For more information, see Chad and the IMF
N'Djamena, November 12, 1999
Mr. Michel Camdessus
Dear Mr. Camdessus:
1. In support of Chad's structural adjustment program, the Executive Board of the International Monetary Fund approved on September 1, 1995 a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF). The results of its implementation have been largely satisfactory, and the government met its main objectives. To consolidate these favorable results and to respond to the major challenges that our country continues to face, particularly the need to achieve a significant reduction in poverty and an improvement in the standard of living of the population, the government has decided, in consultation with civil society, to continue and strengthen the economic and financial reforms, as well as its poverty-reduction policies, within the framework of a new structural adjustment program for the period from October 1999 to September 2002.
2. The orientations of the government's policy, and the objectives and policies of the program, are described in the "Preliminary Framework for National Poverty Reduction Strategy," which was prepared in close collaboration with the staffs of the Fund and the World Bank, and which will be transmitted to you under separate cover.
3. The attached memorandum of economic, financial, and poverty-reduction policies is drawn from this orientation and describes the objectives and policies that the government of Chad intends to pursue during the period of the three-year program and, more particularly, the objectives and specific measures for the first year of this program covering the period October 1, 1999 to September 30, 2002. In support of the implementation of these objectives, the government of Chad requests a new three-year arrangement under the PRGF in an amount equivalent to SDR 36.4 mil-lion (65 percent of new quota). The first two disbursements, each in the amount of SDR 5.2 mil-lion, would be available after the approval of the program by the Executive Board of the IMF and after the conclusion of the first review of the arrangement for the first year by the Executive Board, respectively. The third disbursement will take place after the conclusion of the second review and the finalization of a second year program covering the period October 2000-September 2001.
4. The government of Chad will communicate to the Fund the information necessary to evaluate progress made by Chad in implementing its economic and financial policies, as well as in meeting the objectives of the program. To ensure a wide dissemination of the program, the government authorizes the IMF to publish the memorandum of economic and financial policies on its Internet web site.
5. The government of Chad considers that the policies and measures presented in the attached memorandum will allow it to meet the objectives of its program. However, it remains ready to take, in sufficient time, such measures as may prove necessary to safeguard these objectives. During the period of the three-year arrangement, the government of Chad will consult with the Fund on the adoption of any measures that may be appropriate, at the initiative of the government or at the request of the Managing Director. Moreover, at the end of the period covered by the third annual arrangement, and for as long as Chad has financial obligations toward the Fund resulting from loans obtained under this arrangement, the government will hold periodic consultations with the Fund on Chad's economic and financial policies, at the initiative of the government or whenever the Managing Director so requests.
6. In any event, the Fund will conduct a first review under the PRGF arrangement, to be completed before end-June 2000. The second review under the arrangement, which should be completed before end-December 2000, will coincide with the finalization of the second annual program covering the period 2001-02.
Bichara Chérif Daoussa
Minister of Economy and Finance
Attachment: Memorandum of Economic and Financial Policies for 1999-2000
1. In the context of a three-year program under the Enhanced Structural Adjustment Facility (ESAF), which expired on April 30, 1999, Chad implemented a wide-ranging program of structural reform and economic adjustment, based on stabilizing the macroeconomic and financial framework. The program focused particularly on improving public finances, restructuring and privatizing most of the public enterprises, and further liberalizing trade. This adjustment program was also supported by the World Bank, and by other bilateral and multilateral donors in the form of balance of payments financing, loans, contributions to the financing of public investment projects, and external debt relief.
2. The government intends to pursue and strengthen these reforms under a second three-year program under the Poverty Reduction and Growth Facility (PRGF). The new program will be underpinned by a comprehensive poverty reduction strategy, particularly in the context of the Heavily Indebted Poor Countries (HIPC) Initiative. This memorandum briefly reviews the results achieved thus far, establishes the objectives of the new program, and sets out the policies and measures that the Chadian authorities intend to pursue in the first year of the new program.
