Statement by Mr. Raghani, Executive Director for the Central African Republic, and Mr. Bangrim Kibassim, Advisor to Executive Director December 19, 2018

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


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

1. The Central African authorities would like to thank the Board, Management and Staff for the Fund’s continued engagement with the country. They view the current program supported by the Extended Credit Facility (ECF) as the cornerstone of their economic recovery agenda, and reaffirm their strong commitment to achieving its objectives.

2. The Central African Republic (C.A.R.) continues to make strides in strengthening macroeconomic stability while reinforcing capacity building, promoting governance and reducing poverty. Nonetheless, significant fragility-rela ted challenges, notably security tensions and limited capacity, threaten hard-won macroeconomic stability and valuable development objectives. Therefore, while they will pursue their policy and reform agenda steadfastly, the C.A.R. authorities stress the importance of a timely and adequate support from development partners. They also welcome the commitment made by CEMAC regional institutions to support member countries’ efforts to exit the crisis in line with the regional strategy adopted in December 2016 and reaffirmed last October.

3. Against a backdrop of continued solid program implementation, our C.A.R. authorities request Fund’s continued support to their recovery agenda. They continue to appreciate the Fund’s engagement with the country as a fragile state, including through early consultations and enhanced capacity building. On their part, they will pursue their efforts to restore the authority of the state throughout the country’s territory, preserve macroeconomic stability, advance structural reforms to strengthen resilience, and fight poverty.

Recent Economic Developments, Program Performance, and Outlook

4. Economic activity in the C.A.R. continues to recover, and GDP is projected at 4.3 percent in 2018, supported by the construction sector, buoyant forestry and telecommunications activities, the positive impact of large externally-financed projects, and a better execution of domestically-financed investments. On the other hand, the observed slowdown in agricultural and mining sectors is attributable to the insecurity situation. Compared to 2017, inflation declined due to lower prices of food and manufactured products and is projected at 2.5 percent yoy from 2018 to the medium-term. Reflecting the authorities’ efforts and commitment, the primary fiscal deficit is projected at 1.4 percent of GDP in 2018 following good execution of the revised 2018 budget. On debt issues, noteworthy is C.A.R’s contracting of one new highly concessional loan for the improvement of a road to the cap.ital city’s airport. Moreover, the authorities have continued to repay domestic banks, initiated interest payments to the regional Central Bank BEAC, and are regularizing arrears vis-à-vis external creditors.

5. Program implementation continues to be satisfactory, and the authorities have managed to maintain the ECF arrangement on track amid challenging conditions. All quantitative performance criteria at end-June 2018 were met except the one on exceptional spending. In particular, domestic revenue mobilization has exceeded expectations. Social spending also outperformed its program target. While the 5 percent ceiling on exceptional spending procedures (DAO) was missed (indicative target), the decline from 24 percent (2017) to 9 percent (2018) is noteworthy. As referred above, the C.A.R. government has fulfilled its commitment to refrain from contracting new non-concessional external debt and from accumulating external debt arrears. On the structural front, all end-June and end-September benchmarks have been implemented albeit some with delay. The use of SYGADE for debt projections, the audits of the forestry development fund and telecommunications regulatory agency, and the rationalization of petroleum price structure are key steps made by the authorities to strengthen the fiscal framework.

6. Going forward, the medium-term outlook is favorable and GDP growth is projected at 5 percent from 2019 onward, based on a gradual increase of FDI in telecommunications, forestry sectors and the positive spillover effect of the peacebuilding process. The authorities share staff’s assessment on significant downside risks associated with low capacity, dire security conditions, delays in external support, and strong increase in oil prices. They will pursue their efforts to reach a constructive agreement with the armed groups while continuing the redeployment of public administration and defenses forces. They stand ready to take necessary additional fiscal measures to preserve the program objectives.

Policy and Reform Agenda Going Forward

The National Recovery and Peacebuilding Plan

7. Our authorities view the success of their National Recovery and Peacebuilding Plan (NRPP) as vital to an effective and sustainable recovery of the C.A.R. economy. They will pursue the redeployment of public administration, the reform of defense forces and the execution of development projects. They remain engaged in initiatives from local stakeholders, the African Union (AU), and the U.N. mission (MINUSCA) to foster dialogue in the country. To reduce poverty, increase gender equality and enhance resilience—in line with the objectives of the NRPP—the government plans to raise significantly social spending and reinvigorate women’s protection and participation in economic and public affairs. They give a high priority to supporting the agriculture sector in which women’s share represents 83 percent of the total workforce, with the view to reduce inequality while promoting stronger growth.

Fiscal Policy

8. The government will pursue a prudent fiscal policy, centered around budgetary discipline and sustained domestic revenue mobilization (DRM) efforts. In this connection, the authorities plan to fully implement tax and customs measures agreed with Staff while continuing to strengthen PFM.

