## _cr05424 - Executive Summary ## Source details **Canonical URL:** [_cr05424 - Executive Summary](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05424.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05424.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05424.pdf.json) --- ### Recent developments - Peaceful presidential and legislative elections held during March-May 2005; security generally improved in the cities, but banditry remains a major problem in rural areas. - Real GDP estimated to have increased by about 1 percent in 2004; initial indications through mid-2005 do not suggest a pick-up in activity. - Average price level fell by about 2 percent in 2004 but has increased moderately thus far in 2005. - Social sectors remain in a dire condition with services absent in many parts of the country. - External arrears totaled 25 percent of GDP at end-2004; domestic arrears amounted to roughly 30 percent of GDP. - Government revenue stands at about 8 percent of GDP. ### Political and security context - Transition to democratic rule concluded with elections in March-May 2005; President Bozizé won in the second round and a supporting coalition holds a majority in the National Assembly. - Political situation fragile due to public impatience with the economic situation and recurrent public sector wage arrears. - Security calm in Bangui; rural areas face armed bands. Several hundred troops from France and CEMAC remain deployed. - First two phases of DDR expected to be concluded by end-2005; reintegration will likely take two years. ### Recent economic developments and key macro indicators (2001–05) - Real GDP (annual percentage change): 2001 0.3; 2002 -0.6; 2003 -7.6; 2004 1.3; 2005 2.2 - Consumer prices (yearly average): 2001 3.8; 2002 2.3; 2003 4.4; 2004 -2.2; 2005 2.4 - Export volume: 2001 4.8; 2002 0.2; 2003 -29.0; 2004 2.2; 2005 4.0 - Import volume: 2001 -8.1; 2002 13.9; 2003 -15.5; 2004 6.9; 2005 3.4 - Broad money: 2001 -1.1; 2002 -4.3; 2003 -8.0; 2004 14.2; 2005 2.9 - Overall fiscal balance, commitment basis, incl. grants (percent of GDP): 2001 -0.9; 2002 -1.2; 2003 -3.1; 2004 -2.2; 2005 -2.7 - External current account balance (percent of GDP): 2001 -2.5; 2002 -3.1; 2003 -4.9; 2004 -4.3; 2005 -3.9 - Economic activity constrained by destruction of capital, rural insecurity, high transport costs, and political uncertainty. - External current account deficit narrowed by about ½ of 1 percent of GDP to 4⅓ percent of GDP in 2004 and expected to decline by a similar amount in 2005. - Net credit to government and private sector credit picked up in 2004; some increase in private sector credit partly receded in H1 2005. ### Program performance under EPCA - Performance uneven: progress on structural reforms but serious fiscal slippages. - Narrow primary deficit: 2004 narrow primary deficit more than 1 percent of GDP higher than targeted; H1 2005 narrow primary deficit exceeded the target by 1 percent of annual GDP (cash basis exceeded only slightly because of additional salary arrears). - Revenue: end-2004 target met after partial corrections; end-June 2005 target missed by about ¼ of 1 percent of annual GDP. - Customs: average effective tariff about 9 percent (import tax receipts as a share of total imports) versus a weighted statutory tariff estimated at 15 percent. - Payroll management: public sector wage commitments exceeded the budget envelope by 0.8 percent of GDP in 2004 and projected to exceed the 2005 budget envelope by over 1 percent of GDP. - Salary arrears: about 1½ months in 2004 and three months thus far in 2005, on top of a stock of more than 30 months of salary arrears representing about 10 percent of GDP accumulated during 1992-93 and 2001-03. - Fiscal structural measures: progress on VAT and Large Taxpayer’s Unit reforms; monthly treasury cash flow plan introduced and spending better identified at the commitment stage. ### Box 1 — The Wage Bill: projections, drivers, and measures - Projected government wage bill (commitment basis) for 2005: 5.8 percent of GDP (about 1 percent of GDP more than in the 2005 budget). - Slippages in 2004: about 0.8 percent of GDP because 2004 budget containment measures were not effective. - Drivers of increase despite frozen base salaries since 1985: - rapid expansion of allowances and benefits; - creation of high-level posts with salary premiums; - delays in retirements; - net recruitment, largest percentage increase in defense ministry (armed forces and gendarmerie). - Commitments on wage spending now represent close to 100 percent of government cash revenue (excluding offsets, earmarked revenue, withholding taxes on government salaries, and taxes and duties on project-related imports). - Staff fiscal recommendation: reductions of about 1 percent of GDP on an annual basis in the wage bill needed. - Proposed immediate measures: - reduce allowances; - accelerate retirements; - introduce cuts in some higher salary bands not reduced in 2004; - clean up payroll files. - Footnote: Most notably, a 25 to 30 percent reduction of annual salaries in excess of CFAF 300,000 (about US$550). - Pension implication: average pension represents about 45 percent of the average salary. - Petroleum tax policy impact: petroleum tax revenue loss to date in 2005 about ½ of 1 percent of annual GDP. - Domestic arrears: preliminary estimates suggest domestic arrears about 30 percent of GDP at end-2004; composition roughly half owed to suppliers, one-third salary arrears, remainder primarily due to domestic financial institutions. - Central bank advance: a similar advance last year was 1½ of GDP; terms carry an annual interest rate of 10 percent with a maturity of three years; first installment on that advance deferred from July 2005 until January 2006. ### Wage bill and regional comparisons (percent of GDP) - C.A.R.: 2003 = 5.0; 2004 Est. = 5.6; 2005 Proj. = 5.8 - Cameroon: 2003 = 5.8; 2004 Est. = 5.9; 2005 Proj. = 5.9 - Chad: 2003 = 4.8; 2004 Est. = 3.5; 2005 Proj. = 3.2 - Congo, Rep. of: 2003 = 5.8; 2004 Est. = 5.4; 2005 Proj. = 4.8 - Equatorial Guinea: 2003 = 1.8; 2004 Est. = 1.2; 2005 Proj. = 1.4 - Gabon: 2003 = 6.5; 2004 Est. = 5.9; 2005 Proj. = 5.3 - CEMAC average: 2003 = 4.9; 2004 Est. = 4.4; 2005 Proj. = 4.1 - Sub-Saharan Africa: 2003 = 7.7; 2004 Est. = 7.7; 2005 Proj. = 7.8 ### Banking, liquidity, and financial access - Banking liquidity remained tight because of the government’s dependence on commercial banks’ resources. - Monetary authorities maintained suspension of reserve requirements for Central African banks introduced in mid-2003. - Finding: total bank deposits represent only 4 percent of GDP. - Staff recommendations: limit further strain on banks’ liquidity and be vigilant in supervising banks’ compliance with prudential regulations. - Authorities intend to improve access to financial services, notably by strengthening the microfinance sector with donors. ### Governance, structural reforms, and competitiveness - Tackling corruption and strengthening judiciary and transparency are essential to improve state functioning and the business climate. - Public procurement: authorities committed to reform and seek World Bank expertise. - Natural resources: - Forestry: expand inspections by an independent inspection agency, improve payment of stumpage fees and taxes, widen export/tax publication. - Mining: strengthen office of diamond and gold valuation, continue Kimberley Process certification. - Public enterprises: utilities bill only half of production and collect only about half their billings; combined losses of the three largest public enterprises about 0.7 percent of GDP in 2003. - Trade policy: CEMAC CET applied by the C.A.R. — 5 percent essential goods; 10 percent raw materials and investment goods; 20 percent intermediate goods; 30 percent consumer goods; weighted average tariff estimated at about 15 percent. - Staff recommendations: consider reducing CET while managing fiscal impact; rehabilitate land and river transport infrastructure to lower transport costs. ### Cotton sector (2003/04, production 1,500 tons; CFAF per kilogram) - Average producer price of seed cotton: 121 - Ginned cotton equivalent price 2/: 285 - Ginning and sales cost: 100 - Other cost: 171 - Transport cost 3/: 177 - Freight, insurance, and other charges: 94 - Average total cost: 827 - Average export price: 634 - Average loss: 193 - Note 2/: With 0.425 ginning productivity. Note 3/: Includes international and domestic land transport as well as minor transaction costs. ### External debt, arrears, and debt sustainability - Stock of external arrears at end-2004 estimated at about US$335 million (25 percent of GDP). - End-2004 totals: total stock of external arrears 335.5 (In millions of U.S. dollars); NPV of external debt (In percent of exports) 531.8; Debt-service-to-exports ratio (In percent) 21.8; multilateral debt: 105.3 (In millions of U.S. dollars). - End-2005 projected NPV of debt-to-exports ratio: about 480 percent; under traditional debt–relief mechanisms projection: 435 percent. - All key debt ratios in baseline and alternative scenarios are above policy-dependent indicative thresholds; country classified as “in debt distress”. - DSA baseline (selected): External debt (nominal percent of GDP): 2004 82.5; 2005 79.1; 2010 60.7; 2015 45.5; 2025 25.9. - DSA NPV of external debt (percent of GDP and percent of exports): 2004 NPV 62.8 percent of GDP; 2004 NPV 531.0 percent of exports; 2005 NPV 61.7 percent of GDP; 2005 NPV 477.7 percent of exports. - Debt-service-to-exports ratio (percent): 2004 21.8; 2005 20.7; 2010 15.6; 2015 10.3; 2025 4.5. - Conclusion: debt burden clearly unsustainable even after full traditional debt relief mechanisms; candidate for enhanced HIPC Initiative conditional on policy track record and progress in poverty reduction strategy. ### Future Fund support and conditionality - Staff view: further support under the Fund’s EPCA policy more appropriate at this stage than a PRGF-supported program. - Conditions for additional Fund support and post-conflict program: - Address fiscal slippages and implement outstanding governance and structural reforms. - Meet revenue target—requiring additional revenue measures, including on petroleum prices and tax exemptions. - Maintain restraint on non-salary spending. - Introduce measures to yield savings on the wage bill of 1 percent of GDP on an annual basis. - Establish a good track record of policy implementation and improve capacity to move ahead with a PRGF-supported program. - Avoid accumulating domestic arrears and reduce delays in structural reform implementation. - Make progress on a draft PRSP, normalize relations with external creditors, and finalize a strategy to settle domestic arrears. - Fund obligations: authorities should continue to meet their obligations to the Fund in a timely manner. ### Social sectors, MDGs, and PRSP - Social sectors in dire condition; C.A.R. has lost ground on Millennium Development Goals. - Selected MDG indicators (exact values as presented): - Population below US$1 a day (percent): 66.6 - Poverty gap ratio at US$1 a day (percent): 38.1 - Share of income or consumption held by poorest 20 percent (percent): 2.0; 2.0 - Prevalence of child malnutrition (percent of children under 5): 23.2 - Population below minimum level of dietary energy consumption (percent): 49.0 51.0...44.0... 