Chad: Request for a Three-Year Arrangement under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Chad
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International Monetary Fund. African Dept.
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Publication Date:
15 Dec 2021
eISBN:
9781557759542
ISBN:
9781557759542
Language:
English
Keywords:
reform agenda; Chadian authorities; financial support; Chadian authority; clearance strategy; Arrears; Global
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1. Chad is a low-income country with significant development challenges and multidimensional fragilities, including insecurity, weak governance and corruption risks, climate change, and a difficult socio-political environment. Chad lags behind peer countries in a range of development indicators, ranking 187th out of 189 on the 2020 Human Development Index and scoring among the last two countries on the 2020 World Bank’s Human Capital Index. Chad also obtained low scores, including among CEMAC countries, on the 2020 Transparency International Corruption Perception Index. Although Chad made modest improvements in health, education, and poverty reduction, progress has stalled following the oil price shock in 2014–15. Weak capacity and governance remain persistent issues and the high turnover of mid- and high-level officials has complicated reform implementation and limited absorption capacity. The effects of climate change in the Lake Chad Basin on water resources and ecosystems have exacerbated food insecurity and conflicts. The security situation remains vulnerable. Boko Haram has continued deadly attacks in the Lake Chad area, requiring substantial military and humanitarian resources.

Abstract

1. Chad is a low-income country with significant development challenges and multidimensional fragilities, including insecurity, weak governance and corruption risks, climate change, and a difficult socio-political environment. Chad lags behind peer countries in a range of development indicators, ranking 187th out of 189 on the 2020 Human Development Index and scoring among the last two countries on the 2020 World Bank’s Human Capital Index. Chad also obtained low scores, including among CEMAC countries, on the 2020 Transparency International Corruption Perception Index. Although Chad made modest improvements in health, education, and poverty reduction, progress has stalled following the oil price shock in 2014–15. Weak capacity and governance remain persistent issues and the high turnover of mid- and high-level officials has complicated reform implementation and limited absorption capacity. The effects of climate change in the Lake Chad Basin on water resources and ecosystems have exacerbated food insecurity and conflicts. The security situation remains vulnerable. Boko Haram has continued deadly attacks in the Lake Chad area, requiring substantial military and humanitarian resources.

Context

1. Chad is a low-income country with significant development challenges and multidimensional fragilities, including insecurity, weak governance and corruption risks, climate change, and a difficult socio-political environment. Chad lags behind peer countries in a range of development indicators, ranking 187th out of 189 on the 2020 Human Development Index and scoring among the last two countries on the 2020 World Bank’s Human Capital Index. Chad also obtained low scores, including among CEMAC countries, on the 2020 Transparency International Corruption Perception Index. Although Chad made modest improvements in health, education, and poverty reduction, progress has stalled following the oil price shock in 2014–15. Weak capacity and governance remain persistent issues and the high turnover of mid- and high-level officials has complicated reform implementation and limited absorption capacity. The effects of climate change in the Lake Chad Basin on water resources and ecosystems have exacerbated food insecurity and conflicts. The security situation remains vulnerable. Boko Haram has continued deadly attacks in the Lake Chad area, requiring substantial military and humanitarian resources.

2. Chad is facing daunting humanitarian challenges. Food insecurity and poverty are expected to increase given recent cuts in priority spending and low seasonal rainfall. Refugees continue to flee social conflicts in neighboring countries, which complicates an already difficult humanitarian situation with 520 thousand refugees and 400 thousand internally displaced (IDPs). The role of humanitarian agencies, such as the World Food Program, is limited by Chad’s institutional fragilities and resource constraints.

3. On April 20, 2021, President Déby passed away from wounds sustained during renewed fighting with rebel groups. A day earlier, the National Independent Electoral Commission (CENI) had declared him the winner of the presidential election with 79 percent of the vote. An 18-month transitional government was installed, under the leadership of a 15-member Transition Military Council and a broad-based civilian government under a civilian Prime Minister. A National Transition Council installed on October 5 will serve as parliament during the transition. An inclusive national dialogue is being prepared, with the participation of various groups. A “social pact” was signed with public sector unions to preserve social peace. Presidential and legislative elections are expected to be organized during this transition period.

4. Chad’s dependence on the oil sector represents a significant challenge for sustained and inclusive growth. The pandemic has shed the light again on the resource curse phenomenon that is characterizing the Chadian economy with its low growth, high unemployment, high poverty rate, frail human capital, and weak governance and transparency. The oil sector represents 80 percent of exports and almost 40 percent of government revenues, which makes the economy vulnerable to oil prices shocks. More recently, the oil production outlook was revised down due to interruption from strikes and lower investments by oil companies over the medium term. The poverty rate remains high (48 percent at end 2020), with inadequate social safety nets and economic infrastructure, and have been worsened by the pandemic. Institutions continue to be weak, and the contribution of the private sector has been subdued, despite a young and fast-growing population.

Text Figure 1.
Text Figure 1.

Chad: Oil Price Effects on the Economy

(percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: Chadian Authorities & IMF Staff Estimates

5. Performance under the 2017–20 ECF-supported program was satisfactory (Text Table 1, MEFP ¶3–5). Reviews were completed on time, and only one waiver was requested.1 Macroeconomic stability and debt sustainability were restored, and growth picked up. Inflation was kept broadly below 3 percent throughout the program. The current account deficit significantly narrowed. Debt and debt service were reduced as a result of a debt workout with the largest creditor, higher non-oil revenue mobilization, and fiscal restraint. Progress was made in addressing systemic public banks vulnerabilities. Transparency improved in the oil sector. An audit of domestic arrears was completed, and a repayment plan was being implemented.

Text Table 1.

Chad: Performance Under the 2017–19 ECF

(percentage change, year/year, unless otherwise indicated)

article image
Sources: Chadian Authorities and IMF Staff Estimates

6. However, vulnerabilities were exacerbated by the COVID pandemic and key reforms have yet to be completed (MEFP ¶6–10). Progress has been made in increasing non-oil revenue and controlling expenditure. However, allocations to key social sectors are inadequate, and the domestic revenue base remains low. The DSA shows a significant deterioration of debt vulnerabilities, with public debt now assessed to be unsustainable.2 Additional efforts are needed in the areas in which progress has been limited, including putting public finances on a more sustainable footing, improving governance, tackling corruption, better addressing the sources of fragilities (inequalities, social spending weaknesses, regional disparities), promoting a friendly business environment, building a strong financial sector, and restructuring public debt.

7. The pandemic has severely stressed an already vulnerable economy (MEFP ¶6–10). It has put pressure on an already fragile health sector3, disrupted domestic activities and generated significant financing needs. Swift and forceful measures were taken to contain the pandemic and to prevent and mitigate its social impact. The donor community offered needed technical and financial support, and the Fund provided emergency support through two Rapid Credit Facilities (RCFs) in April and July 2020, as well as debt relief through the Catastrophe Containment and Relief Trust (CCRT).4 Fiscal measures were also implemented to mitigate the impact on businesses and households. In return, the authorities committed to adopt measures that would ensure the transparent use of these resources.

Text Table 2.

Chad: Government Commitments to Transparency

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Sources: Chadian Authorities
Text Table 3.

Chad: Government Response Measures to Covid-19

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Sources: Chadian Authorities and IMF Staff estimates and Projections

8. A national plan for vaccination was adopted in March 2021 but its implementation was delayed. Given funding constraints, the plan aims to vaccinate about 6 million people (34 percent of the population) in four phases, focusing on vaccination of front-line workers and vulnerable groups5. The plan includes a vaccination campaign and a communication plan for community engagement and maximum acceptance. After months of delay due to supply constraints, vaccination kicked off in June with 200,000 doses of Sinopharm later followed by 100,000 doses of Pfizer vaccine, which were delivered under the COVAX facility. The plan’s total cost is estimated at US$76 million and will be funded by COVAX (73 percent) and the government (0.4 percent). The remaining financing gap (about US$20 million) will be covered by the World Bank.

Recent Economic Developments

9. Prior to the pandemic economic conditions were improving6 (MEFP ¶3–4). Non-oil growth was projected to gradually increase and plateau at 4 percent starting 2021. Oil production was expected to increase as a result of new extraction technologies. Inflation was projected to remain below 3 percent. Continuing fiscal consolidation would have resulted in steady narrowing of the non-oil primary balance (NOPB) and a gradual reduction in public debt. The current account deficit was forecasted to remain broadly above 6 percent of GDP through 2024, driven by FDI-related imports.

10. The COVID-19 pandemic, the volatility in oil prices, heightened insecurity, and a series of floods followed by historically low seasonal rainfall have strained an already vulnerable economy (MEFP ¶6–10). The drop in international oil prices in 2020 took its toll on the oil sector, resulting in large fiscal and external financing needs. As a result, oil production growth contracted by 1.5 percent compared to 7.6 percent in 2019, due to the temporary interruption in activity of the third largest oil company and weaker production by other oil companies. Non-oil activity in key service sectors, including retail trade, transport, and tourism, were adversely impacted as a result of the containment measures, leading to a contraction of non-oil output by 1.6 percent in 2020 compared to a growth of 2.0 percent in 2019. Meanwhile, agriculture and telecommunication sectors remained relatively resilient. The disruption in the distribution channels resulted in an increase in food prices, leading to a spike in average annual inflation to 4.5 percent in 2020 compared to -1.0 percent in 2019. However, due to weak demand and easing of food inflation, average annual inflation recorded 1 percent in August 2021.

Text Figure 2.
Text Figure 2.

Chad: Global Covid-19 Pandemic1

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: World Health Organization; John Hopkins Coronavirus Resource Center; Oxford COVID-19 Government Response Tracker.1 As of November 15, 2021

11. The authorities allowed a widening of the fiscal deficit in 2020 to accommodate the implementation of support measures and the recession-induced loss of tax revenues ((MEFP ¶7). Non-oil revenues dropped by 0.3 percentage points to 9.1 percent of non-oil GDP, while oil revenues increased by 4.2 percentage points to 10.6 percent of non-oil GDP thanks to a large tax payment from the largest oil company.7 On the spending side, current and capital spending increased by 2.7 and 1.5 percentage points to 15.2 percent and 7.1 percent of non-oil GDP, respectively. The monthly wage bill continued to increase due to the restoration of benefits, which were cut during the 2015/16 crisis, the deterioration in the security situation, and new hires in the heath sector. Transfers and subsidies increased due to the higher-than-expected subsidy to the electricity company and COVID-19 related spending. Domestically financed investments increased by 0.2 percentage points of non-oil GDP. As a result, the NOPB widened by 3.3 percentage points to -8.1 percent of non-oil GDP.

12. Preliminary data suggests that the government faced a tight liquidity situation during the first half of 2021 resulting in spending cuts (MEFP ¶9). Despite the good performance in non-oil revenues, the large drop in oil revenues and delays in donor support led the government to slash spending, mainly in transfers and subsidies as well as domestically financed investment. Security spending and the wage bill increased, especially after the deterioration in the security situation while social spending was under executed. To satisfy its large financing needs, the government almost depleted its deposits at the BEAC and relied on domestic borrowing.

Text Table 4.

Chad: Fiscal Developments

(percent of non-oil GDP)

article image
Sources: Chadian Authorities and IMF Staff Estimates
Text Table 5.

Chad: Medium-term Outlook Before and After the Shock

article image
Sources: Chadian Authorities and IMF Staff Estimates

13. Chad’s public external debt increased. Outstanding public and-publicly guaranteed (PPG) external debt stood at about US$3.0 billion at end-2020, increasing from US$2.7 billion in 2019. This increase was the result of an increase in external debt disbursements as well as the reclassification of debt owed to Angola, which is being repaid in kind. Chad is in arrears to the Republic of Congo, as well as to Libya. The authorities also have arrears with BDEAC and have engaged with this creditor to seek an agreement to resolve these arrears and restructure this debt.

14. The banking sector became more vulnerable as a result of the various shocks (MEFP ¶13). Available data for 2020 reflect a deterioration in the banking sector: (i) the sector’s capital adequacy ratio (CAR) fell to about 4.5 percent in mid-2020, remaining below the CAR threshold (9.5 percent), compared to 6.7 percent in December 2019, partly reflecting the changes in COBAC’s reporting requirements to Basel II standards; (ii) the liquidity ratio (measured by liquid assets to short-term liabilities) remained broadly stable at 120 percent, compared to 124 percent in December 2019; and (iii) the non-performing loan ratio remained elevated at 25 percent by mid-2020. Meanwhile, deposits and credit increased annually in December 2020, due to the rise in both, public and private sectors.

15. BEAC and COBAC eased monetary and macro-prudential policies, in order to cushion the banking sector during the pandemic, but policies are now being tightened again. Since March 2020, BEAC had eased monetary policy, including a decrease in policy rates and an increase in liquidity provision and reduced haircuts applicable to private instruments accepted as collateral for refinancing operations until 2021: Q1. It also decided to resume liquidity injections with longer maturity, of up to one year. BEAC announced in July 2020 a public securities’ program on the secondary market, in line with its statutes which prohibits direct monetary financing. The program was initially for 6 months, then it was extended for an additional 6 months (starting March 1st, 2021) and ended in September 2021. Chad was initially unable to benefit from this program given the rollover mechanism in place. However, after BEAC had agreed to terminate the rollover mechanism in end-March, the Treasury issued 5-year securities and 2-year securities for an amount of CFAF 50 billion and CFAF 20.9 billion, respectively, under this program8. COBAC informed banks to utilize a capital conservation buffers of 2.5 percent, in order to absorb pandemic-related losses, while requesting that banks adopt a restrictive policy for dividend distribution and has also put in place ad-hoc reporting to closely monitor financial stability developments following the COVID-19 crisis9.

16. The external position weakened significantly in 2020. The current account deficit almost doubled to 8.4 percent of GDP. Export declined by about 7.8 percentage points of GDP due to the decline in oil prices of nearly 35 percent (y/y), while imports in percentage of GDP remained stable despite additional imports of medical and capital equipment to address the COVID-19 pandemic. As a result, the trade surplus narrowed to 3 percent of GDP, down from 10.7 percent of GDP in 2019. With the services and income balances largely unchanged, the increase in net transfers was insufficient to offset the narrowing of the trade surplus. The current account deficit was largely financed through an increase in public sector borrowing, including the two RCF disbursements.

Text Table 6.

Chad: Financial Soundness Indicators, 2016–20

(Percent)

article image
Sources: Chadian authorities and le Banque des Etats de l’Afrique Centrale (BEAC)

Provisional Data

Current year profits are excluded from the definition of regulatory capital, following the Basel I capital accord guidelines. General provisions are included in Tier 2 capital up to an amount equal to 1.25% of risk-weighted assets. Regulatory capital is the sum of Tier 1 capital, and the minimum of Tier 1 and Tier 2 capital.

The risk-weighted assets are estimated using the following risk weights: 0% – cash reserves in domestic and foreign currency and claims on the central bank; 100% – all other assets.

The ratio of after-tax profits to the average of beginning and end-period total assets.

A New 36 Month ECF Arrangement: Rationale, Objectives, and Policies

A. Outlook and Risks

17. Economic developments in 2021 have been influenced by the uncertainty surrounding the recovery and financing constraints (MEFP ¶16–17). Output is expected to grow by 0.6 percent, down from 6.1 percent projected at the time of RCF-2 due to a more protracted recovery and a downward revision in oil production by oil operators. Inflation is expected to weaken to 1 percent. The NOPB is expected to narrow to 7.7 percent of non-oil GDP, mainly due to expenditure cuts.

18. The pandemic will likely leave long-lasting scars (Text Figure 3 and Box 1). The current projections show substantial downward revisions to the pre-pandemic growth trend, whereby growth is now expected to take a longer period to revert back to its non-oil potential growth rate of about 4 percent. This mainly reflects the severity of the pandemic, which resulted in (i) lower investments (especially in the oil sector), (ii) significant economic disruptions (e.g., firm shutdowns, unemployment hikes, lost schooling, and deteriorated health outcomes), which have disproportionately affected women, children, and other vulnerable segments of the population, and (iii) significant delays in preventive care administered by the WHO, particularly with respect to the vaccination program.

Text Figure 3.
Text Figure 3.

Chad: Evolution of the Medium-term Growth Forecast, 2018–25

(constant prices, percent change year/year)

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: Chadian Authorities and IMF Staff Estimates

19. Accordingly, the Chadian economy is projected to remain weak in the near term before gradually rebounding over the medium term. Growth is expected to gradually pick up to reach 3.6 percent by 2024, provided adequate reforms focused on inclusive growth, poverty reduction, and containment of fragilities are implemented. Inflation is expected to weaken slightly in the medium term, remaining around its 3 percent target. The NOPB is expected to narrow gradually by 4.0 percent of non-oil GDP to -4.1 percent in 2024, backed by the increase in non-oil revenue and a streamlining of current expenditures, including the wage bill. Notwithstanding the recovery in oil prices the current account deficit is expected to widen to 7.9 percent of GDP by 2024. Additionally, Chad is projected to continue registering large external financing gaps averaging nearly 2.9 percent of non-oil GDP per year.

20. This outlook is based on conservative oil price assumptions and subject to considerable uncertainty and significant downside risks. The oil price assumptions are those underlying the financing assurances provided by the official creditors in June 202110 and the information shared with the private creditors. They will be updated prior to the discussions on the terms of the debt restructuring by the time of the first review. Currently, the oil market is characterized by elevated uncertainty and while oil prices picked up in 2021, future prices indicate they may decline over the medium term.11 Key near-term risks to the outlook include a more severe and/or protracted COVID-19 pandemic, including delays in rolling out the vaccine, which could result in higher fiscal costs. In medium-term, risks to the outlook include a drop in oil prices; a deterioration in the security situation or political disruptions; a weak fiscal discipline, including overshooting in the wage bill during an election year; reform fatigue; delays in the delivery of promised debt relief assurances from private creditors; and further delays in donors support disbursements. Upside risks include the possibility that oil prices are sustained at higher-than-expected levels over the medium term.

