## _cr12240

## Source details

**Canonical URL:** [_cr12240](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12240.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12240.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12240.pdf.json)

---

### Executive Summary — background and recent developments
- Fragility: C.A.R. remains a fragile state since emerging from conflict in 2003; political tensions persist and some areas are under rebel control.
- Main policy challenge: transition out of fragility through sustained macroeconomic and structural reforms focused on strengthening budget execution, improving public financial management (PFM) and governance, scaling up investment in basic infrastructure, improving competitiveness, and improving the business climate to increase private sector participation and employment.
- Growth and inflation:
  - Real GDP growth for 2011 revised to 3.3 percent.
  - Headline inflation reached 7.8 percent in March 2012 (y-o-y).
  - Annual inflation projected at 6.8 percent for 2012 as a whole.
- Budget execution (through end-March 2012):
  - Buildup of petroleum subsidies: CFAF 1.2 billion (0.1 percent of GDP) during Q1 due to nonadjustment of domestic petroleum prices since January 2012.
  - Unplanned liquidity injection: CFAF 5.5 billion in capital of an intervened bank, lowering the domestic primary fiscal surplus versus program.
  - Authorities adjusted pump prices on June 1 (prior action) and committed to monthly adjustments to eliminate subsidies.
  - Monthly cash-flow plans prepared to avoid expenditure overruns and set ceilings on spending commitments.
- External payment arrears at end-2011: US$22.9 millons, broken down as:
  - Bilateral: 19.7
  - Paris Club (France): 2.0
  - Non-Paris Club: 17.7
  - Multilateral (EIB): 0.7
  - Private Creditors: 2.6

### The proposed three-year ECF reform program (macroeconomic framework, 2012–15)
- Program purpose: buttress reform efforts, address the protracted balance of payments problem, close the financing gap, and catalyze donors’ assistance for concessional financing aimed at poverty reduction and MDG progress.
- Selected medium-term projections (percent unless otherwise indicated):
  - Real GDP growth: 2010 Prel. 3.0; 2011 3.3; 2012 Proj. 4.1; 2013 Proj. 4.2; 2014 Proj. 5.9; 2015 Proj. 5.2
  - Consumer price (avg): 2010 1.5; 2011 1.2; 2012 6.8; 2013 1.6; 2014 2.3; 2015 2.3
  - External current account (percent of GDP): 2010 -10.2; 2011 -8.7; 2012 -7.6; 2013 -6.5; 2014 -6.1; 2015 -5.8
  - Reserves coverage (months of imports, f.o.b.): 2010 3.1; 2011 2.6; 2012 2.7; 2013 2.8; 2014 3.0; 2015 3.2
- Growth drivers to about 6 percent by 2014:
  - continued strength in agricultural production;
  - recovery in private sector investment in mining driven by FDI inflows;
  - rebound in external demand.
- Inflation: expected to return to CEMAC convergence rate of 3 percent starting in 2013.
- External current account and reserves: deficit to decline gradually; reserves to improve to around three months of imports by 2014.

### Natural resource projects and governance
- Passendro Gold Mining Project:
  - 25-year mining license covering 137 square miles and two surrounding exploration licenses covering 386 square miles.
  - Total capital costs expected about US$270 million.
  - IFC considering participating with US$50 million equally divided in equity and debt to AXMIN (Canadian-based).
  - Expected employment: between 615 and 670 workers, mainly local hires.
  - IFC Advisory Services may support linkage programs and community development initiatives.
- IMF Fiscal Affairs Department: will provide a desk-based assessment of the mining code and determine further TA needs.
- EITI status: C.A.R. attained EITI compliant status in March 2011.

### Policy objectives and structural measures
- Core program objectives:
  - consolidate the fiscal position in 2012 and align expenditure with available resources;
  - create fiscal space for poverty reduction and infrastructure investment through stronger domestic resource mobilization and expenditure prioritization;
  - improve PFM and governance to attract financial support;
  - enhance donor coordination and leverage TA to strengthen capacity and institutions;
  - accelerate structural reforms to remove impediments to growth and deepen financial intermediation.
- Revenue administration reforms and PFM actions:
  - update taxpayer files, enhance registration procedures, improve tax control efficiency;
  - Liquidity management strengthened via committees and units; monthly cash-flow plans and CSGB bimonthly ceilings.
- Petroleum pricing: adjust domestic petroleum prices monthly (prior action: June 1 adjustment) to eliminate subsidies and safeguard revenues; maintain VAT application to preserve VAT integrity.

### Medium-term fiscal strategy, PFM, and arrears clearance
- Fiscal targets and measures:
  - Generate modest domestic primary surpluses; target domestic primary fiscal surplus of 0.6 percent of GDP (MEFP ¶18).
  - Raise domestic revenue by 1.4 percentage points of GDP by 2014 via comprehensive tax policy reform and reorganization of tax and customs administrations (TA recommendations).
  - Reestablish expenditure and payments discipline and reorient expenditure to create space for investment and poverty reduction while facilitating clearance of domestic arrears.
- Arrears clearance targets:
  - Specific arrears clearance target in 2012: CFAF 4 billion (0.4 percent of GDP), to be raised by one-half of higher-than-programmed grants.
  - Domestic payments arrears baseline: stock CFAF 123 billion as of end-December 2011 (subject to EU-supported audit).
  - Commitment: adopt plan to clear audited domestic arrears by March 2013.
- PFM strengthening objectives to put in place a Medium-Term Expenditure Framework by 2014 and limit exceptional payment procedures to no more than 5 percent of current nonwage, noninterest domestically financed expenditure.

### Debt sustainability and borrowing policy
- Debt sustainability assessment: C.A.R. at a moderate risk of debt distress.
- Policy implications:
  - Continue prudent fiscal and borrowing policies.
  - New external debt should be largely on concessional terms; minimum concessionality requirement of 35 percent for new loans.
  - Set a zero ceiling on nonconcessional borrowing (MEFP ¶25); ceiling may be reconsidered at program reviews for specific projects subject to World Bank/AfDB assessments and improved debt management.
  - Operationalize National Committee on Public Debt (CNDP) — legislative texts targeted by end-September 2012.

### Financial sector and CBCA
- Financial soundness indicators (selected, Table 8):
  - Regulatory capital to risk-weighted assets: 25.0 (2011).
  - Non-performing loans (gross) to total loans: 14.7 (2011).
  - Provisioning rate: 77.9 (2011).
  - Gross interest margin to total assets: 4.0 (2011).
- CBCA: government temporarily provided approximately CFAF 5.5 billion to acquire 57 percent of CBCA pending a strategic shareholder; commitment to divest stake and find strategic partner.

### Program conditionality, access, and financing (ECF)
- Proposed IMF access:
  - 75 percent of quota (SDR 41.775 million).
  - Frontloading first year at 37.5 percent of quota; first-year frontloaded disbursements in three installments equal to SDR 6.963 million each (12.5 percent of quota) at approval and first and second reviews.
- Financing phasing (Table 6; availability dates and amounts):
  - June 25, 2012: 6,963,000 SDRs, 12.50 percent of quota (Approval).
  - November 15, 2012: 6,963,000 SDRs, 12.50 percent of quota.
  - May 15, 2013: 6,963,000 SDRs, 12.50 percent of quota.
  - November 15, 2013: 5,222,000 SDRs, 9.38 percent of quota.
  - May 15, 2014: 5,222,000 SDRs, 9.38 percent of quota.
  - November 15, 2014: 5,222,000 SDRs, 9.38 percent of quota.
  - May 15, 2015: 5,220,000 SDRs, 9.37 percent of quota.
  - Total: 41,775,000 SDRs, 75.00 percent of quota.
  - C.A.R. quota: SDR 55.7 million.
- First-year financing assurances: first year of program fully financed with indications from AfDB, EU, and World Bank to resume budget support; government pursuing debt relief negotiations with bilateral creditors and good faith efforts with private creditors.

### Program monitoring, conditionality, and TMU definitions
- Monitoring:
  - Program monitored biannually with quantitative performance criteria (end-June 2012 and end-December 2012) and indicative targets (end-September 2012 and end-March 2013).
  - Structural benchmarks include cash-flow plan (prior action), limit on exceptional procedures, adoption of plan to clear audited arrears by March 2013, data sharing mechanisms, and operationalization of CNDP legislative texts by end-September 2012.
- Key quantitative PC definitions and levels (selected, TMU):
  - Floor for total domestic revenue: CFAF 66.6 billion at end-June 2012; CFAF 128.1 billion at end-December 2012. Indicative targets: CFAF 96.1 billion end-September 2012; CFAF 34.5 billion end-March 2013.
  - Floor for domestic primary fiscal balance: CFAF 6.2 billion end-June 2012; CFAF 6.3 billion end-December 2012. QBs: CFAF 6.0 billion end-September 2012; CFAF 4.0 billion end-March 2013.
  - Adjuster: if external budgetary grants exceed program forecasts, the primary balance floor adjusted downward by 50 percent of excess grants.
  - Ceiling on nonconcessional external debt: policy of no nonconcessional loans contracted or guaranteed by the government; exceptions possible at program reviews under strict conditions.
  - Non-accumulation of external and domestic payment arrears: continuous performance criteria.

### Risks, mitigation, and data reporting
- Main risks:
  - Fragile political/security situation and presence of foreign rebel groups.
  - External risk: weakening external environment, particularly the euro area.
  - Economic risk: sustained increase in world oil prices testing pass-through commitment.
- Mitigation measures:
  - Targeted protections for vulnerable groups; prior actions to improve fiscal management; revitalization of DDR process and security efforts.
- Data reporting requirements (selected timing, Table I.3):
  - Quarterly program report: within four weeks after quarter end.
  - Monetary survey and central bank/commercial banks monthly accounts: within four weeks after month end.
  - Table of monthly cash flow operations: within 10 days after month end.
  - Fiscal reporting table (TOFE): within four weeks after month end.
  - Monthly total of domestic payments arrears: within four weeks after month end.
  - End-of-period stock of external debt and breakdown of debt service: within four weeks after month end.
  - Amount of new concessional/nonconcessional external debt: within four weeks after month end.

### Debt sustainability and stress tests (selected findings)
- Public sector debt (percent of GDP, selected series): 36.8, 41.9, 42.2, 36.0, 34.4, 31.7, 30.1, 28.5, 26.1, 19.0, 12.6.
- PV of public sector debt (percent of GDP, projection examples): 35.7, 28.7, 26.1, 23.0, 20.8, 18.8, 17.0, 11.7, 7.7.
- Debt classification: “moderate risk of debt distress.”
- Stress tests: most extreme shock corresponds to a terms-of-trade shock in several scenarios and substantially raises debt indicators; bound tests include a one-time 30 percent real depreciation and increases in other debt-creating flows that significantly worsen indicators.

