## 1cafea2019001

## Source details

**Canonical URL:** [1cafea2019001](https://www.imf.org/-/media/files/publications/cr/2019/1cafea2019001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2019/1cafea2019001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2019/1cafea2019001.pdf.json)

---

### EXECUTIVE SUMMARY — Context and recent developments
- Peace agreement signed on February 6, 2019 with 14 armed groups calling for inclusive government, deployment of joint brigades, accelerated decentralization, and co-management of natural resources.
- Implementation started (more inclusive government appointed), but security remains volatile with sporadic incidents in provinces.
- Donor support increased by a total of 4 percent of GDP over 2019-20 to sustain implementation; WB and EU substantially increased budgetary support (grants) for 2019–20.
- Refugees and IDPs at end-February 2019: 593 thousand and 656 thousand, respectively.
- National accounts revision: upward revision to 2017 nominal GDP by 7 percent; supply-side and demand-side composition changes (primary -12.9 percent approx; secondary +41 percent; services +17 percent; investment +87 percent; exports +8 percent; imports +23 percent).

### Program implementation (ECF arrangement) — status and performance
- Arrangement: three-year ECF approved July 20, 2016 (75 percent of quota) and augmented July 17, 2017 and December 15, 2017 for total access of SDR 133.68 million (120 percent of quota).
- Completion of sixth review will release SDR 22.84 million.
- End-December 2018 quantitative performance:
  - Four performance criteria met; missed PCs: domestic primary fiscal balance and repayment of domestic arrears (the latter by a very small margin).
  - Net domestic financing of the government: CFAF 4.3 billion at end-December 2018 (ceiling: CFAF 14.0 billion).
  - Domestic primary fiscal deficit: CFAF 22.0 billion at end-December 2018 (ceiling: CFAF 18.0 billion).
  - Total domestic government revenue: CFAF 112.4 billion (floor: CFAF 112.1 billion).
  - Clearance of domestic payment arrears: CFAF 29.7 billion (floor: CFAF 30.0 billion).
- Structural benchmarks (end-December 2018):
  - Two of five met; two implemented with delays; elimination of all parafiscal taxes without economic justification slower than expected (authorities committed to full implementation by end-December 2019).
  - Achievements: closure of all cash fund agencies; IT platform to decentralize spending set up at Ministry of Finance; budget execution circular for 2019 and publication of customs valuations reconciliation completed in Jan/Feb 2019.
- Staff recommendations:
  - Support completion of sixth review and waivers for non-observance of the two missed end-December 2018 PCs.
  - Complete financing assurances review.

### Key macroeconomic outcomes under ECF (2016–18 averages and 2018 specifics)
- Growth: 4.4 percent average 2016–18 (initially envisaged 5.5 percent); 2018 growth 3.8 percent (2017: 4.5 percent).
- Inflation: averaged 3.6 percent (2016–18); average 2018 inflation 1.6 percent; year-on-year inflation 4.6 percent at end-December 2018.
- Domestic tax revenue: increased to 8.9 percent of GDP in 2018 (2014: 4.4 percent); domestic tax revenue increased at an annual average of 0.7 percent of GDP in 2016-18.
- Domestic primary fiscal deficit: narrowed from 3.7 percent of GDP in 2014–15 to 1.5 percent on average in 2016–18.
- Public spending: averaged 14.1 percent of GDP in 2016–18 (initial projection 16.3 percent).
- Total debt: declined from 62.2 percent of GDP in 2014 to 49 percent of GDP in 2018; end-2018 debt appears higher than projected at program outset as pre-HIPC arrears now included.
- External current account deficit (excluding grants): 12.3 percent of GDP in 2018 (2014: 13.9 percent); selected medium-term projected current account (percent of GDP): 2017 -7.8; 2018 -8.3; 2019 (Proj.) -7.9; 2020 -3.7; 2021 -4.8; 2022 -5.0; 2023 -5.2; 2024 -5.1.

### Fiscal outturns, budget execution, and arrears (end-2018 and Q1 2019)
- End-2018 fiscal table (percent of GDP):
  - Revenue and grants: Dec. 2017 Outturn 12.8; Target 16.7; Dec. 2018 Outturn 16.6.
  - Domestic revenue: Dec. 2017 Outturn 7.8; Target 8.8; Dec. 2018 Outturn 8.9.
  - Tax revenue: 7.0 / 8.1 / 8.1.
  - Grants: 5.0 / 7.9 / 7.8.
  - Primary Spending: 9.8 / 10.2 / 10.6.
  - Capital expenditure: 4.5 / 6.6 / 6.0.
  - Domestic primary balance: -2.0 / -1.4 / -1.7.
  - Overall balance (including grants): -1.1 / 0.7 / 0.4.
  - Public sector debt: 49.4 / 48.5 / 48.8.
- Domestic primary fiscal balance: domestic primary deficit amounted to 1.7 percent of GDP in 2018 (target 1.4 percent).
- Domestic arrears repayments: CFAF 29.7 billion actual vs CFAF 30.0 billion target.
- 2019Q1 developments:
  - Domestic revenue shortfall about 0.5-percent-of-GDP relative to 2019 budget expectations due to closure of main route to Cameroon and delayed transfers to TSA.
  - Domestic arrears clearance in Q1 2019: CFAF 8.6 billion (projected CFAF 7.5 billion).
  - Petroleum pricing reform in January yields fiscal savings about 0.1 percent of GDP per year.
- Treasury cash management (2019 selected):
  - Gross cash outflows (annual): 245,716 (CFAF millions).
  - Primary expenditure (annual): 168,487.
  - Arrears payments (annual): 35,554.
  - Net IMF disbursement in 2019: SDR 22.84 million = 17.3 (CFAF billions) BoP support.

### Debt dynamics, DSA findings, and arrears risks
- Debt distress: C.A.R. remains at high risk of debt distress.
- PPG debt at end-2018: 48.8 percent of GDP (external debt 34.9 percent of GDP; domestic debt 13.9 percent of GDP).
- Contingent liabilities: potential additional arrears amounting to about 10 percent of GDP recently identified; authorities hiring external auditors to clarify status by end-September 2019.
- Domestic arrears clearance plan:
  - Wage arrears stock (CFAF billion): 2017 (end) 62.5; Q4 2018 50.6; projected to 0.0 by 2020 Q3/Q4.
  - Wage arrears repayments schedule includes repeated CFAF 8.6 billion entries in 2019 quarters followed by 0.0 in later quarters reflecting planned elimination by mid-2020.
- DSA scenarios:
  - Baseline: solvency indicators below thresholds; liquidity indicators (debt-service-to-exports, debt-service-to-revenue) breach thresholds temporarily.
  - Tailored scenario replacing 2 percent of GDP of grant financing with concessional loans from 2021 onward would worsen debt dynamics and breach external debt thresholds within ten years.
- Policy implication: investment program requires grant financing; concessional debt only in exceptional cases.

### External sector, trade, and financing
- Current account deficit (2018): about 8 percent of GDP; trade deficit 14.9 percent of GDP in 2018 (from 14.1 percent in 2017) reflecting higher oil imports.
- Official transfers increased from 3.2 to 4.4 percent of GDP, broadly offsetting larger trade deficit.
- Medium-term projection of current account (percent of GDP): with grants: 2019-2024 series includes -7.9 (2019), -3.7 (2020), -4.8 (2021), -5.0 (2022), -5.2 (2023), -5.1 (2024).
- Financing requirements and coverage (selected figures):
  - Total financing requirements: 194.7; 163.4; 168.3; 164.7; 160.7; 188.2 (series).
  - Total available financing: 96.2; 108.4; 105.5; 111.4; 117.5; 125.0.
  - Financing gap: 98.5; 55.0; 62.8; 53.3; 43.2; 63.1.
  - Expected budget support (grants) included in expected financing: 80.2; 55.0; 37.8; 28.3; 29.4; 29.4.
  - Residual financing need covered by ECF program: 18.3 in first period (others zero).
- Budget support commitments (2019–21, CFA francs, bn):
  - IMF: SDR 22.84 million = 17.3 (2019).
  - World Bank: US$ 100 million = 57.2 (2019); US$ 50 million = 28.3 (2020); US$ 20 million = 11.2 (2021).
  - African Development Bank: US$ 10 million = 5.7 (2020); US$ 10 million = 5.6 (2021).
  - European Union: € 25 million = 16.4 (2019); € 22 million = 14.4 (2020); € 22 million = 14.4 (2021).
  - France: € 10 million = 6.6 annually (2019–21).
  - Total commitments for 2019: 97.5 (excluding IMF: 80.2).

### Financial sector performance and reforms
- Financial soundness indicators (selected, end-2018):
  - Credit to the economy (2018 y-o-y): increased by 11.5 percent.
  - Broad money (2018 y-o-y): increased by 14 percent.
  - Mobile money transactions: CFAF 2.9 billion (2017) to CFAF 10.1 billion (2018).
  - Non-performing loans: declined from 22.9 percent at end-2017 to 15.6 percent at end-2018.
  - Banks remain resilient, adequately capitalized, and broadly compliant with prudential standards.
- Financial sector development objectives:
  - Promote mobile banking, digitize tax payments and expenditures, strengthen governance, implement COBAC recommendations, and improve AML/CFT controls.
- Capacity building and TA:
  - Capacity Building Framework (CBF) updated for 2019–22 with CD priorities: revenue mobilization, PFM, debt management, macroeconomic statistics, program budgeting.
  - Noted limitations: absorptive capacity, weak prioritization of TA recommendations, inadequate monitoring.

### Structural reforms, governance, natural resources, and business climate
- Natural resources:
  - Mining code redrafting with WB support to align with regional rules (foreign exchange repatriation).
  - Kimberley Process procedural shortening reduced diamond export clearance from 3-4 months to around 1–2 weeks.
  - Quarterly publication of forestry and mining permits; new wood reference price adopted in January supporting wood production recovery.
- Parafiscal taxes and TSA:
  - 2019 budget law enacted transfer of parafiscal taxes and fees to TSA; TSA sub-accounts opened at BEAC in May/June to operationalize reform.
  - 22 out of 41 agencies audited; 8 non-operational parafiscal agencies identified for elimination in draft supplementary budget.
  - Authorities aim to finalize audits by end-September 2019 and include elimination of remaining parafiscal taxes without economic justification in 2020 budget law.
- Public financial management measures:
  - IT platform to decentralize spending process set up (end-December 2018).
  - Use of exceptional spending procedures declined from 24 percent in 2017 to 10 percent in 2019Q1 (target 5 percent).
  - Decree to regulate medical evacuations and circular requiring justification of mission allowances introduced.
- Governance and anti-corruption:
  - Diagnostic mission requested for anti-corruption and fiscal governance strategy; High Authority for Good Governance drafted National Strategy with UNDP support.
  - Strengthening asset declaration framework agreed in principle but specific steps pending.
- Business climate and legal reforms:
  - Draft law capping fines in employment litigation submitted to parliament.
  - Authorities updating the labor code and revising the mining code with WB support.
  - Recommendations to establish arbitration/mediation center, specialized financial courts, publish court decisions database, and increase judges/court officers.

### Policy commitments, fiscal measures, and financing the Peace Agreement
- Supplementary budget law (mid-June 2019) incorporates:
  - Lower domestic revenue projections (about 0.4 percent of GDP) reflecting road blockade and delayed transfers.
  - Significant additional grant financing.
  - 1 percent of GDP increase in spending from 2019 to strengthen army/domestic security, expand social services, build government offices, and prepare 2020–21 elections.
- Estimated sustainable priority spending increase: about 1 percent of GDP starting 2019, financed gradually by additional budget support from WB and EU.
- Revenue mobilization measures:
  - VAT audits of at least 60 percent of businesses declaring VAT credit or nil payments.
  - Better use of IT systems at customs: Sydonia installed at Beloko; further installations by end-December 2019.
  - Operationalize customs and tax audit brigade by end-June to improve information sharing and fight fraud.
- Petroleum pricing policy: adjust pump prices if necessary to limit revenue losses from international oil price swings.

### Risks, outlook, and scenarios
- Growth projections:
  - 2019: 4½ percent.
  - Medium term: 5 percent.
  - Text Table projections (Real GDP): 2017 Est. 4.5; 2018 IMF CR Est. 4.3; 2019 Proj. 3.8; following years 4.5, 5.0, 5.0, 5.0, 5.0.
- Inflation projection: 2.5 percent over the medium term (period average).
- Downside risks (skewed to the downside):
  - Domestic: renewed violence if peace agreement short-lived; protracted blockade of main road to Cameroon; lack of political cohesion; weak administrative capacity.
  - External: increase in international oil prices; intensification of global trade tensions; delays in delivering external budget support and project grants.
- Upside risk: successful implementation of the peace agreement could enhance security and economic recovery.
- Risk assessment highlights (selected):
  - Deterioration of security situation — Relative Likelihood: High; Impact If Realized: High; Policy Response: make room for security-related spending and accelerate RCPCA implementation.
  - Limited institutional/human resources capacity — Relative Likelihood: High; Impact If Realized: High; Policy Response: strengthen TA coordination and prioritize reforms.
  - Delayed external assistance — Relative Likelihood: Medium; Impact If Realized: Medium; Policy Response: strengthen external support through comprehensive reform implementation.

### Staff appraisal, priorities, and recommendations
- Commendable performance: prudent fiscal policy while preserving social spending; domestic tax-to-GDP ratio increased by 2.1 percentage points between 2015 and 2018; domestic primary deficit fell to 1.7 percent of GDP in 2018 from 4.1 percent in 2015.
- Staff supports completion of the sixth review, waivers for the two missed end-December 2018 PCs, and completion of the financing assurances review based on program performance, corrective actions, and BEAC’s regional policy assurances.
- Priority policy actions:
  - Mobilize grant financing and, if necessary, highly concessional financing within program borrowing limits.
  - Continue clearing domestic arrears and not accumulate new ones; update arrears clearance plan to clear all identified arrears by mid-2020.
  - Accelerate integration of parafiscal taxes into TSA; finalize audits of agencies and eliminate unjustified parafiscal taxes.
  - Strengthen revenue mobilization, customs/tax IT integration (ASYCUDA and SYSTEMIF), and VAT compliance enforcement.
  - Strengthen governance, public financial management, SOE oversight, debt monitoring (including SOEs), and transparency.

*Source: CENTRAL AFRICAN REPUBLIC — IMF staff report excerpts (content unit 1cafea2019001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- President Touadéra signed a new peace agreement on February 6, 2019 with 14 armed groups calling for: the establishment of an inclusive government; the deployment of joint brigades; an acceleration of decentralization efforts; and the co-management of natural resources.
- Implementation has started (more inclusive government appointed), but the security situation remains volatile with sporadic incidents in the provinces.
- The World Bank (WB) and the European Union (EU) have substantially increased budgetary support (grants) for 2019–20; donor support increased by a total of 4 percent of GDP over 2019-20 to sustain implementation.
- Refugees and internally displaced persons (IDPs) continued to increase to 593 thousand and 656 thousand, respectively, at end-February 2019.