24.5 - Net primary enrollment ratio (percent of relevant age group): 53.1...54.7......100.0 - Under-5 mortality rate (per 1,000): 180.0 ... target 60.0 - Maternal mortality ratio (per 100,000 live births): 1,200.0 - HIV prevalence among females (percent, ages 15-24): 13.5 - Number of children orphaned by HIV/AIDS: 110,000.0 - Access to improved water source (percent of population): 48.0...70.0 75.0...74.0 - Access to improved sanitation (percent of population): 24.0...25.0 27.0 - PRSP: progress made with UNDP support; plan to finalize PRSP by the first quarter of 2006; priority areas education, health (including HIV/AIDS), infrastructure, and food security. - Donor support: France and China provided budgetary support in H1 2005; France and the European Union signaled intent to provide additional budgetary support within a credible macroeconomic framework. ### Statistics, technical assistance, and data limitations - Statistical database described as "minimally adequate for surveillance purposes" with severe weaknesses across real, government finance, and external trade areas. - Recent and planned TA missions (selected): FAD and STA missions on VAT, tax and customs, public expenditure management, government finance statistics, and real sector data (missions listed with dates in the source). - Major priorities: revise CPI/weights; improve national accounts and quarterly foreign trade data; conduct agriculture and enterprise surveys; revise enterprise list; reestablish industrial production index; improve government finance statistics and Treasury cash-plan reporting. - Monetary statistics: only 31 percent of banknotes issued in the C.A.R. by BEAC remain in the territory; cross-border circulation significant. - Staff view: national income estimates could be significantly overstated; reduced energy consumption suggests declines not fully reflected. ### Macroeconomic outlook and risks - Baseline medium-term projection: annual real GDP growth projected at 3-4 percent, hinged on reforms and improved security. - Alternative DSA assumptions: rebound to 4 percent per annum by 2008, tapering to about 3½ percent by 2015. - Major risks: - Political instability despite successful elections; - Insufficient international support; - Continued fiscal slippages and accumulation of arrears; - Repayment risks to the Fund despite past honoring of IMF repayments. - Upside scenario: stabilization of public finances, meaningful anticorruption progress, and significant improvement in private sector climate—bolstered by international support—could substantially boost medium-term growth and social outcomes. ### Institutional recommendation - Proposed next Article IV consultation on the standard 12-month cycle. *Source: _cr05424 - Executive Summary.* ### Executive Summary ...................................................................................................... ### _cr05424 - Executive Summary ### Recent developments - Peaceful presidential and legislative elections were held during March-May 2005; security has generally improved in the cities, but banditry remains a major problem in rural areas. - Real GDP is estimated to have increased by about 1 percent in 2004; initial indications through mid-2005 do not suggest a pick-up in activity. - The average price level fell by about 2 percent in 2004 but has increased moderately thus far in 2005. - Social sectors remain in a dire condition with services absent in many parts of the country. - The C.A.R. continues to accumulate external and domestic arrears: external arrears totaled 25 percent of GDP at end-2004 and domestic arrears amounted to roughly 30 percent of GDP. - Government revenue stands at about 8 percent of GDP. ### Political and security context - Transition to democratic rule concluded with elections in March-May 2005; President Bozizé won in the second round and a supporting coalition holds a majority in the National Assembly. - Political situation remains fragile due to public impatience with the economic situation and recurrent public sector wage arrears. - Security is generally calm in Bangui; rural areas face armed bands. Several hundred troops from France and CEMAC remain deployed to support the peace process. - The first two phases of DDR are expected to be concluded by end-2005; reintegration will likely take two years. ### Recent economic developments and program performance - Key macroeconomic indicators, 2001–05 (annual percentage change or percent of GDP as shown): - Real GDP: 2001 0.3; 2002 -0.6; 2003 -7.6; 2004 1.3; 2005 2.2 - Consumer prices (yearly average): 2001 3.8; 2002 2.3; 2003 4.4; 2004 -2.2; 2005 2.4 - Export volume: 2001 4.8; 2002 0.2; 2003 -29.0; 2004 2.2; 2005 4.0 - Import volume: 2001 -8.1; 2002 13.9; 2003 -15.5; 2004 6.9; 2005 3.4 - Broad money: 2001 -1.1; 2002 -4.3; 2003 -8.0; 2004 14.2; 2005 2.9 - Overall fiscal balance, commitment basis, incl. grants: 2001 -0.9; 2002 -1.2; 2003 -3.1; 2004 -2.2; 2005 -2.7 - External current account balance: 2001 -2.5; 2002 -3.1; 2003 -4.9; 2004 -4.3; 2005 -3.9 - Economic activity has not recovered from the 2003 contraction; constraints include destruction of capital, rural insecurity, high transport costs, and political uncertainty. - External current account deficit narrowed by about ½ of 1 percent of GDP to 4⅓ percent of GDP in 2004 and is expected to decline by a similar amount in 2005. - Net credit to government and private sector credit picked up in 2004; some increase in private sector credit partly receded in H1 2005. ### Program performance under EPCA - Performance was uneven: progress on structural reforms but serious fiscal slippages. - The narrow primary deficit in 2004 was more than 1 percent of GDP higher than targeted; in H1 2005 the narrow primary deficit exceeded the target by 1 percent of annual GDP (on a cash basis it exceeded the target only slightly because of the accumulation of additional salary arrears). - Revenue performance disappointing: end-2004 target met after partial corrections, but end-June 2005 target missed by about ¼ of 1 percent of annual GDP. - Customs performance weak due to low taxable imports and pervasive corruption; average effective tariff (import tax receipts as a share of total imports) is about 9 percent against a weighted statutory tariff estimated at 15 percent. - Payroll management slipped: public sector wage commitments exceeded the budget envelope by 0.8 percent of GDP in 2004 and are projected to exceed the 2005 budget envelope by over 1 percent of GDP. - Salary arrears accumulated: about 1½ months in 2004 and three months thus far in 2005 (these are on top of a stock of more than 30 months of salary arrears representing about 10 percent of GDP accumulated during 1992-93 and 2001-03). - Fiscal structural measures: progress made on VAT and Large Taxpayer’s Unit reforms; measures to control smuggling introduced but progress slow; improvements in public expenditure management (monthly treasury cash flow plan, better identifying spending at the commitment stage). ### Macroeconomic outlook (baseline) - Annual real GDP growth over the medium term is projected at 3-4 percent, hinged on economic reforms and an improvement in the security situation. ### Policy discussions and priorities - Restoring financial stability requires addressing severe public finance weaknesses. - Action on the wage bill is critical to bring it in line with government resources and avoid further arrears. - Continued efforts needed to improve expenditure controls and monitoring. - Importance of raising government revenue to finance basic government functions. - Key revenue measures: combat fraud in customs and improve domestic tax administration through increased controls and verification procedures. - Governance and structural reforms: - Tackling corruption is essential to improving state functioning and the business climate. - Continued efforts to boost transparency. - Reform of natural resources sectors, improvements in competitiveness through lower transport costs, and reducing costs of doing business need strengthening. - External debt: - The C.A.R.’s external debt situation is unsustainable; the C.A.R. has not been servicing its external debt, except to the IMF, since 2001 and has continued to accumulate external arrears. - Future Fund support: - The C.A.R. could be a candidate for further Fund support under the EPCA policy. - Moving ahead on a new EPCA program requires addressing fiscal slippages and implementing outstanding governance and structural reforms. - For a PRGF-supported program, the C.A.R. would need to establish a good track record of policy implementation and regularize relations with external creditors. ### Social sectors, donors, and technical assistance - Social sectors remain in dire condition; services are absent in many areas. - Donor support was important in 2004 (e.g., for elections) and will be critical going forward; technical assistance and improved statistics are priorities. ### Selected public administration and wage-bill figures (as presented) - Size of the public administration (Percentage) - Permanent staff 21,512 23,201 7.9 - Civil servants 15,283 15,991 4.6 - Armed forces and gendarmerie 6,229 7,210 15.7 - Contractual staff 2,874 3,068 6.8 - Total 24,386 26,269 7.7 - Evolution of the Components of the Wage Bill, 2003-04 (In percent) - Base salary69.29.1 - Benefits and bonuses22.219.9 - Family allowance5.821.4 - Retroactive adjustments1.637.1 - Other allowances1.331.6 - Total100.012.9 *Source: _cr05424 - Executive Summary.