## _cr14282 ## Source details **Canonical URL:** [_cr14282](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14282.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14282.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14282.pdf.json) --- ### Recent macroeconomic developments and outlook - Real GDP grew by 3.9 percent in 2013. - Non-oil GDP expanded by 5.9 percent in 2013 (down from 11.6 percent in 2012). - Inflation: annual average rate fell to 0.2 percent in 2013 from 7.7 percent in 2012; annual average inflation fell to -0.4 percent in May 2014. - External current account deficit: estimated at 9.5 percent of GDP in 2013. - International reserves: US$1.2 billion at end-2013 (from US$0.9 billion in 2012), equivalent to 2.5 months of imports in 2013; fell to US$0.9 billion at end-March 2014. - Banking sector: bank credit to the economy grew 6.1 percent in 2013; total banking system assets grew by 23 percent in 2013 to FCFA 850 billion (13 percent of GDP). Broad money grew 18 percent year-on-year as of end-May 2014; credit to the economy accelerated to 20 percent. ### The State’s purchase of Chevron’s shares — transaction and financing - Transaction date: June 2014 (announcement date provided in text). - Assets acquired: - 25 percent stake in ESSO (Exxon 40 percent, Petronas 35 percent, Chevron 25 percent). - Stakes in two pipeline companies TOTCO (21.3 percent) and COTCO (21.5 percent). - Transaction amount: US$1.4 billion (explicitly stated as "amounting to about US$1.4 billion, 8.8 percent of GDP"). - Financing: - SHT contracted a loan from Glencore Energy under commercial terms, to be repaid against crude oil shipments over four years (2014-18). - Loan features include repayment over four years (2014-18); schedule allows SHT to cover consortium “cash calls”; a reserve fund will be constituted to compensate for shortfalls relative to minimum loan repayment amounts. - Alternate description in text: SHT negotiated a commercial arrangement with Glencore Energy amounting to US$1.25 billion leveraging part of future cargoes; a temporary reserve fund of about US$130 million will be returned to the state after four years; Government will collect US$100 million from Chevron in 2014 to settle potential past tax liabilities. ### Fiscal and budgetary implications of the acquisition - Short-term financing: acquisition financed through a new oil sales advance operation with Glencore Energy to be repaid over four years against part of SHT’s production share. - Fiscal cost and benefits: - SHT will contribute to ESSO’s capital and operating expenses (its share of consortium cash calls) and service the Glencore loan over 2014-18. - The State will collect the full amount of the profits from the oil sales rather than the 60 percent Corporate Income Tax portion previously collected. - Net impact on government's cash flow relative to previous arrangement is estimated to be positive over time. - Staff projections show breakeven in budgetary receipts (relative to a scenario without SHT’s acquisition) would be achieved shortly after repayment of the loan; the operation is expected to reach breakeven as early as 2018. - Debt treatment and staff view: - Staff treats the prepayment agreement as debt because prepayment allows other government crude oil to be used to repay oil sales advances in case of shortfalls. - Overall assessment: long-term fiscal and debt sustainability implications broadly positive under current oil production and price assumptions. ### Oil sector prospects and fiscal revenue profile (Box 2) - Oil production decline and recovery: - Oil production declined by 11.4 percent to 36.5 million barrels in 2013. - Two new producers: Caracal/Glencore (operations end-2013; first exports early 2014) and CNPC (expected to commence export production in second half of 2014). - Based on current profiles, production is expected to double between 2013 and 2016 and peak at some 88 million barrels in 2017; absent new discoveries, production would then steadily decline. - Fiscal oil revenue dynamics: - Fiscal oil revenue fell by about 7.7 percent of non-oil GDP in 2013, producing an overall fiscal deficit of 6.4 percent of non-oil GDP. - Fiscal oil revenue is projected to be lower in 2015 than in 2014 due to expensing of accumulated investment costs; projected to pick up in 2016, peak in 2017, then gradually decline to below 10 percent of non-oil GDP by the end of the decade. - Key medium-term projections (2013–2017, selected): - Real GDP growth (percent per year): 3.9, 9.6, 6.7, 9.7, 6.9. - Oil (growth/contribution): -6.8, 30.3, 15.8, 32.0, 14.2. - Non-oil (growth): 5.9, 6.3, 4.9, 4.9, 4.9. - Consumer price inflation (percent per year): 0.2, 2.8, 3.1, 3.0, 3.0. - External current account balance (percent of GDP): -9.5, -7.2, -7.1, -5.9, -4.2. - Government revenue and grants (percent of GDP): 26.8, 28.8, 26.7, 30.2, 31.5. - Of which: oil revenue (percent of GDP): 15.5, 17.3, 14.9, 17.8, 18.7. - Memorandum — Chadian crude oil price (US$/barrel): 103.9, 103.0, 97.9, 93.0, 88.6. ### Medium-term macro framework and ECF rationale - Rationale for three-year ECF: protracted balance of payments problems due to declining trend in volatile oil revenue and sizable development needs. - ECF objectives: - (i) ensure fiscal sustainability; - (ii) strengthen fiscal institutions and governance; - (iii) promote sustained and inclusive growth over the medium-term; - (iv) facilitate the move to the HIPC Completion Point. - Growth and reserves projections: - Real GDP projection: around 8 percent per year over 2014–17 driven by oil projects coming on-stream by 2016. - Non-oil GDP growth: about 5 percent per year over the medium term. - Inflation expected around CEMAC target of 3 percent. - External current account projected to decline to 4.2 percent of GDP by 2017 assuming Chadian oil prices fall from around US$103 per barrel in 2014 to less than US$90 per barrel by 2017. - External financing gap: estimated to average US$64 million per year during 2014-17; expected to be filled with ECF disbursements and HIPC debt relief (from 2015 onwards). - International reserves projected to increase to US$2.1 billion or 3.3 months of imports (excluding oil imports) by 2017. - Public debt projected to fall below 22 percent of GDP (excluding impact of debt relief). ### 2014 financing needs, revised budget, and adjustment measures - 2014 financing totals and gap (Text Table 2, selected): - Total financing requirement: CFAF 289,603 billion; USD 5,435.4 million; In percent of GDP: 3.8. - Financing gap under the 2014 budget: CFAF 96,201 billion; USD 1,811.8 million; In percent of GDP: 1.3. - Debt service on Glencore loan: CFAF 12,726 billion; USD 265.2 million; In percent of GDP: 1.7. - III. Financing gap before IMF: CFAF 10,200 billion; USD 0.2 million; In percent of GDP: 0.1. - 2014 revised budget measures: - NOPD to be reduced to just under 16 percent of non-oil GDP via cuts in primary current expenditures totaling 1.1 percent of non-oil GDP relative to initial budget. - One-off accommodations: Investments linked to the 2015 African Union summit: 1 percent of non-oil GDP; Additional security-related spending: 0.1 percent of non-oil GDP. - Financing sources include extraordinary proceeds from settlements with oil companies, issuance of Treasury bills, proceeds from mobile phone licenses, US$100 million payment by Chevron to settle potential tax liabilities, and rescheduling of US$60 million in repayments to last year’s Glencore loan. - 2015 targets: - Government targets an NOPD of 14.1 percent of non-oil GDP, which could be raised to 15 percent of non-oil GDP should additional financing materialize. - Up to CFAF 20 billion (0.3 percent of non-oil GDP) of excess receipts in 2014 may be spent in 2014; remaining balance to finance 2015. ### Debt sustainability, HIPC/MDRI implications, and risks - DSA assessment: current classification — high risk of external debt distress under baseline. - Recent debt developments: - Two Glencore oil sales’ advance operations in May and August 2013 for US$600 million; SHT commercial borrowing in June 2014 for US$1.4 billion (treated as debt by staff) raised external public sector debt to an estimated 26.6 percent of GDP in 2014. - HIPC/MDRI potential: - Debt relief from multilaterals only could amount to about US$850 million and imply a reduction in debt service of about US$40 million per year over the next 20 years. - A DSA simulation assuming multilateral debt relief only suggests the risk of debt distress would fall to moderate. - Detailed debt reconciliation exercise required to firm up estimates prior to Completion Point. - Key DSA assumptions and sensitivities: - Discount rate: 5 percent. - Oil production expected to rise from 100,000 bpd in 2013 to about 225,000 bpd in 2016-17; long-term exhaustion around 2030 absent new discoveries. - Baseline assumes NOPD reduced to 14-15 percent of non-oil GDP by 2018 and long-term adjustments to reach NOPD of 0.8 percent of non-oil GDP by 2033. - Stress tests: debt indicators highly sensitive to negative shocks to exports (e.g., oil price shock); a one-standard-deviation drop in exports in 2014–15 would breach all indicative debt burden thresholds. - Staff recommendation and policy implications: - Maintain and deepen sustained fiscal adjustment. - Adopt and adhere to a prudent external borrowing policy, including proposed continuous performance criterion to limit new borrowing to loans with a minimum grant element of 35 percent. - Prioritize economic diversification to reduce reliance on oil exports. - HIPC debt relief would materially reduce vulnerabilities but prudent borrowing would remain essential. ### Program design, conditionality, and implementation modalities - Authorities requested a three-year ECF arrangement: 120 percent of quota (SDR 79.92 million). - Disbursement schedule (Million SDR): - 13.31 — August 1, 2014 — Executive Board approval. - 13.31 — February 15, 2015 — Observance of performance criteria for December 31, 2014 and completion of first review. - 10.66 — August 15, 2015 — Observance for June 30, 2015 and second review. - 10.66 — February 15, 2016 — Observance for December 31, 2015 and third review. - 10.66 — August 15, 2016 — Observance for June 30, 2016 and fourth review. - 10.66 — February 15, 2017 — Observance for December 31, 2016 and fifth review. - 10.66 — July 15, 2017 — Observance for May 31, 2017 and sixth review. - Quantitative performance criteria include: - Floor on non-oil primary balance. - Ceiling on net domestic government financing. - Zero ceilings on accumulation of domestic and external payment arrears. - Floor for poverty-reducing social spending. - Zero ceiling on contracting new non-concessional external debt (with limited trade-financing exception). - Structural conditionality priorities for 2014 (selected): - Prepare and publish quarterly budget execution reports — End-Sept. 2014. - Adopt regulatory framework for debt management — End-Sept. 2014. - Submit 2015 draft budget targeting NOPD of 14.1 percent of non-oil GDP — End-Oct. 2014. - Limit emergency spending procedures to no more than 17 percent of domestically financed spending in 2014 (excluding wages and debt) — End-Dec. 2014. - Safeguards and BEAC monitoring: - Annual monitoring of BEAC safeguards developments; 2013 BEAC quadrennial assessment found risks elevated but progress ongoing. - Safeguards staff visit April 1-9, 2014 concluded BEAC made good progress on 2013 assessment recommendations. ### Public financial management, revenue administration, and sequencing of reforms - PFM reforms under PAMFIP and MEFP: - Reconcile Treasury and BEAC on net claims to create single Treasury account — to be completed by end-2014. - Integrate government accounting with the expenditure chain; computerize accounting with effective implementation from January 1, 2015 at the latest. - Establish rolling cash-flow management plan with quarterly horizon; prepare monthly/quarterly cash flow plans with TA. - Reduce use of DAOs from 20 percent of domestically financed spending in 2013 (excluding wages and debt service) to 12 percent by 2016 (structural benchmark). - Publish quarterly budget implementation reports (structural benchmark for September 2014). - Revenue administration and tax policy: - Increase non-oil tax revenue; consolidate revenue chain with Integrated System for Tax Management (SIGI) expected by end-2014. - Request TA to reform personal income tax and update oil revenue forecast models to include new petroleum projects. - Revise reporting procedures to account for SHT’s new role in Esso consortium. - Extend ASYCUDA++ to main customs points and operationalize scanners; short-term customs measures to optimize clearances. - Debt management improvements: - Strengthen CONAD: finalize reorganization decree; establish permanent secretariat; train personnel (structural benchmark end-September). - Produce annual debt management reports after cleaning and auditing debt database and training on SYGADE. - Medium-term objective: centralize external borrowing powers within the Ministry of Finance consistent with CEMAC regulation. ### Social, growth inclusivity, and donor support - Social spending and priorities: - Poverty-reducing social spending floor observed under SMP; social and other priority spending to be safeguarded under ECF as a performance criterion. - Donor conference (June 20-21) pledged US$2.1 billion for NDP 2013–15 and PNSA 2014–21. - Growth inclusivity measures: - Focus on rural areas, youth, and women; agricultural support (irrigation, seeds, mechanization); prioritize infrastructure (roads, energy, electricity supply expansion). - Improve business climate, implement business climate program, support SMEs, and promote exports. - Financial inclusion: household deposit accounts per 1,000 adults rose from 3.5 in 2008 to almost 10 in 2012; SME depositors more than doubled 2008–2012. - Use of extraordinary revenues: - Recommendation: use part of extraordinary oil revenues to cover 2015 financing needs and accrue fiscal buffers over 2016-17 to prepare for exogenous shocks. ### Program risks and mitigation - Main risks: - Security and humanitarian pressures from regional instability. - Weak institutions and capacity constraints. - Potential fall in international oil prices. - Fiscal risks from spending commitments (AU summit infrastructure) and transfers to loss-making SOEs. - Mitigation measures: - Institutional reforms in PFM and debt management (including enhanced controls on DAOs). - Continued international assistance crucial for humanitarian and financing support. - Commitment to limit future non-concessional borrowing; analysis of new loans by ETAVID and CONAD prior to signature. *Italic: Source — IMF staff report content unit _cr14282 (excerpts provided in the prompt).