## _cr16364 - EXECUTIVE SUMMARY

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---

### Context and background
- Crude oil price evolution: from an average of US$100 in 2013 and 2014 to US$43 in 2015 and US$34 in 2016.  
- Refugee burden: Chad hosts and supports at least 750,000 refugees, displaced persons, and returnees; population 14 million.  
- National Development Plan (NDP): new five-year NDP intended to be finalized by end-November 2016 and to serve as the poverty-reduction strategy (PRS) starting in 2017.  
- Prior NDP performance (Nov 2013–2015): by end-2013 around two-thirds of strategic indicators and one-half of intermediary indicators showed satisfactory progress; authorities reported 84 percent of national development indicators met in 2014.  
- PRS implementation slowed since late 2015; poverty-reducing social spending expected to decline to CFAF 191 billion by end-2016, a 26.5 percent decline relative to 2015 (after a 16 percent decline in 2015 compared to 2014).

### Program and IMF engagement
- ECF arrangement timeline and access:
  - Approved August 1, 2014 with original access 57 percent of quota (SDR 79.92 million).
  - Augmented by SDR 26.64 million (19 percent of quota) at first review on April 27, 2015.
  - As of December 14, 2015 second review completed; SDR 20.65 million disbursed bringing total disbursed under the ECF to SDR 53.93 million.
  - Authorities requested waivers for unmet PCs, a 4-month extension, an access augmentation of SDR 33.64 million (24 percent of quota), and rephasing of access.
  - Completion of the third and fourth reviews will result in disbursement equivalent to SDR 44.41 million.
- Staff support: completion of third and fourth reviews, waivers for nonobservance of PCs on domestic and external arrears, support for augmentation of access, extension of the arrangement, and rephasing of disbursements.

### Key recent economic developments (2015–2016)
- Real GDP and sector growth:
  - Economy set to contract by 3.5 percent in 2016.
  - Oil-sector growth projected at -5.9 percent in 2016.
  - Non-oil GDP projected at -3 percent in 2016.
- Oil sector: oil companies cut investment by more than 80 percent of initial plans for 2016; production slightly declined in 2016.
- Inflation: consumer price index expected to fall by 2 percent in 2016.
- Fiscal revenues and spending (2016):
  - Net oil revenue estimated at CFAF 25 billion for the year, a fall of about 80 percent from 2015.
  - Non-oil revenues in 2016 expected to fall to CFAF 415 billion, 3 percent lower than in 2015.
  - Second revised 2016 budget: planned expenditures reduced to CFAF 848 billion in 2016, 23 percent below the 2015 level and 44 percent below the 2014 level.
  - New domestic arrears accumulated in H1 2016 estimated at around CFAF 50 billion or 1 percent of non-oil GDP.
- Banking sector and financial conditions:
  - Credit to the private sector decreased about 5.4 percent year-on-year as of end-June 2016.
  - Non-performing loans increased from 11.7 percent at end-2014 to more than 17 percent at end-June 2016.
  - Imputed international reserves as of end-June 2016: US$12 million.
  - Government deposits at BEAC at end-June 2016: CFAF 90 billion.
- Regional and bilateral financing actions:
  - BEAC raised ceiling for Chadian commercial banks refinancing and halved required reserves for CEMAC banking system in March–April 2016.
  - Authorities issued more than CFAF 240 billion (net) in securities in the first three quarters of 2016.
  - Cameroon provided a bilateral loan of CFAF 30 billion.

### Program performance and conditionality
- Overall assessment: performance under the ECF-supported program broadly satisfactory despite shocks.  
- Performance Criteria (PCs) and outcomes:
  - Four of six PCs related to completion of the third and fourth reviews were met.
  - Non-oil primary deficit (NOPD) targets for end-2015 and end-June 2016 were met (the latter by a large margin) through significant expenditure cuts.
  - Cash-based budgeting introduced in H1 2016; domestically financed expenditures held 25 percent below their annual envelope under the June revised budget.
  - Share of poverty-reducing social spending in total domestically financed primary expenditure increased to 36.2 percent by June 2016 (from 28 percent in 2015), meeting the related PC.
  - Domestic payments arrears: large breach of zero limit at end-Dec 2015; end-June 2016 zero limit missed marginally.
  - External arrears: continuous zero ceiling not observed when minor arrears of US$1.1 million to World Bank and AfDB were accumulated in June 2016 but cleared shortly thereafter.
- Structural reform progress:
  - Benchmarks met: limiting expenditures executed through extraordinary budget procedures (DAO) and broadening database of taxpaying enterprises for end-2015.
  - Treasury structure for preparing cash management plans established on time (before June 2016) and operational.
  - Post-August 2016 government: finalized annual debt management report and enhanced monitoring/reporting of gross and net oil revenue flows.
  - Rationalization of transfers and subsidies benchmark not met; authorities implemented significant cuts via emergency action plan.

### Fiscal policy for remainder of 2016 — budget response and cuts
- Financing gap drivers: lower oil revenue and non-materialization of planned oil asset sale (originally projected to yield about CFAF 300 billion or 6 percent of non-oil GDP).
- LFR2 (second revised 2016 budget, submitted October 12):
  - Excludes proceeds from asset sale; realistic revenue and financing assumptions; significant spending cuts.
  - Oil revenues now estimated CFAF 25 billion (compared to CFAF 141 billion in July Article IV forecast).
  - Non-oil revenue shortfall of CFAF 55 billion versus June revised budget assumptions.
  - Cuts relative to 2015: transfers and subsidies lower by about 52 percent; domestically financed investment lower by about 78 percent; domestically financed spending reduced by about CFAF 320 billion (or 34 percent).
- Emergency action plan (enacted late August): 16 measures including reductions in allowances, scholarships, staffing cuts, restructuring public agencies.
- Financing constraints and package:
  - With regional market and BEAC financing near regulatory limits, bulk financing for remainder of 2016 expected from development partners.
  - Commitments add up CFAF 67 billion (to be disbursed by end-2016) in addition to CFAF 47 billion disbursed by September 2016, leading to total budget support CFAF 114 billion for 2016.
  - Authorities requested ECF augmentation to cover residual financing gap of CFAF 10 billion; remaining part of requested increase would be disbursed in 2017.
- 2016 financing table highlights (selected):
  - 2016 overall balance (excluding grants): -334 (CFAF billion) = -6.6 percent of non-oil GDP.
  - Total net financing (excluding budget support and IMF): 184 (CFAF billion) = 3.7 percent of non-oil GDP.
  - Financing gap: 150 (CFAF billion) = 3.0 percent of non-oil GDP.
  - Budget support: 114 (CFAF billion) = 2.3 percent of non-oil GDP (Disbursed by September 2016: 47 = 0.9; To be disbursed by end-2016: 67 = 1.3).
  - ECF planned disbursements (3rd and 4th reviews): 26 (CFAF billion) = 0.5 percent of non-oil GDP.
  - Residual financing gap: 10 (CFAF billion) = 0.2 percent of non-oil GDP; ECF augmentation requested: 10 = 0.2.

### Fiscal policy for 2017 and medium term
- 2017 draft budget:
  - Based on conservative assumptions; tight spending envelope to keep NOPD broadly unchanged compared to 2016 (3.6 percent of non-oil GDP).
  - Measures implemented in 2016 and cash-based execution to continue to prevent arrears accumulation.
  - Authorities intend to seek a liability management operation regarding Glencore loan to align debt service with oil developments.
- Financing for 2017:
  - Draft 2017 budget reported as fully financed.
  - Development partners expected to provide about CFAF 85 billion in budget support.
  - Authorities expect ECF access augmentation to help fill financing needs and catalyze additional donor support.
  - Domestic financing to be limited given BEAC advances fully drawn and banks near regulatory exposure limits.
  - If exceptional receipts materialize, options include increasing poverty-reducing spending, clearing arrears, or increasing investment (subject to MEFP ¶22).
- 2017 financing table highlights (selected):
  - 2017 overall balance (excluding grants): -220 (CFAF billion) = -4.1 percent of non-oil GDP.
  - Total net financing (excluding budget support and IMF): 101 = 1.9 percent of non-oil GDP.
  - Financing gap: 119 = 2.2 percent of non-oil GDP.
  - Budget support: 85 = 1.6 percent of non-oil GDP.
  - ECF planned disbursements (5th and 6th reviews): 17 = 0.3 percent of non-oil GDP.
  - Residual financing gap: 17 = 0.3 percent; ECF augmentation requested: 17 = 0.3 percent.
- Medium-term spending trajectory:
  - Spending to be loosened gradually only as resources become available.
  - Target non-oil primary deficit in range of 3-4 percent of non-oil GDP in 2019 and 2020, and 5 percent thereafter.
  - Domestically financed investment spending to rise to over 2.7 percent of non-oil GDP and to 4.5 percent by 2022.
  - Arrears clearance is a medium-term fiscal priority; independent audit of domestic arrears (structural benchmark for December 2016) to inform plan.

### Debt, arrears, and debt sustainability
- Glencore loan context:
  - Oil-collateralized loan of US$1.35 billion contracted in 2014; payments deducted from oil shipments and expected to absorb almost two-thirds of value of oil shipments in 2016.
- External position and DSA findings:
  - Oil revenue to budget to average about 3.3 percent of non-oil GDP per year during 2017-2020 compared to 11 percent in 2013-2015.
  - Current account deficit likely around 6-7 percent of GDP in coming years.
  - Imputed international reserves to start recovering in 2018 to return to almost US$1 billion (two months of imports) in 2020.
  - Updated DSA: debt expected to remain on a sustainable path with planned fiscal adjustment and medium-term recovery, but risk of external debt distress remains high with vulnerabilities concentrated in the next few years.
  - Baseline scenario: breaches of some indicators at beginning of projection period due to sustained low oil prices and Glencore loan repayment schedule; medium and long term indicators markedly below thresholds.
- Domestic debt and arrears:
  - Domestic arrears: new payment arrears accumulated in 2015: CFAF 148 billion (3 percent of non-oil GDP), stock CFAF 199.8 billion at end-2015; stock CFAF 204.2 billion at end-June 2016.
  - FAD TA estimates potential size of arrears around CFAF 536 billion (including CFAF 204 billion recognized).
  - 2016 clearance operation launched to clear CFAF 65 billion of recognized arrears; by mid-September 2016 CFAF 51 billion cleared; operation to be finalized by year-end.
  - Government to launch independent external audit; ToR to be finalized before year-end (structural benchmark).
- DSA projections (selected table rows, percent of non-oil GDP and price projections preserved as in source):
  - GDP growth (percent per year) — 2013-2015 Average 4.8; 2016 Prog. 2.5; 2016 Proj. -3.5; 2017 Prog. 5.2; 2017 Proj. -0.3; 2018 Prog. 5.8; 2018 Proj. 4.7; 2019 Prog. 6.0; 2019 Proj. 6.3; 2020 Prog. 3.5; 2020 Proj. 3.9.
  - Non-oil GDP growth (percent per year) — 2013-2015 Average 4.1; 2016 Prog. 1.9; 2016 Proj. -3.0; 2017 Prog. 3.1; 2017 Proj. 0.6; 2018 Prog. 3.8; 2018 Proj. 2.6; 2019 Prog. 4.2; 2019 Proj. 3.5; 2020 Prog. 4.4; 2020 Proj. 4.0.
  - Chadian crude oil price (US$ per barrel) — 2013-2015 Average 46.6; 2016 Prog. 33.8; 2016 Proj. 33.8; 2017 Prog. 51.9; 2017 Proj. 45.2; 2018 Prog. 56.0; 2018 Proj. 48.5; 2019 Prog. 58.1; 2019 Proj. 50.8; 2020 Prog. 59.7; 2020 Proj. 52.7.
- Debt dynamics and risk:
  - Inclusion of domestic debt raises overall debt risk; PV debt-to-GDP breaches in 2016-2017 under baseline.
  - Domestic debt projections: 23 percent of GDP in 2016; 16 percent in 2020; about 6 percent in 2036.
  - Public debt stock projections: about 47 percent of GDP in 2016; 29 percent in 2020; stabilize around average 18 percent of GDP in 2022-36.
  - Debt sustainability conditional on substantial fiscal adjustment, prudent borrowing, arrears clearance, and diversification progress.

### Structural reforms, PFM, oil transparency, revenue mobilization, and diversification
- Two-axis reform agenda: improve public financial management and reduce dependence on oil.
- Oil sector transparency:
  - Technical Committee monitoring oil revenue established by decree on September 14, 2016; plans to produce and publish an oil note detailing production, exports, prices, revenue, SHT flows, and Glencore debt service.
  - Chad compliant with EITI standard as of October 15, 2014.
- PFM priorities:
  - Reduce emergency spending procedures (DAO).
  - Control wage bill and civil service size via audit of payroll supported by EU; SIGASPE operational; payroll reform action plan by end-June 2017 (structural benchmark).
  - Strengthen cash management monitoring and planning; Treasury structure for cash plans operational.
  - Develop medium-term debt management strategy and strengthen public debt recording and monitoring.
- Revenue mobilization and tax policy:
  - Emphasis on widening tax base by reducing tax and customs exemptions; audit of exemptions financed by EU launched October 2016.
  - Measures to improve tax compliance and manage large taxpayers; SYDONIA (ASYCUDA) codification and monitoring of exemptions to be implemented.
- Private sector and diversification:
  - Doing Business ranking improved by two places in 2016 but remains 183rd out of 189.
  - NDP focuses on diversification and competitiveness with four strategic axes; roundtable in Paris planned January 2017 to mobilize financing.

### Arrears strategy and implementation modalities
- 2016 arrears operation:
  - Launched to clear CFAF 65 billion of recognized arrears financed by two bond issuances in late March 2016; voluntary repayment at 93 percent of claims; CFAF 51 billion cleared by mid-September 2016.
- Audit and clearance plan:
  - FAD TA mission Sep 15–28, 2016; potential arrears estimated CFAF 536 billion.
  - Independent external audit ToR to be finalized before year-end (structural benchmark for December 2016).
  - Clearance modalities include cash payments (with/without discounts), securitization with varying maturities; pace consistent with medium-term fiscal framework.
  - Government will consult IMF when designing clearance strategy and seek donor support for audit and clearance.

