On behalf of my Central African authorities, I would like to express their appreciation to the Executive Board and to Management for their continued support and policy advice, over the years. My authorities would also like to thank staff for the quality of the dialogue shared during the recent consultation in Bangui. They fully recognized that the joint effects of this involvement at different levels of these institutions have helped them to implement sound policies, as evidenced by the improvement of the political and social situation, as well as the building of a solid basis for economic revival, which is well-acknowledged by all stakeholders. Progress is also being made in the consolidation of peace and security with the assistance of France and the Central African Economic and Monetary community (CEMAC).
Recent Economic Developments
In the real sector, real GDP has rebounded from the sluggish path recorded before 2003, growing steadily to 1.3 percent in 2004, 2.2 percent in 2005, and 4.1 percent in 2006. Based on preliminary assessment of the program during the six first months of the current year, my authorities expect that in terms of growth rate, 2007 presents as favorable perspective as 2006, in spite of delays in foreign assistance, most of it affecting growth-led area of physical and human capital, as reported by the staff. This favorable evolution in the real sector was driven by the dynamics of domestic consumption benefiting from more regular disbursement of wages for civil servants and other government workers. Agriculture made a slight contribution to growth for the first time in years, as a result of the revival of the cotton marketing campaign conducted by the government. In secondary and tertiary sectors, the activities improved well, taking advantage of the resumption of confidence, in particular in the subsectors of manufacturing and mobile telephony. As regards the external sector, the current account deficit narrowed, driven by buoyant export and higher level of FDI. However, given the extent of balance of payments needs, especially for the rehabilitation of infrastructure and the delivery of basic services of health and clean water, this positive external account development has just contributed to improve the profile of external aggregates, leaving the social conditions still dire. Significant improvements in fiscal management yielded a primary domestic surplus of about 0.4 percent of GDP, though this surplus was slightly lower than the projected level of 0.5 percent of GDP. My authorities have also completed the external audit of the domestic arrears and a strategy of clearing these arrears is now being discussed with all stakeholders.
Implementing structural reforms progressed steadily, in particular those pertaining to fiscal area, governance and accountability, business climate, forestry and mining sectors. As regards fiscal reforms, several measures were taken, including the elimination of fraud and duplication in the public sector payroll, identification of ghost workers and subsequent establishment of cleaned database of civil servants and military personnel, introduction of one-stop window for custom administration, reform of judiciary court in order to consider the cases of financial and commercial crime. Efforts, in the area of tax and customs administration, aimed at raising the level of revenue collection are underway. Moreover, efforts towards implementation of the OHADA business laws have been made. As noted in the joint staff assessment of the PRSP, progress in the preparation of this document has been substantial. The permanent secretariat, responsible for overseeing PRSP, is fully operational, gathering considerable experience in guiding the process. The priorities set out in this document are consistent with the population’s expectations and in line with the objectives of PRGF program.
As pointed out by staff in its report, my authorities have established satisfactory policy implementation track. Four of the seven end-June quantitative criteria were observed, among them the total government revenue, which has been attained with a 2 billion of CFA francs margin. As for the indicative targets, which set floors for poverty related spending and domestic arrears reduction, they were also met with comfortable margins. Likewise, all structural performance criteria and benchmarks were observed, though two with delays.
Regarding the 3 quantitative criteria for which waivers are requested, their occurrence is mainly due to the government’s financial constraints stemming from the uncertainty of aid inflows already programmed in the 2007 budget. Indeed, for the criterion related to ‘domestic primary surplus”, missed by 0.1 percent of GDP, the cause of the slippage stems from the authorities’ decision to rescue one commercial bank. This operation aimed to avoid the risk of financial perturbations in CAR banking system, given the strategic position of that bank, on one hand, and to facilitate the recapitalization of that institution through foreign investors on the other. The second waiver is requested for the criterion on “net claims of the commercial banking system on the government” for which the government has contracted a new loan of CFAF 0.6 billion, instead of reimbursing an amount of CFAF 2 billion. The last overrun concerned “wages and salaries” for which the criterion was breached by a small amount of 0.2 billion.
Reaching the decision point of debt relief under the HIPC initiative
As set out in the staff report of March 2007, CAR is eligible for HIPC debt relief. It is an IDA-only country with per capita GNI of 350$ and is eligible for the foreseeable future for support from the IMF under the PRGF. CAR’s external public debt and publicly-guaranteed debt at end-2005 is estimated at US $ 869 millions. After application of traditional debt relief, the debt amounts to US$ 832 millions which corresponds to 750 percent of exports. CAR’s external indebtedness is therefore not sustainable and is significantly above the 150 percent of export threshold of the HIPC even after the application of traditional debt reduction mechanisms.
My authorities have fulfilled the conditions required to qualify reaching HIPC decision point and benefit from interim HIPC debt relief.
i) They have established a satisfactory track record of policy performance under the two EPCA and they continue to pursue sound economic policies under the PRGF supported arrangement, as evidenced by the broadly positive conclusion drawn by the staff at the end of the last mission in Bangui. Under these programs, fiscal policy aimed at exerting effective controls and redirecting spending towards priority sectors. Looking ahead, my authorities intend to continue implementing sound policies and a vigorous reform agenda grounded in the PRSP.
ii) They have a satisfactory poverty reduction strategy in place in the form of I-PRSP. The latest version of this document was at early September 2007 shared with all stakeholders, including Bank and Fund staffs. All needed studies on Poverty analyses and participatory poverty assessment, Diagnostic trade integration analysis, and on the Country financial accountability assessment, have been completed. The authorities’ priorities set out in the PRSP are consistent with the aspirations of the population.
iii) CAR’s debt burden indicators are above the HIPC initiative export threshold, as mentioned in the preceding paragraphs.
My authorities have also concluded with staff on HIPC completion point triggers.
As highlighted above, Central African Republic has made progress since 2003 under EPCA and now under the PRGF program. My Central African Republic authorities have implemented these programs under several limited assistance from the international community. My authorities thank the Fund for continued support and will appreciate Board approval of this first review of PRGF and reaching HIPC decision point.