## 1cafea2021002

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### Executive summary and context
- Covid-19 substantially impacted C.A.R.’s economy but appears somewhat contained; containment measures progressively loosened.
- Security remains precarious despite February 2019 peace agreement progress; disarmament slow in the west; armed groups operate outside Bangui.
- Persons in need of humanitarian aid estimated at 2.9 million (about 60 percent of population) at end-July.
- Elections: first round of presidential and general elections scheduled on December 27; Constitutional Court decision on December 3 invalidated former President Bozizé’s candidacy.
- Apparent low Covid-19 incidence may reflect limited testing and demographic factors:
  - median age: 19.7 years
  - life expectancy: 52.8 years
- Seroprevalence: more than 25 percent of people treated for unrelated conditions had antibodies.

### Program performance and IMF staff position
- Program performance: most quantitative performance criteria and structural benchmarks missed; implementation improved in recent months.
- Staff supports completion of the first and second reviews under the ECF arrangement and waivers for non-observance of performance criteria.
- Completion of this review will release a disbursement equivalent to SDR 23.87 million.

### Macroeconomic outlook and key projections
- Short-term outlook worsened; growth:
  - Growth projected at zero in 2020 (versus 5 percent at ECF request and 1 percent at RCF request).
  - Growth limited to 3½ percent in 2021.
  - Medium term: growth could reach 5 percent under steady implementation of the peace agreement and reforms.
- Inflation: expected to remain under 3 percent.
- Current account: external current account deficit to narrow to about 5½ percent of GDP in the medium term.
- Risks: sizeable and skewed to the downside; uncertainty for end-2020 and early 2021 due to pandemic and volatile security environment.

### Key recent economic developments
- H1 2020 activity: trade, transport, tourism, hospitality, and mining hit hard; food crops, forestry, and telecommunications more resilient.
- 2020 projection: economic activity projected to stagnate in 2020 as containment measures are relaxed.
- Inflation: food inflation from Q2 supply disruptions; annual average expected below 3 percent.
- External sector: exports and imports declined in H1 2020; wood exports saw sharp price drops; formal diamond exports nearly stopped.

### Fiscal developments and Covid-19 response
- Fiscal performance in first three quarters of 2020 broadly in line with RCF disbursement projections.
- Domestic revenue fell in H1 2020; domestic revenue have since started to recover.
- Supplementary 2020 budget law (approved July 9) broadly consistent with RCF.
- Covid-related spending: CFAF 15.8 billion (1.2 percent of GDP):
  - Covid prevention, containment and management: CFAF 11.85 billion (0.87 percent of GDP)
    - Response plan (Health Ministry): CFAF 9.95 billion (0.73 percent of GDP)
    - Boreholes construction: CFAF 1.20 billion (0.09 percent of GDP)
    - Road rehabilitation works: CFAF 0.70 billion (0.05 percent of GDP)
  - Transfers to households: CFAF 0.50 billion (0.04 percent of GDP)
  - Transfers to small businesses: CFAF 2.60 billion (0.19 percent of GDP)
- Parliament increased non-Covid-related expenditures by about CFAF 3 billion (0.2 percent of GDP).
- Identified savings: CFAF 7 billion in non-priority expenditures to contain non Covid-related spending.

### Banking sector and financial soundness
- Banking sector remained profitable and well capitalized despite liquidity declines and slight NPL rebound:
  - Capital adequacy ratio: 28 percent in May 2020 (30 percent in December 2019).
  - Liquidity ratio: 132 percent in May 2020 (165 percent in December 2019).
  - Credit to private sector: decreased by 4.8 percent y-o-y in June 2020.
  - Non-performing loans: 13.7 percent of total loans in May 2020 (12.6 percent in December 2019).
- Financial Soundness Indicators (selected):
  - Total bank regulatory capital to risk-weighted assets: 28.0 (May-20 series end).
  - Liquid assets to short-term liabilities: 132.6 (May-20).

### Structural reforms, governance, and PFM measures
- Progress despite TA delivery constraints:
  - Inter-ministerial committee to monitor Covid expenditures established; publishes spending and public contracts.
  - Strengthened PFM: daily reconciliation of tax estimates; adopted secondary legislation for new legal framework for public entities (late); electronic salary payments rolled out in 10 localities.
  - Digitalization in tax and customs: e-filing and e-payment deployment to large companies (end-December structural benchmark); SYSTEMIF capture of 2018–2019 tax returns finalized in November (missed end-June SB).
  - Recruited new service provider in June to assist certifying and securing timber export revenues (missed end-January SB).
  - Draft asset declaration law submitted to Parliament (missed end-September SB); draft not fully consistent with international good practices and to be amended.
  - Business environment: new labor code submitted to Parliament; draft mining code work underway with World Bank and AfDB; e-commerce guide prepared.

### Oversight and transparency of Covid-19 expenditures
- July 2020 ministerial decree established a committee chaired by the Minister of Finance with observers from development partners and civil society.
- Committee duties:
  - Monthly monitoring of government and donor Covid-related expenditures against plans.
  - Supervision of expenditure procedures; recommendations to improve efficiency and transparency.
  - Covid-related expenditures to be audited; Procurement Directorate to publish tenders, selection criteria, and selected enterprises.
  - Independent audits to be done 60 days after end of fiscal year 2020; audit outcome to be published on Ministry of Finance website 15 days after finalization.

### Key policy recommendations and priorities
- Short term:
  - Ensure donor financing is efficiently spent to fight the pandemic.
- Medium term / as situation improves:
  - Sustainably finance C.A.R.’s security, social, and infrastructure needs through:
    - revenue mobilization
    - spending prioritization
    - public financial management (PFM) reforms
  - Promote inclusive growth via governance and business environment reforms.
- Fiscal policy guidance:
  - Use donor emergency financing to finance Covid-related spending and offset domestic revenue loss.
  - 2021 budget law submitted to Parliament consistent with medium-term fiscal objectives under the ECF (prior action).
  - Domestic primary spending limited to about 11 percent of GDP.
  - Domestic primary deficit projected to decline to 4 percent of GDP (from 6¼ percent in 2020) versus medium-term objective of 2½ percent of GDP.
  - Authorities to prioritize grant financing with limited room for concessional loans.

### Revenue mobilization strategy and measures
- Four main axes:
  - Simplify tax system and curb exemptions.
  - Comprehensive revenue administration reforms (management, segmentation, IT, registration, audit).
  - Stakeholder ownership and inclusive policy making.
  - Allow time for reforms to bear fruit (multi-year process).
- Recent outcomes and medium-term prospects:
  - Domestic revenue increase since 2014: from 4.9 to 8.7 percent of GDP (increase of 3.8 percentage points).
  - C.A.R. expected to mobilize about 2 additional percentage points of GDP in revenue over the medium term:
    - ~¾ percent of GDP recovery from pandemic losses in 2020.
    - ~¾ percent of GDP from tax administration improvements.
    - ~½ percent of GDP from nontax revenue and full transfer of parafiscal taxes to the TSA.
- Specific actions:
  - Identify and audit 300 largest importers and 200 largest public procurement beneficiaries; publish audit results by end-June 2021.
  - Extend e-filing and e-payment to SMEs by end-2021.
  - Interconnect Douala, Berberati, and border customs posts with central services in Bangui early 2021.
  - Secure imports transiting through Douala via warehousing and pre-departure duty payment procedures.
  - Valuation and export securing service providers hired; priorities include full digitalization and reconciliation between customs and tax administration.

### Debt, financing prospects, and capacity to repay
- Program for next 12 months fully financed; projected Fund disbursements under ECF expected to follow original schedule.
- Authorities participating in G-20 DSSI and intend to request extension through first half of 2021.
- Capacity to repay Fund remains adequate but subject to risks:
  - C.A.R. at high risk of debt distress.
  - Fund accounts for about one third of external debt in 2020.
  - Debt repayments to Fund peak in 2027 at 12.8 percent of domestic revenue (Table 8).
- Financing and budget support (selected commitments/projections):
  - Expected budget support (grants): 77.7 53.3 50.0 45.0 40.0 35.4 (series)
  - IMF disbursements under ECF: schedule of SDR 11.936 million per tranche; total SDR 83.55 million (75.0 percent of quota).
- Total financing requirements and components (selected, CFAF billions where applicable):
  - Total financing requirements: 222.9 187.1 165.5 173.8 186.5 199.8
  - Current account deficit (excl. budget support): 180.6 141.4 137.3 137.4 139.4 143.0
  - Debt amortization: 6.8 5.6 7.0 3.5 4.9 5.9
  - Repayment to the Fund: 4.9 4.0 8.5 13.6 20.2 25.8
- Residual financing gap (selected): 39.0 42.8 17.9 -0.7 -0.7 0.0
- Identified financing sources include ECF, RCF, CCRT, and donor budget support.

### Debt sustainability and risks
- Joint Bank-Fund DSA: risk of external debt distress — High; overall risk of debt distress — High.
- Public sector debt (percent of GDP) selected path:
  - 2019: 47.2
  - 2020: 46.8
  - 2021: 44.1
  - Medium term: decline to 35.8 (projection entries present across tables).
- Key vulnerabilities:
  - Solvency indicators deteriorated; liquidity indicators breach thresholds under baseline.
  - External debt service-to-exports and debt service-to-revenue ratios rise and may breach thresholds in 2022–28 due to postponed DSSI repayments and Fund repayments.
  - Stress tests show sensitivity to negative shocks (growth, exports, contingent liabilities).
- Authorities commit to heavy reliance on grant financing and prudent borrowing.

### Alternative downside scenario (Annex II / III)
- Scenario assumptions: more severe and protracted pandemic and increased insecurity.
- Impacts (selected):
  - Growth under alternative: 2020 = -1.0 (baseline 0.0); 2021 = 1.0 (baseline 3.5).
  - Domestic primary fiscal deficit higher by about ¾ ppt in 2020 and 2 ppt in 2021 versus baseline.
  - Public debt-to-GDP ratio under alternative at end-2023: 43 ½ percent (baseline 38.8 percent).
  - Current account deteriorates further owing to lower private transfers and lower net capital flows.
- Policy implication: additional grant financing and cuts in non-priority spending may be required.

### Program monitoring, conditionality, and prior actions
- Proposed QPCs: domestic government financing, domestic revenue, and primary fiscal balance; repayment of domestic arrears to be an indicative target.
- Prior actions for review:
  - Submission to Parliament of a 2021 draft budget law in line with program commitments (Met).
  - Capture all 2018 and 2019 corporate tax returns into SYSTEMIF IT (Met).
  - Submission to Parliament of draft law aligning asset declaration regime with international good practices (Prior Action; to be amended).
- Structural benchmarks and proposed new SBs (selected deadlines and actions):
  - Publish an independent audit of Covid-19 spending by end-April 2021.
  - Enact elimination of seven remaining public agencies without economic justification by end-April 2021.
  - Submit new anti-corruption law to National Assembly by end-June 2021.
  - Publish results of tax audits by end-June 2021.
  - Mandate online publication of procurement contracts > CFAF 5 million within 30 days by end-September 2021.

### Capacity development and technical assistance
- TA delivery constrained by pandemic; virtual TA provided on revenue administration, Treasury, macro statistics, and asset declaration.
- Authorities requested customized TA on Financial Programming and Policies to be delivered virtually in March 2021.
- Continued donor technical assistance essential, including World Bank support for GES’CO use pending SIM-BA rollout.

### Risk Assessment Matrix (selected risks and policy responses)
- Unexpected shift in Covid-19 pandemic: Relative Likelihood — High; Impact — High; Policy Response — Prioritize spending and mobilize additional grant financing.
- Widespread social discontent and political instability: Relative Likelihood — High; Impact — Medium; Policy Response — Intensify structural reform and improve business environment.
- Deterioration of security situation: Relative Likelihood — High; Impact — High; Policy Response — Make room for more security-related spending and accelerate RCPCA implementation.
- Limited institutional capacity and delayed aid delivery: Relative Likelihood — High/Medium; Impact — High/Medium; Policy Response — Strengthen TA effectiveness and communication of needs.

### Selected quantitative tables and series (high-frequency highlights)
- Real GDP (annual percentage change) sample series: 3.8 4.5 3.0 5.0 1.0 0.0 5.0 4.0 3.5 5.0 5.0 5.0 5.0
- Inflation (end of year) sample series: 4.6 -0.3 -2.8 2.5 3.5 3.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5
- Current account balance (percent of GDP) sample series: -8.0 -5.6 -4.9 -6.3 -5.7 -7.6 -5.3 -5.2 -6.1 -5.6 -5.5 -5.5 -5.6
- Overall fiscal balance (incl. grants, percent of GDP) sample series: -1.0 1.8 1.4 -0.4 -2.1 -2.5 0.2 0.4 -1.3 -0.4 -0.6 -1.1 -1.6
- Public sector debt (percent of GDP) sample series: 50.0 47.1 47.2 42.6 47.1 46.8 39.8 44.5 44.1 40.9 38.8 37.2 35.8
- Central government cash flows (CFAF billions) selected: Total revenue: 210.5 263.2 244.8 271.7 269.9 296.2 290.6 278.5 259.4 283.6 302.2 318.5 336.9.

*IMF staff report, December 21, 2020; IMF staff supplement and statements, January 8 and January 12, 2021.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The Covid-19 pandemic had a substantial impact on C.A.R.’s economy but appears now somewhat contained. The number of positive cases and related deaths has been very limited over the last few months, even though most containment measures have been progressively loosened.
- Security remains precarious despite some progress since the February 2019 peace agreement. Disarmament of ex-combatants has been slowly progressing in the west, but armed groups still operate in most of the country outside Bangui. The number of persons in need of humanitarian aid was estimated at 2.9 million, or about 60 percent of total population, at end-July.
- Despite some delays in voter registration, the first round of the presidential and general elections is still scheduled on December 27. The Constitutional court’s decision on December 3 to invalidate the candidacy of former President Bozizé might heighten tensions in the run-up to the presidential election.
- The apparent low Covid-19 incidence and morbidity may reflect limited testing (now limited to “suspect” cases) and C.A.R.-specific factors such as:
  - median age: 19.7 years
  - life expectancy: 52.8 years
- The high rate of people with antibodies (more than 25 percent of people treated for unrelated conditions) suggests the health impact may not be as severe as initially feared.

### Program performance
- The pandemic and early shortfalls in policy implementation have substantially affected program performance, with most quantitative performance criteria and structural benchmarks missed.
- Program implementation improved over recent months with fiscal developments broadly in line with the April 2020 RCF projections and substantial progress in implementing structural reforms.

### Macroeconomic prospects and risks
- Short-term outlook has worsened further, reflecting the longer-than-expected economic impact of the pandemic.
- Under assumptions of steady implementation of the peace agreement and of the reforms envisaged under the program, growth would gradually recover over the medium term.
- Inflation would remain contained, while the external current account deficit would decline.
- Risks to this outlook are sizeable and skewed to the downside; risks to the program remain elevated.

### Key recent developments (economic)
- Economic activity in the first half of 2020: trade, transport, tourism, hospitality, and mining hit hard; food crops, forestry, and telecommunications more resilient.
- 2020 projection: economic activity is projected to stagnate in 2020 as containment measures are relaxed.
- Inflation: contributed by food inflation due to supply disruptions in Q2; inflation is expected to remain below 3 percent this year.
- External sector: exports and imports declined in first half of 2020; wood exports suffered a sharp drop in prices; formal diamond exports came to a near stop.

### Fiscal developments and COVID-19 response
- Fiscal developments in first three quarters of 2020 were broadly in line with RCF disbursement projections.
- Domestic revenue fell in H1 2020 due to containment measures, tax administration constraints, temporary suspension of 2020 tax measures, and difficulties mobilizing revenues from public agencies; domestic revenue have since started to recover.
- Current and capital spending were slightly lower than levels envisaged in April (but above the ECF projections), with lower transfers and purchases of goods and services only partly offset by regularization of some unregistered 2019 expenditures.
- The supplementary 2020 budget law (approved July 9) was broadly consistent with RCF. Additional emergency financing from IMF and World Bank was used to finance Covid-related spending and compensate for domestic revenue shortfall.
- Covid-related spending amounted to CFAF 15.8 billion (1.2 percent of GDP), focused on:
  - Covid prevention, containment and management: CFAF 11.85 billion (0.87 percent of GDP)
    - Response plan (Health Ministry): CFAF 9.95 billion (0.73 percent of GDP)
    - Boreholes construction: CFAF 1.20 billion (0.09 percent of GDP)
    - Road rehabilitation works: CFAF 0.70 billion (0.05 percent of GDP)
  - Transfers to households: CFAF 0.50 billion (0.04 percent of GDP)
  - Transfers to small businesses: CFAF 2.60 billion (0.19 percent of GDP)
- Parliament increased non-Covid-related expenditures by about CFAF 3 billion (0.2 percent of GDP).

### Banking sector
- Banking sector remained profitable and well capitalized despite declines in liquidity and a slight rebound in non-performing loans:
  - Capital adequacy ratio: 28 percent in May 2020 (compared to 30 percent in December 2019).
  - Liquidity ratio: declined to 132 percent in May 2020 (from 165 percent in December 2019).
  - Credit to the private sector: decreased by 4.8 percent y-o-y in June 2020.
  - Non-performing loans: increased from 12.6 percent of total loans in December 2019 to 13.7 percent in May 2020.

