## 1cafea2023002

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### A. Evolution of financial services and fintech context
- Fintech and crypto offer potential for digitization and financial inclusion in the Central African Republic (CAR), but CAR faces substantial gaps in digital infrastructure, education, legal frameworks, and institutions.
- CAR’s 2022 crypto law and the launch of a digital coin named Sango created legal uncertainties at the CEMAC level and raised numerous concerns; some of the most controversial provisions were revised.
- Project Sango is complex, creates interconnectedness across multiple sectors and public and private balance sheets, and could raise systemic risks spanning macro-fiscal, financial stability, financial integrity, governance, and consumer protection—pointing to the importance of reconsidering the existing blueprint.
- Global and regional context:
  - Mobile money expansion: 2012 — of the 27 million global active mobile money accounts, 84 percent was in Sub-Saharan Africa (SSA); 2021 — 364 million global mobile money accounts, SSA accounted for 52 percent; as of 2021 — 55 percent of adults in SSA had an account; 33 percent of adults had a mobile money account.
  - Crypto adoption: Between July 2020 and June 2021 — Africa was the fastest growing crypto assets market in the world in terms of adoption, with an increase of 1,200 percent.
  - CBDC developments in Africa: Nigeria launched the e-Naira in 2021 (live); Ghana and South Africa are in pilot stages; 8 other African countries are in early stages of research and conception.

### B. CAR readiness, infrastructure, and inclusion metrics
- Socio-economic constraints:
  - Poverty rate: 70 percent.
  - CAR’s CPIA 2022: policy and institutional assessment score is the lowest in SSA, particularly in public sector management and institutions.
- Digital infrastructure deficits:
  - Internet access: slightly over 10 percent of the population.
  - Mobile cellular subscription: around 40 percent (SSA average: 80 percent).
  - CAR among the few countries without fiber optic (noted that fiber optic "should be installed in the near future").
  - Fixed broadband subscriptions (2019): 0.01 (per 100 people).
- Financial inclusion gaps (World Bank Global Findex indicators): account ownership, debit/credit card ownership, borrowing from financial institutions, and digital payment use are among the lowest in Africa for CAR.
- Implication: Fintech benefits require prerequisites—connectivity, electricity, education, legal/institutional frameworks.

### C. CAR crypto legislation, Project Sango design and early metrics
- Legal timeline and reactions:
  - CAR adopted crypto assets as legal tender on 21st April 2022 (Loi n°22.004 du 22 avril 2022).
  - Key original provisions: mandatory acceptance of crypto assets by economic agents; taxes payable in crypto assets; state-provided access to automatic and instant convertibility via a trust fund; creation of ANTE.
  - CEMAC concerns on April 29, 2022: inconsistency with CEMAC framework and macro/financial stability risks.
  - Amendments agreed with BEAC on April 6, 2023 (Loi n°23.005 du 6   avril 2022) to harmonize and amend legal tender and convertibility provisions.
  - COBAC Decision D-2022/071 (May 6, 2022) prohibited supervised institutions from engaging in transactions with crypto assets or holding crypto assets.
  - COSUMAF regulation 01/22/CEMAC/UMAC/CM/COSUMAF (July 21, 2022) extended market intermediary definitions to crypto asset service providers (Art 145; Art 160).
  - Constitutional Court declared key elements of Project Sango illegal on August 1, 2022 (purchase of citizenship, e-residence, land, and natural resources for Sango coin).
  - CEMAC Heads of State Summit, Yaoundé, March 17, 2023: reaffirmed Article 6 of the Convention on legal tender and encouraged BEAC and regulators to develop frameworks and credible alternatives.
- Project Sango launch and issuance plan:
  - Project Sango launched and started issuing Sango coin to investors worldwide on July 15, 2022.
  - Planned total issuance: 21,000,000,000 Sango coins over one year.
  - Targeted fundraising: about $2.5 billion (around 100 percent of GDP), split as:
    - US$1 billion through Sango coins (4.2 bn tokens)
    - US$1.5 billion through other offerings (sale of CAR citizenship, e-residency and land property — 6.3 billion tokens)
  - By January 15, 2023, estimated purchases: less than US$2 million worth of Sango coin (0.2 percent of the total planned issuance).
  - Sale of CAR citizenship, e-residency and land property delayed by the Supreme Court decision.
- Allocation and release schedule (total allocation: 100.0% — 21,000,000,000 tokens):
  - Country's Treasury: 20.0% — 4,200,000,000 tokens; 4 years cliff, 6 years linear unlock - yearly; Minimum Investment: N.A.
  - Foundation funds: 10.0% — 2,100,000,000 tokens; 2 years cliff, 8 years linear unlock - yearly; Minimum Investment: N.A.
  - Rewards & Incentives: 15.0% — 3,150,000,000 tokens; 2 years cliff, 8 years linear unlock - yearly; Minimum Investment: N.A.
  - Liquidity: 5.0% — 1,050,000,000 tokens; 16.67% at Public Launch, 16.67% every 6 months; Minimum Investment: N.A.
  - Market Coins: 20.0% — 4,200,000,000 tokens; Genesis Cycle - Cycle 12; Minimum Investment: $500
  - Land Offering: 10.0% — 2,100,000,000 tokens; Cycle 1 - Cycle 12; Minimum Investment: $10,000; 10 years locking period
  - Citizenship Offering: 10.0% — 2,100,000,000 tokens; Cycle 1 - Cycle 12; Minimum Investment: $60,000; 5 years locking period
  - e-Residence Offering: 10.0% — 2,100,000,000 tokens; Cycle 1 - Cycle 12; Minimum Investment: $6,000; 3 years locking period
- Design and classification:
  - Sango coin blends features of private and public digital money; not a CBDC; cannot be classified as a stablecoin due to Bitcoin volatility; falls within FATF definition of virtual assets.
  - Functional breadth: transfer of value, governance, asset tokenization, digital identity, and ownership—blending NFTs, utility tokens, security tokens, and governance tokens.
  - Legal and valuation uncertainties: issuer identity, explicit/implicit State guarantee, pledged future revenue streams, degree of Bitcoin backing (full, partial, fractional), two-way peg to Bitcoin, quorum-controlled validation—each has implications for public debt, valuation, and sovereign credibility.

### D. Opportunities and inclusion constraints
- Potential benefits of DLT and tokenization:
  - Efficiency, transparency, traceability: faster transfers at very low fees; smart contracts; modernizing registers (e.g., property).
  - Regtech/Suptech possibilities for identifying suspicious activities.
  - Cross-border payment speed and cost improvements.
- Constraints and inclusion caveats:
  - Broad population participation required for meaningful inclusion.
  - Access barriers: Sango App requires smartphones and good connectivity; CAR annual per capita income: just around US$800.
  - Minimum investment during ICO phase: US$100 (US$500 in the now ended Genesis cycle).
  - Government “Young People Initiative” to provide young people with free smart phones raises discrimination concerns against older citizens.
  - Risk of reinforcing the digital divide and excluding less educated, less affluent, elder, and less technologically savvy populations.

