## _cr14100 ## Source details **Canonical URL:** [_cr14100](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14100.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14100.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14100.pdf.json) --- ### Introduction and development context - Per capita income has more than doubled since the start of oil production in 2002/03, but limited progress in overall poverty reduction and access to public services. - Chad ranked 184th out of 186 countries on the UN‘s 2013 Human Development Index. - Drivers of weak outcomes: domestic armed conflicts up to 2009; pro-cyclical fiscal policy transmitting oil revenue volatility to government expenditures; poor governance and unproductive/inefficient spending; infrastructure quality among the lowest in the region. - Relations with the international community strained until recently; Chad failed to achieve the HIPC Completion Point despite reaching the Decision Point in 2001. - Political/security: - Longest period of domestic political stability since independence. - Regional elections scheduled by 2015 and legislative and presidential elections by 2016. - Military outlays related to Mali intervention and replenishment requests estimated at CFAF 160 billion or 3.3 percent of non-oil GDP. - Staff-Monitored Program (SMP) approved July, 2013 with objectives to: - sustain macro improvements; - advance public financial management (PFM) reforms; - support Chad‘s new Poverty Reduction Strategy. - Authorities cancelled the US$2 billion non concessional Master Facility Agreement (MFA) with Eximbank China as part of SMP context. ### Recent economic developments (2013 highlights) - Growth and inflation: - Real GDP growth projected 3.6 percent in 2013 (down from 8.9 percent in 2012). - Non-oil GDP growth forecast 5 percent in 2013 (down from 11.6 percent in 2012). - Oil GDP likely contracted by 4 percent in 2013. - Annual average inflation around 0.4 percent toward end-2013 (compared with 7.7 percent in 2012). - Fiscal policy and deficits: - NOPD fell by 1 percent of non-oil GDP over 2011-12. - 2013 budget targeted NOPD of 18.2 percent of non-oil GDP; revised 2013 budget maintained target despite additional security spending of about 0.6 percent of non-oil GDP and downward revenue revisions (~2¼ percent and 1 percent of non-oil GDP). - Financing needs close to 7 percent of non-oil GDP accommodated via large placements of debt, withdrawal of Treasury deposits, and a 1.4 percent of non-oil GDP cut in primary expenditure. - NOPD over first nine months of 2013: 13.6 percent of annual non-oil GDP (in line with annual target). - Oil revenue expected about CFAF 120 billion (2.4 percent of non-oil GDP) below budget — implying overall fiscal deficit about 6 percent of non-oil GDP (compared to a surplus of 1.7 percent of non-oil GDP in 2012). - Causes of shortfall: setbacks to gas-powered electricity generation, delays in new fields/pipeline technical issues, receipt of royalties from CNPC as diesel. - Government signed oil sales advance agreements with Glencore Energy for US$600 million (4.5 percent of GDP) nonconcessional, repayable against crude shipments over next two years. - Oil advances primary factor behind total and external public debt increases to 30.2 percent and 23.2 percent of GDP, respectively. - Balance of oil sales advance at end-2013: about US$470 million. - Oil revenue shortfall: about US$240 million; financing shortfall from delays in domestic borrowing: about US$180 million. - 2014 budget and financing: - 2014 budget targets NOPD of 16.1 percent of non-oil GDP (down from 18.1 percent targeted for 2013). - Reduction to be achieved through non-oil revenue mobilization (0.4 percent of non-oil GDP), rationalization of domestic investment (1 percent), and rationalization of transfers (0.7 percent). - Including scheduled servicing of oil advances (about 2.4 percent of non-oil GDP) increases 2014 financing needs to about 4.9 percent of non-oil GDP (CFAF 260 billion). - External sector and reserves: - External current account deficit averaged 8 percent of GDP between 2009–2012; projected deteriorated to 8.8 percent of GDP in 2013. - Overall balance of payments recorded a deficit in 2013; international reserve coverage 1.7 months of imports (compared to 2.4 months in 2012). - Monetary and financial sector: - Broad money increased at an annualized 10 percent over first nine months of 2013; credit to economy recorded 29 percent annualized growth over same period. - Projections for 2013: broad money growth 8 percent; credit growth about 20 percent. - End-September 2013 ratios: broad money to non-oil GDP ~17 percent; credit to economy to non-oil GDP ~10 percent (vs 14 percent and 6 percent at beginning of 2012). - Financial soundness improvements after 2011 recapitalization: capital to risk-weighted assets 18.1 percent in 2012 (from 6.7 percent in 2010); nonperforming loans dropped; liquidity and profitability improved. ### Medium-term outlook, scenarios, and key projections - Oil-driven baseline: - Real GDP projected to grow around 9 percent per year over 2014–15 as new oil projects come on-stream. - Oil GDP projected to peak in 2016 and fall steadily thereafter absent new discoveries. - Non-oil GDP projected to grow ~5 percent per year over medium term. - Risks and exposure: - Oil dependence: more than 70 percent of fiscal revenues; 90 percent of total exports of goods; 30 percent of nominal GDP. - Reserve coverage about 1.7 months of imports at end-2013. - Regional security risks and oil shocks pose high downside risks to fiscal space and investor confidence. - Selected medium-term projection highlights (2013–2018 series): - Real GDP growth (percent per year): 3.6, 10.8, 7.3, 4.7, 3.6, 3.3. - Oil (growth/levels): -4.0, 37.0, 17.6, 3.2, -3.1, -5.3. - Non-oil (percent per year): 5.0, 6.5, 5.1, 5.1, 5.1, 5.2. - Consumer price inflation (percent per year): 0.4, 3.8, 3.0, 3.0, 3.0, 3.0. - External current account balance (percent of GDP): -8.8, -6.5, -6.8, -6.0, -6.5, -6.2. - Government revenue and grants (percent of non-oil GDP): 25.6, 28.7, 30.4, 28.3, 26.6, 24.5. - Of which oil revenue (percent of non-oil GDP): 14.6, 17.2, 18.7, 16.1, 14.0, 11.5. - Government expenditure (commitment basis, percent of non-oil GDP): 31.5, 29.5, 30.0, 29.4, 28.3, 28.3. - Overall fiscal balance (incl. grants; cash basis, percent of non-oil GDP): -6.0, -1.9, 0.6, -1.0, -1.7, -3.7. - Non-oil primary fiscal balance (excl. grants; commitment basis, percent of non-oil GDP): -18.2, -16.1, -15.0, -14.0, -12.5, -12.0. - Chadian crude oil price (US$/barrel): 103.4, 98.2, 93.5, 87.8, 84.9, 82.3 (2013–2018). - External competitiveness: - Standard metrics suggest non-oil REER over-valued by about 15-22 percent (Bems/Carvalho approach: 22 percent; external sustainability approach: 15 percent). - Competitiveness requires sustained fiscal adjustment and structural reforms given currency union membership. ### Public investment, DIGNAR simulations, and investment strategy - DIGNAR model features: two household types, three production sectors (traded, non-traded, oil), absorptive capacity constraints, government investment inefficiency parameter, time-varying depreciation to capture maintenance shortfalls. - Investment paths analyzed: - Gradual: public investment constant at 8 percent of non-resource GDP from 2013 to 2030. - Aggressive (frontloading): public investment jumps to 13.3 percent and remains above 11 percent prior to 2017. - Tax/financing scenarios: - Unconstrained taxes; - Strongly constrained taxes (labor tax ceiling 25 percent; consumption tax ceiling 18 percent); - Mildly constrained taxes (labor tax ceiling 25 percent; consumption tax ceiling 21 percent). - Main simulation findings (preserve numeric values): - Frontloading increases public capital faster but absorptive capacity constraints lower investment efficiency from 0.5 to below 0.4 initially. - Without sufficient later-period investment to cover recurrent costs, public capital depreciates over time. - Unconstrained taxes: debt-to-GDP stabilizes just above 50 percent by 2035. - Strongly constrained taxes: debt-to-GDP goes beyond 100 percent by 2035. - Mildly constrained taxes: prevents debt-to-GDP from exploding. - Fiscal buffers rise briefly to almost 6 percent of non-resource GDP; resource fund drawn down to minimal and eventually zero as resource revenues decline. - Recommendation: gradual public investment scaling-up more appropriate given financing constraints and risks. ### Debt sustainability, debt management, and HIPC/MDRI implications - Baseline DSA implications: - Total public debt falls to 23-26 percent of GDP by 2018, then rises and stabilizes around 33 percent of GDP by the 2030s under gradual scaling-back assumptions. - Except for PV of debt-to-exports, other external debt indicators remain below DSA prudential thresholds during projection period. - Risk of debt distress remains high due to breach of DSA prudential threshold (debt to exports) under baseline. - External debt burden indicators highly sensitive to a negative export shock (e.g., two-standard-deviation lower oil price over 2014-15). - Recent debt events: - Cancellation of US$2 billion MFA with Eximbank China improved outlook. - Contracting of US$600 million oil sales advances increased debt distress risks; operation lacked appropriate institutional coordination and proper recording. - 2014 financing gap: CFAF 260 billion; DSA illustrative assumption: financed by external concessional and domestic borrowing in equal proportions. - HIPC/MDRI: - MDRI-eligible relief could total about US$850 million in nominal terms and reduce debt service about US$40 million per year over next 20 years (estimates to be firmed up by debt reconciliation). - Chad reached HIPC Decision Point in May 2001; remaining HIPC relief from Fund estimated at SDR 8.5 million (including SDR 2.8 million interest and SDR 0.01 million interest on HIPC Umbrella Account). - Debt management institutional recommendations: - Reactivate and operationalize CONAD and ETAVID. - Centralize debt management within debt unit of ministry of finance; strengthen human resources, institutional stability, and debt data recording/reporting. - Prepare public debt management law. - Staff assessment: despite improved near-term oil prospects, Chad faces a high risk of debt distress unless prudent external borrowing policy adopted and fiscal adjustment sustained. ### Non-oil revenue potential and tax policy/admin reforms - Large non-oil tax potential: estimated tax capacity up to 24 percent of non-oil GDP in 2011 vs actual collections of 7.6 percent of non-oil GDP. - Implied non-oil tax effort: 32 percent (Chad) versus CEMAC regional average 67 percent. - If Chad raised effort to CEMAC regional average, non-oil revenue would increase by 8.5 percent of non-oil GDP. - Diagnostic metrics: - Between 2004–2011 Chad averaged less than 8 percent of non-oil GDP in non-oil revenue vs more than 13 percent in other oil-producing CEMAC countries. - C-efficiency for Chad in 2011: 5 percent (stagnant at ~5 percent between 2007–2011). - Tax elasticity of non-oil tax revenue to non-oil GDP (2004–2011): 1.2 for Chad. - Tax capacity for Chad in 2011: 24 percent of non-oil GDP; actual non-oil tax revenue 7.6 percent; tax effort 32 percent. - Corporate Income Tax rate: 40 percent; VAT rate: 18 percent; statutory payroll tax rate: 7.5 percent. - World Bank CPIA "Efficiency of Revenue Mobilization" score: 2.5 (2013). - Recommended tax policy measures: - Broaden tax base; review and harmonize exemptions with CEMAC; curb numerous VAT preferences; reduce CIT from 40 percent to 35 percent; reduce minimum flat tax from 1.5 percent to 1 percent; increase taxes on tobacco and luxury goods to 25 percent. - Tax administration reforms: - Strengthen large taxpayers unit; improve audit selection and quality; simplify and automate customs procedures; provide human and financial resources to revenue authority. - Authorities’ actions: - Since 2012 steps to reduce tax exemptions; automating major customs offices; Ministerial team to formulate recommendations by early 2014. ### Public Financial Management (PFM) reforms and cash management - Authorities acknowledge PFM weaknesses and implementing reform action plan with Fund TA inputs. - DAO (Direct Administrative Orders) measures: - Limiting use to true emergencies; systematic regularization; commission established; regulations issued; monitoring committee meeting regularly. - Cash management and systems: - Ministry proceeding to close non-essential government accounts at commercial banks. - Payment automation implemented. - Accounting IT system scheduled for deployment in 2014. - Reconciliation of central government deposits differences between treasury and BEAC identified; facilitates single treasury account establishment. - Monthly treasury cash management plan (three-month rolling horizon) unlikely to be achieved in 2013 due to complexities. - Shorter-term FAD TA proposed actions: phased elimination of budget complementary period; regularize DAOs; computerize accounting; improve budget reporting and treasury forecasting. - Expected benefits: fixing PFM issues could significantly boost non-oil growth prospects and spending efficiency. ### SMP performance, structural benchmarks, and program risks - SMP quantitative targets performance mixed: - Four out of seven indicators met for June; five out of seven for September. - NOPD target met for June and September with comfortable margins. - Floor for poverty-reducing social spending met with healthy margin. - Government did not accumulate domestic or external payment arrears. - Ceiling on net domestic government financing missed at end-June but back on track by September. - Debt-related breaches: - Oil sales advance operation caused breaches of ceilings on contracting/guaranteeing new non-concessional external debt and new guaranteed external debt for end-June and end-December test dates. - Revealed deficiencies in debt coordination and delayed reporting for budget formulation and SMP monitoring. - Structural benchmarks: - Draft 2014 budget submitted in October and approved in early January 2014 aligned with NOPD objectives (met). - Reconciliation of treasury and central bank data delayed to end-2013. - DAO evolution until end-October in line with objective of keeping them below 20 percent of domestically financed spending (excl. wages, debt service, security campaign). - Monthly treasury cash management plan and ETAVID/CONAD loan review requirements unlikely to be met in 2013. - Staff recommendations to cover 2014 financing gap: - Identify domestic and external concessional financing sources. - If resources not identified, additional adjustment needed: non-oil revenue measures and reduced expenditure envelope (domestic public investment, transfers and subsidies). - Protect domestic social spending in the budget representing 7.6 percent of non-oil GDP. ### Diversification, competitiveness, and social