### Structural reforms and institutional measures
- Significant progress despite TA delivery constraints:
  - Established an inter-ministerial committee to monitor Covid-related expenditures; committee publishes data on actual spending and public contracts.
  - Strengthened public financial management: daily reconciliation of tax revenue estimates; adopted secondary legislation for new legal framework for public institutions and enterprises (missed end-March structural benchmark).
  - Instruction for public accountants assigned to agencies to control taxpayer compliance and enforce collection; electronic payment of civil servants’ salaries rolled out in 10 localities and being developed in Bangui for defense and security forces.
  - Rolling-out of SIM-BA delayed to 2022 due to Covid-related TA constraints.
  - Enhanced tax and customs administration through digitalization: e-filing and e-payment deployment to large companies expected to be completed on time (end-December structural benchmark); interconnection of Douala’s and border customs posts and transition to ASYCUDA world ongoing; SYSTEMIF capture of 2018–2019 tax returns (missed end-June structural benchmark) finalized in November.
  - Recruited new service provider in June to assist certifying and securing timber export revenues (missed end-January structural benchmark).
  - Published Fund governance diagnostic report and submitted a draft law to strengthen the asset declaration regime to Parliament (submission missed end-September structural benchmark; draft not fully consistent with international good practices; planned amendments with continued Fund TA).
  - Business environment reforms: new labor code submitted to Parliament (caps indemnities for unfair dismissal; includes penalties for sexual harassment); work underway to bring draft mining code in line with international standards with World Bank and AfDB input; e-commerce guide prepared and available on the Ministry of Finance website.

### Oversight of COVID-19 expenditures
- A July 2020 ministerial decree (with World Bank support) established a committee to supervise COVID19-related expenditures. Committee composition and duties:
  - Chaired by the Minister of Finance with representatives from key spending agencies and expenditure supervision agencies, observers from development partners and civil society.
  - Monitors government and donor COVID19-related expenditures monthly against disbursement plans and execution; supervises application of expenditure execution procedures; makes recommendations to improve efficiency and transparency.
  - Covid-related expenditures will be audited. Procurement Directorate to publish tenders, selection criteria, and selected enterprises.
  - Government-executed spending will follow normal procedures. Independent audits to be done 60 days after end of fiscal year 2020; audit outcome to be published on the Ministry of Finance website 15 days after finalization.

### Key policy recommendations
- Short term:
  - Ensure donor financing is efficiently spent to fight the pandemic.
- Medium term / as situation improves:
  - Sustainably finance C.A.R.’s security, social, and infrastructure spending needs through:
    - revenue mobilization
    - spending prioritization
    - PFM (public financial management) reforms
  - Promote inclusive growth through governance and business environment reforms.

### IMF staff position and financing
- Staff supports completion of the first and second reviews under the ECF arrangement and the authorities’ request for waivers for the non-observance of performance criteria.
- Completion of this review will release a disbursement equivalent to SDR 23.87 million.

*IMF staff report, December 21, 2020.*

### 9.      While implementation of quantitative conditionality fell short of program

### 1cafea2021002 - 9.      While implementation of quantitative conditionality fell short of program

### Implementation of quantitative conditionality and performance
- Quantitative performance was below expectations due to low domestic revenue, high government spending, and delayed domestic arrears repayments.
- All end-December PCs and the end-June fiscal PCs on domestic revenue, the domestic primary fiscal balance and the reduction on domestic payment arrears were missed.
- Met or achieved:
  - End-June indicative targets on social spending (met).
  - End-June indicative target on the recourse to exceptional spending procedures (met).
  - Continuous performance criterion on the contracting or guaranteeing of new external non concessional debt (met).
- Breaches and corrective details:
  - The continuous performance criterion on the non-accumulation of external arrears was temporarily breached: payment of about $200,000 due to IFAD in April was made only in September owing to insufficient coordination between the Treasury directorate and debt unit.
- Drivers of end-June performance: impact of the pandemic on customs and tax revenue and additional spending to contain it.
- Recent fiscal performance broadly in line with RCF projections: domestic revenues well on their way to meet the proposed end-2020 revenue PC and increased spending focused on fighting the pandemic (MEFP ¶6).

### Structural Benchmarks (SBs) and reforms progress
- Overall progress: One SB met on time, three implemented with delay, and strong progress on the last SB.
- SB met on time (end-June): Submission to Parliament of a draft supplementary budget providing for the elimination of the seven remaining public agencies without economic justification (Parliament rejected elimination pending socio-economic impact assessment).
- Missed end-January SB: Hiring in January of Webb Fontaine to help customs with valuation of imports; authorities hired another service provider in May to certify and secure timber export revenues.
- Missed end-March SB: Secondary legislation to support implementation of the new legal framework for public and para-public institutions and enterprises adopted in early October.
- Missed end-June SB and prior action: 2018 and 2019 corporate tax returns entered into the SYSTEMIF IT system.
- Missed end-September SB and prior action: Draft law to strengthen asset declaration regime submitted to Parliament but requires amendments to align with international good practices.

### Short-term outlook and medium-term projections
- Growth projections:
  - Growth projected at zero in 2020 (compared with 5 percent at the time of the ECF request and 1 percent when the RCF was requested).
  - Growth limited to 3½ percent in 2021.
  - Under steady implementation of peace agreement and reforms, growth would increase over the medium term to reach 5 percent.
- Inflation: would remain under 3 percent.
- External current account deficit: would narrow to about 5½ percent of GDP in the medium term largely due to lower imports and higher exports.
- Risks: sizeable and skewed to the downside; uncertainty for end-2020 and early 2021 due to possible worsening pandemic and volatile security environment (tensions could intensify in the run-up to the elections).
- Upside risks: milder pandemic impact (e.g., rapid vaccine availability) and faster implementation of structural reforms and the peace agreement after elections.
- Alternative scenario (Annex II): assumes a more severe and protracted pandemic and increased insecurity, deepening the crisis, delaying recovery, depressing investor sentiment, mounting pressure on fiscal and external accounts, and requiring additional grant financing and cuts in non-priority spending.

### Key medium-term quantitative indicators (selected from Text Table 2)
- Real GDP (annual percentage change): 3.8 4.5 3.0 5.0 1.0 0.0 5.0 4.0 3.5 5.0 5.0 5.0 5.0
- Inflation (end of year): 4.6 -0.3 -2.8 2.5 3.5 3.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5
- Current account balance (percent of GDP): -8.0 -5.6 -4.9 -6.3 -5.7 -7.6 -5.3 -5.2 -6.1 -5.6 -5.5 -5.5 -5.6
- Overall fiscal balance (incl. grants, percent of GDP): -1.0 1.8 1.4 -0.4 -2.1 -2.5 0.2 0.4 -1.3 -0.4 -0.6 -1.1 -1.6
- Domestic primary fiscal balance (percent of GDP)1: -1.7 -3.0 -3.5 -2.7 -5.8 -6.2 -2.5 -2.5 -4.0 -2.8 -2.5 -2.5 -2.5
- Public sector debt (percent of GDP): 50.0 47.1 47.2 42.6 47.1 46.8 39.8 44.5 44.1 40.9 38.8 37.2 35.8
- Budget support (percent of GDP): 3.0 6.0 6.0 3.7 5.2 5.7 3.4 3.7 3.7 3.7 3.2 2.7 2.2 1.8
  - Note 1: Excludes grants, interest payments, and externally-financed capital expenditures.

### Policy priorities and fiscal policy measures
- Short-term focus: fighting the pandemic and supporting a swift recovery while maintaining macroeconomic stability, improving governance, and addressing protracted balance of payments needs.
- Use of donor emergency financing: to finance necessary Covid-related spending and offset domestic revenue loss.
- Supplementary budget allocations: strengthen health sector and alleviate impact on vulnerable households and enterprises.
- Oversight: committee supervising COVID19-related expenditures to publish monthly execution data and tender results.
- Identified savings: CFAF 7 billion in non-priority expenditures to contain non Covid-related spending (these savings will offset most of additional non-Covid-related spending introduced by Parliament and higher-than-expected 2019 budget expenditures implemented in 2020).
- 2021 budget law: submitted to Parliament consistent with medium-term fiscal objectives under the ECF and based on realistic revenue assumptions (prior action).
- Revenue expectations: rebound partially due to economic recovery, normalization and strengthening of tax administration, and full-year impact of 2020 fiscal measures.
- Domestic primary spending: limited to about 11 percent of GDP (similar to pre-pandemic envisaged level for 2020).
- Domestic primary deficit: would decline to 4 percent of GDP, from 6¼ percent of GDP in 2020 and compared with a medium-term objective of 2½ percent of GDP.
- Debt stance: while at high risk of debt distress, debt level assessed to remain sustainable; authorities to prioritize grant financing with limited room for concessional loans.

### Structural fiscal issues and reforms (detailed measures)
- Transparency and efficiency of Covid-related spending:
  - Committee to continue publishing monthly data and tender results.
  - Court of Auditors to conduct an audit of these expenditures to be published by end-April 2021 (proposed new SB, MEFP ¶24).
- PFM reforms and arrears:
  - Strengthen budget process, consolidate TSA, and reduce arrears.
  - Due to delays rolling out SIM-BA, World Bank TA requested to prolong use of existing system GESCO.
  - Authorities intend to repay all domestic arrears by end-2021, including about CFAF 4 billion in recently identified arrears (about CFAF 1 billion in pensions arrears, CFAF 2 billion in salary arrears to former state agents of Bangui Municipality and Parliament, and CFAF 1 billion in commercial arrears).
  - Streamline administrative process for retirement of civil servants to avoid pension arrears.
  - Extend electronic payment of salaries to all defense and security forces and then to national education and health sector personnel.
  - Improve coordination between debt unit and Treasury directorate: debt service to send official reminder note to Treasury directorate no less than one month before each external debt due date (MEFP ¶25).
- Enhancing spending efficiency and transparency:
  - Elimination of public agencies without economic justification to be enacted by end-April (proposed new SB).
  - World Bank to review government’s social spending for efficiency.
  - Mandate online publication of full text of procurement contracts > CFAF 5 million within 30 days of award, including names of beneficial owners (proposed new end-September 2021 SB, MEFP ¶24).
- Strengthening domestic revenue mobilization through digitalization and coordination:
  - Tax directorate to identify by end-year 300 largest importers and 200 largest beneficiaries of public tenders; audits of those without valid fiscal identification number or inconsistent turnover; audit results to be published by end-June 2021 (proposed new SB, MEFP ¶27).
  - Extend e-filling and e-payment to small- and medium-size enterprises (MEFP ¶27).
  - Monthly meetings between service provider and customs department to reconcile import valuations; finalize early 2021 interconnection between Douala, Berberati, and other border customs posts with central services in Bangui (MEFP ¶27). Authorities committed to verify use of imported goods exempt from custom duties.
- Public sector oversight:
  - Finalize legal framework for public entities and enterprises; publish financial statements of some of the largest public enterprises by September 2022.

### Other structural reforms, governance, and financial sector
- Business environment and mining:
  - Draft mining code to be submitted to government and then to Parliament in the first half of 2021 after AfDB and World Bank comments accommodated.
  - World Bank assistance requested to assess parafiscal taxes on telecommunications companies and their impact on digitalization strategy.
  - Review and eliminate unjustified direct taxes/fees levied by line ministries and transfer others to TSA (MEFP ¶29).
- Anti-corruption and governance:
  - Fund, World Bank, and UNODC assisted in drafting an anti-corruption action plan informed by governance diagnostic recommendations; plan calls for strengthening powers of HABG (MEFP ¶28).
  - Draft new anti-corruption law to be submitted to Parliament (proposed new SB); law to align anti-corruption framework with international good practices (MEFP ¶28).
  - Once asset declaration law is adopted, authorities will issue implementing decree(s) in consultation with Fund staff.
- Financial sector reforms and inclusion:
  - Banking sector FSIs relatively strong but financial inclusion very weak.
  - ETNC (replacing NCC) to implement recommendations from 2017 COBAC mission and 2018 joint conference to enhance trust between financial sector and authorities.
  - Authorities committed to enhance financial inclusion and tax collection via mobile and online banking and establishment of a co-financing mechanism for commercial loans to SMEs.

### Capacity development and program issues
- Capacity Development (CD):
  - Fund continues to support implementation of CD Strategy; no new short-term CD priority needs emerged due to pandemic.
  - Authorities expressed interest in customized TA on Financial Programming and Policies to be delivered virtually in March 2021.
- TA delivery:
  - Physical TA missions suspended; TA delivered virtually on revenue administration, Treasury processes, macro-economic statistics, and asset declaration, with limited internet access complicating virtual delivery.
- Program waivers and corrective actions:
  - Authorities request waivers of non-observance of missed end-December and end-June PCs and of the continuous PC on the non-accumulation of arrears, based on corrective actions including:
    - Measures to improve transfer of public agencies’ revenue to TSA and commitments to implement other revenue mobilization measures (¶8 and ¶23).
    - Connection of Treasury directorate to BEAC’s Sygma-Systac system (MEFP, ¶13) to follow liquidity more closely.
    - Envisaged savings to ensure Covid-related expenditures financed sustainably (¶17).
    - Clearance of the external arrears to FIDA and enhanced coordination between debt unit and Treasury directorate (¶9 and ¶20).
    - Submission to Parliament of a 2021 budget law in line with ECF objectives (¶18).

*INTERNATIONAL MONETARY FUND*

### 29.      In view of the large uncertainty surrounding the macroeconomic outlook, it is

### 1cafea2021002 - 29. In view of the large uncertainty surrounding the macroeconomic outlook, it is

### Conditionality and Program Monitoring
- It is proposed that the number of QPCs be brought back to three (domestic government financing, domestic revenue, and primary fiscal balance).
- It is proposed that the current QPC on the repayment of domestic arrears be replaced by an indicative target to allow the authorities more flexibility in addressing potential liquidity issues in an uncertain environment.

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

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

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

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

### Regional Policy Actions and BEAC Measures
- Regional institutions have continued to implement policies and reforms in support of CEMAC countries’ economic programs.
- After easing monetary policy and bank liquidity provision in March, BEAC took additional measures in July, including:
  - (i) a new temporary (6- month) government securities purchase program of CFAF 600 billion for all CEMAC sovereign issuers; and
  - (ii) the resumption of longer-term liquidity injections up to one year for banks on March 2020.
- COBAC informed banks to utilize a capital conservation buffer of 2.5 percent to absorb pandemic-related losses but requested banks to adopt a restrictive dividend distribution policy.
- BEAC provided updated policy assurances in support of CEMAC countries’ Fund-supported programs:
  - Proposed end- December 2020 and end-June 2021 targets for its net foreign assets (NFAs);
  - Commitment to implement a monetary policy consistent with the achievement of these targets.
- BEAC has implemented all priority recommendations from the 2017 safeguards assessment:
  - Its secondary legal instruments were aligned with its amended Charter;
  - The central bank issued its FY 2019 audited financial statements in full compliance with IFRS.

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

### Public Financial Management and Use of Donor Financing
- Authorities focused on ensuring donor financing is efficiently spent to fight the pandemic.
- The supplementary budget channels financing to strengthen the health system’s capacity to respond to the pandemic and alleviate its impact on the most vulnerable households and companies.
- A committee to supervise these expenditures provides an institutional framework for transparent and efficient implementation.
- Audits by the Court of Auditors of these expenditures and publication of related tenders will provide additional safeguards.
- On other PFM reforms, authorities need to:
  - pursue efforts to consolidate the TSA;
  - strengthen expenditure controls and procedures;
  - enhance debt management.

### Medium-Term Objectives and Structural Reforms
- As the situation normalizes, authorities need to step up efforts to ensure the ECF’s broad objectives are met.
- Program underperformance reflects pandemic effects and pre-pandemic shortfalls in revenue collection, spending controls, and reform implementation.
- Recent strengthening of reform and program implementation efforts must continue.
- ECF objectives:
  - ensuring macroeconomic stability and debt sustainability;
  - restoring sustained inclusive growth;
  - addressing C.A.R.’s protracted balance of payments needs.
- Fiscal policy guidance:
  - gradually reducing public debt while ensuring sustainable financing of C.A.R.’s most pressing spending needs.
- Structural reforms will help:
  - enhance domestic revenue mobilization;
  - strengthen public financial management;
  - enhance governance and the business environment.
- Holding peaceful and representative elections will strengthen institutional framework and government legitimacy, aiding peacemaking efforts and reform implementation.

### Domestic Revenue Mobilization and Public Agencies
- Domestic revenue mobilization and reform of public agencies remain essential to sustainably finance public service provision.
- After being stalled by the pandemic, efforts to strengthen tax and customs administration need to redouble.
- Important measures include:
  - digitalize companies’ tax declarations and payments;
  - significantly increase the number of corporate taxpayers;
  - secure imports between Douala and the border with Cameroon.
- Elimination of public agencies without economic justification will create additional fiscal space for priority spending and should not be postponed further.

### Governance, Business Climate, and Legal Reforms
- Authorities need to intensify efforts to tackle governance and business climate issues hindering investment and growth.
- Actions to strengthen the regulatory framework:
  - adoption of the new labor and mining codes;
  - streamlining of parafiscal taxes.
- Key governance measures:
  - adoption and implementation of an asset declaration regime in line with the applicable international good practices;
  - enactment of a new anticorruption law.

### Risks, Contingency, and Donor Support
- Risks to the program remain elevated:
  - A resurgence of the pandemic could threaten the budding economic recovery and stretch public finances.
  - Heightened security tensions, notably if election results were to be disputed, could undermine growth, revenues, and program implementation.
- Authorities have indicated readiness to respond swiftly, through a combination of adjustments and additional financing, if downside risks materialize (see alternative scenario).
- Upside potential:
  - a quicker-than-anticipated global recovery could boost growth;
  - transparent and fair elections could give the new government a strong mandate to accelerate structural reforms and implementation of the peace agreement.
- Sustained grant financing and technical assistance from the donor community remain paramount to the program’s success.
- Given C.A.R.’s high risk of debt distress and considerable uncertainty, authorities should follow a prudent approach to contracting new external debt, prioritizing grant financing with some limited room for concessional financing.

