## cr17407 ## Source details **Canonical URL:** [cr17407](https://www.imf.org/-/media/files/publications/cr/2017/cr17407.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17407.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17407.pdf.json) --- ### EXECUTIVE SUMMARY - ECF arrangement: three-year arrangement approved July 20, 2016 in amount of SDR 83.55 million (75 percent of quota); augmentation of SDR 11.14 million (10 percent of quota) approved at the second review on July 17, 2017. - Authorities requested additional augmentation of SDR 38.99 million (35 percent of quota) to bring total access to 120 percent of quota. - Third review completion would allow disbursement equivalent to SDR 28.41 million. - Security/humanitarian: key corridor Bangui–Cameroon stable; security deteriorated elsewhere; half of population needs humanitarian assistance; DDRR launched August (first 109 ex-combatants); National Defense Plan adopted; recruited 500 police officers; retired 706 soldiers by end-2017. ### PROGRAM PERFORMANCE (as of end-June 2017) - Quantitative targets: - All end-June performance criteria and indicative targets met except the domestic revenue target. - Domestic primary deficit contained to 0.4 percent of GDP due to cash expenditure below projections. - Structural benchmarks and transparency: - All structural benchmarks completed, albeit with delay. - Consolidation of the Treasury Single Account (TSA) completed in August by closing non-essential commercial bank accounts (269 accounts closed, completed in August 2017). - New convention with revenue-collecting banks adopted to prohibit compensation and require daily transfer to TSA. - Comprehensive domestic arrears clearance plan adopted following international audit; inventory of parafiscal taxes completed. - Retroactive audit of import valuations (Jan 1, 2016–May 31, 2017) identified CFAF 1.7 billion of foregone revenue. - Budget execution reports published for first three quarters of 2017; 2016 revenue and expenditures account finalized (completed in November 2017). ### OUTLOOK AND RISKS - Growth and inflation: - Medium-term growth revised downward from about 5.4 percent to 4 percent on average. - Projected GDP growth for 2017 revised to 4 percent (from initial 4.7 percent). - Inflation in Bangui expected to be 3.8 percent by end-2017 and decline to 3 percent by 2019 (CEMAC convergence level targeted by 2020 in projections). - Risks: - Domestic: escalation of violence; lack of political cohesion; weak capacity. - External: retreat from cross-border integration; delays in external budget support and project grants. - Upside: swift reforms, inclusive peace agreement, accelerated DDRR, lifting diamond export embargo. ### FISCAL OUTLOOK AND 2018 BUDGET TARGETS (as submitted to parliament) - Targets: - Domestic revenue-to-GDP ratio: 9.6 percent. - Current primary spending: 9.7 percent of GDP. - Domestically-financed capital expenditure: 1.3 percent of GDP. - Domestic primary deficit: 1.4 percent of GDP. - Social spending: 1.1 percent of GDP (target CFAF 13.2 billion in 2018). - Wage bill contained at 5 percent of GDP due to expected retirement of military personnel. - Revenue mobilization: - Causes of shortfall: undervaluation of imports, lack of computerization, weak controls, incomplete transfer to TSA, slowdown in activity. - Revenue shortfall at end-June: 0.3 percent of GDP (CFAF 2.9 billion shortfall H1 2017). - Corrective measures expected to generate at least CFAF 1.7 billion by end-2017 and collect tax arrears of at least CFAF 2.6 billion. - Reinforced VAT and personal income tax controls generated CFAF 1.1 billion as of September. - Rationalization of exemptions and parafiscal taxes: - No new tax/customs exemptions since start of year; outstanding exemptions (excluding UN agencies, embassies, international organizations) estimated at CFAF 8.5 billion as of August 2017. - Identified 54 parafiscal agencies collecting revenues of at least 1.5 percent of GDP (estimated CFAF 18 billion in 2016). - Structural benchmarks: transfer all parafiscal revenues to Treasury (end-December 2017); publish laws/decrees creating 54 agencies (end-March 2018); elimination of unjustified parafiscal levies (end-December 2018). ### REVENUE MEASURES IN 2018 BUDGET (Text Table 2, Billions of CFAF) - Strict application of the CEMAC external tariff to imports and repeal of derogations: 0.7 - Increase of export duties on wood products: 0.4 - Increase of export duties on diamonds and gold: 0.1 - Increase of excise duties for alcoholic beverages and cigarettes: 2.1 - Increase of excise duties on other beverages: 0.6 - Introduction of a tax on motor vehicles: 0.3 - Impact of 2017 measures in 2018: 4.0 - Total: 8.2 - Expected additional revenue from 2018 tax policy measures: 0.4 percent of GDP - Expected tax-to-GDP ratio after measures and full impact of 2017 measures: 9.6 percent of GDP ### EXPENDITURE MANAGEMENT AND TREASURY SYSTEMS - Use of exceptional payment procedures: - End-August 2017: 20 percent of expenditure (excluding wages and debt service) followed exceptional procedures (2016: 12 percent). - Commitment to limit exceptional spending to a quarterly average of 5 percent in 2018 (indicative target, from end-March 2018). - Treasury management systems: - New system (Sim_Ba) to be deployed by 2020; interim reports continue via GESCO; six-month simultaneous use planned. ### REPAYING DOMESTIC ARREARS - International audit validated wage and pension arrears and commercial arrears of CFAF 74.3 billion (audit completed in October). - Repayment program: - Wage and Pension Arrears programmed over 2018–19: CFAF 64.9 billion (5.8 percent of GDP). - Repayment of arrears to SMEs should be completed by end-2017 (arrears to SMEs stock CFAF 9.4 billion). - Repayment plan to commercial banks: rescheduled over eight years at 2.95 percent interest starting October 2017. - Selected repayment schedule (Wage and Pension Arrears, CFAF billion — stock and repayments): - Stock (selected series): 64.9 -> 54.5 -> 47.4 -> 40.4 -> 33.3 -> 26.3 -> 19.7 -> 13.1 -> 6.5 -> 0.0 - Repayments (CFAF billion): 10.4; 7.1; 7.1; 7.1; 7.0; 6.6; 6.6; 6.6; 6.5; 0.0 - Safeguards: bank transfer payments only; beneficiaries must be current on taxes; list of beneficiaries published; independent international auditor to monitor and validate arrears clearance; quarterly progress and final report to be published. ### RELATIONSHIP WITH BEAC AND DEBT MANAGEMENT - BEAC statutory advances: - CFAF 22.5 billion statutory advances consolidated with another loan of CFAF 55.9 billion; repayment to BEAC to start in 2022 and end in 2031 at 2.4 percent interest. - Authorities will refrain from new borrowing from BEAC. - Strengthening debt management: - Three additional staff hired in debt unit; staff trained in Sygade; publish monthly debt service projections via Sygade (structural benchmark, end-June 2018). - External arrears: - Pre-HIPC arrears to Argentina, Equatorial Guinea, Iraq, Libya, and Export-Import Bank located in Taiwan Province of China total CFAF 100 billion. - China indicated intention to cancel outstanding debts (stated CFAF 43.5 billion in one table); negotiations with India ongoing. - DSA: - Confirms high risk of debt distress. - Staff supports increase of 2018 concessional borrowing limit from CFAF 6 billion to CFAF 9 billion for an infrastructure project; minimal impact on debt indicators (Text Table 4). ### PROGRAM FINANCING, BALANCE OF PAYMENTS, AND CASH MANAGEMENT - Authorities requested IMF augmentation of SDR 38.99 million (35 percent of quota) to meet additional BOP needs. - Donor support examples: - World Bank increased budget support by US$10 million. - US government supports repayment of wage arrears via US$3.6 million grant. - Program financing (Text Table 5, Billions of CFAF): - Financing Need: 77.6 (2017); 76.7 (2018); 55.9 (2019) - Budget support (grants): 30.4 (2017); 37.3 (2018); 28.5 (2019) - World Bank: 8.8 / 8.8 / 8.8 - European Union: 13.1 / 13.1 / 13.1 - African Development Bank: 0.9 / 8.8 / 0.0 - France: 6.6 / 6.6 / 6.6 - Other: 1.0 / 0.0 / 0.0 - Budget support (loans): 8.8 / 0.0 / 0.0 (AfDB: 8.8 in 2017) - IMF Financing (as of 2nd Review): 28.1 / 19.1 / 9.5 - Residual financing gap (1-2-3-4): 10.3 / 20.3 / 17.9 - Additional financing and IMF augmentation lines shown in table (IMF augmentation 35 percent of quota line: 4.5 / 18.1 / 9.1) - Treasury Cash Management Plan highlights (2017, millions CFAF): - Deposits beginning of year total 25,545; end-of-year shown also as 25,545; end-of-year actual end-month deposit reported total 34,484 in some tables (projections/actuals mixed in source). - Gross cash inflows (Total 2017): 194,109; Customs and Tax Revenue (Total): 92,719; Financing (Total): 92,130 (IMF Disbursements: 28,442). - Gross cash outflows (Total 2017): 185,170; Primary expenditure (Total): 120,815; Interest and Amortization (Total): 36,500; Arrears payments (Total): 27,855. - Net cash flow Total: 8,939; Deposits at end-of-year: 34,484 (table preserves monthly series). - Treasury Cash Management Plan highlights (2018, millions CFAF): - Deposits beginning of year: 34,484; Gross cash inflows Total 2018: 211,209; Customs and Tax Revenue (Total): 106,282; Financing (Total): 95,207 (IMF Disbursements 37,200). - Gross cash outflows Total 2018: 201,931; Primary expenditure: 132,374; Interest and Amortization: 39,353; Arrears payments: 30,204. - Net cash flow Total: 9,278; Deposits at end-of-year reported series ending at 43,762; Total freely usable deposits: 60,570. ### FINANCIAL SECTOR, BUSINESS ENVIRONMENT, AND GOVERNANCE - Financial supervision: - Financial soundness indicators show banks resilient but high NPLs remain a concern; all banks meet new regional reserve requirements adopted by BEAC in March. - COBAC inspection (June 2017) highlighted need to strengthen governance, internal controls, and compliance. - Business environment: - Draft 2018 budget introduces deferred VAT payment for exporters/large investors. - Authorities consulting with development partners on PPP framework; will consult Fund staff on PPP projects to assess budget impact. - With WB support: update legal frameworks, streamline customs declarations, rationalize tax system, set up one-stop investor shop. - Governance and anti-corruption: - Law establishing High Authority for Good Governance adopted and being established. - Newly appointed ministers declared assets with Constitutional Court after September 13 reshuffle. - Authorities plan to reform anti-corruption legal framework and reactivate independent anti-corruption agency. ### CAPACITY BUILDING, TECHNICAL ASSISTANCE, AND CBF PILOT - Capacity Building Framework (CBF) pilot since January 2017 focusing on: domestic revenue mobilization, budget preparation and implementation, treasury management, debt management, public finance statistics, national accounts. - Expected medium-term outcomes: increase revenue, enhance spending efficiency, restore budget discipline and transparency, strengthen debt management, create core macro-fiscal capacity. - TA delivery: IMF and AFRITAC Central TA substantial; donors (EU, France, WB) provided long-term experts. - Risks to TA implementation and mitigation: - Security risk: Probability High; Impact High — mitigation includes sending staff to outside locations for training. - Delayed partner support: Probability Medium; Impact High — mitigation includes preparing donor conference in Brussels. - Implementation capacity constraints: Probability High; Impact High — mitigation includes hiring and training young graduates and equipment modernization. ### DEBT SUSTAINABILITY ANALYSIS (DSA) — key conclusions - Total public debt 2016: 56.0 percent of GDP; External public debt end-2016: 36 percent of GDP (CFAF 253.4 billion). - Domestic arrears and collapse in GDP after 2013 underpin high risk of debt distress. - Baseline: one external debt indicator breaches policy threshold (PV of debt-to-exports) until 2023. - Stress tests: extreme scenarios lead to multiple threshold breaches; vulnerability to GDP, export, revenue shocks emphasized. - Policy implication: safeguard external sustainability by mobilizing grant financing; highly concessional debt only in exceptional cases. - Staff supports increasing 2018 concessional borrowing limit from CFAF 6 billion to CFAF 9 billion for an infrastructure project (minimal impact per staff analysis). ### PROGRAM MONITORING, CONDITIONALITY, AND STAFF RECOMMENDATIONS - Program monitored semi-annually; performance criteria for end-December 2017 maintained; proposed modifications for end-June 2018 aligned with revised macro framework and draft 2018 budget. - End-June 2017 domestic revenue PC missed; waiver requested by authorities based on corrective actions. - New structural benchmarks for 2018 (selected): - Publish laws/decrees creating 54 parafiscal structures (end-March 2018). - External audit of Forestry Fund and Telecommunications Regulatory Agency (end-June 2018). - Publish monthly debt service projections from Sygade (end-June 2018). - Revise petroleum pump price structure (end-September 2018). - Eliminate parafiscal levies without economic justification (end-December 2018). - Staff supports: - Completion of third review under ECF. - Waiver of non-observance of domestic revenue PC given corrective actions. - Authorities’ request for SDR 38.99 million augmentation. - Completion of financing assurances review. ### RISKS AND STAFF APPRAISAL - Key risks: (i) volatile security environment; (ii) weak administrative capacity; (iii) potential delays in external budget support; (iv) political tensions. - Safeguards: full safeguards assessment for regional central banks completed August 2017; BEAC steps to strengthen governance and transition to IFRS noted. - Staff appraisal: program appropriate given security environment and capacity constraints; urges acceleration of revenue and structural reforms; welcomes structural benchmarks and recommends strengthening responsible units to avoid delays. ### AUTHORITIES’ COMMITMENTS AND CONCLUSION - Authorities concur with staff’s assessment and commit to securing grants to finance investments and contracting highly concessional loans only in exceptional cases. - Authorities remain committed to ECF-supported program, macroeconomic consolidation, improving PFM and business environment, and meeting CEMAC regional objectives. - Staff requests Directors’ support for: completion of third review; waiver approval; modification of performance criteria; augmentation of access. *Source: cr17407 - IMF staff report excerpts (Central African Republic, third review under the ECF arrangement).