Economic performance and outlook Economic activity in Chad continued to be hurt by the decline in world oil prices in mid-August 2014 and the security and humanitarian crises facing the country. GDP growth fell from 6.2% in 2014 to 1.8% in 2015 to –6.4% in 2016 and was estimated to turn positive in 2017. Inflation, –1.9% in 2016, increased in 2017 and is projected to do so in 2018 as well. Declining investment, particularly in oil and in building and public works, large workforce cuts, high domestic arrears, and the sharp decline in public spending largely explain the contraction over the past two years. The outlook for 2017 and 2018 depends heavily on the country’s ability to intensify fiscal consolidation in an economic and financial environment characterized by falling oil prices.
Macroeconomic evolution: The decline in oil prices continues to impede growth and macroeconomic performance. Lower oil revenues and nonoil tax revenues led authorities to greatly reduce operating and capital expenditures to contain deficits in public accounts. Capital expenditure, which accounted for 9.6% of GDP in 2014, fell to 3% in 2016. The budget surplus reached an estimated 1.7% of GDP in 2017, up from a 2% deficit in 2016. The decline in oil prices also affected foreign exchange reserves, which in 2016 were only 0 months of imports of goods and services.
Tailwinds: The success of the September 2017 international donor conference in Paris to mobilize resources for financing programs in the National Development Plan 2017–2021, which was derived from Vision 2030—The Chad We Want, has led to promising actions. Development partners pledged $6 billion and private-sector actors pledged $13.2 billion to increase the country’s economic diversification.
Headwinds: Despite progress, the business environment remains problematic, as highlighted in the World Bank’s 2018 Doing Business report. Structural reforms are required to enhance the attractiveness and competitiveness of the domestic economy. Progressively closing the infrastructure deficit, particularly in the vital sectors of energy and transport, is essential to the success of the economic emergence policy
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 d’achat des obligations
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.