*Source: IMF staff report excerpt.*

### 44.      In this context, and in view of C.A.R.’s balance of payments financing needs, adequate

### 1cafea2021002 - 44.      In this context, and in view of C.A.R.’s balance of payments financing needs, adequate

### Staff recommendations and conditionality
- Staff recommends completion of the first and second reviews under the ECF arrangement and the authorities’ request for waivers for the non-observance of performance criteria.
- Staff proposes that completion of the third review be conditional on the implementation of critical policy assurances at the union level, as established in the December 2020 union-wide background paper.
- Staff also recommends completion of the financing assurances review.

### Medium-term macroeconomic outlook and key projections (selected)
- GDP at constant prices (annual percentage change): 3.8, 4.5, 3.0, 5.0, 1.0, 0.0, 5.0, 4.0, 3.5, 5.0, 5.0, 5.0, 5.0.
- GDP per capita at constant prices (annual percentage change): 2.3, 2.8, 1.3, 3.2, -0.7, -1.8, 3.1, 2.0, 1.5, 3.0, 3.0, 3.0, 3.0.
- GDP deflator (annual percentage change): 1.3, 2.8, 2.4, 2.5, 2.3, 2.0, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5.
- CPI (annual average): 1.6, 3.2, 2.7, 2.5, 1.2, 2.1, 2.5, 2.5, 1.8, 2.5, 2.5, 2.5, 2.5.
- Broad money (annual percentage change): 14.0, 3.2, 8.9, 14.9, 12.3, 7.5, 5.8, 0.8, 10.3, 4.0, 4.7, 6.6, 7.9.
- Credit to the economy (annual percentage change): 11.5, 3.0, -1.0, 5.0, -2.0, -3.0, 7.0, 7.0, 5.0, 8.0, 8.0, 8.0, 8.0.

### Fiscal outlook and public finances (selected)
- Total revenue (including grants, percent of GDP): 16.6, 19.4, 18.3, 18.6, 19.6, 21.8, 18.4, 18.9, 18.0, 18.3, 18.1, 17.7, 17.4.
- Domestic revenue (percent of GDP): 8.9, 8.7, 8.7, 9.7, 8.5, 8.5, 10.0, 10.3, 9.3, 10.2, 10.7, 10.9, 11.1.
- Total expenditure (percent of GDP, cash basis): 17.6, 17.6, 16.9, 19.0, 21.7, 24.3, 18.3, 18.6, 19.3, 18.6, 18.6, 18.8, 19.0.
- Capital expenditure (percent of GDP): 7.4, 7.1, 5.6, 7.9, 8.7, 11.1, 7.2, 7.6, 7.5, 7.3, 7.3, 7.5, 7.6.
- Overall balance excluding grants (percent of GDP): -8.7, -8.9, -8.2, -9.3, -13.1, -15.8, -8.2, -8.3, -10.0, -8.4, -7.9, -8.0, -7.9.
- Overall balance including grants (percent of GDP): -1.0, 1.8, 1.4, -0.4, -2.1, -2.5, 0.2, 0.4, -1.3, -0.4, -0.6, -1.1, -1.6.
- Domestic primary balance (percent of GDP, excludes grants, interest payments, and externally-financed capital expenditures): -1.7, -3.0, -3.5, -2.7, -5.8, -6.2, -2.5, -2.5, -4.0, -2.8, -2.5, -2.5, -2.5.
- Public sector debt (percent of GDP): 50.0, 47.1, 47.2, 42.6, 47.1, 46.8, 39.8, 44.5, 44.1, 40.9, 38.8, 37.2, 35.8.
  - Of which: domestic debt (percent of GDP): 12.8, 10.4, 11.1, 6.9, 7.3, 9.5, 5.8, 6.2, 7.1, 6.2, 5.7, 5.3, 4.8.
  - Of which: external debt (percent of GDP): 37.2, 36.7, 36.1, 35.7, 39.8, 37.3, 34.0, 38.3, 36.9, 34.8, 33.2, 31.9, 31.0.

### Central government cash flows (selected CFAF billions)
- Total revenue (CFAF billions): 210.5, 263.2, 244.8, 271.7, 269.9, 296.2, 290.6, 278.5, 259.4, 283.6, 302.2, 318.5, 336.9.
- Domestic revenue (CFAF billions): 112.4, 118.0, 116.1, 141.7, 117.7, 115.7, 157.9, 151.0, 133.9, 159.0, 178.6, 195.8, 214.4.
- Grants (CFAF billions): 98.1, 145.2, 128.7, 130.0, 152.2, 180.5, 132.7, 127.5, 125.4, 124.6, 123.6, 122.7, 122.5.
- Expenditure (CFAF billions): 222.8, 239.0, 225.8, 277.8, 298.8, 330.2, 287.8, 273.1, 278.3, 289.5, 311.4, 338.9, 367.9.
- Capital expenditure (CFAF billions): 93.1, 96.7, 75.0, 115.1, 119.5, 150.6, 114.2, 111.1, 108.5, 113.0, 121.9, 134.1, 147.3.
- Overall balance excluding grants (CFAF billions): -110.4, -121.0, -109.7, -136.1, -181.1, -214.6, -129.9, -122.1, -144.3, -130.5, -132.8, -143.1, -153.5.
- Overall balance including grants (CFAF billions): -12.3, 24.2, 19.0, -6.1, -28.9, -34.0, 2.8, 5.4, -18.9, -5.9, -9.2, -20.4, -31.0.
- Net change in arrears (CFAF billions) ((-) = reduction): -29.7, -29.5, -28.5, -36.4, -36.4, -18.8, 0.0, 0.0, -23.8, 0.0, 0.0, 0.0, 0.0.
- Overall balance, cash basis (CFAF billions): -49.6, -5.3, -9.4, -42.5, -65.3, -52.9, 2.8, 5.4, -42.6, -5.9, -9.2, -20.4, -31.0.

### Balance of payments and external sector (selected)
- Exports, f.o.b. (CFAF billions): 91.1, 93.6, 94.1, 108.1, 82.6, 76.7, 116.0, 95.3, 85.0, 99.6, 114.7, 131.4, 149.6.
  - Diamonds (CFAF billions): 5.0, 4.4, 2.8, 6.2, 4.4, 2.2, 8.1, 5.9, 3.1, 4.2, 5.6, 7.8, 10.0.
  - Wood products (CFAF billions): 56.8, 55.9, 58.0, 65.2, 41.1, 46.5, 67.9, 50.3, 53.4, 60.9, 72.0, 80.0, 90.2.
- Imports, f.o.b. (CFAF billions): -279.6, -300.6, -300.1, -314.9, -288.9, -300.7, -324.3, -295.1, -293.0, -316.6, -333.7, -362.9, -389.7.
  - Petroleum products (CFAF billions): -87.5, -91.6, -91.3, -90.4, -61.3, -63.6, -86.3, -63.2, -65.2, -69.4, -75.9, -93.5, -104.4.
- Services (net, CFAF billions): -36.6, -38.7, -38.7, -36.8, -32.6, -39.6, -34.9, -34.4, -37.8, -31.2, -40.2, -44.6, -48.6.
- Transfers (net, CFAF billions): 125.9, 171.2, 180.9, 153.3, 162.6, 162.9, 161.7, 159.2, 159.7, 162.8, 168.5, 178.4, 181.8.
  - Private transfers (CFAF billions): 70.6, 71.7, 83.1, 76.2, 67.7, 62.1, 80.9, 78.4, 79.6, 82.1, 90.3, 102.5, 107.6.
  - Official transfers (CFAF billions): 55.3, 99.5, 97.8, 77.8, 94.9, 100.7, 80.8, 80.8, 80.2, 80.7, 78.2, 75.9, 74.2.
- Current account (CFAF billions): -100.8, -76.5, -65.7, -92.5, -78.2, -102.9, -83.5, -76.9, -88.1, -87.3, -92.4, -99.4, -107.6.
- Current account (percent of GDP): -8.0, -5.6, -4.9, -6.3, -5.7, -7.6, -5.3, -5.2, -6.1, -5.6, -5.5, -5.5, -5.6.
- Capital account (CFAF billions): 60.6, 63.3, 48.5, 75.9, 80.3, 102.8, 78.8, 73.6, 72.1, 74.6, 78.6, 82.7, 87.1.
- Financial account (CFAF billions): 37.6, 26.5, 23.8, 35.3, -8.7, -3.5, 27.8, 6.8, 13.2, 16.0, 47.5, 59.6, 71.4.
- Overall balance (CFAF billions): -22.0, 13.3, -14.7, 18.7, -6.6, -3.6, 23.1, 3.5, -2.7, 3.4, 33.7, 42.9, 50.8.
- Identified financing (CFAF billions): 22.0, -13.3, 14.7, -18.6, 4.2, 3.6, -23.1, -3.5, 2.7, -3.4, -33.7, -42.9, -50.8.

### Monetary sector (selected end-of-period levels, CFAF billions)
- Net foreign assets (CFAF billions): 76.3, 95.2, 89.5, 68.3, 72.3, 94.2, 116.1, 86.8, 93.9, 141.6, 93.8, 100.0, 107.0, 144.5, 191.7, 247.9.
- Money and quasi-money (broad money, CFAF billions): 343.0, 354.1, 373.5, 363.3, 369.3, 367.5, 406.8, 392.6, 401.5, 430.5, 395.7, 443.0, 460.9, 482.7, 514.6, 555.1.
- Credit to the economy (CFAF billions): 163.6, 168.5, 162.0, 172.2, 161.2, 153.3, 176.9, 157.7, 157.1, 189.3, 168.7, 165.0, 178.2, 192.5, 207.9, 224.5.
- Currency in circulation (CFAF billions): 183.7, 195.3, 192.6, 187.7, 189.7, 172.2, 224.9, 207.7, 210.0, 238.1, 208.5, 249.8, 248.9, 253.8, 264.8, 298.0.

### Key analytical points from the content
- The pandemic causes economic activity to stagnate in 2020 with recovery beginning in 2021 (figure caption observation).
- Inflation is expected to remain contained in 2020 and over the medium term (figure caption observation).
- Total revenue is not expected to increase significantly over the medium term as increases in domestic revenue may be offset by a gradual decline in grant financing—this limits fiscal space to increase spending (figure caption observation).
- Following a sharp drop in 2021, the domestic primary balance is expected to improve over the medium term (figure caption observation).
- The current account balance is projected to decline in 2020 on account of lower exports, before gradually recovering (figure caption observation).

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

### 1. Total financing requirements222.9187.1165.5173.8186.5199.8

### 1. Total financing requirements222.9187.1165.5173.8186.5199.8

### Total financing requirements and components
- Total financing requirements: 222.9 187.1 165.5 173.8 186.5 199.8
- Current account deficit (excl. budget support): 180.6 141.4 137.3 137.4 139.4 143.0
- Debt amortization: 6.8 5.6 7.0 3.5 4.9 5.9
- Repayment to the Fund: 4.9 4.0 8.5 13.6 20.2 25.8
- Change in other reserves: 30.5 36.1 12.8 19.3 22.0 25.0

### Total available financing
- Total available financing: 106.1 91.0 97.6 104.6 112.2 119.4
- Capital transfers: 102.8 72.1 74.6 78.6 82.7 87.1
- Foreign direct investment (net): 6.0 15.0 20.5 23.5 24.5 25.5
- Portfolio investment (net): 0.0 0.0 0.0 0.0 0.0 0.0
- Debt financing: 22.3 8.8 7.5 7.5 10.0 11.8
  - Public Sector: 22.3 8.8 7.5 7.5 10.0 11.8
- Other net capital inflows: -25.0 -5.0 -5.0 -5.0 -5.0 -5.0

### Financing gap
- Financing gap (3): 116.8 96.1 67.9 69.3 74.3 80.4

### Expected sources of financing and budget support
- Expected sources of financing (4): 77.7 53.3 50.0 70.0 75.0 80.4
  - of which: Budget support (grants): 77.7 53.3 50.0 45.0 40.0 35.4
    - World Bank: 43.9 27.9 ............
    - African Development Bank: 8.5 0.0 ............
    - European Union: 18.8 18.8 ............
    - France: 6.6 6.6 ............
    - Other: 0.0 0.0 ............
  - of which: Budget support (loans)1: 0.0 0.0 0.0 25.0 35.0 45.0

### Residual financing gap and concessional facilities
- Residual financing gap (5): 39.0 42.8 17.9 -0.7 -0.7 0.0
- ECF program2: 9.6 37.3 18.6 0.0 0.0 0.0
- RCF: 22.5 0.0 0.0 0.0 0.0 0.0
- CCRT: 4.7 5.6 0.0 0.0 0.0 0.0
- G20 DSSI3: 2.2 0.0 -0.7 -0.7 -0.7 0.0
- Unidentified financing: 0.0 0.0 0.0 0.0 0.0 0.0

- Footnotes:
  - 3: Under the G20 Debt service suspension initiative, debt service payments to G20 creditors due from May-December 2020 are postponed to 2022-24.
  - 2: Includes ECF request disbursement, approved by the Executive Board in December 2019, which happened in early January 2020.
  - 1: Budget support loans to be identified.
- Source: IMF staff projections. Projection

### BOP and Budget Support (Table 7)
- IMF: SDR 39.79 million → 32.1; SDR 47.74 million → 37.3
- World Bank: US$ 75 million → 43.9; US$ 50 million → 27.9
- African Development Bank: US$ 10 million → 8.5; US$ 0 million → 0.0
- European Union: € 28.7 million → 18.8; € 28.6 million → 18.8
- France: € 10 million → 6.6; € 10 million → 6.6
- Total excluding IMF: 77.7 53.3
- Total (including IMF): 109.8 90.6
- Purpose: Commitments for 2020; Projections for 2021

### Indicators of Capacity to Repay the IMF (Table 8) — selected series
- IMF obligations based on existing credit (SDR millions) — Principal1: 0.00 3.76 10.86 17.49 25.79 32.94 34.69 30.88 20.47 12.53 3.98
- Charges and interest: 0.00 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
- IMF obligations based on existing and prospective credit (SDR millions) — Principal1: 0.00 3.76 10.86 17.49 25.79 32.94 38.27 41.62 34.79 26.85 18.30
- Outstanding IMF Credit (SDR Millions): 193.4 237.4 250.4 232.9 207.1 174.2 135.9 94.3 59.5 32.6 14.3
- Outstanding IMF Credit (CFAF Billions): 152.7 185.0 195.1 181.8 162.0 136.6 106.5 73.9 46.6 25.6 11.2
- Percent of government revenue: 132.0 138.1 122.7 101.8 82.8 63.7 45.5 29.0 16.9 8.5 3.5
- Percent of exports of goods and services: 82.4 90.2 83.5 72.5 60.2 46.2 32.7 20.9 12.2 6.3 2.6
- Percent of debt services: 1062.7 1260.7 928.8 804.1 523.9 364.7 276.0 202.9 170.6 124.4 83.8
- Percent of GDP: 11.2 12.8 12.6 10.9 9.0 7.1 5.1 3.3 2.0 1.0 0.4
- Percent of quota: 173.6 213.1 224.7 209.1 185.9 156.3 122.0 84.6 53.4 29.3 12.9
- Net use of IMF credit (SDR millions) — Disbursements: 39.8 47.7 23.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Net use — Repayments and repurchases: 0.0 3.8 10.9 17.5 25.8 33.0 38.3 41.7 34.8 26.9 18.4
- Memorandum items:
  - Nominal GDP (billions of CFA francs): 1360.0 1442.9 1553.7 1671.9 1798.7 1934.9 2075.3 2219.5 2377.7 2541.9 2715.3
  - Exports of goods and services (billions of CFA francs): 185.3 205.0 233.5 250.6 269.3 295.7 326.3 354.2 381.0 408.5 436.5
  - Government revenue (billions of CFA francs): 115.7 133.9 159.0 178.6 195.8 214.4 234.3 254.5 276.5 300.1 325.5
  - Debt service (billions of CFA francs): 14.4 14.7 21.0 22.6 30.9 37.4 38.6 36.4 27.3 20.6 13.4
  - IMF Quota (SDR millions): 111.4 (each year listed)

- Footnote:
  - 1: The repayments of principal include the first and second tranches of the CCRT (2020Q2-2021Q1)

### Financial Soundness Indicators (Table 9) — selected indicators, 2012–May-20
- Capital Adequacy:
  - Total bank regulatory capital to risk-weighted assets: 22.7 39.1 42.2 38.7 32.0 34.3 28.5 31.4 30.3 28.0
  - Total capital (net worth) to assets: 22.2 23.7 21.9 21.1 19.2 21.0 21.3 21.0 20.0 19.9
- Asset Quality:
  - Non-performing loans to total loans: 9.6 28.5 27.7 30.9 25.6 22.9 15.6 19.1 12.6 13.7
  - Non-performing loans net of provision to capital: 1.6 50.0 44.4 34.9 18.7 4.3 0.6 7.4 6.0 7.4
- Earnings and Profitability:
  - Net income to average assets (ROA): 4.5 -1.3 0.9 -0.9 0.5 0.9 2.0 2.5 2.0 ...
  - Net income to average capital (ROE): 20.7 -5.4 3.8 -4.0 2.4 4.8 9.3 12.1 9.7 ...
  - Non interest expense to gross income: 64.0 79.5 73.6 72.8 71.9 88.6 92.8 71.7 63.9 ...
- Liquidity:
  - Liquid assets to total assets: 16.6 19.2 27.5 40.0 31.9 30.7 29.9 27.6 26.3 21.9
  - Liquid assets to short-term liabilities: 114.5 149.1 203.1 276.1 219.6 227.4 198.6 182.7 165.8 132.6

### Schedule of Disbursements, 2019–22 (Table 10) — SDR amounts and dates
- First disbursement upon program approval. Availability Date: December 20, 2019 — SDR 11.936 million — Percent of quota: 10.7
- Second disbursement upon observance of performance criteria for December 31, 2019 and continuous performance criteria, and completion of the first review. Availability Date: April 30, 2020 — SDR 11.936 million — 10.7
- Third disbursement upon observance of performance criteria for June 30, 2020 and continuous performance criteria, and completion of the second review. Availability Date: October 30, 2020 — SDR 11.936 million — 10.7
- Fourth disbursement upon observance of performance criteria for December 31, 2020 and continuous performance criteria, and completion of the third review. Availability Date: April 30, 2021 — SDR 11.936 million — 10.7
- Fifth disbursement upon observance of performance criteria for June 30, 2021 and continuous performance criteria, and completion of the fourth review. Availability Date: October 29, 2021 — SDR 11.936 million — 10.7
- Sixth disbursement upon observance of performance criteria for December 31, 2021 and continuous performance criteria, and completion of the fifth review. Availability Date: April 29, 2022 — SDR 11.936 million — 10.7
- Seventh disbursement upon observance of performance criteria for June 30, 2022 and continuous performance criteria and completion of the sixth review. Availability Date: October 31, 2022 — SDR 11.934 million — 10.7
- Total: SDR 83.55 million — 75.0
- Footnotes:
  - On April 2020, the IMF Executive Board approved a disbursement of SDR 27.85 million under the Rapid Credit Facility (RCF).
  - C.A.R.'s quota is SDR 111.4 million.

