## Implementation of Key Recommendations from the 2013 Article IV Consultation (completed March 2014)

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### Background and implementation summary
- Key recommendations (2013 Article IV):
  - Fiscal policy anchored on a sustained reduction of the non-oil primary deficit (NOPD), supported by public management reforms and sizable increases in non-oil revenue collection to offset projected exhaustion of oil revenue.
  - Medium- and long-term diversification: improve the business environment, promote agricultural activities, expand access to basic and financial services.
- ECF program response (approved August 2014):
  - Three-year ECF arrangement planned a smooth decline in the NOPD in the context of a doubling of oil export volumes and a gradual decline in international oil prices.
  - Structural reform focus: strengthening public financial management (PFM), improving governance, and improving the business climate.
- Specific reform steps taken:
  - Curtailment of emergency spending procedures (Dépenses avant Ordonnancement, DAOs).
  - Transposition of most CEMAC PFM directives into domestic legislation.
  - Publication of quarterly budget execution reports.
  - Establishment of inter-ministerial debt and oil revenue coordination units.
- Implementation constraints:
  - Progress slow and uneven due to limits in institutional capacity and capacity to absorb technical assistance.

### Recent economic developments (2014–2016)
- Shocks and fiscal context:
  - Massive and persistent decline in oil prices since mid-2014 and elevated regional insecurity.
  - From 2013 to 2015, Chad experienced an 80 percent reduction in fiscal oil revenue.
  - Chad hosts some 750,000 refugees and displaced people.
- Fiscal adjustment and financing measures (2014–2015):
  - 30 percent reduction in domestically-financed spending.
  - Financing mobilized: advances from BEAC; securities issuances in the regional market; rescheduled repayment of oil sales’ advances; budget support from World Bank, European Union, African Development Bank, and Saudi Arabia; Fund disbursements; HIPC debt relief.
  - Domestic payment arrears accumulated with knock-on effects on economic activity and banking system health.
- Macroeconomic outcomes:
  - GDP growth: 6.9 percent in 2014; estimated 1.8 percent in 2015.
  - Non-oil sector: contracted by 2.9 percent in 2015 (compared to a 7.1 percent expansion in 2014).
  - Inflation: reached 7.6 percent year-on-year in August 2015; annual average for 2015 was 3.7 percent; turned negative at end-2015 (-0.3 percent year-on-year) and reached -3.4 percent in March 2016.
- 2015 fiscal outturns and arrears:
  - Total fiscal revenue fell 40 percent short of the 2015 revised budget target.
  - Customs revenue fell by 16 percent relative to 2014.
  - Oil revenues were one third of the amount originally projected for 2015.
  - Overall fiscal deficit on a commitment basis: 6.6 percent of non-oil GDP in 2015.
  - Statutory and exceptional advances from BEAC totaled CFAF 232 billion (4.5 percent of non-oil GDP).
  - CFAF 148 billion in domestic arrears were accumulated in 2015; end-2015 stock rose to CFAF 200 billion (3.9 percent of non-oil GDP).
  - Net issuance of Treasury bills and bonds in the regional market: CFAF 188 billion.
  - External budget support amounted to CFAF 90 billion (including a CFAF 60 billion grant from Saudi Arabia); part (CFAF 25 billion) of the total CFAF 54 billion in budget support committed by WB, E.U., and ADB for 2015 was received only in early 2016.
  - Government deposits at the BEAC declined to CFAF 93.4 billion at end-2015 (from CFAF 119.3 billion one year before).
- Early 2016 deterioration:
  - Oil revenues (net of oil sales advances’ repayments and cash calls contributions) were only 0.4 percent of non-oil GDP in Q1 2016.
  - Stock of arrears increased to CFAF 280 billion at end-March 2016.
  - Government reportedly had difficulty paying salaries and debt service and accrued some small external arrears with multilateral creditors for a few days.
- Monetary and financial sector (2015):
  - Broad money fell by 4.7 percent.
  - Credit to the private sector increased by 0.7 percent on an annual average basis in 2015 (equivalent to 10.5 percent of non-oil GDP).
  - Non-performing loans rose from 11.7 percent to 16.5 percent of total loans over twelve months to December 2015.
  - Loan provisioning fell to 56.1 percent (from 68.3 percent one year before).
- External accounts:
  - External current account deficit widened from 9 percent of GDP in 2014 to an estimated 12.4 percent of GDP in 2015.
  - Imputed pooled international reserves fell from US$1.19 billion at end-2014 to US$390 million at end-2015 (approximately 1 month of imports).

### Outlook and risks
- Growth projections:
  - Including a contraction of 1.1 percent in 2016, GDP growth projected to average about 2 percent per year over 2016–18 (compared to almost 5 percent over 2013–15).
  - Non-oil GDP: gradual recovery over 2016–2018, reaching 4 percent per year over the medium term.
- External position:
  - Projected to remain weak with only a gradual improvement in the trade balance starting in 2017.
  - Foreign direct investment in the oil sector remains a key source of external financing.
  - Imputed international reserves expected to remain low.
- Risk assessment (tilted to the downside):
  - Internal risk: potential deterioration in food security could lead to social and political tensions and jeopardize fiscal position.
  - External risks: deterioration of regional security and low/volatile international oil prices pose significant fiscal risks.
  - The envisaged pick-up in oil production for 2018–19 could be delayed if oil prices do not recover as projected.
  - Spillovers: Chad’s budgetary pressures could affect other CEMAC countries through deterioration in regional security or pressures on the currency union (e.g., requests for additional monetary financing from the regional central bank).

### Policy implications and priorities
- Need for a sizable permanent fiscal adjustment to live with lower oil prices and comply with regional convergence framework over the medium-term.
- Government spending should be significantly adjusted relative to pre-2015 levels; liquidity constraints expected to ease gradually.
- Continue strengthening PFM, governance, and business climate to support sustained NOPD reduction.
- Improve tax administration and reduce VAT/exemption-related revenue losses; FAD technical assistance estimated the VAT gap at 3 percent of GDP and the overall non-oil tax gap at 5.2 percent of GDP.
- Maintain progress on transposing CEMAC PFM directives, publishing budget execution reports, and coordinating debt and oil revenue management.

---

### Revised 2016 Budget, Arrears, and ECF Program Status

### Revised 2016 budget and fiscal gap
- 2016 budget approved in December 2015 estimated to have a financing gap of at least 3.9 percent of non-oil GDP (CFAF 204 billion), reflecting weaker than expected revenue performance in early 2016 and the decision to pay down CFAF 65 billion in domestic arrears.
- Revised budget submitted to the National Assembly in late May:
  - Cuts spending by 2 percent of non-oil GDP, mostly in domestically-financed investment.
  - Slightly expands the wage bill to accommodate recruitment of youngsters.
  - Protects poverty-reducing social spending.
  - Counts on continued borrowing from the regional market, financing under the ECF-supported program, and budget support from AfDB, E.U., and World Bank of approximately 1.4 percent of non-oil GDP (CFAF 70 billion) to cover the remaining financing gap.

### Status of the ECF-supported program (Box 2)
- On August 1st, 2014, a three-year ECF arrangement was approved.
- Total disbursements under the arrangement and reviews: SDR 53.93 million (about US$75 million).
- Performance at end-2015:
  - All but one performance criterion (PCs) for end-December 2015 were met.
  - Progress on the structural agenda was in line with program objectives.
  - NOPD target met thanks to lower than programmed public investment.
  - Ceiling on non-accumulation of domestic arrears was missed by a large margin due to revenue drops and domestic financing shortfalls.
- Key structural reforms in 2015:
  - Incorporating more detailed oil revenue information in budget execution reports.
  - Limiting expenditures executed through extraordinary procedures.
  - Updating and expansion of the taxpayers’ database.
- Recent months saw a slowdown in implementing the structural agenda; staff and authorities continue discussions to complete the third review, with emphasis on financing assurances for the 2016 budget and a comprehensive arrears-clearance and expenditure-commitment control strategy.

### Uncertainty over planned oil asset sale and contingency planning
- Both initial and revised 2016 budgets include CFAF 300 billion (5.8 percent of non-oil GDP) from sale of Chad’s 10 percent share in oil fields operated by CNPCI; the operation has not materialized and negotiations are ongoing.
- Staff recommended contingency plan elements:
  - Further cuts in investment spending informed by rigorous evaluation of projects under execution.
  - Slowing additional hiring.
  - Possible sale of other assets.
  - Align further arrears clearance with assurances about required financing from asset sales to avoid new arrears.
- Staff 2016 projections assume the CFAF 300 billion gap is covered in broadly equal proportions by further spending cuts, proceeds from an asset sale, and financing sources yet to be identified.

### Cash-based budget execution and arrears management
- Staff recommends strict cash-based budget execution for the remainder of 2016 to limit commitments to available financing.
- Liquidity risks:
  - Net oil revenues are small and hard to predict.
  - Most budget support is projected for the end of the year.
  - Timing and size of any oil asset sale are uncertain.
- Operational measures recommended:
  - Spending units in sectoral ministries should not commit to spending unless notified of availability of resources by the Treasury.
  - Prepare a revised budget based on very prudent resource availability assumptions with pre-defined spending prioritization criteria.
- Medium-term arrears strategy:
  - Comprehensive arrears clearance strategy with claims identified and validated by an independent audit (see Box 3).
- Box 3 findings and planned actions:
  - Domestic payment arrears quadrupled in 2015: from 1 percent of non-oil GDP at end-2014 to CFAF 200 billion (3.9 percent of non-oil GDP) in 2015.
  - 2016 strategy: repay CFAF 65 billion in existing arrears, funded by securities issued in late-March 2016; creditors using this facility would be repaid 93 percent of their claims (7 percent discount retained by the managing bank).
  - Recommended principles: repayment must be consistent with resource availability; an audit must comprehensively identify and validate arrears; strengthen commitment controls to prevent spending without budget allocation.

---

### Debt Sustainability Analysis (DSA) and Public Debt Dynamics

### DSA conclusions and fiscal targets
- Preserving fiscal and debt sustainability requires targeting NOPDs of about 5 percent of non-oil GDP in 2017-18 and 6-7 percent over the medium-term.
- Achievable by limiting wage bill growth, strictly prioritizing investments, rationalizing transfers further, protecting priority social spending, and expanding the non-oil tax base through rationalization of exemptions.
- Chad remains at a high risk of debt distress, with vulnerabilities concentrated in the short term.
- With oil prices lower than in the previous DSA, some external debt ratios have deteriorated.
- High short- to medium-term debt service payments linked to non-concessional oil sales’ advances from Glencore increase vulnerability.
- Vulnerabilities related to domestic debt due to accumulation of domestic arrears and increased issuances of debt securities in the regional market.
- The substantial fiscal adjustment in the baseline would keep debt indicators below indicative thresholds in the medium- to long-term.

### Public external and domestic debt dynamics
- External public debt hovered around 20 percent of GDP over the decade after 2003; rose above 27 percent of GDP in 2014 after Glencore and SHT operations.
- Key external borrowing events:
  - 2013: two agreements totaling US$ 600 million in oil sales’ advances.
  - 2014: commercial borrowing operation for US$ 1.4 billion contracted by SHT to finance purchase of Chevron’s shares.
  - Late-2015 Glencore rescheduling extended maturities from 4 to 6-7 years.
- Composition of external debt (end-2014 stocks):
  - Total external debt stock (end-2014): 2,010.2 (Billions of CFA francs) — 27.1 percent of GDP.
  - Multilateral: 734.8 (Billions of CFA francs).
  - Bilateral: 334.0 (Billions of CFA francs) — non-Paris Club official debt 322.5 (includes China 129.0; Libya 139.6; India 21.1).
  - Commercial debt increased markedly in earlier years.
- Domestic public debt:
  - Total domestic debt: 2015: 1050.8 (Billions of CFA francs) — 16.3 percent of GDP (end-year).
  - Central Bank financing (end-2015): 454.6 (Billions of CFA francs) — statutory advances: 280.0; exceptional advance (2015): 140.0.
  - Domestic arrears (end-2015): 199.8 (Billions of CFA francs).
  - Domestic debt rose from 9.6 percent of GDP end-2014 to 16.3 percent of GDP end-2015.

### DSA scenarios and sensitivity
- Baseline reflects persistent oil price shock and security challenges.
- Debt indicators breach some thresholds at the start of the projection period due to revenue decline and arrears accumulation; indicators fall below thresholds in medium- to long-term under sustained fiscal adjustment.
- Public debt stock trajectory including domestic debt (from DSA update):
  - Public debt stock: 45 percent of GDP in 2016; 26 percent of GDP in 2020; stabilizes around an average of 18 percent of GDP in 2022-36.
  - Domestic debt trajectory: 21 percent of GDP in 2016; 13 percent of GDP in 2020; about 8 percent of GDP in 2036.
- Stress tests show short-run sustainability risks; one-time 30 percent nominal depreciation in 2017 and adverse export shocks generate vulnerabilities.
- Key quantitative indicator excerpts (selected):
  - PV of PPG external debt in percent of exports (selected): 85.0 91.8 68.9 52.5 36.3 31.9 27.9 31.4 35.5.
  - PV of PPG external debt in percent of government revenues (selected): 238.4 164.0 131.1 109.1 79.1 66.7 47.3 46.7 31.5.
  - PPG debt service-to-revenue ratio (in percent, selected): 7.1 29.8 26.8 30.6 26.0 23.2 17.9 16.1 11.4 4.1 3.2.

