A. Strengthen Transparency and Law Enforcement

5. Two major weaknesses affect the governance structure in CAR: transparency and law enforcement, which are fundamental for laying the groundwork for good governance in CAR. They affect the fight against corruption, the rule of law and the business environment. They also generate risks in anti-money laundering and the financing of terrorism (AML/CFT). It is essential to address these key issues to instill confidence in the government and fight impunity.

B. Strengthen the General Legal Framework for Fighting Corruption

14. CAR is considered particularly vulnerable to corruption. The quantitative and qualitative indicators, as well as the meeting participants, indicated that corruption is considered a major problem in CAR, and that the ability of governments to control it is deemed poor.¹⁸ This is complicated by persistent insecurity in the country.¹⁹ A 2006 UNDP and Transparency International survey confirmed that for the people of CAR, corruption is a real societal phenomenon, present in every sector of national life.²⁰ It seems that this is still true, since the 2019 Transparency International report on corruption perceptions indicates that there are major corruption risks in CAR.²¹

15. Many objectives of the 2012 national strategy to fight corruption have yet to be achieved, and the strategy should be reviewed. The current national strategy for fighting corruption was adopted in 2012²² after a lengthy public consultation process, and it yielded an assessment of corruption risks with which CAR is confronted, as well as a plan for addressing it. In the context of this strategy, the March 30, 2016 Constitution created the High Authority for Good Governance (HABG).²³ One of the strong points of the HABG lies in the fact that its members, High Commissioners, come from a very broad sampling of society.

16. There have been improvements in the legal toolkit for combating corruption, but greater efforts are necessary regarding the criminalization of corruption and the transparency of court decisions. CAR ratified the United Nations Convention Against Corruption (UNCAC),²⁴ and the 2010 penal code includes various offenses related to corruption.²⁵ A certain number of gaps in the official legal framework were identified in the system for examining the implementation of the UNCAC. Key weaknesses include the technical definitions of offenses related to corruption, the lack of statistics on investigations and proceedings, and the lack of cases reported. However, major gaps persist in the criminalization of offenses linked to acts of corruption covered by the UNCAC.²⁶ To be sure, the lack of data on the prosecution of offenses related to corruption makes it very difficult to evaluate the extent to which corruption matters are systematically brought before the courts. Anecdotal evidence indicates that corruption proceedings are extremely rare.

17. The HABG has a very wide-ranging mandate, but resources are limited. The High Authority is charged with improving governance in many areas and in different ways, mainly by protecting minority rights and evenly distributing the profits obtained from natural resources. For fighting corruption, the HABG is responsible for general awareness of corruption risks, cooperation among institutions that help fight corruption risks, and strengthening the ability of government institutions to deal with corruption risks.²⁷ The HABG also has the power to require any administration, institution or person (individual or legal entity) to submit the information it deems necessary for its activities.²⁸ Unjustified refusal to cooperate with its requests constitutes a violation sanctioned by the penal code. With a very broad mandate and resources that are currently limited, it will be important for the HABG to prioritize its activities carefully. In particular, it will be important for the HABG to concentrate its work on the areas at high risk for corruption in CAR and, consequently, it should ensure that these risks are fully understood.

18. The legal system for punishing corruption is affected by larger weaknesses in the judicial system. As indicated elsewhere in this report, CAR legal system suffers from a certain number of weaknesses, caused in part by considerable limitations of resources and the current context in CAR. These weaknesses, especially the lack of access to basic legal documents for judges in some regions, naturally affect prosecutions for corruption. In this regard, no statistics are available on the number of corruption cases that are prosecuted. The lack of published rulings, including those for corruption matters, affects legal security and also indicates that the higher jurisdictions do not provide any guidelines to the lower jurisdictions on these matters. The lack of statistical data and rulings issued also makes it impossible to measure efforts to fight corruption, which supports the culture of impunity.

19. Asset reporting, introduced in the 2015 Constitution, for political officials and senior civil servants,²⁹ is an important component of fighting corruption,³⁰ yet there are no penalties for noncompliance and improvements are needed in accordance with best practices. Two reports are supposed to be filed: one before taking office and another after leaving office. However, procedures vary according to the persons to whom this applies, and this aids in creating confusion for implementing them. They are filed with the Constitutional Court and the Court makes them public. The 2015 Constitution provides that a law must determine the nature of sanctions for failing to declare and/or false declarations. However, such a law has yet to be drafted, which forces the Constitutional Court to limit itself to reminders for the requirement to report assets. Although most of those required to do so published their assets, some continue to fail to comply with their obligation, thereby helping to reinforce the sentiment of impunity. The HABG has the authority to evaluate financial information that is provided.³¹ Other key reforms to be planned according to good international practices are increasing coverage to include high-risk professions and close relatives and partners, and clarification of the nature of the assets to be disclosed to include tangible and intangible assets and interests held or held in real property in CAR or abroad. Finally, a verification system should be envisaged.

20. A targeted and realistic strategy to fight corruption should be able to attack the culture of impunity by strengthening the formal punishment of corruption. Since the HABG is in charge of developing and disseminating CAR anti-corruption strategy, it will be very important to base any anti-corruption strategy on key matters taking CAR’s limited human and financial resources into account. In particular, the HABG should have the resources needed to perform its vital mandate. It would also be important for CAR to take specific measures to bolster the legal framework for fighting corruption by introducing new legislation to modify the areas for improvement that are identified in the legal framework, while strengthening the capacities of the prosecutor and the judiciary for prosecuting and punishing corruption. This would be strengthened by publishing court rulings on corruption. Also, producing baseline data on court proceedings for corruption would better measure the fight against corruption. Finally, given the multifaceted role that financial disclosure plays, attention should be paid to reforms that aim to align this regime with best international practices.

21. Recommendations to strengthen the general anti-corruption framework:

• Make it mandatory for the Ministry of Justice to publish a table twice a year that indicates: (i) the number of referrals it received from the HABG, the National Finance Investigation Agency (ANIF), and other control entities; (ii) the number of cases that were investigated; (iii) the number of proceedings brought; and (iv) the number of sentencings for corruption.

• Adopt a new anti-corruption law consistent with UNCAC provisions, and in particular with regard to the incrimination of corruption offenses. This new law should be based on the evaluation of the first cycle of the review for implementing the UNCAC.

• Strengthen the system of asset declarations with a law that provides for: (i) sanctions and penalties if the requirement to submit the declaration is not met, or in the event of an untruthful declaration; (ii) expand the coverage of persons who must declare their assets and include high-risk professions not mentioned in the Constitution; (iii) clarify the form for reporting assets (including foreign holdings); and (iv) expand the asset declaration to include the closest family members and associates.

• Evaluate the implementation of the 2012 national anti-corruption strategy and update it, taking prudent measures by order of priority and taking into account the country’s capacity and resources. The new strategy should focus on the main risks of corruption in CAR.

• Monitor the truthfulness of information submitted in asset declarations, mainly by crosschecking information with the information the tax administration has.

• Give the HABG the human and financial resources it needs for its mission. Revise the bylaws of agencies in charge of supervising public activities, such as the IGF and the IGE, so that they are able to submit their documentation when the HABG requests it. This will enable the HABG to use its right of self-referral to submit the files for which court proceedings are recommended to the prosecutor’s office.