inclusion - Diversification and competitiveness: - Over-valued non-oil REER by about 15-22 percent; need sustained fiscal adjustment and structural reforms. - Business environment lags peers; key bottlenecks: infrastructure, labor quality, access to finance, unreliable electricity, port delays. - Non-oil exports dominated by cotton and livestock. - Recommendation: improve quality/composition of public spending, targeted support to agriculture/rural sectors, reform state-owned electricity and water enterprises, increase competitive bidding in public contracts. - Chad not EITI compliant; required to implement corrective actions (8 out of 20) by August 2014. - Social and poverty indicators: - Poverty headcount rate: 55 percent in 2003 to 47 percent in 2011. - Population growth rate: 3.5 percent per year over 2000-10. - Gini coefficient: 0.39 to 0.42. - National Development Plan (NDP) 2013–2015: PAP estimated cost (excluding salaries, goods and services) about US$7.4 billion; estimated funding gap about US$3.5 billion — donor roundtable planned later in 2014. - Grants to budget averaged 2.5 percent of non-oil GDP during 2010-12. - Less than 1 percent of NDP spending envelope devoted to social protection. - Financial inclusion: - Fewer than 22 depositors per 1000 adults (compared to 128 for SSA). - Fewer than 3 borrowers per 1000 adults (compared to 21 for SSA). - Less than 1 commercial bank branch per 100,000 adults (compared to 3.7 for SSA). - Microfinance institutions accounted for less than 3 percent of total credit to the economy in 2012. ### Data, statistics, and TA needs - Data provision: capacity-related shortcomings but broadly adequate for surveillance; scope to improve quality, coverage, timeliness. - National accounts: rebased to 2005 SNA; final annual accounts available until 2010; provisional figures for 2011–2012. - BOP and IIP: customs-based data unreliable; IIP not reported. - Authorities encouraged to request TA to improve macroeconomic databases and IIP reporting. - BEAC coordination and regional statistical efforts noted. ### Staff appraisal, Executive Board messages, and policy recommendations - Development challenge: Chad ranked 184th of 186 on UN HDI despite substantial oil revenues. - Fiscal strategy: - Continue gradual decline in NOPD toward 12-13 percent of non-oil GDP over medium-term. - Build fiscal buffers against oil volatility and regional security risks. - Revenue and expenditure measures: - Raise non-oil revenue via tax policy/design and administration reforms per FAD TA. - Improve spending quality by rationalizing investment plans, increasing operations and maintenance allocations, and relying more on competitive bidding. - Debt management: - Strengthen debt management and centralize debt approvals/operations. - Avoid future recourse to nonconcessional oil sale advances. - Pursue HIPC completion point to obtain debt relief and concessional access. - PFM urgency: - Accelerate PFM reform agenda (limit DAOs, computerize accounting, improve cash management) to catalyze donor support. ### Programmatic outlook and Fund engagement - SMP final assessment scheduled first quarter 2014. - Staff recommends next Article IV consultation be on regular 12-month cycle. - Fund work program next 12 months includes SMP assessment, potential ECF negotiation, and TA (FAD: PFM; STA: national accounts). - Authorities plan donor round-table in first half 2014 to help finance NDP and seek HIPC completion point support. ### Conclusion (policy priorities) - Institutional and financial constraints remain key impediments to development objectives. - Urgent need for assistance: domestic revenue mobilization, debt relief, external support while preserving debt sustainability. - Fund role: provide TA in fiscal area, catalyze donor resources, assist in HIPC requirements. - Authorities seek a Fund financial arrangement and continued engagement, with staff support for follow-up medium-term program under the ECF. *Source: IMF staff report (INTRODUCTION section and related chapters/excerpts provided in the supplied PDF excerpt).* ### INTRODUCTION _________________________________________________________________________________ 4 ### INTRODUCTION ### Key points on context and development challenges - Per capita income has more than doubled since the start of oil production in 2002/03, but Chad has achieved limited progress in overall poverty reduction and in improving access to public services (Table 8). - Chad is a fragile country with weak institutional and policy capacity, faces a trend decline in oil revenues, and is vulnerable to oil price and regional security shocks. - Chad was ranked 184th out of 186 countries on the UN‘s 2013 Human Development Index. - Drivers of weak human development outcomes despite significant oil revenues include: - domestic armed conflicts up to 2009; - a pro-cyclical fiscal policy transmitting oil revenue volatility to government expenditures; - poor governance and unproductive/inefficient spending; - despite substantial public investment, infrastructure quality remains among the lowest in the region. - Relations with the international community have been strained until very recently; Chad failed to achieve the HIPC Completion Point despite reaching the Decision Point in 2001. ### Political and security environment - Chad has experienced its longest period of domestic political stability since independence. - Regional elections scheduled by 2015 and legislative and presidential elections by 2016. - The government has mobilized resources in response to security tensions in neighboring countries (Sudan, Libya, Niger, Nigeria, the C.A.R.). - Chad contributed to international efforts in Mali; the intervention led to additional budgetary outlays in the first half of 2013, though the UN has taken over UN financing of operations in Mali. - The authorities requested international support to replenish military equipment deployed in Mali, estimated at CFAF 160 billion or 3.3 percent of non-oil GDP. - Recurrent spending pressures arise from border security and assistance to refugees from Niger, Nigeria, Sudan, and the C.A.R., including repatriation of Chadian citizens. ### Staff-Monitored Program (SMP) - A Staff-Monitored Program (SMP) was approved by Fund management in July, 2013. - SMP objectives: - sustain recent improvements in macroeconomic outcomes; - advance public financial management (PFM) reforms; - support implementation of Chad‘s new Poverty Reduction Strategy. - In this context, the authorities cancelled the US$2 billion non concessional Master Facility Agreement (MFA) with Eximbank China. - SMP envisages a further reduction in the non-oil primary deficit (NOPD) and implementation of key PFM reforms to improve fiscal control and debt and treasury management. - SMP implementation supported by stepped up Fund technical assistance. --- ### RECENT ECONOMIC DEVELOPMENTS ### Growth and inflation - Real GDP is projected to have grown by 3.6 percent in 2013, down from 8.9 percent in 2012. - Non-oil GDP growth is forecast to have fallen from 11.6 percent in 2012 to 5 percent in 2013. - Oil GDP would likely contract by 4 percent in 2013 due to a sharper than expected decline in oil production from mature fields operated by the Esso-led consortium. - Inflation fell sharply in 2013, with the annual average rate hovering around 0.4 percent toward the end of the year, compared with 7.7 percent in 2012. - The deceleration in inflation resulted mainly from a sizable fall in food prices after the 2012 bumper harvest, despite liberalization/increases to cost recovery levels for some prices (cement and fuel products). ### Fiscal policy and deficits - Fiscal policy has been gradually tightened over the last few years. - The non-oil primary deficit (NOPD) fell by 1 percent of non-oil GDP over 2011-12. - The 2013 budget targeted a further 1 percent of non-oil GDP reduction in the NOPD to 18.2 percent of non-oil GDP, based on a significant increase in non-oil revenue and a lower level of security-related spending. - The revised 2013 budget maintained the original NOPD target despite additional security spending of about 0.6 percent of non-oil GDP and downward revisions in oil and non-oil revenue projections (about 2¼ percent and 1 percent of non-oil GDP, respectively). - Resulting financing needs (close to 7 percent of non-oil GDP) were to be accommodated through: - large placements of debt in regional markets; - withdrawal of Treasury deposits; - a moderate cut in primary expenditure (1.4 percent of non-oil GDP). - NOPD over the first nine months of 2013 was 13.6 percent of annual non-oil GDP, in line with the budget annual target. - Oil revenues are expected to be about CFAF 120 billion (2.4 percent of non-oil GDP) below budget target, implying an overall fiscal deficit of about 6 percent of non-oil GDP (compared to a surplus of 1.7 percent of non-oil GDP in 2012). - Causes of the oil revenue shortfall include: - setbacks to the gas-powered electricity generation system forcing lower production and higher production costs (diesel and fuel oil); - delays in start of production of new fields and technical issues with the pipeline; - receipt of royalties due from CNPC in the form of diesel for electricity generation. - To address financing, the government signed oil sales‘ advance agreements with a commercial partner (Glencore Energy) for a total of US$600 million (4.5 percent of GDP) on nonconcessional terms to be repaid against crude oil shipments over the next two years. - These oil advances were the primary factor behind increases in total and external public debt to 30.2 percent and 23.2 percent of GDP, respectively. - The balance of the oil sales advance at the end of 2013 was about US$470 million. - The oil revenue shortfall was about US$240 million and the financing shortfall from delays in domestic borrowing was about US$180 million. ### 2014 budget and financing needs - The 2014 budget targets an NOPD of 16.1 percent of non-oil GDP (down from the 18.1 percent targeted for 2013). - The 2014 NOPD reduction to be achieved through: - non-oil revenue mobilization (0.4 percent of non-oil GDP); - rationalization of domestic investment (1 percent of non-oil GDP); - rationalization of transfers (0.7 percent of non-oil GDP). - Including scheduled servicing of the oil advances (about 2.4 percent of non-oil GDP)—not reflected in the original budget—increases 2014 financing needs to about 4.9 percent of non-oil GDP (CFAF 260 billion). ### External sector and reserves - The external current account deficit averaged 8 percent of GDP between 2009 and 2012 and is projected to have deteriorated to 8.8 percent of GDP in 2013 due to the drop in oil exports. - These current account deficits have been largely financed by foreign direct investment and, in some years, partially by capital transfers. - The overall balance of payments recorded a deficit in 2013, the first time since 2009, bringing international reserve coverage to 1.7 months of imports of goods and services (compared to 2.4 months in 2012). ### Monetary and financial sector developments - Broad money increased at an annualized rate of 10 percent over the first nine months of 2013; credit to the economy recorded a 29 percent annualized growth rate over the same period. - Projections for 2013: broad money to grow by 8 percent and credit to the economy by about 20 percent. - Financial intermediation levels improved but remain low: - At end-September 2013, ratios of broad money and credit to the economy to non-oil GDP were about 17 percent and 10 percent, respectively (compared to 14 percent and 6 percent at beginning of 2012). - Financial soundness indicators improved after 2011 recapitalization of state-owned banks: - Capital to risk-weighted assets ratio rose from 6.7 percent in 2010 to 18.1 percent in 2012; - Nonperforming loans dropped, liquidity increased, and profitability indicators improved slightly (particularly for larger banks). Box 1. The Implementation of the 2012 Article IV Recommendations (selected outcomes) - Fiscal policy and sustainability: - Staff called for gradual tightening of the NOPD to build precautionary buffers. - The 2012 fiscal outcome, the 2013 revised budget, and the 2014 budget are in line with steady reduction of the NOPD. - Authorities cancelled the US$2 billion non concessional MFA with Eximbank China; however, US$600 million in oil sales‘ advances were contracted on commercial terms in 2013, keeping debt distress risks high. - Public financial management (PFM): - Staff recommended upholding the central role of the budget, restricting emergency spending procedures (DAO), introducing a treasury cash flow plan, observing the public procurement code, and strengthening institutional capacity. - PFM reform agenda has advanced; DAOs have shown ups and downs, measures are being introduced to limit and regularize DAOs, establishment of monthly cash management plans is underway but delayed partly due to procurement plan integration difficulties; a sizable share of contracts continues to be awarded without competitive bidding. - Business climate: - Staff advised working with the business community on the White Book of the National Council of Employers of Chad (CNPT) and reducing government transfers to public enterprises while increasing price-setting freedom. - Limited progress on the White Book; noted liberalization of cement prices and setting of fuel prices at cost recovery levels. - Financial sector stability and development: - Recommendations included encouraging greater credit exposure to private companies, maintaining bank capital buffers above the required minimum 8 percent, strengthening the centralized credit registry, and implementing the anti-money laundering framework. - No significant progress in these areas, though financial system indicators improved. --- ### MEDIUM-TERM OUTLOOK AND RISKS ### Oil-driven scenario and growth projections - The medium-term outlook is driven by expected swings in oil production and associated fiscal revenue. - Real GDP is projected to grow at around 9 percent per year over 2014–15 as new oil-related projects come fully on-stream. - Connectivity of new fields to the Chad-Cameroon pipeline is proceeding smoothly and a revised pipeline tariff schedule has been agreed that provides for reduced transport fees. - Oil GDP is projected to peak in 2016 and fall steadily thereafter absent new oil discoveries. - The Esso-led consortium is focusing its investment plan on smoothing the fall in production. - Expansion in exploration by new operators will hinge on availability of financial resources, stability of the fiscal regime, and feasibility of extending the pipeline‘s coverage. ### Non-oil growth drivers - Non-oil GDP is projected to grow by around 5 percent per year over the medium term, consistent with recent average growth. - Non-oil growth driven by agriculture, commerce, and transportation. - Agricultural production is projected to benefit from: - mechanization investments introduced as part of food security programs; - recent restructuring of Cotontchad, expected to lead to a sustained increase in cotton production over the medium-term. *Source: IMF staff report (INTRODUCTION section).