### Program modalities, safeguards, and capacity to repay
- Requested ECF modification:
  - Augmentation of access equivalent to 24 percent of quota (SDR 33.64 million), with SDR 13.1 million to be disbursed in 2016 and SDR 20.54 million in 2017, increasing total access to 100 percent of quota.
  - Extension of arrangement until end-November 2017 and rephasing of disbursements.
- Schedule of disbursements (selected):
  - Original total: 76.0 percent of quota = 106.56 million SDR.
  - New proposed total: 100.0 percent of quota = 140.20 million SDR (Third Review combined with Fourth Review).
- Capacity to repay:
  - Outstanding obligations to the Fund based on existing and prospective credit would not surpass 1.6 percent of GDP or 6.4 percent of exports of goods and services.
  - Annual repayments peak at 0.2 percent of GDP and 2.9 percent of tax revenue in 2023.
  - Outstanding IMF credit based on existing and prospective drawings (SDR millions): 2016: 89.9; 2017: 131.7; 2018: 131.7; 2019: 131.7; 2020: 129.7; 2021: 121.6; 2022: 102.5; 2023: 75.0; 2024: 47.0; 2025: 23.6; 2026: 6.3; 2027–2030: 0.0.
- Net use of IMF credit (SDR millions) by year: 2016: 44.4; 2017: 41.9; 2018–2019: 0.0; 2020: -2.0; 2021: -8.1; 2022: -19.1; 2023: -27.5; 2024: -28.0; 2025: -23.4; 2026: -17.3; 2027: -6.3; 2028–2030: 0.0.

### Risks to the outlook and mitigating factors
- Main downside risks:
  - Uncertainty in the oil market.
  - Security situation (notably Lake Chad region).
  - Authorities’ capacity to sustain low expenditure while delivering essential public services.
- Mitigating factors and upside scenarios:
  - Strong authorities’ commitment to reforms and balanced spending cuts; donors’ commitment to provide financing; program adjusters to accommodate donor delays and revenue variation.
  - Upside: higher oil prices, exceptional receipts from sale of oil asset, higher donor support.
- IMF safeguards and BEAC engagement:
  - BEAC subject to close IMF monitoring of safeguards “rolling measures”; April 2016 safeguards visit found priority legal reforms and transition to IFRS outstanding; staff engaged to advance reforms; satisfactory progress required for renewal of window for IMF financial engagement with CEMAC countries (window expires July 2017).

### Staff recommendations and program decisions
- Staff recommends:
  - Completion of the third and fourth reviews.
  - Waivers of nonobservance of PCs on non-accumulation of domestic arrears and non-accumulation of external arrears (based on corrective actions and minor deviation).
  - Support for authorities’ requests for augmentation of access, extension of the arrangement, and rephasing of disbursements.
- Policy guidance:
  - Preserve adjustments made and ensure government remains current on obligations.
  - Maintain conservative revenue assumptions and tight spending envelope in 2017.
  - Prioritize arrears clearance and safeguard macroeconomic stability while supporting growth-enhancing reforms and diversification.

*IMF staff report — Chad: Executive Summary, October 28, 2016*

### EXECUTIVE SUMMARY

### _cr16364 - EXECUTIVE SUMMARY

### Context and background
- From an average of US$100 in 2013 and 2014, the price of a barrel of Chadian crude oil declined to US$43 and US$34 respectively in 2015 and 2016.  
- Chad hosts and supports at least 750,000 refugees, displaced persons, and returnees; Chad’s population is 14 million.  
- The government prepared a new five-year National Development Plan (NDP) intended to be finalized by the end of November 2016; the NDP will serve as the poverty-reduction strategy (PRS) starting in 2017.  
- The November 2013–2015 NDP: by end-2013 around two-thirds of strategic indicators and one-half of intermediary indicators showed satisfactory progress; authorities reported 84 percent of national development indicators met in 2014.  
- Since late 2015 PRS implementation slowed; poverty-reducing social spending is expected to decline to CFAF 191 billion by end-2016, a 26.5 percent decline relative to 2015 (after a 16 percent decline in 2015 compared to 2014).

### Program and IMF engagement
- The ECF arrangement was approved on August 1, 2014, with an original access of 57 percent of quota (SDR 79.92 million).  
- Access was augmented by SDR 26.64 million (19 percent of quota) at the first review on April 27, 2015.  
- On December 14, 2015, the Executive Board completed the second review; with that review SDR 20.65 million was disbursed, bringing total disbursed under the ECF to SDR 53.93 million.  
- Authorities requested: waivers for unmet Performance Criteria (PCs), a 4-month extension of the program, an access augmentation of SDR 33.64 million (24 percent of quota) due to the worsening exogenous shock, and a rephasing of access for the remainder of the program.  
- Completion of the third and fourth reviews will result in the disbursement of an amount equivalent to SDR 44.41 million.

### Key recent economic developments (2015–2016)
- Real GDP: The economy is set to contract by 3.5 percent in 2016.  
  - Oil-sector growth projected at -5.9 percent in 2016.  
  - Non-oil GDP projected at -3 percent in 2016.  
- Oil sector: oil companies cut investment by more than 80 percent of initial plans for 2016; production slightly declined in 2016.  
- Inflation: consumer price index is expected to fall by 2 percent in 2016.  
- Fiscal revenues and spending (2016):  
  - Net oil revenue estimated at CFAF 25 billion for the year, a fall of about 80 percent from 2015.  
  - Non-oil revenues in 2016 are expected to fall to CFAF 415 billion, 3 percent lower than in 2015.  
  - In the second revised 2016 budget, planned expenditures were reduced to CFAF 848 billion in 2016, 23 percent below the 2015 level and 44 percent below the 2014 level.  
  - New domestic arrears continued to accumulate in the first half of 2016, estimated at around CFAF 50 billion or 1 percent of non-oil GDP.  
- Banking sector and financial conditions:  
  - Credit to the private sector decreased about 5.4 percent year-on-year as of end-June 2016.  
  - Non-performing loans increased from 11.7 percent of gross banking loans at end-2014 to more than 17 percent at end-June 2016.  
  - As of end-June 2016 international reserves imputed to Chad stood at only US$12 million.  
  - Government deposits at the BEAC stood at CFAF 90 billion at end-June 2016.  
- Regional financing actions: BEAC raised the ceiling for Chadian commercial banks refinancing and halved required reserves for the CEMAC banking system in March–April 2016; authorities issued more than CFAF 240 billion (net) in securities in the first three quarters of 2016. Cameroon provided a bilateral loan of CFAF 30 billion.

### Program performance and conditionality
- Overall assessment: performance under the ECF-supported program has been broadly satisfactory despite the difficult environment.  
- Performance Criteria (PCs): four of six PCs related to completion of the third and fourth reviews were met.  
  - The non-oil primary deficit (NOPD) targets for end-2015 and end-June 2016 were met (the latter by a large margin) through significant expenditure cuts.  
  - Introduction of cash-based budgeting in the first half of 2016 restricted expenditure to available resources; domestically financed expenditures were held 25 percent below their annual envelope under the June revised budget.  
  - The share of poverty-reducing social spending in total domestically financed primary expenditure increased to 36.2 percent by June 2016 (from 28 percent in 2015), meeting the related PC.  
  - Domestic payments arrears: significant arrears accumulated in the second half of 2015, leading to a large breach of the zero limit on the change in the stock of domestic payment arrears for end-December 2015; the end-June 2016 zero limit was missed again but only marginally.  
  - External arrears: the continuous zero ceiling on accumulation of external arrears was not observed when minor arrears to the World Bank and the African Development Bank ($1.1 million) were accumulated in June 2016 but cleared shortly thereafter.  
- Structural reforms: recent acceleration in implementation after earlier delays. Achievements include:  
  - Both end-December 2015 benchmarks on limiting expenditures executed through extraordinary budget procedures (DAO) and on broadening the database of taxpaying enterprises were met.  
  - A Treasury structure for preparing cash management plans was established on time (before June 2016) and is operational.  
  - Since formation of the new government in August 2016, progress on 2016 benchmarks includes finalization of an annual debt management report and enhanced monitoring and reporting of gross and net oil revenue flows.  
  - Rationalization of transfers and subsidies benchmark not met, but authorities implemented significant cuts in 2016 via the emergency action plan.

### Staff views and requests to the Board
- Staff supports:  
  - Completion of the third and fourth reviews under the ECF arrangement.  
  - Waivers of nonobservance of PCs on the non-accumulation of domestic arrears and non-accumulation of external arrears, based on corrective actions taken (for domestic arrears) and the minor deviation (for external arrears).  
  - The authorities’ requests for augmentation of access, extension of the arrangement, and rephasing of disbursements.  
- Rationale: the Fund arrangement remains instrumental to catalyze donor support to address Chad’s protracted balance of payment needs.

*IMF staff report — Chad: Executive Summary, October 28, 2016*

### 10.      Waivers of nonobservance of Performance Criteria have been requested by the

### _cr16364 - 10.      Waivers of nonobservance of Performance Criteria have been requested by the

### Waivers of Nonobservance and Arrears
- Waivers of nonobservance of Performance Criteria have been requested by the authorities (Letter of Intent, and MEFP ¶7).
- The waiver request on the non-accumulation of new domestic arrears is based on corrective actions taken, including the cash-based budget management procedures to avoid further accumulation in 2016, and the strategy put in place to clear arrears and avoid their reoccurrence.
- An FAD technical assistance mission visited N’Djamena in September at the request of the authorities to assist in developing their strategy.
- The accumulation of external arrears was characterized as both minor and temporary.
- Footnote: "The benchmark was not met because the audit on which the benchmark was based focused on the government participation in state owned enterprises, but did not audit the extent of government support to the enterprises."

### A. Medium Term Macroeconomic Framework — Outlook and Projections
- Continued weak prospects for the oil sector shape the macro outlook; oil prices are expected to increase only modestly over the medium-term.
- Oil revenue to the budget will average about 3.3 percent of non-oil GDP per year during 2017-2020 compared to 11 percent in 2013-2015.
- Non-oil revenue is expected to be lower than previously projected; formal private sector activity is only expected to rebound in 2018 in part due to significant ongoing fiscal adjustment.
- External position:
  - Current account deficit likely to be around 6-7 percent of GDP in coming years.
  - Imputed international reserves will remain low, starting to recover in 2018 to return to almost US$1 billion (or two months of imports of goods and services) in 2020.
- Debt Sustainability:
  - An updated DSA shows debt expected to remain on a sustainable path with planned fiscal adjustment and projected medium term recovery.
  - Risk of external debt distress remains high with vulnerabilities concentrated in the next few years.
  - Baseline scenario shows breaches of some indicators at the beginning of the projection period due to sustained low oil prices and the repayment schedule of the Glencore loan; over medium and long term indicators are markedly below thresholds.
  - Increasing domestic debt in the regional market and the large amount of domestic arrears (expected to be gradually reduced starting in 2018) have contributed to vulnerabilities.
- Footnote on Glencore loan: "Payments on the oil-collateralized loan of US$1.35 billion contracted in 2014 with Glencore Energy are made through deductions in the value of oil shipments by the Chad Hydrocarbons Corporation (SHT), and are expected to absorb almost two-thirds of the value of oil shipments in 2016."

- Text Table 1. Chad: Medium-Term Projections (In percent of non-oil GDP, unless otherwise indicated) — selected rows (presented as in source):
  - GDP growth (percent per year): 2013-2015 Average 4.8; 2016 Prog. 2.5; 2016 Proj. -3.5; 2017 Prog. 5.2; 2017 Proj. -0.3; 2018 Prog. 5.8; 2018 Proj. 4.7; 2019 Prog. 6.0; 2019 Proj. 6.3; 2020 Prog. 3.5; 2020 Proj. 3.9.
  - Non-oil GDP growth (percent per year): 2013-2015 Average 4.1; 2016 Prog. 1.9; 2016 Proj. -3.0; 2017 Prog. 3.1; 2017 Proj. 0.6; 2018 Prog. 3.8; 2018 Proj. 2.6; 2019 Prog. 4.2; 2019 Proj. 3.5; 2020 Prog. 4.4; 2020 Proj. 4.0.
  - Current account balance (percent of GDP): 2013-2015 Average -10.2; 2016 Prog. -7.8; 2016 Proj. -7.5; 2017 Prog. -8.0; 2017 Proj. -6.8; 2018 Prog. -4.1; 2018 Proj. -6.4; 2019 Prog. -1.3; 2019 Proj. -5.7; 2020 Prog. -2.0; 2020 Proj. -6.3.
  - Total Government revenue: 2013-2015 Average 11.0; 2016 Prog. 17.1; 2016 Proj. 13.7; 2017 Prog. 19.4; 2017 Proj. 13.4; 2018 Prog. 22.8; 2018 Proj. 16.0; 2019 Prog. 26.5; 2019 Proj. 17.5; 2020 Prog. 26.5; 2020 Proj. 18.7.
  - Oil revenue: 2013-2015 Average 81.8; 2016 Prog. 4.5; 2016 Proj. 0.5; 2017 Prog. 7.3; 2017 Proj. 0.8; 2018 Prog. 10.2; 2018 Proj. 2.8; 2019 Prog. 13.5; 2019 Proj. 4.4; 2020 Prog. 12.1; 2020 Proj. 5.3.
  - Overall fiscal balance (commitment basis): 2013-2015 Average -5.5; 2016 Prog. -6.3; 2016 Proj. -3.1; 2017 Prog. -2.8; 2017 Proj. -3.3; 2018 Prog. -1.7; 2018 Proj. -1.2; 2019 Prog. 0.5; 2019 Proj. -0.6; 2020 Prog. -0.1; 2020 Proj. 0.1.
  - Non-oil primary fiscal balance (commitment basis): 2013-2015 Average -14.8; 2016 Prog. -10.1; 2016 Proj. -3.9; 2017 Prog. -7.1; 2017 Proj. -3.6; 2018 Prog. -8.0; 2018 Proj. -3.0; 2019 Prog. -10.1; 2019 Proj. -3.8; 2020 Prog. -10.5; 2020 Proj. -3.7.
  - Chadian crude oil price (US$ per barrel): 2013-2015 Average 46.6; 2016 Prog. 33.8; 2017 Prog. 51.9; 2017 Proj. 45.2; 2018 Prog. 56.0; 2018 Proj. 48.5; 2019 Prog. 58.1; 2019 Proj. 50.8; 2020 Prog. 59.7; 2020 Proj. 52.7.

