Mr. Michel Camdessus
Managing Director
International Monetary Fund
Washington, D.C. 20431
Dear Mr. Camdessus:
1. In support of Chad's structural adjustment program, the Executive Board
of
the International Monetary Fund approved on September 1, 1995 a three-year arrangement
under
the Enhanced Structural Adjustment Facility (ESAF). The results of its implementation have
been largely satisfactory, and the government met its main objectives. To consolidate these
favorable results and to respond to the major challenges that our country continues to face,
particularly the need to achieve a significant reduction in poverty and an improvement in the
standard of living of the population, the government has decided, in consultation with civil
society, to continue and strengthen the economic and financial reforms, as well as its
poverty-reduction policies, within the framework of a new structural adjustment program for
the
period from October 1999 to September 2002.
2. The orientations of the government's policy, and the objectives and
policies
of the program, are described in the "Preliminary Framework for National Poverty
Reduction Strategy," which was prepared in close collaboration with the staffs of the
Fund
and the World Bank, and which will be transmitted to you under separate
cover.
4. The government of Chad will communicate to the Fund the information
necessary to evaluate progress made by Chad in implementing its economic and financial
policies, as well as in meeting the objectives of the program. To ensure a wide dissemination
of
the program, the government authorizes the IMF to publish the memorandum of economic
and
financial policies on its Internet web site.
5. The government of Chad considers that the policies and measures
presented
in the attached memorandum will allow it to meet the objectives of its program. However, it
remains ready to take, in sufficient time, such measures as may prove necessary to safeguard
these objectives. During the period of the three-year arrangement, the government of Chad
will
consult with the Fund on the adoption of any measures that may be appropriate, at the
initiative
of the government or at the request of the Managing Director. Moreover, at the end of the
period
covered by the third annual arrangement, and for as long as Chad has financial obligations
toward the Fund resulting from loans obtained under this arrangement, the government will
hold
periodic consultations with the Fund on Chad's economic and financial policies, at the
initiative
of the government or whenever the Managing Director so requests.
6. In any event, the Fund will conduct a first review under the PRGF
arrangement, to be completed before end-June 2000. The second review under the
arrangement, which should be completed before end-December 2000, will coincide with the
finalization of the second annual program covering the period 2001-02.
Memorandum of Economic and Financial Policies
For
1999-2000
I. Introduction
1. In the context of a three-year program under the Enhanced Structural
Adjustment Facility (ESAF), which expired on April 30, 1999, Chad implemented a
wide-ranging program of structural reform and economic adjustment, based on stabilizing the
macroeconomic and financial framework. The program focused particularly on improving
public
finances, restructuring and privatizing most of the public enterprises, and further liberalizing
trade. This adjustment program was also supported by the World Bank, and by other bilateral
and
multilateral donors in the form of balance of payments financing, loans, contributions to the
financing of public investment projects, and external debt relief.
2. The government intends to pursue and strengthen these reforms under a
second three-year program under the Poverty Reduction and Growth Facility (PRGF). The
new
program will be underpinned by a comprehensive poverty reduction strategy, particularly in
the
context of the Heavily Indebted Poor Countries (HIPC) Initiative. This memorandum briefly
reviews the results achieved thus far, establishes the objectives of the new program, and sets
out
the policies and measures that the Chadian authorities intend to pursue in the first year of the
new
program.
II. Performance Under the Adjustment Program In
1995-99
3. Implementation of the last ESAF-supported program was broadly
satisfactory, despite several waiver requests caused by slippages largely beyond the control of
the
authorities. Real growth averaged 4.2 percent annually during 1995-98, owing in large
part to gains in competitiveness and higher agricultural and agro-industrial production.
Inflation,
which averaged 9 percent between 1995 and 1997, fell to 4.3 percent in 1998.
4. Fiscal performance improved considerably over the course of the
program,
even though the increase in government revenue remained smaller than had been envisaged,
particularly at the end of the period. Expenditure management was characterized by a prudent
wage policy, increased funding for priority sectors, and the containment of nonpriority
expenditure, in spite of a few slippages in 1997. Domestic payments arrears were reduced and
external arrears were cleared.
5. Chad's external position is heavily dependent on cotton sector
developments. Thus, buoyant cotton exports and improved terms of trade led to a narrowing
of
the current account deficit in 1998, but the fall both in cotton production and world market
prices
is expected to lead to a widening of the current account deficit in 1990.
6. Significant progress was made toward liberalizing the economy,
although
the structural reform program has yet to be implemented. In the telecommunications sector,
the
reform process is under way; in the meantime, however, a cellular telephone license has been
granted to a private operator. A tender has been launched for the privatization of the sugar
company (SONASUT), while negotiations for an overall management contract for the
electricity
company have made good progress. The situation in the cotton sector remains a source of
concern, but the authorities are working on a liberalization strategy that should be finalized in
December 1999.