Chad: Economic Scarring from Covid-19 Pandemic

uA001fig01

Nominal GDP

(billions of US$)

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

uA001fig02

Ratio of Chad to AE's PPP GDP per capita

(percent)

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Chad is likely to suffer a protracted and sizeable loss of income, erasing some of the hard-won development gains. Chad’s pandemic-induced nominal GDP cumulative loss between 2020 and 2024 is estimated at US$5.4 billion (7.7 percent of cumulative nominal GDP). Given a diverging recovery between the advanced economies (AEs) and the rest of the world, Chad is also likely to experience a widening gap in PPP adjusted GDP per capita income with respect to AEs. The projected ratio drops from a meager 3 percent in 2020 to as low as 2.7 percent by 2023, and without improvement until the end of the projection period. Furthermore, there is evidence by several multilateral agencies1/ in Chad that the pandemic has aggravated existing income and gender inequalities, while the World Bank highlights that some of these effects may persist several years.

According to the World Bank report2/, the survey data from May-June 2020 and January-February 2021 show that over a six-month period, the share of households in the lowest quintile had increased by 10 percentage points against 3 percentage points increase for households in the highest quintile. This disparity can be partly explained by a reduction in family business income, wages and the frequency and size of remittances from abroad especially for the poorest (with risk of keeping/pushing more people in poverty), unlike those relying on agriculture or other sources of income which was slightly affected by the pandemic. Thus, income inequalities between rich and poor households are likely to continue to widen.

1/ Multilateral agencies include Lake Chad Basin Commission, UN Chad and the World Bank. 2/ Chad 2021 Economic Update: Recovering from Shocks – Improving Macro-Fiscal Sustainability to Rebuild Better (2021).

21. The government’s economic program to be supported by the proposed ECF arrangement would draw from its priorities and provide a policy anchor in a challenging and uncertain environment. The broad objectives will be to: (i) advance the authorities’ structural reform agenda, including strengthening governance, to support growth and poverty reduction, as well as address fragilities; and (ii) reduce debt vulnerabilities via growth-friendly fiscal consolidation and an ambitious public debt restructuring. Structural benchmarks have been specified through end-2022 and additional reforms and conditionality, in line with the MEFP, will be detailed on a rolling basis at reviews.

B. Supporting the Economic Recovery While Restoring Debt Sustainability

Fiscal and Debt Sustainability

22. The program will aim to restore debt sustainability, support a green and inclusive recovery, and build resilience (MEFP ¶18–28). The program envisages a cumulative fiscal consolidation of 4.0 percentage points of non-oil GDP through mobilization of domestic tax revenues combined with expenditure restraint, which should reduce the budget dependence on oil revenues and free up some resources that will be allocated to pandemic-related needs in 2021 as well as priority investment and social spending, while accommodating pressing security spending needs. Such composition would mitigate the negative growth impact of fiscal consolidation while protecting the poor.

Text Table 7.

Chad: Fiscal Developments in 2021

(percent of Non-oil GDP)

article image
Sources: Chadian Authorities and IMF Staff Estimates

23. For 2021, the overall balance and NOPB outturns are expected to be worse than the authorities’ initial budget. This reflects: (i) lower than expected oil revenue, mainly due to weaker corporate taxes paid by oil companies;12 and (ii) an increase in expenditure items to mitigate the impact of an unfolding food crisis. Additionally, as a result of weaker inflation and output growth, the nominal GDP shrank, thereby significantly worsening the fiscal ratios in percent of non-oil GDP. Accordingly, the NOPB and overall balance are expected to significantly deteriorate to -7.7 percent of non-oil GDP and -3.4 percent of non-oil GDP, respectively. The share of primary expenditure approved outside the standard spending procedure (Dépenses avant ordonnancement or “DAO”) is estimated to have dipped to 20 percent, compared with 21 percent in 2020.

24. Chad received an SDR allocation equivalent of US$193 million (MEFP ¶10). Given the liquidity squeeze since the beginning of the year, the authorities mostly used this allocation in 2021 to address urgent social needs, including food insecurity.

Text Table 8:

Chad: Utilization of the 2021 SDR Allocation

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Sources: Chadian Authorities and IMF Staff Estimates

25. The 2022 budget is predicated on strengthening non-oil revenues and improving fiscal discipline, while efficiently allocating available resources to support economic recovery. The budget will aim to strengthen tax collection and unwind the remaining COVID-19-related emergency measures as the crisis abates. These steps, coupled with better control of current spending particularly the wage bill, should make room for higher social spending, while allocating enough resource for the upcoming elections and security spending. The NOPB is projected to improve by 1.2 percentage points of non-oil GDP whereas the overall balance would deteriorate by 1.9. percentage points of non-oil GDP to -1.3 percent of non-oil GDP, as a result of projected lower oil prices.

26. Significant fiscal adjustment is expected during 2022–24. (MEFP ¶18–28) Over the three years, the program targets an additional consolidation of the NOPB of 3.6 percentage points of non-oil GDP through the mobilization of non-oil revenues, streamlining of expenditures, while promoting social spending. Tax revenues would be targeted to increase by 1.8 percentage points of non-oil GDP. The program strategy of domestic revenue mobilization is appropriate, but is critically dependent on implementation of tax administration reforms. Current expenditures would drop by 1.7 percentage points of non-oil GDP by gradually reducing the wage bill and subsidies to the electricity company. Capital expenditures are expected to remain on average at 7 percent of non-oil GDP, but still above pre-pandemic levels. Social spending will be preserved over the program at 34 percent of current spending.

Text Table 9.

Chad: Fiscal Adjustment Measures

(percent of non-oil GDP)

article image
Sources: Chadian Authorities and IMF Staff Estimates
Text Table 10.

Chad: Wage Bill in Selected Countries

(Percent of Non-oil GDP)

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Sources: Country Authorities; IMF Staff Estimates

27. The wage bill is weighing considerably on public finances. Large cuts were implemented in 2016 and in early 2018, which resulted in a 50 percent reduction in wages and benefits. However, these benefits were reinstated by early 2020. In October 2021, given the increased social tension, the Government and the labor union signed a three-year Social Pact, whereby the government will pay by July 2022 arrears accumulated between 2016 and 2020. In 2021, the additional spending is estimated at CFA13.3 billion (about 0.2 percent of non-oil GDP). Given the importance of containing the wage bill, staff and the authorities agreed on the following reforms, which would yield an adjustment of about one percent of non-oil GDP: (i) set up and operationalize a civil service employees’ number and salary steering committee; (ii) define and implement a wage bill control action plan, helped by the Integrated Financial Information Management System (IFIMS); (iii) clean up the payroll database; (iv) implement employment ceilings, in accordance with the provisions of the 2014 organic law on public finance, for the preparation of the 2023 budget (SB for end August 2022); and (v) conduct a functional review, which would allow for better control of the wage bill. In 2021, the authorities have completed a biometric registration of civil servants in order to better manage the payroll database, a critical step to control the wage bill.

28. Efforts to clear domestic arrears should continue (MEFP ¶24). An audit completed in December 2019 estimated arrears at about CFAF 515 billion (or 9.7 percent of non-oil GDP). As part of the government’s clearance strategy adopted in January 2020, the authorities cleared CFAF 149 billion in domestic arrears (2.8 percent of non-oil GDP) as follows: (i) an agreement with banks was reached which led to the clearance of CFAF 70 billion through bank loans, and (ii) CFAF 79 billion were paid using Treasury resources. For 2021, the authorities are expected to clear CFAF 85 billion in domestic arrears as follows; (i) CFAF 25 billion through the issuance of T-bonds following the exit from the rollover mechanism, and (ii) CFAF 60 billion using Treasury resources, CFAF 17 billion of which via the SDR allocation. The success of the arrears clearance strategy should help reduce vulnerabilities in the banking system and support economic recovery. Part of the SDR allocation will also be used to clear other arrears owed to pensioners.

29. The authorities and BEAC reached an agreement to terminate the rollover mechanism for domestic debt (Box 2, MEFP ¶25). Under this mechanism, which was put in place in 2018, the government was not able to issue new securities, instead only to rollover the maturing securities—initially 100 percent, which was then progressively reduced to 85 percent in 2020. The new agreement will allow Chad to issue new securities (with maturities ranging between one to five years) to help ease liquidity pressures on the treasury, supported also by BEAC’s purchasing program of government securities on the secondary market until it was brought to a close in September.

Text Figure 4.
Text Figure 4.

Chad: Evolution of the Wage Bill

(Percent of Non-oil GDP)

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: Chadian Authorities; IMF Staff Estimates

30. The debt sustainability analysis (DSA) shows that in a pre-restructuring baseline, Chad’s public debt has become unsustainable. In particular, the debt service-to-revenue ratio and the PV of public debt to GDP indicators are projected to remain above their respective high-risk thresholds during 2021–28 and 2020–26, respectively under the baseline, reflecting the front-loaded repayment schedule for its largest private commercial creditor. In addition, all external debt risk indicators exceed their thresholds under the most extreme shock scenarios. Public debt is now classified as in distress, and the authorities decided in December 2020 to seek a restructuring of its external debt through the G20 Common Framework. Given the difficulties to mobilize donor financing, the large financing gaps will persist over the medium term, and therefore meeting all financial obligations without a debt restructuring would entail unrealistic adjustments and sacrifices on social and development needs that are not compatible with the Fund’s debt sustainability definition for LICs.

Text Figure 5.
Text Figure 5.

Chad: External Debt Service by Creditor Group

(percent of government revenue, excluding grants)

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: Country authorities, IMF and World Bank staff estimates. In line with the LIC DSF Guidance Note, future IDA disbursements are assumed in the form of concessional loans.

31. Restoring debt sustainability will depend in large part on reducing the burden of debt service (MEFP ¶26). The Debt Service Suspension Initiative (DSSI), to a lesser-than-anticipated extent, and the Catastrophe Containment Relief Trust (CCRT) have contributed to closing the financing gap in 2020–21 but are insufficient. The external financing needs are projected to be met through additional financing from the Fund, the World Bank and other MDBs, as well as official bilateral partners. In addition, a debt restructuring of part of Chad’s external debt obligations will be necessary to bring its external and overall risk of debt distress from in debt distress to moderate risk of debt distress before the end of the program period. To enhance debt transparency, the authorities have agreed to publish new debt contracts.

32. The government is gradually rolling over the existing stock of domestic debt into longer maturities. The stock of existing government securities (CFAF 333 billion at end-2020 or 6.3 percent of non-oil GDP), consists mostly of 6-month T-bills. The authorities have started converting them into T-bonds with maturities ranging between two and five years. Chad benefitted from BEAC’s public securities’ program on the secondary market with an amount of CFA 145 billion until September, when the program came to an end.13

Strengthening the Resilience of the Banking Sector

33. Some progress has been made in addressing systemic public banks vulnerabilities, however, additional efforts are needed (MEFP ¶53–54). The last ECF-supported program set up roadmaps for addressing public banks’ vulnerabilities, which were successfully adopted, including restructuring and funding plans for the two systemic public banks, as well as the signature of performance contracts. The first two reports were completed by the two large public banks and showed some progress especially in one of the banks, which comes despite the pandemic. Monthly repayments of arrears owed to the two large public banks (CFAF 250 million to BCC and CFAF 500 million to CBT per month) have continued. Despite these efforts, domestic banks remain weak, with liquidity constraints and a weak capital position. The follow-up report on the performance contracts for 2021 of the two systemic public banks has shown some progress in one bank while the other remained somewhat weak. Meanwhile, the partial recapitalization of CBT (CFAF 4.5 billion—prior action for program approval) will help address the bank’s weak capital position.

34. The development and soundness of the financial sector is crucial for economic diversification and inclusiveness (MEFP ¶53–54). The stability of the banking sector would increase if higher resources were mobilized, reflected in higher deposits and lower NPLs.14 Efforts to further develop mobile money15 and microfinance will also enhance financial inclusion. As such, the authorities intend to improve access to financial services by encouraging the creation of strong and secure microfinance institutions, and by channeling through banks government transactions (bancarisation). The “bancarisation” will allow the opening of accounts by a large number of users, while the payments of wages, taxes and customs duties through mobile money will promote the use of modern payment methods.

Supporting Green and Inclusive Growth

35. The structural reform agenda will focus on policies that will address fragilities, strengthen governance and reduce corruption, support green and inclusive growth, and reduce poverty. The agenda will build on key efforts made under the previous ECF arrangement, including domestic revenue mobilization, including VAT collection and tax administration, as well as public financial management. This is in addition to growth-enhancing reforms notably by improving SOEs governance, promoting investment in the electricity sector and strengthening the anti-corruption framework and the rule of law to improve the business environment and enhance the governance agenda.

36. Strengthening domestic revenue mobilization will remain a priority under the program. The prevalence of tax exemptions, the proliferation of ad-hoc taxes, and weaknesses in tax and custom administration have created large distortions and weakened tax collection. The authorities are committed to finalize the implementation of the recommendations of the audit of the 47 exemption agreements. They will also publish a semi-annual note (SB for end January 2022, which lists all new tax exemptions (including renewal and extension of tax exemptions). Over the medium term, the exemption system will be reformed by (i) strengthening the institutional capacity for granting new tax exemptions; and (ii) removing tax exemptions from specific codes and streamlining them in the tax and customs code. The authorities will also implement the ASYCUDA Exemption Module to process all customs exemptions requests and authorizations (end-November 2022 Structural Benchmark).

37. Efforts to bolster VAT collection and tax administration are critical (MEFP ¶30–31). VAT revenues stood at around 1.5 percent of GDP in 2020, the lowest in Africa. Accordingly, the authorities are planning to: (i) acquire a new IT system; (ii) finalize the relocation of the large- and medium-sized firms directorates; and (iii) introduce a VAT refund system, which would require that VAT revenues be adequate to allow for a smooth refund (SB for end-February 2022). The establishment of a VAT mechanism should strengthen confidence and improve revenue collection. Over the medium term, the authorities will complete the transfer of the revenue collection function from the treasury to a revenue administration body. They are also committed to continue to strengthen core tax and customs administrations’ functions, such as tax registration and identification of new taxpayers, tax audit, import valuation, and control of transit goods.

38. PFM reforms need to advance at a faster pace (MEFP ¶32–40). A PEFA assessment was conducted in 2017, which showed a serious deterioration in PFM capacity due to economic and security shocks. The IMF staff and the authorities reached understandings with the authorities to: (i) implement a PFM strategy based on Fund TA recommendations (SB for end June 2022); (ii) adopt an integrated financial management system; (iii) prepare cashflow projections and treasury plans to improve treasury management and prevent the accumulation of new arrears; and (iv) gradually reduce the use of expenditure outside the standard spending procedure (Dépenses avant ordonnancement or “DAO”) to 18 percent of spending in 2022 and then to 15 percent by 2024. Over the medium term, they will: (i) adopt a Treasury Single Account; (ii) rationalize transfers and subsidies; and (iii) conduct a PIMA evaluation of public investment taking into account the objective of boosting climate-smart infrastructure.16

39. Improving the business climate will help tackle impediments to private sector development and generate employment and inclusive growth (MEFP ¶48–49). The business climate in Chad is poor relative to other countries in sub-Saharan Africa and is constrained by weak access to electricity, a burdensome and inefficient regulatory environment, insufficient access to finance, and governance, corruption, and transparency issues. Diagnostic work conducted in early 2020 by the United Nations Economic Commission for Africa (UNECA) identified strong potential for economic diversification in Chad, however reaching this potential and increasing the attractiveness of private sector will require substantial reforms. To strengthen the business environment, the authorities envisage reforms, including (i) regulations to facilitate investment in the electricity sector and restructure the national electricity company; and (ii) modernization of the tax administration and the allocation of increased resources to tax agencies. Over the medium term, they intend to (i) adopt and implement a reform strategy for SOEs, including a framework to reduce transfers; (ii) streamline procedures for the creation of SMEs; (iii) improve access to finance through microfinance and mobile money initiatives; and (vi) continue to build on progress in transparency, including the continuation of the regular publication of notes on the oil sector and of all tax exemptions (SB for end December 2021 and January 2022, respectively). To increase economic engagement among women and the youth, the authorities have established a National Youth Entrepreneurship Fund and will seek technical assistance and financing from the World Bank and AfDB to help meet this objective.

40. Further efforts are needed to buttress the anti-corruption strategy (MEFP ¶50–52). The authorities are committed to addressing governance weaknesses and strengthening transparency, which they hope will help reduce the scope for corruption. To this end, they intend to: (i) seek support from the UN to align the present penal code with the United Nations Convention against Corruption (UNCAC); (ii) engage with IMF staff to design an asset declaration regime in line with the applicable international good practices, including in the context of upcoming constitutional reforms; and (iii) support the activities of the National Agency for Financial Investigation (ANIF), including by augmenting its human resources. In addition, to address structural vulnerabilities in the public procurement system, they will institute a requirement to publish online the full text of all procurement contracts along with the names and nationalities of the beneficial owners of the awarded legal entities (SB for end March 2022), with technical assistance from the Fund, and complete and publish an ex-post audit of COVID-19 related expenses by a reputable international auditing firm (SB for end-December 2021). The authorities are set to publish on-line on an easily accessible governmental website with the full text of all COVID-19-related procurement contracts awarded as of May 31, 2021 (prior action).