### Authorities’ views and institutional actions
- Authorities consider producing a fully-financed 2016 budget urgent and continue to pursue the oil asset sale.
- Prepared a quarterly cash flow plan to calibrate spending and domestic financing in line with available liquidity while protecting social spending.
- Favor speedier repayment of domestic arrears but only consistent with available resources.
- Institutional improvements:
  - Inter-ministerial debt coordination units revamped.
  - Government will start issuing annual debt management reports since 2016 (with Fund TA support).
  - Arrears on debt to WB and AfDB recently accumulated have been resolved shortly.

---

### Financial Sector Stability, Inclusion, and Policy Recommendations

### Financial system size and fragilities (end-2015)
- Financial system assets: represent 16 percent of GDP as of December 2015.
- Banking sector concentration: three banks hold close to two thirds of total assets.
- NPLs to gross bank loans: 16.5 percent as of end-2015 (up 5 percentage points from 2014).
- Capital adequacy ratio: 14.6 percent as of end-2015 (down from 22 percent in 2013).
- Liquidity: liquid assets represent 26 percent of total assets; liquid assets represent 142 percent of short-term liabilities at end-2015.
- Deposit intermediation: deposits-to-loans ratio of 94 percent at end-2015 (on a declining trend).
- Extractive industries accounted for 3.9 percent of banks’ loans to the private sector in 2015.
- Commercial banks’ credit to the public sector: 28 percent of total credit in 2015 (up from 21 percent in 2014).
- Public sector deposits: about 21 percent of total deposits in 2015 (down from 26 percent in 2014).

### Changes in asset/liability composition and risks
- Decentralized public entities withdrew deposits to maintain operations amid reduced government transfers.
- Introduction of government Treasury bonds (average maturity 3 years) without a liquid secondary market increases maturity mismatch risks.
- Placement of medium-term government securities to pay arrears can increase banks’ direct exposure to government and reduce short-term credit to private companies.
- Stress-test outcomes and supervisory implications:
  - If NPLs reach 20 percent of total loans, some banks would not meet capital adequacy ratios.
  - A further 25 percent decline in total deposits would bring most banks below the regulatory liquidity ratio.
  - Calls for enhanced monitoring of banks and for COBAC to be given means to implement powers received in April 2014 to deal with stressed banks.
  - The role of the BEAC as lender of last resort should be clarified.
- Recent BEAC measures:
  - In March and April 2016, BEAC raised the ceiling for bank refinancing and halved required reserves, easing bank liquidity.
  - Government domestic financing needs could still crowd-out credit to the private sector, as occurred in 2015.

### Financial inclusion and microfinance
- Financial inclusion progress: use of financial services by households improved; bank geographic coverage and ATM/branch coverage increased, but Chad lags peers in CEMAC, LICs and Sub-Saharan Africa; low penetration severe for women.
- MFIs:
  - MFIs’ share in financial market limited: 1.6 percent of total deposits and 2.3 percent of total loans by the financial sector.
  - Weaknesses: poor management and concentration in regions competing with banks rather than underserved areas.
  - Staff recommended improving the regulatory/supervisory framework for the microfinance sector as COBAC’s resources permit.

### Policy recommendations for the financial sector
- Close monitoring of the banking system in coordination with the regional regulator.
- Provide COBAC with means to implement powers to deal with stressed banks.
- Clarify BEAC’s lender-of-last-resort role.
- Strengthen supervisory resources and contingency planning to limit crowding-out risks.
- Support MFIs through improved regulatory framework and inclusion policies.

---

### Structural Competitiveness, Diversification, and Institutional Capacity

### Competitiveness and diversification
- Real effective exchange rate remains overvalued "by 16-20 percent" (two alternative estimation methods).
- Chad ranks among the worst performers on various business environment and competitiveness indicators (e.g., GCI, Doing Business).
- Policy implication: given fixed peg, "bold structural reforms to tackle impediments to private sector development" are principal means to strengthen competitiveness and the external position.
- Agricultural sector viewed as having "enormous growth potential"; promotion of agribusinesses is a strategy to reduce oil dependence.
- Government intends to foster SMEs by reducing costs and simplifying procedures; encourage formalization to improve access to finance.
- Planned judiciary reform over next 5 years to improve business climate predictability.

### PFM and oil sector governance priorities
- PFM priorities and recommended actions:
  - Implement strict budget execution procedures (including for DAOs) and enhance cash management (monthly/quarterly Treasury plans).
  - Strengthen public investment management: streamline commitment-validation-authorization-payment chain.
  - Align allocations for goods and services and transfers with operation and maintenance needs.
  - Consolidate debt management institutional reforms to maintain debt sustainability.
- Oil sector transparency and oversight:
  - Produce accurate oil revenue projections and audit oil company tax declarations.
  - Ensure information from Ministry of Petroleum flows to Ministry of Finance and other agencies.
  - Strengthen accountability for Société d’Hydrocarbures du Tchad-SHT, including producing independently audited international standard financial reports.
  - Centralize information on all oil revenues in the Ministry of Budget and Finance.
- Authorities’ actions:
  - Adoption of new regulatory framework to implement PFM law compliant with CEMAC directives and a new public procurement code.
  - Publication of quarterly budget execution reports.
  - Establishment of an audit court ("Cour des Comptes") operational "since January 2015".
  - Debt management reports and medium-term external borrowing plans expected to be produced "this year".
  - Commitment to revitalize inter-ministerial structure for consolidating and reporting oil revenue information.
  - Intention to facilitate compilation of the 2014 EITI report "during 2016"; all oil companies plus the refinery were being audited by an international audit firm.

### Statistics, capacity development, and institutional constraints
- Chad participates in IMF’s GDDS "since September 24, 2002".
- World Bank’s Statistical Capacity Indicator ranks Chad as better than average of SSA countries.
- Data adequacy: national accounts, CPI, government finance, monetary and balance of payments are "broadly adequate for surveillance" though shortcomings remain.
- Capacity development priorities:
  - Strengthen PFM: develop comprehensive domestic arrears clearance strategy and strengthen public investment process.
  - Statistics: continue support for national accounts and balance of payments to facilitate macroeconomic surveillance.
- Institutional challenges: weak institutional capacity and high turnover reduce absorption of TA; authorities requested increased financial support to computerize key institutions and interest in Fund Topical Trust Fund assistance on Managing Natural Resource Wealth.

---

### External Sector Assessment (Annex II) — Key Findings

### Balance of payments and reserves
- External current account deficit averaged 9 percent of GDP between 2009 and 2015; projected to remain at a similar level in 2016.
- Goods and services balance deteriorated from -7 percent of GDP in 2011 to -17 percent of GDP in 2015.
- Oil exports declined from 32 percent of GDP in 2011 to 19 of GDP in 2015.
- FDI in oil sector averaged 3 percent of GDP in 2009-2015; expected above 5 percent of GDP in 2016 due to exceptional receipts (estimated at CFAF 100 billion) from sale of a 10 percent equity stake.
- Pooled reserves imputed to Chad: US$390 million in 2015 (down from US$1.19 billion at end-2014).
- Reserve adequacy analysis (IMF Country Report No. 15/222, July 2015) concluded reserves remained broadly adequate though decline in 2016 is a risk.
- On average, current account deficit expected to reduce to 7 percent in 2016-2021, with goods and services balance improving from a deficit of almost 17 percent of GDP in 2016 to a deficit of 7 percent of GDP in 2021; deficit primarily financed by FDI.

### Model-based REER assessment (Year: 2020 results)
- Two methodologies applied with assumption that Chad’s oil reserves will be depleted in 25 years.
- Year 2020 results (Text Table 1):
  - Underlying current account: -6.4 (Percent of GDP).
  - CA norm (Araujo et al., 2013): 3.4 (Percent of GDP) → Implied Real Exchange Rate adjustment: 16 (percent).
  - CA norm (Constant real annuity - Bems and Carvalho Filho, 2009): 5.6 (Percent of GDP) → Implied Real Exchange Rate adjustment: 20 (percent).
- Interpretation: model-based approaches indicate a REER overvaluation in the range implied above.

### Structural competitiveness
- World Economic Forum GCI 2014-15: Chad ranks 143th of 144 countries.
- Heritage Foundation Index of Economic Freedom 2015: Chad ranks 165th of 178 countries with overall score of 45.9.
- World Bank Doing Business 2015: Chad scores lower than SSA, WAEMU, and CEMAC averages in all available indicators.
- Key policy implication: bold structural reform measures necessary to strengthen competitiveness and external position given currency union membership.

---

*Source: IMF staff report excerpt: "Implementation of Key Recommendations from the 2013 Article IV Consultation (completed March 2014)" and associated chapters and annexes (content unit _cr16274).*

### 1. Implementation of Key Recommendations from the 2013 Article IV Consultation (completed

### 1. Implementation of Key Recommendations from the 2013 Article IV Consultation (completed March 2014)

### Background and implementation summary
- Key recommendations (2013 Article IV): 
  - Fiscal policy anchored on a sustained reduction of the non-oil primary deficit (NOPD), supported by public management reforms and sizable increases in non-oil revenue collection to offset projected exhaustion of oil revenue.
  - Medium- and long-term diversification: improve the business environment, promote agricultural activities, expand access to basic and financial services.
- Program response and implementation under ECF (approved August 2014):
  - A three-year ECF arrangement planned a smooth decline in the NOPD in the context of a doubling of oil export volumes and a gradual decline in international oil prices.
  - Structural reform focus: strengthening public financial management (PFM), improving governance, and improving the business climate.
  - Specific implementation steps taken:
    - Curtailment of emergency spending procedures (Dépenses avant Ordonnancement, DAOs).
    - Transposition of most CEMAC PFM directives into domestic legislation.
    - Publication of quarterly budget execution reports.
    - Establishment of inter-ministerial debt and oil revenue coordination units.
  - Constraints: progress slow and uneven due to limits in institutional capacity and capacity to absorb technical assistance.

### Recent economic developments (2014–2016)
- Shocks and fiscal context:
  - Massive and persistent decline in oil prices since mid-2014 and elevated regional insecurity.
  - From 2013 to 2015, Chad experienced an 80 percent reduction in fiscal oil revenue (mainly due to oil price drop and repayment of 2016 installments on oil sales’ advances).
  - Chad hosts some 750,000 refugees and displaced people.
- Fiscal adjustment and financing measures (2014–2015):
  - Large fiscal adjustment with a 30 percent reduction in domestically-financed spending.
  - Mobilization of financing: advances from BEAC, securities issuances in the regional market, a rescheduled repayment of oil sales’ advances, budget support from World Bank, European Union, African Development Bank, and Saudi Arabia, complemented by Fund disbursements and HIPC debt relief.
  - Despite financing, domestic payment arrears accumulated with knock-on effects on economic activity and banking system health.
- Macroeconomic outcomes:
  - GDP growth: estimated to have decelerated to 1.8 percent in 2015 from 6.9 percent in 2014.
  - Non-oil sector: contracted by 2.9 percent in 2015 (compared to a 7.1 percent expansion in 2014).
  - Inflation: reached 7.6 percent year-on-year in August 2015, turned negative at end-2015 (-0.3 percent year-on-year), reached -3.4 percent in March 2016; annual average for 2015 was 3.7 percent.
- Fiscal outturns and arrears in 2015:
  - Total fiscal revenue fell 40 percent short of the 2015 revised budget target.
  - Customs revenue fell by 16 percent relative to 2014.
  - Oil revenues were only one third of the amount originally projected for 2015.
  - Overall fiscal deficit on a commitment basis amounted to 6.6 percent of non-oil GDP in 2015.
  - Statutory and exceptional advances from BEAC totaled CFAF 232 billion (4.5 percent of non-oil GDP).
  - CFAF 148 billion in domestic arrears were accumulated in 2015, raising the end-2015 stock to CFAF 200 billion (3.9 percent of non-oil GDP).
  - Net issuance of Treasury bills and bonds in the regional market: CFAF 188 billion.
  - External budget support amounted to CFAF 90 billion (including a CFAF 60 billion grant from Saudi Arabia; part (CFAF 25 billion) of the total CFAF 54 billion in budget support committed by WB, E.U., and ADB for 2015 was received only in early 2016).
  - Government deposits at the BEAC declined to CFAF 93.4 billion at end-2015 (from CFAF 119.3 billion one year before).
- Early 2016 deterioration:
  - Oil revenues (net of oil sales advances’ repayments and cash calls contributions) were only 0.4 percent of non-oil GDP in Q1 2016.
  - Stock of arrears increased to CFAF 280 billion at end-March 2016.
  - Government reportedly had difficulty paying salaries and debt service and accrued some small external arrears with multilateral creditors for a few days.
- Monetary and financial sector developments:
  - Broad money fell by 4.7 percent in 2015.
  - Credit to the private sector decelerated sharply and increased by only 0.7 percent on an annual average basis in 2015 (equivalent to 10.5 percent of non-oil GDP).
  - Non-performing loans rose from 11.7 percent to 16.5 percent of total loans over twelve months to December 2015.
  - Loan provisioning fell to 56.1 percent (from 68.3 percent one year before).
- External accounts:
  - External current account deficit widened from 9 percent of GDP in 2014 to an estimated 12.4 percent of GDP in 2015.
  - Imputed pooled international reserves fell from US$1.19 billion at end-2014 to US$390 million at end-2015 (approximately 1 month of imports).