III. Challenges and the Remaining Reform
Agenda
7. Overall, the 1995-99 economic program has helped to bring about a
marked
recovery in economic activity, tangible progress toward macroeconomic stability, and an
improved economic environment for private enterprise. This is a clear reflection of the
government's firm commitment to bring the adjustment and reform process to a successful
conclusion. The establishment of structures for coordination (the High Interministerial
Committee, the Technical Committee, and the Economic Unit) has facilitated program
preparation, implementation, and monitoring. Chad's membership of the Bank of Central
African
States (BEAC) and the Central African Economic and Monetary Community (CEMAC) has
contributed to its monetary policy discipline and encouraged the effective implementation of
the
regional trade and tax reforms.
8. However, the nation still faces widespread poverty, which impedes
human
development. Low income levels and a relatively thin private sector limit national savings
and
the investment necessary for growth. As a result, the economic and physical infrastructure is
woefully inadequate and in great need of expansion. The cost of public utilities (electricity,
water, and telecommunications) and petroleum products is prohibitive, and the rudimentary
state
of the transportation network, particularly in the rural areas, compounds the problems posed
by
Chad's landlocked position. Moreover, the economy is still very vulnerable to exogenous
shocks,
such as the 1998 energy crisis and the deteriorating terms of trade, which in part account for
the
slippages relative to program targets.
9. Under these conditions, Chad's future adjustment efforts must aim at
accomplishing the transition from crisis management and fiscal stabilization to the
implementation of economic and social policies for sustained development. Specifically,
Chad's
main challenge is to consolidate the gains made in macroeconomic stability and gradually
bring
the economy onto a path of sustainable, private sector-led growth, in order to reduce poverty.
Attaining this objective will require further fiscal consolidation, as well as improved
transparency and accountability in the management of public resources, a significant
reduction in
Chad's dependence on external assistance, and the consistent implementation of the entire
range
of required structural reforms.
10. The prospective exploitation of oil resources beginning in fiscal
year 2003/04 will help to consolidate the strengthening of financial viability, and
provide
Chad with a unique opportunity to accelerate its overall development and its poverty
reduction
efforts. The Chadian authorities are fully aware that this will not be easy, as experience in
many
other countries has shown. They therefore intend to decisively address governance issues
ahead
of the beginning of oil production, to ensure that this resource is managed in a transparent
fashion. Furthermore, they have already begun to implement a comprehensive strategy in
preparation for managing the "oil economy," covering the period 1999-2004, in
close
cooperation with development partners. Moreover, a law on the management of oil revenue
was
adopted and promulgated by parliament in January 1999, under which all oil revenues will be
included and accounted for in the state budget, and used to meet development objectives.
IV. Medium-Term Strategy
11. The main quantitative objectives for 1999-2002 will be: to
(i) sustain a real GDP growth rate of at least 4 percent in 2000-02;
(ii) keep
annual inflation at about 3 percent; (iii) to achieve a current primary surplus of
1.5 percent of GDP by 2002, and (iv) reduce the non-oil external current
account
deficit (excluding grants) from 18 percent of GDP in 1999 to 17 percent in
2002.
In order to achieve the medium-term growth objective, Chad will need to boost investment
and
increase the domestic resources available for this purpose, both by strengthening government
savings and implementing policies aimed at bolstering the formal financial sector and
microfinance institutions, so as to contribute to higher private savings. However,
Chad
will continue to need financial support from its external partners to supplement its relatively
low
domestic savings during the transition to the oil economy.
12. The primary focus of fiscal consolidation will be on increasing non-oil
revenue to levels consistent with an efficient delivery of necessary public services. The
priorities
are to raise efficiency in the tax and customs administrations in order to reduce fraud and
evasion, and to continue broadening the tax base. On the expenditure side, the authorities will
strengthen budget programming and expenditure management, and will enhance the
effectiveness
of public spending, particularly in the priority sectors.
13. The structural reform effort during the three-year program will pursue
the
following main objectives: (i) private sector development; (ii) the strengthening
of
economic and administrative management; and (iii) poverty reduction. Policies for
private
sector development will center on completing the public enterprise reform and privatization
program; reforming the financial sector; and improving the transportation network. Economic
and administrative management will be strengthened through a comprehensive capacity- and
institution-building program; the decentralization of the public administration; and a
fundamental
reform of the civil service. Finally, in the area of poverty reduction, the Chadian authorities
will
integrate the strategy presented to donors at the April 1998 roundtable and in sectoral
meetings
on health, rural development, education, and transportation into a comprehensive and fully
costed poverty reduction strategy that will guide government action and help to coordinate
donor
assistance. The authorities intend to formulate this poverty reduction strategy over the course
of
the next 12 months, in close consultation with civil society and their external partners.
V. The Program for 1999-2000
14. Real GDP growth is projected to pick up to about 4 percent in 2000,
after a
contraction of about 1½ percent in 1999, reflecting substantial gains in cotton
and
food crop production after favorable rains, the expansion of cotton and sugarcane processing
activities, and oil-related construction. Gross investment should increase from
17.0 percent of GDP in 1999 to 22.7 percent of GDP in 2000, with an increased
share of private investment related to the oil pipeline construction project. Gross domestic
savings are expected to rise to 0.5 percent of GDP in 2000, following a dissaving on
the
order of 1.2 percent of GDP in 1999. Inflation is projected to stabilize at about
3 percent on annual average during 1999-2000. The external current account deficit
(excluding grants) is projected to widen from 20.5 percent in 1999 to
24.4 percent in 2000, mainly on account of the considerable increase in imports
related to
investment in the oil sector.
