Central African Republic: Request for Disbursement under the Rapic Credit Facility—Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic
Author: International Monetary Fund. African Dept.
Publication Date:
28 Apr 2020
eISBN:
9781513542362
ISBN:
9781513542362
Language:
English
Keywords:
ISCR; CR; financing; assistance; financing gap; balance; Bank-Fund Debt Sustainability Analysis; financing needs; Central African Republic authorities; current account; C.A.R. authorities; Credit; Debt sustainability analysis; Fiscal stance; Arrears; Global; CAR. health system; ECF request disbursement; IMF obligation; debt service; COVID-19
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Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic

Abstract

Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic

Context

1. While improving slowly, the security situation remains precarious at the start of this electoral year. More than one year after it was signed in February 2019, the Political Agreement for Peace and Reconciliation still holds and has, belatedly, started to translate into some tangible progress, such as the deployment of government forces in some regions and the gradual establishment of mixed security brigades. Sporadic outbreaks of violence have, however, left many dead, both in Bangui in late December and in the Northern provinces since then, underlining the precarious nature of the situation and the challenges ahead. As a result, the number of refugees is believed to have increased slightly over the last few months, to around 611,000 (about 13 percent of the population) at end-February.1 The tensions that surrounded the return to the C.A.R. of two former presidents, while well managed, illustrated the risks of instability in the run-up to the presidential and legislative elections scheduled for December.2 The financing of the elections is not yet fully secured.3

2. With 10 cases of Covid-19 infection already confirmed in C.A.R., the authorities have adopted a number of measures to contain its spread and a response plan to strengthen the capacity of the country to cope with its impact. These measures include the closing of borders, schools, and most public establishments, a ban on meetings of more than 15 people, and restrictions on the movement of people from Bangui. The response plan, costing about CFAF 27 billion (2 percent of GDP), was prepared in collaboration with the World Health Organization (WHO), and aims at addressing some of the national health system’s main weaknesses in a more durable way (Box 1).

3. The authorities have requested a disbursement under the Rapid Credit Facility (RCF) to address the urgent balance of payments needs generated by the COVID-19 crisis. This will allow the authorities to implement their response plan without having to unduly reduce other necessary social, infrastructure, and security spending. Thus, it will contribute to maintaining security and stability while enabling the continued implementation of the peace agreement and preparation for the elections.

4. Performance under the new ECF program has been disappointing so far. Based on preliminary data, all the end-December quantitative performance criteria were missed, on account of low domestic revenue, high government spending, and low domestic arrears repayments (see ¶6). Furthermore, quantitative indicators on social spending and the recourse to exceptional spending procedures were also breached, while the end-January structural benchmark on the recruitment of a service provider to assist the authorities in controlling import valuation and securing timber export revenues was not met.

Response Plan to the COVID-19 Pandemic

  • The authorities have been monitoring the COVID-19 pandemic since it first spread beyond China; this has intensified since the first cases were detected in Africa On March 6, the government adopted a series of measures applicable to all individuals traveling to CAR., including asking people entering the country to submit to a mandatory temperature check and asking travelers arriving from countries with many confirmed cases to self-quarantine. On March 26, President Touadéra announced that new measures would be applied for 15 days, including: the closing of schools and the country’s borders; a ban on any assembly involving more than 15 people; and restriction of movement of people from Bangui to other regions.

  • Despite these prevention measures, a first confirmed (imported) case of COVID-19 was reported on March 14 and 9 others had been reported by April 8.

  • Notwithstanding the country’s overall fragility, C.AR.’s health system has some strengths, most notably: an epidemic management system that has drawn experience from the recent Ebola crisis in the Democratic Republic of Congo; a network of laboratory centers across the country, including the WHO-accredited Institut Pasteur de Bangui; and a network of hospitals and drug suppliers across the country, which are crucial to fight the pandemic.