### Outlook and risks
- Growth projections:
  - Including a contraction of 1.1 percent in 2016, GDP growth is projected to average about 2 percent per year over 2016–18 (compared to almost 5 percent over 2013–15).
  - Non-oil GDP: gradual recovery over 2016–2018, reaching 4 percent per year over the medium term.
  - Constraining factor: contracting bank credit to the private sector would slow recovery of non-oil tertiary activities.
- External position:
  - Projected to remain weak with only a gradual improvement in the trade balance starting in 2017.
  - Foreign direct investment in the oil sector remains a key source of external financing.
  - Imputed international reserves expected to remain low.
- Risk assessment (tilted to the downside):
  - Internal risks: potential deterioration in food security that could lead to social and political tensions and jeopardize fiscal position.
  - External risks: deterioration of regional security and low/volatile international oil prices pose significant fiscal risks and could dampen growth prospects.
  - The envisaged pick-up in oil production for 2018–19 could be delayed if oil prices do not recover as projected.
  - Spillovers: Chad’s budgetary pressures could affect other CEMAC countries through deterioration in regional security or pressures on the currency union (e.g., requests for additional monetary financing from the regional central bank).

### Policy discussions and recommendations
- Fiscal policy stance:
  - Chad needs a sizable permanent fiscal adjustment to live with lower oil prices and to comply with the regional convergence framework over the medium-term.
  - Government spending should be significantly adjusted relative to pre-2015 levels; liquidity constraints expected to ease gradually over the medium term.
- Oil revenue outlook and revenue mobilization:
  - Fiscal oil revenue expected to be significantly lower in the medium-term than earlier staff estimates because oil companies scaled back production plans amid lower prices.
  - Projected oil revenues: increase between 2016 and 2022 from 2.7 to 10.2 percent of non-oil GDP, but cumulative revenue estimated about 40 percent lower than at the time of the ECF arrangement’s 2nd review.
  - Non-oil revenue outlook subdued due to economic deterioration, regional insecurity, proliferation of VAT exemptions and specific tax agreements.
  - FAD technical assistance estimated the VAT gap at 3 percent of GDP and the overall non-oil tax gap at 5.2 percent of GDP.
- Structural and PFM reforms:
  - Continue strengthening public financial management, governance, and business climate to support a sustained reduction in NOPD.
  - Improve tax administration and reduce VAT/exemption-related revenue losses.
  - Maintain progress on transposing CEMAC PFM directives, publishing budget execution reports, and coordinating debt and oil revenue management.

*Source: IMF staff report chapter: "Implementation of Key Recommendations from the 2013 Article IV Consultation (completed March 2014)".*

### 17.      Reflecting the weaker than expected revenue performance in early 2016, the

### 17. Reflecting the weaker than expected revenue performance in early 2016, the

### Revised 2016 budget and fiscal gap
- The 2016 budget approved in December 2015 is estimated to have a financing gap of at least 3.9 percent of non-oil GDP (CFAF 204 billion), reflecting weaker than expected revenue performance in early 2016 and the decision to pay down CFAF 65 billion in domestic arrears.
- The revised budget submitted to the National Assembly in late May:
  - Cuts spending by 2 percent of non-oil GDP, mostly in domestically-financed investment.
  - Slightly expands the wage bill to accommodate recruitment of youngsters.
  - Protects poverty-reducing social spending.
  - Counts on continued borrowing from the regional market, financing under the ECF-supported program, and budget support from other international partners (AfDB, E.U., and World Bank) of approximately 1.4 percent of non-oil GDP (CFAF 70 billion) to cover the remaining financing gap.

### Box 2 — Chad: Status of the ECF-Supported Program
- On August 1st, 2014, a three-year ECF arrangement was approved to support the authorities’ medium-term economic program.
- The arrangement and reviews enabled total disbursements of SDR 53.93 million (about US$75 million).
- Performance at end-2015 was broadly satisfactory:
  - All but one performance criterion (PCs) for end-December 2015 were met.
  - Progress on the structural agenda was in line with program objectives.
  - The non-oil primary deficit target was met thanks to lower than programmed public investment.
  - The ceiling on the non-accumulation of domestic arrears was missed by a large margin due to a further drop in oil and non-oil revenue and domestic financing shortfalls.
- Key structural reforms implemented in 2015 included:
  - Incorporating more detailed oil revenue information in budget execution reports.
  - Limiting expenditures executed through extraordinary procedures.
  - Updating and expansion of the taxpayers’ database.
- Recent months have seen a slowdown in implementing the structural agenda.
- Staff and authorities continue discussions to enable completion of the third review, with emphasis on ensuring adequate financing assurances for the 2016 budget and a comprehensive strategy to clear existing arrears and strengthen control over expenditure commitments.

### Uncertainty over planned oil asset sale and contingency planning
- Both the initial and revised 2016 budgets include CFAF 300 billion (5.8 percent of non-oil GDP) from the sale of Chad’s 10 percent share in oil fields operated by CNPCI; the operation has not materialized and negotiations are ongoing.
- Staff recommended that authorities elaborate a contingency plan including:
  - Further cuts in investment spending informed by a rigorous evaluation of projects under execution.
  - Slowing additional hiring.
  - Possible sale of other assets.
  - Aligning further arrears clearance with assurances about required financing from asset sales to avoid accumulation of new arrears.
- Staff 2016 projections assume the CFAF 300 billion gap is covered in broadly equal proportions by further spending cuts, proceeds from an asset sale, and financing sources yet to be identified.

### Cash-based budget execution and arrears management
- Staff recommends a strict cash-based budget execution for the remainder of 2016 to limit commitments to available financing.
- Liquidity risks cited:
  - Net oil revenues are small and hard to predict (complex schemes for oil sales advances).
  - Most budget support is projected for the end of the year.
  - Timing and size of any oil asset sale are uncertain.
- Recommended operational measures:
  - Spending units in sectoral ministries should not commit to spending unless notified of availability of resources by the Treasury.
  - Prepare a revised budget based on very prudent resource availability assumptions with pre-defined spending prioritization criteria.
- Over the medium term the government must address accumulated arrears through a comprehensive arrears clearance strategy with claims identified and validated by an independent audit (see Box 3).

### Box 3 — Chad: Management and Prevention of Government Domestic Payments’ Arrears
- Domestic payment arrears quadrupled in 2015:
  - From 1 percent of non-oil GDP at end-2014 to CFAF 200 billion (3.9 percent of non-oil GDP) in 2015.
- Causes:
  - Lower oil revenue and domestic financing shortfalls.
  - Repayment of a claim of 0.9 percent of non-oil GDP that had been under litigation and unrecorded in the arrears stock.
- 2016 government strategy to repay arrears:
  - Repay CFAF 65 billion in existing arrears, funded by securities issued in late-March 2016.
  - Proceeds transferred to a local commercial bank to repay specific arrears identified by a government commission.
  - Creditors using this facility would be repaid 93 percent of their claims (7 percent discount retained by the managing bank).
- Recommended principles guiding arrears clearance:
  - Repayment must be consistent with resource availability under short- and medium-term fiscal projections.
  - An audit must comprehensively identify and validate all domestic payment arrears and spending commitments with legal merit.
  - Strengthen commitment controls to prevent spending (particularly investment) without budget allocation.

### Debt sustainability and fiscal targets
- Debt Sustainability Analysis (DSA) conclusion:
  - Preserving fiscal and debt sustainability requires targeting NOPDs of about 5 percent of non-oil GDP in 2017-18 and 6-7 percent over the medium-term.
  - Achieveable by limiting wage bill growth, strictly prioritizing investments, rationalizing transfers further, and protecting priority social spending.
  - Fiscal space also needs to be created by expanding the non-oil tax base through rationalization of exemptions.
- DSA update:
  - Chad remains at a high risk of debt distress, with vulnerabilities concentrated in the short term.
  - With oil prices lower than in the previous DSA, some external debt ratios have deteriorated.
  - High risk is further explained by large debt service payments in the short- to medium-term linked to non-concessional oil sales’ advances from Glencore.
  - Vulnerabilities related to domestic debt due to accumulation of domestic arrears and increased issuances of debt securities in the regional market.
  - Small amount of recent arrears to the WB and the AfDB.
  - The substantial fiscal adjustment in the baseline would keep debt indicators below indicative thresholds in the medium- to long-term.

### Authorities’ views on fiscal and debt issues
- Authorities consider producing a fully-financed 2016 budget urgent and continue to pursue the oil asset sale at projected price, possibly via an international tender.
- They are considering further limits in budgetary appropriations and bridge financing options on a concessional basis.
- Prepared a quarterly cash flow plan to calibrate spending and domestic financing in line with available liquidity while protecting social spending.
- Hiring of additional youth partly offset by plan not to replace retirees.
- Favor speedier repayment of domestic arrears but only consistent with available resources.
- Optimistic about domestic financing prospects given relatively low debt maturing in 2016 and comfortable regional bank liquidity after BEAC reserve requirement reduction.

### Financial sector stability and developments
- Financial system size and indicators (end-2015):
  - Financial system assets: represent 16 percent of GDP as of December 2015.
  - Banking sector: dominated by a handful of commercial banks; three banks hold close to two thirds of total assets.
  - NPLs to gross bank loans: 16.5 percent as of end-2015, a 5 percentage point increase from 2014.
  - Returns on assets and on equity have declined for two consecutive years.
  - Capital adequacy ratio: 14.6 percent as of end-2015 (down from 22 percent in 2013).
  - Liquidity: liquid assets represent 26 percent of total assets; liquid assets represent 142 percent of short-term liabilities at end-2015.
  - Deposit intermediation: deposits-to-loans ratio of 94 percent at end-2015 (on a declining trend).
- Macro-financial linkages and exposures:
  - Extractive industries accounted for 3.9 percent of banks’ loans to the private sector in 2015.
  - Commercial banks’ credit to the public sector: 28 percent of total credit in 2015, up from 21 percent in 2014.
  - Public sector deposits: about 21 percent of total deposits in 2015, down from 26 percent in 2014.
  - Government spending accounted for more than 30 percent of non-oil GDP over 2009-2014, so cuts and arrears can stress private contractors and borrowers, elevating NPL risk.
- Changes in asset/liability composition raising vulnerabilities:
  - Decentralized public entities withdrawing deposits to maintain operations amid reduced government transfers.
  - Introduction of government Treasury bonds with average maturity of 3 years, absent a liquid secondary market, increases maturity mismatch risks.
  - Placement of medium-term government securities to pay arrears can increase banks’ direct exposure to government and reduce short-term credit to private companies.
- Stress test results and supervisory implications:
  - If NPLs reach 20 percent of total loans, some banks would not meet capital adequacy ratios, especially banks with capital originating in CEMAC countries.
  - A further 25 percent decline in total deposits (e.g., 50 percent decline in government deposits plus 20 percent decline in deposits from non-financial enterprises) would bring most banks below the regulatory liquidity ratio.
  - Calls for enhanced monitoring of banks.
  - COBAC should be given means to implement powers received in April 2014 to deal with stressed banks.
  - The role of the BEAC as lender of last resort should be clarified.
- Recent BEAC measures and crowding-out risks:
  - In March and April 2016, BEAC raised the ceiling for bank refinancing and halved required reserves, easing bank liquidity.
  - Government domestic financing needs could still crowd-out credit to the private sector, as occurred in 2015.

### Financial inclusion and microfinance institutions (MFIs)
- Financial inclusion progress:
  - Use of financial services by households has improved and bank geographic coverage expanded over the last decade.
  - Coverage of ATMs and commercial bank branches increased markedly.
  - Chad still lags behind peers in CEMAC, LICs and Sub-Saharan Africa.
  - Low penetration is severe for women.
- MFIs:
  - Number of beneficiaries and outstanding savings, loans, and transfers increased.
  - MFIs share in financial market remains limited: 1.6 percent of total deposits and 2.3 percent of total loans by the financial sector.
  - Weaknesses: poor management and concentration in regions competing with banks rather than underserved areas.
  - Staff recommended improving the regulatory/supervisory framework for the microfinance sector as COBAC’s resources permit.

### Authorities’ views on financial sector
- Authorities recognized macro-financial implications of fiscal responses to oil price fall.
- Stressed importance of clearing accumulated domestic arrears quickly and valued BEAC liquidity injections for banking system stability.
- Consider MFIs critical for economic development and prioritize the microfinance sector in the national development plan with a dedicated strategy.

*Source: IMF staff report excerpt (content unit _cr16274).*

### 29.      A challenging economic environment reinforces Chad’s need for more inclusive

### _cr16274 - 29.      A challenging economic environment reinforces Chad’s need for more inclusive

### Overview and context
- Poverty levels are high, particularly in rural areas; the population is young with "45 percent is under 15 years" and expanding "by 3 percent per year".
- The government is the main source of formal sector employment in urban areas.
- Authorities’ development strategy is guided by "Vision 2030" and implemented through detailed 5-year plans; the new national development plan for "2016-20" was expected to be finalized "by September 2016".
- Strategic axes of the 2016-20 plan: (i) diversification (focus on agriculture and cattle); (ii) human capital; (iii) governance; and (iv) social protection.

