## EXECUTIVE SUMMARY — Central African Republic Staff‑Monitored Program ## Source details **Canonical URL:** [EXECUTIVE SUMMARY — Central African Republic Staff‑Monitored Program](https://www.imf.org/-/media/files/publications/cr/2022/english/1cafea2022002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1cafea2022002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1cafea2022002.pdf.json) --- ### Background - Fragile security environment improved after attempted seizure of power at turn of year 2021; reopening of the Douala‑Bangui corridor reinvigorated activity and curbed inflationary pressures. - Third Covid‑19 wave receding; government received 1.5 million vaccine doses and 11 percent of the total population has been vaccinated; all 109 recorded deaths since the pandemic have occurred in unvaccinated victims. - President Touadéra launched the Republican dialogue peace initiative alongside the Luanda Road Map; surrender of a key rebel leader to the International Criminal Court noted as key step. - Donors delayed disbursing budget support pending greater transparency in security‑related spending, posing fiscal and social risks given heavy reliance on budget support. - Sharp deterioration in terms of trade reflecting food and fuel price shocks, compounded by geo‑political spillovers, will exacerbate vulnerabilities and erode policy space. ### Program objectives - In December 2021 authorities embarked on a Staff‑Monitored Program (SMP). - The 7‑month SMP running through June 2022 aims to improve the track record of policy implementation and unlock budget support from donors. - Satisfactory SMP implementation and financing assurances would permit resumption of discussions under the ECF‑supported program (approved in 2019) in mid‑2022. ### Program review (end‑December 2021) - Program performance at end‑December 2021: quantitative benchmarks and all three structural benchmarks were met. - Two indicative targets missed: - Floor on domestic arrears not met due to monitoring weaknesses; remedial action planned and new digital system for managing pensions expected to mitigate arrears accumulation. - Ceiling on spending through extraordinary procedures not met: spending totaled CFAF 7.4 billion at end‑2021, exceeding program floor of CFAF 6.7 billion, owing to onerous and hard‑to‑predict health evacuations. - Looking to end‑March 2022, remaining targets likely to be met predicated on authorities’ commitments to prudent budget execution. ### Staff views and policy guidance - Prudent execution of the 2021 revised budget law prevented spending overruns; slightly higher domestic revenues kept the deficit in check. - Authorities need to bridge differences with donors for swift disbursement of budget support. - Spending should be executed based on available resources until budget support resumes. - Viable 2022 financing mix envisages using a portion of remaining SDR allocation and modest issuance of government securities in the regional market to preserve debt sustainability while keeping buffers for future funding risks. ### Recent economic developments and key statistics - Growth: - Growth expected at 1 percent in 2021, in line with December 2021 projections. - Inflation: - Inflation reached 5.2 percent year‑on‑year during Q1 2021. - Inflation eased to an average of 3.3 percent year‑on‑year in H2 2021, yearly average 4.3 percent. - Core inflation stabilized at 2 percent. - Public finances and revenues: - Domestic revenues reached CFAF 125.9 billion (8.8 percent of GDP), exceeding annual SMP target by around CFAF 2 billion. - Domestic primary expenditure reached CFAF 199.3 billion (14 percent of GDP), in line with revised budget law (CFAF 199 billion). - Social spending higher than expected at CFAF 40 billion (2.8 percent of GDP) compared to CFAF 24 billion in the budget. - Public debt and financing: - Domestic debt increased to 13.2 percent of GDP due to higher domestic financing (CFAF 48.75 billion in government securities and CFAF 35 billion in use of the SDR allocation). - BEAC restructured C.A.R.’s domestic debt: grace period extended by three years to 2025 (instead of 2022) and maturity to 20 years (from 10 years). - Overall public debt rose to 47.6 percent of GDP, reflecting disbursement of a concessional loan from the Saudi Development Fund contracted in 2015. - Balance of payments: - SDR allocation (about 6 percent of GDP) helped generate a small balance of payments surplus in 2021. - Trade deficit remained high, at about 15 percent of GDP. - Non‑disbursement of budget support totaling some 5 percent of GDP weighed heavily on the current account balance. - Banking sector: - Capital adequacy ratio 23.8 percent at end‑September 2021 (regulatory minimum 9.5 percent). - Private sector loans increased by 11.3 percent year‑on‑year in December 2021. - NPL ratio stood at 14 percent. - Short‑term liquidity coverage ratio improved to 214 percent. - Some privately‑owned institutions face sizable liquidity and recapitalization needs and have yet to fully implement COBAC’s supervisory decisions. ### Structural benchmarks and prior actions (status highlights) - Online publication of independent audit of COVID‑related spending executed in 2020 — Met. - Elimination of agencies without economic justification — Met. - Submission to the National Assembly of a draft supplementary budget for 2021 consistent with SMP objectives — Met. - Submission to the National Assembly of a draft budget for 2022 consistent with SMP objectives — Met. - Ministerial orders on import suspensions for noncompliant importers and mandatory e‑filing for large taxpayers — Met. - Adjustment of ASYCUDA++ to reflect Webb Fontaine values — Met. - Submission of new anticorruption law consistent with UNCAC — Not met (submitted on February 4, 2022, past end‑January 2022 deadline); staff to assess consistency with UNCAC. ### Outlook and risks - Authorities could meet most end‑March 2022 quantitative targets based on early 2022 revenue and spending, prudent execution, and revised staff projections. - Staff proposes revising end‑March 2022 quantitative targets to account for non‑disbursement of 2021 World Bank and EU budget support expected in 2022Q1: - Higher net domestic financing foreseen reflecting frontloaded use of part (CFAF 20 billion in 2022 out of remaining CFAF 49 billion) of the SDR allocation. - Higher privatization receipts envisaged by end‑March 2022 reflecting receipt of the second half (CFAF 1.8 billion) of sale of part of government stake in a local bank. - Key risks: - Continued delays in donor budget support disbursements would pose fiscal and social risks. - Security fragility, terms‑of‑trade shocks (food and fuel), and geopolitical spillovers could further erode policy space and exacerbate vulnerabilities. --- ### Macroeconomic outlook and inflation (projections and drivers) - Growth projections: - Growth projected at 3.5 percent in 2022 and 3.7 percent in 2023 before converging to around 4 percent in the medium term. - Projections marginally lower than December staff report, reflecting spillovers from delayed budget support, more challenging external environment, and slower progress on peace agenda. - Inflation projections: - Headline inflation projected to reach 4 percent in 2022, 1½ percentage points higher than December 2021 projections, before converging to around 2½ over the medium term. - Domestic risks: resurgence of violence, a new Covid‑19 variant, and fast‑rising domestic prices; upside from faster structural reforms and quicker return to peace. ### External balances, terms of trade, and balance of payments - Sharp deterioration in terms of trade would weaken the trade balance by up to 3 percentage points of GDP compared to 2021. - Non‑disbursement of 2021 budget support (initially expected for H1 2022) will widen: - Current account deficit to 11 percent of GDP in 2022, and - Overall balance of payments deficit to 5 percent of GDP in 2022. - Medium term: current account deficit projected to gradually decline towards 6 percent of GDP as exports rise and official transfers decline; financial account expected to slowly improve contributing to a balance of payments surplus of 1.3‑1.4 percent of GDP in the outer years. ### Budget support, fiscal buffers, and risks - Budget shortfall of about CFAF 47 billion (3 percent of GDP) corresponding to non‑disbursement of 2021 World Bank and EU budget support already triggered fiscal consolidation. - Baseline assumes disbursement of EU and World Bank budget support of CFAF 39.5 billion in H2 2022. - If budget support not provided in 2022, C.A.R. would exhaust all buffers by 2023, face acute funding needs, suspension of essential functions, high probability of external arrears accumulation, and ultimately debt distress. - Non‑disbursement in 2022 would represent a 3 percentage points of GDP shock that could not be entirely accommodated by procyclical spending cuts. ### Fiscal policy stance and measures (2022–2023) - Authorities executing 2022 budget according to available resources, prioritizing essential spending and strengthening revenue mobilization. - Oil price shock estimated budgetary revenue losses of about CFAF 6 billion (0.4 percent of GDP) compared to December 2021 staff projections. - Authorities plan to rationalize non‑priority primary expenditure by CFAF 9 billion (0.6 percent of GDP) compared to 2022 budget law, mainly through H1 2022. - End‑March indicative target for domestic arrears clearance adjusted downward from CFAF 3 billion to zero (MEFP, ¶26). - Fiscal consolidation envisaged corresponds to reducing the domestic primary fiscal deficit by 1.1 percentage point of GDP in 2022 and by 0.5 percentage point of GDP in 2023 (MEFP, ¶27). - Authorities plan to frontload use of CFAF 20 billion out of remaining CFAF 49 billion of SDR allocation and cap new issuances of government securities at CFAF 15 