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background and context - The three-year arrangement under the Extended Credit Facility (ECF) was approved on July 20, 2016 in an amount of SDR 83.55 million (75 percent of quota); an augmentation of SDR 11.14 million (10 percent of quota) was approved at the second review on July 17, 2017. - The authorities requested an additional augmentation of SDR 38.99 million (35 percent of quota), which would bring total access to 120 percent of quota. - The proposed fiscal path is described as consistent with regional fiscal efforts aimed at rebuilding reserves. - The Fund arrangement is intended to catalyze donor support; completion of the third review would allow for the disbursement of an amount equivalent to SDR 28.41 million. - Security and humanitarian situation: - The key economic corridor between Bangui and Cameroon remains stable; security has deteriorated in other areas. - Armed groups have targeted civilians, humanitarian workers, and UN troops; half of the population needs humanitarian assistance. - The government launched the disarmament, demobilization, reintegration, and repatriation (DDRR) program in August. The first 109 ex-combatants returned weapons and received training. - The authorities adopted a National Defense Plan, recruited 500 police officers, and retired 706 soldiers by end-2017. ### Program performance (as of end-June 2017) - Quantitative targets: - All end-June performance criteria and indicative targets were met except for the domestic revenue target. - Domestic primary deficit contained to 0.4 percent of GDP due to cash expenditure below projections. - Structural benchmarks and transparency: - All structural benchmarks completed, albeit with delay. - Consolidation of the Treasury Single Account (TSA) completed in August by closing all non-essential accounts with commercial banks. - A new convention between government and revenue-collecting banks adopted to improve transparency and tracking. - A comprehensive plan to clear domestic arrears adopted, based on an international audit of social and commercial arrears. - Inventory of parafiscal taxes completed as a first step to rationalization. - Retroactive audit of import valuations for January 1, 2016 to May 31, 2017 identified CFAF 1.7 billion of foregone revenue. - Budget execution reports published for first three quarters of 2017; report on revenue and expenditures for 2016 expected by end of the year. ### Outlook and risks - Growth and inflation: - Medium-term growth revised downward from about 5.4 percent to 4 percent on average. - Projected GDP growth for 2017 revised to 4 percent, down from initial projections of 4.7 percent. - Inflation in Bangui expected to be 3.8 percent by end-2017 and decline to 3 percent by 2019. - Risks: - Domestic risks: escalation of violence could depress growth further, increase inflation, and lower tax revenues; lack of political cohesion and weak capacity could undermine peace and development strategy. - External risks: retreat from cross-border integration could reduce growth and export prices; delays in external budget support and project grants could complicate program implementation. - Upside potential: swift reform implementation, an inclusive peace agreement, accelerated DDRR, and lifting of the diamond export embargo could raise growth. ### Closing 2017 and the 2018 budget - 2018 budget targets (as submitted to parliament): - Domestic revenue-to-GDP ratio: 9.6 percent. - Current primary spending: 9.7 percent of GDP. - Domestically-financed capital expenditure: 1.3 percent of GDP. - Domestic primary deficit: 1.4 percent of GDP. - Social spending: 1.1 percent of GDP. - Wage bill contained at 5 percent of GDP due to expected retirement of military personnel creating space for new hiring. - Revenue mobilization: corrective actions and identified measures - Causes of revenue shortfall: undervaluation of imports, lack of computerization, weak controls, incomplete transfer of revenue to the TSA, slowdown of economic activity. - Revenue shortfall at end-June: 0.3 percent of GDP. - Corrective measures to recoup shortfall: - Accelerate implementation of measures adopted in June expected to generate at least CFAF 1.7 billion by end-2017. - Collect tax arrears of at least CFAF 2.6 billion. - Maintain reinforced controls of VAT and personal income tax, which generated CFAF 1.1 billion as of September. - Rationalization of exemptions: - No new tax or customs exemptions granted since start of year; expiring exemptions being phased out. - Outstanding exemptions (excluding UN agencies, embassies, international organizations) estimated at CFAF 8.5 billion as of August 2017, mostly consistent with the investment code. - All existing exemptions and their revenue impact to be published and reviewed by end-December 2017. - Parafiscal taxes: - Instruction by the Prime Minister prohibits introduction of new parafiscal taxes; a ministerial order instituting a tax on incoming telephone calls was canceled in June 2017. - Identified 54 parafiscal agencies, offices, or funds collecting revenues of at least 1.5 percent of GDP. - A public accountant from the Budget department to be placed in these institutions; review underway to identify agencies to eliminate or incorporate into the national budget. - A strategy to transfer to the Treasury all revenue collected by these parafiscal agencies expected by end-December 2017 (structural benchmark, end-December 2017). - Authorities will publish all laws and decrees creating the 54 parafiscal agencies and authorizing them to collect taxes or levies (new structural benchmark, end-March 2018). ### Fiscal and financing actions supported - Staff supports: - Completion of the third review under the ECF arrangement. - Waiver of non-observance of the performance criterion on domestic revenue, on the basis of corrective actions taken. - Authorities' request for augmentation of access (SDR 38.99 million). - Completion of the financing assurances review is also recommended. *Source: cr17407 - EXECUTIVE SUMMARY (IMF).* ### 14. The authorities are committed to closing the gap between revenue collected by the ### cr17407 - 14. The authorities are committed to closing the gap between revenue collected by the ### Revenue mobilization and tax measures - Gap between revenue collected by the customs and tax administration and that effectively recorded by Treasury: about 1 percent of GDP. - Recent revenue collection convention: - Prohibits banks from seeking any compensation. - Demands the daily transfer of collected revenues to the TSA. - Prohibits expenditure payments from these accounts. - Requires improved and timely exchange of information between the tax authorities, the commercial banks, the Treasury, and the Central Bank (MEFP, ¶19). - Review of sector taxation and audits: - Authorities will review taxation in the forestry, petroleum and telecommunication sector. - An external audit of the Forestry Fund and the Telecommunications Regulatory Agency to be conducted (proposed new structural benchmark, end-June 2018). - The Petroleum Products Stabilization and Regulatory Agency was audited. - Authorities will revise the structure of pump price (proposed new structural benchmark, end-September 2018) (MEFP, ¶22). - 2018 budget tax policy measures expected additional revenue: 0.4 percent of GDP. - Measures include: - strict application of the CEMAC common external tariff to imports and repeal of derogations; - increased export duties on timber, diamonds, and gold; - increase of excise duties for alcoholic beverages cigarettes and other beverages; - introduction of a tax on motor vehicles (MEFP, ¶24). - Expected tax-to-GDP ratio after measures and full impact of 2017 measures: 9.6 percent of GDP (Text Table 2). - Text Table 2. Central African Republic: Revenue Measures in the 2018 Budget (Billions of CFAF) - Strict application of the CEMAC external tariff to imports and repeal of derogations: 0.7 - Increase of export duties on wood products: 0.4 - Increase of export duties on diamonds and gold: 0.1 - Increase of excise duties for alcoholic beverages and cigarettes: 2.1 - Increase of excise duties on other beverages: 0.6 - Introduction of a tax on motor vehicles: 0.3 - Impact of 2017 measures in 2018: 4.0 - Total: 8.2 - Sources: C.A.R. authorities and IMF Staff calculations ### Expenditure management and treasury systems - Use of exceptional payment procedures: - End-August 2017: 20 percent of expenditure (excluding wages and debt service) followed exceptional procedures. - 2016: 12 percent. - Commitment to limit exceptional spending to a quarterly average of 5 percent in 2018 (indicative target, from end-March 2018) (MEFP, ¶27). - Budget execution reporting: - Reports published for first three quarters of 2017; 2016 revenue and expenses report finalized (structural benchmark, end-September 2017). - Regular treasury meetings have taken place, though not monthly as envisaged. - Removal of inactive staff from payroll helped keep the wage bill under control. - Treasury management systems: - New system (Sim_Ba) to be deployed by 2020. - Interim production of budget execution reports will continue to be based on GESCO. - Six-month simultaneous use of both systems to ensure reliability and smooth transition. ### Repaying domestic arrears - International audit validated wage and pension arrears and commercial arrears of CFAF 74.3 billion (audit completed in October; plan to clear domestic arrears accumulated up to 2014). - Repayment program highlights: - Repayment of wage and pension arrears programmed over 2018–19: CFAF 64.9 billion (5.8 percent of GDP). - Repayment of arrears to small and medium-sized enterprises (SMEs): Should be completed by end-2017. - Repayment plan to commercial banks: complete; banks signed agreement to reschedule debt over eight years at an interest rate of 2.95 percent, starting in October 2017. - Text Table 3. Central African Republic: Domestic Arrearance Repayment, 2017–20 (selected figures) - Wage and Pension Arrears stock (in CFAF billion): 64.9 -> 54.5 -> 47.4 -> 40.4 -> 33.3 -> 26.3 -> 19.7 -> 13.1 -> 6.5 -> 0.0 - Wage and Pension Arrears (in percent of GDP): 5.8 -> 4.5 -> 3.9 -> 3.3 -> 2.8 -> 2.0 -> 1.5 -> 1.0 -> 0.5 -> 0.0 - Repayments (CFAF billion): 10.4, 7.1, 7.1, 7.1, 7.0, 6.6, 6.6, 6.6, 6.5, 0.0 - Arrears to SMEs stock (in CFAF billion): 9.4 -> 0.0 ... 0.0 - Arrears to SMEs (in percent of GDP): 0.8 -> 0.00 ... 0.00 - Repayments to SMEs: 9.4 - Source: C.A.R. authorities and IMF Staff calculations. - Safeguards and monitoring of arrears clearance: - Payments by bank transfer only. - Beneficiaries must be current in their payment of taxes. - List of beneficiaries will be published. - Independent international auditor recruited to monitor and validate arrears clearance; quarterly progress reports and a final report to be published (MEFP, ¶29). - Commitment to avoid new arrears: - All invoices related to procurement billed by suppliers and SOEs will be reimbursed on time (MEFP, ¶30). - Expanded quarterly budget execution reports enable timely tracking of float. ### Relationship with BEAC and debt management - Repayment of statutory advances to the Banque des États d’Afrique Central (BEAC): - CFAF 22.5 billion statutory advances consolidated with another loan of CFAF 55.9 billion. - Repayment to BEAC will start in 2022 and end in 2031 with an interest rate of 2.4 percent. - Authorities will refrain from any new borrowing from BEAC. - Strengthening debt management: - Following AFC/MCM TA mission recommendations, measures taken and three additional staff hired in debt unit. - Report on public debt developments in first half of 2017 published—the first after the 2013/14 crisis. - Staff trained to use debt management system (Sygade). - Improved debt reporting to provide detailed monthly debt service projections through Sygade (new structural benchmark, end-June 2018) (MEFP, ¶34). - Arrears to external creditors and negotiations: - C.A.R. owes CFAF 100 billion of pre-HIPC payment arrears to Argentina, Equatorial Guinea, Iraq, Libya, and Export-Import Bank located in Taiwan Province of China. - China has indicated its intention to cancel all outstanding debts. - Authorities negotiating a resolution with India for post-HIPC arrears. - C.A.R. also has arrears to private creditors and is pursuing collaborative agreements. - Fund may provide financing notwithstanding external arrears to private creditors, given timely engagement and pursuit of appropriate policies. - Debt Sustainability Analysis (DSA) findings: - Confirms C.A.R.’s high risk of debt distress. - Debt trajectory vulnerable to GDP, export, and revenue shocks. - Staff supports increase of 2018 concessional borrowing limit from CFAF 6 billion to CFAF 9 billion to complete an important infrastructure project; minimal impact on debt indicators (Text Table 4) (MEFP, ¶35). - Text Table 4. Central African Republic: External Borrowing Program, 2018 (selected figures) - By sources of debt financing: 9.0 (CFAF billion) = 100 percent - Concessional debt, of which: 9.0 = 100 percent - Multilateral debt: 9.0 = 100 percent - Uses of debt financing: Infrastructure 9.0 = 100 percent - Memo items: Indicative projections Year 2: 6.0; Year 3: 6.0 ### Financial supervision, business environment, and governance - Financial supervision steps: - Financial soundness indicators suggest banks remain resilient; high level of NPLs is a concern. - All banks meet new regional reserve requirements adopted by BEAC in March. - COBAC conducted an inspection in June 2017 focusing on two largest banks; preliminary findings highlight need to strengthen governance, internal controls, and compliance with prudential standards. Authorities intend to implement