* ### 1. The State’s Purchase of Chevron’s Shares: Fiscal and Institutional Implications _________________9 ### 1. The State’s Purchase of Chevron’s Shares: Fiscal and Institutional Implications ### Background and Context - Chad has benefitted from internal political stability but faces regional security pressures along borders with Libya, the C.A.R., Nigeria, and Cameroon, and hosts tens of thousands of refugees and retournés. - Human development remains weak: ranked 184th out of 186 countries on the UN’s 2013 Human Development Index. - Recent improvements in economic management under a Staff-Monitored Program (SMP) in 2013 include tighter fiscal stance, progress in public financial management (PFM), and steps toward Extractive Industries Transparency Initiative (EITI) compliance. - Chad reached the HIPC Decision Point in 2001 but has not achieved the HIPC Completion Point; reaching Completion Point is a stated priority. ### Recent Macroeconomic Developments (2008–2014) - Real GDP grew by 3.9 percent in 2013 despite a contraction in oil production. - Non-oil GDP expanded by 5.9 percent in 2013, down from 11.6 percent in 2012. - Inflation: annual average rate fell to 0.2 percent in 2013 from 7.7 percent in 2012; annual average inflation fell to -0.4 percent in May 2014. - Fiscal stance: non-oil primary deficit (NOPD) fell by 2.5 percent of non-oil GDP in 2013 due to higher non-oil revenue and contraction in domestically-financed investment spending. - Overall fiscal balance (cash basis) posted a deficit of 6.4 percent of non-oil GDP in 2013, reflecting lower-than-budgeted oil revenues and exceptional security spending (including participation in Mali). - Fiscal performance as of end-April 2014: NOPD about CFAF 392 billion (7.4 percent of annualized non-oil GDP), or about 46 percent of its annual target. - External sector: external current account deficit estimated at 9.5 percent of GDP in 2013 due to decline in oil exports. - International reserves: US$1.2 billion at end-2013 (from US$0.9 billion in 2012), equivalent to 2.5 months of imports in 2013; fell to US$0.9 billion at end-March 2014. - Staff assessment: non-oil REER over-valued by about 15—22 percent. - Banking sector: bank credit to the economy grew 6.1 percent in 2013; as of end-May 2014, broad money grew 18 percent year-on-year and credit to the economy growth accelerated to 20 percent. Total banking system assets grew by 23 percent in 2013 to FCFA 850 billion (13 percent of GDP). ### Performance under the Staff-Monitored Program (June–December 2013) - SMP objectives: sustain macroeconomic improvements through PFM reforms and implementation of the National Development Plan 2013-15. - Quantitative targets: broadly satisfactory; most targets met, including NOPD, poverty-reducing social spending, and arrears clearance. - Non-observance: a US$600 million oil sales advance operation led to non-observance of continuous ceilings on contracting or guaranteeing new non-concessional external debt and on new collateralized external debt by the government and/or non-financial public enterprises. - Reason for borrowing: unexpected oil revenue shortfall and lack of alternative financing, despite 2013 revised budget cutting domestically-financed investment, transfers, and goods and services by 1.4 percent of non-oil GDP. - Structural benchmarks: mixed implementation. Ceiling on emergency spending procedures (Dépenses Avant Ordonnancement—DAO) met; cash management reforms not met (need to improve oil revenue forecasting for diverse fiscal regimes); reconciliation of banking system net claims on government not fully achieved. ### Justification and Objectives of a Three-Year ECF Arrangement - Rationale: protracted balance of payments problems due to a declining trend in volatile oil revenue and sizable development needs. - Objectives of the ECF arrangement: - (i) ensure fiscal sustainability; - (ii) strengthen fiscal institutions and governance; - (iii) promote sustained and inclusive growth over the medium-term; - (iv) facilitate the move to the HIPC Completion Point. - Strategy: progressive ramp-up of structural reforms, starting with “quick wins” then deepening reforms to support inclusive non-oil growth; program to catalyze bilateral and multilateral financing, including possible HIPC Completion Point effects. ### Medium-Term Macroeconomic Framework and Projections (2014–17) - Real GDP projection: around 8 percent per year over 2014–17, driven by new oil-related projects coming fully on-stream by 2016. - Oil production: expected to peak in 2017 then fall steadily absent new discoveries. - Non-oil GDP growth: about 5 percent per year over the medium term. - Inflation: expected to remain around CEMAC’s target of 3 percent a year. - External current account: projected to decline to 4.2 percent of GDP by 2017, assuming Chadian oil prices fall from around US$103 per barrel in 2014 to less than US$90 per barrel by 2017. - External financing gap: estimated to average US$64 million per year during 2014-17; expected to be filled with ECF disbursements and HIPC debt relief (from 2015 onwards). - International reserves: projected to increase to US$2.1 billion or 3.3 months of imports (excluding oil imports) by 2017. - Public debt: projected to fall below 22 percent of GDP (excluding impact of debt relief). ### Fiscal and Institutional Implications of the Acquisition - Short-term financing: acquisition financed through a new oil sales advance operation with Glencore Energy to be repaid over four years against part of SHT’s production share. - Fiscal cost and benefits: - SHT will contribute to ESSO’s capital and operating expenses (its share of consortium cash calls) and service the Glencore loan over the next four years. - In addition to standard royalties, the State will now collect the full amount of the profits from the oil sales rather than the 60 percent Corporate Income Tax portion. - Net impact on government's cash flow relative to previous arrangement is estimated to be positive over time. - Staff projections show breakeven in budgetary receipts (relative to a scenario without SHT’s acquisition) would be achieved shortly after repayment of the loan with Glencore Energy; the operation is expected to reach breakeven as early as 2018. - Overall assessment: long-term fiscal and debt sustainability implications broadly positive under current oil production and price assumptions. ### Fiscal Adjustment Path and Projections Related to Oil Sector Changes - Oil revenue projections adjusted: downward for 2014-2015 and upward for 2016 and 2017 relative to the 2014 Article IV. - CNPC production profile: expected to start exports in the second half of 2014, with significant export increases only in 2016; implies back-loaded increase in income tax receipts because past investment costs must be expensed first. - NOPD path: baseline foresees a gradual reduction in the NOPD totaling about 3.5 percent of non-oil GDP by 2017. - Near-term financing constraints: may require a larger temporary adjustment in 2015. - Fiscal balances: small overall fiscal surpluses in 2016-17 expected to lead to build-up of deposits to smooth government spending and facilitate economic diversification. - Public debt trajectory: public debt would fall below 22 percent of GDP (excluding the impact of debt relief). *Source: IMF staff report content provided in the supplied PDF excerpt.* ### Box 2. Chad: Oil Sector Prospects and the Impact on Fiscal Revenues ### Box 2. Chad: Oil Sector Prospects and the Impact on Fiscal Revenues ### Oil production trends and recent impact on fiscal revenues - Oil production declined by 11.4 percent to 36.5 million barrels in 2013 — the lowest level since 2004. - The decline led to a significant fall in fiscal revenue: fiscal oil revenue fell by about 7.7 percent of non-oil GDP, producing a sizeable overall fiscal deficit of 6.4 percent of non-oil GDP. - Causes of the 2013 decline: natural decline in mature fields and other factors that are mostly technical and temporary. ### New producers, revised production profiles, and medium-term production outlook - Two new producers entered/expanded production: - Caracal/Glencore started operations toward the end of 2013 and made first oil exports in early 2014. - CNPC, previously producing only for the domestic refinery, is expected to commence export production in the second half of 2014. - Companies have revised production profiles as exploration results became clearer, forcing revisions to Chad’s macroeconomic projections. - Based on current profiles: - Production is expected to double between 2013 and 2016. - Production is projected to reach a peak of some 88 million barrels in 2017. - Absent any new discoveries, production would steadily decline over the long term, resulting in lower fiscal oil revenues. ### Fiscal oil revenue profile and implications for fiscal policy - Fiscal oil revenue over the medium term is projected to remain uneven, implying a need to accumulate fiscal buffers to smooth government spending. - Fiscal oil revenue is projected to be lower in 2015 than in 2014 due to the expensing of accumulated investment costs. - Fiscal oil revenue is projected to pick up in 2016, peak in 2017, then gradually decline to below 10 percent of non-oil GDP by the end of the decade. ### Key medium-term projections (Text Table 1 — periods 2013–2017) - Real GDP growth (percent per year): 3.9, 9.6, 6.7, 9.7, 6.9 - Oil (growth/contribution): -6.8, 30.3, 15.8, 32.0, 14.2 - Non-oil (growth): 5.9, 6.3, 4.9, 4.9, 4.9 - Consumer price inflation (percent per year): 0.2, 2.8, 3.1, 3.0, 3.0 - External current account balance (percent of GDP): -9.5, -7.2, -7.1, -5.9, -4.2 - Government revenue and grants (percent of GDP): 26.8, 28.8, 26.7, 30.2, 31.5 - Of which: oil revenue (percent of GDP): 15.5, 17.3, 14.9, 17.8, 18.7 - Of which: grants (percent of GDP): 2.3, 2.7, 2.6, 2.6, 2.6 - Government expenditure (commitment basis, percent of GDP): 30.3, 29.3, 29.0, 30.0, 29.9 - Overall fiscal balance (incl. grants; cash basis, percent of GDP): -6.4, -0.5, -2.5, 0.3, 1.7 - Non-oil primary fiscal balance (excl. grants; commitment basis, percent of non-oil GDP): -17.5, -15.9, -14.1, -14.6, -14.0 - Memorandum item — Chadian crude oil price (US$/barrel): 103.9, 103.0, 97.9, 93.0, 88.6 - (Table note: values are expressed in percent of non-oil GDP where indicated.) ### 2014 financing requirements and gaps (Text Table 2) - I. Total financing requirement: CFAF 289,603 billion; USD 5,435.4 million; In percent of GDP: 3.8 - Financing gap under the 2014 budget: CFAF 96,201 billion; USD 1,811.8 million; In percent of GDP: 1.3 - Debt service on Glencore loan: CFAF 12,726 billion; USD 265.2 million; In percent of GDP: 1.7 - Debt service on other new loans (excl. Glencore): CFAF 8.9 billion; USD 190.2 million; In percent of GDP: 0.1 - Adjustment of oil revenues relative to initial budget: CFAF 57,118 billion; USD 1,181.1 million; In percent of GDP: 0.7 - II. Sources of Funding: CFAF 279,582 billion; USD 5,825.2 million; In percent of GDP: 3.7 - Domestic financing: CFAF 246,513 billion; USD 4,634.6 million; In percent of GDP: 3.2 - Regional capital market: CFAF 45,940 billion; USD 0.8 million; In percent of GDP: 0.6 - Official financing: CFAF 10,210 billion; USD 0.2 million; In percent of GDP: 0.1 - Treasury notes: CFAF 35,730 billion; USD 0.7 million; In percent of GDP: 0.5 - Privatization and other extraordinary receipts: CFAF 20,142 billion; USD 193.8 million; In percent of GDP: 2.6 - Rescheduling of Glencore 2013 loan advance: CFAF 29,600 billion; USD 0.5 million; In percent of GDP: 0.4 - Non-oil revenue (updated projection): CFAF 480 billion; USD 0.1 million; In percent of GDP: 0.0 - Net cuts in primary spending relative to initial budget: CFAF 120 billion; USD 0.0 million; In percent of GDP: 0.0 - III. Financing gap before IMF: CFAF 10,200 billion; USD 0.2 million; In percent of GDP: 0.1 ### 2014–2015 budgetary adjustments, targets, and financing measures - 2014 revised budget delivers strong upfront adjustment while accommodating security and investment needs. - NOPD (net operating primary deficit) is to be reduced to just under 16 percent of non-oil GDP, via cuts in primary current expenditures totaling 1.1 percent of non-oil GDP relative to the initial budget, yielding an adjustment of 1.8 percentage points of non-oil GDP relative to 2013. - Expenditure savings sources: - Reduction in non-security transfers (cleanup of list of eligible public institutions). - Wage savings from removal of “ghost” workers after automated payroll management system introduction. - One-off accommodations: - Investments linked to the 2015 African Union summit: 1 percent of non-oil GDP. - Additional security-related spending: 0.1 percent of non-oil GDP. - Despite expenditure cuts, downward revision in oil revenues and added debt service from the Glencore oil advance increase financing needs to about 5 percent of non-oil GDP. - Financing sources for those needs include: - Extraordinary proceeds from settlements with oil companies. - Issuance of Treasury bills. - Proceeds from mobile phone licenses. - Two by-products from the State’s acquisition of Chevron’s participation in the Esso consortium: a US$100 million payment by Chevron to settle eventual tax liabilities, and a rescheduling of US$60 million in repayments to last year’s loan from Glencore. - 2015 targets: - Government targets an NOPD of 14.1 percent of non-oil GDP, which could be raised to 15 percent of GDP should additional financing materialize. - The 14.1 percent target is consistent with current oil revenue projections and identified financing sources. - Adjustment relative to 2014 is 1.8 percent of non-oil GDP, mainly from reduced domestically-financed investment (conclusion of one-off AU Summit works). - Up to CFAF 20 billion (0.3 percent of non-oil GDP) of excess receipts in 2014 may be spent in 2014; any remaining balance will finance the 2015 budget. ### Debt and external financing policy - Authorities plan to meet future external financing needs through grants and concessional loans. - Debt sustainability analysis (DSA) concludes the risk of debt distress is high given projected long-term reduction in oil exports. - Increase in external public debt stock including recent oil advance operations leads to breach of the debt service threshold under the baseline scenario. - Authorities commit to limit borrowing to loans with a minimum grant element of 35 percent (proposed continuous performance criterion). ### Security shocks, donor support, and social priorities - Additional spending pressures may arise from regional security situation; international assistance is critical for humanitarian assistance and social support. - Donor conference in Paris on June 20-21 produced pledges of US$2.1 billion for the NDP 2013–15 and the National Program for Food Security (PNSA) 2014–21, effectively closing their total financing gap. - Social and other priority spending will be safeguarded under the program; this commitment is a performance criterion under the ECF arrangement. ### Fiscal structural reforms and sequencing - Program emphasizes gradual, sustained structural reforms to increase non-oil fiscal revenue, enhance fiscal control, and improve public spending efficiency; careful prioritization required. - Public financial management (PFM) reforms under PAMFIP: - Reconciliation between the Treasury and the BEAC on net claims from the banking system to create a single Treasury account to be completed by end-2014. - Integrate government accounting with the expenditure chain to monitor from commitment to final payment. - Establish a rolling cash-flow management plan with a quarterly horizon. - Prepare and disseminate quarterly budget implementation reports (structural benchmark for September 2014). - Reduce use of emergency spending procedures (DAOs) from 20 percent of domestically financed spending in 2013 (excluding wages and debt service) to 12 percent by 2016 (structural benchmark for 2014), with mechanisms to ensure periodic and complete regularization of DAOs. - Public procurement improvements: - Align public procurement procedures with international standards. - Separate control and regulation functions of procurement and enhance transparency to reduce negotiated contracts and prioritize competitive bidding. - Revenue administration and tax policy reforms: - Increase collection of non-oil tax revenues and improve oil revenue forecasting and transparency. - Request technical assistance to reform direct taxation, particularly the personal income tax, and to update/optimize oil revenue forecast models to include new petroleum projects. - Revise reporting procedures to account for SHT’s new role in Esso’s consortium. - Cash management technical assistance to prepare monthly and quarterly cash flow plans. - Revenue administration strengthening: prioritize technical and human capacity building and governance improvements for tax and customs institutions. - Short-term customs measures: optimize customs clearance procedures and modernize the Customs General Directorate. - Extend SYDONIA++ system to main customs points and make scanners operational, particularly at a frontier post with Cameroon. ### Debt management improvements - Short-term strategy: - Strengthen inter-ministerial debt analysis commission (CONAD) to analyze and issue reasoned opinions on debt proposals prior to signature through adoption of regulatory and institutional frameworks (structural benchmark for end-September). - Increase transparency via the production and dissemination of debt management annual reports. - Medium-term objective: centralize external borrowing powers within the Ministry of Finance consistent with CEMAC regulation, requiring updates to legal, regulatory, and institutional frameworks. ### Additional reforms for inclusive and sustainable growth - Focus on rural areas, youth, and women to progress toward MDGs and reduce poverty; large rural poverty incidence persists. - Agricultural support measures: promote irrigation, provide seeds, and farm mechanization; international partners increase assistance via NGOs. - Improve business environment to foster private sector development: implement business climate program, strengthen SMEs, promote investments and exports. - Public investment plans prioritize infrastructure (roads and energy) and expanding electricity supply via infrastructure improvements and interconnection projects. - Reduce financial exclusion: - Household deposit accounts with commercial banks per 1,000 adults increased from 3.5 in 2008 to almost 10 in 2012. - SME depositors more than doubled between 2008 and 2012. - Financial intermediation indicators remain low versus CEMAC peers; credit reporting system and microfinance sector remain underdeveloped. - Strategy based on 2011 FSAP recommendations, focusing on rural access to financial services. ### HIPC Completion Point implications - Chad is the only remaining decision point country, having reached the HIPC decision point in 2001. - Potential benefits of HIPC/MDRI relief: - Debt relief could exceed US$850 million. - Could imply a reduction in debt service of at least US$40 million per year over the next 20 years. - Could reduce the external debt stock by up to a half (in nominal terms). - Remaining HIPC relief from the Fund is estimated at SDR 8.5 million. - A detailed debt reconciliation exercise is required to firm up estimates prior to reaching the HIPC Completion Point. - A DSA simulation assuming multilateral debt relief only suggests the risk of debt distress would fall to moderate, though prudent fiscal and debt management and economic diversification remain necessary. *Source: IMF staff estimates and projections; Chadian authorities (Box 2, “Chad: Oil Sector Prospects and the Impact on Fiscal Revenues”).