billion (1 percent of GDP) in 2022 (MEFP, ¶28). - If outlook worsens, authorities stand ready to submit supplementary budget law proposing additional expenditure cuts while protecting social spending and larger use of remaining SDR allocation (MEFP, ¶29). ### Food, fuel, and social impacts - Fuel imports account for 30 percent of total goods imports; fixed domestic petroleum prices imply the budget absorbs gap when international fuel prices surge. - Food imports account for 17 percent of total goods imports; higher international food prices will directly hurt the poor. - IPC latest analysis: 43 percent of the C.A.R.’s population experience high levels of acute food insecurity. - Interim measures: consider temporary relief to smooth food and energy bills within fiscal limits; assess domestic oil price structure to allow greater pass‑through while strengthening social safety nets. ### Public Financial Management (PFM) and domestic arrears - By end‑May 2022 authorities committed to auditing all remaining domestic arrears (MEFP, ¶33). - Authorities to design and share with Fund staff in July a strategy to clear remaining domestic arrears; draft clearance plan envisages clearing all domestic arrears by 2023. - Fiscal situation table for last quarter of 2021 published online in IMF staff format. - Consolidation of the Single Treasury Account (TSA) advancing; draft agreement between BEAC and the Treasury for TSA management is ready. - New digital application for pension arrears management operational to prevent accumulation for new retirees. - Terms of reference prepared for Fund TA mission beginning end‑March 2022 to inventory revenues received directly by ministries and agencies that do not flow into the TSA. - Committee on non‑tax revenues to be set up end‑March 2022 to eliminate anomalies and ensure levies deposit into the TSA. - Interconnection of Sygma‑Systac and SimBa software not yet operational; commitment to deploy fully by January 2023 to monitor budget execution. ### Revenue mobilization and tax administration reforms - Electronic declaration: all large companies to use online tax declaration from April 2022. - EUR 1 million agreement with EU to adopt ASYCUDA World; call for tenders launched; three consultants to be hired for migration. - Authorities to start steps to eliminate inefficient exemptions based on AfDB assessment of tax expenditures. - By end‑June 2022, final notifications to importers and public contract beneficiaries not up to date expected to recover approximately CFAF 1.6 billion. - Detailed action plan to recover CFAF 327 million (balances due as of December 31, 2021) to be presented to Fund staff by end‑March 2022. - Authorities to accelerate efforts to track 247 companies not current with tax obligations and not located before March 31, 2022; report to be finalized by end‑June 2022. - With partners, assess economic costs and benefits of current fixed domestic oil price structure and consider greater pass‑through while strengthening safety nets. ### Structural reforms, transparency, and donor engagement - Measures starting March 2022: - Invite technical and financial partners to monthly treasury committee meetings. - Launch call to hire experts for PEFA evaluation for 2018–2020; results to be shared with partners. - Provide information on financing of security expenditures and commitments to ensure donor budget support routed to development needs. - Explore alternative donor budget support mechanisms (e.g., targeted budget support earmarked for specific measurable outcomes). - Commitments to publish beneficiaries of Covid‑19 transfers and retroactively publish ultimate beneficiaries of public contracts worth at least CFAF 10 million on Ministry of Finance website. - Publication in November 2021 of list of SOEs, their financial position, and financial statements of ENERCA, SODECA, and SOCATEL at end‑December 2020 and end 2019. ### Financial sector and stability - COBAC taking supervisory actions to ensure banks operating in the C.A.R. are adequately capitalized. - BEAC stands ready to provide additional liquidity to constrained banks within its operational framework (MEFP, ¶14). - Staff calls for immediate implementation of COBAC rulings by relevant banks, including time‑bound recapitalization and asset recovery efforts. ### Debt sustainability and program implications - December 2020 DSA concluded C.A.R. remained at high risk of external debt distress and overall high risk of debt distress. - Solvency indicators for external debt remained below thresholds, but liquidity indicators were breached under baseline for two years through 2024. - Heightened risk from increasing debt service, including repayments to the Fund, from 2024 onwards. - Staff will conduct debt sustainability analysis in context of Second Review under the SMP. - Authorities concurred with staff on outlook, risks, and policies; agreed to maintain prudent fiscal stance, secure higher domestic revenue, and reinforce fiscal transparency while continuing donor discussions to unlock budget support (MEFP ¶21, ¶22, ¶23, and ¶31). --- ### Program monitoring, technical assumptions, and program modalities ### Program monitoring and data provision - IMF staff will monitor execution of the second review of the SMP covering performance vis‑à‑vis: - Quantitative targets for end‑March 2022; and - Structural benchmarks for end‑January and February 2022. - Authorities to provide statistical data and information identified in the TMU and other information IMF staff may request. - DGI support available if difficulties arise. ### Key quantitative targets and program rules (highlights from TMU and Table 1) - Quantitative targets (end‑December 2021 selected outcomes): - Net domestic government financing (ceiling): Revised PC 79.6; Actual 75.1 — Met. - Domestic revenue (floor): Revised PC 124.0; Actual 125.9 — Met. - Domestic primary fiscal balance (floor): Revised PC -77.0; Actual -74.0 — Met. - Continuous benchmarks: ceilings on contracting or guaranteeing new external nonconcessional debt and disbursement of such debt — Met (Actual 0.0). - Indicative targets: - Social spending (floor): Revised PC 24.0; Actual 40.0 — Met. - Spending through extraordinary procedures (ceiling): Revised PC 6.7; Actual 7.4 — Not met. - Reduction in domestic payments arrears (floor): Revised PC 12.0; Actual 10.5 — Not met. ### Adjusters and financing assumptions - Privatisation/asset receipts and budget support adjusters specified: deviations in privatization receipts or budget support adjust ceilings on net domestic financing and floors for primary balance by defined percentages. - Revised end‑March thresholds proposed reflecting non‑disbursement of 2021 budget support in 2022Q1 and adjustment in primary spending. - Revised ceiling on domestic financing assumes frontloading use of SDR allocation and limited domestic bond issuance to cover residual Q1–Q2 funding needs. ### Reporting requirements (selected) - Monthly and quarterly tables and deadlines include: - Monetary survey, monthly central bank and commercial bank accounts — within four weeks of end of each month. - Government monthly cash flow operations reconciled with BEAC — within 10 days of end of each month. - TOFE (government financial operations table) — within four weeks of end of each month. - Total monthly amount of domestic payments arrears — within four weeks of end of each month. - Summary table of actual expenditure in priority sectors — within four weeks of end of each quarter. --- *International Monetary Fund — Central African Republic: policy discussions, baseline projections, risks, and reform commitments as presented in the source content.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background - The fragile security environment improved following the attempt by armed groups to seize power at the turn of the year 2021; the reopening of the Douala-Bangui corridor reinvigorated activity and curbed inflationary pressures. - The third Covid-19 wave is receding, but vaccination has been slow: the government has received 1.5 million vaccine doses and 11 percent of the total population has been vaccinated; all 109 recorded deaths since the pandemic have occurred in unvaccinated victims. - President Touadéra launched the Republican dialogue peace initiative alongside the Luanda Road Map; the surrender of a key rebel leader to the International Criminal Court represents a key step in the peace process. - Donors have delayed disbursing budget support pending greater transparency in the government’s security-related spending, posing substantial fiscal and social risks given the heavy reliance on budget support. - The sharp deterioration in terms of trade, reflecting food and fuel price shocks, compounded by geo-political spillovers, will exacerbate existing vulnerabilities and further erode policy space. ### Program objectives - In December 2021, the authorities embarked on a Staff-Monitored Program (SMP). - The 7-month SMP running through June 2022 aims to improve the track record of policy implementation and unlock budget support from donors. - Satisfactory implementation of the SMP and financing assurances from donors would permit the resumption of discussions under the ECF-supported program (approved in 2019) in mid-2022. ### Program review (end-December 2021) - Program performance at end-December 2021 was satisfactory: quantitative benchmarks and all three structural benchmarks were met. - Two indicative targets were missed: - The floor on domestic arrears was not met due to monitoring weaknesses; remedial action is set to be taken and a new digital system for managing pensions is expected to mitigate arrears accumulation. - The ceiling on spending through extraordinary procedures was not met: spending through extraordinary procedures totaled CFAF 7.4 billion at end-2021, exceeding the program floor of