Document of The World Bank
Public Disclosure Authorized FOR OFFICIAL USE ONLY
Report No. 47559-CF
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROGRAM DOCUMENT FOR A PROPOSED Public Disclosure Authorized ECONOMIC MANAGEMENT AND GOVERNANCE REFORM GRANT I1
IN THE AMOUNT OF SDR 3.4 MILLION
(US$5 MILLION EQUIVALENT)
TO THE
CENTRAL AFRICAN REPUBLIC Public Disclosure Authorized
March 9,2009
Poverty Reduction and Economic Management 3 Country Department AFCC1 Africa Region Public Disclosure Authorized
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. THE CENTRAL AFRICAN REPUBLIC
GOVERNMENTFISCAL YEAR January 1 - December 3 1
CURRENCYEQUIVALENTS (Exchange Rate Effective as ofJanuary 3 1,2009)
Currency Unit US$l.OO 494.1668 CFAF 1 SDR 1.51123 USD
Weights and Measures Metric System
ABBREVIATIONS AND ACRONYMS
AAA Analytical and Advisory Activities ADB African Development Bank AFD French Development Agency (Agence FranGaise de Dkveloppement) AFLEG Africa Forest Law Enforcement and Governance AFRITAC Africa Regional Technical Assistance Centers ANIF National Financial Investigation Agency (Agence Nationale d 'Investigation FinanciBre) ARMP Agence de RCgulation de MarchCs Publics ASYCUDA Automated System for Customs Data BEAC The Bank ofCentral African States (Banque des Etats de 1 'Afrique Centrale) BIVAC Veritas Office (Bureau Veritas) BONUCA United Nations Peace-building Office in the Central African Republic (Bureau d'appui des Nations hiespour la consolidation de la paix en Ripublique Centrafricaine) CAR Central African Republic CAREP Central Africa Regional Environmental Program CAS DF Forestry Fund CASA Conflict Affected State in Africa CBCA Commercial Bank in Central Africa CEA Country Environmental Assessment CEMAC Central African Economic and Monetary Community (Communaute' Economique Mone'taire de 1 'Afiique Centrale) CEMIFI Financial intervention unit (Cellule Mixte d 'Intervention FinanciBre) CFAA Country Financial Accountability Assessment CICEFD Inter-ministerial Committee in charge ofTax and Customs Duty Exemptions (Comite Interministeriel Charge des Exonerations et Douanieres) CFAF Financial Community ofAfrica Franc (Franc de la Communautk FinanciBre de 1 'Afrique) COSUFIBA Donors' Supervision Committee ofPublic Finance Reform (Comite de Suivi des Finances des Bailleurs) CPIP Country Procurement Issues Paper FOR OFFICIAL USE ONLY
CPS Country Partnership Strategy CRC Comiti de Riflexion sur la Corruption CSR Country Status Report CTP-PAS Technical Committee for Structural Adjustment Programs (Comiti Technique Permanent du Programme d 'Ajustement Structurel) DCPES Economic and Social Policy Framework (Document Cadre de Politique Economique et Sociale) DDR Disarmament, Demobilization and Reintegration DEMPA Debt Management Performance Assessment DGM Directorate ofProcurement (Direction Gdnirale de Marchis) DPO Development Policy Operation DPT Diphteria, Tetanus Toxoids, and Pertussis DRC Democratic Republic of Congo DSA Debt Sustainability Analysis DTIS Diagnostic Trade Integration Study EC European Commission ECOFAC Central Africa Forest Ecosystems (Ecosystemes Forestiers en Afrique Centrale) EGEMAS Enhancing Governance and Economic Management Systems EIB European Investment Bank EITI Extractive Industries Transparency Initiative EMGRG Economic Management and Governance Reform Grant ENERCA Central African Energy Corporation (Energie Centrafricaine) EPCA Emergency Post-Conflict Assistance ESPF Economic and Social Policy Framework ERSP Economic Report Support Program EU European Union FACA National Defense Forces (Forces Armies Centrafricaines) FAD Fiscal Affairs Department (at the IMF) FHMP Forest Harvesting and Management Plans FLEGT Forest Law Enforcement Governance and Trade FOMUC Multinational Force ofCEMAC (Force Multinationale en Centrafrique) GoCAR Government ofthe Central African Republic GDP Gross Domestic Product GFRP Global Food Crisis Response Program GIF Geographic Information System GREBUC Working Group for Budget and Accounting Reforms (Groupe de Riflexion sur les Reformes Budgitaires et Comptables) GTZ German Agency for Technical Cooperation (Deutsche Gesellschaftfu'r Technische Zusammenarbeit) HIPC Highly Indebted Poor Countries HIV/AIDS Human Immunodeficiency Virus/ Acquired Immunodeficiency Syndrome IC Inter-ministerial Committee ICR Implementation Completion Report ICT Information Communication Technology IDA International Development Association IEG Independent Evaluation Group IFAM Integrated Financial and Administrative Management IFC International Finance Corporation
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. IF1 International Financial Institution IFMIS Integrated Financial Management Information System IMF International Monetary Fund ITTO International Tropical Timber Organization IGE General Inspectorate of the State (Inspection Generale de I 'Etat) IGF General Inspectorate ofFinance (Inspection Generale des Finances) JISN Joint Interim Strategy Note LDP Letter ofDevelopment Policy LIC DSA Low Income Country Debt Sustainability Analysis LICUS Low Income Countries under Stress M&E Monitoring and Evaluation MDA Ministries, Departments and Agencies MDG Millennium Development Goal MDRI Multilateral Debt Relief Initiative MINURCART United Nation Mission in Central African Republic and Chad (Mission des Nations Unies en Republique Centrafricaine et Tchaa') MoF Ministry of Finance MTEF Medium-term Expenditure Framework NGO NonGovernmental Organization N-PV Net Present Value OHADA African Organisation for Harmonization ofBusiness Law (Organisation pour I 'Harmonisation en Afrique des Droits des Affaires) OPEC Organization of PetroleumExporting Countries PARPAF Regional Forest management Support Project (Projet d 'Appui Rdgional au Plan d 'Ame'nagement Forestier) PEFA Public Expenditure and Financial Accountability PFM Public Finance Management PRGF Poverty Reduction Grant Facility PRS Poverty Reduction Strategy PRSG Poverty Reduction Support Grant PRSP Poverty Reduction Strategy Paper RIBSUP Reengagement and Institution-Building Support Program SME Small and Medium Enterprises SOCASP Central African Stocking Company of Petroleum Products (Socidtd Centrafricaine de Stockage de Produits Pdtroliers) SOCATEL Central African Telecommunications Company (Socidtd Centrafricaine de Tildcommunications) SODECA National Water Distribution Company (Socidtd de Distribution d 'Eau de Centrafrique) SOGAL Liquid and Gas Company (Socidtd de Gaz et Liquide) SOE State-Owned Enterprise SYDONIA Automated System for Customs Data (SystBme Douanier d 'Information Automatisd) SYSTEMIF Fiscal Information System (Systeme d 'Information Fiscale) TF Trust Fund TIN Taxpayer Identification Number TTM Tropical Timber Market TOFE Financial Table of Government Operations (Tableau d 'Operation Financiere de 1 'Etat) TOR Terms of Reference UK United Kingdom UN United Nations UNCAC United Nations Convention Against Corruption UNDAF United Nations Development Assistance Framework UNDP UnitedNations Development Program UNESCO United Nation Educational Scientific and Cultural Organization UNHCHR United Nations High Commissioner for Human Rights UNICEF United Nations International Children's Emergency Fund USAID United States Agency for International Development VAT Value Added Tax VPA Voluntary Partnership Agreement WFP World Food Program WRT World Resources Institute WWF World Wildlife Fund
Vice President = Obiageli Katryn Ezekwesili Country Director = Mary A. Barton-Dock Sector Director = Sudhir Shetty Sector Manager = Jan Walliser Task Team Leader = Luc Razafimandimby Team members = Bernard Abeille, Eric Bell, HClkne Bertaud, Brigitte Bocoum, Aissatou Diallo, Serge Emenang, Charles Donang, Paul Jonathan Martin, Vincent Fruchart, Victoria Gyllerup, Gerard Kambou, Richard Messick, Janine Mans, Clotilde Ngomba, Peter Osei, Katrina Sharkey, Renaud Seligmann, David Tchuinou, Jean-Baptiste Maude, Paula Joachim White
THE CENTRAL AFRICAN REPUBLIC PROGRAM DOCUMENT FOR A PROPOSED ECONOMIC MANAGEMENT AND GOVERNANCE REFORM GRANT
TABLEOF CONTENTS
I. INTRODUCTION AND OVERVIEW ...... 1 I1. COUNTRY CONTEXT AND THE GOVERNMENT PROGRAM...... 3 A . Political and Security Developments ...... 3 B. Recent Macroeconomic Performance ...... 4 C . Medium-term outlook and Financing Requirement ...... 10 D. Poverty outlook ...... 14 E. The Government PRS and Reform Agenda ...... 16 I11. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM...... 18 A . Link to Joint Interim Strategy Note (JISN) and the forthcoming CPS ...... 18 B. Link with Bank Group Operations ...... 19 IV. THE PROPOSED GRANT ...... 30 A . Operation Description ...... 30 B. Policy Areas ...... 33 V . OPERATION IMPLEMENTATION ...... 49 A . Poverty and Social Impact ...... 49 B. Environmental Aspects ...... 50 C . Implementation, Monitoring, and Evaluation ...... 51 D. Fiduciary Aspects ...... 52 E. Disbursement and Auditing ...... 52 F. Risks and Risk Mitigation ...... 53
LIST OF TABLES Table 1: Main Economic Indicators. 2004-20 11 in units indicated) ...... 5 Table 2: Central Government Operations. 2005-201 1...... 12 Table 3: External Debt Service. 2008-2010 (in US dollars) ...... 13 Table 4: Selected Social Indicators ...... 16 Table 5: Summary ofEMGRG IFollow-On Actions ...... 20 Table 6: Areas of coordination of donors’ Budget supportlexternal aid ...... 24 Table 7: Forest revenue distribution ...... 46 Table 8: Implementation Schedule of the CAR AFLEG system ...... 48
LISTOF FIGURES
Figure 1: Government Revenue ...... 7 Figure 2: Total budget support (US$ millions) ...... 9
i LISTOF BOXES
Box 1: Prior Actions for this Grant Operation ...... 31 Box 2: Good Practice Principles on Conditionality ...... 32 Box 3: Checklist ofKey Actions Required ofGovernnient adhering to the United Nations Convention Against Corruption...... 42
LISTOF ANNEXES
Annex 1: Letter ofDevelopment Policy ...... 56 Annex 2: Operation Policy Matrix...... 73 Annex 3: HPC Completion Point Triggers ...... 78 Annex 4: IDA Activities in the Central African Republic ...... 79 Annex 5: LICUS Trust Funds ...... 81 Annex 6: Fund Relations Note...... 87 Annex 7: Country at a Glance ...... 91 Annex 8: Map ofthe Central African Republic ...... 93
.. 11 GRANT AND PROGRAM SUMMARY
ECONOMICMANAGEMENT AND GOVERNANCE REFORM GRANT11
Borrower Central African Republic Implementing Agency Ministry ofPlanning, Economy and International Cooperation Financing Data IDA Grant Terms: Grant Amount: SDR 3.4 million (US$5 million equivalent) Operation type One tranche MainPolicy Areas The Economic Management and Governance Reform Grant I1 (EMGRG 11) focuses on (i)public finance management, in particular as regards public expenditure management and tax and customs administration and (ii)public sector and economic governance, namely procurement, transparency, fight against corruption, and quality of the regulatory framework in two key economic areas (forestry and mining)). Key Outcomes Indicators (i)Comprehensive reports of Government operations reviewed by external oversight bodies; (ii)Number of Government accounts in commercial banks reduced from 73 to a maximum of 21; (iii)comprehensive review of exemption conventions by the CICEFD and made publicly available, and targeted increase in tax revenues to 8.2 percent of GDP for end-2009; (iv) Contracts awarded using competitive bidding process for investment in the public sector account for at least 70 percent (compared to less than 20 percent currently) and at least 70 percent of cases resolved by Bidders complaint unit; (v) All permits granted in the mining sector use new standard investment agreement as per the new mining Code; (vi) Percentage of forestry tax funds transferred to the communities as per the threshold set by the Law (vii) progress in implementing the AFLEG system in the forestry sector. Program Development The proposed operation sustains and deepens reforms supported by the Objective(s) and predecessor operations (RIBSUP, EMGRG I)and retains the same objective Contribution to CAS which is to (i)enhance transparency and strengthen control of Government operations; (ii)improve revenue mobilization capacity; (iii)improve legal environment for the private sector to engage in provision of goods and services to the public sector; (iv) implement the EITI principles and the new Mining Code and improve governance in the forestry sector.
The Second Economic Management and Governance Reform Grant (EMGRG 11) directly supports two pillars of the CAR PRSP: (i)promoting good governance and the rule of law (pillar 2); (ii)rebuilding and diversifying the economy (pillar 3). The EMGRG I1 is aligned with the Joint Interim Strategy Note (JISN) and the forthcoming overall Bank Strategy outlined in the World Bank Group and AfDB joint strategy for CAR covering FY09-12. The Association's strategy emphasizes the consolidation of state capacity and governance, and the rehabilitation and development of basic socio-economic infrastructure. Risks and Risks The EMGRG has significant, security, political, sustainability, mitigation macroeconomic and institutional capacity risks, This reflects (i)the country's fragile political situation, in particular in view of the consequences of expectations raised by the Political Inclusive Dialogue and the new coalition Government; (ii)and the risks associated with low Government revenue as a
... 111 result of the impact of the financial crisis. As in many conflict affected countries, deterioration in the security situation constitutes an important source of risk for the operation. Likewise, a reversal in the political stabilization process, together with a weakening of ownership over the key measures agreed with the Government, could undermine the development objectives of the operation. To mitigate these risks, the Government has expressed ownership and has demonstrated a credible commitment to reforms through the successful implementation of its program since 2006, the prior actions already carried out, and the commitment to carry out follow-on measures targeting critical areas of economic management and governance. To reduce the risk of weak institutional capacity, the operation focuses on sustaining Government reforms that have started generating positive results and on a limited number of reform areas. The donors have a key role in helping the Government address macroeconomic risks by enhancing harmonization of budget support, in terms of content and timing. There should be greater effort at aligning budget support with the Government budget cycle and financial programming. Although this operation is designed as a one-year-stand-alone budget support, it is embedded in a medium-term dialogue and possible follow-up measures have been identified taking into consideration the need for continuity in the reform program. Operation ID Number P113176
iv CENTRAL AFRICAN REPUBLIC
I. INTRODUCTION AND OVERVIEW
1. This Program Document presents a proposed Economic Management and Governance Reform Grant I1 (EMGRG 11) for the Central African Republic (CAR) in the amount of SDR 3.4 (US$5 million equivalent). This is the third Development Policy Operation (DPO) supporting the Government of the CAR, after its successful reengagement with the donor community in 2006. The proposed Grant is a single-tranche operation supporting the 2009 budget.
2. The operation supports the implementation of the country’s PRSP. The full PRSP describes the Government’s comprehensive strategy for accelerating economic growth and reducing poverty for 2008-2010. The main axes of the PRSP are: (i)restoring security and consolidating peace; (ii)promoting good governance and the rule of law; (iii)rebuilding and diversifying the economy; (iv) and developing human capital. It was adopted by the Government in June 2007 and presented to the donor community and civil society in September 2007.
3. The proposed Grant supports the second and third pillars of the PRSP. Promoting good governance and the rule of law will be supported by efforts to improve public sector and economic governance through enhanced accountability ofthe executive and transparent management of public resources. Public finance efforts aim to align the budget with the PRSP, produce comprehensive fiscal reports, increase the role of external oversight bodies, and strengthen Government’s revenue mobilization capacity. Structural reforms directed at rebuilding the economy aim to establish a legal and regulatory framework conducive to the development of a competitive mining and environmentally sustainable forestry sector, the two sectors being the main sources of foreign exchange earnings and growth for CAR.
4. The Grant is aligned with the main axes of the forthcoming joint IDA-AfDB Country Partnership Strategy (CPS) being finalized and the Joint Interim Strategy Note (JISN). The Association’s strategies identify development policy operations as a key aid modality, which fosters ownership, alignment with the country’s development program, and domestic accountability. Programs supported with DPOs are expected to spur economic recovery and help strengthen public sector governance with reforms spanning public finance management, both from the expenditure and revenue perspectives; and economic governance in key sectors such as management of natural resources.
5. The Grant is being processed under the IDA Financial Crisis Response Fast- Track Facility to help the Government meet urgent financing needs arising from a rapid decline in forestry and mining exports revenues. As a result of the crisis and deteriorating terms of trade, export revenues have decreased by 20.7 percent in 2008 compared to 2007. They are expected to continue their decline in 2009 (-12.3 percent) compared with pre crisis projected growth of 12.5 percent in 2008 and 4.3 percent in
1 2009. In the forestry sector, since November 2008, six companies out ofnine have closed their processing units. As a result of the external shocks and a break-down of electricity supply in mid-2008, growth is estimated at 2.8 percent in 2008, against an initial projection of4.9 percent in May 2008. Although tax revenues for 2008 are likely to come in on target, at 8 percent of GDP, they are projected to be about 1 percent of GDP lower than initially projected in 2009. With most donor financing and HPC and MDRI relief anticipated only for the second half of 2009, the fast-tracking accelerates the delivery of Bank EMGRG I1to finance essential outlays in early 2009.
6. In line with a request by Government, the operation together with other grants would result in 150 percent front-loading of IDA for CAR. The Government has requested (and reaffirmed in the context of consultations on a new CAS) that IDA delivery be accelerated in order to meet urgent needs of the population after re- engagement in 2006. In particular, in addition to this grant, IDA is helping address the power emergency through a Grant approved on February 17, 2009 and is preparing a community development grant intended to support vulnerable population in rural areas. Together, these Grants represent a comprehensive package for sustained Government service delivery, improvements in electricity services, and protection of vulnerable groups. As the country reaches the HIPC completion point and debt relief under MDRI, it is expected that reduced IDA envelopes will be compensated by additional Government fiscal space and close collaboration with other donors.
7. Proceeds of the proposed Grant would provide continued support to consolidate the reforms initiated by the Government with the support of the previous operations: the “Reengagement and Institution Building Support Program Grant” (RIBSUP; FY07) and the Economic Management and Governance Reform Grant (EMGRG I;FY08). Implementation over the course of RIBSUP and the EMGRG Ihas supported reforms in a number ofpriority areas, These include: (i)rationalizing Treasury operations; (ii)improving budget execution procedures, including control; (iii)improving the accounting system with the adoption of budget and accounting nomenclatures; (iv) adopting a unified payroll management system for civil and military personnel; (v) improving tax and customs administration; (vi) strengthening the state’s capacity to fight corruption and enhancing accountability of the executives; (vii) and enhancing transparency and improving the legal and regulatory framework with regard to natural resources - forestry, mining and oil.
8. The proposed Grant is part of an overall package of IDA support for economic management supported by (i)components of a US$6.8 million grant from the Low Income Countries Under Stress (LICUS) Trust Fund, approved in October 2006, to provide, among other areas, capacity-building and technical assistance to enhance governance and economic management systems (EGEMAS); (ii)and a LICUS grant of US$2 million approved in August 2008 (FY08) to provide continued support to public .finance management and governance in key sectors, including the mining and the oil sectors. It complements donors’ support for CAR’S economic reform program.
9. The EMGRG I1 has significant security, political, sustainability, macroeconomic and institutional capacity risks. These risks reflect the country’s
2 fragile security and political situation and the low Government revenues. As in many conflict affected countries, deterioration in the security situation constitutes an important source of risk for the operation. Likewise, a reversal in the political stabilization process, together with a weakening of ownership over the key measures agreed with the Government, could undermine the development objectives of the operation. Mitigating factors are that the Government has expressed ownership and has demonstrated commitment to reforms through their implementation since 2006 and through prior actions already carried out, as well as through the definition of the follow-on measures targeting critical areas of economic management and governance as part of a medium- term vision. To reduce the risk of weak institutional capacity, the operation focuses on sustaining Government reforms that have started generating positive results in a limited number ofreform areas.
11. COUNTRY CONTEXT AND THE GOVERNMENT PROGRAM
A. POLITICAL AND SECURITY DEVELOPMENTS
10. Return to constitutionality in 2005 under the presidency of Mr. BozizC has broken the vicious circle of political instability in CAR. In 2003, a military insurgency headed by General Franqois Bozizb came to power and established a transitional Government. The Government organized a political process including (i)the organization of a national dialogue in September 2003, bringing together all the political parties and civil society organizations; (ii)the adoption via a referendum of a constitution in December 2004; (iii)and the holding of legislative and presidential elections in March and May 2005. Successful elections provided an opportunity for the Government to initiate security sector and political reforms.
11. CAR is currently at a crossroads with the formation of a coalition Government following the Internal Dialogue and the peace process with rebels and the opposition. Three years after free and fair presidential and legislative elections, CAR’S political situation has considerably improved. A coalition Government including representatives of the opposition was formed in midJanuary 2009 as a result of the inclusive political dialogue that took place in December 2008. The National Dialogue, a meeting of all political actors (opposition, social, political and rebel groups) was held in Bangui in December 2008 with representatives of the Government, opposition, civil society and rebel groups participating in the Dialogue in an atmosphere of appeasement. Such initiatives followed-on (i)the cease-fire agreement with the main rebel group and peace accords between the Government and the Opposition launched in June 2008, (ii) and the promulgation of amnesty to all opponents and rebels, making it possible for broad-based dialogue to be held in-country, and reducing security risks arising from political conflict.
12. However, the security situation remains fragile. A UN 2008 report noted that the security situation has markedly improved. Nevertheless, banditry remains a concern in certain rural regions, particularly the Bangui-Cameroon corridor. The regional
3 environment had also been marked by conflict -the Kivu in Democratic Republic of Congo, Chad, and Darfur in Sudan - which had aggravated the difficulties encountered by the defense and security forces. Despite the deployment of the EU Darfur force, the situation in Eastern Chad was reported to have further deteriorated in the first semester of 2008. The CAR still lacks defense and security forces capable of ensuring security within the country, largely reflecting an ageing, poorly trained army and a shortage of financial resources in the face of large needs.
13. Stepped-up efforts aimed at restoring peace and security in CAR have been made by the international community. The UN Security Council approved the deployment of some 5,500 United Nations peacekeepers on January 15, 2009 to replace European troops in strife-tom areas ofChad and Central African Republic (CAR) until 15 March 2010. The UN Mission in CAR and Chad (MINURCAT) is scheduled to take over from the European Force on 15 March, 2009. Northern CAR has been affected by a spill- over from the Darfur conflict as well as by other armed groups. In its resolution, the UN Security Council stressed that the multidimensional presence in Chad and military presence in the CAR are intended to help create the security conditions conducive to a voluntary, secure and sustainable return of refugees and displaced persons, by boosting security protection, facilitating the provision of humanitarian aid, and promoting reconstruction and economic and social development. This initiative follows on security reforms with support from donors including the United Nations Office for Consolidation of the Peace in Central Africa (BONUCA), France, and the regional forces, Forces Multinationale de la CEMAC (FOMUC). The Association is also assisting CAR by including in the broad PFM work the security sector. Proposed activities are based on the Association’s comparative advantage and mandate to assist the CAR’S Government in identifying areas for improvement to strengthen financial management and budgetary processes and to minimize leakages in CAR’S security sector and agencies. The Association also provides support for enhanced communication channels between the central Government in Bangui and the population throughout the national territory.
B. RECENTMACROECONOMIC PERFORMANCE
14. Since 2004, economic recovery has been gaining momentum as the country has started to recover from the long political instability (Table 1). Real GDP per capita saw positive growth rates since 2005 and further accelerated since 2006, with an average real growth of 4 percent in 2006-07. Investment increased from 6.8 percent of GDP in 2006 to 9.9 percent in 2007, and is estimated to have reached 11.1 percent of GDP in 2008. Private investment almost doubled (4.0 percent of GDP to a projected 7.2 percent of GDP) over the same period. In terms of sectoral economic growth, the economic recovery has been mainly driven by developments in the mining, forestry and merchant services, in particular, telecommunications and transport. In the tertiary sector, telecommunications and transport have been booming, with an average growth of 7-8 percent, driven respectively by investment in cellular phones (three companies have been created since 2006) and economic and trade resumption. In the secondary sector, growth in manufacturing (6 percent on average between 2006 and 2008) has been sustained by higher demand and consumption partly driven by regular payment ofpublic salaries. The contribution of the primary sector has been uneven and variable. With a contribution to
4 GDP of55 percent over the past years, agriculture grew at an average rate of 3.5 percent. Poor infrastructure, insecurity in rural areas, lack of adequate extension services, and declining perfonnance of cash crops (coffee and cotton) as a result of declining international prices are the factors accounting for relatively low growth in agriculture.
Table 1: Main Economic Indicators, 2004-2011
Nominal GDP (CFAF bn) 670.7 712.1 772.2 820.6 882.3 943.3 1011.0 1087.0 Gross investment rate (% of GDP) 6.8 9.8 10.1 9.9 10.2 10.9 14.2 14.4 . . ..Private Investment 4.0 4.5 5.2 6.1 7.1 5.7 7.9 8.2 Source: UIF.
15. Despite improving growth prospects, CAR’S economy is fragile and vulnerable, and it lacks diversification. CAR is a small economy with small domestic savings and significant import constraints. It is characterized by structural weaknesses
5 pointing to much needed diversification of the economy. Economic growth is based mainly on the mining, forestry, and telecommunications sectors - and mining and forestry account for more than 90 percent of CAR’S exports. CAR being a landlocked country, lack of infrastructure to connect the different parts of the country and to link the country to external markets, has constrained growth in the agricultural sector. Investment in manufacturing remains low due to concerns about security. CAR’Sutility companies, including electricity and water, are state-owned, and have deteriorated due to lack of maintenance and investment, as a result of poor management. As a result, CAR’S economic performance is extremely vulnerable, with potential important setbacks to growth in case ofshocks.
16. CAR’s economy has been affected by the changing international environment and a number of shocks over the course of 2008, with important setbacks to growth, estimated at 2.8 percent. First, the recent breakdown at the main hydro power plant with concomitant power outages impacted negatively on the economy. Second, similar to the situation in neighboring countries, timber activities, including production and exports, have sharply declined as a result of the global economic slowdown. A year-on-year comparison shows that timber export volume has decreased by 20 percent compared to 2007. In the forestry sector, since November 2008, six companies out ofnine have closed their processing units. This situation has led to the lay- off of 1,335 employees and a decline in wages by 28 percent in the sector’. Third, diamond activities are being affected by declining prices and the closing of eight of the existing eleven purchasing offices in October. These companies had not complied with the national regulations. Small artisanal mines are closing, and larger mines have started reducing investment programs and production. Growth in the diamond sector has dropped from 10.3 percent in 2007 to -10.7 percent in 2008. Lastly, food and oil price hikes in the first semester of2008 lowered real incomes and reduced effective demand.
