Statement by the IMF Staff Representative September 7, 2011

In this study, Chad’s economic developments and policies have been prepared by an IMF staff team. The recent economic developments and risks of the financial system are reported. Budget discipline has been improved by strengthening the public financial system (PFM). The views of IMF staff regarding medium-term fiscal policy, the financial sector assessment program (FSAP), and tax measures have also been accepted by the authorities. Finally, the IMF staff appraisal also outlined. In this paper, recent developments in public external debt and public domestic debt are studied.

Abstract

In this study, Chad’s economic developments and policies have been prepared by an IMF staff team. The recent economic developments and risks of the financial system are reported. Budget discipline has been improved by strengthening the public financial system (PFM). The views of IMF staff regarding medium-term fiscal policy, the financial sector assessment program (FSAP), and tax measures have also been accepted by the authorities. Finally, the IMF staff appraisal also outlined. In this paper, recent developments in public external debt and public domestic debt are studied.

This statement summarizes information that has become available since the issuance of the staff report (SM/11/209). The new information does not change the thrust of the staff appraisal.

President Déby was sworn in for his fifth term in early August. Subsequent cabinet changes affected key economic ministries of finance and budget, and infrastructure.

Fiscal performance through June was broadly as staff anticipated at the time of the Article IV mission. It was marked by a shortfall in non-oil revenue, higher-than-expected oil revenues, and pressures on security-related expenditure. Almost the full year’s worth of security spending was executed, while spending on health, education, and other social priorities has lagged. The non-oil primary deficit (NOPD) for the first half of 2011 exceeded the implied mid-year budget baseline by about 2 percentage points of non-oil GDP. The estimated overall fiscal position was a surplus of about 3.2 percent of non-oil GDP.

Developments in the domestic petroleum market, following the opening of the first Chadian oil refinery, raised a new policy concern. Setting petroleum product prices below the prevailing market level disrupted imports and caused shortages in the local market. The foreign partner in the joint venture refinery has expressed concern about its financial viability. The new petroleum price policy, which is due to expire in September, is currently under review. Staff has offered to provide the authorities with technical assistance on petroleum product pricing and taxation.

The authorities are concerned about the impact of the prolonged conflict in Libya. The associated disruption of trade contributed to a revenue shortfall, while the security tensions and the humanitarian crisis entail additional outlays. Half a million people, according to the authorities, await repatriation to or via Chad. Also, two Chadian banks with significant Libyan ownership have suffered an outflow of deposits and may require public sector support.

The authorities indicated that these concerns would need to be reflected in a supplementary budget, the details of which are not yet known. Staff stand ready to work with the authorities to ensure that humanitarian needs are met while safeguarding fiscal sustainability.