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Central African Republic - Staff-Monitored Program (SMP) Summary

Core Content Overview

The Central African Republic (C.A.R.) has requested a 7-month Staff-Monitored Program (SMP) from the IMF, approved on December 17, 2021, to address the economic challenges stemming from the security crisis and the Covid-19 pandemic. The SMP aims to support the government in reforming public financial management, improving fiscal transparency, and domestic revenue mobilization, while also facilitating the resumption of discussions under the Extended Credit Facility (ECF) arrangement in mid-2022.

Main Objectives of the SMP

• Immediate Financing Support: Address short-term liquidity challenges caused by the security crisis and pandemic.
• Policy Implementation: Improve the track record of policy execution and reorient the structural reform agenda.
• Fiscal Reforms: Strengthen tax and customs administration, enhance fiscal transparency, and ensure sustainable financing for high-priority social spending and investments.
• Debt Sustainability: Protect debt sustainability by refraining from disbursing under non-concessional loans and seeking alternative financing.

Key Developments

Security Situation

• The security situation in C.A.R. improved after the Coalition of Patriots for Change (CPC) was repelled in January 2021.
• The trade corridor with Cameroon was reopened, leading to a gradual recovery in economic activity.
• However, localized violence and ongoing instability remain a key risk to the economic outlook.

Economic Impact of the Pandemic

• Covid-19 cases and deaths were low, but vaccination rates remained low due to limited availability and hesitancy.
• The vaccination campaign aims to cover 3 million people (52% of the population) by end-2022, with $25.5 million in grants from the World Bank.
• Budget execution for 2021 was affected by delays in donor disbursements and the postponement of the 2020 budget transfers.

Fiscal Performance

• Domestic revenue exceeded expectations in 2020 due to higher oil prices and economic reopening.
• Domestic primary fiscal deficit was higher than targeted due to increased spending amid the security crisis and election-related costs.
• Public debt was lower than projected at end-2020, but it increased to 48.2% of GDP in 2021 due to reliance on bridge financing from commercial banks.

Structural Reforms

• The e-procedures system for tax declarations and payments is under development but not fully operational.
• The audit of 2020 pandemic-related expenditures was delayed but completed by August 2021.
• The elimination of seven public agencies without economic justification was delayed due to the postponement of the general election but implemented by the end of 2021.
• A draft anti-corruption law was revised with IMF support and is expected to be submitted to Parliament by January 2022.
• The asset declaration law was adopted in October 2021 and promulgated in November 2021.
• A decree on the online publication of procurement contracts above CFAF 10 million was enacted in August 2021.

Outlook and Risks

Economic Outlook

• Growth is expected to decline to 1% in 2021, then rebound to 4% in 2022 and 5% in the medium term, driven by the reopening of the trade corridor and improved security.
• Inflation is projected to fall to 3.5% by year-end 2021, and to less than 3% by 2022, stabilizing around 2.5% in the medium term.

Balance of Payments

• The current account deficit is expected to widen to 101.5% of GDP in 2021, due to the postponement of budget support disbursements.
• The financial account will improve due to the SDR allocation, and the overall balance of payments will be close to equilibrium by the end of 2021.
• Surpluses are projected from 2024 onward as exports recover and official transfers decrease.

Risks

• Downside risks include: reversal of security gains, worsening of the pandemic, slow implementation of reforms, reduced donor support, global supply chain bottlenecks, and higher-than-expected oil prices.
• Upside risks include accelerated reform efforts, renewed peace processes, and lower oil prices.

Debt Sustainability

• The 2020 Debt Service Suspension Initiative (DSSI) and CCRT support helped reduce debt service pressures.
• Public debt remains sustainable under the baseline scenario, but stress tests show sensitivity to export and GDP growth assumptions.
• The debt-to-GDP ratio is projected to remain below the 30% threshold, and the debt-to-exports ratio is expected to fall below the 150% threshold by 2022.

Donor and IMF Support

• The SDR allocation (about CFAF 35 billion) will be on-lent by BEAC to support the budget.
• The new government has committed to an ambitious fiscal reform agenda, which could serve as a foundation for future ECF-supported programs.
• Technical assistance from the IMF and donor countries is critical to ensuring policy implementation and debt sustainability.

Program Modality

• The SMP will allow the government to demonstrate its capacity to implement sound policies and reforms.
• The framework is based on prudent macroeconomic projections, providing flexibility for the government to advance structural reforms.
• The successful implementation of the SMP is a prerequisite for resuming discussions under the ECF-supported program in mid-2022.

Key Stakeholders

• The IMF team included: Martin (Head), Ebeke, Nshimiyimana, Belianska, Pico, and Popescu.
• The Central African Republic authorities engaged with President Touadéra, Prime Minister Dondra, Minister of Finance Ndoba, and other senior officials.
• Development partners and the private sector were also involved in the discussions.

Conclusion

The SMP is a critical tool to support the C.A.R. in overcoming the short-term economic and fiscal challenges posed by the security crisis and pandemic, while also laying the groundwork for long-term fiscal and structural reforms. The successful execution of the program is essential for reengaging with the ECF arrangement and achieving macroeconomic stability and inclusive growth.