* ### 11. The main sources of risk to the outlook stem from the volatility of fiscal oil revenue ### 11. The main sources of risk to the outlook stem from the volatility of fiscal oil revenue ### Main sources of risk - High dependence on oil: - more than 70 percent of fiscal revenues - 90 percent of total exports of goods - 30 percent of nominal GDP - Consequences of oil shocks: - negative oil price and production shocks would force downward adjustments to public investment plans and reduce the availability of foreign exchange - Regional security risks: - continued elevated levels of security spending - damage to investor confidence, leading to reduced public and private investments and constraining the government‘s ability to address other pressing social needs - Reserve coverage: - about 1.7 months of imports of goods and services at the end of 2013 ### Medium-term projections and key macro figures (text table highlights) - Real GDP growth (percent per year): 3.6, 10.8, 7.3, 4.7, 3.6, 3.3 (for 2013–2018 respectively) - Oil: -4.0, 37.0, 17.6, 3.2, -3.1, -5.3 (for 2013–2018 respectively) - Non-oil: 5.0, 6.5, 5.1, 5.1, 5.1, 5.2 (for 2013–2018 respectively) - Consumer price inflation (percent per year): 0.4, 3.8, 3.0, 3.0, 3.0, 3.0 (for 2013–2018 respectively) - External current account balance (percent of GDP): -8.8, -6.5, -6.8, -6.0, -6.5, -6.2 (for 2013–2018 respectively) - Government revenue and grants: 25.6, 28.7, 30.4, 28.3, 26.6, 24.5 (percent of non-oil GDP for 2013–2018) - Of which: oil revenue: 14.6, 17.2, 18.7, 16.1, 14.0, 11.5 (percent of non-oil GDP for 2013–2018) - Of which: grants: 2.5, 2.7, 2.6, 2.6, 2.6, 2.6 (percent of non-oil GDP for 2013–2018) - Government expenditure (commitment basis): 31.5, 29.5, 30.0, 29.4, 28.3, 28.3 (percent of non-oil GDP for 2013–2018) - Overall fiscal balance (incl. grants; cash basis): -6.0, -1.9, 0.6, -1.0, -1.7, -3.7 (percent of non-oil GDP for 2013–2018) - Non-oil primary fiscal balance (excl. grants; commitment basis): -18.2, -16.1, -15.0, -14.0, -12.5, -12.0 (percent of non-oil GDP for 2013–2018) - Memorandum item — Chadian crude oil price (US$/barrel): 103.4, 98.2, 93.5, 87.8, 84.9, 82.3 (for 2013–2018) - Source for projections: Chadian authorities; and IMF staff estimates and projections ### External stability and competitiveness - Foreign exchange flows hinge critically on oil exports; FDI linked to oil activities; donor support relatively stable but low - External debt sustainability: - improved after cancellation of the MFA with Eximbank China - negatively affected by contracting of oil sales‘ advances - External competitiveness assessment: - Standard metrics suggest Chad‘s non-oil real effective exchange rate (REER) could be over-valued by about 15-22 percent - This over-valuation is higher than the REER over-valuation estimated for the CEMAC as a whole - Given membership in a currency union, achievement of external sustainability requires: - sustained fiscal adjustment - structural competitiveness reforms - Broader competitiveness constraints: - non-oil exports remain dominated by a narrow range of products (cotton, livestock) - business environment lags regional peers on standard indicators ### Exchange rate and external competitiveness (Box 2 findings) - Two empirical approaches used: - Bems/Carvalho (2009) constant real annuity (PIH for resource-rich countries) - External sustainability approach (current account norm consistent with long-term net foreign assets trend) - Results: - Bems/Carvalho approach: Chad‘s REER at 22 percent deviation from equilibrium (overvaluation) - External sustainability approach: overvaluation of 15 percent - Both approaches do not account for the impact of public investment on growth; if public investment is productive, estimated overvaluation is accentuated ### Development challenge and fiscal outlook - Core constraints: - projected decline in fiscal oil revenues - low non-oil revenues relative to regional oil exporters - weak public investment process compared to other LICs - Staff baseline scenario: - foresees gradual fiscal adjustment as oil revenues diminish and absorptive capacity improves - fall in the NOPD to 12 percent of non-oil GDP by 2018 and to 6 percent by 2023 consistent with achieving debt sustainability - allow accumulation of fiscal buffers of about 3 percent of non-oil GDP by 2018 - eventual HIPC debt relief would provide additional fiscal space - 2014 financing gap: - staff recommended identifying domestic and external concessional financing sources - additional adjustment may be needed if resources are not identified, including non-oil revenue measures and reduced expenditure envelope (particularly on domestic public investment and transfers and subsidies) - domestic social spending in the budget represents 7.6 percent of non-oil GDP and should be protected ### Authorities' views on oil projections and fiscal space - Authorities consider staff’s oil revenue projections overly conservative - Expect steadier oil production due to exploration activities in new fields and potential new exploration rounds after geological mapping - Consider staff-recommended fiscal adjustment over medium and long terms too aggressive and believe they have additional space for public investment ### Public investment, DIGNAR model results (Box 3) - DIGNAR model accounts for scaled-up investment impact on growth, financing contractionary effects of taxation, and capacity constraints via a low public investment efficiency parameter - Two investment paths simulated: gradual and aggressive (frontloading) - Three tax/financing scenarios: (i) unconstrained tax, (ii) strongly constrained, (iii) mildly constrained - Main results: - Increasing non-oil revenues is critical to ensuring public debt sustainability - Frontloading yields faster capital buildup but absorptive capacity constraints dampen investment efficiency - Gradual approach produces slower but more efficient capital creation with reduced threats to debt sustainability - Improvements in public investment efficiency (PIMI) via PFM reforms and improved procurement increase growth returns and reduce debt burdens ### Debt sustainability and debt management - Baseline DSA implications: - total public debt falls initially to 23-26 percent of GDP by 2018, then rises and stabilizes around 33 percent of GDP by the 2030s under gradual scaling-back assumptions - with the exception of PV of debt-to-exports ratios, other external debt indicators remain below DSA prudential thresholds during the projection period - risk of debt distress remains high due to breach of DSA prudential threshold (debt to exports) under the baseline - external debt burden indicators are highly sensitive to a negative export shock (e.g., a two-standard-deviation lower oil price over 2014-15) - Measures and institutional issues: - fragmentation in approval and signature responsibilities for debt operations creates risks - contracting of oil sales advances in 2013 lacked appropriate institutional coordination and was not properly recorded in debt statistics - authorities intend to reactivate and operationalize CONAD (inter-ministerial committee) and ETAVID (technical unit) for debt sustainability - critical to centralize debt management within the debt unit of the ministry of finance and strengthen human resources, institutional stability, and debt data recording/reporting - Authorities’ stance: - committed to maintaining debt sustainability and enhancing debt management - cancellation of the MFA with Eximbank China cited as signal of this commitment - stressed need for access to external financing given large development needs; reaching HIPC completion point seen as critical - acknowledged borrowing coordination problems (e.g., Glencore Energy operation) and cited extraordinary circumstances for non-concessional borrowing in 2013 - working on a public debt management law to clarify responsibilities; World Bank to provide technical assistance ### Increasing fiscal space — non-oil revenue potential (Section C and Box 4) - Large non-oil tax collection gap: - Staff analysis estimates non-oil tax potential up to 24 percent of non-oil GDP in 2011 versus actual collections of 7.6 percent of non-oil GDP - Implied non-oil tax effort of 32 percent (Chad) versus CEMAC regional average of 67 percent - If Chad raised non-oil tax effort to the CEMAC regional average, non-oil revenue would increase by 8.5 percent of non-oil GDP - Diagnostic findings: - between 2004 and 2011, Chad averaged less than 8 percent of non-oil GDP in non-oil revenue, compared with more than 13 percent in other oil-producing CEMAC countries - lowest efficiency rates in tax revenue collection in the region: very low C-efficiency and low ranking on World Bank “ease of Paying Taxes” and CPIA “Efficiency of Revenue Mobilization” - Policy and administration reforms recommended: - tax policy reforms: broaden tax base, minimize discretionary actions in tax policy design, simplify tax structure - tax administration reforms: strengthen large taxpayers unit, improve selection criteria and quality of audits, simplify and automate customs procedures, strengthen human and financial resources at the revenue authority - Authorities’ actions: - since 2012, steps to reduce tax exemptions (remaining exemptions mainly relate to pre-2012 concessions) - moving to harmonize tax code and exemptions with CEMAC agreements - automating major customs offices (including Cameroon border) following automation of the N‘Djamena office - Minister of Finance and Budget set up a team to formulate recommendations (due by early 2014) on mobilizing non-oil revenue - committed to implement IMF TA recommendations on enhancing tax revenue ### Strengthening Public Financial Management (Section D) - Key weaknesses: - budget execution hampered by extensive use of emergency spending procedures (DAOs) and cash flow management difficulties due to volatility of oil revenue and irregular seasonality of spending - accounting process still manual; fiscal reporting limited (no formal procedure for frequent reporting on budget execution) - capacity weaknesses in appraisal and selection of investment projects - low reliance on competitive bidding for public contracts: only 46 percent of contracts (accounting for 18 percent of total value of contracts) awarded through competitive bidding in 2012 - low allocation to operational and maintenance resources undermines effectiveness of spending - Shorter-term FAD TA proposed actions: - improve spending procedures (phased elimination of the budget‘s complementary period; systematic regularization of DAOs) - improve reliability of accounting through computerization - enhance quality and frequency of budget reporting tools - improve treasury management and forecasting - Expected benefits: - fixing PFM issues could give a significant boost to non-oil growth prospects and improve spending efficiency *Source: IMF staff report — chapter content provided in the supplied PDF excerpt.* ### 24. The authorities acknowledge weaknesses in their PFM systems and are implementing a ### _cr14100 - 24. The authorities acknowledge weaknesses in their PFM systems and are implementing a ### Public Financial Management (PFM) reforms and cash management - Authorities acknowledge weaknesses in PFM systems and are implementing a reform action plan drawing on Fund technical assistance recommendations. - Efforts on Direct Administrative Orders (DAOs): - Limiting use to true emergencies. - Systematically regularizing DAOs; a commission established to ensure swift regularization (stemming from FAD technical assistance). - Regulations issued to limit DAO use and a monitoring committee established and meeting regularly. - Cash management measures: - Ministry of finance proceeding to close non-essential government accounts at commercial banks. - Payment automation successfully implemented. - An accounting IT system scheduled to be deployed in 2014. - Outstanding PFM actions and issues: - Accounts at commercial banks that led to differences in central government deposits between the treasury and BEAC have been identified; this should facilitate establishment of a single treasury account. - Additional work needed to reconcile differences in central government liabilities to commercial banks. - Preparation and updating of a monthly treasury cash management plan (with a three-month rolling horizon) is unlikely to be achieved in 2013 due to institutional and forecasting complexities. - Phasing out of the budget’s complementary period, streamlining of DAOs, and computerization of the whole expenditure chain are highlighted as priorities. ### Diversification and inclusive growth: macro and social context - Non-oil economic growth: - Non-oil growth over the last decade described as relatively high but volatile and not very inclusive. - Volatility drivers: pro-cyclical fiscal policy driven by oil revenues; agricultural vulnerability to climate; armed conflicts between 2004 and 2010; difficulties in the cotton sector. - Poverty and inequality: - Poverty headcount rate: from 55 percent in 2003 to 47 percent in 2011. - Population growth rate: 3.5 percent per year over 2000-10. - Gini coefficient changed from 0.39 to 0.42. - Poverty reduction faster in urban than rural areas; poverty remains more than twice as widespread in rural areas. - Note: 2011 survey results probably affected by impact of a drought on agricultural production. - National Development Plan (NDP) and Priority Action Plan (PAP): - NDP 2013–2015 aims: sustain economic growth and improve quality of life, especially for rural population, women, and youth. - PAP estimated cost (excluding salaries, goods and services): about US$7.4 billion. - Authorities intend to organize a donor roundtable later in 2014 to help cover an estimated funding gap of about US$3.5 billion. - Grants to the budget averaged 2.5 percent of non-oil GDP during 2010-12. - Government focus: modernization, mechanization, agricultural inputs distribution, ambitious public investment in transport, energy, housing, and regional connective infrastructure; social development including universal access to basic health and education, water supply and sanitation. - Public investment and social protection: - Government has focused on building infrastructure at relatively high cost (2010 World Bank public expenditure review). - Less than 1 percent of the spending envelope under the NDP is devoted to social protection. ### Competitiveness and business environment - General assessment: - Limited progress in improving business climate; Chad trails peers in most Doing Business dimensions, particularly in starting a business, enforcing contracts, paying taxes, and trading across borders. - Bottlenecks: infrastructure, labor