Chad: Staff Report for the 2003 Article IV Consultation; and Ex Post Assessment of Performance Under ESAF/PRGF Programs
Author: International Monetary Fund
Publication Date:
29 Apr 2004
eISBN:
9781451836431
Language:
English
Keywords:
ISCR; CR; authority; Chadian authorities; Chad; government; cotton company; government operation; oil revenue; budget proposal; inflation rate
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Chad has succeeded in recent years in broadly maintaining macroeconomic stability and a high growth rate of economic activity. There has been a significant effort to formulate the detailed modalities for the use of oil revenues so as to ensure that oil revenues are used transparently and efficiently in the fight against poverty. It is essential to maintain an appropriate fiscal expenditure policy. Executive Directors urge the government to sustainably improve public expenditure management. Improving non-oil fiscal revenue performance is essential for eventually attaining fiscal sustainability.

Abstract

Chad has succeeded in recent years in broadly maintaining macroeconomic stability and a high growth rate of economic activity. There has been a significant effort to formulate the detailed modalities for the use of oil revenues so as to ensure that oil revenues are used transparently and efficiently in the fight against poverty. It is essential to maintain an appropriate fiscal expenditure policy. Executive Directors urge the government to sustainably improve public expenditure management. Improving non-oil fiscal revenue performance is essential for eventually attaining fiscal sustainability.

I. Introduction

1. The last Article IV consultation with Chad was concluded on January 16, 2002 (IMF Country Report No. 02/29). On that occasion, Executive Directors welcomed the authorities’ improved transparency and governance record, as well as their commitment to prudent fiscal policies. However, they urged them to improve revenue performance, expenditure management, and the statistical database, as well as make further progress in governance. In the Board discussion of July 23, 2003, when the fifth review under the Poverty Reduction and Growth Facility (PRGF) arrangement was concluded, Directors repeated their views on the above areas of weaknesses. In addition, they expressed concern about the timely fulfillment of completion point conditions for the Heavily Indebted Poor Countries (HIPC) Initiative. However, Directors also strongly commended the authorities on the adoption of important legislation on the modalities of use of oil revenue.

2. Chad was in arrears to the Fund with respect to PRGF payment obligations at end-2003 and early 2004. On February 17, 2004, the government paid SDR 597,892 and cleared all arrears to the Fund. In compliance with the Board decision of June 21, 2003, Chad repaid the Fund in two tranches the noncomplying disbursement of SDR 5.4 million arising from the misreporting in 2002.

3. The current government was formed in June 2002, and has been headed since June 2003 by a Northener as a prime minister, thus putting an end to the sharing of power between the Moslem north and Christian south that had existed since President Deby’s ascent to power in 1990. The security situation was affected by problems in the border regions, first in the south in the months leading up to the coup in the Central African Republic, and then in the east, with the unfolding of the rebellion in the Sudanese region of Darfour. The latter developments could have important repercussions, notably humanitarian, as it is estimated that over 100,000 Sudanese refugees have crossed the border into Chad.

II. Recent Developments

4. Economic developments in 2002 and 2003 to a large extent reflected the acceleration and completion of the oil pipeline construction. After reaching 9.9 percent in 2002, economic growth is estimated to have remained at about 10 percent in 2003, somewhat lower than anticipated, owing to the effects on non-oil sectors of the winding up of the oil pipeline construction (Table 1). Oil exports began in October 2003, and the first fiscal oil receipts arrived on November 24, 2003. A higher-than-anticipated annual average inflation rate of 5.2 percent in 2002 was followed by deflation in 2003. A significant nominal appreciation of the CFA franc (euro) and, recently, a good harvest have contributed to the faster-than-projected decline in the inflation rate in 2003. After growing by more than 20 percent in both 2001 and 2002, fueled by unsterilized capital inflows related to the oil pipeline construction, broad money growth dropped dramatically in 2003 despite a strong increase in credit to the economy (Table 6). The real effective exchange rate (REER) appreciated by 7.1 percent in the 12 months to November 2003, thus reaching 97 percent of its level before the 1994 CFA franc devaluation (Figure 1 and Box 2, which provides a discussion of competitiveness).

Table 1.

Chad: Selected Economic and Financial Indicators, 2001-06 1/

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Table 2.

Chad: Consolidated Government Operations, 2001-04 1/

(In billions of CFA franca)

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Table 3.

Chad: Consolidated Government Operations, 2001-04 1/

(In percent of GNP, unless otherwise specified) 2/

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Sources: Chadian authorities; and staff estimates and projections.

Excluding public contract taxation.

Previous programs used to show these ratios as shares of GDP.

Includes only HIPC assistance that has been paid into the HIPC account.

Excludes direct oil revenue, as well as income taxes on oil-producing companies.

2004 projection includes repayment of arrears equivalent to the CFAF 15.7 billion financing gap shown for 2003. These payments would be carried out using external financing postponed in 2003 and disbursed in 2004.

Table 4.

Chad: Domestically Financed Primary Expenditure, 2002-04

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Sources: Chadian authorities; and staff estimates and projections.

Projections for 2004 are IMF projections.

From 2003 onward, spending on good governance is not included in priority sector spending.

Table 5.

Chad: Balance of Payments, 2001-06

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Table 6.

Chad: Monetary Survey, 2001-04

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Figure 1a.
Figure 1a.

Chad: Exchange Rate and Relative Price

Index, 1990=100

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Figure 1b.
Figure 1b.

CEMAC: Real Effective Exchange Rate

Index, 1990=100

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Source: IMF, Information Notice System.

5. As in 2002, the fiscal deficit target was achieved in the first nine months of 2003, but external arrears also reemerged. As in 2002, the primary base deficit target1 was met, thanks to a low rate of implementation of expenditure and somewhat higher-than-programmed revenues (Table 2). Following the elimination of arrears that had been incurred at end-2002 and early 2003, external arrears reemerged in September 2003 and continued to be incurred (including toward the Fund) through December 31, 2003, when they amounted to CFAF 1 billion (0.06 percent of GDP). In addition, the savings realized from HIPC Initiative debt relief and earmarked for priority sector spending were not fully transferred to the HIPC account in recent months. The account was short by CFAF 4.5 billion as of December 31, 2003. These arrears and shortfalls in transfers have been incurred at a time of higher-than-programmed repayment of domestic arrears, strong implementation of nonpriority sector spending, and shortfalls in privatization receipts and external financing.

6. While total fiscal revenue increased in 2002 and in the first nine months of 2003, its composition remained a problem. The somewhat stronger than programmed revenue performance continued to be attributable to buoyant returns of profit taxes from companies that had benefited from activity related to the Doba project. This outcome more than offset weak collections of all other tax and nontax revenues, which were mostly due to delays in the implementation of revenue measures.2 Regarding measures slated for 2003, the implementation of the customs action plan started with a delay, and the action plan for the taxation of the livestock sector was not finalized. Moreover, the value-added tax credit due for reimbursement accumulated again in 2003. However, the short-term action plan for strengthening the collection of income and indirect taxes began to be implemented, and progress was made toward promulgating the tax procedure handbook.

7. Overall spending rose by 26.2 percent in 2002 and 1.6 percent in the first nine months of 2003, lower than programmed. However, the composition of fiscal expenditure did not improve, as hoped, in favor of priority sector spending. While nonpriority expenditures continued to exceed their targets, mainly in defense, priority outlays were lower than programmed in 2002 and the first nine months of 2003.3 The effect on the antipoverty effort of the low rate of implementation of priority sector spending has been compounded by the unsatisfactory improvement in the quality of service delivery. The persistence of problems in the composition of spending in 2003 are attributable to not only weaknesses in capacity, but also a lack of focus by the authorities on putting in place the measures envisaged under the PRGF-supported program to improve execution of priority sector spending.4

8. At the time of the November 2003 mission, the fiscal outlook for 2003 was revised in light of shortfalls in foreign financing and privatization receipts. There was also a need for additional spending to address the electricity problems in N’Djaména. In response to the shortfall in resources, the authorities intended to cut budgeted nonpriority expenditures, postpone some priority sector expenditures,5 carry out a smaller than originally envisaged net reduction in domestic arrears, and not accumulate the envisaged amounts of government deposits. A gap, however, remained to be filled. The overall deficit for 2003 was expected to reach 12.3 percent of GNP, but the actual outcome is not yet available.

9. While preparations have been made toward putting in place the modalities for the use of oil resources, there have been delays. The first oil resources became available to Chad on November 24, 2003 and have been kept in an offshore escrow account. Three decrees specifying the modalities for the use of oil resources were promulgated on July 1, 2003,6 but two decrees—on the Fund for Future Generations (FFG) and on the use of oil revenue by the oil-producing region—remain to be signed by the President. Moreover, the arrangements required by these five decrees are still being put in place.7 A medium-term expenditure framework (MTEF) for 2004—06 and program budgets in priority sectors were prepared, and the World Bank staff found that some of them were satisfactory while others were in need of improvement. While the corresponding benchmark was not met at end-October 2003, the MTEF was finalized in time to inform the draft 2004 budget law. The CCSRP—the joint government/civil society body monitoring the use of oil revenues—was further strengthened with resources and training in 2003 and participated in the preparation of the 2004 budget, as envisaged in the adopted modalities of use of oil revenues. The Council of Ministers did not adopt the principles of the use of revenues from the possible exploitation of new oil fields in the spirit of the Law on Petroleum Revenue Management (benchmark for end-September 2003).8

10. In other areas of governance, there has been mixed performance. Some gains were made in transparency in 2002 and 2003. However, recently the yearly report by the General Inspectorate of the Ministry of Finance and the audit of the HIPC Initiative-financed expenditures in the second half of 2002, as well as that of the five large contracts in 2002, pointed to continuing widespread problems in procurement. The 2001 budget settlement law was not considered by parliament, as envisaged under the program. In addition, the awarding of the contract for the refining rights of the Sédigui oil in mid-2003 does not appear to have followed open bidding procedures. More positively, the new procurement code was adopted by the Council of Ministers. However, it remains to be signed by the President, and its implementing decrees need to be finalized and adopted.

11. The government has not yet finalized the rules for the pricing and taxation of oil products from the Sédigui field(benchmark for end-September 2003). In the context of awarding the refining rights to the oil for the Sédigui field in August 2003, the authorities agreed to adopt pricing rules for oil products from the Sédigui field inconsistent with the principles the government had adopted in 2002. Subsequently, in the course of the discussions with the mission, the authorities committed themselves to postponing the adoption of the rules for the pricing and taxation of Sédigui products and to working out these rules in the context of a road map that would address all major aspects of domestic energy policy and that would be prepared in early 2004 with the assistance of the World Bank.

12. The reform of the cotton sector experienced delays in 2002 and 2003, and the privatization of Cotontchad, the state cotton company, is now expected at the earliest in late 2005. Recent delays concerned the presentation of privatization scenarios for Cotontchad to cotton farmers and investors and the second phase of the qualitative poverty and social impact analysis (PSIA) of the cotton sector reform, both of which were envisaged for mid-2003. Cost-cutting measures for the 2002/03 campaign were not carried out, and the subsidy budgeted for Cotontchad was not disbursed in full by September 2003. Cotontchad’s financial situation remains difficult, characterized by deficits and a negative net worth.

13. Civil service reform has lagged. While the audit of nine pilot ministries provided a candid view of the need for deep and wide-ranging reforms, there has been a lack of focus on the part of the authorities on undertaking the reforms envisaged under the program. Specifically, the computerization and update of the payroll did not take place, as the results of the 2000 census of civil servants and government contractual employees are now outdated. Hence, the payroll has not been harmonized with the updated census results. There were also delays in adopting the implementation decrees of the Civil Service Code.

14. As regards performance under the PRGF-supported program, Chad did not meet three out of eight quantitative performance criteria at end-June 2003— the test date for the quantitative performance criteria for the ninth loan (Table 10). They include the floors on health and education spending and the ceiling on net credit to government. Moreover, the continuous performance criterion on the nonaccumulation of new external payments arrears was not observed between September 2003 and the end of the arrangement. The structural performance criterion involving the adoption by the Council of Ministers of the draft decree on the FFG by end-July 2003 was not met due to the need for extensive consultations (Table 11). In the context of the overall weak performance under the program, and given that there was not enough time for corrective measures to be taken to present a sufficiently strong case for completing the sixth and final review under the PRGF arrangement, the review could not be completed in the short time remaining before the arrangement expired on January 6, 2004. Corrective measures would aim to improve governance and public expenditure management, particularly in priority sectors; finalize the modalities of the Doba oil resources; credibly and effectively establish the stabilization mechanism; adopt the principles of management of future oil resources; replenish the HIPC account; and clear external arrears and remain current on external debt obligations. During the discussions, the authorities committed themselves to taking steps in the period ahead in a number of these areas, as discussed below.

Table 7.

Chad: Selected Economic and Financial Indicators, 2000–20 1/

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Table 8.

Chad: GDP by Sector, 2001-20

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Sources: Chadian authorities; and staff estimates and projections.