### External stability and competitiveness
- Price competitiveness: two alternative estimation methods suggest the real effective exchange rate remains overvalued "by 16-20 percent".
- Structural competitiveness: Chad ranks among the worst performers on various business environment and competitiveness indicators (e.g., Global Competitiveness and Doing Business).
- Policy implication: Given Chad’s fixed peg, "bold structural reforms to tackle impediments to private sector development" are the principal means to strengthen competitiveness and the external position.

### Diversification, private sector, and labor market
- Consensus has formed on the need to diversify the economy and improve the business climate amid the economic downturn.
- The agricultural sector is viewed as having "enormous growth potential"; promotion of agribusinesses is a strategy to reduce high dependence on oil.
- Government intends to foster small and medium-sized companies by reducing costs and simplifying business procedures; encouraging formalization to improve access to financial resources.
- Planned judiciary reform over the next 5 years to improve business climate predictability.
- Private business associations urge investment in high value-added sectors to create wealth and absorb labor.
- Authorities’ view: new five-year plan "2016-2020" will include private-sector proposed initiatives to improve the business climate and will be implemented in coordination with the private sector.

### Fiscal structural reforms and public financial management (PFM)
- Priority focus: spending control and spending efficiency.
- Key reform actions recommended:
  - Implement strict budget execution procedures (including for emergency spending, DAOs) and enhance cash management (including through the preparation of monthly/quarterly Treasury plans).
  - Strengthen public investment management: streamline the expenditure chain (commitment, validation, authorization, payment) to address current complexity undermining budget execution controls and leading to sub-optimal resource allocation.
  - Align allocations for goods and services and transfers with resources needed for proper operation and maintenance of public investments.
  - Consolidate institutional reforms in debt management to maintain debt sustainability in the context of low oil prices.
- Staff notes: tighter and unpredictable resource envelopes make strict budget execution and enhanced cash management "even more critical".

### Oil sector transparency, governance, and oversight
- The oil sector has increased in complexity: more producers, a new fiscal regime, a refinery, a state oil company, in kind revenue, greater state participation, and oil collateralized debt.
- Current government reporting on the oil sector is very limited; increased transparency would inform broader public debate.
- Recommendations and priorities:
  - Produce accurate oil revenue projections and perform proper audits of oil company tax declarations.
  - Ensure information collected by the Ministry of Petroleum flows freely to the Ministry of Finance and other agencies.
  - Strengthen accountability for the state oil company (Société d’Hydrocarbures du Tchad-SHT) including production and publication of independently audited international standard financial reports.
  - Centralize information on all oil revenues in the Ministry of Budget and Finance.
- Authorities’ actions and views:
  - Adoption of a new regulatory framework to implement the PFM law compliant with CEMAC directives and a new public procurement code.
  - Publication of quarterly budget execution reports.
  - Establishment of an audit court ("Cour des Comptes") operational "since January 2015".
  - Debt management reports and medium-term external borrowing plans expected to be produced "this year".
  - Commitment to invigorate an inter-ministerial structure for consolidating and reporting all oil revenue information and to put in place oversight procedures for SHT.
  - Intention to facilitate compilation of the 2014 EITI report "during 2016"; all oil companies plus the refinery were being audited by an international audit firm.

### Statistics, capacity development, and institutional constraints
- Statistical participation and assessment:
  - Chad has been a participant in the IMF’s GDDS "since September 24, 2002".
  - The World Bank’s Statistical Capacity Indicator ranks Chad as better than the average of SSA countries.
- Data adequacy: statistics from national accounts, Consumer Price Index, government finance, monetary and balance of payments are "broadly adequate for surveillance" though shortcomings remain (see Informational Annex).
- Capacity development priorities:
  - Strengthen public financial management: develop a comprehensive domestic arrears clearance strategy and strengthen the public investment process.
  - Statistics: continue support for national accounts and balance of payments to facilitate macroeconomic surveillance.
- Institutional challenges:
  - Weak institutional capacity and high turnover of government officials and technical teams are obstacles to technical assistance absorption and reduce the effectiveness of training.
  - Authorities requested increased financial support to computerize key government institutions (like the national statistical office) and processes and expressed interest in Fund Topical Trust Fund assistance on Managing Natural Resource Wealth.

### Regional safeguards and central bank governance
- Progress noted on implementation of the BEAC’s safeguards recommendations; annual review is a pre-condition for new IMF financial support to, and review of existing IMF financial arrangements with, CEMAC countries.
- The 2016 safeguards monitoring visit found that "two priority recommendations remain outstanding".
- In "early May 2016", the BEAC Board mandated work on improving governance and transitioning to International Financial Reporting Standards (IFRS).
- Recommendation: authorities should maintain momentum on safeguards reforms to restore credibility on the BEAC’s ability to safeguard IMF financial resources.
- Additional recommendations: give the COBAC means to implement powers received "in April 2014" to deal with stressed banks, and clarify the role of the BEAC as a lender of last resort.

### Staff appraisal: macroeconomic outlook, risks, and priorities
- Macro-financial impacts:
  - Chad continues to suffer from the "massive and persistent decline in oil prices" and elevated regional security threats; macroeconomic outcomes have been weaker than envisaged.
  - Acute liquidity problems forced severe limits on spending and led to accrual of domestic payments arrears.
- Fiscal policy and budget execution:
  - Much fiscal adjustment has already been implemented, but "a sizable permanent adjustment is needed now".
  - The government is reformulating its 2016 budget, including additional cuts in investment spending while protecting poverty-reducing social spending "as much as possible".
  - Uncertainty regarding the planned sale of a large oil asset underscores the need for a contingency plan for budget execution if receipts do not materialize.
  - Liquidity constraints likely to remain severe; government spending should be executed with utmost caution, including by introducing cash-based commitment controls to reduce the risk of further accumulation of arrears (domestic and external).
- Arrears strategy:
  - A comprehensive strategy is needed to clear the large volume of accumulated domestic arrears; it should be based on findings of an independent audit to verify claims and ensure repayments are consistent with resources under realistic medium-term fiscal projections.
- Banking sector and financial stability:
  - The banking sector is affected by direct and indirect impacts of the deteriorating fiscal situation; sharp fiscal adjustment and increased government financing raise bank vulnerabilities by changing asset and liability composition.
  - Close monitoring of the banking system, in coordination with the regional regulator, is warranted.
- Data and surveillance:
  - Data are "broadly adequate for surveillance" but improvement is needed in quality, coverage, timeliness, and compilation of the international investment position.
- Strategic recommendation:
  - The oil price shock has highlighted the importance of economic diversification to resilience; authorities are encouraged to rely on priorities of the upcoming five-year plan "2016-2020" to improve the business environment, strengthen financial inclusion, promote inclusive growth, and create conditions for exiting fragility.

*Source: IMF staff report excerpt provided in the content unit.*

### 45.      It is proposed that the next Article IV consultation take place on a 24-month cycle.

### _cr16274 - 45.      It is proposed that the next Article IV consultation take place on a 24-month cycle.

### Consultation timing
- It is proposed that the next Article IV consultation take place on a 24-month cycle.

### Macroeconomic outlook and real economy (selected highlights from tables)
- Total GDP (market prices) annual growth rates: 5.7 (2013), 6.9 (2014), 3.8 (2015), 1.8 (2016), 2.5 (2017 Prel.), -1.1 (2018 Prog.), 1.7 (2019 Proj.), 5.2 (2020 Proj.), 8.2 (2021 Proj.), 3.4 (2022 Proj.) [Note: table spans 2013–20].
- Oil GDP (including investment) annual growth rates: -7.2 (2013), 5.7 (2014), 37.6 (2015), 32.2 (2016), 5.0 (2017 Prel.), -4.8 (2018 Prog.), -3.1 (2019 Proj.), 12.5 (2020 Proj.), 27.6 (2021 Proj.), -0.2 (2022 Proj.).
- Non-oil GDP annual growth rates: 8.0 (2013), 7.1 (2014), -1.5 (2015), -2.9 (2016), 1.9 (2017 Prel.), -0.3 (2018 Prog.), 2.7 (2019 Proj.), 3.8 (2020 Proj.), 4.3 (2021 Proj.), 4.4 (2022 Proj.).
- Consumer price index (annual average): 0.2 (2013), 1.7 (2014), 4.6 (2015), 3.7 (2016), 3.3 (2017 Prel.), 0.0 (2018 Prog.), 4.2 (2019 Proj.), 3.0 (2020 Proj.), 3.0 (2021 Proj.), 3.0 (2022 Proj.).
- Oil production (millions of barrels): 36.3 (2013), 38.5 (2014), 54.8 (2015), 52.5 (2016), 57.8 (2017 Prel.), 49.7 (2018 Prog.), 48.1 (2019 Proj.), 55.0 (2020 Proj.), 71.5 (2021 Proj.), 71.8 (2022 Proj.).

### External sector and balance of payments (selected highlights)
- Current account balance, including official transfers (percent of GDP): -9.2 (2013), -9.0 (2014), -11.0 (2015), -12.4 (2016), -7.8 (2017 Prel.), -8.7 (2018 Prog.), -7.8 (2019 Proj.), -7.3 (2020 Proj.), -5.7 (2021 Proj.), -6.2 (2022 Proj.).
- Exports of goods and services, f.o.b. (annual percent change): -8.6 (2013), 1.4 (2014), -29.2 (2015), -34.1 (2016), 9.6 (2017 Prel.), -17.4 (2018 Prog.), 20.7 (2019 Proj.), 18.7 (2020 Proj.), 30.3 (2021 Proj.), 3.0 (2022 Proj.).
- WEO crude oil price (US$/barrel): 104.1 (2013), 96.2 (2014), 51.6 (2015), 50.8 (2016), 50.4 (2017 Prel.), 42.9 (2018 Prog.), 50.0 (2019 Proj.), 52.2 (2020 Proj.), 53.1 (2021 Proj.), 54.7 (2022 Proj.).
- Gross official reserves (billions of USD): 1.2 (2013), 1.2 (2014), 0.6 (2015), 0.4 (2016), 0.8 (2017 Prel.), 0.2 (2018 Prog.), 0.2 (2019 Proj.), 0.2 (2020 Proj.), 0.3 (2021 Proj.), 0.3 (2022 Proj.).

### Fiscal outcomes and projections (selected highlights)
- Total revenue and grants (percent of non-oil GDP): 27.8 (2013), 23.3 (2014), 16.7 (2015), 14.8 (2016), 17.1 (2017 Prel.), 15.5 (2018 Prog.), 16.8 (2019 LFR), 17.7 (2020 Proj.), 20.5 (2021 Proj.), 20.5 (2022 Proj.).
- Revenue (percent of non-oil GDP): 25.4 (2013), 21.2 (2014), 13.1 (2015), 10.9 (2016), 13.1 (2017 Prel.), 11.4 (2018 Prog.), 11.2 (2019 LFR), 13.0 (2020 Proj.), 14.0 (2021 Proj.), 16.8 (2022 Proj.).
- Oil revenue (percent of non-oil GDP): 16.1 (2013), 11.8 (2014), 5.1 (2015), 2.6 (2016), 4.5 (2017 Prel.), 2.2 (2018 Prog.), 2.7 (2019 LFR), 4.3 (2020 Proj.), 4.9 (2021 Proj.), 7.5 (2022 Proj.).
- Expenditure (percent of non-oil GDP): 31.4 (2013), 29.6 (2014), 22.5 (2015), 21.4 (2016), 23.4 (2017 Prel.), 20.1 (2018 Prog.), 18.9 (2019 LFR), 19.7 (2020 Proj.), 20.6 (2021 Proj.), 20.8 (2022 Proj.).
- Overall fiscal balance (incl. grants, commitment basis, percent of non-oil GDP): -3.6 (2013), -6.3 (2014), -5.7 (2015), -6.6 (2016), -6.3 (2017 Prel.), -7.0 (2018 Prog.), -4.6 (2019 LFR), -2.1 (2020 Proj.), -2.0 (2021 Proj.), -0.1 (2022 Proj.), -0.3 (2023 Proj. as per table continuation).
- Non-oil primary balance (commitment basis, excl. grants, percent of non-oil GDP): -18.2 (2013), -16.3 (2014), -9.7 (2015), -9.8 (2016), -10.1 (2017 Prel.), -7.0 (2018 Prog.), -5.0 (2019 LFR), -5.0 (2020 Proj.), -5.8 (2021 Proj.), -5.9 (2022 Proj.).

### Fiscal operations (central government, selected amounts and ratios)
- Total revenue and grants (billions of CFAF): 1,294 (2013), 1,202 (2014), 881 (2015), 763 (2016), 938 (2017 Prel.), 793 (2018 Prog.), 796 (2019 LFR), 933 (2020 Proj.), 1,024 (2021 Proj.), 1,283 (2022 Proj.), 1,376 (2023 Proj.).
- Oil revenue (billions of CFAF): 749 (2013), 607 (2014), 270 (2015), 133 (2016), 250 (2017 Prel.), 116 (2018 Prog.), 141 (2019 LFR), 237 (2020 Proj.), 281 (2021 Proj.), 467 (2022 Proj.), 486 (2023 Proj.).
- Expenditure (billions of CFAF): 1,464 (2013), 1,525 (2014), 1,182 (2015), 1,101 (2016), 1,283 (2017 Prel.), 1,155 (2018 Prog.), 1,033 (2019 LFR), 1,052 (2020 Proj.), 1,141 (2021 Proj.), 1,292 (2022 Proj.), 1,397 (2023 Proj.).
- Overall balance (incl. grants, cash, billions of CFAF): -310 (2013), -230 (2014), -378 (2015), -268 (2016), -344 (2017 Prel.), -425 (2018 Prog.), -300 (2019 LFR), -167 (2020 Proj.), -156 (2021 Proj.), -58 (2022 Proj.), -64 (2023 Proj.).

