Central African Republic
Enhanced Initiative for Heavily Indebted Poor Countries: Completion Point Document and Multilateral Debt Relief Initiative

This paper focuses on Central African Republic’s (CAR) completion point under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC) and debt relief under the Multilateral Debt Relief Initiative (MDRI). In the view of International Development Association (IDA) and IMF staff, CAR has made satisfactory progress in meeting the requirements to reach the completion point. All the floating triggers have been fully implemented. Upon reaching the completion point under the enhanced HIPC Initiative, CAR will also qualify for additional debt relief under the MDRI.

Abstract

This paper focuses on Central African Republic’s (CAR) completion point under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC) and debt relief under the Multilateral Debt Relief Initiative (MDRI). In the view of International Development Association (IDA) and IMF staff, CAR has made satisfactory progress in meeting the requirements to reach the completion point. All the floating triggers have been fully implemented. Upon reaching the completion point under the enhanced HIPC Initiative, CAR will also qualify for additional debt relief under the MDRI.

I. Introduction

1. This paper discusses the Central African Republic (C.A.R.)’s progress under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. It recommends that the Executive Directors of the International Development Association (IDA) and the International Monetary Fund (IMF) approve the completion point for C.A.R. under the enhanced HIPC Initiative. In the view of the staffs of IDA and IMF, C.A.R. has made satisfactory progress in achieving the completion point triggers. It has fully implemented the triggers on preparing and implementing a Poverty Reduction Strategy (PRS), maintaining macroeconomic stability, implementing the provisions of the Constitution and Presidential Decree on asset declaration and disclosure, and improving the regulatory oversight and reporting framework in the forestry and mining sectors. It has also fully implemented the triggers on improving public financial management, starting civil service reform, improving public debt management, and implementing reforms in the education and health sectors, including combating HIV/AIDS.

2. In September 2007, the Boards of Executive Directors of IDA and the IMF agreed that C.A.R. had met the requirements for reaching the decision point under the enhanced HIPC Initiative.1 The amount of debt relief committed at the decision point was US$583 million in NPV terms, calculated to reduce the NPV of debt–to-exports ratio to 150 percent on the basis of end-December 2006 data. This relief represents an overall reduction of 68 percent in the NPV of all public and publicly guaranteed external debt as of end-December 2006, after application of traditional debt relief mechanisms. At the same time, the Boards of IDA and the IMF agreed to provide C.A.R. with interim debt relief until C.A.R. reached the completion point. Interim assistance was also granted by the African Development Bank, the European Union; Paris Club creditors provided debt relief through flow rescheduling on Cologne terms. The nominal HIPC debt relief provided through arrears clearance operations and debt service reduction in the period before the completion point amounts to US$180 million. Executive Directors had determined that the floating completion point would be reached when the triggers in Box 3 of the Decision Point Document have been met.

3. This paper is organized as follows. Section II assesses C.A.R.’s performance in meeting the requirements for reaching the completion point under the enhanced HIPC Initiative. Section III provides an updated debt relief and debt sustainability analysis (DSA), including the status of creditor participation, and delivery of debt relief under the enhanced HIPC and MDRI Initiatives. Section IV summarizes the main conclusions, and Section V presents issues for discussion by the Boards of IDA and the IMF.

II. Assessment of Requirements for Reaching the Completion Point

4. In the view of the staffs of IDA and the IMF, C.A.R. has met the triggers for reaching the completion point. The description of the triggers and their implementation status are presented in Box 1 in this document. At the decision point, the Boards of IDA and the IMF agreed that C.A.R. would reach the floating completion point on the basis of the following criteria:

  1. preparation of a full Poverty Reduction Strategy Paper (PRSP) and its satisfactory implementation for at least one year, as evidenced by a PRSP Annual Progress Report submitted by the government to the satisfaction of IDA and the IMF;

  2. maintenance of macroeconomic stability as evidenced by satisfactory implementation of the PRGF arrangement;

  3. satisfactory implementation of the provision of articles 44 and 75 of the Constitution and the Presidential decree on asset declaration and disclosure;

  4. improvements in the regulatory oversight and reporting framework in the forestry and mining sectors;

  5. improved effectiveness, transparency and accountability in public financial management;

  6. satisfactory launching of civil service reform;

  7. improved public debt management; and

  8. satisfactory progress in achieving education, health and HIV/AIDS goals.

Central African Republic: Status of Floating Completion Point Triggers

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A. PRSP and Poverty Monitoring

5. In June 2007, C.A.R. adopted its first full PRSP, covering the period 2008–10. The PRSP was prepared through an extensive participatory process involving a broad range of stakeholders including civil society, the private sector, development partners, and communities representing the country’s seven regions. The PRSP effectively presents the government’s vision and priority actions for reducing poverty in line with the Millennium Development Goals. The strategic framework of the PRSP is based on four pillars (i) restore security, consolidate peace, and prevent conflict; (ii) promote good governance and the rule of law; (iii) rebuild and diversify the economy; and (iv) develop human capital.

6. The Boards of IDA and the IMF concluded that the PRSP provided a credible framework for poverty reduction. The Boards discussed the PRSP in May 2008. As noted in the corresponding JSAN,2 the PRSP has many strengths, most notably its strong ownership deriving from a broad participatory process, the poverty diagnostic and analysis of the determinants of poverty, sectoral strategies that informed the formulation of sector priorities, and objectives that are consistent with achieving the Millennium Development Goals (MDGs). The JSAN also pointed out a number of areas that could benefit from further attention, including the need for a detailed implementation plan for some critical aspects of the growth and poverty reduction agenda, such as the settlement of domestic debt (mainly arrears) to restore confidence between the State and the private sector, and aligning indicators with existing sector plans.

7. The government is working to operationalize the institutional framework for participatory monitoring and evaluation of the PRS implementation. This framework includes (i) a national strategic committee chaired by the Prime Minister; (ii) a national technical committee responsible for maintaining a permanent dialogue between the government and development partners; (iii) a national technical secretariat, which coordinates the implementation, monitoring and evaluation of the PRS; (iv) nine sectoral committees responsible for implementation of sectoral strategies; and (v) seven regional committees, responsible for monitoring and evaluation at the regional and local levels. In line with its mandate, the national technical secretariat has produced the first annual PRSP progress report covering 2008. The statistical operations that will generate most of the PRS evaluation and tracking indicators are underway and will be completed with the help of donors. The results of a core welfare indicator survey undertaken in 2008 to update the national poverty rate are expected in May 2009; and a new household survey is planned for 2009.

