## _cr0642 - Executive Summary ## Source details **Canonical URL:** [_cr0642 - Executive Summary](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0642.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0642.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0642.pdf.json) --- ### Recent developments - Political and security - Political situation generally peaceful since presidential and parliamentary elections in March and May 2005; civil service strikes in Q4 2005 driven by impatience with economic situation and recurrent government wage arrears. - Security improved, but banditry remains a major problem in rural areas. - DDR progress: 600 out of about 5,500 identified ex-combatants have been reinserted; DDR scheduled to be completed by mid-2007. - Troops from France and CEMAC support the peace process; authorities strengthening cooperation with neighboring countries; concerns about spillovers from Chad and the Sudan. - Macroeconomic summary (data through Q3 2005) - Real GDP growth: just over 1 percent in 2004; about 2 percent in 2005 (est.). - Inflation (average): about 3 percent in 2005. - External current account balance: about -4 percent of GDP in 2005. - Broad money growth: slowed to just under 3 percent in 2005. - Real effective exchange rate: rose by 0.7 percent in 2005; current level close to that of 1995. - Sectoral: secondary (primarily diamond/mining) and services growth offset by sluggish cash and food crop production and contraction in forestry. ### Program for 2006 — objectives and macroeconomic projections - Program objectives - Continue EPCA-supported efforts to establish macroeconomic stability via strengthened public finances and improved governance within reconstruction strategy emphasizing security, social sectors, and structural reforms. - Authorities’ macro targets: increase real GDP growth to just over 3 percent in 2006; moderate inflation to about 2 percent in 2006. - IMF staff projection: Real GDP growth 2006 3.2; inflation 2006 2.3. - Key macroeconomic projections (selected) - Real GDP growth (Est./Projections): 2005 2.2, 2006 3.2, 2007 3.8, 2008 3.9. - Inflation (annual average): 2005 3.0, 2006 2.3, 2007 2.1, 2008 2.0. - External current account balance (percent of GDP): 2005 -4.1, 2006 -3.9, 2007 -3.7, 2008 -3.8. - Overall fiscal balance, commitment basis, incl. grants: 2005 -2.5, 2006 -1.3, 2007 -1.1, 2008 -1.1. - Total revenue (percent of GDP): 2005 8.2, 2006 8.7, 2007 9.1, 2008 9.4. ### Fiscal strategy and 2006 targets - Revenue measures - Tighten controls in tax administration; fight customs fraud; adjustments in petroleum taxation; increase VAT rate (from 18 percent to 19 percent). - Revenue measures projected additional revenue of 0.4 percent of annual GDP on a permanent basis (detailed total 0.39 percent of GDP): - Upward adjustment to domestic oil prices: 0.25 (percent of GDP) - Increase of VAT rate to 19%: 0.05 (percent of GDP) - Measures to tax the informal sector: 0.06 (percent of GDP) - New taxes (on real estate): 0.02 (percent of GDP) - Total: 0.39 (percent of GDP) - Specific tax on petroleum products expected to yield CFAF 2 billion (0.25 percent of GDP) annually; retail price rises: diesel 17 percent, gasoline 8 percent, kerosene 10 percent (kerosene increase limited to 10 percent to contain impact on the poor). - Expenditure measures - Contain current spending—including wages—within existing resource envelope; improve expenditure management; hiring freeze in 2006. - Overall fiscal target for 2006: overall deficit (commitment basis, incl. grants) of -1.3 percent of GDP (improvement of just over 1 percentage point of GDP over estimated 2005 outturn). - Quantitative indicative targets (cumulative, CFAF billions; Jan 1–Dec 31, 2006) - Floor on total government revenue: End-March 16.6; End-June 33.7; End-September 50.5; End-December 67.3. - Wages and salaries: End-March 8.8; End-June 17.5; End-September 26.3; End-December 35.0. - Floor on narrow primary balance (cash): End-March 1.2; End-June 2.5; End-September 3.5; End-December 4.0. - Net change in domestic arrears on wages and goods and services: End-March 0.0; End-June 0.0; End-September 0.0; End-December 0.0. - New nonconcessional external debt: End-March 0.0; End-June 0.0; End-September 0.0; End-December 0.0. ### Measures to reduce the government wage bill (Box 1) - Package of measures totaling 1.01 percent of GDP annual savings (intended to reduce 2006 wage bill to 4.5 percent of GDP): - Census: 0.43 (percent of GDP) - Removal of ghost workers: 0.29 - Fixing payroll irregularities: 0.14 - Accelerated retirements: 0.29 - Family allowances limits: 0.13 - Reduced allowances: 0.17 - Total: 1.01 - Implementation specifics and outcomes - Civil service census identified over 1,600 ghost workers (out of about 26,000 workforce) and more than 2,300 payroll irregularities. - More than 1,400 people left public service in 2005 and will not be replaced (short term). - Family allowances restricted to maximum of five children per employee; allowances reduced for higher salary bands. - Expected savings from these measures: 1 percent of GDP annually. - 2005 overruns: wage commitments projected to exceed budget appropriation by about 1 percent of GDP. ### Governance, transparency, and anti-corruption - Procurement and transparency - New procurement code being prepared in consultation with development partners to foster transparency and predictability and align with international best practices. - Interim measures: adhere to existing bidding procedures and inform the public of all awarded contracts. - Government web site commitments (first quarter of 2006): publish quarterly composition of public expenditure, quarterly corruption cases template, monthly forestry and mining company activity and revenues, monthly attribution and revocation of mining permits, monthly information on awarded public contracts. - Judicial and prosecutorial strengthening - New organizational structure for the Ministry of Justice: specialized financial unit in Bangui prosecutor’s office and a State Judicial Agency to defend state interests. - Financial unit prosecuting fraud cases identified in civil service audit; authorities publishing list of ongoing corruption cases; plans to tighten sanctions against implicated public servants. - Monitoring and publication commitments - Publish monthly data on forestry and diamond output and revenues, and on licenses awarded/cancelled, beginning in February 2006. - Set up a government website to publish cash-flow plan, sector indicators, procurement information — template agreed with IMF staff — by March 2006. ### Structural reforms and sectoral policies - Private sector and legal environment - Reform judicial system, reform Labor Code, strengthen contract enforcement to improve business climate. - Natural resource management - Forestry: control smuggling, improve stumpage fees and taxes; publish monthly production/export data. - Mining/diamonds: reform Mining Code, strengthen Kimberley Process capacity, suspend export floors if exports and receipts decline; export floors described: $1 million and $2 million per month for exporters <5 years and >5 years respectively (2005 monthly exports per exporter averaged about $500,000). - Public enterprises and utilities - Privatization planned for billing and collection services of water and electricity utilities envisaged by mid-2006. - Combined deficit of these utilities was about ½ a percent of GDP in 2004. - By early 2006 issue call for bids for commercial management of SODECA; by June 2006 for ENERCA. - Financial sector and microfinance - Bank deposits represent only 4 percent of GDP. - One commercial bank has capital shortfall estimated at about 0.4 percent of GDP. - Efforts to boost microfinance and enforce new regional regulatory framework. ### External debt, financing, and Fund support - Debt situation and HIPC prospects - External debt burden unsustainable; ratio of NPV of debt to exports estimated at about 515 percent. - Stock of external arrears at end-2005 estimated at about US$370 million (27 percent of GDP). - C.A.R. could be eligible for HIPC contingent on track record and satisfactory PRSP progress. - EPCA and IMF financing - Proposed second EPCA-supported purchase: SDR 6.9625 million (12.5 percent of quota). - Proposed purchase rate of charge subsidized to an annual rate of 0.5 percent. - Authorities committed to set aside 5.46 percent of quota in their SDR account to cover Fund payments due during remainder of 2006. - Total access under EPCA policy would rise to 22.5 percent of quota; outstanding use of Fund credit would be SDR 30.42 million (54.6 percent of quota). - Debt service to the Fund, including obligations under proposed EPCA, would peak in 2009 and represent 7.1 percent of total revenue. - 2006 financing and priority spending - 2006 financing gap (about 3 percent of GDP) would be met through continued accumulation of external arrears, except to the Fund. - Additional priority spending needs not included in 2006 budget estimated at about CFAF 10 billion (SDR 12.3 million, or 1¼ percent of GDP). - These needs would be covered by net disbursement from the Fund plus budgetary grants from EU and France totaling CFAF 8 billion (about SDR 10 million), conditioned on a Fund-supported program. ### Donor coordination, technical assistance, and monitoring - Donor support (first 9 months of 2005) - France: about CFAF 3 billion in budgetary support. - China: about 0.5 billion in budgetary support. - Priority technical assistance needs - Tax and customs administration; public expenditure management (PEM); judicial system; statistics; PRSP process; verification of domestic arrears and payroll control. - Reporting and program monitoring - Monthly evaluation reports within six weeks of month end. - Standing Technical Committee (CTP-PAS) to report a comprehensive set of fiscal, monetary, arrears, and program implementation data within specified timeframes (tables and reporting deadlines specified). - IMF staff to monitor quarterly indicative targets and structural measures through December 2006; monitoring of fiscal balance and spending on a cash basis while improving commitment-based monitoring. - Risks - Repayment risk exists despite authorities’ timely Fund payments; amounts set aside in SDR account intended to mitigate risk. - Policy implementation risks: fragile political stability, insecurity, weak institutions, widespread corruption. - Mitigating factors: corrective actions implemented, improved fiscal performance, authorities’ interest in transitioning to a PRGF program contingent on performance and financing assurances. ### Social sector and PRSP - Social indicators among lowest in Sub-Saharan Africa; minimal social services. - Millennium Development Goal indicators (selected exact values): - Population below US$1 a day (percent): 66.6 - Prevalence of child malnutrition (percent under 5): 23.2 - Net primary enrollment ratio (percent): 53.1; 54.7; 100.0 (multiple entries provided) - Under-5 mortality rate (per 1,000): 180.0 - 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 - PRSP preparation advanced with UNDP assistance; authorities intend to finalize PRSP in 2006 with World Bank, EU, and Fund input; donor financial assistance required to improve service delivery. ### Program implementation record and staff assessment - Program performance (March–December 2005, selected outturns vs objectives) - Floor on total government revenue (cumulative, CFAF billions): End-March Obj. 15.0 Act. 15.8 Yes; End-June Obj. 31.0 Act. 29.4 No; End-September Obj. 42.8 Act. 43.3 Yes; End-December Obj. 59.8. - Wages and salaries (cumulative, CFAF billions): End-March Obj. 8.5 Act. 9.6 No; End-June Obj. 16.8 Act. 19.1 No; End-September Obj. 24.9 Act. 28.7 No; End-December Obj. 33.1. - Floor on narrow primary balance (cash, cumulative, CFAF billions): End-March Obj. -1.5 Act. 0.1 Yes; End-June Obj. -1.5 Act. 1.4 Yes; End-September Obj. -3.4 Act. -0.1 Yes; End-December Obj. 0.0. - Net change in domestic arrears (cumulative, CFAF billions): End-March Obj. 0.0 Act. 1.6 No; End-June Obj. 0.0 Act. 6.0 No; End-September Obj. 0.0 Act. 10.0 No; End-December Obj. 0.0. - Staff appraisal and recommendation - Staff considers C.A.R. meets requirements for EPCA assistance and recommends approval of additional emergency post-conflict assistance on basis of authorities’ corrective actions and the stabilizing role of the proposed program. *Source: Executive Summary, _cr0642* ### Executive Summary ...................................................................................................... ### _cr0642 - Executive Summary ### Recent Developments - Political and security - The political situation has been generally peaceful since the presidential and parliamentary elections in March and May 2005, though tensions persist and impatience with the economic situation (including recurrent government wage arrears) led to civil service strikes in the fourth quarter of 2005. - Security conditions improved, but banditry remains a major problem in rural areas. Troops from France and CEMAC continue to support the peace process. DDR progress: 600 out of about 5,500 identified ex-combatants have been reinserted; DDR scheduled