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—Debt Sustainability Analysis

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

Background and Recent Developments

1. Following the 2012/2013 security and political conflict, the Central African Republic (C.A.R.) is confronted with lots of economic challenges. With a significantly low level of domestic resource mobilization (6 percent of GDP, against 12 percent of GDP before the conflict), the economy is highly dependent on external assistance and remains saddled with structural weaknesses that constrain an economic rebound which is crucial to tackle pervasive poverty and rebuild social cohesion.

2. The exports recovery is slow. In the first three quarters of 2015, economic recovery started gaining momentum due to the successful implementation of the economic emergency program by the transitional government and improved security. However, the renewed violence in late September 2015 put a halt on the recovery. Real GDP grew by 4.8 percent in 2015, against an initial target of 5.5 percent. The deterioration of security further squeezed C.A.R.’s main exports (diamond and timber). The Kimberley Process Certification Scheme (KPCS) still put an export ban on diamond exports, pending further progress in security and state control in that region. KCPS is conducting another mission to assess the situation and advise on the next steps in late 2016. Timber exports, are recovering slowly from a 38 percent decline in 2013, and remain far below their pre-crisis level.

3. C.A.R is a weak policy performer for the purpose of determining the debt burden thresholds under the Debt Sustainability Framework. C.A.R.’s average rating in the World Bank’s Country Policy and Institutional Assessment (CPIA) during 2012-2014 is 2.55 on a scale of 1 to 6.

Structure of Debt17

4. In 2015, C.A.R.’s total public debt to GDP ratio declined slightly from 2014, driven by the increase in nominal GDP (11.3 percent) in 2015. At end-2015, C.A.R.’s public and publicly-guaranteed debt (PPG) stood at CFAF 454.3 billion (48.5 percent of GDP). The PPG-to-GDP ratio declined by 2.6 percentage points from 51.1 percent at end-2014. External debt amounted to 14.5 percent of GDP.

5. C.A.R.’s external public debt remained stable in 2015. At end-2015, C.A.R.’s public and publicly-guaranteed external (PPGE) debt stood at CFAF 135.5 billion (Text Table 1).18 About 62.3 percent of C.A.R.’s outstanding PPGE debt is debt owed to bilateral creditors, with multilateral creditors accounting for the remainder. External debt was 29.8 percent of total debt. The ratio of PPGE debt to GDP is mainly driven by changes in GDP, rising to 14.5 percent in 2015, from 9.7 percent in 2012.

6. External public borrowing has been limited in recent years. Most of the increases in external public borrowing represent concessional/emergency loans from multilateral creditors such as the World Bank and the African Development Bank. External bilateral debt in percent of GDP fell to 9 percent in 2015 from 10.5 percent in 2014.as C.A.R. was not able to borrow due to its large technical arrears with bilateral creditors. The technical arrears are all pre-HIPC and Non-Paris Club debt arrears, (except for a small commercial amount owed to French companies). Under the Paris Club agreements, C.A.R. has committed to negotiate the Non-Paris Club debt under the same conditions granted by the Paris Club (a 100 percent write off of any existing debt). The government has been negotiating those terms with the Non-Paris Club creditors but the political crisis delayed these discussions. Since 2014, the government signed only one bilateral loan agreement with Saudi Arabia for CFAF 45 billion (denominated in Saudi riyad) in December 2015 with an interest of 1 percent per year, a maturity of 30 years and a grace period of 10 years. The loan will finance infrastructure projects and rehabilitation of schools and health facility.

7. Domestic debt increased significantly since 2014, mainly due to rising arrears. Domestic debt accounts for 70 percent of the total debt in 2015, of which more than half is domestic payments arrears. The end-2015 stock of outstanding arrears stands at CFAF 172 billion, of which CFAF 39 billion to BEAC19, CFAF 30.3 billion in commercial debts, CFAF 80 billion in social debts, and CFAF 22 billion in cross-debt and other debts. The settlement of the audited arrears will be part of the medium-term strategy to reduce domestic debt.