COBAC’s recommendations (MEFP, ¶40). - Business environment improvements: - Draft 2018 budget law introduces deferred VAT payment mechanism for exporters and large investors to avoid accumulation of VAT credits. - Authorities consulting with development partners to finalize PPP framework and will consult Fund staff on all PPP projects to assess budgetary impact (MEFP, ¶36). - With WB support, authorities intend to update legal frameworks in main economic sectors, streamline customs declarations, rationalize tax system, and set up a one-stop shop for investors (MEFP, ¶38). - Governance and anti-corruption: - Law establishing the High Authority for Good Governance adopted and institution being established. - Following government reshuffle on September 13, all newly appointed ministers declared assets with the Constitutional Court. - Authorities intend to reform anti-corruption legal framework and reactivate independent anti-corruption agency (MEFP, ¶39). - Future legislative reform should focus on further criminalization of acts of corruption and strengthening asset declaration requirements. ### Technical assistance, capacity building, and program financing - Capacity building under IMF’s Capacity Building Framework (CBF) pilot project since January 2017: - Substantial IMF and AFRITAC Central TA delivered. - Expected medium-term outcomes: increase revenue, enhance spending efficiency, restore budget discipline and transparency, strengthen debt management, create core macro-fiscal capacity. - TA areas: domestic revenue mobilization, budget preparation and implementation, treasury management, debt management, public finance statistics, national accounts. - Authorities aim to restore CS-REF to coordinate TA and training (MEFP, ¶41–¶43). - Balance of payments and financing needs: - Clearance of social arrears (~6 percent of GDP) over next two years will support aggregate demand and imports; substantial fiscal and BOP gaps will remain (MEFP, ¶28). - Authorities requested IMF augmentation of access of SDR 38.99 million (35 percent of quota) to meet additional BOP needs; request indicated at second review and catalyzed donor support. - Donor support examples: - WB increased budget support by US$10 million. - US government, coordinated with EU, supports repayment of wage arrears through a US$3.6 million grant. - Program financing and projections (Text Table 5, Billions of CFAF): - 1. Financing Need: 77.6 (2017), 76.7 (2018), 55.9 (2019) - 2. Budget support (grants): 30.4 (2017), 37.3 (2018), 28.5 (2019) - World Bank: 8.8 / 8.8 / 8.8 - European Union: 13.1 / 13.1 / 13.1 - African Development Bank: 0.9 / 8.8 / 0.0 - France: 6.6 / 6.6 / 6.6 - Other: 1.0 / 0.0 / 0.0 - 3. Budget support (loans): 8.8 / 0.0 / 0.0 - African Development Bank: 8.8 / 0.0 / 0.0 - 4. IMF Financing (as of 2nd Review): 28.1 / 19.1 / 9.5 - 5. Residual financing gap (1-2-3-4): 10.3 / 20.3 / 17.9 - 6. Additional financing: World Bank 5.9 / 0.0 / 0.0; Bilateral 0.0 / 2.2 / 0.0; Unidentified 0.0 / 0.0 / 8.8 - 7. IMF augmentation (35 percent of quota): 4.5 / 18.1 / 9.1 (percent of quota: 5.0 / 20.0 / 10.0) - Program monitoring and conditionality: - Program monitored semi-annually. - End-June 2017 performance criterion on domestic revenues was missed; authorities requested a waiver based on corrective measures. - Performance criteria for end-December 2017 maintained. - Proposed modification of end-June 2018 performance criteria in line with revised macro framework and draft 2018 budget (MEFP, Table 1). - Additional structural benchmarks for 2018 (MEFP, Table 2) include: - publication of all laws or decrees creating the 54 structures identified to collect parafiscal taxes (end-March 2018); - completion of external audit of forestry fund and telecommunications regulatory agency (end-June 2018); - elimination of parafiscal levies with no economic justification (end-December 2018); - revision of petroleum pump price structure (end-September 2018); - publication of monthly debt service projections from June 2018 to end-May 2019 using Sygade (end-June 2018). - Capacity to repay IMF: - C.A.R. has adequate capacity to repay the Fund. - Significant Fund repayments will continue to accrue in 2018 (Table 10). - Authorities making regular deposits at BEAC to safeguard payments. ### Risks and staff appraisal - Key risks to program implementation: - (i) volatile security environment; - (ii) weak administrative capacity; - (iii) potential delay on delivery of external budget support; - (iv) political tensions between executive and legislative powers. - Safeguards assessment: - Full safeguards assessment for regional central banks completed in August 2017. - Assessment noted BEAC steps to strengthen governance in its charter and plans to transition fully to IFRS. - Staff appraisal (selected points): - Gradual strategy to expand zones of stability with UN support is realistic and credible; redeployment of police and gendarmerie in key cities should be followed by public investment and rebound in economic activity. - Actions to streamline parafiscal taxes, administrative procedures, and settlement of domestic arrears will support strategy. - Authorities demonstrated strong commitment to program implementation. - Staff supports corrective measures to meet end-year revenue target and urges acceleration of implementation. - Staff welcomes structural benchmarks and encourages strengthening the unit responsible to avoid future delays. *Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17407.pdf* ### 42. Staff urges the authorities to step up efforts to improve domestic revenue ### Staff urges the authorities to step up efforts to improve domestic revenue ### Revenue mobilization: findings - Revenue mobilization has been disappointing. - Causes identified: corruption, weak controls, lack of capacity and outdated administrative procedures. - Deeply entrenched problems at customs will take time to correct. ### Customs reforms and administration - Positive steps noted: - The use of pre-shipment valuations as mandatory minimum. - The computerization of the main customs office by the end of the year. - Deep-seated customs problems remain and require time to correct. ### Public financial management and expenditure controls - Expenditure tracking and accounting, including full utilization of the accounting software, should bolster spending efficiency and transparency. - Fund technical assistance on tax policy, revenue administration, and public financial management provided relevant recommendations which should be implemented swiftly. ### Borrowing, grants, and debt sustainability - Staff urges the authorities to limit borrowing, including highly concessional loans, to safeguard debt sustainability. - Given C.A.R’s high risk of debt distress, staff strongly recommends mobilizing all available sources of grant financing, including significant amounts pledged at the Brussels donor conference, to their fullest extent. - Government policy recommendation: refrain from borrowing and contract highly concessional loans only in exceptional cases. - Staff encourages donors to disburse budget support on time, as delays complicate treasury management and program implementation. - Steadfast donor support remains critical for a sustained recovery and exit from fragility. ### ECF arrangement, reviews, and program assessment - Staff recommends completion of the third review under the ECF arrangement based on C.A.R.’s performance under the program. - Staff supports the authorities’ requests: - a 35 percent of quota augmentation in a phased manner; - a waiver of non-observance of the domestic revenue performance criterion, based on the corrective actions taken by the authorities. - Rationale: takes into account the satisfactory program performance as of end-June 2017 and the implementation of all structural benchmarks, albeit with delay. - Assessment: The economic program remains appropriate, considering the challenging security environment and the authorities’ capacity constraints. - The ECF-supported program is an integral part of the effort in the CEMAC region to redress regional imbalances and rebuild adequate buffers. - Staff also recommends completion of the financing assurances review. *Source: IMF staff report text (paragraphs 42–44).* ### 1. Total financing requirement155.8151.7144.3130.1126.0130.0 ### 1. Total financing requirement155.8151.7144.3130.1126.0130.0 ### Total financing requirement (components) - Current account deficit (excl. budget support): 131.7138.4134.7122.2112.7110.6 - Debt amortization: 4.46.36.25.15.15.1 - Repayment to the Fund: 9.98.47.44.44.88.9 - Change in other reserves: 7.3-1.3-4.0-1.63.45.5 - Arrears Repayment: 2.5 ### Total financing sources (2016–? projection series) - Total financing sources: 78.175.088.4100.6101.0106.0 - Capital transfers: 30.137.545.953.158.568.5 - Foreign direct investment (net): 10.010.015.020.020.020.0 - Portfolio investment (net): 0.00.00.00.00.00.0 - Debt financing: 8.07.57.57.57.57.5 - Public Sector: 8.07.57.57.57.57.5 - Non-public sector: 0.00.00.00.00.00.0 - Other net capital inflows: 30.020.020.020.015.010.0 - Exceptional Financing: (no amounts shown) ### Total financing needs (budget support and composition) - Total financing needs: 77.676.755.929.525.024.0 - Budget support (grants): 30.437.328.529.525.024.0 - World Bank: 8.88.88.8 - African Development Bank: 0.98.80.0 - European Union: 13.113.113.1 - France: 6.66.66.6 - Other: 1.00.00.0 - Budget support (loans): 8.80.00.00.00.00.0 - African Development Bank: 8.80.00.00.00.00.0 - IMF (as of 2nd Review): 28.119.19.50.00.00.0 ### Residual financing need - Residual financing need: 10.420.317.9 - World Bank: 5.9 - Bilateral: 0.02.2 - IMF (augmentation): 4.518.19.1 - to be identified: 0.00.08.8 ### Projection note - Sources: C.A.R. authorities and IMF staff estimates and projections. --- ### Domestic and External Debt, 2016 (selected lines) - Domestic Total (in percent of GDP): 68.1140.2208.320.0 - BEAC: 56.022.578.57.5 - Commercial Banks: 0.026.126.12.5 - Private Suppliers: 0.014.214.21.4 - Social Arrears: 0.072.272.26.9 - T-Bills: 9.50.09.50.9 - Cross Debt and Other: 2.65.27.80.7 - External Total (in CFAF billion / in percent of GDP / of which in arrears): 1 374.536.0155.1 - Multilateral: 122.711.8 - World Bank: 34.93.4 - IMF: 65.86.3 - Other: 22.02.1 - Bilateral: 108.210.411.5 - Saudi Arabia: 9.91.0 - India: 24.52.43.3 - China: 43.54.28.2 - Congo: 18.21.7 - Kuwait: 12.11.2 - Pre-HIPC Arrears - Argentina: 19.41.919.4 - Eq. Guinea: 2.40.22.4 - Iraq: 2.70.32.7 - Libya: 7.40.77.4 - Taiwan Province of China: 68.96.668.9 - Private: 42.84.142.8 Note: 1 Includes pre-HIPC arrears. --- ### Treasury Cash Management Plan, 2017 (millions CFAF francs) — key monthly totals and notes - Deposits beginning of month (I) (Total 2017): 25,545; January 25,545; February 19,617; March 17,848; April 14,957; May 11,944; June 10,324; July 7,460; August 29,849; September 27,687; October 20,666; November 13,163; December 8,515; end-of-year shown also as 25,545. - Gross cash inflows (II) Total 2017: 194,109; monthly: 11,179; 8,585; 7,903; 8,211; 13,858; 10,763; 36,809; 7,215; 7,787; 10,899; 19,251; 51,649. - Customs and Tax Revenue (Total): 92,719 - Other revenue (Total): 2,072 - Salary Tax (Total): 7,188 - Financing (Total): 92,130 - Treasury securities (Total): 18,492 - Other budget support (Total): 73,638 - IMF Disbursements: 28,442 (monthly: July 5,292; December 23,150) - World Bank entries: 14,600 (in one or more months as shown) - African Development Bank: 9,868 - European Union: 13,119 - France: 6,600 - Gross cash outflows (III) Total 2017: 185,170; monthly: 17,107; 10,354; 10,794; 11,224; 15,478; 13,627; 14,420; 9,377; 14,808; 18,402; 23,899; 25,680. - Primary expenditure (Total): 120,815 - Wages (Total): 4,041; monthly wages listed across months and add f.i. salary charges 599 monthly (Total 7,188) - Transfers (Total): 28,191 - Goods and services (Total): 24,117 - Capital (Total): 10,614 - Interest and Amortization (Total): 36,500 - Domestic: 31,171 - IMF repayments (component): 9,895 (monthly pattern shown) - Treasury securities (component): 19,000 - Interest (component): 2,270 - External: 5,329 - Interest: 1,598 - Amortizations: 4,431 - Arrears payments (Total): 27,855 - Net cash flow (=II-III) monthly: -5,928; -1,769; -2,891; -3,013; -1,620; -2,864; 22,389; -2,162; -7,021; -7,503; -4,648; 25,969; Total: 8,939 - Deposits at end of month (=I+(II-III)) monthly: 19,617; 17,848; 14,957; 11,944; 10,324; 7,460; 29,849; 27,687; 20,666; 13,163; 8,515; 34,484; Total end-of-year: 34,484 - Footnotes: - Part of July disbursement is on special account to be used for IMF repayments and will be recorded as revenue at the time of repayments. - Only freely usable deposits. - Actual (unspecified period) figure: 57,893 Source: Data provided by the authorities and staff calculations. Projections/Actual indicated. --- ### Treasury Cash Management Plan, 2018 (millions CFAF francs) — key monthly totals and notes - Deposits beginning of month (I) (Total 2018): 34,484; monthly series begins January 34,484 and ends December 34,484. - Gross cash inflows (II) Total 2018: 211,209; monthly: 15,404; 9,312; 9,313; 9, 490; 14,842; 50,009; 13,736; 9,844; 9,844; 16,621; 24,173; 28,621. - Customs and Tax Revenue (Total): 106,282 - Other revenue (Total): 2,520 - Salary Tax (Total): 7,200 - Financing (Total): 95,207 - Treasury securities: 18,488 (aggregate pattern shown) - Other budget support: 76,719 (components include IMF Disbursements 37,200; African Development Bank 8,800; World Bank 8,800; European Union 13,119; France 6,600) - Project-specific 2,200 - Gross cash outflows (III) Total 2018: 201,931; monthly: 18,297; 13,969; 16,118; 15,074; 18,609; 18,528; 19,222; 14,818; 15,809; 14,309; 18,809; 18,369. - Primary expenditure (Total): 132,374 - Wages (Total approximate monthly pattern): 4,400; add f.i. salary charges 610 etc.; totals shown - Transfers (Total): 29,000 - Goods and services (Total): 27,504 - Capital (Total): 15,300 - Interest and Amortization (Total): 39,353 - Domestic: 30,803 - IMF repayments (components in series): 8,403 (aggregate shown) - Treasury securities (component): 19,000 - Interest: 600 (annual) - Commercial Banks (component): 2,800 - External: 8,550 - Interest: 2,270 - Amortizations: 6,280 - Arrears payments (Total): 30,204 - Net cash flow (=II-III) monthly: -2,893; -4,657; -6,805; -5,584; -3,767; 31,481; -5,486; -4,974; -5,965; 2,312; 5, 364; 10,252; Total: 9,278 - Deposits at end of month (=I+(II-III)) monthly series ends at 43,762; Total freely usable deposits: 60,570 - Source: Data provided by the authorities and staff calculations. Projections. --- ### Commitments for 2017 and 2018 (Table 9, CFA francs, bn) - IMF: SDR 40.11 million = 32.7 (2017); SDR 45.67 million = 37.2 (2018) - Balance of payments support - World Bank: US$ 25 million = 14.6 (2017); US$ 15 million = 8.8 (2018) — Budget support - African Development Bank: US$ 16.5 million = 9.7 (2017); US$ 15 million = 8.8 (2018) — Budget support - European Union: € 20 million = 13.1 (2017); € 20 million = 13.1 (2018) — Budget support - France: € 10 million = 6.6 (2017); € 10 million = 6.6 (2018) — Budget support - Other: 1.0 (2017); 2.2 (2018) — Budget support - Total commitments: 77.6 (2017); 76.7 (2018) - Total excluding IMF: 45.0 (2017); 39.5 (2018) --- ### Indicators of Capacity to Repay the IMF, 2017–29 (selected lines) - IMF obligations based on existing credit (SDR millions) — Principal by year: 2.60; 10.31; 8.27; 3.13; 1.39; 6.40; 7.35; 7.35; 7.35; 7.35; 2.34; 0.00; 0.00 - Charges and interest (SDR millions) each year: 0.07; 0.31; 0.31; 0.31; 0.31; 0.31; 0.31; 0.31; 0.31; 0.31; 0.31; 0.31; 0.31 - IMF obligations based on existing and prospective credit (SDR millions) — Principal by year: 2.60; 10.31; 8.27; 3.13; 1.39; 6.40; 15.32; 24.45; 26.74; 26.74; 21.73; 11.42; 2.28 - Equivalent series in CFA billions — Principal by year: 2.12; 8.40; 6.74; 2.55; 1.13; 5.22; 12.49; 19.93; 21.79; 21.79; 17.71; 9.31; 1.86 - Outstanding IMF Credit SDR Millions (by year): 111.93; 147.30; 161.04; 155.68; 149.83; 138.97; 119.20; 91.13; 62.17; 35.43; 13.70; 2.28; 0.00 - Outstanding IMF Credit CFAF Billions (by year): 93.03; 121.86; 133.06; 128.70; 123.93; 115.08; 87.51; 66.90; 45.64; 26.01; 10.06; 1.67; 0.00 - Percent of government revenue (by year): 91.21; 105.07; 103.70; 90.88; 79.39; 66.32; 49.59; 35.63; 22.88; 12.16; 4.42; 0.69; 0.00 - Percent of exports of goods and services (by year): 64.64; 82.60; 82.62; 75.77; 68.91; 60.38; 43.78; 32.04; 20.92; 11.28; 4.11; 0.64; 0.00 - Percent of debt services (by year): 497.47; 675.95; 777.12; 978.42; 916.23; 625.61; 495.60; 397.64; 293.68; 195.04; 110.57; 23.80; 0.00 - Percent of GDP (by year): 8.30; 10.08; 10.25; 9.26; 8.33; 7.23; 5.12; 3.66; 2.34; 1.25; 0.45; 0.07; 0.00 - Percent of quota (by year): 100.48; 132.23; 144.56; 139.75; 134.50; 124.75; 107.00; 81.80; 55.81; 31.80; 12.30; 2.05; 0.00 - Net use of IMF credit (SDR millions) — Disbursements by year: 40.1; 45.7; 22.8; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0 - Repayments and repurchases (SDR millions) by year: 2.67; 10.62; 8.58; 3.45; 1.70; 6.71; 15.63; 24.76; 27.05; 27.05; 22.04; 11.73; 2.59 Memorandum items (selected): - Nominal GDP (billions of CFA francs) series: 1121.1; 1209.5; 1297.7; 1389.6; 1487.4; 1591.7; 1710.4; 1829.2; 1951.9; 2083.1; 2223.2; 2373.0; 2533.0 - Exports of goods and services (billions of CFA francs) series: 143.9; 147.5; 161.1; 169.8; 179.8; 190.6; 199.9; 208.8; 218.1; 230.7; 244.8; 260.6; 278.6 - Government revenue (billions of CFA francs) series: 102.0; 116.0; 128.3; 141.6; 156.1; 173.5; 176.5; 187.8; 199.5; 213.9; 227.4; 243.8; 261.2 - Debt service (billions of CFA francs) series: 18.7; 18.0; 17.1; 13.2; 13.5; 18.4; 17.7; 16.8; 15.5; 13.3; 9.1; 7.0; 6.9 - IMF Quota (SDR millions): 111.4 (each year listed) Source: IMF staff projections. --- ### Financial Soundness Indicators, Dec 2010–Jun 2017 (selected indicators, percent end of period) - Total bank regulatory capital to risk-weighted assets: 16.5; 25.6; 22.7; 39.1; 42.2; 38.7; 37.4; 32.0; 40.1 - Total capital (net worth) to assets: 17.1; 22.3; 22.2; 23.7; 21.9; 21.1; 19.3; 19.2; 18.8 - Non-performing loans to total loans: 12.6; 12.0; 9.6; 28.5; 27.7; 30.9; 28.4; 25.6; 28.2 - Non-performing loans net of provision to capital: 1.5; 3.3; 1.6; 50.0; 44.4; 34.9; 25.6; 18.7; 25.7 - Net income to average assets (ROA): 4.0; 5.0; 4.5; -1.3; 0.9; -0.9; 0.9; 0.8; 8.6 - Net income to average capital (ROE): 24.4; 24.4; 20.7; -5.4; 3.8; -4.0; 4.5; 4.2; 45.9 - Non interest expense to gross income: 65.9; 59.9; 64.0; 79.5; 73.6; 72.8; 70.5; 67.3; 77.4 - Liquid assets to total assets: 28.1; 24.3; 16.6; 19.2; 27.5; 40.0; 34.0; 31.9; 31.2 - Liquid assets to short-term liabilities: 132.6; 160.7; 114.5; 149.1; 203.1; 276.1; 246.8; 219.6; 220.6 Sources: C.A.R. authorities and the Banque des Etats de l'Afrique Centrale. --- ### Schedule of Disbursements, 2016–19 (IMF program) - First disbursement upon program approval. July 20, 2016: SDR 12.525 million = 11.2 percent of Quota (Disbursement and Approved both SDR 12.525 million 11.2) - Second disbursement (completion of first review). December 21, 2016: SDR 12.525 million = 11.2 percent of Quota - Third disbursement (completion of second review). July 19, 2017: SDR 11.70 million = 10.5 percent of Quota - Fourth disbursement (completion of third review). October 23, 2017: SDR 22.84 million = 20.5 percent of Quota (reflects augmentation at 2nd review; approved amount at program request was SDR 11.70 million) - Fifth disbursement (completion of fourth review). March 21, 2018: SDR 11.70 million = 10.5 percent of Quota; Proposed SDR 22.84 million = 20.5 percent of Quota - Sixth disbursement (completion of fifth review). October 22, 2018: SDR 11.70 million = 10.5 percent of Quota; Proposed SDR 22.84 million = 20.5 percent of Quota - Seventh disbursement (completion of sixth review). March 20, 2019: SDR 11.70 million = 10.5 percent of Quota; Proposed SDR 22.84 million = 20.5 percent of Quota - Total: Disbursement column SDR 94.69 million = 85.0 percent of Quota; Approved/Proposed total SDR 133.68 million = 120.0 percent of Quota - Note 1: Reflects augmentation at 2nd review. Approved amount at program request was SDR 11.70 million. - Note 2: Reflects augmentation at 2nd review. Approved amount at program request was SDR 83.55 million. --- ### Capacity Building Framework Strategy — policy priorities and TA priorities (Annex I) - Overarching policy priorities: - (i) enhancing domestic revenue collection and revenue performance; - (ii) returning to normal budget procedures and improving the efficiency of the public spending process, including the capital spending framework; - (iii) building debt management capacity and improving debt management strategy; - (iv) improving data compilation in the national accounts, consumer prices government finance statistics, and the external sector. - Assessment of past TA effectiveness: - Timely TA during transition (January 2014–March 2016) rebuilt basic institutions. - Donor TA in treasury management, public financial management, wage bill, macro-fiscal capacity. - EU, France, and WB provided long-term experts on budget, customs, and aid management. - Fund TA delivery hampered by suspension of missions due to security; AFRITAC Central organized offsite TA/training seminars. - TA Priorities (Fund) 2016–18: - Revenue Policy and Administration - Objective: Achieve more effective and efficient mobilization of domestic resources by: (i) improving VAT and excises collection; (ii) rationalizing tax and customs exemptions; (iii) reforming the tax and customs administration; and (iv) rationalizing the diamond, telecom, and forestry taxation, as well as parafiscal taxes. - Outcomes: (i) improved compliance enforcement of VAT filing; (ii) strengthened customs operations; (iii) significantly reduced tax exemptions; (iv) improved domestic revenue, from 7.1 percent of GDP in 2015 to 9.5 percent in 2018. - Milestones: (i) improve revenue from the downstream oil sector, forestry and mining sectors (2017); (ii) streamline tax exemptions (2017); (iii) streamline and modernize processes for large taxpayers/importers, secure revenue collection through commercial banks network, and prevent and combat VAT fraud (2016 and 2017). - Input: (i) HQ-led diagnostic FAD TA mission on tax policy in FY17; (ii) follow-up mission by AFRITAC; and (iii) HQ-led missions to review the tax and customs administration. - Assumptions: (i) improved tax and custom services facilitate better compliance; (ii) improved taxation on the diamond, telecom, and forestry sectors; (iii) strong commitment to implementing potentially difficult reforms (e.g., rationalize parafiscal taxes and tax and customs exemptions). - Public Finance Management - Objective: Improving the accounting framework and the reporting system while building macro-fiscal capacity; and returning to normal budget procedures and improving the efficiency of the public spending process including the capital spending framework. - Outcomes: (i) improved financial reporting and improved cash management (2016 – 18) and production of the treasury balances on a quarterly basis, starting in 2016; and (ii) reduce the wage bill from 6 percent of GDP in 2015 to 5 of GDP in 2018, while allowing hiring new staff to meet the needs in the social sectors. - Milestones: Link annual budget preparations and the medium-term macroeconomic framework underpinning the authorities’ growth and poverty reduction strategy (2017). - Input: HQ-led TA mission on Public Financial Management; and follow up mission from headquarters and AFRITAC in the PFM area. - Assumptions: (i) continued political support to PFM reforms; and (ii) further enhancement of governance practices. - Public debt management - Objective: Building debt management capacity and improving the debt management strategy. - Outcomes: (i) modernize the institutional and regulatory framework for public debt management; (ii) improve debt management strategy; and (iii) strengthen analytical and operational capabilities of debt managers. - Milestones: Review the institutional and regulatory framework for public debt management and improve debt management strategy (2017). - Input: HQ-led TA mission on Public Debt Management and follow up mission from headquarters in the debt management area (2016–18). - Assumption: Strong commitment toward strengthening debt management. - Statistical Issues on National Accounts, Government Finance Statistics, and the External Sector - Objective: Produce more accurate statistics on prices, national accounts, government finance statistics, and the external sector. - Outcomes: Improve economic policy making and inform private sector decisions. - Milestones: For national accounts, improve and disseminate the compilation of the 2005–15 annual national accounts in line with 1993 SNA; improve the price collection and update the CPI. For the external sector, improve the compilation and dissemination of the balance of payments and start producing the International Investment Position data. For government finance statistics, start producing the statement of government operations following the GFSM 2001/2014 and implementing the CEMAC TOFE directive based GFSM 2001. - Input: For national accounts, visits by short-term experts from AFRITAC Central to review national accounts and fix the CPI methodology. For the external sector, a three-year project funded by the Japanese government launched this year. The project targets 17 beneficiary francophone countries, including all the member states of the CEMAC. For government finance statistics, visits by long-term experts from AFRITAC Center to help them implement the TOFE directive. - Assumptions: (i) Human and financial resources are available; (ii) collaboration between national agencies involved in statistics. - Section heading: D. Risks and Mitigation Measures (text not included in supplied extract). *Source: C.A.R. authorities and IMF staff estimates, projections, and program documents as presented in the supplied content.* ### 5. The implementation of the technical assistance program is subject to various risks. The ### 5. The implementation of the technical assistance program is subject to various risks. ### Risks, probability, impact, and mitigation - Persistently delicate and fluid security situation - Probability: High - Impact: High - Mitigation: The authorities are planning to send staff to outside locations for training. - Delayed support from the development partners - Probability: Medium - Impact: High - Mitigation: The authorities are preparing a donor conference in Brussels in November. - Implementation capacity constraints - Probability: High - Impact: High - Mitigation: - As part of their CBF pilot, the new authorities are committed to improve capacity and make the best use of the TA that will be provided by the development partners and the Fund. - To offset the lack of specialized local staff, they plan to hire young college graduates and train them in the specialty identified as crucial to improve capacity. - Equipment modernization is underway with donor support. ### Authorities’ commitments and technical assistance (TA) arrangements - For 2017–18, authorities reached an understanding with the Fund on a comprehensive capacity-building strategy in the context of the Capacity Building Framework (CBF) pilot project. - Priorities within the CBF pilot: domestic revenue collection, PFM, public debt management, macroeconomic statistics, civil service reform, and macro-fiscal capacity. - Expected outcomes: - Strengthen the institutional framework that coordinates TA and training to increase revenue; - Enhance spending efficiency; - Restore budget discipline; - Strengthen debt management; - Create core macro-fiscal capacity. - If security risk heightens, authorities plan to send staff to outside locations for training. - Authorities expect additional Fund TA under the CBF pilot on tax policy, revenue administration, PFM, national accounts data compilation, and external trade data. - Authorities are committed to improving capacity and making the best use of TA and training provided by development partners and the Fund. - Table 1 lists Technical Assistant Activities, 2017 (departments and mission purposes across 2017 dates). ### Recent economic developments and