A. Introduction
1. Governance and corruption vulnerabilities weaken institutions, undermine the effectiveness of reforms, and distort transparency and accountability mechanisms. Corruption poses a significant obstacle to achieving peace, security, sustainable development, and human rights. It weakens government institutions, erodes trust, jeopardizes justice and the rule of law, and negatively impacts the security and stability of countries. Sectors such as natural resources, public procurement, access to public services, tax exemptions and tax administration are highly vulnerable to corruption, while bribery and nepotism distorts the delivery of public services. .
2. Studies show that poor governance and corruption can severely affect inclusive economic growth. Empirical studies show that poor governance and corruption are associated with lower investment and lower tax revenue and economic performance (Faruq 2017, Hammadi and others, 2019, Ondoa, 2019). Poor governance and corruption also affect how equitably the benefits of growth are shared. Ivanyna and Salerno (2021) summarize the main impacts of bad governance on inclusive growth: (i) impaired provisions of public goods and services; (ii) distorted allocation of resources; (iii) eroded trust; (iv) adverse business climate; (v) rent-seeking; and (vi) state capture.
3. This paper examines the nature and severity of corruption in Chad, assessing governance and corruption vulnerabilities using the IMF Governance Framework. This framework is designed to promote a more systematic, effective and candid assessment of associated systemic governance weaknesses and corruption vulnerabilities in Chad. It examines the nature and severity of governance vulnerabilities in the key institutional functions that are most relevant to a country’s economic activity, including: (i) fiscal governance; (ii) the quality of market regulation; (iii) the anti-corruption framework; (iv) rule of law; and (v) anti-money laundering and combating the financing of terrorism (AML/CFT).2
4. The rest of the paper is organized as follows. The subsequent sections examine the governance vulnerabilities in each of the aforementioned key institutional functions. The last section concludes with policy recommendations.
B. Fiscal Governance
5. Strong fiscal governance is a key institutional function for economic activities and has three main components. Strong fiscal governance is particularly important in a natural resource dependent country, often prone to resource rents, and includes practices in: (i) revenue administration; (ii) public financial management; and (iii) fiscal transparency.
C. Revenue Administration
6. The authorities have adopted reforms aiming at improving revenue mobilization while innovating in the digitalization of public services, making Chad the first CEMAC country to use standardized electronic invoicing. In 2022, the authorities adopted a tax administration reform strategy that aims at promoting transparent rules and digitalization. The strategy included the following: (i) assessment and publication of tax expenditures within the framework of the annual finance law; (ii) improvement of the communication with taxpayers and exchange of information between revenue collection agencies; and (iii) modernization and strengthening of tax administration through digitalization and improved staff training and working conditions.
7. While digitalization has enabled significant progress in revenue collection in a short period of time, further progress in digitalizing public services is important to fully reap its benefits. A lot has already been accomplished in terms of: (i) detecting potential taxpayers; (ii) gathering information on rights and obligations of taxpayers; (iii) establishing an advance withholding tax system; and (iv) setting a progressive system of administrative and judicial appeal. However, more needs to be done as weaknesses still exist, including with regard to: (i) low rates of filling tax returns and paying on time; (ii) the identification, recovery, and penalization of defaulters that are not yet automated; (iii) a lack of consultation between parties implying limited room for service improvement; (iv) an unreliable and incomplete taxpayer register and ineffective management of operational and institutional risks; and (v) a weak accountability and transparency framework which results in the weakness of the audit function.
8. In this context, the authorities should pursue their efforts to strengthen revenue administration, including through:
Continuing the deployment of digitalization and implement digital solutions to facilitate tax declaration and payments, which will help increase convenience and reduce costs for taxpayers.
Improving tax collection, notably by:
Broadening the tax base, by developing strategies targeting the taxpayer registry and by encouraging registration within the tax administration, increasing overall tax revenues.
Leveraging the analysis of data to foster operational efficiency and improving risk management capacity in tax collection.
Investing in training and resources for tax administration officials to improve skills in tax collection and control.
