Press Release No. 00/1

Press Release: IMF Approves Poverty Reduction and Growth Facility Loan for Chad

January 7, 2000

The International Monetary Fund (IMF) today approved a three-year arrangement for Chad under the Poverty Reduction and Growth Facility (PRGF)¹ equivalent to SDR 36.4 million (about US$49.9 million) to support the government's 1999/2002 economic program. The first annual loan equivalent to SDR10.4 million (about US$14.3 million) will be available in two equal installments, with the equivalent of SDR 5.2 million (about US$7.1 million) available immediately.

In commenting on the Executive Board discussion on Chad, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, made the following statement:

"Chad successfully completed a three-year ESAF-supported program in April 1999, in spite of a few slippages. Public finances improved during the program period, and progress was made in implementing key structural reforms, particularly in the area of public enterprise privatization and elimination of price controls. Chad's difficulties in raising fiscal revenues continued to hamper economic performance, however, and its economy remains vulnerable to external shocks. These difficulties underscore the need for Chad to persevere with its adjustment efforts and to achieve the transition from crisis management and stabilization to the steady implementation of economic and social policies for development and poverty reduction.

"In considering the three-year program presented by Chad for support under the PRGF, Directors stressed the importance of consolidating the fiscal gains from the previous program. The key elements of fiscal policy will be securing a durable strengthening of revenue performance, and containing non-priority spending, while providing adequate allocations for social sectors.

"The progress made in recent months in the formulation of the authorities' medium-term strategy for the reform and liberalization of the cotton sector has been commendable, and the authorities are now encouraged to complete the public enterprise privatization program, strengthen the judicial and regulatory framework and enhance the transparency and accountability of the management of public resources.

"Chad's stated commitment to poverty reduction and its decision to elaborate a poverty reduction strategy through a broad participatory process within an ambitious timeframe is commendable. The importance of this process can not be underestimated and the authorities are urged to proceed quickly with the poverty reduction strategy," Sugisaki said.

ANNEX

Program Summary

Implementation of the 1995-99 program was broadly satisfactory, despite repeated waiver requests. Considerable progress was made toward meeting the macroeconomic objectives in terms of GDP growth, inflation, savings and investment, and the external current account. The public finance situation improved, with marked improvements in both tax and customs administrations, and firm control over current spending. The primary current fiscal balance shifted from a deficit of 1.7% of GDP in 1995 to surpluses of 1.1% of GDP in 1998 and a projected 0.9% of GDP in 1999. Progress was also made on key areas as structural reform, albeit with some delays, including the privatization or liquidation of the majority of public enterprises, and the liberalization of the external trade regime.

The medium-term program aims at achieving the transition from crisis management and fiscal stabilization to the implementation of economic and social policies for sustained development. Key elements include developing a comprehensive poverty reduction strategy over the next 12-15 months, maintaining macroeconomic stability, consolidating the public finance situation and strengthening the effectiveness of the public and financial administrations, and completing the unfinished structural reform agenda. Real GDP is projected to rebound to 3.8% in 2000, after contracting by about 1% in 1999, as cotton production and ginning activity are expected to pick up. Inflation would stabilize at 2.3% a year in 1999-2000.

Fiscal policy under the program aims at strengthening tax and customs administrations, including reinforcing tax audit procedures modernizing tax collection procedures, and enhancing the ability of the tax directorate, and simplifying expenditure procedures as well as reinforcing the system of internal and external controls of budget execution. But the major change in tax policy is the planned introduction on January 1, 2000, of a value-added tax (VAT at a single rate of 18%), replacing the 15% turnover tax (TCA).

The structural reform agenda is articulated around three principle objectives, including private sector development, administration efficiency, and economic management. The main feature of the private sector development policy concerns the completion of the public enterprise privatization program. As a prior action of this program, the government has adopted and published a medium-term strategy for liberalizing the cotton sector--the most important economic activity of the country.

Poverty Reduction Strategy

Poverty reduction has been the motivating principle of the Chadian authorities' efforts to define sectoral policies in health, rural development, transport, and education. The focus of the Poverty Reduction Strategy (PRS) would therefore be on measures in these priority sectors that had already been defined through consultative process with local stakeholders and external donors. The main challenge will be to prioritize the existing sectorial strategies and measures and to integrate them into a cohesive whole, with a detailed estimate of their costs. The level and composition of public spending, and the fiscal and external deficits, will thus have to be reexamined in light of the priorities established in the PRS. In addition, a full-scale household poverty and expenditure survey will be conducted over the next two years to provide a detailed analysis of poverty in Chad and establish a differential poverty profile. Together with the public expenditure review, this survey should permit a better appreciation of the precision of the targeting of social expenditures, and thus of their efficiency in reducing poverty.

Chad joined the IMF on October 7, 1963. Its quota² is the equivalent of SDR 56 million (about US$76.8 million). Its outstanding use of IMF financing currently totals the equivalent of SDR 50.2 million (about US$68.8 million).