## _cr15351 ## Source details **Canonical URL:** [_cr15351](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15351.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15351.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15351.pdf.json) --- ### EXECUTIVE SUMMARY — context, shocks, and immediate impact - Sustained decline in the oil price and deterioration in the security situation related to Chad’s support for the regional operation against Boko Haram have severely affected the economy. - Consequences: - Growth slowed sharply; GDP growth slowed from an estimated 6.9 percent in 2014 to less than 4 percent in 2015. - Fiscal revenues underperformed, creating additional financing needs despite sharp cuts in expenditure. - HIPC completion: - Following the HIPC completion point in late April, Chad secured close to US$756 million in debt relief comprising: - IDA MDRA: US$509 million; - AFDB MDRI: US$160.9 million; - IMF: US$23.9 million; - Paris Club: US$62.6 million. - Despite relief, Chad remains at high risk of debt distress. - Security and refugee pressures: - Refugee population exceeded 500,000 people in 2014 (UNHCR); adding internally displaced persons and “retournés” yields around 750,000 displaced persons hosted by Chad. - UNHCR budget for Chad: between US$150–200 million per year. - European Commission humanitarian aid: between € 40–50 million per year. ### Program status, IMF actions, and staff recommendations - ECF arrangement: - ECF arrangement approved August 1, 2014 with access of 120 percent of quota (SDR 79.92 million). - On April 27, 2015 Executive Board completed the first review and approved an augmentation of access by SDR 26.64 million (40 percent of quota). - Completion of the first review enabled disbursement of SDR 19.97 million (about US$27.7 million), including SDR 6.66 million (about US$9.2 million) from the augmentation; total disbursements under the arrangement to date: SDR 33.28 million (about US$46.2 million). - Completion of the second review would result in disbursement of an amount equivalent to SDR 20.65 million. - Staff views and Executive Board decisions relevant to the second review: - Staff supports completion of the second review under the ECF arrangement and: - Waivers of non-observance for performance criteria on contracting of non-concessional external debt and non–accumulation of domestic payment arrears—on the basis of a minor deviation and corrective actions taken, respectively. - Modification of performance criteria. - The Fund arrangement is instrumental to catalyze donor support to address Chad’s protracted balance of payments needs. - Date on document: December 1, 2015. ### Recent economic developments and indicators (selected) - Growth and sectoral performance: - GDP growth: 6.9 percent in 2014; less than 4 percent in 2015. - Non-oil sector: forecast to contract by about 1.5 percent in 2015 (versus 2.1 percent growth envisaged under the program and 7.1 percent growth in 2014). - Agricultural sector evolved as expected; secondary and tertiary sectors contracting. - Inflation and CPI composition: - Food items represent 46 percent of the CPI. - Inflation reached 7.2 percent year–on–year in August 2015, fell to 3.8 percent year–on–year in September 2015. - Annual average inflation rate increased to 4.3 percent in September 2015, compared to 1.7 percent in 2014. - Fiscal revenues and execution: - Through end–June 2015, revenues amounted to CFAF 261 billion versus a projection of CFAF 366 billion — a 28 percent shortfall (49 percent shortfall for oil revenue and 18 percent for non–oil revenue). - Preliminary estimates through end–September imply non–oil revenue collections at 75 percent of the annual target. - Execution of domestically-financed spending by end–August represented slightly more than 60 percent of the annual allocation under the 2015 budget approved in April. - Money, credit, and banking: - Broad money growth: 26.5 percent in 2014; 0.7 percent year–on–year as of end–August 2015. - Credit to the private sector: 37.8 percent in 2014; still growing by 20 percent year–on–year as of end–August 2015. - Non-performing loans rose from 12.7 percent to 14.5 percent of total loans over the 12 months up to July 2015 (14.2 percent reported at end–July 2015 in other tables). - Government deposits and reserves: - Government deposits at BEAC: CFAF 93 billion at end–August 2015, CFAF 17 billion lower than end–2014; increased to CFAF 140 billion as of end–September due to BEAC advances. - Pooled international reserves imputable to Chad fell to US$534 million in August 2015, down from US$1.08 billion at end–2014. - External account: - External account deficit widened to 8.9 percent of GDP in 2014; projected at 11 percent of GDP in 2015 on account of further decline in oil prices. ### Financing and debt operations in 2015 - Additional financing needs from external shocks: - Additional financing needs: CFAF 313 billion (5.9 percent of non–oil GDP) compared to the 2015 revised budget (LFR). - Revenue shortfall for 2015: CFAF 273 billion (about 60 percent due to lower oil revenue than envisaged in the LFR). - Increased security spending: CFAF 40 billion (0.8 percent of non–oil GDP). - Authorities’ financing/adjustment mix for remainder of 2015: - BEAC statutory advances: CFAF 92.6 billion approved by end–August. - BEAC exceptional advance: CFAF 140 billion approved on September 28; maturity 10 years, grace period 3 years, interest rate equivalent to BEAC’s rediscount rate; framed as one–off “bridge” financing amortizing with projected recovery in oil revenue in 2018–22. - Additional spending cuts: CFAF 90 billion (1.7 percent of non–oil GDP) relative to the revised 2015 budget, by limiting commitments principally on transfers and subsidies (excluding education, health, security). - Increase in net domestic financing by CFAF 38 billion, mainly via stepped up placements in the regional market by CFAF 30 billion. - Rescheduling with Glencore: - Rescheduling agreement signed in late November 2015 consolidated oil sales’ advances, extending maturity from 4 years to 5–6 years depending on oil export volumes and prices. - Informal understanding during 2015 limited amortizations, implying a reduction in debt service in 2015 of about CFAF 240 billion, broadly in line with program assumptions. - The rescheduling increases the original debt’s net present value and therefore required a waiver for the zero ceiling on contracting or guaranteeing of new non-concessional borrowing, but substantially improves Chad’s medium–term debt service profile. ### Program performance in 2015 (first half) — quantitative outcomes - Overall assessment: broadly satisfactory in H1 2015: four of six Performance Criteria met; structural reform agenda progressed in line with program objectives. - Non–oil primary deficit (NOPD): - June NOPD target met with a margin: NOPD was CFA27 billion lower than the program ceiling and represented about 4.2 percent of annual non-oil GDP. - Adjustment: about 4.3 percent of non–oil GDP relative to the first half of 2014. - Achievement despite underperformance in non–oil revenue of 0.8 percent of non–oil GDP relative to program projections, by holding total primary spending about 1.3 percent of non–oil GDP below targets. - Domestically-financed investment and transfers represented only about 40 percent of the annual allocation; payment of wages and salaries was in line with annual provision. - Poverty-reducing social spending: - End–June target of CFAF 135 billion was met and exceeded, with spending reaching CFAF 145 billion (other table cites CFAF 149.9 billion at end–June 2015). - Performance criteria missed and waivers: - Continuous PC on accumulation of domestic payments arrears breached: ceiling breached by CFAF 185 billion, or 3.5 percent of non–oil GDP; stock of arrears estimated at CFAF 235 billion at end–June 2015 versus ceiling CFAF 51.78 billion at end–December 2014. Authorities requested a waiver and corrective actions to clear arrears by end–2015. - Continuous PC on contracting or guaranteeing new non-concessional loans missed due to Glencore restructuring operation technically constituting new borrowing under program definitions; waiver requested on account of minor non-observance. ### Cash management, issuance activity, and PFM measures - Ceiling on net domestic government financing met with a large margin: - Ceiling met with a margin of CFAF 40 billion (0.7 percent of non–oil GDP). - Net issuance in the first half of the year: CFAF 25.6 billion (compared to CFAF 50 billion assumed in the program). - Issuance activity on the CEMAC regional public securities market: - 2015 budget envisaged gross issuance of CFAF 160 billion; revised objective of CFAF 140 billion in net placements. - H1 2015: five 6-month Treasury bills totaled CFAF 56 billion at an average annualized interest rate of 3.03 percent. - By end-November, one-year Treasury bills placed CFAF 56 billion. - Close to CFAF 110 billion in 2– and 5–year bonds issued between end-July and end-October 2015 at an average interest rate of 4.2 percent. - By end-November, net security placements for 2015 exceeded CFAF 150 billion; reaching CFAF 160-170 billion appears feasible with additional issuance. - Recommended improvements: better planning of issuances integrated into a cash management plan, improved communication and network of primary dealers, and regional-level development of a secondary market. - Cash flow management: - Government intends to set up a permanent structure for cash flow forecasting and management (structural benchmark for end–June 2016) under the DGTCP to monitor the current treasury account at BEAC, centralize public accounting operations, and monitor cash flow and public debt. - Weekly high-level meeting in place to appraise revenue and expenditure. ### Fiscal policy and financing assumptions for 2016 - Draft 2016 budget: - Based on Brent benchmark of US$42 per barrel and recovery in non–oil revenue by 0.6 percent of non–oil GDP relative to 2015. - Domestically–financed spending projected to slightly increase in 2016 due to one–off election-related and security-related spending of about 1.9 percent of non–oil GDP. - NOPD projected to increase to 10.1 percent of non–oil GDP from 9.7 percent in 2015; abstracting from one–offs, underlying NOPD projects to decline to 8.3 percent of non–oil GDP. - Draft budget submitted to the National Assembly on October 22, 2015; expected to be adopted by end-2015. - Exceptional receipts: - Exceptional receipts from sale of government equity (10 percent stake in CNPC-operated fields) envisaged: draft 2016 budget envisages about 5.5 percent of non–oil GDP in receipts from that transaction (other section cites an exceptional receipt of CFAF 300 billion included in 2016 budget). - Programming: CFAF 100 billion per quarter over the first three quarters of 2016 assumed; contingency rules to cut spending by 50 percent of missing amount in H1 and 75 percent in H2 if not realized. - Financing plans for 2016: - Planned net placements in regional markets ~CFAF 93 billion (1.7 percent of non–oil GDP). - Initial indications consistent with CFAF 40 billion in donor budget support in latter part of 2016 (compared to CFAF 71 billion total disbursed in 2015). - Government reaffirms commitment to refrain from contracting new non-concessional external borrowing; possible new external borrowings in 2016 of approximately CFAF 40 billion on concessional terms for investment projects. ### Public financial management, tax administration, and transparency reforms - Structural reforms and steps taken: - Decree establishing an inter-ministerial structure to consolidate and report fiscal oil revenues signed on June 30, 2015. - Information on oil revenue incorporated in the September quarterly budget execution report (end–September structural benchmark). - Adoption of a new procurement code and a revised general code of taxes and tax procedures. - Validation of recent census of enterprises by INSEED (linked to end-December structural benchmark on updating and expanding the taxpayers’ database). - Adoption of framework for issuance of a “citizen’s budget” with the 2016 budget. - PFM priorities and planned actions: - Strengthen treasury management and expenditure control; establish permanent structure for cash flow forecasting and management (structural benchmark: end–June 2016). - Improved budget reporting including quarterly budget execution reports; identification of public accounts to streamline toward a Treasury single account (medium-term objective). - FAD to field a PFM TA mission in December (2015). - Tax and customs administration: - Rollout of SIGTAS to be extended to litigation procedures, control, and interface with banks. - Business taxpayer database widened based on INSEED census (structural benchmark: end–December 2015). - Convention with BIVAC-Veritas signed to establish a single-window at customs; expected to increase customs