* ### Box 1. The Wage Bill ### Box 1. The Wage Bill ### Projection and main drivers - The government wage bill (on a commitment basis, which includes wages paid plus new arrears) is projected at 5.8 percent of GDP for 2005, about 1 percent of GDP more than in the 2005 budget. - Slippages of about 0.8 percent of GDP in 2004 occurred because measures adopted in the 2004 budget to contain commitments on wage spending were not effective. - Although base salaries have been frozen since 1985, the wage bill continues to increase because of: - the rapid expansion of allowances and benefits; - the creation of high-level posts carrying salary premiums; - delays in retirements. - Commitments on wage spending now represent close to 100 percent of government cash revenue (excluding offsets, earmarked revenue, withholding taxes on government salaries, and taxes and duties on project-related imports), and have resulted in further salary arrears being accumulated. - Net recruitment also accounts for part of the increase; the largest percentage increase was in the defense ministry (armed forces and gendarmerie). - Footnote: Most notably, a 25 to 30 percent reduction of annual salaries in excess of CFAF 300,000 (about US$550). ### Fiscal implications and targets - The staff stressed that reductions of about 1 percent of GDP on an annual basis in the wage bill were needed to bring it in line with the government’s resources and assure that a minimum amount of resources is available to finance essential non-salary spending. - The staff proposed immediate measures to: - reduce allowances; - accelerate retirements; - introduce cuts in some of the higher salary bands not subject to reductions in 2004; - initiate the time-consuming task of cleaning up the payroll files. - The full-year impact of many measures would only be realized in 2006; thus the target on the wage bill for 2005 was likely to be exceeded by a wide margin. - Authorities’ actions and constraints: - Authorities prefer to undertake a census of civil servants to identify payroll anomalies (work ongoing; possible savings unclear). - Authorities have started to accelerate retirements and indicated intention to freeze recruitment for at least one year (except in the gendarmerie, for which recruits have already been identified). - Authorities are examining transferring management of the computerized payroll database to a private operator because corruption in the public agency managing this database has reportedly been a key source of anomalies. - Pension implications: Savings from an acceleration of retirements will be partly offset by an increase in pension obligations. The average pension represents about 45 percent of the average salary. ### Revenue and broader public finance context - The C.A.R.’s revenue-to-GDP ratio is about 8 percent. - Petroleum tax policy impact: - Using petroleum tax reductions to limit a pass-through of world oil prices has undermined the revenue base. - Petroleum tax revenue loss to date in 2005 has been about ½ of 1 percent of annual GDP. - Under the current administered price system, higher world oil prices have a negative impact on tax receipts in the absence of changes in domestic retail prices of petroleum products because the specific tax on petroleum products is lowered to offset the increase in the world price. The authorities have not adjusted retail prices since 2000. - The staff encouraged examining ways to mitigate revenue loss, notably by raising retail prices, while containing any increase in the price for kerosene, a key household good of the poor. - Domestic arrears: - Preliminary estimates suggest domestic arrears amounted to about 30 percent of GDP at end-2004. - Composition: roughly half owed to suppliers of goods and services; one-third are salary arrears; the remainder are due primarily to domestic financial institutions. - Authorities committed to finalizing a strategy in early 2006 for eliminating the stock of domestic arrears and will seek donor assistance; the strategy could include a significant discount on the payment of many claims. ### Monetary operations and central bank advance - The authorities are negotiating an exceptional central bank advance to help meet current obligations. - A similar advance of 1½ of GDP was negotiated last year. - Terms of such advances: they carry an annual interest rate of 10 percent with a maturity of three years. - Last year’s advance was guaranteed by other members of the CEMAC zone and the first installment of interest and principal payments on that advance has been deferred from July 2005 until January 2006. - The staff urged exhausting grant financing from donors and regional partners before contracting such expensive debt and encouraged using any available foreign budgetary grants to reimburse such advances. ### Key statistics (Wage bill in the CEMAC, in percent of GDP) - C.A.R.: 2003 = 5.0; 2004 Est. = 5.6; 2005 Proj. = 5.8 - Cameroon: 2003 = 5.8; 2004 Est. = 5.9; 2005 Proj. = 5.9 - Chad: 2003 = 4.8; 2004 Est. = 3.5; 2005 Proj. = 3.2 - Congo, Rep. of: 2003 = 5.8; 2004 Est. = 5.4; 2005 Proj. = 4.8 - Equatorial Guinea: 2003 = 1.8; 2004 Est. = 1.2; 2005 Proj. = 1.4 - Gabon: 2003 = 6.5; 2004 Est. = 5.9; 2005 Proj. = 5.3 - CEMAC average: 2003 = 4.9; 2004 Est. = 4.4; 2005 Proj. = 4.1 - Sub-Saharan Africa: 2003 = 7.7; 2004 Est. = 7.7; 2005 Proj. = 7.8 *Sources: Central African authorities; and WETA database* ### 35. The staff noted that due to the government’s dependence on commercial banks’ ### The staff noted that due to the government’s dependence on commercial banks’ ### Banking liquidity and supervision - Liquidity in the banking sector remained tight because of the government’s dependence on commercial banks’ resources. - Monetary authorities maintained the suspension of reserve requirements for Central African banks introduced in mid-2003. - Staff recommendations: - Limit further strain on banks’ liquidity to prevent crowding out of private sector credit. - Be vigilant in supervising banks’ compliance with prudential regulations. - Authorities’ position: - Acknowledged delay in recapitalizing one problem bank that met only one of the nine prudential ratios in the CEMAC, but intend to address the issue. ### Access to financial services - Finding: Total bank deposits represent only 4 percent of GDP. - Authorities’ intention: Improve population’s access to financial services, in particular by strengthening the microfinance sector in partnership with donors. ### Governance and structural reforms — Tackling corruption - Finding: Economic revival depends on improving state functioning and private sector climate, which hinges on more effectively fighting corruption. - Staff recommendations: - Strengthen the judiciary and enhance transparency. - Adequately staff and equip newly-created specialized financial units within the Ministry of Justice. - Widen published information beyond revenue and aggregate expenditure to include composition of expenditure to foster accountability. - Authorities’ constraints: Dire lack of resources and technical expertise at the Ministry of Justice; seeking donor assistance. ### Public procurement reform - Authorities committed to reforming weak public procurement practices to reduce potential corrupt practices. - Initiative: Seek World Bank expertise to identify reform measures in line with international best practices to enhance transparency, predictability, and reduce discretionary power. ### Improving the business climate - Finding: The C.A.R. rates very poorly in the World Bank’s Doing Business report, notably regarding labor market flexibility, time needed to set up a business, and cost of enforcing contracts. - Staff recommendation: Consider ways to reduce the cost of doing business; advance private sector development reforms in tandem with capacity-building efforts to enhance recovery prospects after conflict. ### Natural resource sectors and public enterprises - Forestry sector measures: - Expanding inspections by an independent inspection agency to deter smuggling and improve payment of stumpage fees and taxes. - Widen information published on exports and taxes paid. - Mining sector: - Authorities hopeful for improved medium-term prospects given renewed foreign interest. - Determined to strengthen office of diamond and gold valuation and control to value diamonds more accurately and fight smuggling; continue to abide by the Kimberley Process certification requirements. - Public enterprises: - Authorities considering privatizing billing and collection services of electricity and water utilities. - Each utility bills only half of total production and collects only about half its billings. - Combined losses of the three largest public enterprises represented about 0.7 percent of GDP in 2003. ### Trade policy and competitiveness - CEMAC common external tariff structure applied by the C.A.R.: - 5 percent for essential goods - 10 percent for raw materials and investment goods - 20 percent for intermediate goods - 30 percent for consumer goods - Weighted average tariff estimated at about 15 percent. - Imports of goods produced in CEMAC countries are not subject to tariffs; a few quantitative restrictions remain (notably on sugar). - Staff recommendations: - Reduce the region’s common external tariff (CET) to gain economic benefits, while managing potential fiscal revenue declines. - Strengthen application of regional trade regulations, including classification and attribution of goods to tariff categories. - Seek donor support and collaborate with CEMAC neighbors to rehabilitate land and river transport infrastructure to lower transport costs. ### Cotton sector (Box 2): cost structure and policy implications - Historical production: Over 40,000 tons in 1998; about 1,500 tons in 2003. - Causes of decline: Conflicts, low international prices, high transport costs, and an inefficient parastatal. - Staff caution: Sector currently uncompetitive; prudence advised before committing public resources to rehabilitation since losses are inevitable at current world prices given high transport costs. - Cost structure (2003/04, production level of 1,500 tons; values in CFAF per kilogram): - Average producer price of seed cotton 121 - Ginned cotton equivalent price 2/285 - Ginning and sales cost100 - Other cost171 - Transport cost 3/177 - Freight, insurance, and other charges94 - Average total cost827 - Average export price634 - Average loss193 - Notes: - 2/ With 0.425 ginning productivity - 3/ Includes international and domestic land transport as well as minor transaction costs - Observation: Many ginning and other costs are fixed and will decline as production increases, but transport costs are very large and mostly variable. ### External debt and arrears - Status at end-2004: - Total stock of external arrears: 335.5 (In millions of