## _cr0814

## Source details

**Canonical URL:** [_cr0814](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0814.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0814.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0814.pdf.json)

---

### Executive summary: eligibility, macro context, and reform agenda
- Purpose: assess the Central African Republic’s (C.A.R.) qualification for assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, quantify debt relief, and set conditions for reaching the completion point.
- Political/security context: transition from post-conflict to recovery; strengthening but tensions persist.
- Social/economic context:
  - Social indicators among the weakest globally; modest economic improvement in 2006.
  - Real GDP growth: 4.1 percent in 2006.
  - Per capita GNI: US360 in 2006.
- Program status:
  - PRGF arrangement approved December 22, 2006 with access SDR 36.2 million (65 percent of quota).
  - IDA RIBSUP grant SDR 55.4 million (about US82 million) approved November 2006.
  - LICUS Trust Fund grants: US4.0 million (2004) and US6.8 million (2006).
- Authorities’ priorities:
  - fiscal consolidation; private-sector led growth; enhanced revenue mobilization; tighter expenditure control and reorientation toward growth-enhancing and poverty-reducing areas; structural reforms in financial intermediation, trade liberalization, regulatory and legal framework in natural resource sector.

### Eligibility and required HIPC/MDRI relief (end-2006 basis)
- External public and publicly-guaranteed debt:
  - Nominal: US1.1 billion (end-December 2006).
  - NPV: US856 million (end-December 2006 NPV basis).
- HIPC threshold breach:
  - NPV of debt-to-exports ratio after traditional relief: 470 percent (three-year backward-looking average 2004-2006 = 182).
- Required HIPC relief (end-2006 NPV terms):
  - Reduce NPV of debt-to-exports ratio from 470 percent to 150 percent → HIPC debt relief US583 million (NPV).
  - Implies common reduction factor: 68 percent.
  - By burden sharing:
    - Multilateral: US365 million (NPV).
    - Bilateral and commercial: US218 million (NPV).
- MDRI implications (upon completion point):
  - MDRI relief reduces NPV of debt owed to IDA, IMF, and AfDF by about US110 million (end-2006 NPV terms).
  - IDA: could amount to about US181 million nominal (US74.5 million NPV as of decision point); expected debt service reduction ~US5.3 million per year post-completion.
  - IMF: estimated about US1.6 million nominal (US1.3 million end-2006 NPV).
  - AfDB: could amount to approx. US77.2 million nominal (US34.3 million 2006 NPV); annual debt service reduction ~US2.1 million (net of HIPC).

### Debt stock, creditor composition, arrears, and delivery modalities
- External debt stock (nominal): $1.087 billion (as of December 31, 2006).
- Creditor composition (nominal shares):
  - IDA: 37%
  - Other Official Bilateral: 25%
  - AfDF: 16%
  - Paris Club: 7%
  - Other Multilateral: 7%
  - IMF: 4%
  - Commercial: 5%
- Arrears (as of end-2006):
  - About 31 percent of external debt in arrears:
    - US62 million to multilateral creditors,
    - US223 million to bilateral creditors,
    - US50 million to commercial creditors.
- Delivery modalities (selected working assumptions and estimates):
  - IDA: approx. US209 million (NPV) assistance; estimated US66 million (NPV) delivered through clearance of arrears; annual debt service reduced by 63 percent starting at decision point; total debt service reduction from IDA ~US229 million nominal.
  - IMF: estimated US27 million (NPV) assistance (staff estimate US26.98 million).
  - AfDB: assistance ~US85 million (NPV), including US43 million via recent arrears clearance; remaining via 80 percent debt-service reduction until NPV target reached.
  - IFAD: US16 million (NPV) assumed via concessional rescheduling and up to 100 percent debt service reduction commencing at completion point.
  - Other creditors: varied modalities (concessional rescheduling, arrears clearance, moratoria, stock operations); financing assurances obtained from creditors accounting for 68.2 percent of total HIPC assistance.
- Recent bilateral actions:
  - People’s Republic of China cancelled two loans representing 29 percent of outstanding stock in January 2007.
  - South Africa cancelled 100 percent of C.A.R.’s outstanding debt.

### Debt sustainability assessment and risks
- End-2006 indicators:
  - NPV of debt-to-exports: 470 percent.
  - NPV of debt-to-revenue: 580 percent.
- Baseline projection (full delivery of traditional relief):
  - Without HIPC relief, NPV of external debt-to-exports remains above HIPC threshold until 2017.
  - Traditional debt relief reduces NPV to 138 percent by 2014 (under specific projection).
- Post-HIPC projections:
  - HIPC-only scenario: NPV of debt-to-exports falls from 150 percent (end-2006) to ~66 percent by 2026.
  - HIPC plus MDRI: NPV of debt-to-exports falls to 53 percent the year following completion point (about 50 percentage points lower than HIPC-only at expected completion).
- Stress/sensitivity scenarios (key outcomes and policy implications):
  - Scenario 1 — Non-concessional new borrowing (7 percent interest; near-zero grant element):
    - NPV of debt-to-exports deteriorates relative to baseline but remains below 150 percent and declines over time.
    - Debt service to revenue averages 10 percent between 2017 and 2026 compared with 3 percent under baseline.
    - Policy implication: avoid non-concessional borrowing; secure highly concessional external resources.
  - Scenario 2 — Lower export growth (exports grow 2.1 percent p.a., ~4.5 percentage points below baseline):
    - Substantial deterioration of debt ratios; NPV of debt-to-exports rises in the long term even after full HIPC delivery.
    - Debt service-to-exports increases, reaching 7 percent by end of projection period.
    - Policy implication: need to improve institutions and diversify exports.
- Staffs’ classification: C.A.R. is in debt distress.
- Public sector debt and domestic arrears:
  - Domestic debt about 24 percent of GDP (of which less than half due to domestic payments and salary arrears).
  - Public sector debt equivalent to 96 percent of GDP (baseline), projected to decline under assumptions.

### Macroeconomic framework and medium-to-long-term projections (selected indicators, 2006-26)
- Growth and prices:
  - GDP at constant prices: 4.1 (2006); 4.0 (2007); 4.3 (2008); 4.5 (2009); 4.2 (2007-26 avg.)
  - Consumer prices (yearly average): 6.7 (2006); 3.0 (2007); 2.3 (2008); 2.4 (2009); 2.1 (2007-26 avg.)
  - Growth projection emphasized in text: 4.2 percent assuming maintenance of security and political stability and institutional improvements.
- External sector:
  - Export volume: 15.1 (2006); 14.8 (2007); 6.1 (2008); 6.7 (2009); 7.3 (2007-26 avg.)
  - Import volume: 11.3 (2006); 3.4 (2007); 10.2 (2008); 4.1 (2009); 5.0 (2007-26 avg.)
  - Terms of trade (U.S. dollar basis): 0.4 (2006); -0.5 (2007); -1.3 (2008); -0.6 (2009); -0.1 (2007-26 avg.)
- Public finances (percent of GDP):
  - Total revenue (including grants): 21.1 (2006); 15.8 (2007); 14.1 (2008); 14.3 (2009); 15.6 (2007-26 avg.)
    - Tax and nontax revenue: 9.4 (2006); 10.6 (2007); 10.8 (2008); 11.3 (2009); 13.3 (2007-26 avg.)
  - Total expenditure: 14.1 (2006); 13.3 (2007); 13.6 (2008); 13.8 (2009); 15.9 (2007-26 avg.)
  - Overall balance (including grants): 7.0 (2006); 2.5 (2007); 0.6 (2008); 0.5 (2009); -0.3 (2007-26 avg.)
- External current account (including grants): -2.7 (2006); -4.1 (2007); -4.8 (2008); -4.7 (2009); -4.2 (2007-26 avg.)
- Net present value of external debt (in percent of exports after traditional relief): 469.7 (2006); 354.0 (2007); 307.8 (2008); 280.7 (2009); 146.5 (2007-26 avg.)

### Security, poverty, and social indicators
- Security:
  - Improvements noted since 2003–05, but banditry in rural regions and rebel activity in northwest and spillovers in northeast persist.
  - International security support: BONUCA, France, FOMUC financed by the EU; UN peacekeeping in Darfur/Chad border expected to help.
- Poverty and social outcomes:
  - Household survey (2003): more than two-thirds below the poverty line; about one-third in extreme poverty.
  - Life expectancy: fell from roughly 50 years (late 1990s) to 39 years (2005); Life Expectancy (years, 2005) 39.4 (C.A.R.).
  - HIV/AIDS prevalence: 6.2 percent (age 15-49, 2005).
  - Education: one child out of four never attended school (2004/05); primary completion 31 percent.
  - Access to services: 40 percent have access to safe water; 7.6 percent use electricity for lighting.
  - Human Development: ranked 172nd out of 177 countries (2006) on UNDP HDI.
  - Selected table figures (preserve exact numbers):
    - Population (in millions, mid-2005): 4.07
    - Population growth (percent, 1998-2005): 1.5
    - Gross national income per capita (US$, 2005): 350.0
    - Infant mortality rate (per thousand, 2005): 115.0
    - Access to an improved water source (percent of population, 2004): 75.0
    - HIV/AIDS estimated prevalence rates (2006): Male 4.3; Female 7.8; 15-49 6.2
    - Immunization Measles (2000-2005): 35.0; DPT 2/4: 40.0
    - Child malnutrition (percent under 5 years; 2000-2004): 24.0
    - Net primary enrollment rate (1990-1995) Total 52.0; Male 63.0; Female 41.0

### Reform agenda, governance, and public financial management
- Governance:
  - Ranks well below SSA average in World Bank Institute governance indicators; bottom 10 percent worldwide for government effectiveness and rule of law.
  - Progress: improved transparency of public financial management; fiscal, economic and judicial information published online.
  - Plans to strengthen judicial capacity, promote civil society participation, and modernize justice sector; intention to adopt OHADA business laws.
- Revenue and public expenditure management:
  - Reforms: taxpayer identification numbers; increased audits for large taxpayers; VAT and petroleum taxes increased in 2006.
  - New organic budget law and budget nomenclature; verification of diplomas to eliminate payroll fraud; unified civil service database; restricted cash advances; limited issuance of non-cash backed treasury checks.
  - Country Financial Accountability Assessment completed; action plan to be finalized by end-2007 with IDA assistance.
  - Procurement: comprehensive review and interim commitments to basic procurement standards; medium-term adoption of new procurement code and institutions.
- Private sector and sectoral reforms (selected):
  - Forestry: revise legal framework; ban special harvesting permits; launch tenders for licenses (2007).
  - Mining: revise code, adopt standard-agreement template, implement EITI, audit mining sector.
  - Oil: reform storage/distribution/pricing; technical assistance required.
  - Financial sector: national strategy to facilitate access to credit; strengthen bank balance sheets; address non-performing loans and governance.
  - Transport: rehabilitation of rural roads; CEMAC Transport and Transit Facilitation project (Douala-Bangui corridor).
  - Telecommunications: Telecom Law; Central African Backbone (CAB) project could be operational mid-2009.
  - Energy: final consumption by wood ~88 percent; only 3 percent access to electricity; new electricity code adopted 2005.
  - Education and health: donor-assisted strategies to address shortages; immunization DPT3 rate surged to 80 percent (noted in Text).