revenue. ### Debt management, transparency on oil revenue, and DSA update - Oil revenue transparency: - Inter–ministerial committee will publish regular notes in 2016 including production trends, cargoes exported, discount on Chadian barrel compared to Brent, oil revenues and their breakdown, and deductions to gross oil revenue flows (structural benchmark for end–June 2016). - FAD TA mission on oil revenue forecasting planned. - Public debt management: - Continuous functioning of CONAD and ETAVID emphasized. - An annual debt management report to be produced; first report to be completed by end–June 2016 (structural benchmark). - Government to draft a medium–term external borrowing plan specifying share for investment projects and sources/terms of financing. - DSA update — main findings: - Updated DSA incorporates HIPC relief and restructuring of oil sales advances; confirms projected medium– and long–term fiscal paths are consistent with fiscal and debt sustainability. - Main revisions: new debt service profile for oil sales’ advances and revised macroeconomic framework. - Risk of debt distress remains high due to weak oil prices and heavy dependence on oil sector for repayment capacity. - Under the baseline two external debt indicators exceed thresholds in the short-run: (i) small breach of PV of debt-to-revenue ratio in 2015; (ii) breach for debt service-to-revenue ratio in 2016. - Stress tests show vulnerability to high exchange rate depreciation and poor export performance. - BEAC advances and rescheduling improve medium-term debt service profile though increase NPV of debt. ### Staff appraisal, risks, and recommended policy priorities - Staff appraisal: - Since start of ECF arrangement, Chad faced massive external shocks: oil prices resumed downward trend in 2H 2015; security situation deteriorated. - Performance under ECF broadly satisfactory despite conditions; most performance criteria met and structural reform agenda progressed. - Prioritizing clearance of domestic payment arrears is appropriate due to adverse impacts on economic activity, banking sector health, and non–oil tax collections. - BEAC monetary financing described as not optimal for the currency union and should be a “one–off” operation. - Key risks: - External: volatile international oil prices; regional security situation. - Domestic: implementing a large fiscal adjustment in an electoral year. - Banking sector exposure: commercial banks highly exposed to the public sector; stress tests indicate solvency and liquidity ratios vulnerable to persistent oil shocks. - Recommended priorities for authorities: - Continue fiscal adjustment and mobilize donor financing to close residual gaps. - Progress on structural reforms: improve treasury and cash management, public debt monitoring/recording, expenditure control, oil revenue transparency, and banking system monitoring and regulation in coordination with regional authorities. - Diversify economy and expand non–oil revenue base. ### Selected key quantitative projections and indicators (as reported) - Real economy and prices (selected figures): - Total GDP (annual percentage change): 8.9 (2012), 5.7 (2013), 6.9 (2014), 7.6 (2015 Prel.), 3.8 (2016 Prog.), 4.9 (2017 Rev.), 2.5 (2018 Prog.), 5.2 (2019 Rev.), 5.8 (2019 Prog.), 6.0 (2019 Prog.). - Non-oil GDP (annual percentage change): 11.6 (2012), 8.0 (2013), 7.1 (2014), 2.1 (2015 Prel.), -1.5 (2016 Prog.), 4.4 (2017 Rev.), 1.9 (2018 Prog.), 3.1 (2019 Rev.), 3.8 (2019 Prog.), 4.2 (2019 Prog.). - Consumer price index (annual average): 7.7 (2012), 0.2 (2013), 1.7 (2014), 3.2 (2015 Prel.), 4.6 (2016 Prog.), 2.9 (2017 Rev.), 3.3 (2018 Prog.), 3.0 (2019 Rev.), 3.0 (2019 Prog.), 3.0 (2019 Prog.). - Oil production (millions of barrels): 41.2 (2012), 36.3 (2013), 38.5 (2014), 57.3 (2015 Prel.), 54.8 (2016 Prog.), 61.7 (2017 Rev.), 57.8 (2018 Prog.), 67.3 (2019 Rev.), 77.6 (2019 Prog.), 87.9 (2019 Prog.). - External sector and reserves: - Current account balance, including official transfers (percent of GDP): -8.7 (2012), -9.2 (2013), -8.9 (2014), -10.0 (2015 Prel.), -11.0 (2016 Prog.), -8.7 (2017 Rev.). - Gross official reserves (billions of USD): 1.2 (2012), 1.2 (2013), 1.1 (2014), 1.0 (2015 Prel.), 0.6 (2016 Prog.), 1.1 (2017 Rev.). - Fiscal sector (percent of non-oil GDP): - Total revenue and grants: 35.0 (2012), 27.8 (2013), 23.3 (2014), 21.5 (2015 Prel.), 16.7 (2016 Prog.). - Non-oil primary balance (commitment basis, excl. grants): -20.1 (2012), -18.2 (2013), -16.3 (2014), -8.4 (2015 Prel.), -9.7 (2016 Prog.). - Debt and debt metrics: - External debt (percent of GDP): 20.1 (2012), 21.2 (2013), 30.8 (2014), 25.5 (2015 Prel.), 27.2 (2016 Prog.). - NPV of external debt (percent of exports of goods and services): 39.1 (2012), 33.5 (2013), 67.8 (2014), 74.5 (2015 Prel.), 89.1 (2016 Prog.). - Total debt (percent of GDP): 28.2 (2012), 30.1 (2013), 38.2 (2014), 33.2 (2015 Prel.), 40.2 (2016 Prog.). - Monetary and financial indicators: - Broad money (annual percentage change): 13.4 (2012), 8.6 (2013), 26.5 (2014), 3.6 (2015 Prel.), 2.8 (2016 Prog.). - Credit to the economy (annual percentage change): 32.1 (2012), 6.1 (2013), 37.8 (2014), -9.0 (2015 Prel.), 3.4 (2016 Prog.). *Source: _cr15351 - IMF staff report and excerpts (December 1, 2015).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and shocks - The economy is being severely affected by the sustained decline in the oil price and the deterioration in the security situation related to Chad’s support for the regional operation against Boko Haram. - Consequences: growth has slowed sharply, fiscal revenues have underperformed, and despite sharp cuts in expenditure, additional financing needs have arisen. - Following the achievement of the Heavily Indebted Poor Countries (HIPC) completion point in late April, Chad secured close to US$756 million in debt relief, but remains at high risk of debt distress. - Security and refugee pressures: - Refugee population in Chad exceeded 500,000 people in 2014 (UNHCR). - When adding internally displaced persons and “retournés”, the country is presently hosting a total of around 750,000 displaced persons. - UNHCR budget for Chad: between US$150–200 million per year. - European Commission humanitarian aid: between € 40–50 million per year. ### Program status and recent IMF actions - On April 27, 2015, the Executive Board completed the first review under the Extended Credit Facility (ECF) arrangement approved on August 1, 2014, with access of 120 percent of quota (SDR 79.92 million). - The Executive Board approved an augmentation of access by SDR 26.64 million (40 percent of quota). - Completion of the first review enabled disbursement of SDR 19.97 million (about US$27.7 million), including SDR 6.66 million (about US$9.2 million) from the augmentation, bringing total disbursements under the arrangement so far to SDR 33.28 million (about US$46.2 million). - Following the HIPC completion point, Chad secured close to US$756 million in debt relief consisting of: - IDA MDRA: US$509 million; - AFDB MDRI: US$160.9 million; - IMF: US$23.9 million; - Paris Club: US$62.6 million. - New financing flows have been limited; donor budget support expected to pick up only gradually. ### Staff views and Executive Board decisions relevant to the second review - Staff supports completion of the second review under the ECF arrangement and: - Waivers of non-observance for the performance criteria on contracting of non-concessional external debt and non–accumulation of domestic payment arrears—on the basis of a minor deviation and corrective actions taken, respectively. - Modification of performance criteria. - The Fund arrangement is instrumental to catalyze donor support to address Chad’s protracted balance of payments needs. - Completion of the second review will result in the disbursement of an amount equivalent to SDR 20.65 million. - Date on document: December 1, 2015. ### Recent economic developments and indicators - GDP and growth: - GDP growth slowed from an estimated 6.9 percent in 2014 to less than 4 percent in 2015. - Non-oil sector forecast to contract by about 1.5 percent in 2015 (versus 2.1 percent growth envisaged under the program and compared to 7.1 percent growth in 2014). - Agricultural sector evolved as expected; secondary and tertiary sectors contracting. - Inflation and prices: - Food items represent 46 percent of the CPI. - Inflation reached 7.2 percent year–on–year in August 2015, fell to 3.8 percent year–on–year in September 2015. - Annual average inflation rate increased to 4.3 percent in September 2015, compared to 1.7 percent in 2014. - Fiscal performance and revenues: - Through end–June 2015, revenues amounted to CFAF 261 billion versus a projection of CFAF 366 billion — a 28 percent shortfall (49 percent shortfall for oil revenue and 18 percent for non–oil revenue). - Preliminary estimates through end–September imply non–oil revenue collections at 75 percent of the annual target. - Execution of domestically-financed spending by end–August represented slightly more than 60 percent of the annual allocation under the 2015 budget approved in April. - Money, credit, banking: - Broad money growth: 26.5 percent in 2014; 0.7 percent year–on–year as of end–August 2015. - Credit to the private sector: 37.8 percent in 2014; still growing by 20 percent year–on–year as of end–August 2015. - Non-performing loans rose from 12.7 percent to 14.5 percent of total loans over the 12 months up to July 2015. - Government deposits and reserves: - Government deposits at BEAC: CFAF 93 billion at end–August 2015, CFAF 17 billion lower than end–2014; increased to CFAF 140 billion as of end–September due to BEAC advances. - Pooled international reserves imputed to Chad fell to US$534 million in August 2015, down from US$1.08 billion at end–2014. - External account: - External account deficit widened to 8.9 percent of GDP in 2014; projected at 11 percent of GDP in 2015 on account of further decline in oil prices. ### Debt operations and implications - Rescheduling with Glencore: - A rescheduling agreement for the repayment of oil sales’ advances was signed in late November 2015, extending maturity from 4 years to 5–6 years depending on oil export volumes and prices. - During 2015, an informal understanding limited amortizations, implying a reduction in debt service in 2015 of about CFAF 240 billion, broadly in line with program assumptions. - The rescheduling increases the original debt’s net present value and therefore requires a waiver for the zero ceiling on contracting or guaranteeing of new non-concessional borrowing, but substantially improves Chad’s debt service profile over the medium–term by matching debt service to anticipated oil receipts. ### Program performance in 2015 (first half) - Overall: performance under the ECF–supported program was broadly satisfactory in the first half of 2015, with four of the six Performance Criteria (PC) met and progress on the structural reform agenda in line with program objectives. - Non–oil primary deficit (NOPD): - The June NOPD target was met with a margin: NOPD was CFA27 billion lower than the program ceiling and represented about 4.2 percent of annual non-oil GDP. - Adjustment: about 4.3 percent of non–oil GDP relative to the first half of 2014. - Achievement despite underperformance in non–oil revenue of 0.8 percent of non–oil GDP relative to program projections, by holding total primary spending about 1.3 percent of non–oil GDP below targets. - Payment of wages and salaries was in line with annual provision; domestically-financed investment and transfers represented only about 40 percent of the annual allocation. - Poverty-reducing social spending: - End–June target of CFAF 135 billion was met and exceeded, with spending reaching CFAF 145 billion. - Performance criteria missed and waivers: - The continuous PC on accumulation of domestic payments arrears by the government was missed despite expenditure commitments being held below budget, as revenues significantly underperformed and there were delays in planned bond issuance on regional markets. - The continuous PC on contracting or guaranteeing new non-concessional loans was missed due to the Glencore restructuring operation technically constituting new borrowing under program definitions; the non-observance required a waiver on account of it being minor. *Source: _cr15351 - EXECUTIVE SUMMARY (IMF staff report, December 1, 2015).