## 1cafea2023001 - EXECUTIVE SUMMARY ## Source details **Canonical URL:** [1cafea2023001 - EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2023/english/1cafea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1cafea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1cafea2023001.pdf.json) --- ### Context: crisis and humanitarian situation - CAR is on the brink of a humanitarian crisis with acute food insecurity and access to health care drastically impaired. - Approximately 2.7 million people, almost half of the Central African Republic’s population (44 percent), are experiencing high levels of acute food insecurity (Phase 3 and 4 of IPC) between September 2022 to March 2023. - This number could increase to 3 million (49 percent of the population analyzed) between April to August 2023, if no assistance is provided. - Social and political tensions have increased, including strikes linked to a cost-of-living crisis and political tensions over the President’s plans for a third mandate. - The 2021 suspension of budget support deprived the government of 5 percent of GDP in financing and constrained policy after buffers (including the 2021 SDR allocation) were eroded. - Authorities have requested Fund financing assistance to address protracted balance of payments needs. ### Medium-term outlook and principal risks - Baseline hinges on partial resumption of budget support and significant policy strengthening. - Real GDP growth: 0.5 percent in 2022; projected rebound to 2.2 percent in 2023; medium-term average 3.6 percent between 2024 and 2027. - Inflation: headline year-on-year inflation rose to 7.6 percent in December 2022 from 2.0 percent a year earlier (alternative figure reported: 7.9 percent in December 2022); expected to average 6.3 percent in 2023 and converge to 2.5 percent from 2026 onwards. - External current account: deficit around 13.1 percent of GDP in 2022; projected gradual drop to 4.5 percent by 2027. - Financing gap: balance of payments projections include a financing gap of about 3.5-4.5 percent of GDP per year; historical average of budget support about 6 percent of GDP. - Key downside risks: deterioration in security, failure to mobilize budget support, policy missteps, tightening regional/global financial conditions. Exceptionally high risks to capacity to repay the Fund if downside scenarios materialize. ### Fund engagement and financing request - Authorities requested a 38-month ECF arrangement for 127.18 percent of quota (SDR 141.68 million or US$189.5 million). - Background: 2019 ECF went off track and lapsed in mid-2022; a 9-month SMP (2022) could not be fully completed but recent corrective actions helped progress toward a track record of policy implementation. - Disbursements to be entirely used for budget support; 90 percent of proposed access to be paid directly to CAR’s SDR account with the SDR Department to cover Fund obligations between 2023 and 2026; remaining 10 percent to be paid, beginning with the first program review, into the existing BEAC IMF account to replenish a BEAC escrow account. ### Key policy commitments (headline) - Ensure orderly budget execution under tight cashflow by increasing revenues, maintaining momentum in energy price reforms, and prioritizing pro-poor spending. - Intensify efforts to mobilize highly concessional financing; limit non-concessional borrowing. - Continue reforms in governance, financial inclusion, and the business climate. - Remove legal tender and guaranteed convertibility for crypto assets (prior action met). ### Recent economic developments (selected findings and indicators) - Growth: economy set to slightly expand by 0.5 percent in 2022, driven by forestry, mining, hotels, and telecoms; fuel shortages adversely affected transport and manufacturing. - Inflation: headline y-o-y inflation rose to 7.6 percent in December 2022 from 2.0 percent a year earlier; food prices reached 10 percent at end-December 2022 and were the main driver of high inflation. - Fiscal situation (2022): - Domestic primary deficit declined to 4.5 percent of GDP in 2022 (compared to 4.0 percent in the original budget) from 5.1 percent in 2021. - Monthly domestic revenues declined from around CFAF 11.0 billion to CFAF 8.5 billion starting mid-2022. - Authorities implemented a partial adjustment on non-priority domestic spending of CFAF 9.5 billion (0.6 percent of GDP). - By year-end the treasury had almost depleted its cash balance while using up the SDR allocation (CFAF 50.5 billion) and raising domestic financing (CFAF 46 billion). - Public debt: public debt-to-GDP ratio estimated at 51.9 percent of GDP at end-2022 (drivers: drawdown of SDR allocation, net domestic bond issuance of CFAF 31.7 billion, and depreciation of the CFAF against the U.S. dollar). - Banking stability: aggregate FSIs broadly adequate but liquidity indicators deteriorated since end-2021; NPLs at 14.8 percent as of end-April 2022 and 12.4 percent at end-December 2022; one private bank’s capital adequacy drifting toward regulatory minimum. - Current account: deficit around 13.1 percent of GDP in 2022, worsening by about 2 percent of GDP versus 2021, driven mainly by a 9.4 percent drop in terms-of-trade. ### Fiscal policy, 2023 budget and revenue measures - 2023 budget aims to reduce domestic primary deficit by 0.9 percent of GDP: domestic primary deficit projected 3.6 percent of GDP in 2023, about 1.4 percent of GDP by 2027 if program implemented. - Domestic revenue target: projected increase to 7.9 percent of GDP (CFAF 131.7 billion) from 7.8 percent (CFAF 119.0) in 2022. - Domestic primary spending targeted to fall from 12.2 percent of GDP in 2022 to 11.5 percent of GDP in 2023. - Adjustment in 2023 is revenue-led: tax policy and administration measures expected to generate CFAF 18.5 billion (1.1 percent of GDP) and planned fuel price adjustments expected to generate around CFAF 15 billion (0.9 percent of GDP). - Contingency plan: adjust domestic primary deficit by up to 0.75 percent of GDP in the revised budget in July (0.55 percent on domestic revenues; 0.2 percent on domestic primary spending). - Text Table 1 (Revenues Measures Adopted in the 2023 Budget and Fuel Price Adjustment) — expected collection (Panel totals preserved exactly): - Panel A: New taxes or rate adjustment - Telecommunication taxation: 6.0 (CFA Francs Billions) | 0.36 (Percent of GDP) - Tobacco taxation: 4.0 | 0.24 - Streamlining tax exemptions: 1.0 | 0.06 - Application of the Common External Tax set by the CEMAC: 0.33 | 0.02 - Panel B: Tax Administration and Compliance - Bringing small revenues collected by Ministries to the TSA: 4.0 | 0.24 - Other revenue administration and compliance: 3.2 | 0.19 - Panel C: Fuel Price Adjustment - Petroleum taxes: 15.0 | 0.90 - Total: 33.5 (CFA Francs Billions) | 2.0 (Percent of GDP) ### Financing options, 2023 financing gap, and contingency - World Bank operation: about US$50 million to guarantee delivery of social services, of which US$28 million expected to be disbursed in 2023. - EU continues to withhold budget support for 2023 and the medium term. - New ECF expected to catalyze AfDB budget support of around US$14 million in 2023. - Authorities plan to raise CFAF 38.2 billion (2.3 percent of GDP) on the domestic and regional market in net terms. - New ECF expected to cover a financing gap equivalent to US$38.5 million in 2023. - If planned external financing fails, authorities intend to cover gap by additional domestic borrowing at significant interest cost. - External financing assumptions (Table excerpts preserved): financing gap and identified financing series indicate residual financing gap and possible instruments including ECF, RCF, CCRT, G20 DSSI components. ### Debt and external vulnerabilities - CAR remains at high risk of external debt distress and overall high risk of debt distress. - Public debt projected to decline to 43.2 percent of GDP by end-2027 under the program; liquidity risks substantial from possible donor shortfalls and market access constraints. - Liquidity indicators for external debt (debt service-to-exports and debt service-to-revenue) show breaches for 4-5 years starting in 2023 largely due to obligations to the Fund. - Debt service to the Fund projected to rise and peak in 2026 at around SDR 37 million (about 12 percent of exports of goods and services, and around 19 percent of revenue excluding grants). - Contingent liabilities stress-test design calibrated a combined shock at 15 percent of GDP (SOE debt 5 percent, domestic arrears 5 percent, financial market shock 5 percent). ### Program design, structural reforms, and safeguards - ECF objectives: address protracted balance of payments need; stabilize macro situation; reduce poverty via governance reforms, increased domestic revenue, and social programs including food security; unlock donor support. - Program highlights: - Fiscal consolidation of 2 percent of GDP over program period, mainly revenue-based. - Governance reforms: finalize and apply anti-corruption legislation; adopt new mining legislation with World Bank assistance; PFM reforms on controls and accountability. - Hydrocarbon sector reforms: simplify price formula, rationalize para-fiscals, calculate hydrocarbon price structure respecting tax/quasi-tax rates, sign inter-ministerial decree with new hydrocarbon prices in line with IMF TA recommendations, and implement automatic adjustment mechanism. - Social protection: maintain PACAD and other social programs; PACAD covers 30,000 households but World Bank funding expected to end June 2023—authorities should maintain minimum budget contribution. - Public debt management: design and execute annual borrowing plans, implement public debt coordination and management framework, publish annual debt reports, avoid accumulation of new domestic arrears. - Prior actions (all met): - (i) Repeal provisions in cryptocurrency legislation (n°22.004 of April 22, 2022) providing legal tender status and convertibility of crypto assets. - (ii) Establish an escrow account at BEAC to supplement a World Bank operation to guarantee delivery of social services. - (iii) Promulgate the decree transposing CEMAC Directive No. 01/20-UEAC-CM-35 (stock and fixed assets accounting) into domestic law. - Structural benchmarks include operationalizing IT functions for domestic revenues, signing hydrocarbon price decree, transferring funds collected by ministries to the TSA, establishing public debt coordination framework, adopting anti-corruption law, and submitting new organic law for Court of Audit. ### Monetary and financial context - BEAC policy: raised policy rate further by 50 bp to 5 percent in March 2023 (after increases in 2022Q1 and 2022Q4); tightened refinancing conditions scaling back weekly liquidity injections from CFAF 250 billion in June 2021 to zero in March 2023. - Government securities: outstanding stock CFAF 90.4 billion (5.9 percent of GDP) at end-October 2022, average maturity 4 years at end-2022 with bunching of bonds maturing in 2026; government plans to frontload domestic issuance. - Primary dealers increased to ten in January 2023 (from five in 2022). - Banking sector: NPLs 12.4 percent as of end-December 2022; one privately owned bank’s NPL ratio above 20 percent; swift enforcement of asset recovery measures and NPL action plan warranted. ### Fuel pricing mechanism and subsidies - Fuel shortages since June 2022 slowed activity and collapsed oil-related revenue (oil-related revenue contracted by 95 percent). - January 3, 2023 pump price increases (no mitigation due to lack of funding): diesel +70 percent (to CFAF1,450); gasoline +50 percent (to CFAF1,300); kerosene +78 percent (to CFAF1,150) — resulted in only modest revenue increases due to black-market competition. - Hydrocarbon reform objectives: safeguard oil revenues; guarantee availability of quality fuel; protect the most vulnerable. - Proposed new official after-tax pump prices to be set: - CFAF 1,100 per liter of gasoline - CFAF 1,350 for diesel - CFAF 850 for kerosene - IMF TA recommendations to audit supply costs, unify price formula, streamline parafiscality, implement public import tenders for authorized market, and introduce automatic price adjustment. ### Social safeguards, food security, and priority spending - Food insecurity: - April–August 2022: around 2.4 million people experienced “acute” food insecurity, 27 percent in “emergency” situation. - Expected to rise to 2.7 million between September 2022 and March 2023 and may reach 3 million between April and August 2023. - Humanitarian and development programs: - WFP unconditional food assistance ~US$90 million per year on average in 2019–2021. - World Bank PACAD: US$16 million approved in 2021, implemented since May 2021, expected to end June 2023. - AfDB grant US$5.4 million (July 2022). - Longer-term World Bank projects: Agricultural Recovery US$25 million (2019–24); Emergency Food Crisis Response US$50 million (2021–24). - Social spending priorities: protect pensioners (0.7 percent of GDP) and education allowances (0.1 percent of GDP); continue appeals for humanitarian assistance and budget support. ### Public financial management, transparency and anti-corruption - PFM advances: quarterly fiscal tables for 2022 published in IMF format; TSA consolidation advancing; draft BEAC-Treasury TSA agreement well-advanced; payroll audits begun for health and education ministries. - Revenue mobilization measures to increase tax collection by CFAF 2.7 billion: mandatory e-declaration for big companies; 10 percent penalty and minimum CFAF 1 million for importers not registered; joint tax/customs missions; recover owed amounts. - Customs measures 2023: apply CEMAC common external tariff (HS2022), apply tax rates for activities previously exempt, create code 900 in ASYCUDA for mining exemptions. - IT modernization: Agreement with EU to adopt ASYCUDA World; transition planned in second half of 2023. - Anti-corruption: draft law submitted to National Assembly on February 4, 2022; authorities aim to adopt and apply anti-corruption law early next year (structural benchmark dates specified). ### Crypto assets, Project Sango, and financial integrity - April 2022 legislation granted legal tender status to crypto assets and guaranteed convertibility, creating macro-fiscal, financial stability, and financial integrity risks and violating BEAC’s exclusive right to issue legal tender. - Project Sango: launched July 2022; less than US$2 million worth of Sango coin estimated sold (0.2 percent of planned issuance); holdings locked for one year; implementation stalled after Constitutional Court ruling on some uses. - Prior action: repeal of legal tender/convertibility provisions in crypto law; authorities instituted a task force (January 20, 2023) to elaborate a legal framework consistent with UMAC/BEAC and mitigate AML/CFT risks. ### Program monitoring, disbursements, and capacity to repay - Monitoring: semi-annual quantitative performance criteria (QPCs), indicative targets, and structural benchmarks phased in line with capacity constraints. - Selected QPCs and indicative targets (cumulative, CFAF billions): - Net domestic government financing (ceiling): End-March 2023: 19.0; End-June 2023: 11.0; End-December 2023: 37.0. - Domestic revenue (floor): End-March 2023: 30.0; End-June 2023: 62.0; End-December 2023: 130.0. - Domestic primary fiscal balance (floor): End-March 2023: -12.0; End-June 2023: -24.0; End-December 2023: -64.0. - Social spending (indicative floor, cumulative): End-December 2023: 22.0. - Proposed disbursement schedule (Millions of SDR; Percent of quota): - First disbursement — April 27, 2023 — SDR 11.3 million — 10.14 - Second — October 30, 2023 — SDR 17.31 million — 15.54 - Third — April 30, 2024 — SDR 17.71 million — 15.90 - Fourth — October 30, 2024 — SDR 19.19 million — 17.23 - Fifth — April 30, 2025 — SDR 22.58 million — 20.27 - Sixth — October 30, 2025 — SDR 21.79 million — 19.56 - Seventh — April 30, 2026 — SDR 31.80 million — 28.55 - Total: SDR 141.68 million — 127.18 - CAR's quota is SDR 111.4 million - Capacity to repay: weak and subject to substantial downside risks; would become adequate only under baseline with program success and contingency implementation. - Outstanding IMF Credit (SDR Millions) projected: 213.8 (2023) rising then declining to 37.0 (2033) in projections. - CFAF Billions equivalent outstanding IMF Credit: 176.2 (2023) ... 31.0 (2033). - Percent of government revenue and exports indicators show high Fund exposure in near term (series preserved in technical annexes). ### Risks to program and mitigation - Program faces exceptionally high risks, mainly noneconomic (security, geopolitical). - Risk mitigation: contingency plans, extensive capacity development, close policy dialogue with CAR and CEMAC authorities, collaboration with IFIs to catalyze financing. - Safeguards and pre-funding: authorities committed to deposit 90 percent of proposed access to CAR’s SDR account to pre-fund obligations; remaining 10 percent to BEAC escrow for World Bank-guaranteed social services. - BEAC safeguards assessment (April 2022): BEAC maintained strong governance and transitioned to IFRS; recommendations to strengthen internal audit, risk management, cyber resilience; progress underway. ### Data, reporting, and technical assistance - Reporting commitments: detailed reporting of fiscal, monetary, and external data with specified frequencies (monthly/quarterly deadlines listed in TMU). - Data adequacy: broadly adequate for surveillance but with shortcomings and delays (national accounts rebasing underway; CPI revision and COICOP transition from 2020). - IMF technical assistance priorities: fuel subsidy design, tax policy and revenue administration, PFM/governance/anti-corruption, programming and macro statistics, debt management capacity. ### Staff appraisal and recommendation - Staff supports the authorities’ request for an ECF arrangement equivalent to SDR 141.68 million (127.18 percent of quota) given protracted BOP needs and authorities’ package of policies and reforms. - The ECF is described as a borderline case for Fund financing assurances and DSA policies but expected to be fully financed with a risk mitigation strategy and contingency plans. - Continued geopolitical and security risks remain significant and could undermine program outcomes if realized. *Source: IMF staff report excerpts and tables (content unit 1cafea2023001).