U.S. dollars) - NPV of external debt (In percent of exports): 531.8 - Debt-service-to-exports ratio (In percent): 21.8 - Of which: multilateral debt: 105.3 (In millions of U.S. dollars) - The stock of external arrears at end-2004 is estimated at about US$335 million (25 percent of GDP). - Developments and policy: - C.A.R. has not been servicing its external debt, except to the IMF, since 2001 and has accumulated arrears to bilateral and multilateral creditors. - Normalization requires a comprehensive arrears clearance plan, including with the World Bank and AfDB. - Authorities have started verifying outstanding debt and arrears at end-2004 and have exchanged views with some creditors on profiles of arrears clearance operations. - Authorities agreed that all external financing should be in the form of grants, although they recently contracted some interest-free loans. - Staff urged authorities to seek more support to improve debt data management, including funding and technical expertise to upgrade outdated software. - Debt sustainability projections: - End-2005 projected NPV of debt-to-exports ratio: about 480 percent. - Under traditional debt–relief mechanisms projection: 435 percent. - All key debt ratios in baseline and alternative scenarios are above policy-dependent indicative thresholds; country classified as “in debt distress”. - Eligibility: Could be eligible for HIPC initiative but must establish a good track record of policy performance and make satisfactory progress in its poverty reduction strategy. ### Future Fund support and conditionality - Staff view: Given continued weak administrative and institutional capacity, further support under the Fund’s EPCA policy is more appropriate at this stage than a PRGF-supported program. - Conditions for additional Fund financial support and to proceed with a post-conflict program: - Address fiscal slippages and implement key governance and structural reforms, including measures outstanding from the first EPCA program. - Meet revenue target—requiring additional revenue measures, including on petroleum prices and tax exemptions. - Maintain restraint on non-salary spending. - Introduce measures to yield savings on the wage bill of 1 percent of GDP on an annual basis. - Establish a good track record of policy implementation and improve capacity to move ahead with a PRGF-supported program. - Avoid accumulating domestic arrears and reduce delays in implementation of structural reforms. - Make progress on a draft PRSP, normalize relations with external creditors, and finalize a strategy to settle domestic arrears. - Fund obligations: Authorities should continue to meet their obligations to the Fund in a timely manner. - Note on EPCA eligibility criteria: detailed in footnote 18. ### Social sectors and PRSP - Finding: Social sectors are in a dire condition with services absent in many parts of the country; C.A.R. has lost ground on Millennium Development Goals. - Health indicators: Life expectancy declined by an average of six months every year over the past decade. - Authorities’ commitments: - Reverse deterioration, extend fight against HIV/AIDS with donor support. - Provide incentives for qualified education and health personnel to relocate to the provinces. - PRSP preparation: - Progress made with UNDP support; workshops conducted nationwide for participation. - Sectoral strategies elaborated; education, health (including HIV/AIDS), infrastructure, and food security identified as priority intervention areas. - Plan to finalize the PRSP by the first quarter of 2006. ### Donor coordination, technical assistance, and statistics - Donor support: - During first half of 2005, France and China provided some budgetary support. - France and the European Union signaled intention to provide additional budgetary support within a credible macroeconomic framework. - Project financing to priority sectors expected to increase; efforts to widen donor circle since elections. - Technical assistance (TA) priorities: Tax and customs administration; public expenditure management (PEM); judicial system; statistics; PRSP process. - Fund involvement: Active in tax administration, PEM, and treasury management. - Statistical capacity: - Statistical database remains weak and minimally adequate for surveillance purposes. - African Development Bank leading effort to improve statistical capacity; Fund provided TA in government finances and the real sector. - Staff view: National income estimates could be significantly overstated, not fully reflecting contraction in key sectors—e.g., reduced energy consumption suggests declines. *Source: _cr05424 - 35. The staff noted that due to the government’s dependence on commercial banks’* ### 54. The C.A.R. has managed its political transition commendably. The recent ### _cr05424 - 54. The C.A.R. has managed its political transition commendably. The recent ### Political transition and governance - The C.A.R. has managed its political transition commendably; recent peaceful elections with wide participation provide a hopeful sign that sufficient stability could permit authorities to address the country’s dire economic and social situation. - Tackling governance problems and corruption will be crucial to strengthening management of public resources and the climate for private sector activity. - The quality of governance has deteriorated with successive periods of political instability. - Progress will take time and require technical assistance from international partners. - Authorities have increased transparency of government operations and should widen these efforts. - Anticorruption efforts need to be enhanced and will require committed leadership. ### Macroeconomic situation and growth prospects - Economic challenges are profound; steady ratcheting down of economic activity over the years has left limited scope to rebound in the short term. - A more effective provision of public goods paired with an environment more conducive to private sector activity will be essential to launch economic growth. - Not all risks are downside: if authorities stabilize public finances, reduce corruption, and improve private sector climate (with appropriate international support), a virtuous circle could raise growth and incomes over the medium term. ### Fiscal policy and public finances - Greater stability in public finances, starting with the public sector wage bill, is crucial. - Poor revenue performance and a swelling wage bill have subordinated provision of public goods to salary payments. - Containing the wage bill and then paying salaries on a timely basis would demonstrate financial stability and allow donor budgetary aid to finance essential nonsalary current spending. - Continued efforts needed on broader public expenditure management, including strengthening expenditure procedures and monitoring. - Specific priority action: Reduce the monthly wage bill by CFAF 600 million. - Other priority actions for the remainder of 2005 (selected): - Eliminate recruitment of contractual staff and do not extend existing contracts. - Transfer management of contractual staff to the Payroll Office. - Transfer processing of electronic civil service data from ONI to the Payroll Office. - Strengthen monitoring of expenditure on a commitment and payment order basis. - Prohibit Treasury from disbursing public funds without prior payment authorization, except for wages, pensions, legal expenses, and other specified exemptions. ### Revenue administration and customs - Government revenue performance has been discouraging; low revenue both symptom and cause of state unraveling. - Measures recommended: - Strengthen customs and tax administrations and widen the tax base through better controls and reducing fraud on imports. - Prohibit customs clearing agents that have not paid the CFAF 50 million bond from operating in the C.A.R. - Eliminate, with minimum exceptions, suspended clearance procedures and use of fictional warehouses to evade import duties. - Suspend, with minimum exceptions, reduced import rates for investments and submit requests for preferential tariff treatment to a review committee comprising the Ministry of Commerce, tax and customs departments, and BIVAC. - Adopt measures recommended by the General Inspector of Finances concerning fraudulent CEMAC certificates of origin. - Increase the number of tax auditor controls and update verification-team goals. ### External assistance, EPCA, and debt - International assistance will play an important but complementary role. - Key elements: ramping up technical assistance, greater social-sector support, and substantial infrastructure investment. - International support will be ineffective unless authorities implement sound policies and better manage public resources. - Additional support under the Fund’s EPCA policy would be appropriate once authorities demonstrate ability to implement sound policies post-election. - The C.A.R.’s debt situation is unsustainable; resolution will require assistance under the HIPC Initiative as traditional debt relief mechanisms will not suffice. - Authorities should implement sound policies and quickly establish the necessary track record to reach the decision point to start benefiting from HIPC assistance. - Authorities should remain in contact with external creditors on debt data questions and possible arrears-clearance plans. ### Exchange rate, regional arrangements, and competitiveness - Exchange rate arrangement and membership in the regional central bank have provided policy certainty in a difficult macroeconomic situation. - The exchange rate anchor has contributed to low inflation. - The central bank remained one of the few public institutions whose functioning was not severely impaired during the conflict. - As measured by the real exchange rate, the C.A.R. has managed to preserve much of the gain from the 1994 devaluation of the CFA franc. - To use the fixed rate regime’s stability to advantage, authorities need sound fiscal policy accompanied by flexibility in factor and product markets—most notably on nominal wages—to adjust to shocks and strengthen competitiveness. - Boosting competitiveness hinges on structural reforms: - Push ahead with trade reform. - Improve security and transportation infrastructure, especially in rural areas, to reduce costs for agricultural producers and exporters. - Reduce cost of doing business by strengthening the judicial system and improving property rights and contract enforcement. ### Financial sector and supervision - Continued close supervision of the banking sector is