### Program implementation (ECF arrangement)
- Arrangement: Sixth and final review of the three-year Extended Credit Facility (ECF) arrangement approved on July 20, 2016 (75 percent of quota) and augmented on July 17, 2017 and December 15, 2017 for a total access of SDR 133.68 million (120 percent of quota).
- End-December 2018 program performance:
  - Four performance criteria (PCs) were met.
  - The PC on the domestic primary fiscal balance was missed.
  - The PC on repayment of domestic arrears was missed (the latter by a very small margin).
- Structural benchmarks at end-December 2018:
  - Two of the five end-December structural benchmarks were met.
  - Two others were implemented with delays.
  - Elimination of all parafiscal taxes without economic justification has been slower than expected; authorities committed to fully implement by end-December 2019.
- Program support: regional efforts to maintain an appropriate monetary policy stance, build up regional reserves, and promote financial sector stability.
- Completion of this review will release a disbursement equivalent to SDR 22.84 million.
- Staff recommends completion of the financing assurances review.

### Staff views and recommendations
- Staff supports:
  - Completion of the sixth review under the ECF arrangement.
  - Waivers of non-observance of the end-December 2018 PCs on the domestic primary fiscal balance and repayment of domestic arrears.
- Staff also recommends completing the financing assurances review.

### Key features and outcomes under the ECF arrangement (Box 1)
- Growth:
  - Growth reached 4.4 percent on average from 2016–18, driven by recovery in forestry and construction and externally financed investments.
  - This is lower than initially envisaged (5.5 percent) due to volatile security conditions slowing recovery, notably in agriculture.
- Domestic tax revenue:
  - Increased at an annual average of 0.7 percent of GDP in 2016-18, to 8.9 percent of GDP in 2018, against only 4.4 percent of GDP in 2014.
  - End-2018 target was 9.5 percent of GDP (target not met).
- Domestic primary fiscal deficit:
  - Narrowed substantially from 3.7 percent of GDP in 2014–15 to 1.5 percent on average in 2016–18 (initial target 2.1 percent).
- Public spending:
  - Prudent public spending averaged 14.1 percent of GDP in 2016–18, compared to initial projection of 16.3 percent of GDP.
- Total debt:
  - Declined from 62.2 percent of GDP in 2014 to 49 percent of GDP in 2018.
  - End-2018 debt stock appears higher than projected at program outset as pre-HIPC arrears are now included.
- Inflation:
  - Averaged 3.6 percent from 2016–2018, down from 8.6 percent in 2014–15.
- External current account deficit (excluding grants):
  - Declined from 13.9 percent of GDP in 2014 to 12.3 percent of GDP in 2018, but remained above initial target of 9.3 percent of GDP.
  - Higher imports of goods and services (33.7 vs 29.7 percent of GDP) and higher donor financing (increased from 1.3 percent of GDP in 2014 to 3 percent in 2018) contributed to the outcome.
- Structural reforms:
  - Spending control reinforced, revenue and customs administrations upgraded with TA from IMF and partners (WB, EU, France).
  - Quarterly budget execution reports, enhanced transparency, and monthly treasury meetings improved liquidity management.
  - Delays: elimination of all parafiscal agencies without economic justification; reduction of exceptional spending procedures; use of IT systems in customs.

- Key macro variables before (2014/15) and during (2016–18) the program (average values):
  - Economic growth (percent): Before 2.9 During 4.4
  - Inflation (percent): Before 8.6 During 3.6
  - Domestic tax revenue (percent of GDP): Before 5.5 During 8.0
  - Primary domestic fiscal balance (percent of GDP): Before -4.4 During -1.8
  - Overall fiscal balance (including grants, percent of GDP): Before -4.4 During 0.1
  - Total public debt (percent of GDP): Before 61.0 During 50.7

### Recent developments
- National accounts revision:
  - Authorities released actual national accounts data for 2005-17, resulting in an upward revision to 2017 nominal GDP by 7 percent and changes in sectoral composition.
  - New data follow 1993 SNA with 2005 base year; authorities considering 2008 SNA with base year 2017 aiming for release by end-2021.
- Impact of new GDP data (Box 2 highlights):
  - Supply side changes: primary sector declined by nearly 13 percent; secondary increased by 41 percent; services increased by 17 percent.
  - Demand side: investment surged by more than 87 percent; exports and imports increased by 8 percent and 23 percent, respectively.
  - Domestic revenue-to-GDP ratio revised to 7.8 percent in 2017 (previous estimate 8.3 percent).
  - Selected indicators, 2017 (in percent of GDP) — Before / After / Change:
    - Total revenue: 13.7 / 12.8 / -0.9
    - Domestic revenue: 8.3 / 7.8 / -0.5
    - Total spending: 14.8 / 13.9 / -1.0
    - Primary spending: 10.5 / 9.8 / -0.7
    - Domestic primary balance: -2.2 / -2.0 / 0.1
    - Overall balance (including grants): -1.1 / -1.1 / 0.1
    - Total debt: 52.8 / 49.4 / -3.4
    - Current account: -8.4 / -7.8 / 0.5

- 2018 activity and inflation:
  - Growth declined to 3.8 percent in 2018 from 4.5 percent in 2017, reflecting a sharp fall in official diamond production and a smaller-than-expected increase in wood production.
  - Wood production recovered, increasing by 11.4 percent y-o-y in 2019Q1.
  - Average inflation in 2018 was 1.6 percent; year-on-year inflation increased to 4.6 percent at end-December 2018 and remained elevated in early 2019 (partly due to the blockade of the main road to Cameroon).

### Fiscal outturn and public debt (end-2018)
- Total public debt declined to 48.8 percent of GDP in 2018 from 49.4 percent of GDP at end-2017.
- Domestic primary fiscal balance:
  - Domestic primary deficit amounted to 1.7 percent of GDP in 2018, exceeding the targeted 1.4 percent.
- Domestic arrears repayments:
  - Marginally lower than targeted: CFAF 29.7 billion actual vs CFAF 30 billion target.
- 2018 fiscal table (Text Table 1, percent of GDP):
  - Revenue and grants: Dec. 2017 Outturn 12.8; Target 16.7; Dec. 2018 Outturn 16.6
  - Domestic revenue: Dec. 2017 Outturn 7.8; Target 8.8; Dec. 2018 Outturn 8.9
  - Tax revenue: 7.0 / 8.1 / 8.1
  - Grants: 5.0 / 7.9 / 7.8
  - Primary Spending: 9.8 / 10.2 / 10.6
  - Capital expenditure: 4.5 / 6.6 / 6.0
  - Domestically financed capital: 0.7 / 1.0 / 0.8
  - Domestic primary balance: -2.0 / -1.4 / -1.7
  - Overall balance (including grants): -1.1 / 0.7 / 0.4
  - Public sector debt: 49.4 / 48.5 / 48.8
  - Note: New nominal GDP data are used.

### 2019Q1 developments and measures
- Domestic revenues in 2019Q1 were undermined by temporary factors:
  - Shortfall of 0.5-percent-of-GDP compared to 2019 budget expectations due to closure of main route to Cameroon and delays in transfer to the TSA of parafiscal taxes.
  - Domestic arrears clearance exceeded projections: CFAF 8.6 billion vs. CFAF 7.5 billion projected.
- Petroleum pricing:
  - Authorities simplified the petroleum price structure in January, generating fiscal savings of about 0.1 percent of GDP per year.

### Remaining challenges and risks
- Persistent fragility: lack of control over most of the country, weak capacity, and volatile security conditions.
- Structural challenges: lack of opportunities and widespread poverty; poor business environment and infrastructure; weak governance.
- Revenue limitations: domestic revenue remains significantly below the CEMAC target of at least 17 percent of GDP, constraining fiscal space for expanded public services and social spending.
- Implementation risks: weak administrative capacity, political cohesion constraints, and financing needs associated with implementing the peace agreement.

### Mission and approvals
- Discussions took place in Bangui from April 24–May 3, 2019.
- Mission team: Mr. Martin (head), Ms. Tenison, and Messrs. Million, Ouedraogo, and Stenzel (all AFR), and Messrs. Benon and Zoungarani (resident representative and local economist).
- Meetings: President Touadéra; President of the National Assembly Ngon-Baba; Minister of Finance and Budget Dondra; Minister of Economy, Planning and International Cooperation Moloua; National Director of BEAC Chaibou; senior government officials; Parliamentarians; business, diplomatic and donor communities.
- Approved by: Annalisa Fedelino (AFR) and Martin Sommer (SPR).
- Date on cover: June 17, 2019.

*Source: 1cafea2019001 - EXECUTIVE SUMMARY*

### 8.      The external current account deficit was broadly unchanged in 2018, at about

### 1cafea2019001 - 8.      The external current account deficit was broadly unchanged in 2018, at about

### External sector and trade
- Current account deficit in 2018: about 8 percent of GDP.
- Trade deficit in 2018: 14.9 percent of GDP (from 14.1 percent of GDP in 2017), essentially reflecting higher oil imports.
- Official transfers increase: from 3.2 to 4.4 percent of GDP, broadly offsetting the larger trade deficit.
- Closure of the main road to Cameroon severely impacted imports and exports in 2019Q1.
- Medium-term projection: current account balance (percent of GDP) series shows:
  - 2017: -7.8
  - 2018: -8.3
  - 2019 (Proj.): -7.9
  - 2020: -3.7
  - 2021: -4.8
  - 2022: -5.0
  - 2023: -5.2
  - 2024: -5.1
  - (table indicates -5.0 at end of series)

### Financial sector and monetary indicators
- Credit to the economy (2018 y-o-y): increased by 11.5 percent.
- Broad money (2018 y-o-y): increased by 14 percent.
- Mobile money transactions: surged from CFAF 2.9 billion to CFAF 10.1 billion from 2017 to 2018.
- Banks’ non-performing loans: declined from 22.9 percent at end-2017 to 15.6 percent at end-2018, owing in part to the government’s clearance of its commercial arrears.
- Financial soundness indicators suggest that all four banks remain resilient and adequately capitalized (Table 10 referenced).

### Program performance (sixth review)
- Overall assessment: broadly satisfactory.
- Quantitative performance criteria (end-2018): four met; the domestic primary balance and the repayment of arrears were not met, the latter by a very small margin.
- End-March indicative targets:
  - Government revenue, domestic primary balance, and net financing to the government: not met, mainly owing to a one-off loss in tax revenue.
  - Arrear repayments: end-March target met—bringing cumulated arrear repayments in line with program targets.
- Social spending and exceptional procedures:
  - End-2018 indicative target on social spending: met.
  - End-2018 target on spending through exceptional procedures: not met; 11 percent of total spending used exceptional procedures (target: 5 percent).
  - End-March indicative target on social spending: missed owing to heightened insecurity in provinces and lower tax revenue; social spending expected to accelerate thanks to additional budget support from the WB.
  - Expenses related to the peace initiative and medical evacuations kept the use of exceptional spending procedures at 10 percent in 2019Q1.
- Structural benchmarks (end-December): two of five met; two implemented with delays.
  - Achievements by end-2018: all cash fund agencies were closed; IT platform to decentralize the spending process set up at the Ministry of Finance.
  - Establishment of the budget execution circular for 2019 and publication of reconciliation of customs valuations data: completed in January and February 2019, respectively.
  - Elimination of parafiscal taxes with no economic justification: still underway; authorities revised action plan and committed to full implementation by end-year.
  - End-March SB on inter-ministerial order for medical evacuations: met.
  - Revised legal framework governing public enterprises and agencies: submitted to parliament in May.

### Outlook and risks
- Growth projections:
  - 2019: 4½ percent.
  - Medium term: 5 percent.
  - Text Table 2 Real GDP row shows: 2017 Est. 4.5; 2018 IMF CR Est. 4.3; 2019 Proj. 3.8; subsequent years 4.5, 5.0, 5.0, 5.0, 5.0.
- Inflation projection: 2.5 percent over the medium term (period average), as wood fuel prices normalize.
- Drivers and assumptions:
  - Baseline does not factor in potential positive impact of the recent peace agreement due to uncertainty about implementation and armed group resistance.
  - Wood production expected to rebound in 2019 after taxation issue resolved in January.
  - Kimberley Process procedural shortening may help official diamond production, but recovery is expected to be gradual while productive regions remain under export embargo.
  - Medium-term projection predicated on gradual extension of public services, absorption of externally financed investment, and steadfast implementation of reforms.
  - Grant-financed projects to expand hydropower and solar energy would notably double existing production capacity.
- Downside risks (skewed to the downside):
  - Domestic: renewal of violence if peace agreement proves short-lived; protracted blockade of main road to Cameroon; lack of political cohesion and weak administrative capacity.
  - External: increase in international oil prices; intensification of global trade tensions; delays in delivering external budget support and project grants.
- Upside risk: successful implementation of the peace agreement.

### Policy commitments and reform priorities
- Authorities and staff agreed on need to maintain prudent macroeconomic policies and speed up structural reforms; identified reforms to bolster resilience include:
  - Domestic revenue mobilization.
  - Swift integration of all parafiscal taxes into the treasury single account (TSA).
  - Improving the business climate and good governance.
  - Finalizing the national strategy for good governance.
  - Revising the mining and labor codes.
  - Reforming the judiciary system.

### Financing the Peace Agreement and budgetary measures
- Additional budget support to be used for limited increase in budget envelope consistent with external and public debt sustainability.
- Estimated sustainable priority spending increase: about 1 percent of GDP, starting in 2019, financed gradually by additional budget support from the WB and the EU.
- Budget support highlighted:
  - WB increased its budget support grants from US$20 to US$100 million in 2019 and from US$20 to US$50 million in 2020.
  - EU augmented its support from € 20 million to € 25 million in 2019.
- Supplementary budget law submitted to Parliament incorporates:
  - Lower domestic revenue projections (by about 0.4 percent of GDP, reflecting road blockade and delayed transfers of parafiscal taxes).
  - Significant additional grant financing.
  - A 1 percent of GDP increase in spending aimed at strengthening army and domestic security forces, expanding social services, building government offices, and preparing the 2020–21 national elections.
- Revenue mobilization measures:
  - Launch VAT audits of at least 60 percent of businesses systematically declaring VAT credit or nil payments (MEFP ¶14).
  - Better use of IT system at customs: Sydonia installed at main border post with Cameroon (Beloko); office in charge of petroleum products and additional posts will be equipped by end-December 2019.
  - Operationalize customs and tax audit brigade by end-June to improve information sharing and fight fraud.

### Structural fiscal reforms and public financial management
- Monitoring wood exports and import valuation:
  - Private company BIVAC terminated activities; customs temporarily conducting valuations and eliminated the 1 percent fee previously levied by BIVAC.
  - Authorities launched call for expression of interest to recruit new service providers and will launch a tender by end-July (MEFP ¶15).
- Treasury Single Account (TSA) and parafiscal taxes:
  - 2019 budget law enacted transfer of parafiscal taxes and fees to the TSA.
  - Public accountants assigned to all agencies; dedicated TSA sub-accounts opened at BEAC in May to operationalize the reform (MEFP ¶18).
  - Some parafiscal taxes without economic justification eliminated as of January 1, 2019; elimination of remaining taxes delayed pending audits.
  - 22 out of 41 agencies audited by the General Finance Inspector office or external auditors.
  - 2019 draft supplementary budget provides for elimination of 8 non-operational parafiscal agencies (MEFP ¶18).
  - Authorities aim to finalize audits by end-September 2019 and include elimination of remaining parafiscal taxes without economic justification in the draft 2020 budget law (MEFP ¶19).
- Spending efficiency and controls:
  - IT platform to decentralize spending process set up at the Ministry of Finance (end-December 2018, SB).
  - Use of exceptional spending procedures declined from 24 percent in 2017 to 10 percent in 2019Q1.
  - Measures: closure of all cash funds of the 2018 budget (end-December 2018, SB); decree to regulate medical evacuations (end-March 2019, SB); circular letter requiring civil servants to justify within one week the use of mission allowances and other cash funds (MEFP ¶20).
  - Staff called for strict implementation of medical evacuation modalities and acceleration of reforms.
- Financial oversight of public institutions and SOEs:
  - Draft law prepared to improve financial monitoring and oversight with IMF TA; Council of ministers submitted draft law to parliament (end-March 2019, SB) in May (MEFP ¶21).
  - New organizational chart reorganizing the Ministry of Finance and Budget adopted in May to reinforce financial oversight of public enterprises.

