## _cr16269

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### EXECUTIVE SUMMARY — Background, program request, and risks
- Democratic institutions restored on April 1, 2016; priorities: improving security, consolidating peace and reconciliation, rebuilding government institutions, strengthening economic management.
- Three RCF disbursements during Jan 2014–Mar 2016 totaling SDR 22.28 million (20 percent of new quota) supported emergency needs and restored macro stability.
- Authorities requested a three-year arrangement under the Extended Credit Facility (ECF) equivalent to SDR 83.55 million (75 percent of quota).
- Program focus:
  - Lower the primary fiscal deficit while ramping up poverty-reduction spending.
  - Expand electricity supply; improve access to credit to crowd in private sector investment.
  - Improve administrative capacity, budget transparency, and project management.
- Risks identified:
  - Absence of political agreement with armed groups;
  - Limited experience of the new government;
  - Delayed provision of financial assistance from the international community, jeopardizing critical reforms including those of the security sector.

### MACROECONOMIC PERFORMANCE AND PROJECTIONS
- Recent outcomes (selected):
  - Real GDP growth: 4.1 percent (2012); -36.7 percent (2013); 1 percent (2014); 4.8 percent (2015).
  - Inflation: 11.6 percent (2014 peak); 4.5 percent (2015).
  - Domestic revenue: 11.5 percent of GDP (2012); 4.9 percent of GDP (2014); 7.1 percent of GDP (2015).
  - Primary fiscal position: small surplus (2012) → primary deficit of 3 percent of GDP (2015).
  - Public debt: 23.5 percent of GDP (2012) → 48.5 percent of GDP (2015).
  - Current account deficit: doubled since 2012 to about 9 percent of GDP (2015).
- Program projections (ECF-supported):
  - Real GDP growth projected at 5.2 percent in 2016; average around 5.5 percent medium term.
  - Inflation projected to return to regional convergence rate of 3 percent.
  - Current account deficit projected about 9.7 percent of GDP during 2016–19.
  - Gross official foreign reserves projected to rise from 4 months of imports in 2016 to 5 months of imports in 2019.
  - Financing needs expected to decline from 4.8 percent of GDP in 2016 to 3.2 percent of GDP in 2019.
- Low-growth scenario (selected series, 2015–21):
  - Real GDP growth (percent change): 4.8 2.5 2.5 2.5 2.5 2.5 2.5
  - Inflation (percent change): 4.5 5.2 5.5 5.1 4.9 4.7 4.3
  - Domestic Primary Balance (percent of GDP): -3.0 -3.9 -2.7 -2.4 -2.3 -2.1 -1.3
  - Reserve Coverage (months of imports): 4.1 4.0 3.9 3.8 3.8 3.8 3.7
  - Public debt (percent of GDP): 48.5 49.8 46.7 43.7 40.9 38.7 36.3

### FISCAL STRATEGY, TARGETS, AND MEASURES
- Medium-term fiscal objectives and key numeric targets:
  - Increase domestic revenue from 7.1 percent of GDP in 2015 to 10.1 percent of GDP by 2019 via the medium-term action plan.
  - Reduce the wage bill from 6 percent of GDP in 2015 to 4.5 percent of GDP in 2019 (MEFP, ¶15).
  - Revised 2016 budget to contain domestic primary balance to 3.3 percent of GDP.
  - Fiscal anchor: reduction in domestic primary deficit to 0.9 percent of GDP in 2019 from 3.0 percent in 2015.
  - Program targets a rise of 1.5 percentage points of GDP in total spending to 16.4 percent by 2019; domestically-financed capital spending to increase cumulatively from 4.1 percent of GDP in 2015 to 6.4 percent in 2019.
- Specific revenue and expenditure measures:
  - 2016 budget measures amounting to CFAF 5.6 billion.
  - Additional measures projected to raise revenue by CFAF 2.2 billion (0.2 percent of GDP) in Q4 2016.
  - Petroleum pricing reform: transition to full pass-through of international prices (Platts) in 2017, with accompanying social safety net measures.
  - Wage bill streamlining measures with specified expected savings: CFAF 150 millions (timely retirements), CFAF 150 millions (elimination of non-regular civil servants), CFAF 60 millions (repatriation of diplomats); CFAF 150 millions and CFAF 150 millions figures also noted in roster clean-up lines.
- Cash and treasury management:
  - Monthly treasury plan for 2016 and 2017; Treasury committee to monitor via monthly review meetings chaired by the Minister of Finance and Budget.
  - Aim to build fiscal buffers: deposits of about 0.5 percent of GDP by end-2016, and 1.5 percent by 2019, to cover about 2 months of wages, pensions and external debt service.
- Arrears management:
  - Government liabilities consolidated with BEAC totaling CFAF 55 billion (data at end-April 2016 after consolidation agreement).
  - EU-funded audit of government debt with commercial banks and contractors (CFAF 30 billion) to lead to an action plan to clear them in early 2017, including securitization.
  - Audits for other payment arrears expected; overall plan to settle arrears to be adopted by July 2017.

### DEBT SUSTAINABILITY AND PUBLIC DEBT MANAGEMENT
- DSA outcome: C.A.R. placed at high risk of debt distress (compared with moderate risk in 2012).
- Arrears and debt stock (selected):
  - At end-May 2016, pre-HIPC Initiative arrears close to US$93.7 million to Argentina, Equatorial Guinea, Iraq, Libya, and Montenegro.
  - Arrears to the Saudi Development Fund amount to US$1.26 million.
  - Large accumulation of domestic arrears contributed to increase in total public debt.
  - End-2015 PPG stood at CFAF 454.3 billion (48.5 percent of GDP); external debt 14.5 percent of GDP; domestic debt 34.0 percent of GDP; arrears 18.3 percent of GDP.
- Financing principles agreed:
  - Grants should be the main source of external financing given high risk of debt distress.
  - Concessional financing with a grant element of at least 50 percent could be pursued after consultation with staff.
- Proposed improvements:
  - Revised finance law for 2016 to confer authority to contract public debt exclusively to the Minister in charge of Finance and Budget.
  - Install SYGADE 6.0 debt management software and strengthen analytical and operational debt management capacity.

### FINANCIAL SECTOR, INCLUSION, AND BANKING REFORMS
- Current status and constraints:
  - Only about 1 percent of the population holds a bank account and 0.5 percent has access to credit.
  - Mobile banking access remains low.
  - Non-performing loans represent close to one third of all loans; about 50 percent of sector NPLs linked to outstanding government payment arrears.
  - Loan loss provisioning increased to about 70 percent (from about 50 percent in March 2015), reducing banks’ capital and profitability.
  - Bank lending concentrated in short-term loans to the public sector; lending to private sector weak due to security, lack of guarantees, lack of long-term resources, and poor judicial enforcement.
- Financial inclusion indicators and gaps (Figure 1 highlights from World Bank Global Findex database): regional comparisons and disaggregation by income and gender presented in source figure.
- Banking sector reform measures:
  - Strengthen judicial system to settle disputes; monitor risk management and lending practices; set up commercial and land registries.
  - Authorize more banks to conduct mobile banking in 2016; request TA to set up a credit bureau.
  - Explore feasibility of a guarantee fund for SMEs with development partner support.
  - COBAC banking supervision mission requested.

### SOCIAL POLICY AND POVERTY-REDUCTION MEASURES
- Social policy objectives:
  - Assist IDPs and refugees to return to lands and assets; reorganize and redeploy public administration nationwide; improve access to drinking water, sanitation and hygiene; rehabilitate educational facilities; revitalize the health system including HIV/AIDS fight.
- Social spending and financing (reported/decomposed):
  - Debt financing matrix shows infrastructure financed concessional/multilateral lines with numeric pattern: 10.3 100 5.2 100 5.2 100 (as presented).
  - Uses of debt financing: Infrastructure 10.3 100 5.2 100 5.2 100; Social Spending 0.0 0.0 0.0; Budget Financing 0.0 0.0 0.0.
- Measurable social/T A targets:
  - Improve domestic revenue from 7.1 percent of GDP in 2015 to 10.1 percent in 2019.
  - Reduce the wage bill from 6 percent of GDP in 2015 to 4.5 percent of GDP in 2018, including hiring new staff for social sectors.
  - Produce treasury balances on a quarterly basis starting in 2016.

### CAPACITY BUILDING, TECHNICAL ASSISTANCE, AND STATISTICS
- Capacity gaps and TA priorities:
  - Core TA needs: VAT collection, rationalization of tax and customs exemptions, reform of tax and customs administration, reform diamond/telecom/forestry taxation, accounting and reporting systems, macro-fiscal capacity, public debt management, and statistics (national accounts, CPI, BOP).
  - Authorities agreed to participate in the Capacity Building Framework (CBF) pilot project to mobilize and coordinate TA.
- Data quality and statistical issues:
  - National accounts and CPI suffer from outdated weights and limited source data (informal sector estimates based on a 1982 survey).
  - CPI highly skewed toward food (70 percent) and needs rebalancing.
  - Monetary statistics broadly adequate; financial soundness indicators reporting began in March 2016.
  - Reporting deadlines specified in TMU (selected): monthly monetary and fiscal data within four weeks of period end; monthly cash flow within ten days; other tables and arrears reporting within four weeks.

### PROGRAM MODALITIES, ACCESS, FINANCING OUTLOOK, AND CONTINGENCY ARRANGEMENTS
- Proposed ECF arrangement:
  - Three-year arrangement under the Fund’s Extended Credit Facility.
  - Proposed IMF access: 75 percent of quota (SDR 83.55 million ≈ CFAF 68 billion), sufficient to close about 36 percent of the cumulative gap of CFAF 190 billion; access below the norm.
- Financing needs and donor commitments:
  - 2016: World Bank, AfDB, EU, and France committed CFAF 30 billion; together with Fund support will help cover CFAF 50 billion gap.
  - First half 2017 financing needs projected CFAF 24 billion: to be covered by end-2016 financial reserves, donor disbursements tentatively committed at CFAF 10.2 billion, and IMF support.
  - BEAC Board of Governors agreed to extend an exceptional advance of CFAF 9.24 billion as a bridge loan in case of delayed disbursements; to be repaid once disbursement occurs; government to consult staff each time.
- Key program test dates:
  - end-August 2016 and end-December 2016.

### RISK ASSESSMENT AND POLICY RESPONSES
- Major downside risks (selected):
  - Resumption of violent conflict; delayed donor disbursements; inexperience of the new government; limited administrative capacity.
- Agreed policy responses if protracted lower growth:
  - Additional adjustment averaging 1 percent of GDP (reduce domestically-financed capital spending, delay new hiring, restrain non-priority current spending);
  - Adopt a less-ambitious arrears clearance strategy.
- Risk matrix (highlights):
  - Deterioration of security: Relative Likelihood High; Impact If Realized High; response: refocus reforms on less sensitive areas and maintain fiscal control.
  - Initial inertia of new government: Relative Likelihood High; Impact If Realized High; response: gradual back-loading of reforms and focus on revenue mobilization, efficient delivery of public services.
  - Delayed external assistance: Relative Likelihood Medium; Impact If Realized Medium; response: increase domestic resource mobilization and expenditure efficiency.

### MONITORING, CONDITIONALITY, AND REPORTING
- Program implementation and monitoring:
  - Political-level monitoring: Office of the President, Prime Minister, Ministry of Finance and Budget, BEAC.
  - Technical implementation: Economic Reform Monitoring Committee (CS-REF) under the Minister of Finance and Budget.
- Quantitative performance criteria and indicative targets (selected, cumulative):
  - Domestic government financing (ceiling, cumulative): 186.0 | 4.5 | 3.2 (table entries preserved).
  - Domestic revenue (floor, cumulative): 51.0 | 84.7.
  - Domestic primary deficit (ceiling, cumulative): -19.9 | -34.7.
  - Reduction in domestic payment arrears (floor, cumulative): -3.7 | -5.6.
  - Social spending (floor, cumulative): 3.3 | 5.0.
- Structural benchmarks (selected with timelines preserved):
  - Inter-ministerial decision: base petroleum price structure on Platts international prices (structural benchmark end-July 2016).
  - Require asset disclosures by cabinet members within 60 days of appointment (structural benchmark end-July 2016).
  - Presentation to parliament of revised 2016 budget consistent with the program (timeline: end-August 2016).
  - Adopt ministerial decision identifying all government accounts for consolidation (timeline: end-August 2016).
  - Repatriation of diplomats via provision of airline tickets (structural benchmark end-December 2016).
  - Adopt a domestic payment arrears clearance plan (structural benchmark end-June 2017).
  - Close non-essential government accounts in commercial banks and consolidate TSA (timeline: end-March 2017).

*Source: IMF staff report as provided in the source content.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background and political context
- The Central African Republic (C.A.R.) returned to democratic institutions on April 1, 2016, offering prospects to end violent conflicts and political instability that began end-2012.
- Three disbursements under the Rapid Credit Facility (RCF) supported urgent balance of payments needs and restored macroeconomic stability during the transition from January 2014 to March 2016.
- The newly elected government’s priorities include: improving security, consolidating the peace and reconciliation process, rebuilding government institutions, and strengthening economic management.

### Article IV discussions
- Discussions focused on strategies to:
  - improve revenue mobilization;
  - strengthen public financial management;
  - promote competitiveness and debt sustainability;
  - rebuild capacity to support pro-poor inclusive growth and social stability.

### The proposed ECF-supported program
- Program focus:
  - Lowering the primary fiscal deficit while ramping up poverty-reduction spending.
  - Expanding the electricity supply and improving access to credit to crowd in private sector investment.
  - Improving administrative capacity, budget transparency, and project management.
- Authorities’ request:
  - A three-year arrangement under the Extended Credit Facility (ECF) in an amount equivalent to SDR 83.55 million (75 percent of quota).

### Risks to the program
- Identified risks include:
  - absence of political agreement with armed groups;
  - limited experience of the new government;
  - delayed provision of financial assistance from the international community, jeopardizing critical reforms including those of the security sector.

### Mission, contacts, and process
- Approved By: M. Atingi Ego (AFR) and B. Traa (SPR).
- A staff team led by Mr. Jahjah (head), with Mr. Bessaha, Mr. Davies, and Mmes Shi and Farahbaksh (all AFR), visited Bangui during May 17-27.
- Meetings included President Touadera, Prime Minister Sarandji, Finance and Budget Minister Dondra, Minister of Plan and International Cooperation Moloua, other ministers, head of Parliament, the national Director of BEAC, senior economic and financial officials, diplomatic community, and private sector representatives.
- Mr. Kibassim (OED) participated. Representatives of the World Bank, the European Union, the African Development Bank, and France participated in meetings. The mission coordinated closely with a large World Bank mission and the visiting Deputy Managing Director of the Development Bank for Central African States.

### Context: post-conflict peacebuilding and reconstruction
- Peaceful elections in early 2016 ended a protracted political transition; President Touadera formed a coalition government excluding some minority groups.
- The new government’s long-term objectives: reduce widespread poverty by reinforcing security, fostering national reconciliation and social peace, strengthening human and administrative capacity, and undertaking economic reforms.
- Planned actions include:
  - comprehensive reform of the security services (RSS), addressing departure of old/untrained officers, reintegration of ex-combatants, and the role of a new army;
  - RSS to be submitted to the donor community in November 2016; expected to require significant donor financial support and not to impact public finances.