A. Public Finances
15. The budget for the year 2000 targets a current primary surplus of
1.5 percent of GDP. Overall revenues are projected to remain at about
9.6 percent
of GDP in 2000. Current primary expenditure will be limited to 8.3 percent of GDP;
however, within this ceiling, the authorities intend to increase operating expenditure in the
priority sectors by 20 percent and to absorb an increase in the wage bill of CFAF 4
billion,
reflecting the financial effects of automatic advances in the civil service, which were frozen
in
1994. Moreover, in keeping with the provisions of the 1996 constitution, the 2000 budget
provides allocations for the initial cost of administrative decentralization and the introduction
of
constitutional bodies. Total investment spending is budgeted at 11.6 percent. The
overall
fiscal deficit (on a commitment basis and excluding grants) is projected at 12 percent
of
GDP.
16. For 2000, the only change in the area of taxation is the introduction on
January 1, 2000 of the value-added tax (VAT) at the single rate of 18 percent, replacing the
turnover tax (TCA). Preparations for the implementation of the VAT are well advanced,
including the public information campaign. A study will be conducted by December 1999 to
determine the exact number of enterprises subject to the VAT, including those currently
paying
the single general tax (Impôt général
libératoire--IGL).
17. The tax directorate (DIT) will also improve the management of the
register
of taxpayers to ensure effective tax collections. The collection of taxes and other revenues
paid
on the basis of taxpayer declarations will gradually be transferred from the Treasury to the
DIT
between December 1999 and January 2001, beginning with amounts owed following audits.
A
working group will be established by end-1999 to facilitate this transfer of authority. The DIT
will also, by December 1999, institute a procedure for coordinating tax audits. The
government
intends to increase the resources allocated to the DIT to enable it to conduct spot checks on
VAT
compliance, to verify that public enterprises actually pay this tax, and, by June 2000, to
establish
procedures for inventory audits to combat the proliferation of clandestine imports. In 2000,
the
authorities will begin the process of streamlining the land registry office, starting with
N'Djamena.
18. The budget also foresees an increase in customs revenues, based on the
introduction of the computerized customs system (SYDONIA) in early 2000, and
implementation of the action plan to reduce exemptions, fraud, and smuggling, as well as to
reinforce internal audit procedures. In this context, the authorities have also taken steps to
improve the functioning of the system for monitoring exemptions of imports under
government
contracts financed by external donors.
19. The Chadian authorities will eliminate the remaining temporary
surcharges
on imports by July 1, 2000 and, by December 2000, abolish all exemptions that are
incompatible
with the CEMAC tax and customs reform. The Chadian authorities also intend to work with
their
regional partners to gradually reduce the maximum rate for the common external tariff.
Finally,
in keeping with the planned gradual phasing out of the protection of domestic sugar
production,
the reference price for sugar for 2000 will be reduced from CFAF 350 per kilogram
to CFAF 340 per kilogram.
20. On the expenditure side, the government intends to reinforce the
system of
internal and external auditing of public expenditure by strengthening institutional agencies,
such
as the Accounting Chamber of the Supreme Court, as well as by using external auditors. To
rationalize the expenditure management system, the accounting and budget nomenclatures
will
be harmonized, accounting procedures simplified, the system of economic and functional
classification of expenditure updated and extended to capital spending, and treasury
operations
computerized. Treasury cash-flow management will be based on a system of monthly
forecasting
and analysis of revenues and expenditures, drawing on the monthly cash-flow management
plan
that the government intends to implement with the start of the new fiscal year.
21. To enhance the effectiveness of government spending, a public
expenditure
review will be launched with World Bank assistance in March 2000, paving the way for
annual
reviews. Moreover, the government will start the transition from the public investment
program
(PIP) to the sectoral programming of expenditure, beginning with a few pilot departments.
Beginning in the second quarter of 2000, the government will introduce a monitoring system
for
reconciling commitments and actual expenditure in the education sector on a quarterly basis,
and
will gradually extend this system to other priority sectors.
22. Management of the wage bill will remain critical to controlling overall
expenditure. The government intends therefore to maintain its policy of limiting recruitment
to
the priority sectors and in 2000 will launch the process of civil service reform. In the
meantime,
the files of the payroll office will be harmonized with those of the Ministry of Civil
Service--the
computerized payroll management system has been upgraded to ensure Year 2000
(Y2K)
compliance.
23. Finally, the Chadian authorities intend to clear the remaining domestic
payments arrears over the program period. The stock of verified domestic arrears will be
updated
by end-September 2000, and a program for settling the arrears will be established.
Some
combination of the following three options will be negotiated with eligible creditors:
(i) cash payments against discounts on the nominal value of the claim;
(ii) rescheduling the debt over a period of about ten years; or (iii) exchange for
a
new government debt instrument. The program will be financed with resources to be obtained
from Chad's external partners, the proceeds of privatization operations, and future budgetary
resources.