8. The staffs consider that implementation of the PRS was satisfactory in 2008. The first Annual Progress Report (APR) on implementation of the PRS during 2008 was prepared by the government through a participatory process. The 2008 APR and its corresponding JSAN will be considered by the Boards of IDA and the IMF jointly with this document. The APR highlights progress in many areas, including the peace process, governance, public financial management, and diversification of the economy. In particular, during 2008, fiscal management strengthened, accompanied by an increase in domestic revenues and improved control over public spending. The government also took actions to promote food security and agricultural development and enhanced the regulatory framework for the management of natural resources. The staffs of IDA and the IMF have reviewed progress on each of the PRS pillars and concluded that PRS implementation and monitoring have been satisfactory over the past year; however, many challenges remain related to the impact of the changing international environment, difficulty in mobilizing external resources to finance key activities, and inadequate administrative capacity. Policies in specific areas related to the HIPC completion point triggers are reviewed in the remainder of Section II.

B. Macroeconomic Performance

9. Macroeconomic stability has been maintained, since the decision point in September 2007 (Table 1). The government maintained a prudent fiscal stance—anchored by targets on the domestic primary balance—despite a deceleration of growth and an acceleration of inflation due to unanticipated external and domestic shocks. Also, important structural reform measures—most notably automatic adjustments of petroleum product prices—were implemented. The solid implementation of the PRGF-supported program contributed to improving confidence in the government’s fiscal management and stabilizing the political and economic situation.

Table 1.

Central African Republic: Selected Macroeconomic Indicators, 2004-08

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

10. The acceleration of growth envisaged in the PRSP did not materialize due to a number of shocks. 2008 was a particularly difficult year for C.A.R.; a civil servants’ strike, serious domestic electricity shortages, global food and fuel price hikes, and trade and financial shocks pummeled the economy. Consequently, growth slowed significantly from 3.7 percent in 2007 to 2.2 percent in 2008; end-year inflation accelerated to above 10 percent; and the external current deficit reached almost 10 percent of GDP.

11. Despite difficult economic conditions, C.A.R.’s fiscal performance was satisfactory. Domestic revenues increased enough to realize a continuous improvement in the revenue-to-GDP ratio from 9.5 percent in 2006 to 10.4 percent in 2008. Spending was carefully managed; poverty-related spending was well executed; and only minor, temporary deviations regarding external arrears and recourse to commercial bank credit occurred. In addition, a significant amount of domestic arrears was cleared. Interim HIPC assistance and debt relief by Paris Club helped execute the budget smoothly.

12. Structural reforms introduced during the first year of PRS implementation have helped make the government budget more resilient to negative shocks. The increase in domestic revenues is attributable to a number of improvements in tax and customs administration, including measures taken by the government following the audit of the Guichet Unique in Douala. The adoption of an automatic adjustment mechanism for petroleum product prices has recently allowed the government to insulate its budget from fluctuations in international oil prices and secure resources for priority spending. Moreover, after several adjustments—despite some initial delays—in fuel excises based on this mechanism, the government is now generating significant revenues from petroleum consumption and is able to partially offset the revenue losses from external shocks to primary production sectors.

13. In 2008, although the current account deficit deteriorated, reserves increased. The cost of petroleum imports rose sharply and exports dropped in 2008, particularly in the latter half of the year. This led to a worsening of the trade balance by about 3½ percentage points of GDP in 2008 compared to 2007. The overall current account deficit also increased by 3½ percent of GDP, but because of significant inflows of FDI and short-term private capital, the overall balance was about balanced, and the increase in IMF disbursements allowed some buildup in gross official reserves.

14. The staffs of IDA and the IMF consider that C.A.R. has fully implemented the trigger on the maintenance of macroeconomic stability as evidenced by broadly satisfactory implementation of the PRGF-supported program. Despite the slowdown of growth, overall macroeconomic performance has been satisfactory in 2008; most of the quantitative targets through December 2008 have been achieved, and good progress has been made with the structural reforms launched under the PRGF-supported program.

C. Transparency

15. The government has made substantial progress in strengthening the institutional framework for the fight against corruption and improving transparency. It has established a permanent anti-corruption committee at the level of the prime ministry, which is charged with the formulation, coordination and monitoring of the anti-corruption strategy. To guide its activities, the committee has prepared a priority action plan that is currently under review by the government and development partners. The capacity of the committee to carry out its functions is being strengthened with the help of UNDP and France. Several additional anti-corruption bodies have been established. The national financial investigation agency was set up in 2007 to investigate money laundering, and the “Bureau des Usagers” was set up in the office of the General Inspectorate of Finance in July 2008 to facilitate and manage the reporting of corruption allegations or complaints. The prominent role played by civil society in the fight against corruption helps create an environment where state capture and corruption are increasingly put under scrutiny. These efforts, which acknowledged C.A.R.’s weak record of governance at the decision point, have led to improvements in C.A.R.’s transparency rankings.

16. The provision of articles 44 and 75 of the Constitution linked to the asset disclosure of senior government officials has been enforced. The Prime Minister, all ministers of the government of national unity formed on January 19, 2009, as well as the members of the previous government and the members of the Constitutional Court have prepared and submitted a declaration of assets in due form to the Constitutional Court. In line with its mandate and in compliance with the provisions of articles 44 and 75, the Constitutional Court has made these declarations public by posting them on the government’s website. The asset declaration process took longer than prescribed in the constitution, but the implementation of this measure is unprecedented, and overall compliance was commendable.

17. Senior public enterprise officials and key senior civil servants also complied with their obligation of asset declaration and disclosure. A presidential decree extended the asset declaration obligation to the senior directors of major public enterprises and the following senior civil servants: State Inspector General, Inspector General of Finance, Director General of Budget, Director General of Treasury, Director General of Customs and Indirect Taxation, and the Director General of Taxation. All the individuals concerned have fully complied with the obligation of asset declaration. The State Inspectorate General ensured that the information provided was complete and kept in a secure database, and disclosed it to the general public after verification.

