## 1cafea2024001-print-pdf ## Source details **Canonical URL:** [1cafea2024001-print-pdf](https://www.imf.org/-/media/files/publications/cr/2024/english/1cafea2024001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1cafea2024001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1cafea2024001-print-pdf.pdf.json) --- ### EXECUTIVE SUMMARY — Context and headline actions - Authorities broadly showed strong commitment to program reforms despite a challenging environment. - Key constraints: persistent fuel and electricity supply problems undermining growth, revenue mobilization, and government liquidity; volatile spending weakening budget credibility. - Public debt increased rapidly last year driven by regional issuances, and the authorities have ambitious borrowing plans for 2024. - Key policy priorities: boost revenue collection—particularly from fuel imports—and strengthen spending management to preserve macroeconomic stability and debt sustainability. - Notable reform actions taken: - phased out fuel subsidies; - passed the Anti-corruption Law; - adopted the Mining Code; - migrated to a more advanced software for customs administration; - cleaned-up the public payroll (under the World Bank’s operation); - reversed harmful features of the Crypto-Assets Law by removing the legal tender and guaranteed convertibility of Bitcoin. ### RECENT ECONOMIC DEVELOPMENTS AND KEY STATISTICS - Growth and inflation: - Real GDP growth in 2023: 0.7 percent. - Inflation for 2023: revised down from 5.5 percent to 4 percent. - Fiscal and revenue developments: - Average monthly domestic revenues in 2023H2 fell by 12.5 percent vis-à-vis 2023H1 (excluding one-off December recoveries). - Domestic revenues at end-2023: CFAF 132.5 billion (target: CFAF 130 billion). - Domestic primary deficit at end-2023: CFAF 58.3 billion (target: CFAF 64 billion). - Government paper and banking sector: - Government paper subscriptions: average of 96 percent in 2023H2. - Average tenor rose from 3.3 years in 2023H1 to 4.4 years in 2023H2; peak issuance: 6-year bond in October. - Banking sector at end-2023: total capital at 18.9 percent of risk-weighted assets; short-term liquidity ratio at 146.1 percent; NPL ratio at 16.2 percent. - External position and humanitarian indicators: - Current account deficit (with grants) narrowed from 12.7 percent of GDP in 2022 to 9 percent of GDP in 2023. - Food insecurity: approximately 2 million people (some 33 percent of CAR's population) experienced acute food insecurity between September 2023 and March 2024, down from 2.7 million between September 2022 and March 2023. - Carbon credits: first transaction of US$400,000 from conversion of the Chinko natural reserve. - Selected multi-year indicators (exact values from Text Table 1): - GDP at constant prices (% change): 2022: 0.5; 2023: 0.7; 2024 (proj.): 1.4; 2025 (proj.): 2.9; 2026 (proj.): 3.7. - CPI (end-of-period, % change): 2022: 7.6; 2023: 4.0; 2024 (proj.): 5.0; 2025 (proj.): 4.2; 2026 (proj.): 3.5. - Domestic revenue (% of GDP): 2022: 7.8; 2023: 8.3; 2024 (proj.): 9.2; 2025 (proj.): 9.8; 2026 (proj.): 10.5. - Domestic primary expenses (% of GDP): 2022: 12.2; 2023: 12.0; 2024 (proj.): 12.0; 2025 (proj.): 12.0; 2026 (proj.): 12.0. - Domestic primary balance (% of GDP): 2022: -4.4; 2023: -3.7; 2024 (proj.): -2.8; 2025 (proj.): -2.2; 2026 (proj.): -1.5. - Public sector debt (% of GDP): 2022: 51.1; 2023: 57.7; 2024 (proj.): 57.3; 2025 (proj.): 55.4; 2026 (proj.): 50.8. - Current account (with grants, % of GDP): 2022: -12.7; 2023: -9.0; 2024 (proj.): -8.6; 2025 (proj.): -7.0; 2026 (proj.): -5.0. ### PROGRAM PERFORMANCE — Quantitative and structural outcomes - Overall assessment: broadly satisfactory given fragilities and uncertainties. - Quantitative performance criteria: - All but one of the December QPCs were met. - Net domestic financing by end-2023: CFAF 55.8 billion (adjusted QPC: CFAF 62.9 billion). - Missed continuous performance criterion (CPC): - Non-accumulation of external arrears was missed; arrears accrued in 2023H2 to China, Kuwait, India, Saudi Arabia, Serbia, BADEA, and IFAD due to liquidity pressures and coordination gaps. - Structural benchmarks (SBs) and indicative targets (ITs): - All but one SB were met; the remaining SB was implemented with a delay. - December IT on ceiling on spending via extraordinary procedures missed: spending via extraordinary procedures was CFAF 23.6 billion (target: CFAF 5 billion). - December IT on social spending missed: social spending at CFAF 10.4 billion (target: CFAF 22 billion). - Implemented SBs include: adoption of the Anti-corruption Law (May 2023); consolidation of quasi-taxes in the fuel price equation; implementation of the cross-verification module of eTax; centralization of fees and taxes collected by line ministries into the TSA; adoption of institutional plan to resource ANIF; submission (with one-month delay) of a new draft organic law for the Court of Audit to Cabinet (May 2024). ### OUTLOOK AND RISKS — Baseline and downside scenarios - Baseline assumptions and projections: - Real GDP growth projected: 2024: 1.4 percent; 2025: 2.9 percent; 2026: 3.7 percent. - Inflation expected to progressively slide towards the CEMAC’s 3 percent convergence criterion. - Primary deficit to narrow from 3.7 percent of GDP last year to below 2 percent by 2026. - Current account deficit to shrink from 9 percent of GDP to 5.2 percent (projection noted in executive narrative). - Main downside risks (characterized as exceptionally high): - Security deterioration; failure to resolve fuel shortages; weak revenue mobilization; rollover risks in regional markets; election-related expenditure overruns (local elections 2024Q4 and presidential elections 2025); inability to implement reforms hindering donor support and causing arrears accumulation. - Fragility warning: given CAR’s extremely fragile situation, adverse shocks could tip the country into a deep crisis with inability to provide basic services or pay wages, leading to domestic and external arrears. ### POLICY RECOMMENDATIONS AND PRIORITIES - Revenue mobilization (2024): - Central requirement: adherence to the action plan for the fuel market (improve transparency of fuel price structures; align policy reforms with program goals; enhance stakeholder collaboration; bolster regulatory enforcement). - Stronger execution of 2023 fiscal measures and faster tax recoveries to support revenues. - Spending management: - Implement spending cuts to offset the 2024Q1 overrun without affecting social spending. - Strengthen public financial management to reduce use of extraordinary procedures and improve cash management. - Debt management: - Develop and implement a medium-term debt strategy (MTDS) to address substantial rollover risks. - Governance and donor support: - Foster good governance, anti-corruption efforts, transparency, and financial integrity to catalyze further donor support. - Capacity and Fund engagement: - Authorities request augmentation of access for 5.2 percent of quota (SDR 5.8 million) to meet additional BoP needs and accommodate increased obligations to the Fund. - Authorities will deposit the share of program disbursements in CAR’s SDR account at the IMF to prefinance 100 percent of the obligations to the Fund for at least 6 months. ### UPDATED CONDITIONALITY, PRIOR ACTIONS, AND STRUCTURAL BENCHMARKS - Two prior actions for the second review anchored on the action plan: - First PA (publish and adjust fuel price structures): - (i) publish online the fuel price structures by marketer and import route; - (ii) introduce a new price structure for unlicensed fuel imports; - (iii) modify the tax and quasi-tax components of price structures. - Second PA (level playing field for fuel importers): ensure all importers: (a) are registered as CAR taxpayers and establish a local office; (b) adopt the new forward looking pricing mechanism; (c) get a license to import fuel solely in CAR; and (d) provide a written commitment to import at least 80 percent of total petroleum products via the river. - New and continuous SBs added: - New continuous SB starting July 25, 2024: new fuel price structures will be published monthly in line with action plan recommendations. - New SB for the third review: operationalization of the SIM_Ba software. - New SB for the fourth review: adoption of a pump price adjustment mechanism. ### FUEL MARKET REFORMS — Action plan and commitments - Background: subsidy ended in 2022; regulatory uncertainty and unlicensed competition reduced fuel revenues from 21 percent of revenues in 2021 to around 10 percent of revenues in 2023. - Key measures and timelines: - Publish fuel price structures by marketer and import route; introduce pricing for unlicensed imports; modify tax/quasi-tax components. - From July 25, 2024, issue fuel price structures monthly on the 25th for application the following month (continuous SB). - Launch external audit of fuel procurement costs and margins in June 2024 (SB for third review). - Adopt a pump price adjustment mechanism by April 2025 (SB for fourth review). - Targeted corrective actions to boost revenues (Text Table 2 yields, exact figures): - Fuel revenues: 17.0 - VAT on transportation: 4.2 - Telecommunication services (TIC-TECH): 6.0 - Unregistered importers: 3.4 - eTax: 2.0 - Imported cigarettes: 2.0 - Menues recettes: 4.0 - Exemption reductions: 1.1 - Total: 39.7 - Specific enforcement actions: - Tax unlicensed fuel imports at par with formal imports plus a 30 percent premium on reference prices. - Enforce minimum customs declaration values for imported cigarettes via ASYCUDA. - Maintain and share monthly list of known active importers. - Recover tax arrears estimated at about CFAF 8 billion (0.5 percent of GDP). ### PUBLIC FINANCE, DEBT MANAGEMENT, AND DSA HIGHLIGHTS - Debt distress and financing gaps: - CAR remains at high risk of overall and external debt distress; public debt projected to be sustainable but exposed to substantial liquidity and refinancing risks. - Last year CAR issued CFAF 90 billion (5.6 percent of GDP) in net medium-term debt in the CEMAC market. - Balance of payments’ projections include a financing gap of about 4-5 percent of GDP per year. - Debt management actions and recommendations: - Domestic syndication totaling CFAF 50 billion to rollover most maturities in 2024. - With MTDS still in early stages, rollover risks will remain high through 2027; recommend investor outreach to issue 4-year+ instruments, pre-finance bonds maturing in 2025, and voluntary liability management operations. - Earmark part of syndication proceeds for settlement of external arrears. - Fully operationalize the public debt coordination and management committee. - For remainder of 2024, borrowing should remain within budget financing needs (around CFAF 90 billion). - Debt and arrears data (selected exact figures and findings): - Public and publicly guaranteed (PPG) debt amounted to 57.7 of GDP in 2023. - External debt was 32.6 percent of GDP by end-2023. - CAR accumulated external arrears in 2023H2 totaling about CFAF 1.8 billion; bilateral external arrears since program approval stand at about CFAF 2.6 billion; external arrears to multilaterals (FIDA and BADEA) stand at about CFAF 236 million. - Multilateral creditors (mainly IMF and World Bank) held close to 60 percent of external debt in 2023. - DSA key points: - PV of PPG external debt-to-GDP breaches threshold in 2024 and also in 2025 and 2026. - Liquidity indicators (debt service-to-exports and debt service-to-revenue) exhibit breaches for 4 years starting in 2024, largely due to obligations to the Fund. - Debt-carrying capacity assessed as weak; CI = 2.27. - Policy implication: favor grants and concessional borrowing; avoid non-concessional lending that would worsen sustainability. ### PUBLIC FINANCIAL MANAGEMENT, GOVERNANCE, AND CAPACITY DEVELOPMENT - PFM weaknesses identified (PEFA): budget planning, commitment controls, and cash management gaps contributing to extraordinary procedures, under-execution of social spending, and external arrears. - IFMIS and SIM_Ba: - Expedite operationalization of SIM_Ba; authorities committed to systematic use by all Treasury accounting staff by November 2024 (new SB for third review). - Constraints: internet access, scarce IT equipment, and training delays. - Other PFM and institutional actions: - Centralize fees and taxes (menues recettes) into TSA; 2023 mobilization CFAF 2.7 billion out of forecast CFAF 3 billion; 2024 expected CFAF 6 billion. - Cross-verification module of eTax completed April 22, 2024 (SB for second review). - Draft new organic law for the Court of Audit submitted to Cabinet (SB for second review; implemented with delay). - Adopted institutional plan to strengthen ANIF; Anti-Corruption Law passed May 2023; regulations for Asset Declaration Law drafting to be completed by October 2024 (SB for third review). - Capacity development priorities: - Full-time PFM Resident Advisor (RA) sought to provide continuous hands-on support. - AFRITAC Centre assistance complementary to RA. - Statistical capacity: two focal points at ICASEES to work on NSDP and data sharing. ### FINANCING, SAFEGUARDS, AND PROGRAM MONITORING - Financing and access requests: - Authorities request augmentation of access of 5.2 percent of quota (SDR 5.8 million). - Proposed augmentation would bring total access under the program to SDR 147.48 million (132.39 percent of quota). - Ten percent of access to be deposited in an escrow account at the BEAC to supplement the WB’s operation for non-discretionary fiscal expenditures. - Proposed disbursement schedule (selected exact entries): - First disbursement upon program approval April 28, 2023 — SDR 11.30 million — 10.14 - October 30, 2023 — SDR 19.17 million — 17.21 - April 30, 2024 — SDR 18.60 million — 16.70 - April 30, 2026 — SDR 32.00 million — 28.73 - Total — SDR 147.48 million — 132.39 - Note: CAR's quota is SDR 111.4 million. - Safeguards assessment: - 2022 safeguards assessment: BEAC maintained strong governance and external audit arrangements; internal audit and risk management needed strengthening. - Safeguards monitoring mission end-2023: preliminary recommendations include onboarding for new senior management/Board members and enhanced delegation framework. - Monitoring framework and reporting: - Quantitative performance criteria set for end June 2024 (third review), end December 2024 (fourth review), end June 2025 (fifth review). - Indicative targets for end March 2024, end September 2024, end March 2025. - Structural benchmarks set until October 2024. - Reporting deadlines (selected exact requirements): e.g., Table of the government’s monthly cash flow operations reconciled with BEAC: within 10 days of the end of each month; TOFE: within four weeks of the end of each month. ### RISK ASSESSMENT MATRIX — Major risks and mitigation - Intensification of regional conflicts: Relative Likelihood: High; Time Horizon: Short Term; Expected Impact If Realized: High; Policy mitigation: pump price adjustment mechanism; targeted social measures; cooperation with humanitarian agencies. - Commodity price volatility: Relative Likelihood: High; Time Horizon: Short Term; Expected Impact If Realized: High; Policy mitigation: pump price adjustment mechanism; targeted social measures. - Social discontent: Relative Likelihood: High; Time Horizon: Medium; Expected Impact If Realized: High; Policy mitigation: cooperation with international organizations, social programs. - Other significant identified risks: Abrupt global slowdown (Medium likelihood), Monetary policy miscalibration (Medium), Systemic financial instability (Medium), Deepening geoeconomic fragmentation (High), Cyberthreats (Medium), Extreme climate events (Medium), Disorderly energy transition (Medium), Increased insecurity and political instability (High), Setback in reform momentum (High), promulgation of tokenization law risks (Medium). - Mitigations emphasize: fiscal prudency, structural reforms (fuel, revenue administration, PFM), donor engagement, debt management, AML/CFT strengthening, and specific safeguards for tokenization. *Source: EXECUTIVE SUMMARY and selected chapters/excerpts, 1cafea2024001-print-pdf* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Authorities have broadly shown strong commitment to program reforms despite a challenging environment. - Persistent challenges to fuel and electricity supply have undermined economic growth, revenue mobilization, and government liquidity; volatile spending weakened budget credibility. - Public debt increased rapidly last year driven by regional issuances, and the authorities have ambitious borrowing plans for 2024. - Key policy priorities: boost revenue collection—particularly from fuel imports—and strengthen spending management to preserve macroeconomic stability and debt sustainability. - Notable reform actions taken: phased out fuel subsidies; passed the Anti-corruption Law; adopted the Mining Code; migrated to a more advanced software for customs administration; cleaned-up the public payroll (under the World Bank’s operation); reversed harmful features of the Crypto-Assets Law by removing the legal tender and guaranteed convertibility of Bitcoin. ### Recent economic developments and key statistics - Real GDP growth in 2023: 0.7 percent. - Inflation for 2023: revised down from 5.5 percent to 4 percent. - Average monthly domestic revenues in 2023H2 fell by 12.5 percent vis-à-vis 2023H1 (excluding one-off December recoveries). - Government paper subscriptions: average of 96 percent in 2023H2; average tenor rose from 3.3 years in 2023H1 to 4.4 years in 2023H2; peak issuance: 6-year bond in October. - Banking sector: total capital at 18.9 percent of risk-weighted assets at end-2023; short-term liquidity ratio at 146.1 percent; NPL ratio at 16.2 percent. - External position: current account deficit (with grants) narrowed from 12.7 percent of GDP in 2022 to 9 percent of GDP in 2023. - Food insecurity: approximately 2 million people (some 33 percent of CAR's population) experienced acute food insecurity between September 2023 and March 2024, down from 2.7 million between September 2022 and March 2023. - Carbon credits: first transaction of US$400,000 from conversion of the Chinko natural reserve. - Selected indicators from Text Table 1: - GDP at constant prices (% change): 2022: 0.5; 2023: 0.7; 2024 (proj.): 1.4; 2025 (proj.): 2.9; 2026 (proj.): 3.7. - CPI (end-of-period, % change): 2022: 7.6; 2023: 4.0; 2024 (proj.): 5.0; 2025 (proj.): 4.2; 2026 (proj.): 3.5. - Domestic revenue (% of GDP): 2022: 7.8; 2023: 8.3; 