX I. CHAD: LEVEL OF VULNERABILITY TO FOOD INSECURITY—DECEMBER 2011

### ANNEX I. CHAD: LEVEL OF VULNERABILITY TO FOOD INSECURITY—DECEMBER 2011

### Food insecurity snapshot
- Source: World Food Programme.
- In Chad, agricultural production is expected to rebound in 2012 and policies to build resilience should help prevent a food crisis on a scale seen last year; however, the Sahel region is vulnerable to recurrent droughts and other natural disasters (e.g., cricket infestation).
- A deepening of the food security crisis across the Sahel region
  - Staff assessment: Medium (likelihood)
  - Staff assessment: High (expected impact)
  - Potential effects: affect Chad's most vulnerable population through a mixture of high food prices, mounting malnutrition and relative isolation; ensuing fiscal needs could be high.

### Risk Assessment Matrix — main risks, likelihoods, and impacts
- A crisis-induced substantial decline in global oil prices
  - Staff assessment: Medium (likelihood)
  - Staff assessment: High (expected impact)
  - Analysis: Chad is highly dependent on oil, which accounts for more than 70 percent of fiscal revenues, about 90 percent of total exports of goods, and 35 percent of nominal GDP. Fiscal and external balances would deteriorate. The government has currently insufficient fiscal buffers.
- Spillovers from the Eurozone crisis / softening of growth in Asia
  - Staff assessment: High (likelihood)
  - Impact: could lower global growth, affecting commodity and oil prices; independently may provoke a decline in demand for oil.
- A deterioration of the security situation, including through regional spillovers from Niger and Mali
  - Staff assessment: Medium (likelihood)
  - Staff assessment: High (expected impact)
  - Potential effects: (i) political instability; (ii) displacement of population and increased need for humanitarian aid; and (iii) increased security-related government expenditures.
- An intensification of strikes and social demands
  - Staff assessment: Medium (likelihood)
  - Staff assessment: Medium (expected impact)
  - Context: The social situation remains tense. A public sector employees’ strike over wage increases was initiated in early July before being suspended in September without any resolution. In late October, actions resumed in other forms, including intermittent renewable three-day strikes.
  - Potential effects: protracted social tension may lead to unrest. The accommodation (a 25 percent wage increase has been rumored in the press) could lead to (i) weakening of the fiscal stance; (ii) demands for higher wages in the private sector; and (iv) deterioration of the competitiveness and lower non-oil growth potential.

### Debt sustainability — recent developments and concerns
- General assessment
  - Chad’s public domestic and external debt indicators have worsened since 2010 and the large amount of non-concessional borrowing contracted in 2011 entails a high risk of debt distress.
  - The updated baseline scenario shows that, if the MFA is implemented in its current form, all prudential thresholds will be breached within the projection horizon.
  - An alternative scenario shows that all prudential thresholds would be observed if: (i) the MFA were concessional (with a grant element of 35 percent); (ii) it was implemented over ten years (instead of five); and (iii) other external borrowing was drawn mainly from concessional sources and its amount remained moderate.
- Key factors driving deterioration
  - Significant increases in projected oil production, prices, and related government revenues, and higher external borrowing.
  - Expected implementation of the $2 billion non-concessional Master Facility Agreement (MFA) signed with the Eximbank of China in August 2011.

### Recent developments in public external debt (2001–2011)
- External public debt-to-GDP: increased from about 20 percent in 2008 to 23 percent in 2009 (after the drop in international oil prices in 2009).
- End-2011 external public debt-to-GDP exceeded 26 percent at end-2011 (compared to 24 percent anticipated in the 2011 DSA).
- Notable borrowings and guarantees in 2010–11:
  - $300 million loan from the Libyan Foreign Bank disbursed over 2010-11 and guarantee of about $600 million of debts disbursed in 2010–11 (including loan to finance the 40 percent share by the state oil company (SHT) in the oil refinery built by CNPC, and a loan to finance state shares in the Baoré cement factory).
- MFA with Eximbank of China (August 2011)
  - Total amount: up to $2 billion (or 18 percent of the 2012 GDP) over a five-year period.
  - Projects to be funded include: (i) a new international airport for N’Djamena; (ii) a gas power plant (100  MW); (iii) construction of 400–500 km of roads; (iv) a two-lane road bridge near N’Djamena; (v) cultivation of 20,000 ha of agricultural land; and (vi) a cement plant (capacity 600,000 tons per year).
  - Financial terms (non-concessional): (i) interest rate of 1.5 percent; (ii) a risk fee of 4.0 percent; (iii) a management fee (upfront) of 0.6 percent on each individual facility; (iv) a commitment fee of 0.4 percent on the unutilized portion; (v) limit on tenor of each facility not to exceed 20 years; and (vi) a grace period of five years.
  - Payment obligations under the MFA are collateralized on oil export receipts.