18. The satisfactory asset disclosure of senior government officials represents an important milestone in the fight against corruption on which to built future efforts. The government is aware that the challenges to improving transparency remain significant and that the institutional and legal framework would need to be strengthened further in order to improve transparency and reduce opportunities for corruption. To this end, the government is currently conducting a participatory review of all relevant legal texts aimed at addressing the weaknesses of national law and improving compliance with the UN conventions against corruption to which C.A.R. is a signatory. The Bank is supporting and monitoring these efforts in the context of its third development policy operation approved in March 2009.

D. Structural Reforms in the Forestry and Mining Sectors

19. The government has met the triggers for the forestry and mining sectors. The primary objective of these reforms was to help C.A.R. improve overall governance in these sectors so as to ensure that they can provide a strong backbone for economic growth and poverty reduction through increased foreign direct investment, export earnings, fiscal revenue, and employment.

Forestry

20. The government has adopted a new forestry code that conforms to best international practices. The new code, adopted by Parliament and promulgated by the President in 2008, provides a legal and regulatory framework that should promote a sustainable development of the forestry sector.3 It provides the legal basis to protect biodiversity, defines new protected areas, and stipulates that forests are placed under sustainable management plans. It differentiates forests by permanent and non-permanent domain. The permanent domain of the state comprises all the areas that are subject to mandatory management plans. Community forests, which are part of the non-permanent domain, can be commercially exploited, and the code establishes simplified management plans for them. The new legislation clearly defines the usage rights of local and indigenous populations and includes a procedure for consultations with them before a concession for the exploitation of the permanent domain of the state is awarded. Also, the taxation system defined in the code underscores the need to stimulate sustainable forest management, and provides for an equitable sharing of forestry rents among the central government, private operators, and local communities.

21. The new forestry code and its implementing decrees adopted in April 2009 aim at bringing transparency and competition in awarding concessions. The new legislation promotes a concession award system based on competitive bidding for all harvesting rights; demands that information about the allocation process is to be made public; and stipulates that new permit holders adopt and implement forest management plans. The new legislation also assigns an important role to an independent observer to ascertain transparency in the bidding process. This framework will permit awarding longer and more predictable concession contracts.

22. The public information system set up by the government has been effective in ensuring that local communities are informed about forestry activities and revenues. Social mediators, appointed by the communities, have played an important role in raising the awareness about the limitations of forestry resources, the erosion and destruction of forests, and the management of forestry revenues. Social mediators continue to provide information to communities on the activities of forestry companies, the revenues they generate, and the implementation of the revenue-sharing mechanism during community meetings and through local radio broadcastings. Following an official government instruction issued in December 2008, the revenue sharing-mechanism and revenues accruing to communities are now posted in all forest communities. The Ministry of Water, Forestry, Hunting, and Fishing contributes directly to the public information campaign through the monthly publication of a newspaper, Pendere Gbako, which is distributed to all forest communities. The March 2009 issue of Pendere Gbako contains specific information on concessions and harvesting, forestry and authorized transport companies, payments made by the forestry companies to central and local governments, and the amount of forestry taxes allocated to local communities.

23. The authorities are committed to ensure that the reforms in the forestry sector are sustained and the new forestry code and regulating decrees are satisfactorily implemented. The government has already implemented key aspects of the code. For instance, in January 2009, it issued a ministerial instruction establishing that the mercurial value per cubic meter for each species is based on the market price of timber as stipulated by the new forestry code. In addition, it continues to implement in a transparent manner the forest revenue sharing mechanism with local communities. The new legal and regulatory framework is taking effect just as world demand for timber has fallen sharply; thus its application could remain slow over a period of time. In particular, the government may find that it is preferable to delay launching invitations to tender the remaining three forest concessions until market conditions improve. Nonetheless, the government has demonstrated that it is committed to ensuring compliance with the new forestry code. In March 2008, it cancelled two permits that had been awarded in 2007 because the new licensees would have been able to harvest without being in compliance with the new regulations. The government also suspended awarding new permits until the new forestry code would be adopted and the decrees regulating the implementation of the new code and the awarding of concessions would be issued. By not launching new invitations to bid, the government ensured that issuance of harvesting permits would be transparent. In view of these actions, the staffs of IDA and the IMF consider that the new forestry code and its regulating decrees have been satisfactorily implemented despite the adverse impact of the global economic crisis on forestry revenues.

Mining

24. The government has revised the 2004 mining code to address its previous weaknesses. The mining code was revised after intensive consultations with key stakeholders. Parliament adopted the revised mining code on April 28, 2009; the implementing texts were adopted by Presidential decrees on April 30, 2009. The revised mining code will help improve governance in the sector by reducing the discretionary powers of the government and instituting a transparent system for managing mining licenses, which enhances stability for potential investors. Furthermore, the revised code provides incentives encouraging the participation of nationals in mining activities. It promotes training for nationals and the employment of trained nationals in mining ventures at competitive market rates. It also provides incentives for undertaking local processing, which could increase the domestic value added of the mining sector. In addition, it is designed to facilitate the development of forward and backward linkages that could contribute to economic development and poverty reduction by encouraging mining and processing companies to use local suppliers for the provision of inputs. Due attention is also paid to the need to protect the environment. Lastly, under the new legislation, tax incentives are rationalized and standardized for all new mining projects. The authorities will review the tax and equity requirements (with Bank technical assistance) during implementation of the decrees, taking into account possible investor concerns, to ensure that the overall tax burden is not excessive in a fragile state with a fledgling mining industry.

25. A new standard form mining agreement based on best international practices has been prepared and adopted.4 The new model mining agreement, which was adopted by Presidential decree on April 30, 2009, is intended to attract new investments from small and medium enterprises as well as larger enterprises by reducing investor risk in a transparent manner. The new model agreement seeks to enhance linkages at the local and community levels and to facilitate formal arrangements between mining companies and communities in the mining areas. The terms of the model agreement do not supersede the terms of the revised mining code but, rather, complement and supplement it. In line with best international practices, the model agreement includes stability clauses, and the tax regime being stabilized is described in the revised mining code.

