Central African Republic: First and Second Reviews Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria—Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for the Central African Republic
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International Monetary Fund. African Dept.
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Publication Date:
01 Feb 2021
eISBN:
9781513568157
ISBN:
9781513568157
Language:
English
Keywords:
ISCR; CR; asset declaration law; staff appraisal; staff statement; assessment of policy issue; CAR authorities; government arrears; digitalization strategy; asset declaration regime; government legitimacy; financial support; COVID-19; Arrears
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First and Second Reviews Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for the Central African Republic

Abstract

First and Second Reviews Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for the Central African Republic

Context

1. The pandemic appears somewhat contained. The number of positive cases and related deaths has been very limited over the last few months (Text figure 1), even though most containment measures have been progressively loosened—with schools, bars, and the international airport reopening—and social distancing recommendations are very loosely followed outside official buildings. Deaths are likely underreported as most confirmed cases are not hospitalized or otherwise monitored. While recognizing that this apparent low incidence and morbidity reflect in part the very low level of testing, which is now limited to “suspect” cases, the authorities and donors consider that it may also result from a number of C.A.R.-specific factors, such as its very low median age (19.7 years) and life expectancy (52.8 years, the lowest in the world), as well as the prevalence of other diseases. The high rate of people with antibodies (more than 25 percent of people treated for unrelated conditions) in the context of low morbidity suggests that the health impact of the pandemic may not turn out to be as severe as initially feared.

Text Figure 1.
Text Figure 1.
Text Figure 1.

Central African Republic: COVID-19 Cases and Health System

Citation: IMF Staff Country Reports 2021, 028; 10.5089/9781513568157.002.A002

Sources: Johns Hopkins CSSE and IMF staff calculationsSources: World Bank WDI, UN Population Prospects and IMF staff calculations

2. The security and humanitarian situations remain precarious. In the first half of the year, clashes occurred among armed groups in the north, and between the peacekeeping and government forces and the 3R armed group in the northwest. While violent incidents involving armed groups have since resumed the downward trend observed since the February 2019 peace agreement, the increase in criminal incidents has become a concern. Disarmament of ex-combatants has been slowly progressing in the west but armed groups still operate in most of the country outside Bangui. Also, earlier in the year, the formation of mixed brigades was undermined by some ex-combatants returning to their factions after receiving arms and financial support. The numbers of refugees and of internally displaced persons continued to increase (Figure 1). The number of persons in need of humanitarian aid was estimated at 2.9 million, or about 60 percent of total population, at end-July.

Figure 1.
Figure 1.

Central African Republic: Recent Developments

Citation: IMF Staff Country Reports 2021, 028; 10.5089/9781513568157.002.A002

Source: C.A.R. Authorities and IMF Staff estimates

3. Despite some delays in voter registration, the first round of the presidential and general elections is still scheduled for December 27. The registration deadline was postponed by one month owing to logistical constraints and to allow the government to find an agreement with the 3R group on registration in the northwest, as participation in this opposition stronghold is considered key to the elections’ legitimacy. Enough funds have been committed to cover the presidential and legislative elections (with more funding only necessary for the local elections scheduled later next year). The Constitutional court’s decision on December 3 to invalidate the candidacy of former President Bozize, one of the main opposition candidates for the presidency, might heighten tensions in the run-up to the presidential election.

Recent Developments

4. The pandemic had a substantial impact on economic activity, with some sectors more affected than others. In the first half of 2020, activity in trade, transport, tourism, hospitality, and mining was hit hard by the containment measures and low external demand. Other sectors, such as food crops, forestry, and telecommunications proved more resilient. With the economy starting to recover as containment measures are progressively relaxed, economic activity is now projected to stagnate in 2020. Trade disruptions (owing to the testing of drivers at the border) contributed to inflationary pressures during the second quarter. As these pressures have since receded, inflation is expected to remain below 3 percent this year. Reflecting subdued external and domestic demand, exports and imports declined during the first half of the year. Wood exports held up better than expected but suffered from a sharp drop in prices, whereas formal diamond exports came to a near stop.

5. Fiscal developments during the first three quarters of 2020 were broadly in line with what was envisaged under the RCF disbursement. In the first half of 2020, lower customs and income taxes reflected: the impact of containment measures on economic activity, imports, and tax administration (less controls); measures to alleviate the economic impact of the pandemic (such as the temporary suspension of the 2020 tax measures); and continued difficulties in mobilizing revenues from the public agencies. Domestic revenue have since started to recover. Current and capital spending were slightly lower than the levels envisaged in April (but above the ECF projections), with lower transfers and purchases of goods and services only partly offset by the regularization of some unregistered 2019 expenditures.

6. The supplementary 2020 budget law, approved by Parliament on July 9, was also broadly consistent with what was envisaged under the RCF. The additional emergency financing provided by the IMF and the World Bank was essentially used to finance Covid-related spending and compensate for the shortfall in domestic revenue. Covid-related spending focused on the implementation of the response plan from the Ministry of Health, transfers to vulnerable households and businesses and building infrastructure (Text Table 1) and amounted to CFAF 15.8 billion (1.2 percent of GDP).1 The authorities were, however, not able to save on non Covid-related expenditures, as envisaged at the time of the RCF, with Parliament increasing them by about CFAF 3 billion (0.2 percent of GDP).

Text Table 1.

Supplementary Budget for 2020: COVID-related expenditures

article image
Source: C.A.R. Authorities and IMF Staff calculations

7. The banking sector remains profitable and well capitalized, despite a decline in liquidity indicators and a slight rebound in non-performing loans. The capital adequacy ratio amounted to 28 percent in May 2020, compared to 30 percent in December 2019. While still comfortably above the 100-percent regulatory minimum, the liquidity ratio declined to 132 percent in May from 165 percent in last December. Credit to the private sector decreased by 4.8 percent y-o-y in June, reflecting the banks’ caution in a highly uncertain environment. Non-performing loans slightly increased, from 12.6 percent of total loans in December 2019 to 13.7 percent to May 2020, and could further increase in the second half of 2020 as the economic consequences of the pandemic unfold.

Monitoring of COVID19-Related Expenditures

With the support of the World Bank, a July 2020 ministerial decree established a committee tasked with the supervision of COVID19-related expenditures. This committee is composed of the Minister of Finance, who heads the committee, and representatives of key spending agencies (e.g., Ministry of Health, Ministry of Economy and Planning) and agencies in charge of expenditure supervision (e.g., Budget Directorate, Procurement Directorate, High Authority for Good Governance), as well as observers representing development partners (World Bank, African Development Bank, IMF, European Union, BEAC) and the civil society. The committee monitors not only COVID19-related expenditures executed by the government, but also those executed by donors. It does so on a monthly basis, based on disbursement plans and execution, to cross- check when funds are disbursed and if they are in line with plans. Additionally, the committee will supervise the application of expenditure execution procedures (commitment, procurement, payment). Finally, when relevant the committee will also make recommendations to improve the efficiency and transparency of Covid-related expenditures.

Covid-related expenditures will be audited. The Procurement Directorate will publish all tenders, the criteria for selection, as well as the selected enterprises. For spending executed by the government, execution will be based on normal procedures (as opposed to streamlined ones). These measures will enable independent audits, which are, according to the decree, to be done 60 days after the end of the fiscal year 2020. The outcome of the audit will be published on the website of the Ministry of Finance 15 days after its finalization.

8. Despite some delays caused by the pandemic’s impact on implementation capacity and on technical assistance (TA) delivery, the authorities have made significant progress in implementing structural reforms, including with regard to digitalization:2

  • They established an inter-ministerial committee to monitor Covid-related expenditures (Box 1 and MEFP ¶8). The committee has started publishing data on the actual spending and the related public contracts (MEFP ¶24).

  • They strengthened further public financial management. The daily reconciliation of their tax revenue estimates by the tax and customs directorates and the Treasury directorate has helped reduce substantially apparent discrepancies. In October, the authorities adopted the secondary legislation for the new legal framework for public institutions and enterprises (missed end-March structural benchmark (SB)), which had been drafted in collaboration with World Bank and Fund staff. To ensure public agencies’ revenue are duly transferred to the Treasury single account (TSA), the ministry of finance instructed public accountants assigned to each agency to control taxpayer compliance and enforce collection as needed. The electronic payment of civil servants’ salaries has been rolled out in a total of 10 localities and is now being developed in Bangui for defense and security forces (MEFP ¶9). The rolling-out of the new integrated financial management information system SIM-BA has, however, been delayed to 2022 by Covid-related constraints on TA delivery (MEFP ¶10).

  • They pursued their efforts to enhance tax and customs administration, including through digitalizing procedures. The authorities are in the process of making up for the delays— caused by the postponement of related TA—in the rolling-out of e-filling and e-payment of taxes. As a result, its deployment to large companies is expected to be completed on time (end-December SB). Work is also ongoing to interconnect Douala’s and the border’s customs posts with the central services and to transition to ASYCUDA world. The capture of the tax returns for 2018 and 2019 in the SYSTEMIF IT system (missed end-June SB) was finalized in November. Finally, the authorities recruited in June a new service provider to assist the authorities in certifying and securing timber export revenues (missed end-January SB).

  • They published the Fund governance diagnostic report and submitted to Parliament in early October a draft law to strengthen the asset declaration regime (MEFP ¶11). The submission of the draft law did not meet the SB test date of end-September and the draft itself was not fully in line with the applicable international good practices and the corresponding recommendations provided by the Fund as part of its TA engagement. With continued Fund TA, the authorities plan to amend the draft prior to its formal consideration by Parliament to bring it in line with the applicable international good practices.

  • They made progress on various reforms to improve the business climate. A new labor code, which caps indemnities in the event of unfair dismissal, has been submitted to Parliament. The code also contains important provisions for greater social justice, for example, by establishing penalties for sexual harassment in the workplace. With support from the World Bank, the government is in the process of hiring a technical expert to incorporate the recommendations of the African Development Bank (AfDB) on a draft mining code. The aim is to bring the mining code in line with international standards and to provide a sound and transparent framework for the utilization of mineral resources in the C.A.R. The government has also prepared an e- commerce guide, which is now available on the Ministry of Finance website.

Program Performance

The pandemic and early shortfalls in policy implementation have substantially affected program performance, with most quantitative performance criteria and structural benchmarks missed. Program implementation has, however, improved over the last few months.

9. While implementation of quantitative conditionality fell short of program expectations, recent developments have been broadly in line with what was envisaged under the April 2020 RCF. Quantitative performance has been below expectations on account of low domestic revenue, high government spending, and delayed domestic arrears repayments. While all end-December PCs and the end-June fiscal PCs criteria on domestic revenue, the domestic primary fiscal balance and the reduction on domestic payment arrears were missed, the end-June indicative targets on social spending and on the recourse to exceptional spending procedures were met, as well as the continuous performance criterion on the contracting or guaranteeing of new external non concessional debt. The continuous performance criterion on the non-accumulation of external arrears was temporarily breached as the authorities made only in September a payment of about $200,000 due to IFAD in April, owing to an insufficient coordination between the Treasury directorate and debt unit. The end-June performance reflected primarily the impact of the pandemic on customs and tax revenue and additional spending to contain it. Recent fiscal performance has, however, been broadly in line with the RCF projections, with domestic revenues well on their way to meet the proposed end-2020 revenue PC and the increase in spending focused on fighting the pandemic (MEFP ¶6).

10. There has been solid progress in implementing SBs. One was met, three were implemented with a delay, and there has been strong progress on the last one. The submission to Parliament of a draft supplementary budget providing for the elimination of the seven remaining public agencies without economic justification was the only SB met on time (end-June). However, Parliament rejected this elimination, considering that an assessment of its socio-economic impact should be conducted beforehand. Following the hiring in January of Webb Fontaine to help customs with the valuation of imports, the authorities hired another service provider in May to help them certify and secure timber export revenues (missed end-January SB). The secondary legislation to support the implementation of the new legal framework for public and para-public institutions and enterprises were adopted in early October (missed end-March SB). The 2018 and 2019 corporate tax returns have been entered into the SYSTEMIF IT system (missed end-June SB and prior action). Finally, the authorities submitted to Parliament a draft law to strengthen the asset declaration regime but that draft will have to be amended prior to its formal consideration by Parliament to be fully in line with the applicable international good practices (missed end-September SB, prior action).

Outlook and Risks

11. The short-term outlook has worsened further. Growth is now projected at zero in 2020, compared with 5 percent at the time of the ECF request and 1 percent when the RCF was requested, reflecting the longer-than-expected impact of the pandemic, both globally and in C.A.R. Growth is also expected to recover more gradually than previously expected, being limited to 3½ percent in 2021. Assuming a steady implementation of the peace agreement and of the reforms envisaged under the program, growth would increase further over the medium term to reach 5 percent. Inflation would remain under 3 percent. The external current account deficit would narrow to about 5½ percent of GDP in the medium term largely due to lower imports and higher exports.