### External debt stock indicators (selected figures from Text Table 1)
- Total external public debt stock (billions of CFA francs), selected years:
  - 2001: 794.7
  - 2005: 898.9
  - 2009: 1,066.8
  - 2010: 1,317.1 (Est.)
- Total (percent of GDP), selected years:
  - 2001: 63.4
  - 2005: 29.0
  - 2009: 25.2
  - 2011: 26.4 (Est.)
- Multilateral creditors (billions of CFA francs), 2011: 742.2
  - IMF: 5.2 (2011)
  - World Bank/IDA: 422.3 (2011)
  - African Development Fund/Bank: 210.2 (2011)
- Bilateral creditors (billions of CFA francs), 2011: 270.6
  - Non-Paris Club official debt (2011): 254.5
    - China, People's Republic (2011): 43.8
    - Libya (2011): 144.2
    - India (2011): 22.3
  - State-Guaranteed (2011): 304.4
- Note: Official external debt stock data underestimate the actual level of external debt; the debt registry omits some associated debt service and loans from China and other government-guaranteed debt.

### Status of debt relief initiatives
- Chad reached the Decision Point under the Enhanced HIPC Initiative in May 2001 but failed to reach the completion point due to poor macroeconomic policy performance and inability to meet agreed fiscal targets.
- Meeting conditions for debt relief under the Enhanced HIPC Initiative and the MDRI would help reduce external debt in half (in nominal terms).
  - MDRI relief would cover the full stock of debt owed to IDA, IMF, and AfDF.
  - In nominal terms, this could total over $1 billion and would imply a reduction in debt service of about $40 million per year, for about 30 years.
- Caveat: Since the last remaining portion of Chad’s debt owed to the IMF eligible for MDRI debt relief is due in July 2013, the IMF would provide no debt relief under the MDRI if the completion point was delayed beyond that time.

### Recent developments in public domestic debt (selected figures)
- Public domestic debt estimated at about CFAF 474.1 billion (9½ percent of GDP) at end-2011.
- Components and selected amounts (billions of CFA francs):
  - Central Bank Statutory Advances (2011): 216.9
  - Rescheduled debts (2011): 52.9
  - Treasury arrears (2011 estimate based on end-March 2012): 56.4
  - Legal commitments (2011): 21.2
  - 2011 Savings Bond (five-year, 6 percent coupon): 121.0 (Sixty three percent purchased by Chadian residents; banks, local and regional, purchased two-thirds of the issue. With accrued interest, the stock estimated at CFAF 121 billion at end-December 2011.)
- Notes: The authorities made a significant effort to reduce domestic payment arrears in 2010, but payment arrears appear to have resurged in 2011.

### Debt burden thresholds under the Debt Sustainability Framework
- Chad is classified as a weak policy performer.
  - CPIA rating: 2.48 on average for 2007–2011 (scale 1 to 6), down from 2.88 in 2005 to 2.43 in 2011.
- External public debt burden thresholds for "Weak Policy Performers" (Text Table 3):
  - Present value of external debt in percent of GDP30
  - Exports100
  - Revenue200
  - External debt service in percent of Exports15
  - Revenue18

### DSA assumptions — oil, fiscal policy, and external financing
- Oil production and revenue
  - Oil production is expected to rise from 120,000 bpd in 2011 to about 180,000 bpd in 2015–17.
  - This second oil boom will likely be temporary; proven reserves in the new fields are much smaller than that in the original Doba basin and will also likely be nearly exhausted around 2030. Hence, oil production and exports are projected to decline steadily to negligible levels beyond 2030.
  - Chad’s oil trades below the WEO reference price, reflecting a quality discount and transport cost.
  - For the medium term (five-year horizon) the price of Chadian oil is assumed to drop from $103.7 per barrel (all discounts included) in 2012 to about $83.6 per barrel in 2016–17, in line with the trend projected in the IMF’s World Economic Outlook (WEO).
  - From 2018 onward, the price is assumed to increase 3 percent per year in U.S. dollar terms.
- Fiscal policy assumptions
  - Assumes a buildup of financial savings in the medium term and a sustained fiscal adjustment throughout the entire projection in transition to the post-oil era.
  - The increase in oil production is expected to lead to about $4 billion more in oil revenues for the government by 2017 than projected in the 2011 Article IV report.
  - This would help maintain oil revenues above 25 percent of non-oil GDP until 2016 and could generate savings of about $2 billion by 2019 if the non-oil primary deficit (NOPD) is reduced from about 29 percent of non-oil GDP in 2012 to below 10 percent of non-oil GDP by 2019.
  - Longer term assumptions include: steady decline of total government primary spending from 27 percent of GDP in 2012 to 18 percent in 2032; primary balance adjusted gradually to reach a small surplus by 2032.
  - Adjustment measures expected: (i) increase non-oil revenues (from about 10 percent of non-oil GDP to over 15 percent by 2032); (ii) reduce total investment outlays from over 20 percent of non-oil GDP to below 10 percent; (iii) cut recurrent spending, notably by eliminating exceptional security transfers and subsidies to public enterprises (currently about 9 percent of non-oil GDP).
- External financing scenarios and DSA structure
  - Baseline (current policies) scenario: assumes full MFA ($2 billion) disbursed within a five-year (2012–17) horizon and continuation of borrowing policy on non-concessional terms beyond the medium term with gross disbursement of about 3½ percent of GDP per year.
  - Alternative (prudent) scenario: consistent with medium-term fiscal framework recommended by staff; aims to determine conditions under which MFA implementation would be consistent with debt sustainability.