### Risk Assessment Matrix — key risks, likelihood, impact, and policy responses (Table 11)
- Unexpected shift in the Covid-19 pandemic
  - Relative Likelihood: High
  - Impact If Realized: High
  - Policy Response: Prioritize government spending and mobilize additional grant financing to continue the implementation of the comprehensive response plan and of other priority expenditures.
- Widespread social discontent and political instability
  - Relative Likelihood: High
  - Impact If Realized: Medium
  - Policy Response: Intensify structural reform and improve business environment to support diversification.
- Accelerating de-globalization
  - Relative Likelihood: High
  - Impact If Realized: Medium
  - Policy Response: Intensify structural reforms 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 making sure to have a well-prioritized reform agenda for which targeted TA is requested.
- Delayed delivery of external financial assistance
  - Relative Likelihood: Medium
  - Impact If Realized: Medium
  - Policy Response: Strengthen external support through comprehensive reform implementation and communicating the needs of C.A.R.’s development strategy (RCPCA).
- Oversupply and volatility in the oil market
  - 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.
- Less efforts in setting up reforms as elections get closer
  - Relative Likelihood: Medium
  - Impact If Realized: Medium
  - Policy Response: Intensify structural reform and build fiscal buffers.

- Note: The RAM shows events that could materially alter the baseline path. The relative likelihood categories reflect staff subjective assessment as of the time of discussions with the authorities.

### Annex I — The Authorities’ Response to the Pandemic — summary of measures and donor support
- Containment measures:
  - First confirmed case: March 14.
  - Measures: Schools closed; bars and restaurants ordered to close; bans on commercial air travel and religious and public gatherings of more than 15 people; passenger limits enforced for commercial transportation; testing of truck drivers crossing from Cameroon.
  - A general stay-at-home order was never imposed.
- Government strategy: three axes — health, socio-economic, and security.
  - Health response plan (with WHO): rehabilitate health infrastructure; enhance testing and care capacity; initially free mass testing with a walk-in testing center; testing later limited to people with a medical prescription as kits decreased.
  - Socio-economic axis: seek to provide support for vulnerable households and private enterprises, main elements yet to be clearly articulated.
  - Security axis: bolster physical security across the country.
- Donor support and international assistance:
  - Jack Ma donated testing kits, protective equipment, and other materials.
  - China provided similar donations.
  - IMF: $38 million disbursement under the Rapid Credit Facility; $4 million in debt relief under the CCRT, with a second six-month tranche of $3.9 million expected.
  - World Bank: $7.5 million for health sector response plan preparation and implementation; increased budget support by $25 million; financing production of 100 million masks by local artisans.
  - African Development Bank: $14.3 million to support health sector response plan.
  - WHO: assisted in formulating the health sector response.
  - EU: brought forward disbursement of its 2020 budget support and provided an additional €8 million in material support.
  - UN peacekeeping mission and France: logistical and operational support, including in reopening the airport to commercial flights.

### Annex II — Domestic Revenue Mobilization: introduction and good practices
- Key observations:
  - Mobilizing domestic revenue is critical for sustainability of C.A.R.’s development agenda.
  - From a social contract perspective, improving consensus on the consent to pay taxes is critical to escape fragility/conflict.
  - Mobilizing revenue beyond an estimated threshold of about 12 ¾ of GDP can trigger a “virtuous cycle” improving spending efficiency and growth potential.
- Current position (2018 figures cited):
  - Government revenue (including grants): 16.6 percent of GDP in 2018.
  - Average for Sub-Saharan African low-income countries: 19.0 percent of GDP.
  - Tax mobilization: 8.1 percent of GDP (significantly below the 12 ¾ percent threshold).
  - Grants: 7.8 percent of GDP (against an average of 3 percent of GDP for SSA LICs).
- Purpose of the study: propose a medium-term strategy for domestic revenue mobilization in C.A.R. to inform discussions with country authorities.
- Good practices and cross-country experience:
  - Fragile states have increased domestic revenue by large magnitudes, e.g., from 7.5 to 19.7 percentage points of GDP over 9 to 12 years, or 0.8 to 1.7 percentage point of GDP annually (Akitoby, Honda and Primus, 2020).
  - Caveats:
    - Significant improvements can take about a decade and require continued political and social support.
    - Sustained communication and engagement with civil society and key stakeholders (including businesses) are necessary to secure acceptance of reforms.
    - Improvements require governance and transparency enhancements to ensure mobilized funds are used as intended with adequate oversight.
    - Revenue mobilization should be integrated with broader strategies to improve public service delivery.

*Source: IMF staff projections and IMF staff materials contained in the supplied content.*

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

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

### Four main axes of medium-term revenue strategy
- Simplify the tax system and curb exemptions
  - A simple tax system, which is easy to comply and difficult to evade / avoid, is critical to fostering taxpayer compliance.
  - Removing exemptions can reduce complexity while boosting revenue by broadening the tax base.
  - Reducing exemptions figured prominently in nearly almost all reform countries. This reform is relevant for C.A.R., particularly through the removal of ad-hoc tax exemptions and parafiscal taxes.
- Introduce comprehensive revenue administration reforms
  - Reforms covered a broad spectrum of legal, technical, and administrative measures, such as:
    - (i) management, governance, and human resources changes;
    - (ii) segmentation of taxpayers and establishment of specialized units (e.g. large taxpayer offices);
    - (iii) smart use of information management systems;
    - (iv) modernization of registration, filing, and management of payment obligations;
    - (v) enhanced audit and verification programs based on risks.
- Stakeholder ownership and inclusive policy making
  - Adopt an “inclusive” approach whereby all stakeholders are part of the public consultation process and fully understand the economic implications of reforms.
- Allow time for reforms to bear fruit
  - Reform episodes range from two to about ten years; comprehensive tax reforms may take years before gains are visible.
  - Given four- or five-year political cycles, political executives have greater incentive to engage in tax reform if gains are visible by the next election.

### Elements of a strategy for C.A.R. — recent outcomes and medium-term prospects
- Recent progress (post-2014)
  - Since 2014, revenue collection increased by 3.8 percentage point of GDP, to reach 8.7 percent of GDP (an increase of 77 percent compared to the collection of 2014).
  - Improvement drivers: revenue and customs administration improvements, digitalization efforts, broadening VAT and excise tax-base, more systematic application of legislation, stepped up tax and customs controls.
  - Third-party provider for valuation of goods through customs and securing of wood pulp exports; extensive revenue administration capacity development programs from IMF Fiscal Affairs Department and other partners.
- Domestic revenue and tax composition, selected annual figures (percent of GDP)
  - Domestic revenue: 2014 = 4.9; 2015 = 7.1; 2016 = 8.2; 2017 = 7.8; 2018 = 8.9; 2019 = 8.7; 2020 = 8.5; 2021 = 9.3; 2022 = 10.2; 2023 = 10.7.
  - Tax revenue: 2014 = 4.4; 2015 = 6.5; 2016 = 7.5; 2017 = 7.0; 2018 = 8.1; 2019 = 7.8; 2020 = 7.1; 2021 = 7.6; 2022 = 8.3; 2023 = 8.7.
  - Direct tax: 2014 = 1.0; 2015 = 1.4; 2016 = 1.8; 2017 = 1.2; 2018 = 1.7; 2019 = 1.8; 2020 = 1.9; 2021 = 2.1; 2022 = 2.3; 2023 = 2.4.
  - Indirect tax: 2014 = 2.4; 2015 = 3.5; 2016 = 3.8; 2017 = 3.4; 2018 = 4.1; 2019 = 4.1; 2020 = 3.3; 2021 = 3.5; 2022 = 3.7; 2023 = 4.0.
  - Tax on international trade: 2014 = 1.0; 2015 = 1.6; 2016 = 1.9; 2017 = 2.4; 2018 = 2.3; 2019 = 2.0; 2020 = 1.8; 2021 = 2.0; 2022 = 2.3; 2023 = 2.4.
  - Nontax revenue: 2014 = 0.5; 2015 = 0.6; 2016 = 0.7; 2017 = 0.7; 2018 = 0.8; 2019 = 0.9; 2020 = 1.4; 2021 = 1.7; 2022 = 2.0; 2023 = 2.0.
- Medium-term mobilization prospects (next three years)
  - C.A.R. is expected to mobilize about 2 additional percentage points of GDP in revenue.
  - Most of the increase expected from tax revenue:
    - (i) a gradual recovery of the revenue loss from the pandemic, estimated to alter the tax-to-GDP ratio by about ¾ percent of GDP in 2020 (compared to pre-pandemic projections);
    - (ii) further improvements in tax administration leading to a ¾ percent of GDP gain over the period.
    - The estimate is conservative given limited administrative capacity; scope exists to generate a larger increase.
  - The remainder (about ½ of GDP) would be mobilized from nontax revenue, including full transfer of parafiscal taxes and levies to the Treasury Single Account (TSA).
    - Consolidation through the TSA is budget-neutral but improves fiscal governance and reduces risks and potential contingent liabilities.
    - Abolish minor revenue collections by ministries/spending agencies without legal basis; these hamper tax collection efforts and voluntary compliance.

### Specific policy actions and implementation steps
- Strengthening property income taxation
  - Real estate investments and rising rents in Bangui and some provincial cities present an untapped property income and real estate tax potential; proper tax policy design and compliance enforcement can yield substantial gains.
- Remove ad-hoc tax exemptions; focus only on law-provided exemptions
  - Authorities compiled a census of exemptions and committed not to renew ad-hoc exemptions.
  - Governance of the Commission Nationale des Investissements (CNI) was changed to ensure Ministry of Finance oversight of exemptions.
  - Customs should implement audit programs to address diversion of exempted goods to unauthorized uses/destinations.
- Significantly expand effective taxpayer administration
  - Out of about 50,000 taxpayers, about 2,000 are administered, of which about 900 pay taxes.
  - Steps recommended:
    - Draw a list (example) of 300 largest importers from ASYCUDA data and 100 largest public procurement operators; verify registration, contact details, and declared turnover.
    - Systematic on-site tax administration investigations where taxpayers are unregistered, non-current, or have turnover inconsistent with ASYCUDA/procurement data; cross-check contact details with utilities and banks.
    - Digitalize and automate data processing and decisions; consider “blocking codes” in ASYCUDA to block merchandise for taxpayers not current with tax obligations.
    - Publicly disclose outcomes of checks (amounts of adjustment notified, amounts recovered) for monitoring and transparency.
- Improve taxpayer services through digitalization
  - Rolling-out new tax administration SYSTEMIF with web compatibility, e-payment, and e-filing.
  - First phase focused on large taxpayers able to file and pay electronically by December 2020.
  - Develop interfaces between ASYCUDA and SYSTEMIF; ensure electronic transfer of data between revenue administration systems and PFM system (SIMBA).
  - Introduce mobile tax payments to improve small business compliance.
- Secure imports transiting through Douala (Cameroon)
  - Negotiated warehousing area in Douala; PPP signed with a South African firm (COGEA) for warehouse construction.
  - Exit authorizations will be exclusively digitalized and automated based on IT systems used by C.A.R. and Cameroon customs.
  - Advice: require importers to pay duty and taxes through C.A.R.’s customs systems and accounts before goods leave the warehouse; reduce transit times through Cameroon and C.A.R.
- Valuation and export securing service providers
  - Two new service providers hired to assist customs in valuation of imports and securing wood export revenue.
  - Priorities: (i) full digitalization and automation to limit human intervention and support traceability; (ii) build customs capacity in valuation of goods; (iii) reconcile import revenue data between customs and tax administration.
  - ASYCUDA ++ is obsolete; authorities working on developing ASYCUDA World.

### Natural resource revenue and governance measures
- Resource context and transparency initiatives
  - C.A.R. endowed with minerals: diamond, gold, coltan.
  - Joined Kimberley diamond certification scheme in 2003; membership suspended after 2013 crisis and partial lifting followed; process to lift suspension launched.
  - Joined EITI in 2010; membership suspended in 2013; all mining and forestry contracts now published on the Ministry of Finance and Budget website.
- Governance improvements needed to mobilize resource revenue
  - Ensure transparency of beneficial ownership of legal entities; supported by new asset declaration law and OHADA recommendations on financial transparency of legal entities.
  - Adopt a new mining code incorporating good practices (under preparation with World Bank support).
  - Streamline processes for exploitation of precious minerals: audits under Kimberley process created delays (~about a month) between extraction and sale; USAID approached to strengthen audit capacity to reduce delays.

### Alternative downside macroeconomic scenario (Annex III) — selected implications and figures
- Scenario assumptions and growth impact
  - Assumes a more protracted pandemic and deterioration of the security situation; pandemic affects activity more severely.
  - Under this scenario, growth would drop to 1 percent next year but recover more gradually in 2022 and beyond.
- Fiscal and debt effects (selected)
  - Domestic primary fiscal deficit-to-GDP would be about ¾ ppt and 2ppt higher in 2020 and 2021 respectively than under the baseline before converging gradually.
  - Public debt-to-GDP ratio would decline only slightly over the medium term, from 47.1 percent of GDP at end-2019 to 43 ½percent at end-2023 (compared with 38.8 percent under the baseline scenario).
- External position
  - Current account would deteriorate mainly owing to lower private transfers; lower exports broadly offset by lower imports; deterioration compounded by lower net capital flows.
- Selected numbers from Text Table 1 (baseline vs. alternative, percent and levels where shown)
  - Real growth (percent): 2019 = 3.0; 2020 baseline = 0.0; 2020 alternative = -1.0; 2021 baseline = 3.5; 2021 alternative = 1.0; 2022 baseline = 5.0; 2022 alternative = 3.7; 2023 baseline = 5.0; 2023 alternative = 5.0.
  - Domestic revenue (% of GDP): 2019 = 8.7; 2020 baseline = 8.5; 2020 alternative = 8.3; 2021 baseline = 9.3; 2021 alternative = 8.9; 2022 baseline = 10.2; 2022 alternative = 10.3; 2023 baseline = 10.7; 2023 alternative = 11.0.
  - Public expenditure (% of GDP): 2019 = 16.9; 2020 baseline = 24.3; 2020 alternative = 24.9; 2021 baseline = 19.3; 2021 alternative = 21.1; 2022 baseline = 18.6; 2022 alternative = 19.6; 2023 baseline = 18.6; 2023 alternative = 19.6.
  - Overall fiscal balance (% of GDP): 2019 = 1.4; 2020 baseline = -2.5; 2020 alternative = -3.2; 2021 baseline = -1.3; 2021 alternative = -3.2; 2022 baseline = -0.4; 2022 alternative = -0.8; 2023 baseline = -0.6; 2023 alternative = -0.8.
  - Domestic primary balance (% of GDP): 2019 = -3.5; 2020 baseline = -6.2; 2020 alternative = -6.7; 2021 baseline = -4.0; 2021 alternative = -6.0; 2022 baseline = -2.8; 2022 alternative = -3.3; 2023 baseline = -2.5; 2023 alternative = -2.9.
  - Public debt (% of GDP): 2019 = 47.1; 2020 baseline = 46.8; 2020 alternative = 48.0; 2021 baseline = 44.1; 2021 alternative = 48.2; 2022 baseline = 40.9; 2022 alternative = 45.7; 2023 baseline = 38.8; 2023 alternative = 43.5.
  - Current account balance (% of GDP): 2019 = -4.9; 2020 baseline = -7.6; 2020 alternative = -8.0; 2021 baseline = -6.1; 2021 alternative = -6.9; 2022 baseline = -5.6; 2022 alternative = -6.3; 2023 baseline = -5.5; 2023 alternative = -5.8.
  - Overall balance of payment (billion of CFAF): 2019 = -14.7; 2020 baseline = -3.6; 2020 alternative = -13.6; 2021 baseline = -2.7; 2021 alternative = -26.7; 2022 baseline = 3.4; 2022 alternative = -5.6; 2023 baseline = 33.7; 2023 alternative = 33.7.
  - Nominal GDP (billion of CFAF), selected years: 2019 = 1,334; 2020 = 1,360; 2021 = 1,344; 2022 = 1,443; 2023 = 1,391; later entries indicate 1,554; 1,480; 1,672; 1,592 in table sequence.