* ### EXECUTIVE SUMMARY ### 1cafea2023001 - EXECUTIVE SUMMARY ### Context: crisis and humanitarian situation - CAR is on the brink of a humanitarian crisis with acute food insecurity and access to health care drastically impaired. - Approximately 2.7 million people, almost half of the Central African Republic’s population (44 percent), are experiencing high levels of acute food insecurity (Phase 3 and 4 of IPC) between September 2022 to March 2023. - This number could increase to 3 million (49 percent of the population analyzed) between April to August 2023, if no assistance is provided. - Social tensions have increased, including strikes linked to a cost-of-living crisis triggered by the Russian invasion of Ukraine; political tensions escalated over the President’s plans of a third mandate requiring constitutional revisions. - The 2021 suspension of budget support—which deprived the government of 5 percent of GDP in financing—constrains policy after the erosion of buffers, including the 2021 SDR allocation. - The protracted balance of payments need is preventing the authorities from delivering basic public services; authorities have requested Fund financing assistance. ### Medium-term outlook and risks (summary) - Outlook hinges on a partial resumption of budget support and significant strengthening of policies. - Key downside risks: deterioration in security, failure to mobilize budget support, and policy missteps—any of which could tip the country into a deep crisis with the government unable to provide basic services or pay wages. - There are exceptionally high risks to the capacity to repay the Fund if these downside scenarios materialize. ### Fund engagement and financing request - Authorities requested a 38-month ECF arrangement for 127.18 percent of quota (SDR 141.68 million or US$189.5 million) to address protracted balance of payments needs. - Background: the 2019 ECF arrangement went off track and lapsed in mid-2022; a 9-month SMP (2022) aimed at restoring a UCT-quality program could not be fully completed but recent corrective actions and commitments helped progress toward a track record of policy implementation and credibility. ### Key policy commitments (headline) - Ensure an orderly budget execution under tight cashflow by increasing revenues, maintaining momentum in energy price reforms, and prioritizing pro-poor spending. - Intensify efforts to mobilize highly concessional financing. - Continue reforms in governance, financial inclusion, and the business climate. - Remove legal tender and guaranteed convertibility for crypto assets. ### Recent economic developments (selected findings and indicators) - Growth: economy set to slightly expand by 0.5 percent in 2022, driven by forestry, mining, hotels, and telecoms; fuel shortages adversely affected transport and manufacturing. - Inflation: headline year-on-year inflation rose to 7.6 percent in December 2022 from 2.0 percent a year earlier; inflationary pressures continued in Q1 2023 after a high increase of fuel pump prices. - Fiscal situation: - Domestic primary deficit declined to 4.5 percent of GDP in 2022 (compared to 4.0 percent in the original budget) from 5.1 percent in 2021. - Monthly domestic revenues declined from around CFAF 11.0 billion to CFAF 8.5 billion starting mid-2022. - Authorities implemented a partial adjustment on non-priority domestic spending of CFAF 9.5 billion (0.6 percent of GDP). - By year-end, the treasury had almost depleted its cash balance while using up the SDR allocation (CFAF 50.5 billion) and raising domestic financing (CFAF 46 billion). - Public debt: public debt-to-GDP ratio estimated at 51.9 percent of GDP at end-2022 (main drivers: drawdown of SDR allocation, net domestic bond issuance of CFAF 31.7 billion, and depreciation of the CFAF against the U.S. dollar). - Banking stability: aggregate financial soundness indicators broadly adequate but liquidity indicators deteriorated since end-2021; NPLs at 14.8 percent as of end-April 2022; one private bank’s capital adequacy ratio drifting toward regulatory minimum. - Current account: deficit around 13.1 percent of GDP in 2022, worsening by about 2 percent of GDP versus 2021, driven mainly by a 9.4 percent drop in terms-of-trade. - External position: substantially weaker than implied by medium-term fundamentals and desirable policy settings, largely due to exhaustion of buffers and lack of competitiveness compounded by commodity price shocks. ### Outlook: projections and fiscal path (baseline assumptions) - Baseline assumes partial resumption of budget support and significant policy strengthening consistent with program commitments. - Real GDP growth: projected rebound to 2.2 percent in 2023 (partly base effect and policy adjustments improving fuel supply). - Inflation: expected to average 6.3 percent in 2023 (above the CEMAC target of 3 percent); expected to converge to 2.5 percent from 2026 onwards. - Medium-term growth: could average 3.6 percent between 2024 and 2027. - Fiscal projection: if government implements medium-term program budget objectives, domestic primary deficit would narrow to about 1.4 percent of GDP by 2027. - External current account: projected gradual drop in the deficit to 4.5 percent by 2027. - Financing assumptions and gap: - Balance of payments projections include a financing gap of about 3.5-4.5 percent of GDP per year. - Assumes authorities mobilize sufficient financing from IFIs, including the Fund, and/or the regional market. - Projected financing gap is lower than historic average of budget support of 6 percent of GDP due to a significant revenue-based adjustment. ### Debt and external vulnerabilities - CAR remains at high risk of external debt distress and overall high risk of debt distress. - Public debt projected to be sustainable on solvency metrics, but substantial liquidity risks exist from possible shortfalls in donor support and domestic/regional market access. - Liquidity indicators for external debt (debt service-to-exports and debt service-to-revenue) show breaches for 5 years starting in 2023, largely due to obligations to the Fund becoming due. - Risk that adverse shocks could lead to domestic and external arrears. ### Key downside risk channels (enumerated) - Failure to resolve fuel shortages via a sustainable price-adjustment mechanism or to realize revenue mobilization plans, weighing on growth and revenues. - Inability to mobilize concessional donor support sufficient to cover balance of payments gap. - Deterioration in security disrupting economic activity and causing revenue and donor financing shortfalls. - Stronger-than-expected tightening of regional and global financial conditions limiting government capacity to borrow locally. - Combined adverse shocks could tip CAR into a deep crisis with inability to provide basic services or pay wages, and emergence of arrears. ### Authorities’ stance - Authorities broadly agreed with the outlook and risks; committed to pursue peace and diplomatic efforts and fiscal prudence. - Acknowledged fragile debt dynamics and dire consequences of lack of budget support. - Committed to prudent fiscal stance, higher domestic revenue, reinforced fiscal transparency, and continued donor engagement to unlock budget support. - Welcomed transition to a new ECF arrangement as a means to finance transformational reforms and the Fund’s catalytic role. ### Policy discussions—Fiscal policy specifics - Fiscal stance further tightened in 2023: 2023 budget targets reduction of domestic primary deficit by 0.9 percent of GDP. - Domestic revenue target: projected increase to 7.9 percent of GDP (CFAF 131.7 billion) from 7.8 percent (CFAF 119.0) in 2022, due to rebound in activity and a revenue package. - Domestic primary spending targeted to fall from 12.2 percent of GDP in 2022 to 11.5 percent of GDP in 2023; goods and services and domestically-financed capital spending to bear the brunt. - Adjustment in 2023 is revenue-led with tax policy and administration measures expected to generate CFAF 18.5 billion (1.1 percent of GDP) and planned fuel price adjustments expected to generate around CFAF 15 billion (0.9 percent of GDP). - Without these measures, domestic revenues would have fallen to 5.9 percent of GDP in 2023 in the baseline. - Text Table 1: Revenues Measures Adopted in the 2023 Budget and Fuel Price Adjustment (expected collection) - Panel A: New taxes or rate adjustment - Telecommunication taxation: 6.0 (CFA Francs Billions) | 0.36 (Percent of GDP) - Tobacco taxation: 4.0 | 0.24 - Streamlining tax exemptions: 1.0 | 0.06 - Application of the Common External Tax set by the CEMAC: 0.33 | 0.02 - Panel B: Tax Administration and Compliance - Bringing small revenues collected by Ministries to the TSA: 4.0 | 0.24 - Other revenue administration and compliance: 3.2 | 0.19 - Panel C: Fuel Price Adjustment - Petroleum taxes: 15.0 | 0.90 - Total: 33.5 (CFA Francs Billions) | 2.0 (Percent of GDP) *Source: IMF staff and country authorities (Executive Summary, 1cafea2023001).* ### 12. Financing options remain limited. The World Bank is pushing ahead with an operation of ### 1cafea2023001 - 12. Financing options remain limited. The World Bank is pushing ahead with an operation of ### Financing options and 2023 financing gap - The World Bank is pushing ahead with an operation of about US$50 million to guarantee the delivery of social services, of which US$28 million is expected to be disbursed in 2023. - The European Union continues to withhold its budget support for 2023 and the medium term. - The new ECF arrangement would catalyze budget support from the AfDB of around US$14 million in 2023. - The authorities plan to raise on the domestic and regional market CFAF 38.2 billion (2.3 percent of GDP) in net terms. - The new ECF is expected to cover the financing gap equivalent to US$38.5 million in 2023. - Contingency: should planned external financing fail to materialize, the authorities intend to cover the gap by raising additional domestic borrowing but at a significant interest cost. ### Medium-term fiscal outlook and structural reforms - Fiscal domestic primary deficit projection: - 3.6 percent of GDP in 2023 - around 1.4 percent of GDP in 2027 - Public debt projection: decline to 43.2 percent of GDP (medium term). - Domestic revenues assumption: gradual upward trend, increasing by around 0.9 percent of GDP annually. - Fiscal structural reforms underpinning revenue improvements include: - reforming taxation of natural resources - rationalizing parafiscal charges - limiting tax and customs exemptions - strengthening the tax and customs administration with continued Fund Capacity Development (CD) ### Conditions and measures required to resume budget support - Measures to help unlock donors’ financing include (not limited to): - providing detailed information about budget execution - committing that sanctioned entities will not be financed from the budget or other public sources - reinstating monthly Treasury Committee meetings with donors - publishing the result of the ongoing PEFA assessment ### Fiscal risks, contingency measures, and implementation timeline - Authorities’ contingency plan in case financing conditions worsen: - Adjust the domestic primary deficit in equivalent proportion up to 0.75 percent of GDP in the revised budget in July, composed of: - 0.55 percent on domestic revenues - 0.2 percent on domestic primary spending - Revenue-side measures envisaged: - higher excises on select products - expediting aspects of the reform to transfer revenues collected by various ministries and agencies to the TSA - administrative measures, such as enforcement of the VAT exemption regime and of tax liabilities - continued identification of other revenue measures for the revised budget - Spending-side measures envisaged: - cutting mission travel expenses - cutting other non-priority domestically financed investment (noting limited space under the budget) - Potential upside: BEAC dividend distribution which would be known by 2023Q2. - If World Bank financing falls short in the medium term: authorities indicated commitment to further adjustments to non-priority spending and to increase domestic revenue, and continued efforts to attract bilateral donor support. ### Authorities’ stated priorities and constraints - Authorities recognize the need for fiscal reforms and diplomatic efforts; they: - adopted a package of revenue measures in the 2023 budget - committed to continuing discussions with main donors to unblock financing - prepared a contingency plan to be implemented in the revised budget in July if financing falls short in the first semester - committed to prioritize domestic primary spending to limit hardship on the vulnerable and preserve essential government functions, including security - agreed to follow a prudent approach to contracting new external debt, prioritizing grant financing with some limited room for concessional financing - Authorities acknowledge fiscal risks, including accumulation of domestic and external arrears. ### Monetary and financial context: tight financing conditions - BEAC policy and liquidity actions: - BEAC raised its policy rate further by 50 bp to 5 percent in March 2023 (after increases in 2022Q1 and 2022Q4). - BEAC tightened banks’ refinancing conditions, scaling back weekly liquidity injections at its monetary operations window from CFAF 250 billion in June 2021 to zero in March 2023. - Further policy rate increases and tightening liquidity are likely if regional inflation rises, deviations from the targeted regional reserve path occur, or fiscal slippages happen in the region. - Government securities and yields: - CAR’s sovereign yields are the highest in the region for idiosyncratic reasons; yields soared in 2021 and have remained high across the yield curve. - Outstanding stock of securities stood at CFAF 90.4 billion (5.9 percent of GDP) at end-October 2022, with an average maturity of 4 years at end-2022 and a bunching of Treasury bonds maturing in 2026. - Government plans to frontload its domestic issuance to improve predictability of budget execution. - Primary dealers and market participation: - Primary dealers increased to ten in January 2023 compared to five in 2022. - For comparison example provided: maximum of 23 for Gabon’s. - Banking sector soundness: - NPLs remain high at 12.4 percent as of the end of December 2022. - One privately owned bank’s NPL ratio is above 20 percent. - Swift enforcement of asset recovery measures and an action plan on nonperforming loans are warranted. ### Structural policies — fuel pricing mechanism and subsidies - Impact of fuel shortages: - Since June 2022, fuel shortages slowed economic activity and collapsed government revenues—oil-related revenue contracted by 95 percent. - Supply to the official market dried up in second half of 2022 as the government lacked resources to compensate importers for widening price differential with international prices. - Some importers supplied parallel markets at twice the official price. - January 3, 2023 fuel price increases (no mitigation measures due to lack of funding): - diesel increased by 70 percent (to CFAF1,450) - gasoline increased by 50 percent (to CFAF1,300) - kerosene increased by 78 percent (to CFAF1,150) - Resulted in only a modest increase in revenues due to black-market competition. - Objectives for fuel pricing reform (three objectives to balance): - safeguarding the country's oil revenues - guaranteeing the availability of good quality fuel for the entire population - protecting the most vulnerable population - Success factors for reform: - involve all stakeholders - develop a communication campaign - develop mitigation measures - guarantee continuity in the fuel supply - address trade disruptions along the Douala-Bangui corridor and engage neighboring countries on removing exports barriers ### Social safeguards and food security - Food insecurity statistics and projections: - From April to August 2022, around 2.4 million people experienced “acute” food insecurity, 27 percent of which in an “emergency” situation. - Expected to rise to 2.7 million between September 2022 and March 2023. - May reach 3 million between April and August 2023. - Drivers of deterioration: - rising transportation costs - increasing fuel shortages - higher food prices - pre-existing structural causes: internally displaced people amid protracted conflict, low agricultural productivity, recurrent climate shocks - Humanitarian and development programs: - WFP unconditional food assistance program accounts for almost two-thirds of all WFP’s aid operations, estimated at around US$90 million per year on average in 2019-2021. - World Bank PACAD program: US$16 million approved in 2021 (targeted mobile money transfers), implemented since May 2021 and expected to end in June 2023. - AfDB approved a US$5.4 million grant in July 2022 to boost production and avert potential food shortages. - Longer-term programs: Agricultural Recovery project (US$25 million for 2019-24) by the World Bank; Emergency Food Crisis Response project (US$50 million for 2021-24) implemented with WFP and FAO. - Short-term social protection measures and budgetary context: - Pension and education allowances currently account for 0.7 percent and 0.1 percent of GDP, respectively. - Recommendation: continue to appeal for humanitarian assistance and budget support to protect groups impacted by the global food price crisis, including old-age pensioners and vulnerable students. - Rationale: pensioners and vulnerable students typically are not targeted by humanitarian agencies; pensioners face extremely low monthly payments and lack alternative occupation; stipend arrears since 2020 have negatively impacted students. ### Public financial management (PFM) reforms and revenue measures - PFM advances: - Fiscal situation tables for the first, second, and third quarter of 2022 have been published online in the IMF-staff proposed format. - Consolidation of the Treasury Single Account (TSA) is advancing; draft agreement between BEAC and the Treasury is well-advanced but some annexes must be finalized before signing; agreement expected to be signed in the first half of 2023. - In response to World Bank requirement, government began audit of payroll databases of ministries of health and education; necessary actions will follow completion. - Technical and financial partners were invited to three monthly treasury committee meetings in November 2022; authorities committed to at least one treasury committee meeting per month and to invite partners to all meetings. - Following recommendations from audit of three SOEs (ENERCA, SODECA, and SOCATEL), an arrears’ clearance plan has been elaborated though implementation is problematic due to treasury cash flow issues. - Revenue mobilization measures to increase tax collection by CFAF 2.7 billion: - implement ministerial decree ordering systematic use of the electronic declaration system for all big companies - apply a penalty of 10 percent (on the value of imports) and a minimum of CFAF 1 million in payment of duties to importers not registered in the taxpayer register of the tax department - recover money owed by importers and beneficiaries of public contracts not up to date with tax obligations - conduct a joint mission between the tax department, customs department, and the department of commerce in districts of Bangui - Customs measures started in 2023: - application of the CEMAC common external tariff - application of tax rates corresponding to activities of codes 800 and 200 of the customs legislation, previously exempted - creation of code 900 for management of exemptions in the mining sector - IT and administration modernization: - Agreement signed with the EU to adopt the new customs system ASYCUDA world to allow secure exchange of information between customs and tax systems and facilitate use of a single tax identification number (TIN). - Authorities plan to transition to this system in the second half of 2023. *Source: CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND (excerpts from the supplied content unit).* ### 34. The authorities concur with the need to increase their revenue collection. Given the ### 1cafea2023001 - 34. The authorities concur with the need to increase their revenue collection. Given the ### Revenue mobilization and fiscal consolidation - Authorities concur on the need to increase revenue collection to ensure sustainable financing of the country most pressing spending needs and debt sustainability. - Fiscal consolidation envisaged: fiscal consolidation of 2 percent of GDP over the program period, mainly revenue-based. - Program targets adjustment of the primary balance of 2 percent of GDP over three years through a combination of base-broadening reforms and tax policy measures. - Actions to improve revenue administration: - Operationalize key functions of the new IT system for domestic revenues, including online registration, online declaration, and electronic payments. - Transfer to the TSA all the funds collected directly by the ministries in exchange for services provided to users. - Prepare a Medium-Term Revenue Strategy, potentially with IMF technical assistance. - Carry out a tax expenditure study with particular emphasis on exemptions. ### Anti-corruption, governance, and business climate - Draft anti-corruption law submitted to the National Assembly on February 4, 2022; not yet voted by Parliament. - Authorities aim to adopt and apply the anti-corruption law early next year; drafting supported by IMF staff recommendations and aligned with UNCAC. - Anti-corruption and PFM reforms prioritized to unlock donor support, including: - Passing the anti-corruption law and subsequent implementation. - Strengthening operational and financial independence of public oversight institutions. - Improving fiscal reporting and publishing PEFA assessment results. - Implementing an accounting reform to improve accuracy, transparency, and accountability of financial reporting (MEFP, ¶34). - Mining code review ongoing, incorporating recommendations of technical and financial partners; new code aims to comply with AML/CFT standards and CEMAC foreign exchange regulations. - Authorities view mining code as a vehicle to attract foreign investment, create jobs, and stimulate economic growth; drafting expected to be completed this year with World Bank technical assistance. ### Crypto assets, Sango project, and financial integrity risks - April 2022 legislation granted legal tender status to crypto assets and guaranteed convertibility, creating significant macro-fiscal, financial stability, and financial integrity risks and violating BEAC’s exclusive right to issue legal tender in the monetary union. - Risks identified: - Conflict of law with CEMAC/BEAC and potential supervisory actions from COBAC. - Fiscal contingent liabilities from any state-endorsed convertibility mechanism. - Volatility in government revenue if tax obligations discharged in crypto assets. - Weakening effectiveness of foreign exchange regulations in the monetary union. - Project Sango: - CAR launched the digital Sango coin as part of project Sango in July 2022. - Less than US$2 million worth of Sango coin estimated to have been sold (0.2 percent of total planned issuance). - Holdings are locked for one year; coin is not yet traded; other project elements not implemented. - Constitutional Court declared illegal use of Sango coin to purchase citizenship, e-residence, land, and natural resources; implementation stalled. - Structural and capacity constraints: - Only 10 