Chad Reaps Benefits of High Oil Prices, Oil-related Projects

New schools, hospitals, roads, more power generation boost infrastructure

Volatile, exhaustible oil revenues justify sustained fiscal adjustment

Diversification should raise growth inclusiveness, debt sustainability

In its regular assessment of the Central African nation’s economy, the IMF noted that visible progress in the development of infrastructure—notably schools, hospitals, and roads—and the broadening of the country’s industrial base were also features of Chad’s economic performance.

Chad’s per capita income has more than doubled since the start of oil production in 2003. Industrial advances include an oil refinery opened in June 2011 and related increased electricity generation capacity, and a cement factory inaugurated in February 2012.

At the same time, Chad has achieved limited progress in overall poverty reduction and in improving access to public services. The poverty rate has dropped only moderately—from 54.8 percent in 2003 to 46.7 percent in 2011—and unevenly, with urban poverty falling faster than rural poverty.

Positive growth outlook

While non-oil GDP, supported by increased mechanization of agriculture and subsidized inputs for farming, will boost GDP growth over the medium term, oil GDP is projected to peak in 2016 and fall steadily thereafter absent new oil discoveries (see chart).

Chad needs to use this oil windfall judiciously in tackling its vast development needs, by anchoring fiscal policy on a sustained reduction in the non-oil primary deficit. This move will build fiscal room for maneuver to cushion against oil revenue volatility.

At the same time, development plans will need to increasingly rely on increases in non-oil revenue and in the quality of spending. Over the long term, declining and volatile oil exports and associated budgetary revenues call for greater diversification and competitiveness of Chad’s economy through

• An improved business environment for private sector development;

• Sustained promotion of the agricultural sector;

• Increased government effectiveness in the provision of basic services; and

• Expanded financial intermediation and access.

Muted inflation

Inflation fell sharply to around 0.2 percent in 2013 from 7.7 percent in 2012. Such deceleration resulted mainly from a sizable fall in food prices and took place despite the fact that some prices, notably cement and fuel products, were liberalized or increased to cost-recovery levels.

Although Chad is enjoying its longest period of...