Journal Issue
Share
Article

Central African Republic: Staff Report for the 2016 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility

Author(s):
International Monetary Fund. African Dept.
Published Date:
August 2016
Share
  • ShareShare
Show Summary Details

Context: Post-Conflict Peacebuilding and Reconstruction

The return to democratic institutions provides a new window of opportunity for C.A.R. to engage on the path of national reconciliation, good governance, and better economic management.

1. The peaceful elections in early 2016 brought to an end a protracted political transition and the return to democratic institutions. This enhances the prospects of ending the political instability in the country that erupted in 2013 when armed rebels overthrew the democratically elected government, leading to violent fighting along religious lines. State institutions collapsed, economic activity ceased, civilians fled to internal camps or abroad, and a humanitarian crisis ensued. With help from the international community, a transitional government was eventually set up in January 2014. The United Nations put in place a peace keeping mission mandated to restore security, protect civilians, support the transition to democracy, and restore the rule of law. Following several delays for financial, security or logistical reasons, presidential and legislative elections were held in early 2016, leading to the election of President Touadera and a new parliament. The elections were generally acclaimed as free and the results widely accepted and President Touadera formed a coalition government composed of representatives from a wide array of political parties, but excluding some minority groups.

2. The new government is turning its attention to development challenges, with a focus on peace, governance, and economic management. It has announced that its long-term objectives are to reduce widespread poverty by reinforcing security, fostering national reconciliation and social peace, strengthening human and administrative capacity, and undertaking economic reforms. Consistent with these challenges, the authorities intend to: (i) undertake a comprehensive reform of the security services (RSS); (ii) further mobilize revenue collection and rein in non-priority public spending, while ramping up pro-poor spending; (iii) strengthen the government institutional capacity; and (iv) improve competitiveness.

3. The RSS will be a key element of the government’s medium-term strategy. This comprehensive security reform plan is being worked out between the authorities and stakeholders. The key issues relate to the departure of many old and untrained officers, the place of the ex-combatants in the society, and the role of a new army, with most of the donors favoring a shift to a civil security format, with small specialized forces to ensure security. The reform will require significant financial support from development partners and is not expected to impact the public finances. It is expected to be submitted to the donor community in November 2016.

Central African Republic and the IMF

The IMF provided significant support during the 2014-2015 political transition through three disbursements under the RCF. Performance by the authorities under their program created favorable conditions for longer term engagement.

4. The IMF and the international community supported the transition’s government emergency program with significant financial assistance and targeted technical assistance. The transition authorities improved treasury management, streamlined the civil service roster to contain a ballooning wage bill, and put in place a collaborative institutional framework. Donors provided significant budgetary aid, humanitarian assistance, and project support. The three successive disbursements under the RCF provided SDR 22.28 million (20 percent of new quota).

5. In the 2011 Article IV consultation, the authorities were encouraged to maintain macroeconomic stability while substantially increasing investment to address structural gap. Directors called for measures to ensure budget execution in line with the priorities approved by Parliament. They also recommended putting in place a mechanism for adjusting domestic petroleum products on a monthly basis. Directors stressed the need to strengthen public debt management, contract new debt on concessional terms to preserve debt sustainability, and clear arrears. They identified improving financial intermediation, removing structural rigidities, including expanding access to electricity, and improving the business environment as key structural reforms to uplift growth prospects. Notwithstanding the political and security crisis that prevailed, most of these reforms are underway, including those aimed at enhancing the contribution of the banking sector to growth and expand electricity supply.

6. Performance under three successive RCF disbursements set the stage for an upper credit tranche program and staff sees merit in longer-term engagement. The authorities have rebuilt basic state functions and core capacity, and delivered on macroeconomic management objectives and structural reforms—even under difficult political and security conditions. The new authorities have requested an ECF arrangement to meet protracted balance of payments needs. The latter would persist beyond the medium term because of a slow take off of their export earnings capacity due to the lingering impact of the partial embargo on diamond exports,1 low timber prices, and rising imports to meet the country’s food needs and reconstruction and investment requirements. The ECF-supported program aims to provide a macroeconomic framework to that will strengthen substantially and in a sustainable manner its balance of payments position consistent with strong and durable poverty reduction and growth. In line with this objective, the ECF will help mobilize revenue, improve efficiency of spending, scale-up social and infrastructure investment, anchor priority structural reforms, and mobilize and coordinate support from development partners.

Recent Economic and Financial Developments

Despite the progress achieved in the context of the emergency program, economic growth remained elusive, and fiscal revenue insufficient to cover current primary spending. The return to democratic institutions and the restoration of a peace –albeit fragile- provides a historic window of opportunity for C.A.R. to focus on longer term issues.

7. The crises during 2013 followed by a protracted political transition in 2014–15 provide the context for recent economic developments. Following a 4.1 percent rise in 2012, real GDP growth contracted by an estimated 36.7 percent in 2013. During the transition, economic activity remained weak, reaching 1 percent in 2014, before rising to 4.8 in 2015, driven by an uptick of subsistence agricultural activity, construction, transportation and trade. Inflation peaked at 11.6 percent in 2014 and receded to 4.5 percent in 2015 thanks to improved supply conditions resulting from enhanced security along the Douala-Bangui transport corridor, a fall in the prices of some basic imports, and improved distribution networks (Table 1 and MEFP, ¶5). Per capita growth, which stagnated throughout the pre-crisis, collapsed in 2012 and did not recover during the transition. Furthermore, the crisis led to a deterioration of all social indicators, as suggested by the 2015 Human Development Report which ranked C.A.R. at 187 out of 188 countries, with a Human Development Index significantly lower than the average sub-Saharan Africa (Box 1).

Table 1.Central African Republic: Selected Economic and Financial Indicators, 2012–21
2012201320142015201620172018201920202021
Est.Prel.Proj.
(Annual percentage change; unless otherwise indicated)
National income and prices
GDP at constant prices4.1−36.71.04.85.25.55.85.85.85.8
GDP at current prices6.9−32.312.211.311.311.110.910.910.89.3
GDP deflator2.77.011.16.25.85.34.84.74.73.3
CPI (annual average)5.96.611.64.54.03.53.03.03.03.0
CPI (end-of-period)5.95.99.74.84.03.53.03.03.03.0
Money and credit
Broad money1.65.614.65.311.812.810.910.910.89.3
Credit to the economy30.2−16.34.0−3.010.310.810.710.610.69.2
External sector
Export volume of goods11.3−50.8−28.14.932.421.67.321.98.921.6
Import volume of goods22.1−29.677.518.812.62.45.812.71.27.1
Terms of trade2.819.48.226.65.8−7.90.6−2.70.70.0
(Percent of GDP; unless otherwise indicated)
Gross national savings10.45.74.64.96.77.38.69.812.214.3
Of which: current official transfers1.01.38.73.30.50.00.00.00.00.0
Gross domestic savings3.6−1.9−14.3−8.0−2.5−1.00.72.25.07.4
Government1.4−7.3−5.3−2.8−2.4−0.9−0.30.61.42.4
Private sector2.25.4−9.0−5.2−0.1−0.11.01.63.65.1
Consumption96.4101.9114.3108.0102.5101.099.397.895.092.6
Government7.410.28.27.77.57.17.16.97.47.4
Private sector89.091.6106.1100.495.094.092.290.987.685.1
Gross investment15.08.710.213.916.917.217.919.019.921.0
Government6.21.72.14.76.26.06.26.77.07.4
Private sector8.87.08.19.310.611.211.712.312.913.6
External current account balance−4.6−3.0−5.6−9.0−10.1−9.9−9.3−9.2−7.7−6.7
Overall balance of payments3.02.8−2.6−2.2−4.4−2.2−2.0−2.1−1.0−0.6
Central government finance
Total revenue (including grants)16.48.415.714.313.013.213.714.315.516.5
of which: domestic revenue11.55.64.97.18.18.99.510.111.612.6
Total expenditure 216.414.912.714.917.116.016.016.417.517.7
of which: capital spending6.21.72.14.76.26.06.26.77.07.4
Overall balance 1
Excluding grants−4.9−9.3−7.8−7.8−9.0−7.2−6.6−6.3−5.8−5.1
Including grants0.0−6.53.0−0.6−4.1−2.8−2.3−2.1−1.9−1.2
Domestic primary balance 20.5−7.0−5.1−3.0−3.3−1.8−1.4−0.9−0.50.0
Public sector debt23.538.551.148.547.241.235.831.227.724.7
Of which: domestic debt 313.824.036.334.030.326.222.518.916.013.4
Gross official foreign reserves
(US$ millions, end-of-period)175.6205.8258.7199.4207.6248.5288.8319.2364.1406.3
(months of imports, f.o.b.)5.63.75.14.24.04.54.75.05.25.5
Nominal GDP (CFAF billions)1108750842937104211581285142415781726
Sources: C.A.R. authorities; and IMF staff estimates and projections.

Expenditure is on a cash basis in 2014 and 2015 in the context of the Rapid Credit Facility.

Excludes grants, interest payments, and externally-financed capital expenditure.

Comprises government debt to BEAC, commercial banks and government arrears.

Sources: C.A.R. authorities; and IMF staff estimates and projections.

Expenditure is on a cash basis in 2014 and 2015 in the context of the Rapid Credit Facility.

Excludes grants, interest payments, and externally-financed capital expenditure.

Comprises government debt to BEAC, commercial banks and government arrears.

8. Fiscal and current account deficits widened. The primary fiscal position shifted from a small surplus in 2012 to a deficit of 3 percent of GDP in 2015 (Tables 2 and 3). This was attributable to a collapse in domestic revenue to 4.9 percent of GDP in 2014 (from 11.5 percent of GDP in 2012) before rebounding to 7.1 percent of GDP in 2015 thanks to corrective measures taken during the last year of transition. At the same time, current primary spending remained at about 9.7 percent of GDP, of which 6 percent representing the wage bill. Domestically-financed capital spending fell to 0.4 percent of GDP in 2015, from 1.5 percent in 2012. The current account deficit doubled since 2012 to 9 percent of GDP, mainly reflecting a collapse in exports of diamonds and forestry products.

Table 2.Central African Republic: Central Government Financial Operations, 2012–21(CFAF billions)
2012201320142015201620172018201920202021
Est.Prel.Proj.
Revenue181.362.9132.2134.1135.4153.0176.6203.8245.4284.7
Domestic revenue127.342.241.366.584.7103.0121.5143.8183.9217.3
Tax revenue109.338.837.160.976.894.2111.8132.0171.3203.5
Taxes on profits and property21.17.08.113.115.218.421.627.637.350.2
Taxes on goods and services88.231.829.047.861.675.890.2104.4134.0153.3
Of which: international trade30.58.59.215.319.924.729.532.443.849.3
Non-tax revenue18.03.44.25.67.98.89.711.812.613.8
Grants54.020.790.967.650.750.055.060.061.567.4
Program11.09.773.631.05.20.00.00.00.00.0
Project42.911.017.336.645.550.055.060.061.567.4
Expenditure 1181.3111.9107.3140.0178.4185.8206.1233.5276.0305.3
Primary Spending121.894.984.494.2119.4124.0139.0156.7191.4217.4
Current primary expenditure105.194.383.690.9106.2110.0121.0131.7158.6173.4
Wages and salaries50.853.754.956.455.657.964.264.271.077.7
Transfers and subsidies23.117.514.519.027.528.030.033.441.445.3
Goods and services31.223.114.215.523.024.126.734.246.150.4
Interest due8.05.05.55.47.65.86.16.87.33.3
External1.42.63.23.23.62.02.33.23.80.1
Domestic6.62.42.32.24.03.83.73.63.53.2
Capital expenditure68.212.718.143.764.770.079.094.9110.1128.5
Domestically financed16.70.60.83.313.214.018.025.032.943.9
Externally financed51.412.117.340.451.556.061.069.977.384.6
Overall balance
Excluding grants−54.0−69.7−65.9−73.5−93.7−82.8−84.6−89.6−92.1−88.0
Of which: domestic primary balance 25.5−52.743.1−27.7−34.7−21.0−17.5−12.9−7.6−0.1
Including grants0.049.025.0−5.943.0−32.8−29.5−29.6−30.7−20.6
Net change in arrears ((-) = reduction)−5.417.4−13.9−10.1−5.6−8.5−11.3−18.9−16.7−21.5
Domestic4.017.4−12.1−10.1−5.6−8.5−11.3−18.9−16.7−21.5
External−1.40.0−1.80.00.00.00.00.00.00.0
Errors and omissions0.41.2−15.3−12.90.00.00.00.00.00.0
Overall balance, cash basis−5.0−30.44.2−28.948.641.340.848.647.342.1
Identified financing5.030.44.229.0−1.4−6.7−6.23.69.210.7
External, net0.420.50.96.14.5−2.4−2.53.69.210.7
Project loans8.51.10.03.86.06.06.09.915.817.3
Program loans0.025.00.00.00.00.00.00.00.00.0
Amortization due−8.1−5.6−5.8−6.8−10.5−8.4−8.5−6.4−6.5−6.6
Exceptional financing0.00.06.79.10.00.00.00.00.00.0
Domestic, net4.69.93.322.93.14.3−3.70.00.00.0
Banking system−3.68.83.322.93.1−5.34.70.00.00.0
BEAC2.14.5−6.617.21.0−9.3−18.7−17.2−16.9−13.9
of which: Counterpart to IMF resources (BEAC)11.71.13.64.3−11.3−11.0−11.0−15.1−14.6−11.7
Commercial banks−5.74.310.05.62.14.014.017.216.913.9
Nonbank 38.21.20.00.00.01.01.00.00.00.0
Residual financing need0.00.00.00.050.048.047.045.038.131.4
From the donors30.128.7
From IMF19.919.3
Memorandum items:
Total government debt260.5289.1430.6454.3492.3477.1459.6444.3436.8426.0
Government domestic debt4152.7179.9305.4318.8316.3303.5288.5269.6252.9231.4
Nominal GDP1108750842937104211581285142415781726
Sources: C.A.R. authorities; and IMF staff estimates and projections.

Expenditure is on a cash basis, except for interest, which is recorded on a due basis.

Excludes grants, interest payments, and externally-financed capital expenditure.

Includes repayments to CEMAC commercial banks and domestic suppliers for oil subsidies.

Including arrears.

Sources: C.A.R. authorities; and IMF staff estimates and projections.

Expenditure is on a cash basis, except for interest, which is recorded on a due basis.

Excludes grants, interest payments, and externally-financed capital expenditure.

Includes repayments to CEMAC commercial banks and domestic suppliers for oil subsidies.

Including arrears.

Table 3.Central African Republic: Central Government Financial Operations, 2012–21(In percent of GDP)
2012201320142015201620172018201920202021
Est.Prel.Proj.
(In percent of GDP)
Revenue16.48.415.714.313.013.213.714.315.516.5
Domestic revenue11.55.64.97.18.18.99.510.111.612.6
Tax revenue9.95.24.46.57.48.18.79.310.911.8
Taxes on profits and property1.90.91.01.41.51.61.71.92.42.9
Taxes on goods and services8.04.23.45.15.96.67.07.38.58.9
Of which: international trade2.81.11.11.61.92.12.32.32.82.9
Non-tax revenue1.60.50.50.60.80.80.80.80.80.8
Grants4.92.810.87.24.94.34.34.23.93.9
Program1.01.38.73.30.50.00.00.00.00.0
Project3.91.52.13.94.44.34.34.23.93.9
Expenditure 116.414.912.714.917.116.016.016.417.517.7
Primary Spending11.012.610.010.111.510.710.811.012.112.6
Current primary expenditure9.512.69.99.710.29.59.49.210.010.1
Wages and salaries4.67.26.56.05.35.05.04.54.54.5
Transfers and subsidies2.12.31.72.02.62.42.32.32.62.6
Goods and services2.83.11.71.72.22.12.12.42.92.9
Interest due0.70.70.70.60.70.50.50.50.50.2
External0.10.30.40.30.30.20.20.20.20.0
Domestic0.60.30.30.20.40.30.30.30.20.2
Capital expenditure6.21.72.14.76.26.06.26.77.07.4
Domestically financed1.50.10.10.41.31.21.41.82.12.5
Externally financed4.61.62.14.34.94.84.74.94.94.9
Overall balance
Excluding grants−4.9−9.3−7.8−7.8−9.0−7.2−6.6−6.3−5.8−5.1
Of which: domestic primary balance 20.5−7.0−5.1−3.0−3.3−1.8−1.4−0.9−0.50.0
Including grants0.0−6.53.0−0.6−4.1−2.8−2.3−2.1−1.9−1.2
Net change in arrears ((-) = reduction)−0.52.3−1.7−1.1−0.5−0.7−0.9−1.3−1.1−1.2
Domestic−0.42.3−1.4−1.1−0.5−0.7−0.9−1.3−1.1−1.2
External−0.10.0−0.20.00.00.00.00.00.00.0
Errors and omissions0.00.2−1.8−1.40.00.00.00.00.00.0
Overall balance, cash basis−0.5−4.1−0.5−3.1−4.7−3.6−3.2−3.4−3.0−2.4
Identified financing0.54.10.53.1−0.1−0.6−0.50.30.60.6
External, net0.02.70.10.7−0.4−0.2−0.20.30.60.6
Project loans0.80.10.00.40.60.50.50.71.01.0
Program loans0.03.30.00.00.00.00.00.00.00.0
Amortization due−0.7−0.7−0.7−0.7−1.0−0.7−0.7−0.4−0.4−0.4
Exceptional financing0.00.00.81.00.00.00.00.00.00.0
Domestic, net0.41.30.42.40.3−0.4−0.30.00.00.0
Banking system−0.31.20.42.40.3−0.5−0.40.00.00.0
BEAC0.20.6−0.81.80.1−0.8−1.5−1.2−1.1−0.8
of which: Counterpart to IMF resources (BEAC)1.10.10.40.5−1.1−0.9−0.9−1.1−0.9−0.7
Commercial banks−0.50.61.20.60.20.31.11.21.10.8
Nonbank 30.70.20.00.00.00.10.10.00.00.0
Residual financing need0.00.00.00.04.84.13.73.22.41.8
From the donors2.92.5
From IMF1.91.7
Memorandum items:
Total government debt23.538.551.148.547.241.235.831.227.724.7
Government domestic debt413.824.036.334.030.326.222.518.916.013.4
Sources: C.A.R. authorities; and IMF staff estimates and projections.

Expenditure is on a cash basis, except for interest, which is recorded on a due basis.

Excludes grants, interest payments, and externally-financed capital expenditure.

Includes repayments to CEMAC commercial banks and domestic suppliers for oil subsidies.

Including arrears.

Sources: C.A.R. authorities; and IMF staff estimates and projections.

