## _cr0773 — IMF Staff Report (Central African Republic): Executive Summary and Program Details ## Source details **Canonical URL:** [_cr0773 — IMF Staff Report (Central African Republic): Executive Summary and Program Details](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0773.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0773.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0773.pdf.json) --- ### Recent developments and macro performance (2006) - Real GDP growth expected to reach about 3½ percent in 2006; pickup driven by mining and forestry and more activity in secondary and tertiary sectors. - Twelve-month inflation about 5 percent and on a declining trend. - Current account deficit projected to widen to 3.3 percent of GDP in 2006, mainly reflecting lower official transfers. - Real effective exchange rate appreciated by about 6 percent in the first half of 2006. - Domestic primary balance projected to move from a deficit of 3½ percent of GDP in 2005 to a primary surplus of about ½ percent of GDP in 2006. - Tax revenue exceeded authorities’ target by 0.2 percent of GDP through September 2006; domestic non-interest spending was above target by about 0.4 percent of GDP through September 2006. - Payments on domestic arrears (wages and salaries, goods and services, pensions from 2005) amounted to 0.5 percent of GDP. - Net credit to the government from the banking system slightly higher than planned in first eight months of 2006; credit to the private sector increased only slightly. ### Program objectives and macro framework (2007–09) - Overall aims: - Build a foundation for accelerating private sector-led growth and alleviating poverty. - Achieve real GDP growth of 4-5 percent per annum through 2009. - Further fiscal consolidation to gradually eliminate domestic debt overhang and open room for growth-enhancing and poverty-reducing social policies. - Increase credit to the private sector. - Make external debt sustainable by regularizing relations with external creditors and benefiting from enhanced HIPC and MDRI. - First-year (2007) macro targets and fiscal stance: - Targeted real GDP growth of 4 percent (2007). - Targeted reduction of inflation to about 3 percent (2007). - 2007 budget targets a domestic primary surplus of about 1 percent of GDP. - Increase tax revenue-to-GDP ratio by about 1 percentage point; significant nontax revenue from telecommunications licensing fees (about ½ percent of GDP). - Hold non-interest current expenditures to 8 percent of GDP. - Outlays for poverty-related spending and capital expenditures budgeted to increase in real terms. - Allowance for increased security spending if situation deteriorates (about 0.1 percent of GDP). - Increase in foreign grants and restructuring of debt to the BEAC will allow repayment of domestic debt equivalent to about 2½ percent of GDP in 2007. ### Program financing, PRGF access, and Fund obligations - Proposed PRGF arrangement: SDR 36.20 million (65 percent of quota) over three years. - Proposed disbursement strategy: disbursements in seven tranches; first disbursement SDR 17.6 million to: - Refinance outstanding EPCA loans with PRGF resources. - Hold sufficient resources in the SDR account to cover PRGF obligations through the third quarter of next year. - C.A.R.’s financing requirements in 2007: CFAF 17.1 billion, equivalent to about US$31 million. - Expected resources mainly from grants: World Bank (US$19.6 million) and AfDB (US$4.5 million). - At end-October 2006, C.A.R. credit outstanding to the Fund: SDR 27.97 million (equivalent to 50.22 percent of quota), including SDR 12.53 million under the EPCA. - With proposed PRGF arrangement, obligations will peak at SDR 38.5 million in 2009, representing about 33 percent of exports of goods and services. - Arrangement term and access limits: - Three years from December 22, 2006 to December 21, 2009. - Right to disburse up to SDR 36.2 million, subject to PRGF Trust resource availability. - Disbursement ceilings: not to exceed equivalent of SDR 20.7 million until December 21, 2007 and equivalent of SDR 26.9 million until December 21, 2008. - Disbursement schedule (selected): - Approval (December 22, 2006): 17,600,000 SDRs. - Subsequent scheduled disbursements: 3,100,000 SDRs each (six tranches) on dates from September 28, 2007 through December 21, 2009. - Total proposed: 36,200,000 SDRs; 53,929,128 US$. - C.A.R. quota: SDR 55.7 million. ### Public finances, domestic debt, and arrears strategy - Medium-term fiscal strategy: - Maintain annual domestic primary surpluses of about 1 percent of GDP to stay current on domestic debt service and start repaying domestic debt (over 21 percent of GDP). - Plan to repay domestic debt at an annual rate of about 1½-2 percent of GDP. - Repayments to use domestic resources, foreign assistance, negotiated discounts, and possible debt-for-equity swaps. - Tax-revenue ratio envisaged to increase by about 2 percentage points to about 9½ percent of GDP in 2009 through revenue administration reform and base broadening. - Rebalance spending toward growth-enhancing and poverty-reducing activities and control the civil service wage bill. - Composition and stocks (2006 data and targets): - Commercial bank overdrafts: 1.6 percent of GDP at end-September 2006. - Debt to the regional central bank (BEAC): 7.3 percent of GDP (to be restructured: extend maturity from 3 to 15 years; reduce interest rate from 10 to 3 percent; increase grace period from 6 months to 5 years). - Payments arrears: 12.3 percent of GDP (domestic). - 2007 expectation: repay domestic debt equivalent to nearly 2½ percent of GDP, including clearance of some payments arrears equivalent to 2 percent of GDP, financed largely by grants. - Arrears verification: - Domestic arrears (1998-2004) verified internally and to be validated by external audit expected by end-June 2007 (structural performance criterion). Prior action: international tender for the audit was issued. ### Structural reforms, public financial management, and governance - Key PFM reforms and measures: - Adopt Organic Budget Law; new budget classification and nomenclature system; strengthen expenditure chain. - Close unnecessary government commercial bank accounts (100 accounts closed during 2006). - Use payroll census to eliminate fraud and duplication; implement unified civil service database (FURCA). - Limit issuance of treasury checks; eliminate non-cash-backed treasury checks (structural performance criterion by end-June 2007) and publicly announce invalidity after September 30, 2007. - Put in place formal quarterly audit/reporting of all revenue sources (structural performance criterion by end-March 2007). - Accelerate move to Treasury Single Account and require all government receipts be deposited therein. - Revenue administration and customs reforms (structural performance criteria): - Tighten controls over large taxpayers; extend controls to SMEs; intensify audits; aggressively collect tax arrears (structural performance criterion by end-December 2007). - Restructure customs administration under a single entity reporting to the Minister of Finance (structural performance criterion by end-March 2007). - External audit of the one-stop customs window in Douala (Guichet Unique) to be completed by end-February 2007. - Full deployment of SYDONIA++ valuation system piloted starting June 2007. - Petroleum pricing reform: - By end-December 2007 implement a new petroleum pricing formula to ensure full recovery of costs, distribution margins, and taxes and avoid future budget subsidies (structural performance criterion). - PFM technical assistance: - Fund to provide a long-term resident public financial management advisor and other TA; government to rely heavily on technical assistance and donor support. ### Financial sector, private sector revival, and natural resources governance - Financial sector strategy: - Stabilize financial sector by addressing non-performing loans (recognition of state-owned enterprises’ non-performing loans) and facilitate recapitalization of troubled bank without additional government resources. - Option under consideration: replace non-performing loans by new government bonds (bank-restructuring bonds) after verification. - Reform regulatory and legal framework to strengthen governance and reduce lending risks. - Legal and judiciary reform to improve credit collection and insolvency procedures (structural benchmark by end-December 2007). - Promote land surveys and modernization of land/commercial registries to facilitate collateral use. - Implement AML/CFT framework outside formal banking sector. - Natural resources and investment climate: - Revise forestry and mining regulations to improve governance, revenue reporting, investor protection, and ensure state receives fair return. - Begin addressing poor performance of state-owned enterprises through cost recovery pricing and management reforms. - Participation in Kimberly process and steps to join EITI; publish forestry and diamond sector data beginning February (implemented). ### Debt sustainability and risks - Debt sustainability analysis (LIC template with World Bank) shows debt burden unsustainable under baseline and historical scenarios absent substantial relief. - Net present value of total debt (percent of exports of goods and services): 489.3 (2006 baseline), projected 463.8 (2007), 448.5 (2008), 434.3 (2009). - External current account balance projected to widen to about 4 percent of GDP over medium term in some projections. - Stress tests indicate high vulnerability to an export shock. - External arrears and regularization: - Arrears to the World Bank cleared; arrears to AfDB expected to be cleared ahead of Executive Board discussion. - Government seeking rescheduling with Paris Club and other bilateral/commercial creditors; financing assurances from Paris Club provided to Fund staff. - Program risks: - Implementation and governance risks: growth acceleration depends on effective implementation, governance improvement, and donor confidence. - Security/regional risks: instability in north (border with Chad and Sudan) and regional disturbances (DRC) can affect livestock supply, trade along Oubangui River, growth, and inflation. - Aid risks: delays or shortfalls in foreign assistance could have serious consequences; program mitigation is to demonstrate strong program ownership to attract donor support. ### Monitoring, conditionality, and reporting - Monitoring framework: - Program monitored through biannual quantitative performance criteria for end-June and end-December 2007 and structural performance criteria/benchmarks for 2007 (see TMU). - Key quantitative cumulative targets from December 31, 2006 (ceilings unless otherwise indicated): floors on total government revenue, ceilings on wages/salaries/bonuses, floor on domestic primary balance, zero accumulation of new domestic arrears, targets for change in net claims of commercial banking system on government. - Indicative targets include NPV of external debt (455.4 end-2006; 457.9 end-December target) and floor on poverty-related spending (3.1 end-March; 6.1 end-June; 9.2 end-September; 12.3 end-December). - Structural performance criteria and deadlines (selected): - Prior action: issue international tender to undertake external audit to validate domestic payments arrears (tender opened November 23, 2006). - By February 28, 2007: complete external audit of one-stop customs window in Douala. - By March 31, 2007: restructure customs under single entity reporting to Minister of Finance. - By March 31, 2007: implement formal quarterly audit/reporting of all revenue sources. - By June 30, 2007: complete external audit validating domestic payments arrears (1998-2004); eliminate issuance and stock of non-cash-backed Treasury checks. - By end-December 2007: implement petroleum-product pricing formula; reduce stock of tax arrears by at least CFAF 1 billion net of uncollectible amounts. - Data provision (selected reporting lags): - Monthly evaluation report within two weeks after each month's end. - Government budget operations (TOFE) within four weeks after month end. - End-of-period stock of domestic arrears within four weeks after month end. - Breakdown of revenue by institution and economic classification within four weeks after quarter end. - Quarterly and monthly series specified in the TMU. ### Social indicators and PRSP process - Poverty and MDG-related indicators (selected): - Population below US$1 a day (percent): 66.6. - Net primary enrollment ratio (percent): 53.5; 54.7; 40.0 (series presented). - Under-5 mortality rate (per 1,000): 180.0; 180.0; 193.0 (series presented). - Maternal mortality ratio (per 100,000 live births): 1,200.0 (modeled estimate). - HIV-related orphan numbers: 90,000.0; 110,000.0. - Access to improved water source (percent of population): 48.0; 70.0; 75.0. - PRSP: - PRSP to be finalized by mid-2007; pillars emerging: consolidation of peace and security; macroeconomic stabilization; good governance; rehabilitation of basic and social infrastructure. - Staff recommends PRSP be supported by a realistic medium-term macro framework, aligned with annual budget and expenditure plan, and costed with TA to estimate resource requirements for MDGs. ### Staff appraisal and recommendations - Staff view: - Recent performance under EPCA generally satisfactory despite high oil prices, instability in the north, and low official inflows. - Fiscal consolidation and PFM reforms are central to restoring fiscal credibility and creating fiscal space for priority spending. - Reviving the private sector requires financial sector reforms, improved governance in natural resources, and trade liberalization. - Debt relief under enhanced HIPC and MDRI is critical but will take time; authorities should accelerate reforms to reach HIPC decision point timely. - Given program strength and prior action, staff supports a three-year PRGF arrangement equivalent to SDR 36.2 million and first disbursement SDR 17.6 million upon Executive Board approval. *Source: IMF staff report — Executive Summary and accompanying excerpts (Central African Republic).