Requests for Disbursement under the Rapid Credit Facility, Extension of the Extended Credit Facility Arrangement, and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Chad
1. On behalf of the Chadian authorities, we would like to express our appreciation to the Executive Board, Management and Staff for their continued support to Chad in the context the 2017–2020 ECF Arrangement. This program has contributed to the country’s recent economic recovery and progress towards macroeconomic stability and stronger external buffers. However, the COVID-19 pandemic, the drop-in oil prices and the deterioration in security are hitting Chad hard. The country’s outlook has weakened significantly and large balance of payments and fiscal needs to address the health, social and economic consequences of the triple shock have emerged. To meet those urgent needs, the Chadian authorities are requesting Fund assistance under the “exogeneous shocks window” of the Rapid Credit Facility (RCF).
Developments and Outlook Prior to the Shocks
2. In response to the 2014 oil price collapse, the authorities have been implementing an adjustment and reform program, supported by the Fund under the ECF since 2017. The performance of the program has been broadly satisfactory, with a recovery in the non-oil sector, a stabilized external debt, a narrowing current account deficit and improved fiscal outcomes. In addition, the reform agenda is advancing well albeit with some delays. The program was on track towards a satisfactory completion of the sixth and final review of the arrangement before it expires in June 2020. Given the disruptions caused by the pandemic, the authorities are requesting an extension of the ECF arrangement and a rephasing of access to allow more time to complete the last review.
3. Program implementation was taking place amid a fragile social situation and difficult security conditions. Increasingly and regularly, various social groups planned or went on strikes to seek a reversal of adjustment measures. In addition, while the fight against terrorist entities had progressed, with notably the destruction of several bases in the Lake Chad, skirmishes with armed groups had resumed in one province where the state of emergency was recently lifted.
4. Notwithstanding the challenging social and security environment, the near-term outlook was deemed favorable in December 2019. Oil production and non-oil output were projected to increase, and inflation to remain below 3 percent. The non-oil fiscal primary balance and public debt were expected to improve with the pursuit of fiscal consolidation. The external position was likely to strengthen also.
Impact of the Pandemic and Oil Price Shocks and Policy Responses
5. As of April 8, 2020, 10 confirmed cases of COVID-19 have been registered, including 2 recovery cases. To contain the pandemic crisis, the authorities have launched on March 17, 2020 a CFAF 15 billion contingency plan under the supervision of an inter-ministerial committee and aimed at ensuring control of the disease and limiting its spread. It entails restrictions on public gathering, including in transport, markets and public institutions, a partial curfew on the national territory and hygiene measures. Although the authorities’ response was elaborated in collaboration with the World Health Organization and supported by development partners, it faces capacity constraints and requires addressing the significant shortcomings in the health sector. The authorities recognize the daunting challenge of bringing the health system up to speed in order to meet adequately the expected surge in demand for health-related services linked to COVID-19. They are grateful to donors for the assistance already provided in this regard and look forward to additional support to meet the higher healthcare needs.
6. The combined economic impact of the three shocks have worsened Chad’s outlook. The depressed global demand, the disruption of international trade and the containment measures are negatively impacting the economic activity. Overall growth projection for 2020 has been revised downwards to -0.1 percent against an expansion of 3.0 percent last year. Lower economic activity will translate into lower tax and customs revenues, which together with higher health-related expenditures will result in a significant financing needs estimated at 3.9 percent of GDP and an increase of public debt from 44.4 percent of GDP in 2019 to 47.9 percent in 2020. In addition, a doubling of the current account deficit to 13.2 percent of GDP in 2020 is expected.
7. The authorities have taken measures to alleviate the consequences of the shocks on the population and the economy. On the fiscal front, the policy will be relaxed to accommodate the costs of higher health spending and measures to support businesses and the most vulnerable population through these turbulent times. The measures already adopted include the suspension of utilities payments for six months and tax incentives to support the private sector. The implementation of the recently adopted arrears clearance strategy will be accelerated and actions will target specific segments of the population including retirees, military, youth and women.
8. As regard monetary and macro-financial policies, the regional central bank BEAC has announced several measures to ease liquidity pressures, including the suspension of liquidity absorption operations, monetary policy easing with a reduction of the policy rates and higher liquidity provision with an expansion of the set of instruments accepted as collateral for central bank refinancing. The regional supervisory body COBAC will closely monitor the impact of the shocks on the portfolio quality and profitability of financial institutions in CEMAC as compliance with prudential regulations is expected to deteriorate owing to weaker borrowers’ repayment capacity. COBAC has already issued recommendations to financial institutions on prudent and transparent loan restructuring to preserve financial stability.
Request for Financing Under the RCF
9. The triple shock of the COVID-19 pandemic, lower oil prices and heightened security threats are putting significant pressures on Chad’s public finances and external position. While the authorities remain strongly committed to the economic and financial policies agreed under the ECF arrangement aimed to restore macroeconomic stability and achieve a robust and inclusive growth, their immediate priority is to contain the spread of the coronavirus disease and limit its effect on the economy, notably the most vulnerable population.
10. To meet the immediate needs, the authorities are requesting emergency financing under the RCF in the amount of SDR 84.12 million, representing 60 percent of Chad’s quotas, to cover about 30 percent of BOP needs and the funding requirements generated by the three shocks. They are actively seeking additional support from other donors, which they believe the approval of the RCF request will help secure. They have also requested access to resources under the Catastrophe Containment and Relief Trust (CCRT) to alleviate the debt service burden. Chad’s public debt is sustainable and its capacity to repay is adequate. The authorities also recognize that the magnitude, impact and duration of the pandemic is highly uncertain and hence additional Fund emergency financing might be needed in the future.
11. The Chadian authorities wish to reiterate their gratitude to Executive Directors, Management and Staff for their helpful recommendations and policy advice. Going forward, they reaffirm their strong commitment to the objectives of the current Fund-supported program and to achieve its satisfactory completion. Considering all of the above, the authorities will appreciate Executive Directors’ support of their requests for the extension of the ECF arrangement from June 29, 2020 to September 30, 2020, a rephasing of access and a disbursement under the Rapid Credit Facility (RCF).