Central African Republic: Request for Disbursement Under the Rapid Credit Facility and Cancellation of the Extended Credit Facility Arrangement—Staff Report; Press Release; and Statement by the Executive Director for Central African Republic

This paper focuses on Central African Republic’s (CAR) Request for Disbursement Under the Rapid Credit Facility (RCF) and Cancellation of the Extended Credit Facility Arrangement. The transitional government in CAR is facing daunting challenges. Improved security, donor support, and normalizing salary payments will be crucial to start a recovery in 2014. The macroeconomic outlook is subject to uncertainty and risks. The IMF staff supports the authorities’ request for assistance under the RCF in view of their currently limited capacity to implement policies of an upper credit tranche-quality economic program, the large and urgent balance-of-payments needs, and the catalytic effect of IMF support on other external assistance.


This paper focuses on Central African Republic’s (CAR) Request for Disbursement Under the Rapid Credit Facility (RCF) and Cancellation of the Extended Credit Facility Arrangement. The transitional government in CAR is facing daunting challenges. Improved security, donor support, and normalizing salary payments will be crucial to start a recovery in 2014. The macroeconomic outlook is subject to uncertainty and risks. The IMF staff supports the authorities’ request for assistance under the RCF in view of their currently limited capacity to implement policies of an upper credit tranche-quality economic program, the large and urgent balance-of-payments needs, and the catalytic effect of IMF support on other external assistance.

Background, Recent Developments, and Performance Under the Extended Credit Facility

1. Economic growth in Central African Republic (C.A.R.) over the past decades has been insufficient to provide economic stability, employment opportunities, and social development. As a result, poverty remained pervasive and social indicators were weak even before the unfolding of the 2013 crisis, which plunged the country into chaos, significantly contracting the economy, and further cutting into the meager living standards of the population. The already fragile economic and social context was exacerbated by the recent crisis (Figure 1).

Figure 1.
Figure 1.

Central African Republic: Long Term Economic Trends

Citation: IMF Staff Country Reports 2014, 164; 10.5089/9781498346863.002.A001

Sources: Penn World Tables; and staff estimates.

2. The 2012–13 political and security crisis in C.A.R. has evolved into a humanitarian catastrophe and the collapse of the economy. A rampage of looting, destruction of infrastructures, and lawless conditions prevailed throughout the past year as the leaders of the coalition of rebels (Séléka) were unable to stop abuses on the population, provide security, and restart economic activity.1 By the end of 2013, ¼ of the population (1 million persons) was displaced. Against the back of a humanitarian crisis unfolding, heavy international pressures resulted in the Seleka-led government to relinquish power in January 2014, opening the way to a new and more inclusive transitional government (Box 1).

Central African Republic: The Unfolding Crisis and its Attempted Resolution

In mid-December 2012, a coalition of rebel groups (Séléka) moved close to Bangui after seizing several cities in the north and north east and threatened to take the capital. Under the auspices of the heads of States of Economic Community of Central African States (ECCAS), the Séléka, the political opposition, the presidential majority, and representatives of the civil society signed a peace agreement in Libreville on January 11, 2013.1 On January 17, 2013, President Bozizé appointed Mr. Tiangaye, a lawyer from the political opposition, as Prime Minister. A national unity government, formed according to the Libreville agreement, gradually took steps to consolidate peace. Tensions, however, continued to emerge among the various factions awaiting the Disarmament, Demobilization, and Reintegration (DDR) program.2 Difficulties to fully implement the Libreville agreement prompted the Séléka to resume its operations. The Séléka launched attacks on government forces, and seized the capital Bangui on March 24, 2013, overthrowing President Bozizé. The former rebel leader, Michel Djotodia, proclaimed himself President and maintained Mr. Tiangaye as Prime Minister. The Djotodia/Tiangaye administration was, however, unable to restore peace and security. The ensuing chaos triggered widespread human rights violations, violence against the civil population, and a collapse of the economy and public service delivery.

In May 2013, an International Contact Group on C.A.R. was created to help mobilize the support of the international community to the transition and to monitor the implementation of the agreed roadmap, which will lead to democratic elections by early 2015. A more inclusive government of national unity and the expansion of the membership of the National Transitional Council (NTC) (quasi-parliament) were implemented, but the situation remained fragile and volatile. As a result of progress made in implementing the roadmap, Mr. Djotodia was sworn in as a President on August 18, 2013 but his recognition by the international community was ambivalent as the country remained under African Union (AU) sanctions. However, the collapse of the state machinery and the weakening of the security and defense forces had led to a security vacuum, which resulted in anarchy, escalation of violence, looting, continued abuses of human rights, and humanitarian crisis.

Under renewed international pressure, President Djotodia resigned in early January 2014. Ms. Catherine Samba-Panza, a prominent business woman and former mayor of Bangui, was elected by the NTC and was sworn in as president of the transition in C.A.R. on January 23, 2014, Mr. André Nzapayeké was subsequently appointed as prime minister and a new cabinet formed. This was well received by the international community which, at the January 20, 2014, meeting in Brussels, made pledges amounting to about US$500 million in assistance to C.A.R. The security situation is improving, but remains volatile, following the deployment of troops in early December to support the peacekeeping African forces of the International Mission to Support C.A.R. (MISCA). The total number of troops provided by MISCA, France, the UN Security Council, and the EU is expected to grow to about 20,000 persons.

1 The Libreville agreement called for (i) President Bozizé to complete his term through 2016; (ii) implementation of a ceasefire; (iii) the formation of a national unity government headed by a prime minister from the democratic opposition; (iv) the removal of the authority of President Bozizé to dismiss the prime minister or other members of the government; and (v) the dismissal of the National Assembly and the organization of new elections within a year.

2 A major element of the peace building effort in C.A.R. consists of the demobilization, disarmament and reintegration (DDR) of combatants. Its objectives are to settle rebels in defined areas to conduct DDR operations and to provide appropriate trainings to facilitate their reinsertion into productive activities and the society.