Conducting a thorough review of existing tax and customs exemptions to ensure they are effectively targeted and do not erode the tax base.
Promoting organizational efficiency, notably by
Promoting peer-to-peer learning especially in terms of change management. The authorities could notably share their experience with their Cameroonian counterparts, who introduced the e-tax system in 2016.
Investing more forcefully in training the human resources department and provide the department with the means to be operational and effective in monitoring tax official’s activities and enforcing penalties when needed.
Promoting the enforcement of tax and customs law and enhancing capacity to fight tax evasion and avoidance, coupled with clear penalties for non-compliance.
D. Public Financial Management and Fiscal Transparency
9. Digitalization has also contributed to significant improvements in public financial management (PFM). The 2022-2027 PFM Reform Strategy includes measures aiming at addressing fiscal governance challenges, based on three pillars: the modernization, the digitalization, and the territorialization of PFM and public services. The computerized and integrated public finance management system (SIGFiP), which became operational in mid-2022, is contributing to the modernization of the process of maintaining and producing public accounts. SIGFiP’s onboard controls, coupled with the gradual establishment of an internal control system, is also contributing to improving the quality of public accounts and their timely production. The territorialization of financial services is underway with the deployment of equipped containers in the provinces allowing the local deployment of the services of the Ministry of Finances. The adoption in February 2024 of a strategy and a roadmap for the implementation of the Single Treasury Account (STA) represents a significant step forward in the modernization of treasury management and its articulation with debt management.
10. Notwithstanding this progress, and based on a June 2023 IMF technical assistance mission, further efforts to improve the country’s PFM remain necessary:
The PFM framework remains weak, especially its implementation. Although the PFM legal framework is aligned with regional standards, it is fragmented at the level of implementing texts and does not constitute a comprehensive framework.
Internal control is the most significant vulnerability. While important initiatives and efforts took place and implementation may take time to see the results, the current internal control system has shortcomings in risk management, with inaccurately or unreported expenditures and the quality of general accounting, including budgetary accounting, needs to be improved.
Although annual finance laws are regularly drafted, annual budget laws are not exhaustive and not detailed enough, and while a circular establishing the general State budget is adopted annually, it is done with delay.
There have been efforts in the creation of control structures, but implementation is yet to be seen. For example, the internal audit function was recently entrusted to the General Inspectorate of Finance (IGF). However, it has not yet been implemented. Both the Chamber of Auditors, which regained its powers as a Court of Auditors through the Constitutional reform of December 2023 and the organic law of February 26, 2024, and the IGF in its audit function do not yet fulfill their missions of ensuring that public funds are used appropriately due to limited resources and lack of independence.
Budget execution, which is carried out through SIGFiP, has been subject to excessive recourse to emergency expenditure procedures (DAO) for several years. The authorities adopted a decree in November 2023 that specifies the terms of the payment of DAO and the deadlines for their regularizations. Since the adoption of the decree the recourse to DAOs has been somewhat reduced but efforts need to continue.
Public access to key and current information on government service delivery performance remains limited. Budget documents do not yet include all the revenues and expenditures of major state-owned enterprises, nor show the allocations of their earnings or information on their debts. Basic information on natural resource extraction awards was publicly available, and the authorities specified in law or regulation the criteria and procedures for awarding natural resource extraction contracts and licenses, but implementation of those regulations is weak. In addition, quarterly budget execution reports and annual accounting statements are produced and forwarded to the Chamber of Auditors within the Supreme Court, but delays remain. The adoption of the settlement laws for fiscal years 2014 to 2020 by the CNT in December 2023, the review of the settlement laws for 2021 and 2022 in October 2024, and the restoration of the Court of Auditors in its full attributions could provide opportunities for future improvement.