12. Risks to this outlook are sizeable and skewed to the downside. The outlook for the end of 2020 and early 2021 is particularly uncertain, owing not only to the possible worsening of the pandemic but also to a still volatile security environment, with tensions that could intensify in the run-up to the elections. Most prominent among them is the possibility that the economic and social impact of the pandemic proves larger and more protracted than currently assumed and/or leads to increased violence in the country. Upside risks include a milder pandemic impact (e.g., if a vaccine becomes rapidly and widely available) and faster implementation of structural reforms and the peace agreement after the elections.

13. An alternative scenario illustrates the potential impact of these risks (Annex II). This scenario assumes a more severe and protracted pandemic and increased insecurity, which could deepen the crisis, delay the recovery, and affect adversely investors’ sentiment. Pressure on fiscal and external accounts would mount, requiring a combination of additional grant financing and cuts in non-priority spending.

Text Table 2.

Medium-term Outlook, 2018–25

article image

Excludes grants, interest payments, and externally-financed capital expenditures.

Sources: C.A.R. Authorities and IMF Staff estimates and projections

14. The authorities shared staff’s views on the outlook and risks and reasserted their commitments to maintain prudent macroeconomic policies and speed up structural reforms to achieve program’s objectives. Though the pandemic has had an impact on the implementation of such policies and reforms, the authorities agreed that their implementation is key to strengthening further macroeconomic stability, building the resilience, bolstering inclusive growth, containing inflation, and reducing further external and fiscal imbalances. They saw more upside risks to the short-term outlook, considering that C.A.R.’s economic structure, with a relatively large agricultural sector and limited tourism sector might blunt further the pandemic’s economic impact.

Policy Issues and Discussions

The government’s policies will focus on fighting the pandemic and supporting a swift recovery in the context of the ECF’s initial objectives of maintaining macroeconomic stability, improving governance, and addressing C.A.R.’s protracted balance of payments needs. In the short term, much attention will be devoted to ensuring that donor financing is efficiently spent to fight the pandemic. As the situation improves, the focus will return to sustainably creating space for—through revenue mobilization, spending prioritization, and PFM reforms— C.A.R.’s considerable security, social, and infrastructure spending needs. These priorities, along with governance and business environment reforms, would support inclusive growth and poverty reduction. Fiscal policy will remain guided by the objective of gradually reducing public debt, while ensuring the sustainable financing of C.A.R.’s most pressing spending needs.3

A. Fiscal Policy

15. Following RCF approval, fiscal policy has focused on the efficient and transparent implementation of the response to the pandemic and on containing other expenditures. The authorities reiterated their commitment to use the emergency financing provided by donors to finance the necessary Covid-related spending and to offset domestic revenue loss. Accordingly, the additional allocations provided in the supplementary budget aim at strengthening the health sector and at alleviating the impact of the pandemic on the most vulnerable households and enterprises. To ensure their efficiency, the committee tasked with the supervision of COVID19- related expenditures will continue to monitor them closely and will publish monthly data on their execution and on the results of the related tenders. With a view to contain other, non Covid-related expenditures, the authorities identified CFAF 7 billion in savings in non-priority expenditures.4

16. The authorities submitted to Parliament a draft 2021 budget law consistent with the medium-term fiscal objectives set under the ECF and based on realistic revenue assumptions (prior action). Revenues are expected to rebound partially, on account of the economic recovery, the normalization and strengthening of tax administration, and the full-year impact of the 2020 fiscal measures (which had been temporarily suspended). To ensure debt sustainability, domestic primary spending would be limited to about 11 percent of GDP, similar to what was envisaged pre- pandemic for 2020. The authorities agreed with staff that, in view of the pandemic appearing contained and the fact that most of supplementary budget’s Covid-related allocation had still to be executed, there was a limited need for additional such spending at this stage. Overall, the domestic primary deficit would decline to 4 percent of GDP, from 6¼ percent of GDP in 2020 and compared with a medium-term objective of 2½ percent of GDP.

17. While at a high risk of debt distress, C.A.R.’s debt level is assessed to remain sustainable. Despite the slight downward revision of growth projections, the conclusions of the debt sustainability analysis (DSA) are essentially unchanged from those of the April 2020 DSA. Over the medium term, the liquidity indicators are projected to exceed their thresholds owing mainly to the increase in repayments due to the Fund, which have been accentuated by the RCF disbursement. In this context, the authorities agreed on the need to continue to pursue a prudent approach to contracting new external debt, prioritizing grant financing with some limited room for concessional loans.

B. Structural Fiscal Issues

The authorities reiterated their commitment to strengthen public institutions. They intend to pursue reforms aimed at improving PFM, strengthening tax and customs administration, digitalizing procedures, promoting fiscal transparency, enhancing the oversight of public agencies and enterprises, and improving debt management.

18. Consistent with their commitment under the RCF, the authorities will ensure the transparency and efficiency of Covid-related spending. The committee in charge of their monitoring will continue to publish monthly data on these expenditures as well as on the results of the related tenders. The Court of Auditors will conduct an audit of these expenditures, which will be published by end-April 2021 (proposed new SB, MEFP ¶24).

19. The authorities will continue PFM reforms, including to strengthen the budget process, consolidate the TSA, and reduce arrears. Given the delays in rolling out the new integrated financial management system SIM-BA, the authorities requested World Bank TA to assist them in prolonging the use of the existing system GESCO. The authorities are now intending to repay all their domestic arrears by end-2021.5 They will also streamline the administrative process pertaining to retirement of civil servants to avoid the accumulation of pension arrears in the future. The electronic payment of salaries will be extended to all defense and security forces and then to the national education and health sector personnel. The authorities are committed to improve the coordination between the debt unit and the Treasury directorate in order to avoid the accumulation of external arrears. Indeed, no less than one month before each due date for the external debt, the debt service will send an official reminder note to the Treasury directorate in order to make the related payment (MEFP ¶25).

20. Other measures will aim at enhancing spending efficiency and transparency. The elimination of public agencies without economic justification will be enacted by end-April (proposed new SB), which will help free up resources for priority expenditures. With a view to increasing its efficiency, the authorities have asked the World Bank to conduct a review of the government’s social spending. The authorities will mandate the on-line publication of the full text of all procurement contracts (whether or not related to the COVID-19 pandemic) of more than CFAF 5 million within 30 days of their award, along with the names of the beneficial owners of the awarded legal entities (proposed new end-September 2021 SB, MEFP ¶24).

21. The authorities will also pursue their efforts to strengthen domestic revenue mobilization through digitalization and improved coordination between customs and tax administration:

  • To significantly increase the hitherto very limited number of corporate taxpayers, the tax directorate will identify by end-year 300 largest importers and 200 largest beneficiaries of public tenders. It will then audit those of these enterprises that do not have a valid fiscal identification number, whose turnover does not appear consistent with the information derived from the public tenders/imports, or/and are not current with their tax obligations. The results of these audits will be published by end-June 2021 (proposed new SB, MEFP ¶27).

  • The e-filling and e-payment of tax obligations will be extended to small- and medium-size enterprises (MEFP ¶27).

  • The authorities will conduct monthly meetings between the service provider and the customs department to reconcile import valuations and take corrective measures when significant discrepancies are identified. They will also finalize in early 2021 the interconnection between the customs posts of Douala, Berberati, and other border cities with the central services in Bangui. Pending the securing of imports between Douala and the border, this will notably allow for the reconciliation of data on goods recorded by these two locations (MEFP ¶27). The authorities are also committed to verify of the use of imported goods exempt from custom duties.

22. Public sector oversight will be strengthened further. The legal framework for public entities and enterprises will be finalized through the adoption of the texts specific to certain categories of public entities and training and will start to be implemented. The authorities will notably work toward the publication by September 2022 of the financial statements of some of the largest public enterprises.

C. Other Structural Reforms

23. The authorities remain committed to enhancing the business environment, with the support from development partners. Once the AfDB and World Bank comments accommodated, the draft mining code will be submitted to the government, and then to Parliament in the first half of 2021. The authorities have also requested World Bank assistance to help them assess whether the recent increase in parafiscal taxes on telecommunications companies is adequate and not a potential impediment to the development of the sector and to the government’s digitalization strategy. The authorities will review the direct taxes and fees levied directly by line ministries, eliminate those without justification, and transfer the others to the TSA (MEFP ¶29).

24. The authorities will pursue their efforts to strengthen governance. At their request, and in close coordination with the World Bank and UNODC, staff helped the authorities draft an anticorruption action plan. This action plan will be informed by the recommendations of the governance diagnostic mission conducted by the Fund last year, and calls for strengthening the powers of the good governance institution (HABG) (MEFP ¶28). They will also draft a new anti-corruption law, which will be submitted to Parliament (proposed new SB). The new anti-corruption law will lay the legal foundations to bring the anti-corruption legal framework of C.A.R. in line with international good practices (MEFP ¶28). Once the asset declaration law is adopted, the authorities will also issue the relevant implementing decree(s) in consultation with Fund staff.

25. The authorities intend to intensify financial sector reforms. Although the banking sector’s financial soundness indicators (FSI) are relatively strong, financial inclusion is very weak (with most of the population lacking access to the financial system), and banks emphasize several obstacles (mostly legal) in their quest for expansion. The Economic and Financial National Committee (ETNC), replacing the National Credit Council (NCC), still aims at implementing the recommendations from the 2017 COBAC mission and from the joint 2018 conference between the financial sector and the judiciary system to enhance the trust between the financial sector and the authorities. The authorities have also reiterated their commitment to enhance financial inclusion and tax collection through the development of mobile and online banking and the establishment of a co-financing mechanism of commercial loans to SMEs.

Capacity Building

26. The Fund continues to support the implementation of the Capacity Development (CD) Strategy for C.A.R. given the importance of the integration of CD with program modalities. Staff discussed these priorities with the authorities to make sure that their prioritization and sequencing are closely aligned with the program objectives. While no new CD priority needs for the short term have emerged in the context of the pandemic, the authorities expressed their interest in customized TA on Financial Programming and Policies, to be delivered virtually in March 2021.

27. With the pandemic substantially hindering field delivery, TA missions have been conducted virtually for the most urgent CD projects. Fund TA has been restricted since the onset of the crisis and physical TA missions remain suspended, which has made more difficult the implementation of structural reforms to which the authorities committed under the current ECF- supported program. Some Fund TA is, however, being delivered online, notably on revenue administration, Treasury processes, macro-economic statistics, and asset declaration. Limited internet access complicates this virtual delivery.

Program Issues

28. The authorities are requesting waivers of non-observance of missed end-December and end-June PCs and of the continuous PC on the non-accumulation of arrears, based on their corrective actions (Letter of intent). These actions include: (i) the measures taken to improve the transfer of the public agencies’ revenue to the TSA (¶8) and commitments to implement other revenue mobilization measures (¶23); (ii) the connection of the Treasury directorate to the BEAC’s Sygma-Systac system (MEFP,¶13), which allows it to follow more closely liquidity; (iii) the envisaged savings to ensure that Covid-related expenditures are financed in a sustainable way (¶17); (iv) the clearance of the external arrears to FIDA (¶9) and the enhanced coordination between the debt unit and the Treasury directorate to avoid the recurrence of external arrears (¶20); and (v) the submission to Parliament of a 2021 budget law in line with the ECF objectives (¶18).

29. In view of the large uncertainty surrounding the macroeconomic outlook, it is proposed that the number of QPCs be brought back to three (domestic government financing, domestic revenue, and primary fiscal balance). It is also proposed that the current QPC on the repayment of domestic arrears be replaced by an indicative target to allow the authorities more flexibility in addressing potential liquidity issues in an uncertain environment.

30. The following prior actions have been established for this review: (i) submission to Parliament of a 2021 draft budget law in line with program commitments; (ii) capture all the 2018 and 2019 corporate tax returns into the SYSTEMIF IT system (missed end-September SB); and (iii) submission to Parliament of a draft law aligning the asset declaration regime with the applicable international good practices. (missed end-September SB).

31. The program for the next 12 months is fully financed. In addition to the projected Fund disbursements under the ECF, which are expected to follow the original schedule (Table 10), and support under the CCRT, the authorities have already received firm commitments regarding budget support and project grants from key multilateral and bilateral developments partners (World Bank, European Union, France, and AfDB; Table 5). The authorities are also participating in the G-20 Debt Service Suspension Initiative (DSSI) and have indicated their intention to request the extension through the first half of 2021. Financing prospects are also good for the remainder of the program period. The original schedule of ECF program disbursements remains valid (Table 10).

Table 1.

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

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

Expenditure is on a cash basis.

Excludes grants, interest payments, and externally-financed capital expenditures.

The changes in domestic debt estimates reflect a correction of the estimates reported in the RCF’ staff report tables, which had not been updated. This did not affect the debt sustainability analysis.