### Box 1 — Macroeconomic assumptions, 2012–2032 (baseline scenario)
- Real GDP growth drivers: sharp growth of oil production in the next five years and a steady decline in oil production over the following fifteen years.
- Non-oil GDP growth: assumed 6.5 percent in 2013–17 (medium term) and stabilize at about 5.0 percent in the long term.
- Inflation: assumed to stabilize at 3 percent.
- External current account: projected to turn into a significant surplus in 2014–17 with increased oil exports and drop in imports related to new oil fields; turns into a deficit with decline in oil exports.
- Fiscal outlook: increase in oil revenues in the medium term and decline in the long term.
  - Authorities assumed to reduce the NOPD to about 15 percent of non-oil GDP by 2017 and to generate savings up to $2 billion needed as collateral for the MFA.
- External financing assumptions:
  - (i) a $2 billion MFA with Eximbank of China on non-concessional terms implemented over 2012–17 (investments under the MFA assumed to raise non-oil GDP growth by about one percentage point during MFA implementation and by about 0.5 percentage point beyond 2017);
  - (ii) external project financing (grants and loans) of 5.5 percent of non-oil GDP on average per year beyond the MFA implementation period.

*Source: World Food Programme.*

### 2017. Grants (mainly for social programs) are assumed to stay constant in real terms and will decline to about

### _cr1387 - 2017. Grants (mainly for social programs) are assumed to stay constant in real terms and will decline to about

### Assumptions and financing
- Grants (mainly for social programs) are assumed to stay constant in real terms and will decline to about 1 percent of non-oil GDP by 2030.
- Loans are assumed to be increasingly from non-traditional (non-Paris Club) creditors, resulting in a decline of the average grant element of borrowing.
- In the absence of an IMF arrangement, HIPC and MDRI debt relief for which Chad is eligible are not taken into account.
- Domestic financing assumptions:
  - Reimbursements of BEAC statutory advances by 2022 (as per the newly revised agreement).
  - Reimbursement of the 2011 savings bond (Emprunt obligataire) by 2016.
  - Additional domestic debt is assumed to be issued to meet residual financing needs while a portion of oil revenue is being set aside as collateral for the MFA.
  - As a result, gross domestic debt rises from 9.5 percent of GDP in 2012 to about 11.5 percent in 2017.