Program Design, Financing, and Risks

41. Staff estimates a cumulative financing gap of US$1.662 billion during 2021–24. This estimate is based on projected external financing flows, a medium-term fiscal consolidation path and a debt restructuring. Chad is facing an exceptionally large balance of payments need, given the multiplicity and size of the shocks it is facing, that cannot be solved solely with domestic policies. Given the nature of Chad’s balance of payments needs, it is proposed that financing from the ECF be used for budget support. Regional assurances have been provided as these assurances are macro critical for the success of the program given that actions undertaken by the authorities would not be sufficient to ensure the success of the program. The program would help resolve a protracted balance of payment problem, buffeted by underlying structural impediments, which prevents pursuit of an active development policy in an economy characterized by slow growth. A poverty reduction strategy is expected to be finalized by the second review.

42. The 36-month arrangement under the Extended Credit Facility (ECF), with access set at SDR 392.56 million (280 percent of quota) will fill around a third of the estimated financing gap. The PRGT cumulative access will peak at 505 percent of quota, resulting in exceptional access under the PRGT. The entire amount will be provided to the budget as Chad has both fiscal and balance of payments needs. Exceptional access under the PRGT is predicated on: (i) the authorities’ commitment to reforms; (ii) the satisfactory policy implementation under the previous ECF; and (iii) an expected debt restructuring, which will help bring down the debt risk from in debt distress to moderate risk of debt distress by the end of the program. The proposed access triggers the set of safeguards related to PRGT exceptional access criteria.

43. The exceptional access criteria under the PRGT, which need to be met for access above 435 percent of quota under the PRGT, are assessed to be met:

  • Criterion 1: “The member is experiencing or has the potential to experience exceptional balance of payment pressures on the current account or capital account, resulting in a need for resources under the Trust that cannot be met within the normal limits.” Chad is experiencing an exceptionally large balance of payments need that cannot be met within the normal limits, given the multiplicity and size of the shocks it has experienced, and since its outstanding credit to the Fund under the PRGT is at 291.9 percent of quota.

  • Criterion 2: “Risks to the sustainability of public debt are adequately contained. Where the member’s debt is assessed to be unsustainable ex ante, access to resources in excess of the normal limits will only be made available if the combination of the member’s policies and financing from sources other than the Fund, which may include debt restructuring, restores public debt sustainability with high probability (i.e., to a point where application of the LIC-DSF would yield a rating of low or moderate overall risk of public debt distress) within 36 months from Board approval.” The debt restructuring operation and related assurances (¶46), the proposed fiscal adjustment, and structural reforms are projected to reduce the risk of external and overall debt distress from in debt distress to moderate risk within the program period. The authorities’ program involves structural fiscal reforms to mobilize non-oil revenues and streamline expenditure with the aim of achieving a 4 percentage points of non-oil GDP adjustment

  • Criterion 3: “The member does not meet the income criterion for presumed blending at the time of making a request for resources under this Trust in excess of the access limits”. Chad has an income below the prevailing operational cutoff for assistance from IDA.

  • Criterion 4. “The policy program of the member provides a reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment”. Notwithstanding the risks, staff estimates that the program has a reasonably strong prospect of success for several reasons, including (i) the commitment of the authorities’ to the program; (ii) the updated policy assurances provided by the BEAC (¶49); (iii) the authorities’ satisfactory performance under the previous program, and their continued strong commitment to reforms; (iv) Chad has received extensive TA in the past and has been able to build capacity on the fiscal and debt management fronts; (v) official creditors have already provided assurances for a debt restructuring and there is a credible process in place with respect to the restructuring of liabilities to external private creditors; and (vi) the program will be supported by extensive TA to continue the buildup of capacity in the Chadian administration.

44. Development partners, including the World Bank, have also provided financing assurances. In addition to Fund support, other donors’ engagement will help close the financing gap. With these commitments, as well as the progress towards debt restructuring, there are firm commitments of financing for the next 12 months and good prospects of financing for the remainder of the program, which is fully financed.

45. The authorities are seeking a debt restructuring that would place debt service on a firm downward path, bring the external risk rating to “moderate,” and ensure the program is fully financed. Chad faces large liquidity needs during the Fund-supported program, which will need to be addressed through a debt workout. The expected debt restructuring would significantly reduce the external debt service, which implies generating about US$658 million in financing during 2021–24. Additionally, given Chad’s vulnerability to shocks, restoring a “moderate” rating within the program period and preserving it on a durable basis will require achieving a debt service-to-revenue ratio below 12.3 percent by the end of the ECF arrangement and maintaining this level for the remainder of the horizon in line with the LIC DSF’s criteria for a moderate rating “with some space”.17

Text Table 11.

Chad: Financing Gap 2021–24

($US, millions)

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Sources: IMF staff estimates and projections.

From 2022–24, budget support is comprised of loans.

Includes full-year extension in 2021. Negative values indicate repayments of deferred debt service

Excludes all non-restructurable debt (i.e. multilateral debt including IMF, WB, and AfDB)

46. Staff’s assessment is that there are sufficient assurances regarding the debt restructuring needed to establish debt sustainability. Official bilateral creditors are being engaged through a Creditor Committee formed under the G20 Common Framework and have provided financing assurances through a joint statement (published on June 16) and committee discussions. The main private creditor has established a creditor committee and hired its own advisors and has committed to negotiate in good faith with the Chadian government. The authorities are committed to finalizing the MOUs with official creditors, and to reaching an agreement on comparable terms with the largest private creditor, by the time of the first review (MEFP¶27). The authorities have also reached out to the other private creditors to reach an agreement over time on comparable terms. Chad has arrears to Libya and Republic of Congo, which are deemed away under the policy on arrears to official bilateral creditors, as the underlying G20/Paris Club agreement is adequately representative, the authorities are making best effort to resolve the arrears, and financing assurances have been received from the G20/Paris Club creditors.18 Negotiations to reach a restructuring agreement with BDEAC are also ongoing.

47. Program performance will be monitored through semi-annual quantitative performance criteria (QPCs) and indicative targets (ITs), as well as structural benchmarks (SBs) (Tables 6 and 7). QPCs will be set on new external arrears of the government and non-financial public enterprises, the contracting or guaranteeing of non-concessional external debt and the non-oil primary fiscal balance.19 ITs will be set on the wage bill, net domestic government financing, tax revenues, stock of domestic arrears, and social spending. With effect from the second review, QPCs will be set on domestic arrears. Starting from the third review, QPCs will be set on net domestic government financing. Adjustors are included to address fluctuations in oil revenue and budget support.

Table 1.

Chad: Selected Economic and Financial Indicators, 2019–2025

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

WEO projections for Brent crude oil price.

Chadian oil price is Brent price minus quality discount.

Changes as a percent of broad money stock at the beginning of period.

Central government, including government-guaranteed debt.

Total revenue excluding grants and oil revenue, minus total expenditure excluding net interest payments and foreign-financed investment.

The CEMAC reference fiscal balance is calculated as the overall fiscal balance minus the savings from oil revenue, which is the sum of 20 percent of oil revenue of the current year and 80 percent of the oil revenue in excess of the average oil revenues in the previous three years.

Table 2.

Chad: Fiscal Operations of the Central Government, 2019–2025

(billions of CFAF, unless otherwise indicated)

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

Net of cash calls and transportation costs linked to the oil public enterprise (SHT) participation in private oil companies.

includes subsidies to the electricity company starting from 2020.

Includes projects financed by the BDEAC, but the corresponding loans (in CFAF) are counted as domestic financing.

Total revenue, less grants and oil revenue, minus total expenditures, less interest payments and foreign financed investment.

Difference between committed and cash expenditure, and errors and omissions.

Recognized arrears, as registered by the Treasury in the “restes à payer” table.

Bilateral or multilateral loans in CFAF (e.g. BDEAC, loan from Cameroon in 2016).

Table 3.

Chad: Fiscal Operations of the Central Government, 2019–2025

(Percent of non-oil GDP, unless otherwise indicated)

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

Net of cash calls and transportation costs linked to the oil public enterprise (SHT) participation in private oil companies.

includes subsidies to the electricity company starting from 2020.

Includes projects financed by the BDEAC, but the corresponding loans (in CFAF) are counted as domestic financing.

Total revenue, less grants and oil revenue, minus total expenditures, less interest payments and foreign financed investment.

Difference between committed and cash expenditure.

Recognized arrears, as registered by the Treasury in the “restes à payer” table.

Table 4.

Chad: Balance of Payments, 2019–2025

(billions of CFAF, unless otherwise indicated)

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Sources: Chadian authorities; and IMF staff estimates and projections.
Table 5.

Chad: Monetary Survey, 2020–2025

(billions of CFAF, unless otherwise indicated)

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

Includes statutory and exceptional advances.

Table 6.

Chad: Structural Benchmarks 2021/22 and Prior Actions for the 2021 ECF

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Sources: Chadian authorities and IMF staff.
Table 7.

Chad: Quantitative Performance Criteria (QPC) and Indicative Targets (IT) Under the ECF Arrangement

(in billions of CFAF, unless otherwise indicated)

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Sources: Chadian authorities; and IMF Staff. Notes: The adjustors for the QPCs and ITs are defined in paragraph 23 of the TMU. In addition to QPCs enumerated in this table, the Standard Continuous Performance Criteria will also apply: (i) not to impose or intensify restrictions on the making of payments and transfers for current international transactions, (ii) not to introduce or modify multiple currency practices, (iii) not to conclude bilateral payments agreements that are inconsistent with Article VIII, (iv) not to impose or intensify import restrictions for balance of payments reasons. All indicators are cumulative from January 1 unless stated otherwise

Applies continuously.

NOPB: Non-oil revenue less grants, minus domestically financed primary expenditure (ie. expenditure, less net interest payments and foreign

See TMU.

Stock of verified arrears as definied In line with the TMU.

Expenditure of Ministries in charge of social sectors, as recommended by the World Bank in the absence of a budgetary functional classification. An adjustor will be defined in case of expenditure cuts, which will ensure an increase of the share of poverty-reducing social spending in the total of primary current expenditure (see TMU for details).

DAO is defined as all expenditures which do not go through the standard spending procedure. Regularization of DAO consists in recording the expenditure in the correspondent line of the budget. This will be done within 45 days after the end of the quarter.

Oil Revenue is the sum of direct receipt and the sale revenue of government oil net of operating and transportation cost.

Budget grants.

48. Program success will hinge on the provision of adequate capacity development. The capacity development plan envisaged for Chad during the new program will continue to mainly support efforts initiated under the previous ECF program. It is expected to contribute to building a policy framework that is capable of responding to large external volatility and to creating fiscal space to sustainably address Chad’s large development needs. It contains the following priorities: (i) non-oil revenue mobilization, which includes a better VAT management and tax exemptions, and improved oil revenue forecasting and management; (ii) PFM reform, focused on improving budgeting procedures, this also includes forecasting and coordination between agencies, rationalizing the wage bill, containing emergency spending procedures, strengthening treasury management, and setting up social protection; (iii) improving statistics, particularly national accounts statistics, BOP, and public finance; (iv) supporting Climate Change Policy Assessment (CCPA) in analyzing and developing policy responses to the economic impact of climate change; and (v) debt management and restructuring of systemic public banks.

49. BEAC has provided updated policy assurances in support of CEMAC countries’ Fund-supported programs. In its follow-up letter of policy support of December 2021, BEAC reiterated its commitment to maintaining an appropriate monetary policy stance, together with member states implementing fiscal adjustment in the context of Fund-supported programs, to support external reserves build-up. As part of corrective actions to support the reserve position and address the non-implementation of the end-June 2021 policy assurance, it has (i) raised the policy rate (TIAO) by 25 basis points at an extraordinary MPC meeting in late November; and (ii) agreed to increase the interest rate of liquidity absorptions to reduce the excess liquidity, stimulate the interbank market, and improve monetary policy transmission. BEAC will also continue to work towards effective application of the foreign exchange regulation, including by implementing the recently agreed adaptations for the extractive sector from January 2022. The regional assurances on regional NFA are critical for the success of Chad’s Fund-supported program and will help bolster the region’s external sustainability.

50. Program risks are high. They include a possible deterioration in the pandemic and the related slowdown in GDP growth and reform implementation, serious security incidents, election-related expenditure over-runs, imperfect implementation of agreed debt restructuring, reform fatigue, and shortfalls in donor financing. These risks will be mitigated by close engagement with the authorities and donors, as well as a comprehensive CD program. It is expected that the program would help address the sources of fragilities, thereby contributing to the domestic and regional security.

51. Chad’s capacity to repay the Fund is currently assessed as adequate, contingent on successful implementation of key program measures, including the envisaged debt restructuring (Figure 6; Table 9). Capacity to repay is subject to risks. Outstanding obligations to the Fund based on existing and prospective drawings would peak at over 7 percent of GDP in 2024, while annual repayments will peak at 5 percent of tax revenues excluding grants in 2028 (Figure 6). Outstanding obligations to the Fund as a share of quota and as a share of GDP are both well above the median of PRGT UCT-quality arrangements occurring between 2010 and 2020. Debt service to the Fund is currently close to median values but will rise steeply as repayments of emergency financing come due. Risks would be mitigated by strong and sustained political assurances of support for the objectives of the program, as well success at leveraging the Fund’s’ catalytic financing role. Given Chad’s share of BEAC reserves, its capacity to repay the Fund is also affected by the capacity to repay the Fund of other CEMAC countries.

Figure 1.
Figure 1.

Chad and Neighboring Countries: Fragility Indicators, 2011–20

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: Fragile States Index (Fund for Peace)1/ Index from 1 – 10 where 10 represents most fragility and 1 represents least fragility.2/ Cohesion Indicators include Security Apparatus, Factionalized Elites, and Group Grievance.3/ Economic Indicators include Economic Decline, Inequality, and Human Flight/Brain Drain.4/ Political Indicators include State Legitimacy, Public Services, and Human Rights.5/ Social Indicators include Demographic Pressures and Refugees and Internally Displaced Persons.
Figure 2.
Figure 2.

Chad: Selected Development Indicators, 1995–2019

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: Human Development Report (2020) – calculations based on data from UNDESA (2019a), UNESCO Institute for Statistics (2020), United Nations Statistics Division (2020b), World Bank (2020a), Barro and Lee (2018) and IMF (2020).1/ HDI is calculated as the geometric mean (equally-weighted) of life expectancy, education, and GNI per capita,2/ Definition: Percentage of the population living below the international poverty line of $1.90 (in purchasing power parity terms (PPP]) a day. Latest available data for each country.
Figure 3.
Figure 3.

Chad: Recent Economic Developments, 2012–21

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: Chadian Authorities and IMF Staff Estimates
Figure 4.
Figure 4.

Chad: Evolution of Domestic Debt in CEMAC, 2016–20

(Billions of CFAF)

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: BEAC and IMF Staff Estimates
Figure 5.
Figure 5.

Chad: Financial Sector Developments, 2014–20

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Sources: BEAC; IMF Staff Estimates1/ Domestic arrears includes the stock of audited arrears at end 2019. FSI data for 2020 are provisional.
Figure 6.
Figure 6.

Chad: Fund Credit Indicators Compared to PRGT UCT-Quality Arrangements

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

Notes:1) T = date of arrangement approval. PPG = public and publicly guaranteed.2) Red lines/bars indicate the CtR indicator for the arrangement of interest.3) The median, interquartile range, and comparator bars reflect all UCT arrangements (including blends) approved for PRGT countries between 2010 and 2020.4) PRGT countries in the control group with multiple arrangements are entered as separate events in the database.5) Gross international reserves refer to the gross imputed reserves for Chad.
Table 8.

Chad: Proposed Schedule of Disbursement Under the new ECF Arrangement, 2021–24

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Source: IMF Staff estimates and projections.
Table 9.

Chad: Indicators of Capacity to Repay the Fund, 2021–35

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Source: IMF staff estimates and projections.

Total external debt service includes IMF repurchases and repayments.

52. Safeguards Assessments. The BEAC has implemented the priority recommendations from the 2017 safeguards assessment. In particular, the alignment of the BEAC’s secondary legal instruments with its Charter was concluded, and BEAC has issued its FY 2019 and FY 2020 audited financial statements in compliance with IFRS. An updated safeguards assessment has been initiated, under the four-year cycle for safeguards assessments of regional central banks.

Staff Appraisal

53. Chad’s economic situation has steadily worsened since the beginning of the pandemic. The combined and long-lasting shocks of the COVID-19 pandemic, oil price volatility, climate change and its impact on food security, terrorist attacks, and delays in donor support continue to buffet the Chadian economy. These shocks have exacerbated existing vulnerabilities, put pressure on an already fragile health sector, disrupted domestic economic activities, and generated significant financing needs. Given this large permanent shock, adjustment is essential. There is a strong risk that these shocks could contribute to wiping out the gains achieved under the previous ECF arrangement and leaving long-lasting scars.

54. The authorities’ commitment to take the necessary measures to stabilize the economy, minimize scarring, and lay the foundation for a sustainable and green recovery is welcome. The authorities’ home-grown economic program aims at (i) supporting the COVID recovery, while securing macroeconomic stability; (ii) restoring debt sustainability via a multi-year fiscal consolidation program and an ambitious debt restructuring; and (iii) advancing an ambitious structural reform agenda, particularly by strengthening governance, tackling corruption, and addressing fragilities. The success of this strategy will hinge on political ownership, fiscal restraint, and assistance from the international community.