### B. Fiscal Policy for the Remainder of 2016 — Budget Response and Cuts
- The authorities focused on closing a financing gap emerging in 2016 due to lower oil revenue and delays in the planned sale of a government oil asset.
- The second revised 2016 budget (sent to Parliament in October) includes realistic revenue and financing assumptions and significant cuts in current and capital spending.
- Key developments shaping 2016 fiscal outcomes:
  - Worsening oil price shock and non-materialization of an oil asset sale.
  - The planned asset sale was originally projected to yield about CFAF 300 billion, or 6 percent of non-oil GDP.
  - Oil revenues for the year are now estimated to reach only CFAF 25 billion (compared to a forecast of CFAF 141 billion in the July Article IV report).
  - Non-oil revenues expected to underperform with a shortfall of CFAF 55 billion compared to the June revised budget assumptions.
- Revised budget (submitted October 12, LFR2) characteristics:
  - Based on realistic projections of oil and non-oil revenues and excludes expected proceeds from the oil asset sale.
  - Includes significant spending cuts: relative to 2015 outcomes, spending is expected to be lower by about 52 percent for transfers and subsidies, and 78 percent for domestically financed investment as no new investment project was launched in 2016.
  - This implies about CFAF 320 billion (or 34 percent) cut in domestically financed spending.
- The burden of budget cuts is generally balanced across agencies and categories; supported by an emergency action plan (enacted in late August) containing 16 measures including reductions in allowances for parliamentarians and senior government staff, scholarships, staffing size of some agencies, and restructuring of public agencies.
- Financing constraints:
  - With regional market and BEAC financing close to regulatory limits, bulk of financing for remainder of 2016 is to be filled by Chad’s development partners.
  - Commitments so far (over what was disbursed already this year) add up CFAF 67 billion for the fiscal year, leading to total of CFAF 114 billion in budget support, almost triple the initial 2016 budget envisaged amount.
  - Authorities request an augmentation of access under the ECF arrangement to help cover a residual financing gap of CFAF 10 billion and to catalyze donor support in addition to committed amounts; remaining part of requested increase in access would be disbursed in 2017.

- Text Table 2. Chad: Financing Requirements and Sources of Funding for 2016 (presented as in source):
  - (1) 2016 overall balance (excluding grants) -334 (CFAF billion) -6.6 (Percent of non-oil GDP)
  - (2) Total net financing (excluding budget support and IMF) 184 3.7
  - (3) Financing gap -(1+2) 150 3.0
  - (4) Budget support 114 2.3
    - Disbursed by September 2016 47 0.9
      - African Development Bank 22 0.4
      - Balance of 2015 Budget support* 25 0.5
    - To be disbursed by end-2016 67 1.3
      - World Bank 48 1.0
      - European Union 15 0.3
      - African Development Bank 4 0.1
  - (5) ECF planned disbursements (3rd and 4th reviews) 26 0.5
  - (6) Residual Financing gap (3)-(4)-(5) 10 0.2
  - (7) ECF augmentation 10 0.2
  - Note: "*part of 2015 budget support operations approved late in the year have been disbursed in Januray 2016."

### C. Fiscal Policy for 2017 and the Medium Term
- Authorities committed to a tight fiscal stance in 2017 as reflected in the draft 2017 budget to be submitted to the National Assembly (prior action for completion of the third and fourth reviews).
- Draft 2017 budget:
  - Based on conservative assumptions (notably oil revenue), maintains a tight spending envelope to keep the NOPD broadly unchanged compared to 2016 (3.6 percent of non-oil GDP).
  - Measures implemented in 2016 and continuation of cash-based execution will support objective and help prevent accumulation of new domestic arrears.
  - Authorities intend to seek a liability management operation regarding the Glencore loan to better align debt service with oil price developments and create additional room for priority spending.
- Financing for 2017:
  - The 2017 draft budget is fully financed.
  - Development partners (particularly AfDB, EU, and WB) expected to continue budget support operations in 2017 in the order of CFAF 85 billion.
  - Authorities expect augmentation of access under Fund’s arrangement will help fill financing needs and catalyze additional donor support.
  - Resort to domestic financing will be limited given BEAC advances fully drawn and banks near regulatory exposure limits.
  - If exceptional receipts (e.g., oil asset sale) become available, authorities will explore use options while staying within Fund-supported program parameters: increasing poverty-reducing spending, clearing more verified and validated arrears, increasing investment spending (MEFP ¶22).
- Text Table 3. Chad: Financing Requirements and Sources of Funding for 2017 (presented as in source):
  - (1) 2017 overall balance (excluding grants) -220 (CFAF billion) -4.1 (Percent of non-oil GDP)
  - (2) Total net financing (excluding budget support and IMF) 101 1.9
  - (3) Financing gap -(1+2) 119 2.2
  - (4) Budget support* 85 1.6
  - (5) ECF planned disbursements (5th and 6th reviews) 17 0.3
  - (6) Residual Financing gap (3)-(4)-(5) 17 0.3
  - (7) ECF augmentation 17 0.3
  - Note: "*based on commitments from the World Bank, the European Union, and the African Development Bank."

- Medium term spending trajectory and arrears clearance:
  - Spending envelope expected to be loosened only gradually to safeguard sustainability while allowing a comprehensive domestic arrears clearance operation.
  - Subject to oil companies’ plans to increase production starting 2018, oil revenues expected to start improving.
  - This would support a gradual increase in spending under a sustainable fiscal trajectory with a non-oil primary deficit in the range of 3-4 percent of non-oil GDP in 2019 and 2020, and 5 percent thereafter.
  - Trajectory would allow increase in domestically financed investment spending to over 2.7 percent of non-oil GDP and to 4.5 percent by 2022 and to loosen the tight health and education spending envelope.
  - Arrears clearance is a medium term fiscal priority; authorities will develop a plan for clearance at a pace consistent with available financing pending results of an independent audit of (yet unverified) domestic arrears (structural benchmark).

### D. Structural Reforms — PFM, Oil Transparency, Revenue, and Diversification
- Structural reform agenda has two axes:
  - Continue improving public financial management in treasury management and expenditure control, with priorities on budget transparency (including oil revenue forecast and management) and expenditure chain to limit domestic arrears risks.
  - Elaborate and implement reforms to reduce budget and economy dependence on oil.
- Oil sector transparency:
  - Continued progress essential; authorities intend to build on efforts to meet the related structural benchmark (set for June 2016).
  - The Technical Committee monitoring oil revenue (established by Ministerial decree on September 14, 2016) plans to regularly produce and publish an oil note detailing oil production and export trends, Chad crude oil price, oil revenue and financial flows related to SHT, and debt service of the Glencore loan (MEFP, ¶8 and 32).
  - Chad was recognized as compliant with EITI transparency standard on October, 15, 2014.
- Public Financial Management priorities:
  - (i) Continue efforts to reduce the use of emergency spending procedures (MEFP, ¶33).
  - (ii) Ensure better control of the wage bill and number of civil servants via an action plan based on an audit of the civil service payroll supported by the European Union (MEFP, ¶33).
  - (iii) Further strengthen cash management monitoring and planning (MEFP, ¶34).
  - Develop a medium term debt management strategy to strengthen capacity to record and monitor public debt (MEFP, ¶35).
- Arrears prevention and clearance:
  - Preventing and clearing domestic arrears is a key reform objective (MEFP ¶25-30).
  - Authorities will take stock of recent TA reports to identify measures preventing arrears recurrence.
  - A first decisive step for existing arrears will be an independent external audit; authorities are working on Terms of Reference for this audit (structural benchmark for December 2016) and will seek donor support to finance it.
- Revenue mobilization and tax policy:
  - With continued weak oil revenues, emphasis on improving non-oil tax revenue.
  - Priority to widen tax base by reducing tax and customs exemptions.
  - Ongoing audit of exemptions financed by the EU expected to identify specific actions to widen the tax base (MEFP, ¶37).
  - Improving tax compliance key; authorities identified measures including better managing tax obligations of large enterprises and custom exemptions; planned implementation over next year (MEFP, ¶36).
- Private sector role and diversification:
  - Steps to enhance private sector role are critical.
  - Chad’s Doing Business ranking improved by two places in 2016 but remains 183rd out of 189.
  - Reforms needed to facilitate business creation and development, reduce infrastructure bottlenecks, and improve access to financial services.
  - Authorities intend to strengthen private sector dialogue based on proposals in the White Paper published by the National Employers Council of Chad.
- National Development Plan (NDP):
  - NDP at advanced stage with focus on diversification; includes four strategic axes: (i) strengthen national unity; (ii) improve governance under rule of law; (iii) diversify the economy and improve competitiveness; (iv) social protection.
  - Authorities will organize a roundtable in Paris in January 2017 with development partners to mobilize financing for NDP priorities.
  - Final NDP to be shared with stakeholders and submitted to the National Assembly (structural benchmark for end November 2016).

### Program Modalities, Safeguards, and Risks
- Authorities requested:
  - An augmentation of access under the current ECF arrangement equivalent to 24 percent of quota or SDR 33.64 million, with SDR 13.1 million to be disbursed in 2016 and SDR 20.54 million in 2017, increasing total access to 100 percent of quota.
  - An extension of the arrangement until end-November 2017.
  - A rephasing of disbursements to realign schedule with program extension.
- Purpose of augmentation: catalyze additional budget support to help address financing needs.
- Capacity to repay the Fund:
  - Chad’s capacity to repay remains adequate after augmentation.
  - Outstanding obligations to the Fund based on existing and prospective credit would not surpass 1.6 percent of GDP or 6.4 percent of exports of goods and services.
  - Annual repayments will peak at 0.2 percent of GDP and 2.9 percent of tax revenue in 2023.
  - Authorities committed to ensure new external loans are consistent with debt sustainability, observing debt conditionality in the ECF arrangement.
- Performance criteria and indicative targets:
  - Performance criteria for end-December 2016 and end-June 2017, and Indicative Targets for end-March 2017 are proposed (MEFP, Table 1).
  - Targets reflect changes in the macroeconomic framework and the tight spending envelope in the 2017 budget.
  - Considerable 2016 cuts targeted categories typically executed through ordinary budget procedures (investment, transfers and subsidies), reducing use of those procedures and making it impossible to meet the structural benchmark on the use of emergency budget procedures for end-2016.
  - The benchmark would be reset to end-June 2017 at a level consistent with the compressed level of investment, and transfers and subsidies.

*Source: Excerpt from IMF staff report text unit _cr16364 (as provided).*

### 31.      Risks to the outlook are primarily related to the uncertainty in the oil market, the

### _cr16364 - 31.      Risks to the outlook are primarily related to the uncertainty in the oil market, the

### Risks to the outlook and mitigating factors
- Main risks:
  - Uncertainty in the oil market.
  - The security situation (notably in the Lake Chad region).
  - The authorities' ability to sustain a low level of expenditure while delivering essential public services.
- Main mitigating factors:
  - Strong commitment by the authorities to implement necessary reforms and adjustments, including a generally balanced approach to spending cuts and measures to improve PFM.
  - Donors’ commitment to provide needed financing.
  - Program design includes adjusters to alleviate the impact of any delays in donor financing and to accommodate variation in government revenues.
- Upside scenarios:
  - Higher oil prices.
  - Exceptional receipts from the sale of the oil asset.
  - Higher donor support.

### IMF safeguards monitoring and BEAC engagement
- The BEAC remains subject to close IMF monitoring of safeguards “rolling measures” in the context of new program requests and reviews for the CEMAC countries.
- April 2016 safeguards monitoring visit findings:
  - Priority recommendations on legal reform to be completed by early 2017 remained outstanding.
  - Transition to International Financial Reporting Standards (IFRS) remained outstanding.
- Staff engagement:
  - Staff remains engaged with the BEAC to advance these reforms within the agreed timelines.
  - Satisfactory progress will allow for renewal of the window for continued IMF financial engagement with the CEMAC member countries, which currently expires in July 2017.

### Staff appraisal: macroeconomic impact and policy response (paras. 33–37)
- Recent developments and impacts:
  - Exogenous shocks (continuing drop in oil revenue; tense security situation especially in the Lake Chad region) have had a far-reaching effect: fiscal position under pressure, domestic economic activity contracting, cross-border trade suffering, and rising social tensions.
- Authorities’ response and program performance:
  - Authorities showed strong commitment to manage the crisis and close an earlier financing gap, resulting in a broadly satisfactory performance under the ECF-supported program.
  - Early 2016 move to cash-based budget execution.
  - Implementation of strong measures to align spending with available revenue and financing.
  - Measures contained the crisis impact but produced abrupt and significant cuts in spending; cuts later in 2016 also targeted current spending (in contrast to earlier cuts that focused on domestically financed public investment).
- Fiscal strategy guidance for 2016–2017:
  - Preserve adjustments made so far and ensure the government remains current on all obligations.
  - The second revised 2016 budget reflects on-the-ground realities and is fully financed.
  - The 2017 draft budget is appropriately based on conservative revenue assumptions and aims to maintain the non-oil primary deficit at the level expected to prevail in 2016.
- Medium-term constraints and priorities:
  - Large priority spending needs and limited room for further discretionary cuts imply additional fiscal space is needed to achieve development objectives.
  - The medium-term fiscal outlook is dominated by continued weakness in oil prices and a gradual economic recovery.
  - The medium-term spending envelope should only be loosened as resources become available, including from stepped up efforts to raise non-oil revenues and additional donor support.
  - The authorities’ plan to consider a debt liability management operation would help ease fiscal pressure in coming years.
  - Clearance of domestic arrears is critical to support economic recovery and guard against an increase in non-performing loans.
- Structural policy direction:
  - The forthcoming new 5-year NDP is an opportune time to map a coherent strategy to diversify the economy and reduce reliance on the oil sector.
  - Authorities should identify and push forward specific measures to improve the business climate for the private sector; medium- to long-term prospects depend on private sector-led activity.

### Staff recommendations and program decisions (para. 38)
- Based on performance under the program and recent corrective actions, staff recommends:
  - Completion of the third and fourth reviews.
  - Support for the authorities’ request for augmentation of access.
  - Support for extension of the program and associated rephasing of disbursements.
  - Support for waivers of the nonobservance of two performance criteria given strong corrective actions undertaken for one and a minor deviation for the second.

### Notable program timelines and targets
- BEAC safeguards window for continued IMF financial engagement with CEMAC countries currently expires in July 2017.
- Priority BEAC legal reform target: to be completed by early 2017.
- 2017 budget aims to maintain the non-oil primary deficit at the level expected to prevail in 2016.

