IMF Executive Board Completes Fourth Review Under PRGF Arrangement for the Central African Republic and Approves Extension and US$38.7 Million Increase

This paper discusses key findings of the Fourth Review for the Central African Republic (CAR) under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). Short-term fiscal policy of the CAR attempts to stabilize demand through government spending while preserving medium-term fiscal discipline. The revised program safeguards budgeted spending and incorporates new externally financed peace-process spending. Structural reforms are focused on areas critical to economic stability and the recovery of growth. IMF staff supports completion of the fourth review, augmentation of PRGF access, and program extension.

Abstract

This paper discusses key findings of the Fourth Review for the Central African Republic (CAR) under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). Short-term fiscal policy of the CAR attempts to stabilize demand through government spending while preserving medium-term fiscal discipline. The revised program safeguards budgeted spending and incorporates new externally financed peace-process spending. Structural reforms are focused on areas critical to economic stability and the recovery of growth. IMF staff supports completion of the fourth review, augmentation of PRGF access, and program extension.

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of the Central African Republic’s economic performance under a program supported by the arrangement under the Poverty Reduction and Growth Facility (PRGF), and approved a six-month extension and an increase of access by an amount equivalent to SDR 25.065 million (about US$38.7 million). The Executive Board granted a waiver for nonobservance of an end-December 2008 quantitative performance criterion on the ceiling on change in net claims of the commercial banking system on the government. The Executive Board also approved a review of the country’s financing assurances.

A three-year PRGF arrangement for the Central African Republic was approved on December 22, 2006 (see Press Release No 06/299) to support the government’s economic program through December 2009. Wednesday’s decision increases the overall value of IMF funding for the arrangement to an amount equivalent to SDR 69.62 million (about US$107.5 million) and extends the arrangement to June 30, 2010. Of that, an amount equivalent to SDR 14.24 million (about US$21.99 million) is now available for disbursement.

Major shocks including electricity outages due to breakdowns at the main hydro power plant and a plunge in timber and diamond exports reduced the Central African Republic’s economic growth to 2.2 percent in 2008. Nevertheless, fiscal performance was satisfactory, with an increase in the tax-to-GDP ratio.

Growth in 2009 is expected to rise only marginally to 2½ percent, significantly lower than previously expected. With a drop in exports, which are now projected to be 40 percent down on initial expectations, and reduced private financial inflows, official foreign reserves are projected to drop to 2.6 months of imports even with the increased access approved by the Executive Board on Monday.

Following the Executive Board’s discussion, Mr. Takatoshi Kato Deputy Managing Director and Acting Chair, stated:

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” The Central African Republic (C.A.R.) authorities are to be commended for the satisfactory implementation of their program under the PRGF. The C.A.R. authorities have made important progress in improving economic management and strengthening the country’s resilience to shocks. Fiscal operations have become more credible through mobilization of domestic revenues and prudent budget execution. The implementation of the automatic petroleum pricing formula has been critical in insulating the budget from fluctuations in world oil prices and securing revenues. Looking ahead, steadfast implementation of the authorities’ medium-term economic and financial reform program to strengthen fiscal management and foster private sector activities should support a recovery in economic growth and further progress in reducing poverty.

“ The C.A.R. authorities are determined to improve the security situation and preserve political stability by implementing an inclusive peace-building process with external assistance. Accommodating the additional donor-financed spending for peace building will support these efforts and help stimulate demand and mitigate the impact of the global slowdown.

“ A final decision on C.A.R.’s debt relief under the enhanced HIPC Initiative and the MDRI is still pending action this week by the World Bank’s Executive Board. A press release will be issued jointly with the Bank following those deliberations”, added Mr. Kato.

The PRGF is the IMF’s low-interest lending facility for low-income countries. PRGF-supported programs are underpinned by comprehensive country-owned poverty reduction strategies.

Central African Republic: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, Augmentation of Access, Extension of Arrangement, and Financing Assurances Review: Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Central African Republic
Author: International Monetary Fund