Oil sector comprises oil production, transportation, and investment related to the oil export sector (including the oil pipeline).

Table 9.

Chad: Tracking Delivery of HIPC Initiative Assistance

(Decision point, May 2001, flating completion point)

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Table 10.

Chad: Qualitative Performance Criteria and Indicative Targets for The Third Annual Program Under the Poverty Reduction and Growth Facility Arrangement, 2002–04

(In billions of CFA francs: cumulative changes from the beginning of each calendar year, unless otherwise indicated)

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Table 11.

Chad: Conditionality for the Completion of the Sixth Review Under the Poverty Reduction and Growth Facility (PRGF) Arrangement, 2003

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III. Policy Discussions

15. The discussions focused on Article IV consultation issues and the ex post assessment of the long-term involvement of the Fund in Chad (1995–2003). The issues covered included (i) an updated macroeconomic outlook for the medium and long term, reflecting, inter alia, the latest information on the oil sector and the policy challenges that are posed; (ii) performance under the program in 2003; (iii) the revision of the macroeconomic projections for 2003 and 2004 and the reaching of understandings on a draft budget law and needed structural reforms for 2004; (iv) progress made toward implementing the PRSP and reaching the HIPC Initiative completion point; and (v) the possible future role of the Fund vis-à-vis Chad.

A. Assessment of Performance Under Past Fund-Supported Programs

16. The ex post assessment of Chad’s programs since 1995 (for details, see Appendix III) shows that Chad made a successful transition from a “war economy” to macroeconomic stability with growth, benefiting in particular from the massive pipeline construction project in recent years. Real per capita GDP, which contracted in 1990–93, grew by 3.4 percent per year in 2000–02. Inflation remained broadly under control after the 1994 CFA franc devaluation, although it was consistently higher than the regional average. Savings have risen somewhat since the mid-1990s, but investment has increased several fold in recent years owing to the effect of the pipeline project. As traditional exports of cotton have been subject to the vagaries of sharp international price movements and significant borrowing has continued, the net present value of the debt-to-exports ratio reached 222 percent in 2002 (Table 5). Notwithstanding the progress made in some areas, Chad has remained one of the poorest countries in the world, with a GNP per capita of about US$250 in 2002. Most social indicators continue to point to a very unfavorable situation of the population (Table 12).

Table 12.

Chad: Social Indicators

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Source: World Bank, World Development indicators, 2003.

17. Fiscal balance targets were not always achieved (especially under the recent PRGF-supported program), but deviations were usually small. There was less progress in improving fiscal revenue performance and in adhering to a composition of spending favorable to the social sectors identified as priority sectors for poverty reduction. Public expenditure management improved somewhat from the early 1990s, but progress in this area was significantly slower than envisaged under the programs.

18. The environment for private sector activity improved, especially in the early part of the period covered by the assessment, as a result of the government’s withdrawal from some productive areas, improved market access, a streamlined regulatory environment, and trade liberalization. However, the persisting weaknesses in the quality of labor supply, governance, infrastructure, and the financial sector, as well as the slow process of reform in the cotton sector and the loss of competitiveness in recent years, were among the factors that kept the private non-oil sectors from achieving their potential growth and diversification.

19. Ownership of programs by the government has been persistently insufficient and resulted in slower-than-hoped-for improvements in governance, as exemplified by the regularly surfacing of cases of abuse of public resources. Policy implementation and public administration capacities have also remained weak. Civil service reform has lagged significantly, and this has been both a cause and an effect of the weaknesses in ownership, capacity, and governance.

20. Overall, despite some delays, the programs have been quite successful in preparing the legal framework for the use of oil resources to benefit the priority sectors in the antipoverty effort, which will also benefit from the implementation of the national poverty reduction strategy presented in the recently completed PRSP.

21. Compliance with program conditionality under the recent ESAF and PRGF arrangements has been weak. Multiple waivers have been required to complete each of the programs’ reviews. While the margins by which quantitative targets have been missed have generally been small, the shortfalls in meeting the structural targets have tended to be more significant.

22. Program design and conditionality have been adjusted on various occasions since 1995 in response to shifting priorities in economic policy, as well as the need to improve implementation of policies. For example, the difficulty in monitoring domestic arrears led to the dropping of the corresponding performance criterion, even though targets in this area continued to be set. Also, in response to the need for improving the timeliness and degree of implementation of reforms in governance and other areas, a number of appropriate prior actions were required for the completion of PRGF reviews, and quarterly monitoring was carried out for a limited period in 2001–02.

23. While progress has been made up to now on macroeconomic stabilization and some structural reforms, major weaknesses still remain in the areas of public administration, governance, public expenditure management, fiscal revenue mobilization, reform of the cotton, energy, and financial sectors, and statistics. Some lessons learned from Chad’s performance under Fund-supported programs, as well as the challenges ahead, are outlined in Box 1.

24. In discussions, the authorities have broadly indicated that they agree with the identified areas where weaknesses still remain, but have emphasized the fact that capacity problems stem from the very weak economic, social, and institutional starting points of the reform effort in the mid-1990s. The authorities have been of the view that the progress made in improving governance in recent years was significant, as evidenced by the gains in transparency and the adoption of modalities for the use of oil revenue. Regarding the mixed record in complying with program conditionality, the authorities have observed that the timetables of reforms could have given greater regard to existing implementation capacity. The authorities have also noted that donor financial assistance could have been better targeted, and more timely, so as to advance specific reforms and policies.

B. The Medium- and Long-Term Macroeconomic Outlook and Strategy

25. The staff prepared an updated medium- and long-term macroeconomic framework, based on the existing model that the consortium had provided to the World Bank, as well as the latest projections on oil prices, debt service, transportation, and intermediate costs (see Table 7).9 In particular, it has recently become clear that the cost of transporting the oil through the pipeline would be higher than initially anticipated, although this is still a matter of negotiation between the government and the consortium. In addition, intermediate costs are likely to be greater than originally envisaged. Oil prices, which are taken from the World Economic Outlook, are slightly higher in the near term but overall lower in the medium term than under the PRSP scenario. Under the current scenario, oil production would reach its maximum level of around 83.5 million barrels in 2005 and would remain at about that level until 2008, after which production would begin its long decline.10 Under the conservative assumption that no new oil fields will be brought into production, about 80 percent of the currently identified oil reserves will already have been extracted by 2016. The revisions regarding the oil sector imply a somewhat lower rate of growth of both oil and non-oil GDP. Non-oil GDP is now expected to grow by 5.4 percent a year on average in 2004–20. Under this revised scenario, national disposable income per capita is expected to rise from US$251 in 2002 to about US$780 in 2020.

26. The main effects from the sector on the domestic economy would come through the spending of oil revenues accruing (Figure 2) to the budget(royalties, dividends, and income taxes), which are currently expected to average US$140 million per year (about 17 percent of the gross value of oil exports). The majority of direct oil revenues (royalties and dividends) are earmarked by law to be spent on the priority sectors and would directly alleviate the effects of poverty. Nonearmarked oil revenues in the budget would also help reduce poverty and sustainably increase incomes, including of the poor, if they support appropriate policies (see para. 32 below).

Figure 2.
Figure 2.

Chad: The Long-Terra Macroeconomic Framework, 2000–20

(In billions of CFA francs, unless otherwise indicated)

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Source: Chadian authorities; and staff estimates and projections.

27. Growth in the non-oil sector will be spearheaded by construction and services, but agriculture will remain the most important sector (Table 8). Primary sector output is projected to grow by 4.3 percent annually in 2004–20. This is predicated on implementing fully the strategy in the PRSP, which envisages improvements in infrastructure and services, the introduction of new crops, better access to inputs, and positive effects from the cotton sector reform. Secondary sector GDP, excluding the oil export sector, is projected to increase annually by 5.9 percent, mainly on account of high growth in the construction sector. The sustained growth of the other sectors, important productivity gains, and the “catch-up” of the currently underdeveloped financial sector will drive tertiary sector GDP growth, which is projected at 5.8 percent per year over 2004–20.

28. The macroeconomic framework projects an inflation rate of 3 percent per year in 2003–20. This is consistent with the objective of avoiding further deterioration in external competitiveness (see Box 2 and Figure 1), especially given the projected increases in productivity, but it will require that increases in government spending and credit to the private sector not be excessive.

29. The profile of oil revenues accruing to the budget is expected to be uneven (Figure 2). In the first years of oil production, until 2008, there will effectively be only direct oil revenues (royalties and dividends) accruing to the budget. These revenues are expected to peak in 2005 and to decline monotonically thereafter. The indirect oil revenues, which are the taxes imposed on the oil consortium, are not earmarked to be spent in a specific way; they are expected to begin accruing in 2007 but will come in a “lumpy” manner around 2009 before declining in the years that follow.

30. The decrees on the modalities of the use of oil revenues, adopted in the context of the PRGF-supported program, envisage a stabilization mechanism aimed at addressing the uneven profile of earmarked direct oil revenues, as well as the unpredictability of oil price movements. To achieve a smooth and rising level of priority sector spending in the period up to 2009, when indirect oil revenues start accruing to the budget in large amounts, it is important that the government save part of the earmarked direct oil resources in the period 2004–06, so that it can spend these savings in the period 2007–09. At the same time, under this stabilization mechanism, there would be at all times, starting in 2004, some additional amount in reserve, equivalent to 20 percent of the annual flow of earmarked oil revenue, so as to absorb shocks that are not big enough to trigger—as specified in the stabilization decree of July 1, 2003—a revision of the budget.

31. During the discussions with the mission, the authorities indicated their reluctance to save under the stabilization mechanism, notwithstanding the adopted modalities of the use of oil revenues. They initially opposed any savings under that mechanism in 2004, and the staffs suggestion to save CFAF 10 billion in that year was rejected. The authorities felt that Chad’s large needs justified spending all resources as they came in, and that it was difficult to defend any saving in the face of very large political pressures. The staff pointed to the need to credibly and effectively establish the stabilization mechanism for smoothing priority expenditures over time. It also noted that the absorptive capacity was very low and governance weak, with the attendant potential for wastage of resources.11

32. The arrival of initially very large nonearmarked oil revenues around 2009 and the subsequent diminishing of earmarked oil revenues have important implications for both government savings and the sources of financing of priority sector spending. The staff recommended that the government save significant amounts of the lumpy nonearmarked (indirect) oil revenues in the period 2009–12 in order to support the growth of spending in subsequent years, including priority sector spending, since the amount of direct oil revenues earmarked for the latter type of spending would by then be quite small.12

33. The external accounts are expected to improve over the period 2004–20 (Figure 2). Imports are projected to increase over time, but at a somewhat slower pace than non-oil GDP in the outer years of the scenario, assuming gradual import substitution. At the same time, addressing successfully the issues raised in Boxes 1 and 2 would facilitate the emergence of new non-oil exports as well. Thus, the current account deficit (excluding official transfers) would narrow from 45 percent of GNP in 2003 to 19 percent of GNP in 2004 and then to 11 percent by 2005. The balance of payments and fiscal projections imply an annual average need for foreign budgetary support of about CFAF 40 billion in the period 2004–06 (2.2 percent of GNP).13 Following a much smaller amount of needed budgetary support in 2007, the scenario does not envisage further need for such support up to 2020. It is envisaged that the current account deficit would fall to about 7 percent of GNP in the period 2007–20. Project loans and project grants to cover fiscal expenditures would account for a large part of the financing of the deficit. Foreign direct investment would also play a role. Around 2015, it is expected that some foreign exchange reserves may need to be used to supplement the financing of the deficit (Figure 2 and Table 7).

34. The macroeconomic framework shows Chad’s external debt-to-GNP ratio declining sharply over the period 2003–08. This is due to the large increases in overall GNP on account of oil production, HIPC Initiative debt relief (Table 9), and the reduced need of the government for foreign budgetary support. The external debt-to-GNP ratio is projected to fall from 75 percent in 2001 to about 37 percent in 2008. In the same period, the net present value of the debt-to-exports ratio is expected to fall from 226 percent to 42 percent. The analysis in Appendix V shows that the debt sustainability implied by the macroeconomic framework is robust to a series of the more plausible shocks. Under the macroeconomic framework, after 2010 debt indicators would begin to deteriorate before stabilizing by 2020, thanks to projected adequate fiscal management.

C. Macroeconomic Outlook and Policies for 2004

35. Real GDP growth is projected to reach 37.9 percent in 2004 (Table 1), corresponding to a growth rate of 5.6 percent in the non-oil sector, which would be supported by strong growth in credit to the private sector (Table 6). The inflation rate is expected to reach around 3 percent in 2004, as government spending increases significantly, but monetary developments remain consistent with the objective of avoiding a resurgence of excess liquidity. The current account deficit is projected to narrow sharply in 2004, owing to the reduction of oil project imports and the surge in oil exports (see Table 5).

