## _cr09259 ## Source details **Canonical URL:** [_cr09259](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09259.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09259.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09259.pdf.json) --- ### Executive Summary — Overview and Outcomes - Decision point reached: September 2007; HIPC Initiative decision point commitments based on end-2006. - Debt relief committed at decision point: US$583 million (end-2006 NPV terms). - Target: reduce NPV of eligible external debt to 150 percent of exports at end-2006. - Common reduction factor at decision point: 68.1 percent; revised at completion point to 67.5 percent. - Completion point assessment: IDA and IMF staffs consider C.A.R. to have made satisfactory progress on completion point triggers. - Staff recommendation: IMF and IDA staffs recommend that Executive Directors approve the completion point for C.A.R. ### Completion Point Triggers and Structural Reforms — Status (selected) - PRSP and monitoring - PRSP published: June 2007; APR submitted: March 2009. - JSAN considers progress satisfactory. - Macroeconomic stability - PRGF-supported program: on track; IMF staff to recommend completion of fourth PRGF review based on broadly satisfactory implementation in 2008 and appropriate policy framework for 2009. - Transparency and anti-corruption - Articles 44 and 75 of the Constitution and Presidential decree on asset declaration implemented; asset declarations made public; obligations extended to senior public enterprise officials and specified senior civil servants; compliance described as full. - Structural reforms — forestry and mining - Forestry: new forestry code adopted in 2008; ministerial instruction January 2009 on mercurial values; implementing decrees adopted April 2009; staffs consider satisfactory implementation. - Mining: revised mining code adopted by Parliament on April 28, 2009; standard mining agreement and implementing texts by Presidential decree on April 30, 2009; first EITI report for 2006 validated March 19, 2009 and posted online. - Public Financial Management (PFM) - New budget nomenclature used for 2008 and 2009 budgets. - Computerized expenditure management system (GESCO) operational since Q1 2008 producing quarterly execution reports. - New payroll management system operational since October 2008; unified civil servant database created. - New procurement code adopted and implementation started; procurement contracts conforming with new framework. - Civil service reform - New organic framework adopted; civil service statute prepared and submitted; remuneration and performance assessment system defined in statute. - Public debt management - Comprehensive debt database established; all external debt reconciled as of December 31, 2008; annual debt statistical bulletin published May 2009. ### Social Sector Triggers — Education, Health, HIV/AIDS (selected) - Education - At least 750 additional primary teachers target: implemented. 850 apprentice teachers recruited and deployed in 483 primary schools in 2007/08; additional 171 student-teachers in first half of 2009; at least 1,000 new teachers available for 2009/10. - Administrative/pedagogical measures to reduce repetition: implemented; repetition rate fell nationally from 28 percent in 2006/07 to 26 percent in 2007/08. - National Education Strategy adopted February 2008; EFA/FTI Catalytic Fund financing US$38 million for 2009–11; grant agreement signed April 6, 2009. - Health - DPT3 immunization rate increased from 40 percent in 2005 to 84.1 percent in 2007; end-August 2008 DPT3 at 67 percent; Pentavalent vaccine introduced September 1, 2008; Pentavalent coverage about 15 percent as of October 2008. - Treated mosquito nets distribution: in 2007 >650,000 distributed; in 2008, 840,687 treated mosquito nets distributed. - HIV/AIDS - Condom social marketing: distribution rose from less than 4 million at decision point to 16 million at end-2007 and about 15 million in 2008. - ARV treatment: 13 new ARV units opened treating 700 additional persons on top of more than 7,800 persons already on ARV therapy. - Seroprevalence (2006 study): overall 6.2 percent; females 7.8 percent; males 4.3 percent. ### Debt Reconciliation, HIPC Assistance, and Creditor Participation - End-2006 debt reconciliation (selected figures) - Nominal stock (end-2006): US$1,087.5 million (revised upward by US$0.7 million). - NPV of eligible external debt at end-2006 after traditional relief: US$856.6 million. - Exports (three-year average 2004–06) revised from US$182 million to US$185.5 million. - HIPC assistance revisions - Required HIPC assistance (end-2006 NPV terms) revised from US$583 million to US$578 million. - HIPC assistance in nominal terms estimated at US$804 million (completion point summary) and elsewhere reported as US$827 million (reconciliation tables). - Common reduction factor at completion point: 67.5 percent. - Creditor participation - Creditors accounting for 82 percent of total HIPC eligible debt have given satisfactory assurances of participation. - Most multilateral creditors and all Paris Club creditors agreed to participate; authorities working to obtain remaining creditors’ participation. - Paris Club estimated share: US$33 million (end-2006 NPV terms); interim assistance estimated at US$4 million (end-2006 NPV terms); additional Paris Club assistance beyond HIPC estimated about US$22.7 million (end-2008 NPV terms). - Notable bilateral positions: Taiwan Province of China accounted for 10.9 percent of total HIPC-eligible debt (end-2006 nominal); China had cancelled two loans totaling US$11 million in January 2007 (details noted). - Commercial creditors NPV (end-2006) estimated at US$43.7 millions (5 percent of total HIPC-eligible debt). ### MDRI and Multilateral Relief (selected) - C.A.R. qualifies for MDRI upon reaching completion point. - MDRI relief (net of HIPC) estimated at US$163 million in NPV terms; would save US$297 million in debt service over 33 years on debt owed to IDA, AfDB, and IMF. - IDA MDRI/readjusted delivery - Debt reduction at completion point: US$182 million. - Average annual debt service savings (net of HIPC) 2009–2041: US$6 million. - Total debt service savings from MDRI: US$195.4 million (SDR 128.2 million). - IMF MDRI relief: estimated US$2.9 million (SDR 1.9 million). - AfDB MDRI relief: debt service relief amounting to US$98.7 million in nominal terms; debt stock cancellation estimated at US$91.1 million. ### Debt Burden Indicators and Projections (selected exact figures) - Projected impact after full delivery of HIPC, additional bilateral assistance beyond HIPC, and MDRI: - NPV of debt-to-exports ratio at end-2009 would drop to 74.8 percent. - Ratio projected to rise to 91.3 percent by end-2011 and then gradually fall, reaching 56.1 percent in 2028 under baseline. - Baseline macroeconomic assumptions (Box 2 selected exact values) - Average annual real GDP growth for 2009–29: 4.4 percent. - Inflation (GDP deflator) projected to increase by 2½ percent on average for 2009–29. - Current account balance projected to average 7 percent for 2009–29 (current account deficit including grants). - Government overall fiscal deficit (including grants) projected to average about 1.2 percent of GDP for 2009–29. - Domestic revenue projected to rise from 10½ percent of GDP in 2009 to some 14 percent at end-2029. - Total expenditures projected to rise from about 17 percent of GDP in 2009 to about 20 percent in 2029. - External assistance assumed about 5.4 percent of nominal GDP in the long run; grants about 80 percent of total external assistance; grant element of new external loans averaging 52 percent. - Real interest rate on domestic currency debt: converge to about 4.8 percent in the long run. - Debt service-to-exports ratio after HIPC, additional assistance, and MDRI: increase from 3.7 percent in 2010 to 10 percent in 2015, then decline substantially over the longer term. - Nominal debt service reduction average: about US$29 million per year over the projection period (post-HIPC/MDRI). ### Topping-up, End-2008 Outcomes, and Drivers of Changes - C.A.R. does not qualify for topping-up under enhanced HIPC. - NPV of debt-to-exports ratio after enhanced HIPC assistance at end-2008: 148.0 percent (higher than anticipated at decision point). - NPV of eligible external debt-to-exports ratio at end-2008 after full delivery of additional bilateral debt relief beyond HIPC: 137.8 percent (below 150 percent threshold). - Contributors to the 21.0 percentage point increase (difference between projected at Decision Point and actual at end-2008): - Changes in parameters: 13.5 percentage points (64% of total increase) - Of which due to discount rates: 4.4 percentage points - Of which due to exchange rates: 9.1 percentage points - Unanticipated new borrowing: -4.9 percentage points (-23% of total increase) - Of which higher than expected disbursements: -6.1 percentage points - Of which lower concessionality: 1.2 percentage points - Changes in exports: 8.9 percentage points (43% of total increase) - Changes in HIPC relief and other factors: 3.4 percentage points (16% of total increase) - Bilateral debt relief beyond HIPC contribution: -10.2 percentage points. ### Debt Sustainability Analysis (LIC DSA) — Key Judgments and Risks - LIC DSA summary judgment: C.A.R. has a moderate risk of debt distress. - Key stock figures (end-2008) - Total public debt including domestic arrears: 79.4 percent of GDP. - External public and publicly guaranteed debt: 56.8 percent of GDP. - Domestic public debt (including budgetary arrears and public enterprise domestic debt): 23 percent of GDP. - Baseline outlook and projections (selected) - Baseline real GDP growth uplift to 5.5 percent in medium term assumed; long-run average (2009–29) 4.4 percent. - NPV of public debt-to-GDP ratio projected to decline from 28 percent of GDP in 2009 to 17 percent of GDP in 2029. - PV of public debt-to-revenue ratio projected to fall from 174 percent to 90 percent over same period. - Stress-test findings - Most extreme stress test (combination shock driven by lower export value growth) could raise the NPV of external debt-to-exports ratio above policy-related thresholds for a prolonged period. - Under Alternative Scenarios and bound tests, debt indicators can deteriorate materially; lower GDP growth is the most extreme adverse scenario. - Policy implications from DSA - Continue prudent fiscal policies and consolidate macroeconomic stability. - Strengthen exports and diversify the export base to reduce sensitivity of external debt indicators to export growth. - Maintain donor engagement and prioritize grants over loan-funded expenditures where possible. ### Alternative Scenarios — Exact Assumptions and Impacts - Alternative Scenario 1: No growth acceleration after 2010 - Assumes reduction in real GDP growth by 1.3 percentage points on average over projection period relative to baseline. - Debt implications: NPV of debt-to-revenue ratio increase by 12.7 percentage points by 2018; increase by 15.4 percentage points on average in 2019–28, reaching 74.6 percent in 2028. - Alternative Scenario 2: Lower export growth - Assumes reduction in export volume growth of goods by 30 percent from 2010 onward. - Debt implications: NPV of debt-to-exports ratio higher on average by 10.5 percentage points during 2008–18 and by 23.5 percentage points during 2019–28, reaching 89.8 percent in 2028. - Alternative Scenario 3: Less grants (replacement by loans) - Assumes budget-support and project grants fall short by 50 percent from 2010 onward and gap financed by additional borrowing on concessional terms. - Fiscal consequence: loan financing to GDP ratio rises to 3.2 percent in 2029 versus 1 percent in baseline. - Debt implications: NPV of debt and debt service ratios deteriorate substantially; NPV of debt as share of GDP, exports, and revenues on average more than double in 2019–28 relative to baseline. - Sensitivity analysis message: debt sustainability robust to moderate shocks but vulnerable to extreme outcomes—continued reforms, export diversification, and reliance on grants recommended. ### Fiscal and Macro Performance (selected historical figures and 2008 outcomes) - Growth: 2007 3.7 percent; 2008 2.2 percent. - Inflation (end-year): 2008 above 10 percent; CPI end-of-period series: 2004 -0.3; 2005 1.7; 2006 7.1; 2007 -0.2; 2008 14.5. - Exports, f.o.b. (US$ basis annual growth): 2004 4.4; 2005 -4.3; 2006 22.9; 2007 13.2; 2008 -17.3. - Domestic revenue (percent of GDP): 2006 9.5 percent; 2008 10.4 percent. - Gross official foreign reserves (months of imports, f.o.b.): 2004 6.4; 2005 6.5; 2006 4.6; 2007 2.4; 2008 3.3. ### Implementation Milestones, Outstanding Issues, and Immediate Priorities - Implementation milestones - Annual debt statistical bulletin published May 2009 (debt data at December 31, 2008). - Presidential decree April 30, 2009 establishing National Committee for Public Debt (NCPD). - DMFAS operational and staff trained. - Immediate priorities for debt management - Make NCPD fully operational. - Consolidate debt department mandate and technical skills. - Reduce lag for production of annual and quarterly debt reports. - Reinforce domestic debt management capacity, including coverage of non-central government institutions and arrears follow-up. ### Staff Recommendation, Director Questions, and Operational Figures - Recommendation: IDA and IMF staffs recommend that Executive Directors determine that C.A.R. has reached the completion point under the enhanced HIPC Initiative. - Key operational figures listed for Directors’ consideration: - Nominal stock of external debt (end-2006): $1.088 billion. - Total Estimated HIPC Enhanced Assistance (end-2006, NPV terms, decision-point figure shown): $583 million (noting completion point revision to $578 million in NPV terms). - IMF HIPC assistance revised from SDR 17.33 million to SDR 17.19 million (NPV terms). - IMF debt relief qualified (post-MDRI): SDR 14.9 million, of which SDR 1.9 million from the MDRI-I Trust. *Source: Executive Summary, IMF Country Report (Central African Republic) — Completion Point Document (PDF chapter _cr09259).