55. The authorities’ fiscal program, which is based on a balanced mix of revenue mobilization and expenditure rationalization, is appropriate. Continued mobilization of domestic revenues combined with fiscal discipline, especially with regard to the wage bill, will help reduce the budget dependence on oil revenue. It will also free up resources that will be allocated to pandemic-related needs in 2021, as well as efficient investment and social spending while accommodating pressing security spending needs. Staff believes that this composition of fiscal adjustment would mitigate the negative effects of consolidation on growth while protecting the vulnerable and poor. Non-priority spending should be contained in the run-up to the elections and oil windfalls, if they were to materialize, should be saved.

56. The debt restructuring is expected to restore debt sustainability with a moderate risk of debt distress and provide the necessary financing for the program. Official bilateral creditors, engaged through a creditor committee formed under the G20 Common Framework, have provided financing assurances through a joint statement and committee discussions. Staff assesses that there is a credible process towards a restructuring of liabilities to private creditors. Staff welcomes the authorities’ commitment to finalizing the MOUs with official creditors and reaching an agreement with the largest private creditor by the time of the first review. In parallel, Chad will need substantial grants from the international community to support its development and poverty reduction strategy while preserving debt sustainability.

57. Despite some progress, remaining banking sector vulnerabilities should be addressed to foster financial stability and inclusion. Vigilance should continue in addressing the vulnerabilities stemming from the two large public banks. Further recapitalization would be needed for the CBT. Stability of the financial sector is a precondition for financial inclusion, which would be promoted through mobile money, microfinance, and the digitalization of the economy.

58. Staff welcomes the authorities’ reform agenda geared towards addressing pre-existing structural challenges, which were exacerbated by the pandemic. The agenda namely focuses on improving domestic revenue mobilization, strengthening tax and customs administrations, and improving public financial management. In addition, envisaged growth-enhancing green reforms, notably by rationalizing subsidies and promoting investment in the electricity sector, would help make further progress toward sustainable development.

59. Strengthening the rule of law and anti-corruption framework to promote a friendly business environment and enhancing the governance agenda will be critical. Staff welcomes progress made in implementing commitments at the time of RCF-2 to strengthen transparency around all COVID-related expenditures. Looking forward, the authorities will rightly focus on strengthening the anti-corruption framework by (i) aligning domestic legislation with UNCAC; (ii) addressing the poor implementation of anti-corruption laws by strengthening key institutions; (iii) bringing the asset declaration regime into alignment with the applicable international good practices; (iv) supporting the activities of the ANIF, including by increasing its human resources; and lastly by (v) addressing the weaknesses in the public procurement system.

60. Based on the strength of the program, corrective action taken by BEAC, and regional policy assurances established in the December 2021 union-wide paper, staff supports the authorities’ request for assistance under an ECF arrangement. The program will help the authorities respond to the pandemic and its aftermath while strongly engaging them on an ambitious structural reform agenda and catalyzing donors’ support to fill the large financing needs. Staff proposes that completion of the first review under the ECF arrangement be conditional on the implementation of critical policy assurances at the union level, as established in the December 2021 union-wide background paper.

Chad’s Climate Vulnerabilities’ and its Green Recovery

Chad is a Sahelian country that is very vulnerable to climate risks (droughts, floods, high winds, desertification), making the conditions of production and life extremely difficult. The effects of climate change on ecosystems have led to tensions over access to natural resources. The quasi-disappearance of Lake Chad threatens the livelihood of some 40 million people from four bordering countries, exacerbating food insecurity and conflicts. Like the Covid-19 pandemic, the climate change has a disproportionate impact on already disadvantaged population (including the poor and women). At this juncture, the Chadian authorities are faced with the challenge of preserving environmental resources, while adapting to climate change and mitigating its effects. This is not easily achievable in view of the country’s fragilities, the limited resources, and the lack of legal, regulatory, and institutional frameworks to address climate change.

Accordingly, the new National Development Plan (2022–2026) built on the authorities’ “Vision 2030” will aim to support a green and inclusive recovery, and foster resilience, among other things. This is in line with the new ECF program and includes:

(i) Focusing on the restructuring of SNE (national electricity company) is essential to help attract investment in renewable energy. The current system of transfers to SNE is expected to be replaced in the medium term: from diesel for electricity generation to monetary transfers that will be made in the context of the performance contract. The performance contract will be based on improving the SNE’s financial position, including improved revenue collection, reduction of production cost and tariffs adjustment. Additionally, to help create conditions for cost-effective electricity access extension in a financially sustainable manner, the World Bank plans sector reforms under a technical assistance project before end-2021.

(ii) Increasing access to electricity, which is currently weak. The Government amended the legal framework to liberalize the production and distribution of electricity and the 2020 budget law provided tax incentives for investment in green energy. They are expected to streamline their subsidies and tax exemptions system for companies, taking into account encouraging green projects by the private sector.

(iii) With the support of IMF technical assistance: (1) Chad is planning to conduct a PIMA evaluation of public investment taking into account the objective of boosting climate-smart infrastructure. These include renewable energy, modernizing the electric grid, public transport, and improving digital infrastructure to build on the global teleworking experience. (2) The authorities are planning to conduct Climate Change Policy Assessment (CCPA), which supports analyzing and developing policy responses to the economic impact of climate change.

(iv) Finally, for supporting a green recovery via financial inclusion, Chad authorities are planning to improve access to finance through microfinance and mobile money initiatives.

Chad: Rollover Mechanism for Chadian Government Securities

The rollover mechanism was established in mid-2017. The mechanism has allowed banks suffering from liquidity stress to rollover maturing Chadian government securities, mainly backed by intraday credits from BEAC, which has helped avoid a sovereign default. This was during a time of strong reluctance of some holders of Chadian government securities to renew their maturities during mid-2017, mainly reflecting high perceived risks for Chadian securities.

uA001fig03

The rollover mechanism consists of the following stages:

Citation: IMF Staff Country Reports 2021, 267; 10.5089/9781557759542.002.A001

During the transition period (2017–2020), BEAC retained its role as lender of last resort with the technical tool of intraday credits. Reflecting improvements in the government’s financial position, the 2017–19 ECF-supported program targeted a progressive reduction in the average rollover rate from 100 percent in 2017 to 85 percent in 2020. This helped strengthen bank liquidity, particularly for the weak public banks and reduced banks’ exposure to BEAC financing Assessing the arrangement under the rollover mechanism since 2017. The mechanism had excluded Chad from issuing new government securities on the regional financial market, despite signals that the demand for Chadian securities improved, given the strengthening of the country’s public finances. Chad was the only CEMAC country to reduce its stock of securities and the mechanism was costly, as the Treasury did not benefit from the fall in the regional market interest rates; it was unable to issue new securities at lower cost, and continued rolling over its maturities with weak banks subject to higher BEAC refinancing costs.

Exiting the rollover mechanism with caution. Under a February 2021 memorandum of understanding with BEAC, the Government decided to exit the rollover mechanism for domestic bank debt. The exit of the rollover mechanism allowed Chad’s Treasury to access the CEMAC securities market and to mobilize more than the CFAF 100 billion proposed by BEAC (estimated at CFA 145 billion), under the CFAF 600 billion bond purchase program in the secondary market. The phasing-out of the rollover mechanism will however be done with caution, including a restructuring of the current stock of short-term securities into longer-term maturity instruments, secured by the opening of an escrow account with BEAC. The new arrangement satisfies the conditions necessary to cancel the risk weighting on government securities issued by Chad.

Table 10.

Chad: Risk Assessment Matrix

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

Three-Year Arrangement Under the Extended Credit Facility

Attached hereto is a letter dated November 24, 2021 (the “Letter”), with its attached Memorandum of Economic and Financial Policies (the “MEFP”) and Technical Memorandum of Understanding (the “TMU”), from the Minister of Finance and Budget of Chad requesting from the International Monetary Fund, as Trustee of the Poverty Reduction and Growth Trust (the “Trustee”), a three-year arrangement under the Extended Credit Facility (“ECF”), and setting forth:

  • (a) the objectives and policies of the program that the authorities of Chad intend to pursue during the three-year period of the arrangement;

  • (b) the objectives, policies and measures that the authorities of Chad intend to pursue during the first year of the arrangement; and

  • (c) understandings of Chad with the Trustee regarding reviews that will be made of progress in realizing the objectives of the program and of the policies and measures that the authorities of Chad will pursue during the second and third years of the arrangement.

To support these objectives and policies, the Trustee grants the requested three-year arrangement in accordance with the following provisions, and subject to the provisions applying to assistance under the Poverty Reduction and Growth Trust (the “PRG Trust”) including in particular Section II, paragraph 1(b)(4) of the PRG Trust instrument annexed to Decision No. 8759-(87/176) ESAF, as amended.

1. (a) For a period of three years from the date of approval of this arrangement, Chad will have the right to obtain disbursements from the Trustee in a total amount equivalent to SDR 392.56 million, subject to the availability of resources in the PRG Trust.

(b) Disbursements under this arrangement shall not exceed the equivalent of SDR 168.24 million in the first twelve months, and the equivalent of SDR 280.40 million in the first twenty-four months.

2. During the period of the arrangement:

(a) the first disbursement, in an amount equivalent to SDR 56.08 million, will be available upon approval of the arrangement, at the request of Chad;

(b) the second disbursement, in an amount equivalent to SDR 56.08 million, will be available on or after [April 15], 2022 at the request of Chad and subject to paragraphs 4 and 5 below;

(c) the third disbursement, in an amount equivalent to SDR 56.08 million, will be available on or after [September 15], 2022, at the request of Chad and subject to paragraphs 4 and 5 below;

(d) the fourth disbursement, in an amount equivalent to SDR 56.08 million, will be available on or after [April 14], 2023, at the request of Chad and subject to paragraphs 4 and 5 below;

3. The right of Chad to request further disbursements during the second and third years of this arrangement shall be subject to such phasing and conditions as shall be determined in the context of reviews under Chad’s ECF arrangement.

4. Chad will not request the second, third or fourth disbursements under this arrangement specified in paragraphs 2(b), 2(c) and 2(d) above respectively:

(a) if the Managing Director of the Trustee finds that, with respect to the second disbursement, the data as of December 31, 2021, with respect to the third disbursement, the data as of June 30, 2022, and with respect to the fourth disbursement, the data as of December 31, 2022 indicate that:

(i) the floor on the non-oil primary budget balance;

(ii) the ceiling on net domestic government financing; or

(iii) the ceiling on the stock of domestic payment arrears by the government; as set out in Table 1 of the MEFP and further specified in the TMU was not observed; or

(b) until the Trustee has determined that, with respect to the second disbursement the first program review, with respect to the third disbursement the second program review, and with respect to the fourth disbursement the third program review referred to in paragraph [55] of the MEFP, has been completed.

5. Chad will not request a disbursement if at any time during the period of this arrangement:

(a) the ceiling on new external arrears by the government and non-financial public enterprises; or

(b) the ceiling on contracting or guaranteeing new non-concessional external debt by the government and non-financial public enterprises, as set out in Table 1 of the MEFP and further specified in the TMU, is not observed; or

(c) Chad:

(i) imposes or intensifies restrictions on the making of payments and transfers for current international transactions, or

(ii) introduces or modifies multiple currency practices, or

(iii) concludes bilateral payments agreements that are inconsistent with Article VIII, or

(iv) imposes or intensifies import restrictions for balance of payments reasons.

6. When Chad is prevented from requesting disbursements under this arrangement because of paragraphs 4 and 5 above, such disbursements may be made available only after consultation has taken place between the Trustee and Chad and understandings have been reached regarding the circumstances in which Chad may request the disbursements.

7. In accordance with Paragraph [5] of the Letter, Chad will provide the Trustee with such information as the Trustee requests in connection with the progress of Chad in implementing the policies and reaching the objectives of the program supported by this arrangement.

8. During the period of this arrangement, Chad shall remain in close consultation with the Trustee. In accordance with Paragraph [5] of the Letter, Chad shall consult with the Trustee on the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director of the Trustee requests such a consultation. Moreover, after the period of this arrangement and while Chad has outstanding financial obligations to the Trustee arising from loan disbursements under this arrangement, Chad will consult with the Trustee from time to time, at the initiative of the government or whenever the Managing Director of the Trustee requests consultation on Chad’s economic and financial policies. These consultations may include correspondence and visits of officials of the Trustee to Chad or of representatives of Chad to the Trustee.

Appendix I. Letter of Intent

November 24, 2021

N’Djamena, November 2021

Madame Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, DC, USA

Dear Madame Georgieva,

Chad made progress on the economic and financial reform program supported by the Extended Credit Facility (ECF) approved by the IMF Executive Board on June 30, 2017. The program helped reestablish debt sustainability and progressively consolidate the external position. Despite a difficult socio-economic situation and continued humanitarian, climate change and security challenges, our economy had been recovering since 2018, and there were clear signs it was recovering from the financial crisis. Unfortunately, this encouraging progress was interrupted by the COVID-19 pandemic. Due to the scale and duration of the pandemic and the technical difficulties to finalize the 6th review, upon approval by the Board of Directors of the second disbursement under the Rapid Credit Facility (RCF), the ECF arrangement was cancelled and the last disbursement was forfeited.

Chad has been severely hit by the Covid-19 health and economic shocks. While preventive measures have been effective in controlling the pandemic, they disrupted domestic activities. The associated health sector spending and the drop in world oil prices have generated substantial balance of payments and budgetary needs. We are grateful to the IMF’s timely support through two disbursements in April and July 2020 under the “exogenous shock” window of the RCF for a total amount of SDR 133.19 million (95 percent of quota). Fund emergency financing catalyzed donor support that helped close financing gaps in 2020. In the absence of any budgetary support in 2021, the new SDR allocation was used to finance pressing social needs, including to address the looming food crisis. However, the pandemic has deteriorated Chad’s outlook, and significant balance of payment and budget financing needs remain over the medium term. Indications are that the recent gains made in poverty reduction could be reversed, given the impact of the pandemic.

The Government is determined to tackle the entrenched vulnerabilities in the context of a medium-term program in line with the 2030 vision. The objective of our program is to promote sustainable, green growth and poverty reduction. We believe that the policies outlined in the attached Memorandum of Economic and Financial Policies (MEFP) for 2021–24 could be supported by the IMF under a new ECF arrangement. These policies aim at ensuring fiscal and debt sustainability, improving governance and budgetary allocations to social sectors, strengthening the financial sector, and implementing structural reforms for economic diversification. At the regional front, we will continue to implement policies that are consistent with maintaining regional external stability, in particular by contributing to the restoration of an adequate level of regional reserves, thus helping achieve the regional NFA objectives in the updated letter of policy support from BEAC.

In order to facilitate the implementation of our program and reduce remaining balance of payments vulnerabilities, the Government of Chad requests assistance under the IMF’s PRGT for an ECF arrangement in an amount equivalent to SDR 392.56 million, or 280 percent of quota, to be disbursed in seven equal tranches over 36 months. Approval of this request would result in an immediate disbursement of SDR 56.08 million. A first review of the program would be completed on or after April 15, 2022, and a second review on or after September 15, 2022.

We believe that the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) will enable us to achieve the program objectives. We stand ready to take any measure that may prove necessary. We will consult with IMF staff on the adoption of any additional measures in advance of revisions to the policies contained in the MEFP, in accordance with Fund policies on such consultations. To facilitate program monitoring and assessment, the Government undertakes to provide all necessary information to IMF staff on a regular basis and in a timely manner, in accordance with the attached Technical Memorandum of Understanding (TMU).

In keeping with our longstanding commitment to transparency, the Government agrees to the publication of the staff report for the new ECF arrangement, this letter of intent, as well as the attached MEFP and TMU, on the IMF website.

Very truly yours,

/s/

Tahir Hamid Nguilin

Minister of Finance and Budget

Attachments:

I. Memorandum of Economic and Financial Policies (MEFP)

II. Technical Memorandum of Understanding (TMU)

Attachment I. Memorandum of Economic and Financial Policies for 2021–24

Introduction

1. The Government successfully implemented the 2017–2020 economic and financial program supported by the IMF under the Extended Credit Facility (ECF). The three-year ECF arrangement approved on June 30, 2017, helped restore debt sustainability and limit the impact of the 2014–16 oil price shocks. There were signs that the economy was progressively recovering from the financial crisis, with economic growth becoming positive since 2018. Five reviews under the ECF were concluded without interruption, with the 5th ECF review completed on December 13, 2019. The progress made was however abruptly interrupted by the economic and health shocks of the COVID-19 pandemic, which led to large balance of payments and budgetary needs. Chad benefitted from IMF’s timely support through two disbursements in April and July 2020 under the “exogenous shock” window of the Rapid Credit Facility (RCF) for a total amount of SDR 133.19 million (95 percent of quota). Fund emergency financing catalyzed donor support that helped close financing gaps in 2020. However, the pandemic has deteriorated Chad’s outlook, and significant balance of payment and budget financing needs remain over the medium term.

2. The Government is determined to implement another ECF-supported program. In view of practical difficulties to achieve the last disbursement (SDR 28.04 million, 20 percent of quota) under the previous ECF arrangement, the arrangement was cancelled, upon approval by the Board of Directors of the second disbursement under the RCF. The emphasis is now put on preparing a new medium-term economic program for 2021–24 that could be supported by a successor IMF arrangement. The new program aims at maintaining macroeconomic stability achieved under the previous ECF program and at promoting sustainable, inclusive, pro-business, green growth and poverty reduction. This Memorandum of Economic and Financial Policies (MEFP) for 2021–24 outlines policies that could be supported by the IMF under a new ECF arrangement. These policies aim at ensuring fiscal and debt sustainability, improving governance and budgetary allocations to social sectors, strengthening the financial sector, and implementing structural reforms for economic diversification.

