afrol News, 27 February - Although the first oil from the Doba oil field is expected to flow through the Chad-Cameroon pipeline only in early 2004, economic growth has already started in the poverty-ridden country. Latest numbers show a 9 percent growth in real GDP in 2001, expected to rise to 11 percent this year and to an incredible 50 percent in 2004.
In its Country Report on Chad, released today, the International Monetary Fund (IMF) presented the generally good news about the Chadian economy. "Chad has had a reasonably good year in 2001, reversing the policy slippages in 2000. Economic performance, including in the area of governance, has improved measurably," the IMF summed up the situation.
Growth prospects were also good, with real GDP projected to grow at an annual rate of 10 percent in 2001-03. "While the main reason is the acceleration of the construction of the Chad-Cameroon pipeline, structural reforms and improving governance have also played a role," IMF noted. The pipeline allows Chad to export its oil riches to the world market and will boom national economy.
Structural reforms had "advanced broadly as programmed or even accelerated, and past slippages of transparency and governance" had been corrected. These achievements had been made against the backdrop of a worsening external environment.
Chad was hard hit by extreme weather conditions during the 1999/2000 agricultural season, with parts of the country brought to the brink of famine. With prompt assistance from the international community, famine has been averted. Further, "there was a substantial shortfall in external financing, amounting to Franc CFA 30 billion." The shortfall was mainly due to hesitance by the European Union to disburse approved loans following irregularities during the May 2001 presidential elections.
Chad was further hit hard by a decline in the world market price for cotton, it main export commodity. Projections for 2002 indicate a significant uncovered balance of payments need. A letter to the IMF by Prime Minister Yamassoum, dated 20 December 2001 had described these developments and requested an augmentation of the poverty related loans by 10 percent. This was also recommended by the IMF staff to make up for part of the revenue loss arising from the cotton sector crisis.
Notwithstanding the overall progress, advances in certain areas had been slower than programmed. Weak administrative capacity, including constant staff turnover at all levels of the administration and persistent problems at customs, appeared to be the main reasons for revenue shortfalls. Further, progress in governance had been constantly challenged by "pressures from vested interests to conclude business deals in the energy sector that may not be in the global Chadian interest," IMF concluded.
The overall economic results in 2001 however had been broadly satisfactory, according to the IMF. "Real GDP growth is now projected to reach about 9 percent in 2001, compared with 8 percent targeted in the program, thanks mainly to the acceleration of the construction of the Chad-Cameroon pipeline." Economic policies in 2002 aim at achieving a real GDP growth of about 11 percent due to the "acceleration of investment linked to the Doba oil field project and its spillover effects on the rest of the economy," according to a government analysis.
Consumer prices had increased by 14 percent on average in the year ended October 2001, reflecting mainly the impact of food shortages related to last year's drought. Prices have declined since September as food supplies improved.
The Chadian authorities are cautiously optimistic about the economic prospects for 2002 and beyond. This is mainly due to the accelerated investments in the oil sector - oil is now expected to flow in early 2004, a year earlier than previously envisaged.
The economic landscape will change dramatically in 2004, when oil production will start. Real GDP growth is projected at around 50 percent, boosted by oil exports. At the same time, investment growth will decelerate with the gradual completion of the Doba investment project, bringing about a fall in associated imports. As a result, the external current account balance, excluding grants, would swing from a deficit of 50 percent of GDP into a surplus of 15 percent of GDP. Debt sustainability will improve dramatically, with the external debt to exports ratio falling from 230 percent in 2003 to about 90 percent of GDP in 2004. Fiscal revenues are projected to double.
Total poverty-reducing spending in the 2002 budget is targeted to rise sharply from 11 percent of GDP in 2001 to close to 16 percent of GDP in 2002, reflecting the explicit objective of the government of reaching the quantitative targets for the HIPC Initiative by year's end. Poverty-reducing spending is directed towards education, health, rural sector development, basic infrastructure and governance.
By 2004, overall expenditures, and within it the share of poverty-reducing spending, are programmed to increase, as some 3/4 of total oil revenue will be used to finance priority sectors under the Law on Petroleum Management.
The IMF agrees Chad "should avoid the development of a dual economy, with the oil sector segregated from the rest of the economy." Accordingly, actions have been identified to "foster a fuller integration of the oil economy in the areas of training, banking, and information sharing with domestic economic agents."
Certain factors indeed constituted "a regrettable bias towards developing an industrial enclave," such as the tax-exempt status of the Doba project, which clearly favoured tax-exempted imports by the oil consortium in charge of the Doba project over domestically-provided supplies, which did not enjoy such tax benefits.
Further, "Chad must strengthen domestic institutions so as to prepare for the effective absorption of oil revenues, in accordance with laws guiding the equitable distribution of Chad's oil wealth," IMF recommends.
Prime Minister Yamassoum also complained the "Chad's administrative capacity remains below what our government needs to implement its ambitious poverty-reducing program and prepare for the petroleum era."
Sources: Based on IMF, Chadian govt. and afrol archives