### Monetary and financial sector (selected highlights)
- Broad money (money and quasi money, billions of CFAF): 852.1 (2013), 1,077.7 (2014), 1,108.1 (2015), 1,027.0 (2016), 1,154.9 (2017 Prel.), 1,037.2 (2018 Prog.), 1,112.4 (2019 Proj.).
- Net foreign assets (billions of CFAF): 537.7 (2013), 522.7 (2014), 266.1 (2015), 88.6 (2016), 336.3 (2017 Prel.), -16.3 (2018 Prog.), -6.4 (2019 Proj.).
- Credit to the economy (annual percentage change): 6.1 (2013), 37.8 (2014), 3.4 (2015), 0.7 (2016), 6.6 (2017 Prel.), -5.2 (2018 Prog.), 4.2 (2019 Proj.).
- Financial Soundness Indicators (selected): Regulatory capital / Risk-weighted assets: 12.5 (2010), 20.0 (2011), 18.1 (2012), 22.0 (2013), 13.4 (2014), 14.6 (2015). Gross nonperforming loans/Gross banking loans: 9.9 (2010), 7.6 (2011), 7.4 (2012), 9.8 (2013), 11.7 (2014), 16.5 (2015).

### Risk Assessment Matrix — key risks, likelihoods, impacts, and policy responses
- Persistent decline in global oil prices
  - Relative Likelihood: High
  - Impact: High. Permanently low oil prices would depress fiscal oil revenues and enlarge current account deficits; could delay public investment projects, negatively affecting long-term growth.
  - Policy responses: Smooth public expenditure over the medium-term and strengthen non-oil revenue mobilization.
- Deterioration of the security situation, including regional spillovers (CAR, Mali, Nigeria)
  - Relative Likelihood: Medium
  - Impact: High. Could cause political instability; displacement and humanitarian needs; increased security-related government expenditures that could crowd out priority spending; disruptions in intra-region trade.
  - Policy response: Rebuild fiscal buffers; budget sufficient resources for emergency security-related spending.
- Deepening of the food security crisis within Chad and across the Sahel region
  - Relative Likelihood: Medium
  - Impact: Medium. Could affect the most vulnerable through high food prices and malnutrition; could lead to social and political tensions and jeopardize fiscal position.
  - Policy response: Continue coordination with development partners to strengthen resilience to weather shocks; promote economic diversification and higher labor productivity in agriculture; strengthen social safety net programs targeted at the poor and vulnerable.
- Lapses in the implementation of fiscal policy
  - Relative Likelihood: Medium
  - Impact: High. A higher than anticipated non-oil primary deficit (NOPD) would lead to arrears buildup and increased borrowing, adversely affecting the ECF arrangement, donor support, and fiscal and debt sustainability.
  - Policy response: Continue close monitoring of budget execution, including implementation of commitments under the ECF.

*Source: Chadian authorities; and IMF staff estimates and projections (tables and text excerpt provided).*

### Annex II. External Sector Assessment

### Annex II. External Sector Assessment

### A. Balance of Payments and Exchange Rate Developments
- External current account deficit averaged 9 percent of GDP between 2009 and 2015, and is projected to remain at a similar level in 2016.
- Goods and services balance deteriorated from -7 percent of GDP in 2011 to -17 percent of GDP in 2015; contributed strongly to the overall current account deterioration.
- Net income account made a negative contribution through payments on foreign investment in the oil sector.
- Net current transfers positively contributed to the current account; in 2014 transfers included proceedings from a $400 million fine paid by China National Petroleum Corporation.
- Oil exports declined from 32 percent of GDP in 2011 to 19 of GDP in 2015 due to a decline in oil production around 2012-2013 and the international oil price slump since 2014; further reduction in oil prices in 2016 explains projected lower oil exports for 2016.
- Non-oil exports remained stable at 5 percent of GDP between 2009 and 2015 and are concentrated in a few products (especially cotton and livestock).
- Foreign direct investment (FDI) in the oil sector averaged 3 percent of GDP in 2009-2015 and has been an important source of external financing.
  - Large negative FDI in 2014 associated with the debt-financed government purchase of Chevron’s shares in Chad’s largest oil consortium.
  - FDI expected to be above 5 percent of GDP in 2016 due to exceptional receipts (estimated at CFAF 100 billion) from the government’s sale of a 10 percent equity stake in oil sector fields.
- Pooled reserves imputed to Chad fell to US$ 390 million in 2015, down from US$ 1.19 billion at end-2014.
- Reserve adequacy analysis (IMF Country Report No. 15/222, July 2015) concluded reserves remained broadly adequate according to relevant metrics, though a further decline in 2016 is a risk.
- Debt sustainability analysis concludes Chad faces a high risk of debt distress based on an assessment of public external debt.
- On average, the current account deficit is expected to reduce to 7 percent in 2016-2021, with the goods and services balance improving from a deficit of almost 17 percent of GDP in 2016 to a deficit of 7 percent of GDP in 2021; the current account deficit would be primarily financed by FDI.
- Real effective exchange rate (REER) remained fairly stable over the last five years despite short-term volatility; nominal effective exchange rate (NEER) depreciated in 2014 but did not translate into important gains in price competitiveness.
- Movements in NEER closely track the evolution of the nominal effective exchange rate of the euro, to which Chad’s common currency is pegged.
- Official balance of payments data starting from 2011 are still provisional.

### B. Model-Based Real Exchange Rate Assessment
- Two methodologies applied: Bems and Carvalho (2009) constant real annuity approach and Araujo et al. (2013) approach (permanent income hypothesis variants suited for resource-rich countries); both assume Chad’s oil reserves will be depleted in 25 years.
- Method: compare projected medium-term current account with model-based norms and assume a value for the elasticity of the current account with respect to the REER (current account elasticity based on import and export elasticities in Tokarick (2010) (-1.4 and 0.25) and staff projections for Chad’s import and export values in 2020).
- Results for Year: 2020 (Text Table 1):
  - Underlying current account: -6.4 (Percent of GDP)
  - CA norm (Araujo et al., 2013): 3.4 (Percent of GDP) → Implied Real Exchange Rate adjustment: 16 (percent)
  - CA norm (Constant real annuity - Bems and Carvalho Filho, 2009): 5.6 (Percent of GDP) → Implied Real Exchange Rate adjustment: 20 (percent)
- Interpretation:
  - Araujo et al. (2013) implies a current account norm of 3.4 percent of GDP in 2020 and a REER overvaluation of 16 percent; model accounts for external borrowing constraints and inefficiencies and absorptive capacity constraints in investment.
  - Bems and Carvalho (2009) implies a current account norm of 5.6 percent of GDP in 2020 and a REER overvaluation of 20 percent; higher norm reflects ignoring external borrowing constraints, implying a larger optimal current account surplus from a natural resource windfall.
- External stability assessment of CEMAC (IMF Country Report No. 15/222, July 2015) found CEMAC’s REER broadly consistent with equilibrium under current policies, although model-based approaches indicated some evidence of overvaluation.

### C. Structural Competitiveness
- Structural indicators show Chad faces severe competitiveness constraints that impede export diversification and foreign investment attraction.
- World Economic Forum Global Competitiveness Index (GCI) 2014-15: Chad ranks 143th of 144 countries; Chad lags Sub-Saharan Africa on institutions and on implementing structural reforms in goods, labor, and financial markets.
- Heritage Foundation Index of Economic Freedom 2015: Chad ranks 165th of 178 countries with an overall score of 45.9; Chad is below the averages for WAEMU (117th rank), SSA (120th rank), and CEMAC (154th rank).
  - Chad scores lower than the CEMAC average in four of the ten indicators, including ‘freedom from corruption’ and ‘business freedom’.
  - Poor performance in ‘trade freedom’ highlights the need to reduce tariff- and non-tariff barriers to trade (bound by regional CEMAC agreements) and to simplify customs procedures.
- World Bank Doing Business 2015: Chad scores lower than SSA, WAEMU, and CEMAC averages in all available indicators; performs particularly poorly in starting a business, enforcing contracts, paying taxes, and getting electricity.
  - Doing Business indicators have limitations (limited respondents, limited geographical coverage, standardized assumptions).
- Authorities have developed public investment plans in infrastructure and, with technical assistance, focused on improving public financial management, but progress in the business climate and infrastructure coverage remains limited.
- Given membership in a currency union, bold structural reform measures are necessary to strengthen competitiveness and the external position.

### Key Policy Implication (from source)
- Structural reforms to improve competitiveness and attract foreign investment are necessary to strengthen the external sector.

*IMF staff: Annex II. External Sector Assessment*

### References

### References

### Bibliographic citations
- Araujo, J., B. Li, M. Poplawski-Ribeiro, and L.F. Zanna, 2013, "Current Account Norms in Natural Resource Rich and Capital Scarce Economies," IMF Working Paper 13/80 (Washington, DC: International Monetary Fund).
- Bems, R. and I. Carvalho, 2009, "Exchange Rate Assessments: Methodologies for Oil Exporting Countries," IMF Working Paper 09/281 (Washington, DC: International Monetary Fund).
- Tokarick, S., 2010, "A Method for Calculating Export Supply and Import Demand Elasticities," IMF Working Paper 10/180 (Washington, DC: International Monetary Fund).

### Context
- Document: CHAD — STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION–INFORMATIONAL ANNEX.
- Prepared by: African Department (In collaboration with other departments).
- Date on document: July 7, 2016.

---

### Relations with the IMF — Membership and Quota Data
- Membership Status: July 10, 1963.
- Quota (General Resources Account): 140.20 SDR Million — 100.00 percent of quota.
- Fund holdings of currency (Exchange Rate): 137.17 SDR Million — 97.84 percent of quota.
- Reserve Tranche Position: 3.05 SDR Million — 2.17 percent of quota.
- SDR Department net cumulative allocation: 53.62 SDR Million — 100.00 percent of allocation.
- SDR Department holdings: 0.07 SDR Million — 0.14 percent of allocation.

### Outstanding Purchases and Loans
- ECF Arrangements outstanding: 45.44 SDR Million — 32.41 percent of quota.

### Latest Financial Arrangements (listed by Type, Date of Arrangement, Expiration Date, Amount Approved (SDR Million), Amount Drawn (SDR Million))
- ECF — Aug 01, 2014 — Jul 31, 2017 — 106.56 — 53.93.
- ECF — Feb 16, 2005 — May 31, 2008 — 25.20 — 4.20.
- ECF — Jan 07, 2000 — Dec 06, 2003 — 47.60 — 42.40.

### Overdue Obligations and Projected Payments to Fund (SDR Million; forthcoming)
- Principal: 2.00 (forthcoming 2016).
- Interest: 0.02 (2016), 0.03 (2017), 0.03 (2018), 0.14 (2019), 0.14 (2020).
- Total: 0.02 (2016), 0.03 (2017), 0.03 (2018), 0.14 (2019), 2.14 (2020).

---

### Implementation of HIPC Initiative and Related Disbursements
- Initiative: Enhanced Framework.
- Decision point date: May 2001.
- Assistance committed by all creditors (US$ Millions): 170.12.
- Of which IMF assistance (US$ million): 18.02.
- IMF assistance (SDR equivalent in millions): 14.26.
- Completion point date: Apr 2015.
- Disbursement of IMF assistance (SDR million):
  - Assistance disbursed to the member: 14.26.
  - Interim assistance: 8.55.
  - Completion point balance: 5.71.
  - Additional disbursement of interest income: 2.77.
  - Total Disbursement: 17.03.
- MDRI: Not Applicable.
- CCR: Not Applicable.

---

### Safeguards Assessments and Exchange Rate Arrangement
- Regional central bank: Bank of the Central African States (BEAC).
- Safeguards: Regional safeguards assessments normally every four years; governance challenges and control failures emerged in 2009; annual IMF monitoring of safeguards "rolling measures" followed.
- April 2016 safeguards staff visit findings:
  - BEAC Reform and Modernization Plan nearing completion.
  - Two priority recommendations outstanding: governance-focused law reform and transition to IFRS.
  - BEAC Board mandated steps to initiate work on priority recommendations.
  - Revised road map envisages conclusion of law reform in early 2017 and adoption of IFRS beginning with financial statements for 2018.
  - Progress on remaining safeguards measures will remain a condition for new program requests and reviews for CEMAC member countries.
- Exchange Rate Arrangement:
  - Chad maintains an exchange system free from restrictions and multiple currency practices on payments and transfers for current international transactions.
  - Common currency: CFA franc.
  - Peg: Since January 1, 1999, CFAF 655.957 = EUR 1.