26. The government has adhered to the Extractive Industries Transparency Initiative (EITI) and has published its first EITI report on mining revenues, covering 2006. The government has established a national council, a national steering committee, a technical secretariat, and recruited a qualified independent administrator to collect and reconcile data on mining production, payments made by companies to the government, and the corresponding receipts. The first EITI report for C.A.R., covering 2006, prepared by the independent administrator, has been validated through a participatory process by the national steering committee on March 19, 2009. As stipulated by EITI standards, civil society, the private sector and other stakeholders participated in the process. The report was immediately posted on the government’s as well as other websites. The international EITI secretariat, which granted C.A.R. EITI candidate country status in November 2008, has acknowledged receiving a copy of the report.

E. Public Financial Management (PFM)

27. The government has made significant progress in improving public financial management, and the related completion point trigger has been met. PFM reforms have been at the center of the government’s efforts to improve the efficiency of public expenditures in recent years. The reforms supported under the enhanced HIPC Initiative complement the government’s reform program aimed at strengthening PFM. Several diagnostic studies helped guide these reforms, including the 2007 Country Financial Accountability Assessment (CFAA) report, the audit of the treasury carried out by the government in 2006, and the Public Expenditure & Financial Accountability (PEFA) report completed in early 2008. In support of these reforms, IDA has provided three successive development policy loans (DPL) to improve the effectiveness, transparency, and accountability in PFM, in collaboration with the IMF, AfDB, EU, France, and other partners.

28. A new budget nomenclature was used in the preparation and submission of the budget to Parliament. The new budget nomenclature, developed in 2008 with EU assistance, allows expenditure classification on an economic, administrative, and functional basis; this nomenclature was used for the preparation and submission of the 2008 and 2009 budgets to Parliament. The new system also permits the tracking of expenditures devoted to the fight against poverty. On the basis of the new nomenclature, which is aligned with regional Organization for the Harmonization of Business Laws in Africa (OHADA) standards, budget documentation is also being streamlined and simplified to improve fiscal transparency.

29. A new expenditure tracking system from the commitment to the authorization stage has been implemented at the level of the General Budget Directorate. The computerized expenditure management system (GESCO) is operational and permits the tracking of the resource flow through the budget expenditure chain. The new system has facilitated the production of quarterly execution reports at various stages of the execution process and can present data on an economic, administrative, and functional classification basis. These reports have been produced on a regular basis since the first quarter of 2008, in addition to, on a pilot basis, reports with a sectoral focus on the Ministries of Education, Health, Agriculture and Rural Development, and Equipment. The new information system has substantially improved the timeliness, comprehensiveness and accuracy of fiscal reporting, and will be extended to the payment stage in the course of 2009.

30. A new payroll management system has been set up and is operational since October 2008. The civil servant files and wage data have been merged into a single database. The Ministry of Civil Service is responsible for managing the job profile of every civil servant in the database, and regularly updating the files. The payroll directorate at the Ministry of Finance is able to validate the documentary evidence transmitted by the Ministry of Civil Service, and routinely processes the monthly payroll after verification. A computer management information system, maintained by the national informatics office, has been introduced to facilitate and coordinate the management of the unified database. This has ensured a more effective administrative, budgetary and financial management of public human resources.

31. Parliament adopted a new procurement code, which has been put to use. The new code was promulgated by Parliament in June 2008, and its legal and regulatory framework conforms with best international practices. It promotes fair and transparent competition for public sector contracts. Cabinet has adopted all the key legal texts that are needed to render the new code fully operational. In addition, the government created a general public procurement directorate (DGMP), charged with the overall responsibility for public procurement policy, a regulatory authority (ARMP) to oversee the procurement function, and a bidders complaint unit to ensure that effective procedures are implemented for resolving disputes or any other complaints that may arise during the procurement process. Procurement units have been set up in the ministries of Education, Health, Agriculture, and Infrastructure and are being equipped and staffed. To facilitate the implementation of the new code, a manual of procedures for executing agencies, standard bidding documents, and a description of the general conditions of contracts have been prepared, and a training program is being implemented. All contracts recently awarded were in full conformity with the new legal and regulatory framework.

32. Significant progress has also been made in other areas of PFM. To revamp the legal framework, an organic budget law was adopted in 2007; cash management has been strengthened with the creation of a liquidity committee and the limitation of non-cash backed checks. C.A.R. is in the process of implementing a treasury single account. Most non-donor mandated commercial accounts with commercial banks have been closed; the establishment of consultation mechanisms with line ministries and civil society has resulted in a better alignment of expenditures with sector priorities. Also, adopting new budget execution procedures, clarifying modalities and accountabilities, and simplifying and reducing the number of steps to be taken to process expenditures, has helped improve budget execution. Lastly, the autonomy of the financial control directorate was restored, and its units installed in line ministries.

33. Looking forward, the government intends to build on recent progress to further enhance the effectiveness of the PFM system. In the short term, the focus of reforms will be on (i) developing a medium-term approach to budgeting to align the budget with medium-term goals, such as the MDGs and PRS; (ii) strengthening the external control of budget execution; and (iii) enhancing accountability with the preparation of the final accounts for 2008 and the 2008 budget execution law for submission to the Court of Accounts and Parliament.

F. Civil Service Reform

34. Cabinet has adopted a new organizational framework that is consistent with the PRS objectives. The new organizational structures are designed to improve efficiency and effectiveness in the delivery of services, and with a focus on results in line with the PRSP recommendations. To develop the new organizational framework the government carried out, with World Bank support, institutional audits of three ministries. On the basis of these audits, the government adopted two types of organigrams, one for small ministries (containing two directorates) and one for ministries with expanded responsibilities, such as finance and education (containing three directorates). The authorities are now working to provide a clear definition of roles and functions of each unit and job descriptions for each post.