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

Table 2a.

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

(Billions of CFAF)

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

Expenditure is on a cash basis.

Excludes grants, interest payments, and externally-financed capital expenditure.

Budget support loans to be identified from 2023 to 2024.

This grant covers the first 12 months (2 tranches of 6 months) of the CCRT, i.e. 2020Q2–2020Q3 and 2020Q4–2021Q1.

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

Table 2b.

Central African Republic: Central Government Operations, 2018–25

(Percent of GDP)

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

Expenditure is on a cash basis.

Excludes grants, interest payments, and externally-financed capital expenditure.

Budget support loans to be identified from 2023 to 2024

This grant covers the first 12 months (2 tranches of 6 months) of the CCRT, i.e. 2020Q2–2020Q3 and 2020Q4–2021Q1.

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

Table 3.

Central African Republic: Monetary Survey, 2018–25

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

Central African Republic: Balance of Payments, 2018–25

(Billions of CFAF)

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

This grant covers the first 12 months (2 tranches of 6 months) of the CCRT, i.e. 2020Q2–2020Q3 and 2020Q4–2021Q1.

Table 4b.

Central African Republic: Balance of Payments, 2018–25

(Percent of GDP)

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

This grant covers the first 12 months (2 tranches of 6 months) of the CCRT, i.e. 2020Q2–2020Q3 and 2020Q4–2021Q1.

Table 5.

Central African Republic: External Financing Requirements, 2020–25

(Billions of CFAF)

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Source: IMF staff projections.

Budget support loans to be identified.

Includes ECF request disbursement, approved by the Executive Board in December 2019, which happened in early January 2020.

Under the G20 Debt service suspension initiative, debt service payments to G20 creditors due from May-December 2020 are postponed to 2022–24.

Table 6.

Central African Republic: Sustainable Development Goals, 2000–19

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Sources: UN Statistics Office, IMF and World Bank Development Indicators
Table 7.

Central African Republic: BOP and Budget Support, 2020–21

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Table 8.

Central African Republic: Indicators of Capacity to Repay the IMF, 2020–30

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Source: IMF staff projections.

The repayments of principal include the first and second tranches of the CCRT (2020Q2–2021Q1)

Table 9.

Central African Republic: Financial Soundness Indicators, 2012–20

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Sources: C.A.R. authorities and the Banque des Etats de l’Afrique Centrale.
Table 10.

Central African Republic: Schedule of Disbursements, 2019–221

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On April 2020, the IMF Executive Board approved a disbursement of SDR 27.85 million under the Rapid Credit Facility (RCF) .

C.A.R’s quota is SDR 111.4 million

32. C.A.R.’s capacity to repay the Fund remains adequate, although subject to risks mostly associated with the country’s high exposure to Fund resources. These risks stem more specifically from the facts that: (i) C.A.R. remains at high risk of debt distress; (ii) the Fund accounts for the largest share of external debt (at about one third in 2020); and (iii) debt repayments to the Fund are significant in the coming years and will peak in 2027 at 12.8 percent of domestic revenue (Table 8). They are mitigated by C.A.R. being part of a monetary union (which gives it access to CEMAC’s pool of reserves provided it has budgetary resources to purchase them), the maintenance of significant government deposits with BEAC over the medium term, the upside potential from an eventual peace dividend. Given C.A.R.’s deep-rooted challenges, it remains likely, however, that the country will require continued Fund engagement, including some financing, for the foreseeable future.

33. With the exception of Libya, official creditors to which there are outstanding external arrears have consented to Fund financing notwithstanding these arrears. C.A.R. has accumulated arrears that pre-date the Completion Point of the HIPC initiative with some non-Paris Club creditors (Argentina, Equatorial Guinea, Iraq, Libya, and Taiwan, Province of China). All creditors have provided consent to Fund financing, except Libya, which has requested more time to convey its decision. C.A.R. remains in arrears to a private creditor and is continuing good-faith efforts to reach a collaborative agreement. As prompt financial support is considered essential for the successful implementation of C.A.R.’s program, and C.A.R. is pursuing appropriate policies, the Fund may provide financing to C.A.R. notwithstanding its external arrears to private creditors. The authorities reported that they were current on their remaining external debt service obligations. Some external arrears have been accumulated with the FIDA in the second quarter but have been cleared since.

34. The regional institutions have continued to implement policies and reforms in support of CEMAC countries’ economic programs. After easing monetary policy and bank liquidity provision in March, BEAC took additional measures in July, including: (i) a new temporary (6- month) government securities purchase program of CFAF 600 billion for all CEMAC sovereign issuers; and (ii) the resumption of longer-term liquidity injections up to one year for banks on March 2020. COBAC informed banks to utilize a capital conservation buffer of 2.5 percent to absorb pandemic- related losses but requested banks to adopt a restrictive dividend distribution policy.

35. The BEAC has provided updated policy assurances in support of CEMAC countries’ Fund-supported programs. In response to the shortfall in NFA accumulation at end-December 2019 and end-June 2020, the BEAC took corrective action as further set out in the union-wide paper. In its updated letter of policy support, the BEAC proposed end- December 2020 and end-June 2021 targets for its net foreign assets (NFAs) while committing to implement a monetary policy consistent with the achievement of these targets. These assurances are critical for the success of C.A.R.’s program and will help bolster the region’s external sustainability.

36. BEAC has implemented all priority recommendations from the 2017 safeguards assessment. In particular, its secondary legal instruments were aligned with its amended Charter, and the central bank has issued its FY 2019 audited financial statements in full compliance with IFRS.

Staff Appraisal

37. While the pandemic appears somewhat contained, it is crucial to remain vigilant. The high rate of people with antibodies in the context of low morbidity could indicate that the pandemic’s health impact might end up being relatively limited in C.A.R., possibly owing to its demographics and the prevalence of other diseases. As this is far from certain, the authorities should remain vigilant, continue to promote social distancing measures, and be ready to implement promptly additional measures in the case of a resurgence.

38. Over the last few months, the authorities rightly focused on ensuring donor financing is efficiently spent to fight the pandemic. The supplementary budget adequately channels this financing to strengthen the health system’s capacity to respond to the pandemic and alleviate its impact on the most vulnerable households and companies. The establishment of a committee tasked with the supervision of these expenditures provides an appropriate institutional framework for ensuring a transparent and efficient implementation. The audit by the Court of Auditors of these expenditures and the publication of the related tenders will provide additional safeguards. Regarding other PFM reforms, the authorities need to pursue their efforts to consolidate the TSA, strengthen expenditure controls and procedures, and to enhance debt management.

39. As the situation normalizes, the authorities will need to step up their efforts to ensure that the ECF’s broad objectives are met. While explained to a large extent by the pandemic, the program’s underperformance also reflects pre-pandemic shortfalls in revenue collection, spending controls, and reform implementation. The authorities have recently strengthened reform and program implementation efforts, and meeting the ECF’s objectives will require the continuation of this positive momentum. These objectives—namely, ensuring macroeconomic stability and debt sustainability, restoring sustained inclusive growth, and addressing C.A.R.’s protracted balance of payments needs—remain fundamental to the authorities’ efforts to restore peace and prosperity in the country. Fiscal policy should remain guided by the objective of gradually reducing public debt, while ensuring the sustainable financing of C.A.R.’s most pressing spending needs. The structural reforms will help the authorities in their efforts to enhance domestic revenue mobilization, strengthen public financial management, and enhance governance and the business environment. Holding peaceful and representative elections will also be an important step in strengthening the institutional framework and government legitimacy, which are key to their peacemaking efforts and the implementation of the envisaged reform agenda.

40. Domestic revenue mobilization and reform of public agencies remain essential to sustainably finance public service provision. After being stalled by the pandemic, efforts to strengthen tax and customs administration need to redouble. Measures to digitalize companies’ tax declarations and payments, to significantly increase the number of corporate taxpayers, and to secure imports between Douala and the border with Cameroon will be important steps toward realizing C.A.R.’s untapped revenue potential. The elimination of public agencies without economic justification will also create additional fiscal space for priority spending and should not be postponed further.

41. The authorities need to intensify their efforts to tackle governance and business climate issues, which are hindering investment and growth. The adoption of the new labor and mining codes and the streamlining of parafiscal taxes will help strengthen the regulatory framework. Along with the aforementioned PFM reforms, the adoption and implementation of an asset declaration regime in line with the applicable international good practices as well as a new anticorruption law are key to addressing deep-rooted governance issues.

42. Risks to the program remain elevated. A resurgence of the pandemic could threaten the budding economic recovery and stretch further public finances. Heightened security tensions, notably in the election results were to be disputed, could undermine growth, revenues, and the authorities’ ability to implement the program. Though elevated, these risks are manageable. As discussed in the alternative scenario, the authorities have indicated their readiness to respond swiftly, through a combination of adjustments and additional financing, if such downside risks were to materialize. On the upside, a quicker-than-anticipated global recovery could boost growth, while transparent and fair elections could give the new government a strong mandate to accelerate the implementation of structural reforms and of the peace agreement.

43. Sustained grant financing and technical assistance from the donor community remain paramount to the program’s success. Given C.A.R.’s high risk of debt distress and the considerable uncertainty surrounding the economic outlook, it is important for the authorities to follow a prudent approach to contracting new external debt, prioritizing grant financing with some limited room for concessional financing.

44. In this context, and in view of C.A.R.’s balance of payments financing needs, adequate capacity to repay the Fund, and the authorities’ economic policies and reforms as well the correction action taken by the BEAC in response to the end-December 2019 and end-June 2020 shortfall in NFA accumulation, staff recommends the completion of the first and second reviews under the ECF arrangement and the authorities’ request for waivers for the non-observance of performance criteria. Staff proposes that completion of the third review be conditional on the implementation of critical policy assurances at the union level, as established in the December 2020 union-wide background paper. Staff also recommends completion of the financing assurances review.

Figure 2.
Figure 2.

Central African Republic: Medium-Term Economic Prospects, 2015–25

Citation: IMF Staff Country Reports 2021, 028; 10.5089/9781513568157.002.A002

Sources: C.A.R. authorities and IMF staff estimations and projections
Table 11.

Central African Republic: Risk Assessment Matrix1

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short-term” and “medium-term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

Annex I. The Authorities’ Response to the Pandemic

The containment measures, initially introduced after the first case of the virus was confirmed on March 14, were less restrictive than those adopted by other African countries. Notably, a general stay-at-home order was never imposed. However, schools were closed. Bars and restaurants were also ordered to close, and attempts were made to enforce existing passenger limits for commercial transportation. Commercial air travel, and religious and public gatherings of more than 15 people were banned. Truck drivers crossing the border from Cameroon, through which the bulk of landlocked CAR’s imports and exports transit, were tested for the virus. The majority of the first round of transmission occurred from this source.

The government came up with a strategy to fight the pandemic consisting of three axes—health-, socio-economic-, and security-related. The health response plan, prepared in collaboration with the WHO, aims to rehabilitate the country’s derelict health infrastructure and enhance capacity to conducting testing and care for victims. The authorities initially conducted free mass testing for the virus, setting up a walk-in testing center in the capital city. As supply of testing kits decreased, testing has since been limited to people with a medical prescription.

The socio-economic axis of the government’s response strategy seeks to provide support for vulnerable households and private enterprises impacted by the pandemic, but the main elements have yet to be clearly articulated. The security axis aims to bolster physical security across the country, a challenge predating the pandemic.

Donors have been providing support to fight the pandemic. Early on, the Chinese philanthropist, Jack Ma, donated testing kits, protective equipment, and other materials. The government of China has been making similar donations. Last April, the Fund approved a $38 million disbursement under the Rapid Credit Facility to support the health and socio-economic response to the pandemic. It also approved $4 million in debt relief under the Catastrophic Containment and Relief Facility, with a second six-month tranche of $3.9 million expected to be approved. The World Bank donated $7.5 million towards the preparation and implementation of the government’s health sector response plan. It also increases its budget support by $25 million and is financing the production of 100 million masks by local artisans, thereby boosting income generation opportunities. The African Development Bank donated $14.3 million to support the health sector response plan. The WHO assisted the government in formulating the health sector response to the pandemic. The EU brought forward disbursement of its budget support for 2020 and provided an additional €8 million in material support. The UN peacekeeping mission has been providing logistical support to the government especially in monitoring containment measures along the trade corridor with Cameroon. The mission and France have also been instrumental in efforts to install the physical distancing and other preventive facilities required to reopen the airport to commercial flights.