### Article IV Consultation Cycle
- Chad is on a 24-month consultation cycle.

---

### Technical Assistance (focus and missions)
- Focus areas: revenue administration, public financial management (PFM), debt management, quality of macroeconomic data.
- Recommendation: Posting long-term experts and providing training to enhance absorption capacity, notably in revenue administration, PFM, and debt management.
- Selected recent missions by Department, Purpose, and Time of Delivery (samples preserved exactly as in source):
  - FAD (AFRITAC) — Public financial management — April 2016.
  - STA (AFRITAC) — National accounts — March 2016.
  - FAD (AFRITAC) — Customs administration — February – March 2016.
  - FAD (AFRITAC) — Tax administration — January-February 2016.
  - STA (AFRITAC) — National accounts — January 2016.
  - FAD — Public financial management — November – December 2015.
  - STA (AFRITAC) — National accounts — August – September 2015.
  - STA (AFRITAC) — National accounts — March 2015.
  - FAD (AFRITAC) — Revenue administration — January 2015.
  - STA (AFRITAC) — Balance of payment — December 2014.
  - STA (AFRITAC) — National accounts — December 2014.
  - FAD (AFRITAC) — Public financial management — September 2014.
  - STA (AFRITAC) — National account — August 2014.
  - STA (AFRITAC) — National account — March 2014.
  - STA (AFRITAC) — National accounts — December 2013.
  - FAD — Implementation of CEMAC directives — September 2013.
  - STA (AFRITAC) — National accounts — July 2013.
  - FAD (AFRITAC) — Public financial management — April - May 2013.
  - FAD (AFRITAC) — Tax administration — April 2013.
  - FAD (AFRITAC) — Customs administration — March 2013.
  - MCM (AFRITAC) — Debt management — March 2013.
  - FAD (AFRITAC) — Public financial management — February 2013.
  - STA (AFRITAC) — National accounts — February 2013.
  - STA (AFRITAC) — National accounts — November 2012.
  - FAD (AFRITAC) — Public financial management — October 2012.
  - FAD — Customs administration — October 2012.
  - FAD (AFRITAC) — Tax administration — September 2012.
  - FAD (AFRITAC) — Public financial management — September 2012.
  - FAD — Customs follow-up mission — July 2012.
  - FAD (AFRITAC) — Public financial management — June 2012.
  - STA (AFRITAC) — National accounts — June 2012.
  - FAD (AFRITAC) — Tax administration — May-June 2012.
  - STA (AFRITAC) — National accounts — May 2012.
  - FAD — Resource revenue management — April-May 2012.
  - FAD (AFRITAC) — Public financial management — March-April 2012.
  - FAD (AFRITAC) — Tax administration — February 2012.
  - STA (AFRITAC) — National accounts — November-December 2011.
  - FAD (AFRITAC) — Public financial management — November 2011.
  - FAD (AFRITAC) — Public financial management — September 2011.
  - FAD (AFRITAC) — Customs — September 2011.
  - STA (AFRITAC) — National accounts — August 2011.
  - MCM — Banking system vulnerabilities — January 2011.
  - FAD (AFRITAC) — Tax administration — February 2011.
  - FAD (AFRITAC) — Tax administration — September-October 2010.
  - FAD (AFRITAC) — Tax administration — June-July 2010.
  - FAD (AFRITAC) — Public financial management — September 2010.
  - STA — Balance of payments — September 2010.
  - MCM (AFRITAC) — Public debt — May 2010.
  - FAD — Tax policy review — April-May 2010.
  - FAD (AFRITAC) — Tax and custom administration — March-April 2010.
  - FAD (AFRITAC) — Customs administration — March 2010.
  - STA (AFRITAC) — National accounts — March 2010.
  - FAD (AFRITAC) — Public financial management — January 2010.
  - Financial Sector Assessment Program (FSAP) participation and ROSCs:
    - Joint IMF-World Bank FSAP for Chad: May 25–June 10, 2011.
    - FSAP mission for CEMAC: concluded July 2015.
    - ROSC Data Module mission visited Chad: May 26–June 8, 2005.
- Resident Representative: Mr. Jean-Claude Nachega — IMF Resident Representative in N’Djamena since January 2015.

---

### Joint World Bank and IMF Work Program — Key Points
- Close communication and collaboration between IMF and World Bank staff on Chad.
- Bank staff participates in IMF missions; Bank analysis informs Fund surveillance.
- Joint activities: assistance related to FSAP update, financial sector deepening, public financial management reform.
- Completion point under HIPC:
  - In 2015, IMF and World Bank staffs determined Chad made satisfactory progress to reach completion point.
  - Boards decided to support US$1.1 billion in total debt relief for Chad.
- Participation in Financial and Technical Partners Committee (CPTF) with monthly meetings and thematic groups.
- Information exchange:
  - World Bank requests to Fund: periodic macroeconomic framework updates, status of ECF program, planned TA missions.
  - Fund requests to Bank: periodic updates on World Bank program in Chad.
  - Joint products: joint Bank-Fund Debt Sustainability Assessments (DSA).
  - Coordination on National Development Plan and PRS implementation review (PIR) timing relative to ECF reviews.

---

### AML/CFT Framework — Summary Findings and Recommendations
- Chad subject to regional legal framework on AML/CFT as a CEMAC member; implementing regulations issued by Commission bancaire de l’Afrique centrale (COBAC).
- Supervision of AML/CFT: COBAC, assisted by BEAC.
- April 2016 FSSA on the CEMAC: AML/CFT framework needs rapid strengthening at national and regional levels.
- FSSA calls for allocation of appropriate financial, technical, and human resources to regional and national supervisors and gradual, effective implementation of AML/CFT risk-based supervision.
- Key recommended action: better implement and enforce existing AML/CFT regulations.
- 2014 GABAC assessment against 2003 FATF Standard: identified strategic deficiencies and laid out an action plan.

---

### Statistical Issues — Assessment of Data Adequacy for Surveillance
- General: Data provision has capacity-related shortcomings but is broadly adequate for surveillance; scope for improvement in quality, coverage, and timeliness in most macroeconomic datasets.
- 2007 ROSC found the statistical system weak with shortages of financial and human resources.
- National accounts:
  - Authorities revising national accounts: moving from 1968 SNA to 1993 SNA and rebasing to 2005 base year.
  - Final Annual National Accounts available until 2013.
  - New series to be disseminated by mid-2017.
  - Compilation weaknesses due to inadequate funding for INSEED and high staff turnover.
  - Dissemination and metadata could be improved (timeliness, detail, internet dissemination).
- Price statistics:
  - Harmonized Consumer Price Index (HCPI) is of rather good quality but covers only the capital city and is sometimes released with delays.
  - Regional authorities working to improve HCPI quality in each CEMAC country.
- Government finance statistics:
  - Data weaknesses create uncertainty about central government’s fiscal position and hamper debt sustainability analysis.
  - Staff must prepare estimates from disparate administrative sources that may not reconcile with domestic bank financing or changes in net indebtedness.
- Monetary statistics:
  - BEAC reports monetary and financial statistics monthly using standardized report forms (SRFs).
  - Key shortcoming: lack of clear reconciliation between domestic banking sector’s net credit to the government and implicit financing in weak government financial accounts.
  - Data for interest rates offered by financial institutions to non-financial entities on deposits and loans is not available.
  - Depository corporations’ survey omits large number of microfinance operations.
- Balance of payments:
  - Weaknesses create uncertainty about external position and challenge debt sustainability analysis.
  - Customs-based data are unreliable and suffer from coverage problems; not relied upon for BOP or national income estimation.
  - BEAC prepares BOP data and submits to BEAC headquarters for validation with long time lags.
  - Staff estimates current and capital flows from disparate administrative sources to supplement official BOP.
  - IMF Statistics Department recommended tighter coordination among CEMAC, INSEED, and other agencies.
  - BEAC headquarters coordinating technical reforms to improve data quality and timeliness.

### Data Standards and Reporting
- Chad participates in the IMF’s Enhanced General Data Dissemination Standard (e-GDDS).
- Metadata and plans for improvement posted on the IMF’s Dissemination Standards Bulletin Board (DSBB); last updated July 2002.
- Data ROSC published August 2007.
- Reporting to STA (Optional):
  - Currently reported: international liquidity, monetary statistics, GDP, and prices for publication in International Financial Statistics (IFS).
  - Chad has not yet resumed reporting detailed data for publication in the Government Finance Statistics Yearbook.
  - Annual fiscal data through 2001 reported and included in IFS database.
  - BEAC has yet to submit test monetary and financial statistics using SRFs.
  - Chad has yet to submit BOP and IIP data to STA.

---

### Table of Common Indicators Required for Surveillance — Selected Entries (exact dates and frequencies preserved)
- Exchange rates: Date of Latest Observation: Daily — Date Received: Daily — Frequency of Data: D — Frequency of Reporting: D — Frequency of Publication: D.
- International reserve assets and reserve liabilities of the monetary authorities: Date of Latest Observation: 01/2016 — Date Received: 06/2016 — Frequency: M — Frequency of Reporting: M — Frequency of Publication: M.
- Reserve/base money: Date of Latest Observation: 01/2016 — Date Received: 06/2016 — Frequency: M — Reporting: M — Publication: M — Data Quality (Methodological Soundness): LO, LNO, LNO, LO — Data Quality (Accuracy and Reliability): LO, O, O, LO, NA.
- Broad money: Date of Latest Observation: 01/2016 — Date Received: 06/2016 — Frequency: M — Frequency of Reporting: QM — Frequency of Publication: M.
- Interest rates: Date of Latest Observation: 02/2016 — Date Received: 06/2016 — Frequency: MI — Frequency of Reporting: QM — Frequency of Publication: M.
- Consumer price index: Date of Latest Observation: 02/2016 — Date Received: 06/2016 — Frequency: M — Frequency of Reporting: M — Frequency of Publication: M.
- Revenue, expenditure, balance and composition of financing — general government: Date of Latest Observation: 11/2013 — Date Received: 12/2013 — Frequency: Q — Frequency of Reporting: Q — Frequency of Publication: Q — Data Quality (Methodological Soundness): LO, LNO, LO, LO — Data Quality (Accuracy and Reliability): O, LO, LO, LO, NO.
- Revenue, expenditure, balance and composition of financing — central government: Date of Latest Observation: 08/2013 — Date Received: 12/2013 — Frequency: Q — Frequency of Reporting: Q — Frequency of Publication: Q.
- Stocks of central government and central government-guaranteed debt: Date of Latest Observation: 08/2013 — Date Received: 12/2013 — Frequency: Q — Frequency of Reporting: Q — Frequency of Publication: Q.
- Exports and imports of goods and services: Date of Latest Observation: 2011 — Date Received: 09/2012 — Frequency: A — Frequency of Reporting: A — Frequency of Publication: A.
- GDP/GNP: Date of Latest Observation: 2012 — Date Received: 09/2013 — Frequency: A — Frequency of Reporting: A — Frequency of Publication: A — Data Quality (Methodological Soundness): LNO, LO, LNO, LO — Data Quality (Accuracy and Reliability): LNO, LNO, LNO, LNO, LNO.
- Gross external debt: Date of Latest Observation: 12/2011 — Date Received: 09/2012 — Frequency: Bi-M — Frequency of Reporting: Bi-M — Frequency of Publication: Bi-M.
- International investment position (IIP): NA — Data not reported due to lack of capacity; authorities should request technical assistance.

---

### Debt Sustainability Analysis — Executive Summary Points
- LIC-DSA conclusion: Chad remains at high risk of debt distress based on assessment of public external debt, with vulnerabilities concentrated in the short term.
- Reinforcing factors: vulnerabilities related to domestic debt and the recent accumulation of a small amount of external arrears to multilateral creditors.
- Indicators: A number of debt indicators exhibit temporary and small breaches of indicative thresholds; external debt service-to-revenue ratio exhibits a relatively protracted and moderate breach.
- Causes of breaches: low government oil revenue and high debt service payments on external debt falling due in the short term.
- Medium- to long-run outlook: debt indicators remain well below indicative thresholds.
- Risks: Chad is susceptible to external macroeconomic shocks such as the ongoing oil price shock.
- Policy implications: Preserving solvency requires a deep fiscal adjustment supported by prudent debt management policies and advancing structural reforms to achieve economic diversification and sustained growth.
- CPIA note: Chad’s average CPIA over 2012-14 is estimated at 2.6, corresponding to a weak policy performance under the LIC-DSA.

---

*Prepared by the Staffs of the International Monetary Fund and the International Development Association; July 7, 2016.*

### 1. Chad’s external public debt hovered around 20 percent of GDP over the decade after the

### Chad’s external public debt hovered around 20 percent of GDP over the decade after the start of oil production in 2003

### External public debt dynamics
- External public debt hovered around 20 percent of GDP over the decade after 2003.
- Debt owed to multilateral institutions and traditional bilateral donors has been basically constant in nominal terms over the last few years.
- Chad relied increasingly on non-traditional creditors (e.g., China, Libya) and commercial credits to address financing needs, including infrastructure.
- There is no recorded external private debt in Chad.
- The external public debt-to-GDP ratio increased in 2013-14 following two non-concessional oil sales’ advance operations with Glencore Energy:
  - 2013: two agreements totaling US$ 600 million in oil sales’ advances.
  - 2014: a commercial borrowing operation for US$ 1.4 billion contracted by SHT to finance purchase of Chevron’s shares.
  - After these operations the external public debt-to-GDP ratio rose above 27 percent of GDP in 2014.
- A rescheduling agreement with Glencore in late 2015 consolidated the two oil sales’ advance operations, extending maturities from 4 to 6-7 years; this implied an increase in the original debt’s net present value but improved the medium-term debt service profile.