### Central African Republic and the IMF
- The IMF provided support during 2014–2015 via three RCF disbursements totaling SDR 22.28 million (20 percent of new quota).
- Transition authorities improved treasury management, streamlined the civil service roster to contain the wage bill, and established a collaborative institutional framework.
- 2011 Article IV recommendations highlighted: maintain macroeconomic stability while increasing investment, ensure budget execution aligned with parliamentary priorities, establish monthly domestic petroleum pricing mechanism, strengthen public debt management, contract new debt on concessional terms, clear arrears, improve financial intermediation, expand access to electricity, and improve the business environment.
- Performance under three successive RCF disbursements set stage for an upper credit tranche program; staff sees merit in longer-term engagement.
- ECF rationale: protracted balance of payments needs due to slow take-off of export earnings because of partial embargo on diamond exports, low timber prices, and rising imports for food, reconstruction, and investment.
- ECF objectives: mobilize revenue, improve spending efficiency, scale-up social and infrastructure investment, anchor priority structural reforms, and mobilize and coordinate development partner support.

### Recent economic and financial developments and key statistics
- Growth and inflation:
  - Real GDP growth: 4.1 percent rise in 2012; estimated contraction of 36.7 percent in 2013; 1 percent in 2014; 4.8 in 2015.
  - Inflation: peaked at 11.6 percent in 2014; receded to 4.5 percent in 2015.
- Per capita growth stagnated pre-crisis, collapsed in 2012, and did not recover during the transition.
- Human Development:
  - 2015 Human Development Report ranked C.A.R. at 187 out of 188 countries.
- Fiscal and external positions:
  - Primary fiscal position shifted from a small surplus in 2012 to a deficit of 3 percent of GDP in 2015.
  - Domestic revenue: 11.5 percent of GDP in 2012; collapsed to 4.9 percent of GDP in 2014; rebounded to 7.1 percent of GDP in 2015.
  - Current primary spending: about 9.7 percent of GDP in 2015; wage bill represented 6 percent of GDP.
  - Domestically-financed capital spending: 1.5 percent of GDP in 2012; 0.4 percent of GDP in 2015.
  - Current account deficit doubled since 2012 to 9 percent of GDP, mainly from collapsed exports of diamonds and forestry products.
- Treasury in 2016:
  - Tight in first half of 2016 despite strong revenue performance and strict expenditure control.
  - Authorities faced a treasury gap of CFAF 10 billion for the second quarter, prompting donor bridge emergency support.
- Debt and arrears:
  - Public debt rose from 23.5 percent of GDP in 2012 to 48.5 percent of GDP in 2015 due to GDP collapse and increases in domestic payment arrears.
  - During the emergency period, significant support came as grants with limited new debt financing.
  - Major loan: signed December 2015 by the Transition Government with Saudi Arabia for CFAF 45 billion (5 percent of GDP) to finance investment in infrastructure and social sectors; loan reported as concessional with a grant element of 49 percent.

### Fragility analysis and exit strategy (Box 1 highlights)
- C.A.R. trapped in persistent fragility since independence in 1960 from: lack of common vision, weak governance, lack of education and employment opportunities, and lasting political conflicts.
- Experience from seven Sub-Saharan African countries (Cameroon, Ethiopia, Mozambique, Niger, Nigeria, Rwanda, Uganda) suggests key drivers for building resilience include:
  - maintaining macroeconomic and political stability;
  - building strong fiscal institutions and efficient domestic revenue collection;
  - scaling up development aid and social spending.
- Policy responses recommended:
  - orient public expenditure to priority spending (health, education, security) and public investment essential for inclusive growth and political stability;
  - focus on "low hanging fruits" such as strengthening cash management, VAT and petroleum taxation, and the treasury single account;
  - scale up external budget assistance and technical support for capacity building;
  - coordinate closely among the United Nations, development partners, and security partners to exit fragility.

_Imf staff report: EXECUTIVE SUMMARY (July 8, 2016)._

### 11.      The financial sector, the smallest in CEMAC, is largely underdeveloped and plays a

### _cr16269 - 11.      The financial sector, the smallest in CEMAC, is largely underdeveloped and plays a

### Financial sector: current situation and constraints
- Only about 1 percent of the population holds a bank account and 0.5 percent has access to credit.
- Access to mobile banking remains low, dampening the potential expansion of access to financial services.
- Fragile security, absence of appropriate guarantee instruments, lack of long-term resources, and a poor judicial system capable of supporting debt collection impede sound credit expansion to the private sector.
- Demand for credit was weak, reflecting the fragile security environment and the loss of investors’ assets during the crisis.
- Non-performing loans represent close to one third of all loans, mostly due to:
  - the large stock of outstanding government payment arrears (about 50 percent of the sector’s NPLs), and
  - government arrears to its suppliers.
- Banks have recently increased provisioning of NPLs to about 70 percent (compared with about 50 percent in March 2015), reducing banks’ capital and profitability.
- Bank lending activities tend to be concentrated in short-term loans to the public sector, leaving banks exposed to sovereign risk.
- Overall liquidity increased in 2015, while banks’ asset quality remains precarious.

### Financial inclusion (Figure 1 highlights)
- Source: World Bank Global Findex database.
- Comparative and disaggregated indicators presented (most recent years):
  - Regional comparison: CAR, CMR, CEMAC, TCD, COG, GAB, SSA frontier economies.
  - Financial Inclusion by Income: Poorest 40% vs Richest 60% vs Overall.
  - Financial Inclusion by Gender: Female vs Male.
  - Mobile Phone Used to Receive Money (in percent, most recent years).
  - Formal and Informal Savings (in percent, most recent years).
- Specific numeric bars and chart values are depicted in the source figure (not reproduced here).

### Medium-term challenges to recovery and inclusive growth (A)
- Key challenges identified by the authorities:
  - Consolidating peace and security, and re-establishing state authority throughout the country.
    - Security improving with UN peacekeeping mission and French military contingent, SANGARIS, but conditions remain volatile in Bangui and some regions, including North-East diamond-producing regions under armed groups’ control.
    - Return and resettlement of refugees and internally displaced persons (IDPs) are major priorities.
    - Disarmament, demobilization, reintegration, and reinsertion of ex-combatants are crucial.
    - Security policy being reshaped to scale up civil security, specialized forces (police and gendarmerie), with significant training and equipment needs.
    - A concerted reconciliation campaign is needed due to population divisions along religious lines.
  - Restoring and building basic infrastructure and utilities:
    - Pre-crisis supply of electricity and access to safe drinking water were poor and mainly limited to Bangui.
    - Poor road conditions made large parts of the country inaccessible; private economic infrastructure was destroyed, including factories in forestry and service providers; only 8 gasoline stations for the whole country in the oil sector.
    - Authorities implementing an investment plan in the energy sector expected to double power generation over the next three years and road transportation investments.
  - Mobilizing domestic revenues and returning to normal budget procedures:
    - External aid reached 27 percent of GDP in 2015 after a plateau of 43 percent of GDP in 2014.
    - Domestic resources are scarce and insufficient to meet wage payments, key social outlays and external debt service.
    - Authorities’ revenue-side actions: review tax policy and management of natural resources.
    - Authorities’ expenditure-side actions: second phase of the wage bill reform, including human resource management.
  - Improving social conditions:
    - C.A.R. ranked 187 out of 188 countries on the UNDP 2015 Human Development Index.
    - Authorities will redeploy social services and undertake significant investments in health and education.
  - Improving competitiveness:
    - C.A.R. ranked 185th out of 189 countries on the World Bank Doing Business Index for 2016.
    - Ranked bottom on four components: paying taxes, trading across borders, enforcing contracts, and resolving insolvency.
    - Weaknesses noted in property rights, corruption, and business freedom; ranked 145th out of 167 countries on Transparency International’s 2015 corruption perceptions index.
    - Authorities have started inclusive dialogue with the private sector and are taking steps to reduce red tape, corruption and improve financial sector intermediation.

### External position and competitiveness (paragraphs 13–14)
- Real effective exchange rate (REER) appreciated by almost 63 percent from 2013 to 2015, mainly reflecting sharp increase in inflation during the crisis.
- The authorities noted inflationary pressures are receding and are ready to take further actions to bring consumer price inflation in line with the regional convergence rate.
- C.A.R. participates in a currency union and the exchange system common to all members operates without restrictions on payments and transfers for current transactions.

### Restoring macroeconomic stability through fiscal reforms (B)
- With external budget support expected to steadily decline over the medium term, emphasis will be on mobilizing domestic resources and controlling spending through key structural reforms.
- Constraints: low capacity, presence of armed groups, poor state of revenue administration, deep-rooted rigidities, high public expectations—requiring careful prioritization of reforms, continued external support, and further technical assistance.
- Medium-term macroeconomic policies and reforms agreed to pave the way for return to stability and sustainable growth.

Key numeric fiscal objectives and actions:
- Increase domestic revenue from 7.1 percent of GDP in 2015 to 10.1 percent of GDP by 2019 via the medium-term action plan (prepared in 2015 and updated in March 2016):
  - (i) broaden the tax base and simplify tax procedures, including improving management of the VAT system and the base for assessing export taxes;
  - (ii) strengthen tax and customs administration, including introducing pre-completed tax returns for real estate; revision of fiscal exemptions agreements;
  - (iii) harmonization of the General Investment Code by implementing the CEMAC directives on VAT and duties;
  - (iv) streamline and enhance management of tax exemptions.
- Reduce the wage bill from 6 percent of GDP in 2015 to 4.5 percent of GDP in 2019 (MEFP, ¶15).
  - Planned measures to streamline public sector workforce:
    - continued cleaning of the civil service roster;
    - timely retirements of eligible civil servants (CFAF 150 millions);
    - gradual elimination of non-regular civil servants (CFAF 150 millions);
    - repatriation of diplomats whose assignments have ended in 2016 or before (CFAF 60 millions).
  - Expected savings for 2016-19 will help scale up poverty spending and domestically-financed investment spending, and clear more domestic payment arrears.
- The cash constraint is the fundamental anchor of the program; pursue strict treasury management and widen coverage of treasury operations.
  - Authorities prepared a monthly treasury plan for 2016 and 2017 (Tables 6a & 6b) to be monitored by the Treasury committee through monthly review meetings chaired by the Minister of Finance and Budget.
- Public financial management (PFM) action plan objectives:
  - secure and strengthen treasury management by widening coverage to all government operations and identifying all government accounts in commercial banks and move towards a reinforced single Treasury account;
  - strengthen the Central Accounting and Treasury Agency (ACCT) and launch a sensitization campaign;
  - normalize the expenditure process and limit emergency spending procedures (budget and cash payment orders) to 5 percent of non-wage and debt-service expenditures;
  - re-establish proper accounting practices for all government operations and reinforce the public management information system to produce monthly accounting balances;
  - re-establish the credibility of the state by fighting corruption and fraud and by re-gaining creditor confidence.
- Government will rigorously enforce law requiring ministers to declare their assets within 60 days of appointment and is considering creating a committee of wise persons to implement an anti-corruption framework.
- A plan is under discussion to improve the public investment framework to enhance project execution.

### Restoring debt sustainability and public debt management (C)
- Debt Sustainability Analysis (DSA) places C.A.R. at high risk of debt distress (compared with moderate risk in 2012).
- At end-May 2016, C.A.R. owes close to US$93.7 million of pre-HIPC Initiative arrears to Argentina, Equatorial Guinea, Iraq, Libya, and Montenegro.
- C.A.R. also has arrears to the French export guarantee institute, COFACE.
- Argentina and France have consented to IMF financing in the context of a new ECF arrangement notwithstanding these arrears; remaining creditors requested more time to consider consenting to IMF financing.
- Arrears to the Saudi Development Fund amount to US$1.26 million, which arose during the emergency period; government has contacted Saudi Arabia to inform intention to resolve these arrears.
- C.A.R. is in arrears to two French private entities and is making good faith efforts to finalize/reach collaborative agreements with them.
- Large accumulation of domestic arrears contributed to an increase in total public debt.
- Agreed financing principles:
  - Grants should be the main source of external financing given high risk of debt distress.
  - Concessional financing with a grant element of at least 50 percent could be pursued after consultation with staff.
- Revised finance law for 2016 will explicitly confer authority to contract public debt, including government-guaranteed debt, exclusively to the Minister in charge of Finance and Budget.

### Capacity building framework and technical assistance (D)
- Need to further build capacity to support and undertake major reforms.
- During the emergency phase, an institutional framework was put in place to rebuild capacity, coordinate technical assistance, and monitor reforms undertaken under the RCF.
- Framework to be strengthened to enhance donor coordination and leverage capacity building and technical assistance (TA) resources to maximize synergies and increase effectiveness.
- Authorities agreed to be part of the Capacity Building Framework (CBF) pilot project, which they consider a powerful tool to mobilize and coordinate timely TA and use it efficiently to ensure program success (MEFP, ¶30).

*Source: IMF staff report as provided in the source content.*

### 22.      Social policy is a critical component of the authorities’ strategy to exit fragility and

### _cr16269 - 22.      Social policy is a critical component of the authorities’ strategy to exit fragility and

### Social policy objectives
- Overarching government goals:
  - assist the IDPs and refugees return to their lands and assets;
  - reorganize and redeploy public administration throughout the country;
  - improve access to drinking water, sanitation, and hygiene;
  - rehabilitate educational facilities to ensure full coverage and quality education at all levels to children of both sexes, across the country;
  - revitalize the health system, including strengthening the fight against HIV/AIDS.

### Debt financing and uses (as reported)
- By sources of debt financing: 10.3 100 5.2 100 5.2 100
- Concessional debt, of which: 10.3 100 5.2 100 5.2 100
- Multilateral debt: 10.3 100 5.2 100 5.2 100
- Bilateral debt: 0.0 0.0 0.0
- Other: 0.0 0.0 0.0
- Non-concessional debt, of which: 0.0 0.0 0.0
- Semi-concessional: 0.0 0.0 0.0
- Commercial terms: 0.0 0.0 0.0
- By Creditor Type: 10.3 100 5.2 100 5.2 100
- Multilateral: 10.3 100 5.2 100 5.2 100
- Bilateral - Paris Club: 0.0 0.0 0.0
- Bilateral - Non-Paris Club: 0.0 0.0 0.0
- Other: 0.0 0.0 0.0
- Uses of debt financing: 10.3 100 5.2 100 5.2 100
- Infrastructure: 10.3 100 5.2 100 5.2 100
- Social Spending: 0.0 0.0 0.0
- Budget Financing: 0.0 0.0 0.0
- Other: 0.0 0.0 0.0 0.0 0.0 0.0

- Memo Items / Indicative projections:
  - Year 2: 10.3 5.2 5.2
  - Year 3: 0.0 0.0 0.0
  - PV of new debt in 2016 (including negative GEs)
  - PPG external debt
  - Volume of new debt in 2016
  - PV of new debt in 2016 (program purposes)

### Proposed capacity building and technical assistance (TA)
- Challenges and lessons:
  - TA delivered in treasury management, public financial management, and macro fiscal capacity during Jan 2014–Mar 2016; Fund TA missions hampered by suspension due to security deterioration.
- Forward-looking TA needs:
  - improve VAT collection;
  - rationalize tax and customs exemptions;
  - reform the tax and customs administration;
  - reform diamond, telecom and forestry taxation;
  - improve accounting framework and reporting system, and build macro fiscal capacity;
  - complete cleaning of the roster, secure final register, simplify hiring procedures, implement management and training tools for human resource managers, assess performance (wage bill focus);
  - modernize institutional and regulatory framework for public debt management; improve debt management strategy; strengthen analytical and operational capabilities; strengthen capacity to record and monitor public debt;
  - improve macro fiscal capacity and statistics, including national accounts, consumer prices, and balance of payments.
- Fund TA priorities under the ECF arrangement:
  - macro fiscal capacity;
  - tax policy;
  - revenue administration;
  - macroeconomic statistics;
  - public debt management.
- Main measurable targets from TA during 2016–19:
  - improve domestic revenue from 7.1 percent of GDP in 2015 to 10.1 percent in 2019;
  - reduce the wage bill from 6 percent of GDP in 2015 to 4.5 of GDP in 2018, including hiring new staff to meet needs in the social sectors;
  - produce the treasury balances on a quarterly basis, starting in 2016.
- Milestones (selected):
  - link annual budget preparations and the medium-term macroeconomic framework underpinning the authorities ‘growth and poverty reduction strategy;
  - improve revenue from downstream oil, forestry and mining sectors;
  - streamline tax exemptions;
  - streamline and modernize processes for large taxpayers/importers, secure revenue collection through commercial banks network, and prevent and fight VAT fraud;
  - improve compilation in national accounts, immediate review CPI compilation for 2013 to eliminate methodological errors and ensure consistency with the series in 2014 and 2015;
  - review institutional and regulatory framework for public debt management and improve debt management strategy in 2016.
- Authorities’ absorptive constraints and mitigation:
  - Ministry of Finance and Budget, the Institute of Statistics and Prices, and Ministry of Planning and International Cooperation are understaffed, poorly equipped, and face energy shortages for office equipment;
  - commitments to improve capacity, train staff, and hire young qualified staff;
  - mitigation of security risk: send staff to outside locations for training;
  - mitigate lack of specialized local staff: hire young college graduates and train them.