II. Performance Under the Adjustment Program In 1995-99
3. Implementation of the last ESAF-supported program was broadly satisfactory, despite several waiver requests caused by slippages largely beyond the control of the authorities. Real growth averaged 4.2 percent annually during 1995-98, owing in large part to gains in competitiveness and higher agricultural and agro-industrial production. Inflation, which averaged 9 percent between 1995 and 1997, fell to 4.3 percent in 1998.
4. Fiscal performance improved considerably over the course of the program, even though the increase in government revenue remained smaller than had been envisaged, particularly at the end of the period. Expenditure management was characterized by a prudent wage policy, increased funding for priority sectors, and the containment of nonpriority expenditure, in spite of a few slippages in 1997. Domestic payments arrears were reduced and external arrears were cleared.
5. Chad's external position is heavily dependent on cotton sector developments. Thus, buoyant cotton exports and improved terms of trade led to a narrowing of the current account deficit in 1998, but the fall both in cotton production and world market prices is expected to lead to a widening of the current account deficit in 1990.
6. Significant progress was made toward liberalizing the economy, although the structural reform program has yet to be implemented. In the telecommunications sector, the reform process is under way; in the meantime, however, a cellular telephone license has been granted to a private operator. A tender has been launched for the privatization of the sugar company (SONASUT), while negotiations for an overall management contract for the electricity company have made good progress. The situation in the cotton sector remains a source of concern, but the authorities are working on a liberalization strategy that should be finalized in December 1999.
III. Challenges and the Remaining Reform Agenda
7. Overall, the 1995-99 economic program has helped to bring about a marked recovery in economic activity, tangible progress toward macroeconomic stability, and an improved economic environment for private enterprise. This is a clear reflection of the government's firm commitment to bring the adjustment and reform process to a successful conclusion. The establishment of structures for coordination (the High Interministerial Committee, the Technical Committee, and the Economic Unit) has facilitated program preparation, implementation, and monitoring. Chad's membership of the Bank of Central African States (BEAC) and the Central African Economic and Monetary Community (CEMAC) has contributed to its monetary policy discipline and encouraged the effective implementation of the regional trade and tax reforms.
8. However, the nation still faces widespread poverty, which impedes human development. Low income levels and a relatively thin private sector limit national savings and the investment necessary for growth. As a result, the economic and physical infrastructure is woefully inadequate and in great need of expansion. The cost of public utilities (electricity, water, and telecommunications) and petroleum products is prohibitive, and the rudimentary state of the transportation network, particularly in the rural areas, compounds the problems posed by Chad's landlocked position. Moreover, the economy is still very vulnerable to exogenous shocks, such as the 1998 energy crisis and the deteriorating terms of trade, which in part account for the slippages relative to program targets.
9. Under these conditions, Chad's future adjustment efforts must aim at accomplishing the transition from crisis management and fiscal stabilization to the implementation of economic and social policies for sustained development. Specifically, Chad's main challenge is to consolidate the gains made in macroeconomic stability and gradually bring the economy onto a path of sustainable, private sector-led growth, in order to reduce poverty. Attaining this objective will require further fiscal consolidation, as well as improved transparency and accountability in the management of public resources, a significant reduction in Chad's dependence on external assistance, and the consistent implementation of the entire range of required structural reforms.
10. The prospective exploitation of oil resources beginning in fiscal year 2003/04 will help to consolidate the strengthening of financial viability, and provide Chad with a unique opportunity to accelerate its overall development and its poverty reduction efforts. The Chadian authorities are fully aware that this will not be easy, as experience in many other countries has shown. They therefore intend to decisively address governance issues ahead of the beginning of oil production, to ensure that this resource is managed in a transparent fashion. Furthermore, they have already begun to implement a comprehensive strategy in preparation for managing the "oil economy," covering the period 1999-2004, in close cooperation with development partners. Moreover, a law on the management of oil revenue was adopted and promulgated by parliament in January 1999, under which all oil revenues will be included and accounted for in the state budget, and used to meet development objectives.