*Source: IMF staff report excerpts (paras. 31–38) from the provided document.*

### 1. Quantitative Performance Criteria and Indicative Targets are defined in the TMU.

### _cr16364 - 1. Quantitative Performance Criteria and Indicative Targets are defined in the TMU.

### Quantitative Performance Criteria (QPCs) and Indicative Targets (ITs)
- QPCs and ITs are defined in the Technical Memorandum of Understanding (TMU).
- Application: "Applies continuously."
- Adjustment: "Reflects the application of the adjuster given the expenditures compression that took place (see TMU for more details)."
- Specified timing markers appearing in the text:
  - End-June 2016 QPC
  - End-Dec 2015 QPC
  - End-March 2016 IT
  - End-Dec 2015 QPC
  - End-March 2016 IT
  - End-June 2016 QPC
- Example QPC cited:
  - "Ceiling on contracting or guaranteeing of new non-concessional external debt by the government and non-financial public enterprises, but for ordinary external trade financing of at most one-year maturity"

### Structural Conditionality under the ECF Arrangement (2015 and 2016)
- Table 9a (2015) — Measures, Due Dates, Macro-criticality, Observation:
  - Issuance of a decree for the establishment of an inter-ministerial structure in charge of consolidating and reporting all the information related to fiscal oil revenue
    - Due Date: End-June 2015
    - Macro-criticality: High
    - Observation: Met
  - Incorporation of information on fiscal oil revenue (from the inter-ministerial structure monitoring) in the quarterly budget execution reports published by the Ministry of Finance
    - Due Date: End-Sept. 2015
    - Macro-criticality: High
    - Observation: Met
  - Update and expand the taxpayer database
    - Due Date: End-Dec 2015
    - Macro-criticality: High
    - Observation: Met
  - Limit emergency spending procedures to no more than 9 percent of domestically financed spending in 2015 (excluding wages, debt service, and security-related spending)
    - Due Date: End-Dec. 2015
    - Macro-criticality: High
    - Observation: Met

- Table 9b (2016) — Measures, Due Dates, Macro-criticality, Observation:
  - Producing an annual debt management report
    - Due Date: End-June. 2016
    - Macro-criticality: Medium
    - Observation: Not met. Completed in October 2016
  - Establishment of a structure responsible for Treasury planning and monitoring, and preparation of cash management plans
    - Due Date: End-June. 2016
    - Macro-criticality: High
    - Observation: Met
  - Rationalization of transfers and subsidies, based on the result of the functional and financial audit launched in 2015
    - Due Date: End-Sept 2016
    - Macro-criticality: High
    - Observation: Not met; some progress in the October Emergency Plan
  - Enhanced reporting of gross and net oil revenue flows
    - Due Date: End-June 2016
    - Macro-criticality: High
    - Observation: Not met. Tangible progress in the monitoring and reporting; but regular publication of a note still to be done.
  - Limit emergency procedures to no more than 9 percent of domestically financed spending in 2016 (excluding wages, debt service, expenditures from the Independent National Electoral Commission, ans security-related spending)
    - Due Date: End-Dec. 2016
    - Macro-criticality: High
    - Observation: ---

### External Borrowing — Actual and Projected (2015 and 2016/2017)
- Table 10a. Summary Table of Actual External Borrowing Monitor, 2015 (PPG external debt)
  - USD million: 58
  - Percent: 100
  - By sources of debt financing:
    - Concessional debt, of which: 58 (100)
    - Multilateral debt: 39 (67)
    - Bilateral debt: 19 (33)
    - Other: 0 (0)
    - Non-concessional debt: 0 (0)
  - Uses of debt financing (USD million / Percent):
    - Infrastructure: 12 (21)
    - Social (education, health): 8 (14)
    - Agriculture and livestock: 18 (31)
    - Energy: 8 (14)
    - Budget Financing: 0 (0)
    - Other: 12 (21)

- Table 10b. Summary Table of Projected External Borrowing Program (2016–2017) — figures presented in parallel columns:
  - By sources of debt financing (USD million / Percent for 2016 and 2017):
    - 103 100 134 100  (format reflects two-year columns)
    - Concessional debt, of which: 103 100 134 100
    - Multilateral debt: 67 65 79 59
    - Bilateral debt: 36 35 55 41
    - Other: 0 0 0 0
    - Non-concessional debt: 0 0 0 0
  - Uses of debt financing:
    - 103 100 134 100
    - Infrastructure: 44 43 47 35
    - Social (education, health): 9 9 20 15
    - Agriculture and livestock: 33 32 30 30
    - Energy: 11 11 13 10
    - Budget Financing: 0 0 0 0
    - Other: 6 6 13 10

- Note appended: "Nominal value of new debt disbursed. Excludes financing from the IMF."

### Schedule of Disbursement Under the ECF Arrangement (Original and Proposed)
- Table 11a. Original Schedule of Disbursement Under the ECF Arrangement (Amount as Percent of Quota; Amount in Million SDR; Available Date; Conditions)
  - 9.5 | 13.31 | August 1, 2014 | Executive Board approval of the three year ECF arrangement
  - 14.2 | 19.97 | February 15, 2015 | Observance of the performance criteria for December 31, 2014 and completion of the first review under the arrangement
  - 14.7 | 20.65 | August 15, 2015 | Observance of the performance criteria for June 30, 2015 and completion of the second review under the arrangement
  - 12.4 | 17.32 | February 15, 2016 | Observance of the performance criteria for December 31, 2015 and completion of the third review under the arrangement
  - 10.0 | 13.99 | August 15, 2016 | Observance of the performance criteria for June 30, 2016 and completion of the fourth review under the arrangement
  - 7.6 | 10.66 | February 15, 2017 | Observance of the performance criteria for December 31, 2016 and completion of the fifth review under the arrangement
  - 7.6 | 10.66 | July 15, 2017 | Observance of the performance criteria for May 31, 2017 and completion of the sixth review under the arrangement
  - Total: 76.0 | 106.56

- Table 11b. New Proposed Schedule of Disbursement Under the ECF Arrangement
  - 9.5 | 13.31 | August 1, 2014 | Executive Board approval of the three year ECF arrangement
  - 14.2 | 19.97 | February 15, 2015 | Observance of the performance criteria for December 31, 2014 and completion of the first review under the arrangement
  - 14.7 | 20.65 | August 15, 2015 | Observance of the performance criteria for June 30, 2015 and completion of the second review under the arrangement
  - 24.4 | 34.14 | February 15, 2016 | 1 Observance of the performance criteria for December 31, 2015 and completion of the third review under the arrangement
  - 7.3 | 10.27 | August 15, 2016 | 1 Observance of the performance criteria for June 30, 2016 and completion of the fourth review under the arrangement
  - 14.7 | 20.54 | February 15, 2017 | Observance of the performance criteria for December 31, 2016 and completion of the fifth review under the arrangement
  - 15.2 | 21.32 | August 15, 2017 | Observance of the performance criteria for June 30, 2017 and completion of the sixth review under the arrangement
  - Total: 100.0 | 140.20
  - Footnote: "1 The Third Review will be combined with the Fourth Review."

### Indicators of Capacity to Repay the Fund (2016–30)
- Fund obligations based on existing credit (Principal and Charges and interest) — SDR millions by year:
  - Principal: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 2.0; 2021: 8.1; 2022: 8.1; 2023: 10.3; 2024: 10.8; 2025: 6.1; 2026: 0.0; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Charges and interest: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.1; 2020: 0.1; 2021: 0.1; 2022: 0.1; 2023: 0.1; 2024: 0.1; 2025: 0.0; 2026: 0.0; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0

- Fund obligations based on existing and prospective credit (Principal and Charges and interest) — SDR millions by year:
  - Principal: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 2.0; 2021: 8.1; 2022: 19.1; 2023: 27.5; 2024: 28.0; 2025: 23.4; 2026: 17.3; 2027: 6.3; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Charges and interest: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.4; 2020: 0.4; 2021: 0.4; 2022: 0.3; 2023: 0.3; 2024: 0.2; 2025: 0.1; 2026: 0.1; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0

- Total obligations based on existing and prospective credit:
  - SDR millions by year: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.4; 2020: 2.4; 2021: 8.5; 2022: 19.4; 2023: 27.8; 2024: 28.2; 2025: 23.5; 2026: 17.3; 2027: 6.4; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - CFAF billions by year: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.3; 2020: 1.9; 2021: 6.9; 2022: 15.8; 2023: 22.6; 2024: 23.0; 2025: 19.1; 2026: 14.1; 2027: 5.2; 2028: 0.0; 2029: 0.0; 2030: 0.0

- Ratios (percent) — Total obligations based on existing and prospective credit:
  - Percent of exports of goods and services: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 0.1; 2021: 0.3; 2022: 0.6; 2023: 0.9; 2024: 0.9; 2025: 0.7; 2026: 0.5; 2027: 0.2; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of debt service: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.2; 2020: 1.0; 2021: 3.7; 2022: 8.5; 2023: 30.2; 2024: 28.5; 2025: 23.5; 2026: 17.7; 2027: 6.6; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of GDP: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 0.0; 2021: 0.1; 2022: 0.2; 2023: 0.2; 2024: 0.2; 2025: 0.2; 2026: 0.1; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of tax revenue: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.1; 2020: 0.3; 2021: 1.1; 2022: 2.2; 2023: 2.9; 2024: 2.7; 2025: 2.0; 2026: 1.3; 2027: 0.4; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of quota: 2016: 0.0; 2017: 0.0; 2018: 0.0; 2019: 0.3; 2020: 1.7; 2021: 6.0; 2022: 13.8; 2023: 19.8; 2024: 20.1; 2025: 16.8; 2026: 12.4; 2027: 4.5; 2028: 0.0; 2029: 0.0; 2030: 0.0

- Outstanding IMF credit based on existing and prospective drawings:
  - SDR millions by year: 2016: 89.9; 2017: 131.7; 2018: 131.7; 2019: 131.7; 2020: 129.7; 2021: 121.6; 2022: 102.5; 2023: 75.0; 2024: 47.0; 2025: 23.6; 2026: 6.3; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - CFAF billions by year: 2016: 73.8; 2017: 107.5; 2018: 107.3; 2019: 107.0; 2020: 104.9; 2021: 99.0; 2022: 83.5; 2023: 61.1; 2024: 38.2; 2025: 19.2; 2026: 5.1; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0

- Ratios for outstanding IMF credit:
  - Percent of exports of goods and services: 2016: 5.2; 2017: 6.4; 2018: 5.3; 2019: 4.4; 2020: 4.1; 2021: 3.6; 2022: 3.0; 2023: 2.4; 2024: 1.5; 2025: 0.7; 2026: 0.2; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of debt service: 2016: 33.3; 2017: 50.8; 2018: 52.8; 2019: 55.4; 2020: 56.6; 2021: 53.4; 2022: 44.9; 2023: 81.5; 2024: 47.3; 2025: 23.5; 2026: 6.5; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of GDP: 2016: 1.2; 2017: 1.6; 2018: 1.5; 2019: 1.4; 2020: 1.3; 2021: 1.1; 2022: 0.9; 2023: 0.6; 2024: 0.4; 2025: 0.2; 2026: 0.0; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of tax revenue: 2016: 18.4; 2017: 24.2; 2018: 22.1; 2019: 20.1; 2020: 17.8; 2021: 15.2; 2022: 11.4; 2023: 7.7; 2024: 4.4; 2025: 2.0; 2026: 0.5; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
  - Percent of quota: 2016: 64.1; 2017: 93.9; 2018: 93.9; 2019: 93.9; 2020: 92.5; 2021: 86.7; 2022: 73.1; 2023: 53.5; 2024: 33.5; 2025: 16.8; 2026: 4.5; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0

- Net use of IMF credit (SDR millions) by year:
  - 2016: 44.4; 2017: 41.9; 2018: 0.0; 2019: 0.0; 2020: -2.0; 2021: -8.1; 2022: -19.1; 2023: -27.5; 2024: -28.0; 2025: -23.4; 2026: -17.3; 2027: -6.3; 2028: 0.0; 2029: 0.0; 2030: 0.0

- Disbursements and Repayments and repurchases (SDR millions):
  - Disbursements: 2016: 44.4; 2017: 41.9; 2018–2030: 0.0
  - Repayments and repurchases: 2016–2019: 0.0; 2020: 2.0; 2021: 8.1; 2022: 19.1; 2023: 27.5; 2024: 28.0; 2025: 23.4; 2026: 17.3; 2027–2030: 0.0

- Memorandum items (selected):
  - Exports of goods and services (CFAF billions) 2016–2030: 1,421; 1,680; 2,018; 2,458; 2,581; 2,735; 2,742; 2,593; 2,604; 2,620; 2,640; 2,666; 2,698; 2,738; 2,786
  - External Debt service (CFAF billions) 2016–2030: 1 222; 212; 203; 193; 185; 185; 186; 75; 81; 82; 80; 78; 75; 78; 87
  - Nominal GDP (CFAF billions) 2016–2030: 6,038; 6,563; 6,986; 7,734; 8,274; 8,832; 9,297; 9,681; 10,208; 10,777; 11,411; 12,063; 12,768; 13,521; 14,360
  - Tax revenue (CFAF billions) 2016–2030: 402; 445; 486; 533; 590; 652; 731; 789; 867; 944; 1,057; 1,180; 1,316; 1,465; 1,642
  - Quota (SDR millions): 140.2 (constant through 2016–2030)
- Footnote: "1 Total external debt service includes IMF repurchases and repayments."