### Triggers for the Floating Completion Point and monitoring
- Timing assumptions: decision point at end-September 2007; floating completion point end-2009.
- Trigger categories (summary):
  - PRSP: PRSP prepared through participatory process and satisfactory implementation for at least one year from Cabinet approval; PRSP Annual Progress Report acceptable to IDA and IMF.
  - Macroeconomic stability: satisfactory implementation of PRGF arrangement.
  - Transparency: implementation of asset declaration/disclosure provisions for senior officials; decree extending declarations to senior public enterprise officials and some key civil servants.
  - Structural reforms:
    - Forestry: adoption of satisfactory new forestry code, implementing decrees, bidding-based concession awards, independent transparency body, forestry taxation reflecting market value, public information system and awareness campaign.
    - Mining: publication of EITI administrator report on mining revenue (starting 2006); adoption of satisfactory standard-form mining agreement and consistent mining code amendments.
  - Public financial management:
    - Submit budget using new budget nomenclature; implement expenditure tracking from commitment to authorization; implement payroll management system; adopt and implement satisfactory procurement code with new institutions.
  - Civil service reform: Cabinet adoption of satisfactory new organic framework and submission of new rules/regulations with compensation and performance assessment system.
  - Public debt management: Debt Management Unit procedures and comprehensive database; periodic publication of debt data within six months after fiscal year end.
  - Social sector triggers (education, health, HIV/AIDS):
    - Education: at least 750 additional primary teachers vs. 2006-07; repetition rate <20 percent where schools operate normally.
    - Health: maintain DPT3 at 80 percent or higher; distribute at least 300,000 treated mosquito nets.
    - HIV/AIDS: annual condom imports at least 10 million (proxy for social marketing).
- Monitoring and implementation arrangements:
  - IMF to lead monitoring macroeconomic stability and fiscal sustainability.
  - IDA to lead monitoring forestry, mining, debt management, PFM, and economic/social development triggers.
  - Joint IMF/IDA monitoring of public expenditure tracking triggers.
  - Budget nomenclature and expenditure-tracking systems to enable tracking of poverty-related expenditure; interim monitoring mechanism operational in 2008 in at least three key ministries.

### Decision point issues, questions for Executive Directors, and numeric requests
- Key decision questions posed to Executive Directors:
  - Do Directors agree C.A.R. qualifies for enhanced HIPC assistance and recommend approval of the decision point?
  - Do Directors agree that total HIPC assistance to reduce NPV debt-to-exports to 150 percent is US583 million (NPV) and the allocations (IDA US209 million; IMF US27 million)?
  - Do Directors agree that the floating completion point is reached when triggers in Box 3 are met, with unconditional delivery contingent on other creditors’ participation?
- Key numeric totals and shares (preserve exactly):
  - Total HIPC assistance (end-2006 NPV terms): US583 million (100 percent)
  - Total multilateral: 365 (63 percent)
  - IDA: US209 million (36 percent)
  - AfDB Group (AfDF): US85 million (15 percent)
  - IMF: US27 million (5 percent)
  - Paris Club Creditors: 32 (6 percent)
  - Commercial creditors: 30 (5 percent)
  - Total bilateral and commercial: 217 (37 percent)
  - Exports of Goods and Non-Factor Services (three-year average 2004-2006): 182

### Monitoring of poverty-reducing expenditures and financing needs
- HIPC/MDRI fiscal impact described as limited given past low debt servicing; C.A.R. requires significantly higher inflows of official foreign assistance beyond HIPC to implement PRSP.
- Financing sources: PRGF, IDA DPO, LICUS, PARPAF, Global Fund, UNICEF, IDA Multi-sectoral HIV/AIDS/Health/Education Emergency Support Project, and technical assistance.
- Budget/expenditure tracking improvements:
  - New budget nomenclature; management information system to track commitment→authorization→payment.
  - Treasury computerization started with AFD support; public expenditure execution reform to be adopted by Cabinet in October 2007.
  - Interim monitoring mechanism to be operational in 2008 in at least three key ministries.
  - Public Expenditure Review with IDA to design Public Expenditure and Financial Accountability plan.

_Italic: Source: Executive Summary and selected sections of _cr0814 (Central African Republic HIPC assessment) as provided._

### Executive Summary ......................................................................................................

_	cr0814 - Executive Summary_

### Executive summary: eligibility, macro context, and reform agenda
- The document assesses the Central African Republic’s (C.A.R.) qualification for assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, quantifies the corresponding amount of debt relief, and sets forth conditions for reaching the completion point agreed between the authorities and IDA and IMF staffs.
- The C.A.R. is in a transition from post-conflict to recovery with a strengthening political and security situation, though tensions persist.
- Social indicators remain among the weakest in the world; economic performance improved modestly in 2006 with an improved fiscal position and some structural reforms.
- The C.A.R. has maintained satisfactory performance under the IMF’s Poverty Reduction and Growth Facility (PRGF) arrangement.
- Authorities’ priorities (rooted in a Poverty Reduction Strategy close to completion) emphasize:
  - further fiscal consolidation;
  - private-sector led growth;
  - enhanced revenue mobilization;
  - tighter expenditure control and reorientation toward growth-enhancing and poverty-reducing areas;
  - structural reforms to reduce the cost of doing business and address obstacles in financial intermediation, trade liberalization, and the regulatory and legal framework in the natural resource sector.

### Eligibility and program status (PRGF and IDA)
- The C.A.R. is PRGF-eligible and an IDA-only country with per capita GNI of US360 in 2006.
- The Fund’s Executive Board approved a three-year PRGF arrangement for the C.A.R. on December 22, 2006, with access in an amount equivalent to SDR 36.2 million (65 percent of quota).
- IDA reengaged in 2006 with a Reengagement and Institution-Building Support Program Grant (RIBSUP) of SDR 55.4 million (about US82 million) approved in November 2006 to support arrears clearance to IDA and provide budget support.
- IDA activities noted in the document include:
  - a US17 million HIV/AIDS project (restructured in 2007 to also cover emergency education and health needs);
  - a US9.8 million MDRP-supported project (closed in 2007) for demobilization, disarmament and reintegration;
  - a US18 million Emergency Urban Infrastructure Rehabilitation and Maintenance Project approved in May 2007;
  - a CEMAC Transport and Transit Facilitation Program (US24 million for the C.A.R. alone) approved in June 2007.
- LICUS Trust Fund grants of US4.0 million (2004) and US6.8 million (2006) supported PRSP preparation, economic governance, public financial management, social services delivery, and community-driven development activities.

### Political and security context
- Since independence (1960), the C.A.R. experienced political instability and armed conflict, leading to weak governance and poor socio-economic outcomes.
- General François Bozizé came to power in March 2003, a new Constitution was adopted in December 2004, and presidential and parliamentary elections were held in the first half of 2005; Mr. Bozizé was elected president and a new government formed in July 2005.
- Improvements: opportunity for security sector reforms and an ambitious economic reform agenda; political stability has begun to improve.
- Security support: United Nations Office for Consolidation of the Peace in Central Africa (BONUCA), France, and regional forces (FOMUC) financed by the European Union.
- Constraints: limited resources, deep-rooted challenges to the rule of law, and an erosion of public trust hinder implementation of reconciliation and democratization roadmaps.

### Debt stock, HIPC needs, and MDRI implications (end-2006 basis)
- The C.A.R.’s public- and publicly-guaranteed external debt is estimated at US1.1 billion in nominal terms as of end-December 2006, equivalent to about US856 million in net present value (NPV) terms.
- After full application of traditional debt relief mechanisms, the C.A.R.’s NPV of debt-to-exports ratio at end-December 2006 is estimated at 470 percent and exceeds the HIPC Initiative threshold.
- Required HIPC debt relief:
  - Reduction of the NPV of debt-to-exports ratio from 470 percent to 150 percent requires HIPC debt relief of US583 million in NPV terms (end-2006 NPV basis).
  - This implies a common reduction factor of 68 percent.
  - Based on proportional burden sharing:
    - Multilateral debt relief would amount to US365 million (NPV terms).
    - Bilateral and commercial debt relief would amount to US218 million (NPV terms).
- MDRI implications:
  - Upon reaching the HIPC completion point, the C.A.R. would qualify for relief under the Multilateral Debt Relief Initiative (MDRI).
  - MDRI relief is estimated to reduce the NPV of debt owed to IDA, the IMF, and the African Development Fund by approximately US110 million (end-2006 NPV terms).

### Debt sustainability and risks
- Sensitivity analysis of projected external debt burden after full delivery of HIPC assistance emphasizes:
  - the need for economic reform to diversify and enhance export performance;
  - the need for sustained foreign assistance on favorable terms;
  - without these, there is a risk of renewed debt distress.

### Decision point, completion point, and monitoring
- IDA and IMF Executive Boards discussed the preliminary HIPC document on March 8 and 14, 2007; Directors acknowledged progress and agreed the C.A.R. was eligible for HIPC assistance given:
  - PRGF-eligible and IDA-only status;
  - NPV of debt-to-exports ratio above the HIPC threshold at end-2004 after traditional relief;
  - engagement in IDA- and IMF-supported reform programs.
- Directors agreed the C.A.R. could reach its Decision Point by September 2007 (at the time of the first PRGF review) provided:
  - the country remained on track with IDA- and Fund-supported programs; and
  - understandings were reached on appropriate completion point triggers.
- Directors requested streamlining the set of triggers and ensuring effective monitoring; staffs and authorities removed several triggers that were not easily quantified or monitored, particularly those aimed at improving the business climate, and in health and education.
- The authorities stress the importance of benefiting from interim HIPC assistance at decision point.

_Italic: Source: Executive Summary, _cr0814 - Executive Summary_ (Central African Republic HIPC assessment)._

### 7.      The security situation has improved, but tensions linger and the situation

### _cr0814 - 7.      The security situation has improved, but tensions linger and the situation

### Security situation and implications
- Banditry continues in certain rural regions, particularly the Bangui-Cameroon corridor.
- Rebel activity persists in the northwest; the northeast has been undermined by spillovers of conflict in Darfur and Chad.
- The conflict is characterized as protracted, low intensity, and continues to:
  - hinder prospects for recovery and reconstruction, particularly in rural areas;
  - raise the risk of disorder in the region.
- Economic recovery remains modest and the financial situation continues to be difficult, undermining the government’s ability to provide services.
- The government has appealed to the international community for support to contain rebel incursions, which it considers a significant threat to national security.
- The recent UN decision to deploy a peacekeeping force in the Darfur region of Sudan and in the border area with Chad should help improve the overall security situation.

### Donor consultations and international support
- June 2007 donor consultations in Brussels emphasized the need for stepped-up and coordinated actions from all partners to:
  - maintain a climate of security;
  - support the government’s efforts to achieve social and economic objectives.
- Participants stressed the need to show tangible improvements in living conditions to avoid rising discontent that could further undermine security.
- Deeper, sustained and coordinated international support is required while ensuring the process is nationally owned and led.

### Dimensions of poverty
- Over a long period, real GDP growth has lagged population growth, resulting in a substantial decline in per-capita income.
- Household survey data (2003, with UNDP support) indicate:
  - more than two-thirds of the population live below the (income) poverty line;
  - about one-third are in extreme poverty.
- Urban poverty is linked to weak economic recovery and exacerbated by domestic arrears in wages and pensions.
- Rural poverty has been intensified by conflict-induced population displacement, declining agricultural production, and isolation from poor rural roads.
- Poverty is less severe in Bangui than in the rest of the country.
- Participatory Poverty Analysis (PPA), early 2007, identifies three problems from the poor’s perspective:
  - (i) poor governance and abuse of power;
  - (ii) widespread insecurity;
  - (iii) lack of money at the household and local economy level.
- These issues require particular attention in PRSP design and implementation to restore trust between government institutions and the population.