17. Since 2006, CAR has a PRGF program with the IMF, which has remained on track. CAR completed the third review of the PRGF arrangement on December 22, 2008 (see Annex 6).2 The regional monetary arrangements and monetary policy of the regional central bank BEAC have kept inflation low within the regional performance, averaging 3.5 percent between 2005 and 2007, with a pronounced decrease to 0.9 percent in 2007. However, the compound effect ofhigher food and oil prices in the first semester of 2008 has led to temporarily higher inflation in 2008, which is projected at almost 9 percent.
18. There has been sustained progress in domestic revenue mobilization. However, CAR’ s tax revenue remains low - even by Sub-Saharan African standards - at a mere 8 percent of GDP in 2008, the highest level since 2003 (Figure l).3Domestic revenue has increased from 8 percent to 10 percent of GDP between 2004
~ 80 percent oftimber products are exported. Sources: Government Assessment ofthe Impact ofthe Financial Crisis (CAR, Dec, 2008) In December 2006 the CAR’s PRGF was approved by the IMF for an amount equivalent to about US$56.4 million to support the Government’s economic program into 2009. There was a reclassification ofrevenues in 2007 which lowered reported tax revenues by almost 1 percent of GDP. Properly measured tax revenues increased in 2007.
6 and 2008. Despite the impact of the global economic slowdown and increased expenditures prompted by the need for addressing the power outages and the impact of the food and energy price shocks on the population, domestic primary balance has remained positive (0.6 percent of GDP in 2008), sustaining performance over the past years, and breaking a long tradition of deficits (as high as 3.5 percent of GDP in 2005). Tax revenue increased from 7.2 percent of GDP to 8 percent of GDP between 2007 and 2008.
Figure 1: Government Revenue (Percentage of GDP)
2004 2005 2006 2007 2008
Source: IMF.
19. Domestic revenue remains largely insufficient to meet development needs. Averaging 13.5 percent between 2006 and 2008, public expenditures are constrained by low domestic revenue, in particular domestically financed investment which has averaged 1 percent of GDP. As a result, the current provision ofpublic goods remains insufficient to support growth and poverty reduction. In addition, expenditures had to be compressed further over recent years to respond flexibly and quickly to shocks in ordert to meet fiscal targets while complying with debt service obligations after re-engagement with the international community.
20. For years the timely payment of public sector salaries has been an issue in the CAR. Although salaries and wages in the public sector have declined over recent years and represented 4.2 percent of GDP in 2008 (in line with other countries in West and Central Africa), they represent slightly less than half ofcurrent primary expenditures. Cash flow pressures have frequently resulted in nonpayment of salaries. In addition, the salary grid has not been changed and civil servants did not receive promotion adjustments over the last 23 years, during which several Governments accumulated substantial arrears. Since the last regime change in 2003, the Government initially accumulated several months of salary arrears that have since then been reduced to four months. The Government has also incorporated eleven years of salary adjustments from the initial salary base for civil servants in the 2009 budget. However, four quarters of pension
7 arrears have not been addressed yet. Public salaries and wages have become a source of social and political tension leading to pressure from public sector employees calling for a rise in salaries associated with frequent and renewed threats of general strike. For instance, a delay in the payment of public salaries in December 2007 led to demonstrations and a public sector strike, and eventually a change in Government in January 2008.
21. In the meantime, the Government is addressing civil service reform under the HIPC program with measures aimed at adopting a satisfactory new organic framework as well as new rules and regulations for civil servants and a corresponding compensation and performance system. The weight and size ofpublic salaries and wages in the budget is not consistent with the quality and quantity of public services delivered so far. In response, the Government is undertaking large medium-term reforms aimed at addressing the burden of public wages in the budget as well as the quality ofpublic services delivered by the Government. The main objective of this reform program is to revise the civil service statute through the definition of a management system based on clear job descriptions for various positions, and the redeployment of civil servants to positions based on their individual profiles, consistent with overall staffing needs. It follows an important step taken to establish an integrated payroll management system that has allowed for dismissal of ghost workers and more transparent management of salaries and wages.
22. Large outstanding arrears represent a further constraint on Government’s resources. The Government of CAR has a stock of domestic arrears amounting to an estimated 11.8 percent of GDP in 2008 (CFAF104 billion) largely due to political and economic instability prior to 2003. In addition to unpaid salaries and pensions, outstanding arrears include those to private suppliers. To maintain social stability, the Government has made considerable efforts to repay arrears totaling CFAF23 billion since 2006, equivalent to 0.7 percent of GDP in 2007 and 0.6 of GDP in 2008 (est), including salaries and arrears to suppliers. The Government has adopted an action plan to settle arrears, the implementation of which is expected to start in 2009.
23. Lastly, to overcome recurrent cash shortages, CAR has been using lines of credit and credit facilities with commercial banks that carry high annual interest rate charges, in excess of 18 percent. The Government’s debt service to commercial banks amounted approximately to US$10 million in 2008. Not only are interest payments high, but the Government’s ability to manage liquidity is also affected negatively as commercial banks deduct due debt payments directly from Government accounts held in commercial banks.
24. This substantial fiscal challenge is accentuated by fluctuating and declining grant disbursements made by the donor community. Donor financing has remained low, with grants dropping from 13.3 percent of GDP in 2006 to 4.1 percent of GDP in 2007 and 3.5 percent of GDP in 2008.4 Budget support declined in 2008 (1.2 percent of GDP or US$28 million in 2008) compared to 2007 (1.6 percent of GDP or approximately
Budget support declined in 2008, from US$45.3 million in 2007 to US$26.8 million.
8 US$30 million). This limited external support left the Government frequently focused on day-to-day cash management and severely constrained the Government’s ability to show tangible results to the population from the re-engagement with the donor community. Despite significant efforts by Government to stabilize both the political and economic situation, the country remains a “donor orphan” with limited presence by the international donor community and a narrow base ofsupport.
Figure 2: Total budget support (US$ millions)
160 140 120 100 80 60 40 20 0 2004 2005 2006 2007 2008
Note: Sources: IMF; World Bank estimates
25. CAR’s external position has been adversely affected by high degree of vulnerability. As timber and diamonds account for 90 percent of exports, developments in these two products largely determine export perf~rmance.~Declining timber and diamond prices, and most importantly the impact of the global economic slowdown - through significant drop in timber demand - have aggravated the current account deficit. The compound effect oflower export values and higher imports driven by higher food an oil prices in the first semester of 2008, as well as lower transfers have caused the current account deficit to grow from 3 ercent of GDP in 2006 to 6.1 percent of GDP in 2007 and 8.7 percent ofGDP in 2008.g
26. The CAR reached the HIPC Decision Point in September 2007, following the completion of the Poverty Reduction Strategy and a satisfactory macroeconomic performance under the PRGF pr~gram.~The reduction ofthe CAR’SNPV ofdebt-to- exports ratio from 470 percent in 2006 to 150 percent implies a common reduction factor of 68 percent. The CAR is receiving interim HIPC relief from several multilateral
Wood product exports account for nearly half ofmerchandise exports. As a member of the CEMAC, CAR has only a notional share of the regional reserves, and regional reserve levels, which were comforted by rising oil prices, are more than adequate. 7 The CAR’s public-and publicly-guaranteed external debt was estimated at US$l.l billion in nominal terms as of end-December 2006, equivalent to about US$ 856 million in NPV terms and 470 percent of exports of goods and services. Multilateral debt accounted for 63 percent of the total debt, bilateral creditors accounted for 32 percent, with the remainder of the external debt stock accounted for by commercial creditors. Based on proportional burden sharing, multilateral debt relief would amount to . US365 million and bilateral and commercial debt relief to US218 million.
9 creditors under Cologne terms (i.e. 90 percent debt cancellation) and Paris Club creditors are providing a debt service moratorium until 2009.
c. MEDIUM-TERMOUTLOOK AND FINANCINGREQUIREMENT
27. The macroeconomic projections underlying this Grant deviate from the PRGF projections presented to the IMF’s Board in December 2008 and reflect the latest update, as outlined in the IMF assessment letter (Annex 6). These projections can be seen as conservative as they incorporate anticipated revenue shortfalls in 2009 but not yet additional policy measures. Additional policy measures affecting revenue, spending and expenditure savings (i.e,, on petroleum subsidies) may be identified during the next PRGF review, giving confidence that the Government would have room to face additional downside risks.
28. Growth projections point to a growth rate as low as 3 percent in 2009 despite expected restoration of electricity supply, improved security, and positive impact of donor-financed projects, particularly in infrastructure (Table 1). The main drivers of the growth slowdown in 2009 are lower forestry and mining related outputs. Preliminary estimates point to a likelihood of a continued decline of timber exports until mid-2009. Sluggish market conditions are likely to last according to ITTO Tropical Timber Market (TTM) as forecasts for the economic situation in the UK and Continental Europe show low or no growth for the next 12 to 24 months. Prompt upturn in the consumption of timber and timber products in the short or medium term is unlikely. Investment in mining would be affected by lower activities due to the closing of the purchasing offices. There has been no indication of a credit crunch: the prudential ratios show that the financial system remains stable, with some excess liquidity. None of the commercial banks have reported that their connections with parent banks have been affected by the crisis. There have been no reports of outflows ofportfolio investment and resident capital so far.
29. Growth is projected to average 4.2 percent in the medium-term (2009-2011) under the revised projections. Growth in the medium-term would be driven by a strong rebound ofthe mining sector (13 percent growth over 2009-201 1) and to a lesser extent, a resumption of forestry activities (5 percent growth), as well as continued growth in telecommunications and transport (9 percent growth) and construction (7 percent). Under the projections, agriculture will grow at a sustained rate of 5 percent from 2010. Achieving sustained medium-term growth relies on a number of assumptions, including the continuation of key policy changes. First, security would be improved. Second, there would be greater public spending projected to rise from 13.8 of GDP in 2008 to 17.6 percent of GDP by 2011 to sustain investment in key sectors, with public investment increasing from 3 percent of GDP to 6.3 percent of GDP, of which a doubling of domestically financed investment. To enhance the expected impact of higher spending, the Government would need to focus on aligning the budget with policy priorities, improve budget execution and enhance transparency and accountability. Third, there would be faster implementation of donor-financed projects in electricity, roads, telecommunications, and key sectors. These inputs are crucial for restoring growth in key
10 sectors such as agriculture and trade. Fouvth, Government cash flow must be sufficient to meet wage payments to avoid public sector strikes and to sustain internal demand. Lastly, decisive domestic reforms to increase private sector investment would be sustained, including governance reforms in the mining and forestry sectors and improvement in the business climate (including policies aimed at keeping continued increase in credit to the private sector and employment gains in industrial and service sector^).^ Private investment would increase from 7.1 percent ofGDP (est.) in 2008 to 8.2 percent, a twofold increase compared to 2004.
30. A key factor resides in CAR’s ability to achieve the projected tax revenue level (9.4 percent of GDP) and domestic revenue (11.4 percent of GDP) by 2011 (Table 1). As a result of the crisis, tax revenue is projected to fall drastically by about US$18 million in 2009 against initial projections. In order to meet the Government’s target oftax revenue as a share of GDP, the Government’s strategy is to broaden the tax base, strengthen tax exemption management and control, intensify audits of large taxpayers, improve tax collection through better information management, and rationalize taxes in the petroleum sector. ‘
31. CAR’s development and fiscal challenges may lead to worsening deficit (Table 2) Given higher expenditures to support growth, domestic debt payment (including debt to commercial banks, salaries, pensions, and supplier arrears), and the projected revenue losses in 2009, the Government’s overall deficit would double between 2008 and 2009. Domestic primary balance would be - 0.8 percent of GDP in 2009 and remain negative until 2011 (-0.2 percent of GDP), reversing the trends over the past years.
32. The deficit would be financed through a shift toward less costly sources of domestic borrowing (Table 2). Due to CAR’S improving tax performance, the Government can resume borrowing from the BEAC and also plans to access regional bonds, not exceeding about 1 percent of GDP (US$20 million). However, the terms and volumes CAR may raise on regional bond markets are uncertain. The Government should therefore continue to seek concessional external financing to help it in reducing its domestic debt, clearing arrears, and creating needed fiscal space. It should also be noted that although it implies interest savings compared to domestic bank debt, such an approach would increase rollover risk.
33. On the external front, the medium-term outlook would remain largely unchanged (Table 1). The current-account deficit is expected to remain somewhat high until 201 1 (9 percent of GDP) reflecting the impact of the crisis and to some degree the country’s renewed ability to attract foreign savings (debt relief, aid, foreign investments)
In particular, current donors support to rehabilitate the Boali power stations (IDA and France); the regional backbone project to ensure reliable and cheaper technology in CAR (IDA), road projects to link the Port of Douala to main cities and the latter to the interior land (IDA, EC and AfDB); the EC growth pole project to support the development of potential sources of growth in various regions. According to the latest statistics from the COBAC, credit to the private sector - mostly short-term loans and limited to large enterprises - has increased by 17.3 percent between 2007 and 2008 compared to 0.1 between 2004 and 2005.
11 to finance the current account deficit. The deficit on the services account is forecast to remain high as a result of import-related services and high transport costs. The income account will also remain in deficit due to interest payments on its external debt. Despite rising surplus on the current transfers due to donors' assistance, deficits on both these accounts would not be offset.
Table 2: Central Government Operations, 2005-201 1 (in CFAF billions) 2005 2006 2007 2008 2009 2010 2011 Est. Proj Proj Proj Overall fiscal balance Excluding grants -61.8 -33.8 -20.6 -29.7 -59.9 -65.3 -69.4 Of which: domestic primary balance ' -25.3 3.3 9.0 5.0 -7.9 -2.4 -2.5 Including grants -32.4 69.1 12.8 1.5 -13.8 -12.6 -24.0
Change in arrears (net; negative sign indicates 26.9 -50.2 -11.0 -10.5 -7.0 -15.0 -10.0 reduction) Domestic 9.4 -9.7 -8.6 -10.5 -7.0 -15.0 -10.0 External 17.5 -40.5 -2.4 0.0 0.0 0.0 0.0
Overall balance, cash basis -5.5 18.9 1.8 -9.0 -20.8 -27.6 -34.0
Identified financing 5.5 -8.8 0.7 23.3 20.8 27.6 34.0 External; net -4.5 -12.9 -9.5 5.8 7.8 4.4 7.8 Project loans 3.2 3.0 0.0 0.0 0.0 0.0 10.9 Program loans 4.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortization due -11.8 -15.9 -12.4 -11.3 -12.0 -25.2 -25.3 Exceptional financing 0.0 0.0 2.9 17.1 19.8 29.6 22.2 Paris Club 0.0 0.0 1.5 1.0 1.1 1.4 0.9 Other 0.0 0.0 1.4 16.1 18.7 28.3 21.3 Change in external arrears ...... Domestic, net 10.0 4.1 10.2 17.4 13.1 23.2 26.2 Banking system 10.0 4.1 10.2 13.9 6.6 -5.4 -4.6 Counterpart to IMF resources (through -2.6 2.2 2.4 6.8 4.4 -1.2 -0.6 BEAC) Central Bank 10.2 -2.3 6.8 -1.3 5.2 0.0 -0.9 Commercial Banks 2.4 4.2 1.0 8.4 -3.0 -4.2 -3.2 Bonds ...... 0.0 0.0 16.0 -3.2 Nonbank 0.0 0.0 0.0 3.5 6.5 28.6 30.9 Errors and omissions 0.0 -10.1 -2.5 14.3 0.0 0.0 0.0 Residual financing need 0.0 0.0 0.0 0.0 0.0 0.0 0.0
1/ Excludes grants, interest payments, and externally financed capital expenditure. 2/ Figures for 2006 reflect the arrears clearance by The Association and the AfDB (CFAF 47.5 billion) and the multilateral creditors (CFAF 6.9 billion). 3/ Reflects Paris Club rescheduling and moratorium agreement in April 2007. 4/ Includes HIPC debt relief from multilateral and other bilateral creditors. For 2008-09, also includes debt services to non-Paris Club and commercial creditors.
34. The external debt indicators show that CAR faces a high risk of debt distress but full delivery of HIPC and MDFU would allow much faster up-front reduction of debt ratios. A Low Income Country Debt Sustainability Analysis (LIC DSA) performed in December 2008 shows that all debt indicators are significantly above the relevant policy-dependent indicative thresholds in the initial years and the NPV of debt-to-export
12 ratio is projected to stay above the relevant threshold until 2018." These ratios are projected to gradually decline over time assuming a prudent fiscal stance is maintained and most new borrowing is on concessional terms. Such vulnerability underscores the importance of a stable socio-political environment and sound policies to support a sustained improvement in economic performance;
Table 3: External Debt Service, 2008-2010 (in US dollars) 2008 2009 2010 Multilateral 14,4 13.3 3.6 IDA 4.3 0.8 AfDF 1.3 1.4 IMF 0.8 0.5 Other2/ 7.0 0.9 Paris Club3/ 1.9 Non-Paris Club 10,2 4.6 Commercial2/ 2.7 0.6 Total 32,4 26.8 10.8 Note: Includes MDRl debt relief. 21 Debt service to these creditors are subject to on-going negotiations 31 The Paris Club granted CAR a 2-year moratoriumperiod assumed to be the iterim period Source: World Bank HIPC Unit, IMF.
35. In addition to the domestic fiscal challenges, external debt service obligations will still represent a significant source of outflows, even after HIPC CP (Table 3). Debt service actually paid by the country substantially increased even during the interim period. This is a result of the reengagement of the CAR with the international financial community, and also reflects a modest common reduction factor and frontloading of interim HPC debt relief in 2007. In 2009, assumed to be the final year of the interim period, CAR is expected to pay on a timely basis US$26.8 million. In the case of the Association, these payments consist of an amount of US$4.3 million. Debt service payments are expected to fall to approximately US$10 million after the CAR attains HPC Completion Point, including MDRI debt relief. This is in contrast to the situation prior to re-engagement with the donor community, when the country made virtually no debt service payments, except to the IMF.
36. In conclusion, significant fiscal challenges - as a result of weak although improving revenue mobilization capacity, the impact of the global economic slowdown, debt service obligations, and the need for meeting key development spending - highlight the need for increased and predictable budget support from donors. Much needed external assistance, in form of grants, is expected to increase to 4.9 percent of GDP in 2009, driven by investment projects. Preliminary indication points to a continued decline of budget support as a share of GDP, from 1.2 percent in 2008 to 1.1 percent in 2009 and 0.5 percent in later years. In total, budget support in 2009 would represent approximately US$22 million. The Association will provide a US$5 million budget support under this operation in the first semester of 2009. Tentatively, other support includes a Euro 2
loThe scenario assumes that CAR reaches the completion point under the HIPC Initiative during 2009. In this case, the NPV of debt-to-export ratio would be reduced to 125 percent in 2008 and reach below the threshold ( 100 percent) by 20 13.
13 million grant from France to be disbursed in the same period and a Euros 1 1.1 million from grant the EC to be disbursed in the second semester, including the Emergency Response to the Food Crisis of Euros 4.6 million and Euros 5.5 million as part of the regular budget support program.
37. Declining budget support requires, not only enhanced harmonization of donors' program, but also improved coordination of disbursement schedule around Government's budget and financial programming. In 2009, especially during the period preceding HIPC completion point, timing would need to be aligned with Government's needs to avoid similar problems to those in 2008 when CAR experienced great difficulties in meeting external debt services, prompting the Association to process an Emergency grant of US$2 million in the first quarter of 2008." The 2009 quarterly distributions from Government sources (TOFE) show that there would be a gap of about US$5 million (excluding payment of domestic arrears) in the first semester of 2009 preceding the HIPC completion point. To ensure early availability of external financing in 2009, this grant is being processed under the IDA Financial Crisis Response Fast- Track Facility.
38. In the interim, the Government continues to implement measures to improve liquidity management through a Liquidity Committee chaired by the President with participation of the BEAC and line ministries to rationalize cash management. It is also engaged in a program aimed at strengthening the control of the Treasury over Government operations, including the closing of accounts held in commercial banks and the transfer ofbalance to a single treasury account.
D. POVERTY OUTLOOK
39. Household survey data, collected with the support of the UNDP, estimate that 67.2 percent of the population lived below the poverty line in 2003.12 The national average hides important differences, with poverty particularly widespread in rural areas, at 71.7 percent, which accounts for 62 percent of the population. Poverty rates are highest in regions in which armed conflict has been most violent and lowest in the capital, which has the best social infrastructure and highest economic activity. Since the survey was conducted, the Government estimates that national poverty declined to 64.4 percent in 2006. According to the Poverty Participatory Analysis (2007)13, the three main causes of poverty are (i)poor governance, with the main complaint being the abuse of power by state officials; (ii)problems associated with insecurity or lack ofpeace, which
11 Several obligations towards IDA and the African Development Bank (AfDB) could only be serviced with delay as the Government has been facing recurrent cash shortages during the first semester of 2008. Early disbursement of the IDA budget support in May 2008 and additional support from other donors donors (EC, AfDB) in the second semester of 2008 helped the Government stay current with salary payments and external debt payment obligations from May 2008 onwards l2 This is based on a monetary definition of poverty, where the national poverty line is equal to CFAF156,079 (US$3 12) per year per adult equivalent. 13 The qualitative Participatory Poverty Analysis (PPA) undertaken in early 2007 aimed to gather public opinion on perceptions of poverty.
14 are connected to recent conflict^'^, but also reflect a deterioration in economic opportunities that have led to the proliferation of urban banditry and extortion at road blocks, even in areas not directly affected by violent conflict; and (iii)low incomes. These concerns are reflected in the Government’s PRSP.
40. Social indicators place the CAR among the least developed countries of the world (Table 4). The 2007/2008 UNDP Human Development Report ranks the CAR near the bottom of its Human Development Index (1 7 1’‘ out of 177 countries). This trend is reflected in several health indicators: life expectancy has fallen from 44.8 years in 2000 to 43.7 years in 2005; the HIV/AIDS prevalence rate, at 6.2 percent for the 15-49 age group in 2005, is high although considerably below the double-digit rates found in a number of southern African countries; maternal and infant mortality rates have increased over time. Current policies aim to refurbish sanitation infrastructure, increase the availability and quality of basic health care, reduce infant and maternal mortality, and fight diseases (including malaria, tuberculosis and HIV/AIDS). Some encouraging results have already been recorded. For example, the immunization program has led to a surge in the overall national immunization rate for DPT3 to 80 percent, despite security problems.
41. The situation in the education sector is also bleak (Table 4). Over a prolonged period, disinvestment has taken place, resulting in the cancellation of school years, shortages in human resources due to inadequate recruitment and salaries, a glaring lack of material resources, and a serious deterioration in education efficiency indicators. In 2004/05, one child out of four had never attended school, only 31 percent of children enrolled in primary school completed primary education and repetition is rate high; only 62 percent of those who completed primary education when they were young are literate today (compared with 70 percent on average in other African countries). With donors’ assistance, the Government has prepared an education status report to identify constraints for the reconstruction of the education system. It is now developing a strategy, including quantifying and allocating the resources required, with a view to achieving the goal of primary education for all.” In December 2008, CAR was granted US$ 37.78 million financing under the Fast Track Initiative for Education.
42. Other social indicators are also poor. Only 7.6 percent of the population uses electricity as a source of lighting. Finally, gender disparities are high, and the CAR is ranked only 153 out of 177 countries in 2007 in terms of the gender-specific human development index.
l4 Years of conflict have displaced a large proportion of the rural population and destroyed important economic and social infrastructure. 15 With regards to health, the Government validated a policy instrument, the Plan Pluriannuel Complet du Programme Elargi de Vaccination en RCA 2007-2011 (PPAC), which aims to expand the level of vaccination among infants in all districts. In education, the Government developed the “Plan National d’Action de 1’Education Pour Tous” in 2003. The Ministry of Education with support from IDA and the P81e de Dakar (UNESCO) elaborated an Education Country Status Report (CSR) in March 2007. A sector- wide (including education, vocational training and literacy) financial simulation model is being finalized for elaborating a credible scenario oflong-term development ofthe education sector (2006-2020).
15 43. As a result of these trends, the CAR is unlikely to achieve its MDGs by 2015. The public sector’s contribution to the provision of basic social services is limited and inequitable, which adds to the vulnerability of the poor population, while the private sector is not equipped to fill the gaps in the provision ofthese basic social services.16 In its PRSP, the Government estimated the incidence of poverty over 2006-2010 under two scenarios. Under the prudent scenario, national poverty will decline only modestly, from an estimated 64.4 percent in 2006 to 61.3 percent in 2010. The dynamic scenario projects a much steeper fall in poverty, to 56.8 percent, as a result ofhigher economic growth and a steep rise in public expenditure for the social sectors, infiastructure, and rural development. However, the underlying macroeconomic assumptions of this scenario are unlikely to be met in practice.
Table 4: Selected Social Indicators
Central African Sub-Saharan Low-income indicator Republic Africa average country average Population (in millions, mid-2005) 11 4.0 743.1 2352.4 Population growth (in percent, 1998-2005) 1.5 2.4 1.9 Gross national income per capita (US$, 2005) 350.0 746.1 585.4 Life Expectancy (years, 2005) 39.4 46.7 58.9 Infant mortality rate (per thousand, 2005) 115.0 96.3 75.1 Access to an improved water source 75.0 56.2 75.1 (percent of population, 2004) HIV/AIDS: Estimated prevalence rates (in percent, 2006) By gender:
Male 4.3 ... I.. Female 7.8 ...... By age group: 15-49 6.2 5.9 ... Immunization rate (percent of children ages 12-23 months; 2000-2005) Measles 35.0 63.6 65.0 DPT 2/ 40.0 64.8 65.8 Child malnutrition (percent under 5 years; 2000-2004) 24.0 29.0 39.0 Net primary enrollment rate (percent of age group; 1990-1995) Total 52.0 64.0 79.0 Of which: Male 63.0 68.0 82.0 Female 41.0 60.0 75.0
Sources: World Bank (Economic and Social Indicators, C.A.R. 2006 MDG Report. World Development Indicators), IMF UNICEF and UNAIDS. Report on the global AIDS epidemic 2006.
I/Population figures refer to the region, not the average. 2/ In 2008, this ratio has increased to more than 80 percent for the C.A.R
E. THEGOVERNMENT PRS AND REFORM AGENDA
44. Prepared in a participatory manner, the Poverty Reduction Strategy Paper (PRSP) was adopted by Government in June 2007 and was well received by the
l6 For example, the poorest 20 percent of households benefit from only 8 percent ofpublic expenditure on primary education; implicit subsidies for public utilities (water and electricity) are not pro-poor; in addition, while private andor community education provision has increased sharply in the last few years, the quality is generally poor and more than 40 percent of teachers are community teachers, untrained and hired directly by families.