- Risks to TA effectiveness:
  - volatile security conditions;
  - delayed support from development partners;
  - lack of local qualified experts.

### Data for surveillance
- Data quality and timeliness:
  - data provided broadly adequate albeit with some delays;
  - national accounts, consumer inflation, and external trade data are weak;
  - authorities agreed to eliminate delays and improve frequency and quality, and reached out to IMF Statistics Department for TA.

### Macroeconomic framework and projections (ECF-supported program)
- Growth and inflation:
  - real GDP growth projected at 5.2 percent in 2016;
  - should remain around an average of 5.5 percent in the medium term;
  - inflation projected to return to the regional convergence rate of 3 percent.
- External sector and reserves:
  - current account deficit projected to remain at about 9.7 percent of GDP;
  - gross official foreign reserves projected to rise from 4 months of imports in 2016 to 5 months of imports in 2019.
- Financing needs:
  - financing needs expected to decline from 4.8 percent of GDP in 2016 to 3.2 percent of GDP in 2019.

### Risks and low-growth scenario (Box 3 and Text Table 3)
- Downside risk factors:
  - resumption of violent conflict;
  - delayed disbursements in donor funding for economic and security reforms, including DDR of ex-combatants;
  - inexperience of the new government.
- Staff/authorities agreed policy responses if protracted lower growth:
  - additional adjustment averaging 1 percent of GDP (reduce domestically-financed capital spending, delay new hiring, restrain non-priority current spending);
  - adopt a less-ambitious arrears clearance strategy.
- Text Table 3. Central African Republic: Selected Economic Indicators, Low Growth Scenario, 2015–21
  - Real GDP growth (percent change): 4.8 2.5 2.5 2.5 2.5 2.5 2.5
  - Inflation (percent change): 4.5 5.2 5.5 5.1 4.9 4.7 4.3
  - Domestic Primary Balance (percent of GDP): -3.0 -3.9 -2.7 -2.4 -2.3 -2.1 -1.3
  - Reserve Coverage (months of imports): 4.1 4.0 3.9 3.8 3.8 3.8 3.7
  - Public debt (percent of GDP): 48.5 49.8 46.7 43.7 40.9 38.7 36.3
  - Financing Gap: 58.0 57.8 54.3 53.0 52.9 40.8
  - Sources: C.A.R. authorities and IMF staff estimates and projections.

### Fiscal strategy, targets, and measures
- Medium-term fiscal strategy components:
  - bring down domestic primary deficit through revenue reforms and spending control (notably wage bill) while ramping up social and infrastructure outlays;
  - manage outstanding domestic payment arrears to restore confidence;
  - build fiscal buffers to weather volatility;
  - reform public investment program framework to ensure efficient execution.
- Agreed fiscal targets:
  - revised 2016 budget to contain domestic primary balance to 3.3 percent of GDP;
  - reduction in domestic primary deficit (fiscal anchor) to 0.9 percent of GDP in 2019 from 3.0 percent in 2015.
- Revenue and spending composition:
  - raise domestic revenue from 7.1 percent in 2015 to 10.1 percent of GDP in 2019;
  - program targets a rise of 1.5 percentage points of GDP in total spending to 16.4 percent during the same period;
  - decline in the wage bill of 1.5 percentage points of GDP; domestically-financed capital spending to increase cumulatively from 4.1 percent of GDP in 2015 to 6.4 percent in 2019.
- Specific revenue measures:
  - 2016 budget measures amounting to CFAF 5.6 billion;
  - additional measures projected to be included in revised budget by August 2016, including modification of petroleum products price structure to Platts international prices, revised valuation base for forestry exports, rigorous application of convention with banks on revenue collection;
  - these measures projected to increase revenue by CFAF 2.2 billion (0.2 percent of GDP) in the last quarter of 2016.
- Petroleum pricing reform:
  - discussion of introducing in 2017 a new pricing mechanism allowing full pass-through of international prices to domestic prices;
  - accompanied by a social safety net program as part of wider social protection for vulnerable groups;
  - part of plan to increase number of gasoline stations.

### Fiscal buffers, arrears, and project management
- Fiscal buffers:
  - need to build deposits of about 0.5 percent of GDP by end-2016, and 1.5 percent by 2019 to hedge against volatile aid disbursements;
  - buffers should cover about 2 months of wages, pensions and external debt service.
- Arrears management:
  - agreement with BEAC to consolidate government liabilities totaling CFAF 55 billion (data at end-April 2016 after consolidation agreement);
  - EU-funded audit of government debt with commercial banks and contractors (CFAF 30 billion) to lead to action plan to clear them in early 2017, including through securitization;
  - audits for other payment arrears expected to be launched with a view to adopt by July 2017 an overall plan to settle all arrears;
  - cutting suppliers arrears expected to be top priority.
- Project management reform:
  - strengthen project management framework covering identification, preparation and evaluation, inclusion in national budget, on-site and financial execution, and regular reporting;
  - authorities agreed framework is weak and will require significant donor technical assistance.

### Business environment and banking sector reforms
- Structural reform focus:
  - modernize and update legal framework in major economic sectors;
  - two bills to boost telecommunications activities under preparation and expected to be submitted to parliament early next year;
  - update investment charter, mining code, and forestry regulation;
  - establish a one-stop shop for administrative procedures for investors.
- Banking sector measures:
  - address shortcomings, increase lending to private sector and support economic growth through increased financial intermediation;
  - strengthen judicial system to settle disputes between bank borrowers and lenders;
  - monitor risk management and lending practices to address prudential risks;
  - implement action plan to set up commercial and land registries;
  - authorize more banks to conduct mobile banking in 2016 and hold training seminars on transparent financial accounts, savings instruments, micro-financing, and collateralized assets;
  - request technical assistance to set up a credit bureau;
  - explore feasibility of setting up a guarantee fund to promote financing for small and medium enterprises with financial support from development partners.

### Program modalities, access, and financing outlook
- Proposed arrangement:
  - three-year arrangement under the Fund’s Extended Credit Facility (ECF).
- Financing needs and IMF access:
  - financing gap projected to decline from 4.8 percent of GDP in 2016 to 3.2 percent of GDP in 2019;
  - cumulative gap of CFAF 190 billion;
  - proposed access of 75 percent of quota (SDR 83.55 million or equivalent to about CFAF 68 billion) sufficient to close about 36 percent of the gap;
  - access would be below the norm.
- Early financing and donor commitments:
  - slightly frontloaded disbursement schedule proposed for first year to help cover large 2016 needs and heavy repayment schedule to the Fund;
  - for 2016, World Bank, African Development Bank, European Union, and France committed CFAF 30 billion which together with Fund support will help cover CFAF 50 billion gap;
  - first half of 2017 financing needs projected at CFAF 24 billion to be covered by drawings on financial reserves at end-December 2016, donor disbursements tentatively committed at CFAF 10.2 billion, and IMF support;
  - prospects that residual gaps in remainder of program period will be filled; donors’ conference in October to discuss additional support including World Bank turnaround facility.
- Contingency instrument:
  - BEAC Board of Governors agreed to extend an exceptional advance of CFAF 9.24 billion as a bridge loan in case of delayed disbursements; to be repaid once disbursement takes place; government to consult staff each time such case arises.
- Key program test dates:
  - end-August 2016 and end-December 2016.

*CENTRAL AFRICAN REPUBLIC — INTERNATIONAL MONETARY FUND*

### Box 4.  Central African Republic: The Wage Bill

### Box 4.  Central African Republic: The Wage Bill

### A rising wage bill
- During 2014–15, the transition government, with technical and financial support from the World Bank and UNDP, cleaned the civil service roster with a view to bringing the wage bill to CFAF 50.8 billion, its 2012 level, the year before the major political and security conflict of 2013.
- This implied the reduction of 2,500 civil servants for a saving of CFAF 4.8 billion. However, by end of 2015, the number of civil servants was reduced by only 1,261 and the savings amounted to CFAF 2.8 billion.
- By end-2015, the wage bill reached CFAF 56.4 billion (6 percent of GDP).
- The sharp rise of the wage bill reflects a set of factors, including:
  - (i) the difficult context against which the reform was conducted;
  - (ii) weak administrative hiring practices;
  - (iii) the rapid expansion of the number of high level posts (“hors statut” carrying salary premiums;
  - (iv) delays in repatriating diplomats whose appointment ended;
  - (v) delays in the retirement process;
  - (vi) higher cash allowances and benefits; and
  - (vii) poor human resource management, compounded by a weak public administration.

### New measures to reduce the wage bill
- The new government continues to work closely with the World Bank and the UNDP to clean up the civil service roster and reduce the wage bill.
- Measures in the context of the third phase of the reform of the wage bill will include:
  - (i) continue the cleaning of the civil service roster through a reduction in the number of “ghost workers and the holders of high level posts, the repatriation of the diplomats who ended their assignment (structural benchmark at end-December 2016), and the timely retirement of thee eligible staff ;
  - (ii) secure the final register;
  - (iii) clarify the recruitment procedures;
  - (iv) implement management and training tools for human resource managers using computer applications adapted to CAR;
  - (v) assess performance.
- At the same time, the military roster will be cleaned, including accelerating the removal of 700 retirees from the roaster.
- Uncertainty remains on the size of the army, police and gendarmerie.

### New recruitment
- As the government proceeds with the administration redeployment and implements its strategy to improve social services and improve security, there will be staffing needs to meet.
- The authorities are currently assessing those needs and their costs in preparation for the donors’ conference that will take place before end-year in Brussels.
- The cost of hiring new staff in the priority social sectors will be offset to a certain extent by gains made through the continued cleaning of the civil services roster.

### Components and key statistics (as presented)
- Components of the Wage Bill, 2015 (in percentage)
  - Base Salary70
  - Benefits and bonuses22
  - Family allowances6
  - Retroactive adjustments1
  - Other allowances1
  - Total100
- 2015 — Wage Bill (billions of CFA franc)
  - Civilians21,48320,22243.5
  - of which: high level posts3767783.3
  - Military8, 3828, 36612. 9
  - Total30,86528,58856.4
- Memorandum Item: 
  - P opulation  (millions)4. 24. 24. 2

*Sources: C.A.R. Authorities; WETA database; and IMF staff estimates and projections.*

### 49.      It is proposed that the next Article IV consultation with C.A.R. take place on the

### _cr16269 - 49. It is proposed that the next Article IV consultation with C.A.R. take place on the 24-month cycle, subject to the decision on consultation cycles

### Macroeconomic performance and prospects
- Growth: "Growth is expected to recover progressively after the sharp output loss from the 2013 crisis..."
- Inflation: "...and inflationary pressures will subside as food supplies improve."
- External current account: "...but the external current account deficit is widening in part to accommodate higher investment-related imports."
- Revenue and expenditure: "Domestic revenue is not projected to return to the pre-crisis levels in the near future... but current expenditures are expected to come down, creating space for higher domestically-financed capital spending."

### Key macro indicators (selected, 2012–21)
- GDP at constant prices: 4.1; -36.7; 1.0; 4.8; 5.2; 5.5; 5.8; 5.8; 5.8; 5.8
- GDP at current prices: 6.9; -32.3; 12.2; 11.3; 11.3; 11.1; 10.9; 10.9; 10.8; 9.3
- GDP deflator: 2.7; 7.0; 11.1; 6.2; 5.8; 5.3; 4.8; 4.7; 4.7; 3.3
- CPI (annual average): 5.9; 6.6; 11.6; 4.5; 4.0; 3.5; 3.0; 3.0; 3.0; 3.0
- Broad money (annual change): 1.6; 5.6; 14.6; 5.3; 11.8; 12.8; 10.9; 10.9; 10.8; 9.3
- Credit to the economy (annual change): 30.2; -16.3; 4.0; -3.0; 10.3; 10.8; 10.7; 10.6; 10.6; 9.2
- External current account balance (% of GDP): -4.6; -3.0; -5.6; -9.0; -10.1; -9.9; -9.3; -9.2; -7.7; -6.7
- Gross official foreign reserves (US$ millions, end-of-period): 175.6; 205.8; 258.7; 199.4; 207.6; 248.5; 288.8; 319.2; 364.1; 406.3
- Nominal GDP (CFAF billions): 1108750; 842937; 1042.1; 1158.1; 1285.1; 1424.1; 1578.1; 1726 (series formatting preserved)

Sources: C.A.R. authorities; and IMF staff estimates and projections.

### Fiscal position and government finances
- Total revenue (including grants, percent of GDP): 16.4; 8.4; 15.7; 14.3; 13.0; 13.2; 13.7; 14.3; 15.5; 16.5
- Domestic revenue (percent of GDP): 11.5; 5.6; 4.9; 7.1; 8.1; 8.9; 9.5; 10.1; 11.6; 12.6
- Total expenditure (percent of GDP): 16.4; 14.9; 12.7; 14.9; 17.1; 16.0; 16.0; 16.4; 17.5; 17.7
- Overall balance excluding grants (percent of GDP): -4.9; -9.3; -7.8; -7.8; -9.0; -7.2; -6.6; -6.3; -5.8; -5.1
- Including grants (percent of GDP): 0.0; -6.5; 3.0; -0.6; -4.1; -2.8; -2.3; -2.1; -1.9; -1.2
- Domestic primary balance (percent of GDP): 0.5; -7.0; -5.1; -3.0; -3.3; -1.8; -1.4; -0.9; -0.5; 0.0
- Public sector debt (percent of GDP): 23.5; 38.5; 51.1; 48.5; 47.2; 41.2; 35.8; 31.2; 27.7; 24.7
- Central government revenue (CFAF billions, 2012–21): 181.3; 62.9; 132.2; 134.1; 135.4; 153.0; 176.6; 203.8; 245.4; 284.7
- Domestic revenue (CFAF billions): 127.3; 42.2; 41.3; 66.5; 84.7; 103.0; 121.5; 143.8; 183.9; 217.3
- Tax revenue (CFAF billions): 109.3; 38.8; 37.1; 60.9; 76.8; 94.2; 111.8; 132.0; 171.3; 203.5
- Capital expenditure (CFAF billions): 68.2; 12.7; 18.1; 43.7; 64.7; 70.0; 79.0; 94.9; 110.1; 128.5
- Overall balance, cash basis (CFAF billions): -5.0; -30.4; -4.2; -28.9; -48.6; -41.3; -40.8; -48.6; -47.3; -42.1

### Treasury cash management (2016–17 plans)
- Treasury Cash Management Plan, 2016 (monthly aggregates shown): 
  - Balance from previous month (June start): 11,402 (millions of CFA francs)
  - Gross cash inflows total 2016: 149,139
  - Gross cash outflows total 2016: 150,886
  - Net change and end-month balances vary monthly; sample end-December balance: 9,655
  - Net cash flow row examples: June 1,849; July -5,422; August -839; September -3,058; October 3,915; December -1,722
- Treasury Cash Management Plan, 2017 (projections):
  - Balance from previous month (January start): 9,655 (millions of CFA francs)
  - Gross cash inflows total 2017: 155,908
  - Gross cash outflows total 2017: 152,076
  - Net cash flow (monthly examples): January -2,750; March 10,082; June 5,010; September 5,162
  - Projected end-December balance shown: 13,487
- Sources: Data provided by the Authorities.

