This paper discusses Central African Republic’s Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility. Performance under the authorities’ Emergency Post-Conflict Assistance (EPCA) program has been generally satisfactory through end-September 2006, taking into account the difficult external environment. Overall, the main objectives of the EPCA program for this year should be achieved, with a moderate increase in economic growth, an improved fiscal position, and some progress in structural policies. The authorities’ program for 2007–09 aims to build a firm foundation for accelerating private sector-led growth and alleviating poverty.
The Executive Board of the International Monetary Fund (IMF) has approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Central African Republic in an amount equivalent to SDR 36.2 million (about US$54.5 million) to support the government’s economic program into 2009. The first disbursement will be in an amount equivalent to SDR 17.6 million (about US$26.5 million).
Following the Executive Board’s discussion of the Central African Republic’s IMF-supported economic program, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, stated:
“The Central African Republic has made good progress in improving economic management under the Emergency Post-Conflict Assistance program. As a result of this progress, as well as improvements in the country’s political and social situation, the economic recovery is gaining in strength. Given previous expenditure slippages, the recent strengthening in the fiscal position is especially noteworthy. The country has also made advances in structural reform in such areas as public financial management, tax and customs administration, and governance and transparency.
“The authorities’ medium-term economic and financial reform program, supported by the PRGF arrangement, will help them to build a firm foundation for accelerating growth and alleviating poverty. The program aims to gradually eliminate the overhang of domestic debt and open room to support priority public spending and investment, increase credit to the private sector, and make external debt sustainable by regularizing relations with external creditors and benefiting from debt relief.
“The fiscal policy goal for 2007 is to increase the domestic primary surplus that emerged this year so that the government can stay current on domestic debt service and start repaying domestic debt. Reform of tax and customs administration will be vital to raising domestic revenue, and better management of the public finances will tighten expenditure control and prevent slippages.
“The authorities are determined to take the measures necessary to remove other obstacles to growth and poverty reduction. Enhancing financial intermediation will support the revival of the private sector, and trade and investment liberalization will help diversify and expand the export base. Given the importance of the natural resource sector, the authorities’ intention to establish clear regulations for mining and forestry is well advised.
“The medium-term economic framework is consistent with the priorities emerging in the draft of the Poverty Reduction Strategy Paper, which is to be completed in mid-2007. The authorities are carefully elaborating detailed policies and priorities that can be supported by technical and financial assistance from the country’s development partners.
“The regularization of relations with external creditors and debt relief under the enhanced Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative will help the Central African Republic regain external debt sustainability. In this regard, it is critical that the authorities promptly implement the macroeconomic and structural reform policies supported by the PRGF arrangement; strong performance under the program will help to bring the country to the HIPC decision point in the near future,” Mr. Lipsky said.
The PRGF is the IMF’s concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.