3. The crisis had a deep impact on an already fragile country and led to enormous fiscal challenges and budgetary pressures. Real GDP contracted by 36 percent and exports and imports fell by 44 percent and 27 percent in dollar terms, respectively, implying a sharp loss in income. Reflecting a 15 percent drop in grants, the current account deficit widened to over 10 percent of GDP in 2013 from nearly 6 percent a year before. The consumer price index rose by 6.6 percent, twice the level of inflation recorded during the past 4 years before the conflict. Most importantly, the domestic primary deficit significantly widened to reach almost 7 percent of GDP in 2013, compared with a surplus of 0.5 percent in 2012, as fiscal revenue dropped by 63 percent while domestic primary spending fell by 22 percent. With the sharp deterioration of the fiscal accounts, the government accumulated net domestic payments arrears equivalent to 2.3 percent of GDP, including 5 months of wages and salaries through end-February 2014.2 The worsening macroeconomic conditions were accompanied by the destruction of a large number of infrastructures and enterprises, and the paralysis of the administration, including the public financial management framework.3 The crisis also affected the balance sheets and the liquidity of the banking system as the government accumulated arrears and the private sector defaulted on loans.

4. The IMF has provided significant assistance to C.A.R. in the past. During 1998 and 2012, three IMF-supported programs were approved to help C.A.R. transition out of fragility through sustained implementation of sensible macroeconomic and structural policies, catalyze donor resources from a very low level, and enhance coordination for TA delivery and capacity building. Total amount committed was SDR 160.8 million, while disbursements amounted to SDR 101.1 million, with the 2006 ECF arrangement fully drawn by 2010 and the partial disbursement of the 2012 ECF arrangement, which was cancelled at the request of the authorities on account of the 2012–13 conflict.

5. The 2012 ECF arrangement veered irretrievably off-track before the completion of the first review. The objectives of the three-year ECF arrangement approved by the IMF Executive Board on June 25, 2012 for an amount of SDR 41.78 million aimed at restoring and maintaining macroeconomic stability, sustaining growth and reducing poverty, improving public financial management and mobilizing domestic revenues. The ECF-supported program was broadly on track during the first half of 2012, as most quantitative targets were met and some progress was made in implementing structural reforms. However, the first review could not be completed in December 2012 because the sharp deterioration in the political and security situations, which culminated with the seizing of power by the Séléka in March 2013, derailed the program.

6. The new transitional government adopted an emergency plan to address the significant post-conflict challenges. This plan is expected to set the basis for a long-lasting stability based on the roadmap adopted by the international community and monitored by the International Contact Group (ICG) for C.A.R. It seeks to: (i) restore security; (ii) improve humanitarian assistance; and (iii) return to democracy. In line with this roadmap, transparent and credible presidential elections are expected in the first half of 2015 to lay the basis for the consolidation of democratic institutions (MEFP, paragraph 3).

7. The authorities are requesting financial assistance under the IMF’s RCF. In the attached Letter of Intent (LOI), they informed the IMF of their decision to cancel the ECF arrangement with immediate effect and request the disbursement of SDR 8.355 million under the RCF (equivalent to 15 percent of quota, or US$12.9 million), to meet the urgent balance of payments needs in 2014 that cannot be resolved through the implementation of an upper credit tranche-quality economic program due to its currently limited policy implementation capacity. A second RCF of SDR 5.570 million (10 percent of quota or US$ 8.5 million) could follow before the end of the year conditional upon the presence of continued urgent balance of payments needs and satisfactory performance under this RCF.4 The authorities are also seeking grants and concessional financing from multilateral and bilateral partners and neighboring countries to cover the remaining financing needs (paragraph 12).

Policy Discussion

A. Macroeconomic outlook and risks

8. Improved security, donor support, and normalizing salary payments will be crucial to start a recovery in 2014. On this basis, the main objectives for 2014 are to: (i) reach a real GDP growth rate of 1.5 percent, as agriculture activities and trade resume; (ii) bring down inflation to about 4.4 percent, from 6.6 percent in 2013, reflecting further international food aid, improvement in the supply chain and a restoration of the distribution networks; (iii) containing the domestic primary deficit to 7.6 percent, against 6.8 percent last year; and (iv) maintaining the current account deficit at 14.1 percent of GDP.

9. Macroeconomic conditions are expected to improve further in 2015. Staff and the authorities agreed that a further improvement in security conditions that could follow the deployment of the UN peacekeepers would provide some “peace dividends” which combined with an expected lifting of the diamond export ban under the Kimberly process will help improve the economic outlook for 2015. Against this background, macroeconomic objectives for 2015 are to: (i) reach a real GDP growth rate of 5.3 percent, resulting from the distribution of seeds and humanitarian aid, the normalization of public service operations and the launching of some reconstruction efforts; (ii) reduce inflation to around 4 percent as agricultural activities would fully resume and supply conditions improve; (iii) contain the external current account deficit at about 13 percent of GDP, reflecting a resumption in imports to sustain the economic revival; and (iv) contain the domestic primary deficit at around 3 percent of GDP, through better revenue intake and spending rationalization efforts. Additional financing support will be needed to close the fiscal gap, requiring sustained support from the donor’s community in the form of grants and concessional loans.

10. The macroeconomic outlook is subject to uncertainty and risks. On the downside, security conditions, while improving, remain difficult and unpredictable and constitute one of the major risks that could weaken the rebuilding of state functions, further slow the reconstruction and the much-needed economic recovery, and undermine the revenue collection efforts. The upcoming presidential elections expected in the first half of 2015 could also create tensions that would weigh heavily on economic conditions and deter possible investors and donors. Finally, the still weak implementation capacity and possible delay in the provision of technical assistance (TA) could have severe consequences on the projected outlook. A delay in providing pledged financing would also hamper appropriate implementation of the agreed framework. On the upside, the recent approval by the United Nations of the deployment of 12,000 peacekeepers to protect civilians and facilitate humanitarian access in the war-torn country is a welcome step toward improving security.

Implementing a Fiscal Policy Aimed at Restoring Macroeconomic Stability and Reviving Economic Growth

11. The transitional authorities are committed to restoring basic budgetary functions and undertaking the urgent task of near-term stabilization. In the context of the RCF-supported program, the authorities seek to (i) prepare the ground for the return of a normal budgetary process; (ii) restore revenue mobilization capacity and rationalize and enhance the monitoring of cash flow management, while conducting an immediate cleanup of the database of civil servants payroll (with support from the World Bank and UNDP); (iii) clear domestic arrears; (iv) ensure transparency regarding the use of public resources; and (v) revisit as soon as possible taxation from oil, gold, diamonds, telecommunications, and forestry activities with TA from the IMF and development partners to raise revenue prospects and ensure near-term stabilization. Such a program is also expected to help consolidate peace and political stability and accelerate the return of refugees, which are some of the main priorities of the transitional authorities.