program implementation (first half of 2017) - GDP and inflation: - GDP growth revised downward to 4 percent in 2017, compared to an initial projection of 4.7 percent. - Inflation contained at 3.8 percent. - Credit and money: - Credit to the economy grew by 2 percent in the first half of 2017. - Broad money growth exceeded expectations, driven by strong growth of net foreign assets due to transfers by NGOs and partial repatriation of export receipts. - Fiscal outcomes and arrears: - The primary fiscal balance objective at end-June 2017 is on target despite failure to meet the revenue objective. - Social spending: CFAF 6.6 billion. - Domestic arrears clearance: CFAF 5.9 billion. - External debt and disbursements: - New disbursements amounted to CFAF 11.3 billion, including CFAF 8.8 billion of budget support from the AfDB (initially expected as a grant). - Structural reform implementation: - Structural benchmarks implemented albeit with delays. - Consolidation of the Treasury Single Account (TSA) achieved in August after the closing of 269 accounts. - Renegotiation of the convention with banks completed in November. - Domestic arrears clearance plan adopted in November following audit finalization. - Inventory of parafiscal taxes compiled by end-September. - Establishment of the 2016 revenue and expenditure account and ex-post control of import valuation between January 1, 2016 and May 31, 2017 completed in November. - Evaluation of all existing tax exemptions completed by end-October (structural benchmark, end-December). - Budget reporting and wage bill: - Reconstitution of the 2010-2015 accounting balances completed. - Quarterly budget execution reports produced using GESCO since Q1 2017. - Civil service file clean-up well advanced, including armed forces. ### Economic outlook and national development strategy - Medium-term projections and targets: - Economic growth: projected to average an annual 4 percent over the medium term, driven by forestry, diamond production, agriculture, livestock, and trade. - Inflation: will decrease to the CEMAC convergence level of 3 percent by 2020. - Domestic primary deficit: projected to reach 1.4 percent in 2018, and 0.9 percent in 2019, reflecting a steady rise in the domestic revenue-to-GDP ratio supported by tax policy and administrative reforms and control of current expenditure. - External current account deficit (excluding grants): projected to drop below 10 percent of GDP, driven by recovery of domestic production and increased exports. - Recovery and Peacebuilding Plan (RCPCA) 2017–21: - International community pledged US$2.2 billion during donor conference in Brussels on November 17, 2016. - Institutional framework in place; about 150 priority projects compiled, 15 included in the 2018 budget. ### Economic and financial program, 2017–18 — Macroeconomic framework and fiscal specifics - Macroeconomic projections for 2017/18: - Real GDP growth: expected to reach 4 percent in 2017 and 2018. - Average annual inflation: 3.8 percent in 2017, and 3.5 percent in 2018. - Fiscal targets and composition: - Domestic primary deficit (anchor of the fiscal program): 1.9 percent of GDP in 2017 and 1.4 percent of GDP in 2018. - 2018 expectations: domestic revenue 9.6 percent of GDP; domestic primary spending 10.9 percent of GDP, of which 1.3 percent is for domestically-financed capital expenditure. - Social spending target: at least CFAF 13.2 billion in 2018. - Financing needs for 2018: CFAF 76.7 billion, i.e., 6.3 percent of GDP; to be covered by budget support from the European Union, WB, AfDB, France, and balance of payments support by the IMF. ### Revenue mobilization: performance, shortfall, and corrective measures - Revenue performance H1 2017: - Revenues stood at CFAF 47.2 billion, of which CFAF 3.6 billion from the new measures introduced in the 2017 budget law. - Domestic revenue increased by 11 percent compared to H1 2016 but remained below 2017 budget bill estimates. - Shortfall: CFAF 2.9 billion, explained by undervaluation of imports, incomplete transfer of revenue to the Treasury by the Douala and regional customs offices, and slowdown of economic activity. - Corrective measures adopted in June 2017 to strengthen customs performance: - Values endorsed by the pre-inspection company are now used as the minimum import assessment values. - Finalized ex-post verifications of declared values between January 2016 and May 2017 (structural benchmark, end-September 2017). - Adopted a ministerial order clarifying responsibilities of customs and IT services in the management of the ASYCUDA system, and corrected inaccurate entries related to the CEMAC common external tariff and reduced rates of VAT. - Increased the number of convoys between Beloko and Bangui. - Continued the clearing of releases. - Re-introduced pre-payment procedures at the Douala Single Window. *Source: IMF staff report excerpts (Central African Republic).* ### 16. At end-August, revenues stood at CFAF 62.5 billion, of which CFAF 4.8 billion from the ### cr17407 - 16. At end-August, revenues stood at CFAF 62.5 billion, of which CFAF 4.8 billion from the ### Revenue performance and shortfalls - At end-August, revenues stood at CFAF 62.5 billion, of which CFAF 4.8 billion from the new measures introduced in the 2017 budget law and CFAF 0.3 billion under the June 2017 customs measures. - Ex post control of customs values has revealed additional revenue of CFAF 1.7 billion, of which CFAF 0.3 billion have already been recovered; plan to collect the total amount before the end of the year. - Shortfall attributed to previously cited factors. ### Measures to strengthen tax and customs administration - Improve customs and transit operations between the port of Douala and Bangui via a dedicated facility in Douala to connect the customs services of the C.A.R. and those of Cameroon to the C.A.R. Douala Single Window. - Promote establishment of a commercial banking branch in Beloko. - Finalize performance-based contracts with customs inspectors and publish results of customs litigation on a monthly basis. - Strengthen internal control and sanction systems. - Prepare computerization of the Beloko customs office (structural benchmark, end-December 2017) and full development of ASYCUDA (underway). ### Recovery of arrears and corrective measures - Tax and customs arrears estimated at CFAF 8.8 billion at end-August; CFAF 600 million collected in November. - Collecting CFAF 2 billion of duties and taxes owed by two oil import companies. - Corrective measures introduced in 2017 estimated to amount to CFAF 1.9 billion, of which CFAF 1.4 billion from the ex post control of customs values. - These additional efforts plus full effect of Q2 measures expected to enable achievement of end-December 2017 revenue target. ### Revenue transfer, TSA integration, and banking conventions - Transfer to the Treasury of all revenue collected by Douala customs services and provincial tax and customs services expected to generate additional CFAF 2.3 billion annually from 2018 onwards. - Objective to transfer to the TSA an amount of CFAF 3.8 billion in 2018 by integrating revenues currently managed by financial services of some ministerial departments (revenues to be transferred to the VAT refund and some special accounts). - Renegotiated convention with banks collecting government revenues: prohibit any form of compensation and ensure daily transfer of collected revenue to the TSA. - With IMF technical assistance, strengthen procedures for payment of duties and taxes and improve information sharing among tax services, commercial banks, Treasury and Central Bank. ### Tax and customs exemptions and parafiscal taxes - Tax and customs exemptions limited to those provided by law; no new exemption granted since start of year. - Current estimates: exemptions result in foregone revenues of CFAF 8.5 billion (excluding United Nations agencies, embassies, and international organizations). - All existing tax and customs exemptions and their impact on revenue to be published and reviewed (structural benchmark, end-December 2017) with a view to phasing out unjustified exemptions. - VAT exemption convention to a hotel expired in September; expected to generate additional monthly revenue of about CFAF 50 million. - Inventory of parafiscal taxes compiled (structural benchmark, end-September 2017): 54 agencies, offices, or funds (12 inactive) responsible for collecting taxes, royalties and parafiscal taxes for an estimated amount of at least CFAF 18 billion in 2016 (1.5 percent of GDP). - General Inspectorate of Finance audits of these structures underway through December; action plan to: - integrate, from 2018, an accounting officer from the General Directorate of Treasury and Public Accounting within each structure to monitor revenue and expenditure management; - make inventory of agencies that serve no meaningful economic interest; - eliminate them by the end of 2018 (new structural benchmark, end-December 2018); - include into the national budget those agencies whose financial autonomy is not justified. - Publish list of all laws or decrees creating these 54 structures and authorizing them to collect taxes or levies (new structural benchmark, end-March 2018). - Immediate prohibition on introduction of any new parafiscal tax by Prime Minister instruction; ministerial order instituting parafiscal tax on incoming telephone calls cancelled in June 2017. ### Audits and petroleum sector measures - External audit of the forestry special assignment account and the telecommunications regulatory agency planned (new structural benchmark, end-June 2018) to analyze nature and use of revenues and resources. - Agency for stabilization and regulation of oil products has been audited. - Based on audits and review of taxes, excises and royalties on petrol products, revise the price structure of petroleum products at the pump (new structural benchmarks end-September 2018) while considering revision of the CEMAC directive on excises. ### 2018 Budget targets and fiscal measures - Target domestic revenues of at least 9.6 percent of GDP in 2018; current and capital spending to reach 9.7 percent of GDP and 1.3 percent of GDP, respectively. - 2018 budget bill consistent with a primary deficit of 1.4 percent of GDP. - Revenue level targeted at CFAF 116 billion in 2018—against CFAF 102 billion projected in 2017. - Full impact of corrective measures adopted in 2017 expected to produce about CFAF 4.2 billion in 2018. - New fiscal measures expected to produce CFAF 4.1 billion, including: - strict application of the CEMAC common external tariff on imports and repeal of derogations (CFAF 700 million); - increased export duties on forest products (CFAF 350 million); - increased export duties for diamonds and gold (CFAF 40 million); - increase in excise duties on alcoholic drinks and cigarettes (CFAF 2.1 billion); - increase in excise duties on other beverages (CFAF 600 million); - introduction of tax on motor vehicles (CFAF 300 million). ### Expenditure management and social priorities - Commitments on expenditure management: - conduct monthly treasury committee meetings and invite donor community to inform planned disbursements over next 12 months; - complete retirement of military personnel who have reached retirement age by end-December, subject to external financing; - create space to hire and redeploy in the provinces 500 new civilian and military police while keeping the wage bill at 5 percent of GDP in 2018; - maintain freeze on salary advances and keep allowances for official travel, aside from the Office of President and Prime Minister, below CFAF 600 million in 2018; - target CFAF 13.2 billion social spending in 2018, focusing on education and rural development; - progressively deconcentrate expenditure authorizations to sectoral ministries in line with CEMAC framework. ### Public financial management reforms and controls - Deploy new budget and accounting application “Sim Ba” by 2020 at latest; continue to produce budget execution reports and government accounts using GESCO tools during transition. - Use both Sim Ba and GESCO simultaneously for six months to ensure reliability and appropriation. - Strict adherence to 5 percent target on use of exceptional spending procedures from 2018 onwards (quarterly indicative target, beginning end-March 2018). - Up to end-August, 20 percent of expenditure (excluding wages and debt service) followed exceptional procedures, compared to 12 percent in 2016. - Administrators instructed to scrupulously apply envisaged measures regarding use of advances if beneficiaries do not provide appropriate justifications. ### Clearing domestic arrears - Total domestic arrears amount to CFAF 114.8 billion, i.e., 10.2 percent of GDP at end-September; include arrears vis-a-vis commercial banks and private suppliers, cross-debts to SOEs, and unpaid wages and pensions. - External audit and domestic arrears clearance plan adopted in November (end-June 2017 structural benchmark). - Social payments arrears (wages, pensions, and benefits): external audit verified debt at CFAF 64.8 billion for 1993–2013; to be cleared gradually in 2018 and 2019, subject to available financing and macroeconomic considerations. - Arrears to SMEs: clearance to begin in December 2017 by applying a haircut according to rating for each arrears dossier. - Commercial bank arrears: settlement plan complete; banks signed agreements to reschedule government debts with full payment within eight years at an interest rate of 2.95 percent, starting in October. - Safeguards for arrears clearance process: - payments by bank transfer; - beneficiaries must be in good standing with administration and up-to-date on taxes and fees; - list of beneficiaries will be published; - contracted independent international auditor to monitor process in real time; - progress report at end of each payment tranche and a final report; all reports to be published and analytical notes shared with the IMF. - Government committed to avoiding accumulation of new arrears and to honor invoices for current consumption of goods and services from suppliers and SOEs. ### Relations with BEAC and monetary measures - Support