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Overview - In September 2007, the Boards of Executive Directors of IDA and the IMF agreed that the Central African Republic (C.A.R.) had met the requirements for reaching the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. - The amount of debt relief committed at the decision point was US$583 million in end-2006 net present value (NPV) terms, calculated to reduce the NPV of eligible external debt to 150 percent of exports at end-2006. - The relief implied a common reduction factor of 68.1 percent. ### Progress on Completion Point Triggers - IDA and IMF staffs consider C.A.R. to have made satisfactory progress in meeting the requirements to reach the completion point. - All floating triggers have been fully implemented, including: - Preparation and satisfactory implementation of a full PRSP: PRSP published June 2007; Annual Progress Report (APR) submitted March 2009; JSAN considers progress satisfactory. - Macroeconomic stability: PRGF-supported program on track; IMF staff will recommend completion of the fourth PRGF review based on broadly satisfactory implementation in 2008 and an appropriate policy framework for 2009. - Transparency measures: Implementation of articles 44 and 75 of the Constitution and Presidential decree on asset declaration and disclosure; asset declarations made public; obligation extended to senior public enterprise officials and specified senior civil servants, with full compliance. - Structural reforms: Improvements in regulatory oversight and reporting in forestry and mining sectors. - Public Financial Management (PFM): Triggers fully implemented. - Civil service reform: Trigger launched/satisfied. - Public debt management: Trigger implemented. - Social sector reforms, including health, education, and HIV/AIDS: Triggers implemented. ### Debt Reconciliation, HIPC Assistance, and Reduction Factors - Result of debt reconciliation for the completion point: - NPV of eligible external debt at end-2006 after traditional debt relief revised upward by US$0.7 million to US$856.6 million. - Required HIPC assistance in end-2006 NPV terms revised downward from US$583 million at the decision point to US$578 million. - HIPC assistance in nominal terms estimated at US$804 million, of which US$454 million would be delivered by multilateral creditors and US$350 million by bilateral and commercial creditors. - Common reduction factor declined from 68.1 percent to 67.5 percent. ### Creditor Participation - Creditors accounting for 82 percent of total HIPC eligible debt have given satisfactory assurances of participation in the enhanced HIPC Initiative. - Most multilateral creditors and all Paris Club creditors have agreed to participate. - Authorities are working to obtain participation of the remaining creditors. ### Topping-Up and End-2008 Outcomes - C.A.R. does not qualify for topping-up under the enhanced HIPC Initiative. - NPV of debt-to-exports ratio after enhanced HIPC assistance at end-2008 was 148.0 percent, higher than anticipated at the decision point. - Main explanations for the increase in the ratio: - Less favorable exchange rates. - A lower discount rate used to calculate the NPV of debt. - Reduced exports. - The NPV of eligible external debt-to-exports ratio at end-2008 after full delivery of additional bilateral debt relief beyond HIPC Initiative is estimated at 137.8 percent, which is below the 150 percent threshold for topping-up consideration under the enhanced HIPC Initiative. ### Multilateral Debt Relief Initiative (MDRI) - Upon reaching the completion point, C.A.R. will qualify for additional debt relief under the MDRI. - MDRI relief would cover almost all remaining debt service obligations to IDA, the African Development Bank (AfDB), and the IMF. - MDRI relief would reduce nominal debt service by US$297 million over a period of 33 years. ### Projected Impact on External Debt Burden - Full delivery of HIPC, additional bilateral assistance beyond HIPC, and MDRI debt relief at the completion point would significantly reduce C.A.R.’s external debt burden. - Projected indicators: - NPV of debt-to-exports ratio at end-2009 would drop to 74.8 percent. - Ratio projected to rise to 91.3 percent by end-2011 and then gradually fall over time under the baseline scenario. - Future evolution of these indicators would be sensitive to macroeconomic assumptions, particularly exports and the terms of new external financing. ### Staff Recommendation - The staffs recommend that the Executive Directors of IDA and the IMF approve the completion point for C.A.R. under the enhanced HIPC Initiative. *Source: Executive Summary, IMF Country Report (Central African Republic) — Completion Point Document* ### 4. Structural reforms: Improve the ### 4. Structural reforms: Improve the regulatory oversight and reporting framework through: ### Forestry sector — Triggers and Progress - Trigger (i): adoption by Parliament of a satisfactory new forestry code and issue of some key ministerial decrees on its implementing regulations, and their satisfactory implementation. - Progress: Parliament adopted a new forestry code in 2008 that conforms to best international practices. The code protects biodiversity, defines new protected areas, and ensures that forests are under sustainable management plans. The government has already implemented key aspects of the code. In January 2009, it issued a ministerial instruction establishing that the mercurial value per cubic meter for each species is based on the market price of timber as stipulated by the new forestry code. The new legal and regulatory framework is taking effect just as world demand for timber has fallen sharply; thus its application could remain slow over a period of time. In particular, the government may find that it is preferable to delay launching invitations to tender the remaining three forest concessions until market conditions improve. The government demonstrated commitment to ensuring compliance with the new forestry code. In March 2008, it cancelled two permits that had been awarded in 2007 because the new licensees would have been able to harvest without being in compliance with the new regulations. The government also suspended awarding new permits until the new forestry code would be adopted and the decrees regulating the implementation of the new code and the awarding of concessions would be issued. In view of these actions, the staffs consider that the new forestry code and its regulating decrees have been satisfactorily implemented. - Trigger (ii): undertaking an awareness campaign for communities and the establishment of a standing public information system. - Progress: A public information system is in place and ensures that forest communities are informed about forest activities and revenues. Cabinet adopted the regulating decrees in April 2009. ### Mining sector — Triggers and Progress - Trigger (i): publication on the government’s internet site of the report of the Extractive Industries Transparency Initiative (EITI) administrator on mining revenue, starting from 2006. - Progress: The first EITI report, covering the reconciliation of revenues from mining activities during 2006, prepared by the EITI administrator, has been validated through a participatory process in strict compliance with EITI standards and norms. The report was adopted on March 19, 2009 by the National EITI Steering Committee and immediately posted on the government’s as well as several other websites, making it accessible to a wide audience. - Trigger (ii): adoption by Presidential decree of a satisfactory standard-form agreement for mining, and adoption by Parliament of satisfactory amendments to the mining code to ensure their consistency. - Progress: The government revised the mining code to address its previous weaknesses. The revised mining code was adopted by Parliament on April 28, 2009. A standard agreement based on best international practices and the implementing texts of the revised mining code were adopted by Presidential decree on April 30, 2009. The model mining agreement is consistent with the provisions of the revised mining code. ### 5. Public financial management — Objectives and Implementation - Objective: Improve the effectiveness, transparency, and accountability in public financial management, particularly through specified measures. - Trigger (i): preparation and submission to Parliament of the budget using the new nomenclature. - Progress: Implemented. The new budget nomenclature, which allows expenditure classification on an economic, administrative, and functional basis, was used for the preparation and submission of the 2008 and 2009 budgets to parliament. - Trigger (ii): satisfactory implementation of a new expenditure tracking system from commitment to authorization (using the new budget nomenclature) within the General Budget Directorate. - Progress: Implemented. A computerized expenditure management system (GESCO) allows the tracking of the budget expenditure chain. Quarterly budget execution reports tracking expenditures from the commitment to the authorization stage, in line with the economic, administrative, and functional classification systems, have been produced on a regular basis since the first quarter of 2008. - Trigger (iii): satisfactory implementation of the new payroll management system. - Progress: Implemented. A new payroll management system has been set up and is operational since October 2008. The civil servant files and wage database have been merged into a single database. The Ministry of Civil Service regularly updates the personnel files; and the Payroll Directorate at the Ministry of Finance validates the documentary evidence transmitted by the Ministry of Civil Service and processes the monthly payroll. A computer management information system has been introduced to facilitate and coordinate the management of the unified database. - Trigger (iv): adoption by Parliament of a satisfactory new procurement code and the start of its satisfactory implementation. - Progress: Implemented. Parliament has adopted a new procurement code and its implementation has started. The legal and regulatory framework of the new procurement code conforms to best international practices. To facilitate the implementation of the new code, a manual of procedures, standard bidding documents, and general conditions of contracts have been prepared. The National Action Plan, which has been validated by relevant stakeholders, includes a training program, which is being implemented. Procurement contracts recently awarded were in full conformity with the new legal and regulatory framework. ### 6. Civil service reform — Steps and Status - Trigger (i): the adoption by the Cabinet of a satisfactory new organic framework consistent with the PRSP objectives, based on organizational audits. - Progress: Implemented. Cabinet has adopted a new organic framework that is consistent with the PRSP objectives. On the basis of the findings of organizational audits, the government has adopted two types of organigrams, one for small ministries, and one for ministries with expanded responsibilities such as finance and education. - Trigger (ii): the submission to the inter-ministerial committee of satisfactory new rules with a corresponding compensation and performance assessment system. - Progress: Implemented. A new civil service statute has been prepared and submitted to the inter-ministerial council. The civil service statute is satisfactory in its coverage. It applies to permanent and non-permanent civil servants at the central and deconcentrated levels. It defines the rights and obligations of civil servants, the sanctions system, and the rules for termination of employment. The statute includes rules on conflict of interest, contains basic rules of a meritocratic civil service, and specifies the remuneration and performance assessment system corresponding to these rules and regulations. ### 7. Public debt management — Measures and Outcomes - Objective: Improve public debt management. - Trigger (i): the establishment by the Debt Management Unit of satisfactory procedures for, and maintenance of, an accurate, comprehensive, and secure database of public and publicly guaranteed debt (domestic and external). - Progress: Implemented. A comprehensive debt database has been established and maintained. The debt records in the database contain data on