*International Monetary Fund — Central African Republic staff report excerpt (PDF chapter).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Context and purpose
- The Executive Board approved a three-year arrangement under the Extended Credit Facility (ECF) for the Central African Republic (CAR) in an amount equivalent to SDR 83.55 million to support the government’s economic policy and structural reform program for the period 2020–2022.
- The attached Memorandum of Economic and Financial Policies (MEFP) describes recent macroeconomic developments, progress made as at end-September 2020 on the policies and reforms under the ECF-supported program, and the economic policies and reforms planned for the next 12 months.
- The government requests waivers for non-observance of missed performance criteria and seeks a cumulative disbursement of the second and third disbursements under the ECF arrangement corresponding to SDR 23.872 million.

### COVID-19 public health and containment measures
- First confirmed case in CAR on March 14, 2020.
- As of November 9, 2020: total of 4,879 cases and 62 deaths reported.
- Government measures included: shutdown of bars, restaurants, schools, and the airport; distribution of masks; border closures and restrictions on gatherings and movements from Bangui.
- Recent weeks saw a declining number of cases and gradual relaxation of measures; continued vigilance and readiness to take additional measures are emphasized.

### Impact on macroeconomic activity and outlook
- Real activity:
  - Economic activity expected to be stagnant in 2020 (program had anticipated growth of around 5 percent a year ago).
  - Official diamond production fell by nearly 90 percent in the first half of 2020.
  - Passenger arrivals at Bangui M’Poko international airport dropped by 39 percent compared to the same period of the previous year.
- Inflation:
  - Inflation rose to 5 percent y-o-y in June 2020, primarily due to food price increases after a temporary closure of the border with Cameroon.
  - Annual average inflation is expected to remain below 3 percent in 2020.
- External sector:
  - Current account deficit projected to widen from 5 percent of GDP in 2019 to 7.6 percent of GDP in 2020.
  - Exports and imports of goods and services expected to decline by around 12 percent and 2 percent, respectively.
  - Overall balance of payments expected to improve slightly from -1.1 percent of GDP in 2019 to -0.3 percent of GDP in 2020 due to a strong improvement in the capital account (project grants).
  - Official reserves expected to increase in 2020 owing to increased disbursements under IMF facilities.
- Fiscal sector:
  - Domestic primary deficit widened in H1 2020 due to weak domestic revenues and increased expenditures.
  - Decline in revenues reflects slowdown in activity, decline in imports, diminished tax administration controls, suspension of ad valorem taxes on imported used cars (now being applied), and difficulties transferring parafiscal and agency revenues to the Treasury Single Account (TSA).
  - Recurrent expenditures increased in response to the pandemic consistent with expectations under the Rapid Credit Facility (RCF).
- Financial sector:
  - Capital adequacy ratio around 28 percent in May 2020 versus 31 percent in June 2019.
  - Nonperforming loans reached 13.7 percent of total lending in May 2020, compared to 12.6 percent in December 2019.
  - Liquidity ratio dropped to 132.6 percent in May 2020, compared to 165.8 percent in December 2019 (regulatory minimum noted as 100 percent).
  - Lending to the private sector declined by 4.8 percent year-on-year in June.

### Program implementation, performance criteria, and corrective actions
- Missed performance criteria:
  - End-December 2019 quantitative performance criteria not met due mainly to delays in transferring revenues from government agencies to the TSA and insufficient control of the commitment of budget appropriations.
  - Slight shortfall in paying domestic arrears at end-December 2019 attributed to liquidity concerns.
  - Continuous performance criterion on non-accumulation of external arrears was not met due to a delayed payment to the International Fund for Agricultural Development caused by insufficient coordination between the debt unit and the Treasury directorate.
  - End-June 2020 performance criteria related to pandemic impact on government revenue, the domestic primary deficit, and resources to pay domestic arrears were not met.
- Corrective actions taken:
  - Measures to ensure agency revenues are transferred to the TSA and to enhance monitoring of commitments in GESCO pending rollout of SIM-BA.
  - Treasury directorate connected in March to the BEAC’s SYGMA-SYSTAC system to enable better liquidity control.
  - Enhanced coordination between the debt unit and Treasury directorate to prevent external arrears recurrence.
  - Minister of Finance and Budget instructed public accountants to monitor tax bases of parafiscal levies and to proceed with forced collection if necessary.
- Requests to IMF:
  - Waivers of non-observance of the missed end-December and end-June performance criteria and of the continuous performance criterion on the non-accumulation of arrears.
  - Proposal to replace the performance criterion on the repayment of domestic arrears with an indicative target to allow more flexibility in addressing potential liquidity shortages.

### Use of emergency financing and oversight
- Emergency financing received:
  - Disbursement of SDR 27.85 million under the Rapid Credit Facility (RCF).
  - Temporary cancellation of debt service to the IMF under the Catastrophe Containment and Relief Trust (CCRT).
  - These resources used primarily to fund the pandemic response plan and offset the sharp decrease in domestic revenue.
- Oversight:
  - An inter-ministerial committee for monitoring pandemic-related spending has been established, chaired by the Minister of Finance and Budget, including spending agencies, spending supervision agencies (e.g., Budget Directorate, Public Procurement Directorate, High Authority for Good Governance), observers from technical and financial partners (World Bank, AfDB, IMF, EU, BEAC), and civil society.
  - The committee oversees government and partner pandemic-related spending and the Prime Minister’s decree provides for publishing tenders related to this spending.

### Progress on structural benchmarks, digitalization, governance, and business environment
- Structural benchmarks:
  - Pandemic led to significant delays; one of five structural benchmarks for the first three quarters was completed on time.
  - Considerable progress made on reforms supporting those benchmarks.
- Specific reforms and actions:
  - Finalized recruitment of service providers to assist in valuing imports and securing wood export revenues.
  - Adopted implementing decrees for the new legal framework governing operations of public and quasi-public entities and enterprises (early October).
  - Finalized capture of all corporate tax returns for 2018 and 2019 into the SYSTEMIF IT system (November).
  - Will amend the draft asset declaration law submitted to Parliament in early October to align with applicable international good practices before formal parliamentary consideration.
- Digitalization:
  - Electronic payment of public employees’ salaries deployed at the beginning of 2020 in two localities, extended to a total of 10 localities and around 400 employees; deployment in provinces postponed due to the pandemic, with focus on the capital and security and defense forces’ salaries.
  - Pilot project for electronic filing and payment of taxes by large enterprises delayed but consolidation of the single tax return completed; internal and limited taxpayer testing done, expansion of testing to other large enterprises planned by mid-November 2020, aiming for deployment by end-2020 as planned.
  - SIM_BA integrated public financial management system rollout delayed by one year from early 2021 to early 2022 due to unavailable technical assistance; SIM_BA expected to be delivered in early 2021 with testing to begin immediately. The 2022 budget law will be prepared using SIM_BA and full use starting January 2022; the 2021 budget will be executed using GES’CO with World Bank assistance.
- Governance and business environment:
  - Final report of IMF diagnostic mission on governance published on the Ministry of Finance and Budget website.
  - Draft asset declaration law will be amended to align with international good practices prior to parliamentary consideration.
  - New labor code submitted to Parliament that includes limits on damages for unfair dismissal and penalties for sexual harassment in the workplace.
  - AfDB assessment of the mining code completed; hiring a technical expert with World Bank support to implement recommendations.
  - Electronic commerce guide prepared and made available on the Ministry of Finance and Budget website.

### Political timeline and elections
- Preparations for presidential and legislative elections progressing despite pandemic and security context, with donor funding secured and MINUSCA assisting on security.
- Voters’ lists finalized in mid-October 2020; list of presidential candidates expected to be announced by early December 2020.
- First round of presidential election planned for December 27, 2020; if necessary, second round planned for February 7, 2021.

### Commitments to transparency and engagement with the Fund
- Government convinced the MEFP measures and policies are appropriate and stands ready to take additional measures if necessary.
- Commits to consult with the IMF in advance of any revisions to policies in the MEFP and to provide Fund staff with all data and information necessary to assess policies and measures in the Technical Memorandum of Understanding (TMU).
- Intends to publish the IMF staff report, this Letter of Intent, the MEFP, and the TMU and authorizes Fund staff to publish these documents on the IMF website once the Executive Board has completed the first and second reviews under the ECF arrangement.

*Source: Appendix I. Letter of Intent (Central African Republic), dated December 17, 2020, with attached MEFP and TMU.*

### 13. With the exception of the one related to domestic financing, we did not meet the

### 13. With the exception of the one related to domestic financing, we did not meet the

### Compliance with quantitative and continuous performance criteria
- With the exception of the one related to domestic financing, end-2019 quantitative performance criteria were not met.
- Two of the three fiscal criteria not met at end-December were missed by narrow margins: 0.1 percent of GDP in both cases.
- Causes cited:
  - Delays in the transfer of revenues from public agencies to the TSA.
  - Insufficient management of commitments of budget appropriations.
  - Liquidity problems explaining slight delay in payment of domestic arrears at end-December.
- Corrective measures taken or planned:
  - Measures to ensure revenues from public institutions are properly transferred to the TSA.
  - Strengthening monitoring of commitments in the GES’CO system pending deployment of SIM_BA.
  - Connection of the Treasury directorate to the BEAC’s Sygma-Systac system (last March) to allow better liquidity management.

### Impact of the pandemic on performance criteria (RCF period)
- The pandemic prevented meeting most end-June 2020 performance criteria; effects included:
  - Sharp drop in domestic revenue.
  - Additional pandemic-related expenditures.
  - Widening of the domestic primary deficit and shortage of resources to pay domestic arrears.
- At end-August, cumulative domestic revenues were CFAF 80.5 billion; on track to meet proposed annual target of CFAF 115 billion.
- Primary expenditures at end-August were at 63 percent of the annual projection, broadly in line with RCF discussions due to low investment and goods and services spending.
- Continuous criterion of non-accumulation of external arrears was not met due to delay in payment of one installment (of less than $200,000) owed to the International Fund for Agricultural Development.
  - Remedy: debt unit will send an official reminder note to the Treasury directorate one month before each external debt due date.

### Structural benchmarks and reform implementation (first nine months)
- Only 1 of 5 structural benchmarks met for the first nine months of the year, but considerable progress reported:
  - Structural benchmark met: submission to parliament of a draft supplementary budget law providing for elimination of seven remaining public agencies without economic justification; parliament rejected elimination pending socioeconomic impact assessment.
  - End-January measures: recruitment in January of a service provider to assist customs administration in valuation of imports; hired another service provider in May to help certify and secure timber export revenues.
  - Secondary legislation for new legal framework governing public and parapublic institutions and enterprises adopted in early October (structural benchmark for end-March 2020).
  - Integration of all corporate tax returns for 2018 and 2019 into SYSTEMIF IT (structural benchmark for end-June 2020) delayed by social distancing, finalized in November 2020 (prior action).
  - Draft law on asset declaration submitted to Parliament on October 7, 2020 (missed structural benchmark for end-September); to be amended to align with international good practices prior to formal consideration (prior action).

### Economic outlook and risks
- Growth projections:
  - 2020 growth projected at zero percent, 1 percent less than expected under the RCF.
  - 2021 recovery limited to 3½ percent, compared to 4 percent envisaged under the RCF.
  - Medium-term growth could reach 5 percent, benefiting from business environment reforms and public investment in agriculture, energy, telecommunications, and water.
- Inflation: expected to rise in 2020 but remain below 3 percent.
- External position:
  - Current account deficit expected to fall from 7.6 percent of GDP in 2020 to 5½ percent over the medium term, despite anticipated drop in official transfers.
  - Financial flows, including FDI, expected to normalize and contribute to gradual accumulation of official reserves.
- Risks:
  - Downside: possible worsening of the pandemic, unstable security environment, December 2020 elections.
  - Upside: less severe pandemic impact (e.g., rapid, wide vaccine availability), more rapid implementation of structural reforms and peace agreement post-elections.

### Economic and financial policy orientation
- Short-term focus: combat the pandemic while maintaining ECF objectives—macroeconomic stability, improved governance, meeting protracted balance of payments financing needs.
- Use emergency external financing from IMF and partners primarily to fight pandemic.
- Medium term: re-emphasize sustainable funding for security, social, and infrastructure spending; promote inclusive growth via governance and business environment reforms.

### A. Fiscal policy commitments and measures
- Fiscal objective: ensure sustainable financing of priority expenditures and gradually reduce public debt.
- Target: gradually bring the domestic primary deficit down to 2½ percent of GDP.
- Policy tools:
  - Increase domestic revenue mobilization.
  - Rationalize non-priority spending.
  - Improve public spending efficiency.
  - Seek grants for urgent needs; external borrowing only on concessional terms within program limits.
- Pandemic-related budget actions:
  - Supplementary budget law approved July 9 allocating CFAF 15.8 billion (1.2 percent of GDP) for combating the pandemic:
    - nearly CFAF 10 billion for Ministry of Health response plan.
    - around CFAF 3 billion as government support for private sector and vulnerable households.
    - CFAF 1.2 billion for construction of new hydraulic boreholes.
  - Identified CFAF 7 billion in non-priority expenditures to cancel; ministerial instruction forwarded to National Assembly.
- Macroeconomic expectations:
  - Domestic revenue expected to be just slightly below RCF envisaged level.
  - Domestic primary deficit expected to amount to about 6 percent of GDP.
- 2021 draft budget law: aimed at keeping domestic primary deficit below 4 percent of GDP in 2021 through increased revenue mobilization and better spending management.
  - Substantial increase in domestic revenues expected from planned tax administration measures.
  - No additional appropriations for Covid-19 in draft due to remaining expenditures and limited recent cases; government will consult IMF and partners if health situation worsens.

### B. Fiscal reform actions and transparency measures
- Audit and publication:
  - Commission independent audit by the Court of auditors (Cour des comptes) of pandemic-related expenses incurred in 2020.
  - Audit report to be published online in its entirety by end-April 2021 (new structural benchmark).
  - Publish monthly detailed data on Covid-related expenditures and public procurement tenders related to pandemic response, including: names of winning companies, names of their beneficial owners, and selection criteria.
  - Publish names of enterprises that benefited from transfers intended to help them deal with the pandemic, and the criteria for their selection.
- Consolidation of TSA and PFM strengthening:
  - Commit to eliminating remaining seven public agencies with no economic justification; work with National Assembly to make elimination effective by end-April 2021 (new structural benchmark).
  - Adopted new clearance plan to repay validated domestic arrears in 2017 by end-2021; French Development Agency requested to finance continuation of quarterly audits of these repayments.
  - Extend electronic payment of salaries and bonuses to all defense and security forces by end-December 2020, and to national education and health sector personnel by end-March 2021.
  - Inventory of service revenues received directly by ministries and public enterprises/institutions to be performed by end of year by IGF with IMF technical assistance; aim to eliminate unjustified revenues and place justified ones under Treasury control by end-June 2021 via new text on delegated imprest accounts.
  - World Bank to conduct review of government social spending (health, education, social protection) expected by end of first half of 2021 to identify better allocation and address human capital under-accumulation.

### Revenue mobilization measures
- Broaden tax base:
  - Identify 300 largest importers and 200 largest beneficiaries of public procurement contracts and ensure by end of year that these enterprises:
    - have a valid tax identification number;
    - report revenues consistent with public procurement/imports information;
    - are current on tax obligations.
  - Tax authorities to systematically audit enterprises not meeting criteria and publish audit results by end-June 2021 (new structural benchmark).
  - Include in taxpayers file all taxpayers known to customs and/or public contracts directorates but unknown to tax directorate; ensure compliance over the years.
- Electronic systems:
  - Expand electronic filing and electronic payment of tax obligations to small and medium-sized enterprises by end-2021 following deployment for large enterprises by end of year.
  - Monthly reconciliation meetings between service provider assisting valuation of imports and General Customs Directorate to reconcile taxed value and take corrective measures for discrepancies.
- Customs controls and reconciliations:
  - Reconcile data on goods recorded by Cameroon with those recorded by customs authorities in Bangui; initiate inspections immediately in case of significant discrepancies and recover evaded duties.
  - Publish list of infractions identified and amounts recovered starting in December 2020.
  - Strengthen verification program for use of goods imported but exempt from customs duties:
    - From December 2020, program to cover at least 20 percent of stock of import exemptions for last three years.
    - From March 2021, customs directorate to produce report on controls, including duties and penalties notified and collected.
  - Establish interconnection between customs posts in Douala, Berberati, and others with central services in Bangui starting January 2021.
- ASYCUDA World:
  - With EU support, launch ASYCUDA World; once operational at end of 2021 it will:
    - allow more systematic verification of data between port of Douala and revenues received (Cameroonian customs already use it);
    - enable use of electronic tax payment platform for payment of customs duties.