### External support and disbursements (2016–17)
- Table 7: Disbursements of External Support, 2016 (CFA francs, bn) and Commitments for 2017:
  - IMF: SDR 25.05 million = 19.9; SDR 23.6 million = 19.3
  - World Bank: US$ 15 million = 8.5 (2016); US$ 10 million = 5.9 (2017)
  - African Development Bank: US$ 11.5 million = 6.4 (2016); US$ 13 million = 7.8 (2017)
  - European Union: € 15 million = 9.8 (2016); € 15 million = 9.8 (2017)
  - France: € 8 million = 5.3 (2016); € 8 million = 5.3 (2017)
  - Total: 50. 0 (2016) and 48. 0 (2017)
  - Memorandum item: Financing gap (CFAF, billion) 50.0 (2016) and 48.0 (2017); Remaining financing needs 0.0; 0.0

### External sector and balance of payments
- Current account (CFAF billions): -51.1; -22.8; -46.9; -84.7; -105.7; -114.6; -119.1; -130.5; -121.6; -116.0
- Balance on goods (CFAF billions): -68.4; -55.1; -155.7; -153.3; -147.6; -155.3; -162.9; -180.0; -174.5; -171.7
- Exports, f.o.b. (CFAF billions): 97.5; 53.0; 42.6; 48.5; 63.1; 75.6; 81.7; 97.6; 107.2; 130.8
- Imports, f.o.b. (CFAF billions): -165.8; -108.1; -198.4; -201.8; -210.6; -230.9; -244.6; -277.6; -281.7; -302.5
- Transfers (net, CFAF billions): 69.5; 53.6; 156.1; 117.0; 94.9; 93.8; 98.1; 102.7; 107.8; 112.6
  - Private transfers examples: 34.1; 18.5; 61.3; 62.3; 63.4; 64.5; 65.6; 66.7; 67.8; 68.9
  - Official transfers examples: 35.5; 35.1; 94.8; 54.6; 31.5; 29.3; 32.5; 36.1; 40.0; 43.8
- Overall balance of payments (excl. errors and omissions, CFAF billions): 33.5; 20.9; -22.2; -20.6; -46.3; -26.0; -25.7; -30.0; -16.0; -10.6
- Gross official foreign reserves (CFAF billions, end-of-period): 87.8; 98.5; 137.7; 117.1; 120.8; 142.8; 164.2; 179.2; 201.3; 222.1
- Current account (percent of GDP): -4.6; -3.0; -5.6; -9.0; -10.1; -9.9; -9.3; -9.2; -7.7; -6.7

### Monetary sector and financial indicators
- Monetary survey highlights (2012–21, selected):
  - Net foreign assets (CFAF billions): -11.4; 8.6; 51.7; 42.2; 47.7; 69.7; 91.0; 106.0; 128.1; 149.0
  - Net domestic assets (CFAF billions): 278.3; 268.3; 253.6; 272.2; 289.8; 296.2; 307.1; 324.3; 343.2; 361.4
  - Credit to the economy (CFAF billions): 141.8; 118.6; 123.4; 119.7; 132.0; 146.2; 161.8; 179.0; 198.0; 216.1
  - Money and quasi-money (CFAF billions): 202.3; 213.7; 244.8; 257.8; 288.1; 325.1; 360.7; 399.9; 443.1; 484.5
  - Monetary base (CFAF billions): 114.4; 133.1; 164.6; 161.6; 179.8; 199.8; 221.6; 245.7; 272.3; 297.7
- Financial soundness indicators (selected, end-period series):
  - Total bank regulatory capital to risk-weighted assets: 16.5; 25.6; 22.7; 39.1; 42.2; 37.4; 36.3
  - Non-performing loans to total gross loans: 12.6; 12.0; 9.6; 28.5; 27.7; 26.0; 25.6
  - Liquid assets to total assets: 26.1; 23.2; 16.1; 14.9; 22.7; 39.9; 39.4

### IMF obligations and capacity to repay (Table 8, 2016–26)
- IMF obligations based on existing credit (SDR millions, principal): 13.92; 12.16; 10.31; 9.10; 5.35; 5.85; 5.85; 4.46; 3.62; 2.23; 0.00 (2016–2026)
- Charges and interest (SDR millions): 0.01; 0.03; 0.03; 0.05; 0.04; 0.03; 0.03; 0.03; 0.03; 0.03; 0.03
- Outstanding IMF Credit (SDR Millions, end series): 83.98; 95.22; 108.31; 110.91; 105.55; 99.70; 87.67; 72.36; 53.20; 34.26; 17.55
- Outstanding IMF Credit (CFAF Billions): 68.51; 77.06; 86.66; 87.98; 82.72; 76.68; 67.43; 55.66; 40.92; 26.35; 13.50
- Percent of government revenue (outstanding IMF credit): 80.89; 74.79; 71.30; 61.17; 44.99; 35.29; 28.56; 21.62; 14.57; 8.60; 4.04
- Percent of exports of goods and services: 50.53; 50.91; 53.52; 48.22; 41.99; 33.96; 25.73; 17.57; 10.39; 6.11; 2.85
- Percent of debt services: 232.82; 306.01; 338.66; 311.01; 291.24; 356.07; 233.06; 213.66; 197.88; 146.79; 76.59
- Percent of GDP (outstanding IMF credit): 6.57; 6.66; 6.75; 6.18; 5.24; 4.44; 3.65; 2.84; 1.96; 1.19; 0.57
- Percent of quota: 75.39; 85.48; 97.23; 99.56; 94.75; 89.50; 78.70; 64.96; 47.76; 30.75; 15.75
- Net use of IMF credit (SDR millions, disbursements): 25.1; 23.4; 23.4; 11.7; 0.0; 0.0; 0.0; 0.0; 0.0; 1.0; 2.0
- Repayments and repurchases (SDR millions): 13.93; 12.19; 10.34; 9.35; 5.61; 6.09; 12.26; 15.53; 19.34; 19.07; 16.80
- Memorandum items (selected): Nominal GDP (CFAF billions) 1042.2; 1157.9; 1284.7; 1424.4; 1578.3; 1725.6; 1847.5; 1962.9; 2085.7; 2216.3; 2355.4

Source: IMF staff projections.

### Risk Assessment and policy responses (Risk Assessment Matrix highlights)
- Deterioration of security conditions: Relative Likelihood High; Impact If Realized High.
  - Policy response: "Refocus reform on areas less sensitive to socio-political environment. Aim to maintain fiscal control with a view to maintain basic spending and keep social cohesion."
- Structurally weak growth in key advanced and emerging economies: Relative Likelihood High (AEs) / Medium (EMEs); Impact If Realized High.
  - Policy response: "Intensify structural reform and efforts to improve the business climate to promote investment."
- Initial inertia of a new government lacking experience: Relative Likelihood High; Impact If Realized High.
  - Policy response: "Gradual back load of reforms to create traction from all key stakeholders. Intensify key structural reform. Fiscal policy to focus on revenue mobilization, and efficient delivery of public services."
- Limited administrative capacity: Relative Likelihood High; Impact If Realized High.
  - Policy response: "Increase effectiveness of CD to strengthen institutional capacity."
- Delayed delivery of external financial assistance: Relative Likelihood Medium; Impact If Realized Medium.
  - Policy response: "Increased efforts aimed at domestic resource mobilization and expenditure efficiency."

*Sources: C.A.R. authorities; and IMF staff estimates, projections, and staff materials contained in _cr16269.*

### Annex I. Central African Republic: External Stability Assessment

### Annex I. Central African Republic: External Stability Assessment

### A. Balance of Payment and Exchange Rate Developments
- C.A.R.’s external current account deteriorated since the 2013 political and security crisis.
- Current account deficit history:
  - About 6.5 percent of GDP on average during 2004-2012.
  - Widened in 2013 and grew to 12.7 percent of GDP in 2015.
- Drivers of the deficit:
  - Significant decline of main exports (diamond and timber) due to presence of armed groups and resultant sanctions.
  - Net current transfers (mostly grants) significantly increased during the transition period—contributing to large increase of non-food aid-related imports.
  - Following HIPC completion point in 2009, net income turned slight positive.
- Export structure and developments:
  - In 2012, timber and diamond accounted for about 75 percent of total exports.
  - Timber exports declined by 38 percent in 2013, recovered in 2015 but remained far below pre-crisis level.
  - Suspension from the Kimberley Process in 2013 led to complete collapse of official diamond exports in 2014 and 2015.
  - Despite partial re-certification in mid-June of 2015, exports of diamond stocks (85,000 carats with an estimated value of US$7 million) failed to resume so far.
  - Diamonds from the Central-Eastern region (about half of national output) remain under an export ban under the Kimberley process.
- Outlook 2016–20:
  - Current account deficit expected to narrow to about 10 percent of GDP during 2016–20.
  - Goods and services balance deficit expected to shrink to 17.3 percent in 2016–20, down from 22.3 percent of GDP in 2015, assuming improved security along the Douala-Bangui corridor and full lift of the diamond export ban.
  - The current account deficit would be primarily financed by external grants.
- Relative shares and trends:
  - C.A.R.’s exports as a share of CEMAC and SSA exports declined significantly since 2003 and by 2014 C.A.R. had moved to the bottom fourth position among 45 SSA countries.
- Price and exchange-rate developments:
  - The REER appreciated by almost 63 percent from 2013 to 2015, despite a slight depreciation of the NEER, mainly reflecting the sharp increase in inflation during the crisis and transition period.

### B. Model-Based Real Exchange Rate Assessments
- Methodology:
  - Three “EBA-lite” approaches used: current account (CA), real effective exchange rate index (IREER), and external sustainability (ES).
  - Annual data for 150 countries for 1995–2015 and C.A.R. projections consistent with the macroeconomic framework were used.
- CA approach results (2015):
  - Estimated current account “norm”: deficit of 3.6 percent (percent of GDP).
  - Underlying current account deficit: about 11.8 percent (percent of GDP).
  - Using current account elasticity to REER of -0.1, the CA approach suggests a REER gap of 137.4 percent.
  - Note: elasticity of current account (trade balance) to REER reported as very small.
- IREER approach results (2015):
  - Estimated REER norm appreciation: 4.6 percent.
  - Underlying REER appreciation: 5.1 percent.
  - To restore real exchange rate equilibrium, the IREER approach suggests the REER would need to depreciate by 47 percent.
- ES approach results (2015):
  - External sustainability approach calculates current account norms that stabilize net foreign assets (NFA) at benchmark levels.
  - Current account stabilizing net foreign assets represents a deficit of 1.5 percent of GDP, compared to a 6.6 percent underlying current account deficit.
  - ES approach REER gaps:
    - Scenario 1 (stabilize net IIP at -4.8 percent of GDP): REER gap 19.9 percent.
    - Scenario 2 (stabilize net IIP at -60 percent of GDP): REER gap 1.9 percent.
  - Elasticity of current account (trade balance) to REER reported as -0.26 in ES calculations.
- Combined assessment:
  - Depending on the approach, the REER gap in 2015 ranges widely between 19.9 to 147 percent.
  - Results are sensitive to macroeconomic assumptions in the baseline scenario and to assumed elasticities of the current account to the real exchange rate.
  - The 2013 political and security shock produced important adverse effects on the economy and baseline assumptions.

### C. Assessment of Structural Competitiveness
- Overall finding:
  - C.A.R.’s weak institutional indicators point to considerable weakness in structural (non-price) competitiveness.
  - Competitiveness encompasses the institutions and factors determining productivity; C.A.R.’s low rankings imply a weak external position.
- Heritage Foundation (Economic Freedom, 2016):
  - C.A.R. scored in the lowest quartile of the world in 2016.
  - Ranking slipped from 145th in 2012 to 168th in 2016.
  - Total score index worsened from 50 in 2012 to 45.2 in 2016.
  - At 45.2, C.A.R.’s index qualifies the economy as "repressed".
  - In nine of ten Heritage Foundation indicators, C.A.R.’s scores are lower than the averages for SSA, WAEMU and CEMAC; the only indicator ahead of those averages is government spending.
- World Bank Doing Business (2012–16):
  - C.A.R. has consistently ranked among the bottom 10 countries and deteriorated further since 2012.
  - Specific changes: registering property and business dropped 35 and 29 places, respectively; getting credit dropped 35 places.
  - Improvements: trading across borders moved up by 38 places; resolving insolvency moved up by 34 places in 2016.
  - Overall, C.A.R. ranked the bottom fifth country on ease of doing business, only ahead of Venezuela, South Sudan, Libya and Eritrea.
  - Priority areas needing improvement: (i) starting a business; (ii) getting electricity; and (iii) paying taxes.
- World Bank CPIA (2014 assessment):
  - C.A.R.’s CPIA score in 2014 is below the CEMAC, WAEMU and SSA averages in almost all aspects.
  - C.A.R. was only slightly above the CEMAC average on transparency, accountability and corruption in the public sector but still below WAEMU and SSA averages.
  - Compared with 2012, most CPIA indicators deteriorated.
  - Areas lagging most: property rights and rule-based governance; business regulatory environment; equity of public resource use; social protection and labor; policies and institutions for environment sustainability; quality of public administration.
- Policy implications and recommendations:
  - Enhancing non-price competitiveness requires substantial structural reforms.
  - Priority structural reforms include:
    - Improving the business environment (business, regulatory, and trade environment) with emphasis on starting a business, getting electricity, and paying taxes.
    - Strengthening institutional and governance environment (property rights and rule-based governance; business regulatory environment; equity of public resource use; social protection and labor; environmental policy and institutions; quality of public administration).
  - Over time, such reforms are expected to generate productivity gains via increased private sector investment and public sector efficiency (including more effective policy making and use of development assistance).
  - C.A.R. has an urgent need for continued external support while undertaking these structural reforms.

*Source: Annex I. Central African Republic: External Stability Assessment (IMF staff).*

### 4. We believe that the policies and measures set forth in the attached MEFP are

### _cr16269 - 4. We believe that the policies and measures set forth in the attached MEFP are

### Program commitments and transparency
- Government affirms that the policies and measures in the attached MEFP are appropriate to attain program objectives and gradually reduce balance of payments financing needs.
- Government will take additional measures if required and will consult the Fund in advance of revisions in accordance with Fund consultation policies.
- Government will provide IMF staff with all information indicated in the attached Technical Memorandum of Understanding (TMU) regarding progress with the program supported by the ECF.
- Government intends to publish the IMF staff report, this letter, the attached MEFP and TMU and authorizes IMF staff to post these documents on the IMF’s external website once the Executive Board approves the new arrangement under the ECF.