* ### 34. Satisfactory performance under the proposed ECF-supported program could pave the ### Satisfactory performance under the proposed ECF-supported program could pave the way for Chad to achieve the HIPC Completion Point ### HIPC Completion Point prospects and prerequisites - Completion Point could be achieved in the first half of 2015 if: - Satisfactory performance of at least six months under the ECF-supported program; - One-year satisfactory implementation of the PRSP (the National Development Plan 2013-15); - Implementation of HIPC triggers (mainly covering priority sectors and governance issues, Table 8). - Two specific near-term governance-related actions required: - Publication of quarterly procurement bulletins; - Implementation of a governance strategy and action plan. - The World Bank is assisting on these issues and a joint Fund-Bank assessment (JSAN) will be prepared on the annual program report on NDP implementation. - Timing condition: performance in the first review (based on an end-December 2014 test date) must be deemed satisfactory and Completion Point triggers must be satisfactorily completed. ### Program modalities and financing - Authorities requested a three-year arrangement under the ECF in an amount of 120 percent of quota (SDR 79.92 million). - Disbursement: - Amount to be disbursed in seven semi-annual installments (Table 11). - Slightly frontloaded disbursement schedule to reflect larger financing needs in 2014 and 2015 due to projected oil revenue profile. - Test and review dates: - First test date: December 2014, with indicative targets for September 2014. - Semi-annual reviews synchronized with December and June test dates thereafter. - Final review test date: end-May 2017. ### Conditionality and structural reform agenda - Quantitative targets will be set on: - Non-oil primary balance; - Net domestic government financing; - (Non-)accumulation of domestic and external arrears; - Poverty-reducing social spending; - Contracting or guaranteeing of non-concessional external debt (MEFP Table 1). - Structural conditionality: - 2014 structural conditionality focused on basic institutions in PFM and debt management (MEFP, Table 2). - Additional structural conditionality for 2015-16 to be proposed at the first review. - Performance criteria and indicative targets defined in the Technical Memorandum of Understanding (TMU). ### Safeguards and BEAC monitoring - Annual monitoring of safeguards developments at the BEAC since 2010. - BEAC quadrennial assessment conducted in 2013; risks remained elevated and “rolling measures” monitoring continued. - Safeguards staff visit conducted April 1-9, 2014. - Staff concluded BEAC has made good progress implementing 2013 assessment recommendations and is advancing its reform plan. - Challenges remain on institutional autonomy and broader governance reforms in the medium-term. ### Debt dynamics and repayment capacity - Assuming full drawing under the proposed arrangement: - Fund credit outstanding would reach a maximum of 0.6 percent of GDP and about 1.6 percent of exports of goods and services in 2019 (Table 12). - During repayment period, debt service to the Fund would peak at 0.1 percent of GDP and 0.9 percent of tax revenue in 2022. - Expected HIPC debt relief, envisaged fiscal adjustment, and structural reforms are expected to secure a downward trajectory for Chad’s debt and augment repayment capacity on new loans. ### Risks to program implementation and mitigation - Main risks: - Security and humanitarian issues (mostly from the region); - Weak institutions; - Potential fall in international oil prices. - Additional fiscal risks: - Need for strict control over spending commitments, including infrastructure projects for the 2015 African Union summit and transfers to loss-making state-owned enterprises; - Need to strengthen debt management procedures to avoid unplanned borrowing commitments. - Program mitigation measures: - Institutional reforms in PFM (including enhanced controls on emergency spending procedures) and debt management. - Continued assistance from the international community considered vital to address new security and humanitarian issues. ### Staff appraisal — implementation record and macro outlook - SMP performance: - Satisfactory performance under the SMP demonstrated authorities’ ability to implement an upper credit tranche program. - NOPD continued to be gradually reduced despite spending pressures from regional security. - Structural benchmark on DAOs met; other benchmark delays linked to unforeseen technical barriers now being addressed. - Growth and oil revenue profile: - Economic growth should be strong in coming years, but macroeconomic framework remains heavily dependent on fiscal oil revenue projections. - Projected uneven oil revenue profile: decline in 2015, significant uptick in 2016 and 2017, followed by steady decrease until exhaustion of oil reserves barring new discoveries. - Agriculture expected to remain a driving force behind non-oil growth. ### Fiscal policy, NOPD trajectory, and use of extraordinary revenues - 2014 fiscal program: - Anchored on gradual reduction of the NOPD, using partial extraordinary oil-related revenues to smooth expenditure amid weak oil revenues. - Revised 2014 budget reflects impact of 2013 oil advances on debt service, lower-than-projected fiscal oil revenues, and one-off infrastructure investments for the 2015 African Union summit. - Managing pressures while keeping original NOPD target will require using a large portion of extraordinary revenues linked to settlement with an oil company and cutting transfers while protecting social priority spending. - Medium-term NOPD guidance: - Staff agrees an NOPD falling to around 14 percent of non-oil GDP over the medium term is consistent with spending stability and fiscal sustainability. - Recommendation: use part of extraordinary oil revenues to cover 2015 financing needs and accrue fiscal buffers over 2016-17 to prepare for exogenous shocks. ### Public financial management, governance, and structural reforms - Need to strengthen PFM systems to enhance fiscal control and improve spending efficiency. - Government’s Action Plan for the Modernization of Public Finances provides basis for reforms with donor support. - Authorities’ commitments include: - Improve spending monitoring and control; - Restrict use of emergency spending procedures; - Enhance fiscal reporting; - Improve cash management; - Revise oil revenue transparency provisions in light of recent oil sector structure changes. - Structural fiscal reform agenda also includes institutional changes to improve debt management and operations of tax and customs administrations. - Authorities committed not to rely on non-concessional borrowing going forward after recent special-circumstance non-concessional borrowing. ### Growth inclusivity, governance, and business climate - Reforms to improve governance and the business climate are critical for sustained and inclusive growth. - Authorities plan to use the African Union summit to reduce infrastructure bottlenecks in N’Djamena and expand nationwide electricity supply, including interconnection projects with neighboring countries. - Need to single out concrete actions from government program to enhance the business climate and address private sector concerns. - Planned modernization of state operations and public administration reform expected to improve investor perception. - Initiatives targeted at SMEs, rural areas, young people and women are important to achieve more inclusive and sustainable growth and reduce poverty sustainably. ### Residual risks and external support - Significant economic, institutional, and political risks persist: - Sustained decline in oil prices would cause fiscal oil revenue shortfalls and sharp spending adjustments with limited financing options; - Further deterioration of security could increase fiscal pressures (e.g., assistance to displaced population from C.A.R.); - Institutional and domestic political risks remain. - Mitigating factors: - Authorities’ strong commitment to reach the HIPC Completion Point; - Reinforced engagement by international donors, including significant pledges of support at the recent donor conference. *IMF staff report excerpt.* ### 47. Staff supports the government of Chad’s request for a 3-year ECF arrangement with ### _cr14282 - 47. Staff supports the government of Chad’s request for a 3-year ECF arrangement with ### Staff recommendation - Staff supports the government of Chad’s request for a 3-year ECF arrangement with access equivalent to 120 percent of quota. ### Macroeconomic outlook (selected indicators and projections) - Real GDP (annual percent change): 2010: 13.6; 2011: 0.1; 2012: 8.9; 2013: 3.9; 2014 (Prel.): 3.9; 2015 (Prog.): 6.9; 2016 (Prel.): 6.7; 2017 (Proj.): 9.7; 2017 (repeated): 6.9. - Oil GDP (annual percent change): 2010: -1.1; 2011: -0.3; 2012: -4.0; 2013: 3.5; 2014 (Prel.): -6.8; 2015 (Prog.): 30.3; 2016 (Prel.): 15.8; 2017 (Proj.): 32.0; 2017 (repeated): 14.2. - Non-oil GDP (annual percent change): 2010: 17.3; 2011: 0.2; 2012: 11.6; 2013: 4.0; 2014 (Prel.): 5.9; 2015 (Prog.): 6.3; 2016 (Prel.): 4.9; 2017 (Proj.): 4.9; 2017 (repeated): 4.9. - GDP deflator (annual percent change): 2010: 6.4; 2011: 8.6; 2012: 1.1; 2013: -1.2; 2014 (Prel.): 0.9; 2015 (Prog.): 4.5; 2016 (Prel.): 2.1; 2017 (Proj.): 2.5; 2017 (repeated): 0.6. - Consumer price index (period average, annual percent change): 2010: -2.1; 2011: 1.9; 2012: 7.7; 2013: 2.6; 2014 (Prel.): 0.2; 2015 (Prog.): 2.8; 2016 (Prel.): 3.1; 2017 (Proj.): 3.0; 2017 (repeated): 3.0. - Oil prices (WEO, US$/barrel): 2010: 79.0; 2011: 104.0; 2012: 105.0; 2013: 102.5; 2014: 104.1; 2015: 104.2; 2016: 97.9; 2017: 93.0; 2017 (repeated): 90.0. - Oil production (millions of barrels): 2010: 44.7; 2011: 43.6; 2012: 41.2; 2013: 38.6; 2014: 36.5; 2015: 48.9; 2016: 57.4; 2017 (Proj.): 76.5; 2017 (repeated): 88.0. ### Fiscal position and public finances - Revenue and grants (percent of non-oil GDP / in percent shown in Table 4): Total revenue and grants: 2010: 26.7; 2011: 34.6; 2012: 35.0; 2013: 27.7; 2014 (Prel.): 26.8; 2015 (Prog.): 28.8; 2016 (Prel.): 26.7; 2017 (Proj.): 30.2; 2017 (repeated): 31.5. - Of which non-oil revenue (percent of non-oil GDP): 2010: 8.1; 2011: 7.6; 2012: 8.1; 2013: 8.3; 2014 (Prel.): 9.0; 2015 (Prog.): 8.9; 2016 (Prel.): 9.2; 2017 (Proj.): 9.8; 2017 (repeated): 10.3. - Expenditure (percent of non-oil GDP): 2010: 32.2; 2011: 31.3; 2012: 34.4; 2013: 31.1; 2014 (Prel.): 30.3; 2015 (Prog.): 29.3; 2016 (Prel.): 29.3; 2017 (Proj.): 29.0; 2017 (repeated): 29.9. - Current vs Capital (percent of non-oil GDP): Current expenditure 2010: 19.2; 2011: 17.9; 2012: 16.5; 2013: 17.0; Capital 2010: 13.1; 2011: 13.3; 2012: 17.9; 2013: 14.1. - Non-oil primary balance (commitment basis, excl. grants, percent of non-oil GDP): 2010: -20.1; 2011: -19.6; 2012: -20.1; 2013: -18.1; 2014 (Prel.): -17.5; 2015 (Prog.): -15.9; 2016 (Prel.): -14.1; 2017 (Proj.): -14.6; 2017 (repeated): -14.0. - Overall fiscal balance (incl. grants, commitment basis, percent of non-oil GDP): 2010: -5.5; 2011: 3.3; 2012: 0.7; 2013: -3.3; 2014 (Prel.): -3.5; 2015 (Prog.): -0.5; 2016 (Prel.): -2.3; 2017 (Proj.): 0.2; 2017 (repeated): 1.6. - Overall fiscal balance (incl. grants, cash basis, percent of non-oil GDP): 2010: -4.2; 2011: 0.6; 2012: 2.2; 2013: -3.3; 2014 (Prel.): -6.4; 2015 (Prog.): -0.5; 2016 (Prel.): -2.5; 2017 (Proj.): 0.3; 2017 (repeated): 1.7. - Total debt (central government, incl. government-guaranteed debt, percent of GDP): 2010: 25.6; 2011: 29.1; 2012: 27.4; 2013: 28.1; 2014 (Prel.): 31.0; 2015 (Prog.): 31.9; 2016 (Prel.): 28.0; 2017 (Proj.): 24.0; 2017 (repeated): 21.2. - External debt (percent of GDP): 2010: 20.1; 2011: 20.3; 2012: 20.3; 2013: 20.3; 2014 (Prel.): 22.7; 2015 (Prog.): 26.4; 2016 (Prel.): 22.8; 2017 (Proj.): 19.6; 2017 (repeated): 17.3. - NPV of external debt (percent of exports of goods and services): 2010: 30.9; 2011: 48.2; 2012: 39.4; 2013: 55.4; 2014 (Prel.): 55.4; 2015 (Prog.): 56.3; 2016 (Prel.): 53.1; 2017 (Proj.): 40.8; 2017 (repeated): 34.9. - Memorandum: Nominal GDP (billions of CFA francs): 2010: 5,279; 2011: 5,736; 2012: 6,314; 2013: 6,753; 2014: 6,624; 2015: 7,591; 2016: 8,267; 2017 (Proj.): 9,296; 2017 (repeated): 10,000. - Memorandum: Nominal GDP (billions of US$): 2010: 10.7; 2011: 12.2; 2012: 12.4; 2013: 13.6; 2014: 13.4; 2015: 15.8; 2016: 17.6; 2017 (Proj.): 20.0; 2017 (repeated): 21.8. ### External sector and balance of payments - Current account balance (including official transfers, percent of GDP): 2010: -9.0; 2011: -5.6; 2012: -8.7; 2013: -5.4; 2014 (Prel.): -9.5; 2015 (Prog.): -7.2; 2016 (Prel.): -7.1; 2017 (Proj.): -5.9; 2017 (repeated): -4.2. - Trade balance including oil sector (billions of CFA francs): 2010: 422; 2011: 623; 2012: 486; 2013: 388; 2014 (Est.): 488; 2015 (Proj.): 687; 2016 (Proj.): 1,160; 2017 (Proj.): 1,444. - Exports, f.o.b. (billions of CFA francs): 2010: 1,807; 2011: 2,134; 2012: 2,209; 2013: 1,923; 2014 (Est.): 2,496; 2015 (Proj.): 2,763; 2016 (Proj.): 3,463; 2017 (Proj.): 3,766. - Of which oil (billions of CFA francs): 2010: 1,602; 2011: 1,847; 2012: 1,905; 2013: 1,593; 2014 (Est.): 2,145; 2015 (Proj.): 2,392; 2016 (Proj.): 3,071; 2017 (Proj.): 3,353. - Imports, f.o.b. (billions of CFA francs): 2010: -1,385; 2011: -1,511; 2012: -1,723; 2013: -1,535; 2014 (Est.): -2,007; 2015 (Proj.): -2,076; 2016 (Proj.): -2,303; 2017 (Proj.): -2,322. - Gross official reserves (imputed, billions of US$): 2010: 0.6; 2011: 1.0; 2012: 1.2; 2013: 1.2; 2014 (Proj.): 1.2; 2015 (Proj.): 1.2; 2016 (Proj.): 1.6; 2017 (Proj.): 2.1. - Exports (percent of GDP): 2010: 34; 2011: 37; 2012: 35; 2013: 29; 2014 (Est.): 33; 2015 (Proj.): 33; 2016 (Proj.): 37; 2017 (Proj.): 38. - Imports (percent of GDP): 2010: -26; 2011: -26; 2012: -27; 2013: -23; 2014 (Est.): -26; 2015 (Proj.): -25; 2016 (Proj.): -25; 2017 (Proj.): -23. ### Monetary and financial sector - Net foreign assets (billions of CFA francs): 2009: 238.9; 2010: 303.1; 2011: 456.0; 2012: 558.1; 2013 (Prel.): 537.7; 2014 (Proj.): 540.6; 2015 (Proj.): 557.5; 2016 (Proj.): 749.9; 2017 (Proj.): 976.1. - Net domestic assets (billions of CFA francs): 2009: 244.0; 2010: 302.2; 2011: 235.3; 2012: 226.2; 2013 (Prel.): 314.4; 2014 (Proj.): 392.1; 2015 (Proj.): 458.7; 2016 (Proj.): 338.8; 2017 (Proj.): 194.2. - Credit to the economy (billions of CFA francs): 2009: 171.8; 2010: 223.6; 2011: 278.1; 2012: 367.3; 2013 (Prel.): 389.6; 2014 (Proj.): 465.4; 2015 (Proj.): 527.2; 2016 (Proj.): 672.2; 2017 (Proj.): 667.3. - Money and quasi money (billions of CFA francs): 2009: 482.9; 2010: 605.3; 2011: 691.3; 2012: 784.3; 2013 (Prel.): 852.1; 2014 (Proj.): 932.8; 2015 (Proj.): 1,016.3; 2016 (Proj.): 1,088.8; 2017 (Proj.): 1,170.3. - Broad money (annual percent change): 2009: -4.6; 2010: 25.3; 2011: 14.2; 2012: 13.4; 2013 (Prel.): 8.4; 2014 (Proj.): 8.6; 2015 (Proj.): 9.5; 2016 (Proj.): 9.0; 2017 (Proj.): 7.5. - Credit to the economy (annual percent change): 2009: 21.0; 2010: 30.2; 2011: 24.4; 2012: 32.1; 2013 (Prel.): 6.1; 2014 (Proj.): 19.5; 2015 (Proj.): 13.3; 2016 (Proj.): 8.5; 2017 (Proj.): 16.6. - Financial soundness indicators (selected): Regulatory capital / Risk-weighted assets (percent): 2007: 11.1; 2008: 13.3; 2009: 12.1; 2010: 6.7; 2011: 19.7; 2012: 18.1. Gross nonperforming loans / Gross banking loans (percent): 2007: 11.2; 2008: 8.0; 2009: 10.4; 2010: 12.1; 2011: 9.8; 2012: 8.7. ### Key reforms, conditionality, and social sector objectives - Test date for the first review under the proposed ECF: end-December 2014. - Governance and public expenditure management objectives (examples from Table 8): - Implement for at least six months the simplified and computerized expenditure circuit, and a functional expenditure tracking system for primary education services. - Adopt a new law on public procurement and its application decrees; publish a quarterly bulletin on public procurement. - Complete audits by internationally reputed firms for the five largest procurement contracts granted in 