Text Table 1.Central African Republic: Total Debt Stock, Central Government, 2012–15
20122013201420152012201320142015
(CFAF billions)(Percent of total)(Percent of GDP)
Total260.5289.1430.6454.3100.023.538.551.148.5
External debt107.8109.2125.2135.529.89.714.614.914.5
Multilateral24.724.936.951.111.22.23.34.45.5
Bilateral83.184.388.384.418.67.511.210.59.0
Domestic debt 1152.7179.9305.4318.870.213.824.036.334.0
Stock131.0156.8136.0146.932.311.820.916.215.7
Arrear21.723.0169.4171.837.82.03.120.118.3
Sources: C.A.R. authorities; IMF staff estimates.
Sources: C.A.R. authorities; IMF staff estimates.

Underlying DSA Assumptions

8. The baseline macroeconomic assumptions for this DSA have been updated based on developments in 2015, consistent with the macroeconomic framework underlying the proposed ECF arrangement. In the short- to medium-term, the baseline scenario is anchored on two main assumptions, including improved political and security conditions and continued donor support. In this context, staff is projecting growth rates averaging 5.5 percent for the medium term as the rebound is expected to be progressive as the economic fabric has deteriorated over the years. Growth will be mainly driven by agriculture, trade, transportation and public investment. Nevertheless, this will only partly offset the sharp contraction in 2013. In the long run, growth rates are projected to remain around an average of 3.4 percent, about the same as in the previous DSA, reflecting the same assumptions on economic activities as previous DSA. In the fiscal area, the primary fiscal balance recorded a deficit of 3.4 percent of GDP in 2015, compared with a deficit of 3.0 percent of GDP projected in the 2015 DSA (Box 1). The main changes to the macroeconomic projections compared with the previous DSA in 2015 are an upward revision in the external debt-to-GDP ratio, and a downward revision in both the primary fiscal deficit and overall fiscal balance. Also, the non-interest current account deficit is now lower than in the 2015 DSA (Text Table 2).

Box 1.Central African Republic: Macroeconomic Assumptions for 2016–35

Real GDP growth is expected to average 5.5 percent during 2016–18, Growth will be mainly driven by a rebound in agriculture, livestock, construction, and trade as well as the gradual resumption of mining (following the re-certification by the Kimberley Process Certification Scheme) and forestry activities. The lack of a significant rebound in economic activity that could be expected from a low base is attributable to the gradual weakening of the country’s economic structure and the lack of infrastructure and energy. Therefore, CAR is projected to partially catch up from the contraction recorded during the 2013 crisis. The long-term growth rates are kept at 3.5 percent, similar to the previous DSA.

Average inflation is expected to stabilize over the medium term, with convergence to 3 percent in the long run, in line with CEMAC convergence criteria.

The primary fiscal balance is expected to steadily improve to reach an average of around 2 percent of GDP in the medium term, and then shift to about 1 percent of GDP over the long run (2035). Government revenue (including grants) is projected to reach 20.8 percent of GDP in the long run, and primary expenditures are expected to reach 21.8 percent of GDP in 2036, mainly on account of higher domestically-financed capital spending.

The non-interest current account deficit is projected to decline to 10.6 percent of GDP in 2016, and to decline gradually in the medium to long term. Exports are expected to pick up, resulting from the planned recovery of mining and forestry activities, both boosted by improved security conditions and the expected full lifting of the diamond export ban in the medium term. Nevertheless, exports in percent of GDP will remain broadly unchanged from their pre-conflict level due to the narrow export base. The relatively higher non-interest current deficit (compared with before-crisis years) during 2016–19 is partly due to the increase of investment-related imports.

External assistance: Grant-equivalent financing is about 4.9 percent of GDP in 2016 and is assumed at about 3.9 percent of GDP in the long run.