quality, access to finance, unreliable electricity, long delays at the port of Douala. - Public investment and priorities: - Public investment in roads has positively connected Chad domestically and regionally; continued focus on basic infrastructure services (e.g., access to safe water and sanitation) needed. - Improve budgetary allocation for operations and maintenance to enhance public capital rate of return. - Agriculture and state-owned enterprise reform: - Agriculture and livestock identified as sectors with strong growth and export potential; priority to enhance service provision to rural communities and food security. - Reforming electricity and water state-owned enterprises recommended to increase reliability and access. - Transparency and procurement: - Enhance transparency of government operations; World Bank Transparency Index ranks Chad very low. - Government committed to increase use of competitive bidding in public contracts and to restart publication of procurement bulletins (publication restart in 2014 noted as a “quick win” and HIPC completion point trigger). - Oil revenue transparency: operations of the Esso Consortium were reasonably monitorable under the Petroleum Revenue Management Program, but entry of new oil producers under diverse fiscal regimes creates challenges. - Chad has not achieved EITI compliance and was asked to implement corrective actions and outstanding requirements (8 out of 20) by August 2014. - Authorities’ views: - Authorities acknowledge need to further improve business environment; NDP includes private sector proposals and intends coordinated implementation with private sector. - Food security initiatives after the 2011 drought considered important inclusive growth policies. - National strategy for social protection soon-to-be-finalized, aiming to formulate specific programs in social assistance, employment, food security, and access to health and education services. ### Financial inclusion and financial sector issues - Key indicators of limited financial access: - Fewer than 22 depositors per 1000 adults (compared to 128 for SSA). - Fewer than 3 borrowers per 1000 adults (compared to 21 for SSA). - Less than 1 commercial bank branch per 100,000 adults (compared to 3.7 for SSA). - Microfinance institutions accounted for less than 3 percent of total credit to the economy in 2012. - Pending reforms and needs: - Responses to 2011 FSAP recommendations on borrower information and commercial dispute resolution are still pending. - An adequate credit reporting system still needs to be developed. - Need to build hard and soft infrastructures (legal and information institutions) to scale and improve microfinance institutions. - Authorities’ views: - Authorities note enhanced stability of the banking system and efforts to increase access to financial services. - State-owned bank conditions improved after restructuring; microfinance seen as an important component of national financial inclusion strategy. - More efforts required to increase access in remote areas. ### Staff-Monitored Program (SMP) performance and structural benchmarks - Quantitative target performance: - Mixed performance: most targets met but fiscal outcomes affected by unexpected shortfall in oil revenue and resort to oil sales advances. - Four out of seven indicators met for June and five out of seven for September. - Indicator on underlying fiscal policy stance (NOPD) met for June and September with comfortable margins. - Non-oil revenue performance good, particularly domestic taxes department collections. - Floor for poverty-reducing social spending met with a healthy margin. - Government did not accumulate domestic or external payment arrears over the period. - Ceiling on net domestic government financing missed at end-June but back on track by September. - Debt-related breaches and coordination issues: - Oil sales advance operation caused continuous ceilings on contracting/guaranteeing new non-concessional external debt and on new guaranteed external debt to be not observed for end-June and end-December test dates. - Operation revealed deficiencies in coordination of debt management and delayed reporting for budget formulation and SMP monitoring. - Structural benchmarks status: - Draft 2014 budget submitted to National Assembly in October and approved in early January 2014 was in line with NOPD objectives. - Reconciliation of treasury and central bank data on net claims of the banking system on government at end-2012 likely to be met by end-2013 instead of September 2013. - Evolution of DAOs until end-October was in line with SMP objective of keeping them below 20 percent of domestically financed spending (excluding wages, debt service, and security spending linked to the campaign in Mali). - Preparation of monthly treasury cash management plan (three-month rolling horizon) unlikely to be achieved in 2013. - Requirement for all new loan proposals to be examined by ETAVID and CONAD is unlikely to be met; expected support from a new government decree was not realized. - Final SMP assessment: - Final assessment scheduled in first quarter of 2014. - Authorities expect to meet the NOPD target for 2013 despite spending pressures from regional security situation and high execution rates in transfers and subsidies. - Authorities noted momentum in PFM reforms following FAD technical assistance, particularly DAO monitoring and implementation of automated payment and accounting systems. ### Staff appraisal and policy recommendations - Developmental challenge: - Chad ranked 184th out of 186 countries in the UN‘s 2013 Human Development Index despite substantial oil fiscal revenues over the past decade. - Non-oil growth solid but volatile; moderate poverty reduction with total number of poor increasing due to high population growth. - Fiscal strategy and targets: - Recommendation to continue targeting a steady decline in the non-oil primary deficit (NOPD) toward 12-13 percent of non-oil GDP over the medium-term. - Rationale: projected trend decline in oil revenue and need to build fiscal buffers against oil price volatility and regional security risks. - Revenue and expenditure measures: - Substantial fiscal space can be created by increasing non-oil revenue collection and improving quality of government spending. - Increase non-oil revenue through tax policy design enhancements (e.g., streamlining exemptions) and revenue and customs administration improvements in line with FAD technical assistance. - Improve quality of spending by rationalizing investment plans, increasing allocations for operations and maintenance, and greater reliance on competitive bidding in public contracts. - Debt management: - Strengthen debt management to ensure debt sustainability. - Staff notes decision to cancel Master Facility Agreement with Eximbank China as important for debt sustainability. - Recent non-concessional borrowing that collateralized future oil receipts maintains high debt distress risk and reinforces need for institutional reforms to centralize debt approval and operational management and to strengthen the debt unit at the ministry of finance. - Authorities encouraged to implement recent policy decisions, including reactivation of an inter-ministerial committee for debt analysis. - PFM reform urgency: - PFM reforms crucial to ensure fiscal discipline and improve spending quality. - PFM weaknesses: extensive use of emergency spending procedures (DAOs), cash flow management difficulties, manual accounting, and limited fiscal reporting. - Accelerated implementation of PFM reform agenda welcome; critical steps remain to catalyze increased donor support. *IMF staff report content (chapter/section).* ### 41. Greater diversification of the economy would enable more inclusive growth. Staff ### 41. Greater diversification of the economy would enable more inclusive growth. Staff ### Assessment of diversification and competitiveness - Staff analysis based on standard empirical metrics suggests that Chad has an over-valued real exchange rate (Box 2). - Given Chad‘s membership in a currency union, achievement of external sustainability would require a sustained fiscal adjustment and structural competitiveness reforms. - A key step to enhance productive potential is to create a more conducive business environment for the private sector. - Specific proposals in the “White Book” prepared by private employers still provide useful benchmarks for policy action. - While substantial progress has been made in roads infrastructure, electricity provision remains a key bottleneck requiring sustained efforts over the longer term. - Increased government effectiveness in terms of the quality and composition of public spending and targeted support to agricultural and rural sectors would help make growth more inclusive. - Diversification and inclusiveness will also require further financial development and increased access to financial services, including by putting in place legal and information institutions to increase the scale and efficiency of microfinance institutions. ### Performance under the SMP and fiscal/financing risks - Performance under the SMP has been affected by an unexpected shortfall in oil revenue and the resort to oil sales advances. - Five out of the seven indicators were met for September (four out of seven had been met for June). - Indicators concerning the underlying fiscal policy stance (the NOPD), the level of poverty spending, and the pace of arrears clearance have all been observed with comfortable margins for June and September. - However, the oil sales advance operation resulted in breaches for the debt targets and has led to a significant increase in financing needs in the approved 2014 budget. - Those financing needs surpass potentially available domestic and nonconcessional financing sources, leading to a sizable financing gap. - The authorities are strongly encouraged to identify corrective actions to cover this gap, in particular through additional fiscal adjustment (i.e., cuts in domestically-financed investment and in transfers and subsidies, increases in non-oil revenue) and an acceleration of the structural reform agenda—including on debt management (¶39). - Most structural benchmarks are expected to be met. ### Data and statistical capacity - 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. - The authorities have recently taken the initiative to improve macroeconomic databases, particularly the national accounts. - Data on the international investment position (IIP) is not reported, reflecting a lack of capacity. - The authorities are encouraged to request technical assistance to overcome this limitation. *Staff analysis excerpts from the source content.* ### 44. Staff recommends that the next Article IV consultation with Chad be held on the ### Staff recommends that the next Article IV consultation with Chad be held on the regular 12-month consultation cycle. ### Recommendation - Staff recommends that the next Article IV consultation with Chad be held on the regular 12-month consultation cycle. ### Real economy: growth and prices - Total GDP (annual percentage change): 4.2 (2009), 13.5 (2010), 0.1 (2011), 8.9 (2012), 3.6 (2013), 10.8 (2014), 7.3 (2015 Prel.), 4.7 (2016 Prog.), 3.6 (2017 Proj.), 3.3 (2018). - Oil GDP (annual percentage change): -3.7 (2009), -1.1 (2010), -0.4 (2011), -4.0 (2012), 3.5 (2013), -4.0 (2014), 37.0 (2015 Prel.), 17.6 (2016 Prog.), 3.2 (2017 Proj.), -3.1 (2018). - Non-oil GDP (annual percentage change): 6.4 (2009), 17.2 (2010), 0.2 (2011), 11.6 (2012), 4.0 (2013), 5.0 (2014), 6.5 (2015 Prel.), 5.1 (2016 Prog.), 5.1 (2017 Proj.), 5.2 (2018). - Consumer price index (period average): 10.1 (2009), -2.1 (2010), 1.9 (2011), 7.7 (2012), 2.6 (2013), 0.4 (2014), 3.8 (2015 Prel.), 3.0 (2016 Prog.), 3.0 (2017 Proj.), 3.0 (2018). - Consumer price index (end of period): 4.7 (2009), -2.2 (2010), 10.8 (2011), 2.1 (2012), 5.0 (2013), 2.5 (2014), 3.2 (2015 Prel.), 3.0 (2016 Prog.), 3.0 (2017 Proj.), 3.0 (2018). ### Oil sector and production - WEO oil price (US$/barrel): 61.8 (2009), 79.0 (2010), 104.0 (2011), 105.0 (2012), 102.5 (2013), 104.1 (2014), 99.3 (2015), 94.2 (2016), 89.7 (2017), 86.5 (2018), 84.4 (later projections listed). - Chadian price (US$/barrel): 55.5 (2009), 73.6 (2010), 97.7 (2011), 102.0 (2012), 100.4 (2013), 103.4 (2014), 98.2 (2015), 93.5 (2016), 87.8 (2017), 84.9 (2018), 82.3 (later). - Oil production (millions of barrels): 43.6 (2009), 44.7 (2010), 43.6 (2011), 41.2 (2012), 38.6 (2013), 36.0 (2014), 52.0 (2015 Prel.), 62.1 (2016 Prog.), 64.1 (2017 Proj.), 61.7 (2018). ### Money and credit - Net foreign assets (percent change of broad money beginning stock): -74.7 (2009), 13.3 (2010), 25.3 (2011), 14.8 (2012), -10.2 (2013), -12.0 (2014), 0.9 (2015 Prel.), 5.6 (2016 Prog.), 5.0 (2017 Proj.), 1.0 (2018). - Net domestic assets: 70.1 (2009), 12.0 (2010), -11.0 (2011), -1.3 (2012), 18.6 (2013), 20.2 (2014), 8.6 (2015 Prel.), 3.1 (2016 Prog.), 2.0 (2017 Proj.), 6.6 (2018). - Net claims on central government: 67.7 (2009), 7.2 (2010), -18.8 (2011), -13.1 (2012), 9.9 (2013), 0.9 (2014), -2.6 (2015 Prel.), -6.8 (2016 Prog.), -6.2 (2017 Proj.), -1.9 (2018). - Credit to private sector (annual percent changes of broad money beginning stock): 5.9 (2009), 10.7 (2010), 9.0 (2011), 12.9 (2012), 8.9 (2013), 9.2 (2014), 8.4 (2015 Prel.), 9.9 (2016 Prog.), 8.3 (2017 Proj.), 8.6 (2018). - Broad money (annual percentage change): -4.6 (2009), 25.3 (2010), 14.2 (2011), 13.4 (2012), 8.4 (2013), 8.2 (2014), 9.5 (2015 Prel.), 8.7 (2016 Prog.), 7.0 (2017 Proj.), 6.7 (2018). ### External sector and balance of payments - Exports of goods and services, f.o.b. (annual percentage change): -26.1 (2009), 23.3 (2010), 22.3 (2011), -4.1 (2012), -7.4 (2013), -8.2 (2014), 26.7 (2015 Prel.), 11.3 (2016 Prog.), -1.0 (2017 Proj.), -5.0 (2018). - Imports of goods and services, f.o.b. (annual percentage change): 4.5 (2009), 18.1 (2010), 11.3 (2011), 3.8 (2012), -0.5 (2013), -6.4 (2014), 18.6 (2015 Prel.), 10.7 (2016 Prog.), -1.2 (2017 Proj.), -5.5 (2018). - Current account balance, incl. official transfers (percent of GDP): -9.2 (2009), -9.0 (2010), -5.6 (2011), -8.3 (2012), -5.4 (2013), -8.8 (2014), -6.5 (2015 Prel.), -6.8 (2016 Prog.), -6.0 (2017 Proj.), -6.5 (2018). - Overall balance of payments (percent of GDP): -8.0 (2009), 0.1 (2010), 2.9 (2011), 1.6 (2012), -1.2 (2013), -1.5 (2014), -3.4 (2015 Prel.), 0.5 (2016 Prog.), 0.5 (2017 Proj.), 0.0 (2018). - Gross official reserves (imputed, billions of USD): 0.6 (2009), 0.6 (2010), 1.0 (2011), 1.2 (2012), 1.0 (2013), 1.0 (2014), 1.0 (2015 Prel.), 1.1 (2016 Prog.), 1.1 (2017 Proj.), 1.0 (2018). - Reserves (months of imports of goods and services): 1.4 (2009), 1.3 (2010), 1.9 (2011), 2.4 (2012), 1.7 (2013), 1.5 (2014), 1.7 (2015 Prel.), 2.0 (2016 Prog.), 2.0 (2017 Proj.), 1.7 (2018). ### Government finance and fiscal outlook - Revenue and grants (percent of non-oil GDP): 18.6 (2009), 26.7 (2010), 34.6 (2011), 33.4 (2012), 27.7 (2013), 