IMF Executive Board Concludes 2013 Article IV Consultation with Chad

NDJAMENA, Chad, March 27, 2014/African Press Organization (APO)/ — On February 21, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Chad.

Macroeconomic performance continued to be stable in 2013, with some deceleration in economic growth and inflation. Real GDP is projected to have grown by 3.6 percent in 2013, down from 8.9 percent in 2012. The slowdown reflects a reduction in oil GDP of 3.9 percent in 2013 due to a sharper than expected decline in the mature field’s oil production and delays in new oil production. Non-oil GDP is forecast to have grown by 5 percent in 2013 compared to 11.6 percent in 2012, mainly reflecting a return to trend agricultural production levels after the bumper harvest that took place in 2012. Inflation fell sharply in 2013 due to a sizable fall in food prices following the strong harvest in 2012. Consequently, annual average inflation rate is projected at around 0.4 percent, compared to 7.7 percent in 2012.

The external current account deficit averaged 8 percent of GDP between 2009 and 2012 and is projected to have deteriorated further to 8.8 percent of GDP in 2013 on account of the drop in oil exports. The overall balance of payments would record a deficit in 2013, the first time since 2009, bringing the international reserve coverage ratio to about 1.7 months of imports of goods and services (compared to 2.4 months in 2012).

Fiscal policy has been gradually tightened over the last few years, anchored on reductions in the non-oil primary deficit (NOPD). NOPD fell by 1 percent of non-oil GDP over 2011-12 and the 2013 budget was anchored on a further 1 percent of non-oil GDP reduction in the NOPD to 18.2 percent of non-oil GDP. However, the 2013 budget execution was affected by an unexpected fall in oil revenue and spending pressures from regional security operations, resulting in an overall fiscal deficit of about 6 percent of non-oil GDP (compared to a surplus of 1.7 percent of non-oil GDP in 2012). This deficit was partly financed by non-concessional borrowing against future oil receipts.

The medium-term economic outlook is driven by developments in oil production and associated fiscal revenue. Real GDP is projected to grow at around 9 percent per year over 2014–15 as new oil-related projects come fully on-stream. Oil GDP is projected to peak in 2016 and fall steadily thereafter absent new oil discoveries. Non-oil GDP is projected to grow by around 5 percent per year over the medium term, driven by agriculture, commerce, and transportation. The main sources of risk to the outlook stem from the volatility of fiscal oil revenue and the difficult regional security situation.

Executive Board Assessment2

Directors welcomed Chad’s relatively strong macroeconomic performance amidst considerable regional insecurity, characterized by solid non-oil GDP growth and relatively muted inflation. They also commended the authorities’ significant contribution to regional security efforts. Noting that a decade of rapid economic growth has not significantly reduced poverty rates, Directors called for decisive policy measures to achieve diversified, inclusive growth and improved socioeconomic outcomes.

Directors noted that, despite the positive medium-term outlook, Chad is facing challenges from the volatility and trend decline in oil revenue. While welcoming the improved fiscal stance in recent years, including under the staff-monitored program, they advised building fiscal buffers over the medium term, by enhancing domestic revenue mobilization, public financial management, public sector efficiency and expenditure prioritization. Directors welcomed the recent commitment to limit the use of extra-budgetary emergency spending procedures, and recommended careful prioritization of public investment in line with absorptive capacity. Efforts to significantly reduce the non-oil tax collection gap, building on progress and by following through on Fund technical assistance recommendations regarding tax policy and revenue administration, will be crucial.

Directors called for greater coherence in the authorities’ debt management strategy and a prudent external borrowing policy, given Chad’s high risk of debt distress. They acknowledged the authorities’ commitment to ensuring debt sustainability, as evidenced by the cancelation of the Master Facility Agreement with Eximbank China. While recognizing the exceptional circumstances that led to the nonconcessional oil sale advances in 2013, they advised against recourse to such advances going forward, and stressed the need for corrective actions to cover the ensuing financing gap in 2014. Directors looked forward to the timely preparation of the new debt management law, and recommended centralization of debt approvals and operational management. They supported the authorities’ commitment to achieve the completion point under the Enhanced Initiative for Heavily Indebted Poor Countries. They looked forward to continued close engagement with the Fund in the period ahead, including discussions on reaching agreement on a possible ECF-supported program.

Directors underscored the importance of critical structural reforms to help boost external competitiveness and promote diversified, inclusive growth. They called for the removal of key supply-side bottlenecks and measures to strengthen the business climate. Directors commended the authorities’ initiatives under the National Development Plan, designed to raise agricultural productivity and promote infrastructure investment. They also advised the authorities to implement reforms conducive to enhanced financial sector development and inclusion.

