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IMF Executive Board Approves Three-Year US$115.8 Million Arrangement Under the ECF for the Central African Republic

Author(s):
International Monetary Fund. African Dept.
Published Date:
August 2016
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On July 20, the Executive Board of the International Monetary Fund (IMF) approved a three-year SDR 83.55 million (about US$115.8 million, 75 percent of quota) arrangement under the Extended Credit Facility (ECF) for the Central African Republic. The approval enables the immediate disbursement of SDR 12.525 million (about US$17.4 million), while the remaining amount will be phased over the duration of the arrangement, subject to program reviews.

The authorities’ ECF-supported program aims to entrench macroeconomic stability and create the conditions for sustained and inclusive growth, through structural reforms.

Following the Executive Board’s discussion on the Central African Republic, Mr. Mitsuhiro Furusawa, Deputy Managing Director, and Acting Chair, made the following statement:

“The return to democratic institutions in April 2016 offers the Central African Republic a unique opportunity to consolidate peace, foster inclusive economic growth, and rebuild national cohesion to exit the current state of fragility. Going forward, and building upon progress made during the transition, economic reforms and consolidation of peace should ensure lasting improvements in security conditions and economic development of the country.

“The new three-year program supported by the Extended Credit Facility seeks to restore macroeconomic stability through lowering the domestic primary deficit in order to restore debt sustainability, while ramping up poverty-reducing spending and critical capital investment. Donor support ensures the full financing of the first year of the program, and there are good prospects for financing the remainder of the program.

“The program’s structural reform agenda focuses on raising domestic revenue to bring it to the pre-crisis level through a review of tax policy, strengthening tax administration, and streamlining tax exemptions. Raising domestic resource mobilization to the country’s potential over the medium term will be key to allow the government to scale up pro-poor and investment spending. Structural reforms also focus on strengthening public financial management, improving the efficiency of spending, and restoring control and transparency in the execution of the budget. Better control of the wage bill would allow new hiring in the priority health and education sectors. In addition, the authorities’ structural reform agenda also comprises measures to increase banking intermediation, improve the business environment, and build institutional capacity. Technical assistance to strengthen capacity development is a critical element of the program and the authorities have agreed to participate in the pilot IMF Capacity Building Framework.”

Annex

Recent Economic Developments

The 2013 crises and a protracted political transition in 2014–15 provide the context for recent economic developments. The economy contracted by an estimated 36.7 percent in 2013, and economic growth remained anemic in the subsequent years, due to structural rigidities, poor infrastructure and limited energy supply. Inflation reached 11.6 percent in 2014, and receded to 4.5 percent in 2015 thanks to improved supply conditions and a fall in the prices of basic imports. During this period, the fiscal deficit widened on the back of declining domestic revenue, which collapsed to below 5 percent of GDP in 2014. Corrective measures implemented in 2015 allowed revenue to reach 7.1 percent. However, domestic revenue remains insufficient to cover salary payments and critical expenditure. The current account deficit has doubled to 9 percent of GDP, mainly reflecting a collapse in exports of diamonds and forestry products.

Program Summary

The government program, supported by the ECF, aims at restoring macroeconomic stability, economic growth, job creation and poverty reduction. The program focuses on enhancing revenue mobilization and improving expenditure efficiency to lower the primary fiscal deficit and scale-up social and infrastructure spending. Measures to improve the business environment and access to credit should support private sector activity. Technical assistance and training will be critical to support the implementation of key reforms that will underpin an economic recovery.

Additional Background

The Central African Republic, which became a member of the IMF on July 10, 1963, has an IMF quota of SDR 111.4 million. For additional background information on the IMF and the Central African Republic, see: http://www.imf.org/external/country/CAF/index.htm.

Executive Directors commended the authorities for the progress achieved under their economic program supported by the Rapid Credit Facility, which has helped stabilize the economy, rebuild core administrative capacity and improve the management of public resources. While the country faces significant challenges, including a high dependency on external assistance and deep-rooted structural rigidities that hinder economic growth, the return to the democratization process has opened opportunities for the government to embark on a comprehensive reform strategy.

Directors supported the authorities’ medium-term priorities that would create the conditions for sustainable and inclusive growth and a progressive exit from fragility. These priorities include securing peace and stability, improving competitiveness, enhancing institutional capacity, and lifting growth prospects to create jobs, combat poverty, and maintain social cohesion. Directors stressed the importance of rebuilding domestic institutional capacity to carry out the reform program, supported by technical assistance from the Fund and other partners.

Directors supported the government’s medium-term fiscal strategy, and emphasized the need to increase revenue mobilization, improve expenditure control, and restore debt sustainability. They called for timely implementation of the revenue plan which covers tax policy, revenue administration, and tax and customs exemptions. Directors underscored the importance of improving public financial management and the efficiency of public spending, and welcomed plans for a strengthened treasury single account, an effective return to normal budget procedures, improved project execution, and enhanced transparency.

Directors urged the adoption of a revised budget for 2016, consistent with the medium-term fiscal framework, with an emphasis on additional revenue measures, scaled up social spending and infrastructure investment, as well as the inclusion of appropriate fiscal buffers to better manage volatility.

Directors emphasized that broad social ownership of the structural reform agenda, and continued support from development partners, will be key to boost economic activity. They encouraged the authorities to press ahead with efforts to improve the business environment and strengthen competitiveness, deepen financial intermediation, and improve the legal and institutional frameworks.

Directors welcomed the continued engagement of development partners, together with Fund financial assistance, in meeting the country’s financing needs in 2016 and in the years ahead. They emphasized the importance of continued strong donor coordination and the timely disbursement of pledged financial support and provision of technical assistance. Directors encouraged the authorities to strengthen their institutional framework to better coordinate such assistance, and welcomed their intention to take part in the pilot Capacity Building Framework.

Directors welcomed the recent progress in compiling and providing basic macroeconomic data and emphasized the need for continued improvements to the quality and timeliness of economic data to strengthen economic management. In this regard, technical assistance, including from the IMF, would be helpful.

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.

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