Text Table 2.Central African Republic: Changes in Macroeconomic Projections, 2015 and 2016 DSA
May-16Sep-15
2016Aver. 2017-202016 Aver.2017-20
(Percent of GDP; unless otherwise indicated)
GDP growth (percent)5.25.75.75.3
CPI (annual average)4.03.14.93.5
CPI (end of period)4.03.12.53.4
Non-interest current account balance10.19.09.67.0
Overall fiscal balance (excl. grants)−9.0−6.5−8.1−3.9
Overall fiscal balance (incl. grants)−4.1−2.3−3.4−1.5
Primary deficit3.31.11.40.4
External debt16.913.141.151.4

External Debt Sustainability Results

9. Under the baseline scenario, several external debt indicators breach the threshold. The present value (PV) of debt-to-exports ratio is projected to stay above the policy threshold from 2020. The debt service-to-export ratio and the debt service-to-revenue ratio breaches the threshold in 2015. As was the case in the 2015 DSA, these outcomes reflect essentially C.A.R.’s narrow export base and the slow recovery of exports and government revenues. In contrast, the PV of debt-to-GDP ratio lies below the threshold in 2015 and is expected to maintain this position throughout the projection period (Figure 1 and Text Table 3). These results are broadly similar to those of the 2015 DSA. However, considering C.A.R. as a post-HIPC debt relief country and in view of its current fragile post-conflict situation, this DSA assumes that the authorities will strengthen their debt management capacities and continue to seek highly concessional financing. This, together with improved macroeconomic management, will lead to improvements in the debt service-to-exports, debt-service-to-revenues, and PV of debt-to revenue ratios in the long run.

10. The current DSA results reaffirm the findings of the 2015 DSA, namely that C.A.R.’s risk of external debt distress is high. In the most extreme scenario, all indicators breach the threshold. In particular, the PV of debt-to-exports ratio remains above the policy threshold under the extreme scenario for a significant period. And the PV of debt-to-revenue ratio stays above the policy threshold under the extreme scenario till 2025.

11. Alternative scenarios and stress tests highlight the vulnerabilities already contained in this DSA. The historical scenario includes the crisis years and the 2009 HIPC debt relief that reduced C.A.R.’s external debt vulnerability. Therefore, the historical scenario could not adequately reflect the baseline prospects for C.A.R. in the near future and long run. Under a scenario of combined adverse shocks on GDP growth, exports, exchange rate and FDI flow, three indicators worsen compared with the baseline scenario: (i) the PV of debt-to-GDP ratio worsens and breaches the threshold starting in 2016; (ii) the PV of debt-to-exports ratio breaches the threshold until 2036; and (iii) the PV of debt-to-revenue will also deteriorate and breach the threshold in the medium term and only decline in the long run. These results underscore the need to: (i) foster a sound macroeconomic environment that would promote growth, domestic revenue mobilization, facilitate an export recovery, and enable FDI inflows; (ii) continue the reform agenda in order to avoid the return to unsustainable debt levels observed before 2009; (iii) continue improving security.

12. The bound test results suggest that C.A.R.’s slow recovery in exports is the most significant factor that contributes to its vulnerability of debt sustainability. If export value growth is at historical average minus one standard deviation in 2016-17, the debt-to-exports ratio rises to above 100 in 2017 and stays significantly above the policy threshold for the entire test period.

Text Table 3.Central African Republic: Policy-Based Thresholds and External Debt Burden Indicators
Baseline Scenario Ratios
Thresholds 1/20152016-36
Peak
PV of PPG external debt in percent of
GDP301214
Exports10095100
Revenue200169135
PPG external debt service in percent of
Exports152410
Revenue184315
Sources: C.A.R. authorities; and IMF and World Bank estimates.

Policy-based thresholds as defined in the LIC DSA framework for a weak policy performer based on the 3-year average CPIA score.

Sources: C.A.R. authorities; and IMF and World Bank estimates.

Policy-based thresholds as defined in the LIC DSA framework for a weak policy performer based on the 3-year average CPIA score.