* ### 14. The ceiling on net domestic government financing was met with a large margin ### 14. The ceiling on net domestic government financing was met with a large margin ### Fiscal outcomes and arrears - The ceiling on net domestic government financing was met with a large margin (CFAF 40 billion, or 0.7 percent of non–oil GDP). - Net issuance in the first half of the year: CFA25.6 billion (compared to CFA50 billion assumed in the program). - The ceiling on the non–accumulation of domestic arrears was breached by CFAF 185 billion, or 3.5 percent of non–oil GDP. - Drivers of arrears increase: underperformance of budgetary revenue, delays in issuing debt in the regional market; arrears mostly related to investment in infrastructures and transfers. - Authorities requested a waiver for the non-observance of this performance criterion, citing corrective actions (additional fiscal adjustment and improved cash management) expected to clear all arrears accrued during the year by the end of 2015 (MEFP, ¶ 9). ### Structural reforms and transparency - End–June structural benchmark on oil revenue transparency was met: a decree establishing an inter-ministerial structure to consolidate and report fiscal oil revenues was signed on June 30, 2015 (MEFP, ¶ 10). - Use of emergency spending procedures (excluding wages, debt service and security) in H1 was limited to 5.5 percent of domestically financed spending over the same period (objective: no more than 9 percent for full year 2015). - Reforms implemented include: - Adoption of a new procurement code. - Adoption of a revised general code of taxes and tax procedures. - Validation of the recent census of enterprises by the National Institute of Statistics (linked to end-December structural benchmark on updating and expanding the taxpayers’ database). - Adoption of the framework for the issuance of a “citizen’s budget” with the 2016 budget. ### Macroeconomic outlook and medium-term framework - Revised outlook accounts for more permanent oil revenue and security shocks; authorities implemented substantial fiscal adjustment and mobilized domestic and external financing. - Latest WEO assumptions imply fiscal oil revenues averaging 12.5 percent of non–oil GDP over 2018–22 (close to 6 percent of nonoil GDP lower than envisaged at the time of the first review). - Fiscal strategy projected: NOPD falling from 16.3 percent of non–oil GDP in 2014 to 7.1 percent of non–oil GDP in 2017 (with underlying fiscal adjustments of about 1.3 percent of non-oil GDP per year over 2016-17) and increasing to 10.1 percent of non–oil GDP by 2019 (with oil revenue increasing by more than 6-percent of non–oil GDP between 2017 and 2019). - Non–oil GDP growth: grew 7.1 percent in 2014; projected to contract by 1.5 percent in 2015 (versus original projection of 2.1 percent growth). - Assumptions for rebound: gradual recovery in 2016 and beyond, trend real growth in agriculture of 4 percent per year; downside risks remain in agriculture (one third of non–oil GDP), construction, and services. ### Financing needs and policy mix for remainder of 2015 - Additional financing needs created by external shocks: CFAF 313 billion (5.9 percent of non–oil GDP) compared to the 2015 revised budget (LFR). - Revenue shortfall for 2015: CFAF 273 billion (about 60 percent due to lower oil revenue than envisaged in the LFR). - Increased security spending: CFAF 40 billion (0.8 percent of non–oil GDP). - Authorities’ financing/adjustment mix: - BEAC statutory advances: CFAF 92.6 billion approved by end–August. - BEAC exceptional advance: CFAF 140 billion approved on September 28; maturity 10 years, grace period 3 years, interest rate equivalent to BEAC’s rediscount rate. Exceptional advance framed as one–off “bridge” financing, amortization coincides with projected recovery in oil revenue in 2018–22. - Additional spending cuts: CFAF 90 billion (1.7 percent of non–oil GDP) relative to the revised 2015 budget, by limiting commitments (principally transfers and subsidies excluding education, health, and security). - Increase in net domestic financing by CFAF 38 billion, mainly via stepped up placements in the regional market by CFAF 30 billion. - Planned Fund disbursement under the ECF arrangement intended to close the residual financing gap and help maintain government deposits; domestically-financed primary spending targeted to be 30 percent in nominal terms below the level of 2014. ### Issuance activity in the CEMAC regional public securities market (Box 2 highlights) - Chad first accessed the CEMAC market in 2014; earlier relied on regional commercial banks (CFAF 107 billion in 2011, CFAF 85 billion in 2013). - 2015 issuance program targets and activity: - 2015 budget envisaged gross issuance of CFAF 160 billion; revised objective of CFAF 140 billion in net placements. - H1 2015: five 6-month Treasury bills totaled CFAF56 billion at an average annualized interest rate of 3.03 percent. - By end-November, one-year Treasury bills placed CFAF 56 billion. - Close to CFAF110 billion in 2– and 5–year bonds issued between end-July and end-October 2015 at an average interest rate of 4.2 percent. - By end-November, net security placements for 2015 exceeded CFAF 150 billion; with additional issuance planned, reaching CFAF 160-170 billion appears feasible. - Recommended improvements: better planning of issuances integrated into a cash management plan, improved communication and network of primary dealers, and regional-level development of a secondary market. ### Fiscal policy and financing assumptions for 2016 - Draft 2016 budget: - Based on Brent benchmark of US$42 per barrel and recovery in non–oil revenue by 0.6 percent of non–oil GDP relative to 2015. - Domestically–financed spending projected to slightly increase in 2016 due to one–off election-related and security-related spending of about 1.9 percent of non–oil GDP. - NOPD projected to increase to 10.1 percent of non–oil GDP from 9.7 percent in 2015; abstracting from one–offs, underlying NOPD projects to decline to 8.3 percent of non–oil GDP. - Draft budget submitted to the National Assembly on October 22, 2015; expected to be adopted by end-2015. - Emergency action plan underpinning 2016 budget focuses on rationalization of transfers and subsidies: - Continued implementation of audit recommendations on transfers and subsidies to public entities expected to yield full-year savings in 2016. - Additional audit (with AfDB support) to assess government equity stakes in parastatals for medium-term rationalization. - Expansion of payment of wages through the banking system after validation of government personnel. - Revenue-side measures: streamlining tax exemptions and incentives, reforming and simplifying real estate taxation, reducing tax and customs administrations’ procedures, expanding coverage of the informal sector. - Exceptional receipts from sale of government equity (10 percent stake in CNPC-operated fields) envisaged as important financing source for 2016: - Draft 2016 budget envisages about 5.5 percent of non–oil GDP in receipts from that transaction. - Prudent phasing of expenditures and contingency plan for shortfalls: investment projects delayed until receipts available; limited resort to issuance of securities in regional markets in 2016 (planned net placement ~CFAF 93 billion, 1.7 percent of non–oil GDP). - Donor support and regional market access: - Initial indications consistent with CFAF 40 billion in donor budget support in latter part of 2016 (compared to total disbursements of CFAF 71 billion in 2015). ### Public financial management and tax administration reforms - PFM priorities: strengthen treasury management and expenditure control; establish permanent structure for cash flow forecasting and management (structural benchmark: end–June 2016). - Progress: transposition of CEMAC PFM directives; improved budget reporting including quarterly budget execution reports; identification of public accounts to streamline toward a Treasury single account (medium-term objective). - Plans to rein in emergency spending procedures (DAOs), ensure systematic regularization, and improve public investment management; FAD to field a PFM TA mission in December. - Tax and customs administration reforms: - Rollout of Integrated System for Administration of Taxes (SIGTAS) to be extended to litigation procedures, control, and interface with banks. - Business taxpayer database widened based on INSEED census (structural benchmark: end–December 2015). - Changes to top management of tax and customs directorates to improve non-oil revenue collections. - Convention with BIVAC-Veritas signed to establish a single-window at customs; measures expected to substantially increase customs revenue in short- and medium-terms. *IMF Staff Report: "14. The ceiling on net domestic government financing was met with a large margin" (excerpt).* ### 30. Continued progress in improving transparency on oil revenue remains essential ### 30. Continued progress in improving transparency on oil revenue remains essential ### Transparency on oil revenue and reporting - An inter–ministerial structure has been established to consolidate and report fiscal oil revenue. - Information on oil revenue has been incorporated in the September quarterly budget execution report (end–September structural benchmark). - In 2016, authorities intend to publish regularly a note by the inter–ministerial committee including: - information on production trends, - cargoes exported, - discount on Chadian barrel compared to the price of Brent, - oil revenues and their breakdown, - information on deductions to gross oil revenue flows (i.e., repayment of oil sales’ advances, cash calls payments to the ESSO consortium). - The publication of the note is a structural benchmark for end–June 2016. - An upcoming FAD TA mission on oil revenue forecasting should help identify needed improvements. ### Public debt management and reporting - Stronger debt management, including recording and monitoring of public debt, is crucial for fiscal sustainability. - Continuous and effective functioning of inter–ministerial debt coordination units (CONAD and ETAVID) is key. - An annual debt management report will be produced, with the first report to be completed by end–June 2016 (MEFP, ¶ 26, structural benchmark). - Consistent with the new Debt Limits Policy, the government will draft a medium–term external borrowing plan, including: - the share of financing destined to investment projects, - the sources of and terms of financing. - The government plans to review contracted debts that have not yet been disbursed. - Institutional responsibilities for management of spending arrears have been made clearer to ensure only authorized unpaid commitments become formalized as domestic debt (AFRITAC Central’s technical assistance recommendations). ### Poverty reduction and planning - The implementation report of the National Development Plan (PND 2013–2015) for 2014 was finalized in July and shared with stakeholders. - Despite difficult economic conditions, 84 percent of the national development indicators were met. - A 2030 strategy aimed at attaining emerging market status is under development, supported by a series of 5–year plans (the first one covering 2016–20 is being prepared). ### Program modalities, safeguards, and risks - Chad's capacity to repay the Fund remains adequate, with outstanding obligations to the Fund expected to peak at just 1.1 percent of GDP, and repayments peaking at 0.2 percent of GDP or 1.5 percent of tax revenue in 2023 (Table 12). - Modifications to the performance criteria for end–December 2015 have been proposed (MEFP, Table 1) to reflect significant changes in the macroeconomic framework; performance criteria and indicative targets have also been proposed for 2016. - An updated DSA, incorporating HIPC relief and restructuring of oil sales advances, confirms projected medium– and long–term fiscal paths are consistent with fiscal and debt sustainability. - Main revisions to the DSA: new debt service profile for oil sales’ advances and the revised macroeconomic framework. - The risk of debt distress remains high, reflecting continued weakness in oil prices and heavy dependence on the oil sector for repayment capacity. - Despite significant risks, staff considers sufficient financing assurances are in place and that the program is feasible and credible. - Key external risks: volatile international oil prices and the regional security situation. - Key domestic risks: implementing a large fiscal adjustment in an electoral year. - Commercial banks are highly exposed to the public sector; stress tests suggest solvency and liquidity ratios would be vulnerable to credit risks from a persistent oil shock. - Authorities need to enhance monitoring and prepare contingency plans in coordination with regional banking authorities. - The institutional capacity of the regional supervisor (COBAC) has strengthened through the doubling of inspectors and deployment of a new on-line financial reporting tool, improving supervision of banks and large microfinance institutions. ### Staff appraisal: impact of shocks and policy response - Since the start of the ECF arrangement, Chad faced massive external shocks exacerbated in recent months: - Oil prices resumed a downward trend in the second half of 2015, severely affecting fiscal revenue and foreign exchange. - The security situation deteriorated, disrupting cross–border trade flows and economic activity, and increasing