### Letter of Intent — Key Points (N'Djamena, October 27, 2016)
- Program background:
  - "On August 1, 2014, the Executive Board of the IMF approved a financial program under the Extended Credit Facility (ECF) covering the period August 1, 2014 until July 31, 2017."
  - First and Second reviews completed in April and December 2015 respectively.
- Economic context and shocks:
  - Severe oil price shock undermining budgetary oil revenues in 2015 and 2016.
  - Chadian military involvement in regional operations creating fiscal burden.
  - Security threats and economic crisis in Nigeria halting cross-border trade, affecting livestock and agriculture sectors.
  - Chad hosting at least "750 000 refugees, displaced persons, and returnees."
- Government responses and outcomes:
  - New Government (appointed August 14, 2016) adopted an emergency economic action plan and moved to cash-based budget execution since early 2016.
  - Large reduction in capital spending in 2015.
  - "The large fiscal adjustment efforts in 2015 and 2016 helped the Government balance its budget and stay within the broad parameters of the program."
- Nonobservance and waiver requests:
  - Zero ceiling on accumulation of new external payment arrears missed in June 2016 when "minor external payment arrears (US$1.1 million) were accumulated but cleared shortly thereafter." Government requests a waiver on the basis of the minor nature of the nonobservance.
  - Zero limit on change in the stock of domestic payment arrears missed by a large margin in December 2015, and marginally in June 2016. Government requests a waiver and proposes a comprehensive strategy following an independent audit of arrears to clear arrears and strengthen internal controls.
- Structural progress:
  - Use of extraordinary budget procedures remained under the agreed limit in 2015.
  - Taxpayer database updated and expanded.
  - Annual debt management report published on October 21, 2016.
  - Technical Committee for Treasury Planning reactivated.
  - Technical Committee established to monitor oil revenue; sharing of oil-related information improved. Government intends to regularly produce and publish a note to meet the structural benchmark.
- Financing and program requests:
  - Government requests:
    - i) an augmentation of access under the program in an amount equivalent to "24 percent of Chad’s quota (equivalent to SDR 33.64 million or CFAF 28 billion)";
    - ii) an extension of the arrangement until "end-November 2017" to conclude the sixth review and allow disbursement of the last installment;
    - iii) a rephasing of planned disbursements to allow access to "the equivalent of CFAF 36 billion in 2016, corresponding to the third and fourth Reviews, compared to the CFAF 26 billion originally programmed," with the remaining increase disbursed in 2017 after completion of the fifth and sixth reviews.
- Commitments:
  - Government undertakes to implement policies and measures in the MEFP and will consult with IMF staff on additional measures per Fund policies.
  - Authorization for IMF to publish the Letter of Intent, MEFP, TMU, and IMF staff report on completion of program reviews by the IMF Executive Board.

### MEFP — Introduction and Identified Shocks (Attachment I)
- Purpose: "This Memorandum of Economic and Financial Policies (MEFP) is an update of and a supplement to that of November 2015 (corresponding to the Second Review of the program supported by the Extended Credit Facility)."
- Government implementing an emergency economic program to address three major shocks:
  - Oil price shock: price declined further in second half of 2015 and early 2016; volume of production slightly declined in 2016 after CNPC exports began in 2015, undermining 2016 oil budget revenues.
  - Security situation: troop deployments and military activities (including against Boko-Haram and Islamic State) placing significant burden on public finances and disrupting economic activity and cross-border trade.
  - Refugee situation: hosting "at least 750 000 refugees, displaced persons, and returnees," entailing fiscal costs through support to land, basic community services, and settlements.

*Sources: Chadian authorities; and IMF staff.*

### 3.      Chad is facing a deteriorating economic situation, with a contraction of economic

### _cr16364 - 3.      Chad is facing a deteriorating economic situation, with a contraction of economic

### Economic developments and outlook
- Economic activity contracted and a contraction of economic activity of at least 3 percent is expected in 2016.
- Oil sector:
  - Oil companies have drastically reduced their investments to reduce their costs.
  - Oil budgetary revenue revised in June from CFAFA 250 billion to CFAF 116 Billion, with subsequent revised estimates suggesting oil budgetary revenue will only reach CFAF 25 billion for the whole year (10 percent of the amount initially envisaged).
  - In 2014 the Government contracted an oil-collateralized loan of US$1.35 billion (13 percent of GDP) with Glencore to finance SHT purchase of Chevron’s 25 percent shares in the Esso Consortium. Servicing of this loan absorbs a large share of government oil revenue (more than half of the value of oil shipments deducted for debt service since the beginning of the year; up to 50 percent of oil royalties used by June 30, 2016 and 70 percent thereafter).
- Non-oil sector:
  - Private sector companies depend heavily on public procurement; activity is negatively affected by the budgetary context.
  - Agriculture saw positive developments thanks to a season of favorable rainfall, but this was insufficient to generate positive overall growth in the non-oil sector.
  - Non-oil (tax and customs) revenue for 2016 is expected to reach CFAF 415 billion (under the CFAF 470 billion originally projected).
- Inflation and prices:
  - The weakness in economic activity led to an overall decline in prices in 2016.

### Fiscal situation and cash management
- Government liquidity and budget execution:
  - The Government moved to cash-based execution of the budget since early 2016.
  - An emergency economic action plan (16 measures) was enacted after the Government appointed on August 14; the plan aimed to curtail spending and balance cuts across agencies.
  - Despite cash-based execution, some domestic payment arrears accumulated and delays in the payment of salaries have been experienced.
- Prioritization of spending in a constrained fiscal context:
  - Prioritized: essential security spending, wage payment, debt service, and antipoverty social spending.
- Fiscal adjustment and program performance (end-December 2015 and end-June 2016):
  - Non-oil primary fiscal deficit (NOPD) results:
    - NOPD stood at CFAF 504 billion in 2015 versus the program quantitative performance criterion (QPC) of CFAF 511 billion.
    - NOPD in the first half of 2016 was CFAF 87,8billion, compared to the QPC of CFAF 314 billion.
  - Poverty-reducing social spending:
    - 2015: CFAF 260.4 billion against a floor of CFAF 243 billion.
    - First half of 2016: CFAF 102 billion, representing 36.2 percent of domestically financed primary expenditure compared to 27.9 percent in 2015 (an increase of more than 8 percentage points). The nominal value was below the CFAF 110 billion floor but the PC was met with the agreed adjustor.
  - External payment arrears:
    - The zero ceiling on accumulation of new external payment arrears was missed in June 2016 due to minor arrears to the World Bank and the African Development Bank amounting to US$1.1 million; these arrears were cleared shortly thereafter. A waiver is requested.
  - New non-concessional external debt:
    - The zero ceiling on contracting new non-concessional external debt was met for both test dates.
  - Net domestic government financing:
    - Ceilings observed for both test dates.
  - Domestic payment arrears:
    - Zero limit on change in stock of domestic payment arrears missed by a large margin in December 2015 and marginally in June 2016.
    - New payment arrears accumulated in 2015: CFAF 148 billion (3 percent of non-oil GDP), resulting in a stock of CFAF 199.8 billion at end-2015.
    - At end-June 2016 the stock of domestic arrears stood at CFAF 204.2 billion.
    - Government requests a waiver for nonobservance of this PC and has put in place a comprehensive strategy to clear arrears and strengthen internal controls.

### Structural reforms and institutional measures
- Use of extraordinary budget procedures (DAO – Expenditure before authorization):
  - Domestically financed expenditures executed using DAO were limited to CFAF 47.3 billion, i.e., 8.7 percent of total domestically financed expenditures, below the 9 percent ceiling set for end-December 2015.
  - The use of ordinary budget procedures declined in 2016, rendering the structural benchmark on the use of emergency budget procedures for end-2016 unmet.
- Taxpayer database and enterprise census:
  - First census of enterprises identified 30,761 physical units: 85.4 percent small enterprises, 11.4 percent medium-sized enterprises, 0.5 percent large enterprises, 2.7 percent not classified.
  - Directorate General of Taxation identified 452 large enterprises (up from 429) and about 1,500 small and medium-sized enterprises (up from 1,425), an increase of 23 large taxpayers and 75 small and medium taxpayers.
- Debt management reporting and treasury planning:
  - Publication of an annual debt management report (benchmark for end-June 2016) was done on October 21, 2016.
  - Technical Committee for Treasury Planning (created in 2012) has been reactivated; minutes of several meetings provided to the IMF. Cash management plans are updated regularly and used by the General Directorate of the Treasury.
- Oil revenue monitoring:
  - Decree setting up a Technical Committee to monitor oil revenue was signed on September 14, 2016 (Decree n o 106/PR/PM/MFB/MPE/2016). The Committee includes units from the Ministry of Finance and Budget and the Ministry of Oil and Energy.
  - Improved integration of oil revenue parameters into the Revised Budget for 2016 and the Initial Budget for 2017; Government intends to regularly produce and publish a note with this information.

### Measures to close the 2016 financing gap
- Drivers of the financing gap:
  - Lower than anticipated oil and non-oil revenue and non-materialization of expected exceptional receipts from sale of a government oil asset (anticipated CFAF 300 billion).
- Budget revisions and emergency measures:
  - First revised 2016 budget (LFR1) adopted in June 2016; second revised 2016 budget (LFR2) submitted to the National Assembly on October 12, 2016.
  - LFR2 excludes exceptional proceeds from the asset sale.
  - LFR2 cuts relative to 2015 levels:
    - Wages and salaries: 0.7 percent cut.
    - Transfers and subsidies: 52 percent cut.
    - Domestically financed investments: 78 percent cut.
  - LFR1 included a CFAF 109 billion reduction in domestically financed investments (equivalent to 2 percent of non-oil GDP).
  - Emergency action plan measures include cuts in allowances, suppression of scholarships, restructuring of public agencies, and reductions in staffing size including in the presidency.
- Financing package and expected disbursements:
  - Domestic public securities: Government expected to raise up to CFAF 240 billion in domestic public securities in 2016 (including CFAF 65 billion issuance as part of the comprehensive arrears-clearance strategy).
  - Exceptional bilateral loan from Cameroon: CFAF 30 billion.
  - Donor commitments for grant budget support: at least CFAF 85 billion committed (in addition to CFAF 25 billion committed in 2015 but disbursed in 2016). By mid-October 2016 only CFAF 22 billion had been disbursed (African Development Bank).
  - Government expects remainder of committed grants from other donors to be disbursed in 2016 after completion of the Third and Fourth Reviews.
- IMF program access request:
  - Government requests augmentation of access under the ECF-supported program equivalent to an additional 24 percent of its quota (equivalent to SDR 33.64 million or CFAF 28 billion).
  - Request for extension of the arrangement until end-November 2017 and rephasing of planned disbursements.
  - This would allow access to the equivalent of CFAF 36 billion in 2016 (sum of SDR 34.14 million and SDR 10.27 million associated with the third and fourth reviews respectively) compared to the CFAF 26 billion originally programmed for the Third and Fourth reviews.
  - Remaining increase in access to be disbursed in 2017 (for a total of SDR 20.54 million and 21.32 million for the fifth and sixth reviews respectively).

### 2017 budget stance and medium-term framework
- Macroeconomic assumptions and outlook:
  - Fiscal situation expected to remain difficult in 2017 and the medium-term.
  - Non-oil GDP is expected to begin its rebound in 2018.
  - Oil budgetary revenue will continue to be modest into the medium term because of low oil prices and the large debt service associated with the Glencore loan (despite projected increases in production volume).
- 2017 draft budget strategy:
  - Draft 2017 budget based on conservative revenue assumptions and a very tight spending envelope to ensure full financing.
  - Non-oil primary deficit planned to remain broadly similar to the level expected in 2016 (3.6 percent of non-oil GDP).
  - Government will continue cash-basis budget execution to avoid accumulation of arrears.
- Debt management and use of potential additional resources:
  - Government will explore options to mitigate the budgetary burden of repaying the Glencore loan, while remaining committed to service the debt. A debt management operation is contemplated to align loan burden with oil price developments.
  - Government will consult with the IMF on the use of oil revenues above the conservative amount assumed in the draft 2017 budget and on any exceptional receipts (including possible proceeds from the planned sale of the 10 percent stake in four oil fields). Options for additional resources include loosening the spending envelope, clearing verified arrears, and financing infrastructure projects. Decisions to be made after consultation with the IMF.

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

### 23.      The Government will continue to refrain from contracting new non-concessional

### _cr16364 - 23.      The Government will continue to refrain from contracting new non-concessional

### External borrowing policy
- The Government will continue to refrain from contracting new non-concessional external borrowing.
- All external financing agreements must have at least 35 percent grant element and be consistent with debt sustainability.
- All loan agreements will be submitted for prior approval to the National Commission for Debt Analysis (CONAD), which decides following the technical and financial analysis of the Technical Team for Debt Sustainability Analysis (ETAVID).

### Fiscal outlook and spending envelope
- The spending envelope could be relaxed progressively starting in 2018 depending on the availability of budgetary resources and financing to ensure that the economic recovery remains on a sustainable path.
- For 2018, oil revenues are expected to start recovering which would help modestly increase the spending envelope.
- From 2019 onward, both non-oil and oil revenue would rebound to healthy levels (in part due to a significant increase in oil production according to oil company projections).
- Projected fiscal trajectory:
  - Non-oil primary deficit of around 4 percent in 2019 and 2020.
  - Non-oil primary deficit of 5 percent thereafter.
  - Gradual increase in domestic investment spending to 4.5 percent of non-oil GDP by 2022.

### Domestic arrears settlement strategy
- Government commitment:
  - Implement a global strategy to clear existing arrears and avoid their reoccurrence.
- 2016 operation:
  - Launched an operation in 2016 to clear CFAF 65 billion out of the stock of recognized arrears.
  - Transaction financed by two bond issuances in late March 2016; proceeds transferred to a domestic commercial bank.
  - On a voluntary basis, verified claimants would be paid back 93 percent of their claims (with the remaining 7 percent retained by the bank as a management fee).
  - By mid-September 2016, CFAF 51 billion of domestic arrears were already cleared.
  - This operation is expected to be finalized by the end of the year.
- Arrears assessment and audit:
  - An FAD technical assistance (TA) mission on managing and preventing domestic payment arrears took place on September 15-28, 2016.
  - The TA mission estimates the potential size of the arrears at around CFAF 536 billion, which includes the arrears recognized by the Treasury (CFAF 204 billion).
  - Government intends to launch an independent external audit to identify and assess existing arrears.
  - Terms of Reference (ToR) for recruitment of an international firm to conduct the audit will be in line with the FAD Report recommendations and will be finalized before the end of this year (Structural benchmark).
  - The Government will seek donor support to finance the audit and later to clear the arrears; an international tender will be launched once financial support is available.
- Clearance modalities and principles:
  - Clearance will continue at a pace consistent with the medium-term fiscal framework.
  - Strategy will depend on size, nature and composition of identified arrears and may include:
    - Cash payments with or without discounts, at once or spread over time.
    - Payments through securitization with varying maturities.
  - Clearance of arrears should not be at the expense of funding normal execution of the budget.
  - The Government will consult the IMF when designing the clearance strategy.
- Use of exceptional receipts:
  - Pending audit results, the Government may consider using additional funding or revenue beyond those planned in the budget to help clear arrears.
  - In case of materialization of exceptional receipts (linked to sale of an oil asset or resolution of a tax dispute with an oil company), the Government will consult the IMF on the use of proceeds.
- Measures to prevent new arrears:
  - Government will take stock of weaknesses identified by the FAD TA mission in budget preparation (notably revenue forecasting and public investment budgeting), budget execution and cash management.
  - Measures will be implemented within the structural reform agenda based on recent technical assistance reports on public finance management.