### Baseline macro-fiscal and external projections (selected figures)
- Real GDP growth (percent per year): 2011 0.5; 2012 5.4; 2013 7.9; 2014 10.7; 2015 8.4; 2016 3.6; 2017 3.7; 2011–17 Avg. 5.7; 2018–32 Avg. 3.4.
- Oil growth (percent per year): 2011 -2.5; 2012 -1.3; 2013 11.3; 2014 27.3; 2015 14.8; 2016 -4.6; 2017 -4.1; 2011–17 Avg. 5.8; 2018–32 Avg. -9.6.
- Non-oil growth (percent per year): 2011 1.4; 2012 7.1; 2013 7.1; 2014 6.6; 2015 6.5; 2016 6.2; 2017 6.0; 2011–17 Avg. 5.8; 2018–32 Avg. 4.8.
- Consumer price inflation (percent per year): 2011 1.9; 2012 5.5; 2013 3.0; 2014 3.0; 2015 3.0; 2016 3.0; 2017 3.0; 2011–17 Avg. 3.2; 2018–32 Avg. 3.0.
- External current account balance (percent of GDP): 2011 -1.0; 2012 -1.2; 2013 -3.9; 2014 0.1; 2015 4.8; 2016 2.4; 2017 1.7; 2011–17 Avg. 0.4; 2018–32 Avg. -4.3.
- Government revenue and grants (percent of non-oil GDP): 2011 49.3; 2012 43.1; 2013 38.9; 2014 40.1; 2015 43.9; 2016 39.0; 2017 35.5; 2011–17 Avg. 41.4; 2018–32 Avg. 23.4.
  - Of which: oil revenue (percent of non-oil GDP): 2011 35.3; 2012 29.6; 2013 25.0; 2014 25.4; 2015 28.7; 2016 23.8; 2017 20.1; 2011–17 Avg. 26.8; 2018–32 Avg. 6.4.
  - Of which: grants (percent of non-oil GDP): 2011 3.2; 2012 3.2; 2013 3.0; 2014 2.8; 2015 2.6; 2016 2.4; 2017 2.3; 2011–17 Avg. 2.8; 2018–32 Avg. 1.5.
- Government expenditure (commitment basis, percent of non-oil GDP): 2011 44.6; 2012 49.1; 2013 47.8; 2014 44.9; 2015 41.9; 2016 38.6; 2017 35.2; 2011–17 Avg. 43.1; 2018–32 Avg. 27.8.
- Overall fiscal balance (incl. grants; cash basis, percent of non-oil GDP): 2011 -2.4; 2012 -6.9; 2013 -11.9; 2014 -7.6; 2015 -0.7; 2016 -2.1; 2017 -1.9; 2011–17 Avg. -4.8; 2018–32 Avg. -4.2.
- Non-oil primary fiscal balance (excl. grants; commitment basis, percent of non-oil GDP): 2011 -27.9; 2012 -29.0; 2013 -25.0; 2014 -21.6; 2015 -18.5; 2016 -15.5; 2017 -14.5; 2011–17 Avg. -21.7; 2018–32 Avg. -4.8.
- Government deposits (in percent of non-oil GDP): 11.3; 3.3; 8.9; 13.5; 17.4; 20.6; 21.6; 2011–17 Avg. 13.8; 2018–32 Avg. 9.7.
- Chadian crude oil price (US$/barrel): 2011 97.7; 2012 103.7; 2013 100.1; 2014 92.6; 2015 88.4; 2016 84.8; 2017 82.4; 2011–17 Avg. 92.8; 2018–32 Avg. 98.1.

### Baseline external debt outlook and risks
- Evolution of external debt is driven by a large volume of project loans, including the MFA.
- New borrowing is expected to be dominated by non-concessional project financing, mainly from commercial or non-Paris Club official sources.
- During MFA implementation, the average concessionality of new borrowing (assuming a discount rate of 3 percent) would turn negative and stay so through the projection period.
- Under the baseline scenario:
  - All external indebtedness indicators exceed their critical thresholds, indicating a high risk of debt distress.
  - The present value (PV) of external public and publicly-guaranteed debt exceeds the 30 percent of GDP threshold starting in 2016 through the end of the projection horizon.
  - With projected steady decline in oil exports beyond the 2013–16 horizon:
    - PV of debt and debt service are expected to rise relative to exports.
    - PV of debt projected to exceed the critical threshold starting in 2018.
    - Debt service projected to exceed the critical threshold in 2026.
    - Both indicators remain above thresholds through the end of the projection period.
  - PV of debt and debt service in percent of revenues exceed their respective thresholds in 2022 and 2025, respectively.

### Stress tests and scenario analyses
- Shock scenario (key macro variables at their ten-year average values):
  - Debt burden indicators would quickly breach sustainability thresholds.
  - If authorities incur current account deficits far higher than FDI inflows in the oil sector, all three PV-based indicators would quickly breach thresholds by very high margins (Historical Scenario in Figure 1b, c, d; and Scenario A1 in Table 3b).
- Export (oil price) shock:
  - A two-standard-deviation lower oil price shock in 2013–14 would cause debt to breach all indicative debt burden thresholds (Most extreme shock in Figure 1 and B2 Bound Test in Table 3b).
- Customized stress test for additional large capital projects:
  - In addition to the $2 billion MFA (signed in August 2011), a contemplated $7 billion railroad project (letter of intent with a Chinese contractor) was analyzed.
  - If the railway project started in 2014 and was implemented over the next 10 years in addition to projects covered in the 2011 MFA, with no reduction in baseline spending and borrowing:
    - PV of debt-to-GDP would breach the 30 percent threshold in 2014 and peak in 2023 at 78 percent.
    - All critical thresholds would be breached under usual commercial terms (5.5 percent interest rate, 5 years grace period, 20 years maturity) and also under the most concessional terms (36 percent grant element; 1.5 percent interest rate, 5 years grace period, 20 years maturity).

