Press Release No. 08/342

Press Release: IMF Executive Board Completes Third Review Under the PRGF Arrangement for the Central African Republic and Approves US$9.1 Million Disbursement

December 22, 2008

The Executive Board of the International Monetary Fund (IMF) today completed the third review of the Central African Republic's economic performance under the three-year, SDR 44.555 million (about US$68.8 million) Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the third review enables the release of an amount equivalent to SDR 5.885 million (about US$9.1 million), including SDR 2.785 million (about US$4.3 million) from the augmentation approved on June 2008, bringing total disbursements under the arrangement to SDR 35.255 million (about US$54.5 million).

In completing the review, the Executive Board granted waivers for the nonobservance of the end-June 2008 quantitative performance criterion on the ceiling on commercial bank claims on the government, the end-September 2008 structural performance criterion on implementation of a plan to repay domestic arrears, the continuous quantitative performance criterion on the ceiling on external payment arrears and the continuous structural performance criterion on petroleum product price adjustment.

The three-year PRGF arrangement for the Central African Republic was approved on December 22, 2006 (see Press Release No 06/299) to support the government's economic program during 2006-10.

Following the Executive Board's discussion of the Central African Republic's IMF-supported economic program, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

"The authorities of the Central African Republic have made commendable progress in strengthening economic policies and improving the economy's resilience to shocks under their program supported by the Poverty Reduction and Growth Facility. Important progress has also been made in consolidating peace and security. Looking ahead, continuation of the authorities' medium-term economic and financial reform program will help to build a firm foundation for accelerating growth and alleviating poverty.

"The authorities are demonstrating a firm resolve to implement their PRGF arrangement, under difficult financial conditions and a challenging external environment. Increasing domestic fuel excises in line with the automatic petroleum product pricing formula has allowed the government to insulate the budget from the impact of fluctuations in international oil prices and generate revenue to finance priority expenditures.

"Maintaining a domestic primary budget surplus will allow the authorities to stay current on domestic debt service, start repaying domestic debt, and improve debt sustainability. The recent adoption of a plan to repay domestic arrears is an important step in the normalization of public finances.

"Continuing the fiscal structural reform program will be necessary to achieve macro-fiscal objectives. Strengthening tax and custom administration is vital to raising domestic revenue. To that end, the government plans to strengthen tax audits and collection enforcement. Improved public financial management will raise the efficiency and transparency of public expenditures. Strengthening the financial situation of the state-owned enterprises will help restore confidence and pave the way for more investment. Reinforced debt and treasury management capacity will be key to diversifying financing sources.

"Increased concessional external resources and well-coordinated technical assistance to help build up institutions are needed to accelerate progress toward the Millennium Development Goals. The authorities are encouraged to persevere in their efforts to reach the Highly Indebted Poor Countries (HIPC) completion point, which would provide further significant debt relief," Mr. Portugal said.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.