to be completed by mid-2007. - Authorities are strengthening cooperation with neighboring countries to dismantle bandit groups; concerns exist about spillovers from Chad and the Sudan. - Macroeconomic summary (data through the third quarter of 2005) - Real GDP growth: just over 1 percent in 2004; about 2 percent in 2005 (est.). - Inflation (average): increased to about 3 percent in 2005, reflecting weak agricultural production. - External current account balance: about -4 percent of GDP in 2005. - Broad money growth: slowed to just under 3 percent in 2005. - Real effective exchange rate: rose by 0.7 percent in 2005; current level close to that of 1995. - Sectoral developments: growth in the secondary sector (primarily diamond/mining) and services (elections-related) was offset by sluggish cash and food crop production and contraction in forestry due to financial difficulties of large operators. - Fiscal and program performance - Performance under the first EPCA-supported program was mixed; corrective measures implemented included adjustment in petroleum prices, an increase in the VAT rate, and strong steps to control the wage bill. - Most quantitative targets through end-June 2005 were missed, though end-September 2005 narrow primary deficit (cash basis) target was met; net bank credit to government target missed by almost ½ of a percent of annual GDP. - Overall revenue collection improved significantly in the third quarter of 2005: third quarter revenue increased by 0.4 percent of annual GDP over the corresponding period in 2004. Contributing factors included higher VAT and import tax collections, measures to curb fraud, and exceptional license fees equivalent to 0.1 percent of GDP from a mobile phone company. - Treasury management: improvements in timely recording of tax agency revenue; eliminated practice of automatic debits by commercial banks for certain government expenditure. Repayment of consolidated government debt to banks continues via direct debit per repayment schedules. ### Program for 2006 - Program objectives - Continue efforts under the first EPCA-supported program to establish macroeconomic stability through strengthening public finances and improving governance. - Set public finance and governance objectives within a reconstruction strategy emphasizing security, direct support to social sectors, and structural reforms. - Authorities’ macroeconomic targets: increase real GDP growth to just over 3 percent in 2006; moderate inflation to about 2 percent in 2006. - Fiscal strategy - Revenue measures: tighten controls in tax administration; fight fraud at customs; adjustments in petroleum taxation; increase in the VAT rate. - Expenditure measures: contain current spending—including wages—within existing resource envelope; improve expenditure management. - Wage bill objective: package of measures totaling 1.01 percent of GDP on an annual basis to reduce the 2006 wage bill to 4.5 percent of GDP (see Box 1 measures below). Full financial impact expected in 2006; some additional salary arrears were accumulated in the second half of 2005, delaying full effect and leading to exceeding the targeted ceiling on 2005 wage bill commitments. - Governance and structural reforms - Reforms directed at fighting corruption via enhanced transparency and strengthening the judiciary to improve management of public resources and private sector climate. - Structural measures in 2005 included steps to strengthen tax and customs administration and advances in improving the judiciary after long delays. - Social sector: conditions remain dire; donor financial assistance is needed to improve service delivery. Preparation of the PRSP has advanced. - External debt and financing - The C.A.R.’s external debt situation is unsustainable. - Authorities seek that the EPCA-supported program lead quickly to a PRGF arrangement and a HIPC decision point. - Proposed purchase under the second EPCA-supported program: SDR 6.9625 million (12.5 percent of quota). - Reflecting potential repayment risks, authorities committed to set aside in their SDR account an amount sufficient to cover payments due to the Fund in 2006. ### Recent Economic Developments and Program Performance (detailed findings) - Growth and inflation - Real GDP growth: 2001 0.3; 2002 -0.6; 2003 -7.6; 2004 1.3; 2005 Est. 2.2 (annual percentage change). - Inflation (annual average): 2001 3.8; 2002 2.3; 2003 4.4; 2004 -2.2; 2005 Est. 3.0. - External sector and money - Export value (CFAF basis): 2001 -6.2; 2002 -2.7; 2003 -27.9; 2004 -9.5; 2005 Est. 1.7 (annual percentage change). - Import value (CFAF basis): 2001 -6.9; 2002 10.8; 2003 -20.5; 2004 6.5; 2005 Est. 5.3 (annual percentage change). - Broad money (annual percentage change): 2001 -1.1; 2002 -4.3; 2003 -8.0; 2004 14.2; 2005 Est. 1.2. - Overall fiscal balance, commitment basis, incl. grants (percent of GDP): 2001 -0.9; 2002 -1.2; 2003 -3.1; 2004 -2.2; 2005 -2.5. - External current account balance (percent of GDP): 2001 -2.5; 2002 -3.3; 2003 -4.6; 2004 -4.4; 2005 -4.1. - Program implementation specifics - Revenue improvements in Q3 2005 offset earlier shortfalls; Q4 2005 revenue likely reduced due to civil service strikes. - Measures to curb customs fraud and strengthen the customs post at the port of Douala (Cameroon) were implemented; scope of exceptional tariff exemptions narrowed. - Expenditure overruns in 2005 linked to elections and increased defense spending (operations against banditry). ### Measures to Reduce the Government's Wage Bill (Box 1) - On an annual basis; in percent of GDP - Census: 0.43 - Removal of ghost workers: 0.29 - Fixing payroll irregularities: 0.14 - Accelerated retirements: 0.29 - Family allowances limits: 0.13 - Reduced allowances: 0.17 - Total: 1.01 - Intended outcome: reduce 2006 wage bill to 4.5 percent of GDP and keep it within resource envelope while preserving funds for essential nonsalary spending. ### Program financing, Fund support, and policy stance - The proposed second EPCA-supported purchase of SDR 6.9625 million (12.5 percent of quota) is intended to support stabilization and reform efforts and to catalyze international support. - Authorities committed to set aside in their SDR account an amount sufficient to cover payments due to the Fund in 2006, reflecting repayment risk mitigation while indicating commitment to honoring Fund obligations. - Continued donor coordination and technical assistance are highlighted as necessary to support reconstruction, service delivery, and capacity rebuilding. *Source: Executive Summary, _cr0642* ### Box 1. Measures to Reduce the Government’s Wage Bill ### Box 1. Measures to Reduce the Government’s Wage Bill ### Measures implemented to control the wage bill - A census of employment in the civil service and the military was conducted to eliminate fraud in the government payroll. - Identified over 1,600 ghost workers (out of a total workforce of about 26,000). - Identified more than 2,300 cases of payroll irregularities. - Irregularities include incorrect grade assignments, double-counting of benefits, and payments of more than one salary to the same individual. - The government accelerated retirements from the civil service and the military. - More than 1,400 people left the ranks of the public service in 2005. - These retirees will not be replaced, at least in the short term. - The authorities limited allowances and benefits: - Child allowances restricted to a maximum of five children per employee. - Allowances and benefits reduced for staff in higher salary bands. - Additional planned measures to preserve and extend gains: - A thorough verification of civil servants’ credentials, notably the authenticity of diplomas, to identify incorrect salary grades. - Creation, with donors, of a consolidated civil servant and military personnel file (the FURCA) so a single payroll file is used by all parts of the administration. - A census of civil service retirees to correct irregularities in pension payments. - A hiring freeze in 2006; authorities indicated they would strongly resist political pressures to relax this freeze. ### Expected fiscal impact and outcomes - Together these measures are expected to generate wage bill savings of 1 percent of GDP on an annual basis. - The 2005 overruns: wage commitments in 2005 were projected to exceed the budget appropriation by about 1 percent of GDP (reflecting expansion of allowances and benefits, creation of high-level posts with premiums, delays in retirements, and new recruitments in defense and contractual staff). - The authorities aim to ensure that the irregularities identified in the civil service census are not reintroduced. ### Related public finance and governance context (selected figures and measures) - The 2006 budget target: - Overall deficit, on a commitment basis and including grants: -1.3 percent of GDP (an improvement of just over 1 percentage point of GDP over the estimated 2005 outturn). - Target predicated on an increase in revenue of 0.5 percent of GDP and restrained spending, notably regarding the public sector wage bill and expenditure on goods and services. - Revenue measures projected additional revenue of 0.4 percent of annual GDP on a permanent basis (detailed below yields a total of 0.39 percent of GDP): - Upward adjustment to domestic oil prices: 0.25 (percent of GDP) - Increase of VAT rate to 19%: 0.05 (percent of GDP) - Measures to tax the informal sector: 0.06 (percent of GDP) - New taxes (on real estate): 0.02 (percent of GDP) - Total: 0.39 (percent of GDP) - Specific tax on petroleum products increased, expected to yield about CFAF 2 billion (0.25 percent of GDP) in revenue annually. - Retail price rises with the recent increase: diesel 17 percent, gasoline 8 percent, kerosene 10 percent. - Increase in the price of kerosene was limited to 10 percent to contain impact on the poor. - Administrative reforms to strengthen revenue collection and curb customs fraud: - Improve tax audits and verification; bolster tax recoveries by enforcing sanctions and penalties. - Reinforce customs border posts and customs branch in Douala, Cameroon; initiate migration to a new customs information system. ### Fiscal risks and arrears - The authorities missed the zero ceiling on contracting and/or guaranteeing of nonconcessional external debt: - Contracted a loan of CFAF 4 billion (0.6 percent of GDP) from the Cameroonian parent bank of a C.A.R. commercial bank on nonconcessional terms. - The loan is to be repaid over 13 months with a 5-month grace period, and carries an interest rate of 6.5 percent. - Domestic arrears: - Estimated at about 30 percent of GDP. - A committee formed to verify the stock of arrears has made significant progress; preliminary results indicate about one-third are salary arrears, another third owed to suppliers of goods and services, and the rest split between domestic financial institutions, and outstanding pension and social security obligations. - The government will submit by June 2006 the results of this verification to an internationally recognized auditing firm for further validation. - The government will strive to honor current obligations and avoid the accumulation of new arrears in 2006. ### Governance, treasury, and expenditure management measures relevant to the wage bill - Close monitoring and control measures: - Conduct a consolidated verification of payroll credentials and grades. - Implement the FURCA consolidated payroll file to reduce payroll fraud. - Close all remaining nonessential Treasury accounts in the banking system; strictly limit spending outside the normal expenditure process; restrict the issuance of Treasury checks. - Streamline and computerize expenditure commitment procedures to improve transparency and efficiency and to better monitor expenditure commitments at the payment order stage. - Anti-corruption and judicial strengthening efforts: - New organizational structure for the Ministry of Justice includes two new legal units: a specialized financial unit in the Bangui prosecutor’s office, and a State Judicial Agency responsible for defending the state in legal proceedings. - A newly-established financial unit has taken up many cases of fraud identified in the civil service audit. - Authorities have begun publishing a list of ongoing corruption cases and their description. - Plans to tighten sanctions against public servants implicated in misconduct and corrupt practices. ### Medium-term macroeconomic projections (selected entries, annual percentage change / percent of GDP) - Real GDP growth (Est. / Projections): 2005 2.2, 2006 3.2, 2007 3.8, 2008 3.9 - Inflation (annual average): 2005 3.0, 2006 2.3, 2007 2.1, 2008 2.0 - Export value (CFAF basis): 2005 1.7, 2006 10.9, 2007 7.7, 2008 5.8 - Import value (CFAF basis): 2005 5.3, 2006 11.0, 2007 7.7, 2008 5.9 - Terms of trade (U.S. dollar basis): 2005 2.9, 2006 1.5, 2007 0.3, 2008 -1.0 - Gross domestic savings: 2005 0.6, 2006 1.9, 2007 2.8, 2008 3.4 - Gross investment: 2005 7.2, 2006 8.3, 2007 9.1, 2008 9.7 - Overall fiscal balance, commitment basis, incl. grants: 2005 -2.5, 2006 -1.3, 2007 -1.1, 2008 -1.1 - Total revenue: 2005 8.2, 2006 8.7, 2007 9.1, 2008 9.4 - External current account balance: 2005 -4.1, 2006 -3.9, 