### Structural reforms (overview and key measures)
- Overall focus:
  - Continue reforms committed under the current program and diversify the economy.
  - Administrative reforms, including strengthening transparency in the oil sector, guided by the 2005 Action Plan for the Modernization of Public Finance (PAMFIP).
  - Diversification strategy guided by forthcoming 5-year National Development Plan (NDP).
  - Continue collaboration with development partners and implementation of actions agreed under joint World Bank, African Development Bank, and European Union roadmap initiated in 2015.
- Oil sector transparency and forecasting:
  - Technical committee created to facilitate sharing of information related to oil revenue.
  - Committee to prepare and publish an oil sector note including:
    - Production trends, exported cargoes (shipments), shipments schedule, discount of Chadian crude oil (Doba Blend) relative to Brent price, oil revenues and detailed breakdown, and financial flows relating to SHT influencing final revenue level (cash-call pay to the ESSO consortium and any future participations, transportation costs, and debt-service of the Glencore loan).
  - Government will seek IMF support to develop a template for the oil note and agrees to transmit any other oil sector information requested by the IMF.
  - Template to be updated on a monthly basis; committee will publish the first oil note by end 2016, and on a quarterly basis thereafter.
  - Government committed to remain compliant with EITI requirements and facilitate EITI National Committee to publish reports for 2014 and 2015.
- Expenditure chain improvements:
  - Reduce use of emergency spending procedures (DAO):
    - Commit to limit use of DAOs (excluding salaries, debt servicing, expenses of the Independent National Electoral Commission, and military spending) to less than 15 percent of domestically financed expenditures in the first half of 2017 (structural benchmark).
    - Note: This target is higher than previous ones and reflects large compression in spending categories typically executed through ordinary procedures.
  - Move to medium-term program budgeting by 2022:
    - With World Bank technical assistance, tools for budget orientation debate developed, medium-term expenditure framework and medium-term budgetary framework consolidated, and preparation for program budget for 2017 in five pilot ministries underway.
    - Acquisition of a new information system to display budgetary and accounting information in real time.
    - After process, Government will publish a table with functional category of expenditure in accordance with new information system on Ministry of Finance and Budget website.
  - Civil service payroll and SIGASPE:
    - SIGASPE software used for payment of civil servants’ salaries is now fully operational.
    - Ensures control of wage bill and number of civil servants and continues to generate savings beyond initial projections following discovery of ghost workers.
    - By mid-2016, more than 80 percent of civil servants were paid via bank transfer.
    - Ministry launched an accounting and organizational audit of civil servants’ payment in October (technically and financially supported by the European Union).
    - Based on audit results, Government will adopt a detailed action plan for reforming the payroll of civil service by end-June 2017 (structural benchmark).
- Cash flow management system:
  - Draw from conclusions of IMF Fiscal Affairs Department TA report at end 2015.
  - Creation of a single treasury account remains a medium-term objective; ongoing efforts to identify all bank accounts of the State and public entities (over 350 at end-2014) will continue.
  - Directorate General of Treasury and Public Accounting (DGTCP) expected to track amounts deposited in each account.
  - Progress made towards operationalizing the Cash Plan Committee under DGTCP; focus on strengthening responsiveness to update revenue and expenditure forecasts.
  - Treasury Unit issuing Treasury bills and bonds on the CEMAC regional market is taking actions to ensure better programming and visibility of issuances, strengthen primary dealer network (SVT increased from seven to eight banks in 2016), and improve dialogue with primary dealers.
- Public debt management:
  - Strengthening public debt recording and monitoring capacity remains an important objective.
  - Government intends to draw on AFRITAC Center technical assistance findings to develop a medium-term debt strategy.
- Enhancing non-oil tax revenues:
  - Improve functioning of tax administration and expand tax base.
  - Priority measures:
    - Strengthen management of large enterprises; action plan to stabilize the integrated tax management system (SIGI) will be developed.
    - Complete segmentation of enterprises based on INSEED census and strengthen monitoring of compliance for large enterprises.
    - Better monitoring and control of customs duty exemptions:
      - Program new codification of customs exemptions in SYDONIA (ASYCUDA) software as soon as possible.
      - Begin producing detailed monthly reports on exemptions.
      - Extend payment of duties and taxes at a bank counter to all customs offices.
      - Computerize recording of goods at Nguéli as soon as possible.
      - SYDONIA module for monitoring goods kept in bonded warehouses expected by end-2016.
- Tax policy reforms:
  - Rely on IMF TA recommendations on taxation.
  - Organize a national workshop on tax and customs exemptions in January 2017 to prepare reforms and begin elimination of unjustified exemptions in the 2018 budget law.
  - Reform of VAT given priority; single rate maintained but broadening tax base by reducing extensive exemptions contained in many ad hoc agreements.
  - An audit of exemptions, financed by the European Union, launched in October 2016 to form basis for identifying specific reform measures.
- Public procurement:
  - Continue to pursue improvements in public procurement procedures.
  - New public procurement code adopted by Council of Ministers on September 11, 2015.
  - Government reaffirms commitment to continue reducing award of public contracts by mutual agreement.
- Economic diversification and business climate:
  - Reforms to improve business climate for private sector activity are essential for growth and job creation, particularly for youth and women.
  - New NDP under review will elaborate diversification strategy with four strategic axes:
    - (i) strengthen national unity;
    - (ii) improve governance under the rule of law;
    - (iii) diversification of the economy and improvement of competitiveness;
    - (iv) ensure a better quality of life to the population (social protection).
  - Final draft of NDP was discussed in a workshop on October 6-7, 2016 and will be submitted to the Cabinet for adoption before being transmitted to the National Assembly by end November 2016 (Structural benchmark).
  - In January 2017, Government will organize a round table in Paris with technical and financial partners to mobilize financing for key NDP priorities.

### Monitoring implementation of the program
- Institutional arrangements:
  - Implementation monitoring will rely on the Negotiation Committee based in the Ministry of Finance and Budget, in constant communication with IMF staff in Washington and the Resident Representative in Chad.
- Review schedule:
  - Program will undergo bi–annual reviews by the IMF Executive Board on the basis of monitoring indicators and structural benchmarks.
  - Fifth program review based on performance criteria as of end-December 2016 and should be completed on or after February 15, 2017.
  - Sixth and last review based on performance criteria as of end-June 2017 and should be completed on or after August 15, 2017.
- Policy commitments during program period:
  - Government undertakes not to introduce or step up restrictions on payments and transfers for current international transactions, nor introduce multiple currency practices, sign bilateral payment agreements inconsistent with Article VIII of the IMF Articles of Agreement, or impose or tighten import restrictions to ensure balance of payments equilibrium.
  - Government undertakes to adopt, in consultation with IMF staff, any new financial or structural measures necessary for program success.

### Key quantitative targets and indicators (selected figures as presented)
- Floor on non-oil primary budget balance:
  - End-Dec 2016 QPC: (437)
  - End-March 2017 IT: (196)
  - End-June 2017 QPC: (57)
  - (additional listed value) (105)
- Ceiling on net domestic government financing:
  - End-Dec 2016 QPC: 345
  - End-March 2017 IT: 213
  - End-June 2017 QPC: 25
  - (additional listed value) 40
- Ceiling on accumulation of domestic payment arrears by the government:
  - 0 (end-Dec 2016 QPC)
  - 0 (End-March 2017 IT)
  - 0 (End-June 2017 QPC)
  - 0 (additional listed value)
- Ceiling on accumulation of new external payment arrears by the government or non-financial public enterprises:
  - 0 (applies continuously)
- Floor for poverty-reducing social spending:
  - End-Dec 2016 QPC: 183
  - End-March 2017 IT: 191
  - End-June 2017 QPC: 32
  - (additional listed value) 80
- Memo items:
  - Oil revenue: 175 (End-Dec 2016 QPC); 25 (End-March 2017 IT); 8 (End-June 2017 QPC); 20 (additional listed value)
  - Concessional borrowing: 40 (End-Dec 2016 QPC); 60 (End-March 2017 IT); 20 (End-June 2017 QPC); 40 (additional listed value)
- Quantitative commitment on new non-concessional external debt:
  - Ceiling on contracting or guaranteeing of new non-concessional external debt by the government and non-financial public enterprises, but for ordinary external trade financing of at most one-year maturity (US$ million) — specific ceiling values table referenced in source.

*Source: IMF staff and Chadian authorities (excerpts from the October 27, 2016 Letter of Intent and MEFP as presented in the provided document).*

### 3.      Unless otherwise indicated, the term government refers to the central government of the

### 3.      Unless otherwise indicated, the term government refers to the central government of the

### Definitions and scope
- Government: the central government of the Republic of Chad comprising all the executive bodies, institutions and any structure receiving special public funds and whose competence is included in the definition of Central Administration as defined in the Government Finance Statistics Manual of 2001 (GFSM 2001), paragraphs 2.48–50.
- Non–financial public enterprise: a government–owned industrial or commercial unit which is incorporated or sells goods and services to the public on a large scale. For Chad within the program, this definition includes: Société Tchadienne des Eaux (STE), Société Nationale d’Electricité (SNE), Société Tchadienne des Postes et de l’Epargne (STPE), Cotontchad Société Nouvelle (SN), Société des Hydrocarbures du Tchad (SHT), TOUMAÎ Air Tchad, Nouvelle Société Tchadienne des Textiles (NSTT), Cimenterie de Baore (SONACIM).
- Gross oil revenue: the sum of royalties, statistical fees, profit tax, dividends, bonuses, revenues from exploration duties, surface tax, and any other flows of revenue paid by oil companies, except indirect duty and taxes.
- Oil revenue: Gross oil revenue minus the debt service (interest payments, amortization and fees) on oil sales advances, and minus the payment of cash calls and transportation costs linked to the SHT participation in oil companies. Oil revenue is recorded on a cash basis. Exceptional oil–related revenue is excluded from oil revenue.
- Exceptional receipts: (a) exceptional oil–related receipts — resources from resolution of disputes between oil companies and the Government, or from sale by the Government of one of its oil sector assets; and (b) other exceptional receipts — including transfers from the UN linked to Chad’s participation in the fight against terrorism (in Mali and the countries around Lake Chad).

### Revenue and expenditure concepts
- Total government revenue: tax and non–tax revenue or other revenue (as defined in GFSM 2001, Chapter 5) recorded on a cash basis. Proceeds from taxation on contracts, asset sales, receipts from privatization or from granting or renewal of licenses, placement proceeds on Government assets and grants are not considered Government revenue for the purposes of the ECF arrangement. Oil revenue should be shown separately in the breakdown of total government revenue.
- Total government expenditure: sum of expenditure on wages and salaries, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and capital expenditure. All categories recorded on a commitment basis unless otherwise stated. Capital expenditure defined as in GFSM 1986; other spending items defined as in GFSM 2001 (paragraphs 6.1–6.88). Includes dépenses avant ordonnancement (DAO) and not yet regularized expenditures.
- Wages and salaries: compensation of government employees as described in GFSM 2001 paragraphs 6.8–6.18 — all employees (permanent and temporary), including civil servants and members of the armed and security forces. Compensation = wages and salaries + allowances + bonuses + pension fund contributions on behalf of civil servants + any other form of monetary or non–monetary payment.

### Debt, arrears, and concessionality
- Debt: as defined in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), December 5, 2014), and including contracted or guaranteed commitments for which values have not been received. Debt = a current liability created under a contractual arrangement through provision of value (assets or services) requiring future payments in assets or services to discharge principal and/or interest.
- Forms of debt include:
  - loans (deposits, bonds, debentures, commercial loans, buyers’ credits; repurchase agreements and official swap arrangements);
  - suppliers’ credits (deferred payments after delivery);
  - lease agreements (debt = present value at inception of all lease payments expected under the agreement, except payments for operation, repair, and maintenance).
- Penalties and judicially awarded damages arising from failure to pay under a contractual obligation that constitutes debt are also debt.
- Arrears (except “payment arrears on expenditures” below): any debt obligation not amortized in conformity with contract conditions.
  - Domestic payment arrears = validated payment arrears on expenditure + payment arrears on domestic debt.
    - Payment arrears on expenditures: payment orders created by the Direction of “Ordonnancement” but not paid 90 days after authorization to pay given by the Treasury. These are part of “balance payable” (amounts due). Balance payable = government unpaid financial obligations including domestic floating debt besides expenditure arrears. As of end June 2016, the expenditure arrears stock stood at CFAF 204 billion (does not include unrecognized expenditure arrears defined immediately below).
    - Unrecognized expenditure arrears: any additional arrears on expenditure incurred on or before end of June 2016, which have not been validated.
    - Payment arrears on domestic debt: difference between the amount required to be paid under the contract and the amount actually paid after the payment deadline specified in the pertinent contract.
  - External payment arrears: difference between amounts required to be paid under the contract and the amount actually paid after the payment deadline, including any grace period, specified in the pertinent contract.
- Loan concessionality: debt is concessional if it includes a grant element of at least 35 percent. The grant element = (nominal value − present value) expressed as percent of nominal value. Present value calculated by discounting debt service payments at contracting date. Discount rate used = 5 percent. The calculation takes into account maturity, grace period, schedule, commitment and management fees commissions.

### Fiscal and program indicators
- Non–oil primary balance (NOPB): total government revenue − grants − oil revenue − exceptional oil–related revenue − total government expenditure, and excluding interest payments on domestic and external debt and foreign–financed capital expenditure. The fiscal program is hinged on the NOPB.
- Poverty–reducing social spending: public spending on National Education (primary and secondary education), health, community–organized development, water and sanitation, micro finance, and agriculture and rural development (support for farmers and cattle breeders).
- Domestic government financing: issuance of any instrument in CFAF to internal creditors or on the CEMAC financial markets; loans from BEAC (including support from the IMF), BDEAC, and CEMAC Member States, or any other debt contracted from those creditors.
  - Net domestic financing subdivided into net bank financing and non-bank net financing.
  - Net bank financing: change in the net government position towards the banking system (BEAC and commercial banks), including the refund to the IMF, since the end of the previous year.
  - Net non-bank financing: issuance of government bonds and loans within CEMAC (including BDEAC and CEMAC Member States) net of related amortizations since end of the previous year.
- External debt (for assessment criteria): debt borrowed or serviced in a currency other than the CFA franc.
- Exceptional security spending: outlays committed by the State to face security crises.