B. Money and Credit Policy
24. The monetary policy conducted at the regional level by the BEAC
continues to aim at strengthening the external reserves of the monetary union and containing
inflation by means of a prudent credit policy. In 2000, an increase in broad money of about
1.3 percent is projected, and one of about 5 percent for domestic credit; net
external assets of the banking system are expected to decline by about 5.3 percent. The
quarterly ceilings on net bank credit to the government are set out in the annexed Table 1, and will be adjusted in the event of shortfalls in external
financing relative to projections.
25. In the financial sector, the authorities have divested their controlling
stake
in the commercial banks. They will continue to work with the regional banking commission
(COBAC) to ensure that Chadian banks are in compliance with the prudential norms and will
support the adaptation of these norms to international standards. More specifically, the
authorities will ensure that the domestic banking system is strengthened, in particular by
raising
minimum equity capital to CFAF 1 billion--the level already reached by local
banks. To encourage small- and medium-scale savings and investment, the government of
Chad
will begin a study of microfinance institutions, with a view to defining a strategy to promote
them. The government will encourage commercial banks to reduce their dependence on crop
credits.
C. Structural Policies
Private sector development
Public enterprises
26. The government will resolutely pursue its public enterprise
privatization
policy. The management of the electricity and water company (STEE) will be privatized in
January 2000. Following the adoption of the Law on Electricity and the water code, the
government will continue to strengthen the regulatory and institutional framework. The
implementing legislation and the water and electricity regulatory bodies will therefore be in
place
before September 2000. In addition, a feasibility study will be carried out on water
tariffs.
The regulatory bodies will adjust tariffs annually. The same type of regulatory provisions will
be
implemented in 2000 in the telecommunications sector, following the granting of a license to
a
private operator to exploit a cellular telephone network and the improved capability for
satellite
connection to the international network. The process of privatizing the telecommunications
company (SOTELTCHAD) will begin in May 2000 with the hiring of consultants to
launch the tender for bids. Regarding the postal service, the government has decided to keep
it in
the government portfolio. The government has chosen an offer for the sugar company
SONASUT and will open negotiations with the buyer by March 2000. The sale process
should
be completed within 12 months. The government will complete the privatization of
the
national road maintenance company (Société Nationale d'Entretien Routier,
or
SNER) by end-June 2000. Finally, cotton sector liberalization will begin before the
end of
the year. The study on separating COTONTCHAD's oil and soap activities from ginning will
be
completed by June 2000.
Pricing policies
27. Regarding pricing policies, by March 2000, the government will
examine
the possibility of adopting a new mechanism for automatically adjusting petroleum product
prices. The mechanism would pass changes in world market prices through to retail prices,
with a
view to fully liberalizing the latter over the medium term.
Road maintenance
28. In the context of its policy for ensuring the financing of routine road
maintenance, a portion of the oil taxes collected are deposited directly in the Autonomous
Road
Maintenance Account (CAER), supplemented by a budgetary allocation of
CFAF 1.7 billion and other amounts included in the pricing structure for these
products. All financial transactions of the CAER will be duly registered in the table of
government financial operations (TOFE). To ensure the CAER's total financial independence
vis-à-vis the government budget, a user fee will be introduced beginning in 2001 in
the
pricing structure for petroleum products, following a full audit of the CAER's accounts; the
effect
on pump prices will be reviewed and the structure of petroleum product prices revised, if
necessary.
Judicial reform
29. In the area of judicial reform, the government intends to ensure
application
of the Uniform Acts of the Organization for the Harmonization of Business Law in Africa
(OHADA) in Chad. The Judicial Reform Committee, which combines the public and private
sectors, will be made operational in order to review existing commercial legislation and
propose
improvements, including the establishment of an arbitration tribunal. By June 2000, the
authorities will develop an action plan for gradually increasing the number of qualified
magistrates and auxiliary legal staff, and will increase budgetary allocations to the justice
system
over the program period.
Strengthening the regulatory framework
30. The authorities intend to intensify their efforts to improve conditions
for
private economic activity. They will adopt and implement a national investment charter in
line
with the provisions of the CEMAC regional charter and will seek to further improve the
payments system and other trade services, such as insurance and transit services with their
regional partners.
Economic and administrative management
Capacity and institution building
31. The government of Chad intends to embark on a comprehensive
program
of capacity and institution building, in order to improve transparency and governance, and to
strengthen the public administration. Beyond the specific measures outlined above in the area
of
tax administration and expenditure management, the authorities intend to further strengthen
the
system of economic policy coordination committees (particularly the High Interministerial
Committee and the Technical Committee). The research and forecasting directorate will be
strengthened in 2000 so that it can prepare an annual macroeconomic framework, which will
be
updated on a quarterly basis, as an input to budgetary programming and execution.