### E. Risk overview: legal, monetary, fiscal, financial stability, integrity, governance, and consumer protection
- Legal risks:
  - Original crypto law granted legal tender status inconsistent with CEMAC (BEAC exclusive right to issue banknotes and coins); abolition of legal tender status on April 6 reduces such risks.
  - Tokenization of natural resources requires sound legal framework to determine holders’ rights and State balance sheet accounting.
  - Structural governance weaknesses (contract enforcement, property rights, corruption, rule of law) amplify legal risk.
- Monetary risks:
  - CAR benefits from CFA franc stability as a CEMAC member; crypto volatility undermines functions of money, could weaken monetary sovereignty, disrupt money demand, and impair monetary policy transmission.
  - Crypto assets risk weakening capital controls and pooled reserve accumulation; Sango non-custodial wallets supporting Bitcoin and Sango could affect CFAF liquidity and peg management.
- Fiscal risks:
  - Project Sango aims to raise capital in crypto assets (Bitcoin, Ethereum, Tether, etc.), exposing the public balance sheet to high volatility.
  - Unclear involvement of government vs. extrabudgetary entities raises accountability, transparency, and oversight concerns.
  - Tax incentives: zero income tax for capital gains on crypto assets; zero corporate tax for corporate investors — risk substantial revenue loss.
  - Other incentives (free mobile phones) strain scarce fiscal space.
  - Empirical precedent: El Salvador’s fiscal losses on crypto investments contributed to deteriorating fiscal situation and ratings downgrades.
- Financial stability risks:
  - Potential financial disintermediation if Sango aims for a “new digital monetary system” “without interference from the banking system.”
  - Disintermediation consequences: weakening of core bank funding, negative impact on bank credit, abrupt shifts causing bank stresses and spillovers across the monetary union.
  - COBAC prohibits exposure to crypto assets by regulated institutions; channels of exposure include credit to crypto platforms, wallet providers, institutional or retail investors, and collateral acceptance.
  - Specific risk categories if cryptoization occurs without safeguards: legal, credit, liquidity, market, operational, and cyber risks.
- Financial integrity, governance, and consumer protection risks:
  - AML/CFT: the crypto law does not contain adequate measures to prevent, investigate, prosecute, and sanction criminal misuse; granting (then revoking) legal tender status could have compounded ML/TF risks.
  - Tokenization of natural resources and citizenship-by-investment plans raise high ML/TF risks.
  - Governance: public-private partnership structure and concentration of issuance, custody, and validation powers in an “institutional quorum” create conflict-of-interest and transparency risks.
  - Consumer protection: low financial literacy and unclear terms increase risks of limited recourse, understated risks, inadequate oversight, or fraud.
- Tokenization-specific and infrastructure risks:
  - Tokenization does not resolve fundamental valuation/exploitation issues for CAR natural resources; fractionalization risks consumer protection issues and contagion if financed by traditional institutions.
  - Risks of double selling, legal uncertainty, and ML/TF amplification due to weak mining/regulatory frameworks.
  - Ambitious infrastructure (Crypto City, Crypto Island) requires capital and recurrent outlays that may be unrealistic given CAR’s development level.

### F. Fiscal and public balance sheet exposure (Project Sango)
- Project Sango targeted fundraising about $2.5 billion (around 100 percent of GDP) through Sango coins and other offerings.
- Proceeds to be paid in major crypto assets increases exposure of the public balance sheet to crypto assets.
- Government guarantees, implicit or explicit, for convertibility or backstops would create contingent liabilities and fiscal volatility.
- Recommendation: avoid government guarantees for convertibility; explicitly delink Sango from the public sector balance sheet.
- Tax treatment: clarify tax treatment of crypto assets to balance innovation and revenue; follow international best practices such as OECD (2022) tax transparency framework for crypto assets.

### G. Policy and regulatory options and sequencing
- General approach:
  - Limit Sango elements to activities for which prerequisites (infrastructure, institutions, legal and regulatory framework, capacity) can be realistically met.
- Regional legal consistency and coordination:
  - Priority: ensure consistency with CEMAC legal and regulatory framework and alignment with the UMAC Convention; harmonize monetary, banking, and financial regulations in coordination with BEAC and regional institutions.
  - Continue cooperation with CEMAC to ensure coordinated frameworks for crypto assets.
  - Fully follow union-wide prudential requirements for regulated financial institutions regarding exposure to crypto assets.
- Use of international guidance:
  - FATF Recommendation 15 and Interpretive Note address ML/TF risks related to crypto assets.
  - IMF Executive Board endorsed nine core elements to inform a comprehensive policy framework for crypto assets; these underpinned staff advice to remove legal tender status and guaranteed convertibility.
- Fiscal risk management:
  - Identify, quantify, monitor, and mitigate fiscal risks; promote fiscal transparency.
  - Tax treatment must be unambiguous; avoid government guarantees; delink project from public balance sheet.
- AML/CFT and institutional capacity:
  - Establish robust AML/CFT legal and regulatory framework, skilled and resourced competent authorities, ML/TF risk assessment, and cooperation with foreign counterparts.
- Governance and prudential oversight:
  - Require fit and proper senior management, management liabilities, resourced control functions, conflict-of-interest policies, identifiable decision-making structures.
  - Apply rules similar to financial service providers to crypto asset service providers (storage, transfer, exchange, custody) and adapt additional requirements reflecting new business models.

### H. Risk management, mobile money, and tokenization of natural resources
- Risk-control and governance for Sango infrastructure:
  - Policies should address legal, credit, liquidity, general business risks; operational resilience (outsourcing, fraud, cyber risk, data integrity, operational reliability); third-party risk management; and various nonfinancial risks.
  - ML/TF mitigation must be complemented by enterprise risk-management and review processes.
- Mobile money as inclusion pathway:
  - Mobile money enables payments, remittances, savings, and investments with unsophisticated devices; mobile money penetration offers a viable path to financial inclusion in CAR.
  - Mobile phone subscription penetration in 2020: 38 percent (Sub-Saharan Africa average: 83 percent; World average: 106 percent).
- Tokenization of natural resources:
  - Can be considered if it brings benefits versus traditional investors; tokenization need not depend on Sango infrastructure.
  - Tokenization requires legal framework consistent with FATF standards to address ML/TF risks in mining and trade of precious metals and stones.
  - Separating tokenization from Sango can reduce interconnectedness and systemic risk.

### I. Food insecurity, agriculture, social protection, and fiscal context
- Food insecurity prevalence and severity:
  - Prevalence of severe food insecurity: 61.8 percent of the population on average in 2019-21.
  - An estimated 2.2 million people, or 44 percent of the population, experienced elevated levels of acute food insecurity between April and August 2022.
  - UNICEF: 40 percent of children under five are suffering from chronic malnutrition (above the emergency threshold of 30 percent).
  - Projection without additional assistance: elevated acute food insecurity expected to rise to 2.7 million between September 2022 and March 2023, and may reach 3 million between April and August 2023.
- Drivers and shocks:
  - Recent shocks: COVID-19 supply disruptions, renewed violence and insecurity, negative terms-of-trade shock from Russia’s war in Ukraine.
  - UNOCHA expected price impacts: rice +30 percent, wheat flour +67 percent, vegetable oil +70 percent.
  - CAR cereal import dependency: over 20 percent; wheat dependency: about 12 percent.
- Government capacity and social protection:
  - No system of social protection in place.
  - Existing transfers and subsidies in draft 2023 budget: about 2.4 percent of GDP = pensions 0.5 percent of GDP; transfers 1.5 percent of GDP; other spending 0.4 percent of GDP.
  - Pension spending: 0.8 percent of GDP; 15,000 pensioners; total pension spending ~ CFAF 12 billion per year; monthly pension per pensioner: CFAF 6,666 (around US$10).
  - Scholarship transfers: 0.1 percent of GDP; 4,350 university students receive scholarships; monthly stipend for domestic students: CFAF 30,000 for nine months (around US$48).
  - Tax revenue currently stands at only 8 percent of GDP.
- Humanitarian assistance and financing gaps:
  - Food security accounted for 40.5 percent of total humanitarian assistance in CAR, estimated at US$   403.7 million in 2022.
  - WFP six-month net funding requirement surged after war in Ukraine; WFP estimated needs in 2022: US$   217.3 million, of which only 54 percent was available from donor contributions.
- Policy recommendations (near-term and medium-to-long-term):
  - Near-term: continue to appeal for external humanitarian support; protect old-age pension and student scholarships; expand mobile money-based cash transfers where feasible.
  - Medium-to-long-term: resolve conflict; invest in agriculture (modern inputs, rural infrastructure, secure land access); establish targeted cash transfer social protection backed by higher domestic revenue mobilization; tap global climate funds and improve capacity to access them (US$3.7 billion available in 2021; CAR disbursements 2008–2021: US$8.1 million of US$27.8 million approved).
  - Donor budget support: resume by addressing transparency and governance issues; leverage Ministry of Finance Fiduciary Management Committee for monitoring and audits.