fiscal pressures. - Performance under the ECF–supported program has been broadly satisfactory despite difficult conditions. - Non–oil GDP is now forecast to contract by about 1 percent in 2015 due to security conditions, sharp fiscal spending adjustment, and accumulation of domestic payment arrears. - Inflation has been very volatile, particularly of food products, affected by swings in cross–border trade. - Most performance criteria have been met and the structural reform agenda has progressed in line with program objectives. - Prioritizing clearance of domestic payment arrears is appropriate because arrears have: - adversely impacted economic activity, - harmed the health of the banking system, - reduced non–oil tax collections. - The authorities combined fiscal adjustment with mobilization of significant domestic financing, particularly from BEAC. - Monetary financing from BEAC is described as not optimal for the currency union and should be a “one–off” operation to help Chad traverse exceptional shocks. - The authorities reformulated Chad’s medium–term fiscal policy strategy to adjust to permanently lower oil receipts. - The draft 2016 budget targets additional tightening of the underlying fiscal policy stance, excluding one–off election–related and security spending to be financed by extraordinary receipts. - Public consultations have been held to build support for measures to streamline transfers and subsidies and protect and expand the non–oil revenue base. - The revised fiscal strategy is consistent with maintaining macroeconomic stability and fiscal sustainability over the medium–term. - Continued progress on structural reforms is required to support the fiscal strategy, including: - improving public financial management in treasury management, public debt monitoring and recording, expenditure control, and cash management; - improving transparency on oil revenue to enhance monitoring and forecasting; - ensuring the national development plan accounts for lower oil revenues and public expenditure levels, focusing on inclusive growth strategies, targeted public interventions, promotion of the business environment and non–oil activities; - strengthening banking system monitoring and regulation frameworks in coordination with regional authorities. *Source: IMF staff report excerpt titled "30. Continued progress in improving transparency on oil revenue remains essential" (excerpt provided).* ### 42. Based on Chad’s performance and the strength of the authorities’ response in the face ### _cr15351 - 42. Based on Chad’s performance and the strength of the authorities’ response in the face ### Staff recommendation and conditionality - Staff recommends the completion of the second review and the proposed modifications to performance criteria. - Staff supports waivers for nonobservance of: - the end–June performance criterion on the accumulation of domestic payment arrears, given the strong corrective actions undertaken by the authorities; and - the continuous performance criterion on the contracting or guaranteeing of non-concessional external debt, on the basis that the increase in the original debt’s net present value is minor and is more than offset by the substantial improvement in Chad’s debt service profile over the medium–term. - Staff supports the modification of performance criteria for end–December 2015; performance criteria have been established up to end–June 2016. ### Real economy: growth and inflation (selected figures) - Total GDP (annual percentage change): 8.9 (2012), 5.7 (2013), 6.9 (2014), 7.6 (2015 Prel.), 3.8 (2016 Prog.), 4.9 (2017 Rev.), 2.5 (2018 Prog.), 5.2 (2019 Rev.), 5.8 (2019 Prog.), 6.0 (2019 Prog.). - Oil GDP (annual percentage change): -4.0 (2012), -7.1 (2013), 5.7 (2014), 43.4 (2015 Prel.), 37.6 (2016 Prog.), 7.0 (2017 Rev.), 5.0 (2018 Prog.), 15.1 (2019 Rev.), 13.9 (2019 Prog.), 12.5 (2019 Prog.). - Non-oil GDP (annual percentage change): 11.6 (2012), 8.0 (2013), 7.1 (2014), 2.1 (2015 Prel.), -1.5 (2016 Prog.), 4.4 (2017 Rev.), 1.9 (2018 Prog.), 3.1 (2019 Rev.), 3.8 (2019 Prog.), 4.2 (2019 Prog.). - Consumer price index (annual average): 7.7 (2012), 0.2 (2013), 1.7 (2014), 3.2 (2015 Prel.), 4.6 (2016 Prog.), 2.9 (2017 Rev.), 3.3 (2018 Prog.), 3.0 (2019 Rev.), 3.0 (2019 Prog.), 3.0 (2019 Prog.). - Oil production (millions of barrels): 41.2 (2012), 36.3 (2013), 38.5 (2014), 57.3 (2015 Prel.), 54.8 (2016 Prog.), 61.7 (2017 Rev.), 57.8 (2018 Prog.), 67.3 (2019 Rev.), 77.6 (2019 Prog.), 87.9 (2019 Prog.). ### Oil prices and terms of trade - WEO (US$/barrel): 105.0 (2012), 104.1 (2013), 96.2 (2014), 58.1 (2015 Prel.), 51.6 (2016 Prog.), 65.7 (2017 Rev.), 50.4 (2018 Prog.), 55.4 (2019 Rev.), 59.8 (2019 Prog.), 62.2 (2019 Prog.). - Chadian price (US$/barrel): 102.0 (2012), 103.9 (2013), 98.0 (2014), 51.5 (2015 Prel.), 44.9 (2016 Prog.), 59.9 (2017 Rev.), 46.6 (2018 Prog.), 51.9 (2019 Rev.), 56.0 (2019 Prog.), 58.1 (2019 Prog.). - Terms of trade (annual percentage change): -1.8 (2012), 8.1 (2013), -4.4 (2014), -38.5 (2015 Prel.), -44.9 (2016 Prog.), 11.4 (2017 Rev.), -2.0 (2018 Prog.), 7.6 (2019 Rev.), 6.8 (2019 Prog.), 11.3 (2019 Prog.). ### External sector and reserves - Current account balance, including official transfers (percent of GDP): -8.7 (2012), -9.2 (2013), -8.9 (2014), -10.0 (2015 Prel.), -11.0 (2016 Prog.), -8.7 (2017 Rev.), -7.8 (2018 Prog.), -8.0 (2019 Rev.), -4.1 (2019 Prog.), -1.3 (2019 Prog.). - Exports of goods and services, f.o.b. (billions of CFA francs): 2,209 (2012), 1,919 (2013), 1,940 (2014), 1,912 (2015 Prel.), 1,651 (2016 Prog.), 2,343 (2017 Rev.), 1,807 (2018 Prog.), 2,266 (2019 Rev.), 2,770 (2019 Prog.), 3,225 (2019 Prog.). - Gross official reserves (billions of USD): 1.2 (2012), 1.2 (2013), 1.1 (2014), 1.0 (2015 Prel.), 0.6 (2016 Prog.), 1.1 (2017 Rev.), 0.8 (2018 Prog.), 0.9 (2019 Rev.), 0.9 (2019 Prog.), 1.0 (2019 Prog.). - Overall balance of payments (percent of GDP): 1.7 (2012), -0.2 (2013), -1.5 (2014), -0.8 (2015 Prel.), -3.4 (2016 Prog.), -0.4 (2017 Rev.), 0.3 (2018 Prog.), -0.7 (2019 Rev.), 0.2 (2019 Prog.), -0.2 (2019 Prog.). ### Fiscal sector: revenues, expenditures, and balances - Total revenue and grants (percent of non-oil GDP): 35.0 (2012), 27.8 (2013), 23.3 (2014), 21.5 (2015 Prel.), 6.1 (Jun-15 Rev.), 16.7 (2016 Prog.), 23.5 (2017 Rev.), 17.2 (2018 Prog.), 19.4 (2019 Rev.), 22.8 (2019 Prog.), 26.5 (2019 Prog.). - Revenue (percent of non-oil GDP): 31.2 (2012), 25.4 (2013), 21.2 (2014), 18.0 (2015 Prel.), 5.0 (Jun-15 Rev.), 13.1 (2016 Prog.), 21.0 (2017 Rev.), 13.3 (2018 Prog.), 13.1 (2019 Rev.), 16.4 (2019 Prog.), 19.9 (2019 Prog.), 23.5 (2019 Prog.). - Of which: non-oil revenue (percent of non-oil GDP): 8.1 (2012), 9.3 (2013), 9.5 (2014), 9.9 (2015 Prel.), 8.0 (2016 Prog.), 10.6 (2017 Rev.), 8.6 (2018 Prog.), 8.6 (2019 Rev.), 9.2 (2019 Prog.), 9.7 (2019 Prog.), 10.0 (2019 Prog.). - Expenditure (percent of non-oil GDP): 34.4 (2012), 31.4 (2013), 29.6 (2014), 23.0 (2015 Prel.), 9.8 (Jun-15 Rev.), 22.5 (2016 Prog.), 24.1 (2017 Rev.), 23.4 (2018 Prog.), 22.4 (2019 Rev.), 24.0 (2019 Prog.), 26.3 (2019 Prog.). - Non-oil primary balance (commitment basis, excl. grants): -20.1 (2012), -18.2 (2013), -16.3 (2014), -8.4 (2015 Prel.), -9.7 (2016 Prog.), -7.4 (2017 Rev.), -10.1 (2018 Prog.), -7.1 (2019 Rev.), -8.0 (2019 Prog.), -10.1 (2019 Prog.). - Overall fiscal balance (incl. grants, commitment basis): 0.7 (2012), -3.6 (2013), -6.3 (2014), -1.5 (2015 Prel.), -5.7 (2016 Prog.), -0.5 (2017 Rev.), -6.3 (2018 Prog.), -3.0 (2019 Rev.), -1.2 (2019 Prog.), 0.1 (2019 Prog.). - Overall fiscal balance (incl. grants, cash basis): 2.1 (2012), -7.1 (2013), -5.9 (2014), -2.7 (2015 Prel.), -7.2 (2016 Prog.), -0.5 (2017 Rev.), -6.3 (2018 Prog.), -2.8 (2019 Rev.), -1.7 (2019 Prog.), 0.5 (2019 Prog.). ### Debt and debt metrics - External debt (percent of GDP): 20.1 (2012), 21.2 (2013), 30.8 (2014), 25.5 (2015 Prel.), 27.2 (2016 Prog.), 22.6 (2017 Rev.), 23.8 (2018 Prog.), 20.7 (2019 Rev.), 18.2 (2019 Prog.), 15.2 (2019 Prog.). - NPV of external debt (percent of exports of goods and services): 39.1 (2012), 33.5 (2013), 67.8 (2014), 74.5 (2015 Prel.), 89.1 (2016 Prog.), 58.0 (2017 Rev.), 73.6 (2018 Prog.), 55.1 (2019 Rev.), 42.2 (2019 Prog.), 31.6 (2019 Prog.). - Total debt (percent of GDP): 28.2 (2012), 30.1 (2013), 38.2 (2014), 33.2 (2015 Prel.), 40.2 (2016 Prog.), 30.4 (2017 Rev.), 38.4 (2018 Prog.), 33.4 (2019 Rev.), 30.7 (2019 Prog.), 26.1 (2019 Prog.). ### Monetary and financial indicators - Broad money (annual percentage change): 13.4 (2012), 8.6 (2013), 26.5 (2014), 3.6 (2015 Prel.), 2.8 (2016 Prog.), 14.1 (2017 Rev.), 4.2 (2018 Prog.), 6.9 (2019 Rev.), 5.8 (2019 Prog.), 8.1 (2019 Prog.). - Net foreign assets (billions of CFA francs): 558.1 (2012), 537.7 (2013), 522.7 (2014), 474.5 (2015 Prel.), 266.1 (2016 Prog.), 566.1 (2017 Rev.), 336.3 (2018 Prog.), 293.4 (2019 Rev.), 342.2 (2019 Prog.), 367.0 (2019 Prog.). - Credit to the economy (annual percentage change): 32.1 (2012), 6.1 (2013), 37.8 (2014), -9.0 (2015 Prel.), 3.4 (2016 Prog.), 2.2 (2017 Rev.), 6.6 (2018 Prog.), 6.2 (2019 Rev.), 5.1 (2019 Prog.), 10.3 (2019 Prog.). ### Performance criteria, program monitoring, and compliance - End-Sept. 2015 Indicative Target: Floor on non-oil primary budget balance; status: Met in adjusted and preliminary results (numbers shown: (846), (836) floor; results (113), (110), (248), (221) Met (316)). - Ceiling on net domestic government financing: IT 154; Adj. Result 430; Status: Not met; other cells show results and Met/Not met notes. - Ceiling on accumulation of domestic payment arrears by the government: IT 0; Adj. Result 0; Status: Met for some dates but Not met for others (noted in table details). - Ceiling on contracting or guaranteeing of new non-concessional external debt by the government and non-financial public enterprises (US$ million): IT 0; some entries show Met and one entry marked Not met with footnote that non-observance date is end-November 2015 and because of rescheduling of existing debt that led to an increase in its net present value. ### Structural conditionality and fiscal management actions (selected) - Issuance of a decree for establishment of an inter-ministerial structure to consolidate and report fiscal oil revenue information: Due End-June 2015 — Met. - Incorporation of fiscal oil revenue information from the inter-ministerial structure into quarterly budget execution reports: Due End-Sept. 2015 — Met. - Update and expand the taxpayer database: Due End-Dec. 2015 — census of enterprises was recently completed (status noted). - Limit emergency spending procedures to no more than 9 percent of domestically financed spending in 2015 (excluding wages, debt service, and security-related spending): Due End-Dec. 2015 — end-June results in line with annual objective. ### Borrowing plan and disbursements - Borrowing plan by source (2015): Total nominal new debt disbursed 143.7 (USD million), all concessional; Multilateral debt 100.6 (USD million), Bilateral debt 43.1 (USD million); Uses: Infrastructure 122.1 (USD million), Social Spending 21.6 (USD million). - Schedule of disbursement under the ECF Arrangement (Million SDR): - 13.31 — August 1, 2014 — Executive Board approval of the three year ECF arrangement. - 19.97 — February 15, 2015 — Observance of the performance criteria for December 31, 2014 and completion of the first review. - 20.65 — August 15, 2015 — Observance of the performance criteria for June 30, 2015 and completion of the second review. - 17.32 — February 15, 2016 — Observance of the performance criteria for December 31, 2015 and completion of the third review. - 13.99 — August 15, 2016 — Observance of the performance criteria for June 30, 2016 and completion of the fourth review. - 10.66 — February 15, 2017 — Observance of the performance criteria for December 31, 2016 and completion of the fifth review. - 10.66 — July 15, 2017 — Observance of the performance criteria for May 31, 2017 and completion of the sixth review. ### Indicators of capacity to repay the Fund (selected projections) - Fund obligations based on existing and prospective credit (SDR millions): total obligations 0.0 (2015), 0.0 (2016), 0.0 (2017), 0.0 (2018), 0.3 (2019), 2.2 (2020), 10.1 (2021), 15.7 (2022), 21.0 (2023), 21.4 (2024), 16.7 (2025), 8.8 (2026), 3.2 (2027), 0.0 (2028), 0.0 (2029). - Outstanding IMF credit based on existing and prospective drawings (SDR millions): 45.4 (2015), 76.8 (2016), 98.1 (2017), 98.1 (2018), 98.1 (2019), 96.1 (2020), 86.1 (2021), 70.8 (2022), 50.0 (2023), 28.7 (2024), 12.0 (2025), 3.2 (2026), 0.0 (2027), 0.0 (2028), 0.0 (2029). - Net use of IMF credit (SDR millions): 57.3 (2015), 41.3 (2016), 21.3 (2017), 1.3 (2018), 0.0 (2019), -2.0 (2020), -9.9 (2021), -15.5 (2022), -20.8 (2023), -21.3 (2024), -16.7 (2025), -8.8 (2026), -3.2 (2027), 0.0 (2028), 1.0 (2029). - Memorandum: Exports of goods and services (CFAF billions): 1,835 (2015), 2,002 (2016), 2,464 (2017), 2,985 (2018), 3,459 (2019), 3,532 (2020), 3,567 (2021), 3,551 (2022), 3,478 (2023), 3,481 (2024), 3,497 (2025), 3,527 (2026), 3,578 (2027), 3,642 (2028), 3,678 (2029). *Source: IMF staff report and tables as provided in the content unit.