### Debt sustainability and domestic arrears clearance
- Debt distress: C.A.R. remains at high risk of debt distress (see Debt Sustainability Analysis).
- Public and publicly guaranteed debt has declined substantially during the program but debt service capacity remains weak due to low domestic revenue and weak export base.
- Contingent liabilities risk from unaudited potential domestic arrears and limited information on SOEs.
- Domestic arrears clearance:
  - Clearance of commercial arrears is almost completed.
  - Repayment of wage arrears progressing slower than envisaged; authorities and staff agreed to update plan to clear all identified arrears by mid-2020.
  - Authorities identified pension and social arrears of about 0.8 percent of GDP accumulated between 2001 and 2003; audits completed and clearance started.
- Potential arrears:
  - Authorities shared a list of potential arrears amounting to about 10 percent of GDP recently identified; these include arrears for services delivered without spending authorization before 2014, arrears on deposit accounts at the treasury mostly before 2010, and debt towards public enterprises (MEFP ¶22).
  - Authorities hiring external auditors to clarify status of these claims by end-September 2019; many claims likely invalid due to lack of documentation.
  - Staff urged swift clarification to boost fiscal transparency and determine appropriate policy response.
- Domestic arrears repayment plan (Text Table 4 highlights selected figures):
  - Wage arrears stock (CFAF billion): 2017 (end) 62.5; Q1 2018 57.3; Q2 2018 56.9; Q3 2018 52.9; Q4 2018 50.6; subsequent quarterly projections declining to 0.0 by 2020 Q3/Q4.
  - Wage arrears stock (percent of GDP): 5.6; 4.7; 4.7; 4.3; 4.1; 3.3; 2.8; 2.1; 1.3; 0.6; 0.0; 0.0; 0.0.
  - Wage arrears repayments (CFAF billion): 2.4; 5.2; 0.4; 4.0; 2.3; 7.3; 6.1; 10.0; 10.0; 8.6; 8.6; 0.0; 0.0.
  - Arrears to SMEs stock (CFAF billion): 9.2; 3.8; 0.8; 0.6; 0.6; 0.6; 0.6; 0.6; 0.6.
  - Arrears to SMEs stock (percent of GDP): 0.8; 0.3; 0.1; 0.1; 0.1; 0.1; 0.1; 0.1; 0.1.
  - Arrears to SMEs repayments (CFAF billion): 0.0; 5.4; 3.0; 0.2; 0.0; 0.0; 0.0; 0.0; 0.0.
  - Note: ARREARS TABLE spans 2017–2020 with projected elimination by mid-2020.

*Source: C.A.R. authorities and IMF staff estimates.*

### 24.      Reforms to improve natural resource management are ongoing. The authorities are

### Reforms to improve natural resource management are ongoing. The authorities are

### Natural resource management reforms and forestry/mining sector
- Redrafting of the outdated mining code is underway with WB support to better align it with regional rules, notably on foreign exchange repatriation (MEFP ¶25).
- Procedures under the Kimberley process have improved, reducing the average time to clear diamond exports from 3-4 months to around 1–2   weeks.
- The authorities requested to be reintegrated in the Extractive Industries Transparency Initiative.
- Quarterly publication of all new forestry and mining permits on the Ministry of Finances’ website (MEFP ¶24).
- Adoption in January of a new wood reference price, which has helped to improve sector competitiveness and diffuse tensions between investors in the forestry sector and the government, contributing to the resumption of wood production.

### Governance, anti-corruption, and asset declarations
- A diagnostic mission has been requested to inform the strategy to fight corruption and to assist in formulating comprehensive and well-sequenced measures in fiscal governance, anti-corruption strategy and policies, regulatory framework, rule of law, and AML/CFT (MEFP ¶24).
- The high authority for good governance faces limitations: lack of authorization to publish investigation results and lack of specific tools to follow-up on recommendations.
- The authority drafted a “good governance” strategy with UNDP support to provide a framework for a comprehensive governance overhaul (MEFP ¶24).
- Authorities and staff agreed that strengthening the asset declaration framework by tightening declaration requirements and enforcing sanctions is desirable in principle, but specific steps have yet to be taken.
- Staff urged strengthening institutional frameworks and transparency in public administration to curb corruption.

### Business environment, labor and mining codes
- The government submitted to parliament a draft law capping fines applied in employment litigation; the business community viewed high fines related to dismissals as arbitrary and a key impediment to private investment.
- The authorities are updating the labor code with WB support (MEFP ¶25) and committed to strengthening regular consultation with the private sector.
- Staff recommended that revisions of the labor and mining codes be broad based, aligned with international best practices, and in compliance with CEMAC’s new foreign exchange regulations.
- Structural constraints noted: insufficient energy supply, outdated labor and mining codes, inadequate legal framework to curb corruption and fraud, weak judiciary, poor natural resource management, lack of government–private sector dialogue, and low financial inclusion.

### Financial sector, judiciary improvements, and AML/CFT
- Private sector complaints about unpredictability of court decisions on financial sector issues prompted a joint conference (end-June 2018) that recommended:
  - establish an arbitration and mediation center;
  - create specialized court proceedings for banking and financial services litigations;
  - develop and publish a database of court decisions;
  - increase the number of judges and court officers to speed up rulings and enforcement.
- Staff welcomed commitment to implement these recommendations in 2019 but noted the timeline appears ambitious given limited capacity.
- The 2017 COBAC mission made individual bank-level recommendations; most measures have been implemented or are ongoing, with strengthened bank governance and prudential standards, and progress on internal controls and fighting money laundering and terrorism financing (MEFP ¶27).
- Staff urged authorities to explore means to pave the way to the identifications of mobile money users.

### Capacity building
- Capacity Building Framework (CBF) pilot project launched in early 2017; Fund delivery of TA and training significantly increased.
- Some limitations: limited absorptive capacity, weak prioritization of TA recommendations, and inadequate monitoring weakened TA effectiveness.
- An updated capacity building strategy for 2019–22 under the CBF was agreed (Annex I).
- CB priorities: revenue mobilization, budget preparation and implementation, public accounting, debt management, and macroeconomic statistics.

### Program implementation, financing assurances, and arrears
- Authorities requested waivers of nonobservance of the two missed PCs (Letter of Intent). Corrective actions taken include:
  - contain further use of exceptional spending procedures, including control of mission expenses;
  - a new agreement with travel agencies and airline companies to reduce mission costs (to be finalized by end-September 2019);
  - new decree for medical evacuations;
  - accelerate domestic arrear repayments in 2019Q1, bringing cumulative payments in line with program targets.
- The program is fully financed through the end of the ECF arrangement and C.A.R. has adequate capacity to repay the Fund. Significant Fund repayments are due in the coming years (Table 9).
- BEAC and COBAC pursued implementation of policy commitments; BEAC provided an updated policy assurance on end-December 2019 NFAs in support of CEMAC countries’ Fund-supported programs.
- BEAC submitted new foreign exchange regulations to the UMAC ministerial committee and operationalized the new monetary policy framework by end-2018. The end-2018 regional policy assurance on NFAs was exceeded.
- In its updated letter of policy support, the BEAC presented a revised projection for the end-December 2019 NFAs and reiterated commitment to implement an adequately tight monetary policy to achieve the NFA projections.
- Authorities committed to implement new regional foreign exchange regulations, submitted all mining contracts to BEAC, and committed to ensure all new contracts conform with the new foreign exchange regulation.
- Authorities committed to identify accounts held abroad by state-owned enterprises and to ensure repatriation and surrendering of their external assets by end-2019.
- BEAC’s full transition to IFRS for FY 2019 is progressing broadly as planned; revisions to secondary legal instruments for alignment with the BEAC Charter are being accelerated though adoption was extended beyond June 2018 to allow further consultations.
- With the exception of Libya, official creditors with outstanding external arrears have consented to Fund financing. Libya requested more time to convey its position.
- C.A.R. remains in arrears to a private creditor and is pursuing good-faith efforts to reach a collaborative agreement. The country remains current on its remaining external debt service obligations.
- Authorities requested a successor arrangement to consolidate gains and address protracted balance of payments needs; discussions could start in September/October, 2019. The current arrangement was due to expire on July 19, 2019.

### Staff appraisal, priorities, and recommendations
- Commendable efforts: prudent fiscal policy while preserving social spending; domestic tax-to-GDP ratio increased by 2.1 percentage points of GDP between 2015 and 2018; domestic primary deficit was 1.7 percent of GDP in 2018, down from 4.1 percent of GDP in 2015.
- Arrears payment strategy contributed to diffusing social tensions and reducing banks’ non-performing loans.
- Weak institutional capacity, lack of political cohesion, and resistance by vested interests delayed some reforms, including integration of all parafiscal taxes into the TSA.
- The recent peace agreement creates an opportunity to improve security and conditions for sustained and inclusive growth; authorities and donors need to assess associated spending needs and financing sources; coordination within government should be strengthened and new initiatives should not be adopted without prior consultation with the Ministry of Finance and clear assessment of budgetary implications.
- The draft supplementary budget law is consistent with debt sustainability and provides for increased priority spending to support key government initiatives, accounting for:
  - loss of tax revenue from blockade of key trade route from Cameroon;
  - delayed integration of parafiscal taxes into the TSA;
  - gradual use of additional budget support from development partners.
- Draft law allocates additional resources to implementation of the peace agreement, strengthening national security forces, and preparation of the 2020-21 presidential and legislative elections.
- Revenue mobilization remains crucial given large spending needs and limited room for savings; implementing the peace agreement could mobilize taxes from provinces currently outside government control.
- Priority actions highlighted: find successors to BIVAC for import valuation and wood export monitoring; improve collaboration between customs and revenue administrations; pursue bolder reforms to improve business climate and governance.
- Staff supports completion of the sixth review, waivers of non-observance of the end-December 2018 PCs on the domestic primary balance and the repayment of domestic arrears, and completion of the financing assurances review, based on C.A.R.’s program performance, corrective actions, and BEAC’s regional policy assurances.

*Source: CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND (excerpt).*

### 45.      It is proposed that the next Article IV consultation take place on a 12-month cycle in

### It is proposed that the next Article IV consultation take place on a 12-month cycle in accordance with the Decision on Article IV Consultation Cycles, Decision No. 14747–10/96.

### Medium-term economic prospects (text and figure highlights)
- "Swift implementation of economic reforms and improved security could lift medium-term economic growth above the current projections..."
- "...while inflation is projected to decline in light of improved food supply."
- "Domestic revenue is expected to increase only gradually..."
- "...limiting the space to increase current expenditures and domestically-financed capital spending."
- "The domestic primary balance is expected to improve gradually..."
- "...and the external position reflects the large investment needs."
- "Sources: C.A.R. authorities and IMF staff estimations and projections"

### Key national income, price, and savings projections (as presented in Table 1)
- GDP at constant prices: 4.5 4.33.8 5.04.55.05.05.05.05.0
- GDP per capita at constant prices: 2.62.41.93.12.53.03.03.03.03.0
- GDP at current prices: 11.37.45.38.27.27.77.77.77.77.7
- GDP deflator: 6.43.01.43.02.72.62.62.62.62.5
- CPI (annual average): 4.53.01.63.03.52.62.52.52.52.5
- CPI (end-of-period): 7.22.54.62.33.02.52.52.52.52.5
- Broad money: 10.32.314.011.614.113.68.67.36.66.2
- Credit to the economy: 1.45.511.53.39.78.68.88.58.68.5
- Export volume of goods: 42.510.010.310.42.87.88.38.45.25.1
- Import volume of goods: -2.05.20.16.24.24.94.85.36.06.1
- Terms of trade: -18.5-13.4-11.70.25.7-0.40.6-0.30.61.2
- Gross national savings: 5.77.37.19.012.811.710.910.711.211.8
- Gross domestic savings: -2.9-2.9-2.7-0.3 0.51.31.82.43.14.0
  - Government: -1.4 -0.5 -1.2 0.3-0.7-0.7-0.4-0.1 0.2 0.5
  - Private sector: -1.5-2.4-1.5-0.61.22.12.22.42.93.5
- Consumption: 102.9102.9102.7100.399.598.798.297.696.996.0
  - Government: 7.07.37.77.57.67.87.97.87.87.8
  - Private sector: 95.995.595.092.891.990.990.389.889.188.2
- Gross investment: 13.515.915.116.616.616.515.915.916.316.9
  - Government: 4.56.96.07.57.57.56.96.96.86.9
  - Private sector: 9.09.09.09.09.09.09.09.09.510.0
- External current account balance
  - with grants: -7.8-8.6-7.9-7.6-3.7-4.8-5.0-5.2-5.1-5.0
  - without grants: -11.0-13.3-12.3-11.7-10.9-10.1-9.1-8.7-8.6-8.4

### Fiscal projections and government finance (selected entries from Table 1 and Table 2a/2b)
- Total revenue (including grants; percent of GDP): 12.817.516.618.820.919.117.417.017.217.3
- Domestic revenue (percent of GDP): 7.89.38.910.79.910.110.410.710.911.2
- Tax revenue (percent of GDP): 7.08.58.18.68.28.48.78.99.29.4
- Grants (percent of GDP): 5.08.37.88.111.08.97.06.36.36.1
- Total expenditure (percent of GDP): 13.916.816.318.118.318.417.817.717.717.7
  - Capital expenditure (percent of GDP): 4.56.96.07.57.57.56.96.96.86.9
  - Domestically financed capital (percent of GDP): 0.71.10.81.71.91.81.81.81.81.8
  - Externally financed capital (percent of GDP): 3.75.85.25.85.65.75.15.15.15.1
- Overall balance
  - Excluding grants (percent of GDP): -6.1-7.6-7.4-7.4-8.4-8.3-7.4-7.0-6.7-6.5
  - Including grants (percent of GDP): -1.10.70.40.72.60.6-0.3-0.7-0.5-0.4
- Domestic primary balance (percent of GDP): -2.0-1.4-1.7-1.2-2.5-2.3-2.0-1.7-1.4-1.2
- Net change in arrears ((-) = reduction, CFAF billions): -11.5-32.7-29.7-44.0-35.6-22.6-5.20.00.00.0
  - Domestic: -9.0-31.7-29.7-44.0-35.6-22.6-5.20.00.00.0
  - External: -2.5-1.00.00.00.00.00.00.00.0
- Overall balance, cash basis (CFAF billions): -23.5-24.2-29.2-34.9-0.6-13.1-10.6-12.0-8.3-8.1
- Identified financing (CFAF billions): 23.524.229.234.90.613.110.612.08.28.0
  - External, net: 12.61.81.81.81.92.227.026.818.440.0
  - Domestic, net: 11.022.427.433.1-1.310.9-16.4-14.8-10.2-32.0
- Total government debt (Memorandum item; percent of GDP): 49.448.548.842.243.438.236.434.231.429.2
  - Of which: domestic debt (percent of GDP): 16.212.813.98.210.27.86.95.95.14.3

