Press Release No. 07/215

Press Release: IMF Executive Board Completes First Review Under the PRGF Arrangement with the Central African Republic and Approves US$4.8 Million Disbursement

October 5, 2007

The Executive Board of the International Monetary Fund (IMF) has completed the first review of the Central African Republic's economic performance under a program supported by a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of this review enables the Central African Republic to draw an amount equivalent to SDR 3.1 million (about US$4.8 million).

In completing the review, the Executive Board approved the authorities' request for waivers of the non-observance of the quantitative performance criteria on the ceiling on wages, the floor on domestic primary balance and changes in the net claims of the banking system on the government, as well as of the structural performance criteria on the external audits of the one-stop customs window in Douala and the validation of domestic payment arrears. In addition, the Executive Board approved a modification of quantitative performance criteria for December 2007.

The Central African Republic's PRGF arrangement was approved on December 22, 2006 (see Press Release No 06/299) for an amount equivalent to SDR 36.2 million (about US$56.4 million). The first disbursement was made in mid- January 2007 in an amount equivalent to SDR 17.6 million (about US$27.4 million).

Following the Executive Board discussion of the Central African Republic's economic performance on September 28, 2007, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:

"During the past several years, the Central African authorities have made important progress in consolidating peace and security and in strengthening economic policies. This progress is being reflected in an economic recovery that is gathering strength, with real GDP growth last year reaching the highest rate in over a decade.

"The authorities are demonstrating a firm resolve to implement their PRGF arrangement, under difficult financial conditions. The authorities remain committed to achieving the program's overall objectives this year. In this context, the Executive Board supported the authorities' request for waivers and modification of the program's performance criteria.

"Tight control over public expenditure needs to be maintained in the near term to address the overhang of domestic debt, safeguard the fiscal stance against unpredictable aid inflows, and prevent the emergence of new payments arrears, which had been a previous source of social discontent. This should be accompanied by concerted efforts to mobilize more domestic revenue, through a broadening of the tax base and some new tax measures. An increase in the tax revenue ratio is needed, but resources must be augmented by more foreign assistance if the Central African Republic is to make progress toward achieving the Millennium Development Goals.

"An acceleration of growth could be achieved through structural reform aimed at allowing the private sector to flourish. The authorities' focus on reducing the cost of doing business, enhancing governance and combating corruption, and updating legislation in key areas such as forestry and mining is on the right track. Also, this would help to improve the country's international competitiveness, which is critical under the CEMAC region's fixed exchange rate.

"Satisfactory implementation of the authorities' PRGF-supported program has paved the way for the Central African Republic to reach the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The Central African Republic could reach its floating completion point under the Initiative following at least one year's implementation of its Poverty Reduction Strategy (which is to be finalized shortly), continued satisfactory performance under the PRGF-supported program, and implementation of the other HIPC triggers. HIPC debt relief will help the Central African Republic achieve debt sustainability, but it will continue to need foreign assistance on highly concessional terms to finance development. At the completion point, the country would also benefit from the Multilateral Debt Relief," Mr. Portugal said.