Public Debt Sustainability Results

13. Compared to the previous DSA, public debt indicators under the baseline scenario worsened. In contrast to the previous DSA, the PV of public debt-to-GDP ratios are now projected to remain above the 38 percent benchmark throughout 2016–19, but is on a declining trend as macroeconomic conditions improve. The PV of public debt-to-GDP ratio and PV of debt-to-revenue ratio are projected to be much higher than the previous DSA in the medium term, reflecting a slower-than-projected recovery of government revenues (see Text Table 4). This reflected a lower-than-expected economic activity, associated with the continued insecurity, two inoperative regional tax and customs directorates, and imports consisting mainly of food products subject to low customs duties in 2015. In addition, the rapid accumulation of domestic arrears (16.3 percent of GDP from 2012 to 2015) increased vulnerabilities of the domestic debt. However, all indicators are going to improve in the medium term and long run in line with the improved security and macroeconomic situation.

Text Table 4.Central African Republic: Comparative Debt Ratios, 2015–19(Percent)
20152016201720182019
Proj.
PV of debt to GDP ratio
2015 DSA42.837.545.143.242.1
New DSA46.041.337.934.631.3
PV of debt to revenue ratio
2015 DSA337.9267.8260.8268.9221.3
New DSA321.4318.3286.9251.8218.7
Debt service to revenue ratio
2015 DSA26.925.019.621.925.2
New DSA25.815.210.311.311.3
Revenue and grants (in percent of GDP)
2015 DSA11.512.311.810.712.3
New DSA14.313.013.213.714.3
Sources: C.A.R. authorities; and IMF staff estimates and projections.
Sources: C.A.R. authorities; and IMF staff estimates and projections.

14. The alternative scenarios suggest that the baseline is very sensitive to the growth assumptions. The most extreme shock—a one-standard deviation drop in the growth rate for 2016 and 2017—will substantially increase the public debt and keep C.A.R.’s PV of debt-to-GDP ratio above the benchmark throughout the entire period (Figure 2 and Table 2). The PV of debt-to-revenue ratio is also projected to rise under the most extreme shock, and debt service-to-revenue ratio will also increase significantly in the medium term.

15. The public DSA analysis shows that C.A.R.’s overall risk of debt distress is high because of significant vulnerabilities related to domestic debt. Public debt level is high mainly due to the presence of domestic arrears as a result of the GDP collapse from the 2013 crisis. The country continues to have significant vulnerabilities to adverse shocks to GDP growth. Staff and the authorities agree that maintaining domestic security is a priority to reduce the potential adverse shocks to growth and exports and therefore debt distress. Meanwhile, reforms should focus on enhancing revenue administration and public financial administration efforts and structural reforms to increase potential economic growth.

Conclusion

16. As in the previous DSA, C.A.R.’s debt remains at high risk of distress. The debt sustainability indicators have worsened. Although external debt-to-GDP ratio stays below the benchmark, almost all the external and public debt indicators deteriorate. In particular, the PV of external debt-to-exports ratio remains for a significant period well above the policy threshold under the extreme scenario.

17. C.A.R. needs to consolidate the basis for growth by fostering domestic security, maintaining macroeconomic and political stability, and developing the country’s institutional and administrative capacity. As the public debt is highly vulnerable to slower GDP growth, structural policies that improve the business climate, boost productivity and diversify the export base would contribute to improving the debt rating.

18. C.A.R. should pursue a debt strategy limited to grant and highly concessional financing. The high-risk classification and the vulnerabilities evidenced by the alternative and stress test scenarios underline the importance of increasing exports from the traditional forestry and diamond sectors, while taking steps to widen the export base. At the same time, it is essential for C.A.R. to steadfastly strengthen macroeconomic stability and pursue fiscal reforms and through sound policies, step up domestic revenue mobilization, and restrain non priority expenditures. Meanwhile, it is critical for the authorities to intensify their efforts to substantially improve public debt management, with assistance from the Regional Technical Assistance Center for Central Africa, and push for funding and putting in place Version 6.0 of the Debt Management and Financial Analysis System (DMFAS) software. Also, more stringent procedures should be put in place to ensure that new financial commitments are undertaken only with the approval and signature of the minister of finance. Finally, to the maximum extent possible, C.A.R. should rely on grant financing, considering its fragile post-conflict situation. Beyond that, staff encourages the authorities to continue to seek maximum concessionality in their external financing.