### Macro context and strategic priorities (paragraphs 1–4)
- MEFP covers economic and financial policies for the remainder of 2016 and medium term aligned with the country’s strategic priorities.
- Priority objectives: consolidate the security situation; promote national reconciliation and social peace; build human and administrative capacities; continue economic reforms based on:
  - (i) fiscal consolidation (strengthen tax revenue collection; control public expenditure while increasing priority sector spending; restore external sustainability);
  - (ii) strengthening administrative capacities and government redeployment through structural measures;
  - (iii) improving competitiveness.
- Security: improvements noted with MINUSCA and French SANGARIS support, but ex-combatant demobilization/reintegration (notably in diamond mining regions) remains a key risk.

### Fragility trap and structural challenges (paragraph 4)
- Country faces recurrent resource constraints and limited government redeployment, which restricts basic social service provision.
- Structural constraints listed in source:
  - slow economic recovery with cumulative real growth of 5.8 percent in 2014–15 versus a 36.7 percent contraction in real GDP in 2013;
  - heavy reliance on external aid: at end-2015 domestic revenues covered only 73 percent of primary expenditure;
  - rigidities including lack of electricity, inadequate infrastructure, weak education, 3 percent bank penetration rate, high transportation costs, shortage of telecommunications;
  - weak human development with severe consequences for extreme poverty.

### Recent economic developments (paragraphs 5–9)
- Key indicators at end-2015:
  - estimated GDP growth of 4.8 percent supported by recovery in agriculture, construction, trade and services.
  - average inflation at end-December: 4.5 percent (down from 11.6 percent in 2014).
  - primary deficit declined to 3 percent of GDP; domestic revenues increased to 7.1 percent of GDP; primary expenditure remained at 10.1 percent of GDP.
  - current account deficit widened by 3.4 percentage points to 9 percent of GDP.
  - public debt at 48.5 percent of GDP (51 percent in 2014); new loan CFAF 45 billion (5 percent of GDP) from Saudi Arabia with grant element of 49 percent.
- Budgetary and reserve developments:
  - CFAF 5 billion carried forward to 2016 from budgetary support timing variances.
  - CFAF 10.1 billion in arrears cleared; CFAF 10 billion (1 percent of GDP) built up in financial reserves.
- Public finance reforms implemented during RCF-supported emergency program:
  - increased tax and customs controls including VAT on oil products and better tracking of exemptions producing revenue improvements, though listed 2015 measures remain partially unimplemented (i–vi).
  - expenditure-side reforms: first phase of civil service reform (roster streamlining) completed but financial gains limited by delays and legal decisions; operationalization of Central Treasury Agency (ACCT); interconnection of GESCO-budget and GESCO-accounting modules (connection issues remain); regulatory limit on exceptional procedures to 5 percent of expenditure (excluding wages, pensions, debt service).
- Banking sector and financial indicators:
  - bank credit expansion to private sector hampered by security, lack of guarantees, absence of long-term resources, information asymmetry, weak judicial debt collection.
  - overall liquidity increased in 2015; asset quality declined with almost one third of loans nonperforming.
  - loan loss provisioning increased to almost 70 percent (compared with 50 percent in March 2015), reducing bank capital and profitability.

### Macroeconomic objectives and medium-term framework (paragraphs 10–11)
- Strategic priorities for recovery and poverty reduction:
  - (i) restore fiscal and external debt sustainability;
  - (ii) improve competitiveness and expand economic base for sustainable and inclusive growth;
  - (iii) lay foundation for good governance;
  - (iv) enhance institutional framework and administrative capacity.
- Request for IMF support via a new arrangement under the Extended Credit Facility (ECF) to provide a macroeconomic framework for balance of payments strengthening consistent with poverty reduction and growth.

A. Macroeconomic projections for 2016–2019 (paragraph 11)
- Projected real growth: 5.2 percent in 2016; average growth of 5.5 percent during 2016–19.
- Inflation: contained to 4 percent in 2016; targeted at 3 percent by 2018 in line with CAEMC target.
- External current account deficit: 11.1 percent of GDP in 2016 (up from 9 percent in 2015); projected around 9.7 percent of GDP during 2016–19.
- Financing needs: projected to decline from 4.8 percent of GDP in 2016 to 3.2 percent in 2019.
- Domestic primary deficit (anchor for fiscal policy): projected decline from 3.3 percent of GDP in 2016 to 0.9 percent of GDP in 2019; public debt projected to fall to 31.2 percent of GDP in 2019.
- Revenue projection: 8.1 percent of GDP in 2016 (1 percentage point above 2015).
- Public spending: expected to increase by 2.2 percentage points of GDP in 2016 despite wage bill reduction from 6 percent of GDP in 2015 to 5.3 percent of GDP in 2016.
- Financing gap: mainly covered by external budgetary assistance totaling CFAF 50 billion from EU, World Bank, France, and African Development Bank.
- Quantitative targets will be adjusted for shortfalls in privatization, renewal of telecommunications licenses, or forestry fees.

B. Policies for 2016–19 (paragraphs 12–15)
- Commitment to sustainable fiscal policy with buffer accumulation (government deposits with banking sector) to insure against shocks (delays in external assistance, increase in international oil prices).
- Preparedness to take additional revenue and expenditure measures if shocks occur.
- Revised 2016 budget: domestic primary deficit projected at 3.3 percent of GDP.
- Supplementary budget (structural benchmark for end-August 2016) to increase revenues by 0.2 percent of GDP and accumulate government deposits equivalent to 0.5 percent of GDP (target government deposits: 1.5 percent of GDP by 2019).
- Revenue measures to be included:
  - (i) new oil price structure based on Platts international prices (structural benchmark for end-July 2016) expected to yield CFAF 1.5 billion over last three months of 2016;
  - (ii) transition to reference prices for exported forest species and enhanced transport cost control expected to yield CFAF 0.3 billion;
  - (iii) strict application of banking agreement on revenue collection (no automated debiting/offsetting; immediate payment into government current account) expected to yield CFAF 0.4 billion.
- Petroleum products pricing:
  - regular revision of petroleum product prices; from January 1, 2017 implement pass-through of international prices to domestic pump prices to safeguard fiscal revenues.
  - plan to request technical assistance to simplify new price structure and eliminate many earmarked revenues.
  - accompanying social programs under preparation: subsidized prices for households using cooking and heating oil; transport vouchers for low-wage workers.
- Total spending ceiling: 17.1 percent of GDP.
  - Wage bill projected at 5.3 percent of GDP (0.7 percentage point lower than 2015).
  - Cost of new recruitments in social and priority sectors: CFAF 1.2 billion for 2016.
  - Expected offsets from roster cleanup and other measures: CFAF 100 million (roster), CFAF 150 million (timely retirement), CFAF 150 million (elimination of non-regular civil servants), CFAF 60 million (repatriation of diplomats) — with repatriation via airline tickets as a structural benchmark for end-December 2016.
  - Priority spending increases: goods and services, transfers and subsidies to 4.7 percent of GDP; domestically-financed capital spending to 1.8 percent of GDP.
  - Revised budget increases settlement of domestic payment arrears to 0.5 percent of GDP, financed by additional revenue measures.

*Attachment I. Memorandum of Economic and Financial Policies for 2016–19, CENTRAL AFRICAN REPUBLIC*

### 16.      To manage the government’s cash flow and make it more secure and to gradually

### 16.      To manage the government’s cash flow and make it more secure and to gradually

### Cash flow management and Treasury scope
- Continue strict cash flow management to align resources with priority spending and avoid accumulation of payments arrears.
- Monthly cash flow plan prepared for 2016 and 2017 reflecting the domestic primary balance objective.
- Implementation tracked by the Treasury Committee, meeting monthly under the chairmanship of the Minister of Finance and Budget.
- Objectives (program period and medium term):
  - Manage the government’s cash flow and safeguard it so as to gradually extend the scope of the Treasury.
  - Improve treasury management in 2016 through strengthening of the central accounting and treasury agency in 2016.
  - Extend the scope of the Treasury to strengthen the treasury single account while preserving the stability of the banking system during 2016.
  - Improve execution of the treasury plan to cover priority funding and avoid accumulation of new arrears during 2016.
  - Complete audit and consolidation steps to enable a consolidated Single Treasury Account.

### Revenue mobilization targets and measures
- Fiscal revenues: 7.1 percent of GDP in 2015.
- Revenue targets: increase domestic revenues to 8.1 percent of GDP in 2016 and 10.1 percent of GDP in 2019.
- Reform focus areas:
  - Expansion of the tax base and simplification of procedures: better VAT management; prohibition on offsetting unpaid VAT credits against other taxes owing; improvement in bases for valuation of exports; strengthening controls and monitoring (particularly wood and diamond sectors); reduction in para-fiscal levies.
  - Improvement of tax and customs administration: introduction of auto-filled return for property tax; revision of agreements with tax concessions; harmonization of the General Tax Code via CAEMC directives on VAT and excise duties; stricter monitoring of the IGU; enhanced management of large taxpayer operations; introduction of corporate citizen status; collection of arrears; integrated computerization of customs and tax networks beginning with Beloko customs bureau; establish IT connection between Douala and Bangui offices.
  - Streamlining and better management of exemptions: strict application of laws and regulations; establishment of criteria for granting exemptions; review of all existing agreements.
- Implement the medium-term action plans on revenue during 2016-2018.
- Strengthen revenue administration and tax policy during 2016-2018 with support from the Fund.

### Public finance management challenges and governance actions
- Commitments:
  - (i) fiscal discipline;
  - (ii) restoration and normalization of the expenditure cycle;
  - (iii) continued efforts to control the wage bill;
  - (iv) implementation of the accounting function.
- Preparatory measures taken: assumption of commitments in the 2016 budget; restoration of interconnections in the integrated budget and accounting management system (GESCO); development of draft nomenclature for supporting documentation governing interactions between payment authorization officers and accountants (submitted to the Minister for validation).
- Program objectives for 2016-18:
  - Restore and normalize budgetary management to gradually decrease use of exceptional spending procedures to 5 percent of expenditures.
  - Restore accuracy of the general and specific budgets.
  - Restore credibility by combating fraud and restoring creditor confidence.
- Specific program measures (selection with time references retained):
  - Implement normal budget procedures in 2016.
  - Take administrative steps to ensure the 2017 budget is prepared in a timely fashion in 2016.
  - Adhere to the 5 percent limit regarding exceptional spending.
  - Complete during the current year the 2015 accounts and regularize the 2016 accounting operations conducted so far.
  - Extend accounting operations to produce in 2017 a central government balance for the general budget for 2017 and budget annexes in 2018.
  - Strengthen budget control institutions starting in 2016 with measures to improve the efficiency of the unit in charge of finance inspection.
  - Reform before the end of the program the legal framework to fight against corruption.
  - Enhance government transparency and ensure that the “comité des sages” acts in lieu of the national committee against corruption which is inactive.
  - Asset disclosure requirement: any individual appointed to the position of minister must submit an asset disclosure within 60 days of taking office (structural benchmark for end-July 2016).

### Restoring accounting accuracy and GESCO actions
- Near-term commitments:
  - Complete posting of accounting entries under way in the GESCO system for 2015 financial statements and entries for the first four months of 2016 by July 31, 2016.
  - Commit to systematically post entries starting on June 1, 2016.
  - As of June 1, 2016, GESCO account balances and trial balances will be produced every month and shared with IMF staff.
  - Adopt the nomenclature for supporting documentation and procedures manual for revenue and expenditure execution by July 15, 2016.

### Structural benchmarks and bank account consolidation
- Upon completion of the government accounts comprehensive survey, adopt a ministerial decision identifying all government accounts and their contents (structural benchmark for end-August 2016) to facilitate consolidation into a Single Treasury Account.
- Suspend opening of new government bank accounts except project accounts (structural benchmark for end-July 2016).
- Close all government bank accounts with commercial banks managed outside the centralized cash flow system, except project accounts (structural benchmark for end-March 2017).
- Medium-term plan to consolidate government accounts in the Single Treasury Account at the central bank after an impact study on transfers of main government accounts.

### Oversight and reporting
- ACCT will undertake an information campaign to explain reforms to government accountants and payment authorization officers.
- ACCT to produce a monthly report on identified breaches of the prohibition on automated debiting by banks from revenue accounts and will have guaranteed access to information and statements on all Treasury accounts with commercial banks.

### Management of domestic payments arrears
- Outstanding stock at end-May 2016: CFAF 157 billion.
  - Arrears to the BEAC: CFAF 22.4 billion (following April 2016 agreement on consolidation of liabilities and unpaid loans and arrears).
  - Claims of commercial banks on the government: estimated at CFAF 2.6 billion (audit under way, financed by the European Union).
  - Other components (commercial, social and cross-debts): cumulative amount of CFAF 132 billion.
- Actions and timing:
  - Complete audit of commercial, social and cross-debts by end-June 2017.
  - Define transparent criteria and terms and conditions for clearance once audits completed and claims validated.
  - Adopt a plan for the settlement of validated domestic payments arrears by July 2017 at the latest (structural benchmark for end-June 2017).
  - Review VAT credits to prepare a payment plan and eliminate all recourse to offsetting.
  - Immediate priority: clear commercial and wage and pension arrears dating back to 2013–14 amounting to CFAF 13.2 billion, to be cleared in 2016 and 2017, respectively.
  - Explore securitization of audited bank claims in cooperation with IMF staff.

### External debt management and sustainability
- External debt sustainability analysis classifies C.A.R. as a country at high risk of debt distress (basis: collapse of GDP, tax revenues and exports; increase in external borrowing).
- External arrears at end-May 2016: US$ 100.9 million owed to Argentina, Equatorial Guinea, India, Iraq, Libya, and Montenegro (resulting from crisis and earlier non-representative Paris Club agreement).
- Government accumulated arrears vis-a-vis some French private entities and continues good faith efforts to reach collaborative agreements.
- Financing strategy: seek to mobilize financing primarily in the form of grants and, in consultation with Fund staff, new highly concessional loans with a grant element of 50 percent.
- Debt management improvements:
  - Install new debt management and analysis software, SYGADE 6.0.
  - Ensure all new financing results exclusively from a decision of the Minister of Finance; include this provision in the 2016 supplementary budget.

### Banking and financial sector reforms
- Objective: reduce banking system weaknesses to support economic recovery and increase financial intermediation.
- Measures approved by the National Credit Council (March 2016) and seminar recommendations (June 2015):
  - Explain government medium-term strategy to enhance the country’s economic profile.
  - Organize training seminars for banks, businesses and the public on financial sector instruments.
  - Protect banking system integrity and monitor risk management and lending practices; request COBAC to send a banking supervision mission (most recent mission in 2012).
  - Create an action plan to establish commercial and property registries.
  - Authorize more banks to engage in mobile banking activities.
  - Examine establishment of a credit bureau (in accordance with community procedures) to reduce information asymmetry and support SMEs; authorities request technical assistance.
  - With donor help, examine conditions and feasibility of creating a Guarantee Fund to encourage SME financing.

