Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
CHAD: Institutional Reform Support Credit Project Information Document 29176 May 24, 2004 Report No: Project Name: Region: Sector: Project ID Implementing Agency: Date prepared: Appraisal date: Projected Board Date PIDXXX Republic of Chad, Institutional Reform Support Credit Africa Multisectoral P083711 Cellule Economique Ministry of Plan, Development and Cooperation N’Djamena, Chad Tel. 235 52 61 81 May 18, 2004 April 4-15 2004 September 16, 2004 Country Background 1. Following nearly three decades of civil war, the government of Chad has maintained relative peace and stability since 1993. Since 1994, the authorities have established a solid macroeconomic track record. Real GDP growth averaged 3.5 percent per year in 1994-2000. According to current estimates and projections, GDP continued to grow at a strong sustained pace (9.9 percent) in 2002 and 2003, driven by oil-related investments and their spillover effects. Construction of the Chad-Cameroon pipeline was completed earlier than planned, one year ahead of schedule. Oil production began in July 2003 . On October 3, 2003, Chad made its first sale of crude oil to world markets, marking the beginning of the project’s export phase. Chad started to collect oil revenues in late November 2003. Consistently with the Petroleum Revenue Management Law adopted by the Chadian National Assembly in December 1998, these revenues have been deposited in an offshore escrow account at Citibank, London, and should be transferred to Chad as soon as the conventions governing bank accounts are signed with the Central Bank and selected commercial banks. 2. The beginning of oil production and exports is expected to boost economic growth, with real GDP growth rate reaching 37.8 percent in 2004 and 13.2 percent in 2005. After 2006, GDP growth is expected to fall below 2 percent per year, due to the projected decline in oil production from the Doba fields. It is nevertheless anticipated that the growth in the non-oil sector will remained sustained, with non-oil GDP growth averaging 5.4 percent per year. As the construction phase of the pipeline project advanced, some macroeconomic risks emerged. Inflation, measured by the change in the CPI, accelerated in 2002, reaching 5.2 percent on average. Jointly with the appreciation of the euro against the dollar, this evolution resulted in a significant appreciation of the real exchange rate. These risks have nevertheless been monitored carefully and addressed. A sharp decline in inflation has been observed in 2003. Current estimates indicate that the consumer price index (based on prices in N’Djamena) would have overall declined by 1 percent during the year. 1 3. Fiscal policy has been broadly consistent with macroeconomic objectives. Government revenue performance, although still relatively weak, has improved continuously over the past years, although ongoing efforts need to be vigorously pursued to improve tax collection and customs operations. With the beginning of oil production and exports, macroeconomic imbalances are expected to be significantly reduced. The overall fiscal deficit excluding grants would decline from 10.8 percent in 2003 to 8.6 percent in 2004 and about 6.5 percent in 2005-2006. The current account deficit (40.9 percent of GDP in 2003) would be sharply reduced to 13.5 percent of GDP in 2004, 7.6 percent in 2005 and 7.3 percent in 2006. 4. The authorities finalized the full PRSP in June 2003, and the document was discussed at the Bank and Fund Boards in November 2003. Chad’s HIPC Decision Point Document was approved by the Bank and Fund Boards in May 2001. In December 2001 and in March 2003, the Bank Board approved the Fourth and Fifth Structural Adjustment Credits, respectively. Over the past three years, assisted by SAC IV, SAC V, and the IMF Poverty Reduction and Growth Facility (PRGF), Chad has made considerable progress in the implementation of its structural reform agenda. However, the pace has been slower than expected in several areas, notably the cotton sector reform and the civil service reform. The fifth review under the program supported by the PRGF was completed in July 2003. Considering that there was not enough time for measures to be taken to present a sufficiently strong case, the IMF did not complete the sixth review before the PRGF expires on January 6, 2004, which in effect withheld a disbursement of SDR 5.2 million. Article IV Discussions took place at the IMF Board on March 19, 2004, and it is expected that an IMF mission will take place in June 2004 to launch negotiations on a new PRGF arrangement. 5. In the course of program preparation and implementation, the governance dialogue with the Government of Chad has evolved considerably, resulting in a frank and shared assessment of the major issues. As a consequence of this improved dialogue, considerable achievements were made under SAC IV and SAC V, notably the adoption of a National Governance Strategy, the organization of a national participatory Roundtable on the Justice sector, the publication of several major audit reports, and the full implementation of the Petroleum Revenue Oversight Committee. The authorities of Chad have also made significant progress in establishing sound modalities for managing oil revenues. Despite these achievements, governance problems remain important and deep-rooted as witnessed by the persistence of major issues in public procurement, highlighted in the reports published by the Chamber of Accounts and the General Finance Inspection Directorate of the Ministry of Economy and Finance. A revised procurement code was adopted in October 2003 by the Council of Ministers and signed by the Head of State in December 2003. Implementation decrees are under preparation and should be finalized by September 2004. 