percent of the population has access to electricity. - Only 40 percent have a mobile phone. - Inadequate legal frameworks, weak public institutions, and substantial policy uncertainty compound challenges. - Authorities’ stance: - Believe blockchain/tokenization can attract investment but agree legal tender and guaranteed convertibility are not necessary. - Intend to harmonize crypto law with UMAC regulations and work with BEAC. - Instituted a governmental task force on January 20, 2023, to elaborate a more complete legal framework on crypto assets and tokenization. - Authorities recognize financial integrity and AML/CFT risks and the need to mitigate them. ### Capacity development, technical assistance, and data reporting - IMF capacity development (CD) has supported customs integrity, establishment of a treasury single account (TSA), macroeconomic statistics, governance, and drafting of the anti-corruption law and BEAC-treasury agreement for TSA management. - Planned IMF technical assistance focus areas: - (i) spending policy, especially design of fuel subsidy reform; - (ii) tax policy and revenue administration; - (iii) public financial management, governance, and the fight against corruption; - (iv) programming and macroeconomic statistics; - (v) debt management capacity. - Authorities and IMF staff will prioritize and sequence technical assistance; staff will ensure prompt response to pressing needs. - Data provision: - Fiscal and inflation data received regularly. - National accounts, balance of payments, and monetary data submitted with some delays. - Ongoing capacity development strategy aims to produce more accurate statistics on prices, national accounts, government finance statistics, and the external sector. ### New ECF arrangement: objectives, scope, and key policies - Authorities requested a 38-month ECF arrangement (2023-26) aiming to: - Address the protracted balance of payments need. - Achieve significant progress in stabilizing the macroeconomic situation. - Reduce poverty through critical governance reforms, increased domestic revenue mobilization, and enhanced focus on social programs, including food security. - Improve resilience to volatile terms-of-trade and financing shocks, support the most vulnerable, and unlock additional donor support. - Mitigate risk of a major humanitarian crisis and facilitate gradual exit from acute fragility. - Program design highlights: - Proposed fiscal consolidation of 2 percent of GDP over the program period, mainly revenue-based. - Key governance reforms: finalization and application of anti-corruption legislation, adoption of new mining legislation (with World Bank), and PFM reforms focused on controls and accountability. - Reforms to address fuel shortages and revenue stabilization include simplifying the price structure formula, rationalizing para-fiscals and quasi-taxes, collecting taxes and quasi-taxes at customs, publishing monthly price structure, auditing import cost, and revising pump prices every six months until automatic adjustment implemented. - Official fuel pump prices to be reduced according to IMF technical assistance recommendations to reduce incentives to informality and protect the most vulnerable. - Maintain social programs: PACAD currently covers 30,000 households and is expected to be interrupted between June 2023 and June 2024 due to lack of funding; authorities should maintain minimum budget contribution to avoid discontinuity for beneficiaries and avoid accumulation of arrears on wages, pensions, and student allowances. - Strengthen public debt management: design and execute annual borrowing plans, implement public debt coordination and management framework, increase outreach to investors in domestic securities, publish annual debt reports, and avoid accumulation of new domestic arrears. - Limit non-concessional borrowing (NCB) to safeguard debt sustainability. ### Program modalities, access, and prior actions - Type of arrangement and access: - Requested 38-month arrangement under the ECF with access of 127.18 percent of quota (SDR 141.68 million; US$189.5 million). - Disbursements to be entirely used for budget support. - Ninety percent of proposed access to be paid directly to CAR’s SDR account with the SDR Department to cover obligations due to the Fund between 2023 and 2026. - Remaining 10 percent of proposed access to be paid, beginning with the first program review, into the existing BEAC IMF account to replenish a BEAC escrow account used to supplement a World Bank operation to guarantee delivery of social services. - Prior actions (all three met): - (i) Repeal of the relevant provisions in the cryptocurrency legislation (n°22.004 of April 22, 2022) providing legal tender status and convertibility of crypto assets. - (ii) Establishment of an escrow account at BEAC to supplement a World Bank operation to guarantee delivery of social services or social protection program, replenishable by the existing BEAC IMF account where ECF disbursements will be made. - (iii) Promulgate the decree transposing CEMAC Directive No. 01/20-UEAC-CM-35 of September 8, 2020, relating to stock and fixed assets accounting into domestic law. ### Financing, monitoring, and program risks - Financing: - Program expected to be fully financed with firm commitments from World Bank and AfDB for the next 12 months and good prospects thereafter. - Despite high Fund exposure, net exposure would only increase by 10 percent of quota at the end of the program. - Program monitoring: - Performance monitored through semi-annual quantitative performance criteria (QPCs), indicative targets (ITs), and structural benchmarks (SBs). - SBs phased in line with capacity constraints; selected SBs include: - Operationalize new IT system functions for domestic revenues. - Address fuel shortages and stabilize government revenues by calculating hydrocarbon price structure respecting tax rates and quasi-taxes and signing inter-ministerial decree with new hydrocarbon prices in line with IMF TA recommendations. - Transfer to the TSA all funds collected directly by ministries for services. - Put in place a public debt coordination and management framework with IMF TA. - Submit to Cabinet a draft new organic law regulating statute and functions of the Court of Audit to ensure financial and operational independence. - Adopt the anti-corruption law submitted to Parliament on February 4, 2022. - Capacity to repay the Fund: - Capacity to repay is weak and subject to substantial downside risks; would become adequate only under a baseline that includes program success and prompt implementation of contingency plans if needed. - At end-2021, multilateral debt share was 60 percent of total external public debt; IMF debt represented 60 percent of total multilateral debt and the World Bank 28 percent. - Pre-HIPC arrears represent 25 percent of the total stock of external debt. - With the proposed ECF, total Fund credit outstanding will remain largely constant as a share of external debt and gradually decline as a share of GDP. - Debt service to the Fund projected to rise and peak in 2026 at around SDR 37 million (about 12 percent of exports of goods and services, and around 19 percent of revenue excluding grants). - Risks mitigants: program aims for 2 percent of GDP fiscal consolidation, collaboration with IFIs to catalyze financing, close policy dialogue with CAR and CEMAC authorities, authorities’ strong commitment, relatively low level of access, and access to BEAC reserves (provided domestic market access preserved). - Residual program and debt sustainability risks, including weak debt carrying capacity, weigh on capacity to repay. *Source: IMF staff report text (content unit 1cafea2023001).* ### 51. Risks to the program. The program is facing exceptionally high risks, mainly of ### Risks to the program. ### Program-wide risks and mitigation - The program is facing exceptionally high risks, mainly of noneconomic nature. - The program has a risk mitigation strategy and contingency plans in case of unforeseen economic developments or temporary slippages. - Extensive CD would mitigate the implementation risk. - Residual geo-political and security risks cannot be mitigated and will have to be accepted by the membership against the risk of Fund inaction that could trigger a humanitarian crisis. ### Safeguards and pre-funding arrangements - Authorities voluntarily committed to deposit to CAR’s SDR account 90 percent of the proposed access, whereby each disbursement is meant to pre-fund 100 percent of the obligations to the Fund for the upcoming 6 months; except for the last disbursement which pre-funds obligations to the Fund until end-2026. - The remaining 10 percent of proposed access will normally be split into equal parts over the seven disbursements under the program, except that the first part which will be added to the second disbursement (first program review) to match the start of the World Bank’s operation it seeks to supplement, using the same safeguards. - The World Bank will use its ongoing portfolio to finance certain non-discretionary fiscal expenditures in critical service delivery areas, underpinned by verification processes and disbursement arrangements designed to limit the risk of ineligible expenditures. ### BEAC safeguards assessment - An updated safeguards assessment of BEAC was completed in April 2022. - Findings indicated BEAC maintained strong governance arrangements and transitioned successfully to International Financial Reporting Standards. - Recommendations included strengthening internal audit and risk management functions, and improving cyber resilience and business continuity framework. - Since April 2022, BEAC is making progress toward implementing most safeguards recommendations, including strengthening internal audit practice through capacity reinforcement and an envisaged external quality assessment, and steps to evaluate cyber resilience. ### Regional policy assurances and arrears - The program will continue to be supported by policies implemented by regional institutions. - Regional policy assurances provided in letters of policy support for recovery and reform programs undertaken by CEMAC member countries signed by the BEAC governor. - The assessment of regional policies made in January 2023 remains valid; a new assessment is expected to be discussed by the Executive Board in June/July 2023. - CAR 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). - Authorities are in contact with these creditors to find a path towards resolution of these arrears. - Except for Libya, all official creditors to which there are outstanding external arrears have consented to Fund financing notwithstanding these arrears. - The country remains current on its remaining external debt service obligations, including vis-à-vis private sector creditors. - Staff assess that despite CAR’s arrears to Libya the three criteria under which Fund lending is permissible are met. ### Staff appraisal — macro and social context - Despite incremental progress since the 2013 civil war, successive domestic and external crises risk causing a major backsliding. - Supported by the 2015 peaceful transition of power, several reforms helped steer the country onto a relatively sustainable path to recovery until 2019. - The COVID-19 crisis, domestic insecurity, and Russia’s war in Ukraine have significantly dimmed this prospect. - The United Nations anticipated that 56 percent of the population will need humanitarian assistance and protection in 2023, an increase of 10 percent compared to 2022. - The level of human and physical capital is described as extremely low with major infrastructure constraints: weak road network, unreliable electricity supply, poor telecommunication penetration, and important governance challenges. ### Policy implementation, outlook, and risks - Policy implementation has been constrained by shocks, uneven ownership, and capacity constraints. - A program of economic policies and reforms under a three-year ECF-arrangement from 2016-2019 was largely completed. - A successor ECF-agreement (2019) went off track following major slippages of fiscal policy and structural reforms, and eventually expired last July. - To build the track record, authorities continued reforms under an SMP, paving the way to requesting the new 38-month ECF arrangement. - There are significant uncertainties regarding the outlook with sizeable downside risks. - Immediate priorities identified: stabilizing the fuel market, addressing food insecurity, and mobilizing domestic revenues. - A gradual increase in medium-term growth rates and progress in poverty reduction depend on further reform progress with capacity development support and sufficient concessional financing. - Inter-related risks: insecurity, reform slippages, and insufficient financing—these weigh heavily on short- and medium-term prospects, with a major humanitarian crisis a real possibility. ### Fiscal stance and financing recommendations - The fiscal stance is characterized as appropriate, but authorities should refine contingency plans if financing conditions worsen. - Staff commend authorities’ readiness to deploy contingency measures should domestic financing conditions worsen. - Given that expenditure rationalization has reached its limits, authorities should give more emphasis on a new revenue package rather than relying on expenditure adjustment. - Government should adopt measures to prioritize domestic primary spending and ensure continuity of the functioning of the state. - Enhancing investor relations and improving debt management are needed to improve the government’s capacity to raise financing in the regional government securities market. ### Fuel pricing and vulnerable groups - Review of fuel prices and better protection of vulnerable groups are of paramount importance. - Reform of fuel subsidies should aim to guarantee availability of good quality fuels for the entire population, an adequate level of tax revenue, and protection of the most vulnerable. - In January the government increased fuel pump prices by more than 50 percent and it halved the demand in the formal sector, reducing the expected oil revenue. - A first step to increase revenue from the sale of fuel products will be to reduce the prices, and to apply the current tax regulation. - The increase in the demand in the formal market is expected to overcompensate the revenue losses due to the reduction in prices. - An effort should be made to reduce barriers to trade in fuel products. ### Social protection, PFM, and payroll - Timely payment of public spending targeted at vulnerable groups should contribute to fighting food insecurity. - Given the lack of a social protection system, CAR can only rely on humanitarian assistance to address food insecurity. - Some vulnerable groups not necessarily covered by humanitarian assistance—such as old-age pensioners and vulnerable students—should be priority spending recipients. - Public financial management reforms should continue: strengthen the treasury single account (TSA) and ensure all non-tax revenues are effectively collected in the TSA. - Staff encourages authorities to accelerate signature of the agreement between BEAC and the Treasury for TSA management. - Authorities need to accelerate the audit and cleaning of the payroll system, a pre-requisite for the World Bank’s operation to guarantee delivery of social services. ### Financial sector, business climate, and governance - The banking sector needs to be strengthened given high level of NPLs; asset recovery measures are needed to reduce the NPLs ratio. - Measures such as an action plan on nonperforming loans—as adopted in other CEMAC countries—to complement regional supervisor actions are warranted. - Business climate and anti-corruption reforms need to be stepped up. - Adoption and implementation of the anti-corruption law is important for transparency, accountability, and good governance. - The new mining code will contribute to development of the sector, encourage investment, and increase revenue collection. - Publication of asset declarations would be critical to improving transparency and accountability in line with recommendations from the 2018 Article IV consultation. ### Digital assets and AML/CFT - Removing legal tender and guaranteed convertibility for crypto assets was needed to ensure consistency with CEMAC’s monetary framework and start de-risking the project Sango. - Regulatory frameworks for digital assets should be coordinated at the regional level to ensure monetary and financial stability, mitigate risks, ensure consumer protection, and foster compliance with AML/CFT standards. - Tokenization of natural resources would require a strong legal framework consistent with the FATF standards to address associated ML/TF risks. ### Data and surveillance - Data provision is broadly adequate for surveillance but needs enhancement. - The country team receives some data with delays; issues with source data and compilation affect most data sets. - Ongoing capacity development strategy will help produce more accurate and timely statistics. - CAR has not recently introduced any exchange restrictions and MCPs. ### Fund financing decision - In view of CAR’s protracted balance of payments financing needs and the authorities’ strong program of economic policies and reforms, staff supports the authorities’ request for an extended arrangement under the ECF in the amount equivalent to SDR 141.68 million (127.18 percent of quota). - The ECF is described as a borderline case for the Fund’s financing assurances and DSA policies, but the program is expected to be fully financed and has a risk mitigation strategy and contingency plans in case of unforeseen economic developments or temporary slippages. - Nevertheless, significant geopolitical and security risks remain. *IMF staff report excerpt.