A. Fiscal policy and reforms

12. Fiscal policy will aim at containing the domestic primary deficit through stepped-up revenue efforts and better prioritization and control of spending. In the attached LOI, the authorities indicate that they are committed to strengthening revenue collection and containing non-priority spending to free resources for social spending. The budget targets an increase in revenue by 0.7 percentage point of GDP. With the wage bill kept constant at 7.1 percent of GDP through a staff rationalization plan supported by the World Bank and the UNDP MEFP, paragraph 12), the budget targets a 1 percentage point of GDP increase in transfers and subsidies to address the urgent needs of the population. Accordingly, current primary spending is projected to rise to 13.3 percent of GDP, up from 12.4 percent of GDP the previous year. Domestically-financed capital spending will remain low at 0.7 percent of GDP. Reflecting these developments, the domestic primary deficit is projected at 7.6 percent of GDP, against 6.8 percent in 2013. A financing gap projected at CFAF 81 billion or 10 percent of GDP, would be covered by grants from the World Bank (CFAF 12.8 billion), African Development Bank (CFAF 9.4 billion), EU (CFAF 19.7 billion), France (CFAF 7.9 billion), Angola (CFAF 4.7 billion), CEMAC countries (CFAF 20 billion), and IMF financing. Total external support from development partners, including assistance pledged in Brussels in the beginning of the year, is summarized in Box 2.

Central African Republic: External Support

Support is under way. Immediately after the transition government was formed, donors signaled their intention to reengage in C.A.R. Total support pledged during the Brussels Conference and support from countries belonging to the ECCAS (Text Table 1) amounted to US$572 million. This included humanitarian aid (US$203 million), development aid (US$192 million), and budget support for 2014 for an amount of US$177 million. Disbursement of budgetary aid through end-April 2014 amounted to about US$44 million, including Angola (US$10 million grant) and ECCAS for an amount equivalent to US$34 million. These resources were used mainly to pay 2 months of salaries and 3 months of pensions. In addition, a loan agreement on concessional terms was signed with Angola for an amount of US$20 million to fundsecurityrelated spending.

Transparent framework for the use of resources. As part of their efforts to build accountability in the use of these resources, the transitional authorities have put together two committees for cash management purposes and to monitor in transparent way public finances in general (paragraph 14).

Text Table 1.

Pledges and Commitments by Donors at the Brussels and ECCAS Conference

(After January 20, 2014; US dollars, millions)

article image

13. Measures to achieve the deficit target will focus on enhancing revenue collection and better prioritize and control spending. With TA already in place and reaping the dividends of the gradual return of peace, the authorities intend to increase tax revenue collection through thorough reviews of taxpayer statements, enhanced controls of VAT, and limits on tax and customs exemptions to those allowed by law (MEFP, paragraph 9). They have initiated the process to: (i) take control of the customs chain along the main import corridor with support from international forces; (ii) keep in operation the Douala (Cameroon) one-stop customs shop for imported goods; and (iii) strengthen customs controls. At the same time, they are working, with support from the World Bank and UNDP, to rationalize the civil service roster to eliminate “ghost civil servants”. The authorities will also clear all outstanding external arrears,5 which will help restore donor confidence, and settle domestic payments arrears for an equivalent of 2 percent of GDP in an effort to boost demand, spur economic activity, and help in the rebuilding of basic government functions. As a result, priority will be given to the settlement of salary arrears, then pensions, and lastly commercial suppliers.

14. The authorities recognize the need to enhance transparency in the use of public resources and donor assistance and improve cash management. Improving revenue collection and treasury cash management is crucial. Measures this year to that effect seek to : (i) enhancing the traceability of the tax revenue that flow from commercial banks—in charge of collecting those revenues since the 2010 reform—to the Treasury Single Account (TSA), including ceasing signing new debt conventions that would reduce the government intake, enforcing strictly those in place, closely monitoring tax statements from tax payers through the posting of tax agents in the banks, and reconciling on a regular basis banks’ statements and entry operations in the TSA. These measures will be complemented by: (i) limiting to 7 percent the volume of spending executed under the emergency mode, and reconnecting the integrated budget and accounting softwares (gestion et suivi budgétaire et comptable (GESCO-Budget and GESCO-Comptabilité); (ii) the implementation of a cash management plan to better allocate available resources; and (iii) the establishment of an institutional framework (MEFP, paragraphs 9, 10, and 11) to ensure transparency and efficient use of public resources. This framework includes; (i) the Treasury Committee (under the chairmanship of the Minister of Finance) to design and manage treasury plan on a weekly basis; (ii) the Multi-Partners Committee (under the authority of the Prime Minister) that will conduct, together with donors, quarterly reviews of public resource spending; and (iii) the central treasury agency ACCT to improve treasury operations and ensure traceability of resources and spending. Appropriate TA is already underway to help the authorities complete the above-mentioned measures (paragraph 16 and Box 3).

B. External debt situation

15. The debt situation has deteriorated significantly on account mainly of the collapse of output and exports. Bank and IMF staffs have prepared a new debt sustainability analysis (DSA) in light of the multifaceted crisis. The analysis finds that the debt situation has significantly deteriorated, mainly as a result of the political crisis which significantly impacted economic growth and the external and fiscal accounts. The risk of debt distress was changed from moderate to high. This underscores the importance of implementing the grant-financed emergency program to revive the economy and boost exports that would help improve the debt outlook in the medium-term, and the need for continued external assistance on concessional terms.

C. Technical assistance needs and donor coordination

16. Sizable TA is crucial to rebuild basic state functions in the short term and lay the ground for the reconstruction of the country in the medium-term. The authorities’ immediate priorities are to restore tax and customs administration, public finance management, and treasury management. TA providers will include the IMF, World Bank, African Development Bank, EU, and France. Close coordination of TA is instrumental in ensuring efficient delivery. In this context, staff and the donor community are planning to work closely in this area and make regular assessments of TA delivery (Box 3).

Program Monitoring and Capacity to Repay

17. Access under this RCF is limited to 15 percent of quota equivalent to SDR 8.355 million. This will help cover urgent balance of payment needs during the current very delicate situation. Given the complexity of the emergency phase, progress under the RCF will be monitored through quarterly indicators and key structural benchmarks.6 Staff and the authorities reached understandings on a set of quantitative indicative targets for end-June, end-September and end-December 2014 (MEFP, Table I.1) and limited number of structural benchmarks aiming at rebuilding core public financial management (MEFP, Table II.2). A second RCF that could amount to 10 percent would follow within six to eight months conditional upon the presence of a continued urgent balance of payments need and a satisfactory performance under this RCF.

