Statement by Mr. Daouda Sembene, Executive Director for the Central African Republic, and Mr. Bangrim Kibassim, Advisor to Executive Director December 15, 2017

Third Review under the Extended Credit Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, Augmentation of Access, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic


Third Review under the Extended Credit Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, Augmentation of Access, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic

Our Central African authorities are thankful to staff for their continued engagement and valuable policy advice. The Extended Credit Facility (ECF) arrangement has helped the country address the daunting policy challenges associated with its fragile situation aggravated by recurrent political and humanitarian crises. It has been critical to creating an enabling environment for policy formulation and reform implementation. While program performance under the ECF-supported program has broadly been satisfactory, the Central African Republic (CAR) will need to sustain efforts to maintain macroeconomic stability and overcome obstacles to inclusive growth and poverty reduction. In this endeavor, the authorities request an augmentation of access under the ECF to address the country’s significant balance of payments needs, thus helping consolidate macroeconomic and external stability and achieving other program objectives.

Recent Economic Developments, Program Performance, and Outlook

In 2017, economic activity was adversely impacted by the delayed implementation of the authorities’ investments program and the fragile security situation. The latter led to an increased number of displaced persons, and took a toll on trade and agriculture production. Encouragingly, economic output was supported by a notable increase in exports facilitated in part by improved trade connections with neighboring countries. Thus, GDP growth is projected to hover around 4 percent this year, while inflation is expected to decrease in the medium-term notwithstanding recent inflationary pressures.

Program performance was satisfactory with all performance criteria and indicative targets met, except the domestic revenue target which was missed due to weaker economic activity and delays in implementing fiscal reforms. However, the authorities have taken significant corrective measures to further boost domestic revenue mobilization.

Progress was also made in strengthening public financial management (PFM) revenue collection, transparency, and accountability with all structural benchmarks being met although with delay in several instances.

The outlook in CAR remains dependent on continued progress on the security front, and the implementation of the National Plan for Reconciliation and Peace (NPRP) as well as the availability of external support in line with pledges made during the Brussels donor Conference. Significant potential for growth exists in several areas notably in the forestry, mining and cotton sectors, and the timely provision of this assistance remains critical for the realization of investments projects and the revitalization and diversification of the economy.

Policy and Reform Agenda

The authorities are determined to pursue prudent policies and sustain the reform momentum. More specifically, this will entail notably improving revenue collection, further strengthening PFM, deepening the financial sector and enhancing supervision, and reforming the business climate. The focus will be also put on building capacities and improving security conditions.

Improving Revenue Collection

Domestic revenue mobilization remains central to the authorities’ fiscal policy objectives. In this regard, they will continue their efforts to increase tax collection through reforms aimed at strengthening the control and traceability of resources, and reducing leakages. The authorities have also initiated strong revenue collection measures to enforce tax payments by non-compliant companies, particularly in the petroleum, forestry and telecommunications sectors.

The authorities are committed to limiting the use of exemptions which represent a significant revenue shortfall for the government. In this regard, they have suspended all new exemptions, and intended to publish and streamline existing ones. In the same vein, parafiscal taxes which are collected on behalf of the government but not fully transferred to the public treasury need to be addressed. The completion of the identification process for these taxes and the establishment of the Treasury Single Account constitute notable steps towards strengthening revenue mobilization and enhancing transparency.

In the customs administration, the review of the valuations of imports is underway and measures are being taken to reduce the discrepancies between customs and treasury data, streamline customs procedures, and ensure the full implementation of the ASYCUDA system.

On the expenditure side, the authorities stand ready to swiftly implement their public investment program as security conditions improve and the redeployment of the administration materializes. They agree on the need to prioritize spending and enhance the efficiency and control of the public expenditure chain. To achieve this objective, they intend to replace the accounting IT system with a more reliable application in the medium-term to improve traceability. The use of the exceptional expenditures procedures will be limited to 5 percent of expenditures in the 2018 budget.

Strengthening Public Financial Management

Debt management is a priority for the government. The authorities are committed to addressing the accumulation of domestic and external debt arrears which is a legacy of past recurrent crises. To this end, their strategy is based on a transparent process that involves the clearance of arrears to small and medium-size enterprises, the repayment of social debts (wages and pensions) in the medium-term, and the repayment of arrears to commercial banks in a the long-term. Regarding external debt arrears, progress is being made in good faith toward engaging and reaching agreements with creditors.

To avoid accumulating arrears, the authorities are developing the capacities of the debt management unit both in terms of staffing and IT systems (SYGADE), with Fund technical assistance.

Enhancing Financial Sector Intermediation and Strengthening Supervision

The financial system continues to improve under the supervision of the regional banking commission (COBAC). The authorities plan to repay commercial banks’ arrears, which should contribute to restoring confidence and supporting banks’ activities. In this regard, conventions have recently been signed with three major banks while negotiations are ongoing with the remaining one. Furthermore, the implementation of COBAC June 2017 mission recommendations is expected to help enhance governance, internal controls and prudential standards in the banking system and increase its resilience. The financial sector development of financial intermediation and increased credit access also remain key priorities of the authorities in the financial sector.

Building Capacity

Our authorities are mindful that weak capacity represents a risk that could delay timely implementation of the economic program supported by the ECF. While CAR has benefitted from substantial technical assistance, particularly from the Fund with the Capacity Building Framework (CBF) pilot project, the country’s extensive needs require additional support to build capacity, notably with a view to improving domestic revenue collection, strengthening public administration and efficiently implementing development projects.

Improving the Business Climate and Security

The improvement of the business climate is one of the three priorities of the authorities’ structural reforms agenda. To promote the role of the private sector as an engine of growth, they intend to introduce measures to simplify the tax system, avoid the accumulation of VAT credits and improve the profitability of businesses. In this regard, efforts will continue to be made to improve the legal framework and expand energy supply with support from development partners. On the security front, the authorities are striving to restore stability across the entire country. While the objectives of the Disarmament Demobilization Reintegration (DDR) program are taking longer to be fully completed, the National Plan for Reconciliation and Peace (NPRP) process is also making modest headways.


Our Central African authorities remain committed to the ECF-supported program. In this regard, they will continue their efforts to consolidate macroeconomic stability, improve public financial management and the business environment, and contribute to meeting CEMAC regional program objectives. In view of CAR’s overall satisfactory performance under the ECF-supported program, and the authorities’ commitment to pursue reforms, we would appreciate Directors’ support for the completion of the third review under the arrangement, the approval of their requests for waiver of nonobservance of performance criterion and modification of performance criteria, and augmentation of access.

Central African Republic: Third Review under the Extended Credit Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, Augmentation of Access, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic
Author: International Monetary Fund. African Dept.