6. As regards budget preparation and monitoring of execution, significant achievements have been made with the support of SAC IV, SAC V, and the Management of the Petroleum Economy project (GEEP), notably the introduction of a Medium Term Expenditure Framework (MTEF) and the preparation of program budgets in key ministries for poverty reduction, the identification of capacity requirements in the area of budget management and the launching of recruitment and training of key staff in the newly created Financial and Administrative Directorates, the publication, albeit still with delays, of a monthly table on budget execution, the computerization of the expenditure circuit, the completion of a public expenditure tracking survey in the health and education sectors, and the strengthening of the Chamber of Accounts of the Supreme Court and the General Finance Inspection Directorate. 2 7. Since the adoption of the new civil service status law in December 2001, implementation of the civil service reform program has been slow. With the support of SAC IV, SAC V, and the GEEP project, the civil service reform agency (CESRAP) has prepared implementation decrees and legal texts, and launched their review by a joint government-unions Civil Service Committee for consensus building purposes. Steps have also been taken towards the harmonization of the civil service and payroll files, which however, have been hampered by the fact that the civil service census of 2000, in the absence of a well-defined process to regularly update the data, has rapidly become outdated. An organizational audit of nine pilot ministries was completed in September 2003, and recommendations have set the stage for moving forward with the reform program. 8. In the cotton sector, the Government strategy of 2000 consists of a process of institutional changes to enhance farmers’ bargaining power and increase farmers’ incomes by (i) strengthening the role of farmers’ associations; and (ii) disengaging the state from cotton production and reviewing the industrial structure of the cotton sector. Chad has decided to pay particular attention to consensus building among all stakeholders all along the reform path. Under SAC IV and V, progress has been achieved, although the persistent financial difficulties of the state-owned company Cotontchad have contributed to delaying the reform process, which is now expected to be completed in 2005. Producers’ representatives were elected in the 5,000 cotton producing villages. The state has also withdrawn from price-setting in the sector, and the producers’ prices are henceforth determined by a Comité paritaire in which the producers’ organizations and Cotontchad are represented equally. The Oil and Soap Factory, which was legally separated from Cotontchad in early 2002, was privatized in June 2003. In addition, a comprehensive study has allowed to identify various scenarios for the reform strategy, as well as the necessary accompanying measures, and a Poverty and Social Impact Analysis (PSIA) of the reform is nearing completion. Objectives and description 9. Chad’s draft PRSP lays out a strategy focusing on five strategic axes and sixteen national objectives. Consistently with the goals set out in the PRSP and the Country Assistance Strategy which was presented to the Board on December 11, 2003, the proposed Credit would assist Chad in implementing two PRSP strategic objectives: (i) improving governance; and (iii) ensuring strong and sustained growth, especially in the rural sector. In that context, it would help the authorities to complete the implementation of the medium-term reform program set forth in SAC IV and SAC V, in order to help complete the transition to the oil era. The medium-term program of reforms for improved governance, focuses on: (i) enhanced transparency, accountability and adherence to the rule of law; (ii) more transparent, accountable and efficient use of public resources for poverty reduction through the reform of (a) budget preparation, execution, monitoring and reporting, (b) public procurement ; and (iii) more efficient and accountable civil service. The medium-term program of reforms supported by the IRSC for sustainable growth in rural areas includes measures aimed at contributing to a profound reform of the cotton sector. In each of these reform areas, particular attention is given to empowering the institutions (Chamber of Account, General Finance Inspection, Petroleum Revenue Oversight Committee, National Assembly, etc.) that provide the checks and balances for the efficient management of resources for poverty reduction, as well as in civil society, including farmers’ associations. 