important. - Authorities should be vigilant in supervising banks’ compliance with prudential regulations. - Examine how access to financial services can be increased, notably through microfinance. ### Social indicators, HIV/AIDS, and statistics - Very poor social indicators call for concerted effort by authorities with donors to improve delivery of social services. - Rising prevalence of HIV/AIDS poses a further challenge as authorities struggle to restore social services. - The MDGs are a distant goal, but substantial gains can be achieved with appropriate policy focus and donor support. - To better monitor economic developments, the C.A.R. must improve its statistics. - Information on real sector developments is particularly weak; restoration of data-collecting apparatus should be a priority. ### Risks and outlook - Sizable risks to the medium-term outlook: - Political instability remains an ever-present concern despite successful elections; authorities must be firm in pursuing sound policies and resisting pressure from interest groups. - Insufficient international support would make economic recovery and strengthening of public administration more difficult. - Repayment risks to the Fund remain despite commendable past honoring of repayment obligations. - Upside scenario: Stabilization of public finances, meaningful anticorruption progress, and significant improvement in private sector climate—bolstered by international support—could substantially boost medium-term growth and social outcomes. ### Institutional recommendation - It is proposed that the next Article IV consultation be held on the standard 12-month cycle. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 1. Population below US$1 a day (percent)...66.6......... ### _cr05424 - 1. Population below US$1 a day (percent)...66.6......... ### Millennium Development Goals (1990–2015) — Key indicators and exact values - 1. Population below US$1 a day (percent): 66.6 - 2. Poverty gap ratio at US$1 a day (percent): 38.1 - 3. Share of income or consumption held by poorest 20 percent (percent): 2.0; 2.0 - Target 2 (Hunger): Halve, between 1990 and 2015, the proportion of people suffering from hunger - 4. Prevalence of child malnutrition (percent of children under 5): 23.2 - 5. Population below minimum level of dietary energy consumption (percent): 49.0 51.0...44.0... 24.5 - Goal 2 (Universal primary education) — Target 3: Ensure that, by 2015, children will be able to complete a full course of primary schooling - 6. Net primary enrollment ratio (percent of relevant age group): 53.1...54.7......100.0 - 7. Percent of cohort reaching grade 5: 23.9.........100.0 - 8. Youth literacy rate (percent ages 15-24): 52.1 60.0 58.5...58.5 100.0 - Goal 3 (Gender equality) — Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2005, and to all levels of education by 2015 - 9. Ratio of girls to boys in primary and secondary education (percent): 58.9 - 10. Ratio of young literate females to males (percent, ages 15-24): 60.1 69.3 66.7...70.0 - 11. Share of women employed in the nonagricultural sector (percent): (no value reported) - 12. Proportion of seats held by women in the national parliament (percent): 4.0 4.0 - Goal 4 (Reduce child mortality) — Target 5: Reduce by two-thirds, between 1990 and 2015, the under-5 mortality rate - 13. Under-5 mortality rate (per 1,000): 180.0 180.0 180.0 180.0 180.0 60.0 - 14. Infant mortality rate (per 1,000 live births): 115.0 115.0 115.0 115.0 115.0 - 15. Immunization against measles (percent of children under 12 months): 62.0 46.0 29.0 - Goal 5 (Improve maternal health) — Target 6: Reduce by three-fourth, between 1990 and 2015, the maternal mortality ratio - 16. Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,200.0 - 17. Proportion of births attended by skilled health personnel: 45.9 44.0...44.0 - Goal 6 (Combat HIV/AIDS, malaria, and other diseases) — Target 7: Halt by 2015, and begin to reverse, the spread of HIV/AIDS - 18. HIV prevalence among females (percent, ages 15-24): 13.5...13.5 - 19. Contraceptive prevalence rate (percent of women ages 15-49): 14.8...28.0 - 20. Number of children orphaned by HIV/AIDS: 110,000.0 - Target 8 (Malaria and other diseases) - 21. Prevalence of death associated with malaria: (no value reported) - 22. Share of population in malaria risk areas using effective prevention and treatment: (no value reported) - 23. Incidence of tuberculosis (per 100,000 people): 339.0 337.8 493.0 - 24. Tuberculosis cases detected under DOTS (percent): 45.0 28.0 ... 6.0 - Goal 7 (Environmental sustainability) — Target 9: Integrate the principles of sustainable development into policies and programs. Reverse the loss of environmental resources. - 25. Forest area (percent of total land area): 37.3...36.8 - 26. Nationality protected areas (percent of total land area): 8.2 8.2 8.2 - 27. GDP per unit of energy use (PPP $ per kg oil equivalent): (no value reported) - 28. CO2 emissions (metric tons per capita): 0.1 0.1 0.1 - 29. Proportion of population using solid fuels: (no value reported) - Target 10: Halve by 2015 proportion of people without access to safe drinking water - 30. Access to improved water source (percent of population): 48.0...70.0 75.0...74.0 - Target 11: Achieve by 2020 significant improvement for at least 100 million slum dwellers - 31. Access to improved sanitation (percent of population): 24.0...25.0 27.0 - 32. Access to secure tenure (percent of population): (no value reported) - Goal 8 (Global Partnership for Development) — Targets 16–18 and indicators 45–48 (selected) - 45. Unemployment rate of population ages 15-24 (total): (no value reported) - 46. Proportion of population with access to affordable essential drugs: (no value reported) - 47. Fixed line and mobile telephones (per 1,000 people): 2.5 5.3 - 48. Personal computers (per 1,000 people): 1.9 ### Sources cited for MDG indicators - World Bank, World Development Indicators database, 2003; and UNDP, Human Development Report 2005. ### Observations from the MDG table (as presented) - Multiple indicators show large gaps versus MDG targets (e.g., poverty rate 66.6 percent; maternal mortality ratio 1,200.0 per 100,000 live births; under-5 mortality 180.0 per 1,000 in baseline years). - HIV prevalence among females (ages 15-24) recorded at 13.5 percent; number of children orphaned by HIV/AIDS recorded at 110,000.0. - Education indicators show low net primary enrollment (53.1...54.7) with target values recorded as 100.0 for later years. - Water and sanitation indicators show partial progress but short of targets (Access to improved water source: 48.0...70.0 75.0...74.0; Access to improved sanitation: 24.0...25.0 27.0). --- ### Central African Republic: Relations with the Fund (As of August 31, 2005) — Key facts and exact figures - I. Membership Status: Joined: 07/10/1963; Article VIII - II. General Resources Account (SDR million) - Quota: 55.70; 100.00 - Fund holdings of currency: 61.12 109.73 - Reserve position in Fund: 0.16 0.29 - III. SDR Department (SDR million) - Net cumulative allocation: 9.32 100.00 - Holdings: 0.14 1.50 - IV. Outstanding Purchases and Loans (SDR million) - PRGF arrangements: 19.54 35.07 - Emergency Post-Conflict Assistance: 5.57 10.00 - V. Financial Arrangements — Amounts approved and drawn (In millions of SDRs) - ESAF/PRGF (Approval date 07/20/1998; Expiration 01/19/2002): Amount approved 49.44; Amount drawn 24.48 - Stand-By Arrangement (03/28/1994–03/27/1995): Amount approved 16.48; Amount drawn 10.71 - SAF (06/01/1987–05/31/1990): Amount approved 21.28; Amount drawn 21.28 - VI. Projected Obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs) - Principal forthcoming: - 2005: 0.0 - 2006: 4.10 - 2007: 5.59 - 2008: 7.68 - 2009: 5.34 - Charges/interest forthcoming: - 2005: 0.17 - 2006: 0.55 - 2007: 0.53 - 2008: 0.43 - 2009: 0.31 - Total forthcoming: - 2005: 0.17 - 2006: 4.65 - 2007: 6.12 - 2008: 8.11 - 2009: 5.64 - VII. Implementation of HIPC Initiative: Not Applicable - VIII. Safeguards Assessments — Main institutional recommendations for the BEAC (as of August 30, 2004) - Prepare financial statements in full accordance with an internationally recognized accounting framework, initially the ECB guidelines. - Publication of full financial statements, together with the auditor’s report, starting with the 2003 financial statements. - Formulate Board-approved formal guidelines under which the BEAC Governor is authorized to make exceptional advances to BEAC member countries. - Annual review by BEAC internal audit department of the process of program data reporting of member countries to the IMF. - Implement a risk-based audit approach, and finalize a charter, for the internal audit function. - Systematic follow up of all recommendations pertaining to the BEAC’s system of internal controls, coordinated by the internal audit department, with regular reporting to the Audit Committee and the BEAC Governor. - Other priority, country-specific recommendations - Clarify statutory basis and circumstances for member countries holding foreign reserves outside the BEAC to avoid apparent conflict with BEAC statutes and ensure full transparency of reserves reporting. - Establish mechanism to prevent IMF overdues and facilitate timely payments through advance acquisitions of SDRs and authorization to debit the SDR account of the member. - Cooperate to reconcile and confirm Treasury balances to ensure BEAC-reported credit to government agrees with Treasuries’ accounts. - Exchange Rate Arrangement - The Central African Republic is a member of a monetary association with a common central bank, the Bank of Central African States (BEAC). - The CFA franc is pegged to the euro at the fixed rate of CFAF 655.957 = € 1. - On October 7, 2005, the rate of the CFA franc in terms of SDRs was SDR 1 = CFAF 784.52. - Article IV Consultations - The Central African Republic is on the standard 12-month cycle for Article IV consultations. - The last Article IV consultation was concluded on April 2, 2004. - Recent Technical Assistance (dates and purposes, selected) - April 2001, FAD: follow up on introduction of the VAT and measures to improve tax and customs revenue collection. - Jan–Feb 2004, STA: review and update the General Data Dissemination System (GDDS) and provide technical assistance in government finance statistics. - March 2004, FAD: revenue administration assistance. - April 2004, FAD: public expenditure management assistance. - Aug–Oct 2004, FAD: improve tax administration. - Feb–Dec 2005, FAD: improve public expenditure management. - May 2005, FAD: follow up on