### Social indicators (selected findings)
- The C.A.R. ranks near the bottom of the UNDP Human Development Index: 172nd out of 177 countries (2006).
- Life expectancy fell from roughly 50 years in the late 1990s to 39 years in 2005.
- HIV/AIDS: UNAIDS estimated prevalence rate of 6.2 percent for the 15-49 age group in 2005.
- Education:
  - In 2004/05, one child out of four had never attended school.
  - Only 31 percent of children enrolled in primary school completed primary education.
- Displacement: many internally displaced persons; women and children disproportionately affected.
- Under-employment is high.
- Access to basic services:
  - 40 percent of the population has access to safe water.
  - 7.6 percent of the population uses electricity as a source of lighting.
- Gender disparity: ranked 129 out of 175 countries in 2003 on the gender-specific human development indicator.
- Conclusion: The C.A.R. is unlikely to achieve its MDGs by 2015 given limited and inequitable public sector contribution to basic social services and an unequipped private sector.

### Poverty and social indicators — selected table figures
- Population (in millions, mid-2005): 4.07 (Central African Republic); Sub-Saharan Africa average 43.12; Low-income country average 52.4
- Population growth (in percent, 1998-2005): 1.5 (C.A.R.); 2.4 (Sub-Saharan Africa average); 1.9 (Low-income country average)
- Gross national income per capita (US$, 2005): 350.0 (C.A.R.); 746.1 (Sub-Saharan Africa average); 585.4 (Low-income country average)
- Life Expectancy (years, 2005): 39.4 (C.A.R.); 46.7 (Sub-Saharan Africa avg); 58.9 (Low-income avg)
- Infant mortality rate (per thousand, 2005): 115.0 (C.A.R.); 96.3 (Sub-Saharan Africa avg); 75.1 (Low-income avg)
- Access to an improved water source (percent of population, 2004): 75.0 (C.A.R.); 56.2 (Sub-Saharan Africa avg); 75.1 (Low-income avg)
- HIV/AIDS: Estimated prevalence rates (in percent, 2006):
  - By gender: Male 4.3; Female 7.8
  - By age group: 15-49 6.2
- Immunization rate (percent of children ages 12-23 months; 2000-2005):
  - Measles: 35.0 (C.A.R.); 63.6 (SSA avg); 65.0 (Low-income avg)
  - DPT 2/4: 40.0 (C.A.R.); 64.8 (SSA avg); 65.8 (Low-income avg)
- Child malnutrition (percent under 5 years; 2000-2004): 24.0 (C.A.R.); 29.0 (SSA avg); 39.0 (Low-income avg)
- Net primary enrollment rate (percent of age group; 1990-1995):
  - Total: 52.0 (C.A.R.); 64.0 (SSA avg); 79.0 (Low-income avg)
  - Male: 63.0 (C.A.R.); 68.0 (SSA avg); 82.0 (Low-income avg)
  - Female: 41.0 (C.A.R.); 60.0 (SSA avg); 75.0 (Low-income avg)

### Policy track record and reform agenda — macro and fiscal performance
- Real GDP growth: 4.1 percent in 2006, supported by traditional exports (diamonds and timber), increased service sector activity, and public investment.
- Inflation: twelve-month rate through June 2007 was 1.6 percent.
- Implementation of macroeconomic and structural policies generally satisfactory; staff recommended completion of the first review under the PRGF arrangement.
- Government achieved fiscal objectives through tight control over expenditures to address unpredictability of programmed aid inflows.
- Domestic debt: about 24 percent of GDP (of which less than half is due to domestic payments and salary arrears); government finalized external audit of domestic arrears and will prepare a settlement plan in consultation with the private sector.

### Governance, transparency, and public financial management
- The C.A.R. ranks well below the Sub-Saharan Africa average in all World Bank Institute governance indicators; ranks in the bottom 10 percent worldwide for government effectiveness and rule of law.
- Progress: improved transparency of public financial management; fiscal, economic and judicial information published on the government website.
- Legal Agent in Ministry of Justice prosecutes commercial and financial crime but is hampered by lack of resources.
- Plans to strengthen judicial institutional capacity, promote civil society participation, and prepare a modernization plan for the justice sector via a national roundtable on justice.
- Authorities intend to adopt OHADA business laws.

### Revenue mobilization, budget control, and procurement reforms
- Revenue mobilization: introduction of taxpayer identification numbers, increased audit frequency for large taxpayers, strengthened oversight of flat tax eligibility.
- Tax changes: value-added tax rate and tax on petroleum products increased in 2006.
- Customs administration reform is ongoing.
- Public spending controls: new organic budget law and new budget nomenclature; improved monitoring and control over billing and wage payments; verification of diplomas to eliminate payroll fraud and duplication; unified database for civil servants and military personnel; closure of many commercial bank accounts; restricted use of cash advances; limited issuance of non-cash backed treasury checks.
- With IDA assistance, a Country Financial Accountability Assessment completed and an action plan to be finalized by end-2007.
- Public procurement: comprehensive review and detailed action plan with IDA assistance; interim commitment to follow basic procurement standards, competitively award and publicly announce bidding procedures; medium-term plan to adopt a new procurement code, regulations, and establish new procurement institutions.

### Private sector engagement and sectoral reform measures
- Private sector consultation framework established in March 2006 and proposal for a one-stop window in the Chamber of Commerce; framework has not yet fulfilled its function and tensions exist over recent policy decisions in some sectors.

Sectoral measures (selected)
- Forestry:
  - Revising legal and regulatory framework with French Development Agency and IDA to spur sustainable exploitation, improve transparency, increase domestic value added and tax collection.
  - Banned use of special forestry harvesting permits; invitations to tender remaining forest harvesting licenses launched in 2007.
- Mining:
  - New code adopted in 2004; weaknesses in titling and discretionary government action limited effectiveness.
  - Commitments to revise the code, adopt a standard-agreement template for new mining concessions, implement EITI, and undertake an audit of the mining sector (with IDA assistance).
- Oil sector:
  - Pursuing reform of storage, distribution, and pricing of petroleum products to ensure quality supplies and secure strategic supplies.
  - New laws presented earlier this year led to tensions with the main supplier; technical assistance required, including a full review of the legal and regulatory framework.
- Financial sector:
  - National strategy to facilitate access to credit and remove obstacles to financial intermediation, guided by the regional Financial Sector Assessment Program and a forthcoming country module (expected during the fourth quarter of this year).
  - Efforts to strengthen commercial banks’ balance sheets by addressing non-performing loans from state-owned enterprises, reform the regulatory and legal framework, strengthen governance, and reduce lending risks.
  - Government paid government-guaranteed liabilities of wholly state-owned enterprises to a troubled commercial bank to facilitate recapitalization by a private investor.
- Transport and infrastructure:
  - Plans to rehabilitate rural tracks and roads in agricultural areas, open isolated areas, and develop air transport.
  - June 2006: IDA approved the CEMAC Transport and Transit Facilitation project, which includes paving part of the important Douala-Bangui corridor.
- Telecommunications:
  - Finalizing a Telecom Law; Central African Backbone (CAB) project could be operational as early as mid 2009.
  - SOCATEL’s financial situation remains weak; governance problems linger.
- Energy:
  - Final consumption mainly by wood (about 88 percent); only 3 percent of the population has access to electricity.
  - In Bangui, major disruption risk from dilapidated hydro-electric turbines; €4 million financing available from the French Development Agency for emergency repairs and maintenance.
  - New electricity code adopted in 2005 to encourage public-private partnerships.
- Education:
  - Long-term disinvestment led to cancellation of school years and deterioration in indicators; only 62 percent of those who completed primary education when young are literate today.
  - With donor assistance, an education status report identifies shortages in human resources, high repetition rates, lack of material resources, and unfair resource allocation.
  - Government developing a strategy to quantify and allocate resources to reach primary education for all.
- Health:
  - Health facilities deteriorated, poorly equipped, lacking drugs and consumables; some with no running water and electricity.
  - Current policies aim to refurbish sanitation infrastructure, increase availability and quality of basic health care, reduce infant and maternal mortality, and fight principal diseases (including malaria, tuberculosis and HIV/AIDS).
  - Immunization program led to national DPT3 rate surge to 80 percent despite security problems.

### Medium-to-long-term macroeconomic framework (selected indicators, 2006-26)
- Framework consistent with PRGF arrangement; based on modest acceleration of growth supported by a stable political and social situation and continued reengagement of the international community.
- Selected indicators (annual percentage change or percent of GDP as presented):
  - GDP at constant prices: 4.1 (2006); 4.0 (2007); 4.3 (2008); 4.5 (2009); 4.2 (2007-26 avg.)
  - GDP at current prices: 8.0 (2006); 6.6 (2007); 6.9 (2008); 7.0 (2009); 6.8 (2007-26 avg.)
  - Consumer prices (yearly average): 6.7 (2006); 3.0 (2007); 2.3 (2008); 2.4 (2009); 2.1 (2007-26 avg.)
  - Export volume: 15.1 (2006); 14.8 (2007); 6.1 (2008); 6.7 (2009); 7.3 (2007-26 avg.)
  - Import volume: 11.3 (2006); 3.4 (2007); 10.2 (2008); 4.1 (2009); 5.0 (2007-26 avg.)
  - Terms of trade (U.S. dollar basis): 0.4 (2006); -0.5 (2007); -1.3 (2008); -0.6 (2009); -0.1 (2007-26 avg.)
- Money and credit (in percent of broad money at beginning of period):
  - Domestic credit: 7.5 (2006); 1.9 (2007)
  - Broad money: -4.2 (2006); 9.2 (2007)
- Central government finance (in percent of GDP):
  - Total revenue (including grants): 21.1 (2006); 15.8 (2007); 14.1 (2008); 14.3 (2009); 15.6 (2007-26 avg.)
    - of which: Tax and nontax revenue: 9.4 (2006); 10.6 (2007); 10.8 (2008); 11.3 (2009); 13.3 (2007-26 avg.)
  - Total expenditure: 14.1 (2006); 13.3 (2007); 13.6 (2008); 13.8 (2009); 15.9 (2007-26 avg.)
  - Overall balance (including grants): 7.0 (2006); 2.5 (2007); 0.6 (2008); 0.5 (2009); -0.3 (2007-26 avg.)
  - Domestic primary balance 1/: 0.4 (2006); 1.2 (2007); 1.1 (2008); 1.1 (2009); 0.9 (2007-26 avg.)
- External current account balance (including grants): -2.7 (2006); -4.1 (2007); -4.8 (2008); -4.7 (2009); -4.2 (2007-26 avg.)
- Net present value of external debt 2/ (in percent of exports of goods and non-factor services, after traditional debt relief): 469.7 (2006); 354.0 (2007); 307.8 (2008); 280.7 (2009); 146.5 (2007-26 avg.)

*Source: Central African authorities; and IMF and World Bank staff estimates and projections.*

### 4.2 percent. This growth rate assumes the maintenance of security and political

### _cr0814 - 4.2 percent. This growth rate assumes the maintenance of security and political

### Growth projection and macroeconomic assumptions
- Growth projected at 4.2 percent. This growth rate assumes:
  - maintenance of security and political stability,
  - improvements to the country’s institutional and administrative capacity,
  - appropriate macroeconomic policies.
- Expected effects of this environment:
  - increase in private investment, especially in the forestry, mining and telecommunications sectors,
  - public investment in infrastructure to help revive the agriculture sector (which dominates economic activity),
  - reengagement of the international community and a sustained increase in inflows of foreign assistance.

