Chad: Chad Financial Sector Profile

Chad: Financial Sector Profile

Chad is a country mired in political instability, leading to increase rates amongst the lowest in sub-Saharan Africa. Ranking 170 of 179 nations in the United Nations 2008 Human Development Index, Chad is part the poorest nations in the world. It has experienced some form of civil conflict for all but four of the part thirty years, most recently becoming embroiled in conflict with Sudan and enduring several major rebel assaults on its capital. Poverty is widespread, and social indicators are well below the average for sub-Saharan Africa. The incidence of poverty is estimated at 56 % according to a 2003 household survey; an estimated four-fifths of the people of about 8.8 million lives on less than a dollar a day.

Oil production started in 2003; by 2008, oil accounted for 47 % of GDP and oil revenues had risen to 41 % of GDP. Economic increase has been subdued in 2007 and 2008, with a ¼ % increase in real GDP in 2007 due to weak non-oil increase, marked by weak agricultural production, and a sharp decline in oil production owing to technical problems in several fields. Real GDP in 2008 is expected to decline by ½ % because of a further drop in oil production and the impact of the 2008 February rebel attack on economic activity over the initial half of the year. Positive increase rates are not expected until 2010.

Chad has not suffered from the food price crisis as much as other Sub-Saharan African nations, as imported food accounts for only one quarter of the average household consumption basket. However, the world economic crisis has affected the budget and reserves through lower oil prices. Beyond this, Chad’s limited financial and trade integration has insulated it from the financial crisis and ensuing world recession.

The economy is vulnerable and underdeveloped, constraining non-oil increase. Weak financial institutions operate in a shallow system. Financial depth, as measured by broad money to GDP, was 12 % in 2007, compared with 30 % on average in African low gain nations.

Access to credit in Chad is problematic, with banking services practically non-existent outside urban areas. The microfinance sector plays a marginal role in the economy and is virtually unsupervised, but the authorities are determined to take steps to strengthen the system and improve credit access: a new microfinance strategy aims to boost lending from the current equivalent of 3 % of banking system lending.

Chad is a member of the Central Africa Economic and Monetary Union (CEMAC), which was established in 1991 to foster and improve economic and political cooperation in the region.

The Bank of Central African States (BEAC) formulates and implements the monetary policy of the CEMAC member nations and preserves the stability of the common currency of the member states. Furthermore, the BEAC promotes and supervises CEMAC’s payment system.

Banking in Chad is supervised by the Banking Commission of Central Africa (COBAC). At present, seven banks are operating in Chad and all major banks have undergone internal reforms to reduce the volume of non-performing loans and improve lending practices. However, informal financial services are widely spread and supervision and regulation weak and insufficient.

Chad has no money market and no government bond market. The Economic Community of Central African States (CEMAC) planned to establish a common stock exchange, but plans are currently on hold.

The insurance sector in Chad is very small and dominated by a formerly national-owned insurance company. Regulation and supervision is carried out by the Inter-African Conference on Insurance Markets (CIMA). The insurance market is as well served by South African based insurance companies, offering primarily Pan-African insurance products, and European insurance companies.

While long-term and housing finance arrangements are currently absent, the government is contemplating a housing finance scheme, funded from the budget, by donors and through a levy on salaries.