Press Release No. 01/24

Press Release: IMF Completes Second Review under the PRGF Arrangement for Chad

May 16, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Chad's arrangement under the Poverty Reduction and Growth Facility (PRGF)¹ and approved the second annual arrangement to support the government economic program for 2001. In a particular effort to help the country address the worst famine in a decade, the Executive Board also approved an increase in the arrangement by SDR 5.6 million (about US$7 million). The completion of the review thus enables the immediate release of SDR 10.8 million (about US$14 million).

Chad's three-year IMF-supported program was approved on January 7, 2000 (see Press Release No 00/1). It amounted to SDR 36.4 million (about US$46 million), of which SDR 10.40 million (about US$13 million) has been disbursed.

After the Executive Board's discussion on Chad, Stanley Fischer, First Deputy Managing Director and Acting Chairman, made the following statement:

"Chad has begun to build a good track record since November 2000, following policy slippages in the months before. Transparency and governance have been strengthened through measures aimed at improving the management and use of public sector resources. The fiscal position has improved and structural reforms have been accelerated. The preparation of the full Poverty Reduction Strategy Paper (PRSP), involving all stakeholders of the society, is proceeding according to schedule. However, economic activity has remained subdued; and, following poor weather conditions, food shortages have emerged. As a result, Chad now faces its worst famine in a decade.

"Under the second annual PRGF-supported program, the authorities will further strengthen the underlying fiscal position, while significantly increasing poverty-reducing spending; improve governance through a series of audits and reforms of the civil service and the procurement system; and press ahead with other structural reforms.

"Fiscal adjustment will require spending restraint in nonpriority current expenditures and the timely introduction of revenue enhancing measures, including the discontinuation of "exceptional" customs duty exemptions and a reinforcement of customs administration. It will be equally important to improve expenditure management through, inter alia, consolidating the large number of government accounts with commercial banks and ensuring the proper prioritization and effective tracking of poverty reducing expenditures.

"The authorities' decision to liberalize the domestic prices of petroleum products is welcome. The remaining structural reform agenda needs to be implemented with determination, including the adoption of a pricing and taxation mechanisms for the Sedigi oil field, as well as the reforms of the civil service, the procurement system, and the cotton sector.

"In view of the authorities' renewed commitment to reform and the implementation of corrective measures, the Executive Board approved the authorities' request for waivers for the nonobservance of some performance criteria, completed the second review under the PRGF arrangement, and approved the second annual program, as well as an increase in the PRGF arrangement by SDR 5.6 million (corresponding to 10 percent of quota) to alleviate the impact of the famine-related food shortage. A final decision on Chad's debt relief under the enhanced HIPC initiative is pending action next week by the World Bank's Executive Board. A press release will be issued jointly with the World Bank following this discussion," Mr. Fischer said.

ANNEX

In 2000, real GDP growth is estimated to have reached 0.6 percent, somewhat below the 1 percent program target, and implying a 2 percent decline in per capita terms. Prices rose by 3.8%, in line with the program's objective. The government's record of economic policy implementation has been uneven. After a broadly satisfactory performance in the first half of 2000, policy slippages in the second half led to a delay in the completion of the second PRGF review, as well as in reaching the HIPC decision point.

However, since November 2000, Chad has built a good track record. The government introduced a series of measures to improve governance and transparency and to bring the PRGF-supported program back on track. As a result, the fiscal situation has gradually improved and structural reforms have been accelerated. Specific measures have been taken to reinforce expenditure control.

Program Summary

The second annual program has two key policy components: credible adjustment and strong measures to improve governance further. These objectives are in line with those outlined in Chad's interim Poverty Reduction Strategy Paper (PRSP), including sustained high rates of economic growth, spearheaded by oil-related private investment in a low-inflation environment. Specific revisions, which are being incorporated into the macroeconomic framework prepared for the full PRSP, pertain mostly to higher real growth and wider current account deficit projections stemming from the dynamism of oil-sector investment and its spillover effects.

The underlying fiscal position is targeted to turn into a surplus of 0.2 percent of GDP in 2001 from a deficit of 0.8 percent of GDP in 2000. Nevertheless, owing to exceptional as well as specific poverty-related spending and high public investment, the overall fiscal balance, on a commitment basis and excluding grants, will widen to 20.8 percent of GDP in 2001 from 12.3 percent in 2000. Fiscal revenues are targeted to increase to 8.4 percent of GDP in 2001 from 8 percent in 2000.

Faced with the worst famine in a decade, Chad has requested emergency food aid from the international donor community to complement its own efforts to increase food supply. The IMF's Executive Board has approved an increase in the PRGF arrangement of SDR 5.6 million (about US$7 million).

Monetary policy will continue to be conducted at the regional level by the Bank of Central African States (BEAC), covering member states of the Economic and Monetary Community of Central Africa (CEMAC). The BEAC's key objective is to maintain price stability over the medium term by maintaining the peg between the CFA franc and the euro, and to build up the monetary zone's official reserves. Banking supervision will continue to be strengthened by the Central African States Banking Commission (COBAC).

In the structural area, the program focuses on fiscal policies and price liberalization of domestic petroleum products. The main measures include avoiding off budget operations, and simplifying and computerizing the expenditure circuit. The government also plans to press ahead with reforms in other areas including civil service, procurement system, and cotton sector. Appropriately centralized expenditure control is a precondition for the successful implementation of the program.

After years of hesitation that have led to persistent shortages in energy supplies, the government has submitted to parliament a draft law that will permit the liberalization of the domestic price of petroleum products. A committee will monitor price movements to ensure that the market remains competitive.

PRSP Process

Following the endorsement of the interim PRSP by Executive Boards of the Fund and the World Bank in July 2000, the authorities have been proceeding with the preparation of a fully participatory poverty reduction strategy according to schedule. The fully participatory PRSP is expected to be finalized by the fall of 2001.

Chad joined the IMF on July 10, 1963. Its quota² is SDR 56 million (about US$71 million), and its outstanding use of IMF credit currently totals SDR 59.13 million (about US$75 million).