Taking Stock of the Last ECF arrangement

3. The previous ECF arrangement helped restore fiscal and debt sustainability. The arrangement was approved in response to the economic, financial and social impact of external shocks faced by Chad since mid-2014 following the drop in world oil prices. Despite the very difficult security and social environment, the Government’s strong commitment and determination to reform along with the budget support from World Bank, the European Union, the African Development Bank and France (Agence Française de Développement or AFD), led to the completion of five reviews without interruption.

4. The program’s objective of restoring fiscal and debt sustainability was achieved: (1) external debt sustainability was restored thanks to the restructuring of the oil-backed Glencore commercial debt on better conditions for the Government (2) the non-oil primary deficit was kept below 5 percent of non-oil GDP thanks to an increase in non-oil revenue, particularly from VAT and customs, from 8.4 percent of non-oil GDP in 2016 to 9.4 percent of non-oil GDP in 2019 (0.6 percent point above program target) and a decline in the wage bill from 7.5 percent of non-oil GDP in 2016 to 7.0 percent of non-oil GDP in 2019 (0.2 percentage point better than the program target); and (3) the debt stock declined from 51.2 percent of GDP in 2016 to 44.3 percent of GDP in 2019 (0.4 percentage point below program target). Progress was made on a few key structural reforms: (i) the audit of domestic arrears was completed in December 2019 and the clearance strategy adopted in January 2020 is being implemented; (ii) restructuring and funding plans for CBT and BCC were adopted in December 2019 and performance contracts signed in March 2020 are being implemented; (iii) the publication of the quarterly oil note has helped improve transparency in the oil sector.

5. Progress on the commitment to diversify the economy remains limited and spending on social sectors was lower than envisaged. An institutional framework to improve the business climate and attract foreign private investment was established only in March 2019 and is awaiting operationalization. Private investment committed during the September 2017 Paris donor roundtable for mobilizing funding for the 2017–21 National Development Plan (PND) did not materialize. The program’s objective of increasing budgetary allocations to social sectors was not fully reached as the indicative targets on the floor on poverty reducing social spending were missed during most of the program period, due partially to the inadequate public procurement framework. Other structural reforms have also proceeded slowly. Significant gaps remain regarding governance, PFM, including the wage bill, and debt management.

Recent Developments

6. Economic activity contracted in 2020 due to the COVID-19 pandemic. Real activity, projected to grow by 3.9 percent at the time of the 5th ECF review, contracted by 1.6 percent, reflecting a contraction of the oil GDP and a decline in non-oil activity -1.6 percent. While preventive measures initiated in March 2020 have been effective in controlling the spread of the virus, they disrupted distribution channels as well as non-oil activities in transport, tourism and hospitality. Fortunately, the negative impact has been lessened by sustained activity in the telecommunication sector and high agriculture growth from the prospects of a good crop year. Inflation (yoy) picked up in 2020, annual average inflation is estimated at 4.5 percent in 2020, compared to -1.0 percent in 2019. In a recent INSEED survey, a good number of respondents indicated that they had lost their job due to the COVID-19, with the most income loss in the services sector.

7. Budget execution in 2020 shows a widening of the NOPB because of the negative impact of COVID-19 on revenues and higher expenditure needs. Despite the good performance of the VAT and customs revenue, non-oil revenue has been lower than projected in the original budget. On the other hand, oil revenue has exceeded budget projections thanks to the large corporate tax payments by a major oil company. Expenditures were higher than projected, reflecting health spending related to COVID-19, higher security spending and the financial impact of the January 2020 agreement with labor unions reestablishing benefits to public sector workers which were cut following the 2014 crisis. The agreement with labor unions provided that most of the benefits would be restored in January and July 2020. In August 2020, the National Assembly passed a revised 2020 budget law reflecting the financing needs stemming from the COVID-19 pandemic.

8. The government continued to reduce its stock of domestic debt. During 2020, the average roll-over rate was roughly 91 percent. There was market appetite for short-term BTA (26 weeks). Government deposits at the BEAC stabilized at CFAF 125 billion.

9. Faced with a tight liquidity situation during the first half of 2021, the government had to cut spending. Despite the good performance in non-oil revenues, the large drop in oil revenues and the delays in donors support have led the government to slash spending, mainly in domestically financed investment and transfers and subsidies. Security spending and the wage bill increased, especially after the recent events while social spending was under executed. To satisfy its large financing needs, the government almost depleted its deposits at the BEAC and relied on domestic borrowing

10. The Government decided to use the entire SDR allocation of US$193 million, help alleviate the liquidity squeeze. This SDR allocation will be mostly used in 2021 for priority spending, and to support economic recovery, in addition to food security.

11. The Government made additional progress in clearing domestic arrears, with total domestic arrears declining by CFAF 149.6 billion in 2020. Arrears amounting to CFAF 79.6 billion were paid by the Treasury. The Government also started implementing the plan to clear domestic arrears adopted in January 2020, based on the independent audit report of end-2019, which set the net stock at CFAF485 billion. In June 2020, an agreement was reached with local banks for clearing CFAF 110 billion in domestic arrears to banks and other borrowers through an CFAF 85 billion 8-year bank loan and the issuance of treasury bonds for CFAF 25 with maturities ranging between 3–5 years. Up to end-December, arrears amounting to CFAF 70 billion were cleared thanks to the loan. The agreement is expected to improve bank portfolio and profits, by reducing NPLs and provisioning needs.

12. The Government has maintained good relations with external creditors. Debt service obligations are being paid regularly except for the already outstanding arrears. Discussions are underway to address outstanding arrears with Libya, the Republic of Congo and BDEAC. The Government remains confident that measures, including the allocation of funds for external debt payment in an escrow account and monthly meetings of external debt service stakeholders, will ensure the nonrecurrence of external arrears.

13. The banking sector has been impacted by COVID-19. The ratio of nonperforming loans, which had declined in 2019, rebounded to 26 percent at end 2020 from 23 percent a year earlier. Moreover, the financial position of domestic banks remains fragile, some of them facing liquidity constraints and a weak capital position. This is mainly reflected in the significant drop in the sector’s capital adequacy ratio, for the most part due to the changes in COBAC’s reporting requirements to Basel II standards. End of December data show that lending activity and deposits grew, backed by the private and public sector. Starting from April 2020, the Ministry of Finance has been making monthly repayments of the direct debt to BCC and CBT (CFAF 250 million and CFAF 500 million per month, respectively), as envisaged in their restructuring and funding plans. The delayed partial recapitalization of CBT, amounting to CFA 4.5 billion, will be completed soon (prior action).

14. The security situation remains difficult and the social environment fragile. Boko Haram has intensified attacks in the Lake Chad region, sending more regional refugees to Chad and several thousands of internally displaced people, aggravating humanitarian needs. In early 2020, the security forces conducted a major campaign that destroyed its bases in the Chadian islands of Lake Chad. This led to the postponement of the force to fight against terrorism in the Sahel in line with the January Pau Summit in France. Chad continues to play a leading security role in Central Africa and in the Sahel. On April 11, Chad was attacked by a Libya-based terrorist group. President Déby, the Marshal of Chad, succumbed to wounds sustained in fighting the group. An 18-month transition was established, under the leadership of the Transitional Military Council and a broad-based civilian government. The transition will end with democratic, fair and free presidential and legislative elections. Security concerns have continued to necessitate an increase in security spending. Despite Government mitigating measures, the impact of COVID-19 on businesses and households has been significant. A severe rain shortfall in 2021 has increased food insecurity, while we registered an increase in the number of refugees and internally displaced people. To preserve social peace during the transition, in October 2021 a “social pact” was signed with public sector labor unions. The social pact reinstates some benefits cut following the post-2014 financial crisis.

15. Progress has been made under the 18-month political transition in line with the roadmap adopted in July 2021. The National Transition Council, with a parliamentary role, was installed on October 5, and an inclusive national dialogue has been prepared, with the participation of politico-military groups. The transition government has appealed to development partners to help finance priority activities under the transition road map, including the national dialogue, the revision of the constitution, and the organization of presidential and legislative elections.

Economic and Financial Policies for FY2022–24

A. Outlook and Risks

16. The medium-term outlook remains dependent on the evolution of the COVID-19 pandemic, oil prices and debt burden. Growth prospects are weak, as non-oil growth is projected to reach 3.8 percent in 2024, while oil production will remain subdued over the medium-term. Inflation will hover around 3 percent. Significant balance of payment needs and budgetary financing gaps persist, averaging 2.6 percent of GDP per year during 2021–24. Donor support will be necessary in the form of budget support to help cover remaining gaps, along with debt restructuring to reduce the debt burden. The outlook is subject to risks, including developments in the COVID-19 pandemic, oil prices, security and the implementation of sound public policies.

17. Medium-term policies will support the PND, built on the Government’s “Vision 2030”, “the Chad we want”. The PND (2017–21) includes a comprehensive strategy to put the economy on a sustainable growth path and improve the socio-economic conditions of the population. It entails policies that would help stabilize the economy, support a resumption in non-oil growth and build the foundation for inclusive, sustainable, green and pro-business growth. A mid-term review of the implementation of the PND was conducted in August 2020, and a new PND (2022–26) is adopted in 2021. Policies for 2022–26, detailed below, are built on: (i) ensuring fiscal and debt sustainability; (ii) strengthening public financial management (PFM) and debt management; and (iii) deepening structural reforms promoting economic diversification.

B. Enhancing Fiscal and Debt Sustainability

18. The Government will conduct a phased fiscal adjustment contributing at reducing the risk of debt distress over the medium term. The non-oil primary balance will constitute the key indicator of fiscal adjustment and will be monitored as a quantitative performance criterion under the ECF-supported program. The adjustment will be based on a progressive increase in non-oil revenue and improvements in the allocation of resources. Reducing the risk of debt distress from high to moderate will also require bringing down the debt service. To this end, the Government has actively engaged creditors on debt restructuring.

19. The Government will pursue efforts to raise non-oil revenue, which remains low. Due to COVID-19, non-oil revenue declined from 9.4 percent of non-oil GDP in 2019 to 9.1 percent in 2020. The program aims to gradually increase non-oil tax revenue by some 1.8 percentage points of non-oil GDP by 2024, to 10.8 percent of non-oil GDP. Gains in non-oil revenue are predicated on the improved management of the VAT and the modernization of tax and customs administration, including through greater computerization (see details on short-term and medium-term measures below) and optimization of exemptions.

20. The program aims at progressively reducing current primary expenditure (as percent of non-oil GDP) and raising investment spending. The program projects a progressive rephasing of special spending related to COVID-19, improving the quality of spending, and savings from a better control of the wage bill and transfers and subsidies. At the same time, adequate resources will be oriented to poverty reduction, with higher allocation to social sectors and social programs. Accordingly, current primary spending is projected to decline gradually from 14 percent of non-oil GDP in 2020 to 12.4 percent by 2024.

21. The Government is determined to contain the wage bill to a sustainable level despite the recent signature of the Social Pact. The wage bill, which has been on the rise since 2019, will be brought to levels that could be supported by non-oil revenue, without crowding out priority spending. The wage bill is projected to decline from 8.2 percent of non-oil GDP (96 percent of non-oil revenue) in 2020 to 7.3 percent of non-oil GDP (68 percent of non-oil revenue) by 2024.

22. The Government is also committed to streamline transfers and subsidies. Transfers and subsidies increased from 2.6 percent of non-oil GDP in 2019 to 3.7 percent of non-oil GDP in 2020, reflecting COVID-19 related spending and subsidies to the electricity company. They are projected to slightly rise to 3.7 percent of GDP in 2021, reflecting new spending for the organization of presidential elections (CFAF 30 billion, or 0.6 percent of non-oil GDP) but also the phasing out of COVID-19 spending. Transfers and subsidies will average of 3.3 percent of non-oil GDP during 2022–24, as additional savings will be mitigated by activities by the National Solidarity Fund (FNS) established in 2020 among COVID-19 mitigating measures. The FNS, established in 2020, will help protect in a sustainable way the poorest and the most vulnerable to natural disasters. Savings are expected from a better control of transfers to international and regional organizations, and efficiency gains in allocated to crucial sectors (education, health, agriculture, security) and transfers to public entities. Short-term and medium-term measures to contain the wage bill and to contain transfers to public entities are detailed in paragraphs 34–35.

23. More budgetary allocations will be directed to investment and poverty reducing social spending. Investment spending plays a crucial role for long-term growth. It is expected to increase from 7.1 percent of non-oil GDP in 2020 to 7.5 percent by 2024; this will be 1.9 percentage points above the pre-COVID-19 level of 2019. The Government continues to attach the utmost importance to continue improving social spending, particularly given Chad’s low social indicators. The program will set quarterly indicative targets in the form of floors on spending in several ministries and institutions. Meeting these targets will be facilitated by the reform of the procurement system. In the context of the 2021 budget, social spending will represent at least 34 percent of domestically financed primary expenditure (excluding transfers to the electricity company), and that investment increases by 10 percent relative to the pre-COVID level of 2019. The Government plans further increases during 2022–24. Social spending is defined in the attached TMU.

24. The Government will accelerate the clearance of domestic arrears. The Government will pursue implementation of the domestic arrears clearance plan. The remaining stock will be repaid over a period of 7 years in the form of securitization and cash payments for small obligations. The arrear clearance plan has established priorities for the payments, bases on their economic and social impact. The exact amount to be cleared per year will depend on the level of budgetary resources available. The Ministry of Finance and Budget will also continue to make the monthly repayment of the debt owed to CBT and BCC (CFAF 250 million and CFAF 500 million per month, respectively).

25. The Minister of Finance signed a Memorandum of Understanding with BEAC to exit the rollover mechanism for domestic bank debt. The rollover mechanism had been established to protect banks in difficulties (CBT and BCC) from Government’s possible failure to pay maturities on securities, particularly in view of the difficulty to raise additional financing in the regional market. However, it has been costly to the Treasury and constraining for the Treasury management given that (i) the Treasury has not benefitted from the overall fall in the regional market interest rates; and (ii) the Treasury could not issue new securities. The exit of the roll over mechanism allowed Chad’s Treasury to access the CEMAC securities market and to mobilize the CFAF 145 billion under the CFAF 600 billion public securities program. The phasing out of the rollover mechanism will however be done with caution, including a progressive restructuring of the current stock of short-term securities into longer-term securities, secured by the opening of an escrow account with BEAC.

26. The Government will seek the contribution of external creditors in reducing the risk of debt distress. The Government appreciates the IMF debt relief under the CCRT and has also benefited from the Debt Service Suspension Initiative (DSSI) to a smaller-than-expected amount However, despite this effort and the envisaged fiscal adjustment, the debt service to Government revenue ratio, would remain above the IMF-World Bank LIC DSA threshold of 14 percent until 2026. Within the G20 common framework, the Government is engaging creditors on the restructuring of their debt by providing a significant reduction in debt burden that would bring the risk of debt distress to “moderate” by the end of the period covered by the program. To this end, the Government is seeking a restructuring that would close the program financing gaps and bring the external debt service-to-revenue ratio below 12.3 percent, to ensure there is some space to absorb shocks to revenues without a deterioration in the risk rating. The official bilateral creditors participating in the creditor committee have provided financing assurances and Chad, supported by its financial and legal advisors, is negotiating with its private creditors. The Government is determined to reach the necessary restructuring agreements with both official and private creditors by the time of the first ECF arrangement review.

27. Supported by the financing provided by the Fund-supported program, the common framework official bilateral creditors and the debtor would discuss and agree the Memorandum of Understanding for the debt treatment, in terms of: (i) the reduction in debt service during the determined period; (ii) the extension of the duration of payments and, where needed; and (iii) the reduction in the present value of payments. These parameters would guide the implementation of relief by other official bilateral creditors and by private creditors through bilateral agreements with the debtor following the comparability of treatment principle.

28. The 2021 budget was designed with a view to maintain fiscal prudence while efficiently using available resources to support economic recovery. The budget, in line with the proposed Fund-supported program, was approved by the National Assembly in December 2020.

  • The Government understands that keeping the wage bill at a sustainable level is necessary to allow it to effectively implement fiscal policy and meet the development and social spending needs of the country. The Government remains committed to a wage bill envelop of CFAF 425 billion in line with the 2021 budget.

  • Transfers and subsidies envelop was set at CFAF 206 billion reflecting the unwinding of COVID-19 related emergency spending as the crisis abates. Transfers to the electricity company are projected at CFAF 50 billion. The Government allocated CFAF 30 billion to cover the cost of the presidential election that took place in April 2021.

  • In view of the large spending needs, the budget builds on a stronger prioritization of spending, with particular emphasis placed on ensuring that allocations to the social sectors reach at least 34 percent of total primary spending (excluding transfers to the electricity company). Improving the efficiency and prioritizing capital investment is a priority. The Government allocated an envelope of CFAF 140 billion for domestically financed capital investment from the State’s own resources, in addition to CFAF 314 billion from external resources.

  • The NOPB will improve by around 0.4 percent of non-oil GDP to reach 7.7 percent of non-oil GDP.