Expenditure is on a cash basis, except for interest, which is recorded on a due basis.

Excludes grants, interest payments, and externally-financed capital expenditure.

Includes repayments to CEMAC commercial banks and domestic suppliers for oil subsidies.

Including arrears.

9. The treasury situation remained tight during the first half of 2016 despite strong revenue performance and strict expenditure control (Table 6a). During the first quarter, domestic revenue, together with the financial reserves accumulated at end-December 2015, helped cover salaries, pensions, and debt service obligations, including vis-a-vis the IMF. For the second quarter, the authorities faced a treasury gap of CFAF 10 billion which prompted donors to provide bridge emergency support as they were reassured by the discussions on a new ECF-supported program.

Table 4.Central African Republic: Monetary Survey, 2012–21
2012201320142015201620172018201920202021
Est.Prel.Proj.
(CFAF billions; end of period)
Net foreign assets−11.48.651.742.247.769.791.0106.0128.1149.0
Bank of Central African States (BEAC)−7.28.447.627.030.752.774.189.1111.2132.0
Commercial banks−4.20.24.115.317.017.017.017.017.017.0
Net domestic assets278.3268.3253.6272.2289.8296.2307.1324.3343.2361.4
Domestic credit292.8278.5286.5305.7321.1330.1341.0358.2377.1395.2
Credit to the public sector151.1159.8163.2186.0189.2183.9179.2179.2179.2179.2
Credit to central government (net)151.1159.8163.2186.0189.2183.9179.2179.2179.2179.2
BEAC146.0150.5143.8161.1162.1152.8134.1116.9100.086.1
Treasury account62.565.167.067.780.780.780.780.780.780.7
Consolidated loans44.943.145.948.143.151.151.151.151.151.1
IMF (net, SDR allocation in NFA)50.247.050.654.943.632.621.66.5−8.1−19.8
Deposits−11.5−4.7−19.7−9.7−5.3−11.6−19.3−21.4−23.7−25.9
Commercial banks5.19.419.325.027.131.145.162.279.193.0
Credit to other public agencies (net)0.00.00.00.00.00.00.00.00.00.0
Credit to the economy141.8118.6123.4119.7132.0146.2161.8179.0198.0216.1
Public enterprises3.13.42.93.23.63.63.63.63.63.6
Private sector138.7115.2120.5116.4128.3142.5158.2175.4194.3212.4
Other items (net)−14.6−10.2−33.0−33.5−31.3−33.9−33.9−33.9−33.9−33.9
Money and quasi-money202.3213.7244.8257.8288.1325.1360.7399.9443.1484.5
Currency105.1120.2138.2134.7159.2176.9196.2217.6241.1263.6
Deposits97.293.5106.6123.0128.9148.2164.4182.3202.0220.9
Demand deposits57.749.458.964.969.276.885.294.5104.7114.5
Term and savings deposits39.544.047.758.259.771.479.287.897.3106.4
Other liabilities excluded from broad money64.663.360.560.149.434.420.2−4.1−25.2−45.7
(Annual change, percent of beginning period broad money)
Net foreign assets−12.49.920.2−3.92.17.76.64.25.54.7
Net domestic assets16.6−4.9−6.97.66.82.23.44.84.74.1
Net domestic credit14.7−7.13.87.86.03.13.44.84.74.1
Net credit to central government−1.84.31.59.31.2−1.8−1.40.00.00.0
Credit to the economy16.5−11.52.2−1.54.84.94.84.84.74.1
Money and quasi–money1.65.614.65.311.812.810.910.910.89.3
(Annual percentage change)
Net foreign assets−185.6−175.5500.4−18.412.946.230.616.520.816.3
Net domestic assets13.5−3.6−5.57.46.52.23.75.65.85.3
Monetary base−2.416.423.6−1.811.311.110.910.910.89.3
Credit to the economy30.2−16.34.0−3.010.310.810.710.610.69.2
Public enterprises10.69.9−15.811.513.00.00.00.00.00.0
Private sector30.7−16.94.6−3.410.211.110.910.910.89.3
Memorandum items:
Gross official foreign reserves (CFAF billions)87.898.5137.7117.1120.8142.8164.2179.2201.3222.1
NDA of the central bank (CFAF billions)121.6124.7117.0134.6149.1147.0147.6156.7161.1165.7
Monetary base (CFAF billions)114.4133.1164.6161.6179.8199.8221.6245.7272.3297.7
Nominal GDP (CFAF billions)1108750842937104211581285142415781726
Velocity (GDP/broad money)
End of period5.53.53.43.63.63.63.63.63.63.6
Sources: C.A.R. authorities; and IMF staff estimates and projections.
Sources: C.A.R. authorities; and IMF staff estimates and projections.
Table 5.Central African Republic: Balance of Payments, 2012–21
2012201320142015201620172018201920202021
Est.Prel.Proj.
(Billions of CFA francs)
Current account−51.1−22.8−46.9−84.7−105.7−114.6−119.1−130.5−121.6−116.0
Balance on goods−68.4−55.1−155.7−153.3−147.6−155.3−162.9−180.0−174.5−171.7
Exports, f.o.b.97.553.042.648.563.175.681.797.6107.2130.8
Imports, f.o.b.−165.8−108.1−198.4−201.8−210.6−230.9−244.6−277.6−281.7−302.5
Services (net)−58.0−24.0−50.8−52.5−54.2−56.1−57.3−58.9−60.8−63.2
Credit41.055.467.169.672.575.880.284.989.895.0
Debit−99.0−79.4−117.9−122.1−126.8−131.9−137.5−143.8−150.6−158.2
Income (net)5.72.83.54.11.23.03.05.65.96.3
Credit8.89.410.010.511.011.612.313.013.814.6
Debit−3.1−6.6−6.5−6.4−9.9−8.6−9.3−7.4−7.8−8.3
Transfers (net)69.553.6156.1117.094.993.898.1102.7107.8112.6
Private3418.561.362.363.464.565.666.767.868.9
Official35.535.194.854.631.529.332.536.140.043.8
of which: Program11.09.773.631.05.200000
Capital account42.911.017.336.645.550.055.060.061.567.4
Project grants42.911.017.336.645.550.055.060.061.567.4
Other transfers (debt forgiveness)0.00.00.00.00.00.00.00.00.00.0
Financial account41.632.77.427.513.938.738.440.544.138.0
Direct investment35.70.91.13.218.541.140.937.034.827.3
Portfolio investment0.00.00.00.00.00.00.00.00.00.0
Other Investment5.931.86.324.3−4.5−2.4−2.53.69.210.7
Public sector (net) 10.420.5−5.8−3.0−4.5−2.4−2.53.69.210.7
Project disbursement8.51.10.03.86.06.06.09.915.817.3
Program disbursement0.025.00.00.00.00.00.00.00.00.0
Scheduled amortization−8.1−5.6−5.8−6.8−10.5−8.4−8.5−6.4−6.5−6.6
Monetary authorities (SDR allocation)0.00.00.00.00.00.00.00.00.00.0
Other short-term flows5.511.312.127.30.00.00.00.00.00.0
Errors and omissions−35.8−5.354.80.00.00.00.00.00.00.0
Overall balance (excl. errors and omissions)33.520.9−22.2−20.6−46.3−26.0−25.7−30.0−16.0−10.6
Identified financing2.4−15.6−32.520.6−3.7−22.0−21.3−15.0−22.1−20.8
Net official reserves movements2.4−15.6−39.220.6−3.7−22.0−21.3−15.0−22.1−20.8
Net IMF credit11.71.13.64.3−11.3−11.0−11.0−15.1−14.6−11.7
SDR allocation0.00.00.00.00.00.00.00.00.00.0
Other reserves (increase = -)−9.3−16.7−42.816.37.6−11.1−10.30.1−7.5−9.1
Exceptional financing0.00.06.70.00.00.00.00.00.00.0
Debt rescheduling0.00.06.70.00.00.00.00.00.00.0
Other exceptional financing 10.00.00.00.00.00.00.00.00.00.0
Debt payment arrears (reduction=-)0.00.00.00.00.00.00.00.00.00.0
Residual financing need0.00.00.00.050.048.047.045.038.131.4
Memorandum items:
Terms of trade2.819.48.226.65.8−7.90.6−2.70.70.0
Unit price of exports−11.710.511.98.5−1.9−1.40.7−2.00.90.3
Unit price of imports−14.1−7.43.4−14.3−7.37.10.10.70.20.2
Gross official foreign reserves
(CFAF billions, end-of-period)87.898.5137.7117.1120.8142.8164.2179.2201.3222.1
(Months of imports, f.o.b.)5.63.75.14.24.04.54.75.05.25.5
Current account (percent of GDP)−4.6−3.0−5.6−9.0−10.1−9.9−9.3−9.2−7.7−6.7
Capital account (percent of GDP)3.91.52.13.94.44.34.34.23.93.9
Nominal GDP (CFAF billions)1108750842937104211581285142415781726
Sources: C.A.R. authorities; and IMF staff estimates and projections.

Includes HIPC debt relief from multilateral creditors. For 2010 onward, reflects full delivery of HIPC and MDRI relief on a flow basis.

Sources: C.A.R. authorities; and IMF staff estimates and projections.

Includes HIPC debt relief from multilateral creditors. For 2010 onward, reflects full delivery of HIPC and MDRI relief on a flow basis.

Table 6a.Central African Republic: Treasury Cash Management Plan, 2016(In millions of CFA francs)
ActualProjectionsTotal 2016
JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
Balance from previous month (I)11,40213,2517,8296,9903,9327,8477,13293454,8183,9094,72111,37711,402
Gross cash inflows (II)9,0587,0208,2516,16418,34512,24717,0536,92714,18617,00218,18014,706149,139
Primary revenue5,1667,0208,2516,1647,5987,0007,1006,5007,2007,8007,8007,10184,700
Other revenue0000000000000
Financing3,89200010,7475,2479,9534276,9869,20210,3807,60564,439
Treasury securities3,8920005,5000427427427427011,100
Other budget support00005,2475,2479,95306,5598,7759,9537,60553,339
World Bank0000000008,775008,775
African Development Bank000000000007,6057,605
IMF Disbursements0000009,953009,953019,906
European Union00005,2470006,55900011,806
France000005,2470000005,247
BEAC0000000000000
Deposits from other banks0000000000000
Gross cash outflows (III)M7,20912,4429,0909,22214,43012,96214,84111,45415,09516,19011,52516,428150,886
Primary expenditure93011,0326,3236,1205,8128,23211,00010,20011,30011,55010,25011,850104,59
Wages38,2964,08141284075408040004000400040004000400055,600
add f.i. salary charges1,173592526582584580580580580580580
Transfers1201,5531,026551676170227001900270027001300270019,628
of which: pensions7318471217001700170017006,950
Goods and services8071,1011,21013351056160028002800260026002600260023,109
of which: banking fees1029595991031501001001501501501001,394
Capital0826106585015001500200022502350255013,199
Amortizations5,8241,2072872,6366,5383,6442,7551682,7093,5541893,49233,003
of which: IMF repayments2,6059312542,1842,605770925472,22611,782
Domestic2,7601902873426,04315015015015015015015010,672
of which: treasury securities2,5005,5008,000
External459862,2942411,3100111,8503,150321,11610,549
Interest Due1,0861,0861,0861,0861,0861,0861,0867,600
Arrears payments4551802,475466208000000005,656
Withdrawals correspondents23528
Net cash flow (=II- III)1,849-5,422-839-3,0583,915-7152,212-4,527-9098126,655-1,722-1,747
Balance at end of month (= I+(II- III))13,2517,8296,9903,9327,8477,1329,3454,8183,9094,72111,3779,6559,655
check0000000000000
Source: Data provided by the Authorities.
Source: Data provided by the Authorities.
Table 6b.Central African Republic: Treasury Cash Management Plan, 2017(In millions of CFA francs)
ProjetionsTotal 2017
JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
Balance from previous month (I)9,6556,9054,15514,23712,28710,3371534712,59714,76719,92921,42918,6779,655
Gross cash inflows (II)8,5838,58324,3848,5838,58319,3128,58313,50319,46412,8338,58314,914155,908
Primary revenue858385838583858385838583858385838583858385838583102,996
Other revenue0000000000000
Financing0015,8010010,72904,92010,8814,25006,33152,912
Treasury securities001,231001,231001,231001,2314,924
Other budget support0014,570009,49804,9209,6504,25005,10047,988
World Bank000004,2500004,250008,500
African Development Bank000000000005,1005,100
IMF Disbursements009,650000009,65000019,300
European Union004,92000004,92000009,840
France000005,2480000005,248
BEAC0000000000000
Deposits from other banks0000000000000
Gross cash outflows (III)1133311,33314,30210,53310,53314,30211,33311,33314,30211,33311,33514,304152,076
Primary expenditure9,9009,90011,6389,1009,10011,6389,9009,90011,6389,9009,90011,638124,152
Wages4,8254,8254,8254,8254,8254,8254,8254,8254,8254,8254,8254,825
add f.i. salary charges58058058058058058058058058058058058057,900
Transfers1,9001,9003,6381,1001,1003,6381,9001,9003,6381,9001,9003,63828,152
of which: pensions001,738001,738001,738001,7386,952
Goods and services2,0082,0082,0082,0082,0082,0082,0082,0082,0082,0082,0082,01224,100
of which: banking fees4834834834834834834834834834834834875,800
Capital1,1671,1671,1671,1671,1671,1671,1671,1671,1671,1671,1671,16314,000
Amortizations7007001,9317007001,9317007001,9317007001,93113,324
of which: IMF repayments2,611673424552,1211,142571025352,1219,957
Domestic001,231001,231001,231001,2314,924
of which: treasury securities001,231001,231001,231001,2314,924
External7007007007007007007007007007007007008,400
Interest Due4834834834834834834834834834834834835,800
Arrears payments7087087087087087087087087087087107108,500
Withdrawals correspondents252525252525252525252525300
Net cash flow (=II-III)-2,750-2,75010,082-1,950-1,9505,010-2,7502,1705,1621,500-2,7526103,832
Balance at end of month (=I+(II-III))6,9054,15514,23712,28710,33715,34712,59714,76719,92921,42918,67719,28713,487
check0000000000000
Source: Data provided by the Authorities.
Source: Data provided by the Authorities.

10. The crisis led the country to be assessed at high risk of external debt distress. Public debt rose from 23.5 percent of GDP in 2012 to 48.5 percent of GDP in 2015, as a result of the significant fall in GDP and increases in domestic payment arrears. During the emergency period, C.A.R. received significant support in the form of grants, with limited new debt financing. The first major loan was signed in December 2015 by the Transition Government with Saudi Arabia for CFAF 45 billion (5 percent of GDP) to finance investment in infrastructure and social sectors. The loan is concessional with a grant element of 49 percent.

Box 1.Central African Republic: Exiting the Fragility Trap

Despite its abundant natural resources, C.A.R. has been trapped in persistent fragility since independence in 1960. C.A.R.’s main sources of fragility include: (i) a lack of common vision; (ii) weak governance; (iii) lack of education and employment opportunities; and (iv) lasting political conflicts. These sources reinforce each other and keep CAR in a persistent “fragility trap”. Protracted political crises led to a deficit of institutions and the disintegration of the state, and undermined efforts to develop the country’s rich and diverse endowment and sustainable development path. This fragility trap has kept the country in extreme poverty with the lowest rankings of social and economic indicators in the world.

The experiences of seven Sub-Saharan African countries that have managed to exit fragility point to the key drivers for building resilience. Using the World Bank’s Country Policy and Institutional Assessment (CPIA) ratings and incidents of conflicts to define fragility, seven countries have been identified as “becoming resilient” since 1990s: Cameroon, Ethiopia, Mozambique, Niger, Nigeria, Rwanda and Uganda. A panel regression model of the seven countries is used to regress the CPIA index of the seven countries on the following independent variables: development aid, tax revenue and current expenditure, education and health expenditures (all in percent of GDP). Three variables - inflation, growth of real GDP per capita, and terms of trade - are used as control variables. The sample period covers 14 years from the most fragile year for each country. The estimation results suggest that maintaining macroeconomic and political stability, building strong fiscal institutions and collecting efficiently domestic revenue, scaling up development aid and social spending can help the countries in building resilience towards exiting fragility.

The key elements of a strategy that can help C.A.R. build resilience to exit fragility include fostering long-lasting domestic security, maintaining political stability, and improving macroeconomic performance and creating conditions that are conducive to economic recovery. Public expenditure should be oriented to priority spending such as health, education and security and public investment that are essential for engineering inclusive growth and maintaining political stability. At the same time, it is critical for the government to build strong fiscal institutions and funding to finance those essential government services above. Efforts and resources should first focus on “low hanging fruits” such as strengthening cash management, VAT and petroleum taxation and strengthening the treasury single account. In addition, scaling up external budget assistance and technical support in capacity building can help CAR address its daunting challenges of overcoming persistent fragility through security and economic reforms. This requires strong coordination between the United Nations, development partners, and security partners.

11. The financial sector, the smallest in CEMAC, is largely underdeveloped and plays a limited role in supporting the economy. Only about 1 percent of the population holds a bank account and 0.5 percent has access to credit. Access to mobile banking remains low, dampening the potential expansion of access to financial services (Figure 1). The fragile security, together with the absence of appropriate guarantee instruments, the lack of long-term resources, and a poor judicial system capable of supporting debt collection are impediments to a sound credit expansion to the private sector, beyond a small core of clients that have adequate accounting practices. Demand for credit was at the same time weak reflecting the fragile security environment and the loss of investors’ assets during the crisis. Financial sector indicators show that while the overall liquidity has increased in 2015, banks’ asset quality remains precarious (Table 9 and MEFP, ¶8 and ¶9). Non-performing loans represent close to one third of all loans, mostly due to the large stock of outstanding government payment arrears (about 50 percent of the sector’s NPLs), and government arrears to its suppliers. Banks have recently increased provisioning of NPLs to about 70 percent (compared with about 50 percent in March 2015), reducing banks’ capital, which remains broadly adequate, and profitability. Bank lending activities tend to be concentrated in short-term loans to the public sector, leaving banks exposed to sovereign risk.

Figure 1.Central African Republic: Financial Inclusion Statistics

Source: World Bank Global Findex database.

Note: CAR = Central African Republic, CMR = Cameroon, CEMAC = Central African Monetary and Economic Community, TCD = Chad, COG = Republic of Congo, GAB = Gabon.

SSA frontier economies refer to the following countries: Ghana, Kenya, Mauritius, Nigeria, Senegal, South Africa, Tanzania, Uganda, and Zambia.

