Chad Government - doing not so bad!

“Chad has to be different, because we're staking our reputation on it.”
-World Bank official in 2002

Concluding Statement of the 2006 Article IV Consultation with Chad is out now and it seems Chad (atleast those running the country) is doing not so bad after reneging on the agreement to divert oil resources to poverty reduction in the country;

"Despite some progress in macroeconomic stabilization and reform under Fund-supported programs during the 1990s, Chad's indicators on business climate, governance, and socio-economic conditions still remain among the lowest in the world. Although the oil sector accounts for almost half of GDP, and has led to high growth rates during 2001-04, the bulk of the population still heavily depends on cotton, livestock, and small-scale agriculture.

In recent years, the resumption of armed conflict in the region has deteriorated the political and security situation. Real growth has slowed following the completion of the oil pipeline and a fall in oil production owing to technical problems. In 2006, real GDP is expected to grow by 1.3 percent, reflecting higher non-oil growth offsetting a somewhat larger fall in oil production than envisaged earlier. Real non-oil growth is expected to rise to about 6 percent by 2007, in part reflecting a higher level of government expenditure, and then to stabilize around 4.5 percent in subsequent years. Inflation increased to an annual average of 8 percent in 2005 owing to a drought in 2004, and, despite a better harvest, remained high in 2006 because of increasing meat prices. Mainly reflecting the appreciation of the euro against the U.S. dollar, the real effective exchange rate appreciated. After stagnating in 2003-04, broad money grew by 32 percent in 2005 owing to a rise in credit to the cotton sector, but monetary expansion slowed down to about 28 percent by late 2006. The financial health of the banking system appears broadly satisfactory, although vulnerable because of its overexposure to government deposits.

On the fiscal front, the start of oil revenue supported higher domestic spending during 2004-05, partly offsetting a sharp shortfall in budget donor support as reform momentum slowed and performance under the PRGF weakened. Despite the net rise in resources, domestic debt and arrears continued to accumulate, reflecting poor budget discipline and weak public finance management. Fiscal management was also complicated by the segmentation of the budget and cash management...

Directors considered the 2007 budget and the medium-term fiscal framework broadly supportive of macroeconomic stability, but noted that the fiscal outlook is subject to risks arising from the frontloading of public spending and the unsettled security environment. They encouraged the authorities to remain vigilant to ensure that spending does not exceed absorptive capacity, and to impose tight controls on new medium-term investment projects to ensure fiscal sustainability. Accordingly, a considerable part of the 2007 oil revenue will need to be saved for use in subsequent years.

Directors noted that Chad's membership in the Economic and Monetary Community of Central Africa and its fixed exchange rate regime have provided an important nominal anchor for macroeconomic policies. However, the oil windfall could lead to some real appreciation of the exchange rate..."

Related;
For some background on the Chad-Cameroon pipeline see the previous post and also Sebastian Mallaby’s The World’s Banker has a good overview of the project. It was a bold experiment on the part of the World Bank and may be it is too early to decide whether it was a success. Why isn't the World Bank experimenting such bold initiatives more? There are places with greater chances of success than in Chad.

See also the World Bank page on the oil pipeline;

Following the Government’s agreement with the Bank, on December 30, 1998 Chad’s Parliament approved a law setting out the Government’s poverty reduction objectives and arrangements for the use of oil revenues.

Under the law:

-10% of Chad’s direct oil revenues (dividends and royalties) are placed in trust for future generations, in a so-called Future Generations Fund
- Of the remainder, 80% of royalties and 85% of dividends are devoted to priority sectors such as education, health and social services, rural development, infrastructure and environmental and water resource management.
- 5% of royalties are earmarked for regional development in the oil-producing area, in addition to budget allocations the region already receives.
- Up to December 31, 2007, 15% of direct oil revenues can be spent on general expenditures; after that date, these revenues will be earmarked to priority sectors for poverty reduction.