11. The authorities should therefore continue their efforts aimed at strengthening PFM, including through:
Improving budget processes, including by: (i) including all revenues and expenditure in the budget documents, including information on the major state-own enterprises; (ii) limiting further the use of DAO (notably by continuing to forcefully implement the provisions of Decree 3361 of November 26, 2023 concerning the DAOS) and strengthening expenditure programming; (iii) preparing quarterly commitment plans harmonized with the cash flow plans and communicating them to the sectoral ministries. Those plans should be executed and monitored through SIGFiP; (iv) strengthening the realism of the budget by basing budget projections on previous outturns; (v) reducing the long delays in the production of budget review laws, annual reports on the execution of the budget to strengthen accountability in PFM; (vi) improving and publishing within 30-45 days quarterly budget execution reports; (vi) creating a pivot account and defining the relevant sub-accounts (budgetary support accounts, new onshore oil royalties account) based on the AMS/X system with a view to start consolidating resources for the operationalization of the Treasury Single Account (TSA) at the BEAC; and (vii) implementing the Strategy and the roadmap for the implementation of the TSA in compliance with the order no. 026 of February 20, 2024.
Strengthening the governance of SOEs and of the mining sector, including by: (i) disclosing the debt holdings of major state-owned enterprises and implementing the new legal framework for public establishments, state companies, public enterprises and independent administrative authorities that was adopted in September 2024; and (ii) enhancing implementation of the natural resource extraction laws and regulations.
Improving internal controls by developing a strategy to gradually strengthen the internal audit function, within which the role of the IGF is clarified and strengthened.
Enhancing fiscal transparency, including by: (i) continuing the deployment of digitalization; (ii) setting mechanisms to monitor budget implementation; (iii) expanding mechanisms during budget formulation to engage civil society organizations or any member of the public who wishes to participate; (iv) actively engaging with vulnerable and underrepresented communities directly or through civil society organizations representing them; (v) allowing civil society organizations to testify during public hearings on the budget proposal prior to its approval as well as on the Audit Report; and (vi) establishing formal mechanisms for the public to assist in developing its audit program and to contribute to relevant audit investigations.
E. Quality of Market Regulation
12. Recent efforts have been undertaken to improve the quality of market regulation. In June 2024, the authorities launched the standardized electronic invoice, which marks a step forward in the modernization of economic practices, aiming at facilitating trade, improving tax transparency, and fighting fraud. It is expected to simplify administrative procedures, making businesses more efficient in managing their transactions. The ongoing digitalization of public services should also significantly improve public sector performance. In June 2024, the authorities and the World Bank launched a project aiming at deploying digitalization in all ministries, with implementation being monitored by a committed presided by the Prime Minister. Since June 2024, the authorities also multiplied cooperation with development partners such as the World Bank, the African Development Bank and the Islamic Bank to improve access to electricity and infrastructure (roads, schools).3 The authorities also launched in September a project “one drill one village” that aims at improving access to water in all villages.
13. But barriers to market entry still exist. Based on the Mo Ibrahim Foundation indicators, progress has been made from 2014–23 in terms of infrastructure (transport network, access to energy, mobile communication and internet and computer subindices show improvement).4 But barriers to market entry persist. In particular, there has been a deterioration over this period in terms of: (i) shipping and postal networks, (ii) rural land and water access; (iii) rural market access; (iv) business and competition regulations; (v) labor relations; and (vi) secure employment opportunities.
Chad: Barriers to Market Entry
Citation: IMF Staff Country Reports 2024, 336; 10.5089/9798400295249.002.A003
Source: Mo Ibrahim Foundation.14. The authorities are therefore encouraged to adopt measures aimed at improving market access, including though: the promotion of partnerships with cargo airlines, creating a basic postal network accessible to all, and measures aiming at improving access to water, through water drillings initiatives “forages” and measures promoting purifying water techniques. These initiatives would facilitate commercial activities within the country but also across borders.