Table 7.Central African Republic: Disbursements of External Support, 2016
Commitments for 2016Commitments for 2017Purpose
CFA francs, bnCFA francs, bn
IMFSDR 25.05 million19.9SDR 23.6 million19.3Balance of payments support
World BankUS$ 15 million8.5US$ 10 million5.9Budget support
African Development BankUS$ 11.5 million6.4US$ 13 million7.8Budget support
European Union€ 15 million9.8€ 15 million9.8Budget support
France€ 8 million5.3€ 8 million5.3Budget support
Total50.048.0
Memorandum item:Financing gap (CFAF, billion)50.048.0
Remaining financing needs0.00.0
Table 8.Central African Republic: Indicators of Capacity to Repay the IMF, 2016–26
20162017201820192020202120222023202420252026
IMF obligations based on existing credit
(SDR millions)
Principal13.9212.1610.319.105.355.855.854.463.622.230.00
Charges and interest0.010.030.030.050.040.030.030.030.030.030.03
IMF obligations based on existing and prospective credit
(SDR millions)
Principal13.9212.1610.319.105.355.8512.0315.3219.1618.9416.71
Charges and interest0.010.030.030.250.250.240.230.210.180.130.09
IMF obligations based on existing and prospective credit
(CFA billions)
Principal11.369.848.257.224.194.509.2511.7814.7414.5712.85
Charges and interest0.010.020.020.200.200.180.180.160.140.100.07
Outstanding IMF Credit
SDR Millions83.9895.22108.31110.91105.5599.7087.6772.3653.2034.2617.55
CFAF Billions68.5177.0686.6687.9882.7276.6867.4355.6640.9226.3513.50
Percent of government revenue80.8974.7971.3061.1744.9935.2928.5621.6214.578.604.04
Percent of exports of goods and services50.5350.9153.5248.2241.9933.9625.7317.5710.396.112.85
Percent of debt services232.82306.01338.66311.01291.24356.07233.06213.66197.88146.7976.59
Percent of GDP6.576.666.756.185.244.443.652.841.961.190.57
Percent of quota75.3985.4897.2399.5694.7589.5078.7064.9647.7630.7515.75
Net use of IMF credit (SDR millions)
Disbursements25.123.423.411.70.00.00.00.00.01.02.0
Repayments and repurchases13.9312.1910.349.355.616.0912.2615.5319.3419.0716.80
Memorandum items:
Nominal GDP (billions of CFA francs)1042.21157.91284.71424.41578.31725.61847.51962.92085.72216.32355.4
Exports of goods and services (billions of CFA fran135.6151.4161.9182.4197.0225.8262.1316.8394.0431.5474.3
Government revenue (billions of CFA francs)84.7103.0121.5143.8183.9217.3236.1257.5280.8306.4334.4
Debt service (billions of CFA francs)29.425.225.628.328.421.528.926.020.718.017.6
IMF Quota111.4111.4111.4111.4111.4111.4111.4111.4111.4111.4111.4
Source: IMF staff projections.
Source: IMF staff projections.
Table 9.Central African Republic: Financial Soundness Indicators, Dec. 2010–Feb. 2015(Percent, end of period)
ConceptDec-10Dec-11Dec-12Dec-13Dec-14Dec. 15Apr. 16
Capital Adequacy
Total bank regulatory capital to risk-weighted assets16.525.622.739.142.237.436.3
Total capital (net worth) to assets15.921.321.418.318.123.222.8
Asset Quality
Non-performing loans to total gross loans12.612.09.628.527.726.025.6
Non-performing loans net of provision to capital1.53.31.650.044.434.630.4
Earnings and Profitability
Net income to average assets (ROA)3.64.84.3−1.10.8−0.3
Net income to average capital (ROE)24.424.420.7−5.43.8−1.4
Non interest expense to gross income65.959.964.079.5
Liquidity
Liquid assets to total assets26.123.216.114.922.739.939.4
Liquid assets to short-term liabilities132.6160.7114.5149.1203.1276.1278.3
Loan/deposits
Sensitivity to market/FX risk
Foreign exchange liabilities/total liabilities
Foreign currency deposits/official reserves
Sources: C.A.R. authorities; and Banque des Etats de l’Afrique Centrale.
Sources: C.A.R. authorities; and Banque des Etats de l’Afrique Centrale.

Medium-Term Challenges and Policies: Inclusive Growth and Debt Sustainability

Article IV consultation discussions focused on policies to restore macroeconomic stability by enhancing domestic revenue mobilization and improving public financial management; strengthening competitiveness and restoring debt sustainability; and strengthening the capacity building framework (CBF) needed to support this range of reforms.

A. Main challenges to the recovery and sustained and inclusive growth

12. The authorities stressed their commitment to address the following challenges facing the country, in their efforts to boost growth:

  • Consolidating peace and security, and re-establishing state authority throughout the country: Security has been improving with the help of the UN peacekeeping mission and the French military contingent, SANGARIS. Nevertheless, security conditions remain volatile in, Bangui, the capital city and in some other parts of the country, including the North-East diamond-producing regions, which remain under the full control of armed groups, hindering the restoration of state authority.2 The return and resettlement of refugees and internally displaced persons (IDPs) are a major political, economic and social priority. The disarmament, demobilization, reintegration, and reinsertion of ex-combatants into civilian life are crucial to reduce security risks and boost economic activity. The security policy is being reshaped, with a view to scale up, in a context of a civil security format, specialized forces (police and gendarmerie), with adequate training and equipment needs. The needs for the latter are significant to enable the security forces to maintain state authority across the country. At the same time, a concerted reconciliation campaign is needed, as the fighting has divided the population along religious lines. The authorities are designing, in concertation with their partners, a security reform that will redefine the respective roles of the army, gendarmerie and police, that will be complemented with training and capacity building.

  • Restoring and building basic infrastructure and utilities: Even before the 2013 crisis, the supply of electricity and access to safe drinking water were poor and mainly limited to Bangui. Large parts of the country were inaccessible due to the poor road conditions which deteriorated further during the crisis. Private economic infrastructure has been destroyed, from factories in the forestry sector to service providers, including in the oil sector where there are only 8 gasoline stations for the whole country. The authorities are already implementing, with their development partners, an investment plan in the energy sector (that is expected to double power generation over the next three years) and road transportation.

  • Mobilizing domestic revenues and returning to normal budget procedures: In the face of such daunting challenges, domestic resources are scarce and insufficient to meet wage payments, key social outlays and external debt service. This has led to a significant dependence on external aid which reached 27 percent of GDP in 2015 after a plateau of 43 percent of GDP in 2014 (Figure 2Text Table 1). Rebuilding and modernizing the revenue administration, improving tax policy, and restoring normal budget processes are the cornerstone for the return to fiscal sustainability and to ensure that expenditures are well managed. The authorities have adopted actions plans to address these challenges. On the revenue side, they intend to review the tax policy and the management of their natural resources. On the expenditure side, the authorities intend to move ahead with the second phase of the wage bill reform, including human resource management.

  • Improving social conditions: Social and economic conditions are among the lowest in the world, as reflected in C.A.R.’s rank of 187 out of 188 countries on the UNDP 2015 Human Development Index (Figure 3). Raising income levels – which stagnated before collapsing in 2012 (Figure 4) – and improving access to health, education, and safe drinking water, are therefore critical to reduce widespread poverty and promote human development. The authorities will redeploy social service in the country and undertake significant investments in health and education.

  • Improving competitiveness. C.A.R. ranked 185th out of 189 countries on the World Bank Doing Business Index for 2016. It ranked bottom on four of the ten components of the index: paying taxes, trading across borders, enforcing contracts, and resolving insolvency; and close to bottom on the remaining six components. The Heritage Foundation’s Index of Economic Freedom shows weaknesses in property rights, corruption, and business freedom. C.A.R. ranked 145th out of 167 countries on Transparency International’s 2015 corruption perceptions index. The authorities have started an inclusive dialogue with the private sector and they are taking steps are reducing red tapes, corruption and improving financial sector intermediation.

Figure 2.Central African Republic: Total Revenue (excluding grants), 1995-2015

Percent of GDP

Sources: C.A.R authorities and IMF staff estimates and projections.

Text Table 1.Central African Republic: External Support, 2014–19Percent of GDP
Type of Support20142015201620172018201920202021
Act.Act.Projections
Humanitarian aid32.017.7
Project aid2.14.34.94.84.74.94.94.9
Grants2.13.94.44.34.34.23.93.9
Loans0.40.60.50.50.71.01.0
Budget support8.85.34.83.93.42.82.21.7
Total42.827.49.78.78.17.77.16.6
Memorandum Items:
Domestic Revenue4.97.17.98.79.29.911.412.3

Figure 3.Central African Republic: HDI trends for selected Sub-Saharan African countries, 1990–2014

Source: 2015 Human Development Index, UNDP.

Figure 4.Central African Republic: Real GDP per capita, 1990–2015

(CFAF thousands)

Sources: C.A.R. authorities; and IMF staff estimates and projections.

13. Staff argued that the real effective exchange rate (REER) has appreciated sharply. Following a long period of stability, the REER appreciated by almost 63 percent from 2013 to 2015, mainly reflecting the sharp increase in inflation observed during the crisis. This highlights the substantially weaker external position for C.A.R (see attached technical note on the external sector assessment). The authorities agreed with staff assessment of the external sector. They noted that inflationary pressures are receding and they are ready to take further actions to bring the consumer price inflation in line with the regional convergence rate. C.A.R. participates in a currency union and the exchange system common to all members operates without restrictions on the making of payments and transfers for current transactions (see informational annex).

14. The loss of competitiveness would be best addressed by the removal of structural bottlenecks to growth. Enhancing C.A.R. non-price competitiveness requires substantial structural reforms to improve: (i) the challenging business environment (especially the cumbersome business, regulatory, and trade regulations for starting a business, getting electricity and accessing credit); and (ii) the institutional and governance environment (especially the labor and competition policies, as well as the quality of public administration). The authorities agreed with staff’s assessment and are committed to move forward with such reforms (simplified investment code and updated mining code and telecommunications regulations) that would generate, over time, tangible productivity gains, mainly by bolstering private sector investment and expansion as well as public sector efficiency (including through more effective policy making and use of development assistance).

B. Restoring macroeconomic stability through fiscal reforms

15. Maintaining macroeconomic stability is a prerequisite for growth. Staff and the authorities agreed that macroeconomic stability and structural reforms should help lift growth prospects and attract investors. On the fiscal side, with external budget support expected to steadily decline over the medium term, the emphasis will be on efforts to mobilize domestic resources and control spending through key structural reforms. The authorities have readied medium-term action plans to that effect. They noted, however, that low capacity, the continued presence of armed groups, the poor state of the revenue administration, deep-rooted rigidities, and the high expectations of the populations require careful prioritization of reforms, continued external support, and further technical assistance. Taking into account these constraints, staff and the authorities agreed on a set of medium-term macroeconomic policies and reforms that would pave the way for a return to macroeconomic stability and sustainable growth (MEFP, ¶11).

Enhancing revenue mobilization

16. Staff and the authorities concurred to further increase domestic revenues through the implementation of the medium-term action plan prepared in 2015 and updated in March 2016 together with an FAD TA mission. With a view to raise domestic revenue from 7.1 percent of GDP in 2015 to 10.1 percent of GDP by 2019, the plan aims at: (i) broadening the tax base and simplifying tax procedures, including improving management of the VAT system and the base for assessing export taxes; (ii) strengthening tax and customs administration, including introducing pre-completed tax returns for real estate; revision of fiscal exemptions agreements; (iii) harmonization of the General Investment Code by implementing the CEMAC directives on VAT and duties; and (iv) streamlining and enhancing management of tax exemptions (MEFP, ¶17).

Improving public financial management and the efficiency of spending

17. Staff and the authorities concurred on the need to keep the wage bill in check. Efforts will continue to bring the wage bill down from 6 percent of GDP in 2015 to 4.5 percent of GDP in 2019 (MEFP, ¶15). In this context, the authorities are planning to continue streamlining the public sector work force through: (i) the continued cleaning of the civil service roster; (ii) the timely retirements of eligible civil servants (CFAF 150 millions); (iii) the gradual elimination of non-regular civil servants (CFAF 150 millions); and (iv) the repatriation of diplomats whose assignments have ended in 2016 or before (CFAF 60 millions). The expected savings for the period 2016–19 will help scale up poverty spending and domestically-financed investment spending, and clear more domestic payments arrears. Staff will assess, with the authorities, the budgetary impact of the reforms in the security sector, once finalized, ahead of an international donor conference scheduled in November 2016.

18. Staff and the authorities agreed that the cash constraint is the fundamental anchor of the program. Accordingly, they will pursue strict treasury management and widen the coverage of treasury operations. This will help: (i) ensure that more efforts will be made at revenue mobilization; (ii) calibrate available resources with priority spending; and (iii) avoid accumulating domestic payments arrears. In this regard, the authorities have prepared a monthly treasury plan for 2016 and 2017 (Tables 6a & 6b) whose execution will be monitored by the Treasury committee through monthly review meetings chaired by the Minister of Finance and Budget.

19. Staff and the authorities agreed to strengthen the fiscal policy framework to improve public financial management (PFM) and the efficiency of public spending. The authorities prepared, with the support of the Fund and other partners, an action plan aimed at improving and modernizing public financial management (MEFP, ¶18–19). The objectives of the plan are to: (i) secure and strengthen treasury management by widening the coverage of treasury operations to all government operations and identifying all government accounts in commercial banks and move towards a reinforced single Treasury account; (ii) strengthen the recently established Central Accounting and Treasury Agency (ACCT), including launching a sensitization campaign to explain the role of this new unit; (iii) normalize the expenditure process (commitment, settlement, authorization, payment) and limit emergency spending procedures (budget and cash payment orders) to 5 percent of non-wage and debt-service expenditures; (iv) re-establish proper accounting practices for all government operations, for the general budget and budget annexes, including reinforcing the public management information system to produce monthly accounting balances; and (v) re-establish the credibility of the state by fighting corruption and fraud and by re-gaining creditor confidence. In this context, the government will rigorously enforce the law requiring ministers to declare their assets within 60 days of appointment. Furthermore, it is considering creating a committee of wise persons to pave the way for implementing a coherent anti-corruption framework, following international best practices. At the same time, a plan is under discussion to improve the public investment framework to enhance project execution.

C. Restoring debt sustainability through a strengthening of public debt management and implementation of a prudent borrowing policy

20. Staff and the authorities concurred on the need to strengthen external debt management. The Debt Sustainability Analysis (DSA) puts C.A.R. at high risk of debt distress, compared with a moderate risk of debt distress in the last Article IV consultation in 2012 (MEFP, ¶22). The current rating reflects the collapse in GDP, tax revenues and exports—rather than an increase in external debt. At end-May 2016, C.A.R. owes close to US$93.7 million of pre-HIPC Initiative arrears to Argentina, Equatorial Guinea, Iraq, Libya, and Montenegro. C.A.R. also has arrears to the French export guarantee institute, COFACE. Argentina and France have consented to IMF financing in the context of a new ECF arrangement notwithstanding these arrears. The remaining creditors have requested more time to consider consenting to IMF financing. C.A.R. arrears to the Saudi Development Fund amount to US$1.26 million, which arose during the emergency period. The government has contacted the authorities of Saudi Arabia to inform them of their intention to resolve these arrears. An update will be circulated to the Executive Board not later than a week prior to the scheduled Board consideration. C.A.R. is also in arrears to two French private entities, and is continuing to make good faith efforts to finalize/and reach a collaborative agreement with them. Large accumulation of domestic arrears also contributed to an increase in total public debt. In view of the high risk of debt distress, staff and the authorities agreed that grants should be the main source of external financing. Concessional financing, with a grant element of at least 50 percent could be pursued after consultation with staff (Text table 2). At the same time, the revised finance law for 2016 will explicitly confer the authority to contract public debt, including government-guaranteed debt, exclusively to the Minister in charge of Finance and Budget.

Text Table 2.Central African Republic: Summary Table of Projected External Borrowing Program, 2016
PPG external debtVolume of new debt in 2016PV of new debt in 2016 (program purposes)PV of new debt in 2016 (including negative GEs)
USD millionPercentUSD millionPercentUSD millionPercent
By sources of debt financing10.31005.21005.2100
Concessional debt, of which10.31005.21005.2100
Multilateral debt10.31005.21005.2100
Bilateral debt0.000.000.00
Other0.000.000.00
Non-concessional debt, of which0.000.000.00
Semi-concessional0.000.000.00
Commercial terms0.000.000.00
By Creditor Type10.31005.21005.2100
Multilateral10.31005.21005.2100
Bilateral - Paris Club0.000.000.00
Bilateral - Non-Paris Club0.000.000.00
Other0.000.000.00
Uses of debt financing10.31005.21005.2100
Infrastructure10.31005.21005.2100
Social Spending0.000.000.00
Budget Financing0.000.000.00
Other0.00.00.00.00.00.0
Memo Items
Indicative projections
Year 210.35.25.2
Year 30.00.00.0

D. Improving the capacity building framework

21. Staff and the authorities concurred on the need to further build capacity to support and undertake major reforms. During the emergency phase, the authorities put in place an institutional framework to rebuild capacity, coordinate technical assistance, and monitor reforms undertaken in the context of the RCF. This framework will be strengthened to enhance donor coordination and leverage capacity building and technical assistance (TA) resources to maximize synergies and increase effectiveness. The authorities agreed to be part of the Capacity Building Framework (CBF) pilot project (Box 2), which they consider as a powerful tool to mobilize and coordinate timely TA and use it efficiently to ensure the success of their program (MEFP, ¶30).

E. Social policy

22. Social policy is a critical component of the authorities’ strategy to exit fragility and rebuild national cohesion (MEFP, ¶28). The overarching goals of the government are: (i) assisting the IDPs and refugees return to their lands and assets; (ii) reorganizing and redeploying public administration throughout the country; (iii) improving access to drinking water, sanitation, and hygiene; (iv) rehabilitating educational facilities to ensure full coverage and quality education at all levels to children of both sexes, across the country; and (v) revitalizing the health system, including strengthening the fight against HIV/AIDS.

Box 2.Proposed Capacity Building Framework

Challenges and lessons from recent technical assistance (TA) provision: During the political transition period from January 2014 to March 2016, the donor community offered technical assistance (TA) in the areas of treasury management, public financial management (connecting the key modules of the public finance management system), and macro fiscal capacity. In addition, a bilateral donor posted several long term experts covering budget, customs, the wage bill, and aid management. Delivery of Fund TA was hampered by the suspension of TA missions due to the deterioration of the security conditions.