### Composition of external debt (as of end-2014)
- Nearly half of Chad’s debt was commercial debt.
- Around 40 percent was owed to multilateral creditors.
- Less than 20 percent to bilateral creditors (bulk owed to non-Paris Club creditors).
- Text Table 1 (selected items, end-2014 stocks and shares):
  - Total external debt stock (end-2014): 2,010.2 (Billions of CFA francs) — shown as 27.1 percent of GDP.
  - Multilateral (end-2014): 734.8 (Billions of CFA francs).
    - IMF: 11.1
    - World Bank/IDA: 397.4
    - African Development Fund/Bank: 180.7
    - EIB: 8.9
    - Others: 136.7
  - Bilateral (end-2014): 334.0 (Billions of CFA francs).
    - Paris Club official debt (end-2014): 11.5 (Billions of CFA francs)
    - Non-Paris Club official debt (end-2014): 322.5 (Billions of CFA francs)
      - China, People's Republic (end-2014): 129.0 (Billions of CFA francs)
      - Libya and India figures shown in historical series but specific end-2014 values in table: Libya 139.6; India 21.1 (Billions of CFA francs)
  - Commercial (includes debt signed with CNPC and Glencore): commercial debt figures in table escalate in earlier years (e.g., 162.9, 217.1, 407.6, 941.5 in prior years), reflecting growth in commercial borrowing.

### Rescheduling and debt relief
- Late-2015 Glencore rescheduling consolidated the two oil sales’ advances, extending maturity and improving debt service timing.
- Following HIPC completion point in April 2015, Chad secured at least US$ 756 million in debt relief comprising:
  - MDRI relief from IDA and AfDB,
  - forgiveness from the IMF,
  - a hundred percent cancellation from the Paris Club.
- Authorities signed a rescheduling with Saudi authorities on IDA-comparable terms for non-Paris Club amounts.

### Public domestic debt (stocks and recent developments)
- Stock of public domestic debt increased, reaching 9 percent of GDP at end-2014.
- Drivers of domestic debt increase:
  - Drawing down statutory advances from BEAC,
  - Sale of five-year savings bonds: CFAF 108 billion in 2011 and CFAF 90 billion in 2013,
  - CFAF 50 billion loan from Republic of Congo (2012),
  - CFAF 15 billion loan from Equatorial Guinea (2013),
  - Use of commercial bank loans (CFAF 9 billion in 2013 to CFAF 127 billion in 2014).
- Treasury arrears balance included in domestic debt: CFAF 52 billion at end-December 2014.
- Short-term domestic obligations: issuance of 3-month Treasury bills before end-2014 of CFAF 27.5 billion at a weighted average annual interest rate of 2.8 percent.
- Domestic debt developments in 2015:
  - Stock of domestic debt rose to 16 percent of GDP in 2015.
  - Treasury bills issued in 2015: CFAF 156 billion (gross).
  - Treasury bonds issued between July and December 2015: CFAF 139 billion, maturities of two, three and five years, average effective interest rate 4.3 percent.
  - Some Treasury bonds used in swap operations exchanging commercial bank loans; commercial bank loans reduced from CFAF 127 billion in 2014 to CFAF 56 billion in 2015.
- BEAC advances in 2015:
  - Statutory and extraordinary advances: CFAF 92.6 billion and CFAF 140 billion, respectively, with maturity of 10 years, grace period of 3 years, interest rate equivalent to BEAC’s rediscount rate.
- Domestic arrears increased from CFAF 52 billion at end-2014 to around CFAF 200 billion (3.1 percent of GDP) in 2015.

Selected items from Text Table 2 (end-year domestic debt, Billions of CFA francs)
- Total domestic debt:
  - 2011: 501.3 (8.7 percent of GDP)
  - 2012: 548.0 (8.7 percent of GDP)
  - 2013: 584.8 (9.1 percent of GDP)
  - 2014: 658.9 (9.6 percent of GDP)
  - 2015: 1050.8 (16.3 percent of GDP)
- Central Bank financing (end-2015): 454.6 (Billions of CFA francs)
  - Statutory advances (end-2015): 280.0
  - Exceptional advance (2015): 140.0
- Domestic arrears (end-2015): 199.8 (Billions of CFA francs)
- Memo item: Treasury Bills (2015): 27.5 and 79.0 noted in table context.

### DSA assumptions and projections
- DSA updated with historical information as of December 2014 (World Bank-DRS); preliminary external debt estimates used for 2015.
- Baseline (current policies) scenario reflects persistent oil price shock and security challenges.
- 2015 financing gap covered through central bank advances, spending cuts, increased net domestic financing, and Fund disbursements under the ECF arrangement.
- Projected 2016 financing gap assumed financed through fiscal adjustment, additional domestic financing, and external concessional loans.
- Analysis incorporates rescheduling of non-concessional oil sales’ advance operations and exceptional receipts from divestments in the oil sector.

### Oil production, prices, and revenue projections
- Baseline projection: small decline in oil production in 2016-17 followed by gradual increases when new fields come on line, then steady long-term decline; oil production projected to become negligible beyond 2030 absent new developments.
- Specific oil production projections:
  - 2015: 144,000 bpd
  - Expected to rise to about 173,000 bpd in 2018-19
- Price assumptions:
  - Chadian oil trades below WEO reference price with quality discount and transport cost of US$ 6-9 per barrel.
  - Medium-term (five-year horizon) price assumed to increase from US$ 34 per barrel (all discounts included) in 2016 to US$ 53 per barrel in 2020, in line with IMF WEO trend.
  - From 2021 onward, price assumed to increase on average by around 3 percent per year in U.S. dollar terms.
  - Second Review under the ECF arrangement (December 2015) used a Chadian oil price assumption of US$ 47 per barrel for 2016.

### Fiscal policy and long-term fiscal assumptions
- Sustained fiscal adjustment assumed throughout projections, transitioning to post-oil era.
- Non-oil primary deficit (NOPD) reduced to about 6 percent of non-oil GDP by 2020.
- Oil revenues expected to increase from 3 percent of non-oil GDP in 2016 to 7 percent of non-oil GDP in 2020.
- Longer term assumptions:
  - Stabilization of total government primary spending at around 21 percent of GDP.
  - Primary balance adjusted gradually to reach a small deficit of less than 3 percent of non-oil GDP by 2036.
  - Measures to achieve longer-term adjustment include:
    - (i) gradually increasing non-oil revenues from about 9 percent of non-oil GDP at present to about 18 percent of non-oil GDP by 2036;
    - (ii) maintaining total investment outlays around 10 percent of non-oil GDP in the long term;
    - (iii) cutting recurrent spending, notably streamlining transfers and subsidies to public enterprises (jointly accounting for about 5 percent of non-oil GDP).
  - Strategy assumes clearing domestic arrears and avoiding further accumulation.

### Macroeconomic assumptions (2016–2036) — key points from Box 1 and Table
- Real GDP growth drivers and projections:
  - Non-oil GDP growth projected at 4 percent per year over the medium to long term.
  - Table highlights (excerpted series, percent per year):
    - Real GDP growth: 2015 1.8-1.1; 2016 1.7; 2017 5.2; 2018 8.2; 2019 3.4; 2020 3.5; 2016-21 Avg. 3.5; 2022-36 Avg. 3.1 (note: table formatting in source shows combined/concatenated values)
    - Oil (percent growth series shown across years including negative and positive values, with long-term decline)
    - Non-oil growth: series includes -2.9 (2015), -0.3 (2016), 2.7 (2017), 3.8 (2018), 4.3 (2019), 4.4 (2020), 4.4 (2021), 3.2 (2016-21 Avg.), 4.2 (2022-36 Avg.)
- Inflation assumed to stabilize at 3 percent.
- Current account and external sector:
  - External current account deficit projected to fall from 9 percent of GDP in 2016 to 6 percent of GDP in 2020; stabilize around 4 percent of GDP beyond 2030 absent new discoveries.
  - FDI assumptions: above 5 percent of GDP in 2016 due to exceptional receipts (CFAF 100 billion) linked to divestments; stabilizes at around 4 percent of GDP in 2017-20; declines to average 2 percent of GDP in 2021-35.
- Table memo: Chadian crude oil price (US$/barrel) series includes 2015: 43.4; 2016: 33.8; 2017: 45.2; 2018: 48.5; 2019: 50.8; 2020: 52.7; 2016-21 Avg.: 54.3; 2022-36 Avg.: 47.6; (table formatting in source lists additional values and averages).

### External DSA results and risk assessment
- Government borrowing strategy assumes reasonable volume of project and budget support loans from traditional and non-traditional sources and no further usage of commercial loans.
- Under ECF-supported program external financing assumed concessional over medium to long term, mostly financed by:
  - Multilaterals: 47 percent (IMF, WB, AfDB, Islamic Development Bank, EU)
  - Non-traditional partners: 48 percent (e.g., Saudi Arabia, Kuwait)
  - Implied grant element average over projection period: 37.3 percent.
- Under the baseline scenario, two external debt indicators are above critical thresholds, indicating a high risk of debt distress:
  - Debt-service-to-exports ratio: temporary and small breach of indicative threshold.
  - Debt service-to-revenue ratio: protracted and moderate breach in 2016-2018 period, reflecting reduction in oil revenue and spike in debt service for Glencore loan.
- Conditional on baseline assumptions (including sustained fiscal adjustment), external debt indicators remain well below indicative thresholds in the medium to long run.
- Stress tests and bounds tests:
  - Alternative scenarios keep debt risk outlook high; bounds tests show susceptibility to shocks, especially short term.
  - Historical scenario: breach of debt service-to-revenue ratio occurs in 2016-20.
  - Chad is most vulnerable to an adverse shock to exports and combined macro shocks.
  - One-time depreciation shock (30 percent nominal depreciation in 2017) generates vulnerability in some external debt indicators.
  - PV of debt-to-exports ratio particularly sensitive to poor export performance, showing a moderate and protracted breach under that stress test.

*Source: IMF staff report text as provided in content unit _cr16274.*

### 17. The assessment of Chad’s overall risk of debt sustainability does not substantially

### 17. The assessment of Chad’s overall risk of debt sustainability does not substantially change when domestic debt is included

### Key findings on debt dynamics and projections
- The public debt indicators are mostly driven by the external debt component; including domestic debt does not substantially change the overall risk assessment.
- The PV of debt-to-GDP ratio shows a breach in 2016 under the baseline scenario as a result of the accumulation of domestic arrears and increased issuances of debt securities in the regional market (see Tables 2 and 3, Figure 2).
- Domestic debt trajectory:
  - 21 percent of GDP in 2016
  - 13 percent of GDP in 2020
  - about 8 percent of GDP in 2036
- Public debt stock trajectory:
  - 45 percent of GDP in 2016
  - 26 percent of GDP in 2020
  - stabilizes around an average of 18 percent of GDP in 2022-36

### Stress tests and risks
- Standard stress tests indicate sustainability risks in the short run.
- A real depreciation shock in 2016 could impair public debt sustainability in the period 2016-18 (Most Extreme Shock in Figure 2 and Bound Tests in Table 4).

### Overall assessment and scenarios
- Chad remains at high risk of debt distress, based on an assessment of public external debt, with vulnerabilities concentrated in the short term.
- Inclusion of Chad’s domestic debt in the analysis reinforces the conclusions of the external DSA.
- Baseline scenario implications:
  - On account of the persistent decline in oil prices, the baseline shows breaches of some indicators at the beginning of the projection period.
  - Over the long term all indicators are markedly below their thresholds.
  - Preserving debt solvency is conditional on the substantial fiscal adjustment assumed under the baseline projection.
- Alternative scenarios:
  - In the event of a sustained rebound in the oil price and with improvements in the policy environment, the assessment of debt sustainability could improve to moderate risk, as suggested under alternative scenarios.

### Recent developments and institutional actions
- Arrears on debt to the WB and the AfDB that have been recently accumulated have been resolved shortly.
- Institutional and reporting actions:
  - The effective functioning of the recently revamped inter-ministerial debt coordination units will be important for strengthening the capacity to record and monitor public debt.
  - The government will start issuing annual debt management reports since 2016 (with support from two Fund TA missions).
  - The government will undertake institutional improvements in the management of spending arrears in line with Fund TA recommendations.

*Source: IMF staff assessment as presented in the cited content unit.*

### 20. The assumptions and conclusions of the DSA were discussed with the authorities, who

### _cr16274 - 20. The assumptions and conclusions of the DSA were discussed with the authorities, who

### Discussion with authorities and policy messages
- The assumptions and conclusions of the DSA were discussed with the authorities, who "broadly concurred with the staff assessment."
- Authorities highlighted the Glencore loans as a key factor behind the external risk rating.
- Authorities raised questions about the criteria behind the CPIA score and expect that progress with ongoing reforms will result in an improvement of this score and a related increase in external debt burden thresholds.
- Authorities acknowledged the importance of technical assistance to improve debt management.
- On diversification, the government’s focus is on agro-pastoral activities; authorities agreed on the need to improve the business climate for the private sector.
- Authorities requested the international community to follow through on financial support pledges as soon as possible to avoid resorting to second-best financing options that could jeopardize debt sustainability and the Fund-supported program.