### J. Fuel market, subsidies, and fiscal implications (2022–2023)
- Fiscal and market outcomes:
  - Tax revenue from sales of fuel products fell by 60 percent in 2022 due to shortages.
  - Around a quarter of government tax revenue corresponds to tax revenue from sales of fuel products.
  - From 2021 to H1 2022, FOB price of gasoline increased by 64.3 percent while CFAF exchange rate depreciated by 17.6 percent vs US dollar.
  - In 2022 cost of delivering 1 liter of diesel exceeded administered retail price (CFAF 855) by around 80 percent; gap (CFAF 682) = implicit fuel subsidy per liter (forgone revenue CFAF 444 per liter + payments owed to fuel importing companies CFAF 238 per liter).
  - Tax revenue from sales of fuel products fell from monthly average ~ CFAF 1.5 to 2 billion to about CFAF 0.1 billion at end-2022.
  - Average import price in CAR in November 2022 was 1.8 times the price paid in other countries in the region.
  - Historically about 20 percent of the fuel market served by black market; shortages in 2022 expanded black market to "meet all the demand that passes from formal to informal channels."
  - On January 3, 2023 the government raised pump prices by 50, 70, and 78 percent for gasoline, diesel, and kerosene respectively.
  - Demand in the official network fell by 58 percent in January 2023 relative to January 2022.
  - Government could expect to collect CFAF 18 billion (1.2 percent of GDP) in tax revenue from sales of fuel products in 2023 given the new price structure and official price.
- Drivers and structural problems:
  - CAR is landlocked; refined product imports transshipped from neighboring ports and transported via rivers and roads depending on season.
  - A government majority-owned company controls storage depots; two thirds of retail stations are in Bangui; northeast underserved.
  - Retail prices for four petroleum products are government-fixed; import prices determined non-transparently, raising consumer costs and reducing tax collection.
  - Price differentials with neighboring countries create incentives for illegal imports and smuggling.
- Reform objectives and immediate priorities:
  - Objectives: (i) guarantee reliable supply of good quality products; (ii) stabilize tax revenues; (iii) protect the most vulnerable populations.
  - Immediate priorities:
    - Apply laws governing the sector: tax code, finance law, CEMAC directives.
    - Establish transparent methodology to determine efficient import costs and carry out import cost audit.
    - Reduce importer margins to 30 percent of the FOB price.
    - Implement competitive tenders for fuel imports.
    - Collect all taxes and quasi-taxes at customs.
    - Make the price structure public and review sales prices periodically while designing an automatic pricing mechanism.
  - Suggested price and revenue impact: setting fuel prices to CFAF 1,100 per liter for gasoline and CFAF 1,350 per liter for diesel, while applying tax rates and quasi-taxes contemplated in the Tax Code, Financial Law and CEMAC Directives, is estimated to yield an additional CFAF 11.7 billion in 2023.
- Design and implementation lessons from international experience:
  - Five critical components: comprehensive reform plan and stakeholder consultation; far-reaching communication strategy; appropriately phased price increases; targeted mitigation measures (preferably cash transfers); and depoliticization of fuels subsidies.

*Source: CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND (chapter content provided).*

### 1. Evolution of Financial Services _____________________________________________________ 5

### 1. Evolution of Financial Services

### A. Executive summary
- Fintech and crypto developments offer potential opportunities for digitization and financial inclusion in the Central African Republic (CAR), but CAR faces substantial gaps in digital infrastructure, education, legal frameworks, and institutions.
- CAR’s 2022 crypto law and the launch of a digital coin named Sango and its platform-ecosystem created legal uncertainties at the CEMAC level and raised numerous concerns; some of the most controversial provisions were revised.
- Project Sango is complex, creates interconnectedness across multiple sectors and public and private balance sheets, and could raise systemic risks spanning macro-fiscal, financial stability, financial integrity, governance, and consumer protection—pointing to the importance of reconsidering the existing blueprint.

### B. Global and regional fintech trends and context
- Mobile money expansion:
  - 2012: of the 27 million global active mobile money accounts, 84 percent was in Sub-Saharan Africa (SSA).
  - 2021: 364 million global mobile money accounts; SSA accounted for 52 percent of those accounts.
  - As of 2021: 55 percent of adults in SSA had an account; 33 percent of adults had a mobile money account.
- Crypto adoption:
  - Between July 2020 and June 2021: Africa was the fastest growing crypto assets market in the world in terms of adoption, with an increase of 1,200 percent.
  - Nigeria and Kenya ranked among the top twenty countries in the world in terms of crypto asset adoption in the 2022 Global Crypto Adoption Index; South Africa and Tanzania also rank high.
- CBDC developments in Africa:
  - Nigeria launched the e-Naira in 2021 (live).
  - Ghana and South Africa are in pilot stages.
  - 8 other African countries are in early stages of research and conception.

### C. CAR’s readiness, structural constraints, and inclusion metrics
- Socio-economic and human capital constraints:
  - Poverty rate: 70 percent.
  - Human capital and literacy: described as very low compared to regional peers.
  - CAR’s CPIA 2022: policy and institutional assessment score is the lowest in SSA, particularly in public sector management and institutions.
- Digital infrastructure deficits (figures reported in the chapter):
  - Internet access: slightly over 10 percent of the population.
  - Mobile cellular subscription: around 40 percent, relative to the SSA average of 80 percent.
  - CAR is among the few countries without fiber optic (noted that fiber optic "should be installed in the near future").
  - Fixed broadband subscriptions: CAR data for 2019 reads 0.01 (per 100 people).
- Financial inclusion gaps (select metrics from World Bank Global Findex data as presented):
  - Account ownership, debit/credit card ownership, borrowing from financial institutions, and digital payment use are among the lowest in Africa for CAR—indicating significant unmet potential that Fintech could address if prerequisites are established.