IV. Medium-Term Strategy
11. The main quantitative objectives for 1999-2002 will be: to (i) sustain a real GDP growth rate of at least 4 percent in 2000-02; (ii) keep annual inflation at about 3 percent; (iii) to achieve a current primary surplus of 1.5 percent of GDP by 2002, and (iv) reduce the non-oil external current account deficit (excluding grants) from 18 percent of GDP in 1999 to 17 percent in 2002. In order to achieve the medium-term growth objective, Chad will need to boost investment and increase the domestic resources available for this purpose, both by strengthening government savings and implementing policies aimed at bolstering the formal financial sector and microfinance institutions, so as to contribute to higher private savings. However, Chad will continue to need financial support from its external partners to supplement its relatively low domestic savings during the transition to the oil economy.
12. The primary focus of fiscal consolidation will be on increasing non-oil revenue to levels consistent with an efficient delivery of necessary public services. The priorities are to raise efficiency in the tax and customs administrations in order to reduce fraud and evasion, and to continue broadening the tax base. On the expenditure side, the authorities will strengthen budget programming and expenditure management, and will enhance the effectiveness of public spending, particularly in the priority sectors.
13. The structural reform effort during the three-year program will pursue the following main objectives: (i) private sector development; (ii) the strengthening of economic and administrative management; and (iii) poverty reduction. Policies for private sector development will center on completing the public enterprise reform and privatization program; reforming the financial sector; and improving the transportation network. Economic and administrative management will be strengthened through a comprehensive capacity- and institution-building program; the decentralization of the public administration; and a fundamental reform of the civil service. Finally, in the area of poverty reduction, the Chadian authorities will integrate the strategy presented to donors at the April 1998 roundtable and in sectoral meetings on health, rural development, education, and transportation into a comprehensive and fully costed poverty reduction strategy that will guide government action and help to coordinate donor assistance. The authorities intend to formulate this poverty reduction strategy over the course of the next 12 months, in close consultation with civil society and their external partners.
V. The Program for 1999-2000
14. Real GDP growth is projected to pick up to about 4 percent in 2000, after a contraction of about 1½ percent in 1999, reflecting substantial gains in cotton and food crop production after favorable rains, the expansion of cotton and sugarcane processing activities, and oil-related construction. Gross investment should increase from 17.0 percent of GDP in 1999 to 22.7 percent of GDP in 2000, with an increased share of private investment related to the oil pipeline construction project. Gross domestic savings are expected to rise to 0.5 percent of GDP in 2000, following a dissaving on the order of 1.2 percent of GDP in 1999. Inflation is projected to stabilize at about 3 percent on annual average during 1999-2000. The external current account deficit (excluding grants) is projected to widen from 20.5 percent in 1999 to 24.4 percent in 2000, mainly on account of the considerable increase in imports related to investment in the oil sector.
A. Public Finances
15. The budget for the year 2000 targets a current primary surplus of 1.5 percent of GDP. Overall revenues are projected to remain at about 9.6 percent of GDP in 2000. Current primary expenditure will be limited to 8.3 percent of GDP; however, within this ceiling, the authorities intend to increase operating expenditure in the priority sectors by 20 percent and to absorb an increase in the wage bill of CFAF 4 billion, reflecting the financial effects of automatic advances in the civil service, which were frozen in 1994. Moreover, in keeping with the provisions of the 1996 constitution, the 2000 budget provides allocations for the initial cost of administrative decentralization and the introduction of constitutional bodies. Total investment spending is budgeted at 11.6 percent. The overall fiscal deficit (on a commitment basis and excluding grants) is projected at 12 percent of GDP.
16. For 2000, the only change in the area of taxation is the introduction on January 1, 2000 of the value-added tax (VAT) at the single rate of 18 percent, replacing the turnover tax (TCA). Preparations for the implementation of the VAT are well advanced, including the public information campaign. A study will be conducted by December 1999 to determine the exact number of enterprises subject to the VAT, including those currently paying the single general tax (Impôt général libératoire--IGL).
17. The tax directorate (DIT) will also improve the management of the register of taxpayers to ensure effective tax collections. The collection of taxes and other revenues paid on the basis of taxpayer declarations will gradually be transferred from the Treasury to the DIT between December 1999 and January 2001, beginning with amounts owed following audits. A working group will be established by end-1999 to facilitate this transfer of authority. The DIT will also, by December 1999, institute a procedure for coordinating tax audits. The government intends to increase the resources allocated to the DIT to enable it to conduct spot checks on VAT compliance, to verify that public enterprises actually pay this tax, and, by June 2000, to establish procedures for inventory audits to combat the proliferation of clandestine imports. In 2000, the authorities will begin the process of streamlining the land registry office, starting with N'Djamena.