### Inflation, fiscal stance, and public finances
- Inflation:
  - projected to average about 2 percent per annum over the long term,
  - compared to the CEMAC convergence criterion of 3 percent.
- Fiscal balance and public debt objective:
  - key fiscal objective is to reduce the overhang of domestic debt, implying domestic primary surpluses over the long term,
  - overall fiscal deficit (including grants) projected to average 0.3 percent of GDP over the period 2007-26.
- Revenues and expenditures:
  - tax and non-tax revenue expected to rise from 9.4 percent of GDP in 2006 to about 15.5 percent at the end of the period,
    - drivers: tax and customs administration reform, broadening of the tax base, some tax policy measures, and tax buoyancy from sustained growth.
  - expenditures expected to rise to about 18 percent of GDP by 2026, with an increase in the share of pro-poor spending in overall outlays.
- Financing:
  - the deficit is expected to be financed by foreign loans on highly concessional terms.

### External sector projections
- Current account:
  - external current account deficit (including grants) projected to remain at about 4½ percent of GDP on average over the period 2007-26.
- Trade and services:
  - trade balance projected to improve over time, driven by strong export performance from structural reform and infrastructure investment (enhancing competitiveness and diversification).
  - slight widening of the deficit in the service account (as national income increases) inhibits further narrowing of the current account deficit over the long term.
- External financing composition and concessionality:
  - external grants expected to remain the predominant form of financing, averaging nearly 60 percent of total external financing over the projection period,
    - resulting in a grant element of new disbursements (grants and loans) of 54 percent on average.
  - official loan financing (excluding the IMF) assumed to be on concessional terms (in line with historical experience).
  - IMF loans expected to be on PRGF terms.
  - other official loan financing assumed to be mainly on concessional rates comparable to IDA and the AfDB (95 percent of total), with the remaining 5 percent covered by bilateral donors on less concessional terms (grant element for new disbursements estimated at about 36 percent).

### Debt reconciliation status and assumptions for debt relief analysis
- Debt reconciliation:
  - analysis of external debt as of end-2006 prepared jointly by IMF and IDA based on loan-by-loan data from authorities and creditors,
  - reconciliation process completed in June 2007, with 99 percent of multilateral, bilateral and commercial debt reconciled.
- Timing assumptions for HIPC:
  - DSA assumes decision point at end-September 2007 and floating completion point at end-2009.
- External debt stock (end-December 2006):
  - public- and publicly-guaranteed external debt estimated at US1.1 billion in nominal terms, equivalent to about US856 million in NPV terms.
  - creditor composition (nominal terms):
    - multilateral: 63 percent of total (IDA 37 percent, AfDB 16 percent),
    - bilateral: about 32 percent (Paris Club 7 percent),
    - significant non-Paris Club bilateral claims: Taiwan Province of China about 9 percent, People’s Republic of China 3.5 percent, Serbia and Montenegro 3.2 percent,
    - commercial creditors: remainder.
- Arrears (as of end-2006):
  - about 31 percent of external debt remained in arrears,
    - US62 million owed to multilateral creditors,
    - US223 million to bilateral creditors,
    - US50 million to commercial creditors.
  - completed arrears clearance or rescheduling agreements with IDA, AfDB, BADEA, EIB and BDEAC; negotiations initiated with other multilateral creditors.
  - Paris Club restructuring on April 20, 2007 restructured US36.1 million (US31.8 million were arrears).

### HIPC Initiative analysis and required relief
- Base situation for HIPC calculation:
  - stock of external public and publicly-guaranteed debt outstanding at end-December 2006 after assuming full delivery of traditional debt relief: US856 million in NPV terms.
  - this equals 470 percent of exports of goods and services (three-year backward-looking average 2004-2006 = 182).
  - qualifies for HIPC Initiative under the export window (NPV debt-to-exports well above 150 percent threshold).
- HIPC assistance under proportional burden-sharing (end-2006, in millions of U.S. dollars):
  - Debt outstanding (NPV terms) end-2006 (A): 856
  - Post-HIPC (B): 273
  - Reduction to HIPC (A-B): 583
  - (as percent of exports of goods and non-factor services) 470 → 150 → 320
  - Distribution by creditor type (NPV terms):
    - Multilateral: 537 → 171 → reduction 365
    - Bilateral: 276 → 88 → reduction 188
    - Paris Club: 47 → 5 → reduction 42
    - Other Official Bilateral: 228 → 73 → reduction 155
    - Commercial: 44 → 14 → reduction 30
  - Common reduction factor (percent): 68
  - Exports of Goods and Non-Factor Services: 182
- Required HIPC debt relief:
  - reducing NPV of debt-to-exports ratio from 470 percent to 150 percent requires HIPC debt relief of US583 million in NPV terms,
  - implies common reduction factor of 68 percent,
  - under proportional burden sharing: multilateral assistance US365 million (NPV), bilateral and commercial assistance US218 million (NPV).
- Creditor participation and risks:
  - all multilateral and Paris Club creditors and some bilateral creditors indicated willingness to provide debt relief,
  - some multilateral creditors (accounting for less than 3 percent of total) might be unable to deliver full share due to institutional constraints,
  - risk of non-participation by some non-Paris Club bilateral and commercial creditors.
  - financing assurances obtained from creditors accounting for 68.2 percent of total HIPC assistance.

### Modalities and assumed delivery of debt relief by creditor (working assumptions)
- IDA:
  - assistance approx. US209 million in NPV terms,
  - estimated US66 million (NPV as of decision point) delivered through clearance of arrears,
  - remaining assistance provided as debt-service reduction on debt outstanding and disbursed as of end-December 2006,
  - annual debt service estimated to be reduced by 63 percent starting at the decision point,
  - total debt service reduction from IDA about US229 million in nominal terms.
- IMF:
  - assistance estimated at US27 million in NPV terms,
  - HIPC-eligible debt service consists of PRGF repayments associated with disbursements under the 1998 PRGF arrangement and January and (potential) September 2007 disbursements under PRGF arrangement approved December 2006.
- AfDB:
  - assistance would total US85 million in NPV terms, including US43 million provided through recent arrears clearance,
  - remaining relief assumed provided following decision point through an 80 percent debt service reduction until the NPV target reached.
- IFAD:
  - assistance would total US16 million, assumed via concessional rescheduling of arrears and up to 100 percent debt service reduction commencing at completion point until NPV target achieved.
- OFID:
  - assumed to deliver US6 million via concessional rescheduling of arrears using Commodity Import Program resources; remaining debt restructured at completion point to achieve NPV reduction.
- BADEA:
  - share estimated at US9 million in NPV terms partly delivered through arrears clearance; remaining delivered at completion point through concessional rescheduling.
- BDEAC:
  - delivering interim relief through moratorium on debt service payments; further relief assumed at completion via pre-payment of loan on concessional terms; HIPC relief from BDEAC US9 million.
- EIB:
  - assistance amounts to US4 million; concessional clearance of arrears shortly after decision point and 100 percent debt service reduction starting at decision point until target achieved.
- Paris Club:
  - assumed to provide flow rescheduling on Cologne terms (90 percent NPV reduction) after decision point, with remaining assistance at completion point through stock-of-debt operation; expected to translate into US32 million NPV relief.
- Non-Paris Club official bilateral and commercial creditors:
  - assumed to provide relief on terms similar to Paris Club creditors.

### Other bilateral relief and MDRI
- Recent bilateral actions:
  - People’s Republic of China cancelled two loans representing 29 percent of the outstanding stock in January 2007,
  - South Africa cancelled 100 percent of C.A.R.’s outstanding debt.
- MDRI (upon HIPC completion point):
  - C.A.R. qualifies for additional debt relief under MDRI from IDA, AfDB and the IMF (100 percent debt relief on debt disbursed prior to respective cut-off dates and still outstanding after HIPC).
  - MDRI debt relief (net of HIPC) reduces debt service on these institutions by approximately US110 million (end-2006 NPV terms).
  - MDRI particulars:
    - IDA: could amount to about US181 million in nominal terms (US74.5 million in NPV terms as of decision point); debt service reduction expected to average about US5.3 million per year following completion point.
    - IMF: estimated about US1.6 million in nominal terms (US1.3 million in end-2006 NPV terms).
    - AfDB: could amount to approximately US77.2 million in nominal terms (US34.3 million in 2006 NPV terms); annual debt service reduction averaging US2.1 million (net of HIPC assistance).
  - European Commission / EIB:
    - European Commission expected to deliver debt relief beyond HIPC through LDC Initiative; possible EIB assistance amount US3.5 million in nominal terms.
  - Paris Club and additional bilateral relief:
    - Paris Club expected to provide further voluntary relief after completion point; additional bilateral relief to be determined case-by-case at completion point.

### Arrears clearance and related agreements (highlights)
- Agreements completed:
  - IDA arrears cleared on November 28, 2006 via bridge loan from French Development Agency, then repaid from grant approved by IDA in November 2006.
  - AfDB arrears clearance announced December 2006 (paid by AfDB’s PCCF 49.5 percent and development partners 50.5 percent).
  - BADEA arrears clearance agreement November 2005 (US12.3 million rescheduled over 13 years, no grace period).
  - BDEAC arrears clearance agreement March 2005; suspension of debt service payments approved by BDEAC board in November 2006 effective December 2006 until completion point.
  - European Commission budget support operation (grant) to cover EIB arrears up to decision point (estimated US1.4 million).
  - Paris Club rescheduled US36.1 million on April 20, 2007, deferring repayment and moratorium interest until after expected completion point in late-2009.
- Agreements in progress:
  - Discussions with IFAD and OPEC Fund; these creditors have agreed to clear arrears in the context of the HIPC Initiative.

*Source: IMF and World Bank staff estimates and projections as presented in the provided document.*

### 33.      The macroeconomic projections used in this analysis reflect the framework

### _cr0814 - 33.      The macroeconomic projections used in this analysis reflect the framework

### Macroeconomic projections and debt outcomes
- Framework: Projections reflect the framework detailed in section III of the source.
- Baseline projection outcomes:
  - In the absence of debt relief, the NPV of external debt-to-exports ratio remains above the HIPC threshold until 2017.
  - Traditional debt relief reduces the NPV of external debt-to-exports ratio to 138 percent by 2014.
- End-2006 estimated debt indicators:
  - NPV of debt-to-exports: 470 percent.
  - NPV of debt-to-revenue: 580 percent.
- HIPC-only scenario:
  - NPV of debt-to-exports expected to fall gradually from 150 percent as of end-December 2006 to approximately 66 percent by 2026.
  - Debt service to exports expected to decline from an average of 14 percent (before traditional debt relief during the period 2007-16) to under 10 percent after delivery of HIPC debt relief.
- HIPC plus MDRI:
  - After delivery of HIPC and MDRI assistance, NPV of debt-to-exports expected to fall to 53 percent the year following completion point.
  - This represents a reduction of about 50 percentage points at the expected completion point compared with the projection including only HIPC assistance.