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Recent developments - Economic recovery since the March 2003 coup d’état has been modest; real GDP growth is expected to reach about 3½ percent in 2006. - Twelve-month inflation is currently about 5 percent and on a declining trend. - Performance under the authorities’ Emergency Post-Conflict Assistance (EPCA) program has been generally satisfactory through end-September 2006 despite high oil prices, instability in the north, and low official inflows. - In recognition of recent progress: - Arrears to the World Bank have been cleared and those to the African Development Bank are expected to be cleared ahead of the Executive Board discussion. - The Paris Club has provided financing assurances to Fund staff in support of the proposed PRGF arrangement. - The government is making good faith efforts to reach a collaborative agreement with its other bilateral and commercial creditors. ### Retrospective: political and structural context - Political developments - François Bozizé was elected President in May 2005 at the end of the political transition from the March 2003 coup d’état; presidential and parliamentary elections were considered free and fair and the political situation has been generally peaceful since. - Tensions persist due to modest economic recovery, difficult financial situation, banditry in rural areas, and instability and some conflict in border areas with Chad and Sudan. - Obstacles to growth and poverty reduction - Landlocked, import-dependent economy with a narrow export base vulnerable to terms-of-trade shocks. - High cost of doing business due to deterioration of physical and human capital; inadequate transportation. - Weak fiscal position: tax-revenue ratio among the lowest in developing countries; large domestic debt, part of which is payments arrears. - Financial intermediation and access to financial services are minimal: total bank credit to the private sector is equivalent to less than 7 percent of GDP. - External debt burden is unsustainable: estimated net present value of external debt-to-exports ratio was above 500 percent at end-2005. - Weak governance and limited institutional/administrative capacity. - Suspension of all external debt service payments in 2001 led to low and intermittent international support. - Reengagement with the international community - World Bank operation cleared arrears and provided resources to service debt through September 2007 and budget support; AfDB operation involves clearing arrears and providing resources to service debt through 2007. - Since 2004 the Fund reengaged through two EPCA disbursements: July 2004 (10 percent of quota) and January 2006 (12.5 percent of quota). ### Recent macroeconomic performance (2006) - Real GDP growth projected at about 3½ percent in 2006; pickup mainly reflects improvements in mining and forestry and more activity in secondary and tertiary sectors. - Current account deficit projected to widen to 3.3 percent of GDP in 2006, mainly reflecting lower official transfers. - Real effective exchange rate appreciated by about 6 percent in the first half of 2006. - Fiscal developments - Domestic primary balance projected to move from a deficit of 3½ percent of GDP in 2005 to a primary surplus of about ½ percent of GDP in 2006. - Tax revenue exceeded the authorities’ target by 0.2 percent of GDP through September 2006. - Domestic non-interest spending was above the target by about 0.4 percent of GDP through September 2006. - Overspending partly attributable to: a subsidy (0.2 percent of GDP) to jump-start the cotton sector; unanticipated defense spending related to conflict in the north; increased petroleum-related subsidies. - Payments on domestic arrears (wages and salaries, goods and services, pensions from 2005) amounted to 0.5 percent of GDP. - Monetary and banking developments - Net credit to the government from the banking system was slightly higher than planned in the first eight months of 2006; some commercial borrowing was used to alleviate short-term liquidity constraints and is expected to be repaid by end-2006. - Credit to the private sector increased only slightly. ### Policy objectives and program for 2007–09 - Overall aims - Build a firm foundation for accelerating private sector-led growth and alleviating poverty. - Achieve real GDP growth of 4-5 percent per annum to allow for modest progress toward reaching the Millennium Development Goals. - Further fiscal consolidation to gradually eliminate the overhang of domestic debt and open room for growth-enhancing and poverty-reducing social policies. - Increase credit to the private sector. - Make external debt sustainable by regularizing relations with external creditors and benefiting from debt relief under the enhanced Heavily Indebted Poor Countries and Multilateral Debt Relief Initiatives. - First-year macroeconomic framework (2007) - Targeted real GDP growth of 4 percent in 2007. - Targeted reduction of inflation to about 3 percent in 2007. - 2007 budget targets a domestic primary surplus of about 1 percent of GDP. - Policies to achieve these objectives include measures to strengthen public financial management, stabilize the financial sector, and regulatory reforms to enhance governance and the investment climate in the natural resource sector. ### Structural and public financial management reforms - Tax administration reforms (audit and control of large taxpayers, strengthened compliance and audits) have improved tax collection. - Improvements in public expenditure control and monitoring include: - Closing 100 government commercial bank accounts during 2006. - Use of the payroll census to eliminate fraud and duplication in the civil service. - Limiting issuance of treasury checks. - Adoption of a new budget classification system and budget law. - Debt restructuring to the regional central bank (BEAC): - C.A.R. debt to the BEAC equivalent to about 7.3 percent of GDP will be restructured to increase maturity from 3 to 15 years, reduce the interest rate from 10 to 3 percent, and increase the grace period from 6 months to 5 years. ### Program financing and Fund support - Given the strength of the authorities’ program, including the prior action to be taken, Fund staff support the authorities’ request for a three-year PRGF arrangement in an amount equivalent to SDR 36.20 million (65 percent of quota). *Source: IMF staff report — Executive Summary (Central African Republic).* ### 15. Structural policies have been directed to enhancing governance and improving ### _cr0773 - 15. Structural policies have been directed to enhancing governance and improving ### Governance, rule of law, and anti-corruption efforts - All the structural benchmarks for the EPCA have been implemented, a few with a delay. - The government posts fiscal data, real sector indicators, and information on progress in combating corruption and impunity on its website. - The State Judicial Agent and the financial unit in charge of prosecuting financial corruption in the Ministry of Justice are operational but hampered by lack of staff and equipment. - Reform of the judiciary has begun with assistance from development partners. - Website referenced: http://www.finances-rcagouv.com/. ### Medium-term objectives and macroeconomic framework - Program aim: build foundation for accelerating private-sector led growth and alleviating poverty; targets annual real GDP growth of 4–5 percent through 2009 to allow modest progress toward income and other MDGs. - Target: reduction of annual inflation to below the CEMAC convergence criterion to help preserve competitiveness under the fixed exchange rate regime. Selected Indicators, 2006-2009 (Central African Republic: Medium-Term Macroeconomic Framework) - National income and prices (annual percentage change): - GDP at constant prices: 3.5 4.0 4.3 4.5 - GDP at current prices: 7.5 6.5 6.9 7.1 - Consumer prices (yearly average): 5.1 3.1 2.3 2.4 - External sector (annual percentage change): - Export volume: 6.1 6.2 6.1 7.0 - Import volume: 7.8 8.3 8.5 9.0 - Terms of trade (U.S. dollar basis): 2.3 -1.4 -0.4 -0.3 - Money and credit: - Domestic credit: -8.4 1.8 ...... (In percent of broad money at beginning of period) - Broad money: 4.5 7.1 ...... - (In percent of GDP) Central government finance: - Total revenue (including grants): 12.9 15.1 14.2 14.4 - of which: Tax revenue: 7.7 8.6 9.2 9.6 - Total expenditure: -12.9 -13.4 -13.6 -13.8 - Overall balance (including grants): 0.0 1.7 0.6 0.6 - Domestic primary balance 1/: 0.4 1.1 1.1 1.1 - External current account balance: -3.3 -2.6 -3.3 -3.9 - Net present value of total debt 2/: 489.3 463.8 448.5 434.3 - Notes: - 1/ Excludes interest payments, foreign-financed investment, and grants. - 2/ In percent of exports of goods and services, before debt relief. - Sources: C.A.R. authorities; and Fund staff estimates and projections. ### Medium-term policy package (paragraph 17) - Fiscal consolidation to gradually eliminate the overhang of domestic debt and reorient spending to support growth-enhancing and poverty-reducing social policies; strengthening public financial management is a high priority. - Reforms in the financial sector to enhance financial intermediation and deepening and expand credit to the private sector. - Trade and investment liberalization to diversify the economy, expand the export base, and address landlocked and import-dependent constraints; establish a level playing field in the natural resource sector. - Make external debt sustainable by regularizing relations with external creditors and benefiting from debt relief under the enhanced HIPC and MDRI Initiatives. - A debt sustainability analysis confirms current situation is unsustainable, even after traditional debt relief mechanisms are applied. - External current-account deficit (including grants) is projected to widen to about 4 percent of GDP over the medium term. - Annual growth in export volumes is projected in the 6–7 percent range. - Financing needs to be covered by grants, highly concessional loans, and a projected increase in foreign direct investment. ### Public finances and fiscal strategy - Government will maintain annual domestic primary surpluses equivalent to about 1 percent of GDP over the medium term to stay current on domestic debt service and start repaying domestic debt (over 21 percent of GDP). - Plan to repay domestic debt at an annual rate of about 1½-2 percent of GDP. - Repayments to use domestic resources, foreign assistance, negotiated discounts, and possible debt-for-equity swaps of land and other government assets. - Tax-revenue ratio envisaged to increase by about 2 percentage points to about 9½ percent of GDP in 2009 via tax and customs administration reform, base broadening, and increased compliance. - Government will rebalance spending toward growth-enhancing and poverty-reducing activities by reducing less productive outlays and controlling the civil service wage bill. - Intends to reduce the budgeted wage bill over the medium term through civil service reform being designed with development partners. - Plan to reform petroleum-product pricing and mechanisms to protect vulnerable households; current implicit subsidies via ad hoc tax adjustments erode the tax base and are ineffective for the poor. Technical assistance from the Fund is expected. ### Strengthening public financial management (PFM) - Objectives with technical assistance: - Tighten spending controls. - Enhance budget formulation and reinforce the expenditure process. - Address sources of past expenditure slippages (extra-budgetary spending, cash advances, Treasury checks not backed by cash). - Improve monitoring, reporting and performance of all revenue sources. - Ensure transparency of all state transactions, within and outside government. - Formulate strategy for more transparent transfers to and from provinces. - Fund provides a long-term resident public financial management advisor. ### Reviving the private sector and financial sector reforms - Structural reform needed to restore private sector confidence. - Strategy guided by the regional Financial Sector Stability Assessment and forthcoming country module; two prongs: - Stabilize the financial sector by strengthening commercial banks' balance sheets by addressing non-performing loans attributed to past borrowing from state-owned enterprises and facilitate recapitalization of a troubled bank without additional government resources. - Government intention to recognize state-owned enterprises' non-performing loans to facilitate resolution. - One option under consideration: replace non-performing loans by new government bonds (bank-restructuring bonds) after verification of outstanding stock. - Reform regulatory and legal framework to strengthen governance and reduce lending risks to increase supply of credit. - Trade liberalization to overcome small market size and high costs; prepared to work with CEMAC partners to lower the common external tariff and reduce barriers to intraregional trade. - Measures likely to include export promotion, trade facilitation and improving standards, and policies to enhance the investment climate. ### Natural resources, state-owned enterprises, and investment climate - Authorities will establish clear rules and regulations to attract FDI and increase contribution of natural resource sector to national income. - Plans to revise regulatory system to better protect investor rights, enhance governance over forestry and mineral resources, and ensure the state receives a fair return. - Begin addressing poor performance of state-owned enterprises through cost recovery pricing and management reforms. ### Capacity building and donor assistance - Extensive technical assistance from development partners is required for implementation. - Assistance areas complementing the PRGF arrangement include: governance in natural resource sector, budget and treasury management, civil service reform, social sector support (health and education), and PRSP development. - C.A.R. to be a heavy user of the Central African Technical Assistance Center; additional support needed in legal reform, financial sector, reform of public enterprises, and poverty and social impact assessments. - With AfDB assistance, government pursuing efforts to strengthen external debt management via computerization, software for debt sustainability analysis, monitoring and reporting, and development of a public-investment project assessment and selection manual. - Data quality described as adequate for program monitoring; intensive donor involvement in building statistical capacity remains appropriate. ### Debt sustainability (Box 1) - Debt sustainability analysis using Low-Income Country template (with World Bank) shows C.A.R.’s debt burden is unsustainable even under the baseline scenario. - Baseline scenario assumptions include prospective arrears clearance to multilateral creditors, rescheduling of bilateral and commercial debt on Naples terms, long-term real GDP growth averaging 4.2 percent (compared with 0.8 percent during 1995-2005), and current account deficit declining to about 2 percent of GDP. - Financing gap filled by external grants and new borrowing with a 50 percent grant element. - 2005 World Bank CPIA ranks C.A.R. as a poor performer with debt-burden thresholds: NPV of debt-to-exports of 100 percent, NPV of debt-to-GDP of 30 percent, and debt service-to-exports of 15 percent. - Under baseline, C.A.R.’s ratios remain above indicative thresholds until 2025 except the debt service ratio which falls below 15 percent after 2016. - Alternative (historical) scenario: all ratios stay above sustainability thresholds, including debt service ratio. - Stress test indicates high vulnerability to an export shock. ### Poverty Reduction Strategy Paper (PRSP) - PRSP is considered the appropriate instrument to articulate and address obstacles to growth; authorities formulating PRSP with participation of civil society, NGOs, private sector, and donors. - PRSP completion delayed to mid-2007, primarily due to time needed for full regional participation and delays in technical assistance for establishing a poverty profile. - Emerging pillars of the strategy (consistent with the medium-term program): - Consolidation of peace and security. - Macroeconomic stabilization. - Good governance (enhanced management of public finances and natural resources). - Rehabilitation of basic infrastructure (power, water, roads) and social infrastructure (health, education). - Staff recommendations for PRSP refinement: - Support PRSP with a realistic, perhaps conservative, medium-term macroeconomic framework. - Align PRSP priorities and programs with the annual budget and an expenditure plan recognizing limited domestic resources and uncertainty of future foreign assistance; use the new budget classification and nomenclature system for monitoring. - With technical assistance, begin costing the PRSP to estimate resource requirements for meeting the MDGs. *Source: IMF staff report content provided in the supplied document.