2024 (proj.): 9.2; 2025 (proj.): 9.8; 2026 (proj.): 10.5. - Domestic primary expenses (% of GDP): 2022: 12.2; 2023: 12.0; 2024 (proj.): 12.0; 2025 (proj.): 12.0; 2026 (proj.): 12.0. - Domestic primary balance (% of GDP): 2022: -4.4; 2023: -3.7; 2024 (proj.): -2.8; 2025 (proj.): -2.2; 2026 (proj.): -1.5. - Public sector debt (% of GDP): 2022: 51.1; 2023: 57.7; 2024 (proj.): 57.3; 2025 (proj.): 55.4; 2026 (proj.): 50.8. - Balance of payments – Current account (with grants, % of GDP): 2022: -12.7; 2023: -9.0; 2024 (proj.): -8.6; 2025 (proj.): -7.0; 2026 (proj.): -5.0. ### Program performance - Overall assessment: broadly satisfactory given fragilities and uncertainties. - Quantitative performance: - All but one of the December QPCs were met. - Domestic revenues at end-2023: CFAF 132.5 billion (target: CFAF 130 billion). - Domestic primary deficit at end-2023: CFAF 58.3 billion (target: CFAF 64 billion). Measures included delaying goods and services outlays (0.2 percent of GDP) and salary payments for high earners in the public service (0.25 percent of GDP). - Net domestic financing by end-2023: CFAF 55.8 billion (adjusted QPC: CFAF 62.9 billion). - Missed continuous performance criterion (CPC): - Non-accumulation of external arrears was missed; CAR ran arrears in 2023H2 to China, Kuwait, India, Saudi Arabia, Serbia, BADEA, and IFAD due to liquidity pressures and coordination gaps between cash and debt management. - Structural benchmarks (SBs) and indicative targets (ITs): - All but one SB were met; the remaining SB was implemented with a delay. - December IT on ceiling on spending via extraordinary procedures missed: spending via extraordinary procedures was CFAF 23.6 billion (target: CFAF 5 billion). - December IT on social spending missed: social spending at CFAF 10.4 billion (target: CFAF 22 billion). - Implemented SBs include: adoption of the Anti-corruption Law (May 2023); consolidation of quasi-taxes in the fuel price equation; implementation of the cross-verification module of eTax; centralization of fees and taxes collected by line ministries into the TSA; adoption of institutional plan to resource ANIF; submission (with one-month delay) of a new draft organic law for the Court of Audit to Cabinet (May 2024). ### Outlook and risks - Baseline assumptions: - Adherence to the action plan for the fuel market; a strategy to refinance debt maturities; continued resumption in donor support. - Real GDP growth projected to increase from 1.4 percent in 2024 to 3.7 percent in 2026. - Inflation expected to progressively slide towards the CEMAC’s 3 percent convergence criterion. - Primary deficit to narrow from 3.7 percent of GDP last year to below 2 percent by 2026. - Current account deficit to shrink from 9 percent of GDP to 5.2 percent (projection noted in the executive narrative). - Main downside risks (exceptionally high): - Security: deterioration could disrupt activity and donor financing. - Fuel supply: failure to durably solve fuel shortages if the action plan is not implemented. - Revenue mobilization: political commitment required to meet revenue targets. - Rollover risks: adverse investor sentiment or protracted tightening in CEMAC could hinder refinancing of maturities through 2027. - Election slippages: local elections in 2024Q4 and presidential elections in 2025 could cause significant expenditure overruns. - External financing: inability to implement reforms, strengthen PFM, and reinforce governance could hinder grant and highly concessional financing and lead to arrears accumulation. - Fragility warning: given CAR’s extremely fragile situation, adverse shocks could tip the country into a deep crisis with inability to provide basic services or pay wages, leading to domestic and external arrears. ### Policy recommendations and priorities - Revenue mobilization (2024): - Central requirement: adherence to the action plan for the fuel market to improve transparency of fuel price structures, align policy reforms with program goals, enhance stakeholder collaboration, and bolster regulatory enforcement. - Revenues should also benefit from stronger execution of fiscal measures implemented in 2023 and faster tax recoveries. - Spending management: - Implement spending cuts to offset the 2024Q1 overrun without affecting social spending. - Strengthen public financial management to reduce use of extraordinary procedures and improve cash management. - Debt management: - Develop and implement a medium-term debt strategy to address substantial rollover risks. - Governance and donor support: - Foster good governance, anti-corruption efforts, transparency, and financial integrity to catalyze further donor support. - Capacity and Fund engagement: - Authorities are requesting an augmentation of access for 5.2 percent of quota (SDR 5.8 million) to meet additional BoP needs caused by implementation of delayed capital expenditure and to accommodate increased obligations to the Fund last year given limited financing. - Authorities will continue commitment to deposit the share of program disbursements in CAR’s SDR account at the IMF to prefinance 100 percent of the obligations to the Fund for at least 6 months. - Authorities retain capacity to implement policies adequate to correct external imbalances. ### Updated conditionality and benchmarks - Two prior actions (PA) for the second review anchored on the action plan: - First PA (publish and adjust fuel price structures): - (i) publish online the fuel price structures by marketer and import route; - (ii) introduce a new price structure for unlicensed fuel imports; - (iii) modify the tax and quasi-tax components of price structures. - Second PA (level playing field for fuel importers): - ensure all importers: (a) are registered as CAR taxpayers and establish a local office; (b) adopt the new forward looking pricing mechanism; (c) get a license to import fuel solely in CAR; and (d) provide a written commitment to import at least 80 percent of total petroleum products via the river. - New and continuous SBs added: - New continuous SB starting July 25, 2024: new fuel price structures will be published monthly in line with action plan recommendations. - New SB for the third review: operationalization of the SIM_Ba software. - New SB for the fourth review: adoption of a pump price adjustment mechanism. ### Program modalities, mission, and timeline notes - Discussions on the Second Review under the Extended Credit Facility Arrangement took place in Bangui during April 2 – April 12, 2024. - Mission team composition and meetings included high-level government officials (President Touadéra, Prime Minister Moloua, Finance Minister Ndoba, Energy Minister Piri, Economy Minister Filakota), BEAC National Director Chaïbou, development partners, private sector, and IMF staff. - Document date: June 7, 2024. *Source: EXECUTIVE SUMMARY, 1cafea2024001-print-pdf* ### 9. CAR remains at high risk of overall and external debt distress. Public debt is projected to ### 9. CAR remains at high risk of overall and external debt distress. Public debt is projected to ### Overview and fiscal outlook - CAR remains at high risk of overall and external debt distress, with public debt projected to be sustainable but exposed to substantial liquidity and refinancing risks. - Last year, CAR issued CFAF 90 billion (5.6 percent of GDP) in net medium-term debt in the CEMAC market. - Balance of payments’ projections include a financing gap of about 4-5 percent of GDP per year. - Sufficient financing is expected to be mobilized from IFIs and the regional market as reforms continue to take hold. ### Policy discussions (core focus areas) - Increase revenues in 2024. - Cut spending in 2024 to offset the overruns of 2024Q1. - Restore a well-functioning fuel market. - Strengthen public debt management. - Develop medium-term fiscal and governance reforms. ### A. Better anchoring revenue-led fiscal consolidation - The 2024 Budget is aligned with program commitments and aims for a tighter fiscal stance with a 0.9 percent of GDP reduction of the domestic primary deficit. - Revenue collection remained on track in 2024Q1, but weakening performance in 2023Q4 requires corrective actions, notably in the fuel market. - Steadfast implementation of 2023 revenue measures is needed; underperformance stems from administrative challenges. Key revenue measures and estimated yields (Text Table 2) - Fuel revenues: 17.0 (Anchored around the "action plan".) - VAT on transportation: 4.2 (Implemented in 2024 for goods imported from CEMAC countries and consumed in CAR.) - Telecommunication services (TIC-TECH): 6.0 (Implemented in 2023.) - Unregistered importers: 3.4 (Implemented in 2023.) - eTax: 2.0 (Cross-check module implemented in 2024.) - Imported cigarettes: 2.0 (Implemented in 2023.) - Menues recettes: 4.0 (Ongoing reform.) - Exemption reductions: 1.1 (Implemented in 2024.) - Total: 39.7 Targeted corrective actions described - Tax unlicensed fuel imports at par with formal imports, applying all duties and taxes based on the same reference prices as licensed imports plus a 30 percent premium. - Enforce minimum customs declaration values for imported cigarettes through ASYCUDA to correct under-invoicing. - Maintain and share monthly the list of known active importers to optimize application of penalties to unregistered importers. - Focus on recovery of tax arrears currently estimated at about CFAF 8 billion (0.5 percent of GDP), including marketers in fuel, telecommunication operators, cigarettes imports, and forestry sector. Budget and expenditure adjustments - Expenditure carried over from 2023, around CFAF 7 billion, pressures the 2024 deficit and may necessitate a revised budget in 2024Q3 if revenues do not improve. - A revised budget should include permanent cuts in goods and services and non-essential transfers, new revenue measures addressing under-valuation beyond cigarettes, and prioritization of domestically-financed capital projects to avoid pent-up execution. ### B. Transitioning to a new fuel price mechanism system - The subsidy system ended in 2022; regulatory and fiscal uncertainty and unfair competition from unlicensed importers have destabilized supply and reduced fuel revenues from 21 percent of revenues in 2021 to around 10 percent of revenues in 2023. - On December 1, 2023, the government granted exclusive fuel importing rights to a new company; the arrangement led to uncompetitive prices, skewed incentives toward road imports, no safety stocks, and elevated risks of rationing or shortages. Action plan commitments and timelines - Enhance transparency of price structures (prior action): publish fuel price structures by marketer and import route; introduce a new price structure for unlicensed fuel imports; modify tax and quasi-tax components to respect transit and storage regimes. - Level the playing field (prior action): require importers to register as CAR taxpayers, establish a local office, adopt the forward-looking pricing mechanism, obtain import agreements, and commit to import at least 80 percent of total petroleum products via the river; dismantle monopoly to large consumers and enforce sanctions. - Establish forward-looking price structures based on predefined international reference prices, capped margins and transportation costs, and a capped import premium—expected to lead to lower pump prices at current international reference prices. - Publish new price structures monthly from July 25, 2024 (proposed new continuous SB). - Launch an external audit of fuel price cost and margin components in June 2024 (SB for third review). - Adopt a pump price adjustment mechanism by April 2025 (SB for fourth review). - Complementary measures include improvements in infrastructure and stocking capacity. ### C. Navigating public debt management challenges - A proactive debt management strategy is crucial to mitigate high rollover risks, though it has costs. - For the second year in a row, authorities opted for a domestic syndication totaling CFAF 50 billion to rollover most maturities in 2024. - With a medium-term debt strategy (MTDS) still in early stages, rollover risks will remain high through 2027 while debt service increases rapidly. - Recommended measures: investor outreach to issue 4-year instruments or longer; pre-finance bonds maturing in 2025; implement voluntary liability management operations. External arrears and debt coordination - Accumulated external arrears in 2023H2 to BADEA, FIDA, and bilateral creditors (China, India, Kuwait, Serbia, Saudi Arabia) are a priority; part of the recent syndication is earmarked for settlement of those arrears. - Authorities agreed to corrective actions to avoid new external arrears and will seek solutions to legacy external arrears with support from the African Legal Support Facility. - Fully operationalize the public debt coordination and management committee as designated forum to assess borrowing plans. - For the remainder of 2024, borrowing should remain within budget financing needs (around CFAF 90 billion) to be consistent with debt sustainability. - Continue MTDS development with AFRITAC Centre support. ### D. Improving fiscal institutions and governance Public financial management weaknesses - The 2023 PEFA assessment identified widespread PFM gaps: weaknesses in budget planning, commitment controls, and cash management, hindering budget credibility and execution and contributing to extraordinary procedures, under-execution of social spending, and accumulation of external arrears. - Draft law for the Court of Audit submitted to the Cabinet (SB for second review); expedited submission to Parliament would improve oversight. IFMIS and cash-debt coordination - Expedite operationalization of IFMIS, SIM_Ba, to fast-track processes, reduce errors, and improve commitment controls; constraints include internet access, scarce IT equipment, and training delays. - Authorities committed to systematic use of SIM_Ba by all Treasury accounting staff by November 2024 (new SB for third review); AFRITAC Centre will accompany reform. - A joint MCM-FAD TA mission will examine coordination between cash and debt management; back, middle, and front-office functions are not under the same unit, contributing to arrears accumulation. Other medium-term reforms - Treasury Single Account: continue centralizing administrative fees and levies (menues recettes) in TSA; leverage relocated Ministry of Finance accountants and ramp up digitalization with EU support to reduce leakages; enforce administrative and disciplinary sanctions for noncompliant staff. - Customs administration: prioritize procedural optimization and digitalization along Douala/Kribi-Bangui corridor; train on ASYCUDA World by end-2024H1; implement a dry port scanner and transit interconnectivity. - Tax administration: cross-verification module of eTax completed in April 2024 (SB for the second review); progress on electronic VAT invoicing; consider measures to process tax disputes, audit illegal exemptions, and offset undue VAT credits; commit to issuing a ministerial decree outlining minimal taxpayer recognition criteria (SB for the third review). - Forestry industry taxation: revise forestry code consistent with 2017 FAD TA mission with WB support; develop semi-industrial permits and a taxation committee; strengthen document-based controls, address defective VAT credit system, and enhance price structure transparency for exported timber. Anti-corruption, AML/CFT, and tokenization - Anti-corruption: New Anti-Corruption law passed in May 2023; drafting of regulations for the Asset Declaration Law started, to be completed by October 2024 (SB for the third review). - AML/CFT: Implement institutional plan for ANIF to strengthen operational work and address issues from CAR’s Mutual Evaluation Report of GABAC adopted in September 2023. - Tokenization Law: mitigation strategy being deployed though law not yet implemented; 2024 Budget plans no fiscal engagements for Sango projects; investor appetite vanished after Sango declared unconstitutional on August 29, 2022. Ongoing work to assess fiscal risks from tokenization (SB for the third review) will be supported by IMF TA; BEAC feedback may warrant additional reforms. ### Program modalities, financing, and safeguards - Authorities request a waiver for one missed CPC on non-accumulation of external arrears; breach due to liquidity pressures and cash management weaknesses. - Corrective actions: joint MCM/FAD mission and SB on full operationalization of SIM_Ba; discussions with WB to finance re-activation of debt management software; prioritize a PFM Resident Advisor in-country; authorities’ ownership of revenue measures and fuel action plan to reduce liquidity tensions. Prior actions and indicative calendar - Two new prior actions for the second review: increase transparency of fuel price structures and level the playing field between importers and marketers. - New continuous SB starting July 25, 2024 to publish monthly fuel price structures. - New SB for the third review on full operationalization of SIM_Ba at the Treasury. - New SB for the fourth review on adoption of a pump price adjustment mechanism. Financing and access requests - Authorities request an augmentation of access of 5.2 percent of quota (SDR 5.8 million) to meet additional BoP needs from delayed 2023 capital expenditure decisions. - Proposed augmentation would bring total access under the program to SDR 147.48 million (132.39 percent of quota). - Capacity to repay the Fund remains weak and only becomes adequate after successful reform implementation; downside risks include slower reforms, natural disasters, security deterioration, and persistent revenue mobilization difficulties. - Ten percent of access will be deposited in an escrow account at the BEAC to supplement the WB’s operation for non-discretionary fiscal expenditures. - IMF disbursements will complement the WB’s operation and benefit the Ministry of Finance and the Ministry of Economy; verification processes and safeguarded disbursement arrangements were used and an external audit found above 99 percent compliance on salary disbursements under the WB’s operation. Regional and multilateral financing assurances - BEAC met its end-December 2023 Net Foreign Assets (NFA) target with a margin of about EUR 1 billion and is expected to provide updated policy assurances for end-June 2024 and end-December 2024 during the upcoming CEMAC review mission; regional assurances on NFA are critical to CAR’s program success. - Program funding is considered fully financed with firm commitments from the WB