C. Tax and Customs Reforms

29. Higher non-oil revenue will help reduce the dependency on oil revenue. Addressing weaknesses in tax and customs administration will be the main driver for increasing non-oil revenue, which remains below potential, this will mainly involve strengthening the tax and customs administrations. Tax administration reforms will be based on (i) improved management of the VAT, whose performance (1.5 percent of GDP) is low by regional standards; (ii) modernization of tax and customs administration, including greater use of information technology (IT) and revenue collection through the banking system and mobile money; and (iii) better tax audits through strengthened collaboration between tax and customs administration.

30. Most of the non-oil tax revenue increase is expected from VAT reforms. Reforms will concentrate on addressing the factors behind the low VAT performance:

  • First, the authorities are aiming to improve VAT control, which will be under the control of the unit responsible for the management of large enterprises and the management of medium-sized enterprises, including management of the list of taxable persons, organization of audits, follow-up of collections and refunds, in conjunction with collection services. With Fund assistance, the Authorities will establish a set of indicators in order to increase the number of taxpayers and improve compliance and effective tax payments. Reaching these objectives will require the collection of information and monitoring of activities as well as a proper framework for legal sanctions for defaulters.

  • Second, the authorities are committed to rationalize granting of tax exemptions and improve their transparency. In addition to measures taken since 2019 to reduce the scope of VAT exemptions, the government will ensure that tax exemptions granted in various conventions deliver their objectives. The government is aware that an inefficient exemption system will lead to revenue shortfalls, distort the VAT collection and lead to the accumulation of VAT credits. The Government will publish on a semiannual basis a list of all new exemptions (including renewal and extension of exemptions) on the Ministry of Finance website (structural benchmark end January 2022).

  • Third, the authorities are committed to establish an effective VAT refund mechanism, which preserves the smooth running of VAT, facilitates tax compliance and avoids the proliferation of demands for tax exemptions. An account dedicated to VAT refunds was established with BEAC in 2019, but has not been operational, as it has not been funded. The Government will start allocating all VAT revenue to this account for VAT refund to avoid the accumulation of VAT credits (Structural benchmark for end February 2022). The establishment of a VAT mechanism should strengthen confidence in the VAT system and improve revenue collection. Steps will also be taken towards the clearance of VAT credits. By end 2021, an administrative audit of VAT credits will be conducted to assess the stock and nature of VAT credits.

31. Efforts to modernize Customs Administration will be pursued. The Government will continue to improve working conditions for Tax Administration and Customs. Customs Administration has recently moved to a new building completed with World Bank assistance. In early October, a scanner became operational, which is expected to reduce revenue losses. The payment of customs revenue through the banking system (“bancarisation”) has been effective for customs offices in areas where banking operations can be conducted. For the 13 customs offices with no banking coverage, an agreement has been signed with a local telecommunication company to facilitate payments through mobile phones. With the help of IMF technical assistance, work will continue during 2020–22 on securing revenue collection through the banking system, customs valuation control, and on reinforced monitoring of customs exemptions. Work on the installation of ASYCUDA World will continue in customs offices connected to the internet, which have increased from 12 to 18. With the support of the World Bank, the authorities have embarked on its installation in October 2021, which will help modernize customs services by upgrading working capacities, adapting ASYCUDA to local needs and increasing staff ownership. It is expected to improve customs procedures, by allowing more accurate application of customs duties, limiting the abuse of customs exemptions, strengthening the integration of customs and taxation departments to improve VAT collection, facilitating the interconnections with the custom offices in Cameroon, Niger and Sudan; and setting the stage for transition to a single window system.

32. Working conditions will need to be improved in the Tax Department. The Tax Department has recently been allocated the premises left by Customs administration. Permanent premises will however be needed given that the new building belongs to another institution. Such premises should be equipped to handle the computerization planned under the World Bank project for mobilization and management of domestic resources (PROMOGRI). New resources (building and software) to tax directorates in charge of large and medium taxpayers will be allocated before end 2022. The computerization of the tax department will be organized under 12 modules, with the first four modules (registration, monitoring of tax obligation, tele-filing procedures in LTO, and electronic VAT monitoring for commercial activities) expected to be implemented by end- 2022.

33. Collaboration between tax and customs administrations will be strengthened. The use of data from ASYCUDA will help the Tax department in its risk-based controls, including identifying taxpayers that are evading the VAT. At the same time, Customs administration should use the tax identification number (TIN) established by the Tax department. To this end, the Tax department will continue to update and publish the list of VAT taxpayers, to be integrated in the computerized system of the customs department. To improve tax compliance, the 15 percent penalty will continue to be applied to importers that are not registered with the Tax department.

D. Reforms on Public Financial Management

34. The Government believes in the importance of a sound and transparent public financial management to achieve the program’s objectives. While recognizing the progress made in terms of budget execution, monitoring and reporting, and in integrating all CEMAC directives within the Chadian legislation, the Government has decided to give an impetus to reform in the context of the revised public financial management (PFM) under the updated Strategy for the Development and Modernization of Public Finance Management (SDMFP). The document, which updates SDMFP of April 2013, was prepared in mid-2019 with the support from the IMF and the World Bank, as a strong and urgent response to weaknesses existing in our public financial management. With Fund assistance, it will be adjusted over the coming weeks, to reflect reforms under way, and adopted by the Government following a validation workshop by all concerned Government bodies (structural benchmark for end-June 2022). Drawing on the SDMFP and on the 2014 budget organic law, the key policy reforms for the short and medium term include (i) the implementation of an integrated financial management system (IFMS); (ii) wage bill management; (iii) improving budget preparation and execution, including improvements in governance and public procurement; (iv) medium-term program budgeting; (v) the rationalization of transfers and subsidies; (vi) cash management; and (vii) debt management.

E. Implementation of the Integrated Financial Management System (IFMS)

35. The Ministry of Finance and Budget has decided to revamp the information system by acquiring and implementing the IFMS with the assistance of the Rwanda Cooperation Initiative (RCI). The IFMS aims at achieving effective accountable and transparent PFM, through an integrated computerization of Government -wide financial transactions by various public entities. The system, developed since end-2019 with the help of Rwandan experts, will soon be operational for the benefit of all PFM reforms, including consistency and transparency in the expenditure chain, efficiency gains in the wage bill management, the integration of debt management, and improvements in the allocation and absorption of public resources, particularly for social sectors. The 2021 budget is being executed based on the IFMS, with the help of AFD.

F. Strengthening wage bill management

36. In the short run, the following measures will help contain the wage bill:

  • The Government will continue to rationalize the wage bill and control recruitment to the civil service within the limits of the commitments made in the budget.

  • The Government have conducted a biometric census of civil servants to establish a sound payroll database.

  • The implementation of the IFMS is expected to generate significant savings on the wage bill through: (i) updating the payroll based on the results of the biometric census; (ii) avoiding undue benefit payment thanks to better identification using biometric data; (iii) strengthening security thanks to better controlled annual access rights, compared to the previous payroll management system (SIGASPE).

  • An agreement was signed with a local telecommunication company for the payment of wages through mobile money in areas that are not covered by banks. To that effect, 10 000 kiosks will be opened in the countryside which will support job creation.

The Government will establish a payroll monitoring committee, chaired by the Finance Inspector General (IGF) and including representatives from the payroll unit (Ministry of Finance) and civil service management (Ministry of civil service) and the HR Directors of other ministries. The committee will monitor developments in the wage bill and civil service reforms, including the cleaning up and updating of the payroll, to ensure consistency and the attainment of wage bill objectives.

37. Over the medium term, the Government will implement structural reforms, with the assistance of the IMF’s Fiscal Affairs Department, aimed at:

Improving the budgeting of the wage bill:

  • Align the wage bill budget procedures with the recommendations of Fiscal Affairs Department’s manual.

  • Set employment ceilings by ministries and institutions in accordance with the provisions of the organic finance law (end-August 2022 structural benchmark) and develop a specific budget annex for the wage bill presenting a consolidated vision for the public service as well as the evolution of the workforce by ministry or institution.

  • Improve the reliability of information on the determinants of changes in payroll and workforce flows, in accordance with the recommendations by Fiscal Affairs Department.

Updating and periodically checking the payroll file:

  • Reduce transmission times for individual paper files;

  • Redeploy some of the activities of the payroll department to the HRD of sector ministries and provinces;

  • Establish a regular alert system for the retirement of civil servants (periodic exchanges with the Chad national pension Fund, CNRT);

  • Facilitate the communication of individual information from the payroll department to CNRT; and

  • Increase security/reliability for all administrative documents and acts (diplomas, advancement, etc.). Conduct periodic audits of the payroll file.

G. Budget preparation and execution

38. The Government will pursue reforms to strengthen budget preparation and execution. Reforms will focus on (i) improving the expenditure chain and reducing the use of emergency procedures (DAO); (ii) implement the new budget classification recommended by AFRITAC and improve accounting and fiscal reporting; (iii) elaborating annual commitment plans and annual public procurement plans; and (iv) improve cash management.

39. Implementation of the IFMS will help improve the expenditure chain. The IFMS will help in providing timely and reliable information on budget execution. The integrated system will cover all the phases of the expenditure chain, from commitment to payment. This will be a significant improvement relative to the current CID computerized system, which covers only the administrative part of the expenditure chain (from commitment to payment orders). The Government remains committed to reducing the use of emergency spending procedures (“dépenses avant ordonnancement”, or DAO). The use of DAO, which had been contained in 2019, has intensified in 2020 due to COVID-19 emergency spending and the regularization has been extremely low. With the gradual phase out of COVID-19 emergency spending, the use of DAO is estimated to be around 20 percent of primary spending in 2021, and its regularization accelerated, and falling to 15 percent of primary spending by 2024.

40. The Government will strengthen accounting and fiscal reporting. The Government will implement a new economic classification of expenditure recommended by an AFRITAC technical assistance mission of September 2020. The new classification is expected to improve the efficiency and transparency of budget execution in line with the organic budget law of 2014. Before being applied, we will first ensure its consistency with the Government chart of accounts. We will also confirm that the IFMS is aligned with the budget classification. Over the medium term, we plan to upgrade the State’s accountants’ network and organizational chart of the Treasury department to implement the transition to accrual accounting.

41. We will improve the forecasting framework for budget execution. Proper forecasting permits a smooth budget execution, ensuring resources are allocated as budgeted and avoiding the accumulation of arrears. In this context, quarterly commitments plans will be produced for the fiscal year as well as annual public procurement plans.

42. The Government is committed to improve public investment. We will continue to improve the design and development of the public investment program (PIP) as recommended by the IMF TA mission of July 2018. In particular, the PIP should only include projects that are mature with available funding, so that they can be implemented in a timely manner. This is in line with the new framework decree 2020/PR/2020 of October 8, 2020 on project prioritization and selection, including criteria on economic efficiency as well as the social, gender, regional equity, and environmental impact. The PIP should also be in line with the MTDS. In this regard, medium-term financing plans will be prepared to ensure that the PIP maintains debt sustainability. The Government counts on a Public Investment Management Assessment (PIMA) that could be conducted to assess the PIP supporting the PND.

43. The cash management system will be improved to avoid the reemergence of arrears. The Cash Plan Committee in charge of cash flow forecasts and management will refine the monthly cash flow plan— annual cash flow plans will continue be included within the budget (in line with the CEMAC Directive) and updated on a semi-annual basis—and effort will be put on strengthening the responsiveness of the Committee to update revenue and expenditure forecasts. Steps will also be taken to establish a treasury single account (TSA), monitoring the current Treasury account at the BEAC, and centralizing public accounting operations, cash flow and public debt. The establishment of a TSA should help improve treasury management, avoid arrears accumulation, and reduce borrowing costs. With the installation of the IFMS, we will use an electronic management platform to manage the payment of expenses. Over the medium term, we will finalize and operationalize the TSA including the creation of sub accounts for authorized accountants, and the repatriation of public resources from commercial banks to the TSA. The repatriation will be made in a way that does not disturb the local banking sector.

H. Medium-term program budgeting

44. Additional progress will be made towards program budgeting. Progress has been made in mastering the tools and developing and expanding the medium-term expenditure framework and medium-term budgetary framework. In early October 2020, a workshop was organized to update the annual performance projects (PAP) of 28 sectoral ministries in the context of the preparation of the 2021 budget law. This is an important step towards the preparation of program budgets, which started the preparation of PAPs in 5 “pilot” ministries (Health, Education, Infrastructure, Agriculture, and Finance and Budget) with the assistance from the World Bank, UNICEF and the UNDP. The work was expanded in 2019 with the assistance from the EU.

45. We are in the process of improving the efficiency and transparency of public procurement. We will strengthen the capacity of the Public Procurement Regulatory Authority so that it can ensure that the procurement code and regulations are respected. The procurement code has just been revised to remove constraints that limited absorption, including raising the threshold and simplifying the approval process, and to promote woman entrepreneurship. The legal framework for sanctions on public procurement will also be strengthened. Deviations from the procurement code, including market segmentation, will be severely punished. The General Directorate of Control of Public Procurement (DGCMP) will continue to publish a quarterly bulletin and, from end-March 2022, will start publishing the full text of all procurement contracts (including the names and nationalities of the beneficial owners of awarded legal entities) and ex post-delivery reports. As a first step, it will assist the Ministry of Finance and Budget regarding the publication of procurement contracts, the names of the beneficial owners of awarded legal entities, and ex post-delivery reports related to COVID-19 expenditures. The US State Department will be assisting DGCMP in the development of a website for the publication of tenders, with a bidding progress tracking tool that will help improve transparency.

I. Rationalization of transfers and subsidies

46. Steps will be taken to rationalize transfers and subsidies. In the context of the 2021 budget law, ministries have been instructed to reassess the pertinence of Chad’s participation and membership in International Institutions and Organizations, to retain only those that are essential. Accordingly, contributions to international institutions and organizations were presented in the budgets of sector ministries. The budget law also calls for the performance contracts with State Owned Enterprises (SOE) and public establishments, to improve their financial management. The autonomous communities, the regulation authorities, agencies, offices, and public establishments benefiting from transfers, management committees as well as projects on external financing eligible for national procedures, must strictly comply with provisions of the Public Procurement Code. With the help of IMF technical assistance, the Government will finalize and adopt a draft law on SOEs and public agencies as well its implementing regulations. Over the medium-term, an assessment of fiscal risks management will be conducted, and an appendix to the annual budget law dedicated to public entities (public agencies, SOEs) will be elaborated. It will provide details on transfers and subsidies as well as own resources.

47. Rationalizing transfers to the National Electricity Company (SNE) will be a priority. Since 2020, Government transfers to SNE are reflected in the budget. In the medium term, the current system of transfers to SNE in the form of diesel for electricity generation will be progressively replaced by monetary transfers that will be made in the context of the performance contract. The performance contract will set several performance indicators aimed at improving the SNE’s financial position, including sale recovery from private and public entities, given the low level of revenue collection, reduction of production cost and tariffs adjustment. A restructuring of SNE will be essential to attracting investment in renewable energy, with no resort to sovereign guarantees. To help create conditions for cost-effective electricity access extension in a financially sustainable manner, the World Bank plans sector reforms under a technical assistance project before end-2021. To increase access to electricity, which is currently weak, the Government amended the legal framework to liberalize the production and distribution of electricity and the 2020 budget law provided tax incentives for investment in green energy.

J. Debt management

48. The Government is committed to refrain from non-concessional borrowing and to maintain debt transparency. In view of the already heavy burden, the Government will continue to ensure that all external financing agreements, both for budget support and investment projects, are on concessional terms (at least 35 percent grant element, see TMU), in line with the envisaged reduction in the risk of debt distress. All draft loan agreements will continue to be submitted, for prior approval, to the National Commission for Debt Analysis (CONAD), which is supported by the technical and financial analysis of the Technical Team for Debt Sustainability Analysis (ETAVID). All new loan agreements examined by CONAD will be published on the website of the Ministry of Finance and Budget: it will be easier to service the debt if a comprehensive and transparent database of debt contracts is maintained. Details of all new contracted loans will be communicated to the debt management department as well as the IMF.

47. Steps will be taken to strengthen debt management capacity. Debt management continues to be weak, due to low capacity, low resources, and poor coordination among entities intervening in debt contracting and management. The Government will implement recommendations made by IMF technical assistance aiming at: (i) reforming the roles and structures of debt management, (ii) improving communication among responsible entities (contracting, disbursement, issuing of securities, debt service payment), and (iii) augmenting the resources applied to debt management. The World Bank and IMF are also expected to provide assistance that would strengthen capacity at the Debt Directorate, including the analysis of debt sustainability (DSA) and through the quarterly publication of a public debt bulletin. The World Bank has also been helping in recording debt contracted by SOEs, which will improve debt coverage in the DSA. The EU is helping in upgrading the debt reporting system (SYGADE) and the UNCTAD will be providing the necessary training. With the help of IMF technical assistance, the Government will elaborate and publish a fiscal risks statement that will be attached to the annual budget law. Over the medium-term, an assessment of fiscal risks management will also be conducted.

K. Improving the Business Environment

48. The Government is determined to reform the business environment to make it attractive to the private sector in an effort to promote economic diversification. In early 2020, the UNECA completed important diagnostic work (Industrialization and Economic Diversification Master Plan, PDIDE) that demonstrated strong potential for economic diversification in Chad. The government will take measures to ensure a stable regulatory environment for SMEs, even-handed and consistent rule of law and efficient Government services. Several structural reforms are envisaged including:

In the short term:

  • (i) restructuring the national electricity company (SNE);

  • (ii) modernizing tax and customs administration;

And over the medium term:

  • (i) adopting and implementing a reform strategy for SOEs, including a framework to

  • (ii) streamlining procedures for the creation of SMEs;

  • (iii) improving access to financing;

  • (iv) continuing to improve the transparency in the oil sector; and

  • (v) taking measures to reduce corruption and strengthen the rule of law.