* ### 32. In the first year of the program, the macroeconomic framework targets real ### _cr0773 - 32. In the first year of the program, the macroeconomic framework targets real ### Macroeconomic targets and supporting policies (first year) - Targets: - Real GDP growth of 4 percent. - Reduction of inflation to about 3 percent. - Fiscal stance and budget measures: - 2007 budget targets a domestic primary surplus of about 1 percent of GDP. - Increase of about 1 percent in the tax revenue-to-GDP ratio through: - Pickup in domestic economic activity and international trade. - Positive contribution from petroleum-related taxation. - Tax and customs administration reforms. - Significant increase in nontax revenue from telecommunications licensing fees (about ½ percent of GDP). - Hold non-interest current expenditures to 8 percent of GDP. - Outlays for poverty-related spending and capital expenditures budgeted to increase in real terms. - Allowance to accommodate increased spending on security if the situation deteriorates (about 0.1 percent of GDP). - Increase in foreign grants and restructuring of debt to the BEAC will allow repayment of domestic debt equivalent to about 2½ percent of GDP. - Government proposes to finance domestic debt repayment through other means (domestic resources and negotiating a discount). - Prior action: Issuing an international tender to undertake an external audit for the validation of the domestic payments arrears. - Revenue administration and customs reforms (structural performance criteria): - Strengthen tax administration: tighten controls over large taxpayers, extend controls to SMEs, enforce disciplinary measures, intensify audits, and aggressively collect tax arrears (structural performance criterion for end-December 2007). - Customs administration: unify activities to enhance monitoring (structural performance criterion for end-March 2007), bolster qualifications and training of customs officials, combat fraud and corruption, address audit recommendations of the one-stop customs window to raise performance. - Establish formal procedures to regularly monitor sources of revenue to ensure all receipts are reported and quickly lodged in the treasury account (structural performance criterion for end-March 2007). - Public expenditure control measures: - Accelerate move to a single treasury account. - Eliminate extra-budgetary activities and the use of noncash-backed treasury checks (structural performance criterion for end-June 2007). - Restrict use of cash advances. - Financial sector and natural resource governance: - Ensure timely recapitalization by the private sector of a troubled commercial bank if required for financial stability. - Revise forestry and mining sector regulations to improve governance, revenue reporting, and investment. ### Program financing and capacity to repay the Fund - Financing requirements and expected sources: - C.A.R.’s financing requirements in 2007 amount to CFAF 17.1 billion, equivalent to about US$31 million. - Resources expected mainly from grants: World Bank (US$19.6 million) and AfDB (US$4.5 million). - Additional financing from a rescheduling of official bilateral debt in the context of a Paris Club rescheduling; other bilateral and commercial debt expected to be rescheduled on terms at least as favorable as the Paris Club. - Net financing from the Fund would be relatively low. - Proposed PRGF access and disbursement strategy: - Proposed access under the PRGF arrangement is SDR 36.2 million (65 percent of quota), to be disbursed in seven tranches. - First disbursement set at SDR 17.6 million to: - Refinance outstanding EPCA loans with PRGF resources to extend repayment profile and increase concessionality. - Hold sufficient resources in the SDR account to cover PRGF obligations falling due through the third quarter of next year. - Authorities desire to maintain an SDR account balance sufficient to cover Fund obligations over the coming six months on a rolling basis to ensure timely debt service. - Current indebtedness and projections: - At end-October 2006 C.A.R. credit outstanding to the Fund was SDR 27.97 million (equivalent to 50.22 percent of quota), including SDR 12.53 million under the EPCA. - With the proposed PRGF arrangement, C.A.R.’s obligations will peak at SDR 38.5 million in 2009, representing about 33 percent of exports of goods and services. - Recent payment performance improved but repayments have not always been timely; authorities’ plan to set aside resources in the SDR account to ensure timely debt service. ### Program risks - Implementation and governance risks: - Acceleration of growth depends critically on effective implementation of sound economic and financial policies, strong program ownership, enhanced governance, and efforts to combat corruption. - Donors’ reluctance to provide budget support and potential slow take-up of technical assistance if governance is weak. - Security and regional risks: - Risk of worsening instability in the north (border with Chad and Sudan) and possibly in the south related to elections in the DRC; implications for livestock supply, growth, and inflation. - Economic recovery depends on unobstructed and efficient trade along the Oubangui River; disturbances in the DRC have had adverse consequences historically. - Aid risks: - Possible delays and lower volumes of foreign assistance; the 2007 budget projects only a minimal level of aid for government functioning, so delays or shortfalls may have serious consequences. - Substantially higher aid inflows would be needed for high growth and poverty reduction. - Mitigation: Demonstrate strong program ownership to attract stronger donor support. ### Staff appraisal and assessment - Recent performance and reforms: - Post-conflict situation remains fragile, but progress has been made on many dimensions; political and social situation improved. - Execution of fiscal policy under the Emergency Post-Conflict Assistance program has been solid: wages, salaries, and domestic liabilities paid more timely; some domestic payments arrears cleared without new arrears accumulating; little recourse to net domestic financing. - Structural reform focused on enhancing governance and transparency through public financial management reform and strengthening the judiciary to address corruption and financial crime. - Medium-term framework and priorities: - Medium-term economic and financial framework expected to form a firm foundation for accelerating growth and reducing poverty. - Fiscal consolidation to reduce domestic debt overhang and provide room for priority spending. - Anticipated increase in tax revenue will help but donors are essential to meet financing required to reach the MDGs. - Emphasis on public financial management reform to restore the budget as the sole fiscal instrument, improve resource allocation, and guard against expenditure slippages. - Private sector and structural reforms: - Reviving the private sector seen as necessary for strong growth; financial sector reforms aimed at development and stability are welcomed. - Intention to liberalize trade to diversify the economy and expand the export base. - Debt relief prospects: - Debt relief offers potential additional resources but not in the near term; C.A.R. is not servicing external debt except to the Fund, so relief ahead of HIPC decision/completion points will yield only a small benefit. - Authorities should accelerate reform and program implementation to reach the HIPC decision point in a timely manner. - Overall staff recommendation: - Given the strength of the authorities’ program and prior action, staff supports the request for a three-year PRGF arrangement equivalent to SDR 36.2 million, and for a first disbursement equivalent to SDR 17.6 million upon the Executive Board’s approval. ### Arrangement terms, phasing, and conditionality (selected provisions) - Arrangement term and access limits: - Three years from December 22, 2006 to December 21, 2009. - Right to obtain loan disbursements up to SDR 36.2 million, subject to PRGF Trust resource availability. - Disbursement ceilings: not to exceed the equivalent of SDR 20.7 million until December 21, 2007 and the equivalent of SDR 26.9 million until December 21, 2008. - First-year disbursements: - First disbursement: SDR 17.6 million available upon approval, at the request of C.A.R. - Second disbursement: SDR 3.1 million available on or after September 28, 2007, at the request of C.A.R. and subject to conditions. - Conditions and performance criteria for the second disbursement (non-exhaustive): - The Managing Director may withhold the second disbursement if data as of June 30, 2007 indicate non-observance of any of these (as set out in Table 1 and TMU paragraphs 3-17): floor on total government revenue; ceiling on wages, salaries and bonuses; floor on domestic primary balance; ceiling on accumulation of new government domestic arrears on wages and goods and services; changes in net claims of the commercial banking system on the government. - Specific structural actions and deadlines (as set out in Table 2 and Memorandum paragraphs): - By February 28, 2007: complete external audit of the one-stop customs window in Douala (Guichet Unique). - By March 31, 2007: restructure customs administration activities under a single entity reporting to the Minister of Finance. - By March 31, 2007: implement a formal procedure to audit and report quarterly all sources of revenue accruing to the State. - By June 30, 2007: complete the external audit for validation of domestic payments arrears accrued during 1998-2004. - By June 30, 2007: eliminate the stock of Treasury checks issued in 2005-06, eliminate issuance of non-cash backed Treasury checks, and publicly announce that those Treasury checks will no longer be valid after September 30, 2007. - The second disbursement is also conditional on completion of the first review of C.A.R.’s program (paragraph 33 of the Memorandum) as determined by the Trustee. - Prohibitions on further disbursements: - No disbursements if the government contracts or guarantees any new non-concessional external debt, or accumulates any new external payment arrears (as set out in Table 1 and TMU). - No disbursements if the C.A.R. imposes or intensifies restrictions on payments and transfers for current international transactions; introduces or modifies multiple currency practices; concludes bilateral payment agreements inconsistent with Article VIII; or imposes or intensifies import restrictions for balance of payments reasons. - No disbursements until a Financing Assurances Review has been completed for so long as C.A.R. has outstanding sovereign external payments arrears to private creditors or non-sovereign external payment arrears due to exchange controls. - Information and consultation: - When prevented from requesting disbursements under paragraphs above, disbursements will be made available only after consultation between the Trustee and C.A.R. and reaching understandings regarding circumstances. - C.A.R. will provide the Trustee with such information as requested in connection with progress in implementing policies and reaching program objectives (paragraph 30 of the Memorandum and paragraph 2 of the TMU). *Source: Excerpt from the IMF staff report and program documents for the Central African Republic PRGF arrangement (text provided).* ### 8. In accordance with paragraph 6 of the Letter, during the period of this arrangement, ### _cr0773 - 8. In accordance with paragraph 6 of the Letter, during the period of this arrangement, ### Consultation obligations - During the period of this arrangement, the Central African Republic shall consult with the Trustee on the adoption of any measures that may be appropriate at the initiative of the Government or whenever the Managing Director of the Trustee requests such a consultation. - After the period of this arrangement and while the Central African Republic has outstanding financial obligations to the Trustee arising from loan disbursements under this arrangement, the Central African Republic will consult with the Trustee from time to time, at the initiative of the Government or whenever the Managing Director of the Trustee requests consultation, on the Central African Republic’s economic and financial policies. - These consultations may include correspondence and visits of officials of the Trustee to the Central African Republic or of representatives of the Central African Republic to the Trustee. ### Macroeconomic outlook: key indicators (2005–09; annual percentage change, unless otherwise indicated) - GDP at constant prices: 1.3; 2.2; 3.2; 3.5; 4.0; 4.3; 4.5 - GDP at current prices: -0.6; 4.7; 6.1; 7.5; 6.5; 6.9; 7.1 - GDP deflator: -1.9; 2.4; 2.7; 3.8; 2.5; 2.5; 2.5 - Consumer prices (Yearly average): -2.2; 2.9; 2.3; 5.1; 3.1; 2.3; 2.4 - Exports, f.o.b. (U.S. dollar basis): -0.5; 2.9; 7.7; 12.0; 7.1; 6.8; 7.7 - Export volume: -1.1; -6.9; 3.8; 6.1; 6.2; 6.1; 7.0 - Imports, f.o.b. (U.S. dollar basis): 17.0; 8.9; 8.0; 11.3; 10.8; 9.8; 10.1 - Import volume: 7.7; 1.4; 5.7; 7.8; 8.3; 8.5; 9.0 - Terms of trade (U.S. dollar basis): -7.4; 2.8; 1.5; 2.3; -1.4; -0.4; -0.3 - Gross national savings: 1.7; 6.0; 4.4; 4.6; 7.1; 6.7; 6.5 - Gross domestic savings: -0.5; 2.1; 1.9; 1.5; 3.1; 3.1; 3.0 - Gross investment: 6.1; 8.8; 8.3; 7.9; 9.7; 10.1; 10.4 - External current account balance: -4.4; -2.8; -3.9; -3.3; -2.6; -3.3; -3.9 - Overall balance of payments: -2.8; -1.1; -2.0; -5.3; -1.4; -1.7; -1.8 - Gross official foreign reserves (end-period, in millions of U.S. dollars): 148.4; 147.1; 140.6; 140.0; 148.1; 152.5; 157.0 - Reserves (in months of imports, f.o.b.): 11.8; 12.0; 10.6; 9.7; 9.5; 8.9; 8.3 - Nominal GDP (in billions of CFA francs): 690.6; 723.0; 769.3; 777.0; 827.9; 885.2; 948.1 ### Fiscal position and public finances (selected items; in percent of GDP and in billions of CFA francs as indicated) - Total revenue (including grants, percent of GDP): 23.1; 12.2; 12.6; 13.6; 25.3; 0.4; 8.6 - Total expenditure (percent of GDP): 9.2; 28.9; 0.1; -16.7; 10.6; 8.5; 8.9 - Central government: Total revenue (in percent of GDP): 11.4; 12.2; 10.8; 12.9; 15.1; 14.2; 14.4 - Central government: Total expenditure (in percent of GDP): -13.5; -16.7; -12.1; -12.9; -13.4; -13.6; -13.8 - Overall balance (commitment basis) excluding grants (percent of GDP): -5.5; -8.5; -3.3; -4.0; -3.1; -2.7; -2.5 - Overall balance (commitment basis) including grants (percent of GDP): -2.2; -4.5; -1.3; 0.0; 1.7; 0.6; 0.6 - Domestic primary balance 3/ (percent of GDP): -2.7; -3.5; 0.5; 0.4; 1.1; 1.1; 1.1 - Basic balance 4/ (percent of GDP): -3.9; -4.4; -0.7; -1.6; 0.3; 0.4; 0.5 - External public debt before debt relief (percent of GDP): 82.5; 79.1; 77.0; 74.4; 68.2; 63.8; 59.6 - Net present value of total debt 5/ (percent of exports of goods and services): 531.6; 514.8; 500.5; 489.3; 463.8; 448.5; 434.3 - Scheduled debt-service ratio 5/ (percent of exports of goods and services): 21.8; 22.3; 21.5; 21.6; 22.2; 23.0; 22.1 - Actual debt-service ratio 5/ (percent of exports of goods and services): 1.7; 3.1; 21.5; ............ - Identified financing and residual financing need (Table 3, in billions of CFA francs): Residual financing need: 0.00; 0.02; 21.0; 13.6; 2.4; 4.7; 7.1 ### Monetary developments (selected) - Money and quasi money (end of period, in billions of CFA francs): 96.5; 110.2; 128.4; 118.2; 134.2; 143.7 - Net foreign assets (percent of broad money at beginning of period): -8.0; 2.2; 6.1; 4.7; -6.7; 6.0 - Net domestic assets (percent of broad money at beginning of period): -0.1; 12.0; 10.4; 1.3; 1.2; 1.1 - Credit to the economy (annual percentage change): 0.1; 11.6; -1.9; 3.9; 5.3; 8.8 - Velocity (GDP/broad money), end of period: 7.2; 6.3; 5.6; 6.5; 5.8; 5.8 ### External sector and balance of payments (2004–09; selected) - Current account (in percent of GDP): -4.4; -2.8; -3.9; -3.3; -2.6; -3.3; -3.9 - Exports, f.o.b. (percent of GDP): 66.0; 67.6; 74.5; 75.3; 78.8; 83.7; 89.8 - Of which: diamonds (percent of GDP): 27.8; 32.8; 34.4; 33.6; 35.2; 37.0; 38.5 - Of which: wood products (percent of GDP): 28.7; 25.6; 28.7; 30.1; 30.6; 32.1; 33.8 - Imports, f.o.b. (percent of GDP): -73.6; -79.8; -86.2; -88.3; -95.5; -104.2; -114.3 - Petroleum products (percent of GDP): -17.0; -15.6; -21.8; -24.1; -28.4; -31.3; -34.4 - Services (net, percent of GDP): -38.2; -36.6; -37.8; -36.8; -38.0; -41.2; -45.8 - Current transfers (net, percent of GDP): 18.2; 28.1; 21.6; 25.0; 33.5; 32.1; 32.4 - Financial account: -7.6; -2.8; 7.0; -38.4; -15.5; -1.7; 3.6 - Overall balance (in billions of CFA francs): -19.5; -7.9; -15.7; -40.9; -11.5; -14.8; -17.3 ### Structural measures under the 2006 EPCA Program (selected measures and status) - Revenue administration - Strengthen management of large taxpayers; March — Implemented - Step up tax audits with targets (for June 2006: at least 20 full audits and 100 ad hoc inspections); June — Implemented - Strengthen Douala office and cooperation with Cameroonian customs; June — Replaced by an international audit that is underway and wider customs reform - Install SYDONIA++ customs software pilot; June — Implemented - Strengthen examination of returns to identify improper use of the flat tax (target: at least 20 off-site examinations a year); December — Implemented - Cash-flow management - Limit and secure issuance of Treasury checks against deposit accounts; March — Implemented - Close unnecessary government bank accounts and require justification for kept accounts; April — Implemented - Expenditure control and payroll - Identify false academic qualifications and finalize census of retired staff; March — Implemented - Fully implement the unified civil service database (FURCA) so both the Ministry of the Civil Service and the Payroll Office use the same database; June — Implemented - Simplify the expenditure process including greater use of computerization; June — Implemented - Governance and transparency - Publish monthly data (lag no more than six weeks) on forestry and diamond sector production, exports, local sales, and corresponding government revenue; Beginning in February — Implemented - Assess security firm for transit revenues at port of Douala; April — Replaced by an international audit that is underway - Set up a government website to publish cash-flow plan, sector indicators, anti-corruption progress, and procurement award information per agreed template; March — Implemented - Submit verification of domestic arrears to an internationally recognized auditing firm for validation; June — Replaced by Prior Action under the proposed PRGF arrangement to issue an international tender to undertake an audit ### IMF financing, access and phasing (Three-Year PRGF Arrangement; disbursement schedule) - Approval of the arrangement (December 22, 2006): 17,600,000 SDRs; 25,962,384 US$; 13.56 (In percent of quota); 31.60 (In percent of quota) - Completion of reviews and subsequent disbursements: - September 28, 2007 (first review): 3,100,000 SDRs; 4,639,308 US$; 2.37; 5.57 - March 28, 2008 (second review): 3,100,000 SDRs; 4,657,189 US$; 2.36; 5.57 - September 26, 2008 (third review): 3,100,000 SDRs; 4,657,189 US$; 2.36; 5.57 - March 27, 2009 (fourth review): 3,100,000 SDRs; 4,671,019 US$; 2.36; 5.57 - September 25, 2009 (fifth review): 3,100,000 SDRs; 4,671,019 US$; 2.36; 5.57 - December 21, 2009 (sixth/final review): 3,100,000 SDRs; 4,671,019 US$; 2.36; 5.57 - Total proposed under the three-year PRGF arrangement: 36,200,000 SDRs; 53,929,128 US$; 27.73; 65.00 - The C.A.R.'s quota is SDR 55.7 million. - Notes on indicators of Fund credit (outstanding use and repayments): Outstanding use of Fund credit (2004–10, in millions of SDRs): 28.4; 25.1; 33.0; 31.2; 32.5; 38.5; 36.9. Repurchases, repayments, charges and interest due (in millions of SDRs): 1.8; 3.4; 4.4; 5.2; 5.1; 3.4; 1.8. *Sources: C.A.R. authorities; and IMF staff estimates and projections.* ### 1. Population below US$1 a day (percent)...66.6............ ### _cr0773 - 1. Population below US$1 a day (percent)...66.6............ ### Millennium Development Goals — Key indicator values (1990–2004, as presented) - 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, 2.0 - Target 2 (Hunger): Halve, between 1990 and 2015, the proportion of people suffering from hunger - 4. Prevalence of child malnutrition (percent of children under 5): 23.2, 25.0 - 5. Population below minimum level of dietary energy consumption (percent): 49.0, 51.0, 43.0 Goal 2. Achieve universal primary education (Target 3: by 2015 complete full primary schooling) - 6. Net primary enrollment ratio (percent of relevant age group): 53.5, 54.7, 40.0 - 7. Percent of cohort reaching grade 5: 23.0 - 8. Youth literacy rate (percent ages 15-24): 52.1, 60.0, 58.5, 58.5, 47.0 Goal 3. Promote gender equality and empower women (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, 70.0 - 11. Share of women employed in the nonagricultural sector (percent): (no value reported) - 12. Proportion of seats held by women in the national parliament (percent): 4.0, 4.0, 7.0, 7.0, 7.0, 7.0 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, 193.0, 193.0, 193.0, 193.0 - 14. Infant mortality rate (per 1,000 live births): 115.0, 107.0, 131.0, 131.0, 131.0, 132.0 - 15. Immunization against measles (percent of children under 12 months): 62.0, 46.0, 36.0, 35.0 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 HIV/AIDS) - 18. HIV prevalence among females (percent, ages 15-24): 13.5, 13.5, 15.0 - 19. Contraceptive prevalence rate (percent of women ages 15-49): 14.8, 28.0 - 20. Number of children orphaned by HIV/AIDS: 90,000.0, 110,000.0 (Target 8: halt and reverse malaria and other major diseases) - 21. Prevalence of death associated with malaria: (no value reported) - 22. Share of population in malaria risk areas using effective prevention and treatment: (no value reported) - 23. Incidence of tuberculosis (per 100,000 people): 339.0, 337.8, 493.0, 493.0 - 24. Tuberculosis cases detected under DOTS (percent): 45.0, 28.0, 6.0, 4.0 Goal 7. Ensure environmental sustainability (Target 9: integrate sustainable development principles) - 25. Forest area (percent of total land area): 37.3, 36.8, 36.5 - 26. Nationally protected areas (percent of total land area): 8.2, 8.2, 8.2, 8.7 - 27. GDP per unit of energy use (PPP $ per kg oil equivalent): (no value reported) - 28. CO2 emissions (metric tons per capita): 0.1, 0.1, 0.1, 0.1 - 29. Proportion of population using solid fuels: (no value reported) (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, 75.0 (Target 11: 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, 27.0 - 32. Access to secure tenure (percent of population): (no value reported) Goal 8. Develop a Global Partnership for Development (selected indicators) - 45. Unemployment rate of population ages 15-24 (total): (no value reported) - 46. Proportion of population with access to affordable essential drugs: (no value reported) - 47. Fixed line and mobile telephones (per 1,000 people): 2.5, 5.3, 18.0 - 48. Personal computers (per 1,000 people): 1.9, 3.0 Sources for the MDG indicators as presented: World Bank, World Development Indicators database, 2003; and UNDP, Human Development Report 2005. ### External debt, macroeconomic projections, and debt sustainability (selected figures and projections) - External debt (nominal, percent of GDP): 100.2, 103.6, 82.5, 79.0, 74.2, 69.0, 65.1, 62.1, 59.4, 48.8, 29.6 - o/w public and publicly guaranteed (PPG): same series reported - Change in external debt: 4.7, 3.4, -21.1, -3.5, -4.8, -5.2, -3.9, -2.9, -2.8, -2.3, -1.7 - Identified net debt-creating flows: -4.4, -8.4, -5.0, 0.5, 0.1, -0.7, 0.0, 0.6, 0.8, -1.9, -1.5 - Non-interest current account deficit (percent of GDP): 2.3, 3.9, 3.8, 2.9, 2.0, 2.3, 2.1, 1.6, 2.4, 3.1, 3.3, 0.3, 0.1, 0.6 - Deficit in balance of goods and services: 5.2, 5.7, 6.6, 6.7, 6.4, 6.6, 7.0, 7.4, 7.2, 3.3, 1.9 - Exports (percent of GDP): 15.4, 11.8, 11.8, 12.0, 12.2, 11.9, 11.8, 11.7, 11.6, 11.9, 12.9 - Imports (percent of GDP): 20.6, 17.5, 18.5, 18.7, 18.6, 18.5, 18.8, 19.1, 18.8, 15.1, 14.8 - Net current transfers (negative = inflow): -2.6, -1.6, -2.6, -2.6, 1.0, -3.9, -3.2, -4.0, -3.6, -3.4, -3.3, -2.6, -1.9, -2.4 - Net FDI (negative = inflow): -0.7, -0.3, -0.6, -0.4, 0.5, -0.6, -0.6, -0.6, -0.6, -0.6, -0.5, -0.5, -0.4, -0.5 - Endogenous debt dynamics contribution (percent): -6.0, -12.0, -8.2, -1.1, -1.4, -1.7, -1.8, -1.9, -1.9, -1.8, -1.2 - Contribution from nominal interest rate: 1.0, 0.7, 0.6, 0.6, 1.1, 1.0, 0.9, 0.8, 0.7, 0.3, 0.1 - Contribution from real GDP growth: 0.5, 6.7, -1.3, -1.7, -2.6, -2.7, -2.7, -2.7, -2.6, -2.1, -1.2 - NPV of external debt (percent of GDP): 62.8, 61.6, 58.6, 40.3, 37.8, 35.9, 34.6, 28.8, 25.5 - NPV of external debt (in percent of exports): 530.8, 514.7, 480.5, 338.1, 320.8, 307.1, 298.3, 242.4, 198.3 - Debt service-to-exports ratio (percent): 24.9, 29.7, 21.8, 22.3, 25.4, 25.2, 25.7, 30.1, 25.5, 14.4, 4.6 - Total gross financing need (billions of U.S. dollars): 0.1 (series 2005–2010), 0.0, 0.0 (projections) - Non-interest current account deficit that stabilizes debt ratio: -2.4, 0.5, 24.9, 5.7, 7.0, 6.8, 6.3, 6.0, 6.1, 2.6, 1.8 Key macroeconomic assumptions (selected) - Real GDP growth (in percent): -0.6, -7.6, 1.3, 0.7, 5.1, 2.2, 3.5, 4.0, 4.3, 4.5, 4.5, 3.8, 4.3, 4.1, 4.2 - GDP deflator in US dollar terms (change in percent): 8.6, 24.0, 7.9, 4.4, 12.4, 2.9, 4.4, 4.9, 3.1, 2.9, 2.6, 3.5, 1.8, 1.8, 1.9 - Effective interest rate (percent): 1.1, 0.8, 0.6, 1.3, 0.4, 0.7, 1.5, 1.5, 1.4, 1.3, 1.2, 1.3, 0.6, 0.2, 0.5 - Growth of exports of G&S (US dollar terms, in percent): 0.3, -11.9, 9.5, -2.3, 12.0, 6.3, 10.1, 6.7, 6.1, 6.9, 6.3, 7.1, 7.0, 7.0, 6.9 - Growth of imports of G&S (US dollar terms, in percent): 5.7, -2.5, 15.2, 0.6, 15.5, 6.6, 7.4, 8.7, 8.8, 9.7, 5.2, 7.7, 5.5, 7.0, 4.6 - Grant element of new public sector borrowing (in percent): 50.9, 52.3, 52.3, 51.6, 47.6, 46.0, 50.1, 46.0, 40.6, 42.8 Memorandum item: - Nominal GDP (billions of US dollars): 1.0, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.9, 2.0, 2.8, 4.9 Selected sensitivity analysis summaries (baseline and scenarios, 2005–25) - Baseline and alternative scenarios report projected indicators such as NPV of debt-to-GDP and debt service ratios under: - A1. Key variables at historical averages (2006-25) - A2. New public sector loans on less favorable terms (2006-25) - B1–B6. Bound tests including shocks to real GDP growth, export value growth, US dollar GDP deflator, net non-debt creating flows, combinations of shocks, and one-time 30 percent nominal depreciation in 2006 - Memorandum item for stress scenarios: Grant element assumed on residual financing: 4,4,4,4,4,4,4,4,4,4,4,4,4,4,4,4 (series presented) Sources: IMF staff simulations and projections (tables and notes as presented). ### PRGF request, government strategy, and program framework (November 30, 2006) - Political and social context: - Democratic elections in mid-2005 marked an important transition; political and social situation improved enabling focus on economic management. - Request and financing: - Government requests a three-year arrangement covering 2007-09 under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent to SDR 36.2 million (65 percent of quota), including a disbursement equivalent to SDR 17.6 million upon Executive Board approval. - Resources intended to repay outstanding Emergency Post-Conflict Assistance loans and maintain sufficient resources in the SDR Account to meet PRGF obligations until the third quarter of 2007. - Commitments and conditionality: - Executive Board discussion contingent on implementation of prior action detailed in Table 2 of the attachment. - Disbursements in the first year linked to biannual quantitative performance criteria for end-June and end-December 2007 (Table 1) and structural performance criteria and benchmarks for 2007 (Table 2). - Government intends to keep an SDR Account balance sufficient to cover IMF obligations for the coming six months on a rolling basis. - Medium-term strategy and PRSP: - Medium-term economic and financial strategy is guided by a Poverty Reduction Strategy Paper (PRSP) to be finalized by mid-2007. - Main pillars: consolidation of peace and domestic security; macroeconomic stability; enhanced private-sector led growth (agriculture and natural resources); good governance and effective use of public resources; rehabilitation of human and physical capital. - Government assurances: - Government believes policies in the Memorandum of Economic and Financial Policies (MEFP) are adequate to achieve program objectives and will consult with Fund staff on further measures as needed. - Government authorized IMF to post the letter, MEFP, and staff report on the IMF website after Executive Board approval. *Source: IMF staff tables, projections, and November 30, 2006 government letter and MEFP (as presented in the supplied content).