Chad: Selected Economic and Financial Indicators, 2009–2014

2009 2010

2011 2012 2013 2014

Prel. Proj.

Proj.

(Annual percentage changes, unless otherwise indicated)

Real economy

GDP at constant prices

4.2

13.5

0.1 8.9

3.6

10.8

Oil GDP

-3.7

-1.1

-0.4 -4.0

-4.0

37.0

Non-oil GDP

6.4

17.2

0.2 11.6

5.0

6.5

Consumer price index (period average)

10.1

-2.1

1.9 7.7

0.4

3.8

Consumer price index (end of period)

4.7

-2.2

10.8 2.1

2.5

3.2

Oil prices

WEO (US$/barrel)2

61.8

79.0

104.0 105.0

104.1

99.3

Chadian price (US$/barrel)3

55.5

73.6

97.7 102.0

103.4

98.2

Oil production (in millions of barrels)

43.6

44.7

43.6 41.2

36.0

52.0

Exchange rate FCFA per US$ (period average)

471.0 494.4 471.4 510.2 493.9 …

Money and credit4

Net foreign assets

-74.7 13.3 25.3 14.8 -12.0 0.9

Net domestic assets

70.1 12.0 -11.0 -1.3 20.2 8.6

Of which: net claims on central government

67.7 7.2 -18.8 -13.1 0.9 -2.6

Of which: credit to private sector

5.9 10.7 9.0 12.9 9.2 8.4

Broad money

-4.6 25.3 14.2 13.4 8.2 9.5

Income velocity (non-oil GDP/broad money)

7.3 6.6 5.9 5.9 5.7 5.7

External sector (valued in CFA francs)

Exports of goods and services, f.o.b.

-26.1 23.3 22.3 -4.1 -8.2 26.7

Imports of goods and services, f.o.b.

4.5 18.1 11.3 3.8 -6.4 18.6

Export volume

0.3 -5.6 -2.8 -8.6 -7.3 27.2

Import volume

12.0 15.1 4.0 4.9 -5.3 17.7

Overall balance of payments (in percent of GDP)

-8.0

0.1

2.9 1.6 -1.5 -3.4

Current account balance, including official transfers (in percent of GDP)

-9.2

-9.0

-5.6 -8.3 -8.8 -6.5

Terms of trade

-21.1 27.2 17.6 6.0 0.2 -1.2

External debt (in percent of GDP)

17.6

20.2

23.0 20.9

23.2

18.3

NPV of external debt (in percent of exports of goods and services)

36.3

30.9

48.2 36.6

53.1

38.6

(In percent of non-oil GDP, unless otherwise indicated)

Government finance

Revenue and grants

18.6 26.7 34.6 33.4 25.5 28.7

Of which: non-oil

7.3 8.1 7.6 7.7 8.4 8.8

Expenditure

28.1 32.2 31.3 32.8 31.5 29.5

Current

18.0 19.2 17.9 15.7 17.4 16.6

Capital

10.0 13.1 13.3 17.0 14.1 12.9

Non-oil primary balance (commitment basis, excl. grants)5

-17.1 -20.1 -19.6 -19.2 -18.2 -16.1

Overall fiscal balance (incl. grants, commitments basis)

-9.4 -5.5 3.3 0.6 -6.0 -0.8

Overall fiscal balance (incl. grants, cash basis)

-9.3 -4.2 0.6 1.7 -6.0 -1.9

Total debt (in percent of GDP)6

23.1

25.6

31.1 28.0 30.2

23.8

Of which: domestic debt6

5.5

5.4

8.1 7.0 6.9

5.5

Memorandum items:

Nominal GDP (in billions of CFA francs)7

4,369 5,279 5,736 6,579 6,627 7,602

Of which: non-oil GDP

3,515 3,999 4,108 4,614 4,812 5,296

Nominal GDP (in billions of US$)7

9.3 10.7 12.2 12.9 13.4 15.9

Of which: non-oil GDP

7.5 8.1 8.7 9.0 9.7 11.1

Sources: Chadian authorities; and IMF staff estimates and projections.

1IMF, Chad-Staff Report for the Staff Monitored Program (EBS/13/103).

2WEO 2014 Winter Production.

3Chadian oil price is Brent price minus quality discount.

4Changes as a percent of broad money stock at the beginning of period.

5Defined as the total revenue excluding grants and oil revenue, minus total expenditure excluding net interest payments and foreign-financed investment.

6Central government, including government-guaranteed debt.

7GDP using National Accounts, base year 2005.

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.