### Sensitivity analysis scenarios and implications
- Two scenarios assume unconditional delivery of HIPC debt relief at the decision point and differ from the baseline as follows:
  - Scenario 1 — Non-concessional new borrowing:
    - New loans assumed to carry a 7 percent interest rate.
    - This is equivalent to bringing the combined grant element of new financing to near-zero (compared with over 40 percent under the baseline).
    - Outcome: NPV of debt-to-exports deteriorates substantially relative to the baseline but remains below 150 percent and declines over the projection period.
    - Debt service to revenue under this scenario averages 10 percent between 2017 and 2026 compared with 3 percent under the baseline.
    - Policy implication: Underscores importance of securing highly concessional external resources and avoiding non-concessional borrowing to reduce the likelihood of a return to debt distress.
  - Scenario 2 — Lower export growth:
    - Exports assumed to grow by an average of 2.1 percent per annum, which is about 4.5 percentage points below the baseline.
    - Lower export growth assumed to reduce government revenue through lower output.
    - Outcome: Substantial deterioration of debt ratios; NPV of debt-to-exports rises in the long-term even after full delivery of HIPC assistance.
    - Debt service-to-exports increases, reaching 7 percent by the end of the projection period.
    - Policy implication: Highlights importance of improving institutions and diversifying exports to maximize benefits of HIPC debt relief towards debt sustainability.

### PRSP process and timing
- Historical and recent PRSP actions:
  - Interim-PRSP prepared in January 2001 prior to the conflict; participatory process with technical committee and stakeholders.
  - Finalization interrupted by political instability and conflict.
  - New government re-launched full PRSP preparation; draft presented to the Ministerial Council in June 2007 and circulated ahead of donor roundtable in Brussels in late-June.
  - The full PRSP will be presented shortly and is focal for a donor roundtable planned for October 2007.
- Government priorities in draft PRSP (aligned with ESPF 2006):
  - (i) consolidate peace and security;
  - (ii) improve governance and institutional and administrative capacity;
  - (iii) promote macroeconomic stability and economic growth;
  - (iv) improve access to essential services and infrastructure.
- Financing and support needs:
  - C.A.R. requires significantly higher inflows of official foreign assistance beyond HIPC debt relief to implement PRSP and ensure sustained development.
  - Donor and multilateral support noted: PRGF, IDA DPO, LICUS, PARPAF, Global Fund, UNICEF, IDA-financed Multi-sectoral HIV/AIDS, Health, and Education Emergency Support Project, and technical assistance from IDA, IMF, AfDB, and others.

### Triggers for the Floating Completion Point (summary)
- Trigger categories (Box 3 summarized):
  - PRSP: Preparation through participatory process and satisfactory implementation for at least one year from Cabinet approval; evidenced by PRSP Annual Progress Report acceptable to IDA and IMF.
  - Macroeconomic stability: Satisfactory implementation of the PRGF arrangement.
  - Transparency: Implementation of asset declaration and disclosure provisions (articles 44 and 75) for Prime Minister, Members of Government, and Constitutional Court; new decree extending asset declaration to senior public enterprise officials and some key senior civil servants.
  - Structural reform (forestry and mining):
    - Forestry: Adoption by Parliament of a satisfactory new forestry code, key ministerial decrees, implementation, awareness campaign, and standing public information system.
    - Mining: Publication on government website of EITI administrator report on mining revenue from 2006; adoption by Presidential decree of a satisfactory standard-form agreement for mining and parliamentary amendments to the mining code to ensure consistency.
  - Public financial management:
    - Submission of the budget using new nomenclature;
    - Satisfactory implementation of a new expenditure tracking system from commitment to authorization using new budget nomenclature;
    - Implementation of new payroll management system;
    - Adoption by Parliament and start of implementation of a satisfactory new procurement code.
  - Civil service reform: Adoption by Cabinet of a satisfactory new organic framework consistent with PRSP objectives and submission of new rules and regulations for civil servants with corresponding compensation and performance assessment system.
  - Public debt management: Establishment by the Debt Management Unit of procedures and maintenance of an accurate, comprehensive, and secure database of public- and publicly-guaranteed debt; periodic publication of debt data within six months after fiscal year end.
  - Social sectors and HIV/AIDS targets:
    - Education: at least 750 additional teachers teaching at the primary level compared to 2006-07 levels; achieve a repetition rate of less than 20 percent at primary level in areas where schools operate normally.
    - Health: keep DPT3 vaccination rates at 80 percent or higher; distribute at least 300,000 treated mosquito nets.
    - HIV/AIDS: increase social marketing of condoms to an annual level of at least 10 million (proxied by imports).

### Monitoring poverty-reducing expenditures and implementation arrangements
- Commitment to align expenditures with PRSP priorities; HIPC/MDRI fiscal impact described as limited given past low debt servicing.
- Financing sources for poverty-related programs:
  - PRGF, IDA ongoing DPO, LICUS support, assistance from donors, PARPAF, Global Fund, UNICEF, IDA-financed Multi-sectoral project.
- Budget and expenditure tracking enhancements:
  - New budget nomenclature to include detailed classification by destination, function and nature to allow tracking of poverty-related expenditure.
  - Management information system to track expenditure from commitment to payment; expenditure-tracking trigger is a key step.
  - Computerization of treasury operations at the central level started with AFD support under ARCAGE; public expenditure execution reform to be adopted by Cabinet in October 2007 to establish a networked budget processing system centered on the Direction Generale du Budget.
  - Interim monitoring mechanism to be operational in 2008 in at least three key ministries (including health and education) to monitor budget lines at various expenditure-cycle stages and report results periodically to civil society and donors.
  - A Public Expenditure Review in collaboration with IDA will help design a Public Expenditure and Financial Accountability plan for tracking poverty-reducing expenditures.
- Institutional monitoring responsibilities:
  - IMF staff to lead monitoring of macroeconomic stability and fiscal sustainability.
  - IDA staff to lead monitoring of forestry, mining, debt management, public financial management, and economic and social development triggers.
  - IMF and IDA to jointly monitor public expenditure tracking triggers.

*Source: _cr0814 - 33.      The macroeconomic projections used in this analysis reflect the framework*

### 51.      The authorities welcome the opportunity to reach the HIPC decision point, as the

### _cr0814 - 51.      The authorities welcome the opportunity to reach the HIPC decision point, as the

### Authorities' assessment of debt burden and social impact
- "The authorities welcome the opportunity to reach the HIPC decision point, as the only means to alleviating their unsustainable external debt burden."
- "In their view, this debt burden draws scarce public resources away from the country’s vast needs and prevents a scaling up of aid inflows that is required to restore the economic infrastructure and promote growth-enhancing and poverty-reducing social policies."
- "They emphasize the current predicament of the country, with a budget that provides only for minimal government services, and the lack of basic health care, potable water, sanitation facilities, and electricity for the majority of the population, and the  impact of these factors on the fragile security in the country."

### Commitment to program ownership and objectives
- "The authorities stress that with strong program ownership, they hope to reach the completion point as soon as possible."
- "They recognize the limited resources provided under interim-HIPC debt relief, partly because the C.A.R. has not been servicing its debt to the majority of creditors."
- "Also, they recognize the importance of continuing strong relations with the international community, which is a critical source of financial and, importantly, technical assistance."

### Conditions and dependencies for successful implementation
- "Indeed, the smooth and expeditious implementation of their PRSP and the HIPC triggers will depend upon scaled up aid inflows and rapidly improving institutional and administrative capacity."

### Issues for discussion
- VI.   I
SSUES FOR DISCUSSION

*Source: _cr0814 - 51.      The authorities welcome the opportunity to reach the HIPC decision point, as the*

### 53.      This paper presents a decision point assessment of the C.A.R’s qualification for

### _cr0814 - 53.      This paper presents a decision point assessment of the C.A.R’s qualification for

### Decision point assessment and questions for Executive Directors
- Qualification and decision point:
  - Question: Do Executive Directors agree that the C.A.R. qualifies for assistance under the enhanced HIPC Initiative and do they recommend approval of the decision point?
- Amount and delivery of assistance:
  - To reduce the NPV of debt-to-exports ratio to 150 percent, the total amount of assistance under the HIPC Initiative is estimated at US583 million in NPV terms.
  - Of this amount:
    - IDA would provide total assistance amounting to US209 million in NPV terms.
    - IMF assistance would total US27 million in NPV terms.
  - Question: Do Executive Directors agree with this assessment?
- Floating completion point:
  - Question: Do Executive Directors agree that the floating completion point will be reached when the triggers in Box 3 have been met?
  - Debt relief will be provided unconditionally only when the floating completion point triggers have been met and satisfactory assurances have been received of other creditors’ participating under the enhanced HIPC Initiative.

### Composition of external debt (as of December 31, 2006)
- Nominal stock: $1.087 billion
- Composition by creditor group (Figure 1):
  - IDA: 37%
  - Other Official Bilateral: 25%
  - AfDF: 16%
  - Paris Club: 7%
  - Other Multilateral: 7%
  - IMF: 4%
  - Commercial: 5%
- Potential costs of the HIPC Initiative by creditor group (Total Estimated HIPC Enhanced Assistance: $583 million, end-2006 NPV terms; Figure 2):
  - IDA: 36%
  - Other Official Bilateral: 27%
  - AfDF: 15%
  - Other Multilateral: 8%
  - Paris Club: 6%
  - Commercial: 5%
  - IMF: 5%

### Key numeric estimates of assistance and creditor shares (Table 7 summary)
- Total HIPC assistance (end-2006 NPV terms): US583 million (100 percent)
- Major contributors and their NPV shares:
  - IDA: US209 million (36 percent)
  - AfDB Group (AfDF): US85 million (15 percent)
  - IMF: US27 million (5 percent)
  - Other multilateral (total): US? (Table shows Total multilateral 365 (US$ millions) and 63 percent of total assistance) — preserve table row values:
    - Total multilateral: 365 (63 percent)
  - Paris Club Creditors: 32 (6 percent)
  - Non-Paris Club Creditors (selected entries shown in table): China 18 (3 percent); Taiwan, Province of China 64 (11 percent); Kuwait 13 (2 percent); Saudi Arabia 11 (2 percent); Former Serbia and Montenegro 14 (2 percent) — these are listed under Non-Paris Club Creditors with numeric entries.
  - Commercial creditors: 30 (5 percent)
  - Total bilateral and commercial: 217 (37 percent)

### Delivery modalities by creditor (high-level points from Table 7)
- IDA:
  - Enhanced HIPC assistance of USD 209 million in end-2006 NPV terms (USD 295 million in nominal terms).
  - Part delivered through clearance of arrears on grant terms (USD 66 million).
  - Interim assistance: begin debt service reduction on debt outstanding and disbursed as of December 31, 2006 immediately following approval of the decision point.
- AfDB Group:
  - Interim assistance: clearance of arrears on grant terms in December 2006 and reduction of debt service payments starting January 2008 on disbursed and outstanding debt as of December 31, 2006.
- IMF:
  - Total IMF assistance under the enhanced HIPC Initiative: US$ 26.98 million in NPV terms (staff estimate basis).
  - The first delivery of interim assistance of 20 percent of commitment will be deposited into the C.A.R.'s Umbrella account at the expected decision point in September 2007 to cover principal repayment obligations falling due to the Fund over the next 12 months. A second interim assistance is assumed in September (year implied by schedule).
- IFAD:
  - Assistance delivered at the completion point through reduction of debt service payments on eligible debt by up to 100 percent until the NPV target is reached; anticipated concessional treatment of arrears.
- BDEAC:
  - Debt service payments suspended until the completion point; full delivery at completion point not guaranteed at this time.
- BADEA:
  - In November 2005 BADEA agreed to reschedule outstanding arrears, reducing by US$2.5 million the NPV of debt outstanding at decision point.
- OPEC Fund:
  - Agreed to provide part of HIPC debt relief through a concessional arrears clearance operation; additional relief at the completion point.
- EU/EIB:
  - Interim assistance via clearance of arrears on grant terms in December 2007 and 100 percent debt service relief following decision point.
- Paris Club:
  - Interim assistance delivered through a Cologne flow during the interim period; South Africa canceled 100% of its debt in October 2006.
- Non-Paris Club creditors:
  - Some creditors provided cancellations or partial cancellations (table lists specific countries and amounts).