Administrative decentralization
32. The 2000 budget provides for the initial costs of administrative
decentralization and establishment of the bodies envisaged in the 1996 constitution. This
decentralization is a central element of the government's policy for improving the delivery of
public services to the population. To ensure that the establishment of decentralized
institutions
meets this objective, the government will complete by September 2000 a detailed analysis of
the
financial impact of the new system, based on a clear definition of the functional and
expenditure
responsibilities and the taxation authority of each administrative level, and will define and
implement budgetary rules and procedures for the local administrations, including sanctions
for
noncompliance. In parallel with this transfer of functions, the authorities will also establish
by
September 2000 a program for the gradual transfer of human, technical, and financial
resources
from the central government to the local administrations.
Civil service reform
33. Civil service reform is an essential element of controlling the growth of
the
wage bill, and of improving the public administration. Therefore, the authorities have set a
firm
timetable for implementing the recommendations of the technical commission for civil
service
reform, which were adopted by the government at end-1998. To that end, the government
will,
by June 2000, conduct a review of the existing statutes and of present practices in relation to,
inter alia, indemnities, other allocations, and mission expenses. To facilitate the transition to
a
merit-based remuneration and advancement system, a minimum set of objective performance
criteria will be established by the same date, and training in their application will be provided
to
supervisors. A study of possible ways of revising the wage scale system will be completed by
September 2000, and a timetable for the transition to the new remuneration and advancement
system will be adopted by the government by end-2000.
34. Similarly, by end-2000, the government will prepare an analysis of
actual
civil service requirements in terms of skills and competencies, including at the local
administrative level, and will design a program for reducing the size of the civil service
through
voluntary departures. The government is fully aware of the need for closely involving trade
unions and other concerned parties, including the parliament, in this process to facilitate
execution of the reforms envisaged; therefore, the government will consult closely with these
partners at every stage of the process.
Poverty reduction
The poverty reduction strategy
35. The government will launch a process of consultation with civil society
and its external partners to develop a comprehensive poverty reduction strategy by October
2000.
This process will take the form of a series of seminars and conferences to deliberate on the
various elements of the strategy, which will incorporate the government's various sectoral
policies, and will provide a precise cost analysis of all proposed measures and provisions.
The
consultation process will culminate in a seminar scheduled for
September-October 2000,
at which the strategy will be endorsed. This strategy will use available statistical indicators,
which will be updated regularly. It will also serve as the basis for designing the government's
economic and social policies during the remainder of the program, and will prepare the way
for
the transition to the oil era.
36. The scheduled household budget/consumption survey will be adapted
to
provide measurable and differentiated poverty indicators, and an effort will be made to
coordinate the collection and dissemination of statistics by all services and donors working in
the
various sectors.
Health
37. Policy in the area of health will continue to be guided by the approach
presented at the sectoral meeting on health in March 1999. This policy is based on four main
objectives: (i) developing high-quality basic health services accessible to the entire
population; (ii) increasing the number of trained health care personnel, particularly in
health centers; (iii) improving the management of the health care system; and
(iv) stepping up efforts to eradicate endemic and epidemic diseases. Specific
quantitative
targets will be set in each of these areas by March 2000, and progress will be monitored using
the
appropriate statistical indicators.
38. In order to provide optimal health coverage, the adopted approach
seeks as
a priority to consolidate the implementation of the minimum package of activities (PMA) and
the
supplementary package of activities (PCA), the administration of which will be concentrated
at
the district level. In order to improve the quality and accessibility of health services, health
coverage will gradually be extended to all districts by making sure that all health centers are
operational. A three-year program aimed at staffing each health center with at least one
qualified
nurse will be launched in 2000.
Education
39. By end-2000, the government will adopt an Orientation Law on
Education. The key objectives and major directions of government policy in this sector will
be
presented to donors at a sectoral meeting on education, to be held in January 2000.
Government policy will focus on immediately raising primary school enrollment rates, and
improving instruction and conditions for teaching and learning. To that end, by
end-March 2000, specific targets will be established in these areas for the program
period.
40. Operating expenditure in the education sector has been increased by
20 percent in real terms in the 2000 budget. To increase spending effectiveness, a
monitoring system allowing commitments to be matched with actual expenditure on a
quarterly
basis will be implemented in the sector, beginning in the second quarter of 2000.
41. The government will institute new standards for teacher training in
2000
and will develop a training system for their implementation. A program for gradually
transferring
the management of schools and teaching staff to the local level will be formulated in 2000.
42. Beginning in 2000, the statistical information system will be
strengthened,
with support from external partners, in order to extend the system for monitoring and
evaluating
the quality of education. The authorities will define a series of preliminary indicators, which
will
provide a basis for the specific targets for improving the principal education indicators in the
medium term.
Social reintegration of demobilized soldiers
43. Having successfully completed its demobilization program, the
government now faces the task of reintegrating the demobilized soldiers into civil society. A
pilot project, prepared with World Bank support, was launched in five prefectures in January
1999 after considerable delays and administrative difficulties. In light of the results thus far,
the
government is thinking of moving to the regular phase of the program, which would entail
reintegrating demobilized soldiers across the entire territory through a series of small-scale
projects. Financing for this reformulation and for the overall program will be sought from
donors
to ensure the program's continuation into 2000 and beyond.