### Appendix I — commitments, measures, and timetable (selected)
- Government commitments (2012–15): restore fiscal discipline, revitalize liquidity monitoring, accelerate structural reforms; seek IMF assistance SDR 41.775 million under ECF including disbursement SDR 6.963 million upon approval.
- Revenue measures timing (selected):
  - Adjust petroleum product prices monthly — Done; continuous.
  - Streamline petroleum product price structure — 2012.
  - Implement targeted support for vulnerable groups — 2012.
  - Reconcile registered taxpayer files with physical files — March 2013.
  - Operationalize pilot taxation center for medium-sized enterprises — June 2013.
- Expenditure and debt management timing (selected):
  - CSGB bimonthly caps — Done.
  - Annual cash-flow plan broken into quarterly and monthly plans — Done.
  - Create mechanism for data sharing with Budget Directorate — July 2012.
  - Report monthly execution data on externally financed capital spending — September 2012.
  - Limit exceptional procedures to 5 percent of nonwage, noninterest current spending — Quarterly.
  - Operationalize CNDP — September 2012.
  - Adopt plan to clear audited domestic arrears — March 2013.
- Measures to improve business environment (selected timing):
  - Framework for dialogue with private sector — End-June 2012.
  - Revitalize CPC — September 2012; CPC proposals by December 2012.
  - Align natural resources management framework with international best practices — September 2013.
  - Strengthen judicial/legal framework, land tenure, access to financing, review of investment charter and Commercial Code — 2014.

*Source: IMF staff report and MEMORANDUM ON ECONOMIC AND FINANCIAL POLICIES, Central African Republic (content unit _cr12240).*

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

### Executive Summary

### Background
- C.A.R. remains a fragile state despite progress since emerging from conflict in 2003; political tensions persist and some areas are under rebel control.
- Institutional weaknesses, limited and volatile aid flows, and persistently low domestic resource mobilization have slowed transition out of fragility.
- Fund reengagement seeks to catalyze donor resources from a very low level and enhance coordination for effective TA delivery and capacity building.
- Main policy challenge: transition out of fragility through sustained macroeconomic and structural reforms focused on strengthening budget execution, improving public financial management (PFM) and governance, scaling up investment in basic infrastructure, improving competitiveness, and improving the business climate to increase private sector participation and employment.

### Recent Developments
- Real GDP growth for 2011 was revised upward to 3.3 percent, driven by strong agriculture and mining activity.
- Inflation dynamics:
  - Headline inflation reached 7.8 percent in March 2012 (y-o-y).
  - Annual inflation projected to be contained at 6.8 percent for 2012 as a whole.
  - Price pressures expected to ease later in the year.
- Budget execution through end-March 2012:
  - Lower-than-budgeted tax revenue largely due to nonadjustment of domestic petroleum prices since January 2012, generating a buildup of subsidies amounting to CFAF 1.2 billion (0.1 percent of GDP) during the first quarter.
  - Exceptional nontax revenues offset lower tax receipts.
  - An unplanned liquidity injection of CFAF 5.5 billion in the capital of an intervened bank resulted in a lower-than-programmed domestic primary fiscal surplus.
  - Authorities adjusted pump prices on June 1 (prior action) and committed to further monthly adjustments to eliminate subsidies and safeguard program revenue objectives.
  - Monthly cash-flow plans have been prepared to avoid expenditure overruns and to set ceilings on spending commitments.
- External payment arrears at end-2011 totaled US$22.9 millons, broken down as:
  - Bilateral: 19.7
  - Paris Club (France): 2.0
  - Non-Paris Club: 17.7
  - Multilateral (EIB): 0.7
  - Private Creditors: 2.6
- Authorities are addressing arrears: clearance of arrears to France and EIB is to take place before approval of the ECF arrangement; negotiations are underway with Russia, the United Kingdom, and non-Paris Club and private creditors.

### The Proposed Three-Year Reform Program — Macroeconomic Framework, 2012–15
- Staff supports a three-year arrangement under the Extended Credit Facility (ECF) to buttress reform efforts, address the protracted balance of payments problem, close the financing gap, and catalyze donors’ assistance for concessional financing aimed at poverty reduction and MDG progress.
- Medium-term macroeconomic projections (selected indicators, percent unless otherwise indicated):
  - Real GDP growth: 2010 Prel. 3.0; 2011 3.3; 2012 Proj. 4.1; 2013 Proj. 4.2; 2014 Proj. 5.9; 2015 Proj. 5.2
  - Consumer price (avg): 2010 1.5; 2011 1.2; 2012 6.8; 2013 1.6; 2014 2.3; 2015 2.3
  - External current account (percent of GDP): 2010 -10.2; 2011 -8.7; 2012 -7.6; 2013 -6.5; 2014 -6.1; 2015 -5.8
  - Reserves coverage (months of imports, f.o.b.): 2010 3.1; 2011 2.6; 2012 2.7; 2013 2.8; 2014 3.0; 2015 3.2
- Growth is expected to accelerate to about 6 percent by 2014 on the basis of:
  - continued strength in agricultural production;
  - recovery in private sector investment in mining driven by FDI inflows;
  - rebound in external demand.
- Inflation is expected to return to the CEMAC convergence rate of 3 percent starting in 2013.
- External current account deficit is expected to decline gradually, predicated on gradual improvement in the terms of trade and a pickup in FDI and official transfers as donors resume disbursements; reserves will remain weak but improve to around three months of imports by 2014.

### Natural Resource Management and Structural Reform Priorities
- Natural resource projects can support growth and fiscal revenue but pose resource management challenges requiring TA and transparency measures.
- Passendro Gold Mining Project (details provided):
  - 25-year mining license covering 137 square miles and two surrounding exploration licenses covering 386 square miles.
  - Total capital costs expected to be about US$270 million.
  - IFC is considering participating with US$50 million equally divided in equity and debt to a Canadian-based company, AXMIN.
  - IFC engagement is subject to satisfactory technical, legal and environmental due diligence, acceptable terms and documentation, and final approvals.
  - Expected employment from the mine: between 615 and 670 workers, mainly local hires.
  - Project expected to broaden the revenue base moderately and catalyze further mineral exploration.
  - IFC Advisory Services may support linkage programs and community development initiatives to increase locally distributed revenue.
- The IMF’s Fiscal Affairs Department will provide a desk-based assessment of the mining code and determine further TA needs to ensure legislation aligns with international best practices.
- C.A.R. attained EITI compliant status in March 2011.

### Policy Objectives and Reform Measures
- Program objectives and structural measures aim to:
  - consolidate the fiscal position in 2012 and align expenditure with available resources;
  - create fiscal space for poverty reduction and infrastructure investment through stronger domestic resource mobilization and prioritization of government expenditure;
  - improve PFM and governance to attract financial support;
  - enhance donor coordination and leverage TA to strengthen capacity and institutions;
  - accelerate structural reforms to remove impediments to growth and deepen financial intermediation.
- Structural reforms are on track with measures taken to strengthen committees and units for liquidity management and reform monitoring, and revenue administration improvements including updating taxpayer files, enhancing registration procedures, and improving tax control efficiency.

### Program Implementation and Risks
- The program recognizes C.A.R.’s fragility and focuses on donor coordination to mobilize financial and TA resources to build capacity.
- Key near-term tasks include strengthening budget execution, improving PFM and governance, eliminating petroleum subsidies through pump-price adjustments and monthly adjustments, and clearing external arrears with major creditors.
- The ECF arrangement is expected to catalyze donor assistance and provide concessional financing for poverty reduction and MDG progress.

*Source: Executive Summary, IMF staff report on the Central African Republic.*

### 9.      The macroeconomic framework will be revised to allow for increased investment

### 9.      The macroeconomic framework will be revised to allow for increased investment

### Revision of macroeconomic framework and donor engagement
- The baseline scenario is conservatively based on historical trends of donors’ disbursements, but program objectives align with strategic priorities of the second-generation Poverty Reduction Strategy Paper (PRSP II) (MEFP ¶3).
- C.A.R. is part of a donor pilot to implement a “New Deal” for engaging in fragile states; an integrated donor strategy was expected to be developed in September 2012.
- Key elements of the IMF-supported program will be integral to the integrated strategy.
- A Consultative Group (CG) meeting was expected to be held before end-2012 to mobilize financing for the PRSP II.
- With the prospect of increased financing, the macroeconomic framework will be revised and efforts will be made with donors to identify “quick wins” to bolster support for the government’s reform agenda.

### PRSP II: objectives, scenarios, and financing
- PRSP II builds on PRSP I (2006–10); PRSP II strategic pillars:
  - Consolidation of security and peace, and strengthening governance and rule of law;
  - Economic revival and regional integration;
  - Development of human capital and essential social services.
- Two PRSP II scenarios and financing requirements:
  - Scenario I ("Locking the C.A.R. into the Dynamics of Regional Integration and Fast Progress Toward the MDGs") financing requirement: US$9.8 billion (504.6 percent of 2010 GDP) for 2011–15.
  - Scenario II (less ambitious, national projects): financing requirement: US$5.5 billion (283.4 percent of 2010 GDP).
- Major financing uses under both scenarios: infrastructure development, economic revival via revitalization of agriculture, and enhanced regional integration.
- Development partners recommended streamlining the PRSP II with realistic financing requirements; World Bank assisting with a Priority Action Plan for presentation to the CG meeting (¶9).
- The IMF-supported ECF program is aligned with PRSP II priorities and contains built-in flexibility to pursue PRSP II objectives if financing is obtained.

### Medium-term fiscal strategy and public financial management
- Fiscal program aims:
  - Generate modest domestic primary surpluses and put public debt on a downward trend as domestic payment arrears are cleared and reliance is placed mostly on grant financing.
  - Raise domestic revenue by 1.4 percentage points of GDP in additional revenue by 2014 via comprehensive tax policy reform and reorganization of tax and customs administrations (TA recommendations from IMF and EU) (MEFP ¶13).
  - Reestablish expenditure and payments discipline, reorient expenditure, and create fiscal space for some increase in investment and poverty-reduction spending while facilitating clearance of domestic payment arrears.
- Specific arrears clearance target in 2012: CFAF 4 billion (0.4 percent of GDP), to be raised by one-half of higher-than-programmed grants.
- PFM strengthening objectives to put in place a Medium-Term Expenditure Framework by 2014 (Box 3):
  - Strengthen liquidity management;
  - Improve expenditure tracking and budget monitoring;
  - Enhance debt management;
  - Increase fiscal transparency.
- PEFA findings and IMF Fiscal Affairs TA recommended reforms focused on:
  - Limiting exceptional payment procedures to no more than 5 percent of current nonwage, noninterest domestically financed expenditure;
  - Ensuring ownership and reliability of budget execution monitoring software (GESCO);
  - Conducting a comprehensive inventory of arrears and drawing up a transparent strategy to clear arrears accumulated up to December 31, 2011;
  - Capacity building, cash-flow management plans, timely quarterly statements (20th day of the month after quarter end);
  - Strengthening Finance Auditor Office, State Auditor Office, and Court of Auditors.