C. Improve the Rule of Law³²

22. The quantitative indicators show that the rule of law in in CAR faces major challenges. Two aspects related to the rule of law are evaluated in Doing Business, namely: (i) contract enforcement; and (ii) resolving insolvency.³³ Although CAR is deemed to have a better performance for resolving insolvency, both scores are poor.³⁴ In both cases, costs and delays promote low scores and the general lack of efficiency in processes. Even though performance in CAR in the composite evaluation composite of Worldwide Governance Indicators for the rule of law showed a certain improvement over these last years, the overall evaluation indicates serious weaknesses.³⁵ This trend is also reflected in the World Bank Country Policy and Institution Assessment (EPIP).³⁶

23. The integrity of court processes for enforcing claims is rendered vulnerable due to judicial insecurity, which increases the cost of cases substantially³⁷ In the judicial system, delays are considerable, and it can take up to eight long years to process applications brought before the courts. Many stakeholders mentioned this to the mission, and the lack of any official data on judicial performance makes a more qualified evaluation impossible. Once rulings are issued, enforcement is often complicated. Due to delays, it is often impossible to locate underlying assets or determine if in the meantime they were destroyed (due to the security situation). These problems are exacerbated by insufficient administrative capacity due to the lack of material means (such as the necessary statutes) and specialized training in the judicial system. The fact that court decisions are not published may lead judges to make decisions that are sometimes arbitrary. The mission was informed of this and the authorities are attempting to resolve it. Greater specialization for the courts of justice is needed, in particular for settling trade disputes.³⁸ Moreover, opportunities for recourse against the judiciary are not used because of the perception of a risk of retaliation or a risk of lack of effect. In sum, all of these vulnerabilities affect the cost of doing business, for example, by increasing the amount of collateral needed to obtain a bank loan. Nonetheless, it should be emphasized that courts are not functioning in a number of regions in the country due to the current situation.

24. The protection of property rights is weakened by the fact that notarized transfers of real property are not compulsory. CAR Constitution acknowledges the right of everyone (individuals and legal entities) to own property.³⁹ Under the Constitution, the government can deprive persons of their property only in cases of public interest declared legally and only in exchange for paying equitable compensation before expropriation. Even though these provisions provide for legal protection of property, in practice there is often uncertainty with regard to real property rights. The use of private transactions instead of using notarized documents introduces a level of uncertainty for ownership of real property. In addition, an effective system of asset reporting by civil servants can function optimally only if transfers of real property are notarized.⁴⁰ Yet private transfers of real property are also risky and ineffective in that they may be considered illegal because they are not recorded. The mission was informed that lawsuits over ownership are common. Finally, such transactions also ultimately affect the accuracy of the property register.

25. Recommendations to strengthen the rule of law:

• Have the Ministry of Justice publish data once a year, court by court, on: (i) the number of new cases settled during the year; (ii) the total number of cases brought before the courts; and (iii) the average amount of time it takes for the courts to process a case.

• Initially, ensure that all judges have access to basic legal documents. Next, schedule specialized training sessions for commercial court judges.

• Review how to strengthen the statutory requirement of the 1958 law under which transfers of real property require notarized documents in order to decrease the number of private transactions.

• Provide for administrative sanctions for judges who would render rulings contrary to the law.

D. Strengthen Market Regulation to Foster Inclusive Growth

26. The legal organization of markets requires strengthening the rules of law. The statutory and regulatory framework for markets is perceived as inadequate. Worldwide Governance Indicators deems that the quality of regulation CAR is -1.48, one of the worst scores in the world, while the Doing Business indicators on starting businesses place CAR in the lowest decile in the world.⁴¹ One key vulnerability factor in the market regulation framework is the absence of transparency (see section above). Other more specific aspects also have a negative impact on the business environment. For example, dismissals deemed “wrongful” pave the way to compensation that is difficult to sustain financially and that can amount to several decades of salaries. The authorities are aware of these vulnerabilities and have made significant efforts; including: streamlining parafiscal taxes; establishing a one-stop shop for the tax administration, digitization of tax, Customs and spending procedures, and a revision of the labor code to limit compensation for wrongful dismissals. More fundamentally, it will be important in the coming years for the authorities to implement structural reforms that facilitate trade. In the short and medium term, essential issues are emerging in Customs operations (see Section IV) and in implementing reforms to resume the country’s mining exports.

27. Starting a business is costly and time-consuming, which makes it difficult to fight the informal sector. According to the Doing Business assessment, CAR compares poorly to its regional peers in starting businesses.⁴² Ten individual steps are necessary with a timeline for implementation estimated at 22 days. Although there is a “one-stop shop” for starting businesses, in practice, a certain number of additional steps are required. The Bangui Chamber of Commerce keeps the records of companies registered in Bangui. The registrations are on paper and cannot be viewed online. In addition, the public cannot access these documents and they do not contain information on beneficial owners of businesses.

28. Recommendations to strengthen market regulation:

• Finalize the audit of all parafiscal taxes and abolish those with no relevant economic justification.

• Strengthen the one-stop shop for starting companies and provide support to taxpayers.

• Establish a register of legally founded businesses that the public is able to access online.

E. Anti-Money Laundering and Combating the Financing of Terrorism

29. Strengthening the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime in CAR is very important to assist in combating corruption. CAR is exposed to serious AML/CFT risks. These risks include the country’s porous borders, the high level of the informal sector, the economic nature of the economy and the illegal mining of natural resources. The domestic real property sector was identified as a key area in which there is money laundering. In addition, corruption usually causes its proceeds to be laundered. To address these risks and strengthen the AML/CFT regime, a certain number of measures should be taken.

30. The CEMAC community directive/regulation in respect of the prevention and punishment of money laundering is the main source of AML/CFT legislation in CAR. CAR is a member of the Task Force on Money Laundering in Central Africa (GABAC), the regional FATF-type organization. There was an assessment of the money laundering and financing of terrorism regime in CAR in 2010 and the report indicated significant weaknesses in implementing the FATF standard. Following this mutual assessment report, there were six follow-up reports on CAR that evaluated the measures taken to remedy the issues that were identified. Another follow-up report should be produced in 2020.

31. In CAR, the ANIF is the key stakeholder in AML/CFT. Created by a decree in 2004, the ANIF is in charge of obtaining information on money laundering and the financing of terrorism and submitting it to the judicial authorities. The ANIF must operate properly to ensure the effectiveness of the AML/CFT regime in CAR. In this regard, it has faced a number of difficulties.⁴³ To strengthen its work, the ANIF could consider having CAR join the Egmont group, which brings together about 164 financial investigation agencies throughout the world and assists with sharing information among them to make the AML/CFT frameworks more effective.

32. The effectiveness of the AML/CFT regime requires close cooperation among a number of stakeholders and the judicial system. Even though the institutions are supposed to report suspicious transactions to the ANIF, cooperation with other government entities is necessary. This includes the Customs and tax administrations, which can provide information on tax evasion and the transportation of cash. This cooperation should be strengthened. The judicial system is essential for prosecuting AML/CFT offenses. In this regard, police capabilities must be strengthened for investigations into these offenses and prosecution for the management of cases to prosecute them. The judiciary should be trained in matters of financial crime. The current absence of capacities in these areas can be demonstrated by the fact that as of today, no one in CAR has been prosecuted for money laundering crimes.

33. AML/CFT surveillance of banks and other financial institutions by a supranational organization – the Central African Banking Commission (COBAC) – is inadequate and compliance is poor.⁴⁴ The requirements for politically exposed persons (PPE) and beneficial owners are incorrectly covered in the CEMAC legal framework and they are not implemented. The CEMAC regulation should be adjusted to bring these requirements into full conformity with international standards. The obligations should be extended to domestic and foreign PPEs, including senior officials of international organizations and their beneficial owners. It should also be specified whether the PPE is from the CEMAC region or abroad. The CEMAC and COBAC regulations do not correctly define beneficial ownership and they do not indicate the detailed requirements to identify and verify them. Finally, the requirements of reporting suspicious transactions are not entirely compliant with the standards and they are not correctly implemented. Banks have filed a limited number of reports and other institutions have never submitted any suspicious transaction reports (STR). Although it is acknowledged that COBAC is not under the control of the national authorities, its supervisory role has a direct impact on the AML/CFT regime in CAR.

34. COBAC surveillance of financial institutions for AML/CFT is limited to a small number of requirements and is ineffective. The designated businesses and professions (for example, attorneys, accountants and real property agents) are not correctly regulated or supervised. There is no risk-based supervision of institutions, geographical locations, proceeds and clients (for example, PPEs and the beneficial owner). Moreover, there are no appropriate adequacy or verification tests of financial institutions during the authorization and change of ownership process. Effective and deterrent sanctions to improve compliance with the rules have not been imposed for violations of the obligations of financial institutions. Foreign exchange houses, brokerage companies, insurance companies and companies that transfer funds are not subject to AML/CFT requirements nor are they supervised. Designated nonfinancial businesses and professions are not regulated or supervised.