and AfDB for the next 12 months and good prospects thereafter: WB anticipated to disburse CFAF 11.1 billion during the second half of this year; AfDB disbursed CFAF 6 billion first tranche last January with a similar disbursement anticipated later in 2024. - Financing does not assume resumption of bilateral budget support. *International Monetary Fund — Chapter 9 content from the provided PDF* ### 31. Safeguards assessment. The 2022 safeguards assessment found that BEAC maintained ### 31. Safeguards assessment. ### Safeguards findings and follow-up - The 2022 safeguards assessment found that BEAC maintained strong governance and external audit arrangements while internal audit and risk management practices needed strengthening. - A safeguards monitoring mission took place at end-2023 to follow up on: - the outstanding 2022 safeguards recommendations, - an external quality assessment of internal audit, and - the current implementation of the governance framework. - The mission’s preliminary recommendations include: - onboarding for new members of senior management and the Board, and - an enhanced delegation framework for executive decision-making. ### External arrears and payment status - CAR accumulated arrears in 2023H2 mainly due to liquidity challenges, totaling about CFAF 1.8 billion. - Bilateral external arrears (to China, Saudi Arabia, India, Kuwait, and Serbia) since program approval stand at about CFAF 2.6 billion. - External arrears to multilaterals, i.e., FIDA and BADEA, stand at about CFAF 236 million. - CAR also has legacy arrears that pre-date the Completion Point of the HIPC initiative with some non-Paris Club bilateral creditors (i.e., Argentina, Taiwan, Province of China, Libya, Equatoria Guinea, and Iraq). - Arrears to Angola (amounting to about CFAF 1.8 billion) are a subject of renegotiation, with the authorities continuing to seek to resolve them. - In accordance with the TMU, these external payment arrears are carved-out from the CPC. - For both recent and legacy bilateral arrears, the authorities are in contact with creditors to find a resolution. - All official bilateral creditors to which there are outstanding external arrears have consented to Fund financing notwithstanding these arrears. - On multilaterals: - arrears to FIDA have been cleared, and - staff assesses the authorities have a credible plan in place to clear the arrears to OFID and BADEA as required by the policy of non-toleration of arrears (NTP). ### PRGS and national strategy - The authorities request an extension of the deadline for issuance of the Poverty Reduction and Growth Strategy (PRGS) to the third review. - CAR’s National Development Strategy (RCPCA) for 2017-2021 expired in December 2023. - A follow-up Plan for 2024-2028 is being finalized (MEFP ¶34). - Due to limited institutional capacity the PRGS could not be finished for the completion of the second review. ### Capacity development priorities - A full-time Resident Advisor (RA) on PFM is crucial to provide continuous, uninterrupted support, and hands-on training in the field consistent with the Fund’s FCS-strategy. - Assistance provided through AFRITAC Centre will be complementary to the RA to address major PFM weaknesses and capacity development needs. - Funding is being sought for a full-time RA to meet this urgent demand emanating from the authorities. - Enhancing statistical capacity remains a priority: - Weaknesses exist in data quality, particularly in external sector statistics, and long delays in external debt statistics due to poor inter-agency coordination. - The authorities have appointed two focal points at the national statistical office to work with the Fund on their National Summary Data Page (NSDP) aimed at improving data sharing. ### Staff appraisal: growth, program performance, and fiscal policy - Growth prospects and structural support: - A growth pickup rests on improvements in fuel and electricity supply. - A steadfast implementation of the action plan should support a successful river campaign this year and some stabilization in electricity provision. - Over the medium term, a well-established fuel market, along with governance reform, should catalyze donor support and further underpin growth. - Program performance: - Performance under the program has been broadly satisfactory while the authorities continue to show strong ownership of reforms. - All but one of the QPCs were met. The continuous QPC on non-accumulation of external arrears was missed. - Two indicative targets were missed as well. - All but one SBs were met. The remaining SB was eventually implemented with a delay. - Revenue and fiscal implications: - Achieving program targets hinges on strong implementation of revenue measures. - Preliminary data show a relatively good revenue performance for 2024Q1. - Spending carry-over from December 2023 put pressure on the 2024 deficit targets and would likely require spending cuts in a revised budget. - Digitalizing revenue administration and operationalizing new customs offices present an upside in revenue collection that is difficult to estimate. - Medium-term fiscal stance and debt sustainability: - Over the medium term, a tight fiscal stance remains necessary to safeguard debt sustainability and improve capacity to repay. - The revenue-led fiscal consolidation strategy is adequate given the country’s tax potential. - Strong political commitment is crucial to improve revenue collection. - CAR should continue to favor grants and highly concessional resources to fund social spending (MEFP ¶33) and infrastructure, as debt service costs are progressively crowding out priority spending. - The authorities should consult closely with the Fund when new financing opportunities arise. - A MTDS will help mitigate rollover risks. - Public financial management support and governance: - The appointment of a full time PFM Resident Advisor would help capitalize on a strong reform momentum and sustain program performance. - The authorities are implementing ambitious PFM reforms in line with regional directives. - Continuous, uninterrupted, and hands-on in-person support from an RA would be greatly beneficial in continuing progress and sustaining what has been achieved. - Operationalizing SIM_Ba will support budget management, fiscal transparency, and reporting. - Efforts to improve governance, strengthen financial integrity, and fight corruption should be sustained. - Staff commend the authorities for: - the adoption of the Anti-Corruption law, - the submission to Cabinet of a new draft organic law for the Court of Audit, and - the adoption of a plan to strengthen ANIF. - Pressing ahead with governance reforms and empowering the relevant institutions will complement PFM reforms. - External financing and donors: - The authorities are urged to expedite efforts to maintain disbursements from the World Bank and the AfDB. - This includes meeting the requirements established by the World Bank for financing certain non-discretionary fiscal expenditures in critical service delivery areas and concurrently the IMF’s budget support for the same purpose. *Source: 1cafea2024001-print-pdf - 31. Safeguards assessment.* ### 43. Based on CAR’s performance under the program, the implementation of the end-June ### 1cafea2024001-print-pdf - 43. Based on CAR’s performance under the program, the implementation of the end-June ### Program assessment and IMF decisions - Staff supports the request of waiver for non-observance of CPC based on CAR’s performance under the program, the implementation of the end-June 2023 regional policy assurances, commitment to prudent macroeconomic policies and structural reform agenda, and rising BoP needs linked to critically needed infrastructure development. - Staff supports: - the request for extension of the Poverty Reduction and Growth Strategy to the third review; - the request for augmentation of access; - the completion of the financing assurances review; - the completion of the second review under the ECF arrangement. - Completion of the third review is proposed to be conditional on the implementation of critical policy assurances at the union level, as established in the upcoming June 2024 union-wide background paper. - The authorities understand the importance of closely engaging with creditors to ensure obligations are current. ### Recent economic developments (highlights) - Growth constraints in 2023: Limited fuel imports and frequent electricity outages hampered economic growth in 2023. - Inflation: Inflation softened in 2023Q3 due to lower fuel prices and better food supply. - Public debt and BoP: Public debt has increased reflecting mounting debt issuances in the CEMAC market. The current account narrowed in 2023 as the terms of trade improved and budget support gradually resumed. Key observed indicators (selected raw figures as reported) - CPI (annual average): 4.3 (2021), 5.6 (2022), 6.5 (2023) [and end-of-period CPI: 2.7 (2021), 7.6 (2022), 5.5 (2023)] - GDP growth (annual percent change): 1.0 (2019), 0.5 (2020), 1.0 (2021), 0.7 (2022), 1.5 (2023) — (Table shows series including projections) - Current account (percent of GDP): -11.1 (2021), -12.7 (2022), -8.6 (2023) - Public debt (percent of GDP): 48.5 (2021), 51.1 (2022), 52.9 (2023) ### Medium-term prospects and projections (2019–2029, summary) - Growth: Growth should accelerate over the medium-term if fuel shortages are resolved while donor support and private investment reignite. - Real GDP (percent change): projections in table indicate continued recovery through 2029 (series shown in Figure 2 and Table 1). - Inflation: Inflation would subside owing to more stable energy prices, transportation costs, and food supply. - CPI average (percent change) projected to decline toward 3.0 by 2029 (Table 1 entries: CPI annual average 4.3, 5.6, 6.5, ... projected 3.0). - Fiscal adjustment and revenue mobilization: - Government revenue (percent of GDP) projected to increase over the medium term with fiscal structural reforms. - Government expenditure reallocation to favor public goods and services is anticipated. - External position: Current account deficit projected to narrow with fiscal efforts and increased savings/investment dynamics. Selected medium-term numeric projections (from Tables) - Total revenue (including grants, percent of GDP): 13.7 (2021), 12.3 (2022), 14.7 (2023), projected 14.4 (2024) and thereafter in Table 2b. - Domestic revenue (percent of GDP): 8.8 (2021), 7.8 (2022), 8.3 (2023), projected 8.3 (2024) and increasing thereafter to 11.5 (2029). - Total expenditure (percent of GDP): 19.7 (2021), 17.6 (2022), 18.0 (2023), projected 17.9 (2024). - Overall balance (including grants, percent of GDP): -6.0 (2021), -5.3 (2022), -3.3 (2023), projected -3.6 (2024) and improving toward 0.3 (2027) per Table 1 projections. - Public sector debt (percent of GDP): 48.5 (2021), 51.1 (2022), 52.9 (2023), 57.7 (2024), then 53.3 (2025), 57.3 (2026) in Table 1 series. ### Fiscal and debt outlook (selected figures) - Central government financial operations (CFAF billion, Table 2a highlights): - Revenue: 195.8 (2021), 188.2 (2022), 242.4 (2023), 229.1 (ECF 1st Review act.), projected 248.3 (2025). - Domestic revenue: 125.9 (2021), 119.0 (2022), 137.4 (2023), projected 158.0 (2025). - Grants: 69.8 (2021), 69.2 (2022), 105.0 (2023), projected 96.5 (ECF 1st Review act.), 90.3 (2025). - Total expenditure (cash basis): 282.0 (2021), 270.0 (2022), 297.3 (2023), 285.7 (ECF 1st Review act.), projected 302.9 (2025). - Capital expenditure (CFAF billion): 106.3 (2021), 90.7 (2022), 100.0 (2023), projected 100.8 (2025). - Financing and arrears: - Overall balance excluding grants (CFAF billion): -156.1 (2021), -151.1 (2022), -159.9 (2023), projected -145.0 (2025). - Overall balance including grants improved from -86.3 (2021) to -54.9 (2023). - Net change in arrears: -11.4 (2021) and 0.0 in subsequent reported periods. ### External sector, balance of payments, and financing - Current account (CFAF billion): -158.7 (2021), -195.1 (2022), -142.3 (2023), projected -145.9 (2025) and narrower thereafter. - Exports f.o.b. (CFAF billion): 91.4 (2021), 104.9 (2022), 120.2 (2023), projected 131.3 (2025). - Diamonds: 6.9 (2021), 9.6 (2022), 13.8 (2023), projected 19.7 (2025). - Wood products: 48.3 (2021), 47.8 (2022), 54.6 (2023), projected 66.6 (2025). - Imports f.o.b. (CFAF billion): -313.3 (2021), -362.0 (2022), -356.3 (2023), projected -366.8 (2025). - Petroleum products (CFAF billion): -88.0 (2021), -107.3 (2022), -84.5 (2023), projected -85.8 (2025). - Financial account (CFAF billion): 89.7 (2021), 6.2 (2022), 19.0 (2023), projected 19.4 (2025). - Direct investment: 3.0 (2021), 15.0 (2022), 23.5 (2023), projected 24.5 (2025). - Project disbursements (public): 8.8 (2021), 7.5 (2022), 7.0 (2023), projected 10.0 (2025). - Overall balance (CFAF billion): 0.8 (2021), -119.6 (2022), -42.3 (2023), projected -53.2 (2025), then improving in later projections. ### Monetary and banking sector (selected figures) - Net foreign assets (CFAF billion): 72.0 (2021), 13.9 (2022), -43.5 (2023), 71.5 (ECF 1st Review act.), -86.2 (2025) in Table 3 sequences. - Broad money (annual percent change): 14.6 (2021), 2.5 (2022), 3.6 (2023), 7.3 (ECF 1st Review act.), 2.9 (2025). - Credit to the economy (annual percent change): -2.2 (2021), 28.2 (2022), 13.0 (2023), 0.4 (ECF 1st Review act.), 7.4 (2025). - Money and quasi-money (CFAF billion): 477.1 (2021), 488.9 (2022), 506.7 (2023), 524.4 (ECF 1st Review act.), projected 662.5 (2028). - Credit to central government (net, CFAF billion): 348.3 (2021), 433.0 (2022), 488.2 (2023), 484.9 (ECF 1st Review act.), 539.5 (2025). ### Capacity to repay context (Figure 3 summary) - Capacity-to-repay indicators are presented relative to UCT arrangements for PRGT countries, with CAR’s indicators shown versus medians and interquartile ranges from 2010–2020. - Figures include series expressed as: - Percent of gross international reserves, - Percent of GDP, - Percent of PPG external debt, - Percent of revenue excl. grants, - Percent of exports of goods and services, - Percent of PPG external debt service, - Percent of gross international reserves for Total Fund Credit Outstanding and Total Debt Service to the Fund peaks. ### Policy implications and conditionality - Staff conditions completion of the third review on implementation of critical union-level policy assurances detailed in the June 2024 union-wide background paper. - Emphasis on authorities closely engaging with creditors to ensure obligations are current. - Program support reflects a mix of: (i) continued fiscal structural reforms to boost domestic revenue; (ii) measures to stabilize energy/fuel supply to sustain growth and reduce inflation; and (iii) mobilization of donor and private investment to finance critical infrastructure while managing public debt dynamics. *Italic: Source — CAR authorities and IMF staff estimates and projections as presented in the provided content unit.* ### 1. Total financing requirements278.383.2153.9145.7147.7154.2190.7211.2225.6243.1248.6 ### 1cafea2024001-print-pdf - 1. Total financing requirements278.383.2153.9145.7147.7154.2190.7211.2225.6243.1248.6 ### Total financing requirements - Total financing requirements: 278.383.2153.9145.7147.7154.2190.7211.2225.6243.1248.6 - Current account deficit (excl. budget support): 158.7195.1166.3162.0163.0171.0164.8159.7149.2139.6117.9 - Debt amortization: 5.66.36.56.510.110.413.413.713.913.110.5 - Repayment to the Fund: 4.61.714.114.220.621.127.130.529.321.719.2 - Change in other reserves: 109.3-119.9-33.0-37.0-45.9-48.3-14.57.433.268.7101.0 ### Total available financing - Total available financing: 165.281.7106.5103.9102.7101.1115.7111.3132.1141.1146.6 - Capital transfers: 69.869.281.078.473.271.683.483.483.581.979.9 - Foreign direct investment (net): 3.015.023.523.524.524.525.528.334.640.245.3 - Portfolio investment (net): 0.00.00.00.00.00.00.01.01.01.01.0 - Debt financing: 8.87.57.07.010.010.011.88.618.023.025.4 - Public Sector: 8.87.57.07.010.010.011.88.618.023.025.4 - SDR allocation: 88.50.00.00.00.00.00.00.00.00.00.0 - Other net capital inflows: -5.0-10.0-5.0-5.0-5.0-5.0-5.0-10.0-5.0-5.0-5.0 ### Financing gap - Financing gap: 113.11.547.441.845.053.175.099.893.6102.0102.0 ### Expected sources of financing - Expected sources of financing: 0.00.024.018.117.123.436.675.095.0103.0103.0 - of which: Budget support (grants)1: 0.00.024.018.117.123.436.660.065.073.023.0 - of which: Budget support (loans)2: 0.00.00.00.00.00.00.015.030.030.080.0 ### Residual financing gap and IMF/other instruments - Residual financing gap: 113.11.523.423.727.929.738.424.8-1.4-1.0-1.0 - ECF arrangement: 18.80.024.524.829.030.938.826.30.00.00.0 - RCF: 0.00.00.00.00.00.00.00.00.00.0 - CCRT3: 3.52.20.00.00.00.00.00.00.00.0 - G20 DSSI4: 2.2-0.7-1.10.0-1.1-1.1-0.4-0.4-0.40.00.0 - Unidentified financing: 0.00.00.00.00.00.00.00.00.00.0 ### Financial soundness indicators (selected, 2016–2023) - Capital Adequacy - Total bank regulatory capital to risk-weighted assets1: 32.034.3 28.530.323.921.023.518.9 - Total capital (net worth) to assets: 16.117.715.115.913.813.914.011.1 - Asset Quality - Non-performing loans to total loans: 26.225.117.616.117.513.914.516.2 - Non-performing loans net of provision to capital: 24.28.26.214.612.910.712.8.... - Earnings and Profitability - Net income to average assets (ROA): 0.20.71.71.70.01.11.50.6 - Net income to average capital (ROE)2: 0.33.0 6.97.60.16.28.33.8 - Non interest expense to gross income: 81.385.290.578.971.582.2........ - Liquidity - Liquid assets to total assets: 31.930.729.926.332.226.928.325.7 - Liquid assets to short-term liabilities: 219.6227.4198.6165.8202.0162.2151.8146.1 ### Proposed access and phasing under the ECF arrangement (Includes Augmentation) - Disbursement schedule (Date — Millions of SDR — Percent of quota) - First disbursement upon program approval April 28, 2023 — SDR 11.30 million — 10.14 - October 30, 2023 — SDR 19.17 million — 17.21 - April 30, 2024 — SDR 18.60 million — 16.70 - October 30, 2024 — SDR 19.15 million — 17.19 - April 30, 2025 — SDR 24.07 million — 21.61 - October 30, 2025 — SDR 23.19 million — 20.81 - April 30, 2026 — SDR 32.00 million — 28.73 - Total — SDR 147.48 million — 132.39 - Note: CAR's quota is SDR 111.4 million ### Quantitative performance criteria and indicative targets (selected) - Net domestic financing of the government (ceiling, cumulative flows for the year): 11.029.037.2 Not met; 28.046.062.5 Not met; 57.062.955.8 Met; 18.030.030.040.040.055.055.015.017.0 - Domestic government revenue (floor, cumulative for the year)1: 62.0--67.4 Met; 96.0--96.8 Met; 130.0--132.5 Met; 34.075.075.0115.0115.0155.0155.039.080.0 - Domestic primary fiscal balance (floor, cumulative for the year)2: -24.0---26.5 Not met; -35.0---51.5 Not met; -64.0---58.3 Met; -13.0-22.0-22.0-33.0-33.0-50.0-50.0-10.0-17.0 - Continuous performance criteria: New external nonconcessional debt contracted or guaranteed by the Government (ceiling, cumulative) 0.0--0.0 Met; Disbursement of external nonconcessional debt (ceiling, cumulative) 0.0--0.0 Met; Non accumulation of new external payments arrears by the government (ceiling, cumulative) 0.0--1.1 5 Not Met; 0.0--1.8 Not Met; 0.0--2.9 Not Met - Indicative targets: Social spending (floor, cumulative for the year)6: 8.0--4.5 Not met; 17.0--8.1 Not Met; 22.0--10.4 Not Met; 4.08.08.017.017.022.022.04.08.0 - Memorandum items: Budget support 18.0--0.0; 18.0--0.0; 24.0--0.0; 18.10.06.36.011.112.317.123.40.015.0 ### Prior actions and structural benchmarks (selected) - Fuel sector transparency and market efficiency: - Ensure importers depositing at SOCASP follow Decree n⁰12.019 and Decree n⁰18.295 operating rules, including registration as CAR taxpayers, local office, new forward looking pricing mechanism, import license, and written commitment to import at least 80 percent via the river — Improve transparency and efficiency of the fuel market — Five days before the board date for the second review — Proposed, in progress - Consolidate all quasi-taxes into a single quasi-tax within the fuel price equation — Improve transparency and efficiency in the fuel market — SB second review (April 2024) — Met - Conduct an audit of fuel procurement costs and adapt price structure based on findings — SB third review (October 2024) — In progress - Adopt a quarterly pump price adjustment mechanism through a ministerial decree with a corridor — SB fourth review (April 2025) — Proposed - Continuous requirement from July 25, 2024 to issue monthly fuel price structures on the 25th to be applied next month — Proposed, in progress - Revenue and governance measures: - Transfer to the TSA all funds collected directly by ministries in exchange for services — Improve revenue collection — SB second review (April 2024) — Met - Operationalize cross-verification module of the new DGID IT system and interconnection with customs (Sydonia World) — Improve transparency and revenue collection — SB second review (April 2024) — Met - Adopt anti-corruption law submitted to parliament on February 4, 2022 — Improve transparency and revenue collection — SB second review (April 2024) — Met - Submit draft new organic law regulating Court of Audit to ensure financial and operational independence — Improve accountability and governance — SB second review (April 2024) — Unmet (implemented with a delay) - Adopt detailed institutional plan to strengthen ANIF — Improve financial integrity and transparency — SB second review (April 2024) — Met - Prepare a fiscal risk statement on the Sango project for Cabinet — Improve fiscal resiliency — SB third review (October 2024) — In progress - Operationalize asset declaration law via Cabinet regulation with timeline by end-2025, monetary threshold of at least 50 million CFAF, and asset declaration forms — Improve transparency and governance — SB third review (October 2024) — In progress - Make effective the systematic use of SIM_Ba software by Treasury accounting staff with IT equipment and training — Improve budget management and transparency — SB third review (November 2024) — Proposed ### External borrowing program (selected) - PPG external debt contracted or guaranteed - Volume of new debt, US million1/: 16.47.5 - Present value of new debt, US million1/: 16.47.5 - Sources of debt financing - Concessional debt, of which2/: 16.47.5 - Multilateral debt: 7.42.8 - Bilateral debt: 9.04.8 - Non-concessional debt, of which2/: 0.00.0 - Semi-concessional debt3/: 0.00.0 - Commercial terms4/: 0.00.0 - Uses of debt financing: Infrastructure and Budget financing — 16.4 and 7.5 - Memorandum indicative projections: Year 2: 19.46.1; Year 3: 38.810.2 ### Indicators of capacity to repay the IMF (2023–2033) (selected) - IMF obligations based on existing credit (SDR millions) - Principal: 17.525.832.937.135.726.423.414.88.56.15.0 - Charges and interest: 5.56.46.56.56.56.56.56.56.56.56.5 - IMF obligations based on existing and prospective credit (SDR millions) - Principal: 17.525.832.937.135.726.425.324.828.729.528.4 - Charges and interest: 5.56.46.56.56.56.56.56.56.56.56.5 - IMF obligations based on existing and prospective credit (CFA billions) - Principal: 14.221.127.130.529.421.720.820.423.624.323.4 - Charges and interest: 3.33.93.93.93.93.93.93.93.93.93.9 - Outstanding IMF Credit - SDR Millions: 215.6227.6241.9236.8201.2174.8149.5124.796.066.638.2 - CFAF Billions: 175.7186.3199.2195.0165.6143.9123.1102.779.154.831.4 - Ratios - Percent of government revenue: 132.5117.9110.593.671.355.144.134.024.916.38.8 - Percent of exports of goods and services: 74.473.669.161.446.235.326.620.914.89.75.6 - Percent of debt service: 431.3367.7331.6383.6274.5315.0285.5215.6156.3101.754.8 - Percent of GDP: 11.010.910.89.87.86.35.13.92.91.91.0 - Percent of quota: 193.5204.3217.1212.6180.6156.9134.2112.086.259.734.3 - Net use of IMF credit (SDR millions) - Disbursements: 30.537.847.332.00.00.00.00.00.00.00.0 - Repayments and repurchases: 23.032.139.443.542.132.831.731.335.136.034.8 - Memorandum items (selected) - Nominal GDP (billions of CFA francs): 1594.81714.51842.51983.52125.02268.52419.82620.02771.22931.43100.9 - Exports of goods and services (billions of CFA francs): 236.1253.2288.1317.7358.7407.4463.2490.6535.6564.2566.0 - Government revenue (billions of CFA francs): 132.5158.0180.3208.3232.2261.1279.0302.2317.7336.0355.4 - Debt service (billions of CFA francs): 40.750.760.150.860.345.743.147.650.653.957.4 - IMF Quota (SDR millions): 111.4111.4111.4111.4111.4111.4111.4111.4111.4111.4 ### Enhanced safeguards and capacity to repay (summary) - Assessment: Capacity to repay the Fund remains weak and becomes adequate only after successful implementation of program reforms expected to reduce program and financing risks. - Exposure and risks: - At end-2023, multilateral debt was 55 percent of total external public debt; IMF debt represented 60 percent of total multilateral debt and the World Bank 26 percent. - Pre-HIPC arrears represent 25 percent of the total stock of external debt. - With the proposed ECF augmentation, total Fund credit outstanding will increase slightly as a share of external debt to GDP during the program, then gradually decline in the medium term. - Repayments to the Fund are projected to rise, peaking in 2026 at around SDR 37 million (about 11 percent of exports of goods and services, and around 18 percent of revenue excluding grants). - Policy objective: Reduce debt vulnerabilities through fiscal adjustments and limits on non-concessional debt; downward path of debt burden indicators projected over the program as reforms take hold. *Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1cafea2024001-print-pdf.pdf* ### 2. Downside risks to the capacity to repay the Fund include a slower than expected pace ### 2. Downside risks to the capacity to repay the Fund include a slower than expected pace ### Downside risks and mitigating factors - Downside risks identified: slower than expected pace of reforms, natural disasters, deterioration of security situation, and difficulties with domestic revenue mobilization. - Mitigating factors cited by the authorities: strong collaboration with the Fund, strong commitment to the program objectives, and several other factors outlined in the program request documents. ### Risk Assessment Matrix — major conjunctural and structural risks - Intensification of regional conflicts - Relative Likelihood: High - Time Horizon: Short Term - Expected Impact If Realized: High - Key channels: disruption of trade (energy, food, tourism, supply chains), remittances, FDI and financial flows, payment systems; increase in refugee flows. - Policy mitigation: application of the pump price adjustment mechanism; introduce targeted measures (e.g., expanding the social safety net); intensify cooperation with humanitarian agencies, including the WFP. - Commodity price volatility - Relative Likelihood: High - Time Horizon: Short Term - Expected Impact If Realized: High - Key channels: higher energy prices stoke inflation and add fiscal pressures due to fixed pump prices. - Policy mitigation: application of the pump price adjustment mechanism; targeted social measures; intensify cooperation with humanitarian agencies, including the WFP. - Abrupt global slowdown (China, Europe, U.S. scenarios noted) - Relative Likelihood: Medium - Time Horizon: Medium - Expected Impact If Realized: Medium - Key channels: lower demand, slower remittances, constrained financial flows. - Policy mitigation: continue reforms in the fuel sector; improve revenue mobilization; take advantage of the regional market to increase trade and investment. - Monetary policy miscalibration - Relative Likelihood: Medium - Time Horizon: Short to Medium Term - Expected Impact If Realized: Medium - Policy mitigation: fiscal prudency; active engagement with bondholders to curb borrowing costs and secure longer-term debt maturities. - Systemic financial instability - Relative Likelihood: Medium - Time Horizon: Medium - Expected Impact If Realized: Medium - Policy mitigation: fiscal prudency; engagement with bondholders; regular communication with COBAC to monitor banking system health and financing capacity. - Sovereign debt distress - Relative Likelihood: Medium - Time Horizon: Medium - Expected Impact If Realized: Medium - Social discontent - Relative Likelihood: High - Time Horizon: Medium - Expected Impact If Realized: High - Key channels: high inflation, real income loss, conflict spillovers, worsening inequality, disputed elections. - Policy mitigation: continued cooperation with international organizations to support social programs; monitor social sentiments and provide solutions to ease tensions. - Deepening geoeconomic fragmentation - Relative Likelihood: High - Time Horizon: Short to Medium Term - Expected Impact If Realized: High - Policy mitigation: active engagement with development partners on development financing, including budget support. - Cyberthreats - Relative Likelihood: Medium - Time Horizon: Medium - Expected Impact If Realized: Medium - Policy mitigation: mitigate risks related to all CAR’s crypto assets projects in collaboration with CEMAC monetary and regulatory authorities. - Extreme climate events - Relative Likelihood: Medium - Time Horizon: Medium - Expected Impact If Realized: High - Policy mitigation: deepen engagement with development partners to strengthen infrastructure against climate shocks and promote economic diversification; continue fiscal prudency to allow rapid reaction when climate events occur. - Disorderly energy transition - Relative Likelihood: Medium - Time Horizon: Medium - Expected Impact If Realized: Medium - Increased insecurity and political instability (regional and domestic) - Relative Likelihood: High - Expected Impact If Realized: High - Policy mitigation: maintain dialogue with relevant stakeholders; prepare a budget contingency plan. - Setback in fiscal and structural reform momentum - Relative Likelihood: High - Expected Impact If Realized: High - Policy mitigation: accelerate structural reforms; ensure prudent budgetary management; put in place social programs for vulnerable groups. - Promulgation of the law on tokenization of CAR’s natural resources - Relative Likelihood: Medium - Time Horizon: Short to Medium Term - Expected Impact If Realized: High - Key risk: without good safeguards, could limit ability to address BOP problems. - Policy mitigation: ringfence crypto-related activities; strengthen AML/CFT controls to vet investors in the SANGO platform. ### Program status, recent macro developments, and authorities’ requests (from Letter of Intent) - Macroeconomic developments and financing - Domestic revenues are recovering. - Budget financing conditions improved with resumption of disbursements from the World Bank and the African Development Bank (AfDB) and a strong rebound in regional demand for sovereign securities. - Short-term domestic-refinancing risks addressed through a recent successful syndication. - Inflation is moderating. - GDP growth is estimated at 0.7 percent in 2023. - Program implementation and performance - All but one of the quantitative performance criteria were met. - One of three continuous performance criteria (CPC) was not met; external arrears were run last year due to deficiencies in cash and debt management. - Indicative targets on social spending and spending through extraordinary procedures were missed. - All structural reforms envisaged for the second review have been implemented. - Requests to the IMF - Request completion of the second review under the Extended Credit Facility to make available an amount equivalent to SDR 18.6 million and completion of the financing assurances review. - Request an augmentation of access for 5.2 percent of quota (SDR 5.8 million). - Request a waiver for non-observance of the continuous performance criterion on non-accumulation of external arrears, conditional on corrective actions including: - (i) improve coordination between the Debt Unit and the Treasury Directorate with IMF technical assistance; - (ii) operationalize the systematic use of the SIM_Ba software to improve budget execution (new structural benchmark); - (iii) deploy an in-country PFM Resident Advisor to provide hands-on support; - (iv) resolve legacy external arrears under the recently approved African Legal Support Facility. - Intended use of IMF financing - Approximately ninety percent of the proposed access will be paid directly into CAR’s SDR account with the SDR Department to cover obligations to the Fund between 2023 and 2026. - The remainder will be paid into the dedicated BEAC currency account to replenish a special escrow account at BEAC, to preserve essential social services and complement the World Bank operation. - The government states it has put in place a robust fiduciary management system. ### Policy commitments, reforms, and capacity-building measures - Ongoing modernization of tax administration: rollout of new IT systems in all three branches—ASYCUDA World at Customs, eTax at Domestic taxes, and Pata polélé at the Treasury; domestic tax-customs linkage completed. - New framework for management of nontax revenues initiated; noted need for strengthening. - Strengthening public financial accountability: review of a new organic law to give the Court of Audit financial and institutional independence; recruitment and training of a new cohort of judges; donor support to operationalize the Court once law is adopted. - Commitment to apply the action plan for the fuel market developed with IMF staff to bolster revenue collection and reduce liquidity pressures. - Plans to materially reinforce public financial management and budget transparency. - Commitment to consult the IMF in advance of policy revisions in the MEFP and to provide all data and information necessary to assess policies and measures in the TMU. - Intention to publish the IMF staff report, the Letter of Intent, the MEFP, and the TMU after Executive Board completion of the second review. ### MEFP — Background points (Attachment I) - CAR continues to face multiple crises: internal and external security, political, economic, and financing risks. - Fuel market disruptions intensified during the second half of 2023 despite a downward adjustment in pump prices; energy supply remains challenging despite investments. - Economic growth and revenue collection have remained subdued, limiting support to vital social sectors. - Public debt management remains a major challenge amid high rollover risks. - Government priorities: improve domestic revenue collection, fight corruption, strengthen public finance management and transparency, strengthen the Court of Audit and the Financial Intelligence Unit (ANIF) to catalyze donor support and attract investments. - Need to step-up provision of public services (social initiatives, basic infrastructure including electricity) amid narrow fiscal space; security improvements in most urban areas increased demand for social protection and infrastructure. *Source: 1cafea2024001-print-pdf (IMF).