* ### 4. We have experienced a significant rebound in the volume of exports and an ### _cr0773 - 4. We have experienced a significant rebound in the volume of exports and an ### External position, arrears, and debt relief - Significant rebound in the volume of exports and an improvement in the terms of trade have mitigated the impact of high world oil prices on the trade balance. - Lower official transfers and a higher oil-import bill are likely to lead to a widening of the current-account deficit this year. - Up to now, the deficit in the overall balance of payments was financed through the accumulation of external payments arrears, except to the Fund. - External payments arrears to the World Bank have been cleared; arrears to the African Development Bank are expected to be cleared ahead of the Executive Board’s discussion of the request. - The government continues to accumulate external payments arrears to official bilateral and commercial creditors but has approached them to reschedule the C.A.R.’s external liabilities. - Intentions and commitments: - Regularize relations with all creditors and remain current with external obligations. - Seek debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief (MDRI) Initiatives. ### Recent macroeconomic and fiscal performance - Strengthening of fiscal policy underpinned by enhanced public financial management efforts supported by Fund and other technical assistance. - Revenue side: - Projected increase in tax collection above the target for this year by about 0.2 percent of GDP, bringing tax revenue to the highest level since 2002. - Reforms: audit and control of large taxpayers, efforts to improve taxpayer compliance, and new tax measures. - Expenditure side: - Spending projected to decline sharply this year due to measures to reduce the wage bill, rollback of election-related spending, and completion of foreign-financed investment projects. - Anticipated spending slippages related to: regional conflict in the north; increased petroleum-related subsidies; and a decision to provide a small subsidy of 0.2 percent of GDP to jump-start the cotton sector. - Fiscal stance comparison: - 2005: primary deficit of 3½ percent of GDP. - Current year: domestic primary surplus of nearly ½ percent. ### Structural reforms, governance, and public sector transparency - Structural reform focus: consolidating peace and security and bolstering fiscal credibility. - Actions taken: - Enhanced public financial management and improved transparency of public sector operations. - Strengthened ability of the legal system to address financial and commercial crime; State Judicial Agent and the financial unit in the Ministry of Justice are operational but resource-constrained. - Wide range of data on public finance, forestry and mining activity, and anti-corruption progress published and updated regularly on the government’s web site. - Constraints and intentions: - Resource and technical assistance shortages have limited reforms (e.g., restructuring of state-owned enterprises and judiciary). - Plans to address impediments to growth and poverty reduction in consultation with the private sector via the newly established Permanent Consultation Framework. ### Medium-term objectives and policy framework (PRSP foundation) - Core aims: revive business confidence and resume private domestic and foreign investment. - Key considerations driving the framework: - Establishing peace and strengthening security. - Need for a well-functioning public sector as a prerequisite for private sector development. - Prioritization of policy efforts due to financial, administrative, and institutional constraints; narrow focus on a few key sectors over the medium term. - Priority sectors: recovery of agriculture; improving conditions for investment in forestry and mining; reversing decline in human capital; rehabilitating basic economic and social infrastructure, especially transportation. - Expectation that well-designed policies and strong implementation will attract a substantial increase in aid inflows. - Medium-term policy targets and aims: - Achieve annual real GDP growth of 4-5 percent through 2009, resulting in per capita income growth of about 2 percent and modest progress toward the income MDG. - Maintain annual inflation below the CEMAC convergence criterion of an average of 3 percent. - Improve private sector environment via trade openness, financial sector reforms to increase credit to the private sector, restructuring state-owned enterprises, and enhanced governance in the natural resource sector (more reliable property rights and contract enforcement). - Pursue fiscal consolidation to gradually reduce the overhang of domestic debt; maintain domestic primary surpluses, repay costly commercial bank credit, refrain from further borrowing from commercial banks, and use some external financing to retire domestic debt. - Secure external debt sustainability by regularizing relations with external creditors and benefiting from debt relief; pursue grant financing and limit foreign borrowing to highly concessional loans. - Build administrative and institutional capacity in policy design, monitoring and evaluation, public financial management, debt management, and statistics; look forward to the opening of the central African Technical Assistance Center and invite more intensive technical assistance. - Acknowledged limitation: - Even with domestic mobilization, the domestic resource envelope will remain comparatively small. - Until completion point under the enhanced HIPC Initiative, debt relief will not free resources for public-investment spending since no debt service is currently being paid other than to the Fund. - A significant scaling up of aid inflows is required; appeal to the international community for more support. ### The program for 2007 — macro outlook and policy orientation - Outlook and projections: - Expect deterioration of the terms of trade next year. - Prospects for increased output in forest and mining sectors, a rebound in agriculture supported by enhanced internal security, and externally-financed public investment should raise real GDP growth to about 4 percent (the highest rate since the late-1990s). - Inflation projected to fall to about 3 percent as earlier petroleum-pass-through effects drop out of the consumer price index. - Policy orientation: - Tighten fiscal stance to address the overhang of domestic debt. - Financial policies to alleviate institutional and financial constraints to credit creation. - External policies aimed at improving sustainability and trade liberalization. - Structural policies to support public financial management reform. ### Fiscal policy for 2007 — targets and measures - Fiscal objectives and stance: - Fiscal policy is central to consolidating peace, social stability, and improving the business environment. - Maintain a fiscal stance to reduce domestic debt and ensure timely and regular payment of domestic and external obligations. - 2007 budget submitted to parliament aligns with Fund staff understandings and reflects external arrears clearance operations by the World Bank and expected clearance by the African Development Bank. - Budget target: domestic primary surplus of about 1 percent of GDP for 2007 — a significant improvement over last year and nearly 5 percentage points higher than 2005. - Revenue and grants: - Key objective: raise the tax-revenue ratio (currently among the lowest in developing countries). - 2007 budget envisages an increase in tax collections by about 1 percent of GDP to 8.6 percent. - Non-tax revenue expected to increase sharply by about ½ percent of GDP, mainly from telecommunication licensing fees. - Development partners have indicated their intention to increase grants by about 0.8 percentage points of GDP relative to this year. - Overall total revenue projected to rise from about 13 percent of GDP in 2006 to 15 percent in 2007. - Expenditure policy and wage bill: - Compressed expenditures maintained; reductions in public sector energy consumption and foreign travel planned. - Budgeted wage bill capped at CFAF 35 billion (the budgeted level for 2006), implying a decline in the wage bill by about ½ percent of GDP next year. - Wage restraint does not preclude hiring qualified teachers and health care workers; such hiring could be accommodated within the ceiling via attrition, early retirements, and job reclassification savings. - Priority spending increases and contingencies: - Increased spending in priority arrears enabled by higher projected revenue and some spending cuts. - 2007 budget envisages increase in capital expenditures by about 1½ percent of GDP and in goods and services by about ½ percent of GDP. - Increase in goods and services largely reflects expected spending for internal security due to instability in the north; amount allocated: CFAF 3.3 billion (includes a contingency). Any overspending above CFAF 3.3 billion will be offset by cuts in other areas to maintain overall fiscal objectives. - Support to cotton producers: CFAF 250 million allocated, augmented by a European Union grant that can help clear domestic payments arrears in the sector. - Financial support to vulnerable households: CFAF 1.5 billion through 2007 to help shield them against high world oil prices. - Petroleum pricing reform: - Determination to reform petroleum product pricing and targeting of financial support to the poor; current policies are inefficient and ineffective in targeting. - Technical assistance requested from the Fund for design of reforms. - Commitment: by end-December 2007, implement a new petroleum pricing formula with parameters set to ensure full recovery of all costs, distribution margins, and taxes, and that avoids the need for future budget subsidies (structural performance criterion). - Contingency and prudence: - Revenue targets are ambitious and the expenditure envelope modest; if domestic resource shortfalls occur, measures will be taken to achieve overall fiscal objectives. ### Domestic debt, arrears verification, and repayment plans - Composition of domestic debt (levels specified as of relevant dates): - Commercial bank overdrafts: 1.6 percent of GDP at end-September 2006. - Debt to the regional central bank: 7.3 percent of GDP (expected to be rescheduled shortly on concessional terms). - Payments arrears: 12.3 percent of GDP. - Potential liabilities from guarantees to state-owned enterprises (to be verified and validated shortly). - Arrears verification and audit: - Domestic arrears (including wages, pensions, and supplier credits) accrued during 1998-2004 were verified internally and will be further validated by an external audit expected to be completed by end-June 2007 (structural performance criterion). - Once the audit is complete, the government will begin to clear these payments arrears. - Planned means of clearing payments arrears and domestic debt: - Use of: domestic resources; external financial assistance; negotiating discounts on amounts due; and debt-for-equity swaps possibly involving land or public assets (this option requires technical assistance). - Commitment to ensure transparency of repayment terms and endeavor to treat creditor groups equally. - 2007 expectation: repay domestic debt equivalent to nearly 2½ percent of GDP. - This includes repayment of commercial bank overdrafts and clearance of some payments arrears equivalent to 2 percent of GDP, financed largely by grants. ### Public financial management reforms and tax/customs administration - Public financial management: - Enhanced public financial management is a cornerstone of the structural reform agenda and governance improvement. - Tax administration reforms (to be pursued with IMF technical assistance): - Ongoing reform of tax and customs administration, broadening the tax base, and improving taxpayer compliance to bolster tax collection. - Administrative focus rather than new tax measures, given relatively high tax rates. - Specific measures: - Update the list of taxpayers (including public enterprises) to cover all applicable taxes. - Reduce non-compliance of large enterprises via disciplinary actions and intensification of audits. - Apply a ceiling of CFAF 30 million turnover for taxation of all businesses (individual and companies) without exception; allow enterprises subject to the flat tax to opt out for application of the regular tax regime. - Refrain from granting any new tax exemptions. - Apply all available mechanisms for recovering tax arrears. - Performance commitment: by end-December 2007, reduce the stock of tax arrears by at least CFAF 1 billion, net of uncollectible amounts (structural performance criterion). - Customs administration reforms: - Recent actions to address lack of training and corruption among customs officials; poor revenue performance is partly attributed to these problems. - Established a high-level steering committee (Chaired by the President of the Republic) to design a reform to be implemented early next year. - Customs reform components and timelines: - Unification of all activities involved in customs administration by end-March 2007 (structural performance criterion). - Bolstering qualifications and training of customs officials, combating fraud and corruption, and facilitating customs clearance to improve customs receipts. - External audit of the one-stop customs window in Douala (Guichet Unique) due to be completed by end-February 2007 (structural performance criterion). - Full deployment of the piloted valuation system, SYDONIA++, starting in June 2007 to improve customs valuation and limit discretion. *Source: _cr0773 - 4. We have experienced a significant rebound in the volume of exports and an* ### 23. To enhance the monitoring and reporting of its fiscal activities, the government has ### _cr0773 - 23. To enhance the monitoring and reporting of its fiscal activities, the government has ### Fiscal monitoring and reporting reforms - Adopted an Organic Budget Law guiding preparation of the 2007 budget and will adopt a new budget classification and nomenclature system and accounting rules to strengthen the expenditure chain. - Specific planned measures and structural performance criteria: - Put in place by end-March 2007 a formal procedure to audit and report on a quarterly basis all sources of revenue (tax and non-tax, including those for fees, licenses and permits in the natural resource sector) accruing to the state (structural performance criterion). - These reports will be undertaken by the Inspector General of Finance and submitted to the Court