35. The lack of availability of information on the final beneficiaries of legal entities causes a certain number of governance problems, in particular for corruption and money laundering. The Organization for the Harmonization of Business Law in Africa (OHADA) issued uniform laws that include certain requirements to improve the transparency of legal entities. Commercial law requires persons involved in registering a business to provide and update basic information on the legal ownership and control structure of companies in the commercial register. In practice, basic information is available manually only. It is difficult to access and is not always accurate. Information on real ownership is not available and cannot be accessed in a timely manner.

36. Recommendations for fighting money laundering and the financing of terrorism:

• Quantify and detail the material and financial needs of the ANIF in order to improve its effectiveness.

• Encourage the sharing of financial information among jurisdictions. In addition to efforts made in COBAC and for FATF, CAR could consider applying to join the Egmont group, a global initiative in which one of the main objectives is to promote these types of exchanges.

• Require including information on beneficial owners in the articles of incorporation of companies and include it in the commercial register.

• Intensify training in financial crimes for the police, gendarmerie, the prosecutor’s office and the judiciary to improve the ability of the judicial system to prosecute perpetrators of financial crimes.

A. Adopt a Tax and Customs System that Meets the Criteria of Transparency, Fairness, Neutrality and Effectiveness

38. The process of adopting tax and Customs statutes or statutes that require withholding from businesses or citizens suffers from a lack of civil society participation. For example, the Economic and Social Council should be consulted according to the law. However, in practice it is in fact excluded from the process of adopting the budget law. In addition, the private sector is not always informed of new tax and Customs provisions in the draft budget law before it is submitted to Parliament. This situation encourages a climate of uncertainty for businesses and promotes the practice of lobbying in order to pass parliamentary amendments that are often specific. The process of preparing tax or Customs statutes should: (i) be managed by the tax and Customs administrations; and (ii) provide a reasonable amount of time for consultation by the private sector and the Economic and Social Council.

39. The Central African ordinary law tax system remains cumbersome and complex. There are numerous cases of double taxation (turnover, salaries and compensation)⁴⁵ despite work to upgrade the tax and Customs system driven by the CEMAC Commission⁴⁶ with the support of the IMF Fiscal Affairs Department (FAD). For Customs, the mission found no fewer than 15 revenue items that were allocated and validated (even if many of them originated in the community), in addition to the main duties and taxes (indirect customs duties—DDI, specific customs duties—DDS, VAT, DA—excise taxes and the income tax/corporate tax) provided for by the Customs Code and the General Tax Code. The January 2017 FAD tax policy mission⁴⁷ found no fewer than 75 different withholdings on economic operators, with 22 special allocation accounts for a total estimated amount of 1.7 points of GDP. The authorities should accelerate the implementation of the action plan⁴⁸ that seeks to abolish these inefficient parafiscal taxes that are earmarked for the special allocation accounts (SAC) of some public entities and offices and that are often taken outside the budget law.

40. Tax exemptions contribute to the complexity of the tax system, and hence to its vulnerability to corruption. The large number of exemptions has weakened the business environment, leaving taxpayers to deal with a complex system, which makes it vulnerable to corruption. Exceptional exemptions granted by the authorities still persist. For imports, they were up from CFAF 36 billion in 2017 to 47 billion in 2018. These exemptions, often granted on an individual basis, contrary to statutory exemptions that are geared to business sectors, may create losses of revenue for the public treasury and they distort the system’s neutrality (except when they apply to international organizations, for example). Likewise, the tax administration continues to discover favorable tax regimes (convention on eligibility for the temporary preferential tax regime, establishment approval, etc.) that are granted individually to businesses outside any statutory framework. These practices generate unfair competition among businesses and thus they lend themselves to favoritism. Therefore, to better deal with the many exemption requests from various ministerial departments, in 2017 the decision was made to establish the Interministerial Committee in charge of Tax and Customs Exemptions (CICEFD). Nonetheless, given the efforts made by the authorities in the last few years to reduce exceptional exemptions, the very existence of the CICEFD, which actually processes exemption applications that are not provided for by current statutes, should no longer have to be justified. Good practices in this area consist of having exemptions or eligibility for tax/Customs advantages processed solely by the tax or Customs units that have jurisdiction to do so in the DGID and DGDDI.

41. The Exemption Management Fee⁴⁹ (RGE) is not consistent with the principles issued by the World Trade Organization (WTO), fails to recognize the initial objectives of statutory exemptions, and perpetuates rent-seeking in the administrations. The RGE is an amount to be withheld based on Order No. 93–006 of May 5, 1993, which establishes the Central African Republic budget for 1993, currently levies a tax of:

• 5 percent on “exempt” goods that are: (i) imported for administrations, local governments, public enterprises or government-owned corporations; (ii) imported as part of procurement; (iii) suspended from payment or exempt from duties by Customs tariffs or regulations (except for goods of CEMAC origin that pay only the VAT); or (iv) imported as part of establishment conventions signed by the government and some companies;

• 15 percent for imports of businesses licensed under the investment code regime and the preferential regime as established by law No. 88–014 for Central African SMEs and SMIs.

This withholding conflicts with both: (i) the WTO rules⁵⁰ that provide that a fee must be for a service actually rendered and that its amount is not necessarily correlated with the value of the goods (which excludes from the outset the proportional rates of 5 and 15 percent and instead argue for lump-sum amounts); and (ii) the expected objectives of lowering the cost of goods by exempting them, because in the end RGE rates are often higher than the normal taxation rate provided for by the CEMAC Customs tariffs⁵¹ (5 percent for essential goods and 10 percent for raw materials and capital goods 10 percent). In addition, the allocation for the RGE is not clearly defined and hence, it remains a tool that works for arbitrary decisions and the good will of some civil servants that are assigned to collecting it. For all these reasons, the mission proposes abolishing it unconditionally.

42. The tax code is so complex that it makes it difficult for taxpayers to comply with obligations and it promotes discretionary tax audits, which in turn generates risks of corruption. The Central African tax system is based on a system of filing tax returns and is designed to promote voluntary compliance with tax obligations. Unfortunately, the General Tax Code (CGI) still contains too many redundant provisions that are poorly arranged for penalties, fines and sanctions. This situation, for example, facilitates the practice of ad hoc negotiations by users who are unable to understand it and prefer to buy the benevolence of an employee to settle their case as quickly as possible. Likewise, tax audits that are conducted have no objective or updated analysis of risks, and too often they are still based on the discretionary authority of the officers in the entities. Thus, some enterprises are systematically audited each year, while others, with higher risks, are almost never audited. Finally, a “settlement” mechanism,⁵² which revises the results of an audit downward based on a decision of the Minister of Finance, is provided for in the CGI. These few examples of discretionary authority, which unfortunately are incomplete, perpetuate uncertainty and further undermine confidence in the tax administration by enterprises and society in general.

43. Settling conflicts with the tax administration is complex as well and paves the way for arbitrary decisions. The CGI provided for a joint entity known as the “Tax Commission,” called upon to arbitrate disputes over the tax base and some contentious cases. It is comprised of an equal number of private sector representatives and administration representatives. Unfortunately, it has never been operational. Making it operational could lower the number of contentious matters, the processing of which leaves much to be desired. To be sure, the current organization of processing complaints allows direct committal by the Minister of Finance and the Budget, who has three months to render his decision, and provides for just two decision-making levels for tax relief (less than CFAF 5 million for the Director General of Taxes and directly for the Minister of Finance for larger amounts).

44. Recommendations in favor of a more equitable tax and Customs system

• Reorganize the administrative and judicial phases of the dispute based on good practices that safeguard taxpayer rights.

• Reactivate the joint “Tax Commission” as soon as possible; it is to settle disputes and put in place an independent right of appeal for Customs matters.⁵³

• Final stage: a review by a higher court of appeals to settle pending disputes on the facts and on legal interpretation.

• Each quarter publish online the list of names of beneficiaries of all de jure or de facto exemptions with the losses of revenue they generate for the government coffers.

• Re-establish confidence in the tax system by: (i) abolishing the Interministerial Committee in charge of Tax and Customs Exemptions (CICEFD); (ii) strengthening the monitoring of usage and the final destination of exempt goods and services; and (iii) repealing the statutory provisions that put the Exemption Management Fee (RGE) in place.