  • However, the health system still faces key challenges in confronting the pandemic, including: the lack of Covid-19 specific management system; the weak coordination mechanisms between the various partners; the unpreparedness of the medical teams; the low capacity of laboratories; and the limited public communications on the Covid-19 disease.

  • Accordingly, to slow down and eventually contain the further spread of the virus, the authorities adopted on March 17 a response plan, prepared in collaboration with the WHO. Overall, the response plan identifies the key challenges and the necessary steps to be put in place to efficiently respond to the Covid-19 pandemic in CAR. It contains measures to substantially strengthen the health system’s capacity to deal with pandemics such as the current one.

  • In the short term, the primary objective of the response plan is to ensure that the CAR. health system is ready to face a domestic major outbreak of the Covid-19 To do so, the plan rolls out five strategic pillars. There are designed to strengthen the coordination and collaboration between the various sectors, improve the management and lab capacities, step up the prevention measures, improve the medical treatment of confirmed cases and, finally, improve the communication and promote health.

Recent Developments

5. At about 3 percent, growth was lower than projected (4½ percent) in 2019, reflecting primarily a sharp fall in cotton and coffee production (owing to the longtime mismanagement of the sectors and to insecurity). While increasing, diamond and gold production was also lower than projected in 2019. Inflation remained contained, averaging 2.7 percent in 2019. Preliminary estimates suggest that, at about CFAF 65 billion, the current account deficit was slightly lower than expected (CFAF 76 billion) in 2019, owing mainly to a sharp increase in current transfers by NGOs and an upward revision of the revenues paid by the United Nations Multidimensional Integrated Stabilization Mission in the C.A.R. (MINUSCA) to its local employees. As expected, the trade deficit increased slightly, to more than 15 percent of GDP, on buoyant imports.

6. Fiscal developments did not meet expectations in 2019. At CFAF 47.1 billion, the domestic primary fiscal balance was significantly higher than targeted under the ECF arrangement (CFAF 40.9 billion, leading to a deviation of 0.5 percent of GDP), reflecting both lower domestic revenue and higher primary spending. The CFAF 1.9 billion revenue shortfall reflected primarily lower provincial revenue and transfers to the budget of the parafiscal taxes levied by public agencies. The higher spending owed mainly to the fact that the savings on goods and services discussed last October were not fully implemented, which were only partly offset by lower capital expenditures. Social spending was lower than targeted (CFAF 22.7 vs. 25 billion). While declining further, the use of exceptional spending procedures remained, at 5.5 percent, slightly above the 5-percent target. The higher deficit was financed through lower deposit accumulation with BEAC and slightly lower-than-targeted (CFAF 28.5 vs. 29.5 billion) domestic arrears repayments.

7. Based on preliminary estimates, the public debt-to-GDP ratio continued to decline in 2019, albeit by less than anticipated. The ratio is estimated at about 48 percent at end-2019, compared to 50 percent at end-2018 and 63 percent at end-2014. The authorities have continued their efforts to resolve pre-HIPC external arrears.

8. At end-2019, the banking system remained adequately capitalized, liquid, and profitable (Table 7). The capital adequacy ratio remained above 30 percent. The non-performing loans ratio declined further, to 12.6 percent. At the same time, credit to the private sector decelerated further, declining by 1.6 percent year-on-year in December, owing to the ongoing insecurity, political uncertainty, and limited business environment.

Table 1.

Central African Republic: Selected Economic and Financial Indicators, 2018–25

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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 expenditures.

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

Table 2a.

Central African Republic: Central Government Financial Operations, 2018–25

(Billions of CFAF)

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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.

Budget support loans to be identified from 2023 to 2024

Including arrears and on-lending of IMF resources.

Table 2b.

Central African Republic: Central Government Financial Operations, 2018–25

(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.

Budget support loans to be identifed from 2023 to 2024

Loan agreements with commercial banks.

Including arrears and on-lending of IMF resources.

Table 3.

Central African Republic: Monetary Survey, 2018–25

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

Central African Republic: Balance of Payments, 2018–25

(Billions of CFAF)

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