Figure 1.Central African Republic: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2015–36 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2025. In figure b. it corresponds to a Combination shock; in c. to a Combination shock; in d. to a Combination shock; in e. to a Growth shock and in figure f. to a Growth shock

Figure 2.Central African Republic: Indicators of Public Debt Under Alternative Scenarios, 2016–36 1/

1/ The most extreme stress test is the test that yields the highest ratio on or before 2025.

2/ Revenues are defined inclusive of grants.

Table 1.Central African Republic: External Debt Sustainability Framework, Baseline Scenario, 2012–36 1/(Percent of GDP, unless otherwise indicated)
ActualHistorical 6/ AverageStandard 6/ DeviationProjections
20122013201420152016201720182019202020212016–2021 Average202520362022–2036 Average
External debt (nominal) 1/9.714.614.914.514.516.818.419.520.220.824.220.3
of which: public and publicly guaranteed (PPG)9.714.614.914.514.516.818.419.520.220.824.220.3
Change in external debt1.24.80.3−0.40.12.21.71.00.70.60.5−0.7
Identified net debt-creating flows1.57.13.811.88.98.07.66.25.95.52.5−2.9
Non-interest current account deficit4.52.75.212.56.73.110.610.810.28.88.68.19.54.9−0.43.1
Deficit in balance of goods and services11.410.524.522.419.818.818.116.515.915.111.24.0
Exports12.514.413.012.613.714.814.514.312.612.613.520.1
Imports23.925.037.635.033.533.732.630.828.527.624.724.1
Net current transfers (negative = inflow)−6.3−7.1−18.5−9.2−6.14.6−8.6−8.2−7.7−7.3−6.9−6.5−7.5−5.9−4.0−5.3
of which: official−3.2−4.7−11.3−2.5−2.5−2.6−2.6−2.6−2.6−2.5−2.5−1.9
Other current account flows (negative = net inflow)−0.7−0.7−0.8−0.8−0.60.1−0.1−0.4−0.4−0.4−0.4−0.4
Net FDI (negative = inflow)−3.2−0.1−0.1−0.3−2.21.7−1.6−1.8−1.8−1.7−1.7−1.7−1.7−1.8−2.0−2.1
Endogenous debt dynamics 2/0.24.5−1.3−0.4−0.2−0.9−0.9−0.9−0.9−1.0−0.6−0.5
Contribution from nominal interest rate0.10.30.30.40.5−0.20.00.00.10.10.10.2
Contribution from real GDP growth−0.45.1−0.1−0.8−0.7−0.7−0.9−1.0−1.0−1.1−0.7−0.7
Contribution from price and exchange rate changes0.5−0.9−1.51.8
Residual (3-4) 3/−0.3−2.3−3.5−12.2−8.8−5.8−5.9−5.1−5.2−4.9−2.02.1
of which: exceptional financing0.00.0−0.80.00.00.00.00.00.00.00.00.0
PV of external debt 4/13.012.011.011.712.112.412.512.613.111.5
In percent of exports99.995.380.379.083.886.798.899.997.157.0
PV of PPG external debt13.012.011.011.712.112.412.512.613.111.5
In percent of exports99.995.380.379.083.886.798.899.997.157.0
In percent of government revenues265.1168.8135.3131.5128.3122.5107.099.894.661.6
Debt service-to-exports ratio (in percent)25.021.620.424.38.84.74.64.44.85.24.93.7
PPG debt service-to-exports ratio (in percent)25.021.620.424.38.84.74.64.44.85.24.93.7
PPG debt service-to-revenue ratio (in percent)27.255.454.043.114.97.87.06.25.15.24.84.0
Total gross financing need (Billions of U.S. dollars)0.10.10.10.20.20.20.20.20.20.20.2−0.1
Non-interest current account deficit that stabilizes debt ratio3.3−2.14.912.910.58.58.67.87.97.54.50.3
Key macroeconomic assumptions
Real GDP growth (in percent)4.1−36.71.04.8−0.412.15.25.55.85.85.85.85.73.33.43.4
GDP deflator in US dollar terms (change in percent)−5.010.511.2−10.93.88.16.36.66.05.96.35.26.12.82.92.9
Effective interest rate (percent) 5/1.72.52.72.31.80.84.0−1.60.10.20.40.50.60.61.11.0
Growth of exports of G&S (US dollar terms, in percent)−8.1−19.11.3−9.92.214.321.721.79.710.4−0.510.912.38.213.79.8
Growth of imports of G&S (US dollar terms, in percent)−3.2−26.868.8−13.09.624.47.013.08.66.14.17.97.83.87.35.4
Grant element of new public sector borrowing (in percent)30.936.555.355.355.355.355.352.155.355.355.3
Government revenues (excluding grants, in percent of GDP)11.55.64.97.18.18.99.510.111.612.613.818.615.6
Aid flows (in Billions of US dollars) 7/0.10.10.20.10.10.20.20.20.20.20.20.2
of which: Grants0.10.00.20.10.10.10.10.10.10.10.10.1
of which: Concessional loans0.00.00.00.00.00.10.10.10.10.10.10.1
Grant-equivalent financing (in percent of GDP) 8/7.55.47.06.66.25.85.63.22.52.9
Grant-equivalent financing (in percent of external financing) 8/93.184.676.578.079.179.180.374.984.078.2
Memorandum items:
Nominal GDP (Billions of US dollars)2.21.51.71.61.82.02.22.52.83.24.18.0
Nominal dollar GDP growth−1.1−30.012.3−6.611.812.412.212.112.511.312.16.36.46.4
PV of PPG external debt (in Billions of US dollars)0.20.20.20.20.30.30.40.40.50.9
(PVt-PVt-1)/GDPt-1 (in percent)−0.90.42.21.91.81.71.41.61.10.30.7
Gross workers' remittances (Billions of US dollars)0.00.00.00.00.00.00.00.00.00.00.00.0
PV of PPG external debt (in percent of GDP + remittances)13.112.011.011.712.212.412.512.613.111.5
PV of PPG external debt (in percent of exports + remittances)103.198.282.580.985.888.6101.1102.198.857.4
Debt service of PPG external debt (in percent of exports + remittances)21.025.19.14.84.74.54.95.35.03.7
Sources: Country authorities; and staff estimates and projections.