16 community of donors. A number of specialized committees and technical groups have led the PRSP process since its inception, and preparation for the PRSP included substantial consultations with all stakeholders at the central, regional, and local levels in the seven regions.
45. The operationalization of the PRSP monitoring evaluation framework has been slow. An institutional framework has been created by a Prime Ministerial note in March 2008 to oversee the PRSP implementation, involving (i)a National Strategic Committee under the leadership of the Prime Minister, in charge of the strategic orientation and policies, (ii)the National Technical Committee in charge of producing a synthesized analysis ofprogress made and identified obstacles; (iii)the National Sectoral Committees in charge of coordinating the regional Committees and transmitting aggregated data to the National Technical Committee; and (iv) the Regional Committees responsible for collecting the data and recording achievements in each region, and reporting to the National Sectoral Committees. Inputs feeding into the elements required to carry out a proper evaluation of the PRSP include a series of surveys to be completed (household, agricultural survey, employment, health and education). Operationalizing the above framework will require significant resources. With IDA support, monitoring and evaluation matrices have been elaborated during the course of the year in collaboration with the National Technical and Sectoral Committees. A draft Annual Report on the PRSP Implementation is being finalized, which highlights the most important achievements over the course of2008.
46. A mid-term review of the PRSP implementation shows that (i) donors’ funding has been responsive to the PRSP needs in 2008, and several key activities have been implemented. As of November 15, 2008, US$755 million have been mobilized to finance the PRSP activities for the 2008-2010 period, of which US$408 million in 2008. The PRSP has four strategic pillars: (i)restore security, consolidate peace and prevent conflict; (ii)promote good governance and the rule of law; (iii)rebuild and diversify the economy; (iv) and develop human capital.
47. Pillar 1. Restore security, consolidate peace and prevent conflict. The Political Dialogue that took place in Bangui in December, preceded by peace accords and cease- fire agreements, has been the most important achievement in 2008. Although security remains a challenge, the Government has reduced the level of road banditry by dismantling 25 illegal barriers and setting up 96 legal barriers control by the army.
48. Pillar 2. Promote good governance and the rule of law. There has been significant progress in this area with: (i)the adoption and the operationalization of the new Procurement Code; (ii)the operationalization of the pennanent anti-corruption Committee with support from development partners for the implementation of its pluri- annual action plan (France, UNDP, IDA). As a result of the work of this unit, a network of corrupt agents has been dismantled in the Tax Directorate and CAR is now participating in, and committed to, the UN Convention for the fight against corruption.
49. Pillar 3. Rebuild and diversify the economy. Several activities spanning key sectors have been recorded. In agriculture, the Etats Generuux of Agriculture has been
17 completed; support to households has been provided to increase productivity through programs aimed at distributing inputs and equipments. In mining, CAR is an official EITI candidate and an audit of the sector has been completed to inform future reforms. In Forestry, a new Code has been adopted with assistance from development partners. In Infrastructure, four main road axes have been rehabilitated, totaling 1092 km, including access to the port ofDouala.
50. Pillar 4. Develop human capital. Actions aimed at achieving the Pillar four’s objectives include: in Education,-measures to increase enrollment rate in primary schools, including recruitment of 850 teachers and training of 450 teachers; distribution of approximately 4,500 school kits. CAR has been granted access to a US$ 38 million grant to support the EFA-FTI programs. In HIT-AIDS, access to testing, care and treatment centers has been enlarged with the creation of thirteen (13) new care units, the upgrade and equipping of care units in seven “prefectures. The Government has also made considerable effort to increase spending in key sectors in the 2008 budget. The share of Health, Education, Social Affairs, and Agriculture in the budget has increased from 25.7 percent to 32 percent between 2007 and 2008, and the increase is more pronounced for Health and Social Affairs which increased respectively from 8 percent to 12 percent and from 1 percent to 3 percent.
111. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM
A. LINKTO JOINT INTERIM STRATEGY NOTE(JISN) AND THE FORTHCOMING CPS
51. The Association Group (WBG - IDA, IFC and MIGA) and the AfDB have agreed to produce a joint Country Partnership Strategy (CPS) for CAR covering FYO9-12, in close collaboration with other partners. The CPS follows on the Association and the African Development Bank (AfDB) Joint Interim Strategy Note (JISN), outlining support to the CAR for 18 months (FY07-08). Implementation of the JISN by the Association, the AfDB and the Government was generally satisfactory, in large part due to positive collaboration among all parties, effective application of principles of comparative advantage, and consistent rapid response to emerging crisis.17
l7Key features of the JISN include helping the CAR: (i)resolve its arrears to the two institutions, and to multilateral development partners more generally, in order to restore substantial external support to the country; (ii)begin benefiting from debt relief through access to the HIPC and Multilateral Debt Relief (MDRI) initiatives as early as possible; and (iii)address urgent needs on the ground, notably by rebuilding minimal effectiveness of the Government to set and execute policy and deliver services. Outcomes and outputs achieved : (i)clearance ofexternal arrears to multilateral creditors; (ii)control ofcash advances for non-salary recurrent expenditures; (iii)adoption of an action plan based on an institutional assessment of the mining sector and initiating the EITI process; (iv) reinsertion of 7500 ex-combatants ; (v) strengthening communities and other relevant stakeholders’ ability to play a role in the preparation and implementation of the PRSP; and (vi) recourse to counseling and voluntary HIV test. Outcomes to be achieved by the end June 2009: (i)adoption ofstandard investment agreement in the mining sector; (ii)implementation of de 80 micros projects ; (iii)implementation ofpublic works in suburban areas ofBangui; and (iv) reaching HIPC
18 52. Aligned with the JISN, the EMGRG I1 supports Government’s objectives, which are to spur economic recovery and strengthen public sector governance spanning public finance management, both from the expenditure and revenue perspectives, economic governance in key sectors such forestry, and mining. The JISN also explicitly identifies budget support as a key aid modality, fostering ownership, alignment with the country’s development program, and domestic accountability. Budget support for a country like the CAR is critical to ensure that the Government has the financial maneuvering space to implementing a policy reform package that aims to reduce fiduciary risk and enhance transparency and governance, This is vital in order to mobilize the external donor community to step up aid commitments, particularly in light of the impact of the financial crisis and the financial difficulties over the past year.
53. Proposed areas for WBG engagement through the 2009-2012 joint CPS will continue to be fine-tuned over the coming months during discussions with the Government, civil society organizations, and development partners. Proposed objective of the 2009-2012 CPS is to promote strong economic growth and employment, through two main axes: (i)consolidation of state capacities and economic governance; (ii)and rehabilitation and development of basic socio-economic infrastructure, in particular energy, agriculture and rural development.
B. LINKWITH BANKGROUP OPERATIONS
54. Reengagement and Institution-Building Support Program (RIBSUP). The EMGRG I1builds on the achievements of the RIBSUP which closed on November 30, 2007. It was the first IDA financed operation in CAR since the country went into arrears in 2001. The main objective ‘of RIBSUP was to set the stage for a meaningful reengagement of the donor community in a sustainable way and to assist CAR in its economic and social recovery underpinned by the Government’s Economic and Social Policy Framework (ESPF). RIBSUP was assessed by IEG as satisfactorily achieving the ‘ stated objectives.
55. Economic Management and Governance Reforms Program I (EMGRG I). The EMGRG I1 also builds on the EMGRG Ireforms and aim to deepen reforms in public finance management and governance to achieve the medium-long-term objectives in public finance management and public sector and economic governance. The operation was approved in May 2008 and as of December 2008 the Government has advance significantly with the underlying program (Table 5).
completion point . Outcomes to be achieved by 2010-201 1: reduction of time for traveling between Douala and Bangui.
19 Table 5: Summary of EMGRG IFollow-On Actions
Follow-on action as spelled out in EMGRG I Status Production ofquarterly budget execution reports On track. Following the adoption of new budget from commitment to authorization for education, execution procedures, including the adoption of health, agriculture, equipmenthansport ministries new computerized system in the Directorate of Budget, tracking of expenditures has been improved with the release of quarterly budget report from commitment to payment for key sectors to the PRSP (education, health, equipment and infrastructure, and agriculture). That of the third quarter has been produced with delay. Submission of 2008 budget execution law to the On track. On the basis of the production of Parliament budget execution report, the 2008 Execution Law is on track. An international expert has been hired under the LICUS TF to assist CAR’S experts in this task. Inclusion ofa budget line in the 2009 budget for Met. The budget for 2009 incorporates arrears payment of Government arrears to ENERCA, payment (10 percent of2007) td utility companies. SODECA, SOCATEL. In addition, the budget has full provision for utility consumption for 2009, which is a benchmark for the IMF-PRGF program. Propose a list ofaccounts in commercial banks to Met. A list of73 accounts in commercial banks be closed and transferred to a Treasury account has been audited by the IGF. Accounts with under the control ofthe Directorate ofthe negative balance have been endorsed by the Treasury within a defined timeline based on an Government. Fifty-two accounts have been closed audit by IGF ofexisting Government bank as ofDecember 2008. A closing schedule ofthe accounts held in commercial banks followed by an accounts has been adopted by a ministerial note. independent reviewlaudit ofaccounts with negative balance Domestic arrears audit vetted by the authorities for Met. Domestic debt between 2005 and 2007 has 2005,2006 and 2007 been vetted and incorporated in the Government accounts. Production ofGovernment accounts for 2008 On track. International experts to assist CAR in this task have been hired. Over the course of2008, the Treasury has uploaded expenditure data on a regular basis. The 2008 Government accounts are hexpected to be submitted to the Court ofAccounts by June 2009.
Met. Six thousand (6,350) new taxpayers have and ASYCUDA on the basis ofthe results ofthe been identified by the survey. The data base of national taxpayers survey taxpayers at the level oftax Directorate has been updated. Met. Transfer ofcustoms revenue to the BEAC is effective. Install networked systems between the tax and Being finalized. Networking ofcustoms and tax customs directorates and the pre inspection Directorate was completed. Networking ofthese company operating in CAR two entities with the pre inspection company is being hampered by the distance between the location ofthe pre inspection company and both Directorates. A solution is being worked out but
20 Follow-on action as spelled out in EMGRG I Status in the meantime, data are now transferred to customs and tax directorate on a regular basis. Production and dissemination ofan anti-conuption On track. A draft anti-comption strategy is being strategy finalized under UNDP assistance. Production and dissemination of an annual On track. A pluri-annual program has been program ofthe anti-conuption Committee and finalized under assistance ofUNDP and circulated annual reports summarizing the efforts of the to development partners. The anti-cormption Government to be presented to the National Committee plans to present its annual activities to Assembly Parliament in the March-June 2009sessions. Issue a decree concerning asset disclosure by Met. A decree governing declaration ofassets has Government members, including sanctions and been issued. It includes provisions on sanctions verification mechanism; specify a standard format for defaulters and verification mechanisms, and a and guidelines for submissions. standard format to be used by users. The format has been used in the most recent declarations by high ranking officials. Enhance transparency in the area ofpublicly On track. The capacity ofthe Government’s available information, by increasing information website is being upgraded to allow for loading key available in the Government’s website information and documents
Nomination ofmembers ofthe new Direction Met. Members ofthe DGM and ARMP have been Gdndrale de Marchds (DGM) and the Agence de nominated by presidential decree. These key Rdgulation de la Passation des Marches (ARMP) entities have been allocated adequate budget allocation in the budget 2009 Production ofmanuals ofprocedures and standard Met. The SDB and OM have been finalized and bidding documents shared with development partners Operationalize the procurement departments Met. The staff of these units have been selected within four key ministries (education, health, and will work under the authority ofthe DGM. agriculture, and public works) Review compliance with new procurement Carried over to EMGRG 11. Noprocurement procedures via a post-procurement review activities under the new Code have been recorded in 2008. The compliance review was rescheduled for 2009, therefore this measure will be sustained inthe EMGRGII. Redress VAT cross-liabilities between the State On track. A convention between the Ministry of and operators in the forestry sector and re-establish Finance on behalf ofthe Government and the regular payment ofall fiscal obligations to be paid private the sector is being finalized, stipulating the by operators compensation mechanism to be implemented
Establish downstream petroleum legislation, including rules and regulations, in conformity with On track. The experts have been recruited. The international best practice revision ofthe texts governing the sector is under wav.
56. Low-Income Countries Under Stress (LICUS) Trust Fund. Since 2004 three projects, financed from the LICUS Trust Fund, totaling US$13.2 million have supported technical assistance capacity building, the PRSP process, reforms in Public Finance Management, forestry, mining, and public administration and civil service reforms. In particular, the LICUS I1TF has allowed for carrying out: (i)the audit ofthe Treasury, (ii) the audit of the mining sector, (iii)tax and customs administration reforms including the audit of the fiscal system in the forestry sector, the reconciliation of the VAT base between the BEAC and customs, (iv) and the creation of a unified payroll management
21 system. A March 2008 LICUS project supported the implementation of social services by protecting salary payments of civil servants during a period of severe cash constraints in March-April 2008 until further external resources could be mobilized. The LICUS I11 TF sustains technical assistance to support the implementation of the HIPC triggers related to the modernization of the public administration, the implementation of the EITI, and the revision of the mining code. Annex 5 provides details ofthe activities financed by LICUS Trust Funds that are relevant to and related to this budget support operation.
57. Supporting Stabilization Through Improved Accountability (US$ 50,000). This TF proposes to use funds set aside under the CAR’S LICUS I1 envelope for stability and security to strengthen these reforms by broadening the scope of the PFM work in CAR to include targeted and carefully defined analysis of the security sector. The proposed activity is based on the Association’s comparative advantages and mandate to assist the CAR’S Government in identifying areas for improvement to strengthen financial management and budgetary processes and to minimize leakages in CAR’S security sector and agencies. A Public Financial Management Review of the Security Sector will be based on the PFM Performance Measurement Framework. As such, the main objectives of the review will be to conduct a careful analysis of security sector expenditures related to (i)predictability and control in budget execution, (ii)accounting, recording and reporting, (iii)external scrutiny and audit, (iv) budget comprehensiveness and transparency, (v) and policy-based budgeting. In order to ensure concrete gains, and based on the findings of the PFM review, the component will finance training activities for civilian and military personnel geared toward improving financial management practices in the security sector. Areas of intervention could include, inter alia: budget preparation, budget tracking, fiscal sustainability, public oversight, and transparency and accountability.
5 8. Another sub-component seeks to improve State accountability through enhancing the communication channels between the central Government in Bangui and the population throughout the national territory. This activity therefore proposes to rehabilitate the country’s primary link between Bangui and the rest of the country - the radio - by strengthening the national radio’s rural presence and its capabilities for national broadcasting. These efforts will complement ongoing transparency efforts under LICUS 11, as well as upcoming IDA-financed Local Development Project
59. CEMAC Transport and Transit Facilitation project. This project aims to secure access to landlocked countries, enhance regional integration and increase trade in the CEMAC countries. It consists ofthree sub-components: (i)roads and rail investment; (ii)investment in facilitation, inter-modal platforms and port efficiency; (iii)and support to customs reforms and institutional support to policy improvements. CAR Component of the project funded by IDA (US$24 million) mainly consists of a contribution to the paving of the Douala-Bangui link, as well as support to road maintenance, customs reform, and transport policy design.
60. CEMAC Africa Backbone. This project aims to support population, businesses and Governments across the Central African region to have access to quality and affordable ICT services by lowering the cost of international broadband capacity, and
22 extending the reach the ofbackbone networks. It is also expected to improve Government efficiency and transparency through the development of eGovemment applications. A US$45 million regional investment project will in the first phase cover Cameroon, CAR and Chad.
61. Emergency Response to the Food crisis. This US$7 million project financed from the GFRP TF as part of a comprehensive response includes two main components. The first component is a Food Access program aimed at (i)implementing safety net programs to financehbsidize public works or cash/food-for-work for small subprojects prepared with communities and civil-society organizations addressing emergency needs such as rural water supply systems and drainage; (ii)and coordinating school feeding programs with WFP and targeting students from vulnerable households in urban and rural areas, including Pigmy areas. The second component consists of enhancing food production and marketing and addresses supply-side issues by financing import of seeds, vegetable material, and agricultural inputs and supporting critical agricultural advice; and investment in improved logistics (e.g., storage, transport, other infrastructure).
62. Emergency Energy Project. The total cost of the project is US$8 million. The project aims to (i)rehabilitate Boali hydropower generation. Implementation of this subcomponent is coordinated with AFD which participate in the power generation program; (ii)purchase and install about 20,000 pre-paid meters to improve collection and prevent waste ofenergy; (iii)introduce efficient lightening device to reduce peak demand through Fluorescent Lamp Program and other Energy Saving Measures to accrue both to the consumers (increased availability of power supply at peak hours, reduced power bills . and much longer life of light bulbs) and to the country (reduced fuel consumption and avoided investments for peak load capacity); (iv) and implement a loss Reduction Program through an action plan to reduce nontechnical power losses, technical assistance and training for the power loss reduction program, and support for institutional reform and strengthening.
63. In addition to its direct link to the predecessor operations (RIBSUP and EMGRG I)and the LICUS Trust Funded activities, the proposed Grant is integrated into the Association’s overall portfolio (Annex 5) including investment projects, and economic and sector work (ESW). The IFC’s Conflict Affected States in Africa (CASA) and Ventures Programs support investment climate reforms and the local SME sector. As of June 30, 2008, IFC has no committed portfolio in CAR, but recently posted a Representative in Bangui, whose main duties are to: (i)help improve the country’s business environment and investment climate; (ii)build institutional capacity in regulatory bodies to enable reforms and re-assure investors; (iii)help local financial intermediaries to develop products for the SME sector; (iv) and develop capital markets in Central Afkica.
23 c.RELATIONS WITH IMF AND OTHER DONORS
64. A limited number of key donors are active in the CAR. The EC, the IMF, France and the UNDP are providing support in a number of areas, including public finance management, justice sector reforms, and governance.
65. The proposed operation has been elaborated within close consultation with the donor community active in ,the CAR. There has been extensive consultation with the donor community, in particular the AfDB, ‘EC, France, the IMF and the UNDP, to ensure better coordination and harmonization among donor supported reform programs. The AfDB has prepared its October 2008 budget support operation based on a jointly- prepared reform program matrix, and supervision of the reform program by both institutions has been done in a coordinated fashion. The IMF and The Association also coordinate closely measures aimed at improving public finance management. By contrast, other budget support donors continue to use their own conditionality framework despite the Association’s efforts to develop a common and hlly harmonized multi-year framework for this and the predecessor operation. Efforts are currently underway with the creation of a donor committee on PFM (COSUFABI) to harmonize donors’ program (Table 6). Coordination of proper sequencing aligned with Government’s needs and the budget cycle also represents an area ofimprovement.
Table 6: Areas of coordination of donors’ Budget support/external aid
IDA - EMGRG I(on-going) IMF AfDB EC (2009) and/or EMGR I1(2009-10) 2008-09 2008-09 Cash management X X Settlement of X X X X
Tax and customs 1 X X X
66. The IMF Executive Board approved a PRGF supported program in December 2006, with the goal of economic recovery and maintaining macroeconomic stability. The third review was completed on December 22, 2008. The core program reforms include: (i)enhancing public resource mobilization and efficiency of spending; (ii)improving
24 liquidity management and increasing the financial sector’s contribution to growth; (iii) and improving the business and investment environment. The periodic assessment of CAR’S macroeconomic performance by the Fund serves as a key input for dialogue on policies related to macroeconomic stability and for ensuring timely payment of salaries and external debt servicing. The IMF and IDA are coordinating closely reforms in Public Finance Management and jointly supervise the HIPC process.
67. The AfDB has been actively providing budget support to the Government of the CAR to implement the country’s 2007-2008 Economic Report Support Program (ERSP). Aside from the current harmonization of support to the Government program, the AfDB is providing technical assistance in the area ofmining, in particular with the EITI process, debt and data management, as well as developing capacities to design, implement, and monitor investment projects. Lastly, as noted above, the Association and AfDB are preparing ajoint Country Partnership Strategy to be completed by mid 2009.
68. EC AREMIF project. This project supports (i)the upgrade of the budget and the production of the new Chart of Account, (ii)the strengthening of the internal control system (Directorate of Financial Control and the General Inspectorate of the State - IGF), (iii)reforms in customs departments, in particular the computerization of customs database and the strengthening of the capacity of customs agents. EC technical assistance is also provided to support the ethical code in customs; (iv) reforms in justice, in particular the drafting of the sector strategy, the strengthening of various units and the ministry’s personnel, and the improvements of prisoners’ conditions; (v) and procurement reforms.
69. EC Forestry Projects. The EC supports the forestry sector in CAR through regional conservation programs. The Central Africa Forest Ecosystems (ECOFAC) which started in the early 1990s aims at ensuring, in the long term, the preservation and sustainable management of natural resources in the Congo Basin area. The EC also supports a regional wildlife conservation program that focuses on endemic species such as gorillas and elephant. The objective of the EC/WWF project, which was effective in April 2008, is to reduce poverty among the indigenous people living around and within the Dzanga-Sangha protected area. Lastly, the EC is supporting CAR’S access to the AFLEG system and recently co-organized a national workshop with the Government in Bangui with the participation ofall relevant stakeholders.
70. UNDP. In public expenditure management, the UNDP has organized a series of training aiming to strengthen budget preparation, especially the capacity of staffs in the Ministry of Planning and other line ministries (education, public works, health, agriculture) to design a medium-term expenditure framework (MTEF) in line with the PRSP objectives. In the area of tax administration, the UNDP has completed a comprehensive tax-survey which allowed for expanding the tax base, and reforms in public administration and civil service. The UNDP also finances the revision of the National Investment Charter and has active programs in the areas of governance and justice. In the area of governance, the UNDP is financing technical assistance to support the Government in its efforts to finalize an anticorruption strategy. It also helped finalized and operationalize the asset disclosure program.
25 71. France has a number of long-term experts working in the Ministry of Finance (ARCAGE project) providing technical assistance to the staff of the Directorates of Budget and Treasury. The, quarterly budget reports produced by the authorities have relied on the use of a computerized system installed at the level of the Directorate of Budget. As of December 2008, the link between the Directorate of Budget and Treasury had not yet been achieved. The Treasury has used homegrown software to produce accounts for Government operations. France is now supporting the rolling out of the Integrated Financial Management Information System (IFMIS) at the central level. A ministerial decision has been issued in this regard, In forestry, the objective of the PARPAF project is to help the forestry administration in the preparation of Forest Management Plans for sustainable harvesting within the areas allocated to holders of logging permits. The project whose second 4-year phase started in 2006, aims at setting the stage for sustainable forest management in the productive forest, in a way that can perpetuate the economic as well as the ecological functions of forests ecosystems. In energy, AFD is coordinating closely with the Association to rehabilitate the Boali power generation.
72. GTZ. The German cooperation ongoing support to the forest focuses on the protection of biodiversity and forest ecosystems in the Dzangha - Sangha reserve located in the western part ofthe country, on the Congo Brazzaville border. It also helps to fund a participatory forest management project and to pilot a community development project in Lobaye in the south and Ouham in the North ofthe country.
D. ANALYTICALUNDERPINNINGS
73. Country Financial Accountability Assessment (CFAA) and the Public Expenditure and Financial Accountability (PEFA). The CFAA was finalized in October 2007. This report identified a series of deficiencies and shortcomings in the CAR’S public financial management system. It includes a global action plan of recommendations on the legal and institutional framework, budget and expenditures management, and customs and tax administration. The PEFA exercise (FY08) pointed to weaknesses in financial accountability arrangements in the public sector, including the absence of budget execution reports and reliable Execution Law and Government accounts incorporating extra-budgetary expenditures and donor financing. The PEFA underscores the need for redressing weaknesses in the accounting system and the need for exhaustive and harmonized accounting and budget nomenclatures. Lastly, the PEFA emphasizes the need for a forward-looking budget to support in a sustained manner policy priorities spelled out in the PRSP. The public finance management policy areas included in the EMGRG I1 are those identified as critical by the CFAA and the PEFA including initiating MTEF in key sectors, better control of the Treasury over Government operations and resources through, inter alia, the adoption of exhaustive accounting nomenclatures to be followed by an harmonization with the budget nomenclatures, and continued reduction ofaccounts held in commercial banks.
26 74. Diagnostic Trade Integration Study (DTIS). The Diagnostic Trade Integration Study (DTIS; FY07) examines the constraints to regional and international trade integration. It identifies the dire situation of the country's public finances, in particular the low level of tax revenues as one ofthe significant problems that affect the country's competitiveness through its impact on infrastructure. The continued deterioration in the social sectors has likewise led to an erosion of the CAR's human capital, compromising the situation for future generations. The EMGRG I1 explicitly focuses on the need to improve capacity ofthe Government to mobilize domestic revenue, through improved tax administration, especially improvements in tax and customs management through the alignment of the National and Regional Investment Charters as recommended by the DTIS.
75. Debt Management Performance Assessment (DEMPA). The CAR is among the first countries selected for this debt management technical assistance. It is a technical assistance which aims to strengthen capacity and institutions to manage Government debt in an effective and sustainable manner, by assessing performance through a comprehensive set ofperformance indicators spanning the full range ofGovernment debt management functions. The DEMPA exercise provided a baseline of debt management performance indicators, on which the country's future debt management performance will be assessed. It is a valuable tool which assists the Government in improving debt management capacity which is particularly important in a country with history of external debt arrears.
76. Country Procurement Issues Paper (CPIP). A CPIP was completed in April 2006. It includes an assessment ofthe country's public procurement system and proposes an action plan to improve and align procurement processes with internationally- recognized standards." Actions recommended in the CPIP include the adoption of a new procurement code with regulations for standard bidding documents and guides, and the establishment of new procurement institutions. Now that the new Procurement Code is adopted and key entities are in place, the EMGRG I1 supports the Government's efforts to operationalize the new procurement procedures, mainly by strengthening the legal framework to provide incentives to the private sector to participate in public biddings, among the benefits ofwhich are lower unit costs and preventive measures against abuses and vested interests.
77. Anti-corruption surveys and reports. Since 2005, the UNDP has been actively supporting the Government of the CAR in its efforts to fight corruption. In this regard, and in collaboration with Transparency International, UNDP published (i)a report on the findings of a household and company survey on the perception and causes of corruption; (ii)and a study on c~rruption.'~The survey found that among private sector managers, corruption is .considered the second most pressing development priority, after security
18 CAR's procurement system had last been assessed in February 2003, with financing from the EC. This earlier assessment had recommended the need for significant reforms given the extent of the problems uncovered. A draft procurement code was prepared, but was not adopted as many institutions, including the Ministry ofEquipment and Transport, believed it was not adapted to national circumstances. UNDP and Transparency International, Enqugte sur la corruption aupris des me'nages et des entrepreneurs (Decembre 2005); Etude Sur le Systdrne Nationale d 'Zntegrite' (December 2006).