Annex II. Domestic Revenue Mobilization1

Introduction

1. The mobilization of domestic revenue is a critical challenge for the sustainability of the Central African Republic’s (C.A.R.) development agenda. There are two main reasons for this. First and foremost, from a social contract point of view, improving social consensus on the consent to pay taxes is critical to escape from a fragility/conflict situation (Gaspar, Jaramillo, and Wingender, 2016). Further, mobilizing revenue beyond a certain threshold (estimated at about 12 ¾ of GDP by Gaspar, Jaramillo, and Wingender, 2016) can trigger a “virtuous cycle” where the mobilization of revenue can lead to a significant impact on spending and its efficiency, eventually leading to higher growth potential and correspondingly higher revenue.

2. Currently, C.A.R. has a low revenue base, making the country dependent on foreign aid and limiting its capacity to finance a level of spending consistent with achieving its developments goals. Even accounting for substantial grants, C.A.R. ‘s government revenue is low at about 16.6 percent of GDP in 2018, compared to an average of 19.0 percent for Sub-Saharan African low-income countries (Figure 1). In particular, tax mobilization is significantly below the threshold of 12 ¾ percent of GDP at 8.1 percent of GDP. The very low level is only partly offset by the high level of grants (7.8 percent of GDP, against an average of 3 percent of GDP for SSA LICs) provided by the international community to assist C.A.R. in meeting its peace and development objectives.

Figure 1.
Figure 1.

Government Revenue Mobilization in C.A.R. and SSA Low-lncome Countries, 2019

(Percent of GDP)

Citation: IMF Staff Country Reports 2021, 028; 10.5089/9781513568157.002.A002

Sources: C.A.R. authorities, and WEO.

3. The purpose of this study is to propose a medium-term strategy for domestic revenue mobilization in C.A.R., to inform discussions with countries authorities.

Good Practices in Medium-term Strategies for Revenue Mobilization

4. Cross-country experiences show that successful revenue mobilization can achieve large improvements throughout the medium term. Indeed, Akitoby, Honda and Primus (2020) document how a number of fragile states managed to increase domestic revenue by a very large magnitude, from 7.5 to 19.7 percentage points of GDP over a span of 9 to 12 years or 0.8 to 1.7 percentage point of GDP annually.2 Country experiences suggest, however, that these results come with two caveats. First, as noted above, it can take a long time (about a decade) to make significant headways, and as such requires continued political—and social—support for the revenue mobilization efforts. In turn, such a continued effort would require not only pro-active communication to engage on a continuous basis the civil society and key stakeholders (including businesses), to ensure that revenue reforms are understood and accepted (see Basdevant et al., 2020). Second, it also requires continued efforts to improve governance and transparency and to ensure that mobilized funds go to the intended purposes with adequate oversight from the population, NGOs, and donors. As such, revenue mobilization efforts should not be seen separately from a broader strategy to improve the delivery of public services to those who need them the most.

5. Successful medium-term revenue strategies would rely on four main axes:

  • Simplify the tax system and curb exemptions. A simple tax system, which is easy to comply and difficult to evade / avoid, is critical to fostering taxpayer compliance. Removing exemptions can also reduce the tax system’s complexity while boosting revenue by broadening the tax base. Reducing exemptions figured prominently in nearly almost all reform countries. This type of reform is relevant for C.A.R., particularly through the removal of ad-hoc tax exemptions and parafiscal taxes (see below).

  • Introduce comprehensive revenue administration reforms: In most cases, revenue administration reforms figured prominently and covered a broad spectrum of legal, technical, and administrative measures, such as (i) management, governance, and human resources changes; (ii) segmentation of taxpayers and establishment of specialized units (e.g. large taxpayer offices); (iii) smart use of information management systems; (iv) modernization of registration, filing, and management of payment obligations; and (v) enhanced audit and verification programs based on risks.

  • Stakeholders must take ownership of the tax reform package. It is important to adopt an “inclusive” approach to policy making whereby all stakeholders are part of the public consultation process and fully understand the various economic implications of the reforms.

  • Countries must give revenue reforms time to bear fruit. The duration of reforms episodes ranges from two to about ten years since sustained success requires institutional change, which happens only gradually. Comprehensive tax reforms may take years before its gains become visible. Given the four- or five-year political cycle in most democratic societies, political executives have a greater incentive to engage in tax reform if the gains are visible by the time of the next election. Towards the end of the political cycle it is often difficult to push-back any resistance.

Elements of a Strategy for C.A.R.

6. C.A.R. has been engaged in significant mobilization of revenue (Table 1). Since the low point reached in 2014, right after the end of the civil conflict, revenue collection increased by 3.8 percentage point of GDP, to reach 8.7 percent of GDP (an increase of 77 percent compared to the collection of 2014). The increase was driven by across-the-board improvement in tax collection. With C.A.R. tax rates being comparable to regional levels, the bulk of the improvement has been from revenue and customs administration improvements, including through digitalization efforts, broadening VAT and excises tax-base, applying legislation more systematically, and stepping up tax and customs controls. In particular, in recent years, through more systematic digital information exchanges, C.A.R. has benefited from a third-party provider for the valuation of goods going through customs and securing of wood pulp exports. C.A.R. has also benefited from extensive revenue administration capacity development programs from the Fiscal Affairs Department of the Fund and other partners.

Table 1.

Central African Republic: Domestic Revenue Mobilization, 2014–23

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Sources: C.A.R. Authorities, and IMF Staff estimates and projections.

7. Over the medium term, a realistic strategy to mobilize revenue would be predicated on continued improvements in revenue administrations, to bring C.A.R. closer to the “tipping point” of revenue mobilization. Over the next three years, C.A.R. is expected to mobilize about 2 additional percentage points of GDP in revenue.

  • Most of the increase is expected to be generated from tax revenue: (i) a gradual recovery of the revenue loss that resulted from the pandemic, which, at present, is estimated to alter the tax-to-GDP ratio by about ¾ percent of GDP in 2020 (compared to pre-pandemic projections); and (ii) further improvements in tax administration leading to a ¾ percent of GDP gain over the period. This estimate is conservative, recognizing C.A.R.’s very limited administrative capacity and limited past success in improving revenue mobilization. There is, however, scope to generate a much larger increase, as explained below.

  • The remainder of the increase (about ½ of GDP) would be mobilized from nontax revenue, including from the full transfer of parafiscal taxes and levies to the Treasury Single Account (TSA). While overall budget-neutral (the revenue collected will also be spent by the agencies through the TSA), the consolidation of revenue—and more broadly of fiscal operations— through the TSA will greatly improve fiscal governance by reducing risks and potential contingent liabilities. Additionally, minor revenue is also collected by some ministry and spending agencies without proper legal basis. While the issue is, overall, estimated to be minor in terms of revenue collected, it represents an important fiscal governance and business climate issue. This practice should be abolished, because line ministries and spending agencies should receive their resources from the budget, and any financial resources issues should be dealt with in the context of the formal budget process. Moreover, these minor revenues are also hampering tax collection efforts, by making the “perceived” system by taxpayers being complex and potentially unfair, thus reducing incentives for voluntary compliance with the legal tax obligations.

8. Strengthening property income taxation. Since the end of the 2012–13 conflict, investments in the real estate sector have been massive in Bangui and some large cities in provinces, reflecting the growing need for commercial premises or housing. Rents increased significantly though the property income and real estate taxes potential remains largely untapped. Proper tax policy design and compliance enforcement are likely to generate substantial gains.

9. Removing ad-hoc tax exemptions; and focusing only on exemptions provided by the law. Over the years, some tax exemptions were granted in an ad-hoc manner, i.e. outside what is provided by laws. Some of these exemptions were given through government decrees and/or conventions. The authorities took steps to eliminate them, through a census of the exemptions already compiled, and a commitment to not renew them. Additionally, the authorities strengthened the governance of the system through which these exemptions were granted. Indeed, many of these exemptions had been granted by the commission for national investment (Commission Nationale des Investissements, CNI) and the authorities changed the functioning of the CNI to ensure that the Ministry of Finance will have an adequate oversight of exemptions granted and their compliance with the law (thus eliminating potential for new ad-hoc exemptions). In addition, revenue administration agencies, particularly customs, should implement audit programs to address the risk of diversion of exempted goods to unauthorized usages/destinations, which may account for significant revenue leakages.

10. Very few taxpayers are effectively administered, which if addressed would open a large scope for revenue mobilization. Out of about 50,000 taxpayers, about 2,000 are administered, of which about 900 pay taxes. The lack of effective administration of most taxpayers strengthens the case for focusing on revenue administration as a tool to mobilize revenue. In line with best practices, the strategy to bringing more taxpayers under an effective administration would require focusing on large and medium taxpayers and cross-checking data between public institutions. The following steps would therefore be critical to mobilize revenue on a much greater scale:

  • Draw a list of 300 (for example) largest importers, based on the raw data provided through the customs IT system ASYCUDA, and 100 largest public procurement operators. With this list, a first step would be to check if these taxpayers are registered with the tax administration, including their contact details and the turnover declared to the tax administration.

  • A tax administration investigation should be conducted each time such a taxpayer is not registered, or not identified through the contact details provided, or if not current with its tax obligations, or if the turnover declared is not consistent with the data fetched from ASYCUDA or public procurement data. These investigations should be systematic and on site. To cross-check the contact details, data from utilities companies and/or banks could be used to ease the work of tax administration.

  • A critical part of the success of this endeavor depends on the extent of digitalization and automation. The large share of taxpayers not being administrated highlights the institutional vulnerabilities of tax administration. Thus, the processing of the data and subsequent decisions should be digitalized and automated as much as possible. In particular, the authorities should consider introducing “blocking codes” in the ASYCUDA system, so that taxpayers who are not current with their tax obligations would see their merchandise blocked at customs posts. The same logic would apply for procurement.

  • Finally, transparency would also be critical. Once checks are done, outcomes should be disclosed (amounts of adjustment notified, amounts recovered) to ensure that the operations of tax administration are dully monitored.

11. Improvement of taxpayer services through digitalization. Another important area for improving voluntary tax compliance is to strengthen taxpayer services, which could heavily rely on digitalization. For example, the authorities, in the context of the rolling-out of their new version of the tax administration SYSTEMIF, have been working on procedures to secure and modernize payment processes. Focus has mostly been on making the system web compatible, and to enable e- payment and e-filling of tax returns. On the latter, the first phase will focus on large taxpayers, who should be able to file and pay their tax returns electronically by December 2020. Further, the authorities have also been working on developing interfaces between ASYCUDA and SYSTEMIF to improve the accuracy and cross-checks of data. Similar efforts are ongoing to ensure proper electronic transfer of data between the revenue administration systems and those of the new PFM system (SIMBA) under development. The introduction of mobile tax payments will also improve small businesses compliance.

12. Securing imports channeled through the port of Douala in Cameroon. CAR imports and exports transit through two ports: Douala in Cameroon, and, to a lesser extent Pointe-Noire in the Republic of Congo. Importers and exporters face significant issues with fraud and theft, which affects negatively the C.A.R. economy as a whole; and the budget with customs revenue shortcoming. The authorities negotiated with the autonomous port of Douala a site for the construction of a warehousing area, for goods from/to C.A.R. A public-private partnership (PPP) agreement was subsequently signed with a South African firm (COGEA) for the construction of the warehouse. The contract benefited from technical recommendations from the Fiscal Affairs Department of the Fund, notably in the area of digitalization (authorizations of exit from the port will be exclusively digitalized and automated, thus excluding manual interventions, and based on the IT systems used by C.A.R. and Cameroon customs administrations). The Fund also advised the authorities to implement the customs modalities introduced in the East African Community, i.e. to require that importers pay duty and taxes through C.A.R.’s customs systems and accounts before their goods leave the warehouse, while customs administrations would significantly reduce transit times through Cameroon and C.A.R.

13. Two new service providers were hired by customs to assist in the valuation of imports and securing of wood export revenue. A new contract is now in place with a service provider to assist in the valuation of goods. Looking forward, customs and the service provider would need to work closely to achieve (i) full digitalization and automation of processes to limit human intervention and support contract implementation and traceability; (ii) development of capacity at customs in the area of valuation of goods; and (iii) reconciliation of the data on imports revenue between customs and tax administration. In particular, the current IT system, ASYCUDA ++ being obsolete, the authorities are working on developing ASYCUDA World, an up-to-date version.

14. Paving the way for resource-revenue mobilization. C.A.R. is a country richly endowed in natural resources, mostly minerals (diamond, gold, coltan). In 2003, C.A.R. joined the Kimberley diamond certification scheme, which aims to prevent the sale of diamonds mined in areas affected by conflict. The scheme imposed an embargo on the export of diamonds following the 2013 crisis, which was subsequently partially lifted. In 2010, C.A.R. joined the Extractive Industry Transparency Initiative (EITI) which requires countries to “publish timely and accurate information on key aspects of their natural resource management.” C.A.R. membership was suspended in 2013. The country has launched a process for lifting the suspension. All mining and forestry contracts are now published on the website of the Ministry of Finance and Budget. Looking forward, continued improvements in securing peace in all parts of the country and strengthening governance of natural resources exploitation would be key to mobilize revenue in general, and particularly resource-related ones. In particular, improving governance in areas closely connected to resource revenue mobilization would be critical such as:

  • Ensuring the transparency of the beneficial ownership of legal entities, which would be key to an effective fight against money laundering and terrorist financing and be supported by the new asset declaration law, along with continued efforts to implement the Organization for Harmonization in Africa of Business Law (OHADA) recommendations on the financial transparency of legal entities (currently, basic financial information on corporates is only available manually, and thus difficult to access and is not always accurate, see Basdevant et al., 2020).