Includes central government external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. The large residuals reflect the narrow coverage of the debt and the exclusion of the large technical arrears with non-Paris club creditors.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: Country authorities; and staff estimates and projections.

Includes central government external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. The large residuals reflect the narrow coverage of the debt and the exclusion of the large technical arrears with non-Paris club creditors.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 2.Central African Republic: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2016–36(Percent)
Projections
2016201720182019202020352036
PV of debt-to GDP ratio
Baseline11121212121211
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/1187662630
A2. New public sector loans on less favorable terms in 2015-2035 211131516172221
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-201711171818191817
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/11171717171313
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-201711141415151413
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/11201919191414
B5. Combination of B1-B4 using one-half standard deviation shocks11303029292120
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/11161717171716
PV of debt-to-exports ratio
Baseline80798487996357
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/8055484445141147
A2. New public sector loans on less favorable terms in 2015-2035 28091103113134116106
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-201780798487996357
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/80213219221246133120
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-201780798487996357
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/801321341341487567
B5. Combination of B1-B4 using one-half standard deviation shocks80234236235259126113
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/80798487996357
PV of debt-to-revenue ratio
Baseline1351311281221076362
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/13591736248140159
A2. New public sector loans on less favorable terms in 2015-2035 2135151158159145115115
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20171351961921831609392
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/1351891781661427169
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20171351541511441267372
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/1352192051891617573
B5. Combination of B1-B4 using one-half standard deviation shocks135342317292246110107
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/1351841801721508786
Debt service-to-exports ratio
Baseline9554544
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/9555544
A2. New public sector loans on less favorable terms in 2015-2035 29555676
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20179554544
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/991091098
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-20179554544
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/9555655
B5. Combination of B1-B4 using one-half standard deviation shocks9899988
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/9554544
Debt service-to-revenue ratio
Baseline15876544
A. Alternative Scenarios
A1. Key variables at their historical averages in 2015-2035 1/15887645
A2. New public sector loans on less favorable terms in 2015-2035 215888777
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2016-20171512109866
B2. Export value growth at historical average minus one standard deviation in 2016-2017 3/15887655