36. The 2004 budget submitted by the government to parliament (Table 2) reflects some understandings reached with the mission but it also differs from the recommendations of the mission in certain respects. The budget submitted to parliament implies an overall fiscal deficit of 12.4 percent of GNP, based on projections of a strong increase in non-oil fiscal revenue, which the staff sees as feasible provided only that a number of measures are fully implemented.14 Wage bill growth would be contained at 12.6 percent, in line with the authorities’ commitment in the June 2003 MEFP. There would also be desirable outlays to address the electricity and water supply problems in N’Djaména, as well as the need to subsidize Cotontchad. The authorities’ budget proposal to parliament differs from what was advised by the staff mainly in two areas. It envisages saving only CFAF 5 billion of the earmarked oil revenue to feed the stabilization mechanism, instead of the CFAF 10.1 billion proposed by the staff. Moreover, in the authorities’ budget proposal, nonpriority expenditures are higher than proposed by staff, and thus the additionally constraint regarding priority sector spending financed by earmarked oil revenue, as specified in the adopted modalities for use of oil resources, would not be met. Given the hitherto-identified foreign budgetary financing, a financing gap of CFAF 22.1 billion (1.4 percent of GNP) would remain.

D. Structural Reforms

37. During the discussions, the government committed itself to fully implementing in the coming months the measures aimed at improving expenditure management that were envisaged in its last MEFP and needed to complete the FRGF review, as well as some new ones (Appendix VII). This is essential for improving absorptive capacity, so as to achieve the very strong increases in priority sector spending targeted for 2004 and beyond. Over the medium term, civil service reform, ownership of economic policies, and governance reforms will be critical in order to continue to improve public expenditure management. To assist in fiscal planning, it will be important to address the issues of the social security agencies (the CNPS (Centre National de Prévoyance Sociale) and the CNRT) and Cotontchad.15

38. In order to address persisting weaknesses in procurement and governance more generally, during the discussions the authorities committed themselves to implementing measures aimed at improving accountability in the use of public resources. In this vein, the government indicated that, by early 2004, all the recommendations of the recent audits of HIPC Initiative-financed contracts and of the five large contracts awarded in 2003 would be fully implemented. The government will take action against officials and companies implicated in irregularities identified by the recent audits. A Budget Discipline Court will be set up, and its work will be linked with a strengthening of the controls of the inspectorates in various ministries. The government intends to finalize soon an action plan to reform the justice system and initiate its implementation. It also intends to review existing anticorruption legislation and the degree of its effectiveness; study the possibility of creating an anticorruption body; and promulgate the new procurement code and make it effective by adopting its implementation decrees.

39. The mission discussed with the authorities the need to move rapidly regarding the outstanding modalities for the use of Doba oil(para. 9 above). The government also committed itself to moving quickly in the coming months to set up the Investment Committee for the FFG; defining the guidelines for the operation of that committee and the broad investment strategy that will be applied regarding FFG resources; selecting the asset management company to manage FFG resources; and adopting the permanent decree for the management company to manage FFG resources; and adopting the permanent decree for the oil-producing region. It will also be very important that the CCSRP monitor and control as envisaged in the adopted decrees the accounting and use of oil revenues earmarked for priority sector spending.

40. To strengthen the financial sector, the authorities and the mission discussed a number of steps to be taken in 2004 (Appendix VII). These steps would aim to further improve bank supervision and the legal and regulatory framework. They also include the carrying out of studies on ways to improve the workings of the money market and reduce vulnerabilities in the banking system.

41. In the reform of the cotton sector and civil service, where the World Bank takes the lead, the government has made a number of commitments. In the cotton sector, the emphasis will be on pushing through the optimal privatization of Cotontchad. In this context, a cotton sector reform road map for 2004–06 is being finalized with the assistance of the World Bank. The government also intends to pursue the reform of the civil service and is preparing, with the assistance of the World Bank, a revised action plan.

E. PRSP Implementation and HIPC Initiative Completion Point

42. The full PRSP was adopted in June 2003, and the national poverty reduction strategy has started to be implemented. Nevertheless, despite some preparatory steps, the monitoring mechanism of the PRSP has yet to be finalized and adopted by the government, and financing for it identified. Some progress has been made toward meeting the triggers for attaining the HIPC Initiative completion point, but weaknesses remain in a number of areas, such as governance, health, education, and rural development (Appendix VI). Therefore, there will likely be a delay in reaching the HIPC Initiative completion point, which was scheduled for mid-2004, the one-year implementation point of the PRSP.

F. Regional Integration, and Exchange and Trade System

43. Chad’s record of macroeconomic policy convergence within the CEMAC has been mixed in recent years, but it is expected to improve significantly. At end-2002, Chad had complied with two of the four convergence indicators established by the Central African Economic and Monetary Community (CEMAC). The criterion on not exceeding consumer price inflation of 3 percent is estimated to have been met in 2003, and the criterion on the zero base primary fiscal balance is projected to be met by about 2004–05. Regarding regional integration, Chad’s situation is characteristic of the member countries of the CEMAC (IMF Country Report No. 03/398). However, Chad is also participating actively in the Doha Round trade negotiations. In May 2003, Chad—together with Benin, Burkina Faso, and Mali—submitted a proposal aimed at eliminating cotton subsidies worldwide and, until this goal is accomplished, to secure financial compensation to less developed countries (LDCs) for the income these countries are losing.

44. There have been no changes in the trade and exchange system since the last Article IV consultation in early 2001. Chad rates a 4 on the Fund’s overall 10-point restrictiveness index (with 10 being the most restrictive), and with a simple average tariff of 18 percent and a statistical tax on both imports and exports of 2 percent. There are no known nontariff barriers. Chad is a member of CEMAC and its exchange system is free of restrictions on payments and transfers for current international transactions. Chad accepted the obligations under Article VIII on June 1, 1996.

G. Technical Assistance and Statistical Issues

45. Chad has received substantial amounts of technical assistance from the Fund (Appendices I and III), the World Bank (Appendix II), and other multilateral and bilateral sources. Achieving the objectives of the full PRSP will depend on the continuation and expansion of adequate short-and-long-term technical and financial assistance in a wide range of areas where there are weaknesses, as identified in this report and in Appendix III.

46. Chad’s statistical base is barely sufficient for the conduct of economic policy and the monitoring of the poverty reduction strategy. The statistics institute, INSEED, has recently made some improvements in real sector statistics, resulting from ongoing external technical assistance and the hiring of new staff. However, weaknesses remain in virtually all areas. It is particularly urgent to revise the consumer price index with regard to geographic coverage and weights, improve the collection of foreign trade data, complete the household consumption survey, and improve the turnaround in central bank monetary statistics. The government has indicated that it will support these efforts.

IV. Future Role for the Fund

47. The authorities have expressed their wish for a successor PRGF arrangement. Chad is facing capacity constraints in macroeconomic management, the need to reach the HIPC Initiative completion point in order to continue to benefit from debt relief, and a projected dependence on donor resources to finance an adequate level of investment over the long term. In recognition of these constraints, and in view of the fact that financing gaps will persist in 2004–06, a PRGF arrangement would best fit the needs of Chad for this period. A new PRGF-supported program would focus on poverty reduction by increasing priority sector expenditures in a sustainable manner, improving governance and public expenditure management, and enhancing domestic revenue mobilization to ensure adequate resources for the antipoverty effort over time. A close working relationship with Fund staff could also assist the authorities in the implementation of the modalities for the use of oil revenues, which are explicitly aimed to support poverty reduction efforts. Fund support would be conditional on sufficiently strong policies being adopted and implemented.

V. Staff Appraisal

48. Chad has succeeded in recent years in broadly maintaining macroeconomic stability and a high growth rate of economic activity that has benefited from the oil pipeline construction. It has also made progress in certain areas of structural reform, but important weaknesses remain in the areas of public administration, governance, public expenditure management, fiscal revenue mobilization, reform of the cotton, energy, and financial sectors, and statistics. Performance under the PRGF-supported program was weak in 2003 and the staff urges the authorities to implement the corrective measures discussed with the recent mission.

49. There has been a significant effort to formulate the detailed modalities for the use of oil revenues so as to ensure that oil revenues are used transparently and efficiently in the fight against poverty. The staff urges the authorities to complete this effort by promulgating the remaining two decrees. It is also of great importance that these decrees, along with the decrees promulgated in July 2003, are implemented fully and promptly, and that pressures for diversion from this framework are avoided.

50. The authorities have begun to consider the ways of using revenues from the new oil fields that may be discovered, and in this it is being inspired by the existing modalities of use of revenues from the Doba fields. The staff urges the government to work toward concretizing further its commitment in this area, in line with the existing oil modalities, and to adopt these principles by a government decision.

51. It is essential to maintain an appropriate fiscal expenditure policy from the very beginning of the oil era in 2004, not only in order to forestall the onset of “Dutch” disease but also to avoid the wastage of scarce resources, given the currently low absorptive capacity in priority areas. It is equally important to avoid spending all of the oil revenue in the period 2004–06 and credibly launch the stabilization mechanism as envisaged by the modalities of use of oil revenues, which would enable the government to maintain strong increases in priority sector spending over the longer term, In this context, the staff urges the authorities to save a larger amount of earmarked oil revenues in 2004 than envisaged in their budget proposal to parliament. The budget also needs to respect the additionality constraint as specified in the modalities adopted for the use of oil resources.

52. Recent performance in achieving a composition of spending favorable to health, education, and other priority sectors has been disappointing. Moreover, there has been consistently low quality of service delivery in these priority areas. In this context, the staff urges the authorities to sustainably improve public expenditure management. This can be achieved by implementing in the short run the steps committed to by the authorities in discussions with the staff and by significantly improving over the medium term the civil service and governance, and strengthening the ownership of economic programs. The staff hopes that the incident of extrabudgetary spending in 2003 will not be repeated.

53. Improving non-oil fiscal revenue performance is essential for eventually attaining fiscal sustainability, after the oil revenues have dried up. In addition, quick improvements in this area will be important for financing those nonpriority and priority expenditures that by law cannot be financed with earmarked oil resources. The staff, therefore, urges the authorities to put their efforts into achieving a sustained improvement of non-oil fiscal revenue performance by steadfastly implementing the measures discussed with the staff, and, in particular, the action plans in the areas of customs administration, the Tax Directorate, and the livestock sector.

54. At the onset of the oil era, and given the need to manage carefully macroeconomic conditions and to advance crucial reforms in the period ahead, the authorities need to emphasize the reinforcement of public administration capacity. To do so, the authorities should pursue more rigorously than they have up to now the reforms in the civil service that they have committed themselves to, including the implementation of the recommendations of the audits of the nine pilot ministries and the training of public officials.

55. The authorities have made progress in recent years in increasing transparency in the use of public resources and in raising the awareness of public officials of proper procedures. However, accountability in the use of public resources has not improved significantly, and governance as a whole remains a weakness, as clearly shown by the results of recent audits. The staff urges the authorities to implement quickly and fully all the governance measures discussed with the staff, which are aimed at creating or amplifying checks and balances and improving accountability. Carrying out the needed civil service reforms would also be instrumental in improving governance over the medium and long term.

56. To develop and diversify the non-oil sectors in the period ahead, when oil will tend to be a dominant economic force in Chad, the authorities should tailor fiscal policy to forestall any further loss of competitiveness and quickly carry out a number of other important structural reforms and policies. These include the elaboration and implementation of a coherent road map of actions in the domestic energy sector; the well-thought-out privatization of Cotontchad; the quick implementation of reforms in the justice system and in other areas affecting governance; and the strengthening and development of the financial system, including microfinance. These reforms would complement the envisaged high and increasing spending on education and health, which is aimed at improving, inter alia, human capital and the labor supply.

57. The staff regrets the reemergence of external payments arrears, including to the Fund, as well as the lack of necessary transfers to the HIPC account on account of interim HIPC Initiative relief. While the arrears to the Fund have been regularized, the staff strongly urges the government to avoid incurring new such arrears. It also urges the authorities to make more effective use of the cash-flow plan of the treasury and ensure that adjustments are made in nonpriority expenditures as needed, in order to avoid the reemergence of such shortfalls.

58. Notwithstanding the progress made in meeting some of the HIPC Initiative completion point triggers, the authorities need to redouble their efforts in the coming months in a number of areas to minimize the delays in reaching the HIPC Initiative completion point.

59. Chad’s statistical base needs significant strengthening in all areas in order to improve the monitorability and design of programs, including the monitoring and updating of the poverty reduction strategy.

60. The staff believes that a follow-up PRGF arrangement would be important to help close the financing gaps envisaged for 2004–06 and support Chad in the implementation of the needed economic policies and reforms in this period.

61. It is proposed that the next Article IV consultation discussions take place on the standard 12-month cycle.

Chad: Ex Post Assessment of Fund-Supported Programs, 1995–2003:

Lessons Learned and Remaining Challenges

The authorities’ ownership of economic programs and their administration capacity are interrelated, and both are paramount to the success of economic programs, especially at this stage of deeper reforms.

