IMF Staff Completes Mission to Chad

IMF News, April 2, 2019

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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.
The ECF-supported program was approved by the IMF Board on June 30, 2017 (Press Release No. 17/257).
End-of-Mission press releases convey preliminary findings of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The Extended Credit Facility (ECF) carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.

Non-oil economic activity:
- After three consecutive years of contraction, non-oil economic activity stabilized in 2018.
- Growth in the non-oil sector was estimated at only 0.5 percent in 2018.
Inflation:
- Average inflation picked up to 4 percent in 2018.
- The inflation rise was pulled largely by a 90 percent increase in the administered price of fresh water in May 2018.
Oil sector:
- Oil production rebounded strongly in 2018.
- Oil revenue increased significantly in 2018, reflecting higher oil production and prices.

Performance under the ECF:
- Performance in implementing the government’s program supported by the IMF under the ECF was satisfactory.
- All quantitative performance criteria for end-December 2018 under Chad’s economic and financial program were observed.
- Indicative targets on social spending and the regularization of emergency spending procedures (DAO) were not observed.
2018 fiscal developments:
- Spending discipline was evident, with the wage bill contained within the budget envelope.
- Other domestically financed expenditures were in line with the program, while 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.
2019 fiscal stance and actions:
- 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.
- The mission agreed with the authorities that, in case overall oil revenues fall short of expectation, a revised budget would be necessary.

Domestic arrears:
- The domestic debt overhang continues to hold back the recovery in the non-oil sector.
- The audit of domestic arrears experienced long delays.
- Acceleration of domestic arrears clearance is highlighted as necessary to support recovery.
Banking sector:
- Recovery hinges on addressing vulnerabilities in the banking sector.
- The mission emphasized the importance of loosening the inter-dependence between the banking sector and the government.
Public banks and exemptions:
- Work on the removal of exemptions was partially done.
- Consultants’ work on the review and reorganization of the two large public banks is expected to be finalized soon.
Structural reform implementation:
- Implementation of agreed structural reforms is underway but some reforms have experienced delays.

Growth outlook:
- 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.
Offsetting factors and financing:
- 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.
Conditions for recovery:
- Recovery in the non-oil sector hinges on significant progress in the clearance of domestic arrears, addressing banking-sector vulnerabilities, and strong governance reforms.

Primary policy priorities:
- Build fiscal resilience by raising non-oil revenues and reducing arrears, while raising social spending.
- Foster sustainable and inclusive growth.
- Strengthen the ability of the banking sector to effectively contribute to private sector growth.
Revenue and oil management:
- Reforms should aim to increase non-oil revenue while more actively and transparently planning and managing oil revenues.
- Efforts to improve non-oil revenue mobilization should be enhanced to make up for the shortfall in 2018.
Expenditure and governance:
- Continued fiscal prudence is necessary to maintain stabilization gains.
- Policies should continue to focus on improving expenditure management and the quality of spending, particularly for social sectors and infrastructure, to help achieve the sustainable development goals.
- Improving governance across all sectors is a critical element of the reform efforts.

IMF Press Release No. 19/101 — “IMF Staff Completes Mission to Chad,” April 2, 2019.