domestic, external and guaranteed debt of the central government in accordance with international standards. The debt records also contain major and detailed characteristics of all debt outstanding and disbursed, public and publicly guaranteed domestic and external debt, at December 31, 2008. All external debt has been fully reconciled. In addition, the debt department has developed the capacity to conduct periodic reconciliation of the external debt accounts, which will facilitate the production of debt reports within six month’s lag for public and publicly guaranteed domestic and external debt. To guide implementation of the debt management system, the authorities have prepared and adopted a manual of procedures. - Trigger (ii): satisfactory implementation of periodic publication of public and publicly guaranteed debt data (stocks, debt service projections, and key debt ratios) within six months after the end of the fiscal year. - Progress: Implemented. An annual debt statistical bulletin was published in May 2009. The bulletin, which contains debt data assessed at December 31, 2008, is consistent with international standards and with IDA and IMF current practice in terms of scope and detailed information, and reflects increased capacity in this area. The functionality of DMFAS, the training and experience gained by the debt department over the years, and the clear mandate that has been given to the National Committee for Public Debt through Presidential decree to produce debt statistical bulletins provide reasonable assurance that public debt data will be published annually. ### 8. Social sectors — Education, Health, and HIV/AIDS - Education: - Trigger (i): At least 750 additional teachers will be teaching at the primary level compared to 2006-07 levels. - Progress: Implemented. With the help of IDA, 850 new apprentice teachers were recruited and deployed in 483 primary schools across the country in 2007/08. In addition to these apprentice-teachers, the government recruited 171 student-teachers from the national school of primary school teachers in the first half of 2009 and is now deploying them throughout the country. As a result of these recruitments, at least 1,000 new teachers will be available to provide teaching services in primary schools in the 2009/10 school year. - Trigger (ii): Implementation of educational and administrative measures making it possible to achieve a repetition rate of less than 20 percent at the primary level in areas where schools are operating normally. - Progress: Implemented. The understanding with the authorities was that the trigger referred to the implementation of administrative and pedagogical measures, which has been satisfactory, and not to reaching a specific repetition rate. Thus, in 2007, the government issued a decree that (i) eliminates repetition within each of the three cycles of primary education, and (ii) limits the repetition rate from one cycle to the next to 10 percent. This administrative measure was implemented jointly with a training program—supported by local donors—to help primary school directors and teachers design remedial programs for students who would have repeated under previous arrangements. The full impact of these measures will take some time to emerge. However, preliminary results point already to progress in reducing the repetition rate as planned. Nationally, the repetition rate fell from 28 percent in 2006/07 to 26 percent in 2007/08; however, in some academic inspectorates, notably in the central-east area, the repetition rate declined at a faster pace, from 30 percent in 2006/07 to 26 percent in 2007/08. The staffs of IDA and the IMF consider that this trigger has been satisfied. - Health: - Trigger (i): Keep DPT3 vaccination rates at 80 percent or higher. - Progress: Implemented. The DPT3 immunization nationwide rate increased from 40 percent in 2005 to 84.1 percent in 2007. At end-August 2008, the DPT3 immunization rate was 67 percent, well on track to reach at least 80 percent by the end of the year. However, on September 1, 2008, a new vaccine (Pentavalent), combining DPT3 with other antigens, was introduced at the recommendation of WHO, and the government discontinued the monitoring of DPT3. As of October 2008, Pentavalent coverage was at about 15 percent, which, according to WHO, is in line with expectations, and suggests that the new vaccine appears to have been accepted by the population. The staffs thus consider the vaccination rate to have been reached in 2008 as well. - Trigger (ii): Distribute at least 300,000 treated mosquito nets. - Progress: Implemented. In 2007, the Ministry of Health distributed more than 650,000 treated mosquito nets across the country, including in conflict zones. In 2008, with support from UNICEF, the Ministry of Health distributed 840,687 treated mosquito nets. - HIV/AIDS: - Objective: Improve prevention by increasing the social marketing of condoms to an annual level of at least 10 million. - Progress: Implemented. The level of condoms distributed increased from less than 4 million at the decision point to 16 million at end-2007 and to about 15 million in 2008. ### A. PRSP and Poverty Monitoring — Institutionalization and Findings - In June 2007, C.A.R. adopted its first full PRSP, covering the period 2008–10. The PRSP was prepared through an extensive participatory process involving a broad range of stakeholders including civil society, the private sector, development partners, and communities representing the country’s seven regions. The PRSP effectively presents the government’s vision and priority actions for reducing poverty in line with the Millennium Development Goals. The strategic framework of the PRSP is based on four pillars: (i) restore security, consolidate peace, and prevent conflict; (ii) promote good governance and the rule of law; (iii) rebuild and diversify the economy; and (iv) develop human capital. - The Boards of IDA and the IMF concluded that the PRSP provided a credible framework for poverty reduction. The Boards discussed the PRSP in May 2008. The JSAN noted strengths including strong ownership from a broad participatory process, a poverty diagnostic and analysis of the determinants of poverty, sectoral strategies that informed sector priorities, and objectives consistent with achieving the MDGs. The JSAN also pointed out areas for further attention, including the need for a detailed implementation plan for critical aspects of the growth and poverty reduction agenda, such as the settlement of domestic debt (mainly arrears) to restore confidence between the State and the private sector, and aligning indicators with existing sector plans. - The government is working to operationalize the institutional framework for participatory monitoring and evaluation of PRS implementation. The framework includes: (i) a national strategic committee chaired by the Prime Minister; (ii) a national technical committee responsible for maintaining a permanent dialogue between the government and development partners; (iii) a national technical secretariat, which coordinates implementation, monitoring and evaluation of the PRS; (iv) nine sectoral committees responsible for implementation of sectoral strategies; and (v) seven regional committees responsible for monitoring and evaluation at the regional and local levels. The national technical secretariat produced the first annual PRSP progress report covering 2008. Statistical operations to generate most PRS evaluation and tracking indicators are underway and will be completed with donor help. The results of a core welfare indicator survey undertaken in 2008 to update the national poverty rate are expected in May 2009; and a new household survey is planned for 2009. - The staffs consider that implementation of the PRS was satisfactory in 2008. The first Annual Progress Report (APR) on implementation of the PRS during 2008 was prepared by the government through a participatory process. The 2008 APR highlights progress in many areas, including the peace process, governance, public financial management, and diversification of the economy. In particular, during 2008, fiscal management strengthened, accompanied by an increase in domestic revenues and improved control over public spending. The government also took actions to promote food security and agricultural development and enhanced the regulatory framework for the management of natural resources. The staffs of IDA and the IMF reviewed progress on each PRS pillar and concluded that PRS implementation and monitoring have been satisfactory over the past year; however, challenges remain related to the changing international environment, difficulty in mobilizing external resources to finance key activities, and inadequate administrative capacity. ### B. Macroeconomic performance — Summary and Key Indicators - Macroeconomic stability has been maintained since the decision point in September 2007. The government maintained a prudent fiscal stance—anchored by targets on the domestic primary balance—despite a deceleration of growth and an acceleration of inflation due to unanticipated external and domestic shocks. Important structural reform measures—most notably automatic adjustments of petroleum product prices—were implemented. The solid implementation of the PRGF-supported program contributed to improving confidence in the government’s fiscal management and stabilizing the political and economic situation. - 2008 shocks and outcomes: - Growth slowed from 3.7 percent in 2007 to 2.2 percent in 2008. - End-year inflation accelerated to above 10 percent. - The external current deficit reached almost 10 percent of GDP. - Fiscal performance: - Domestic revenues increased, with the revenue-to-GDP ratio improving from 9.5 percent in 2006 to 10.4 percent in 2008. - Spending was carefully managed; poverty-related spending was well executed; and only minor, temporary deviations regarding external arrears and recourse to commercial bank credit occurred. A significant amount of domestic arrears was cleared. Interim HIPC assistance and debt relief by Paris Club helped execute the budget smoothly. - Selected macroeconomic indicators (2004–08) — annual figures as presented: - Real GDP Growth: 1.0 2.4 3.8 3.7 2.2 - CPI (end-of-period): -0.3 1.7 7.1 -0.2 14.5 - Exports, f.o.b. (US$ basis): 4.4 -4.3 22.9 13.2 -17.3 - Imports, f.o.b. (US$ basis): 28.5 16.2 15.3 23.8 20.6 - Export volume of goods: -1.5 -4.5 13.3 5.4 -16.3 - Import volume of goods: 13.8 9.3 5.3 2.6 -0.7 - Total revenue (including grants) (Percent of GDP): 11.7 12.4 22.9 14.4 15.1 - Total expenditure (Percent of GDP): -13.9 -16.9 -13.9 -13.1 -15.5 - Overall balance Excluding grants (Percent of GDP): -5.6 -8.7 -4.4 -2.8 -5.1 - Overall balance Including grants (Percent of GDP): -2.2 -4.5 9.0 1.3 -0.4 - Gross domestic savings (Percent of GDP): 0.3 1.7 2.4 0.7 -1.0 - Gross investment (Percent of GDP): 6.8 9.8 10.1 10.0 11.6 - External current account balance (Percent of GDP): -1.7 -6.5 -3.0 -6.2 -9.9 - Gross official foreign reserves (months of imports, f.o.b.): 6.4 6.5 4.6 2.4 3.3 *IMF staff report content (excerpts) from the provided PDF chapter.* ### 12. Structural reforms introduced during the first year of PRS implementation have ### _cr09259 - 12. Structural reforms introduced during the first year of PRS implementation have ### Budget resilience and revenue administration - Structural reforms have helped make the government budget more resilient to negative shocks. - Increase in domestic revenues is attributable to improvements in tax and customs administration, including measures following the audit of the Guichet Unique in Douala. - Adoption of an automatic adjustment mechanism for petroleum product prices has allowed the government to insulate its budget from fluctuations in international oil prices and secure resources for priority spending. - After several adjustments—despite some initial delays—in fuel excises based on this mechanism, the government is now generating significant revenues from petroleum consumption and is able to partially offset the revenue losses from external shocks to primary production sectors. ### External sector performance in 2008 - In 2008, although the current account deficit deteriorated, reserves increased. - The cost of petroleum imports rose sharply and exports dropped in 2008, particularly in the latter half of the year. - Trade balance worsened by about 3½ percentage points of GDP in 2008 compared to 2007. - The overall current account deficit increased by 3½ percent of GDP. - Significant inflows of FDI and short-term private capital, together with increased IMF disbursements, left the overall balance about balanced and allowed some buildup in gross official reserves. ### Macroeconomic program implementation - IDA and IMF staffs consider that C.A.R. has fully implemented the trigger on the maintenance of macroeconomic stability, evidenced by broadly satisfactory implementation of the PRGF-supported program. - Despite the slowdown of growth, overall macroeconomic performance has been satisfactory in 2008; most of the quantitative targets through December 2008 have been achieved, and good progress has been made with structural reforms under the PRGF-supported program. ### Transparency and anti-corruption measures - A permanent anti-corruption