BEAC decision of August 5 to eliminate statutory advances by year-end and convert outstanding advances into long-term bonds. - Outstanding advances amount to CFAF 79.2 billion and include the consolidated loan of CFAF 55.9 billion; to be repaid starting in 2022 at 2.4 percent interest. - Government will refrain from any further borrowing from the BEAC. ### External debt management and sustainability - Stayed current on all external debt service falling due in 2017; paid debt service of CFAF 1.8 billion between January and August. - China has expressed intention to cancel outstanding claims amounting to CFAF 43.5 billion; authorities requested to discuss practical arrangements for debt relief. - Discussions with India underway on arrears accumulated during the 2013 crisis. - Pursuing resolution of pre-HIPC arrears owed to Argentina, Equatorial Guinea, Iraq, Export-Import Bank located in Taiwan Province of China and Libya; negotiations ongoing. - Assigned three additional employees to debt management since January 2017, bringing total staff to 24, 12 managing the database. - Personnel trained in SYGADE under DMFAS program; with IMF support, plan to improve reporting on debt developments. - Intend to publish monthly projections of public debt service and debt stock for June 2018 to end-May 2019 generated from SYGADE (new structural benchmark for end-June 2018). - Publish a report on external debt developments during 2018 by end-March 2019 based on SYGADE data. - Debt policy: secure grants and, within ECF borrowing limits, highly concessional financing for National Recovery and Peacebuilding Plan (RCPCA) investments. - Refrain from contracting new loans that do not comply with ECF limits; recourse to highly concessional loans limited to critical projects without available grants. - For 2018, the limit for concessional loans is set at CFAF 9 billion. ### Business climate, energy supply, and private sector reforms - As of January 1, 2018, deferred VAT payment to be applied to exporters and major investors to avoid accumulation of VAT credits. - Consult partners to finalize bill revising public/private partnership (PPP) framework; adopt stringent measures to limit fiscal risks associated with PPPs and consult Fund staff on all PPP projects to assess budget impact. - Expand energy supply via a solar power plant in Bangui (cost-effective near-term solution), with potential follow-up projects in other cities; collaborate with World Bank and bilateral partners and ensure financing consistent with ECF debt limits. - Reform energy sector to ensure broad-based, regular, and sustainable energy supply. - Private sector role emphasized; with IFC, program of structural and institutional reforms to promote private sector development, update legal frameworks, facilitate customs declarations and tax collection, rationalize sectoral and parafiscal taxes, and reduce red tape. - Implemented Joint Coordination Framework for Improvement of Business (CMC-AA) with permanent technical secretary, approved by-laws, action plan and budget; around 30 focal points in technical committees identified to work on World Bank’s Doing Business indicators. - Plan to establish a one stop shop to facilitate administrative procedures for investors. ### Governance, anti-corruption, and supervision of financial sector - Law adopted to establish the “High-Authority responsible for Good Governance”; institution in place. - Following cabinet reshuffle of September 13, all members of new government deposited asset declarations with the Constitutional Court. - Plan to reform legal framework for fighting corruption and reactivate independent anti-corruption agency. - Work with COBAC to ensure banking system stability and examine strategies to reduce non-performing loans. - COBAC study preliminary conclusions emphasize need to strengthen governance, internal controls, and respect for prudential standards. - All banks to comply with new regional reserve requirements standard adopted by BEAC monetary policy committee in March. ### Capacity building and technical assistance - Sustained technical assistance from partners to improve collection of customs and tax revenues, ensure better cash management, strengthen the expenditure chain, and pursue civil service reform. - Continued capacity building seen as essential to program implementation. *Central African Republic — IMF staff report extract.* ### 42. With the IMF, we have defined and are implementing a Capacity Building Framework ### 42. With the IMF, we have defined and are implementing a Capacity Building Framework ### Capacity Building Framework (CBF) — priorities and coordination - The CBF priorities are: domestic revenue collection, public finance management (PFM), public debt management, macroeconomic statistics, civil service reform, and macro-budgetary capacity. - Similar strategies will be determined in coordination with other donors in their own fields of intervention. - A global strategy for strengthening the government’s administrative and technical capacities will be coordinated once donor-specific strategies are completed. - The Economic and Financial Reform Monitoring Unit (CS-REF) has been strengthened to follow up on the program of reforms and coordinate technical assistance and training. ### Program monitoring and performance framework - Performance under the program will be monitored using quantitative performance criteria (PCs) and structural benchmarks. - Performance criteria for end-December 2017 have been maintained. Revised indicative targets for end-March 2018 and performance criteria for end-June 2018 are proposed. - A budget bill consistent with the program was submitted to parliament as a prior action for the completion of the third review under the ECF arrangement. - The end-December 2017 performance criteria will be assessed as part of the fourth review during the first quarter of 2018. - Exchange restrictions commitment: - Throughout the duration of the program, the government is committed to not introduce or expand restrictions on payments and transfers related to current international transactions. - Refrain from using multiple exchange rate practices. - Refrain from engaging in bilateral agreements that do not comply with Article VIII of the Articles of Agreement. - Refrain from imposing or expanding restrictions to influence the balance of payments. - The government is committed to adopting, in consultation with Fund staff, any new financial or structural measures necessary to ensure program success. ### New structural benchmarks for 2018 (adopted) - Publication of all laws or decrees creating the 54 structures that were identified to collect parafiscal taxes (end-March 2018). - Completion of an external audit of the Forestry Fund and the Telecommunications Regulatory Agency (end-June 2018). - Publication of projections for monthly external debt service payments and the external debt stock from June 2018 to May 2019 generated directly by Sygade (end-June 2018). - Revision of the price structure of petroleum products at the pump (end-September 2018). - Removal of parafiscal taxes without economic justification (end-December 2018). ### Quantitative performance criteria and indicative targets (summary of Table 1) - Quantitative performance criteria and indicative targets are presented in CFAF billions; cumulative from beginning of the year. - Selected items (end-of-period labels preserved as in source): - Domestic government financing (ceiling, cumulative flows for the year) - End-December 2016 PC: 3.2; Actual: -22.1; Status: Met - End-March 2017 Indicative Target: -1.7; Actual: 14.2; Status: Not met - End-June 2017 PC: -2.5; Adjusted PC: 6.7; Actual: 5.0; Status: Met - End-September 2017 Indicative Target: -4.0; Actual: -2.4; Adjusted Indicative Target: -5.3; PC set at 2nd review: 1; Modified PC: 5.1; Actual Status: 2.0; Indicative Target: -6.0 - Domestic revenue (floor, cumulative for the year) - End-December 2016: 84.7; Actual: 84.9; Status: Met - End-March 2017 Indicative Target: 25.0; Actual: 23.2; Status: Not met - End-June 2017: 50.1; Adjusted Indicative Target: 50.1; Actual: 47.2; Status: Not met - End-September 2017: 74.7; Adjusted Indicative Target: 74.7; Actual: 70.3; Status: Not met - End-March 2018 Indicative Target: 102.0; End-June 2018: 27.9; 57.5; Actual: 56.4 - Domestic primary deficit (ceiling, cumulative for the year) - End-December 2016: -34.7; Actual: -11.3; Status: Met - End-March 2017 Indicative Target: -7.2; Actual: -1.1; Status: Met - End-June 2017 PC: -13.7; Adjusted PC: -22.9; Actual: -4.9; Status: Met - End-September 2017 Indicative Target: -16.0; Adjusted Indicative Target: -17.6; Actual: -12.9; Status: Met - End-March 2018 Indicative Target: -21.9; End-June 2018: -5.0; -10.0; Actual: -10.0 - Reduction in domestic payments arrears (floor, cumulative for the year) - End-December 2016: -5.6; Actual: -6.0; Status: Met - End-March 2017 Indicative Target: -2.0; Actual: -3.3; Status: Met - End-June 2017: -4.0; Adjusted Indicative Target: -4.0; Actual: -5.9; Status: Met - End-September 2017: -6.0; Adjusted Indicative Target: -6.0; Actual: -6.7; Status: Met - End-March 2018 Indicative Target: -; End-June 2018: 7.5; -7.1; -4.0; -14.2 - Continuous performance criteria (examples) - Contracting or guaranteeing of new external non concessional debt (ceiling): targets consistently 0.0 and status Met across periods shown. - Non accumulation of external payments arrears (ceiling, cumulative for the year): targets consistently 0.0 and status Met across periods shown. - Indicative targets (examples) - Social spending (floor, cumulative for the year) - End-December 2016: 5.0; Actual: 3.8; Status: Not met - End-March 2017 Indicative Target: 1.5; Actual: 3.3; Status: Met - End-June 2017 Indicative Target: 3.0; Actual: 3.0; Status: Met - End-September 2017 Indicative Target: 4.5; Actual: 4.5; Status: Met - End-March 2018 Indicative Target: 6.0; End-June 2018: 3.0; 3.3; Actual: 6.2 - Spending through extraordinary procedures (ceiling, cumulative for the year): 1.0; Actual: 1.9; Memorandum item: New concessional/external debt contracted or guaranteed by the government: 6.0; Actual: 0.0; Status: Met (across periods shown) ### Prior actions, prior shortfalls, and timing (summary of Table 2) - Prior actions and structural benchmarks for 2016–17 with timeline, macroeconomic rationale, and status: - Consolidate the TSA by closing non-donors and non essential government accounts opened in Commercial Banks. Timeline: End March 2017. Rationale: Improve public financial management. Status: Not Met. Comment: Completed in August 2017. - Renegotiation of the convention with banks. Timeline: End June 2017. Rationale: Improve public financial management. Status: Not Met. Comment: Completed in November 2017. - Adoption by the minister of finance of a domestic payment arrears clearance plan. Timeline: End June 2017. Rationale: Improve public financial management and debt management. Status: Not Met. Comment: Completed in November 2017. - A complete inventory of para-fiscal taxes and an action plan to ensure their timely transfer to the TSA. Timeline: End September 2017. Rationale: Improve public financial management. Status: Met. - The production of the revenue and expenditure account for 2016. Timeline: End September 2017. Rationale: Improve accountability. Status: Not Met. Comment: Completed in November 2017. - Retroactive control of applied import valuation for the period of January 1 2016 to May 31 2017 to assure correct customs procedures and application of the mandatory procedures. Timeline: End September 2017. Rationale: Improve transparency and revenue collection. Status: Not Met. Comment: Completed in November 2017. - Quarterly publication of budget execution reports within 30 days from the end of the quarter. Timeline: Quarterly, from end September. Rationale: Improve transparency and accountability. Status: Met. - Adoption of an action plan to eliminate unjustified para-fiscal taxes and transfer of other revenues to the Single Treasury Account. Timeline: End December 2017. Rationale: Improve transparency and revenue collection. (Status and comments in table.) - Full utilization of ASYCUDA at customs in Beloko. Timeline: End December 2017. Rationale: Improve transparency and revenue collection. - The publication of all existing tax exemptions. Timeline: End December 2017. Rationale: Improve transparency and accountability. - Proposed new measures (from Table 2) - Submission to parliament of a budget consistent with the program. Status: Prior Action Met. - Publication of all laws or decrees creating the 54 structures that were identified to collect para-fiscal taxes. Timeline: End March 2018. Rationale: Improve transparency and revenue collection. - Completion of an external audit of the forestry fund and the telecommunications regulations agency. Timeline: End June 2018. Rationale: Improve transparency and revenue collection. - Publish projections for monthly external debt service payments and the external debt stock from June 2018 to May 2019 generated by Sygade. Timeline: End June 2018. Rationale: Strengthen debt management. - Revision of the price structure of petroleum products at the pump. Timeline: End September 2018. Rationale: Improve transparency and revenue collection. - Removal of parafiscal taxes without economic justification. Timeline: End December 2018. Rationale: Improve transparency and revenue collection. ### Technical Memorandum of Understanding (TMU) — key definitions, exchange rates, and quantitative targets - TMU scope: spells out concepts, definitions, and data reporting procedures mentioned in the MEFP, including data reporting periodicity and timeframes; definitions and computation methods; quantitative targets; adjusters of quantitative targets; structural benchmarks; and other commitments. - Assessment basis: Unless otherwise specified, all performance criteria and indicative targets are assessed on a cumulative basis as of January 1 of the same year. - Program assumptions — exchange rates (for conversion into CFAF): - CFAF/US$: 585 - CFAF/Euro: 656 - CFAF/SDR: 815 - Government definition: “government” means the central government