### Debt burden indicators and projections (selected highlights from Tables 3–6)
- NPV of debt-to-exports ratio:
  - Before traditional debt relief (2006): 499.2 (In percent of Exports)
  - Target after HIPC assistance: reach 150 percent (paper objective).
  - After unconditional delivery of enhanced HIPC assistance (2006 baseline): 149.9 (In percent of Exports) — shown in Table 5.
- NPV of debt-to-GDP ratio (selected values, Table 5):
  - Before traditional debt-relief (2006): 58.0 (In percent)
  - After unconditional delivery of enhanced HIPC assistance (2006 baseline): 17.4 (In percent)
- Debt service to exports ratio (selected scenarios, Table 3 and Table 5):
  - Before traditional debt relief (2007): 24.6 (In percent)
  - After HIPC assistance (various years): examples include 21.6, 10.9, 10.2, 5.5 (In percent) depending on year and conditional/unconditional delivery.
- Net Present Value (NPV) of external debt (Table 4, selected entries in US$ million):
  - I. Before traditional debt-relief: NPV of total debt (2006): 909.8
  - II. After traditional debt relief: NPV of total debt (2006): 855.9
  - III. After conditional delivery of enhanced HIPC assistance: NPV of total debt (2006): 753.4
  - IV. After unconditional delivery of enhanced HIPC assistance: NPV of total debt (2006): 273.1
  - V. After conditional delivery of enhanced HIPC and MDRI assistance: NPV of total debt (2006): 753.4 (conditional MDRI application shown in table)
- External debt service (Table 3, selected totals in US$ million):
  - Before traditional debt relief: Total debt service (2007): 60.0
  - After traditional debt relief: Total debt service (2007): 69.9
  - After HIPC assistance: Total debt service (2007): 52.6
  - After HIPC and MDRI assistance: Total debt service (2007): 52.6
- Reduction in debt service as a result of HIPC Initiative assistance (Table 3):
  - Reduction figures by year: example entries include 24.4, 23.4, 71.3, 56.2, 58.1, 57.7, 57.3, 19.4, 31.7, 24.2, 16.9, 44.4, 21.3 (values shown in table; reduction measured as difference between debt service after traditional relief and after HIPC relief).

### Sensitivity analysis and scenarios (Figures 3–4; Table 6)
- Scenario types analyzed:
  - Baseline Scenario
  - Less concessional New Borrowing Scenario
  - Lower Export Growth Scenario
- Table 6 (selected impacts):
  - Baseline scenario NPV of debt-to-exports ratio (2006): 149.9
  - Less concessional new borrowing scenario increases NPV of debt-to-exports ratio in subsequent years (examples: 142.7, 124.7, 115.3, 115.7 at specified years in table).
  - Lower export growth scenario assumes exports grow by an average of 2.1 percent per annum (about 4.5 percentage points below baseline) and shows elevated NPV of debt-to-exports ratios and debt service-to-exports ratios in later years (table entries preserved verbatim).

### IMF and IDA delivery schedules (Tables 8 and 9 highlights)
- IDA (Table 8):
  - Enhanced HIPC assistance: USD 209 million in end-2006 NPV terms (USD 295 million nominal).
  - Breakdown: clearance of arrears to IDA on grant terms (USD 66 million); about 20-year delivery through a 63 percent relief on debt service falling due to IDA on credits outstanding at end-2006 (USD 143 million in NPV terms; USD 229 million nominal).
  - Debt service before HIPC assistance (selected annual totals): yearly series shown in table (e.g., Debt service before HIPC assistance: 11.9; 2.4; 14.3; 15.2; 16.0; 17.5; ... culminating in cumulative totals 237.5 and 437.3 in specified ranges).
  - IDA assistance under the HIPC Initiative annual profile and composition by principal and interest are shown in Table 8 (preserve numeric entries shown).
- IMF (Table 9):
  - Total IMF assistance under enhanced HIPC Initiative: US$ 26.98 million in NPV terms (decision point basis).
  - Pre-MDRI delivery schedule (selected values in US$ million):
    - HIPC-eligible debt service due on IMF obligations: principal and interest series shown (e.g., principal: 7.5; 7.7; 5.2; 2.6; 1.4; 2.8; 6.5; 6.4; 6.4; 6.4; 3.6 in the 2007–2017 schedule).
    - Interim assistance: first delivery 20 percent of commitment deposited into Umbrella Account at expected decision point in September 2007; second interim assistance assumed in September 2008.
    - Delivery schedule of IMF assistance (in percent of total assistance): 20.0; 15.0; 5.4; 1.4; 0.6; 11.1; 14.0; 14.6; 14.6; 3.5 (by year).
  - Post-MDRI debt relief: delivery from MDRI-I Trust and HIPC Umbrella Account as per Table 9 entries (e.g., from the MDRI-I Trust 1.6; from the HIPC Umbrella Account 2.0; remaining HIPC assistance 17.5 on stock basis).
  - Memorandum items provide total debt service due and shares covered by IMF assistance (table entries preserved).

### Macroeconomic and projection assumptions (Table 10 selected entries)
- Real GDP growth (annual percentage change): 2006: 4.1; 2007: 4.0; 2008: 4.3; subsequent projected years generally 4.1–4.5 with long-run averages (2007-2026 average: 4.2).
- Consumer price index (annual percentage change): 2006: 6.7; 2007: 3.0; 2008: 2.3; later years projected at 2.0 (long-run).
- Export volume growth (annual percentage change): 2006: 15.1; 2007: 14.8; 2008: 6.1; subsequent years varying with multi-year averages (2007-2011 average: 8.0; 2012-2026 average: 7.1).
- Central Government revenue (in percent of GDP): 2006: 21.1; 2007: 15.8; 2008: 14.1; projected to rise to 17.3 by 2026 (series shown in table).
- Total expenditures (in percent of GDP): 2006: 14.1; 2007: 13.3; 2008: 13.6; projected to rise to 18.4 by 2026 (series shown in table).
- Current account (incl. grants, percent of GDP): 2006: -2.7; 2007: -4.1; 2008: -4.8; long-run projected around -2.6 to -4.8 depending on period.

### Explicit questions posed to Executive Directors (policy decision points)
- Do Executive Directors agree that the C.A.R. qualifies for assistance under the enhanced HIPC Initiative and recommend approval of the decision point?
- Do Executive Directors agree with the estimated total HIPC assistance of US583 million in NPV terms and the allocation of US209 million (IDA) and US27 million (IMF)?
- Do Executive Directors agree that the floating completion point will be reached when the triggers in Box 3 have been met, with unconditional delivery of debt relief contingent on other creditors’ participation?

_Italic: Sources: Central African authorities; Fund and World Bank staff estimates and projections; tables and figures as presented in the decision point assessment document._

### Appendix I. Triggers for the Floating Completion Point: Technical Annex

### Appendix I. Triggers for the Floating Completion Point: Technical Annex

### Transparency
- Key senior civil servants required to declare assets: Directors of Treasury; Taxes; Customs and Indirect Taxation; Budget; Inspector General of State; Inspector General of Finance.
- Public entities covered by new asset declaration and disclosure requirement: ACER, ACFPE, ARSEC, ART, ASRP, CENTRAPALM, FER, ICA, OCSS, ONI, ONM, ONP, ORCCPA, SEGA and SOCATEL.

### Structural Reform
- Forestry code:
  - Adoption of a satisfactory new forestry code and implementing regulations and satisfactory implementation.
  - Required provisions include: award of forest concessions through a bidding system; creation of an independent body to guarantee transparency of the allocation system with appropriate resources; establishment of a forestry taxation system that reflects the timber market value.
- Public information and community awareness:
  - Undertake an awareness campaign for communities and establish a standing public information system.
  - Trigger considered met when government sets up and implements a communication mechanism (including media, posting at the community level and at the forestry companies’ headquarters).
  - Information to be disclosed: annual concessions and harvesting, names of forestry and authorized transport companies, payments made by forestry company to the government (central and local separately), amount of forest taxes allocated to local communities, and the preceding year’s use of forestry public funds.
- Mining sector:
  - Adoption of a satisfactory standard-form agreement for the mining sector (in conformity with current international best practices) and amendment of the mining code to ensure consistency.
  - Standard agreement to reflect internationally accepted mining practices and leave no room for ad hoc approaches.
  - Any provisions in the standard agreement not aligned with the mining code must lead to corresponding updates of the mining code.
- Transparency in extractive revenues:
  - Publication on the government’s internet site of the report of the Extractive Industries Transparency Initiative (EITI) administrator on mining revenue starting from 2006.

### Public Financial Management
- Budget nomenclature:
  - Submit the budget to Parliament using the new budget nomenclature that enables tracking of expenditures by destination, nature, and function.
- Expenditure tracking system:
  - Implement a financial information system at the level of the General Budget Directorate to track expenditure from commitment to authorization using the new budget nomenclature.
  - Treasury computerization has been launched; this trigger is the next step.
- Payroll management system:
  - Ministry of Public Civil Service to conduct a permanent census of public wage earners and regularly update public servant files in a unique database.
  - Payroll Directorate within the Ministry of Finance to control wage data based on documentary evidence and liquidate monthly payroll after control.
  - Personnel data file to be constituted from a unique database enabling administrative, budgetary and financial management of public human resources.
- Procurement code:
  - Adoption and start of implementation of a new procurement code consistent with international best practice as defined by OECD DAC.
  - Parliament to adopt satisfactory new procurement code; Council of Ministers to adopt satisfactory regulation for implementation.
  - Creation and staffing of new institutions: regulatory agency; prior and post review institution for procurement decisions and complaint review; procurement entities within Ministries, public enterprises and other public bodies funded by the Government.
  - National budget to gradually provide adequate human and financial resources; preparation of standard bidding documents, user guides, and a training program.

### Civil Service Reform
- Reform objectives:
  - Link recruitment to well-defined positions and set payment according to required qualifications for the position, rather than diploma level and employment duration.
- First-step HIPC triggers:
  - (i) Adoption by the Cabinet of a satisfactory new organic framework consistent with the PRSP objectives, based on organizational audits.
  - (ii) Preparation and submission to the inter-ministerial council of satisfactory new rules and regulations for civil servants with a corresponding compensation and performance assessment system.
- Financing support:
  - IDA to help finance these measures through LICUS II and III.

### Public Debt Management (Triggers / Assessment Criteria)
- Target grade: criteria correspond to a grade of “C” under the World Bank’s Government Debt Management Performance Measurement Framework.
- Database requirements:
  - (i) Satisfactory complete within three-month’s lag (not necessarily reconciled) debt records for central government domestic, external and guaranteed debt, and all debt-related transactions including past debt relief and debt restructuring.
  - (ii) Satisfactory records covering major characteristics of all debt outstanding and disbursed within six month’s lag for all public and publicly guaranteed domestic and external debt.
  - (iii) A satisfactory procedure manual for the government debt management system.
- Regular publication:
  - Regular satisfactory publication, including on the internet, of public debt data.
  - Trigger met if an annual debt statistical bulletin or equivalent is published and C.A.R. has provided evidence satisfactory to IDA and the IMF that annual public debt data will be published annually.
  - Publication must provide debt data not more than 12 months old from the date of publication, including scope and detail satisfactory to IDA and the IMF on: central government debt stocks (by creditor, borrower, currency, interest rate basis, and maturity), debt flows (principal and interest payments), and debt ratios/indicators.