### D. CAR crypto legislation, regulatory actions, and Project Sango
- Initial crypto law and main provisions:
  - CAR adopted crypto assets as legal tender on 21st April 2022 by virtue of the crypto law (Loi n°22.004 du 22 avril 2022 régissant la cryptomonnaie en République Centrafricaine).
  - Main provisions originally included:
    - Requirement that all economic agents accept crypto assets as a form of payment.
    - Taxes could be paid in crypto assets.
    - State-provided access to automatic and instant convertibility of crypto assets into the CAR currency through the creation of a trust fund.
    - Creation of a National Agency for Regulating Electronic Transactions (ANTE).
- Regional and domestic regulatory responses and amendments:
  - CEMAC authorities expressed concerns that CAR’s crypto law was inconsistent with CEMAC’s legal framework and created risks to macroeconomic and financial stability (April 29, 2022).
  - Following feedback, authorities agreed with BEAC to harmonize CAR’s crypto legislation with the monetary union framework on April 6, 2023—including by amending key articles pertaining to legal tender status and guaranteed convertibility (Loi n°23.005 du 6   avril 2022 modifiant et complétant certaines dispositions de la loi n°22.004, régissant la cryptomonnaie en République Centrafricaine).
  - Regional regulator COBAC issued Decision D-2022/071 (May 6, 2022) prohibiting supervised institutions from engaging in transactions with crypto assets or holding crypto assets in their own or third-party accounts, citing risks to financial stability.
  - Financial market supervisor COSUMAF issued regulation 01/22/CEMAC/UMAC/CM/COSUMAF (July 21, 2022) extending the definition of market intermediaries to crypto asset service providers (Art 145) and defining such services to include “buying and selling crypto assets with a legal tender currency or other crypto assets” (Art 160).
  - The Constitutional Court declared key elements of Project Sango illegal, including the purchase of citizenship, e-residence, land, and natural resources for Sango coin (August 1, 2022).
  - At a Summit in Yaoundé on March 17, 2023, CEMAC Heads of State reaffirmed attachment to Article 6 of the Convention governing the Central African Monetary Union on legal tender in the Community and encouraged BEAC and regional regulators to continue work to develop a legal and regulatory framework for issuance and management of crypto assets, and to regulate fintech and propose credible alternatives if necessary.
- Project Sango status and risks:
  - Authorities proceeded with the launch of a digital coin named Sango and a namesake platform-ecosystem with multifaceted features.
  - Only a limited amount of coins have been issued and other elements of the project have not been launched.
  - Project Sango has attracted considerable interest while raising complex risks across macro-fiscal, financial stability, financial integrity, governance, and consumer protection domains.
  - The project’s complexity and cross-sector interconnectedness could create systemic risks, underscoring the need to reconsider the existing blueprint and to strengthen legal and regulatory coordination at the regional level.

*Source: 1. Evolution of Financial Services (April 18, 2023).*

### 8. CAR authorities launched

### 8. CAR authorities launched

### Project Sango: vision and launch
- Project Sango launched and started issuing Sango coin to investors worldwide on July 15, 2022.
- Project aims: “pave the way to a digital future of endless possibilities,” reshape the country’s economy via “cryptoization.”
- Core element: Sango coin, advertised as CAR’s “national digital currency,” issued on a blockchain and backed by Bitcoin, with planned components including a “Digital National Bank” and “National Bitcoin Treasury.”
- The government relies on the private sector to develop the project, akin to a public-private partnership.

### Issuance plan and early uptake
- Planned total issuance: 21,000,000,000 Sango coins over one year.
- Targeted fundraising: about $2.5 billion (around 100 percent of GDP), split as:
  - US$1 billion through Sango coins (4.2 bn tokens)
  - US$1.5 billion through other offerings (sale of CAR citizenship, e-residency and land property — 6.3 billion tokens)
- By January 15, 2023, estimated purchases: less than US$2 million worth of Sango coin (0.2 percent of the total planned issuance).
- Sale of CAR citizenship, e-residency and land property delayed by the Supreme Court decision.

### Allocation and release schedule (as provided)
- Total allocation: 100.0% — 21,000,000,000 tokens.
- Country's Treasury: 20.0% — 4,200,000,000 tokens; 4 years cliff, 6 years linear unlock - yearly; Minimum Investment: N.A.
- Foundation funds: 10.0% — 2,100,000,000 tokens; 2 years cliff, 8 years linear unlock - yearly; Minimum Investment: N.A.
- Rewards & Incentives: 15.0% — 3,150,000,000 tokens; 2 years cliff, 8 years linear unlock - yearly; Minimum Investment: N.A.
- Liquidity: 5.0% — 1,050,000,000 tokens; 16.67% at Public Launch, 16.67% every 6 months; Minimum Investment: N.A.
- Market Coins: 20.0% — 4,200,000,000 tokens; Genesis Cycle - Cycle 12; Minimum Investment: $500
- Land Offering: 10.0% — 2,100,000,000 tokens; Cycle 1 - Cycle 12; Minimum Investment: $10,000; 10 years locking period
- Citizenship Offering: 10.0% — 2,100,000,000 tokens; Cycle 1 - Cycle 12; Minimum Investment: $60,000; 5 years locking period
- e-Residence Offering: 10.0% — 2,100,000,000 tokens; Cycle 1 - Cycle 12; Minimum Investment: $6,000; 3 years locking period

### Blueprint features (advertised)
- Access/offerings through Sango platform: Citizenship, e-Residency, company registration, and land purchases with minimum investments and locking periods up to 10 years.
- Tokenization of natural resources (gold, diamonds, iron ore, graphite, uranium, limestone, copper, cobalt etc.) to be available “solely” via the Sango platform in the future.
- Real estate: a ‘Crypto City’ on ‘Crypto Island’ in Bangui, operated as a special economic zone.
- Institutional setup: a “crypto hub,” oversight via Agence Nationale de Régulation de Transaction Électronique (ANTE), and a proposed Banque Nationale Digitale de la République Centrafricaine (BNDRC).
- Other expected benefits:
  - Tax advantages: crypto transactions exempted from tax, no income or corporate tax, tax payments to be performed through Sango.
  - Crowdfunding platform: access to government infrastructure projects (public-private partnerships) via Sango.
  - Governance features: investors able to vote on future development of the Sango ecosystem.

### Design characteristics, legal status, and valuation concerns
- Classification: Sango coin blends features of private and public digital money; does not satisfy standard definition of a CBDC (not a digital liability of the central bank); cannot be classified as a stablecoin due to Bitcoin volatility; falls within the FATF definition of virtual assets.
- Functional breadth: intended use for transfer of value, governance, asset tokenization, digital identity, and ownership — blending features of NFTs, utility tokens, security tokens, and governance tokens.
- Legal uncertainty:
  - Documentation does not clarify whether Sango Coin is issued by the State or another entity.
  - Unclear whether Sango Coin enjoys an explicit guarantee by the State (contingent liability implications).
  - Unclear whether future revenue streams on natural resources are considered pledged for the Sango coin issuance.
  - Unclear whether Sango Coin benefits from implicit guarantees by the State.
  - Clarity on these issues is a precondition for appropriate public debt measurement.
- Valuation uncertainty:
  - Issued on a sidechain to Bitcoin with a two-way peg conversion mechanism; would inherit Bitcoin’s high volatility, making it a highly speculative asset.
  - Not determined whether Sango Coin is fully or partially backed by Bitcoin; fractional backing would risk “de-peg/devaluation” vis-à-vis Bitcoin.
  - Validation/consensus via a quorum of nodes controlled by CAR institutions implies valuation dependence on sovereign credibility.

### Potential opportunities from digitization and blockchain
- Efficiency, transparency, traceability: sidechain advantages cited — faster transfers at very low fees, scale, additional functionality via smart contracts; potential to modernize institutions (e.g., property registration).
- Supervisory/compliance potential: ledgers could be used to identify suspicious activities via Regtech and Suptech.
- Decentralized platform advantages: lower costs and increased transaction speed, especially in cross-border payments (but risks at the monetary union level).
- Tokenization and DLT as innovation drivers: potential to build new markets and financial opportunities if fundamental problems are first addressed (security, access, infrastructure, institutional framework).
- Constraints: tokenized natural resources must be as accessible, prompt, and quantifiable as physical resources in traditional markets.