B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-201715987645
B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017 4/15987655
B5. Combination of B1-B4 using one-half standard deviation shocks15121211978
B6. One-time 30 percent nominal depreciation relative to the baseline in 2016 5/1511109756
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/51515151515151
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 3.Central African Republic: Public Sector Debt Sustainability Framework, Baseline Scenario, 2012–36(In percent of GDP, unless otherwise indicated)
ActualAverage 5/Standard Deviation 5/Projections
20122013201420152016201720182019202020212016-21 Average20252022-36 Average2036
Public sector debt 1/23.538.551.148.544.943.040.938.436.234.233.323.1
of which: foreign-currency denominated9.714.614.914.514.516.818.419.520.220.824.220.3
Change in public sector debt1.715.012.6−2.6−3.6−1.9−2.1−2.5−2.2−2.0−0.3−1.1
Identified debt-creating flows−1.413.8−6.7−4.1−0.9−1.8−2.1−1.9−1.9−1.9−0.50.1
Primary deficit−0.75.9−3.60.1−0.64.13.22.72.01.81.60.92.01.11.41.0
Revenue and grants16.48.415.714.313.013.213.714.315.516.515.720.5
of which: grants4.92.810.87.24.94.34.34.23.93.91.91.9
Primary (noninterest) expenditure15.614.212.114.416.215.915.716.117.217.416.821.8
Automatic debt dynamics−0.811.3−2.1−3.2−4.1−4.5−4.1−3.9−3.7−3.0−1.3−1.0
Contribution from interest rate/growth differential−0.711.9−3.6−4.6−4.0−4.4−3.9−3.7−3.5−2.8−1.3−1.0
of which: contribution from average real interest rate0.2−1.7−3.2−2.3−1.6−2.0−1.6−1.5−1.3−0.8−0.2−0.2
of which: contribution from real GDP growth−0.913.6−0.4−2.3−2.4−2.3−2.4−2.3−2.1−2.0−1.1−0.8
Contribution from real exchange rate depreciation−0.1−0.61.51.4−0.1−0.2−0.2−0.2−0.3−0.2
Other identified debt-creating flows0.1−3.3−1.0−1.00.00.00.00.20.20.2−0.3−0.3
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)−0.1−3.3−1.0−1.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.30.00.00.00.00.00.00.20.20.2−0.3−0.3
Residual, including asset changes3.11.219.31.5−2.7−0.10.0−0.6−0.3−0.10.2−1.2
Other Sustainability Indicators
PV of public sector debt49.346.041.337.934.631.328.526.022.114.2
of which: foreign-currency denominated13.012.011.011.712.112.412.512.613.111.5
of which: external13.012.011.011.712.112.412.512.613.111.5
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/3.59.8−0.23.85.24.13.53.43.32.52.42.3
PV of public sector debt-to-revenue and grants ratio (in percent)313.8321.4318.3286.9251.8218.7183.3157.5141.069.5
PV of public sector debt-to-revenue ratio (in percent)1003.9648.1508.7426.1365.7309.9244.6206.3160.176.6
of which: external 3/265.1168.8135.3131.5128.3122.5107.099.894.661.6
Debt service-to-revenue and grants ratio (in percent) 4/26.246.821.325.815.210.311.311.310.79.78.34.4
Debt service-to-revenue ratio (in percent) 4/37.369.768.152.124.215.416.415.914.312.79.44.9
Primary deficit that stabilizes the debt-to-GDP ratio−2.4−9.2−16.22.76.84.64.14.33.82.91.42.5
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)4.1−36.71.04.8−0.412.15.25.55.85.85.85.84.93.33.43.4
Average nominal interest rate on forex debt (in percent)1.72.52.72.31.80.84.0−1.60.10.20.40.50.60.61.11.0
Average real interest rate on domestic debt (in percent)2.1−5.0−8.9−5.11.46.6−4.3−3.9−3.4−3.3−3.3−2.0−3.43.15.23.3
Real exchange rate depreciation (in percent, + indicates depreciation)−1.4−4.311.210.32.28.8
Inflation rate (GDP deflator, in percent)2.77.011.16.24.62.95.85.34.84.74.73.34.22.82.92.9
Growth of real primary spending (deflated by GDP deflator, in percent)7.9−42.3−13.924.2−2.216.118.73.64.68.312.97.29.24.62.75.0
Grant element of new external borrowing (in percent)30.936.555.355.355.355.355.353.255.355.3
Sources: Country authorities; and staff estimates and projections.