2001. - Adopt Budget Settlement Laws for prior years as specified; nominate judges for the commercial courts in the five largest cities. - Adopt a governance strategy and action plan in consultation with IDA and the IMF and implement it for at least one year. - Progress on social and sectoral triggers (reported implementation developments): - The new public procurement law was adopted and related decrees published; steps to start publishing quarterly public procurement bulletins beginning in 2014. - Interconnection of the integrated expenditure circuit with the Treasury and other sectoral ministries has progressed; the World Bank will assist in preparing a government report to evaluate the educational expenditure tracking system. - The 2013 annual progress report of the 2013-15 National Development Plan is in progress, using a monitoring framework developed in 2013 with World Bank support. - HIPC completion-point related country targets and reported 2013 outcomes (from Table 8): - DPT3 immunization target and outcome: target at least 40 percent (from 35 percent in 1999); administrative data show DPT3 immunization rates rose to 82% in 2013. - Enrollment rates (gross): target at least 61 percent for girls and 89 percent for boys; reported enrollment rate was 107% for boys and 82% for girls in 2012-2013. - Sale of condoms (MASOCOT/AMASOT): target increase by at least 25 percent relative to about 2.239 million in 2000; AMASOT sales exceeded 5.9 million in 2013. - Access to potable water target at least 32 percent (from 27 percent in 2000); reported access to potable water was 46% in 2013. - Equipment rate of plows target at least 26 (from 24 in 2000); plow equipment rate stood at 40% in 2013. - Pastoral water points target 10 percent increase from 1,138 in 2000; number of pastoral water points was 1,868 in 2013. - Part of national road network usable year-round target at least 50 percent; the share used throughout the year stood at 37% in 2013. - Final evaluations to be based on the statistical yearbook 2012-13 available in July 2014. ### SMP quantitative indicators (June 1 to December 31, 2013) - Floor on non-oil primary budget balance (CFAF billions): Program (Jun–Aug): (468) Prog.Act.Status: (468)(455) met; (672)(652) met; (876)(856) met. - Ceiling on net domestic government financing (CFAF billions): Program/Acts/status reported: 96/125 not met; 157/22 met; 175/38 met. - Ceiling on accumulation of domestic payment arrears by the government: 0/0 met across reported periods. - Ceiling on accumulation of external payment arrears by the government or non-financial public enterprises: 0/0 met across reported periods. - Ceiling on accumulation of new guaranteed external debt contracted or guaranteed by the government or non-financial public enterprises (US$ million): Program: 0; Act: 300 not met; subsequent periods: 0/600 not met; 0/600 not met. - Floor for poverty-reducing social spending (CFAF billions): 140/173 met; 220/258 met; 330/335 met. - Memo item — Oil revenue (CFAF billions) reported: 443; 353; 631; 539; 821; 749. *Source: IMF staff report and tables as provided in the content unit.* ### 1. Quantitative indicators are clearly defined in the TMU. ### _cr14282 - 1. Quantitative indicators are clearly defined in the TMU. ### Quantitative indicator definitions and temporal coverage - Quantitative indicators are anchored in the Technical Memorandum of Understanding (TMU). - Coverage and application: - Since end-March 2013. - To be respected continuously. - Specific inclusion: - Includes about US$12 million in a loan from OPEC for the construction of a road between Ngouri and Bol signed in April 2013. - Fiscal rule example: - Ceiling on contracting or guaranteeing of new non-concessional external debt by the government and non-financial public enterprises, but for ordinary external trade financing of at most one-year maturity (US$ million). - Emergency spending procedural limit: - Limit emergency spending procedures to no more than 20 percent of domestically financed spending (excluding wages, debt, and security spending). (End-Dec. 2013 — Met) ### Structural conditionality under the SMP (selected items and status) - Treasury and cash management: - 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). (End-Sept. 2013 — Not met. Requires more time to complete work on distinguishing central government from broader public liabilities to commerical banks.) - Preparation and updating of a monthly treasury cash management plan (with a three-month rolling horizon). (End-Dec. 2013 — Not met. Needs to be supported by an improved oil revenue forecasting framework to be fully operational.) - Debt review and oversight: - Starting in September 2013, all new loan proposals will be examined and be subject of an opinion by ETAVID and CONAD. (End-Dec. 2013 — Not met on time, but implemented with delay on January 2014) - Budget discipline: - Submission to Parliament of a 2014 draft budget in line with the objective of gradually reducing the non-oil primary deficit. (End-Oct. 2013 — Met) ### Disbursement schedule under the ECF Arrangement, 2014–17 (Table 11) - Amounts and available dates (Million SDR): - 13.31 — August 1, 2014 — Executive Board approval of the three year ECF arrangement - 13.31 — February 15, 2015 — Observance of the performance criteria for December 31, 2014 and completion of the first review under the arrangement - 10.66 — August 15, 2015 — Observance of the performance criteria for June 30, 2015 and completion of the second review under the arrangement - 10.66 — February 15, 2016 — Observance of the performance criteria for December 31, 2015 and completion of the third review under the arrangement - 10.66 — August 15, 2016 — Observance of the performance criteria for June 30, 2016 and completion of the fourth review under the arrangement - 10.66 — February 15, 2017 — Observance of the performance criteria for December 31, 2016 and completion of the fifth review under the arrangement - 10.66 — July 15, 2017 — Observance of the performance criteria for May 31, 2017 and completion of the sixth review under the arrangement ### Indicators of capacity to repay the Fund, 2014–25 (selected figures from Table 12) - Fund obligations based on existing credit (SDR millions, Principal / Charges and interest): - Principal: 0.4, 0.4, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 (2014–2025) - Charges and interest: 0.0, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1 (2014–2025) - Total obligations based on existing and prospective credit (SDR millions): - 0.5, 0.6, 0.2, 0.2, 0.3, 0.3, 4.2, 8.8, 13.0, 16.2, 16.1, 12.1 (2014–2025) - Outstanding IMF credit based on existing and prospective drawings (SDR millions): - 13.7, 37.3, 58.6, 79.9, 79.9, 79.9, 75.9, 67.4, 54.6, 38.6, 22.7, 10.7 (2014–2025) - Net use of IMF credit (SDR millions): - 12.9, 23.6, 21.3, 21.3, 0.0, 0.0, -4.0, -8.5, -12.8, -16.0, -16.0, -12.0 (2014–2025) - Memorandum items (selected): - Exports of goods and services (CFAF billions): 2,665.4; 3,017.8; 3,731.9; 4,043.6; 3,786.6; 3,554.0; 3,530.2; 3,486.1; 3,363.9; 3,231.5; 3,181.7; 3,141.0 (2014–2025) - External Debt service (CFAF billions): 190.2; 172.0; 69.5; 112.2; 117.9; 126.7; 147.0; 176.5; 176.1; 207.6; 241.7; 265.8 (2014–2025) - Nominal GDP (CFAF billions): 7,454.8; 8,186.9; 9,211.5; 9,909.9; 10,096; 10,491; 10,935.1; 11,432.6; 11,863.2; 12,383.8; 12,953.4; 13,565.9 (2014–2025) - Tax revenue (CFAF billions): 948.3; 891.7; 892.8; 905.3; 936.3; 991.3; 1,067.7; 1,159.0; 1,228.8; 1,327.4; 1,438.0; 1,561.2 (2014–2025) - Quota (SDR millions): 66.6 repeated each year (2014–2025) ### Multi-year fiscal structural reforms (Table 13 — priorities and timeframes) - Public Financial Management (priority actions): - Streamline existing spending processes and reduce the use of emergency spending procedures (DAO) — to 12 percent of domestically-financed spending (excluding debt and wages) by 2017 — and regularizing them systematically during the fiscal year. (Short and medium term) - Computerize the accounting system and integrate it within the expenditure chain, with effective implementation from January 1, 2015 at the latest. (Short term) - Prepare quarterly budget execution reports on the basis of existing data. (Short term) - Abide by public procurement procedures, in accordance with the Public Contract Code. (Short term) - Preparation of rolling cash management plans (with a three-month horizon). (Medium term) - Strengthen the national legal framework by transpozing CEMAC guidelines into the newly harmonized framework for public finance management. (Medium term) - Tax policy and administration: - Consolidate the revenue chain with the Integrated System for Tax Management (SIGI) expected to be developed by end-2014. (Medium term) - Reform of direct taxation, specifically the personal income tax. (Medium term) - Update and tune-up of oil revenue forecasting models to include new oil projects and new technical parameters of existing oil projects. (Short term) - Harmonize tax exemptions with the CEMAC tax guidelines; Reduce VAT exemptions; Update the General Tax Code. (Medium term) - Strengthen tax and customs administration organization and management; rollout of mobile scanners; extension of ASYCUDA++ to main provincial Customs posts. (Medium term) - Debt management: - Strengthen the powers of CONAD (finalize reorganization decree; establish permanent secretariat; train personnel). (Short term) - Production of an annual report on debt management after cleaning up and auditing the debt database and training staff on SYGADE. (Short term) - Centralization within a single Ministry of power to contract external debt is a medium-term objective, coupled with the implementation of the Organic Law on Finance Laws. (Medium term) ### Letter of Intent and MEFP — policy orientation and recent macroeconomic performance - Purpose and commitment: - Government requests a three-year arrangement supported by the Extended Credit Facility (ECF) for 2014–2017; program objectives and measures are set forth in the attached Memorandum on Economic and Financial Policies (MEFP). - Government will consult with the IMF on adoption of any additional measures in advance of revisions to the MEFP policies; a negotiating committee within the Ministry of Finance will report required information to Fund staff pursuant to the TMU. - Program focus: - Gradually reduce the primary non-oil budget deficit (relative to non-oil GDP) over the three years of the program to ensure medium-term sustainability of government finance and debt. - Press ahead with structural reforms, especially PFM reforms and public debt management measures; reduce the use of exceptional budgetary procedures (dépenses avant ordonnancement) steadily and sustainably throughout the program. - Satisfactory implementation in the first six months and attainment of other completion point triggers are expected to enable Chad to reach the completion point under the HIPC Initiative in early 2015. - Recent economic trends (MEFP summary): - Real non-oil GDP growth: Over 2010–2013, exceeded 8 percent per year on average; reached 3.9 percent in 2013. - Oil GDP: Contracted in 2012 and 2013 due to a larger than anticipated decline in oil production from mature fields. - Inflation: Consumer prices rose only 2 percent at the end of 2012 and virtually not at all in 2013. - Non-oil primary deficit (NOPD) progress: Reduced from 20.1 percent in 2010 to 17.6 percent in 2013. - Overall fiscal balance: Deficit of more than 9 percent of non-oil GDP in 2010; slightly positive in 2012; overall budget deficit of some 6 percent of non-oil GDP in 2013 due to oil revenue shortfall. - Oil revenue shortfall in 2013: CFAF 72 billion less (or 1.5 percent of non-oil GDP) than the budget target. - Drivers of 2013 oil revenue shortfall: (i) gas-based electricity generation problems forcing Esso consortium to reduce production and incur additional costs by turning to diesel and fuel oil; (ii) delays in the start-up of new fields and technical problems with the oil pipeline; (iii) decision to receive royalties due from the CNPC in the form of diesel fuel for electricity generation. - Non-oil tax revenue improvement in 2013: Increased by 0.9 percent of non-oil GDP, reaching 8.7 percent of non-oil GDP — the highest level in the last ten years — attributed to action plans by the Income Tax and Customs agencies (expanding the tax base, combating evasion, strengthening capacities). *Source: IMF staff report and accompanying TMU and MEFP as provided in the content unit.* ### 8. After improving in 2011, the current account deficit of the balance of payments has ### 8. After improving in 2011, the current account deficit of the balance of payments has ### External position and financing (2011–2013) - Current account deficit deteriorated to 9.5 percent of GDP in 2013 primarily due to the decline in oil exports. - FDI flows, mostly linked with the oil sector, amounted to 4 percent of non-oil GDP in 2013. - International reserves covered 2.5 months of imports of goods and services as of December 2013, compared to 2.3 months a year earlier. ### SMP performance despite adverse environment - Despite regional insecurity and falling oil revenues, the SMP showed generally satisfactory results. - The Government met the NOPD objective throughout the program due to: - strong performance of non-oil revenues; and - better control of the overall growth of primary expenditure. - The floor for poverty-reducing social expenditures was observed. - Major on-going efforts limited recourse to emergency expenditure procedures (DAO); program objectives in this area were achieved. - All ministries and administrations were instructed to comply strictly with procedures; DAO use to be strictly limited to real emergencies and systematically regularized. - The Government cancelled a US$2 billion non-concessional loan framework agreement that undermined debt sustainability. - The Government contracted a loan with an oil company in the form of advances on petroleum sales due to exceptional circumstances. - Most structural benchmarks were observed; some reforms (e.g., reconciling Treasury and Central Bank data on net bank claims on the State) experienced delays due to complexity and capacity shortages. ### State expansion in the oil sector — acquisition and financing - Following Chevron’s sale, the State acquired Chevron’s shares in the Esso consortium operating in the Doba oil fields and now holds: - 25 percent of the consortium operating in Doba; - 21.5 percent of the oil transport company TOCTO; - 21.3 percent of the oil transport company COTCO. - Financing: SHT negotiated a commercial arrangement with Glencore Energy amounting to US$1.25 billion that leverages part of the value of future cargoes over the next four years. - During that period, SHT will cover its share of the consortium’s cash calls and acquisition financial costs (amortization and interests) and establish a temporary reserve fund of about US$130 million that will be returned to the state after four years. - As part of the acquisition, the Government will collect US$100 million from Chevron in 2014 to settle potential past tax liabilities. - Government’s stated benefits and fiscal implications: - The State obtains a major productive asset and enhances upstream oil expertise. - The state will receive 100 percent of associated profits compared to the 60 percent in corporate income tax previously paid by Chevron; fiscal oil revenues will be higher than originally forecasted over the remainder of the consortium’s operations. - Financing the acquisition will reduce fiscal oil revenues during repayment, but shortfalls are expected to be relatively limited and offset soon thereafter. - The US$100 million tax settlement with Chevron makes the net budgetary impact slightly positive for 2014. ### Economic and financial policies for 2014–2017: objectives and structure - Main objective: strengthen non-oil economic growth to fight poverty while reinforcing macroeconomic and financial stability. - Given expected protracted balance of payments problems from reduced oil revenues, the Government intends to request a three-year arrangement under an ECF to catalyze financing from bilateral and multilateral partners. - Reform priorities (fourfold): (i) ensure the viability of public finances to consolidate macroeconomic stability; (ii) reinforce institutions responsible for public financial management; (iii) make economic growth sustainable and more inclusive to fight poverty; (iv) reach the completion point of the HIPC Initiative to obtain additional flexibility in social spending and priority investments. ### Securing fiscal sustainability (NOPD targets and debt policy) - National Assembly adopted on June 24th, 2014 a Revised Budget Law (RBL) fixing the target NOPD at 15.9 percent of non-oil GDP. - Government commitment: reduce NOPD to 14 percent of