Rural development
Agriculture
44. One of the most important elements of the government's agricultural
policy
in 2000 is reform of the cotton sector. In December 1999, the government will adopt a
comprehensive strategy for liberalizing the sector after a process of intensive consultation
with
stakeholders. This strategy sets out the timing of key steps in the liberalization process, which
includes three aspects of reform. The institutional aspect aims at liberalizing the sector and
making it more competitive. The key element of this aspect of the reform is government
divestiture of COTONTCHAD. The second aspect--provision of training and support to
producers--seeks to involve producers in managing the sector. The third aspect deals with
professionalizing producer organizations, thereby enabling them to gradually take
responsibility
for their activities.
45. The second major axis of the government's rural development policy is
enhancing food security. The government will continue to improve producer support services,
particularly by promoting research and extension services. The corresponding budgetary
allocations will be increased in 2000. Over the course of the year 2000, the Ministry of
Agriculture will define a strategy for strengthening producer associations, and enabling them
to
secure the necessary financing for purchasing inputs and agricultural equipment, and for
providing transport for the harvests. Also, producers will receive training in improving their
agricultural techniques, and in establishing reliable distribution and marketing channels. The
authorities also intend to promote and support the development of small-scale rural finance
institutions.
Transportation
46. A key factor in the transportation policy is the extension of the national
network of permanent roads in rural areas; in this connection, a ten-year investment program
was
formulated and presented to donors at the transport sector meeting in November 1999.
Transport
services and road maintenance work were liberalized during the previous program, and a
mechanism for financing the maintenance work through CAER has been established.
47. In 2000, the government intends to continue privatizing road
maintenance
and increasing user participation in the administration of road maintenance funds. Emphasis
will
be placed on extending and maintaining the road network in rural areas to improve the
movement
of food and cash crops (especially cotton), and to reduce transport costs. To this end,
financial
and technical assistance for local projects to maintain roads and expand transportation in
rural
areas will be increased.
48. Also, in 2001, the government will launch a study on the granting of
concessions for the five major airport facilities as an integral part of the government's policy
to
open up the country.
Environment
49. In March 2000, the government will launch the preparation of a
National Environmental Action Plan (PNAE), which will be adopted by end-2002, as well as
an
Information, Education, and Communication (IEC) campaign. Other supplementary actions
are
envisaged in the short term, particularly the incorporation of environmental aspects into the
planning and programming processes used by the Ministries of Finance and Planning,
beginning
with the formulation of the 2001 budget, and the carrying out of a feasibility study of the
most
urgent cross-border environmental activities (Lake Chad).
D. Strengthening the Statistical System
50. Following a study of the statistics system, a law to regulate Chad's
statistical activities was adopted in June 1999. It defines the institutional framework,
the
major statistical principles, and the relations between the bodies responsible for producing
official statistics, as well as the relations with other organizations that produce statistics
outside
the national statistics system. The law also spells out the circumstances in which a response
to
statistical surveys is obligatory, defines the confidentiality of statistics, and sets out the
resources
for operating the national statistics system. The establishment of a High Statistical Council
and a
Statistical Programs Committee is envisaged to implement the law, and a decree defining the
legal status of the central statistics agency has been adopted, thereby enabling it to play its
role in
full.
51. A national six-year statistics program will be designed by February
2000,
and the first year of this program will be included in the 2001 budget. In addition, a study of
the
periodicity and the data currently produced by all the services and agencies outside the
national
statistics system will be carried out by end-March 2000, with a view to better
identifying
statistical requirements for improving and monitoring the effects of poverty reduction
policies.
E. The Balance of Payments and External
Financing
52. A deterioration of the external current account deficit (excluding
official
transfers) from 20.5 percent of GDP in 1999 to 24.4 percent is projected in
2000,
mainly because cotton exports, despite the strong decline in world cotton prices, will
increase.
Export values will increase by 8.7 percent in 2000, while the value of imports
(excluding
the pipeline project) will increase by 9 percent in 2000. In view of the sizable capital
inflows linked to investment projects, a capital account surplus of
CFAF 190 billion is projected. Chad's contribution to the CEMAC's external
reserves will be slightly negative in 2000.
53. The authorities have almost completed the internal reconciliation of the
external debt data. These data will be used by IMF staff to prepare an analysis of Chad's
external
debt sustainability, which will make it possible to determine Chad's eligibility for debt relief
under the HIPC Initiative.
54. The 1999 financing requirement is wholly covered by financial
assistance
from the World Bank, the European Union, France, and the International Monetary Fund. The
2000 financing requirement is estimated at CFAF 26.8 billion. External assistance
already
identified, principally from the World Bank, the European Union, the African Development
Bank, and France, should suffice to cover this deficit. To consolidate the tax situation and to
secure social expenditure, the authorities intend to seek a rescheduling of the eligible debt
service
from Paris Club creditors in 2000.
