Fifth Review under the Extended Credit Facility Arrangement and Financing Assurances Review-Press Release; Staff Report; Staff Supplement; and Statement by the
1. On behalf of the Chadian authorities, we thank staff for their well-written report and for the constructive discussions held in N’Djamena last October in the context of the fifth review of the ECF arrangement. We also would like to reiterate our authorities’ deep appreciation to the Executive Board and Management for their continued support to the ECF arrangement aimed at enhancing macroeconomic stability and spurring higher and inclusive growth.
2. The program implementation has been broadly satisfactory. Despite the difficult environment facing Chad due in particular to challenging humanitarian, security and capacity constraints, our authorities remain fully committed to pursuing their program objectives. They are encouraged by the support of CEMAC institutions to Chad and other member countries in line with the regional strategy.
Recent Developments and Outlook
3. The economy is gradually recovering, supported by reinvigorated oil and cotton sectors as well as the settlement of domestic arrears. In 2019, overall growth is projected to pick up to 3.0 percent from 2.4 percent in 2018 while non-oil economic growth will reach 2.0 percent owing mainly to increase in public investment and cotton production. Meanwhile, inflation is expected to remain below the CEMAC’s 3.0 percent convergence threshold. The overall fiscal balance is projected to attain -0.1 percent in 2019 against a surplus of 1.9 percent of GDP in 2018. This evolution resulted from higher-than-anticipated wage expenses to address security concerns, which offset the improvement in revenue mobilization. The public debt is anticipated to decrease from 48.3 percent in 2018 to 44.4 percent of GDP in 2019.
4. The medium-term outlook remains favorable on the back of higher oil production and a rebound in the non-oil sector. Growth is expected to exceed 4 percent throughout the 2020- 2023 horizon while inflation would remain subdued. On the fiscal front, the non-oil primary fiscal deficit is projected to decrease while the overall balance would remain in surplus, thanks in part to continued fiscal consolidation. As a result, the public debt-to-GDP ratio will gradually decline. Regarding the external sector, the current account deficit should remain in deficit owing mainly to FDI-related imports. The authorities are mindful of risks stemming from the security context in the region and global oil prices volatility.
5. The authorities’ ownership of the program and determination to pursue its implementation resulted in a satisfactory performance. At end-June, all quantitative performance criteria (QPC) and the indicative target (IT) on social spending have been met. Out of five structural benchmarks (SB) under the review, two have been met, one implemented with delay while continued progress was made toward the remaining SBs, notably the audit of arrears and the restructuring and financing plans for the two largest public banks, Commercial Bank Tchad (CBT) and Banque Commerciale du Chari (BCC). The SB on the domestic arrears clearance strategy is reset to end-December 2019.
Policy and Reform Agenda Going Forward
6. The government’s strategy for promoting fiscal sustainability, economic stabilization, and growth remains anchored by non-oil fiscal consolidation, notably increased revenue mobilization while pursuing the structural reform agenda. As a major constraint, the Chadian authorities would like to emphasize the fiscal burden that results from peacekeeping operations in the region and from addressing the ongoing humanitarian crisis. This situation shall draw partners’ attention and represents a challenge for the recovery in the non-oil sector and a drying up of resources designed to priority sectors.
7. The authorities’ fiscal policy for the remainder of 2019 will be oriented towards maintaining fiscal consolidation by achieving a non-oil primary balance (NOPB) of 4.2 percent by end-year. Domestic revenue mobilization (DRM) will be focused on non-oil revenue, based on measures undertaken in customs administration to fight fraudulent activities and the improvements recently introduced in the VAT mechanism. Furthermore, the government will make necessary efforts to comply with its spending commitments, including on social targets. To accommodate the increase in the wage bill, the authorities stand ready to adjust expenditures on goods and services.
8. The 2020 budget will give priority to achieving a NOPB of 4.9 percent. On the revenue side, emphasis will be put on increasing the share of the non-oil sector by streamlining exemptions and further improving the VAT system. As for expenditures, the authorities are committed to containing spending by restructuring the wage bill while preserving key infrastructure and social spending. On public financial management, the authorities aim to enhance transparency and modernize public finances. To this end, they will step up their efforts to strengthen cash management through the establishment of a Treasury Single Account (TSA), reinforce the public procurement system and budgeting procedures while limiting recourse to exceptional spending procedures (DAO).
9. Debt sustainability ranks high in the authorities’ agenda. In this regard, they are determined to continue the strengthening of debt management through the adoption a Medium-Term Debt Strategy (MTDS) which will prioritize concessional loans and reinforce the clearance of domestic arrears to boost the non-oil sector while limiting government borrowing from the banking system.
10. The authorities are aware of the pivotal role of the financial system for supporting inclusive growth and are committed to enhancing the solidity of the banking system and promoting financial inclusion. In close collaboration with the regional banking supervisory body COBAC, the government is stepping up efforts to restructure the two public banks, CBT and BCC, and has completed related prior actions, including the issuance of financing and restructuring plans. These measures also encompass a recapitalization of CBT and improvements in the banks’ governance by requiring more accountability and performance-based contracts. In addition, the authorities place a high value in deepening access to financial services through mobile banking and the promotion of microfinance institutions.
11. The authorities recognize that limited capacity is a constraint for the program and reform agenda. They welcome the technical assistance (TA) and capacity building programs provided by the Fund and other development partners. They intend to implement a consultation framework for partners to improve coordination and effectiveness of TA.
12. The Government is dedicated to promoting a conducive business climate supported by efficient public services and judiciary system. To enhance governance and foster private sector development, the authorities will strengthen the capacity and resources of the National Agency for Financial Investigation, the Inspectorate General of State and the Inspectorate General of Finance.
13. Concerning the AML/CFT and anti-corruption frameworks, the authorities plan to enforce the United Nations Convention Against Corruption. Moreover, in addition to the publication of the annual financial reports of Société des Hydrocarbures du Tchad and the disclosure of contracts and licenses in the oil sector, steps will be taken to buttress transparency in oil and mining sectors through the implementation of the Extractive Industries Transparency Initiative (EITI) recommendations.
14. The Chadian authorities have made encouraging progress in implementing their Fund-supported program. In face of the daunting challenges facing the country, they continue to attach great importance to the reform agenda envisaged under this arrangement to sustain their recovery efforts while contributing to the success of the regional strategy. Against this backdrop, we seek Directors’ support to the completion of the Fifth Review under the ECF arrangement.