49. In this context, the Observatory for the Business Environment and the National Competition Council (CNC) will be made operational. The Government is committed to fostering entrepreneurship and economic engagement for women and the youth and improving access to finance. In this pursuit, it has established a National Youth Entrepreneurship Fund that is now fully operational and will further seek the assistance technical and financing from the World Bank and the African Development Bank to further help achieve this objective.

L. Transparency and Governance

50. Good governance will be a key factor in reviving private sector activity. To implement the United Nations Convention against Corruption (UNCAC), which entered into force for Chad, by accession, on June 26, 2018, the Government will seek support from the UN to align the present penal code with the convention and strengthen the fight against corruption. The Government will engage with IMF staff to design an asset declaration regime in line with the applicable international good practices, including in the context of upcoming constitutional reforms. The constitution includes categories of public figures and State officials who are required to declare their assets when taking up and leaving office. However, compliance is very low, partly due to the absence of an implementing law. Responsibilities of anti-corruption bodies (IGF, IGE and the Chamber/Court of Accounts) will be clearly delineated, adequate resources will be provided to anti-corruption activity, and anticorruption staff will be selected under a merit-based system and will need to meet stringent ethics standards or face stiff penalties. The Government is committed to supporting the activities of the National Agency for Financial Investigation (ANIF), Chad’s financial intelligence unit (FIU), including by augmenting its human resources. The Government will assess corruption risks during the transition period and craft an action plan to mitigate those risks, to be shared with the Fund and published by the first review.

51. The Government remains committed to transparency in the use of COVID-19 resources. It will provide separate reporting for transparent management and in accordance with best budget management practices to which they have always adhered. Resources dedicated to the COVID-19 will be used in full transparency, and we will publish on-line on an easily accessible governmental website of the full text of all COVID-19-related procurement contracts awarded as of May 31, 2021 (prior action). In addition to being reflected in the budget law, they will be committed in line with the CEMAC PFM directives. In particular, emergency spending for urgently needed supplies will be committed according to the provisions of Decree No. 1025/PR/MFB/2020 of May 29, 2020, derogating from public procurement rules concluded in the context of the fight against the coronavirus and subjected to an ex-post compliance audit by a reputable international auditing firm, which will be completed with the support of the Inspectorate of Public Finances. The audit will also cover all COVID-related expenditures. Auditing reports, also including analysis of compliance with procedures, in particular with regards to regulated agreements, will be published within a month upon completion on the website of the Ministry of Finance and Budget (end-December 2021 structural benchmark). The full text of all procurement contracts, along with the names and nationalities of the beneficial owners of awarded legal entities, will be published on the website of the Ministry of Finance and Budget within 30 days of the award of any contract concluded under the fight against the coronavirus, as of end-March 2022. Ex post-delivery reports for goods and services, including the list of suppliers and contractors, will be published on the website of the Ministry of Finance and Budget within three months of the end of the execution period for each contract. To further the efforts on good governance and transparency, the Government will extend commitments made initially in the context of the fight against the COVID-19 pandemic to all procurement contracts, publishing on-line on an easily accessible governmental website the full text of all procurement contracts along with the name and nationalities of the beneficial owners of the awarded legal entities, from end-March 2022 (structural benchmark), and will seek technical assistance from the Fund to meet this objective.

52. The Authorities are committed to continuing their efforts to improve transparency and oversight of the oil sector. In May 2019, the EITI completed Chad’s assessment under the 2016 standards and will implement the EITI board’s recommendations. The Government has made significant progress in disclosing contracts and licenses involving the petroleum sector with support from the World Bank and has published, certified and verified annual financial reports for 2017–2018 for SHT (Société des Hydrocarbures du Tchad) and its subsidiaries. The Government will continue to publish quarterly notes on the oil sector (December 2021 Structural Benchmark, continuous) to promote transparency in the sector.

M. Strengthening the Banking Sector

53. Strengthening the financial sector will contribute to supporting growth and reducing poverty. The Government continues to ensure that the local banking sector remains strong and, in a position, to finance domestic activities. In this context, the timely repayment of Government bank debt obligations will support the improvement in the banking system liquidity position as well as the repayment of domestic arrears in the context of the domestic arrears clearance plan, which will enable the private sector to pay its loan obligations to banks. The authorities remain committed to (i) enforcing the performance contracts for the two public banks (CBT and BCC) and supporting the implementation of their restructuring and funding plans (approved by the COBAC/BEAC); (ii) the treasury remains committed to the monthly repayment of the direct debt to the CBT and BCC (CFAF 250 million to BCC and CFAF 500 million to CBT per month, respectively); and (iii) the partial recapitalization of CBT (CFAF 4.5 billion, prior action) based on the budget for 2021; BHT (CFAF 3 billion) and BAC (CFAF 2 billion) to be implemented in 2022. The authorities intend to carry out the partial recapitalization for CBT, via treasury resources. Over the medium term, the Government commits to (i) reduce its stakes in banks; (ii) support COBAC’s request for gradual capital restoration plans, to make further capital available if a reassessment of the bank’s financial position shows further weaknesses, given the adverse impact of the COVID-19 pandemic; and (iii) explore possibilities of increasing private sector participation in the capital of CBT.

54. Financial inclusion is an important factor for poverty reduction. The Government will improve access to financial services and strengthening financial inclusion by encouraging the creation of strong and secure microfinance institutions, by channeling through banks Government transactions “bancarisation”. The “bancarisation” will allow the opening of accounts by greater numbers of users, while the payments of wages, taxes and customs duties through mobile money will promote the use of modern payment methods. The Government will strengthen the governance and supervision frameworks for microfinance institution as well as security for mobile money transactions.

N. Program Monitoring

55. To monitor the implementation of measures and attainment of objectives under the program, the Government will strengthen the Negotiation Committee based in the Ministry of Finance and Budget. A permanent secretariat has been attached to the Committee, with the aim of collecting macro data necessary for program evaluation and monitoring the implementation of structural reforms. The Committee of Negotiations will remain in constant communication with the IMF’s Resident Representative office in Chad and will organize meetings between the Authorities and the IMF.

56. The program will be monitored through semi–annual reviews by the IMF Executive Board on the basis of quantitative performance criteria, indicative targets, and structural benchmarks (Tables 1 and 2 attached). The indicators are outlined in the Technical Memorandum of Understanding (TMU) attached. The first program review will be based on end-December 2021 test dates and should be completed on or after April 15, 2022. The second review will be based on end-June 2022 test dates and should be completed on or after September 15, 2022, and the third review will be based on end-December 2022 test dates and should be completed on or after April 14, 2023. The fourth review will be based on end-June 2023 test dates and should be completed on or after September 15, 2023. The fifth review will be based on end-December 2023 test dates and should be completed on or after April 15, 2024. The sixth review will be based on end-June 2024 test dates and should be completed on or after September 16, 2024.

Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (TMU) spells out the concepts, definitions, and data reporting procedures mentioned in the Letter of Intent (LOI) and Memorandum on Economic and Financial Policies (MEFP) of November 24, 2021. It describes the information requirements to monitor performance under the ECF arrangement. The authorities will consult with the IMF before modifying measures contained in this TMU, or adopting new measures that would deviate from the goals of the program. It describes more specifically:

  • a) reporting procedures;

  • b) definitions and computation methods;

  • c) quantitative performance criteria;

  • d) indicative targets;

  • e) adjusters to the quantitative performance criteria and indicative targets; and

  • f) prior actions and structural benchmarks.

Reporting Procedures to the IMF

2. Data on all the variables subject to quantitative performance criteria (QPC) and indicative targets (ITs) and information on the progress towards meeting structural benchmarks will be transmitted regularly to the IMF in accordance with the table shown in Attachment1 herewith. With respect to continuous QPCs, the authorities will report any non-observance to the IMF promptly. For the purpose of this TMU, days refer to calendar days unless otherwise specified. Revisions to data will also be forwarded to the IMF within 14 days after being made. In addition, the authorities will transmit to IMF staff any information or data not defined in this TMU but pertinent for assessing or monitoring performance relative to the program objectives.

Definitions and Computation Methods

3. Unless otherwise indicated, the term Government refers to the Central Government of the Republic of Chad comprising all the executive bodies, institutions and any structure receiving special public funds and whose competence is included in the definition of central government subsector as defined in Government Finance Statistics Manual 20142.

4. A public nonfinancial enterprise is a Government –controlled corporation1 whose principal activity is the production of goods or nonfinancial services. For the purpose of the program monitoring, these include in particular: Société Tchadienne des Eaux (STE), Société Nationale d’Electricité (SNE), Société des Télécommunications du Tchad (SOTEL), Société Tchadienne des Postes et de i’Epargne (STPE), Société des Hydrocarbures du Tchad (SHT), Nouvelle Société des Textiles du Tchad (NSTT), Sociètè Nationaie de Ciment (SONACIM Tchad), Société Industrieiie de Materieis Agricoies et d’Assemblage des Tracteurs (SIMATRAC), and Fonds d’Entretien Routier (FER).

5. Oil revenue is defined as the sum of: (i) the gross sales revenue of Government ‘s crude oil obtained through Government ‘s equity participation in oil companies minus all costs incurred due to the equity participation (cash-call) and transportation cost associated with the sales of Government ‘s crude oils; (ii) royalties on production; (iii) statistical fees; (iv) profit tax; (v) dividends; (vi) bonuses; (vii) revenues from exploration duties; (viii) surface tax; (ix) access rights to the pipe; and (x) any other flows of revenue paid by oil companies (settled in-kind and in-cash), except indirect duty and taxes. The authorities will notify IMF staff of changes in the oil taxation systems and laws that may impact revenue flows. Exceptional receipts paid by oil companies, whose definition is given in Paragraph 7 below, are excluded from oil revenue.

6. Tax revenue, excluding tax revenue from oil companies is defined includes all the Government ‘s tax revenue, with the exception of oil revenue as defined under paragraph 5

7. Exceptional receipts are defined as payments to the Government that include:

  • Payments from resolution of protracted disputes between foreign companies operating in Chad and the Government in connection with their tax obligations or potential violations to laws and standards or any other legal obligations.

  • Payments from the sale or placement or privatization of Government ‘s assets, granting or renewal of licenses.

8. Total Government revenue is the sum of tax revenue and non-tax revenue (as defined in GFSM 2014, Chapter 5). Oil revenue, as defined in paragraph 5, tax revenue, as defined in paragraph 6, and exceptional receipts, as defined in paragraph 7, will be shown in the breakdown of total Government revenue report.

9. Total Government expenditure is understood to be the sum of expenditure on Government employees (wages, salaries, allowances, bonuses, etc.) (as provided in the document “Masse salariale”, see Paragraph 11 for details), goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and capital expenditure. All these categories are recorded on a commitment basis, unless otherwise stated. Except for capital expenditure, which is defined as shown in the Government Finance Statistics Manual 1986 (GFSM 1986)3, all other spending items are defined as in GFSM 2014 (Chapter 6). Total Government expenditure also includes “dépenses avant ordonnancement” (DAO) which are not yet regularized (see paragraph 10 for details).

10. Dépenses avant ordonnancement (DAO) is defined as all expenditures which do not go through the standard spending procedure. A standard procedure entails a chain which includes the commitment (“engagement”), the validation (“liquidation”), the authorization of payment order (“ordonnance”), and the cash payment. There are two categories of DAOs:

  • The first category consists of DAOs which are made relative to a credit line in the budget. These DAOs can be regularized (i.e., recorded in the correspondent line of the budget) without difficulties.

  • The second category consists of DAOs which are made regardless of the existence of a credit line in the budget. Their regularization requires either an adjustment in the revised budget, i.e., Amended Financial Law (LFR), or a ministerial order to transfer credit allocation within the budget.

11. Wages and salaries correspond to the compensation of all Government employees, via ordinary or in-kind payment, including civil servants and members of the armed and security forces. Compensation is defined as the sum of wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other form of monetary or non-monetary payment. For the purpose of program monitoring, data are computed from the document “Masse salariale”, which excludes compensations to staff under certain contracts that are classified as Transfers (see Paragraph 13 for details).

12. Subsidies are defined as Government current expenditure that are made to enterprises on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import. For the purpose of program monitoring, subsidies refer to those reported in “Tableau de 4 Phases”.

13. Transfers are defined as Government current expenditure to individuals, private nonprofit institutions, nongovernmental organizations (NGO), corporations, or Government units that are not included in other categories of transfers. For the purpose of program monitoring, transfers refer to those reported in “Tableau de 4 Phases”.

14. For the purposes of this TMU:

  • The term “debt” is as defined in paragraph 8 of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to Executive Board Decision No. Decision 16919-(20/103)but also includes contracted or guaranteed commitments for which values have not been received. For purposes of these guidelines, the term “debt” is understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debt can take several forms; the primary ones being as follows:

    • i. Loans, that is, advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchange of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the loan funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

    • ii. Suppliers’ credits, that is, contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

    • iii. Lease agreements, that is, arrangements under which the lessee is allowed to use a property for a duration usually shorter than that of the life of the property in question, but without transfer of ownership, while the lessor retains the title to the property. For the purposes of this guideline, the debt is the present value (at the inception of the lease) of all the lease payments expected for the period of the agreement, except payments necessary for the operation, repair, and maintenance of the property;

  • In accordance with the definition of debt set out above, penalties and judicially awarded damages arising from failure to pay under a contractual obligation that constitutes debt are also debt Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

  • Domestic debt is any debt as defined in above, which is denominated in Central African Franc (CFAF).

  • External debt is any debt as defined in above, which is denominated in a foreign currency, i.e., a currency other than CFAF.

  • Debt is considered concessional if it includes a grant element of at least 35 percent4 and non-concessional if otherwise. The grant element is defined as the difference between the nominal value of the loan and its present value, expressed as a percentage of the nominal value of the loan. The present value of the debt at the date on which it is contracted is calculated as the discounted sum of all future the debt service payments at the time of the contracting of the debt5 The discount rate used for this purpose is 5 percent per annum.

15. Domestic payment arrears are defined as the sum of (i) recognized expenditure payment arrears, and (ii) domestic debt payment arrears not paid after the due date (taking into account any applicable contractual grace periods, which are defined below:

  • The outstanding amount in a payment order, to a private or public company, for an expenditure incurred, validated and certified by the financial controller and then created by the “Direction of Ordonnancement”, is defined as a float after the payment authorization is issued by the Treasury. The outstanding amount of a float is classified as a recognized expenditure payment arrear 90 days after the issuance of the payment authorization. The recognized expenditures payment arrears so defined do not include domestic debt payment arrear and arrears on wage and salaries. Unrecognized expenditure payment arrears are defined as any potential expenditures payment arrears which have not gone through that standard spending procedure.

  • Domestic debt payment arrears are defined as the difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract.

16. External debt payment arrears are defined as external debt obligations of the Government and public, non-financial enterprises that have not been paid when due in accordance with the relevant contractual terms (taking into account any contractual grace periods). This concept excludes arrears on external financial obligations of the Government for which the creditor has accepted in writing to negotiate alternative payment schedules before the relevant payment due and excludes technical arrears that are less than six weeks.

17. The non-oil primary balance (NOPB) is defined as the difference between: (i) total Government revenue (not including grants, oil revenue and exceptional receipts); and (ii) primary expenditure on a commitment basis, which is defined as the total Government expenditure minus interest payments on domestic and external debt and foreign-financed capital expenditure.

18. Poverty-reducing social spending, according to the latest general structure of Government , comprises public spending by the following ministries: (i) National Education and Civic Promotion; (ii) Public Health, including military health services and National Solidarity; (iii) Women, Early Childhood Protection and National Solidarity; (iv) Production, Irrigation and Agricultural Equipment; (v) Livestock and Animal Production; (vi) Environment Water and Sanitation; (vii) Professional Training and small Job Promotion, and viii) Higher Education.

19. Domestic Government financing is defined as the issuance of any instrument in CFAF to creditors, loans from BEAC (including support from the IMF), BDEAC, and CEMAC Member States, or any other debt contracted in CFAF. Net Government domestic financing is subdivided into net bank financing, net securitized financing, net Government financing from BEAC, and other non-bank financing. Net bank financing is defined as the change in the net Government position towards the domestic commercial banks and includes prepaid interest. Net Government financing from BEAC is defined as the change in net Government position towards the BEAC.6 Net securitized financing includes the issuance of securitized Government bonds and loans in CFAF to domestic and regional banks net of related amortizations since the end of the previous year.

20. “Program reference rate”, is based on staff’s “average projected rate” for the current LIBOR rate (three- month USD LIBOR) and is projected as 0.94 percent for the duration of the program. The present value of loans with flexible interest rate will be calculated using the program reference rate plus the fixed spread (in basis points) specified in the loan contract Where the variable rate is linked to a benchmark interest rate other than the current LIBOR rate, a spread reflecting the difference between the benchmark rate and the current LIBOR rate (rounded to the nearest 50 basis points) will be added. According to the Federal Reserve and regulators in the UK, LIBOR will be phased out by June 30, 2023, and will be replaced by a comparable benchmark, which is the Secured Overnight Financing Rate (SOFR).