B. Make the Administrations more Autonomous, Establish Real Leadership and Improve the Human Resources Management Policy

45. The tax and Customs administrations have limited autonomy. After the last restructuring, the organization chart of both administrations are relatively well designed, even though there is room for improvement. The management lines are well defined and there is clear separation between the functions of the central and operational administrations. Unfortunately, in reality, the General Directorate of Taxes and Government Property (DGID) and the General Directorate of Customs and Indirect Taxes (DGDDI) have limited management autonomy:

• Even though they have some of their own resources such as the information system fee, the leeway the two general directorates have is very limited, and the needs they express are not always correctly budgeted or available in a timely manner;

• Hiring does not always consider the needs of the administrations with regard to the skills of the employees that are hired. Government employees that have no qualifications in taxes or Customs (military, primary school teachers, etc.) are sometimes placed in Customs or Taxes;

• The senior officials of the tax and Customs administrations are not appointed for a fixed period and they have no assurance of stability when policy changes occur. Moreover, they do not always choose their associates since often they are appointed by the same decree that appoints the directors and unit chiefs;

• Both directors general have only a warning available to them, which is tantamount to a call to order, to reprimand employees with abnormal conduct. The Minister of Finance alone is responsible for implementing the various sanctions provided for by the statutes.

46. All of these weaknesses in autonomy have direct consequences on the vulnerability of managers and employees of the tax and Customs administrations for corruption. With the lack of resources, employees are led to use any and all means of funds to “advance” purchases of materials, which is a de facto incentive to collect these advances from taxpayers. Employees who are assigned permanently to entities with major issues such as the DFGE and Customs revenue in Bangui are perceived as establishing a clientele of “regulars.” This leads to jealousy among the other employees. Finally, it is impossible for the directors general to issue disciplinary sanctions such as reprimands, salary withholding and freezing of shares, which encourages rent-seeking and fosters a sense of impunity among some employees.

47. Recommendations to promote the autonomy of the tax and Customs administrations and strengthen the management of human resources:

• Promote leadership by example, primarily by introducing a requirement for senior officials to report their assets (see Box 1);

• Implement a real HR strategy incorporated into the multiyear strategy of the two administrations based on sound principles and practices to limit the vulnerability of employees to corruption. The principles are as follows: (i) hire personnel with the required qualifications and skills who also strictly observe ethics; (ii) provide ongoing support for training and ensure that promotion and assignment decisions are impartial and free of favoritism; (iii) limit the term of serving in vulnerable positions to no more than four years; and (iv) equitably distribute the advantages to which tax and Customs employees are entitled using timelines (refund of contributions, share of penalties, costs of proceedings, overtime [travail extra légal], and income generated by disputes).

• Implement a reliable, objective and transparent system to measure performances and for compliance with the rules of ethics in order to create emulation among the employees. The following are required to implement this measure: (i) in the DGDDI, create job descriptions and procedures manuals in ASYCUDA; and (ii) update what the DGID currently has in order to take into account the latest developments in SYSTEMIF 4.0. The reliability of the extractions by the systems of employee performance indicators will ensure maximum objectivity and better comparability of performances of employees assigned to performing the same tasks.

C. Digitize Tax and Customs Procedures

48. More digitization would support revenue collection efforts (Figure 5). There is still too much time spent on preparing tax and Customs declarations: (i) on the average, a business uses one full-time employee for one and a half months per year to complete tax returns; and (ii) it takes a declarant two weeks to prepare the documents necessary to clear Customs for his client’s goods. These long delays are rooted in the complexity of the systems and the result is a high risk of corruption.

Illustrations of Vulnerabilities in the Tax Administration and Customs

Citation: IMF Staff Country Reports 2021, 005; 10.5089/9781513566139.002.A001

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Illustrations of Vulnerabilities in the Tax Administration and Customs

Citation: IMF Staff Country Reports 2021, 005; 10.5089/9781513566139.002.A001

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Illustrations of Vulnerabilities in the Tax Administration and Customs

Citation: IMF Staff Country Reports 2021, 005; 10.5089/9781513566139.002.A001

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49. The tax administration is currently being digitized in order to curb risks of corruption and poor governance. As recommended by the successive FAD missions⁵⁴ that took place as part of the RMTF project,⁵⁵ the strategy of the authorities is based on the following three pillars: (i) create an online remote reporting platform for large and medium-sized enterprises; (ii) implement remote payment as part of connecting the public treasury’s information system to the SYGMA and SYSTAC payment systems in the BEAC; and (iii) launch the test phase for payment of the single comprehensive tax owed by micro- and small enterprises in Bangui.

50. In support of these efforts, the authorities are using the deployment of the SYSTEMIF 4.0 system which, in its current architecture, does not meet the DGID’s needs since it has no functionality: data tabulation, analysis and risk management, time and case management, performance management and automatic production of management indicators, etc. Nonetheless, to improve the transparency of the administration’s activities, to protect taxpayer rights, and to facilitate performance monitoring, it is essential to use SYSTEMIF to digitize all documents and to have the procedures that impact users (reminders, audits and collection). The mission also congratulates the authorities for having issued instructions making the use of SYSTEMIF mandatory and making documents not generated by SYSTEMIF unenforceable against users.

51. Recommendations in favor of the tax and Customs administration information systems:

• Conduct an independent audit of the performances, administration and use of SYSTEMIF 4 and ASYCUDA++;

• Secure the use of ASYCUDA to restore user confidence (Table 2);

• Make permanent the efforts made to eliminate temporary tax identification numbers by issuing an instruction abolishing the fast-track Customs clearance units [unités banalisées de dédouanement], and by prohibiting Customs officers from submitting declarations on behalf of declarants;

• Use a specialized link with the central server to interconnect the Central African Transit Facility in Douala and the Customs clearance offices in Beloko, Berberarti, Mongoumba and Gamboula;

• Accelerate the work of the Steering Committee for the project to design and implement remote tax procedures, created by order No. 0279/MFB/DIR-CAB of March 21, 2019, and expand its work to the study of paying taxes using mobile terminals;

• Replace the IT hardware in the DFGE and DFME, which are the main suppliers of DGID revenue (soon they are to implement remote procedures).

• Interconnect among them the tax and Customs administrations with the main partners (public treasury, budget, commercial bank, telephone companies, electrical utilities, etc.) to ensure data reliability and integrity. These interconnections will check some taxpayer information (address, status, activity level, etc.) and thus they will manage the proper management of tax and Customs documentation.

• Enhance transparency and give the users tools by making more information available on the websites of the administrations. Currently, the tax administration’s website is still inaccessible, and the latest update of the Customs administration website goes back to April 2018. Table 3, which describes the main information which, if published, may reduce vulnerability to corruption. Users of the tax and Customs administrations are entitled to expect that their transactions with them: (i) have a high degree of certainty and predictability; and (ii) are applied uniformly and consistently. Thus, discretionary powers should be transparent and managed.

^{Table 3.}

Central African Republic: Examples of Information to be Published on the Tax Administration and Customs Website

Source: IMF staff.

^{Table 3.}

Central African Republic: Examples of Information to be Published on the Tax Administration and Customs Website

Type of information	Impacts on curtailing corruption	Frequency
Vision and strategic plan of the tax and Customs administrations	Restore the confidence of the public in general and of businesses in particular	Annual
Forum and electronic grievance boxes on the social networks	Support the detection and prevention of unethical behaviors	Ongoing
Performance statistics for tax and Customs revenue	- Restore the confidence of businesses - Improve the accountability of the administrations - Ensure that an administration is neutral and that the tax system is fair and not discretionary	Quarterly
Statistics on fighting fraud by business sector		Monthly
Lists of taxpayers with Tax ID numbers, tax liability status, location and up-to-date status	- Facilitate meeting tax or Customs obligations for users - Public surveillance of inveterate fraudsters	Monthly
Statutes related to taxes or Customs (CGI, Customs Code, etc.)	- Facilitate meeting tax or Customs obligations for users	Ongoing
Code of Professional Conduct for DGID and DGDDI staff	- Support the detection and prevention of unethical behaviors	Ongoing
Clientele service charters and standards for performing tasks	- Strengthen the rights of tax and Customs administrations users	Ongoing
Procedures manual and functional job descriptions	- Facilitate meeting tax or Customs obligations for users - Support the detection and prevention of unethical behaviors	Ongoing
Practical user guide for SYSTEMIF and ASYCUDA		Ongoing
Organization chart and employee job directory	- Make civil servants responsible - Increase transparency in the administration - Protect users against arbitrary decisions - Guarantee user rights	Ongoing
Signature authority and authority for decisions and delegations		Ongoing

Source: IMF staff.