10. The reform program supported by this credit in 2004-2005 will also be supported by a new Poverty Reduction and Growth Facility Program (PRGF), on which discussions are expected to commence in June 2004. The program is also tuned to the proposed outcome-oriented completion point triggers set out in the HPIC Decision Point Document. Finally, this support will complement and enhance the impact of other Bank interventions, especially the Petroleum Development and Pipeline Project, and 3 its associated petroleum revenue management program, the Management of the Petroleum Economy Project and additional financing that could be mobilized to continue supporting capacity-building activities, the capacity-building program of the World Bank Institute, and the Agricultural Services and Producers’ Organizations Project, as well as ongoing and future operations in the health, education, and transport sectors, and a planned community development project. 11. Like its predecessors, the proposed Credit focuses on improving governance and strengthening public resource management with a view to establishing the financial safeguards for further program lending and sound management of government revenues in the oil era. Environmental aspects 12. The implementation of the reform program is not expected to have any negative environmental impact. As regards the privatization of the oil and soap factory and the ginning activities of Cotontchad (scheduled for 2005), an environmental impact assessment of Cotontchad’s nine ginning factories has been completed. Upon its validation by the authorities and its finalization, an environmental guidance book will be prepared in early 2005 and the authorities will launch the recommendations of the audit. Benefits and risks 13. Benefits. Successful implementation of the reform program will (i) result in better governance including, stricter adherence to the rule of law and more transparent and accountable use of public resources; (ii) improve the Government’s efficiency and poverty reduction focus in delivering services in the priority sectors for poverty reduction, including health, education, basic infrastructure, justice and rural development; and (iii) increase farmers’ bargaining power in the cotton sector, improve their access to inputs and management services, and enhance their productivity. 14. Risks. There are substantial risks to the proposed operation. 15. First, consistent implementation of the proposed agenda will depend on continued strengthening of the commitment to improved governance and sound oil revenue management. The risk of a weakening of this commitment will however be mitigated by continuing a close dialogue with the authorities, and promoting the role of civil society in checks and balances on the use of oil revenues. 16. Second, the implementation of the government’s programs and related budgets could be hampered by the resurgence of instability at the North, East and South borders of the country. Chad is facing a difficult humanitarian and political situation in the Eastern part of the country, where about 110,000 refugees from Sudan have settled in camps, fleeing the combats between the Sudanese army and rebel groups in the Darfour since February 2003. While these risks cannot be directly influenced by the Bank, the situation is not likely to worsen in the near future. A renewable 45-day cease fire agreement was signed on April 8, 2004 between the Sudanese Government and the rebel movement (Mouvement pour la justice et l'égalité and Mouvement de libération du Soudan) in Chad in April 2004. 17. Third, successful achievement of the proposed program will require careful attention to consensus building and management of expectations of the population, which are high, following the beginning of oil production and the completion of the PRSP. Civil and social tensions could increase further notably following the current controversy around the constitutional amendment that will permit unlimited presidential term’s renewal and will allow President’s Deby to seek a third presidential mandate. Ensuring 4 that oil revenues are translated into visible results on the ground will be key in maintaining social stability. 18. Fourth, the cotton sector reform program, which affects about 350,000 poor farm families, is inherently complex as it is being implemented in an environment of hardly functional rural markets. To mitigate the risks involved, it will be important to monitor the poverty impact of the reform program notably through the continuation of the Poverty and Social Impact Analysis, and to focus on required accompanying institutional, financial, technical and social measures, including infrastructures. 19. Fifth, macroeconomic instability and/or a unexpected decline in oil prices could significantly affect program implementation, although these risks will be mitigated by the sterilization and stabilization mechanisms for oil revenues established in July 2003 and cautious macroeconomic management. Contact Point: The Infoshop The World Bank 1818 H Street NW Washington DC, 20433 Telephone: (202) 458 5454 Fax: (202) 522 1500 Team Leader: Christine Richaud Telephone (202) 458 7937 Fax: (202) 473 8466 wb106701 C:\Documents and Settings\wb106701\My Documents\Christine\Chad\Institutional Reform Credit\Draft PID-Revised after appraisal.doc May 10, 2004 4:26 PM 5