35. A new civil service statute has been prepared and submitted to the inter-ministerial council. The civil service statute is satisfactory in its coverage. It applies to permanent and non-permanent civil servants at central and deconcentrated levels. It defines the rights and obligations of civil servants, the structure of the civil service, the sanctions system, and the procedures for employment termination. The statute includes guidelines on conflict of interest, contains the basic rules of a meritocratic civil service, and condemns corruption. The statute specifies the remuneration and performance assessment systems:

  • Remuneration: The statute defines an index-based system, which ties pay to grades and levels, the details of which will be defined in application decrees. The index will be revised in line with cost of living adjustments. Allowances are only temporary and linked to the post. The statute determines that bonuses cannot go beyond 10 percent of the salary.

  • The performance assessment systems: An annual evaluation is linked to promotion and remuneration. Civil servants need to achieve a minimum score to be eligible for promotion every two years. The statute defines a two-level recourse system in case civil servants disagree with the performance evaluation, allowing them to bring the issue to the attention of the minister in the first instance, and, in a second instance, to file a complaint with an external entity.

36. The government’s plan going forward is to set up a coordination mechanism under the Prime Minister’s Office that will help steer the civil service reform program. This unit will review all issues related to civil service and administrative reforms, elaborate and implement management systems to improve the effectiveness of the government, and the relationship between government and citizens as users of government services. It will further define a communications strategy, support implementation of reforms, and monitor their execution. Having effectively launched a civil service reform, the establishment of such a coordination mechanism will be an important step in ensuring the design and implementation of further sound reforms, and allowing for consultation with stakeholders.

G. Social Sector Reforms

Education sector

37. The government has satisfactorily implemented the trigger on increasing the number of primary school teachers. With support from IDA, 850 new apprentice teachers were recruited and deployed in 483 primary schools across the country in 2007/08, including in conflict zones. In addition to these apprentice teachers, the government recruited 171 student teachers from the national school of primary school teachers in the first half of 2009 and is now deploying them throughout the country. As a result of these recruitments, at least 1,000 new teachers will be available to provide teaching services in primary schools for the 2009/10 school year. This recruitment effort is helping to address the substantial need for primary school teachers and assist in the transition towards increased and better educational staff, which will be a focus of future reform efforts under the Fast Track Initiative (a partnership of developing countries and donors managed by the World Bank).

38. The government has implemented educational and administrative measures to reduce the repetition rate in primary education. In 2007, the government issued a decree that (i) eliminates repetition within each of the three cycles of primary education, and (ii) limits the repetition rate from one cycle to the next to 10 percent. This administrative measure was implemented jointly with a training program with the support of local donors, which helped primary school directors and teachers design remedial programs for students who would have repeated under the previous arrangements. The full impact of these measures will take some time to emerge, as many schools will need time to render their remedial programs fully operational. However, preliminary results already point to some progress in reducing the repetition rate. Nationally, the repetition rate fell from 28 percent in 2006/07 to 26 percent in 2007/08; however, in some academic inspectorates, notably in the central-east area, the repetition rate has declined at a faster pace, from 30 percent in 2006/07 to 26 percent in 2007/08.

39. To consolidate and build on the recent advances in the education sector, the government has developed a strategy to address the sector’s systemic weaknesses. In February 2008, the Council of Ministers adopted the National Education Strategy covering the period 2008–20. The strategy was endorsed by the Education For All/Fast Track Initiative (EFA/FTI) partnership in December 2008; and the EFA/FTI Catalytic Fund provided financing in the amount of US$38 million to support the implementation of the first phase (2009–11). The main components of the EFA/FTI program are to improve access to education through school construction and rehabilitation, enhance the quality of education through teacher training and education materials, and increase the management capacity and internal efficiency of the education system. The grant agreement was signed on April 6, 2009.

40. Staffs of IDA and the IMF conclude that the trigger on the education sector has been satisfactorily implemented. With regard to the second component of the education sector trigger, the understanding with the authorities was that the trigger referred to the implementation of administrative and pedagogical measures, which has been satisfactory, and not to reaching a specific repetition rate. There has been satisfactory progress on employing teachers and the measures adopted should make it possible to lower the repetition rate to less than 20 percent in the future.

Health sector

41. The government has made determined efforts to improve the health status of the population. The government’s main objectives are to refurbish the sanitation infrastructure, increase the availability of basic health care, reduce infant and maternal mortality, fight endemic diseases, and promote a multisectoral approach for initiatives to combat HIV/AIDS. Several key strategy documents, prepared in consultation with stakeholders, provide guidance for the government’s efforts to improve public health, including the national plan for the development of sanitation 2006–15, the national strategic plan to reduce malaria, the comprehensive and extended multi-annual vaccination program 2007–11, and the updated national strategy against HIV/AIDS (2006–10).

42. Satisfactory progress was made in increasing DPT3 vaccination rates. The DPT3 immunization rate nationwide increased from 40 percent in 2005 to 84.1 percent in 2007. This improvement was achieved through improved organizational methods and intensive vaccination campaigns. At end-August 2008, the DPT3 immunization rate reached 67 percent, well on track to reach at least 80 percent by year-end. However, on September 1, 2008, a new vaccine (Pentavalent), combining DPT3 with other antigens, was introduced at the recommendation of WHO, and the government discontinued the monitoring of DPT3. As of October 2008, Pentavalent coverage was already 15 percent which, according to WHO officials, was in line with expectation, and indicates broad acceptance of the vaccine by the population. The combined immunization rate was likely to have exceeded 80 percent for the full year. Because the DPT3 immunization rate was well on track to reach at least 80 percent by end-2008 at the time that Pentavalent was introduced and Pentavalent adoption has been satisfactory, the staffs consider that this trigger has been met.

43. The government has significantly expanded the distribution of impregnated mosquito nets to combat malaria, and exceeded its target. With resources from the Global Fund, IDA, and UNICEF, the government substantially exceeded its plan to distribute at least 300,000 impregnated mosquito nets. In 2007, the Ministry of Health distributed more than 650,000 impregnated mosquito nets across the country, including in conflict zones. Access to these zones was facilitated by the NGOs active in these areas. This achievement was further surpassed in 2008, when the Ministry of Health distributed 840,687 treated mosquito nets throughout the country, with support from UNICEF. Moreover, this operation was combined with a vaccination campaign against measles and the distribution of soaps, which facilitated the distribution of impregnated mosquito nests to children under five and pregnant women, a key target group.