committee at the level of the prime ministry has been established to formulate, coordinate and monitor the anti-corruption strategy; a priority action plan has been prepared and is under review. - Capacity of the committee is being strengthened with UNDP and France support. - Additional bodies established: national financial investigation agency (set up in 2007) to investigate money laundering; “Bureau des Usagers” in the office of the General Inspectorate of Finance (set up in July 2008) to facilitate reporting of corruption allegations. - Civil society plays a prominent role in scrutiny of state capture and corruption, contributing to improvements in C.A.R.’s transparency rankings. - Articles 44 and 75 of the Constitution linked to asset disclosure have been enforced: - The Prime Minister, all ministers of the government of national unity formed on January 19, 2009, members of the previous government, and members of the Constitutional Court prepared and submitted declarations of assets in due form to the Constitutional Court. - The Constitutional Court made these declarations public by posting them on the government’s website. - The asset declaration process took longer than prescribed in the constitution, but overall compliance was commendable. - A presidential decree extended asset declaration obligations to senior directors of major public enterprises and specified senior civil servants (State Inspector General, Inspector General of Finance, Director General of Budget, Director General of Treasury, Director General of Customs and Indirect Taxation, and the Director General of Taxation); all concerned fully complied. - The State Inspectorate General ensured completeness, secure database storage, verification, and public disclosure after verification. - Government is conducting a participatory review of all relevant legal texts to address weaknesses in national law and improve compliance with UN conventions against corruption; the Bank supports and monitors these efforts within its third development policy operation approved in March 2009. ### Structural reforms in forestry - The government met the triggers for the forestry sector; primary objective: improve governance to support FDI, export earnings, fiscal revenue, and employment. - New forestry code adopted by Parliament and promulgated by the President in 2008 conforms to best international practices and provides a legal and regulatory framework to promote sustainable development of the forestry sector. - Key features of the new code: - Protects biodiversity, defines new protected areas, and stipulates forests be placed under sustainable management plans. - Differentiates permanent and non-permanent domain; permanent domain subject to mandatory management plans. - Community forests (non-permanent domain) can be commercially exploited under simplified management plans. - Clearly defines usage rights of local and indigenous populations and includes consultation procedures before awarding concessions on permanent domain. - Taxation system under the code aims to stimulate sustainable forest management and equitable sharing of rents among central government, private operators, and local communities. - Implementing decrees adopted in April 2009 aim to bring transparency and competition in awarding concessions: - Competitive bidding for all harvesting rights; allocation process information to be made public. - New permit holders required to adopt and implement forest management plans. - Independent observer role to ascertain transparency in bidding. - Framework permits awarding longer and more predictable concession contracts. - Public information system effective in informing local communities about forestry activities and revenues: - Social mediators appointed by communities provide information via community meetings and local radio. - Following government instruction in December 2008, revenue-sharing mechanism and revenues accruing to communities are posted in all forest communities. - Ministry of Water, Forestry, Hunting, and Fishing publishes the monthly newspaper Pendere Gbako distributed to all forest communities; the March 2009 issue contains specific information on concessions, harvesting, authorized transport companies, payments to central and local governments, and forestry taxes allocated to local communities. - Implementation and enforcement actions: - January 2009 ministerial instruction established mercurial value per cubic meter for each species based on market price of timber as stipulated by the new forestry code. - Transparent implementation of forest revenue sharing mechanism continues. - In March 2008, government cancelled two permits awarded in 2007 because new licensees would not have complied with new regulations; suspended awarding new permits until the new code and decrees were adopted and issued. - IDA and IMF staffs consider the new forestry code and regulating decrees satisfactorily implemented despite adverse impact of the global economic crisis on forestry revenues. ### Structural reforms in mining - Government met the triggers for the mining sector; primary objective: improve governance to support investment, export earnings, fiscal revenue, employment, and poverty reduction. - Revised mining code: - Revised after intensive consultations; Parliament adopted the revised mining code on April 28, 2009; implementing texts adopted by Presidential decrees on April 30, 2009. - Reduces discretionary powers of government, institutes a transparent system for managing mining licenses, and enhances stability for potential investors. - Provides incentives for nationals’ participation, training, and employment at competitive market rates. - Encourages local processing to increase domestic value added and development of forward and backward linkages with local suppliers. - Protects the environment and rationalizes and standardizes tax incentives for all new mining projects. - Authorities will review tax and equity requirements (with Bank technical assistance) during implementation of the decrees to ensure overall tax burden is not excessive in a fragile state with a fledgling mining industry. - New model mining agreement: - A new standard form mining agreement based on best international practices was prepared and adopted; adopted by Presidential decree on April 30, 2009. - Intended to attract investments from small, medium, and larger enterprises by reducing investor risk transparently. - Enhances linkages at local and community levels and facilitates formal arrangements between mining companies and communities. - Terms complement and supplement the revised mining code; include stability clauses and the tax regime stabilized is described in the revised mining code. - Extractive Industries Transparency Initiative (EITI) adherence: - Government adhered to EITI and published its first EITI report on mining revenues covering 2006. - National council, national steering committee, technical secretariat established; a qualified independent administrator recruited to collect and reconcile data on mining production, company payments, and government receipts. - First EITI report for C.A.R., covering 2006, was validated by the national steering committee on March 19, 2009; civil society, private sector and other stakeholders participated. - Report was posted immediately on the government’s and other websites; international EITI secretariat (which granted C.A.R. EITI candidate country status in November 2008) acknowledged receiving a copy. ### Public Financial Management (PFM) - Completion point trigger for PFM has been met; significant progress in improving PFM. - Reforms guided by diagnostic studies: 2007 Country Financial Accountability Assessment (CFAA), treasury audit (2006), and the Public Expenditure & Financial Accountability (PEFA) report (early 2008). - IDA provided three successive development policy loans (DPL) in collaboration with IMF, AfDB, EU, France, and other partners to improve effectiveness, transparency, and accountability in PFM. - New budget nomenclature: - Developed in 2008 with EU assistance; allows expenditure classification on economic, administrative, and functional bases. - Used for preparation and submission of the 2008 and 2009 budgets to Parliament. - Permits tracking of expenditures devoted to the fight against poverty and is aligned with OHADA standards; budget documentation streamlined and simplified to improve fiscal transparency. - Expenditure tracking and information systems: - Computerized expenditure management system (GESCO) is operational at the General Budget Directorate and permits tracking resource flows through the budget expenditure chain. - Facilitated production of quarterly execution reports at various stages and pilot sectoral reports for Education, Health, Agriculture and Rural Development, and Equipment since first quarter of 2008. - System substantially improved timeliness, comprehensiveness and accuracy of fiscal reporting and will be extended to the payment stage in the course of 2009. - Payroll management: - New payroll management system operational since October 2008. - Civil servant files and wage data merged into a single database; Ministry of Civil Service manages job profiles and updates files. - Payroll directorate at the Ministry of Finance validates documentary evidence and processes monthly payroll after verification. - A computer management information system maintained by the national informatics office facilitates coordination of the unified database. - Public procurement: - Parliament adopted a new procurement code promulgated in June 2008, conforming with best international practices and promoting fair and transparent competition. - Cabinet adopted key legal texts to render the new code fully operational. - Created general public procurement directorate (DGMP), regulatory authority (ARMP), and a bidders complaint unit. - Procurement units set up in the ministries of Education, Health, Agriculture, and Infrastructure; manual of procedures, standard bidding documents, and general conditions of contracts prepared; training program implemented. - All contracts recently awarded were in full conformity with the new legal and regulatory framework. - Other PFM advances: - Organic budget law adopted in 2007. - Cash management strengthened with creation of a liquidity committee and limitation of non-cash backed checks. - Process to implement a treasury single account is underway; most non-donor mandated commercial accounts with commercial banks have been closed. - Consultation mechanisms with line ministries and civil society established, improving alignment of expenditures with sector priorities. - New budget execution procedures adopted, clarifying modalities and accountabilities, simplifying and reducing steps to process expenditures, improving budget execution. - Autonomy of the financial control directorate was restored and its units installed in line ministries. *Source: _cr09259 - 12. Structural reforms introduced during the first year of PRS implementation have (PDF chapter).* ### 33. Looking forward, the government intends to build on recent progress to further ### Looking forward, the government intends to build on recent progress to further ### Public Financial Management (short-term reform focus) - Short-term reforms will focus on: - (i) developing a medium-term approach to budgeting to align the budget with medium-term goals, such as the MDGs and PRS; - (ii) strengthening the external control of budget execution; - (iii) enhancing accountability with the preparation of the final accounts for 2008 and the 2008 budget execution law for submission to the Court of Accounts and Parliament. ### Civil Service Reform - Cabinet adopted a new organizational framework consistent with PRS objectives to improve efficiency and effectiveness, with a focus on results in line with PRSP recommendations. - Institutional audits of three ministries were carried out with World Bank support; two organigram types adopted: - Small ministries: containing two directorates. - Ministries with expanded responsibilities (e.g., finance and education): containing three directorates. - Authorities are working to provide clear definitions of roles and functions for each unit and job descriptions for each post. - A new civil service statute: - Applies to permanent and non-permanent civil servants at central and deconcentrated levels. - Defines rights and obligations, structure, sanctions system, and procedures for employment termination. - Includes guidelines on conflict of interest, basic rules of a meritocratic civil service, and condemns corruption. - Specifies remuneration and performance assessment systems: - Remuneration: - Defines an index-based system tying pay to grades and levels; details to be defined in application decrees. - The index will be revised in line with cost of living adjustments. - Allowances are only temporary and linked to the post. - The statute determines that bonuses cannot go beyond 10 percent of the salary. - Performance assessment systems: - An annual evaluation is linked to promotion and remuneration. - Civil servants need to achieve a minimum score to be eligible for promotion every two years. - A two-level recourse system: first to the minister, second to an external entity. - Government