18. C.A.R.’s capacity to repay the IMF remains adequate (Table 6). Nevertheless, there are risks to program implementation, including security and political risks, weak implementation capacity, and possible delay in TA provision and financial assistance (paragraph 10).

Donor Coordination

The IMF has a history of engagement in C.A.R., and during the past decade, there were three arrangements supported by the ECF or the predecessors’ facilities. These programs provided a framework for economic stabilization and reforms to achieve higher growth, improve standards of living, and reduce poverty. The international community is also involved in C.A.R. through provision of significant financial and TA. As C.A.R. implements its post-conflict emergency program, cooperation and coordination among donors is critical to (i) ensure timely disbursement of aid and TA provision; (ii) use resources efficiently and avoid cross conditionality and overlapping; (iii) tailor the reforms to fit existing capacity; and (iv) create the conditions for a successful implementation of the program. Coordination is crucial in three key areas: policy advice, external support, and TA provision.

• On policy advice and program design, the discussion of the program under the RCF was conducted in the context of a tripartite framework, involving the authorities, staff, and development partners. This was instrumental in moving speedily on the policy front and designing the program.

• On external support, there is more than ever a need for strengthened coordination to help the country implement its emergency program and lay the ground for the medium-term reconstruction, in view of (i) the various forms of budget support provided to C.A.R., including line item support and unrestricted support; (ii) most importantly, the different budget cycles and constraints of donors; and (iii) the vast needs of C.A.R. in the period ahead. There are various forms of coordination to be explored, including putting in place multi-donors’ funds and use of the country budgetary channels.

• On technical assistance, the needs are significant and urgently required to support a revival of revenue administration, treasury management and accounting procedures, and core public expenditure management (budget formulation and execution). In response to the authorities’ request, the IMF has taken the lead in coordinating TA needs and provision. In this context, the World Bank will provide TA on tax administration, customs, and together with the UNDP on the rationalization of the civil service. The EU will assign two resident experts in the treasury department, notably in the newly created central unit (ACCT) and at the budget directorate. The recruitment of the two experts is under way. The African Development Bank will hire experts that will provide support to the unit in charge of reform coordination. The IMF will restart its own TA activities, as soon as security conditions permit, notably in the areas of revenue administration and public financial management. Alternatively, if security conditions do not improve soon, C.A.R. officials could meet with IMF experts from the regional center in Libreville (AFRITAC-Center).

Looking forward, IMF staff and donors will work on a TA matrix that would involve all donors and the authorities, programmatic procedures for the government to avail itself of this TA, and well defined priorities.

19. Safeguards assessments. Consistent with the safeguards policy requirement for regional central banks, the BEAC was subject to a quadrennial assessment in 2013. This assessment occurs against the backdrop of measures initiated to address governance challenges and control failures at the BEAC that emerged in 2009. Since that time, a series of safeguards “rolling measures” were agreed between the BEAC and the IMF, as a basis to move forward with new requests for IMF assistance or completion of program reviews by BEAC members. The 2013 assessment found that risks remain elevated and that annual IMF staff visits to monitor priority recommendations and progress on the BEAC’s reform plan would continue as part of the safeguards “rolling measures” approach. As such, a safeguards staff visit to the BEAC was conducted from April 1–9, 2014. Staff concluded that the BEAC has made good progress in implementing recommendations from the 2013 assessment and is advancing its reform plan to strengthen controls at the bank. That said, the BEAC continues to face challenges on institutional autonomy and broader governance reforms remain paramount in the medium-term.

Staff Appraisal

20. The transitional government is facing daunting challenges. Reversing the policy paralysis of 2013, restoring security in the country, rebuilding basic state functions, engineering an economic revival, and preparing the 2015 presidential elections are among the key objectives of the government emergency plan. At the same time, the government is facing an acute shortage of resources to implement this plan. Further, the slow restoration of security—which is poised to improve after the arrival in September of the international peacekeepers—could delay the return of refugees and internationally displaced persons to resume their normal activities. This, together with the destruction of economic infrastructures, would slow economic recovery and growth. At the same time, the rebuilding of basic state functions is also expected to proceed slowly as expertise and equipments will likely be available only in the second half of the year.

21. The 2014 budget strikes a balance between the need for emergency services and the need to address the country basic social and infrastructure gaps. In a context of uncertainty, the challenge is to secure resources and use them appropriately for basic services. There is scope for improving revenue collection but this remains challenging, as state functions are expected to be rebuilt progressively in the tax and customs areas. The spending plans cover immediate security needs and social demands as well as clearing domestic arrears in order to help boost demand and economic activity. It is also important that the government adhere to the spending objectives and be ready to adjust them to available resources, if needed. As financing will come mainly from external support in form of grants and concessional loans, staff views the fiscal stance reflected in the first budget of C.A.R. post-conflict situation as appropriate and should lay the ground for macroeconomic stability.

22. Actions to enhancing revenue collection need to take immediate priority. The authorities are appropriately focusing on rebuilding basic revenue administration systems and enhancing revenue collection. Better controls and limited exemptions are crucial in this phase. Staff also welcomes the assurances of the authorities to better coordinate with the banks that collect taxes and put in place other revenue-enhancing measures. In this vein, staff urges the authorities to move fast with the reactivation of the budget and accounting softwares.

23. Reconstructing PFM is crucial. Staff welcomes measures to establish swiftly treasury and cash management capacity. Steps under way to make operational in the second half of the year, with the help of development partners, the recently created central treasury agency bode well for this objective. This will help provide a framework for better cash management as well as adequate accounting operations. Staff urges the authorities to work closely with the donor community to complete this operation in a timely fashion.

24. The role of development partners is critical. Financing needs will remain large in the years ahead to revive the economy and rebuild basic state functions. Development partners are reengaging and are looking forward for a comprehensive macroeconomic framework and a productive use of their support. In this vein, the authorities were right to establish a joint committee to monitor the overall use of public resources. Staff urges the authorities to make this committee operational by early May. The IMF remains available to help catalyze much needed support.

25. The risks to the program are significant. On the downside, the slow restoration of security and delays in TA provision could weaken the rebuilding of state functions and further slow the reconstruction and the economic revival. On the upside, the upcoming international force bodes well for better security and delivery of humanitarian aid. In addition, the strong resolve of the new government to face the significant challenges of rebuilding quickly basic state functions, including restoring PFM and transparency in the use of public resources, is welcome.

26. Staff supports the authorities’ request for assistance under the RCF in view of their currently limited capacity to implement policies of an upper credit tranche-quality economic program, the large and urgent balance of payments needs, and the catalytic effect of IMF support on other external assistance. The program, if implemented successfully, could be used as stepping stone for a future arrangement that could assist the authorities address medium-term challenges.