* ### 69. It is proposed that the next Article IV consultations take place within 24 months in ### 69. It is proposed that the next Article IV consultations take place within 24 months in ### Recent Economic Developments - Growth is expected to turn negative in 2022, "Given the fuel market shortfalls, growth is expected to turn negative in 2022." - Inflation: "Triggered by Russia’s war in Ukraine, inflation rose sharply in the second half of 2022 on the back of a strong increase in food and fuel prices." - Contribution to Growth (figure labels): Primary sector, Secondary sector, Tertiary sector, Indirect taxes (chart spans 2017–2022 with scale -3 to 5 percent). - Contribution to Inflation (figure labels): CPI (Annual Average) and CPI, y-o-y change (monthly series Dec-20 to Dec-22 with scale -6 to 14 percent). - Public debt increased reflecting depreciation of CFAF against USD and a shift to domestic financing given budget shortfalls (chart: Public debt (right axis) and Domestic primary balance/Overall balance, series 2015–2022e). - Current account: "The current account deficit deteriorated on account of large terms of trade shock and continued lack of budget support." (chart: Current Account (incl. grants), Current Account (excl. grants), Trade Balance, series 2015–2021e2022e). ### Medium-Term Economic Prospects (2015–25) - Growth outlook: - "Growth is expected to rebound in 2023 given implementation of policy measures to address the fuel shortage." - Real GDP annual percent change series shown for Central African Republic, CEMAC (excl. CAR), Sub-Saharan Africa (2015–2025). - Inflation outlook: - "After rising sharply in 2022, y-o-y inflation is expected to gradually moderate but remain above the monetary union target of 3 percent until 2023." - CPI Average (Percent change) series shown for Central African Republic, CEMAC (excl. CAR), Sub-Saharan Africa (2015–2025). - Government revenue and expenditure: - "Total revenues and grants are not expected to increase significantly over the medium term as the increase in domestic revenue may be offset by gradual decline in grant financing..." - "...limiting the space to increase spending." - Government Revenue (Percent of GDP) series: Grants, Non-tax revenue, Tax revenue (2015–2025). - Government Expenditure (Percent of GDP) series: Capital expenditure, Interest, Current primary expenditure (2015–2025). - Fiscal and external trajectories: - "Following a sharp drop in 2020, the domestic primary balance is expected to improve over the medium term as a result of a fiscal consolidation efforts." - "The current account balance is also to improve over the medium term on account of trade balance improvement." - Fiscal Position (Percent of GDP) and External Position (Percent of GDP) series (2015–2025). ### Capacity to Repay Indicators (Figure 3) - Indicators compare CAR to UCT arrangements for PRGT countries (percent of indicated variable) and include time series TT+1 to TT+10 for: - Percent of gross international reserves (Total Fund Credit Outstanding). - Percent of GDP (Total Debt Service to the Fund as percent of revenue excl. grants and percent of exports of goods and services). - Percent of PPG external debt and Percent of PPG external debt service. - Red lines/bars indicate the CtR indicator for the CAR PRGT arrangement; medians and interquartile ranges reflect UCT arrangements approved for PRGT countries between 2010 and 2020. - Chart components noted: "Total Fund Credit Outstanding", "Total Debt Service to the Fund", and "Largest Peaks" listings for credit outstanding and total debt service to the Fund (percent measures and country-event labels). ### Selected Economic and Financial Indicators (Table 1, 2020–2027) - Real GDP at constant prices (annual percent change): 1.0 (2020), 1.0 (2021), 0.5 (2022), 2.2 (2023), 3.0 (2024), 3.8 (2025), 3.8 (2026), 3.7 (2027). - GDP per capita at constant prices (annual percent change): -0.8 (2020), -1.0 (2021), -1.5 (2022), 0.2 (2023), 1.0 (2024), 1.9 (2025), 1.6 (2026), 1.5 (2027). - GDP at current prices (annual percent change): 2.8 (2020), 4.3 (2021), 6.9 (2022), 9.1 (2023), 7.2 (2024), 6.4 (2025), 6.3 (2026), 6.2 (2027). - CPI (annual average): 0.9 (2020), 4.3 (2021), 5.8 (2022), 6.3 (2023), 2.7 (2024), 2.8 (2025), 2.5 (2026), 2.5 (2027). Note: "monetary union target of 3 percent" referenced earlier. - External current account balance (with grants, percent of GDP): -8.2 (2020), -11.1 (2021), -13.0 (2022), -8.7 (2023), -7.9 (2024), -6.9 (2025), -5.3 (2026), -4.5 (2027). - Overall balance including grants (percent of GDP): -3.4 (2020), -6.0 (2021), -5.3 (2022), -3.0 (2023), -2.4 (2024), -1.7 (2025), 0.1 (2026), 0.0 (2027). - Domestic primary balance (percent of GDP): -6.6 (2020), -5.1 (2021), -4.5 (2022), -3.6 (2023), -2.6 (2024), -2.2 (2025), -1.6 (2026), -1.4 (2027). - Public sector debt (percent of GDP): 43.4 (2020), 47.6 (2021), 51.9 (2022), 50.5 (2023), 49.6 (2024), 48.5 (2025), 45.8 (2026), 43.3 (2027). - Of which: domestic debt (percent of GDP): 9.4 (2020), 13.2 (2021), 17.6 (2022), 18.4 (2023), 18.8 (2024), 18.6 (2025), 17.0 (2026), 15.6 (2027). - Of which: external debt (percent of GDP): 34.0 (2020), 34.4 (2021), 34.2 (2022), 32.0 (2023), 30.8 (2024), 29.9 (2025), 28.9 (2026), 27.7 (2027). - Memorandum items: GDP per capita (US dollars) 495 (2020), 525 (2021), 490 (2022), 534 (2023), 557 (2024), 578 (2025), 599 (2026), 619 (2027). - Nominal GDP (CFAF billions): 1,373 (2020), 1,432 (2021), 1,532 (2022), 1,671 (2023), 1,791 (2024), 1,906 (2025), 2,025 (2026), 2,151 (2027). - Notes: "Revision of CPI weights and transition to COICOP was performed starting from 2020." and "Excludes grants, interest payments, and externally-financed capital expenditures." Domestic primary balance excludes grants, interest, and externally-financed capital expenditures. ### Central Government Financial Operations (Tables 2a and 2b, 2020–2027) - Revenues (CFAF billions): - Total revenue (including grants): 298.6 (2020), 195.7 (2021), 188.2 (2022), 230.8 (2023), 259.1 (2024), 310.7 (2025), 357.7 (2026), 378.1 (2027). - Domestic revenue: 125.7 (2020), 125.9 (2021), 118.9 (2022), 131.7 (2023), 157.7 (2024), 188.7 (2025), 212.4 (2026), 229.2 (2027). - Tax revenue: 103.3 (2020), 117.0 (2021), 110.1 (2022), 115.3 (2023), 139.8 (2024), 169.5 (2025), 192.0 (2026), 207.5 (2027). - Grants: 172.9 (2020), 69.8 (2021), 69.3 (2022), 99.1 (2023), 101.3 (2024), 122.0 (2025), 145.3 (2026), 148.9 (2027). - Program grants: 70.1 (2020), 0.0 (2021), 0.0 (2022), 26.5 (2023), 27.1 (2024), 36.6 (2025), 60.0 (2026), 65.0 (2027). - Project grants: 102.8 (2020), 69.8 (2021), 69.3 (2022), 72.5 (2023), 74.2 (2024), 85.4 (2025), 85.3 (2026), 83.9 (2027). - Expenditure (CFAF billions) and composition: - Total expenditure: 344.7 (2020), 281.9 (2021), 270.1 (2022), 281.1 (2023), 302.0 (2024), 343.2 (2025), 355.9 (2026), 378.6 (2027). - Current primary expenditure: 184.8 (2020), 171.6 (2021), 173.1 (2022), 175.5 (2023), 181.2 (2024), 194.1 (2025), 202.6 (2026), 213.5 (2027). - Capital expenditure: 155.7 (2020), 106.3 (2021), 90.8 (2022), 96.5 (2023), 107.7 (2024), 133.6 (2025), 136.0 (2026), 147.7 (2027). - Domestically financed capital: 31.0 (2020), 27.7 (2021), 14.0 (2022), 16.4 (2023), 23.4 (2024), 36.4 (2025), 42.1 (2026), 45.6 (2027). - Externally financed capital: 124.7 (2020), 78.6 (2021), 76.8 (2022), 80.0 (2023), 84.2 (2024), 97.2 (2025), 93.9 (2026), 102.1 (2027). - Fiscal balances: - Overall balance excluding grants (CFAF billions): -219.1 (2020), -156.0 (2021), -151.2 (2022), -149.3 (2023), -144.3 (2024), -154.5 (2025), -143.5 (2026), -149.4 (2027). - Overall balance including grants (CFAF billions): -46.1 (2020), -86.2 (2021), -81.9 (2022), -50.3 (2023), -42.9 (2024), -32.5 (2025), 1.8 (2026), -0.5 (2027). - Primary balance (CFAF billions): -41.9 (2020), -82.2 (2021), -75.7 (2022), -41.2 (2023), -29.8 (2024), -17.0 (2025), 19.1 (2026), 16.9 (2027). - Financing and debt: - Identified financing (CFAF billions): 62.0 (2020), 98.5 (2021), 89.2 (2022), 50.2 (2023), 42.9 (2024), 32.5 (2025), -1.8 (2026), 0.5 (2027). - Total government debt (CFAF billions, memorandum): 596.2 (2020), 681.9 (2021), 794.1 (2022), 843.2 (2023), 888.0 (2024), 925.3 (2025), 928.3 (2026), 930.7 (2027). - Government domestic currency debt (CFAF billions): 129.3 (2020), 189.6 (2021), 269.7 (2022), 307.9 (2023), 335.9 (2024), 355.5 (2025), 343.8 (2026), 334.7 (2027). - Notes: - "Expenditure is on a cash basis." - "Budget support loans to be identified from 2024 onward." - "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)." ### Monetary Survey (Table 3, 2020–2027) - Broad monetary aggregates and credit: - Money and quasi-money (CFAF billions): 416.4 (2020), 477.1 (2021), 488.9 (2022), 496.7 (2023), 505.2 (2024), 508.4 (2025), 506.4 (2026), 526.8 (2027). - Currency (CFAF billions): 210.5 (2020), 239.1 (2021), 254.8 (2022), 258.8 (2023), 257.0 (2024), 262.1 (2025), 263.0 (2026), 271.9 (2027). - Deposits (CFAF billions): 205.9 (2020), 238.0 (2021), 234.1 (2022), 237.9 (2023), 248.2 (2024), 246.3 (2025), 243.4 (2026), 254.9 (2027). - Credit to the economy (annual percent change): 8.5 (2020), -2.2 (2021), 0.6 (2022), 8.3 (Q1–2023 quarterly entries), 25.9/20.4/8.0/7.2 etc. (table presents quarterly and annual breakdowns). - Net foreign assets and net domestic assets series presented with quarterly detail (BEAC and commercial banks components). - Memorandum items: - NDA of the central bank (CFAF billions): 225.5 (2020), 292.6 (2021), 409.9 (2022), 430.2 (2023), 452.9 (2024), 464.8 (2025), 487.4 (2026), 553.4 (2027). - Monetary base (CFAF billions): 274.7 (2020), 281.5 (2021), 301.0 (2022), 314.7 (2023), 321.5 (2024), 324.9 (2025), 328.3 (2026), 352.0 (2027). - Nominal GDP (CFAF billions): 1,373 (2020), 1,432 (2021), 1,532 (2022), 1,671 (2023), 1,791 (2024), 1,906 (2025), 2,025 (2026), 2,151 (2027). - Velocity (GDP/broad money) end of period: 3.3 (2020), 3.0 (2021), 3.1 (2022), 3.3 (2023), 3.4 (2024), 3.4 (2025), 3.5 (2026), 3.5 (2027). ### Balance of Payments (Tables 4a and 4b, 2020–2027) - Current account (CFAF billions): -112.1 (2020), -158.9 (2021), -198.6 (2022), -144.7 (2023), -141.2 (2024), -131.3 (2025), -107.5 (2026), -97.7 (2027). - Balance on goods (CFAF billions): -226.3 (2020), -222.1 (2021), -260.6 (2022), -245.1 (2023), -246.3 (2024), -254.1 (2025), -268.6 (2026), -266.6 (2027). - Exports, f.o.b. (CFAF billions): 82.7 (2020), 91.4 (2021), 104.9 (2022), 120.4 (2023), 134.1 (2024), 153.2 (2025), 171.2 (2026), 199.1 (2027). - Diamonds (CFAF billions): 3.8 (2020), 6.9 (2021), 9.6 (2022), 13.8 (2023), 19.7 (2024), 26.0 (2025), 31.4 (2026), 35.9 (2027). - Wood products (CFAF billions): 50.6 (2020), 48.3 (2021), 47.8 (2022), 54.6 (2023), 58.6 (2024), 66.6 (2025), 73.2 (2026), 91.6 (2027). - Imports, f.o.b. (CFAF billions): -309.0 (2020), -313.5 (2021), -365.5 (2022), -365.6 (2023), -380.3 (2024), -407.3 (2025), -439.8 (2026), -465.7 (2027). - Petroleum products (CFAF billions): -66.3 (2020), -88.0 (2021), -107.3 (2022), -89.8 (2023), -90.5 (2024), -91.2 (2025), -92.8 (2026), -96.1 (2027). - Services (net, CFAF billions): -39.3 (2020), -39.2 (2021), -49.0 (2022), -46.5 (2023), -55.9 (2024), -56.0 (2025), -49.0 (2026), -54.4 (2027). - Income (net, CFAF billions): -1.6 (2020), -1.2 (2021), -1.9 (2022), -4.5 (2023), -6.1 (2024), -5.3 (2025), -5.3 (2026), -5.3 (2027). - Transfers (net, CFAF billions): 155.2 (2020), 103.6 (2021), 113.0 (2022), 151.3 (2023), 166.9 (2024), 184.1 (2025), 215.4 (2026), 228.5 (2027). - Private transfers: 62.0 (2020), 76.8 (2021), 82.3 (2022), 90.9 (2023), 103.4 (2024), 108.7 (2025), 114.3 (2026), 120.2 (2027). - Official transfers: 93.1 (2020), 26.9 (2021), 30.7 (2022), 60.5 (2023), 63.6 (2024), 75.4 (2025), 101.1 (2026), 108.4 (2027). - Program disbursement (CFAF billions): 70.1 (2020), 0.0 (2021), 0.0 (2022), 26.5 (2023), 27.1 (2024), 36.6 (2025), 60.0 (2026), 65.0 (2027). - Financial account (CFAF billions): -2.5 (2020), 89.7 (2021), 6.3 (2022), 23.2 (2023), 25.7 (2024), 27.2 (2025), 36.2 (2026), 71.5 (2027). - Direct investment (CFAF billions): 1.0 (2020), 3.0 (2021), 15.0 (2022), 23.5 (2023), 24.5 (2024), 25.5 (2025), 28.9 (2026), 35.0 (2027). - Public sector (net, CFAF billions): 16.5 (2020), 9.1 (2021), 1.7 (2022), 1.3 (2023), 4.7 (2024), 6.2 (2025), 6.7 (2026), 17.2 (2027). - Project disbursement (CFAF billions): 21.9 (2020), 8.8 (2021), 7.5 (2022), 7.5 (2023), 10.0 (2024), 11.8 (2025), 8.6 (2026), 18.2 (2027). - Program disbursement (CFAF billions): 0.0 (2020–2025), 15.0 (2026), 30.0 (2027) (table notes "Budget support loans to be identified from 2024 onward"). - Overall balance (CFAF billions): -11.8 (2020), 0.6 (2021), -123.0 (2022), -49.0 (2023), -41.3 (2024), -18.7 (2025), 13.1 (2026), 57.7 (2027). - Memorandum terms of trade: -16.2 (2020), 1.8 (2021), -9.4 (2022), 12.4 (2023), 10.3 (2024), 7.8 (2025), 2.8 (2026), 10.2 (2027). - Current account (percent of GDP): -8.2 (2020), -11.1 (2021), -13.0 (2022), -8.7 (2023), -7.9 (2024), -6.9 (2025), -5.3 (2026), -4.5 (2027). ### External Financing Requirements (Table 5) - Table 5 header and continuation present External Financing Requirements, 2020–2027 (CFAF Billions). (Detailed line items are contained in table cells beyond the provided excerpt.) *Sources: C.A.R. authorities and IMF staff estimates and projections.* ### 1. Total financing requirements214.5278.283. ### 1. Total financing requirements214.5278.283. ### Financing needs and components - Total financing requirements (row heading): 214.5 278.2 83. - Current account deficit (excl. budget support): 182.2 158.9 198.6 171.3 168.3 167.9 167.5 162.7 - Debt amortization: 5.4 5.6 6.2 2.8 3.8 5.1 6.4 6.6 - Repayment to the Fund: 4.9 4.6 1.7 11.2 21.3 27.5 30.9 29.7 - Change in other reserves: 22.0 109.1 -123.3 -37.8 -33.2 -9.6 8.3 27.6 ### Total available financing (major items) - Total available financing: 105.7 165.2 81.8 98.5 103.7 117.7 113.0 133.1 - Capital transfers: 102.8 69.8 69.3 72.5 74.2 85.4 84.4 83.9 - Foreign direct investment (net): 1.0 3.0 15.0 23.5 24.5 25.5 28.9 35.0 - Portfolio investment (net): 0.0 0.0 0.0 0.0 0.0 0.0 1.0 1.0 - Debt financing (total): 21.9 8.8 7.5 7.5 10.0 11.8 8.6 18.2 - Public Sector (component): 21.9 8.8 7.5 7.5 10.0 11.8 8.6 18.2 - SDR allocation: 0.0 88.5 0.0 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 -5.0 ### Financing gap and expected financing - Financing gap (row 3): 108.8 113.1 1.5 48.9 56.5 73.1 100.1 93.6 - Expected sources of financing (row 4): 70.1 0.0 0.0 26.5 27.1 36.6 75.0 95.0 - Of which: Budget support (grants)1: 70.1 0.0 0.0 26.5 27.1 36.6 60.0 65.0 - Of which: Budget support (loans)2: 0.0 0.0 0.0 0.0 0.0 0.0 15.0 30.0 ### Residual financing gap and potential sources - Residual financing gap (row 5): 38.6 113.1 1.5 22.4 29.4 36.5 25.1 -1.4 - Possible financing instruments and amounts: - ECF arrangement: 9.6 18.8 0.0 23.5 30.5 37.0 26.5 0.0 - RCF: 22.3 0.0 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 0.0 - G20 DSSI4: 2.1 2.2 -0.7 -1.1 -1.1 -0.4 -0.4 -0.4 - Unidentified financing: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Footnotes (verbatim from source): - 1 Good prospects for the world bank financing exist for the remainder of the program period provided that CAR demonstrate satisfactory performance under IMF and WB operations, that reforms are progressing, and the country addresses concerns about the use of budgetary resources for security arrangements that led to stopping budget support. - 2 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) - 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. *Source: IMF staff projections.* --- ### Financial sector indicators and SMP performance ### Financial Soundness Indicators (2015-2022) — key ratios (Percent) - Capital Adequacy: - Total bank regulatory capital to risk-weighted assets: 38.7 32.0 34.3 28.5 30.3 23.9 21.0 23.5 - Total capital (net worth) to assets: 18.1 16.1 17.7 15.1 15.9 13.8 13.9 13.2 - Asset Quality: - Non-performing loans to total loans: 31.3 26.2 25.1 17.6 16.1 17.5 13.9 12.4 - Non-performing loans net of provision to capital: 40.1 24.2 8.2 6.2 14.6 12.9 10.7 12.8 - Earnings and Profitability: - Net income to average assets (ROA): -1.1 0.2 0.7 1.7 1.7 0.0 0.6 1.1 - Net income to average capital (ROE): -6.4 0.3 3.0 6.9 7.6 0.1 4.3 8.2 - Non interest expense to gross income: 77.8 81.3 85.2 90.5 78.9 71.5 82.2 .... - Liquidity: - Liquid assets to total assets: 40.0 31.9 30.7 29.9 26.3 32.2 26.9 26.4 - Liquid assets to short-term liabilities: 276.1 219.6 227.4 198.6 165.8 202.0 162.2 151.8 - Sources: C.A.R. authorities and the Banque des Etats de l'Afrique Centrale. ### Quantitative Performance Under the SMP, 2021 and 2022 (CFAF Billions; cumulative) - Quantitative benchmarks: - Net domestic government financing (ceiling, cumulative flows for the year): 79.6 75.1 — Status: Met; 18.0 10.4 — Status: Met - Domestic revenue (floor, cumulative for the year)1: 124.0 125.9 — Status: Met; 32.0 34.1 — Status: Met - Domestic primary fiscal balance (floor, cumulative for the year)2: -77.0 -74.0 — Status: Met; -14.0 -7.3 — Status: Met - Continuous benchmarks (contracting or guaranteeing of new external non concessional debt; disbursement of external non concessional debt; non accumulation of external payments arrears): 0.0 0.0 — Status: Met; 0.0 0.0 — Status: Met; 0.0 0.0 — Status: Met - Indicative targets: - Social spending (floor, cumulative for the year)5: 24.0 40.0 — Status: Met; 5.0 TDT — --- - Spending through extraordinary procedures (ceiling, cumulative for the year): 6.7 7.4 — Status: Not met; 1.7 TDT — --- - Reduction in domestic payments arrears (floor, cumulative for the year): 12.0 10.5 — Status: Not met; 0.0 0.0 — Status: Met - New concessional/external debt contracted or guaranteed by the government (ceiling, cumulative for the year): 25.0 0.0 — Status: Met; 15.0 0.0 — Status: Met - Memorandum items: - Budget support: 0.0 0.0 0.0 0.0 - Privatization receipts: 3.6 1.8 1.8 0.0 - Footnotes (verbatim): - 1 Domestic revenue, which excludes foreign grants and divestiture receipts. - 2 The domestic primary balance is defined as the difference between government domestic revenue and 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. - Sources: C.A.R. authorities and IMF staff estimates. ### SMP Structural Benchmarks (End-February 2022) — status highlights - Submission to the National Assembly of a draft 2022 budget law consistent with the SMP’s objectives — Target: End-December 2021 — Status: Met - Issuance of a ministerial order suspending import activities by large noncompliant importers — Target: End-December 2021 — Status: Met - Ministerial order making systematic use of the electronic declaration system mandatory for large taxpayers by December 31, 2022 — Target: End-December 2021 — Status: Met - Submission to the National Assembly of a new anti-corruption law consistent with IMF staff recommendations and UNCAC — Target: End-January 2022 — Status: Met* (law submitted 4 days late) - Adjustment of the ASYCUDA++ customs processing system to reflect Webb Fontaine recommended values automatically — Target: End-February 2022 — Status: Met --- ### Disbursement schedule, IMF obligations, and capacity to repay ### Proposed Schedule of Disbursements, 2023-2026 (Millions of SDR; Percent of quota) - First disbursement upon program approval — April 27, 2023 — SDR 11.3 million — 10.14 - Second disbursement upon observance of performance criteria for June 30, 2023 and completion of first review — October 30, 2023 — SDR 17.31 million — 15.54 - Third disbursement upon observance of performance criteria for December 31, 2023 and completion of second review — April 30, 2024 — SDR 17.71 million — 15.90 - Fourth disbursement upon observance of performance criteria for June 30, 2024 and completion of third review — October 30, 2024 — SDR 19.19 million — 17.23 - Fifth disbursement upon observance of performance criteria for December 31, 2024 and completion of fourth review — April 30, 2025 — SDR 22.58 million — 20.27 - Sixth disbursement upon observance of performance criteria for June 30, 2025 and completion of fifth review — October 30, 2025 — SDR 21.79 million — 19.56 - Seventh disbursement upon observance of performance criteria for December 31, 2025 and completion of sixth review — April 30, 2026 — SDR 31.80 million — 28.55 - Total: SDR 141.68 million — 127.18 - CAR's quota is SDR 111.4 million ### Indicators of the Capacity to Repay the Fund, 2023-2033 (selected rows, verbatim) - IMF obligations based on existing credit (SDR millions) — Principal: 13.7 25.8 32.9 37.1 35.7 25.2 17.3 8.8 2.4 0.0 0.0 - Charges and interest: 4.1 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 - IMF obligations based on existing and prospective credit (SDR millions) — Principal: 13.7 25.8 32.9 37.1 35.7 26.4 24.8 24.1 27.5 28.3 27.2 - Outstanding IMF Credit (SDR Millions): 213.8 224.9 236.3 231.0 195.4 169.0 144.2 120.1 92.5 64.2 37.0 - CFAF Billions equivalent outstanding IMF Credit: 176.2 186.5 197.8 193.3 163.5 141.4 120.7 100.5 77.4 53.7 31.0 - Percent of government revenue: 133.8 118.3 104.8 91.0 71.3 57.8 45.9 35.0 24.8 16.0 8.5 - Percent of exports of goods and services: 73.9 73.4 66.8 59.4 45.2 36.4 29.0 22.8 16.0 10.6 5.9 - Percent of debt service: 727.0 473.8 407.6 351.5 301.7 315.3 282.2 240.8 178.0 105.6 56.8 - Percent of GDP: 10.5 10.4 10.4 9.5 7.6 6.2 5.0 3.9 2.9 1.9 1.0 - Percent of quota: 191.9 201.9 212.1 207.4 175.4 151.7 129.4 107.8 83.1 57.6 33.2 - Net use of IMF credit (SDR millions) — Disbursements: 28.6 36.9 44.4 31.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Net use of IMF credit (SDR millions) — Repayments and repurchases: 17.8 31.3 38.4 42.5 41.1 31.8 30.2 29.6 33.0 33.8 32.7 - Memorandum items (selected): - Nominal GDP (billions of CFA francs): 1670.9 1791.0 1906.2 2025.5 2150.9 2277.6 2409.5 2549.0 2696.4 2852.5 3017.7 - Government revenue (billions of CFA francs): 131.7 157.7 188.7 212.4 229.2 244.7 263.1 287.0 312.1 335.3 362.4 - Source: IMF staff projections. --- ### External borrowing program and policy recommendations ### Summary on External Borrowing Program (selected figures verbatim) - PPG external debt contracted or guaranteed — Sources of debt financing: 50.8 33.4 - Concessional debt, of which: 12.3 7.3 - Multilateral debt: 3.3 2.7 - Bilateral debt: 9.0 4.6 - Non-concessional debt, of which: 38.5 26.1 - Semi-concessional debt3: 38.5 26.1 - Commercial terms4: 0.0 0.0 - Uses of debt financing: 50.8 62.0 - Infrastructure: 12.3 44.0 - Budget financing: 38.5 18.0 - Memorandum items — Indicative projections: - Year 2: 66.0 42.6 - Year 3: 78.5 53.5 ### Annex I — Implementation status of 2018 Article IV recommendations (selected items) - Revenue measures: increase export taxes on wood and diamond and increase tax on rental income (0.1 percent of GDP); reinforce tax audits; operationalize ASYCUDA — Status: In progress; ASYCUDA operationalized in 2018. - Expenditure measures: reduce non-priority current spending (0.5 percent of GDP) — Status: Implemented in the 2019 Budget in the context of the ECF program. - Debt management and arrears: progress resolving post-HIPC arrears to India; Sygade operational — Status: Implemented; agreement with India reached; Sygade operational. - Domestic arrears clearance: comprehensive and time bound action plan adopted in 2018, arrears may be re-emerging — Status: In progress. - Financial stability: COBAC supervisory mission recommendations partly implemented; delays on AML and ID recommendations — Status: In progress. - Revenue mobilization and governance reforms: strengthening tax/customs administration, integrating para-fiscal revenue into TSA, publishing asset declarations, improving legal framework to fight corruption, publishing mining and forestry permits — Status: In progress. - Promoting growth and competitiveness: action plan and road map identified in 2018 MEFP. - Promoting gender equality: regular reporting on women in government and gender-related spending; collecting gender- and age-disaggregated data — Status: In progress. --- ### Risk Assessment Matrix — key risks and mitigation policies ### Conjunctural risks (high/medium likelihood; short/medium horizon) - Intensification of regional conflict(s); escalation of Russia’s war in Ukraine or other regional conflicts — Relative likelihood: High; Time Horizon: Short; Expected Impact: High. - Expected effects: supply chain disruptions, higher prices for essential imports such as fuel and wheat. - Policies to mitigate: Application of the automatic fuel price adjustment mechanism; introduce targeted measures (expand social safety net); intensify cooperation with humanitarian agencies, including the WFP. - Social discontent from supply shocks, high inflation, real wage drops — Relative likelihood: High; Time Horizon: High; Expected Impact: High. - Policies to mitigate: Continue cooperation with international organizations to support social programs; monitor social sentiments and provide solutions to ease tension. - Abrupt global slowdown or recession — Relative likelihood: Medium; Time Horizon: Medium; Expected Impact: Medium. - Policies to mitigate: Continue reforms in the fuel sector; improve revenue mobilization; invest in priority areas; take advantage of the regional market to increase trade and investment. - Commodity price volatility — Relative likelihood: Medium; Time Horizon: Short; Expected Impact: High. - Policies to mitigate: Apply automatic fuel price adjustment mechanism; introduce targeted social measures; intensify cooperation with humanitarian agencies. - Deepening geo-economic fragmentation and geopolitical tensions — Relative likelihood: High; Time Horizon: Short to Medium; Expected Impact: High. - Policies to mitigate: Active engagement with development partners on development financing, including budget support. ### Regional and domestic risks - Increased insecurity and political instability — Relative likelihood: High; Time Horizon: High; Expected Impact: High. - Policies to mitigate: Maintain dialogue with stakeholders; prepare a budget contingency plan. - Setback in fiscal and structural reform momentum — Relative likelihood: Medium/High. - Expected impact: delays in revenue and PFM reforms, higher debt, lower external financing/grants. - Policies to mitigate: Accelerate structural reforms; ensure prudent budgetary management; implement social programs for the most vulnerable. *The Risk Assessment Matrix (RAM) reflects staff views as of the time of discussions with the authorities; relative likelihood definitions and horizon notes are verbatim from the source.