## IMF Survey: Central African Republic's Reforms Enter Crucial Phase

_IMF News, January 21, 2010_

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## Bibliographic details
- Authors: Werner Keller IMF African Department January
- Published: January 21, 2010

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### Economic health check
- The Central African Republic is one of Africa’s least known and most overlooked countries.
- It is the only nonoil-producing country of the Central African Economic and Monetary Community (CEMAC), landlocked between troubled Sudan, Chad, and the Democratic Republic of Congo.
- The population of less than 5 million—among the world’s poorest—occupies an area one and a quarter times that of France that is endowed with rich natural resources and fertile land.
- Political instability since independence, deficient infrastructure, and underdeveloped human capital are negatively affecting economic performance.
- The country has achieved modest economic growth since open conflict ended in 2004, and income per capita has started to recover after years of decline.

### External shocks and macro performance
- A series of domestic and external shocks in 2008 and early 2009 included unstable power supply, surging prices for imports, and low demand and prices for export goods as a result of the global recession.
- Despite these shocks, the government has made good progress with its fiscal program of mobilizing domestic revenues, controlling spending, and clearing arrears.
- The Central African Republic received full debt relief from the IMF and World Bank in June 2009 by reaching the final, completion-point stage of the Heavily Indebted Poor Countries Initiative.
- The country is well on the way to concluding its current Poverty Reduction and Growth Facility program in June 2010—the first time it would successfully conclude a three-year program with the IMF, after two successful Emergency Post-Conflict Assistance programs.
- A modest recovery from last year’s shocks is under way, supported by prudent macroeconomic management policies and structural reforms.

### Encouraging results: peace, stability, and public finance
- Establishing peace and security
  - The “inclusive political dialogue” concluded in December 2008 led to some participation in government by the political opposition.
  - The domestic peace process is implemented as part of the disarmament, demobilization, and reintegration program and should open the way for general elections in 2010.
  - Some external financing from the United Nations and CEMAC has been secured; more financial and logistical help from other donors might be required.
  - The government intends to follow up with comprehensive reform of the security sectors, for which financing still has to be identified.
- Maintaining economic stability
  - Real GDP growth is projected to increase from 2 percent in 2009 to 3½ percent in 2010.
  - Inflation is expected to slow to 2¼ percent after peaking at close to 15 percent at end-2008.
  - World demand for the country’s principal exports—wood products and diamonds—declined significantly and may take time to pick up.
  - The current account balance is expected to improve in 2010 as aid flows rise.
  - The tax-to-GDP ratio—still one of the lowest in the world—continues to head upward; insufficient resources, particularly grants, make it hard to implement a poverty reduction strategy.
- Improving public financial management
  - Fiscal performance was broadly kept on track under the current IMF loan program despite recent shocks.
  - The government increased domestic revenue mobilization efforts, controlled spending, and cleared more domestic arrears than initially planned.
  - Fiscal policies allowed for a moderate fiscal stimulus by maintaining spending in the face of lower-than-expected revenues while maintaining prudent fiscal policies given limited resource availability.
  - Fiscal structural reforms have progressed and provide a better basis for further results.

### Better access to credit — constraints and policy actions
- Financial intermediation is among the lowest in the world; lack of adequate financial institutions is a major constraint for private sector development.
- Bank lending activities are constrained by legal and regulatory weaknesses and the short-term structure of deposits.
- Bank credit is mainly channeled to short-term operations and is seldom offered to small and medium-size enterprises; bank loan portfolios are of poor quality.
- Large public deficit financing operations have crowded out private sector borrowing.
- Local banks’ contributions to growth could be boosted by action to:
  - Improve the legal and court systems to guarantee property ownership and speed up resolution of business conflicts and enforcement of collateral
  - Strengthen bank capital and provisioning for bad loans and continue reducing government demand for bank credit
  - Foster payment of taxes and government outlays through the banking system
  - Pay back loans to the government, as envisaged under the government’s IMF-supported program
  - Adopt a national strategy for microfinance development and establish licensing of certified public accountants

### Donor relations, infrastructure, and investment climate
- Bilateral and multilateral donors excluding the IMF provide only about 4½ percent of GDP—substantially less than for other post-conflict and low-income countries.
- More efforts by the government are needed to improve communication and cooperation to foster relations of mutual confidence and support.
- Donors are increasingly interested in contributing more actively to political and economic consolidation, particularly to the strengthening of public management capacity; major multi-year programs of coordinated technical assistance are being explored.
- Local unrest, decaying infrastructure, deficient economic integration, a weak legal system, and governance problems hamper social development and private investment and could be serious long-term obstacles to growth.
- To address these constraints and unlock economic potential, the government must rely on external partners and pursue consistent and transparent sectoral policies over the long term.
- Increasing public investment, strengthening project and policy implementation capacity, and investing in human capital need further attention.

### New IMF-backed loan program and fiscal specifics
- The authorities are committed to sustaining reform momentum; the IMF stands ready to provide more economic policy advice and technical assistance.
- The authorities have expressed interest in a successor arrangement to the current loan program.
- The 2010 fiscal program is designed to support domestic demand and consolidate recovery gains.
  - Domestic revenue is expected to rise to 10.6 percent of GDP, implying an additional collection effort of about 0.3 percentage points of GDP.
  - Expenditure is projected to increase moderately, mainly as a result of spending on the peace process and capital expenditure.
  - This will increase the primary domestic deficit to 1.2 percent of GDP, up from 0.4 percent in 2009.
- Structural fiscal reforms remain targeted to supporting the macrofiscal framework through:
  - Better public financial management
  - Reduced customs exemptions
  - Streamlined procedures to refund value-added tax
  - Strengthened tax audits
- Over the medium term, policy reform should focus on measures to accelerate economic growth and strengthen competitiveness while keeping debt sustainable:
  - Targeted alleviation of infrastructure bottlenecks and security concerns
  - More private investment and easier private sector access to credit
  - Greater efforts to mobilize domestic revenues, prudent debt management, and increased donor support on concessional terms to meet social development and security needs

*IMF Survey: Central African Republic's Reforms Enter Crucial Phase — By Werner Keller, IMF African Department, January 21, 2010*

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## Content in this bundle

- [Cr1021pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2010/_cr1021pdf.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Press release](https://www.imf.org/external/np/sec/pn/2010/pn1001.htm)
- [Central African Republic and IMF](https://www.imf.org/external/country/caf/index.htm)
- [Africa’s recovery signs](https://www.imf.org/external/pubs/ft/survey/so/2010/CAR010710A.htm)
- [Africa’s new growth engines](https://www.imf.org/external/pubs/ft/survey/so/2009/CAR112309A.htm)
- [Africa regional outlook](https://www.imf.org/external/pubs/ft/reo/2009/AFR/eng/sreo1009.htm)
- [(CEMAC)](https://www.imf.org/external/pubs/ft/fandd/2006/12/country.htm)
- [Heavily Indebted Poor Countries Initiative](https://www.imf.org/external/np/exr/facts/hipc.htm)
- [Emergency Post-Conflict Assistance](https://www.imf.org/external/np/exr/facts/conflict.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar012010a_