### Quantitative targets (as specified)
- A floor for the non–oil primary balance (NOPB) as defined above.
- A ceiling on the net domestic financing to the government (as defined above). This ceiling does not apply to the new agreements on internal debts restructuring and arrears securitization.
- A zero ceiling for the change in stock of domestic arrears by the government from end-June 2014. Domestic arrears = validated payment arrears on expenditure + payment arrears on domestic debt. Measured as changes in stock.
- A zero ceiling for the accumulation of any new external payment arrears by the government or non-financial public enterprises, regardless of repayment of old arrears. This ceiling applies continuously.
- A zero ceiling for new non-concessional external debt contracted or guaranteed by the government and non–financial public enterprises with maturity > one year. Debt is non-concessional if grant element < 35 percent (see Loan concessionality). Exclusions: (i) normal short–term credits for imports; (ii) debt contracted before the ECF arrangement and rescheduled during this arrangement to the extent rescheduling is on more favorable terms than existing debt and up to the amount of actually rescheduled debt. This ceiling will be evaluated continuously.
- A floor on poverty–reducing social spending (defined above).

### Adjusters of quantitative targets (2016 and 2017)
- Poverty-reducing social spending can be adjusted if additional expenditure compressions are needed, provided it is reduced proportionately less than other domestically financed primary spending so its ratio increases compared to the previous year.
- If external budgetary grants received are temporarily delayed, the ceiling on net domestic financing will be adjusted upward by 100 percent of the grant shortfall. A grant is temporarily delayed if payment takes place later in the fiscal year or up to two months after the fiscal year during which it is programmed.
- If total of oil revenue, grants, exceptional receipts, and receipts from privatization is greater/less than programmed, adjustments:
  - The floor for the NOPB can be adjusted downward/upward in response to excess/shortfall in oil revenue, grants, plus exceptional and privatization receipts. Magnitude of adjustment proportional to the cumulative excess/shortfall as follows: 50 percent for the last quarter of 2016, 50 percent for the first quarter of 2017, and 75 percent for the remainder of 2017.
  - The ceiling on net domestic financing can be adjusted downward/upward by the remainder of the excess/shortfall in oil revenue, grants, plus exceptional and privatization receipts.
- Specific current expenditure for support of refugees and/or “retournés” from neighboring countries financed by donations from external technical and financial partners will be excluded from the calculation of the NOPB for compliance with program targets.

### Structural benchmarks and DAO limit
- Structural benchmarks are specified in Table 2 of the MEFP.
- Limit on DAOs: use of DAO limited to a maximum of 15 percent of total domestically–financed expenditure in the first half of 2017. This applies to domestically–financed spending excluding wages, debt service, expenditures of the Independent National Electoral Commission, and military spending.

### Summary of data to be reported (selection of items and periodicity)
- Oil and Non–oil revenue, by category; collection situation; revenue position of revenue–collecting agencies — Ministry of Finance and Budget (Treasury): Monthly, within 30 days of month–end.
- Budget execution data, including on poverty–reducing social spending, showing commitments, payment authorizations, validations, and payments — Ministry of Finance and Budget (General Budget Directorate, DGB): Monthly, within 15 days after month–end.
- Table of expenditure before payment authorization; TOFE, on a cash basis; comparative table on budget execution, consolidated balance tables; consolidated Treasury balance — Ministry of Finance and Budget (DGB, DGTCP): Monthly, within 30 days of month–end.
- Details by project financed domestically, execution of the investment budget, information organized by Ministry — Ministry of Finance and Budget (General Budget Directorate): Quarterly, within 30 days of end of the quarter.
- Details, by externally financed project; investment budget execution organized by Ministry — Ministry of Finance and Budget (DGB); Ministry of Plan and International Cooperation (DGCI): Quarterly, within 30 days of end of the quarter.
- Details on servicing of domestic debt and payment arrears of the government (including maturities) — Ministry of Finance and Budget (Debt Directorate, DCP): Quarterly, within 30 days of end of the quarter.
- Details on servicing of external debt of the government (including breakdown by currency and maturity) — Ministry of Finance and Budget (DGTCP Debt Directorate): Quarterly, within 30 days of end of the quarter.
- Details on new loans contracted or guaranteed by the government and non financial public companies — Ministry of Finance and Budget (Debt Directorate); Ministry of Plan and International Cooperation (DGCI): Within 45 days of transaction completion.
- Monetary survey — BEAC: Monthly, within 45 days of month–end.
- Provisional monetary data from the BEAC (Exchange rates, foreign reserves, assets and liabilities of the monetary authorities, base money, broad money, central bank balance sheet, consolidated balance sheet of the banking system, interest rates): BEAC Monthly, within 45 days of month–end.
- Balance of SDR account at month end — BEAC NGP Committee: Monthly, within 3 months of month–end.
- Net banking system claims on the government (NGP) — BEAC: Monthly, within 30 days of month–end.
- Consumer price index — INSEED: Monthly, within 30 days of month–end.
- Gross domestic product and gross national product — Macroeconomic Framework Committee (SG MFB): Annually, within 120 days of year end.
- Balance of payments (External current account balance, exports and imports of goods and services, etc.) — BEAC: Annually, within 180 days of year end (preliminary data).
- Gross external debt — Ministry of Finance and Budget DGT (Debt Directorate): Annually, within 90 days of year end.

### Debt sustainability analysis (summary finding)
- The debt sustainability analysis shows that Chad remains at high risk of external debt distress, reflecting vulnerabilities concentrated in the next few years.
- Assessment of high risk is reinforced by vulnerabilities related to domestic debt.
- Two external debt indicators exhibit temporary and small breaches of their indicative thresholds, and a third indicator, the external debt service-to-revenue ratio, shows a relatively protracted and large breach. These breaches reflect low government oil revenue and high debt service payments on external debt falling due in the short term.
- Although debt indicators remain well below their indicative thresholds in the medium to long term, the DSA confirms susceptibility to external macroeconomic shocks such as the ongoing oil price shock.
- Preserving debt sustainability requires:
  - continued fiscal adjustment by the authorities;
  - prudent debt management policies, including a comprehensive strategy for domestic arrears clearance;
  - progress in economic diversification to strengthen debt sustainability.
- Chad’s average CPIA over 2013-15 is estimated at 2.7, corresponding to a weak policy performance under the Debt Sustainability Framework for Low-Income Countries (LIC-DSA).

*Prepared by the Staffs of the International Monetary Fund and the International Development Association. October 28, 2016*

### 1. The composition of Chad’s external public debt has changed significantly over the past

### 1. The composition of Chad’s external public debt has changed significantly over the past

### External public debt composition and recent evolution
- Debt owed to multilateral institutions and traditional bilateral donors has been basically constant in nominal terms over the last few years.
- Chad has relied more on non-Paris Club creditors (e.g., China, Libya, and India) and commercial credits to address its financing needs.
- There is no recorded external private debt in Chad.
- After stabilizing at around 20 percent, the external public debt-to-GDP ratio increased in 2013-14 following two non-concessional oil sales’ advance operations with a commercial creditor, Glencore Energy.
  - In 2013, authorities signed two agreements for a total of US$600 million with Glencore Energy to cover revenue shortfalls.
  - In 2014, a new commercial borrowing operation for US$ 1.4 billion was contracted by SHT (a state-owned oil company) to finance the purchase of Chevron’s shares in Chad’s largest oil consortium in June 2014.
  - After these operations, the external public debt-to-GDP ratio rose above 27 percent of GDP in 2014.
- 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 (the bulk of which was owed to non-Paris Club creditors).

### Glencore rescheduling and implications
- In late 2015, a rescheduling agreement with Glencore consolidated the two oil sales’ advance operations, extending their maturities.
- The rescheduling implied an increase in the original debt’s net present value, but extended its maturity from 4 to 6-7 years.
- Repaying the Glencore loan continues to have a significant effect on the flow of oil revenues to the budget.

### Debt relief and creditor treatment after HIPC completion point
- Following the achievement of the HIPC completion point in April 2015, Chad secured at least US$756 million in debt relief.
  - This amount includes MDRI relief from International Development Association (IDA) and African Development Bank (AfDB), forgiveness from the IMF, and a hundred percent cancellation from the Paris Club.
- For non-Paris Club members, authorities signed a new agreement with Saudi Arabia in July 2015 rescheduling their remaining amount on IDA comparable terms.
- As of end-2015, the Paris Club’s Official Development Assistance (ODA) claims on Chad had been fully canceled, while the stock of non-Official Development Assistance (NODA) claims was US$4 million.

### External debt stock (key figures and composition as of end-2014 / preliminary 2015)
- Total external debt stock (selected years shown in Text Table 1): 2014: 2,010.2 (Billions of CFA francs); 2015p: 1,616.1 (Billions of CFA francs).
- Total as percent of GDP (selected years): 2013: 22.7 percent; 2014: 27.0 percent; 2015p: 24.5 percent.
- Multilateral debt (selected): 2014: 734.8 (Billions of CFA francs); 2015p: 343.3 (Billions of CFA francs).
  - IMF: 2014: 11.1; 2015p: 38.3.
  - World Bank/IDA: 2014: 397.4; 2015p: 125.2.
  - African Development Fund/Bank: 2014: 180.7; 2015p: 56.8.
  - Others: 2014: 145.6; 2015p: 123.1.
- Bilateral debt (selected): 2014: 334.0 (Billions of CFA francs); 2015p: 258.3 (Billions of CFA francs).
  - Paris Club official debt: 2014: 11.5; 2015p: 2.1.
  - Non-Paris Club official debt: 2014: 322.5; 2015p: 256.1.
    - China, People's Republic: 2014: 129.0; 2015p: 78.3.
    - Libya: 2014: 148.5; 2015p: 148.5.
    - India: 2014: 21.1; 2015p: 26.9.
- Commercial debt (includes debt signed with CNPC and Glencore): 2014: 1,014.5 (Billions of CFA francs) [table partial series].

### Public domestic debt: size, composition, and arrears
- Stock of public domestic debt reached 9.9 percent of GDP at end-2014.
- Drivers of increase in domestic debt stock:
  - 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).
  - Increasing use of commercial bank loans (from CFAF 9 billion in 2013 to CFAF 127 billion in 2014).
- The stock of public domestic debt includes a balance of CFAF 52 billion in treasury arrears at end-December 2014.
- Short-term domestic obligations included issuance of 3-month Treasury bills before end-2014: CFAF 27.5 billion.
- Domestic debt rose to about 18 percent of GDP in 2015.
  - Treasury bills issuance in 2015: CFAF 156 billion (gross).
  - Treasury bonds issuance between July and December 2015: CFAF 139 billion; maturities of two, three and five years; effective interest rate on average of 4.3 percent.
  - Some Treasury bonds used in swap operations, explaining reduction in commercial bank loan stock from CFAF 127 billion in 2014 to CFAF 56 billion in 2015.
- Domestic financing in 2015 included additional advances from BEAC:
  - 2015 statutory advance: CFAF 92.6 billion.
  - 2015 extraordinary advance: CFAF 140 billion.
  - These advances have a maturity of 10 years, a grace period of 3 years, and an interest rate equivalent to BEAC’s rediscount rate.
- Government domestic payment arrears:
  - Balance of treasury arrears increased from CFAF 52 billion at end-December 2014 to around CFAF 200 billion (3.1 percent of GDP) in 2015.
  - The stock of verified domestic arrears stood at CFAF 204 billion at end-June 2016.

- Selected domestic debt stock figures (Text Table 2):
  - Total (Billions of CFA francs): 2011: 501.3; 2012: 548.0; 2013: 584.8; 2014: 686.4; 2015: 1129.8.
  - Percent of GDP: 2011: 8.7; 2012: 8.6; 2013: 9.1; 2014: 9.9; 2015: 17.5.
  - Central Bank financing: 2014: 222.5; 2015: 454.6.
    - Statutory advances: 2014: 187.8; 2015: 280.0.
    - Exceptional advance (2015): 140.0.
  - Commercial banks' loans: 2014: 127.3; 2015: 56.4.
  - Domestic arrears: 2014: 51.8; 2015: 199.8.

### DSA assumptions and macroeconomic projections
- DSA incorporates preliminary information on external debt for 2015 and revised projections of debt service.
- Baseline scenario is in line with the ECF-supported program and reflects:
  - Persistent oil price shock and security challenges.
  - Financing gap in 2015 covered through central bank advances, spending cuts, increased net domestic financing, and Fund disbursements under the ECF arrangement.
  - Projected financing gap in 2016 is larger; assumed to be financed through fiscal adjustment, additional domestic financing, grant budget support, external concessional loans, and Fund disbursements associated with the third and fourth reviews under the ECF arrangement.
  - 2015 rescheduling that consolidated various non-concessional oil sales’ advance operations is incorporated.
  - Exceptional receipts from divestments in the oil sector are excluded (in contrast to previous DSA update).
- Oil production and revenue assumptions:
  - Oil production expected to temporarily rise from 144,000 bpd in 2015 to about 171,000 bpd in 2018-19.
  - Proven reserves in new fields much smaller than original Doba basin and likely nearly exhausted around 2030; oil production and exports projected to decline steadily to negligible levels beyond 2030.
  - Chadian oil trades below the WEO reference price, reflecting a quality discount and transport cost of US$ 6-10 per barrel.
  - Medium-term (five-year horizon) Chadian oil price assumed to increase from about US$34 (all discounts included) in 2016 to about US$53 in 2020.
  - From 2021 onward, price assumed to increase on average by around 3 percent per year in U.S. dollar terms.
- Fiscal policy assumptions:
  - Substantial fiscal adjustment assumed, with a non-oil primary deficit (NOPD) of about 4 percent of non-oil GDP in the short and medium term.
  - Oil revenues expected to increase from 1 percent of non-oil GDP in 2016 to over 5 percent of non-oil GDP in 2020.
  - Over the longer term, total government primary spending is stabilized at around 20 percent of GDP; primary balance adjusted gradually to reach a small deficit of less than 2 percent of non-oil GDP by the end of projection horizon.
  - Long-term adjustments achieved mainly by: (i) gradually increasing non-oil revenues (from about 8 percent of non-oil GDP at present to about 16 percent of non-oil GDP by 2036); (ii) maintaining total investment outlays around 10 percent of non-oil GDP; and (iii) keeping recurrent spending relatively low through streamlining transfers and subsidies to public enterprises.
  - Analysis assumes a comprehensive strategy for clearing domestic arrears and avoiding further accumulation.
- Box 1 macroeconomic assumptions (selected):
  - Non-oil GDP growth projected at 4 percent per year over medium to long term.
  - Inflation assumed to stabilize at 3 percent.
  - Current account deficit projected to fall from 7.5 percent of GDP in 2016 to about 6.3 percent of GDP in 2020, stabilizing at around 4 percent of GDP beyond 2030.
  - FDI expected low short term; stabilize in 2018-20 at around 4 percent of GDP; decline to average of 2 percent of GDP in 2021-35.
  - External financing: 2015 rescheduling with Glencore incorporated; under ECF program external financing assumed concessional over medium to long term.
  - Domestic financing: assumptions consider continued but moderate placement of domestic debt instruments and exclude further utilization of BEAC advances; stock of domestic arrears expected to be gradually cleared to negligible levels in medium to long term.
  - In 2016, analysis incorporates a loan from Cameroon for CFAF 30 billion.