F. Anti-Corruption Legal and Institutional Framework
15. Over the last few years, the authorities have focused on strengthening the anti corruption framework. In 2012, they launched an anti-corruption campaign resulting in the dismissal and arrest of several high-level officials and recovery of stolen assets. In 2018, Chad acceded to the United Nations Convention against Corruption (UNCAC). By doing so, the authorities committed to take measures to step up their efforts in their fight against corruption, including legal reforms, such as aligning the Penal Code with the Convention and to strengthen the fight against corruption. Moreover, legal and institutional steps to fight corruption have also been taken, including with regard to: (i) the judiciary; (ii) the Cour des Comptes, which sits with the Supreme Court and is responsible for supporting the implementation of the finance law; (iii) an audit office in the Office of the President, which conducts inspections, audits and investigations to ensure the sound and transparent management of public finances; (iv) the new independent Anti-Corruption Authority created in November 2023; and (v) finally, Articles 72 and 104 of Chad’s Constitution require several categories of public figures and State agents, including the president and members of the parliament, to be subject to financial disclosure and declare assets when they take up and leave their post.5
16. Based on the Mo Ibrahim Anti-corruption Index, while implementation of the anti corruption framework broadly improved between 2014 and 2023 there was a setback in the implementation of anti-corruption mechanisms (see text table). The Ibrahim anti-corruption Index provides quantifiable measures of governance performance drawn from several independent sources. It is composed of sub-indices that assess: (i) anti-corruption mechanisms; (ii) absence of corruption in state institutions; (iii) absence of corruption in the public sector; (iv) public procurement procedures; and (v) absence of corruption in the private sector. Each sub-index is itself based on several sub-categories that provide quantifiable measures of output and outcome of policy rather than declaration of intent, or de jure statutes. More particularly, the setback in the implementation of anti-corruption mechanisms was driven by setback in the implementation of anti-corruption investigation.
|
2014 |
2023 |
Change | |
|---|---|---|---|
|
Anti-Corruption Index |
15.4 |
22.7 |
7.3 |
|
Anti-Corruption Mechanisms |
9.8 |
3.6 |
-6.2 |
|
Anti-Corruption Investigation |
25 |
0 |
-25 |
|
Anti-Corruption Policy |
14.3 |
14.3 |
0 |
|
Anti-Corruption Bodies |
0 |
0 |
0 |
|
Absence of Corruption in State Institutions |
10.5 |
11.4 |
0.9 |
|
Absence of Corruption in the Public Sector |
3.7 |
12.5 |
8.8 |
|
Public Procurement Procedures |
37.5 |
62.5 |
25 |
|
Absence of Corruption in the Private Sector |
15.8 |
23.8 |
8 |
|
2014 |
2023 |
Change | |
|---|---|---|---|
|
Anti-Corruption Index |
15.4 |
22.7 |
7.3 |
|
Anti-Corruption Mechanisms |
9.8 |
3.6 |
-6.2 |
|
Anti-Corruption Investigation |
25 |
0 |
-25 |
|
Anti-Corruption Policy |
14.3 |
14.3 |
0 |
|
Anti-Corruption Bodies |
0 |
0 |
0 |
|
Absence of Corruption in State Institutions |
10.5 |
11.4 |
0.9 |
|
Absence of Corruption in the Public Sector |
3.7 |
12.5 |
8.8 |
|
Public Procurement Procedures |
37.5 |
62.5 |
25 |
|
Absence of Corruption in the Private Sector |
15.8 |
23.8 |
8 |
17. The implementation of the anti-corruption framework has not been effective due to deficiencies, inadequate resources, and personnel constraints. According to the World Bank’s 2023 country private sector diagnostic, the legal anti-corruption framework suffers from several deficiencies, including anti-corruption initiatives being perceived as politically motivated. Also, the institutional framework around which anti-corruption efforts have been undertaken includes several bodies that are yet to be assessed. As with other state bodies, these anti-corruption bodies face considerable resource and personnel constraints in meeting their objectives and challenges of independence. It is still early to determine the impact of the new anti-corruption framework.
18. An effective asset declarations system is yet to be implemented. Asset disclosures can promote transparency and high ethical standards in public service, hence developing and maintaining public trust and confidence in government and public institutions. However, the asset declaration regime in Chad remains largely unenforced. According to the World Bank 2023 country private sector diagnostic, the enforcement of the legal requirement has met several challenges including resource constraints and the absence of a well-equipped and independent agency to implement this requirement.