* *Source: IMF staff projections and accompanying tables and annexes in the provided document.* ### Annex III . External Sector Assessment ### Annex III . External Sector Assessment ### Overall assessment - The external position of the Central African Republic in 2021 was substantially weaker than the level implied by fundamentals and desirable policies. - The current account worsened in 2021 on account of higher oil prices and the delay in official donor support and is expected to further worsen in 2022 due to a large negative terms of trade shock (fuel and food prices) and continued absence of budget support from traditional partners. - Debt vulnerabilities increased in the absence of donor budget support and increased financing needs; the country remains at high risk of external debt distress with an increasing debt service burden. - Structural constraints weighing on competitiveness: insecurity, lack of infrastructure, high transport costs, and a weak business climate. ### Potential policy responses - Foster security and improve the business environment. - Diversify the economy and strengthen resilience. - Improve revenue collection and public financial management (PFM). - Regain donor budget support to help maintain the current account balance at a sustainable level. ### Foreign assets and liabilities: position and trajectory - Public and publicly guaranteed debt had been on a gradually declining trend until 2020 but has recently been increasing, largely driven by a pick-up in domestic debt. - Domestic borrowing reached 13.2 percent of GDP in 2021. - To offset budget support shortfalls, commercial bank borrowing on the regional market of the CEMAC increased significantly in 2021 and the country drew down its entire 2021 SDR allocation. - External debt remained relatively stable at 35 percent of GDP. - The country benefited from rounds of pandemic debt relief (G20 DSSI) and IMF CCRT; debt owed to multilateral creditors and pre-HIPC arrears account for the bulk of external debt. - Assessment: solvency indicators for external and total debt are below benchmarks, but liquidity indicators for external debt breach thresholds between 2023-2027 largely because of large repayments to the Fund. CAR remains at high risk of external debt distress and overall high risk of debt distress, with significant downside risks tied to uncertainty about external financing and a more difficult external environment. ### Current account: developments, projections, and assessment - 2021 current account deficit widened to 11.1 percent of GDP, mainly driven by more expensive petroleum imports and non-disbursement of 2021 budget support. - Exports concentrated in diamonds and timber (69 percent of total exports); oil represents 27 percent of imports. - Transfers (mostly grants) and incomes made positive contributions to the current account. - 2022 projection: current account expected to worsen to about 13.0 percent of GDP due to the terms of trade shock and continued delays in donor support; transfers expected to remain low at about 5 percent of GDP (compared to 2020). - Medium-term projection: current account deficit projected to gradually decline towards 6 percent of GDP, reflecting a rise in exports that would more than offset an anticipated decline in official transfers. - EBA-Lite model results (2021): - CA-Actual: -10.6 (percent of GDP) - Adjusted CA: -11.0 (percent of GDP) - CA Norm: -4.8 (percent of GDP) - CA Gap: -6.2 (percent of GDP) - Total policy gap: 4.2 (percent of GDP), components include: - looser fiscal policy: -0.4 (percent of GDP) - lower public health spending: +0.8 (percent of GDP) - higher growth in reserves: +4.9 (percent of GDP) - similar private credit: +0.0 (percent of GDP) - slower credit growth: +0.1 (percent of GDP) - lower capital controls: -1.3 (percent of GDP) - Assessment: the EBA-Lite CA model indicates a CA norm of -4.8 percent of GDP versus a cyclically adjusted CA of -11.0 percent of GDP, implying a CA gap of -6.2 percent of GDP under current policies; overall assessment is that CAR’s external position in 2021 was substantially weaker than warranted by fundamentals and desirable policies. ### Real exchange rate (REER) - CAR’s CPI-based REER appreciated by 3.4 percent in 2020 relative to 2019, largely reflecting nominal appreciation of the Euro and CFAF vis-à-vis the USD; the REER remained broadly unchanged in 2021 and started depreciating in 2022 driven by currency depreciation. - Since the early 2000s, the REER has appreciated at around 2.5 percent per year, gradually eroding competitiveness. - Assessment from EBA-Lite REER model: - CA gap (REER approach) of 12.7 percent of GDP, corresponding to a REER gap of -83.5 percent. - Staff considers REER approach less reliable given persistent CA deficits and therefore bases the CA gap estimate on the CA model. - REER is assessed as overvalued with an exchange rate gap of 41.2 percent. ### Reserves levels and current account (CEMAC context) - CAR is a member of a currency union with pooled CEMAC reserves; union-level policies determine foreign exchange intervention, monetary operations, and capital account openness. - Pooled CEMAC reserves at end-2021: 3.0 months of GNFs, less than half the level of adequacy for a resource rich monetary union subject to commodity price volatility. - Reserves coverage expected to increase by end-2022 to 3.5 months of GNFS. - CAR’s contribution to CEMAC reserves is relatively small due to its weak external position and drawdown of its SDR allocation. - CEMAC region’s current account balance has improved but remained negative; CAR contributed to the regional weakness with a CA of about -11 percent in 2021. More than half of this deficit was financed by drawing down reserves. - Regional policy note: promoting free trade would help strengthen the current account. ### Capital and financial accounts: flows and outlook - 2021 net capital inflows increased markedly, driven by the SDR allocation of 6.4 percent of GDP. - FDI in 2021 remained very weak at 0.2 percent of GDP. - Capital account around 5 percent of GDP was driven by project grants. - Assessment and projection: - Private capital flows expected to remain depressed in 2022 due to commodity price shocks, a looming fiscal cliff, debt sustainability risks, and heightened policy uncertainty. - Gradual fiscal consolidation alongside steadfast reform implementation to improve the business environment is expected to attract durable foreign capital inflows. - FDI inflows projected to reach about 1.5 percent of GDP in the medium-term. *Source: Annex III . External Sector Assessment (content unit 1cafea2023001).* ### 5. Higher food prices were the source of inflationary pressures. In December 2022, year-on- ### 5. Higher food prices were the source of inflationary pressures. In December 2022, year-on- ### Inflation and Food Prices - Year-on-year inflation rose to 7.9 percent in December 2022; the annual average was 5.8 percent. - Food prices reached 10 percent at end-December 2022 and were the main driver of high inflation. - Inflationary pressures continued in the first few months of 2023 following an increase of the fuel pump prices. - Average inflation is projected to reach 6.3 percent in 2023, above the CEMAC 3 percent target. - Inflation is projected to come below the regional target and converge to about 2.5 percent from 2026 onward. ### Balance of Payments and External Sector (2022) - Balance of payments: from a small surplus in 2021 to an estimated deficit of about 8.0 percent of GDP in 2022. - Current account balance deteriorated by roughly 2.0 percentage points of GDP (from 11.1 percent of GDP to 13.1 percent). - Terms of trade dropped by 9.4 percent (driven by shocks in fuel prices and basic food items). - Imports were down by about 5.6 percent in real terms. - Exports increased by 2.6 percent (but were much lower than projected due to the fuel crisis). - Official transfers remained at 2.0 percent of GDP, i.e., about 4 percent less than in 2020 due to suspension of budget support. ### Fiscal Outcomes and Primary Balance (2022) - Tax revenue amounted to CFAF 119 billion at end-December 2022, recording a monthly shortfall of CFAF 3 billion in the second half of the year, largely due to the drop in petroleum revenues. - Primary domestic expenditures amounted to CFAF 187.1 billion, lower than the revised budget (CFAF 191 billion). - Increased wages and salaries (mainly hiring in the security area) to bolster peace and security. - Domestic primary balance was financed by drawing on the remaining 2021 SDR allocation and by issuing government securities in the regional market. ### Public Debt and Banking Sector (2022) - Public debt stock reached 51.9 percent of GDP versus 47.6 percent of GDP in 2021 due to the increase in domestic debt. - Raised CFAF 46 billion in government securities and used CFAF 50.5 billion of the SDR allocation in 2022. - External public debt remained almost unchanged at 34.2 percent of GDP. - Banking sector indicators as of end-December 2022: - Capital adequacy ratio: 23.5 percent (regulatory minimum 10.5 percent). - Short-term liquidity ratio: 151.8 percent (regulatory minimum 100 percent). - Private sector loans: increased by 0.6 percent year-on-year in December 2022. - Non-performing loans (NPLs): 12.4 percent in December 2022; provisions at 97 percent. - Noted significant gaps in terms of liquidity and concentration of NPLs among financial institutions. ### Economic Outlook and Risks - Baseline scenario assumptions: partial resumption of budget support and significant strengthening of economic policies in line with the new program supported by the ECF. - Real GDP growth projections: - 2.2 percent in 2023 (driven in part by fuel price adjustment improving fuel supply). - Average growth of 3 percent in 2024. - Gradual increase to reach 3.8 percent in the medium term. - Upside and downside risks listed: - Downside risks: deterioration of security situation, ongoing war in Ukraine, spike in international petroleum and commodity prices, volatility of international financial conditions, slowdown in external demand and international value chains. - Upside possibilities: speedier implementation of structural reforms, faster return to peace, significant gains in raising tax revenue, containing government spending. ### Program Objectives and Immediate Policy Focus - ECF-supported program aims to: - Improve resilience to terms of trade volatility and shocks from lack of budget support. - Preserve provision of basic government services essential for government legitimacy. - Concentrate on actions with immediate impact on the financing situation, catalyzing private investment and creating conditions for structural reforms and capacity building. - Mitigate risk of a major humanitarian crisis and facilitate recovery to end the acute tenuous situation. ### Short- and Medium-Term Fiscal Policy — Fiscal Policy in 2023 - 2023 Finance Law objective: lower the domestic primary deficit by 0.9 of GDP (from 4.5 percent of GDP to 3.6 percent). - Domestic revenue projected: 7.9 percent of GDP (CFAF 131.7 billion) versus 7.8 percent (CFAF 119.0 billion) in 2022. - Primary spending projected to be adjusted downward by 0.7 percent of GDP (from 12.2 percent of GDP in 2022 to 11.5 percent). - Revenue measures in the 2023 Budget Law expected to generate about CFAF 18.5 billion (1.1 percent of GDP). - Adjustment of fuel prices at the pump should generate about CFAF 15 billion (0.9 percent of GDP). - Without these measures, domestic revenue would have collapsed to 5.9 percent of GDP in 2023. - Primary spending envelope kept at CFAF 191 billion (same level as 2022 revised budget); adjustments planned in goods and services and domestically financed investment. - Contingency plan for mid-year revised budget provides 0.75 percent of GDP (CFAF 12.5 billion) adjustment on domestic primary deficit composed of: - 0.55 percent on domestic revenues. - 0.2 percent on domestic primary spending. - Contingency revenue-side measures include higher excises on selected products, accelerating transfer of revenues collected by ministries/agencies to the TSA, streamlining VAT exemptions, and enforcement of tax liabilities. - Contingency spending-side measures include cuts on non-priority spending such as mission travel expenses and other non-priority domestically financed investment. - Goal: maintain gross domestic financing (CFAF 45 billion) similar to previous year through combination of adjustments and ECF catalytic effect. - Commitment to strengthen government finance management to avoid future accumulation of domestic arrears and “outstanding payments/reste a payer.” ### Medium-term Fiscal Policy Objectives - Gradually lower public debt from 50.4 percent of GDP as of end-2023 to less than 43.2 percent as of end-2027. - Bring the domestic primary balance back down to below 2.0 percent of GDP in the medium term. - Strategy components: - Raise more domestic revenue about 0.5 percent of GDP per year. - Streamline non-priority expenditures. - Improve efficiency of government spending. - Use concessional loans only to finance investments within ECF limits to avoid jeopardizing debt sustainability. ### Financing and Public Debt Management Policy (2023) - Intend to raise CFAF 80 billion on the regional securities market to complement domestic revenue mobilization. - Working with the World Bank to meet financing requirements for seven social ministerial departments. - ECF disbursement to cover a portion of residual financing requirement; if external financing does not materialize, residual financing will be met by issuing more government securities in the regional market. - Plan to strengthen relations with investors, expand number of primary dealers, and increase active involvement in securities issuance. ### Public Debt Management Actions and Arrears Strategy - Public Debt Directorate strengthened to comprehensively monitor commitments; renewing DMFAS license with partners; annual debt management report to be published. - Framework to strengthen coordination of public debt management and fiscal policy to be put in place by end-September 2023 (structural benchmark) with IMF technical assistance; to be set forth by a regulatory text. - Specific strategy for sizable government securities repayments in May and August 2023: reach out to holders to explain sustainability, offer rollover and/or buybacks, or place resources in escrow account with the BEAC for repayments. - Preventive management of domestic arrears: - Conduct a survey of all domestic arrears and prepare a plan to clear them. - Begin thought process on securitization of audited arrears. - Propose strategy to stop accumulation of new arrears with a timeline, criteria to liquidate arrears, and improved cash flow plan synchronized with consolidated accounts, commitment plan and government securities issuance plan. - Audit of arrears of state owned enterprises (ENERCA, SODECA and SOCATEL) completed; payment plan prepared but not yet implemented. - Commitments: - Audit arrears acquired starting in 2019. - Record all new arrears in the debt books by June 2023. - Update arrears payment plan to include new arrears no later than November 2023. - Enforce Law 20/004 requiring written authorization from the Ministry of Finance and Budget before any loan agreement is signed by government entities. ### Debt Strategy and Concessional Financing - Given high risk of debt distress, continue resorting to grants and avoid entering into any non-concessional loan agreements. - Use concessional loans only for priority investment projects where grants are not possible and within IMF-agreed limits. - Such loans must have long grace periods and/or repayment schedules to avoid increasing debt service ratios relative to export and revenue. ### Structural Reforms — Improving Domestic Revenue Mobilization - Measures and progress: - September 2022: committee set up to monitor income received directly by ministries and propose measures to transfer these funds to the Treasury Single Account (TSA) (structural benchmark); inventory performed. - Plan to recover CFAF 2.7 billion in additional taxes through: - Mandatory e-filing for large taxpayers. - Levying a 10 percent penalty (on the value of the imports) and a minimum of CFAF 1 million for importers not registered with the tax administration. - Collecting owed amounts from importers and government beneficiaries behind on tax obligations. - Joint mission between Tax Administration, Customs Administration and Trade Administration in Bangui districts. - Customs 2023 measures: - Apply the CEMAC HS2022 Common External Tariff. - Apply tax rates for operations subject to codes 800 and 200 that are currently exempt. - Create code 900 in ASYCUDA to manage mining sector exemptions. - With TFP technical assistance (including IMF), conduct a study of tax expenditures (tax exemptions) that significantly affect tax revenue collection and prepare a workplan to better manage tax exemptions. - Progress on e-filing system: - Commitment to have all large enterprises use e-filing by end-December 2023. - Gradual expansion to medium-sized enterprises beginning in Q4-2023. - Mandatory for all large enterprises starting in January 2024. - EU-supported computer system for e-declaration and e-payment to be fully operational in the third quarter of 2023 (structural benchmark). - Migration from ASYCUDA ++ to ASYCUDA World with EU support; plan to deploy nationwide and finalize deployment by end-June 2023 to facilitate information sharing between Tax and Customs administrations. ### Reform the Hydrocarbons Sector - (Section header present; content on hydrocarbon sector reforms follows elsewhere in the source.) *Source: Central African Republic — IMF country document excerpt (chapter/section provided).