Developments Prior to the COVID-19 Pandemic

2. While declining from 3.8 percent in 2018, growth remained in solid positive territory at 3.0 percent in 2019 owing partly to higher diamond and gold output albeit lower cotton and coffee production. Inflation remained below the regional convergence threshold of 3.0 percent. The current account deficit declined to 5.6 percent of GDP in 2019 from 8.0 percent in 2018 contributing to an improvement in the overall balance of payments. The overall fiscal balance excluding grants improved while public debt inched lower to 48.0 percent of GDP in 2019 from 50.0 percent in 2018. The banking system is well capitalized, profitable and liquid, and non-performing loans have declined from 19.1 percent in August-2019 to 12.6 percent at end-2019. The outlook was broadly favorable as GDP growth was projected to 5.0 percent over the medium-term supported by improvements in mining and energy sectors.

3. The authorities have pursued a recovery and peace building process laid out in the February 2019 Political Agreement for Peace and Reconciliation. Presidential and legislative elections are scheduled for December 2020 and are expected to further consolidate stability. At the same time, further progress is needed to resettle the high number of refugees displaced during the insecurity period.

Impact of the COVID-19 Pandemic and Policy Responses

4. The number of confirmed COVID-19 cases in CAR has reached 12 individuals as of April 16, 2020. As indicated earlier, the authorities have acted swiftly to contain the spread of the pandemic with notably the closures of borders and schools, travel restrictions, the interdiction of large gatherings and the promotion of good hygiene practices. The response plan prepared in collaboration with the WHO aims to ensuring medical treatment to infected people, enhancing control at main borders and strengthening the healthcare system. The plan is expected to cost CFAF 27 billion (2 percent of GDP). That said, the country is facing important infrastructure challenges, including in water supply, which alter the effectiveness of the response plan.

5. The pandemic is significantly affecting all sectors of the economy as result of lower external demand, commodity prices and remittances as well as disruption of trade with neighboring countries and activity slowdown resulting from borders closure. As a consequence, the economic outlook has worsened. The GDP growth projection for 2020 has been revised downward to 1.0 percent while inflation will increase to 3.5 percent. The external account balance is expected to deteriorate including on grounds of reduced financial flows. This will result in a large external financing gap. On the fiscal front, the primary domestic deficit will widen on account of lower revenues and higher health-related spending, creating also substantial financing needs.

6. The authorities are firmly committed to pursue prudent macroeconomic policies and structural reforms towards improving domestic revenue mobilization, strengthening public financial management, and enhancing governance and the business climate, as envisaged under the ECF arrangement. Meanwhile, they ought to loosen the fiscal stance to accommodate pandemic-related expenditures. Without losing sight of their policy priorities for inclusive growth and poverty reduction, the government will also save up to 0.5 percent of GDP or CFA 6 billion on non-priority spending. Assistance to the vulnerable segments of the population will be scaled up as soon as additional financial support from partners become available.

7. As regard monetary and financial policies, the regional central bank BEAC has lowered policy rates, increased liquidity provision, expanded the range of financial collaterals for its refinancing, and reduced the cost of bank services to support the economy. At the same time, the regional banking commission COBAC is strengthening its supervision to preserve financial stability.

Request for Financing Under The RCF

8. The Central African Republic authorities are requesting a disbursement under the exogenous shock window of the Rapid Credit Facility equivalent to 25 percent of the country’s quota or SDR 27.85 million to cover part of the significant financing needs created by the pandemic. The disbursement will not affect the country’s high risk of debt distress rating and its capacity to repay the Fund which is considered as adequate. At the same time, the authorities are determined to pursue their efforts towards reaching satisfactory agreements with all bilateral creditors to improve debt sustainability. While support from other donors including the World Bank and the European Union will complement the RCF resources, more external assistance in the form of grants and concessional financing is needed to close the financing gaps. They hope they can count on such solidarity.

Conclusion

9. The COVID-19 pandemic has added important needs to C.A.R. and is threatening the authorities’ efforts towards recovery and peacebuilding from a very fragile situation. The authorities will highly appreciate the Executive Board’s approval of their request for emergency financing to strengthen the country’s capacities, particularly in the health system, to cope with the pandemic. This will also help lay the foundation for pursuing macroeconomic stability and inclusive growth after the pandemic subsides.