  • Adopting a new mining code to incorporate good practices, which is currently under preparation, with World Bank support.

  • Streamlining processes for the exploitation of precious minerals. As part of the Kimberley process, the authorities proceeded with audits of diamonds produced. However, it created relatively large delays between diamond extractions and sales (about a month), while this industry typically relies on much shorter delays. As a result, the authorities approached USAID to strengthen audit capacity, with the view of reducing the delays.

References

Annex III. Alternative Scenario

The economic outlook remains subject to significant downside risks. The baseline macroeconomic scenario assumes that the pandemic would fade before the end of 2020 with lingering effects in 2021. In addition, the baseline scenario assumes no worsening of security situation despite a potential flare-up in tensions in the run-up to the presidential and general elections. As pointed out in the staff report, this outlook is subject to significant downside risks, including a possible worsening of the pandemic, a deterioration of the security situation, and increasing political tensions.

Staff has developed an alternative scenario assuming a more protracted pandemic and deterioration of the security situation. Under this scenario, it will take longer than expected to contain the pandemic, both on a global level as well as in CAR. As a result, the pandemic will affect economic activity more severely than currently projected under the baseline. In such a scenario, growth would drop to 1 percent next year but recover more gradually in 2022 and beyond (Text Table 1). The scenario also factors in some effects of a possible deterioration of potential investors’ sentiment ahead of the general elections this year.

Text Table 1.

Central African Republic: Selected Macroeconomic Indicators, 2019–23

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

Under this scenario, the fiscal deficit would be substantially higher than under the baseline scenario. In 2020–21, tax revenues would be lower on account of lower economic activity and trade, while spending would be higher owing to the need to allocate further resources to containing the pandemic and supporting the most vulnerable companies and households. The domestic primary fiscal deficit-to-GDP ratio would consequently be about ¾ ppt and 2ppt higher in 2020 and 2021 respectively than under the baseline scenario before converging gradually with this scenario over the medium term. Reflecting these higher deficits and lower growth, the public debt-to-GDP ratio would decline only slightly over the medium term, from 47.1 percent of GDP at end-2019 to 43 ½percent at end-2023 (compared with 38.8 percent under the baseline scenario).

The external position would be adversely impacted as well. The current account would deteriorate mainly owing to lower private transfers, as the lower exports of goods and services exports would be broadly offset by lower imports. This deterioration would be compounded by lower net capital flows.

The authorities are prepared for such an adverse scenario. Though the authorities have not prepared a specific contingency plan, they have indicated the readiness to respond using a combination of adjustments and additional financing if such an adverse scenario materializes. On the expenditure side, consideration could be given to postponing or cutting non-priority spending (e.g. missions and repayment of domestic arrears) to contain the fiscal deficit. Potential financing sources to compensate for the lower revenues and deterioration of the external position should come in priority from additional budget support and project grants from potential donors and, as a last resort, additional financing from the Fund.

Appendix I. Letter of Intent

Bangui, December 17, 2020

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

700 19th Street, NW

Washington, DC 20431

United States of America

Madam Managing Director:

As you know, on December 20, 2019, the Executive Board of the International Monetary Fund (IMF) approved a three-year arrangement under the Extended Credit Facility (ECF) for the Central African Republic (CAR) in an amount equivalent to SDR 83.55 million to support the government’s economic policy and structural reform program for the period 2020–2022. The attached Memorandum of Economic and Financial Policies (MEFP) describes recent macroeconomic developments, the progress made as at end-September 2020 on the policies and reforms to which we committed under the ECF-supported program, and the economic policies and reforms that we plan to implement over the next 12 months.

The recent climate has been marked predominantly by the COVID-19 pandemic, which arrived at a time when the country was beginning to make significant progress in implementing the Political Agreement for Peace and Reconciliation (APPR) signed in February 2019. Since the first confirmed case of COVID-19 in CAR on March 14, close to 4,800 cases and 62 deaths have been identified. The government’s swift implementation of lockdown measures—such as the shutdown of bars, restaurants, schools, and the airport, as well as the distribution of masks—has helped bring the number of cases down significantly in recent months, which, in turn, led to the gradual relaxation of these measures. The pandemic has also had a substantial impact on economic activity, with some sectors, such as trade, transportation, tourism, and mining, being particularly hard hit by the lockdown measures and the drop in external demand during the first half of 2020. This resulted in an urgent need for external financing, a need largely met by the disbursement of SDR 27.85 million under the Rapid Credit Facility (RCF) and by the temporary cancellation of debt service to the IMF under the Catastrophe Containment and Relief Trust (CCRT). These were used primarily to fund our pandemic response plan and to offset the sharp decrease in our domestic revenue. Although the declining number of cases recorded in recent weeks gives us hope of a gradual economic recovery, we remain vigilant and ready to take additional measures, if need be.

Owing mainly to delays in transferring revenues from government agencies to the TSA and insufficient control of the commitment of budget appropriations, we were unable to achieve the end-December 2019 quantitative performance criteria. We have since taken corrective action to ensure that agency revenues are indeed transferred to the TSA and to enhance monitoring of commitments in GESCO, pending the rollout of the SIM-BA system. The slight shortfall in paying domestic arrears at end-December was due to liquidity concerns. The connection in March of the Treasury directorate to the BEAC’s SYGMA-SYSTAC system will enable better control of this liquidity. The continuous criterion of non-accumulation of external arrears was not met as insufficient coordination between the debt unit and the Treasury directorate led to a delay in one payment to the International Fund for Agricultural Development. In order to avoid the recurrence of such delays in the future, we have since taken measures to enhance this coordination.

As had been anticipated when the RCF disbursement was approved, the pandemic’s impact on government revenue, the domestic primary deficit, and government resources to pay domestic arrears, did not allow us to achieve the related end-June performance criteria. However, the fiscal outlook for the year is broadly in line with what had been envisaged in April and our commitment to dedicate the bulk of the emergency external financing provided by the IMF and our other financial partners to fighting the pandemic. Based on this outlook and the corrective actions we have implemented to avoid future shortfalls, we are requesting waivers of non-observance of the missed end-December and end-June PCs and of the continuous PC on the non-accumulation of arrears. To allow us more flexibility in addressing potential liquidity shortages, we are also proposing to replace the performance criterion on the repayment of domestic arrears with an indicative target.

The pandemic also led to significant delays in implementing the measures covered by structural benchmarks. We were therefore able to accomplish in a timely manner just one of the five structural benchmarks established in the first three quarters. However, we made considerable headway in implementing the corresponding reforms. Hence, we finalized the recruitment of service providers to assist us in valuing imports and securing wood export revenues. In early October, we also adopted implementing decrees for the new legal framework governing the operations of public and quasi-public entities and enterprises. In November, we finalized the capture of all corporate tax returns for 2018 and 2019 into the SYSTEMIF IT system. Finally, by the end of the year, we will amend the draft asset declaration law that we submitted to Parliament in early October to bring it in line with the applicable international good practices prior to its formal consideration by Parliament.

We believe that, despite the pandemic, the objectives we had set ourselves as part of the ECF-supported program are still relevant. Maintaining macroeconomic stability and debt sustainability, as well as restoring sustainable inclusive growth, are essential to the government’s efforts to restore lasting peace and prosperity in the country. Over the next year and with the support from our economic and financial partners, we therefore plan to continue an ambitious reform program, as described in the MEFP, to increase domestic revenues and the effectiveness of fiscal expenditures, while strengthening administrative capacity, governance, and the business environment.

To support us in our efforts to contain the pandemic and restart the economy and to help us meet our external and budget financing needs in this difficult context, we are requesting a cumulative disbursement of the second and third disbursements under the ECF arrangement, corresponding to SDR 23.872 million.

We are convinced that the measures and policies set forth in the MEFP are appropriate for meeting the objectives of the ECF-supported program but stand ready to take any additional measures that might be necessary to achieve these objectives. The government plans to consult with the IMF in advance of any revisions to the policies contained in the MEFP, in accordance with the rules on such consultation. Moreover, we will provide Fund staff with all data and information necessary to assess the policies and measures presented in the Technical Memorandum of Understanding (TMU).

We intend to publish the IMF staff report, including this letter of intent and the attached MEFP and TMU. We therefore authorize Fund staff to publish these documents on the IMF website once the Executive Board has completed the first and second reviews under the ECF arrangement.

Very truly yours,

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Attachments:

  • - Memorandum of Economic and Financial Policies (MEFP)

  • - Technical Memorandum of Understanding (TMU)

Attachment I. Memorandum of Economic and Financial Policies (MEFP)

This memorandum supplements and updates the MEFP signed in December 2019 as part of the economic program supported by the Extended Credit Facility (ECF). In support of our efforts to restore lasting peace and prosperity under the Political Agreement for Peace and Reconciliation in the Central African Republic (APPR) signed in February 2019, this economic program aims at reducing our fiscal and external imbalances, while promoting inclusive and sustainable growth and poverty reduction.

This MEFP describes the background, recent macroeconomic developments, progress made in program implementation, the economic outlook and risks, as well as the macroeconomic policies and structural reforms that we intend to implement over the remainder of 2020 and the medium term.

Background

1. The Covid-19 pandemic has had a severe impact on the Central African Republic (C.A.R.). The first case was confirmed on March 14, 2020. As of November 9, 2020, the country had recorded a total of 4,879 cases and 62 deaths. In order to respond to the pandemic, the government took rapid containment and mitigation measures, such as closing the borders, restaurants, bars, and educational institutions, and restrictions on gatherings and movements from Bangui. These measures yielded positive results, as can be seen from the very limited number of cases and deaths reported over recent months. This improvement enabled us to relax some of the measures, with the reopening of restaurants, schools, places of worships, and bars, and the resumption of some commercial flights from Bangui M’Poko international airport. While we hope that the worst of the pandemic is behind us, it is important to remain vigilant, to continue to apply social distancing measures, such as wearing masks in public places and handwashing at the entrance to public buildings.

2. The APPR is starting to bear fruit, with a gradual improvement in the security situation. Eighteen months after its signature, the peace agreement has resulted in a gradual decline in the number of security incidents and deaths related to the conflict, along with tangible progress, such as the deployment of government forces in certain regions, the gradual introduction of joint security brigades, and the disarmament of some armed groups. While clashes between armed groups in the north in April 2020, as well as clashes between the peacekeeping and government forces and the 3R armed group in the northwest in June 2020, resulted in numerous deaths, there have been no major incidents in recent months.

3. Despite the Covid-19 pandemic and the security situation, preparations for the presidential and legislative elections are progressing. With support from donors, we were able to secure funding for these elections, while the United Nations Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA) is assisting us to ensure that the elections proceed smoothly from a security standpoint. While there have been some delays in the preparation of voters’ lists, these were finalized in mid-October, while the list of candidates for the presidential election will be announced by early December. With the other institutions necessary for the proper conduct of the elections now in place, we are confident that the elections’ first round will take place as planned on December 27, 2020, and if necessary, the second round will be held on February 7, 2021.

Recent Macroeconomic Developments

4. The pandemic and the measures aimed at mitigating its public health impact have had a major impact on growth. These measures and weak external demand were a serious blow to economic activity in the first half of 2020. The most affected sectors were trade, transportation, tourism, the hotel industry, and the mining sector. Hence, official diamond production, already depressed, fell by nearly 90 percent in the first half of 2020. During the same period, the number of passengers’ arrivals at Bangui M’Poko international airport dropped by 39 percent compared to the same period of the previous year. Overall, despite some signs of the start of a recovery in the past few months, owing to the relaxation of containment measures, economic activity is expected to be stagnant in 2020, while we were anticipating growth of around 5 percent a year ago. Inflation rose in the first half of the year, reaching 5 percent y-o-y in June 2020, owing primarily to the rise in food prices following the temporary closure of the border with Cameroon in the spring. We expect, however, that the downward correction of these prices that began in July will continue and that annual average inflation will remain below 3 percent this year.

5. The current account deficit is expected to widen in 2020. It would increase from 5 percent of GDP in 2019 to 7.6 percent of GDP in 2020, owing primarily to weak external demand and private transfers and an increase in non-oil imports fueled by externally financed public investment, which would be only partly offset by increased budget support and the drop in the oil bill. Exports and imports of goods and services would decline by around 12 percent and 2 percent, respectively. Foreign direct investment and other financial flows are expected to decline substantially during this period of heightened uncertainty. With the deterioration in the current and financial accounts being more than offset by a strong improvement in the capital account (project grants), the overall balance of payments would improve slightly, from -1.1 percent of GDP in 2019 to -0.3 percent of GDP in 2020. Owing to an increase in disbursements under IMF facilities, official reserves are expected to increase in 2020, following a slight decline in 2019.