* ### 27. We are determined to reform the hydrocarbons sector. In order to discourage the ### 27. We are determined to reform the hydrocarbons sector. ### Hydrocarbons sector reform: objectives and measures - Objectives: - Discourage the informal market. - Protect the most vulnerable people. - Address fuel shortages. - Ensure revenue collection. - Commitments: - Calculate the price of hydrocarbons applying the tax1 and quasi-taxes2 rates following the provisions in the tax code, the budget law and the CEMAC directives. - Sign an inter-ministerial decree with the new hydrocarbon prices (structural benchmark). - New official after-tax pump prices (to be set): - CFAF 1,100 per liter of gasoline - CFAF 1,350 for diesel - CFAF 850 for kerosene - IMF technical assistance recommendations to be explored and implemented, including: - Conduct an audit and a review of supply cost components (margins and expenses). - Unification of the price formula by import route. - Streamline parafiscality and oil taxes into one single contribution, and one single tax respectively. - Implement a call for tenders for public imports of hydrocarbons for the authorized market. - Introduce an automatic price adjustment mechanism appropriate in the context of the CAR. ### Strengthen fiscal management — transparency and donor confidence - Actions to strengthen fiscal transparency: - Continue to invite technical and financial partners to monthly treasury committee meetings. - PEFA assessment process for years 2018—2020 began in November 2022; draft report to be sent to technical and financial partners no later than April 2023; results to be published once final report is available. - Created an escrow account at the BEAC to deposit 10 percent of IMF disbursements to supplement the World Bank’s operation to guarantee delivery of social services (Prior action). - Prepared and published online the quarterly fiscal reporting table in 2022 using IMF staff format; commit to continue publishing said tables in 2023 no later than 45 days after the quarter ends. ### Treasury Single Account (TSA), IT systems, and pensions - TSA consolidation and IT interconnection: - Draft agreement between the BEAC and the Treasury for managing the TSA has advanced; important annexes (architecture of the TSA, list of subaccounts, scope) must be finalized before signing. - Expect to sign the TSA agreement before April 15, 2023. - Interconnection of Sygma-Systac and SimBa software is operational despite technical constraints; will be used to execute the budget and better monitor budget execution. - Pensions management: - Since January 2022, a new digital application manages pension arrears and immediately takes in charge pensions for new retirees, ending accumulation of arrears for new retirees. ### Fiscal tables, accounting reform, and audits - Quarterly fiscal tables: - Will produce quarterly fiscal tables based on the Government Finance Statistics Manual 2014 methodology. - Use relay tables provided by TA from the Committee Technical Secretariat Fund (STC)-TOFE and submit results to the IMF (Central AFRITAC). - Court of Audits: - Commit to review the organic law governing the Court of Audits to ensure it is operational and financially independent. - Submit the revised law to the council of ministers no later than February 2024 (structural benchmark). - A draft law prepared with EU support has been submitted to the Ministry of Justice; a copy will be sent to technical and financial partners for comments. - Payroll and audits: - Audited the balance of the seven ministries selected for World Bank requirements (including health and education). - Commit to complete the audit of the software used to manage the payroll and to take corrective measures for any issues found before end-June 2023. ### Procurement transparency and public contracts - Published names of companies benefiting from Covid-19 transfers and selection criteria. - Commit to continue publishing detailed information on all public contracts above the threshold of CFAF 10 million, including names of beneficial owners (measure in effect since August 2021). - Continue to provide information required by the August 4, 2021, ministerial order. ### Accounting, budgeting, and public investment planning - Accelerate implementation of an action plan with Fiscal Affairs Department, Central AFRITAC and UNDP toward program budgeting and accrual basis accounting. - Commit to implement multiyear scheduling of investments and fiscal decentralization by 2025. - Continue preparing transition to accrual basis accounting by: - Auditing the aggregates balance of government accounts. - Adopting government accounting standards and regulation on stock and fixed assets implementation. - Prior action: Promulgated the decree transposing CEMAC Directive No. 01/20-UEAC-CM-35 of September 8, 2020 relating to stock and fixed assets accounting into domestic law. ### Social protection and spending commitments - PACAD program (Support to Communities Affected by Displacement): - World Bank allocation will end in June 2023. - Commit to financing PACAD using own funds within budgetary resources provided by the 2023 Budget Law. - Social expenditures: - Despite fiscal consolidation, commit to keeping social expenditures at an adequate level as per quantitative targets in the ECF program. - Explore expanding the scope of the achievement criterion to include key social projects funded by donors. ### Business environment, anti-corruption, and crypto-assets - Mining code and related reforms: - Ensure all comments from technical and financial partners are taken into account before voting in the National Assembly. - Ensure mining code consistency with FATF recommendations on AML/CFT and CEMAC foreign exchange directives. - With World Bank support, commit to submit and adopt the new mining code (World Bank conditionality), mining convention model, and regulatory texts governing the mining fund and new public agencies. - Anti-corruption law: - Draft consistent with IMF recommendations and UNCAC was submitted to the National Assembly on February 4, 2022. - Commit to ensure adoption of the anti-corruption law no later than March 2024 (structural benchmark). - National Economic and Financial Committee (CNEF) recommendations: - Sent draft statutes to COBAC for arbitration and mediation center and arbitration unit statutes. - CNEF adopted articles of association for company to collect delinquent bank claims; first constituent general meeting to be convened no later than end-December 2023. - Crypto-assets legislation: - Repealed provisions in cryptocurrency legislation that provided legal tender status and convertibility of crypto assets (Prior action). - Amended articles 1, 4, 5, 7, 10, 11, 12, 20, 22, 23, and 24 of the cryptocurrency legislation (Prior action). - Continue cooperation with regional institutions on the Sango project and crypto-asset projects to ensure consistency with the CEMAC legal framework and safeguard macro-financial stability and fiscal sustainability. ### Capacity building and technical assistance - Ongoing technical assistance and training with support from the IMF, World Bank Group, European Union, AfDB and other partners in areas: - Improve revenue administration. - Strengthen fiscal management, improve fiscal governance and anti-corruption mechanisms. - Build economic programming and debt management. - Upgrade the quality of economic and financial statistics. ### Program monitoring: quantitative performance criteria, indicative targets, and structural benchmarks (selected items and key dates) - Monitoring framework: - Quantitative performance criteria set for end-June and end-December 2023. - Indicative targets set for end-March 2023, end-September 2023 and end-March 2024. - Structural benchmarks in place up to February 2024. - First review of performance under the ECF arrangement: on or after October 30, 2023. - Second performance review: on or after April 30, 2024. - Selected quantitative performance criteria and indicative targets (CFAF Billions; cumulative from beginning of the year, unless otherwise specified): - Net domestic government financing (ceiling, cumulative flows for the year): - End-March 2023: 19.0 - End-June 2023: 11.0 - End-September 2023: 28.0 - End-December 2023: 37.0 - End-March 2024: 13.0 - Domestic revenue (floor, cumulative for the year)1: - End-March 2023: 30.0 - End-June 2023: 62.0 - End-September 2023: 96.0 - End-December 2023: 130.0 - End-March 2024: 37.0 - Domestic primary fiscal balance (floor, cumulative for the year)2: - End-March 2023: -12.0 - End-June 2023: -24.0 - End-September 2023: -35.0 - End-December 2023: -64.0 - End-March 2024: -15.0 - Continuous performance criteria (ceilings, cumulative from January 1, 2023) — all set at 0.0: - Contracting or guaranteeing of new external non concessional debt3,4: 0.0 (End-March 2023; End-June 2023; End-September 2023; End-December 2023; End-March 2024) - Disbursement of external non concessional debt3,4: 0.0 (same dates) - Non accumulation of external payments arrears (ceiling, cumulative for the year)3,4: 0.0 (same dates) - Indicative targets: - Social spending (floor, cumulative for the year)5,6: - End-March 2023: 2.5 - End-June 2023: 8.0 - End-September 2023: 17.0 - End-December 2023: 22.0 - End-March 2024: 4.0 - Spending through extraordinary procedures (ceiling, cumulative for the year): - End-March 2023: 1.5 - End-June 2023: 2.5 - End-September 2023: 4.0 - End-December 2023: 5.0 - End-March 2024: 2.0 - New concessional/external debt contracted or guaranteed by the government (ceiling, cumulative for the year): - End-March 2023: 20.0 - End-June 2023: 20.0 - End-September 2023: 20.0 - End-December 2023: 20.0 - End-March 2024: 20.0 - Memorandum items: - Budget support: - End-March 2023: 0.0 - End-June 2023: 18.0 - End-September 2023: 18.0 - End-December 2023: 26.6 - End-March 2024: 0.0 - Privatization receipts (all dates): 0.0 ### Prior actions and proposed structural benchmarks (selected highlights) - Prior actions (Five days before the board date) to improve revenue collection, transparency and governance include: - Repeal relevant provisions in cryptocurrency legislation (no. 22.004 of April 22, 2022) that provide legal tender status and convertibility of crypto assets — rationale: safeguard macrofinancial stability. - Establish an escrow account at BEAC to supplement a World Bank cost recovery or any other social protection program, replenished by the existing BEAC-IMF account where the ECF disbursements will be deposited — rationale: improve accountability and expenditure management. - Promulgate the decree transposing CEMAC Directive No. 01/20-UEAC-CM-35 of September 8, 2020 relating to stock and fixed assets accounting into domestic law — rationale: improve transparency and accountability (building block towards an accounting reform). - Operationalize key functions of the new IT system for domestic revenues, including online registration, online declaration and electronic payments — Improve revenue collection (SB first review, October 2023). - Address fuel shortages and stabilize government revenues by calculating the hydrocarbon price structure respecting defined tax rates and signing an inter-ministerial decree with new hydrocarbon prices in line with IMF TA recommendations — Improve transparency and revenue collection (SB first review, October 2023). - Transfer to the TSA all the funds collected directly by the ministries in exchange for services provided to users — Improve revenue collection (SB second review, April 2024). - Establish a public debt coordination and management framework with IMF TA support — Improve transparency and manage debt-related risks (SB first review, October 2023). - Adopt the anti-corruption law submitted to parliament on February 4, 2022 — Improve transparency and revenue collection (SB second review, April 2024). - Submit to the Cabinet a draft new organic law regulating the statute and functions of the Court of Audit to ensure financial and operational independence — Improve accountability and governance (SB second review, April 2024). - Note on tax and quasi-tax definitions: - * VAT, Import duty, CEMAC Community Tax, Community Contribution for ECCAS Integration, and Tax on Petroleum Products. - ** Finance IT equipment fee (REIF), Storage capacity extension financing, Control and fight against fraud, Road usage fee (RUR). ### Attachment II — Technical Memorandum of Understanding (TMU): definitions (selected) - Government definition: - Government = central government of the CAR; excludes local governments, the central bank, or public entities with separate legal personality not included in the government financial operations table (TOFE). - Definition of debt (summary from point 8 of the Attachment to IMF Executive Board Decision No. 15688-(14/107)): - “Debt” is a current liability created under a contractual arrangement through provision of value in the form of assets or services, requiring obligor payments of assets or services according to a schedule. - Primary forms include: - Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements). - Suppliers’ credits (deferred payments after delivery of goods or services). - Leases (debt equals present value at lease inception of all lease payments expected to be made during agreement, excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - External vs domestic debt defined by residency of subscriber with exceptions: - Treasury bills and bonds and other securitized debt issued by the government on the CEMAC regional financial market and not held by the local banking system are considered part of domestic debt. - Any BEAC credit to the government, including use of the SDR allocation, is considered part of domestic debt. *Source: Central African Republic — Memorandum of Economic and Financial Policies (excerpt).* ### 4. Guaranteed debt. The guaranteeing of a debt by the government is understood to be ### 4. Guaranteed debt. The guaranteeing of a debt by the government is understood to be ### Definitions and key fiscal terms - Guaranteed debt: an explicit legal obligation to service a debt in the event of nonpayment by the borrower (by means of settlements in cash or in kind). - Concessional debt: debt with a grant element of at least 35 percent. - Grant element: the difference between the nominal value of the loan and its present value, expressed as a percentage of the nominal value. - Present value: calculated on the date the debt is contracted by discounting debt service payments using a discount rate of 5 percent. - Total government revenue: tax and nontax revenue, or other revenue recorded on a cash basis. - Excluded from government revenue for the program: proceeds from the sale of financial assets, revenue from privatizations or from the granting or renewal of licenses, investment proceeds on government assets and grants. - Total government expenditure: sum of wages and salaries, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments and investment expenditure, recorded on a settlement basis, unless otherwise stated. - Also includes expenditures executed before payment authorization and not yet regularized. - Wages and salaries: compensation of government employees per GFSM 2014 paragraphs 6.8–6.18, including all employees (permanent and temporary), and members of the armed and security forces. - Compensation = wages and salaries + allowances + bonuses + pension fund contributions + any other form of monetary or non-monetary payment. - Arrears: any debt that has not been paid in accordance with the conditions specified in the contract establishing said debt. ### Arrears—definitions and composition - Domestic payment arrears: sum of (i) payment arrears on expenditures; and (ii) payment arrears on domestic debt. - Payment arrears on expenditures: - All payment orders created by the entity responsible for authorizing expenditure payments but not yet paid 90 days after authorization to pay given by the Treasury. - Part of “balances payable” (or “amounts due”). - “Balances payable” correspond to government unpaid financial obligations and include the domestic floating debt in addition to expenditure arrears. - Defined as expenditures incurred, approved by the financial controller, validated (authorized), and assumed by the public Treasury, but not yet paid. - Include invoices payable but not paid to public and private companies; do not include domestic debt financing (principal and interest). - For the program target, domestic payment arrears are “balances payable” whose maturity goes beyond the 90-day regulatory deadline; floating debt represents “balances payable” whose maturity does not go beyond the 90-day deadline. - Payment arrears on domestic debt: difference between the amount required to be paid under the contract and the amount actually paid after the payment deadline specified in the contract. - External payment arrears: arrears on external debt obligations; difference between the amount required to be paid under the contract and the amount actually paid after the payment deadline specified in the contract. ### Quantitative targets (overview and specific performance criteria) - General: Quantitative performance criteria and indicative targets are assessed on a cumulative basis from the beginning of the calendar year in which they are set, unless otherwise indicated. - 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 bonds and other securitized debt issued by the government in the CEMAC regional financial market, denominated in CFA francs and not held by the local banking system, and any BEAC credit to the government, including any drawings on the CFA franc counterpart of the allocation of SDRs. - Net bank credit to the government: the balance between the debts and claims of the government vis-à-vis the central bank, excluding the use of IMF credit, and the national commercial banks. - Government claims include the CFA franc cash balance, postal checking accounts, guaranteed tax promissory notes, and all deposits with the BEAC and commercial banks of government-owned entities, except EPICs and government corporations (excluded). - Government debt to the banking system includes all debt to the central bank and local commercial banks, including Treasury bills and securities and other securitized debt. - Floor on Domestic Government Revenue: - Only revenue on a cash basis (tax and nontax revenue) will be taken into account in the TOFE. - Floor on 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. - Ceilings on New Non-Concessional External Debt Contracted or Guaranteed by the Government: - The government undertakes not to contract or guarantee non-concessional debt. - Continuous quantitative benchmark assessed on a cumulative basis from January 1, 2023. - This continuous performance criterion will be monitored continuously and any non-observance will be immediately reported to the Fund. - Non-accumulation of New External Payment Arrears by the Government: - Government undertakes not to accumulate external payment arrears on external debt contracted or guaranteed by the government, except arrears relating to debt that is the subject of renegotiation or rescheduling. - Applied on a continuous basis and monitored continuously; any non-observance will be immediately reported to the Fund. - Non-Disbursement of External Non-Concessional Debt: - Government undertakes not to disburse external non-concessional debt. - Continuous quantitative benchmark assessed on a cumulative basis from January 1, 2023 and monitored continuously; any non-observance will be immediately reported to the Fund. ### Indicative targets (specified ceilings and floors) - Floor for Social Spending: - Poverty-reducing social spending comprises 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 using Extraordinary Procedures: - Ceiling set at 5 percent of total non-wage spending, debt service (principal and interest) and externally financed spending. - Ceiling on New External Concessional Debt Contracted or Guaranteed by the Government: - Ceiling set at CFAF 25 billion in 2023 and CFAF 15 billion in the first quarter of 2024. ### Continuous non-quantitative performance criteria (exchange and trade) - Continuous QPCs include non-introduction of exchange restrictions and multiple currency practices: - Non-imposition or intensification of restrictions on the making of payments and transfers for current international transactions. - Non-introduction or modification of multiple currency practices. - Non-conclusion of bilateral payments agreements that are inconsistent with Article VIII. - Non-imposition or intensification of import restrictions for balance of payments reasons. - These continuous QPCs are not listed in the QPC table annexed to the MEFP because of their non-quantitative nature. ### Adjusters of quantitative performance criteria - Adjustments to targets to account for exogenous factors: - If total revenue from privatizations, sales of financial assets or renewals of telecommunications licenses or forestry or oil licenses is greater than the amount programmed: i. The ceiling on net domestic financing will be adjusted upward by an amount equivalent to 50 percent of these additional receipts; ii. The floor for the primary domestic fiscal balance will be adjusted downward by an amount equivalent to 50 percent of these additional receipts. - If total budgetary support exceeds the amount programmed: - Ceiling on net domestic financing will be adjusted downward by an amount equivalent to 100 percent of the difference between the programmed and actual disbursements. - If total budgetary support is less than the amount programmed: - Ceiling on net domestic financing will be adjusted upward by an amount equivalent to 100 percent of the difference between the programmed and actual disbursements. ### Prior actions (to be implemented at least five days before the IMF Executive Board meeting) - Repeal of the relevant provisions in the cryptocurrency legislation (n°22.004 of April 22, 2022) which provide for the legal tender status and convertibility of crypto assets. - Establishment of an escrow account at BEAC to supplement a World Bank’s operation to guarantee the delivery of social services or social protection program which can be replenished by the existing BEAC IMF account where ECF disbursements will be made. - Promulgate the decree transposing CEMAC Directive No. 01/20-UEAC-CM-35 of September 8, 2020, relating to stock and fixed assets accounting into domestic law to improve the sincerity, exhaustivity and transparency of public accounts. ### Structural benchmarks (first and second review of the ECF arrangement) - Operationalize key functions of the new IT system for domestic revenues, including online registration, online declaration, and electronic payments. - Address fuel shortages and stabilize government revenues by: - (i) calculating the hydrocarbon price structure while respecting the tax rates and quasi-taxes defined in the tax code, the finance law, and the CEMAC directives; - (ii) signing an inter-ministerial decree with the new hydrocarbon prices in line with IMF recommendations on fuel prices. - Note: tax rates include VAT, Import duty, CEMAC Community Tax, Community Contribution for ECCAS Integration, and Tax on Petroleum Products; quasi-taxes include Finance IT equipment fee (REIF), Storage capacity extension financing, Control and fight against fraud, Road usage fee (RUR). - Transfer to the TSA all the funds collected directly by the ministries in exchange for services provided to users. - Submit to the Cabinet a draft new organic law that regulates the statute and functions of the Court of Audit, ensuring its financial and operational independence; to be submitted no later than February 2024. - Adopt the anti-corruption law submitted to parliament on February 4, 2022; to be adopted by the National Assembly by the end of March 2024 and comply with IMF staff recommendations, the United Nations Convention against Corruption and the Financial Action Task Force. - Put in place a public debt coordination and management framework with IMF technical assistance; functioning of the framework to be defined by a regulatory text before the end of September 2023. *Source: CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND (excerpt).