### Financial inclusion considerations
- Broad population participation required for inclusion benefits.
- Access barriers:
  - Sango App requires smartphones and good connectivity.
  - CAR constraints: low educational attainment, low access to electricity, poor internet penetration, low access to bandwidth.
- Minimum investment during ICO phase: US$100 (US$500 in the now ended Genesis cycle).
- CAR annual per capita income: just around US$800.
- Government “Young People Initiative” to provide young people with free smart phones raises discrimination concerns against older citizens.
- Risk of reinforcing the digital divide and excluding less educated, less affluent, elder, and less technologically savvy populations.

### Overview of potential risks
- Legal risks:
  - Original CAR crypto law granted legal tender status to crypto assets and was inconsistent with the monetary union’s legal framework (BEAC has exclusive right to issue banknotes and coins).
  - Crypto assets are not suitable to be legal tender given accessibility constraints; abolition of legal tender status on April 6 reduces such risks.
  - Lack of clarity in legal foundations could create significant legal risks: classification of assets, rights and obligations of parties, regulatory rules for transactions on the Sango platform.
  - Tokenization of natural resources requires a sound legal framework to determine holders’ rights over real-world assets and accounting on the State’s balance sheet; without it, investor protection risks are fundamental.
  - Structural governance vulnerabilities (contract enforcement, property rights protection, corruption, rule of law weaknesses) amplify legal risks.
- Monetary risks:
  - CAR is a CEMAC member benefiting from CFA franc stability (pegged to the Euro); crypto assets do not serve fundamental functions of money given high volatility.
  - Widespread crypto use could weaken monetary sovereignty and central bank mandate effectiveness, destabilize money demand, weaken monetary policy transmission, and risk banking disintermediation and loss of seignorage revenue.
  - Crypto assets risk weakening capital controls in the monetary union by enabling untracked capital inflows and outflows and facilitating circumvention of regulated intermediaries.
  - Sango non-custodial wallets supporting Bitcoin and Sango “enabling fast worldwide payments” could affect pooled reserve accumulation and CFAF liquidity conditions and peg management.
  - Mitigation options (e.g., smart contracts to enforce capital controls) require adequate regulatory, supervisory, and monitoring capabilities.
- Fiscal risks:
  - Government exposure to crypto assets could produce high volatility in revenue and spending, threatening fiscal policy conduct.
  - Use of Sango coin to discharge tax obligations could create tax arbitrage and tax evasion opportunities.
  - Even without automatic convertibility, government exposure to volatile crypto assets can lead to large shocks to fiscal balances and threaten economic, social, and political stability.

*Source: International Monetary Fund (excerpts from the Project Sango chapter).*

### 25. Project Sango poses complex risks to the sound management of public finances. While

### 25. Project Sango poses complex risks to the sound management of public finances. While

### Fiscal risks and public balance sheet exposure
- Project Sango aims to raise a very substantial amount of capital through the sale of Sango coin, citizenship, residency, and land plots; the proceeds are to be paid in other major crypto assets (Bitcoin, Ethereum, Tether, etc.), increasing the exposure of the public balance sheet to crypto assets.
- It is not clear whether the government or extrabudgetary entities are involved in these transactions, raising concerns regarding accountability, transparency, governance, and oversight.
- Government spending may increase to finance investment components of Project Sango (from infrastructures to real estate).
- Contingent liabilities for the State may arise from State-supported entities connected with Project Sango or from financial sector exposures to crypto assets, which could spill over to public finances.
- Tax incentives designed to attract investors create revenue risks:
  - zero income tax for capital gains on crypto assets;
  - zero corporate tax for corporate investors.
  - These incentives create the risk of substantial loss of revenue for the State.
- Other adoption incentives (such as the free distribution of mobile phones) raise concerns given the paucity of fiscal space.
- Empirical precedent: “In the case of El Salvador, the government’s significant fiscal losses on its crypto investments have contributed to a deteriorating fiscal situation and ratings downgrades (see, e.g., Alvarez et al., 2022).” (footnote 5)

### Risks from the financial stability perspective
- The widespread use of crypto assets in the economy can increase the risks of financial disintermediation. Project Sango’s aim to create a “new digital monetary system”, “without interference from the banking system,” could shift economic activity into the Sango ecosystem and move financial resources away from the traditional financial system.
- Potential consequences of disintermediation:
  - weakening of core bank funding (traditionally stable deposits);
  - negative impact on bank credit and the non-digital part of the economy;
  - abrupt shifts could result in bank stresses and spillovers across the monetary union due to high financial market integration.
- The Sango infrastructure could expose the CAR financial system to substantial financial stability risks if used by regulated institutions (note: COBAC prohibits exposure to crypto assets by regulated institutions — footnote 6).
- Channels of exposure include credit or other financial services to crypto trading platforms, wallet providers, institutional or retail investors, and acceptance of crypto assets as collateral.
- Specific risk categories if cryptoization occurs without proper safeguards (footnote 7):
  - Legal risk: CEMAC laws and regulations could render contracts executed under CAR crypto law provisions illegal or unenforceable; contradictory or inconsistent regulations increase this risk.
  - Credit risk: Acceptance of crypto assets as collateral with improper legal protection and haircuts can increase credit risk; crypto volatility can cause adverse wealth effects, reduce repayment capacity, and raise NPLs.
  - Liquidity risk: Banks’ holding and dealing with crypto assets could deteriorate liquidity, as crypto assets may not qualify as high-quality liquid assets; payment systems and market infrastructures tied to the project may also face liquidity risks.
  - Market risk: Direct or indirect bank exposures to extremely volatile crypto assets could increase market risk with important spillovers across the monetary union.
  - Operational risk: Complex infrastructure increases operational risk from information systems deficiencies, human errors, management failures, or external disruptions, possibly resulting in breakdowns of services and large losses of customer funds.
  - Cyber risk: The Sango infrastructure’s proposed centralized elements increase the risk of failure relative to decentralized public networks.

### Financial integrity, governance, and consumer protection risks
- AML/CFT risks:
  - The crypto law does not provide measures to prevent, investigate, prosecute, and sanction criminal misuse of crypto assets; crypto assets can be misused for fraud, sanctions evasion, concealment, and laundering of proceeds of crimes, including corruption.
  - Granting legal tender status to crypto assets (initially done and recently reversed) would compound these risks because of expectations of widespread use.
- Institutional capacity concerns:
  - Risks are particularly acute in CAR due to weak institutional and administrative capacity, fragile and conflict-affected status, weak rule of law, and systemic corruption.
  - Doubts remain about CAR’s AML/CFT competent authorities’ ability to detect, investigate, and prosecute financial crimes involving crypto assets; absence of safeguards may create rent-seeking opportunities (e.g., in exchange of crypto assets to CFAF and vice versa).
- Tokenization and citizenship-related risks:
  - Tokenizing natural resources without adequate AML/CFT increases ML/TF risks.
  - Plans to grant citizenship through an investment program (which the CAR’s Constitutional Court has declared illegal) raise high ML/TF risks associated with citizenship-by-investment programs.
  - New citizenship can disguise higher risk profiles and facilitate crimes such as corruption, ML, and tax evasion, with reputational and financial integrity spillovers to other countries.
- Governance and equity concerns:
  - The public-private partnership nature of Sango raises governance concerns, including significant conflict-of-interest risks due to lack of clarity on decision organs and concentration of issuance, custody, and validation powers in the “institutional quorum” (Presidency, ministers, National Assembly).
  - Private sector partners may have profit-maximizing incentives that differ from public interest; unclear governance of large capital raises can lead to conflicts of interest, lack of integrity safeguards, lack of transparency, and imprudent fiscal risk management.
  - Political and institutional weakness and high corruption in CAR pose significant governance risks for the Sango ecosystem.
  - Sango coin governance token gives voting power to investors; participation requires a minimum investment of US$100 equivalent (to be paid in cryptocurrency), which does not appear to encourage participation by CAR’s population.
  - The governance token feature raises the risk that actors with sufficient voting rights could impose policies favoring their interests; tokenization of mineral wealth raises misappropriation risks.
- Consumer protection risks:
  - Lack of clarity on key elements of Sango coin and Project Sango increases consumer protection risks, particularly given very low levels of financial literacy in CAR.
  - Without adequate legal framework, risks include limited recourse, unclear benefits, understated risks, inadequate governance, poor oversight, or outright fraud.