### Social Sectors
- Education:
  - Context: class-size is 92 pupils per teacher on average; high repetition rate of 30 percent in the primary cycle noted in RESEN.
  - Trigger 1: met once 750 additional teachers (including those with a “scholarship teacher” status) are teaching in primary schools compared to the 2006/07 school year.
  - Trigger 2: met when (i) government has implemented satisfactory education and administrative measures aimed at achieving a repetition rate of less than 20 percent at the primary level in areas where schools are operating normally, and (ii) a satisfactory dissemination effort has been conducted to ensure these measures are well-known, understood and effectively implemented.
- Health:
  - Immunization:
    - HIPC completion point trigger: ensure DPT3 immunization rate is at 80 percent nationwide.
    - As of May 2007, 90 percent of the US47 million needed to implement the full Plan Pluriannuel Complet had been secured with pledges from GAVI, OMS, UNICEF and the Government.
  - Malaria:
    - Government plans to distribute at least 300,000 treated mosquito nets (long lasting impregnated mosquito nets) free of cost.
    - Funding: second round of Global Fund financing (scheduled to start in August 2007) and the restructured HIV-AIDS project to finance purchase and distribution.
  - HIV/AIDS (prevention via condom social marketing):
    - Target annual level of condoms imported: at least 10 million (from 4.5 million in 2006).
    - Trigger considered met if (i) condom imports reach at least 10 million on an annual basis and (ii) government produces a satisfactory qualitative report on social marketing of condoms to assess progress.
    - Government intends to conduct the study under the HIV/AIDS component of the Emergency HIV/AIDS, Health and Education Project funded by IDA.

*Source: Appendix I. Triggers for the Floating Completion Point: Technical Annex (as provided).*

### 4.      The baseline scenario assumes full delivery of traditional debt relief. The

### _cr0814 - 4.      The baseline scenario assumes full delivery of traditional debt relief. The

### Baseline assumptions
- The baseline scenario assumes full delivery of traditional debt relief.
- The financing gap is expected to be met through interim-HIPC Initiative relief.
- At this stage, the baseline does not reflect the conditional delivery of HIPC assistance at the completion point—this case is presented in the sensitivity analysis.

### External Debt Sustainability Analysis — Baseline findings
- In the baseline scenario, all debt indicators in 2007 are above the policy-dependent thresholds.
- The NPV of external PPG debt in 2007 is estimated at 44 percent of GDP.
- The NPV of external PPG debt in 2007 is estimated at 295 percent of exports.
- These ratios decline only gradually over time; the NPV of debt-to-exports ratio is projected to stay above the threshold until 2015.
- The NPV of external PPG debt-to-revenue ratio is projected to decline somewhat quicker, owing to the assumed improvement in resource mobilization.
- Debt service indicators—both relative to exports and to revenue—are more favorable, but:
  - Given past accumulation of arrears and the high debt service burden (relative to exports in the initial period), better cash-flow management would be required to ensure timely and regular debt service.
- Central African Republic: External Debt Indicators (as presented in source)
  - Indicative20072027 Threshold 1/Est.Proj.
  - NPV of debt-to-GDP30449
  - NPV of debt-to-exports10029561
  - NPV of debt-to-revenue (excl. grants)20041259
  - Debt service-to-exports15275
  - Debt service-to-revenue (excl. grants)25385

### External Debt — Alternative scenarios and stress tests
- Two alternative scenarios considered to gauge external vulnerability:
  - Historical scenario (based on past economic performance)
    - Provides similar paths for debt indicators as the baseline.
    - Reflects a more favorable historical external position (a lower current account deficit than in the baseline), despite past growth being much less than in the baseline.
    - Historical performance is not relevant for the current period due to long period of political instability and conflict.
  - Scenario with less favorable terms of external financing
    - Less favorable terms of new borrowing have little impact: projected NPV of external PPG debt-to-GDP is higher by only 5 percentage points in 2027 under this alternative scenario, compared with the baseline.
    - This limited impact is due mainly to a modest amount of new borrowing assumed in the baseline where the bulk of external assistance is provided through grants.
    - Highlights importance of ensuring that C.A.R. loan financing is on highly concessional terms.
- Standard bound tests
  - Downward trend of debt ratios would be preserved under plausible shocks.
  - Most extreme case: hypothetical 30 percent depreciation of the exchange rate in 2008 would lead to a hike of the NPV of debt-to-GDP ratio to close to 60 percent.
  - Apart from this extreme case, increases in debt ratios under other shocks would be modest.
- Impact of HIPC Initiative and MDRI
  - Assuming full delivery of HIPC and MDRI assistance, all three debt burden indicators (NPV of debt-to-GDP ratio, NPV of debt-to-exports ratio, and debt service-to-exports ratio) would fall below the indicative threshold faster than the baseline scenario.

### Public Sector Debt Sustainability Analysis — Baseline findings
- Public sector debt is equivalent to 96 percent of GDP.
- About half of the domestic debt is accounted for by domestic payments arrears (accrued mainly during 1998–2004).
- Government liabilities composition:
  - Government liabilities to the regional central bank and commercial banks account for about 36 percent.
  - Remainder due to state-owned enterprises.
- Under the baseline scenario total public debt is expected to decline steadily.
  - Projected improvement in fiscal revenue over the long term enables the government to repay domestic debt.
  - Government’s liabilities to the regional central bank would be expunged and domestic payments arrears cleared within the first half of the projection period.
  - NPV of public debt-to-GDP ratio projected to decline from 64 percent of GDP in 2007 to 10 percent of GDP in 2027.
  - NPV of public debt-to-revenue ratio projected to decline from 602 percent to 63 percent.

### Public Sector — Alternative scenarios and stress tests
- Two alternative scenarios considered:
  - Scenario with real GDP growth and the primary balance at historical averages
    - Provides a more favorable path of the NPV of public debt-to-GDP ratio compared with the baseline.
  - Scenario with a permanently lower real GDP growth
    - Results in the NPV of debt-to-GDP ratio moving significantly higher.
- Extreme stress test
  - If real GDP growth is one standard deviation below the historical average in 2008–09 (i.e., -2.4 percent), then:
    - The public debt-to-GDP ratio begins to rise after 2023.
    - The NPV of public debt-to-GDP ratio would decline only until 2022.
    - The debt service ratio would rise quickly beginning in 2010, from about 3 percent of fiscal revenue to about 39 percent at the end of the projection period.

### Debt distress classification and conclusions
- Staffs’ view: the C.A.R is in debt distress.
- Key external debt indicators in the initial years are significantly above the policy-dependent thresholds, particularly the NPV of external debt-to-export ratio.
- Although indicators decline gradually over time under the baseline, stress tests indicate sensitivity to:
  - GDP growth rates lower than assumed in the baseline scenario.
  - Terms of new borrowing.
- Implications and policy priorities:
  - Importance of a stable socio-political environment and sound policies to support sustained improvement in economic performance.
  - Public DSA highlights need for strong fiscal performance for C.A.R. to meet debt service obligations and clear arrears.
  - Highlights importance of continued financial support of the international community in terms consistent with the C.A.R.’s debt situation.

*Source: _cr0814 - 4. The baseline scenario assumes full delivery of traditional debt relief.*

### 15.      The staffs have discussed this DSA with the authorities. The authorities generally

### _cr0814 - 15. The staffs have discussed this DSA with the authorities. The authorities generally agreed with the staffs’ assessment.

### Baseline findings and projections (public and PPG external debt)
- External debt (nominal) levels (in percent of GDP): 2004: 82.5; 2005: 78.0; 2006: 72.7; 2007: 46.8; 2008: 43.6; 2009: 41.4; 2010: 37.9; 2011: 32.6; 2012: 27.7; 2017: 13.9; 2027: 12.2.
- Change in external debt (percent of GDP): 2004: -21.1; 2005: -4.5; 2006: -5.3; 2007: -25.9; 2008: -3.2; 2009: -2.2; 2010: -3.5; 2011: -5.3; 2012: -4.9; 2017: -0.9; 2027: 0.1.
- Identified net debt-creating flows (percent of GDP): 2004: -9.0; 2005: 0.4; 2006: -5.9; 2007: -0.8; 2008: 0.7; 2009: 0.6; 2010: 1.1; 2011: 1.2; 2012: 1.2; 2017: 1.4; 2027: -0.3.
- Non-interest current account deficit (percent of GDP): 2004: 0.9; 2005: 6.0; 2006: 2.1; 2007: 1.8; 2008: 2.2; 2009: 3.7; 2010: 3.4; 2011: 3.6; 2012: 4.0; 2017: 4.1; 2027: 4.1.
- Net FDI (negative = inflow, percent of GDP): 2004: -1.9; 2005: -2.1; 2006: -2.3; 2007: -1.0; 2008: 0.9; 2009: -2.3; 2010: -2.3; 2011: -2.3; 2012: -2.3; 2017: -2.3; 2027: -2.3.
- Endogenous debt dynamics (percent of GDP): 2004: -8.0; 2005: -3.5; 2006: -5.6; 2007: -2.2; 2008: -0.4; 2009: -0.7; 2010: -0.6; 2011: -0.6; 2012: -0.6; 2017: -0.4; 2027: -0.3.
  - Contribution from nominal interest rate (percent of GDP): 2004: 0.8; 2005: 0.5; 2006: 0.6; 2007: 0.4; 2008: 1.5; 2009: 1.1; 2010: 1.1; 2011: 0.9; 2012: 0.7; 2017: 0.2; 2027: 0.1.
  - Contribution from real GDP growth (percent of GDP): 2004: -1.3; 2005: -1.7; 2006: -2.9; 2007: -2.6; 2008: -1.9; 2009: -1.8; 2010: -1.6; 2011: -1.5; 2012: -1.3; 2017: -0.6; 2027: -0.5.
  - Contribution from price and exchange rate changes (percent of GDP): 2004: -7.6; 2005: -2.3; 2006: -3.3; (table continues with omitted values).
- Residual (3-4) (percent of GDP): 2004: -12.1; 2005: -4.9; 2006: 0.6; 2007: -25.1; 2008: -3.9; 2009: -2.8; 2010: -4.6; 2011: -6.5; 2012: -6.1; 2017: -2.2; 2027: 0.4.
  - Of which exceptional financing (percent of GDP): 2004: -4.5; 2005: -7.3; 2006: -8.8; 2007: -6.9; 2008: -5.2; 2009: -4.9; 2010: -4.4; 2011: -4.2; 2012: -3.8; 2017: -2.6; 2027: 0.5.
- NPV of external debt (percent of GDP): 2007: 48.6; 2008: 43.6; 2009: 40.9; 2010: 38.8; 2011: 35.7; 2012: 30.8; 2017: 26.2; 2027: 13.0; later projection: 9.3.
- NPV of external debt (percent of exports): 2007: 350.0; 2008: 294.7; 2009: 278.8; 2010: 266.5; 2011: 247.7; 2012: 215.8; 2017: 184.7; 2027: 92.2; later: 61.1.
- Debt service-to-exports ratio (percent): 2004: 25.7; 2005: 17.2; 2006: 16.0; 2007: 26.9; 2008: 15.8; 2009: 14.5; 2010: 18.8; 2011: 30.8; 2012: 29.5; 2017: 8.3; 2027: 4.7.
- Total gross financing need (billions of U.S. dollars): 2004: 0.0; 2005: 0.1; 2006: 0.0; 2007: 0.1; 2008: 0.1; 2009: 0.1; 2010: 0.1; 2011: 0.1; 2012: 0.1; 2017: 0.1; 2027: 0.0.
- Non-interest current account deficit that stabilizes debt ratio (percent of GDP): 2004: 22.0; 2005: 10.6; 2006: 7.4; 2007: 29.6; 2008: 6.6; 2009: 5.8; 2010: 7.5; 2011: 9.4; 2012: 9.0; 2017: 4.9; 2027: 2.3.