of C.A.R. and excludes local governments, the central bank, or public entities with separate legal personality not included in the TOFE. - Definition of debt (summary of Decision No. 15688-(14/107) language): - Debt comprises contractual current liabilities requiring future payments of assets or services. - Forms include: i. loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements); ii. suppliers’ credits; iii. leases (present value at inception of lease payments, excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligation that constitutes debt are debt. - External debt: debt borrowed or serviced in a currency other than the CFA Franc of the Financial Cooperation of Africa (CFAF). - Domestic debt: debt borrowed or serviced in the CFA Franc (CFAF). - Guaranteed debt: an explicit legal obligation by the government to service a debt in event of borrower nonpayment. - Concessional debt: grant element at least 50 percent; discount rate used for grant element calculation: 5 percent. - Total government revenue: tax and non-tax revenue or other revenue (GFSM 2001, Chapter 5), recorded on a cash basis. Proceeds from taxation on contracts, asset sales, revenue from privatization or from granting/renewal of licenses, placement proceeds on government assets and grants are not considered government revenue for program purposes. - Total government expenditure: sum of wages and salaries, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and capital expenditure; recorded on a commitment basis unless otherwise stated. Includes dépenses avant ordonnancement (DAO) and not yet regularized expenditures. - Wages and salaries: compensation as per GFSM 2001 paragraphs 6.8–6.18; includes wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and other monetary or non-monetary payments. - Arrears definitions: - Arrears: any debt obligation not amortized in conformity with contractual conditions. - Domestic payment arrears = (i) payment arrears on expenditure; and (ii) payment arrears on domestic debt. - Payment arrears on expenditures: payment orders to the Treasury authorized but not paid 90 days after authorization. - Payment arrears on domestic debt: difference between contractual due amount and amount actually paid after the payment deadline. - External payment arrears: arrears on external debt obligations; an obligation not paid within 30 days after falling due is considered an external payments arrear. - Quantitative targets (summary of definitions and intent) - Ceiling on Domestic Financing of the State Budget: domestic public financing = bank credit to the government + non-bank financing (including privatization proceeds, Treasury bills, securitized obligations denominated in CFAF, and any BEAC credit to the government, including CFA Franc counterpart of SDR allocation). - Bank credit to the government: balance between debts and claims of the government vis-à-vis the central bank and national commercial banks, excluding IMF credit; government claims include CFA Franc cash balance, postal checking accounts, subordinated debt, and deposits with BEAC and commercial banks of government-owned entities, excluding EPICs and government corporations. - Government debt to the banking system includes all debt to the central bank and national commercial banks, including Treasury bills and other securitized debt. - Floor for Total Domestic Government Revenue: only cash revenues (tax and non-tax revenue) are taken into account for the TOFE. - Floor for Government Social Spending: poverty-reducing social spending comprises public non-wage spending on primary and secondary education, health, social action, water and sanitation, microfinance, agriculture, and rural development; execution monitored on a payment-order basis. - Ceiling on Domestic Primary Deficit: domestic primary fiscal balance (cash basis) = government domestic revenue − government expenditure, less all interest payments and externally financed capital expenditure. Payments on arrears are not included. - Floor on reduction of domestic payments arrears: government undertakes to settle some priority arrears that were validated. - Ceiling on Contracting or Guaranteeing of New External Non-Concessional Debt: government undertakes not to contract or guarantee non-concessional debt. Financing from the IMF is excluded from this criterion. - Non-Accumulation of New External Payment Arrears by the Government: government undertakes not to accumulate external payment arrears, except arrears relating to debt subject to renegotiation or rescheduling. For this criterion, an obligation not paid within 30 days after falling due is an external payments arrear. - Limitation of spending through extraordinary procedures to 5 percent of expenditure (non-salary or debt service): - All necessary provisions will be taken in the 2018 Budget Law and total of all expenditure following extraordinary disbursement procedures will not exceed 5 percent of total expenditure on non-salary spending or debt service (principal and interests) on average per quarter. - Observation of this indicative target will be assessed quarterly, starting from March 2018. *Source: C.A.R. authorities and IMF staff estimates, as presented in the Technical Memorandum of Understanding and MEFP excerpts.* ### 15. To take into account the factors or changes that are essentially outside the government’s ### 15. To take into account the factors or changes that are essentially outside the government’s ### Adjustments to quantitative targets for 2017 - If total revenue from privatization or renewal of telecommunication licenses or forestry or oil licenses is greater than the amount programmed: - The floor for the primary budget balance can be adjusted downward by 50 percent of these additional receipts. - The ceiling on net domestic financing of the government will be adjusted downward by the remained of the additional receipts. - If total budget support is below the programmed amount: - The ceiling on net domestic financing of the government will be adjusted upward by 50 percent of disbursements programmed but not made; - The floor for the primary budget balance will be adjusted downward by 50 percent of disbursements programmed but not made. - If total budget support is above the programmed amount: - The ceiling on net domestic financing of the government will be adjusted downward by 50 percent of disbursements above the programmed amounts; - The floor for the primary budget balance will be adjusted upward by 50 percent of disbursements above the programmed amounts. ### Structural benchmarks (deadlines and objectives) - Renegotiation of the convention with banks - Renegotiation of agreements with commercial banks will have to begin before the end of June 2017 to ensure the daily transfer of balances to the treasury single account (TSA) and to systematize cost structures to strengthen treasury management. - Adoption by the Ministry of Finance of a domestic arrears clearance plan - A domestic arrears clearance plan should be adopted by the end of June 2017 to restore State credibility and boost creditor confidence. - Production of the revenue and expenditure account for 2016 - The revenue and expenditure account for 2016 will have to be prepared and published by end of September 2017. - Publication of all existing tax exemptions - All existing tax exemptions, both statutory and discretionary, should be identified and made public by the end of December 2017 to increase transparency and reduce the scale of tax exemptions. - Retrospective control of customs values set from January 1, 2016 to May 31, 2017 - By end of September 2017, all values of imported goods set for the period January 1, 2016 to May 31, 2017 will have to be checked for compliance with the minimum values determined by the pre-inspection company and, if need be, impose the specified customs clearance tariffs and related penalties. - Produce a quarterly budget execution report within 30 days of the end of the quarter - A quarterly budget execution report will be produced as from the end of September 2017, and thereafter every quarter within 30 days of the end of the quarter. The first report will cover the second quarter of 2017. - Adoption of an action plan to eliminate unjustified parafiscal fees and transfer proceeds to the TSA - On the basis of an inventory of all parafiscal charges to be drawn up, an action plan will be adopted before the end of December 2017 to eliminate illegal and unjustified parafiscal charges, accompanied by an instruction to transfer proceeds to the treasury single account. - Full utilization of ASYCUDA at the Beloko customs post - The main customs office in Beloko will be equipped for ASYCUDA operation and data transmission, and all ASYCUDA modules will be fully deployed by end-December 2017. ### New measures (deadlines and objectives) - Publication of all laws or decrees creating the 54 structures that collect parafiscal taxes - All laws or decrees creating the 54 structures identified to collect parafiscal taxes will be published by end-March 2018. - Completion of an external audit of the forestry fund and the telecommunications regulatory agency - The forestry fund and the telecommunications regulatory agency should be audited by end-June 2018 to analyze the nature and use of taxation and resources allocated to these entities. - Publication of monthly report on public debt management - Publish by the end of June 2018 a report with projections for monthly external debt service payments and the external debt stock for the period running from June 2018 to end-May 2019, generated directly from the SYGADE system. - Revision of the methods of determining oil products’ prices at the pump - Methods to determine oil products’ price at the pump will be revised by the end of September (in accordance with ongoing CEMAC discussions regarding the excise duty directive). - Elimination of parafiscal taxes considered to have no economic justification - Based on the results of the inventory of parafiscal taxes, remove those with no economic justification by end of December 2018. ### Reporting to the IMF (periodicity and content) - Quantitative data on the government’s indicative targets will be reported to IMF staff according to the periodicity described in Table III.1; all data revisions will be promptly communicated. Authorities will consult Fund staff regarding any information or data necessary for program implementation. - Selected reporting deadlines and items: - Bi-annual report evaluating quantitative indicators and structural measures (tables 1 and 2 of MEFP), with supporting documents: Within four weeks of the end of each quarter. - Monetary position, monthly central bank and commercial bank accounts: Within four weeks of the end of each month. - Monthly cash flow operations table: Within ten days of the end of each month. - Government financial operations table: Within four weeks of the end of each month. - Total monthly amount of domestic payment arrears on goods and services and on wages, including unpaid pensions and bonuses: Within four weeks of the end of each month. - External debt stock at end of period: Within four weeks of the end of each month. - Breakdown of expenditures listed in TOFE (goods and services, wages, interest, etc.): Within four weeks of the end of each month. - Summary table of actual expenditures in priority areas (health, education, security): Within four weeks of the end of each quarter. - Breakdown of current expenditure and capital disbursements, financed with own and external resources: Within four weeks of the end of each quarter. - Breakdown of revenues by institution and economic classification: Within four weeks of the end of each quarter. - Revenues and expenditures recognized against one another without a cash settlement (by expenditure and revenue type): Within four weeks of the end of each quarter. - Breakdown of debt service and external arrears, particularly by interest and principal, and by main creditor: Within four weeks of the end of each month. - Amount of new non-concessional and concessional external debt contracted by the government: Within four weeks of the end of each month. - Actual disbursements for projects and programs receiving foreign financial assistance and relief of external debt granted by external creditors (including the date, amount, and creditor): Within four weeks of the end of each month. --- ### Debt Sustainability Analysis update (Third review under the ECF Arrangement) ### Structure of debt (2016) - Total public debt in 2016: 56.0 percent of GDP. - External public debt at end-2016: 36 percent of GDP (CFAF 253.4 billion). - Pre-HIPC debt to Non-Paris Club Members: about CFAF 101 billion. - Post-HIPC arrears to official creditors accumulated during conflict years: 1 percent of GDP by end 2016. - China indicated willingness to provide debt relief on all outstanding official debt; discussions with India on modalities to resolve post-HIPC arrears (0.2 percent of GDP) continue. - Domestic debt at end-2016: CFAF 208.3 billion, of which: - CFAF 78.5 billion to BEAC, - CFAF 14.2 billion in arrears to suppliers, - CFAF 72.2 billion in wage, benefits and pension arrears, - CFAF 26.1 billion in arrears to banks, - CFAF 7.8 billion in cross-debt and other debts. - Domestic debt components (in percent of GDP, as presented): - Domestic Total 68.1 current, 140.2 arrears, 208.3 total (20.0) - BEAC 56.0 current, 22.5 arrears, 78.5 total (7.5) - Commercial Banks 0.0 current, 26.1 arrears, 26.1 total (2.5) - Private Suppliers 0.0 current, 14.2 arrears, 14.2 total (1.4) - Social Arrears 0.0 current, 72.2 arrears, 72.2 total (6.9) - T-Bills 9.5 current, 0.0 arrears, 9.5 total (0.9) - Cross Debt and Other 2.6 current, 5.2 arrears, 7.8 total (0.7) - External debt (2016) summary (selected figures): - External Total: 374.5 (36.0 percent of GDP; 155.1 in arrears?) [table formatting preserved as in source] - Multilateral: 122.7 (11.8) - World Bank 34.9 (3.4) - IMF 65.8 (6.3) - Other 22.0 (2.1) - Bilateral: 108.2 (10.4) - Saudi Arabia 9.9 (1.0) - India 24.5 (2.4; 3.3?) [table formatting preserved as in source] - China 43.5 (4.2; 8.2?) [table formatting preserved as in