Quantitative Performance Criteria

21. The quantitative performance criteria7 and indicative targets listed below are those specified in Table 1 of the MEFP. Continuous Quantitative Performance Criteria (QPC) require that at no point in time it will be non-observed• Should any non-observance occur, the authorities would inform Fund staff promptly (regardless of the data reporting periodicity set forth in Table 2). Adjusters for the QPCs are specified in Section E below. Unless stated otherwise, all quantitative performance criteria will be assessed cumulatively from the beginning of the calendar year to the applicable test-dates (the assessment period) specified in Table 1 of the MEFP. The quantitative performance criteria and details on their assessment are as follows:

  • A zero ceiling on the accumulation of any new external payment arrears by the Government and public non-financial enterprises (debts guaranteed by the Government). This ceiling applies continuously. Any non-observance to the ceiling will be reported promptly to the IMF with information regarding the date of the non- observance, amount of the missed payment and the creditor involved.

  • A zero ceiling on new non-concessional external debt contracted or guaranteed by the Government and non-financial public enterprises, with a maturity of more than one year. This ceiling applies continuously and does not include IMF financing. Debt is non-concessional if it includes a grant element of less than 35 percent, as described in Paragraph 14. Excluded from the ceiling are: (i) normal short-term credits for imports; and (ii) debt contracted before the ECF arrangement and rescheduled during this arrangement to the extent that the rescheduling is assessed to improve the overall public debt profile in terms of key indicators in the DSA (based on consultation with IMF staff).

  • A floor for the non-oil primary balance. The non-oil primary balance is defined in paragraph 17 above. With effect from the second review, QPCs will be set on the stock of domestic recognized expenditure payment arrears, as defined in paragraph 22.

  • Starting from the third review, QPCs will be set on net domestic Government financing, as defined in paragraph 22.

Table 1.

Chad: Quantitative Performance Criteria (QPC) and Indicative Targets (IT)* Under the ECF Arrangement

(in billions of CFAF, unless otherwise indicated)

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Sources: Chadian authorities; and IMF Staff. * The adjustors for the QPCs and ITs are defined in paragraph 23 of the TMU. ** In addition to QPCs enumerated in this table, the Standard Continuous Performance Criteria will also apply: (i) not to impose or intensify restrictions on the making of payments and transfers for current international transactions, (ii) not to introduce or modify multiple currency practices, (iii) not to conclude bilateral payments agreements that are inconsistent with Article VIII, (iv) not to impose or intensify import restrictions for balance of payments reasons.

Applies continuously.

NOPB: Non-oil revenue less grants, minus domestically financed primary expenditure (ie. expenditure, less net interest payments and foreign financed

See TMU.

Stock of verified arrears as definied In line with the TMU.

Expenditure of Ministries in charge of social sectors, as recommended by the World Bank in the absence of a budgetary functional classification. An adjustor will be defined in case of expenditure cuts, which will ensure an increase of the share of poverty-reducing social spending in the total of primary current expenditure (see TMU for details).

DAO is defined as all expenditures which do not go through the standard spending procedure. Regularization of DAO consists in recording the expenditure in the correspondent line of the budget. This will be done within 45 days after the end of the quarter.

Oil Revenue is the sum of direct receipt and the sale revenue of government oil net of operating and transportation cost.

Budget grants.

Indicative Targets and Memo Items

22. The indicative targets and memo items listed below are those specified in Table 1 of the MEFP. Adjusters of them are specified in Section E below. Unless stated otherwise, all indicative targets will be assessed cumulatively from the beginning of the calendar year to the applicable test-dates (the assessment period) specified in Table 1 of the MEFP. The indicative targets and details on their assessment are as follows:

  • A floor on Government tax revenue, excluding tax revenue from oil companies.

  • A ceiling on wages and salaries. Wages and salaries are defined in paragraph 11.

  • A ceiling on net domestic Government financing (as defined in para 19). The ceiling includes support from the IMF. QPCs will be set on net domestic Government financing starting from the third review. A ceiling on the stock of domestic recognized expenditure payment arrears. Domestic arrears include (i) the stock of arrears established by an independent audit at CFAF 485 billion at end-2019; and (ii) the stock of recognized expenditure payment arrears at the Treasury. Domestic recognized expenditure payment arrears at the Treasury are defined in paragraph 15. As of end-December 2020, the stock of recognized expenditure payment arrears at the Treasury was at CFAF 80 billion based on information in the Table “Reste à Payer” (prepared by the Treasury). The ceiling set for end-December 2021 would be adjusted to reflect the end-September 2021 actual stock of arrears when final data is available. QPCs will be set on the stock of domestic recognized expenditure payment arrears, starting from the second review.

  • A floor on poverty-reducing social spending equivalent to 34 percent of domestically financed primary spending financed by domestic resources (excluding transfers to the electricity company). Poverty-reducing social spending is defined in paragraph 18.

A. Memo items

  • Emergency spending procedures (DAO) (20 percent of primary spending in 2021). on the use of emergency spending procedures (DAO) excluding the wage bill, military spending and debt service as a percent of primary spending excluding the wage bill and military spending (memo item). Military spending is spending by the Ministry of Defense, including Exceptional Security Expenses (DES) of section 88.

  • A floor on regularization of spending executed through emergency spending procedures (DAO) Regularization of DAO (as defined in paragraph 10) will be done within 45 days after the end of the quarter and as follows: 70 percent after the second quarter, 75 percent after the third quarter, and 80 percent after the fourth quarter.

  • External concessional borrowing (US$ million).

  • Oil revenue (US$ million).

  • Grants (US$ million).

Adjustors to Performance Criteria and Indicative Targets

23. To take into account factors or changes beyond the Government s control, the following quantitative performance criteria during the assessment period will be adjusted as follows:

  • If the total budgetary receipts and loans are lower than the programmed amount, because of lower oil revenue or budget support, then the ceiling on the stock of domestic payment arrears can be adjusted upward up to the planned arrears repayment amount. An increase in net domestic financing could be envisaged up to 25 percent of the shortfall not compensated for through reduction in arrears payment.

  • Twenty percent of total surplus oil revenue-as defined in the Oil Price and Production Smoothing Law-will be deposited at the end of the year in the Special Account of the Treasury for Oil Price and Production Smoothing, up to CFAF 10 billion.

  • If the total budgetary receipts and loans are larger than the programmed amount, because of higher oil revenue, additional budget support excluding exceptional receipt, the amounts-excluding amounts placed in the Special Account of the Treasury for Oil Price and Production Smoothing-must be used through adjustment of a combination of the following elements:

    • the floor for the non-oil primary balance can be adjusted down by up to 25 percent of the excess amount;

    • the ceiling on net domestic financing can be adjusted down by 50 percent of the excess amount; and

    • the ceiling on the stock of domestic recognized expenditure payment arrears can be adjusted down by 25 percent of the excess amount.

  • The non-oil primary balance can be adjusted downward by the same amount of budget grants provided to finance the presidential and parliamentary elections. For the purpose of the TMU, baseline oil revenue, budget support and exceptional receipts are shown in the text table below.

  • Should primary expenditure compression be needed, poverty-reducing social spending would be adjusted to the extent that it is reduced proportionally less than other domestically financed primary spending such that its ratio does not decline below 34 percent.

A. Prior Actions and Structural Benchmarks

24. Prior Actions are specified in Table 2 of the MEFP:

  • Ministry of Finance and Budget to partially recapitalize CBT by CFAF 4.5 billion, in line with the recapitalization plan that was approved by COBAC.

  • Publication on-line on an easily accessible governmental website of the full text of all COVID-19-related procurement contracts awarded by the central government, as of May 31, 2021.

Table 1.

Chad: Baseline Projections of Selected Variables (Cumulative on annual basis)

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*/ Net oil revenue is the sum of (i) the sake revenue of gov. oil net operating and transportation cost and (ii) oil tax revenues.
Table 2.

Chad: Structural Benchmarks 2021/22 and Prior Actions for the 2021 ECF

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Sources: Chadian authorities and IMF staff.

25. Structural benchmarks are specified in Table 2 of the MEFP:

  • Publish quarterly note on the oil sector, , in line with the template designed in consultation with Fund staff, including detailed information on debt service to Glencore, quarterly, starting end-December 2021 (Table 2). The note issued at end-December will cover developments up to the end of the previous quarter (September 2021).

  • The note will comment on the recent development in the oil sector, including information related to production, export, and new exploration over the previous quarter, and expectation and forecast for the next 6 months.

  • The note will also provide a detailed account of the flow of oil revenue. Oil revenue will be reported by categories and the corresponding types of payments, in-cash (payment made in cash by oil companies) and in-kind (payment made in crude oil by oil companies). Other information will include information on the sale of Government -owned crude oils, such as gross sales revenue, volume sold, transaction prices, operating costs (“Cash-call”) to oil companies, transportation cost, interest payments, principal repayment, other related fees paid to service the Glencore loan and the final amount of sales revenue accrued to the Treasury.

  • Publish a semi-annual note which lists all new tax exemptions (including renewal and extension of exemptions). The first list should be published by end-January 2022 and should cover the period June to December 2021.

  • Publish on-line on an easily accessible governmental website the full text of all procurement contracts by the central government, along with the names and nationalities of the beneficial owners of the awarded legal entities, starting from end-March 2022.

  • Allocate VAT revenues in the VAT escrow account at the BEAC by end February 2022

  • The completion and publication of an ex-post compliance audit of COVID expenses by a reputable international auditing firm by end December 2021.

  • The Government to finalize and adopt the PFM strategy, in line with IMF Technical Assistance, by end June 2022.

  • The government to implement employment ceilings, in accordance with the provisions of the 2014 organic law on public finance, by end August 2022.

  • The government to implement the ASYCUDA Exemption Module to process all customs exemptions requests and authorizations by end November 2022.

Table 2.

Chad: Summary of Data to Be Reported

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For end-December fiscal data, data should be reported 45 days after the end of the complementary period.

Including maturities.

Including the breakdown by currency and maturity.

Both market-based and officially determined, including discounts, money market rates, and rates on treasury bills, and bonds and other securities.

Table 3.

Chad: Summary of Oil Revenue

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1

Given the high degree of uncertainty regarding the duration and scale of the pandemic, the ECF arrangement was cancelled last July and the 6th and final review was not completed.

2

In the DSA, the external debt service-to-revenue ratio exceeds its high-risk threshold of 14 percent in 2021–27 under the baseline, all external debt thresholds are breached under the most extreme shock, and the PV of public debt to GDP threshold is breached during 2021–26 under the baseline.

3

Preventive care was most affected, with significant delays in the measles and poliomyelitis vaccination programs.

4

IMF Country Reports No. 20/134 and No. 20/231.

5

In line with WHO guidelines, the plan targets vulnerable populations, including health workers, people over the age of 50 (phase 1), the chronically ill persons (phase 2), teachers, defense and security forces, as well as refugees and internally displaced persons (phase 3). Phase 4 will entail mass vaccination in the 10 most affected cities.

6

IMF Country Report No. 19/399, December 2019.

7

Corporate income tax for oil companies is based on the previous year’s profits.

8

Between April and September 2021, market appetite was weak, due to uncertainties, and the treasury was mainly able to issue securities with 1-year maturities.

9

Other measures also include: (a) removing the thresholds for the immediate classification of restructured loans, (b) extending from 90 to 180 days the period for the reclassification of sound loans to bad loans, and (c) raising buffer by only 1 percent and maintain a buffer minimum of 9.5 percent for the risk coverage ratio.

10

See the statement of the 4th meeting of the Creditor Committee for Chad under the Common Framework

11

The Chadian oil is sold at a discount to international benchmarks so prices may not reflect those of the international market.

12

Oil taxes are based on the previous year’s profits.

13

The program expired in September 2021 and consisted of CFAF 600 billion on the secondary market, it was initiated in July 2020.

14

Only nine percent of the Chadian population has a bank account.

15

For 13 customs offices with no banking coverage, an agreement has been signed with a local telecommunication company to facilitate payments through mobile phones. Also, an agreement was signed with a local telecommunication company for the payment of wages through mobile money in areas that are not covered by banks.

16

These include renewable energy, modernizing the electric grid, public transport, and improving digital infrastructure to build on the global teleworking experience.

17

This space is important due to uncertainties around oil production and prices.

18

The government is representing a dispute as to the validity of a claim held by Belgium.

19

In addition to QPCs enumerated above, the standard continuous performance criteria will also apply: (i) not to impose new or intensify existing restrictions on the making of payments and transfers for current international transactions; (ii) not to introduce new or intensify existing multiple currency practices; (iii) not to conclude bilateral payments agreement that are inconsistent with the IMF’s Articles of Agreement (Article III); and (iv) not to impose new or intensify existing import restrictions for balance of payments reasons

1

Control of a corporation is defined as the ability to make key financial and operating decisions (see GFSM 2014 paragraph 2.104 – 2.114). 2014 (GFSM 2014), paragraphs 2.85 – 2.89.

2

See GFSM 2014, paragraph 2.85.

3

Capital Expenditure – expenditure for acquisition of land, intangible assets, Government stocks, and nonmilitary, nonfinancial assets, of more than a minimum value and to be used for more than one year in the process of production. Capital expenditure is frequently separated (in some cases along with certain revenue) into a separate section or capital account of the budget or into an entirely separate budget for expenditure, i.e., the capital budget. This separation may sometimes follow different criteria, however.

4

The IMF website gives an instrument (link hereafter) that allows the calculation of the grant element for a wide range of financing packages: http://www.imf.org/external/np/pdr/conc/calculator.

5

The calculation of concessionality takes into account all aspects of the loan agreement, including maturity, grace period, schedule, commitment and management fees commissions. The computation of the grant element for loans from the Islamic Development Bank (IsDB) will take into account the existing agreement between the IsDB and the IMF.

6

Net claims of the BEAC and domestic commercial banks to the government represent the difference between Government debts and its deposits in the Central Bank and commercial banks. The scope of the net claims of the bank system on the government is defined by BEAC and represents the Government net position.

7

In addition to QPCs enumerated above, the standard continuous performance criteria will also apply: (i) not to impose new or intensify existing restrictions on the making of payments and transfers for current international transactions; (ii) not to introduce new or intensify existing multiple currency practices; (iii) not to conclude bilateral payments agreement that are inconsistent with the IMF’s Articles of Agreement (Article III); and (iv) not to impose new or intensify existing import restrictions for balance of payments reasons.

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Cover IMF Staff Country Reports
Chad: Request for a Three-Year Arrangement under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Chad
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2021: Issue 267
Publisher:
International Monetary Fund
ISBN:
9781557759542
ISSN:
1934-7685
Pages:
113
DOI:
https://doi.org/10.5089/9781557759542.002
  • <sup>Text Figure 1.</sup>
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    Text Figure 1.

    Chad: Oil Price Effects on the Economy

    (percent of GDP, unless otherwise indicated)

  • <sup>Text Figure 2.</sup>
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    Text Figure 2.

    Chad: Global Covid-19 Pandemic1

  • <sup><xref rid="RA001fig03" ref-type="fig">Text Figure 3.</xref></sup>
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    Text Figure 3.

    Chad: Evolution of the Medium-term Growth Forecast, 2018–25

    (constant prices, percent change year/year)

  • View in gallery

    Nominal GDP

    (billions of US$)

  • View in gallery

    Ratio of Chad to AE's PPP GDP per capita

    (percent)

  • <sup>Text Figure 4.</sup>
    View in gallery
    Text Figure 4.

    Chad: Evolution of the Wage Bill

    (Percent of Non-oil GDP)

  • <sup>Text Figure 5.</sup>
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    Text Figure 5.

    Chad: External Debt Service by Creditor Group

    (percent of government revenue, excluding grants)

  • <sup>Figure 1.</sup>
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    Figure 1.

    Chad and Neighboring Countries: Fragility Indicators, 2011–20

  • <sup>Figure 2.</sup>
    View in gallery
    Figure 2.

    Chad: Selected Development Indicators, 1995–2019

  • <sup>Figure 3.</sup>
    View in gallery
    Figure 3.

    Chad: Recent Economic Developments, 2012–21

  • <sup>Figure 4.</sup>
    View in gallery
    Figure 4.

    Chad: Evolution of Domestic Debt in CEMAC, 2016–20

    (Billions of CFAF)

  • <sup>Figure 5.</sup>
    View in gallery
    Figure 5.

    Chad: Financial Sector Developments, 2014–20

  • <sup><xref rid="RA001fig11" ref-type="fig">Figure 6.</xref></sup>
    View in gallery
    Figure 6.

    Chad: Fund Credit Indicators Compared to PRGT UCT-Quality Arrangements

  • View in gallery

    The rollover mechanism consists of the following stages:

Text Figure 1.

Chad: Oil Price Effects on the Economy

(percent of GDP, unless otherwise indicated)
Text Figure 2.

Chad: Global Covid-19 Pandemic1
Text Figure 3.

Chad: Evolution of the Medium-term Growth Forecast, 2018–25

(constant prices, percent change year/year)

Nominal GDP

(billions of US$)

Ratio of Chad to AE's PPP GDP per capita

(percent)
Text Figure 4.

Chad: Evolution of the Wage Bill

(Percent of Non-oil GDP)
Text Figure 5.

Chad: External Debt Service by Creditor Group

(percent of government revenue, excluding grants)
Figure 1.

Chad and Neighboring Countries: Fragility Indicators, 2011–20
Figure 2.

Chad: Selected Development Indicators, 1995–2019
Figure 3.

Chad: Recent Economic Developments, 2012–21
Figure 4.

Chad: Evolution of Domestic Debt in CEMAC, 2016–20

(Billions of CFAF)
Figure 5.

Chad: Financial Sector Developments, 2014–20
Figure 6.

Chad: Fund Credit Indicators Compared to PRGT UCT-Quality Arrangements

The rollover mechanism consists of the following stages: