Central African Republic: 2018 Article IV Consultation, Fifth Review Under the Extended Credit Facility Arrangement, and Financing Assurances Review
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International Monetary Fund. African Dept.
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Publication Date:
28 Dec 2018
eISBN:
9781484392744
ISBN:
9781484392744
Language:
English
Keywords:
ISCR; CR; LIOA policy; supplementary information; financing; government; policy; government member; private sector; financial support; asset declaration regime; government arrears; Arrears; Budget planning and preparation; Global
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2018 Article IV Consultation, Fifth Review under the Extended Credit Facility Arrangement, and Financing Assurances Review

Abstract

2018 Article IV Consultation, Fifth Review under the Extended Credit Facility Arrangement, and Financing Assurances Review

Context: Building State Institutions

1. The Central African Republic (C.A.R.) is caught in a fragility trap. Over the past decades, poor governance, lack of opportunities, and a proliferation of armed groups have led to political instability and eroded state control across the territory. As a result, per capita GDP has declined steadily. When rebels overran the capital in 2013, the ensuing turmoil dramatically worsened the humanitarian and economic situation. Today, the World Bank estimates that the poverty rate exceeds 70 percent. Half of the population rely on humanitarian assistance (Box 1).

2. The return to constitutional order in 2016 has provided an opportunity for a fresh start. Upon taking office, President Touadéra’s administration set out to address the key challenges of promoting peace and reconciliation, improving governance, fighting poverty and gender inequality, while maintaining macroeconomic stability. A United Nations multidimensional peacekeeping mission helps to create an enabling environment to rebuild state structures across the country. Nevertheless, tensions and violence have picked up since 2017, and the number of internally displaced people and refugees has increased (Text Figure 1). The security situation remains unsettled and a wave of deadly violence hit the capital Bangui earlier this year.

Text Figure 1.
Text Figure 1.

Central African Republic: Humanitarian Situation

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

3. A comprehensive peace agreement remains elusive. The African Union facilitates the peace process and has achieved some traction. An AU-mandated panel conducted several rounds of field visits and documented grievances which will form the basis for the dialogue between the Government and fourteen officially recognized armed groups. In parallel, local authorities, armed groups, civil society and religious leaders are undertaking mediation efforts at the community level aimed at addressing local conflict dynamics.

4. The government’s priorities are to restore the authority of the state and fight poverty. The administration has been deployed in most regions (12 out of 16). The government has strengthened its security cooperation with bilateral partners to rebuild, train, and equip domestic security forces which remain largely dependent on external support. This has allowed the government to accelerate the redeployment of the national army outside of the capital, in close cooperation with peacekeepers. The National Recovery and Peacebuilding Plan (NRPP), covering 2017 to 2021 and backed by substantial donor support, provides a framework to rebuild public administration, fight poverty, and promote economic recovery.

5. The extended credit facility (ECF) arrangement, in place since 2016, has anchored macroeconomic policies. The program has catalyzed substantial budget support from the World Bank (WB), African Development Bank (AfDB), European Union, and France. It is part of the Fund’s comprehensive approach to address challenges in the Central African Economic and Monetary Union (CEMAC) and its strategy is fully in line with regional reform priorities. Implementation of past policy recommendations has been satisfactory (Table 12). Macroeconomic stability has been preserved and domestic and external debt are on a declining trend.

Table 1.

Central African Republic: Selected Economic and Financial Indicators, 2016–23

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

Expenditure is on a cash basis.

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

Comprises government debt to BEAC, commercial banks and government arrears.

Table 2a.

Central African Republic: Central Government Financial Operations, 2016–23

(CFAF billions)

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

Expenditure is on a cash basis.

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

Including arrears and on-lending of IMF-resources.

Due to new loan agreements with commercial banks

Table 2b.

Central African Republic: Central Government Financial Operations, 2016–23

(In percent of GDP)

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

Expenditure is on a cash basis.

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

Including arrears and on-lending of IMF-resources.

Due to new loan agreements with commercial banks

Table 3.

Central African Republic: Monetary Survey, 2016–23

(CFAF billions, end of period)

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Sources: C.A.R. authorities and IMF staff estimates and projections.
Table 4a.

Central African Republic: Balance of Payments, 2016–23

(Billions of CFA francs)

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Sources: C.A.R. authorities and IMF staff estimates and projections.
Table 4b.

Central African Republic: Balance of Payments, 2016–23

(In percent of GDP)

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

External Financing Needs, 2018–23 (billions CFAF)

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Sources: CAR. authorities and IMF staff estimates and projections.
Table 6.

Central African Republic: Treasury Cash Management Plan, 2018

(millions CFAF francs)

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Source: Data provided by the authorities and staff calculations.

Freely usable deposits.

Table 7.

Central African Republic: Commitments for 2018 and 2019

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Table 8.

Central African Republic: Indicators of Capacity to Repay the IMF, 2018–29

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Source: IMF staff projections.
Table 9.

Central African Republic: Financial Soundness Indicators, December 2011–June 2018

(Percent, end of period)

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Sources: C.A.R. authorities and the Banque des Etats de l’Afrique Centrale.
Table 10.

Central African Republic: Schedule of Disbursements, 2016–19

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Reflects augmentation at 2nd and 3rd review. Approved amount at program request was SDR 11.70 million.

Reflects augmentation at 3rd review. Approved amount at program request was SDR 11.70 million.

Reflects augmentation at 2nd review and 3rd review. Approved amount at program request was SDR 83.55 million.

Table 11.

Central African Republic: Risk Assessment Matrix (RAM)1

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short-term” and “medium-term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

Table 12.

Central African Republic: Implementation of Key Recommendations from the 2016 Article IV Consultation

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1 See IMF Country Report No. 16/269, Central African Republic: 2016 Article IV Consultation Staff Report and Request for a Three-Year Arrangement under the Extended Credit Facility

6. The IMF’s modus operandi in C.A.R. internalizes the country’s fragility. Policy advice is integrated in a comprehensive capacity building program, comprising hands-on capacity building missions and a targeted training program. Key technical assistance recommendations inform the structural reform agenda of the ECF-supported program, and review missions and staff visits regularly follow-up on the implementation of recommended measures. To address political economy considerations and resistance from vested interests, staff engages the authorities early by providing options and flexibility in the reform agenda.

Recent Developments

7. The economic recovery continues but, remains muted. Since 2016, growth averaged 4.4 percent and is estimated to reach 4.3 percent in 2018 driven by a dynamic forestry sector, construction and externally financed investment projects. Average inflation fell on the back of price declines for food and manufacturing products.

8. Parliament passed a revised budget for 2018 in July. Data through end-June confirms that the fiscal program, including revenue, is on track. The domestic primary balance—on a cash basis—overperformed due to underspending on domestically-financed investment and transfers and subsidies. The global oil price increase poses a slight risk to the 2018 revenue projection, but the underspending is unlikely to fully reverse, thus mitigating risks to the deficit target of the program.

Fragility and Living Conditions in Central African Republic

C.A.R.’s fragility results from multiple factors. A lack of social cohesion, concentration of political power in a very small elite, disparities between Bangui and the periphery, illicit exploitation of natural resources, impunity and a lasting state of insecurity, have contributed over the years to erode trust and public institutions (see IMF Staff Report on 2016 Article IV and ECF Program request).

A nation-wide survey provides insights into living conditions.1 The Central African Institute of Statistics and Economic and Social Studies (ICASEES), with financial and technical support of the World Bank, conducted a survey in 2016 to gather data and better understand current living conditions.

Economic activity is dominated by smallholder agriculture. Livestock, mining, and the forestry sector are of secondary importance. Commerce and public employment are predominant in Bangui, the capital. The forestry industry, generating more than 60 percent of export revenues, is mainly located in the southwestern regions. Mining contributes little to the formal economy, although the survey suggests that it employs one hundred thousand individuals, a possible underestimation.

Infrastructure is lacking and access to services is low. Electricity supply is limited to Bangui and a few neighboring communities, and even there, supply falls well short of demand. Only 30 percent of municipalities reported having access to clean water either through the national water company or water pumps. Cell phone network coverage is available in less than half of the country and access to banking services is minimal outside of Bangui. Just 43 percent of municipalities reported having functioning primary schools in their biggest villages. The situation is even worse for health centers. Local authorities cited a lack of facilities and a shortage of qualified personnel as main constraints.

The household survey revealed the impact of the 2013 crisis. Most people work in agriculture without formal employment. Households generally own few productive assets (hoes, bike, carts, ploughs, etc.,) or household items (e.g., furniture, radio, mobile phone, television, etc.,). Asset ownership declined in 2016 compared to 2012. For example, the number of households with a bike decreased from 30 to 15 percent and with a radio from 42 to 23 percent. Education levels are generally low. In rural areas, less than 20 percent have secondary or higher education. Almost 50 percent of women have no formal education.

1 See “2016 National Commune Monography Survey” available under http://documents.worldbank.org/curated/en/154771488193937523/Central-African-Republic-2016-National-commune-monography-survey for a detailed presentation of the results.

9. The external position is broadly unchanged and credit to the economy is rebounding. The increase in timber and diamond exports was matched by a higher oil import bill due to higher prices and U.S. dollar appreciation. Diamond exports were boosted temporarily by the sale of a stockpile that was accumulated during the crisis. Net foreign assets have increased over the last two years but are projected to fall this and next year. The external position is weaker than implied by medium-term fundamentals and desirable policies, largely due to structural factors responsible for the weak business environment while macroeconomic policies are broadly in line with desirable medium-term values (Annex IV). Credit to the economy increased by 5.2 percent (y-o-y) at end-September, a clear uptick compared with the decline of 0.1 percent in 2017.

10. C.A.R. is at high risk of debt distress but vulnerabilities are declining. The July 2018 debt sustainability analysis (DSA) showed that C.A.R.’s debt trajectory is vulnerable to GDP, export, and revenue shocks. C.A.R. has contracted one new loan of US$13 million (0.6 percent of GDP) in 2018 with a grant element of 50.2 percent to revamp a road to the airport. This is in line with the memorandum items of the ECF arrangement on concessional borrowing. Post-HIPC arrears have been regularized as the authorities signed an agreement with India. Repayments will now start in 2023 over a 20-year period. Regarding domestic debt, C.A.R. continues to repay commercial banks and started interest payments on the consolidated debt to BEAC.

11. The CEMAC regional economic situation remains challenging, with shortfalls in reserves accumulation. Regional growth could improve to 2.3 percent in 2018 (1 percent in 2017), largely from a rebound in oil production. However, end-September BEAC’s net foreign assets (NFAs) were significantly below projections, caused by delays in external financing, mixed program performances, and slow repatriation of export proceeds. In response to this shortfall, the BEAC took corrective actions, increasing its policy rate from 2.95 to 3.5 percent on October 31, and enhancing implementation of the existing foreign exchange regulation. On October 25 in N’djamena, CEMAC heads of state reiterated their commitment to the Yaoundé summit’s regional strategy, and to strengthen their cooperation to restore external and fiscal stability in the region.

Program Performance

12. Performance under the program has been satisfactory. All end-June 2018 quantitative and continuous performance criteria were met (MEFP Table 1). Domestic revenues stood at CFAF 56.7 billion (vs. a floor of CFAF 53.4 billion), the primary balance was CFAF 0.0 billion (vs. a floor of CFAF -10.0 billion), and domestic arrears repayments reached CFAF 19.0 billion (vs. a target of CFAF 14.2 billion). Fiscal performance through end-September is in line with the program and year-end targets will likely be met. No new non-concessional debt has been contracted. Social spending reached CFAF 12.5 billion (vs. an indicative floor of CFAF 9 billion), while the share of spending through exceptional procedures exceeded the indicative ceiling of 5 percent despite a decline from 24 percent in 2017 to 9 percent in the first two quarters.

13. All end-June and end-September structural benchmarks have been implemented (MEFP Table 2). Debt service projections based on Sygade are available, and forestry and mining permits issued since January 1, 2018 have been published. Two of three structural benchmarks for end-June 2018 were not met in time, reflecting delays in securing donor funding to undertake external audits of two agencies and longer than anticipated internal consultations to revise the petroleum products pricing structure: the audits of the forestry fund and the telecommunication agency were completed in October and the revision of the oil price structure was adopted in November, generating fiscal savings of 0.1 percent of GDP.

14. Progress on structural fiscal reforms has been satisfactory albeit uneven. The implementation of the revenue convention with banks has led to a notable decline in the discrepancy of revenues reported by tax and customs departments and the revenues registered at the treasury. The rationalization of parafiscal taxes is progressing, although the envisaged audits of all structures require more time than anticipated. The revised budget law included a list of cash funds and introduced ceilings for their usage—important steps to reduce the reliance on exceptional spending procedures.

Economic Outlook and Risks

15. Staff expects growth to reach 5 percent from 2019 onward. The growth projection is predicated on the gradual restoration of peace, extension of public services to the provinces, successful absorption of externally-financed investment, and a steadfast implementation of reforms (Text Table 1). Grant-financed projects to expand hydropower and solar energy are set to double existing production capacity which will ease the energy supply bottleneck. Inflation is projected to fall below 3 percent, while the current account deficit is expected to gradually decline over the medium term, as forestry exports pick up. Net transfers are expected to remain substantial, comprising official grants and private transfers mainly from non-governmental organizations. Foreign direct investment is projected to gradually increase from a very low level, notably in the telecommunication and forestry sectors.

Text Table 1.

Central African Republic: Medium-Term Outlook 2017–23

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

16. A stronger rebound is possible, but risks are titled to the downside. An escalation of violence could exacerbate the humanitarian crisis, reduce growth, increase inflation, and lower tax revenues (Table 11). Lack of political cohesion and weak capacity could undermine the implementation of the authorities’ peace and development strategy, delay public investment projects, or lead to policy missteps. Externally, delays in CEMAC regional adjustment, of external support, or further increases in global oil prices could weigh on the fiscal balance and the balance of payments. If a domestic or external shock materializes, macroeconomic stability could be jeopardized by an increasing fiscal deficit which, in the absence of alternative financing options, could lead to renewed arrears accumulation. At the same time, there is strong upside potential to growth if the reform agenda is swiftly implemented, an inclusive peace agreement is reached, and the embargo on diamond exports progresses from a partial lift to fully lifted.

17. The authorities underlined upside risks to the outlook. Their optimism is based on the government’s progress to promote peace, restore the authority of the state and accelerate the execution of externally-financed investment programs. However, they acknowledge the uncertainties around the baseline and substantial downside risks. In the event of a negative shock, they are committed to adjusting non-priority or domestically-financed investment spending to avoid jeopardizing hard won macroeconomic stability.

Policy Discussions

Policy discussions on ensuring stability in the short term centered on the 2019 budget, the impact of higher global oil prices, and further measures to improve public financial management and transparency. Discussions on boosting medium-term growth and making it inclusive focused on challenges to support public service delivery and improving the business environment. To this end, staff stressed the importance of increasing domestic revenue mobilization, strengthening transparency and good governance, and supporting reconciliation by creating economic opportunities, reducing poverty, improving the business environment, and promoting gender equality.

A. Policy Theme # 1: Reinforcing Macroeconomic Stability

The 2019 Budget

18. The budget submitted to Parliament is consistent with the program. The budget targets a domestic primary deficit of 1.2 percent of GDP, with domestic revenues of 10.7 percent of GDP, and domestic primary spending of 11.9 percent of GDP. Revenue and expenditure ratios are expected to rise compared to 2018 as revenues and expenses of several government agencies and funds have been included—an important step to enhance fiscal transparency (Text Table 2) (MEFP, ¶12).

Text Table 2.

Central African Republic: Budget 2019

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19. Reforms of tax administration and recording of parafiscal taxes underpin the revenue projection. Expiring tax exemptions, reforms to strengthen revenue administration, and a revised reference price for wood exports are estimated to result in a fiscal gain of 0.3 percent of GDP. Staff cautioned that the benefits of administrative reforms may take time to bear fruit. The integration of parafiscal taxes is expected to lift recorded revenues by more than 1 percent of GDP (MEFP, ¶13), but with a marginal net gain (0.1–0.2 percent of GDP) for the budget in the short term.

20. Social spending will be increased. The draft budget envisages a contained wage bill in the absence of major net hiring. Higher current spending for transfers and goods and services largely reflect higher social spending and the counterpart of the integration of “parafiscal” taxes. The most important spending increases are proposed for the ministries of education (+21.4 percent) and health (+27.9 percent), mainly for higher investment in health centers and schools (MEFP, ¶14).

21. Higher global oil prices could weigh on the budget. The recent volatility in international oil prices could affect the budget if prices were to increase. To limit the fiscal impact, the authorities simplified the oil price structure generating savings of 0.1 percent of GDP. Petroleum retail prices are significantly higher than in all neighboring countries, limiting the scope for upward adjustments (Figure 2). This notwithstanding, the authorities have signaled considering changing retail prices if necessary. Staff advised to accompany it by careful communication and steps to protect the most vulnerable to ensure broad public support. The recent drop in oil prices presents an upside risk to budget balances.2

Figure 1.
Figure 1.

Central African Republic: Revenue Mobilization

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: IMF Staff estimates
Figure 2.
Figure 2.

Central African Republic: Macroeconomic Performance and Prospects, 2012–21

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Sources: CAR authorities and IMF staff estimates and projections.
Text Figure 2.
Text Figure 2.

Central African Republic: Price of Diesel, June 2018 (CFAF/ Liter)

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: Hydrocarbons Prices Stabilization Fund

Clearing Domestic Arrears

22. Domestic arrears clearance continues. The authorities adopted a comprehensive and time-bound plan to clear domestic arrears (Text Table 3)3. The plan contains strong safeguards to ensure the transparency of the repayment process, including quarterly progress reports produced by an international auditor. It is expected that repayments of these arrears reach 2.3 percent of GDP by end 2018. Strict control and identification requirements delayed some repayments which are now expected to happen in 2019. Regular reports by an external auditor confirm the implementation of the strategy and the application of safeguards (MEFP, ¶24).

Text Table 3.

Central African Republic: Domestic Arrears Repayment Plan

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Source: C.A.R. authorities and IMF Staff calculations.

Financial Stability

23. Financial sector stability and development remain a key objective. Banks remain adequately capitalized and non-performing loans have declined to around 22 percent from 31 percent at end-2015, but the sectoral distribution shows huge disparities (Table 9). The mining, manufacturing, and real estate sectors have the highest NPL ratios, reaching more than 50 percent of total gross loans. C.A.R.’s four banks have implemented key recommendations of the Commission Bancaire de l’Afrique Centrale (COBAC), the regional banking supervisor, related to governance and compliance with prudential standards. There are some delays, however, on implementing recommendations regarding internal controls and anti-money laundering including the identification of mobile banking users and the update of IT system by banks.

Authorities’ Views

24. The authorities are fully committed to macroeconomic stability. In this regard, they will cut non-priority spending if revenues underperform, to contain the primary fiscal deficit. If oil prices increase further, they will consider increasing pump prices to limit the loss of fiscal revenue. They committed to clear all 2003 salary arrears and those of November and December 2002 by the end of 2018 (MEFP, ¶24). Regarding the financial sector, they underlined their support for the ongoing implementation of COBAC’s recommendations and will closely monitor the implementation of the remaining measures (MEFP, ¶29).

B. Policy Theme # 2: Revenue Mobilization

25. The 2013 crisis undermined revenue collection. Tax revenues fell from almost 10 percent of GDP in 2012 to 4.4 percent of GDP in 2014. Tax revenues are expected to recover to about 8.4 percent of GDP in 2018 on the back of improved tax and customs controls and tax policy changes, notably an increase in excise taxes. Revenues are low compared to other countries in the region and in fragile situations. This can be explained in part by C.A.R.’s low per-capita income, the high share of agricultural activity in the economy, and the high degree of fragility and weak institutions, including partial control of territory (Figure 1). Mobilizing this potential will be critical to sustainably finance ambitious plans to extend public services in provinces, including security.

26. Staff stressed that a determined push to strengthen revenue administration could substantially increase domestic revenues and help improve governance. Sustained revenue mobilization is a long-term effort which requires consistent institutional development and strong political leadership.4 While C.A.R.’s tax rates are broadly appropriate, revenue administration could be strengthened by using IT systems more comprehensively, ensuring the consistent application of legislation, and stepping up tax and customs controls (MEFP, ¶18). Fighting fraud will be equally important by, among other things, better controlling widely-used imports such as cement or cooking oil and publishing the results of monthly meetings to reconcile valuations used by customs (proposed structural benchmark, end-December 2018, MEFP, ¶18). In the longer run, increasing formal economic activity in the mining, forestry, agro-industrial, and telecommunications sectors could boost domestic revenues. Furthermore, the collection of provincial revenues could be improved while ensuring commensurate transfers and service delivery.

Authorities’ Views

27. The authorities agreed with the thrust of staff’s recommendations. They emphasized their strong commitment to overhauling revenue administration and expressed their appreciation for the Fund’s technical assistance. They highlighted that work is underway to build a new headquarters for the tax administration which will help modernize outdated information technology and expressed strong interest in adopting new technology to facilitate revenue collection and tax payments. In particular, they will draw on the experience of Rwanda and Senegal on the use of IT tools to mobilize domestic revenue and committed to set up a new IT platform at the Ministry of Finance by end-December 2018 (MEFP, ¶22). At the same time, they emphasized that reforms will take time to take root and that external support will remain important, particularly, Fund technical assistance.

C. Policy Theme # 3: Good Governance and Fighting Corruption

28. Weak institutions and perceived corruption undermine the legitimacy of the state (Annex II). Building accountable institutions will be critical to address widespread concerns about nepotism, clientelism, and corruption. Staff stressed that improving governance would yield economic benefits. There is ample evidence that good governance and reduced corruption are associated with higher growth and tax revenues. 5 Key channels include: improved macro-financial stability, higher public and private investment, and stronger incentives for human capital accumulation, paying taxes and complying with the law.6 In staff’s view, an ambitious agenda to improve governance could initially focus on promoting fiscal transparency, strengthening the anti-corruption regime, and improving natural resource management. As a next step, work will be expanded to cover other key areas of governance weaknesses, including regulatory framework and rule of law.

Fiscal Transparency

29. Reforms to improve public financial management make head-way. The authorities publish quarterly budget execution reports, closed more than two hundred government accounts in private banks, submitted budget settlement laws for 2016 and 2017 to the court of auditors for validation, established ceilings for the use of cash funds, and took measures to reduce the use of exceptional spending procedures. The transition to a new financial management system is envisaged for 2020 and will need to be carefully managed. Efforts should continue to focus on enhancing spending procedures and efficiency, on strengthening the oversight of public agencies and state-owned enterprises, and on reducing parafiscal taxes:

  • Spending procedures: The authorities will close all cash funds at end-December to allow for proper accounting (structural benchmark, end-December 2018) and issue for the first time a budget execution circular (structural benchmark, end-December 2018). An overhaul of regulations for medical evacuations of public servants is envisaged (structural benchmark, end-March 2019). The authorities have launched the decentralization of spending processes which should improve budget execution and will establish an IT platform for line ministries to make this work (proposed structural benchmark, end-December 2018) (MEFP ¶21).

  • Financial oversight beyond the central government: First reforms are envisaged for early 2019 with the revision of legislation governing public agencies (structural benchmark, end-March 2019) and a re-organization of the Ministry of Finance which will strengthen financial oversight of public agencies and state-owned enterprises (MEFP, ¶22, 23).

Reducing parafiscal taxes: The draft 2019 budget integrates revenues from the most important public agencies and funds equivalent to 1 percent of GDP and envisages already the elimination of taxes without economic justification. Audits of all entities receiving parafiscal revenues—43 in total—are expected to be finalized in December. Once completed, the authorities will proceed to transfer all of them to the Treasury Single Account and eliminate all parafiscal taxes without economic justification (structural benchmark, end December 2018) (MEFP, ¶19, 20).

Fighting Corruption

30. Over time, the authorities have taken the following measures to combat corruption:

  • In 2006, the United Nations Convention Against Corruption (UNCAC) was ratified. This was subsequently followed by a review of chapter III (criminalization and application of the law) and chapter IV (international cooperation) in 2016.

  • The constitution requires the President, Prime Minister and the members of Government to declare their assets to the Constitutional Court upon taking and leaving office. However, no implementing legislation has been adopted to establish the framework of the regime.

  • The High Authority for Good Governance was established in 2017. The Authority has prepared a National Strategy for Good Governance with funding from UNDP.

31. Notwithstanding these measures, corruption remains a major challenge. Staff recommends the following additional measures to reinforce those already taken:

  • Implement the recommendations of the review of the UNCAC namely to criminalize all acts of corruption and facilitate mutual legal assistance.

  • Enact legislation establishing a framework for the asset declaration regime in line with best practices, namely to ensure that declaration obligations cover high-level officials and their family members, require the declaration of all assets held domestically and abroad, directly and beneficially, put in place a verification mechanism, establish dissuasive sanctions for non-compliance, and require the publication of the declaration.

  • Strengthen the capacity of the High Authority for Good Governance and ensure adequate and timely funding for the institution.

Natural Resource Management

32. C.A.R. is well endowed with natural resources which, if well managed, could promote inclusive growth by generating fiscal revenue, income, and employment. However, the resources have sometimes been used to finance violent conflict. Also, some host communities feel that that they are not benefiting from the exploitation of the resources, which could foster grievances.

33. The authorities have been pursuing initiatives to improve management of natural resources:

  • In 2003, C.A.R. joined the Kimberley diamond certification scheme, which aims to prevent the sale of diamonds mined in areas affected by conflict. The scheme imposed an embargo on the export of diamonds following the 2013 crisis, which was subsequently partially lifted.

  • In 2010, C.A.R. joined the Extractive Industry Transparency Initiative (EITI) which requires countries to “publish timely and accurate information on key aspects of their natural resource management.” C.A.R. membership was suspended in 2013. The country has launched a process for lifting the suspension.

  • All mining and forestry contracts are now published on the website of the Ministry of Finance and Budget.

34. Stepping up these efforts could further reduce the role that natural resources play in financing violent conflict. Staff commends the authorities for efforts already undertaken to improve natural resource management. These include publishing all forestry permits issued through June 30, 2018 and all new mining permits issued since January 1, 2018 on the website of the Ministry of Finance and Budget; and submitting all this information to the permanent secretariat for economic and financial reforms of CEMAC as part of the authorities’ regional commitments. The authorities could expedite ongoing efforts to lift the suspension from the EITI, encourage greater involvement of civil society in the management of natural resources, and ensure that host communities benefit from the exploitation of natural resources (MEFP, ¶26).

Authorities’ Views

35. The authorities stressed their commitment to improve governance and fight corruption. They highlighted that all government members have declared their assets to the constitutional court as mandated by the constitution and confirmed by the High Authority for Good Governance. They welcomed the Fund’s technical assistance on public financial management and looked forward to further Fund support in the context of the re-organization of the Ministry of Finance and the need to increase the use of IT tools to better mobilize tax revenues.

D. Policy Theme #4: Supporting Reconciliation by Creating Economic Opportunities, Reducing Poverty, and Promoting Gender Equality

36. The economy remains uncompetitive because production costs are high and the business environment is risky. Production costs are high because the country is landlocked, infrastructure is poor, and businesses must pay for provision of security. Risks include a fragile security situation, weaknesses in the judicial system, and fiscal uncertainty as a result of a multiplicity of taxes and tax collection institutions.

37. The authorities are determined to improve the business environment to promote private sector development. The law on the investment charter was enacted in June 2018, and the draft law modifying the terms and conditions applicable to public-private partnerships is being finalized. The authorities plan to implement other structural and institutional reforms to modernize and update the legal framework for the main economic sectors. To this end, they plan to revise the mining code to ensure its compliance with regional standards on foreign exchange. They also intend to strengthen the Joint Consultation Framework for Business Improvement (CMCAA) to promote and strengthen dialogue between the government and the private sector.

38. The implementation of the national development plan continues. The National Recovery and Peacebuilding Plan provides a comprehensive strategy to build institutions and tackle poverty around which development partners coalesce. The implementation of externally financed investment projects has picked up notably in 2018 and is now expected to reach 5.8 percent of GDP (vs. a previously projected 4.8 percent of GDP). In addition, the envisaged increase of social expenditure for key ministries and the gradual redeployment of the administration in provinces should expand access to basic social services (MEFP, ¶27).

Gender Equality (Annex III)

39. C.A.R. has committed to gender equality in the law, but implementation remains weak. Commitments include a national action plan in accordance with United Nations Security Council Resolution 1325, which calls for the acknowledgement of the roles of women in conflict and their protection, as well as increased participation and representation of women at all levels of decision making processes, management, and conflict resolution. C.A.R.’s national law sets a minimum quota of 35 percent of women in parliament during a transition time until 2026, and 50 percent thereafter. The National Action Plan for Peace and Reconciliation (RCPCA) identifies gender equality as a cross-cutting objective in all three of its priority pillars (MEFP, ¶28). The government has established a National Observatory for Gender Equality to track progress on these commitments, but remains woefully underfunded.

40. Based on experiences of other fragile states, C.A.R. faces opportunities to leverage improved gender relations for leaving behind the conflict cycle and improving economic growth. Abundant literature associates gender equality with decreased fragility, increased stability, and better macroeconomic outcomes. According to a decomposition analysis, the same level of gender equality as that of Rwanda could be associated with 0.8 percent higher average annual GDP in C.A.R. The analysis highlights the importance of following through on gender equality commitments. Staff recommends that the first step to this process is funding and empowering the National Observatory for Gender Equality, as well as collecting gender-disaggregated data.

Authorities’ Views

41. The authorities recognize that the improvement of the business environment and gender equality are key to ensure peace and reduce poverty. They updated the investment charter in June 2018 and are working on a draft law to promote public-private partnerships (MEFP, ¶27). They intend to continue their dialogue with the private sector to help address legitimate concerns. The implementation of the national development plan is ongoing, with more external support expected in 2019. The authorities reiterated their commitments to gender equality and will set up a National Gender Parity Observatory to monitor the implementation of the laws, and gender-equality developments in the country (MEFP, ¶28).

Program Modalities and Financing Assurances

42. It is proposed to keep performance criteria for end-December unchanged. Indicative targets for end-March 2019 have been revised to reflect the updated framework which will ensure continuous monitoring of program performance. Two new structural benchmarks are proposed for end-December 2018: (i) publishing the results of monthly meetings to reconcile valuations used by customs with those provided by the pre-inspection company; and (ii) the Ministry of Finance will set up an IT platform to operationalize the deconcentration of the spending process (MEFP, ¶18,21).

43. The program remains fully financed. C.A.R. has obtained firm financing commitments for the remainder of the program. All expected budget support for 2018 has been disbursed. In the first half of 2019, one further disbursement from the World Bank is expected. Looking ahead, the main development partners—the World Bank, African Development Bank, European Union, and France—have indicated their intentions to continue their budget support, especially if C.A.R. requests another Fund arrangement.

44. The BEAC and COBAC have pursued the implementation of their policy commitments and provided updated policy assurances in support of CEMAC countries’ programs. In response to the lower NFA accumulatio, the BEAC took corrective actions, increasing its policy rate and strengthening the enforcement of foreign exchange regulations. Consistent with the June 2018 policy assurances, by end-year the BEAC will also submit for adoption new foreign exchange regulations to the UMAC ministerial committee and make the new monetary policy framework fully operational. The updated policy assurances present new projections for regional NFA, with the end-2018 projection revised downward but the end-2019 projection broadly unchanged. To achieve these projections, the BEAC reiterated its commitment to implement an adequately tight monetary policy, while member states will implement adjustment policies in the context of IMF-supported programs. Starting in the first half of 2019, semi-annual consultations between the member states, the regional institutions, and IMF staff will be held to review regional strategy implementation and, if necessary, identify and adopt any additional corrective measures at the national and/or regional policy levels to allow the continuation of (or approval of new) IMF financial support as part of the IMF-supported programs with CEMAC members. These policy assurances are critical for the success of C.A.R.’s program as they will help bolster the region’s external sustainability, and hence C.A.R.’s.

45. The BEAC continues to implement the remaining recommendations of the 2017 safeguards assessment. BEAC’s full transition to IFRS is progressing broadly as planned, and steps are being taken to accelerate the adoption of revisions to the secondary legal instruments to align these with the BEAC Charter, in consultation with IMF staff.

46. C.A.R. has adequate capacity to repay the Fund. Significant Fund repayments are due in the coming years (Table 8) and the authorities are making regular deposits at the BEAC to ensure timely repayment.

47. Most official creditors to which there are outstanding arrears have consented to Fund financing. C.A.R. has accumulated arrears that pre-date the completion point of the HIPC initiative with some Non-Paris Club members (Argentina, Equatorial Guinea, Iraq, Libya, Taiwan, Province of China). Among these creditors, Libya requested more time to convey its decision regarding consent to Fund financing. C.A.R. remains in arrears to a private creditor and is continuing good-faith efforts to reach a collaborative agreement. As prompt financial support is considered essential for the successful implementation of C.A.R.’s program, and C.A.R. is pursuing appropriate policies, the Fund may provide financing to C.A.R. notwithstanding its external arrears to private creditors.

48. The authorities signaled interest in a successor arrangement. In their view, the ECF arrangement has provided welcome support to address the protracted balance of payment need, anchor macroeconomic policies, and set the reform agenda. Staff encouraged continued diligent program implementation to bolster the case for a successor arrangement. Discussions about a new arrangement could be initiated in the context of the Sixth and final review under the current ECF arrangement.

Technical Assistance and the Capacity Building Framework

49. The Fund provides significant support to capacity building. From January 2017, under the IMF’s Capacity Building Framework (CBF) pilot project (Annex I), C.A.R. benefited from substantial IMF and AFRITAC Central TA. Expected medium-term outcomes are to increase revenue, enhance spending efficiency, restore budget discipline and transparency, strengthen debt management, and create a core macro-fiscal capacity. The priorities for capacity building are closely aligned with key reform objectives under the program. The authorities concur with most recommendations. Specific achievements since January 2018 include a new agreement with private banks regarding revenue collection that prohibits automatic compensation and requires the timely transfer of funds as well as the integration of parafiscal taxes into the budget. TA is also delivered on public finance statistics and national accounts. The number of TA missions, combined with weak absorptive capacity, have highlighted the need to improve monitoring and coordination. To this end, the authorities strengthened the Economic and Financial Reform Monitoring Unit (CS-REF) to better coordinate technical assistance and training (MEFP, ¶30, 31).

Other Surveillance Issues

50. Despite serious shortcomings, data provision remains broadly adequate for surveillance and with limited impact on reliability and quality of the policy recommendations. The production of national accounts, balance of payments, and public finance statistics suffers from poor source data, compilation issues, omissions, delays, inconsistencies, and a lack of cooperation across government agencies. That said, there has been progress to improve data availability: national accounts for 2013 to 2017 have been finalized and are about to be published; the improvement and dissemination of external sector statistics is ongoing and balance of payment data has recently been validated for 2013 to 2015; on fiscal data, the focus has been so far on strengthening the collection and reporting of central government operations and the process of expanding coverage beyond central government is only beginning. Staff stressed that improving the quality, scope, and timeliness of economic data is crucial to facilitate policymaking and that their production must be properly resourced. The authorities agreed and pointed to weak capacity and the need for continued external support to improve data provision.

Staff Appraisal

51. C.A.R. is caught in a cycle of violence and conflict. Social cohesion and trust have eroded, GDP has declined, and poverty has soared in a process long predating the 2013 crisis. A rapid turnaround to emerge from this extreme state of fragility cannot be expected. Nevertheless, legitimate institutions are rebuilding, considerable international support is supporting an enabling environment for reforms, and macroeconomic stability has been restored. This provides an important opportunity to build resilience and advance towards exiting fragility, for which the authorities deserve full support.

52. Stronger and more inclusive economic growth is necessary to create jobs and reduce poverty. The economic recovery from the crisis continues at a steady pace, but reaching the pre-crisis level of economic activity will take well into the 2020s under current projections. This is insufficient to significantly reduce poverty and create the necessary jobs and opportunities to create disincentives to join armed groups. Moreover, risks to the outlook are on the downside as an escalation of violence could rapidly reverse any progress since 2013. Achieving a higher growth trajectory will depend on the consolidation of peace and security, the extension of state institutions in provinces, and a swift implementation of the development agenda. To support the shift into a higher gear, staff recommends targeted reforms in a number of priority areas while being mindful of capacity constraints.

53. Domestic revenue mobilization is essential to sustainably finance public service provision. There is significant untapped revenue potential, mostly due to weak customs and tax administration as well as fraud. Immediate steps could be taken to mobilize more revenues such as a more comprehensive use of IT systems, reinforcing controls, and sanctioning non-compliance. Strong political leadership is necessary to break with deeply entrenched malpractices.

54. The government could send a strong signal of its intention to break with the past by launching a transparency campaign. Important progress has been made in the last few years. The authorities increased fiscal transparency, published mining and forestry permits, and have relaunched the EITI membership process. However, more could be done. The asset declaration regime should be strengthened by adopting implementing legislation that specifies the scope of assets to be declared, extends declaration requirements to family members, facilitates public access to declaration, and specifies sanctions in case of non-compliance. In a similar vein, rectifying shortcomings in the implementation of the United Nations Conventions Against Corruption should be a priority.

55. The business climate suffers from a variety of constraints. The external position is weaker than implied by medium-term fundamentals and desirable policies. Insecurity, lack of basic infrastructure, limited access to credit, high transportation cost, unfair competition, and a lack of qualified personnel undermine C.A.R.’s attractiveness as an investment destination. However, the weak and unpredictable judicial system is a key concern for the private sector. The government should make every effort to reinforce its dialogue with the private sector and take actions to strengthen the judicial system.

56. Translating commitments to gender equality into practice could boost resilience and growth. Achieving outcomes in terms of gender equality similar to other countries in the region could boost growth considerably. Furthermore, there is ample evidence that promoting gender equality strengthens the resilience and reduces conflict frequency and intensity. First steps should include collecting more disaggregated data by gender, notably through the National Observatory, as well as stepping up communication and awareness efforts.

57. Despite a very challenging environment, program implementation has been satisfactory. All performance criteria for end-June were met and structural reforms progress, albeit with some delay. Staff considers the 2019 budget consistent with macroeconomic stability and welcomes the integration of parafiscal taxes—an important step to enhance fiscal transparency. The envisaged increase of social spending is laudable. Nevertheless, the revenue target could prove optimistic in light of the uncertain yield of administrative measures. Against this backdrop, staff welcomes the authorities’ intent to reassess revenue projections during the first half of 2019 and, if necessary, safeguard macroeconomic stability by adjusting non-priority spending.

58. The authorities’ action to limit the fiscal impact of higher oil prices is welcome. The simplification of the oil price structure by eliminating or reducing fees for intermediaries will generate important fiscal savings. In the event oil prices continue to increase, the authorities should consider adjusting retail prices. It will be important to carefully assess the social impact and the risks of increased retail prices, given that fuel prices are already high compared to neighboring countries. In addition, careful communication of the rationale of such policy action could help to build public support.

59. Risks to the program remain elevated. Tensions between conflict parties remain high and could escalate, which could undermine growth, revenues, and the authorities’ ability to implement the program. Staff will continue to assess the impact of the political and security environment on program performance. Delays in the implementation of the CEMAC-wide regional adjustment strategy could also have a negative impact.

60. Based on C.A.R.’s performance under the program, and good progress towards the end-December regional policy assurances and corrective actions taken in response to the NFA underperformance, staff recommends the completion of the Fifth Review. The economic program set out in the attached Letter of Intent and Memorandum of Economic and Financial Policies remains appropriate to achieve the program objectives in a challenging environment marked by insecurity and limited administrative capacity. Staff proposes that completion of the sixth review be conditional on the implementation of critical policy assurances at the union level, as established in the December 2018 union-wide background paper. Staff also recommends completion of the financing assurances review.

61. It is proposed that the next Article IV consultation take place in accordance with the Decision on Article IV Consultation Cycles, Decision No. 14747–10/96.

Annex I. Capacity Building Framework Strategy October 2018

1. Central African Republic’s (C.A.R.) reform program is supported by an arrangement under the Extended Credit Facility (ECF) approved by the Executive Board on July 20, 2016. Targeted and timely TA is key to ensure the success of the program. This note presents the capacity development strategy, expected objectives, and technical assistance (TA) priorities that would support the macroeconomic policy priorities in the context of the ECF. The note also defines a set of milestones and outcomes related to the TA program and describes actions to be undertaken by the authorities to achieve the agreed goals.

A. Program Assumptions

2. C.A.R. is a fragile state plagued by significant weaknesses in administrative and institutional capacity and a volatile security environment. Within this context, the overarching policy priorities for C.A.R. remain: (i) enhancing domestic revenue collection and revenue performance; (ii) returning to normal budget procedures and improving the efficiency of the public spending process, including the capital spending framework; (iii) building debt management capacity and improving debt management strategy; and (iv) improving data compilation in the national accounts, consumer prices, government finance statistics, and the external sector.

B. Assessment of Past TA Effectiveness

3. Timely TA delivery during the transition (January 2014–March 2016) was instrumental in rebuilding basic institutions. During that period, the donor community offered limited and targeted technical assistance in the areas of treasury management, public financial management (connecting the key modules of the public finance management system), the wage bill, and macro-fiscal capacity. In addition, the European Union, France, and the WB developed TA programs and posted several long-term experts covering budget, customs, and aid management. Delivery of Fund TA was hampered by the suspension of TA missions due to the deterioration of security conditions. However, AFRITAC Central organized several offsite TA/training seminars on post-conflict public financial management, revenue mobilization, debt management, national accounts, and government finance statistics.

C. TA Priorities Going Forward

4. TA priorities to be covered by the Fund are: (i) tax policy and revenue administration; (ii) public financial management; (iii) public debt management; and (iv) statistics issues on national accounts, government finance statistics, and the external sector. Accordingly, the proposed TA priorities for 2016/2018 IMF TA are shown in the following tables

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D. Risks and Mitigation Measures

5. The implementation of the technical assistance program is subject to various risks. The table below summarizes these risks and lays out the measures to monitor and mitigate their impact during the TA implementation. This will be a live TA management tool to be updated periodically as the TA program evolves.

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E. Authorities’ Commitments

6. The C.A.R. authorities are committed to continue to rebuild capacity to ensure successful implementation of the ECF-supported program. TA was delivered in 2016–17 by development partners to enhance customs and tax revenue collection; improve treasury management; strengthen the Government financial management information system (GESCO) pending the development of a new system (SIM BA) in 2020; and pursue civil service reform. For 2017–18, the authorities reached an understanding with the Fund on a comprehensive capacity-building strategy in the context of the Capacity Building Framework (CBF) pilot project. Within this framework, their priorities remain domestic revenue collection, PFM, public debt management, macroeconomic statistics, civil service reform, and macro-fiscal capacity. Outcomes include strengthening the institutional framework in place that coordinates TA and training with a view to increasing revenue; enhancing spending efficiency; restoring budget discipline; strengthening debt management; and creating core macro-fiscal capacity. If security risk heightens, the authorities agree to send staff to outside locations for training. They are also looking forward to taking full advantage of additional TA provided by the Fund under the CBF pilot on tax policy, revenue administration, PFM, national accounts data compilation, and external trade data (Tables 1 and 2). The authorities are committed to improving capacity and making the best use of the TA and training provided by development partners and the Fund through improved coordination of activities.

Table 1.

Central African Republic: Technical Assistance Activities, 2017–18

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Annex II. Promoting Good Governance and Fighting Corruption in the Central African Republic

Context

1. A history of poor governance. The state remains weak in the C.A.R. as a result of years of violent conflict and poor governance. State authority is yet to be established in large parts of the country, especially in areas that are under the control of rebel forces. Revenue administration has been characterized by a proliferation of taxes and tax agencies, undermining transparency and accountability, and creating considerable fiscal uncertainty for businesses. The country is well endowed with natural resources—notably, diamonds, forestry resources, and gold—but tax revenues are among the lowest in Sub-Saharan Africa. There is widespread discontent in host communities that they benefit little from the exploitation of natural resources.

2. Restoring state institutions and fighting corruption are critical for peacebuilding and economic development in C.A.R. Building accountable institutions will be critical to address widespread concerns about nepotism, clientelism, and corruption. Institutional capacity and the judicial system remain weak. Corruption is often cited as a key risk to doing business. Production costs are high because the country is landlocked—which leads to high transportation costs—and infrastructure is poor.

Efforts to Promote Good Governance and Fight Corruption

3. Fund engagement. The Fund provides substantial support to improve fiscal transparency and macroeconomic management. The TA program, embedded in the IMF’s Capacity Building Framework pilot project, focuses on revenue mobilization, PFM, debt management, and macroeconomic statistics. An ECF arrangement, approved in 2016, supports the authorities’ efforts and discussions for the Fifth Review were conducted in October-November 2018. The program has a strong focus on widening the coverage of treasury operations, strengthening the treasury single account, ending the proliferation of taxes and tax agencies, strengthening revenue administration, and securing revenue collection. Steps to enhance transparency and accountability include the publication of regular budget execution reports and reducing the use of exceptional spending procedures. These efforts are supported by conditionality, including a performance criterion on domestic revenues, an indicative target to limit spending through exceptional procedures, and structural benchmarks.

4. Fighting corruption and promoting transparency. The following are the main measures adopted to fight corruption and promote transparency in governance:

  • Implementing the United Nations Convention Against Corruption (UNCAC). In 2006, C.A.R. ratified the United Nations Convention against Corruption. In 2016, it underwent an implementation review of Chapter III (relating to criminalization and enforcement of the law) and Chapter IV (relating to international cooperation). The review highlighted deficiencies and inconsistencies in the criminalization of acts of corruption, and impediments to extradition and mutual legal assistance.

  • Declaration of Assets: The constitution requires the President, Prime Minister and members of Government to declare their asset at the Constitutional Court before or shortly after taking up duty and upon leaving their function. For members of Government, this is a structural benchmark under the ECF program. However, there is no legislation establishing the framework for the implementation of the regime and sanctions for defaulters. Staff was informed that all members of government and most high-level officials have submitted their declaration.

  • The High Authority for Good Governance established in 2017 is mandated with promoting good governance for which it has developed a national strategy. However, the strategy is yet to receive wider support by the government. The President of the Authority stressed that a lack of financial resources is a key constraint.

Recommendations

  • Implement the recommendations of the review of the UNCAC, namely to criminalize acts of corruption and eliminate all restrictions on extradition and on bilateral legal assistance.

  • Enact legislation establishing a framework for the asset declaration regime in line with best practices, namely to ensure that declaration obligations cover high-level officials and their family members, require the declaration of all assets held domestically and abroad, directly and beneficially, put in place a verification mechanism, establish dissuasive sanctions for non-compliance, and require the publication of the declaration.

  • Strengthen the capacity of the High Authority for Good Governance and seek adequate funding.

Natural Resource Management

5. C.A.R. is endowed with natural resources which have sometimes financed violent conflict. Small-scale diamond mining is a major source of employment but a large proportion of the diamonds produced is smuggled abroad. Timber accounts for more than half of official exports. The following are the main initiatives that have been undertaken to improve management of natural resources and ensure that they do not finance violent conflict:

  • In 2003, C.A.R. joined the Kimberley diamond certification scheme—which aims to prevent the sale of diamonds mined in areas affected by conflict. The scheme initially imposed an embargo on the export of diamonds from C.A.R., which was subsequently partially lifted.

  • In 2010, C.A.R. joined the Extractive Industry Transparency Initiative (EITI) which requires countries to “publish timely and accurate information on key aspects of their natural resource management, including how licenses are allocated, how much tax, royalties and social contributions companies are paying, and where this money ends up in the government at the national and local level. By doing so, the EITI seeks to strengthen public and corporate governance, promote understanding of natural resource management, and provide data to inform.” CAR. membership was suspended in 2013. The country has launched a process for lifting the suspension.

  • All mining and forestry contracts are now published on the website of the Ministry of Finance and Budget. This is a structural benchmark under the ECF.

Recommendations

  • Expedite ongoing efforts to the lift the suspension from the Extractive Industry Transparency Initiative.

  • Encourage greater involvement of civil society in the management of natural resources.

  • Ensure that host communities benefit from the exploitation of natural resources.

Figure 1.
Figure 1.

Central African Republic: Governance Indicators

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Annex III. Promoting Gender Equality in Central African Republic: Paths to Peace and Growth

A. Background

1. Gender gaps contribute to instability and fragility, or conversely: more inclusive countries tend to be less likely to return to civil war. Though measuring gender inequality is challenging, even when proxies such as fertility rate and labor force participation rate may dilute the effects, the relationship between gender inequality and conflict risk is positive and significant.

2. Women’s participation in politics and economic autonomy1 are essential to the durability to post-conflict peace—one study found that post-conflict legislatures with at least 35 percent women did not relapse into conflict.2 Caprioli (2005) found that countries with higher fertility rates and lower female labor force participation were more likely to devolve into civil war. Specifically, countries with 40 percent female labor force participation are 30 times less likely to devolve into intrastate conflict than those with 10 percent of women in the labor force. 3 The labor market is artificially restricted by norms which lower female labor force participation, leading to a suboptimal allocation of resources, lower total factor productivity, and reduced output growth.4, 5 Lower gender gaps in education and higher female labor force participation have been associated with higher diversification of output and export products, which in turn support economic resilience.6

3. Women, when included, tend to have a positive impact on governance, stability, and macroeconomic outcomes. Higher levels of corruption are associated with countries with lower gender equality.7 Conversely, gender equality has been associated with better macroeconomic outcomes at all levels of development, including higher GDP, greater productivity, and faster economic growth.8 9

4. Women with agency can positively impact the economy. Women tend to invest more of their resources into their children, which in turn yields greater school expenditures and higher school enrollment for children.10 Lower adolescent and general fertility rates are associated with higher education levels for girls, higher female labor force participation, increased savings, and improved health outcomes.11

B. Current State of Gender Quality

5. Central African Republic (C.A.R.) ranks last on UNDP’s 2016 Human Development Index (188 of 188) and 149th of 159 on the Gender Inequality Index.12 Amid insecurity, violence in CAR. continues. Sexual violence was weaponized to subjugate civilian populations during the civil war, and the violence against women has yet to end: mass rapes by roving militias continue as recently as this year. Secretary-General Gutierres of the UN called this violence to end during his October 2017 visit to the CAR. However, violence still continues, with organized violence toward women is the highest in Sub-Saharan Africa, with about 30 female battle deaths per 100,000, according to the Georgetown Institute for Women, Peace and Security.

Figure 1.
Figure 1.

Central African Republic: Human Development Index and Gender Inequality Index Rankings, 2016

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: United Nations Development Programme*Latest available data

6. Central African women are limited in their choice of where to live and as a head of household, according to the 2018 Women, Business, and the Law Report. C.A.R. also follows most of Francophone Africa (75 percent) in legacy legislation mirroring 1950s French laws which limit women’s employment. The report also shows that conversely, when women have greater decision-making power in business, they are more likely to participate politically.13

7. ILO statistics show that women made up 45 percent of the labor force in C.A.R. in 2016. 14 Women make up 83 percent of the agricultural workforce in C.A.R., which employed 74 percent of C.A.R.’s people in 2016, according to AfDB statistics.

Figure 2.
Figure 2.

Percentage of Women with Access to Banking Services, 2017

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: FINDEX 2017

8. The Ibrahim Index of African Governance (IIAG) scores C.A.R.’s gender equality at 37.4 of 100 as of 2016 (latest available data). This indicator takes into account human capital development, resource opportunities, and legal protection for men and women. They score women’s political participation (women’s representation in legislative and executive branches of government) at 27.4 on the same scale. In marked contrast, C.A.R. has the highest score for women’s participation in the judiciary (women representing at least one third of the members of the highest branch of the judicial system), at 100. Women magistrates comprised 18 of 200 total, or 9 percent of the judiciary.

Table 1.

Central African Republic: Selected Gender Indicators

(Percent, unless otherwise indicated)

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Source: World Bank and International Labour Organisation
Figure 1.
Figure 1.

Central African Republic: Selected Governance Indicators, Gender

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

C. C.A.R. has Made Commitments to Gender Equality.

9. C.A.R. has recognized already the positive economic dividends that the country could reap from improved gender relations. Some agreements C.A.R. has committed to include:

10. The United Nations Security Council Resolution 1325 calls for signatory countries to create a National Action Plan. CAR. authored one for 2014–16, which calls for 5 priority axes:

  • Improvement of knowledge of national actors and the population of UNSCR1325 and other international women’s rights protection instruments, to support social mobilization favoring civil population protection and women in times of conflict as well as the in the peace process;

  • Reinforcement of the prevention of violent conflict and the protection of the civil population;

  • Increased participation and representation of women at all levels of decision making process, management, and resolution of conflict;

  • Strengthening the protection of civil populations against violence and the rehabilitation of victims of conflict-related sexual violence;

  • Strengthening of the coordination and monitoring evaluation of these actions.

Each axis has accompanying actions which lay forth concrete steps the government may take to achieve each respective axis.

11. National law (Title 3, Chapter 1) sets a minimum quota of 35 percent women in parliament during the transition time until 2026, and 50 percent, thereafter. The law also sets up the National Gender Parity Observatory (Observatoire National de la parité).

12. The National Action Plan for Peace and Reconciliation identifies gender equality as a cross-cutting objective in all three of its priority pillars. In pursuit of gender equality, the plan asks for greater sex- and age-disaggregated data to monitor and evaluate the progress of this objective.

D. Benefits from Improved Gender Relations

13. Based on the experiences of other fragile countries, C.A.R. stands to greatly benefit from improved gender equality. There are opportunities to leverage improved gender relations for leaving behind the conflict cycle and improving economic growth. Rwanda and Uganda are examples of countries which opened to women’s participation and hugely benefitted—one estimate shows that gender equality explains 0.5 percent of Rwanda’s 2.2 percent higher growth compared to other countries in Sub-Saharan Africa.15 Our estimates show that if CAR. had the same level of gender inequality as Rwanda, average annual GDP growth would be higher by 0.76 percentage points.16 Over time, this translates to significantly higher real GDP per-capita levels (Figure 3).

Figure 3.
Figure 3.

Real GDP per capita, 2000–12

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: IMF Staff estimates

13. C.A.R. has already progressed toward benefitting from improved gender relations. The government has quotas and ministries for gender and family; The next step is to continue adherence to CA.R.’s preexisting commitments outlined above by reporting gender—and age—disaggregated data to better track national gender equality commitments as well as assess gender-specific impacts of policies. In this regard, the implementation of the national gender parity observatory is a welcome first step.

Figure 2.
Figure 2.

Central African Republic: Decomposition Regression Visualization

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Annex IV. External Sector Assessment

The external sector assessment finds that the external position is weaker than implied by medium-term fundamentals and desirable policy settings. This is largely due to structural factors such as insecurity, lack of infrastructure, high transport costs, and a weak business climate. Macroeconomic policies are broadly appropriate. Compared to the last external sector assessment in 2016, the current account deficit narrowed due to export growth and higher transfers. CA.R.’s external position would benefit from actions to foster security, improve the business environment, diversify the economy, and strengthen resilience.

A. Balance of Payments and Exchange Rate Developments

1. The current account deficit narrowed in 2017 to 8.3 percent of GDP. This development was mainly driven by an increase in exports. Meanwhile an increase of oil and non-oil imports exerted some pressure on the trade balance. Significant official and private transfers lowered the current account deficit (Figure 1).

Figure 1.
Figure 1.

Central African Republic: External Sector Developments I

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: CAR authorities and IMF staff estimates

2. In 2017, C.A.R/s exports stood at 7.6 percent of GDP: a 1.8 percent of GDP increase from 2014. CAR.’s exports suffered significantly during 2012–15 but have exhibited a steady recovery since then. This was mainly driven by a sharp rise in wood exports, which accounted for 62 percent of total exports in 2017. Diamond exports improved following the partial re-certification by the Kimberley process amid a period of increased stability. Oil was the most important import with a share of 27 percent of total imports.

Figure 2.
Figure 2.

Central African Republic External Sector Developments II

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Sources: BEAC and IMF staff

3. The capital and financial accounts moderately improved owing to an increase in FDI and other investment and an augmentation in project grants. However, overall foreign direct investment remained weak, reaching only 0.4 percent of GDP in 2017—far below pre-crisis levels (2 percent of GDP in 2012).

4. C.A.R/s nominal effective exchange (NEER) rate remained broadly stable while the real effective exchange rate (REER) appreciated (Figure 3). Following a prolonged period of stability, the REER appreciated during the 2013 crisis and in subsequent years due to higher inflation.

Figure 3.
Figure 3.

Central African Republic: Effective Rates

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: IMF Information Notice System (INS), World Economic Outlook (WEO), and IMF staff estimates.

5. The current account deficit is projected to gradually improve over the medium term. By 2021, the current account deficit is expected to reach 5.5 percent of GDP. Exports are expected to increase gradually, supported by a recovery in the wood sector and an increase in diamond exports. Imports are projected to grow in line with aggregate demand as the economy recovers.

B. Exchange Rate Assessment

6. The external assessment is informed by the EBA-lite methodology.1 Staff used the current account (CA) and the REER models. The current account and real exchange rate models provide estimated current account and exchange rate norms, which indicate values that are consistent with fundamentals and desirable policies. The resulting gap between the actual value for the current account (REER) and the norm can be divided in a policy gap, consisting of deviations of domestic policies or policies in the rest of the world from desirable values for the medium term, and the remaining gap.

7. Quantitative methods suggest that the external position is weaker than implied by fundamentals and desirable policies (Table 1 and Figure 4). While the results based on the quantitative methods need to be interpreted with caution given the weakness of the underlying data, they point in the same direction. The overvaluation of the real effective exchange rate is estimated between 13 and 16 percent according to the two models. However, the contribution of the policy gap is small and mostly driven by policy deviations in the rest of the world. In staff’s assessment, macroeconomic policies in C.A.R. are broadly in line with desirable medium-term values. Structural factors such as insecurity, high transportation costs, lack of infrastructure, and a weak business climate likely explain the remaining gap.

Table 1.

Current Account and Real Exchange Rate Assessment Results, 2017

(in percent of GDP)

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Source: IMF Staff estimates Assumption for the elasticity of trade balance to real exchange rate is -0.15

The main drivers of the policy gap are fiscal policy (0.32%) and private credit growth (0.46%)

Figure 4.
Figure 4.

Central African Republic: External Position Developments, 2017

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: Staff External Balance Assessment

C. Structural Competitiveness

8. An improved security and business environment, investments in infrastructure, and better governance could enhance competitiveness. Recent conflicts had a direct impact on the business environment. CA.R.’s overall structural competitiveness performs poorly according to several survey indicators, implying substantial room for improvement.

9. The 2018 World Bank Doing Business indicators showed a modest improvement in C.A.R/s business environment. Yet CAR. underperformed compared to the CEMAC and SSA regional average. Weak areas of the business environment include starting a business, paying taxes, and electricity distribution. Poor governance and weak institutions additionally undermine C.A.R.’s competitiveness.

Figure 5.
Figure 5.

Doing Business Rank, 20181

(1 = best; 191 = worst)

Citation: IMF Staff Country Reports 2018, 380; 10.5089/9781484392744.002.A001

Source: World Bank’s Doing Business Index 20181 There is considerable uncertainty in point estimates in ranking indicators and thus should be interpreted with caution.

10. Insecurity, high transportation costs, and a lack of energy supply undermine C.A.R.’s competitiveness. The lasting high-level of insecurity amid repeated eruptions of violence impedes private investment. C.A.R. is landlocked and most of its formal trade transits through two unreliable corridors.2 Numerous tariff and non-tariff barriers undermine secure transportation. The proliferation of checkpoints along the trade routes impose additional costs. Formal energy production falls far short of demand and covers only about a fourth of the energy consumption in the Bangui area, adding to costs for major energy consumers.

11. C.A.R. also performs poorly on governance and institutional quality. Poor governance and weak institutions contribute to C.A.R.’s weak external competitiveness. The World Bank’s CPIA indicators3 in 2016 indicated that government effectiveness has been low over the past few years (Table 2), and its overall score of 2.4 remains below the average for SSA.

Table 2.

Central African Republic: Country and Policy Institutional Assessment, 2016

(1 = low, 6 = high)

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Source: World Bank, Country Policy and Institutional Assessment 2016.

CEMAC excludes Gabon and Equatorial Guinea because of data unavailabity.

Appendix I. Letter of Intent

Bangui, December 6, 2018

Madame Christine Lagarde

Managing Director

International Monetary Fund

700 19th Street, NW

Washington, DC, 20431

Dear Madame Lagarde:

1. On July 2, 2018, the Executive Board completed the fourth review of the ECF arrangement and approved a disbursement of SDR 22.84 million. The attached Memorandum of Economic and Financial Policies (MEFP) describes recent economic development in the C.A.R., progress that has been made in implementing our policies through end September 2018 and our medium-term reform agenda.

2. All performance criteria at end June 2018 have been met. Revenue overperformed, which is a reversal of the last two reviews. All structural benchmarks as of end June 2018, albeit with some delays, and end-September 2018 have been implemented. Projections of debt service and stock of debt are now produced in Sygade. All mining and forestry permits have been published on the Ministry of Finances and Budget website. The external audits of the forestry development fund and the telecommunications regulatory agency were completed, and the petroleum price structure was streamlined.

3. Our medium-term objectives remain to: strengthening revenue mobilization to widen our fiscal space, improving public spending efficiency, promoting transparency and good governance, reduce poverty and stimulate growth. To this end, we submitted to the National Assembly a draft budget law for 2019 consistent with the ECF-supported program. We are determined to redouble efforts to mobilize domestic revenue. To achieve our revenue target for 2019, we will implement all tax and customs measures described in the attached MEFP. We will also continue to rationalize and improve the efficiency of public spending and strengthen good governance.

4. We are committed to repaying domestic arrears in line with the government’s strategy and avoiding new accumulation of arrears. We stayed current on all external debt service falling due. To restore long-term macroeconomic stability and debt sustainability, since the beginning of 2018, neither the central government, state-owned enterprises nor government agencies have contracted or guaranteed new external loans, except for the highly concessional loan of CFAF 7.2 billion provided by the Arab Bank for Economic Development in Africa. We are mobilizing only grants and will contract highly concessional financing only within the borrowing limits of the program to finance our development projects. We reiterate our commitment to consult with IMF staff before contracting any new external borrowing.

5. Based on progress made so far, we are requesting the disbursement of the sixth tranche of the ECF arrangement, amounting to SDR 22.84 million (20.5 percent of our quota), to cover our persistent balance of payments needs.

6. We remain convinced that the measures and policies outlined in the attached MEFP are adequate to achieve the objectives of our program and to reduce our balance of payments needs going forward. We will not introduce any measures or policies that would compound our balance of payments difficulties. We will consult with the Fund on revisions to policies contained in the MEFP in accordance with the Fund’s policies on such consultations. We will provide the Fund staff all data and information needed to assess our policies, particularly those mentioned in the Technical Memorandum of Understanding (TMU).

7. We intend to publish the IMF staff report, including this letter, the attached MEFP, and the TMU as an appendix. We therefore authorize the Fund staff to publish these documents on the IMF’s external website once the Executive Board has completed the fifth review of the ECF arrangement.

Sincerely yours,

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Attachments:

Memorandum of Economic and Financial Policies

Technical Memorandum of Understanding

Attachment I. Memorandum of Economic and Financial Policies

This memorandum updates the July 2018 MEFP prepared for the Fourth Review under the economic program supported by the Extended Credit Facility (ECF), approved by the IMF Executive Board in July 2016. The program objectives are to consolidate macroeconomic stability, create the conditions for sustainable and inclusive growth, fight poverty, and strengthen the government’s efforts to promote peace and reconciliation. The MEFP describes recent macroeconomic developments, the program implementation at end-June 2018 and end-September 2018, the economic outlook and risks, and the macroeconomic and structural policy objectives for the remainder of 2018 and beyond.

Recent Macroeconomic Developments

1. The security situation has improved but remains fragile. After the violence in May, which affected the cities of Bangui and Bambari in particular, the government took measures which helped to restore security in both cities. Those efforts were accompanied by the continued installation of prefects and sub-prefects and redeployment of the army, security forces, and the administration in some provinces. The government also pursued talks with the 14-armed groups under the aegis of the African Union. However, the humanitarian situation continues to raise considerable concern.

2. Economic growth is estimated at 4.3 percent in 2018. This momentum reflects the significant increase in externally financed investments and the sustained recovery of construction and forestry activities. However, the insecurity in some rural areas affects agricultural activities and the mining sector. The inflation rate has declined slightly since May 2018 due to falling prices of food products and manufactured goods.

3. The government’s fiscal policy remains prudent. The government adopted a revised budget in July 2018 to incorporate new tax measures and adjust expenditures. The primary fiscal on cash basis was balanced at end-June 2018. Tax revenue reached CFAF 56.7 billion compared to a forecast of CFAF 53.4 billion. This performance reflects the gradual integration of parafiscal taxes (road usage fees (RUR) and the airport security tax (TSA)) into the treasury single account, the encouraging outcomes of tax measures introduced in 2018, implementation of the new convention with banks for the mobilization of revenue and the intensification of tax audits. Primary expenditure totaled CFAF 56.7 billion. Priority social spending reached CFAF 12.5 billion. In addition, payment of salary arrears and domestic commercial arrears amounted CFAF 19 billion during the first half of 2018.

4. The current account deficit is expected to remain constant in 2018 compared to 2017. Exports increased during the first half of 2018, driven primarily by wood and diamonds. However, this solid performance in exports was followed by increased petroleum prices, which drove up the value of imports.

5. The financial sector is in good shape. Credit to the economy increased by 8.5 percent at end-June 2018 compared to the same period of 2017. Broad money expanded by 7.3 percent, driven by domestic credit. Based on available data at end-June 2018, the proportion of nonperforming loans declined with respect to 2017, and banks remain reasonably liquid and profitable. Banks are broadly compliant with prudential standards.

Program Implementation in 2018

6. Implementation of the program is broadly satisfactory. Based on the available data, we met all the quantitative performance criteria at end-June 2018:

  • Net domestic financing of the government stood at CFAF 1.5 billion at end-June 2018, for a ceiling of CFAF 8.0 billion.

  • The domestic primary fiscal balance stood at CFAF 0.0 billion at end-June 2018, for a floor of -CFAF 10.0 billion.

  • Total domestic government revenue stood at CFAF 56.8 billion as at end-June 2018, for a floor of CFAF 53.4 billion.

  • Clearance of domestic payment arrears stood at CFAF 19.0 billion at end-June 2018, for a floor of CFAF 14.2 billion.

7. All the continuous performance criteria were met. The government did not contract or guarantee any new non-concessional external debt, nor did it accumulate external debt arrears. The government contracted one concessional external loan (grant element of 50.2 percent) of CFAF 7.2 billion, compared to an indicative ceiling of CFAF 9 billion. However, the indicative criterion on exceptional spending procedures was not met (9 percent compared to a ceiling of 5 percent).

8. We have also implemented all structural benchmarks for end-June 2018, albeit with some delays. The projections of external debt service and stock are now produced in SYGADE. External audits of the forestry development fund and telecommunications regulatory agency were conducted. The petroleum price structure was streamlined, which will limit the impact of the increase of oil prices on the budget. In addition, all structural benchmarks at end-September 2018 are met. All forestry permits issued prior to June 30, 2018 and mining permits issued since January 1, 2018 were published on the Ministry of Finance and Budget website.

Economic Outlook and Risks

9. The economic and financial prospects in the medium term is encouraging:

  • We maintain our forecast of 4.3 percent economic growth in 2018 and 5 percent in the medium term. This economic performance will result from the robust recovery of forestry activities and telecommunications, construction activities, externally financed investments, and improved execution of domestically financed investments. With support from the World Bank and other development partners, the government will increase significantly energy supply through two big solar projects, the extension of Boali 2, the reinforcement of transportation lines, the reconstruction of Boali 3 and the hydroelectric development that will start up in 2019. These projects will boost economic activity and help improve the country’s business environment. Inflation will be contained at 2.5 percent in the medium term.

  • The primary fiscal deficit is projected at 1.4 percent of GDP in 2018 and 1.2 percent of GDP in 2019, in line with the government’s commitments under the ECF-supported program.

  • The current account deficit would improve in the medium term, in particular with increased forestry and mining exports.

10. However, these medium-term macroeconomic projections are not without risk. Indeed, a deterioration of the security situation could compromise the government’s efforts. In this regard, we will pursue negotiations with armed groups in the context of the African initiative, and we have elaborated some draft laws on military programming and domestic security forces aiming at reinforcing the redeployment of security forces and the administration throughout the national territory. Higher oil prices could harm economic activity and reduce tax revenue. A delay in the disbursement of external financing would pose a risk to public finances and could have an adverse effect on economic activity.

Macroeconomic and Structural Policies

11. In line with the National Recovery and Peacebuilding Plan, we remain determined to pursue policies to maintain macroeconomic stability, stimulate growth and job creation, and reduce poverty. The achievement of these objectives will require: (i) raising more domestic revenue to widen our fiscal space, (ii) strengthen public spending efficiency through the prioritization of social and infrastructure spending, without compromising the sustainability of public finances, (iii) promoting transparency and strengthening governance, and (iv) improving the business environment to boost private sector development and strengthen external competitiveness.

2019 Budget

12. The 2019 budget law put particular emphasis to economic and social development. The challenges to overcome are immense, but our ambitions are limited by resource constraints. To achieve our objectives, we must increase domestic revenue and rigorously control non-priority spending while redoubling budget efforts for the social sectors. Our priorities for 2019 are structured around four key pillars: (i) strengthening peace and security, (ii) consolidating public finances, (iii) good governance, and (iv) social affairs and humanitarian actions. The budget figures are as follows: we commit to limit the domestic primary deficit to 1.2 percent of GDP. Domestic revenue will reach 10.7 percent of GDP, which is an increase of 1.4 percent with respect to the 2018 revised budget, owing to the transfer of parafiscal taxes into the treasury single account. Primary spending will represent 11.9 percent of GDP, of which 10.2 for current expenditure and 1.7 for capital expenditure.

13. To achieve the revenue objectives provided in the 2019 budget, we revised the petroleum price structure. We will revise the reference price of wood following consultations with affected companies and will integrate some parafiscal taxes into the treasury single account. We will also pursue efforts to improve the revenue administration, in particular, fighting fraud and controlling VAT bases and income tax.

14. In regard to public expenditure, the government will contain the wage bill and increase priority social spending in order to fight poverty. The ministries of Education (+21.4 percent), and Health (+27.9 percent) will be the main beneficiaries. Transfers will increase by 0.6 percent of GDP due to the inclusion of expenses related to parafiscal agencies for which resources have been transferred into the treasury single account. We also confirm our commitment to limit exceptional spending to less than 5 percent of total expenditure (excluding salaries and debt service).

15. We recognize the enormous uncertainties surrounding our budget forecast. There are at least three key risks: (i) lower economic growth limiting the mobilization of tax revenues; (ii) lower-than-expected revenue from the parafiscal taxes integrated into the treasury single account and/or increased budget transfers to public agencies; and (iii) higher-than-expected international oil prices. Accordingly, we are determined to review the budget assumptions during the first semester of 2019 to decide whether revenue should be revised. Under such scenario, we are determined to preserve macroeconomic stability by reducing non-priority spending to achieve our objectives of containing the domestic primary deficit at 1.2 percent of GDP.

16. Depending on the evolution of oil prices, and in addition to the adoption of the streamlined price structure, the government will readjust prices at the pump if necessary to limit the impact of higher international oil prices on tax revenues.

Increase Revenue Mobilization

17. The tax measures introduced in 2018 have produced encouraging outcomes. The expansion of the 10 percent excise tax on locally-produced beverages and the implementation of the additional specific tax on alcoholic beverages generated tax revenue of CFAF 980.0 million at end-July 2018. Other administrative measures, such as the intensification of tax audits and the recovery of tax arrears, and the creation of the tax arrears collections management and monitoring unit, raised additional revenue estimated at CFAF 4.4 billion at end-September 2018. ASYCUDA has been in operation at the Beloko customs bureau since June 2018. However, we fell behind schedule in meeting several of our commitments to increase revenue: (i) revision of the reference price of wood; (ii) strengthening collaboration between the DGID and DGDDI and between the DGDDI and BIVAC through monthly meetings and disclosure of the outcomes of these data reconciliations; (iii) the use of the BIVAC certified value as the minimum base for calculation of import taxes and duties; and (iv) the update of the configuration of VAT rates in ASYCUDA.

18. Strengthening of the tax and customs administrations and more intense customs inspections and tax audits will be pursued. Regarding the customs administration, all the incorrect VAT rates in the ASYCUDA system identified by the IMF technical assistance missions were corrected in October 2018, and we will scrupulously ensure that the values certified by BIVAC are used as the minimum base for the calculation of import taxes and duties. We are committed to arrange meetings at least once a month to reconcile BIVAC data with that of the customs administration and systematically release the outcomes of those reconciliations [new structural benchmark at end-December 2018]. We will invite the IMF representative office to take part in those meetings and will systematically publish the minutes of the meetings. As for the tax administration, as recommended by the IMF technical assistance missions, we will take steps to ensure that all data from tax declarations are entered in SISTEMIF upon their subscription to strengthen monitoring of reporting obligations and the clearance of tax arrears. We are also determined to step up tax audits and efforts to combat fraud. We commit to conducting annual audits of at least 60 percent of businesses that report VAT credits or declare a net VAT payable of zero.

Rationalize Parafiscal Taxes

19. The rationalization of parafiscal taxes remains an absolute priority for the government. The Office of the Inspector General of Finance (IGF) launched the audit of 22 of the 43 entities and agencies to which the taxes are allocated. A draft note from the Council of Ministers has been initiated to eliminate all the 9 non-operational agencies. Of the seven most critical agencies, two (ARCEP ex ART, FDF) have already been audited., The external audits of the remaining five (FNE, ANR, ANAC, CASDTA, SODIAC) will be launched in [November 2018] with support from the French Development Agency (AFD). Government accounting officers were assigned to 20 public entities and agencies which are under audit. To rationalize taxes and organizational units, and in keeping with our commitments, the draft 2019 budget law provides for the elimination of the environmental tax related to the production, manufacturing, and imports of cigarettes, alcohol and non-alcohol beverages in glass and/or plastic and telecommunications, and the electromagnetic pollution. The draft 2019 budget law also provides for the integration of identified parafiscal taxes in the amount of CFAF 10.9 billion in the treasury single account (TSA) in return of transfers to the entities to which those taxes were allocated.

20. We will finalize the audits of the parafiscal entities and agencies already identified by end-December 2018, and we confirm our commitment to pursue the elimination of unjustified parafiscal taxes and transfer those that are justified to the TSA (structural benchmark at end-December 2018). We also confirm our commitment not to create new parafiscal taxes.

Rationalize and Strengthen Public Expenditure Management

21. The government is determined to improve the quality and transparency of the public spending chain. We finalized and transmitted the management accounts of 2016 and 2017 to the Court of auditors, which will allow upon their approval the establishment of discharge bills for these years. To achieve our objective of limiting exceptional spending to 5 percent total spending, we will regulate the modalities for medical evacuations (structural benchmark, end-March 2019) and will close all cash funds and imprest accounts prior to the end of each fiscal year (structural benchmark, end-December 2018). Also, the budget execution circular for 2019 is ongoing and will be finalized by end-December 2018 (structural benchmark, end-December 2018). The circular will cap the spending amount for imprest accounts. We are committed to decentralizing the payment authorization process in order to reduce delays and improve budget execution. To this end, a ministerial circular on delegation of the spending commitment and validation functions at the ten priority ministries(primary, secondary and technical education, and alphabetization, scientific research and technological innovation, tertiary education, health, humanitarian actions and national reconciliation, promotion of women, family and infant protection, agriculture and rural development, livestock and animal health, development of energy and hydraulic resources, and small and medium enterprises) was adopted in September 2018 and will take effect on January 1, 2019. We will put in place an IT platform to operationalize the deconcentration of the spending commitment process at the sectoral level (structural benchmark at end-December 2018).

22. We are committed to strengthening the governance and financial oversight of public agencies and state-owned enterprises and the government’s holdings in public corporations. With technical support from the IMF, we are revising the laws and regulations governing the para-public sector [structural benchmark, end-March 2019].

23. In line with our regional commitments, the organic law relating to finance laws and the law on transparency in public finances management were promulgated. The implementation of new management principles introduced by the new legal framework requires reorganization of the Ministry of Finances and Budget, which is under way with technical support from the IMF. A draft new ministry organizational structure, which will strengthen financial oversight and monitoring of public entities and SOEs, is being finalized and is expected to be submitted to the Council of Ministers for adoption during the first quarter of 2019. We are also determined to limit the use of direct contracts by revising the public procurement code to strengthen the capacities of priority sector ministries in procurement.

Clear Arrears and Improve Debt Management

24. The government intends to pursue its strategy of clearing salary and commercial arrears. The government has taken significant steps to clear all 2003 salary arrears and those of November and December 2002 by the end of 2018. Also, no domestic payment arrears have accumulated since the beginning of 2018. However, there were delays in implementing the domestic arrears clearance strategy adopted in December 2017. Some payments planned in 2018 will be postponed to 2019. In addition, we identified some spending validated but not committed or paid from budget years prior to 2014. Arrears in the deposit account opened until 2016 were also identified. With support from our partners, we will audit those arrears during the fourth quarter of 2018 to evaluate the amounts.

25. In line with our commitments, we remain determined to control the external public debt. We have not accumulated any new external debt arrears honoring all external debt service payments falling due since the beginning of 2018. Negotiations with our creditors has produced notable progress. We concluded a new convention with India in August 2018 that extends the term of the debt to 25 years at an interest rate of 1.5 percent and with a five-year grace period. We have cleared all arrears to the International Fund for Agricultural Development (FIDA) and have agreed on the amount of the debt and the terms of repayment. The government is determined to pursue negotiations with the creditors with which conventions have been signed prior to the Heavily Indebted Poor Countries Initiative. We remain determined to mobilize only grants and highly concessional financing within the borrowing limits of the ECF program.

Promote Transparency and Strengthen Good Governance

26. Public institutions remain weakened by the crises the country has faced in recent years. The government is committed to fight corruption and improve good governance. To this end, we will propose measures to tighten requirements to declare assets. This will consist of a draft law to clarify the conditions of this obligation to declare and the consequences in case of failure. [We also acknowledge gaps in implementation of the United Nations Convention against Corruption, particularly, in regard to the criminalization of corrupt acts and we are committed to rectify these gaps]. In this regard, we are committed to sanction offenses with respect to accountability and/or integrity as provided by the Law. To deal with the considerable challenges regarding the management of natural resources, we have started the process of resuming membership in the Extractive Industries Transparency Initiative. In addition, we have also published all forestry permits issued through June 30, 2018 on the Ministry of Finance and Budget (MFB) website. We have also instituted the quarterly disclosure of all new mining permits issued since January 1, 2018 on the MFB website. We have submitted all these information to the permanent secretariat for economic and financial reforms of CEMAC (PREF-CEMAC) as per of our regional commitments.

Improve the Business Environment

27. The business environment faces constraints that hinder private investment by local as well as foreign entrepreneurs. Those constraints include inadequate electricity supply, high transportation costs due to encirclement and deterioration of road infrastructures, and limited access to credit. Gaps in the legal system pose additional constraints. The government is determined to improve the business environment to promote private sector development. To this end, the law on the investment charter was promulgated in June 2018, and the draft law setting the conditions of public-private partnerships has been sent to the parliament for adoption. Other structural and institutional reforms will be implemented. They will concern the modernization and update of the legal framework for the key economic sectors, notably the revision of the mining code to ensure its compliance with the regional standards on foreign exchange. We also intend to strengthen the Joint Consultation Framework for Business Improvement (CMCAA) to promote and strengthen dialogue between the government and the private sector.

Reduce Poverty and Promote Gender Equality

28. We pursue the implementation of the National Recovery and Peacebuilding Plan (RCPCA). In that context, the significant increase in priority social spending will contribute to reduce poverty. The government also supports women’s promotion and equality, in line with the RCPCA objectives and national laws governing gender equality. Women’s participation in political and economic affairs is essential to sustainable peace and economic progress. In the medium term, we plan to collect data by gender in order to monitor our commitments and inform the public, in particular through the creation of the national gender observatory.

Financial Sector

29. The government is determined to promote the development of the financial sector and financial inclusion of the entire population, including the most vulnerable. To this end, we intend to promote the use of mobile banking services, which could help to compensate the absence of banking service branches in provinces. In addition, the recommendations of the 2017 COBAC mission are being implemented. Bank governance and prudential standards were strengthened, and progress has been made in regard to internal control mechanisms and measures to fight money laundering and terrorism financing. The government intends to closely monitor the implementation of the remaining measures.

Capacity Building

30. Strengthening administrative and technical capacities is key to ensure a successful implementation of our economic program. To this end, we benefit from sustained technical assistance from our partners to improve revenue mobilization, ensure better cash management, and reinforce the spending chain. We have established a capacity building framework with the IMF, and the implementation of this program in ongoing. The main priorities are domestic revenue mobilization, the management of public finances, the management of public debt, macroeconomic statistics, and macro-budgetary capacity.

31. Similar strategies will be defined with the other development partners on their respective fields of intervention. In the same vein, we will strengthen the coordination of partners’ support to maximize the benefit from all available technical assistance. To this end, we have strengthened the entity in charge of monitoring economic and financial reforms and ensuring the coordination of technical assistance and training (CS-REF).

Program Monitoring

32. The program will be monitored semi-annually by the IMF Executive Board. Performance criteria at end-December 2018 are maintained, and indicative criteria for March 2019 are proposed, reflecting the 2019 macroeconomic outlook and budget. The end-December 2018 performance criteria will be assessed as part of the sixth review in the first half of 2019.

33. We propose new structural benchmarks for end-December 2018, including:

  • Publish the outcomes of the reconciliation between customs and BIVAC data (structural benchmark at end-December 2018)

  • Set up a IT platform at the General directorate of budget to operationalize the deconcentration of the spending commitment process (structural benchmark at end-December 2018)

34. Exchange restrictions: Throughout the duration of the program, we are committed to not impose or expand restrictions on payments and transfers on current international transactions, or to resort to multiple currency practices, to conclude bilateral agreements that do not comply with Article VIII of the IMF’s Articles of Agreement, or impose or expand restrictions to influence the balance of payments. In addition, the authorities commit to adopt, in consultation with IMF staff, any new financial or structural measures that may be necessary to ensure the success of the program.

Table 1.

Central African Republic: Performance Criteria (PC) and Indicative Targets, 2017–19

(CFAF billions)

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

Domestic revenue, which excludes foreign grants and divestiture receipts (see the TMU for more details).

The domestic primary balance is defined as the difference between government domestic revenue and government total expenditure, less all interest payments and externally-financed capital expenditure.

These objectives will be monitored continuously.

Contracted or guaranteed by the government (see the TMU).

Social spending is defined as public non-wage spending on primary and secondary eduction, health, social action, water and sanitation, microfinance, agriculture and rural development (see TMU).

Adjusted for other than programmed budget support (see the TMU).

Table 2.

Central African Republic: Structural Benchmarks, 2017–19

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Attachment II. Technical Memorandum of Understanding 2018

Introduction

1. This Technical Memorandum of Understanding (TMU) spells out the concepts, definitions, and data reporting procedures mentioned in the Memorandum of Economic and Financial Policies (MEFP) prepared by C.A.R.’s authorities. More, specifically, it describes:

  • data reporting periodicity and timeframes;

  • definitions and computation methods;

  • quantitative targets;

  • adjusters of quantitative targets;

  • structural benchmarks; and

  • other commitments made within the MEFP.

2. Unless otherwise specified, all performance criteria and indicative targets are assessed on a cumulative basis as of January 1 of the same year.

A. Program Assumptions

3. Exchange rate. For the purposes of this TMU, the value of transactions denominated in foreign currencies will be converted into Cooperation Financiere Africaine Francs (CFAF), the currency of the C.A.R., on the basis of the exchange rates used to prepare the ECF. The key exchange rates are shown below.

  • CFAF/US$: 585

  • CFAF/Euro: 656

  • CFAF/SDR: 815

B. Definitions

4. Unless otherwise specified, the government is defined as the central government of C.A.R. and does not include any local governments, the central bank, or any public entity with separate legal personality (i.e., enterprises wholly or partially owned by the government) that are not included in the government financial operations table(Tableau des operations financières de l’État—TOFE).

5. Definition of debt. The definition of debt is set out in point 8 of Decision No. 6230-(79/140) of the Executive Board of the IMF, as amended on December 5, 2014, by Executive Board Decision No. 15688-(14/107):

  • (a) “Debt” is defined as a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, according to a specific schedule; these payments will discharge the obligor of the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:

    • i. loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

    • ii. suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

    • iii. leases, i.e., arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments necessary for the operation, repair, or maintenance of the property.

  • (b) Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

  • (c) External debt is defined as debt borrowed or serviced in a currency other than the CFA Franc of the Financial Cooperation of Africa (CFAF).

  • (d) Domestic debt is defined as debt borrowed or serviced in the CFA Franc of the Financial Cooperation of Africa (CFAF).

6. Guaranteed debt. The guaranteeing of a debt by the government is understood to be an explicit legal obligation to service a debt in the event of nonpayment by the borrower (by means of settlements in cash or in kind).

7. Concessional debt. A debt is considered concessional if its grant element is at least 50 percent. The grant element is the difference between the nominal value of the loan and its present value, expressed as a percentage of the nominal value. The present value of the debt at the date on which it is contracted is calculated by discounting the debt service payments at the time of the contracting of the debt. The discount rate used for this purpose is 5 percent.

8. Total government revenue is tax and non-tax revenue or other revenue (as defined in GFSM 2001, Chapter 5) and is recorded on a cash basis. Proceeds from taxation on contracts, asset sales, revenue from privatization or from the granting or renewal of licenses, and placement proceeds on government assets and grants are not considered government revenue for the purposes of the program.

9. Total government expenditure is understood to be the sum of expenditure on wages and salaries of government employees, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and capital expenditure. All these categories are recorded on a commitment basis, unless otherwise stated. Total government expenditure also includes expenditure executed before payment authorization (dépenses avant ordonnancement—DAO) and not yet regularized.

10. Wages and salaries correspond to the compensation of government employees as described in paragraphs 6.8–6.18 of GFSM 2001, namely, all employees (permanent and temporary), including civil servants and members of the armed and security forces. Compensation is defined as the sum of wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other form of monetary or non-monetary payment.

11. For the purposes of this memorandum, the term of arrears is defined as any debt obligation (as defined in paragraph 5 above) that has not been amortized in conformity with the conditions specified in the pertinent contract establishing them.

12. Domestic payment arrears are the sum of: (i) payment arrears on expenditure; and (ii) payment arrears on domestic debt.

  • Payment arrears on expenditures are defined as all payment orders to the Treasury created by the entity responsible for authorizing expenditure payments but not yet paid 90 days after authorization to pay given by the treasury. Expenditure payment arrears so defined are part of “balance payable” (or “amounts due”). Balance payable corresponds to government unpaid financial obligations and include the domestic floating debt besides the expenditure arrears. They are defined as expenditure incurred, validated and certified by the financial controller and authorized by the public Treasury but which have not been paid yet. These obligations include bills payable but not paid to public and private companies, but do not include domestic debt financing (principal plus interest). For the program target, domestic payment arrears are “balances payables” whose maturity goes beyond the 90-day regulatory deadline, while floating debt represents “balances payable” whose maturity does not go beyond the 90-day deadline.

  • Payment arrears on domestic debt are defined as the difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract.

13. External payment arrears are defined as arrears on external debt obligations. They are the difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract. An obligation that has not been paid within 30 days after falling due is considered an external payments arrear.

C. Quantitative Targets

14. The quantitative targets (QTs) listed below are those specified in Table 1 of the MEFP. Adjusters of the quantitative targets are specified in Section D.

Ceiling on domestic financing of the State budget

  • Domestic public financing to the government is defined as the sum of the (i) the bank credit to the government, defined below; and (ii) non-bank financing to the government, including proceeds from the sale of government assets, which includes proceeds from the divestiture of parts of public enterprises, that is, privatizations, Treasury bills, and other securitized obligations issued by the government and denominated in CFA Francs on the CEMAC regional financial market, and any Bank of Central African States (BEAC) credit to the government, including any drawings on the CFA Franc counterpart of the allocation of Special Drawing Rights (SDRs).

  • Bank credit to the government is defined as the balance between the debts and claims of the government vis-à-vis the central bank, excluding the use of IMF credit, and the national commercial banks. The scope of credit to the government is that used by the BEAC and is in keeping with general IMF practice in this area. It implies a definition of government that is broader than the one indicated in paragraph 3. Government claims include the CFA Franc cash balance, postal checking accounts, subordinated debt (obligations cautionnées), and all deposits with the BEAC and commercial banks of government owned entities, with the exception of industrial or commercial public agencies (établissements publics à caractère industriel et commercial—EPICs) and government corporations, which are excluded from the calculation. Government debt to the banking system includes all debt to the central bank and the national commercial banks, including Treasury bills and other securitized debt.

Floor for Total Domestic Government Revenue

  • Domestic government revenue: only cash revenues (tax and non-tax revenue) will be taken into account for the TOFE.

Floor for Government Social Spending

  • Poverty-reducing social spending comprises public non-wage spending on national education (primary, secondary and tertiary education), health, social action (promotion of women, family and humanitarian actions), water and sanitation, microfinance (SME – SMI), agriculture, livestock, and rural development. Its execution is monitored on a payment-order basis during the program.

Ceiling on Domestic Primary Deficit

  • The domestic primary fiscal balance (cash basis) is defined as the difference between government domestic revenue and government expenditure, less all interest payments and externally financed capital expenditure. Payments on arrears are not included in the calculation of the domestic primary balance.

Floor on Reduction of Domestic Payments Arrears

  • The government undertakes to settle some priority arrears that were validated.

Ceiling on Contracting or Guaranteeing of New External Non-Concessional Debt

  • The government undertakes not to contract or guarantee non-concessional debt. Loans for financing projects must not exacerbate debt vulnerabilities according to the debt sustainability analysis prepared jointly by the staff of the WB and the IMF. Financing from the IMF is excluded from this criterion.

Non-Accumulation of New External Payment Arrears by the Government

External payment arrears are defined in paragraph 13.

  • The government undertakes not to accumulate external payment arrears, with the exception of arrears relating to debt that is the subject of renegotiation or rescheduling. This quantitative performance criterion applies on a continuous basis. For the purposes of this performance criterion, an obligation that has not been paid within 30 days after falling due is considered an external payments arrear. This quantitative performance criterion will apply on a continuing basis.

Limitation of Spending Through Extraordinary Procedures to 5 percent of Expenditure (Non-Salary or Debt Service)

  • In addition to measures taken in 2018, all necessary provisions will be taken in the 2019 Budget Law and the total of all expenditure following extraordinary disbursement procedures (exceptional procedures, cash operations, etc.,) will not exceed 5 percent of total expenditure on non-salary spending or debt service (principal and interests) on average per quarter. Observation of this indicative target is assessed quarterly since March 2018.

D. Adjusters of Quantitative Targets

15. To take into account the factors or changes that are essentially outside the government’s performance, various quantitative targets for 2017 and beyond will be adjusted as follows:

  • a. If the total revenue from privatization or renewal of telecommunication licenses or forestry or oil licenses is greater than the amount programmed, the following adjustments will be made:

    • i. The floor for the primary budget balance can be adjusted downward by 50 percent of these additional receipts;

    • ii. The ceiling on net domestic financing of the government will be adjusted downward by the remained of the additional receipts.

  • b. If the total budget support is below the programmed amount, the following adjustments will be made:

    • i. The ceiling on net domestic financing of the government will be adjusted upward by 50 percent of disbursements programmed but not made;

    • ii. The floor for the primary budget balance will be adjusted downward by 50 percent of disbursements programmed but not made.

  • c. If the total budget support is above the programmed amount, the following adjustments can be made:

  • i. The ceiling on net domestic financing of the government will be adjusted downward by 50 percent of disbursements above the programmed amounts;

  • ii. The floor for the primary budget balance will be adjusted upward by 50 percent of disbursements above the programmed amounts.

E. Structural Benchmarks

The Production of the Revenue and Expenditure Account for 2016

  • The revenue and expenditure account for 2016 will have to be prepared and published by end of September 2017.

The Publication of all Existing Tax Exemptions

  • All existing tax exemptions, both statutory and discretionary, should be identified and made public by the end of December 2017, for purposes of transparency, in order to reduce the scale of tax exemptions.

Retrospective Control of Customs Values Set from January 1, 2016 to May 31, 2017

  • By end of September 2017, all values of imported goods set for the period January 1, 2016 to May 31, 2017 will have to be checked for compliance with the minimum values determined by the pre-inspection company and, if need be, impose the specified customs clearance tariffs and related penalties, to ensure the regularity of customs clearance operations.

Produce a Quarterly Budget Execution Report within 30 days of the end of the Quarter

  • A quarterly budget execution report will be produced as from the end of September 2017, and thereafter every quarter within 30 days of the end of the quarter. The first report will cover the second quarter of 2017.

Adoption of an Action Plan to Eliminate Unjustified Parafiscal Fees and Transfer their Proceeds to the Treasury Single Account

  • On the basis of an inventory of all parafiscal charges to be drawn up, an action plan will be adopted before the end of December 2017 with a view to eliminating all illegal and unjustified parafiscal charges. The plan will be accompanied by an instruction to transfer the proceeds of the parafiscal taxes collected to the treasury single account.

Full Utilization of ASYCUDA at the Beloko Customs Post

  • The main customs office in Beloko will be equipped with all facilities for ASYCUDA operation and data transmission, and all ASYCUDA modules will be fully deployed by end-December 2017.

Completion of an External Audit on the Forestry Fund and the Telecommunications Regulatory Agency

  • The forestry fund and the telecommunications regulatory agency should be audited by end-June 2018, in order to analyze the nature and use of the taxation and resources allocated to these entities.

Publication of Monthly Public Debt Service Projections

  • Monthly estimates of the public debt service, and the debt stock for the period running from June 2018 to end-May 2019, generated directly from the SYGADE system will be published by the end of June 2018, so as to pursue efforts to strengthen debt management.

Revision of the Petroleum Price Structure

  • Petroleum price structure will be revised by the end of June 2018, with the view to its simplification.

Elimination of Parafiscal Taxes Considered to have no Economic Justification.

  • Based on the results of the inventory of parafiscal taxes, those with no economic justification must be eliminated before the end of December 2018.

Publication of all Forestry Permits on a Government Website, Notably on the Ministry of Finance and Budget Website

  • All forestry permits that have been issued by June 30, 2018 will be published on a government website by September 30, 2018

Quarterly Publication of all Mining Permits on a Government Website, Notably on the Ministry of Finance and Budget Website

  • All new mining permits that have been issued since January 1, 2018 will be published on a government website, starting from September 30, 2018

Closure of all Cash Funds and Imprest Accounts at end December 2018

  • All cash funds and imprest accounts will be closed at December 31, 2018

Implementation of a Budget Execution Circular Starting from the Budget Law 2019

  • To streamline public expenditure execution procedures, we will introduce a budget execution circular starting from the LF 2019 by end December 2018.

Revision of the Legislation on Public Agencies

  • The February 13, 2008 law -08–011- governing the institutional framework of public agencies will be revised by end March 2019

Elaboration of an Inter-Ministerial Decree Establishing the Conditions and Modalities for Medical Evacuations by end-March 2019

  • An inter-ministerial decree establishing the conditions and modalities for medical evacuations will be elaborated by end March 2019.

New Measures

Set up an IT Platform at the General Directorate of Budget by end-December 2018

  • In order to operationalize the deconcentration of the spending commitment process, an IT platform will be set up at the general directorate of budget by end-December 2018.

Publish the Outcomes of the Customs and BIVAC Data Reconciliation at end-December 2018

  • The outcomes of the customs and BIVAC data reconciliation exercise will be published on the Ministry of finances and budget website at end-December 2018 after the meeting between the two entities, which should be held within two weeks of the end of the month.

Reporting to the IMF

16. Quantitative data on the government’s indicative targets will be reported to IMF staff according to the periodicity described in Table III.1. Moreover, all data revisions will be promptly communicated. The authorities undertake to consult Fund staff regarding any and all information or data not specifically addressed in this TMU but which is necessary for program implementation, and inform Fund staff whether the program objectives have been reached.

Table 1.

Central African Republic: Reporting to the IMF as Part of Financing Under the ECF Arrangement

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2

The 2019 budget assumed international oil price at $75/barrel.

3

Only the repayments of arrears accumulated before 2014 are shown in the Text Table 3.

4

Recent analysis (Regional Economic Outlook for sub-Saharan Africa 2018) finds only 6 episodes of sustained revenue mobilization—defined as an increase of non-resource revenues of 2 percentage points of non-resource GDP over a three-year period—using a data set covering 44 sub-Saharan countries from 2000–16.

5

See IMF (2016) “Corruption: Costs and Mitigating Strategies”.

6

Ugur and Dasgupta (2011) estimate that a one-unit improvement in the perceived corruption index can increase GDP growth per-capita by up to 0.9 percentage points. “Evidence on the Economic Growth Impacts of Corruption in Low-Income Countries and Beyond”, EPPI-Centre Report No 1914, Institute of Education, University of London.

1

Autonomy in this case refers to a person’s power to make decisions, including physical, economic, and political decisions.

2

Demeritt, J., A. Nichols, & E. Kelly. “Female Participation and Civil War Relapse.” Civil Wars. Vol 16, No. 3, pp. 346–68.

3

Caprioli, M. 2005. “Primed for Violence: The Role of Gender Inequality in Predicting Internal Conflict.” International Studies Quarterly. Vol. 49, pp. 161–78.

4

Cuberes, D. and M. Teignier. 2016. “Aggregate Effects of Gender Gaps in the Labor Market: A Quantitative Estimate.” Journal of Human Capital. Vol. 10, No 1, pp. 1–32.

5

Esteve-Volart, B. 2004. “Gender Discrimination and Growth: Theory and Evidence from India.” s.l.: LSE STICERD Research Paper No. DEDPS 42, 2004.

6

Kazandjian, R., L. Kolovich, K. Kochhar, and M. Newiak. 2016. “Gender Equality and Economic Diversification.” IMF Working Paper 16/140. Washington, D.C.: International Monetary Fund.

7

Branisa, B., S. Klasen, & M. Ziegler. 2013. “Gender Inequality in Social Institutions.” World Development. Vol. 40, pp. 252–68.

8

World Bank. 2012. “World Development Report: Gender Equality and Development.” Washington, D.C.: World Bank Group.

9

IMF, 2015. “Regional Economic Outlook. Sub-Saharan Africa. Dealing with the Gathering Clouds.” Washington, D.C.: International Monetary Fund. October.

10

Aguirre, D., L. Hoteit, C. Rupp, and K. Sabbagh, 2012, “Empowering the Third Billion. Women and the World of Work in 2012,” Booz and Company.

11

Bloom, D. E., D. Canning, G. Fink, and J. E. Finlay. 2009. “Fertility, Female Labor Force Participation, and the Demographic Dividend.” Journal of Economic Growth. Vol. 14, p. 79–101.

12

Third Party Indicators may be subject to bias and should be treated with caution.

13

Iqbal, Sarah. 2018. Women, Business, and the Law 2018. Washington, D.C.: World Bank Group.

14

Most female labor force participation statistics on the C.A.R. are from modeled ILO estimates.

15

IMF. 2017. Rwanda: Selected Issues. IMF Country Report No. 17/214.

16

The regressions are performed on a sample of 103 countries over the period of 1994–2014, using a system- GMM method to address endogeneity issues.

2

The first corridor connects Bangui to the port of Douala, and the second links Pointe Noire to Bangui via Brazzaville, via the Ubangi river.

3

Third party indicators, including the CPIA and the Index of Economic Freedom, depend on external analysis and thus should be treated with caution.

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Cover IMF Staff Country Reports
Central African Republic: 2018 Article IV Consultation, Fifth Review under the Extended Credit Facility Arrangement, and Financing Assurances Review
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2018: Issue 380
Publisher:
International Monetary Fund
ISBN:
9781484392744
ISSN:
1934-7685
Pages:
105
DOI:
https://doi.org/10.5089/9781484392744.002
Text Figure 1.

Central African Republic: Humanitarian Situation
Figure 1.

Central African Republic: Revenue Mobilization
Figure 2.

Central African Republic: Macroeconomic Performance and Prospects, 2012–21
Text Figure 2.

Central African Republic: Price of Diesel, June 2018 (CFAF/ Liter)
Figure 1.

Central African Republic: Governance Indicators
Figure 1.

Central African Republic: Human Development Index and Gender Inequality Index Rankings, 2016
Figure 2.

Percentage of Women with Access to Banking Services, 2017
Figure 1.

Central African Republic: Selected Governance Indicators, Gender
Figure 3.

Real GDP per capita, 2000–12
Figure 2.

Central African Republic: Decomposition Regression Visualization
Figure 1.

Central African Republic: External Sector Developments I
Figure 2.

Central African Republic External Sector Developments II
Figure 3.

Central African Republic: Effective Rates
Figure 4.

Central African Republic: External Position Developments, 2017
Figure 5.

Doing Business Rank, 20181

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