27 concerns, and is a top development priority among households. The corruption study analyzed the level of corruption, its causes and consequences, and made a series of recommendations. Among the factors identified as contributing to the existing level of corruption was the absence of a national anti-corruption strategy and a culture of tolerance vis-&vis corruption. One of the main recommendations made by the study is the ratification ofthe UN Convention against Corruption, (UNCAC), which was done in October 2006. The EMGRG I1 will support the implementation of some of the key recommendations ofthe report aimed at accelerating CAR’S adherence to the UNCAC.
78. Forestry sector assessment. The Government carried out a forestry sector assessment in 2004 to update information in the forestry sector and understand the poor performance of the sector. This study recommended the need for ensuring that all permits are associated with management plans, transparent allocation ofpermits, and the adoption of new regulations aiming at promoting sustainable forest management, which is now being incorporated in the new forestry Code. Another study was launched in 2007 to assess the efficiency of the tax collection system, compliance of private operators with the national tax regulations, and the distribution and use ofrevenues from the sector to all relevant entities, including communities. The initial findings of that study suggest that there is room for improvement to ensure transparency and competition in the system of allocation of timber harvesting rights. Likewise, the tax collection and management systems could be improved. The reform program supported by the EMGRG I1 will help the Government to sustain performance of the forestry sector by providing incentives to the private sector and secure access to international markets in the near future by initiating adherence to the AFLEG system which also helps combat illegal timber exploitation.
79. To develop analytical inputs for environment and natural resource management policy reform program, the Association has worked with the Government, development partners and civil society organizations to prepare a Country Environmental Analysis (CEA). The CEA will consist of three elements, focusing on (i)the costs and principal sources of environmental degradation, (ii)institutional capacity for environmental management, (iii)and priority sectors in which to strengthen policies, build institutions and invest for sustainable growth. The priority sectors addressed in the CEA were identified by the Government in collaboration with development partners and civil society stakeholders.
80. Mining Sector Review. CAR has abundant natural resources including strategic minerals such as uranium and high-value minerals such as diamond and gold. An assessment of mining sector operations in CAR was recently conducted by the Association. This study confirmed the need for strengthening capacity at all levels. First and foremost, the study concludes that improvements are needed on the regulatory framework surrounding mining activities. Indeed, the current mining law, associated regulations and licensing practices were assessed as non favorable to both investors and the country. Second, fiscal instruments are no longer adequate given mounting challenges caused by increased investor interest and investment in the mining sector in CAR over the past years. Third, the study identified major institutional bottlenecks impeding the smooth functioning of mining sector operations and leading to a propensity to encourage
28 smuggling, marginal revenue gains for the Government and lack of transparency by major actors including small-scale miners, mining police and buying houses in the country. These weaknesses are being addressed in the new Code under preparation. Lastly, the Government has demonstrated a strong will to improve transparency in the mining sector with a first noticeable step being CAR’S recent admission as an EITI Candidate Country. The EMGRG I1 supports the recommendations of the mining sector study by suspending issuance of new licenses before the adoption ofthe new Code, and supporting the use ofnew forms ofstandard agreements for the sector.
E. Lessons Learned
8 1. In a context of scarce resources, a Development Policy Operation is an effective way ofaddressing a range ofissues critical for Government effectiveness. It helps set the stage for medium-term reforms. However, the operation should be focused and sequenced with a reasonable milestone framework. In the case of CAR, predecessor operations have contributed to progress in governance of forestry and mining sectors, as well as in strengthening procurement and public finance management. The previous DPOs have also been instrumental in ensuring continued support from other development partners.
82. Sustaining external financing support in fragile/post conflict countries, aligning disbursement with the budget cycle, in particular HIPC countries, and close dialogue are critical to ensure effective financial support and continued efforts to sustain reforms. During the interim period of HIPC, CAR has been dependent on timely and predictable delivery of support, particularly early in the fiscal year. Had the Association not disbursed the LICUS project to support payment of salaries in the social sector, CAR would have been in a difficult financial situation, which could have disrupted the pace of reforms and led to arrears. Close dialogue, reinforced through field presence and use of videoconferences have been used to work with Government to identify critical measures supported by the Association, preferably already under a predecessor operation (even if operations were not formally treated as programmatic). This, in turn, has assured sustained implementationwith predictable disbursement cycles.
83. Government capacity needs to be significantly enhanced to sustain the implementation of the reform program. Reforms need to be backed-up by pre identified sources of financing to maximize the chance for full success. With regards to the EMGRG I, the key reason for the significant progress in meeting the development objectives, was the availability of LICUS I1 and LICUS I11 resources (see Annex 5). Six months after the EMGRG Iwas approved, most of the agreed follow-on measures have been met.
84. Donor coordination is a key piece ofthe success. The Association and AfDB have coordinated their budget operations under the EMGRG I using the same matrix of reforms. AfDB’s prior actions were a sub-set ofthe Association’s follow-on actions. This has allowed the Government to move the EMGRG Igovernance and PFM agenda forward swiftly. Therefore, the Association will continue promote further harmonization ofdonors’ programs.
29 IV. THE PROPOSED GRANT
A. OPERATIONDESCRIPTION
85. Development objectives. This operation directly supports two pillars of the CAR PRSP: (i)promoting good governance and the rule of law (pillar 2); and (ii)rebuilding and diversifying the economy (pillar 3). The objective of the Economic Management and Governance Reform Grant I1 (EMGRG 11) is to sustain and deepen reforms supported by the predecessor operations (RIBSUP, EMGRG I).The proposed grant focuses on two main policy areas: (i)strengthening public finance management; and (ii)improving public sector and economic governance. Pubic finance management is understood as public expenditure management and tax and customs administration. Public sector governance is understood as procurement, transparency and fight against corruption. Economic governance is understood as transparency and the quality of the regulatory framework in two key areas (forestry and mining).
86. Benefits.This single tranche IDA financing will strengthen the institutional infi-astructure needed to improve the public sector’s capacity to carry out its role more effectively and support growth by (i)enhancing transparency and strengthening control of Government operations, (ii)improving revenue mobilization capacity; (iii)improving the legal environment for the private sector to engage in provision of goods and services to the public sector; (iv) ensuring the implementation of the EITI principles and new Mining Code dispositions; and (v) improving governance in the forestry sector. In particular it is expected to lead to (i)the review ofcomprehensive reports of Government operations by external oversight bodies; (ii)a reduction of number of Government accounts in commercial banks from 73 to a maximum of 21; (iii)an upgrade of the master file database ofthe tax and customs administration; (iv) comprehensive review of exemption conventions; (v) review of awarding of contracts (for at least 70 percent compared to less than 20 percent currently) using competitive bidding process for investment in the public sector and resolution of at least 70 percent of cases by Bidders complaint unit; (vi) granting of all permits in the mining sector using new standard investment agreement as per the new mining Code; (vii) transfer of forestry tax funds to the communities as per the threshold set by the Law; and (viii) and progress in implementing the AFLEG system in the forestry sector. The funds provided under the EMGRG I1will also provide resources to contribute to the response to revenue losses as a result ofthe financial crisis. In addition, the proposed reform program is expected to lead to improvements in PFM and governance that should enhance the credibility of the Government’s program and thus help attract more donor support, in particular budget support
87. Prior actions. The Association is supporting the Government in its efforts to implement its public finance and governance reform program, following assurances that it is committed to carry on with the implementation of these reforms. Box 1 provides a summary of the prior actions that the Government has already undertaken to implement the program supported by this grant operation.
30 BOX1: Prior Actions for this Grant Operation I A. Improve the Efficiency of Public Finance Management
Prior action 1. The Government has adopted by decision (Arrete) of the Minister of Finance a revised and more comprehensive accounting nomenclature in line with the OHADA standard
Prior action 2. The Government has increased the budget allocation for the Court ofAccounts by at least 100 percent and by decision ofthe Minister ofFinance designated the President ofthe Court ofAccounts as budget administrator.
Prior action 3. The Ministry of Finance has requested by an official letter that fifty-two (52) Government accounts held in commercial banks (CBCA, ECOBANK and BPMC) be closed immediately and that the balance on said accounts be transferred to a designated treasury account at the central bank
Prior action 4. The master file ofthe tax and customs database has been upgraded with the registration of, and the assignment of an identification number (NIF) to 6,350 new taxpayers as confirmed by a report from its Deputy General Director for Taxes and Customs
Prior action 5. The Minister of Finance has instructed by a ministerial note the General Directors for Customs and Tax to provide systematic feedback on exemption conventions signed by the Recipient to the Inter-ministerial Committee in charge of Tax and Customs Duty Exemptions (CICEFD) and to give CICEFD full access to ASYCUDA (for customs) and SYSTEMIF (for tax directorate) databases
B. Strengthen Public Sector and Economic Governance
Prior action 6. The Recipient has adopted by Decree the General Conditions of Contract related to procurement by the Recipient and other public entities
Prior action 7. The Recipient has designated by Decree the members ofthe Permanent Secretariat ofthe Regulatory Procurement Agency, and by Decision from the President ofthe Recipient’s Bidders complaint unit (Comitt de Rtglement des Diftrends), has designated the members ofthe Bidders complaint unit
Prior action 8. The Recipient has suspended by presidential Decree the issuance ofnew mining licenses until the adoption ofa new mining Code
Prior action 9. By decision from its Minister responsible for forests, the Recipient has instructed the authorities of each forest commune on the Recipient’s territory to disclose information pertaining to the forestry revenue sharing mechanisms between the Recipient and the communities and the amount from local taxes paid by forestry operators accruing to communities
31 BOX2: Good Practice Principles on Conditionality
Principle 1: Reinforce Ownership
The PRSP was approved in 2007 following extensive participation and consultations and has been implemented since then. The country has had a positive policy reform track record. The Association has had extensive discussions with the authorities on policy options and the Government has designed the reforms according to its needs, notably in PFM and governance.
Principle 2: Agree up front with the Government and other financial partners on a coordinated accountability framework
The accountability framework (e.g., policy matrix) for measuring progress under the Government program has been discussed with all key departments involved in the program and higher authorities The operation has been discussed with donors in the country providing budget support and the monitoring an evaluation system may benefit other donors aiming to participate in the medium term in budget support. In particular, the PFM measures will feed into the COSUFABI’s framework - donors’ framework for coordination in PFM
Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances
The budget support operation focuses on measures to address immediate bottlenecks in public resource management and governance, as part of a broader Government reform strategy. They closely reflect urgent priorities in economic management and avoid areas ofpolitical sensitivity such as privatization. The Government has expressed its policy intentions and many of the policy reforms have already been initiated.
Principle 4: Choose only actions critical for achieving results as conditions for disbursement
Prior actions and conditions focus on critical actions to assure early improvement in the managemenl of public finance management and governance. All of these have already been undertaken by the authorities. Prior action for the mining sector, in particular, represents the Government’s response to receni international concerns over transparency in the attribution ofmining permits. Prior action for the forestry sector ensures a fully transparent management of forestry taxes and enhances accountability ofthe executives
Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support
The country’s domestic accountability and M&E cycle has been recently established as part of the assessment of the PRSP’s first year implementation although it is not yet grounded in a regula] process. One mid-term review ofthe PRSP implementation has been conducted to promote results focus taking into account the limited indicators available in the country and the short period available to have visible impacts (1 year). A series of reviews has been conducted over the course of 2008 to ensure swift and satisfactor) implementation of the EMGR I,which has allowed an early preparation of the EMGRG 11, in a waq that allows for starting aligning the disbursement ofits proceeds with the budget cycle.
32 B. POLICY AREAS
88. Annex 2 summarizes a set ofpolicy measures taken by the Government before the negotiations of this operation, and lays out the follow-on measures. The measures are organized under two broad policy areas - public finance management and public sector and economic governance.
COMPONENT 1. IMPROVE THE EFFICIENCY OF PUBLIC FINANCE MANAGEMENT
Background and issues in public expenditure management
89. CAR’S public finance management was characterized by major weaknesses (i)budget preparation has lacked full participation of line ministries and the civil society which has led to insufficient allocation of resources to strategic objectives; (ii)budget execution has been affected by recurrent cash shortages, use of several exceptional procedures and weak internal control and lack of reliable accounting system. As a result several operations have not been accounted properly and it was difficult to compare voted budget and budget outturn. Predictability has been flawed by missing regulations or Laws and poor enforcement thereof; (iii)and CAR’S reporting system has been flawed by lack of coverage and timeliness undermining accountability. In addition external audit has been ineffective.
90. Public expenditure management has been at the center of the Government’s program and actions over the last three years and progress has been made. Predecessor operations (RIBSUP and EMGRG I) - have assisted the Government in public expenditure management reforms and have been instrumental in setting the stage for a modern legal framework for the budget, including the adoption of an organic Law. These actions have been informed by several analytical studies: the CFAA completed in 2007 and an audit of the Treasury and the PEFA report completed in the first quarter of 2008, the recommendations of which had already been partially addressed by the Government.
9 1. The Government has improved budget preparation. Consultation mechanism with line ministries and the civil society during budget preparation have been established. Currently, efforts are being made to improve budget preparation, in particular by aligning expenditures with sector priorities. The share of these key sectors in the budget (education, health, social welfare, infrastructures, and rural development) has increased from 34 percent in 2007 to 38 percent in 2008 with the increase in the allocation to infrastructure, health, and education particularly notable. CAR has also started making progress in increasing intra-sectoral allocations for the PRSP priority areas.20 However,
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2o For example, in education, the share of the budget allocated to primary education increased in the 2008 budget although this allocation [0.47 percent] remains much lower than that of higher education [2.22 percent]. Within primary education emphasis was placed on the sector’s priorities including construction and rehabilitation as well as equipment of classroom, training and recruitment of teachers, as well as
33 alignment of expenditures with the PRSP priorities remains uneven, and allocations for rural development, the fight against diseases and epidemics, and potable water in small towns and rural areas, fell in 2008.21
92. Increase in allocation for key sectors is coupled with efforts to prepare a medium-term expenditure framework with assistance from development partners to further strengthen the link between expenditures and priority sector plans. A MTEF Committee including the Ministry of Planning and key ministries such as Health, Education, Equipment, and Agriculture has been created and strengthened under assistance from UNDP and Pole Dakar in 2007. Sector ministries have developed medium-term sectoral programs using the indicators developed for the PRSP monitoring- evaluation system. The Ministry of Planning and the Ministry of Finance have also started to coordinate the budget preparation in order to consolidate the recurrent and investment budget discussed with and prepared by the line ministries.
93. Budget execution has been put under tight control. New budget execution procedures, clarifying modalities and accountabilities, aimed at simplifying and reducing the number of steps to be taken to process expenditures, is now in place. The autonomy of the financial control Directorate has been restored and followed by the deployment of its units in line ministries.
94. The Government has started to improve the accounting system. New budget classifications were used for the 2008 budget and include administrative and economic classifications under EC assistance. The budget nomenclatures have been improved over the course of 2008 and include now a functional classification. New accounting classification has been adopted in March 2008 and is being used to record the Treasury operations. However, efforts need to be sustained to further improve the quality of the accounting nomenclatures to allow for comprehensive recording of Government operations. In particular, an AFRITAC mission in September 2008 recommended its alignment with the regional OHADA standards.
95. Efforts have also been made to strengthen the control of the Treasury over Government operations. Under the supervision of a Treasury Committee, the number of exceptional procedures has been reduced and cash advances have been more closely monitored. Similarly, issuance of Treasury checks has been limited to cash-backed checks. The Government is also determined to establish a Single Treasury Account. Fifty-one accounts held in commercial banks have been closed and the balance on said accounts transferred to a designated Treasury account in March 2008. A list of 73 accounts has been reviewed by the General Finance Inspectorate, followed by an action plan aimed at closing and transferring their respective balance to a Treasury account under the control of the Directorate of the Treasury within a defined time line according to the nature ofthe accounts. distribution ofmanuals. Similarly, in health, the allocation for primary health care increased strongly, from a low base. Government is lacking data on a comprehensive budget that includes external donor support. It is therefore not clear to what extent declining allocations in the domestic budget reflected expected donor support in these areas.
34 96. With regard to reporting, the Government has started producing quarterly budget reports including specific reports on key sectors (health, education, equipmenthfrastructure). Currently, budgetary operations are centralized within the Directorate of Budget where line ministries’ expenditures are recorded in an automated system developed under technical assistance from the French Cooperation. At this stage, the Treasury is using separate system to record payment operations and the transfer of data to the Directorate of Budget is done manually. Basic functional processes, the regulatory framework, and organizational structures responsible for them have been strengthened to ensure completeness of data capture. For instance, Treasury agents have been deployed in all line ministries generating revenues to account for operations (revenues and expenditures) at this level. The limited number of daily operations allows for such a system to produce quarterly budget execution reports from commitment to payment. These reports have been shared with development partners who provide comments on a regular basis.
97. Lastly, it is the Government’s intention to strengthen external control and enhance accountability. Currently, the Government is preparing the 2008 accounts and Execution Law which would be submitted respectively to the Court of Accounts and Parliament. The Court of Accounts is being strengthened with planned support under assistance financed by the Association starting in January 2009 on accounting principles and standard review of Government accounts. France is also preparing assistance for the Courts of Accounts aimed at strengthening capacity within this organ control.
98. Continued efforts are needed to sustain reforms aimed at improving budget management and the efficiency of Treasury operations. In particular, this operation will support: (i)the upgrade of the accounting system with regional and international standards; (ii)the strengthening of control organ to carry out external auditing of Government operations.
99. Prior action 1. The Government has adopted by decision (Arrete) of the Minister of Finance a revised and more comprehensive accounting nomenclature in line with the OHADA standard. The current accounting nomenclatures have been improved to allow for recording of Government operations in a comprehensive manner aligned with the OHADA standards.
100. Prior action 2. The Government has increased the budget allocation for the Court of Accounts by at least loopercent and by decision of the Minister of Finance designated the President of the Court of Accounts as budget administrator. In view of the key role the Court of Accounts will play in reviewing Government accounts from 2008 onwards, the Government has taken steps to allocate increased resources to the Court of Accounts based on a joint needs assessment by the Ministry of Finance and the Court of Account, leading to a much higher budget increase from CFA 4,750,000 in 2008 to CFA 24,750,000 in 2009. In addition, to fully operationalize this organ control, the President of the Court of accounts has been entitled to manage its resourceshudget allocation previously under the prerogative ofthe Ministry of Justice. Such a situation has delayed, and often reduced actual transfer ofresources to this organ control, thereby hampering its ability to fully play its role as external auditor.
35 101. Prior action 3. The Ministry of Finance has requested by an oficial letter that fi$y-two (52) Government accounts held in commercial banks (CBCA, ECOBANK und BPMC) be closed immediately and that the balance on said accounts be transferred to a designated Treasury account at the central bank. This operation supports the Government’s continued efforts to reduce the number of Government accounts in commercial banks to improve liquidity management and the comprehensiveness of the accounting of Government operations and reporting. As of end March 2008, 51 already were closed, and the balances transferred to a set of linked Treasury accounts in the central bank (BEAC) through which the Government transacts all payment and centralizes cash balances. The Government has audited the remaining accounts in commercial banks and closed fifty-two (52) accounts, the balance on which was transferred to a designated account ofthe Treasury at the central bank.
102. Key next steps include
Use a MTEF for key sectors (education, health, equipment and infrastructure, agriculture) for the budget in 2010. In order to improve the visibility of the poverty reduction programs, the Government plans to start using an MTEF for these key sectors and incorporate it as annex in the 2010 budget. Such an exercise is key for improving the predictability and the alignment of the budget with priority policies listed in the PRSP. Key ministries already have well- developed sector strategies and medium term expenditure plans and this exercise is being extended to all line ministries. The Ministry of Planning and the Ministry ofFinance have started to coordinate budget preparation in order to consolidate the recurrent and investment budget.
0 Submit to Parliament the 2010 budget with harmonized budget and accounting nomenclatures. Both nomenclatures would need to be harmonized after the adoption of the accounting nomenclatures to improve the clarity of budget reporting and how budgetary resources are used. It will be followed by the presentation of the 2010 budget to ensure comprehensiveness and proper accounting of Government operations.
Complete the networking of the Budget Directorate and the Treasury. In order to ensure the reliability and credibility of reporting, the Government has adopted by ministerial decision the rolling out of an IFMIS - at the level of the Budget and Treasury Directorates - with assistance from technical assistance under the French cooperation program. The computerized system at the level of the Directorate of Budget is already operational and will be linked with a treasury module being currently developed under the French Cooperation technical assistance.
Submit the 2008 and 2009 Government accounts and Execution Laws respectively to the Court of Accounts and Parliament. The Court of Accounts plans to review Government accounts for the first time in CAR. Over the course of 2008, the Treasury has recorded Government operations on a regular basis and a special unit has been created to collect data for 2007 in order to create a
36 2008 entry balance. International experts will be hired under the LICUS TF to assist CAR in producing the 2008 Government accounts and recruitment is underway. Similarly, the 2009 Government accounts will be submitted to the Court of Accounts. The Government will also present to Parliament the 2008 and 2009 Execution Laws. Quarterly execution reports are being produced since March 2008 from commitment to payment, which lay the foundations for the production ofthe Execution Laws.
Observance of the closing and transfer schedule of accounts held in commercial banks. The reduction of accounts held in commercial banks and the transfer of their balance to a set of Treasury account has helped reduce idle balances that increase the borrowing needs of the Government and strengthen Treasury control over Government resources. The Government is determined to implement an action plan aimed at closing the remaining accounts held in commercial banks and transferring their balance to the Treasury account in order to move swiftly to a Single Treasury account.
Background and issues in domestic revenue mobilization
103. Averaging 7 percent of GDP over the last decade, CAR’S tax revenue is among the lowest in the world due to a small tax base, and weak revenue mobilization capacity, including lack of adequate equipment and poor management.
104. Several actions have been taken in the recent past to enhance revenue mobilization capacity. In customs, the Government has cancelled the contract with the company in charge of running a pre-clearance office in Douala, as recommended by the audit of the pre-clearance system and on the basis of its poor performance. The networking of the customs offices between CAR customs in Douala and Bangui with ASYCUDA (the automated system for customs data) is now operational. Customs receipts are transferred to the BEAC instead of commercial banks, eliminating at the same time the offsetting mechanisms set up by commercial banks, thereby increasing cash at the disposal of the Government. With regard to the tax Directorate, the national survey to identify new taxpayers has been completed which allowed for identifying 6,350 new taxpayers. Lastly, the networking of the customs and tax directorates has been completed to ensure timely and accurate revenue collection.
105. The tax system will be reviewed and assessed by the IMF in 2010 but in the meantime, the Government has adopted various tax measures including an automatic formula for petroleum prices and the elimination of low tax for building materials. The thorough review of all Codes and the national and regional Chart included in this operation would inform tax policy in the near future.
106. CAR has had a significant amount of foregone revenues due to tax and customs duties exemptions over the past years. Exemptions management has been flawed by (i)lack of ex-ante and ex-post control of compliance with regulations; (ii) arbitrary decisions which often open door for fraud and abuses; (iii)and the absence of proper regulations and regulatory bodies. According to official statistics and studies, on
37 average, total exemptions have amounted to at least one-third of total tax revenues officially collected over the past years. For instance, customs exemptions officially recorded in the first semester of 2008 amounted to CFA6 billion vs actual customs revenues ofCFA12 billion22.
107. To redress such weaknesses, an inter-ministerial Committee - Comite Interministeriel Charge des Exonerations Fiscales et Douanieres or CICEFD -, including members from line ministries (mining, forestry, commerce, foreign affairs, planning, finance) and organ controls has been created by Decree in December 2007 - but became operational only in April 2008 - to rationalize exemption management. CICEFD has as remit to (i)review requests for exemptions and issue recommendations to the Finance Minister who is the sole signatory of exemption conventions; (ii)establish an exhaustive list ofbeneficiaries over the last three years, (iii) audit, monitor and control beneficiaries’ compliance with the terms of exemptions granted, (iv) review compliance existing exemptions with the existing regulation (Regional and National Investment Charters, tax and customs as well as sectoral Codes), (iii)and propose an action plan to the Government aimed at rationalizing exemption management.
108. CICEFD has started implementing activities falling within its mandate. It has produced a first report submitted to the Government, including the results ofthe number of exemption requests treated and the recommendations it has issued as well as a preliminary analysis of the coherence between.al1 texts governing exemption^^^. It also has established an exhaustive list ofexemption beneficiaries.
109. CICEFD is not yet fully equipped to meet its objectives. First, effective control is hampered by the absence of a legal framework that ensures that CICEFD has legal prerogative to receive feedback on decisions with respect to exemptions granted or rejected. Second, this entity does not have access to the ASYCUDA and SYSTEMIF database to monitor on a regular basis exemptions applied by customs and tax directorates, which hampers effective control on exemption operations and close monitoring of beneficiaries’ compliance with the conventions signed with the Government.
110. This operation supports Government’s program aimed at improving domestic revenue mobilization capacity. Immediate measures supported under the grant include (i)attribution of identification number to newly identified tax payers by the tax Directorate, (ii)the strengthening of tax exemption management through a ministerial note instructing systematic feedback to CICEFD on exemption conventions signed by the Government and full access to the ASYCUDA and SYSTEMIF database.
111. Prior action 4. The master file of the tax and customs database has been upgraded with the registration OJ and the assignment of an identijkation number (NIF)
22 Source: Customs and Tax Directorates - 2008; Evaluation des ExonCrations Fiscales et Douaniires en Rtpublique Centrafricaine - Investissement Dtveloppement Conseil financed by the EC, 2005, 23 Between April and November 2008, twenty requests have been submitted, of which five have been granted. Source: CICEFD - Ministry of Finances.
38 to 6,350 new taxpayers as conJirmed by a report from its Deputy General Director for Taxes and Customs. This measure has allowed for updating and enlarging the tax base. Since the networking ofthe tax and customs units has been completed under the EMGRG I,it will also allow for proper verification of tax and customs declarations, timely and accurate revenue collection, and detecting fraud and malpractices, thereby improving revenue mobilization capacity.
112. Prior action 5. The Minister of Finance has instructed by a ministerial note the General Director for Customs Tax to provide systematic feedback, on exemption conventions signed by the Recipient, to the Inter-ministerial Committee in charge of Tax and Customs Duty Exemptions (CICEFD) and to give CICEFD full access to ASYCUDA for customs) and SYSTEMIF (in the tax directorate) databases. This measure will create a sound legal framework and an environment conducive to the success of this reform, thereby enhancing transparency and minimizing fraud and tax losses. It will support CICEFD to meet its remits and carry out its defined tasks.
113. Key next steps include:
Install networked system between the CICEFD unit with the tax directorate database (SYSTEMIF) and customs (ASYCUDA). Building on the network system between SYSTEMIF and ASYCUDA, the Government will link the unit service of CICEFD with the networked system in order to ensure systematic control ofexemption operations.