CFAF 6.7 billion, owing to onerous and hard-to-predict health evacuations. - Looking forward to end-March 2022, remaining targets will likely be met predicated on the authorities’ commitments to a prudent budget execution. ### Staff views and policy guidance - A prudent execution of the 2021 revised budget law prevented spending overruns while slightly higher domestic revenues kept the deficit in check. - The authorities need to bridge differences with donors for a swift disbursement of budget support. - Spending plans should be executed based on available resources until budget support resumes. - A viable financing mix in 2022 that envisages using a portion of the remaining SDR allocation and modest issuance of government securities in the regional market would help preserve debt sustainability while keeping some buffers to cope with future funding risks. ### Recent economic developments and key statistics - Growth: - Growth is expected at 1 percent in 2021, in line with December 2021 projections. - Inflation: - Inflation reached 5.2 percent year-on-year during the first quarter of 2021. - Inflation eased to an average of 3.3 percent year-on-year in the second half of 2021, leading to a yearly average of 4.3 percent. - Core inflation stabilized at 2 percent. - Public finances and revenues: - Domestic revenues reached CFAF 125.9 billion (8.8 percent of GDP), exceeding the annual SMP target by around CFAF 2 billion. - Domestic primary expenditure reached CFAF 199.3 billion (14 percent of GDP), in line with the revised budget law (CFAF 199 billion). - Social spending was higher than expected at CFAF 40 billion (2.8 percent of GDP) compared to CFAF 24 billion in the budget. - Public debt and financing: - Domestic debt increased to 13.2 percent of GDP due to higher domestic financing (CFAF 48.75 billion in government securities and CFAF 35 billion in use of the SDR allocation). - BEAC restructured C.A.R.’s domestic debt with an extension of the grace period by three years to 2025 (instead of 2022) and the maturity to 20 years (from 10 years). - Overall public debt rose to 47.6 percent of GDP, reflecting the disbursement of a concessional loan from the Saudi Development Fund contracted in 2015. - Balance of payments: - The SDR allocation (about 6 percent of GDP) helped generate a small balance of payments surplus in 2021. - The trade deficit remained high, at about 15 percent of GDP. - Non-disbursement of budget support totaling some 5 percent of GDP weighed heavily on the current account balance. - Banking sector: - Capital adequacy ratio remained at 23.8 percent at end-September 2021 (regulatory minimum 9.5 percent). - Private sector loans increased by 11.3 percent year-on-year in December 2021. - NPL ratio stood at 14 percent. - Short-term liquidity coverage ratio improved to 214 percent. - Some privately-owned institutions face sizable liquidity and recapitalization needs and have yet to fully implement COBAC’s supervisory decisions. ### Program implementation details and structural measures - End-December quantitative benchmark outcomes (selected): - Net domestic government financing (ceiling, cumulative flows for the year): PC 79.6; Actual 75.1 — Met. - Domestic revenue (floor, cumulative for the year): PC 124.0; Actual 125.9 — Met. - Domestic primary fiscal balance (floor, cumulative for the year): PC -77.0; Actual -74.0 — Met. - Social spending (floor, cumulative for the year): PC 24.0; Actual 40.0 — Met. - Spending through extraordinary procedures (ceiling, cumulative for the year): PC 6.7; Actual 7.4 — Not met. - Reduction in domestic payments arrears (floor, cumulative for the year): PC 12.0; Actual 10.5 — Not met. - Budget support: PC 0.0; Actual 0.0. - Privatization receipts: PC 3.6; Actual 1.8. - Structural benchmarks and prior actions (status highlights): - Online publication of an independent audit of COVID-related spending executed in 2020 — Met. - Elimination of agencies without economic justification — Met. - Submission to the National Assembly of a draft supplementary budget for 2021 consistent with SMP objectives — Met. - Submission to the National Assembly of a draft budget for 2022 consistent with SMP objectives — Met. - Issuance of a ministerial order suspending import activities for large importers behind on tax obligations — Met. - Issuance of a ministerial order making the systematic use of the e-filing system mandatory for large taxpayers by December 31, 2022 — Met. - Adjustment of the ASYCUDA++ customs processing system to ensure Webb Fontaine values are automatically reflected in importers’ customs declarations — Met. - Submission of a new anticorruption law to the National Assembly consistent with UNCAC — Not met (submitted on February 4, 2022, past the end-January 2022 deadline); staff will assess whether the final draft remains consistent with UNCAC. ### Outlook and risks - The authorities could meet most end-March 2022 quantitative targets based on revenue and spending developments thus far in 2022, prudent budget execution, and revised staff projections. - Compared with the December staff report, staff proposes revising end-March 2022 quantitative targets to account for the non-disbursement of the 2021 World Bank and EU budget support expected in 2022Q1. - A higher net domestic financing is foreseen, reflecting the frontloaded use of part (CFAF 20 billion in 2022 out of the remaining CFAF 49 billion) of the SDR allocation. - Higher privatization receipts are envisaged by end-March 2022, reflecting the receipt of the second half (CFAF 1.8 billion) of the sale of part of the government’s stake in a local bank initiated in late 2021. - Key risks: - Continued delays in donor budget support disbursements would pose fiscal and social risks given heavy reliance on such support. - Security fragility, terms-of-trade shocks (food and fuel), and geopolitical spillovers could further erode policy space and exacerbate vulnerabilities. *CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND* ### 16. The economic recovery hinges on further security improvements. Growth is projected at ### 16. The economic recovery hinges on further security improvements. Growth is projected at ### Macroeconomic outlook and inflation - Growth is projected at 3.5 percent in 2022 and 3.7 percent in 2023 before converging to around 4 percent in the medium term. - These projections are marginally lower than those from the December staff report, reflecting spillovers from delayed budget support and associated fiscal consolidation, a more challenging external environment, and the slower-than-expected progress on the peace agenda. - Headline inflation is projected to reach 4 percent in 2022, 1½ percentage points higher from December 2021 projections, before converging to around 2½ over the medium term. - Domestic risks: resurgence of violence, a new Covid-19 variant, and fast-rising domestic prices that would jeopardize the recovery; upside from faster structural reforms and a more rapid return to peace. ### External balances, terms of trade, and balance of payments - Sharp deterioration in the terms of trade would weaken the trade balance by up to 3 percentage points of GDP compared to 2021. - Non-disbursement of the 2021 budget support—initially expected for the first half of 2022—will widen: - the current account deficit to 11 percent of GDP in 2022, and - the overall balance of payments deficit to 5 percent of GDP in 2022. - Over the medium term, the current account deficit is projected to gradually decline towards 6 percent of GDP, reflecting rising exports more than offsetting anticipated decline in official transfers. - The financial account is expected to slowly improve with resumption of foreign direct investment and other financial flows, contributing to a balance of payments surplus of 1.3-1.4 percent of GDP in the outer years. ### Budget support, fiscal buffers, and risks - A budget shortfall of about CFAF 47 billion (3 percent of GDP) — corresponding to the non-disbursement of the 2021 budget support from the World Bank and the EU — has already triggered fiscal consolidation. - Under baseline projections, staff assumes a disbursement of EU and World Bank budget support of CFAF 39.5 billion in the second half of the year. - If budget support were not provided in 2022, the C.A.R. would exhaust all buffers by 2023, face acute funding needs, suspension of essential functions, high probability of accumulation of external arrears, and ultimately debt distress. - A standstill in budgetary support will affect resumption of Fund financing under the ECF arrangement and complicate future Fund financing due to lack of financing assurances and risk of accumulating external arrears. - A non-disbursement of budget support in 2022 would represent a 3 percentage points in GDP shock that could not be entirely accommodated by procyclical spending cuts. ### Fiscal policy stance and measures (2022–2023) - Authorities are executing the 2022 budget according to available resources, prioritizing essential spending and strengthening revenue mobilization. - Oil price shock estimated budgetary revenue losses of about CFAF 6 billion (0.4 percent of GDP) compared to the December 2021 staff report projections. - Authorities plan to rationalize non-priority primary expenditure (mainly domestically financed investment and goods and services) by CFAF 9 billion (0.6 percent of GDP) compared to the 2022 budget law, mainly through the first half of the year. - End-March indicative target for domestic arrears clearance adjusted downward from CFAF 3 billion to zero (MEFP, ¶26) in response to delays in donors’ budget support disbursement. - Fiscal consolidation envisaged corresponds to reducing the domestic primary fiscal deficit by 1.1 percentage point of GDP in 2022 and by 0.5 percentage point of GDP in 2023 (MEFP, ¶27). - Authorities plan to frontload the use