The mission held constructive discussions with Prime Minister Emmanuel Nadingar, Finance Minister Gata Ngoulou, Infrastructure Minister Adoum Younousmi, and other senior officials.

An International Monetary Fund (IMF) staff mission led by Mr. Christian Josz visited the Republic of Chad during March 4-17, 2010 to conduct discussions for the 2010 Article IV Consultation and to hold discussions on a possible Staff Monitored Program for Chad. The mission held constructive discussions with Prime Minister Emmanuel Nadingar, Finance Minister Gata Ngoulou, Infrastructure Minister Adoum Younousmi, and other senior officials. The mission also met representatives of the private sector, trade unions, civil society, and the donor community.

At the end of the mission, Mr. Christian Josz, IMF Mission Chief for Chad, issued the following statement in N'djamena:

“Economic activity remained sluggish in 2009, but inflation increased further, owing to food prices. Low rainfall, and therefore agricultural output, plus the trend decline in oil production led to a contraction in real GDP of about 2 percent. The bad harvest could imply food shortage for up to 2 million people (18 percent of the population). The need for additional food is estimated at between 80,000 to 100,000 metric tons, for which the government has requested external assistance.

”The global financial crisis affected Chad mainly through the ensuing decline in oil prices. The fiscal position deteriorated sharply in 2009 to a deficit of about 20 percent of non-oil GDP as the government maintained spending levels in the face of a fall-off in oil revenues by almost depleting its oil savings and borrowing from the central bank. Commercial banks’ balance sheets were not directly impacted by the crisis in advanced countries, given their limited exposure to international financial markets. But the business environment, which is marked by high costs and a poorly functioning judicial system, hampers the development of the financial sector and the non-oil economy at large.

“The macroeconomic outlook is shaped by the expected rebound of agriculture, the gradual recovery of oil prices, and the construction of a second oil extraction project. These developments should support non-oil GDP growth and contribute to a decline in inflation this year.

”The government is facing a tight fiscal situation in 2010. Overspending on security and investment in 2009 absorbed an important part of the resources that had been lined up to finance the 2010 budget. In addition, the government faces significant under-funded spending pressures to address food shortages, and to conduct the upcoming elections, clear arrears, and pay other liabilities. Given this difficult situation, the authorities will need to prepare a supplementary budget to update revenue and spending projections and to reconcile its spending plans with the amount of financing available. Some postponement of lower-priority spending may be needed.

“Going forward, it is important to set fiscal policy within a medium-term framework that takes into account the trend decline of oil resources over the next 20 years. The level of spending over 2008-09 was not sustainable; government savings declined considerably during this period. Notwithstanding possible additional oil discoveries, the future trend in oil production is almost certainly downward. The mission recommends steadily reducing the non-oil primary balance by about 2 percent of non-oil GDP per annum, while focusing spending on priority areas.

”Improving public financial management is a key to transforming oil resources into higher non-oil sector growth and reduced poverty levels. The mission underscored the importance of building on recent improvements in tax administration; preserving the transparency of oil revenue; aligning spending with the government’s Poverty Reduction Strategy; and improving public investment planning and procurement. It will also be critical to provide sufficient resources to make new schools and health centers operational. Finally, it will be essential to curb the use of extraordinary spending procedures that bypass expenditure controls, jeopardize budget discipline, and lead to payments arrears.

“The mission and the authorities discussed the main elements of a proposed Staff Monitored Program (SMP) for 2010. The cornerstone of such a program would be to remain within the spending envelope set in the 2010 supplementary budget, and to ensure that all spending is executed in accordance with set budget procedures. Discussions on the proposed SMP will continue over the coming weeks.

”The mission would like to thank the authorities for their excellent cooperation and the frank and constructive discussions.“