Forward-looking macro challenges and policy priorities: Looking ahead, TA will be needed to help the authorities: (i) improve VAT collection; (ii) rationalize tax and customs exemptions; (iii) reform the tax and customs administration; and (iv) reform the diamond, telecom and forestry taxation. On public financial management, the focus will be on improving the accounting framework and the reporting system while building some macro fiscal capacity. Regarding the wage bill, the focus will be on completing the cleaning of the roster, securing the final register, simplifying hiring procedures, implementing management and training tools for human resource managers and assessing performance. On public debt management, TA will be needed to: (i) modernize the institutional and regulatory framework for public debt management; (ii) improve debt management strategy; (iii) strengthen analytical and operational capabilities of debt managers; and (iv) strengthen the capacity to record and monitor public debt. Lastly, TA will aim at improving macro fiscal capacity and statistics, including national accounts, consumer prices, and balance of payments.

Fund TA: In the context of a new ECF arrangement, TA priorities that will be covered by Fund are: (i) macro fiscal capacity; (ii) tax policy; (iii) revenue administration; (iv) macroeconomic statistics; and (v) public debt management.

Main results expected from TA during 2016–19: The timely provision of TA will help the authorities achieve the following measurable targets: (i) improve domestic revenue from 7.1 percent of GDP in 2015 to 10.1 percent in 2019; (ii) reduce the wage bill from 6 percent of GDP in 2015 to 4.5 of GDP in 2018, including hiring new staff to meet the needs in the social sectors; (iii) produce the treasury balances on a quarterly basis, starting in 2016.

Milestones in terms of outcomes: They are as follows: (i) link annual budget preparations and the medium-term macroeconomic framework underpinning the authorities ‘growth and poverty reduction strategy; (ii) improve revenue from the downstream oil sector, forestry and mining sectors; (iii) streamline tax exemptions: (iv) streamline and modernize processes for large taxpayers/importers, secure revenue collection through commercial banks network, and prevent and fight against VAT fraud; (v) improve compilation in national accounts, and immediate review CPI compilation for 2013 to eliminate methodological errors and ensure consistency with the series in 2014 and 2015; and (vi) review the institutional and regulatory framework for public debt management and improve debt management strategy in 2016.

Authorities’ absorptive constraints: Domestic administrative capacity—already low before the crisis—has further weakened in 2013 due to losses in terms of staffing, equipment and infrastructures. The Ministry of Finance and Budget, the Institute of Statistics and Prices, and the Ministry of Planning and International Cooperation, the three government units involved in economic and financial affairs are understaffed, poorly equipped, and work under difficult conditions, including a lack of sufficient energy to power computers and office equipment. As part of their CBF pilot, the new authorities are committed to improve capacity and make the best use of the TA that will be provided by the development partners and the Fund. They are also committing to train staff in place and hire young qualified staff if possible.

Risks: The first risk relates to security which remains volatile despite recent progress. Other risks include delayed support from the development partners, and the lack of local qualified experts. This could limit the effectiveness of the new TA on improving capacity. To mitigate the security risk, the authorities are planning to send staff to outside locations for training. To offset the lack of specialized local staff, they plan to hire young college graduates and train them in the specialty identified as crucial to improve capacity.

F. Data for surveillance

23. Data provided by the authorities are broadly adequate to monitor key economic and financial developments, albeit with some delays. However, national accounts, consumer inflation, and external trade data are weak. The authorities agreed with staff on the need to eliminate delays and improve the frequency and quality of the data. They have reached out to the IMF Statistics Department for technical assistance to address these issues over the next few months.

A New ECF Arrangement: Building Resilience and Harnessing Peace Dividends

In line with medium-term challenges identified in the Article IV discussions, the new program seeks to entrench macroeconomic stability and create the conditions for sustained and inclusive growth, through structural reforms.

A. Entrenching macroeconomic stability in a context of risks

24. The macroeconomic framework of the ECF-supported program is built upon achievable growth rates (MEFP, ¶11). With improved security conditions, real GDP growth is projected at 5.2 percent in 2016, and should remain around an average of 5.5 percent in the medium term, reflecting a rebound in agriculture following the return of the remaining IDPs and refugees, a continued pick up in trade and transportation, and a boost in construction with the implementation of major public investment projects in energy and social sectors. Inflation is projected to return to the regional convergence rate of 3 percent, associated with the increase in agricultural output and better supply conditions. The current account deficit is projected to remain at about 9.7 percent of GDP given the sizable imported reconstruction material needs. Gross official foreign reserves are projected to rise steadily from 4 months of imports in 2016 to 5 months of imports in 2019, a level that helps the country smooth consumption and face external shocks. Financing needs, which are covered, are expected to decline from 4.8 percent of GDP in 2016 to 3.2 percent of GDP in 2019.

25. The risks to the program are tilted to the downside. They include: (i) a resumption of violent conflict which could prevent implementation of the program, lead to a return to, or escalation of the use of emergency spending procedures, and undermine the economic recovery that the program seeks to achieve; (ii) delayed disbursements in donor funding for both the economic and security reforms, including the disarmament, demobilization, and reintegration of ex-combatants; and (iii) the inexperience of the new government. The materialization of these risks (see the Risk Assessment Matrix Table 11) could complicate policy implementation and hinder growth prospects (Box 3 and text table 3).

Table 10.Central African Republic: Schedule of Disbursements, 2016–19
Disbursements ConditionsDateAmount of Purchase
Millions of SDRPercent of Quota
First disbursement upon approval by the Executive Board of the request for an arrangement under the ECFJuly 15, 2016SDR 12.525 million11.24
Second disbursement upon observance of the performance criteria for August 31, 2016 and completion of the first reviewNovember 13, 2016SDR 12.525 million11.24
Third disbursement upon observance of the performance criteria for December 31, 2016 completion of the second reviewMarch 22, 2017SDR 11.70 million10.5
Fourth disbursement upon observance of the performance criteria for June 30, 2017 completion of the third reviewOctober 23, 2017SDR 11.70 million10.5
Fifth disbursement upon observance of the performance criteria for December 31, 2017 completion of the fourth reviewMarch 21, 2018SDR 11.70 million10.5
Sixth disbursement upon observance of the performance criteria for June 30, 2018 completion of the fifth reviewOctober 22, 2018SDR 11.70 million10.5
Seventh disbursement upon observance of the performance criteria for December 31, 2018 completion of the sixth reviewMarch 20, 2019SDR 11.70 million10.5
Table 11.Central African Republic: Risk Assessment Matrix (RAM)
Sources of RisksRelative LikelihoodImpact If RealizedPolicy Response if Materialized
Deterioration of security conditionsHighHigh

This would bring to a halt any momentum for the economic recovery.
Refocus reform on areas less sensitive to sociopolitical environment. Aim to maintain fiscal control with a view to maintain basic spending and keep social cohesion.
Structurally weak growth in key advanced and emerging economiesHigh

(AEs)

Medium

(EMEs)
High

Exports recovery would likely be delayed, lowering medium-term growth prospects.
Intensify structural reform and efforts to improve the business climate to promote investment.
Initial inertia of a new government that lacks experience in confronting significant challenges under very difficult circumstances.HighHigh

Program implementation could weaken, and adoption of key structural reforms could be postponed, lowering growth prospects.
Gradual back load of reforms to create traction from all key stakeholders. Intensify key structural reform. Fiscal policy to focus on revenue mobilization, and efficient delivery of public services.
Limited administrative capacityHighHigh

Program implementation could weaken, and adoption of key structural reforms could be postponed.
Increase effectiveness of CD to strengthen institutional capacity.
Delayed delivery of external financial assistanceMediumMedium

Investment and growth would be negatively affected and poverty would risk increasing. Macroeconomic stability would be at risk.
Increased efforts aimed at domestic resource mobilization and expenditure efficiency.

Box 3.Risks and Alternative Policy Responses

Staff and the authorities discussed the scenario of protracted lower growth and agreed on possible policy responses to meet the program target. Continued volatile security conditions associated with delays in security reforms and slow recovery of the agriculture, mining and forestry can lead to lower growth and higher inflation. This would result in a higher domestic primary deficit, higher financing gap, and higher public debt compared to the program target. Lower exports and wider current account deficits would lead to a slower increase in international reserves. In this context, the financing gaps will be covered through a mix of additional adjustment averaging 1 percent of GDP (authorities are committed to reduce domestically-financed capital spending, delay new hiring, and restrain other non-priority current spending) and a less-ambitious arrears clearance strategy.

Text Table 3.Central African Republic: Selected Economic Indicators, Low Growth Scenario, 2015–21
2015201620172018201920202021
Real GDP growth (percent change)4.82.52.52.52.52.52.5
Inflation (percent change)4.55.25.55.14.94.74.3
Domestic Primary Balance (percent of GDP)−3.0−3.9−2.7−2.4−2.3−2.1−1.3
Reserve Coverage (months of imports)4.14.03.93.83.83.83.7
Public debt (percent of GDP)48.549.846.743.740.938.736.3
Financing Gap58.057.854.353.052.940.8
Sources: C.A.R. authorities and IMF staff estimates and projections.
Sources: C.A.R. authorities and IMF staff estimates and projections.

B. Taking a gradual fiscal adjustment path and building fiscal buffers

26. Staff and the authorities agreed on a medium-term fiscal strategy that strikes a balance between the speed of restoring fiscal sustainability and supporting social spending and economic growth. It will entail: (i) bringing down the domestic primary deficit through steady implementation of reforms to improve revenue collection (Text table 3) and keep spending under control, notably the wage bill, while ramping up social and infrastructure outlays; (ii) managing the outstanding stock of domestic payment arrears to restore confidence in the state and boost private economic activity; (iii) building fiscal buffers to weather volatility; and (iv) reforming the public investment program framework to ensure efficient execution of the public investment program. In line with this strategy, staff and the authorities have agreed on a revised budget for 2016 that will contain the domestic primary balance to 3.3 percent of GDP (MEFP, ¶13 and ¶15).

27. Staff and the authorities reached understandings on a reduction in the domestic primary deficit, the fiscal anchor of the program, to 0.9 percent of GDP in 2019, from 3.0 percent in 2015. This will be achieved through reforms that will lead to a rise in domestic revenue from 7.1 percent in 2015 to 10.1 percent of GDP in 2019. Higher revenue will result from measures to improve the tax base, simplify procedures, modernize revenue administration, and reduce exemptions (Text table 4). On the spending side, the program targets a rise of 1.5 percentage points of GDP to 16.4 percent during the same period, as the decline in the wage bill (1.5 percentage points of GDP) (Box 4) will be offset by higher goods and services, transfers and subsidies (including pensions) and domestically-financed capital spending which would cumulatively increase from 4.1 percent of GDP in 2015 to 6.4 percent in 2019.

Text Table 4.Central African Republic: Projected Yields of Fiscal Measures, 2016–18(CFAF billions)
201620172018
TaxCustomTotalTaxCustomTotalTaxCustomTotal
Domestic revenue
Tax base0.41.51.90.51.31.80.61.01.6
Simplification of the base0.10.10.10.10.10.1
Other revenue administration actions2.40.73.12.40.63.03.90.54.4
Rationalization of exemptions0.10.40.50.10.30.40.20.2
Total3.02.65.63.12.25.34.61.76.3
Sources: C.A.R. authorities; and IMF staff estimates and projections.
Sources: C.A.R. authorities; and IMF staff estimates and projections.

28. Higher revenue mobilization will be a central element of the economic program. While the 2016 budget contains a set of revenue measures amounting to CFAF 5.6 billion,3 staff and the new government identified low hanging fruits that are expected to be included in a revised budget to be sent to Parliament by August 2016. These measures include a modification of the petroleum products price structure to base it on Platts international prices, a revised valuation base for the exports of forestry products, and a more rigorous application of the existing convention with banks on revenue collection to enhance traceability (MEFP, ¶13). These measures are projected to increase revenue by CFAF 2.2 billion (0.2 percent of GDP) in the last quarter of 2016.

29. To safeguard downstream oil revenue in the future, staff and the authorities discussed introducing in 2017 a new pricing mechanism allowing for a full pass-through of international prices to domestic prices. The new pricing mechanism would enhance efficiency in the marketing and consumption of petroleum products, while obviating the need to use scarce budgetary resources to subsidize petroleum products in the event of higher international oil prices. The authorities intend to request technical assistance to shift to this new pricing mechanism and simplify the tax components (which presently comprises a range of earmarked taxes). The introduction of the new pricing mechanism would be accompanied by a social safety net program which would be part of a wider social protection program for vulnerable groups. Most importantly, it will be part of the government’s plan to also increase the number of gasoline stations to improve service to consumers.

30. Built-in fiscal buffers will be crucial to face the impact of volatility. In the absence of short term debt instruments, staff and the government concurred on the need to build deposits of about 0.5 percent of GDP by end-2016, and 1.5 percent by 2019 to hedge against volatile aid disbursements, and enable it to regularly pay for wages, pensions and priority spending. These buffers should cover about 2 months of wages, pensions and external debt service (MEFP, ¶12).

31. The program will also focus on the orderly clearance of the large outstanding stock of domestic arrears. This is central to the authorities’ efforts to rehabilitate public financial management and support the economy (MEFP, ¶21). The recent agreement with BEAC, the regional central bank, to consolidate government liabilities totaling CFAF 55 billion is one element of the strategy.4 The ongoing EU-funded audit of government debt with commercial banks and other contractors (CFAF 30 billion) should lead to the adoption of an action plan to clear them in early 2017, including through securitization. Audits for the other payments arrears, including debt, suppliers, and cross-debts are expected to be launched in the next few months, with a view to adopt by July 2017 an overall plan to settle all arrears. In this context, cutting suppliers arrears is expected to be the top priority.

32. Staff also urged the authorities to strengthen the project management framework. This will help restructure the current public investment program and facilitate project execution. In this context, the upgrade will cover all the stages of project management, including identification of projects, preparation and evaluation, inclusion in the national budget, on site and financial execution, and regular reporting. The authorities agreed that the current framework is weak and needs to be reformed, but noted that they will need significant technical assistance from donors to undertake this crucial task.

C. Improving the business environment

33. Structural reforms will focus on modernizing and updating the legal framework in the major economic sectors. The authorities have initiated discussions on such reforms in the context of the recently established mixed framework for improving business (CMAA). Two bills aimed at boosting telecommunications activities are under preparation and are expected to be submitted to parliament early next year. The authorities are also updating the investment charter, the mining code, and forestry regulation. Furthermore, steps are taken to establish a one-stop shop for administrative procedures for investors (MEFP, ¶26).

34. Staff and the authorities agreed on the need to address the shortcomings in the banking sector, increase lending to private sector and better support economic growth (MEFP, ¶24) through increased financial intermediation. In addition to strengthening the judicial system to help settle disputes between bank borrowers and lenders the authorities will also: (i) monitor risk management and lending practices to address prudential risks; and (ii) implement an action plan to set up commercial and land registries. Furthermore, they plan to authorize more banks to conduct mobile banking and hold in 2016 a number of training seminars to educate the banks, enterprises, and the public on provision of transparent financial accounts, savings instruments, micro-financing, and collateralized assets. The authorities are requesting technical assistance in undertaking these reforms, including setting up a credit bureau. In addition, the authorities are exploring the option to assessing, with financial support from development partners, the feasibility of setting up a guarantee fund to promote financing for small and medium enterprises.

D. Program modalities and access

35. It is proposed that C.A.R.’s program be supported by an arrangement under the Fund’s Extended Credit Facility (ECF) over three years. The financing gap is projected to decline from 4.8 percent of GDP in 2016 to 3.2 percent of GDP in 2019. With a cumulative gap of CFAF 190 billion, the proposed access of 75 percent of quota (SDR 83.55 million or equivalent to about CFAF 68 billion) is sufficient to close about 36 percent of the gap. Access would be below the norm. Staff proposes a slightly frontloaded disbursement schedule for the first year of the program (Table 10), that would help C.A.R. cover the large financing need in 2016, and the heavy repayment schedule to the Fund. For 2016, the World Bank, the African Development Bank, the European Union, and France have committed resources amounting to CFAF 30 billion which together with Fund support will help cover the CFAF 50 billion gap (Table 7). For the first half of 2017, financing needs are projected at CFAF24 billion. They will be covered by drawings on the financial reserves accumulated at end-December 2016, disbursements from donors who have tentatively committed at this stage CFAF 10.2 billion, and IMF support.5 For the remainder program period there are good prospects that any residual gaps will be filled. The first test dates would be end-August and end-December 2016. C.A.R. has a good track record of financial relations with the Fund and an adequate capacity to repay (Table 8). Fund support is essential for the successful implementation of C.A.R.’s economic program, and its catalytic role in the mobilization of budget support from multilateral and bilateral partners will help ensure that the program is fully financed. Looking forward, additional support for the outer years is expected to be discussed at a donors’ conference in October, including the World Bank turnaround facility.

Box 4.Central African Republic: The Wage Bill

A rising wage bill. During 2014–15, the transition government, with technical and financial support from the World Bank and UNDP, cleaned the civil service roster with a view to bringing the wage bill to CFAF 50.8 billion, its 2012 level, the year before the major political and security conflict of 2013. This implied the reduction of 2,500 civil servants for a saving of CFAF 4.8 billion. However, by end of 2015, the number of civil servants was reduced by only 1,261 and the savings amounted to CFAF 2.8 billion. By end-2015, the wage bill reached CFAF 56.4 billion (6 percent of GDP). The sharp rise of the wage bill reflects a set of factors, including: (i) the difficult context against which the reform was conducted; (ii) weak administrative hiring practices; (iii) the rapid expansion of the number of high level posts (“hors statut” carrying salary premiums; (iv) delays in repatriating diplomats whose appointment ended; (v) delays in the retirement process; (vi) higher cash allowances and benefits; and (vii) poor human resource management, compounded by a weak public administration.

CEMAC: Wage Bill Development and Projections, 2012–15in percentage of GDP, unless indicated otherwise
2012201320142015
Cameroon5.25.45.55.4
Central African Republic4.67.26.56.0
Chad4.55.24.95.7
Republic of Congo3.64.14.86.7
Equatorial Guinea1.11.31.52.3
Gabon5.96.47.78.5
Memorandum Item: Population (millions)
Cameroon21.522.022.523.1
Central African Republic4.54.64.74.8
Chad10.711.011.311.6
Republic of Congo4.14.24.34.4
Equatorial Guinea0.70.80.80.8
Gabon1.71.81.81.9

New measures to reduce the wage bill. The new government continues to work closely with the World Bank and the UNDP to clean up the civil service roster and reduce the wage bill. Measures to that effect in the context of the third phase of the reform of the wage bill will include: (i) continue the cleaning of the civil service roster through a reduction in the number of “ghost workers and the holders of high level posts, the repatriation of the diplomats who ended their assignment (structural benchmark at end-December 2016), and the timely retirement of thee eligible staff; (ii) secure the final register; (iii) clarify the recruitment procedures; (iv) implement management and training tools for human resource managers using computer applications adapted to CAR; (v) assess performance. At the same time, the military roster will be cleaned, including accelerating the removal of 700 retirees from the roaster. Uncertainty remains on the size of the army, police and gendarmerie.