### Medium-term structural policies and financial sector
- Capacity-building and institutional reforms:
  - Strengthen administrative capacity across public sector management, including debt management and project implementation (MEFP ¶21–23).
  - Leverage TA resources to maximize synergies and increase effectiveness of TA and capacity building.
- Donor coordination enhancements:
  - General Framework for Budget Support established to improve predictability of aid and coordinate TA programs, particularly in PFM.
  - EU providing €5 million for PFM; AfDB approved an SDR 4.5 million grant in support of PFM; France posted two resident fiscal advisors; IMF leading TA for revenue mobilization.
- Financial sector outlook:
  - Financial intermediation remains shallow but financial soundness indicators are broadly satisfactory.
  - Nonperforming loans rose in 2011 amid lower provisioning; commercial banks remained well capitalized and prudential ratios largely adequate.
  - Restructuring of intervened bank (Commercial Bank – Centrafrique—CBCA) and planned government divestiture (MEFP ¶26) expected to foster competition and encourage longer-term financing.

### Debt sustainability and borrowing policy
- Updated debt sustainability analysis indicates C.A.R. is at a moderate risk of debt distress (Tables II.1 and II.2 and Figures II.1 and II.2).
- Policy implications:
  - Continue prudent fiscal and borrowing policies.
  - New external debt should be largely on concessional terms to preserve debt sustainability.
  - Strengthen public debt management; set a zero ceiling on nonconcessional borrowing (MEFP ¶25).
  - The zero ceiling could be reconsidered at program reviews for specific, well-defined projects based on World Bank and AfDB assessments and subject to improvements in debt management as the National Committee on Public Debt (CNDP) becomes operational.

### The 2012–13 program: fiscal policy actions and budget execution
- Fiscal consolidation is the key priority to achieve a domestic primary surplus of 0.6 percent of GDP (MEFP ¶18).
- Objectives:
  - Reduce current expenditure and modestly increase fiscal revenue;
  - Strengthen budget execution and PFM through transparent accounting and streamlining of the expenditure chain (MEFP ¶14);
  - Normalize relations with external creditors (MEFP ¶6).
- Revenue action: adjust domestic petroleum prices monthly to ensure full pass-through to, at a minimum, eliminate subsidies on consumption (¶3 and MEFP ¶19).
- Expenditure and budget execution measures:
  - Preparation of monthly cash-flow plans based on fiscal targets under the 2012–13 program (prior action) and current-year approved budgets thereafter (structural benchmark) (MEFP ¶20).
  - Improve expenditure management via relieving capacity constraints and strengthening cash-flow management, budget execution and public accounting, and computerization of expenditure procedures (MEFP ¶14).

### Structural reforms to promote inclusive growth
- Reforms aimed at promoting inclusive growth and productive employment:
  - Develop and implement, with donors including the International Labor Organization, a growth strategy anchored on improving productivity and creating new employment opportunities;
  - Accelerate reforms to create a business-friendly environment by strengthening the judiciary and regulatory framework, simplifying land registry, and promoting access to financing (MEFP ¶15).

### Program conditionality, access, financing, and monitoring
- Conditionality and monitoring:
  - Structural conditionality streamlined; performance criteria (PCs) simplified.
  - Program monitored biannually with quantitative PCs set for end-June 2012 and end-December 2012, and indicative targets (ITs) set for end-September 2012 and end-March 2013 (Table I.1).
  - Structural benchmarks (SBs) described in Table I.2; increase of social sector spending will be monitored through quarterly floors set on spending of four key ministries, as ITs.
- Access and repayment capacity:
  - Proposed access: 75 percent of quota (SDR 41.775 million).
  - Staff proposes frontloading the first year at 37.5 percent of quota to provide flexibility (Table 6).
  - Disbursement details for frontloading: to be disbursed in three installments equal to SDR 6.963 million each (12.5 percent of quota), at program approval and the first and second reviews.
  - C.A.R.’s capacity to repay the IMF is adequate given the low level of outstanding debt to the IMF (Table 7). A major mining project underway is expected to strengthen capacity to repay.
- First-year financing assurances:
  - The first year of the ECF-supported program is fully financed.
  - At a coordination meeting in February following the Article IV consultation, AfDB, EU, and World Bank indicated readiness to resume budget support, helping close the 2012 financing gap.
  - Government pursuing discussions with official bilateral creditors to secure debt relief comparable to Paris Club completion point under HIPC Initiative and making good faith efforts with external private creditors.

### Risks, mitigation, and data issues
- Main risks:
  - Fragile political and security situation; presence of foreign rebel groups increases vulnerability despite elections in 2011, Inclusive Political Dialogue, and relaunch of DDR process.
  - External risk from weakening external environment, particularly the euro area (C.A.R.’s main export market).
  - Economic risk: sustained increase in world oil prices could test authorities’ commitment to pass-through of increases to domestic petroleum prices.
- Mitigation measures:
  - Targeted measures to protect vulnerable groups (MEFP ¶19).
  - Prior actions implemented have reduced risks to the program.
- Data adequacy:
  - Data provided by authorities are broadly adequate for program monitoring, though emphasis needed on timely reporting specified in the Technical Memorandum of Understanding (Table I.3).

### Staff appraisal and outlook
- Growth prospects:
  - C.A.R.’s economic growth has been gaining momentum and medium-term prospects are improving.
  - Positive growth prospects in 2012 and beyond predicated on increased FDI in the mining sector and strong recovery in agriculture.
  - Coming onstream of a major mining project and ongoing oil exploration expected to continue driving medium-term growth.
- Policy priorities to realize potential:
  - Continue efforts to improve the security situation.
  - Make concrete progress in improving the business climate and developing basic infrastructure to ensure potential investments in the mining sector are realized.

*Source: IMF staff report excerpt — "The macroeconomic framework will be revised to allow for increased investment."*

### 27.      The proposed fiscal stance strikes a balance between fiscal consolidation and the

### _cr12240 - 27.      The proposed fiscal stance strikes a balance between fiscal consolidation and the

### Fiscal stance and revenue mobilization
- The proposed fiscal stance "strikes a balance between fiscal consolidation and the need for spending on priority sectors and infrastructure."
- Given the fiscal slippages in 2010/11, the program focuses on reducing nonessential expenditure to underpin the necessary fiscal consolidation.
- Over the medium term, "domestic revenue mobilization would create fiscal space," and the authorities need to implement reforms underway to modernize the tax and customs administrations and enhance their efficiency.
- In the meantime, the authorities should remain steadfast in the "pass-through of world oil prices" and implement well-targeted measures to protect the most vulnerable segments of the population.

### Donor engagement and financing
- Staff welcomes the reengagement of key donors.
- "The resumption of donor budget support, suspended in 2011, and the concessional resources provided by the IMF will close the financing gap, increase poverty and infrastructure spending, and help C.A.R. progress toward the MDGs."

### Structural reforms and private-sector investment
- Implementation of structural reforms needs to be accelerated to support the government’s medium-term objectives.
- Improving the business environment will help attract private sector investment, including FDI in the mining, oil and agricultural sectors.
- Adoption of a legal framework for large-scale private projects is essential to private investment takeoff.
- Better dialogue between the authorities and the private sector will create synergies for more and longer-lasting growth.

### Banking sector and CBCA
- Staff notes the government’s commitment to reducing its stake in CBCA.
- "The authorities need to step up efforts to find a strategic partner to take over the government stake in the bank and create the conditions to deepen financial intermediation."

### Debt management and creditor engagement
- Strengthening debt management capacity to effectively monitor debt development is essential.
- Staff welcomes the authorities’ intention to pursue a prudent debt policy and the measures taken to strengthen debt management capacity.
- "The authorities now need to adopt the relevant texts to make the CNDP operational."
- They are encouraged to pursue negotiations with non-Paris Club creditors to reach agreements consistent with the "enhanced HIPC-Initiative framework" and on comparable terms to those granted by the Paris Club.

*Source: _cr12240 - 27.      The proposed fiscal stance strikes a balance between fiscal consolidation and the*

### 32.      Staff supports the authorities’ request for a three-year arrangement under the

### 32.      Staff supports the authorities’ request for a three-year arrangement under the

### Program support and risks
- Staff supports the authorities’ request for a three-year arrangement under the ECF.
- The arrangement will help catalyze donors’ support to help fight poverty and strengthen administrative capacity and institutions.
- Staff believes that the risks to the program are mitigated by:
  - prior actions taken to improve fiscal management and safeguard the revenue target; and
  - efforts to revitalize the DDR process and improve security.

### Recent economic performance (2003–11)
- Real GDP per capita (U.S. dollars, at 2000 prices, using 2000 exchange rates): series shown 2003–2011 with C.A.R., Fragile countries, SSA comparisons (figures in chart).
- Sectoral growth: Primary, Secondary, Tertiary, and Real GDP (% change) presented for 2003–2011.
- Inflation:
  - Food inflation (% change, end of period) and Inflation (% change, end of period) for 2003–2011.
  - Food inflation (% change, average) and Non-food inflation (% change, average) for 2003–2011.
- Savings and investment:
  - Private S-I balance (% of GDP), Public S-I balance (% of GDP), S-I balance (% of GDP) for 2003–2011.
  - Public investments (% of GDP), Private investments (% of GDP), Investments (% of GDP) for 2003–2011.
- Narrative highlights from figures:
  - "...the savings and investment imbalance narrowed."
  - "As public investment collapsed ..."
  - "Despite a surge in inflation at end-2011, driven by food prices..."
  - "...average annual inflation remained low."
  - "Growth has been very modest..."
  - "...keeping C.A.R. one of the poorest countries, even compared to other fragile states."

### Fiscal developments (2003–11)
- Revenue composition and trends (charts for 2003–2011): Non-tax revenue (% of GDP), Tax revenue (% of GDP), Grants (% of GDP), Domestic revenue (% of GDP).
- Tax detail (2003–2011): Income tax (% of GDP), Tax on int'l trade (% of GDP), Consumption tax (% of GDP).
- Spending and balances (2003–2011): Capital spending (% of GDP), Current spending (% of GDP), Total spending (% of GDP); Overall fiscal balance (% of GDP), Primary fiscal balance (% of GDP).
- Debt and arrears (2003–2011): Net accumulation of arrears (% of GDP); CG external debt (% of GDP), CG domestic debt (% of GDP), Central gov't total debt (% of GDP).
- Narrative highlights:
  - "...and the accumulation of payment arrears..."
  - "...resulting in a modest buildup of public debt."
  - "...current expenditure returned to more sustainable levels; and public investment dropped sharply..."
  - "...with a deterioration in the fiscal position in 2011..."
  - "With a sharp decline in grants and reduced domestic revenue, in 2011,..."
  - "...driven by a contraction in consumption tax collection,..."