18. The budget also foresees an increase in customs revenues, based on the introduction of the computerized customs system (SYDONIA) in early 2000, and implementation of the action plan to reduce exemptions, fraud, and smuggling, as well as to reinforce internal audit procedures. In this context, the authorities have also taken steps to improve the functioning of the system for monitoring exemptions of imports under government contracts financed by external donors.
19. The Chadian authorities will eliminate the remaining temporary surcharges on imports by July 1, 2000 and, by December 2000, abolish all exemptions that are incompatible with the CEMAC tax and customs reform. The Chadian authorities also intend to work with their regional partners to gradually reduce the maximum rate for the common external tariff. Finally, in keeping with the planned gradual phasing out of the protection of domestic sugar production, the reference price for sugar for 2000 will be reduced from CFAF 350 per kilogram to CFAF 340 per kilogram.
20. On the expenditure side, the government intends to reinforce the system of internal and external auditing of public expenditure by strengthening institutional agencies, such as the Accounting Chamber of the Supreme Court, as well as by using external auditors. To rationalize the expenditure management system, the accounting and budget nomenclatures will be harmonized, accounting procedures simplified, the system of economic and functional classification of expenditure updated and extended to capital spending, and treasury operations computerized. Treasury cash-flow management will be based on a system of monthly forecasting and analysis of revenues and expenditures, drawing on the monthly cash-flow management plan that the government intends to implement with the start of the new fiscal year.
21. To enhance the effectiveness of government spending, a public expenditure review will be launched with World Bank assistance in March 2000, paving the way for annual reviews. Moreover, the government will start the transition from the public investment program (PIP) to the sectoral programming of expenditure, beginning with a few pilot departments. Beginning in the second quarter of 2000, the government will introduce a monitoring system for reconciling commitments and actual expenditure in the education sector on a quarterly basis, and will gradually extend this system to other priority sectors.
22. Management of the wage bill will remain critical to controlling overall expenditure. The government intends therefore to maintain its policy of limiting recruitment to the priority sectors and in 2000 will launch the process of civil service reform. In the meantime, the files of the payroll office will be harmonized with those of the Ministry of Civil Service--the computerized payroll management system has been upgraded to ensure Year 2000 (Y2K) compliance.
23. Finally, the Chadian authorities intend to clear the remaining domestic payments arrears over the program period. The stock of verified domestic arrears will be updated by end-September 2000, and a program for settling the arrears will be established. Some combination of the following three options will be negotiated with eligible creditors: (i) cash payments against discounts on the nominal value of the claim; (ii) rescheduling the debt over a period of about ten years; or (iii) exchange for a new government debt instrument. The program will be financed with resources to be obtained from Chad's external partners, the proceeds of privatization operations, and future budgetary resources.
B. Money and Credit Policy
24. The monetary policy conducted at the regional level by the BEAC continues to aim at strengthening the external reserves of the monetary union and containing inflation by means of a prudent credit policy. In 2000, an increase in broad money of about 1.3 percent is projected, and one of about 5 percent for domestic credit; net external assets of the banking system are expected to decline by about 5.3 percent. The quarterly ceilings on net bank credit to the government are set out in the annexed Table 1, and will be adjusted in the event of shortfalls in external financing relative to projections.
25. In the financial sector, the authorities have divested their controlling stake in the commercial banks. They will continue to work with the regional banking commission (COBAC) to ensure that Chadian banks are in compliance with the prudential norms and will support the adaptation of these norms to international standards. More specifically, the authorities will ensure that the domestic banking system is strengthened, in particular by raising minimum equity capital to CFAF 1 billion--the level already reached by local banks. To encourage small- and medium-scale savings and investment, the government of Chad will begin a study of microfinance institutions, with a view to defining a strategy to promote them. The government will encourage commercial banks to reduce their dependence on crop credits.