9. On the revenue side, the authorities are undertaking tax measures including stepping up tax audits and arrears collection, introducing a new tax on alcoholic beverages, and creating a unit in charge of tax arrears collection management and monitoring. The authorities have launched measures to modernize the tax administration and better channel provincial resources to the treasury including the adoption of an IT platform to enhance collection and tax payments. They will pursue their efforts to enhance tax administration, limit tax fraud, and control VAT bases. The authorities will also leverage the expected lift of the embargo on diamonds exports led by the Kimberly Process and the positive impact of the ongoing parafiscal tax reform. Transparency in tax and customs administrations will be enhanced through promoting compliance with BIVAC data and monitoring and using the IT system SISTEMIF. As a result, domestic revenue is expected to increase to 11 percent of GDP by 2020 from 8.3 percent in 2017.

10. Regarding expenditures, priority will be given to social and infrastructure spending, including in education and health. In preserving fiscal sustainability, the government will also maintain strict control of the wage bill and parafiscal agencies. To contain contingent liabilities emanating from state-owned-enterprises (SOEs), and the para-public sector, the government envisages reinforcing the governance, regulations and financial oversight of these entities. More efficient public finance management should benefit from the recent promulgation of the organic law relating to finance laws and the law on transparency in public finance management as well as from the future revision of the public procurement code and the planned reorganization of the Ministry of Finances and Budget. The authorities will also accelerate the establishment of discharge bills, close additional government accounts in private banks, strengthen the budget execution through utilization of circulars, and decentralize the budgetary commitment-payment process. Actions will also be geared at improving the quality and transparency of the spending chain, with the view to furthering the effectiveness of PFM procedures.

Debt Management

11. Debt management in C.A.R. is guided by two imperatives, notably preserving debt sustainability and continuing the clearance of salary and commercial arrears starting from the year 2002. In this regard, although recent arrears payments have been delayed or postponed, major steps were taken to resolve the issue, and the government will maintain its commitment moving forward. The authorities have signed a new convention with India and cleared all arrears to the International Fund for Agricultural Development (IFAD). Negotiations with remaining creditors will continue. While encouraged by staff’s assessment that debt distress risks facing C.A.R. are decreasing, the authorities will continue to use only highly concessional loans to finance infrastructure as needed.

Financial Sector

12. The financial sector in C.A.R. has shown resilience as demonstrated by the 5.2 percent increase in credit to the economy at end-September 2018. The reduction of NPLs from 31 percent at end-2015 to 22 percent in June 2018 and banks’ liquidity and profitability are signs of the renewed strength of the banking sector. Although solid progress has been made by banks towards meeting governance and prudential standards set forth by the regional supervisory body COBAC, the authorities intend to take the necessary action to ensure full compliance. To expand financial services across the country and accelerate financial inclusion, they will rely on financial technologies, most notably mobile banking. Efforts to strengthen the AML/CFT framework will continue.

Structural Reforms

13. The C.A.R. authorities share the view that their ability to deliver on development objectives hinges on a competitive economy, good security conditions, and a friendly business environment supported by credible and transparent public policies and institutions. With these challenges in mind, the C.A.R authorities are resolved to promote good governance and fight corruption. The requirement of asset declaration by government members will be strengthened and regulated by a law. Efforts will also be pursued to enhance natural resources management, including resuming C.A.R.’s membership in the Extractive Industries Transparency Initiative (EITI) and ensuring the disclosure of new mining and forestry permits. The government’s commitment to fight corruption is highlighted in the authorities’ plan to address deficiencies in the implementation of the United Nations Convention Against Corruption UNCAC) and their preparation of a National Strategy for Governance with the support from UNDP.

14. C.A.R.’s position as a landlocked country, combined with structural bottlenecks and a protracted crisis with long-lasting adverse effects on the economy and living standards are the root causes of the country’s unfavorable business climate. Therefore, improving the business environment to support investments, promote private sector development and job creation, ranks high in the authorities’ priorities. To this end, important steps are being taken, including the legislation on the investment charter and public-private partnerships frameworks. In addition, the authorities intend to resolve the shortcomings of the judicial system they are making progress in fostering the dialogue with the private sector. It is also their plan to proceed with the revision of the mining code, in line with international standards. Addressing infrastructure bottlenecks and access to electricity also remain challenges that are being tackled by the authorities. In this regard, projects in the solar energy and road infrastructure upgrading are being executed with support from development partners, notably the World Bank.

Capacity Building

15. The authorities welcome the intensive provision of technical assistance by partners, including the implementation of the capacity building framework initiated by the Fund. These efforts are bearing fruit as shown by the development of new skills in public finance statistics and national accounts, the new agreement with private banks preventing automatic compensation, and the transfer of parafiscal taxes to the budget. In addition to improvements to the Economic and Financial Reform Monitoring Unit (CS-REF) in charge of monitoring the government’s economic reform agenda, the authorities stress the need of enhancing coordination among partners in technical assistance delivery to further increase its effectiveness.


16. The C.A.R. authorities are thankful to the members of the Executive Board, Management and Staff for their continued support. They place a high value on the ECF arrangement as a useful framework to sustain their national recovery strategy and contribute to CEMAC’s crisis exit strategy. Based on the good progress they continue to make, their strong commitment to the program objectives, and the adequate financing assurances for the remainder of the program, the authorities are requesting the completion of the Fifth Review under the ECF.

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.