source] - Congo 18.2 (1.7) - Kuwait 12.1 (1.2) - Pre-HIPC Arrears: - Argentina 19.4 (1.9; 19.4) - Eq. Guinea 2.4 (0.2; 2.4) - Iraq 2.7 (0.3; 2.7) - Libya 7.4 (0.7; 7.4) - Taiwan Province of China 68.9 (6.6; 68.9) - Private: 42.8 (4.1; 42.8) - Note: Table layout in source presents totals and components with multiple parentheses; values are preserved as in the source. ### Macroeconomic projections (2017–37) — key assumptions and numbers - Medium-term growth (2017–22) lowered to 4 percent; exports assumed somewhat stronger in medium to long term. - Specific projections and averages (Dec-17 and Jul-17 columns preserved as shown): - GDP growth (percent): 2017 4.7; Aver. 2018-21 5.3; Aver. 2023-2037 3.5 (Dec-17) — and 4.0; 4.0; 3.4 (Jul-17) as presented in source table. - Inflation (GDP deflator, percent): 2017 5.6; Aver. 2018-21 4.9; Aver. 2023-2037 3.3 (Dec-17) — and 3.5; 3.2; 3.4 (Jul-17). - Non-interest current account balance: 2017 -10.0; Aver. 2018-21 -5.6; Aver. 2023-2037 -2.8 (Dec-17) — and -8.3; -3.6; -3.0 (Jul-17). - Primary balance: 2017 0.1; Aver. 2018-21 1.6; Aver. 2023-2037 1.3 (Dec-17) — and 0.9; 1.1; 1.4 (Jul-17). - Exports: 2017 12.8; Aver. 2018-21 13.2; Aver. 2023-2037 11.3 (Dec-17) — and 12.8; 12.7; 13.2 (Jul-17). - Revenues: 2017 14.2; Aver. 2018-21 16.3; Aver. 2023-2037 13.8 (Dec-17) — and 15.0; 16.2; 13.9 (Jul-17). - Fiscal policy assumption for longer term primary deficit: 1.4 percent of GDP. - Revenues expected to reach 14 percent of GDP in the longer run. - Non-interest current account deficit expected to decline gradually. - Grant-equivalent financing assumed to decline from an average of 6 percent of GDP in 2017–19 to about 2.5 percent of GDP in the long run. - New loans and concessionality assumptions: - African Development Bank provided a highly concessional budget support loan of USD15 million with a grant element of 60.6 percent in 2017. - DSA assumes signing a highly concessional loan of USD13 million with a grant element of 50 percent for a critical infrastructure project in 2018. - Updated DSA reflects proposed augmentation of Fund support. ### External debt sustainability results - Under the baseline scenario: - One external debt indicator breaches the policy threshold: the present value (PV) of debt-to-exports ratio is projected to breach the policy threshold until 2023. - Ratios for debt service-to-exports and debt service-to-revenue remain well below thresholds due to concessionality of outstanding debt and low debt service burden. - The augmentation of IMF financial support has a noticeable but manageable impact on debt service indicators from 2024 onwards. - Alternative scenarios and stress tests: - In the extreme scenario, all indicators breach the threshold and the increase of external debt would be significant. - PV of debt-to-exports ratio remains above the policy threshold under the extreme scenario throughout the projection period. - PV of debt-to-revenue ratio stays above the policy threshold under the extreme scenario till 2025. - Sensitivity analysis underscores vulnerabilities particularly to lower growth and exports. ### Public debt sustainability results - Overall risk of debt distress is elevated because of significant vulnerabilities related to total debt. - Public debt level increased significantly due to accumulation of domestic arrears and collapse in GDP after the 2013 crisis. - Contingent liabilities could further exacerbate sustainability concerns. - Stress tests show total debt is vulnerable to lower growth or a higher deficit of the primary balance. - Analysis captures strategy to repay domestic arrears over the coming years, which will lead to a significant reduction of domestic debt. ### Conclusion (DSA) - The updated DSA confirms that C.A.R. is at high risk of debt distress. - This rating reflects mainly the past collapse of GDP, tax revenues and exports. - Alternative scenarios show vulnerability to GDP, export and revenue shocks; materializing contingent liabilities could exacerbate debt sustainability concerns. - The PV of external debt-to-exports ratio remains for some time above the policy threshold under the baseline scenario. - The proposed augmentation of Fund financial support would have a noticeable but manageable impact on debt sustainability. - Policy implication highlighted in the DSA: to safeguard external debt sustainability, the government’s investment program requires grant financing, with highly concessional debt financing to be considered only in exceptional cases. *IMF/IDA staff report content (selected sections) from the Central African Republic third review under the ECF arrangement.* ### 9. The authorities concur with staff’s assessment. Consistent with the conclusions, they ### cr17407 - 9. The authorities concur with staff’s assessment. Consistent with the conclusions, they ### Authorities’ stance and financing commitment - The authorities concur with staff’s assessment and "remain committed to securing grants to finance investments and contracting highly concessional loans only in exceptional cases." - A high residual in the external debt sustainability framework can be explained by project grants (recorded in the capital account) and unrecorded non-debt creating inflows. ### External debt sustainability indicators (high-level) - Figures present indicators of Public and Publicly Guaranteed (PPG) external debt under alternative scenarios, 2017–37, including: - PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, Debt service-to-exports, Debt service-to-revenue, Debt accumulation, Grant-equivalent financing (% of GDP), Grant element of new borrowing (right scale). - The most extreme stress test is the test that yields the highest ratio on or before 2027; most extreme shocks cited include "Combination shock" and "Exports shock" across panels. ### Table 1 — External Debt Sustainability Framework, Baseline Scenario, 2014–37 (select indicators) - External debt (nominal) (Percent of GDP): 2014: 43. 9; 2015: 39.8; 2016: 36.0; 2017: 34. 7; 2018: 35.0; 2019: 33.5; 2020: 31. 1; 2021: 28.9; 2022: 26.6; Average 2017-2022: 19.1; 2027: 25. 6 - Identified net debt-creating flows (2014–2017 excerpts): 3.8; 12.1; 4.8; 6.3; 5.9; 5.0; 4.0; 3.4; 3.1; 0.4; 0.8 - Non-interest current account deficit (select): 2014: 5. 2; 2015: 8.7; 2016: 8.8; 2017: 7. 0; 2018: 2.4; 2019: 8. 3; 2020: 7.7; 2021: 7.3; 2022: 6. 5; Average 2017-2022: 5.7; 2027: 5.2; 2037: 2.2 - Net current transfers (negative = inflow) (select): 2014: -18.5; 2015: -12.5; 2016: -9.8; 2017: -7.2; 2018: 5.0; 2019: -10.7; ...; Average 2017-2022: -9.0; 2027: -8.8; 2037: -7.9 - Residual (3-4) (select): 25.5; -16.2; -8.5; -7.7; -5.5; -6.6; -6.4; -5.6; -5.4; 0.1; 0.0 - PV of external debt (select): 16.7; 16.6; 17.3; 16.8; 15.8; 14.8; 13.6; 8.2; 12.9 - PV of PPG external debt in percent of exports (select): 130.4; 129.1; 137.6; 130.5; 123.6; 117.1; 108.4; 62.8; 92.2 - PV of PPG external debt in percent of government revenues (select): 204.9; 182.2; 180.6; 170.4; 155.2; 141.4; 125.0; 68.0; 107.6 - PPG debt service-to-exports ratio (in percent) (select): 7.6; 8.3; 8.8; 9.2; 11.0; 9.5; 7.5; 7.6; 9.4; 9.4; 3.4 - Total gross financing need (Billions of U.S. dollars) (select): 0.1; 0.1; 0.2; 0.2; 0.2; 0.2; 0.1; 0.1; 0.1; 0.1; 0.1 ### Key macroeconomic assumptions (select) - Real GDP growth (in percent) (select): 2014: 1.0; 2015: 4.8; 2016: 4.5; 2017: -0.7; 2018: 12.7; 2019–2022: 4.0 (annual); Average 2023-37: 4.0; Projections include 3.3; 3.3; 3.4 - GDP deflator in US dollar terms (change in percent) (select): 2014: 11.2; 2015: -11.4; 2016: 6.0; 2017: 3.9; 2018: 8.6; 2019: 5.5; 2020: 8.2; 2021: 3.6; 2022: 3.2; 2027: 2.6; 2037: 2.5 - Effective interest rate (percent) (select): 2.7; 0.8; 0.9; 1.8; 0.8; 0.6; 0.6; 0.7; 0.7; 0.8; 0.8; 0.7; 0.9; 0.9; 0.9 - Growth of exports of G&S (US dollar terms, in percent) (select): 1.3; -10.0; 12.5; 1.6; 14.0; 10.0; 10.3; 10.5; 6.4; 5.6; 5.7; 8.1; 6.7; 6.8; 7.8 - Growth of imports of G&S (US dollar terms, in percent) (select): 68.8; -14.5; 1.5; 8.1; 25.9; 11.5; 9.5; 5.0; 1.9; 2.1; 3.7; 5.6; 6.7; 6.8; 5.3 - Grant element of new public sector borrowing (in percent) (select): 38.8; 36.9; 37.4; 52.3; 52.3; 52.3; 45.0; 51.8; 52.2; 52.3 - Government revenues (excluding grants, in percent of GDP) (select): 4.9; 7.1; 8.2; 9.1; 9.6; 9.9; 10.2; 10.5; 10.9; 12.0; 12.0; 12.0 ### Sensitivity analysis highlights (Table 2 and Table 4 excerpts) - Sensitivity results are reported for PV of debt-to-exports ratio, PV of debt-to-revenue ratio, PV of debt-to-GDP ratio, debt service-to-revenue ratio under alternative scenarios and bound tests (2017–37). - Examples of stress results include: A2 (new public sector loans on less favorable terms) and B5 (combination of shocks) producing materially higher ratios in stressed years; specific scenario values are tabulated across years 2017, 2018, 2019, 2020, 2021, 2022, 2027, 2037. - Memo: "Grant element assumed on residual financing (i.e., financing required above baseline)" = 50 for listed years. ### Public sector debt framework (Table 3 — select) - Public sector debt (in percent of GDP) (select): 2014: 69.2; 2015: 64.0; 2016: 56.0; 2017: 51.8; 2018: 47.0; 2019: 42.9; 2020: 39.6; 2021: 36.6; 2022: 33.4; 2017-22 Average: 29.9; 2027: 37.9 - Revenue and grants (in percent of GDP) (select): 2014: 15.7; 2015: 14.3; 2016: 14.1; 2017: 15.0; 2018: 16.4; 2019: 16.3; 2020: 16.1; 2021: 16.1; 2022: 16.7; 2027: 14.0; 2037: 13.0 - Primary deficit (select years): -3.6; 0.1; -2.1; -0.3; 2.7; -0.9; -1.7; -1.2; -0.7; -0.7; -1.1; -1.0 - Automatic debt dynamics (contribution) and interest/growth differential (select): Contribution from interest rate/growth differential: -3.6; -6.5; -5.9; -3.5; -3.5; -2.9; -2.5; -2.3; -2.1; -1.2; -1.7 - PV of public sector debt (select): 36.7; 33. 6; 29.2; 26. 2; 24. 3; 22.5; 20. 4; 18.9; 25.2 - Gross financing need (select): -1.9; 1.7; -0.4; 0.9; 2.7; 3.1; 1.9; 0.5; 0.3; 3.0; 3.2 ### Authorities’ statement (December 15, 2017) — program performance, outlook, and reform agenda - Program context: - ECF arrangement has helped address policy challenges from fragile situation and recurrent crises. - Program performance broadly satisfactory; domestic revenue target missed. - Authorities request an augmentation of access under the ECF to address significant balance of payments needs. - Recent developments and outlook: - 2017: delayed investment program implementation and fragile security situation reduced activity; exports supported output. - GDP growth is projected to "hover around 4 percent" in 2017. - Inflation expected to decrease in the medium-term notwithstanding recent inflationary pressures. - Outlook dependent on security progress, implementation of the National Plan for Reconciliation and Peace (NPRP), and availability of external support from Brussels donor Conference pledges. - Significant growth potential in forestry, mining and cotton sectors. - Policy and reform priorities: - Improve revenue collection, strengthen PFM, deepen the financial sector and supervision, reform business climate, build capacities, improve security. - Specific revenue measures: - Strengthen control and traceability of resources, reduce leakages, enforce tax payments in petroleum, forestry and telecommunications sectors. - Suspend all new exemptions; publish and streamline existing exemptions. - Identify parafiscal taxes and establish a Treasury Single Account. - Review import valuations, reduce discrepancies between customs and treasury data, streamline customs procedures, ensure full implementation of ASYCUDA. - Expenditure focus: - Swift implementation of public investment program as security improves; prioritize spending and enhance efficiency and control. - Replace accounting IT system in the medium-term to improve traceability. - Limit use of exceptional expenditures procedures to "5 percent of expenditures in the 2018 budget." - Public financial management and debt management: - Address accumulation of domestic and external debt arrears; strategy includes clearance of arrears to small and medium-size enterprises, repayment of social debts (wages and pensions) in the medium-term, repayment of arrears to commercial banks in the long-term. - Progress in engaging creditors on external debt arrears. - Develop debt management unit capacities (staffing and IT systems SYGADE) with Fund technical assistance. - Financial sector: - Plan to repay commercial banks’ arrears; conventions signed with three major banks; negotiations ongoing with remaining one. - Implement COBAC June 2017 mission recommendations to enhance governance, internal controls and prudential standards. - Priority on development of financial intermediation and increased credit access. - Capacity building: - Acknowledged weak capacity risk; continued need for technical assistance (including Fund Capacity Building Framework pilot) to improve revenue collection, public administration, and project implementation. - Business climate and security: - Priority to improve business climate: simplify tax system, avoid accumulation of VAT credits, improve profitability of businesses, improve legal framework, expand energy supply with donor support. - Continue efforts on DDR and NPRP; NPRP making modest headway. *Sources: Country authorities; and staff estimates and projections, as presented in the supplied content.* ### Conclusion ### Conclusion ### Commitment to the ECF-supported program - Central African authorities remain committed to the ECF-supported program. - They will continue efforts to consolidate macroeconomic stability, improve public financial management and the business environment, and contribute to meeting CEMAC regional program objectives. ### Performance and requests to Directors - CAR’s overall performance under the ECF-supported program is described as satisfactory. - The authorities are committed to pursue reforms. - The staff would appreciate Directors’ support for: - completion of the third review under the arrangement, - approval of their requests for waiver of nonobservance of performance criterion and modification of performance criteria, - augmentation of access. *Source: cr17407 - Conclusion* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17407.pdf_