6. Fiscal developments during the first half of 2020 were also seriously affected by the pandemic. The domestic primary deficit widened due to weak domestic revenues and increased expenditures. The decline in revenues reflects not only the slowdown in economic activity and the decline in imports, but also the impact of the pandemic on the tax administration (whose controls have been seriously diminished), the suspension of ad valorem taxes on imported used cars (which are now being applied), and persistent difficulties in the transfer of public agencies’ revenue to the Treasury single account (TSA). In order to address these difficulties, in June 2020, the Minister of Finance and Budget instructed the public accountants assigned to each entity to monitor the tax basis of the relevant parafiscal levies and to proceed with their forced collection, if necessary. In line with what was expected under the Rapid Credit Facility (RCF), recurrent expenditures increased in response to the pandemic.

7. The banking sector remains profitable and sufficiently capitalized, although liquidity levels have declined somewhat and nonperforming loans have risen slightly. The capital adequacy ratio was around 28 percent in May 2020, against 31 percent in June 2019. There was a slight increase in nonperforming loans in the first half of 2020, reaching 13.7 percent of total lending in May 2020, compared to 12.6 percent in December 2019. While remaining comfortably above the regulatory minimum of 100 percent, the liquidity ratio dropped to 132.6 percent in May 2020, compared to 165.8 percent in December 2019. Lending to the private sector declined by 4.8 percent year-on-year in June.

8. We have set up an inter-ministerial committee responsible for monitoring pandemic-related spending with the aim of ensuring in real time the proper use of funds received. This committee is chaired by the Minister of Finance and Budget and it is comprised of representatives from the main spending agencies (e.g. Ministry of Health and the Population, Ministry of Economy, Planning, and Cooperation) and from the agencies responsible for the supervision of spending (e.g., the Budget Directorate, the Public Procurement Directorate, the High Authority for Good Governance, or HABG), as well as observers representing our technical and financial partners (the World Bank, the African Development Bank (AfDB), the IMF, the EU, and the Bank of Central African States, or BEAC) and civil society. The committee will oversee not only pandemic-related spending implemented by the government, but also spending implemented by our partners. The decree issued by the Prime Minister, Head of government, establishing the committee provides for the publication of tenders related to this spending.

9. We have made substantial progress with regard to digitalization.

  • ➢ The electronic payment of public employees’ salaries was deployed as planned at the beginning of 2020 in two localities, and then extended to a total of 10 localities and around 400 employees. Owing to the pandemic, we were not able to continue with this deployment in the provinces and we focused on its development in the capital, in particular for the payment of salaries to security and defense forces.

  • ➢ The pilot project for the electronic filing and payment of taxes by large enterprises, initially planned for the end of June 2020, was held up by delays in the delivery of the necessary technical assistance. With the assistance of AFRITAC Central, however, we have already completed the consolidation of the tax return1 and tested the system internally and with certain taxpayers. We will expand the testing to other large enterprises by mid-November 2020, which should enable us to deploy the system by the end of the year as planned under the program.

10. The pandemic and the containment measures have led to delays in the implementation of other reforms since the administrations have not been able to work at full capacity, many officials falling ill or having to quarantine themselves, and technical assistance has not been provided in a timely manner. This is the case in particular with the deployment of the new SIM_BA integrated system for public financial management, the deployment of which has been delayed for a year, from early 2021 to early 2022, since the International Association of Francophone Mayors (AIMF) was not able to provide the necessary technical assistance. Nevertheless, we were able to continue with its development, thanks to the support from the World Bank, in particular. SIM_BA is expected to be delivered in early 2021, and a testing phase will begin immediately. Then we will prepare the draft 2022 budget law using SIM_BA, which will be in full use starting in January 2022. In the meantime, and with the assistance of the World Bank, we will execute the 2021 budget using our existing system, GES’CO.

11. We have continued the reforms to strengthen governance. We published on the Ministry of Finance and Budget website the final report of the diagnostic mission on governance prepared by the IMF.2 In accordance with that report’s recommendations, we will amend a draft asset declaration law recently submitted to Parliament so as bring it in line with the applicable international good practices prior to its formal consideration by Parliament.

12. We have made progress in various reforms aimed at improving the business environment. A new labor code has been submitted to Parliament and includes, as recommended in the governance diagnostic report, a limit on damages in the event of unfair dismissal. The code also contains important provisions for greater social justice, for example, by establishing penalties for sexual harassment in the workplace. An assessment of the mining code was conducted by the AfDB and we are currently in the process of hiring, with the support from the World Bank, a technical expert to implement the recommendations made by the AfDB. Finally, we have prepared an electronic commerce guide, which is now available on the Ministry of Finance and Budget website.

Program Implementation

13. With the exception of the one related to domestic financing, we did not meet the end-2019 quantitative performance criteria. Nevertheless, two of the three fiscal criteria that were not met at end-December were missed by narrow margins (0.1 percent of GDP in both cases). The low level of revenue and the large deficit at end-2019 can be explained primarily by delays in the transfer of revenues from public agencies to the TSA and insufficient management of commitments of budget appropriations. We have accordingly taken some corrective measures to ensure that the revenues from public institutions are properly transferred to the TSA and to strengthen the monitoring of commitments in the GES’CO system, pending the deployment of the SIM_BA system. The slight delay in the payment of domestic arrears at end-December can be explained by liquidity problems. The connection last March of the Treasury directorate to the BEAC’s Sygma-Systac system will allow for better management of liquidity.

14. As anticipated when the disbursement under the RCF was approved, the pandemic did not allow us to meet most of the end-June 2020 performance criteria. Its economic impact led to a sharp drop in domestic revenue, which, along with the additional pandemic-related expenditures, contributed to a widening of the domestic primary deficit and a shortage of government resources to pay domestic arrears.

15. Recent fiscal performance is broadly in line with what was envisaged under the RCF and our commitment to devote most of the emergency external financing provided by the IMF and our other financial partners to fighting the pandemic. With cumulative revenues of CFAF 80.5 billion based on the data at end-August, domestic revenues are on track to meet the proposed annual target of CFAF 115 billion. At 63 percent of the annual projection, primary expenditures at end-August are broadly in line with the levels envisioned during the discussions under the RCF, thanks to low expenditures on investment and goods and services. The continuous criterion of non-accumulation of external arrears was not met on account of a delay in the payment of one installment (of less than $200,000) owed to the International Fund for Agricultural Development. In order to avoid the recurrence of such delays in the future, we are committed to improving coordination between the Treasury directorate and the debt unit. From now on, one month before each external debt due date, this unit will send an official reminder note to the Treasury directorate to make the payment.

16. Although the pandemic has also had an impact on the implementation of structural reforms, allowing us to meet only one of the five structural benchmarks set for the first nine months of the year, considerable progress was made in the implementation of the relevant reforms:

  • ➢ The structural benchmark related to the submission to parliament of a draft supplementary budget law providing for the elimination of the seven remaining public agencies without economic justification was met, although parliament rejected their elimination on the grounds that an assessment of its socio-economic impact should be undertaken beforehand.

  • ➢ The measures covered by the end-January structural benchmark have been implemented as, following the recruitment in January of a service provider to assist the customs administration in the valuation of imports, we hired another service provider in May to help us certify and secure timber export revenues.

  • ➢ The secondary legislation of a new legal framework governing the functioning of public and parapublic institutions and enterprises were adopted in early October (structural benchmark for end-March 2020).

  • ➢ The integration of all corporate tax returns for 2018 and 2019 into the SYSTEMIF IT system (structural benchmark for end-June 2020) was delayed due to social distancing measures, but was finalized in November 2020 (prior action).

  • ➢ A draft law on asset declaration was submitted to Parliament on October 7, 2020 (missed structural benchmark for end-September). That draft will be amended to bring it in line with the applicable international good practices prior to its formal consideration by Parliament (prior action).

Economic Outlook and Risks

17. The economic outlook has deteriorated owing to the pandemic. Growth is now projected at zero percent in 2020, 1 percent less than expected under the RCF. This downward revision reflects the longer-than-anticipated impact of the pandemic, at both the global level and within the country. The economic recovery in 2021 is also expected to be less pronounced than originally anticipated, being limited to 3½ percent, compared to the 4 percent envisaged under the RCF. Over the medium term, growth could reach 5 percent, benefiting from the reforms to improve the business environment and public investment, in particular in the agriculture, energy, telecommunications, and water sectors. Inflation is expected to rise in 2020, but it should remain below 3 percent.

18. The external position would improve gradually over the medium term. As the impact of the pandemic subsides and the global economy gradually recovers, exports are expected to increase, which will allow for an improvement in the current account balance, with its deficit expected to fall from 7.6 percent of GDP in 2020 to 5½ percent over the medium term, in spite of an anticipated drop in official transfers. Financial flows, including foreign direct investment, are expected to normalize and, in combination with the improvement in the current account balance, to contribute to the gradual accumulation of official reserves.

19. This outlook remains subject to substantial risks. The outlook for 2020 and 2021 is particularly uncertain owing to a possible worsening of the pandemic, a still unstable security environment, and the December 2020 elections. The upside risks include a less severe impact from the pandemic (for example, if a vaccine becomes quickly and widely available) and a more rapid implementation of structural reforms and of the peace agreement after the elections.

Economic and Financial Policies

20. Although focused over the short term on combating the pandemic, our economic policies will remain guided by the objectives set under the ECF, namely, to maintain macroeconomic stability, improve governance, and meeting C.A.R.’s protracted balance of payments financing needs. Over the short term, we will ensure that the financing provided by our partners is spent in an efficient manner to combat the pandemic. Over the medium term, as the situation improves, we should re-emphasize sustainable funding for our considerable financing needs related to spending on security, and the social and infrastructure sectors, while promoting inclusive growth through governance and the improvement of business environment reforms.

A. Fiscal Policy

21. We will continue to implement prudent fiscal policy aimed at ensuring sustainable financing of priority expenditures, in line with the initial objectives of the program supported by the ECF. In particular, it will be essential to ensure financing of our spending needs, while gradually reducing our public debt. To achieve this, we are committed to gradually bringing the domestic primary deficit down to 2½ percent of GDP. This strategy will be supported by a policy aimed at increasing domestic revenue mobilization, rationalizing non- priority spending, and improving public spending efficiency. So as not to compromise debt sustainability, we will continue to seek grants to finance our most urgent needs, and we will resort to external borrowing only on concessional terms and within the limits established under the program. The government is also determined to continue negotiations with creditors with whom agreements were signed prior to the Heavily Indebted Poor Countries (HIPC) initiative.

22. In line with our commitments under the RCF, we intend to use the emergency financing provided by the IMF and our other partners to combat the pandemic and to compensate for the decline in domestic revenues it caused. In early July, we submitted a supplementary budget law to the National Assembly, which approved it on July 9. This law allocated CFAF 15.8 billion (1.2 percent of GDP) for combating the pandemic, of which nearly CFAF 10 billion is for the Ministry of Health’s response plan, around CFAF 3 billion as government support for the private sector and vulnerable households, and CFAF 1.2 billion for the construction of new hydraulic boreholes. With the aim of containing, in accordance with our commitments, the envelope for non-pandemic-related spending at the level specified under the ECF, we have identified CFAF 7 billion in non-priority expenditures that will not be executed. We formalized this reduction in budget allocations by means of a ministerial instruction canceling the appropriations for these non-priority expenditures, which we forwarded to the National Assembly for informational purposes. Owing to the more-pronounced-than-anticipated slowdown in economic activity, domestic revenue is expected to be just slightly below what was envisioned under the RCF, while the domestic primary deficit is expected to amount to about 6 percent of GDP.

23. We have submitted to the National Assembly a draft budget law for 2021 that is aimed at keeping the domestic primary deficit below 4 percent of GDP in 2021 through increased domestic revenues mobilization and better management of spending. There will be a substantial increase in domestic revenues due to the measures that we are planning to implement to strengthen tax administration (see below). In view of the limited number of cases recently recorded, and the significant amount of Covid 19-related expenditures remaining to be executed in the last months of the year, we have not included additional appropriations earmarked for these expenditures in the draft budget law. We nevertheless remain vigilant and will consult with the IMF and our other technical and financial partners should the health situation worsen and additional expenditures become necessary.