implementation of tax administration reforms. - Jun–July 2005, STA: improve government finance statistics. - July 2005, STA: improve real sector data. - Resident Representative - The Fund’s office in Bangui was closed in September 2003. ### Central African Republic: Relations with the World Bank Group (As of September 23, 2005) — Key points and exact figures - World Bank assistance disrupted by recurrent conflicts and limited by protracted arrears to IDA. - Suspension of IDA disbursements since January 2002; arrears of approximately US$49 million as of September 14, 2005. - One approved WB operation in portfolio: US$17 million credit approved in December 2001 to support HIV/AIDS prevention and control. - HIV prevalence estimated at 13.5 percent (noted as alarmingly high). - Three PPFs totaling US$1.35 million fully disbursed; fourth PPF advance US$650,000 approved. - Effectiveness date for the IDA credit extended until March 2006. - Country Re-Engagement Note (presented July 2004) centered on two building-blocks: - (i) supporting a smooth transition by addressing urgent governance and security issues (focus: economic management, demobilization and reintegration of ex-combatants, leadership capacity-building). - (ii) improving delivery of social services (focus: HIV/AIDS, education, health). - US$4 million of grant financing obtained from the LICUS Trust Fund to support activities. - WB operation for demobilization and reintegration: - Reintegration of Ex-combatants and Support to Communities Special Project approved April 2004 for $9.6 million. - Project funded entirely through the Multi-Donor Trust Fund (MDTF) of the MDRP. - Disbursement under way; about $3.3 million disbursed to date. - WB–IMF collaboration: broad agreement on core reform program - Core reform areas: (i) reinforcement of public expenditure and public payroll management; (ii) revenue mobilization and improvement of tax and customs administration; (iii) improving governance and transparency; (v) improving delivery of public services, including education and health. - Table of Bank–Fund collaboration (lead institution by area — as presented) - Fiscal area: Public expenditure management — IMF; Tax administration — IMF - Governance: Adoption by government of an anti-corruption law — IMF; Natural resources management — World Bank - Other: Monetary and credit policy — IMF; Social sector assessment — World Bank; Poverty reduction strategy — World Bank; External sector — IMF - WB role in PRSP and analytical/advisory work - WB preparing medium-term structural reform framework in PRSP context. - Policy Notes prepared (security, natural resource management, social sectors, public finance); draft being finalized for authorities. - Shared responsibilities - WB and IMF working together to assess debt sustainability and HIPC eligibility. - WB implementing Regional Assistance Strategy for CEMAC countries (support to payments systems); IMF active in regional macroeconomic surveillance. - IMF-led areas where WB input supports IMF programs - IMF leads on core macroeconomic and fiscal policies, revenue mobilization, and aggregate expenditure management; WB provides training and technical assistance to strengthen public finance administration. - IMF-led areas without direct World Bank involvement - IMF leads dialogue on monetary policy, exchange rate management, and balance of payments issues (noting limited national scope given CFA franc arrangement). - Country Director contact (as listed): Mr. Ali Mahmoud Khadr—contact number: (202) 458-7860 *Source: Central African Republic staff report and appendices (IMF), as presented in the provided document.* ### 1. The statistical database of the Central African Republic is minimally adequate for ### The statistical database of the Central African Republic is minimally adequate for surveillance purposes ### Overall assessment and recent developments - The statistical database is "minimally adequate for surveillance purposes," suffering from severe weaknesses due to years of negligence, inadequate resources, and destruction linked to the various conflicts. - A 1999 multisector statistical mission initiated improvements, including adopting the statistics law and setting up a National Statistical Board in 2001, and a decision to participate in the General Data Dissemination System (GDDS). - Conflicts of 2002 and 2003 prevented progress and led to further deterioration of statistical production and dissemination. - Renewed efforts: participation in GDDS became formal after a statistical and government finance statistics expert mission during January 26–February 13, 2004. Metadata were first posted on the IMF’s DSBB on June 14, 2004. Improvement plans are being updated by the authorities. - Issues of source data, compilation, and dissemination are present in all sectors, particularly severe in the real, government finance, and external trade areas. ### Real sector — findings and priorities - Institutional responsibility: Division of Statistics and Economic Studies (DSEE) of the Ministry of the Economy, Finance, Planning, and International Cooperation compiles national accounts. - Data reported to STA: - GDP data reported through 2004, including breakdown by expenditure. - Annual foreign trade statistics reported through 2004. - Consumer and wholesale price indices latest data refer to June 2005. - 1999 STA mission found serious deficiencies in institutional arrangements, data collection procedures, and compilation techniques; these likely worsened. - Specific weaknesses and recommended actions: - Revise wholesale and consumer price indices due to limited coverage and obsolescence of weights. - Continue efforts to improve quality of national accounts estimates and reporting of quarterly foreign trade data. - Urgent resource gap at DSEE; recommendation to redeploy resources to strengthen national accounts services (statistical expert visit: July 11–22, 2005). - Urgent need to develop source data by conducting surveys, particularly for agriculture which represents around 27 percent of the economy. - Informal sector activity is still based on a survey conducted in 1982; manufacturing estimates based on an outdated enterprise list that likely overestimates activity. - Urgent need to revise enterprise list through an enterprise survey and reestablish the industrial production index. ### Government finance statistics — findings and recommendations - The C.A.R. does not report government finance statistics for publication in the Government Finance Statistics (GFS) Yearbook or International Financial Statistics (IFS). - 1999 multisector mission: no single primary data source for government finance statistics; available information not communicated to the Ministry of Finance. - Confirmation by government finance statistics mission (Jan 26–Feb 13, 2004): substantial additional assistance required, notably in Treasury accounting and expenditure management, to produce reliable source data and improve accuracy of measures of domestic arrears. - Follow-up: - Specific recommendations made by the mission and reinforced by a March 2004 FAD mission. - FAD public expenditure management advisor currently stationed in C.A.R. providing support. - GFS mission (Jun 19–Jul 7, 2005) proposed a concrete action plan for improving the Tableau des Opérations financières de l’État and the Treasury cash plan. ### Monetary accounts — findings and priorities - Monthly data for C.A.R. are regularly reported to the Fund in electronic form by the regional central bank (BEAC). - Currency in circulation accuracy is affected by large cross-border movements among CEMAC members: - Only 31 percent of banknotes issued in the C.A.R. by the national BEAC directorate remain in the territory. - 47 percent circulate in Cameroon. - About 16 percent in Chad. - Currency in circulation in the C.A.R. includes some 10 percent of banknotes from Cameroon and 4 percent of banknotes from each of the Republic of Congo and Congo. - Priorities: - Adapt the bridge table linking bank data with monetary statistics to the new format for monthly reporting by banks. - Address accrual recording of interest and the treatment of nonperforming loans. ### Balance of payments — findings and priorities - Responsibility: Balance of Payments Unit of the national agency of the BEAC compiles BOP statistics. - Past delays related to transition from the Fourth to the Fifth Edition of the Balance of Payments Manual have been addressed by BEAC methodological improvements. - Reporting: - Last complete reporting covered 2002 annual data prepared by the national balance of payments committee. - Preliminary statements for 2003–04 are available from the national BEAC direction in Bangui and have been transmitted to Fund staff. - Remaining issues and needs: - Need to update the BOP survey (list of respondents, reporting form, codification). - Review methodologies/statistical techniques such as computation of freight and insurance and procedures for attributing banknote movements among transactions. - Timeliness of the biannual balance of payments (presently 90 days) needs to be shortened. ### Technical assistance missions in statistics (1995–Present) — mission list (as given) - Government finance statistics: K.W. Abadallah, Nov. 29–Dec. 13, 1995 - Multisector statistics: Thiet Luu, Oct. 28–Nov. 12, 1999 - Government finance statistics: Mohamed Maiga, Jan. 26–Feb. 13, 2004 - GDDS: Éric Métreau, Jan. 26–Feb. 13, 2004 - Government finance statistics: Mohamed Maiga, Jun. 20–July 5, 2005 - Real Sector: Maxime Bonkoungou, Jul. 11–22, 2005 ### Common indicators required for surveillance (as of September 6, 2005) — selected entries and frequencies - Exchange Rates: Date of latest observation Aug 2005; Date received Aug 2005; Frequency of Data D; Frequency of Reporting D; Frequency of publication M - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Aug 2005; Date received Aug 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M - Reserve/Base Money: Date of latest observation Jun 2005; Date received Jul 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M - Broad Money: Date of latest observation Jun 2005; Date received July 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M - Central Bank Balance Sheet: Date of latest observation Jun 2005; Date received Jul 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M - Consolidated Balance Sheet of the Banking System: Date of latest observation Jun 2005; Date received Jul 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M - Interest Rates: Date of latest observation Jun 