Fostering ownership would hinge on the incentives provided by the economic and political environment, as well as the authorities’ driving the design and implementation of their economic policies. Forums for acquainting civil servants with the reforms, and high-level discussion groups for senior officials, could be used in this effort.

In order to strengthen public administration, including policy formulation and implementation capacity, a sharper focus on civil service reform will be essential, along with increased program ownership by the authorities. In addition, training for both senior and mid-level officials needs to be stepped up. External resources and technical assistance will be needed.

Governance remains in need of improvement, by carrying out the civil service reform and creating or amplifying checks and balances to improve accountability.

It will be very important that the authorities fully implement—with or without donor assistance—the modalities they have adopted regarding the use of oil revenue, as this framework has been one of the clearly positive achievements of recent programs.

There is a need to look closely at fully identifying and establishing the conditions for the development and diversification of the non-oil sectors, such as rapid and appropriate reforms in the cotton and financial sectors, and better governance, in this context, a durable solution to the domestic energy problem (of unreliable supply and very high price) is indispensable.

It is essential to maintain a prudent fiscal policy to forestall the onset of Dutch disease, ensure sustainable increases in spending over time, and attain fiscal sustainability. The latter calls for a continuous improvement of non-oil fiscal revenue performance, which would depend on enhancement of governance and ownership, as well as on higher levels of technical and financial assistance. A lasting improvement in public expenditure management is needed, which will require, among other things, progress in civil service reform and improvements in ownership and governance.

The statistical base needs strengthening in all areas in order to improve the monitorability and design of economic programs. More financial and technical resources may be needed in this area.

While it may be difficult to prove the counterfactual, the changes in conditionality in the past do not appear to have been very successful in strengthening ownership and improving performance under the program. In the future, setting the timetables of policies/reforms could give greater regard to existing implementation capacity and the need for, and timing of, complementary technical assistance. At the same time, a firmer stance may need to be taken on compliance with conditionality, and the latter could focus more on implementation of measures.

Structural conditionality under Fund-supported programs could be expanded to cover some key structural reforms (for example, civil service reform).

Chad: External Competitiveness and Business Environment

The 1994 CFA franc devaluation, combined with the structural adjustment programs supported by the Fund and the World Bank and prudent monetary policies, was successful for a while in substantially strengthening the competitiveness of Chad. However, more recently, on the basis of traditional exchange rate indicators, a large part of these competitiveness gains appears to have been eroded. This is thought to have had a negative effect on export growth and diversification, as well as on Chad’s capacity to attract foreign direct investment outside the oil sector. In addition, import growth (apart from oil pipeline-related imports) has been quite robust, and local import-substituting industries have not developed.

The loss in competitiveness can be attributed in part to changes in the international economic environment, including the appreciation of the CFA franc (euro) vis-à-vis the U.S. dollar (amounting to 21 percent during 2002) and the additional depreciation of competitor countries’ currencies. Price level differentials with trading partners have also been a factor, reflecting to some extent the strongly increasing aggregate demand conditions in Chad since 2000, when the oil pipeline project accelerated. As a result, the REER for Chad (CEMAC) appreciated by 4.2 (5.9) percent in 2001, 8.4 (5.9) percent in 2002, and 9 (4.3) percent in the first eleven months of 2003. In the last three years, the REER appreciated from a level equal to 67 percent of its predevaluation level to one equal to 97 percent.

Structural factors affecting competitiveness and the business environment in general in Chad include the unfavorable conditions in transportation, electricity supply, and telecommunications. Another factor is the underdeveloped state of the financial system, which is characterized by high-cost bank credit and a dearth of bank lending for small and medium businesses, especially under medium- and long-term maturities. Other important elements are the low quality of services provided by the state, the unreliability of the justice system, corruption, and weak governance in general. Finally, due to the weak state of education and training, there are shortages of even minimally qualified workers.

Chad will benefit in the months to come from a diagnostic trade integration study that will be carried out by a number of international organizations. The conclusions of the study could be used to inform the policies regarding trade development and competitiveness enhancement in the authorities’ PRSP.

Figure 3.
Figure 3.

Chad: Real GDP, 2000-06

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Sources: Chadian authorities; and staff estimates and projections.
Figure 4.
Figure 4.

Chad: Investment and Savings, 2000-06

(in percent of GDP)

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Sources: Chadian authorities; and staff estimates and projections.
1

It is the overall fiscal deficit, excluding foreign-financed investment and debt service.

2

The mission discovered that, up to 2003, a part of the excise tax was directly transferred to the CNRT (Centre National des Retraites du Tchad), the civil service retirement fund, and was not recorded as tax receipts in the fiscal accounts. To enhance transparency, the mission recommended that all fiscal receipts and expenditures be recorded in gross terms.

3

In 2003, there were also some extrabudgetary expenditures (CFAF 1.9 billion) in connection with subsidized on-lending to parliamentarians to purchase vehicles. Neither the expenditure nor the accounts associated with it had been part of the fiscal program.

4

Regarding measures envisaged to be taken in 2003, the table monitoring the four stages of budget execution and the updates of the cash-flow plan were prepared with a delay of several months, instead of a delay of three weeks as envisaged under the program. The production of these tables also did not become biweekly, as targeted under the program. The monthly reports on public investment execution and their incorporation in the four-stage table did not materialize. The envisaged rolling three-month expenditure and commitment plans in the priority sectors have been prepared only once (instead of monthly) since July 2003.

5

The postponed priority expenditures would be realized in the event that resources (excluding oil revenues) additional to those already envisaged accrue to the budget over the medium term.

6

The July 2003 decrees were on the stabilization and sterilization mechanisms, the additionality of spending in the priority sectors financed by oil revenue, and the functioning of the Oil Revenue Control and Monitoring Board (College de Controle et de Surveillance des Revenus Petroliers, CCSRP).

7

These include the selection of the bank for the special account to receive the direct oil revenues and the opening of the account; and the finalization of the contracts between the government and the BEAC regarding the revenue repartition, stabilization, the FFG, and oil-producing region accounts and the opening of the accounts.

8

Instead, the Prime Minister sent a letter to the Fund addressing the issue. Moreover, in the letter there was no mention of the additionality of priority sector spending financed with oil revenue, the sterilization of unspent revenue, the use of specific transparency-enhancing mechanisms, and the objectives of the stabilization mechanism.

9

The authorities’ latest long-term macroeconomic framework was included in their June 2003 PRSP and will be updated in early 2004 on the basis of a revised oil production and revenue model that is being prepared by the oil consortium.

10

The updated macroeconomic framework assumes no change in the proven oil reserves of 1 billion barrels. This could be revised in the coming years as the results of continuing exploration by the consortium and at least one other private oil company become known.

11

After the mission left, the authorities proposed to save no more than CFAF 5 billion in 2004 and to save the difference of CFAF 5 billion in 2005 and 2006. The staff noted that in that case the mechanism would imply saving CFAF 26 billion in 2005.

12

Specifically, the government would have to spend on the priority sectors out of nonearmarked resources more than the minimum envisaged in the modalities for the use of oil revenue. These modalities specify that priority “baseline” expenditures would have to amount to at least 42.6 percent of total baseline expenditures, defined as expenditures financed by budget resources other than earmarked oil revenue.

13

As explained earlier, foreign budgetary support would continue to be needed over the medium term, even in the presence of oil receipts, as most oil revenue in the early years of oil production is by law earmarked to finance spending in priority sectors that is additional to “baseline” priority sector spending (see footnote 12 above) and nonearmarked domestic budget sources are insufficient to cover nonpriority and baseline priority sector spending in 2004–07.

14

These include, inter alia, the implementation of the action plan for customs, the Tax Directorate, and the livestock sector; additional measures for preventing the abuse of the Doba tax exemptions system; and improvements in the communications among the Tax Directorate, customs, other fiscal revenue departments, and the Procurement Directorate.

15

The potential costs of addressing the needs of these institutions are not known yet and are not included in the medium-term fiscal projections.

APPENDIX I Chad: Relations with the Fund

(As of December 31, 2003)

I. Membership Status: Joined 7/10/63; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Financial Arrangements:

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VI. Projected Obligations to Fund (without HIPC Initiative assistance)

(SDR Million; based on existing use of resources and present holding of SDRs)

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The projection of charges and interest assumes that overdue principal at the report date (if any) will remain outstanding, but forthcoming obligations will be settled on time.

VII. Implementation of HIPC Initiative:

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VIII. Safeguards Assessments:

Introduction

Under the Funds’s safeguards assessment policy, Bank of the Central African States (BEAC), of which Chad is a member, is subject to a full safeguards assessment. An on-site safeguards assessment of the BEAC, which was completed on July 25, 2001, proposed specific remedies to alleviate vulnerabilities that were identified by staff. The authorities have committed to implement the proposed remedies, and the status of implementation is described in the following sections.

Safeguards Areas and Main Remedies

The external audit mechanism. The safeguards assessment proposed that (i) the external auditor refer explicitly to the international standards of auditing (ISA) in its opinion, (ii) the external auditor become more cognizant of the accounting rules applicable to the recording of Fund’s balances; and (iii) the BEAC should include the audit opinion in the annual publication of the financial statements. The external auditor does not specifically refer to ISA in its audit opinion. The financial statement and the audit opinion are not yet published on the bank website.

Financial reporting. The staff recommended that the BEAC (i) enhance the readability and the credibility of the published annual accounts by including detailed explanatory notes on the accounting methods followed, and indicating whether these methods referred explicitly to a generally accepted accounting framework; (ii) adopt International Accounting Standards; and (iii) change the accounting of some of its operations with the Fund, especially with regard to the revaluation of the IMF accounts. The management of the BEAC has agreed to implement these recommendations. The BEAC, with the assistance of Banque de France, is working to modify its accounting framework and align its accounting and reporting practices with International Financial Reporting Standards (IFRS) and the European Central Bank (ECB) framework, including the Fund-related accounts. It is anticipated that the new framework will be in effect for the 2003 financial statements.

Internal audit mechanism. The staff recommended that the BEAC (i) establish a charter for the Internal Audit Department (IAD); (ii) expand the audit scope and coverage of IAD to include activities at headquarters; (iii) prepare an annual rolling multiyear audit program describing risk assessment, activities scheduled, staffing, and financial resources required; and (iv) increase the number of qualified staff. A draft for a new IAD’s charter has been prepared and will be submitted to management’s approval, and a risk-based audit methodology should be prepared in 2004.

The system of internal controls. The staff recommended that BEAC (i) strengthen coordination among the audit bodies; (ii) examine in-depth the segregation of duties at headquarters; and (iii) put in place a more systematic follow-up of all recommendations made by the external auditor to allow the Governor and the Board of Directors to better exercise their oversight responsibilities. The Board of Directors of the BEAC has designated in July 2003 the five members of its new audit committee, which will include the three members of the existing censors’ committee. The follow-up of recommendations will be implemented once the terms of reference of the committee are finalized.

IX. Exchange Rate Arrangement

Chad is a member of the BEAC. The exchange system common to all members of the BEAC has been free of restrictions on payments and transfers for current international transactions. Repurchase of the CFA franc banknotes exported outside the BEAC was suspended on August 2, 1993. The BEAC common currency is the CFA franc, which was formerly pegged to the French franc. Effective January 12, 1994, the CFA franc was devalued by 50 percent in foreign currency terms, and the exchange rate was adjusted from F 1 = CFAF 50 to F 1 = CFAF 100. Starting on January 1, 1999, the CFA franc has been pegged to the euro at a the fixed rate of EUR 1 = CFAF 655.97. On January 21, 2004, the rate of the CFA franc, in terms of the SDR, was CFAF 775.97 = SDR 1.

X. Article IV Consultations

The last discussions for the 2001 Article IV consultation were held in N’Djaména during the period October 31 – November 13, 2001. The staff report (IMF Country Report No. 02/29) was discussed by the Executive Board on January 16, 2002, together with the third review under the second annual program under the Poverty Reduction and Growth Facility, and Chad’s request for augmentation of access and for waiver of criteria. Following the current Article IV Consultation, which is expected to be completed in March 2004, the next consultation discussion would take place on the standard 12-month cycle.

XI Financial Sector Assessment Program (FSAP) Participation, Report on the Observances of Standards and Codes (ROSCs), and Offshore Financial Center (OFC) Assessments:

Not applicable for Chad.

XII. Technical Assistance

1988: FAD mission to prepare a tax reform program.

1989: FAD mission to prepare a tax reform program.

1990: FAD mission to review implementation of the tax reform program.

1991: FAD mission to review implementation of the tax reform program.

1994: FAD mission to assess weaknesses in customs administration and recruit an expert responsible for strengthening customs administration.

October 1994-October 1995: FAD resident expert to strengthen customs administration.

1996: FAD mission to review the tax reform program (introduction of the turnover tax and strengthening of tax administration).

August 1997: FAD mission to follow up on the tax reform program initiated in 1996.

November-December 1997; FAD mission to assess weaknesses in customs administration and prepare a rehabilitation program for strengthening the Customs Directorate.