### Monetary developments (2003–11)
- Monetary aggregates (2003–2011): NFA (% of GDP), NDA (% of GDP), Broad money (% of GDP).
- Growth and velocity: Broad money (% change), Base money (% change), Velocity.
- Credit and financial sector:
  - Private sector credit (Percent of GDP) shown 2002–2011.
  - Non-performing loans (gross) to total loans (2002–2011).
- Narrative highlights:
  - "Credit to the private sector has been growing relative to GDP, ..."
  - "Overall, money supply remained under control, with velocity of broad money relatively stable and net domestic assets increasing in line with stepped-up credit to the private sector."
  - "...and NPLs trended down steadily though they rose slightly in 2011."

### External developments (2003–11)
- External flows and balances (2003–2011): Exports and Imports of goods and services (% of GDP), Terms of trade (% change).
- Current account and transfers: Current transfers, net (% of GDP), Current account balance (% of GDP), Current account balance, excl. grants (% of GDP).
- Capital and financial accounts: Capital and financial balance (% of GDP), Capital transfers (% of GDP), Foreign direct investment (% of GDP).
- Reserves and exchange rates:
  - Overall external balance (% of GDP), Gross international reserves (months of imports).
  - Nominal Effective Exchange Rate and Real Effective Exchange Rate (2005=100) (% change).
  - CFAF per US$ (% change, average and end of period).
- Narrative highlights:
  - "... helped to narrow the current account deficit."
  - "A recovery in the exports of diamonds, gold, and timber led by better international prices in 2011..."
  - "But capital transfers and FDI declined in 2011,..."
  - "... leading to a decline in reserves coverage."
  - "International competitiveness has improved..."
  - "... despite the appreciation of the CFA franc against the US dollar."

### Projections and key macroeconomic indicators (Selected rows from Tables 1–5, 2009–15)
- National income and prices (annual % change or levels as labeled):
  - GDP at constant prices: 1.7, 3.0, 3.3, 4.1, 4.2, 5.9, 5.2 (columns labeled Prel., Prog. through 2015).
  - GDP at current prices: 5.4, 5.1, 5.3, 8.4, 6.3, 8.6, 8.1.
  - GDP deflator: 3.6, 2.1, 1.1, 4.2, 2.0, 2.6, 2.8.
  - CPI (annual average): 3.5, 1.5, 1.2, 6.8, 1.6, 2.3, 2.3.
  - CPI (end-of-period): -1.2, 2.3, 4.3, 2.9, 2.3, 2.3, 2.3.
- Central government finance (percent of GDP, selected):
  - Total revenue and grants: 11.5, 12.3, -18.2, 31.9, 12.4, 10.7, 12.1 (note negative/large change entries as in table).
  - Total expenditure: 5.4, 20.7, -6.4, 6.5, 9.0, 9.4, 7.9.
- Money and credit (annual change; percent of broad money beginning period):
  - Net domestic assets: 6.1, 30.1, 13.3, 9.9, 3.7, 5.6, 7.4.
  - Domestic credit: 9.5, 29.1, 21.7, 7.3, 3.7, 5.6, 10.5.
  - Broad money: 13.7, 14.2, 15.0, 13.8, 2.6, 7.7, 4.2.
  - Velocity of broad money (end-of-period): 6.0, 5.5, 5.0, 5.0, 5.0, 5.0, 5.2.
- External sector (percent/levels):
  - Exports, f.o.b. (US$ basis): -17.6, 13.7, 2.3, 7.0, 5.6, 5.1, 8.2.
  - Export volume of goods: -21.9, 9.7, 5.1, 11.6, 4.9, 4.2, 9.5.
  - Imports, f.o.b. (US$ basis): -9.7, 12.6, 4.8, 8.0, 6.8, 7.1, 8.1.
  - Import volume of goods: 13.3, 3.6, -17.9, 16.8, 7.6, 8.4, 5.0.
  - Terms of trade: 32.4, -4.6, -1.4, 3.6, 1.5, 2.0, -4.0.
- Savings, investment, and external balance:
  - Gross national savings: 4.0, 4.1, 3.6, 7.3, 9.3, 10.1, 11.1.
  - Gross domestic savings: 1.2, 0.3, 1.0, 3.1, 4.5, 5.3, 6.4.
  - Consumption: 98.8, 99.7, 99.0, 96.9, 95.5, 94.7, 93.6.
  - Gross investment: 13.2, 14.3, 12.4, 14.9, 15.7, 16.2, 16.9.
  - External current account balance: -9.2, -10.2, -8.7, -7.6, -6.5, -6.1, -5.8.
- Reserves and debt:
  - Gross official foreign reserves (US$ millions, end-of-period): 146.5, 126.5, 113.9, 123.7, 136.6, 152.6, 173.0.
  - (months of imports, f.o.b.): 3.3, 3.1, 2.6, 2.7, 2.8, 3.0, 3.2.
  - Net present value of external public and guaranteed debt: 7.5, 13.2, 16.2, 14.9, 14.5, 13.8, 12.1.
  - Public sector debt: 36.8, 41.9, 42.2, 38.9, 36.1, 32.5, 28.7.
  - Nominal GDP (CFAF billions): 936, 984, 1,036, 1,123, 1,193, 1,296, 1,401.
  - Exchange rate (average; CFAF per US$): 472.2, 495.3, 471.9 (further years dotted as in source).

### Central government financial operations (Tables 2–3; CFAF billions and percent of GDP, selected)
- Revenue (CFAF billions):
  - Total revenue: 150.3 (2009), 168.7 (2010), 138.1 (2011 prel.), 182.1 (2012 prog.), 204.6 (2013 prog.), 226.4 (2014 prog.), 254.0 (2015 prog.).
  - Domestic revenue: 100.8, 114.2, 111.8, 128.1, 139.8, 158.2, 179.9.
  - Tax revenue: 81.1, 91.9, 87.1, 110.0, 122.1, 138.6, 158.8.
  - Grants: 49.4, 54.5, 26.3, 53.9, 64.8, 68.2, 74.0 (of which Program and Project detailed).
- Expenditure (CFAF billions and percent of GDP):
  - Total expenditure: -151.4 (2009), -182.7 (2010), -162.7 (2011), -182.2 (2012), -198.7 (2013), -217.2 (2014), -241.2 (2015).
  - Current primary expenditure: -94.5, -113.3, -114.6, -105.1, -113.3, -125.7, -136.4.
  - Wages and salaries: -42.1, -43.3, -46.0, -50.8, -54.0, -58.7, -63.4.
  - Capital expenditure: -46.3, -59.5, -41.1, -68.1, -77.3, -83.9, -98.1 (domestically financed and externally financed breakdowns shown).
- Balances:
  - Overall balance excluding grants: -50.5 (2009), -68.5 (2010), -50.9 (2011), -54.1 (2012), -58.9 (2013), -59.0 (2014), -61.3 (2015).
  - Including grants: -1.1, -14.0, -24.6, -0.1, 5.9, 9.2, 12.7.
  - Net change in arrears ((-) = reduction): -4.5, -6.2, 8.1, -5.4, -20.0, -20.0, -20.0.
  - Overall balance, cash basis: -5.3, -30.8, -15.0, -5.5, -14.1, -10.8, -7.3.

### Financing, access, and phasing under the three-year ECF arrangement (Table 6)
- Availability dates and disbursements (SDRs and percent of quota):
  - June 25, 2012: 6,963,000 SDRs, 12.50 percent of quota (Approval of the arrangement).
  - November 15, 2012: 6,963,000 SDRs, 12.50 percent of quota.
  - May 15, 2013: 6,963,000 SDRs, 12.50 percent of quota.
  - November 15, 2013: 5,222,000 SDRs, 9.38 percent of quota.
  - May 15, 2014: 5,222,000 SDRs, 9.38 percent of quota.
  - November 15, 2014: 5,222,000 SDRs, 9.38 percent of quota.
  - May 15, 2015: 5,220,000 SDRs, 9.37 percent of quota.
  - Total: 41,775,000 SDRs, 75.00 percent of quota.
- Note: The C.A.R.'s quota is SDR 55.7 million.
- Disbursement conditions: disbursements tied to observance of end-June/end-December performance criteria and completion of reviews as specified in table footnotes.

### Indicators of capacity to repay the IMF and obligations (Table 7, 2010–20 projections)
- Assumed disbursements: SDR 41.775 million (75 percent of quota) per proposed schedule (Table 6).
- Outstanding IMF credit (SDR millions for selected years):
  - 2010: 58.7; 2011: 58.7; 2012: 71.3; 2013: 82.0; 2014: 88.9; 2015: 84.1; 2016: 70.2.
- Outstanding IMF credit (CFAF billions for selected years):
  - 2010: 44.4; 2011: 45.7; 2012: 55.9; 2013: 64.3; 2014: 69.7; 2015: 65.9; 2016: 55.0.
- Total obligations based on existing and prospective credit (SDR millions) by year shown (2012–2020) with principal and charges and interest line items (table).
- Ratios (selected):
  - Percent of government revenue: e.g., 2013: 0.9; 2014: 1.9; 2015: 4.5; 2016: 5.5; 2017: 4.6; 2018: 4.1; 2019: 3.7; 2020: 2.6 (year-by-year series in table).
  - Percent of exports of goods and services and Percent of GDP series provided in table.
- Memo items:
  - Nominal GDP (billions of CFA francs) 2010–2020 series included (e.g., 2010: 1,035.6; 2015: 1,400.6; 2020: 2,059.5).
  - Exports of goods and services (in billions of CFA francs) series included (e.g., 2010: 140.3; 2015: 159.6; 2020: 233.9).
  - Government revenue (in billions of CFA francs) series included (e.g., 2010: 111.8; 2015: 179.9; 2020: 301.5).
  - Debt service (in billions of CFA francs) series included.