The inter-ministerial committee (i) publishes semi-annually in media networks accessible to the general public the list of tax exemptions, including the total amount, the list of beneJiciaries and conventions; (ii) presents the results of its activities to Parliament on an annual basis. In order to establish proper accountability mechanism for checks and balance and transparency, the Government will adopt these measures which will also help raise debate and awareness about tax exemption policies and practices among decision makers.
Align the Investment Code with the Regional Charter and sectoral Codes (tax and customs Codes, and mining and forestry Codes). The Government plans to adopt this measure in order to reduce potential discrepancies between the two Charters and sectoral Codes. Such a review will allow the Government to harmonize legal texts and regulations governing exemptions and to make adjustment to existing exemptions in case of discrepancies with national regulations by bringing them back under normal regime of taxation. Lastly, it will reduce significantly the scope for frauds and abuses.
39 COMPONENT 2: STRENGTHEN PUBLIC SECTOR AND ECONOMIC GOVERNANCE
Background and issues for anti-corruption
114. As a signatory of the UN convention against corruption, the CAR has made progress in setting a legal framework for fighting corruption and the CAR’S ranking in Transparency Index rank has improved from 162 of 180 countries in 2007 to 151 of 180 countries in 2008. Under the predecessor operations, the Government was successful in revamping a set of institution^^^, including a permanent anti-corruption Committee as interlocutor and coordinator or reform champion within the Prime Minister office. The Committee has a broad remit to formulate, coordinate and monitor anti-corruption efforts and provides CAR with an improved framework and oversight mechanism. This committee comprises members of organ controls, representatives of each anti-corruption bodies and the civil society (NGOs and representatives of the private sector). The prominent role played by the civil society in the fight against corruption is expected to create an environment whereby state capture and corruption are increasingly put under scrutiny. An action plan detailing the list of activities and of the Committee has been produced and presented to development partners. The Committee is receiving financing from UNDP and France to ensure sufficient infrastructure capacity to deliver. An annual report summarizing the efforts of the Government will be presented to the National Assembly in March 2009.
115. The Government has also strengthened the legal mechanisms of accountability, aimed at further reducing the scope for vested interest. The Government has issued’ a decree governing asset disclosure, specifying who must declare assets, the form and content of the disclosure aligned with international practices, and the sanctions for not abiding by the deadline or for failing to submit. Members ofthe cabinet and Constitutional Court already have declared their assets and a presidential decree extended this obligation to highly ranked public officials involved in managing public resources in November 2008. All concerned officials25 are submitting to the General Inspectorate of the State (IGE) their declarations. Declarations are open to scrutiny and publicly available, as per Article 44 of the Constitution and the Decree issued in November 2008.
116. Lastly, the Government has created an office “Bureau des Usagers” within the office of the General Inspectorate of Finance (IGF) in July 2008. This measure aims to allow for alleging corruption or complaining about abuses. The General Inspectorate of
24 : That includes (i)an operational branch of the judiciary, the “Tribunal de Grande Instance” to better monitor the processing of filed cases, (ii)the P6le Financier du Tribunal de Grande Instance de Bangui (it is a special section of the tribunal created in July 2005, with a remit to investigate fiscal, financial, and customs fraud, as well as trafficking of influence), (iii)the Agence Nationale d’hvestigation FinanciBre (ANIF), created in September 2007 to investigate money laundering and terrorism. These measures have led to a significant increase in4he number of cases of suspected corruption under investigation, over 287 individuals since 2006, and in the number ofpenalties imposed 25 The Heads of the Tax and Customs Directorates, organ controls, and public enterprises.
40 the State is in charge of conducting the preliminary investigations and report to the Court ifthe allegations are based on solid grounds.
117. The Government is committed to sustaining efforts to ensure effective infrastructure for the fight against corruption. Such a success requires effective coordination of the Anti- Corruption Committee and governance institutions, appropriate strategies and structure, and effective and adequate legal framework. Follow-on actions ofthe EMGRG Ihad as objectives to strengthen structures and strategies, and governance institutions. These reforms are underway. Development partners (France, UNDP) are involved in supporting anti-corruption reforms, including support for the judicial system by the EC.
118. There is no prior action for this component. However, this operation aims to consolidate gains over the past year under the EMGRG I.Planned reforms consist in strengthening the legal framework to help CAR pursue the UN convention agenda’ against corruption in order to reinforce its panoply of legal instruments and strengthen anti- corruption bodies.
119. Key steps are:
Curvy out a GAP analysis with respect to compliance with the UN Convention against corruption Box 1. Members of the Anti-corruption Committee have attended the UN Convention conference in October 2008 to represent CAR in such a summit for the first time. CAR ratified the UN Convention in February 2006 and one would expect that by now it would have made significant progress in meeting its obligation under international law. In order to align CAR’S anti- corruption legal framework with international practice and comply with the dispositions of the UN conventions, the Government will conduct a GAP analysis by looking provision by provision at where the Government is and what remains to be done and/or revisedstrengthened. The Government is committed to carry out a participatory analysis including magistrates, organ controls, anti-corruption agencies, and the civil society. Such a process will allow for facilitating understanding of the challenges, reflecting on priority and sequencing of reforms, ensuring the anti-corruption legal framework and agencies are effective. A report is expected to be released every semester by the Anti-Corruption Committee to ensure progress in this area.
Adopt a Law to protect whistleblower. With the development of a stronger legal framework and the adoption ofseveral dispositions to fight corruption, the CAR will also adopt a Law to protect whistleblowers in order to create an environment whereby citizens will not fear unpunished retaliation and are encouraged to allege act ofcorruption.
41 Box 3: Checklist of Key Actions Required of Government adhering to the United Nations Convention Against Corruption
Establish a merit system for the civil service Promulgate a code of conduct for all public officials and endeavor to require officials to disclose outside activities, employment, investments, assets, and gifts that may give rise to conflicts ofinterest Create a public procurement system based on transparency, competition, and objective selection criteria with legal recourse for violations Enhance transparency in the organization, functioning and decision-making processes ofthe public administration by such measures as freedom ofinformation legislation Institute a comprehensive regulatory scheme to prevent money laundering and consider creating financial intelligence unit to receive, analyze, and disseminate reports ofsuspicious transactions Outlaw the offering or soliciting ofa bribe by a public official, influence peddling, the abuse of a public position, and illicit enrichment Ensure the concealment ofthese acts, the obstruction ofcorruption investigations, and attempts to commit corrupt acts are criminal offenses Provide a long statute oflimitations for bribery and other corrupt acts and provide for its suspension when an offender has evaded prosecution Make sure the penalties for corrupt acts reflect the gravity ofthe offense, that immunities for public officials are not overbroad, and that if there is discretion to prosecute it is exercised with due regard for the need to deter corruption Establish procedures to freeze, seize, and confiscate the proceeds ofcorrupt acts and permit those injured by corrupt acts to initiate an action for damages Remove any obstacles posed by bank secrecy laws to investigating corruption Take adequate measures to protect those who witness or report corrupt acts Establish measures that encourage participants in corrupt acts to disclose their actions; consider providing such individuals with immunity or reduced sentences in return Cooperate with other Governments on anticorruption investigations and prosecutions through providing information requested by another Government and complying with extradition requests, or in the case ofits own nationals either extraditing or prosecuting them Ensure that the proceeds ofcorrupt acts committed in other states and located in its territory can be promptly returned
Background and issues in procurement
120. Under the predecessor operations, the Government was successful in revamping the legal framework for public procurement and a set of key institutions. Following a thorough review of the procurement process - including the legal and regulatory aspects - and the production of a Country Procurement Issues Paper (CPIP) in 2006, CAR adopted a new procurement Code in June 2008 with assistance from IDA and AfDB , followed by the operationalization of new institutions created by the procurement code, including staffing and equipment. These include the Direction Gbne'rale des March& (DGM) and the Autovite' de Re'gulation de Passation des Muvchds (ARPM). The DGM is a separate directorate within the Ministry of Finance, involved with prior review of key steps of the procurement process while the ARPM is responsible for the overall oversight and regulation ofthe procurement process, including dealing with disputes and
42 complaints regarding the bidding process. The ARPM is also in charge ofmodifying and amending procurement rules and regulations if required and will produce annual procurement audit reports on new tenders. Procurement departments within four key ministries (education, health, agriculture and infrastructure) are being created, staffed and equipped as a two-year pilot.
121. Operational manual of procedures is being finalized and standard bidding documents have also been adopted to fully operationalize the new framework. The manual describes the new purchasing practices with regard to the goals, benefits and policies as well as what the department expects with regard to performance and conduct. It also addresses the modalities and statutes to apply, regulations, policies, procedures and best practices applicable to all facets ofstatewide purchasing authority. Likewise, the standard bidding documents aims to ensure that new bids are submitted as per the requirements of the new procurement code. Both aspects are part of the process of implementing the new procurement rules and regulations.
122. The revamping of the legal framework and the creation of a new set of institutions has in turn created new challenges. First, capacity within the public sector is weak and the Government’s own resources are insufficient to finance all key activities to operationalize the new structures and the legal framework. Major financing would need to be mobilized ifthe current framework were to be effectively used for regulating procurement process in CAR. There is a shortage of skilled staff to serve in the recently created institutions and a need for training to effectively use the various documents underpinning the new legal framework. A national action plan has been validated by ministerial decision (Arrete) and presented to development partners. Given the lack of Government resources to operationalize the vast procurement reforms and the need to tap into potential partners to provide financial support for the implementation ofthe reforms, the Government plans to organize a roundtable with donors to present an action plan aiming at achieving the modernization of procurement practice in CAR. Alternatively, the Government could organize, in February 2009, a one-day information workshop with the participation of key Government structures involved in the procurement reform, and representatives of the civil society, the media, and the private sector and development partners. Such an event could be followed by a meeting of the Donors Monitoring/Coordination Committee on Public Finance Management (PFM) - with a focus on procurement issues. The outcome ofthe Donors Committee could be to better integrate procurement into the PFM reform and coordinate support, with the view of covering financial gaps, if any, in implementing the core ofprocurement reform.
123. Second, chronically slow or delayed payments to contractors and liquidity problems for vendors have led to mounting arrears, and resulted in loss of confidence of private suppliers as well as major cost increases of public investments because the tendency is for bidders to compensate for commercial risks and delays, with a premium added to unit costs. Moreover, there has been no recourse possible in cases ofabuse or favoritism and no provision for the payment of late interest. As a result, competition remains ineffective and the development of a sound private sector is jeopardized. In turn, such a situation has led to significant use ofexceptional procedures, thereby undermining the budget execution procedures.
43 124. The recently adopted Code instructs enforcement of the provision aimed at making mandatory payment to suppliers within 60 days following the delivery of goods and/or services. Bidding documents and contracts will clearly reflect this obligation. Such an initiative will restore the confidence of the private sector and bring private suppliers into the public channel by providing them with incentives to supply goods and services at a competitive price. Monitoring of interests paid for late payment would then be used to evaluate performance of sectors and programs.
125. This operation will support actions aimed at ensuring that private supply meets the invitation to tender function.
126. Key prior actions include:
0 Prior action 6. The Recipient has adopted by Decree the General Conditions of Contract related to procurement by the Recipient and other public entities. Such a measure will ensure that the dispositions governing the working relationship between suppliers and the State are legally binding and reflected in the contracts signed by both parties. It will ensure that the suppliers' right to use appeal mechanisms is recognized and enforced in case of conflict.
0 Prior action 7. The Recipient has designated by Decree the members of the Permanent Secretariat of the Regulatory Procurement Agency, and by Decision from the President of the Recipient's Bidders complaint unit (Comitk de Rkglement des Diffe'rents), has designated the members of the Bidders complaint unit. In order to operationalize the regulatory body and allow it to play its role the Government has adopted two key measures: (i)it has nominated the members of its permanent Secretariat in charge of coordinating the work of the ARPM, (ii)and it has activated a Bidders Complaint mechanism by nominating its members in order to introduce anti-conuption measures and channels for appeals. The latter entity is in charge of dispute settlement. Such measures will complement the incentive package aimed at creating favorable conditions for the private sector to supply goods and services to the administration.
127. Key next steps include:
Review compliance with new procurement procedures of FY09 and FYI0 budget. This review aims to ensure that the new institutions that have been put in place are staffed and functioning adequately in line with the new procurement code and the dispositions adopted by the Government to provide incentives to the private sector. The ARMP will carry out this task and will present it to the Parliament.
Background and issues for natural resources
128. Mining is the second largest export commodity in CAR and plays a key role in poverty-reduction and growth, and revenue generation. Today in the CAR, the
44 mining sector consists of the artisanal exploitation of diamonds and gold. Approximately 10 percent of the active population is engaged in artisanal mining activities. Large companies operating in CAR are still under exploration phase. With potential export revenues and foreign direct investment, several firms are now engaged in negotiation with CAR.
129. The absence of sound legal framework has often resulted in lack of confidence in the regulation and conflicts between the Government and the private sector that have affected CAR’S attractiveness: lack of streamlined convention has resulted in the absence of a level playing field and uneven treatment of operators, and a loss ofGovernment revenues in some cases; and the absence of a formal and transparent channel of accountability has undermined the credibility of the sector and the Government.
130. Improving transparency in the management of mining has been the approach adopted by the Government to improve the sector’s attractiveness. Significant progress has been made by CAR with support from the predecessor operations. CAR is now an EITI official candidate and data on revenue for 2006 will be published in the EITI website. The mining Code is being amended to reflect best international practice and a standard investment agreement form will be adopted for negotiations between the State and the private operators. This operation will support actions aimed at deepening governance and strengthening attractiveness of the mining sector.
13 1. Key prior actions include:
Prior action 8. The Recipient has suspended by presidential Decree the issuance of new mining licenses until the adoption of a new mining Code. The Government is in the process offinalizing the revision of the Mining Code. It has taken action to suspend granting ofnew permits until the adoption ofthe new Code in order to ensure compliance of new licenses to international practice. Monitoring of this prior action will involve non-government entities as an oversight body, especially the EITI committee.
132. Key next steps include:
Publication of the 2007 and 2008 EITI revenue accounts. The Government plans to sustain compliance with the EITI principles by producing the 2007 and 2008 EITI accounts and publishing said accounts in the EITI website. This will send a strong signal to investors that CAR is engaged in irreversible reforms and is committed to improve governance.
Systematic application of the new standard investment agreement forms to new investment. The absence of standard agreement has led to lack of security of tenure and transparency in the mining titling system. In addition the absence of a sound legal framework governing signature bonus payments is conducive to poor governance. The Government will use new standard investment agreement
45 systematically drawn upon the relevant provisions of the new Code to ensure transparency and fairness with the view to create a level playing field for investors but also to maximize the return for the country.
133. Forestry. There has been significant progress in improving governance in the forestry sector over the past years with the support of the predecessor operations (EMGRG I and RIBSUP). CAR has produced a new Forestry Code to ensure that timber harvesting rights are allocated on the basis of market mechanisms26; issuance of new licenses has been suspended until its adoption; and the Government took actions to initiate due process for firms not complying with the national fiscal regulations.
Beneficiaries Stumpage Fee (YO) Forest regenerating taxes (YO) Area-taxes (YO) Treasury 40 25 70 CAS DF 30 50 30 Communes 30 25 0 Total 100 100 100
135. While the mechanisms in place and actual transfers of the funds to communities have helped address some of their basic infrastructure needs, transfer of revenues has been erratic as a result of urgent and pressing competing needs. 29 Amounts transferred to communities as a percentage of taxes paid by concession holders have not been adequately recorded and acknowledged to communities, which requires
26 Among the main aspects ofthe new Code feature dispositions aimed at (i)modernizing and strengthening the preparation and implementation of forestry management plans; (ii)revising criteria for attribution of harvesting permits; (iii)tightening tax reporting and collection arrangements; (iv) improving arrangements for sharing forestry revenue with forestry communities; and (v) enhancing the feasibility of small-scale forestry and community access to forest markets, thereby ensuring sustainable resource use. ” Decisions on resource allocation are based on clear criteria as per the Finance Law in 2001, and take into account objectives at regional, national, local and community levels. ’*Forest revenues are based on the volume oftimber cut, area offorest concession, and also include fees to cover administrative cost, including those ofregenerating forest and preserving the forest, non-timber, and environmental values. 29 Those include market places, schools, rehabilitation ofcommunes’ offices and bus stations etc.
46 corrective measures. In addition, while revenue has been transferred directly to beneficiaries in the past, in December 2008, a presidential note instructed the transfer of revenues collected to a Treasury account in the BEAC in order to ensure proper accounting of public resources and to comply with the Single Treasury Account principle. Although such a decision is commendable from the public finance perspectives, there is a need for mitigating the risk of delay in transferring resources to communities.
136. The forestry sector has been affected by the current global slowdown with potential adverse impact on growth, exports, domestic revenue, and poverty reduction/social development programs. A large committee comprising, forest companies and various departments (Ministries of Finance, Forestry, and Interior) has been set up to reflect on measures aimed at mitigating the impact of the crisis on the sector including the spreading of area taxes over six months in 2009 and revision ofthe mercurial taxes. It should be noted that there are no trade issues involved in the crisis in the forestry sector. The shock is channeled through lower timber demand due to sluggish market.
137. In order to secure its access to international markets, as many countries in the region3’, CAR has taken key steps toward adhering to AFLEG to secure its access to the EU markets in the future. The purpose ofthe AFLEG is to promote good governance in the forest sector by combating the threat posed to forests from illegal logging, illegal trade, and wildlife poaching. Preliminary actions have been taken including (i)the nomination of a focal point of FLEGT/AFLEG in April 2007, (ii)the transmission of a letter to the EC to start Voluntary Partnership Agreements (VPA), and (iii)and the creation of a national Committee of FLEGT/AFLEG in June 2008 to implement the VPA. An action plan was discussed in a national workshop in December 2008 and has been adopted by the Government.
138. The challenges facing the Government that this operation will help address are to (i)ensure transparency in revenue sharing and continued transfer of funds to communities in order to capitalize on the recent social/poverty reduction achievements, and (ii)lay the foundations for opportunities to deepen CAR’Saccess to the international timber market in the medium-term.
139. Key prior actions include:
Prior action 9. By decision from its Minister responsible for forests, the Recipient has instructed the authorities of each forest commune on the Recipient’s territory to disclose information pertaining to the forestry revenue sharing mechanisms between the Recipient and the communities and the amount from local taxes paid by forestry operators accruing to communities. While there have been some forms of communication through announcement on a local radio and information shared by representatives of communities working closely with concession holders,
30 Cameroon is already a member of the AFLEG, DRC and Congo have started the process to become members of the AFLEG.
47 communities have not been fully advised of the revenue standing to their credit and the mechanisms underlying the revenue sharing in place. With this measure, the Government is determined to put in place a transparent information system.
140. Key next steps include:
Implement the Government action plan to move the AFLEG agenda forward Table 1. Such an approach entails the implementation of CAR’Saction plan which would include, but is not limited to: (i)developing a clear and agreed definition of conflict timber; (ii)developing mechanisms to conduct independent forest assessment and monitoring (e.g independent observers in Cameroon); (iii)and improving access to information through the strengthening of local and national mechanisms for sharing and exchanging information on forest management (concession agreement, concession map production, and export data for timber products, tax payment by logging companies, report on forest infraction). CAR’s action plan foresees completion ofthe AFLEG process in the last quarter of 2009, which would trigger a donor round table aimed at mobilizing financing for its implementation.
Multidonor round table to finalize the financing To be determined modality ofthe AFLEG
48 V. OPERATION IMPLEMENTATION
A. POVERTY AND SOCIAL IMPACT
141. The actions supported by the Grant are expected to have positive poverty and social impacts. Joint World Bank and IMF staff assessments of the CAR’S PRSP have emphasized the need for more explicit policies on public finance and governance reforms. To achieve faster poverty reduction, this development policy operation focuses on public finances. First, tax reforms are expected to support domestic revenue mobilization capacity by increasing the tax base and improving exemption management while enhancing accountability of the executives. Second, budget reforms will help ensure that domestic and external resources are used effectively, minimize fungibility and state capture are minimized, and the budget can be used as a tool for poverty reduction by improving the accounting system and enhancing external oversight of public resources’ use, thereby making it easier to scrutinize the extent to which voted budget allocations and actual public expenditures are in line with the PRSP objectives.
142. As spelled out in the PRSP, poor governance is perceived to be the top cause of poverty. The reforms supported by the Grant propose measures aimed at supporting the Government’s efforts to improve procurement processes, and enhance transparency and accountability in natural resources management. First, procurement reforms will help render operational the new Code, key provisions of which aim to reduce scope for capture by vested interests and misuse of public resources, while protecting the private sector’s interests. Second, the mining and forestry reforms are expected to reduce capture by vested interests and ensure proper returns on the country’s assets to the population. In mining, the suspension of issuance of new licenses until the new Code is adopted will help align contractual procedures with international practices, and take into account the social and infrastructure obligations of concession holders. In addition, this measure will help channel resources to the public accounts in a transparent manner. In forestry, a fblly transparent information mechanism clarifying the communities’ interests will help raise awareness among community members about their rights, provide more funds for social and basic infrastructure services, while strengthening the executives’ accountability. Taken together, these measures should improve the distributional properties of state activity, increasingly benefiting the poor segments ofsociety through better services.
143. Policy measures selected in this document have been informed by the outcomes of various consultations involving relevant stakeholders. Consultations at all levels took place over the PRSP preparation period to outline the main policy measures that went into the PRSP and are supported by this operation, including reforms on forestry, mining, and public finance management, as well as anti-corruption. In addition to the PRSP consultations, several workshops were conducted over the course of 2008 with the participation of relevant stakeholders, on which this operation builds: (i)in mining, an EITI committee, involving the private sector and civil society was created in the first semester of 2008, and has begun to reflect on the objectives of the EITI and the main actions to be taken to improve transparency in the sector; (ii)in forestry, a national workshop took place in December 2008 to confirm the willingness of CAR to adhere to the AFLEG and finalize the action plan of the Government. As regards the revenue-
49 sharing mechanism, an evaluation mission conducted by the central Government on the use of the revenue accruing to communities took place in the last quarter of 2009. The outcomes ofthe mission drew on consultations with officials elected at the decentralized levels and the beneficiaries (communities). One of the requests that emerged from this mission is the need for enhanced accountability of officials and group leaders as regards the use of resources directed to communities; (iii)the anti-corruption Committee regroups a number of organ controls, all key line ministries, and the civil society as well as the private sector and shows strong ownership of the reforms proposed in this document .
B. ENVIRONMENTALASPECTS
144. Building on the recently adopted forest Code and drawing on the long-term engagement of development partners, including significant support for institutional strengthening, reforms supported by the EMGRG I1 are likely to have positive effects on the natural resources, and forestry, The proposed reforms aim to strengthen the Government’s oversight of forest management plan and fight against illegal logging. Since 2005, timber exports have been monitored on behalf of the Government by an independent body with the mandate to ensure compliance with operational requirements from logging sites to export points. Ensuring transparent information and the integrity of the traceability system of the logging and commercialization cycle will complement the existing tools such as inspection of waybills for transportation of timber products, mill entry and exit books, and the cross-checking of species and volumes of timber exported with the collection of equivalent export taxes. In addition, the Association, in collaboration with other development partners, is undertaking a Country Environmental Analysis (CEA) to help the Government establish the regulatory, administrative, and technical capacity to identify, mitigate, and monitor environmental issues in a sustainable manner.
145. The capacity of the administration has been strengthened through various channels. Building on the results ofthe forest sector assistance provided by AFD through the PARPAF project, which helped establish a forest Geographic Information System (GIs), forest administration capacity has been strengthened through an agreement signed in 2007 between the Government and the World Resources Institute (WRI), funded by USAID through the Central Africa Regional Environmental Program (CAREP). Under this contract, WRI is helping the forest administration in mapping logging areas, protected areas, as well as hunting and safari zones, with field inspections being conducted in logging areas by a special unit of the forest administration. Specific attention is being paid to the monitoring of logging activities and the enforcement of forest management plans. The system allows the forest administration to compare timber harvests with the results offorests inventories, monitor skid trails and logging roads, and check compliance with other management requirements in order to ensure sustainable management of forest. In addition, an independent monitoring contract with the pre inspection agency in CAR organized a series of training on methodologies to ensure proper tracking and identification of illegal logging for the forestry, tax and customs administrations to transfer knowledge to local staff.
50 146. The rights of the local population are protected by various mechanisms. Consultative meetings with neighboring communities prior to granting permits for forest exploitation provide them with opportunities to express their concerns about traditional forest rights and uses and indicate their needs for basic socio-economic infrastructure such as classrooms, heath centers, water points and roads. Over the course of the second semester of 2008, the Government has established a permanent information system to inform the population about the revenue sharing mechanism between the State and communities and the amount accruing to them from the proceeds of local taxes paid by operators, which are used based on investment plans conceived by the local population. Lastly, the new Forest Code addresses effective compensation and adequate representation of indigenous people. Establishment of a publicly accessible centralized data on forest management (tax paid, concession maps production and exports, infractions) will further enhance the transparency of the information system and further promote the participation oflocal population in monitoring activities that affect their lives
c. IMPLEMENTATION, MONITORING,AND EVALUATION
147. Implementation entity. The Ministry of Planning, Economy and International Cooperation will be responsible for monitoring the reforms under the proposed operation, as set out in the Letter of Development Policy, as well as for reporting progress and coordinating actions among other concerned ministries and agencies. This ministry was the unit responsible for coordination and implementation of the activities and reforms under RIBSUP and the EMGRG I.
148. Program monitoring and evaluation. As in the first two budget support operations, the review of the goals of the program will be largely based on relevant and easy-to-monitor indicators. Monitoring and evaluation arrangements will rely on Government with the aim of strengthening Government capacity and institutions. CAR has designed a monitoring-evaluation architecture to follow up on the PRSP implementation which covers the whole budget cycle, from planning to execution. Building on this architecture, the EMGRG I1 and the monitoring-evaluation institutional framework for this operation’s reforms and activities, have been designed bearing in mind the need : (i)to ensure quality and timely information, (ii)and to keep involving the civil society in the accountability systems. In this regard, an implementation oversight committee, with the mandate to monitor implementation of policies of the EMGRG I1 is in place, with representatives from all line ministries and directorates involved.
149. In parallel, collaborative monitoring has progressed among donors with the Government’s support in public sector and economic governance, and all governance- related areas including mining, forestry and transparency and the fight against corruption. In particular, a multi-donor commission has been created in December 2008 (Comite de suivi des bailleurs sur les Jinances publiques - COSUFABI) to coordinate donors’activities in public finance management.