View Table

^{Table 3.}

Central African Republic: Examples of Information to be Published on the Tax Administration and Customs Website

Type of information	Impacts on curtailing corruption	Frequency
Vision and strategic plan of the tax and Customs administrations	Restore the confidence of the public in general and of businesses in particular	Annual
Forum and electronic grievance boxes on the social networks	Support the detection and prevention of unethical behaviors	Ongoing
Performance statistics for tax and Customs revenue	- Restore the confidence of businesses - Improve the accountability of the administrations - Ensure that an administration is neutral and that the tax system is fair and not discretionary	Quarterly
Statistics on fighting fraud by business sector		Monthly
Lists of taxpayers with Tax ID numbers, tax liability status, location and up-to-date status	- Facilitate meeting tax or Customs obligations for users - Public surveillance of inveterate fraudsters	Monthly
Statutes related to taxes or Customs (CGI, Customs Code, etc.)	- Facilitate meeting tax or Customs obligations for users	Ongoing
Code of Professional Conduct for DGID and DGDDI staff	- Support the detection and prevention of unethical behaviors	Ongoing
Clientele service charters and standards for performing tasks	- Strengthen the rights of tax and Customs administrations users	Ongoing
Procedures manual and functional job descriptions	- Facilitate meeting tax or Customs obligations for users - Support the detection and prevention of unethical behaviors	Ongoing
Practical user guide for SYSTEMIF and ASYCUDA		Ongoing
Organization chart and employee job directory	- Make civil servants responsible - Increase transparency in the administration - Protect users against arbitrary decisions - Guarantee user rights	Ongoing
Signature authority and authority for decisions and delegations		Ongoing

Source: IMF staff.

D. Promote Integrity and Develop a System of Administrative Sanctions

52. The digitization of procedures, which improves transparency, is a necessary but insufficient condition to limit vulnerability to corruption. Table 4 below shows that dysfunctions emerged in the Beloko Customs clearance office during the period of July to August 2019: (i) 91 percent of declarations were introduced by Customs officers, contrary to current statutes;⁵⁶ (ii) 92 percent of tax identification numbers (NIF) used were anonymous NIFs [NIF banalisés] (P999999P) that fail to identify the real recipients of goods; and (iii) 91 percent of declarations were submitted as simplified declarations (DS4), but regularizing them remains hypothetical because they are introduced exclusively by Customs officers with anonymous NIFs.

^{Table 4.}

Central African Republic: Analysis a Sample of 859 Declarations Subscribed Between July 4 and August 30, 2019, at the Beloko Customs Clearance Office (BD0008)

Source: DGDDI, August 2019.

^{Table 4.}

Central African Republic: Analysis a Sample of 859 Declarations Subscribed Between July 4 and August 30, 2019, at the Beloko Customs Clearance Office (BD0008)

Declarant		Recipient of goods			Type of declaration
	Number	Individual with NIF	Legal entity with NIF	Anonymous NIF P999999P	Simplified declaraiton DS4	Detailed declaration IM4	Total
Commissioner	2	9	4	62	0	75	75
Customs	-	72	6	706	784	0	784
Total		81	10	768	784	75	859

Source: DGDDI, August 2019.

View Table

^{Table 4.}

Central African Republic: Analysis a Sample of 859 Declarations Subscribed Between July 4 and August 30, 2019, at the Beloko Customs Clearance Office (BD0008)

Declarant		Recipient of goods			Type of declaration
	Number	Individual with NIF	Legal entity with NIF	Anonymous NIF P999999P	Simplified declaraiton DS4	Detailed declaration IM4	Total
Commissioner	2	9	4	62	0	75	75
Customs	-	72	6	706	784	0	784
Total		81	10	768	784	75	859

Source: DGDDI, August 2019.

53. These dysfunctions can be corrected easily by taking control of the administration of the ASYCUDA system, mainly by implementing the following measures: (i) a stricter access authorization policy; (ii) an ASYCUDA usage charter; and (iii) more frequent audits of system benchmarking and use. Streamlining procedures for issuing NIFs.

54. The tax and Customs administrations have no strategy to promote integrity. However, the DGDDI has a code of professional conduct and tools to design a national program for good governance and ethics in Customs matters, reproduced in the revised Arusha (1993) and Maputo (2002) declarations, developed by the Customs Cooperation Council.⁵⁷ The tax and Customs administrations have just reinstated Unit Inspections as part of the last reorganization⁵⁸ of the Ministry of Finance and the Budget. Unfortunately, this decree contains little information about the responsibilities of the Inspection Units, and it is still redundant in terms of the responsibilities of the Office of the Inspector General of Finance (IGF). In addition, it sets the number of unit inspectors per general directorate at five. This number is insufficient to properly carry out activities to supervise the proper implementation of the statutes and audits of the units.

55. Strengthen tools to promote the transparency of management operations in the tax and Customs administrations and the responsibility of managers. It is necessary to strengthen the internal control function: consistency of procedures and operations; observance of rules of professional conduct; relevance of indicators and reliability of performance measures; data integrity and reliability of IT tools; compliance with the rules for using IT tools, etc. It is also necessary to streamline the exercise of supervising the tax and Customs administrations (Accounting Office, the Office of the Inspector General of Finance and the Office of the Inspector General of Finance, see Section V.E). In addition, the production and publication of activity reports (performances and management of public funds), and the dissemination thereof to Parliament and civil society will send strong signals.

56. Recommendations to develop staff integrity:

• Strengthen the capacities of the two offices of the two-unit inspection entities that will be in charge of internal control and audit programs. These programs should strike an appropriate balance among positive strategies that promote a high level of ethics and sanctions in order to severely and effectively punish perpetrators of proven corruption with disciplinary procedures or court proceedings.

• Encourage staff, users and the public to report corrupt and unethical conduct or conduct that does not implement sanctions that are ordered. These practices are such that they place pressure on civil servants to strictly comply with the rules of ethics and conduct themselves in a professional manner in carrying out their duties. They will also restore public confidence because attempts to not prosecute some cases of failing to implement sanctions will be monitored publicly by civil society organizations or ordinary citizens.

• Conduct external audits in cases of serious and prevalent issues. When it is appropriate to conduct complex or large-scale investigations, or when corruption is widespread, the Office of the Inspector General of Finance (IGF) or the National General Inspection Office (IGE) may be enlisted to conduct comprehensive investigations and issue recommendations when they complete their work. Publishing the general points of their work and the results would further strengthen public confidence in government institutions.

• Adopt a program to foster integrity and a plan to fight corruption and strengthen the transparency of the tax and Customs administrations.

A. Further Digitization and Automation of Budgetary Processes

58. Carrying out budgetary processes is based on effective management systems and a legal framework that is now being modernized. In theory, automated systems ensure that the management framework is used properly. With these systems, stakeholders can perform their tasks for the expenditure chain and their controls on an ongoing basis and in compliance with current rules. They can also be used to automate the production of financial statements. Thus, these systems have become one of the guarantors of good public management. The legal framework for managing public expenditure is adequate overall and is being boosted by the modernization in progress. The authorities have committed to overhauling the legal framework to bring it into compliance with the CEMAC harmonized fiscal framework. To ensure that these statutes are effectively implemented, a gradual approach may be considered, in particular with regard to the implementation of a program budget, for example, through ad hoc trials. The transposition of the directives is now deemed complete, but there are still blind spots in the areas of procurement and external control, whose statutory and regulatory frameworks are old and seem obsolete (Table 5).

^{Table 5.}

Central African Republic:Status Update of the Public Expenditure Management Framework

Sources: CAR authorities and IMF staff.