### Alternative (Prudent) Scenario
- MFA implemented over ten years, with concessional terms (grant element of 35 percent), and $2 billion disbursed over ten years starting in late 2012.
- Under this scenario:
  - The projected decline in exports beyond the medium term is the most stringent constraint on Chad’s capacity to borrow.
  - To keep the PV of debt-to-exports ratio below 100 percent, other borrowing would need to be scaled back to about one-third of the amount assumed in the baseline scenario even if the grant element of new borrowing is about 20 percent.
  - With that constraint satisfied, all other indicators remain below their critical thresholds.
  - Even so, shock scenarios point to a moderate risk of debt distress; mitigation requires prudent fiscal policy and maintaining an adequate savings cushion to ensure debt service capacity in case of a sudden loss of oil revenue.
- Another alternative (in text elsewhere):
  - MFA with no collateral requirement and on concessional terms (grant element of 35 percent); borrowing beyond MFA also concessional and scaled back to approximately a half of baseline.
  - With savings not related to collateral requirements, financing needs met with lower additional domestic borrowing, projecting gross domestic debt to decline to 6 percent of GDP by 2017.

### Public debt DSA (including domestic debt)
- Domestic debt does not fundamentally change the assessment: external debt drives public debt indicators.
- Domestic debt component projected to increase from 9.5 percent of GDP in 2011 to 16.1 percent of GDP in 2032, reflecting increased residual financing needs when a portion of oil revenues is used as collateral.
- Public debt stock increases from about 36 percent of GDP in 2011–12 to 53 percent of GDP in 2032.
- Stress tests show current fiscal stance is not sustainable:
  - Even with ample oil revenues and assuming financing could be secured, debt path would increase steeply, leading to an unmanageable debt and debt-service burden (Fixed Primary Balance Scenario in Figure 2).
  - A temporary shock to real GDP growth in 2013-2014 would impair public debt sustainability (Most Extreme Shock in Figure 2 and Bound Test B1 in Table 2a).

### The authorities’ views
- Authorities expressed interest in debt relief through the HIPC process, citing Chad’s special post-conflict circumstances and the importance of public investment in infrastructure to long-term growth.
- Authorities are determined to pursue an accelerated development strategy financed through foreign borrowing on non-concessional terms and secured through oil receipts.
- Authorities downplay concerns about MFA debt sustainability implications:
  - They consider new oil developments will generate cash flow sufficient to meet MFA obligations.
  - They believe contemplated investments will generate significant positive economic externalities that would sustain non-oil growth at a level higher than 5 percent per annum assumed in the DSA projections.
  - Authorities intend to pursue their own debt sustainability analysis with consultants.

### Debt distress classification and conclusions
- Staff assessment: Chad faces a high risk of debt distress despite improved oil production and revenue prospects in the next few years.
- Under the baseline (current policies) scenario:
  - Overall public and external debt dynamics are not sustainable.
  - Significant increase in public external debt over the medium term reflects implementation of the MFA on non-concessional terms and continuation of large non-concessional borrowing for other public investment projects.
  - All public and publicly-guaranteed external debt and debt service indicators breach critical thresholds, even if hypothetical growth impacts of associated projects are included and fiscal adjustments are made to collateralize MFA disbursements.
- Under the alternative (prudent) scenario:
  - All indicative thresholds would be observed if MFA were implemented over ten years and on concessional terms.
  - To accommodate MFA disbursements, other borrowing would need to be mostly concessional and scaled back to about a half of the amount projected in the baseline scenario.
  - Even then, Chad remains sensitive to shocks, especially an oil price shock; stress test results remain a source of concern.

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

### 23.      Progress toward the HIPC completion point (including the improvement in the CPIA score)

### 23.      Progress toward the HIPC completion point (including the improvement in the CPIA score)

### Summary finding
- "Progress toward the HIPC completion point (including the improvement in the CPIA score) would substantially reduce Chad’s debt vulnerabilities. However, given the current weak record for fiscal policy implementation and the non-concessional nature of the MFA with the Eximbank of China, prospects for re-embarking on the path to debt relief under the HIPC process are remote."

### HIPC status and committed assistance (as reported)
- Decision point date: May 2001
- Assistance committed by all creditors (US$ million): 170.00
- Of which: IMF assistance (US$ million): 18.00
- IMF assistance (SDR equivalent in millions): 14.25
- Assistance disbursed to the member (SDR million): 8.55
  - Interim assistance: 8.55
  - Completion point balance: --
- Completion point date: Floating
- Additional disbursement of interest income: --
- Total disbursements (SDR million): 8.55

### Context in the debt sustainability analysis (selected implications from the DSA material)
- The DSA figures and scenarios in the annex underscore vulnerability of debt indicators under stress scenarios (e.g., PV of PPG external debt and debt-service ratios rise sharply under export shocks in projections to 2022 and 2032).
- Key constraints cited that diminish the likelihood of regaining the HIPC completion trajectory:
  - Weak record for fiscal policy implementation.
  - Non-concessional nature of the MFA with the Eximbank of China.