### Monetary and banking sector indicators (selected entries from Table 3)
- Net foreign assets (CFAF billions): 103.796.789.982.479.861.888.296.880.0121.7157.2206.0250.4287.8346.8
  - BEAC: 74.055.159.852.852.133.459.467.550.491.9125.2171.5213.2247.8303.7
  - Commercial banks: 29.641.630.129.627.728.428.829.329.629.732.034.537.240.043.1
- Net domestic assets (CFAF billions): 197.0218.0236.6225.2263.1312.2265.2275.7263.4269.8287.3276.6267.6264.2239.5
- Domestic credit (CFAF billions): 319.7336.6354.3347.9371.0404.2365.1383.5386.1385.5411.9410.7412.1419.8407.0
  - Credit to the economy (annual percentage change): 1.46.119.65.511.58.811.216.23.39.78.68.88.58.68.5
- Money and quasi-money (CFAF billions): 300.7314.8326.5307.7343.0354.0353.4372.5343.4391.5444.5482.7518.0552.0586.2
- Monetary base (CFAF billions): 202.5199.8209.7217.6226.9228.8237.4246.0235.3254.7261.5281.6303.3326.8351.8
- Velocity (GDP/broad money, end of period): 4.0......3.93.7.........3.83.53.33.33.33.33.4

### External sector and balance of payments (selected entries from Tables 4a/4b)
- Current account (CFAF billions): -94.1-104.3-100.6-98.9-50.7-71.2-80.1-90.6-95.6-101.0
- Balance on goods (CFAF billions): -170.0-206.5-188.5-216.1-184.2-192.2-195.7-203.6-215.5-226.9
- Exports, f.o.b. (CFAF billions): 85.6 89.9 91.1 99.7 94.7 101.7 109.9 118.9 125.6 132.6
  - of which: Diamonds: 5.3 7.2 5.0 9.2 2.6 3.1 3.6 4.3 4.7 5.0
  - of which: Wood products: 53.556.0 56.8 60.859.763.668.573.876.780.1
- Imports, f.o.b. (CFAF billions): -255.6-296.4-279.6-315.7-278.9-293.9-305.7-322.5-341.0-359.6
  - of which: Petroleum products: -68.6-91.8-87.5-97.7-79.8-82.7-81.8-86.2-91.7-95.6
- Services (net; CFAF billions): -28.0-20.8-36.6-5.0-34.0-31.1-28.0-28.2-28.3-28.4
- Transfers (net; CFAF billions): 105.8124.6126.0124.4169.5154.2145.5142.9149.8155.9
  - Private: 67.568.670.669.671.776.280.984.087.290.5
  - Official: 38.356.055.454.897.878.064.758.962.765.4
    - of which: Program: 21.2 37.5 37.6 37.2 80.2 55.0 37.8 28.3 29.4 29.4
- Capital account (CFAF billions): 39.462.560.668.775.973.078.985.090.5
  - Project grants: 39.4 62.5 60.6 68.7 68.7 75.9 73.0 78.9 85.0 90.5
- Financial account (CFAF billions): 38.320.520.727.821.927.252.051.843.464.5
  - Direct investment: 9.510.010.015.015.020.020.020.020.022.0
  - Other investment: 28.610.510.512.86.97.232.031.823.442.5
  - Public sector (net): 12.61.81.81.81.92.227.026.818.440.0
    - Program disbursement: 8.80.00.00.00.00.025.025.013.833.7
    - Project disbursement: 5.57.5 7.57.5 7.5 7.57.5 7.57.5 7.5
- Overall balance (CFAF billions): 35.4-21.3-22.0-2.439.831.944.940.032.854.0
- Identified financing (CFAF billions): -35.421.222.02.4-39.8-31.9-44.9-40.1-32.8-54.0
  - Net IMF credit: 21.927.127.810.411.0-4.4-4.8-8.9-14.3-22.9
  - Other reserves (increase = -): -54.8-4.9-5.8-8.0-50.8-27.5-40.1-31.2-18.6-31.1
- Current account (percent of GDP): -7.8-8.6-7.9-7.6-3.7-4.9-5.1-5.3-5.2-5.1
- Capital account (percent of GDP): 3.35.24.85.35.15.24.64.64.64.6

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

### 1. Total financing requirements194.7163.4168.3164.7160.7188.2

### 1. Total financing requirements194.7163.4168.3164.7160.7188.2

### Financing requirements (overview)
- Total financing requirements: 194.7, 163.4, 168.3, 164.7, 160.7, 188.2
- Components:
  - Current account deficit (excl. budget support): 130.9, 126.2, 117.9, 118.9, 125.0, 130.4
  - Debt amortization: 5.6, 5.3, 5.5, 5.7, 2.9, 3.7
  - Repayment to the Fund: 7.3, 4.4, 4.8, 8.9, 14.3, 22.9
  - Change in other reserves: 50.8, 27.5, 40.1, 31.2, 18.6, 31.1
  - Arrears Repayment: ..................

### Total available financing (components)
- Total available financing: 96.2, 108.4, 105.5, 111.4, 117.5, 125.0
- Capital transfers: 68.7, 75.9, 73.0, 78.9, 85.0, 90.5
- Foreign direct investment (net): 15.0, 20.0, 20.0, 20.0, 20.0, 22.0
- Portfolio investment (net): 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Debt financing: 7.5, 7.5, 7.5, 7.5, 7.5, 7.5
  - Public Sector: 7.5, 7.5, 7.5, 7.5, 7.5, 7.5
- Other net capital inflows: 5.0, 5.0, 5.0, 5.0, 5.0, 5.0

### Financing gap and expected financing
- Financing gap: 98.5, 55.0, 62.8, 53.3, 43.2, 63.1
- Expected sources of financing: 80.2, 55.0, 62.8, 53.3, 43.2, 63.1
  - of which: Budget support (grants): 80.2, 55.0, 37.8, 28.3, 29.4, 29.4
    - World Bank: 57.2, 28.3, 11.2, .........
    - African Development Bank: 0.0, 5.7, 5.6, .........
    - European Union: 16.4, 14.4, 14.4, .........
    - France: 6.6, 6.6, 6.6, .........
    - Other: 0.0, 0.0, 0.0, .........
  - of which: Budget support (loans)1: 0.00, 0.0, 25.0, 25.0, 13.8, 33.7

### Residual financing need and program coverage
- Residual financing need: 18.3, 0.0, 0.0, 0.0, 0.0, 0.0
- ECF program: 18.3, 0.0, 0.0, 0.0, 0.0, 0.0
- Note: 1 Budget support loans to be identified.

### Treasury Cash Management Plan, 2019 (selected figures, CFAF millions)
- Deposits beginning of month (I) (selected months): 31,487; 23,127; 18,696; 9,379; 5,612; 51,275; 43,804; 52,799; 61,917; 55,007; 47,565; 46,348; 31,487
- Gross cash inflows (II) total series present in table (domestic revenue and financing lines)
  - Domestic Revenue (selected recurring monthly figure): 11965, 11965, 11965, 11965, 11965, 11965 (series appears repeated)
  - Revenue Customs (annual total shown): 56,686
  - Revenue Tax (annual total shown): 58,003
  - Other revenue (annual total shown): 12,578
  - Salary Tax (annual total shown): 7,672
  - Financing (selected items): Treasury securities and Other budget support lines with monthly entries including 3,896; 5,352; 57,200; 17,300; 16,400; 11,952; 15,996
  - World Bank: 0,0,57,200,... (as shown in table)
  - IMF Disbursements: 0,0,0,17,300,... (as shown)
- Gross cash outflows (III) total: 245,716 (annual)
  - Primary expenditure (annual): 168,487
    - Wages (annual): 74,672
    - Transfers (annual): 38,895
      - Pensions (annual): 10,245
      - Public agencies (annual): 5,346
      - Others (annual): 23,304
    - Goods and services (annual): 39,804
    - Capital (annual): 26,096
  - Interest and Amortization (annual): 38,634
    - Domestic (annual): 31,625
      - of which: IMF repayments: 1,734; 0; 696; 700; 873; 1,609; 660; 0; 0; 638; 873; 7,084 (presented in line)
      - of which: treasury securities: 4,000; 0; 0; 0; 5,500; 4,000; 0; 0; 0; 5,500; 0; 19,000 (as shown)
    - External (annual): 7,009
      - of which: Interest: 384; 432; 2; 1,186; 144; 100; 424; 545; 505; 0200; 2,266 (table entries)
      - of which: Amortizations (annual): 149; 431; 252; 2,100; 222; 002; 627; 171; 900; 0800; 4,743 (table entries)
  - Arrears payments (annual): 35,554
    - of which: Pension arrears (annual): 2,910
    - of which: Wage arrears (annual): 24,724
    - of which: Other (annual): 7,920
- Net cash flow (=II-III) (selected months): -8,360; -4,431; -9,317; -3,767; 45,663; -7,471; 8,995; 9,118; -6,910; -7,442; -1,217; -9,642; 5,219
- Deposits at end of month (=I+(II-III)) (selected months): 23,127; 18,696; 9,379; 5,612; 51,275; 43,804; 52,799; 61,917; 55,007; 47,565; 46,348; 36,706; 36,706
- Note: 1 Freely usable deposits.

### Budget Support, 2019–21 (selected commitments, CFA francs, bn)
- IMF: SDR 22.84 million = 17.3 (BoP support) for 2019
- World Bank: US$ 100 million = 57.2 (2019); US$ 50 million = 28.3 (2020); US$ 20 million = 11.2 (2021) — Budget support
- African Development Bank: US$ 0 million = 0.0 (2019); US$ 10 million = 5.7 (2020); US$ 10 million = 5.6 (2021) — Budget support
- European Union: € 25 million = 16.4 (2019); € 22 million = 14.4 (2020); € 22 million = 14.4 (2021) — Budget support
- France: € 10 million = 6.6 (2019); € 10 million = 6.6 (2020); € 10 million = 6.6 (2021) — Budget support
- Total commitments for 2019: 97.5 (excluding IMF: 80.2)
- Projections for 2020: 54.9; for 2021: 37.9

### Indicators of Capacity to Repay the IMF, 2019–29 (selected figures)
- IMF obligations based on existing credit (SDR millions) — Principal: 6.1; 5.3; 5.8; 10.8; 17.4; 25.7; 24.4; 22.1; 17.1; 69.1; 40.0; 0.00 (table sequence)
- Charges and interest (SDR millions): 0.44; 0.59; 0.59; 0.59; 0.59; 0.59; 0.59; 0.59; 0.59; 0.59; 0.59; 0.59
- Outstanding IMF Credit (SDR Millions): 161.0; 155.7; 149.8; 139.0; 121.5; 95.7; 66.7; 40.0; 16.0; 4.6; 0.0
- Outstanding IMF Credit (CFAF Billions): 128.8; 124.4; 119.7; 111.0; 97.0; 76.4; 53.3; 32.0; 12.8; 3.7; 0.0
- Percent of government revenue: 93.0; 82.4; 71.6; 60.0; 47.6; 34.1; 22.4; 12.6; 4.8; 1.3; 0.0
- Percent of exports of goods and services: 57.5; 52.2; 47.2; 41.4; 34.7; 26.1; 17.3; 9.9; 3.8; 1.0; 0.0
- Percent of debt services: 746.1; 891.0; 830.5; 598.0; 465.0; 254.0; 165.5; 104.1; 48.0; 18.3; 0.0
- Percent of GDP: 9.5; 8.5; 7.6; 6.5; 5.3; 3.9; 2.5; 1.4; 0.5; 0.1; 0.0
- Net use of IMF credit (SDR millions) — Disbursements: 22.8; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
- Net use of IMF credit — Repayments and repurchases: 6.6; 5.9; 6.4; 11.5; 18.1; 26.4; 29.6; 27.3; 24.6; 12.0; 5.2
- Memorandum items (selected):
  - Nominal GDP (billions of CFA francs): 1,361.5; 1,466.1; 1,578.6; 1,701.1; 1,833.1; 1,972.7; 2,101.4; 2,238.0; 2,373.1; 2,516.2; 2,668.4
  - Exports of goods and services (billions of CFA francs): 224.1; 238.1; 253.8; 267.9; 279.9; 292.4; 307.5; 323.0; 338.9; 355.7; 373.4
  - Government revenue (billions of CFA francs): 138.4; 151.0; 167.2; 184.9; 203.9; 224.4; 237.4; 252.8; 268.1; 284.3; 301.5
  - Debt service (billions of CFA francs): 17.3; 14.0; 14.4; 18.6; 20.9; 30.1; 32.2; 30.7; 26.6; 20.0; 11.0
  - IMF Quota (SDR millions): 111.4 (constant series)

### Financial Soundness Indicators, Dec. 2011–Dec. 2018 (percent, end of period, selected)
- Total bank regulatory capital to risk-weighted assets: 25.6; 22.7; 39.1; 42.2; 38.7; 32.0; 34.3; 32.0; 28.5
- Total capital (net worth) to assets: 22.3; 22.2; 23.7; 21.9; 21.1; 19.2; 21.0; 20.6; 21.3
- Non-performing loans to total loans: 12.0; 9.6; 28.5; 27.7; 30.9; 25.6; 22.9; 15.6
- Net income to average assets (ROA): 5.0; 4.5; -1.3; 0.9; -0.9; 0.8; 0.9; 2.6; 4.0
- Net income to average capital (ROE): 24.4; 20.7; -5.4; 3.8; -4.0; 4.2; 4.8; 12.7; 18.8
- Non interest expense to gross income: 59.9; 64.0; 79.5; 73.6; 72.8; 67.3; 88.6; 79.2; 76.7
- Liquid assets to total assets: 24.3; 16.6; 19.2; 27.5; 40.0; 31.9; 30.7; 27.1; 29.9
- Liquid assets to short-term liabilities: 160.7; 114.5; 149.1; 203.1; 276.1; 219.6; 227.4; 186.6; 198.6

### Disbursement schedule, 2016–19 (IMF program)
- First disbursement upon program approval, July 20, 2016: SDR 12.525 million = 11.2 percent of quota
- Second disbursement, December 21, 2016: SDR 12.525 million = 11.2 percent of quota
- Third disbursement, July 20, 2017: SDR 11.70 million = 10.5 percent of quota
- Fourth disbursement, December 15, 2017: SDR 28.41 million = 25.5 percent of quota (reflects augmentation at 2nd and 3rd review)
- Fifth disbursement, July 02, 2018: SDR 22.84 million = 20.5 percent of quota (reflects augmentation at 3rd review)
- Sixth disbursement, December 19, 2018: SDR 22.84 million = 20.5 percent of quota
- Seventh disbursement, March 20, 2019: SDR 22.84 million = 20.5 percent of quota
- Total: SDR 133.68 million = 120.0 percent of quota

### Risk Assessment (selected risks and policy responses)
- Rising protectionism and retreat from multilateralism
  - Relative Likelihood: High
  - Impact If Realized: Medium
  - Policy Response: Intensify structural reform and improve business environment to support diversification.
- Weaker-than-expected global growth
  - Relative Likelihood: Medium
  - Impact If Realized: Medium
  - Policy Response: Intensify structural reform and improve business environment to support diversification.
- Deterioration of security situation
  - Relative Likelihood: High
  - Impact If Realized: High
  - Policy Response: Make room for more security-related spending. Accelerate the implementation of the RCPCA to advance peace, security and reconciliation.
- Limited institutional and human resources capacity
  - Relative Likelihood: High
  - Impact If Realized: High
  - Policy Response: Improve TA effectiveness by strengthening the role of the coordinating unit and by prioritizing the reform agenda for targeted TA.
- Delayed delivery of external financial assistance
  - Relative Likelihood: Medium
  - Impact If Realized: Medium
  - Policy Response: Strengthen external support through comprehensive reform implementation and communicating C.A.R.’s development needs (RCPCA).
- Sizeable deviations from baseline energy prices
  - Relative Likelihood: Medium
  - Impact If Realized: High
  - Policy Response: Simplify the price structure of petroleum products to limit revenue losses and the need to adjust retail prices.

