Press Release No. 14/381

Press Release: IMF Executive Board Approves New US$122.4 Million ECF Arrangement for Chad

August 1, 2014

The Executive Board of the International Monetary Fund (IMF) today approved a new three-year arrangement under the Extended Credit Facility (ECF) for a total amount equivalent to SDR 79.92 million (about US$122.4 million), 120 percent of quota for Chad. The approval will enable the first disbursement of an amount equivalent to SDR 13.31 million (about US$20.4 million).

The new ECF arrangement is expected to address the country’s protracted balance of payments’ problems—which resulted from a reduction in oil revenues, maintain adequate international reserves’ coverage, and play a catalytic role for bilateral and multilateral assistance.

At the conclusion of the Executive Board’s discussion, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:

“Chad’s macroeconomic performance has been relatively strong, despite major regional security issues requiring the strengthening of security measures along its borders and increased humanitarian assistance to refugees and returning nationals. Medium term prospects are generally favorable. The commencement of activities in new fields is expected to significantly boost oil production and exports over the next few years, while, non-oil GDP should continue to increase at a sustained rate.

“The new ECF-supported program is anchored on accelerating reforms to strengthen fiscal institutions and support growth, while maintaining fiscal discipline. A smooth decline in the non-oil primary deficit over the medium-term is warranted to ensure fiscal sustainability in light of a projected exhaustion of oil reserves. Structural fiscal reforms are critical to increase fiscal space, enhance fiscal control, and improve the efficiency of public spending. Key objectives include a further reduction in the use of emergency spending procedures, improving fiscal accounting and reporting, and strengthening cash management and forecasting.

“Achieving the country’s medium-term growth and development objectives will require improving the business environment, including addressing bottlenecks in infrastructure, labor quality, and access to finance. In addition to ambitious public investment plans in infrastructure, promoting a more favorable environment for the private sector and the implementation of the authorities’ strategy to enhance financial inclusion—which appropriately focuses on rural areas—are critical to foster new sources of non-oil growth.

“Sustained implementation of the ECF-supported program should help catalyze additional financial resources from international donors and foreign direct investment flows to more effectively tackle development needs and foster economic growth, in addition to being a key step for reaching the HIPC Completion Point.”

Program Summary

The program’s macroeconomic framework is predicated upon high economic growth and low inflation. Real GDP is projected to grow at around 8 percent annually from 2014–17, primarily due to new oil-related projects coming fully on-stream by 2016. However, after peaking in 2017, oil production is expected to fall steadily in the absence of new oil discoveries. Inflation should remain around the Central African Economic and Monetary Community target of 3 percent a year.

The ECF arrangement will promote policies to:
(i) ensure fiscal sustainability
(ii) strengthen fiscal institutions and governance
(iii) promote sustained and inclusive growth over the medium term
(iv) facilitate the move to the Highly Indebted Poor Country Completion Point

Structural reforms will ramp up progressively over the course of the program given limited institutional capacity and an expected gradual increase in donors’ technical and financial support. The program will initially focus on the more pressing areas, while the following phases should concentrate on deepening structural reforms in support of inclusive non-oil growth. Social and other priority spending will be safeguarded. This commitment is incorporated as a performance criterion under the ECF arrangement and aims at achieving the objectives of the current National Development Plan.

Recent Economic Developments

Chad’s macroeconomic performance was relatively strong in 2013. GDP grew by 3.9 percent in 2013, despite a contraction in oil production. Non-oil GDP expanded by 5.9 percent, down from 11.6 percent in 2012. Inflation fell sharply in 2013, with the annual average rate at only 0.2 percent from 7.7 percent in 2012 due to a fall in food prices.

The fiscal situation improved markedly last year. The non-oil primary deficit (NOPD) fell by 2.5 percent of non-oil GDP in 2013, thanks to a significant increase in non-oil revenue and a contraction in domestically-financed investment spending. Higher tax collection increased non-oil revenue by close to 1 percent of non-oil GDP. However, the overall fiscal balance on a cash basis posted a sizable deficit (6.4 percent of non-oil GDP) as oil revenues fell significantly below budget levels.

The external current account deficit is estimated to have widened to 9.5 percent of

GDP due to a decline in oil exports. FDI inflows are estimated to have declined slightly in 2013 but still covered about 40 percent of the external current account deficit, with the remainder financed by public sector borrowing.

The banking system is relatively sound. Its total assets grew by 23 percent in 2013, to reach FCFA 850 billion, equivalent to 13 percent of GDP. The banking sector remains exposed to the public sector, and therefore, vulnerable to shocks associated with fluctuations in the oil revenues.