Figure 2.
Figure 2.

Central African Republic: Macroeconomic Prospects, 2006–15

Citation: IMF Staff Country Reports 2014, 164; 10.5089/9781498346863.002.A001

Sources: C.A.R. authorities; and IMF staff estimates.
Table 2.

Central African Republic: Central Government Financial Operations, 2009–15

(CFAF billions)

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

Expenditure is on a cash basis, except for interest, which is recorded on a due basis.

In 2009 and beyond, includes outlays for the disarmament, demobilization and reintegration(DDR) process.

Excludes grants, interest payments, and externally financed capital expenditure.

Reflects Paris Club rescheduling and moratorium agreement in April 2007.

Includes HIPC debt relief from multilateral and other bilateral creditors. For 2008–09, also includes debt service to non-Paris Club and commercial creditors. From mid-2009 onward, reflects full delivery of HIPC and MDRI relief on a flow basis.

Includes repayments to CEMAC commercial banks and domestic suppliers for oil subsidies and on expected future bond issues.

Table 3.

Central African Republic: Central Government Financial Operations, 2009–15

(percent of GDP)

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

Expenditure is on a cash basis, except for interest, which is recorded on a due basis.

In 2009 and beyond, includes outlays for the disarmament, demobilization and reintegration (DDR) process.

Excludes grants, interest payments, and externally financed capital expenditure.

Reflects Paris Club rescheduling and moratorium agreement in April 2007.

Includes HIPC debt relief from multilateral and other bilateral creditors. For 2008–09, also includes debt service to non-Paris Club and commercial creditors. From mid-2009 onward, reflects full delivery of HIPC and MDRI relief on a flow basis.

Includes repayments to CEMAC commercial banks and domestic suppliers for oil subsidies and on expected future bond issues.

Table 4.

Central African Republic: Monetary Survey, 2009–15

article image
Sources: C.A.R. authorities; and IMF staff estimates and projections.
Table 5.

Central African Republic: Balance of Payments, 2009–15

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

SDR allocation (CFAF 38.1 billion) is recorded as an inflow under “Financial account/Public sector (net).” The corresponding increase in official reserves is reflected as a line item in net official reserves movements.

Includes HIPC debt relief from multilateral creditors. For 2008–09, includes debt service to non-Paris Club and commercial creditors. For 2010 onward, reflects full delivery of HIPC and MDRI relief on a flow basis.

Table 6.

Central African Republic: Indicators of Capacity to Repay the IMF, 2014–24

article image
Sources: IMF staff estimates and projections.1 Assumes disbursements of SDR 13.925 million (25 percent of quota) according to proposed schedule.

Total debt service includes IMF repurchases and repayments.

Long-term forecast assumptions are explained in detail in the DSA document.

Appendix I. Letter of Intent

Bangui, May 1, 2014

Madame Christine Lagarde

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431


Madame Managing Director,

On June 25, 2012, the Executive Board of the International Monetary Fund (IMF) approved a three-year arrangement under the Extended Credit Facility (ECF) in the amount of SDR 41.78 million in support of a reform program aimed at maintaining macroeconomic stability, laying a foundation for sustainable economic growth, and reducing poverty.

Since then, Central African Republic (C.A.R.) has faced many shocks. One such political shock emerged in December 2012 when a coalition of armed rebel groups (Seleka), headed by Mr. Djotodia, took control of a large part of the country. This led to the signing of the Libreville Agreements, but noncompliance with their terms resulted in the resumption of hostilities and the ousting of President Bozizé on March 24, 2013. Seleka’s takeover sparked a security shock that plunged the country into a spiral of violence and intercommunity conflict. The widespread insecurity, looting, and destruction of administrative and economic infrastructures paralyzed the machinery of government and led to the mass displacement of 1 million people, a quarter of the population of C.A.R. This paved the way for an unprecedented humanitarian crisis.

Owing to these multiple shocks, slippages occurred under the ECF-supported program and our medium-term growth and poverty reduction strategy for 2011–15 became obsolete.

Confronted with these challenges, the new C.A.R. transitional government, which took over after Mr. Djotodia was forced out under international pressure, adopted a revised roadmap that was submitted to the Transitional National Council (Conseil National de Transition) after being approved by the implementing committee for the Libreville Agreements and the International Contact Group. On the basis of this roadmap, we refocused our priorities in the Emergency Program for Sustainable Recovery (Programme d’Urgence pour le Relèvement Durable – PURD) of C.A.R. In keeping with the roadmap and the PURD, we prepared a priority action plan.

In this context, we have decided to inform the IMF of our decision to cancel the ECF-supported program with immediate effect and to request a disbursement of SDR 8.355 million under the Rapid Credit Facility (RCF) upon Board approval to meet the urgent balance of payments need in 2014. A second RCF of SDR 5,570 million would be requested before the end of the year, conditional upon the presence of continued balance of payments needs and satisfactory implementation of the needs this RCF.

The attached Memorandum of Economic and Financial Policies (MEFP) describe the economic and financial situation in 2013. It also outlines the economic and financial policies C.A.R. transitional government plans to implement in 2014. The purpose is to address the people’s urgent needs and to put in place a fiscal policy designed to restore stability and improve public financial management (PFM).

The transitional government believes that the measures and policies set forth in the attached MEFP are appropriate for attaining its program objectives, but is ready to take any additional measures that might be necessary. C.A.R. will consult with IMF staff on the adoption of such measures, and especially in advance of revisions to the policies contained in the attached MEFP, in accordance with the IMF’s policies on such consultations. We will provide the IMF with such information as the IMF may request to be able to assess the progress made in implementing the economic and financial policies and achieving the objectives of the program. During the program period, we will not impose new or intensify existing restrictions on the making of payments and transfers for current international transactions, trade restrictions for balance of payment purposes, or multiple currency practices, or to enter into bilateral payments agreements which are inconsistent with Article VIII of the IMF Articles of Agreement.

In the event of a chronic deficit in the balance of payments, and driven by our determination to attain the program objectives under the MEFP, we plan to request additional assistance under the RCF, backed by new macroeconomic and PFM commitments. In so doing, we want to make it clear to our development partners that we are committed to continuing to implement sound policies until such time as the conditions for requesting financial support under the ECF have been met.

We intend to publish the IMF staff report, including this letter, the MEFP, the TMU, and the debt sustainability analysis document. We therefore authorize IMF staff to post these documents on the IMF’s external website once the Executive Board approves the RCF.