### Capacity Building Framework (Annex I) — policy and TA priorities (2019–22)
- Overarching policy priorities:
  - (i) enhancing domestic revenue collection and revenue performance;
  - (ii) promoting fiscal governance and accountability, returning to normal budget procedures and improving public spending efficiency, including the capital spending framework;
  - (iii) building macroeconomic programming capacity;
  - (iv) strengthening debt management capacity and improving debt management strategy;
  - (v) improving data compilation in national accounts, government finance statistics, and the external sector.
- Assessment of past TA effectiveness:
  - Timely TA during transition (January 2014–March 2016) was instrumental in rebuilding basic institutions; donor TA focused on treasury management, public financial management, wage bill, macro-fiscal capacity.
  - CD achievements (April 2016–December 2018) included: revamped revenue collection agreement with commercial banks; publication of quarterly budget execution reports; dissemination of national accounts for 2013–17 aligned with 1993 SNA; publication of BOP statistics for 2008–15; strengthening of debt unit organization and reporting.
  - Implementation delays due to weak absorptive capacity and insufficient monitoring of recommendations.
- CD priorities for 2019–22 (Fund):
  - (i) tax policy and revenue administration;
  - (ii) public financial management and governance;
  - (iii) macroeconomic programming;
  - (iv) public debt management;
  - (v) statistics (national accounts, government finance statistics, external sector);
  - (vi) implementation of the program budget.
- Risks to TA implementation and mitigation measures summarized and to be updated as a live TA management tool.
- Authorities’ commitments outlined (section present in source).

*Source: IMF staff projections.*

### 7. The C.A.R. authorities are committed to continue to rebuild capacity to ensure

### 7. The C.A.R. authorities are committed to continue to rebuild capacity to ensure

### Capacity-building strategy and commitments (2019–2020)
- The authorities have reached an understanding with the Fund on the updated capacity-building strategy in the context of the Capacity Building Framework (CBF) pilot project.
- Priorities within the CBF framework: domestic revenue collection, PFM, public debt management, macroeconomic statistics, and macro-fiscal capacity.
- Expected outcomes building on 2017–18 progress:
  - further strengthening the institutional framework to increasing revenue;
  - enhancing spending efficiency;
  - restoring budget discipline;
  - strengthening debt management;
  - building core macro-fiscal capacity;
  - implementing program budgeting.
- Authorities seek to continue taking full advantage of additional TA provided by the Fund under the CBF pilot on tax policy, revenue administration, PFM, national accounts data compilation, GFS and external trade data.

### CD coordination and governance
- Under the CBF, the authorities are progressively taking the lead in coordinating CD from various donors, including the Fund, WB, EU, AfDB, UNDP and France.
- The authorities have committed to establish a CD coordination committee to:
  - prioritize CD objectives;
  - coordinate CD delivery plans to avoid overburden on officials;
  - monitor implementation of recommended reforms;
  - identify measures to address unsatisfactory CD outcomes.

### Tax Policy and Administration (2019–22)
- Objective:
  - Achieve more effective and efficient mobilization of domestic resources by: (i) rationalizing tax and customs exemptions; (ii) strengthening the tax and customs administration; and (iii) reforming diamond, telecom, and forestry taxation and rationalizing parafiscal charges.
- Outcomes:
  - (i) improved compliance enforcement of VAT and income tax filing; (ii) strengthened tax and customs operations; (iii) reduced tax exemptions; (iv) rationalized parafiscal taxation; and (v) improved domestic revenue.
- Milestones:
  - (i) improve revenue from the forestry and mining sectors (2018); (ii) implement tax laws and streamline tax exemptions; (iii) eliminate parafiscal taxes without economic interest; and (iv) streamline and modernize processes for large and medium-sized taxpayers/ importers, digitalize declaration and payment procedures, exchange customs and tax administration data to prevent and combat tax fraud.
- Input:
  - (i) HQ-led follow-up FAD TA missions to update action plans; (ii) under the revenue mobilization TTF (RMTF), HQ-led follow up tax administration mission and peripatetic visits of the regional tax administration advisor to monitor reform implementation; and (iii) follow-up mission by AFRITAC experts.
- Assumptions:
  - (i) improved tax and custom services and digitalization facilitate better compliance; (ii) improved taxation on the diamond, and forestry sectors; and (iii) strong commitment to implementing potentially difficult reforms (e.g., rationalize parafiscal taxes and tax and customs exemptions).

### Public Finance Management (2019–22)
- Objective:
  - (i) Comprehensive, credible, and policy-based budget preparation; (ii) improved budget execution and control; (iii) improved coverage and quality of fiscal reporting to cover State-Owned Enterprises (SOEs); (iv) strengthened governance; and (v) understanding of program budgeting procedures.
- Outcomes:
  - (i) More credible medium-term macro-fiscal framework that supports budget preparation; (ii) strengthened budget execution and controls; (iii) control and limitation of exceptional spending procedures and frequency of monitoring; (iv) existence of payroll controls; (v) alignment of the chart of accounts and budget classifications with CEMAC and international standards; and (vi) progressive development of program budgeting framework.
- Milestones:
  - (i) Streamlining the budget execution procedures, including exceptional and emergency procedures; (ii) strengthening of SOEs oversight; (iii) aligning management of earmarked revenues and parafiscal tax revenues with best practices; and (iv) development of the medium-term spending framework and medium-term budget framework for pilot departments.
- Input:
  - (i) HQ-led TA missions on PFM; and (ii) follow-up missions 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 (2019–22)
- Objective:
  - Building debt management capacity and improving the debt management strategy.
- Outcomes:
  - (i) Further modernize the institutional, legal and regulatory framework for public debt management; (ii) improve debt management strategy and reporting; (iii) strengthen analytical and operational capabilities of debt managers; and (iv) develop DSA capacities of staff.
- Milestones:
  - (i) Review improvements of the institutional and regulatory framework for public debt management; (ii) improve debt management strategy; and (iii) strengthen reporting on debt.
- Input:
  - AFRITAC advisor and experts visits on debt management with support from HQ on: (i) the institutional, legal and regulatory framework for debt management; (ii) debt reporting; (iii) debt portfolio and risk management, including MTDS; and (iv) debt sustainability analysis and LIC DSA.
- Assumption:
  - Commitment toward strengthening debt management.

### Statistics: National Accounts, GFS, and External Sector (2019–22)
- Objective:
  - Produce more accurate statistics on annual and progressively quarterly national accounts, government finance statistics, and external sector.
- Outcomes:
  - Improve economic policy making and inform private sector decisions.
- Milestones:
  - National accounts: improve and disseminate the compilation of annual national accounts aligned with 2008 SNA.
  - External sector: improve the compilation and dissemination of the balance of payments and start producing the International Investment Position data.
  - Government finance statistics: producing the statement of government operations following the GFSM 2001/2014 and implementing the CEMAC TOFE directive based GFSM 2001.
- Input:
  - National accounts: visits by short-term experts from AFRITAC Central to review national accounts.
  - External sector: short term experts visit under the TA project funded by the Japanese government, launched in 2017, and targeting beneficiary francophone countries, including all CEMAC member states.
  - Government finance statistics: visits by AFRITAC resident advisor and experts to help implement the TOFE CEMAC directive.
- Assumptions:
  - (ii) Availability of human and financial resources; (ii) collaboration between national agencies involved in statistics.

### Risk assessment and mitigation
- Risks, probabilities, impacts, and mitigation measures:
  - Persistently delicate and fluid security situation
    - Probability: High
    - Impact: High
    - Mitigation: Authorities may consider sending staff to outside locations to build capacity.
  - Governance and implementation capacity constraints
    - Probability: High
    - Impact: High
    - Mitigation: Authorities requested an IMF diagnostic mission; committed to improve governance, coordinate CD inputs, make best use of TA provided by development partners and the Fund, and limit staff turnover.
  - Delayed support from the development partners
    - Probability: Medium
    - Impact: High
    - Mitigation: Authorities are mobilizing resources pledged during the November 2016 donor conference in Brussels.

### Technical assistance activities (selected 2017–2019 entries)
- Table highlights (missions by department and purpose):
  - 2017: Jan-17 FAD Tax policy; FAD AFC-Revenue administration; STA Balance of payments statistics. Feb-17 FAD Tax administration; FAD Customs administration; FAD AFC-Revenue administration; MCM AFC-Debt management; STA AFC-Government finance statistics. (Additional missions listed through Dec-17.)
  - 2018: Jan-18 FAD AFC-Revenue administration; MCM AFC-Debt Management; STA Balance of payments statistics. (Additional missions listed through Dec-18.)
  - 2019: Jan-19 FAD Revenue administration (regional expert); FAD Revenue administration; MCM AFC- Debt management. Mar-19 FAD AFC-Revenue administration; FAD AFC-Customs administration; FAD AFC-Macroeconomic management; MCM AFC- Balance of payments statistics; STA AFC-National accounts. (Additional missions listed through Jul-19, with planned missions.)

### Recent macroeconomic developments and program performance (from MEFP)
- Political/security:
  - The government and the 14 armed groups signed a political agreement for peace and reconciliation on February 6, 2019.
  - Formation of an inclusive government in March reopened the main transportation route linking Bangui to Cameroon.
- Growth and inflation:
  - Economic growth slowed in 2018, being estimated at close to 4 percent after 4½ percent in 2017.
  - Inflation: average 1.6 percent in 2018; 4.6 percent year-on-year at end-year.
  - National accounts for 2005–17 were finalized, resulting in a 7 percent upward revision of nominal GDP in 2017.
- Fiscal execution and public debt:
  - Domestic revenue: CFAF 112.4 billion compared to CFAF 112.1 billion (projected).
  - Domestic primary fiscal deficit on a cash basis: CFAF 22 billion compared to CFAF 18 billion (target).
  - Primary expenditure: CFAF 134.4 billion compared to CFAF 129.4 billion (projected).
  - Public debt: 48.8 percent of GDP at end-2018, compared to 49.4 percent of GDP at end-2017.
- External sector:
  - Current account deficit estimated at 7.9 percent of GDP for 2018, slightly higher than in 2017.

### Letter of Intent key points (June 17, 2019)
- The Executive Board completed the fifth review on December 19, 2018, and approved a disbursement of SDR 22.84 million.
- The authorities met end-December 2018 quantitative performance criteria except for those relating to the domestic primary fiscal deficit and clearance of domestic arrears; waivers are requested.
- Implementation of structural benchmarks: four of five end-December 2018 benchmarks implemented (two with delay); two end-March structural benchmarks implemented (one with delay).
- Commitment to:
  - continue clearing domestic arrears and not accumulate new ones;
  - mobilize grants and, if necessary, highly concessional financing within program borrowing limits;
  - consult Fund staff before contracting any new external borrowing.
- Request:
  - Disbursement of the seventh tranche under the ECF arrangement, equivalent to SDR 22.84 million (20.5 percent of our quota) to cover protracted balance of payments needs.
- Publication:
  - Authorities intend to publish the IMF staff report, this letter of intent, and the attached MEFP once the Executive Board has completed the sixth review of the ECF arrangement.

*Central African Republic — IMF staff report excerpts (content unit).*

### 5. The financial sector is doing well. Credit to the economy grew by 11.5 percent

### 5. The financial sector is doing well. Credit to the economy grew by 11.5 percent

### Financial sector performance
- Credit to the economy grew by 11.5 percent year-on-year in December 2018.
- Broad money expanded by 14 percent over the same period.
- Commercial banks remain amply capitalized and liquid.
- Banks’ nonperforming loans declined significantly owing notably to the government’s repayment of its commercial arrears.
- Banks are broadly compliant with prudential standards.

### Program implementation in 2018 and early 2019 — quantitative performance criteria
- Net domestic financing of the government: CFAF 4.3 billion at end-December 2018 (ceiling: CFAF 14.0 billion).
- Domestic primary fiscal deficit: CFAF 22.0 billion at end-December 2018 (ceiling: CFAF 18.0 billion).
- Total domestic government revenue: CFAF 112.4 billion at end-December 2018 (floor: CFAF 112.1 billion).
- Clearance of domestic payment arrears: CFAF 29.7 billion at end-December 2018 (floor: CFAF 30.0 billion).
- Continuous performance criteria met: government did not contract or guarantee any new nonconcessional external debt, nor did it accumulate external debt arrears.
- Government contracted one concessional external loan of CFAF 7.2 billion in 2018 (concessional rate of 50.2 percent) (indicative ceiling: CFAF 9 billion).
- Indicative target on exceptional spending procedures not met: reached 9 percent (ceiling: 5 percent).
- Priority social spending: CFAF 37.5 billion (target: CFAF 30 billion).

### Program implementation — structural benchmarks and actions
- Implemented four of the five structural benchmarks at end-December 2018, two with delay.
  - Timely: IT platform at the Ministry of Finance and Budget (MFB); closure of the cash funds.
  - Carried out in January and February: adoption of the 2019 budget execution circular; publication of the customs and BIVAC data reconciliation report.
  - Delayed: audit of public agencies and entities that collect parafiscal taxes — required longer than planned, preventing elimination of all parafiscal taxes without economic justification.
- Implemented two structural benchmarks at end-March, one with delay.
- Government actions: inter-ministerial decree on medical evacuations (March); draft law on public and para-public entities and enterprises submitted to the National Assembly (May).

### Revenue and arrears in Q1 2019
- Domestic revenue in Q1 2019: CFAF 27.6 billion (projection: CFAF 34 billion).
  - Underperformance due to temporary blockage of the main route linking Bangui to Cameroon and delays in transferring parafiscal revenue to the TSA.
- Spending level remained under control.
- Domestic arrears cleared in Q1 2019: CFAF 8.6 billion (projected: CFAF 7.5 billion) — made up slight delay from end-2018.

### Economic outlook and risks
- Growth projections: 4.5 percent for 2019 and 5 percent in the medium term.
- Growth drivers: dynamic activity in forestry, telecommunications, construction; gradual resumption of official diamond production; externally financed investment; better execution of domestically financed investment.
- Government, with WB and AfDB support, will significantly increase energy production capacity and revive the agricultural sector.
- Inflation forecast: 2.5 percent over the medium term.
- Downside risks:
  - Deterioration in the security situation could hamper government efforts.
  - Increase in international petroleum product prices could impede activity and reduce oil tax revenue.
  - Delays in external financing disbursements could pose risks to public finances and economic activity.
- Upside prospect: peace agreement offers prospect of enhanced security, better government control over territory, and sustainable economic development.

### Macroeconomic and structural policy priorities
- Objectives in line with the Recovery and Peacebuilding Plan (RCPCA): maintain macroeconomic stability, stimulate growth and job creation, reduce poverty.
- Required actions:
  - (i) raise more domestic revenue to widen fiscal space;
  - (ii) strengthen public spending efficiency through prioritization of social and infrastructure spending without compromising sustainability;
  - (iii) promote transparency and strengthen governance;
  - (iv) improve the business environment to boost private-sector development and external competitiveness.
- Increased budgetary support from development partners to enable prompt implementation of peace agreement measures.