May-June 1998: FAD mission to assess the need for long-term assistance in tax and customs administration, treasury operations, and budget preparation and execution.

November 1998: FAD expert to begin a series of missions to strengthen customs administration.

March 1999-December 2001: FAD resident expert to assist the tax administration, in particular, with the introduction of a value-added tax (VAT).

October 1999: FAD mission to assess tax administration.

November 1999-December 2001: FAD resident expert to serve as public expenditure management advisor to the Minister of Finance.

May 2000: STA multisector statistics mission.

June 2001-December 2001: FAD resident expert to assist the tax administration with, in particular, strengthening tax collection and implementing the VAT.

May 2002: FAD mission to assess the implementation of fiscal reforms and investigate the possible need for further Fund technical assistance.

July 2002: STA mission to evaluate the status of national accounts statistics and to provide recommendations for their improvement.

April 2003: FAD mission to provide technical advice to the authorities on the implementation of the customs action plan.

XIII. Resident Representative

The post of Fund Resident Representative was opened in N’Djaména in 1998. Ms. Laurence Allain, the current IMF representative, took up her post on October 15, 2001.

APPENDIX II Chad: IMF-World Bank Relations

A. Partnership for Development

1. Chad’s poverty reduction strategy paper (PRSP) was formally endorsed by the Boards of the World Bank and the Fund on November 13, 2003, and November 17, 2003, respectively. Good governance and sound macroeconomic management, and rapid economic growth are among the five strategic axes of the PRSP. The strategy also underlines the need for strong and sustained growth in the non-oil sector, improved human capital, improved living conditions for vulnerable groups, and the preservation of the environment. The Chadian outlook promises to be propitious due to the additional revenues that will result from the exploitation of the oil fields of Miandum, Komé and Bolobo which started in July 2003.

2. Oil provides a major opportunity for Chad to break free from poverty and very limited resources, to diversify its economy and increase its fiscal revenues. If well managed, additional revenues from oil can translate into significant poverty alleviation, through greater availability of resources for priority sectors, improved basic infrastructure and enhanced delivery of social services. The ongoing program of reforms of the Government, to prepare for the advent of oil revenues, is focusing on completing its structural reforms, reinforcing institutions, including fiduciary arrangements, strengthening the macroeconomic environment, and alleviating the bottlenecks that hinder both private sector activity and public sector delivery of services.

3. Nonetheless, in view of what is sometimes called the “paradox of abundance” and the experience of other oil-producing countries in Africa, petroleum resources also create new risks. Inability to control aggregate demand could lead to inflation, an appreciation of the real exchange rate, and a shrinkage of tradable sectors (including the cotton sector), which could undermine sustained economic growth. These risks are partly mitigated by Chad’s membership in the BEAC, a supranational central bank that independently implements monetary policy. There is also the risk that large oil revenues weaken the incentives for reforms and the leverage of external assistance. To ensure that future petroleum revenues do not compromise the country’s growth, Chad is in the process of setting up a regulatory and institutional framework for checks and balances on the use of petroleum revenues. Thus, the National Assembly adopted on December 30, 1998, a law on the management of government petroleum revenue (Law no. 001/PR/99) that establishes an oversight committee to monitor the use of petroleum revenues. This committee, Collège de Contrôle et de Surveillance des Ressources Pétrolières(CCSRP), includes representatives of the Government, Parliament, and civil society. The bulk of oil revenue will be allocated to priority expenditure for poverty reduction. In addition, 10 percent of these resources (royalties and dividends) will be deposited in an account for future generations managed through the BEAC.

B. World Bank Country Assistance Strategy

4. The World Bank’s assistance program in Chad is laid out in the Country Assistance Strategy (CAS) for Chad which was endorsed by the World Bank Board on December 11, 2003. The CAS supports two key strategic objectives (i) strengthening governance, including public resource management; (ii) ensuring inclusive, broad-based growth as the country embarks on oil production. This assistance program is consistent with the key strategic objectives of Chad’s poverty reduction strategy paper.

5. The World Bank’s current portfolio of projects supports (i) capacity building for public expenditure management, management of the petroleum sector, and environmental management; (ii) investments in key sectors for social and economic services (health, education, energy, rural development and transport); and (iii) the exploitation of Chad’s petroleum resources.

6. Support has been approved for key activities proposed by the CAS and its predecessor over the last three years. With respect to the oil sector, a Management of the Petroleum Economy Project in the amount of US$17.5 million, aimed at building capacity for public financial management, was approved in January 2000. On June 6, 2000, the Executive Board of the World Bank approved a Petroleum Development and Pipeline Project, for which it provided an IBRD loan equivalent to US$39.5 million to the Republic of Chad, as well as US$14.2 million in A-Loans and up to US$42.7 million in B-Loans from the International Finance Corporation to the oil transportation company in Chad. A complementary IDA-funded Petroleum Sector Management Capacity-Building Project, aimed at promoting environmentally and socially sound management of the petroleum sector, was approved simultaneously for US$23.7 million. In the transport sector, a credit of US$67 million in support of the National Transport Program was approved by IDA on October 26, 2000. In the health sector, a Health Sector Support Project in the amount of US$41.5 million was approved in April 2000. A second Population and Aids Project in the amount of $24.6 million was approved by IDA on July 12, 2001. A Critical Electricity and Water Services Project was approved by IDA on October 10, 2002 and an Education Sector Reform Project was approved by IDA on March 18, 2003. Finally, an Agricultural Services and Producers Organizations Project was endorsed by the Board on December 11, 2003.

7. Three quick-disbursing policy reform operations for a total of US$85 million were successfully carried out from 1996 to 1999 in support of the government’s structural adjustment program. The current policy dialogue between Chad and the World Bank focuses on improving transparency and accountability in Chad’s public expenditure management and procurement system, notably in preparation to the advent of oil revenues, so as to ensure that oil revenues will primarily contribute to achieving the poverty reduction objectives set out in the PRSP. The World Bank also provides support to deepen reforms in the cotton sector aimed at disengaging the State from the cotton sector and strengthening cotton farmers’ organizations, with the objective of increasing farmers’ incomes. Thus, a fourth and a fifth Structural Adjustment Credits (US$40 million each) were approved by IDA on December 18, 2001 and March 18, 2003, respectively, to provide support to the three-year program of reforms in these areas.

8. Other projects under preparation for presentation to the Board of Executive Directors in FY04–05 include a Local Development Project, an Institutional Reform Support Credit, and a second Management of the Petroleum Economy Project, as well as support to Demobilization and Reintegration of armed rebels and soldiers, which would be followed by a PRSC in FY06. An Urban Development Project is also planned to be discussed at the Board in FY05.

9. In addition to these lending activities, the World Bank has been carrying out non-lending activities focusing on critical areas of the program, in particular (i) public expenditure reviews in health and education (2001–02), and in health, education, justice, housing and transport (2002–2003), (ii) support for the implementation of a medium-term expenditure framework and program budgets in health and education in 2002 which haven been extended to other priority sectors in 2003, and (iii) completion of a study of the health sector (2002). The planned program of non-lending activities includes comprehensive public expenditure assessment, in close collaboration with the IMF and other donors. This will keep the focus of public expenditure reviews in priority sectors, provide analytical support for the implementation of a medium-term expenditure framework, and review of financial management and accountability mechanisms. The work also includes further expenditure-tracking surveys in priority sectors starting with a comprehensive health facility survey in end 2003. Work is also ongoing on a Water Supply and Water Sector Management Strategy and on the cotton sector. In particular, a Poverty and Social Impact Analysis (PSIA) has been launched in the cotton sector to identify ex ante the impact of reforms on all stakeholders, notably the poor, and to inform the selection of a scenario for the State’s disengagement from the cotton sector.

10. Institutional Development Grants have been approved to support capacity building for civil society groups and Parliament. These grants have been aimed, in particular, at strengthening the civil society’s ability to play its role in the management of future petroleum revenues.

C. IMF-World Bank Collaboration in Specific Areas

11. Chad’s principal development challenges can be described as threefold: (i) translating future petroleum revenues into expenditures for poverty reduction; (ii) maintaining macroeconomic stability and managing carefully the macroeconomic impact of the advent of oil revenues; and (iii) promoting growth in the non-oil sector, especially in rural areas.

Areas in which the World Bank leads

12. Policy reforms supported by the Bank through structural adjustment credits focus on two strategic PRSP axes: (i) promoting good governance; and (ii) ensuring strong and sustained growth. Specific objectives are sought in each of the development challenges, including

  • enhancing transparency, accountability, and adherence to the rule of law and participation;

  • improving the preparation, execution and ex-post monitoring, control and audit of the budget;

  • making public procurement more efficient and transparent;

  • strengthening the transparency and accountability of the civil service; and

  • strengthening the cotton farmers’ organizations, and disengage the state from cotton production; and promote microfinance institutions.

13. The dialogue pertaining to these areas of policy reforms is conducted with shared responsibility on governance and transparency issues and public finance management, as described in the following two subsections. The Bank leads the dialogue in all other areas, including the cotton sector reform, in close collaboration with the Fund. The Bank also leads the dialogue on the energy sector, in coordination with the Fund. The Fund focuses in particular on monitoring the fiscal impact of some key measures of reforms, e.g., the increase in the wage bill, Government subsidies to Cotontchad and the electricity company.

14. In addition, the Bank has taken the lead in assessing the poverty and social impact of reforms undertaken in the cotton sector, as mentioned above. An ex ante qualitative analysis was carried out in 2002. The Government identified a few scenarios for reform in early 2003, and the Bank is now providing support to the Government in assessing the poverty impact of each scenario and defining accompanying measures accordingly. An ex post analysis will then be conducted through repeated surveys with the support of the Bank to allow the Government to monitor the reform process and implement measures to mitigate the poverty and social impact of the reform and maximize the gains for the poor.

15. The Bank also provides support to sectoral policy reforms in the sectors of education, health, electricity, water and transport.

16. Measures under the Bank’s current adjustment support to the Government’s program of reforms are described below. Their satisfactory completion are prior actions for the next structural adjustment credit.

Improving governance

  • satisfactory progress in the implementation of the National Governance Strategy on the basis of progress reports, as evidenced by (i) the review by the Government (Haut Comitè Interministèriel) of the first draft of a policy for the public disclosure of information; (ii) the publication and wide availability of the Government’s 2003 Budget Law; (iii) publication on the Auditor General’s Office’s website of its report on the audit of the use of HTPC Initiative funds between May 2001 and May 2002; and (iv) publication on the Auditor General’s Office’s website of its report on the execution of the 2002 Budget Law;

  • finalization of a survey on users’ perception of customs services, after validation in a seminar; adoption and publication of an action plan to further improve customs services, including the reduction of the involvement of third parties in customs operations;

  • launching of the studies relating to the legal and institutional framework of the decentralization process:

    - Study on the modalities for creating rural community-level governing structures.

    - Study on the training policy for elected representatives and for staff in charge of the decentralization process.

    - Study on land ownership issues;

  • finalization and publication of the decree specifying the role and attributions of the Petroleum Revenue Oversight Committee (CCSRP), recruitment of two analysts; and

  • satisfactory use of the remainder of the Petroleum Agreement Signing Bonus as confirmed by the CCSRP.

Improving public resource management

  • presentation in the 2003 Budget documents submitted to Parliament of a medium-term macroeconomic and expenditure framework and medium-term expenditure plans for the health and education sectors;

  • launching of the preparation of medium-term expenditure plans for the health, education, justice, housing and public works sectors, which will be submitted to Parliament with the 2004 Budget Law; launching of the preparation of public expenditure reviews and medium term expenditure plans in the rural development sector (agriculture, livestock, water and environment) for submission to Parliament with the 2004 Budget Law;

  • continued monthly publication of the report on the execution of the budget, distinguishing between commitment, order to pay and payment and distinguishing specifically the Ministries of Education, Health, Public Works, Housing and Justice;

  • review of budget execution in priority ministries (including the investment budget) every two months, with the Ministry of Finance, the Procurement Directorate, the Procurement Commission, and donors if necessary, and preparation of minutes for publication;

  • production of public procurement plans in priority ministries every two months; review during the meetings on budget execution and preparation of minutes for publication;

  • effective launching of the training program for all agents in charge of budget preparation and execution;

  • hiring of the required number of qualified staff in the Budget Directorate, including macroeconomists for the economic forecasting subdirectorate (sous-direction de la prévision) and qualified executives for the investment subdirectorate (sous-direction de I’investissement);

  • identification of the needs in terms of qualified staff in the area of budget preparation and procurement in the Ministries of Health, Education, Higher Education, Housing, Public Works, Justice, Agriculture, Livestock and Water and Environment; hiring of required staffer subcontracting of some activities if necessary;

  • completion of the first phase of the implementation of the Integrated Financial Management Information System (design of the work program, installation of the computerized platform for the development of the software and of a training room with about fifteen computers, definition of technical requirements and main changes needed to adapt the Burkina software and launching of the preparation of the budget for a few ministries with training of the agents involved); launching of users’ training at the Ministry of Finance and the Treasury;

  • submission to Parliament of the 2001 Budget Settlement Law before the adoption of the 2003 Budget Law, and submission to the Auditor General’s Office of the accounts for fiscal year 2002 after reconciliation of the accounts; and

  • finalization and launching of implementation of the action plan to improve the arrival of public expenditures to health and education facilities.