New recruitment. As the government proceeds with the administration redeployment and implements its strategy to improve social services and improve security, there will be staffing needs to meet. The authorities are currently assessing those needs and their costs in preparation for the donors’ conference that will take place before end-year in Brussels. The cost of hiring new staff in the priority social sectors will be offset to a certain extent by gains made through the continued cleaning of the civil services roster.

Components of the Wage Bill, 2015in percentage
2015 Share
Base Salary70
Benefits and bonuses22
Family allowances6
Retroactive adjustments1
Other allowances1
Total100
Size of the Public Administration, 2014–15
201420152015
Wage Bill (billions of CFA franc)
Civilians21,48320,22243.5
of which: high level posts3767783.3
Military8,3828,36612.9
Total30,86528,58856.4
Memorandum Item:
Population (millions)4.24.24.2
Sources: C.A.R. Authorities; WETA database; and IMF staff estimates and projections.

36. Performance will be monitored through quantitative performance criteria, indicative targets, and structural benchmarks (MEFP ¶31). Quantitative performance criteria will include: (i) a ceiling on net credit to the government; (ii) a floor on domestic revenues; (iii) a ceiling on the domestic primary deficit; and (iv) a floor on repayment of domestic payment arrears. Continuous performance criteria will include zero ceilings on: (i) non-concessional public and publicly guaranteed debt; and (ii) the accumulation of public sector external payment arrears. An indicative floor will be set for social expenditures. Structural conditionality will focus on supporting domestic revenue, PFM, debt management, and governance. Structural conditionality for the second half of 2017 and 2018 will be proposed at the time of the first review, drawing on significant TA projected in the near time.

37. The authorities attach the highest importance to the success of their program (MEFP, ¶32). In this context, it will be monitored at the highest levels of the government, including the staffs of the Office of the Presidency, the Prime Minister, the Ministry of Finance and Budget, and the BEAC. Technically, the program will be implemented by the Economic Reform Monitoring Committee (CS-REF), a unit under the authority of the Minister of Finance and Budget that includes representatives of the various ministries and agencies involved in economic and financial affairs.

E. Other considerations

38. Staff noted progress in the implementation of the BEAC’s safeguards recommendations. The implementation of safeguards recommendations is currently reviewed annually and is a pre-condition for granting new IMF financial support to, and reviewing existing IMF financial arrangements with CEMAC countries. The 2016 safeguards monitoring visit found that two priority recommendations remain outstanding. However, in early May 2016, the BEAC Board mandated the institution to initiate work on improving governance and transitioning to International Financial Reporting Standards (IFRS). This is an important initial step toward successful completion of safeguards reform. The authorities should maintain the momentum on the implementation of the reforms to restore credibility on the BEAC’s ability to safeguard IMF financial resources.

Staff Appraisal

39. C.A.R. is exiting slowly from a multifaceted crisis. C.A.R. plunged into another political, security, and humanitarian crisis in 2013 that erased all gains achieved during the period 2002–12. This latest crisis led to the collapse of the economy and the disintegration of state institutions. The transition government in place during 2014–15 implemented an emergency program that helped improve treasury management, reduce the wage bill, rebuild core administrative capacity, and put in place a participative institutional framework to manage public resources in a transparent way. Despite commendable efforts under difficult circumstances, economic growth remained anemic and domestic resources insufficient to cover current primary spending. The economy remains highly dependent on external assistance, and deep-rooted structural rigidities hinder economic growth. The return to democratic institutions in early April 2016 offers an opportunity for the new authorities to embark on a comprehensive reform strategy that will create conditions for sustainable and inclusive growth and a progressive exit from fragility with support from development partners.

40. Raising C.A.R.’s growth rate requires bold reforms to secure peace and stability, improve competitiveness and enhance the institutional capacity. The cumulative growth rate of less than 6 percent achieved during the past two years has been insufficient to offset the significant loss of output caused by the 2013 crisis. It is crucial for C.A.R. to lift its growth rates (5–5.5 percent) to create jobs, combat poverty, and maintain social cohesion. This will require a sustainable fiscal environment but also comprehensive structural reforms, including simplifying procedures to create businesses, expanding the electricity supply, facilitating access to credit, and building road infrastructures. Sustainable growth will also require developing the domestic institutional capacity to carry out project execution and implementing in a timely fashion the comprehensive reform program. The current framework is an adequate base on which to further strengthen capacity.

41. A steady implementation of fiscal reforms will be key to restoring fiscal sustainability and supporting growth. The authorities have appropriately focused on an adjustment strategy that is based on both revenue mobilization and expenditure control. Staff welcomes the recent updating with support from technical assistance of the Fund the authorities’ medium-term revenue reform plans covering tax policy, revenue administration and tax and customs exemptions. Equally important is the adoption with assistance from the development partners and the Fund of a medium term plan to enhance expenditure management. Staff urges the authorities to implement these plans to rein in the domestic primary deficit, free resources to ramp up spending in social sectors and enable a timely return to fiscal sustainability in support of sustainable growth.

42. PFM reforms should continue to focus on enhancing spending quality. This will include a strengthened treasury single account, together with the effective return to normal budget procedures, improved project execution, and enhanced transparency. In this context, staff urges the authorities to resist using exceptional spending procedures under warranted by exceptional circumstances, strengthen the efficiency of the public financial management information system, improve accounting procedures and fiscal reporting, and reform the public investment. These are crucial steps to normal budget execution. Last but not least, increasing the effectiveness of the public investment framework will help improve project execution, reduce costs, boost domestic supply of social and economic goods, and sustain inclusive growth.

43. The new ECF-supported program seeks to entrench macroeconomic stability, address vulnerabilities, and create the conditions for sustained and inclusive growth. This will require full ownership from the authorities to carry out a comprehensive reform agenda in a steady fashion to correct the imbalances identified in the Article IV discussions and ensure timely reimbursement of its obligations to the Fund. The new authorities are rightly focused on further building capacity to implement such a program.

44. The ECF-supported program will aim at restoring fiscal sustainability while ramping up poverty-reducing spending. In this context, staff welcomes the authorities’ decision to pass a revised budget for 2016 to further enhance revenue mobilization and build buffers. The domestic primary deficit of about less than 1 percent of GDP is in line with the return to fiscal sustainability and its achievement is rightly encapsulated in a fiscal adjustment strategy that covers both the revenue and the spending sides. At the same time, it provides for appropriate fiscal buffers which will help the country weather volatile conditions.

45. The structural reform agenda is targeted to unlock the growth potential of the key sectors of the economy. Staff welcomes the launching of a mixed framework for improving the business framework which bodes well for the design and prioritization of reforms. In this context, the overhaul of the investment charter, combined with the reform of the mining code and the forestry sector regulations, together with a streamlining of tax exemptions, are right steps to boost activity in these key areas. Together with current efforts with support from the World Bank and the African Development Bank to immediately increase the electricity supply will create the conditions for a recovery in the agricultural sector, which is the centerpiece of the government economic growth plan, but also a welcome improvement in the business climate. Lastly, staff is encouraged by the measures envisaged by the new authorities to tackle the banking sector weaknesses and enhance its contribution to economic growth.

46. Staff sees merit in longer-term engagement with C.A.R. under the proposed ECF arrangement and supports the authorities’ request for Fund assistance in an amount equivalent to 75 percent of quota. The authorities consider the ECF arrangement as crucial to breaking with past practices, rebuilding the country, and mobilizing much support from their development partners. The ECF will also contribute to maintaining an appropriate level of international reserves. The envisaged fiscal adjustment and the authorities’ determination bode well for a restoration of CAR macroeconomic stability and addressing vulnerabilities.

47. Support from the international community primarily in the form of grants is crucial. With domestic resources expected to rise slowly and significant financing requirements to rebuild the infrastructure and meet basic social needs, C.A.R. will continue to rely on substantial amounts of external assistance. Against the back of a high level of debt distress, as highlighted by the debt sustainability analysis and upcoming external obligations, including vis-ā-vis the Fund, staff recommends that C.A.R. rely on grants and to a certain extent on concessional financing with a grant element of at least 50 percent. While development partners played a key role during the transition in providing extensive financial support and technical assistance, their continued commitment in the months ahead during this post-emergency phase is more important than ever, especially as the country embarks on a comprehensive reform program that could be supported by an arrangement under the ECF. Staff encourages the new authorities to strengthen their institutional framework to better coordinate such assistance, and welcomes their intention to be included in the pilot CBF.

48. Improving the quality and timeliness of economic data is crucial to improve economic management. Staff welcomes progress made in compiling and providing basic macroeconomic data over the past two years. With the move to a more comprehensive reform program, the authorities were well advised to request IMF assistance as well as that of other development partners to improve the frequency and quality of their economic data.

49. It is proposed that the next Article IV consultation with C.A.R. take place on the 24-month cycle, subject to the decision on consultation cycles

Figure 5.Central African Republic: Macroeconomic Performance and Prospects, 2007–16

Sources: C.A.R. authorities; and IMF staff estimates and projections.

Table 12.Central African Republic: Millennium Development Goals, 1990–2014
199019952000200520102014
Goal 1: Eradicate extreme poverty and hunger
Employment to population ratio, 15+, total (%) (modeled ILO estimate)737373737373
Employment to population ratio, ages 15–24, total (%) (modeled ILO estimate)575757575655
GDP per person employed (constant 2011 PPP $)1,8421,7511,6741,6662,0741,312
Income share held by lowest 20%
Prevalence of underweight, weight for age (% of children under 5)20222824
Poverty gap at $1.90 a day (2011 PPP) (%)
Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population)
Vulnerable employment, total (% of total employment)
Goal 2: Achieve universal primary education
Youth literacy rate, population 15–24 years, female (%)4927
Youth literacy rate, population 15–24 years, male (%)7349
Survival rate to the last grade of primary education, both sexes (%)3646
Primary completion rate, both sexes (%)302640
Adjusted net enrolment rate, primary, both sexes (%)574870
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliaments (%)471110
Gross enrolment ratio, primary, gender parity index (GPI)1111
Gross enrolment ratio, secondary, gender parity index (GPI)011
Gross enrolment ratio, tertiary, gender parity index (GPI)0000
Share of women in wage employment in the nonagricultural sector (% of total nonagricultural employment)
Goal 4: Reduce child mortality
Immunization, measles (% of children ages 12–23 months)824636625349
Mortality rate, infant (per 1,000 live births)11511511410910294
Mortality rate, under-5 (per 1,000)177177175166150134
Goal 5: Improve maternal health
Adolescent fertility rate (births per 1,000 women ages 15–19)14913812711310293
Births attended by skilled health staff (% of total)46445354
Contraceptive prevalence, any methods (% of women ages 15–49)15281915
Maternal mortality ratio (modeled estimate, per 100,000 live births)1,2901,3001,2001,060909872
Pregnant women receiving prenatal care (%)67626968
Unmet need for contraception (% of married women ages 15–49)1927
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Children with fever receiving antimalarial drugs (% of children under age 5 with fever)695734
Condom use, population ages 15–24, female (% of females ages 15–24)7
Condom use, population ages 15–24, male (% of males ages 15–24)
Incidence of tuberculosis (per 100,000 people)8641,2011,073687431375
Prevalence of HIV, female (% ages 15–24)3.46.14.52.422
Prevalence of HIV, male (% ages 15–24)1.83.12.31.31.31.4
Prevalence of HIV, total (% of population ages 15–49)4.49.19.675.24.3
Tuberculosis case detection rate (%, all forms)887123557
Goal 7: Ensure environmental sustainability
CO2 emissions (kg per PPP $ of GDP)00000
CO2 emissions (metric tons per capita)00000
Forest area (% of land area)36.236.13635.835.735.6
Improved sanitation facilities (% of population with access)151617192122
Improved water source (% of population with access)596063656768
Marine protected areas (% of territorial waters)000
Goal 8: Develop a global partnership for development
Net ODA received per capita (current US$)8550202259127
Debt service (PPG and IMF only, % of exports of goods, services and primary income)12122120512
Internet users (per 100 people)000.10.324
Mobile cellular subscriptions (per 100 people)00032325
Fixed telephone subscriptions (per 100 people)000000
Fertility rate, total (births per woman)5.85.65.45.14.64.3
Source: World Development Indicators database, 2016.
Source: World Development Indicators database, 2016.
Annex I. Central African Republic: External Stability Assessment

C.A.R.’s external position is weak according to the three “EBA-lite” approaches.1 The analysis of broader non-price indicators also underscores significant competitiveness weaknesses. C.A.R.’s exports base is very narrow, dominated by a few commodities (i.e., timber and diamond) and are still subject to partial export ban. This highlights the urgent need for continued external support while C.A.R. undertakes bold structural reforms to broaden the economic base and strengthen the country’s resilience.

A. Balance of Payment and Exchange Rate Developments

1. C.A.R.’s external current account has deteriorated since the 2013 political and security crisis. During 2004–2012, reflecting policies supported by the IMF in the context of the ECF, the current account deficit was about 6.5 percent of GDP on average (Figure 1.). This deficit widened in 2013 at the height of the political and security crisis, further growing to 12.7 percent of GDP in 2015. This deficit was mainly driven by a significant decline of C.A.R.’s main exports (diamond and timber) caused by the presence of armed groups in the production regions and the resultant sanctions. Net current transfers (mostly grants) significantly increased during the transition period—contributing to large increase of non-food aid-related imports. Following the completion point of the HIPC debt relief in 2009, net income turned slight positive.

Figure 1.Central African Republic: Current Account Balance Components, 2004–2015

(Percent of GDP)

Source: C.A.R. authorities and IMF staff estimates.

2. C.A.R.’s narrow exports base has been further squeezed by a decline in timber and diamond exports. In 2012, timber and diamond accounted for about 75 percent of the country’s total exports (Table 1). Timber exports declined by 38 percent in 2013, before recovering in 2015, but still remaining far below their pre-crisis level. The suspension of CAR from the Kimberly process in 2013 led to complete collapse of official exports of diamonds in 2014 and 2015. Despite partial re-certification by the Kimberley Process Certification Scheme in mid-June of 2015, the exports of diamond stocks (85,000 carats with an estimated value of US$7 million) failed to resume so far. Diamonds produced in the Central-Eastern region, which accounts for about half of the national diamond output, remain under an export ban under the Kimberly process of certification.

Table 1.Central African Republic: Main Exports, 2010–15
201020112012201320142015
(Billions of CFA)
Exports76.799.197.553.042.648.5
Diamonds25.929.733.210.50.00.0
Timber30.642.939.724.723.229.5
Coffee0.81.41.50.12.61.6
Cotton2.87.17.01.70.40.3
(In percent of total exports)
Diamonds33.829.934.119.90.00.0
Timber39.943.340.746.654.360.8
Coffee1.01.41.50.16.03.3
Cotton3.67.27.23.30.90.6
Total78.481.883.569.861.364.7

Figure 2.Central African Republic: National Accounts Components, 2004–2015

(Percent of GDP)

Source: C.A.R. authorities and IMF staff estimates.

3. The current account deficit is expected to narrow to about 10 percent of GDP during 2016–20. The deficit of the goods and services balance is also expected to improve, shrinking to 17.3 percent in 2016–20, down from a deficit of 22.3 percent of GDP in 2015, assuming improved security conditions along the main Douala-Bangui corridor and the full lift of the diamond export ban. The current account deficit would be primarily financed by external grants.

4. C.A.R’s exports, as a share of CEMAC and SSA exports, declined significantly since 20032 (Figure 3). Since 2003, C.A.R.’s share of CEMAC exports dropped to the bottom of the currency union and continues to decrease. Similarly, its share of the SSA exports also declined rapidly and C.A.R. has moved to the bottom fourth position among 45 countries of SSA in 2014, remaining ahead of Burundi, Comoros and São Tomé & Príncipe only.

Figure 3.Central African Republic: Market Share in CEMAC and SSA, 2000–14

(Percent)

Note: SSA excludes Botswana, Eritrea, Lesotho, Namibia, South Sudan, and Swaziland as they do not report trade . Data for

South Africa only starts in 1998.

Source: IMF Direction of Trade Statistics (DOTS).

5. C.A.R.’s real effective exchange rate (REER) appreciated significantly after 2013, despite a slight depreciation of its nominal effective exchange rate (NEER) (Figure 4). Following a long period of stability, the REER appreciated by almost 63 percent from 2013 to 2015, mainly reflecting the sharp increase in inflation observed during the crisis and the transition period.

Figure 4.Central African Republic: Effective Rates and Terms of Trade, 2006–2015

Source: IMF's Information Notice System (INS); World Economic Outlook (WEO); and IMF staff estimates.

B. Model-Based Real Exchange Rate Assessments

6. The REER is assessed using the three EBA-lite approaches, namely, the current account (CA), the real effective exchange rate index (IREER), and the external sustainability (ES) approaches. Annual data for 150 countries for 1995–2015 are used, along with projections for C.A.R. that reflect the macroeconomic framework. Both EBA include two regression-based models of current account and real exchange rate and one external sustainability approach. EBA makes a distinction between positive analysis of current account and real exchange rate and normative assessments, and emphasizes the roles of policies and policy distortions. EBA models include a broader set of fundamentals to have a better positive (descriptive) understanding of current account and real exchange rate; and differentiate policy variables from non-policy fundamentals to explicitly include policy gaps in normative assessments.

7. Results from the CA approach suggest that the external position is substantially weaker in 2015. The current account model is based on one panel regressions of current account and provides estimated current account “norms,” which are values consistent with fundamentals and desirable policies. The estimated current account norm points to a deficit of 3.6 percent, while the underlying current account deficit is about 11.8 percent. Accordingly, and depending on the current account elasticity we used (-0.1), the CA approach suggests that the real exchange rate gap is 137.4 percent. The elasticity of current account (trade balance) to REER is very small, suggesting that the impact of price factors may be small.

Figure 5.Central African Republic: Current account: Actual, Fitted, and Norm

8. The IREER approach also suggests that the external position is substantially weaker in 2015. The exchange rate model is based on one panel regressions of exchange rate and provides estimated exchange rate “norms,” which are values consistent with fundamentals and desirable policies. The REER is estimated to appreciate by 4.6 percent, while the underlying REER appreciated by 5.1 percent (Figure 6). Therefore, in order to restore real exchange rate equilibrium, the IREER approach suggests that the REER would need to depreciate by 47 percent.