Includes gross debt of the central government.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Country authorities; and staff estimates and projections.

Includes gross debt of the central government.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 4.Central African Republic: Sensitivity Analysis for Key Indicators of Public Debt, 2016–36
Projections
2016201720182019202020252036
PV of Debt-to-GDP Ratio
Baseline413835312822
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages413937343124
A2. Primary balance is unchanged from 2015413531272416
A3. Permanently lower GDP growth 1/414038363438
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016–2017415956535255
B2. Primary balance is at historical average minus one standard deviations in 2016–2017423935322923
B3. Combination of B1-B2 using one half standard deviation shocks414744413939
B4. One-time 30 percent real depreciation in 2016414136322819
B5. 10 percent of GDP increase in other debt-creating flows in 2016414239353225
PV of Debt-to-Revenue Ratio 2/
Baseline318287252219183141
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages318284250217184140
A2. Primary balance is unchanged from 2015318266227191155102
A3. Permanently lower GDP growth 1/3183002712432142363
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016–20173183883573272953333
B2. Primary balance is at historical average minus one standard deviations in 2016–2017318291256222186144
B3. Combination of B1-B2 using one half standard deviation shocks3183232942652352422
B4. One-time 30 percent real depreciation in 2016318307262222181123
B5. 10 percent of GDP increase in other debt-creating flows in 2016318321282244204160
Debt Service-to-Revenue Ratio 2/
Baseline15101111118
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages151112131312
A2. Primary balance is unchanged from 201515101111108
A3. Permanently lower GDP growth 1/151112121211
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2016–2017151315151514
B2. Primary balance is at historical average minus one standard deviations in 2016–201715101111118
B3. Combination of B1-B2 using one half standard deviation shocks151213131312
B4. One-time 30 percent real depreciation in 2016151313131210
B5. 10 percent of GDP increase in other debt-creating flows in 201615111212119
Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

The debt (both external and public) covers only gross central government debt. Debt to IMF is included in the government’s domestic debt as C.A.R. is part of the currency union.

The authorities revised up the debt stock debt from 2009 (the year of HIPC initiative) based on more complete debt data. Since 2011, the stock of debt began to increase gradually due to disbursements on new agreements signed after the initiative. The rapid increase in stock between 2013 and 2014 is due to the rise in domestic arrears.

In 2016, the debt to BEAC was further consolidated to reach CFAF 55 bn.

Other Resources Citing This Publication