2007 -3.7, 2008 -3.8 *Source: _cr0642 - Box 1. Measures to Reduce the Government’s Wage Bill* ### 24. The authorities are well aware of the need to reform the existing public ### _cr0642 - 24. The authorities are well aware of the need to reform the existing public ### Procurement and Transparency - Authorities are preparing a new procurement code (in consultation with development partners, including the World Bank) intended to foster transparency and predictability and to be in line with international best practices. - Interim measures: - Ensure existing bidding procedures are adhered to in awarding all public contracts. - Ensure the public is informed of all awarded contracts. - Box 2 commitments (government web site to be established in the first quarter of 2006) — scope of public information to include: - More detailed data on the composition of public expenditure (quarterly). - Template on the pending corruption cases, including description, court status, and execution of court decisions (quarterly). - Activity in the forestry and mining sectors by company: production, export, local sale, and revenue generated by type of tax (monthly). - Attribution and revocation of permits in the mining sector (monthly). - Information on awarded public contracts (monthly). ### Structural Reforms (Section E) - Authorities and staff agree structural reforms are essential to boost competitiveness and shift activity back into the formal sector; further action may be taken in the context of a successor PRGF arrangement. - Key reform areas and commitments: - Improving the climate for the private sector: - Strengthen contract enforcement and ensure a stable and predictable regulatory framework. - Reform the judicial system. - Reform the Labor Code to support an expansion in employment. - Strengthening management of natural resources: - Forestry: reinforced efforts to control smuggling and improve payment of stumpage fees and taxes. - Mining: reform the mining code to ensure permits are awarded in a fully rules-based system, attract private investors, and improve medium-term prospects for industrial mining. - Authorities remain committed to the Kimberley certification process. - Authorities agreed to rescind recently-imposed export floors if exports and government receipts decline. - Export floors described: $1 million and $2 million per month for diamond exporters who have been in business for less than five years and those in business for over 5 years, respectively (in 2005, monthly exports per exporter averaged about $500,000). Exporters who do not achieve the minimum level of exports are subject to heavy penalties. - Liberalizing trade and advancing regional integration: - Authorities will fully implement the CEMAC common external tariff and the OHADA treaty in the short-term. - Deepening financial intermediation: - Bank deposits represent only 4 percent of GDP. - One commercial bank does not meet most prudential ratios; capital shortfall estimated at about 0.4 percent of GDP. - Efforts to boost microfinance, including enforcement of compliance with the new regional regulatory framework for microfinance institutions. - Reversing financial/operational problems of key public enterprises: - Privatization of billing and collection services of the water and electricity utilities envisaged by mid-2006. - Combined deficit of these utilities was about ½ a percent of GDP in 2004. ### Social Sector Issues (Section F) - Social indicators rank among the lowest in Sub-Saharan Africa; minimal level of social services. - Authorities committed to improving health, education, and basic infrastructure; significant scaling-up of donor financial support required. - PRSP preparation: - Authorities have made significant progress and intend to finalize the PRSP in 2006. - With UNDP, World Bank, and European Union assistance they will consolidate sectoral work, elaborate the macroeconomic framework with Fund staff, and put in place monitoring and evaluation. ### External Debt (Section G) - Debt sustainability analysis conclusions from the 2005 Article IV consultation remain valid: debt burden is unsustainable. - Key figures and status: - Ratio of the net present value of debt to exports is estimated at about 515 percent. - Stock of external arrears at end-2005 is estimated at about US$370 million (27 percent of GDP). - Authorities signed in 2005 an arrears clearance agreement with the Banque de Développement des États d’Afrique Centrale (BDEAC) and have begun small monthly payments (totaling less than 0.1 percent of GDP on an annual basis). - Eligibility and conditions: - C.A.R. could be eligible for debt relief under the HIPC initiative, contingent on establishing a track record of policy performance and satisfactory progress in the poverty reduction strategy. ### Donor Coordination and Technical Assistance (Section H) - Donor support and budgetary/project assistance through first 9 months of 2005: - France provided about CFAF 3 billion in budgetary support. - China provided about 0.5 billion in budgetary support. - Donor involvement areas (Box 3 summary): DDR, PRSP preparation, technical assistance in economic policy and statistics, health, education, public finance and governance, census of domestic arrears and payroll control, justice and mining sectors, transportation, infrastructure (water and electricity), microfinance, budget support, agriculture, and institutional support for economic management. - World Bank and AfDB constraints: - Presence of arrears to the World Bank and AfDB precludes normal financing instruments. - World Bank will continue assistance under LICUS to finance technical assistance and support reform efforts; AfDB undertaking statistics support operation. - Priority TA needs identified: - Tax and customs administration, public expenditure management (PEM), the judicial system, statistics, and the PRSP process. - The Fund intends to remain active in key public finance areas critical for program implementation and monitoring. ### Program Issues (Section I) - Access: - Proposed access under the program: SDR 6.9625 million, equivalent to 12.5 percent of quota (about CFAF 5.5 billion). - Rate of charge on the proposed purchase would be subsidized to an annual rate of 0.5 percent. - Authorities committed to setting aside 5.46 percent of quota in their SDR account to cover payments to the Fund due during the remainder of 2006. - Total access under the EPCA policy would rise to 22.5 percent of quota. - This would bring C.A.R.’s outstanding use of Fund credit to SDR 30.42 million (54.6 percent of quota). - Debt service to the Fund, including obligations under the proposed EPCA, would peak in 2009 and would represent 7.1 percent of total revenue. - Financing: - The 2006 financing gap (about 3 percent of GDP) would be met through continued accumulation of external arrears, except to the Fund. - Additional priority spending needs not included in the 2006 budget estimated at about CFAF 10 billion (SDR 12.3 million, or 1¼ percent of GDP). - These needs would be covered by net disbursement from the Fund, plus budgetary grants from the EU and France totaling CFAF 8 billion (about SDR 10 million) conditioned on a Fund-supported program. - Program target on the budget deficit would be adjusted to accommodate this additional spending. - Monitoring: - Staff will monitor program implementation on the basis of quarterly indicative targets and structural measures through December 2006. - Monitoring of the fiscal balance and spending performance will be done on a cash basis while authorities improve monitoring and control of commitment-based transactions. - Risks: - Repayment risk exists despite timely payments to the Fund; amounts set aside intended to provide assurance against repayment difficulties during the program period. - Policy implementation risks due to fragile political stability, insecurity in some areas, weak institutions, and widespread corruption. - Positive mitigating factors: recent corrective actions, improved fiscal performance, and authorities’ interest in moving to a PRGF program contingent on satisfactory EPCA performance and financing assurances. ### Staff Appraisal (Section IV) - Positive assessments: - Authorities have shown commitment to addressing economic and governance problems and implemented corrective actions after the elections. - Recent positive results, particularly in public finances, build on modest gains from the first EPCA-supported program. - Priorities emphasized by staff: - Achieve steady improvements in revenue: - Increase in petroleum taxes and VAT have boosted revenues. - Need for better tax administration and stronger fight against customs fraud to widen the tax base. - Tighten expenditure controls, particularly on the wage bill: - Containing public sector salaries is essential to fiscal stability and sustainability of reforms. - Authorities must resist political pressure to reverse wage bill controls. - Need to follow up to prevent payroll management problems from reemerging and to reduce wage share in public expenditure over time. - Improve treasury management: - Close unnecessary government accounts at commercial banks. - Effectively use the cash flow plan. - End the practice of automatic debits of government accounts in favor of transparent use of formal spending procedures. *Source: _cr0642 - 24. The authorities are well aware of the need to reform the existing public* ### 42. Improving economic governance and fighting corruption is also crucial for ### _cr0642 - 42. Improving economic governance and fighting corruption is also crucial for ### Improving economic governance and fighting corruption - Strengthening the management of public resources and the climate for the private sector requires improving economic governance and fighting corruption. - Greater transparency is essential by raising accountability and confidence in the public sector. - Authorities have made important strides, and plans for establishing a government internet site and widening the scope of publication are welcome. - Strengthening the judicial system is crucial, including to bolster contract enforcement for the private sector. ### Structural reforms to foster rebound and competitiveness - Moving ahead on structural reforms is essential for fostering an economic rebound, boosting competitiveness, and supporting macroeconomic stability. - Recent reforms in the forestry sector are welcome. - Attention should turn toward further encouraging activity in the mining sector. - Authorities need to move forward rapidly on: - liberalizing trade, - supporting the development of the financial sector, - reforming public enterprises. - These areas are critical for a sustainable economic recovery. ### Debt sustainability and creditor treatment - The C.A.R.’s debt burden is unsustainable. - Authorities should establish the necessary track record to reach the HIPC decision point in order to start benefiting from HIPC assistance, and strive to ensure equal treatment of creditors. - Authorities should continue discussions with external creditors on debt data questions and possible arrears clearance plans. - Low levels of donor support have restricted financing options; recourse to nonconcessional domestic and external financing is a cause for concern. - Authorities should rely on grant financing as much as possible and avoid all nonconcessional borrowing. ### Social sectors and the PRSP - The situation in the social sectors remains very troubling. - Authorities are encouraged to accelerate efforts to improve social services; this will also depend on an increase in assistance from the C.A.R.’s international partners. - Progress achieved on the PRSP is welcome, and authorities are encouraged to work closely with donors in finalizing the strategy during 2006. *Source: _cr0642 - 42. Improving economic governance and fighting corruption is also crucial for* ### 46. The staff considers that the C.A.R. meets the requirements for assistance under ### _cr0642 - 46. The staff considers that the C.A.R. meets the requirements for assistance under ### Staff assessment and recommendation - The staff considers that the C.A.R. meets the requirements for assistance under the Fund’s EPCA policy. - There is an urgent need for help in meeting current payments, and the disruption to the country’s capacity is such that the authorities are not yet able to carry out a comprehensive program that could be supported by a Fund arrangement. - Recent policy performance and corrective actions demonstrate that the authorities have the capacity to implement the proposed program, which would be fully part of a concerted international effort. - The political transition is now complete, which should permit a greater focus on macroeconomic issues and improve policy implementation, including in the fiscal area. - On this basis, and recognizing the role that the proposed program would play in stabilizing the macroeconomic situation and catalyzing international support, the staff recommends approval of the authorities’ request for additional emergency post-conflict assistance. ### Key macroeconomic indicators and projections (selected) - GDP at constant prices: 0.3, -0.6, -7.6, 0.8, 1.3, 2.2, 3.2, 3.8, 3.9 - GDP at current prices: 3.8, 2.4, -4.3, 0.6, -0.6, 5.0, 6.1, 6.4, 6.6 - GDP deflator: 3.6, 3.0, 3.6, -0.2, -1.9, 2.8, 2.7, 2.5, 2.6 - Consumer prices, yearly average: 3.8, 2.3, 4.4, -2.1, -2.2, 3.0, 2.3, 2.1, 2.0 - Gross national savings: 5.8, 5.7, 1.4, 2.2, 1.7, 3.1, 4.4, 5.4, 6.0 - Gross domestic savings: 3.9, 3.7, 0.3, 0.1, -0.5, 0.6, 1.9, 2.8, 3.4 - Current official transfers (of gross national savings): 1.6, 1.9, 0.5, 0.7, 0.6, 0.8, 1.1, 1.0, 1.0 ### Fiscal outcomes and program targets (selected) - Central government finance — Total revenue (percent of GDP): 4.3, 24.2, -31.6, 2.5, 3.9, 7.2, 12.6, 10.7, 9.5 - Central government finance — Total expenditure (percent of GDP): -11.5, 22.4, -25.4, 1.3, 9.2, -0.5, 0.1, 6.9, 8.7 - Overall balance (commitment basis) excluding grants: -4.3, -5.0, -4.6, -4.5, -5.5, -4.6, -3.3, -3.0, -3.0 - Overall balance (commitment basis) including grants: -0.9, -1.2, -3.1, -1.6, -2.2, -2.5, -1.3, -1.1, -1.1 - Narrow primary balance (commitment basis; excludes interest payments, foreign-financed investment, and grants): 0.3, 1.0, -2.1, -1.3, -2.7, -1.3, 0.5, 0.7, 0.7 - Basic balance (excludes foreign-financed investment and grants): -1.0, -0.5, -3.3, -2.5, -3.9, -2.5, -0.7, -0.4, -0.3 ### Indicative targets and outturns (March–December 2005, selected) - Floor on total government revenue (cumulative, CFAF billions): End-March Obj. 15.0 Act. 15.8 Yes; End-June Obj. 31.0 Act. 29.4 No; End-September Obj. 42.8 Act. 43.3 Yes; End-December Obj. 59.8 - Wages and salaries (cumulative, CFAF billions): End-March Obj. 8.5 Act. 9.6 No; End-June Obj. 16.8 Act. 19.1 No; End-September Obj. 24.9 Act. 28.7 No; End-December Obj. 33.1 - Floor on narrow primary balance (cash, cumulative, CFAF billions): End-March Obj. -1.5 Act. 0.1 Yes; End-June Obj. -1.5 Act. 1.4 Yes; End-September Obj. -3.4 Act. -0.1 Yes; End-December Obj. 0.0 - Net change in domestic arrears (cumulative, CFAF billions): End-March Obj. 0.0 Act. 1.6 No; End-June Obj. 0.0 Act. 6.0 No; End-September Obj. 0.0 Act. 10.0 No; End-December Obj. 0.0 ### Structural reforms implemented (2004–2005, selected; status = Implemented) - Revenue administration: - Require customs posts on the C.A.R. borders to record detailed and precise identification on bills of lading for merchandise not clearing customs at the border. — Implemented - Require posting of a financial guarantee at the revenue office of the destination to cover duties pending transportation within national territory for merchandise not clearing customs at the border. — Implemented - Give the Large Taxpayers Unit sole authority for general auditing of its portfolio and responsibility for the entire collection process. — Implemented - Governance and transparency: - Introduce new organizational structure for the Ministry of Justice, including a specialized financial unit within the Bangui Prosecutor’s Office and a State Legal Agency. — Implemented - Write, disseminate, and explain to all customs personnel a code of conduct on professional ethics based on WCO model and inform the public of this measure. — Implemented - Publish each month the forecasts and outcome for the Treasury cash-flow plan, as well as all awards of permits in the forestry and mining sectors. — Implemented - Additional corrective expenditure measures: - Reduce the monthly wage bill by CFAF 600 million. — Implemented - Eliminate recruitment of contractual staff and do not extend existing contracts. — Implemented - Transfer management of contractual staff to the Payroll Office; transfer processing of electronic civil service data from ONI to the Payroll Office. — Implemented - Strengthen monitoring of expenditure on a commitment and payment order basis. — Implemented - Instruct mobile phone operators to suspend service on all lines except those of the Head of State and members of government; government consumption of national telecommunications company to respect budgeted monthly ceiling. — Implemented - Revenue measures: - Increase petroleum prices to achieve a CFAF 2 billion increase in revenue. — Implemented - Increase VAT rate to 19 percent. — Implemented - Prohibit customs clearing agents that have not paid the CFAF 50 million bond from operating in the C.A.R. — Implemented - Eliminate suspended clearance procedures and practice of using fictional warehouses to evade import duties except for enterprises with long production cycles. — Implemented - Suspend application of reduced rate on imports for investments except for enterprises already meeting eligibility criteria; submit preferential tariff treatment requests to review committee. — Implemented - Adopt measures recommended concerning fraudulent CEMAC certificates of origin. — Implemented - Increase number of controls by tax auditors and update verification team goals. — Implemented - Establish computer link between single taxpayer number system at the Tax Department and the Customs Department information system. — Implemented - Budget management: - Prohibit the Treasury from disbursing public funds without prior payment authorization except wages, pensions, legal expenses, and other specified exemptions. — Implemented - Prepare a monthly cash-flow plan covering the entire year and update it weekly. — Implemented - Governance and transparency (anti-corruption): - Appoint staff to the Special Section (financial unit) of the Bangui Court and the State Legal Agency responsible for pursuing corruption cases. — Implemented - Make public information on anti-corruption cases initiated by these entities. — Implemented ### Monetary and external sector indicators (selected) - Net domestic assets (percent of broad money at beginning of period): 13.2, 2.9, -0.1, ..., 12.0, 0.9, 1.3, 2.1, 2.1 - Broad money (annual change): -1.1, -4.3, -8.0, ..., 14.2, 1.2, 6.0, 7.7, 8.4 - Velocity of broad money (end of period): 6.5, 6.9, 7.2, ..., 6.3, 6.5, 6.5, 6.4, 6.3 - Exports, f.o.b. (U.S. dollar basis, annual percent change): -9.0, 2.5, -13.7, 6.0, -0.5, 2.2, 7.7, 7.9, 6.1 - Imports, f.o.b. (U.S. dollar basis, annual percent change): -9.8, 16.8, -4.8, 18.4, 17.0, 5.8, 8.0, 7.9, 6.3 - External current account balance (percent of GDP): -2.5, -3.3, -4.6, -4.7, -4.4, -4.1, -3.9, -3.7, -3.8 - Overall balance of payments (percent of GDP): -3.9, -5.0, -4.7, -3.1, -2.8, -2.0, -2.0, -2.2, -2.0 - Gross official foreign reserves (millions of U.S. dollars, end-of-period): 119.8, 121.0, 131.0, 148.8, 148.4, 136.5, 140.6, 145.1, 149.2 - Gross official foreign reserves (in months of imports, f.o.b.): 13.6, 10.9, 12.3, 12.0, 11.8, 11.5, 10.6, 10.1, 9.8 - Nominal GDP (in billions of CFA francs): 709.2, 726.2, 694.7, 703.6, 690.6, 725.2, 769.3, 818.8, 872.6 - Exchange rate (average; CFA francs per U.S. dollar): 732.4, 694.8, 580.1, ..., 527.6, ... *Sources: C.A.R. authorities; and IMF staff estimates and projections.* ### 1. Population below US$1 a day (percent)...66.6......... ### _cr0642 - 1. Population below US$1 a day (percent)...66.6......... ### Millennium Development Goals — 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 (halve proportion suffering from hunger, 1990–2015) — related indicators: - 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 — Achieve universal primary education (Target 3: complete 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 — Promote gender equality (Target 4: eliminate gender disparity): - 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 provided) - 12. Proportion of seats held by women in the national parliament (percent): 4.0; 4.0 - Goal 4 — Reduce child mortality (Target 5: reduce under-5 mortality by two-thirds, 1990–2015): - 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 maternal mortality ratio by three-fourths, 1990–2015): - 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 and begin to reverse spread of HIV/AIDS by 2015): - 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 (halt and begin to reverse incidence of malaria and other major diseases): - 21. Prevalence of death associated with malaria: (no value provided) - 22. Share of population in malaria risk areas using effective prevention and treatment: (no value provided) - 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 — Ensure environmental sustainability (Target 9: integrate principles of sustainable development): - 25. Forest area (percent of total land area): 37.3; 36.8 - 26. Nationally 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 provided) - 28. CO2 emissions (metric tons per capita): 0.1; 0.1; 0.1 - 29. Proportion of population using solid fuels: (no value provided) - Target 10 (halve by 2015 proportion 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 provided) - Goal 8 — Develop a Global Partnership for Development (selected indicators): - 45. Unemployment rate of population ages 15-24 (total): (no value provided) - 46. Proportion of population with access to affordable essential drugs: (no value provided) - 47. Fixed line and mobile telephones (per 1,000 people): 2.5; 5.3 - 48. Personal computers (per 1,000 people): 1.9 ### Recent economic developments and performance under the first EPCA program - Real GDP growth: - 2004: approximately 1 percent - 2005: about 2 percent (estimated) - Inflation and prices: - 2004: 2.2 percent decline in the average price level - 2003: relatively sizable increase in the average price level (no numeric value provided) - 2005: inflation increased moderately as agricultural production stagnated - External current account: improved modestly in 2005 due to gains in the services account offsetting a worsening trade deficit (decline in timber exports and increase in oil prices) - Monetary and banking: - Money supply: remained stable during 2005 after strong increase in credit to the economy in December 2004 - Banking sector liquidity: improved modestly (partly due to strengthening of export receipts repatriation requirement and inflow of resources from regional peacekeeping organizations) - Program performance (first post-conflict program and first nine months of 2005): - Many quantitative objectives not achieved (fiscal balance on a commitment basis, changes in domestic arrears, the wage bill, government’s net position vis-à-vis the banking system) - Progress encouraging after corrective measures implemented since Q4 2004 ### Fiscal consolidation, governance, and public finance measures - Expenditure and cash-flow management measures: - Closed a number of bank accounts held by central government and government agencies - Consolidated government debt held by local commercial banks - Integrated virtually all special earmarked accounts into the Treasury by appointing Treasury officials to manage these accounts (régies de recettes) - Treasury will not pay any public expenditure without a prior payment order, with specified exceptions - Spending under exceptional procedures must be regularized before end of 2005 budgetary exercise - Improved monthly cash-flow plan adopted and approved by the Minister of Finance; will be published regularly - Public sector wage bill and payroll management: - Government total payroll reached CFAF 3.5 billion a month (exceeds budget appropriation and government’s capacity to pay) - Targeted savings of approximately CFAF 600 million a month - Over 1,400 public officials and government employees removed from civil service rolls in 2005 (will not be replaced) - Civil service census and payment exercise found over 2,300 cases of irregularities and identified more than 1,600 government employees who no longer occupy their positions (out of about 26,000 total employees) - Family allowances limited to a maximum of five children per employee - Bonuses and allowances cut by CFAF 100 million a month - Hiring freeze for new public officials and government employees - Management of contractual staff transferred to the Payroll Office; payroll data processing transferred from ONI to the Payroll Office - Revenue and tax administration reforms: - Consolidated units responsible for auditing and collecting taxes from large taxpayers - Extended use of the single taxpayer identification number (NIF); penalties for nonuse - Increased number of inspections: 21 desk audits in 2005 to detect businesses incorrectly subject to impôt libératoire - Audit teams enlarged to 10 teams, two auditors each - Customs reforms and anti-fraud measures: - Customs border posts required to record detailed descriptions on bills of lading for uncleared merchandise - Expanded list of imported products with questionable CEMAC origin; deposit equivalent to applicable duties required for goods on the list - Transit agents required to post CFAF 50 million bond or be barred from operating in Central African territory - Suspended clearance procedures and use of fictional warehouses curtailed - Suspended application of reduced tariff rate on imports for investments (except businesses already meeting eligibility criteria) - Future preferential tariff treatment requests to be reviewed by a committee (Ministry of Trade and Commerce, customs department, tax department, BIVAC) - Eliminated provisional customs clearance release for imports of used vehicles - Bonded warehouse set up at highway terminal customs collection office to process bulk merchandise and measure quantities - Transit management unit (CELGETRANS) established within customs department to support transit of forest products between Bangui and Douala for export *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0642.pdf* ### 13. Despite all these reforms, fiscal performance has fallen short of expectations. Some ### 13. Despite all these reforms, fiscal performance has fallen short of expectations. ### Fiscal performance and revenue collection: findings - Fiscal performance has fallen short of expectations due to: - a wait-and-see attitude of economic agents during the electoral period; - delays in the implementation of some measures; - weaknesses in the public administration and a lack of effective mechanisms to combat corruption, adversely affecting government revenue collection; - inadequate expenditure controls and cash-flow management. - Specific revenue-impacting developments: - Rising world oil prices have been absorbed entirely by the government budget, cutting into government revenues. - The authorities have raised prices at the pump to increase revenues by some CFAF 2 billion. - The increase in the price of kerosene has been limited to 10 percent. - The government is looking to introduce a system where prices at the pump will vary with world prices. ### External borrowing and debt: findings and commitments - Contrary to a quantitative indicator on nonconcessional external borrowing, the authorities borrowed CFAF 4 billion on nonconcessional terms in July 2005 from a subregional financial group (based in Cameroon). - The Central African Republic is not servicing its external debt; external arrears continue to accumulate, including to multilateral creditors. - The government is holding discussions with creditors to consolidate debt and find a global solution to arrears; reconciliation of debt data has made significant progress. - Commitments: - The government will no longer contract or guarantee any nonconcessional debt. - The government seeks donor assistance for new debt management software to replace an obsolete program. ### Governance and anti-corruption measures: findings and actions - Institutional changes and initiatives: - A new organizational structure for the Ministry of Justice was introduced, including a specialized financial unit to better investigate financial crimes and a state legal officer to strengthen the government’s ability to defend its interests. - A code of ethics and conduct for customs personnel, based on a World Customs Organization model, has been published and explained to customs personnel. - A full list of corruption cases underway has been published. - Transparency commitments: - By March 2006 the government will set up a website to regularly publish: budget execution data under the cash-flow plan; indicators of activity in the forestry and diamond sectors; information on the awarding of public contracts; and information on progress in the fight against corruption. - Administrative and prosecutorial measures: - The government intends to equip the State Legal Agent and the special (financial) section in the Ministry of Justice with necessary resources to accelerate prosecution of corruption cases. - Administrative penalties on government employees implicated in misconduct and corruption will be strengthened. - Perception survey: - Transparency International and the UNDP conducted a survey; findings show corruption is widespread and most entrenched in the police force and gendarmerie, the customs administration, and the judiciary. ### 2006 post-conflict program: objectives and macroeconomic projections - Main objectives: - Restore macroeconomic stability through fiscal consolidation. - Improve governance and transparency. - Strengthen security and improve basic infrastructure and social sectors, relying on international and regional partners. - Macroeconomic projections and assumptions: - Economic growth should gradually strengthen to slightly above 3 percent in 2006, assuming increased private sector activity and donor support. - Inflation is expected to return to its historical range of 2 to 3 percent, in line with the CEMAC trend. - Over the medium term, stronger economic growth is projected as security improves, the fiscal position strengthens, and significant donor assistance resumes to rehabilitate infrastructure. ### Strengthening security: measures and timelines - Security context: - Security has been steadily improving since March 2003 with CEMAC peacekeepers and French assistance; banditry remains a serious problem outside main cities. - Government actions: - Implementing the Special Project for the Reinsertion of Former Combatants and Community Support; the reinsertion process is scheduled to be completed by mid 2007. - Building up the country’s armed forces with French support and strengthening military cooperation with neighbors for joint operations against armed bands in border areas. ### Improvement of the economic and financial situation — Fiscal policy: measures and targets - Overall fiscal target for 2006: - Objective for the overall deficit on a commitment basis (including grants) of 1.3 percent of GDP, representing an improvement of about 1 percent over the result expected for 2005. - This reflects a revenue increase of 0.5 percent of GDP in 2006 and strict control of the wage bill and outlays on goods and services. - The government is committed to spending more on education, health, and basic infrastructure, provided donor financing materializes. - Revenue-side tax reforms (contained in the 2005 Supplementary Budget or in the 2006 Budget Law): - increase the VAT rate from 18 percent to 19 percent; - establish a withholding requirement that a 10 percent deposit on income tax or corporate tax owed by individuals or companies be paid at the time of import and/or purchase from domestic suppliers; - introduce a licensing requirement for operators of motorcycle taxis; - establish a commercial rent tax, applicable to any business that pays rent; - establish a special tax on gambling; - establish a requirement that any sale of goods or services be recorded on an invoice. - Tax administration strengthening measures: - Strengthen management of large taxpayers by systematically following up on delinquent taxpayers, ensuring tracking of taxpayers who have been sent a reminder, and applying deterrent penalties to non-filers. - Intensify tax audits with targets for 2006 of at least 40 full audits and 200 ad hoc inspections (of which half are to be done by June 2006). - Strengthen management of small and medium-sized businesses by updating tracking records and bolstering the recovery procedure, focusing on businesses most likely to yield substantial tax revenues. - Maintain the target of at least 20 off-site examinations a year to examine returns and identify businesses wrongly applying the small enterprise flat tax (impôt libératoire). - Improve the central taxpayer database by updating it and systematically retrieving “inactive” files to identify noncompliant taxpayers and provide other financial agencies with an updated database. - Customs reform measures for 2006: - Continue to strengthen the Douala office by providing a computer link with the Cameroonian one-stop window, conducting ad hoc inspections with Cameroonian customs, and ensuring good communication between the Douala office and the transit management unit (CELGETRANS). - Migrate from SYDONIA to SYDONIA++ customs software, in accordance with UNCTAD recommendations. - Build customs clearance zones at border posts for clearing goods imported overland. - Strengthen provisions related to customs clearance of used vehicles to improve tax collection on these imports. ### Improvement of the economic and financial situation — Expenditure control measures - Expenditure monitoring and control commitments: - Limit spending effected outside the normal expenditure process; streamline and enhance transparency and efficiency of expenditure commitment procedures. - Limit and secure issuance of Treasury promissory notes against deposit accounts of suppliers at the Treasury; track notes in circulation; closely monitor prohibition on certain expenses not allocated to line items. - Prohibit all payments by automatic debits from Treasury accounts held with banks not initiated by the Treasury, except for repayments of government bank debt. - Complete final accounting for the 2004 fiscal year; close Treasury budget accounts for each year not later than February of the following year, with all expenses not authorized during the fiscal year being regularized. - Instruct mobile telephone operators to freeze all government cell phone services except those of the Head of State and members of the government, reactivating on a case-by-case basis; institute prepaid meters to ration public administration use of electricity and telephone services. - Introduce simplified expenditure procedures. - Promote a unified Treasury by closing unnecessary government bank accounts, requiring justification for accounts kept open, and depositing balances of closed accounts in a Treasury account at the central bank. ### Containing the wage bill and payroll management - Containment target and measures: - Measures mentioned in paragraph 12 should reduce the total wage bill by an amount equal to approximately 1 percent of GDP, bringing it to a level consistent with available resources. - Verify census findings with UNDP support to identify anomalies; verify civil servants’ academic credentials by March 2006 to identify improper grade assignments. - A census of retired staff is under way to identify by March 2006 errors in pension benefits. Resulting savings in pension payments should help offset the increase in the total pension bill following the retirement of 1,400 government employees in 2005. - Maintain the hiring freeze through 2006. - Payroll Office and civil service records: - An assessment of work on the FURCA found significant differences with the ONI database. - With donor support (chiefly UNDP and the World Bank) and based on an international consultant’s recommendations, the authorities will clean up and secure records; data processing for these files will be carried out by the Payroll Office and no longer by the ONI. - Authorities urgently request continued donor technical assistance. ### Domestic arrears strategy - The government is committed to finding a lasting solution to domestic arrears owed to the civil service and the private sector. - Actions and timeline: - A committee has been formed to verify the stock and composition of arrears. - With a World Bank–financed international consultant, progress has been made in determining legitimate versus unfounded claims. - By June 2006, the authorities will submit verification results to an internationally recognized auditing firm for validation. - In mid-2006, following dialogue with social partners, the government will aim to decide on an explicit strategy for clearing arrears. - In the meantime, the government will strive to honor current obligations and avoid accumulating new arrears in 2006. ### Monetary and financial policies - BEAC and exceptional advance: - The government agreed with the Bank of Central African States (BEAC) to postpone until January 2006 the first repayment of the exceptional advance granted in 2004 with the guarantee of other CEMAC member countries. - The government will endeavor to ensure any new support from BEAC member states is in the form of a grant; if in the form of a loan, donor support should be used in part to reimburse the loan. - Banking sector monitoring and measures: - Authorities are closely monitoring banks’ observance of prudential ratios established by COBAC. - One local bank has significant weaknesses and complies with only one prudential ratio; authorities will ensure recapitalization by existing and new shareholders and bring the bank into compliance. - The government commits to improving the legal environment so banks can recover loans. - Microfinance sector: - Weaknesses affect the microfinance sector, dominated by CMCA (Crédit Mutuel de la Centrafrique). - To minimize risk associated with CMCA deposits, monetary authorities will consider mechanisms to allow CMCA to open an account with the central bank. - UNDP-supported efforts are under way to rehabilitate other microfinance structures, particularly outside main cities. ### External sector and trade policy - Trade facilitation and tariff policy: - The government will remove obstacles to international trade and ensure compliance with CEMAC trade regulations, particularly the regional Common External Tariff (CET). - The government will enforce strict compliance with tariff classification for imported goods according to the four categories of the CET. - The government intends to take up the issue of reduction of external tariffs at the regional level. - Exporter constraints and infrastructure: - Exporters face obstacles accessing seaports in neighboring countries due to deteriorated infrastructure, banditry, and illegal roadblocks by military personnel on main highways. - The government intends to eliminate roadblocks, restore rule of law on roads, and rehabilitate transportation infrastructure with donor backing and regional cooperation for highways. ### Governance, transparency, and structural reforms — private sector and legal environment - Legal and regulatory reforms: - The government is committed to reforming the legal system to improve the business climate for the formal private sector and the financial system; priority is improving contract enforcement to address a high rate of nonperforming loans. - The government will consult economic agents before amending regulations and will not cancel licenses except where license terms have not been fulfilled (notably in telecommunications). - The authorities intend to revise the Labor Code to modernize it and make it more flexible. *Source: _cr0642 - 13. Despite all these reforms, fiscal performance has fallen short of expectations.