non-oil GDP by 2017. - Decline targeted: NOPD falling from around 20 percent in 2010 to 14 percent in 2017 (nearly a third reduction). - Non-oil GDP growth projected to increase by 5 to 6 percent per year in real terms, driven by diversification (services, rural areas) and major investment projects. - Government committed to refrain from contracting new external non-concessional loans; recent Glencore advance oil sales were motivated by extraordinary circumstances. - All external financing proposals to be subjected to ETAVID and CONAD analysis and the Fund and World Bank staff to be kept abreast. ### 2014 budget adjustments and financing needs - Initial Budget Law (IBL) for 2014 planned NODP of 16 percent of non-oil GDP and included a financing need of about CFAF 96 billion. - RBL adjustments include: - Additional capital expenditures CFAF 53 billion (or 1 percent of non-oil GDP) and exceptional security expenditures CFAF 5 billion (or 0.1 percent of non-oil GDP) for AU summit and regional shocks. - Extra expenditure for debt service CFAF 136 billion (or 2.6 percent of non-oil GDP) to reflect Glencore borrowing and the sovereign bond issued in 2013 not included in the IBL. - Oil revenues lower by 1.1 percent of non-oil GDP compared to IBL target due to sharper-than-expected decline in Esso Consortium production. - To maintain a NOPD of about 16 percent of non-oil GDP in 2014, measures include: - Increase non-oil revenue collection by CFAF 4 billion; - Savings on primary current expenditures totaling CFAF 59 billion (1.1 percent of non-oil GDP), distributed as: - goods and services CFAF 12 billion (0.2 percent of non-oil GDP); - wages and salaries CFAF 11 billion (0.2 percent of non-oil GDP); - transfers and subsidies excluding security-related expenditure CFAF 36 billion (0.7 percent of non-oil GDP). - Revised budget preserves expenditures required to improve poverty reduction indicators and advance HIPC triggers in education and health. - To cover overall budget deficit equivalent to 0.5 percent of non-oil GDP, additional resources identified: - exceptional receipts from renewal/extension of mobile phone licenses and settlement of disputes with oil companies totaling CFAF 201 billion; - issuance of Treasury bills for a net amount of CFAF 35 billion in 2014; - rollover of amortizations due from Glencore loan in 2013 amounting to US$60 million (CFAF 28.8 billion); - rollover of amortizations due from a loan with a CEMAC member amounting to CFAF 10 billion. ### 2015 NOPD planning - For 2015, draft Budget Law to Parliament with a NODP target equivalent to 14.1 percent of non-oil GDP. - Target may be adjusted up to a maximum of 15 percent of non-oil GDP if additional receipts are identified. - Only up to CFAF 20 billion of excess receipts in 2014 could be spent in 2014; remainder allocated to financing a higher NOPD in 2015. - Government will implement measures to improve public financial management per Fund technical assistance recommendations. ### Priority reforms (2014–2017) - Over the three years, reforms structured around four main priorities; Priority 1 summarized below and Priority 2 follows. Priority 1: ensure fiscal sustainability to promote macroeconomic stability - Reconcile data between the Treasury and the BEAC on net claims from the banking system on the Government; update database by end-December 2014. - Limit recourse to DAOs with a credible, achievable pace of reduction: - By 2017, DAOs will be reduced to less than 12 percent of domestically financed expenditures (excluding debt and salaries); DAOs to be systematically regularized during the fiscal year. - Specific undertaken reforms: - Streamline expenditure processes and reduce emergency procedures; - Consolidate the revenue chain; develop the Integrated System for Tax Management (SIGI) by end-2014; - Computerize government accounting system and integrate within the expenditure chain with effective implementation from January 1, 2015 at the latest; Chad negotiating for the Integrated Accounting System of Burkina Faso transfer. - Prepare quarterly budget implementation reports based on existing data; encourage public enterprises to comply with OHADA law on publication of financial statements; - Abide by public procurement procedures per the Public Contract Code; reduce mutual agreement/negotiated contracts and prioritize competitive bidding. - 2013 progress: proportion of mutual agreement or negotiated contracts dropped to less than 10 percent (44 percent of the total value of contracts awarded) compared with 54 percent (and 82 percent by value) in 2012. - Reform to separate control and regulation functions of public procurement (currently OCMP) to align with international standards by 2016. - Public Contract Information and Management System (SIGMP) to be operational; Comprehensive Training Plan (PGF) to be implemented. - Quarterly OCMP newsletter resumed with first issue end-March 2014. - Establish a rolling cash-flow management plan with a quarterly horizon; - Reinforce national legal framework by transposing CEMAC guidelines into the new harmonized public finance management framework. - Tax policy improvements: - Reform direct taxation, specifically the personal income tax; - Update and optimize models for forecasting oil revenues to include new projects and new technical parameters; - Align tax exemptions with CEMAC guidelines; - Reduce VAT exemptions; - Update the General Tax Code to consolidate laws introduced since 2006. Priority 2: strengthen fiscal institutions - Strengthen technical and human capacities and governance of tax, customs, and debt management institutions to improve customs operations and increase associated revenues. - Planned measures: - Enhance planning and management of tax and customs reform programs and action plan follow-up; - Improve organization and management of tax administration by enhancing the role of the Directorate General for Taxation (introduce performance indicators for management, collection, disputes) and implement category-based management of taxpayers using turnover (chiffre d’affaires) as the only classification criterion for each tax regime; - Sound management of human and material resources, use results-based management; biometric census of State employees launched in February 2014 and expected completion by end-October 2014; - Improve tax operations to (i) locate and register all taxpayers including those under IGL and update taxpayer registry, (ii) improve responsiveness to defaults, (iii) prepare risk-based audit program, (iv) reinforce collection proceedings to reduce tax arrears; - Extend ASYCUDA++ system to main provincial Customs posts to lower non-tariff trade costs and check fraud/corruption at borders; project part of CEMAC customs interconnection with Douala–N'Djamena transit corridor as pilot site; - Rollout mobile scanners to optimize customs clearance: four mobile scanners acquired since end-2012; platform in Ngueli to facilitate two scanners in second half of 2014; two other scanners to be installed in Koutéré (Moundou) and Adre. *International Monetary Fund — CHAD, Extracts from IMF staff report chapters 8–B (SMP results), C (State oil acquisition), and Economic and Financial Policies for 2014–2017 (sections A–B).* ### 32. With regard to improving debt management, the Government is aware that the ### _cr14282 - 32. With regard to improving debt management, the Government is aware that ### Debt management reforms and governance - Established CONAD (National Debt Analysis Commission) in 2004; Council of Ministers adopted a decree to reorganize CONAD to give it more powers. - Government undertakes to implement the following reforms: - Strengthen the powers of CONAD by: - (i) finalizing its reorganization decree and related texts (guidance and operational procedures); - (ii) implementing a strategy for publicizing its activities (especially on the Internet); - (iii) establishing a permanent secretariat; and - (iv) training the personnel of the Debt Department and members of the Technical Team for Debt Sustainability Analysis (ETAVID) on the review of financing offers and on the risks associated with debt management; - Produce an annual report on debt management, after: - (i) cleaning up and updating the debt database; - (ii) auditing the debt database; and - (iii) training the staff of the Debt Department on the use and maintenance of SYGADE (debt management and analysis program); - Centralization within a single Ministry of power to contract external debt is a medium-term objective, coupled with the implementation of the Organic Law on Finance Laws. ### Priority 3: make economic growth sustainable and more inclusive - Government vision: - Consolidate economic and financial stability to create foundations of sustained and shared economic growth. - Lay the groundwork for strong economic growth to achieve a significant reduction in poverty. - Strategy and focus: - Based on the 2013-2015 NDP; improve quality of life, particularly for young people, women, and rural zones. - Emphasis on public investment in transportation, energy, housing, and interconnections to foster regional integration. - Move toward the achievement of MDGs through access to quality basic health services, universal elementary education, and water supply and sanitary services for the whole population. - Promote employment by organizing the informal sector, reducing rural exodus, and encouraging development of national competencies. ### Transparency, extractives, and business climate - Transparency and public visibility: - Ministry of Finance and Budget, with support of the US Embassy, initiated establishment of an Internet website. - Reform of public procurement and enhancement of transparency in oil revenues are priorities. - Extractive industries and EITI: - Esso Consortium operations have been relatively easy to monitor due to prior procedures developed with the World Bank. - New oil companies (e.g. CNPC and Griffiths/Caracal) operate with different fiscal regimes; expanded operations of SHT require effort. - Chad determined to implement corrective measures to comply with the Extractive Industries Transparency Initiative (EITI). - The 2013-2015 EITI-Chad National Action Plan was adopted by the National High Committee on December 30, 2013. - The action plan comprises eight (8) components; corrective measures will be presented to the board of directors on August 23, 2014. - Business climate and administrative efficiency: - Continue efforts to develop a more conducive business environment; address infrastructure bottlenecks, job quality, and access to the financial sector. - Strengthen dialogue with the private sector, using proposals in the White Paper published by the National Employers Council of Chad. - Inter-ministerial group established to improve performance on World Bank Doing Business indicators. - Ministry of Finance and Budget launched in May 2014 a software for the monitoring of cases requiring a signature (ASDAV) to monitor contracts and payment applications, streamline processes, and reduce corruption risk. ### Energy infrastructure and electrification - Less than 4 percent of the population uses electricity; electricity consumption per capita among the lowest in the world; high tariffs. - Government action organized around two axes: - Investments in N'Djamena and major cities to rehabilitate or expand electricity network; improve supply for smaller towns and rural areas via small local units and renewable energy (mainly solar). - Interconnection of national grid with regional grids that have excess capacity: - A study for an electrical interconnection project between Cameroon and Chad launched earlier this year with ADB funding. - Project aims to develop a 700 km power transmission line between Ngaoundere, Maroua (Cameroon) and Ndjamena, a 250 km ramp between Maroua (Cameroon), Mogrom, and Ndjamena (Chad), and a program of rural electrification along each of these electric corridors. ### Financial inclusion - Financial exclusion is a major obstacle to growth and development. - Continue efforts to increase access to financial services, taking into account recommendations from the Financial Sector Assessment Program (FSAP). - Initiatives to strengthen financial intermediation launched; focus to concentrate on access to financial services in rural areas. ### Priority 4: reach the HIPC completion point - Government priority: reach the completion point of the HIPC Initiative as quickly as possible. - In conjunction with the World Bank, deploy actions to meet remaining triggers, including satisfactory implementation of a program supported by the Fund under the ECF. - Technical conference on resource mobilization held on June 20 and 21, 2014 in Paris, with pledges made of around CFAF 1,000 billion (US$2 billion), which would close the 2013-2015 NDP financing gap that was estimated at 40 percent of its original cost, and finance the National Food Security Program (PNSA 2014-2021). - Reaching the completion point expected to catalyze sufficient external resources for the 2014-2015 NDP and for the 2016-2020 five-year plan (concept note being finalized). ### Technical assistance needs (requests to IMF staff) - Implementation of the Organic Law on public finance (LOLF) and migrating from a means-based to a program-based budget; - Updating and optimizing the model for forecasting oil revenue, in particular by taking into account the specificity of the activities of oil companies which had no activities in Chad when the existing model was developed; - Development and management of the monthly cash management plan; - Reform of the income tax and of tax expenditures; - Aligning budgetary and accounting nomenclatures with the CEMAC community guidelines; - Transposing the guidelines in the Table of State Financial Operations (TOFE). - Improve quality of statistical data: - Impose financial penalties for non-reporting to improve balance of payments statistics; revise the Act regulating statistical activities in Chad. - Request Fund technical assistance to improve quality of statistics relative to GDP and inflation. ### Monitoring, evaluation, and program review - Monitoring mechanism: - Negotiation Committee within the Ministry of Finance in constant communication with Fund staff. - Progress report for monitoring performance of various departments, particularly implementation status of reforms. - IMF Executive Board monitoring: - Program monitored semiannually by the IMF Executive Board on the basis of monitoring indicators and structural benchmarks (Tables 1 and 2 in the source). - First year of the program will have two reviews: - First review based on performance criteria at end-December 2014; - Second review based on performance criteria at end-June 2015. - Government commitments during program period: - Will not introduce or intensify any restrictions on payments and transfers related to current international transactions, or introduce multiple currency practices, conclude bilateral payment agreements inconsistent with Article VIII, or impose or intensify import restrictions for balance of payments purposes. - Agree to adopt, in consultation with Fund staff, any new financial or structural measures necessary for the program to succeed. ### Structural conditionality for 2014 (selected measures and due dates) - Prepare and publish quarterly budget execution reports on the basis of existing data — End-Sept. 2014 — Medium macro-criticality. - Adopt a regulatory framework for debt management, particularly a referral and operating procedure, in line with technical assistance recommendations by the World Bank and AFRITAC Central — End-Sept. 2014 — Medium macro-criticality. - Submission to Parliament of a 2015 draft budget targeting an NOPD of 14.1 percent of non-oil GDP — End-Oct. 2014 — High macro-criticality. - Limit emergency spending procedures to no more than 17 percent of domestically financed spending in 2014 (excluding wages and debt) — End-Dec. 2014 — High macro-criticality. ### Key definitions and program documentation highlights (from TMU) - TMU period covered: MEFP for the period July 1, 2014-June 30, 2017. - Government definition: central government as per GFSM 2001, paragraphs 2.48-50. - Non-financial public enterprises included in program: Société Tchadienne des Eaux (STE), Société Nationale d’Electricité (SNE), Société Tchadienne des Postes et de l’Epargne (STPE), Cotontchad Société Nouvelle (SN), Société des Hydrocarbures du Tchad (SHT), TOUMAÎ Air Tchad, Nouvelle Société Tchadienne des Textiles (NSTT). - Oil revenue defined as sum of royalties, statistical fees, income tax, dividends, bonuses, revenues from exploration duties, surface tax, and any other flows of revenue paid by oil companies, except indirect duty and taxes; recorded on a cash basis. Extraordinary oil-related receipts defined as resources from resolution of disputes between companies and Government. - Debt definition aligned with Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements (Executive Board decision No. 6230-(79/140), as amended); debt includes loans, suppliers’ credits, lease agreements (present value at inception), and penalties and judicially awarded damages arising from failure to pay under a contractual obligation that constitutes debt. *Italic: Source — IMF staff report content unit _cr14282 (excerpts provided in the prompt).