^{Table 5.}

Central African Republic:Status Update of the Public Expenditure Management Framework

	Area	Transposition	Implementation
Budget Framework Law	Multiyear budget	Organic Law 18–013 of July 13, 2018. Implementing regulations still to be drafted	In progress: Medium term budgetary framework
	Program budget		Scheduled for 2021
	Deconcentration of management		In progress. Trials in 7 ministries
	Moving financial supervision out of its current location
	Cash management		Functional Treasury Single Account; room for improvement in cash flow plan
	Accountability regime		To be put in place for the managers
General Public Accounting Regulation	Execution procedures	Decree 19.091 of March 27, 2019	Normalization in progress
	Public accounting
Government Chart of Accounts	Financial statements and accounting standards	Decree by Decree 19.093 of March 27, 2019	Chart of accounts now being prepared
	Balance sheet and accrual basis accounting		Gradual implementation by 2024
Government Budget Classification	Budget execution by program	Decree No. 19.094 of March 27, 2019	Program classification in progress
Table of Government Operations (TOFE)	Financial statistics	Decree 19.092 of March 27, 2019	TOFE completely overhauled by 2024
Directives currently under discussion	Procurement	2008 Code creating the DGMP and ARMP	Institutions in place, assessment of the investment management and procurement framework scheduled in 2019, overhaul 2020
	Public-private partnerships	None
	External audit	2008 Organic Law	Law apparently obsolete, but the Accounting Office is functional and relatively independent (see INTOSAI criteria).

Sources: CAR authorities and IMF staff.

View Table

^{Table 5.}

Central African Republic:Status Update of the Public Expenditure Management Framework

	Area	Transposition	Implementation
Budget Framework Law	Multiyear budget	Organic Law 18–013 of July 13, 2018. Implementing regulations still to be drafted	In progress: Medium term budgetary framework
	Program budget		Scheduled for 2021
	Deconcentration of management		In progress. Trials in 7 ministries
	Moving financial supervision out of its current location
	Cash management		Functional Treasury Single Account; room for improvement in cash flow plan
	Accountability regime		To be put in place for the managers
General Public Accounting Regulation	Execution procedures	Decree 19.091 of March 27, 2019	Normalization in progress
	Public accounting
Government Chart of Accounts	Financial statements and accounting standards	Decree by Decree 19.093 of March 27, 2019	Chart of accounts now being prepared
	Balance sheet and accrual basis accounting		Gradual implementation by 2024
Government Budget Classification	Budget execution by program	Decree No. 19.094 of March 27, 2019	Program classification in progress
Table of Government Operations (TOFE)	Financial statistics	Decree 19.092 of March 27, 2019	TOFE completely overhauled by 2024
Directives currently under discussion	Procurement	2008 Code creating the DGMP and ARMP	Institutions in place, assessment of the investment management and procurement framework scheduled in 2019, overhaul 2020
	Public-private partnerships	None
	External audit	2008 Organic Law	Law apparently obsolete, but the Accounting Office is functional and relatively independent (see INTOSAI criteria).

Sources: CAR authorities and IMF staff.

59. There are many issues with the information system that the administration is attempting to resolve (Box 2). This is a recurring problem. In 2016 users reported weaknesses in the Government Financial Management Information System (GESCO) and blamed the system for the proliferation of exceptional procedures that were not corrected and delays in the production of financial statements. Deficiencies in the interfaces between systems were also mentioned, and they prevent reconciliations between Customs and tax files. Finally, the balance and the debt were not connected to the budgetary system. Since then, the minister has attempted to overcome the system’s deficiencies and train users to stabilize GESCO and provide more normal budgetary management. These praiseworthy efforts bring to light the need to push the digitization of government expenditure by acquiring a new integrated and more effective system.

60. The acquisition of a new government fiscal management information system (SIM-BA) is justified, but there are risks in the deployment timeline. The acquisition of SIM-BA is justified by the prospect that statutes derived from CEMAC fiscal management directives will come into effect. The January 1, 2021 deployment schedule, after a trial period in 2020, may prove to be ambitious. It does in fact require a set of related measures, mainly the formal adoption of the new CEMAC legal framework for public finances. Work to develop budgetary macro-processes in order to prepare specifications has begun based on draft statutes that comprise this new legal framework. Therefore, there is one more risk on the schedule since the stakeholders in the entities involved will have to learn the new budgetary and accounting management concepts.

61. Recommendations to prepare for a more gradual deployment of SIM-BA

• The GESCO system could be stabilized to extends its useful life for two or three more years. Despite GESCO’s weaknesses, it should be kept for a transition period that will necessarily be longer. To do so, the IT managers must be encouraged to finalize the technical adaptation work to correct the deficiencies in GESCO and to maintain user support in order to continue to standardize the management processes.

• Finalize the information systems master plan to provide for an interface among the various information systems that assist in managing public finances. The new SIM-BA system should be the backbone of budget execution and thus be incorporated into an updated master plan. The administrative and technical processes must be in place in order to facilitate information sharing between SIM-BA, the revenue applications (now under development), and the balance management and debt management applications. This will also require, among other things, interfaces between SIM-BA and the other relevant information systems.

• Synchronize the gradual deployment of SIM-BA with the deployment of the new management framework. Effective governance is needed for implementing the project and there should be rigorous acceptance testing phases, cross-cutting project management and effective communication in order to include all the stakeholders in the reform (mainly and especially the users).

B. Strengthen the Expenditure Execution Procedures

62. The civil conflict had a profound effect on confidence in the government. From 2013 to 2015, the government attempted to pay the essential expenses except for two months of wages and two quarters of pensions. To do so it contracted massive loans. As of end-2015, more than 50 percent of the public debt was external arrears (18 percent of GDP) and domestic arrears (17 percent of GDP). This undermined the government’s signature abroad and created cash tensions for the local economic system. With facilities and essential services lacking, business environment deteriorated significantly. Confidence in the government as payer was seriously altered. Only a handful of suppliers agreed to be paid after the service was provided, and there were also very few local and foreign investors since the outlook for returns on investments in the medium term was nonexistent.

63. The authorities adopted a plan to clear the domestic arrears, which paved the way for renewed confidence in the government, even though the process is a bit flawed. Harnessing domestic arrears (supplier debts) thus became a priority for the government. A comprehensive plan to clear the arrears was adopted along with a schedule. The plan contains firm guarantees to ensure that the reimbursement process is transparent, including the quarterly progress reports produced by an international auditor. Periodic reports prepared by an external auditor confirm the implementation of the strategy and the application of the rule. This approach seems to be bearing fruit in terms of the provisional figures the mission was given (Table 6), even though strict control and identification requirements delayed some reimbursements that were initially scheduled in 2019. Other than the initial payment plan, the audit identified amounts that were placed in deposit accounts⁵⁹ that created claims that were not yet paid up. These domestic arrears were added to the existing stock and are in the process of being recorded. Another payment plan will be prepared for them, in theory in 2020. Despite efforts to clear the arrears made by the authorities, the intra-annual monitoring system does not provide an alert on the establishment of new stocks. Payment timelines are computed starting on the date the expense is accepted instead of the validation date. Due to this deficiency, stocks of trade arrears, which are expenses that are validated albeit without payment authorization or without acceptance by the accounting officer, are not taken into account in the administrative phase. Although the authorities acknowledge that these arrears exist, they are unable to estimate the volume. Moreover, accounting arrears are not monitored in the course of the year based on regulatory payment deadlines—not to exceed three months as required by the community directives and the Organization for the Harmonization of Business Law in Africa (OHADA).

^{Table 6.}

Central African Republic: Monitoring of Arrears and Exceptional Expenditures

Sources: CAR authorities and IMF staff.

^{Table 6.}

Central African Republic: Monitoring of Arrears and Exceptional Expenditures

Stocks in billions of CFAF	Jan. 31, 2017	Jan. 31, 2018	Jan 31, 2019
Wage arrears	64.89	56.93	22.43
Trade arrears		9.30	8.80
Arrears excluding the plan			115
Exceptional expenditures (% of expenditure excluding debt and wages)	26%	17%	7%

Sources: CAR authorities and IMF staff.