* ### 38. The government has undertaken a review of the rules governing public procurement, ### _cr0642 - 38. The government has undertaken a review of the rules governing public procurement, ### Public procurement and governance - The government has undertaken a review of the rules governing public procurement, which "suffer from serious deficiencies, engender poor governance, and risk undermining investor confidence." - In consultation with donors, the authorities are updating the Procurement Code to: - foster transparency and predictability, - be in line with international best practices, - reduce the government’s discretionary power. - Interim commitment: the government is committed to awarding all public contracts in conformity with current procurement procedures. - Specific action: by April 2006, the authorities will undertake an assessment of the work done by the firm responsible for the security of C.A.R. port revenue at Douala, and if findings are unsatisfactory, will issue a call for tenders so that a new contract can be awarded. ### Sectoral policies — forestry, mining, agriculture, public enterprises - Forestry sector: - A new inspection company with an expanded mandate to secure government receipts commenced work in May 2005. - A system of automatic issuance of revenue collection orders has been implemented. - Systematic application of penalties to companies failing to submit monthly production and export reports by the due date specified in the Forestry Code. - Transparency commitment: publish monthly data on volumes produced and exported and public receipts generated; publish information on awarding and cancellation of licenses. - Mining and diamond sector: - More than 50 exploration licenses were awarded in 2005. - Government will consider reforms to the Mining Code to encourage investors. - Measures to combat undervaluation and undeclared diamond exports while safeguarding competition: - Suspend minimum export levels applied to purchasing offices if, after three months, exports by the formal sector and tax receipts show a decline. - Strengthen BECDOR practices, including obtaining information on volume and value of C.A.R. diamonds traded in Antwerp. - Revision of the valuation mechanism for diamonds envisaged for early 2006. - Strengthen capacity under the Kimberley Process to transfer verification to the public sector as soon as possible. - Agriculture: - Government intends to step up support focused on integrated rural development in partnership with donors, without aiming to benefit any particular sector. - Public enterprises: - Plan to rehabilitate public enterprises with deteriorated financial/operational positions. - By early 2006: issue a call for bids to award commercial management of SODECA (water authority) to a private operator. - By June 2006: similar operation planned for ENERCA (electric power authority). ### Social sectors and the PRSP - Health, education, and basic infrastructure have been in dire straits; NGO support has helped resume services in rural areas through rehabilitation of clinics and schools and promoting return of qualified social personnel. - Government progress on poverty reduction strategy paper (PRSP): - Significant progress since March 2004. - With World Bank and partners, will consolidate initial draft PRSP (identified high-priority sectors). - Remaining work: macroeconomic framework for strategy, participation details, monitoring and evaluation. - Authorities determine PRSP must be a clear document with a limited number of programs whose costs have been assessed and objectives fixed. - Authorities are determined to finalize the PRSP in 2006. ### Technical assistance needs - Priority areas for technical assistance: - Strengthening tax and customs administrations; - Expenditure management and government accounting; - Verification of domestic arrears; - Better control and monitoring of the public sector wage bill; - Strengthening the statistical apparatus. - Internal action: redeployment of staff within the Department of Economic and Social Statistics and Research to units responsible for national accounts, economic and social indicators, and government finances. - Assistance needed to finalize the PRSP in social sectors. ### Program financing, monitoring, and donor requests - Financing gap for 2006 corresponds to the level of external debt obligations. - Government is in close contact with creditors to reach an arrears clearance agreement; external arrears continue to accumulate except payments to the IMF, which the government is committed to honoring. - Authorities are asking donors (World Bank, African Development Bank, United Nations agencies, European Union, France, United States, the People’s Republic of China, and others) to finance investment projects in infrastructure and social sectors and to provide technical assistance. - Government has requested budgetary support for priority social spending to help restore public services; these expenditures are not included in the budget and will only be effected if requested assistance materializes, particularly from the European Union and France, as well as resources available under the IMF’s emergency post-conflict assistance. - Monitoring and program review: - Quantitative objectives for 2006 summarized in Table 1; monitoring of fiscal, governance, and structural reforms based on Table 2. - Quantitative indicators defined in the Technical Memorandum of Understanding. - An IMF mission could visit Bangui in the first half of 2006 to assess progress; if performance is satisfactory in first half of 2006, government will ask IMF staff to return in the third quarter to begin negotiations on a successor program. ### Quantitative targets (Table 1 — Central African Republic: Authorities' Indicative Targets, March 1– December 31, 2006) - (In billions of CFA francs; cumulative from January 1, 2006; ceilings, unless otherwise indicated) - End-March | End-June | End-September | End-December - Floor on total government revenue 1/ : 16.6 33.7 50.5 67.3 - Wages and salaries 2/ : 8.8 17.5 26.3 35.0 - Floor on narrow primary balance (cash) 3/ : 1.2 2.5 3.5 4.0 - Net change in domestic arrears on wages and on goods and services 4/ : 0.0 0.0 0.0 0.0 - Change in net claims of the banking system on the government : 0.0 0.0 0.0 0.0 - New nonconcessional external debt 5/ : 0.0 0.0 0.0 0.0 - Memorandum items: - Customs receipts (cash basis) : 5.9 12.2 18.9 25.8 - Floor on narrow primary balance (payment order) 6/ : 1.2 2.5 3.5 4.0 - Net change in domestic arrears 7/ : 0.0 0.0 0.0 0.0 ### Structural measures for 2006 (Table 2 — selected measures and dates) - Revenue measures: - Strengthen management of large taxpayers and apply deterrent penalties to non-filers — March 2006 - Step up tax audits; target for June 2006: at least 20 full audits and 100 ad hoc inspections — June 2006 - Continue to strengthen the Douala office, provide a computer link with Cameroonian one-stop window, conduct ad hoc inspections with Cameroonian customs — June 2006 - Install a copy of SYDONIA++ customs software on a pilot basis — June 2006 - Maintain target of at least 20 off-site examinations a year to identify businesses wrongly applying the flat tax — December 2006 - Cash-flow management: - Limit and secure issuance of Treasury checks against deposit accounts — March 2006 - Close unnecessary government bank accounts and justify those kept open — April 2006 - Expenditure: - Identify false academic qualifications, improper grades, finalize census of retired staff and adjust payments database — March 2006 - Fully implement unified civil service database (FURCA) for Ministry of the Civil Service and Payroll Office — June 2006 - Simplify expenditure process including greater use of computerization — June 2006 - Governance and transparency: - Publish monthly data (with lag ≤ six weeks) on forestry output volumes/values and corresponding government revenue; publish data on licenses awarded/cancelled, diamond volumes/values, and corresponding government revenue — Beginning in February 2006 - Set up a website for publishing government cash-flow plan, forestry and diamond activity indicators, progress in the fight against corruption, and procurement contract awarding information based on template agreed with IMF staff — March 2006 - Assess the work by the firm responsible for security of transit revenues at port of Douala, and if unsatisfactory issue call for tenders for new contract — April 2006 - Submit results of verification of domestic arrears to an internationally recognized auditing firm for validation — June 2006 ### Key fiscal and macroeconomic stock and flow figures (Technical Memorandum highlights) - Government revenue for 2004 (TOFE basis): 55.8 - Cash receipts, including offsets (customs, tax, and treasury directorates): 47.4 - Other revenue: 8.4 - Earmarked revenue (road fund, CEMAC contributions, hospitals, livestock fund (FIDE)): 2.5 - Withholding taxes on government salaries and wages: 4.4 - Customs duties on projects (treasury checks): 1.5 - Government wage bill for 2004: CFAF 38.9 billion - Net banking system claims on the government, excluding the counterpart of the use of Fund resources (as of December 31, 2004): 41.670 - Statutory advances from the BEAC: 15.540 - Extraordinary advances from the BEAC: 9.574 - Consolidated debt owed to the BEAC: 14.552 - Minus: deposits held with the BEAC: 2.171 - Debt owed to commercial banks: 5.009 - Minus: deposits with commercial banks: 0.834 ### Quantitative indicators and definitions (selected) - Quantitative indicators include cumulative floors on total government revenue; cumulative ceilings on the government wage bill; cumulative floors on the narrow primary fiscal balance (cash basis); cumulative ceilings on net change in government domestic payment arrears on wages and goods and services; cumulative ceilings on change in net banking system claims on the government (excluding counterpart of Fund resources); cumulative ceilings on new nonconcessional external debt contracted or guaranteed by the government. - Memorandum items include cumulative floor on customs receipts (cash basis); cumulative floors on narrow primary fiscal balance (payment order basis); cumulative ceilings on net change in government domestic payments arrears. - Definitions: - Government is defined as the central government of the Central African Republic and excludes local governments, the central bank, or any autonomous public entity not covered by the government consolidated financial operations table (TOFE), unless otherwise indicated. - Narrow primary fiscal balance (cash basis): government revenue on a cash basis (excluding earmarked revenue, withholding taxes on government salaries and wages, and project-related customs duties) minus primary government expenditure (total expenditure excluding interest payments and externally financed investment, including treasury operations) on a cash basis. - Debt definitions and loan concessionality are based on the Guidelines on Performance Criteria with Respect to Foreign Debt and OECD commercial interest reference rates (CIRRs); a loan is concessional if the present value at the initial disbursement date is less than 50 percent of its nominal value (grant element ≥ 50 percent). Purchases from the IMF are excluded from this limit. *Source: Technical Memorandum of Understanding and Attachment I of the Central African Republic program documents (January 12, 2006).