F. Program Monitoring
55. During the period December 1999-October 2000, the program
will
be monitored by means of quantitative performance criteria and quarterly benchmarks, as
well as
structural benchmarks. End-December 1999 and end-June 2000 quantitative
benchmarks
are the indicators for monitoring program progress, while those for end-March and
end-September 2000 constitute performance criteria. The quantitative benchmarks and
performance criteria shown in the attached Table 1 include
(i) a ceiling for net claims of the banking system on central government; (ii) a
floor
for the current primary balance; and (iii) a floor for the net reduction of domestic
payments arrears of the central government; (iv) the nonaccumulation of central
government external payments arrears; (v) a ceiling for new nonconcessional external
borrowing with maturities of more than one year, contracted or guaranteed by central
government; and (vi) a ceiling on the change in short-term external borrowing
maturing in
under one year, excluding normal trade financing. Benchmarks (iii) to (vi) must be respected
continuously throughout the program. Indicative benchmarks for program progress are the
following: (i) total budgetary revenue; (ii) total current spending, excluding
interest; and (iii) total wage bill of central government. Noncompliance with these
indicators will give rise to discussions with IMF staff to determine the appropriate corrective
measures. In addition, throughout the program period, the government will not impose or
intensify restrictions on payments and transfers for current international transactions, will not
introduce or modify multiple currency practices, will not conclude bilateral payments
agreements
which are inconsistent with Article VIII, and will not impose or intensify import
restrictions for balance of payments reasons.
56. Monitoring of the program will include the following structural criteria,
shown in the attached Table 2: (i) the adoption, by the
Council of Ministers, of a comprehensive strategy for liberalizing the cotton sector over the
medium term, before mid-December 1999; (ii) the operational implementation
of
the Judicial Reform Commission before mid-December 1999; (iii) the establishment
of a
separate structure to absorb the non-performing claims of the STEE (structure de
cantonnement) before mid-December 1999; (iv) the appointment of a general
controller and agreement on the rehabilitation plan for COTONTCHAD before
end-March 2000; (v) the completion of the study on the separation of
COTONTCHAD's oil and soap production activities and the launching of the tender for bids
for
its privatization before end-June 2000; (vi) the harmonization of the files of the civil
service ministry and of the payroll before end-June 2000; (vii) the finalization
of
the proposals to reform the civil service regulations before end-June 2000;
(viii) an
evaluation of the financial impact of the introduction of the decentralized administrative
structure
before end-September 2000; (ix) the establishment of a monthly cash-flow plan
before end-March 2000; (x) the completion of a study of the periodicity of data
currently produced by the statistics system before end-March 2000; (xi) in the
area
of health, the establishment of an action plan for the transfer of the management of primary
health care services to prefectoral hospitals and health districts by
end-December 2000;
(xii) in the area of education, the establishment of an action plan to institute a
mechanism
for monitoring actual expenditure by end-June 2000; (xiii) in the area of rural
development, the adaptation and start-up of training programs by end-June 2000; and
(xiv) the examination of an automatic adjustment mechanism for the retail prices of
petroleum products by end-March 2000. Benchmarks (i) to (iii) are prior actions for
consideration of the program by the Executive Board of the IMF. Benchmarks (iv),
(ix) and (x) are the program performance criteria.
57. The government of Chad will conduct the first program review under
the
first year of the PRGF arrangement with the staff of the IMF before end-June 2000.
This
review will examine economic and financial developments during
October 1999-March
2000, as well as the revised prospects for the rest of the year. Completion of the review, as
well
as compliance with the end-March 2000 performance criteria, will condition the
disbursement of
the second loan under the first arrangement. A second review will be conducted with IMF
staff
before end-December 2000. This review will cover economic and financial developments
during
2000; it will take place jointly with the negotiations on the program for the second year of the
arrangement, covering the period October 2000-September 2001.
Table 1. Chad: Preliminary
Quantitative
Performance Criteria and Benchmarks During the First Year Under the Poverty Reduction
and
Growth Facility
October 1, 1999-September 30, 2000
(In billions of CFA francs, for 2000 cumulative from January 1, 2000,
unless
otherwise indicated)
|
|
|
Dec. 31,
1999
|
Mar. 31,
20001
|
Jun. 30,
20002
|
Sep. 30,
20001,2
|
Dec. 30,
20002
|
|
Quantitative performance crietia and
benchmarks
Ceiling on net banking system claims on the central
government (excluding IMF
resources)3
|
-7.16
|
6.36
|
12.76
|
13.21
|
3.30
|
| Floor on current primary
budget
balance 4
|
8.2
|
-3.58
|
-0.96
|
-0.1
|
7.24
|
Floor on net reduction of
domestic payments arrears
of the central
government5
|
0.54
|
-2.00
|
-5.50
|
-5.50
|
-9.00
|
Nonaccumulation of external payments arrears of the
central
government
(cumulative since Sep. 99)6,7
|
Zero
|
Zero
|
Zero
|
Zero
|
Zero
|
Ceiling on new
nonconcessional
foreign borrowing
of more than 1 year
contracted or guaranteed by
the central
government (cumulative)6,8
|
Zero
|
Zero
|
Zero
|
Zero
|
Zero
|
Ceiling on net change in
short-term external
borrowing with a
maturity of
less than 1 year,
except normal trade
financing
(cumulative)6
|
Zero
|
Zero
|
Zero
|
Zero
|
Zero
|
|
|
|
|
|
|
| Indicative benchmarks and monitors of
program9
|
|
|
|
|
|
| Total revenue (excluding
grants)10
|
87.2
|
16.6
|
42.8
|
64.2
|
95.8
|
| Total current noninterest
spending
|
79.0
|
20.2
|
43.8
|
64.3
|
88.5
|
| Of
which: on education
|
3.2
|
0.8
|
2.0
|
3.0
|
4.4
|
|
on health
|
3.1
|
0.7
|
1.8
|
2.7
|
4.0
|
Total wage spending by the
central government
(including
military)
|
44.6
|
12.7
|
25.4
|
38.0
|
50.6
|
|
|
| Adjustors
|
| Balance of payments
assistance
|
27.2
|
3.1
|
5.1
|
8.0
|
23.8
|
| Of
which: Adjustment lending (excl. IMF)
|
25.5
|
0.0
|
0.0
|
0.0
|
13.8
|
|
Adjustment
grants
|
1.7
|
3.1
|
5.1
|
8.0
|
10.0
|
| Debt
relief
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
Sources: Chadian authorities; Bank of
Central African States (BEAC); and staff estimates and projections.