Executive Compliance with the Rule of Law Index
Citation: IMF Staff Country Reports 2024, 336; 10.5089/9798400295249.002.A003
Source: Mo Ibrahim Foundation.19. The authorities need to intensify their efforts to strengthen further the anti-corruption framework and its implementation, including through: (i) aligning, with the support of the UN, the Penal Code with the UN Convention; (ii) implementing an asset declaration regime in line with applicable internatio good practices; (iii) developing an implementing legislation and establishin a well-equipped agency to ensure the application and assessment of anticorruption measures to combat corruption in public institutions; and last (iv) forcefully implementing the anticorruption framework.
Security and Rule of Law Index
Citation: IMF Staff Country Reports 2024, 336; 10.5089/9798400295249.002.A003
Source: Mo Ibrahim Foundation.G. Rule of Law
20. Based on Mo Ibrahim governance indicators, the impartiality of Chad’s judiciary system deteriorated over the last ten years both in terms of impartiality and independence. The Mo Ibrahim Security and Rule of Law index shows that between 2014 and 2023, impartiality of the judicial system, judicial processes, and executive compliance with the rule of law deteriorated (text figure). In particular, while separation of power exists institutionally, the Mo Ibrahim Impartiality of the Judicial System index indicates that judicial independence and judicial appointments deteriorated between 2014 and 2023 (text figure).
21. Property rights protection needs to be strengthened. According to the 2023 World Bank country private sector diagnostic, land conflicts and instances of land expropriation are facilitated by a lack of formal land titles across muc rural Chad and by widespread corrup in the court system and land administration.
22. Stronger efforts are theref needed to ensure the upholding o the Rule of Law, include through: ( forceful implementation of the lega framework to enable the independe and impartiality of the judiciary; and the creation of digital public platforms such as a land register, to facilitate the implementation of property rights and increase transparency, hence reducing the risks of corruption.
Impartiality of the Judicial System Index
Citation: IMF Staff Country Reports 2024, 336; 10.5089/9798400295249.002.A003
Source: Mo Ibrahim Foundation.H. AML/CFT Framework
23. The country underwent an evaluation of its AML/CFT framework against the AML/CFT standards in 20236. The evaluation, conducted by GABAC (Action Group against Money Laundering in Central Africa), assessed the country’s level of compliance with the internationally recognized AML/CFT standard - namely the Financial Action Task Force (FATF) 40 FATF recommendations – and the effectiveness of Chad’s AML/CFT regime. Results of the evaluation were summarized in a report that is publicly available.
24. The GABAC evaluation report points out that while Chad has taken some steps to update its legal and regulatory framework to combat money laundering and terrorist financing (ML/TF), important shortcomings remain. In particular, the current framework does not designate a competent authority or authorities to supervise designated nonfinancial businesses and professions (DNFBPs) for AML/CFT purposes, and the effectiveness of the country’s AML/CFT system was low. This was due to some strategic shortcomings, as indicated in the GABAC report:
The understanding of ML/TF risks is still low in Chad, and the country does not have a national AML/CFT strategy nor an AML/CFT coordination authority or mechanism.
The capacity for financial intelligence gathering and financial investigation is also limited. The country’s financial intelligence unit, the ANIF (National Agency for Financial Investigation), receives a relatively low number of suspicious transaction reports. These reports are mainly filed by financial sector reporting entities. As a result, very little information is transmitted by other reporting entities (namely the DNFBPs, and virtual asset service providers- VASPs). Most financial investigations result from complaints filed by the General State Inspectorate (IGE) on embezzlement of public funds. However, the ML component of these activities is not looked into by the investigating authorities which are not familiar with the conduct of parallel investigations. This is due to a lack of training in the conduct of ML/TF investigations as well as insufficient physical, financial and logistic resources, such as computer hardware and systems.
Seizure of the proceeds and instrumentalities of predicate offenses is effective, but their ultimate confiscation less so. Statistics on seizures and confiscations are not regularly kept, and when they are kept this is done manually and in a dispersed manner. The government agency responsible for administering seized and confiscated property has not yet been set up. As a result, property seized is not properly administered and is often diverted during the procedure.