### C. Other structural reforms and governance
- Governance diagnostic mission recommendations:
  - Develop action plan to combat corruption and improve governance with IMF, World Bank, and UNODC support. Action plan calls for:
    - increasing independence of the HABG;
    - automatic forwarding to HABG of complete reports prepared by other government oversight institutions starting June 2021;
    - bringing laws on combating corruption and good governance in line with UNCAC and FATF by December 2021.
  - Action plan to be approved by Council of Ministers by end-January 2021.
- Anti-corruption law:
  - Prepare an anti-corruption law in line with the United Nations Convention against Corruption in close collaboration with IMF staff and partners.
  - Share a preliminary draft with IMF staff by December 2020 and submit a draft law to parliament by end-June 2021 (new structural benchmark).
- Asset declaration regime:
  - Once new asset declaration regime adopted by National Assembly, issue relevant implementing decree(s) in consultation with Fund staff.
- Supervision of public enterprises:
  - Implement new legal framework for public and parapublic enterprises following adoption of implementing decrees to ensure adequate financial monitoring.
  - Stabilize and disseminate legal corpus and adopt texts defining organizational and operating methods for certain categories of public entities; train authorizing officers, accountants, and supervisory bodies by end of 2021.
  - Produce and submit to the Court of Auditors by end of September 2022 at the latest the financial statements of at least three of the largest public offices for the 2021 exercise.

*Source: 1cafea2021002 - 13. With the exception of the one related to domestic financing, we did not meet the (PDF).*

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

### 1cafea2021002 - 29. We also intend to continue improving the business environment:

### Improving the business environment
- Finalize a draft mining code, aligned with international standards after AfDB and World Bank comments, to provide a sound and transparent framework for exploitation of mineral resources in the C.A.R.; finalize within the next few months and submit to the Council of Ministers, then to the National Assembly, in the first half of 2021.
- Use the mining code as the basis for eventually re-joining the Extractive Industries Transparency Initiative (EITI).
- Mandate by the 2021 budget execution order the online publication on the Ministry of Finance website and Budget of all public procurement contracts of more than CFAF 5 million within 30 days of award, and publish the names of the beneficial owners of the legal entities concerned (new structural benchmark for September 2021).
- Reassess parafiscal taxes on the telecommunications sector after a June increase that industry players and partners deemed excessive; undertake an assessment (with technical assistance financed by a World Bank project) to determine an adequate parafiscal taxation approach that will not harm sector development or digitalization ambitions.
- Accelerate the launch of the National Economic and Financial Council (CNEF) to implement recommendations of the National Credit Council (CNC), including creation of an arbitration and mediation center and an arbitration chamber within the commercial court for banking and finance disputes.
- Support digital payments and financial-sector development:
  - Mobile phone transactions grew from CFAF 1.8 billion to CFAF 31.9 billion between 2017 and 2019.
  - Continue to encourage mobile-based payments and develop fiber optic infrastructure to support banks’ digitalization.
  - Provide support for a co-financing mechanism for SME loans through creation of a national guarantee fund for loans to small- and medium-sized enterprises.

### Capacity building
- Continue a capacity-building strategy with technical and financial partners, improving coordination.
- IMF technical assistance (TA) on monitoring Covid-19 spending will be essential to build institutional capacities.
- TA priorities:
  - (i) improvement of revenue administration;
  - (ii) strengthening public financial management and improvement of fiscal governance and mechanisms to combat corruption;
  - (iii) building capacity for macroeconomic programming and debt management;
  - (iv) improvement of the quality of economic and financial statistics.

### Program monitoring: prior actions, performance criteria, and targets
- Program monitoring uses quantitative performance criteria and targets and structural benchmarks as defined in the Technical Memorandum of Understanding (TMU).
- Prior actions to be implemented as prior actions:
  - (i) submission to Parliament of a 2021 draft budget law in line with program commitments;
  - (ii) capture all the 2018 and 2019 corporate tax returns into the SYSTEMIF IT system (missed end-September SB);
  - (iii) submission to Parliament of a draft law aligning the asset declaration regime with applicable international good practices (missed end-September SB).
- Proposal to establish quantitative performance criteria for end-December 2020 and end-June 2021, along with indicative targets for end-March and end-September 2021; replace the performance criterion on repayment of domestic arrears by an indicative target to allow flexibility.
- Reviews envisaged:
  - Third review (performance at end-December 2020) by end-June 2021.
  - Fourth review (performance at end-June 2021) by end-December 2021.
- Commit to provide IMF staff with statistical data and information identified in the TMU and any other information requested for monitoring.

### Selected quantitative targets and key statistics (as presented)
- Publication threshold for procurement contracts: CFAF 5 million; publication within 30 days.
- Mobile transactions: CFAF 1.8 billion (2017) to CFAF 31.9 billion (2019).
- Table 2 selected entries (all figures in CFAF billions):
  - End-December 2020 PC: 4.0
  - End-December 2020 Indicative: -2.0
  - End-March 2021 PC: 16.0
  - End-March 2021 Indicative: -5.0
  - End-June 2021 PC: 1.0
  - Domestic revenue (floor, cumulative for the year): End-December 2020: 115.0; End-March 2021: 30.0; End-June 2021: 63.0; End-September 2021: 98.0; End-December 2021: 133.0.
  - Domestic primary fiscal balance (floor, cumulative for the year): End-December 2020: -85.0; End-March 2021: -10.0; End-June 2021: -25.0; End-September 2021: -40.0; End-December 2021: -59.0.
  - Continuous performance criteria: Contracting or guaranteeing of new external non concessional debt (ceiling): 0.0 at each reporting date listed.
  - Indicative targets:
    - Social spending (floor, cumulative for the year): End-December 2020: 35.0; End-March 2021: 5.0; End-June 2021: 15.0; End-September 2021: 24.0; End-December 2021: 32.0.
    - Spending through extraordinary procedures (ceiling, cumulative for the year): End-December 2020: 6.7; End-March 2021: 1.3; End-June 2021: 2.7; End-September 2021: 4.4; End-December 2021: 6.2.
    - Reduction in domestic payments arrears (floor, cumulative for the year): End-December 2020: 18.0; End-March 2021: 3.0; End-June 2021: 8.0; End-September 2021: 15.0; End-December 2021: 23.0.
  - Memorandum items (projected on a cumulative basis):
    - New concessional/external debt contracted or guaranteed by the government: 25.0 at each reporting date.
    - Budget support: End-December 2020: 76.3; End-March 2021: 0.0; End-June 2021: 0.0; End-September 2021: 43.7; End-December 2021: 53.3.
    - Privatization receipts: 0.0 at each reporting date.

### Structural benchmarks and timeline highlights (Table 3 summary)
- Existing structural benchmarks (selected status and comments):
  - Recruit new service provider to assist customs authorities in controlling import valuation and certifying timber export revenues: End-January 2020; Deadline not met; Completed in June 2020.
  - Approve secondary legislation for public and para-public institutions and enterprises: End-March 2020; Deadline not met; Completed in early October 2020.
  - Submit supplementary budget law to eliminate seven remaining public agencies: End-June 2020; Deadline met; Submitted to parliament, which did not approve it.
  - Capture all 2018 and 2019 corporate tax returns into SYSTEMIF IT: End-June 2020; Deadline not met; Completed in November 2020.
  - Submit law to align asset declaration regime with international practices: End-September 2020; Not met; Draft law submitted October 7 but not fully in line with applicable international good practices.
- Proposed prior actions and new structural benchmarks:
  - Submission to Parliament of a draft budget law for 2021 in line with program commitments: Prior Action — Met.
  - Capture all 2018 and 2019 corporate tax returns into SYSTEMIF IT: Prior Action — Met.
  - Submit to Parliament a law to align asset declaration regime with international good practices: Prior Action.
  - Publish online an independent audit of spending related to Covid-19 executed in 2020: End-April 2021.
  - Enact elimination of seven remaining public agencies without economic justification: End-April 2021.
  - Submit to the National Assembly a new anti-corruption law consistent with UNCAC recommendations: End-June 2021.
  - Publish results of tax audits of enterprises that fail to fulfill tax obligations: End-June 2021.
  - Adopt a budget execution order mandating online publication of all public procurement contracts above a specified amount within 30 days of award: End-September 2021.

### Technical Memorandum of Understanding (TMU) — selected definitions and rules
- Government scope: central government only; excludes local governments, the central bank, and public entities with separate legal personality not included in the TOFE.
- Definition of debt (per IMF Executive Board Decision No. 15688-(14/107) point 8): debt is a current contractual liability requiring future payments in assets or services; includes loans, suppliers’ credits, leases (present value of lease payments at inception).
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are considered debt.
- External debt: debt borrowed or serviced in a currency other than the CFA franc.
- Domestic debt: debt borrowed or serviced in the CFA franc.
- Guaranteed debt: explicit legal obligation by the government to service debt in event of borrower nonpayment.
- Concessional debt: grant element at least 35 percent; discount rate for present value calculation is 5 percent.
- Total government revenue: tax and nontax revenue recorded on a cash basis; excludes proceeds from financial asset sales, privatization, granting or renewal of licenses, placement proceeds, and grants.
- Total government expenditure: wages and salaries, goods and services, transfers, interest payments, and investment expenditure recorded on a settlement basis; includes expenditures executed before payment authorization and not yet settled.
- Wages and salaries defined as per GFSM 2014 paragraphs 6.8 to 6.18 (includes allowances, bonuses, pension fund contributions, etc.).
- Arrears defined as debt obligations not repaid in conformity with contract conditions.
- Domestic payment arrears comprise:
  - (i) payment arrears on expenditures: payment orders created but not paid 90 days after Treasury authorization; constitute part of “balances payable” and exclude domestic debt financing (principal plus interest);
  - (ii) payment arrears on domestic debt: difference between amount required under contract and amount actually paid after the contract-specified payment deadline.

*Source: Central African Republic — IMF staff report text and attached Technical Memorandum of Understanding.*

### 11.      External payment arrears are defined as arrears on external debts. They represent the

### 1cafea2021002 - 11.      External payment arrears are defined as arrears on external debts. They represent the

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

### Quantitative targets (overview)
- Quantitative targets are those specified in Table 1 of the MEFP.
- Adjusters of the quantitative targets are specified in Section D.
- Unless otherwise indicated, all performance criteria and indicative benchmarks are assessed on a cumulative basis from the beginning of the calendar year in which they are set.

### Performance criteria
- Ceiling on net domestic financing of the government:
  - Net domestic financing = (i) net bank credit to the government; and (ii) non-bank financing of the government, including proceeds from the sale of financial assets, proceeds from privatizations or the granting of licenses, Treasury bills, and other securitized debt issued by the government in the CEMAC regional financial market and denominated in CFA francs, and any Bank of Central African States (BEAC) credit to the government, including any drawings on the CFA franc counterpart of the allocation of Special Drawing Rights (SDRs).
  - Net bank credit to the government = balance between the debts and claims of the government vis-à-vis the central bank (excluding the use of IMF credit) and the local commercial banks.
  - Government claims include the CFA franc cash balance, postal checking accounts, securitized debt (obligations cautionnées), and all deposits with the BEAC and commercial banks of government-owned entities, except industrial or commercial public agencies (établissements publics à caractère industriel et commercial—EPICs) and government corporations, which are excluded.
  - Government debt to the banking system includes all debt to the central bank and local commercial banks, including Treasury bills and other securitized debt.
- Floor for domestic government revenue:
  - Only revenue on a cash basis (tax and nontax revenue) will be taken into account in the TOFE.
- Floor for the domestic primary fiscal balance:
  - Domestic primary fiscal balance (cash basis) = government domestic revenue − government expenditure − all interest payments − externally financed capital expenditure.
  - Payments on arrears are not included in the calculation of the domestic primary balance.
- Ceiling on new external debt contracted or guaranteed by the government:
  - The government undertakes not to contract or guarantee non-concessional loans.
- Non-accumulation of new external payment arrears by the government:
  - The government undertakes not to accumulate external payment arrears, with the exception of arrears relating to debt that is the subject of renegotiation or rescheduling.
  - This quantitative performance criterion is applied on a continuous basis.

### Indicative targets
- Floor for social spending:
  - Poverty-reducing social spending comprises public non-wage spending on national education (primary, secondary, and higher education), health, social action (promotion of women and families, humanitarian actions), water and sanitation, microfinance (small and medium-sized enterprises and industries), agriculture, livestock, and rural development.
  - Only domestically financed spending is taken into account.
  - Execution is monitored on a payment-order basis during the program.
- Ceiling on spending through extraordinary procedures:
  - This ceiling is set at 5 percent of total non-salary spending or debt service (principal and interest) and funded by external resources.
- Floor for the payment of domestic arrears:
  - The government undertakes to settle on a priority basis domestic arrears that have been validated.

### Memorandum item
- Ceiling on new external concessional debt contracted or guaranteed by the government:
  - Recourse to concessional debt will be limited to investment projects that are essential for the country’s development and for which it will not be possible to obtain grants.

### Adjusters of quantitative targets (Section D)
- Adjuster a (privatization/asset/license receipts):
  - If total revenue from privatization, sales of financial assets, or renewal of telecommunication licenses or forestry or oil licenses is greater than programmed:
    - i. The ceiling on net domestic financing of the government will be adjusted upward by an amount equivalent to 50 percent of these additional receipts.
    - ii. The floor for the primary domestic budget balance will be adjusted downward by an amount equivalent to 50 percent of these additional receipts.
- Adjuster b (budget support greater than programmed):
  - If total budget support is greater than the programmed amount:
    - i. The ceiling on net domestic financing of the government will be adjusted downward by an amount equivalent to 50 percent of the disbursements in excess of the programmed amounts.
    - ii. The floor for the primary domestic budget balance will be adjusted downward by an amount equivalent to 50 percent of the disbursements in excess of the programmed amounts.
- Adjuster c (budget support less than programmed):
  - If total budget support is less than the programmed amount:
    - i. The ceiling on net domestic financing of the government will be adjusted upward by an amount equivalent to the remainder of disbursements programmed but not made, that is, 50 percent of the disbursements programmed but not made.
    - ii. The floor for the primary domestic budget balance will be adjusted upward by an amount equivalent to 50 percent of the disbursements programmed but not made.

### Structural benchmarks and prior actions
- Prior actions (to be implemented prior to discussion of first and second reviews of the ECF arrangement):
  - Submit to Parliament a draft budget law for 2021 that is in line with program commitments, including paragraph 23 of the MEFP and the performance criteria and indicative targets for 2021 (table 2).
  - Capture all the 2018 and 2019 corporate tax returns into the SYSTEMIF IT system.
  - Submit to Parliament a law to bring the asset declaration regime into alignment with applicable international good practices (specifying persons subject, range of assets, modality for publishing declarations, and penalties).
- Structural benchmarks (timing specified in source):
  - Deploy e-procedures (declaration and payments) for large companies:
    - Online procedures for filing tax returns and making tax payments expected to be in place for large taxpayers before end-December 2020.
  - Publish online an independent audit of the spending related to Covid-19 executed in 2020:
    - Audit by the Court of auditors (Cour des Comptes) for all spending related to Covid-19, including the supplementary budget law for 2020, to be published in its entirety on a government website by end-April 2021.
  - Enact the elimination of the seven remaining public agencies without economic justification:
    - Elimination should take effect by end-April 2021.
    - The seven agencies: Autonomous Electricity Sector Regulation Agency (ARSEC); Minerals and Gems Facility (COMIGEM); Agency for Stabilization and Regulation of Petroleum Product Prices (ASRP); National Environment Fund (FNE); Mining Development Fund (FMN); Development Agro-Pastoral Fund (FDAP); Special Earmarked Fund for the Development of Tourism and Crafts (CAS-DTA).
  - Submit to the National Assembly a new anti-corruption law consistent with the United Nations Convention against Corruption:
    - Law should reflect relevant recommendations of the Financial Action Task Force and be submitted by end-June 2021.
  - Publish results of tax audits of enterprises that fail to fulfill tax obligations:
    - By end-June 2021 publish: number of audits conducted; the percentage of enterprises in compliance with their tax obligations; amounts to be collected; number of adjustments made; amounts notified (averages, medians and totals); business areas concerned; volumes of new taxpayers identified; progression of taxpayer compliance.
  - Adopt a budget execution order mandating online publication of all public procurement contracts above a specified amount within 30 days of award:
    - Order should apply to all public procurement contracts over CFAF 5 million, require publication of full text on the Ministry of Finance and Budget’s website, the names of winning companies, their beneficial owners, and the criteria used to choose them.
    - To be adopted by end-September 2021.

### Reporting of data to the IMF
- Quantitative data on the government’s indicative targets will be reported to IMF staff according to the frequency described in Table III.
- All data revisions will be promptly reported.
- Authorities undertake to consult Fund staff regarding any information or data not specifically addressed in this TMU but necessary for monitoring the program.

- Selected reporting deadlines (data in Excel format):
  - Semi-annual evaluation report on qualitative indicators and structural measures (Tables 1 and 2 in the MEFP), accompanied by supporting documents: Within four weeks of the end of each quarter.
  - Monetary survey, monthly central bank and commercial bank accounts: Within four weeks of the end of each month.
  - Table of the government’s monthly cash flow operations, reconciled with the BEAC: Within 10 days of the end of each month.
  - Government financial operations table (TOFE): Within four weeks of the end of each month.
  - Total monthly amount of domestic payment arrears on goods and services and on wages, including unpaid pensions and bonuses: Within four weeks of the end of each month.
  - Stock of external debt at end of period: Within four weeks of the end of each month.
  - Breakdown of expenditures listed in the TOFE (goods, services, wages, interest, etc.): Within four weeks of the end of each month.
  - Summary table of actual expenditures in priority areas, such as health, education, and security: Within four weeks of the end of each quarter.
  - Breakdown of current expenditure and capital disbursements, whether domestically or externally funded: Within four weeks of the end of each quarter.
  - Breakdown of revenues by institution and economic classification: Within four weeks of the end of each quarter.
  - Revenues and expenditures netted out without a cash settlement (by expenditure and revenue type): Within four weeks of the end of each quarter.
  - Breakdown of debt service and external arrears, particularly by interest and principal, and by main creditors: Within four weeks of the end of each month.
  - Amount of new non-concessional and concessional external debt contracted by the government: Within four weeks of the end of each month.
  - Actual disbursements for projects and programs receiving foreign financial assistance and relief of external debt granted by external creditors (including the date, amount, and creditor): Within four weeks of the end of each month.

