Central African Republic: Request for Disbursement under the Rapid Credit Facility—Debt Sustainability Analysis
Author:
International Monetary Fund. African Dept.
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Publication Date:
28 Apr 2020
eISBN:
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; real GDP growth; concessional debt financing; sustainability framework; debt-carrying capacity; financing strategy; Stress testing; Contingent liabilities
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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

Central African Republic1 Joint Bank-Fund Debt Sustainability Analysis

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Debt coverage has not changed since the last DSA.

With a score of 2.44, C.A.R.’s composite indicator, which is based on the October 2019 WEO and the 2018 CPIA, signals a weak debt-carrying capacity.

This debt sustainability analysis (DSA) updates the joint World Bank-IMF analysis of December 2019 to reflect the most recent outlook, which has been substantially altered by the COVID-19 pandemic. The Central African Republic (C.A.R.) remains at high risk of external debt distress and overall high risk of debt distress, unchanged from the most recent DSA of December 2019.2 These risks have increased owing to the high uncertainty surrounding the economic impact of the COVID-19 pandemic. While solvency indicators remain below their relevant thresholds, the disbursement under the RCF is projected to accentuate the breaches of the liquidity indicators over the medium term. Sensitivity of debt indicators to standard stress tests, the high uncertainty surrounding macroeconomic projections, a volatile security environment, and sizeable contingent liabilities are all considerations supporting the high-risk assessment. Debt is projected to remain sustainable over the medium term provided that the authorities move ahead with the policies and structural reforms committed under the ECF arrangement once the effects of the COVID crisis wear off. Given the difficult debt situation, staffs recommend that the government’s investment program requires grant financing, with concessional debt financing to be considered in exceptional cases.

The current macroeconomic framework reflects currently available information. Updates of the economic impact and policy response to the COVID-19 crisis are rapidly evolving and risks are heavily tilted to the downside.

Table 1.

Central African Republic: External Debt Sustainability Framework, Baseline Scenario, 2017–40

(Percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r – g – ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α = share of local currency-denominated external debt in total external debt. 3/ Includes valuation adjustments. For projections also includes contribution from price and exchange rate changes. High value of the residual is related to capital grants which are not captured in this presentation. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

Central African Republic: Public Sector Debt Sustainability Framework, Baseline Scenario 2017–40

(Percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central, state, and local governments plus social security, central bank, government-guaranteed debt. Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Figure 1.
Figure 1.

Central African Republic: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30

Citation: IMF Staff Country Reports 2020, 137; 10.5089/9781513542362.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The alternative scenario corresponds to the latest DSA (December 2019)3/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Central African Republic: Indicators of Public Debt Under Alternative Scenarios, 2020–30

Citation: IMF Staff Country Reports 2020, 137; 10.5089/9781513542362.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The alternative scenario corresponds to the latest DSA (December 2019)
Table 3.

Central African Republic: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30

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Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Central African Republic: Sensitivity Analysis for Key Indicators of Public Debt, 2020–30

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Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Figure 3.
Figure 3.

Central African Republic: Drivers of Debt Dynamics – Baseline Scenario

Citation: IMF Staff Country Reports 2020, 137; 10.5089/9781513542362.002.A002

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

Central African Republic: Realism Tools

Citation: IMF Staff Country Reports 2020, 137; 10.5089/9781513542362.002.A002

1

This DSA has been prepared jointly by the IMF and World Bank, following the revised LIC-DSF Framework and Guidance Note (2017) in effect as of July 1, 2018.

2

Country Report No. 20/1, January 2020.

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Cover IMF Staff Country Reports
Central African Republic: Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2020: Issue 137
Publisher:
International Monetary Fund
ISBN:
9781513542362
ISSN:
1934-7685
Pages:
38
DOI:
https://doi.org/10.5089/9781513542362.002
  • Figure 1.
    View in gallery
    Figure 1.

    Central African Republic: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30

  • Figure 2.
    View in gallery
    Figure 2.

    Central African Republic: Indicators of Public Debt Under Alternative Scenarios, 2020–30

  • Figure 3.
    View in gallery
    Figure 3.

    Central African Republic: Drivers of Debt Dynamics – Baseline Scenario

  • Figure 4.
    View in gallery
    Figure 4.

    Central African Republic: Realism Tools

Figure 1.

Central African Republic: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2020–30
Figure 2.

Central African Republic: Indicators of Public Debt Under Alternative Scenarios, 2020–30
Figure 3.

Central African Republic: Drivers of Debt Dynamics – Baseline Scenario
Figure 4.

Central African Republic: Realism Tools