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Key Questions on Central African Republic
Last Updated: November 8, 2024
Answers to key questions about the IMF's program with Central African Republic.
Last Updated: November 8, 2024
Answers to key questions about the IMF's program with Central African Republic.
A decade after the 2013 civil war and despite major progress in stabilization, the Central African Republic (CAR) has continued to face multiple economic and humanitarian challenges stemming from the succession of shocks. The suspension of budget support in 2021, which represented around 5 percent of GDP, strained government finances. The government sought financing from the IMF and other IFIs to support ongoing balance of payments needs while it implements a reform program addressing major imbalances in both its economy as well as its public finances.
Specifically, the IMF-supported program aims to (1) enhance domestic revenue mobilization (DRM), including through the fuel market reforms, (2) improve public financial management (PFM), (3) overhaul public debt management, and (4) adopt governance reforms. DRM initiatives focus on digitalizing customs and tax offices, reducing customs and VAT exemptions, collecting tax arrears, and centralizing revenue in the Treasury Single Account. PFM efforts target budget planning, spending controls—particularly on extraordinary procedures—and cash management. Bolstering the fiscal position and implementing the upcoming medium-term debt strategy are key to safeguarding debt sustainability. Governance reforms are vital for improving the business environment and attracting donor support. These reforms target anti-corruption legislation, enhancing the court of audit and the financial intelligence unit. The objectives of the reform of the fuel market are presented below.
Availability of fairly priced fuel is essential for businesses and households, as well as government revenue. A well-functioning fuel market is critical as it has a bearing on economic activity, the cost of living, domestic revenue mobilization, public finances and in turn public debt sustainability. The government’s request for Fund financing came in the context of a major crisis in the fuel market. At the time, prolonged fuel shortages brought economic activity to a standstill and caused a collapse of tax revenue. Not surprisingly, the reform of the fuel market was an important part of the program discussions between the government and the IMF, initiated in November 2022 and concluded with the approval of the ECF-arrangement by the IMF Executive Board in April 2023. For example, the program sets quarterly targets for domestic revenue collection that have a greater chance of being achieved with improved tax collection from the fuel sector.
Discussions on the fuel sector began at the height of the crisis in November 2022, when prolonged fuel shortages led to the smuggling of fuel in buckets, causing fires in many neighborhoods around Bangui. At the government’s request, the IMF sent a technical assistance mission in February 2023 to help develop an Action Plan of reforms with three objectives: i) enhancing fuel price structure transparency, ii) improving predictability of fuel revenues by capping imports margins (like the distributors’ margins), and iii) centralizing fuel import processes for efficiency and economies of scale. Key elements of the Action Plan included the indexation of the price structure around an international reference price (instead of importers’ declarations), and adopting a public and transparent auction system for fuel imports. Last February, the authorities requested a follow-up technical assistance to review the fuel market’s new structure, resulting in an updated Action Plan and the President’s signature of the decree N°24.157 on June 17, 2024, which mandates the online publication of price structures in a more transparent and predictable manner with the breakdown of every line. While the implementation faces ongoing challenges, the government has committed to address them.
Downloadable price structures: June 2024, July 2024 , August 2024 , November 2024
No, the IMF is not pushing CAR to increase pump prices. The situation in CAR is very different from its neighboring countries. Not only the cited countries are oil exporters, but also pump prices in CAR are already higher than in all these countries—and among the highest in the world. The Fund’s recommendations for CAR would likely be to reduce prices at the pump as soon as the situation permits, that is when the margins made on imports are lowered to reasonable levels and fiscal revenues have significantly increased. When this happens, it would not be the first time that we encourage the government to reduce prices at the pump.
The decision to have a monopoly fuel importer is a sovereign choice made by the government.. What is important is for every actor to abide by the new price structure as required by the Presidential decree 24.157 and more generally to comply with all the law and regulations of the sector (having an import license and a local registration, being a taxpayer, 80 percent imported through the river, etc.). The IMF recommendations for improving the fuel market were designed well before the new fuel import monopoly and are still relevant now. It is important to note that the ongoing discussions on SOCASP’s ownership are not part of the policy recommendations under the program.
These reforms are anticipated to benefit businesses and households, as well as strengthen the government revenue. The reforms would yield a more stable fuel supply, a more transparent fuel market, a reduced reliance on informal imports, and increased fiscal revenues. Critically, these reforms should curb energy price increases, reduce costs for businesses and households, and therefore support robust economic growth. Further, an increase in revenues from fuel imports will increase fiscal space to address essential social spending needs, ensure a better combat against fraud in the fuel sector and increase investments in critical infrastructures. Enhanced governance in the fuel sector will also contribute to a more predictable business environment, supporting broader economic stability and growth.
The fuel market has come a long way since the 2022 crisis. On the one hand, fuel supply has improved markedly, especially this year, eliminating most shortages. On the other hand, fuel prices at the pump have been high—ranking among the highest in globally—while informal fuel imports have continued to thrive. As a result, the contribution of tax revenues from the fuel sector to total revenue has collapsed from around 20-25 percent in 2020-21 to an estimated 9 percent in 2024. In addition, the volatility of fuel revenue continues to cause acute liquidity pressures, making it challenging to finance the budget. This volatility is mainly driven by insufficient backup stocks due to repeated failures of the river campaign, including this year. The river campaign should allow CAR to import large volumes of fuel and reduce costs by leveraging economies of scales—historically, 80 percent of fuel imports have come through the Ubangi River. Importing mostly through the road corridor (Limbe-Bangui) is inefficient and accelerates the deterioration of the main road infrastructure. In summary, though we observe some improvements, we are still very far from the historical performances observed before 2022.
There are four main reasons for the collapse of fiscal revenues from the fuel sector. First, imported volumes for local consumption (excl. security) has significantly decreased, partly because of successive failures of river campaigns. Second, high pump prices have created an incentive for smuggling cheap fuel from neighboring countries to supply the informal market, thus eroding the tax base. Third, the practice of relying on importers’ price declarations for fuel imports instead of a predefined rule for indexing imports prices to an international reference price (Platts) has opened the door for major markups that have made import costs higher and caused the “soutien / reversement Etat” to become negative (i.e., a subsidy to consumers that the government pays to the importer). This practice has had markedly harmful effects on fuel revenues since the 2022 crisis. Fourth, major changes in the market structure—including the entry and exit of some actors—have resulted in large tax arrears for the government.