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Context and purpose - Letter dated: N'Djamena, November 30, 2015. - Submitted to: Madame Christine Lagarde, Managing Director, International Monetary Fund. - Purpose: Present recent economic trends, performance under the Extended Credit Facility (ECF) since the first review, and policies to be implemented for the balance of 2015 and medium term. The ECF program approved on August 1, 2014 covers July 1, 2014 until June 30, 2017. - Completion point: Chad reached the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative at the first review in April 2015, enabling benefit from US$1.1 billion in debt relief. ### Major exogenous shocks and their impact - Oil price shock: - Cumulative decline in oil prices of approximately 30 percent between end-April and end-November 2015. - Under normal circumstances, oil contributes more than 60 percent of the country’s budget revenue, 90 percent of its exports, and approximately 30 percent of its GDP. - Oil revenues projected in 2015: previously CFAF 432 billion; expected to stand at CFAF 270 billion (paragraph 12). - Security shock (Boko Haram and regional operations): - Chadian military operations in Cameroon, Nigeria, Niger, and the Lake Chad region. - Monthly cost of military operations estimated at US$12 million, in addition to costs for refugees and reinforced domestic security. - Suicide attacks in June–July 2015 in N’Djamena resulted in more than 60 deaths; October 11, 2015 attacks in Baga Sola killed approximately 50 persons. - Refugees and displaced persons hosted by Chad estimated at 750,000 (United Nations report cited). ### Recent macroeconomic trends (first half / through September 2015) - Output and growth: - Non-oil GDP: could contract by about 1.5 percent in 2015 (as against 7.1 percent in 2014). - Overall GDP growth: about 4 percent in 2015, compared to 6.9 percent in 2014. - Primary sector (agriculture and livestock) grew as expected; other sectors weakened due to reduced public procurement and trade disruptions. - Inflation: - Consumer price index increase: annual average of 4.3 percent as of end–September 2015, compared to 1.7 percent at end–2014. - Budget revenues and fiscal outturns: - Total budget revenue as of end–June: CFAF 261 billion, 28 percent less than CFAF 366 billion expected. - Fall in oil revenues: –49 percent compared to forecasts for the first half of 2015. - Non-oil revenues: –18 percent of the forecasted amount. - Money and credit: - Money supply: after 26.5 percent growth in 2014, almost stagnant year-on-year at end–August (+0.7 percent). - Credit to the private sector: increased by almost 20 percent over the same period. - Banking sector: - Total assets of banks at end–July 2015: CFAF 824 billion, up by 6.8 percent year-on-year. - Deposits increased by 6 percent year-on-year. - Nonperforming loans: 14.2 percent of gross loans at end–July 2015, compared to 12.7 percent a year earlier. - International reserves and government deposits: - International reserves at end–August 2015: US$534 million, against US$1.08 billion at end–2014. - Government deposits with BEAC: CFAF 93 billion at end–June 2015 (CFAF 17 billion less than end–2014), increasing to CFAF 140 billion as of end–September due to advances from BEAC. - BEAC advances: - BEAC granted approximately CFAF 140 billion in exceptional advances at end–September 2015, in addition to CFAF 92.6 billion in statutory advances at the beginning of the same month. ### Program implementation and quantitative performance (first half of 2015) - General assessment: Satisfactorily completed all but two quantitative performance criteria; structural benchmarks generally observed. - Met performance criteria: - Non-oil primary balance for end–June: amounted to CFAF –221 billion (criterion met). - Floor for poverty-reducing social spending: CFAF 149.9 billion at end–June 2015 against a targeted CFAF 135 billion (achieved with a margin). - Zero ceiling on the accumulation of new external payment arrears: met. - Ceiling on net domestic government financing: CFAF 109.9 billion at end–June 2015 for a target of CFAF 213 billion (largely observed). - Not met / exceeded criteria and requested waivers: - Ceiling on contracting new non-concessional external debt: not observed due to rescheduling of oil sales’ advances with Glencore; present value of debt with Glencore increased owing to rise in country risk premium from lower oil prices. Government requests a waiver. - Ceiling for non-accumulation of new domestic arrears: not met. Stock of arrears estimated at CFAF 235 billion at end–June 2015 compared to a ceiling of CFAF 51.78 billion at end–December 2014. Government requests a waiver and plans near-complete clearance subject to financing options by year-end; objective to reduce arrears to about CFAF 51.78 billion at end–2015. - Structural reform progress: - Decree issued June 30, 2015 to establish an inter–ministerial body for consolidating and disseminating oil revenue information; technical committee established and has met. - Extraordinary budgetary procedures (DAOs, emergency spending) limited to CFAF 12.3 billion for first six months of 2015, or 5.4 percent of annual domestically financed expenditures (annual target: 9 percent). ### Policy measures, reforms, and priorities - Fiscal and budgetary measures: - Additional budget adjustments implemented, including rationalization of transfer expenditure and protection of priority social spending. - Draft budget law submitted October 23, 2015 to National Assembly; includes cost for National Electoral and Independent Commission for elections (~one percent of non-oil GDP) and only moderate changes to 2015 level of primary non-oil deficit as share of non-oil GDP. - Government undertakes further adjustments to balance the 2016 budget. - Public financial management and transparency: - Continue reductions in extraordinary expenditure procedures. - Strengthen transparency in the oil sector by publishing more comprehensive statistics on oil sector operations. - Produce an annual report on debt management. - Implement treasury cash management reform. - Revenue mobilization and administration: - Mobilize non-oil revenue by expanding the tax assessment base: validation and use of survey of enterprises, computerized management of tax administration, introduction of property tax, etc. - Implement scanners at various customs frontiers. - Business climate and diversification: - Improve business climate through application of new government contracting code and effective restructuring of institutions responsible for these functions to promote economic diversification. ### Financing gap and government response - Financing gap for 2015: - Additional financing gap of around CFAF 313 billion relative to 2015 revised budget (LFR) assumptions due to underperformance of oil and non-oil revenues. - Fiscal adjustment already achieved: - Primary expenditure reduced by 35 percent in the first half of 2015 compared to the same period in 2014. - Government notes limited further adjustment space before year-end, while preserving social and poverty–reducing spending. ### Commitments and consultations - Commitment period: For July 1, 2015 until June 30, 2017 government undertakes to implement policies and measures in the attached Memorandum of Economic and Financial Policies (MEFP). - Waivers and consultations: - Government requests waivers for non-observance of the non-accumulation of domestic payment arrears performance criterion and for arranging new non-concessional external debt (Glencore rescheduling). - Government will consult with IMF staff on adoption of any additional measures, in accordance with Fund consultation policies. - Publication authorization: - Government authorizes IMF to make Letter of Intent, MEFP, Technical Memorandum of Understanding, and IMF staff report on the second review available to the public and posted on IMF website upon conclusion of the program review by the IMF Executive Board. *Source: Appendix I. Letter of Intent, N'Djamena, November 30, 2015.* ### 14. Against this backdrop, the Government's strategy is based on obtaining additional ### _cr15351 - 14. Against this backdrop, the Government's strategy is based on obtaining additional ### Financing strategy and measures announced (October 6–7, 2015 emergency plan) - Confirmation of financing announced during the first review of the program and mobilizing additional financing: - Rescheduling advanced payments on oil sales: - Agreement signed in late November 2015 merges two advances into one loan, maturity extended by one/two years, repaid through variable levels of deduction from oil sales depending on oil price developments. - Advances from BEAC: - BEAC changed the base year for determining the ceiling of statutory advances from 2008 to 2014, allowing Chad to immediately receive CFAF 92 billion. - BEAC Board of Directors meeting of September 28, 2015 authorized an exceptional advance to Chad giving additional drawing rights of about CFAF 140 billion. - Financing from the CEMAC regional market: - Treasury mobilized a net amount of CFAF 144.2 billion in the first three quarters of 2015 including: - i) CFAF 15 billion in Treasury bills with a maturity of 26 weeks; - ii) CFAF 35 billion in Treasury bills with a maturity of 52 weeks; - iii) CFAF 94.2 billion in Treasury bonds through auctions on the primary market organized by the BEAC. - Treasury repaid CFAF 30 billion of securities that matured. - In the 4th quarter, Chad is considering raising CFAF 57 billion in the regional market (CFAF 35 billion in Treasury bonds and CFAF 22 billion in Treasury Bills). - Budgetary support from international partners: - Authorities expect disbursement of a total of CFAF 71 billion by the end of 2015 from World Bank, European Union and African Development Bank budgetary support once prerequisites are fulfilled. ### Fiscal adjustment and expenditure control (2015) - Additional fiscal adjustment to LFR allocations: - Total projected budget cuts amount to approximately CFAF 91 billion, or 33 percent in total cuts in domestically financed expenditures in 2015 compared to 2014. - Government will limit all new spending commitments except in priority sectors: education, health, and security. - Payment of domestic arrears will prioritize sectors and players with greatest impact on growth and non–oil tax revenues while avoiding disruption of public finance management. - Additional measures announced in the emergency plan for resource mobilization and rationalization of public expenditure: - Tax revenue mobilization measures include: - Establish revenue recovery units coordinated by the General Inspectorate of Finance to enhance recovery of tax arrears. - Review all exceptional customs and tax exemptions. - Timely processing of ongoing litigation cases by tax litigation services. - Redeploy Ministry of Finance officials to public entities and NGOs to identify potential tax contributors. - Create a secure one–stop shop at Customs in accordance with CEMAC Directive. - Reform personal income tax to update the progressive tax schedule. - Collect VAT through targeted controls. - Maximize property tax revenue by lowering the price of the land title to a flat rate and reducing related formalities. - Create a single window for taxation of procurements with external financing. - Non–tax revenue mobilization measures include: - Verify all management contracts between the State and economic operators. - Strengthen monitoring of revenues from livestock exports to better control the actual number of animals slaughtered and exported informally. - Develop PPP financing instruments to finance productive infrastructure. - Support the creation of companies with profitability potential as sources of growth. - Conduct a general survey of informal sector taxpayers throughout the country by the General Directorate of Taxes (DGI). - Review and grant new licenses for gold mining and other resources exploited anarchically, including through the creation of specialized offices. - Rationalization of wages and salaries measures include: - Enhance physical checks and verify administrative status of all government employees, including those in diplomatic missions, in line with recommendations of CIMAPE. - Full operationalization of banking services for all state employees for better management of the wage bill. - Remove all holding of more than one remunerated posts. - Rationalization of spending on goods and services: - Suspend financial support, without legal basis, of civil servants in terms of water, electricity and telephone. - Rationalization of capital expenditures: - Suspend acquisition of vehicles except for justified derogation and limit purchase of equipment and office