### Development strategy and structural reforms
- Main challenge: create conditions for sustainable and inclusive growth to reduce poverty—first restoring peace and security, then expanding private sector, particularly agriculture.
- Major constraints: shortage of energy and basic infrastructure; high transportation costs due to landlocked status; limited access to credit.
- Medium-term activity sector priorities:
  - Developing food, cash and export crops.
  - Promoting agro-forestry and downstream operations to create value added and jobs.
  - Developing mining activities in a formalized context.
  - Repairing and restoring highways, rural roads, dry ports and provincial airports.
  - Expanding transportation and telecommunications infrastructure.
  - Developing energy capacities.
- Institutional reforms to promote private sector development:
  - Modernize and update legal framework in key sectors.
  - Implement the Joint Business Improvement Framework (CMAA) to promote government-private sector dialogue.
  - Prepare two laws to revitalize telecommunications activities.
  - Update investment charter, mining code, telecommunications code, and forestry regulations.
  - Establish a one-stop shop to facilitate administrative procedures for investors.

### Governance, anti-corruption and transparency
- Strictly apply asset disclosure law for ministers (structural benchmark for end-July 2016); consider extension to immediate family members subject to legislative change.
- Create special commission (comité des sages) to establish conditions for a coherent anticorruption framework in line with international practices.
- Enhance government transparency and ensure comité des sages acts in lieu of the inactive national committee against corruption.

### Social policy priorities
- Social policy aims to enhance population resilience through civil protection improvement, government reorganization and re-launching essential social sectors.
- Specific objectives:
  - Assistance to internally displaced persons and refugees to resume socioeconomic activities.
  - Restore social cohesion and reduce community tensions; create temporary jobs primarily for young people.
  - Reorganize and redeploy government throughout national territory to support recovery.
  - Access to safe drinking water, sanitation and hygiene.
  - Rehabilitation of the education sector to ensure full, high-quality education access for all children of both genders.
  - New impetus to the health care system, including strengthening fight against HIV/AIDS.

### Capacity building and technical assistance (TA)
- TA and training priorities:
  - Collection of domestic revenues (VAT, management of exemptions, tax and customs administration, reform of taxation in forestry, mining and telecommunications).
  - Improved cash flow management and enhancement of public finance management operations (restore and normalize fiscal management, restore accounting accuracy and government credit).
  - Improve public debt management and produce macroeconomic statistics.
  - Reform civil service via qualitative management of staff; rebuild administrative and macro-fiscal capacities.
- Plan to conclude a memorandum of understanding with the IMF to involve the IMF’s pilot Capacity Development Framework.
- Commitment to improve capacity, make best use of donor and Fund TA, train existing staff and hire young qualified staff if possible.

### Program monitoring and reviews
- Performance monitored using quantitative performance indicators, indicative benchmarks and structural benchmarks.
- Performance criteria set for end-August 2016, end-December 2016 and end-June 2017; structural benchmarks for end-March 2017.
- First program review to be completed by end-November 2016 covering results through end-August 2016.
- Second program review to be concluded by March 2017 covering results through end-December 2016.

*Source: IMF staff report (text of content unit provided).*

### 32.      Program execution will be subject to regular monitoring. At the political level, the

### Program execution will be subject to regular monitoring.

### Monitoring and implementation
- Program monitoring arrangements:
  - Political-level monitoring by: staff of the Office of the President of the Republic, the Prime Minister, the Ministry of Finance and Budget, and the BEAC.
  - Technical implementation by: Economic Reform Monitoring Committee (CS-REF), a unit under the authority of the Minister of Finance and Budget that includes representatives of the various ministries involved in economic and financial affairs.
- Note: The MoU will be signed once the details of the IMF pilot project are finalized.

### Policy commitments (program conditionality)
- The government commits throughout the program to:
  - Not introduce or intensify restrictions on payments and transfers related to current international transactions.
  - Not introduce multiple exchange rate practices.
  - Not engage in bilateral agreements not consistent with the Article VIII of the Articles of Agreement.
  - Not impose or broaden import restrictions to influence the balance of payments.
  - Adopt, in consultation with Fund staff, any new measures, financial or structural, necessary to ensure the success of the program.

### Performance Criteria and Indicative Targets (selected figures as presented)
- Table 1 (Central African Republic: Performance Criteria (PC) and Indicative Targets, 2015–17) — (CFAF billion; cumulative from beginning of the year)
  - Headings shown in the table: End-December 2015 | End-December 2016 | Stock | PC | PC | Indicative targets
- Quantitative performance criteria (selected rows and figures exactly as presented):
  - Domestic government financing (ceiling, cumulative flows for the year): 186.0 | 4.5 | 3.2
  - Domestic revenue (floor, cumulative for the year)1: 51.0 | 84.7
  - Domestic primary deficit (ceiling, cumulative for the year)2: -19.9 | -34.7
  - Reduction in domestic payments arrears (floor, cumulative for the year)3: -3.7 | -5.6
- Continuous performance criteria:
  - Contracting or guaranteeing of new external non concessional debt (ceiling)3,4: 00
  - Non accumulation of external payments arrears (ceiling, cumulative for the year): 00
- Indicative targets:
  - Social spending (floor, cumulative for the year): 3.3 | 5.0
- Memorandum item:
  - New concessional/external debt contracted or guaranteed by the government: 6.0 | 6.0
- Additional numeric entries appearing in the table as presented (preserving exact values and layout):
  - 6.0 | 3.0
  - End-March 2017 | End-June 2017
  - -7.2 | 1.5 | 50.1 | -2.5 | 00 | -13.7 | 3.0 | -1.7
  - August 31, 2016 | PC | 25.0 | 00 | -2.0 | -4.0
- Sources noted in the table: C.A.R. authorities; and IMF staff estimates.
- Footnotes as presented in the table:
  - 1 Domestic revenue, which excludes foreign grants and divestiture receipts (see the TMU for more details).
  - 2 The domestic primary balance is defined as the difference between government domestic revenue and government total expenditure, less all interest payments and externally-financed capital expenditure.
  - 3 These objectives will be monitored continuously.
  - 4 Contracted or guaranteed by the government (see the TMU).

### Structural benchmarks, 2016–17 (selected measures, timeline, and macroeconomic rationale)
- Adoption of ministerial decision to cease the creation of new government bank accounts.
  - Timeline: End July 2016
  - Macroeconomic rationale: Improve public financial management.
  - Status: 
- Presentation to parliament by the government of a revised budget for 2016 consistent with the program.
  - Timeline: End August 2016
  - Macroeconomic rationale: Improve accountability
  - Status: 
- Adoption of a ministerial decision identifying all government accounts and their contents.
  - Timeline: End August 2016
  - Macroeconomic rationale: Improve public financial management
  - Status: 
- (Entry with timeline End July 2016 and rationale Improve revenue collection — measure text not fully shown in source.)
  - Timeline: End July 2016
  - Macroeconomic rationale: Improve revenue collection
  - Status: 
- Require assets disclosures by cabinet members in compliance with existing legal requirements.
  - Timeline: End July 2016
  - Macroeconomic rationale: Improve governance.
  - Status: 
- Provision by the Ministry of Foreign Affairs of airline transportation tickets to all diplomats when assignments have ended to facilitate their repatriation.
  - Timeline: End-December 2016
  - Macroeconomic rationale: Rationalize the wage bill.
  - Status: 
- Consolidate the TSA by closing non-donors and non essential government's accounts opened in Commercial Banks.
  - Timeline: End March 2017
  - Macroeconomic rationale: Improve public financial management
  - Status: 
- Adoption by the minister of finance of a domestic payment arrears clearance plan.
  - Timeline: End June 2017
  - Macroeconomic rationale: Improve public financial management and debt management
  - Status: 
- Adoption of an inter-ministerial decision basing the price structure for domestic petroleum products on Platts international prices.
  - (Timeline and Status not fully shown in the extracted content.)

*Source: Excerpt from the IMF staff report and accompanying tables and Attachment II (2016 Technical Memorandum of Understanding).*

### INTRODUCTION

### _cr16269 - INTRODUCTION

### Purpose and scope
- This Technical Memorandum of Understanding (TMU) spells out the concepts, definitions, and data reporting procedures mentioned in the Memorandum of Economic and Financial Policies (MEFP) prepared by the authorities of the Central African Republic.
- The TMU specifically describes:
  - data reporting periodicity and timeframes;
  - definitions and computation methods;
  - quantitative targets;
  - adjusters of quantitative targets;
  - structural benchmarks; and
  - other commitments made within the MEFP.
- Unless otherwise specified, all performance criteria and indicative targets are assessed on a cumulative basis as of January 1 of the same year.

### Program assumptions
- Exchange rate conversions to CFA francs (CFAF) use the exchange rates used to prepare the ECF. Key exchange rates:
  - CFAF/US$: 585
  - CFAF/euro: 656
  - CFAF/SDR: 815

### Scope of "government"
- Unless otherwise specified, "government" means the central government of C.A.R. and excludes local governments, the central bank, or public entities with separate legal personality not included in the TOFE (Tableau des opérations financières de l’État).

### Definitions (debt, arrears, revenue, expenditure, wages)
- Definition of debt (per Decision No. 6230-(79/140), as amended by Decision No. 15688-(14/107), December 5, 2014):
  - Debt is a current (not contingent) liability created under a contractual arrangement through provision of value in assets or services, requiring the obligor to make one or more payments in assets or services on a specific schedule; payments discharge principal and/or interest.
  - Primary forms:
    - loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
    - suppliers’ credits (deferred payment contracts for goods/services);
    - leases (debt measured as present value at lease inception of all lease payments expected, excluding operation/repair/maintenance payments).
  - Arrears, penalties, and judicially awarded damages arising from failure to make contractual payments that constitute debt are debt.
  - External debt: debt borrowed or serviced in a currency other than the CFA franc of the Financial Cooperation of Africa (CFAF).
  - Internal debt: debt borrowed or serviced in the CFA franc of the Financial Cooperation of Africa (CFAF).
- Guaranteed debt: an explicit legal obligation by the government to service a debt in the event of borrower nonpayment (cash or in kind).
- Concessional debt: grant element at least 50 percent. Grant element = (nominal value − present value) / nominal value. Present value at contracting is computed by discounting debt service payments at a discount rate of 5 percent.
- Total government revenue: tax and non-tax revenue or other revenue (GFSM 2001, Chapter 5), recorded on a cash basis. Proceeds from taxation on contracts, asset sales, revenue from privatization or granting/renewal of licenses, placement proceeds on government assets, and grants are not considered government revenue for the program.
- Total government expenditure: sum of wages and salaries, goods and services, transfers (including subsidies, grants, social benefits, and other expenses), interest payments, and capital expenditure. Recorded on a commitment basis unless otherwise stated. Includes dépenses avant ordonnancement (DAO) not yet regularized.
- Wages and salaries: compensation of government employees per paragraphs 6.8–6.18 of GFSM 2001, including permanent and temporary employees, civil servants, and members of armed/security forces; compensation includes wages and salaries, allowances, bonuses, pension fund contributions on behalf of civil servants, and any other monetary or non-monetary payment.
- Arrears: any debt obligations (as defined) not amortized in conformity with contract conditions.

### Domestic and external payment arrears
- Domestic payment arrears = (i) payment arrears on expenditure; and (ii) payment arrears on domestic debt.
  - Payment arrears on expenditures: all payment orders to the Treasury created by the entity responsible for authorizing expenditure payments but not paid 90 days after authorization to pay given by the treasury. These are part of “balance payable” (or “amounts due”), which correspond to unpaid financial obligations and include domestic floating debt besides expenditure arrears. For the program target, domestic payment arrears are “balances payable” whose maturity goes beyond the 90-day regulatory deadline; floating debt represents “balances payable” whose maturity does not go beyond the 90-day deadline.
  - Payment arrears on domestic debt: difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract.
- External payment arrears: difference between the amount required to be paid under the contract or legal document and the amount actually paid after the payment deadline specified in the pertinent contract.

### Quantitative targets (QTs)
- The QTs correspond to those specified in Table 1 of the MEFP. Adjusters are in Section D. QTs include:
  - Ceiling on domestic budgetary financing to the government.
    - Domestic public financing = i) bank credit to the government; and ii) non-bank financing to the government, including proceeds from the sale of government assets (including privatizations), Treasury bills, other securitized obligations issued by the government and denominated in CFA francs on the CEMAC regional market, and any BEAC credit to the government, including any drawings on the CFA franc counterpart of the allocation of SDRs.
    - Bank credit to the government = balance between debts and claims of the government vis-à-vis the central bank and national commercial banks (scope used by the BEAC). Government claims include CFA franc cash balance, [postal checking accounts], subordinated debt (obligations cautionnées), and all deposits with the BEAC and commercial banks of government-owned entities, except EPICs and government corporations (excluded). Government debt to the banking system includes all debt to the central bank and national commercial banks, including Treasury bills and other securitized debt.
  - Floor for total domestic government revenue.
    - Domestic government revenue: only cash revenues (tax and non-tax revenue) taken into account for the TOFE.
  - Floor for government social spending.
    - Poverty-reducing social spending comprises public non-wage spending on primary and secondary education, health, social action, water and sanitation, microfinance, agriculture, and rural development. Execution is monitored on a payment-order basis.
  - Ceiling on domestic primary deficit.
    - Domestic primary fiscal balance (commitment basis) = government domestic revenue − government expenditure − all interest payments − externally financed capital expenditure. Payments on arrears are not included.
  - Floor on reduction of domestic payment arrears.
    - Government undertakes to settle some priority arrears that were validated.
  - Non-Accumulation of External Debt Contracted or Guaranteed by the Government.
    - Government undertakes not to contract or guarantee non-concessional debt. Loans for financing projects must not exacerbate debt vulnerabilities according to the joint World Bank–IMF debt sustainability analysis.
  - Non-Accumulation of New External Payment Arrears by the Government.
    - External payment arrears defined in paragraph 12. Government undertakes not to accumulate external payment arrears, except arrears under renegotiation or rescheduling. This is a continuous quantitative performance criterion.
  - Non-Accumulation of New Domestic Payment Arrears by the Government.
    - Domestic payment arrears defined in paragraph 13. Government undertakes not to accumulate domestic payment arrears. This is a continuous quantitative performance criterion.

### Adjusters of quantitative targets (2016)
- To account for factors outside government performance, various 2016 QTs will be adjusted:
  - If total revenue from privatization or renewal of telecommunication licenses or forestry or oil licenses is greater than programmed:
    - i. The floor for the primary budget balance can be adjusted downward by 50 percent of these additional receipts;
    - ii. The ceiling on net domestic financing of the government will be adjusted downward by the remainder of the additional receipts.
  - If total budget support is below programmed:
    - i. The ceiling on net domestic financing of the government will be adjusted upward by 50 percent of disbursements programmed but not made.
    - ii. The floor for the primary budget balance will be adjusted downward by 50 percent of disbursements programmed but not made.
  - If total budget support is above programmed:
    - i. The ceiling on net domestic financing of the government will be adjusted downward by 50 percent of disbursements above programmed amounts.
    - ii. The floor for the primary budget balance will be adjusted upward by 50 percent of disbursements above programmed amounts.

### Structural benchmarks
- Adoption of a decision ending the practice of opening new bank accounts in commercial banks on behalf of the government, except accounts for projects covered by an agreement with donors, to strengthen and consolidate public finances.
- Submission of a 2016 Supplementary Budget to the National Assembly to help return public financial management to normal.
- Adoption of a decision by the Ministry of Finance identifying all government accounts and their contents in commercial banks to secure and enhance Treasury Single Account management.
- Adoption of a decree basing the price structure for national petroleum products on international Platts prices to increase transparency and boost domestic revenue.
- Reporting of assets by ministers in accordance with legal provisions in force to increase transparency and good governance.
- Repatriation of diplomats at the end of their mission to limit public spending.
- Consolidation of the Treasury Single Account by closing accounts that do not belong to donors and non-essential government accounts open in commercial banks (except project accounts).
- Adoption by the Minister of Finance of a Domestic Arrears Clearance Plan to rebuild government credibility by restoring creditor confidence.