HIV/AIDS

44. The government has made the fight against HIV/AIDS a priority in its development agenda. The updated national strategy against HIV/AIDS (2006–10) provides a sound framework for the multi-sectoral and decentralized approach to combating the HIV/AIDS epidemic. According to the 2006 seroprevalence study conducted by the national HIV/AIDS coordinating committee, the HIV infection rate is estimated at 6.2 percent with substantially higher rates for females (7.8 percent) than for males (4.3 percent).

45. Satisfactory progress was made in distributing condoms to prevent HIV/AIDS. The number of condoms distributed increased substantially over the past few years. It reached 16 million at end-2007 before stabilizing at about 15 million in 2008, a considerable progress since the decision point. Resources from the German development assistance fund (KfW), UNFPA, and the Global Fund were instrumental in making condoms available and affordable throughout the country, including in villages. In addition to the distribution of condoms, awareness campaigns are being carried out with special actions targeted at high-risk groups. The government has prepared a report on the social marketing of condoms that enables an assessment of progress over the period 2006–08. The staffs have reviewed the report and found it to be satisfactory. Not only has the level of condom distribution increased but condom use is also rising, especially among the sexually-active population. While male condoms account for the large majority of condoms distributed, the distribution of female condoms is also on the rise. In view of the seriousness of the HIV/AIDS pandemic in C.A.R. the government is aware that these efforts need to be sustained to help stem the spread of the virus.

46. Notable progress has also been made in other areas of the fight against HIV/AIDS. In particular, access to care and treatment for persons living with HIV/AIDS was expanded through the decentralization of treatment centers, with the opening of 13 new Anti Retro Viral (ARV) units that provided treatment to 700 persons living with HIV/AIDS on top of the more than 7,800 persons already benefiting from the ARV therapy program. The prevention of mother-to-child transmission was strengthened through training provided in 30 health centers throughout the country, and the installation of new equipments in several health centers helped to improve access to voluntary testing.

H. Debt Management

47. The government has made considerable progress in improving the public debt management system. A computerized Debt Management and Financial Analysis System (DMFAS) is operational in the debt department at the ministry of finance and can produce external debt reports. The capacity of the debt department has been reinforced through the recruitment of new staff and training by United Nations Conference on Trade and Development (UNCTAD) on the use and maintenance of DMFAS. A long-standing problem has been the lack of coordination and monitoring of the government’s debt policy. As a first step toward addressing this problem, a Presidential decree has established the National Committee for Public Debt (NCPD) with the mandate to not only coordinate and monitor the implementation of the government debt strategy and policy but also produce and publish debt statistics bulletin on a regular basis.

48. A comprehensive debt database, covering domestic and external debt data, has been established and is being maintained. The debt records in the database contain data on domestic, external, and guaranteed debt of the central government in a format that follows international standards. The debt records also contain major and detailed characteristics of all debt outstanding and disbursed, public and publicly guaranteed domestic and external debt, at December 31, 2008. All external debt has been fully reconciled. The database helps the debt department produce periodic debt data with short lags. The debt department has developed the capacity to conduct periodic reconciliation of the external debt accounts, which will facilitate the production of debt reports within six month’s lag for public and publicly guaranteed domestic and external debt. To guide implementation of the debt management system, the authorities have adopted a manual of procedures that conforms to standard practices.

49. The institutional capacity for an annual publication of public debt data has been developed. An annual debt statistical bulletin was published in May 2009. The bulletin, which contains debt data assessed at December 31, 2008, is consistent with international standards and with IDA and IMF current practice, in terms of scope and detailed information, and reflects increased capacity in this area. The functionality of DMFAS, the training and experience gained by the debt department over the years, and the clear mandate that has been given to the NCPD through a presidential decree to produce statistical debt bulletins provide reasonable assurance that public debt data will be published annually.

50. The authorities need to consolidate the gains achieved so far in improving public debt management. Establishing a sound debt management system is a gradual process that will take a long time to be completed. The immediate priorities are to consolidate the gains achieved, by focusing on the following areas: (i) make the NCPD fully operational; (ii) consolidate the mandate of the debt department and the technical skills acquired by the new staff; (iii) reduce the lag for the production of the annual and quarterly reports; and (iv) reinforce the capacity of the domestic debt management department, to strengthen coverage and follow up of domestic debt including arrears for non central government institutions and agencies.

III. Updated Debt Relief and Debt Sustainability Analysis

A. Data Reconciliation

51. The stock of HIPC-eligible external debt in NPV terms at end-2006 increased slightly following the debt reconciliation exercise. The staffs of IDA and the IMF, together with the C.A.R. authorities, reviewed the end-December 2006 stock of debt data that was presented in the decision point document against recent creditor statements. Due to revisions in the amount of arrears in interest payments both the nominal debt stock and the NPV of debt after traditional debt relief have been revised upward by the same amount (US$0.7 million) to US$1,087.5 million in nominal terms and US$856.6 million in end-2006 NPV terms (Table 3).

  • Multilateral creditors. The debt owed to multilateral creditors as of end-2006 remains at US$686.1 million in nominal terms, which corresponds to US$536.7 million in end-2006 NPV terms.

  • Paris Club creditors. The end-2006 NPV of debt to Paris Club creditors after traditional debt relief has been revised upward from US$47.3 million to US$48.3 million. There has been marginal increase in the NPV of debt to France and to Italy reflecting new information received from creditors on the accumulated interest in arrears.

  • Other official bilateral creditors. The NPV of debt as of end-2006 owed to other official bilateral creditors has been revised downward marginally by US$0.5 million to US$227.8 million. This revision is due to upward revisions to the NPV of debt owed to Argentina, and downward revisions of the NPV of debt owed to China.5

  • Commercial creditors. The NPV of debt as of end-2006 owed to commercial creditors remains in line with the amount estimated at the decision point.

52. Exports of goods and services have been revised upward. Estimates of exports of goods and services used to evaluate HIPC assistance at the decision point have also been revised by the authorities from an annual average of US$182 million for 2004–06 to US$185.5 million.

B. Revision of HIPC Assistance and Status of Creditor Participation

53. The required HIPC assistance in end-2006 NPV terms has been revised downward from US$583 estimated at the decision point to US$578 million. The common reduction factor has declined from 68.1 percent to 67.5 percent (Table 4).6 The revised HIPC assistance in nominal terms is estimated at US$827 million.