### Analytical emphasis in the source
- Achieving the HIPC completion point—together with improvements in the CPIA score—would have a material, beneficial effect on Chad’s debt profile.
- The current policy and financing mix, however, substantially reduce the practical prospects of reaching completion, despite the potential debt-relief gains.

*Source: Staff report section — “Progress toward the HIPC completion point (including the improvement in the CPIA score)” (IMF).*

### 1. Technical assistance for data

### _cr1387 - 1. Technical assistance for data

### Fund work program and planned technical assistance
- 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 (listed twice).
- CAS: June 2012.
- 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.
- 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.

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.

Agreement on 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 of data adequacy for surveillance
- General assessment: Data provision has capacity-related shortcomings, but is broadly adequate for surveillance. There is scope for improvement in quality, coverage, and timeliness in most macroeconomic datasets.
- Institutional capacity: The 2007 Report on the Observance of Standards and Codes (ROSC) found the statistical system weak and suffering from a shortage of both financial and human resources. Authorities have recently taken initiative to improve the macroeconomic database, particularly national accounts.
- National accounts:
  - Authorities revised national accounts estimates, moving from the 1968 System of National Accounts (SNA) to the 1993 SNA, for 2005–11.
  - Compilation remains weak owing to inadequate funding for the Institut National de la Statistique, des Etudes Economiques et Démographiques (INSEED).
  - Dissemination of data and metadata to the public could be improved by more timely releases and more detailed information.
- Price statistics:
  - The Harmonized Consumer Price Index (HCPI) is of rather good quality.
  - HCPI covers only the capital city and the reporting lag sometimes exceeds two months.
  - Regional authorities are working to improve HCPI quality in each CEMAC country.
- Government finance statistics:
  - Data weaknesses create uncertainty about the central government’s actual fiscal position and hamper debt sustainability analysis.
  - Staff must prepare estimates of central government financial operations from disparate administrative sources that may not fully reconcile with domestic bank financing or changes in net indebtedness.
- Monetary statistics:
  - Banque des Etats de L’Afrique Centrale (BEAC) reports expected core monetary and financial indicators within the expected lag, and began reporting data through the standardized report forms (SRFs) in June 2012.
  - Key shortcoming: lack of clear reconciliation between the domestic banking sector’s net credit to the government and the implicit financing in weak government financial accounts.
  - The depository corporations’ survey omits the large number of microfinance operations in the country.
- Balance of payments:
  - Weaknesses create uncertainty about Chad’s actual external position and hamper debt sustainability analysis.
  - Customs-based data are unreliable and suffer from coverage problems; they are not relied upon for balance of payments or national income estimation.
  - Staff supplement official balance of payments with estimates of current and capital flows from disparate administrative sources.
  - IMF Statistics Department recommended tighter coordination among CEMAC, INSEED, and other agencies to improve data coverage. BEAC headquarters is coordinating technical reforms to improve data quality and timeliness.

### Data standards, quality, and reporting
- GDDS participation: Chad has been a participant in the IMF’s GDDS since September 24, 2002. GDDS metadata and plans for improvement need to be updated.
- Data ROSC: A Data ROSC was published in August 2007.
- Reporting to STA (optional):
  - Only international liquidity, monetary statistics, GDP, and prices are currently reported to STA for publication in the International Financial Statistics (IFS).
  - 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 had yet to submit test monetary and financial statistics using the SRFs (as of text).
  - Chad has yet to submit BOP and IIP data to STA.

### Table of Common Indicators — selected observations and reporting status
- Exchange rates: Date of latest observation — Daily; Date received — Daily; Frequency of data — Daily.
- International reserve assets and reserve liabilities of the monetary authorities: Date of latest observation — 07/2012; Date received — 10/2012; Frequency of data/reporting/publication — M.
- Reserve/base money: 07/2012; 10/2012; M.
- Broad money: 07/2012; 10/2012; M (Frequency of reporting: QM).
- Central bank balance sheet: 07/2012; 10/2012; M.
- Consolidated balance sheet of the banking system: 07/2012; 10/2012; M.
- Interest rates: Date received — 10/2012; Date of latest observation — 11/2012; Frequencies include MI, QM, M (as tabulated).
- Consumer price index: 09/2012; 11/2012; M.
- Revenue, expenditure, balance and composition of financing — general government: 08/2012; 09/2012; Q.
- Revenue, expenditure, balance and composition of financing — central government: 08/2012; 09/2012; Q.
- Stocks of central government and central government-guaranteed debt: 08/2012; 04/2012; Q.
- External current account balance: 2011; 09/2012; A.
- Exports and imports of goods and services: 2011; 09/2012; A.
- GDP/GNP: 2011; 09/2012; A.
- Gross external debt: 12/2011; 09/2012; Bi-M.
- International investment position: NA.