* ### 11. For the purposes of this memorandum, the term arrears is defined as any debt obligations ### _cr14282 - 11. For the purposes of this memorandum, the term arrears is defined as any debt obligations ### Definitions and classifications of arrears - Arrears: any debt obligations (as defined in paragraph 10) that have not been amortized in conformity with the conditions specified in the pertinent contract. - Domestic payment arrears = (i) payment arrears on expenditure and (ii) payment arrears on domestic debt. - Payment arrears on expenditures: - Defined as all payment orders to the Treasury created by the entity responsible for authorizing expenditure payments but not yet paid 90 days after authorization to pay given by the treasury. - Part of “balance payable” (or “amounts due”), which correspond to government unpaid financial obligations and include the domestic floating debt besides the expenditure arrears. - Defined as expenditure incurred, validated and certified by the financial controller and authorized by the public Treasury but which have not been paid yet. These obligations include bills payable but not paid to public and private companies, but do not include domestic debt financing (principal plus interest). - Under the program target framework: - Domestic payment arrears are “balances payable” whose maturity goes beyond the 90 days regulatory deadline plus payment arrears on domestic debt. - Floating debt represents “balances payable” whose maturity does not go beyond the 90 days deadline. - As of end March 2014: - Expenditure arrears stock = CFAF 50.97 billion. - Floating debt stock = CFAF 65.35 billion. - Payment arrears on domestic debt: - Defined as the difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract. - External payment arrears: - Defined as the difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract. ### Loan concessionality - Debt is considered concessional if it includes a grant element of at least 35 percent. - Grant element = (nominal value of the loan − present value) expressed as a percentage of the nominal value. - Present value is calculated at the date the debt is contracted by discounting debt service payments at contracting. - Discount rate used = 5 percent. - Concessionality calculations take into account maturity, grace period, schedule, commitment and management fees commissions, and specific agreements (e.g., IsDB). ### Fiscal program metrics and definitions - Non-oil primary balance: - Defined as total government revenue, minus oil revenue and extraordinary oil-related revenue, minus total government expenditure, and excluding interest payments on domestic and external debt and foreign-financed capital expenditure. - Poverty-reducing social spending: - Comprises public spending on primary and secondary education, health, community-organized development, water and sanitation, micro finance, and agriculture and rural development (support for farmers and cattle breeders). - Domestic government financing: - Defined as issuance of any instrument in CFAF to internal creditors or on the CEMAC financial markets; loans from BEAC (including support from the IMF), BDEAC, and CEMAC Member States, or any other debt contracted from those creditors. - Net domestic financing subdivided into net bank financing and non bank net financing. - Net bank financing = change in the net government position towards the banking system (BEAC and commercial banks), including the refund to the IMF, since the end of the previous year. - Net non bank financing = issuance of government bonds and loans within CEMAC (including those contracted with BDEAC and from CEMAC Member States) net of related amortizations since the end of the previous year. - External debt (for assessment criteria): - Defined as debt borrowed or serviced in a currency other than the CFA franc. ### Quantitative targets (as specified in MEFP Table 1) - Targets are assessed cumulatively from the beginning of the calendar year to which they apply unless stated otherwise. - Specified quantitative targets: - A floor for the non-oil primary balance (definition per paragraph 12). - A ceiling on net domestic financing to the government (definition per paragraph 15). - The net domestic financing ceiling does not apply to new agreements on internal debts restructuring and arrears securitization. - For any new loans beyond a cumulative amount of CFAF 50 billion, the government commits to issue public securities only by tender through BEAC or by any other form of bidding process on CEMAC internal financial market recorded with COSUMAF, in consultation with IMF staff. - A zero ceiling for the accumulation of domestic arrears by the government from end-June 2014. - Domestic arrears = payment arrears on expenditure + payment arrears on domestic debt (per paragraph 10). - Measured as changes in stock. - A zero ceiling for the accumulation of any new external payment arrears by the government or non financial public enterprises, regardless of repayment of old arrears. - This ceiling will be assessed continuously. - A floor on poverty-reducing social spending (definition per paragraph 14). - A zero ceiling for new non-concessional external debt (excluding normal trade financing) contracted or guaranteed by the government and non-financial public enterprises, with a maturity of more than one year. - Debt is non-concessional if it includes a grant element of less than 35 percent (paragraph 12). - Normal short-term credits for imports are excluded. - This ceiling will be evaluated continuously. ### Adjusters of quantitative targets (2014) - To account for factors beyond government control, targets can be adjusted as follows: - If oil revenue is less than programmed, the ceiling for net domestic financing will be raised accordingly up to a maximum of CFAF 20 billion. - If the total of oil revenue, extraordinary oil-related receipts, and receipts of privatization or renewal of telecommunication licenses is greater than programmed, adjustments: - The floor for the non-oil primary balance can be adjusted downward by 50 percent of the additional receipts, up to a maximum of CFAF 20 billion. - The ceiling on net domestic financing can be adjusted downward by the remainder of the additional receipts. - Specific current expenditure for support of “retournés” from the Central African Republic (or other neighboring countries) financed by donations from external technical and financial partners will be excluded from the calculation of the non-oil primary fiscal balance for program compliance. ### Structural benchmarks - Limits and adjustments: - Limit in using DAOs = maximum of 17 percent of total domestically-financed expenditure in 2014; applies to all types of expenditure excluding wages and debt service. - This limit applies to DAOs at the end of the fiscal year, including the complementary period. - Draft Budget Law 2015: - The non-oil primary deficit (NOPD) target may be adjusted up if the sum of oil-related revenue (including extraordinary receipts) and non-oil related exceptional receipts exceeds CFAF 969 billion in 2015, but up to a maximum equivalent to 15 percent of non-oil GDP. - New structural benchmarks for 2015 to be proposed at the first review of the program. ### Reporting requirements — summary of data to be reported (selection of items and timetables) - Oil and non-oil revenue, by category; collection situation; revenue position of revenue-collecting agencies: - Ministry of Finance and Budget (Treasury): Monthly, within 30 days of month-end. - Budget execution data, including on poverty-reducing social spending, showing commitments, payment authorizations, validations, and payments: - Ministry of Finance and Budget (General Budget Directorate): Monthly, within 15 days after month-end (detailed items vary by line ministry and periodicity). - Details on servicing of domestic debt and payment arrears of the government: - Ministry of Finance and Budget (Debt Directorate, DCP): Quarterly, within 30 days of the end of the quarter. - Details on servicing of external debt of the government (including breakdown by currency and maturity): - Ministry of Finance and Budget DGTCP (Debt Directorate): Quarterly, within 30 days of the end of the quarter. - Details on new loans contracted or guaranteed by the government and non financial public companies: - Ministry of Finance and Budget (Debt Directorate) and Ministry of Plan and International Cooperation (DGCI): Within 45 days of transaction completion. - Monetary survey and provisional monetary data from BEAC (exchange rates, foreign reserves, assets and liabilities of monetary authorities, base money, broad money, central bank balance sheet, consolidated balance sheet of banking system, interest rates): - BEAC: Monthly, within 45 days of month-end. - Balance of SDR account at month end: - BEAC NGP Committee: Monthly, within 3 months of month-end. - Net banking system claims on the government (NGP): - BEAC: Monthly, within 30 days of month-end. - Consumer price index: - INSEED: Monthly, within 30 days of month-end. - GDP and GNP: - Macroeconomic Framework Committee (SG MFB): Annually, within 120 days of year end. - Balance of payments (external current account balance, exports and imports of goods and services, etc.): - BEAC: Annually, within 180 days of year end (preliminary data). - Gross external debt: - Ministry of Finance and Budget DGT (Debt Directorate): Annually, within 90 days of year end. ### Debt sustainability context and recent developments (background from DSA) - Public external debt indicators have remained relatively stable in recent years, but risk of debt distress remains high. - Key recent developments and figures: - Chad’s external public debt has hovered around 20 percent of GDP since oil production began in 2003/04. - External public debt-to-GDP ratio estimated to have risen from 19.9 percent of GDP in 2012 to 22.7 percent of GDP in 2013, mainly due to external commercial borrowing in the form of oil sales’ advances. - Two agreements in May and August 2013 with Glencore Energy for a total of US$600 million (4.5 percent of GDP); these loans are non-concessional and to be reimbursed over a two-year period against crude oil shipments. - Decision to cancel the US$2 billion Master Facility Agreement (MFA) signed August 2011 with Eximbank China was formally communicated to Eximbank China in December 2013; MFA was not legally in force in Chad (not approved by National Assembly and no disbursements under the MFA). - A commercial borrowing in June 2014 by SHT to finance purchase of Chevron’s shares raised external public sector debt to an estimated 26.6 percent of GDP in 2014. - SHT contracted a loan from Glencore Energy for US$ 1.4 billion; loan to be repaid against crude oil shipments over four years (2014-18). - Although similar financing is sometimes not classified as “debt,” staff treats this operation as debt because the prepayment agreement allows other government crude oil to be used to repay oil sales advances in case of shortfalls. - Observations and risks: - Projected steady decline in oil exports and associated fiscal revenues (barring new discoveries) is a critical medium-term challenge requiring steady fiscal adjustment and economic diversification. - The official external debt stock data underestimate actual external debt; debt registry does not capture certain loans (e.g., loans from China for state stakes, other government-guaranteed debt), and project loan disbursements are recognized after a long lag. - Historical table note: - Table 1 summarizes external debt stock at year-end 2001–2013 in billions of CFA francs and percent of GDP; sources include World Bank, Chadian authorities, selected creditors and staff estimates. - Status of debt relief initiatives: - Chad reached the HIPC decision point in 2001; completion point efforts previously failed due to political instability, insufficient reform commitment, and weak implementation capacity. - May 2013: authorities approved Poverty Reduction Strategy (PRS) 2013-15. - July 2013: an SMP for June-December 2013 was approved by Fund management and completed satisfactorily; most quantitative targets were met but the oil sales advance operation caused ceilings on contracting new non-concessional external debt to be surpassed. - Successful SMP completion opened the way for an ECF request, which could unlock debt relief under HIPC and MDRI if the first review is completed and authorities comply with HIPC floating completion point conditions. *Prepared by the staffs of the International Development Association and the International Monetary Fund; July 24, 2014.* ### 6. Realizing debt relief under the Enhanced HIPC Initiative and the Multilateral Debt Relief ### 6. Realizing debt relief under the Enhanced HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI) ### Debt relief under HIPC/MDRI - 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, this could total about US$850 million and would imply a reduction in debt service of about US$40 million per year over the next 20 years. - A scenario which assumes potential debt relief from multilaterals only (about US$850 million) would result in a moderate risk of debt distress, but the PV of the debt-to-export ratios would still be close to its threshold toward the end of the projection period in the baseline scenario. - These estimates are preliminary; 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. ### Recent developments in public domestic debt - The stock of public domestic debt has grown, reaching 7.7 percent of GDP at end-2012 (and an estimated 8.3 percent of GDP in 2013). - Growth drivers: drawing on central bank statutory advances, the sale of over CFAF 100 billion of five-year savings bonds (in 2011), and 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. - 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 40 billion at end-December 2013 from CFAF 50.3 billion at end-December 2012. ### Chad: stock of domestic debt (selected items from Table) - Total (2006–2013 series): 122.3; 123.1; 142.7; 238.6; 286.9; 464.1; 483.6; 550.5 (Percent of GDP) 3.2; 3.0; 3.1; 5.5; 5.4; 8.1; 7.7; 8.3 - Central Bank statutory advances (selected years): 17.0; 21.6; 141.6; 208.6; 208.6; 187.7; 166.9 - Rescheduled debts (selected years): 71.8; 48.6; 56.8; 58.2; 67.9; 52.9; 44.8; 43.7 - Treasury arrears (selected years): 24.8; 26.1; 41.1; 25.7; 3.1; 56.4; 50.3; 39.9 - National Savings Bond (selected years): 0.9; 0.9; 0.9; 0.9; 0.9; 0.9; 0.9; 0.9 - 2011 Savings Bond: 121.0; 100.0; 83.3 (selected later years) - Republic of Congo loan: 50.0; 40.0 (selected years) - Equatorial Guinea loan: 15.0 (2013) - 2013 Savings Bond: 90.3 (2013) - Source: Chadian authorities. ### Debt burden thresholds under the Debt Sustainability Framework - Classification: Chad is classified as a weak policy performer for DSF purposes. - CPIA rating: improved to 2.6 in CY2013 (on a scale from 1 to 6), reflecting significant progress in governance during 2013. - External public debt burden thresholds for “Weak Policy Performers” (presented as): - 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 - Uniform discount rate: 5 percent. - Cancellation of the US$2 billion non concessional MFA. - Contracting of two non concessional oil sales’ advance operations: US$600 million in 2013 to cover budget shortfalls and US$ 1.4 billion contracted by the State in June 2014 to finance the purchase of income-generating equity shares in the largest oil consortium operating in Chad. - Baseline scenario reflects authorities’ intentions to pursue fiscal consolidation, protect priority spending, and invest in physical infrastructure to prepare for the post-oil era. - 2014 financing needs: mostly covered through multilateral borrowing from the IMF, the African Development Bank and the Islamic Development Bank (70 percent). - Medium to long term borrowing composition assumption: multilateral and bilateral borrowing stabilize at 55 and 45 percent respectively. - Grant element: drops in 2014 due to new commercial loan before increasing in 2015 and stabilizing over medium and long run to about 35 percent. - Oil production and revenue assumptions (overview): - Oil production expected to rise from 100,000 bpd in 2013 to about 225,000 bpd in 2016-17. - Proven reserves in new fields much smaller; likely nearly exhausted around 2030; exports projected to decline to negligible levels beyond 2030. - Chadian oil trades below the