of CFAF 20 billion out of the remaining CFAF 49 billion of the SDR allocation and cap new issuances of government securities at CFAF 15 billion (1 percent of GDP) in 2022 (MEFP, ¶28). - If outlook worsens, authorities stand ready to submit a supplementary budget law proposing additional expenditure cuts while protecting social spending and larger use of remaining SDR allocation (MEFP, ¶29). ### Food, fuel, and social impacts - Fuel imports account for 30 percent of total goods imports; fixed domestic petroleum prices imply the budget absorbs the gap when international fuel prices surge. - Higher international food prices will directly hurt the poor; food imports account for 17 percent of total goods imports in the C.A.R. - IPC latest analysis: 43 percent of the C.A.R.’s population experience high levels of acute food insecurity. - Interim measures: consider temporary relief measures to smooth food and energy bills within fiscal space limits; assess domestic oil price structure to allow greater pass-through while strengthening social safety nets. ### Public Financial Management (PFM) and domestic arrears - By end-May 2022, authorities committed to auditing all remaining domestic arrears (MEFP, ¶33). - Authorities to design and share with Fund staff in July a strategy to clear remaining domestic arrears; draft clearance plan envisages clearing all domestic arrears by 2023. - Fiscal situation table for last quarter of 2021 published online in IMF staff format. - Consolidation of the Single Treasury Account (TSA) advancing; draft agreement between BEAC and the Treasury for TSA management is ready. - New digital application for pension arrears management operational to prevent accumulation for new retirees. - Terms of reference prepared for Fund TA mission beginning end-March 2022 to take stock of income received directly by ministries and agencies that does not flow into the TSA. - Committee on non-tax revenues to be set up end-March 2022 to eliminate anomalies and ensure levies deposit into the TSA. - Interconnection of Sygma-Systac and SimBa software not yet operational; commitment to deploy fully by January 2023 to monitor budget execution. ### Revenue mobilization and tax administration reforms - Electronic declaration of taxes and customs duties: all large companies to use online tax declaration system from April 2022. - Agreement of EUR 1 million signed with the EU to adopt ASYCUDA world customs system; call for tenders launched; three consultants to be hired for migration. - Authorities to start steps to eliminate inefficient exemptions based on African Development Bank assessment of tax expenditures. - By end-June 2022, final notifications to importers and public contract beneficiaries not up to date with tax obligations expected to recover approximately CFAF 1.6 billion. - Detailed action plan to recover CFAF 327 million (balances due as of December 31, 2021) to be presented to Fund staff by end-March 2022. - Authorities to accelerate efforts to track 247 companies not current with tax obligations and not located before March 31, 2022; report on location actions to be finalized by end-June 2022. - With partners, assess economic costs and benefits of current fixed domestic oil price structure; consider a price structure allowing greater pass-through while strengthening social safety nets. ### Structural reforms, transparency, and donor engagement - Measures to bolster transparency starting March 2022: - Invite technical and financial partners to monthly treasury committee meetings. - Launch call to hire experts for Public Expenditure and Financial Accountability evaluation for 2018–2020; results to be shared with partners. - Provide information on financing of security expenditures and commitments to ensure donor budget support is routed to development needs and normal functioning of the state. - Explore alternative donor budget support mechanisms (e.g., targeted budget support earmarked for specific measurable outcomes). - Commitments to publish beneficiaries of Covid-19 transfers and retroactively publish ultimate beneficiaries of public contracts worth at least CFAF 10 million, and make required information available on the Ministry of Finance website. - Publication in November 2021 of list of SOEs, their financial position, and financial statements of ENERCA, SODECA, and SOCATEL at end-December 2020 and end 2019. ### Financial sector and stability - COBAC is taking supervisory actions to ensure banks operating in the C.A.R. are adequately capitalized. - BEAC stands ready to provide additional liquidity to constrained banks within its operational framework (MEFP, ¶14). - Staff calls for immediate implementation of COBAC rulings by relevant banks, including time-bound recapitalization and asset recovery efforts, to preemptively address risks and strengthen the banking sector. ### Debt sustainability and program implications - December 2020 DSA concluded C.A.R. remained at high risk of external debt distress and overall high risk of debt distress. - Solvency indicators for external debt remained below thresholds, but liquidity indicators were breached under the baseline for two years through 2024. - Heightened risk from increasing debt service, including repayments to the Fund, from 2024 onwards. - Staff will conduct a debt sustainability analysis in the context of the Second Review under the SMP. - Authorities concurred with staff on outlook, risks, and policies; agreed to maintain a prudent fiscal stance, secure higher domestic revenue, and reinforce fiscal transparency while continuing donor discussions to unlock budget support (MEFP ¶21, ¶22, ¶23, and ¶31). *International Monetary Fund — Central African Republic: policy discussions, baseline projections, risks, and reform commitments as presented in the source content.* ### 36. IMF capacity development (CD) has been critical to implementing the reform agenda. ### 36. IMF capacity development (CD) has been critical to implementing the reform agenda. ### IMF capacity development and technical assistance - IMF CD covered: customs integrity, the establishment of a treasury single account, macroeconomic statistics, policy and governance. - ICD CD to strengthen macroeconomic policymaking complemented the Area Department’s efforts to integrate CD and surveillance. - The Fund provided TA to support structural reforms under the current SMP, notably drafting the anti-corruption law. ### Strengthening institutional framework and business climate - Authorities will evaluate the relevance of the import conformity certificate to end duplication of information and reduce the documentary burden on importers (MEFP, ¶34). - Authorities continue to revise the mining code and incorporate recommendations of technical and financial partners; they committed to sharing the revised draft with all technical partners before end March 2022, ahead of submission to the National Assembly (MEFP, ¶38). - The new mining code will aim to comply fully with recommendations from technical partners, including AML/CFT best practices and the CEMAC’s foreign exchange regulations (MEFP, ¶38). - Government progress on National Economic and Financial Committee (CNEF) recommendations: - Draft statutes governing the arbitration and mediation center, and the arbitration chamber within the commercial court responsible for banking and financial disputes, were transmitted to COBAC for evaluation. - Statutes of the debt recovery agency were adopted; the financing plan will be discussed before end-June 2022 (MEFP, ¶38). ### Program modalities, quantitative targets, and adjustments - Staff proposes a modification of end-March quantitative targets. - Thresholds for the quantitative criteria at end-March 2022 are proposed to be revised in light of updated macroeconomic projections and financing assumptions. - Assumptions include non-disbursement of the 2021 budgetary support in 2022Q1 and an adjustment in primary spending in 2022. - Revised ceiling on domestic financing assumes frontloading of the use of the SDR allocation and limited domestic bond issuance to cover residual funding needs in Q1 and Q2 (Table 1 of the MEFP). ### Risks and contingencies - Main risks: - Further increase in international oil prices will weigh on domestic revenues, potentially prompting higher spending compression to maintain debt sustainability. - If budget support is not provided in 2022 and beyond, funding needs would balloon, threatening essential state functions and causing significant hardship for the population. - Risks of running external arrears would accelerate, including towards international financial institutions, with immediate implications for future access to Fund resources. - Consequences: - The bridge from the SMP towards a financing arrangement with the Fund would be highly compromised. - Authorities expressed preference for seeking an extension of the current ECF-supported program, financing assurances permitting. ### Safeguards assessment and central bank issues - An updated safeguards assessment of BEAC in 2022 is being finalized. - Preliminary findings: BEAC has maintained strong governance arrangements following legal reforms in 2017. - BEAC completed a multi-year initiative in 2019 to transition to International Financial Reporting Standards, strengthening financial reporting practices. - External audit arrangements continue to be robust. - Remaining weaknesses: internal audit mechanism faces capacity constraints and is not yet fully aligned to international practices; BEAC needs to strengthen risk management and develop a business continuity plan and cyber resilience. ### C.A.R.’s capacity to repay the Fund - Downside risks to repayment capacity stem from: - C.A.R. remains at high risk of debt distress. - Protracted delays of budget support. - The Fund accounts for the largest share of external debt (35 percent in 