* ### 4. In this difficult macroeconomic context, we need to regain fiscal space to continue ### 4. In this difficult macroeconomic context, we need to regain fiscal space to continue performing the vital functions of the State ### A. Key policy stance and capacity needs - Capacity building and technical assistance, including through a resident advisor for public financial management, remain crucial (¶39). - Commitment to ensuring the utmost transparency in macroeconomic management to reassure development partners. - Maintaining collaboration with the international community is essential to support the country's reform and macroeconomic stabilization efforts. ### B. Recent macroeconomic developments - Economic growth and government revenue were reduced by persistent disruptions in fuel and electricity supply, and the sluggish economy fostered the emergence of payment arrears, reducing revenues and increasing pressures on government liquidity. - Regained access to the regional debt market and a gradual resumption of budget support helped manage liquidity pressures. - Real GDP growth in 2023: 0.7 percent. - Inflation: IMF staff revised estimates down from 5.5 percent to 4 percent due to lower fuel prices at the pump. - Domestic revenues at end-December 2023: CFAF 132.5 billion (target CFAF 130 billion under the ECF arrangement). Performance partly due to collection of previous tax arrears from a commercial bank in late December. - Domestic primary deficit at end-December 2023: CFAF 58.3 billion (target CFAF 64 billion). Actions included deferrals in spending on goods and services and in the payment of high public service salaries. - Government’s net domestic financing maintained at CFAF 55.8 billion (below adjusted target of CFAF 62.9 billion). - Regional public bonds market: - Average subscription rate for OTAs in H2 2023: 96 percent. - Average duration of new issues: 4.4 years in H2 2023 (3.3 years in H1 2023), peak of 6 years in October. - Subscription rates dropped to 23 percent for the 3-year OTA issue of March 18, 2024. - Syndication executed last April saw increased subscription rates. - Current account (including grants): - 2022: deficit 12.7 percent of GDP. - 2023: deficit 9 percent of GDP (improvement due to reduced imports—mainly petroleum—and slight export increase). - World Bank disbursements in 2023Q4: CFAF 18.1 billion, further reducing the current account deficit. - 2024 projection: current account deficit about 8.6 percent of GDP due to successive increase in the trade balance and disbursements from the World Bank and AfDB. ### C. Economic outlook and risks - Baseline scenario assumptions: - Sustainable resolution of fuel shortages through implementation of the action plan developed with IMF staff (¶24). - Strengthening of policies in line with program commitments. - Increase in donor support. - Real GDP projections: - 2024: 1.4 percent. - 2025: 2.9 percent. - 2027: 3.7 percent. - Inflation: expected to gradually decrease towards CEMAC’s 3 percent convergence criterion. - Fiscal trajectory if medium-term targets met: - Domestic primary deficit could shrink from 3.7 percent of GDP last year to less than 2 percent in 2026. - Current account deficit (including grants) could shrink from 9 percent of GDP to 5.2 percent of GDP over the same period. - Downside risks: - Deterioration in security. - Resumption of fuel shortages. - Difficulties in refinancing domestic debt. - Expenditure overruns in the runup to the 2025 presidential elections. - Upside possibilities: - Faster implementation of structural reforms. - Return to peace throughout the country. - Greater success in mobilizing domestic revenue and controlling public spending. ### D. Economic and financial program targets and policies Short-term (2024) fiscal policy - 2024 Budget projects domestic primary fiscal deficit: CFAF 47.5 billion (below CFAF 58.3 billion deficit observed in 2023). - Revenue objective for 2024: CFAF 160.5 billion in domestic revenue, or CFAF 28 billion more than in 2024 (1.1 percent of GDP). Reaching this depends primarily on supplying stable and sufficient petroleum products. - After significant spending overruns in 2024Q1, government plans to adjust spending via a revised budget in 2024Q3 to achieve program targets. - Possible spending measures: delay of non-priority domestically-financed infrastructure projects; streamlining spending on goods and services and non-essential transfers. - Commitment to prioritize social spending, including security; open to Fund technical assistance to improve execution of social spending (see ¶33). Revenue measures committed under 2024 Budget - Levying duties and taxes on fuel imports made through informal channels. - Continued focus on collecting tax arrears and improving implementation of measures introduced in 2023 (taxes on telecommunications services and cigarette imports, and the 10 percent penalty on importers not registered with the internal tax administration). - Accelerate recovery of past-due taxes. Financing plan - Expectation that regional public bonds market will provide the same amount of gross medium and long-term domestic financing received in 2023 (CFAF 105 billion), contingent on an ambitious and coherent refinancing strategy for substantial regional maturities through 2026. Medium-term fiscal policy - Strategy anchored on increasing capacity to collect domestic resources by roughly 0.75 percent of GDP annually until 2026, including an in-depth reform of DGID and DGDDI. - Combined with better prioritization of public spending, aims to: - Bring domestic primary fiscal deficit below 2 percent of GDP by 2026. - Bring outstanding public debt stock to about 50 percent of GDP by 2026. - Continued dialogue with donors to ensure full disbursement of budget support; strengthen fiscal transparency to reassure donors. Public debt management policy - Adopt a government securities repayment strategy; objective to refinance maturities through OTAs with maturities of at least 4 years. - Explore voluntary liability management operations to optimize repayment profile. - Strengthen debt management to ensure timely accounting of external and domestic borrowing and prevent arrears. - Actions taken: - December 2023: adopted public debt coordination and management framework (structural benchmark). - Plan to implement a medium-term debt strategy (MTDS) with Fund technical support. Debt data, arrears and operational improvements - External arrears transmission delay to IMF for first review: CFAF 1.072 billion (unintentional). - External arrears during H2 2023 due to liquidity constraints: about CFAF 1.8 billion. - Request for a joint MCM/FAD mission to improve coordination between the Debt Unit and the Treasury Directorate. - Operationalize SIM_Ba software at the Treasury directorate (ACCT) for all accounting staff by November 2024 (new structural benchmark) to improve commitment controls. - Discussions with the World Bank to finance re-activation of a debt management software. - Commitment to thoroughly apply the action plan for the fuel market (¶24) to support revenue collection and reduce liquidity tensions that led to external arrears. Domestic arrears management - Initiated an inventory of all domestic arrears and intend to implement a clearance plan, including potential securitization of audited arrears. - Strategy to end accumulation of new arrears will include: - (i) a detailed schedule; - (ii) criteria to be used to clear arrears to minimize favouritism and corruption; - (iii) improving the treasury plan and its synchronization with consolidated accounts, the commitment plan and the public securities issuing plan. State-owned enterprises and arrears - Follow-up to audit of arrears of ENERCA, SODECA and SOCATEL: drew up a plan to clear arrears including pre-2019. - Cleared the debt with ENERCA in December 2023. - Commit to record any new debt owed to State-owned enterprises and update arrear payment plans. - Enforce provisions of Law No. 20/004 requiring written authorization of the Minister of Finance and Budget before public entities sign any loan agreements. Borrowing policy - Given high risk of debt distress, will favor grants and will not enter into any non-concessional lending arrangements. - Concessional loans limited to priority investment projects for which grants are not possible, within IMF-agreed limits. - Plan investment conference with Arab and Islamic funds and donors to raise concessional financing for infrastructure in agriculture, energy, water, transportation, and social sectors. - New concessional loans expected to have long grace periods and/or repayment schedules; IMF staff will be consulted as new funding opportunities arise. ### E. Structural reforms — Improving and securing domestic revenue - Transfer of fees and charges collected by ministries ("menues recettes") to the Treasury Single Account (structural benchmark). - Orders signed in 2023 to establish revenue collection offices in a dozen ministries and transfer revenues to the TSA; benchmark achieved. - 2023 mobilization of these revenues: CFAF 2.7 billion out of a forecast of CFAF 3 billion. - 2024 expected revenues from menues recettes: CFAF 6 billion. - Appointed new revenue collection officers in various ministries; commits to improved inter-ministerial cooperation, digitization (USSD protocol usage agreements), pilot trials with EU support for digitization in Ministries of Justice and Security. - Improved collection of tax and customs arrears: - Implement ministerial decree mandating electronic declaration for all large companies. - Collect sums due from importers and public contract beneficiaries not up to date with tax obligations. - Reclassify some medium and small companies as large companies after joint mission between Internal Tax, Customs, and Commerce Department in Bangui. - Securing customs revenues and accelerating digitization: - Deploy ASYCUDA World in all operational customs clearance offices including Bangui and along the Douala/Kribi-Bangui corridor (PK 26 Terminal 1 and Terminal 2), Airport Receipts Office, Postal Control Receipts Office, Commitments and Hydrocarbons Department, Beloko Receipts Office, and Central African Transit Office in Douala. - Medium-term plan to computerize these offices; training program for customs officers and economic operators by end of first half of 2024. - Redeploy customs services in pacified areas (Bria, Bambari, Bossangoa, Bangassou) with future computerization and interconnection to ASYCUDA World. - Operationalization of a scanner at the dry port, implementation of transit interconnectivity in line with CEMAC standards, and optimization through tools such as Webb Fontaine. - AFRITAC Centre committed to supporting these reforms. - Streamlining tax exemptions with TFP assistance: - Measures in 2024 Finance Bill (Section 15 and Section 16) streamline exemptions on flour, rice and cooking oil (including products from CEMAC countries) and other exemption containment measures. - Expected additional revenue in 2024 from these measures: CFAF 1.1 billion. - Commit to publish by October 2024 the list of beneficiaries of exemptions and their legal basis. - eTax rollout within DGID with EU support: - Enables remote declaration and payment, online registration; large companies and some NGOs using the system, to be extended to medium-sized companies. - Persistent technical issues: internet connectivity and company ownership of the tool. - "Cross-check" module for automatic cross-referencing of tax information (structural benchmark): - Delivered on 22 April 2024 under EU supervision. - Allows cross-checking with customs, Public Treasury, and eventually commercial banks. - Work continues on VAT electronic invoicing system. - Implementation of article 344 of the Tax Code (penalty on importers not on the list of companies deemed active): - DGID to maintain and share monthly list of known active importers with DGDDI to exempt them from the penalty. - Draft order defining minimum criteria for a taxpayer to be considered active and recognized by tax authorities is underway with IMF technical assistance (structural benchmark). - Forestry revenue management: - Developed semi-industrial permits for medium-sized operators and established a committee for taxation of artisanal forestry exploitation. - Strengthen cooperation between Customs and the Ministry of Water Resources and Forestry for vigilance and coordination. *Source: CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND* ### 24. The government commits to thoroughly implement the action plan for the fuel market ### 24. The government commits to thoroughly implement the action plan for the fuel market ### Fuel market transparency and pricing reforms - Online publication of fuel price structures by marketer and import route on the websites of the ministry of Finance; introduction of a new price structure for unlicensed fuel imports. - Modification of the tax and quasi-tax components of the pricing structure to comply with the fuel action plan. - Publication deadline: set the 10th of each month until July 24, 2024, as the deadline for the publication of pricing structures applicable to the previous month's transactions; if not met, the pricing structures from the previous month will be automatically applied. - These changes reflected as amendments to Presidential Decree No. 18.295, which regulates fuel import prices (prior action). ### Forward-looking pricing and pump price mechanism - From July 25, 2024, new fuel price structures to be issued on the websites of the Ministries of Energy or Finance on the 25th of each month, to be applied to transactions of the following month. - New structures to be consistent with the fuel action plan, based on predefined international reference prices, and to include taxes, quasi-taxes as per current regulations, capped margins, transportation costs, and an import premium. - Continuous action reflected as amendments to Presidential Decree No. 18.295 (continuous structural benchmark). - Adoption of a pump price adjustment mechanism with a corridor to allow pump price fluctuation in response to international oil price volatility; mechanism to be specified in a ministerial decree signed by the Ministers of Finance and Energy (structural benchmark). - Commitment to transparent communication on price adjustment mechanisms to anchor private sector expectations. - Pump prices to be reviewed in July 2024 to reflect international market conditions. ### Level playing field and importer obligations - Require all importers depositing at SOCASP to adhere to operating rules established by Decrees No. 12.019 and No. 18.295. - Requirements for importers: register as taxpayers in the Central African Republic; establish a local office; secure a license to import fuel solely in CAR. - All importers must adopt the new forward-looking pricing mechanism consistent with the Action Plan and provide a written commitment to import at least 80 percent of total petroleum products via the river (prior action). ### External audit and timing - Commitment to initiate an external audit of fuel procurement costs and margin components (structural benchmark) to ensure transparency and identify inefficiencies or irregularities. - Audit outcome to contribute to pricing structures effective by fourth quarter of 2024. ### Regulatory framework and partner support - Adoption of a suitable regulatory framework for fuel supply and distribution to strengthen functioning of the fuel market. - Recognition that expertise and support of development partners will be required given the complex and sensitive nature of reforms and narrow fiscal margins. - High-level negotiations with key stakeholders to ensure transparent and fair service pricing and to alleviate financial burdens associated with fuel imports. ### Strengthening public finance management and governance (linked actions) - Continued regular monthly meetings on cash flow management with technical and financial partners. - Implementation of recommendations from the PEFA assessment for 2019-2021 to strengthen budget planning, commitment controls, and cash management. - Continued use of the escrow account opened at BEAC to host IMF disbursements, net of repayments, intended to supplement the World Bank's operation. - Publication status: quarterly budget execution tables at end December 2023 prepared according to IMF staff format; commitment to publish these tables within 45 days after the end of each quarter. - Ongoing finalization and signing of the draft agreement between BEAC and the Treasury for management of the Treasury Single Account (TSA). ### Governance, anti-corruption, procurement, and AML/CFT - Structural benchmarks met involving the Court of Audit and the Financial Intelligence Unit (ANIF); draft review of organic law on the Court of Audit submitted to the Council of Ministers; institutional plan to strengthen ANIF adopted. - Adoption in May 2023 of a new law to prevent and punish corruption and related offences; commitment to implement provisions including asset declarations and to seek IMF technical assistance (structural benchmark). - Resumption of publication of detailed information on all public contracts concluded above the CFAF 10 million threshold; integration of beneficiaries' Tax Identification Numbers (NIF) into public contract award notices. - Commitment to strengthen compliance with AML/CFT standards of the Task Force against Money Laundering in Central Africa (GABAC) following the mutual evaluation report published in November 2023 that revealed high risks of money laundering and terrorist financing in CAR; discussions with development partners to draw a roadmap to improve compliance. ### Tokenization law risks and fiscal assessment - Law No. 23.010 of 24 July 2023 enacted on "tokenization" of CAR’s natural and land resources; request sent to BEAC for written opinion on compliance with CEMAC community provisions, including Articles 8 and 18; BEAC response awaited. - Commitment that crypto assets covered under this law will not have legal tender status or guaranteed convertibility. - Ongoing assessment of potential fiscal risks relating to activities of the tokenization platform (structural benchmark); analysis carried out with IMF technical assistance. - Expected deliverables: outcomes of the assessment, including recommendations and legal measures to mitigate risks, expected by the third quarter of 2024. - Undertake to implement an action plan derived from the fiscal risk analysis including operational and legal reforms in the short, medium, and long term; tokenization law to be reviewed if necessary; plan to disseminate outcomes to Parliament and the general public. ### Banking system indicators and vigilance - At end December 2023: - capital adequacy ratio stood at 18.9 percent; - short-term liquidity ratio reached 146.1 percent; - loans to the private sector increased by 4.8 percent compared with the previous year, reaching CFAF 186 billion; - ratio of non-performing loans remained at 16.2 percent at end December 2023 compared with 14.5 percent a year earlier. - Note: Significant gaps in liquidity and concentration of NPLs among financial institutions call for increased vigilance. ### Business climate, mining, and financial mediation - New mining code approved during the first half of 2024; commitment to implement the code through submission of the model mining agreement and regulatory instruments for the mining fund and new public agencies with World Bank support. - Progress on CNEF recommendations: texts relating to financial mediation validated by COBAC in May 2023; costs being estimated for financing by government, banks and microfinance institutions. - Adoption via CNEF of articles of association of the company in charge of collecting non-performing bank loans; first constitutive General Meeting to be convened no later than end-December 2024. ### Social spending priorities and program measures - Social expenditure executed with own resources reached CFAF 10.4 billion in 2023, below the indicative target of CFAF 22 billion set by the ECF arrangement. - Program measures to support social spending: - make effective the systematic use of SIM_Ba by all staff at Treasury with an accounting function by November 2024 (new SB for third the review); - improve coverage of the Integrated Social Register to boost targeted transfers to vulnerable households; - accelerate social sectors expenditure authorizations; - reduce administrative delays and bottlenecks in execution of social projects. - Study feasibility of extending the program’s indicative target to main social projects financed by donors to better reflect social spending reality. ### National Development Plan