of Accounts for verification and publication. - Begin an external audit (by end-September 2007) of all sources of government revenue (collected through ministries and agencies) during the period July 2005 to end-December 2006 to ensure all revenues have been dutifully reported to the state treasury and to clarify areas where reporting can be strengthened (structural performance criterion). - Follow-up on findings and recommendations from both the internal and external audits. - Accelerate participation in the Extractive Industries Transparency Initiative. - Accelerate the move to a treasury single account (TSA) and deposit all government receipts in the TSA, including proceeds from natural resources fees, licenses, and permits. - Disburse public resources only to pay for budgeted expenditures and fully report all government expenditures through the budget. - By end-June 2007, gain better control over expenditures by eliminating the issuance of (new) non-cash backed Treasury checks and eliminate by the same date the stock issued in 2005-06 (structural performance criterion); the government will publicly announce that such Treasury checks will no longer be valid after end-September 2007. - Restrict the practice of using cash advances, and require the full reporting of ex post expenditures. - Ensure that all revenues from the provinces are transferred fully and on a regular basis to the Treasury. - Implement (with the assistance of the World Bank) a new draft procurement code in line with international best practice. ### Monetary and financial sector policies - Monetary and exchange rate policy is conducted regionally by the Bank of Central African States (BEAC). - BEAC has provided stability and been a source of short-term financing, though at relatively high cost. - The government will avoid recourse to BEAC financing and reduce its net position toward the banking system over the program period. - Financial sector situation and strategy: - The banking sector remains weak and financial intermediation is among the lowest in the CEMAC region. - The Fund-supported program includes a national strategy for promoting financial development based on institutional reforms informed by the regional Financial Sector Stability Assessment (FSSA). - Recognizes regional institutional responsibilities under CEMAC while noting room for national initiatives. - 2007 measures and structural benchmarks: - Legal and judiciary reform to make credit collection more reliable, efficient and less costly, including reform of commercial laws and civil procedures related to debt collection and bankruptcy by end-December 2007 (structural benchmark). - Promotion of land surveys and modernization of land and commercial registries to facilitate use of collateral. - Implementation of an anti-money laundering/combating financing of terrorism (AML/CFT) framework outside the formal banking sector, in line with ROSC recommendations for AML/CFT. - In coordination with regional regulator (COBAC): - Initiate reconciliation and validation of potential liabilities of state-owned enterprises toward commercial banks to establish repayment options. - Ensure compliance with established procedures for the timely recapitalization—without contributing government resources—of the troubled commercial bank (structural benchmark). ### External sector policies - Trade and integration: - External trade has declined significantly over several decades despite a relatively liberal exchange and trade system. - Government to work with CEMAC partners to seek a reduction in the common external tariff and coordinate on reducing administrative barriers to regional trade, particularly along the Bangui–Douala corridor. - Draw on World Bank’s Diagnostic Trade Integration Study and WTO review of trade policies during 2007 to identify measures to eliminate internal and external constraints to trade, improve trade facilitation, and enhance elements of the investment climate. - Debt and external sustainability: - The C.A.R. is in debt distress; achieving external sustainability is a high priority. - External payments arrears have been cleared to the World Bank; arrears to the African Development Bank are expected to be cleared ahead of the Executive Board’s discussion of the PRGF request. - Government will approach the Paris Club and other bilateral and commercial creditors to request debt rescheduling once the PRGF is approved by the Executive Board. - With African Development Bank assistance, the government will improve debt management and project evaluation capacity. - Pursue grant financing wherever possible and restrict foreign borrowing only to loans with a grant element of 50 percent or more. ### Other structural policies (natural resources and SOEs) - Natural resource sector management reforms planned: - Review regulatory regime in the forestry sector and the mining code (in consultation with the World Bank) to establish clear and predictable rules that guarantee investor rights while maximizing returns to the state. - Forestry reforms: revise legal and regulatory framework to strengthen management practices, enhance value added, adopt competitive and transparent criteria for attributing harvesting rights, and ensure all public revenues from the sector are accounted for in the Treasury. - Mining reforms: upgrade legal, regulatory and institutional settings, standardize concession agreements, ensure transparency over bonus payments, and full reporting of revenues from the sector in the Treasury. - State-owned enterprises: - Work to enhance performance of state-owned enterprises suffering poor financial and operating performance. - Explore option of private-sector management of water and electric utilities supported by tariff reforms and enhanced collections. ### Program monitoring for 2007 and conditionality - Monitoring framework: - Program monitored through biannual quantitative performance criteria for end-June and end-December 2007 and structural performance criteria and benchmarks for 2007 (see referenced Table 1 and Table 2). - Definitions and reporting requirements contained in the Technical Memorandum of Understanding (TMU, Attachment II). - Government will make available to Fund staff all core data, appropriately reconciled and on a regular and timely basis, as specified in the TMU. - Prior action and timing: - One prior action: issuance of an international competitive tender to undertake an audit for the validation of domestic payments arrears accumulated between 1998-2004. - The first review under the PRGF arrangement is expected to be completed by September 28, 2007. - Selected quantitative targets and indicative figures (cumulative from December 31, 2006; ceilings unless otherwise indicated): - Floor on total government revenue (end-March performance figures): 21.3; (end-June) 42.1; (end-September) 61.2; (end-December) 81.0. - Wages, salaries, and bonuses (end-March performance figures): 8.8; (end-June) 17.5; (end-September) 26.3; (end-December) 35.0. - Floor on domestic primary balance (end-March performance figures): 2.5; (end-June) 4.7; (end-September) 6.4; (end-December) 8.7. - Accumulation of new government domestic arrears on wages and goods and services (targets): 0.0 at end-March, end-June, end-September, and end-December. - Change in net claims of the commercial banking system on the government (targets): -1.0 at end-March; -2.0 at end-June; -3.0 at end-September; -4.4 at end-December. - New nonconcessional external debt (targets): 0.0 at end-March, end-June, end-September, and end-December. - Accumulation of government external payments arrears (targets): 0.0 at end-March, end-June, end-September, and end-December. - Indicative targets: - NPV of external debt: 455.4 (end-2006) and 457.9 (end-December target). - Floor on poverty-related spending (health and education): 3.1 at end-March; 6.1 at end-June; 9.2 at end-September; 12.3 at end-December. - Domestic payments arrears: 95.6 (end-2006 stock), 95.6 (end-March), 95.6 (end-June), 86.5 (end-September), 77.5 (end-December). - Structural performance criteria, benchmarks and prior actions (selected, with deadlines): - Prior action: issuance of an international competitive tender to undertake an external audit for validation of domestic payments arrears accrued 1998-2004. - Structural performance criteria: - By end-February 2007 complete external audit of operations of the one-stop customs window in Douala (Guichet Unique). - By end-March 2007, restructure customs administration activities under a single entity reporting to the Minister of Finance. - By end-March 2007, implement formal quarterly audit/reporting procedure on all sources of revenue (Inspector General of Finance to audit; Court of Accounts to verify and publish no later than 2 months after quarter end). First audit to be published by May 2007. - By end-June 2007 complete external audit validating domestic payments arrears accrued 1998-2004. - By end-June 2007 eliminate stock of treasury checks issued in 2005-06 and eliminate issuance of non-cash backed treasury checks; publicly announce such checks will no longer be valid after end-September 2007. - By end-September 2007 begin external audit of all sources of government revenue collected July 2005–end-December 2006. - By end-December 2007 implement new petroleum product pricing formula to ensure full recovery of all costs, distribution margins, and taxes, and avoid need for further budget subsidies. - By end-December 2007 reduce stock tax arrears by at least CFAF 1 billion, net of uncollectible tax arrears. - Structural benchmarks: - Continuous: government will refrain from providing resources to recapitalize the troubled commercial bank. - By end-December 2007 reform commercial laws and civil procedures relating to debt collection and bankruptcy in line with the regional FSSA recommendations. ### Technical Memorandum of Understanding (TMU) — definitions and data provision (selected) - General: - TMU dated November 30, 2006 describes definitions and specifies periodicity and deadlines for transmission of data to IMF staff for program monitoring. - All quantitative performance criteria and indicative targets evaluated as cumulative flows from December 31, 2006, unless otherwise specified. - Key definitional points: - “Government” = central government of the Central African Republic (C.A.R.), excluding local governments, the central bank, or public entities with autonomous legal personality not covered by the TOFE. - Government domestic revenue is as reported in the TOFE and includes offsetting operations in current revenue and expenditure, excluding foreign grants and divestiture receipts; includes all tax and non-tax revenue, ear-marked revenue, checks for project-related customs duties, and withholdings from civil service wages and salaries actually paid. - Government expenditure is as reported in the TOFE and includes all earmarked spending, treasury operations, domestic counterpart to foreign-financed projects, and offsetting operations. Poverty-related spending on health and education reported from functional classification. - Government wage bill monitored on a cash basis for all staff (permanent and temporary) of civil service and armed forces, including withholdings on behalf of the General Directorate of Tax Administration; covers wages, salaries, and bonuses paid with a current lag of six months. A lag length of more than seven months results in accumulation of wage arrears. - Domestic primary fiscal balance (cash basis) = government domestic revenue minus government expenditure, excluding all interest payments and externally-financed capital expenditure. - Accumulation of new government domestic payments arrears on wages and purchases of goods and services = unpaid salaries, wages, pensions, and bonuses committed up to seven months prior, and unpaid payment orders to suppliers issued two months prior; includes deposit accounts of enterprises at the Treasury resulting from unpaid expenses on goods and services supplied. - End-of-period stock of net claims of the commercial banking system on the government = deposits held by the government in commercial banks minus outstanding loans and overdrafts. - Performance criterion on contracting new nonconcessional external debt applies to short-term (original maturity of one-year or less) and medium- and long-term (original maturity more than one year) external debt contracted or guaranteed by the government; purchases from the IMF are excluded. - Definitions of “debt” and “concessional borrowing”: - “Debt” follows IMF Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-00/85, August 24, 2000) and includes current liabilities created under contractual arrangements requiring future payments; includes loans, suppliers’ credits, and leases (with lease debt measured as present value at lease inception). Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - Loan concessionality assessed using OECD commercial interest reference rates (CIRRs). A loan is concessional if, on contract signing date, the present value ratio (based on reference rates) to nominal value is less than 50 percent (grant element of at least 50 percent). For maturities exceeding 15 years the ten-year OECD reference rate is used; for shorter maturities the six-month market reference rate is used. Margins added to reference rates: 0.75 percent for repayment periods <15 years; 1 percent for 15–19 years; 1.15 percent for 20–29 years; and 1.25 percent for 30 years or more. *Source: Extracted content from the provided IMF document text.