### Reporting to the IMF
- Quantitative data on the government’s indicative targets will be reported to IMF staff according to the periodicity described in Table III.1. All data revisions will be promptly communicated. Authorities undertake to consult Fund staff regarding information or data not specifically addressed in the TMU but necessary for program implementation, and inform Fund staff whether program objectives have been reached.

- Table III: Reporting deadlines (selected items and exact deadlines):
  - Bi-annual report evaluating quantitative indicators and structural measures (tables 11 and 12 of MEFP), with supporting documents — Within four weeks of the end of each quarter.
  - Monetary position, monthly central bank and commercial bank accounts — Within four weeks of the end of each month.
  - Monthly cash flow operations table — Within ten days of the end of each month.
  - Government financial operations table — Within four weeks of the end of each month.
  - Total monthly amount of domestic payment arrears on goods and services and on wages, including unpaid pensions and bonuses — Within four weeks of the end of each month.
  - External debt stock at end of period — Within four weeks of the end of each month.
  - Breakdown of expenditures listed in TOFE (goods and services, wages, interest, etc.) — Within four weeks of the end of each month.
  - Summary table of actual expenditures in priority areas, such as health, education, and security — Within four weeks of the end of each quarter.
  - Breakdown of current expenditure and capital disbursements, financed with own and external resources — Within four weeks of the end of each quarter.
  - Breakdown of revenues by institution and economic classification — Within four weeks of the end of each quarter.
  - Revenues and expenditures recognized against one another without a cash settlement (by expenditure and revenue type) — Within four weeks of the end of each quarter.
  - Breakdown of debt service and external arrears, particularly by interest and principal, and by main creditor — Within four weeks of the end of each month.
  - Amount of new non-concessional and concessional external debt contracted by the government — Within four weeks of the end of each month.
  - Actual disbursements for projects and programs receiving foreign financial assistance and relief of external debt granted by external creditors (including the date, amount, and creditor) — Within four weeks of the end of each month.

*Source: _cr16269 - INTRODUCTION*

### 4.5 million euros for the first water and sanitation sub-program that is now being implemented.

### 4.5 million euros for the first water and sanitation sub-program that is now being implemented.

### AfDB portfolio and implementation
- The Bank’s portfolio of current operations in the C.A.R. consists of nine projects, for a total commitment of about US$150 million and an overall portfolio disbursement rate of 39.98 percent.
- The portfolio is primarily in the infrastructure sector (transportation, energy, water and sanitation) representing 70 percent of current commitments.
- With the normalization of the security and political situation, the Bank will intensify efforts to closely monitor the implementation of its operations with a view to improving the disbursement rate in particular.
- The Bank anticipates that the validity period for its interim assistance to the C.A.R will be extended to December 31, 2017, upon the conclusion of which a new four- to five-year cooperation framework will be proposed with the C.A.R. through a new Country Strategy Paper (2018–23).

- Table highlights (As of December 2015, Bank Contributions in UA millions; Disbursement Rate in percent):
  - Project to Build Economic and Financial Management Capacity (PARGEF): AWF Grant 4.00; ADF Grant 0.50; Disbursement Rate 16.4
  - Rural Infrastructure Rehabilitation Support Project (PARIR): AWF Grant 3.85; Disbursement Rate 26.9
  - Project for Community Development and Support to Vulnerable Groups (PDCAGV): AWF Grant 8.00; Disbursement Rate 17.3
  - Drinking Water Supply and Sanitation (PAEPA) in 3 Prefectures: AWF Grant 7.00; ADF Grant 2.89; Disbursement Rate 0.6
  - Project for Institutional Support for Development of the Water Sector (PAIDSE): AWF Grant 1.71; Disbursement Rate 36.5
  - Transport and Transit Facilitation Program for the Douala-N’Djamena and Douala-Bangui Corridors: AWF Grant 27.80; Disbursement Rate 20.0

### Statistical issues and data adequacy
- General: Data provision has shortcomings, but is broadly adequate for surveillance. Issues with source data and compilation affect most data sets, particularly in the real sector.
- National Accounts:
  - High degree of uncertainty attached to estimates of the level and growth rate of real GDP, including because estimates for informal sector activity are still based on a 1982 survey.
  - Developments in the subsistence agriculture sector, accounting for an estimated 30 percent of the economy, are not tracked well and would benefit from the development of source data through surveys.
  - STA/AFC is providing technical assistance in national accounts to rebase series, but progress is hampered by low capacity and a weak statistical system.
- Price statistics:
  - Measurement of inflation is subject to a high degree of uncertainty since the CPI is based on expenditure weights that are thirty years old.
  - The index is highly skewed toward food items (70 percent), in particular basic foodstuff, and covers only a limited number of modern and service items.
  - STA is providing technical assistance to update and rebalance the index.
  - Price data collection is occasionally suspended for lack of resources at the national statistics institute.
- Government finance statistics:
  - Data provision is broadly satisfactory for surveillance purposes, although coverage is not complete.
  - Main shortcomings: (i) expenditures financed by line ministries’ and government agencies’ own resources, estimated on the basis of respective revenue estimates; (ii) foreign-financed investment expenditures reported bi-annually by the Ministry of Planning; and (iii) domestic arrears accumulation.
  - Budget accounting and Treasury procedures, and domestic debt statistics, continue to suffer from serious shortcomings, delays and omissions in reporting; these are being addressed through various reforms.
  - General government statistics are not available.
  - The new GFS resident advisor in AFRITAC Central will focus on addressing these issues and assist the authorities to move toward the harmonized CEMAC TOFE based on GFSM 2001.
- Monetary statistics:
  - Data provision is broadly satisfactory for surveillance purposes.
  - Monetary statistics for the central bank and other depository corporations are compiled on a monthly basis in the format of standardized report forms (SRFs) and reported to STA by the BEAC with an average time lag of three months.
- Financial sector surveillance:
  - In March 2016, Central African Republic began reporting financial soundness indicators for deposit taking institutions to STA.
- External sector statistics:
  - A 2010 balance of payments statistics mission assisted the authorities in completing the standardized reporting forms used for reporting to STA.
  - A three-year Japan Administered Account for Selected Activities (JSA) funded Project to assist French-speaking African countries in strengthening external sector statistics according to BPM6 is scheduled to begin during FY 2017.
  - Central African Republic does not report external sector statistics to STA for publication in the Balance of Payments and International Investment Position Statistics Yearbook (BOPSY) and International Financial Statistics (IFS).
  - The country does not provide IIP data, due to a lack of capacity.
- Data Standards and Quality:
  - The country participates in Enhanced General Data Dissemination Standard (e-GDDS).
  - Most metadata, with the exception of the real sector and socio-demographic metadata, have not been updated since 2004.
  - There are no Data ROSC.

### Debt sustainability assessment and structure of debt
- The DSA, conducted in the context of the joint IMF/IDA DSA debt sustainability framework for low-income countries, confirms that Central African Republic (C.A.R) continues to be assessed at high risk of external debt distress.
- Under the baseline scenarios, several external debt indicators at end-2015 breached the policy-related thresholds, mainly due to the slow recovery of exports and revenues resulting from continued insecurity.
- Large accumulation of domestic arrears has contributed to an increase in total public debt.
- The payment of domestic arrears will be informed by the ongoing audit of commercial, social, and cross-debt arrears.
- Public debt indicators under the baseline scenario have worsened compared with previous DSAs.
  - The PV of debt-to-revenue ratio and the debt service to revenue ratio are projected to be much higher than the previous DSA, essentially driven by a collapse in domestic revenue and GDP.
- C.A.R.’s overall risk of debt distress is high because of significant vulnerabilities related to domestic debt.
- The country has significant vulnerabilities to adverse shocks to GDP growth, exports, exchange rate and FDI flow which could breach the policy-related thresholds for all external debt indicators.
- Policy implications and priorities:
  - Broaden the growth base by consolidating domestic security.
  - Pursue prudent fiscal and debt policies, including only highly concessional debt financing.
  - Implement structural policies to improve budget execution and create conditions for private investment.

- Background and recent developments:
  - Following the 2012/2013 security and political conflict, C.A.R. faces significant economic challenges.
  - Domestic resource mobilization fell to 6 percent of GDP, against 12 percent of GDP before the conflict.
  - Real GDP grew by 4.8 percent in 2015, against an initial target of 5.5 percent.
  - Exports: diamond and timber exports were further squeezed by deterioration of security; the Kimberley Process Certification Scheme (KPCS) maintained an export ban on diamond exports pending further progress in security and state control. Timber exports are recovering slowly from a 38 percent decline in 2013 and remain far below pre-crisis level.
  - C.A.R is a weak policy performer for the purpose of determining debt burden thresholds: average CPIA rating during 2012-2014 is 2.55 (scale of 1 to 6).

- Structure of debt (end-2015 and recent trends):
  - In 2015, C.A.R.’s total public debt to GDP ratio declined slightly from 2014, driven by the increase in nominal GDP (11.3 percent) in 2015.
  - At end-2015, C.A.R.’s public and publicly-guaranteed debt (PPG) stood at CFAF 454.3 billion (48.5 percent of GDP).
  - The PPG-to-GDP ratio declined by 2.6 percentage points from 51.1 percent at end-2014.
  - External debt amounted to 14.5 percent of GDP.
  - At end-2015, C.A.R.’s public and publicly-guaranteed external (PPGE) debt stood at CFAF 135.5 billion.
  - About 62.3 percent of C.A.R.’s outstanding PPGE debt is owed to bilateral creditors; multilateral creditors account for the remainder.
  - External debt was 29.8 percent of total debt.
  - The ratio of PPGE debt to GDP rose to 14.5 percent in 2015, from 9.7 percent in 2012.
  - External public borrowing has been limited in recent years; increases reflect concessional/emergency loans from multilateral creditors such as the World Bank and the African Development Bank.
  - External bilateral debt in percent of GDP fell to 9 percent in 2015 from 10.5 percent in 2014, as C.A.R. was not able to borrow due to large technical arrears with bilateral creditors.
  - Since 2014, the government signed one bilateral loan agreement with Saudi Arabia for CFAF 45 billion (denominated in Saudi riyad) in December 2015 with an interest of 1 percent per year, a maturity of 30 years and a grace period of 10 years; the loan will finance infrastructure projects and rehabilitation of schools and health facility.
  - Domestic debt increased significantly since 2014, mainly due to rising arrears. Domestic debt accounts for 70 percent of total debt in 2015, of which more than half is domestic payments arrears.
  - End-2015 stock of outstanding arrears stands at CFAF 172 billion, of which CFAF 39 billion to BEAC, CFAF 30.3 billion in commercial debts, CFAF 80 billion in social debts, and CFAF 22 billion in cross-debt and other debts.
  - Settlement of audited arrears will be part of the medium-term strategy to reduce domestic debt.
- Selected debt stock figures (CFAF billions; Percent of GDP):
  - Total: 2015 = 454.3 (48.5 percent of GDP)
  - External debt: 2015 = 135.5 (14.5 percent of GDP)
  - Multilateral: 2015 = 25.5 (5.5 percent of GDP)
  - Bilateral: 2015 = 110.0 (9.0 percent of GDP)
  - Domestic debt: 2015 = 318.8 (34.0 percent of GDP)
  - Stock (component): 2015 = 146.9 (15.7 percent of GDP)
  - Arrears: 2015 = 171.8 (18.3 percent of GDP)

### Underlying DSA assumptions and macro outlook
- Baseline macroeconomic assumptions updated based on 2015 developments, consistent with macroeconomic framework underlying the proposed ECF arrangement.
- Short- to medium-term baseline anchored on two main assumptions: improved political and security conditions and continued donor support.
- Staff projects growth rates averaging 5.5 percent for the medium term as the rebound is expected to be progressive.
  - Growth will be mainly driven by agriculture, trade, transportation and public investment.
- Long-run growth rates are projected to remain around an average of 3.4 percent, about the same as in the previous DSA.
- Fiscal area:
  - Primary fiscal balance recorded a deficit of 3.4 percent of GDP in 2015, compared with a deficit of 3.0 percent of GDP projected in the 2015 DSA.
- Main changes to macro projections compared with previous DSA in 2015:
  - Upward revision in the external debt-to-GDP ratio.
  - Downward revision in both the primary fiscal deficit and overall fiscal balance.
  - The non-interest current account deficit is now lower than in the 2015 DSA.

*Source: IMF/IDA staff report and AfDB portfolio data as presented in the provided document.*

### 3.5 percent, similar to the previous DSA.

### _cr16269 - 3.5 percent, similar to the previous DSA.

### Macroeconomic projections
- Real GDP growth: "3.5 percent, similar to the previous DSA."
- Average inflation: expected to stabilize over the medium term, with convergence to "3 percent" in the long run, in line with CEMAC convergence criteria.
- Primary fiscal balance: expected to steadily improve to reach an average of around "2 percent of GDP" in the medium term, and then shift to about "1 percent of GDP" over the long run ("2035").
- Government revenue (including grants): projected to reach "20.8 percent of GDP" in the long run.
- Primary expenditures: expected to reach "21.8 percent of GDP in 2036", mainly on account of higher domestically-financed capital spending.
- Non-interest current account deficit: projected to decline to "10.6 percent of GDP in 2016", and to decline gradually in the medium to long term.
- Exports: expected to pick up due to planned recovery of mining and forestry activities, improved security conditions, and expected full lifting of the diamond export ban in the medium term; however, exports in percent of GDP will remain broadly unchanged from their pre-conflict level due to the narrow export base.
- Non-interest current deficit during "2016–19": relatively higher compared with before-crisis years partly due to the increase of investment-related imports.
- External assistance: Grant-equivalent financing is about "4.9 percent of GDP in 2016" and is assumed at about "3.9 percent of GDP in the long run."

### External debt sustainability results
- Under the baseline scenario, several external debt indicators breach the threshold.
  - PV of debt-to-exports ratio: projected to stay above the policy threshold from "2020."
  - Debt service-to-export ratio and debt service-to-revenue ratio: breach the threshold in "2015."
  - PV of debt-to-GDP ratio: lies below the threshold in "2015" and is expected to maintain this position throughout the projection period.
- Results are broadly similar to those of the 2015 DSA, reflecting the narrow export base and slow recovery of exports and government revenues.
- Assumptions for improvement: authorities will strengthen debt management capacities and continue to seek highly concessional financing; improved macroeconomic management expected to improve debt service-to-exports, debt-service-to-revenues, and PV of debt-to-revenue ratios in the long run.
- Overall risk: the current DSA reaffirms the finding that C.A.R.’s risk of external debt distress is "high."
- Extreme scenario outcomes:
  - All indicators breach the threshold in the most extreme scenario.
  - PV of debt-to-exports ratio: remains above the policy threshold under the extreme scenario for a significant period.
  - PV of debt-to-revenue ratio: stays above the policy threshold under the extreme scenario till "2025."
- Alternative scenarios and stress tests:
  - Historical scenario includes crisis years and the "2009 HIPC debt relief"; it may not adequately reflect baseline near-term and long-run prospects.
  - Combined adverse shocks on GDP growth, exports, exchange rate and FDI flow cause deterioration in three indicators versus baseline:
    - (i) PV of debt-to-GDP ratio worsens and breaches the threshold starting in "2016."
    - (ii) PV of debt-to-exports ratio breaches the threshold until "2036."
    - (iii) PV of debt-to-revenue deteriorates and breaches the threshold in the medium term and only declines in the long run.
- Bound test result: slow recovery in exports is the most significant factor for debt sustainability vulnerability. If export value growth is at historical average minus one standard deviation in "2016-17," the debt-to-exports ratio rises above "100" in "2017" and stays significantly above the policy threshold for the entire test period.