Figure 6.Central African Republic: Ln(REER), Actual, Fitted, and Norm

9. Similarly, the ES approach also suggests that the external position is weaker in 2015. The external sustainability approach calculates a current account norm that would stabilize the net foreign asset (NFA) position at some benchmark level. The current account stabilizing net foreign assets represents a deficit of 1.5 percent of GDP, compared to a 6.6 percent underlying current account deficit (Table 2). The ES approach therefore suggests that the REER gap is 19.9 percent for scenario 1, i.e., to stabilize net IIP at -4.8 percent of GDP. REER gap would be 1.9 percent for scenario 2, i.e., to stabilize net IIP at -60 percent of GDP. The ES results are based on the key assumptions listed in the table. Elasticity of current account (trade balance) to REER is only -0.26.

Table 2.Central African Republic: ES Approach Results and Key Assumptions
CA norm (% of GDP)Underlying CA (% of GDP)CA gapREER gap
Scenario 1: Stabilizing net IIP at−4.8 % of GDP−1.5−6.6−5.119.9
Scenario 2: Stabilizing net IIP at−60.0 % of GDP−6.2−6.6−0.51.8
Scenario 3: Reaching net IIP at−60.0% of GDP in 2034−7.1−6.60.5−1.9
Calculation of Current account (trade balance) elasticity to REER:
Elasticity of exports of goods and services to REER−0.71Exports of goods and services/GDP43.1 % of GDP
Elasticity of imports of goods and services to REER0.92Imports of goods and services/GDP59.8 % of GDP
Elasticity of current account (trade balance) to REER:−0.26
Sources: IMF staff calculations.
Sources: IMF staff calculations.

10. Taken together, the assessment of C.A.R’s REER indicates a substantially weaker external position for C.A.R. Depending on the different approach used, the range of gap in the REER is wide as it is between 19.9 to 147 percent in 2015. It is important to note, however, that the above results reflect sensitivity to the macroeconomic assumptions on which the baseline scenario is built upon, but also to the assumptions each approach uses, including the level of elasticity of the current account to the real exchange rate. In addition, the political and security situation in 2013 caused an important adverse shock to the economy with many ramifications to the baseline macroeconomic assumptions.

C. Assessment of Structural Competitiveness

11. C.A.R.’s weak institutional indicators point to considerable weakness in structural competitiveness. Competitiveness is defined as the set of institutions and factors that determine the level of productivity of a country. C.A.R.’s low ranking suggests a weak structural competitiveness and would imply a weak external position. The institutional indicators considered in this section include: the Heritage Foundation indicators of economic freedom; the World Bank’s Doing Business indicators; and the World Bank’s Country Policy and Institutional Assessment (CPIA).

12. According to the Heritage Foundation, C.A.R. continued to score at the lowest quartile of the world in 2016. Overall, C.A.R.’s ranking slipped in the Foundation’s rankings from 145th in 2012 to 168th, in 2016. C.A.R.’s total score index worsened from 50 in 2012 to 45.2 in 2016. At 45.2, C.A.R.’s index qualifies the economy as ”repressed” and is below the average of SSA’s 120th rank and the West African Economic and Monetary Union’s (WAEMU) 117th rank, and the CEMAC’s 154th rank. In nine of the ten Heritage Foundation indicators of economic freedom, C.A.R.’s scores are lower than the averages for SSA, WAEMU and CEMAC (Figure 7). The only indicator for which C.A.R. score is ahead of the average for the SSA, WAEMU and CEMAC is government spending.

Figure 7.Central African Republic: Comparison of Index of Economic Freedom, 2016

(0=worst, 100=best)

Source: The Heritage Foundation and IMF Staff calculations.

13. C.A.R.’s business climate, as measured by the 2016 World Bank Doing Business indicators, has always ranked among the bottom 10 countries in the world and deteriorated further since 2012 (Table 3). Registering property and business dropped 35 and 29 places, respectively while getting credit dropped 35 places. On the positive side, regarding trading across borders and resolving insolvency, C.A.R. moved up by 38 and 34 places in 2016, respectively. Overall, C.A.R. ranked the bottom fifth country on ease of doing business indicator, only ahead of Venezuela, South Sudan, Libya and Eritrea. Areas in need for most improvement include: (i) starting a business; (ii) getting electricity; and (iii) paying taxes.

Table 3.Central African Republic: Doing Business Indicators, 2012–16
Central African RepublicCEMACWAEMUSSA
201220162016
Ease of doing business rank182185176153143
Starting a business160189170118128
Dealing with construction permits136155148145130
Getting electricity162186158161149
Registering property132167165148132
Getting credit98133120133118
Protecting minority investors133150148156125
Paying taxes177185178164131
Trading across borders182144169124136
Enforcing contracts173177155148132
Resolving insolvency183149140111128
Source: Doing Business Indicators, World Bank, 2012 and 2016.
Source: Doing Business Indicators, World Bank, 2012 and 2016.

14. C.A.R.’s Country Policy and Institutional Assessment (CPIA) score in 2014 is below the average of CEMAC, WAEMU and SSA in almost all aspects (Table 4). Of all the indicators, C.A.R. was only slightly above the CEMAC average on transparency, accountability and corruption in public sector but still below the average for WAEMU and SSA. Compared with 2012, most of the indicators deteriorated. Areas that are lagging behind most are property rights and rule-based governance, business regulatory environment, equity of public resource use, social protection and labor, policies and institutions for environment sustainability, and quality of public administration.

Table 4.Central African Republic: Country and Policy Institutional Assessment, 2015(1=low, 6= high)
Central African RepublicCEMAC1WAEMUMSSA
201220142014
Economic Management3.32.83.33.63.3
Macroeconomic Management3.53.03.43.93.5
Fiscal Policy3.52.53.03.33.2
Debt Policy3.03.03.53.63.3
Structural Policies2.52.52.83.43.2
Trade3.03.03.34.13.7
Financial Sector2.52.52.82.92.9
Business Regulatory Environment2.02.02.53.33.1
Policies for Social Inclusion and Equity2.62.22.73.23.2
Gender equality2.52.52.83.13.2
Equity of Public Resource Use3.02.02.63.33.3
Building Human Resources2.52.52.93.43.5
Social Protection and Labor2.02.02.52.82.9
Policies and Institutions for Environment Sustainability3.02.02.63.43.2
Public Sector Management and Institutions2.42.22.63.13.0
Property Rights and Rule-Based Governance1.51.52.32.82.7
Quality of Budgetary and Financial Management2.52.52.83.23.1
Efficiency of Revenue Mobilization3.02.52.93.43.4
Quality of Public Administration2.52.02.52.92.8
Transparency, Accountability and Corruption in Public Sect2.52.52.43.02.7
Overall CPIA Score2.72.42.83.33.2
Source: World Bank, Country Policy and Institutional Assessment 2015.

CEMAC excludes Gabon and Equatorial Guinea because of data unavailabity.

Source: World Bank, Country Policy and Institutional Assessment 2015.

CEMAC excludes Gabon and Equatorial Guinea because of data unavailabity.

15. Enhancing C.A.R. non-price competitiveness requires substantial structural reforms. Based on the survey-based business and governance indicators reviewed above, priority structural areas for improvement include: (i) the challenging business environment (especially the business, regulatory, and trade environment in terms of starting a business, getting electricity and paying taxes); and (ii) the institutional and governance environment (especially property rights and rule-based governance, business regulatory environment, equity of public resource use, social protection and labor, policies and institutions for environment sustainability, and quality of public administration). Over time, such reforms would generate tangible productivity gains, mainly by bolstering private sector investment and expansion as well as public sector efficiency (including through more effective policy making and use of development assistance). At the same time, C.A.R. has the urgent need for continued external support while it undertakes the above structural reforms.

Appendix I. Letter of Intent

Madame Christine Lagarde

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

USA

Bangui, July 7, 2016

Dear Madame Lagarde:

1. The presidential and legislative elections took place in a peaceful environment and resulted in the election of President Touadera, marking the end of the political transition that began in the Central African Republic (C.A.R.) in January 2014. Our new government is committed to promoting national reconciliation, demobilizing armed groups and reintegrating them into economic and social life, and transforming the economy to create jobs for young people and reduce poverty, which affects a large proportion of the population. To this end, we intend to implement a macroeconomic and structural reform program with the help of our development partners and the International Monetary Fund (IMF).

2. The attached Memorandum of Economic and Financial Policies (MEFP) describes the recent economic and financial developments and the structural reforms implemented in 2015 and the first quarter of 2016 in the context of the third disbursement under the Rapid Credit Facility. We would like to report that we have met the quantitative objectives that we set at end-December 2015. Moreover, we have to some extent restored our administrative capacity to define and implement medium-term economic and financial policies.

3. This MEFP also presents the key aspects of our medium-term strategy. To achieve its short- and medium-term growth and poverty reduction goals, the government of the C.A.R. is seeking approval for a three-year arrangement (mid-2016 to mid-2019) under the Extended Credit Facility (ECF) in an amount equivalent to SDR 83.55 million (or 75 percent of our quota). The ECF-supported program is expected to provide a macroeconomic framework that will strengthen substantially and in a sustainable manner the country’s balance of payments position consistent with strong and durable poverty reduction and growth. The disbursements will be contingent on the achievement of the performance criteria and structural benchmarks shown in Tables 1 and 2 of the attached memorandum and the conclusion of program reviews, the first of which will be based on the results through end-August 2016. The financial assistance under the ECF will not only help to anchor the government’s macroeconomic policies but also serve to mobilize other financial support from our development partners.

Table 1.Central African Republic: Performance Criteria (PC) and Indicative Targets, 2015–17(CFAF billion; cumulative from beginning of the year)
End-December 2015August 31, 2016End-December 2016End-March 2017End-June 2017
StockPCPCIndicative targetsPC
Quantitative performance criteria
Domestic government financing (ceiling, cumulative flows for the year)186.04.53.2−1.7−2.5
Domestic revenue (floor, cumulative for the year) 151.084.725.050.1
Domestic primary deficit (ceiling, cumulative for the year)2−19.9−34.7−7.2−13.7
Reduction in domestic payments arrears (floor, cumulative for the year)3−3.7−5.6−2.0−4.0
Continuous performance criteria
Contracting or guaranteeing of new external non concessional debt (ceiling) 3, 40000
Non accumulation of external payments arrears (ceiling, cumulative for the year)40000
Indicative targets
Social spending (floor, cumulative for the year)3.35.01.53.0
Memorandum item:
New concessional/external debt contracted or guaranteed by the government6.06.03.06.0
Sources: C.A.R. authorities; and IMF staff estimates.

Domestic revenue, which excludes foreign grants and divestiture receipts (see the TMU for more details).

The domestic primary balance is defined as the difference between government domestic revenue and government total expenditure, less all interest payments and externally-financed capital expenditure.

These objectives will be monitored continuously.

Contracted or guaranteed by the government (see the TMU).

Sources: C.A.R. authorities; and IMF staff estimates.

Domestic revenue, which excludes foreign grants and divestiture receipts (see the TMU for more details).

The domestic primary balance is defined as the difference between government domestic revenue and government total expenditure, less all interest payments and externally-financed capital expenditure.

These objectives will be monitored continuously.

Contracted or guaranteed by the government (see the TMU).

Table 2.Central African Republic: Structural Benchmarks, 2016–17
MeasuresTimelineMacroeconomic Rationale Status
Adoption of ministerial decision to cease the creation of new government bank accounts.End July 2016Improve public financial management.
Presentation to parliament by the government of a revised budget for 2016 consistent with the program.End August 2016Improve accountability
Adoption of a ministerial decision identifying all government accounts and their contents.End August 2016Improve public financial management
Adoption of an inter-ministerial decision basing the price structure for domestic petroleum products on Platts international prices.End July 2016Improve revenue collection
Require assets disclosures by cabinet members in compliance with existing legal requirements.End July 2016Improve governance.
Provision by the Ministry of Foreign Affairs of airline transportation tickets to all diplomats when assignments have ended to facilitate their repatriation.End-December 2016Rationalize the wage bill.
Consolidate the TSA by closing non-donors and non essential government’s accounts opened in Commercial Banks.End March 2017Improve public financial management
Adoption by the minister of finance of a domestic payment arrears clearance plan.End June 2017Improve public financial management and debt management

4. We believe that the policies and measures set forth in the attached MEFP are appropriate for attaining our program objectives and gradually reducing our balance of payments financing needs going forward. We are prepared to take any additional measures that may subsequently be required for that purpose. The government will consult with the Fund on the adoption of such measures, and in advance of revisions to the policies contained in the MEFP in accordance with Fund’s policies on such consultations. We will provide IMF staff with all of the information indicated in the attached Technical Memorandum of Understanding (TMU) regarding progress with the program supported by the ECF.

5. We intend to publish the IMF staff report, including this letter and the attached MEFP and TMU. We therefore authorize the IMF staff to post these documents on the IMF’s external website once the Executive Board approves the new arrangement under the ECF.

Sincerely yours,

Attachments:

Memorandum of Economic and Financial Policies

Technical Memorandum of Understanding

Attachment I. Memorandum of Economic and Financial Policies for 2016–19

1. This Memorandum of Economic and Financial Policies (MEFP) sets out the economic and financial policies that the government of the Central African Republic (C.A.R.) is implementing for the remainder of 2016 and plans to implement in the medium term. These policies are in line with the country’s strategic priorities.

General Context

2. The return to democratically elected institutions augurs well for the C.A.R.’s future. The country is gradually emerging from the political and security crisis unleashed in 2013, which led to a humanitarian crisis and the collapse of the economy. The support of the international community has been key in helping the C.A.R. to recover. The new institutions that have resulted from the democratic elections provide an opportunity to undertake an ambitious medium-term reform program. Given the significant challenges facing us, our priorities for economic recovery and poverty reduction will be to consolidate the security situation, promote national reconciliation and social peace, build human and administrative capacities, and continue the economic reforms. The latter will be based on: (i) fiscal consolidation, including strengthening tax revenue collection and control of public expenditure while ensuring increased spending on the priority sectors and restoring external sustainability; (ii) strengthening of the country’s administrative capacities and the redeployment of the government through structural measures; and (iii) improving the C.A.R.’s competitiveness.

3. Security conditions are improving but remain volatile. With the support of international forces, including MINUSCA and the French SANGARIS contingencies, the army and the gendarmerie have restored security over much of the country, which facilitated the organization of peaceful elections. However, the fact that ex-combatants have not yet been demobilized and reintegrated, particularly in the diamond mining regions in the northeast, is a source of risk and an obstacle to a strong economic recovery. In this context, work is underway with participation of development partners, on a reform of the security sector. As part of this work, key issues will be addressed, including the departure of many old and untrained officers, the place of ex combatants in society, and the role and size of a new army, if any, including the shift to a civil security format, with small specialized forces to ensure security.

4. The C.A.R. is facing significant challenges and is caught in a fragility trap. During each period of calm and return to peace, the country faces human and financial resource constraints, with the result that achieving social cohesion and a national consensus around the necessary reforms becomes difficult and excessively slow. In addition, security problems prevent the redeployment of the government throughout the national territory, limiting the supply of basic social services. Moreover, our country faces:

  • A slow economic recovery, with cumulative real growth of 5.8 percent in 2014–15, which is quite insufficient to offset the 36.7 percent contraction in real GDP in 2013.

  • Heavy reliance on external aid. At end-2015, domestic revenues covered only 73 percent of primary expenditure, making recourse to external assistance for the payment of wages and pensions and debt service unavoidable.

  • Deeply rooted structural rigidities that are an obstacle to economic expansion and impede private investment by local and foreign entrepreneurs. Some examples of these many constraints are the lack of electricity, inadequate infrastructure, a weak education system, a 3 percent bank penetration rate, very high transportation costs and a chronic shortage of means of telecommunications.

  • Weak human development, with severe consequences for extreme poverty in the various segments of the population across the entire country.

Recent Economic Developments

5. The data available at end-2015 indicate:

  • An estimated GDP growth of 4.8 percent supported by the recovery of agriculture, construction, trade and services, despite a wave of violence during the third quarter.

  • A decline in average inflation at end-December to 4.5 percent, against 11.6 percent in 2014, explained in part by better supply of goods owing to the security improvements of the Douala-Bangui corridor, lower import prices for some staples, and improvements in the distribution channels.

  • A decline in the primary deficit to 3 percent of GDP, reflecting an increase in domestic revenues to 7.1 percent of GDP, explained by improvements in revenue collection, and better control over primary expenditure, which remained largely unchanged at 10.1 percent of GDP.

  • A widening of the balance of payments current account deficit by 3.4 percentage points to 9 percent of GDP.

  • A high level of public debt, at 48.5 percent of GDP, as compared to 51 percent in 2014. The Transition Government signed a new loan for CFAF 45 billion (5 percent of GDP) with Saudi Arabia to launch infrastructure and social sector investment projects. The borrowing conditions are concessional, with a grant element of 49 percent.

6. The disbursement of budgetary support in 2015 was in line with projections, with the exception of CFAF 5 billion carried forward to 2016. These resources, combined with control over non-priority spending and a slowing of domestically financed capital expenditure, enabled the Transition Government to pay wages, service the debt, clear CFAF 10.1 billion in arrears, and build up CFAF 10 billion (1 percent of GDP) in financial reserves.

7. To improve public finance management and the mobilization of domestic revenues, the Transition Government has implemented significant reforms during its emergency economic program supported by disbursements under the RCF.

  • Increased tax and customs controls, including for the VAT on oil products, and better tracking of exemptions have led to a significant improvement in revenues. However, some measures envisaged in 2015 in the context of the third disbursement under the Rapid Credit Facility have not yet been implemented, in particular: (i) the adoption of the decree for the revision of the oil price structure in order to base it on Platts international prices; (ii) the reduction in exemptions on telephone user fees, particularly those granted to employees of the United Nations agencies, the Agency for Air Navigation Safety in Africa and Madagascar (ASECNA), the BEAC, and diplomatic missions; (iii) the revision of reference prices in the forestry sector to reflect international prices and ensure adequate valuation of commercial transactions; (iv) improvements in the collection of the logging and reforestation taxes; (v) overhaul of taxation of the diamond mining sector, better control over the distribution system, reduction of fraud, and improvement of the certification process; and (vi) revision of the banking agreements to ensure better revenue collection by the government, end automated debiting and the offsetting of claims (under penalty of sanctions), and enable daily transfers to the Treasury.