Sincerely yours,

article image


Memorandum of Economic and Financial Policies

Technical Memorandum of Understanding

Attachment I. Memorandum on Economic and Financial Policies, 2014

1. This memorandum describes the economic and financial policies supported by the Rapid Credit Facility (RCF) that the transitional government of Central African Republic (C.A.R.) plans to implement in 2014. These policies are in line with the emergency program established for the period 2014–16.


2. The country is facing an exceptionally severe crisis with a profound, lasting economic impact. The crisis, which has gripped C.A.R. since December 2012 and more specifically as of March 24, 2013, and its worsening in December 2013, affects the country at all levels—political, security, social, humanitarian, and economic. The crisis has touched every corner of the nation and has led to thousands of deaths, both in Bangui and in the provinces. Nearly a quarter of C.A.R. population has been displaced, paralyzing the main sectors of the domestic economy. The agricultural sector, which accounts for close to half of GDP and employs up to 80 percent of the workforce, has suffered deep blows to its subsistence component, threatening to plunge a quarter of C.A.R. population into a food crisis in 2014.

3. Security risks remain pervasive. The French-led Operation Sangaris and a stronger MISCA (African-led International Support Mission in C.A.R.) contingent have thus far failed to restore peace and security to the country, even though a relative calm has descended on the region in recent months. The situation continues to be very fragile and unpredictable. Ongoing violence and insecurity are slowing the long-overdue end to the crisis.

4. An emergency economic program is in place to address the country’s daunting challenges. The new Central African authorities (established in January 2014) adopted the Emergency Program for Sustainable Recovery of C.A.R. (Programme d’Urgence pour le Relèvement Durable – PURD-RCA) for the period 2014–16. This Program is in line with the Revised Transition Roadmap (Feuille de Route Révisée de la Transition) and aims to secure community protection and ensure the country’s recovery during the transition phase. It is also aligned with the broad guidelines established for the transitional authorities by the Heads of State of the Economic Community of Central African States (ECCAS) to meet the urgent needs of the country’s people, restore peace and security, achieve greater economic stability, and revive economic growth. It also provides for the involvement of new players in the process of disarmament, demobilization, resettlement, reintegration, and repatriation (DDRRR), necessitated by the events that occurred in December 2013. In the lead-up to the elections slated for February 2015, restoring security during the remaining phase of the transition is a necessity and priority for the new authorities, critical to bringing back the nation’s people and reinvigorating economic activity in C.A.R.

Recent Economic and Financial Development and Performance Under the ECF-Supported Program

A. Recent Economic Developments

5. Deterioration in the security situation and the political and social unrest weighed heavily on the country’s economic, financial, and administrative position in 2013. As a result, economic growth declined 36 percent in real terms, while exports slumped 44 percent in dollar terms. Imports were also down 27.1 percent in dollar terms. With grants falling 15 percent, the balance of payments current account deficit nearly doubled from 5.6 percent of GDP in 2012 to 10.4 percent of GDP in 2013. With respect to the budget, tax revenues dropped 63.5 percent, while current primary expenditure was down just 10 percent due in large part to higher security spending. Consequently, the domestic primary deficit was 6.8 percent of GDP compared to a surplus of 0.5 percent in 2012. Deteriorating public finances led to an accumulation of domestic payment arrears (2.3 percent of GDP), notably 5 months of wages and salaries at end February 2014. The consumer price index averaged 6.6 percent, twice the inflation rate over the four years preceding the conflict. The conflict led to the destruction of infrastructure and businesses and paralyzed the government and its operations, reducing the potential for economic growth. Public financial management (PFM) channels were also paralyzed and damaged.

B. Performance under the ECF-Supported Program

6. The ECF-supported program was derailed by the multifaceted crisis that gripped the country as of March 2013. Discussions and papers on the first review were finalized, but the Executive Board could not take the authorities’ request into consideration given the events that shook the country. Continuation of the program was hampered by the worsening of the crisis, particularly in the latter part of 2013.

Program for 2014

A. Implementation of an Emergency Macroeconomic Framework

7. The economic outlook for 2014 is expected to remain subdued. The security situation is expected to improve and movement of goods should resume, particularly via the customs corridor, which is a pass-through for close to half of imports from Cameroon. That coupled with political stability and the gradual return of the displaced populations, some of which will resume their pastoral, agricultural, and commercial activities, could bring economic recovery. It is therefore expected that (i) economic growth will reach 1.5 percent in real terms, owing mainly to the opening of the cotton ginning plant in Bossangoa, the lifting of the embargo on diamond exports, and the return of government operations across the country; (ii) the consumer price index will increase by 4.4 percent on average, compared to 6.6 percent in 2013, due to improved distribution of international aid, a larger supply of local goods, and the re-opening of economic channels; (iii) the primary deficit is projected to reach 7.6 percent of GDP, compared to 6.8 percent in 2013; and (iv) the balance of payments current account deficit will be capped at 14.1 percent of GDP.

B. A Public Finance Program to Address the Most Pressing Concerns in 2014

8. Our first concern is to restore the government’s key functions and secure public finances with support from the international community. In so doing, we can reassure partners that we are committed to promptly regaining our capability to cover our primary expenditure and ensure proper use of public resources. To that end, we have prepared an emergency public finance plan based on the following priorities: (i) improve tax revenue performance; (ii) secure revenues; (iii) enhance cash flow management and monitoring to ensure greater control over revenue and expenditure; and (iv) set up the Central Accounting Agency of the Treasury (Agence Comptable Centrale du Trésor–ACCT) as the key institution charged with managing cash flow and ensuring that resource flows and expenditures have an audit trail.

9. Improved revenue performance is a major challenge for the transitional government. With a tax revenue rate of 5.2 percent of GDP in 2013, C.A.R. ranked lowest in the world in 2013 in terms of tax revenue collection. This is partly due to the country’s deteriorating security situation since March 2013, which resulted in: (i) looting and complete disruption of government revenue entities; (ii) the government’s inability to normally perform its regulatory activities (loss of control over the clearance process and difficulty for the Directorate General of Taxation to monitor filing of returns and oversee domestic taxation); and (iii) impact on economic operators (looting, destruction of tools of production, and drop in activity).