furniture to critical needs. - Limit to minimum necessary and better supervise repairs and renovations of buildings. - Limit investment spending by focusing on ongoing investments. ### 2015 budget outcome if resources mobilized - If all resources were mobilized, the 2015 budget would witness a financing surplus of about CFAF 47 billion, which would help rebuild reserves from the low levels of one month of domestically financed spending at end–2014. ### The 2016 draft budget (PLFI) and medium–term objectives - Macroeconomic context and fiscal stance: - Oil revenues expected to increase significantly around 2018–2019 due to expected sharp increase in production and a marked rise in revenue from corporate income tax. - Short run assumption: oil prices will remain low; non–oil primary deficit will stand at a level consistent with the medium–term target of public finance sustainability. - 2016 Initial Budget (LFI) features and assumptions: - Non–oil primary deficit expected to be slightly above 10 percent of non–oil GDP in 2016; at only 8.3 percent of non–oil GDP excluding non–recurring expenses. - Key revenue and expenditure assumptions: - Non–oil revenue: CFAF 470 billion. - Oil revenue: CFAF 266 billion (forecast based on a Brent price of US$42 per barrel). - Wages: CFAF 376 billion. - Expenditure on goods and services: CFAF 69.8 billion. - Investment: CFAF 383 billion, equivalent to about 7 percent of non–oil GDP. - Transfers and subsidies: CFAF 204 billion. - Government decided a slight increase in domestically–financed expenditures compared to 2015 largely to allocate resources for elections organization and essential security expenses. ### Exceptional receipt linked to sale of Government asset (2016) - Sale negotiations: - Government initiated negotiations with several oil companies for sale of its stake in operations by CNPC. - Authorities included an exceptional receipt of CFAF 300 billion in the 2016 budget as a portion of the result of that sale. - Programming and precautionary rules: - Programming of expenditures and quantitative performance criteria assume progressive inclusion of this exceptional receipt: CFAF 100 billion by quarter over the first three quarters of 2016. - Quarterly table of financial operations of the State (TOFE) for 2016 prepared consistent with these hypotheses. - In case of non–materialization or delay of this receipt, Government commits to reduce quarterly spending based on cumulative missing amount: - Spending reduction equivalent to 50 percent of the missing amount in the first half of 2016. - Spending reduction equivalent to 75 percent of the missing amount in the second half of 2016. ### 2016 financing plans and borrowing policy - Continued financing plans: - Securities issuance agenda on the CEMAC regional market will continue. - Continue to actively seek project financing under concessional terms. - Expect CFAF 30–40 billion in budgetary support in 2016. - Borrowing policy: - Government reaffirms commitment to refrain from contracting new non-concessional external borrowing. - Ensure all external financing arrangements comply with standard requirements of concessionality and debt sustainability under IMF–supported programs. - All debt proposals to be submitted for analysis and reasoned opinion of ETAVID and CONAD and IMF and World Bank staff will be informed. - Possible new external borrowings in 2016: - New external borrowings could be contracted to finance investment projects for a total of approximately CFAF 40 billion, mainly from traditional multilateral and bilateral creditors on concessional terms. ### Structural reforms and public finance management - Ongoing reform context: - Reform process initiated by Action Plan for the Modernization of Public Finance (PAMFIP) since 2005 is continuing. - Progress noted in collection of non–oil taxes, debt management, budget execution and communication of budget information, monitoring of public procurement procedures and related reports. - Actions completed by 15 October 2015 under the World Bank/AfDB/EU roadmap: - Adoption by Council of Ministers of the draft General Tax Code and Tax Procedures (tabled 11 September 2015). - Validation of the census on companies; general census report approved during 14 July 2015 workshop by INSEED. - Adoption by Council of Ministers of the new Public Procurement Code (tabled 11 September 2015). - Validation of final census report on the Public Service and incorporation in computerized payroll; CIMAPE report submitted and validated. - Validation by Ministry of Finance and Budget of the citizen budget framework adopted for the 2016 Budget; citizen budget format validated after 30 July 2015 workshop. - Adoption by Council of Ministers of CEMAC directives on public finance relating to: (i) State budget nomenclature, (ii) Table of State Financial operations, and (iii) State accounting plan; transmitted to Government Secretary General. - Adoption by Council of Ministers of decrees to improve business climate, including reducing procedures for starting businesses, reducing minimum capital for LLCs, and law on competition (decrees adopted on August 24, 2015). - Operationalization of the Audit Courts effective from January 1, 2015. - Transparency on oil revenue: - Chad complying with EITI requirements since October 2014. - Inter–ministerial committee for consolidation and dissemination of oil revenue information officially created by Prime Ministerial decree of 30 June 2015, meeting regularly. - As a structural benchmark for end–September 2015, Government incorporated information on budgetary oil revenues (breakdown by types of revenues) in budget execution report for Q2 2015 available on Ministry website. - In 2016 dissemination enhanced through regular notes by inter–ministerial committee including: production trends, cargoes exported, discount on Chadian barrel compared to Brent, oil revenues and their breakdown, and cash flows relating to SHT (including repayment of Glencore loan or cash calls by ESSO consortium). (Structural benchmark for end–June 2016.) - Government requested IMF Fiscal Affairs Department technical assistance to update financial model for projection of oil tax revenues; mid–2015 statistical information requests respected prior to such a mission. - Professionalization and expenditure procedure improvements: - Continue implementation of technical assistance recommendations, including expenditure management improvements and gradual implementation of a cash management forecasting system. - Reduce use of emergency spending procedures (DAO); in 2016 Government undertakes to limit use of DAOs (excluding salaries, debt servicing, expenditures from the Independent National Electoral Commission and military expenditures) to no more than than 9 percent of domestically financed spending (structural benchmark under the ECF arrangement for 2016). - Regularization of DAOs will continue and their time frame shortened; automation of DAO via a computerized interface to accelerate process. - SIGASPE payroll software will be fully used to control payroll and number of State employees and continue to generate savings. - Audit of transfers and subsidies to public corporations and State–owned entities in progress; preliminary results expected by Q1 2016 and implementation measures linked to audit are a structural benchmark for end–2016. - Update of debt database and use/maintenance of SYGADE to allow production of annual reports on debt management; first annual report to be produced in the first half 2016 (structural benchmark for end–June 2016). *Source: CHAD — INTERNATIONAL MONETARY FUND, content unit _cr15351 - 14.* ### 27. Concerning the gradual implementation of a cash flow management forecasting ### Concerning the gradual implementation of a cash flow management forecasting system ### Cash flow management — implementation and institutional arrangements - The Government intends to base action on the conclusions of the technical assistance report published at the end of 2014 by the Fiscal Affairs Department of the IMF. - Identification and grouping of bank accounts of the State and public entities (over 350 by end–2014) will continue, while the establishment of a single treasury account remains a medium–term objective. - The capacity to monitor and forecast cash flow management must be strengthened; a weekly meeting is held to appraise revenue and expenditure. This meeting brings together: - the Minister of Finance and Budget, - the Secretary General of the Ministry of Finance and Budget, - the Director of Treasury and Public Accounting (DGTCP), - the Director General of Budget, - the Director General of “Ordonnancement” (payment orders), - the Financial Controller. - The Government intends to set up a permanent structure for cash flow forecasting and management (structural benchmark for end–June 2016), under the DGTCP, in charge of: - monitoring the current treasury account at BEAC, - the centralization of public accounting operations, - cash flow and public debt (structural benchmark for end–June 2016). ### Cash management and financing - Significant progress has been made to mobilize public resources and use market borrowing instruments; evidenced by successful issuance of Treasury Bills and Obligations on the CEMAC regional market. - Planned actions for 2016 include strengthening dialogue with SVT. ### Tax revenue mobilization and administration - Improving tax revenue is a priority; Ministers and their teams meet each week under the President of the Republic to appraise revenue trends. - Concrete reforms under the emergency plan include: - Requirement for all land owners to regularize tax situations via the one–stop–shop; noncompliance may lead to penalties including confiscation of land. - In 2016, collection of land taxes will be systematically implemented through collection by municipalities. - Tax administration improvements: - Fiscal control operations were strengthened in recent months. - Tax software SIGTAS has been operational since 15 January 2015; file managers at the Directorate General of Taxes are being trained on its use. - Business taxpayer database is being widened based on the census on companies carried out by INSEED (structural benchmark for end–December 2015). ### Public procurement - Continuing improvement of public procurement procedures is a key priority. - 2014 results: - More than 90 percent of contracts awarded following national and international call for tenders: 348 out of 385 contracts. - Codified contracts awarded by mutual agreement accounted for about one third of total contract amounts: CFAF 168 billion out of a total of CFAF 501 billion. - 2015 initial figures affected by budget cuts: - Total amount of public contracts awarded in the first half of 2015: CFAF 53 billion. - New procurement code adopted by the Council of Ministers on 11 September 2015. - Clearance of domestic arrears is a government priority due to delays in execution and payment by the Public Treasury. ### Program monitoring and review schedule - Implementation will be monitored by the Negotiation Committee in the Ministry of Finance and Budget, in constant communication with IMF staff and the Resident Representative in Chad. - Bi–annual IMF Executive Board reviews based on monitoring indicators and structural benchmarks: - Third program review based on performance criteria at end–December 2015, to be completed on or after February 15, 2016. - Fourth review based on performance criteria as at end–June 2016, expected to be completed on or after August 15, 2016. - The Government undertakes not to introduce or step up restrictions on payments and transfers for current international transactions, nor introduce multiple currency practices, nor sign bilateral payment agreements inconsistent with Article VIII of the IMF Articles of Agreement, nor impose or tighten import restrictions. ### Key quantitative targets and figures (selected from Table 1 and related text) - Structural benchmarks for end–June 2016 include establishment of a permanent cash flow forecasting and management structure and monitoring of the current treasury account at BEAC. - QPC/IT figures (Billions of CFA francs; cumulative from beginning of year, except where otherwise indicated) — selection from table headers and cells as presented: - Floor on non-oil primary budget balance: (451) (511) (133) (314) (437) (553) - Ceiling on net domestic government financing: 119 399 113 277 345 357 - Ceiling on the accumulation of domestic payment arrears by the government: 0 0 0 0 0 0 - Ceiling on the accumulation of new external payment arrears by the government or non-financial public enterprises: 0 0 0 0 0 0 - Floor for poverty-reducing social spending: 300 243 55 110 183 245 - Memo items: - Oil revenue: 432 270 471 1217 5250 - Concessional borrowing: ......40 40 40 40 - End-Dec. 2015 QPC row shown as zeros: 0 0 0 0 0 0 - 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): 147 475 550 312 (table shows