  • On the expenditure side, the following measures were taken: (i) the first phase of the civil service reform has been completed with assistance from the World Bank and the UNDP and allowed to streamline the civil service, gendarmerie and police roster. However, despite a significant reduction in the number of civil servants included on the roster, the expected financial gains did not fully materialize owing to delays in the implementation of some measures (repatriation of diplomats at the end of their missions), the appointment of more diplomatic personnel than necessary, excessive employment of ineligible civil servants with special status, and the reintegration by a court decision of civil servants who had been removed from the roster; (ii) the operationalization of the Central Treasury Agency (ACCT), a fundamental step in the fiscal reform toward greater transparency in public finance management; (iii) the interconnection of the GESCO-budget and GESCO-accounting modules, which made it possible to establish the conditions for restoring the expenditure cycle, although the connection between the budget and accounting modules remains problematic, limiting the scope of this measure; and (iv) the adoption of regulatory provisions to strictly limit recourse to exceptional procedures to a maximum of 5 percent of expenditure (excluding wages and pensions and debt service) and the execution only of expenditures included in the budget are an initial step toward better alignment of budget execution with the budget adopted by the National Assembly.

8. The banking sector is playing a limited role in the economic recovery. The expansion of bank credit to the private sector remains hampered by a number of constraints related to the security volatility, the lack of appropriate guarantee instruments, the lack of long-term resources, information asymmetry and a judicial system that does not facilitate debt collection. Banks are finding it difficult to extend credit beyond a limited group of customers with adequate accounting practices.

9. Financial sector indicators show an increase in the overall liquidity of the banks in 2015 and a decline in asset quality. Almost one third of the loans are nonperforming, primarily owing to the sizable stock of government arrears to banks and to domestic suppliers, who in turn cannot repay debts contracted with the commercial banks. Banks have increased their loan loss provisioning to almost 70 percent (compared with50 percent in March 2015), leading to a reduction in their capital and profitability.

Macroeconomic Objectives and Medium-Term Policies

10. Given these significant economic challenges and the population’s high hopes, in the context of a gradual emergence from fragility, our strategic priorities for economic recovery and a substantial reduction in poverty are to: (i) restore fiscal and external debt sustainability; (ii) improve competitiveness and expand the base of economic activity to create the conditions for sustainable and inclusive growth; (iii) lay the foundation for good governance; and (iv) enhance the institutional framework and administrative capacity. For this purpose, we request the support of the IMF in the form of a new arrangement under the Extended Credit Facility (ECF). The ECF-supported program will provide a macroeconomic framework that will strengthen substantially and in a sustainable manner our balance of payments position consistent with strong and durable poverty reduction and growth.

A. Macroeconomic framework for 2016–2019

11. The medium-term outlook should improve as the security situation is restored, the embargo on diamond exports is gradually lifted, and adequate macroeconomic policies are introduced. Against the back of a comprehensive reform of the security sector that will create the conditions for an economic recovery, the main macroeconomic objectives are:

  • Projected economic real growth of 5.2 percent in 2016, driven by recovery across all sectors, and the resumption of public and private investment in infrastructure and social sectors. Average inflation will be contained to 4 percent based on the solid performance of the food crop sector, continued improvement of the distribution channels, and the expected decline in the prices of oil products at the pump. During the period 2016–19, economic growth is projected to average 5.5 percent, with inflation in line with the CAEMC target of 3 percent by 2018 owing in part to an increase in agricultural output.

  • An external current account deficit of 11.1 percent of GDP in 2016, up from 9 percent of GDP in 2015, reflecting a slower uptick in exports and a reduction in transfers. The financing of the current account will decline in comparison with 2015 owing to an increase in debt repayments. During the period 2016–19, the current account deficit is projected to be at around 9.7 percent of GDP given the sizable reconstruction needs. Financing needs are projected to decline during the period from 4.8 percent of GDP in 2016 to 3.2 percent in 2019.

  • The domestic primary deficit, which will be the anchor for the fiscal policy, should decline from 3.3 percent of GDP in 2016 to 0.9 percent of GDP in 2019, making it possible to reduce the public debt to 31.2 percent of GDP in 2019. The new target for 2016 will be included in a revised budget for 2016 that the new authorities plan to adopt by end-August The achievement of this objective involves an increase in revenues, which is projected at

  • 8.1 percent of GDP, or 1 percentage point more than in 2015.1 Public spending is expected to increase by 2.2 percentage points of GDP owing to an increase in capital and social spending and despite a reduction in the wage bill from 6 percent of GDP in 2015 to 5.3 percent of GDP in 2016.

  • The financing gap will essentially be covered by external sources, particularly in the form of budgetary assistance from the EU, the World Bank, France and the African Development Bank totaling CFAF 50 billion.2

  • This ECF-supported program takes into account factors or changes that are outside the government’s influence. Therefore, various quantitative targets will be adjusted for shortfalls in privatization and renewal of telecommunications licenses or forestry fees. This will ensure that the fiscal and debt sustainability objectives are met in the event of a change in the expected external financing.

B. Economic and financial policies for 2016–19

12. We commit to conduct a sustainable fiscal policy while accumulating buffers to protect us against potential shocks. It is essential that we restore the macroeconomic stability that will lead to economic recovery by releasing financial resources for the private sector and at the same time allocating more resources to the priority social sectors and to the restoration of a lasting peace. The country is vulnerable to a number of shocks, including possible delays in the disbursement of external assistance and an increase in international oil prices, which make it necessary to accumulate reserves in the form of government deposits with the banking sector as an insurance against such risks. Notwithstanding this safeguard mechanism, we are prepared to take additional measures (on the revenue and expenditure sides) in the event of shocks and insufficient levels of reserves.

13. The revised budget for 2016 is in line with the medium-term strategy of restoring fiscal sustainability. Consequently, the domestic primary deficit is projected at 3.3 percent of GDP. We will adopt a supplementary budget (structural benchmark for end-August 2016), which will contain a series of additional measures to increase revenues by the equivalent of 0.2 percent of GDP and accumulate government deposits equivalent to 0.5 percent of GDP. The latter should reach 1.5 percent of GDP by 2019. These measures include: (i) a new price structure for oil products based on Platts international prices (structural benchmark for end-July 2016),3 yielding CFAF 1.5 billion over the last three months of 2016; (ii) transition to a list of reference prices for exported forest species based on global price trends and enhanced control over transportation cost structures to ensure adequate domestic valuation and effective collection of taxes and concession fees (expected to yield CFAF0.3 billion); and (iii) strict application of the banking agreement on revenue collection to ensure traceability, with an absolute prohibition on automated debiting and offsetting and the requirement for immediate payment into the government’s current account with the central bank (CFAF 0.4 billion).

14. The prices of petroleum products will be regularly revised to safeguard the revenue objectives. January 1, 2017, we will implement a pass-through policy of international prices to domestic prices at the pump in order to safeguard projected fiscal revenues. Moreover, we plan to request technical assistance to continue the work on simplifying this new price structure, including eliminating the many earmarked revenues. This policy will be accompanied by social programs under preparation to protect the vulnerable segments of the population, including subsidized prices for households using cooking and heating oil, and vouchers for transportation for workers earning small wages.

15. Total spending should be kept below a ceiling of 17.1 percent of GDP. In this context, the wage bill is projected to be at 5.3 of GDP, or 0.7 percentage point lower than in 2015. For 2016, the cost of new recruitments in the social and priority sectors (CFAF 1.2 billion) is expected to be offset by the gains achieved through the ongoing cleaning up of the roster (CFAF roster (CFAF 100 million) the timely retirement of eligible civil servants (CFAF 150 million), the gradual elimination of non-regular civil servants (CFAF 150 million), and the repatriation of diplomats whose missions are ending in 2016 (CFAF 60 million) through the provision of airline tickets (structural benchmark for end-December 2016). These net gains, combined with improvements in revenue collection, will make it possible to increase priority spending on goods and services, transfers and subsidies (to 4.7 percent of GDP) and domestically-financed capital spending (to 1.8 percent of GDP). The revised budget slightly increases the settlement of domestic payments arrears (0.5 percent of GDP), the financing of which will be covered by the additional revenues generated by the new measures.

16. To manage the government’s cash flow and make it more secure and to gradually expand the scope of the Treasury, we will continue to implement strict cash flow management in order to align available resources with priority spending, ensure sound execution of the cash flow management plan, and avoid the accumulation of payments arrears. In this context, we have prepared a monthly cash flow plan for 2016 and 2017 to reflect the domestic primary balance objective. Its implementation will be tracked by the Treasury Committee, which will continue to meet monthly under the chairmanship of the Minister of Finance and Budget.

17. We will continue to improve revenue mobilization in the medium term. With fiscal revenues standing at just 7.1 percent of GDP in 2015, we are aware that the public finance situation is not sustainable since revenues remain insufficient to cover our primary spending and debt service needs. The government will therefore implement the measures included in the action plan that was prepared in early 2016 with the help of the IMF and validated by the government, with the aim of increasing domestic revenues to 8.1 percent of GDP in 2016 and 10.1 percent of GDP in 2019. These reforms focus on:

  • Expansion of the tax base and simplification of procedures. The measures will focus on better management of the VAT, prohibition on offsetting unpaid VAT credits against other taxes owing, an improvement in the bases for the valuation of exports, a strengthening of controls and monitoring, particularly of the wood and diamond sectors, simplification of procedures and a reduction in para-fiscal levies.

  • Improvement of tax and customs administration. In this area, the key elements of the reform will focus on the introduction of the auto-filled return for the property tax, the revision of agreements that include tax concessions, the harmonization of the General Tax Code through the implementation of the CAEMC directives on the VAT and excise duties, stricter monitoring of the IGU, enhanced management of the tax operations of large taxpayers, the introduction of corporate citizen status, the collection of arrears, and closer relations between taxpayers and the government. In addition to these efforts, we will begin integrated computerization of the customs and tax networks, beginning with the Beloko customs bureau and establish the IT connection between the Douala and Bangui offices.

  • Streamlining and better management of exemptions. This involves strict application of the laws and regulations in effect, the establishment of criteria for the granting of exemptions, and a review of all existing agreements.

18. There are numerous challenges associated with improving public finance management. We are committed to: (i) fiscal discipline; (ii) the restoration and normalization of the expenditure cycle; (iii) continued efforts to control the wage bill; and (iv) the implementation of the accounting function. The government plans to improve fiscal governance through a return to normal budgetary procedures. To respond to these challenges, the government has begun implementing the action plan that was prepared in early 2016 with the help of the IMF and validated by the government to re-launch the public finance management system and establish the bases for a simple robust management of the government’s resources and loans. In this context, preparatory measures have been taken, including assumption of commitments in the 2016 budget, restoration of the interconnections in the integrated budget and accounting management system (GESCO), and development of the draft nomenclature for the supporting documentation governing interactions between the payment authorization officers and the accountants, which has been submitted to the Minister of Finance and Budget for validation.

19. The government intends to continue and accelerate the implementation of this plan with technical assistance from the IMF and other partners. The plan includes several measures, some of which are very short term, to improve and modernize public finance management. The measures, covering the period 2016–18, are organized around four priority objectives: (i) to manage the government’s cash flow and safeguard it so as to gradually extend the scope of the Treasury; (ii) to restore and normalize budgetary management in order to gradually decrease the use of exceptional spending procedures to 5 percent of expenditures; (iii) to restore the accuracy of the entire general budget and the specific budgets; and (iv) to restore the credibility of the government by combating fraud and restoring creditor confidence. More specifically, these measures are as follows:

  • Implement the medium-term action plans on revenue during 2016–2018;

  • Strengthen revenue administration and tax policy during 2016–2018 with support from the Fund;

  • Improve treasury management in 2016 through the strengthening of the central accounting and treasury agency in 2016;

  • Extend the scope of the Treasury to strengthen the treasury single account while preserving the stability of the banking system during 2016;

  • Improve the execution of the treasury plan to cover priority funding and avoid accumulation of new arrears during 2016;

  • Implement normal budget procedures in 2016;

  • Take the administrative steps to ensure that the 2017 budget is prepared in a timely fashion in 2016;

  • Adhere to the 5 percent limit regarding exceptional spending;

  • Complete during the current year the 2015 accounts and regularize the 2016 accounting operations conducted so far;

  • Extend the accounting operations to produce in 2017 a central government balance for the general budget for 2017 and budget annexes in 2018;

  • Enhance throughout the program period government transparency and ensure that the “comité des sages” acts in lieu of the national committee against corruption which is inactive;

  • Strengthen budget control institutions starting in 2016 through measures to improve the efficiency of the unit in charge of finance inspection;

  • Reform before the end of the program the legal framework to fight against corruption

20. The following are the main actions in this program of action:

  • To restore accounting accuracy, the government plans to complete the posting of accounting entries under way in the GESCO system for purposes of producing the 2015 financial statements, as well as the entries for the first four months of 2016, by July 31, 2016. The government commits to systematically post entries starting on June 1, 2016. As of this date, the GESCO account balances and the trial balances will be produced every month and shared with the IMF staff. The government intends to adopt the nomenclature for the supporting documentation and the procedures manual for revenue and expenditure execution by July 15, 2016.

  • In the medium term, the government plans to: (i) improve cash flow management and make it more secure by expanding its coverage to include all government operations and bank accounts in commercial banks; (ii) restore the expenditure cycle; (iii) respect the strict limits on recourse to exceptional procedures (budgetary payment orders and cash payment orders) to a maximum of 5 percent of total expenditure excluding wages and debt service; and (iv) restore normal budget expenditure procedures (commitment / validation / payment authorization / payment).

  • Upon completion of the comprehensive survey (under way) of government accounts opened with commercial banks, we plan to adopt a ministerial decision identifying all government accounts and their contents (structural benchmark for end-August 2016) as it will facilitate the establishment of a consolidated Single Treasury Account. This involves a restructuring of the government’s bank accounts. Opening of new government bank accounts will therefore be suspended, with the exception of project accounts (structural benchmark for end-July 2016). We also plan to close all government bank accounts with the commercial banks that are managed outside the government’s centralized cash flow management system, with the exception of project accounts (structural benchmark for end-March 2017). In the medium term, after an impact study on the transfer of the main government accounts opened with the commercial banks, we plan to gradually continue the consolidation of these accounts in the Single Treasury Account at the central bank.

  • The ACCT will undertake an information campaign to explain this reform to government accountants and payment authorization officers. It will produce a monthly report on all identified breaches of the prohibition on automated debiting by banks from the revenue accounts. Moreover, it will have guaranteed access to information and statements on all Treasury accounts with the commercial banks.

C. Management of Domestic Payments Arrears

21. The clearance of domestic payments arrears is key to our fiscal consolidation program and the restoration of creditor confidence. The outstanding stock at end May 2016 is CFAF 157 billion. It comprises: (i) arrears to the BEAC for an amount of CFAF 22.4 billion following the April 2016 agreement on the consolidation of liabilities and unpaid loans and arrears; (ii) claims of commercial banks on the government (estimated at CFAF 2.6 billion). The audit of these claims is under way (financed by the European Union) and will make it possible to establish a strategy for clearing those arrears starting in 2017. In cooperation with IMF staff, we plan to explore the possibility of securitization of these bank claims. The other components of the domestic arrears include commercial, social and cross-debts for a cumulative amount of CFAF 132 billion. We also plan to complete the audit of these debts by end-June 2017. Once these audits have been completed and the claims validated, we will define transparent criteria and terms and conditions for their clearance. We will adopt a plan for the settlement of validated domestic payments arrears by July 2017 at the latest (structural benchmark for end-June 2017). We also plan to review the VAT credits in order to prepare a payment plan and eliminate all recourse to offsetting. In the immediate future, priority will be given to commercial and wage and pension arrears dating back to 2013–14 (amounting to CFAF 13.2 billion),4 and which will be cleared in 2016 and 2017, respectively.

D. External Debt management and Sustainability

22. We will consolidate debt management. The external debt sustainability analysis classifies CAR. as a country at high risk of debt distress. This classification is based on the collapse of GDP, tax revenues and exports and, to a lesser extent, on the increase in external borrowing. Furthermore, as a result of the crisis, we have accumulated external payment arrears vis-a-vis bilateral non Paris Club creditors in the context of the 2009 non-representative Paris Club agreement. At end-May 2016, CAR. owes US$ 100.9 million to Argentina, Equatorial Guinea, India, Iraq, Libya, and Montenegro. We also accumulated in arrears vis-a-vis some French private entities and we are continuing to make good faith efforts to reach a collaborative agreement with them. Moreover, the accumulation of domestic payments arrears has contributed to a rise in the level of domestic debt. Given this situation, the government will seek to mobilize financing primarily in the form of grants and, in consultation with Fund staff, new highly concessional loans with a grant element of 50 percent

23. We will continue our efforts to improve public debt management. We will install a new debt management and analysis software, SYGADE 6.0. We will also be stricter in ensuring that all new financing results exclusively from a decision of the Minister of Finance. This provision will be included in the supplementary budget for 2016.

E. Banking and Financial Sector Reforms

24. The banking sector should better contribute to the economic recovery through increased financial intermediation. We will aim to reduce the banking system weaknesses so that it plays its proper role in supporting economic growth. On the basis of the recommendations of a seminar organized in June 2015, the National Credit Council approved a series of measures in March 2016 that intend to remedy the weaknesses of the banking sector. Based on these recommendations, we will: (i) explain the government’s medium-term strategy to enhance the country’s economic profile, which will help economic agents; (ii) organize training seminars to increase banks’, businesses’ and the general public’s knowledge of the financial sector, including the various savings, credit and micro financing instruments; (iii) protect the integrity of the banking system and monitor risk management and lending practices in order to deal with potential risks; in this context, we will ask COBAC to send a banking supervision mission given that the most recent mission dates back to 2012; (iv) create an action plan for the establishment of commercial and property registries; and (v) authorize more banks to engage in mobile banking activities. To improve credit supply, in accordance with community procedures, actions will focus on examining ways to establish a credit bureau to reduce the information asymmetry and support small and medium-sized enterprises and commercial banks. The authorities are requesting technical assistance in this area. Finally, with the help of donors, we will examine the conditions for and feasibility of creating a Guarantee Fund to encourage the financing of small and medium-sized enterprises.

F. Development Strategy and Structural Reforms

25. The C.A.R.s main challenge is to create the conditions for sustainable and inclusive growth in order to reduce poverty. This challenge first involves restoring peace and security throughout the national territory, and then creating the environment necessary for expanding the private sector, particularly in agriculture, which will be the cornerstone of our recovery strategy. To this end, we must overcome the major constraints related to the shortage of energy and basic infrastructure, the high cost of transportation owing to the C.AR.’s landlocked status, and the limited access to credit. Overall, our medium-term strategy focuses on the following activity sectors:

  • Developing food, cash and export crops.

  • Promoting agro-forestry and downstream operations to create value added and jobs.

  • Developing mining activities in a formalized context to make these activities more attractive to large operators.

  • Repairing and restoring highways, rural roads, dry ports and provincial airports.

  • Expanding transportation and telecommunications infrastructure.

  • Developing energy capacities.