While the country has been experiencing acts of terrorism since 20157 and has proceeded to the prosecution of their perpetrators, there has been no conviction for TF so far, due to difficulties in identifying, investigating, and prosecuting cases of TF. The staff of existing specialized services are not sufficiently trained and equipped for CTF purposes and are not familiar with the conduct of parallel financial investigations.
Financial institutions, in particular banking institutions, have a better understanding of their ML/TF risks and their AML/CFT obligations than other reporting entities but need to strengthen the implementation of AML/CFT preventive measures. Customer due diligence (CDD) obligations are not satisfactorily implemented by financial institutions owing to difficulties faced in collecting information on beneficial owners of their customers. DNFBPs have limited knowledge of their AML/CFT obligations and do not implement CDD measures.
25. Moreover, Chad does not yet have mechanisms to identify and collect information on BOs of legal persons in the company register. The country has an appropriate legal framework for mutual legal assistance and extradition. However, the level of cooperation remains insufficient in practice, as the country has not granted nor requested mutual legal assistance or extradition in relation to ML/TF. Only ANIF has been able to document a few cooperation actions among which those specific to ML/TF were limited. Chad does not also have clear procedures for the prioritization, timely treatment and monitoring of international cooperation requests.
26. Further efforts are therefore needed to ensure that the country is able to fight money laundering and terrorism financing, including money laundering related to corruption offenses, in an effective way. Policy recommendations include making public procurement more transparent, which implies identifying and collecting information on the beneficial owners of these markets and publishing this information. Upstream, it will be important to fully digitalize public procurement procedures through the effective implementation of the e-procurement project, currently being developed with the support of development partners. The authorities should also ensure the implementation of the main recommended actions made by the GABAC evaluators in their 2023 report.
I. Conclusion
27. The analysis of governance challenges in Chad across the several areas identified by the Governance framework underscores the need for a comprehensive set of economic governance reforms and strong anti-corruption measures. While a lot of positive advancements have been noted, notably in terms of fiscal governance, much remains to be done and deployment efforts need to continue to fully reap the benefits of digitalization. Moreover, improving market regulation, making effective the implementation of the anti-corruption framework, upholding the rule of law, and combating money laundering and terrorism financing will also be necessary to support and promote a private sector led economic growth. The analysis also encourages the authorities to deepen and expand the assessment of vulnerabilities and recommendations through the conduct of an IMF governance diagnostic mission.
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Prepared by Arina Viseth (AFR), with thanks to Nusula Nassuna (LEG) Maria Cavalleri, Sylvain Ngeba, Jean-Pierre Nguenang, and Serge Ramangalahy (all FAD) for their inputs.
The IMF governance framework also examines central bank governance and operations as well as oversight of the financial sector. However, those two areas have been excluded from the analysis given that their assessments are taking place more broadly at the CEMAC region.
Following the May 2024 presidential elections, President Déby set as priorities improving access to basic services (water, electricity, education, and health), strengthening governance, and enhancing the business environment.
The Mo Ibrahim Foundation defines governance as “the provision of political, social, economic and environmental goods that a citizen has the right to expect from their state, and that a state has the responsibility to deliver to its citizens.” The Mo Ibrahim foundation indicators—which are data-based, not perception-based—cover several governance dimensions, from security to justice to rights and economic opportunity to health, currently providing the most comprehensive dataset measuring African governance.
The responsibilities of the new Anti-Corruption Authority include preventing and punishing acts of corruption while strengthening ethics within the public sphere.
The mission took place in May 2022. The evaluation was conducted by GABAC (“Groupe d’Action contre le Blanchiment d’argent en Afrique Centrale”) and published in July 2023 by GABAC, which is the FATF style regional body for Central Africa. The report can be found at https://www.fatfgafi.org/en/publications/Mutualevaluations/Mer-Chad-2023.html
The most recent ones took place in October and November 2024.