### Key macroeconomic assumptions (preserved exactly)
- Real GDP growth (in percent): 2004: 1.3; 2005: 2.2; 2006: 4.1; 2007: 1.6; 2008: 4.0; 2009: 4.0; 2010: 4.3; 2011: 4.5; 2012: 4.2; 2017: 4.3; 2027: 4.3; 2013-27 average: 4.2; 2007-12 average: 4.1; historical average: 4.1; standard deviation: 4.2.
- GDP deflator in US dollar terms (change in percent): 2004: 7.9; 2005: 2.9; 2006: 4.3; 2007: 2.8; 2008: 9.8; 2009: 6.2; 2010: 3.0; 2011: 2.9; 2012: 3.0; 2017: 3.2; 2027: 3.3; averages and later values: 3.6, 2.5, 2.5, 2.5.
- Effective interest rate (percent) 5/: 2004: 0.8; 2005: 0.6; 2006: 0.8; 2007: 1.1; 2008: 0.4; 2009: 0.6; 2010: 3.3; 2011: 2.8; 2012: 2.7; 2017: 2.6; 2027: 2.4; additional entries: 2.4; 1.5; 1.3; 1.5.
- Growth of exports of G&S (US dollar terms, in percent): 2004: 9.1; 2005: 1.7; 2006: 21.3; 2007: 0.3; 2008: 11.6; 2009: 17.7; 2010: 6.3; 2011: 6.8; 2012: 6.2; 2017: 6.6; 2027: 7.1; averages: 8.5; 7.0; 8.6; 7.2.
- Growth of imports of G&S (US dollar terms, in percent): 2004: 19.9; 2005: 17.6; 2006: 11.7; 2007: 2.9; 2008: 11.6; 2009: 10.5; 2010: 11.0; 2011: 6.0; 2012: 6.8; 2017: 6.3; 2027: 5.8; averages: 7.7; 5.8; 5.8; 5.9.
- Grant element of new public sector borrowing (in percent): selected entries: 25.9; 37.5; 44.0; 56.9; 56.9; 56.9; 46.4; 55.7; 47.0; 53.1.
- Aid flows (in billions of US dollars) 7/: selected entries: 0.0; 0.0; 0.2; 0.1; 0.1; 0.1; 0.0; 0.0; 0.1; 0.1; 0.2.
  - Of which grants: selected entries: 0.0; 0.1; 0.2; 0.1; 0.1; 0.1; 0.1; 0.1; 0.1; 0.1; 0.1.
  - Of which concessional loans: selected entries: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.1.
- Grant-equivalent financing (in percent of GDP) 8/: selected entries: 5.7; 3.6; 3.8; 3.0; 2.9; 2.8; 2.6; 2.3; 2.5.
- Grant-equivalent financing (in percent of external financing) 8/: selected entries: 80.3; 87.2; 79.2; 87.8; 88.1; 88.4; 85.2; 74.7; 82.1.

### Public sector debt baseline (2004-27) and fiscal indicators
- Public sector debt (percent of GDP): 2004: 102.4; 2005: 100.3; 2006: 96.3; 2007: 67.1; 2008: 61.2; 2009: 55.7; 2010: 50.6; 2011: 43.8; 2012: 37.3; 2017: 17.7; 2027: 13.0.
  - Of which foreign-currency denominated (percent of GDP): 2004: 82.5; 2005: 78.0; 2006: 72.7; 2007: 46.8; 2008: 43.6; 2009: 41.4; 2010: 37.9; 2011: 32.6; 2012: 27.7; 2017: 13.9; 2027: 12.2.
- Change in public sector debt (percent of GDP): 2004: -18.3; 2005: -2.1; 2006: -4.1; 2007: -29.2; 2008: -5.9; 2009: -5.4; 2010: -5.1; 2011: -6.8; 2012: -6.5; 2017: -1.8; 2027: 0.1.
- Identified debt-creating flows (percent of GDP): 2004: -7.1; 2005: 8.4; 2006: -20.6; 2007: -7.5; 2008: -5.1; 2009: -4.7; 2010: -3.5; 2011: -3.2; 2012: -2.7; 2017: -0.7; 2027: 0.5.
- Primary deficit (percent of GDP): 2004: 0.9; 2005: 3.6; 2006: -8.7; 2007: -0.5; 2008: 3.2; 2009: -3.7; 2010: -1.3; 2011: -1.2; 2012: -0.5; 2017: -0.3; 2027: -0.2.
  - Revenue and grants (percent of GDP): 2004: 11.4; 2005: 12.2; 2006: 21.1; 2007: 15.8; 2008: 14.1; 2009: 14.3; 2010: 14.0; 2011: 14.2; 2012: 14.4; 2017: 15.5; 2027: 17.4.
  - Grants (percent of GDP): 2004: 3.3; 2005: 4.1; 2006: 11.7; 2007: 5.2; 2008: 3.3; 2009: 3.0; 2010: 2.5; 2011: 2.4; 2012: 2.3; 2017: 2.0; 2027: 1.6.
- Automatic debt dynamics (percent of GDP): 2004: -8.0; 2005: 4.8; 2006: -11.8; 2007: -3.8; 2008: -3.8; 2009: -3.6; 2010: -3.0; 2011: -2.9; 2012: -2.5; 2017: -0.9; 2027: -0.6.
  - Contribution from interest rate/growth differential (percent of GDP): 2004: -2.2; 2005: -3.6; 2006: -3.9; 2007: -4.0; 2008: -3.0; 2009: -3.0; 2010: -2.6; 2011: -2.4; 2012: -2.1; 2017: -0.8; 2027: -0.5.
    - Contribution from average real interest rate: 2004: -0.6; 2005: -1.4; 2006: 0.1; 2007: -0.4; 2008: -0.3; 2009: -0.4; 2010: -0.4; 2011: -0.4; 2012: -0.3; 2017: -0.1; 2027: 0.0.
    - Contribution from real GDP growth: 2004: -1.6; 2005: -2.2; 2006: -3.9; 2007: -3.7; 2008: -2.7; 2009: -2.6; 2010: -2.2; 2011: -2.1; 2012: -1.8; 2017: -0.8; 2027: -0.5.
  - Contribution from real exchange rate depreciation (percent of GDP): 2004: -5.8; 2005: 8.4; 2006: -7.9; 2007: 0.2; 2008: -0.8; 2009: -0.5; 2010: -0.4; 2011: -0.4; 2012: -0.4; later values omitted.
- Residual, including asset changes (percent of GDP): 2004: -11.2; 2005: -10.5; 2006: 16.5; 2007: -21.7; 2008: -0.8; 2009: -0.7; 2010: -1.6; 2011: -3.6; 2012: -3.9; 2017: -1.1; 2027: -0.4.
- NPV of public sector debt (percent of GDP): 2007: 72.1; 2008: 63.8; 2009: 58.4; 2010: 53.1; 2011: 48.4; 2012: 42.0; 2017: 35.8; 2027: 16.7; later: 10.0.
  - Of which foreign-currency denominated (percent of GDP): 2007: 48.6; 2008: 43.6; 2009: 40.9; 2010: 38.8; 2011: 35.7; 2012: 30.8; 2017: 26.2; 2027: 13.0; later: 9.3.
- Gross financing need (percent of GDP) 2/: 2004: 1.4; 2005: 2.4; 2006: 0.9; 2007: 3.3; 2008: 2.1; 2009: 2.5; 2010: 3.0; 2011: 4.6; 2012: 4.7; 2017: 2.1; 2027: 1.9.
- NPV of public sector debt-to-revenue and grants ratio (percent): 2007: 341.8; 2008: 404; 2009: 413; 2010: 371; 2011: 345; 2012: 296; 2017: 248; 2027: 108; later: 58.
- Debt service-to-revenue and grants ratio (percent) 4/: 2004: 31.2; 2005: 21.2; 2006: 15.4; 2007: 30.3; 2008: 13.7; 2009: 15.1; 2010: 20.5; 2011: 30.8; 2012: 30.4; 2017: 9.8; 2027: 4.6.
- Primary deficit that stabilizes the debt-to-GDP ratio (percent of GDP): 2004: 19.2; 2005: 5.7; 2006: -4.7; 2007: 25.5; 2008: 4.6; 2009: 4.2; 2010: 4.7; 2011: 6.5; 2012: 6.4; 2017: 2.0; 2027: 1.0.

### Sensitivity analyses and bound/stress tests (selected results)
- Public and PPG external debt sensitivity (NPV of debt-to-GDP ratio, percent) — baseline and select alternative scenarios for 2007-27:
  - Baseline: 44 41 39 36 31 26 13 9 (table shows sequence for 2007-27).
  - A1 (key variables at historical averages in 2008-27) yields: 44 42 41 38 33 32 8 13 10 (table formatting indicates varying year-by-year results).
  - A2 (new public sector loans on less favorable terms in 2008-27): values include 44 41 39 36 32 27 16 14.
  - A3 (full delivery of HIPC assistance and MDRI): values include 32 29 28 26 22 19 10 9.
- Bound tests (examples): 
  - B1 (Real GDP growth at historical average minus one standard deviation in 2008-09): projected impacts include higher ratios, e.g., sequences with values 44 repeated and increases in later years (table entries).
  - B6 (One-time 30 percent nominal depreciation relative to the baseline in 2008): values include 44 58 55 50 43 37 18 13.
- Public debt sensitivity (NPV of debt-to-GDP, NPV debt-to-revenue, debt service-to-revenue) — selected outcomes:
  - Baseline NPV debt-to-GDP ratio entries: 40 44 41 37 34 29 6 17 10 (table shows sequences).
  - Alternative scenarios (A1–A3) and bound tests (B1–B5) produce higher ratios under negative shocks such as lower growth, worse primary balance, or 30 percent real depreciation (specific matrix entries provided in the source tables).

### Figures and debt dynamics (summary)
- Figure A1 and Figure A2 illustrate:
  - Debt accumulation rates and grant element evolution over 2007-27.
  - NPV of debt-to-GDP, NPV of debt-to-exports, NPV of debt-to-revenue, debt-service-to-exports, and debt-service-to-revenue under baseline, historical scenario, and most extreme shocks.
  - Charts depict that under the baseline the NPV ratios decline over time toward lower levels by 2017 and 2027, while historical and extreme shocks raise these ratios substantially in stress scenarios.

### Authorities' position
- The staffs have discussed this DSA with the authorities. The authorities generally agreed with the staffs’ assessment.

*Source: Staff projections and simulations from the Central African Republic DSA tables and figures.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr0814.pdf_