### Financial soundness indicators (Table 8, 2007–11)
- Solvency and capital ratios (2007–2011):
  - Regulatory capital to risk-weighted assets: 16.2 (2007), 17.3 (2008), 16.3 (2009), 16.1 (2010), 25.0 (2011).
  - Tier 1 capital to risk-weighted assets: 16.3, 17.7, 17.0, 16.5, 24.0.
  - Capital to total assets: 16.2, 16.7, 18.8, 19.2, 24.2.
- Asset quality:
  - Total loans to total assets: 76.0, 76.2, 67.6, 74.1, 69.1.
  - Non-performing loans (gross) to total loans: 30.4, 21.3, 21.3, 13.9, 14.7.
  - Non-performing loans (net of provisioning) to total loans: 5.1, 3.7, 5.7, 1.0, 3.2.
  - Provisioning rate: 83.1, 82.9, 73.3, 92.8, 77.9.
- Liquidity:
  - Total loans to total deposits: 111.5, 116.9, 99.3, 113.3, 107.8.
  - Total deposits to total liabilities: 68.2, 65.2, 68.1, 65.4, 64.1.
- Earnings and profitability (data for 2011 as of June 30):
  - Returns on capital: 21.0 (2007), 13.0 (2008), 7.8 (2009), 13.3 (2010), 10.2 (2011 as of June 30).
  - Staff costs to operating revenue and Non-interest expenses to operating revenue series provided.
  - Gross interest margin to total assets: 6.7, 6.1, 8.1, 7.2, 4.0.

*Source: C.A.R. authorities; and IMF staff estimates, projections, and calculations as presented in the source document.*

### APPENDIX I

### APPENDIX I

### I. Introduction
- Government objectives (2012–15):
  - Restore fiscal discipline, revitalize liquidity monitoring, accelerate structural reforms.
  - Support economic recovery consistent with the second generation Poverty Reduction Strategy Paper (PRSP II) for 2011–15.
  - Seek IMF assistance: SDR 41.775 million under an Extended Credit Facility (ECF) arrangement, including a disbursement equivalent to SDR 6.963 million upon Executive Board approval.
- Commitments:
  - Consult with the IMF on additional measures and provide requested information on program progress.
  - Make Letter of Intent, MEFP, and associated IMF staff report public after Executive Board consideration.

### II. Recent economic performance and policies
H3: Macroeconomic performance in 2011
- Growth:
  - 2009: 1.7 percent
  - 2010: 3 percent
  - 2011: 3.3 percent
- Credit to private sector: increased by almost 18 percent in 2011.
- Inflation: 1.2 percent in 2011 (peak of 9.3 percent in 2008).
- Domestic payment arrears: CFAF 11.1 billion as of end-2011 (1.1 percent of GDP).
  - Cash payment orders reduced to 7 percent of current expenditure (excluding wages and finance charges) at end-2011, from 80 percent in 2010.
  - Target: reach 5 percent ceiling for exceptional payment procedures for last three quarters of 2012.
  - Audit of arrears through 2010 being conducted with EU support; discussions to extend to 2011.
- External debt payment arrears at end-2011: CFAF 11.6 billion:
  - CFAF 1.01 billion owed to one Paris Club creditor (France).
  - CFAF 9 billion to bilateral non-Paris Club creditors (Equatorial Guinea, India, Kuwait, Libya, Saudi Arabia, and Taiwan Province of China).
  - CFAF 0.4 billion to the European Investment Bank (EIB).
  - CFAF 1.3 billion to external private creditors.
  - Progress: rescheduling and partial cancellations with some creditors; ongoing negotiations with Russia, the United Kingdom, and non-Paris Club creditors.
- Current account:
  - 2011 current account deficit: 8.7 percent of GDP (2010: 10.2 percent of GDP).
  - Exports rose by 32.3 percent in value in 2010; 2011 improvement also driven by a fall of around 18 percent of the volume of imports.
  - Sectors benefiting from higher FDI: mining, telecommunications, transport.

H3: Structural reforms
- Revenue Authority (DGID) actions in 2011:
  - Updating registered taxpayers’ files.
  - Enhancing the registration procedure.
  - Improving the efficiency of tax control (use of information, program streamlining, higher quality audits).
- Treasury reforms:
  - Created a Treasury Single Account (TSA).
  - Reduced number of accounts with commercial banks to one account per bank (plus two transfer accounts and donor-required project accounts).
  - Limited number of decentralized accounts retained to accommodate fiscal decentralization rules.
  - Salaries paid by bank transfer; progress extending this to retirees and regular suppliers.
  - Negotiations with commercial banks on defined bank fees and interest to encourage competition in line with CEMAC regulations and the Ministerial Committee of UMAC decision of April 5, 2012.

### III. Macroeconomic objectives and medium-term policies
- Program priorities (2012–15) aligned with PRSP II:
  - Consolidate macroeconomic stability by restoring fiscal discipline.
  - Create fiscal space via increased domestic revenues, improved spending priorities, greater expenditure efficiency.
  - Strengthen human and institutional capacity.
  - Remove obstacles to higher economic growth.
- Specific priorities in PRSP II implementation:
  - Develop basic infrastructure (energy and roads).
  - Diversify production and create development clusters.
  - Human and institutional capacity building; reform of security sector to improve security and consolidate peace.
- Macro framework projections:
  - Average growth for program period: 4.7 percent.
  - Inflation expected to rise in 2012 then fall in 2013 below CEMAC’s convergence criterion.
  - Current account deficit projected to stabilize at just over 6 percent of GDP by 2014 (imports pushed up by rising petroleum product imports).
- Policy focus:
  - Step up domestic revenue mobilization.
  - Strengthen public financial management (PFM).
  - Improve business environment.

### IV. Revenue mobilization measures (selected measures and timing)
- Context: revenue-to-GDP ratio averaged 10.5 percent over 2006–10; expected additional resources of 1.4 percentage points of GDP by 2014 from reforms.
- Tax reforms and timing:
  - Adjust petroleum product prices monthly — Done; continuous
  - Streamline petroleum product price structure — 2012
  - Implement targeted support for groups vulnerable to fuel price increases — 2012
  - Reconcile registered taxpayer files with physical taxpayer files — March 2013
  - Update and secure single taxpayer ID system — March 2013
  - Operationalize the pilot taxation center for medium-sized enterprises — June 2013
  - Identify and systematically locate taxpayers in the field — June 2013
  - Modernize SYSTEMIF, enabling data searches and cross-checks, and make it available to DGID — TBD
  - Strengthen capacities of inspectors and other DGID staff — TBD
  - Enhance monitoring of the tax self-assessment system — TBD
  - Improve taxation of small enterprises — TBD
- Customs reforms and timing:
  - Implement modernization plans with WCO support — TBD
  - Operationalize the Beloko customs clearance center — TBD
  - Utilize scanners donated by China — TBD
  - Strictly limit exemptions — TBD
- Note: TBD = To be determined at the time of the first program review, based on recommendations of an FAD mission to C.A.R. in June 2012.

### V. Expenditure and debt management measures (selected measures and timing)
- Expenditure measures and timing:
  - Set up CSGB to set caps on spending commitments bimonthly — Done
  - Prepare annual cash-flow plan broken down into quarterly and monthly plans — Done
  - Create mechanism for data sharing and the Budget Directorate — July 2012
  - Report monthly execution data on externally financed capital spending — September 2012
  - Limit the use of exceptional payment procedures to 5 percent of nonwage, noninterest current spending and domestically financed investment — Quarterly
  - Strengthen capacity of the technical secretariat of the CSL and the Treasury’s technical unit on liquidity monitoring — December 2012
  - Implement an action plan to implement the recommendations of FAD February 2012 mission — December 2012
  - Streamline and simplify expenditure chain — June 2013
  - Fully operationalize Gesco — 2013
  - Extend Gesco’s coverage to Treasury operations — 2013
  - Implement recommendations of the expenditure chain audit — 2013
  - Adopt MTEF consistent with CEMAC guidelines — 2014
- Debt management and timing:
  - Operationalize the CNDP — September 2012
  - Adopt credible plan to clear audited domestic arrears — March 2013
- Domestic arrears clearance:
  - Following audit completion, adopt plan to clear arrears by March 2013 on basis of transparent criteria.
  - If budget support exceeds program, 50 percent of the excess will be used for arrears clearance.

### VI. Measures to improve the business environment (selected measures and timing)
- Private sector engagement:
  - Set up a framework for dialogue with the private sector — End-June 2012
  - Revitalize the Standing Consultative Group (CPC) — September 2012
  - CPC to make proposals on improving the business environment — December 2012
  - Review SODIF’s performance and take appropriate actions — December 2012
- Institutional measures and timing:
  - Align natural resources management framework with international best practices — September 2013
  - Strengthen judicial and legal framework — 2014
  - Improve the land tenure system — 2014
  - Boost access to financing — 2014
  - Finalize review of the investment charter — 2014
  - Finalize review of the Commercial Code and enhance the role of the Commercial Court — 2014

*Source: MEMORANDUM ON ECONOMIC AND FINANCIAL POLICIES, Central African Republic, Bangui, June 11, 2012 (APPENDIX I).*

### 17.      Real GDP growth is expected to strengthen, rising to 4.1 percent in 2012

### 17.      Real GDP growth is expected to strengthen, rising to 4.1 percent in 2012

### Macroeconomic outlook and projections
- Real GDP growth: projected to rise to 4.1 percent in 2012 compared to 3.3 percent in 2011, driven by strong agricultural production, more robust domestic demand, and higher exports in the diamond and timber sectors.
- Annual average inflation: projected to reach 6.8 percent for 2012, given the price surge recorded in the first quarter of 2012.
- External current account deficit: expected to continue trending downwards, settling at 7.6 percent of GDP in 2012.
- Foreign direct investment (FDI): projected total of CFAF 46 billion in 2012, buoyed mainly by the mining sector (Aurafrique/Axmin project) and oil exploration in the north-east.

### Fiscal policy objectives and measures (2012–13)
- Primary fiscal objective: initiate consolidation by reducing current spending from 2011 levels and achieving a modest increase in revenue; target a small surplus of 0.6 percent of GDP on the domestic primary balance.
- Domestic revenue and expenditure forecasts:
  - Domestic revenues: CFAF 128.1 billion (11.4 percent of GDP).
  - Current primary expenditure: CFAF 105.1 billion (9.4 percent of GDP).
- Petroleum pricing and revenue protection:
  - Petroleum product prices adjusted in January 2012; additional increase implemented on June 1 (prior action).
  - Plan to adjust petroleum product prices on a monthly basis to achieve effective pass-through of world market prices and eliminate the consumer subsidy (negative TUPP).
  - Maintain correct application of the value added tax (VAT) on petroleum products to preserve VAT integrity and sector revenues.
  - Implement a targeted support mechanism for the most vulnerable to mitigate adverse effects of fuel price increases.
- Budget execution and cash management:
  - Annual cash-flow plan prepared (prior action), broken down into quarterly and monthly sub-plans to set expenditure commitment ceilings consistent with available liquidity.
  - Liquidity Monitoring Commission (CSL) and Budget Management Monitoring Committee (CSGB) established; CSGB to hold bimonthly meetings to set ceilings on expenditure commitments.
  - Quarterly budget execution reports published; 2012 budget law published.
  - Commitment to limit recourse to exceptional payment procedures to no more than 5 percent of nonwage, noninterest current spending and domestically financed investment for the remaining three quarters of 2012.