10. To rise to this challenge without compromising current and future revenue, the transitional government is committed to taking emergency measures with respect to the following central structures:

• Directorate General of Taxes and Government Property: (i) remove from the 2014 draft budget all references to post-conflict special investment incentives (mesures spéciales incitatives à l’investissement pendant la période post-conflit) pending an evaluation of this instrument by the IMF Fiscal Affairs Department; (ii) strengthen monitoring of the filing of returns by taxpayers; (iii) improve control over taxes on flows, particularly the VAT, by making it the focus of fiscal control operations; and (iv) limit exemptions strictly within the framework of the Law.

• Directorate General of Customs and Domestic Tariffs: (i) regain control of the customs clearance process with the support of international forces throughout the country; (ii) maintain, in the immediate future, the single customs clearance window (guichet unique) in Douala for goods transiting through Cameroon by regularly rotating staff; (iii) step up post-clearance audits and actions to combat fraud; and (iv) implement stricter monitoring of exemptions by increasing controls of destinations.

• Safeguarding of tax revenue addresses an old concern that has become more sharply felt in the context of the current crisis. The transitional government plans to improve the traceability of revenue paid back into the Treasury Single Account (TSA) through tax revenue repaid by the banks. In so doing, it will: (i) implement, in a timely manner, the recommendations issued in the two technical assistance reports on improved cash flow management, financed by the European Union; (ii) not sign any new agreements relating to debt, debt buybacks, or securitization with commercial banks; (iii) review all existing agreements binding the government and commercial banks (by identifying in its accounting entries all claims that have already been posted in the system); (iv) improve monitoring of taxes paid by taxpayers by placing personnel inside banks who would be responsible for tracking, in close detail and for each taxpayer, all taxes paid in order to reconcile them with the revenue paid back into the TSA pending the implementation of the GESCO taxation software; and (v) regularly monitor the status of reconciliations between agencies, commercial banks, and the Treasury.

11. Development and management of a monthly cash flow plan, as well as compliance with it, will improve financial resource allocation. The transitional government knows that more than two thirds of revenue required for execution of the 2014 budget (CFAF 80.9 billion out of a total of CFAF 107.8 billion in current primary expenditure) will come from external financing. Aware of the uniqueness of the situation and in the interest of transparency to reassure its partners, the transitional government created two committees: (i) the Treasury Committee (Comité de trésorerie–CT) entrusted with setting priorities and monitoring cash flow management on a monthly basis; and (ii) the PFM and Oversight Committee (Comité de suivi et de gestion des finances publiques–CSGFP) tasked with monitoring, on a quarterly or more frequent basis if necessary, the use of all public resources and the proper implementation of the cash flow plan. Adoption of legislation establishing the CT and the CSGFP and its effective implementation are prerequisites to submission of the IMF staff report to the IMF Executive Board. To facilitate the work of these two committees, a cash flow plan was developed by the transitional government and signed by the Minister of Finance for all of 2014, stating the monthly revenue and expenditure targets in order of priority. As the cash flow plan is implemented, it will track all the resources received and disbursements made on a cash basis. As a complement to this plan, the transitional government undertakes to provide detailed statements of income, expenditure, and all cash flow so that reconciliation with flows posted in the TSA at the BEAC can take place.

12. The creation of the ACCT will secure cash flow and strengthen accounting oversight. The ACCT was officially created on December 30, 2012, during a revision of the decree establishing the DGTCP, but has yet to be put in place. The purpose of this reform is to provide better coverage of and give greater autonomy to the two areas of responsibility currently held by the Director General of the Treasury: (i) cash flow, and (ii) government accountability. Integration of the ACCT within the DGTCP, an autonomous structure, the head of which would have senior accounting officer status, should rationalize the following operations within these two areas of responsibility: (i) management, safeguarding, centralization, and oversight of government cash flow; and (ii) monitoring and consolidation of accounting operations. To confirm its commitment to put in place the ACCT, the transitional government will recruit a Central Accounting Officer of the Treasury and his deputy by end September 2014 (structural benchmark). This will be one of the three structural benchmarks for monitoring the execution of the RCF.

13. The transitional government has undertaken to modernize government personnel and wage management and to further pursue the civil service reform, which has lagged behind since the adoption of the new civil service regulations in 2009. As part of the implementation of the urgent plan to restore public services supported by the World Bank, and with the assistance of the UNDP, we will proceed with updating the government personnel roster and prepare a report to inform the IMF, including the defense and security forces, in order to streamline the civil servant payroll roster. At end-June 2014, an initial clean-up of the roster and a report to the IMF (end-June structural benchmark) will make it possible to make payments to civil servants in accordance with regulations. These employees will have first needed to produce a certificate of attendance, checked and certified by a joint committee comprising the relevant government staff in charge of this operation. Once the roster has been cleaned up, staff not in good standing will have the opportunity to justify their situation, and all contentious cases will be carefully examined by the appropriate civil service officials. The government intends to secure the databases and implement adequate procedures for managing civil servant positions and careers, from payroll to retirement. An interface will then be created to provide a link to the PFM system. The transitional government will, by end-2014 and with support from partners, ensures strict, prudent management of recruitment to fill positions in priority sectors using the salary scale in place. Moreover, authorities will need to clarify the situation of non-statutory staff (Hors Statuts). In keeping with this strict management, the authorities should attract talent with qualifications specific to C.A.R.’s situation, including from among the diaspora. Current recruitment and management of non statutory staff led to an all-out hiring effort, to such an extent that the increase in workforce is no longer consistent with the expenditure control sought by the authorities.

14. A technical assistance (TA) program will help the authorities complete the emergency plan. The authorities began soliciting partners to mobilize short-and medium-term TA so that the emergency plan could be completed in the various areas concerned. This assistance has for the most part already been identified and the dates set. Two long term TA providers will be made available during the second half of the year by the European Union for the ACCT and Directorate General of Budget, respectively, to support the implementation of the ACCT and the return to fiscal discipline. The World Bank intends to lend to the transitional authorities two TA providers for customs and tax revenue collection agencies, respectively, and will provide other technical support to the Directorate General of Civil Service. Lastly, a number of short-term TA missions are also planned by the World Bank, the European Union, the French development agency (Coopération française), and the AfDB, which agreed with the authorities on a restructuring of the institutional support project on public finances underway with a view to providing urgent assistance to financial administrations (Project to Build Economic and Financial Management Capacity (PARGEF in French). Monthly updates will be provided to assess the implementation of this TA and the progress made in achieving the set objectives.