* ### 59. The concept of government for the purposes of the indicator on external debt ### 59. The concept of government for the purposes of the indicator on external debt ### Definition of "government" for the external-debt indicator - Includes: - government as defined in paragraph 3; - administrative public institutions (EPAs); - public enterprises authorized to contract, guarantee, or accommodate nonconcessional borrowing; - scientific and technical public institutions; - professional public institutions; - industrial and/or commercial public institutions (EPICs); - local governments. ### Customs receipts - Defined as revenue collected by the customs general directorate on a cash basis, and including offsetting operations in current revenue and expenditure. - Excludes: - earmarked revenue; - customs checks for project-related customs duties. ### Narrow primary fiscal balance (payment order basis) — definition and valuation - Calculated as the difference between: - government revenue valued on a cash basis (excluding earmarked revenue, withholding taxes on government salaries and wages, and project-related customs duties); - and primary government expenditure. - Primary government expenditure is: - total government expenditure excluding interest payments and externally financed investment; - including treasury operations; - valued on a payment order basis. - Government expenditure on a payment order basis includes: - all expenditure for which payment orders have been issued by the budget general directorate in the Ministry of Finance and Budget; - automatic expenditure (such as wages and salaries, pensions, utilities, and other expenditure for which payment is centralized); - expenditure by means of offsetting operations; - budgetary contributions in the form of treasury checks in payment of project-related customs duties. - In the absence of appropriate documentation indicating the amount of expenditure for which payment orders have been issued: - the amount indicated in the cash-flow plan by way of a projection of payment orders will be used for program assessment. - If the primary expenditure on a cash basis is higher than the amount indicated in the cash-flow plan, the former will be used in the computation of the narrow primary balance. ### Narrow primary expenditure — 2004 (TOFE basis; in billions of CFA francs) - Narrow primary government expenditure (TOFE basis): 74.4 - Current expenditure: 66.7 - Wages and salaries: 38.9 - Goods and services: 17.8 - Subsidies and transfers: 10.0 - Domestically financed capital expenditure: 7.7 ### Narrow primary fiscal balance — 2004 - As a consequence, the narrow primary fiscal balance for 2004 was CFAF-18.6 billion. ### Net change in government domestic payments arrears — definition and 2004 outcome - Defined as the difference during the period between payment orders agreed by the government, excluding external debt operations, and payments made. - A negative amount corresponds to a net reduction of arrears. - A positive amount corresponds to a net accumulation of arrears. - Government payment orders include: - all expenditure for which payment orders have been approved by the budget general directorate in the Ministry of Finance; - automatic expenditures (such as wages and salaries, pensions, utilities, and other expenditures for which payment is centralized); - payment orders approved by project managers. - Government payments include: - cash payments by the treasury; - offsetting operations. - Note on measurement: The net change in arrears does not necessarily correspond to arrears in the legal sense; the calculation also takes into account temporary operations and temporary discrepancies in net banking system claims on the government as reported by the government and by the BEAC. - For 2004, the net change in arrears was CFAF 2.9 billion (that is, a net increase), broken down as follows: - Net change in domestic payments arrears (in billion of CFA francs): 2.9 - On current expenditures: 7.1 - Of which: wages and salaries: 3.8 - On domestic debt: -3.7 - Treasury operations: -0.5 ### Adjusters (treatment of additional external budgetary assistance and other borrowing) - If additional (nonprogrammed) external budgetary assistance becomes available, the authorities will use these resources to: - reduce the government’s external payments arrears; and/or - reduce net claims of the banking system on the government, excluding the counterpart of the use of Fund resources; and/or - execute priority public expenditure. - Floors on the narrow primary balance (both cash and payment order basis) will be adjusted downward to reflect budgetary support from donors used for executing priority expenditure. - The ceiling on the change in net claims of the banking system on the government will be adjusted downward in the event that external budgetary assistance is not used for the amounts specified in paragraph 17. - The ceiling on the change in net claims of the banking system on the government will be adjusted downward to reflect borrowing from banks or other financial institutions outside the Central African Republic, or domestic financial institutions that do not appear in net claims of the banking system on the government. ### Structural indicators — definitions and program focus - Structural indicators are listed in Table 2 of the memorandum of economic and financial policies. Definitions include: - Following up on delinquent taxpayers: sending appropriate notices and applying/collecting appropriate penalties according to regulations. - Inspection and examination (Douala office; examination of tax returns): critical reviews of existing practices to identify and correct anomalies. - Limit and secure the issuance of Treasury checks against deposit accounts: - i) controlling and tracking the stock of Treasury checks including by prohibiting payment of these checks outside the capital Bangui; - ii) monitoring the deposit accounts to ensure that the balance remains below a ceiling agreed with staff. - Issuance of checks against these accounts will stop when the ceiling is broken and until the balance declines under the ceiling. - Unnecessary government bank accounts: those not in place for statutory reasons or because of agreements with external donors. - Simplifying the expenditure process: measures to streamline the process by better defining the commitment and payment stages, clearly separating them, and reducing redundancies of controls in each stage. - Publication: making information available to the public: - i) via a functional internet site accessible to the press, news agencies, and non-governmental organizations or directly to those entities in the absence of a functional internet site; - ii) according to a pre-determined calendar; - iii) using templates agreed with IMF staff. - This can include information made available by the General Secretariat of the government. ### Program monitoring — reporting requirements and timing - A monthly evaluation report will be prepared within six weeks of the end of each month, based on information available within specified timeframes. - The Standing Technical Committee responsible for program monitoring (CTP-PAS) will regularly report required data to the IMF’s African Department by fax or e-mail, including: - a comprehensive monetary survey, central bank survey, and commercial bank accounts (within six weeks); - the net claims of the banking system on the government (within ten days of the end of the month); - table on budgetary cash flow (within four weeks); - table on operational cash flow (within four weeks); - government budget operations (TOFE); - end-of-period stock of domestic arrears (within four weeks); - end-of-period stock of external arrears (within four weeks); - breakdown of cash outlays for current expenditure and for domestically financed capital expenditure (within six weeks); - report on government spending in the priority sectors (health, education, social affairs, and rural development) through to cash payments by the treasury (within six weeks); - monthly table with data on budgetary commitments, payments orders, and cash payments (first table to start on February 15 with the data for January 2006; from February, maximum lag between base month and provision date will be four weeks); - breakdown of revenue office receipts, including the monthly report on reconciliation of customs payments with data from the import certification agency (within four weeks); and details of any prepaid tax receipts (within six weeks); - breakdown of external debt-service and external debt arrears, including by interest and principal, and by principal creditor (within four weeks); - the amount of new nonconcessional external debt contracted or guaranteed by the government (within four weeks); - actual disbursements of nonproject external financial assistance, and external debt relief granted by external creditors (within four weeks); - indicators to assess overall economic trends, such as the household consumer price index (within four weeks); - import and export flows (in volume and value), activity in the forestry sector and industry on a quarterly basis (within six weeks); - a review of the implementation of structural measures, including explanatory notes and supporting documentation on each of the measures in table 2 (within six weeks); - a copy of all information published in line with paragraph 19 (within four weeks). - Additional specific information from the Ministry of Finance to IMF’s African Department (not later than 21 days after month end): - a monthly report on the structure of petroleum prices; - a bimonthly report on the implementation of specific measures at the tax, customs, budget, and treasury general directorates, as recommended by IMF technical assistance missions. - The Ministry of Finance will also provide any information deemed necessary or required by Fund staff for program-monitoring purposes. *Source: _cr0642 - 59. The concept of government for the purposes of the indicator on external debt_* ### 6. The Government has advanced in its preparation of the full PRSP, with assistance ### 6. The Government has advanced in its preparation of the full PRSP, with assistance ### PRSP preparation and donor collaboration - The Government has advanced in its preparation of the full PRSP, with assistance from UNDP. - The Bank is working closely with UNDP and Government on the PRSP process, and has scaled up support to ensure the PRSP will provide the requisite medium-term framework with sufficient depth and breadth of coverage of the country’s recovery and longer term development and poverty reduction needs. ### World Bank-led projects and contributions - Reintegration of Ex-combatants and Support to Communities Special Project: - Approved amount: $9.6 million (April 2004). - Funding source: Multi-Donor Trust Fund (MDTF) of the Multi-Country Demobilization and Reintegration Program (MDRP). - Expected contributions to country stability: - (i) demobilizing ex-combatants and reintegrating them socially and economically back into their community; - (ii) strengthening the capacity of communities of return to ensure the sustainable reintegration of the ex-combatants; and - (iii) supporting projects on security and conflict prevention in communities most affected by security problems. - Implementation note: Project implementation was slowed by the election process, but supervision will be stepped up to ensure concrete results in the field. - Bank analytical and advisory work: - Preparing a medium term structural reform framework in the context of the PRSP. - Conducted LICUS Trust Fund activities and prepared a set of Policy Notes on security, natural resource management, social sectors and public finance. - A draft of the Policy Notes has been shared with the authorities to assess the current situation and design a framework for recovery and longer-term development. ### Areas of IMF–World Bank coordination and lead responsibilities - Shared responsibilities: - Joint assessment of debt sustainability and HIPC eligibility for the C.A.R. - Regional integration activities: Bank implements a Regional Assistance Strategy for CEMAC countries including support to payments systems; IMF active in regional macroeconomic surveillance. - World Bank leads and inputs into IMF-supported programs: - Bank analysis serves as input for medium-term structural reform framework and policy notes. - IMF leads and inputs into World Bank-supported programs: - IMF leads on core macroeconomic and fiscal policies, revenue mobilization, and management of aggregate expenditures. - Bank has provided training and technical assistance to strengthen C.A.R. public finance administration; FAD public expenditure management advisor is currently stationed in C.A.R. - IMF-only lead areas: - IMF leads dialogue on monetary policy, exchange rate management, and balance of payments issues; but given the CFA franc arrangement, little scope exists for national-level policy action in these areas. - Contact points (questions may be addressed to): - Brendan Horton (202-473-5587) - Ali Khadr (202-458-7860) ### Statistical issues — overall assessment (As of December 29, 2005) - General: - The statistical database is minimally adequate for surveillance, with severe weaknesses from years of negligence, inadequate resources, and conflict-related destruction. - C.A.R. became a participant in the GDDS; metadata were first posted on the IMF’s DSBB on June 14, 2004. - Plans for improvement are being updated by the authorities. - Key sectoral weaknesses: - Real sector, government finance, and external trade areas are particularly severely affected. ### Real sector findings and needs - Institutional and data weaknesses: - National accounts compilation: responsibility of Division of Statistics and Economic Studies (DSEE), Ministry of the Economy, Finance, Planning, and International Cooperation. - 1999 STA multisector mission found serious deficiencies; situation likely worsened. - Need to improve national accounts estimates and reporting of quarterly foreign trade data. - Need to revise wholesale and consumer price indices due to limited coverage and obsolete weights. - Specific recommendations and resource