25.5 (2014), 28.7 (2015 Prel.), 30.4 (2016 Prog.), 28.3 (2017 Proj.), 26.6 (2018). - Of which non-oil revenue (percent of non-oil GDP): 7.3 (2009), 8.1 (2010), 7.6 (2011), 7.7 (2012), 8.3 (2013), 8.4 (2014), 8.8 (2015 Prel.), 8.9 (2016 Prog.), 9.7 (2017 Proj.), 10.1 (2018). - Expenditure (percent of non-oil GDP): 28.1 (2009), 32.2 (2010), 31.3 (2011), 32.8 (2012), 31.1 (2013), 31.5 (2014), 29.5 (2015 Prel.), 30.0 (2016 Prog.), 29.4 (2017 Proj.), 28.3 (2018). - Current expenditure (percent of non-oil GDP): 18.0 (2009), 19.2 (2010), 17.9 (2011), 15.7 (2012), 17.0 (2013), 17.4 (2014), 16.6 (2015 Prel.), 16.6 (2016 Prog.), 15.9 (2017 Proj.), 15.0 (2018). - Investment (percent of non-oil GDP): 10.0 (2009), 13.1 (2010), 13.3 (2011), 17.0 (2012), 14.1 (2013), 14.1 (2014), 12.9 (2015 Prel.), 14.1 (2016 Prog.), 13.8 (2017 Proj.), 13.3 (2018). - Non-oil primary balance (commitment basis, excl. grants, percent of non-oil GDP): -17.1 (2009), -20.1 (2010), -19.6 (2011), -19.2 (2012), -18.1 (2013), -18.2 (2014), -16.1 (2015 Prel.), -15.0 (2016 Prog.), -14.0 (2017 Proj.), -12.5 (2018), -12.0 (later). - Overall fiscal balance (incl. grants, commitments basis): -9.4 (2009), -5.5 (2010), 3.3 (2011), 0.6 (2012), -3.3 (2013), -6.0 (2014), -0.8 (2015 Prel.), 0.5 (2016 Prog.), -1.1 (2017 Proj.), -1.7 (2018), -3.9 (later). - Overall fiscal balance (incl. grants, cash basis): -9.3 (2009), -4.2 (2010), 0.6 (2011), 1.7 (2012), -3.3 (2013), -6.0 (2014), -1.9 (2015 Prel.), 0.6 (2016 Prog.), -1.0 (2017 Proj.), -1.7 (2018), -3.7 (later). - Total debt (percent of GDP): 23.1 (2009), 25.6 (2010), 31.1 (2011), 28.0 (2012), 28.1 (2013), 30.2 (2014), 23.8 (2015 Prel.), 21.6 (2016 Prog.), 21.7 (2017 Proj.), 21.8 (2018), 22.9 (later). - External debt (percent of GDP): 17.6 (2009), 20.2 (2010), 23.0 (2011), 20.9 (2012), 20.3 (2013), 23.2 (2014), 18.3 (2015 Prel.), 16.0 (2016 Prog.), 16.3 (2017 Proj.), 16.6 (2018), 17.1 (later). - NPV of external debt (percent of exports of goods and services): 36.3 (2009), 30.9 (2010), 48.2 (2011), 36.6 (2012), 55.4 (2013), 53.1 (2014), 38.6 (2015 Prel.), 33.9 (2016 Prog.), 37.5 (2017 Proj.), 43.1 (2018), 50.1 (later). ### Fiscal operations (selected nominal figures, billions of CFA francs) - Total revenue and grants: 655 (2009), 1,069 (2010), 1,422 (2011), 1,542 (2012), 1,341 (2013), 933 (2014 Sept. Prel.), 1,229 (2015 Prel.), 1,587 (2016 Prog.), 1,521 (2017 Budget), 1,753 (2018 Proj.), later figures: 1,745; 1,764; 1,727. - Revenue: 540 (2009), 1,000 (2010), 1,331 (2011), 1,375 (2012), 1,224 (2013), 864 (2014 Sept. Prel.), 1,107 (2015 Prel.), 1,444 (2016 Prog.), 1,379 (2017 Budget), 1,605 (2018 Proj.), later: 1,588; 1,594; 1,547. - Oil revenue (rent): 284 (2009), 676 (2010), 1,017 (2011), 1,020 (2012), 821 (2013), 539 (2014 Sept. Prel.), 704 (2015 Prel.), 976 (2016 Prog.), 911 (2017 Budget), 1,076 (2018 Proj.), later: 991; 928; 809. - Expenditure (total): 987 (2009), 1,289 (2010), 1,284 (2011), 1,512 (2012), 1,501 (2013), 1,093 (2014 Sept. Prel.), 1,517 (2015 Prel.), 1,541 (2016 Prog.), 1,563 (2017 Budget), 1,726 (2018 Proj.), later: 1,813; 1,877; 2,000. - Net lending/borrowing (overall balance incl. grants, commitment, billions CFAF): -332 (2009), -220 (2010), 137 (2011), 30 (2012), -160 (2013), -160 (2014 Sept. Prel.), -287 (2015 Prel.), 46 (2016 Prog.), -41 (2017 Budget), 27 (2018 Proj.), -67; -113; -272 (later). ### Monetary and financial indicators - Broad money (levels and components shown in Monetary Survey): Money and quasi money 482.9 (2009), 605.3 (2010), 691.3 (2011), 784.3 (2012), 848.8 (2013), 929.2 (2014). - Credit to the economy (billions CFAF): 171.8 (2009), 223.6 (2010), 278.1 (2011), 367.3 (2012), 439.8 (2013), 511.0 (2014). - Credit to the economy (annual percentage change): 21.0 (2009), 30.2 (2010), 24.4 (2011), 32.1 (2012), 19.7 (2013), 16.2 (2014). - Financial soundness (selected): Regulatory capital / Risk-weighted assets 11.1 (2007), 13.3 (2008), 12.1 (2009), 6.7 (2010), 19.7 (2011), 18.1 (2012). Gross nonperforming loans/Gross banking loans 11.2 (2007), 8.0 (2008), 10.4 (2009), 12.1 (2010), 9.8 (2011), 8.7 (2012). ### Social indicators and development - Millennium Development Goals table shows indicators across 1990–2011 (employment ratios, malnutrition, poverty headcount and gap, education enrollment and completion, maternal and child health indicators, HIV/TB incidence, water and sanitation, ICT and telephony). Selected values: - Mortality rate, infant (per 1,000 live births): 113.2 (1990), 109.0 (1995), 105.0 (2000), 101.4 (2005), 97.1 (2011). - Mortality rate, under-5 (per 1,000): 208.3 (1990), 198.1 (1995), 188.5 (2000), 179.6 (2005), 169.0 (2011). - Improved water source (% of population): 39.8 (1990), 42.3 (1995), 44.7 (2000), 47.2 (2005), 50.2 (2011). - Mobile cellular subscriptions (per 100 people): 0.0 (1990), 0.0 (1995), 0.1 (2000), 2.1 (2005), 35.5 (2011). ### Risks and policy responses (Risk Assessment Matrix) - Risk: Sustained decline in commodity prices. - Relative likelihood: Medium. - Impact: High — would cause fiscal oil revenue shortfall, worsen current account, delay public investment projects. - Policy response: Smooth public expenditure over the medium-term and build sufficient fiscal buffers; strengthen non-oil revenue mobilization. - Risk: Deterioration of the security situation, including regional spillovers (CAR, Mali). - Relative likelihood: Medium. - Impact: High — could cause population displacement, increased humanitarian needs, increased security-related government expenditures crowding out priority spending. - Policy response: Rebuild fiscal buffers; budget sufficient resources for emergency security-related spending. - Risk: Deepening food security crisis in Chad and across the Sahel. - Relative likelihood: Low. - Impact: Medium — could affect vulnerable populations via high food prices and malnutrition, lead to social/political tensions and fiscal strain. - Policy response: Continue coordination with development partners; promote economic diversification and higher labor productivity in agriculture; strengthen social safety nets targeted to the poor and vulnerable. - Risk: Lapses in implementation of fiscal policy. - Relative likelihood: Medium. - Impact: High — higher than anticipated non-oil primary deficit (NOPD) could build arrears, increase borrowing, adversely affect the SMP, donor support for PRSP implementation, and HIPC completion prospects. - Policy response: Continue close monitoring of budget execution, including SMP commitments; limit the use of DAOs. ### Governance, HIPC, and reform status - HIPC completion-point related objectives and status (from Decision Point Document for the Enhanced HIPC Initiative, May 4, 2001): - Poverty reduction strategy paper: On Track. - Macroeconomic stability (satisfactory performance under ECF-supported program): On Track. - Strengthened public expenditure management (simplified/computerized expenditure circuit and expenditure tracing for primary education): Pending. - Adoption of new public procurement law, quarterly bulletin, auditing of five largest public procurement contracts, timely adoption of Budget Settlement Law, nomination of commercial court judges: Pending. - Adoption of governance strategy and action plan in consultation with IDA and IMF and implementation for at least one year: On Track. - Priority sectors (Education, Health/HIV/AIDS/STIs, Basic infrastructure, Rural development): various items listed as On Track. ### Key conditionality and program indicators (selected) - Performance floors/ceilings and status snapshots: - Floor on non-oil primary budget balance: (468) (Prog.), (455) met, (672) (Prog.), (652) met, (876) (Prog.). - Ceiling on net domestic government financing: 96 (Prog.), 125 not met; 157 (Prog.), 22 met; 175 (Prog.) met. - Ceiling on accumulation of domestic payment arrears by government: 0 met; 0 met; 0. - Ceiling on accumulation of external payment arrears by government or non-financial public enterprises: 0 met; 0 met; 0. - New guaranteed external debt contracted or guaranteed by government or non-financial public enterprises (US$ million): 0/300 not met; 0/600 not met; 0. - Floor for poverty-reducing social spending: 140 (Prog.) 173 met; 220 (Prog.) 258 met; 330 (Prog.) met. - Memo item oil revenue: 443, 353, 631, 539, 821 (listed series). *Sources: Chadian authorities; and IMF staff estimates and projections.* ### 1. Quantitative indicators are clearly defined in the TMU. ### _cr14100 - 1. Quantitative indicators are clearly defined in the TMU. ### TMU quantitative indicators and related ceilings - Quantitative indicator statements: - "1. Quantitative indicators are clearly defined in the TMU." - "2. Since end-March 2013." - "3. To be respected continuously." - "4. Includes about US$12 million in a loan from OPEC for the construction of a road between Ngouri and Bol signed in April 2013." - Ceiling item reported (format preserved): - "(Billions of CFA francs; cumulative from the beginning of the year, except where otherwise indicated)¹ 30-Jun30-Sep Ceiling on contracting or guaranteeing of new non-concessional external debt by the government and non-financial public enterprises, but for ordinary external trade financing of at most one-year maturity (US$ million) 2 3 4" ### Structural conditionality under the SMP (selected measures and status) - Limit emergency spending procedures to no more than 20 percent of domestically financed spending (excluding wages, debt, and security spending). - Proposed due date: end-Dec. 2013 - Status: Likely to have been met - Reconciliation of treasury and central bank data on net claims of the banking system on the government at end-2012 (based on a coherent definition of the single treasury account). - Proposed due date: end-Sept. 2013 - Status: Not met. Delayed. Now expected to be complete by end 2013 - Preparation and updating of a monthly treasury cash management plan (with a three-month rolling horizon). - Proposed due date: end-Dec. 2013 - Status: Not likely to be met. Proved to be too complex a reform. - Starting in September 2013, all new loan proposals will be examined and be subject of an opinion by ETAVID and CONAD. - Proposed due date: end-Dec. 2013 - Status: Not likely to be met. Delayed. Supporting decrees prepared. - Submission to Parliament of a 2014 draft budget in line with the objective of gradually reducing the non-oil primary deficit. - Proposed due date: end-Oct. 2013 - Status: Met ### Appendix I — Public investment, natural resources and debt sustainability: DIGNAR model and calibration - Exposure and projections: - "The oil sector currently contributes 70 percent of fiscal revenues, 90 percent of total exports, and 30 percent of nominal GDP." - Fiscal oil revenues "are expected to decline steadily and be relatively insignificant by early 2030s." - DIGNAR model key features (preserved technical terminology): - Two types of households: optimizing households (access to financial markets; can acquire domestic government bond and international bonds with portfolio adjustment costs) and non-optimizing (rule-of-thumb) consumers (liquidity constrained). - Three production sectors: traded, non-traded (Cobb-Douglas with exogenous technological progress), and oil (exogenous price and quantities). - Capital formation: absorptive capacity constraints and government inefficiency; effective government investment is a fraction of government investment expenditure; time-varying depreciation rate to capture maintenance shortfalls. - Government finances consumption and investment with taxes and debt; foreign debt faces a risk premium depending on external debt stock; government can close fiscal gap with taxes, debt, or both; model features a fiscal buffer for oil revenue volatility. - Calibration and initial conditions: - "The initial steady state of the economy is mostly calibrated to the 2011 data of Chad." - "The calibration implies a public capital to GDP ratio of 0.35." - Note on initial investment setting: ratio of public investment to non-resource GDP set to 0.7 to have a relatively low public capital to GDP ratio initially. ### Policy scenarios and public investment paths analyzed - Fiscal policy scenarios (three alternatives): - Unconstrained taxes: burden of closing the fiscal gap is solely on taxes. - Strongly constrained taxes: ceilings on labor tax of 25 percent and on consumption tax of 18 percent; reflects Chad‘s current tax system profile with a statutory payroll tax rate of 7.5 percent on gross salaries and a VAT rate of 18 percent. - Mildly constrained taxes: ceilings on labor tax of 25 percent and on consumption tax of 21 percent. - Public investment scaling-up approaches: - Gradual approach: public investment expenditure to GDP constant at 8 percent of non-resource GDP from 2013 to 2030. - Aggressive (frontloading) approach: public investment spending as a share of non-resource GDP jumps to 13.3 percent and remains above 11 percent prior to 2017. ### Simulation findings — outcomes, dynamics, and risks (preserve numeric values) - Investment efficiency and public capital: - Frontloading investment increases public capital faster, but "absorptive capacity constraints ... lower the investment efficiency from 0.5 (the initial steady-state level) to below 0.4 initially." - Without sufficient later-period investment to cover recurrent costs, "public capital depreciates over time." - Non-frontloading yields a more stable public capital path and investment efficiency does not drop much below 0.5. - Debt dynamics across fiscal scenarios: - Unconstrained taxes: "the ratio of debt to GDP increases modestly and stabilizes just above 50 percent by 2035." - Strongly constrained taxes: "the ratio of debt to GDP goes beyond 100 percent by 2035." - Mildly constrained taxes: "prevents the ratio of debt to GDP to explode." - Fiscal buffers and resource fund: - "Fiscal buffers rise briefly to almost 6 percent of non-resource GDP." - "As resource revenues declines, the resource fund is drawn down and drops to a minimal level and it goes eventually to zero." - Real exchange rate and output effects: - Frontloading generates "more appreciation in the real exchange rate and hence more negative response in traded output during the first few years." - In later years, "substantial weaker domestic demand due to higher taxes depreciates the real exchange rate and much positive traded output responses." - Overall recommendation from simulations: - "In sum, a gradual public investment scaling-up would seem more appropriate given financing constraints and risks. Frontloading investment leads to a faster buildup of capital but poses threats to debt sustainability." ### Appendix II — Chad’s non-oil revenue performance and potential - Background and projections: - Oil revenue historic/forecasted shares: oil revenue "expected to decline significantly from a record-high of 25 percent of non-oil GDP in 2011 to less than 5 percent by 2030." - Non-oil revenue role: strengthening non-oil revenue "is critical to addressing the country’s long-term development needs in a sustainable manner." - Cross-country and regional comparisons: - Between 2004 and 2011, Chad’s non-oil revenue "averaging less than 8 percent of non-oil GDP over the period, compared to more than 13 percent in the other oil-producing countries in the CEMAC region." - Under the World Bank‘s CPIA indicator on "Efficiency of Revenue Mobilization" in 2013, Chad’s score was "2.5" (lowest among CEMAC countries with available data; comparisons given: Cameroon 3.5, Central African Republic 3.0, Republic of Congo 3.0). - Chad ranked last in recent rankings on the World Bank‘s "ease of paying taxes" (table referenced). - Tax buoyancy and efficiency metrics: - Estimated elasticity of non-oil tax revenue to non-oil GDP between 2004 and 2011: "1.2" for Chad (compared to Equatorial Guinea 0.3, Gabon 1.1, Cameroon 1.6, Central African Republic 1.8, Republic of Congo 1.8). - C-efficiency (revenue from VAT divided by product of standard rate and aggregate private consumption) for Chad in 2011: "5 percent" (lowest in region; Cameroon 33 percent; Equatorial Guinea 42 percent). - C-efficiency remained "stagnant at around 5 percent between 2007 and 2011." - Stochastic tax frontier and tax effort results: - Tax capacity estimate for Chad in 2011: "24 percent of non-oil GDP." - Actual non-oil tax revenue in 2011: "7.6 percent" of non-oil GDP. - Tax effort (actual revenue divided by tax capacity) for Chad in 2011: "32 percent." - Gap note: "in 2011 alone, Chad‘s actual non-oil tax-to-non-oil GDP ratio was below its potential by over 15 percent of non-oil GDP." - If Chad raised its tax effort to the CEMAC regional average of "0.67 -excluding Chad-", "its non-oil revenue would increase by 8.5 percent of GDP." - Tax policy parameters and administrative indicators: - Corporate Income Tax (CIT) rate: "40 percent" (highest in the region). - VAT rate: "18 percent" (comparable with most countries in CEMAC). - Statutory payroll tax rate: "7.5 percent" on gross salaries. - World Bank CPIA "Efficiency of Revenue Mobilization" score: "2.5" (2013). - Conclusion and policy implication (preserved language): - "Chad has substantial scope to increase its non-oil revenue to finance its long-term development objectives." - Empirical evidence: "Chad‘s non-oil tax effort of 32 percent is the lowest among the CEMAC oil-producing countries." - "The country also has the lowest efficiency rates in tax revenue collection in the region, as evidenced by very low C-efficiency, low ranking on the World Bank‘s 'ease of Paying Taxes' and CPIA score on 'Efficiency of Revenue Mobilization.'" *Source: _cr14100 - 1. Quantitative indicators are clearly defined in the TMU.* ### 10. Improving non-oil revenue collection will require enhancements in both tax policy ### 10. Improving non-oil revenue collection will require enhancements in both tax policy ### Tax policy reforms: objectives and specific measures - Objectives: - Broaden the tax base. - Review tax incentives and exemptions. - Minimize discretionary actions in tax policy design. - Simplify the tax structure by eliminating taxes with small collections but high compliance and administration costs. - Specific policy measures (couched around recommendations of the 2010 FAD TA on tax policy review): - Curb numerous VAT tax preferences, which: - Deteriorate the VAT tax base. - Seriously undermine VAT revenue productivity. - Lead to tax evasion and leakage. - Timeframe: short- to medium-term. - Harmonize tax exemptions with those in the CEMAC region. - Timeframe: short-term. - Increase taxes on tobacco and other luxury goods to 25 percent. - Liaise with other line ministries with the aim of minimizing earmarked taxes. - Timeframe: short-term. - Reduce corporate income tax rate from 40 percent to 35 percent. - Reduce the minimum flat tax rate from 1.5 percent to 1 percent. - Timeframe for corporate and minimum flat tax changes: long-term. ### Tax and customs administration: operational reforms - Implement recent FAD recommendations with concrete steps, including: - Strengthen operations of the large taxpayers unit. - Improve selection criteria and quality of audits. - Simplify and automate customs procedures. - Ensure tax and customs administrations have the human and financial resources to carry out their functions. ### Sequencing and links to prior work - Recommendations are aligned with the 2010 FAD TA on tax policy review. - A recent study by the African Development Bank (AfDB) provides broadly similar policy recommendations for enhancing non-oil domestic resource mobilization in Chad. *International Monetary Fund — Excerpt from Chapter 10 of the staff report: "Improving non-oil revenue collection will require enhancements in both tax policy" (as provided).* ### 5. Realizing debt relief under the Enhanced HIPC Initiative and the Multilateral Debt Relief ### 5. Realizing debt relief under the Enhanced HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI) ### Debt relief scope and fiscal impact - Debt relief under the MDRI would cover the full stock of MDRI-eligible debt owed to IDA and the African Development Fund that is outstanding at the date that the Completion Point is reached. - In nominal terms, MDRI-eligible relief could total about US$850 million. - This would imply a reduction in debt service of about US$40 million per year over the next 20 years. - A detailed debt reconciliation exercise based on most recent debt data will need to be conducted to firm up these estimates and include potential debt relief from other creditors before reaching the HIPC completion point. - Chad reached the decision point under the HIPC Initiative in May 2001. At that time, the amount of HIPC assistance from the IMF was estimated at SDR 14.3 million in end-2000 PV terms. - Debt relief provided by the IMF during the interim period amounted to SDR 8.55 million (60 percent of total debt relief under the HIPC Initiative). - Any remaining HIPC relief from the Fund is currently estimated at SDR 8.5 million, including SDR 2.8 million—the interest earned on the committed amount in the PRG-HIPC Trust, and SDR 0.01 million—the interest earned on the Chad’s HIPC Umbrella Account. - Chad has no MDRI-eligible debt to the Fund and, therefore, no resource is required from the MDRI-I Trust. ### Caveats - The SDR 8.5 million estimate may be revised at completion point based on possible revision of the Common Reduction Factor (CRF) in case the decision point (HIPC-eligible) debt stock and the corresponding macroeconomic framework are revised. --- ### Recent developments in public domestic debt - The stock of public domestic debt grew to 7.3 percent of GDP at end-2012 (and an estimated 6.9 percent of GDP in 2013). - Drivers of the increase included: - Drawing on central bank statutory advances. - Sale of over CFAF 100 billion of five-year savings bonds (in 2011). - A CFAF 50 billion loan from Republic of Congo (in 2012). - The stock of public domestic debt includes a balance of CFAF 50.3 billion in treasury arrears (end-December 2012). - 2013 developments: - Authorities placed a five year savings bonds for CFAF 90.2 billion in the CEMAC regional market with a 6 percent coupon. - Contracted a CFAF 15 billion loan from Equatorial Guinea. - Treasury arrears declined to CFAF 42.1 billion at end-October 2013 from CFAF 50.3 billion at end-December 2012. ### Components of domestic debt (selected year-end figures from Table) - Total (2012): 483.6 (Percent of GDP) 7.3 - Central Bank statutory advances (2012): 187.7 - Rescheduled debts (2012): 44.8 - Treasury arrears (2012): 50.3 - Legal commitments (2012): 49.8 - National Savings Bond (2012): 0.9 - 2011 Savings Bond (2012): 100.0 - Republic of Congo (2012): 50.0 - Source: Chadian authorities. --- ### Debt burden thresholds under the Debt Sustainability Framework (DSF) - For DSF purposes, Chad is classified as a weak policy performer. - Chad’s CPIA rating is 2.5 for CY2012 (on a scale from 1 to 6). - External public debt burden thresholds for "Weak Policy Performers" (indicative thresholds cited): - Present value of external debt in percent of: GDP 30; Exports 100; Revenue 200. - External debt service in percent of: Exports 15; Revenue 18. - Source: 2011 IDA Country Performance ratings (methodology and results). --- ### DSA assumptions and 2014 financing gap - Revised assumptions include: - Uniform discount rate of 5 percent. - Cancellation of the US$2 billion non concessional MFA. - Contracting of the nonconcessional US$600 million oil sales’ advance operation. - Current macroeconomic projections show a financing gap for 2014 of CFAF 260 billion. - Uncertainty existed on how the financing gap would be closed at the time of the report. - For illustrative purposes, the DSA assumes the 2014 financing gap is financed by external concessional and domestic borrowing, [in equal proportions]. - The scenario assumes substantial concessional and domestic financing availability; greater fiscal adjustment would reduce external debt distress risks while reliance on external nonconcessional borrowing would increase them. --- ### Oil production and revenue assumptions - Medium- and long-term outlook characterized by a temporary sharp increase in oil production in 2014–16 and a steady decline over the subsequent sixteen-year projection period. - Specific production and reserve notes: - Doba oilfield peaked at 63 million barrels in 2005; absent other developments, annual output projected to become negligible beyond 2030. - Bongor field began in 2011, producing about 15,000 barrels per day as feedstock for the oil refinery; exports from Bongor expected to start in 2014 and reach 65,000 bpd in 2015. - Another operator (Caracal) started production in late 2013 and expected to peak at 40,000 bpd in 2015. - Projections and price assumptions: - Oil production is expected to rise from 113,000 bpd in 2012 to about 173,000 bpd in 2015-16. - Oil production and exports projected to decline steadily to negligible levels beyond 2030. - Chadian oil trades below the WEO reference price due to quality discount and transport cost. - Medium-term (five-year) price assumption: drop from US$102.8 per barrel (all discounts included) in 2013 to about US$83.6 per barrel in 2017–18, in line with IMF WEO trend. - From 2019 onward, the price is assumed to increase 3 percent per year in U.S. dollar terms. --- ### Fiscal policy assumptions - Assumes sustained fiscal adjustment through the transition to the post-oil era. - Non-oil primary deficit (NOPD) path: - Reduced from about 16 percent of non-oil GDP in 2014 to 12 percent of non-oil GDP by 2018. - Oil revenues: - Increase in oil production expected to help maintain oil revenues above 15 percent of non-oil GDP until 2016. - Long-term adjustments assumed (to 2033): - Total government primary spending declines from 30.4 percent of non-oil GDP in 2013 to 21.6 percent in 2033. - Primary balance adjusted gradually to reach a small deficit of 0.3 percent of non-oil GDP by 2033. - Adjustments achieved mainly by: - Increasing non-oil revenues from about 8.5 percent of non-oil GDP at present to about 17 percent of non-oil GDP by 2033. - Reducing total investment outlays from over 14 percent of non-oil GDP to below 10 percent of non-oil GDP. - Cutting recurrent spending, notably streamlining exceptional security transfers and subsidies to public enterprises (currently jointly about 6.5 percent of non-oil GDP). --- ### Baseline scenario and macroeconomic projections (selected figures) - Baseline scenario key macro assumptions (2013–33): - Real GDP growth (percent per year): 2013 3.6; 2014 10.8; 2015 7.3; 2016 4.7; 2017 3.6; 2018 3.3; 2013–18 Avg. 5.6; 2019–33 Avg. 3.6. - Oil (percent growth or level): 2013 -4.0; 2014 37.0; 2015 17.6; 2016 3.2; 2017 -3.1; 2018 -5.3; 2013–18 Avg. 7.6; 2019–33 Avg. -6.6. - Non-oil growth: 2013 5.0; 2014 6.5; 2015 5.1; 2016 5.1; 2017 5.1; 2018 5.2; 2013–18 Avg. 5.3; 2019–33 Avg. 4.6. - Consumer price inflation (percent per year): 2013 0.4; 2014 3.8; 2015 3.0; 2016 3.0; 2017 3.0; 2018 3.0; 2013–18 Avg. 3.0; 2019–33 Avg. 3.0. - External current account balance (percent of GDP): 2013 -8.8; 2014 -6.5; 2015 -6.8; 2016 -5.9; 2017 -6.5; 2018 -6.1; 2013–18 Avg. -6.8; 2019–33 Avg. -4.9. - Government revenue and grants (percent of non-oil GDP): 2013 25.6; 2014 28.7; 2015 30.4; 2016 28.3; 2017 26.6; 2018 24.5; 2013–18 Avg. 27.4; 2019–33 Avg. 21.1. - Of which: oil revenue (percent of non-oil GDP): 2013 14.6; 2014 17.2; 2015 18.7; 2016 16.1; 2017 14.0; 2018 11.5; 2013–18 Avg. 15.3; 2019–33 Avg. 4.7. - Government expenditure (commitment basis): 2013 31.5; 2014 29.6; 2015 29.9; 2016 29.2; 2017 28.0; 2018 27.9; 2013–18 Avg. 29.4; 2019–33 Avg. 23.3. - Overall fiscal balance (incl. grants; cash basis): 2013 -6.0; 2014 -2.0; 2015 0.6; 2016 -0.8; 2017 -1.4; 2018 -3.3; 2013–18 Avg. -2.1; 2019–33 Avg. -1.8. - Non-oil primary fiscal balance (excl. grants; commitment basis): 2013 -18.2; 2014 -16.1; 2015 -15.1; 2016 -14.0; 2017 -12.5; 2018 -12.0; 2013–18 Avg. -14.6; 2019–33 Avg. -4.2. - Standard non-oil primary fiscal balance (commitment basis): 2013 -19.5; 2014 -17.0; 2015 -17.6; 2016 -16.5; 2017 -15.0; 2018 -14.5; 2013–18 Avg. -16.7; 2019–33 Avg. -6.3. - Memorandum: Government deposits (percent of non-oil GDP): 2013 5.9; 2014 5.4; 2015 5.2; 2016 5.7; 2017 5.8; 2018 4.8; 2013–18 Avg. 5.5; 2019–33 Avg. 7.5. - Chadian crude oil price (US$/barrel): 2013 103.4; 2014 98.2; 2015 93.5; 2016 87.8; 2017 84.9; 2018 82.3; 2013–18 Avg. 91.7; 2019–33 Avg. 96.4. --- ### External debt DSA (baseline) - New borrowing composition (starting 2014, baseline): - Paris Club official: 20 percent. - Non-Paris Club official: 28 percent. - Multilateral: 52 percent. - Average concessionality of new borrowing (assuming discount rate of 5 percent) increases towards 34-35 percent and remains so through the projection period. - Under the baseline scenario: - All but one external indebtedness indicators remain below critical thresholds, indicating a high risk of external debt distress. - The present value (PV) of external public and publicly-guaranteed debt falls below 15 percent of GDP starting in 2015 and remains well below the 30 percent of GDP threshold throughout the projection horizon. - With the projected steady decline in oil exports beyond 2013–16, the PV of debt is expected to rise relative to exports and is projected to exceed the critical threshold starting around 2020. - The PV of debt relative to both revenue and GDP would remain below thresholds through the end of the projection period. - Debt service in percent of revenues and exports remains below thresholds under the baseline. --- ### Stress tests and risks - Stress test assuming key macroeconomic variables at their ten-year average values: debt burden indicators do not breach sustainability thresholds. - Chad’s external debt burden indicators are highly sensitive to a negative shock to exports (e.g., an oil price shock). - Most extreme shock examined: drop in export growth in 2014–15 proportional to a two-standard-deviation lower oil price — in this scenario debt would be on a path breaching all indicative debt burden thresholds. - Under an alternative scenario where authorities continue to rely partially (about 45 percent of total gross external borrowings) on non-concessional loans: - All but two external debt indicators breach their respective sustainability thresholds. - Debt service-to-revenue ratio exceeds the critical threshold starting in 2015 and remains above the threshold until the late 2020s. - PV of debt-to-exports and debt service-to-exports ratios exceed critical thresholds starting around 2018–20 and remain above thresholds through the end of the projection period. - PV of debt relative to both revenue and GDP would remain below thresholds through the end of the projection period. --- ### Public debt DSA (including domestic debt) - Inclusion of domestic debt does not fundamentally alter assessment of debt sustainability. - Domestic debt path: - Domestic debt component would fall from 7.3 percent of GDP in 2012 to 2.4 percent of GDP in 2018, then rise continuously thereafter until it reaches about 6.7 percent of GDP in 2033. - Public debt stock trajectory: - Decreases to about 25 percent of GDP in 2017 before rising continuously until it stabilizes around 33 percent of GDP in 2031-33. - Standard stress tests indicate significant sustainability risks due to narrow economic base and volatility in oil and agriculture: - A temporary shock to real GDP growth in 2014-2015 would substantially impair public debt sustainability (Most Extreme Shock in Figure 2 and Bound Test B1 in Table 2a). --- ### The authorities’ views - Authorities believe improved oil revenue prospects and debt relief through the HIPC process would substantially dampen debt sustainability concerns. - They noted: - The decision to cancel the MFA with Eximbank China signals importance attached to debt sustainability and the need for concessional long-term financing. - The recent Glencore lending operation was an extraordinary measure in response to a temporary shock aimed at ensuring the existing budgetary envelope could be fully financed and did not result in an expansion in budgetary spending. - Staff oil revenue projections are considered overly conservative by the authorities, who stress ongoing oil exploration activities and the potential opening of new exploration rounds after a soon to be conducted geological mapping exercise. - Need for debt relief to create fiscal space for additional development spending (including foreign-financed). - Expectation that ongoing reform progress will be reflected in an improvement of the CPIA score and a related increase in external debt burden thresholds. *Source: IMF staff report excerpt, “5. Realizing debt relief under the Enhanced HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI)”.* ### 19. In staff’s assessment, despite improved oil production and revenue prospects in the next ### _cr14100 - 19. In staff’s assessment, despite improved oil production and revenue prospects in the next ### Staff assessment — debt distress risk - Despite improved oil production and revenue prospects in the next few years, Chad faces a high risk of debt distress. - The high risk is driven by the significant decline in oil exports and revenues over the medium to the long terms. - Cancellation of the US$2 billion non concessional MFA with the Eximbank of China would significantly improve the debt distress rating compared to the 2012 Article IV DSA. - Even with that cancellation and a sustained fiscal adjustment, Chad would remain at a high risk of debt distress unless it adopts a prudent external borrowing policy. ### Conditions and constraints - Sustained fiscal adjustment is a necessary but not sufficient condition for minimizing the risk of debt distress. - The exhaustibility and volatility of oil revenues imply that fiscal adjustment alone is inadequate. ### Policy implications and recommendations - Complement fiscal adjustment with a prudent external borrowing policy. - Make further progress in diversifying the economy to reduce reliance on oil revenues and lower debt distress risk. *IMF staff assessment excerpt.* ### 20. Progress toward the HIPC completion point (including improvements in the CPIA score) ### 20. Progress toward the HIPC completion point (including improvements in the CPIA score) ### Summary and policy recommendations - Progress toward the HIPC completion point would substantially reduce Chad’s debt vulnerabilities. - Continued pursuit of fiscal consolidation and a prudent external borrowing policy is recommended. - Institutional and governance reforms should pave the way for debt relief under the HIPC process and increased access to concessional borrowing sources, thereby reducing the country’s debt vulnerabilities. ### Debt sustainability: key indicators and projections (selected figures from baseline scenario) - Public sector debt (percent of GDP): 25.6, 31.1, 28.0, 31.1, 27.6, 24.6, 24.6, 24.7, 25.6, 30.3, 32.4 (series shown in table). - Of which: foreign-currency denominated (percent of GDP): 20.2, 23.0, 20.9, 24.1, 20.9, 19.7, 20.7, 21.6, 23.2, 26.2, 25.7. - Change in public sector debt (percent of GDP): 2.6, 5.5, -3.2, 3.1, -3.4, -3.0, 0.0, 0.1, 1.0, 0.6, -0.3. - Identified debt-creating flows (percent of GDP): 1.5, -4.4, -4.4, 2.4, -4.3, -3.1, -0.5, 0.0, 1.8, -0.1, -0.9. - Primary deficit (percent of GDP): 4.0, -2.8, -1.5, 0.7, 4.2, 3.0, -0.6, -1.0, 0.1, 0.5, 2.1, 0.7, 0.9, 0.5, 1.1 (series shown in table). - Revenue and grants (percent of GDP): 20.2, 24.8, 23.4, 19.0, 20.4, 21.1, 20.3, 19.9, 19.0, 18.1, 20.2. - Of which: grants (percent of GDP): 1.3, 1.6, 2.5, 2.3, 2.2, 1.8, 1.8, 1.9, 2.0, 2.2, 2.5. - Primary (noninterest) expenditure (percent of GDP): 24.3, 22.0, 22.0, 22.0, 19.7, 20.0, 20.3, 20.4, 21.1, 19.0, 20.7. - Automatic debt dynamics contribution (percent of GDP): -2.3, -1.6, -2.9, -0.2, -3.4, -2.0, -0.6, -0.5, -0.3, -1.0, -1.4. - Contribution from interest rate/growth differential: -4.5, -0.7, -4.6, 1.4, -2.3, -1.4, 0.1, 0.2, 0.3, -1.0, -1.4. - Contribution from real GDP growth: -2.8, 0.0, -2.5, -1.0, -3.0, -1.9, -1.1, -0.9, -0.8, -1.0, -1.3. - Contribution from real exchange rate depreciation: 2.2, -0.9, 1.7, -1.6, -1.0, -0.7, -0.7, -0.7, -0.6. - Residual, including asset changes (percent of GDP): 1.1, 9.8, 1.3, 0.7, 0.9, 0.1, 0.5, 0.1, -0.8, 0.7, 0.6. - PV of public sector debt (percent of GDP, selected years shown): 20.5, 24.1, 20.9, 17.7, 17.3, 17.1, 17.5, 21.1, 23.2 (series shown in table). - PV of public sector debt-to-revenue and grants ratio (percent): 87.5, 126.9, 102.7, 84.1, 85.4, 85.8, 91.8, 116.9, 115.0. - PV of public sector debt-to-revenue ratio (percent): 98.1, 144.0, 115.4, 91.8, 93.9, 94.9, 102.5, 133.2, 130.9. - Debt service-to-revenue and grants ratio (percent): 2.9, 3.6, 10.2, 17.5, 26.1, 20.7, 11.0, 10.2, 9.6, 9.2, 8.9. - Debt service-to-revenue ratio (percent): 3.1, 3.9, 11.4, 19.9, 29.3, 22.6, 12.1, 11.3, 10.7, 10.5, 10.1. - Primary deficit that stabilizes the debt-to-GDP ratio (percent of GDP): 1.4, -8.3, 1.7, -0.1, 2.8, 1.9, 0.1, 0.4, 1.1, 0.3, 0.7. ### External debt and external-sustainability metrics (selected figures) - External debt (nominal, percent of GDP): 20.2, 23.0, 20.9, 24.1, 20.9, 19.7, 20.7, 21.6, 23.2, 26.2, 25.7. - Change in external debt (percent of GDP): 2.6, 2.8, -2.1, 3.2, -3.3, -1.2, 1.1, 0.9, 1.6, 0.3, -0.3. - Identified net debt-creating flows (percent of GDP): 3.7, 0.8, 4.4, 4.0, -0.7, 0.9, 0.7, 3.0, 2.7, 5.8, -0.7. - Non-interest current account deficit (percent of GDP): 8.8, 5.2, 7.7, 7.0, 14.7, 8.2, 6.0, 6.5, 5.6, 6.0, 5.6, 7.3, 0.5, 4.4 (series shown in table). - Exports (percent of GDP): 37.9, 40.7, 36.8, 32.5, 34.6, 34.7, 32.6, 29.5, 26.7, 14.7, 10.6. - PV of external debt (percent of GDP): 13.5, 17.1, 14.2, 12.7, 13.4, 14.0, 15.0, 17.1, 16.6 (series shown in table). - In percent of exports: 36.6, 52.8, 41.0, 36.7, 41.2, 47.4, 56.3, 115.7, 157.0. - Debt service-to-exports ratio (percent): 1.5, 2.2, 3.2, 5.4, 9.4, 8.3, 3.4, 4.0, 4.4, 9.4, 13.8. - PPG debt service-to-revenue ratio (percent): 3.1, 3.9, 5.7, 10.5, 17.8, 14.9, 6.0, 6.6, 6.9, 8.7, 8.2. - Total gross financing need (Billions of U.S. dollars): 0.7, 0.5, 0.8, 0.8, 0.7, 0.9, 0.4, 0.9, 0.8, 2.0, 0.7. ### Key macroeconomic and fiscal assumptions (selected series) - Real GDP growth (in percent): 13.5, 0.1, 8.9, 9.0, 10.0, 3.6, 10.8, 7.3, 4.7, 3.6, 3.3, 5.6, 3.3, 4.2, 3.6 (series shown in table). - Average nominal interest rate on forex debt (in percent): 1.0, 2.2, 3.3, 1.4, 0.8, 2.9, 2.2, 2.0, 2.0, 2.0, 2.1, 2.2, 1.9, 1.9, 1.9. - Inflation rate (GDP deflator, in percent): 6.4, 8.6, 5.4, 6.6, 8.3, -2.9, 3.5, 1.9, -1.2, -0.4, -0.8, 0.0, 2.4, 2.7, 2.5. - Grant element of new external borrowing (in percent): 4.0, 32.9, 34.3, 34.3, 34.4, 34.5, 29.1, 34.8, 35.3 (series shown in table). - Government revenues (excluding grants, percent of GDP): 18.9, 23.2, 20.9, 16.7, 18.1, 19.3, 18.5, 18.0, 17.0, 15.9, 17.8, 16.6. ### Stress tests and sensitivity analysis (high-level findings) - The most extreme stress tests (chosen as those yielding the highest ratios on or before 2023) often correspond to Exports shocks or a One-time depreciation shock, depending on the indicator. - Table 2a and Table 3b present alternative scenarios and bound tests for indicators such as PV of Debt-to-GDP Ratio, PV of Debt-to-Revenue Ratio, and Debt Service-to-Revenue Ratio with projections for 2013–2033. - Example baseline and scenario values (selected): - PV of Debt-to-GDP Ratio (baseline series): 24, 21, 18, 17, 17, 17, 21, 23 (years shown in table). - PV of Debt-to-Revenue Ratio (baseline series): 127, 103, 84, 85, 86, 92, 117, 115. - Debt Service-to-Revenue Ratio (baseline series): 18, 26, 21, 11, 11, 10, 9, 9. - Bound tests include shocks such as: - B1: Real GDP growth at historical average minus one standard deviation. - B2: Primary balance at historical average minus one standard deviation. - B4: One-time 30 percent real depreciation in 2014. - B5: 10 percent of GDP increase in other debt-creating flows in 2014. - Alternative scenarios include: - A1: Real GDP growth and primary balance at historical averages. - A2: Primary balance unchanged from 2013. - A3: Permanently lower GDP growth (assumes real GDP growth at baseline minus one standard deviation divided by the square root of the length of the projection period). - Sensitivity analysis shows that under adverse scenarios and bound tests key debt indicators can deteriorate substantially relative to the baseline. ### Institutional context and IMF engagement (selected points) - The Bank of the Central African States (BEAC) is the regional central bank for CEMAC; a 2013 quadrennial safeguards assessment (completed November 14) found some progress but elevated risks remain and further reforms are needed. - The CFA franc is pegged to the euro at EUR 1 = CFAF 655.957 since January 1, 1999. - Chad is on a 12-month Article IV cycle; the next consultation was expected by February 2015. - Technical assistance missions from FAD, MCM, STA, and AFRITAC are listed for multiple years (2010–2013) covering public financial management, tax and customs administration, debt management, national accounts, and banking system vulnerabilities. *Source: IMF staff report informational annex (Staff Report for the 2013 Article IV Consultation and Assessment of Performance Under the Staff-Monitored Program—Informational Annex).* ### 1. HPIC completion report March 2014 ### 1. HPIC completion report March 2014 ### Document list and timing - 1. HPIC completion report March 2014 - August 2014 - Q-III 2014 - 2. Additional Financing for Capacity building in public expenditure management - March 2014 - Q-II 2014 - 3. Non concessional borrowing note - Q-II 2014 - Q-III 2014 - 4. Country Partnership Framework - February 2014 ### The Fund work program in the next 12 months - 1. 2013 Article IV Consultation December 2013 February 2014 - 2. SMP Assessment and Potential ECF negotiation - March 2014 May 2014 - Technical Assistance - FAD: Public financial management FY2014 FY2014 - STA: National accounts FY2014 FY2014 ### Requests for Work Program Inputs - Fund request to Bank - Periodic update on World Bank program in Chad - Bank request to Fund - 1. Macroeconomic frameworks for Debt Sustainability analyses - Ongoing - 2. Information on non concessional financing of budget or projects - Ongoing ### Agreement on Joint Products and Missions - Joint products - 1. Joint Bank-Fund Debt Sustainability Assessments *Source: _cr14100 - 1. HPIC completion report March 2014* ### 2. JSAN on PRSP APR ### 2. JSAN on PRSP APR ### Statistical Issues — Assessment of Data Adequacy for Surveillance - General finding: - Data provision has capacity-related shortcomings, but is broadly adequate for surveillance. - Scope for improvement in quality, coverage, and timeliness in most macroeconomic datasets. - 2007 ROSC found the statistical system weak with shortages of financial and human resources. - National accounts: - Revised from 1968 SNA to 1993 SNA; rebased to 2005. - Final Annual National Accounts available until 2010; backcast through 1995–2005; provisional figures for 2011–2012. - Compilation remains weak due to inadequate funding for INSEED and high staff turnover. - Dissemination: need more timely releases, more detailed information, enhanced internet dissemination. - Price statistics: - Harmonized Consumer Price Index (HCPI) is of rather good quality, but: - Coverage limited to the capital city. - Reporting lag sometimes exceeds two months. - Regional authorities working to improve HCPI quality across CEMAC countries. - Government finance statistics: - Data weaknesses create uncertainty about the central government’s actual fiscal position and hamper debt sustainability analysis. - Staff prepare estimates of central government financial operations from disparate administrative sources that may not reconcile with domestic bank financing or changes in net indebtedness. - Monetary statistics: - BEAC reports core monetary and financial indicators via standardized report forms (SRFs) within expected lag. - Key shortcoming: lack of clear reconciliation between domestic banking sector’s net credit to the government and implicit financing in weak government financial accounts. - Depository corporations’ survey omits large number of microfinance operations. - Balance of payments (BOP): - Weaknesses create uncertainty about Chad’s external position and hamper debt sustainability analysis. - Customs-based data unreliable and suffer coverage problems; not relied upon for BOP or national income estimation. - BEAC prepares BOP data and submits to BEAC headquarters for validation with long time lags. - Staff estimate current and capital flows from disparate administrative sources to supplement official BOP. - IMF Statistics Department recommended tighter coordination among CEMAC, INSEED, and other agencies. - BEAC headquarters coordinating technical