### Fiscal framework and 2019 supplementary budget proposals
- Draft supplementary budget law for 2019 submitted mid-June to:
  - reflect recent domestic revenue forecasts and additional budgetary support;
  - finance implementation of the peace agreement and other new priority expenditures.
- Domestic revenue expected to be slightly behind projections by approximately CFAF 5 billion, including CFAF 3 billion from parafiscal taxes; offset up to CFAF 2 billion by lower public agency transfers.
- WB and EU increased budgetary support by CFAF 43 billion for 2019 and CFAF 18.5 billion for 2020.
- Additional resources allocated to priority expenditures in 2019: CFAF 14.5 billion (about 1 percent of GDP).
- Commitment to limit domestic primary fiscal deficit to CFAF 33.3 billion (2. 5 percent of GDP).
- Planned 2019 fiscal aggregates:
  - Domestic revenue: CFAF 134.9 billion (9.9 percent of GDP).
  - Primary expenditure: CFAF 168.3 billion (12.4 percent of GDP).

### Increase revenue mobilization — measures
- Expiration of SOCACIG exemption generated approximately CFAF 400 million in additional revenue in Q1.
- Audits to be undertaken of companies reporting VAT credits or filing nil VAT returns — aim to audit at least 60 percent annually.
- Instruction for tax offices to enter all tax declaration data into SYSTEMIF to strengthen monitoring between VAT and income tax bases.
- Customs administration corrections: VAT rate and customs tariff errors in ASYCUDA corrected.
- ASYCUDA operational:
  - Beloko customs office since June 2018.
  - Hydrocarbon customs clearance office since May 2018.
- Converted Mongoumba customs revenue brigade into full customs office in November 2018 to combat fraud.
- Plan to strengthen customs control between Cameroonian border and Beloko post and roll out ASYCUDA at Mongoumba post by end-December 2019.
- Launch IT platform between ASYCUDA and SYSTEMIF and joint control brigade by June 30, 2019.

### Import valuation and timber export revenue controls
- BIVAC stopped providing valuation/export services; launched call for expressions of interest in early June with IMF technical assistance to obtain support for import valuation control and securing timber exports.
- Plan to launch tender covering both areas by end-July.
- Eliminated 1 percent ad valorem fee for making a declaration prior to import by Customs pending adoption of a specific tariff for support for import valuation control.

### Petroleum pricing
- Government will adjust petroleum product pump prices if necessary to limit impact of international oil price changes on tax revenue.

### Streamlining parafiscal taxes
- Rationalization and transfer of parafiscal taxes to TSA remains a priority.
- Revised action plan provides for gradual completion by December 31, 2019.
- Audits: 19 audits performed in 2018; as of January 1, 2019 repealed environmental tax on production/manufacture/import of cigarettes, alcoholic and non-alcoholic beverages in glass and/or plastic bottles, telecommunications and electromagnetic pollution.
- Identified eight nonoperational agencies planned for elimination via draft supplementary budget law for 2019.
- Public accountants assigned to all public agencies to accelerate integration into TSA of justified parafiscal taxes with a counterparty.
- Agencies’ bank accounts dedicated exclusively to revenue collection; balances transferred daily to the TSA at the BEAC.
- TSA subaccounts opened at the BEAC in June to ensure transfers for agency expenditures under public accounting rules and Treasury control; agreements signed in early June.
- Inspectorate General of Finance to finalize audits of 17 agencies by June 30.
- External audits of three of the five most critical agencies (FNE, ANR, ANAC, CASDTA, SODIAC) launched in April; remaining two to begin by June 30 once AFD funds mobilized; audits slated for completion by September 30.
- Post-audit: Inspectorate General of Finance will identify unjustified taxes/levies for elimination via draft 2020 budget law provisions.

### Rationalize and strengthen public expenditure management
- Objective: limit expenditures conducted through exceptional procedures to 5 percent.
- Measures adopted:
  - January: budget execution circular for 2019 capping spending amount for cash funds.
  - Circular making obligation operational for officials to justify mission expenses within eight days of return.
  - New decree on medical evacuations adopted.
- Plan to negotiate by end-September 2019 a new agreement with travel agencies and airline companies for official missions.
- Exceptional procedures to be excluded from expenditures such as planned vaccination campaigns and exams/competitions.
- Commitment to clear, by September 30, 2019, all expenditures financed through cash funds closed at end-2018 fiscal year.
- Decentralization of expenditure chain and payment authorization process ongoing to reduce delays and improve budget execution.
  - Training staff in ministries to which spending commitment and validation functions were delegated as of January 1, 2019.
  - Plan to expand delegation to ministries in charge of transportation and public works starting January 1, 2020.
- Strengthen expenditure monitoring in provinces and add a reserve to the budget envelope for unforeseen expenditures.

### Governance, oversight, and procurement
- Submitted new legal framework for public and parastatal institutions and enterprises to National Assembly; adoption expected shortly.
- Decree adopted in May defining new organizational chart of Ministry of Finance with increased staff for financial oversight of public and parastatal institutions and enterprises.
- Commitment to limit use of direct contracts (about 30 percent of contracts awarded in 2018) by revising public procurement code and strengthening procurement capacities of priority sector ministries with World Bank support.

### Clear arrears and improve debt management
- Strategy to clear already validated domestic arrears to continue.
- Commercial arrears nearly cleared; remaining social arrears to be paid in 2019 and 2020.
- Identified potential additional arrears totaling about CFAF 115 billion (expected to be much lower once audited) consisting mainly of:
  - (i) validated spending not committed nor paid from budget years prior to 2014;
  - (ii) arrears in deposit accounts opened until 2016;
  - (iii) debts to state-owned enterprises.
- With AFD support, government will audit all these potential additional arrears by September 30.
- Strategy consistent with recommendations from tripartite consultation between CEMAC member countries/institutions and IMF held April 2 in Douala.
- External public debt management:
  - No new external arrears accumulated; all external debt service due since January 1, 2018 honored.
  - Continue negotiations with creditors whose agreements were signed prior to the HIPC Initiative and with private creditors.
  - Seek grants and concessional financing within borrowing limits under the ECF arrangement.
  - Commit to publish 2018 annual report on public debt by end-July.

### Promote transparency and strengthen good governance
- Propose measures to tighten asset declaration requirements via draft law to better define conditions and consequences of noncompliance.
- High Authority for Good Governance developed a National Strategy for Good Governance; pre-validation workshop held.
- Requested IMF diagnostic mission on governance to identify additional measures in fiscal governance, anti-corruption strategy and policies, regulatory framework (ease of doing business and trade facilitation), rule of law and AML/CFT; commit to publish the diagnostic report.
- Resuming process for membership in Extractive Industries Transparency Initiative.
- Published all forestry permits issued through March 31, 2019 on Ministry of Finance and Budget website.
- Continued quarterly publication of all new mining permits issued on the Ministry of Finance and Budget website.

### Improve the business environment
- Constraints to private investment: insecurity; inadequate electricity production; high transportation costs due to landlocked status and deteriorated road infrastructure; limited access to credit; gaps in the legal system.
- Implementing recommendations from “Financial System and Justice in the C.A.R.” symposium by the National Credit Council.
- Draft law to limit severance pay in employer-employee disputes submitted to National Assembly.
- Plans to modernize and update legal frameworks for key sectors:
  - Revision of the mining code to ensure compliance with new regional regulation on foreign exchange.
  - Revision of the labor code.
- Intend to strengthen the Joint Consultation Framework for Business Improvement to promote dialogue between government and private sector.

### Reduce poverty and promote gender equality
- Continued implementation of RCPCA; significant increase in priority social spending to contribute to poverty reduction.
- Government supports women’s promotion and equality in line with RCPCA objectives and gender equality law.
- Plan to collect gender-disaggregated data in medium term to monitor commitments and inform the public, including through creation of a national gender observatory.

*Central African Republic — IMF staff report chapter.*

### 27. The government is determined to promote the development of the financial sector

### 27. The government is determined to promote the development of the financial sector

### Financial sector development and financial inclusion
- Objective: promote development of the financial sector and financial inclusion of the entire population, including the most vulnerable.
- Measures:
  - Promote the use of mobile banking services to compensate for the absence of banking service branches in most provinces.
  - Gradually digitize the payment of taxes and the settlement of expenditures.
  - Implement recommendations of the 2017 COBAC supervision missions.
  - Strengthen bank governance and prudential standards.
  - Make progress on internal control mechanisms and measures to combat money laundering and terrorism financing.
- Commitment: closely monitor implementation of remaining COBAC recommendations and recommendations of the “Financial System and Justice in the C.A.R.” symposium.

### Capacity building
- Rationale: building administrative and technical capacities is essential for successful implementation of the economic program.
- External assistance and frameworks:
  - Sustained technical assistance from partners to improve customs and tax revenue collection, ensure better cash management, and strengthen the public expenditure chain.
  - IMF-supported Capacity Building Framework, updated in May 2019, with priorities:
    - domestic revenue collection,
    - public finance management,
    - public debt management,
    - macroeconomic statistics compilation,
    - macro-fiscal capacity building.
- Coordination and institutional steps:
  - Coordinated strategies with other donors in their fields of intervention.
  - Increased staff of the Economic and Financial Reform Monitoring Unit (Cellule de suivi des réformes économiques et financières—CS-REF) to follow up on the reform program and coordinate technical assistance and training.
  - Decree creating the Inter-ministerial Macroeconomic and Budgetary Framework Committee adopted; committee operational since early January 2019.

### Support to the implementation of the regional foreign exchange regulations
- Government commitments to support regional institutions, particularly the BEAC, to implement new foreign exchange regulations and contribute to rebuilding subregional foreign exchange reserves:
  - Identify accounts abroad held by state-owned enterprises and the amounts in those accounts by end-July 2019. These entities required to repatriate and surrender these external assets to resident banks by December 31, 2019, in accordance with the regulation, or obtain a written exemption from the BEAC.
  - By end-September 2019, ensure all contracts with extractive industry operators (revenue sharing, modalities for repatriating revenue, financial terms) have been shared with the BEAC and the Technical Secretariat of the CEMAC's Economic and Financial Reform Program (PREF-CEMAC). Set a timetable to ensure contracts are in full compliance with the new foreign exchange regulations. Commit to consult BEAC staff prior to signature of new mining concession contracts/permits or revenue sharing agreements with extractive industries.
  - Together with the BEAC, organize a high-level consultative meeting with operators from these sectors to clarify the new foreign exchange regulations and examine implementation issues by end-July 2019.
  - Instruct the customs administration to do its due diligence with respect to the new body of regulations on the domiciliation of all export transactions with a resident commercial bank by end-August.

### Exchange restrictions and program commitment
- Policy commitments for the duration of the program:
  - Not to impose or expand restrictions on payments and transfers relating to current international transactions.
  - Not to resort to multiple currency practices.
  - Not to conclude bilateral agreements that do not comply with Article VIII of the IMF’s Articles of Agreement.
  - Not to impose or expand restrictions to influence the balance of payments.
  - Authorities commit to adopt, in consultation with IMF staff, any new financial or structural measures necessary to ensure the success of the program.

### Performance criteria and indicative targets (selected outcomes and statuses)
- Format: Table 1 shows Performance Criteria (PC) and Indicative Targets, 2018–19, in CFAF billions. Selected items and reported statuses:
  - Domestic government financing (ceiling, cumulative flows for the year)
    - End-March 2019: PC 8.0; Adjusted PC 8.0; Actual 1.5; Status: Met
    - End-June 2019: Indicative Target 17.9; Adjusted target 17.9; Actual 17.9; Status: Met
    - End-September 2018: PC 14.0; Adjusted PC 14.0; Actual 4.3; Status: Met
    - End-December 2018: PC 16.0; Adjusted PC 18.7; Actual 29.5; Status: Not met
    - End-June 2018: Indicative Target -6.0; Adjusted IT -6.0; Actual ?
  - Domestic revenue (floor, cumulative for the year)
    - End-March 2019: PC 53.4; Adjusted PC 53.4; Actual 56.8; Status: Met
    - End-June 2019: Indicative Target 82.1; Adjusted target 82.1; Actual 83.4; Status: Met
    - End-September 2018: PC 112.0; Adjusted PC 112.0; Actual 112.4; Status: Met
    - End-December 2018: Indicative Target 34.0; Adjusted IT 34.0; Actual 27.7; Status: Not met
    - End-June 2018: Indicative Target 62.0
  - Domestic primary fiscal balance (floor, cumulative for the year)
    - End-March 2019: PC -10.0; Adjusted PC -10.0; Actual 0.0; Status: Met
    - End-June 2019: PC -15.0; Adjusted PC -15.0; Actual -11.9; Status: Met
    - End-September 2018: PC -18.0; Adjusted PC -18.0; Actual -22.0; Status: Not met
    - End-December 2018: Indicative Target -5.0; Adjusted IT -2.3; Actual -7.7; Status: Not met
    - End-June 2018: Indicative Target -15.0
  - Reduction in domestic payments arrears (floor, cumulative for the year)
    - End-March 2019: PC -14.2; Adjusted PC -14.2; Actual -19.0; Status: Met
    - End-June 2019: PC -21.5; Adjusted PC -21.5; Actual -24.1; Status: Met
    - End-September 2018: PC -30.0; Adjusted PC -30.0; Actual -29.7; Status: Not met
    - End-December 2018: Indicative Target -7.5; Adjusted IT -7.5; Actual -8.6; Status: Met
    - End-June 2018: Indicative Target -10.0
- Continuous performance criteria:
  - Contracting or guaranteeing of new external non concessional debt (ceiling): 0.0 across reporting dates; Status: Met
  - Non accumulation of external payments arrears (ceiling, cumulative for the year): 0.0 across reporting dates; Status: Met
- Indicative targets:
  - Social spending (floor, cumulative for the year)
    - End-March 2019: Target 9.0; Adjusted 9.0; Actual 12.5; Status: Met
    - End-June 2019: Target 16.0; Adjusted 16.0; Actual 28.5; Status: Met
    - End-September 2018: Target 24.0; Adjusted 24.0; Actual 37.5; Status: Met
    - End-December 2018: Target 10.0; Adjusted 10.0; Actual 5.5; Status: Not met
    - End-June 2018: Target 20.0
  - Spending through extraordinary procedures (ceiling, cumulative for the year)
    - End-March 2019: Target 1.8; Adjusted 1.8; Actual 4.7; Status: Not Met
    - End-June 2019: Target 2.6; Adjusted 2.6; Actual 5.7; Status: Not Met
    - End-September 2018: Target 3.4; Adjusted 3.4; Actual 6.5; Status: Not met
    - End-December 2018: Target 1.2; Adjusted 1.2; Actual 1.9; Status: Not met
    - End-June 2018: Target 2.4
- Memorandum item:
  - New concessional/external debt contracted or guaranteed by the government
    - End-March 2019: 9.0; Adjusted 9.0; Actual 7.2; Status: Met
    - End-June 2019: 9.0; Adjusted 9.0; Actual 7.2; Status: Met
    - End-September 2018: 9.0; Adjusted 9.0; Actual 7.2; Status: Met
    - End-December 2018: 6.0; Adjusted 6.0; Actual 0.0; Status: Met
    - End-June 2018: 6.0