26. We will undertake structural and institutional reforms to promote the development of the private sector. These reforms, which are aimed at improving the business climate, will focus on the modernizing and updating the legal framework in key economic sectors. To this end, the government intends to implement the Joint Business Improvement Framework (CMAA) to promote and enhance the government-private sector dialogue. Two laws are in preparation to revitalize telecommunications activities. In the same spirit, we will update the investment charter, the mining code, the telecommunications code and the regulations in effect in the forestry sector. A one-stop shop will be established to facilitate administrative procedures for investors.

27. We are determined to enhance good governance and to ensure better use of public resources. In this context, the government will strictly apply the law requiring any individual appointed to the position of minister to submit an asset disclosure within 60 days of taking office (structural benchmark for end-July 2016). The government will consider extending the asset disclosure to the immediate family members, however this will require legislative changes. Moreover, we intend to create a special commission (comité des sages) to establish the conditions for the implementation of a coherent anticorruption framework in line with existing international practices.

G. Social Policy

28. Our social policy is aimed at enhancing the resilience of the population. It is based on an improvement in civil protection, the restoration and reorganization of the government throughout the national territory and the re-launching of activities in the essential social sectors. Specific objective of this policy are:

  • Assistance to internally displaced persons and refugees to ensure the effective resumption of socioeconomic activities throughout the national territory.

  • The restoration of social cohesion and reduction of tensions in the community to support the local economic recovery and the creation of temporary jobs, primarily for young people.

  • The reorganization and redeployment of the government throughout the national territory to support the economic recovery.

  • Access to safe drinking water, sanitation and hygiene.

  • The rehabilitation of the education sector to ensure full education coverage and complete high-quality education, including access to all levels for all children of both genders, regardless of where they live.

  • New impetus to the health care system, including the strengthening of the fight against HIV/AIDS.

29. The international partners have an important role to play in the achievement of our economic recovery and development strategy. The institutional framework in place implies full participation of the donors. We plan to continue coordination in this context to strengthen ownership of our program and improve financial governance.

Capacity Building and Technical Assistance

30. Technical assistance (TA) and training will be vital in the coming years to build our institutional capacities. To ensure the successful implementation of the program, we would like to receive technical assistance that focuses on the collection of domestic revenues (VAT, management of exemptions, better performance of the tax and customs administration, reform of taxation in the key sectors of forestry, mining and telecommunications), improved cash flow management and enhancement of the operation of the public finance management system (manage the government’s cash flow and make it more secure, restore and normalize fiscal management, restore accounting accuracy and the government’s credit), improve public debt management, produce macroeconomic statistics, reform the civil service by means of qualitative management of staff, and rebuild administrative and macro-fiscal capacities. To implement this TA, we plan to conclude a memorandum of understanding with the IMF with a view to involving the IMF’s pilot Capacity Development Framework. 5 In this context, we commit to improve capacity and make the best use of the TA that will be provided by development partners and the Fund. We are also committing to train staff in place and hire young qualified staff if possible.

Program Monitoring

31. Performance under the program will be monitored using quantitative performance indicators, indicative benchmarks and structural benchmarks. Performance criteria have been established for end-August 2016, end-December 2016 and end-June 2017, along with structural benchmarks for end-March 2017 (Table 1). The structural benchmarks are described in Table 2. The first program review will be completed by end-November 2016 and will cover the results through end-August 2016. The second program review should be concluded by March 2017 and cover the results through end-December 2016.

32. Program execution will be subject to regular monitoring. At the political level, the program will be monitored by the staff of the Office of the President of the Republic, the Prime Minister, the Ministry of Finance and Budget, and the BEAC. Technically, the program will be implemented by the Economic Reform Monitoring Committee (CS-REF), a unit under the authority of the Minister of Finance and Budget that includes representatives of the various ministries involved in economic and financial affairs.

33. Throughout the duration of the program, the government commits to not introduce or intensify restrictions on payments and transfers related to current international transactions, nor to introduce multiple exchange rate practices, engage in bilateral agreements not consistent with the Article VIII of the Articles of Agreement, impose or broaden imports restrictions to influence the balance of payments. In addition, the government commits to adopt, in consultation with Fund staff, any new measures, financial or structural, that may prove necessary to ensure the success of the program.

Attachment II. 2016 Technical Memorandum of Understanding

Introduction

1. This Technical Memorandum of Understanding (TMU) spells out the concepts, definitions, and data reporting procedures mentioned in the Memorandum of Economic and Financial Policies (MEFP) prepared by the authorities of the Central African Republic. More, specifically, it describes:

  • data reporting periodicity and timeframes;

  • definitions and computation methods;

  • quantitative targets;

  • adjusters of quantitative targets;

  • structural benchmarks; and

  • other commitments made within the MEFP.

2. Unless otherwise specified, all performance criteria and indicative targets are assessed on a cumulative basis as of January 1 of the same year.

Program Assumptions

3. Exchange rate. For the purposes of this TMU, the value of transactions denominated in foreign currencies will be converted into CFA francs (CFAF), the currency of the Central African Republic (CAR.), on the basis of the exchange rates used to prepare the ECF. The key exchange rates are shown below.

CFAF/US$: 585

CFAF/euro: 656

CFAF/SDR: 815

Definitions

4. Unless otherwise specified, the government is understood to mean the central government of C.A.R. and does not include any local governments, the central bank, or any public entity with separate legal personality (i.e., enterprises wholly or partially owned by the government) that are not included in the table on government financial operations (Tableau des opérations financières de l’état—TOFE).

5. Definition of debt. The definition of debt is set out in point 8 of Decision No. 6230-(79/140) of the Executive Board of the IMF, as amended on December 5, 2014, by Executive Board Decision No. 15688-(14/107):

(a) “Debt” is understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, according to a specific schedule; these payments will discharge the obligor of the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:

i. loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

ii. suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

iii. leases, i.e., arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments necessary for the operation, repair, or maintenance of the property.

(b) Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

(c) External debt is defined as debt borrowed or serviced in a currency other than the CFA franc of the Financial Cooperation of Africa (CFAF).

(d) Internal debt is defined as debt borrowed or serviced in the CFA franc of the Financial Cooperation of Africa (CFAF).

6. Guaranteed debt. The guaranteeing of a debt by the government is understood to be an explicit legal obligation to service a debt in the event of nonpayment by the borrower (by means of settlements in cash or in kind).

7. Concessional debt. A debt is considered concessional if its grant element is at least 50 percent. The grant element is the difference between the nominal value of the loan and its present value, expressed as a percentage of the nominal value. The present value of the debt at the date on which it is contracted is calculated by discounting the debt service payments at the time of the contracting of the debt The discount rate used for this purpose is 5 percent.

8. Total government revenue is tax and non-tax revenue or other revenue (as defined in GFSM 2001, Chapter 5) and is recorded on a cash basis. Proceeds from taxation on contracts, asset sales, revenue from privatization or from the granting or renewal of licenses, and placement proceeds on government assets and grants are not considered government revenue for the purposes of the program.

9. Total government expenditure is understood to be the sum of expenditure on wages and salaries of government employees, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and capital expenditure. All these categories are recorded on a commitment basis, unless otherwise stated. Total government expenditure also includes expenditure executed before payment authorization (dépenses avant ordonnancement—DAO) and not yet regularized.

10. Wages and salaries correspond to the compensation of government employees as described in paragraphs 6.8–6.18 of GFSM 2001, namely, all employees (permanent and temporary), including civil servants and members of the armed and security forces. Compensation is defined as the sum of wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other form of monetary or non-monetary payment.

11. For the purposes of this memorandum, the term arrears is defined as any debt obligations (as defined in paragraph 5 above) that have not been amortized in conformity with the conditions specified in the pertinent contract establishing them.

12. Domestic payment arrears are the sum of: (i) payment arrears on expenditure; and (ii) payment arrears on domestic debt.

  • Payment arrears on expenditures are defined as all payment orders to the Treasury created by the entity responsible for authorizing expenditure payments but not yet paid 90 days after authorization to pay given by the treasury. Expenditure payment arrears so defined are part of “balance payable” (or “amounts due”). Balance payable corresponds to government unpaid financial obligations and include the domestic floating debt besides the expenditure arrears. They are defined as expenditure incurred, validated and certified by the financial controller and authorized by the public Treasury but which have not been paid yet. These obligations include bills payable but not paid to public and private companies, but do not include domestic debt financing (principal plus interest). For the program target, domestic payment arrears are “balances payable” whose maturity goes beyond the 90-day regulatory deadline, while floating debt represents “balances payable” whose maturity does not go beyond the 90-day deadline.

  • Payment arrears on domestic debt are defined as the difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract;

13. External payment arrears are defined as the difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract.

Quantitative Targets

14. The quantitative targets (QTs) listed below are those specified in Table 1 of the MEFP. Adjusters of the quantitative targets are specified in Section D.

  • Ceiling on domestic budgetary financing to the government.

  • Domestic public financing to the government is defined as the sum of the i) the bank credit to the government, defined below; and ii) non-bank financing to the government, including proceeds from the sale of government assets, which includes proceeds from the divestiture of parts of public enterprises, that is, privatizations, Treasury bills, and other securitized obligations issued by the government and denominated in CFA francs on the CEMAC regional financial market, and any Bank of Central African States (BEAC) credit to the government, including any drawings on the CFA franc counterpart of the allocation of Special Drawing Rights (SDRs).

  • Bank credit to the government is defined as the balance between the debts and claims of the government vis-à-vis the central bank and the national commercial banks. The scope of credit to the government is that used by the BEAC and is in keeping with general IMF practice in this area. It implies a definition of government that is broader than the one indicated in paragraph 3. Government claims include the CFA franc cash balance, [postal checking accounts], subordinated debt (obligations cautionnées), and all deposits with the BEAC and commercial banks of government owned entities, with the exception of industrial or commercial public agencies (établissements publics à caractère industriel et commercial—EPICs) and government corporations, which are excluded from the calculation. Government debt to the banking system includes all debt to the central bank and the national commercial banks, including Treasury bills and other securitized debt.

Floor for total domestic government revenue.

  • Domestic government revenue: only cash revenues (tax and non-tax revenue) will be taken into account for the TOFE.

Floor for government social spending.

  • Poverty-reducing social spending comprises public non-wage spending on primary and secondary education, health, social action, water and sanitation, microfinance, agriculture, and rural development Its execution is monitored on a payment-order basis during the program.

Ceiling on domestic primary deficit.

  • The domestic primary fiscal balance (commitment basis) is defined as the difference between government domestic revenue and government expenditure, less all interest payments and externally financed capital expenditure. Payments on arrears are not included in the calculation of the domestic primary balance.

Floor on reduction of domestic payments arrears.

  • The government undertakes to settle some priority arrears that were validated.

Non-Accumulation of External Debt Contracted or Guaranteed by the Government.

  • The government undertakes not to contract or guarantee non-concessional debt. Loans for financing projects must not exacerbate debt vulnerabilities according to the debt sustainability analysis prepared jointly by the staff of the World Bank and the IMF.

Non-Accumulation of New External Payment Arrears by the Government.

  • External payment arrears are defined in paragraph 12.

  • The government undertakes not to accumulate external payment arrears, with the exception of arrears relating to debt that is the subject of renegotiation or rescheduling. This quantitative performance criterion applies on a continuous basis.

Non-Accumulation of New Domestic Payment Arrears by the Government.

  • Domestic payment arrears are defined in paragraph 13.

  • The government undertakes not to accumulate domestic payment arrears. This quantitative performance criterion applies on a continuous basis.

Adjusters of Quantitative Targets

  • To take into account the factors or changes that are essentially outside the government’s performance, various quantitative targets for 2016 will be adjusted as follows:

  • If the total revenue from privatization or renewal of telecommunication licenses or forestry or oil licenses is greater than the amount programmed, the following adjustments will be made:

  • i. The floor for the primary budget balance can be adjusted downward by 50 percent of these additional receipts;

  • ii. The ceiling on net domestic financing of the government will be adjusted downward by the remained of the additional receipts.

  • If the total budget support is below the programmed amount, the following adjustments will be made:

  • i. The ceiling on net domestic financing of the government will be adjusted upward by 50 percent of disbursements programmed but not made.

  • ii. The floor for the primary budget balance will be adjusted downward by 50 percent of disbursements programmed but not made.

  • If the total budget support is above the programmed amount, the following adjustments can be made:

  • i. The ceiling on net domestic financing of the government will be adjusted downward by 50 percent of disbursements above the programmed amounts.

  • ii. The floor for the primary budget balance will be adjusted upward by 50 percent of disbursements above the programmed amounts.

Structural Benchmarks

15. Adoption of a decision ending the practice of opening new bank accounts in commercial banks on behalf of the government, except accounts for projects covered by an agreement with donors.

  • A decision will have to be reached to end the practice of opening new bank accounts in commercial banks on behalf of the government, except accounts for projects covered by an agreement with donors. This decision will strengthen and consolidate public finances.

Submission of a 2016 Supplementary Budget to the National Assembly.

  • The 2016 supplementary budget will have to be submitted to the National Assembly. This will help return public financial management to normal.

Adoption of a Decision by the Ministry of Finance Identifying all Government accounts and their Contents.

  • A decision will have to be reached to identify all government accounts and their contents in commercial banks in order to secure and enhance management of the Treasury Single Account.

Adoption of a decree basing the price structure for national petroleum products on international Platts prices.

  • A decision will have to be reached to base the price structure for national petroleum products on international Platts prices to increase transparency in the price structure and boost domestic revenue.

Reporting of assets by ministers in accordance with the legal provisions in force.

  • The implementation of these legal provisions aims to increase transparency and good governance.

Repatriation of diplomats at the end of their mission.

  • Diplomats will have to be repatriated to CAR. upon the conclusion of their mission abroad to limit public spending.

Consolidation of the Treasury Single Account by closing accounts that do not belong to donors and non-essential government accounts open in commercial banks.

  • A decision will have to be made to close government bank accounts open in commercial banks and managed outside the government’s centralized cash flow management system, with the exception of accounts for projects, and to consolidate the Treasury Single Account.

Adoption by the Minister of Finance of a Domestic Arrears Clearance Plan

  • A domestic arrears clearance plan will have to be adopted to rebuild the government’s credibility by restoring creditor confidence.

Reporting to the IMF

16. Quantitative data on the government’s indicative targets will be reported to IMF staff according to the periodicity described in Table III.1 Moreover, all data revisions will be promptly communicated. The authorities undertake to consult Fund staff regarding any and all information or data not specifically addressed in this TMU but which is necessary for program implementation, and inform Fund staff whether the program objectives have been reached.

Table III:Central African Republic: Reporting to the IMF as part of financing under the ECF arrangement
Description of dataDeadline
Bi-annual report evaluating quantitative indicators and structural measures (tables 11 and 12 of MEFP), with supporting documentsWithin four weeks of the end of each quarter.
Monetary position, monthly central bank and commercial bank accountsWithin four weeks of the end of each month.
Monthly cash flow operations tableWithin ten days of the end of each month.
Government financial operations tableWithin four weeks of the end of each month.
Total monthly amount of domestic payment arrears on goods and services and on wages, including unpaid pensions and bonusesWithin four weeks of the end of each month.
External debt stock at end of periodWithin four weeks of the end of each month.
Breakdown of expenditures listed in TOFE (goods and services, wages, interest, etc.)Within four weeks of the end of each month.
Summary table of actual expenditures in priority areas, such as health, education, and securityWithin four weeks of the end of each quarter.
Breakdown of current expenditure and capital disbursements, financed with own and external resourcesWithin four weeks of the end of each quarter.
Breakdown of revenues by institution and economic classificationWithin four weeks of the end of each quarter.
Revenues and expenditures recognized against one another without a cash settlement (by expenditure and revenue type)Within four weeks of the end of each quarter.
Breakdown of debt service and external arrears, particularly by interest and principal, and by main creditorWithin four weeks of the end of each month.
Amount of new non-concessional and concessional external debt contracted by the governmentWithin four weeks of the end of each month.
Actual disbursements for projects and programs receiving foreign financial assistance and relief of external debt granted by external creditors (including the date, amount, and creditor)Within four weeks of the end of each month.

The Kimberly Process Certification Scheme (KCPS) lifted the embargo on the sale of diamonds produced in the green zone (South west part of the country) in June 2015. A partial embargo remains on the diamonds produced in the North East regions, where the most important mines are located.

A wave of violence erupted in the middle of June 2016 in Bangui and also in the Northern part of the country. MINUSCA’s intervention helped restore a fragile security.

The reforms envisaged in the context of the initial budget for 2016 included: (i) extending the tax base for income tax; (ii) increasing the VAT rate to 5 percent for previously exempted staples; (iii) modifying the payment procedures for the property tax through an auto-filled return; (iv) strengthening tax and customs controls, including on oil, mining, and forestry activities; (v) improving VAT collection: (vi) introducing special taxes on tobaccos and transport activities: (vii) implementing an integrated computerized system connecting the customs offices in Doula and Bangui; and (viii) strengthening controls on tax and customs exemptions.

Data at end-April 2016 after the consolidation agreement signed with the BEAC.

In early May, The BEAC Board of Governors agreed to extend the C.A.R. authorities an exceptional advance for an amount of CFAF 9.24 billion. Staff and the government agreed to use this advance only as a bridge loan in case a disbursement is delayed. Once the latter takes place, the amount disbursed will be repaid. The government will consult with staff each time such case arises.

A political crisis erupted in 2003 after after François Bozizé seized power. This quickly escalated into major fighting during 2004 which continued through a peace agreement reached in 2007 Further negotiations resulted in an agreement in 2008 for reconciliation, a unity government, and local elections in 2009 and parliamentary and presidential elections in 2010.

The reforms envisaged in the context of the initial budget for 2016 included: (i) extending the tax base for income tax; (ii) increasing the VAT rate to 5 percent for previously exempted staples; (iii) modifying the payment procedures for the property tax through an auto-filled return; (iv) strengthening tax and customs controls, including on oil, mining, and forestry activities; (v) improving VAT collection: (vi) introducing special taxes on tobaccos and transport activities: (vii) implementing an integrated computerized system connecting the customs offices in Doula and Bangui; and (viii) strengthening controls on tax and customs exemptions.

In this context, we will use the exceptional advance from BEAC (CFAF 9.24 billion) only as a bridge loan to offset delays in disbursement of budget support. Also, the Saudi loan will be used to finance social projects. It will not fill a residual financing gap.

Platts is an important source of reference price valuations for the major commodity markets (energy, metals, agriculture and petrochemicals).

Salary arrears include the months of November and December 2013. Pension arrears cover the second and third quarters of 2015.

The MoU will be signed once the details of the IMF pilot project are finalized.

Other Resources Citing This Publication