2021). - Debt repayments to the Fund are significant in the coming years and will peak in 2026 at 13.2 percent of domestic revenue. - Mitigating factors: - C.A.R. is part of a monetary union (access to CEMAC’s pool of reserves provided it has budgetary resources to purchase them). - Upside potential from peace and stability. - Policy implication: Given deep-rooted challenges, continued engagement of the international community will be needed. ### Staff appraisal: macroeconomic outlook and program implementation - Economic recovery and security: - The economy is gradually recovering from a challenging security environment. - Gradual improvements in security allowed reopening of the Douala-Bangui trade corridor and enabled recovery in production and trade while inflation pressures abated. - Covid-19 vaccination efforts are underway, albeit slower due to storage capacity issues and hesitancy. - The launch of the “Republican dialogue”, if successful, could help accelerate peace. - SMP implementation and targets: - Implementation of the SMP at end-December 2021 was satisfactory. - Authorities met all quantitative targets and brought social spending above target. - Two indicative targets on domestic arrear clearance and spending through exceptional circumstances were missed due to monitoring weaknesses. - End-March SMP targets are within reach. - Slower pace of spending over the first months of 2022 and a prudent domestic financing mix would help meet end-March quantitative targets and maintain viable budget execution in the first half of the year amid acute uncertainty. - Authorities implemented the remaining two structural benchmarks: the draft anti-corruption bill was submitted to the National Assembly; interconnection between ASYCUDA++ and e-Douanes is now operational and will be strengthened. - Other reforms in revenue mobilization, public finance management, and governance are progressing as envisaged. - External shocks and donor dialogue: - C.A.R. is vulnerable to elevated commodity prices as a net fuel and food importer, coupled with landlocked status. - Authorities are addressing the net impact of negative food and oil price shocks through expenditure re-prioritization. - Delays in budget support from development partners would rapidly erode policy space; authorities have a contingency plan for possible 2022 budget support shortfalls but further fiscal restraint would have significant negative macroeconomic and social implications. - With downside risks mounting, authorities must intensify dialogue with donors. - Staff welcomes commitment to bolster budget transparency via reinstatement of monthly treasury meetings, agreement on PEFA, consolidation of the TSA, and reform of the mining code. - Authorities’ openness to consider other avenues for disbursement of budget support is critical to keep the window open for external funding and secure financing assurances necessary for a possible transition to a Fund financing arrangement and for future Fund financing. *IMF Country Report content (extract).* ### 47. Staff supports the completion of the First Review under the SMP and proposes to ### 47. Staff supports the completion of the First Review under the SMP and proposes to ### Program reviews and staff recommendations - Staff supports the completion of the First Review under the SMP and proposes to modify at the authorities’ request, end-March 2022 targets. - The C.A.R. met all end-December 2021 quantitative and structural benchmarks but missed two indicative targets; the authorities intend to take remedial action. - For the Second Review under the SMP, staff supports the modification of end-March quantitative benchmarks to account for the sizable shortfall in donor budget support anticipated for Q1 and the severity of the terms of trade shock. ### Recent developments (summary) - Growth remained limited to 1 percent in 2021 as the deterioration of the security environment did not allow for a post-pandemic rebound. - The closure of the trade corridor with Cameroon contributed to higher inflation in the first half of 2021; inflation started abating in July. - The domestic primary balance began improving in 2021, but public debt increased owing to heavy reliance on bridge financing from commercial banks and the use of the SDR allocation for budget support. - The current account deficit (including grants) deteriorated in 2021 owing mainly to the non-disbursement of budget support. ### Medium-term prospects (highlights) - Real GDP: While recovering during the second half of 2021, real GDP grew by only 1 percent in 2021 before gradually accelerating from 2022. - Inflation: Inflation is expected to accelerate again due to surging import prices, before stabilizing in the medium term. - Fiscal space: Total revenues are not expected to increase significantly over the medium term as increases in domestic revenue may be offset by a gradual decline in grant financing, limiting space to increase spending. - External position: The current account balance is expected to decline before converging over the medium term. ### Key statistics and projections (selected figures from tables) - GDP at constant prices (series): 3.00.01.03.51.03.53.74.04.04.0 - GDP per capita at constant prices (series): 1.3-1.8-0.81.5-1.01.61.72.02.11.9 - CPI (annual average) (series): 2.82.10.91.84.34.03.62.82.52.5 - External current account balance (with grants) (percent of GDP, series): -4.9-7.6-8.5-6.1-10.6-11.0-8.4-7.6-6.6-6.2 - Total revenue (including grants) (percent of GDP, series): 18.321.821.818.013.716.516.216.817.217.3 - Domestic revenue (percent of GDP, series): 8.78.59.29.38.88.69.310.310.911.4 - Total expenditure (percent of GDP, series): 16.924.325.119.319.719.018.218.618.818.7 - Overall balance excluding grants (percent of GDP, series): -8.2-15.8-16.0-10.0-10.9-10.4-8.9-8.3-7.9-7.4 - Domestic primary balance (percent of GDP, series): -3.5-6.2-6.6-4.0-5.1-4.0-3.5-2.8-2.4-2.1 - Public sector debt (percent of GDP, series): 47.246.843.444.147.646.344.743.342.140.8 - Of which: domestic debt (percent of GDP, series): 11.19.59.47.113.213.514.114.013.913.8 - Of which: external debt (percent of GDP, series): 36.137.334.036.934.432.730.629.328.227.0 ### Quarterly fiscal projections for 2022 (Table 2c, Billions CFAF) - Revenue by quarter: Q1 53.8, Q2 53.7, Q3 93.3, Q4 53.7 - Domestic revenue each quarter: 33.0, 33.0, 33.0, 33.0 - Grants by quarter: 20.8, 20.8, 60.3, 20.8 (of which Budget Support Q3 39.5; Project Grants each quarter 20.8) - Expenditure by quarter: Q1 68.1, Q2 68.1, Q3 81.1, Q4 75.1 - Overall balance excluding grants by quarter: Q1 -35.1, Q2 -35.2, Q3 -48.2, Q4 -42.2 - Overall balance including grants by quarter: Q1 -14.4, Q2 -14.4, Q3 12.1, Q4 -21.4 - Overall balance, cash basis by quarter: Q1 -14.4, Q2 -21.7, Q3 12.1, Q4 -28.7 - Use of SDR allocation in Q1 financing: 20.0 (billions CFAF) ### Monetary and external sector highlights (selected) - Money and quasi-money (series, CFAF billions): 373.5 416.4 415.0 410.5 421.8 477.1 448.3 443.0 448.3 488.1 504.0 520.1 547.8 573.6 - Net foreign assets (BEAC and commercial banks, selected quarters): Bank of Central African States (BEAC) foreign assets and liabilities series and use of IMF credit figures reported in Table 3. - Balance of payments: Current account (billions CFAF, series) -65.7-102.9-116.1-88.1-152.1-169.4-139.2-133.5-124.8-123.8 - Balance on goods (billions CFAF, series): -206.0-224.0-230.4-207.9-215.3-273.3-257.5-254.5-257.6-272.4 - Exports f.o.b. (billions CFAF, series): 94.176.782.785.084.897.0113.1124.9144.6161.6 - Imports f.o.b. (billions CFAF, series): -300.1-300.7-313.1-293.0-300.1-370.3-370.6-379.4-402.2-434.1 - Transfers (net) (billions CFAF, series): 180.9162.9155.1159.7103.6152.1161.8172.9180.5188.5 - Capital account (billions CFAF, series): 48.5102.8102.872.169.883.175.379.283.582.9 ### Risks and financing considerations - Donor budget support shortfalls in Q1 2022 and a severe terms of trade shock are material factors prompting staff support for adjusting end-March quantitative benchmarks under the SMP. - Public debt rose in 2021 due to bridge financing from commercial banks and use of the SDR allocation for budget support, constraining fiscal space. - Projected large deficits excluding grants and dependence on external grants and project financing underline vulnerability to donor disbursement variability. *Source: C.A.R. Authorities and IMF Staff estimates and projections.