The Executive Board of the International Monetary Fund (IMF) has approved a new three-year arrangement under the Extended Credit Facility (ECF) for SDR 79.92 million (about US$122.4 million) in support of Chad’s medium-term economic programme, the Fund announced Wednesday.
In a statement, made available to PANA here, the IMF Board said its approval will enable the first disbursement of an amount equivalent to SDR 13.31 million (about US$20.4 million) to Chad.
“The ECF arrangement is expected to address the country’s protracted balance of payments’ problems resulting from a trend reduction in oil revenues, maintain adequate international reserves’ coverage, and play a catalytic role for bilateral and multilateral assistance to Chad,” the IMF explained.
In the Fund’s view, Chad is a fragile country with weak institutional capacity that needs to manage volatile and exhaustible oil revenues prudently to tackle its large development needs.
“Chad is enjoying a period of domestic political stability, but major regional security issues are imposing significant fiscal costs in both the short and medium term,” the Fund said, noting that the country’s macroeconomic policy over the last few years has achieved a gradual tightening of the underlying fiscal policy stance together with a sizable increase in public investment.
Given its continued heavy dependence on volatile oil revenues that are projected to decline over the long-term and the currently high risk of debt distress, Chad’s macroeconomic policies target a sustained fiscal adjustment, a build-up of liquidity buffers, and economic diversification.
According to IMF, those objectives will be underpinned by a reform agenda focused on strengthening public financial and debt management and improving the business environment.
At the conclusion of the Executive Board’s discussion on Chad, IMF Deputy Managing Director and Acting Chair, Naoyuki Shinohara, remarked: “Chad’s macroeconomic performance has been relatively strong, despite major regional security issues requiring the strengthening of security measures along its borders and increased humanitarian assistance to refugees and returning nationals.
“Medium term prospects are generally favourable. The commencement of activities in new fields is expected to significantly boost oil production and exports over the next few years, while, non-oil GDP should continue to increase at a sustained rate.”
According to Shinohara, key objectives of the new facility include a further reduction in the use of emergency spending procedures, improving fiscal accounting and reporting, and strengthening cash management and forecasting.
“Achieving the country’s medium-term growth and development objectives will require improving the business environment, including addressing bottlenecks in infrastructure, labour quality, and access to finance.
“In addition to ambitious public investment plans in infrastructure, promoting a more favourable environment for the private sector and the implementation of the authorities’ strategy to enhance financial inclusion—which appropriately focuses on rural areas—are critical to foster ne w sources of non-oil growth.
“Sustained implementation of the ECF-supported programme should help catalyze additional financial resources from international donors and foreign direct investment flows to more effectively tackle development needs and foster economic growth, in addition to being a key step for reaching the HIPC Completion Point.”
Chad’s GDP grew by 3.9 percent in 2013 despite a contraction in oil production. Non-oil GDP expanded by 5.9 percent, down from 11.6 percent in 2012, largely driven by the sectors of commerce, transport and telecommunications.
Inflation fell sharply in 2013, with the annual average rate at only 0.2 percent from 7.7 percent in 2012 due to a sizable fall in food prices. Inflation has continued to decline, with annual average inflation falling to -0.4 percent in May 2014.
Since 2010, the Chadian economy has experienced a rebound, averaging a real non-oil GDP growth above 8 percent per year. In 2013, growth rate reached 3.9 percent.
According to the country’s First Alternate Executive Director, Ngueto Titaina, Chad’s inflation remains contained, despite price liberalisation for certain products, thanks to efforts made by the government to modernise agriculture and raise food supply through the National Programme for Food Security (Programme National pour la Sécurité Alimentaire).
While the country has benefitted from internal political stability, it is being negatively affected by regional security issues. Chad has been forced to strengthen security measures along
its borders, particularly with Libya, Central African Republic, Nigeria, and Cameroon.
According to an IMF assessment, Chad has had to provide assistance to tens of thousands of refugees and retournés (nationals returning to the country) fleeing from the conflict in CAR.
“The international community (UN agencies with financing from the US and the EU) has stepped up its short-term humanitarian assistance, but there are concerns about the longer-term costs that this flow of refugees can have on public services and on social cohesion in the South of the country,” the Fund observed in its report.