CENTRAL Public Disclosure Authorized AFRICAN REPUBLIC ECONOMIC Public Disclosure Authorized UPDATE FOURTH EDITION Investing in Public Disclosure Authorized Human Capital to Protect the Future JULY 2021 Public Disclosure Authorized © 2021 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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TABLE OF CONTENTS Acronyms and Abbreviations —————————————————————— vi Acknowledgments —————————————————————————— vii Key Messages ———————————————————————————— 1 1 Recent Economic Developments and Outlook —————————————— 9 1.1 Recent economic developments: deterioration of key indicators ——————————— 10 1.1.1 CAR’s economic growth decelerated in 2020 —————————————————————— 10 1.1.2 Accommodative monetary policy helped to mitigate the impact of COVID-19 ——————————— 12 1.1.3 The fiscal position deteriorated due to pressures on public expenditure ———————————— 14 1.1.4 COVID-19-related shocks have worsened CAR’s external position —————————————— 17 1.2 Economic outlook and risks: positive growth but highly vulnerable to headwinds ————— 18 1.2.1 CAR’s economic outlook is positive —————————————————————————— 19 1.2.2 Fragile security environment is the main risk to the economic outlook ————————————— 21 2 Investing in Human Capital to Protect the Future ————————————— 23 2.1 Reasons why CAR needs to boost human capital ————————————————— 24 2.1.1 Reducing poverty, creating economic opportunities, and tackling the drivers of fragility ——————— 24 2.1.2 Avoiding a demographic curse ——————————————————————————— 26 2.2 Reasons for the low level of human capital ——————————————————— 29 2.2.1 Significant gaps in all components of the human capital index ———————————————— 29 2.2.2 Public spending has been low, implying high out-of-pocket and inequal service access ——————— 33 2.2.3 Poor service delivery, with significant regional disparities, may feed grievances ————————— 35 2.3 Options to build human capital in CAR ————————————————————— 40 2.3.1 Addressing early childhood development challenges ——————————————————— 40 2.3.2 Focusing on efficient and inclusive service delivery ———————————————————— 44 INVESTING IN HUMAN CAPITAL TO PROTECT THE FUTURE TO PROTECT INVESTING IN HUMAN CAPITAL 2.3.3 Preparing the labor market for the future of work ———————————————————— 47 2.3.4 Minimizing the adverse effects of recurrent conflicts and pandemics on learning ————————— 48 2.3.5 Reinforcing governance and institutions in social sectors —————————————————— 48 2.3.6 Securing domestic revenue to boost human capital accumulation —————————————— 51 2.3.7 Strengthening coordination among technical and financial partners —————————————— 52 3 Bibliography ——————————————————————————— 53 CENTRAL AFRICAN REPUBLIC 4TH CAR ECONOMIC UPDATE: CENTRAL AFRICAN REPUBLIC 4TH CAR ECONOMIC UPDATE: ii Table of Figures Figure 1. The pandemic and renewed insecurity have pushed CAR to a critical inflection point 2 Figure 2. Policy priorities to reduce macroeconomic imbalances and support a strong recovery 3 Figure 3. In 2020, CAR’s annual real GDP growth stagnated and reached its lowest level since 2015 11 Figure 4. A contraction of private consumption and exports led to a stagnation of real GDP growth 11 Figure 5. Price pressures following the blockade of the Bangui-Douala corridor, but inflation remained under control 13 Figure 6. Net foreign exchange reserves have increased 13 Figure 7. CAR’s overall fiscal balance deteriorated in 2020 16 Figure 8. Total government revenues increased in 2020 due to an increase in official grants 16 Figure 9. Public expenditures increased in 2020, driven by capital spending 16 Figure 10. Public debt remains on a declining path, widening the gap with comparators 16 Figure 11. A wider trade deficit contributed to the deterioration of the CAB 17 Figure 12. CAR’s current account deficit in 2020 has been less severe than that of comparator countries 18 Figure 13. CAR’s balance of payments improved as the capital account expanded 18 Figure 14. The pandemic pushed about 70,000 additional people into extreme poverty in 2020 20 Figure 15. Human capital accumulation is strongly associated with increased total factor productivity . 