### Capacity and institution building
- Strengthen human and institutional capacities to improve economic management and absorptive capacity.
- Enhance cooperation with development partners to improve the effectiveness of TA and operational capacity.
- Improve efficiency of CSL and strengthen technical secretariat of the CSL and the technical unit of the Treasury for better coordination in preparing and executing the cash management plan.
- Donor coordination: regular meetings planned to ensure complementarities and avoid duplication of TA.
- Staff stability: policy to support experienced senior staff to foster professional stability.
- Improve absorptive capacity for resource flows by:
  - Prioritizing investment programming realistically.
  - Improving technical preparation of projects.
  - Enhancing pre-commitment processes in technical departments.
  - Ensuring compliance with government procurement rules.
  - Maintaining continuous financial information flow on project execution to the Ministry of Finance for cash flow monitoring.

### External sector policies and debt management
- External position remains fragile despite export improvements; persistent current account deficit projected at 6.2 percent by 2014.
- Reserves coverage: 2.6 months of imports of goods and services at end-2011; IMF ECF assistance expected to contribute to a small build-up of reserves.
- Debt management and safeguards:
  - Strengthen public debt management and maintain a prudent debt policy.
  - Department of Debt and Equity Participation (DDP) to be strengthened and active in debt negotiations.
  - National Committee on Public Debt (CNDP) established; legislative texts prepared; CNDP to become operational in September 2012.
  - Commitment to consult IMF staff on all new loans prior to signing to ensure compliance with minimum concessionality requirement of 35 percent.

### Other structural policies
- Financial sector:
  - Government committed to finding a strategic shareholder to take over its equity stake in CBCA.
  - Government made approximately CFAF 5.5 billion available to CBCA to temporarily acquire 57 percent of the bank’s shares pending entry of a strategic shareholder.
  - COBAC extended the mandate of the temporary administrator of the bank by three months.
- Public enterprises (EOPs):
  - Transitional measures in January 2012 revealed financial management slippages; corrective measures taken.
  - Plan to restore normal functioning, require regular reporting, and impose sound management practices with TFP support.
- Good governance and transparency:
  - Continue bringing all government accounts within the scope of the TSA, including bonus payments from natural resource exploitation and mobile licensing revenues, in conformity with EITI.
  - Commit to incorporating any windfall revenues into the budget and seek TA for a framework to manage mineral resources effectively.
- Business environment:
  - Renew dialogue with the private sector; establish a framework for dialogue by June 30, 2012.
  - Standing Consultative Steering Group (CPC) to propose reforms by December 31, 2012.
  - Undertake a performance assessment of SODIF to determine adherence to original contract and take appropriate decisions.

### Program monitoring and targets
- Program monitoring through quantitative performance criteria, indicative targets, and structural benchmarks.
- Timing of reviews:
  - First program review to be completed before December 15, 2012 (based on end-June 2012 test date).
  - Second review to be completed before June 15, 2013 (based on end-December 2012 test date).
- Selected program numeric targets and monitoring details (as presented):
  - Floor on total domestic government revenue: CFAF 128.1 billion (End-Dec. 2012, Program).
  - Floor on domestic primary fiscal balance: target surplus of 0.6 percent of GDP (program objective described earlier).
  - Net domestic financing, ceilings, and other quantitative performance criteria and indicative targets are specified for multiple test dates in Table I.1 and will be firmed up during the first review mission.
  - Indicative/floor on poverty-related spending and on reduction in domestic payments arrears are included in the program monitoring framework.
- Prior actions and structural benchmarks (high-level examples):
  - Prepare annual cash flow plan with monthly breakdown: Prior action (done); annual structural benchmark.
  - Adopt credible plan to clear audited stock of domestic payments arrears: March 2013 structural benchmark.
  - Limit recourse to exceptional payment procedures for current expenditure (excluding wages and finance charges) for the three remaining quarters of 2012 to 5 percent at most: Quarterly structural benchmark.
  - Report monthly execution data regarding externally-financed capital expenditure to the Ministry of Finance: September 2012 and monthly thereafter.
  - Create mechanism for data sharing between the Treasury and Budget Directorate: July 2012.
  - Adjust petroleum product prices in full conformity with the 2011 automatic price setting formula and regularly apply the formula: Prior action (done); Monthly structural benchmark.
  - Adopt legislative texts governing CNDP functioning: End-September 2012.
  - Review current mining legislation and align with international best practice: End-September 2013.

### Technical Memorandum of Understanding (TMU) — key program assumptions and definitions
- Program period covered by the TMU: first year of the ECF arrangement (June 25, 2012 to June 24, 2013).
- Program exchange rates (used to convert foreign currency transactions to CFAF):
  - CFAF/US$: 506.96
  - CFAF/euro: 655.96
  - CFAF/SDR: 778.32
  - (Exchange rates as of December 31, 2011.)
- Oil price assumption:
  - Average price of a barrel of oil assumed at US$114 in 2012 (April 2012 WEO).
- Definitions:
  - “Government” refers to the central government of the C.A.R. and excludes local governments, the central bank, or public entities with separate legal personality not included in the TOFE.
  - “Debt” follows IMF Decision No. 6230-(79/140) as amended by Decision No. 14416-(09/91) and includes loans, suppliers' credits, leases (present value at lease inception), arrears, penalties, and judicially awarded damages that arise from contractual obligations defined as debt.
  - “Domestic debt” is debt denominated in CFA francs unless contracted with another CEMAC member state.
  - “External debt” is debt denominated in a currency other than the CFA franc and debt contracted with another CEMAC member state.

*Source: _cr12240 - 17.      Real GDP growth is expected to strengthen, rising to 4.1 percent in 2012*

### 6.      Guaranteed debt. The guaranteeing of a debt by the government is understood to be

### _cr12240 - 6.      Guaranteed debt. The guaranteeing of a debt by the government is understood to be

### Definitions and calculation rules

- Guaranteed debt
  - "The guaranteeing of a debt by the government is understood to be an explicit legal obligation to service a debt in the event of nonpayment by the borrower (by means of settlements in cash or in kind)."

- Concessional debt
  - "A debt is concessional if it includes a grant element of at least 35 percent,"
  - "The grant element of a debt [is] the difference between the present value of debt and its nominal value, expressed as a percentage of the nominal value of the debt."
  - "The present value of debt at the time of its contracting is calculated by discounting the future stream of payments of debt service due on this debt."
  - Discount rates:
    - "The discount rates used ... are the currency specific commercial interest reference rates (CIRRs) for each currency as published by the Organization for Economic Cooperation and Development (OECD)."
    - For debt with maturity of at least 15 years: "the ten-year-average CIRR will be used."
    - For debt with maturity of less than 15 years: "the six-month average CIRR will be used."
    - To both the ten-year and six-month averages, the same margins for differing repayment periods as those used by the OECD need to be added:
      - "0.75 percent for repayment periods of less than 15 years,"
      - "1 percent for repayment periods of 15 years to 19 years,"
      - "1.15 percent for repayment periods of 20 years to 29 years,"
      - "1.25 percent for repayment periods of 30 years or more."
  - Calculation considerations:
    - "The calculation of concessionality takes account of all aspects of the loan contract, including the maturity, the grace period, the schedule, the commitment fees, and the management costs."
    - "In the case of loans denominated in foreign currencies for which the OECD does not calculate the CIRR, calculation of the grant element must be based on the composite CIRR (weighted average) for the currencies included in the SDR."

### Performance criteria (PCs) and quantitative benchmarks (QBs)

- Floor for total domestic revenue of the government
  - Definition: "Domestic revenue of the government includes the revenues shown in the TOFE, specifically tax and nontax revenue, earmarked revenue, checks for project-related customs duties, and withholdings from the wages and salaries of government employees, and excludes foreign grants and the proceeds of privatizations or government divestments."
  - Performance criterion levels:
    - "CFAF 66.6 billion as of end-June 2012"
    - "CFAF 128.1 billion as of end-December 2012"
  - Indicative targets:
    - "CFAF 96.1 [billion] for end-September 2012"
    - "CFAF 34.5 billion for end-March 2013"

- Floor for the domestic primary fiscal balance
  - Definition: "The domestic primary fiscal balance, on a commitment basis, is defined as the difference between domestic revenue and expenditure of the government, excluding interest payments and externally financed capital expenditure."
  - Performance criterion levels:
    - "CFAF 6.2 billion at end-June 2012"
    - "CFAF 6.3 billion at end-December 2012"
  - Quantitative benchmarks:
    - "CFAF 6.0 [billion] for end-September 2012"
    - "CFAF 4.0 billion for end-March 2013"
  - Adjuster:
    - "If external budgetary grants received exceed the program forecasts as of the date of assessment, the floor for the primary fiscal balance will be adjusted downward by the equivalent of 50 percent of the excess grants."

- Ceiling on net domestic financing of the government
  - Definition of net domestic financing: sum of:
    - "(i) the net government position vis-à-vis the banking system as defined below;"
    - "(ii) the amount of issues of government securities (net of redemptions) subscribed by individuals or legal entities outside the banking system or nonresident banks domiciled in the CEMAC;"
    - "(iii) privatization proceeds or exceptional revenue recorded 'above the line.'"
  - Net government position scope:
    - "Balance between the debts and claims of the government vis-à-vis the central bank and commercial banks."
    - Includes local governments and some projects and administrative public entities; government claims include "the CFA franc cash balance, postal checking accounts, customs duty bills, and all deposits with the BEAC and commercial banks of public entities with the exception of industrial or commercial public entities (EPICs) and government corporations, which are excluded."
  - Adjuster:
    - "If external budgetary grants received are below program forecasts or temporarily delayed, the ceiling on net domestic financing of the government will be adjusted upward by 100 percent of the grant shortfall."
    - "A grant is deemed to be temporarily delayed if the payment of said grant takes place later in the fiscal year during which it is programmed."