View Table

^{Table 6.}

Central African Republic: Monitoring of Arrears and Exceptional Expenditures

Stocks in billions of CFAF	Jan. 31, 2017	Jan. 31, 2018	Jan 31, 2019
Wage arrears	64.89	56.93	22.43
Trade arrears		9.30	8.80
Arrears excluding the plan			115
Exceptional expenditures (% of expenditure excluding debt and wages)	26%	17%	7%

Sources: CAR authorities and IMF staff.

64. As the arrears are being cleared, the Ministry of Finance and the Budget continues to normalize expenditure by curtailing the use of exceptional procedures. The aggressive action taken regarding the arrears seems to have had the effect of having economic operators regain at least some confidence and strengthening the local economic system. Consequently, the use of exceptional expenditure procedures⁶⁰ with payment before the service is provided may once again become a more marginal occurrence. The goal of lowering exceptional expenditures to less than 5 percent of central government spending, excluding balances and debt, was set in the program supported by the Extended Credit Facility (ECF). In a standardized expenditure procedure, two stages are critical: procurement and cash management. Procurement procedures, in particular those applied to investment projects, are particularly vulnerable⁶¹ to corruption. Practices of commissions or secret kickbacks [rétro commissions], when proven, may affect the effectiveness of investment spending by considerably increasing production costs. Likewise, the handling of public funds, a function that is reserved for government accounting officers under the law, creates temptations for misappropriation in varying degrees. If these become widespread, they drain the government coffers and destroy the trust of citizens in the government’s financial function. In this context, the revenue and Treasury units have automated cash transactions to reduce human intervention to a minimum. Special attention should be paid to these two critical points (contracts and cash), and they are discussed below.

65. The authorities intend to use competitive procedures in all cases for procurement. The use of noncompetitive procedures (private and direct contracts, or contracts with inappropriate clauses) are on the decline (Table 7), yet they are still considerable and contribute to the public sentiment that there is massive collusion between economic operators and public decision-makers. This sentiment is particularly entrenched in civil society (see the meetings the mission held as well as articles in the local press). This in turn harms the business environment and especially the country’s attractiveness for investors. Two factors account for these circumstances at least to some extent: the lengthiness and complexity of procurement procedures which may discourage bidders; and the poor competitiveness of some economic sectors because there is limited market diversification. Mindful of these vulnerabilities, the authorities wish to prepare a status update in 2020 to assess areas where there is room of improvement in procurement. An assessment of public investment and procurement procedures should take place soon with World Bank support.⁶²

^{Table 7.}

Central African Republic: Procurement Procedures by Category

Sources: General Procurement Directorate (DGMP) and IMF staff.

^{Table 7.}

Central African Republic: Procurement Procedures by Category

In value (billions of CFAF)	2016	2017	2018
Invitations to bid	Not reported	Not reported	43.73
Procedures without competition or avenants	Not reported	Not reported	8.12
Invitations to bid (% of total)	Not reported	Not reported	84.34%

Sources: General Procurement Directorate (DGMP) and IMF staff.

View Table

^{Table 7.}

Central African Republic: Procurement Procedures by Category

In value (billions of CFAF)	2016	2017	2018
Invitations to bid	Not reported	Not reported	43.73
Procedures without competition or avenants	Not reported	Not reported	8.12
Invitations to bid (% of total)	Not reported	Not reported	84.34%

Sources: General Procurement Directorate (DGMP) and IMF staff.

66. Law 19.007 in respect of the legal framework for public-private partnerships (PPP) was enacted on June 24, 2019 and calls for ongoing efforts to strengthen the management framework for major PPP projects. The recommendation is to conduct studies promptly to give the administration a legal and institutional framework with reliable management for this type of partnership.

67. Despite hard work to put a Treasury Single Account (TSA) in place, its coverage is still partial and available information on liquidity remains limited. The TSA, which CAR pioneered in CEMAC, automatically transfers available balances in commercial banks. Donor funds, for example, are deposited in TSA sub-accounts and are subject to clearly established fungibility rules. Nonetheless, TSA coverage is still partial. The public administrative establishments (EPA) and associated agencies, whether they receive government grants or not, kept accounts opened in the commercial banks. During the exchanges in 2018 on this subject, some officials of organizations with their own legal status deemed that these entities should not be in the TSA because they are financially autonomous. Such an interpretation conflicts with CEMAC directives, the organic law in respect of the budget law, and it risks discouraging the streamlining of parafiscal taxes begun by the 2018 budget law. Finally, the quality of financial information remains very poor for available liquidities. In 2018, the various statements submitted by the Central Accounting Agency—Treasury (ACCT) show dissimilar amounts, so that it is difficult to determine the actual level of government cash. The daily and monthly extrabudgetary cash statement [situation extracomptable de la trésorerie] cannot be verified as it relates to the accounting entries. The reconciliation between the monetary survey and the net Treasury position is incomplete and is being discussed as part of the program supported by the ECF (Table 8). Finally, despite increased use of banks, the government is not protected against serious irregularities. The approximations that were found for liquidity management make it impossible, for example, to check whether this revenue was actually fully deposited in the TSA (and not embezzled), and whether all disbursements were in fact entered in the books. Finally, funds unduly held by de facto managers (for example, the government agencies), escape the automatic audits performed by the Accounting Office and internal control.

^{Table 8.}

Central African Republic: Gaps Found Between the Monetary Survey and the Net Treasury Position

Sources: CAR authorities and IMF staff.

^{Table 8.}

Central African Republic: Gaps Found Between the Monetary Survey and the Net Treasury Position

In billions of CFAF	End-2017	End-2018
Net government position (see BEAC)	40.36	32.38
Net Treasury position (see Treasury cash flow)	34.46	30.22
Gaps	5.90	2.15
Gaps as a % of budgetary revenue	3.83%	1.02%

Sources: CAR authorities and IMF staff.

View Table

^{Table 8.}

Central African Republic: Gaps Found Between the Monetary Survey and the Net Treasury Position

In billions of CFAF	End-2017	End-2018
Net government position (see BEAC)	40.36	32.38
Net Treasury position (see Treasury cash flow)	34.46	30.22
Gaps	5.90	2.15
Gaps as a % of budgetary revenue	3.83%	1.02%

Sources: CAR authorities and IMF staff.

68. Recommendations:

• Continue clearing domestic arrears and normalizing expenditure procedures. Paying government liabilities on the correct date is essential for restoring government credibility and ensuring the return to the normal procedure. In this respect, the execution of the clearing plan, now in progress, should be completed. To prevent the formation of new stocks of arrears, the following measures should be taken: (i) continue improving Treasury cash flow and its synchronization with the consolidated commitment plan and the plan for issuing debt securities; (ii) discontinue the exceptional practice of deposit accounts; and (iii) continue to reduce the volume of transactions carried out using exceptional procedures.

• The revision of the procurement management framework could include: (i) a requirement to perform cost-benefit analyses for government investments above a threshold (to be determined based on capacities and amounts considered); this will require support from donors initially; (ii) publication of these assessments; (iii) the statutory requirement – along with penalties for noncompliance – to publish invitations to bid on the government website; and (iv) publication of the criteria for selecting businesses. In the medium term, the DGMP should strive to develop a management application backed by a procurement portal to ensure that government procurement is entirely transparent.

• Continue to consolidate the TSA and make the accounting data reliable. The blind spots and the accounting inaccuracies described above generate major risks for the embezzlement of funds. In addition, it is important for the authorities to expand the perimeter of the TSA to all legal entities subject to public law: the government, public administrative establishments and local governments. To be successful, all stakeholders must accept this, and work should be done in advance to raise awareness of the strategic issues it represents. This will also depend especially on Treasury staff capacities to reform to be able to provide integrated management of government funds.

C. Strengthen Fiscal Transparency

69. The IMF defined fiscal transparency in its 2014 Fiscal Transparency Code, updated in 2019. There are four pillars in this code: (I) fiscal reporting; (II) fiscal forecasting and budgeting; (III) fiscal risk analysis and management; and (IV) natural resource management. Elementary transparency practices assume in particular that fiscal reporting provides a complete, relevant, current and reliable view of the situation and the fiscal results of government administrations (pillar I of the code).