### Risks from tokenization of natural resources and infrastructure projects
- Tokenization-specific concerns:
  - Assets to be tokenized are natural resources in a jurisdiction with no guaranteed safe access; tokenization does not resolve fundamental valuation and exploitation issues in CAR.
  - Fractionalization and wider distribution to potentially unsophisticated investors increase consumer protection risks.
  - Contagion risk exists if traditional financial sector entities finance such projects and gain exposure to crypto volatility.
  - Tokenizing creates risks of double spending or “double selling”; regulatory and supervisory frameworks must provide legal certainty to prevent simultaneous sales on and off blockchain.
  - Given deficient legal framework for ML/TF risks associated with mining, dealing in precious metals and stones, tokenizing natural resources could exacerbate ML/TF risks.
  - Tokenized trading involves multiple intermediaries (technology providers, valuers, certifiers, property registers, actors exploiting assets outside blockchain), creating new types of risk that require robust regulatory and supervisory frameworks.
- Physical infrastructure implementation risks:
  - Project Sango’s infrastructure component includes a crypto economic zone and ambitious high-tech commercial and residential real estate projects (Crypto City and Crypto Island) requiring substantial capital investment and recurrent outlays unmatched in the country.
  - Questions remain about the realism of materializing such projects at CAR’s current level of development, even if Project Sango raises substantial capital.

### Policy and regulatory options
- General approach:
  - The current Sango project is complex and overarching, creating interconnectedness between multiple activities and balance sheets that could raise systemic risk.
  - Elements of Sango to pursue should be limited to those for which prerequisites (infrastructure, institutions, legal and regulatory framework, capacity development) can be realistically met.
- Regional legal consistency:
  - Priority: ensure consistency with the CEMAC legal and regulatory framework and alignment with the UMAC Convention and harmonization of monetary, banking, and financial regulations.
  - In coordination with regional institutions (especially BEAC), CAR revoked the legal tender status and guaranteed convertibility of bitcoin; authorities should continue cooperation with CEMAC to ensure coordinated and coherent legal and regulatory frameworks for crypto assets.
  - Authorities need to fully follow union-wide prudential requirements on regulated financial institutions concerning exposure to, and engagement with, crypto assets.
- Use of international guidance:
  - The FATF has amended AML/CFT standards to address ML/TF risks related to crypto assets (see FATF Recommendation 15 and its Interpretive Note).
  - The IMF’s Executive Board endorsed nine core elements that can inform a comprehensive, consistent, and coordinated policy framework for crypto assets; this guidance underpinned staff advice to remove crypto assets’ legal tender status and guaranteed convertibility and can serve as a basis to build a sound framework after Project Sango is reshaped to be compliant with CEMAC regulation.
  - CAR’s circumstances and capacity constraints may condition sequencing, but implementing a framework consistent with this guidance should be a pre-requisite.
- Fiscal risk management:
  - Fiscal risks from Project Sango should be identified, quantified, monitored, and mitigated to promote fiscal transparency.
  - Government guarantees, including for convertibility of crypto assets into fiat legal tender, should be avoided.
  - The Sango project should be explicitly delinked from the public sector balance sheet.
  - Tax treatment of crypto assets needs to be unambiguous and balance stimulating innovation with raising revenue.
  - Follow international best practices such as the OECD (2022) tax transparency framework for reporting and automatic exchange of information in respect of crypto assets.
- AML/CFT and institutional capacity:
  - A sound legal and regulatory AML/CFT framework, complemented by adequately skilled and resourced competent authorities, is essential.
  - Steps include a robust assessment of ML/TF risks related to crypto assets and the Sango project, design and implementation of tailored mitigating measures, and extensive dialogue and cooperation with foreign AML/CFT counterparts given cross-border activity.
- Governance and prudential oversight:
  - Clear and robust governance requirements are essential: fit and proper senior management, management liabilities, resourcing of control functions, identifiable decision-making structures, conflict-of-interest policies, and rules on prohibited activities.
  - CAR needs comprehensive regulations and enforceable prudential supervision and oversight requirements for all actors in the Sango ecosystem.
  - Rules similar to those for financial service providers should apply to crypto asset service providers performing storage, transfer, exchange, and custody functions.
  - Additional requirements reflecting new business models may be needed, relying on global standards wherever relevant.

*Source: IMF staff analysis in the Central African Republic country report chapter on Project Sango.*

### 42. A multi-faceted infrastructure such as Sango requires a comprehensive and robust

### 42. A multi-faceted infrastructure such as Sango requires a comprehensive and robust

### Risk-management and governance for Sango infrastructure
- Risk-control policies and practices should address, but not be limited to:
  - legal, credit, liquidity, general business risks;
  - operational resilience, including outsourcing, fraud and cyber risk, risk of loss of data, data integrity, operational reliability and capacity;
  - third-party risk management;
  - various nonfinancial risks.
- Anti–money laundering and countering the financing of terrorism (ML/TF) mitigation must be complemented by broader enterprise risk-management and review processes.

### Financial inclusion: role of mobile money
- Mobile money is highlighted as a viable path to increasing financial inclusion in CAR, noting regional success.
- Mobile payments enable users with unsophisticated mobile devices and phone connectivity to:
  - conduct payments;
  - send remittances;
  - make savings and investments.
- CAR has started to experience mobile money with increased penetration (see referenced Figure 4).
- Mobile money transfer services can be followed by a full suite of mobile financial services.

### Natural resource exploitation and tokenization
- Sound and appropriate exploitation of CAR’s natural resources can accelerate growth and should be pursued beyond the Sango project.
- Identified barriers to sound exploitation include:
  - access to natural resources;
  - lack of appropriate financial integrity measures;
  - lack of transparency on governance arrangements and on available reserves.
- Tokenization of assets could be considered if it brings benefits compared to traditional investors, but:
  - tokenization does not need to depend on Sango project infrastructure;
  - separating tokenization from Sango can reduce interconnectedness risks defined in the current blueprint.
- Tokenization of natural resources would require a legal framework consistent with FATF standards to address ML/TF risks associated with mining and dealing in precious metals and stones.

### Food insecurity in the Central African Republic: key findings
- Prevalence and severity:
  - Prevalence of severe food insecurity reached 61.8 percent of the population on average in 2019-21.
  - An estimated 2.2 million people, or 44 percent of the population, experienced elevated levels of acute food insecurity between April and August 2022.
  - UNICEF estimates that 40 percent of children under five are suffering from chronic malnutrition, above the emergency threshold of 30 percent.
- Consequences:
  - Food insecurity undermines long-term economic potential, risks higher school dropout among affected households, and can exacerbate conflict and political instability.
  - CAR is among 48 countries most affected by the ongoing food crisis from balance-of-payments and humanitarian needs perspectives.
- Drivers and shocks:
  - Recent shocks include COVID-19 supply disruptions, renewed violence and insecurity, and the negative terms-of-trade shock from Russia’s war in Ukraine.
  - UNOCHA estimated expected price impacts: a 30 percent increase in the price of rice, a 67 percent increase for the price of wheat flour, and a 70 percent increase in the price of vegetable oil.
  - CAR’s cereal import dependency is over 20 percent, while wheat dependency is about 12 percent.
- Projections without additional assistance:
  - Number of people experiencing elevated levels of acute food insecurity is expected to rise to 2.7 million between September 2022 and March 2023, and may reach 3 million between April and August 2023 if no additional assistance is provided.