### Public debt sustainability results
- Compared to the previous DSA, public debt indicators under the baseline scenario worsened.
- PV of public debt-to-GDP ratios: projected to remain above the "38 percent" benchmark throughout "2016–19", but on a declining trend as macroeconomic conditions improve.
- PV of public debt-to-GDP ratio and PV of debt-to-revenue ratio: projected to be much higher than the previous DSA in the medium term, reflecting a slower-than-projected recovery of government revenues.
- Factors contributing to weaker outcomes in 2015:
  - Lower-than-expected economic activity associated with continued insecurity.
  - Two inoperative regional tax and customs directorates.
  - Imports consisting mainly of food products subject to low customs duties in "2015."
  - Rapid accumulation of domestic arrears: "16.3 percent of GDP from 2012 to 2015" increased vulnerabilities of the domestic debt.
- Outlook: all indicators are expected to improve in the medium term and long run in line with improved security and macroeconomic situation.
- Policy-based thresholds and peak ratios (excerpts):
  - PV of PPG external debt in percent of GDP: "30" (threshold), observed peak "12" in 2015 and "14" projected for 2016-36.
  - Exports threshold: "100"; observed "95" in 2015; projected "100" for 2016-36.
  - Revenue threshold: "200"; observed "169" in 2015; projected "135" peak for 2016-36.
  - PPG external debt service in percent of Exports threshold: "15"; observed "24" in 2015; projected "10" for 2016-36.
  - PPG external debt service in percent of Revenue threshold: "18"; observed "43" in 2015; projected "15" for 2016-36.
  - (Sources: C.A.R. authorities; and IMF and World Bank estimates.)

### Scenarios, stress tests, and sensitivity
- Baseline sensitivity: very sensitive to growth assumptions.
- Most extreme shock (one-standard deviation drop in growth for "2016 and 2017"):
  - Substantially increases public debt.
  - Keeps PV of debt-to-GDP ratio above the benchmark throughout the entire period.
  - PV of debt-to-revenue ratio rises; debt service-to-revenue ratio increases significantly in the medium term.
- Public DSA conclusion: overall risk of debt distress is "high" because of significant vulnerabilities related to domestic debt.
  - Public debt level is high mainly due to domestic arrears resulting from GDP collapse in the "2013" crisis.
  - Country remains vulnerable to adverse shocks to GDP growth.
  - Maintaining domestic security is a priority to reduce potential adverse shocks to growth and exports and therefore debt distress.

### Policy recommendations and reform priorities
- Foster a sound macroeconomic environment to:
  - Promote growth.
  - Mobilize domestic revenue.
  - Facilitate an export recovery.
  - Enable FDI inflows.
- Continue the reform agenda to avoid return to unsustainable debt levels observed before "2009."
- Continue improving security to support economic recovery and debt sustainability.
- Strengthen debt management capacities and continue to seek highly concessional financing.
- Focus reforms on:
  - Enhancing revenue administration.
  - Enhancing public financial administration efforts.
  - Structural reforms to increase potential economic growth.
- Priority: maintain domestic security to reduce potential adverse shocks to growth and exports and therefore debt distress.

*Source: _cr16269 - 3.5 percent, similar to the previous DSA.*

### CONCLUSION

### _cr16269 - CONCLUSION

### Summary of debt sustainability assessment and risk
- C.A.R.’s debt remains at high risk of distress.
- The debt sustainability indicators have worsened compared with the previous DSA.
- Although external debt-to-GDP ratio stays below the benchmark, almost all external and public debt indicators deteriorate.
- The PV of external debt-to-exports ratio remains for a significant period well above the policy threshold under the extreme scenario.

### Comparative indicators (2015 DSA vs New DSA)
- PV of debt to GDP ratio
  - 2015 DSA: 42.8, 37.5, 45.1, 43.2, 42.1 (2015–2019)
  - New DSA: 46.0, 41.3, 37.9, 34.6, 31.3 (2015–2019)
- PV of debt to revenue ratio
  - 2015 DSA: 337.9, 267.8, 260.8, 268.9, 221.3 (2015–2019)
  - New DSA: 321.4, 318.3, 286.9, 251.8, 218.7 (2015–2019)
- Debt service to revenue ratio
  - 2015 DSA: 26.9, 25.0, 19.6, 21.9, 25.2 (2015–2019)
  - New DSA: 25.8, 15.2, 10.3, 11.3, 11.3 (2015–2019)
- Revenue and grants (in percent of GDP)
  - 2015 DSA: 11.5, 12.3, 11.8, 10.7, 12.3 (2015–2019)
  - New DSA: 14.3, 13.0, 13.2, 13.7, 14.3 (2015–2019)

Sources for above: C.A.R. authorities; and IMF staff estimates and projections.

### Key quantitative findings from tables and projections
- External debt (nominal) series (selected): 9.7, 14.6, 14.9, 14.5, 14.5, 16.8, 18.4, 19.5, 20.2, 20.8, 24.2, 20.3 (historic and projection entries as shown).
- Identified net debt-creating flows (selected): 1.5, 7.1, 3.8, 11.8, 8.9, 8.0, 7.6, 6.2, 5.9, 5.5, 2.5, -2.9.
- PV of external debt (selected percent of GDP): 13.0, 12.0, 11.0, 11.7, 12.1, 12.4, 12.5, 12.6, 13.1, 11.5 (projection series shown).
- PV of external debt (in percent of exports, selected): 99.9, 95.3, 80.3, 79.0, 83.8, 86.7, 98.8, 99.9, 97.1, 57.0.
- PPG debt service-to-revenue ratio (in percent, selected): 27.2, 55.4, 54.0, 43.1, 14.9, 7.8, 7.0, 6.2, 5.1, 5.2, 4.8, 4.0.
- Total gross financing need (Billions of U.S. dollars, selected): 0.1, 0.1, 0.1, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2, -0.1.
- Key macroeconomic assumptions (selected):
  - Real GDP growth (in percent, series): 4.1, -36.7, 1.0, 4.8, -0.4, 12.1, 5.2, 5.5, 5.8, 5.8, 5.8, 5.8, 5.7, 3.3, 3.4, 3.4.
  - GDP deflator in US dollar terms (change in percent, selected): -5.0, 10.5, 11.2, -10.9, 3.8, 8.1, 6.3, 6.6, 6.0, 5.9, 6.3, 5.2, 6.1.
  - Grant element of new public sector borrowing (in percent, selected): 30.9, 36.5, 55.3, 55.3, 55.3, 55.3, 55.3, 52.1, 55.3, 55.3, 55.3.

### Stress tests and sensitivity analysis (high-level)
- The most extreme stress tests (combination shocks and growth shocks) produce the highest ratios on or before 2025 for various indicators (PV-to-GDP, PV-to-exports, PV-to-revenue, debt service ratios).
- Table summaries show wide variation across scenarios:
  - Alternative scenarios (A1, A2) and bound tests (B1–B6) produce materially higher PV-of-debt ratios and debt-service ratios in many cases (entries reported explicitly in tables).
  - Example entries (Table 2 excerpts): Baseline and scenario percentage outcomes for PV of debt-to-GDP, PV of debt-to-exports, and PV of debt-to-revenue are reported across 2016–2036 (exact series appear in the source tables).

### Policy recommendations and priority actions
- Consolidate the basis for growth by:
  - Fostering domestic security.
  - Maintaining macroeconomic and political stability.
  - Developing institutional and administrative capacity.
- Pursue a debt strategy limited to grant and highly concessional financing.
  - Rely on grant financing to the maximum extent possible, given C.A.R.’s fragile post-conflict situation.
  - Continue to seek maximum concessionality in external financing beyond grants.
- Strengthen fiscal and public debt management:
  - Step up domestic revenue mobilization.
  - Restrain non priority expenditures.
  - Substantially improve public debt management with assistance from the Regional Technical Assistance Center for Central Africa.
  - Fund and put in place Version 6.0 of the Debt Management and Financial Analysis System (DMFAS) software.
  - Implement more stringent procedures to ensure new financial commitments are undertaken only with the approval and signature of the minister of finance.
- Increase exports and diversify the export base:
  - Increase exports from the traditional forestry and diamond sectors while widening the export base to reduce vulnerability to slower GDP growth.

*Source: IMF staff report conclusion (C.A.R. debt sustainability analysis, as provided in the supplied content).*

### 1. This supplement reports on information that has become available since the

### _cr16269 - 1. This supplement reports on information that has become available since the

### Recent developments
- The supplement reports on information available since the Staff Report was circulated to the Executive Board on July 11 and does not alter staff’s broad assessment of policy issues and recommendations contained in the report.
- The authorities of Equatorial Guinea, Iraq, Libya, and Montenegro have consented to Fund financing in the context of a new ECF arrangement notwithstanding C.A.R.’s pre-HIPC Initiative arrears.
- C.A.R. has post-HIPC Initiative arrears to India (amounting to US$ 7.3 million), China (amounting to US$ 12 million), and France; these arrears arose during the emergency period. The authorities have contacted the authorities of India and China, and the French export guarantee institute to inform them of their intention to resolve these arrears.
- Statement by Mr. Ngueto Yambaye, Executive Director for the Central African Republic, and Mr. Bangrim Kibassim, Advisor to the Executive Director (July 20, 2016) expresses gratitude for IMF support and summarizes recent program context.

### Macroeconomic developments and outlook
- Real GDP growth:
  - 2014: 1 percent
  - 2015: 4.8 percent
  - Projected 2016: 5.2 percent
  - Projected average over medium term (2016-2019): 5.5 percent
- Inflation:
  - 2014 peak: 11.6 percent
  - 2015: 4.5 percent
  - Projected average inflation over medium term: about 3 percent
- Fiscal and external context:
  - Domestic revenue collapse: from 11.5 percent of GDP in 2012 to 4.5 percent in 2014
  - Domestic primary deficit: projected to decline from 3.3 percent of GDP in 2016 to 0.9 percent in 2019
  - Wage bill: 6 percent of GDP in 2015 reduced to 5.3 percent in 2016
  - Public spending expected to increase by 2.2 percentage points of GDP owing to increased capital and social spending
  - Current account deficit projected to increase due to sizable reconstruction needs

### Medium Term Program (2016–2019) — objectives and pillars
- Political and social stability as a foundation for development: consolidate security, promote national reconciliation, build human and administrative capacity.
- Restore and build basic infrastructure and utilities.
- Improve social conditions: better access to health and education to reduce poverty and promote human development.
- Authorities developed an ambitious economic program with development partners and IMF staff and request a three-year ECF arrangement.

### Economic and financial policies for 2016–19
- Policy objectives: ensure fiscal sustainability while accumulating buffers; focus on revenue mobilization and improved public financial management.
- Revenue measures planned for 2016:
  i) a new price structure for oil products based on international prices  
  ii) tightening inspection and control on exported forestry products  
  iii) strict application of the banking agreement on revenue collection to ensure traceability
- Medium-term revenue target: raise domestic revenue from 7.1 percent of GDP in 2015 to 10.1 percent in GDP by 2019 via a medium term action plan prepared with FAD TA. Plan aims to:
  i) broaden the tax base and simplify tax procedures, including improving management of the VAT system and the base for assessing export taxes  
  ii) strengthen tax and customs administration, including introducing pre-completed tax returns for real estate; revision of fiscal exemptions agreements  
  iii) harmonization of the General Investment Code by implementing the CEMAC directives on VAT and duties  
  iv) streamlining and enhancing management of tax exemptions
- Expenditure control:
  - Measures to control the wage bill, clean the roster of the civil service, and ensure timely retirement of eligible civil servants.
  - Fiscal measures expected to enable increased spending on goods and services and domestically financed capital spending.
- Public financial management reforms:
  - Pursue strict treasury management and strengthen the fiscal policy framework through a comprehensive action plan prepared with Fund and partners.

### Management of domestic payments arrears and debt policy
- Authorities committed to clear domestic payments arrears, including commercial arrears and cross-debts (creditors include BEAC and commercial banks).
- Plan to complete an audit and have claims validated by end-June 2017; settlement of validated domestic payments arrears planned for July 2017.
- Commercial, wages and pension arrears dating back to 2013–14 will be resolved in 2016 and 2017 respectively.
- Debt management: strengthen public debt management and implement a prudent borrowing policy; grants should be the main source of external financing. Authorities have undertaken discussions with creditors regarding external arrears.

### Capacity building framework
- Authorities emphasize the importance of timely, coordinated Technical Assistance (TA) and efficient use of TA.
- Institutional framework put in place to rebuild capacity, coordinate TA and monitor reforms.

### Structural reforms
- Banking and financial sector reforms — objectives and measures:
  - Address banking system weaknesses to raise the financial sector’s contribution to the economy.
  - Measures approved by the National Credit Council include:
    i) Explain the government’s medium-term strategy to enhance the country’s economic profile  
    ii) Organize training seminars to increase banks’, businesses’ and the general public’s knowledge of the financial sector  
    iii) Protect the integrity of the banking system and monitor risk management and lending practices; request COBAC to send a banking supervision mission  
    iv) Create an action plan for the establishment of commercial and property registries  
    v) Authorize more banks to engage in mobile banking activities
  - Plans to establish a credit bureau to reduce information asymmetry and support SMEs and commercial banks; feasibility study for a guarantee fund for SMEs.
- Development strategy and structural reforms — priorities:
  - Establish a favorable environment for private sector through structural and institutional reforms.
  - Implement a Joint Business Improvement Framework (CMAA) and a one-stop shop to facilitate administrative procedures for investors.
  - Prepare two laws to revitalize telecommunications; update the investment charter, the mining code, the telecommunications code; enhance regulation of the forestry sector.
  - Medium-term infrastructure and sector priorities:
    - Developing food, cash and exports crops  
    - Promoting agro-forestry and downstream operations to create value added and jobs  
    - Developing mining activities in a formalized context to attract large operators  
    - Repairing and restoring highways, rural roads, dry ports and provincial airports  
    - Expanding transportation and telecommunications infrastructure  
    - Developing energy capacities

### Social policy and social cohesion
- Address disruption of social fabric via:
  - Successful Disarmament-Demobilization-Reintegration (DDR) and return of refugees and displaced persons.
  - Re-launching activities in essential social sectors, improving civil protection, restoring and reorganizing public administration nationwide.
- Specific social objectives:
  i) Restore social cohesion and reduce community tensions to support local economic recovery and create temporary jobs, primarily for young people  
  ii) Access to safe drinking water, sanitation and hygiene  
  iii) Rehabilitation of the education sector to ensure full education coverage and complete high-quality education, including access to all levels for all children  
  iv) New impetus to the health care system, including strengthening the fight against HIV/AIDS

### Conclusion and authorities’ request
- Authorities express appreciation of the Fund relationship and welcome staff’s recommendations.
- Strong commitment to pursue reforms with Fund assistance.
- Authorities request a Three-Year Arrangement Under the Extended Credit Facility (ECF) in support of their medium-term economic reform program.

*Prepared By The African Department; July 15, 2016 (Statement dated July 20, 2016).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16269.pdf_