gaps: - July 11-22, 2005 statistical expert found a serious resource gap at DSEE and recommended redeployment of resources to strengthen national accounts services. - Urgent need to develop source data via surveys, particularly for subsistence agriculture which represents almost 30 percent of the economy. - Informal sector activity estimates still based on a 1982 survey. - Manufacturing estimates use an outdated enterprise list, likely overestimating activity; urgent need to update via enterprise survey and reestablish the industrial production index. ### Government finance statistics findings and needs - Current reporting status: - C.A.R. does not report government finance statistics for publication in the GFS Yearbook or IFS. - Data source and systems issues: - No single primary data source exists for government finance statistics; information not communicated to the Ministry of Finance. - Substantial assistance required in Treasury accounting and expenditure management to produce reliable source data and improve measures of domestic arrears. - Assistance and action: - FAD public expenditure management advisor is stationed in C.A.R. - GFS mission (June 19–July 7, 2005) proposed an action plan for improving the Tableau des Opérations financières de l’État and the Treasury cash plan. ### Monetary accounts findings and needs - Reporting: - Monthly data for C.A.R. and other CEMAC members are reported to the Fund electronically by BEAC. - Currency circulation distortions: - Only 31 percent of banknotes issued in the C.A.R. by the BEAC National Directorate remain in the territory. - 47 percent circulate in Cameroon. - About 16 percent circulate 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 Gabon. - Priorities: - Adopt new format for monthly reporting by banks. - Address accrual recording of interest, treatment of nonperforming loans, and proper sectorization of public entities. ### Balance of payments findings and needs - Compilation responsibility: - Balance of Payments Unit of the national BEAC agency. - Data status: - Last complete reporting prepared by national BOP committee covered 2002 annual data. - Preliminary statements for 2003-04 available from national BEAC office and transmitted to African Department. - No BOP data transmitted to the Statistics Department; IFS Yearbook publishes BOP data only through 1994. - Methodology and timeliness issues: - Need to update the BOP survey (list of respondents, reporting form, codification). - Review methodologies 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 improvement. ### External and domestic debt statistics findings and needs - Compilation responsibility: - Debt Directorate of the Ministry of Finance and Budget. - Data quality and reconciliation: - Quality of data needs significant improvement. - Efforts underway to verify with creditors the stock of external debt outstanding and external arrears. - To date, most multilateral debt data and 10 percent of bilateral debt data have been reconciled. - Domestic debt issues: - Domestic debt data are of very poor quality, partly due to difficulty monitoring public expenditure on a commitment basis. - A working group has been set up, with a World Bank consultant, to establish the actual stock of domestic arrears. - Debt Directorate seeking funding and technical expertise to upgrade outdated debt data management software. ### Technical assistance missions in statistics (2000–Present) - Government finance statistics: January–February, 2004 - GDDS: January–February, 2004 - Government finance statistics: June–July, 2005 - Real Sector: July, 2005 ### Table of common indicators required for surveillance (AS OF DECEMBER 14, 2005) — selected entries - Exchange Rates: Date of latest observation Dec 2005; Date received Dec 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 Dec 2005; Date received Dec 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Reserve/Base Money: Date of latest observation Oct 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Broad Money: Date of latest observation Oct 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Central Bank Balance Sheet: Date of latest observation Oct 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Consolidated Balance Sheet of the Banking System: Date of latest observation Oct 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Interest Rates: Date of latest observation Oct 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Consumer Price Index: Date of latest observation Oct 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Revenue, Expenditure, Balance and Composition of Financing – General Government: (no specific dates listed in excerpt) - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation Sept 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: M - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation Sept 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: O; Frequency of publication: M - External Current Account Balance: Date of latest observation Dec 2004; Date received Nov 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 Nov 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 Sept 2005; Date received Nov 2005; Frequency of Data: M; Frequency of Reporting: O ### IMF press release and Executive Board decision (Press Release No. 06/18; January 30, 2006) - IMF approved a credit of SDR 6.962 million (about US$10.2 million) in Emergency Post-Conflict Assistance (EPCA) for the Central African Republic to continue efforts begun under the first EPCA-supported program. - Deputy Managing Director and Acting Chair Mr. Agustín Carstens (statement dated January 27, 2006) emphasized: - Stable political and security situation since conclusion of presidential and legislative elections is encouraging. - Authorities have undertaken strong corrective actions, particularly in fiscal and governance areas. - The 2006 government program supported by EPCA focuses on stabilizing public finances and strengthening governance to support sustainable economic growth and normalize relations with external creditors. - Revenue measures taken: increase in petroleum taxes and the value added tax rate. - Further actions recommended: strengthen tax administration, combat customs fraud, contain wages, strengthen public expenditure and treasury management. - Structural reforms needed: liberalizing trade, developing the financial sector, reforming public enterprises. - Social sector: authorities have undertaken efforts to address dire situation; further actions and substantial international support needed. ### Statement by Damian Ondo Mañe, Executive Director for Central African Republic (January 27, 2006) — highlights - Authorities’ appreciation for IMF support since July 2004 via EPCA for peace and improved security. - Authorities redirected priorities after elections toward rehabilitation, reconstruction, macroeconomic stability, and enhanced security. - Security and DDR: - Progress in disarmament, demobilization, and reintegration (DDR) with assistance of France and CEMAC. - Actions to stop residual banditry include better cooperation with neighboring countries and reinsertion of identified ex-combatants. - Recent economic developments and indicators: - Real GDP is estimated at 2.2 percent in 2005, against 1.3 percent in 2004 and -7.6 percent in 2003. - Inflation remains subdued. - External current account declined. - Liquidity position of Central African banks improved. - Fiscal and policy measures noted: - VAT rate increased by 1 percentage point. - A deposit paid on goods imported by small and informal sector introduced. - The most significant measure: an increase in the specific tax on petroleum products (expected to yield additional revenue). *Source: IMF staff report excerpts, press release No. 06/18, and statement by the Executive Director for the Central African Republic (documents as provided).* ### 0.25 percent of GDP annually. Also, several other reforms aimed at boosting verifications on ### _cr0642 - 0.25 percent of GDP annually. Also, several other reforms aimed at boosting verifications on ### Overview and expected savings - Savings from measures to ensure better control of the wage bill are expected to reach 1 percent of GDP on an annual basis. - Other reforms target boosting verifications on domestic taxes, strengthening customs at the port of Douala in Cameroun, and minimizing abuse related to the exemptions regimes. - Efforts to enhance transparency include regular publication of information on fiscal revenue and expenditure, and on the allocation of permits in the mining and forestry sector. ### II. The Program for 2006 — objectives and macroeconomic projections - Program focus: consolidation of the favorable trend resulting from the implementation of EPCA program put in place in July 2004. - Objectives: restore macroeconomic stability through strengthening public finance and improving governance. - Economic growth projected at 3.2 percent. - Inflation projected to be in line with the CEMAC trend of 2 percent. - External current account deficit expected to decline slightly under 4 percent of GDP. ### Fiscal Policy — revenue measures and expenditure control - Revenue-side measures: - Permanent measures adopted in 2005, particularly those pertaining to the VAT and petroleum products, are expected to have their full annual impact in 2006. - Administrative reforms planned to improve tax audits by increasing their number and ensuring verification of documents filed by taxpayers. - Plans to strengthen tax recoveries by enforcing sanctions and penalties. - Increased control at customs border posts with greater attention on activities in Douala port. - Expenditure-side measures: - Strict control over the wage bill seen as key to solving long-standing macroeconomic instability. - Authorities intend to consolidate gains from the wage bill reduction following the civil census in 2005. - Government decision to freeze any recruitment in 2006. - Measures to limit spending outside the normal process, close all remaining nonessential treasury accounts, and exert better control over the issuance of treasury checks. - Fiscal target: - Authorities believe implementation of these measures would enable them to meet the target of 1.3 percent GDP overall deficit. ### Governance, Transparency, and Structural Reforms - Governance improvements: - Regular publication on budget execution, and awarding and revocation of permits in the mining and forestry sectors. - Plan to establish in 2006 a government web site for dissemination of information. - Appointment of the state legal agent for prosecution of corruption cases and defense of the interest of the state. - Plans to tighten sanctions against public civil servants implicated in corruption. - Preparation, in consultation with development partners including World Bank, of a new procurement code consistent with international standards. - Structural reforms and private sector climate: - Measures aimed at improving the climate for private sector development, management of natural resources, trade liberalization, and deepening financial intermediation. - Actions envisaged to increase control over smuggling in the forestry sector and enforcement of contracts. ### Social Sectors - Current situation: - CAR’s social indicators remain among the lowest in Sub-Saharan Africa despite recent efforts. - Authorities’ actions: - Focus on finalizing the PRSP in 2006 in collaboration with World Bank. - Continued reliance on assistance from NGOs and the United Nations system, which has contributed to improvements in social indicators. ### External Debt - Debt burden indicators: - Ratio of net present value of debt to exports estimated at 515 percent. - Stock of external arrears reaching 27 percent of GDP. - Strategy: - Continue efforts to reconcile data on debt outstanding and arrears with creditors. - Implement strategy to restore macroeconomic stability, establish a strong track record of policy reform, and make progress on poverty reduction to pave the way to a future PRGF program and eligibility for debt relief under the HIPC initiative. ### Donor Coordination and Technical Assistance - Priorities for technical assistance: tax and customs administration, public expenditure management (PEM), the judicial system, statistics, and the PRSP process. - Donor engagement: - Donor circle widening steadily as political and economic situation improves. - Authorities appeal for an acceleration of financial and technical assistance devoted to the CAR. ### III. Conclusion — commitments and outlook - Progress: Central African Republic has made progress since 2004 under the EPCA program. - Authorities’ commitment: pursue sound macroeconomic policies, particularly in public finance management and governance reforms, and implement firmly all measures needed to reverse the situation. - External requirements: prospects for recovery depend on restoration of peace and security and acceleration of donor support. - Objective: hope that the post-conflict program will pave the way to a PRGF-program and lead to debt relief under HIPC initiative. *Source: IMF staff report content provided in the supplied document.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0642.pdf_