54. The C.A.R. has received financing assurances by creditors for the participation in the enhanced HIPC Initiative accounting for 82 percent of the NPV of HIPC assistance estimated at the decision point (Table 11). Most multilateral (61 percent of total HIPC assistance) and all Paris Club creditors (5.6 percent) have confirmed their participation. Several multilateral creditors and Paris Club creditors have provided interim assistance. Some of the other official bilateral (11.9 percent) and commercial creditors (3.1 percent) have also agreed in principle to provide debt relief at completion point. The authorities are working toward reaching agreements with all remaining creditors.

Multilateral creditors

55. The revised amount of HIPC assistance from multilateral creditors is US$362 million in end-2006 NPV terms or 62.7 percent of total HIPC assistance. Multilateral creditors accounting for 61 percent of HIPC assistance have committed to provide their full share of assistance to C.A.R. under the enhanced HIPC Initiative. IDA, the IMF, the AfDB Group, and the EU provided interim assistance in the form of debt service reductions and BADEA has provided interim assistance through a rescheduling of accrued arrears and maturities. Total relief provided during the interim period amounted to US$142.6 million in end-2006 NPV terms, corresponding to 39.4 percent of total HIPC assistance from multilateral creditors.

  • IDA: Debt relief from IDA amounts to US$206.9 million in NPV terms at the decision point. Of this amount, IDA has delivered US$81.1 million in NPV terms (US$78.8 million in nominal terms) through the clearance of arrears on grant terms in November 2006 and a 63.4 percent reduction in debt service falling due during the interim period. Upon reaching the completion point, the remaining assistance from IDA, amounting to US$125.8 million in NPV terms (US$210 million in nominal terms), would be provided in the form of a 62.6 percent reduction of C.A.R.’s debt service to IDA through September 2027 (Table 12).

  • IMF: At the decision point, the IMF committed HIPC Initiative assistance of SDR 17.33 million (US$26.98 million) in NPV terms. As a result of the downward revision in the amount of HIPC assistance, there will be a marginal revision in HIPC assistance to SDR 17.19 million (US$26.77 million) in NPV terms at the decision point. The IMF has already provided about SDR 6.6 million (US$10.3 million) in NPV terms in the form of interim assistance. At the completion point, the IMF will provide the remaining amount of its share of HIPC assistance through a stock-of-debt operation estimated at SDR 11.4 million (in nominal terms). IMF assistance represents an average reduction of 55 percent of debt service on eligible debt (Table 13).

  • The African Development Bank Group (AfDB): HIPC debt relief from the AfDB Group amounts to US$84.7 million in NPV terms, of which US$49.4 million in end-2006 NPV terms (US$48.2 million in nominal terms) have already been provided through the clearance of arrears on grant terms in December 2006 and a 84 percent reduction in debt service during the interim period. At the completion point, it is expected that the AfDB Group will provide the remaining amount of relief through an 80 percent reduction of debt service on debt outstanding as of end-December 2006, applied from July 2009 through July 2020.

  • The European Union (EU): HIPC debt relief from the EU amounts to US$4.2 million, of which the EU has already provided US$1.8 million in end-2006 NPV terms (US$1.4 million in nominal terms) through the clearance of arrears on grant terms and a 100 percent reduction of debt service during the interim period on selected loans. The reminder of the HIPC assistance is expected to be delivered through debt service reduction up to 100 percent on selected loans (Table 11).

  • Other multilateral creditors: HIPC assistance in end-2006 NPV terms amounts to US$8.7 million from BADEA, US$15.5 million from IFAD, US$6.4 million from OFID, US$8.8 from BDEAC and US$0.5 million from arrears to international organizations. BADEA delivered an estimated US$3 million of interim assistance through a rescheduling of accrued arrears and maturities.7 The remaining creditors are expected to provide their share of HIPC relief after the completion point. It is assumed that IFAD will provide the full amount of debt relief by cancelling 100 percent of debt service falling due, starting at the completion point through May 2017. OFID is assumed to provide the full amount of debt relief by a concessional rescheduling of accrued arrears and maturities at completion point. However, BDEAC and the international organizations have not confirmed their participation at the time of writing (Table 11).

Bilateral and commercial creditors

56. Paris Club creditors have agreed in principle to provide their share of enhanced HIPC assistance (estimated at US$33 million in end-2006 NPV terms, in accordance with the revised assistance, Table 4). Interim assistance, estimated at US$4 million in end-2006 NPV terms, has been provided through a flow treatment on Cologne terms, agreed in April and December 2007, respectively. Participating Paris Club creditors declared their readiness in principle to provide their full share of assistance at the completion point. The full share of assistance at the completion point is expected to be provided through a stock-of-debt reduction. The Paris Club creditors have also indicated that they would provide additional assistance beyond HIPC relief through 100 percent stock-of-debt cancellation, estimated at about US$22.7 million in end-2008 NPV terms.

57. Non-Paris Club bilateral creditors are assumed to provide relief on HIPC-eligible debt on terms comparable to those of the Paris Club. NPV of HIPC relief at end-2006 is estimated at US$153.8 million. In 2008 and 2009, the C.A.R. authorities sent letters to their non-Paris Club creditors to initiate negotiations for possible debt restructuring. Some of these creditors, such as Argentina (3.9 percent of total HIPC-eligible debt), Kuwait (2.2 percent), Libya (1.2 percent), Saudi Arabia (1.9 percent), and Serbia (2.4 percent), agreed in principal to provide debt relief at completion point. Some member countries of Union Postale Universelle also agreed in principle to provide debt relief on their bilateral claims.8

58. A number of non-Paris Club bilateral creditors have not responded. China (2.9 percent of total HIPC-eligible debt) and Taiwan Province of China, (10.9 percent) account for about half of this group of creditors. However, China, in January 2007, cancelled two of its loans totaling US$11 million, accounting for 29 percent of the nominal amount of China’s loans to C.A.R. and 59 percent of its share of HIPC relief in end-2006 NPV terms.