### Government capacity, social protection, and fiscal context
- Government limitations:
  - CAR has limited capacity to respond through social protection due to fiscal and institutional fragility.
  - The country has no system of social protection in place.
  - Existing transfers and subsidies in the draft 2023 budget account for about 2.4 percent of GDP, comprised of:
    - pensions: 0.5 percent of GDP;
    - transfers: 1.5 percent of GDP;
    - other spending: 0.4 percent of GDP (not necessarily targeted to social protection).
  - The government has used discretionary measures (fuel subsidies financed by foregone VAT and import tariff revenue), further magnifying fiscal fragility.
- Recommendation:
  - Building a social protection system through the budget would provide the basis for a more efficient response to food insecurity.

### Humanitarian assistance, programs, and financing gaps
- Reliance on humanitarian aid:
  - Near-term food assistance relies heavily on humanitarian aid; longer-term programs depend on off-budget donor funding.
  - Food security accounted for 40.5 percent of total humanitarian assistance in CAR, estimated at US$   403.7 million in 2022.
- Major programs and amounts:
  - World Food Program (WFP): unconditional food assistance program accounting for almost two-thirds of WFP's aid operations, estimated at around US$90 million on average in 2019-2021.
  - World Bank PACAD (approved 2021): US$16 million envelope, providing targeted mobile money transfers to internally displaced households and those impacted by the pandemic and floods.
  - World Bank Agricultural Recovery project: US$25 million for 2019-24.
  - World Bank Urgent Response to the Food Crisis project: US$50 million for 2021-24 (implemented with WFP and FAO).
  - Other partners (e.g., European Union) support off-budget rural and agricultural development projects.
- Funding gaps and needs:
  - WFP’s six-month net funding requirement surged after the food price crisis triggered by the war in Ukraine.
  - In 2022, WFP’s estimated needs amounted to US$   217.3 million, while only 54 percent of that amount was available from donor contributions.
  - Addressing the funding shortfall will require scaling up donor contributions in the form of grants and humanitarian assistance.

### Structural drivers of food insecurity
- Four dimensions affected: availability, access, utilization, and stability (as defined by FAO 2008).
- Structural constraints hinder all four dimensions, including inadequate domestic production, limited access to resources for acquiring nutritious diets, poor utilization due to insufficient clean water, sanitation and health care, and instability from conflict and shocks.

*Source: IMF staff chapter content from the supplied PDF.*

### 10.      Availability of food in the CAR is critically constrained by political and structural

### 10. Availability of food in the CAR is critically constrained by political and structural factors that deter productivity growth in agriculture

### Availability: low domestic food supply and stagnant productivity
- Domestic food supply is low, producing lower kilocalories per capita per day relative to the average of both Africa and the world.
- Agricultural productivity has stagnated for many years; the share of agriculture in GDP has declined significantly since 2013 largely because of deteriorating security in rural areas rather than rising productivity.
- Productivity constraints include limited access to seeds and fertilizers and incipient extension services.
- Usage of fertilizer in agriculture is only a small fraction of levels seen in other developing countries, resulting in very low yields for basic crops such as maize and rice.
- Agricultural yields have remained low and unstable over time.
- Domestic production is incipient, making CAR highly dependent on imports and therefore highly vulnerable to international prices and the exchange rate.
- FAO estimate: every US$1 invested in crop production can yield approximately US$12 in food.

### Access: affordability and physical access barriers
- The cost of accessing a healthy diet (by FAO standards) is almost three times higher than the average expenditure on food.
- Almost the whole population cannot afford a healthy diet.
- Underdeveloped road and transport infrastructure amid conflict constrains physical access as linkages between rural agricultural markets and food commercialization networks fail to emerge.
- Pension and scholarship transfers:
  - Pension spending: 0.8 percent of GDP (single most important budget line within transfers and subsidies).
  - Scholarship transfers: 0.1 percent of GDP.
  - Pension and scholarship spending increased by about 3 percent in nominal terms in 2022, while annual inflation was around 11 percent in 2022, depressing purchasing power.
- Social protection indicators and impacts:
  - 15,000 pensioners for a total pension spending of around CFAF 12 billion per year (0.8 percent of GDP in 2022).
  - Monthly pension per pensioner: CFAF 6,666 (around US$10).
  - Total scholarship assistance accounts for 0.1 percent of GDP in 2022; 4,350 university students receive scholarships (3,300 studying in the country and the remaining abroad).
  - Monthly stipend for domestic students: CFAF 30,000 for nine months (around US$48).
  - Scholarship payments in academic year 2021/22: CFAF 2.35 billion, of which CFAF 1.45 billion to students abroad.
  - Amount envisaged in the 2023 budget: CFAF 2 billion.
  - Arrears on stipend payments to domestic students in academic year 2021/22; unpaid payments to students abroad from 2020/21 contributed to arrears of CFAF 370 million by December 2022.
- Fiscal constraint:
  - Tax revenue currently stands at only 8 percent of GDP.

### Utilization: unsafe processing and sanitation deficits
- Access to safe drinking water is limited to 6 percent of the population.
- Basic sanitation services are available to only 14 percent of the population.
- Unsafe water and almost absent sanitation reduce prospects for safe utilization of food.
- Low educational attainment further undermines the ability to access and digest nutritional information.

### Stability: conflict, displacement, and climate vulnerability
- Agriculture has been repeatedly disrupted by conflict, violence, and coups since independence in 1960, producing significant variability in food production and per capita food supply over time.
- Population displacement currently estimated at around 25 percent of the population reduces households’ ability to engage in agricultural and livestock activities, depletes food stocks, raises prices, and increases dependency on food aid.
- Nearly half of the population has adopted negative coping mechanisms in response to food pressures.
- CAR is highly vulnerable to climate shocks (torrential rains, extreme flooding); ND-GAIN Index ranks CAR 180 out of 181.
- Climate change is expected to further intensify food insecurity.

### Near-term policy measures and humanitarian response
- Immediate focus: alleviate food pressures and mitigate the humanitarian crisis with aid partners.
  - Authorities should continue to appeal for external humanitarian support given limited fiscal space and weak social security programs.
  - Humanitarian partners can rapidly expand food, humanitarian assistance, and protection programs; programs often link to distribution of agricultural and livestock inputs, access to safe water and sanitation, health, and nutrition system reforms.
- Donor budget support recommendations:
  - Could help protect vulnerable groups not supported by humanitarian assistance (pensioners and students) and safeguard transparency.
  - To mitigate transparency risks, leverage the Ministry of Finance’s Fiduciary Management Committee experience in producing quarterly monitoring reports and ex-post audits.
- Social protection short-term priorities:
  - Protect old-age pension and student scholarships to help mitigate impacts of rising fuel and food prices.
  - Recognition that maintaining nominal pension values does not offset real purchasing power losses given y/y inflation estimated to have reached 11 percent in 2022.