### Prior actions and structural benchmarks (selected measures, timelines, and statuses)
- Publication of all laws or decrees creating the 54 structures identified to collect para-fiscal taxes
  - Timeline: End March 2018
  - Macroeconomic rationale: Improve transparency and revenue collection
  - Status: Not met; Comment: Completed in May 2018.
- Completion of an external audit of the forestry fund and the telecommunications regulations agency
  - Timeline: End June 2018
  - Status: Not met; Comment: Completed in October 2018.
- 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
  - Status: Met
- Revision of the price structure of petroleum products at the pump
  - Timeline: End June 2018
  - Status: Not met; Comment: Completed in November 2018.
- Publish all forestry permits issued before June 30, 2018 on a government website
  - Timeline: End September 2018
  - Status: Met
- From September 30, 2018, publish quarterly all new mining permits issued since January 1, 2018 on a government website
  - Timeline: Quarterly, from end September 2018
  - Status: Met
- Removal of all identified parafiscal taxes without economic justification
  - Timeline: End December 2018
  - Status: Not met; Comment: Expected to be completed by end 2019.
- Close systematically all cash fund agencies on December 31, 2018
  - Timeline: End December 2018
  - Status: Met
- Establish budget execution circular from LF 2019
  - Timeline: End December 2018
  - Status: Not met; Comment: Completed in January 2019.
- Publication of results of monthly meetings between customs and the pre-inspection company to reconcile valuations
  - Timeline: End December 2018
  - Status: Not met; Comment: Completed in February 2019.
- Set up an IT platform at the Ministry of Finance to operationalize the deconcentration of the spending process
  - Timeline: End December 2018
  - Status: Met
- Revise legislation governing public agencies to strengthen financial oversight
  - Timeline: End March 2019
  - Status: Not met; Comment: Completed in May 2019.
- Establish inter-ministerial decree laying down conditions and terms of medical evacuations
  - Timeline: End March 2019
  - Status: Met

### Debt sustainability assessment — key findings and risks
- Overall assessment:
  - Risk of external debt distress: High
  - Overall risk of debt distress: High
  - Granularity in the risk rating: Sustainable
  - Application of judgement: No
- Summary rationale:
  - Solvency indicators (PV of external public and publicly guaranteed debt-to-GDP and debt-to-exports ratios) remain below relevant thresholds in the baseline.
  - Liquidity indicators (debt service-to-exports and debt service-to-revenue ratios) breach their thresholds in the baseline.
  - Further considerations supporting high-risk assessment:
    - Debt indicators are sensitive to standard stress tests.
    - Macroeconomic projections are highly uncertain in a volatile security environment.
    - Sizeable contingent liabilities could materialize, notably related to the large stock of unaudited potential domestic arrears and limited financial information on state-owned enterprises (SOEs).
  - Sensitivity to financing mix:
    - Tailored scenario: replacement of grant financing (of 2 percent of GDP) by concessional external debt-financing from 2021 onwards would worsen debt sustainability considerably.
    - Policy implication: government’s investment program requires grant financing; concessional debt financing to be considered in exceptional cases.

### Public debt coverage and contingent liability stress test design
- Coverage:
  - Information available on central government contractual debt obligations.
  - State and local governments do not borrow; no social security funds guaranteed by the public sector; government has not guaranteed other debt.
  - Key gaps: sizeable contingent liabilities (potential additional domestic payment arrears not yet audited) and limited information on SOEs’ financial situation and domestic debt (notably SODECA, SOCATEL, ENERCA).
  - Authorities’ actions: submitted new legal framework governing SOEs to parliament; reorganized the Ministry of Finance; committed to audit identified potential domestic arrears by end-September 2019; debt unit strengthening with training and better IT systems.
- Contingent liability stress test design:
  - Tailored test assumes a shock of 15 percent of GDP, reflecting uncertainty about additional domestic arrears, non-guaranteed SOE debt, and financial market risks.
    - Domestic arrears shock: 5 percent of GDP.
    - SOE debt contingent liabilities shock: 5 percent of GDP.
    - Financial market risk shock: default value of 5 percent of GDP.
  - Text Table 1 coverage entries (selected):
    - Central government: Used for the analysis (X)
    - State and local government: Used for the analysis (X)
    - Social security fund: Used for the analysis (X)
    - Guarantees to other entities including SOEs: Used for the analysis (X)
    - Central bank (borrowed on behalf of the government): Used for the analysis (X)
    - Other elements of the general government not captured above: 0 percent of GDP default, 5 percent used (Possible domestic payment arrears not included in debt stock)
    - SOEs' debt (guaranteed and not guaranteed): 1/2 percent of GDP default, 5 percent used (Limited information on SOEs' financial position)
    - Financial market (minimum/default): 5 percent of GDP
    - Total contingent liability shock used: 15 percent of GDP

### Background and debt composition (selected figures)
- PPG debt levels:
  - PPG debt at end-2018: 48.8 percent of GDP (down from 49.4 percent of GDP at end-2017).
  - External debt at end-2018: 34.9 percent of GDP (33.3 percent of GDP at end-2017).
- Recent borrowing since crisis (selected):
  - Saudi Arabia: 2015 project loan for disbursements of up to US$75 million; grant element 49.4 percent.
  - African Development Bank: 2017 budget support loan of US$15 million; grant element 60.2 percent.
  - BADEA: 2018 project loan for disbursements of up to US$13 million; grant element 50.2 percent.
  - IMF: ECF and RCF disbursements totaling SDR 133.12 million; grant element 30.5 percent.
- External and domestic debt composition (Text Table 2):
  - External Debt total: 34.9 percent of GDP
    - Multilateral: 14.9 percent of GDP
    - Bilateral: 7.2 percent of GDP
    - Private: 3.2 percent of GDP
    - Pre-HIPC arrears: 9.6 percent of GDP
  - Domestic Debt total: 13.9 percent of GDP
    - Central Bank: 6.4 percent of GDP
    - Arrears: 4.7 percent of GDP
    - Other: 2.8 percent of GDP
  - Average nominal interest rate on external debt: 0.6 percent
  - Half of domestic debt consists of statutory and exceptional advances from the Central Bank, consolidated into one loan to be repaid from 2022 onwards.
- Debt-carrying capacity:
  - Composite indicator score: 2.42
  - Floor for medium debt-carrying capacity: 2.69
  - CI rating: Weak

*Source: Central African Republic authorities and IMF staff (as presented in the chapter).*

### 6. Macroeconomic assumptions have been updated since the 2018 DSA. The

### 6. Macroeconomic assumptions have been updated since the 2018 DSA. The

### Macroeconomic framework and growth assumptions
- The medium-term scenario is consistent with the macroeconomic framework underpinning the ECF-supported program (Text Table 4).
- Revised national accounts data led to an upward revision of the 2017 nominal GDP by 7 percent.
- Staff estimates that real GDP growth in 2018 was 3.8 percent and that growth in 2019 will reach 4.5 percent.
- Higher medium-term (2020–24) growth of 5 percent reflects the assumption of further catch-up to the pre-crisis level of GDP.
- In the long run (2025–39), a 3.4 percent growth is assumed—unchanged from the 2018 DSA.
- Population growth is estimated at about 2.5 percent, implying modest per-capita GDP growth.

### Fiscal scenario and fiscal balances
- The fiscal scenario has been updated to reflect significant additional grant financing in the short term.
- Budget support grants in 2019–20 are expected to reach a total of 9.7 percent of GDP, significantly higher than the 4.6 percent of GDP assumed at the time of the 2018 DSA.
- Domestic revenues are assumed to follow a gradual upward trend, reaching 14 percent of GDP at the end of the projection period.
- Primary spending has been adjusted to incorporate the revised 2019 budget, reflecting higher spending of 1 percent of GDP.
- In the first five years, a small primary surplus is expected amid substantial grant financing, which would then turn into a deficit of 1.2 percent of GDP over the long run as grant financing gradually declines.

### External sector assumptions
- External sector variables remain broadly unchanged.
- The current account balance is expected to improve over time driven by a gradual decline of imports from exceptionally high post-crisis levels.
- The export of goods and services-to-GDP ratio is expected to decline somewhat initially as the domestic recovery outpaces export growth before rising back to about 15 percent of GDP.
- Current transfers are expected to decline and FDI to increase gradually from a low level.
- Overall, it is expected that the non-interest current account deficit will reach 3 percent of GDP in the long run.

### Grants, financing composition, and financing strategy
- After increasing sharply in the short run, budget grants are assumed to decline in the long run, from an average 7.4 percent of GDP during 2019–24 to 2 percent of GDP by 2039.
- Short-run financing needs are covered by deposit withdrawals while it is assumed that 80 percent of longer-term needs would be covered through external concessional borrowing—with a gradually decreasing degree of concessionality—and the remaining 20 percent through domestic borrowing.
- Footnote note: This assumption is consistent with multilateral development institutions providing support in the form of a mix of grants and concessional financing. Even if C.A.R.’s risk rating was to improve, a substantial share of financing would likely be provided in the form of grants.
- Staff prepared a tailored scenario which substitutes 2 percent of GDP in grant financing with concessional loans from 2021 onwards to illuminate sensitivity to financing assumptions.

### Realism tools and risk signals
- The newly added realism tools do not flag significant risks around the baseline scenario.
- Both external and public PPG debt projections are in line with the 2018 DSA.
- Factors contributing to debt dynamics appear broadly in line with historical contributions.
- External and public PPG debt are higher than expected at the time of the 2012 DSA, mainly related to the impact of the 2013 crisis.
- Unexpected changes in external and public debt are close to the median for all LICs.
- The envisaged fiscal path is well in line with historical performance and the experience in other LIC countries.
- Note: In C.A.R., changes in the primary balance are not always a good indicator to gauge the impact of fiscal policy. While the primary balance is expected to improve substantially (owing to the significant increase in external grants, which will be only partly spent), fiscal policy is likely to prove expansionary (owing to the increase in spending).

### Standardized stress tests and contingent liabilities
- Standardized stress tests highlight debt sustainability’s vulnerability to shocks. Default settings were used for these tests.
- The contingent liability stress test is based on the quantification of contingent liabilities discussed above.
- The commodity price shock is not applicable: Commodity exports dominate goods exports, with a share of about 70 percent, but significant services exports bring commodity exports below the 50 percent of goods and services export threshold.

### Tailored scenario on external financing terms
- A tailored scenario assumes worse external financing terms than in the baseline and shows that room for additional borrowing is limited.
- C.A.R. is highly dependent on external grant financing for budget support and project implementation.
- Grant financing is projected to reach 11 percent of GDP in 2019, and it is assumed to decline to 6.1 percent of GDP by 2024 and 2 percent of GDP by 2039.
- To simulate a deterioration of external financing terms, staff developed a scenario in which grant financing is reduced by 2 percent of GDP compared to the baseline from 2021 onwards, with concessional financing (grant element of 35 percent) substituting for the “lost” grants.

### Key macroeconomic indicators (as presented)
- 2019-23 average / 2024-2038 average / 2019-24 average / 2025-2039 average (table formatting preserved as in source):
  - GDP growth (percent)5.03.44.93.4
  - GDP deflator (percent)3.13.32.62.8
  - Non-interest current account balance-6.0-2.8-4.8-2.8
  - Exports13.914.014.814.6
  - Primary balance0.6-1.90.4-1.0
  - Revenues16.613.318.216.6

### External Debt Sustainability Analysis — main findings
- Solvency indicators remain well below their thresholds in the baseline scenario.
- In the baseline, the present values (PV) of the external PPG debt-to-GDP and debt-to-exports ratios do not breach their thresholds and decline from their initial level over the projection period.
- The standardized stress test of lower nominal export growth leads to a temporary breach of the PV of the external debt-to-exports ratio.
- The PV of the external debt-to-GDP ratio stays below the thresholds even under the most extreme standardized stress test (a combination of a shock to growth, the primary balance, exports, other (non-debt creating) flows, and depreciation).
- Setting key variables to their historical average would result in a clear upward trend of the debt ratio.

### External liquidity indicators and stress tests
- Liquidity indicators temporarily breach their thresholds in the baseline scenario.
- The external debt service-to-exports ratio breaches the threshold between 2024 and 2026, driven by a significant but temporary uptick of debt service related to the end of the grace period of a loan as well as significant repayments to the Fund.
- The trajectory of the external debt service-to-revenue ratio is similar but only breaches its threshold in 2025 by a marginal amount.
- Standardized shocks to exports and growth as well as the historical scenario lead to significant and persistent breaches of the external debt service-to-exports ratio and external debt service-to-revenue ratios.

### Impact of reduced grant financing (tailored scenario)
- Replacing 2 percent of GDP of grant financing with concessional financing from 2021 onwards would put debt sustainability indicators on an upward trajectory.
- Both the PV of the external debt-to-GDP ratio and the PV of the external debt-to-exports ratio would be on an increasing trend and breach their respective thresholds within the ten-year projection period.
- Breaches of the external debt service-to-exports ratio and external debt service-to-revenue ratio would become more pronounced and persistent than in the baseline scenario.

### Public Debt Sustainability Analysis — main findings
- The total PPG debt indicator remains well below its benchmark in the baseline scenario.
- The PV of the debt-to-revenue ratio is declining over the projection period.
- The debt-service-to-revenue and grants ratio is high at the beginning of the projection period with almost 20 percent reflecting significant repayments of domestic arrears.
- After a significant decline, this ratio is set to rise until 2025 reflecting the start of repayments of exceptional and statutory advances to BEAC and higher external debt service payments.
- A standardized shock to growth would trigger a breach of the threshold for the PV of the debt-to-GDP ratio and lead to a significant increase of the PV of the debt-to-revenue ratio.
- Public debt indicators could worsen due to contingent liabilities. An important stock of unverified arrears may lead to additional payment obligations.
- Adding domestic debt to the analysis does not change the overall risk of debt distress.

### Conclusion and risk assessment
- C.A.R remains at high risk of external debt distress and overall high risk of debt distress.
- Solvency indicators for the external PPG debt-to-GDP and -to-exports ratios stay below their respective thresholds, but C.A.R.’s capacity to service debt is severely constrained by low revenue mobilization and a weak export base.
- External debt service-to-export and external debt service-to-revenue ratios breach their respective thresholds in the baseline scenario.
- Macroeconomic projections are highly uncertain given the still volatile security environment.
- Standardized stress tests underline the sensitivity of debt indicators to assumptions: lower export or real GDP growth would trigger a significant deterioration of debt sustainability indicators with multiple threshold breaches.
- A tailored scenario highlights vulnerability of debt sustainability to deterioration in external financing terms, underscoring the importance of grant financing.
- Sizeable contingent liabilities, notably related to the large stock of unaudited potential domestic arrears and the limited financial information available on SOEs, could materialize.

*Source: IMF staff calculations contained in the chapter.*

### 15. The authorities broadly agreed with this assessment of debt sustainability. They

### 1cafea2019001 - 15. The authorities broadly agreed with this assessment of debt sustainability. They

### Authorities' assessment and commitments
- The authorities broadly agreed with the assessment that C.A.R.’s capacity to service debt is limited.
- They are committed to mobilizing grant financing to cover their financing needs to the extent possible.
- They emphasized that the outlook for debt sustainability has improved recently: overall public debt is on a declining trend and the threshold breaches of the external debt service-to-exports and external debt service-to-revenue are temporary and limited in scope.
- They agreed there is a need to strengthen debt monitoring, especially by broadening the coverage to SOEs and clarifying the status of unverified domestic arrears.
- They intend to further strengthen their capacity to manage debt and improve transparency, including by publishing the 2018 debt report by end-July 2019.