B. Fiscal Reform

24. We will ensure the sound and transparent use of the funds mobilized to combat the pandemic. In accordance with our commitment under the RCF, we will commission an independent audit by the Court of auditors (Cour des comptes) of pandemic-related expenses incurred in 2020. The audit report will be published online, and in its entirety, by end-April 2021 (new structural benchmark). Following the publication in early December of data on Covid-related expenditures and related public contracts, we will publish on a monthly basis detailed data on Covid-related expenditures and on public procurement tenders as part of the pandemic response, as well as the outcome of these tenders, including the names of the winning companies, the names of their beneficial owners, and the criteria for their selection.3 We will also publish the names of enterprises that have benefited from transfers intended to help them deal with the pandemic, and the criteria for their selection.

25. We will continue our efforts aimed at strengthening the public financial management system and consolidating the TSA.

  • ➢ We reiterate our commitment to eliminating the remaining seven public agencies with no economic justification. We will therefore work with the National Assembly to ensure that their concerns are taken into account and that the elimination is effective by end-April 2021 (new structural benchmark).

  • ➢ Owing to the considerable uncertainty regarding the impact of the pandemic on public finances, and with the aim of preserving a cash position, we have slowed down the repayment of domestic arrears and we have adopted a new clearance plan that provides for the repayment of all validated arrears in 2017 by end-2021. We have also asked the French Development Agency to finance the continuation of quarterly audits of these repayments.

  • ➢ We will extend the electronic payment of salaries and bonuses to all defense and security forces by end-December 2020, as well as to national education and health sector personnel by end-March 2021.

  • ➢ With a view to identifying, streamlining, and ensuring traceability in the management of service revenues generated by ministries and public enterprises and institutions through their own activities, we commit to performing by the end of the year, as part of a mission conducted by the General Finance Inspectorate (IGF) and with the technical assistance of the IMF, an inventory of revenues received directly by ministries and public enterprises and institutions. This operation will make it possible to eliminate those without justification and if necessary, to place the others under the control of the Treasury directorate according to the methods to be defined in a new text governing the management of the delegated imprest accounts for the collection of revenue by end-June 2021.

  • ➢ Over the next few months the World Bank will conduct a review of the government’s social spending, in particular in health, education, and social protection. This assessment/review, which should be available by the end of the first half of 2021, will enable us to identify different ways for better allocation of resources in these sectors and to increase the effectiveness of this public spending. This review will also be an opportunity to identify bottlenecks in the under-accumulation of human capital in the C.A.R.

26. We will strengthen the supervision of public enterprises. Following the adoption of its implementing decrees, we will implement the new legal framework governing the functioning of public and parapublic enterprises and entities. This will result, in particular, in adequate financial monitoring of these establishments. We are committed to stabilizing and disseminating the legal corpus of public and parapublic enterprises and entities by adopting the texts defining the practical organizational and operating methods specific to certain categories of public entities and by training the main actors, namely the authorizing officers and accountants of those entities as well as the competent supervisory bodies, by the end of 2021. We undertake to produce and submit to the Court of Auditors, by the end of September 2022 at the latest, the financial statements of at least three of the largest public offices for the 2021 exercise.

27. We will continue to improve domestic revenue mobilization:

  • ➢ One of the reasons for the low domestic revenue is the narrow tax base, with a very small number of taxpayers being effectively administered. In order to expand this base, we will identify the 300 largest importers and 200 largest beneficiaries of public procurement contracts and we will ensure by the end of the year that these enterprises: have a valid tax identification number; report revenues that are consistent with the information from the public procurement contracts/imports; and are current on their tax obligations. The tax authorities will systematically audit enterprises that do not meet all these criteria and will publish the results of these audits by end-June 2021 (new structural benchmark). This publication will confirm the presence of the tax administration authorities and enhance the credibility of the effectiveness of their surveillance of taxpayers. In addition, all taxpayers known to customs and/or public contracts directorates and unknown to the tax directorate must be included in the taxpayers file (therefore properly registered) and become compliant. The administration will ensure that they meet their reporting and payment obligations over the years.

  • ➢ Following their deployment for large enterprises by the end of the year, we will expand the electronic filing and electronic payment of tax obligations to small and medium-sized enterprises by end-2021.

  • We are holding monthly meetings between the service provider assisting us in the valuation of imports and the General Customs Directorate in order to reconcile the taxed value with that recommended by the service provider and we will take corrective measures when significant discrepancies are identified. Progress is being made in securing imports between the port of Douala in Cameroon and the border post in the C.A.R. As this security process will take time to be fully effective, over the short term we will reconcile data on goods recorded by Cameroon with those recorded by the customs authorities in Bangui. In the event of a significant discrepancy, we will immediately initiate inspections to recover the customs duties that were evaded. We will also publish a list of infractions identified and the amounts recovered, starting in December 2020. We will also strengthen our program to verify the use of goods imported but exempt from customs duties. We are going to issue a mission order by the Minister of Finance and Budget so that: (i) starting in December 2020, this program covers at least 20 percent of the amount of the stock of import exemptions for the last three years; and (ii) from March 2021 a report by be produced the customs directorate on the controls carried out and their results, including the duties and penalties notified and collected. Finally, we will establish an interconnection between the customs posts in Douala, Berberati, and others with the central services in Bangui starting in January 2021.

  • ➢

  • ➢ With the support of the European Union, we will continue our efforts to launch the Automated System for Customs Data (ASYCUDA) World. Once it is operational at the end of 2021, ASYCUDA World will notably allow for: (i) a more systematic verification of data between the port of Douala and the revenues received, since this system is already being used by the Cameroonian customs authorities in Douala; and (ii) the use of the electronic tax payment platform for the payment of customs duties.

C. Other Structural Reforms

28. We will continue the implementation of the recommendations of the governance diagnostic mission:

  • ➢ In response to our request, we have received support from the IMF, the World Bank, and the United Nations Office on Drugs and Crime (UNODC) to develop an action plan to combat corruption and improve governance. This action plans calls for: (i) increasing the independence of the HABG; (ii) the automatic forwarding to the HABG of complete reports prepared by other institutions responsible for government oversight starting in June 2021; and (iii) bringing laws on combating corruption and on good governance in line with international standards (in particular those of the UNCAC and the Financial Action Task Force, or FATF) by December 2021. Once it has been finalized, this action plan will be approved by the Council of Ministers by end-January 2021.

  • ➢ In close collaboration with IMF staff, as well as our other partners, we will also prepare an anti-corruption law in line with the provisions of the United Nations Convention against Corruption. We intend to share a preliminary draft with IMF staff by December 2020 with a view to submitting a draft law to the parliament by end-June 2021 (new structural benchmark).

  • ➢ Once the new asset declaration regime has been adopted by the National Assembly, we will issue the relevant implementing decree(s) in consultation with Fund staff.

29. We also intend to continue improving the business environment:

  • ➢ Once the comments by the AfDB and the World Bank taken into account, the draft mining code will be in line with international standards and will provide a sound and transparent framework for the exploitation of mineral resources in the C.A.R. We intend to finalize it within the next few months and submit it to the Council of Ministers, and then to the National Assembly, in the first half of 2021. This code will also form the basis for eventually re-joining the Extractive Industries Transparency Initiative (EITI).

  • ➢ In addition, we will mandate by the 2021 budget execution order the publication on the Ministry of Finance website and Budget of all public procurement contracts (whether or not they are related to the pandemic) of more than CFAF 5 million within 30 days of the date they are awarded, as well as the names of the beneficial owners of the legal entities concerned (new structural benchmark for September 2021).

  • ➢ We will ensure that the level of parafiscal taxes on the telecommunications sector is not detrimental to the development of the sector and to the implementation of our digitalization strategy. Based on the observation that these taxes were previously relatively low compared to other countries in the region, we raised them in June. As this increase was deemed excessive by industry players and some of our partners, we have undertaken an assessment of this increase. This assessment — with the help in particular of technical assistance financed by a World Bank project — will make it possible to determine an adequate approach to parafiscal taxation, which will not harm the development of the sector and our ambitions to accelerate the digitization of the economy.

  • ➢ With a view to strengthening the development of the financial sector, we will accelerate the launching of the National Economic and Financial Council (CNEF) with the aim of allowing for the implementation of the recommendations made by the National Credit Council (CNC). These recommendations notably include the creation of an arbitration and mediation center, as well as an arbitration chamber within the commercial court to deal with disputes related to banking and finance. Also, in a context where transactions by mobile phone grew from CFAF 1.8 billion to CFAF 31.9 billion between 2017 and 2019, we will continue to encourage this type of payment, in particular through the development of a fiber optic infrastructure that will make it possible to provide broader support for the banks’ efforts to digitalize their services. Finally, we will provide support for the co-financing mechanism for loans to small and medium-sized enterprises through the creation of a national guarantee fund for loans to small- and medium-sized enterprises.

Capacity Building

30. We will continue to pursue a capacity-building strategy with the support of our technical and financial partners, while improving coordination with these partners. Given the importance of transparency and governance for strengthening the public expenditure chain, the technical assistance (TA) provided by the IMF concerning the monitoring of spending related to Covid-19 will be essential in the months ahead in order to build our institutional capacities. Our other priorities in the area of TA continue to be the following: (i) improvement of revenue administration; (ii) strengthening public financial management and improvement of fiscal governance and mechanisms to combat corruption; (iii) building capacity for macroeconomic programming and debt management; and (iv) improvement of the quality of economic and financial statistics.

Program Monitoring

31. Program monitoring will continue to be performed using quantitative performance criteria and targets and structural benchmarks as defined in the Technical Memorandum of Understanding (Attachment II):

  • ➢ Consistent with our commitment to implement all the measures covered by structural benchmarks, we will implement the following measures as prior actions: (i) submission to Parliament of a 2021 draft budget law in line with program commitments; (ii) capture all the 2018 and 2019 corporate tax returns into the SYSTEMIF IT system (missed end-September SB); and (iii) submission to Parliament of a draft law aligning the asset declaration regime with the applicable international good practices (missed end-September SB).

  • ➢ We propose that the Executive Board establish quantitative performance criteria for end-December 2020 and end-June 2021, along with indicative targets for end-March and end-September 2021 (Table 2), and to implement as structural benchmarks the measures set out in Table 3, which covers the period through December 2021. To allow us more flexibility in addressing potential liquidity shortages, we are proposing to replace the performance criterion on the repayment of domestic arrears by an indicative target.

  • ➢ It is envisaged that the third review of the ECF arrangement concerning performance at end-December 2020 will take place by end-June 2021 and that the fourth review concerning performance at end-June 2021 will take place by end-December 2021.

  • ➢ We will provide IMF staff with the statistical data and information identified in the attached Technical Memorandum of Understanding, as well as any other information they deem necessary or that the IMF staff may request for monitoring purposes.

Table 1.

Central African Republic: Performance Criteria (PC) and Indicative Targets, December 2019–June 2020

(In CFAF billions)

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

Domestic revenue, which excludes foreign grants and divestiture receipts.

The domestic primary balance is defined as the difference between government domestic revenue and government total expenditure, less all interest payments and externally-financed capital expenditure.

These objectives will be monitored continuously.

Contracted or guaranteed by the government. The government acculated external arrears towards IFAD during the second quarter of 2020. These arrears were paid in early October 2020.

Social spending is defined as domestically financed public non-wage spending on primary and secondary education, health, social action, water and sanitation, microfinance, agriculture and rural development.

Projected on a cumulative basis.

Table 2.

Central African Republic: Performance Criteria (PC) and Indicative Targets, December 2020–21

(In CFAF billions)

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

Domestic revenue, which excludes foreign grants and divestiture receipts.

The domestic primary balance is defined as the difference between government domestic revenue and government total expenditure, less all interest payments and externally-financed capital expenditure.

These objectives will be monitored continuously.

Contracted or guaranteed by the government.

Social spending is defined as domestically financed public non-wage spending on primary and secondary education, health, social action, water and sanitation, microfinance, agriculture and rural development.

Projected on a cumulative basis.

Table 3.

Central African Republic: Prior Actions and Structural Benchmarks, January 2020–December 2021

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Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (TMU) defines the quantitative targets (performance criteria and indicative targets) and structural benchmarks that will be used to evaluate performance under the program for the Central African Republic (C.A.R.) presented in the Memorandum of Economic and Financial Policies (MEFP). The TMU also establishes the framework and deadlines for the reporting of data that will enable IMF staff to evaluate the program’s implementation.

A. Definitions

2. Unless otherwise specified, the government is defined as the central government of the C.A.R. and does not include any local governments, the central bank, or any public entity with separate legal personality (i.e., enterprises wholly or partially owned by the government) that are not included in the government financial operations table (Tableau des operations financières de l’État—TOFE).

3. Definition of debt. The definition of debt is set out in point 8 of the Attachment to IMF Executive Board Decision No. 15688-(14/107):

(a) “Debt” is defined as a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, according to a specific schedule; these payments will discharge the obligor of the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:

  • i. loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

  • ii. suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

  • iii. leases, i.e., arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of these arrangements, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments necessary for the operation, repair, or maintenance of the property.

