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Why is Chad is losing 1 million euros a day in oil revenues?

By Solène Benhaddou
Posted on Tuesday, 6 July 2021 17:57

Chad has been able to undertake more infrastructure projects, thanks to its oil revenues. © Success story

In response to the ongoing pandemic, Chad’s government has cut taxes, resulting in a significant shortfall for its already stretched treasury.

“Despite an increase in the volume of exports and the price of Brent crude oil, oil revenues are declining, compared to the first quarter of 2020,” said Chad’s Observatory of Public Finance, in a note on the oil service that was published on 29 June.

Oil revenues decreased by -68.4% between the first quarter of 2020 and the first quarter of 2021 – from 102bn CFA francs (€156m) to 32.2bn CFA francs (€49m). This represents a shortfall of around €107m over three months, or €1.2m per day on average, for the Chadian state during this period.

Moreover, the Observatory, which answers to the Ministry of Finance and Budget, points out that the average price of Brent was $60.82 in the first quarter of 2021, compared with $50.43 a year earlier, i.e. an increase of +20.6%.

Tax relief

This drop in revenue is a direct consequence of the tax breaks that N’Djamena introduced in an effort to support the economy, which was hit hard by Covid-19. “This decrease is linked to the drop in corporate tax caused by the global health crisis at the beginning of 2020, despite an increase in the volume of exports and the price of Brent crude oil,” adds the observatory.

The state thus halved several levies for six months in April 2020 and extended these measures for a further six months in October.

In concrete terms, revenue from taxes on oil companies fell by -46% to 22bn CFA francs, as the production and dividend fee (52bn CFA francs in the first quarter of 2020) was not collected for the first three months of this year.

Moreover, despite the loss of revenue from tax exemptions, the government must repay its debt to the mining and trading company Glencore – which accounts for almost a third of its external debt.

According to figures from the Observatory of Public Finance, N’Djamena’s debts to the Swiss-based trader reached $32m in the first quarter of 2021, including $25m in principal and $7m in interest.

Repaying the debt

However, the government is counting on an increase in sales for the year as a whole, with CFAF 346bn in oil revenues expected for 2021, half from company payments and half from direct export sales.

N’Djamena is also betting on a rebound in income taxes to 141bn CFA francs for the entire year, which had halved to just 22bn CFA francs in the first quarter of 2021.

These inflows of fresh money will be all the more necessary given, in addition to tax incentives, the government had to support the economy during the pandemic.

Last year, the late President Idriss Déby Itno announced that part of the arrears owed to private companies (110bn CFA francs out of an estimated 1,000bn CFA francs) would be repaid. He also stated that a fund would be created to facilitate the granting of 70% state-guaranteed bank loans to young people (30bn CFA francs).

To ease the pressure on its cash flow and boost its economy, Chad has requested debt restructuring under the Paris Club-G20 “common framework” initiative.

In addition, the IMF and N’Djamena reached an agreement in January under the Extended Fund Facility and the Extended Credit Facility for $560m over four years.

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