### Public Information Notice highlights (selection)
- PIN No. 13/50, May 14, 2013: IMF Executive Board concluded the 2012 Article IV Consultation with Chad on a lapse of time basis (conclusion date: December 14, 2012).
- Background summary from the PIN:
  - Economic performance in 2011–12 marked by increased oil exploration, weather shocks, and coming on stream of several large industrial projects.
  - A severe drought provoked a food security crisis and a sharp increase in inflation in late 2011.
  - Some fiscal consolidation was achieved in 2011 but was largely reversed in 2012.
  - After a strong recovery in 2010, real gross domestic product (GDP) growth slowed to [text truncated in source].

*International Monetary Fund — _cr1387 - 1. Technical assistance for data*

### 1.7 percent in 2011 as oil production declined and the drought affected agricultural production.

### _cr1387 - 1.7 percent in 2011 as oil production declined and the drought affected agricultural production.

### Recent macroeconomic developments
- Real GDP growth slowed to 1.7 percent in 2011 as oil production declined and the drought affected agricultural production.
- The balance of payments posted a surplus in 2011, helped by high international prices of crude oil and the completion of several large, foreign-financed industrial projects.
- In 2012, real GDP growth is estimated to have rebounded to about 5½ percent, driven by the coming on stream of several industrial projects and a recovery in agriculture.
- Inflation is expected to drop to about 6 percent at year’s end in 2012, if the effects of the recent floods on food prices remain contained.

### Near- and medium-term outlook
- Near term: growth stimulated by public investments in infrastructure and by bringing on stream new oil developments.
- Medium term: oil production is expected to rise, with a corresponding increase in exports and government revenues.
- Risk: absent further oil discoveries, proven reserves will be exhausted in twenty years.

### Public finances and fiscal policy
- Repeated use of emergency spending procedures has led to significant budget overruns.
- Subsidies to public enterprises have surged; the policy framework for public enterprises remains a challenge.
- Public debt-to-GDP ratio increased significantly in recent years and will likely rise further over the medium term, reflecting the impact of the Master Facility Agreement (MFA) signed in 2011 with the Eximbank of China.
- The 2012 supplementary budget deviates from a sustainable path and entails a draw-down of the deposits at the Banque des Etats de l’Afrique Centrale, delaying realization of financial savings to protect Chad against the risk of a downward shift in international oil prices.
- Recommendation: the 2013 budget should be anchored on the objective of medium-term fiscal sustainability, taking into account the need to build a precautionary savings cushion.
- Staff recommends a non-oil primary deficit (NOPD) path in 2013 that is less constraining compared with the path in the 2011 Article IV consultation, but starting in 2013 and over the medium term a gradual tightening of the NOPD would be required to offset the expected decline in oil revenues over the long term.

### Public financial management (PFM) and public enterprises
- The budget does not accurately reflect the government’s economic policies; continued recourse to extra-budgetary spending undermines implementation of stated budget objectives.
- Lack of progress on PFM reforms entails unnecessary costs.
- Authorities should implement the PFM reform agenda, strengthen institutional, technical, and human capacities of the Ministry of Finance and Budget (MFB), and harmonize local practices with the new directives of the Communauté Economique et Monétaire de l’Afrique Centrale (CEMAC).
- Public enterprises: authorities’ intention to reduce subsidies is welcome; enterprises should have a degree of freedom in price setting consistent with cost recovery and a regulatory framework for healthy competition should be established.
- Oil refinery: crucial to find an export outlet for its excess production to increase capacity utilization and improve its financial condition.

### Debt sustainability and external financing
- Public domestic and external debt levels remain manageable for the time being, but scaling up foreign debt-financed public investment entails an elevated risk of debt distress.
- Authorities encouraged to calibrate public investment policy considering Chad’s debt service capacity and high vulnerability to oil price shocks.
- As a low income country, Chad should seek highly concessional terms for external loans.
- Authorities encouraged to seek to resolve incompatibility between the MFA and debt sustainability objectives.

### Financial sector
- Financial sector conditions improved since the 2011 Financial Sector Assessment Program mission owing to recapitalization of state-owned banks, strong growth of several private banks, and technological innovations including mobile banking.
- Private sector access to financial services remains limited and the banking system remains excessively exposed to the government.
- Short-term mitigation: banks encouraged to continue holding capital buffers in excess of the required minimum 8 percent.
- Medium-term solution: greater private sector participation, incentives for informal sector enterprises to migrate to the formal sector, strengthening of the centralized credit registry, and implementation of the anti-money laundering framework.