2005; Date received Jul 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M - Consumer Price Index: Date of latest observation Jul 2005; Date received Aug 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation July 2005; Date received Sept 2005; Frequency of Data M; Frequency of Reporting M - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation July 2005; Date received Sept 2005; Frequency of Data M; Frequency of Reporting O - External Current Account Balance: Date of latest observation Dec 2004; Date received Feb 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication A - Exports and Imports of Goods and Services: Date of latest observation Dec 2004; Date received Feb 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication A - GDP/GNP: Date of latest observation Dec 2004; Date received Feb 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication A - Gross External Debt: Date of latest observation Jul 2005; Date received Sept 2005; Frequency of Data M; Frequency of Reporting O ### Debt Sustainability Analysis — key conclusions and baseline scenario assumptions - Coverage: Analysis covers external debt only. Domestic debt is estimated at around 30 percent of GDP but its exact magnitude is uncertain. - Joint DSA: Conducted jointly with the World Bank based on staff estimates of outstanding external debt at end-2004 and creditor data for most multilateral and some bilateral creditors verified by the authorities. - Baseline scenario assumptions: - Assumes no debt relief and no clearance of external arrears. - Financing gap assumed to be filled through accumulation of new external arrears and by new borrowing on concessional terms. - Terms for new debt (assumed): interest rate of 2 percent per annum, 30-year maturity with a 10-year grace period for a grant element of 36 percent. (Footnote: "The bulk of the financing gap is filled by the accumulation of arrears and new borrowing is assumed to fill less than 1 percent of the gap.") - Projections cover 2005–2025 and incorporate September 2005 WEO projections for commodity prices, exchange rates, and interest rates. - Real GDP growth projection: rebound to 4 percent per annum by 2008, tapering to about 3½ percent by 2015; exports of goods and services projected to remain around 12 percent of GDP throughout the period. - Current account deficit: expected to narrow to about 3½ percent of GDP by 2008 and to about 2 percent of GDP over the longer term. - Results: - The results show that C.A.R.’s debt burden is clearly unsustainable even after application of full traditional debt relief mechanisms. - Under baseline scenario, ratios remain above CPIA "poor performer" thresholds (NPV debt-to-exports 100 percent, NPV debt-to-GDP 30 percent, debt service-to-exports 15 percent) until the end of the period (2025) except debt service ratio which falls below 15 percent after 2010. - Two standard alternative scenarios (historical growth and higher interest rate by two percentage points) leave ratios above sustainability thresholds. - Stress tests indicate particular vulnerability to an export shock (bound test B2). - Simulation of full traditional debt relief (Naples operation in 2005, arrears not accumulated and new borrowing fills gap) still results in unsustainable debt ratios, indicating candidacy for debt relief under the enhanced HIPC Initiative. ### Selected DSA numeric highlights (as presented in Table 1, Baseline Scenario, 2002–2025) - External debt (nominal) series (in percent of GDP): - 2002: 100.2 - 2003: 103.6 - 2004: 82.5 - 2005: 79.1 - 2006: 77.2 - 2007: 72.9 - 2008: 68.6 - 2009: 64.6 - 2010: 60.7 - 2015: 45.5 - 2025: 25.9 - NPV of external debt (percent of GDP and percent of exports): - 2004 NPV of external debt: 62.8 (percent of GDP) - 2004 NPV in percent of exports: 531.0 - 2005: 61.7 (percent of GDP); 477.7 (percent of exports) - 2010: 45.4 (percent of GDP); 363.9 (percent of exports) - 2025: 38.8 (percent of GDP); 319.3 (percent of exports) - Debt service-to-exports ratio (in percent): - 2002: 24.6 - 2003: 30.5 - 2004: 21.8 - 2005: 20.7 - 2006: 19.8 - 2007: 19.9 - 2008: 20.6 - 2009: 18.2 - 2010: 15.6 - 2015: 10.3 - 2025: 4.5 - Key macroeconomic assumptions (selected): - Real GDP growth (in percent): 2002: -0.6; 2003: -7.6; 2004: 1.3; 2005: 0.7; 2006: 5.1; 2007: 2.2; 2008: 3.5; 2009: 3.8; 2010: 3.9; 2015 average: 4.1; 2025 average: 3.6 - Nominal GDP (billions of US dollars): 2002: 1.0; 2003: 1.2; 2004: 1.3; 2005: 1.4; 2006: 1.4; 2007: 1.5; 2008: 1.6; 2009: 1.7; 2010: 1.8; 2015: 2.5; 2025: 4.5 - Growth of exports of G&S (US dollar terms, in percent): 2002: 1.5; 2003: -15.2; 2004: 12.5; 2005: -2.2; 2006: 12.8; 2007: 14.6; 2008: 6.2; 2009: 6.8; 2010: 5.8; 2015 average: 5.6; 2025 average: 5.8 - Growth of imports of G&S (US dollar terms, in percent): 2002: 5.7; 2003: -2.8; 2004: 14.6; 2005: 0.5; 2006: 15.5; 2007: 9.5; 2008: 8.2; 2009: 6.2; 2010: 4.0; 2015 average: 7.7; 2025 average: 4.6 - Effective interest rate (percent): 2002: 1.1; 2003: 0.8; 2004: 0.6; 2005: 1.3; 2006: 0.4; 2007: 0.7; 2008: 0.7; 2009: 0.7; 2010: 0.6; 2015: 0.5; 2025: 0.3 - Grant element of new public sector borrowing (in percent): 2008: 40.2; 2009: 40.6; 2010: 36.8; 2011: 37.3; 2012: 36.2; 2013: 36.1; 2014: 37.9; 2015: 36.2; 2025: 36.1 *Source: IMF staff report content provided in the PDF chapter.* ### APPENDIX IV ### APPENDIX IV ### Sensitivity Analyses and Debt Sustainability Scenarios (2005-2025) - Table 2 and Figure 1 present staff projections and simulations of public and publicly guaranteed external debt indicators under the baseline, alternative scenarios, and bound tests for 2005-2025. - Scenarios and stress tests reported include: - A1. Key variables at their historical averages in 2006-25. - A2. New public sector loans on less favorable terms in 2006-25 (assumes interest rate on new borrowing is by 2 percentage points higher than in the baseline, while grace and maturity periods are the same as in the baseline). - B1. Real GDP growth at historical average minus one standard deviation in 2006-07. - B2. Export value growth at historical average minus one standard deviation in 2006-07 (exports values are assumed to remain permanently at the lower level; current account as a share of GDP assumed to return to baseline after the shock). - B3. US dollar GDP deflator at historical average minus one standard deviation in 2006-07. - B4. Net non-debt creating flows at historical average minus one standard deviation in 2006-07 (includes official and private transfers and FDI). - B5. Combination of B1-B4 using one-half standard deviation shocks. - B6. One-time 30 percent nominal depreciation relative to the baseline in 2006 (depreciation defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent). - Memorandum item: - Grant element assumed on residual financing (i.e., financing required above baseline) 6/373737373737 — 37 — 37 (applies to all stress scenarios except A2, where terms on all new financing are as specified in footnote 2). - Key indicator categories shown in the tables and figures: - NPV of debt-to-GDP ratio (percent) - NPV of debt-to-exports ratio (percent) - Debt service-to-exports (ratio/percent) - Debt service ratio (presented in Table 2) ### Selected Numeric Results from Table 3: External Debt Sustainability Indicators (2005-2025) - Baseline scenario: No arrears clearance — selected indicators (percent unless otherwise indicated) - NPV of debt-to-GDP ratio: 61.7 (2005); 61.4 (2006); 59.3 (2007); 57.0 (2008); 55.2 (2009); 53.6 (2010); 51.9 (2011); 50.2 (2012); 48.5 (2013); 46.9 (2014); 45.4 (2015); 38.8 (2025); 2005-14 average 54.6; 2015-25 average 42.6. - NPV of debt-to-exports ratio 2/: 477.7 (2005); 462.2 (2006); 445.4 (2007); 432.3 (2008); 423.8 (2009); 419.9 (2010); 409.3 (2011); 398.8 (2012); 386.8 (2013); 374.5 (2014); 363.9 (2015); 319.3 (2025); 2005-14 average 423.1; 2015-25 average 347.7. - Debt service-to-exports ratio 2/: 20.7 (2005); 19.8 (2006); 19.9 (2007); 20.6 (2008); 18.2 (2009); 15.6 (2010); 14.7 (2011); 13.4 (2012); 12.2 (2013); 11.4 (2014); 10.3 (2015); 4.5 (2025); 2005-14 average 16.6; 2015-25 average 6.8. - Additional scenario: After full traditional debt relief mechanisms — selected indicators (percent) - NPV of debt-to-GDP ratio: 57.7 (2005); 58.0 (2006); 55.8 (2007); 53.2 (2008); 50.6 (2009); 48.4 (2010); 45.8 (2011); 43.4 (2012); 41.2 (2013); 39.1 (2014); 37.3 (2015); 26.6 (2025); 2005-14 average 49.3; 2015-25 average 31.7. - NPV of debt-to-exports ratio 2/: 434.7 (2005); 420.8 (2006); 402.9 (2007); 387.8 (2008); 374.0 (2009); 366.0 (2010); 349.0 (2011); 332.8 (2012); 316.8 (2013); 301.1 (2014); 287.4 (2015); 217.1 (2025); 2005-14 average 368.6; 2015-25 average 250.4. - Debt service-to-exports ratio 2/: reported numbers in the source are fragmented and include values such as 20.4, 25.1, 25.3, and other entries in the table as printed. - Memorandum items (in millions of U.S. dollars): - Nominal GDP: 1,374.9 (2005); 1,419.2 (2006); 1,512.8 (2007); 1,617.1 (2008); 1,727.7 (2009); 1,845.8 (2010); 1,964.8 (2011); 2,091.6 (2012); 2,225.0 (2013); 2,367.1 (2014); 2,512.1 (2015); 4,502.7 (2025); 2005-14 average 1,814.6; 2015-25 average 3,421.8. - Exports of goods and services 2/: 177.5 (2005); 188.6 (2006); 201.5 (2007); 213.1 (2008); 225.1 (2009); 235.8 (2010); 249.0 (2011); 263.2 (2012); 279.0 (2013); 296.3 (2014); 313.7 (2015); 547.1 (2025); 2005-14 average 232.9; 2015-25 average 418.4. ### Background and Recent Economic Developments (Public Information Notice No. 05/158, November 29, 2005) - Consultation: - On October 24, 2005, the IMF Executive Board concluded the Article IV consultation with the Central African Republic. - Economic and social context: - The country experienced serious deterioration over the past decade due to poor economic management and political and military disturbances culminating in the March 2003 conflict. - Real GDP grew by 1 percent in 2004; activity was stagnant in most sectors. - Price developments reflected food supply conditions; the average price level declined by about 2 percent in 2004 and picked up moderately in 2005 in line with food prices. - Credit to the economy increased in 2004 reflecting a pick up in both private sector credit and net credit to government; the increase in private sector credit (linked to petroleum imports and forestry loans) partly receded in 2005. - External trade balance worsened in 2004 due to terms of trade deterioration, a decline in timber exports, and higher petroleum product imports linked to election activities; increased donor support for elections and an improved services