C. Structural Policies
Private sector development
26. The government will resolutely pursue its public enterprise privatization policy. The management of the electricity and water company (STEE) will be privatized in January 2000. Following the adoption of the Law on Electricity and the water code, the government will continue to strengthen the regulatory and institutional framework. The implementing legislation and the water and electricity regulatory bodies will therefore be in place before September 2000. In addition, a feasibility study will be carried out on water tariffs. The regulatory bodies will adjust tariffs annually. The same type of regulatory provisions will be implemented in 2000 in the telecommunications sector, following the granting of a license to a private operator to exploit a cellular telephone network and the improved capability for satellite connection to the international network. The process of privatizing the telecommunications company (SOTELTCHAD) will begin in May 2000 with the hiring of consultants to launch the tender for bids. Regarding the postal service, the government has decided to keep it in the government portfolio. The government has chosen an offer for the sugar company SONASUT and will open negotiations with the buyer by March 2000. The sale process should be completed within 12 months. The government will complete the privatization of the national road maintenance company (Société Nationale d'Entretien Routier, or SNER) by end-June 2000. Finally, cotton sector liberalization will begin before the end of the year. The study on separating COTONTCHAD's oil and soap activities from ginning will be completed by June 2000.
27. Regarding pricing policies, by March 2000, the government will examine the possibility of adopting a new mechanism for automatically adjusting petroleum product prices. The mechanism would pass changes in world market prices through to retail prices, with a view to fully liberalizing the latter over the medium term.
28. In the context of its policy for ensuring the financing of routine road maintenance, a portion of the oil taxes collected are deposited directly in the Autonomous Road Maintenance Account (CAER), supplemented by a budgetary allocation of CFAF 1.7 billion and other amounts included in the pricing structure for these products. All financial transactions of the CAER will be duly registered in the table of government financial operations (TOFE). To ensure the CAER's total financial independence vis-à-vis the government budget, a user fee will be introduced beginning in 2001 in the pricing structure for petroleum products, following a full audit of the CAER's accounts; the effect on pump prices will be reviewed and the structure of petroleum product prices revised, if necessary.Judicial reform
29. In the area of judicial reform, the government intends to ensure application of the Uniform Acts of the Organization for the Harmonization of Business Law in Africa (OHADA) in Chad. The Judicial Reform Committee, which combines the public and private sectors, will be made operational in order to review existing commercial legislation and propose improvements, including the establishment of an arbitration tribunal. By June 2000, the authorities will develop an action plan for gradually increasing the number of qualified magistrates and auxiliary legal staff, and will increase budgetary allocations to the justice system over the program period.Strengthening the regulatory framework
30. The authorities intend to intensify their efforts to improve conditions for private economic activity. They will adopt and implement a national investment charter in line with the provisions of the CEMAC regional charter and will seek to further improve the payments system and other trade services, such as insurance and transit services with their regional partners.
Economic and administrative management
Capacity and institution building
31. The government of Chad intends to embark on a comprehensive program of capacity and institution building, in order to improve transparency and governance, and to strengthen the public administration. Beyond the specific measures outlined above in the area of tax administration and expenditure management, the authorities intend to further strengthen the system of economic policy coordination committees (particularly the High Interministerial Committee and the Technical Committee). The research and forecasting directorate will be strengthened in 2000 so that it can prepare an annual macroeconomic framework, which will be updated on a quarterly basis, as an input to budgetary programming and execution.
32. The 2000 budget provides for the initial costs of administrative decentralization and establishment of the bodies envisaged in the 1996 constitution. This decentralization is a central element of the government's policy for improving the delivery of public services to the population. To ensure that the establishment of decentralized institutions meets this objective, the government will complete by September 2000 a detailed analysis of the financial impact of the new system, based on a clear definition of the functional and expenditure responsibilities and the taxation authority of each administrative level, and will define and implement budgetary rules and procedures for the local administrations, including sanctions for noncompliance. In parallel with this transfer of functions, the authorities will also establish by September 2000 a program for the gradual transfer of human, technical, and financial resources from the central government to the local administrations.