reforms to improve data quality and timeliness. ### Data Standards and Quality - Chad participation: - Participant in the IMF’s GDDS since September 24, 2002. - GDDS metadata and plans for improvement need updating. - Data ROSC: - A Data ROSC was published in August 2007. ### Reporting to STA (Optional) - Currently reported to STA for IFS publication: international liquidity, monetary statistics, GDP, and prices. - Chad has not resumed reporting detailed data for Government Finance Statistics Yearbook publication; annual fiscal data through 2001 reported and included in IFS. - BEAC has yet to submit test monetary and financial statistics using SRFs. - Chad has yet to submit BOP and IIP data to STA. ### Key Statistical Indicators and Data Quality Assessments (selected) - Exchange rates: Daily frequency. - International reserve assets and reserve liabilities: Latest observation 10/2013; Date received 12/2013; Frequency M. - Reserve/base money: Latest observation 10/2013; Date received 12/2013; Frequency M. - Broad money: Latest observation 10/2013; Date received 12/2013; Frequency M; Data Quality: QM (methodological soundness) / M (accuracy and reliability). - Consumer price index: Latest observation 10/2013; Date received 11/2013; Frequency M. - Revenue, expenditure, balance and composition of financing — general government: Latest observation 11/2013; Date received 12/2013; Frequency Q. - Central government fiscal stocks of debt: Latest observation 08/2013; Date received 12/2013; Frequency Q. - External current account balance and exports/imports: Latest observation 2011; Date received 09/2012; Frequency A. - GDP/GNP: Latest observation 2012; Date received 09/2013; Frequency A. - Gross external debt: Latest observation 12/2011; Date received 09/2012; Frequency Bi-M. - International investment position: NA (not reported) due to lack of capacity; authorities should request technical assistance. ### IMF Article IV Consultation — Macroeconomic Performance and Outlook (Press Release No. 14/136, March 27, 2014) - Macroeconomic performance in 2013: - Real GDP projected growth: 3.6 percent in 2013 (down from 8.9 percent in 2012). - Oil GDP: reduction of 3.9 percent in 2013 due to decline in mature field production and delays in new production. - Non-oil GDP: forecast growth of 5 percent in 2013 (compared to 11.6 percent in 2012), reflecting return to trend agricultural production after 2012 bumper harvest. - Inflation: annual average projected at around 0.4 percent in 2013 (compared to 7.7 percent in 2012) due to fall in food prices. - External sector: - External current account deficit averaged 8 percent of GDP between 2009 and 2012. - Projected external current account deficit: 8.8 percent of GDP in 2013 due to drop in oil exports. - Overall balance of payments recorded a deficit in 2013 — first since 2009. - International reserve coverage: about 1.7 months of imports of goods and services in 2013 (compared to 2.4 months in 2012). - Fiscal policy: - Fiscal policy gradually tightened, anchored on reductions in the non-oil primary deficit (NOPD). - NOPD fell by 1 percent of non-oil GDP over 2011–12. - 2013 budget targeted a further 1 percent of non-oil GDP reduction in NOPD to 18.2 percent of non-oil GDP. - 2013 budget execution affected by unexpected fall in oil revenue and regional security spending pressures, resulting in an overall fiscal deficit of about 6 percent of non-oil GDP (compared to a surplus of 1.7 percent of non-oil GDP in 2012). - Deficit partly financed by non-concessional borrowing against future oil receipts (oil sales’ advances). - Medium-term outlook: - Real GDP projected to grow at around 9 percent per year over 2014–15 as new oil-related projects come fully on-stream. - Oil GDP projected to peak in 2016 and fall steadily thereafter absent new oil discoveries. - Non-oil GDP projected to grow by around 5 percent per year over the medium term, driven by agriculture, commerce, and transportation. - Main risks: volatility of fiscal oil revenue and difficult regional security situation. ### Executive Board Assessment — Key Messages - Directors welcomed: - Relatively strong macroeconomic performance amidst regional insecurity. - Solid non-oil GDP growth and relatively muted inflation. - Authorities’ significant contribution to regional security efforts. - Directors’ recommendations and observations: - Called for decisive policy measures for diversified, inclusive growth and improved socioeconomic outcomes. - Noted challenges from volatility and trend decline in oil revenue. - Advised building fiscal buffers over the medium term by: - Enhancing domestic revenue mobilization. - Improving public financial management. - Enhancing public sector efficiency and expenditure prioritization. - Welcomed commitment to limit extra-budgetary emergency spending procedures and recommended careful prioritization of public investment in line with absorptive capacity. - Urged reduction in the non-oil tax collection gap through tax policy and revenue administration reforms and follow-through on Fund technical assistance. - Called for greater coherence in debt management strategy and a prudent external borrowing policy given high risk of debt distress. - Acknowledged cancellation of the Master Facility Agreement with Eximbank China. - Advised against future recourse to nonconcessional oil sale advances and stressed need for corrective actions to cover resulting financing gap in 2014. - Looked forward to timely preparation of new debt management law and recommended centralization of debt approvals and operational management. - Supported authorities’ commitment to achieve completion point under the Enhanced Initiative for Heavily Indebted Poor Countries and continued engagement with the Fund, including on a possible ECF-supported program. - Underscored importance of structural reforms to boost external competitiveness, remove supply-side bottlenecks, strengthen business climate, raise agricultural productivity, promote infrastructure investment, and enhance financial sector development and inclusion. ### Selected Economic and Financial Indicators, 2009–2014 (highlights from Table 1) - Real economy (annual percentage changes): - GDP at constant prices: 2009 4.2; 2010 13.5; 2011 0.1; 2012 8.9; 2013 Prel. 3.6; 2014 Proj. 10.8. - Oil GDP: 2009 -3.7; 2010 -1.1; 2011 -0.4; 2012 -4.0; 2013 Prel. -4.0; 2014 Proj. 37.0. - Non-oil GDP: 2009 6.4; 2010 17.2; 2011 0.2; 2012 11.6; 2013 Prel. 5.0; 2014 Proj. 6.5. - Consumer price index (period average): 2009 10.1; 2010 -2.1; 2011 1.9; 2012 7.7; 2013 Prel. 0.4; 2014 Proj. 3.8. - Consumer price index (end of period): 2009 4.7; 2010 -2.2; 2011 10.8; 2012 2.1; 2013 2.5; 2014 3.2. - Oil prices: - WEO (US$/barrel): 2009 61.8; 2010 79.0; 2011 104.0; 2012 105.0; 2013 104.1; 2014 99.3. - Chadian price (US$/barrel): 2009 55.5; 2010 73.6; 2011 97.7; 2012 102.0; 2013 103.4; 2014 98.2. - Oil production (millions of barrels): 2009 43.6; 2010 44.7; 2011 43.6; 2012 41.2; 2013 36.0; 2014 52.0. - Money and credit (changes as percent of broad money at beginning of period): - Net foreign assets: 2009 -74.7; 2010 13.3; 2011 25.3; 2012 14.8; 2013 -12.0; 2014 0.9. - Net domestic assets: 2009 70.1; 2010 12.0; 2011 -11.0; 2012 -1.3; 2013 20.2; 2014 8.6. - Net claims on central government: 2009 67.7; 2010 7.2; 2011 -18.8; 2012 -13.1; 2013 0.9; 2014 -2.6. - Credit to private sector: 2009 5.9; 2010 10.7; 2011 9.0; 2012 12.9; 2013 9.2; 2014 8.4. - Broad money: 2009 -4.6; 2010 25.3; 2011 14.2; 2012 13.4; 2013 8.2; 2014 9.5. - External sector (valued in CFA francs): - Exports of goods and services, f.o.b.: 2009 -26.1; 2010 23.3; 2011 22.3; 2012 -4.1; 2013 -8.2; 2014 26.7. - Imports of goods and services, f.o.b.: 2009 4.5; 2010 18.1; 2011 11.3; 2012 3.8; 2013 -6.4; 2014 18.6. - Export volume: 2009 0.3; 2010 -5.6; 2011 -2.8; 2012 -8.6; 2013 -7.3; 2014 27.2. - Import volume: 2009 12.0; 2010 15.1; 2011 4.0; 2012 4.9; 2013 -5.3; 2014 17.7. - Overall balance of payments (percent of GDP): 2009 -8.0; 2010 0.1; 2011 2.9; 2012 1.6; 2013 -1.5; 2014 -3.4. - Current account balance, including official transfers (percent of GDP): 2009 -9.2; 2010 -9.0; 2011 -5.6; 2012 -8.3; 2013 -8.8; 2014 -6.5. - Terms of trade: 2009 -21.1; 2010 27.2; 2011 17.6; 2012 6.0; 2013 0.2; 2014 -1.2. - Debt and fiscal (percent of non-oil GDP unless indicated): - External debt (percent of GDP): 2009 17.6; 2010 20.2; 2011 23.0; 2012 20.9; 2013 23.2; 2014 18.3. - NPV of external debt (percent of exports of goods and services): 2009 36.3; 2010 30.9; 2011 48.2; 2012 36.6; 2013 53.1; 2014 38.6. - Revenue and grants (percent of non-oil GDP): 2009 18.6; 2010 26.7; 2011 34.6; 2012 33.4; 2013 25.5; 2014 28.7. - Of which: non-oil revenue: 2009 7.3; 2010 8.1; 2011 7.6; 2012 7.7; 2013 8.4; 2014 8.8. - Expenditure (percent of non-oil GDP): 2009 28.1; 2010 32.2; 2011 31.3; 2012 32.8; 2013 31.5; 2014 29.5. - Non-oil primary balance (commitment basis, excl. grants): 2009 -17.1; 2010 -20.1; 2011 -19.6; 2012 -19.2; 2013 -18.2; 2014 -16.1. - Overall fiscal balance (incl. grants, commitment basis): 2009 -9.4; 2010 -5.5; 2011 3.3; 2012 0.6; 2013 -6.0; 2014 -0.8. - Overall fiscal balance (incl. grants, cash basis): 2009 -9.3; 2010 -4.2; 2011 0.6; 2012 1.7; 2013 -6.0; 2014 -1.9. - Total debt (percent of GDP): 2009 23.1; 2010 25.6; 2011 31.1; 2012 28.0; 2013 30.2; 2014 23.8. - Memorandum items: - Nominal GDP (in billions of CFA francs): 2009 4,369; 2010 5,279; 2011 5,736; 2012 6,579; 2013 6,627; 2014 7,602. - Of which non-oil GDP (in billions CFA francs): 2009 3,515; 2010 3,999; 2011 4,108; 2012 4,614; 2013 4,812; 2014 5,296. - Nominal GDP (in billions of US$): 2009 9.3; 2010 10.7; 2011 12.2; 2012 12.9; 2013 13.4; 2014 15.9. - Of which non-oil GDP (in billions of US$): 2009 7.5; 2010 8.1; 2011 8.7; 2012 9.0; 2013 9.7; 2014 11.1. ### Statement by Chadian Authorities — Implementation and Policy Priorities - Macro and fiscal performance: - Authorities report real GDP growth in 2013 of more than 3.5 percent, helped by strong non-oil sector growth. - Fiscal policy tightened; non-oil primary deficit (NOPD) in line with programmed target under Staff-Monitored Program (SMP). - 2013 financing needs rose due to: shortfall in oil revenue, regional security outlays (Mali operations, refugees from Central African Republic, border security), and timing uncertainty of envisaged financing sources — leading to resort to oil sales’ advances. - Authorities committed to remedial actions for 2014, including revised 2014 budget and improved coordination in debt management. - Implementation of the Staff-Monitored Program (SMP): - As of end-September (2013), five out of seven quantitative targets met. - Two missed targets: ceilings on contracting or guaranteeing new non-concessional external public debt and new guaranteed external debt — both explained by resort to oil sales advances under extraordinary circumstances. - Structural benchmarks mostly expected to be met albeit some with delay, including: - Reconciliation of treasury and central bank data on net claims at end-2012. - Submission to Parliament of 2014 draft budget aligned with gradual NOPD reduction objective. - Limits to emergency spending procedures (Dépenses avant ordonnancement, DAOs) — regulations issued, monitoring committee established, commission for rapid regularization of DAOs in place. - Remaining difficult structural measure: preparing and updating a monthly treasury cash management plan due to institutional and technical complexity. - Authorities committed to enhancing capacity of ETAVID and CONAD (debt approval/monitoring structures); receiving technical assistance from World Bank and AFRITAC Central. - Medium-term policy challenges and priorities: - Authorities intend to pursue structural reforms to ensure sustained macro stability, poverty reduction, and structural transformation. - Diversification away from oil toward agriculture and livestock to make growth more inclusive. - Fiscal policies and reforms to increase non-oil revenue include reductions in tax exemptions, harmonization of tax code with CEMAC requirements, automation of major customs offices. - Expenditure-side actions: limit DAOs to urgent cases and regularize them; streamline government accounts at commercial banks; implement accounting IT system in the year; resume publication of procurement bulletins in early 2014 and increase public contracts awarded through competitive bidding. - Debt sustainability: - Preparing a public debt management law to distribute responsibilities and improve coordination. - Cancelation of the Master Facility Agreement with Eximbank China as indication of commitment to debt sustainability. - Continued efforts to obtain concessional resources and to reach HIPC Completion point as soon as possible. - Structural competitiveness: - Tackling inadequate infrastructure and public services (electricity, roads, water supply) and high transaction costs to strengthen competitiveness. - Further financial sector actions to increase access to financial services, especially rural areas, and develop the microfinance sector. *Source: _cr14100 - 2. JSAN on PRSP APR (February–October 2014)._* ### CONCLUSION ### CONCLUSION ### Institutional and financial constraints - Institutional and financial constraints remain key impediments to Chad reaching its development objectives. - Chad urgently needs assistance to make further progress towards mobilizing the resources (domestic revenue, debt relief, external support) needed to meet its long-term development challenges while preserving debt sustainability. ### Role of the Fund and international community - The Fund can play a critical role in providing needed technical assistance, especially in the fiscal area, and in catalyzing donor resources while assisting in efforts to meet the requirements for debt relief under the HIPC Initiative. - As experiences of fragile states show, strong involvement of the Fund is critical to alleviating institutional and policy capacity constraints, and catalyzing the necessary financial support. - The authorities believe that the strong policy performance of recent years and under the SMP should be recognized by a Fund financial arrangement that provides the framework for a swift organization of the donor round-table and the achievement of debt relief under the HIPC Initiative. - The staff would appreciate Directors’ full support for a follow-up medium term program under the ECF. ### Authorities’ strategy and planned actions - The Chadian authorities have designed a second-generation growth and poverty reduction strategy embodied in their National Development Plan (NDP) 2013-2015 which will guide their actions going forward. - They are seeking adequate resources to implement the NDP and, in this vein, they plan to gather a donor round-table in the first half of 2014, and are hopeful that it will receive the full support of the international community. *Source: _cr14100 - CONCLUSION* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14100.pdf_