70. Since the end of the transition period, the authorities have made considerable efforts to improve accounting information. The Central Accounting Agency--Treasury (ACCT) was established in 2015 to return to normal the accounting situation that had deteriorated significantly during the crisis. A data entry center reconstructed the missing accounting data for the fiscal years from 2012 to 2015. A general balance of the accounts was prepared in 2016 and 2017 but the quality was poor. These accounting statements were subsequently improved over the years. As of the mission date, the 2016 financial statements had been submitted to the National Assembly, which approved them. The 2017 and 2018 draft budget review laws were submitted to the office of the assembly and were being reviewed by the Accounting Office. In 2019, an internal control unit was put in place and its capacities are gradually increasing. This paves the way for remedying the vulnerabilities that were found in 2017 regarding the lack of quality verification of accounting information.

71. Despite substantial progress, vulnerabilities persist in the quality of accounting information, both in terms of covering accounting operations and in transparency. The scope of accounting operations is still limited in that only recently did it begin to include the entities presented in the budget law in the specific budget (agencies, special funds and special allocation accounts). The management accounts in the specific budget and the special Treasury accounts were submitted late to the Office, and the accounts of the agencies, funds and other decentralized budget agencies [démembrements budgétaires] are not included. This amounts to more than 20 percent of the budget that is not monitored and that may be the source of major fiscal risks. Finally, fiscal accounting is improving yet it is still not transparent. The payment authorization officer produced his administrative accounts in 2016, 2017 and 2018. The General Directorate of the Budget has made considerable progress in that since 2018 it has produced quarterly execution reports. However, these documents are still factual in that they merely mention the accounts with no assessment of the fiscal situation, so that there should still be more comprehensive publication of the government accounts.

72. Information on tenders and procurement management is still problematic and thus it undermines the business environment. The DGMP does not yet have a website. The sectoral ministries do not have sufficient funding to publish invitations to bid on a widespread basis. Since it does not have a sophisticated tool, the DGMP has no statistical data in real time and it does not publish them. This lack of transparency is even more flagrant for contracts made without invitations to bid (19 percent of contracts in 2018) that are made with no transparency whatsoever. The poor transparency and dysfunctions in the procurement system weaken the business environment and discourage investors from coming to the Central African economy. For this reason, the structure of the local market remains uncompetitive, which makes implementing competition even more difficult. For example, there are only two operators in the automobile sector and the health and education sectors are faced with oligopsonies. Finally, many SMEs have decided not to submit their bids, fearing the administrative costs associated with doing so.

73. Recommendations:

• Continue to improve accounting quality. The substantial efforts made by the Treasury units to improve accounting quality, set up internal control and prepare for the changeover to the new CEMAC standards must continue. The implementation of more modern general accounting should remain a medium-term goal that will be achieved using a roadmap that involves all accounting stakeholders, including the Accounting Office and the payment authorization officer.

• Organize institutional communication on budgetary operations. The government should improve the dissemination of budget execution reports and communicate more actively on the year’s fiscal data. These transparency efforts can be solidified by having the Central African Republic join the open budget initiative, the results of which are published annually.

• Develop a procurement portal in CAR to support improved transparency in procurement procedures. This crucial reform for improving the procurement system requires implementing a procurement management application. Such an application, organized as a workflow, traces manager operations in real time (purchasing units, the DGMP and the ARMP) and publishes contracts on a procurement portal from bidding to completion. There are models in Sub-Saharan Africa, so that exorbitant costs are not needed.

D. Expand Financial Governance to the Entire Public Sector

74. Public sector governance is poor. In Central Africa, in addition to local governments, the public sector consists of public establishments and enterprises. The supervision of these entities, especially financial supervision, is a major challenge. Many of these establishments, agencies, offices and enterprises obtain allocated parafiscal taxes. They submit income statements, sometimes with delays, but they seldom submit balance sheets that indicate their assets and liabilities. Government supervision needs to be strengthened, mainly by developing a public sector management strategy.

Streamline the Parapublic Sector Supervision

75. The government has committed to strengthen public sector governance using a set of measures. The statutes in respect of public sector entities (52 agencies and offices) and parafiscal taxes were surveyed and published on the MFB website. In addition, all known parafiscal taxes were entered in the 2019 budget law in the amount of CFAF 13 billion, with a counterpart of CFAF 8 billion (about 60 percent) for transfers to public entities that do not have these taxes. The action plan for streamlining parafiscal taxes was updated to include the new recommendations from the technical assistance missions and the major delays in carrying out some activities. Finally, the audit of the public agencies and offices is ongoing.

76. The law in respect of the supervision of public enterprises and establishments was enacted in late 2019 and is based on principles of good management. The law clarifies that the mode of normal management of public entities is the public administration and that the mode of management of a public service by a parapublic sector entity is an exception. The law frames the creation or modification of a parapublic sector entity. It illustrates the close relationship between the public and parapublic sectors. It identifies the governance of establishments, enterprises and semi-public companies and specifies budgetary execution procedures. Finally, with a clear differentiation between technical and financial supervision, it strengthens the latter.

77. Provisions should be made for implementing the law so that it does not remain a dead letter. A number of implementing regulations should be prepared as soon as Parliament adopts the law. The suggestion is to prepare drafts without waiting in order to save precious time for implementation.

Table 9.

Central African Republic: Implementing Regulations for the Law in Respect of Public Sector Supervision

Source: Draft law in respect of the organization of the legal and financial institutional framework applicable to public enterprises and establishments.

Table 9.

Central African Republic: Implementing Regulations for the Law in Respect of Public Sector Supervision

Reference	Level	Purpose
Article 64	A decree	Statute on the operation and financial regime of public establishments and enterprises, with possible exemptions to corporate law.
Article 5 Article 19 Article 28 Article 34 Article 50 Article 79 Article 83	One decree per entity involved	Modify the charters of public enterprises and establishments. This law establishes the following according to entity: composition of the board of directors and of entities represented on the board, and the conditions for appointing directors. For public establishments: procedures for governance of the establishment, procedures for managing resources and limitations on the establishment’s autonomy.
Article 56	MFB order annexed to the budget law	List of public enterprises, public establishments and government interests.
Article 61	Circular	Application for grants, to be completed by the sectoral ministries for public enterprises, with an analysis of the costs and justification of the activities to which the grant is to be given. The form used for the application should be established by MFB circular or in a framework letter.
	MFB decision	Allocation decision that establishes the procedures and timelines for transferring grants

Source: Draft law in respect of the organization of the legal and financial institutional framework applicable to public enterprises and establishments.

View Table

Table 9.

Central African Republic: Implementing Regulations for the Law in Respect of Public Sector Supervision

Reference	Level	Purpose
Article 64	A decree	Statute on the operation and financial regime of public establishments and enterprises, with possible exemptions to corporate law.
Article 5 Article 19 Article 28 Article 34 Article 50 Article 79 Article 83	One decree per entity involved	Modify the charters of public enterprises and establishments. This law establishes the following according to entity: composition of the board of directors and of entities represented on the board, and the conditions for appointing directors. For public establishments: procedures for governance of the establishment, procedures for managing resources and limitations on the establishment’s autonomy.
Article 56	MFB order annexed to the budget law	List of public enterprises, public establishments and government interests.
Article 61	Circular	Application for grants, to be completed by the sectoral ministries for public enterprises, with an analysis of the costs and justification of the activities to which the grant is to be given. The form used for the application should be established by MFB circular or in a framework letter.
	MFB decision	Allocation decision that establishes the procedures and timelines for transferring grants

Source: Draft law in respect of the organization of the legal and financial institutional framework applicable to public enterprises and establishments.

E. Strengthen Surveillance of the Budgetary Institutions

83. The fight against fraud and corruption is based on two essential factors: the system of accountability and proper management of human resources. Academic research on corruption based on a few natural experiences (Box 3) brought to light some equivalencies, including this one:⁵³ the amount of a bribe needed to influence an employee to engage in fraudulent practices correlates with material perspectives (salary and career prospects) assigned to the risk the employee runs of losing his benefits if the control systems in place reveal his practices. In light of these experiences, a good managerial policy that aims to combat corruption will be based on these two levers: a dissuasive internal and external control framework; an incentivizing human resources policy for the civil service that is based on a decent system of compensation and prospects for stable careers.