(b) Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

(c) External debt is defined as debt borrowed or serviced in a currency other than the CFA franc.

(d) Domestic debt is defined as debt borrowed or serviced in the CFA franc.

4. Guaranteed debt. The guaranteeing of a debt by the government is understood to be an explicit legal obligation to service a debt in the event of nonpayment by the borrower (by means of settlements in cash or in kind).

5. Concessional debt. A debt is considered concessional if its grant element is at least 35 percent. The grant element is the difference between the nominal value of the loan and its present value, expressed as a percentage of the nominal value. The present value of the debt at the date on which it is contracted is calculated by discounting the debt service payments at the time of the contracting of the debt. The discount rate used for this purpose is 5 percent.

6. Total government revenue is tax and nontax revenue or other revenue recorded on a cash basis. Proceeds from financial asset sales, revenue from privatization or from the granting or renewal of licenses, and placement proceeds on government assets and grants are not considered government revenue for the purposes of the program.

7. Total government expenditure is understood to be the sum of expenditure on wages and salaries of government employees, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and investment expenditure, recorded on a settlement basis, unless otherwise stated. Total government expenditure also includes expenditures executed before payment authorization and not yet settled.

8. Wages and salaries correspond to the compensation of government employees as described in paragraphs 6.8 to 6.18 of GFSM 2014, namely, all employees (permanent and temporary), including civil servants and members of the armed and security forces. Compensation is defined as the sum of wages and salaries, allowances, bonuses, pension fund contributions, and any other form of monetary or non-monetary payment.

9. For the purposes of this memorandum, the term arrears is defined as any debt obligation (as defined in paragraph 3 above) that has not been repaid in conformity with the conditions specified in the pertinent contract establishing them.

10. Domestic payment arrears are the sum of: (i) payment arrears on expenditures; and (ii) payment arrears on domestic debt.

  • Payment arrears on expenditures are defined as all payment orders to the Treasury directorate created by the entity responsible for authorizing expenditure payments but not yet paid 90 days after authorization to pay given by the Treasury directorate. Expenditure payment arrears so defined are part of “balances payable” (or “amounts due”). Balances payable correspond to government unpaid financial obligations and include the domestic floating debt in addition to expenditure arrears. They are defined as expenditures incurred, validated by the financial controller, settled (“authorized”), and assumed by the public Treasury directorate, but which have not yet been paid. These obligations include bills payable but not paid to public and private companies, but they do not include domestic debt financing (principal plus interest). For the program target, domestic payment arrears are “balances payable” whose maturity goes beyond the 90-day regulatory deadline, while floating debt represents “balances payable” whose maturity does not go beyond the 90-day deadline.

  • Payment arrears on domestic debt are defined as the difference between the amount required to be paid under the contract and the amount actually paid after the payment deadline specified in the contract.

11. External payment arrears are defined as arrears on external debts. They represent the difference between the amount required to be paid under the contract and the amount actually paid after the payment deadline specified in the pertinent contract.

B. Quantitative Targets

12. The quantitative targets listed below are those specified in Table 1 of the MEFP. Adjusters of the quantitative targets are specified in Section D. Unless otherwise indicated, all performance criteria and indicative benchmarks are assessed on a cumulative basis from the beginning of the calendar year in which they are set.

a) Performance Criteria

Ceiling on net domestic financing of the government

  • Net domestic financing of the government is defined as the sum of (i) net bank credit to the government, defined below; and (ii) non-bank financing of the government, including proceeds from the sale of financial assets, proceeds from privatizations or the granting of licenses, Treasury bills, and other securitized debt issued by the government in the CEMAC regional financial market and denominated in CFA francs, and any Bank of Central African States (BEAC) credit to the government, including any drawings on the CFA franc counterpart of the allocation of Special Drawing Rights (SDRs).

  • Net bank credit to the government is defined as the balance between the debts and claims of the government vis-à-vis the central bank, excluding the use of IMF credit, and the local commercial banks. The scope of credit to the government is that used by the BEAC and is in keeping with general IMF practice in this area. It implies a definition of government that is broader than the one indicated in paragraph 3. Government claims include the CFA franc cash balance, postal checking accounts, securitized debt (obligations cautionnees), and all deposits with the BEAC and commercial banks of government-owned entities, with the exception of industrial or commercial public agencies (etablissements publics à caractère industriel et commercial—EPICs) and government corporations, which are excluded from the calculation. Government debt to the banking system includes all debt to the central bank and local commercial banks, including Treasury bills and other securitized debt.

Floor for domestic government revenue

  • Domestic government revenue: only revenue on a cash basis (tax and nontax revenue) will be taken into account in the TOFE.

Floor for the domestic primary fiscal balance

  • The domestic primary fiscal balance (cash basis) is defined as the difference between government domestic revenue and government expenditure, less all interest payments and externally financed capital expenditure. Payments on arrears are not included in the calculation of the domestic primary balance.

Ceiling on new external debt contracted or guaranteed by the government

  • The government undertakes not to contract or guarantee non-concessional loans. Non-accumulation of new external payment arrears by the government

  • The government undertakes not to accumulate external payment arrears, with the exception of arrears relating to debt that is the subject of renegotiation or rescheduling. This quantitative performance criterion is applied on a continuous basis.

b) Indicative Targets

Floor for social spending.

  • Poverty-reducing social spending comprises public non-wage spending on national education (primary, secondary, and higher education), health, social action (promotion of women and families, humanitarian actions), water and sanitation, microfinance (small and medium-sized enterprises and industries), agriculture, livestock, and rural development. Only domestically financed spending is taken into account. Its execution is monitored on a payment-order basis during the program.

Ceiling on spending through extraordinary procedures

  • This ceiling is set at 5 percent of total non-salary spending or debt service (principal and interest) and funded by external resources.

Floor for the payment of domestic arrears

  • The government undertakes to settle on a priority basis domestic arrears that have been validated.

c) Memorandum item

Ceiling on new external concessional debt contracted or guaranteed by the government

  • Recourse to concessional debt will be limited to investment projects that are essential for the country’s development and for which it will not be possible to obtain grants.

d) Adjusters of Quantitative Targets

13. To take into account the factors or changes that are essentially outside the government’s performance, various quantitative targets for 2020 and beyond will be adjusted as follows:

a. If the total revenue from privatization, sales of financial assets, or renewal of telecommunication licenses or forestry or oil licenses is greater than the amount programmed, the following adjustments will be made:

  • i. The ceiling on net domestic financing of the government will be adjusted upward by an amount equivalent to 50 percent of these additional receipts;

  • ii. The floor for the primary domestic budget balance will be adjusted downward by an amount equivalent to 50 percent of these additional receipts.

b. If the total budget support is greater than the programmed amount, the following adjustments will be made:

  • i. The ceiling on net domestic financing of the government will be adjusted downward by an amount equivalent to 50 percent of the disbursements in excess of the programmed amounts;

  • ii. The floor for the primary domestic budget balance will be adjusted downward by an amount equivalent to 50 percent of the disbursements in excess of the programmed amounts.

c. If the total budget support is less than the programmed amount, the following adjustments will be made:

  • i. The ceiling on net domestic financing of the government will be adjusted upward by an amount equivalent to the remainder of disbursements programmed but not made, that is, 50 percent of the disbursements programmed but not made;

  • ii. The floor for the primary domestic budget balance will be adjusted upward by an amount equivalent to 50 percent of the disbursements programmed but not made.

C. Structural Benchmarks

a) Prior Actions

These measures need to be implemented prior to the discussion of the first and second reviews of the ECF arrangement by the IMF Executive Board.

Submit to Parliament a draft budget law for 2021 that is in line with program commitments.

  • This draft should be in line with the commitments made under paragraph 23 of the MEFP and the performance criteria and indicative targets for 2021 (table 2).

Capture all the 2018 and 2019 corporate tax returns into the SYSTEMIF IT system

  • All corporate tax returns for 2018 and 2019 should be entered into the SYSTEMIF IT system.

Submit to Parliament a law to bring the asset declaration regime into alignment with the applicable international good practices.

  • This law will, among other things, specify the persons subject to the asset declaration requirement, the range of assets that must be declared, the modality for publishing declarations, and penalties in the event of failure to comply with this law.

b) Structural Benchmarks

Deploy e-procedures (declaration and payments) for large companies.

  • Online procedures for filing tax returns and making tax payments are expected to be put into place for large taxpayers before end-December 2020.

Publish online an independent audit of the spending related to Covid-19 that was executed in 2020.

  • This audit will be for all spending related to Covid-19, including spending in the supplementary budget law for 2020. The Court of auditors (Cour des Comptes) will conduct this audit and it should be published in its entirety on a government website by end-April 2021.

Enact the elimination of the seven remaining public agencies without economic justification.

  • The elimination of these seven agencies without economic justification should take effect by end-April 2021. The seven agencies to be eliminated are: the Autonomous Electricity Sector Regulation Agency (ARSEC); the Minerals and Gems Facility (COMIGEM); the Agency for Stabilization and Regulation of Petroleum Product Prices (ASRP); the National Environment Fund (FNE); the Mining Development Fund (FMN); the Development AgroPastoral Fund (FDAP); and the Special Earmarked Fund for the Development of Tourism and Crafts (CAS-DTA).

Submit to the National Assembly a new anti-corruption law that is consistent with the recommendations of the United Nations Convention against Corruption.

  • This new anti-corruption law should be consistent with the United Nations Convention against Corruption and reflect the relevant recommendations of the Financial Action Task Force and be submitted to Parliament by end-June 2021.

Publish the results of the tax audits of enterprises that fail to fulfill their tax obligations.

  • The enterprises that are to be audited are defined in paragraph 27 of the MEFP. The following should notably be published by end-June 2021: the number of audits conducted; the percentage of enterprises in compliance with their tax obligations; amounts to be collected; the number of adjustments made; amounts notified (averages, medians and totals); business areas concerned; volumes of new taxpayers identified; and the progression of taxpayer compliance.

Adopt a budget execution order that mandates the online publication of all public procurement contracts above a specified amount within 30 days of their award.

  • This order should apply to all public procurement contracts over CFAF 5 million, and it should provide for the publication of their full text on the Ministry of Finance and Budget’s website. In addition to the public procurement contracts, the names of the companies that won the contracts should be published, as well as of their beneficial owners and the criteria used to choose them. It should be adopted by end-September 2021.

D. Reporting of data to the IMF

15. Quantitative data on the government’s indicative targets will be reported to IMF staff according to the frequency described in Table III. Moreover, all data revisions will be promptly reported. The authorities undertake to consult Fund staff regarding any and all information or data not specifically addressed in this TMU but that is necessary for monitoring the program and to whether we have achieved the program objectives.

Table 1.

Central African Republic: Reporting of Data to the IMF under the ECF Funding Arrangement

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1

The authorities also received substantial direct assistance from donors to help them contain the pandemic and alleviate its social and economic impact (Annex I)

2

Many government members and senior officials have contracted the virus.

3

Owing to the economic impact of the pandemic, total public debt is now projected to decline to 41 percent of GDP at the end of the program period (end-2022), compared with a projection of 37 percent of GDP when the ECF arrangement was adopted.

4

These savings will offset most of the additional non-Covid-related spending introduced by Parliament and higher-than-expected 2019 budget expenditures implemented in 2020.

5

These reimbursements will include about CFAF 4 billion in recently identified arrears, including about CFAF 1 billion in pensions arrears, CFAF 2 billion in salary arrears to former state agents of Bangui Municipality and Parliament, and CFAF 1 billion in commercial arrears.

1

Prepared by O. Basdevant, O. Benon, G. Montagnat-Rentier, and A. Ramarozatovo. The whole team would like to express its deep gratitude to the work of Stephane Schlotterbeck, who left us recently, and who, through many years and despite illness, continued relentlessly to provide an outstanding support to domestic revenue mobilization in C.A.R.

2

Numbers derived from a case study of 4 countries: Liberia, Malawi, Nepal, and Solomon Islands (Akitoby, Honda, and Primus, 2020).

1

A single return now covers all tax levies and all types of businesses.

3

Data related to Covid-related spending can be found here and here.

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Cover IMF Staff Country Reports
Central African Republic: First and Second Reviews Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for the Central African Republic
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2021: Issue 028
Publisher:
International Monetary Fund
ISBN:
9781513568157
ISSN:
1934-7685
Pages:
100
DOI:
https://doi.org/10.5089/9781513568157.002
Text Figure 1.

Central African Republic: COVID-19 Cases and Health System
Text Figure 1.

Central African Republic: COVID-19 Cases and Health System
Figure 1.

Central African Republic: Recent Developments
Figure 2.

Central African Republic: Medium-Term Economic Prospects, 2015–25
Figure 1.

Government Revenue Mobilization in C.A.R. and SSA Low-lncome Countries, 2019

(Percent of GDP)