### Medium-to-long-term policy options to address structural drivers
- Political and security stabilization:
  - Improvement in political stability requires eliminating conflict and addressing root causes through peace agreements, governance consensus, and reintegration of ex-combatants into social life and the labor market.
  - Investments in human capital, including vocational and other skills, are key for reintegration and stability.
- Agricultural productivity and rural development:
  - Increase use of modern inputs, rural infrastructure development, and secure access to land.
  - Government and humanitarian organizations can supply higher yielding seeds, improved fertilizers, and extension services where feasible.
  - Prioritize agricultural infrastructure development targeting rural and marginalized communities; careful agricultural land reform to secure land titles and reduce future conflict risk.
- Fiscal and social protection reforms:
  - Establish effective, targeted cash transfer-based social protection programs to improve affordability and access to food, backed by higher domestic revenue mobilization.
  - With technical assistance from the Fund, the World Bank and partners, explore reforms to increase tax revenue in the medium to long term while laying foundations for a social protection system (global social protection policy, single registry of vulnerable people).
- Climate finance and adaptation:
  - Tap global climate funds to strengthen agriculture adaptation to climate change.
  - Available global climate financing noted: US$3.7 billion in 2021 (funding available).
  - CAR’s historical access to climate funds (2008–2021): disbursements of US$8.1 million out of approved funds amounting to US$27.8 million.
  - Preconditions for greater access: political stability, transparency of public financial management, and capacity to prepare climate adaptation projects; partnership with accredited institutions (World Bank, UN) can help.
- Digitalization of humanitarian operations:
  - Expand mobile money-based cash transfers to reduce costs and extend reach.
  - Mobile phone subscription penetration in 2020: 38 percent (compared to averages of 83 percent in Sub-Saharan Africa and 106 percent in the World).
  - Low digital connectedness and recurring conflict limit scope for digitalization in the near term.

### Conclusions: policy priorities and sequencing
- The current food insecurity shock arises from a confluence of pre-existing structural factors and recent macroeconomic shocks after the war in Ukraine amid a fragile pandemic recovery.
- Government capacity to respond through social protection is limited by fiscal and institutional fragility.
- Near-term options:
  - Continue to appeal for increased humanitarian aid.
  - Work to resume donor budget support by addressing transparency and governance issues.
- Medium-to-long-term priorities (address all four dimensions of food security—availability, access, utilization, stability):
  - Resolve long-standing conflict.
  - Invest in the agriculture sector to raise productivity.
  - Deploy a robust social protection system backed by higher domestic revenue mobilization.
  - Expand access to safe drinking water and sanitation services.

*Source: CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND (chapter content provided).*

### 2022. The lack of pass-through of international oil prices to domestic pump prices led to a reduction in

### 1cafea2023002 - 2022. The lack of pass-through of international oil prices to domestic pump prices led to a reduction in

### Key findings: fiscal and market outcomes
- Tax revenue from sales of fuel products fell by 60 percent in 2022 due to shortages.
- Around a quarter of government tax revenue in the CAR corresponds to tax revenue from sales of fuel products.
- Between 2016 until end-2022 pump prices were held below full pass-through levels, supported by quasi-fiscal operations and discretionary tax changes, creating implicit subsidies, corporate losses, and fuel shortages.
- From 2021 to the first half of 2022, the FOB price of gasoline increased by 64.3 percent while the CFAF exchange rate depreciated by 17.6 percent against the US dollar.
- In 2022 the cost of delivering 1 liter of diesel exceeded the administered retail price (CFAF 855) by around 80 percent; the gap (CFAF 682) was the implicit fuel subsidy per liter, composed of forgone revenue (CFAF 444 per liter) and payments owed to fuel importing companies (CFAF 238 per liter).
- Tax revenue from sales of fuel products fell from a monthly average of around CFAF 1.5 to 2 billion to about CFAF 0.1 billion at the end of 2022.
- The average import price in the CAR in November 2022 was 1.8 times the price paid in other countries in the region.
- Historically about 20 percent of the fuel market has been served by the black market; shortages in 2022 and higher prices in January 2023 enabled expansion such that the black market "can meet all the demand that passes from formal to informal channels."
- On January 3, 2023 the government raised pump prices by 50, 70, and 78 percent for gasoline, diesel, and kerosene respectively.
- Demand in the official network fell by 58 percent in January 2023 relative to January 2022 (and similar in February 2023 versus February 2022).
- The government could expect to collect CFAF 18 billion (1.2 percent of GDP) in tax revenue from sales of fuel products in 2023 given the new price structure and official price.

### Drivers and structural problems
- The CAR is landlocked with limited infrastructure; refined product imports are transshipped from neighboring ports and transported via shallow rivers and road routes depending on seasonal navigability.
- A government majority-owned company controls storage depots; two thirds of retail stations are in Bangui and the northeast is underserved.
- Retail prices for four petroleum products are government-fixed; differences between administered pump price and recovery price are reflected in the budget as additional revenue or subsidies/expenses.
- Import prices are determined in a non-transparent manner and fully satisfy importer requirements, raising the cost to consumers and reducing tax collection.
- Price differentials with neighboring countries (Cameroon, Chad, DRC) create incentives for illegal imports and smuggling; periodic export quotas from Cameroon can exacerbate shortages.

### Fiscal impact simulations and price signals
- New higher domestic prices announced in January 2023 intended to reduce shortages and fiscal cost but reinforced structural problems and expanded the black market, reducing the taxable base.
- The January 2023 prices were set so that using import prices and the December land-route price structure the fuel subsidy would be equal to zero; this implies a surplus to river-route importers at consumers’ expense.
- Due to reduced imports during the rainy season and potential export quotas from Cameroon, import costs and shortages may persist, raising the risk of further revenue shortfalls.

### Policy recommendations and reform objectives
- Reform objectives for the hydrocarbon distribution sector:
  - (i) guarantee reliable supply of good quality products;
  - (ii) stabilize tax revenues;
  - (iii) protect the most vulnerable populations.
- Immediate reform priorities:
  - Apply the laws governing the sector: tax code, finance law, and CEMAC directives to set tax rates and quasi-taxes as provided.
  - Establish a transparent methodology to determine efficient import costs and carry out an import cost audit (margins and tariffs).
  - Reduce importer margins to 30 percent of the FOB price to allow lower pump prices without compromising revenue collection.
  - Implement competitive tenders for fuel imports to increase bargaining power.
  - Collect all taxes and quasi-taxes at customs to level the playing field between formal and informal importers.
  - Make the price structure public to improve transparency and prepare consumers for an automatic pricing mechanism.
  - Review sales prices periodically to reduce volatility of revenue from sales of fuel products while the automatic mechanism is developed.
- Suggested price and revenue impact:
  - Setting fuel prices to CFAF 1,100 per liter for gasoline and CFAF 1,350 per liter for diesel, while applying tax rates and quasi-taxes contemplated in the Tax Code, the Financial Law and the CEMAC Directives, is estimated to yield an additional CFAF 11.7 billion in 2023.

### Design and implementation lessons from international experience
- Five critical components for successful fuel subsidy reform:
  - A comprehensive reform plan with clear long-term goals, impact assessment, and stakeholder consultation.
  - A far-reaching communication strategy; strong public support and proactive communication triple the probability of success.
  - Appropriately phased price increases, sequenced differently across products to avoid failed reforms and large macroeconomic spillovers.
  - Targeted mitigation measures (preferably unconditional or conditional cash transfers; alternatives include school feeding programs, public works, reduction of education and health fees).
  - Depoliticization of fuel subsidies to avoid recurrence.

*Prepared by Julieth Pico (FAD), Samba Mbaye, Marcel Nshimiyimana, and Iyabo Masha (AFR).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1cafea2023002.pdf_