51 D. FIDUCIARYASPECTS
150. Although much remains to be done, PFM standards have improved over the recent past. A Country Financial Accountability Assessment (CFAA) completed in FY08 helped assess fiduciary risks associated with budget support and deepened the dialogue between donors and the Government on PFM issues: The CFAA developed a joint donor-Government understanding ofthe main strengths and weaknesses ofthe PFM system and has identified a list of prioritized recommendations based on the capacity of the Government to implement these measures. Budget implementation and fiscal reporting are at the core of the operation. It also takes into account the results of a Treasury audit and the recently completed PEFA. The preliminary findings point to systematic underlying problems, as well as more punctual shortcomings that are being addressed in this operation. The Association will be engaged in a very close dialogue with the Government to agree on necess&y remedial actions that insure integrity of public funds.
151. The foreign exchange system is under the control of the Bank of the Central African States BEAC, the regional central bank which manages the CFA franc currency of Central Africa Francophone countries. The latest finalized IMF safeguards assessment ofthe Bank ofthe Central African States (BEAC) was made in 2004. It found that BEAC had implemented a number of measures to strengthen its safeguards framework. These include the enhancement of the transparency of the financial statements and strengthening of internal audit function. As of February 2009, the 2004 safeguards assessment is being updated by the IMF, but it is not yet available for review by IDA. On 30 January 2009, following reported losses on some of BEAC’s foreign currency assets, the BEAC heads of states decided to (i)request an audit of BEAC as well as a separate audit of its investment operations, (ii)modify BEAC statutes, (iii) stop, as a precautionary measure, all investments operations until hrther notice, (iv) and improve coordination within the senior management team. In the absence of an updated safeguards assessment, these developments justify the application of additional fiduciary arrangements as per OP 8.60. Dedicated foreign exchange accounts by the authorities will be opened in the BEAC for this operation in order to avoid co-mingling the Grant with the BEAC’s foreign exchange reserves pool. The Association will reserve the right to request an audit of the flow of funds from this dedicated account to the local currency Treasury account ofthe Central Afi-ican Republic.
E. DISBURSEMENTAND AUDITING
152. A single-tranche of SDR 3.4 million (US$5 million equivalent) will be disbursed upon grant effectiveness. The proposed Grant will follow the Association’s disbursement procedures for development policy operations. Once the operation is approved by the Board and the Financing Agreement becomes effective, the proceeds of the Grant will be deposited by IDA in dedicated foreigh currency accounts designated by the Recipient, upon reception of the Recipient’s request. The accounts should be held at the central bank, the Banque des Etats de I ’Afrique Centrale (BEAC) and form part ofthe country’s foreign exchange reserves. The Recipient shall ensure that upon deposit of the grant into said accounts, an equivalent amount is credited in the Recipient’s budget
52 management system within 5 days, in a manner acceptable to the Association. The conversion from Euros to CFA francs will be based on the prevailing exchange rate on the date that the funds are credited to CAR’S Treasury Account.
153. The Recipient will report to the Association on the amounts deposited in the dedicated accounts and credited to the budget management system within 30 days. The Recipient will provide written confirmation to the Association that an amount equivalent to the grant proceeds has been credited to an available Treasury Account to finance budgeted expenditures, with an indication ofthe exchange rate applied. Ifthe proceeds of the Grant are used for ineligible purposes as defined in the Financing Agreement, the Association will require, promptly through a notice, the Recipient to refund an amount equal to the amount of said payment. Amounts refunded to the Association upon such request shall be cancelled. The Association reserves the right to request an external audit of the fund flows from the accounts to the Treasury account. The administration of this Grant will be the responsibility ofthe Ministry of Planning, Economic Development and International Cooperation.
F. RISKS AND RISK MITIGATION
154. The EMGRG I1 has significant country, macroeconomic, institutional capacity, risks. These risks reflect the country’s fragile security and political situation, as well as risks associated with low Government revenue.
155. Security risk. As in many conflict affected countries, deterioration in the security situation constitutes an important source ofrisk for the operation. The security situation remains fragile although mutinies in the northern region closer to the borders with Chad and Sudan have been declining. Banditry remains an important concern in certain rural regions, particularly the Bangui-Cameroon corridor. These security risks are exogenous and their mitigation falls largely outside the scope ofthe operation.
156. Political and sustainability risks. Three years after free and fair presidential and legislative elections, CAR’S political situation has considerably improved. A new coalition Government is now in place following the political reconciliation launched in early 2008, including a cease-fire agreement with the main rebel group and Peace Accords between the Government and the Opposition, the general amnesty adopted by Parliament, and the political dialogue in December 2008. The reform program supported by the grant could falter if there are major changes in the political landscape, especially if these changes lead to policy reversals and slippages, which could adversely affect the ability of the Government to carry out poverty reducing priorities identified in the PRSP and undermine the sustainability of the program. External resources by donors would to some degree help further mitigate political and sustainability risks as they support sustained service delivery by Government. However, it will require enhanced harmonization of budget support, in terms of content and timing. By enhancing transparency and strengthening the executive’s accountability, the reforms supported by the Grant would also help restore confidence between the population and the State.
53 157. Macroeconomic risk. The success of the grant will depend critically on CAR’S adherence to a medium-term macroeconomic framework elaborated jointly with the Fund and the Association. Deterioration of the external environment could weaken the operation, in particular the global economic slowdown which impacts negatively on CAR’S tax revenues, thereby undermining the Budget. These risks can be mitigated
, through a combination of policy adjustments and inflows of donor funding. Reducing substantial downside risk from the uncertainty about other donors’ support and crowding- in donors to provide budget support would mitigate risks, The Association and the Fund’s role in coordinating aid support from the donor community are critical in this regards. Two potential avenues will be explored: (i)sustaining dialogue with partners to encourage timely disbursement of their budget support; (ii)and using CAR as a case study in a program on EC-WB coordination, in an effort to promote more predictable aid flows to fragile states.
158. Vested interest risk. Benefiting from Government instability, vested interests have in the past exploited weaknesses in the governance framework and appropriated natural resources to their advantage. This risk is reduced through strong up-front reform measures in tax exemptions management, and by ensuring proper functioning of external organ controls (Court of Accounts) of Government operations, and by moving forward the implementation of the new procurement code in particular the operationalization of the Bidders complaint mechanisms, the implementation of a transparent information system with respect to forestry revenue accruing to communities, and by suspending the issuance ofnew mining permits until the adoption ofthe new mining Code.
159. Institutional capacity risk. A significant risk is weak institutional capacity and delays that could arise from these capacity constraints. Despite achievements in terms of building up capacity in CTPS-PAS, Ministry of Finance, and the Ministry of Planning, Economy and International Cooperation, major constraints to the implementation of reforms remain due to weak institutional capacity to prepare, implement, and oversee reforms. Risk of limited implementation capacity is mitigated by (i)sustaining reforms that have started generating positive results and in which the country already has developed stronger capacity such as in public finance management and governance; (ii) concentrating on a limited number of themedareas; (iii)ensuring that the most difficult reforms are taken up-front; (iv) donor harmonization which reduces the number of activities to be implemented by the Government and help target efficiently the focus of technical assistance; (v) and funding for critical actions. The Association is providing financing for fiscal reporting, revenue mobilization capacity, and governance in the mining sector; UNDP and France are supporting the transparency and governance programs; the EC is involved in the AFLEG agenda; and France, the EC, and AFRITAC are supporting the budget management reforms. The Association will coordinate with CAR’S development partners to enhance synergy and improve the efficiency of the EMGRG 11.
160. Fiduciary risk. As the CFAA and the PEFA revealed, financial controls in the CAR are weak. Improvements in fiduciary standards has been a central objective of the RIBSUP and EMGRG Iprograms, and measures under these programs have allowed for improved financial control, including the closing of Government accounts in commercial
54 banks, deployment of treasury agents in all line ministries generating revenues, and operationalizing the financial control units in line ministries. The proposed EMGRG I1 will continue to sustain improvement in budget implementation and fiscal reporting. Since this operation is designed as a one-year stand-alone operation, based on prior actions and subsequent follow on measures, IDA can adjust subsequent operations to the pace of implementation and satisfactory usage ofprevious grants by the Government.
55 Annex 1: Letter of Development Policy
R6publiqrre Ceritrafiicaiire Unit4 - Dignllc’.- Travail
...... I..*..... 13iwviun de Cuhinri ...I..*...*..*. BanmClc Fttr LUUY ~ef.Q .$A % u, 120 09ihl~Ec I~DIRCA B
.A Monsieur Rebcrt H. ZOEI,LICK President du Croup tic ltt Banque hloridiule 1818 E1 Street NW,Washington D.C. 20433,U. S. A.
Ohict :Trausrnissiun cte Ia tettre de Politiyue dc DBveloppement en appui A la requCte d’un Don A la Ripublique Centrafricaine ktonsieur le President,
J’ei l’honncur de vous trsnsmcttrc la lettre de Polftiyue de DBveIuppement du Guuvenieinent de la RBpubliquc Cenuafricaine en vue d’appuyer la requdte relative B la sollicitation aupres de votrc institution, d’un Don dont le montant s’6lbverait 15 millions de DohUS.
Pour le moment le pays a besoiii d’un appui cons6quent pour poursuivre la mise en auvre dc son Document de StratCgic de RCducrion de la Pauwett (DSRP), dans un contexte marque par la fragilite dc I’environnemcnt financier, 6conomique et social. La rcprise dconumiquc :%mor& ces dmidres annh grace aux rkfi7rmes angagkrs par It: Gouvernsmrnt, est encore timide. Certes, nialgr6 une amdioration dc la gcstion des finances publiques, la situation fiiianciere demeure toujoun difficilc avcc Ics flucmations dcs prix du pdtrole, la persistancc au niveau intcrnational de la mise financiPrc ct Bcontmiiqtie, urie huse taxable trbs rPduitc et une rnvbilisation insutfisnntr des ressources extdrieuras en cornparaison avec l’aide au d6veloppemeid WFU par les autres pays past conflit. Dans cts conditions, 1’Etat nc pcut ni assurcr lcs scrvices de la dette cn wc dc garantir l’attcinte du point d’achhcmcnt de I’Imtintive dcs Pays Paiivres Tr&s I.lndBt16s ni pousvoir uux bcsoins dc reconstruction clu pnys.
Le don quc nous sollicitcrns, sous la fomic d’un troisi6me appui au programme dc rCcngapmeiic ct de renforcmnent des institutions de I’Etat, doit aider uu deblocnge sur deux plans h savoir : incitation B Iti inobilisation de l’aide de la cominunautk internationale d’une part et la consolidation du renforccmeiit de capaciti des institutions dc 1’Etat B mettrc en aui-re convenablernent la politiquc 6conomiquc ct sooiulc tcllc quc dbfinic dam ICDSKP.
Sur le plan de la inobilisation de l’aide internationale, les ressources que vous allez mettre B notre disposition contfibucront a la couvcrturc d’unc partie dc notrc bcsoin de financement pour latroisihe ann& de mise en muvre de notrc programme ~ppuycEpar tu Facilit6 pour 1s kidduction de lo PQUM~~Bet la Croissance (FRPC). La deuxii?nie reme du programme qui vient de se derouler est satisfaisante.
Kur Marliri Cutlrcr KINO’ B.P. 696 Uongui Ncpubliqw centmfricuinr & Tcl. :t236 2i 61 92 85 Fax :+236 21 61 96 89 Email :I;srbitrc~~~i~iolurr-rcu.arL web ;nin,w.miiplun-rcu.org.pIan-r~a,#r~
56 Toutcfois, l’attmtion paniculi$rc quc ICGouvcmcmcnt accordc a la realisation des dCciencheurs do~c des nwranccs pour attcindre le plus rapidemcnt possible ICpoint d’ach(?vcment dc l’htiative PPTE renforz8, uliime vuie tl’all&gemtnt substiintic1des suvices de nor dettes.
Concemant le renforcemcnt de nos institutions, lcs mcsures structure!lcs appuykes par votre don sc conccnh-cnt sur I’am&tioriitron des points importants de la gouvernance, notamrnent la gestion de.; finances publiques et des rassources naturclles, ofin de tirer les bbnifices pour 8ppuyer la reconstruction du pays. Elks siennent en complhent des prtrgtes dejk rCalis6s grice notammeiit & l’appui de la Banque Mondlalc B travcrs lcs miscs cn ccuvrc dcs LICWS 1 et 2, La rbnlisation dc ccs niesures sera f‘dlitee por la mobilisation plus importante de f ’assistance technique au nii.mu des iiistitutions de gestian Bconomique et financiere a trwers le LICUS 3 de la Bauque Mondiale, mais aussi par Ia BAR, l’llnion Ewo~~S~MCet la France.
Votre inslitulion a constat6 la prise d‘un ensemble de riiesures prkilahles dont tcius les documents justificatifs sont deja prtsentes, traduisant notre dbtermination a nous attaquer de manitre inergique aux difficult& auxqudles fait facc le pays.
Nous elnettons le VEU que l’examen de ce dassier reiiconlrt: l’wis EnvosabIe du Groupe de la Baiique Mondiale et vous prions de croire, Monsieur le President, B l’expression de notre considiration distingu6e.
57 LETTRE DE POLITIQ 11 DU GOUVERNEMENT DE LA REPUBLIQUE 11
INTRODUCTION 1. LGProgmnune de pulitique du gouveriiertiant de iatge ouverture, pour la consolidation de la pais et la reconstructio~idu pays. en vue du niainticn de la croissance dconomiquc soutenue et de la luttc efficnce contre la pnuvrell., s’uppuic sur lcs qunfre pilicrs drr Document de Stratkgie de R6ductien de la PauvretP (USIIP) pour la p6riode 2008-2010. Ce document de trois arts qui est prepart en associant toutes les couches de la population nationaie ct Ics pnncnaires intdrieurs ct cstCrieurs, sera cnsuite npprufondi et &tendudam lzs pmgrumnies et strat6gies sectoriels.. 2, Les quam pilicrs du DSRP que sont : i)la tcstauration dc la sicuritd, la consolidation de la paix et la prkventinn des confits ; ii) la promotion de In bonnc gouverntincc ct dc 1’Etat de droit; iii) la reconstruction et la diyersification de I’Ccunonde el; iv) le DCwloppemtnnt du capital hurnain 9 trawrs I’anidlioraiion de 1’acci.s des populations aiix scrviecs socinux de base principalement l’ 3 Le 1roisii.m nppui budgdtnire ti11 programme de reconstruction de I‘Etat qui s’inscrit dam le ~ni%ir:cnntextt: des deux premiers (LWOI ct DPoIi). sc coilcentre sur l’ani4lioration de la gestion des finaices publiques et des ressourcces nalurcllcs, ainsi que d’autres aspects de fa gouvcrnance (lutte come la corruption). Dans le contexte de la crisr linanci8re et Cconomiyue nctuelle, il contribue tf l‘amdioration de la gouvcmmce (pilier ii) et prepare 6galtl;mc?iil:3la divetsi1kution el h I’accroissement de la production (pilier iiij par des dispositions ayarrt trait d la s6ctirisnrion des investissernerits dms les swteurs minier ct forcsrier, 4, Dms les domaines retenus, il slagit de jekr Ics bases, ct de rrnlbrcrr la ciipacit6 de I’Etat B pouruuiLrc In reconstruction du pays, tout en rcstaurmt la confiance entre tow les acteurs du ctiveloppement du pays. Afin d’cnvoyer un signal fort, cctte restauration repose sur l’acioption imntidiale d’un pqurt dc mesures prhlablcs B la soumission de la proposition dc don au conseil d’adniinistration de I’hssocintion. qui s’il Ctait apprcluvi, sign4 et en viyucur. scrait dtcaissC en traachc unique. 5. Le rapport d’evaluation de: la pramiire rinneu dc mise cii uxsrz du DSW a relev6 d’irnportants ncquis dont notaiiiitlent la cril~~rencede l’action yowernementalc ri lwvcrs le hctionnemcnt dcs comitds sectoricls. Cepandant tin certain nambrc dc contraintes restent pr&judiciables d une meillcure impleiiietitation de la strat&ie pourraient atteiiuer les effits, cscnmptCs. I1 s‘agit entre autrc de ; i)la mohilisation des ressourccs, ii) la faiblcsse des capacitks Izumaitxs et iiij la pcrsistancc dc la crise financikre et 4conomiclue internationale. La feuille de route du f3ouvcniemcnt sem guidee par I’alteinte: des rCsuItats en rappm avcc la matlice iietualisde des mesures classdcs par ordre de priorit6 ittilctur des problGmes d&jS idaitifids. 1 58 6. En matiere des finances pilbliques, les IU~SU~~Epr6alahIes garatitissent La borne exCcutiori dzs dt5penscs de 1'Etat au cows de I'amie 2009 en niettmt en ptace un pl:ltl campkbk coli6reiit avec les nomies OIIADA. La fiabilite ~LIcompte de gcstion el7 cours dc tinnlisation rcposc sur fe reItfurcament des capacites techniques et institulioitnelles de la cours des coiiiptes avec unc augmentation dc leur allociiticln budgitaire et la gcstion des crCdits directemen1 par le respotisable ii tmeecs une deltigation di: I'orcloIznntcur des crCdits. 1 .;t femelure des crimptcs resraiits d;ins les hnnques cornniercinles ctrnstitut: UII pcogks imporzai~t1w-s la mise en ptace de I'uniciti de compte du Trdsor au nivcau dc lil Bmque Ccntrnlc et amdiore le stiki de l'utilisation dcs f'onds publics. Le rcnhrcernent de la capacit6 de mobilisatioti des ressources repose sur I'actualisation des fichiers SYSTEMIF de la direction Gdndralc des Imp6ts a partir des donndcs du reccnscrnent financC par le PNUD et aussi un bon suivi dcs cxonbmtions. D'rrutrcs aspects dc la gcstion publique et de la gouvernancc soni Cgnlement comerii6s par les niesures prialabbs : la mise en Cewre du code de pussadoit des marclib publics par t'approbation du caliier des clauses administrativcs gcSndraIcs et la dCsignntion des membra du comitd de rkglement des difErcnds ainsi que In suspension de l'octmi des nouveaux permis dans le secteur minier jusqu'ii l'adoption du tiouveaui code niinicr. 7. Lcs hypothbscs qui sous tcizdcnt ICprojct de loi de fitianccs 2009 en l'abscncc dcs donnks concernant I'irnpact cic hi crisc linanciCrc ct r'conarniquc. inicrnationnle, sc fondent sur les perspectixes &xmomiyues en 2009 et Izs rhilisnlions ri mi-parcours de I'exkution du budget 2008. Cependaiit les premikres =&valuations de I'impact de la crisc, indiqucnt claircrncnt que les principaux produits d"csportation du pays sont et seront durement nfTeclds. 8. En 2009, lcs pcrspcctitvs dconomiques d6pendront i)de la poursuite de coiisolidation de la stttbilitd sucio-pulitiquc avec fc retour progressif de la s4curitC ti l'intdricur du pays grdce 12 l'application des recommandations dtt Didogtie Yolitique Inclusif, ii>dc la stabilit6 niacroCconotnique avec le renforccrnent de la conliance des opernteurs dconomiques, iii) du redrcssenrcnt des cours des mati&es premieres, iv) de la slabilisation des cotrrs du ptitmle. v) dc ta poursuitc des rdformcs cngagdcs par IC Couveriiement avec le soutien des parteiiaircs d6\&qpr It et clu luncemcnt dos aperations de rcconstruetioii des infrastructures de base ainsi que de la consolid-it'L Ion des relotiot-rs nvcc lcs Institutions Financihw Intcrnationales avec la perspective de l'atteinte du paint d'achkvenzenl (le I'IPPTE. 9. L"uricntntion dc la politiyuc dconomique pour la rkduction de la pauvretti et la consolidation de Itr croissancc: &wnomiquc soutenue, csige entre autws, une niobilisation suffsante des ESSO~ILC~Sbudgkluircs. La misc en axic~ede ccttc politique pennettra d'oobtcnir un taw de craissance Cconoiiiique de 3% en 2009 avec tm taw d'invcsfisserncnt de 13,3% ct un tau de pression fiscale de 10,3%. C'e niveau du croissance serait snutenu prir IC.mninticn de I'activitc! du secteur priinaire, avec un Iaux de croissaiice de I,G%. En linisun avec un certain nornbrc de contraintcs, le secteur secondaire atteindrait une croissance d'en\.iron 1,3% et CQ. grrice B la perspectivc de dkmnrrage des grands tmvaus routicrs en 2OOc3, 1.e taw de crnissance Cconomiquc du secteur tertiairt se situerrli t A 4.4% cn 2009. 2 59 10, Dans ce conteste. ICPlH h pis courant scrait estinik a 936,521 milliwds de FUFA 211 2009. C:u ~~i~eaude croissatice scrai obtenu grikc : i)mi soutien de la production des vivriels avcc la misc cn couvrc du projet de la crise alimeiitaire financd par la B8anclue Fvlondiale et In Hanque Afi-icaine de Dtivelappcrnent: ii) B lu reprise des grands cha~~ticrsde construction de route (Bouar - Ifj.rmt-Mbbntilai’, 13 rthabilitation des rucs de Bangui) ; iiij ti la goursuitc Lie I’rxterision de la couvetture ttl6phonique iI’intLCrieur du pays ui; ii*)ir In poursuite des r%forines des finances pub ICs ElVeC l’app11i rnuitifhrme des palterlaires au ddvcloppenictn. 11. En mati&rc des recctttls. ler prt3visions de recettes tiscales pour I’annk 2009 se solit t*n1xt6tsSUI’ celles de 2008 et 2007 rcvues h la hausst.. Cor, la rgprise dcs recettes eilregistrkes en 2009 est cntrctcnue par Ics dispositioiis des lois de finances 2006, 2007 et 2008 coupl&.es ZIUX dvoliitions spniitttnks et h la mise en wuvrc d’umc s&ie de trresures strwturelles adininistratives. Le niveau dcs rcssources proprcs atteinclraif 1 1#,9 milliards en 2009. A cela il. fnut ajouter, I’uppui linancler extbrieur. 12. Las rncsiires structurelles CWCE~~IGI~~les administrations des Rdgics de 1‘Etat. ALI riivtxiiiu de la Direction Ciinlrale des ImpBts, Ics cffons obscrvds en 2007 et 2008 doivent 6tre consolidds et amtliores en s*appuiyant sur les actions suivniites : i)tilurgissemenl de l’assietle de la ‘SVA it travers la suppressian des exonemlions B la TVA 5 l’esception des transactions ei’ectudcs par des organisrnes fonctionnant sur financemcnt extkricur, l‘assrijettisscmcnt dcs conkihunbles scriiniis nu minirnum fiscal et t?i la paterite h cause de letir clziflre d’affaires, la gCnBralisation du prilkvement h la source de la TVA ii) l’intensification des contrSles ciblis y canipris le contrale des stocks, iii)la dCnonciation des contrats de hail r6pntCs fhntaisistus, iv 1 J’inrensificotion de recnuvremenls des t.uriCrds i>scriux. 13. A l’impact dc scs mesures s’ajoutc l’incidence dcs aeLivit6s dconomiques ci-dessus indiquCes, sur la base taxlxiibli? : i)13 drirnamugc cCos trtiwux routiers; ii) I’impact du paietnent rdgulier des salnires sur la consoinmulion ; iv) 1’Clurgissemcnt des activitks fcrrestieres aux nouveIles sociitks. 14. ALIniveuii de In Direction Cidndrule des Doitzmes, leu amdliorutions porlcrunt sur : i)Ir: reriforcenient des capacit6s du Guichet Unique dam son rdle dc sCcurit6 des flux ili l’iniportation, ii)le reriforcement des Cquipes aux frnnti6res pour suivre la canalisation dcpuis ta frontihe jusqu‘h 1’intCricur du pays, iv) la prisc en chargc au niveau du tcrminrit h ccmtcncur, v) ia poursuitc dc I’appropriatiun de I”uutj1 infcmatiquc SYDONIA ++, vi) I’eiic~~uragriiit:~~fde Is reprise cctiisi-quenle ciu lrafic fluvial. vii) tu poursuitc dcs reforiiies, viii) la maitrise de la fiscalit6 pktroliere awc E‘application de [a farmule automatique sur les prix de. ..., ix) b’applicntion du droit d’accises au cordon douatiier sur ICviii en wriic, l’alcoal Ctlq-liyiie et 1~stsbacs, x) la suspz~~sioede la ddfiscalisation dc ccrtains produits (Cirnent. Tgles) . 15. Au niveau de In Direction C’i6116rule idri Trksnr, la Direction dti Recouvrement et des Poursuites consolidera les acyuis, it travers ; i) I‘Clargisseinent de l’assiette de recouvrcment tiuprds des niinisttres pour I’arndlioration des mcnues recettes, ii) Ia mobilisation de fbrirls de crsntropmie des Dons japvnais pour le financcment des dkperlscs des sectetirs SanlC. Education et Agricuflure, iii) la mobilisution de Londs des effets de la reevaluation des redcvance des telCcoi.nmunicatjnns. 16. La contribution des rcssoiirces extericurcs 811s invcstissemcnts est passdc dc 3 1,4 milliards de francs en 2008 h 3(5,4 milliards en 2009. Ellcs sont constirui.es 3 60 uniqueitic nt clus s uhv om aux projcts d'investissernent d'un niontant de 39,J miliiards dr: francs. augnmitation cfu finaiicrrnetit cxzericur s'cxplicluc prle report en 2009 des grnnds prqjets routirrs dtrnai?.&scn retard on 2008. et par ICs projets dans leu sectecirs tie I' tricite et de 1'hydrclulique. Par ailleurs, les activit& prevues sur financement ester sont crtract&is&s par la prtdominmcc dcs scclcw soc ism. 17. S'agissant des dCpeiises. cehde IlfitEit ont augment& cle 20Yi par rapport A 2008. Elks sont passCes de 150.9 milliards cn 2008 6 181 ,O milliards en 200 de rigidit6 sont importants. En effet, le respect des iiorrncs CornniLinau ICddficil huclgdtaire n'ccxckde pas les 3% du PID. Le contcxic n'est pa la r6disation de cet objcctif compte tcnu du dkblucagc: pa ef des safaires des fonctionnaircs et agents de 1'Etut et des inscriptions nouvellcs A prrlvoir en m:itiCre de ddpenSeS RESTAURATLON ET hlAlNT1EN DE LA SOLVABILITE EXTEIUEU 18. La RCA a bendfici& d'un aElCgernent interimaire rle 90% du service de sa dcttc multilatr5m'ic au point de dCcision cic I-initiative PPTE, depuis le 14 janvicr 2008. Cda fui permettra 21'~ssuter rigtilitrement le scrvice de la dette. et rtc bht!ficier de riouveawc coiicours B taux concessionnels des banques de dBveloppement. Ides cr6mcicrs of*ticicls ont t'rd sotlicit& porir s'engager ti inaintenir des trarisferts nets our msurtir le trriitarnant equitable parmi ~QUSles creditcurs ainsi que la nancikre du programme. 19.L'Union EuropLCcnne, fit France, !a BAD et la plupart des RajHcurs de Fonds n! sous forme de Dons. Idacornparaison entre le niontant de dons rgus par proportion du PII3 et lcs autrcs pays post-conflit est tres peu cncourngennte pour notre pays. the fois franchi le point d'achGvement, le prugraniine du gouvernernent devra mobiiiser des appuis essentiellement sous forme de dons et prPts coiicessionnels beaucoup plus importants, afin d'ntreindre un niitcrtu de tninsferts nets af3ciels positifs et consijquent, de preserver le profif de la te et assurer le service rCgulier de la delte. Le financement intkgral des mesures et actions pr6vues l'eesige. ACTION PREALABLEES 20, GESTIO74 DE LA DEPENSE. Les actions prCalsbles s'attaqucnt principalemcnt aus problbmes scncontr6s dans l'cxkution des ddpcnscs budgrltnires 6 wavers la mise en place d'un nouveau circuit de In ddpcnre et un nouveau pl~mcclmptirbie euhCrent avec 1es mxiiies UHAUA. La p&serrtntiuri de In Loi de r&g:lement2008 it11 Psrlement est un dcs objcctifs fondamcntaux du prograrnmc. Lcs op&r&ioiis dc rcnforccment pr6vucs par IC LICUS III permertront d'iintkgrer exhaustivement les depenses dam la chaine budgktaire afin . de finalism uti cvrripte admiuistratii'et de passer i1'6labordtiuil de la toi de r&gleinenl 2008. Le renforcettient des capticires de !a cow des comptcs est indqxns:iblc pour la rkussite de cet engagement. Ilne tinaiyse rnerlCe par le Ciouverrterrrent sow I'assistance technique dti FMI et les rCsultnts de l'audit du TrEsor ~iitfait npparaitrc la ~~dcessitdde rdduirc In muftiplicite de crs coinptts sur lesquels le Trtsor n'a pas forcetilent contrblr: et dont les inouvernents ne sont pas retr s dam le cadre des opPrations du Trt2sor. Le Cjou, miemeiit et la mission orit arrgte tine liste de 52 eurnptes rl fentier irnmcidiuterncnt uvarii 16 14 junvicr 2009. Ces cottiptes sont des coriiptes d&biteurs actifb, La transpareiice est assun% par la presencc de conseilfers techiiiques financks pur les pancnaircs BU ddvdoppcmcnt qui participent L?LI groiipe de rkflexinn sur !"audit dcr ccs eumpics mi CQ~Sdc I'iimCc 2008. 3 61 2 1. GEST’tOS DES KECET’I’ES. Ac~~eiieri~etr~,clans le cadre: dit Iecutiwernellt des rccettes dc I‘Etat au i~iven~dc la Dirccrion Ci&l~rirrdcde? lmp8rs ct cics Il)om:linas, It: Uvuvernenletlt ‘3 actualis& les bascs dcs dantidcs SYSTEMIF et SYDONIA B’VEC lei; nouvcllcs wtil&s ~conoiniquesqui otit it6 rocensies sur le tcrrain grlcc at1 ftiianccinent du PNUD. 11 s’ngit d ’onri buer le nurztCro d ’idsrit ification fisc ate ii f)37,0 iiiiitss Ccoiiotniques. Coticernatit I’octroi des cvondmtions, le Gouvcnicinent B public! unc: instruction ministCrielle pout instruire le$ Directions C@n&rdesdes Douanes et: des Impdts b envoyer systCmntiq~rcmcntle compte rcndu de5 exonerations accordees etjou rejetks au cornit@ intcrninisttricl chary6 du stiivi des fiancliises ct tscntiations fiscales et duuanibres. En min-re temps. Ies inenibres du cornit4 sont autclrisds ri accbdrr BUX bnses des doriiibes SYSTEMIF et SYDONIA pour faire leur rapport. 22. AMELTORATIOS DE LA BQNNE COUYERKAKCE. Zes iiiesurcs concernirnt ce scctcur sont esscnticllcs afin dc rcnforccr la transparence au nivcau dc la gcstion dcs rewources pubiiquos. Ilorniis I’ndoption du plan coiriptablc et I‘ani6lioration de la iiiobilisaiioii des rt~~tt~,le tiavail Ix&ilable pcrur pernwttre de metier ii terriie cette IIIBYU~~ corisiste B [i) adopter par tin DScrct. Ics Cuhiers de Clauses Adininistrntives BE GBn6ralcs pour op6rntionnaliscr la rkforme dcs march& publics, (ii) nommer IC rcsponsable de I’autoritC de rdgulation des marchis publics et iii) designer le responsabie du swrktariat pertnarxnt et du coiriite der diffkreuds pour UIIG bonne exdcutioii des march& publics eti Centmfrique. 