Chad

major macro economic indicators

(e): Estimate (f): Forecast *Including grants

RISK ASSESSMENT

Slow economic recovery in a vulnerable political environment

The economic rebound is expected to remain fragile in 2022, as the continued fallout of the health crisis, as well as political and security instability, are likely to persist. The recovery is expected to be driven by oil exports as international crude oil prices remain supportive and production modestly increases. The recovery in output will depend mostly on higher volumes by the China National Petroleum Corporation, as foreign oil companies (ExxonMobil and Petronas) announced they were trying to exit from the country’s oil sector. High extraction costs, an opaque domestic regulatory environment, elevated political and security risks, and the ongoing debt restructuring will keep hampering private investment in 2022. The rise in oil revenues could support government consumption and investment, but the debt restructuring will probably limit the contribution of this growth driver. Furthermore, the easing of restrictions, after authorities lifted the state of health emergency in September 2021  , and progress with the vaccine rollout (albeit slowly) might slightly boost the recovery in 2022, supporting consumption (around 86% of GDP). The latter would nonetheless remain constrained by high poverty levels, as the population remains mostly involved in low-value added agricultural activities. Furthermore, population displacement linked with terrorism in the Lake Chad region and the country’s high exposure to climate hazards could erode the contribution of consumption to economic activity.

International support contingent on debt restructuring talks

The budget balance is expected to improve, shifting to a slight surplus in 2022. The improvement will largely be on the back of rising oil receipts, which will boost the government’s revenues. The gradual removal of COVID-related spending will also help to improve the budget balance. However, in light of the recent political and security instability, spending pressures should remain high, as military and defence expenditures are expected to be on the rise. As the economic and financial burden of the public debt increased because of the pandemic, the decline in oil prices, climate change, as well as political and security issues, the country presented an official public debt restructuring request in January 2021. While official creditors (22% of external debt) decided to restructure their claims (June 2021), an agreement has yet to be reached with Glencore, an Anglo-Swiss commodities trading company holdin g 98% of the country’s commercial debt. A significant part of the external debt (34%) is held by non-Paris Club countries such as Libya, China and Angola. In December 2021, IMF approved a three-year extended credit facility (ECF) for an amount of USD 571 million, which allows for an immediate disbursement of USD 78 million. Further disbursements are contingent on restructuring agreements with official and private creditors by end-March 2022.

In 2022, the current account deficit is expected to widen and to remain substantial, in the wake of deteriorating merchandise and services trade. Nonetheless, it is expected to remain smaller than in 2020, when it had been impacted by the collapse in oil prices. In 2022, while export earnings are expected to increase, growth in imports of goods and services – mostly to support development in the oil sector – is expected to be faster. The smaller deficit in the income account will be maintained by the repatriation of profits from companies based in the country. The positive contribution of the transfers account will be insufficient to compensate for this large shortfall. After a drawdown in CEMAC reserves was necessary in 2020, FDI and financial support from donors, which typically finance the current account deficit, are expected to do so again in 2022. CEMAC regional reserves are expected to slowly recover, but will remain below 5 months of imports in 2022.

President Idriss Déby’s death further weakens a vulnerable political environment 

After more than 30 years in power, President Idriss Déby died in April 2021 while visiting troops fighting an insurgency of the Front for Change and Concord in Chad (FACT) in the north of the country, and just hours after the preliminary results from the presidential elections confirming that he had won a sixth term. His son, General Mahamat Déby was appointed by the military as the new head of state to oversee an 18-month transition, and head a transitional 15-member military council (CMT). After the transition period, the latter pledged to the African Union to hold legislative and presidential elections in late 2022. However, after the CMT failed to respect the Constitution (elections were supposed to be held within 90 days after the president’s position becoming vacant), there is a risk that the military will keep its grip on power. The political environment is thus expected to remain volatile in 2022. If elections were to be held, the long-standing ruling party (Patriotic Salvation Movement or MPS), would probably benefit from strong backing. The unstable political situation is compounded by recurrent social tensions and the persistent threat of Islamist terrorism in the Sahel region. 

Last updated: February 2022