WEO reference price due to quality discount and transport cost. - Medium-term price assumption: drop from US$103.9 per barrel (all discounts included) in 2013 to about US$87.8 per barrel in 2017–18. - Long-term price assumption: increase by 2 percent per year in U.S. dollar terms. - Fiscal policy assumptions: - Sustained fiscal adjustment: NOPD reduced from about 16 percent of non-oil GDP in 2014 to 14-15 percent of non-oil GDP by 2018. - Oil revenues expected above 18 percent of non-oil GDP in 2016-17. - Long term adjustments to reach NOPD of 0.8 percent of non-oil GDP by 2033 via: (i) increasing non-oil revenues from about 9 percent to about 18 percent of non-oil GDP by 2034; (ii) reducing total investment outlays from over 14 percent to below 10 percent of non-oil GDP; (iii) cutting recurrent spending (streamlining transfers and subsidies to public enterprises, currently about 5.5 percent of non-oil GDP). - Box 1 baseline macro assumptions (2013–2033) highlights: - Medium-term non-oil GDP growth: 5.2 percent in 2014–18; long-term non-oil GDP growth: 4.2 percent. - Inflation stabilizes at 3 percent (consistent with CEMAC convergence criterion). - External current account: deficit throughout, shrinking rapidly in 2014–17, increasing in long term as oil declines but contained by falling oil-related imports. - External financing: Project loans pick up from about 1 percent of non-oil GDP in 2013-14 to 2.5 percent over 2015-19 and then fall to 2.1 percent in the long term. - Project grants: increase from about 2.5 percent to 2.6 percent (2015-17) and 2.7 percent thereafter; assumed 60 percent grants and 40 percent loans. - Baseline does not take into account HIPC and MDRI debt relief. - Domestic financing assumptions: reimbursement of BEAC statutory advances by 2015, no accrual of domestic arrears, limited issuance of domestic debt instruments from 2015 onward. ### Key projection table highlights (selected figures) - Real GDP growth (percent per year): 0.1; 8.9; 3.9; 9.6; 6.7; 9.7; 6.9; 3.1; 3.3; 8.2; 2.9 (series across years) - Oil (contribution): -0.3; -4.0; -6.8; 30.3; 15.8; 32.0; 14.2; -3.1; -2.8; 23.1; -5.8 - Non-oil (contribution): 0.2; 11.6; 5.9; 6.3; 4.9; 4.9; 4.9; 4.9; 5.0; 5.3; 4.2 - Consumer price inflation (percent per year): 1.9; 7.7; 0.2; 2.8; 3.1; 3.0; 3.0; 3.0; 3.0; 3.0; 3.0 - External current account balance (percent of GDP): -5.6; -8.7; -9.5; -7.2; -7.1; -5.9; -4.2; -4.5; -4.7; -7.1; -5.6 - Government revenue and grants: 34.6; 35.0; 26.8; 28.8; 26.7; 30.2; 31.5; 33.3; 31.6; 29.3; 25.7 - Of which oil revenue: 24.8; 23.2; 15.5; 17.3; 14.9; 17.8; 18.7; 19.9; 17.7; 17.2; 8.6 - Of which grants: 2.2; 3.8; 2.3; 2.7; 2.6; 2.6; 2.6; 2.6; 2.6; 2.6; 2.7 - Government expenditure (commitment basis): 31.3; 34.4; 30.3; 29.3; 29.0; 30.0; 29.9; 31.1; 30.7; 29.5; 26.5 - Overall fiscal balance (incl. grants; cash basis): 0.6; 2.2; -6.4; -0.5; -2.5; 0.3; 1.7; 2.9; 1.1; -0.3; -0.5 - Non-oil primary fiscal bal. (excl. grants; commitment basis): -19.6; -20.1; -17.5; -15.9; -14.1; -14.6; -14.0; -14.8; -13.9; -14.7; -7.1 - Chadian crude oil price (US$/barrel): 97.7; 102.0; 103.9; 103.0; 97.9; 93.0; 88.6; 86.9; 85.5; 95.6; 97.2 ### External Debt DSA — Baseline (current policies) scenario - External debt evolution driven by project and budget support loans from traditional and non-traditional donors. - No external private debt in Chad. - New commercial loan (oil sales advance) projected to push external debt temporarily up in 2014 to 26.6 percent of GDP. - New borrowing composition assumption in medium to long run: 55 percent multilaterals, 35 percent Paris Club, 10 percent non-Paris Club officials. - Average concessionality of new borrowing (assuming discount rate of 5 percent) drops in 2014 to 0.4 percent but returns to an average of 35 percent over remainder of estimation period. - Comparison with 2013 DSA: differences due to US$1.4 billion commercial borrowing, higher oil production projections, and lower financing needs; result is lower debt-to-revenue and export ratios compared with last DSA except for debt service-to-revenue ratio breached in 2015. - Under the baseline scenario: - All but one external indebtedness indicators remain below critical thresholds, indicating a high risk of external debt distress. - PV of external public and publicly-guaranteed debt falls below 15 percent of GDP starting in 2017 and remains well below the 30 percent threshold throughout projection horizon. - PV of debt relative to exports expected to rise with declining oil exports but does not exceed the critical threshold and remains within the 10 percent band below the threshold till end of projections. - Debt service-to-revenue ratio is breached under the baseline and the ratio in 2015 is above the 10 percent band; Chad is assessed to currently have a high risk of debt distress. - Assuming debt profile does not change, the debt rating would decline to a borderline moderate/high case after 2015. ### Stress tests - Shock scenario with key macro variables at their ten-year average: debt burden indicators (except debt service-to-revenue) do not breach sustainability thresholds. - Debt indicators are highly sensitive to a negative shock to exports (e.g., oil price shock). - Most extreme shock: one-standard-deviation drop in exports in 2014–15 — debt would breach all indicative debt burden thresholds. - Additional shock: a permanent decline in oil prices by 10 percent would cause two external indebtedness indicators (debt-to-exports and debt service-to-export) to breach respective thresholds under the baseline: - PV of debt-to-exports crosses threshold in 2030 and passes the 10 percent band by 2032. - Debt service-to-export threshold breached at the beginning of 2032. ### Public debt DSA - Inclusion of domestic debt does not fundamentally alter assessment of debt sustainability; external component drives public debt indicators. - Domestic debt component trajectory: - Falls from 8.3 percent of GDP in 2013 to 3.6 percent of GDP in 2018. - Rises thereafter to about 4.7 percent of GDP in 2033. - Public debt stock: - Decreases to less than 20 percent of GDP in 2018. - Rises and stabilizes around 22 percent of GDP in 2031-33 (11 percentage points of GDP lower compared to 2013 Article IV DSA). - Standard stress tests indicate significant sustainability risks due to narrow economic base and volatility: - Temporary shock to real GDP growth in 2014-2015 would substantially impair public debt sustainability (Most Extreme Shock referenced). ### The authorities’ views - Authorities believe improved oil revenue prospects and debt relief through HIPC would substantially dampen debt sustainability concerns. - Authorities cancelled the MFA with Eximbank China as a signal of addressing debt sustainability concerns. - On the newly contracted external loan for the 25 percent stake in the oil consortium, the government contends the acquisition is an income-generating asset and should not be classified as “debt”, likening it to “carried equity” schemes. - Authorities acknowledge upward revision of oil revenue projections and expect further increases based on future exploration rounds following geological mapping. - Emphasized need for debt relief to create fiscal space for additional development spending (including foreign-financed). - Highlighted that strengthened economic management should help allay debt sustainability concerns and that an improved CPIA score would lead to higher external debt burden thresholds. ### Debt distress classification and conclusions - Current assessment: high risk of external debt distress under the baseline due to breach of debt service-to-revenue ratio in 2015 and sensitivity to export shocks. - HIPC/MDRI debt relief (preliminary estimates of about US$850 million from multilaterals) could materially reduce external debt and provide fiscal space, but detailed reconciliation and inclusion of other creditors' potential relief necessary before completion point. *Source: _cr14282 - 6. Realizing debt relief under the Enhanced HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI)* ### 20. In staff’s assessment, despite improved oil production and revenue prospects in the next ### In staff’s assessment, despite improved oil production and revenue prospects in the next few years, Chad faces a high risk of debt distress. ### Key findings - Chad faces a high risk of debt distress despite improved oil production and revenue prospects in the next few years. - The high risk arises from the steady decline in oil exports and associated fiscal revenues over the long term. - The government’s decision to cancel the US$2 billion non concessional MFA with the Eximbank of China significantly improves the debt distress rating compared to the 2012 Article IV DSA. - Even with a sustained fiscal adjustment, Chad still remains at high risk of debt distress unless it adopts a prudent external borrowing policy. - Sustained fiscal adjustment is necessary but not sufficient to minimize the risk of debt distress. - Given the exhaustibility and volatility of oil revenues, fiscal adjustment must be complemented by: - a prudent external borrowing policy, and - further progress in diversifying the economy. - Obtaining debt relief under the HIPC initiative would reduce the debt distress to moderate, but borrowing policies would still need to be prudent. ### Policy implications and recommendations - Maintain and deepen sustained fiscal adjustment to strengthen debt sustainability. - Adopt and adhere to a prudent external borrowing policy to mitigate risks from exhaustible and volatile oil revenues. - Prioritize economic diversification to reduce reliance on oil exports and stabilize fiscal revenues. - Consider HIPC initiative debt relief as a means to lower debt distress from high to moderate, while recognizing that prudent borrowing policies would remain essential even after relief. *CHAD INTERNATIONAL MONETARY FUND 11* ### 21. Progress toward the HIPC completion point (including improvements in the CPIA score) ### 21. Progress toward the HIPC completion point (including improvements in the CPIA score) ### Impact on debt vulnerabilities - Progress toward the HIPC completion point would substantially reduce Chad’s debt vulnerabilities. - Achieving debt relief under the HIPC process and increased access to concessional borrowing sources would lower the country’s debt vulnerabilities. ### Policy recommendations and institutional actions - Continue pursuit of fiscal consolidation. - Maintain a prudent external borrowing policy. - Advance institutional and governance reforms to pave the way for HIPC debt relief and concessional financing access. ### Key debt-sustainability indicators and projections (selected figures from tables and charts) - Public sector debt (percent of GDP): 25.6 (2010), 29.1 (2011), 27.4 (2012), 31.0 (2013), 31.9 (2014), 28.0 (2015), 24.0 (2016), 21.2 (2017), 19.7 (2018), 20.5 (2013-18 Average), 22.0 (2023), [2033 value shown as part of projections]. - Of which: foreign-currency denominated (percent of GDP): 20.1 (2010), 21.4 (2011), 19.9 (2012), 22.7 (2013), 26.2 (2014), 22.6 (2015), 19.5 (2016), 17.2 (2017), 16.1 (2018), 18.4 (2013-18 Average), 20.7 (2023). - Change in public sector debt (percent of GDP): 1.7 (2010), 3.5 (2011), -1.7 (2012), 3.7 (2013), 0.9 (2014), -3.9 (2015), -4.0 (2016), -2.8 (2017), -1.4 (2018), 0.3 (2013-18 Average), 0.1 (2023). - Primary deficit (percent of GDP): 4.0 (2010), -2.8 (2011), -1.4 (2012), 0.7 (2013), 4.2 (2014), 1.1 (2015), -2.2 (2016), -1.5 (2017), -3.5 (2018), -4.0 (2013-18 Average), -4.1 (2023). - Revenue and grants (percent of GDP): 20.2 (2010), 24.8 (2011), 23.4 (2012), 20.1 (2013), 21.6 (2014), 20.7 (2015), 22.6 (2016), 23.2 (2017), 25.1 (2018), 21.4 (2013-18 Average), 20.7 (2023). - Primary (noninterest) expenditure (percent of GDP): 24.3 (2010), 22.0 (2011), 22.0 (2012), 21.2 (2013), 19.4 (2014), 19.2 (2015), 19.1 (2016), 19.2 (2017), 21.0 (2018), 22.1 (2013-18 Average), 21.0 (2023). - PV of public sector debt (percent of GDP, selected projection points shown): 21.9, 27.2, 28.6, 24.5, 20.4, 17.4, 15.7, 15.5, 15.8 (table entries reflect evolving projections). - PV of public sector debt-to-revenue and grants ratio (percent): 93.6, 135.3, 132.1, 118.2, 90.3, 75.2, 62.6, 72.3, 76.6 (table entries reflect projection path). - Debt service-to-revenue and grants ratio (percent): 2.9, 3.6, 9.5, 17.6, 22.9, 24.8, 17.2, 16.3, 13.8, 5.5, 5.8 (historical and projection entries). - Debt service-to-revenue ratio (percent): 3.1, 3.9, 10.7, 19.7, 25.6, 27.5, 18.8, 17.8, 15.0, 6.2, 6.6. ### Stress tests and sensitivity scenarios (high-level) - Most extreme stress tests through 2023 include Combination shock, Exports shock, and One-time depreciation shock (specific correspondence by figure noted in source). - Figure captions and sensitivity tables present alternative scenarios: Baseline, Historical scenario, Most extreme shock, Fix Primary Balance, 10 percent reduction in oil price. - Table 2a and Table 3b present alternative scenarios and bound tests such as: - A1. Real GDP growth and primary balance at historical averages. - A2. Primary balance unchanged from 2013. - A3. Permanently lower GDP growth. - B1–B5 bound tests including one-time 30 percent real depreciation and 10 percent of GDP increase in other debt-creating flows. - Selected sensitivity outputs (examples from tables): - PV of Debt-to-GDP Ratio (baseline and scenario entries across years; detailed numbers in Table 2a and Table 3b). - PV of Debt-to-Exports Ratio and PV of Debt-to-Revenue Ratio under alternate scenarios and bound tests (detailed numeric arrays provided in tables). ### External debt and external sector indicators (selected) - External debt (nominal, percent of GDP): 20.1 (2010), 20.3 (2011), 20.3 (2012), 22.7 (2013), 26.4 (2014), 22.8 (2015), 19.6 (2016), 17.3 (2017), 16.2 (2018), 18.5 (2013-18 Average), 20.9 (2023). - Change in external debt (percent of GDP): 0.7 (2010), 0.2 (2011), 0.1 (2012), 2.4 (2013), 3.7 (2014), -3.6 (2015), -3.2 (2016), -2.3 (2017), -1.1 (2018), 0.5 (2013-18 Average), 0.2 (2023). - Non-interest current account deficit (percent of GDP): 8.8 (2010), 5.2 (2011), 7.7 (2012), 7.0 (2013), 14.7 (2014), 8.8 (2015), 6.4 (2016), 6.2 (2017), 5.2 (2018), 3.7 (2013-18 Average), 4.1 (2023), 4.7 (2033 Average). - Exports (percent of GDP): 37.9 (2010), 40.7 (2011), 36.8 (2012), 32.4 (2013), 36.1 (2014), 36.6 (2015), 40.2 (2016), 40.5 (2017), 37.3 (2018), 25.9 (selected projection), 14.9 (2033 noted in a projection series). - Imports (percent of GDP): 49.1 (2010), 48.0 (2011), 47.0 (2012), 42.4 (2013), 45.6 (2014), 44.1 (2015), 44.6 (2016), 43.0 (2017), 40.4 (2018), 31.6 (selected projection), 23.0 (2033 noted). ### Macroeconomic and fiscal assumptions (selected) - Real GDP growth (percent): 13.5 (2010), 0.1 (2011), 8.9 (2012), 9.0 (2013), 10.0 (2014), 3.9 (2015), 9.6 (2016), 6.7 (2017), 9.7 (2018), 6.9 (2013-18 Average), 3.1 (2023), 6.7 (2033). - Average nominal interest rate on forex debt (percent): 1.0 (2010), 2.2 (2011), 3.4 (2012), 1.4 (2013), 0.8 (2014), 3.3 (2015), 4.1 (2016), 3.7 (2017), 3.3 (2018), 2.9 (2013-18 Average), 2.4 (2023), 3.3 (2033). - Inflation rate (GDP deflator, percent): 6.4 (2010), 8.6 (2011), 5.4 (2012), 6.6 (2013), 8.3 (2014), -3.2 (2015), 4.5 (2016), 2.1 (2017), 2.5 (2018), 0.6 (2023), -1.1 (2033 projection series), 0.9, 1.8, 2.0, 1.8 (additional table entries). - Real exchange rate depreciation (percent, + indicates depreciation): 15.9 (2010), -4.4 (2011), 4.3 (2012), -4.8 (2013), 14.4 (2014), -3.4 (2015) (further entries indicated as ellipses). ### Financing and aid-related parameters (selected) - Grant element of new external borrowing (percent, right-scale entries in chart context): indicated values include 36.8, 35.9, 35.8, 33.0, 24.2, 34.1, 35.7 in projected series (table context notes grant element assumptions). - Aid flows (Billions of U.S. dollars): 0.3 (2010), 0.3 (2011), 0.5 (2012), 0.4 (2013), 0.4 (2014), 0.5 (2015), 0.6 (2016), 0.6 (2017), 0.7 (2018), 0.9 (2023), 1.6 (2033). - Of which: Grants (Billions of U.S. dollars): 0.1 (2010), 0.2 (2011), 0.3 (2012), 0.3 (2013), 0.4 (2014), 0.4 (2015), 0.4 (2016), 0.4 (2017), 0.4 (2018), 0.6 (2023), 1.1 (2033). - Of which: Concessional loans (Billions of U.S. dollars): 0.1 (2010), 0.1 (2011), 0.1 (2012), 0.1 (2013), 0.1 (2014), 0.2 (2015), 0.2 (2016), 0.2 (2017), 0.2 (2018), 0.3 (2023), 0.5 (2033). - Grant-equivalent financing (percent of GDP and of external financing): series entries include 2.4, 2.3, 2.8, 2.6, 2.6, 2.6, 2.9, 3.1, 2.9 (percent of GDP) and 32.4, 19.4, 68.8, 68.4, 68.3, 66.9, 70.1, 71.1, 70.4 (percent of external financing) in projection tables. *Source: IMF staff text and tables as provided in the content unit.* ### 1. HIPC completion report March 2014 ### 1. HIPC completion report March 2014 ### Press release: IMF Executive Board approves new US$122.4 Million ECF Arrangement for Chad (August 1, 2014) - New three-year arrangement under the Extended Credit Facility (ECF) for a total amount equivalent to SDR 79.92 million (about US$122.4 million), 120 percent of quota for Chad. - First disbursement: amount equivalent to SDR 13.31 million (about US$20.4 million). - Objectives of the arrangement: - Address protracted balance of payments problems resulting from a reduction in oil revenues. - Maintain adequate international reserves coverage. - Play a catalytic role for bilateral and multilateral assistance. - Program’s macroeconomic framework projections: - Real GDP projected to grow at around 8 percent annually from 2014–17, primarily due to new oil-related projects coming fully on-stream by 2016. - Oil production expected to peak in 2017 and then fall steadily in the absence of new oil discoveries. - Inflation should remain around the Central African Economic and Monetary Community target of 3 percent a year. - ECF arrangement will promote policies to: - ensure fiscal sustainability - strengthen fiscal institutions and governance - promote sustained and inclusive growth over the medium term - facilitate the move to the Highly Indebted Poor Country Completion Point - Structural reform sequencing: - Ramp up progressively given limited institutional capacity and expected gradual increase in donors’ support. - Initial focus on more pressing areas; later phases to deepen structural reforms for inclusive non-oil growth. - Social and other priority spending safeguarded; incorporated as a performance criterion under the ECF arrangement. ### Recent economic developments (as reported) - 2013 macroeconomic outcomes: - GDP grew by 3.9 percent in 2013. - Non-oil GDP expanded by 5.9 percent in 2013 (down from 11.6 percent in 2012). - Inflation annual average rate: 0.2 percent in 2013 (from 7.7 percent in 2012). - Fiscal performance: - Non-oil primary deficit (NOPD) fell by 2.5 percent of non-oil GDP in 2013. - Higher tax collection increased non-oil revenue by close to 1 percent of non-oil GDP. - Overall fiscal balance on a cash basis posted a sizable deficit of 6.4 percent of non-oil GDP as oil revenues fell significantly below budget levels. - External sector and financing: - External current account deficit estimated to have widened to 9.5 percent of GDP in 2013 due to a decline in oil exports. - FDI inflows estimated to have declined slightly in 2013 but still covered about 40 percent of the external current account deficit; the remainder financed by public sector borrowing. - Banking sector: - Total assets grew by 23 percent in 2013, to reach FCFA 850 billion, equivalent to 13 percent of GDP. - Banking sector remains exposed to the public sector and vulnerable to oil revenue shocks. ### Statement by IMF (Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair) - Observations: - Chad’s macroeconomic performance relatively strong despite regional security issues and increased humanitarian assistance demands. - Medium-term prospects generally favorable with expected boosts to oil production and exports from new activities. - Non-oil GDP expected to continue increasing at a sustained rate. - Policy emphasis: - Accelerate reforms to strengthen fiscal institutions and support growth while maintaining fiscal discipline. - Smooth decline in the non-oil primary deficit over the medium-term warranted given projected exhaustion of oil reserves. - Structural fiscal reforms critical to increase fiscal space, enhance fiscal control, and improve public spending efficiency. - Key objectives include reducing emergency spending procedures, improving fiscal accounting and reporting, and strengthening cash management and forecasting. - Improve business environment: address infrastructure, labor quality, and access to finance bottlenecks. - Promote private sector environment and implement strategy to enhance financial inclusion focusing on rural areas. - Sustained implementation expected to catalyze additional donor and FDI resources and help reach HIPC Completion Point. ### Performance under the SMP and Request for an ECF (statement by Mr. Ngueto Tiraina Yambaye) - SMP implementation: - Implemented in a broadly satisfactory manner despite lower-than-projected oil revenues. - Most quantitative indicators at end-September and end-December 2013 were met, including NOPD and threshold for poverty-reducing social expenditures. - Most structural benchmarks observed, some with delays due to capacity constraints. - One remaining structural measure—preparing and updating a monthly treasury cash management plan—proved institutionally and technically complex and was difficult to meet within the SMP lifespan. - Commitment to pursue improvements in public procurement by aligning with international standards. - Request for ECF: - Authorities requested Fund assistance under the Extended Credit Facility to reduce vulnerabilities to external shocks and provide continuity with the SMP. - The National Development Plan (NDP) was presented to donors at a Round Table Conference in Paris and received strong pledges; authorities expect partners to deliver on commitments and additional pledges to close the NDP’s financing gap. - Program aims (as per Letter of Intent and MEFP): - (i) ensuring fiscal sustainability and enhancing macroeconomic stability; - (ii) strengthening fiscal institutions; - (iii) fostering economic growth including through diversification and making it more inclusive; - (iv) reaching the completion point under the HIPC Initiative and mobilizing financing from bilateral and multilateral partners. - Debt relief intended to enable allocation of more resources to poverty alleviation. ### Statistical issues, data adequacy, and reporting - General assessment: - Data provision has capacity-related shortcomings but is broadly adequate for surveillance. - Scope for improvement in quality, coverage, and timeliness in most macroeconomic datasets. - Authorities recently initiated improvements to the macroeconomic database, particularly national accounts. - 2007 Report on the Observance of Standards and Codes (ROSC) found the statistical system weak with shortages of financial and human resources. - National accounts: - Authorities revised national accounts estimates moving from the 1968 SNA to the 1993 SNA and rebased the data to 2005. - Final Annual National Accounts available until 2010 and backcasted through 1995-2005; provisional figures available for 2011-2012. - Compilation remains weak due to inadequate funding for INSEED and high staff turnover. - Dissemination of data and metadata could be improved with timelier releases, more detailed information, and enhanced internet dissemination. - Price statistics: - Harmonized Consumer Price Index (HCPI) is of rather good quality but covers only the capital city and reporting lag sometimes exceeds two months. - Regional authorities are working to improve HCPI quality in each CEMAC country. - Government finance statistics: - Data weaknesses create uncertainty about the central government’s actual fiscal position and hamper debt sustainability analysis. - Staff must prepare estimates of central government financial operations from disparate administrative sources that may not reconcile with domestic bank financing or changes in net indebtedness. - Monetary statistics: - BEAC reports expected core monetary and financial indicators through standardized report forms (SRFs) within expected lag. - Shortcoming: lack of clear reconciliation between domestic banking sector’s net credit to government and implicit financing in weak government financial accounts. - Depository corporations’ survey omits large number of microfinance operations. - Balance of payments: - Weaknesses in balance of payments data create uncertainty about external position and hamper debt sustainability analysis. - Customs-based data unreliable and suffer coverage problems; not relied upon for balance of payments or national income estimation. - BEAC prepares BOP data and submits to BEAC headquarters for validation with long time lag; staff estimate current and capital flows from disparate administrative sources. - 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 reporting: - Chad participant in IMF’s GDDS since September 24, 2002; GDDS metadata and plans need updating. - Data ROSC published in August 2007. - Reporting to STA: only international liquidity, monetary statistics, GDP, and prices currently reported for IFS publication. - Chad has not resumed reporting detailed data for Government Finance Statistics Yearbook; annual fiscal data through 2001 reported and included in IFS database. - BEAC has yet to submit test monetary and financial statistics using SRFs. Chad has yet to submit BOP and IIP data to STA. ### Key data and reporting frequencies (selected items from the Table of Common Indicators Required for Surveillance) - Exchange rates: Daily (D) — Date of latest observation: (not specified beyond header). - International reserve assets and reserve liabilities of the monetary authorities: Observation 02/2014; Date Received 04/2014; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Reserve/base money: Observation 02/2014; Date Received 04/2014; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Broad money: Observation 02/2014; Date Received 04/2014; Frequency of Data M; Frequency of Reporting QM; Frequency of Publication M. - Central bank balance sheet: Observation 02/2014; Date Received 04/2014; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Consolidated balance sheet of the banking system: Observation 02/2014; Date Received 04/2014; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Consumer price index: Observation 03/2014; Date Received 05/2014; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Revenue, expenditure, balance and composition of financing – general government: Observation 03/2014; Date Received 05/2014; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - Revenue, expenditure, balance and composition of financing – central government: Observation 03/2014; Date Received 05/2014; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - Stocks of central government and central government-guaranteed debt: Observation 03/2014; Date Received 05/2014; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q. - External current account balance: Observation 2012; Date Received 04/2014; Frequency of Data A; Frequency of Reporting A; Frequency of Publication A. - Exports and imports of goods and services: Observation 2012; Date Received 04/2014; Frequency of Data A; Frequency of Reporting A; Frequency of Publication A. - GDP/GNP: Observation 2013; Date Received 04/2014; Frequency of Data A; Frequency of Reporting A; Frequency of Publication A. - Gross external debt: Observation 01/2014; Date Received 04/2014; Frequency of Data Bi-M; Frequency of Reporting Bi-M; Frequency of Publication Bi-M. *Source: HIPC completion report March 2014 (document provided).* ### 17.6 percent of non-oil GDP in 2013 from 20.1 percent in 2010, through continuous efforts to ### _cr14282 - 17.6 percent of non-oil GDP in 2013 from 20.1 percent in 2010, through continuous efforts to ### Revenue mobilization and fiscal performance - Non-oil primary deficit (NOPD) reduced to 17.6 percent of non-oil GDP in 2013 from 20.1 percent in 2010 through continuous efforts to raise revenue and better control current spending. - Non-oil tax revenues reached about 9 percent of non-oil GDP—the highest level in the past ten years. - Revenue mobilization actions focused on: - expanding the tax base; - combating evasion; - enhancing capacities of income tax and customs collection agencies. - Authorities acknowledge considerable room for further improvement in non-oil revenue collection. ### External sector, oil production, and reserves - Decline in oil exports from maturing fields worsened the current account deficit to reach 9.5 percent of GDP last year. - International reserves stood at 2.5 months of coverage of imports of goods and services at end 2013. - Oil production is projected to grow with new fields coming on stream. - Balance of payments remains subject to: - fluctuations of international oil prices; - unexpected adverse events in the oil production process (example cited: the recent energy shortage). ### Strategic oil-sector developments - The Chadian State has acquired shares in the largest oil consortium operating in the country, Esso. - Expected benefits of the strategic acquisition: - generate positive financial returns; - provide the country with a major productive asset; - enhance national expertise in upstream oil operations; - bring in significantly higher fiscal revenues as early as 2018. ### Medium-term challenges and requested technical assistance - Authorities will build on progress under the SMP to implement medium-term policies to: - enhance fiscal sustainability through strengthened public financial management (PFM); - ensure macro stability; - improve the business environment to promote private sector-led, job-creating growth; - promote structural transformation of the economy; - significantly reduce poverty. - Technical assistance needs from the Fund and partners include: - implementation of program-based budgets; - update and optimization of the oil revenue forecasting model; - developing and managing monthly cash management plans; - analysis of tax expenditures; - improving quality of statistical data; - adapting budgetary and accounting nomenclatures and presentation of State Financial Operations to CEMAC community guidelines. ### Fiscal policies and reforms (2014–2017 program) - NOPD will continue to serve as the anchor of fiscal consolidation, with plans to lower NOPD ratios throughout the 2014-2017 program. - Measures to reduce NOPD include: - increased non-oil revenue collection; - containment of primary current expenditures while preserving poverty reduction outlays. - The overall budget deficit for 2014, equivalent to 0.5 percent of non-oil GDP, will be covered by additional identified resources, notably: - exceptional revenues in the mobile phone and oil sectors; - issuance of Treasury bills; - rollover of amortizations due from the oil sale advances and from a loan with a CEMAC member. - Fiscal structural and institutional reforms planned, sequenced to match improving capacities; technical and human capacities of fiscal institutions to be strengthened as described in the authorities’ MEFP (paragraph 31). ### Debt sustainability and debt policy - Authorities reiterate commitment to sustainable public debt and will refrain from contracting new external non-concessional loans. - Cancellation of a Master Financial Agreement (MFA) with a foreign banking institution amounting to US$2 billion due to insufficient concessionality. - All debt proposals will be subject to analysis by: - the Chadian Team on Debt Analysis and Sustainability (ETAVID); - the National Commission for Debt Analysis (CONAD). - Capacities of ETAVID and CONAD are being enhanced; government communication on debt-related issues to be strengthened. - Technical assistance on debt management provided and to continue from the World Bank and AFRITAC Centre. ### Sustainable and inclusive growth strategy - Strategy pillars: - consolidate economic and financial stability; - promote employment by organizing the informal sector; - improve education and training; - increase access to basic infrastructures and public services (electricity, water supply, roads), notably in rural areas. - Diversification focus: shift growth sources toward agriculture and livestock to make growth more inclusive. - Governance and transparency measures: - reform public procurement; - comply with the Extractive Industries Transparency Initiative (EITI). - Private sector support: - enhance dialogue with the private sector to favor its development. - Financial sector measures: - build on banking sector stability achieved through recent restructuring of state-owned banks; - implement FSAP recommendations to increase access to financial services, notably in rural areas; - develop and organize the microfinance sector. ### Conclusion and request for Fund assistance - Economic situation improved markedly since peace was restored, enabling macroeconomic stability measures. - Institutional and financial constraints remain key impediments to development goals; authorities will rely on the Fund for technical assistance, especially in the fiscal area, and to catalyze donor resources and assist in meeting HIPC Initiative debt relief requirements. - Chad urgently needs Fund assistance to meet balance-of-payments needs in the face of volatile oil revenue and to pave the ground for long-term development. - The authorities request Fund assistance under the Extended Credit Facility and seek the support of the Executive Board. *Source: IMF staff report content (text as provided).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14282.pdf_