and climate priorities - Formulation of the National Development Plan (PND-RCA) for 2024-2028; first draft circulated to development partners in May 2024. - Five strategic phases of the plan: preparation; diagnosis; definition of objectives and strategic axes; assessment of costs and financing; drafting and dissemination. Currently in phase four; first draft being refined. - Main thrusts: strengthening security; developing human capital; building sustainable infrastructure; stimulating economic growth by enhancing value chains; improving environmental sustainability. - Focus on climate risks and reforms: mobilizing around Agenda 2030 for Sustainable Development; strengthening contributions to international initiatives; improving environmental governance; developing tools for sustainable management of natural resources. ### Climate finance, assessments, and initiatives - Collaboration with World Bank on the Country Climate and Development Report (CCDR). - Intend to request IMF Fiscal Affairs Department technical assistance for a Climate Change Public Investment Management Assessment (C-PIMA). - Initiated study on Natural Capital Accounting and Climate Finance (NCA) in the Congo Basin forests with World Bank support to assess value of forest resources and impact on domestic revenues. - Plans to develop a National Carbon Market and strengthen capacity to mobilize funds via international financial mechanisms to support Resilience and Sustainability Facility (RSF) discussions. ### Statistics, data dissemination, and capacity building - Revision of HICP methodology with World Bank support: geographical scope extended from one to six regions; number of products monitored increased to 700; 13,000 monthly surveys across the country. - HISWACA project active since January 11, 2024, with World Bank financing of 12 billion FCFA for CAR; budget of 3 billion FCFA already disbursed to support statistical capacity building. - 2024 Budget allocation: CFAF 300 million to support ICASEES for the general population census; residual funding requirement of CFAF 3 billion remains. - Structural improvements to ICASEES: new statutes provide for creation of 20 prefectural services. - Commitment to data dissemination: IMF STA support to adhere to e-GDDS by launching the National Summary Data Page (NSDP); two ICASEES focal points appointed in April 2024. ### Capacity building and technical assistance - Ongoing technical assistance from IMF, World Bank Group, European Union, AfDB and other partners in: revenue administration; public financial management, fiscal governance and anti-corruption; macroeconomic programming and debt management; quality of economic and financial statistics; external sector statistics; fuel supply management and legal risks; debt management; public procurement contracts. - Request for a Resident Advisor in Public Finance Management to monitor reform progress and provide rapid support, subject to funding; AFRITAC Centre assistance to continue as complementary. *Source: 1cafea2024001-print-pdf - 24. The government commits to thoroughly implement the action plan for the fuel market* ### 40. The program will be monitored using quantitative performance criteria, indicative ### 40. The program will be monitored using quantitative performance criteria, indicative targets and structural benchmarks as stipulated in the Technical Memorandum of Understanding ### Monitoring framework and review timetable - Quantitative performance criteria have been set for end June 2024 (third review), end December 2024 (fourth review), and end June 2025 (fifth review). - Indicative targets have been set for end March 2024, end September 2024, and end March 2025. - Structural benchmarks have been set until October 2024. - The fourth and fifth reviews of the ECF-supported program will take place on or after April 30, 2025 and October 30, 2025, respectively. - IMF staff will continue to be provided with the statistical data and information identified in the attached technical memorandum of understanding, as well as any other information the Fund deems necessary or that IMF staff may request for monitoring purposes. ### Key quantitative performance criteria and indicative targets (Table 1a excerpts) - Note: figures reported as in the source table (CFAF Billion; Cumulative from Beginning of the Year, Unless Otherwise Specified). - Net domestic financing of the government (ceiling, cumulative flows for the year): - "11.0 29.0 37.2 Not met 28.0 46.0 62.5 Not met 57.0 62.9 55.8 Met 18.0 30.0 30.0 40.0 40.0 55.0 55.0 15.0 17.0" - Domestic government revenue (floor, cumulative for the year): - "62.0--67.4 Met 96.0--96.8 Met 130.0--132.5 Met 34.0 75.0 75.0 115.0 115.0 155.0 155.0 39.0 80.0" - Domestic primary fiscal balance (floor, cumulative for the year): - "-24.0---26.5 Not met -35.0---51.5 Not met -64.0---58.3 Met -13.0 -22.0 -22.0 -33.0 -33.0 -50.0 -50.0 -10.0 -17.0" - Continuous performance criteria (selected lines): - New external nonconcessional debt contracted or guaranteed by the Government (ceiling, cumulative): "0.0--0.0 Met 0.0--0.0 Met 0.0--0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0" - Disbursement of external nonconcessional debt (ceiling, cumulative): "0.0--0.0 Met 0.0--0.0 Met 0.0--0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0" - Non accumulation of new external payments arrears by the government (ceiling, cumulative): "0.0--1.1 5 Not Met 0.0--1.8 Not Met 0.0--2.9 Not Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0" - Indicative targets (selected lines): - Social spending (floor, cumulative for the year): "8.0--4.5 Not met 17.0--8.1 Not Met 22.0--10.4 Not Met 4.0 8.0 8.0 17.0 17.0 22.0 22.0 4.0 8.0" - Spending using extraordinary procedures (ceiling, cumulative for the year): "2.5--13.2 5 Not met 4.0--19.1 Not Met 5.0--23.6 Not Met 2.0 5.0 5.0 7.0 7.0 8.0 8.0 2.0 5.0" - New external concessional debt contracted or guaranteed by the government (ceiling, cumulative for the year): "20.0--0.0 Met 20.0--0.0 Met 20.0--0.0 Met 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0" - Memorandum items (selected lines): - Budget support: "18.0--0.0 18.0--0.0 24.0--18.1 0.0 6.3 6.0 11.1 12.3 17.1 23.4 0.0 15.0" - Privatization receipts: "0.0--1.9 0.0--1.9 1.9--1.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0" ### Standard continuous performance criteria (Table 1b) - Not to impose or intensify restrictions on the making of payments and transfers for current international transactions. - Not to introduce or modify multiple currency practices. - Not to conclude bilateral payment agreements which are inconsistent with Article VIII. - Not to impose or intensify import restrictions for balance of payment reasons. ### Prior actions and structural benchmarks (Table 2 highlights) - Fuel sector and fuel market transparency/efficiency measures: - Ensure importers depositing at SOCASP follow Decree n⁰12.019 and Decree n⁰18.295, register as CAR taxpayers, establish a local office, adopt new forward looking pricing mechanism, obtain import license, and commit to import at least 80 percent of total petroleum products via the river. Timeline: Five days before the board date for the second review. Status: Proposed, in progress. - Consolidate all quasi-taxes into a single quasi-tax within the fuel price equation. SB second review (April 2024). Status: Met. - Conduct an audit of fuel procurement costs and adapt the price structure based on findings. SB third review (October 2024). Status: In progress. - Adopt a quarterly pump price adjustment mechanism through a ministerial decree (Ministers of Finance and Energy) with corridor allowing pump price fluctuation in response to international oil price changes. SB fourth review (April 2025). Status: Proposed. - From July 25, 2024, issue on the websites of the ministries of Energy or Finance new fuel price structures on the 25th of each month for the following month; reflect transparently as amendments to Presidential Decree No. 18.295. Continuous structural benchmark starting July 25, 2024. Status: Proposed, in progress. - Ensure publication on the websites of the ministries of Energy or Finance of fuel price structures by marketer and import route, introduction of new price structure for unlicensed fuel imports, and modification of tax and quasi-tax components consistent with the fuel action plan. Deadline procedures until July 24, 2024. Status: [listed under timeline "Five days before the board date for the second review"]. - Revenue and governance measures: - Transfer to the TSA all the funds collected directly by the ministries in exchange for services provided to users. SB second review (April 2024). Status: Met. - Operationalize the cross-verification module of the new DGID IT system and interconnection with the customs computer system (Sydonia World). SB second review (April 2024). Status: Met. - Issue a ministerial decree outlining minimal criteria for official taxpayer recognition by the tax office. SB third review (October 2024). Status: In progress. - Adopt the anti-corruption law submitted to parliament on February 4, 2022. SB second review (April 2024). Status: Met. - 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. SB second review (April 2024). Status: Unmet (implemented with a delay). - Adopt a detailed institutional plan to strengthen Agence Nationale d'Investigation Financière (ANIF). SB second review (April 2024). Status: Met. - Prepare a fiscal risk statement on the Sango project, to be presented to the Cabinet; assessment to follow IMF TA framework and recommend legal measures to mitigate identified risks. SB third review (October 2024). Status: In progress. - Cabinet to adopt and implement regulation to operationalize the asset declaration law for the Haute Autorité de la Bonne Gouvernance (HABG) with timeline by end of 2025, monetary threshold of at least 50 million CFAF for simplified declarations, and asset declaration forms. SB third review (October 2024). Status: In progress. - Public Financial Management: - Make effective the systematic use of SIM_Ba software by all staff in charge of the accounting function at the Treasury by providing IT equipment and training. SB third review (November 2024). Status: Proposed. ### Technical Memorandum of Understanding (Attachment II) — definitions and scope - Government scope: central government only; excludes local governments, central bank, or public entities with separate legal personality not included in the TOFE (paragraph 2). - Definition of debt follows para. 8 of the “Guidelines on Public Debt Conditionality in Fund Arrangements” (Decision No. 16919-(20/103), Executive Board adopted October 28, 2020) and includes loans, suppliers’ credits, and leases, with the PV of lease payments taken at inception (paragraph 3). - Guaranteed debt: explicit legal obligation by the government to service a debt in event of borrower nonpayment (paragraph 4). - Concessional debt: debt with a grant element of at least 35 percent; discount rate used for grant element calculation is 5 percent (paragraph 5). - Total government revenue and expenditure definitions for TOFE: revenue on cash basis excludes proceeds from sale of financial assets, privatizations, grants, etc.; expenditure includes wages, goods and services, transfers, interest, investment expenditure, and expenditures executed before payment authorization (paragraphs 6–7). - Wages and salaries definition follows GFSM 2014 paragraphs 6.8–6.18 (paragraph 8). - Arrears definitions: - Arrears: any debt not paid in accordance with contractual conditions (paragraph 9). - Domestic payment arrears: payment orders not paid 90 days after Treasury authorization; floating debt defined as balances payable with maturity within 90 days (paragraph 10). - External payment arrears: arrears on external debt obligations measured as difference between contractually due amount and amount actually paid after deadline (paragraph 11). ### Quantitative target rules and adjusters (TMU excerpts) - Quantitative targets listed correspond to those in Table 8 of the MEFP. Adjusters of the quantitative targets are specified in Section C. - Unless otherwise indicated, all quantitative performance criteria and indicative targets are assessed on a cumulative basis from the beginning of the calendar year in which they are set (paragraph 12). - Detailed operational definitions: - Ceiling on Net Domestic Financing of the Government: includes net bank credit to government and non-bank financing such as proceeds from sale of financial assets, privatizations, Treasury bills and bonds issued in the CEMAC regional financial market not held by local banking system, and BEAC credit including SDR counterpart (section B, Ceilings on Net Domestic Financing). - Net bank credit: balance between debts and claims of the government vis-à-vis central bank and national commercial banks; government claims include CFA franc cash balance, postal checking accounts, guaranteed tax promissory notes, deposits with BEAC and commercial banks of government-owned entities (section B). - Floor for Domestic Government Revenue: only cash-basis tax and nontax revenue included in TOFE (section B). - Floor for Domestic Primary Fiscal Balance: difference between government domestic revenue and government expenditure, less all interest payments and externally financed capital expenditure; payments on arrears excluded (section B). - Continuous performance criteria: government not to contract or guarantee nonconcessional debt (excluding newly contracted IMF financing and General SDR allocation); not to disburse nonconcessional debt; non-accumulation of new external payment arrears (section B). - Indicative target for social spending: domestically financed non-wage spending on national education, health, social action, water and sanitation, microfinance, agriculture, livestock and rural development; execution monitored on a payment-order basis (section B). - Ceiling on spending using extraordinary procedures: set at 7 percent of total spending excluding wage spending, debt service (principal and interest) and externally financed spending (section B). - Ceiling on new external concessional debt: cumulative CFAF 20 billion as of end-December 2023 and 2024 (section B). *Source: Technical Memorandum of Understanding and accompanying tables, as presented in the program documentation.* ### 13. To take into account factors or changes that are essentially outside the government’s control, ### 13. To take into account factors or changes that are essentially outside the government’s control, ### Adjustments to quantitative performance criteria - 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: - The ceiling on net domestic financing of the government will be adjusted upward by an amount equivalent to 50 percent of these additional receipts. - 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: - The ceiling on net domestic financing of the government 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: - The ceiling on net domestic financing of the government will be adjusted upward by an amount equivalent to 100 percent of the difference between the programmed and actual disbursements. ### Structural benchmarks and prior actions - Two measures to be implemented at least five days before the IMF board date for the second review: - Ensure i) the publication on the websites of the ministries of Energy or Finance of fuel price structures by marketer and import route; ii) the introduction of a new price structure for unlicensed fuel imports; iii) the modification of the tax and quasi-tax components consistent with the fuel action plan. - Until July 24, 2024, the 10th of each month will serve as the deadline for publishing online the fuel price structures applicable to the previous month’s transactions. If this deadline is not met, the fuel price structures from the previous month will be automatically applied. - These changes should be transparently reflected as amendments to the Presidential Decree n⁰18.295 that regulates fuel import prices. - Take action to level the playing field in the fuel sector by ensuring all importers depositing at SOCASP follow the operating rules established by Decree n⁰12.019 and Decree n⁰18.295. In particular, all importers should: - i) be registered as CAR taxpayers and establish a local office, - ii) adopt the new forward looking pricing mechanism consistent with the Action Plan, - iii) get a license to import fuel solely in CAR, - iv) provide a written commitment to import at least 80 percent of total petroleum products via the river. - Continuous structural benchmark: - From July 25, 2024, issue on the websites of the ministries of Energy or Finance new fuel price structures on the 25th of each month to be applied to the transactions of the following month. - The new fuel price structures will be consistent with the fuel action plan, and based on predefined international reference prices, augmented by taxes and quasi-taxes provided by the current regulations, margins, transportation costs, and an import premium. - This continuous action should be transparently reflected as amendments to Presidential Decree No. 18.295, which regulates fuel import prices. ### Structural benchmarks by review date - First review (October 2023): - 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-tax rates defined in the tax code, the finance law, and the CEMAC directives; and - (ii) signing an inter-ministerial decree with the new hydrocarbon prices in line with IMF TA recommendation on fuel prices. - Establish a public debt coordination and management framework with IMF TA support. - Second review (April 2024): - Adopt a detailed institutional plan to strengthen the operational work of Agence Nationale d'Investigation Financière (ANIF) by addressing confidentiality, human, financial and technical resources issues. - Transfer to the TSA all the funds collected directly by the ministries in exchange for services provided to users. - Operationalize the cross-verification module of the new DGID IT system and interconnection with the customs computer system (ASYCUDA World). - Adopt the anti-corruption law submitted to parliament on February 4, 2022. - Consolidate all quasi-taxes into a single quasi-tax within the fuel price equation. - Submit to the Cabinet a draft new organic law that regulates the statute and functions of the Court of Audit, in accordance with the IMF recommendations that it ensures its financial and operational independence. - Third review (October 2024): - Prepare a fiscal risk statement on the Sango project, disclosing existing fiscal commitments and assessing how the platform's activities could affect the government's fiscal position and overall debt sustainability, to be presented to the Cabinet. The assessment should be conducted following a framework developed with the support of the IMF TA and recommend legal measures to mitigate the risks identified. - Pursuant to Art. 22 of the asset declaration law (n. 21.011) and Art. 4 of the anti-corruption law (n. 23.009), the Cabinet will adopt an implementing regulation to allow the Haute Autorité de la Bonne Gouvernance (HABG) to operationalize the asset declaration law with a focus on receiving and publishing asset declarations of senior public officials. The implementing regulation should include: - (i) a specific timeline for the operationalization of the asset declaration requirements at the latest by the end of 2025; - (ii) a monetary threshold of at least 50 million FCFA for simplified declarations contemplated in Art. 22 of the asset declaration law; - (iii) asset declaration forms. - Issue a ministerial decree outlining minimal criteria for official taxpayer recognition by the tax office. - Conduct an audit of fuel procurement costs, including margins and fees, to establish optimal levels that reflect efficient operations by suppliers. Adapt the price structure based on the findings of this audit. - Make effective the systematic use of SIM_Ba software by all staff in charge of the accounting function at the Treasury (Agence Comptable Centrale du Trésor): - i) by providing them with the necessary IT equipment; - ii) by training them on the technical and regulatory functions involved in this software. - Fourth review (April 2025): - Adopt a quarterly pump price adjustment mechanism through a ministerial decree signed by the Ministers of Finance and Energy with a corridor that allows pump price to fluctuate in response to international oil price changes. ### Reporting of data to the IMF - Quantitative data on the government’s indicative targets will be reported to IMF staff according to the frequency set out in Table III. Moreover, 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. - Selected reporting deadlines and requirements (as specified in Table 1): - 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. ### Debt sustainability assessment and public debt coverage - Risk ratings: - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity in the risk rating: Sustainable - Application of judgement: No - Key findings: - The Central African Republic (CAR) remains at high risk of external debt distress and overall high risk of debt distress. - Public debt is projected to be sustainable, though there are substantial liquidity risks, as shown by relevant debt indicators, stemming from possible shortfalls in donor support and substantial rollover risks on regional debt. - Compared to the previous DSA, domestic debt has increased due to ramped-up borrowing in the CEMAC regional debt market and the addition of two previously non-included loans from regional banks. - The present value of total debt-to-GDP breaches the threshold not only in 2024, but now also in 2025 and 2026. - Solvency indicators for external debt remain below thresholds, but liquidity indicators for external debt (debt service-to-exports and debt service-to-revenue) exhibit breaches for 4 years starting in 2024, largely on account of obligations to the Fund falling due. - Sensitivity of debt indicators to standard stress tests, significant macroeconomic and financing uncertainty, and sizeable contingent liabilities support the high-risk assessment. - The assessment is predicated on the authorities’ continued prioritization of and the ability to secure grant financing for essential current spending and developmental projects, as well as on their efforts to lengthen the profile of domestic debt. - Significant downside risks include uncertainty regarding macro-fiscal projections, the full resumption of donor support and the recovery of the fuel market. - Public debt coverage and contingent liabilities: - Coverage includes external and domestic contractual obligations of the central government; state and local governments do not borrow; no social security funds guaranteed by the public sector; government has not guaranteed other debt. - Coverage gaps: non-guaranteed SOE debt and supplier arrears. - Post HIPC arrears of the central government account for less than 1 percent of GDP. - Combined contingent liabilities stress test assumes a tailored shock at 15 percent of GDP to capture public sector exposure to arrears, SOEs, and a financial market shock. - Contingent liabilities shock from SOE debt is set at 5 percent of GDP. - Shock from domestic arrears is set at 5 percent of GDP. - Financial market risk shock is set at the default value of 5 percent of GDP. - Public and publicly guaranteed (PPG) debt: - CAR’s public and publicly guaranteed (PPG) debt amounted to 57.7 of GDP in 2023. - After gradually declining to 44 .4 percent of GDP in 2020, public sector debt increased to 57.7 percent of GDP in 2023. - Public debt is projected to decline gradually to about 43 percent of GDP by 2030. - Domestic debt represents about 45 percent of CAR’s total public indebtedness. - Note: Total public sector debt increased to 57.7 percent of GDP in 2023 from 51.1 percent of GDP in 2022, chiefly driven by net issuances of medium-term regional debt for CFAF 90 billion or 5.6 percent of GDP. Around CFAF 5 billion of those net issuances were used to clear arrears with ENERCA in December 2023. - Drivers of debt increase and market conditions: - Most of the increase in public debt since 2020 has been driven by higher domestic borrowing. - Domestic debt includes statutory and exceptional advances from the Bank of Central African States (BEAC) consolidated into one loan. - In 2021, BEAC restructured the CFAF 80.5 billion debt via an extension of the grace period to 2025 (instead of 2022) and of the maturity to 20 years (from 10 years). - Domestic debt stood at 18.2 percent of GDP in 2022; at end-2023, domestic debt was at 25.1 percent of GDP. - Subscription rates in 2023 increased from an average of less than 20 percent during the first quarter, to around 70 percent right after the approval of the current ECF-supported program, and to 100 percent for a CFAF 25 billion-syndicated regional issuance executed in August 2023. - Yields on 3-year issuances have hovered around 11 percent. *Prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA). June 10, 2024.* ### 6. By May 2022, CAR had drawn down its 2021 SDR allocation in three tranches to ### 6. By May 2022, CAR had drawn down its 2021 SDR allocation in three tranches to ### SDR use and budget financing - December 2021: First draw-down of the 2021 SDR allocation of CFAF 35 billion (SDR 44.5 million) used to cover some recurrent expenditures (civil servant wages) and to repay part of domestic arrears. - March 2022: Second drawing of CFAF 20 billion (SDR 25 million). - May 2022: Final drawing for the remainder of CFAF 30.5 billion (SDR 37.3 million). - The SDR use in 2021 and 2022 is recorded as domestic debt and adjusted to be on present value terms. ### External debt levels, composition, and recent behavior - External debt was 32.6 percent of GDP by end-2023. - Authorities refrained from contracting or disbursing any new external non-concessional debt in line with the World Bank’s SDFP and the Extended credit Facility (ECF) commitments to zero non-concessional borrowing. - No drawings were made on the non-concessional loans with the regional development bank (BDEAC) for CFAF 15 billion, signed in September 2021. - A CFAF 1.22 billion tranche was drawn of a 2015 concessional project loan financed by the Saudi Development Fund. - The most significant adverse driver of external debt developments has been the exchange rate effect. ### Creditor composition and arrears (end-2023) - Multilateral creditors (mainly the IMF and the World Bank) held close to 60 percent of external debt in 2023. - CAR has recognized pre-HIPC arrears amounting to 8 percent of GDP (pre-dating the HIPC Completion Point) with non-Paris Club creditors (Argentina, Equatorial Guinea, Iraq, Libya, and Taiwan, Province of China). - In 2023, CAR accumulated arrears to bilateral and some multilateral creditors amounting to about CFAF 3.6 billion mainly due to liquidity challenges. - Total bilateral debt amounts to about 14 percent of GDP; main creditors include India, China, Saudi Arabia, Kuwait, and Angola. - Debt to private creditors is negligible and is included in the baseline. ### Recent debt relief and pandemic-era support - 2020: Debt cancellation operation granted by China for about 0.8 percent of GDP. - 2020: 90-percent principal reduction and rescheduling of the debt owed to Energoprojekt (Serbia) for about 1.7 percent of GDP. - May 2020–December 2021 (DSSI): US$7 million rescheduled. - CCRT assistance covering IMF payments from April 14, 2020, to April 13, 2022, amounting to US$18.4 million. ### Arrears detail (end-2023) - Recent arrears (CFAF, total 3,666; Total (% GDP) 0.23): - China (Bilateral) 1,242 - India (Bilateral) 934 - Kuwait (Bilateral) 71 - Serbia (Bilateral) 288 - Saudi Arabia (Bilateral) 896 - BADEA (Multilateral) 68 - FIDA* (Multilateral) 168 (Arrears to FIDA has already been cleared) - Legacy arrears (CFAF, total 130,394; Total (% GDP) 8.18): - Argentina (Bilateral) 19,416 - CT-ConsolidesB (Bilateral) 438 - Equatorial Guinea (Bilateral) 3,587 - Iraq (Bilateral) 2,738 - Libya (Bilateral) 8,127 - Taiwan, Province of China (Bilateral) 89,272 - UAPT (Bilateral) 1,056 - OFID (Multilateral) 5,761 - Domestic Arrears: Total (CFAF) 17,000; Total (% GDP) 1.07 - Arrears to Angola amount to about CFAF 1.8 billion (provided by CAR authorities; uncertainty exists; loan dormant and under negotiation since 2022 with possibility of a standstill). - In 2023, CAR accumulated new bilateral arrears to China, Saudi Arabia, Kuwait, India, and Serbia amounting to about CFAF 3.4 billion (treated as de minimis and do not trigger an in-distress assessment). ### Debt stock table highlights (2023 figures) - Total debt (2023): 1,516.8 (mil US$) — Percent total debt 100.0 — Percent GDP 57.7 - External (2023): 856.8 (mil US$) — Percent total debt 56.5 — Percent GDP 32.6 - Multilateral creditors (2023): 476.5 (mil US$) — Percent total debt 31.4 — Percent GDP 18.1 - IMF (2023): 289.3 (mil US$) — Percent total debt 19.1 — Percent GDP 11.0 - World Bank (2023): 123.5 (mil US$) — Percent total debt 8.1 — Percent GDP 4.7 - Domestic (2023): 660.1 (mil US$) — Percent total debt 43.5 — Percent GDP 25.1 - Bonds (2023): 278.9 (mil US$) — Percent total debt 18.4 — Percent GDP 10.6 - Loans (2023): 363.9 (mil US$) — Percent total debt 24.0 — Percent GDP 13.9 - Nominal GDP (2023): 2,626.8 ### Underlying macroeconomic assumptions and projections - Growth: - Real GDP growth in 2023: 0.7 percent (below prior DSA expectation of 1 percent). - Real GDP growth projected for 2024: 1.4 percent (prior DSA anticipated 1.5 percent). - Growth projections: 2025 bounce to 2.9 percent; 2026 and 2027 reach 3.7 percent. - Long-term growth (2028-42): 3.2 percent. - Inflation: - Inflation projection for 2023 revised down from 5.5 percent to 4 percent. - Inflation expected to decline gradually towards the CEMAC’s 3 percent convergence criterion, contingent on fuel supply improvements and active trade corridor with Cameroon. - Public finances and financing: - Financing in 2023 satisfied through regained access to the CEMAC regional debt market, credit lines with two local banks, IMF financing, a small SDR drawdown, and World Bank disbursements in Q4 2023. - AfDB financing approved in December but disbursed in January 2024. - In the medium term (2024-27), budget support grants expected to gradually increase to 3.0 percent of GDP on assumption of agreement with traditional donors to unblock financing. - Domestic revenue mobilization anticipated to increase by an average of 0.65 percent of GDP per year. - Fiscal primary balance (including grants) for 2027 left broadly unchanged at around a surplus of 1.1 percent of GDP (from a deficit of 2.1 percent of GDP for 2024). - Most financing needs in 2024 and 2025 expected to be covered through the regional debt market; continued access supported by prior successful syndication, fiscal consolidation prospects under the ECF program, communication with primary dealers, operationalization of PNDP, and development of a medium-term debt strategy. - In 2026 and 2027, anticipated resumption of external concessional borrowing should reduce reliance on the regional market. - External sector: - Current account deficit (with grants) narrowed in 2023 to 9 percent of GDP from 12.7 percent of GDP in 2022. - Current account deficit expected to slide to a 4.2 percent of GDP deficit by 2027. - Balance of payments projected to reach a moderate surplus of around 2.7 percent of GDP by 2027. - Macroeconomic assumption table (Proposed DSA-ECF arrangement, averages): - GDP growth (percent) 2021-27 average: 2.0; 2028-42 average: 3.2 - GDP deflator (percent) 2021-27 average: 3.8; 2028-42 average: 2.5 - Non-interest current account balance 2021-27 average: -8.0; 2028-42 average: -6.7 - Exports of goods and services 2021-27 average: 15.0; 2028-42 average: 16.9 - Primary balance 2021-27 average: -2.1; 2028-42 average: -0.8 - Revenues and grants 2021-27 average: 15.3; 2028-42 average: 14.9 ### Risks, data, and realism of baseline - Near-term risks increased due to upcoming maturities in the regional debt market and inclusion of two previously non-included loans with regional banks. - Domestic syndication of CFAF 50 billion showed 100 percent subscription; proceeds used to rollover most maturity walls in 2024. - Scheduled amortizations in the regional debt market: CFAF 57 billion in 2025; substantial issuances of 3-year instruments increased maturities by CFAF 49 billion in 2026. - Significant shortfalls in bookkeeping and transparency (including previously non-included loans) are impediments to full resumption of budget support from traditional donors. - Donors’ three stipulated conditions for budget support to resume include: a commitment that sanctioned entities will not be financed from the budget or other public sources, improved mechanisms for budget transparency, and conducive security and governance conditions. - If authorities fail to adhere to ECF-supported program targets and governance/transparency goals, acute financing needs and a very steep spending adjustment are likely, with significant hardship for the population. - Protecting access to the CEMAC debt market is critical to address upcoming maturities and requires an appropriately tight fiscal stance and continuous investor outreach. *Source: IMF staff calculations and country authorities (Central African Republic DSA excerpts).* ### 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 key findings - The drivers-of-debt-dynamics tool shows a broadly unchanged trajectory for external PPG debt and public debt compared with the previous DSA. - The projected evolution of external debt is similar to the trajectory in the previous DSA; 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. - The path of public debt is similar to the previous DSA, though projected debt-creating flows show a higher contribution of unexpected primary deficits to debt accumulation compared to the past. - Past forecast errors are above the median compared with other LICs. ### Realism tools, growth, and investment outlook - Realism tools flag risks around the baseline scenario stemming 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, appearing relatively ambitious compared with the experience in other LIC countries. - Fiscal consolidation will hinge on the authorities’ ability to increase domestic revenue mobilization per program commitments and attract donor support. - Growth in 2024 appears optimistic given the fiscal consolidation for standard values of the fiscal multipliers; growth is mostly driven by a private sector rebound after the fuel shock shortage is resolved, particularly in the primary sector (agriculture, mineral extraction). - The growth/investment tool indicates a switch over time from public to private investment as a driver of growth, consistent with countries at the same stage of development: - private investment would grow as business and governance environments strengthen, infrastructure develops, the financial sector deepens, and government financing needs narrow. - 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 and debt-carrying capacity - CAR’s debt carrying capacity is assessed as weak, unchanged from the last DSA in October 2023. - The country’s composite indicator (CI) is 2.27 based on the October 2023 World Economic data and 2021 CPIA scores. - Under weak debt carrying capacity, applicable thresholds are: - PV of external public and publicly guaranteed debt: 30 percent of GDP - PV of debt-to-exports: 140 percent - Debt service-to-exports: 10 percent - Debt service-to-revenue: 14 percent - Benchmark for the PV of total public debt: 35 percent of GDP - CI Score components shown include: - CI Score = 2.27 - CPIA component contribution = 44% - Real growth rate (in percent) contribution = 0.073% - Import coverage of reserves (in percent) contribution = 1.1450% - Remittances (in percent) contribution = 0.000% - World economic growth (in percent) contribution = 0.3917% ### External Debt Sustainability Analysis (A) - External debt solvency indicators remain broadly similar relative to the previous DSAs. - The present value of external debt-to-GDP ratio is on a declining trajectory and remains well below the relevant threshold under the baseline scenario, but it comes close to the threshold under the most extreme standardized stress test. - The PV of debt-to-exports ratios declines from close to the 140 percent threshold in 2024 to well below its threshold in the medium term. - Drivers behind the debt trajectory include bilateral and multilateral debt relief during the pandemic, expectation of a resumption in grants in outer years, and replacement of some previously unidentified concessional financing with the SDR allocation (counted as domestic debt). - 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 of external PPG debt breach their thresholds for 4 years from 2024 under the baseline scenario: - External debt service-to-exports and debt service-to-revenue ratios both breach thresholds for 4 years starting in 2024, driven by a significant uptick in debt service, primarily related to an increase in