### Key baseline projections and indicators (selected)
- External debt (nominal) 1/ (2016–2039): 35.13, 33.3, 34.9, 33.2, 30.5, 29.5, 28.3, 26.3, 24.9, 22.5, 23.5, 25.4, 25.9
- of which: public and publicly guaranteed (PPG): 35.13, 33.3, 34.9, 33.2, 30.5, 29.5, 28.3, 26.3, 24.9, 22.5, 23.5, 25.4, 25.9
- Change in external debt (2016–2027): -1.8, -1.8, 1.7, -1.7, -2.8, -1.0, -1.2, -2.0, -1.4, 0.4, 0.1
- Identified net debt-creating flows (2016–2027): 2.3, 2.9, 4.1, 1.1, 1.9, 2.3, 2.7, 2.7, 2.7, 0.9, 0.3, 6.3, 1.7
- PV of PPG external debt-to-GDP ratio (selected years): 16.7, 17.0, 15.8, 15.5, 14.9, 13.9, 12.8, 10.9, 14.6
- PV of PPG external debt-to-exports ratio (selected years): 104.7, 109.7, 103.7, 102.8, 101.0, 97.4, 92.7, 76.5, 94.0
- PPG debt service-to-exports ratio (selected years): 6.0, 1.8, 3.8, 6.9, 5.4, 5.4, 7.0, 7.8, 10.9, 4.7, 5.1
- PPG debt service-to-revenue ratio (selected years): 14.6, 3.7, 6.8, 10.8, 8.1, 7.8, 9.6, 10.2, 13.4, 5.5, 5.6
- Gross external financing need (Million of U.S. dollars) (selected years): 104.2, 148.9, 173.1, 84.7, 105.4, 122.6, 149.4, 163.4, 189.3, 105.3, 145.5
- Real GDP growth (in percent) (2016–2029): 4.7, 4.5, 3.8, 4.5, 5.0, 5.0, 5.0, 5.0, 5.0, 3.4, 3.4, 1.3, 4.2
- GDP deflator in US dollar terms (change in percent) (2016–2029): 2.7, 8.6, 6.1, -0.6, 3.7, 3.2, 3.3, 3.0, 4.7, 2.5, 2.5, 1.3, 3.2
- Effective interest rate (percent) 4/ (selected years): 0.9, 0.4, 0.6, 0.4, 0.5, 0.5, 0.6, 0.6, 0.7, 0.9, 1.2, 1.1, 0.7
- Growth of exports of G&S (US dollar terms, in percent) (selected): 13.8, 0.3, 10.2, 1.1, 7.2, 7.0, 6.0, 4.6, 6.4, 7.0, 6.8, 6.0, 6.4
- Growth of imports of G&S (US dollar terms, in percent) (selected): 2.7, 6.8, 14.7, -2.7, 5.0, 3.9, 5.1, 5.1, 6.7, 6.0, 6.0, 7.6, 4.3
- Grant element of new public sector borrowing (in percent) (selected entries): 36.5, 51.2, 53.1, 53.1, 52.8, 53.2, 46.6, 31.9, 49.8
- Government revenues (excluding grants, in percent of GDP) (selected years): 7.4, 7.8, 8.9, 9.9, 10.1, 10.4, 10.7, 10.9, 11.2, 12.1, 14.0, 8.1, 11.1
- Aid flows (in Million of US dollars) 5/ (selected years): 113.6, 128.9, 190.4, 270.9, 242.1, 207.9, 202.7, 216.5, 231.3, 238.8, 180.6
- Grant-equivalent financing (in percent of GDP) 6/ (selected entries): 11.7, 9.2, 8.1, 7.3, 6.9, 7.3, 5.7, 2.6, 7.4
- Grant-equivalent financing (in percent of external financing) 6/ (selected entries): 90.5, 97.4, 89.4, 89.1, 92.6, 87.5, 83.6, 66.8, 88.6
- Nominal GDP (Million of US dollars) (selected years): 1,825, 2,071, 2,282, 2,369, 2,578, 2,792, 3,027, 3,275, 3,601, 5,049, 9,029
- Nominal dollar GDP growth (selected years): 7.6, 13.5, 10.2, 3.8, 8.8, 8.3, 8.4, 8.2, 10.0, 6.0, 6.0, 2.2, 7.5

### Public sector debt (baseline and projections, selected)
- Public sector debt (2016–2039): 53.9, 49.4, 48.8, 43.4, 38.2, 36.4, 34.2, 31.4, 29.2, 24.4, 24.8, 41.7, 30.7
- of which: external debt (repeated) 35.13, 33.3, 34.9, 33.2, 30.5, 29.5, 28.3, 26.3, 24.9, 22.5, 23.5, 25.4, 25.9
- Change in public sector debt (selected years): -5.9, -4.5, -0.6, -5.4, -5.2, -1.9, -2.2, -2.8, -2.2, 0.0, 0.1
- Identified debt-creating flows (public) (selected years): -4.3, -7.9, -1.5, -5.5, -5.2, -1.9, -2.1, -2.7, -2.2, 0.0, 0.1, 0.6, -2.2
- Primary deficit (selected years): -1.6, 0.7, -0.8, -2.9, -0.9, 0.1, 0.5, 0.2, 0.2, 1.1, 1.2, 0.7, 0.0
- Revenue and grants (in percent of GDP) (selected years): 13.2, 12.8, 16.6, 20.9, 19.1, 17.4, 17.0, 17.2, 17.3, 16.9, 16.0, 13.6, 17.6
- Primary (noninterest) expenditure (in percent of GDP) (selected years): 11.6, 13.5, 15.9, 18.0, 18.1, 17.5, 17.5, 17.5, 17.5, 18.0, 17.2, 14.3, 17.6
- PV of public debt-to-GDP ratio (selected years): 31.2, 27.1, 23.6, 22.4, 20.8, 18.9, 17.1, 12.8, 15.8
- PV of public debt-to-revenue and grants ratio (selected years): 187.7, 129.8, 123.8, 128.2, 122.2, 110.1, 99.0, 86.5, 75.8
- Debt service-to-revenue and grants ratio 3/ (selected years): 14.0, 9.2, 18.6, 19.7, 14.4, 8.7, 11.3, 12.0, 14.5, 9.2, 7.7
- Gross financing need 4/ (selected years): -0.3, 1.7, 2.3, 1.2, 1.8, 1.6, 2.3, 2.3, 2.7, 2.6, 2.4

### Stress tests, sensitivity analysis, and risks
- The DSA presents standardized and tailored stress tests; the most extreme stress test is the one that yields the highest ratio in or before 2029.
- Selected sensitivity results for PV of PPG external debt-to-GDP ratio (percent) (2019–2029 baseline and scenarios): Baseline 17.0, 15.8, 15.5, 14.9, 13.9, 12.8, 11.5, 10.8, 10.5, 10.6, 10.9; Alternative scenarios and bound tests present higher ratios under key-variable shocks (e.g., A1, A2, B1–B6, C1).
- Selected sensitivity results for PV of debt-to-exports ratio (2019–2029 baseline and scenarios): Baseline 109.7, 103.7, 102.8, 101.0, 97.4, 92.7, 83.3, 77.7, 74.6, 74.6, 76.5; alternative scenarios show potential increases well above thresholds.
- Debt service-to-exports and debt service-to-revenue ratios show vulnerability under some bound tests; examples (baseline): Debt service-to-exports 6.9, 5.4, 5.4, 7.0, 7.8, 10.9, 11.8, 10.6, 8.9, 7.0, 4.7; Debt service-to-revenue 10.8, 8.1, 7.8, 9.6, 10.2, 13.4, 14.2, 12.7, 10.6, 8.3, 5.5.
- Table 3 and Table 4 provide extensive sensitivity analysis for alternative scenarios (e.g., Low Grant Financing), bound tests (Real GDP growth, Primary balance, Exports, One-time 30 percent nominal depreciation), and tailored tests (Combined contingent liabilities), showing varying degrees of deterioration in debt indicators under adverse shocks.

### Policy implications and recommended actions (implied by authorities' statements and DSA)
- Prioritize mobilizing grant financing and maintain high grant-equivalent financing shares to limit debt-creating flows.
- Strengthen debt monitoring and coverage, including SOEs, and clarify unverified domestic arrears to improve the accuracy of debt statistics and risk assessment.
- Improve public debt management capacity and transparency, including timely publication of debt reports (e.g., 2018 debt report by end-July 2019).
- Monitor vulnerabilities highlighted in stress tests (growth shocks, export shocks, low grant financing, contingent liabilities) and prepare contingency financing strategies given limited capacity to service debt.

*Sources: Country authorities; and staff estimates and projections.*

### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### CENTRAL AFRICAN REPUBLIC — SIXTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA AND FINANCING ASSURANCES REVIEW — SUPPLEMENTARY INFORMATION

### Background and purpose
- Supplement provides staff’s assessment of the Fund’s ability to provide financing to the Central African Republic (C.A.R.) notwithstanding official bilateral external arrears to Libya.
- Staff has not yet received consent from the Libyan authorities but assesses that the Fund can nevertheless provide financing to C.A.R. under the Fund’s lending-into-official-arrears (LIOA) policy.
- Staff continues to recommend completion of the Sixth Review under the Extended Credit Facility arrangement notwithstanding official bilateral arrears to Libya.

### Assessment under the Lending-into-Arrears (LIOA) policy
- Staff assesses that the conditions are met for the Fund to provide financing to C.A.R. notwithstanding outstanding arrears to Libya.
- Key elements of the assessment:
  - Prompt financial support from the Fund is considered essential and the member is pursuing appropriate policies. Rationale: support is needed to cover the protracted balance of payment need, catalyze external support, and support program implementation under the ECF-supported program covering 2016-19.
  - The debtor is making good faith efforts to reach agreement with the creditor:
    - C.A.R. authorities have contacted Libyan authorities bilaterally through letters and meetings (most recently in March 2019 in Tunis), following the 2009 HIPC agreement, offering substantive dialogue and sharing relevant information on a timely basis.
    - Authorities are committed to continue good faith efforts until remaining arrears are resolved.
  - Terms offered by C.A.R. to Libya are in line with financing and debt objectives of the Fund-supported program and would not result in contributions that exceed program requirements.
    - Authorities are seeking from Libya HIPC terms of 94 percent debt cancellation (terms comparable to those sought from other official bilateral creditors at HIPC time).
  - Decision to provide financing despite arrears is not expected to have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases:
    - The contribution sought from Libya did not account for the majority of financing contributions required in the HIPC context.
    - Libya’s historical contributions: 5 HIPC restructurings out of its total 18 Completion-Point debtors.
    - Strong international community support for the C.A.R. program and authorities’ ongoing efforts to resolve arrears mitigate risks.

### Recent economic developments, program performance, and outlook
- Recent developments:
  - Economy growth: 3.8 percent in 2018 compared to 4.5 percent in 2017.
  - Inflation: declined to 1.6 percent in 2018 from 4.5 percent in 2017.
  - Current account deficit: remained at around 8 percent of GDP in 2018.
  - Fiscal balance: fiscal surplus of 0.4 percent of GDP in 2018 compared to a deficit of 1.1 percent in 2017.
  - Public debt: 48.8 percent of GDP in 2018 compared to 49.4 percent in 2017.
- Program performance:
  - All quantitative performance criteria (PC) except two were met at end-December 2018, including continuous criteria on contracting or guaranteeing new external non-concessional debt and on non-accumulation of external payment arrears.
  - One missed PC on domestic arrears repayment was missed by a very small margin.
  - Priority social spending reached CFA 37 billion, exceeding the target by CFA 7 billion.
  - Spending through extraordinary procedures declined from 24 percent in 2017 to 10 percent in the first quarter of 2019, although it exceeded the 5-percent target.
  - At end-March 2019, two of the five structural benchmarks (SBs) were met; two SBs were implemented with delay; the remaining SB (elimination of parafiscal taxes without economic justification) is intended to be completed by end-December 2019.
- Outlook and risks:
  - Real GDP is expected to average 5 percent over the medium-term, supported by forestry, agriculture, diamond, construction and telecommunications, and increased investments in energy production.
  - Inflation is projected to remain below the regional convergence criterion.
  - Downside risks: security conditions, weak human capacity, delays in development partners’ support, worsening global trade tensions, increase in international oil prices.
  - Upside risks: successful implementation of the peace agreement, progress in DDR process, restoration of state authority, catalyzing investment projects and economic activities.
  - Humanitarian context: refugees and internally-displaced persons represent more than 20 percent of the population.

### Policy and reform agenda for the medium-term
- Fiscal policy:
  - Government submitted a draft supplementary budget targeting a domestic primary fiscal deficit of 2.5 percent of GDP.
  - Focus on prudent fiscal policy considering peace agreement, military and defense programming laws, deployment of public administration, and other priorities.
  - Revenue mobilization measures: streamline exemptions, strengthen VAT collection, reinforce IT systems (ASYCUDA and SYSTEMIF) in customs and tax administrations, upgrade customs offices, ensure appropriate collection of timber exports revenue.
  - Authorities call on development partners to deliver budgetary support commitments swiftly.
  - Expenditure priorities: continued priority to social spending; address humanitarian and fiscal challenges from refugees and internally-displaced persons.
  - Parafiscal taxation reform: transfer all taxes to the Treasury Single Account (TSA); completion expected by end-December 2019 though reform requires more time for audits of all public agencies.
- Debt management:
  - Significant progress in strengthening institutional and operational debt management frameworks.
  - Government committed to limit borrowing to highly concessional financing given high risk of debt distress.
  - Since the Fifth Review, no new non-concessional loan has been contracted by the government or state enterprises.
  - Authorities continue negotiations with official creditors in good faith to clear remaining external arrears.
  - Domestic arrears: repayment exceeded the target of CFA 7.5 billion by nearly 15 percent.
- Financial sector:
  - Improved economy and enhanced supervision by COBAC have strengthened financial sector soundness.
  - Banking system is liquid and well capitalized.
  - Non-performing loans declined to 15.6 percent in 2018 from 22.9 percent in 2017.
  - Banks broadly complied with prudential and governance standards and are implementing COBAC recommendations; progress on internal control and AML/CFT issues.
- Capacity building:
  - IMF and development partners’ capacity building has effectively complemented ECF support.
  - Authorities value the IMF’s technical assistance, particularly the Capacity Building Framework (CBF) pilot project.
  - Continued assistance sought for customs administration, debt management, High Authority for Good Governance (HAGG) expertise, and budgetary procedures.
- Promoting good governance and business climate:
  - Authorities prioritize transparency, good governance, and improving the business environment.
  - Implementation of national strategy for good governance developed by HAGG with UNDP support.
  - IMF technical assistance sought in fiscal governance, anti-corruption strategy, AML/CFT; draft law on asset declaration for senior officials under preparation.
  - Reforms planned: strengthen judiciary, simplify forestry taxation, enhance extractive industry transparency, create a credit bureau and arbitration center, revise labor and mining codes with World Bank support.

### Conclusion and authorities’ request
- Authorities report significant inroads in implementing the ECF-supported program.
- Authorities request Board support for:
  - Completion of the Sixth Review of the ECF Arrangement.
  - Waivers of non-observance of the end-December 2018 performance criteria.
- Authorities express interest in a successor arrangement to consolidate results and support continued implementation of economic development policies.

*Prepared By The African Department; June 24, 2019.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2019/1cafea2019001.pdf_