* ### 17. Quantitative data on the government’s indicative targets will be reported to IMF ### 17. Quantitative data on the government’s indicative targets will be reported to IMF ### Reporting requirements and commitments - Quantitative data on the government’s indicative targets will be reported to IMF staff according to the frequency set out in the Table below. - All data revisions will be promptly reported. - The authorities undertake to consult Fund staff regarding any and all information or data not specifically addressed in this TMU, but which is necessary for program implementation, and inform Fund staff whether the program objectives have been achieved. ### Data items and exact reporting deadlines (to be provided 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 payments arrears on goods and services and on wages, including unpaid pensions and bonuses — Within four weeks of the end of each month - End-of-period stock of external debt — Within four weeks of the end of each month - Breakdown of expenditures included in the TOFE (goods, services, wages, interest, etc.) — Within four weeks of the end of each month - Summary table of actual expenditure in priority sectors, such as health, education, and security — Within four weeks of the end of each quarter - Breakdown of current and capital expenditure, 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 - Revenue 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, by principal and interest 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 external debt relief granted by external creditors (including the date, amount, and creditor) — Within four weeks of the end of each month ### Statistical issues and data adequacy (key findings) - General: Data provision has shortcomings but is broadly adequate for surveillance. Ongoing capacity development aims to improve statistics on prices, national accounts, government finance statistics, and the external sector. - National Accounts: - Annual national accounts estimates are available until 2019. - Series compiled with an outdated base year (2005) and follow the System of National Accounts 1993 (1993 SNA). - A GDP rebasing exercise using 2019 as the new base year is underway. - Price statistics: - CPI covers urban and rural areas with weights based on the 2019 Harmonized Survey on Household Living Conditions; basket includes more than 700 items. - A producer price index is not compiled. - Government finance statistics: - Data provision broadly satisfactory for surveillance but coverage is incomplete. - Budget accounting, Treasury procedures, and domestic debt statistics suffer from shortcomings, delays, and omissions. - General government statistics are not available. - AFRITAC Central is assisting to move toward the harmonized CEMAC TOFE based on GFSM 2001 in the medium and long term. - Monetary statistics: - Monetary statistics for the central bank and other depository corporations are compiled monthly in SRF format and reported to STA by the BEAC with significant delays. - Authorities report monetary data to the country with some delays of around one month. - Central African Republic has not reported data to the Financial Access Survey (FAS) since 2018. - Financial sector surveillance: - CAR began reporting financial soundness indicators for deposit taking institutions to STA in March 2016. - COBAC reports FSIs to STA with delays of more than six months. - External sector statistics: - CAR does not report external sector statistics to STA for publication in BOPSY and IFS due to lack of capacity. - April 2022 mission noted issues with data consistency and coverage for trade in goods, the financial accounts, direct investment, and external debt. ### Key institutional and technical facts - Exchange rate arrangement: CAR participates in the Central African Monetary Union (CAMU); CFA Franc pegged to the euro at the rate of EUR 1 = CFAF 655.957 since January 1, 1999. - The Bank of the Central African States (BEAC) completed an updated safeguards assessment in 2022; findings include strong governance arrangements and improved financial reporting via IFRS, but internal audit, risk management, cyber resilience, and business continuity require further development. ### Debt sustainability assessment (summary conclusions and numeric findings) - Risk of external debt distress: High - Overall risk of debt distress: High - Public debt is projected to be sustainable, but substantial liquidity risks exist due to possible shortfalls in donor support and domestic/regional market access. - Liquidity indicators for external debt (debt service-to-exports and debt service-to-revenue) exhibit breaches for 5 years starting in 2023, largely on account of obligations to the Fund falling due. - Sensitivity of debt indicators to standard stress tests, increased macroeconomic and financing uncertainty, and sizeable contingent liabilities underpin the high-risk assessment. - CAR’s CI score based on the October 2022 WEO and the 2021 World Bank CPIA data is 2.25, corresponding to a weak debt-carrying capacity. *Source: IMF staff report for the Central African Republic (section 17), April 18, 2023.* ### 1. The coverage of public sector debt includes external and domestic contractual ### 1. The coverage of public sector debt includes external and domestic contractual ### Coverage of public sector debt and gaps - Coverage unchanged from previous DSA: includes external and domestic contractual obligations of the central government. - Exclusions and non-borrowers: - State and local governments do not borrow. - No social security funds guaranteed by the public sector. - Government has not guaranteed other debt (Text Table 1). - Notable gaps in coverage: - Non-guaranteed SOE debt. - Supplier arrears. - Reported detailed figures (second half of 2021): - SOE debt: CFAF 48.6 billion. - Arrears: CFAF 147.9 billion. ### SOE oversight, audits, and cross-debt settlement - World Bank Sustainable Development Financing Policy (SDFP) actions: - Audits completed and published in 2021 for three largest SOEs: ENERCA, SODECA, SOCATEL. - Audit objectives: assess financial viability, increase transparency in contingent liabilities reporting, clarify unaudited domestic arrears. - Follow-up actions: - Government prepared and approved a cross-debt settlement plan for these SOEs based on the audits. - As per SDFP FY23 PPA#1, authorities plan to prepare and publish an annual report on financial performance and fiscal risks for these three SOEs covering January-December 2021. - The cross-debt settlement plan for 2023–2025 is on hold due to significant treasury pressures and the absence of budget support from development partners owing to lack of transparency on security expenses. ### Contingent liabilities stress test design and calibration - Combined contingent liabilities stress test: tailored shock at 15 percent of GDP to capture public sector exposure to arrears, SOEs, and financial market shock (Text Table 1). - Components and calibrations: - SOE debt shock: 5 percent of GDP (set at 5 percent instead of default 2 percent to reflect heightened risks from non-guaranteed SOE debt and potential expenditure arrears). - Domestic arrears shock: 5 percent of GDP (to incorporate past and persisting shortcomings in public expenditure management systems). - Financial market shock: 5 percent of GDP (default value retained given the small size and depth of the financial sector in CAR). - Total contingent liabilities shock: 15.0 percent of GDP. ### Recent public debt developments and composition - Public and publicly guaranteed (PPG) debt: - Increased to 47.6 percent by end-2021 from 43.4 percent in 2020. - Estimated to have reached 51.9 percent of GDP by end-2022, of which one-third is domestic debt. - Domestic debt dynamics: - Domestic debt reached 13.2 percent of GDP in 2021. - Domestic debt estimated to have reached 17.6 percent of GDP after additional issuance and SDR use in 2022. - BEAC restructuring in 2021: CFAF 80.5 billion consolidated debt with extended grace period to 2025 (instead of 2022) and maturity to 20 years (from 10 years). - Commercial bank borrowing on regional CEMAC market: CFAF 27 billion net issuances of government securities in 2021. - SDR utilization: - By May 2022, CAR had drawn down its entire 2021 SDR allocation in three tranches: - December 2021: CFAF 35 billion (SDR 44.5 million). - March 2022: CFAF 20 billion (SDR 25 million). - May 2022: CFAF 30.5 billion (SDR 37.3 million). - SDR use in 2021 and 2022 is recorded as domestic debt and adjusted to present value terms. - External debt: - Estimated at 34.2 percent of GDP at end-2022, driven mainly by CFAF depreciation. - Authorities refrained from contracting/disbursing new external non-concessional debt in line with SDFP and SMP commitments. - Non-concessional project finance loan with BDEAC for CFAF 15 billion not drawn. - Drew CFAF 1.22 billion tranche of a 2015 concessional project loan financed by the Saudi Development Fund. - Composition highlights (2021 figures from Text Table 2): - Total debt stock (2021): 1,175.1 (mil US$); 47.6 percent of GDP. - External debt (2021): 848.4 (mil US$); 34.4 percent of GDP; 72.2 percent of total debt. - Multilateral creditors (2021): 503.6 (mil US$); 20.4 percent of GDP. - IMF exposure (2021): 297.7 (mil US$); 12.1 percent of GDP. - World Bank exposure (2021): 139.4 (mil US$); 5.6 percent of GDP. - Bilateral creditors (2021): 341.7 (mil US$); 13.8 percent of GDP. - Pre-HIPC arrears (2021): 212.2 (mil US$); 8.1 percent of GDP. - Domestic debt (2021): 326.7 (mil US$); 13.2 percent of GDP. - Domestic debt breakdown (2021): - T-Bills: 12.9 (mil US$); 0.5 percent of GDP. - Bonds: 84.6 (mil US$); 3.4 percent of GDP. - Loans: 229.2 (mil US$); 9.3 percent of GDP. - Nominal GDP (2021): 2,468 (mil US$). ### Debt relief, arrears, and payment status - Debt relief history: - 2020: China debt cancellation ~0.8 percent of GDP. - 2020: 90-percent principal reduction and rescheduling of debt owed to Energoprojekt (Serbia) ~1.7 percent of GDP. - Pandemic-era measures: - Under G20 DSSI (May 2020–December 2021), US$7 million was rescheduled. - Catastrophe Containment and Relief Trust (CCRT) assistance covered IMF payments from April 14, 2020, to April 13, 2022, totaling US$18.4 million. - Arrears and technical issues: - Small external arrears of US$0.15 million with IFAD starting December 2020; cleared in March 2021. - Cause: coordination challenges between Debt Directorate and Treasury and delays in BEAC’s new software for international wires (now addressed with BEAC technical assistance). ### Macroeconomic assumptions, outlook, and risks - Near-term risks: increased substantially due to security, health, financing, food, terms of trade shocks, and the passage of the crypto law. - Crypto law impact: - April 2022 crypto law granted legal tender status and guaranteed convertibility to crypto assets; elicited criticism from BEAC and COBAC, ran against CEMAC rules, posed macroeconomic risks, delayed SMP completion, and damaged prospects for budget support. - Law amended in March 2023 to repeal legal tender and convertibility status of bitcoin as a prior action for the new ECF arrangement. - Financing pressures and implications: - SDR allocation and commercial bank borrowing helped compensate for lack of budget support but buffers exhausted. - Without anticipated financial support, acute financing needs expected, likely prompting steep spending adjustment and significant hardship. - Growth projections and revisions: - Real GDP growth: - 2021: 1.0 percent (stagnated). - 2022: 0.5 percent (driven by mining and forestry; affected by fuel shortages). - 2023 projection: 2.2 percent. - Medium-term growth (2024-27): revised downward to 3.6 percent (from 5.0 percent in previous DSA). - Long-term growth (2028-42): projected at 3.2 percent (downgraded from 4.3 percent in previous DSA); aligned with post-2013 estimate of potential growth ~2.9 percent annually. - Inflation: - Average inflation reached 5.8 percent in 2022. - Projected to remain relatively high in 2023 and decline gradually afterward, falling below regional ceiling of 3 percent in 2024. - Public finances: - Financing for 2022 largely covered by SDR allocation; residual met by domestic and regional market borrowing. - 2023 financing gap expected to be covered by IFIs (World Bank and African Development Bank) and commercial bank borrowing. - Medium term (2024-2027) assumption: budget support grants gradually increase to 3.0 percent in 2027 contingent on agreement with donors. - Fiscal primary deficit expected to decrease to 0.5 percent of GDP (from 0.9 percent in previous DSA). - Financing mix (medium term): between one-third and half by foreign concessional borrowing; remaining two-thirds and half by domestic borrowing. - Long term (2028-42): domestic revenues assumed to reach 13.8 percent of GDP at end of projection period; primary fiscal deficit expected to decline to 0.7 percent of GDP over the long run. - Long-term financing mix: one half external concessional borrowing (with decreasing concessionality) and one half domestic borrowing. - External sector: - Current account balance: - 2021: deteriorated to -11.1 percent of GDP deficit. - 2022: worsened to -13.1 percent of GDP (driven by 9.4 percent drop in terms of trade). - Medium term: expected to converge to -4.5 percent of GDP. - SDR allocation impact: - Nearly 6 percent of GDP in SDR allocation compensated decline in official public transfers in 2021. - Balance of payments deficit ~8.1 percent of GDP in 2022 due to lack of donor financing and SDR exhaustion. - Medium term: FDI inflows projected to increase moderately to about 1.5 percent of GDP; overall balance of payments projected to reach a moderate surplus of around 2.6 percent of GDP. ### Key macroeconomic assumption table highlights (as reported) - DSA-ECF arrangement and current DSA averages: - GDP growth (percent) averages: - 2021-26: 3.9 - 2027-41: 4.3 - Current DSA 2023-28 average: 3.3 - Current DSA 2029-42 average: 3.2 - GDP deflator (percent): - 2021-26: 2.4 - 2027-41: 2.5 - 2023-28: 3.4 - 2029-42: 2.5 - Non-interest current account balance: - 2021-26: -6.0 - 2027-41: -3.4 - 2023-28: -5.3 - 2029-42: -6.4 - Exports of goods and services: - 2021-26: 14.7 - 2027-41: 15.5 - 2023-28: 15.7 - 2029-42: 16.6 - Primary balance: - 2021-26: -0.9 - 2027-41: -1.0 - 2023-28: -0.5 - 2029-42: -1.1 - Revenues and grants: - 2021-26: 18.5 - 2027-41: 16.6 - 2023-28: 16.2 - 2029-42: 14.8 *Source: IMF staff estimates and country authorities (Central African Republic DSA content).* ### 14. The drivers of debt dynamics tool show a broadly unchanged trajectory for ### 14. The drivers of debt dynamics tool show a broadly unchanged trajectory for ### Debt-dynamics overview and decomposition - External PPG debt: projected evolution is somewhat improved in the medium term compared with the previous DSA, but slightly more deteriorated in the outer years. - Decompositions of past and projected debt-creating flows for external debt are similar. - Unexpected changes in external debt over the past 5 years are close to the median relative to the distribution across LICs. - Public debt: on a higher path relative to the previous DSA, mainly explained by a higher contribution of unexpected primary deficits to debt accumulation compared to the past. - Past forecast errors: above the median compared with other LICs. ### Realism tools, growth, and investment outlook - Risks flagged around the baseline scenario stem from: - the growth projection, - the projected fiscal consolidation, - the long-term private investment outlook. - The envisaged fiscal path: projected 3-year primary balance adjustment is in the top quartile relative to the comparison group (appears relatively ambitious compared with other LICs). - Growth pick-up in 2022 and 2023: appears strong given the fiscal consolidation for standard values of the fiscal multipliers; growth mostly driven by the private sector rebound after the fuel shock shortage is resolved, particularly driven by the primary sector (agriculture, mineral extraction). - Growth/investment pattern: both current and past DSAs show a switch over time from public to private investment as a driver of growth; public investment is expected to play a declining role in explaining future growth, with other sources of growth more than offsetting this decline. ### Country classification, composite indicator, and thresholds - Debt carrying capacity: assessed as weak, unchanged from the last DSA in December 2020. - Composite indicator (CI): 2.25 based on the October 2022 World Economic data and 2021 CPI scores. - Under weak debt carrying capacity, applicable thresholds for public and publicly guaranteed external debt: - PV of debt-to-GDP ratio: 30 percent - PV of debt-to-exports ratio: 140 percent - Debt service-to-exports ratio: 10 percent - Debt service-to-revenue ratio: 14 percent - Benchmark for PV of total public debt: 35 percent of GDP - Text Table 4 components (preserved exactly): - CPIA: Coefficients (A) 0.385; 10-year average values (B) 2.571; CI Score components (A*B) = (C) 0.99; Contribution of components 44% - Real growth rate (in percent): Coefficients (A) 2.719; 10-year average values (B) 2.909; CI Score components 0.08; Contribution 4% - Import coverage of reserves (in percent): Coefficients (A) 4.052; 10-year average values (B) 25.972; CI Score components 1.05; Contribution 47% - Import coverage of reserves^2 (in percent): Coefficients (A) -3.990; 10-year average values (B) 6.745; CI Score components -0.27; Contribution -12% - Remittances (in percent): Coefficients (A) 2.022; 10-year average values (B) 0.075; CI Score components 0.00; Contribution 0% - World economic growth (in percent): Coefficients (A) 13.520; 10-year average values (B) 2.898; CI Score components 0.39; Contribution 17% - CI Score 2.25 100% - CI rating Weak ### External Debt Sustainability Analysis (A) - Compared with previous DSAs, external debt solvency indicators have improved: - PV of external debt-to-GDP ratio is declining on a lower path than in the previous DSA and remains well below the threshold under the baseline scenario, but comes close to breaching the threshold for the most extreme standardized stress test (combination of shocks to growth, the primary balance, exports, other non-debt creating flows, and exchange rate depreciation). - PV of debt-to-exports ratios declines from close to the 140 percent threshold to well below it