* ### 12. The concept of government for the purpose of the indicator on external debt includes ### The concept of government for the purpose of the indicator on external debt includes ### Definition of government and institutions covered - Government as defined in paragraph 3. - Administrative public institutions. - Public enterprises authorized to contract, guarantee, or accommodate nonconcessional borrowing. - Scientific and technical public institutions. - Professional public institutions. - Industrial and/or commercial public institutions. - Local governments. ### External and domestic arrears—definitions and scope - External payments arrears: - Deemed to accrue when undisputed interest or amortization payments of the government are not made within the terms of the contract, or in conformity with any future deferral agreed with the Paris Club or other bilateral and commercial creditors. - Domestic payments arrears: - Understood to include those validated by the external audit undertaken during the first part of 2007 which accrued during 1998-2004 and those which pre-date 1998. - These domestic payments arrears include wages and salaries and supplier’s credits. - Net-present-value of external debt: - Estimated using the IMF’s external Debt Sustainability template for Low-Income Countries. ### Program exchange rates - CFAF 655.957 per Euro. - US$ 1.47 per SDR. - Later note: CFAF 655.957 = € 1; on November 22, 2006, SDR 1 = CFAF 758.06. ### Fiscal adjuster for domestic primary fiscal balance (cash basis) - The floor on the domestic primary fiscal balance (cash basis) will be adjusted downward to reflect the full amount of any unprogrammed foreign grants and/or external budget support (in the form of concessional loans with a grant element of at least 50 percent). - This floor will adjusted upward by up to CFAF 3 billion per period, with a cumulative annual ceiling of CFAF 6 billion, for any shortfall in programmed foreign grants and/or external budget support. - The net domestic financing for such a shortfall will be provided only through the regional central bank (BEAC). - Quarterly differences between projected and actual foreign grants and external budget support will be converted to CFAFs at the average quarterly exchange rate during the period in question and cumulated to the test date. ### Table 2 — Foreign Grants and Budget Support, 2007 (In billions of CFA francs, cumulative from December 31, 2006) - End-Mar.: Grants 7.7; Concessional loans 0.0; Total 7.7 - End-June: Grants 7.7; Concessional loans 0.0; Total 7.7 - End-Sep.: Grants 7.7; Concessional loans 0.0; Total 7.7 - End-Dec.: Grants 12.3; Concessional loans 0.0; Total 12.3 - Note: 1/ Consisting of concessional loans with a grant element of at least 50 percent. ### Data provision to the IMF under the PRGF Arrangement (selected items and reporting lags) - Monthly evaluation report of quantitative and structural indicators; within two weeks after each month's end. - Monetary survey, central bank and commercial bank accounts on a monthly basis; within six weeks of the end of each quarter. - Net claims of the banking system on the government disaggregated (including and excluding IMF resources) and commercial banks; within ten days of the end of each month. - Table on monthly operational cash flow; within four weeks after the end of each quarter. - Government budget operations (TOFE); within four weeks after the end of each month. - End-of-period stock of domestic arrears on goods and services and wages, including unpaid pensions and bonuses; within four weeks after the end of each month. - End-of-period stock of external arrears; within four weeks after the end of each month. - Breakdown of cash outlays for current and capital expenditure, domestically financed and foreign financed; within four weeks after the end of each month. - Summary report and actual spending in priority sectors, including health, education, and security; within four weeks after the end of each quarter. - Breakdown of revenue by institution and economic classification; within four weeks after the end of each quarter. - Breakdown of external debt-service and arrears, including by interest and principal, and by principal creditor; within two weeks after the end of each quarter. - Amount of new nonconcessional and concessional external debt contracted or guaranteed by the government; within two weeks after the end of each month. - Actual disbursements of project and program external financial assistance, and external debt relief granted by external creditors; within four weeks after the end of each quarter. - Amount of paid and outstanding Treasury checks; within four weeks after the end of each month. - Stock of tax arrears and amount paid; within four weeks after the end of each month. - Indicators to assess overall economic trends, such as the household consumer price index, and oil product consumption; within four weeks after the end of each month. - Import/export flows (in volume and value), activity in the forestry and mining sector; within four weeks after the end of each quarter. - A review of the implementation of structural measures (see Table 2), including supporting documentation; within two weeks after the end of each quarter. - A monthly report on the structure of petroleum prices; within two weeks after the end of each month. ### Appendix II — Selected IMF relations and financial data (as of October 31, 2006) - Membership Status: Joined: 07/10/1963; Article VIII. - General Resources Account: - Quota 55.70 %Quota 100.00 (presentation in source). - Fund holdings of currency 68.08 122.23. - Reserve position in Fund 0.16 0.29. - SDR Department: - Net cumulative allocation 9.32 100.00. - Holdings 0.54 5.77. - Outstanding Purchases and Loans: - PRGF arrangements 15.44 27.72. - Emergency Post-Conflict Assistance 12.53 22.50. - Financial Arrangements (selected): - ESAF/PRGF: Approval date Jul 20, 1998; Expiration Jan 19, 2002; Amount approved 49.44 (In millions of SDRs); drawn 24.48. - Stand-By Arrangement: Approval date Mar 28, 1994; Expiration Mar 27, 1995; Amount approved 16.48; drawn 10.71. - SAF: Approval date Jun 01, 1987; Expiration May 31, 1990; Amount approved 21.28; drawn 21.28. - Projected Obligations to the Fund (SDR million; based on existing use of resources and present holdings of SDRs): - Principal forthcoming: - 2006: 0.00 - 2007: 5.59 - 2008: 7.68 - 2009: 7.95 - 2010: 5.08 - Charges/interest forthcoming: - 2006: 0.29 - 2007: 1.10 - 2008: 0.98 - 2009: 0.77 - 2010: 0.53 - Total forthcoming: - 2006: 0.29 - 2007: 6.69 - 2008: 8.66 - 2009: 8.72 - 2010: 5.61 - Implementation of HIPC Initiative: Not applicable. - Safeguards Assessments: - Safeguards assessment of the BEAC was completed on August 30, 2004; main recommendations reported in Country Report No. 05/424. - Exchange Rate Arrangement: - The Central African Republic is a member of a monetary association with a common central bank, the Bank of Central African States (BEAC). - The CFA franc is pegged to the euro at the fixed rate of CFAF 655.957 = € 1. - On November 22, 2006, the rate of the CFA franc in terms of SDRs was SDR 1 = CFAF 758.06. - Article IV Consultations: - On the standard 12-month cycle. - The last Article IV consultation was concluded on October 24, 2005. - Recent Technical Assistance (selected dates and purposes): - April 2001 FAD: To follow up on the introduction of the VAT and discuss measures to improve tax and customs revenue collection. - Jan–Feb 2004 STA: To assist the authorities in reviewing and updating the General Data Dissemination System (GDDS) and to provide technical assistance in government finance statistics. - March 2004 FAD: To assist the authorities in the area of revenue administration. - April 2004 FAD: To assist the authorities in the area of public expenditure management. - Aug–Oct 2004 FAD: To assist the authorities improve tax administration. - Feb–Dec 2005 FAD: To assist the authorities improve public expenditure management. - May 2005 FAD: To follow up on implementation of tax administration reforms and review the progress made since the end of the three-month assignment of FAD tax expert. - Jun–July 2005 STA: To assist the authorities improve government finance statistics. - July 2005 STA: To assist the authorities improve real sector data. - March–May 2006 FAD: To assist authorities in enforcing tax compliance and recovering tax arrears. - Sept–Oct 2006 STA: To assist in the area of monetary and financial statistics. - Resident Representative: - The Fund’s office in Bangui was closed in September 2003. ### IMF–World Bank collaboration and World Bank assistance (selected points) - World Bank assistance context: - IDA disbursements suspended since January 2002, with protracted arrears of approximately US$62.09 million as of November 20, 2006. - One approved operation in support of HIV/AIDS prevention and control: US$17 million credit approved December 2001; prevalence rate estimated at 10.5 percent. - Three PPFs totaling US$1.35 million fully disbursed; a fourth PPF advance US$650,000 approved. - LICUS and reengagement support: - LICUS Trust Fund grant US$4 million used for transition support. - A second LICUS grant approved October 10, 2006 in the amount of US$6.77 million (US$2.77 million public finance management and governance; US$450,000 mining sector assessment; US$2.75 million social services to rural populations; US$400,000 interim support to fight HIV/AIDS; US$400,000 analytical work in human security). - Exceptional IDA allocation US$100 million planned: (i) RIBSUP for arrears clearance, debt service payments, and some direct support to budget expenditures (total envelope of US$82 million); and (ii) to support investment projects (US$18 million). - Expectation that arrears will be cleared on November, 28, 2006, after which the DPO will be presented to the Board and the ISN in December. - Bank–Fund collaboration areas (lead institution(s) as listed): - Public expenditure management: IMF/World Bank. - Tax administration: IMF. - Transparency efforts: IMF/World Bank. - Natural resource management: World Bank. - Monetary and credit policy: IMF. - Social sector assessment: World Bank. - Poverty reduction strategy: World Bank. - External sector: IMF. - Debt sustainability analysis: IMF/World Bank. - IDA actual and planned support (selected items): - Ongoing: - MDRP project: US$9.8 million, FY02. - Multi-Country HIV-AIDS Program: US$17 million, FY02; disbursements through 4 PPFs amounting to US$2 million; undisbursed balance US$15.0 million. - LICUS I: US$4.0 million, FY05. - LICUS II: US$6.8 million, FY07. - Reengagement and Institution-Building Support Program, DPO: US$82 million, FY07. - Planned: - Project support for infrastructure rehabilitation, FY07 (Amount to be determined from US$18 million remaining of exceptional IDA allocation or US$17.5 million undisbursed balance from Multi-Country HIV-AIDS Program). - Regional Transport Facilitation Program, FY07 (CAR component to be determined). - Project support for social services, FY07 (Amount to be determined from remaining IDA allocation or undisbursed HIV-AIDS balance). - Public Expenditure Review (AAA, FY08/FY09); Rural Sector Strategy (AAA, FY08); Education Country Status Report (ESW, FY07). - Bank-led activities with IMF input: - Preparation of medium term structural reform framework in the context of the PRSP. - Policy Notes on security, natural resource management, social sectors and public finance shared with authorities for recovery and development framework design. - IMF interest in macro financial sector issues including quasi-fiscal deficits, contingent public liabilities, governance and transparency in natural resources management. *Source: _cr0773 - 12. The concept of government for the purpose of the indicator on external debt includes* ### 11. During 2006, the Bank has also prepared a report on public procurement (CPIP), on ### _cr0773 - 11. During 2006, the Bank has also prepared a report on public procurement (CPIP), on ### Bank technical assistance, governance, and sectoral activities - During 2006, the Bank prepared reports on public procurement (CPIP), on trade (DTIS) and on public finance management (CFAA). - In public finance management, reports were prepared on cash management and accounting nomenclature, on civil service reform and payroll control. - Under the LICUS II grant and the Reengagement and Institutions-Building Support Program, the Bank funded and is supporting governance-enhancing activities in mining, forestry, telecommunications, and the judicial area. - Objective: create an environment conducive to private sector development and ensure respect of investors’ rights. ### Areas of shared responsibility between the Bank and the IMF - Joint work to assess debt sustainability and HIPC eligibility for the C.A.R. - Bank and IMF active in regional integration: - Bank: implementing a Regional Assistance Strategy for the CEMAC countries, including support to payment systems. - IMF: active in regional macroeconomic surveillance. ### Areas where the Fund leads and informs Bank programs - IMF leads on core macroeconomic and fiscal policies, revenue mobilization, and management of aggregate expenditures. - Bank ensures consistency between its projects/policy advice and the overall fiscal framework. - Bank provided training and technical assistance to strengthen C.A.R. public finance administration within a donor partnership. ### Fund-led areas without direct World Bank involvement - IMF leads dialogue on monetary policy, exchange rate management, and balance of payments issues. - Given the CFA franc arrangement, national-level scope for policy action in these areas is limited. ### Contact points - Brendan Horton (202-473-5587) - Ali Khadr (202-458-7860) ### Statistical issues — overview - Statistical database adequate for surveillance but weakened by years of neglect, inadequate resources, and conflicts. - 1999 multisector statistical mission initiated reform efforts; statistics law and National Statistical Board established in 2001; authorities joined GDDS. - Conflicts of 2002 and 2003 prevented progress; production and dissemination deteriorated. - Renewed efforts: participation in GDDS formalized; metadata first posted on DSBB on June 14, 2004 and recently updated for financial sector statistics. - Source, compilation, and dissemination issues affect all sectors, especially the real sector, government finance, and external trade statistics. ### Real sector — findings and recommendations - National accounts compiled by Division of Statistics and Economic Studies (DSEE), Ministry of the Economy, Finance, Planning, and International Cooperation. - 1999 STA mission found serious institutional and procedural deficiencies. - Authorities should: - Continue improving national accounts estimates and quarterly foreign trade reporting. - Revise wholesale and consumer price indices due to limited coverage and obsolete weights. - July 11–22, 2005 statistical expert visit: - Found serious resource gap at DSEE; recommended redeployment to strengthen national accounts services. - Urgent need for source data via surveys, particularly for subsistence agriculture (estimated 30 percent of the economy). - Informal sector estimates still based on a 1982 survey. - Manufacturing estimates based on an outdated enterprise list and likely overestimate activity. - Pressing need to update the business register through an enterprise survey and reinstate publication of the industrial production index. ### Government finance — findings and recommended actions - 1999 mission: no single primary data source for government finance statistics; available information not communicated to Ministry of Finance. - February 2004 GFS mission: substantial additional assistance needed, notably in Treasury accounting and expenditure management, to produce reliable source data and improve measures of domestic arrears. - March 2004 FAD mission confirmed recommendations. - Support: FAD public expenditure management advisor currently stationed in C.A.R. - June 19–July 7, 2005 GFS mission proposed action plan to improve TOFE (Tableau des Opérations Financières de l’État) and the Treasury cash plan. ### Monetary accounts — findings and recommendations - Monthly data reported electronically to the Fund by BEAC for C.A.R. and