1These targets will constitute performance criteria of the program.
2 Indicative targets; definitive targets, as well as performance criteria for
end-September 2000, will be set at the time of the midterm review.
3The targets will be adjusted (i) upward for a shortfall in balance of payments
assistance (as identified in the adjustors and excluding projected lending and grants) up to an
amount equivalent to 75 percent of the shortfall; (ii) downward to the full extent of any
excess of balance of payments assistance over projected amounts; and (iii) downward to take
account of a lower repayment of domestic arrears than foreseen under the program for the
corresponding period.
4Defined as total revenue less grants, minus current primary spending (current
spending, less demobilization and reinsertion outlays, electoral and other one-off outlays, and
interest).
5The target for the reduction of domestic payments arrears will be adjusted
downward to the full extent of any difference between projected and actual receipts from
privatization.
6Monitored on a continuous basis.
7Excluding external payments arrears incurred pending debt rescheduling.
8In millions of U.S. dollars. Nonconcessional loans defined as loans with a
grant
element of less than 35 percent, using discount rates based on the commercial interest
reference rates (CIRRs). Exceptions will be made for a nonconcessional IBRD loan in an
amount
of US$35 million contracted by the government of Chad in the context of the
Chad-Cameroon Pipeline Project.
9These indicators will not constitute performance criteria of the program.
10Net of reimbursements under the system of treasury checks.
|
Table 2.
Chad:
Possible Structural Performance Criteria and Benchmarks For the First Year Under the
Poverty
Reduction and Growth Facility
October 1, 1999-September 30, 2000
|
| Measures
|
Target Date
|
|
| Prior actions
|
|
| Adopt in the Council of Ministers an overall strategy
for
the liberalization over the medium term of the cotton sector and launch a public information
campaign on the objectives and steps of the reform, including the confirmed disengagement
of
the government, according to a fixed timetable
|
Prior action
|
|
|
Make operational the Judicial Reform
Commission, comprising the private sector,
civil society and the public sector, so that it
can
review existing commercial
legislation and propose measures for rationalizing and
modernizing it
|
Prior action
|
|
|
| Put in place a debt reorganization structure of
"cantonnement" for the water and electricity company (STEE)
|
Prior action
|
|
|
| Public enterprises
|
|
| Nominate a general controller for cotton company
(COTONTCHAD) and adopt the restructuring plan
|
By March 31, 2000*
|
|
|
Complete the study of the separation of
COTONTCHAD's oil and soap
manufacturing activities of and launch tender for bids
for
privatization
|
By June 30, 2000
|
|
|
| Civil service reform and administrative
decentralization
|
|
| Harmonize the files of the civil service ministry
and
the payroll files
|
By June 30, 2000
|
|
|
| Finalize proposals for reforming the statutes and
application texts of the civil service, and submit these to the government
|
By June 30, 2000
|
|
|
| Evaluate the financial implications of the
implementation of the decentralized administrative structure
|
By September 30, 2000
|
|
|
| Treasury and expenditure
management
|
|
Implement a monthly cashflow plan at the treasury
based on a system of analysis
and projection of the cash flow
|
By March 31, 2000*
|
|
|
| Poverty reduction
|
|
| Complete study of periodicity of data and of the
statistics actually produced by the statistical apparatus
|
By March 31, 2000*
|
|
|
Health: establish an action plan for transferring the
responsibility for basic health
care services and for maintaining health centers to the
prefectural hospitals and the health districts
|
By December 31, 2000
|
|
|
Education: establish an action plan to create and
implement a monitoring mechanism
to compare commitments and actual spending in the
education sector
|
By June 30, 2000
|
|
|
| Rural development: Adapt and launch training
programs in agricultural, herding, and fishing techniques
|
By June 30, 2000
|
|
|
| Other
|
|
| Examine the possibility of adopting an automatic
adjustment mechanism for the adjustment of retail petroleum prices
|
By March 31, 2000
|
*Signifies a structural performance
criterion under the program for end-March 2000. |