Civil service reform
33. Civil service reform is an essential element of controlling the growth of the wage bill, and of improving the public administration. Therefore, the authorities have set a firm timetable for implementing the recommendations of the technical commission for civil service reform, which were adopted by the government at end-1998. To that end, the government will, by June 2000, conduct a review of the existing statutes and of present practices in relation to, inter alia, indemnities, other allocations, and mission expenses. To facilitate the transition to a merit-based remuneration and advancement system, a minimum set of objective performance criteria will be established by the same date, and training in their application will be provided to supervisors. A study of possible ways of revising the wage scale system will be completed by September 2000, and a timetable for the transition to the new remuneration and advancement system will be adopted by the government by end-2000.
34. Similarly, by end-2000, the government will prepare an analysis of actual civil service requirements in terms of skills and competencies, including at the local administrative level, and will design a program for reducing the size of the civil service through voluntary departures. The government is fully aware of the need for closely involving trade unions and other concerned parties, including the parliament, in this process to facilitate execution of the reforms envisaged; therefore, the government will consult closely with these partners at every stage of the process.
The poverty reduction strategy
35. The government will launch a process of consultation with civil society and its external partners to develop a comprehensive poverty reduction strategy by October 2000. This process will take the form of a series of seminars and conferences to deliberate on the various elements of the strategy, which will incorporate the government's various sectoral policies, and will provide a precise cost analysis of all proposed measures and provisions. The consultation process will culminate in a seminar scheduled for September-October 2000, at which the strategy will be endorsed. This strategy will use available statistical indicators, which will be updated regularly. It will also serve as the basis for designing the government's economic and social policies during the remainder of the program, and will prepare the way for the transition to the oil era.
36. The scheduled household budget/consumption survey will be adapted to provide measurable and differentiated poverty indicators, and an effort will be made to coordinate the collection and dissemination of statistics by all services and donors working in the various sectors.
37. Policy in the area of health will continue to be guided by the approach presented at the sectoral meeting on health in March 1999. This policy is based on four main objectives: (i) developing high-quality basic health services accessible to the entire population; (ii) increasing the number of trained health care personnel, particularly in health centers; (iii) improving the management of the health care system; and (iv) stepping up efforts to eradicate endemic and epidemic diseases. Specific quantitative targets will be set in each of these areas by March 2000, and progress will be monitored using the appropriate statistical indicators.
38. In order to provide optimal health coverage, the adopted approach seeks as a priority to consolidate the implementation of the minimum package of activities (PMA) and the supplementary package of activities (PCA), the administration of which will be concentrated at the district level. In order to improve the quality and accessibility of health services, health coverage will gradually be extended to all districts by making sure that all health centers are operational. A three-year program aimed at staffing each health center with at least one qualified nurse will be launched in 2000.
39. By end-2000, the government will adopt an Orientation Law on Education. The key objectives and major directions of government policy in this sector will be presented to donors at a sectoral meeting on education, to be held in January 2000. Government policy will focus on immediately raising primary school enrollment rates, and improving instruction and conditions for teaching and learning. To that end, by end-March 2000, specific targets will be established in these areas for the program period.
40. Operating expenditure in the education sector has been increased by 20 percent in real terms in the 2000 budget. To increase spending effectiveness, a monitoring system allowing commitments to be matched with actual expenditure on a quarterly basis will be implemented in the sector, beginning in the second quarter of 2000.
41. The government will institute new standards for teacher training in 2000 and will develop a training system for their implementation. A program for gradually transferring the management of schools and teaching staff to the local level will be formulated in 2000.
42. Beginning in 2000, the statistical information system will be strengthened, with support from external partners, in order to extend the system for monitoring and evaluating the quality of education. The authorities will define a series of preliminary indicators, which will provide a basis for the specific targets for improving the principal education indicators in the medium term.
Social reintegration of demobilized soldiers
43. Having successfully completed its demobilization program, the government now faces the task of reintegrating the demobilized soldiers into civil society. A pilot project, prepared with World Bank support, was launched in five prefectures in January 1999 after considerable delays and administrative difficulties. In light of the results thus far, the government is thinking of moving to the regular phase of the program, which would entail reintegrating demobilized soldiers across the entire territory through a series of small-scale projects. Financing for this reformulation and for the overall program will be sought from donors to ensure the program's continuation into 2000 and beyond.
