Chad : 2013 Article IV Consultation and Assessment of Performance Under the Staff-Monitored Program-Staff Report; Press Release; and Statement by the Executive Director for Chad

KEY ISSUES Context: Chad is a fragile country with weak institutional and policy capacity, facing a trend decline in oil revenues (barring new oil discoveries), and vulnerable to oil price and regional security shocks. The country is enjoying its longest period of domestic political stability since independence and has become a beacon of stability in a very volatile region, actively contributing to international efforts to restore order in Mali and the C.A.R. Macroeconomic policy over the last few years has achieved a gradual tightening of the underlying fiscal policy stance, despite a sizable increase in public investment. A Staff-Monitored Program (SMP) was approved in July, with the aim of sustaining recent improvements in macroeconomic outcomes and supporting the implementation of fiscal structural reforms. Focus: Discussions focused on two key challenges: (i) ensuring fiscal and debt sustainability while implementing development plans; and (ii) how to diversify the economy and make growth more inclusive. Outlook and risks: The economic outlook is relatively positive driven by a projected temporary uptick in oil production, with a high risk of debt distress. The main sources of risk to the outlook stem from the volatility of fiscal oil revenue and the difficult regional security situation. Negative oil price and production shocks would force downward adjustments to public investment plans and reduce the availability of foreign exchange. Regional security instability could require continued elevated levels of security spending as well as damaging investor confidence. Recommendations: Fiscal policy should remain anchored on a sustained reduction of the non-oil primary deficit, supported by public financial management reforms (to enhance fiscal control and the quality of spending) and sizable increases in non-oil revenue collection to offset the projected exhaustion of oil revenue (through enhancements in both tax policy design and revenue and customs administrations). A more diversified and competitive economy over the medium- and long-terms will require increased efforts to improve the business environment for the private sector, promote agricultural activities, and expand access to basic and financial services