* ### 1. Total financing requirements214.5277.8155.2158.2177.7190.6188.9 ### 1. Total financing requirements214.5277.8155.2158.2177.7190.6188.9 ### External financing requirements (key aggregates and components) - 1. Total financing requirements: 214.5 277.8 155.2 158.2 177.7 190.6 188.9 - Current account deficit (excl. budget support): 186.3 152.1 208.9 177.7 168.5 159.8 158.8 - Debt amortization: 5.4 5.6 6.3 2.9 6.1 7.7 8.6 - Repayment to the Fund: 4.9 4.6 6.1 4.2 20.9 26.6 30.0 - Change in other reserves: 18.0 115.4 -66.2 -36.7 -17.8 -3.5 -8.5 ### 2. Total available financing (components) - 2. Total available financing: 105.7 165.1 95.6 101.3 108.7 115.9 115.2 - Capital transfers: 102.8 69.8 83.1 75.3 79.2 83.5 82.9 - Foreign direct investment (net): 1.0 3.0 15.0 23.5 24.5 25.5 28.6 - Portfolio investment (net): 0.0 0.0 0.0 0.0 0.0 0.0 1.0 - Debt financing: 21.9 8.8 7.5 7.5 10.0 11.8 12.6 - Public Sector: 21.9 8.8 7.5 7.5 10.0 11.8 12.6 - SDR allocation: 0.0 88.5 0.0 0.0 0.0 0.0 0.0 - Other net capital inflows: -20.0 -5.0 -10.0 -5.0 -5.0 -5.0 -10.0 ### 3. Financing gap - 3. Financing gap: 108.8 112.7 59.6 57.0 69.0 74.7 73.7 ### 4. Expected sources of financing (budget support and loans) - 4. Expected sources of financing: 70.1 0.0 39.5 38.5 70.0 75.0 75.0 - of which: Budget support (grants): 70.1 0.0 39.5 38.5 35.0 35.0 35.0 - of which: Budget support (loans)1: 0.0 0.0 0.0 0.0 35.0 40.0 40.0 ### 5. Residual financing gap and potential financing instruments - 5. Residual financing gap: 38.6 112.7 20.1 18.5 -1.0 -0.3 -1.3 - Potential financing measures (identified in projections): - ECF arrangement2: 9.6 18.8 18.6 19.4 0.0 0.0 0.0 - RCF: 22.3 0.0 0.0 0.0 0.0 0.0 0.0 - CCRT3: 4.7 3.5 2.2 0.0 0.0 0.0 0.0 - G20 DSSI4: 2.1 1.7 -0.7 -1.0 -1.0 -0.3 -0.3 - Unidentified financing: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Notes from projections and footnotes: - 4 Under the G20 Debt Service Suspension Initiative (DSSI), debt service payments to G20 creditors due from May-December 2021 are postponed to 2022-28. - 2 Includes ECF request disbursement, approved by the Executive Board in December 2019, which happened in early January 2020. - Source: IMF staff projections. - 1 Budget support loans to be identified. - 3 This covers debt service relief covering all payments falling due to the IMF from April 14, 2020 to April 13, 2022 under the Catastrophe Containment and Relief Trust (CCRT). ### Additional program and macroeconomic highlights (from MEFP and staff report excerpts) - COVID-19 and vaccination: - 15 percent of the population vaccinated at end-February 2022; target of 52 percent by end-2022. - 2.5 million vaccine doses received, 32 percent administered. - 86,000 tests administered since onset of pandemic; 15,000 positive cases; 113 deaths. - Target: vaccinate 2.4 million individuals by end-2022 (52 percent of the target population) if storage constraints are alleviated. - Security and trade corridor: - Progress in securing territory and securing the Bangui-Douala corridor, enabling restoration of trade flows and economic activity; situation remains volatile in some regions. - Growth and inflation: - Growth estimated at around 1 percent in 2021. - Inflation: 5.2 percent year-on-year in Q1 2021; eased to 3.6 percent year-on-year from July 2021; annual average inflation 4.3 percent in 2021. - External balances: - Trade deficit expected around [15.0 percent] of GDP in 2021. - Current account deficit expected to reach 10.6 percent of GDP in 2021 (due to reduction in official transfers). - Slight overall balance of payments surplus of [0.5] percent of GDP expected in 2021 thanks to the SDR allocation (5.9 percent of GDP). - Domestic revenues and expenditure: - Domestic tax revenues: CFAF 125.9 billion at end-December 2021 (exceeding annual projection of around CFAF 2 billion). - Primary domestic expenditure: CFAF [199.3] billion in 2021 (in line with SMP objective CFAF 199 billion). - Government domestic revenues: CFAF 125.9 billion at end-December 2021 (floor was CFAF 124 billion). - Domestic primary fiscal balance: CFAF -74.0 billion at end-December 2021 (floor CFAF -77 billion). - Net domestic financing of the government: CFAF 75.1 billion at end-December 2021 (ceiling CFAF 79.6 billion). - Domestic payments arrears: CFAF 10.5 billion at end-December 2021 (floor CFAF 12 billion). - Pension arrears declined from CFAF 4.1 billion at end-2020 to CFAF 350 million at end-December 2021. - Domestically financed social spending: CFAF 40.9 billion against floor CFAF 24 billion. - Expenditure using extraordinary procedures: CFAF 7.4 billion at end-2021 (floor CFAF 6.7 billion). - Public debt and debt management: - Public debt reached 48.5 of GDP in 2021. - External public debt: 34.5 percent of GDP at end-2021. - Domestic debt: 14 percent of GDP (notation in source: 14 percent]). - Mobilized CFAF 48.75 billion in government securities between January and October 2021. - Used CFAF 35 billion of the SDR allocation in December 2021. - Drew CFAF 1.22 billion tranche on concessional loan from Saudi Development Fund (contracted in 2015) for airport access road rehabilitation. - Restructuring of BEAC debt: repayments due starting in 2025 (rather than 2022), maturity now 20 years (rather than 10 years). - Refrained from disbursing under nonconcessional BDEAC loan to protect external debt sustainability. - Banking sector indicators (end-September/December 2021): - Capital adequacy ratio: 23.8 percent at end-September 2021 (regulatory minimum 9.5 percent). - Short-term liquidity ratio: 214 percent (owing in part to BEAC refinancing operations). - Private sector credit increased by 11.3 percent year-on-year in December 2021. - Nonperforming loan (NPL) ratio: 14 percent; NPLs provisioned at 82 percent. - Program implementation and structural benchmarks: - SMP covers December 1, 2021 to June 30, 2022. - Submitted and enacted 2022 budget law: enacted December 30, 2021. - Ministerial orders (December 31, 2021 and December 30, 2021) to suspend imports by noncompliant large importers; 2022 budget law includes 10 percent penalty on value of imports and minimum royalty payment of CFAF 1 million; mandatory efiling for large taxpayers by December 31, 2022. - Most end-December 2021 quantitative benchmarks met; two indicative targets missed (clearing domestic arrears and one other indicative target). - Authorities committed to publishing IMF staff report, MEFP, and TMU and to consult the IMF before amending measures in the MEFP. *Source: IMF staff projections and excerpts from the Memorandum of Economic and Financial Policies and staff report.* ### 16. We have successfully completed the interconnection between the ASYCUDA++ and ### 16. We have successfully completed the interconnection between the ASYCUDA++ and ### Interconnection and customs IT systems - Verification of the data to be exchanged between the two systems has been completed. - Data exchange between Customs’s ASYCUDA++ system and the e-Customs system provided by the supplier (Webb Fontaine Group FZ-LLC) has been secured and put into operation. - DPIV value controls have been tested; following validation of the procedure, deployment took place on February 25, 2022. - Commitment to take account of the recommendations of the technical assistance mission planned for April 2022 to improve existing arrangements and minimize customs revenue losses. ### Legal and anticorruption measures - The draft anticorruption law, fully compliant with the recommendations of IMF staff and the requirements of the United Nations Convention against Corruption, was ready for submission at end-January 2022. - Submission delayed owing to prolonged absence of the Minister of Justice for reasons of force majeure. - The draft law was submitted to the National Assembly on February 4, 2022, with a delay of four days from the date set by the structural benchmark. ### IV. Economic outlook and risks - Growth projections: - Growth in 2022 is projected at 3.5 percent. - Medium-term growth estimated to stabilize around 4 percent, or 1 percentage point lower than projections made at the time the SMP was signed, in December 2021. - Inflation projections: - Inflation is expected to reach 4 percent in 2022. - Inflation is expected to be 3.6 percent in 2023. - Inflation expected to stabilize around 2½ over the medium term. - Balance of payments and current account: - Current account deficit expected to increase to 11 percent of GDP in 2022 (due to rising oil and food prices and nondisbursement of budget support). - Balance of payments deficit of 5.2 percent of GDP in 2022 (excluding the SDR allocation). - Medium-term current account deficit should gradually decline to 6.2 percent of GDP owing to expected rise in exports. - Balance of payments surplus of around 1.2 percent of GDP by 2025 expected with improvement in the financial account. - Key risks: - Prolonged uncertainty regarding disbursement of budget support (World Bank and European Union budget support approximately 5 percent of GDP for 2021) posing major risk to growth, financing of public services, and poverty reduction. - Deterioration of international environment: armed conflict in Eastern Europe, rising international oil and commodity prices, volatile international financial conditions, potential slowing of external demand and international value chains. - Domestic risks: resurgence of violence, acceleration of the Covid-19 pandemic (including emergence of new variant), acceleration of inflationary pressures. - Upside scenario: - Faster implementation of structural reforms, more rapid return to peace, improved revenue mobilization and public spending execution could produce a more favorable economic dynamic. ### V. Government financial and economic policies and objectives — overview - Primary objective: continue dialogue with development partners to achieve rapid disbursement of budget support crucial for sustainable implementation of economic and social policies. - Prudential budget execution in 2022 given multiple risks. - Additional measures to strengthen fiscal transparency. ### A. Fiscal policy — key measures and targets - Budget execution approach: - Execution of priority spending will be consistent with available resources. - Revenue mobilization efforts will be accelerated. - Revenue target: - Objective of CFAF 132 billion by assigning specific targets and setting up committees to increase mobilization and secure transfer to the single Treasury account. - Expenditure actions: - Reduce nonpriority primary expenditure to CFAF 9 billion or [0.6] percent of GDP compared to the 2022 budget law. - Continue to clear domestic arrears (CFAF 14.6 billion), clear “outstanding balances” for fiscal year 2021 (CFAF 6 billion), and refund VAT credits (CFAF 7.8 billion). - Most adjustment to primary expenditure to be implemented in the first half of 2022. - Fiscal consolidation and targets: - Aim to reduce the primary fiscal deficit by 1.1 percentage point of GDP compared to 2021. - Restrict new issuances of government securities to CFAF 15 billion (1 percent of GDP) in 2022. - Moderate drawing on the SDR allocation at the BEAC of CFAF 20 billion to cover the financing gap. - SDR balance of CFAF 29 billion will remain available to cover future financing needs. - Contingency if budget support