### Business climate and resilience to shocks
- Chad’s weak business climate is perceived as an obstacle to private sector development; the White Book by the National Council of Employers of Chad is an important step.
- Authorities encouraged to work with the business community to improve the legal environment for private enterprises, make tax policy more business-friendly, professionalize tax and customs administration, and develop key infrastructure.
- Vulnerability to weather shocks highlighted by the 2011 drought and recent floods; staff welcomes broadening of policy focus from emergency response toward building resilience.
- Recommendation: properly evaluate and provide for the cost of contemplated policies to address food security in the budget, including sufficient appropriations for the replenishment of buffer stocks and implementation of a multi-pronged strategy to strengthen resilience to weather shocks.

### Executive Board assessment (summary)
- Improved security, strong oil revenue receipts, and prospects for additional oil production create a unique opportunity to address development and poverty reduction needs.
- Chad needs a medium-term strategy to transform the oil windfall into sustainable growth for the non-oil economy, put in place a market-oriented policy framework for new enterprises, and introduce PFM reforms to optimize use of additional oil resources.
- The authorities are encouraged to uphold the central role of the budget, press ahead with PFM reforms, and strengthen MFB capacities.

### Key selected economic and financial indicators (2009–2013)
- GDP at constant prices: 2009 -1.2; 2010 13.0; 2011 0.5; 2012 5.4; 2013 7.7 (annual percentage change).
- Oil GDP: 2009 -5.1; 2010 6.4; 2011 -2.5; 2012 -1.3; 2013 11.3.
- Non-oil GDP: 2009 0.0; 2010 15.0; 2011 1.4; 2012 7.1; 2013 6.8.
- Consumer price index (period average): 2009 -2.1; 2010 -2.1; 2011 1.9; 2012 8.2; 2013 3.0.
- Consumer price index (end of period): 2009 4.7; 2010 -2.2; 2011 10.8; 2012 6.0; 2013 3.0.
- WEO oil price (US$/barrel): 2009 61.8; 2010 79.0; 2011 104.0; 2012 106.2; 2013 105.1.
- Chadian price (US$/barrel): 2009 55.5; 2010 73.6; 2011 97.7; 2012 103.7; 2013 100.1.
- Oil production (in millions of barrels): 2009 43.6; 2010 44.7; 2011 43.6; 2012 42.0; 2013 46.3.
- Overall balance of payments (in percent of GDP): 2009 -10.6; 2010 -4.2; 2011 3.4; 2012 -2.1; 2013 0.4.
- Current account balance, including official transfers (in percent of GDP): 2009 -18.3; 2010 -3.5; 2011 -1.0; 2012 -1.1; 2013 -3.3.
- External debt (in percent of GDP): 2009 23.0; 2010 25.0; 2011 26.4; 2012 27.6; 2013 26.8.
- NPV of external debt (in percent of exports of goods and services): 2009 39.7; 2010 48.1; 2011 56.7; 2012 58.9; 2013 61.5.
- Government finance (percent of non-oil GDP): Revenue 2009 25.2; 2010 38.7; 2011 46.5; 2012 40.3; 2013 36.2.
- Of which: non-oil revenue: 2009 12.0; 2010 12.5; 2011 11.0; 2012 10.4; 2013 10.9.
- Expenditure: 2009 46.1; 2010 49.9; 2011 44.9; 2012 49.5; 2013 44.6.
- Current expenditure: 2009 29.7; 2010 29.6; 2011 25.8; 2012 25.6; 2013 23.6.
- Capital expenditure: 2009 16.5; 2010 20.2; 2011 19.2; 2012 23.9; 2013 21.0.
- Non-oil primary balance (commitment basis, excl. grants): 2009 -28.1; 2010 -31.2; 2011 -28.1; 2012 -29.2; 2013 -25.0.
- Overall fiscal balance (excl. grants, commitments basis): 2009 -20.9; 2010 -11.2; 2011 1.6; 2012 -9.2; 2013 -8.4.
- Overall fiscal balance (excl. grants, cash basis): 2009 -20.8; 2010 -9.3; 2011 -2.3; 2012 -6.9; 2013 -8.6.
- Total debt (in percent of GDP): 2009 30.5; 2010 30.5; 2011 35.9; 2012 35.4; 2013 36.4.
- Of which: domestic debt: 2009 7.5; 2010 5.5; 2011 9.5; 2012 7.8; 2013 9.6.
- Nominal GDP (in billions of CFA francs): 2009 3,344; 2010 4,230; 2011 4,970; 2012 5,625; 2013 6,171.
- Of which: non-oil GDP (in billions of CFA francs): 2009 2,138; 2010 2,584; 2011 2,859; 2012 3,224; 2013 3,527.
- Nominal GDP (in billions of US$): 2009 7.1; 2010 8.6; 2011 10.5; 2012 10.9; 2013 11.7.
- Of which: non-oil GDP (in billions of US$): 2009 4.5; 2010 5.2; 2011 6.1; 2012 6.2; 2013 6.7.

*Source: IMF staff report for the 2012 Article IV Consultation with Chad (selected excerpts).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1387.pdf_