balance more than offset the trade deterioration. - Current account deficit declined by ½ of one percent of GDP to 4⅓ percent of GDP. - The C.A.R. is not servicing its external debt except to the IMF; external payment arrears continue to accumulate. The stock of external arrears at end-2004 is estimated at US$335 million (about 25 percent of GDP). - Public finances and fiscal management: - Revenue increased in 2004 but remained low at around 8 percent of GDP. - Weaknesses in tax and customs administration, partly rooted in corruption, hamper revenue performance. - A loss of control over expenditure—particularly the wage bill—has exacerbated fiscal difficulties. Salaries frozen since 1985, yet wage bill increases due to expansion of allowances and benefits, creation of high-level posts with salary premiums, new recruitment, and delays in retirements. - Domestic payment arrears have built up, including three months of new salary arrears accumulated so far in 2005. - Banking sector: - Developments dominated by government’s heavy reliance on commercial banks’ resources. - BEAC’s temporary suspension of reserve requirements for C.A.R. banks remains in effect due to difficult bank liquidity. - Social conditions: - Worsened as a result of political and military developments; C.A.R. has lost ground on Millennium Development Goals. - Health indicators deteriorated; incidence of HIV/AIDS rising; life expectancy declined by an average of six months every year over the past decade. - Security and political progress: - Presidential and legislative elections were conducted peacefully and generally free. - Security situation improved with support from several hundred international partner troops. - Progress on Disarmament, Demobilization, and Reintegration program, though rural banditry persists. ### Executive Board Assessment and Policy Recommendations - Overall appraisal: - Directors commended peaceful completion of elections and improving security, noting these developments bode well for stability and reform momentum. - Main challenges: consolidating peace and security, establishing conditions for strong economic growth, and reversing deteriorating social conditions. - Role of international assistance: - Timely international assistance, effective technical assistance, social sector support, and infrastructure investment will be important to support recovery and should complement authorities’ efforts. - Directors urged authorities to implement sound policies and improve public resource management to attract greater international support, including further Emergency Post-Conflict Assistance from the Fund. - Fiscal policy and public finance management: - Directors expressed concern over severe weaknesses in public finances: low government revenue, difficulty controlling expenditure, accumulation of domestic and external arrears. - With monetary and exchange rate policy at the regional level, sound fiscal policies are critical for macroeconomic stability. - Call for urgent fiscal consolidation through decisive actions to contain expenditure and boost revenues to generate resources for social spending and public services. - Specific recommendations on the wage bill: - Move swiftly to bring the public sector wage bill under control. - Consider reducing allowances, accelerating retirements, and introducing cuts in some high salary bands. - Initiate a cleanup of payroll files. - Improve public expenditure management by strengthening expenditure procedures and monitoring. *Source: Staff projections and simulations; Public Information Notice (PIN) No. 05/158, November 29, 2005.* ### introduction of the monthly treasury cash flow plan and improved identification of spending at the ### introduction of the monthly treasury cash flow plan and improved identification of spending at the commitment level ### Recent developments and macroeconomic performance - Real GDP growth: "1.3 percent in 2004" and "2.2 percent" for 2005 (estimate). - Inflation: "fell by 2.2 percent in 2004", "increased in the first half of 2005 but remains under control", with expectation to return to "2-3 percent" historically. - External current account: "strengthened in 2004" with a further improvement expected in 2005; authorities expect a reduction of external current deficit of "around 0.5 percent of GDP" from remittances and services improvements. - Monetary sector: "increase of credit to the private sector" in 2004–2005 reflecting resumption of activity. - Program performance: mixed — improvements in domestic tax collections in 2004 over 2003, steps to better control smuggling, introduction of a "monthly cash flow plan", and improved identification of spending at the commitment stage. ### Central government fiscal position and public expenditure management - Overall balance (commitments, including grants): table shows "-0.9 -1.2 -3.1 -2.2 -2.7" for 2001–2005 (Prel./Proj. columns preserved as presented). - Narrow primary balance 1/: table shows "0.3 1.0 -2.1 -2.7 -1.3". - Authorities concerned by low revenue-to-GDP ratio and revenue shortfalls in 2004 and H1 2005 due to a "climate of wait-and-see". - Policy actions and intentions: - Curtail tax exemptions and exceptional customs clearance procedures. - Consider measures to address revenue shortfalls linked to widespread smuggling by the informal sector. - Greater focus on domestic tax administration in line with FAD technical assistance. - Census of civil servants to identify payroll anomalies as a basis to reduce the wage bill (authorities do not favor immediate salary cuts). - Working with FAD to reform public expenditure management so that most spending has corresponding budgetary allocations. - Strategy to eliminate government domestic arrears envisaged to be finalized "in early 2006", with World Bank assistance and donor mobilization for clearance funds. ### Monetary policy, banking sector, and financial access - Monetary outcomes (table, annual change in percent of beginning period broad money): - Net foreign assets: "-14.3 -7.3 -8.0 2.2 0.3" - Broad money (M2): "-1.1 -4.3 -8.0 14.2 2.9" - Credit to the economy: "3.2 6.3 0.0 6.0 0.8" - Net credit to central government: "8.7 -0.9 0.9 7.9 1.8" - Institutional anchor: regional monetary and exchange rate arrangement (BEAC) helped keep inflation low. - Banking sector priorities: - Vigilant supervision of commercial banks' compliance with prudential regulations. - Address the single problem bank "in breach of the law" as soon as possible. - Strengthen microfinance in partnership with donors to broaden access to financial services. ### Structural reforms, competitiveness, and governance - Competitiveness constraints identified: destroyed physical capital, deteriorated human capital, limited formal private sector, poor infrastructure (land and river transport), and insecurity in rural areas. - Authorities' and staff recommended actions: - Rehabilitate land and river transport infrastructure. - Enhance security, especially in rural areas. - Increase flexibility in factor and product markets, including easing hiring and firing rules. - Strengthen judiciary, property rights, and contract enforcement to reduce cost of doing business. - Reform public procurement law and update regulations. - Consider private contracting for billing and collection services of electricity and water companies to stop losses. - Reinforce forestry inspections, improve payment of stumpage fees and taxes, widen published sector information to include export activities and taxes paid. - Reinforce capacity of the office of diamond and gold valuation. - Governance actions: - New organizational structure for the Ministry of Justice (mid-2005) including a financial unit to prosecute corruption and defend state financial interests. - Efforts to enhance transparency through regular publication of fiscal revenue and expenditure and allocation of permits in mining and forestry. - Directors urged authorities to demonstrate strong commitment to fight corruption and equip the new justice unit adequately. ### External debt, arrears, and debt relief prospects - Key debt metrics and table entries: - Current account balance (percent of GDP): "-2.5 -3.1 -4.9 -4.3 -3.9" - NPV of debt/exports of non factor goods and services: "375.1 420.9 486.1 531.8 477.7" - Actual debt-service ratio 2/ (percent of exports of goods and services): "7.3 0.8 0.3 1.7 0.7" - Exchange rate (CFA francs per U.S. dollars): "732.4 694.8 580.1 527.6 ..." - Authorities estimate debt burden as unsustainable with "NPV of external debt at about 480 percent" (baseline and alternative scenarios) and external arrears at "about 25 percent of GDP". - Policy intentions: - Establish good track record of policy performance to be eligible for debt relief under the HIPC Initiative. - Engage with multilateral and bilateral creditors to reach a credible arrears clearance plan. - Seek grants for all new external financing while noting that "grants may not always be forthcoming and in a timely way." - Improve debt data quality. ### Social indicators, PRSP, and donor coordination - Social situation: "very poor social indicators", country ranked among the poorest in Sub-Saharan Africa; deterioration of standards of living due to intermittent conflicts and economic disruption. - Authorities’ commitments: - Finalize full PRSP "expected by the first quarter of 2006". - Continue participatory PRSP process with World Bank support and establish monitoring and evaluation device. - Prioritize actions on health, education, and HIV/AIDS treatment and prevention, requiring donor support. - Technical assistance needs: vast; IMF technical assistance welcomed; priority assistance should target "improving public expenditure management, strengthening tax and customs administration, and upgrading the statistical database". - Donor coordination: authorities stress need for accelerated and better coordinated assistance focused on tax/customs administration, public expenditure management, judicial reform, statistics, and PRSP. ### Key projected/target macro outcomes and medium-term outlook - Medium-term growth expectation: authorities expect real GDP growth "around 3.5-4 percent" with potential for higher growth with "strong external assistance". - Inflation outlook: return to "2-3 percent" in line with CEMAC trend. - External current account: expected reduction of external current deficit "around 0.5 percent of GDP" from remittances and services improvements. *Source: IMF material contained in the provided PDF content unit.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05424.pdf_