44. One of the most important elements of the government's agricultural policy in 2000 is reform of the cotton sector. In December 1999, the government will adopt a comprehensive strategy for liberalizing the sector after a process of intensive consultation with stakeholders. This strategy sets out the timing of key steps in the liberalization process, which includes three aspects of reform. The institutional aspect aims at liberalizing the sector and making it more competitive. The key element of this aspect of the reform is government divestiture of COTONTCHAD. The second aspect--provision of training and support to producers--seeks to involve producers in managing the sector. The third aspect deals with professionalizing producer organizations, thereby enabling them to gradually take responsibility for their activities.
45. The second major axis of the government's rural development policy is enhancing food security. The government will continue to improve producer support services, particularly by promoting research and extension services. The corresponding budgetary allocations will be increased in 2000. Over the course of the year 2000, the Ministry of Agriculture will define a strategy for strengthening producer associations, and enabling them to secure the necessary financing for purchasing inputs and agricultural equipment, and for providing transport for the harvests. Also, producers will receive training in improving their agricultural techniques, and in establishing reliable distribution and marketing channels. The authorities also intend to promote and support the development of small-scale rural finance institutions.
46. A key factor in the transportation policy is the extension of the national network of permanent roads in rural areas; in this connection, a ten-year investment program was formulated and presented to donors at the transport sector meeting in November 1999. Transport services and road maintenance work were liberalized during the previous program, and a mechanism for financing the maintenance work through CAER has been established.
47. In 2000, the government intends to continue privatizing road maintenance and increasing user participation in the administration of road maintenance funds. Emphasis will be placed on extending and maintaining the road network in rural areas to improve the movement of food and cash crops (especially cotton), and to reduce transport costs. To this end, financial and technical assistance for local projects to maintain roads and expand transportation in rural areas will be increased.
48. Also, in 2001, the government will launch a study on the granting of concessions for the five major airport facilities as an integral part of the government's policy to open up the country.
49. In March 2000, the government will launch the preparation of a National Environmental Action Plan (PNAE), which will be adopted by end-2002, as well as an Information, Education, and Communication (IEC) campaign. Other supplementary actions are envisaged in the short term, particularly the incorporation of environmental aspects into the planning and programming processes used by the Ministries of Finance and Planning, beginning with the formulation of the 2001 budget, and the carrying out of a feasibility study of the most urgent cross-border environmental activities (Lake Chad).
D. Strengthening the Statistical System
50. Following a study of the statistics system, a law to regulate Chad's statistical activities was adopted in June 1999. It defines the institutional framework, the major statistical principles, and the relations between the bodies responsible for producing official statistics, as well as the relations with other organizations that produce statistics outside the national statistics system. The law also spells out the circumstances in which a response to statistical surveys is obligatory, defines the confidentiality of statistics, and sets out the resources for operating the national statistics system. The establishment of a High Statistical Council and a Statistical Programs Committee is envisaged to implement the law, and a decree defining the legal status of the central statistics agency has been adopted, thereby enabling it to play its role in full.
51. A national six-year statistics program will be designed by February 2000, and the first year of this program will be included in the 2001 budget. In addition, a study of the periodicity and the data currently produced by all the services and agencies outside the national statistics system will be carried out by end-March 2000, with a view to better identifying statistical requirements for improving and monitoring the effects of poverty reduction policies.
E. The Balance of Payments and External Financing
52. A deterioration of the external current account deficit (excluding official transfers) from 20.5 percent of GDP in 1999 to 24.4 percent is projected in 2000, mainly because cotton exports, despite the strong decline in world cotton prices, will increase. Export values will increase by 8.7 percent in 2000, while the value of imports (excluding the pipeline project) will increase by 9 percent in 2000. In view of the sizable capital inflows linked to investment projects, a capital account surplus of CFAF 190 billion is projected. Chad's contribution to the CEMAC's external reserves will be slightly negative in 2000.
53. The authorities have almost completed the internal reconciliation of the external debt data. These data will be used by IMF staff to prepare an analysis of Chad's external debt sustainability, which will make it possible to determine Chad's eligibility for debt relief under the HIPC Initiative.