other CEMAC members. - Currency in circulation accuracy affected by cross-border banknote movements: - Only 30 percent of banknotes issued in the C.A.R. by BEAC National Directorate remain in the territory. - 49 percent circulate in Cameroon. - About 16 percent circulate in Chad. - Currency in circulation in the C.A.R. includes: 6 percent banknotes from Republic of Congo, 6 percent from Cameroon, and 4 percent from Gabon. - October 2006 MFS mission assisted on consistency between GFS (bank financing) and monetary statistics (net position of government), migration to new Standardized Report Forms (SRF), and updated financial sector metadata for GDDS. - BEAC has yet to submit monetary test data using new SRF forms for any member country. - Key MFS recommendations: - (i) Expand monetary statistics to the largest microfinance institution (Crédit mutuel de Centrafrique). - (ii) Finalize and implement updated sectorized list of public entities to improve monetary statistics accuracy and consistency with GFS. - (iii) Verify reliability of source data reported by commercial banks via the new electronic reporting system. ### Balance of payments — findings and recommended actions - Balance of Payments Unit of national BEAC agency responsible for BOP statistics. - Past delays related to transition from BPM4 to BPM5 have been addressed through methodological improvements. - Last complete reporting by national BOP committee covered 2002 annual data. - Preliminary statements for 2003–05 available from BEAC office in Bangui and transmitted to the African Department, but no data transmitted to STA; IFS Yearbook shows BOP data only through 1994. - October 1999 STA mission assessed BOP needs comprehensively. Progress made (training, compilation system, flexible questionnaire), but issues remain: - Need to update BOP survey (respondent list, reporting forms, codification). - Review methodologies: freight and insurance computation and procedures for attributing banknote movements among transactions. - Improve timeliness of biannual BOP (presently 90 days). ### External and domestic debt — status and actions - Debt statistics compiled by Debt Directorate, Ministry of Finance and Budget. - Quality of data needs significant improvement; verification with creditors underway for external debt stock and arrears. - Reconciliation status: - Most multilateral debt data reconciled. - At least 74 percent of bilateral and commercial debt data reconciled. - Hence, more than 90 percent of total debt data reconciled. - Domestic debt data are poor, partly due to difficulty monitoring public expenditure on a commitment basis. - Actual stock of government domestic arrears verified by a working group with a World Bank consultant. - An external audit of this verification planned for completion by mid-2007. - Debt Directorate seeking funding and technical expertise to upgrade outdated debt data management software. ### Table of common indicators required for surveillance (as of November 20, 2006) — selected entries and frequencies - Exchange Rates: Date of latest observation Nov 2006; Date received Nov 2006; 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 Sept 2006; Date received Sep 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Reserve/Base Money: Date of latest observation Sept 2006; Date received Nov 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Broad Money: Date of latest observation Sept 2006; Date received Nov 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Central Bank Balance Sheet: Sept 2006; Nov 2006; M; M; M. - Consolidated Balance Sheet of the Banking System: Sept 2006; Nov 2006; M; M; M. - Interest Rates: Date of latest observation Oct 2006; Date received Nov 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Consumer Price Index: Sept 2006; Nov 2006; M; M; M. - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Sept 2006; Nov 2006; M; M; M. - Stocks of Central Government and Central Government-Guaranteed Debt: Sept 2006; Nov 2006; M; O; M. - External Current Account Balance: Dec 2005; Nov 2006; A; A; A. - Exports and Imports of Goods and Services: Dec 2005; Nov 2006; A; A; A. - GDP/GNP: Dec 2005; Nov 2006; A; A; A. - Gross External Debt: Sept 2006; Nov 2006; M; O; A. - Notes on periodicity: Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA). ### IMF staff supplementary information (Statement by the IMF Staff Representative — December 22, 2006) - New information since staff report issuance does not alter staff assessment. - Prior action in authorities’ Letter of Intent requesting a new three-year PRGF arrangement observed: - Prior action concerned issuance of an international competitive tender for an external audit to validate domestic payments arrears accrued during 1998-2004. - Tender opened on November 23, 2006. - External audit expected to conclude by end-June 2007. - African Development Bank financing assurances sufficient to clear C.A.R.’s arrears to that institution secured; board discussion to approve clearance scheduled for December 20, 2006. ### Press Release No. 06/299 — PRGF approval (December 22, 2006) - IMF Executive Board approved a three-year PRGF arrangement for the Central African Republic in an amount equivalent to SDR 36.2 million (about US$54.5 million) to support the government's economic program into 2009. - First disbursement: SDR 17.6 million (about US$26.5 million). - PRGF loan terms: annual interest rate of 0.5 percent; repayable over 10 years with a 5 ½-year grace period on principal payments. - Mr. John Lipsky noted: - C.A.R. made good progress under Emergency Post-Conflict Assistance program; improvements in political and social situation; economic recovery gaining strength. - Fiscal strengthening noteworthy given previous expenditure slippages. - Advances in structural reform: public financial management, tax and customs administration, governance and transparency. - Program aims: gradually eliminate domestic debt overhang; support priority public spending and investment; increase credit to private sector; make external debt sustainable via regularizing relations with external creditors and benefiting from debt relief. - Fiscal policy goal for 2007: increase domestic primary surplus to stay current on domestic debt service and start repaying domestic debt. - Reform of tax and customs administration and better public finance management emphasized. - Enhance financial intermediation to support private sector revival; trade and investment liberalization to diversify and expand export base. - Authorities’ intention to establish clear regulations for mining and forestry advised given importance of natural resources. - Medium-term framework consistent with priorities in draft PRSP to be completed in mid-2007. - Regularization with external creditors and debt relief under enhanced HIPC and MDRI critical; prompt implementation of macroeconomic and structural reforms supported by PRGF is essential to reach HIPC decision point in the near future. ### Statement by Laurean W. Rutayisire, Executive Director for Central African Republic (December 22, 2006) — selected points - Authorities thank Executive Board, Management and staff for continued support. - Acknowledge progress: consolidation of peace and national security; transition to democratic government with presidential and parliamentary elections recognized as fair and transparent; restored macroeconomic stability; end to decades-old economic decline; return to positive growth; reduction in inflation to single digits. - Authorities implemented a vigorous reform agenda: completion of staff monitored program, two Emergency Post-Conflict Assistance programs, and prior action for PRGF request. - Recent developments: - Preliminary data: real GDP growth rate of 3 ½ is expected this year, with a surge in exports as main engine of growth. - Inflation generally subdued at 5 percent. - Current account deficit expected to widen on account of lower official transfers and an appreciation of the real exchange rate. *Extracted from IMF country document _cr0773 (Central African Republic), December 2006.* ### 3.3 percent of GDP. ### _cr0773 - 3.3 percent of GDP. ### Fiscal performance and arrears - Domestic primary balance projected to move from a deficit of 3 ½ percent of GDP in 2005 to a primary surplus of about ½ percent of GDP in 2006. - Payments equivalent to 0.5 percent of GDP have been made on domestic arrears, including salaries and pensions from 2005. - Authorities fulfilled commitment not to accumulate new arrears; no new wage arrears have been accumulated, aside from some minor delays due to administrative problems. ### Medium-term objectives (PRSP pillars) - Achieve annual real GDP growth of 4 to 5 percent through 2009. - Reduce annual inflation rate to 3 percent, in line with the long-term inflation trend in the CEMAC zone. - Pursue fiscal consolidation to eliminate the overhang of domestic debt and free resources for growth-enhancing and poverty-reducing social policies. - Encourage private sector development via fiscal consolidation, financial sector reforms to increase credit availability, trade liberalization, restructuring of state-owned enterprises, and enhanced governance in the natural resource sector (including more reliable private property rights and contract enforcement). - Regularize the country’s relations with external creditors. ### Fiscal policy and 2007 budget - 2007 budget target: domestic primary surplus of 1 percent of GDP. - Revenue expectations: - Reforms in tax and custom administrations expected to yield an additional 1 percent of GDP in tax collections compared with 2006. - Total revenue anticipated to increase from about 13 percent of GDP in 2006, to 15 percent next year. - Expenditure measures: - Cap on the wage bill to reduce the wage bill by ½ percent of GDP in 2007. - Compression of non-priority spending such as foreign travels and administrative costs. - Efforts to identify ghost works and unqualified employers to yield payroll savings. - Cap on the wage bill will not imply reduction in staffing of priority sectors such as health and education; civil service reform will consider sector needs. - Petroleum pricing reform: authorities determined to reform structure of petroleum product pricing to better help vulnerable households while avoiding budget subsidies; technical assistance requested from the Fund. - Priority spending increases enabled by fiscal rationalization: - Capital expenditures expected to rise by 1½ of GDP in 2007. - Reduction of the domestic debt equivalent to 2 ½ percent of GDP. - Timely payment of external payment obligations. - Reform of the cotton sector (critical for alleviating poverty in rural areas). ### Public financial management reforms (2007 reforms with Fund TA) - Update the list of taxpayers (including public enterprises) and ensure the list covers all applicable taxes. - Reduce the rate of non-compliance of large enterprises through enforcement and intensified audits. - Apply the ceiling of CFAF 30 million turnover for the purpose of taxation of all businesses (individual and companies) without any exception and allow enterprises subject to the flat tax to opt for the regular tax regime. - Refrain from granting any new tax exemptions. - Apply all available mechanisms for recovering tax arrears. - By end-December 2007, resolve to reduce the stock of tax arrears by at least CFAF 1 billion, net of uncollectible amounts. ### Monetary policy and financial sector policies - Monetary and exchange rate policy conducted by regional central bank, the Bank of Central African States (BEAC); regional framework anchors inflation expectations and provides short-term financing. - Given high cost of regional short-term financing, authorities will seek alternative funding venues during the program period. - National strategy to promote financial development reforms to facilitate access to credit and remove obstacles to financial intermediation. - Planned 2007 measures in line with FSSA conclusions: - Legal reforms to make credit collection activities more efficient, including adoption by end-December 2007 of commercial laws and civil procedures related to debt collection and bankruptcy. - Promotion of land surveys and modernization of land and commercial registries to facilitate use of collateral for credit access. - Implementation of anti-money laundering/combating the financing of terrorism laws (AML/CFT). - In coordination with COBAC: - Initiate reconciliation and validation of potential liabilities of state owned enterprises toward commercial banks to establish repayment options. - Pursue timely recapitalization of troubled commercial bank without contributing government resources, by recognizing state-owned enterprises’ non-performing loans to remove investor uncertainty. ### Structural reforms and governance - Improve management of the natural resources sector in consultation with the World Bank: - Upgrade legal, regulatory and institutional settings in mining (standardize concession agreements, transparency over bonus payments, full reporting of revenues from the sector in the Treasury). - Participation and initiatives: - Central African Republic participating in the Kimberly process. - Taking steps to join the Extractive Industry Transparency Initiative (E.I.T.I). - Security and reintegration: - Disarmament program with UNDP assistance intensified; 96 percent of identified ex-combatants have been disarmed and demobilized. - Program now focusing on successful reinsertion in civilian endeavors. - Long-lasting peace and stability dependent on resolution of regional conflicts and international community support. ### External debt strategy - Debt situation characterized as unsustainable; normalization of relations with creditors is highest priority. - External payment arrears to the World Bank and the African Development Bank have been cleared. - Measures taken to ensure no new accumulation of arrears and that the country will remain current with obligations to the Fund. - Authorities have approached the Paris Club and other bilateral and commercial creditors to find a sustainable debt strategy. - With African Development Bank assistance, efforts to improve debt management capabilities. - Pursue grant financing and restrict foreign borrowing to loans on concessional terms. ### Conclusion and program request - Despite difficult post-conflict situation, authorities maintained a satisfactory track record of program implementation under the SMP and two successive EPCAs. - Progress in governance includes conducting democratic elections and steps toward joining the EITI initiative. - Authorities request a new program supported by the PRGF facility to pave the way for enhanced HIPC debt relief and MDRI, enabling redirection of resources toward poverty reduction and attainment of the Millennium Development Goals. *Source: _cr0773 - 3.3 percent of GDP.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0773.pdf_