December 6, 2022

In Ndjamena, IMF’s Africa Director Abe Selassie says multiple shocks, including drought, food insecurity, Russia’s war in Ukraine and debt-restructuring delays by some creditors preventing Chad’s from benefiting from higher oil prices

Zambia Minister of Finance Situmbeko Musokotwane and Head of IMF’s African Department Abebe Aemro Selassie participate in a Governor Talk during the 2022 Spring Meetings at the International Monetary Fund. IMF Photo/Allison Shelley 19 April 2022 Washington, DC, United States
Zambia Minister of Finance Situmbeko Musokotwane and Head of IMF’s African Department Abebe Aemro Selassie participate in a Governor Talk during the 2022 Spring Meetings at the International Monetary Fund. IMF Photo/Allison Shelley 19 April 2022 Washington, DC, United States Photo ref: 651A8225.cr3

The International Monetary Fund’s Africa Director Abe Selassie asserted on Thursday that multiple shocks, including drought, food insecurity, Russia’s devastating war on Ukraine and debt-restructuring delays by some creditors are some of the factors affecting Chad’s economy and preventing the central African nation from benefiting from higher oil prices.

“Just to take the example of Chad, even though Chad is an example of a country that will benefit to some degree from higher oil prices, it is also facing difficulties on account of the drought that has created deficits in agricultural production, so food security issues are more pressing than ever this year, as well as of course the longer term development challenges,” Mr. Selassie said at a joint press conference in Ndjamena, the capital of Chad, along with Tahir Hamid Nguilin, the Minister of Finance and Budget of Chad. “Even the benefits of higher oil prices are not all coming to Chad. For example, the fact that Chad’s creditors have not yet completed the debt restructuring that the country desperately needs is causing difficulties.”

Chad has previously said that 98 percent of its commercial debt is owed to Swiss-based miner and trader Glencore in oil-for-cash deals dating back to 2013 and 2014. The company and a consortium of 16 banks started restructuring talks with Chad in October 2021. However, those talks do not seem to have gone very far, as of now.

Mr. Selassie identified two key problems facing Chad’s economy, including that “the ability of the IMF and other development partners to provide financing is constrained,” and that “more pressing and damaging is the fact that the country is not benefiting fully from higher oil prices.”

“This is because some of the debt contracts actually require an acceleration of payments to the creditors,” he said.

Going forward, Selassie recommended that “Chad needs multilateral supporters, international financial institutions, bilateral donors, as well as its creditors to come to its support at this very crucial time.”

Chad requested a restructuring of its $3 billion external debt under the Common Framework process in January 2021. That framework was set up by the Paris Club, the group of 20 nations, China and other creditors. However, since Chad reached an agreement with creditor nations in June, it has struggled to conclude negotiations with private creditors.

Mr. Selassie on Thursday did not name the private creditors “causing difficulties” for Chad, but the IMF has said reaching an agreement with the creditors is necessary for the organization to provide financing to Chad.

He called on official and private creditors who had indicated readiness to provide relief for Chad “to step forward.”

He said the discussion between the government and Chad and its creditors are ongoing and explained why Chad needs to pay its debt now that oil prices are high.

“On the question of acceleration of payments when oil prices are high, it can make sense in certain conditions. When oil prices are high, government have more revenues, paying earlier can also lower interest cost,” he said. “The difficulty at the moment is that the country is facing multiples shocks none of which are envisage and all of which are having adverse effects on the economy. In this context, an acceleration is problematic. Chad needs more of the revenues it has to support its economies, to support its people.”

He added, “I just want to make two additional points. First, the difficulties on debt that Chad faces reflect to a large degree exogenous development that are outside the control of the governments, things that have been happening internationally,’ he said. “During the pandemic, there was a period when oil prices crashed to levels not envisaged by anybody. There was the pandemic which is of course a once in a hundred-year shock. And as we thought countries were emerging from the pandemic, there is now the war in Ukraine that is causing so much difficulty around the world. It has significant economic consequences, notably for countries in Africa which have limited resilience. It is in this context that the need for debt restructuring needs to be seen, when debt is unpayable, creditors need to step forward and provide debt relief. Otherwise, the financing that we support, that we provide will not be benefiting countries fully but rather going to creditors. And in this period, it is critical that financing benefits people. Second, with respect to the treatment with domestic and internal debt. Why it is important to restructure external debt? Because that is the main source of pressure on Chad’s balance of payment and Chad’s budget.”

Speaking at the same press conference, Mr. Tahir Hamid Nguilin, the Minister of Finance and Budget of Chad, said “everyone committed in December to restructure debt before the first review, now we need to fulfill these commitments.”

“I think we are on the right track, and we know that the IMF with all his persuasion, accompaniment and explanation capacity will help Chad have a restructuration so that we can present our case to the IMF Board next June so that the first review of the program can take place in reasonable and acceptable conditions,” Nguilin said.

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