54. The 1999 financing requirement is wholly covered by financial assistance from the World Bank, the European Union, France, and the International Monetary Fund. The 2000 financing requirement is estimated at CFAF 26.8 billion. External assistance already identified, principally from the World Bank, the European Union, the African Development Bank, and France, should suffice to cover this deficit. To consolidate the tax situation and to secure social expenditure, the authorities intend to seek a rescheduling of the eligible debt service from Paris Club creditors in 2000.
F. Program Monitoring
55. During the period December 1999-October 2000, the program will be monitored by means of quantitative performance criteria and quarterly benchmarks, as well as structural benchmarks. End-December 1999 and end-June 2000 quantitative benchmarks are the indicators for monitoring program progress, while those for end-March and end-September 2000 constitute performance criteria. The quantitative benchmarks and performance criteria shown in the attached Table 1 include (i) a ceiling for net claims of the banking system on central government; (ii) a floor for the current primary balance; and (iii) a floor for the net reduction of domestic payments arrears of the central government; (iv) the nonaccumulation of central government external payments arrears; (v) a ceiling for new nonconcessional external borrowing with maturities of more than one year, contracted or guaranteed by central government; and (vi) a ceiling on the change in short-term external borrowing maturing in under one year, excluding normal trade financing. Benchmarks (iii) to (vi) must be respected continuously throughout the program. Indicative benchmarks for program progress are the following: (i) total budgetary revenue; (ii) total current spending, excluding interest; and (iii) total wage bill of central government. Noncompliance with these indicators will give rise to discussions with IMF staff to determine the appropriate corrective measures. In addition, throughout the program period, the government will not impose or intensify restrictions on payments and transfers for current international transactions, will not introduce or modify multiple currency practices, will not conclude bilateral payments agreements which are inconsistent with Article VIII, and will not impose or intensify import restrictions for balance of payments reasons.
56. Monitoring of the program will include the following structural criteria, shown in the attached Table 2: (i) the adoption, by the Council of Ministers, of a comprehensive strategy for liberalizing the cotton sector over the medium term, before mid-December 1999; (ii) the operational implementation of the Judicial Reform Commission before mid-December 1999; (iii) the establishment of a separate structure to absorb the non-performing claims of the STEE (structure de cantonnement) before mid-December 1999; (iv) the appointment of a general controller and agreement on the rehabilitation plan for COTONTCHAD before end-March 2000; (v) the completion of the study on the separation of COTONTCHAD's oil and soap production activities and the launching of the tender for bids for its privatization before end-June 2000; (vi) the harmonization of the files of the civil service ministry and of the payroll before end-June 2000; (vii) the finalization of the proposals to reform the civil service regulations before end-June 2000; (viii) an evaluation of the financial impact of the introduction of the decentralized administrative structure before end-September 2000; (ix) the establishment of a monthly cash-flow plan before end-March 2000; (x) the completion of a study of the periodicity of data currently produced by the statistics system before end-March 2000; (xi) in the area of health, the establishment of an action plan for the transfer of the management of primary health care services to prefectoral hospitals and health districts by end-December 2000; (xii) in the area of education, the establishment of an action plan to institute a mechanism for monitoring actual expenditure by end-June 2000; (xiii) in the area of rural development, the adaptation and start-up of training programs by end-June 2000; and (xiv) the examination of an automatic adjustment mechanism for the retail prices of petroleum products by end-March 2000. Benchmarks (i) to (iii) are prior actions for consideration of the program by the Executive Board of the IMF. Benchmarks (iv), (ix) and (x) are the program performance criteria.
57. The government of Chad will conduct the first program review under the first year of the PRGF arrangement with the staff of the IMF before end-June 2000. This review will examine economic and financial developments during October 1999-March 2000, as well as the revised prospects for the rest of the year. Completion of the review, as well as compliance with the end-March 2000 performance criteria, will condition the disbursement of the second loan under the first arrangement. A second review will be conducted with IMF staff before end-December 2000. This review will cover economic and financial developments during 2000; it will take place jointly with the negotiations on the program for the second year of the arrangement, covering the period October 2000-September 2001.