Improving the efficiency and transparency of public procurement

  • submission to parliament of the new procurement code, including the texts creating an independent appeals system, and preparation of draft implementation decrees;

  • improvement and continued regular publication of the quarterly procurement bulletin, with incorporation of the minutes of the monthly meetings on budget execution; and

  • launching of an audit for the 2002 procurement contracts and system.

Strengthening the transparency and accountability of the civil service

  • issuance of the implementation decrees relating to the new civil service status law, including the status for special professions, remuneration and missions and the implementation decrees for performance evaluation, training and recruitment;

  • adoption of methodology for the audit of the nine pilot ministries covering organizational, procedural and human aspects, and collection of basic data and documentation; and

  • final update of the payroll, based on the update of the 2000 census of civil servants and the list of all personnel included in the payroll; monthly update and quarterly review of this list by ministry (December 2002, March 2003, and June 2003).

Strengthening the cotton farmers organizations, and disengaging the state from cotton production:

  • adoption of an action plan for the institutional strengthening of cotton farmers’ organizations (CGL);

  • full implementation of the cost-cutting measures for the operation of Cotontchad; and

  • adoption of privatization scenarios by the government, preparation of the investors’ forum and farmers’ forum to discuss the scenarios for the privatization of Cotontchad and the poverty and social impact of the reforms in the cotton sector.

Areas of shared responsibility

17. Areas of shared responsibility between the Bank and the Fund concern mainly (i) the dialogue on petroleum revenue management and support to increased transparency and efficiency in public finance management; and (ii) support to governance reforms.

18. In all these areas, the Bank and the Fund maintain a joint dialogue but focus separately on specific components of the reform program, and have defined complementary benchmarks in their instruments of support for measuring progress in the implementation of the program. In addition the Bank provides technical assistance and support to the implementation of the reform program through several projects, notably the Management of the Petroleum Economy Project and structural adjustment credits.

19. Exchange of information, consultation and coordination for defining benchmarks and discussing progress in the implementation of the reform agenda take place on a regular basis between the Bank and the Fund. Joint missions are carried out at least twice a year to review progress and discuss the next steps on the program of reforms in these areas.

20. There is also close collaboration and shared responsibility between the Bank and the Fund on the monitoring of HIPC Initiative completion point triggers, with the Bank taking the lead on triggers in the health, education, rural development and infrastructure sectors, and the IMF taking the lead in the assessment of the macroeconomic performance of Chad. Responsibility is shared in the monitoring of most governance-related triggers. Similarly, the Bank and the Fund have agreed jointly with the authorities on an action plan to improve the tracking of poverty-related spending. The two institutions monitor progress and exchange information about the implementation of the plan.

21. The Bank and the Fund also collaborate very closely on the dialogue pertaining to the PRSP, with the IMF focusing on the macroeconomic framework, and the Bank on all other areas covered in the document.

Areas where the IMF leads

22. The IMF has taken the lead in the discussion and definition of the macroeconomic framework and the setting up of macroeconomic objectives and targets (overall public sector deficit, primary balance, current account balance and overall balance of payment, monetary sector quantitative targets, and other benchmarks). The IMF also leads the dialogue on revenue mobilization, notably tax policy, with Bank involvement in the area of customs reforms.

APPENDIX III Ex Post Assessment of Performance Under ESAF/PRGF-Supported Programs

Prepared by a Team from APR, FAD, and PDR

February 19, 2004

I. Introduction

1. Chad’s operational relations with the Fund and the World Bank were limited before 1994, owing in large part to political instability. Continuing civil strife had prevented economic reforms, derailed financial policies, and disrupted private sector activity. In that context, no Fund-supported program could be established.1

2. In 1993, armed conflict ended. The country was able to step up its democratization, culminating in the first free presidential and parliamentary elections in 1996 and 1997, respectively. The relative stability permitted the authorities to focus on economic reforms.

3. The authorities’ attention to economic issues was supported by a 12-month Stand-By Arrangement in the context of the January 1994 CFA franc devaluation. However, slippages soon emerged, and only the first purchase under the Stand-By Arrangement was made.2 To establish a track record of policy implementation, a staff-monitored program (SMP) was put in place during October 1994-June 1995. In this period, the Chadian authorities demonstrated commitment to economic policies, which resulted in an encouraging performance under the SMP.

4. The establishment of a track record paved the way for the Executive Board to approve three annual arrangements under the Enhanced Structural Adjustment Facility (ESAF) over the period July 1995 to March 1999. Negotiations during the remainder of 1999 led to the approval of a three-year PRGF arrangement in January 2000, which, following an extension of the commitment period, expired on January 6, 2004.

5. This note reviews Chad’s performance under Fund-supported programs since the beginning of the 1995 ESAF-supported program. It evaluates the factors that have contributed to the Fund’s prolonged involvement, analyzes outcomes under the two main ESAP- and PRGF-supported programs; draws lessons from the past; outlines the challenges for the future; and explores the rationale for the Fund’s future involvement in Chad.

II. Rationale for Fund Involvement in the mid-1990s

6. In the mid-1990s, Chad was facing enormous obstacles, both natural and man-made. Chad is a vast, landlocked country, with large arid and semiarid zones, comprising a great number of diverse communities. The harsh natural conditions had been aggravated by a 30-year civil war (from independence in 1960 until 1990) and an armed conflict with a neighboring country (1990–93). Moreover, the neglect of development policies over many years had led to major economic challenges.3 Poverty remained at levels higher than average for sub-Saharan Africa as the economy hardly grew—it was actually contracting during 1990–93—and government expenditure was biased toward unproductive activities. Budget revenue collection was one of the lowest in the world. Institutions and capacity were weak, and there were governance shortcomings. Economic policy had virtually no credibility either at home or abroad.

7. The involvement of the Fund was aimed at helping Chad switch from a war economy to a sustainable, development-oriented economy that would be conducive to private sector activity. It was felt that the Fund could help Chad’s efforts with its advice and expertise on fiscal policy, various structural reforms, and capacity building.4 An appropriate fiscal policy, in terms of fiscal consolidation through revenue enhancement as well as an improvement in the composition and efficiency of spending, would go a long way toward establishing macroeconomic stability and the credibility of economic policy. The Fund could also help put in place structural reforms that would further revitalize the private sector through government withdrawal from productive areas, improved market access, and a streamlined regulatory environment (wage, price, and trade liberalization, and the removal of import and export licensing). The Fund could also assist, together with the World Bank, in strengthening the public administration, with emphasis on the efficiency and transparency of financial management.5 Finally, it was felt that the Fund could help strengthen the extremely weak statistical base, with a view to facilitating policy formulation and monitoring.

8. In addressing these challenges, the Fund-supported programs would have to build on the existing difficult socioeconomic contest, striking a difficult balance among addressing the large adjustment and reform needs, acknowledging the capacity constraints, and building confidence in the government’s economic policies. The program design therefore would have to avoid being unrealistic while still addressing the main deficiencies outlined above.

III. Performance Under the 1995–99 ESAF-Supported Program

A. Overview

9. The adjustment strategy underlying the 1995–99 ESAF-supported program was predicated on pursuing macroeconomic stability and initiating much-needed structural reforms. It aimed primarily at improving domestic resource mobilization and allocation, strengthening public sector management, and fostering private sector development through privatization and price and trade liberalization.

10. Overall, the 1995–99 ESAF-supported program brought about a marked recovery in economic activity, tangible progress in macroeconomic stability, and an improved economic environment for private sector activity. Nevertheless, greater-than anticipated institutional inefficiency and limited capacity played an important role in limiting the implementation of some macroeconomic policies and key structural reforms. This was in the context of weaknesses in governance and somewhat incomplete ownership of program goals and policies.

B. How did Chad perform vis-à-vis the macroeconomic program targets?

11. Chad showed an overall good macroeconomic performance, with relatively small deviations from the program’s macroeconomic objectives (Box 1 and Figures 1–3). Economic growth was somewhat lower than hoped for, at an average of 3.8 percent per year, but inflation was within the target range by 1998. The current account deficit (excluding grants and oil pipeline-related imports) improved by 9 percentage points of GDP, significantly more than expected, reflecting mostly favorable movements in the terms of trade.

Figure 1.
Figure 1.

Chad: Real Sector — Programs’ objectives and outcome, 1994-2002

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Sources: Chadian authorities; and staff estimates.
Figure 2.
Figure 2.

Chad: Balance of Payments — Programs’ objectives and outcome, 1994-2002

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Sources: Chadian authorities; and staff estimates.
Figure 3.
Figure 3.
Figure 3.

Chad: Public Finances — Programs’ objectives and outcome, 1994-2002 1/

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Sources: Chadian authorities; and staff estimates.1/ The program objectives were redefined to be consistent with the revised GDP series.
C. Implementation of the policies envisaged under the program and reasons for shortfalls

12. During the program period, the fiscal accounts improved more than targeted, owing to the broad achievement of the revenue targets and expenditure shortfalls. The overall fiscal deficit (on a commitment basis and excluding grants) shrank by 6.8 percentage points of GDP, more than programmed. The current primary deficit also overperformed, but by a smaller amount. Revenue, excluding grants, improved by 2.5 percentage points of GDP over the 1994–98 period, broadly in line with a target of 2.7 percentage points of GDP. Government wages were kept in check, but capital expenditure was less than in the program.

13. There was progress in liberalizing the economy, albeit with some delays, but progress was more modest in improving the efficiency and transparency of public sector administration and financial management. Most administrative price controls were eliminated as envisaged, a more flexible labor code was adopted, and the Central African Economic and Monetary Community (CEMAC) provisions for trade liberalization were implemented. The demobilization program was initiated, and a number of enterprises were privatized. However, program intentions were only partially met or not met at all regarding civil service reform, the rationalization of the budget process, revenue-enhancing measures, cotton sector reform, and the quality of statistics.

14. Despite some steps taken to facilitate policy implementation, greater-than-anticipated institutional inefficiency and low capacity played an important role in limiting the implementation of policies. On the positive side, the authorities established high-level policy committees, and on a number of occasions they acted promptly to compensate for program slippages in various areas, as, for example, in 1998, when nonpriority sector spending was cut to offset the effects of revenue shortfalls. These steps also went some way toward demonstrating the government’s commitment to reform. However, there were slippages in macroeconomic policy implementation,6 for example, in customs revenues, where performance continued to be weak despite repeated technical assistance provided by the Fund (see Box 3). In addition, there were continued delays in key structural reforms, such as the privatization of some large public enterprises. These weaknesses were linked to the failure to effectively train civil servants, the high turnover rate among senior officials, the somewhat limited government ownership of program goals and policies, and governance shortcomings (such as insufficient accountability). Moreover, this meant that the approach to policymaking was not systematic, and there was excessive reliance on onetime, donor-driven measures. The above shortcomings contributed to the government’s making less-than-anticipated progress in establishing credibility for its economic policies.

Main Macroeconomic Objectives and Outcomes, 1995–1998 1/

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1/ The program objectives were redefined to be consistent with the revised data series.

IV. Performance Under the PRGF-Supported Program (2000–03)

A. Overview

15. Chad’s main goals in the current PRGF-supported program were recast in light of the emergence of new challenges and the progress achieved under the ESAF-supported program. Two major new challenges emerged:

  • The need to focus on poverty reduction. Policies were to explicitly focus on poverty reduction by (i) developing a comprehensive poverty reduction strategy and (ii) targeting increased spending on health, education, rural development, and basic infrastructure, which became the priority sectors. This focus underscored the need to strengthen absorptive capacity in these sectors, strengthen the system of public expenditure management (including through a medium-term expenditure framework (MTEF)), and reinforce the weak statistical system, to allow, inter alia, for poverty monitoring.

  • The need to prepare for the oil era, and especially to take steps to ensure that the oil revenue would be used explicitly to reduce poverty and in a prudent manner. In this context, the program aimed at putting in place the specific modalities for the use of oil revenue to implement the ground-breaking Law on Petroleum Revenue Management (LPRM) of 1999, which earmarked the majority of direct oil revenue (i.e., royalties and dividends) for spending in the above-mentioned priority sectors. The program also aimed to improve governance by, inter alia, strengthening the judiciary and the auditing and oversight of the use of public resources.

16. Building on the progress made under the ESAF-supported program, the fiscal position was to be consolidated and non-oil sector development supported. The movement toward long-term fiscal sustainability would continue and be based on increases in the revenue-to-GDP ratio. Non-oil sector development was to be aided by (i) strengthening the formal financial sector and microfinance; (ii) privatizing the remaining large state companies; and (iii) rationalizing the pricing and regulatory framework for public utilities and providing for adequate investment, especially in the energy sector. The program was also to aim explicitly at fostering program ownership, including, inter alia, by widening the public dialogue on policies that characterized the period of the ESAF arrangement.