- Ceiling on nonconcessional external debt contracted or guaranteed by the government
  - Scope:
    - Applies to "debt as defined in the TMU (¶5), but also to liabilities contracted or guaranteed by the government (including lease-purchase contracts) for which no funds have been received."
    - Applies to "private debt guaranteed by the government, which constitutes a contingent liability for the government."
    - Applies to short-term debts (initial maturity of one year or less) and medium- and long-term debts (initial maturity of more than one year).
    - "Normal import-related credits are excluded from this PC." Defined as "self-liquidating credit where the proceeds from sales of imports are used to retire the debt."
  - Definition of "government" for this PC:
    - "Includes the government as defined in paragraph 4 of the TMU, local governments, and all public enterprises, including administrative public entities (EPA), scientific and technical public entities, professional public entities, and entities jointly owned by the government of the C.A.R. with the government(s) of another country or countries."
  - Policy commitments:
    - "No nonconcessional loans will be contracted or guaranteed by the government."
    - During program reviews, ceilings may be adjusted for specific investment projects "on condition that the loan does not significantly exacerbate debt vulnerabilities according to the debt sustainability analysis prepared jointly by the staff of the World Bank and the IMF."
    - "The government also undertakes not to contract or guarantee any external loans during the program implementation period without first having determined their concessionality with IMF staff."

- Non-accumulation of new external payment arrears
  - Definition: "External payment arrears are defined as payments in respect of the external debt of the government or guaranteed by the government that are due and not paid by the government at the maturity specified in the contract."
  - Commitment: "The government undertakes not to accumulate external payment arrears with the exception of arrears relating to debt that is the subject of renegotiation or rescheduling. This performance criterion applies on a continuous basis."

### Indicative targets and other fiscal rules

- Floor for priority poverty reduction expenditures
  - Definition: "Sum of expenditures by the Ministry of Social Affairs, National Solidarity and the Family; the Ministry of National Education, Higher Education and Research; and the Ministry of Public Health, Population and AIDS Prevention, including expenditures for the year under way and repayment of arrears for these sectors."
  - Exclusion: "They exclude capital expenditures financed by external technical and financial partners in the form of projects."

- Floor for the reduction of domestic payments arrears
  - Definition: "Change in the total stock of arrears during the program period. Domestic payments arrears are defined as domestic payments due and not paid by the government after a 90-day grace period, unless the terms and conditions for settlement specify a longer grace period."
  - Baseline: "The stock of domestic payments arrears was CFAF 123 billion as of end-December 2011; this amount will be the subject of an audit conducted with EU support."
  - Adjuster:
    - "If external budgetary grants received are higher than program forecasts as of the date of assessment, the floor for the reduction of domestic payments arrears will be adjusted upward by the equivalent of 50 percent of the excess grants."

- Non-accumulation of new domestic payment arrears
  - Commitment: "The government undertakes not to accumulate domestic payment arrears as defined in ¶19. This PC applies on a continuous basis."

### Prior actions and structural benchmarks

- Prior actions
  - Annual cash-flow plan:
    - "The annual cash-flow plan approved on April 30, 2012 is based on the TOFE for the 2012 program, broken down by quarter and by month."
    - Monthly plans "will be used by the Budget Management Monitoring Committee (CSGB) to set ceilings on commitments during its bimonthly meetings; the reports of the CSGB will be shared with IMF staff for regular follow-up."
  - Adjustments in domestic petroleum prices:
    - "The government adjusted domestic petroleum prices in June 2012 and undertakes to adjust prices monthly (¶ 29)."

- Structural benchmarks (selected)
  - Plan for the clearance of domestic payments arrears:
    - "Following the EU audit of domestic payments arrears, the government will adopt a plan for clearing these arrears, including clearly defined repayment conditions and transparent criteria communicated to all parties concerned."
  - Ceiling on the use of exceptional procedures:
    - Definition: "Exceptional procedures ... recourse to cash payment orders (OP–Caisse) and budgetary payment orders (OP–Budget)."
    - Ceiling for April to December 2012: "CFAF 2.8 billion, or 5 percent of total expenditures, excluding wages, finance charges, and externally-financed investments during the last three quarters of 2012."
    - Monitoring frequency: "This SB will be monitored quarterly."
  - Data reporting on execution of the capital budget:
    - "Data ... must be reported to the Ministry of Finance and Budget by the beginning of June 2012 and monthly thereafter. These data will be shared with IMF staff for follow up."
  - Data sharing mechanism:
    - "A mechanism for data sharing between the Treasury and the DGB will be set up ... by June 2012, which will be communicated to IMF staff."
  - Pilot taxation center for medium-sized enterprises:
    - Operational deadline: "by June 2013."
  - Single taxpayer identification number:
    - Objective: "made more reliable and secure by the introduction of a lockout system."
  - Use of the automatic price-setting formula for petroleum products:
    - Application: "should be applied monthly for full pass-through of changes in international oil prices and all costs in the price structure approved in 2008, including customs duties, the specific tax on petroleum products (TSPP), VAT at the normal rate, the single tax on petroleum products (TUPP), and distribution margins so as to avoid any subsidies (negative TUPP or government support for the sector)."
    - Revenue protection: "The periodic monthly adjustments will regularly reflect changes in international oil prices and protect forecasts of revenues expected from the taxation of petroleum products included in the 2012 budget law amounting to a total of CFAF 17.9 billion."
  - Adoption of legislative texts governing the operation of the CNDP:
    - Deadline: "By September 30, 2012, the government will have validated all laws and regulations governing the operation of the CNDP in order to make it fully operational."
  - Framework for natural resource management:
    - Action: "The government will review the existing legislation (mining code) and align it with international best practice."

### Data reporting requirements to the IMF (Table I.3 summary)

- General timing rules (selected)
  - "Quarterly report assessing the quantitative indicators and structural measures ... Within four weeks after the end of each quarter."
  - "Monetary survey, monthly accounts of the central bank and commercial banks. Within four weeks after the end of each month."
  - "Table of monthly cash flow operations. Within 10 days after the end of each month."
  - "Fiscal reporting table (TOFE). Within four weeks after the end of each month."
  - "Monthly total of domestic payments arrears on goods and services and wages, including unpaid pensions and bonuses. Within four weeks after the end of each month."
  - "End-of-period stock of external debt. Within four weeks after the end of each month."
  - "Breakdown of debt service and external arrears, in particular by interest and principal and by main creditors. Within four weeks after the end of each month."
  - "Amount of new concessional and nonconcessional external debt contracted or guaranteed by the government. Within four weeks after the end of each month."
  - "Actual disbursements for projects and programs benefiting from foreign financial aid and external debt relief ... Within four weeks after the end of each quarter."

### Debt sustainability update (appendix highlights)

- Overall assessment:
  - "Debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) at the completion point in June 2009 has alleviated Central African Republic’s (C.A.R.) debt burden and the economy continues to face a moderate risk of debt distress."
- Key metrics and drivers:
  - "C.A.R.’s total public debt, including domestic arrears increased markedly, reaching 42.2 percent of GDP in 2011."
  - Comparison: "This is, well above the projected level of 27 percent in the 2010 DSA."
  - Drivers in 2010–11:
    - "Arrears accumulation on both domestic and external debt"
    - "A steady rise in external borrowing from Non-Paris Club members to finance infrastructure projects and social programs."
  - Borrowing in 2010–11:
    - "C.A.R. contracted concessional loans from India and China for US$52.3 million (2.4 percent of GDP)."
  - External arrears accumulation:
    - "Accumulation of arrears on external debt amounted US$9.8 million (0.5 percent of GDP)—of which US$2 million is due to one Paris Club creditor (France) and US$0.7 million to the European Investment Bank, and the balance to Non-Paris Club creditors that have not yet signed bilateral agreements with C.A.R."
  - Domestic debt accumulation:
    - "Domestic debt accumulation amounted to" [text ends here in source]

*Source: Excerpt from the IMF staff report (text as provided in the content unit).*

### 3.6 percent of GDP.

### _cr12240 - 3.6 percent of GDP.

### Macroeconomic outlook (near to medium term)
- Growth is expected to accelerate to around 5 percent per annum on average on the back of scaled-up infrastructures financed by concessional external loans and foreign direct investment inflows.
- The external current account is projected to remain steady as imports related to oil and infrastructure projects would offset rising exports.
- The fiscal stance is expected to improve on account of increased revenue mobilization and strong budget execution.
- From 2021 onwards, major mining projects (oil and uranium) would come on stream, boosting growth and government revenue.
- Real GDP growth (historical and projections shown in table excerpts): 1.7, 3.0, 3.3, 1.3, 3.2, 4.2, 4.2, 5.9, 5.4, 5.7, 5.7, 5.2, 6.0, 5.8 (various year points and averages preserved as in source).

### Debt sustainability assessment and classification
- The update suggests that C.A.R. continues to face a “moderate risk of debt distress”.
- All baseline debt indicators remain below the thresholds with stable downward trends, although the debt position could be vulnerable to the most extreme shock to terms of trade and exports, yielding the highest ratio by 2022.
- Under the Fund’s debt limits framework, the C.A.R. is classified as having “lower debt vulnerabilities and lower capacity” and therefore should rely on concessional borrowing.
- World Bank’s country policy and institutional assessment rating for C.A.R. averaged 2.6 in the last three years, making C.A.R. a weak performer.

### Key public debt and fiscal metrics (selected figures from the Public Sector Debt Sustainability Framework)
- Public sector debt (percent of GDP): 36.8, 41.9, 42.2, 36.0, 34.4, 31.7, 30.1, 28.5, 26.1, 19.0, 12.6 (selected time series values preserved).
- o/w foreign-currency denominated (percent of GDP): 16.1, 18.4, 17.4, 18.1, 19.5, 19.9, 20.3, 20.3, 19.2, 16.8, 12.6.
- Change in public sector debt (percent of GDP): -43.5, 5.1, 0.3, -6.2, -1.6, -2.7, -1.6, -1.7, -2.4, -0.5, 0.5.
- Identified debt-creating flows (percent of GDP): -6.5, 1.0, 1.4, -2.9, -1.0, -2.1, -1.1, -1.5, -2.3, 0.0, 0.2.
- Revenue and grants (percent of GDP): 16.1, 17.2, 13.3, 16.2, 17.0, 17.5, 18.0, 18.5, 19.0, 20.9, 24.9.
- Grants (percent of GDP): 5.3, 5.5, 2.5, 4.6, 5.4, 5.3, 5.3, 5.3, 5.3, 5.3, 5.3.
- Primary (noninterest) expenditure (percent of GDP): 15.1, 17.6, 15.1, 16.7, 17.6, 17.6, 18.8, 19.0, 18.6, 22.0, 25.4.
- Automatic debt dynamics contribution (percent of GDP): -4.8, 0.4, -0.8, -3.1, -1.6, -2.2, -1.9, -2.0, -1.8, -1.4, 0.0.
- Contribution from interest rate/growth differential (percent of GDP): -3.0, -0.8, -1.4, -1.6, -1.7, -2.4, -2.0, -2.0, -1.8, -1.4, 0.0.
- PV of public sector debt (percent of GDP, selected projection values): 35.7, 28.7, 26.1, 23.0, 20.8, 18.8, 17.0, 11.7, 7.7.
- PV of public sector debt-to-revenue and grants ratio (percent): 267.9, 177.7, 153.8, 131.1, 115.2, 101.6, 89.6, 56.2, 30.8.
- PV of public sector debt-to-revenue ratio (percent): 331.0, 248.2, 225.1, 188.2, 163.6, 142.6, 124.6, 75.4, 39.1.
- Debt service-to-revenue and grants ratio (percent): 2.6, 5.1, 4.6, 12.2, 9.7, 9.2, 10.0, 10.0, 6.6, 1.1, 0.5.
- Debt service-to-revenue ratio (percent): 3.9, 7.5, 5.7, 17.1, 14.2, 13.2, 14.2, 14.1, 9.2, 1.5, 0.7.
- Gross financing need (percent of GDP, selected values): -0.6, 1.3, 2.3, 2.5, 2.2, 1.7, 2.6, 2.3, 0.8, 1.4, 0.6.