plan: set up a coordination mechanism under the Prime Minister’s Office to steer the civil service reform program. This unit will: - Review issues related to civil service and administrative reforms. - Elaborate and implement management systems to improve government effectiveness and the relationship between government and citizens as users of government services. - Define a communications strategy, support implementation of reforms, and monitor execution. ### Social Sector Reforms — Education - Trigger on increasing the number of primary school teachers: satisfactorily implemented. - With IDA support, 850 new apprentice teachers recruited and deployed in 483 primary schools in 2007/08, including in conflict zones. - Additional recruitment: 171 student teachers from the national school of primary school teachers in the first half of 2009, being deployed nationwide. - Result: at least 1,000 new teachers available for the 2009/10 school year. - Recruitment supports transition toward increased and better educational staff under the Fast Track Initiative. - Measures to reduce repetition rate in primary education: - 2007 decree: (i) eliminates repetition within each of the three cycles of primary education; (ii) limits repetition rate from one cycle to the next to 10 percent. - Implemented with a training program supported by local donors to help design remedial programs. - Preliminary national results: repetition rate fell from 28 percent in 2006/07 to 26 percent in 2007/08. - In some academic inspectorates, notably central-east area, repetition declined from 30 percent in 2006/07 to 26 percent in 2007/08. - National Education Strategy: - Adopted by the Council of Ministers in February 2008 covering 2008–20. - Endorsed by EFA/FTI partnership in December 2008. - EFA/FTI Catalytic Fund provided financing of US$38 million to support implementation of the first phase (2009–11). - Main components: improve access via school construction and rehabilitation; enhance quality via teacher training and materials; increase management capacity and internal efficiency. - Grant agreement signed on April 6, 2009. - Staff assessment: - Trigger on education sector satisfactorily implemented. - Understanding: trigger referred to implementation of administrative and pedagogical measures (not to reaching a specific repetition rate). - Measures adopted should make it possible to lower the repetition rate to less than 20 percent in the future. ### Social Sector Reforms — Health - Government objectives: refurbish sanitation infrastructure; increase availability of basic health care; reduce infant and maternal mortality; fight endemic diseases; promote multisectoral approach to combat HIV/AIDS. - Key strategy documents: national plan for the development of sanitation 2006–15; national strategic plan to reduce malaria; comprehensive and extended multi-annual vaccination program 2007–11; updated national strategy against HIV/AIDS (2006–10). - DPT3 vaccination progress: - DPT3 immunization rate nationwide increased from 40 percent in 2005 to 84.1 percent in 2007. - At end-August 2008, DPT3 immunization rate reached 67 percent, on track to reach at least 80 percent by year-end. - On September 1, 2008, Pentavalent vaccine combining DPT3 with other antigens was introduced and monitoring of DPT3 was discontinued. - As of October 2008, Pentavalent coverage was 15 percent. - Combined immunization rate likely to have exceeded 80 percent for the full year. - Staffs consider the trigger met. - Impregnated mosquito nets distribution: - Target: at least 300,000 impregnated mosquito nets. - In 2007 the Ministry of Health distributed more than 650,000 impregnated mosquito nets across the country, including in conflict zones. - In 2008 the Ministry of Health distributed 840,687 treated mosquito nets throughout the country, with UNICEF support. - Distribution was combined with measles vaccination campaign and distribution of soaps to target children under five and pregnant women. ### HIV/AIDS - National strategy: updated national strategy against HIV/AIDS (2006–10) provides framework for multi-sectoral decentralized approach. - Seroprevalence: 2006 study estimates HIV infection rate at 6.2 percent overall; females 7.8 percent; males 4.3 percent. - Condom distribution: - Number of condoms distributed reached 16 million at end-2007; stabilized at about 15 million in 2008. - Resources from KfW, UNFPA, and the Global Fund instrumental in availability and affordability. - Social marketing report for 2006–08 reviewed and found satisfactory. - Condom use is rising, especially among the sexually-active population; female condom distribution is also rising. - Treatment and prevention progress: - Decentralization: opening of 13 new Anti Retro Viral (ARV) units providing treatment to 700 persons living with HIV/AIDS on top of more than 7,800 persons already benefiting from ARV therapy. - Prevention of mother-to-child transmission strengthened through training in 30 health centers and installation of new equipment improving access to voluntary testing. ### Debt Management - Progress in public debt management system: - A computerized Debt Management and Financial Analysis System (DMFAS) is operational in the debt department at the ministry of finance and can produce external debt reports. - Debt department capacity reinforced through recruitment and UNCTAD training on DMFAS use and maintenance. - Presidential decree established the National Committee for Public Debt (NCPD) to coordinate and monitor government debt strategy and policy and produce regular debt statistics bulletins. - Debt database: - Comprehensive database covering domestic and external debt established and maintained. - Debt records contain domestic, external, and guaranteed central government debt in a format following international standards, with data as of December 31, 2008. - All external debt fully reconciled. - Database facilitates periodic debt data production with short lags; capacity to produce debt reports within six month’s lag for public and publicly guaranteed domestic and external debt. - A manual of procedures conforming to standard practices adopted. - Annual publication capacity: - An annual debt statistical bulletin was published in May 2009 with debt data assessed at December 31, 2008, consistent with international standards and IDA/IMF practice. - DMFAS functionality, training, experience, and NCPD mandate provide reasonable assurance of annual publication. - Immediate priorities to consolidate gains: - (i) make the NCPD fully operational; - (ii) consolidate the mandate of the debt department and technical skills of new staff; - (iii) reduce the lag for production of annual and quarterly reports; - (iv) reinforce capacity of the domestic debt management department to strengthen coverage and follow up of domestic debt including arrears for non central government institutions and agencies. ### Updated Debt Relief and Debt Sustainability Analysis — Data Reconciliation - End-2006 HIPC-eligible external debt revisions: - Nominal debt stock and NPV of debt after traditional debt relief revised upward by US$0.7 million to US$1,087.5 million nominal and US$856.6 million in end-2006 NPV terms. - Creditor category breakdown (end-2006, as reported in reconciliation): - Multilateral creditors: US$686.1 million in nominal terms; US$536.7 million in end-2006 NPV terms. - Paris Club creditors: end-2006 NPV after traditional relief revised upward from US$47.3 million to US$48.3 million (marginal increase reflecting accumulated interest in arrears for France and Italy). - Other official bilateral creditors: NPV of debt revised downward marginally by US$0.5 million to US$227.8 million (revisions reflect upward revision for Argentina and downward revision for China). - Commercial creditors: NPV as of end-2006 remains in line with decision point estimate. - Exports revision: - Exports of goods and services revised from an annual average of US$182 million for 2004–06 to US$185.5 million. ### Updated Debt Relief and Debt Sustainability Analysis — Revision of HIPC Assistance and Creditor Participation - Required HIPC assistance (end-2006 NPV terms) revised downward from US$583 million at the decision point to US$578 million. - Common reduction factor declined from 68.1 percent to 67.5 percent. - Revised HIPC assistance in nominal terms: US$827 million. - Creditor participation status: - Financing assurances equivalent to 82 percent of the NPV of HIPC assistance estimated at the decision point have been received. - Most multilateral creditors (61 percent of total HIPC assistance) and all Paris Club creditors (5.6 percent) confirmed participation. - Several multilateral and Paris Club creditors provided interim assistance. - Some other official bilateral (11.9 percent) and commercial creditors (3.1 percent) agreed in principle to provide debt relief at completion point. - Authorities are working toward agreements with remaining creditors. - Multilateral creditors: - Revised HIPC assistance from multilateral creditors: US$362 million in end-2006 NPV terms (62.7 percent of total HIPC assistance). - Multilateral creditors accounting for 61 percent of HIPC assistance have committed to provide their full share. - Interim relief provided totals US$142.6 million in end-2006 NPV terms (39.4 percent of total multilateral HIPC assistance). - IDA: - Debt relief amount: US$206.9 million in NPV terms at decision point. - Delivered US$81.1 million in NPV terms (US$78.8 million nominal) through clearance of arrears on grant terms in November 2006 and a 63.4 percent reduction in debt service during the interim period. - Remaining assistance at completion point: US$125.8 million in NPV terms (US$210 million nominal) via a 62.6 percent reduction of debt service to IDA through September 2027. - IMF: - Decision point commitment: SDR 17.33 million (US$26.98 million) in NPV terms. - Marginal revision to SDR 17.19 million (US$26.77 million) in NPV terms. - Interim assistance provided: about SDR 6.6 million (US$10.3 million) in NPV terms. - Completion point: remaining amount provided through a stock-of-debt operation estimated at SDR 11.4 million (nominal). - IMF assistance represents an average reduction of 55 percent of debt service on eligible debt. - AfDB Group: - HIPC relief: US$84.7 million in NPV terms. - Provided US$49.4 million in end-2006 NPV terms (US$48.2 million nominal) via clearance of arrears on grant terms in December 2006 and an 84 percent reduction in debt service during the interim period. - Expected remaining relief at completion point: 80 percent reduction of debt service on debt outstanding as of end-December 2006, applied from July 2009 through July 2020. - EU: - HIPC relief: US$4.2 million. - Provided US$1.8 million in end-2006 NPV terms (US$1.4 million nominal) via clearance of arrears on grant terms and 100 percent interim debt service reduction on selected loans. - Remaining assistance expected through up to 100 percent debt service reduction on selected loans. - Other multilateral creditors: - BADEA: US$8.7 million; delivered estimated US$3 million interim assistance via rescheduling of accrued arrears and maturities. - IFAD: US$15.5 million. - OFID: US$6.4 million. - BDEAC: US$8.8 million. - Arrears to international organizations: US$0.5 million. - Assumptions and status: - IFAD assumed to provide full relief by cancelling 100 percent of debt service falling due, starting at completion point through May 2017. - OFID assumed to provide full relief by concessional rescheduling of accrued arrears and maturities at completion point. - BDEAC and international organizations had not confirmed participation at time of writing. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 56. Paris Club creditors have agreed in principle to provide their share of enhanced ### _cr09259 - 56. Paris Club creditors have agreed in principle to provide their share of enhanced ### Paris Club and interim HIPC assistance - Paris Club creditors agreed in principle to provide their share of enhanced HIPC assistance, estimated at US$33 million in end-2006 NPV terms (in accordance with the revised assistance, Table 4). - Interim assistance estimated at US$4 million in end-2006 NPV terms has been provided through a flow treatment on Cologne terms, agreed in April and December 2007, respectively. - Participating Paris Club creditors declared readiness in principle to provide their full share of assistance at the completion point; the full share at completion is expected to be provided through a stock-of-debt reduction. - Paris Club creditors indicated they would provide additional assistance beyond HIPC relief through 100 percent stock-of-debt cancellation, estimated at about US$22.7 million in end-2008 NPV terms. ### Non-Paris Club bilateral and commercial creditor participation - NPV of HIPC relief at end-2006 from non-Paris Club bilateral creditors is estimated at US$153.8 million. - In 2008 and 2009, C.A.R. authorities initiated negotiations with non-Paris Club creditors; some agreed in principle to provide debt relief at completion point, including: - Argentina: 3.9 percent of total HIPC-eligible debt - Kuwait: 2.2 percent - Libya: 1.2 percent - Saudi Arabia: 1.9 percent - Serbia: 2.4 percent - Some Union Postale Universelle member countries also agreed in principle to provide debt relief. - Several non-responding bilateral creditors account for about half of that group; notable amounts: - China: 2.9 percent of total HIPC-eligible debt - Taiwan Province of China: 10.9 percent - China cancelled two loans totaling US$11 million in January 2007, accounting for 29 percent of the nominal amount of China’s loans to C.A.R. and 59 percent of its share of HIPC relief in end-2006 NPV terms. - NPV of debt owed to commercial creditors after traditional relief is estimated at US$43.7 millions, 5 percent of total HIPC-eligible debt. - Commercial creditors agreeing in principle include France Cable Radio, France Telecom, France Hospital, and French Postal Bank, totaling 3.1 percent of total HIPC-eligible debt. - Commercial creditors not responding favorably account for 2 percent of total HIPC-eligible debt. - Staffs are not aware of litigation against the government of C.A.R. as of the document; C.A.R. is committed to negotiating in good faith with remaining creditors. ### Debt stock and creditor composition (as of December 31, 2008) - Nominal stock of C.A.R.’s external debt: US$1.05 billion. - Creditor shares: - Multilateral creditors: 63 percent of total debt. - IDA: 36.8 percent of total outstanding nominal debt. - Paris Club creditors: 5.6 percent. - Non-Paris Club creditors: 26.7 percent. - Taiwan Province of China: 9.8 percent of total outstanding nominal debt (largest bilateral creditor). - Commercial creditors: 5 percent of total debt. ### Topping-up consideration and NPV debt-to-exports ratios - C.A.R. would not qualify for topping-up. - NPV of debt-to-exports ratio at end-2008—after full delivery of assistance committed at the decision point—is estimated at 148.0 percent, which is 21 percentage points above the projection at the time of the decision point (projection then was 127.1 percent; decision point document value was 117.4 percent before revision). - NPV of debt-to-exports ratio after full delivery of additional bilateral debt relief beyond HIPC at end-2008: 137.8 percent, below the 150 percent threshold for topping-up consideration. ### Breakdown of factors contributing to the increase in the NPV of debt-to-exports ratio (end-2008) - Difference between projected at Decision Point and actual: Unanticipated changes in the ratio = 21.0 percentage points (100% of the increase). 1. Due to changes in the parameters: 13.5 percentage points (64% of total increase) - o/w due to changes in the discount rates: 4.4 percentage points - o/w due to changes in the exchange rates: 9.1 percentage points 2. Due to unanticipated new borrowing: -4.9 percentage points (-23% of total increase) - o/w due to higher than expected disbursements: -6.1 percentage points (-29%) - o/w due to lower concessionality of the loans: 1.2 percentage points (6%) 3. Due to changes in export: 8.9 percentage points (43% of total increase) 4. Due to changes in HIPC relief and other factors: 3.4 percentage points (16% of total increase) - Bilateral debt relief beyond HIPC contributed -10.2 percentage points to the ratio. - NPV of debt-to-export ratio after full delivery of HIPC assistance and bilateral debt relief beyond HIPC (actual): 137.8 ### MDRI participation and amounts - C.A.R. will qualify for the MDRI, contingent on Boards of IDA and IMF agreeing the completion point is reached. - Three creditors to provide MDRI relief: IDA, the AfDB, and the IMF. - MDRI debt relief (net of HIPC assistance) estimated at US$163 million in NPV terms; would save C.A.R. US$297 million in debt service over 33 years on debt owed to these three institutions. - IDA MDRI relief: - Debt reduction at completion point: US$182 million. - Average annual debt service savings (net of HIPC assistance) from 2009–2041: US$6 million. - Total debt service savings from MDRI relief: US$195.4 million (SDR 128.2 million). - IMF MDRI relief: estimated US$2.9 million (SDR 1.9 million), covering full stock-of-debt owed to the IMF at end-2004 still outstanding at completion point after HIPC delivery. - AfDB MDRI relief: - Debt service relief amounting to US$98.7 million in nominal terms, starting July 1, 2009. - Debt stock cancellation estimated at US$91.1 million, delivered by forgiving post-completion point repayment obligations. ### Debt sustainability outlook and projections (2009–28) - Macroeconomic framework aligns with government medium-term framework under the PRGF arrangement; projections based on loan-by-loan debt data and exchange and interest rates as of end-2008. - Near-term outlook affected by global slowdown: real GDP projected to recover from 2.2 percent in 2008 to 2.4 percent in 2009 and 3.1 percent in 2010. - Large external current account deficits—close to 10 percent of GDP—projected to continue in 2009 and 2010. - Fiscal focus: stabilize demand through government expenditures while preserving medium-term fiscal discipline; revenue projections for 2009 revised down but higher-than-expected grant financing allows spending expansion without significant debt accumulation. - Medium- to long-term growth drivers include consolidation of peace, donor projects, improved fiscal management, and improved investment climate. - Box 2 baseline macroeconomic assumptions (selected exact values): - Real GDP growth: Average annual real GDP growth for 2009–29 projected at 4.4 percent. - Inflation (GDP deflator): projected to increase by 2½ percent on average for 2009–29. - Current account balance: projected to average 7 percent for 2009–29 (current account deficit including grants). - Government overall fiscal deficit (including grants): projected to average about 1.2 percent of GDP for 2009–29. - Domestic revenue: projected to rise from 10½ percent of GDP in 2009 to some 14 percent at end-2029. - Total expenditures: projected to rise from about 17 percent of GDP in 2009 to about 20 percent in 2029. - External assistance: annual grants and loans assumed to amount to about 5.4 percent of nominal GDP in the long run; grants about 80 percent of total external assistance; grant element of new external loans averaging 52 percent. - Real interest rate on domestic currency debt: converge to about 4.8 percent in the long run. - After full delivery of HIPC, additional bilateral assistance beyond HIPC, and MDRI: - NPV of debt-to-exports ratio at end-2009 would fall to 74.8 percent after MDRI delivery. - Ratio would increase to 91.3 percent by end-2011 due to high new borrowing, then decline to 56.1 percent in 2028. - Debt service-to-exports ratio after HIPC, additional assistance, and MDRI: - Increase from 3.7 percent in 2010 to 10 percent in 2015, then decline substantially over the longer term. - Nominal debt service would decrease on average by about US$29 million per year over the projection period. ### Sensitivity analysis and alternative scenarios - Three alternative scenarios analyzed: lower GDP growth (Alternative Scenario 1), lower exports growth (Alternative Scenario 2), and lower concessionality of external financing (Alternative Scenario 3). - Findings: - Debt sustainability outlook would be robust to alternative assumptions on GDP, exports growth, and concessionality. - Under lower GDP and exports growth scenarios, debt indicators show downward trends in the long run (Alternative Scenarios 1 and 2). - If external financing relies mostly on loans (Alternative Scenario 3), increases in debt ratios are more pronounced initially and the NPV of debt-to-exports ratio would remain high throughout the projection period. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09259.pdf* ### 75. This scenario assumes no growth acceleration after 2010, resulting in a reduction ### _cr09259 - 75. This scenario assumes no growth acceleration after 2010, resulting in a reduction ### Alternative scenarios and projections - Alternative Scenario 1: No growth acceleration after 2010 - Assumes no growth acceleration after 2010, resulting in a reduction in real GDP growth by 1.3 percentage points on average over the projection period relative to the baseline scenario. - Economic channels and consequences: - Slower implementation of structural reforms, governance concerns, or insufficient investment reduce GDP growth. - Export growth is reduced; import volume growth is also lower. - Negative impact on revenue growth forces reductions in expenditures, including public investments in infrastructure, to preserve the same domestic primary balance as in the baseline. - For a landlocked country like the C.A.R., reduced transportation infrastructure investment implies a permanent low growth trap of insufficient public investment, less government revenue, and lower growth. - Debt implications: - All indicators of NPV of debt deteriorate compared to the baseline. - NPV of debt-to-revenue ratio would increase by 12.7 percentage points by 2018. - NPV of debt-to-revenue ratio would increase by 15.4 percentage points on average in 2019–28, reaching 74.6 percent in 2028. - Over the long term, debt service indicators would also increase. - Alternative Scenario 2: Lower export growth - Assumes a reduction in export volume growth of goods by 30 percent from 2010 onward. - Rationale: substantial worsening from baseline projections that could materialize if transport infrastructure is not improved, making export growth more difficult. - Consequences: - Compared to baseline (which assumes exports-to-GDP ratio steadily increases), the exports-to-GDP ratio will remain almost unchanged under this scenario. - Lower exports may result from failure to diversify export products due to delayed foreign investment in key sectors such as gold, uranium, and in higher value-added for wood products. - Debt implications: - NPV of the debt-to-exports ratio would be higher on average by 10.5 percentage points during 2008–18. - NPV of the debt-to-exports ratio would be higher on average by 23.5 percentage points during 2019–28, reaching 89.8 percent in 2028. - Data note: - Miscellaneous goods are excluded because there is no data on volumes; these exports represent 14.4 percent of total exports in value terms in 2008. - Alternative Scenario 3: Less grants - Assumes replacement of budget-support and project grants with external borrowing. - Specifically, disbursements of budget-support and project grants fall short of the baseline projections by 50 percent from 2010 onward; the same level of expenditure as in the baseline is financed by additional borrowing on concessional terms. - Possible causes: concerns about governance and donors’ budget constraints due to a tight fiscal position. - Fiscal and debt consequences: - Leads to a higher ratio of loan financing to GDP at 3.2 percent of GDP in 2029, compared to 1 percent in the baseline scenario. - Over the long-term projection period, all debt indicators would deteriorate substantially. - The NPV of debt as a share of GDP, exports, and revenues would on average be more than double than in the baseline scenario for the period 2019–28. ### Sensitivity analysis and policy implications - Key messages from sensitivity analysis: - Underscores the importance of continuing prudent fiscal policies and relying on grants to finance additional capital spending. - Authorities’ commitment to macroeconomic stability and structural reforms to recover and accelerate growth is critical. - As the export base diversifies, the economy’s resilience to external shocks is expected to strengthen, but forward-looking debt management and readiness to respond to unexpected shocks are required to keep debt sustainable. ### Conclusions, outcomes, and recommendations - Completion point and performance - In the view of the staffs of IDA and IMF, C.A.R. has met the requirements established in September 2007 for reaching the completion point under the enhanced HIPC initiative. - C.A.R. has satisfactorily implemented all eight triggers. - The poverty reduction strategy is well grounded on the authorities’ economic reform agenda, laid out in consultation with civil society; the government has prepared its first annual PRSP progress report. - C.A.R.’s implementation and monitoring of the PRSP have been satisfactory. - The country has maintained satisfactory performance under the current PRGF-supported program, anchored on a prudent fiscal stance. - Progress in structural reform measures in forestry and mining sectors: establishment of a legal and regulatory framework reflecting best practices and implementation of the Extractive Industries Transparency Initiative (EITI) in mining. - Governance reforms implemented to fight corruption, increase transparency and accountability, and improve public financial management. - Civil service reform launched; education sector strategy endorsed by the EFA/FTI partnership; satisfactory health sector reforms; strengthened public debt management evidenced by publication of the first annual public debt statistics bulletin. - HIPC debt relief and additional assistance outcomes - Revision to end-2006 debt and export data led to a downward revision in the amount of HIPC debt relief: - Common reduction factor declined from 68.1 percent to 67.5 percent. - Amount of HIPC debt relief required to reduce the NPV of debt to 150 percent of exports on the basis of end-December 2006 data revised downward from US$583 million estimated at the decision point to US$578 million. - Assurances received regarding participation in the enhanced HIPC Initiative from creditors representing 82 percent of the NPV of HIPC debt relief estimated at the decision point. - Full delivery of HIPC debt relief, additional bilateral assistance beyond HIPC, and MDRI effects: - In NPV terms, the stock of debt at end-2009 would decline by US$483.4 million due to delivery of HIPC assistance. - Further decline by US$200.4 million due to delivery of additional bilateral assistance beyond HIPC and MDRI assistance, going down to US$156 million. - Recommendation - The staffs of IDA and IMF recommend that the Executive Directors determine that C.A.R. has reached the completion point under the enhanced HIPC Initiative. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09259.pdf* ### 84. Executive Directors may wish to consider this report in terms of the following ### Executive Directors may wish to consider this report in terms of the following questions ### Key questions for Directors - Completion point. Do Directors agree that C.A.R. has reached the completion point under the enhanced HIPC Initiative? - Data Revision. Do Directors agree with staff’s recommendation that the revised export data and the updated stock of debt in end-2006 NPV terms warrant a revision in the proposed amount of HIPC assistance? - HIPC assistance from the IMF. Do IMF Directors agree with the downward revision in IMF HIPC assistance from SDR 17.33 million to SDR 17.19 million? - Topping-up. Do Directors agree that C.A.R. does not meet the requirements for exceptional topping-up at the completion point? - MDRI/HIPC debt relief. Do IMF Directors agree that C.A.R. qualifies for an amount of debt relief from the IMF equal to SDR 14.9 million, of which an estimated SDR 1.9 million would be financed from the MDRI-I Trust, and the rest from the C.A.R.'s HIPC Umbrella sub-account? - Creditor Participation. Do Directors agree that C.A.R.’s creditors have given sufficient assurances to irrevocably commit HIPC Initiative assistance to the C.A.R.? ### Immediate operational figures and revisions - Nominal stock of external debt (end-2006): $1.088 billion. - Total Estimated HIPC Enhanced Assistance (end-2006, NPV terms): $583 million. - IMF HIPC assistance revised from SDR 17.33 million to SDR 17.19 million (NPV terms). - IMF debt relief qualified (post-MDRI): SDR 14.9 million, of which SDR 1.9 million from the MDRI-I Trust. ### Composition of external debt and HIPC cost allocation ### End-2006 composition (nominal stock and HIPC cost shares) - Nominal stock: $1.088 billion. - By creditor group (nominal stock shares shown in figures): - IDA: 37% - Other Official Bilateral: 25% (figure 1) - AfDF: 16% - Paris Club: 7% - IMF: 4% - Other Multilateral: 7% - Commercial: 5% - By creditor group (Total Estimated HIPC Enhanced Assistance, end-2006 NPV terms): - IDA: 36% - Other Official Bilateral: 27% - AfDF: 15% - IMF: 5% - Other Multilateral: 8% - Paris Club: 6% - Commercial: 5% ### Table highlights (end-2006, NPV and nominal) - Total (various columns shown): 1086.8 (US$ million) total nominal across tables. - Multilateral share (nominal): 686.1 (63.1 percent of total, end-2006). - Bilateral and Commercial share (nominal): 400.8 (36.9 percent of total, end-2006). - IDA nominal (end-2006): 398.1 (36.6 percent of total). - AfDF nominal (end-2006): 169.5 (15.6 percent of total). - IMF nominal (end-2006): 42.1 (3.9 percent of total). ### Debt burden indicators and projections (2008–28) ### Key projected indicators (selected snapshots and averages) - NPV of total debt before traditional debt relief (2008): 832.2 (US$ million). - After unconditional delivery of HIPC assistance (end-2008 assumption) – example outcomes: - NPV of total debt (2008, after unconditional HIPC): 328.0 (US$ million). - NPV of outstanding debt (2008, after unconditional HIPC): 328.0 (US$ million). - Selected ratio (2008 baseline, before traditional debt relief): - NPV of debt-to-exports (2008): 375.5 (In percent of Exports). - Debt service-to-exports (2009 baseline shown in figures): 25.9 (In percent of Exports). - After HIPC assistance (illustrative): - Debt service to exports ratio after HIPC assistance (averages 2009–2018): 13.3 (In percent of Exports). - Debt service to revenue ratio after HIPC assistance (averages 2009–2018): 11.5 (In percent of Revenues). ### Multi-scenario NPV lines (2008–28, examples) - Before traditional debt relief: NPV of total debt series begins 832.2 (2008) and shows gradual decline in projections (table 6). - After traditional debt relief: NPV of total debt series begins 790.8 (2008). - After conditional delivery of enhanced HIPC assistance: NPV of total debt begins 795.5 (2008). - After unconditional delivery of enhanced HIPC assistance: NPV of total debt begins 328.0 (2008). - After conditional delivery of enhanced HIPC, beyond HIPC, and MDRI assistance: NPV of total debt begins 795.5 then falls materially over projection period under MDRI assumptions. ### Debt service and fiscal external pressures (2009–28) ### External debt service (selected aggregates) - Before traditional debt relief (2009): Total debt service 44.4 (US$ million). - Existing debt: 44.2 (US$ million). - Multilateral component (2009): 31.0 (US$ million). - After traditional debt relief (2009): Total debt service 52.9 (US$ million). - After HIPC assistance (2009): Total debt service 22.8 (US$ million). - Existing debt after HIPC (2009): 22.6 (US$ million). - After HIPC, beyond HIPC, and MDRI assistance (2009): Total debt service 8.5 (US$ million). - Debt service to exports ratios: - Before traditional debt relief (2009): 25.9 (In percent of Exports). - After HIPC assistance (2009): 13.3 (In percent of Exports). - After HIPC and MDRI assistance (2009): 4.9 (In percent of Exports). ### Reductions attributable to HIPC and MDRI - Reduction in debt service as a result of HIPC Initiative assistance (example averages): 33.8 (US$ million) reduction noted in table 7 (various year-specific values shown). - MDRI assistance reductions (memorial values): reductions shown as “9.8”, “9.8”, “9.3”, etc., in table 7 (year-specific MDRI contribution to reduction in debt service). ### Sensitivity analysis and risks (2008–28) ### Scenarios analyzed (table 4, table 10) - Baseline scenario. - Lower GDP growth scenario (assumes real GDP growth is 3.1 percent on and after 2010). - Lower export growth scenario (assumes 30 percent reduction of exports of goods in volume on and after 2010). - Less grants scenario (assumes 50 percent reduction of program and project grants replaced by program and project loans on and after 2010). ### Illustrative impacts (selected outcomes) - Under the baseline (after HIPC and MDRI assistance), NPV of debt-to-GDP ratio (2009 onward) drops to single digits in the medium term (table 10 baseline series begins 17.7 in 2008 and trends downward over projections). - Lower GDP growth and lower export growth scenarios raise NPV of debt-to-exports and debt service-to-exports ratios materially relative to baseline (tables 10 and sensitivity figures). - “Less grants” scenario increases debt indicators and debt service-to-exports ratios relative to baseline. ### Creditor participation, delivery modalities, and implementation status ### Creditor assurances and delivery modalities (Table 11 synthesis) - Total estimated HIPC assistance (end-2006 NPV terms, revised at completion point): US$578 (Table 11 total line indicates TOTAL 578 100.0). - Multilateral creditors total debt relief in NPV terms: US$362 (62.7 percent of total). - IDA: US$207 (35.8 percent of total); debt relief delivered through clearance of arrears on grant terms in November 2006 and interim debt service reduction of US$81.1 million in end-2006 NPV terms; remaining relief via a 63 percent reduction of C.A.R.'s debt service to IDA through September 2027. - AfDB Group: US$85 (14.6 percent); US$49.4 million (58 percent of AfDB relief) delivered through clearance of arrears in December 2006; remainder assumed via 80 percent reductions of debt service until January 2021. - IMF: US$27 (4.6 percent); US$10.3 million in NPV terms disbursed as interim assistance as of end-June 2009; remaining HIPC assistance at completion point of US$16.1 million in NPV terms. - Paris Club creditors: US$335.6 (share indicated). - Non-Paris Club bilateral creditors and commercial creditors participation summarized with country-level entries (examples): - China: US$172.9 (significant nominal adjustments and some cancellations in early January 2007). - Taiwan Province of China: US$63.1 (10.9 percent of total HIPC-eligible debt). - Commercial creditors: US$30.5 (some in-principle agreements to provide relief; estimated at 3.1 percent of total HIPC-eligible debt). ### Delivery modalities and timing - IDA delivery: arrears clearance on grant terms (November 2006) plus flow reductions and MDRI sequencing; projected remaining IDA delivery under enhanced HIPC and MDRI (Table 12). - IMF delivery: interim assistance already disbursed; completion point disbursement and drawdown schedule into the member's Umbrella Account (Table 13). - MDRI: applies to the World Bank, IMF and AfDB and starts after the completion point (July 2009) (table notes). ### Selected macro and fiscal context (projections and averages) ### Growth, prices, trade (period averages shown) - Real GDP Growth (period averages): 2.6 (2004-08), 4.0 (2009-13), 5.1 (2014-18), 4.3 (2019-23), 4.3 (2024-28). - CPI (end-of-period): 4.5 (2004-08), 2.3 (2009-13), 2.5 (2014-18), 2.5 (2019-23), 2.5 (2024-28). - Exports, f.o.b. (US$ basis) annual growth: 3.8 (2004-08), 11.1 (2009-13), 9.9 (2014-18), 3.8 (2019-23), 8.4 (2024-28). - Imports, f.o.b. (US$ basis) annual growth: 20.9 (2004-08), 6.4 (2009-13), 7.2 (2014-18), 6.5 (2019-23), 6.2 (2024-28). ### Fiscal aggregates (percent of GDP, period averages) - Total revenue (including grants): 15.3 (2004-08), 15.9 (2009-13), 16.6 (2014-18), 17.9 (2019-23), 18.4 (2024-28). - Total expenditure: -14.7 (2004-08), -16.8 (2009-13), -17.8 (2014-18), -19.2 (2019-23), -19.7 (2024-28). - Overall balance including grants (percent of GDP): 0.6 (2004-08), -0.9 (2009-13), -1.2 (2014-18), -1.3 (2019-23), -1.3 (2024-28). ### Implementation milestones and assumptions (selected) - Paris Club cutoff date: January 1, 1983 (Table 5 memorandum item). - Assumes the full delivery of HIPC assistance at completion point (end-June 2009) for some scenarios; in other projections, full delivery of estimated HIPC initiative debt relief as of end-December 2008 is assumed (Table 6 notes). - MDRI assistance assumed to start after the completion point (July 2009) and applies to World Bank, IMF and AfDB Group (Table 6 notes). _Italic: Sources: C.A.R. authorities; and IMF and World Bank staff estimates and projections (content drawn from the provided report excerpt)._ ### APPENDIX I ### APPENDIX I ### Debt management: recent achievements - Signature of the CEMAC regulation on debt management requiring: - clear coordination of all entities involved in debt management operations; - establishing and following a consistent debt strategy; - publishing a yearly report covering debt management activities; - coordination with macroeconomic policies; and - establishing a manual of procedures. - Presidential decree on April 30, 2009 to establish the National Committee for Public Debt (NCPD) with mandate to: - coordinate and monitor implementation of the government’s debt management strategy; - coordinate debt management with fiscal and monetary policy; - inform the public on the national strategy and policy for debt management; - report on the performance of the strategy; - ensure the flow of information on debt issues among all State institutions involved in debt management activities; and - produce debt statistics bulletins. - Institutional strengthening of the debt department: - acquisition of a computerized Debt Management and Financial Analysis System (DMFAS) produced by UNCTAD to process all external debt data; - hiring of new employees in charge of processing and recording all debt transactions; - UNCTAD training for new staff on the use and maintenance of DMFAS. ### Debt management: immediate priorities and challenges - Consolidate gains and make the NCPD fully operational: - implement progressively the mandates provided to the Technical Commission and the Permanent Secretariat until institutional routines ensure full functioning of the NCPD as the main authority overseeing the debt management framework. - Consolidate the mandate of the debt department within the NCPD: - strengthen capacity to formulate the national debt strategy and debt management; - implement the manual of procedures covering the chain of transactions involved in borrowing operations. - Reinforce operational capacity of domestic debt management: - strengthen analytical capacity of staff to ensure full coverage of domestic debt for non-central government institutions and agencies (public and publicly guaranteed debt by institutions other than the central government, particularly public enterprises); - ensure appropriate follow-up on transactions, particularly closing the “conventions” with commercial banks on outstanding debt; - process data on sub-regional and municipal domestic debt. - Reinforce analytical capacity of