### Debt sustainability assessment and public debt coverage (selected findings)
- Joint Bank-Fund Debt Sustainability Analysis findings:
  - Risk of external debt distress: High.
  - Overall risk of debt distress: High.
  - Granularity in the risk rating: Sustainable.
  - Application of judgement: No.
  - The Central African Republic remains at high risk of external debt distress and overall high risk of debt distress, unchanged from the most recent DSA.
  - Solvency indicators have deteriorated relative to the previous DSAs, and liquidity indicators breach their thresholds under the baseline scenario.
  - Sensitivity of debt indicators to standard stress tests, increased uncertainty of the economic outlook owing to the pandemic, a volatile security environment, and sizeable contingent liabilities support the high-risk assessment.
  - Debt is projected to remain sustainable over the medium term provided the policies and structural reforms under the ECF arrangement continue to be implemented.
  - Staff recommend continuing to rely heavily on grant financing, with concessional debt financing to be considered in exceptional cases.
- Public debt coverage and recent changes:
  - Coverage of public sector debt is in line with the previous DSA, exhibiting some gaps.
  - End-2019 public debt stock revised downward from 47.8 percent of GDP to 47.2 percent of GDP, primarily reflecting the latest debt restructuring from China, FIDA and Telco BG for a total of CFAF 8 billion.
  - Since then, about CFAF 6 billion in additional arrears have been identified, including about CFAF 3 billion in pensions arrears, CFAF 2 billion in salary arrears to former state agents of Bangui Municipality and the Parliament, and CFAF 1 billion in commercial arrears.
  - Excluding the pre-HIPC arrears, the public debt stock amounted to 37.9 percent of GDP at end-2019.
  - End-2019 public debt to GDP ratio estimated at 47.2 percent (compared to 50 percent a year earlier).
  - External debt to GDP ratio remained steady at 36.1 percent at end 2019.
  - Excluding pre-HIPC arrears, the external debt stock amounted to 26.8 percent of GDP at end-2019.
- Contingent liabilities stress test design and assumptions:
  - The tailored contingent liabilities shock is 15 percent of GDP (total of components).
  - Components:
    - Possible domestic payment arrears not included in debt stock: 3 percent of GDP (default used for analysis).
    - SoE's debt (guaranteed and not guaranteed by the government): 2 percent of GDP (default); for C.A.R., the shock from SOE debt is set at 5.0 percent of GDP for the tailored portion.
    - PPP stock: 0.0 percent of GDP.
    - Financial market (default value): 5 percent of GDP.
  - Total (2+3+4+5) (in percent of GDP) = 15.0.
  - Rationale for tailoring:
    - SOE debt shock increased to 5 percent of GDP (instead of 2 percent) to reflect heightened risks associated with non-guaranteed SOE debt and potential expenditure arrears.
    - Domestic arrears shock set at 5 percent of GDP to incorporate past and persisting shortcomings in public expenditure management systems.
    - Financial market risk shock kept at minimum default value of 5 percent of GDP given the small size and depth and relatively robust financial position of the financial sector in C.A.R.

*Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA); December 21, 2020.*

### 7.         The government has not

### 7.         The government has not

### New borrowing, disbursements, and arrears
- The government has not contracted any new loan since the last DSA.
- Beside the RCF disbursement already incorporated in the DSA of April 2020, there has been no new loan contracted or disbursed this year.
- Disbursements have been limited to US$ 9.5 million from the existing World Bank loan pertaining to the CEMAC transportation project, which has been extended to February 2020.
- The authorities temporarily accumulated some external debt arrears to IFAD, which have since been repaid.
- The authorities are planning to strengthen their debt management procedures to avoid the accumulation of such arrears in the future.

### Composition of external and domestic debt
- Pre-HIPC arrears and debt owed to multilateral creditors continue to account for the bulk of external debt.
- Multilateral creditors, mainly the IMF and the World Bank, hold almost half of the external debt.
- Since April 2020, C.A.R. has benefited from a debt service relief from the IMF under the CCRT for an initial period of 6 months that was extended for another 6 months, for a total amount of US$ 8.1 million.
- Bilateral debt amounts to 6.7 percent of GDP, with China, Congo, India, and Saudi Arabia being the main creditors.
- The average nominal interest rate stood at 0.5 percent for external debt in 2020.
- More than half of the domestic debt consists of statutory and exceptional advances from the Central Bank, which have been consolidated into one loan to be repaid from 2022 onwards, in line with regional arrangements.
- The remainder of domestic debt mainly includes officially recognized arrears amounting to 2.9 percent of GDP.

### Key debt stock figures (2019, percent of GDP)
- Total (External Debt): 36.1
- Of which:
  - Multilateral: 17.2
    - IMF: 9.8
    - World Bank: 4.8
    - Others: 2.6
  - Bilateral: 6.7
  - Private: 2.9
  - Pre-HIPC: 9.3
- Total (Domestic Debt): 11.1
  - Central Bank: 6.0
  - Arrears: 2.9
  - Other: 2.2

### Underlying macroeconomic assumptions and projections
- Short-term growth projections have been revised downward compared with the RCF, reflecting the more protracted economic impact of the pandemic; risks are tilted to the downside.
- Current account balance: expected to deteriorate in 2020 owing to the pandemic and an increase in externally financed public investment, but to improve over the medium term thanks to a gradual increase in exports.
- Domestic primary balance: after increasing sharply in 2020 owing to the impact of the pandemic on domestic revenue and additional spending to contain it, the domestic primary deficit would decline and stabilize at 2½ percent of GDP over the medium term.
- Grant financing: would gradually decline.
- Real GDP growth: after stagnating in 2020, expected to recover gradually to 5 percent over the medium term.
- Long-run assumptions and revisions:
  - External sector projections remain broadly unchanged.
  - Non-interest current account deficit expected to reach 3 percent of GDP in the long run.
  - Domestic revenues assumed to reach 14 percent of GDP at the end of the projection period.
  - Fiscal primary surplus expected to turn into a deficit of 1 percent of GDP over the long run as grant financing gradually declines.
  - Budget grants assumed to decline from an average of 7.5 percent of GDP during 2020–25 to 2 percent of GDP by 2040.
  - Short-run financing needs covered by deposit withdrawals; 80 percent of longer-term needs assumed to be covered through external concessional borrowing (with gradually decreasing concessionality) and 20 percent through domestic borrowing.
  - Long-run growth projections (2026–40) revised slightly upward from 3.6 percent in the previous DSA to 4.3 percent.
  - Population growth estimated at about 2.5 percent over the long term.

### Selected macroeconomic averages (percent)
- DSA-RCF (2020-25 average) / DSA-update (2026-40 average) — (% of GDP or percent change as indicated)
  - GDP growth (percent change): 4.2 / 3.6  and 3.9 / 4.3
  - GDP deflator (percent change): 2.8 / 2.7  and 2.4 / 2.5
  - Non-interest current account balance: -5.6 / -3.0  and -6.0 / -3.4
  - Exports: 14.9 / 15.3  and 14.7 / 15.5
  - Primary balance: -0.8 / -1.0  and -0.9 / -1.0
  - Revenues and grants: 18.2 / 16.5  and 18.5 / 16.6

### Realism checks and risks around the baseline
- The realism tools do not flag significant risks around the baseline scenario; both external PPG and public debt projections are in line with the previous DSA.
- Factors contributing to debt dynamics appear broadly in line with historical contributions.
- Unexpected changes in external debt are not far from the median for all LICs.
- The envisaged fiscal path is in line with historical performance and experience in other LIC countries.
- Note: changes in the primary balance are not always a good indicator to gauge the impact of fiscal policy in C.A.R.; owing to higher program grants, the primary balance is expected to be essentially the same in 2020 as in 2018, while fiscal policy is likely to prove more expansionary (with lower domestic revenue and significantly higher spending).

### Composite indicator and thresholds (selected)
- CI Score: 2.44 (CI rating: Weak)
- TOTAL public debt benchmark thresholds: Weak 35, Medium 55, Strong 70 (PV of total public debt in percent of GDP)
- EXTERNAL debt burden thresholds (examples):
  - PV of debt in % of Exports: Weak 140, Medium 180, Strong 240
  - PV of debt in % of GDP: Weak 30, Medium 40, Strong 55
  - Debt service in % of Exports: Weak 10, Medium 15, Strong 21
  - Debt service in % of Revenue: Weak 14, Medium 18, Strong 23

### External debt sustainability analysis (A)
- Relative to the previous DSAs, solvency has deteriorated as the PV of external debt-to-export ratio breaches the threshold under the current baseline scenario.
- Under the baseline scenario, the present values of debt-to-exports ratios breach the threshold and decline from their initial level over the projection period.
- The PV of the external debt-to-GDP ratio remains below the threshold under the baseline scenario but would breach the thresholds for the most extreme standardized stress test (a combination of shocks 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 both debt ratios, mainly because of the large shocks and conflicts that occurred in the past (such as the 2013 crisis).
- Liquidity indicators of the external PPG debt breach their thresholds for about five years under the baseline scenario:
  - External debt service-to-exports ratio breaches the threshold from 2024–28, driven by a significant uptick of debt service during that period related to the end of the grace period of a loan, as well as significant repayments to the Fund.
  - The external debt service-to-revenue ratio exhibits a similar trajectory, with a slightly lesser magnitude of breach.
- Breaches have been accentuated by the RCF disbursement compared to the time of the ECF request, and marginally accentuated compared to the previous DSA of April 2020 because of:
  - Increase in debt service in 2022-24 following the debt service suspension (DSSI) that was postponed to these years.
  - Lower revenue in years 2024-28 due to the compound effect of lower growth rates in 2020 and 2021 compared to the RCF DSA.
- Significant and persistent breaches of external debt service ratios would happen under the historical scenario and the most extreme standardized stress test (standardized shocks to exports and to growth respectively).

### Public debt sustainability analysis (B)
- The total PPG debt indicator remains well below its benchmark under 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 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 owing to contingent liabilities.
- 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.
- The solvency indicators have deteriorated relative to the previous DSAs.
- C.A.R.’s capacity to service debt is severely constrained by its low revenue mobilization and weak export base, with the external debt service-to-export and external debt service-to-revenue ratios breaching their respective thresholds under the baseline scenario.
- Other considerations supporting the high-risk assessment:
  - Macroeconomic projections are highly uncertain due to the possibility of a resurgence of the pandemic and a volatile security environment.
  - Standardized stress tests underline the sensitivity of the debt indicators to assumptions; lower export growth or further revisions to real GDP would trigger significant deterioration with multiple threshold breaches.
  - Sizeable contingent liabilities, mostly related to the SOEs, could materialize.

*Source: IMF staff estimates and country authorities (Central African Republic DSA text provided).*

### 16. The authorities broadly agreed with this assessment. They shared the view that

### 16. The authorities broadly agreed with this assessment. They shared the view that

### Authorities' assessment and policy commitments
- The authorities judged that C.A.R.’s capacity to service debt is limited.
- They are committed to:
  - strengthening debt monitoring;
  - mobilizing domestic revenues; and
  - mobilizing grant financing to cover their financing needs to the largest extent possible.

### External Debt Sustainability — baseline projections (Table 1: 2017–40)
- External debt (nominal), percent of GDP:
  - 2017: 35.5
  - 2018: 37.2
  - 2019: 36.1
  - 2020: 37.3
  - 2021: 36.9
  - 2022: 34.8
  - 2023: 33.2
  - 2024: 31.9
  - 2025: 31.0
  - 2030: 28.1
  - 2040: 23.4
- Change in external debt:
  - 2017: 0.4
  - 2018: 1.8
  - 2019: -1.1
  - 2020: 1.2
  - 2021: -0.3
  - 2022: -2.2
  - 2023: -1.6
  - 2024: -1.2
  - 2025: -0.9
  - 2030: -0.4
  - 2040: 0.0
- Identified net debt-creating flows:
  - 2017: 2.9
  - 2018: 3.9
  - 2019: 3.8
  - 2020: 7.1
  - 2021: 3.9
  - 2022: 2.6
  - 2023: 2.5
  - 2024: 2.6
  - 2025: 2.8
  - 2030: 0.0
  - 2040: -0.3
- Non-interest current account deficit:
  - 2017: 7.7
  - 2018: 7.8
  - 2019: 4.8
  - 2020: 7.4
  - 2021: 5.9
  - 2022: 5.4
  - 2023: 5.4
  - 2024: 5.3
  - 2025: 5.4
  - 2030: 2.9
  - 2040: 2.8
- Deficit in balance of goods and services:
  - 2017: 16.4
  - 2018: 17.8
  - 2019: 18.3
  - 2020: 19.4
  - 2021: 17.0
  - 2022: 16.0
  - 2023: 15.5
  - 2024: 15.4
  - 2025: 14.9
  - 2030: 11.2
  - 2040: 9.0
- Exports (percent of GDP):
  - 2017: 15.9
  - 2018: 15.9
  - 2019: 15.8
  - 2020: 13.6
  - 2021: 14.2
  - 2022: 15.0
  - 2023: 15.0
  - 2024: 15.0
  - 2025: 15.3
  - 2030: 16.1
  - 2040: 14.5
- Imports (percent of GDP):
  - 2017: 32.4
  - 2018: 33.7
  - 2019: 34.1
  - 2020: 33.0
  - 2021: 31.2
  - 2022: 31.0
  - 2023: 30.5
  - 2024: 30.3
  - 2025: 30.3
  - 2030: 27.3
  - 2040: 23.5
- Net current transfers (negative = inflow):
  - 2017: -8.8
  - 2018: -9.9
  - 2019: -13.6
  - 2020: -12.0
  - 2021: -11.1
  - 2022: -10.5
  - 2023: -10.1
  - 2024: -9.9
  - 2025: -9.4
  - 2030: -8.1
  - 2040: -5.8
  - Official transfers (component): 2017: -3.2; 2018: -4.4; 2019: -7.3; 2020: -7.4; 2021: -5.6; 2022: -5.2; 2023: -4.7; 2024: -4.2; 2025: -3.8; 2030: -3.8; 2040: -3.0
- Net FDI (negative = inflow):
  - 2017: -0.8
  - 2018: -0.8
  - 2019: -1.1
  - 2020: -0.4
  - 2021: -1.0
  - 2022: -1.3
  - 2023: -1.4
  - 2024: -1.4
  - 2025: -1.3
  - 2030: -1.9
  - 2040: -2.4
- Endogenous debt dynamics:
  - 2017: -4.1
  - 2018: -3.1
  - 2019: 0.2
  - 2020: 0.2
  - 2021: -1.0
  - 2022: -1.5
  - 2023: -1.4
  - 2024: -1.3
  - 2025: -1.3
  - 2030: -0.9
  - 2040: -0.6
- PV of PPG external debt-to-GDP ratio (selected projections):
  - 2023: 17.7
  - 2024: 16.8
  - 2025: 13.9
  - 2030: 14.6
- PV of PPG external debt-to-exports ratio (selected projections):
  - 2023: 118.1
  - 2024: 110.0
  - 2025: 86.4
  - 2030: 100.2
- PPG debt service-to-exports ratio (selected projections):
  - 2020: 6.6
  - 2021: 6.1
  - 2022: 8.1
  - 2023: 8.3
  - 2024: 10.8
  - 2025: 12.0
  - 2030: 7.6
- PPG debt service-to-revenue ratio (selected projections):
  - 2020: 10.5
  - 2021: 9.3
  - 2022: 11.8
  - 2023: 11.6
  - 2024: 14.8
  - 2025: 16.5
  - 2030: 10.2
- Gross external financing need (Million of U.S. dollars):
  - 2017: 148.8
  - 2018: 173.7
  - 2019: 96.4
  - 2020: 182.2
  - 2021: 148.5
  - 2022: 149.4
  - 2023: 156.7
  - 2024: 181.8
  - 2025: 205.5
  - 2030: 105.8
  - 2040: 114.1
- Key macro assumptions (selected):
  - Real GDP growth (percent): 2017: 4.5; 2018: 3.8; 2019: 3.0; 2020: 0.0; 2021: 3.5; 2022–2025: 5.0; 2030: 4.2; 2040: 4.2; 2022 projection also shows -0.2 in one line.
  - GDP deflator in US dollar terms (change in percent): 2017: 8.6; 2018: 6.0; 2019: -3.0; 2020: 2.1; 2021: 7.4; 2022: 3.2; 2023: 2.8; 2024: 2.5; 2025: 2.4; 2030: 2.5; 2040: 2.9
  - Effective interest rate (percent): 2017: 0.4; 2018: 0.5; 2019: 0.4; 2020: 0.5; 2021: 0.5; 2022: 0.5; 2023: 0.5; 2024: 0.6; 2025: 0.7; 2030: 0.8; 2040: 1.2
  - Grant element of new public sector borrowing (in percent) (selected projections): 2021: 40.8; 2022: 35.9; 2023: 37.6; 2024: 53.1; 2025: 53.3; 2026: 53.2; 2027: 46.0; 2028: 33.6; 2030: 47.3
  - Government revenues (excluding grants, percent of GDP): 2017: 7.8; 2018: 8.9; 2019: 8.7; 2020: 8.5; 2021: 9.3; 2022: 10.2; 2023: 10.7; 2024: 10.9; 2025: 11.1; 2030: 12.0; 2040: 13.7; another line shows 8.0 and 10.8 in some cells.
  - Aid flows (Million of US dollars): 2017: 144; 2018: 34.2; 2019: 45; 2020: 76.8; 2021: 97; 2022: 19.7; 2023: 34.6; 2024: 23.8; 2025: 23.6; 2030: 23.5; 2040: 23.3; another set shows 72.3, 8.4, etc. (table has multiple aid-flow lines)
  - Grant-equivalent financing (in percent of GDP) (selected): 2021: 14.9; 2022: 9.8; 2023: 8.7; 2024: 8.4; 2025: 8.2; 2026: 7.9; 2027: 6.1; 2028: 2.9; 2030: 8.4
- Nominal GDP (Million of US dollars) (selected):
  - 2017: 2,072
  - 2018: 2,280
  - 2019: 2,277
  - 2020: 2,324
  - 2021: 2,584
  - 2022: 2,801
  - 2023: 3,023
  - 2024: 3,252
  - 2025: 3,496
  - 2030: 4,906
  - 2040: 9,518