59. Some commercial creditors agreed in principle to provide debt relief at completion point. The NPV of debt owed to commercial creditors after traditional relief is estimated at US$43.7 millions, 5 percent of total HIPC-eligible debt. The C.A.R. authorities have sent letters to all their commercial creditors to request a rescheduling of the existing debt. Some of these creditors, such as France Cable Radio, France Telecom, France Hospital, and French Postal Bank, totaling to 3.1 percent of total HIPC-eligible debt, agreed in principle to provide debt relief. Commercial creditors that have not responded favorably to C.A.R.’s requests account for 2 percent of total HIPC-eligible debt. While lawsuits by non-participating creditors against post-completion point HIPC countries have been filed in the past, staffs are at the moment not aware of any litigation against the government of C.A.R., which is committed to negotiating in good faith with the remaining creditors.9

C. Considerations for Exceptional Topping-Up Assistance

60. The Debt Sustainability Analysis (DSA) has been updated jointly by the authorities and the IMF and IDA staffs on the basis of loan-by-loan debt data, and exchange rates and interest rates as of end-2008 (Table 5).10 11 On December 31, 2008, the nominal stock of C.A.R.’s external debt amounted to US$1.05 billion (Table 8). Multilateral creditors accounted for 63 percent of total debt. IDA remains the C.A.R.’s largest creditor, accounting for 36.8 percent of total outstanding nominal debt. Paris Club creditors account for 5.6 percent and non-Paris Club creditors for 26.7 percent of total debt. Taiwan Province of China, is the largest bilateral creditor, and its claims comprise 9.8 percent of total outstanding nominal debt. Commercial creditors account for only 5 percent of total debt.

61. C.A.R. would not qualify for topping-up. The NPV of debt-to-exports ratio at the end-2008—after full delivery of the assistance committed at the decision point—is now estimated at 148.0 percent, which is 21 percentage points above the projection at time of the decision point. At that time, the end-2008 NPV of debt-to-exports ratio was projected to be 127.1 percent.12 The NPV of debt-to-exports ratio—after the full delivery of the additional bilateral debt relief beyond the HIPC initiative at end-2008—is somewhat lower at 137.8 percent, which is below the 150 percent threshold for consideration of topping-up defined under the enhanced HIPC Initiative (Table 2).13

62. Less favorable developments on exchange rates, lower concessionality of new borrowing, and reduced exports explain the higher-than-projected NPV of debt-to-exports ratio after HIPC assistance. The contribution of the main factors is described in Table 2 and summarized as follows:

  • Changes in the parameters (dollar depreciation and, to a lesser extent, lower discount rates used to calculate the NPV of debt) contribute 13.5 percentage points to the difference in the NPV of debt-to-exports ratio at the end of 2008 between the decision point projection and the completion point estimate.

  • Due to significantly lower exports of diamonds and wood products in 2008 exports of goods and services was 8 percentage point lower than projected at the decision point, leading to a 8.9 percentage point increase of the NPV of debt-to-exports ratio.

  • Compared to the projections, new borrowing was less concessional but also substantially lower, which lead to a 5 percent reduction in the NPV of debt-to-exports.

  • Changes in the amount of HIPC relief and changes in the mechanisms of assistance delivery resulted in an increase in the NPV of debt-to-exports ratio by about 3.4 percentage points, compared to the assumptions at decision point.

Table 2.

Central African Republic: Breakdown of the increase of NPV of Debt-to-Export Ratio as of end-2008 1/

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Sources: World Bank and IMF staff estimates and projections.

NPV of debt-to-export ratio after full delivery of enhanced HIPC assistance and bilateral debt relief beyond the HIPC Initiative.

Value was 117.4 in the decision point document and was revised due to corrections in the projections of the NPV of new borrowings.

Table 3.

Central African Republic: Nominal Stock and Net Present Value of Debt as of December 31, 2006, by Creditor Groups

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

Includes arrears.

Adds back the grant element of the arrears clearance agreements with IDA and BADEA, as well as payments on the arrears clearance loans made in 2005 and 2006.

Includes a hypothetical stock-of-debt operation on Naples terms at end-2006 and at least comparable action by other official bilateral and commercial creditors on eligible debt (pre-cutoff and non-ODA).

Represents dues in arrears to the Universal Postal Union and the Pan-African Postal Union, which are agencies, respectively, of the United Nations and the African Union. Also includes arrears to the International Postal Universities at Abidjan and Brazzaville, and the African Institute of Savings Institutions, which the authorities have reported to be agencies of multilateral institutions.

Table 4.

Central African Republic: HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach 1/

(In millions of U.S. dollars, unless otherwise indicated)

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

Includes a hypothetical stock-of-debt operation on Naples terms (end-December 2006) and comparable treatment by other official bilateral creditors.

Each creditor’s NPV reduction in percent of its exposure at the reference date, end-December 2006, calculated as (A-B)/A. The common reduction factor is applied to debt remaining after traditional mechanisms. For non-concessional bilateral or commercial debt this would imply a total reduction of 89 percent.

Based on the three-year backward-looking average (2004-06).

Table 5.

Central African Republic: Discount and Exchange Rate Assumptions as of end-December 2006 and end-December 2008

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Sources: OECD; and IMF, International Financial Statistics.

The discount rates used are the average commercial interest reference rates over the six-month period piror to the end of the period for which actual debt and export data are available, which is end-2006 and end-2008.

The exchange rates are expressed as national currency per U.S. dollar at end-2006 and end-2008.

Table 6.

Central African Republic: Net Present Value of External Debt, 2008-28

(in millions of U.S. dollars, unless otherwise indicated)

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

The NPV of debt to the World Bank, the AfDB Group and BADEA includes the grant element of the arrears clearance operations as well as any payments made under these operations.

Shows the external debt situation after the full use of traditional debt-relief mechanisms, and assuming at least comparable treatment from official bilateral creditors.

Assumes the full delivery of HIPC assistance at completion point (end-June 2009).

Assumes full delivery of estimated HIPC initiative debt relief as end-December 2008.

Includes additional debt relief provided on a voluntary basis by the Paris Club and some commercial creditors beyond the requirements of the enhanced HIPC framework as specified on Table 16.

MDRI assistance applies to the World Bank, the IMF and the AfDB Group, and starts after the completion point (July 2009).