C. 2015 Fiscal Program Milestones

15. In respect of the framework we are gradually putting in place to end the crisis, the 2015 budget year will be a transitional one as efforts to stabilize our public finances continue. The 2015 budget should bring us out of the crisis and into a normal state. In a context of enhancing security and restoring the government’s basic functions, economic growth is expected to continue to edge up progressively to about at least 5 percent in real terms, and will likely continue to be driven by agriculture and services. Inflation is expected to be further contained at around 4 percent. As regards government finance, the budget outline being prepared shows an improvement in the collection of revenue, which is expected to reach 12.6 percent of GDP. This increase will likely be due primarily to the favorable performance of tax on revenue and international trade. Current primary expenditure is expected to drop to 11.2 percent of GDP owing to a lower payroll (clean-up of the civil servant and wage roster, and streamlined recruitment), transfers, and goods and services. This effort to control current expenditure should free up additional resources in order to raise domestically financed capital spending by 0.2 percentage point of GDP compared to 2014. Consequently, the domestic primary deficit is expected to decline from 7.6 percent of GDP in 2014 to 3.2 percent of GDP, generating a financing gap of CFAF 56.4 billion, equivalent to 6.4 percent of GDP.

D. Medium-term Reforms and a Return to Fiscal Discipline

16. The transitional government wants to reinstate normal budget procedures as soon as possible. The transitional government recognizes that exceptional procedures for executing expenditure charged to the treasury (cash payment orders and budgetary payment orders) are widely used for: (i) expenditure on goods and services, and (ii) transfers and subsidies. This situation, a departure from normal budget procedures for expenditure execution (commitment, validation, payment authorization, and payment), seriously limits the usefulness of the budget and prevents normal ex ante expenditure control as well as pre payment accounting control. This in turn greatly heightens fiduciary risk, alters the traceability of expenditure, and affects the capability of the authorizing officer and accountant to be able to report accordingly. The quality of the budget procedure is not responsible for the fact that the procedure is circumvented. Many expert reports show that the difficulties arise when expenditure is committed without reference to the fiscal framework. Accordingly, the transitional government will reinstate normal budget procedures by limiting to 7 percent the amount of expenditure executed by way of the exceptional procedure (budgetary payment order). Such spending includes missions, transportation, health-related evacuations, student travel, and repatriations of diplomats and mortal remains.

17. To help reinstate normal budget procedures, the transitional government will reconnect the GESCO-Budget and GESCO-comptabilité applications during the second half of the year. The break in the Budget/Treasury chain due to looting and the disconnection of the respective computer applications arising from it (GESCO-Budget/GESCO-comptabilité) prevents reconciliation of fiscal and accounting data from a technical standpoint. Noting that this problem interferes with proper budget execution, the transitional government wants to, first and foremost, reconnect GESCO-Budget/GESCO-comptabilité and undertakes, with support from partners, to have them back up by end-September 2014 (structural benchmark).

18. The transitional government recognizes that the conditions for collecting petroleum taxes will need to be redefined. The transitional government will seek support from partners to entrust an international audit firm with reconstructing all the cross-debt between the government and petroleum sector operators. TA will be available from the IMF so that the petroleum product price structure may be revised.

19. Collection of fiscal revenue must also be reviewed in relation to gold, diamonds, mobile telephony, and forestry products. The transitional government wants to improve monitoring of all revenue generated by these sectors. It undertook to produce, starting in January 2014, a monthly detailed statistical overview of all tax and nontax revenues received for these three sectors.

E. Social Component

20. As of 2014, social sectors are one of the top priorities for the authorities. The budget provides for CFAF 43 billion, including CFAF 6.5 billion in current expenditure. A total of CFAF 26 billion is slated for health, including CFAF 4 billion for current expenditure to combat malaria, strengthen the Expanded Program on Immunization (EPI), expand prevention of parent-to-child transmission (PPTCT), and provide overall services to people living with HIV (PLHIV) to mitigate the impact. Appropriations for current expenditure and capital with respect to education amount to CFAF 3.9 billion. Focus will be placed on capacity building in preschool education, basic education 1, basic education 2, secondary education, and technical and vocational training. The amount provided for water and sanitation spending is CFAF 12.9 billion, including CFAF 2 billion for current expenditure, to enhance national management and planning capabilities, and to build and rehabilitate drinking water supply and sanitation structures. Support to vulnerable groups, particularly women and children, for community development is also programmed.

F. Other Structural Reforms

21. The primary concern is to reassure and instill confidence in economic operators so that business can resume. In this context, the transitional authorities will conduct a joint evaluation of the damages sustained by public and private enterprises, and to put in place support measures for those that have been affected. Moreover, the transitional government will take steps in the short term to facilitate the return of displaced individuals, notably traders and farmers. In the same vein, it is crucial to inject renewed impetus into the joint committee responsible for improving the business climate and into the permanent framework for government-private sector cooperation. The reforms to be put in place in the medium term include: (i) lowering the cost of credit and providing access to financing; (ii) strengthening the judicial governance framework; (iii) revising the investment charter; and (iv) building the capacities of consular chambers.

22. Strengthening governance is also a key aspect of the structural reforms aimed at promoting private-sector activity. In this context, the authorities are considering issuing implementing decrees that would give legal standing to the National Authority for Combating Corruption (Autorité Nationale de Lutte contre la Corruption–ANLC). Together with donors, the authorities will mobilize the human and physical resources necessary to jumpstart the ANLC’s operations by the end of the year.

G. Sustainable Debt Policy

23. The external debt sustainability (EDS) analysis recently conducted by IMF and World Bank staff found that the situation has deteriorated considerably. This deterioration is associated with the political crisis that led to the collapse of economic activity, a significant drop in exports, and slow economic recovery. Moreover, loans were contracted during the months of crisis to cover the payment of wages as well as fiscal and external financing needs.

24. The low levels of debt inherited from the 2009 debt relief created conditions favorable to better external debt management, but the political crisis has had an adverse effect. Thus, the worsening of the external debt-to-export and debt service to export ratios exposes the country to a high risk of debt distress, including in the baseline scenario. However, a turnaround is possible as soon as the country’s economic growth, exports, and foreign direct investment resume. These two ratios would then return to sustainable levels.

25. In the meantime, the transitional government undertakes to conduct a prudent debt policy. We are committed to meeting the bulk of our financing needs through grants and the rest through concessional loans with a grant element of at least 35 percent (continuous benchmark, Table 1).

Table 1.

Central African Republic: Selected Economic and Financial Indicators, 2009–15

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

Percent of broad money at beginning of the period.

Expenditure is on a cash basis for current period expenditure.

Excludes grants, interest payments, and externally financed capital expenditure.

Comprises government debt to BEAC and commercial banks, government arrears, and public enterprises’ domestic debt.