not disbursed: - Submit a supplementary budget further reducing primary spending while prioritizing priority expenditures. - Resort to additional domestic financing, including an increase in the use of SDRs. - Acknowledgement that macroeconomic and social costs will be substantial for 2022 and the medium term. - Oil price fiscal risk: - Preliminary estimates suggest an annual level of implicit subsidies on imports of oil products of about 0.4 of GDP under the baseline scenario. - Plan to set up a committee to examine implicit subsidies and propose measures to reduce fiscal losses; ready to request technical support. ### B. Structural reforms — fiscal transparency and revenue mobilization - Fiscal transparency measures (timeline and actions): - Starting from March 2022, hold monthly meetings on cash flow management with participation of technical and financial partners. - In March 2022, begin PEFA assessment process for 2018 through 2020 by issuing call for tenders to recruit the assessment team; results to be shared with technical and financial partners. - Prepared to explore alternative mechanisms with development partners to maximize transparency in management of budget support. - Domestic arrears management: - By end-June 2022, conduct an inventory of all domestic arrears. - Propose a strategy to end accumulation of new arrears, including (i) a detailed timetable and (ii) criteria for clearance of arrears to minimize favoritism and corruption. - Measures to improve tax revenue collection and security: - Terms of reference prepared for a mission beginning end-March 2022 to prepare an inventory of revenues received by ministries and institutions not deposited in the Treasury single account (TSA). - By end-March 2022, establish a committee to monitor public office revenues to propose measures to eliminate anomalies and ensure transfer to the TSA. - Implement recommendations on tax expenditures (e.g., tax exemptions). - Conduct an evaluation of the relevance of conformity certificates for imports to reduce duplication. - Conduct discussions with partners on economic costs and benefits of current petroleum price structure. - Other structural measures: - Continued digitization of public finance management; fiscal reporting table for 2021 placed online using IMF staff proposed format. - Consolidation of the TSA continuing; draft agreement between the BEAC and the Treasury for TSA management prepared. - New digital application for pension arrears management to incorporate retirees immediately on retirement. - Interconnection of Sygma-Systac and SimBa softwares not yet operational; target full deployment by January 2023. - Transparency of Covid-19 and procurement expenditures: - Continue to publish names of companies receiving transfers for pandemic support and selection criteria. - Will publish online all detailed information on pandemic-related expenditure execution and related public contracts. - Retroactively add names of beneficial owners of public contracts above CFAF 10 million (threshold in effect since August 2021). - Continue to provide all information required by the ministerial order of August 4, 2021. - Rapid results action plan and accounting reforms: - Step up implementation of rapid results action plan agreed with IMF Fiscal Affairs Department, AFRITAC Central and UNDP. - Implement multiyear scheduling of investments and fiscal decentralization by 2023. - Prepare for transition to accrual basis accounting by auditing aggregate balances and adopting government accounting standards and regulation on stock accounting starting in 2022. - Business environment and legal framework: - Revision of the mining code advancing; share revised draft with technical partners by end-March 2022 and incorporate comments before submitting to the National Assembly. - Progress implementing recommendations of the National Economic and Financial Committee (CNEF): transmitted draft laws for arbitration/mediation center and arbitration chamber to COBAC; adopted articles of incorporation of institution responsible for collecting nonperforming loans. Organizational meeting of shareholders to be convened by end-June 2022. - Tax arrears collection and compliance actions: - By end-June 2022, send final notices to all importers and beneficiaries of public contracts not up to date on tax obligations to collect some CFAF 1.6 billion. - By March 15, 2022 at the latest, send detailed action plan to the IMF to recover CFAF 327 million in balances owing as of December 31, 2021 following initial final notices. - Send IMF staff monthly reports on collections starting March 2022, including collections from importers and companies benefiting from public contracts not up-to-date. - Submit a plan to the IMF for locating 247 companies not yet located by March 31, 2022; final report on locating companies to be submitted on June 30, 2022. - E-filing systems and customs modernization: - Training to prepare businesses for e-filing of taxes; all large taxpayers to e-file starting in April 2022. - Signed a €1 million agreement with the European Union for introduction of ASYCUDA World. - International call for bids for technical equipment published; hiring three consultants to handle migration to ASYCUDA World once provisional public procurement plan approved. ### VI. Program monitoring - Terms of the SMP broadly unchanged except for thresholds for quantitative criteria at end-March 2022, for which revisions are sought reflecting a revision of budget support projections. - Targets for the primary fiscal deficit and net domestic financing proposed to be amended to take account of nondisbursement of the tranche of budgetary support for 2021 expected in the first quarter of 2022, combined with reduction in primary spending for 2022. *Source: IMF staff report (content unit: 1cafea2022002 - 16).* ### 40. IMF staff will monitor execution of the second review of the SMP. This review will ### IMF staff will monitor execution of the second review of the SMP. ### Monitoring and data provision - IMF staff will monitor execution of the second review of the SMP covering performance vis-à-vis: - the quantitative targets for end-March 2022; and - the structural benchmarks for end-January and February 2022. - Authorities will continue to provide IMF staff with the statistical data and information identified in the attached Technical Memorandum of Understanding (TMU), as well as any other information IMF staff might request for monitoring purposes. - Support will be provided by the DGI in case of difficulties. ### Quantitative benchmarks, continuous benchmarks, and indicative targets (Table 1 — cumulative from beginning of the year; CFAF billions) - Quantitative benchmarks (end-March 2022; end-December 2021 revised PC; actual; PC): - Net domestic government financing (ceiling, cumulative flows for the year) - End-December 2021 Revised PC: 79.6 - End-March 2022 Actual: 75.1 - Status: Met - PC (end-March 2022): -16.5 - PC (end-December 2021 column?): 18.0 - Domestic revenue (floor, cumulative for the year)1 - End-December 2021 Revised PC: 124.0 - End-March 2022 Actual: 125.9 - Status: Met - PC: 32.0 - PC: 32.0 - Domestic primary fiscal balance (floor, cumulative for the year)2 - End-December 2021 Revised PC: -77.0 - End-March 2022 Actual: -74.0 - Status: Met - PC: -22.0 - PC: -14.0 - Continuous benchmarks (cumulative from October 1, 2021 or for the year as specified)3,4: - Contracting or guaranteeing of new external non concessional debt (ceiling) - Revised PC: 0.0 - Actual: 0.0 - Status: Met - PC: 0.0 - PC: 0.0 - Disbursement of external non concessional debt (ceiling) - Revised PC: 0.0 - Actual: 0.0 - Status: Met - PC: 0.0 - PC: 0.0 - Non accumulation of external payments arrears (ceiling, cumulative for the year) - Revised PC: 0.0 - Actual: 0.0 - Status: Met - PC: 0.0 - PC: 0.0 - Indicative targets: - Social spending (floor, cumulative for the year)5 - Revised PC: 24.0 - Actual: 40.0 - Status: Met - PC: 5.0 - PC: 5.0 - Spending through extraordinary procedures (ceiling, cumulative for the year) - Revised PC: 6.7 - Actual: 7.4 - Status: Not met - PC: 1.7 - PC: 1.7 - Reduction in domestic payments arrears (floor, cumulative for the year) - Revised PC: 12.0 - Actual: 10.5 - Status: Not met - PC: 3.0 - PC: 0.0 - New concessional/external debt contracted or guaranteed by the government (ceiling, cumulative for the year) - Revised PC: 25.0 - Actual: 0.0 - Status: Met - PC: 15.0 - PC: 15.0 - Memorandum items: - Budget support - Revised PC: 0.0 - Actual: 0.0 - PC: 46.0 - Actual: 0.0 - Privatization receipts - Revised PC: 3.6 - Actual: 1.8 - PC: 0.0 - Actual: 1.8 Notes from Table 1: - 1 Domestic revenue excludes foreign grants and divestiture receipts. - 2 Domestic primary balance defined as government domestic revenue minus government total expenditure, less all interest payments and externally-financed capital expenditure. - 3 These objectives will be monitored continuously. - 4 Contracted or guaranteed by the government. - 5 Social spending is defined as domestically financed public non-wage spending on primary and secondary education, health, social action, water and sanitation, microfinance, agriculture and rural development. ### Prior actions and structural benchmarks (Table 2; December 2021–March 2022) - Prior actions (status indicated): - Online publication of an independent audit of COVID-related spending executed in 2020 - Rationale: Improve accountability - Status: Met - Elimination of agencies without economic justification - Rationale: Improve transparency and revenue collection - Status: Met - Submission to the National Assembly of a draft supplementary budget for 2021 consistent with the SMP objectives - Rationale: Improve transparency and revenue collection - Status: Met - Submission to the National Assembly of a draft budget for 2022 consistent with the SMP objectives - Timeline: End-December 2021 - Rationale: Ensure macroeconomic stability - Status: Met - Issuance of a ministerial order suspending import activities as of end-March 2022 for all large importers behind on their tax obligations - Timeline: End-December 2021 - Rationale: Improve revenue collection - Status: Met - Issuance of a ministerial order making the systematic use of the e-filing system mandatory for large taxpayers by December 31, 2022 [sic] - Timeline: End-December 2021 - Rationale: Improve transparency and revenue collection - Status: Met - Submission to the National Assembly of a new anticorruption law consistent with UNCAC - Timeline: End-January 2022 - Rationale: Improve governance - Status: Not met, submitted on February 4, 2022 - Adjustment of the ASYCUDA ++ customs processing system to ensure that the values recommended by Webb Fontaine are automatically reflected in importers’ customs declarations - Timeline: End-February 2022 - Rationale: Improve transparency and revenue collection - Status: Met ### Technical Memorandum of Understanding — key definitions and program rules - Government scope (paragraph 2): - “Government” = central government of the C.A.R.; excludes local governments, the central bank, and public entities with separate legal personality not included in the TOFE. - Definition of debt (paragraph 3; summary of clause): - “Debt” = current contractual liability requiring future payments in assets or services; includes loans, suppliers’ credits, leases (present value at inception). - Guaranteed debt (paragraph 4): - Guarantee = explicit legal obligation by the government to service a debt in the event of borrower nonpayment. - Concessional debt (paragraph 5): - Defined as debt with a grant element of at least 35 percent. - Grant element computed by discounting debt service at a discount rate of 5 percent. - Total government revenue/expenditure (paragraphs 6–7): - Total government revenue: tax and nontax revenue on a cash basis; excludes proceeds from sale of financial assets, privatizations, licenses, investment proceeds, and grants for program purposes. - Total government expenditure: wages and salaries, goods and services, transfers, interest payments, investment expenditure, recorded on a settlement basis (including expenditures executed before payment authorization and not yet regularized). - Wages and salaries (paragraph 8): - As per GFSM 2014 paragraphs 6.8–6.18 — includes all employees (permanent and temporary), armed and security forces; compensation includes wages, allowances, bonuses, pension fund contributions, and other monetary or non-monetary payments. - Definition of arrears (paragraphs 9–11): - Arrears = any debt not paid in accordance with contract conditions per paragraph 3. - Domestic payment arrears = sum of (i) payment arrears on expenditures (payment orders unpaid 90 days after Treasury authorization) and (ii) payment arrears on domestic debt (difference between contractual payment due and amount actually paid after deadline). - External payment arrears = arrears on external debt obligations (difference between contractual amount and amount actually paid after deadline). - Quantitative targets (Section B): - Net domestic financing of the government includes net bank credit (as defined by BEAC practice) plus non-bank financing (proceeds from sale of financial assets, privatizations, Treasury bills and bonds issued on CEMAC regional market not held by local banks, any BEAC credit including SDR counterpart). - Floor for domestic government revenue: only cash-basis tax and nontax revenue counted in the TOFE. - Floor for domestic primary fiscal balance: difference between domestic revenue and expenditure less all interest payments and externally financed capital expenditure; payments on arrears excluded. - Ceilings on new external debt: government undertakes not to contract or guarantee nonconcessional debt (continuous benchmark from October 1, 2021) and not to disburse nonconcessional debt. - Non-accumulation of new external payment arrears: government undertakes not to accumulate external payment arrears except for debt under renegotiation or rescheduling. - Indicative targets (Section B.b): - Floor for social spending: domestically financed non-wage spending on national education (primary, secondary and higher), health, social action, water and sanitation, microfinance, agriculture, livestock and rural development; execution monitored on a payment-order basis. - Ceiling on spending using extraordinary procedures: set at 5 percent of total non-wage spending, debt service (principal and interest) and externally financed spending. - Floor for payment of domestic arrears: government undertakes to settle validated domestic arrears on a priority basis. - Ceiling on new external concessional debt contracted or guaranteed by the government: CFAF 25 billion in 2021 and CFAF 15 billion in the first quarter of 2022. ### Adjusters of quantitative benchmarks (Section C) - Privatisation/asset receipts adjusters: - If total revenue from privatizations, sales of financial assets or renewals of telecom or forestry or oil licenses > programmed amount: - Ceiling on net domestic financing adjusted upward by 50 percent of additional receipts. - Floor for primary domestic fiscal balance adjusted downward by 50 percent of additional receipts. - Budget support adjusters: - If total budgetary support > programmed amount: - Ceiling on net domestic financing adjusted downward by 100 percent of the difference between programmed and actual disbursements. - If total budgetary support < programmed amount: - Ceiling on net domestic financing adjusted upward by 100 percent of the difference between programmed and actual disbursements. ### Structural benchmarks (details from Section D) - Prior actions (to be implemented prior to submission of the staff-monitored program to IMF management): - Submit to the National Assembly a draft supplementary budget in line with SMP objectives for 2021. - Eliminate seven government agencies with no economic justification: Autonomous Electricity Sector Regulation Agency (ARSEC); Minerals and Gems Facility (COMIGEM); Agency for the Regulation and Stabilization of Petroleum Product Prices (ASRP); National Environment Fund (FNE); Mining Development Fund (FMN); Agro-Pastoral Development Fund (FDAP); Special Earmarked Fund for the Development of Tourism and Crafts (CAS-DTA). - Publish online an independent audit of COVID-related expenditure executed in 2020 (covering all budgetary spending related to COVID-19, to be conducted by the Audit Office and published in its entirety). - Structural benchmarks with timelines: - Submit to the National Assembly a draft supplementary budget for 2022 consistent with SMP objectives by December 31, 2021. - Issue ministerial order effective end-March 2022 suspending import activities by large importers not fully compliant with tax obligations; order to be issued by end-December 2021. - Issue ministerial order making systematic use of the electronic declaration system mandatory for large taxpayers by December 31, 2022; order to be issued by December 31, 2021. - Submit to the National Assembly a new anticorruption law consistent with UNCAC and FATF by end-January 2022. - Adjust the ASYCUDA++ customs processing system so Webb Fontaine recommended values are automatically reflected in importers’ customs declarations and related automatic controls operational by end-February 2022. ### Reporting of data to the IMF (Table of required data and deadlines) - Semi-annual evaluation report on qualitative indicators and structural measures (Tables 1 and 2 in the MEFP), accompanied by supporting documents: - Deadline: Within four weeks of the end of each quarter - Monetary survey, monthly central bank and commercial bank accounts: - Deadline: Within four weeks of the end of each month - Table of the government’s monthly cash flow operations, reconciled with the BEAC: - Deadline: Within 10 days of the end of each month - Government financial operations table (TOFE): - Deadline: Within four weeks of the end of each month - Total monthly amount of domestic payments arrears on goods and services and on wages, including unpaid pensions and bonuses: - Deadline: Within four weeks of the end of each month - End-of-period stock of external debt: - Deadline: Within four weeks of the end of each month - Breakdown of expenditures included in the TOFE (goods, services, wages, interest, etc.): - Deadline: Within four weeks of the end of each month - Summary table of actual expenditure in priority sectors, such as health, education, and security: - Deadline: Within four weeks of the end of each quarter - Breakdown of current and capital expenditure, whether domestically or externally funded: - Deadline: Within four weeks of the end of each quarter - Breakdown of revenues by institution and economic classification: - Deadline: Within four weeks of the end of each quarter - Revenue and expenditures netted out without a cash settlement (by expenditure and revenue type): - Deadline: Within four weeks of the end of each quarter - Breakdown of debt service and external arrears, by principal and interest and by main creditors: - Deadline: Within four weeks of the end of each month - Amount of new non-concessional and concessional external debt contracted by the government: - Deadline: Within four weeks of the end of each month - Actual disbursements for projects and programs receiving foreign financial assistance and external debt relief granted by external creditors (including the date, amount, and creditor): - Deadline: Within four weeks of the end of each month *Source: Central African Republic staff‑monitored program documentation and Technical Memorandum of Understanding (TMU) as presented in the MEFP and Tables 1–2.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1cafea2022002.pdf_