24 Figure 16. and poverty reduction 24 Figure 17. Youth unemployment is strongly associated with fragility 26 Figure 18. The fast-growing number of children in CAR calls investments in human capital 27 Figure 19. CAR has about 35 years to take full advantage of its demographic dividend 27 Figure 20. High youth unemployment is associated with a high number of conflict-related events 28 Figure 21. A high fertility rate, combined with weak demographic policies, can lead to low economic growth and welfare losses 29 TABLE OF CONTENTS TABLE Figure 22. The probability of survival for a child born in CAR has increased but remains below the average of comparators 29 Figure 23. CAR’s under-five mortality rate is among the highest in SSA 30 Figure 24. The gross enrollment ratio is relatively high at the primary level but low at the secondary level 30 iii Figure 25. Education completion rates remain critically low, especially for girls 31 Figure 26. There is a wide gap between CAR and comparator countries in terms of average years of schooling 31 Figure 27. In CAR, 4 out of 10 children under five years old are stunted 31 Figure 28. CAR’s adult survival rate is among the lowest on the continent 33 Figure 29. Less than 1.5 percent of GDP has been spent on education over the two last decades . 34 Figure 30. although education spending a share of government expenditure has increased 34 Figure 31. Public spending on health has increased since 2012 . 34 Figure 32. CAR’s current health expenditure remains below that of comparators 34 Figure 33. Donor financing in the health section has increased significantly over the past years 35 Figure 34. CAR’s STR is very high, especially in Mambere-kadei, Ombella-mpoko, and Haute-kotto 35 Figure 35. There are at least 1 out of 4 children out-of-school in the majority of districts 39 Figure 36. At least 1 out of 3 girls out-of-school in the large majority of districts 39 Figure 37. Difficulties in accessing functional public health facilities 40 Figure 38. Health professional and infrastructure are unequally distributed in CAR 41 Figure 39. Only an average of 38 percent of budgets allocated to social sectors were executed in 2018 49 Table of Tables Table 1. Key policy recommendations to invest in human capital and protect the future 6 INVESTING IN HUMAN CAPITAL TO PROTECT THE FUTURE TO PROTECT INVESTING IN HUMAN CAPITAL Table 2. Investment costs in CAR are higher than in other CEMAC countries 14 Table 3. The lending structure in CAR remains less conducive to long-term investments 14 Table 4. Financial operations of the central government, 2017–2024 15 Table 5. Medium-term macro-fiscal and financial projections, 2017–2024 19 Table 6. Policy priorities to reduce macroeconomic imbalances and support a strong recovery 22 Table 7. Human capital in CAR and comparator countries, 2019 25 Table 8. Key education statistics, 2019 36 Table 9. Supply and demand-side constraints on the utilization of health services in CAR 42 CENTRAL AFRICAN REPUBLIC 4TH CAR ECONOMIC UPDATE: CENTRAL AFRICAN REPUBLIC 4TH CAR ECONOMIC UPDATE: iv Table of Boxes Box 1. BEAC measures to support member countries during the COVID-19 pandemic 13 Box 2. Monitoring of COVID-19-related expenditures 17 Box 3. Investing in human capital to secure a higher growth rate over the next decades 26 Box 4. Population growth and welfare losses in CAR vs. comparators: signs of a demographic curse 28 Box 5. The COVID-19 pandemic threatens to widen the gaps in human capital development in CAR 32 Box 6. Human capital and food security: a two-way relationship 43 Box 7. Tap into the potential of the mobile payment of wages and salaries to tackle regional disparities in human capital accumulation 45 TABLE OF CONTENTS TABLE v ACRONYMS AND ABBREVIATIONS ACS Agents and civil servants Africa CDC Africa Centres for Disease Control and Prevention ANC Antenatal care BEAC Bank of Central African States (Banque des Etats de l’Afrique Centrale, BEAC) CAB Current account balance CAR Central African Republic CEMAC Economic and Monetary Community of Central Africa (Communauté Économique et Monétaire de l’Afrique