23. S’agissant du renfircemenl de In gmverncriice duns IC sectetir iics rcssourees naturclles, ICCouvemenient s’est engage et1 rnatibre des mines 2% suspendre & travers dentiel. I‘octroi de nouvcaux pcrmis jusqu’8 l’adoption du iiouveau ccrde Minicr. Par nilieurs, en rtintiere dc It1 for?t, le Gouvernemcnt a dorm4 dcs insrructions par une note minist~riella, pour publier systkrnutiqucmcnl clans Ics communes, le mdcanisme de partage entre le Trbsor. le CASDFT et les cornimunes, le rnoi?lant de transfkrls sur les comptes des cornrnuncs pour Icur dCveloppement, ACTIOX FUTURES 24, 11 s’agit de bkir le socle de la reconstruction du paps, c‘cut-21-dire une qudite dc guu\‘ernancc Ccoiiomiquc ct we transparence financi6re garanlissant (i)fa banne lisntiorr des fbndv publics, (ii)la mobiIisarion a plein rtgime de la carnrnunaut6 intemationalc, (iii) la hannt: exCcuticm L~LWsiicct?s ciu DSRP, ct (iv) le retour des invcstisscuru. d’abord dam Ies sccteurs niinier et fbrestisr pisdnns Ics uutrcs secteurs avec le retour do la eonfiance rdtablic, 25. Nous entendons rdaliser des avanc6es signi ficativcu iiu niveau du cadrc mucrokmornique et brrdgdtaire aiiisi quc sur les aspects clefs de la gestion publique : bonne gnuvernnncc li&ti la sticwisation des ressources publiyues, des iiivastisseurs el des ressources imturelIes. 26. S’ngissanl du cndrc macroCconomique et bud@aire, les rdsultuts attcndus sont : IC maintien du cap kconorniquc ct budgdtairc, unc augmentation significative des recettcs fiscalcs qui est indispensable pci~irle rcltivement des dipcnscs et la rkduction dr! la pauvrcte, la rnisc en ceuvre des prog:rammrs d’irivcsti mCnt du I)SRP compatibles ave~les priorilds. l’dlaborntion d’un budget 201 0 selon UJW aomenclulure bucig&taire hamioniste avec la nomenclature comptable en tenant compte de la base des cfonn8es socio-Cconomiques fiables. Par ailteurs. nucis ovans l’intention de rncttrc en reseau les directions gCndmles du Budget ct Trtsor atin d’Cviter I’accnmuliltion des nrridrds intirieurs ~iou~~a~ixde toutc niltiire et d’en rCduirc le stock existani. En mQine temps, 5 62 la SOUITIISS~OI~ fila CCIUI des COIIlptes, des comptes de gestioti 2008 ct 2009 ct dcs lois de r2gIenient corrcspoildalit cst unc prioritc. 11 s’rigit !ii d’une tnesiire cssentiellr pour aider A la restaurntjon de la ccrniiance des partmaires Cconoiiziqucs et sociaus dans IC ga IIW ernennen t. 27. S‘ngissnnt de I’amCliorniion des rec s. le Ojouvernetrient s’engage d n reseau. le burcau dn coiiiite inteiministe‘ricj charge dc suivi dcs franchiscs et exondrations fiscalcs et douanitrcs awc ICs SJ sGmcs dc pcstion des hoses de donndes SYS’I’EMIF ct SYDONIA. Ce ccimi?ksera ctiiug$ cle publier seinestriellenlent dal~les mkdias qui sont Cacile17ient accessibles au grand public, la liste des esoii6rations y compris ICmontant total ct la listc des bbntficiaires ninsi quc les conventions. I1 transrnettrii annucllcmcnt les rt5sulmts de ses nctivittjs nu parlernent pour suivi et appr8ciaticsn. En outre, le Gsuveriiernent s’attellera iitiettre en phase la Charte Nationale d’lnvestissement aux differents codes sectoriels avec la Cham Regionale d’ invcstissement. 28, La lutte contre la corruptio~~sera intensifiee, avec I’adoption d’un texte pour la protection des drhoncinteurs en maticre de corruption. Dnns ee SCIIS. il R dtk conl’cnu etut: I’expert du PNLJD puisse appuyer !e Cjouvernertient dam 1‘Cfnburntion de ce texte. En mCme temps, il est important de faire meanalyse des irisuffisaiices airisi que des imperfections conceinnnt la conformit6 B la coiivcntion de I’ONU coiitre la corruption. Par ailleurs, en rnnlidre dt! pussotion des rnurch&s publics, le Gouvcrncment s‘cngagc 21 faire une revue de corifortiiitk des nouvelles proc&dures. 29. En irialiZre de validation et dc publicotion des comptcs ITE 2007 et 2008, IC d6partememt des mines doit accgierur le travail d’uudil de 1’Administratcur Independant qui a Ctd recrute par la Barique Mondlole cia^ le cadre du IACXIS 111 en iwe de rddiser ccttc activit6 dans le delai. 30. En rnsrtierc d’application du tiouveau code nkiier, le Guuvarrrerntmt s’engtqge li appliquer syst6matiquerncnt les nouvcllcs conventions standard nux 11011veilu)c invest is szu IS. 31 I Dans le cadre de l’iinitiative PFTE, et dam le sntici de confii-mer l’optioti de gcstion rtilionnelle ct durablc des ressources forestiires. le gousertiemetit s’engagt: h mcttre en euvre I’adhCsioii au processus AFLEC; conforni6ment aux dispositions du nouveau Code Forestier. RES trLTGT S ESCOXlPT ES 32. TAU rt‘sultnts csconiptds de ce programtile, que iious comptons pt-oIongcr sur IC inopen terme, sont d’aborti iinc mcillcurt: coordination et I’tiarinonisatiriri des acticms des parteuaires de d&~eluppetiient mitout des prineipales prioritis du Crouvernernerrl, tels que dCcrit dans le DSRP. h’c~usvisans aussi line fortc m@iiorationde la gestion des finmccs puhliqucs dans tous les doinaines, tion ssulatnent sur ICplim budgCtaire ct coinptahlc nink atmi coneernnnt 1”obligation de reiidre compta. Nom nttnchonv kine importance pafliculi&+eP I’am&lioratiun de Ia gestion dcs finances publiques A travers la bonnc exdcution du budget 2009 et la mise en mitvre d’unc r&farme fondai~ientale du Budget ct TrCsor. Ce qui est a notre avis un ~lhicnt.esse: 1 notre programme de refortnes Cconorniques cl sociales. Au nivcau de la gnuven~anoe,now escoriiptons 63 une nm?lioratmn ciii cadre des affaiscs. ce qui dcvrait se tructuirz ptlr LIJW ilug~nentation de i‘investissemcnc privc, tant national qu’ilrirunger, no~~nirnentdam les secrcws rninizr et foresticr qui pourraicnl deLcnir de weritahies ptiles de croissancc. Enfin, im nivcau de la gcslirtn des ressources publiques tant financii-res que natu visons line forte ainklioration de la gouvernnncc en gCnGrrzl et dt: la trnnsparence, particuliiircmcnt concertiant Ics passations des r7trirchCs publics. CADRE INSTITUTIOSNEC DE AIISE EN UCUVRE DlJ PROGR41\1Ilc(fE 33. Le programme sera exbcutb par des structiires existantes qui ont fait leur preuve dans progrnmInes pr&cldciits nntomment les deux programmes post conflit snutenus par le Fh41 et la Banque Mondialc. II s‘agh notamment du C’l‘P-f’AS. Elks sont fedCrees par un cornire inrcrministh+A de pilotage compos6 des Ministrzs impliquds dnns la mise en atitre du psagranime. I1 s’agit, nataninient bu Ministre des Finances et dri istre d’Etat aux hlines et B 1’Cncrgic. du Ministrc des Eaus et FarCts, Ia Justice, et du hlinistrc d”Etnt nu Plan, d I‘Economie ale, qui en $issure la Prdsidcnce. Le cornit6 de pilotage dkfinit les orientations stratdgiyues des travaux iexectiter par les deux structures dc gestioii du programrie qui lui rendelit compte pririodiqucment par des rappons de suivi de I’Etat de mise cn cawre du programme. Ccs rapports valid& sorit riiis ii la disposilim des hailleiirs de foiids dont la Bnnque hltbndiale. CONCL 1:sr ON 34. Le Gout’erncmcnt du la RCp liquc Ccntrafricainc saisit cmc occasion pour son engagement exiiculer eflicricsmcnt ICprugrirmmc cidcril dans la presente le‘ttre de Politiqut. de Udveloppement Ei l’horizon de trois (3) aim, If est persuade que l’eesecution effilciente et satisfaisante de ce programme complttem les tnesures ddj8 priscs dans le cadre des deux derniers programmes et eontribuera i relancer l’c!contrmie nrrlirrnuEc sur iinw btisc mine el durable en vue de lu rkdueticm de la pnuvrerk. Au regard des rtXcmnes macro~con*miquesckjh enireprises et B la iumikrc des objectifs fish dans cf: ptogrammc et des TEsultats obtenus au cours du Programme oppuyC pat. la FnciIitC pour Za ICCrluction dc la I1auvrclB ct la Croissmce (FKPC!) qui sont tits encourageants, le Gouvemeniettt de la RCA VO~IS invite li considkrer favorablurncnt sa rcquetc dc financcnicnt du 18 f6vrier 2009 visaiit l‘octroi d’uii don dquivnlont L\ eiivirun 5 millions de dollars US i slpporter cornme apprii budg6tairs pour cornplCLer It. financement de notre Ceunornia. Nous esp$rons aussi pouvair vite recevoir des financementa supplkmeritaires a travcrs : (i) le mecanisme de ct-ise haricEre el Ccononiiquc pour 1cs Emu fragilcs qui ont dt4 durement touches. Enfin, nuus l’itiitlative PPTE reriforcCe Jam etaiit donnd que notre dette cxtdrieure est insoutenable. 7 64 LETTER OF DEVELOPMENT POLICY OF THE GOVERNMENT OF THE CENTRAL AFRICAN REPUBLIC FOR 2008-2010 CENTRAL AFRICAN REPUBLIC MINISTRY OF PLANNING, ECONOMY, AND INTERNATIONALCOOPERATION OFFICE OF THE MINISTER No. 0424/2009/MPECI DIRCAB Bangui, February 20,2009 Mr. Robert B. Zoellick President ofThe Association Group 1818 H Street, NW Washington, .D.C. 20433 U.S.A. Subiect: Transmission ofLetter ofDevelopment Policy in Support of the Request for a Grant to the Central African Republic Dear Mr. President, Ihave the honor to transmit to you the Letter ofDevelopment Policy from the Government of the Central African Republic, in support ofthe request submitted to your institution for a grant in the amount ofUS$5 million. The Central African Republic currently requires significant assistance to continue implementation of its Poverty Reduction Strategy Paper (PRSP), against the backdrop of a fragile financial, economic, and social environment. The economic recovery that started in recent years, as a result of the reforms undertaken by the Government, is still proceeding, but at a halting pace. Without a doubt, despite improvements in the public finance management sphere, the financial situation is still difficult, with fluctuating oil prices, the persistent nature of the international financial and economic crisis, a very small tax base, and insufficient mobilization of external funds relative to the development assistance received by other post-conflict countries. Against this backdrop, the State can neither guarantee the debt servicing needed to reach the completion point under the Heavily Indebted Poor Countries Initiative, nor can it meet the country’s reconstruction needs. The grant we are requesting, in the form of a third contribution to the program for the reengagement and strengthening of State institutions, is intended to help clear the way on two fronts: (i) greater mobilization of assistance from the international community, and (ii)strengthened capacity of State institutions to appropriately implement the economic and social policy set forth in the Poverty Reduction Strategy Paper (PRSP). Regarding the mobilization of international aid, the funds with which you will provide us will help to cover a portion of our financing needs for the third year of implementation of the program supported by the Poverty Reduction and Growth Facility (PRGF). The second review of the program, 65 which just took place, is satisfactory. Moreover, the Government’s particular emphasis on achieving the triggers serves as assurance that the decision point under the Enhanced HPC Initiative, the ultimate path to achieving substantial debt servicing relief, will be reached as quickly as possible. As regards the strengthening of our institutions, the structural measures supported by your grant will focus on strengthening the important areas of governance, in particular public finance and natural resource management, in order to best support the reconstruction of the country. These measures will complement the progress already made, thanks especially to The Association’s assistance through the implementation of LICUS 1 and 2. Their execution will be facilitated by the increased mobilization of technical assistance for economic and financial management institutions through LICUS 3, supported by The Association, as well as the African Development Bank, the European Commission, and France. The Association has noted that several prior measures have been taken, for which all the supporting documentation has already been submitted, thus reflecting our determination to tackle head on the problems facing the country. It is our hope that review of this dossier will lead to a favorable decision by The Association Group. ’ Yours sincerely, /SI Sylvain MALIKO [Ministry stamp] 66 INTRODUCTION 1. The Government's expanded political program for strengthening peace and reconstruction of the country, with the aim of maintaining sustained economic growth and effective poverty reduction, is based on the four pillars of the Poverty Reduction Strategy Paper (PRSP) for the period 2008-2010. This three- year program, prepared with input from all strata of the national population as well as domestic and foreign partners, will be subsequently deepened and expanded in sectoral programs and strategies. 2. The four pillars of the PRSP, which are to (i)restore' security, strengthen peace, and prevent conflicts; (ii)promote good governance and the rule of law; (iii)reconstruct and diversify the economy; and (iv) develop human capital by means of improved access by the population to basic social services, primarily in the areas of education, health, and combating the HIV/AIDS pandemic, already provide the broad outline of the reforms to be implemented by the Government with a view to reconstruction of the country. 3. The third budget support program for State reconstruction, which falls into the same category as the two previous programs (DPO Iand DPO II),is focused on improving public finance and natural resource management as well as other governance areas (such as combating corruption). In the context of the current economic crisis, this program helps improve governance (pillar ii) and also paves the way for the diversification and expansion ofproduction (pillar iii),through provisions related to the protection of investments in the mining and forestry sectors. 4. In the areas identified, work will entail laying the foundation and building the capacity of the State to forge ahead with the country's reconstruction, while restoring confidence among all the country's development actors. In order to send a strong signal, this restoration work is based on the immediate adoption of a package of measures, prior to submission to the IDA Board of the grant proposal which, if approved, signed, and implemented, would result in the grant being disbursed in one single tranche. 5. The progress report on the first year of PRSP implementation highlighted a number of important achievements, which include in particular consistent government action through the work of sectoral committees. However, a number of constraints continue to hinder more effective PRSP implementation and could adversely affect expected outcomes. These constraints include (i)resource mobilization; (ii) weak human capacity; and (iii)the persistent nature of the international financial and economic crisis. The course of action followed by the Government will be guided by outcomes achieved relative to the updated matrix of measures ranked by order ofpriority around the four pillars identified. 6. In the area of public finance, preliminary measures are guaranteeing sound execution of State expenditures in 2009 through the adoption of an accounting plan consistent with OHADA guidelines. Submission of the 2008 budget review law to Parliament is contingent on the confidence inspired by the audit office, given the increase in its budget allocation, as well as the direct management ofappropriations through the appointment of an authorizing officer for appropriations. As a result of the creation of a unified treasury account at the Central Bank level, the use of public funds is being monitored more closely. Enhanced resource mobilization capacity is based on the updating of SYTEMIF files in the Directorate General ofTaxation using identification data, with UNDP funding, and on diligent oversight of exemptions. The preliminary measures also extend to other areas of public management and governance such as strengthening the legal framework in order to combat corruption and implementing the public procurement code. 67 MACROECONOMIC AND BUDGETARY FRAMEWORK 7. The assumptions underlying the 2009 draft budget law are based on the economic outlook for 2009 and on the mid-term achievements of 2008 budget execution. They did not take into account the impact of the international financial crisis on the country's main export products. 8. The 2009 economic outlook will depend on (i)continued strengthening of sociopolitical stability, with the gradual restoration of security to the interior of the country as a result of implementation of the recommendations emanating from inclusive political dialogue; (ii) macroeconomic stability, by strengthening the confidence of economic operators; (iii)an increase in commodity prices; (iv) the stabilization of oil prices; (v) continuation of the reforms undertaken by the Government with the assistance of its development partners and the start of basic infrastructure reconstruction as well as stronger relations with the international financial institutions, with a view to reaching the completion point under the HIPC Initiative. 9. The orientation of economic policy toward poverty reduction and the strengthening of sustained economic growth require, among other things, adequate mobilization of budgetary resources. Implementation ofthis policy will facilitate achievement ofan economic growth rate of 3 percent in 2009, with an investment rate of 13.3 percent, and a tax rate of 10.3 percent. This level of growth is expected to be sustained by the maintenance of primary sector activities, with a growth rate of 1.6 percent. Taking into account a number ofconstraints, the growth rate of the secondary sector is projected at approximately 1.3 percent, attributable to major roadwork slated to begin in 2009. The 2009 economic growth rate of the tertiary sector is projected to be 4.4 percent. 10. In this context, GDP in current prices is estimated at CFAF 936.521 billion for 2009. This level of growth should be attributable to (i)assistance with food production through implementation of the Food Crisis Response Program funded by The Association and AfDB; (ii)resumption of major road- building projects (the road from Bouar to Gara-Mboulal; the rehabilitation of Bangui's roads); (iii) continued expansion of telephone coverage into the country's interior; and (iv) continued public finance reforms. 11. In the area of revenues, tax collection projections for 2009 are based on the upward revision of 2008 and 2007 figures. The growth in revenue in 2009 is a consequence of the provisions of the 2006- 2008 budget laws, along with unplanned developments and the implementation of a series of administrative structural measures. The country's own.resources should amount to 110.9 billion in 2009, plus external financial assistance. 12. Structural measures pertain to the administration of the State corporations and authorities (Riggies). At the level of the Directorate General of Taxation, work done in 2007 and 2008 must be bolstered and enhanced through emphasis on (i)broadening the value added tax base by eliminating the VAT exemptions (with the exception of transactions conducted by agencies working in the area of external financing), making taxpayers taxed at the minimum rate also liable for VAT and the business tax (patente) on the basis oftheir sales volumes, and making VAT collection at source a general practice; (ii) increasing targeted checks including checks of stocks; (iii)reporting leases believed to be fictitious; and (iv) stepping up the collection oftax arrears. 13. The effect ofthe above-mentioned economic activities on the tax base must also be added to the impact of these measures: (i)the start of roadwork; (ii)the impact of regular payment of wages and salaries on consumption; and (iii)the expansion of forestry activities to new companies. 68 14. At the level of the Directorate General of Customs, the improvements will take place in the following areas: (i)building the capacity of the one-stop shop (Guichet Unique) to carry out its security role with respect to import flows; (ii)strengthening the border teams for tracking purposes from the border to the interior of the country; (iii)oversight at the container port; (iv) continuing adoption of the SYD0NIA-t-t computerized information system; (v) encouraging the resumption of river traffic at reasonable levels; (vi) continuing implementation of reforms; (vii) controlling fuel taxation through application of the automatic pricing formula; (viii) levying excise duty at customs points on wine in bulk, ethyl alcohol, and tobacco; and (ix) suspending tax exemptions on a number of products (such as cement and sheet metal), 15. With regard to the Directorate General of the Treasury, the Directorate of Collection and Prosecution will strengthen gains achieved by (i)broadening the collection base in the ministries in order to increase collection of minor revenue items; (ii)mobilizing counterpart funds from Japanese grants for financing the expenditures of the health, education, and agricultural sectors; and (iii)mobilizing funds from the reassessment oftelecommunications fees. 16. The contribution of external resources to investment expenditures has risen from CFPLF 31.4 billion in 2008 to CFAF 39.4 billion in 2009 and is composed entirely of subsidies for capital projects amounting to CFAF 39.4 billion. This increase in external financing is attributable to the carry over into 2009 of large-scale road projects that started behind schedule in 2008, and to the projects in the electricity and water sectors. Moreover, the activities planned using external financing are predominantly in the social sectors. 17. In the area of expenditure, Government expenditures have risen by 20 percent compared to 2008-from CFAF 150.9 billion in 2008 to CFAF 181.0 billion in 2009. Rigidity factors play a significant role here; specifically the requirement to comply with the community rule that the budget deficit not exceed 3 percent of GDP. The context is not very favorable for achievement of this target, given the partial payment of salaries of government officials and state agents and new expenditure items to be covered. RESTORATION AND MAINTENANCE OF EXTERNAL SOLVENCY 18. The Central African Republic was granted interim relief for 90 percent of its multilateral debt servicing once it reached the decision point under the HIPC Initiative on January 14, 2008. This will enable it to service its debt on a regular basis and to receive fresh assistance at concessional rates from development banks. We have also asked our official creditors to commit to maintaining net positive transfers, in order to ensure equitable treatment among all creditors as well as the financial viability ofthe program. 19. The European Commission, France, the AfDB, and most donors provide assistance in the form of grants. A comparison with other post-conflict countries shows that the Central African Republic receives smaller grant amounts in relation to GDP. Once the completion point has been reached, the Government will have to mobilize support essentially in the form ofmuch more sizeable grants and concessional loans under the program, in order to achieve a positive and significant level of official net transfers, maintain the debt profile, and ensure debt servicing on a regular basis. This is necessary for the comprehensive financing ofprojected measures and actions. PRELIMINARY ACTIONS 20. EXPENDITURE MANAGEMENT. Preliminary actions focus largely on the problems encountered with the execution of budgetary expenditures through the implementation of a new 69 expenditure circuit and a new accounting plan that is consistent with OHADA guidelines. Submission of the 2008 budget review law to Parliament is one of the key objectives of the program. Improvements provided for under LICUS I11 will facilitate complete integration of expenditures into the budgetary channel in order to complete establishment of an administrative account and move on to preparation of the 2008 budget review law. Capacity building within the audit office is essential if this commitment is to be met. An analysis done by the Government with technical assistance from the IMF and the audit office of the Treasury pointed to the need to reduce the plethora of these accounts over which the Treasury does not necessarily have control and whose activities are not tracked as part of the Treasury's operations. The Government and the mission have drawn up a list of 52 accounts to be closed immediately (prior to January 15,2009). These are active debit accounts. Transparency is guaranteed through the involvement of technical advisers funded by the development partners. These advisers participate in the discussion group on the auditing ofthese accounts in 2008. 21. REVENUE MANAGEMENT. At the moment, in the context of revenue collection efforts by the State through the Directorate General ofTaxation and State Property, the Government has updated the SYSTEMIF and SYDONIA databases with new financial units that have been identified in the field using UNDP funding. The tax identification number has to be assigned to 6,320 economic units. In the case of exemptions, Government has published a Ministerial order instructing the Directorates General of Customs and Taxation to systematically submit a report on the number of exemptions granted and rejected to the interministerial committee responsible for monitoring tax and customs exemptions. The members ofthe committee have also been granted access to the SYSTEMIF and SYDONIA databases for report preparation purposes. 22. IMPROVEMENT OF GOOD GOVERNANCE. The measures pertaining to this sector are critical to strengthening the transparency ofpublic resource management. Apart from the adoption of the accounting plan and improved revenue collection, the preliminary work to complete this measure entails (i)adopting, by means of decree, the administrative and general conditions of contract for implementing public procurement reform; (ii)appointing the official responsible for regulating public procurement; and (iii)appointing the permanent secretariat and dispute committee official with a view to the sound execution ofpublic procurement in the Central African Republic. 23. In the area of strengthening governance in the natural resource sector, the Government has made a commitment to suspend, by means of presidential decree, the granting of new mines permits until the new mining code is adopted. In addition, in the forestry area, the Government has issued an order, by means of ministerial note, to systematically publish in the communes the mechanism for distribution among the Treasury, CASDFT [Compte d 'Affectation' Spdciale de Ddveloppement Forestier et Touristique], and communes ofthe amounts transferred to the latter's accounts for their development. FUTURE ACTIONS 24. The foundation for the reconstruction ofthe country must be established, that is, a standard set for economic governance and financial transparency that guarantees (i)proper use of public funds; (ii)full mobilization of the international community; (iii)sound and successful execution of the PRSP; and (iv) the return ofinvestors, first to the mining and forestry sectors, followed by other sectors, once confidence has been restored. 25. We intend to make significant progress with the macroeconomic and budgetary framework as well as in such key areas of public management as good governance linked to the protection of public resources, investors, and natural resources. 70 26. The following outcomes are expected in the area of the macroeconomic and budgetary framework: staying the course from an economic and budgetary standpoint; achieving a significant increase in tax revenue, essential for the restoration of expenditure and poverty reduction; implementing PRSP investment programs compatible with priorities; and preparing the 2010 budget using a budget nomenclature that is harmonized with accounting nomenclature, taking into account reliable socioeconomic data. We also intend to create a network between the Budget and Treasury Directorates General, in order to avoid a buildup of any kind of new domestic arrears and to reduce the current stock of arrears. Submission to the audit office of the 2008 and 2009 management accounts and the corresponding budget review laws are also a priority, given that this is essential to help restore the confidence of economic and social partners in the Government. 27. With respect to improved revenue collection, the Government undertakes to create a network for the office of the interministerial committee responsible for customs and tax exemption oversight using the SYSTEMIF and SYDONIA database management systems. This committee will be responsible for publishing, on a quarterly basis and in a media form that is easily accessible to the general public, the list of exemptions, including the total amount, the list ofbeneficiaries, and the conventions. It will submit the outcomes of its activities to Parliament annually for monitoring and assessment. Furthermore, the Government will make every effort to bring the various sectoral codes ofthe National Investment Charter in line with the Regional Investment Charter. 28. Efforts to combat corruption will be stepped up, with the adoption of texts to protect whistleblowers. To this end, it was agreed that the UNDP expert can assist the Government with the drafting of this text. At the same time, it is impohant to analyze shortcomings and deficiencies with respect to conformity with the United Nations Convention against Corruption. In addition, the Government undertakes to review the conformity ofnew procedures in the area of public procurement. 29. With regard to validation and publication of 2007 and 2008 EITI accounts, the Department of Mines [is seeking to] expedite the audit activities of the independent administrator hired by The Association under LICUS I11 to conduct this activity by the deadline. 30. In the area of implementation of the new mining code, the Government undertakes to apply systematically the new standard conventions to new investors. 