in the medium term. - Factors behind favorable developments: lack of disbursements of IMF financing due to the ECF Arrangement going off-track; bilateral and multilateral debt relief during the pandemic; some previously unidentified concessional financing replaced with the SDR allocation (counted as domestic debt), which more than outweighed the impact of the CFAF depreciation. - Setting key variables to their historical average would result in a clear upward trend of both debt ratios, mainly because of large past shocks and conflicts (such as the 2013 crisis). - Liquidity indicators: - External debt service-to-exports and debt-to-revenue ratios breach respective thresholds for 4-5 years from 2023 under the baseline scenario. - Breaches driven by a significant uptick in debt service, primarily related to an increase in repayments to the Fund in that period. - Breaches in both indicators after 2028 have increased compared to the previous DSA, owing mainly to projected disbursements under the proposed new ECF arrangement. - Mitigating factors: - CAR is part of CEMAC and has access to its pool of reserves (provided it has budgetary resources to purchase them) and access to CEMAC domestic debt market. - Subject to successful ECF-supported program implementation, large repayments to the Fund are feasible based on program financing assumptions. - More significant and persistent breaches of external debt service-to-exports and external debt service-to-revenue ratios occur under the historical scenario and the most extreme standardized stress test. ### Public Debt Sustainability Analysis (B) - Total public debt indicators have increased compared to the previous DSA, driven by the surge in domestic debt, but remain below the relevant threshold. - PV of debt-to-GDP ratio: on a higher path than in the previous DSA, yet gradually declining until 2027 and broadly stabilizing thereafter. - Forecast is predicated on conservative financing assumptions: financing gaps to be covered by domestic debt; renewed donor support would result in substantially more favorable dynamics. - PV of the debt-to-revenue ratio: declining until 2027, then set to slightly rise. - Debt-service-to-revenue and grants ratio: will increase to 40 percent by 2025 and remain elevated, reflecting higher external debt service payments. - Standardized shock to growth (real GDP growth of one standard deviation below its historical average in the second and third year of the projection period) would: - trigger a breach of the threshold for the PV of the debt-to-GDP ratio, - lead to a significant increase of the PV of the debt-to-revenue ratio. - Macro risks: worsening macroeconomic outlook (e.g., if donor budget support does not resume) would exacerbate domestic arrear accumulation and aggravate risks from vulnerable SOEs; contingent liabilities of SOEs could severely affect the budget and debt risks. ### Risk rating, vulnerabilities, and policy implications - Risk assessment: - CAR remains at high risk of external debt distress and overall high risk of debt distress, but debt is assessed to be sustainable. - Rating driven by persistent breaches in the medium term of thresholds for external debt service-to-exports and external debt service-to-revenue ratios under the baseline scenario (potential liquidity problems). - Factors accentuating risks: continued standstill in budget support, confluence of adverse shocks (security, health, terms of trade), recent fiscal revenue decline linked to fuel shortages. - Additional considerations: - Macroeconomic projections particularly uncertain in the near term due to overlapping crises and delayed resumption of donor support. - Significant fiscal adjustment required in 2023 amid limited external financing options. - Recently passed crypto law granting crypto assets legal status alongside the official CFA franc has elicited broad criticism from regional financial authorities and damaged prospects for immediate budget support. - Increased domestic CEMAC market tapping in 2021-22 (liquidity ample), but large financing needs in 2023 can exacerbate rollover risks. - Further delays in resumption of budget support and return to a UCT-arrangement would raise the risk of disorderly fiscal adjustments, weigh on growth, and potentially trigger a total loss of access to the regional market, with debt sustainability repercussions. - Short-term policy measures and contingent actions: - Strong primary deficit adjustment and measures to stem revenue loss from the fuel price mechanism. - Support from the World Bank and the African Development Bank, as well as a disbursement under the ECF, are expected to close the 2023 financing gap. - Authorities prepared a contingency plan for 0.75 percent of GDP (CFAF12.5 billion) of adjustment on domestic primary deficit to be implemented in the revised budget in July, should financing conditions worsen. - Access to the liquid domestic CEMAC market could be used to cover additional gaps; regional foreign exchange reserves pool mitigates repayment risks. - Ensuring medium-term debt sustainability requires agreement with donors to unlock budget support and allow the return to a UCT (Upper Credit Tranche) program. - Staff advice: disbursing the highly non-concessional BDEAC loan signed in 2021 would worsen external debt sustainability indicators and staff continue to advise against it. *Source: IMF staff estimates and text from the IMF chapter.* ### 23. The authorities broadly agreed with this assessment. They concur on the need to ### 1cafea2023001 - 23. The authorities broadly agreed with this assessment. They concur on the need to ### Authorities' assessment and policy stance - The authorities broadly agreed with staff assessment. - Agreed policy priorities: - Re-engage with donors to unlock budget support and return to a UCT program. - In the meantime, pursue fiscal consolidation and revenue enhancing reforms. - Strengthen debt management capacities. - Rely on grant financing, and seek maximum concessionality in external financing, to ensure debt sustainability. ### Debt sustainability findings and indicators - External debt (nominal) trajectory (2019-2042): 36.134.034.434.131.830.529.528.427.231.329.133.929.9 - Public sector debt trajectory (2019-2042): 47.143.447.651.450.049.248.445.943.542.530.349.845.4 - Identified net debt-creating flows (external DSA, selected years): 3.86.48.311.86.65.44.52.81.93.83.86.44.6 - Non-interest current account deficit series (selected years): 4.88.011.012.88.57.56.75.24.46.56.87.56.9 - Exports and imports (percent of GDP, selected entries): - Exports: 15.714.013.713.714.314.215.516.116.817.815.5 - Imports: 34.133.331.933.931.731.131.831.731.832.827.9 - PV of PPG external debt-to-GDP ratio snapshot (memoria): ......16.117.316.415.915.514.914.316.919.4 - PV of PPG external debt-to-exports ratio snapshot (memoria): ......117.5126.3115.1112.599.692.684.894.6125.3 - PPG debt service-to-exports ratio (selected years): 3.73.73.54.88.012.112.712.911.68.06.7 - PPG debt service-to-revenue ratio (selected years): 6.65.5.58.514.519.519.919.818.212.17.6 - Gross external financing need (Million of U.S. dollars, selected years): 96.3202.7291.4308.2226.0229.0227.8189.9162.5268.4439.1 ### Key macroeconomic projections underlying the DSA - Real GDP growth (series as presented): 3.01.01.00.52.23.03.83.83.73.23.2 -0.93.0 - GDP deflator in US dollar terms (change in percent, series as presented): -2.93.87.2-5.28.63.42.22.01.92.52.5 2.72.3 - Effective interest rate (percent, series): 0.40.40.30.30.40.50.50.50.61.01.2 0.70.7 - Growth of exports of G&S (US dollar terms, in percent, series): -1.3-7.16.1-4.615.55.816.19.510.75.25.5 2.48.0 - Growth of imports of G&S (US dollar terms, in percent, series): 0.92.53.71.23.84.48.45.75.76.04.1 6.85.6 - Grant element of new public sector borrowing (in percent, series excerpt): .........48.736.235.436.035.135.845.741.4 ...40.1 - Government revenues (excluding grants, in percent of GDP, series excerpt): 8.79.28.87.87.98.89.910.510.711.813.8 7.710.2 - Aid flows (Million of US dollars) (series excerpt): 235.9339.0141.9121.8172.7183.3212.9241.2246.2240.3173.1 - Grant-equivalent financing (in percent of GDP) (excerpt): .........4.86.66.77.38.07.74.72.0 ...6.4 - Grant-equivalent financing (in percent of external financing) (excerpt): .........95.084.882.281.783.384.373.857.1 ...80.3 - Nominal GDP (Million of US dollars, series excerpt): 2278.42388.52584.62460.62732.92910.23087.03267.53451.84577.78040.7 - Nominal dollar GDP growth (series excerpt): 0.04.88.2-4.811.16.56.15.85.65.85.8 1.65.4 ### Drivers, risks, and stress-test outcomes (figures and tables) - Debt dynamics drivers highlighted include contributions from real GDP growth, nominal interest rates, price and exchange rate changes, current account and FDI, and unexpected changes in debt (residuals). - Realism tools and historical distributions for fiscal adjustment and growth show the distribution of 3-year primary balance adjustments and possible growth paths under alternative fiscal multipliers. - Sensitivity analysis and stress tests (2022-2032) report multiple scenarios: - Tailored and bound tests consider shocks to growth, exports, primary balance, other flows, and depreciation; several scenarios produce breaches relative to thresholds in specific years (tables flag breaches in bold). - Example stress-test bench thresholds include PV of debt-to-GDP threshold 40 (Table 3 context) and TOTAL public debt benchmark 35 (Table 4 context). - Public DSA allows domestic financing to cover additional financing needs generated by stress tests; external DSA assumes shocks covered by PPG external MLT debt with default terms based on baseline 10-year projections. ### Policy recommendations and operational implications - Immediate policy actions endorsed by authorities: - Re-engage with donors to secure budget support and enable return to a UCT program. - Pursue fiscal consolidation and revenue-enhancing reforms while awaiting donor support. - Strengthen debt management capacity to better manage external financing and debt sustainability risks. - Prefer grant financing and maximize concessionality of external financing to safeguard debt sustainability. - Financing strategy implication: maximize grant-equivalent financing share (historical and projected series indicate high shares in some years) to limit debt-creating flows and stabilize debt metrics. *Source: Staff report extract and accompanying tables and figures from the Central African Republic DSA material provided.* ### 1. This supplement reports on new information regarding external arrears ### 1. This supplement reports on new information regarding external arrears ### External arrears update - CAR has accumulated arrears that pre-date the Completion Point of the HIPC initiative with some non-Paris Club creditors. - CAR has arrears to Argentina, Equatorial Guinea, Iraq, Libya, and Taiwan, Province of China. - The authorities are in contact with the creditors to find a path towards the resolution of these arrears. - Since the issuance of the Staff Report, staff received new information on Libya’s consent to the Fund’s lending to CAR. - Libya has now consented to the Fund providing financing to CAR under the Extended Credit Facility despite these arrears. - Consistent with the Fund’s lending-into-official-arrears (LIOA) policy, all creditors have now consented to the Fund lending to CAR despite the arrears. - The new information does not change the thrust of the staff appraisal. ### Request for a new ECF arrangement and objectives - Authorities are requesting a new arrangement under the IMF’s Extended Credit Facility (ECF) in the amount equivalent to SDR 141.68 million (127.18% of quota). - Disbursements under the new ECF arrangement, if approved, will go towards: - covering obligations falling due to the Fund between 2023 and 2026, and - social protection in close coordination with the World Bank. - Expected benefits of ECF disbursements: - enable CAR to remain engaged with the IMF by being current with obligations to the Fund, - free much-needed fiscal space for essential public services, - act as a catalyst to secure additional budget support from financial partners. - The IMF program design incorporates strong safeguard features and is intended to be catalytic in securing additional budget support. ### Recent economic developments and prospects - Socioeconomic context: - Since the 2013 sectarian violence, the government has experienced recurring conflict and struggled to regain control of territory and deliver essential administrative functions. - A significant share of the population is internally displaced and access to basic utilities such as water and electricity is lacking. - Food insecurity: - According to the Integrated Food Security Phases Classification, three million people representing 49 percent of the total population are projected to be acutely food-insecure between April 2023 and September 2023, with internally displaced persons, returnees, and refugees most impacted. - Macroeconomic impacts and shocks: - Supply chain disruptions related to the Covid-19 pandemic and the repercussions of the war in Ukraine have led to food and basic commodities price spikes, fuel shortages, additional balance of payment needs, and greater forgone revenues. - Global tightening of macroeconomic policies combined with the lack of budget support generates significant funding pressures. - Recent macroeconomic outcomes: - After a subdued recovery post-Covid in 2021, real GDP was nearly stagnant at 0.5 percent growth in the last year. - Inflation rose to 5.8 percent on an annual average from 4.3 percent, mainly driven by higher food prices. - The external sector position weakened, with the balance of payment deteriorating by 8 percent in 2022 from a surplus in the previous year. - Outlook and risks: - Economic growth is anticipated to recover in 2023, at 2.2 percent, as fuel shortages ease, and exceed 3 percent over the medium term. - Inflation is expected to increase further to 6.3 percent, reflecting continued elevated fuel prices before reverting below the regional monetary zone CEMAC’s target threshold of 3 percent next year. - The outlook is highly uncertain and hinges on resumption of budget support, access to regional financing market, and strong policy implementation. - Downside risks are exceptionally elevated and include security developments in CAR and the region, resumption of donors’ support, and regional and global financial conditions; materialization of these risks could push the country into a severe crisis with significant social and regional spillovers. ### Near- and medium-term policies - Program anchors and prior actions: - The new ECF-supported arrangement will anchor efforts towards: (i) improving economic resilience; (ii) supporting the most vulnerable; and (iii) catalyzing additional budget support. - Authorities have met three bold prior actions: repeal of problematic provisions in the cryptocurrency legislation; establishment of an escrow account at the central bank BEAC to guarantee delivery of social services; promulgation of a decree transposing CEMAC directive on the stock and fixed assets accounting into domestic law. - Contingent measures and capacity development: - Authorities stand ready to take contingent measures, in consultation with Fund staff, to keep program objectives within reach and strengthen capacity to repay the Fund. - They count on scaled up capacity development assistance from the IMF, World Bank and other technical partners to enhance implementation capacity while mitigating program risks. Fiscal policy - Authorities committed to raising domestic revenues to ensure essential public services and strengthen resilience amid difficulties securing concessional financing. - Fiscal consolidation anchor: - The fiscal program is anchored on fiscal consolidation of about 1% of GDP annually. - Revenue and expenditure measures: - Plans to scale up domestic resource mobilization, including reforms to the petroleum pricing mechanism, additional tax policy measures, administrative reforms, and increased compliance enforcement. - Prioritize spending towards sectors most impactful for growth and protection of vulnerable households, while improving spending efficiency. - Public financial management reforms: - Implementation of the treasury single account reform, enhancement of procurement policies, and progress towards program budgeting and regional public financial management policies. - Social protection and targeting: - Efforts to better target social spending and shore up the social safety net, including better targeting fuel price subsidies and protecting social spending for vulnerable retirees and communities affected by displacement as the World Bank’s PACAD program is due to end in June 2023. - Donor coordination and transparency: - Intensified efforts to mobilize additional budget support via regular monthly treasury committee meetings with IMF and donor participation and opening books to IMF and donors. - Debt and arrears strategy: - Commitment to anchor fiscal and debt sustainability by adhering to the fiscal consolidation path and resorting to borrowing only on concessional terms. - Seeking to reduce domestic borrowing costs by expanding the domestic investor base and through liabilities management operations. - Committed to strengthening debt management capabilities with IMF support. - Pre-HIPC initiative legacy arrears represent 25 percent of CAR’s stock of external indebtedness; authorities will pursue normalization of relations with creditors and are engaging in good faith efforts to address the arrears. Monetary and financial sector policies - Monetary policy is conducted by the regional central bank BEAC and has been tightening. - Authorities understand the monetary policy stance is expected to stay the course to anchor inflation expectations in view of continued regional inflationary pressures. - Financial sector soundness: - Financial sector indicators remained sound with banks adequately capitalized and registering ample liquidity ratios. - Non-performing loans are relatively high but adequately provisioned. - Authorities continue to monitor individual banks closely to ensure continued soundness. - Financial digitalization and AML/CFT risks: - Authorities committed to advancing financial inclusion in partnership with regional institutions through the Sango Project and leveraging Fintech and digitalization. - They revised the legal framework to withdraw crypto assets as legal tender and better align laws with the regional regulatory framework, noting staff advice on fiscal risks and risks to the financial sector, including AML/CFT. - They seek to continue benefiting from staff’s advice and technical assistance to promote financial inclusion successfully. - Safeguards assessment: - The 2022 safeguards assessment found BEAC maintained strong safeguards following governance reforms and IFRS implementation and noted BEAC’s strong external controls. - BEAC is taking steps to strengthen internal audit capacity and risk management framework, including developing business continuity and disaster recovery plans. Structural reforms - Priorities aim at strengthening competitiveness and resilience and laying foundations for inclusive medium-term growth. - Fuel market reforms: - Maintain momentum of fuel market reform to secure fuel supply, preserve government revenues, and protect vulnerable households. - Plan to adopt and implement a streamlined pricing formula and address fraudulent fuel imports, building on IMF technical assistance. - Mining sector policies: - Plan to revise the mining code to align with international best standards, incorporating enhancements suggested by IMF and World Bank technical assistance. - Governance and transparency: - Commit to follow up with the National Assembly to ensure adoption of a pending draft anti-corruption law reflecting Fund’s advice. - Strengthen the role of the supreme audit institution, the Court of Accounts, with adoption of a new organic law and provisions to ensure it is operational and financially autonomous. ### Conclusion and appeals - Considering the authorities’ commitment to sound policies and their track record under previous ECF-supported program, SMP, and prior actions, staff call on Executive Directors to support CAR’s request for a new ECF arrangement and to conclude the 2022 Article IV consultations. - Executive Board’s continued support and advocacy to help unlock additional budget assistance is highlighted as highly needed to meet CAR’s urgent humanitarian needs amid acute food insecurity and the winding down of key social programs such as the World Bank’s PACAD program. *Prepared By The African Department, April 25, 2023; Statement by Mr. Sylla, Executive Director, Mr. N’Sonde, Alternate Executive Director, and Mr. Touna Mama, Central African Republic Mission Chief, April 27, 2023* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1cafea2023001.pdf_