these numbers in a sequence). ### Structural conditionality (selected) - 2015 measures and due dates: - Issuance of a decree for an inter-ministerial structure to consolidate and report fiscal oil revenue: End-June 2015 (High). - Incorporation of fiscal oil revenue information in quarterly budget execution reports: End-Sept. 2015 (High). - Update and expand the taxpayer database: End-Dec 2015 (High). - Limit emergency spending procedures to no more than 9 percent of domestically financed spending in 2015 (excluding wages, debt service, and security-related spending): End-Dec. 2015 (High). - 2016 measures and due dates: - Producing an annual debt management report: End-June. 2016 (Medium). - Establishment of a structure responsible for Treasury planning and monitoring, and preparation of cash management plans: End-June. 2016 (High). - Rationalization of transfers and subsidies based on a functional and financial audit launched in 2015: End-Sept 2016 (High). - Enhanced reporting of gross and net oil revenue flows: End-June 2016 (High). - Limit emergency procedures to no more than 9 percent of domestically financed spending in 2016 (excluding wages, debt service, expenditures from the Independent National Electoral Commission, and security-related spending): End-Dec. 2016 (High). ### Definitions, computation methods, and key parameters from the TMU - Government scope: central government as defined by GFSM 2001, paragraphs 2.48–50. - Non–financial public enterprises included for Chad: 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), Cimenterie de Baore (SONACIM). - Oil revenue: 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 revenue is excluded from oil revenue. - Extraordinary receipts: include extraordinary oil–related receipts (resolution of disputes with oil companies or sale of Government oil-sector assets) and other extraordinary receipts (including transfers from the UN linked to Chad’s participation in the fight against terrorism). - Total government revenue: tax and non–tax revenue or other revenue (GFSM 2001, Chapter 5), recorded on a cash basis. Proceeds from taxation on contracts, asset sales, receipts from privatization or from the granting or renewal of licenses, and placement proceeds on Government assets and grants are not considered Government revenue for the ECF arrangement. - Total government expenditure: sum of wages and salaries, goods and services, transfers (including subsidies, grants, social benefits), interest payments, and capital expenditure; recorded on a commitment basis unless otherwise stated; includes dépenses avant ordonnancement (DAO). - Wages and salaries: compensation as per GFSM 2001 paragraphs 6.8–6.18; includes wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other monetary or non-monetary payment. - Debt definition: as in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), December 5, 2014), including contracted or guaranteed commitments for which values have not been received; debt forms listed include loans, suppliers’ credits, and lease agreements with present value treatment for leases. - Arrears definition: - Domestic payment arrears = payment arrears on expenditure + payment arrears on domestic debt. - Payment arrears on expenditures: payment orders created by the Direction of “Ordonnancement” but not paid 90 days after authorization to pay by the Treasury; these are part of “balance payable.” - As of end December 2014: - Expenditure arrears stock: CFAF 51.78 billion. - Floating debt stock: CFAF 181 billion. - Loan concessionality: - Debt is concessional if it includes a grant element of at least 35 percent. - The present value discount rate used is 5 percent. - Non–oil primary balance: total government revenue minus oil revenue and extraordinary oil–related revenue, minus total government expenditure, excluding interest payments on domestic and external debt and foreign–financed capital expenditure. - Poverty–reducing social spending includes public spending on National Education (primary and secondary), health, community–organized development, water and sanitation, micro finance, and agriculture and rural development (support for farmers and cattle breeders). - Domestic government financing: issuance of any instrument in CFAF to internal creditors or on CEMAC markets; loans from BEAC (including IMF support), BDEAC, CEMAC Member States, or other debt contracted from those creditors. - Net domestic financing subdivided into net bank financing and non bank net financing. - Net bank financing: change in net government position towards banking system (BEAC and commercial banks), including the refund to the IMF, since end of previous year. - Net non bank financing: issuance of government bonds and loans within CEMAC (including BDEAC and CEMAC Member States) net of amortizations since end of previous year. *Source: _cr15351 - 27. Concerning the gradual implementation of a cash flow management forecasting system (excerpt).* ### 16. External debt, for the purposes of the relevant assessment criteria, is defined as debt ### _cr15351 - 16. External debt, for the purposes of the relevant assessment criteria, is defined as debt ### Definitions and scope - External debt is defined as debt borrowed or serviced in a currency other than the CFA franc. - Exceptional security spending comprises the outlays committed by the State to face security crises. ### Quantitative targets (Table 1 of the MEFP) - Targets are assessed cumulatively from the beginning of the calendar year to which they apply unless stated otherwise. - Floor for the non–oil primary balance (non–oil primary balance defined in paragraph 13). - Ceiling on net domestic financing to the government: - Net domestic financing ceiling = net domestic financing to government (defined in paragraph 15) + extraordinary receipts (defined in paragraph 6). - This 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. - 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 as defined in paragraph 10. - Measured as changes in stock. - 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. - Floor on poverty–reducing social spending (defined in paragraph 14). - Zero ceiling for new non-concessional external debt 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). - Exclusions: (i) normal short–term credits for imports; (ii) debt contracted before the ECF arrangement and rescheduled during this arrangement to the extent such rescheduling is on more favorable terms than the existing debt and up to the amount of the actually rescheduled debt. - This ceiling will be evaluated continuously. ### Adjusters of quantitative targets (2015–2016) - Priority social spending can be adjusted if additional expenditure compressions are needed: it may be reduced proportionately less than other domestically financed primary spending so its ratio increases compared to the previous year. - Delayed external budgetary grants: - Ceiling on net domestic financing will be adjusted upward by 100 percent of the grant shortfall. - A grant is deemed temporarily delayed if payment occurs later in the fiscal year or up to two months after the fiscal year during which it is programmed. - Adjustment related to total of oil revenue, grants, extraordinary receipts (paragraph 6), and privatization receipts: - Floor for the non–oil primary balance can be adjusted downward/upward in response to an excess/shortfall in oil revenue, grants, plus extraordinary and privatization receipts. - Magnitude of adjustment proportional to cumulative excess/shortfall: 50 percent for each of the first two quarters of 2016, and 75 percent for the remainder of the year. - Ceiling on net domestic financing can be adjusted downward/upward by the remainder of the excess/shortfall in oil revenue, grants, plus extraordinary and privatization receipts. - Specific current expenditure for support of refugees and/or “retournés” from the Central African Republic (or other neighboring countries) financed by donations from external technical and financial partners will be excluded from the non–oil primary fiscal balance for program compliance. ### Structural benchmarks and reporting - Structural benchmarks are specified in Table 2 of the MEFP. - Limit on using DAOs: - 2015: maximum of 9 percent of total domestically–financed expenditure, excluding wages, debt service, and military spending. - 2016: maximum of 9 percent of total domestically–financed expenditure, excluding wages, debt service, expenditures of the Independent National Electoral Commission, and military spending. - Limit applies to DAOs at the end of the fiscal year, including the complementary period. - Enhanced reporting of gross and oil revenue: regular publication by the inter–ministerial committee including production trends, cargoes exported, discount on Chadian barrel compared to Brent, oil revenues and breakdown, and cash flows relating to SHT (e.g., repayment of Glencore loan or cash calls by ESSO consortium). ### Data reporting summary (selected periodicities and providers) - 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 poverty–reducing social spending; commitments, payment authorizations, validations, payments: - Ministry of Finance and Budget — General Budget Directorate (DGB): Monthly, within 15 days after month–end. - Table of expenditure before payment authorization; TOFE, on a cash basis; comparative table on budget execution; consolidated balance tables; consolidated Treasury balance: - Ministry of Finance and Budget — DGTCP: Monthly, within 30 days of month–end. - Detailed budget execution information for transfers in the same classification as the budget: - Ministry of Finance and Budget (General Budget Directorate): Monthly, within 30 days of month–end. - Details by project financed domestically; execution of the investment budget, organized by Ministry: - Ministry of Finance and Budget (General Budget Directorate): Quarterly, within 30 days of the end of the quarter. - Details, by externally financed project; investment budget execution; organized by Ministry: - Ministry of Finance and Budget (DGB) and Ministry of Plan and International Cooperation (DGCI): Quarterly, within 30 days of the end of the quarter. - Information on public procurement in the previous month and updating of payment maturity for the rest of the year: - Ministry of Finance and Budget (Financial Control)/SGG (OCMP/Procurement Directorate): Monthly, within 30 days of month–end. - Details on servicing of domestic debt and payment arrears of the government (including maturities): - Ministry of Finance and Budget (Debt Directorate, DCP): Quarterly, within 30 days of the end of the quarter. - Details on servicing of the 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: - BEAC: Monthly, within 45 days of month–end. - Provisional monetary data from the BEAC (Exchange rates, foreign reserves, assets and liabilities of the monetary authorities, base money, broad money, central bank balance sheet, consolidated balance sheet of the 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. - Gross domestic product and gross national product: - 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 Analysis (DSA) update — key findings - This DSA updates the April 2015 HIPC completion point DSA and reflects: rescheduling of two oil sales’ advances, deterioration in security, oil price shocks, and changes in domestic financing. - Rescheduling operation: - Improves medium-term debt service profile by better matching debt service to anticipated oil receipts, despite increasing the original debt’s net present value. - BEAC advances: - One-off exceptional financing for 2015 in the form of BEAC's statutory and extraordinary advances. - Maturity: 10 years; grace period: 3 years; interest rate: equivalent to BEAC’s rediscount rate. - Amortization schedule coincides with projected recovery in oil revenue in 2018-22. - Overall assessment: - Risk of external debt distress remains high with slight short- to medium-term deterioration in the debt service profile. - Under the baseline, two external debt indicators exceed thresholds in the short-run: - Small breach of PV of debt-to-revenue ratio in 2015 due to substantial reduction in fiscal oil revenue. - Breach for debt service-to-revenue ratio in 2016 due to underperformance of oil revenue and high debt service payments in 2016 (under rescheduled oil advances). - Over the long term, debt ratios stabilize to levels similar to the previous DSA. - Stress tests show external debt vulnerability to high exchange rate depreciation and poor export performance, particularly in the short term. - Public (overall) DSA: - Inclusion of domestic debt does not change overall risk of debt sustainability. - Domestic debt issuance revised upward, but public debt indicators remain driven by external debt. - PV of debt-to-GDP ratio rises close to the threshold in 2015 reflecting BEAC advances and increased issuance in the regional market, then gradually declines. - Stress tests