17. Under the current PRGF-supported program, economic activity has received a substantial boost from oil sector activity. Macroeconomic stability has been broadly maintained, and the environment for private sector activity has improved, despite continued delays in policy implementation. The latter have reflected continuing weaknesses in administrative and institutional capacity (despite ongoing technical assistance), governance, and ownership of economic reforms. These shortcomings have appeared to be more binding, and the ensuing policy implementation delays somewhat more protracted, than under the ESAF arrangements.

B. How did Chad perform vis-à-vis the macroeconomic program targets?

18. The fundamental macroeconomic goal of the PRGF-supported program—to maintain the macroeconomic stability achieved under the ESAF-arrangement—was broadly achieved (Box 2 and Figures 1–3). The faster-than-anticipated oil pipeline construction contributed to higher-than-programmed real GDP growth, averaging 6.1 percent per year. However, it also contributed to higher-than-targeted inflation, which averaged over 7 percent per year.7 Given the participation of Chad in the CFA franc zone, the higher inflation contributed to the real effective exchange rate’s appreciating to a level equal to 97 percent of the predevaluation level of 1994. This appear to have been one of the reasons for a rising import penetration of the economy and a weakening ability to export (Figure 4).

Figure 4.
Figure 4.

Chad: Competitiveness Indicators, 1994-2002

Citation: IMF Staff Country Reports 2004, 111; 10.5089/9781451836431.002.A001

Sources: Chadian authorities; and staff estimates.1/ Oil exports have not begun by 2002, but imports relating to the construction of the oil pipeline are included.

Main Macroeconomic Objectives and Outcomes, 2000-2002

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1/ The program objectives were redefined to be consistent with the revised data series.
C. Implementation of the policies envisaged under the program and reasons for shortfalls

19. While policies were implemented so as to maintain macroeconomic stability, the intended improvement in the fiscal accounts did not materialize. Both the current primary fiscal balance and the overall fiscal balance deteriorated instead of improving. Delays in implementing certain revenue measures8 and governance problems9 prevented the programmed increase in the revenue-to-GDP ratio. Current expenditure was higher than programmed, while investment expenditure experienced persistent shortfalls. The composition of expenditure was persistently skewed away from priority sectors, contrary to program intentions.10 The authorities were able to design, but not consistently implement, a system of budgetary programming, implementation, monitoring, and control.11 The preparation of administrative decentralization lagged and the social security system was not reformed. There was some limited effort to identify and settle domestic arrears, but new domestic and external arrears continued to arise regularly.13

20. The expected strengthening in the effectiveness and capacity of the public administration again lagged. The civil service reform experienced delays in most areas, and the envisaged redistribution of human resources and competencies did not take place.12 This contributed to the weak improvement in the delivery of public services, especially in health and education, as evidenced by Chad’s mixed performance in achieving the Initiative for Heavily Indebted Poor Countries (HIPC Initiative) completion point conditions in these areas. There was limited progress in the statistical system, despite foreign technical assistance (including from the Fund) and some increases in budgetary allocations for the statistics institute. Among the few improvements were some first steps taken toward building a poverty-monitoring system.13

21. There have been some advances with regard to structural reforms aimed at supporting private sector development, but delays have persisted in the energy, banking, cotton, and telecommunications sectors. On the positive side, microfinance expanded, the maximum tariff rate was reduced to 20 percent, and the new exchange regulations for the CFA franc zone were adopted. In the domestic energy sector, the prices of petroleum products were fully liberalized, and the privatization of the water and electricity company (STEE) was initiated in 2000 with the signing of the management contract with a private company. However, STEE has continued to need subsidies from the government, and the supply of electricity has been very irregular. Cheaper fuel from the Sédigui oil field was intended to alleviate these problems and the pipeline from that field was actually built; however it has not yet become operational, as the quality of the work done on it was deficient. Moreover, the principles of a framework for the pricing of energy were adopted, but there have been delays in the preparation of pricing and taxation policies for Sédigui energy products. In the banking sector, there was some improvement in the recovery of, and provisioning for, nonperforming loans. However, the banking system continued to be heavily exposed to the public sector (including public enterprises) and to be beyond the reach of the Jarge majority of potential depositors and borrowers. In the cotton sector, while the soap and oil unit of the state-owned cotton company (Cotontchad) was finally privatized in mid-2003, the privatization of Cotontchad itself has lagged and is now expected to take place only by end-2005. The prices for cotton were linked to international prices by early 2000 through an agreed formula, which, however, has been suspended since the 2002/03 campaign when world cotton prices reached historical lows.14 The cotton sector also suffered from persisting delays in providing VAT refunds and budgeted subsidies to Cotontchad. The telecommunications company was not privatized, but the sugar factory was divested as envisaged under the program.

22. A number of steps were taken to improve governance, and in particular transparency, but several instances of misuse of public resources have surfaced. The Accounting Office of the Supreme Court became operative, and independent auditors evaluated public spending, uncovering various instances of weak governance. The government published these audit reports. The governance problems that were uncovered related, inter alia, to the unprogrammed use of the bonus for signing the oil exploitation agreement with the international consortium; the nontransparent award of contracts in the domestic energy sector; extrabudgetary spending and accounts; and procurement irregularities in spending financed from HIPC Initiative resources. In all these instances, investigative and corrective actions were taken. However, it is possible that this was done under pressure from the Fund and other donors. There has been little accountability and a lack of clear evidence that the incidence of such misuses of public resources has been declining. Moreover, other actions aimed at improving governance have experienced delays.15

Chad: Fiscal Affairs Department (FAD) Technical Assistance

Since the inception of the ESAF in 1995, FAD has provided technical assistance in tax policy and administration, and expenditure management, through regular missions, as well as the posting of long-term advisors. The implementation of reforms has been mixed; some important steps have been taken, but delays have been caused by weak capacity and lack of will. Since the late 1990s, reforms have focused on preparing the country to face the challenges of the oil era.

Tax administration

Missions took place starting in 1996 to evaluate the turnover tax (TCA) and prepare for the introduction of the VAT. Most recommendations were implemented in a timely manner. Two resident advisors were posted in N’Djaména from 1998 until end-2001. In spite of substantial weaknesses in human, material and financial resources, the Tax Directorate (DIT) made good progress in 2001–02. A single-rate VAT was introduced in January 2000, and the implementation of the new tax was gradually improved.

Key weaknesses remain, especially in areas that require coordination between the tax administration and other departments within the Ministry of Finance. The FAD resident expert noted that several factors contributed to limiting progress in reform: the lack of material means, the weakness of the staff, the poor data management and lack of information of the Customs Department, the pervasiveness of special regimes and exemptions, the lack of cooperation among various departments, the importance of payments arrears, which adversely affect the cash position of enterprises, and the economies’ agents feeling of impunity.

Customs administration

Reform iii customs administration met with more difficulties. Between 1994 and 2000, a number of missions and peripatetic visits took place, and some progress was made. However, between 2000 and 2003 no noticeable progress was achieved. It seems that the main problems relate to governance and state authority, which is translated into a weak central administration and relatively autonomous customs offices operating more like an informal sector.

Public expenditure management

Technical assistance (TA) in public expenditure management started in 1998 in the context of multitopic fiscal missions and the placement of a resident advisor in 1999. Basic public expenditure management tools have been at least partly implemented, but ownership of the reform process remains weak. A new budget classification system and chart of accounts were adopted, as well as a streamlined expenditure process that reduced substantially the multiple control points. However, basic tools that had been developed, such as a treasury plan, are not being utilized as expected. Budget preparation remains another weak area, although efforts have been made recently to frame budget preparation within a macroeconomic framework. On the basis of the new expenditure process, limited computerization has been initialed, although several factors hamper its effectiveness: (i) delays in the authorities’ appointment of a coordinator and supervisor of the process; (ii) the continued use by comptrollers of manual recording and controls; and (iii) an insufficient pool of equipment made available for this function.

Conclusions

Six factors appear to have hampered the implementation of TA recommendations in the fiscal area: (i) lack of qualified staff; (ii) absence of equipment; (iii) smaller-than-needed budgetary allocations to improve (i) and (ii); (iv) lack of coordination among different fiscal agencies; (v) governance problems, particularly at the customs level; and (vi) lack of credibility of the authorities vis-à-vis private operators—including pervasive exemption and ad hoc regimes, and lack of sanctions. Finally, under the Fund-supported programs conditionality could have been put on implementation of TA recommendations, including on the needed budgetary allocations to effect that implementation.

23. Incomplete program ownership—at both the policy and technical levels—persisted as program priorities and capacity-building efforts were not fully internalized by the authorities. Incomplete program ownership reflected the continuing existence of different “camps” within the government. As a result, the authorities’ capacity for coordinated economic policy formulation and the full implementation of policies remained limited. Nevertheless, there are—albeit yet to be tested—signs of progress in increasing the authorities’ program ownership—mainly in the design of the modalities of use of oil revenue and in the elaboration of a reasonable poverty reduction strategy in the poverty reduction strategy paper (PRSP).

V. Performance Against Conditionality Under the ESAF AND PRGF Arrangements

24. Measured strictly against compliance with program performance criteria (PCs) and benchmarks, Chad’s performance under the recent arrangements has been relatively weak (Tables 1, 2, 3a, and 3b). Numerous conditions were not met on time, and multiple waivers have been required to complete each of the program reviews of the arrangements under consideration. While the proportion of missed targets has been similar for both quantitative and structural conditionality, the deviation from targets has varied. While comparisons cannot be accurately made, there is a clear sense that quantitative targets have been missed by small margins, while the delays in fully implementing structural measures have tended to be more significant.

Table 1.

Summary of Performance Against Program Conditions under Recent ESAF and PRGF Arrangments

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Source: International Monetary Fund.
Table 2.

Chad: Performance Againsted Quantitative Program Conditions under Recent ESAF and PRGF Arrangements

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Table 3a.

Chad: Performance Against Structural Program Conditions

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Table 3b.

Chad: Performance Against Structural Program Conditions

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25. Under the 1995–99 ESAF arrangements, waivers were required for about half of all PCs, (both structural and quantitative). Under the current PRGF arrangement, waivers have so far been required for about one-third of the quantitative PCs and nearly 60 percent of all structural PCs. Performance was perhaps weakest around the time of the second review of the PRGF arrangement, when four of the six quantitative PCs, four of the five quantitative benchmarks, and all four structural benchmarks were missed. Following this and continued weak performance around the time of the third review, quarterly monitoring was introduced. The response to quarterly monitoring seems to have been positive, with the number and share of waivers requested declining. However, the need for this approach underscores the reservations that have been expressed about governance and the authorities’ ownership of the program.

26. The most systematically breached quantitative conditions relate to the repayment and/or nonaccumulation of external arrears, requiring waivers in all but one review16 under the ESAF and PRGF arrangements. The authorities experienced similar difficulties with domestic arrears repayments, and waivers were granted on all but one of the occasions when relevant conditions were included.17 The authorities also had continued difficulties in meeting the floor on priority health and education expenditures.

27. Significant progress was made under the PRGF arrangement in streamlining structural conditionality and in adjusting other program conditionality in response to shifting priorities in economic policy, as well as to the need to improve implementation of policies, while recognizing what was feasible. For example, during the PRGF-supported program, new emphasis was placed on spending in health and education, and these indicative targets were elevated eventually to performance criteria. The difficulty in monitoring domestic arrears led to the dropping of the corresponding performance criterion, even though targets in this area continued to be set. In response to the need for improving the timeliness and degree of implementation of reforms in governance and other areas, quarterly monitoring was carried out for a limited period in 2001–02.

28. Conditionality was successfully reoriented to focus on the identified objectives regarding the impending inflow of oil receipts. However, doing so was not costless or without tension. While the World Bank assumed more responsibility for setting conditions in several key structural areas—including civil service and cotton sector reform—only a limited number of the objectives in these areas (as enunciated under ESAF-supported program) have been achieved. Arguably, there have been more protracted delays in areas where no conditions were incorporated in the Fund arrangements.

VI. Fund-Bank Collaboration

29. Over the past ten years, the World Bank’s Country Assistance Strategies have focused on (i) building public sector capacity; (ii) improving delivery of basic social services; (iii) removing constraints on growth; and (iv) focusing public expenditures on poverty reduction. The policy dialogue with Chad has also emphasized on using oil revenues to reduce poverty. This strategy has been consistent with the Fund-supported programs and the government’s PRSP.