### Baseline DSA outcomes and risks
- Under baseline, external debt strategy envisions 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 mostly from multilaterals (46 percent) and other development partners, leading to a grant element average of 37.2 percent over the projection period.
- Under the baseline scenario, three of the external debt indicators are above their thresholds, indicating a high risk of debt distress.
  - PV of debt-to-revenue ratio and debt-service-to-exports ratio show temporary and small breaches of indicative thresholds.
  - Debt service-to-revenue ratio exhibits a more protracted and large breach in the 2016-2020 period, reflecting reduced government oil revenue and spike in debt service for the non-concessional 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 test results and vulnerabilities
- Stress tests show susceptibility of external debt to shocks, especially in next few years.
- If main economic variables remain at historical averages, only two indicators remain below their indicative thresholds.
- Bounds tests identify greatest vulnerability to:
  - An adverse shock to exports.
  - A scenario combining different macroeconomic shocks.
- A one-time depreciation shock (30 percent nominal depreciation in 2017) generates vulnerability in the debt service-to-revenue indicator.
- PV of debt-to-exports ratio particularly sensitive to poor export performance, showing a protracted breach under that stress test.

*Italic: IMF staff report content as provided in the source PDF.*

### 17. The recent increase in domestic debt has led to an increase in the risk to overall debt

### 17. The recent increase in domestic debt has led to an increase in the risk to overall debt

### Key findings on debt dynamics and projections
- Accumulation of domestic arrears and increased issuances of debt securities in the regional market contributed to higher risk to overall debt sustainability.
- The PV of debt-to-GDP ratio shows a breach in 2016-2017 under the baseline scenario.
- Domestic debt component projections:
  - 23 percent of GDP in 2016
  - 16 percent of GDP in 2020
  - about 6 percent of GDP in 2036
- Public debt stock projections:
  - about 47 percent of GDP in 2016
  - 29 percent of GDP in 2020
  - stabilizes around an average of 18 percent of GDP in 2022-36

### Stress test results and near-term risks
- Standard stress tests indicate sustainability risks in the next few years.
- 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).

### Conclusion and policy implications
- Chad remains at high risk of external debt distress with vulnerabilities concentrated in the next few years.
- Inclusion of Chad’s domestic debt in the analysis reinforces the conclusions of the external DSA.
- Drivers of near-term breaches: persistent decline in oil prices and the burden imposed by the repayment of the Glencore loan.
- Long-term outlook: over the long term all indicators are markedly below their thresholds, conditional on the baseline assumptions.
- Debt sustainability is conditional on the substantial fiscal adjustment assumed under the baseline projection.
- Potential upside scenario: in the event of a sustained rebound in the oil price and with improvements in the policy environment, the assessment of the debt sustainability could improve to moderate risk in the next few years.

### Recommended policy actions and institutional measures
- Strengthen fiscal and debt management.
- Maintain a prudent external and domestic borrowing policy.
- Make further progress in diversifying the economy, given exhaustible and volatile oil revenues.
- Ensure effective functioning of inter-ministerial debt coordination units to strengthen capacity to record and monitor public debt.
- Continue issuance of annual debt management reports (with support from Fund TA missions).
- Undertake institutional improvements in the management of domestic payment arrears in line with Fund TA recommendations.

*INTERNATIONAL MONETARY FUND — CHAD*

### 20. The authorities broadly concur with the staff assessment. The authorities acknowledge

### _cr16364 - 20. The authorities broadly concur with the staff assessment. The authorities acknowledge

### Authorities’ position and requests
- The authorities "broadly concur with the staff assessment."
- They acknowledge the risks associated with debt sustainability and identify the Glencore loan as an important factor behind the external risk rating.
- They acknowledge the importance of technical assistance in current efforts to improve debt management.
- They have renewed their commitment to improve the business climate for private sector activity beyond the oil sector.
- The authorities are determined to implement a comprehensive strategy to clear existing arrears and avoid their reoccurrence.
- The authorities request the completion of the third and fourth reviews under the ECF arrangement and the granting of related waivers, an augmentation of access under the program, the extension of the arrangement, and the rephrasing of disbursements.

### Recent developments and macro-fiscal impact
- The sharp decline in oil prices since 2014 and deterioration of the security situation in the second half of 2015 have significantly impacted Chad’s economic and financial prospects.
- The country is harboring more than 750,000 refugees from neighboring countries due to security challenges.
- Public finances have been under extreme pressure because of these shocks, increasing vulnerabilities in the private and financial sectors.
- Oil revenue is projected to be 80 percent lower in 2016 compared to 2015, due notably to lower price and production; expected sale of oil assets has been delayed.
- Non-oil revenue has underperformed due to depressed domestic activity and lower exports, leading to significant financial constraints.
- Authorities moved to a cash-based budget execution and adopted a first revision of the 2016 budget in June.

### Debt sustainability and stress-test findings
- Staff and authorities identify debt sustainability risks driven in part by the Glencore loan and elevated external debt indicators.
- Selected baseline trajectories and stress-test results (2016–2036) from the DSA:
  - PV of external debt (Billions of U.S. dollars): ......23.222.318.915.912.910.89.37.96.9
  - PV of PPG external debt (in percent of exports): ......87.394.673.755.240.534.630.134.043.4
  - PV of PPG external debt (in percent of government revenues): ......245.3215.7185.1136.5104.682.660.255.943.0
  - PPG debt service-to-exports ratio (in percent): 3.915.69.517.213.911.18.77.97.13.04.2
  - PPG debt service-to-revenue ratio (in percent): 7.129.826.839.234.927.522.518.914.25.04.2
- Figure summary notes:
  - The most extreme stress test is defined as "the test that yields the highest ratio on or before 2026."
  - Specific shocks identified across figures include Combination shock, Exports shock, and One-time depreciation shock, with corresponding worst-case indicators highlighted for 2016–2036.
- Key macroeconomic assumptions used in projections (selected):
  - Real GDP growth (in percent): 5.77.31.84.84.1-3.5-0.34.76.33.93.42.42.93.33.0
  - GDP deflator in US dollar terms (change in percent): -1.00.8-23.21.113.0-2.710.02.14.83.71.83.32.92.92.6
  - Effective interest rate (percent): 3.33.63.32.11.24.74.33.83.42.92.33.61.31.21.3
  - Grant element of new public sector borrowing (in percent): ...............37.337.236.736.836.936.937.037.337.937.4
  - Government revenues (excluding grants, in percent of GDP): 18.516.59.410.310.211.712.313.115.514.116.115.1

### Policy and operational priorities highlighted
- Strengthen debt management with technical assistance support to address debt sustainability risks.
- Implement a comprehensive arrears-clearance strategy and measures to prevent arrears reoccurrence.
- Continue fiscal consolidation and cash-based budget execution to control expenditures given revenue shortfalls.
- Renewed focus on diversifying the economy and improving the business climate for private sector activity beyond oil.
- Seek orderly mobilization of external financing, including concessional and grant-equivalent financing, while managing new borrowing terms to limit additional risk.

*Source: Statement and DSA content provided in the cited IMF country documentation.*

### 2016. As liquidity constraints grew and given the lack of available external financing, my

### _cr16364 - 2016. As liquidity constraints grew and given the lack of available external financing, my

### Emergency action plan and fiscal adjustment
- Adopted an emergency action plan in August 2016 consisting of 16 drastic measures, prioritizing measures with immediate budgetary impact.
- Specific measures implemented include suppressing student scholarships, reducing some allowances for both Parliamentarians and senior officials, and restructuring a number of public agencies.
- Essential security spending, wage payment and debt service were given priority and antipoverty social spending was preserved.
- A second revision of the 2016 budget was submitted to the National Assembly in early November 2016:
  - Excludes the exceptional proceeds from the oil asset sale.
  - Expenditures were reduced by 23 percent compared to 2015.
- A 2017 budget based on conservative assumptions was prepared and submitted to the National Assembly.
- Authorities intend to use any fiscal resources in excess of those budgeted to reduce the stock of arrears and relax the spending envelope.
- Authorities will continue to refrain from contracting new non-concessional external financing.

### Domestic arrears, banking sector, and liquidity measures
- Domestic arrears slightly accumulated in the first half of 2016 after a significant build up in 2015 because of liquidity problems.
- The regional central bank raised the ceiling for Chadian commercial banks refinancing, and halved the level of required reserves for the CEMAC banking system.
- Enabled issuance of a large amount of securities in the first three quarters of the year.
- Banking sector vulnerabilities increased due to greater banks’ exposure to government debt and high private sector dependence on government procurement:
  - Non-performing loans increased to 17 percent of gross banking loans.
  - Credit to the private sector declined.

### Structural reforms and public financial management improvements
- Progress made on structural reforms:
  - Containing expenditures executed through extraordinary budget procedures.
  - Broadening the database of taxpaying enterprises.
  - Establishing a unit at the Treasury tasked with preparing cash management plans.
- Following formation of the new government in August 2016:
  - Annual debt management report finalized and published on the website of the ministry of finance.
  - Monitoring and reporting of oil revenue flows enhanced.
- Civil service payroll reforms:
  - Software used for payment of civil servants’ salaries is operational and generating savings beyond initial projections after discovery of ghost workers.
  - An accounting and organizational audit of the payment of civil servants has been launched.
  - Based on audit results, a detailed action plan for reforming the payroll of civil service will be adopted by end-June 2017.
- Preparation of the new National Development Plan (NDP):
  - Final draft discussed with internal stakeholders in a workshop on October 6-7, 2016.
  - Will be submitted to the government for adoption before being transmitted to the National Assembly by end-November 2016.
  - Government to organize a round table in Paris in January 2017 with technical and financial partners to mobilize financing for NDP priorities.
- An audit of tax and customs exemptions, financed by the European Union, was launched in October 2016 and will form the basis for identifying reform measures.

### Program performance under the ECF arrangement and requests
- Program performance was broadly satisfactory in the period under review:
  - All performance criteria (PCs) met, except:
    - The periodic PC on the non-accumulation of domestic arrears at end-December 2015 and end-June 2016 due to liquidity constraints.
    - The continuous PC on non-accumulation of external payment arrears at end-June 2016.
  - Structural reforms monitored under the program progressed well.
- Authorities consider prevention and clearance of arrears key and are implementing a global strategy with Fund assistance, as described in the Memorandum of Economic and Financial Policies (MEFP).
- Given additional balance of payments needs from the exogenous shock, authorities request:
  - i) An augmentation of access under the program in an amount equivalent to 24 percent of Chad’s quota (equivalent to SDR 33.64 million or CFAF 28 billion).
  - ii) An extension of the arrangement until end-November 2017 to accommodate conclusion of the sixth review and allow disbursement of the last installment.
  - iii) A rephasing of planned disbursements.
- Financing challenges for 2016:
  - Financing from the regional market and the central bank is close to regulatory limits.
  - Authorities appeal to development partners to follow through on financial pledges for the year.
  - Authorities indicated hope that the entire augmentation requested would be made available in full this year rather than spread over two years.

### Policy direction and medium-term priorities
- Fiscal policy aims to achieve fiscal and debt sustainability through continued strong fiscal adjustment in the context of the 2017 budget.
  - Authorities are confident the projected fiscal deficit of 3.6 percent of non-oil GDP will be achieved, as emergency measures taken in 2016 will have a full effect in 2017.
- Revenue and tax policy:
  - Given weaker oil revenues, authorities will step up efforts to increase non-oil domestic revenue mobilization.
  - With Fund assistance, they will strengthen tax and customs administrations and undertake tax reforms to widen the tax base, notably eliminating unjustified tax and customs exemptions and reforming the VAT.
- Structural and administrative reforms:
  - Continue reforms guided by the 2005 Action Plan for the Modernization of Public Finance (PAMFIP).
  - Diversification strategy to be guided by the forthcoming 5-year National Development Plan.
  - Continue collective collaboration with development partners for effective implementation.
- Oil sector transparency and public financial management:
  - Authorities remain committed to EITI compliance and are facilitating the EITI National Committee to publish reports for 2014 and 2015.
  - Continue efforts to improve the expenditure chain and implement the cash flow management system as laid out in the MEFP.
  - Efforts to gradually reduce use of emergency spending procedures will continue and development of the medium-term program budgeting framework will be pursued.
- Debt management:
  - Authorities will draw on recent Fund technical assistance to develop a medium-term debt management strategy.

### Conclusion and appeals
- Despite difficult global and regional environment, authorities maintained their ECF-supported program on track through strong fiscal adjustment and steady reform implementation.
- Authorities request completion of the third and fourth reviews under the ECF arrangement, related waivers, approval of augmented access, arrangement extension and program rephasing.
- Given weaker medium-term prospects and significant risks to the economic outlook, authorities call on development partners to provide support to address balance of payments needs and ensure smooth implementation of the economic program.

*Document content provided from the IMF staff report excerpt in the supplied PDF content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16364.pdf_