Stability on the Horizon for Chad

IMF News, September 28, 2018

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Sharp decline in oil prices starting in late 2014 severely impacted Chad’s economy.
Oil revenues decreased while external debt service burden increased significantly, primarily to Glencore for oil-backed loans in 2013 and 2014.
Severe contraction in public spending in 2015–16, and accumulation of large domestic arrears, set in motion a cycle of contraction in economic activity, domestic revenue, and government spending.
Income per capita:
- peaked at $1,239 in 2014
- fell to $810 in 2017
Security costs related to deployments for regional peace-keeping, particularly in the Lake Chad basin, put pressure on the national budget.
Severe drought and resulting food insecurity, plus influx of refugees and displaced persons, added fiscal and humanitarian pressure.

IMF support under the Extended Credit Facility [ECF] combined with donor financial support to back reform efforts.
Restructuring of Glencore debt:
- expected to be fully repaid by 2026 under current oil price projections
- new contract includes significantly longer maturity, lower interest rate and fees, and contingency mechanisms to adjust debt service depending on oil revenues
Fiscal performance:
- Non-oil revenue improved markedly in 2017
- Spending discipline has been maintained
- Non-oil GDP expected to begin to rebound this year and deflationary pressures will ease
Banking sector vulnerabilities identified: high nonperforming loans and tight liquidity position.
- IMF-supported program provides room to gradually reduce domestic public debt to banks and clear domestic arrears to help improve banks' liquidity and support the recovery.

Over the past three years (prior to 2018), spending on the wage bill rose while all other spending categories were cut drastically.
Overall wage bill in 2017:
- represented more than 50 percent of domestically financed primary spending
- exceeded non-oil tax revenues
- significantly above the average for sub-Saharan African countries and among the highest in the CEMAC
Government measures in 2018 to contain the wage bill:
- contained benefits and allowances without cutting wages themselves
- ECF arrangement with Chad does not include any conditionality on the wage bill; IMF supports government efforts because they are critical to restoring fiscal capacity
Protection of the poor:
- ECF includes quarterly floors on spending in social sectors
- targets aim to steadily increase the share of total spending allocated to social needs
Policy intent: stem the decline in public spending, restore macroeconomic stability, strengthen the fiscal position, and create space to increase spending on investment and priority social areas, including health and education.

Significant room to improve governance and reduce scope for corruption.
Areas of support and reform:
- increase transparency, including in reporting of oil revenues
- improve public financial management
- strengthen tax and customs administration
Recent ratification of the United Nations Convention Against Corruption highlighted as an important step to be followed by additional measures to reduce corruption and improve the business climate.

Remaining vulnerabilities and risks:
- non-oil economic activity has yet to recover
- development needs are very large
Required actions and priorities:
- determined efforts by the government across a wide range of fronts
- continued financial and technical support from external partners
- sustain fiscal prudence
- strengthen the banking sector
- improve the climate for private sector activity
Expected benefits: leverage emerging signs of stabilization to achieve durable and inclusive growth and increase resources for investment and priority social spending.

IMF News, September 28, 2018