Abstract
Request for a Three-Year Arrangement under the Extended Credit Facility-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for the Central African Republic
1. This supplement provides staff’s assessment of the ability of the Fund to provide financing to the Central African Republic (C.A.R.) notwithstanding official bilateral external arrears to Libya. It does not alter staff’s assessment of policy issues and recommendations contained in the report.
2. Staff has not yet received consent from the Libyan authorities regarding the provision of Fund financing to the C.A.R., but staff assesses that the Fund can nevertheless provide financing to the C.A.R. Under the Fund’s lending-into-official-arrears (LIOA) policy, in the absence of creditor consent, the Fund can only lend into official bilateral arrears under carefully circumscribed circumstances. In the case of the arrears of the C.A.R. to Libya, staff assesses that these circumstances are met. Specifically, since the arrears are related to official sector involvement under a non-representative Paris Club agreement, staff had to assess whether a set of three criteria is met. Staff’s detailed assessment is provided as part of this supplement, which will be added to the staff report. Staff recommends approval of C.A.R.’s request for a three-year arrangement supported by the Extended Credit Facility notwithstanding official bilateral arrears to Libya.
Annex I. Lending into Arrears to Official Bilateral Creditors
Staff assesses that the conditions are met for the Fund to provide financing to C.A.R. in line with the policy on arrears to official bilateral creditors, notwithstanding its outstanding arrears to Libya. In particular:
• Prompt financial support from the Fund is considered essential and the member is pursuing appropriate policies. C.A.R. continues to face significant macroeconomic challenges and deep-seated structural rigidities hindering growth. Financial support from the Fund is considered essential to allow for orderly adjustment by covering the protracted balance of payment need, catalyzing external support, and supporting the successful implementation of C.A.R.’s program. C.A.R.’s policies in the context of a new ECF-supported program covering 2020–22 are expected to pursue macroeconomic stability and external viability through fiscal and structural reforms, notably by mobilizing domestic revenue, enhancing the efficiency of spending, restoring and building basic infrastructure and utilities, and improving governance and the business environment.
• The debtor is making good faith efforts to reach agreement with the creditor on a contribution consistent with the parameters of the Fund-supported program:
• In terms of process, the C.A.R. authorities have contacted the Libyan authorities bilaterally through letters (most recently on December 4, 2019) and meetings (most recently last March in Tunis), offering to engage in substantive dialogue and start a collaborative process on resolving the outstanding arrears. Relevant information has been shared with the Libyan authorities on a timely basis. The C.A.R. authorities are committed to continue making their good faith efforts until all the remaining arrears are resolved.
• The terms offered by the C.A.R. authorities to the Libyan authorities are in line with the financing and debt objectives of the Fund-supported program and would not result in financing contributions that exceed the requirements of the Fund-supported program. The terms offered imply a contribution that is not disproportionate relative to those sought from other official bilateral creditors at the time of the HIPC operation. Indeed, the authorities are seeking from Libya exactly comparable HIPC terms of 94 percent debt cancellation.
• The decision to provide financing despite the arrears is not expected to have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. The contribution sought from Libya did not account for the majority of financing contributions required from official bilateral creditors in the context of the HIPC operation. Libya does not appear to have a strong track record of providing contributions in the context of Fund-supported programs (having undertaken only 5 HIPC restructurings out of its total 18 Completion-Point debtors). Therefore, in staff’s view, providing financing to C.A.R. despite the arrears is not expected to have an undue negative effect on the Fund’s ability to mobilize future financing packages, given strong support from the international community in the context of the Fund-supported program for C.A.R. and the C.A.R. authorities’ efforts to resolve this in a timely manner.