Real GDP grew by an estimated 2.8% in 2018, after contracting 3.8% in 2017, supported by the Glencore debt renegotiation in February 2018 and substantial external financing. The fiscal balance was an estimated surplus of 0.1% of GDP, up from a deficit of 0.8% in 2017, thanks to increased revenue (mainly from oil), budget support, and control of total expenditure, particularly salaries (down 6%). The second review of the International Monetary Fund’s (IMF) Extended Credit Facility was approved in July 2018.
Monetary policy is part of the Central African Economic and Monetary Community (CEMAC) stabilization policy. Inflation rose to an estimated 2.1% in 2018, from –0.9% in 2017. The current account deficit improved to an estimated 4.3% of GDP in 2018 from 6.6% in 2017, in conjunction with the improved trade balance (from 3.0% in 2017 to 8.4% in 2018) following the recovery in oil prices.
Tailwinds and headwinds
Real GDP growth is projected to pick up in 2019 (4.2%) and 2020 (5.8%), aided by the surge in oil prices and the renegotiation of the Glencore debt. The secondary sector, heavily affected by the crisis, is projected to recover (growing by 2.2%) in 2019, like the tertiary sector, which could grow by up to 1.2%.
Since 2017, the IMF has rolled out a financing program for Chad. With the approval of the first two reviews in 2018, the consolidation of the public and external accounts is expected to continue in 2019 and 2020. The budget balance is projected to record a surplus of 0.2% in 2019 and 0.5% in 2020, while the current account deficit is projected to be 4.3% in 2019 and 4.5% in 2020. Inflation is projected to settle at 2.3% in 2019 and 2020, in line with the CEMAC requirement. Threats that could undermine these prospects include volatile oil prices, insecurity linked to Islamist groups disrupting cross-border trade, and the effects of climate change (particularly drought and locust infestation), which could affect the agricultural sector.
The economy depends heavily on oil, which accounted on average for 78% of total exports in 2016– 18 and 89% in 2018. Oil revenues averaged more than 65% of total nongrant revenues in the precrisis period (2009–14). So the economy needs diversification, which could pay off if the agricultural sector were to be developed.
Moreover, the country lacks an industrialization strategy (though a study aimed at formulating an industrialization policy was launched recently). The secondary sector accounts for less than 15% of GDP. The infrastructure deficit is very pronounced, with an index score of 7.239 out of 100 (resulting in a rank of 51 out of 54 countries) in 2018.
With a Human Development Index value of 0.396, Chad was ranked 186 out of 188 countries in 2016, indicating that the country is lagging significantly in this area. Declining oil prices, which have plunged the country into a fiscal crisis since 2015, have weakened some of the progress in social indicators.
Chad has considerable agricultural potential. In 2017 the sector accounted for almost 50% of GDP and employed 90% of the population. In 2018, the government adopted an agricultural policy in support of value chain development. A large landlocked country, Chad has made regional integration a pillar of its development strategy. It is making a major contribution to the development of regional integration infrastructure, including electricity interconnection, preservation of the Chad Basin, a fiber optic backbone project, and the Algeria– Niger–Nigeria–Chad trans-Saharan road.
The CEMAC securities yield curve extended to 5 years with 9 benchmark points along the curve (3m-6m-1-1.5-2-3-3.5-4 and 5 years).
The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are the auction method and the underwriting method.
CEMAC states may issue new lines on the financial market in Libreville or in Douala. They can also use the auction market for government securities which is organized by the Central Bank, the Banque des Etats de l’Afrique Centrale (BEAC). The states have no proper debt strategy in place.
There are 9 benchmarks maturities for government securities in local currency in the CEMAC zone: 3m-6m-1-1.5-2-3-3.5-4 and 5 years.
Yield curve calculation models
The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve.
The Brandt interpolation method is used in the CEMAC region.
Yield curve managed by
The BEAC is responsible for calculating the yield curve on a monthly basis.
Challenges in building an efficient yield curve
- Illiquid and limited secondary market: buy-and-hold investors
- Narrow investor base: only banks are involved in the bond market
- Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.
- Lack of issuance strategy in CEMAC states
- Lack of reliable data
- Lack of long-term maturity
- Two countries had never issued on the domestic market as of end-2015
Guide to Buying Bonds
Procedures for market participation
Currently, each country set up its own issuances. The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.
At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.
The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.
Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program.
The six National Treasures issue in turn at regular intervals. Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year. Each National Treasury can issue T-Bonds monthly. The auctions are scheduled to take place every Wednesday. However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day.
A shift schedule was developed for planned Wednesday auction sessions:
- Cameroon: 1st Wednesday of the month
- Central Africa - Congo: 2nd Wednesday of the month
- Gabon: 3rd Wednesday of the month
- Equatorial Guinea-Chad: 4th Wednesday of the month
These emissions will occur at regular time intervals and are publicly known.
The total amount of the twelve issuances will be released in the Finance Act each year. For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year. This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the emission will not be announced at this time.
However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.
On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.
The settlement of transactions takes place at T+3.
The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.
|Rating Agency||Current rating||Outlook|
|Moody’s||No rating||No outlook|
|Fitch||No rating||No outlook|
|Standard and Poor’s||No rating||No outlook|
Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.
Openness to international investors
Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.
This is no restriction on foreign ownership in the CEMAC zone.
Restrictions on FX and profit repatriation
There are no restrictions on obtaining foreign exchange.
The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.
Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease payments.