Chad: IMF Staff Completes Mission to Chad

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End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

An International Monetary Fund (IMF) staff mission led by Said Bakhache visited N'Djamena from March 18 to April 1, 2019 to conduct discussions on the 2019 Article IV consultations and the 4th review of the program supported by the Extended Credit Facility (ECF) arrangement.[1] The program was approved by the IMF Board on June 30, 2017 (see Press Release No. 17/257).

At the end of the mission, Mr. Bakhache issued the following statement:

"The Chadian authorities and the IMF team made significant progress in discussions on the policies and reforms needed for the completion of the fourth review of the ECF-supported program. Discussions will continue in Washington DC during the upcoming IMF/World Bank Spring Meetings.

"After three consecutive years of contraction, non-oil economic activity has stabilized and pressures on the government fiscal position have eased. Nonetheless, the social, economic, and financial situation remains fragile. While oil production rebounded strongly in 2018, growth in the non-oil sector was estimated at only 0.5 percent. Economic recovery continues to be held back by the domestic debt overhang and underlying structural fragilities. Average inflation picked up to 4 percent in 2018, pulled largely by a 90 percent increase in the administered price of fresh water in May 2018.

"Fiscal developments in 2018 were marked by spending discipline, with the wage bill contained within the budget envelop. While other domestically financed expenditures were in line with the program, social spending was lower than expected. Non-oil revenue declined in 2018 relative to 2017, as performance weakened during the second half of the year. Oil revenue increased significantly in 2018, reflecting higher oil production and prices.

"All quantitative performance criteria for end-December 2018 under Chad's economic and financial program were observed. However, the indicative targets on social spending and the regularization of emergency spending procedures (DAO) were not observed. Implementation of agreed structural reforms is underway but some have experienced delays. The audit of domestic arrears experienced long delays, while the work on the removal of exemptions was partially done. The work of the consultants on the review and reorganization of the two large public banks is expected to be finalized soon.

"Looking forward, the outlook for growth is underpinned by an increase in oil production and sustained reform efforts to support the recovery in the non-oil sector. Despite lower oil prices, the increase in oil production is expected to boost overall GDP growth. However, the recovery in the non-oil sector hinges on significant progress in the clearance of domestic arrears, addressing vulnerabilities in the banking sector, and strong reforms to improve governance. Continued fiscal prudence is necessary to maintain the recent hard-won stabilization.

"Fiscal policy in 2019 is expected to lead to an increase in spending, including for social sectors, acceleration in domestic arrears clearance, and higher repayment of domestic debt.

These policies are expected to help ease pressures on the banking sector, support the economic recovery and help improve social conditions. The effect of lower oil prices is expected to be offset by higher oil tax revenue, as the largest oil producer is expected to start paying corporate income taxes, and lower debt service to Glencore in line with the agreement reached last year.

The mission agreed with the authorities that, in case overall oil revenues fall short of expectation, a revised budget would be necessary. Efforts to improve non-oil revenue mobilization should be enhanced to make up for the shortfall in 2018. In addition, policies will continue to focus on improving expenditure management.

"Article IV discussions focused on policies to deal with legacies of the crisis that began in 2014 and long-standing structural weaknesses. Addressing these issues would create the much-needed space for higher public spending and the necessary environment for an active private sector.

Improving governance across all sectors of the economy is a critical element of the reform efforts. The mission shared policy recommendations to: (i) build fiscal resilience by raising non-oil revenues and reducing arrears, while raising social spending, (ii) foster sustainable and inclusive growth, and (iii) strengthen the ability of the banking sector to effectively contribute to private sector growth.

"Reforms should aim to increase non-oil revenue while more actively and transparently planning and managing oil revenues. This will help create better space for a gradual increase in spending on social sectors and infrastructure investment over the medium term. Equally important is the improvement in public financial management, including to improve the quality of spending in these sectors to help achieve the sustainable development goals. The mission emphasized the importance of loosening the inter-dependence between the banking sector and the government.

"The mission met with the Minister of Finance and Budget, Mr. Allali Mahamat Abakar, other senior government officials and the National Director of BEAC. The staff also met with members of the national assembly, representatives of civil society, academia, the private sector, and the donor community. Analytical work on non-oil private sector growth, governance and the fight against corruption, and social spending was presented at four events.

"The IMF mission would like to thank the authorities for their warm hospitality and for the constructive and productive discussions."

[1] The Extended Credit Facility (ECF) is the IMF's main tool for medium-term financial support to low-income countries. Financing under the ECF carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.

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