### Stress tests, scenarios, and sensitivity analysis (high-level)
- The most extreme stress test is defined as the test that yields the highest ratio in 2022; in figures b., d., e., and f. it corresponds to a terms-of-trade shock; in figure c. to an exports shock.
- Scenario types analyzed include: baseline; historical scenario; most extreme shock; alternative scenarios A1–A3 (e.g., real GDP growth and primary balance at historical averages; primary balance unchanged from 2012; permanently lower GDP growth); and bound tests B1–B5 (e.g., lower growth, one-time 30 percent real depreciation, 10 percent of GDP increase in other debt-creating flows).
- Selected sensitivity outcomes (presented in source tables):
  - Present value of debt-to-exports ratio and present value of debt-to-revenue ratio are shown under baseline and alternative shocks across 2012–32 (numerical series preserved in source tables).
  - Bound tests show that one-time 30 percent real depreciation and increases in other debt-creating flows raise debt indicators significantly (numerical series preserved in source tables).

### External debt and balance of payments indicators (selected figures)
- External debt (nominal, percent of GDP): 16.1, 18.4, 17.4, 18.1, 19.5, 19.9, 20.3, 20.3, 19.2, 16.8, 12.6.
- Change in external debt (percent of GDP): -40.8, 2.3, -1.0, 0.7, 1.4, 0.4, 0.4, 0.0, -1.1, 0.0, 0.5.
- Non-interest current account deficit (percent of GDP): 8.7, 10.0, 8.5, 5.4, 3.6, 6.8, 5.9, 5.3, 5.2, 4.6, 4.1.
- Exports (percent of GDP, selected series): 9.5, 10.6, 11.9, 13.4, 13.5, 13.5, 13.6, 13.7, 13.8, 14.2, 15.6.
- Imports (percent of GDP, selected series): -21.5, -24.6, -23.3, -23.6, -23.6, -23.0, -22.9, -22.4, -22.0, -23.4, -25.5.

### Fiscal and program support (IMF decision and program objectives)
- IMF Executive Board approved a three-year arrangement under the Extended Credit Facility (ECF) for the Central African Republic in a total amount equivalent to SDR 41.775 million (about US$63.2 million).
- The Board’s decision enables an immediate disbursement equal to SDR 6.963 million (about US$10.5 million).
- The authorities’ program aims at:
  - consolidating macroeconomic stability by restoring fiscal discipline;
  - creating fiscal space for increased spending on critical social programs and basic infrastructure;
  - strengthening capacity and institutions; and
  - accelerating structural reforms to remove impediments to growth.
- IMF support aims to catalyze donor financing and enhance coordination while helping the recovery and the authorities’ reform efforts.

### Press release and short-term developments
- Growth in 2011 was revised upward to 3.3 percent for 2011 on the back of strong agriculture and mining activity.
- Inflation accelerated starting in November 2011 driven by price gouging and supply disruptions; headline inflation reached 7.8 percent in March 2012.
- The statement accompanying the Board decision reiterated that:
  - “The debt sustainability analysis shows that the country is at moderate risk of debt distress. The authorities therefore need to remain committed to pursuing prudent fiscal and borrowing policies, with new external debt contracted on highly concessional terms, to preserve debt sustainability.”
  - “Renewed and concerted assistance from the IMF and the Central African Republic’s development partners is crucial to support the economic recovery and boost the prospects for sustained growth and poverty alleviation.”

*Sources: IMF staff estimates and projections, C.A.R. authorities; Press Release No. 12/237, June 25, 2012.*

### 6.8 percent for the year as a whole.

### 6.8 percent for the year as a whole.

### Program alignment and donor engagement
- Program objectives are aligned with the strategic priorities of the second-generation Poverty Reduction Strategy Paper (PRSP II).
- C.A.R. is part of a donor pilot to implement a “New Deal” for engaging in fragile states; an integrated strategy was expected to be developed in Bangui in September 2012.
- Key elements of the ECF program will be an essential part of the integrated strategy.
- A Consultative Group meeting was expected before end-2012 to mobilize financing for the PRSP II.
- With prospect of increased financing, the macroeconomic framework will be revised and donors will be engaged to identify “quick wins” to bolster support for the government’s reform agenda.

### Growth, inflation, and natural resources outlook
- Real GDP growth is projected to accelerate to about 6 percent by 2014, supported by:
  - continued strength in agricultural production;
  - recovery in private sector investment in the mining sector driven by foreign direct investment (FDI) inflows;
  - a rebound in external demand.
- Inflation is expected to return to levels within the CEMAC convergence rate of 3 percent starting in 2013.
- Natural resource exploitation over the medium term is expected to support growth and fiscal revenue; projects underway include gold mining and petroleum exploration.
- Medium-term growth outlook is positive but risks include deterioration in security and political situation and weakening of the external environment, particularly in the euro area (C.A.R.’s main export market).

### Fiscal program and public debt strategy
- The fiscal program aims at:
  - generating modest domestic primary surpluses;
  - putting public debt on a downward trend by accelerating clearance of domestic payment arrears;
  - relying mostly on grant financing.
- Authorities pursued debt rescheduling and cancellation agreements with remaining creditors on HIPCs terms; payment arrears to Paris Club creditors and multilateral institutions were cleared.
- The authorities requested technical assistance to audit domestic debt arrears with a view to clearing them.
- Debt policy commitments include implementing prudent debt policies to preserve debt sustainability post-HIPIC completion point and enhancing debt management capacity (strengthening the Debt and Equity Participation Unit and establishing the National Committee on Public Debt).

### External balances and reserves
- The external current account deficit is expected to decline gradually in the medium term, predicated on:
  - gradual improvement in the terms of trade;
  - pickup in FDI and official transfers as donors resume disbursement of external aid.
- Despite modest recovery, the reserves position would remain weak with import coverage reaching just three months by 2014.

### Recent economic developments (Statement by Mr. Assimaidou)
- Growth driven by the primary sector increased to 3.3 percent in 2011 following 1.7 percent in 2009.
- Inflation declined to 1.2 percent in 2011.
- Capacity constraints and spending pressures related to a protracted electoral cycle caused budget execution difficulties.
- Use of exceptional payment procedures (cash payment orders) at the treasury was reduced from 80 percent of current expenditures in 2010 to 7 percent by end-2011; goal to contain them to within 5 percent of current expenditure.
- Faced with increasing imported oil prices, authorities implemented an upward adjustment to pump prices in June 2012 to safeguard the budget.
- Authorities revitalized institutional arrangements for fiscal control:
  - reactivated the Liquidity Monitoring Commission;
  - installed the Budget Management and Monitoring Commission (CSGB), monitoring budget execution bimonthly.
- Revenue collection and transparency measures included streamlining taxpayer registration, implementing the treasury single account, and implementing EITI recommendations (maintained compliant member status).

### Medium-term policies and 2012–2013 priorities
- Medium-term policies guided by PRSP II’s four strategic pillars:
  i. consolidation of macroeconomic stability,
  ii. mobilization and scaling up of resources for priority spending,
  iii. capacity building (human and institutional),
  iv. removing constraints to growth.
- Growth in 2012–13 expected to recover steadily as security, aid flows, and investor confidence improve; natural resources potential (mining and forestry) to be developed.
- Inflation expected to return within CEMAC’s convergence criteria after spiking in 2012.
- Current account position to remain fragile due to need for increased imports of equipment goods and unfavorable terms of trade.

### Creating fiscal space for priority spending (reforms and measures)
- Revenue-increasing reforms:
  - modernize customs and tax administration;
  - broaden the tax base and enhance compliance (update taxpayer identification system; improve taxation of small and medium size enterprises; modernize SYSTEMIF).
  - continue adjusting domestic petroleum prices to reflect international oil price fluctuations to eliminate untargeted subsidies; requested Fund technical assistance to review and streamline petroleum product price structure.
- Customs reforms:
  - implement modernization plan with World Customs Organization;
  - open new customs clearance centers;
  - upgrade equipment of customs offices;
  - reduce customs exemptions.
- Reallocation and efficiency of spending:
  - intensify reallocation toward priority spending (energy, roads, social spending);
  - improve spending efficiency through public financial management reforms;
  - CSGB to meet bimonthly to review and update binding spending commitment plans and enforce bimonthly spending commitment caps;
  - limit recourse to exceptional payment procedures.
- Public financial management enhancements:
  - streamline the expenditure chain;
  - improve budget control processes;
  - extend GESCO expenditure management system coverage to Treasury operations.

### Financial sector and structural reforms
- Financial sector:
  - intensify reforms to expand access to financial services beyond the capital city;
  - seek a strategic investor to reduce government participation in the intervened bank;
  - monitor compliance of the financial system with regional prudential ratios.
- Structural reforms to boost competitiveness and leverage natural resources:
  - improve business climate and promote private sector development;
  - strengthen the judiciary and enhance security of property and contractual rights;
  - review the investment charter to attract foreign direct investment.
- Economic governance and public enterprise management:
  - improve transparency by centralizing cash management and implementing the treasury single account and regularly publishing the budget law;
  - phase out exceptional receivership measures in public enterprises, normalize management, enhance oversight, and strengthen balance sheets.

### Conclusion and request for ECF support
- Authorities have demonstrated dedication to sound economic and financial policies, taking corrective actions to restore fiscal discipline.
- Challenges remain: capacity constraints and socio-political unsteadiness.
- Authorities put in place a comprehensive reform program and requested Fund assistance under the ECF; they sought Directors’ support for a new ECF-supported program.

*Source: IMF staff report and Statement by Mr. Assimaidou, Executive Director for Central African Republic, June 25, 2012.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12240.pdf_