repayments to the Fund in that period. - Heightened risks in 2024 arise from increased debt payment obligation to OPEC Fund for International Development (OFID) owing to the recent recognition of arrears due to them and a more conservative domestic revenue trajectory. - 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 the CEMAC regional debt market. - Subject to successful ECF-supported program implementation, large repayments to the Fund are feasible based on program financing assumptions. - Standardized stress tests (historical scenario and most extreme standardized stress test) produce more significant and persistent breaches of external debt service ratios. ### Public Debt Sustainability Analysis (B) - Total public debt indicators are high, driven by a surge in domestic debt, but are projected to drop below the relevant threshold starting in 2027. - The PV of debt-to-GDP is on a higher path; 2023 data outturn heightened vulnerability as the PV of debt-to-GDP breaches its threshold from 2024 to 2026 due in part to: - rising issuances of regional debt, - domestic debt reconciliation that added two previously unincluded bank loans. - The PV of debt-to-GDP shows a gradual declining trend under conservative financing assumptions that financing gaps will be mostly covered by concessional external debt; renewed donor support would result in substantially more favorable dynamics. - The PV of debt-to-revenue ratio also declines through the projection period. - The debt-service-to-revenue and grants ratio will remain elevated, reflecting particularly higher domestic debt service payments. - A standardized shock to combined contingent liabilities would trigger a breach of the PV of debt-to-GDP threshold and lead to a significant increase in the PV of the debt-to-revenue ratio. - A possible worsening of the macroeconomic outlook (e.g., if donor budget support does not resume in the medium term) would exacerbate domestic arrears accumulation and aggravate risks from vulnerable SOEs; their contingent liabilities would severely affect the budget and debt risks. ### Risk rating, vulnerabilities, and policy implications - CAR remains at high risk of external debt distress and overall high risk of debt distress, but debt is assessed to be sustainable. - The rating is driven by persistent breaches in the medium term of thresholds for both external debt service-to-exports and external debt service-to-revenue ratios under the baseline scenario, pointing to potential liquidity problems. - Total public debt by 2027 is anticipated to surpass the metric shown in the prior DSA by around 1.4 percent of GDP. - Contributing vulnerabilities and downside risks: - Macroeconomic projections are particularly uncertain in the near term due to overlapping crises and delayed full resumption of donor support. - Significant fiscal adjustment will be required over the medium term amid limited external financing options. - Increased tapping of domestic CEMAC markets in 2021-23 and large financing needs through 2026 have exacerbated rollover risks. - Further delays in resumption of budget support could raise the risk of disorderly fiscal adjustments, weigh on growth, and potentially trigger a total loss of access to the regional market. - Policy recommendations and mitigation priorities: - Urgent fiscal measures to strengthen revenue and renewed efforts to restore relations with donors to ensure sustainability. - Short-term fiscal prudency combined with support from the World Bank and African Development Bank and disbursements under the ECF-arrangement are expected to help close the 2024 financing gap. - Additional regional borrowing could be used to cover gaps; the ample pool of regional foreign exchange reserves mitigates repayment risks, conditional on market access and budgetary resources. - Ensuring medium-term debt sustainability requires agreements with donors to durably unlock budget support and successful execution of the UCT program. - Staff continue to advise against disbursing the highly non-concessional BDEAC loan signed in 2021 as it would worsen external debt sustainability indicators. *Source: International Monetary Fund.* ### 23. The authorities broadly agreed with the assessment of the vulnerabilities ### 23. The authorities broadly agreed with the assessment of the vulnerabilities ### Authorities’ assessment and policy conclusions - The authorities broadly agreed with the assessment of the vulnerabilities contained in the report. - They agreed that liquidity challenges in the short to medium terms remain the greatest hindrance to debt sustainability. - The authorities emphasized that full implementation of the ECF-supported program, particularly revenue measures, is necessary to reduce debt service vulnerabilities. - The revenue-led fiscal consolidation path envisioned in the program, coupled with strong governance and transparency reforms in the structural reform agenda, is key to improve donor relations and unlock the necessary financing. - The authorities agreed that a proactive debt management system is necessary to further reduce debt vulnerabilities and the occurrence of arrears. - The authorities agreed that grant financing, as well as concessional external financing, are needed to tackle the many developmental needs of the country while improving debt sustainability. ### Debt sustainability indicators and projections (selected excerpts preserved exactly) - External debt (nominal) 1/: 35.332.832.631.229.627.926.425.725.127.827.235.727.4 - of which: public and publicly guaranteed (PPG): 35.332.832.631.229.627.926.425.725.127.827.235.727.6 - Change in external debt: 0.3-2.5-0.2-1.4-1.6-1.7-1.5-0.7-0.60.2-2.6 - Identified net debt-creating flows: 8.213.65.46.74.82.71.61.02.42.21.76.72.7 - Non-interest current account deficit: 11.012.68.98.46.85.04.03.44.94.74.48.85.0 - Exports: 13.713.714.814.815.515.916.617.317.917.015.3 - Imports: 31.933.732.232.332.131.531.231.431.230.226.3 - Net current transfers (negative = inflow): -7.2-7.4-8.8-9.3-9.8-10.8-10.7-10.7-8.4-8.2-6.0-9.6-9.2 - Endogenous debt dynamics 2/: -2.61.9-2.0-0.3-0.6-0.8-0.8-0.7-0.6-0.3-0.2 - Residual 3/: -7.9-16.0-5.6-8.2-6.4-4.4-3.1-1.7-3.0-2.0-4.3-6.5-3.2 ### Key sustainability indicators (exact strings from source) - PV of PPG external debt-to-GDP ratio: ......19.518.918.016.915.915.615.318.321.9 - PV of PPG external debt-to-exports ratio: ......131.9127.6115.5106.395.590.285.5107.7143.4 - PPG debt service-to-exports ratio: 3.53.73.812.614.414.412.79.38.48.88.3 - PPG debt service-to-revenue ratio: 5.56.56.820.222.921.819.314.013.113.09.6 - Gross external financing need (Million of U.S. dollars): 291.1299.4209.4250.0232.8189.6156.6121.3179.7219.0275.6 ### Key macroeconomic and fiscal assumptions (exact strings from source) - Real GDP growth (in percent): 1.00.50.71.42.93.73.73.63.53.23.22.43.2 - GDP deflator in US dollar terms (change in percent): 7.1-5.36.25.54.43.93.43.13.02.52.52.43.5 - Effective interest rate (percent) 4/: 0.30.30.50.50.70.80.80.91.01.82.30.51.1 - Growth of exports of G&S (US dollar terms, in percent): 6.1-4.615.46.713.110.112.410.810.95.75.54.98.2 - Growth of imports of G&S (US dollar terms, in percent): 3.70.52.27.17.05.76.47.26.14.44.19.76.1 - Grant element of new public sector borrowing (in percent): .........34.935.033.634.033.733.526.427.1...31.4 - Government revenues (excluding grants, in percent of GDP): 8.87.88.39.29.810.510.911.511.511.513.2 7.911.0 - Aid flows (in Million of US dollars) 5/: 141.8123.3170.8165.0208.7237.2244.4255.0169.3143.378.2 - Grant-equivalent financing (in percent of GDP) 6/: .........6.47.58.17.87.65.03.41.6...5.8 - Grant-equivalent financing (in percent of external financing) 6/: .........80.480.782.983.983.176.762.447.0...73.6 - Nominal GDP (Million of US dollars): 2584.42459.02631.72815.23025.83261.93498.63734.93984.05400.88469.5 - Nominal dollar GDP growth: 8.2-4.97.07.07.57.87.36.86.75.85.84.86.8 ### Public sector debt framework (selected exact strings) - Public sector debt 1/: 48.551.157.757.354.951.147.744.444.340.331.852.646.1 - of which: external debt: 35.332.832.631.229.627.926.425.725.127.827.235.727.4 - Change in public sector debt: 4.12.56.7-0.5-2.3-3.8-3.4-3.2-0.1-0.4-3.5 - Identified debt-creating flows: 6.74.50.9-1.0-1.9-3.7-3.3-3.2-0.2-0.3-0.6-0.3-1.4 - Primary deficit: 5.74.93.02.10.9-1.0-1.1-1.31.50.70.41.70.4 - Revenue and grants: 13.712.314.414.816.317.817.918.315.814.214.115.115.9 - of which: grants: 4.94.56.15.56.57.37.06.84.32.70.9 - Primary (noninterest) expenditure: 19.417.217.316.817.216.716.817.017.314.914.616.916.3 - Residual: -2.6-2.05.80.5-0.4-0.2-0.1-0.10.0-0.2-2.90.9-0.1 ### Stress tests and sensitivity analysis (high-level) - The report presents multiple stress tests and tailored tests, including scenarios such as: - Most extreme shock (definition: the test that yields the highest ratio in or before 2032) and one-off breach presentations. - Tailored tests examples: Combined contingent liabilities (C1), Natural disaster (C2, n.a.), Commodity price (C3, n.a.), Market Financing (C4, n.a.). - Selected sensitivity table excerpts (exact strings preserved): - Baseline: 1918171616151617181818 - A1. Key variables at their historical averages in 2024-2034 2/: 1920222529323741454852 - B1. Real GDP growth: 1919181717171819192020 - B2. Primary balance: 1919212020202122232323 - C1. Combined contingent liabilities: 1924242424242425262626 - Threshold: 3030303030303030303030 *Source: Central African Republic — IMF staff report excerpts contained in the supplied PDF content.* ### 2. Primary balance1314151310999101111 ### 2. Primary balance ### Sensitivity analysis and public debt projections (Table 5 highlights) - Table scope: Sensitivity Analysis for Key Indicators of Public Debt, 2024-2034; Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. - TOTAL public debt benchmark: 35 35 35 35 35 35 35 35 35 35 35 35 - Selected baseline PV of debt-to-GDP projections (years 2024–2034): Baseline 282 246 209 192 173 204 198 200 202 204 206 - Alternative scenario A1 (Key variables at their historical averages in 2024-2034) PV of debt-to-GDP projections: A1 282 270 240 232 221 258 257 261 265 270 273 - Bound tests (selected): - B1. Real GDP growth PV of debt-to-GDP: B1 304 273 243 228 211 253 250 257 264 271 277 - B2. Primary balance PV of debt-to-GDP: B2 304 282 262 241 218 253 245 247 248 250 250 - B5. Depreciation PV of debt-to-GDP: B5 304 293 243 219 193 217 203 198 194 190 186 - B6. Combination of B1-B5 PV of debt-to-GDP: B6 304 275 247 215 191 220 211 211 212 213 214 - Tailored test C1 (Combined contingent liabilities) PV of debt-to-GDP: C1 304 337 285 262 238 275 267 269 270 272 273 - Debt service and ratios (selected rows and projections shown in source): - Baseline (debt service-to-exports / debt service-to-revenue / PV of debt-to-exports / PV of debt-to-revenue / PV of debt-to-GDP appear in table but are presented in multiple sequences in the source). - Threshold lines reported in table: Threshold 14 14 14 14 14 14 14 14 14 14 14 14 - Notes in table: several cells marked "n.a." and "0" for tailored tests C2, C3, C4 in some series; "#N/A" appears in one A1 series. ### Recent developments (supplementary information) - The supplement provides information that became available since the staff report (EBS/24/53) on June 10, 2024, related to the fulfillment of the two prior actions; the additional information does not change the thrust of the staff appraisal. - Fuel sector transparency: authorities completed the first prior action by enhancing the transparency of the fuel price structures. Actions taken: - New decree to govern price setting for licensed fuel importers and an administrative act for unregistered importers not depositing at SOCASP. - Price structures have started to be regularly published on the website of the ministry of finance, with more details on components consistent with transit and storage regimes. - All duties and taxes will now be applied to unregistered fuel imports based on the same reference prices as licensed imports plus a 30 percent premium. - Fuel sector competition: authorities completed the second prior action to level the playing field: - Injunction to the monopoly importer to comply with CAR’s existing laws and regulations (local office incorporation and operating license) and with regulations governing the new price structure mechanism. - Presidential decree introducing the new forward-looking pricing mechanism consistent with IMF technical assistance. - The monopoly importer provided a written commitment to import at least 80 percent of total petroleum products via the river consistent with existing laws and regulations. ### Socioeconomic developments and outlook (authorities’ statement) - Security: improved in certain areas as authorities made progress in regaining control of territory; significant challenges remain. - Humanitarian situation: - 33 percent of CAR’s population, more than 2 million people, continue to face acute food insecurity. - UN agencies estimate that only 28.35 percent of the financing needed for the humanitarian response in 2024 are covered. - Macroeconomic outcomes and projections: - Real GDP growth turnout for 2023: 0.7 percent (lower than expected due to heavy disruptions in fuel and electricity). - Inflation declined to 4 percent. - Economic recovery expected to be firm in 2024 with real GDP growth of 1.4 percent, contingent on reforms in fuel markets, improved business climate, resumption of donors’ support, and continued security improvements. - Inflation expected to decline further within the region’s target, due notably to normalization of fuel market operations. - Risks: Significant downside risks include global financial conditions, geopolitical tensions, domestic reforms, and security. ### Program implementation and performance - Program implementation: broadly satisfactory against challenging backdrop. - All but one quantitative performance criteria were met. - Continuous performance criterion for the non-accumulation of external arrears was missed due to liquidity pressures and capacity constraints. - Authorities reached out to creditors and sought to strengthen coordination between cash and debt management units to address arrears. - All structural benchmarks were met, although one was met with a delay. ### Fiscal policy and public financial management - Policy stance: revenue-led fiscal consolidation to address humanitarian and social spending needs while prioritizing growth-enhancing investments and preserving debt sustainability. - Revenue measures and tax administration: - Reforms in the fuel market to restore the tax base and improve supply and transparency. - Rationalize tax expenditures, step up tax enforcement, combat tax fraud or leakages (notably on unlicensed fuel and unregistered importers). - Step up tax arrears collection efforts and enforce minimum customs declaration values on imported cigarettes. - Expenditure management: - Strive to protect social spending and curb extra-budgetary spending; contain spending using extraordinary procedures. - Public financial management reforms: - Strengthen medium-term fiscal framework with Fund technical assistance. - Fully leverage the SIM_BA software platform to improve budget management; invest in IT equipment and training. - Progress toward effective implementation of the treasury single account, including centralization of revues collected by line ministries (“Menu recette”). - Debt management: - Implement a medium-term debt strategy and build capacity with Fund support. - Policies aimed at lengthening debt maturities to reduce roll-over risks and strengthen coordination between the debt unit and Treasury. - Commit to prioritize grants and highly concessional financing within program limits. - Step up efforts to prevent new arrears and normalize relations with creditors. ### Monetary, financial sector, and governance - Monetary policy: regional central bank continued to prioritize controlling inflation and building reserves; inflation declined to within the region’s target. - Financial sector: financial soundness indicators show the banking system remains resilient and stable; authorities continue to closely monitor individual banks given elevated non-performing loans, and liquidity and concentration risks. - Governance and safeguards: - Commitment to high transparency and governance standards to facilitate resumption of budget support from development partners. - Invitation of technical and financial partners to monthly treasury committee meetings. - Commitment to implement World Bank PEFA recommendations. - ECF program safeguards: authorities commit to use 90 percent of the disbursement to repay the IMF, and the remaining 10 percent to pay salaries using fiduciary processes from the World Bank. - Adoption of an anticorruption law and work to strengthen the role and autonomy of the Court of Audit. - Institutional plan to strengthen enforcement agencies including the Financial Intelligence Unit, Agence Nationale d’investigations financieres (ANIF). - Additional reforms planned to overhaul AML/CFT laws and operationalize asset declaration obligations of senior public officials. ### Structural reforms and climate resilience - Competitiveness and natural resource governance: - New mining code adopted in line with international standards; intent to strengthen natural resource management with World Bank support. - Climate change: - CAR vulnerable to climate change due to reliance on farming and river-dependent economic activity; Oubangui River water volume has declined. - Forestry contributes significantly to global carbon capture; authorities developing carbon markets. - Requested a CCDR from the World Bank and climate-related technical assistance from the IMF; intend to use diagnostic tools to prepare reforms potentially supported by an RSF arrangement. - Fuel market reform objective: level the playing field, foster competition, reform petroleum pricing to safeguard the budget, improve transparency, and ensure adequate energy supply; committed to swiftly implementing an action plan. ### Conclusion and request - Considering satisfactory program implementation and authorities’ commitment to maintain sound policies, the authorities request completion of the second review under the ECF arrangement and associated requests; Directors’ support is sought. *Prepared by the African Department in consultation with the Strategy, Policy, and Review Department as well as the Legal and Fiscal Affairs Departments. June 21, 2024* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1cafea2024001-print-pdf.pdf_