### Stress tests and scenario definitions (from figures)
- The most extreme stress test is defined as "the test that yields the highest ratio on or before 2026."
  - In figure b. it corresponds to a Combination shock.
  - In figure c. it corresponds to an Exports shock.
  - In figure d. it corresponds to a Combination shock.
  - In figure e. it corresponds to an Exports shock.
  - In figure f. it corresponds to a One-time depreciation shock.
- 1/ The most extreme stress test is the test that yields the highest ratio on or before 2026.
- 2/ Revenues are defined inclusive of grants.

### Key quantitative DSA findings and projections (selected values preserved exactly)
- External debt (nominal) series (2013–2021 and projections): 21.2 29.2 25.1 23.9 20.2 17.6 14.5 12.8 11.7 10.2 7.7
- PV of external debt (selected projected values): 22.6 21.0 17.2 14.5 11.5 9.7 8.4 7.0 5.4
- PV of PPG external debt (same series): 22.6 21.0 17.2 14.5 11.5 9.7 8.4 7.0 5.4
- PV of PPG external debt in percent of exports (selected): 85.0 91.8 68.9 52.5 36.3 31.9 27.9 31.4 35.5
- PV of PPG external debt in percent of government revenues (selected): 238.4 164.0 131.1 109.1 79.1 66.7 47.3 46.7 31.5
- Debt service-to-exports ratio (in percent, selected): 4.0 15.6 9.5 17.1 13.7 11.1 8.2 7.7 6.8 2.7 3.6
- PPG debt service-to-revenue ratio (in percent, selected): 7.1 29.8 26.8 30.6 26.0 23.2 17.9 16.1 11.4 4.1 3.2
- Total gross financing need (Billions of U.S. dollars) (selected): 0.8 1.1 0.9 0.6 0.7 0.6 0.5 0.7 0.6 0.8 1.1
- Key macroeconomic assumptions — Real GDP growth (in percent) series (selected): 5.7 6.9 1.8 4.8 4.1 -1.1 1.7 5.2 8.2 3.4 3.5 3.5 3.1 3.3 3.1
- GDP deflator in US dollar terms (change in percent) (selected): -1.0 0.7 -23.2 1.1 13.0 -3.1 9.1 1.9 5.1 3.5 1.6 3.0 2.9 2.8 2.7
- Effective interest rate (percent) 5/ (selected): 3.3 3.6 3.3 2.1 1.2 4.5 4.2 3.8 3.3 2.8 2.2 3.5 1.2 1.2 1.2
- Growth of exports of G&S (US dollar terms, in percent) (selected): -8.6 1.4 -34.1 0.9 19.4 -17.4 20.7 18.7 30.3 3.0 4.2 9.9 0.9 3.1 1.2
- Growth of imports of G&S (US dollar terms, in percent) (selected): -7.7 9.9 -23.7 7.8 17.9 -12.3 6.5 8.5 12.9 4.2 3.3 3.8 2.2 3.3 2.1
- Grant element of new public sector borrowing (in percent) (series shown): 37.4 36.9 36.7 36.8 36.9 36.9 37.0 37.3 37.7 37.4
- Government revenues (excluding grants, in percent of GDP) (selected): 18.5 16.5 9.5 12.8 13.1 13.3 14.5 14.5 17.8 15.0 17.1 16.2
- Aid flows (in Billions of US dollars) 7/ (selected): 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.7 1.1
  - of which: Grants (selected): 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.5 0.4 0.6 1.0
  - of which: Concessional loans (selected): 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
- Grant-equivalent financing (in percent of GDP) (series shown): 4.4 4.0 3.8 3.6 3.5 3.1 3.1 2.8 3.0
- Grant-equivalent financing (in percent of external financing) (series shown): 87.8 84.2 83.2 83.0 82.9 79.1 83.5 90.3 85.3
- Memorandum: Nominal GDP (Billions of US dollars) (selected): 13.0 13.9 10.9 10.4 11.6 12.4 14.1 15.1 15.9 20.7 37.5
- PV of PPG external debt (in Billions of US dollars) (selected): 2.4 2.2 2.0 1.8 1.6 1.5 1.3 1.5 2.0
- (PVt-PVt-1)/GDPt-1 (in percent) (selected): -2.1 -1.9 -1.6 -1.4 -1.2 -0.8 -1.5 0.4 0.0 0.2
- Debt service of PPG external debt (in percent of exports + remittances) (selected): 9.5 17.1 13.7 11.1 8.2 7.7 6.8 2.7 3.6

### Public sector debt indicators (selected from Table 3)
- Public sector debt (in percent of GDP) (selected historical and projections): 30.3 39.2 42.6 45.0 39.3 35.6 29.6 26.1 23.0 33.1 18.8 15.7 17.9
- Foreign-currency denominated share (selected): 21.2 29.2 25.1 23.9 20.2 17.6 14.5 12.8 11.7 10.2 7.7
- Change in public sector debt (selected): 1.6 8.9 3.4 2.4 -5.7 -3.7 -6.0 -3.5 -3.1 -0.2 -0.5
- Identified debt-creating flows (selected): -0.3 -1.5 5.3 -2.4 -4.7 -3.5 -6.4 -3.8 -4.9 -0.9 -0.5
- Primary deficit (selected): 1.3 2.6 2.8 0.6 4.0 -1.7 -2.5 -2.1 -2.9 -2.4 -3.8 -2.6 0.0 0.2 -0.3
- Revenue and grants (selected): 20.8 18.5 12.9 16.9 16.6 16.7 17.7 17.7 20.4 17.7 19.7
- Primary (noninterest) expenditure (selected): 22.1 21.1 15.7 15.2 14.1 14.5 14.8 15.2 16.7 17.8 19.9
- Automatic debt dynamics and interest/growth contributions (selected): Automatic debt dynamics -1.1 0.3 3.2 1.4 -1.7 -1.0 -3.1 -1.1 -0.8 -0.7 -0.6
  - Contribution from interest rate/growth differential (selected): 0.9 -1.4 -2.5 3.0 -2.4 -1.1 -3.0 -0.9 -1.2 -0.7 -0.6
- PV of public sector debt (selected): 40.2 42.1 36.3 32.5 26.6 23.0 19.8 15.6 13.4
- Gross financing need 2/ (selected): 3.8 8.4 8.5 5.5 4.1 4.3 3.2 4.5 2.7 4.5 4.4
- Debt service-to-revenue and grants ratio (in percent) (selected): 12.3 31.7 40.7 35.0 30.6 27.9 24.4 29.2 22.5 14.6 11.8

### Sensitivity analysis and bound tests (selected scenario outcomes)
- Table 2a and Table 4 report sensitivity analysis across:
  - A1. Key variables at their historical averages in 2016-2036.
  - A2. New public sector loans on less favorable terms in 2016-2036 (interest rate on new borrowing higher by 2 percentage points than baseline; same grace and maturity as baseline).
  - B1–B6 bound tests including shocks to real GDP growth, export value growth, US dollar GDP deflator, net non-debt creating flows, combinations of shocks, and a one-time 30 percent nominal depreciation in 2017.
- Examples of stress scenario results (selected indicator values shown in tables):
  - PV of debt-to-GDP ratio: baseline and numerous scenario values are reported (see tables for full series).
  - PV of debt-to-exports ratio and PV of debt-to-revenue ratio: baseline and scenario values are reported in Table 2a.
  - Debt service-to-revenue ratio: baseline and scenario values provided in Table 2a and Table 4.

### Authorities' statement and context (Statement by Mr. Yambaye, Executive Director for Chad, July 22, 2016)
- Authorities thanked Management and Staff for continuous support amid the large decline in oil price and security and humanitarian shocks.
- Noted the impact of the massive oil price decline since 2014, deterioration of security in the second half of 2015, inflow of refugees, and extreme pressure on public finances.
- Authorities implemented large additional fiscal adjustment despite incomplete realization of pledged external financial support; the Fund-supported program remained on track in 2015 but 2016 was more challenging.
- Recent developments: economic activity slowed significantly in 2015; non-oil real growth turned negative at -2.9 percent; total real growth remained positive at 1.9 percent in 2015.

*Sources: Country authorities; and staff estimates and projections.*

### 6.9 percent in 2014, as new oil fields came on stream.

### 6.9 percent in 2014, as new oil fields came on stream.

### Economic performance and inflation
- Real GDP growth: 6.9 percent in 2014, as new oil fields came on stream.
- Inflationary developments:
  - Inflation reached 7.6 percent year-on-year in April 2015.
  - Inflation turned negative to -0.3 percent at end-December 2015.
  - Consumer price index declined by 3.7 percent in March 2016.
- Growth outlook:
  - Near-term: economic activity expected to contract by 1.1 percent in 2016, driven by a decline in oil production and negative non-oil GDP growth.
  - Medium-term: gradual recovery in the non-oil sector projected, driven by agriculture, commerce and transportation, and a rebound in oil revenues if investment in the oil sector resumes as oil prices recover.
  - Risks: potential deterioration of regional security, persistent low oil prices, and delays in resumption of petroleum investment.

### Fiscal developments and public finances
- 2015 budget:
  - Revised in response to changing economic conditions.
  - Only 60 percent of the projected total fiscal revenue was realized in 2015.
  - Capital spending reduced by more than 40 percent between 2014 and 2015; no new projects started.
  - Social spending was preserved.
  - Accumulation of domestic arrears due to Treasury difficulties from lower revenues.
  - Fiscal deficit remained in line with the objective under the ECF-supported program.
- Financing of the deficit in 2015–2016:
  - Exceptional financing from the central bank via a higher ceiling for statutory advances.
  - Support from some external partners.
  - Placement of Treasury bills and bonds in the regional market.
- Revised 2016 budget:
  - Based on very prudent assumptions and includes pre-defined spending prioritization criteria.
  - Envisages a further reduction in public expenditures while preserving social spending.
  - A contingency plan prepared in case envisaged receipts from oil assets sale do not materialize in 2016.
- Domestic financing strategy:
  - Authorities will tap the regional market to finance the budget.
  - Quarterly cash flow prepared to calibrate spending and domestic financing with available liquidity.
  - Authorities optimistic about domestic financing given relatively low volume of debt maturing in 2016 and comfortable liquidity in regional banks after BEAC reserve requirement reduction.
- Revenue and transparency measures:
  - Over the medium-term, intensify domestic revenue mobilization with reforms from recent technical assistance recommendations.
  - Improve flow of oil sector information via revitalization of the inter-ministerial committee.
  - Pursue publication of reports on oil revenues in the context of the EITI.
  - Start producing debt management reports and medium-term borrowing plans during this year.

### Public debt, external position, and vulnerabilities
- Debt dynamics:
  - As the DSA indicates, public debt ratios have increased with respect to GDP, revenues and exports figures, raising debt vulnerabilities in the short to medium-term.
- External position:
  - Expected positive impact from resumed oil investment and recovery in oil prices, conditional on those developments occurring.

### Monetary and financial sector developments
- Monetary aggregates and banking:
  - Broad money contracted and credit to the economy decelerated.
  - Significant drawdown in government deposits at the central bank.
- Regional monetary policy actions (since late 2015):
  - Relaxation of the ceiling for statutory advances.
  - Halving of required reserves at the central bank.
  - Ceiling for refinancing at the central bank for Chadian banks raised by 50 percent.
  - Result: monetary easing provided needed liquidity to the government and the banking system.
- Financial sector pressures:
  - Liquidity pressures in the public sector increased vulnerabilities in the financial sector.
  - Accumulation of arrears in late 2015 and in 2016 contributed to higher NPLs.
  - Recent stress tests by the regional banking commission indicate increasing risks to financial stability.
  - Overall assessment: financial sector is overall healthy but faces elevated risks linked to macro-financial linkages.

### Reforms implemented and structural priorities
- Reforms completed since January 2015:
  - Adoption of a new regulatory framework to implement the PFM law compliant with CEMAC directives.
  - Adoption of a new procurement code.
  - Publication of quarterly budget execution reports.
  - Establishment of an audit court.
- National development plan for 2016–2020 (being finalized):
  - Strategic axes: economic diversification with emphasis on agriculture and cattle, human capital, governance, and social protection.
  - Microfinance: the plan gives particular importance to development of the microfinance sector through a dedicated strategy.
  - Judicial reform: government will proceed with reform of the judicial system over the next five years.
- Private sector and inclusive growth:
  - Policies to remove impediments to private sector development to increase competitiveness and attractiveness.
  - Emphasis on agriculture and agribusiness development.

### Policy recommendations and authorities’ intentions (2016 and beyond)
- Fiscal policy:
  - Continue fiscal adjustment in 2016 consistent with the revised budget.
  - Preserve social spending while reducing public expenditures.
  - Repayment of domestic arrears consistent with resource availability.
  - Actively pursue discussions with potential buyers of oil assets, including an international tender if ongoing discussions are unsuccessful.
- Financial sector:
  - Preserve financial stability and pursue financial sector development.
  - Close monitoring of banks in coordination with the regional banking commission.
- Structural reforms:
  - Continue fiscal reforms initiated over the past year (PFM, procurement, transparency).
  - Intensify domestic revenue mobilization and improve oil sector information flow and reporting.
- External assistance:
  - Authorities emphasize the need for external support given limited space for additional fiscal adjustment and significant downside risks.
  - Expectation of enhanced Fund support, increased access to Fund resources, and more flexibility in program design.
  - Call for broader international assistance to support security and program objectives.

*IMF staff report excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16274.pdf_