### Public Sector Debt — baseline projections (Table 2: 2017–40)
- Public sector debt (percent of GDP):
  - 2017: 50.3
  - 2018: 50.0
  - 2019: 47.2
  - 2020: 46.8
  - 2021: 44.1
  - 2022: 40.9
  - 2023: 38.8
  - 2024: 37.2
  - 2025: 35.8
  - 2030: 30.2
  - 2040: 27.1
- Public sector debt change:
  - 2017: -3.6
  - 2018: -0.2
  - 2019: -2.9
  - 2020: -0.4
  - 2021: -2.7
  - 2022: -3.2
  - 2023: -2.1
  - 2024: -1.7
  - 2025: -1.3
  - 2030: -0.8
  - 2040: 0.3
- Identified debt-creating flows (percent of GDP):
  - 2017: -7.9
  - 2018: 0.0
  - 2019: -3.0
  - 2020: 1.1
  - 2021: -2.0
  - 2022: -2.9
  - 2023: -2.0
  - 2024: -1.6
  - 2025: -1.3
  - 2030: -0.8
  - 2040: 0.3
- Primary deficit (percent of GDP):
  - 2017: 0.7
  - 2018: 0.6
  - 2019: -1.8
  - 2020: 2.1
  - 2021: 1.0
  - 2022: 0.1
  - 2023: 0.3
  - 2024: 0.8
  - 2025: 1.3
  - 2030: 0.9
  - 2040: 1.5
- Revenue and grants (percent of GDP):
  - 2017: 12.8
  - 2018: 16.6
  - 2019: 18.3
  - 2020: 21.8
  - 2021: 18.0
  - 2022: 18.3
  - 2023: 18.1
  - 2024: 17.7
  - 2025: 17.4
  - 2030: 16.9
  - 2040: 15.9
  - Grants (component): 2017: 5.0; 2018: 7.8; 2019: 9.6; 2020: 13.3; 2021: 8.7; 2022: 8.0; 2023: 7.4; 2024: 6.8; 2025: 6.3; 2030: 4.9; 2040: 2.2
- Primary (noninterest) expenditure (percent of GDP):
  - 2017: 13.5
  - 2018: 17.2
  - 2019: 16.6
  - 2020: 23.9
  - 2021: 18.9
  - 2022: 18.3
  - 2023: 18.3
  - 2024: 18.6
  - 2025: 18.7
  - 2030: 17.8
  - 2040: 17.5
- Automatic debt dynamics (percent of GDP):
  - 2017: -8.6
  - 2018: -0.8
  - 2019: -1.4
  - 2020: -0.5
  - 2021: -2.3
  - 2022: -2.8
  - 2023: -2.6
  - 2024: -2.4
  - 2025: -2.2
  - 2030: -1.6
  - 2040: -1.2
  - Contribution from interest rate/growth differential (same series, e.g., 2017: -5.2; 2018: -2.2; 2019: -2.2; 2020: -0.5; 2021: -2.3; 2022: -2.8; 2023: -2.6; 2024: -2.4; 2025: -2.2; 2030: -1.6; 2040: -1.2)
- PV of public debt-to-GDP ratio (selected projections):
  - 2023: 29.4
  - 2024: 29.1
  - 2025: 27.3
  - 2030: 25.6
  - 2040: 24.3
- PV of public debt-to-revenue and grants ratio (selected projections):
  - 2023: 160.1
  - 2024: 133.7
  - 2025: 152.0
  - 2030: 140.1
  - 2040: 134.2
- Debt service-to-revenue and grants ratio:
  - 2017: 9.1
  - 2018: 18.7
  - 2019: 17.1
  - 2020: 12.4
  - 2021: 17.5
  - 2022: 12.7
  - 2023: 13.2
  - 2024: 17.5
  - 2025: 20.8
  - 2030: 15.6
  - 2040: 16.4
- Gross financing need (percent of GDP):
  - 2017: 1.9
  - 2018: 3.9
  - 2019: 1.5
  - 2020: 4.8
  - 2021: 3.7
  - 2022: 2.3
  - 2023: 2.6
  - 2024: 3.9
  - 2025: 4.9
  - 2030: 3.4
  - 2040: 4.1
- Key macro and fiscal assumptions (selected):
  - Real GDP growth (percent): see External Debt assumptions; baseline includes 5.0 percent for 2022–2025 and 4.2 percent for 2030 and 2040.
  - Average nominal interest rate on external debt (percent): 2017: 0.4; 2018: 0.5; 2019: 0.4; 2020: 0.5; 2021: 0.5; 2022: 0.5; 2023: 0.5; 2024: 0.6; 2025: 0.7; 2030: 0.8; 2040: 1.3
  - Average real interest rate on domestic debt (percent) (selected): 2017: -5.3; 2018: -0.4; 2019: -0.7; 2020: -0.2; 2021: -0.4; 2022: 0.1; 2023: 0.3; 2024: 0.7; 2025: 1.1; 2030: 3.3; 2040: 5.3
  - Inflation rate (GDP deflator, percent): 2017: 6.4; 2018: 1.3; 2019: 2.4; 2020: 2.0; 2021: 2.5; 2022–2025: 2.5; 2030: 2.6; 2040: 4.5
  - Growth of real primary spending (deflated by GDP deflator, percent): 2017: 22.4; 2018: 31.9; 2019: -0.8; 2020: 44.3; 2021: -18.1; 2022: 1.6; 2023: 5.1; 2024: 6.2; 2025: 5.9; 2030: 3.1; 2040: 4.4
  - Primary deficit that stabilizes the debt-to-GDP ratio (percent of GDP) (selected): 2017: 4.4; 2018: 0.8; 2019: 1.1; 2020: 2.5; 2021: 3.7; 2022: 3.2; 2023: 2.4; 2024: 2.5; 2025: 2.6; 2030: 1.7; 2040: 1.2
- PV of contingent liabilities (not included in public sector debt): 0.0 for all years reported.

### Stress tests, sensitivity analysis, and alternative scenarios (Tables & Figures)
- Stress and sensitivity analyses cover: alternative scenarios (historical averages, ECF December 2019, RCF April 2020), bound tests (Real GDP growth, Primary balance, Exports, Other flows, Depreciation, Combination), and tailored tests (Combined contingent liabilities, Natural disaster, Commodity price, Market Financing).
- Table 3 (Public and PPG external debt sensitivity, key indicators 2020–30) highlights breaches of thresholds in some scenarios (bold values indicate breaches).
- Selected sensitivity outcomes (PV of debt-to-GDP and related indicators, baseline and scenarios):
  - Baseline PV of debt-to-GDP series (selected): 2020: 148; 2021: 142; 2022: 129; 2023: 124; 2024: 118; 2025: 110; 2026: 103; 2027: 95; 2028: 90; 2029: 87; 2030: 86
  - Bound test B1 (Real GDP growth) increases PV of debt-to-GDP across 2021–2030 relative to baseline (e.g., 2021: 142 baseline vs. 142 in B1; later years rise substantially in some tables).
- Table 4 (Public debt sensitivity, 2020–30) reports PV of debt-to-GDP and debt service-to-revenue benchmarks across scenarios; notable stress outcomes:
  - Under Bound Test B1 (Real GDP growth), PV of debt-to-GDP reaches values such as 184 in 2021, 217 in 2022, 231 in 2023, and up to 332 by 2030 in that scenario.
  - Under Tailored Test C1 (Combined contingent liabilities), PV of debt-to-GDP reaches 206 in 2021 and remains elevated through 2030 relative to baseline.
- Figures show:
  - Indicators of Public and Publicly Guaranteed External Debt under alternative scenarios, 2020–30.
  - Drivers of debt dynamics (real GDP growth, real exchange rate, nominal interest rate, current account and FDI, residuals) with historical and projected contributions.
  - Realism tools: public and private investment rates; fiscal adjustment and possible growth paths under different fiscal multipliers; distribution of 3-year adjustment in primary balance for Fund-supported LIC programs.

### Key analytical points and implications
- Debt ratios (both external and public) follow a declining path under the baseline projections from 2021 onward, reflecting:
  - negative identified net debt-creating flows in many years (e.g., -2.2 in 2022; -1.6 in 2023);
  - automatic debt dynamics that are generally negative (e.g., -2.8 in 2022; -2.6 in 2023).
- Stress tests indicate vulnerability to adverse shocks, particularly from weak real GDP growth and combined shocks (e.g., contingent liabilities), which can materially raise PV of debt and debt service indicators and breach thresholds in several scenarios.
- High reliance on grants and concessional financing is evident (grant-equivalent financing and large grant elements of new borrowing in some projection years), underscoring the authorities’ emphasis on mobilizing grant financing.

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

### 1.      This supplement provides staff’s assessment of the ability of the Fund to

### This supplement provides staff’s assessment of the ability of the Fund to provide financing to the Central African Republic (C.A.R.) notwithstanding official bilateral external arrears to Libya.

### Lending-into-Offical-Arrears (LIOA) Assessment
- Staff conclusion: The conditions are met for the Fund to provide financing to C.A.R. despite outstanding arrears to Libya under the Fund’s lending-into-official-arrears policy.
- Rationale:
  - Prompt Fund financial support is considered essential and the member is pursuing appropriate policies.
  - The arrears to Libya are related to official sector involvement under a non-representative Paris Club agreement; staff assessed the required three criteria and found they are met.
  - Staff supports completion of the first and second reviews under the Extended Credit Facility (ECF) arrangement notwithstanding official bilateral arrears to Libya.
- Debtor good-faith efforts:
  - C.A.R. authorities have contacted Libyan authorities bilaterally through letters (most recently on January 8, 2021) offering a collaborative process to resolve outstanding arrears and have shared relevant information on a timely basis.
  - The C.A.R. authorities are committed to continue making good faith efforts until all remaining arrears are resolved.
- Terms offered to Libya:
  - The terms offered are in line with the financing and debt objectives of the Fund-supported program and would not result in financing contributions that exceed program requirements.
  - The authorities are seeking from Libya exactly comparable HIPC terms of 94 percent debt cancellation.
- Effect on future mobilization of official financing:
  - The contribution sought from Libya did not account for the majority of financing contributions required from official bilateral creditors in the HIPC context.
  - Libya’s historical engagement: Libya undertook only 5 HIPC restructurings out of its total 18 Completion-Point debtors.
  - Staff view: providing financing to C.A.R. despite the arrears is not expected to have an undue negative effect on the Fund's ability to mobilize future financing packages, given strong international support for the program and C.A.R. efforts to resolve the arrears.

### Statement by the Staff Representative (January 12, 2021)
- Purpose: Provides information on recent developments and does not alter the thrust of the staff appraisal.
- Prior action completed: Authorities completed the remaining prior action on the submission to Parliament of the asset declaration law on December 15, 2020.
- Process: In close consultation with staff, authorities prepared and submitted amendments to the draft law to align with applicable international good practices.

### Authorities’ Statement — Recent Developments and Outlook (as presented by CAR representatives)
- Appreciation: Authorities thank the Executive Board, Management and staff for continued support; approval of the ECF arrangement signaled support for macroeconomic stabilization, administrative capacity building, governance, business climate, and poverty reduction.
- Political context:
  - Presidential and parliamentary elections were held on December 27, 2020 as scheduled.
  - Priority: restoring peace while fighting the Covid-19 pandemic and its economic and social fallout.
- COVID-19 situation and humanitarian context:
  - As of January 4, 2021, confirmed Covid-19 cases stood at 4,885 with 63 fatalities.
  - Elevated number of refugees and displaced persons reaching about 60 percent of the population.
  - Humanitarian and financial assistance from partners continues to be needed.
- Economic impact and outlook:
  - Economic growth projected to decline from 3 percent in 2019 to 0 percent in 2020.
  - Inflation expected to remain below 3 percent in 2020 at about 2.1 percent.
  - Public debt anticipated to decline from 47.2 percent of GDP in 2019 to 46.8 percent of GDP in 2020.
  - Current account deficit widened from 4.9 percent of GDP in 2019 to 7.6 percent in 2020; expected to improve in 2021 owing to an export rebound.
  - Resources provided by the Rapid Credit Facility (RCF) and debt relief under the Catastrophe Containment and Relief Trust (CCRT) were essential to meeting financing needs generated by the Covid-19 pandemic.

### Program Performance and Policy Priorities
- Program implementation:
  - Implementation under the ECF arrangement has been challenging due to coordination difficulties, administrative weaknesses, liquidity issues, and the impact of Covid-19.
  - Three quantitative performance criteria and four structural benchmarks were missed; corrective measures implemented successfully.
  - Authorities requested to replace the performance criterion on the repayment of domestic arrears with an indicative target to allow flexibility and avoid liquidity shortages.
- Use of Covid-19 resources:
  - A committee established by July 2020 decree (sectoral departments, expenditure supervision agencies, civil society, and partners) monitors execution of Covid-19 spending and compliance with procedures.
  - Authorities committed to monthly publication of all relevant information related to public expenditures and contracts, including selection criteria of beneficiaries.
  - Authorities agreed to publish the independent audit by the court of auditors on public expenditures executed in 2020 to tackle the pandemic.
- Medium-term policy priorities:
  - Strengthen domestic revenue mobilization and public spending efficiency, reduce public debt, pursue PFM reforms, enhance governance and the business climate, and build institutions and capacity.
- Fiscal policy and reforms:
  - Priority to increase revenue and public expenditure efficiency and streamline non-priority spending.
  - Objective: gradually reduce the domestic primary deficit to 2½ percent of GDP.
  - Tax reforms: widen the tax base through matching tax and customs registers; implement customs ASYCUDA World IT System; address import value discrepancies; assess exemptions; interconnect major customs offices; advance tax digitalization.
  - Expenditure: cancelled the equivalent of 0.5 percent of GDP in non-priority spending; continue to prioritize social spending and poverty reduction.
  - Adoption of implementing decrees for SOE supervision to better monitor fiscal risks and financial position of public and para-public entities.
- Public Financial Management (PFM) reforms:
  - Reinforce budget procedures; eliminate the remaining seven public agencies without economic justification; extend electronic payment of wages in public administration and to militaries.
  - Enhance monitoring of commitments in the PFM IT system GESCO; expect World Bank technical assistance to maintain it.
  - With IMF and World Bank support, conduct review of resources allocated to public institutions and government’s social spending.
  - French Development Agency (AFD) expected to support quarterly audits of domestic arrear payments.
  - Pursue consolidation of the treasury single account (TSA).
- Debt management:
  - Maintain a prudent borrowing strategy prioritizing grants and concessional loans.
  - Implemented reforms: strengthened coordination between the debt unit and treasury to prevent external arrears; new legal framework governing SOEs; capacity building and IT improvements in the debt unit.
  - Authorities committed to repay all domestic arrears by end-2021 and prevent accumulation of pension arrears.
  - Authorities pursuing in good faith negotiations on restructuring external debt with official creditors.
- Financial sector:
  - Banking system remains well-capitalized and profitable but indicators deteriorated due to Covid-19.
  - Non-performing loans (NPLs) increased from 12.6 percent to 13.7 percent between 2019 and 2020.
  - Credit to private sector in June 2020 declined by 4.8 percent compared to June 2019.
  - Liquidity ratio decreased from 165 percent in December 2019 to 132 percent in March 2020.
  - Capital adequacy ratio decreased from 30 percent in December 2019 to 28 percent in May 2020.
  - Financial inclusion reforms to prioritize mobile and online banking and establish financing mechanisms for SMEs.
- Structural reforms:
  - Implement IMF governance diagnostic recommendations; develop an anti-corruption action plan and an anti-corruption law compliant with the United Nations Convention against Corruption; issue related decrees for the new asset declaration regime.
  - Business climate reforms: new labor code submitted to National Assembly; forthcoming mining code aligned with international standards; procurement contracts exceeding CFA 5 million to be published; establish National Economic and Financial Council to implement arbitration, mediation center, and arbitration chamber.
- Capacity building:
  - Reliance on technical assistance from development partners to strengthen institution building, improve public expenditure chain, and increase transparency and governance.
  - Seek technical support to improve revenue administration, economic and financial statistics, fiscal governance and anti-corruption mechanisms; further strengthen PFM; and ensure adequate capacity for macroeconomic programming and debt management.

### Conclusion and Requests to the Executive Board
- Authorities remain committed to safeguarding macroeconomic stability and maintaining reform momentum under the program to achieve higher and more inclusive growth.
- Authorities request the Executive Board’s favorable completion of the first and second reviews under the ECF arrangement and approval of waivers of nonobservance of performance criteria.

*IMF staff supplement and attached statements, January 8, 2021 and January 12, 2021.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1cafea2021002.pdf_