30. Fund-Bank collaboration has generally been satisfactory. Fund and Bank staffs have consulted regularly on Chad’s reform agenda. In addition, joint Bank-Fund missions have worked together to resolve cross-cutting issues, especially regarding the oil sector and the preparation for the oil era. On some occasions, there were concerns that reforms under the responsibility of the World Bank were progressing slowly,18 In a related vein, the authorities’ delays in fulfilling World Bank conditions have occasionally led to then missing performance criteria of the Fund-supported programs.19

31. In recent years, the division of responsibility between the Fund and Bank has remained broadly unchanged:

  • The Fund has taken the lead regarding the macroeconomic framework and related objectives and targets (including revenue mobilization).

  • The Bank is leading the dialogue on structural policy reforms, notably the cotton sector, procurement, and civil service reforms, aside from its traditional sectors of health, education, energy, water, and transport.

  • Areas of shared responsibility have mainly been petroleum revenue management, HIPC Initiative completion point triggers, transparency and efficiency in public resource management, and governance-related reforms.

VII. Lessons Learned and the Challenges Ahead

32. Formulation and implementation of macroeconomic and structural policies have been, and will likely continue to be for some time, weak areas in Chad. To address these weaknesses and have successful economic programs, especially at this stage of deeper or more wide-reaching reforms, it will be important for the authorities to improve their ownership of economic programs and administrative capacity. Shortcomings in these interrelated areas go a long way toward explaining many of the shortfalls in program implementation up to now.

33. Fostering ownership would hinge on the incentives provided by the economic and political environment, as well as the authorities’ driving the design and implementation of their economic policies. Other ways to increase ownership also need to be explored. Initiatives could include government forums at which the authorities’ development strategy and policies designed to achieve it could be explained to civil servants, and high-level discussion groups for senior officials, where the political aspect and responsibility issues could be highlighted.

34. For strengthening public administration, including capacity, a sharper focus on civil service reform will be essential, along with increased program ownership by the authorities. In addition, training for both senior and mid-level officials needs to be stepped up in order to create a culture of responsibility and diligence in implementing policy decisions. The authorities could elaborate a strategy to ensure a wider, yet more targeted, impact of training efforts. Considerable external resources and technical assistance will be needed over the medium term to help build up the necessary managerial and administrative skills. Therefore, the authorities’ efforts need to be accompanied by a renewed capacity-building effort with the involvement of both the World Bank and the African Regional Technical Assistance Center (AFRITAC). The government also needs to deepen the policy dialogue with its external partners, with a view to strengthening the coordination of training programs and technical assistance.

35. Governance remains to be improved by carrying out the civil service reform and creating or amplifying checks and balances to improve accountability(e.g., by strengthening the judicial system and using the country’.s democratic institutions and civil society, as well as by creating institutions such as an anticormption authority).

36. It will be very important that the authorities fully implement the modalities they have adopted regarding the use of oil revenue, as this framework has been one of the clearly positive achievements of recent programs. If Chadian capacity to implement these modalities remains weak in the immediate future, there may be a need to use external management/technical personnel for one or two years to help the authorities implement them.

37. There is a need to look closely at fully identifying and meeting the conditions for the development and diversification of the non-oil economy. Rapid and appropriate reforms in the cotton, domestic energy, and financial sectors, as well as in governance, are among the necessary conditions.

38. It is essential to maintain a prudent fiscal policy that would aim, on the one hand, to manage demand conditions and forestall the onset of Dutch disease and, on the other hand, attain fiscal sustainability over the long term. The latter calls for a sustained improvement of non-oil fiscal revenue performance, which would depend on improvements in governance and ownership, as well as on greater technical and financial assistance. Chad would also need to make effective use of the stabilization mechanism for oil revenue in order to ensure a smooth and rising path for priority-sector spending, as well as a sustainable path for nonpriority expenditures.

39. A sustained improvement in public expenditure management (PEM) is needed. In particular, there is an urgent need to improve expenditure monitoring and control, which will facilitate the consistent implementation of policies—especially in priority sector spending—and eliminate the need for ad hoc policy adjustments. Achieving the needed enhancement of PEM is linked to progress in civil service reform and improvements in ownership and governance.

40. It is essential to strengthen the statistical base in all areas in order to improve the monitorability and design of programs. More financial and technical resources may be needed and the accountability of people working in this area enforced. Envisaged improvements could also be part of program conditionally.

41. Timetables for policies/reforms may have been too ambitious under the programs; this was viewed as necessary in light of Chad’s below-average position vis-à-vis most sub-Saharan African economic and social indicators. While the objectives were appropriate, there does appear to have been an underestimation of the time needed to build the necessary capacity. In this context, setting the timetables of policies/reforms could give greater regard to (i) existing implementation capacity, and (ii) the need for, and timing of, complementary technical assistance.

42. There may be some scope for setting less ambitious timetables for certain structural reforms while taking a firmer stance on compliance with conditionality.

43. Consideration could be given to conditionality that focuses more on implementation of measures.

44. The scope of structural conditionality under Fund-supported programs may need to be reexamined. In particular, it may need to be reoriented to cover some key structural reforms (especially civil service reform). Sizable delays in these key areas have had implications for performance under Fund-supported programs.

45. It is possible that the authorities have been “distracted” from the broader reform agenda by the focus on preparing the modalities for the use of oil revenues and possibly by the prospect of the oil revenues themselves. The probable discovery of additional large oil deposits may exacerbate the problem. Continued donor assistance in the form of debt relief in the near future (the HIPC Initiative completion point) and financing of the investment budget over the longer term could be used as a counterincentive to these tendencies.

VIII. Rationale for Future fund Involvement

46. Chad has had effectively three Fund-supported programs in the past two decades, apart from the short-lived Stand-by arrangement in 1994. This is significantly fewer than most other countries in the region. The initial conditions at the inception of the 1995–99 ESAF arrangement were particularly unfavorable, and Fund-supported programs had to tackle a wider-than-usual array of problems. While advances were made in many areas, the continuing below-average economic and social conditions in Chad have meant a slow and difficult process to develop the country. In light of the situation, it should not be surprising that important weaknesses remain even after almost a decade of continuous Fund involvement.

47. The authorities have already expressed their wish for a successor PRGF arrangement, noting the financing gaps projected for the medium-term as well as the persisting capacity constraints in macroeconomic management, the need to reach the HEPC Initiative completion point in order to continue to benefit from debt relief, and the country’s projected long-term dependence on donor resources to finance an adequate level of investment.

48. The staff agrees with the authorities that a follow-up PRGF arrangement would best fit the needs of Chad for 2004–06, given the constraints mentioned above and the persistent significant financing gaps in 2004–06.20 Following the projected elimination of the need for budgetary support after 2007, Chad could graduate from the use of Fund resources. There is a risk, however, that the envisaged improvement in non-oil fiscal revenue may not materialize, which would mean that the need for budgetary support would persist beyond 2007 and the Fund might be called upon to continue to provide financial support to Chad. Moral hazard issues may increase that risk.

49. The staff is of the view that additional programs prepared with the assistance of Fund staff may be needed beyond the point-around 2007-when Chad would no longer need financial support from the Fund. This is because it is not envisaged that Chad’s capacity to implement economic programs would have improved adequately by then. The Fund may well need to continue to provide technical support, particularly in budget formulation and expenditure management. In addition, understandings on annual programs reached with Fund staff would most likely be needed to sustain the hoped-for donor financing of a large part of the investment budget, even if capacity reaches at some point more adequate levels and Fund financial support is not needed. Moreover, by staying closely involved with Chad’s economic programs over the coming years, the Fund can help buttress the efficient use of oil revenues in the antipoverty effort, in accordance with the LPRM and the recently adopted specific modalities, which constitute an attempt to introduce a new model for the use of oil revenues among oil producers.

Table 4.

Chad: Selected Economic and Financial Indicators, 1994-2003

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APPENDIX IV Chad: Statistical Issues

1. Chad’s statistical system is weak and suffers from a shortage of financial and human resources. The compilation of national economic and financial statistics is decentralized, involving several government ministries and the national directorate of the Bank of Central African States (BEAC). The statistics directorate at the Ministry of Planning (Direction des Statistiques et des Etudes Économiques et Démographiques, or DSEED) is in charge of the national accounts and the consumer price index (CPI), as well as the production and dissemination of statistics on population. The Ministry of Finance is responsible for compiling fiscal data. The BEAC is responsible for monetary statistics and the balance of payments. The CPI is published biweekly, and other data are disseminated as they become available.

2. The authorities have expressed a strong interest in reforming the statistical system but lack the resources—both human and financial—to do so. An important step in this direction was the implementation of a new set of national accounts in line with the System of National Accounts 1993 (1993 SNA) in 1998. The adoption in 1999 by the government of a law to regulate and enhance statistical activity provides a new impetus to the collection and dissemination of statistical data.

3. Chad has also adopted the General Data Dissemination System (GDDS) as its statistical development framework; statistical metadata have been posted on the Fund’s Dissemination Standards Bulletin Board since September 2002.

4. While the quality of real sector data has improved recently, weaknesses in balance of payments, government finance, and monetary statistics make program design and monitoring difficult.

Real sector

5. In early 1998, the authorities started compiling a new set of national accounts, conforming with the methodological requirements of the 1993 SNA, and retained 1995 as a base year. Notable improvements include the compilation of an input-output table that incorporates nonmarket household production and improved coverage of informal activities. However, there remains a need to refine the data-updating process, notably to account for structural changes in the economy. The only price index available is the CPI, which is based on outdated 1972 weights. It is therefore important that efforts aimed at producing a harmonized consumer price index for the Central African Economic and Monetary Community (CEMAC) countries be continued with the assistance of the regional statistical office (AFRISTAT), and that the planned household consumption survey be completed.

Public finance

6. Chad has not yet been able to resume reporting of detailed data for publication in the Government Finance Statistics Yearbook (GFSY). Annual fiscal data to 2001 have been reported and published in the International Financial Statistics (IPS) but include significant discrepancies between the deficit and total financing. The 2000 multisector mission noted that there was no comprehensive and systematic compilation of government finance statistics. The quarterly Tableau des Opérations Financièrs de l’État (TOFE), compiled by a working group, mainly for the purpose of the Fund-supported program, is based on several disparate sources. The mission recommended that systematic procedures be established for the compilation of government finance statistics, based, to the extent possible, on a unified set of accounting and administrative records that would be implemented only after a comprehensive review of the public accounting system.

Monetary sector

7. Monthly data on monetary statistics for Chad, as well as for the other members of the CEMAC, are reported on a regular basis, although with some delays. The data are reported in electronic form by the regional central bank (BEAC) and published in IFS. The institutional coverage of monetary statistics is comprehensive, but accuracy is affected by large cross-border movements of currency among CEMAC member countries. About 48 percent of banknotes issued in Chad by the national BEAC directorate circulate in Cameroon, while currency in circulation in Chad includes some 20 percent of banknotes from Cameroon and 8 percent of notes from the Central African Republic.

8. The monetary and financial statistics mission that visited the BEAC headquarters (May 2001) provided technical assistance in addressing the main shortcomings pertaining to coverage, methodology, compilation procedures, and timeliness of monetary statistics. The mission discussed an action plan for the implementation of the Monetary and Financial Statistics Manual (MFSM) and for the introduction of an area-wide page in IPS for the CEMAC. Following the 2001 mission, a regional workshop on monetary and financial statistics was organized by the BEAC in Libreville (Gabon) in May 2002 to support the implementation of the MFSM in the CEMAC countries. The new CEMAC page was first published in the January 2003 issue of IFS.

Balance of payments

9. As in other CEMAC countries, the national agency of the BEAC is responsible for the compilation of the balance of payments statistics for Chad. The poor quality of the balance of payments statistics appears to be related to inadequate staffing and provision of financial and physical resources dedicated to balance of payments compilation. The foreign trade data, compiled by the DSEED on the basis of customs declarations, are known to be unreliable, and to suffer from coverage problems; in addition, they are believed to be inconsistent with those used in the compilation of national accounts. Consequently, they are not fully used by the BEAC in the compilation of balance of payments data. Data on exports are estimated based on data provided by line ministers. Even considering the difficulty of collecting data on informal border trade between Chad and its neighboring countries, many improvements could be made on such items as imports, cotton and cattle exports, freight, and public transfers. It is believed that a tighter coordination among the CEMAC, DSEED, and other agencies is required in order to improve the data coverage. In May 2000, a multisector technical assistance mission, the first STA mission to Chad in ten years, provided a thorough assessment of requirements in the area of balance of payments statistics. It found the compilation system and procedures for balance of payments statistics, recently revised to conform to the Balance of Payments Manual(fifth edition) (BPM5), to be conceptually sound but flawed in their application, owing to the absence of documented sources and methods, understaffing, and lack of training. In all of these areas, the mission made specific recommendations. This situation implies that the authorities’ commitment to strengthen the human and technical resources needs to be reconfirmed

Poverty indicators

10. In early 2003, with assistance from the World Bank, the government launched a household survey on income and expenditure. The results of the survey will provide definitions of a poverty line and the main poverty indicators (incidence, depth, and severity).

Chad: Survey of Reporting of Main Statistical Indicators

(As of January 16, 2004)

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Since January 1, 1999, the CFA franc has been pegged to the euro.