underscore risks from exchange rate depreciation and lack of fiscal adjustment. - Policy implication: - Continued prudent fiscal management and economic diversification are underscored by persistent debt sustainability challenges. ### Changes in macroeconomic assumptions (Text Table 1) - Real GDP growth: - Previous DSA: 2015 7.6, 2016 4.9, 2017 8.3, 2015-19 6.2, 2020-34 3.4 - Current DSA: 2015 3.8, 2016 2.5, 2017 5.2, 2015-19 4.7, 2020-34 3.0 - Non-oil GDP growth: - Previous DSA: 2015 2.1, 2016 4.4, 2017 4.9, 2015-19 4.2, 2020-34 4.7 - Current DSA: 2015 -1.5, 2016 1.9, 2017 3.1, 2015-19 2.3, 2020-34 4.3 - Total revenue and grants (% of non-oil GDP): - Previous DSA: 2015 21.5, 2016 23.5, 2017 25.2, 2015-19 27.7, 2020-34 27.1 - Current DSA: 2015 16.7, 2016 17.1, 2017 19.4, 2015-19 20.5, 2020-34 24.3 - Oil revenue (% of non-oil GDP): - Previous DSA: 2015 8.1, 2016 10.4, 2017 11.6, 2015-19 14.0, 2020-34 9.1 - Current DSA: 2015 5.1, 2016 4.5, 2017 7.3, 2015-19 8.1, 2020-34 8.0 - Non-oil primary balance (% of non-oil GDP): - Previous DSA: 2015 -8.4, 2016 -7.4, 2017 -8.0, 2015-19 -10.1, 2020-34 -7.7 - Current DSA: 2015 -9.7, 2016 -10.1, 2017 -8.0, 2015-19 -9.0, 2020-34 -6.3 - Exports of goods and services (% of GDP): - Previous DSA: 2015 27.5, 2016 30.1, 2017 34.6, 2015-19 32.4, 2020-34 23.6 - Current DSA: 2015 24.9, 2016 25.8, 2017 29.4, 2015-19 30.0, 2020-34 24.2 *Source: _cr15351 - 16. External debt, for the purposes of the relevant assessment criteria, is defined as debt* ### 4. While Chad remains at high risk of external debt distress, the persistence of oil and ### _cr15351 - 4. While Chad remains at high risk of external debt distress, the persistence of oil and ### Debt sustainability assessment: overall finding - While Chad remains at high risk of external debt distress, the updated DSA’s baseline projections remain consistent with medium- and long-term debt sustainability. - In the short term (2015-17), repayment capacity has been negatively affected by lower oil revenues, despite the rescheduling of oil sales’ advances. - The persistence of external shocks (oil and security) has worsened some debt ratios in the short term. ### Short-term shocks and macroeconomic impact - External shocks identified: deterioration in the price of oil; deterioration in the security situation, notably the fight against Boko Haram. - Short-term macroeconomic consequences noted: - Non-oil sector: projected to contract by about 1.5 percent in 2015. - Inflation: reached 4.3 percent in September 2015, up from 1.7 percent in 2014. - Budget revenues for the first half of 2015: 28 percent lower than projected due mainly to the fall in both oil and non-oil revenues. - Fiscal response: cuts in expenditures, notably capital spending; priority spending preserved. - Resulting pressures: accumulation of domestic payment arrears due to low fiscal revenues and delays in issuances of government securities. ### Policy recommendations and institutional actions - Need to diversify the economy to minimize dependence on the oil sector for repayment capacity. - Further improvement in fiscal and debt management is required. - Important institutional measures underway or planned: - Effective functioning of recently revamped inter-ministerial debt coordination units to strengthen capacity to record and monitor public debt. - Government will start issuing annual debt management reports since 2016. - Undertake institutional improvements in the management of spending arrears in line with recent Fund TA recommendations. - Transparency in the oil sector: a decree establishing an interministerial commission responsible for consolidating and disseminating information on oil revenues was issued; budgetary oil revenue information incorporated in the budget execution report for Q2 2015. - Streamlining of extraordinary budgetary procedures (Dépenses avant ordonnancements, DAOs): 5.5 percent of total expenditures at end-June 2015 financed through these procedures against an annual objective (annual objective value not provided in the excerpt). ### Selected key statistics and DSA indicators (preserved as reported) - Short-term period of concern: 2015-17. - Inflation: 4.3 percent in September 2015; 1.7 percent in 2014. - Non-oil sector contraction: about 1.5 percent in 2015. - First-half 2015 budget revenues: 28 percent lower than projected. - DAOs financing of expenditures: 5.5 percent of total expenditures at end-June 2015. - Figures referenced in DSA and tables (selected): - PV of PPG external debt (examples shown): 11.2, 21.4, 24.6, 21.0, 17.6, 14.9, 11.8, 9.5, 11.2 (as presented in the table fragment). - PV of PPG external debt in percent of exports (examples shown): 33.5, 67.8, 89.1, 73.6, 55.1, 42.2, 31.6, 32.5, 57.4 (as presented in the table fragment). - PPG debt service-to-revenue ratio (examples shown): 36.2, 24.7, 12.7, 8.5, 6.1, 11.9, 6.7, 4.8, 5.0, 5.7, 19.1, 19.5, 29.4, 22.4, 17.5, 18.3, 4.6, 4.8 (as presented). - Debt service-to-exports ratio (examples shown): 20.3, 6.0, 4.3, 3.8, 3.5, 3.1, 4.1, 3.4, 2.7, 2.9, 3.1, 10.2, 8.0, 13.4, 10.4, 8.2, 9.1, 2.9, 4.5 (as presented). - Nominal GDP (Billions of US dollars) (examples shown): 3.1, 5.0, 6.7, 7.4, 8.7, 10.4, 9.3, 10.7, 12.2, 12.4, 13.0, 13.9, 11.3, 11.9, 13.3, 14.7, 16.3, 20.7, 36.1 (as presented). - Stress-test findings summarized in figures and tables: most extreme stress tests through 2024 correspond to One-time depreciation and Exports shocks across different indicators (as annotated in figure notes). ### Authorities’ statement highlights (December 14, 2015) - Security incidents: bloody attacks in N’Djamena in June and July 2015 led to a total of 68 civilian deaths; other deadly attacks including one in the Lake Chad region costing more than 15 lives. - Chad is hosting an increased number of refugees. - Oil sector: many oil companies revised downward production and investment plans; downward revision of projected oil production and exports for Chad. - Program performance: performance under the ECF arrangement satisfactory with most criteria and benchmarks for the second review met. - Request: authorities call on the international community to provide additional and timely support to preserve stability in the Lake Chad region, address the humanitarian crisis and pursue smooth implementation of the economic program. *Source: _cr15351 - 4. While Chad remains at high risk of external debt distress, the persistence of oil and* ### 9.0 percent. Moreover, a procurement code and a revised general code of taxes were adopted, ### _cr15351 - 9.0 percent. Moreover, a procurement code and a revised general code of taxes were adopted, ### Macroeconomic and financial developments (through mid-2015) - Credit to the private sector increased owing to the recourse to bank financing by private companies awaiting government payments. - Non-performing loans (NPLs) increased from 12 percent of gross loans in 2014 to 14.2 percent at end-July 2015, as a result of the economic slowdown and government payments arrears. - The current account deficit widened further and international reserves declined to a 4-year low in August 2015. - A rescheduling agreement with Glencore consolidated the balance of two oil sales advances, extended the maturity from 4 to 5-6 years, and improves Chad's debt profile over the medium-term; however, the rescheduling increased the NPV of the consolidated loans and hence lowered the concessionality level of the original loan. - Program performance under the ECF at end June 2015: 4 out of 6 performance criteria met; the two not observed relate to non-concessional external borrowing and the accumulation of domestic arrears. - Structural benchmarks at end-June 2015 and end-September 2015 (all related to oil revenue transparency) were implemented. - The external shocks made the original quantitative program objectives of fiscal revenues for end-2015 difficult to achieve; the macroeconomic framework was revised accordingly. - Authorities requested waivers for the nonobservance of the two performance criteria, waivers for the modification of performance criteria for end-2015, and the completion of the second review under the ECF. ### Gap financing in 2015 - The revision of the macroeconomic framework resulted in an additional financing gap for 2015. - Despite projected higher oil production, a rebound in oil revenues in the short run is unlikely. - Limited scope for additional adjustment by the end of 2015 given prior fiscal adjustment and the need to protect social, poverty-reducing and security spending and preserve administration functioning. - Authorities’ strategy to close the gap in 2015: - Obtain additional financing, supplemented by additional expenditure adjustments identified in an emergency action plan presented to civil society, trade unions and development partners in early October 2015. - Additional financing secured from: - (i) the central bank (BEAC) in the form of statutory and exceptional advances; - (ii) the rescheduling of repayments of oil sales advances; - (iii) additional issuances of government securities in the regional capital market; and - (iv) assistance from international partners in the form of budget support. - Supplementary fiscal adjustment measures in the second part of 2015 included limiting all new spending commitments except in priority sectors such as education, health, and security. - Cash flow management: a weekly meeting bringing together senior officials of the Presidency and the Ministry of Finance and Budget is held to appraise revenue and expenditures; authorities intend to set up a permanent structure for cash flow forecasting and management by June 2016. ### Policies for 2016 - Authorities intend to pursue macroeconomic and fiscal objectives aimed at preserving macroeconomic stability and furthering diversification in the context of the national development plan, including rehabilitating land routes to Niger and Sudan. - Fiscal stance: - Remain committed to a prudent fiscal policy. - Submitted a draft budget for 2016 to the National Assembly in late October 2015, which includes elements of the emergency action plan and is in line with the medium-term objective of fiscal and debt sustainability. - The 2016 draft budget contemplates a slight increase in the non-oil primary deficit compared to 2015 due to resources needed for the optimal organization of the elections in 2016 and essential security expenses. - Inclusion of exceptional revenues linked to the sale of the state participation in oil fields in Chad; this exceptional revenue will mainly finance one-off expenditures upon receipt. - Apart from exceptional proceeds, resources will be mobilized from issuance of securities, project financing and budget support from international partners. - A contingency plan for revenue shortfalls includes delaying some investment projects and increasing issuances of government securities if and when needed. - Debt policy: - Authorities will refrain from contracting new nonconcessional debt. - New external borrowings would be contracted on concessional terms to finance investment projects. - Authorities note increasing difficulty to secure concessional financing and are hopeful that international partners will timely disburse pledged budgetary support. - Fiscal reforms and revenue mobilization: - Continue reforms started in recent years, in line with technical assistance recommendations and measures in the emergency action plan. - Prioritize improvement of domestic revenue mobilization: streamline tax exemptions and incentives, systematically implement collection of real estate taxes, and pursue formalization of the informal sector. - On expenditure management: continue to improve the expenditure management system through continued limited use of DAOs and their automation, and ensure rationalization of transfers and subsidies to public entities consistent with audit recommendations. - Gradually strengthen the cash management forecasting system. - Remain committed to improving public procurement procedures and achieving greater transparency in oil-related fiscal operations. - Authorities reiterate their request for Fund technical assistance to update the forecasting model for oil tax revenues. ### Conclusion and requests to the Fund - The worsening security situation and protracted low oil prices significantly complicated program implementation. - Authorities took strong adjustment measures to keep the program on track and preserve macroeconomic stability. - Performance under the ECF has been satisfactory. - Authorities are requesting waivers for the nonobservance of criteria, waivers for the modification of performance criteria for end-2015, and the completion of the second review under the ECF, and request Directors’ favorable consideration of these requests. *Source: _cr15351 - 9.0 percent. Moreover, a procurement code and a revised general code of taxes were adopted,* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15351.pdf_