debt management to provide policy makers with different scenarios and policy options. --- ### APPENDIX II — DEBT SUSTAINABILITY ANALYSIS USING THE LOW-INCOME COUNTRY FRAMEWORK ### Summary judgment - According to the joint IMF-World Bank debt sustainability framework for low-income countries, Central African Republic (C.A.R.) has a moderate risk of debt distress. - HIPC and MDRI debt relief significantly improve external and public debt burden indicators through the projection period, but C.A.R. remains vulnerable to certain shocks and could breach the policy-related threshold for the NPV of external debt-to-exports ratio in the most extreme scenario. ### Background and methodology - The LIC DSA differences versus the HIPC DSA: - discount rate in the LIC DSA is fixed at 5 percent (versus currency-specific 6-month averages of CIRR in HIPC DSA); - WEO exchange rate assumptions used for PV calculation in LIC DSA (versus actual exchange rate at end-2008 in HIPC DSA); - exports denominator in LIC DSA based on current level of exports of goods and services (versus three-year backward-looking average in HIPC DSA). - Four key updates in this LIC DSA relative to the previous one: - debt relief based on calculations for the HIPC completion point rather than earlier estimates; - baseline assumes lower real GDP growth, larger current account deficit, and worse fiscal balance in the near term, mainly due to the global crisis; - real GDP growth assumed to be lower by about 0.7 percentage point over the period; - historical data for real GDP growth were revised by authorities, affecting nominal GDP level in 2009 and thereafter. ### Key debt stocks (end-2008) - Total public debt including domestic arrears: 79.4 percent of GDP. - External public and publicly guaranteed debt: 56.8 percent of GDP. - Multilateral creditors: more than half of external public and publicly guaranteed debt. - Official bilateral creditors: about one-third. - Domestic public debt (including budgetary arrears and domestic debt of public enterprises): 23 percent of GDP, consisting of: - outstanding credits to the government from domestic commercial banks: 10 percent of GDP; - government debt with the Bank for Central African States (BEAC): 30 percent of GDP; - budgetary arrears: 52 percent of domestic public debt; - public enterprise debt: 4 percent of domestic public debt; - nonbanks: 5 percent of domestic public debt. ### Underlying macroeconomic assumptions and baseline outlook - Near-term impact of international financial crisis: - sudden drop of timber and diamonds exports → lower GDP growth and worse external current account balance; - lower revenue projected for 2009; - additional spending to consolidate peace process and finance 2010 elections moves domestic primary balance into negative territory in 2009; primary balance including grants remains in surplus. - Medium- and long-term baseline assumptions: - steady-state growth path supported by political and social stability; - real GDP growth uplift to 5.5 percent in the medium term from growing exports including gold and uranium; - external current account deficit improving to around 4 percent of GDP over time; - financing primarily by private investment, highly concessional project loans, and the regional market for government securities expected to be launched in 2010; - fiscal policy remains prudent with domestic primary balance in surplus until 2019; - primary balance including grants higher than needed to stabilize debt-to-GDP ratio; debt-to-GDP ratio could decline by some 10 percentage points to 20 percent of GDP by 2029. - Identified risks: - political uncertainty or worsening social/security situation could hamper donor support and investor confidence; - prolonged global crisis impact on exports could slow growth and worsen debt indicators; - insufficient infrastructure investment (e.g., roads) could delay private sector projects. Box 1 — Baseline macroeconomic assumptions (selected figures and projections) - Real GDP growth: Average annual real GDP growth for 2009–29 is projected at 4.4 percent. - Inflation: GDP deflator projected to increase by 2½ percent on average for 2009–29; CEMAC convergence criterion of 3 percent (defined by the CPI). - Current account balance: projected average deficit (including grants) of 7 percent for 2009–29. - Government balance: - domestic primary surplus in place until 2019 and then declining to zero between 2020–29; - overall fiscal deficit (including grants) projected to average about 1.2 percent of GDP for 2009–29; - domestic revenue projected to rise from 10½ percent of GDP in 2009 to some 14 percent at end-2029; - expenditures projected to rise from about 17 percent of GDP in 2009 to about 20 percent in 2029. - External assistance: total grants and loans assumed about 5.4 percent of nominal GDP in the long run; grants assumed to account for about 80 percent of total external assistance; grant element of new external loans averaging 52 percent. - Domestic borrowing: government assumed to start accessing regional securities markets in 2010; domestic debt expected to decline during the projection period. - Real interest rate on domestic currency debt: average real interest rate should converge to about 4.8 percent in the long run. ### External DSA: baseline and stress-test findings - Baseline scenario: - Following HIPC and MDRI relief, all debt indicators expected to remain below relevant thresholds throughout the projection period. - Debt service-to-export and debt service-to-revenue ratios increase temporarily over the medium term due to debt service on new debts after grace periods, but remain well below thresholds. - Other debt indicators show stable downward trends. - Text Table 1 (selected threshold comparisons and indicators) - Policy-dependent thresholds for a weak performer noted; C.A.R. received an average CPIA rating of 2.43 in 2005–07 (qualifying as a weak policy performer). - Selected indicator values (2008, 2009, 2009–29 est./proj./peak) presented in Text Table 1 (exact tabular layout preserved in source). - Scenario comparisons: - Historical scenario appears much more favorable than baseline because of severely compressed imports during conflict history (average noninterest current account deficit of 2.2 percent of GDP historically versus projected 7 percent under baseline). Historical scenario considered unlikely given recent trends. - Bound and stress tests: - Most extreme stress test (combination shock largely driven by lower export value growth) would raise the NPV of the debt-to-exports ratio above the threshold for a prolonged period. - Debt service-to-exports ratio would exceed the threshold during 2015–16 under the low export growth scenario. - These results highlight the need to develop exports, improve business climate for foreign investment, reduce transport costs, and improve productivity. ### Public debt sustainability analysis - Impact of HIPC and MDRI: - Significant improvement in public debt indicators because public external debt accounts for almost half of public debt stock. - Baseline public debt projections under stated assumptions: - Assumption of lower program grants long term (0.7 percent of GDP); - Assumption of prudent fiscal policy with domestic primary balance surplus in medium term and balance over long term, higher domestic revenue-to-GDP ratio, and relatively low-cost financing. - Accessing regional government securities markets starting in 2010 expected to eliminate expensive commercial bank credits and clear domestic arrears. - NPV of public debt-to-GDP ratio projected to decline from 28 percent of GDP in 2009 to 17 percent of GDP in 2029. - NPV of public debt-to-revenue ratio projected to fall from 174 percent to 90 percent over the same period. - Stress scenarios: - All debt indicators would deteriorate rapidly if real GDP growth were slower or if debt-creating flows increased. - Lower GDP growth is the most extreme scenario, causing the NPV of the debt-to-GDP ratio, NPV of the debt-to-revenue ratio, and debt service-to-revenue ratio to rise over time. *Source: APPENDIX I and APPENDIX II, _cr09259 - APPENDIX I* ### 98. C.A.R. qualifies as having a “moderate risk of debt distress”. All debt indicators ### C.A.R. qualifies as having a “moderate risk of debt distress”. All debt indicators ### Classification and headline assessment - The Central African Republic (C.A.R.) "qualifies as having a 'moderate risk of debt distress'." - "All debt indicators improve dramatically following the HIPC completion point and debt relief under the MDRI," but "its overall debt position could still be vulnerable to a variety of shocks." ### Main vulnerabilities and policy implications - External debt indicators are "particularly sensitive to export growth," implying that diversifying the export base is essential for preserving external debt sustainability. - Public debt indicators are vulnerable to slower GDP growth and an increase in debt-creating flows. - Policy recommendations (textual): - Pursue prudent fiscal policies over the medium-term. - Consolidate the basis for growth by fostering domestic security, maintaining political stability, and improving the country’s institutional and administrative capacity. ### Stress tests and sensitivity analysis (structure and notable scenarios) - Stress tests cover scenarios and bound tests labeled A1–A2 (alternative scenarios) and B1–B6 (bound tests). Examples described: - B1: Real GDP growth at historical average minus one standard deviation in 2010–11. - B2: Export value growth at historical average minus one standard deviation in 2010–11. - B3: US dollar GDP deflator at historical average minus one standard deviation in 2010–11. - B4: Net non-debt creating flows at historical average minus one standard deviation in 2010–11. - B5: Combination of B1–B4 using one-half standard deviation shocks. - B6: One-time 30 percent nominal depreciation relative to the baseline in 2010. - Note: "The most extreme stress test is the test that yields the highest ratio in 2019." ### Selected key indicators and projections (baseline and illustrative values drawn from tables) - External debt (nominal), percent of GDP / of which public and publicly guaranteed (PPG): - 2009: 70.1 - 2010: 54.6 - 2011: 56.8 - 2019: 11.7 - Change in external debt: - 2009: -11.6 - 2010: -15.4 - 2011: 2.2 - Identified net debt-creating flows: - 2009: -6.0 - 2010: -6.4 - 2011: -4.6 - 2019: 0.7 - Non-interest current account deficit (percent of GDP) examples: - 2006: 2.4 - 2007: 5.7 - 2008: 8.8 - 2019: 4.0 - Exports (percent of GDP) samples: - 2006: 14.2 - 2007: 14.1 - 2008: 10.8 - 2019: 13.8 - PV of external debt (selected projection points): - 2011: 34.9 - 2019: 7.1 - PV of external debt in percent of exports (selected): - 2011: 323.5 - 2019: 51.4 - PV of PPG external debt in percent of government revenues (selected): - 2011: 336.4 - 2019: 49.6 - Debt service ratios: - Debt service-to-exports ratio (percent) examples: - 2006: 18.6 - 2007: 14.1 - 2011: 27.5 - 2019: 3.2 - PPG debt service-to-revenue ratio (percent) examples: - 2006: 27.8 - 2007: 19.4 - 2011: 28.6 - 2019: 3.1 - Total gross financing need (Billions of U.S. dollars): typically 0.0–0.2 across projection years; example entries include 0.0, 0.1, 0.1, 0.2. - Non-interest current account deficit that stabilizes debt ratio (percent of GDP) examples: - 2006: 14.0 - 2007: 21.2 - 2011: 9.7 - 2019: 4.1 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent) – selected sequence: - 2006: 3.8 - 2007: 3.7 - 2008: 2.2 - 2009: 1.1 - 2010: 3.2 - 2011: 2.4 - 2012: 3.1 - 2013: 4.0 - 2014: 5.0 - 2019: 5.5 - 2029: 4.5 - GDP deflator in US dollar terms (change in percent) – selected: - 2006: 4.8 - 2007: 11.1 - 2008: 15.0 - 2009: 6.1 - 2010: 10.1 - 2011: -7.5 - Effective interest rate (percent) – selected: - 2006: 0.8 - 2007: 0.7 - 2008: 2.1 - 2009: 1.2 - 2010: 0.5 - 2011: 1.0 - Growth of exports of G&S (US dollar terms, in percent) – selected: - 2006: 21.3 - 2007: 14.6 - 2008: -10.0 - 2010: 12.0 - 2011: -20.5 - Government revenues (excluding grants, percent of GDP) – selected: - 2006: 9.5 - 2007: 10.3 - 2008: 10.4 - 2019: 14.3 - Aid flows (in Billions of US dollars), o/w Grants – selected: - 2006 total: 0.2 (o/w Grants 0.2) - 2019 total: 0.2 (o/w Grants 0.1) - 2029 total: 0.4 (o/w Grants 0.3) ### Public sector debt framework (selected public-debt indicators) - Public sector debt (percent of GDP) – selected: - 2006: 93.9 - 2007: 79.1 - 2008: 79.4 - 2019: 22.9 - 2029: 21.2 - Public sector debt (foreign-currency denominated) – examples: - 2006: 70.1 - 2007: 54.6 - 2008: 56.8 - Change in public sector debt: - 2006: -12.1 - 2007: -14.8 - 2008: 0.3 - 2009: -49.9 - Revenue and grants (percent of GDP) – selected: - 2006: 22.9 - 2009: 16.6 - 2019: 17.5 - 2029: 18.7 - of which: grants (percent of GDP) – 2006: 13.4; 2019–2029: 4.4 - Primary (noninterest) expenditure (percent of GDP) – selected: - 2006: 13.0 - 2019: 17.7 - 2029: 18.9 - PV of public debt (selected): - 2006: 154.9 - 2009: 146.9 - 2014: 103.9 - 2019: 89.1 - PV of public debt (percent of GDP) and related ratios are reported throughout projection tables and are sensitive to the stress scenarios above. *Source: C.A.R. authorities; IMF and World Bank staff estimates and projections.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09259.pdf_