31. In the context of the new HIPC initiative and in a bid to strengthen the rational and sustainable management of forestry resources, the Government commits to undertake the process of accession to AFLEG [Africa Forest Law Enforcement and Governance], pursuant to the provisions of the new Forestry Code. EXPECTED OUTCOMES 32. The outcomes expected fiom this program, which we plan on extending over the medium term, are, in the first place, better coordination and harmonization of the development partners’ actions around the Government’s main priorities, as described in the PRSP. We are also seeking a marked improvement in the management of public finances in all fields, not only in the budgetary and accounting spheres, but also in the area of accountability. We attach particular importance to improved management of public finances through sound execution of the 2009 budget and the implementation of a thoroughgoing Budget and Treasury reform process, which we view as a key component of our economic and social reform program. Regarding governance, we expect an improvement in the business climate, which should spur an increase in private investment, both domestic and foreign, especially in the forestry and mining sectors, which could become true development hubs in the future. Finally, in terms of public resource 71 management-both financial and natural-we are aiming at a significant improvement in governance in general as well as in transparency, particularly with regard to public procurement. INSTITUTIONAL FRAMEWORK FOR IMPLEMENTATION OF THE PROGRAM 33. The program will be executed by the existing entities, which have demonstrated their capability in the management of past programs-especially the two post-conflict programs supported by the IMF and the Association, in particular implementation of the CTP-PAS. These programs are run by an interministerial steering committee composed of the ministers involved in the implementation of the program, including the Minister of State for Planning, the Economy, and International Cooperation, the Minister of State for Mines and Energy, the Minister of Water and Forest Resources, the Minister of Justice, and the Minister of Finance and the Budget, who serves as chairman. The steering committee identifies the strategic orientations of the work to be executed by the program’s two management entities, which provide it with periodic progress reports on the implementation of the program. These reports, once approved, are made available to the donors, including The Association. CONCLUSION 34. The Government of the Central African Republic takes this opportunity to reiterate its commitment to efficient implementation of the program described in this Letter of Development Policy, over the next three years. It is confident that competent and satisfactory execution of this program will contribute to the revival of the national economy, on a sound and sustainable footing and with a view to poverty reduction. Against the backdrop of the macroeconomic reforms already undertaken, and in light of the objectives fixed in this program and the results obtained during the course of the program supported by the Poverty Reduction and Growth Facility (PRGF), which are most encouraging, the Government ofthe Central African Republic calls on you to give favorable consideration to its request of February 18, 2009, for a grant in an amount equivalent to approximately US$5 million, in order to provide significant budgetary support to our economy. We also hope to quickly receive additional financing through the Fragile States Facility. Finally, we very much hope to reach the completion point under the Enhanced HIPC Initiative at the earliest possible date, in light of the unsustainability of our external debt. Svlvain MALIKO 72 M r- 4- 0 3 .I m 3 3 N !! 8 D Zg 0 8 e. Annex 3: HIPC Completion Point Triggers PRSP: Preparation of the PRSP through a participatory process and satisfactory implementation of its recommended actions for at least one year from the date the document is approved by the Cabinet, as evidenced by a PRSP Annual Progress Report submitted by the government to the satisfaction of IDA and the IMF. Macroeconomic stability: Maintenance of macroeconomic stability as evidenced by satisfactory implementation of the PRGF arrangement. Transparency: Satisfactory implementation of (i)the provision of articles 44 and 75 of the Constitution linked to asset declaration and disclosure by the Prime Minister, Members of the Government and Members of the Constitutional Court; (ii)a new decree extending the obligation of asset declaration and disclosure to senior public enterprise officials and some key senior civil servants. Structural reform: Improve the regulatory oversight and reporting framework through: Forestry sector: (i)adoption by Parliament of a satisfactory new forestry code and issue of some key ministerial decrees on its implementing regulations, and their satisfactory implementation; and (ii)undertaking an awareness campaign for communities and the establishment of a standing public information system. Mining sector: (i) publication on the government’s internet site of the report ofthe Extractive Industries Transparency Initiative (EITI) administrator on mining revenue starting from 2006; and (ii) adoption by Presidential decree of a satisfactory standard-form agreement for mining (in conformity with current international best practices) and adoption by Parliament of satisfactory amendments to the mining code to ensure their consistency. Public financial management: Improve the effectiveness, transparency, and accountability in public financial management, particularly through: (i)preparation and submission to Parliament of the budget using the new nomenclature; (ii)satisfactory implementationof a new expenditure tracking system 60m commitment to authorization (using the new budget nomenclature) within the General Budget Directorate; (iii) satisfactory implementation of the new payroll management system; and (iv) adoption by Parliament of a satisfactory new procurement code and the start of its satisfactory implementation. Civil service reform: Begin civil service reform by (i)the adoption by the Cabinet of a satisfactory new organic framework consistent with the PRSP objectives, based on organizational audits; and (ii)the submission to the inter-ministerial council of satisfactory new rules and regulations for civil servants with a corresponding compensation and performance assessment system. Public debt management: Improve public debt management through (i)the establishment by the Debt Management Unit (Direction de la Detre) of satisfactory procedures for, and maintenance of, an accurate, comprehensive, and secure database of public- and publicly-guaranteeddebt (domestic and external), and (ii) satisfactory implementation of periodic publication ofpublic- and publicly-guaranteeddebt data (stocks, debt service projections, and key debt ratios) within six months after the end ofthe fiscal year. Social sectors and HIV/AIDS: Education: (i) at least 750 additional teachers will be teaching at the primary level compared to 2006-07 levels; and (ii)implementation of educational and administrative measures making it possible to achieve a repetition rate of less than 20 percent at the primary level in areas where schools are operating normally. Health: (i)keep DPT3 vaccination rates at 80 percent or higher; and (ii)distribute at least 300,000 treated mosquito nets. HIVIAIDS: improve prevention by increasing the social marketing of condoms (proxied by the amount of imports) to an annual level of at least 10 million. 78 Annex 4: IDA Activities in the Central African Republic Description RIBSUP US$82 million re-engagement budget support operation. US$75 million were used to pay arrears and debt servicing (DPO I) and US$7 million was used for budget support. The operation supported reforms in: (i) public finance management; FY07 (ii) state-owned enterprises; (iii) governance; and (iv) natural resource management. On public finance management, (i) significant progress has been made on the expenditure front with tighter monitoring of cash advances, the creation of a line-item not exceeding 10 percent for unforeseen expenditures, the adoption of a decree for the reform of public expenditure procedures. However, the preparation of the new budget nomenclature is proceeding slowly, which compromises its readiness for the 2008 budget; (ii)with respect to revenue mobilization, the Treasury has been incorporating in the public account the amount of revenues captured by all line ministries and agencies at a percentage set by the Minister of Finance. The audit of the pre-clearance office in Douala (Guichet Unique) was completed. Based on the main recommendations of the report, the authorities are drafting an action plan that will form the basis of the main reforms underpinning the revamping of the Guichet Unique. The survey of tax payers at the national level will start in the last quarter of 2007, with financing from UNDP. Subsequent to this phase, the Association financed the registration of taxpayers in the SYSTEMIF and ASYCUDA systems of the tax and customs departments through LICUS 11. LICUS I1 also financed the reconciliation of the tax base between the customs and the BEAC to improve tracking and predictability of receipts. The state-owned enterprise component was delayed: settlement of the 2007 tax and utility bills between utility companies (electricity, water, and telephone) and the administration had been hindered by lack of cash at the level of the Treasury, and poor management of cross-liabilities, Multisectoral US17 million project approved in FY02 and restructured in FY07. The objectives of the Project are to assist the HIV/AIDS Recipient to contribute to: (a) urgent needs in the fight against HIV, such as access to prevention, treatment, and Project impact mitigation services; (b) urgent social needs, such as prevention of malaria, increased access to water supply FY07 and improved primary education. The Project supports four key areas: (i) the National Program against HIV-AIDS Component; (ii) Support to Emergency Health Needs Component; (iii) Support to Emergency Needs in the Education Sector Component; and (iv) Support to Financial Management and Procurement. Emergency US18 million investment project which aims to increase access to infrastructure and urban services in Bangui. The Urban project will rapidly rehabilitate, restore, improve and expand sustainable access to basic infrastructure services for Infrastructure the population of the most deprived districts of Bangui. The achievement of this objective would support GoCAR's FY07 efforts to demonstrate visible and tangible improvements in the lives o fits citizens that are critical for sustaining social and political stability in the country. CEMAC US201 million regional investment project including Cameroon CAR and Chad, part of a US $ 700 million donor Transport effort which aims to secure access to landlocked countries, enhance regional integration and increase trade in the Transit CEMAC countries. It consists of three sub-components: (i)roads and rail investment; (ii) investment in facilitation, Facilitation inter-modal platforms and port efficiency; and (iii) support to customs reforms and institutional support to policy FY07 improvements. CAR Component of the project funded by IDA (US$ 24 million ) mainly consists of (i) a contribution to the paving of the Douala-Bangui link, as well as support to road maintenance, customs reform, and transport policy design CEMAC Africa US$45 milljon regional investment project which in the first phase will cover Cameroon, CAR and Chad. It aims to Backbone support population, businesses and Governments across the Central African region to have access to quality and FY09 affordable ICT services by lowering the cost of international broadband capacity, and extending reach the of backbone networks. It is also expected to improve Government efficiency and transparency through the development of Government applications. LICUS I US$4 million Trust Fund. The overarching objectives of LICUS Iwas to recreate and strengthen the Government's FY04 technical capacity for public finance management and to support the provision of social and economic services to the population. The first phase of LICUS Iprovided immediate support for revenue collection and for reducing fraud and corruption in revenue administration. In a second phase, the grant further deepened PFM reforms, promoted governance and financial transparency and supported the provision of economic and social services with quick and visible impacts. LICUS I1 US$6.4 million Trust Fund. LICUS I1 built on the achievements of the first grant for public finance management and FY07 governance and consists of four components: (i) Enhancing Governance and Economic Management Systems; (ii) Mining Sector Assessment; (iii)Community-Driven Development I1 Social Sectors; (iv) Interim Support to 79 HIV/AIDS Treatment. I LICUS 111 US$2 million Trust Fund. The Enhancing Governance and Economic Management Systems (EGEMAS 11) provides FY08 technical assistance to deepen reforms in public administration and to enhance governance and the country business 1 mvironment, especially with regard to oil and mining regulatory reform. LICUS US2 million. The Social Service Delivery Grant secured short-term, just-in-time support to protect social service Emergency workers’ salaries in the period March-April 2008 until further external resources were mobilized. Operation Poverty Report Preparation of a poverty report for CAR, based on urban and rural household surveys. The report provided quantitative analysis as well as a review of available qualitative evidence on a range of topics: poverty profile and determinants of poverty, income sources, education and health services, basic infrastructure. I I CFAFA The CFAFA was finalized in October 2007. This report identified a series of deficiencies and shortcomings in the CAR’S public financial management and includes a global action plan of recommendations on the legal and institutional framework, budget and expenditures management, and customs and tax administration. A short- medium-term action plan has been discussed with the Government of the CAR, focusing on the following areas: (i) policy measures to strengthen budget formulation and preparation, budget execution and reporting; (ii) reforms to further rationalize treasury operations; and (iii) the capacity of the Government to mobilize revenue A CPIP was completed in April 2006, providing an assessment of the country’s public procurement system and proposes an action plan to improve and align procurement processes with internationally-recognized standard^.^' Actions recommended in the CPIP include the adoption of a new procurement code with regulations for standard bidding documents and guides, and the establishment of new procurement institutions. The EMGRG proposes to support the Government’s efforts to operationalize the new procurement procedures, notably the establishment of the Direction Gkne‘ral des Marchis and the Agence de Regulation and the decentralization of procurement processes to four key ministries, once the new procurement code is passed by the National Assembly. To assess the effectiveness of the Government’s efforts, this operation proposes the conduct of a post-procurement review. The report examines the constraints to regional and international trade integration. It identifies the dire situation of the country’s public finances as one of the significant problems that affects the country’s competitiveness. Low levels of revenue and investment has led to a situation of poor infrastructure, which makes trade particularly difficult. The continued deterioration in the social sectors has likewise led to an erosion of the CAR’S human capital. The EMGRG explicitly focuses on the need to improve the capacity of the Government to mobilize domestic revenue, through improved tax administration. Among the findings of the report which are relevant to this operation are those concerning the forestry sector. The DTIS recommends a thorough review of the pricing of permits, as current pricing does not reflect regional best practice. It welcomes recent efforts made by the Government to harvest resources in a more sustainable manner, as this will raise economic growth and poverty reduction in the medium- turn. The PEFA exercise is an integrated monitoring framework that allows measurement of the country PFM performance over time. The information provided by this framework also contributes to the Government reform process by determining which reforms are yielding improved performance and by increasing the ability to identify and learn from reform success. It acts as a framework for pinpointing strengths and weaknesses in financial accountability arrangements in the public sector, thereby helping the Government and donors to identify priorities for reform and supports both the exercise of the donors’ fiduciary responsibilities and the achievement of broader development objectives. DEMPA The CAR is among the first countries selected for this debt management technical assistance (FYO8), which aims to FY08 strengthen capacity and institutions to manage Government debt in an effective and sustainable manner, by assessing performance through a comprehensive set of performance indicators spanning the full range of Government debt management functions, highlighting strengths and weaknesses. When finished, the DEMPA Lexercise (FY08), will provide a baseline of debt management performance indicators, on which the country’s future debt management performance will be assessed. It will be a valuable tool in assisting the Government improves its debt management capacity, which is particularly important in a country which in the past has fallen into external 80 Annex 5: LICUS Trust Funds 1. In general, implementation of activities funded by the first LICUS grant has been satisfactory, albeit challenging. Major obstacles included: (i)the absence of Government services that could play the role of executing agencies, (ii)weak Government capacity to supervise activity implementation and (iii)the low level of the Association’s presence in the country. It was therefore decided to subcontract management to UNDP. Implementation was initially very slow until 2005, following the assignment of a resident economist to Bangui. Results are reported below for each activity. LICUS I 2. Deterring corruption and tax evasion in revenue mobilization (US$159,500). The objective of this activity was to increase revenue collection by reducing tax evasion and corruption. The goal was to catch a number of corrupt individuals and give them exemplary punishment, thereby deterring corruption practices. A unit (CEMIFI) was set up to fight corruption and tax evasion and its members were nominated on October 22, 2004, and renewed thereafter. The LICUS grant financed communications equipment and vehicles for the unit; the equipment was delivered in March 2005, while vehicles and other equipment were delivered in July 2005. The unit is now operational and has been reporting monthly to the Minister ofFinance on progress on its task. The work ofthe unit has contributed to Government revenue collection, and on one occasion, it helped to recover an amount of CFAF450 million, which could have been lost without its efforts. 3. Capacity building in the Treasury department (US$68,000). On the basis of reports of staff visits to treasury departments in Cameroon and Benin, the Minister of Finance set up a Government task team on budget and accounting reform. This team has been instrumental in (i)the organization of a workshop in August 2005 on the status of the budget and accounting reform, whose objective was to build consensus amongst civil servants as to the need for and the principles of reform; and (ii)the preparation of new laws on Public Finance, which have been presented to Parliament in 2006. Finally, reports have been prepared on the reorganization of the treasury department and the upgrading of the treasury accounting system that will help to strengthen public finance management systems, notably as regards budget execution and cash management. 4. Audit of Treasury Arrears (US$70,000). A consultant was recruited to support the Government commission set up to carry out a census of Government domestic arrears. The final report, prepared after full consultation with key stakeholders proposed that the resolution of the domestic debt problem will require: (i)an exhaustive census of the domestic debt, (ii)the verification and validation ofthe domestic debt and finally (iii) the adoption of a clearance strategy. Subsequently, IDA and the Government have agreed that the verification and validation of the stock of debt should be undertaken by a competitively selected international auditor in line with international standards. 5. Control of Government personnel and payroll (US$77,500). The objective was to establish effective control over the number of civil servants and the payroll, which the 81 CAR Government considered as a major and strategic reform. In support of the work done with UNDP funding since 2001, LICUS resources were used to fund two consultants, with the objective of setting up an integrated and computerized system for civil service career and payroll management. An interim system is under preparation and is expected to be operational no later than January 2007. However, the completion of the above reform will need increased financial resources, which were provided under LICUS 11. 6. Leadership seminars (US$252,380). Two seminars were organized in November 2004 and December 2005 respectively. The first seminar brought together leaders in the political sphere and in the civil society and aimed at sensitizing them as to their responsibilities in fostering a peaceful and nonviolent transition, with a view to seizing the opportunities that would come from successful elections, notably the return of the donor community to support the country in overcoming its financial crisis and in addressing its development challenges. The key output was an agreed Code of conduct that was endorsed and signed by major political leaders, which is seen as having been instrumental in assuring the peaceful preparation and completion of delicate legislative and presidential elections in March and May 2005, The December 2005 seminar targeted the same category of participants, but focused on how to implement reforms through a Rapid Results Initiative, in the areas ofrevenue collection and delivery ofsocial services. 7. PRSP finalization (US$964,940; Bank-executed): With the advent of newly- elected institutions in March and May 2005, Government priorities changed and the dynamics ofreengagement with the donor community gathered steam to the point that, in July 2005, the CAR country team decided, together with the Government, that the residual first LICUS allocation in an amount of US$718,640 should be used to fund enhanced technical assistance to the country on PRSP finalization. Specifically, experts have been hired to advise the Government in the following areas: (i)strategic planning, monitoring and evaluatioh, (ii)macroeconomic analysis and programming, and (iii)the PRSP participation process. These consultants began their assignments in May 2005, and as a result, the pace of PRSP preparation substantially accelerated, particularly with respect to participation and monitoring and evaluation. Furthermore, in addition to his PRSP activities, the M&E advisor has been instrumental in helping the authorities to prepare a multi-sector matrix which sets forth key policy actions to be undertaken over the next 12-24 months. This matrix has served as the basis of the Government’s Declaration of Economic and Social Policy that will underpin their request for international support of arrears clearance and donor reengagement. LICUS I1 8. LICUS I1 was approved in October 2006, before the negotiation and approval of the DPO. Implementation of the LICUS I1 was slow in the beginning, because the Bank CAR team and the CAR public administration staff were all totally absorbed by the reengagement progress. After the LICUS I1 approval, the following tasks were completed: (i)the RIBSUP, (ii)the JISN, (iii)the Preliminary HIPC document, (iv) the final PRSP, (v) and the HIPC decision point document. The intensity ofwork agenda on CAR did not permit close supervision ofthe LICUS 11, and that is why one year after the 82 grant approval, implementation is not completed. However, LICUS I1 implementation has been accelerated during the second semester of 2007. An additional explanation of the above performance is that LICUS I1grant was the first IDA project to be executed by a Government unit, after country reengagement with the Association, which required building capacity in the executing unit, before the latter can operate at performing level. The learning curve and the technical capacity at the executing agency have reached a high level so that the remaining activities are going to be implemented very rapidly. LICUS EmerPency Operation 9. Social Service Delivery Grant (US$2,000,000). The main purpose of this grant was to secure short-term, just-in-time support ta protect social service workers’ salaries in the period March-April 2008 until further external resources could be realistically mobilized. The immediate objective of the grant was to avoid a disruption of social service delivery at this critical time. Non-payment of salaries as a result of other payment obligations could have triggered internal unrest, broadened the civil service strike, and hardened the position ofunions regarding the payment schedule for past salary arrears as pre-condition for resuming work. LICUS I11 Public Finance Management and Governance Support 10. Enhance revenue collection (US$250,000). This component aims (i)to build technical capacity in the tax department and (ii)to upgrade the management of the CECIFD. Implementation ofthese activities will build on the progress achieved by prior efforts of rehabilitation of the tax and customs administration in the context of LICUS I and 11, and from other donors, and notably UNDP, the European Commission and France. LICUS Ifunded an initiative to deter corruption and tax evasion in revenue mobilization, while LICUS I1resources are being used to (i)to harmonize and establish a link between customs (SYDONIA) and tax (SYSTEMIF) databases, and (ii) to study the import/exports tax base by reconciling Central Bank and Customs databases. Since the transitional period, CAR has benefited from the support of the donor community in its process to reform the tax and customs administration. In particular, the European Commission is currently providing a long-term support to CAR, notably aimed at revamping the customs department. IDA, the IMF, UNDP and France have also provided support in terms of diagnostic studies and short interventions to enhance revenue collection institutions. 11. Improve budget preparation, execution and reporting (US$625,000). The objective ofthis component is to provide sustained TA to the Ministry ofFinance and the Court of Accounts in order to enhance the management ofpublic expenditures, as well as the budget execution reporting. In the end, this should be reflected in: (i)the timely and sound preparation of the budget law, (ii)an adequate monitoring and comprehensive supervision of treasury operations; (iii)the preparation of budget execution reports, and finally (iv) the timely review of Government financial reports by the Court of accounts and preparation of the budget execution law (loi de reglement), before its transmission to 83 the Parliament. The Association’s support of policy reforms in this area was designed in the context of the RIBSUP, as well as at the occasion of the identification of HPC completion point triggers. The following reforms were initiated in the context of the RIBSUP: (i)the audit of the treasury department operations for 2006, (ii)stringent monitoring ofGovernment cash advances, (iii)integration of all Government revenues, in the treasury system, and finally (iv) the upgrading of the budget and accounting nomenclatures. LICUS I1 resources were used in the implementation of the RLBSUP reforms and by end-2007 progress was satisfactory, and the impact in the handling of the Government expenditures is positive. It is worth mentioning that the EMGRG Iaims to move forward the above agenda to substantially revamp and upgrade the country public finance management system. 12. Public Administration Management reforms (US$350,000). Support from UNDP and the Association (with LICUS I resources) over the period 2001-2005 contributed in carrying out a thorough diagnostic ofthe public administration sector. The component objective is to support (i)the preparation of a new organic framework for civil service based on the organizational audits which is consistent with PRSP objectives, and (ii)the adoption of new rules and regulations for the civil servants, with compensation and performance assessment systems. The new organic framework will build on organizational audits which will be launched very soon under UNDP and LICUS I1 funding, and will feature new employment nomenclatures, a new organizational set up as well as required set of skills for each employment position. The new organic framework will also encompass an integrated computerized system to manage the civil servants that will have the following features (i)clear TORS for each employment position, (ii)an adequate computer software, (iii)revised manuals ofprocedures, (iv) on- site training ofusers, and (v) the commissioning ofthe new organic framework. The new rules and regulations refer to the statute of civil servants, the remuneration scale, and the management structure ofthe civil servants management. 13. Reform and modernize the oil and energy sector (US$250,000). The Government has recently launched a reform of the oil sector, aiming to ensure adequate storage, distribution and pricing of petroleum products and to guarantee quality product supplies as well as country strategic oil reserves. On the other hand, the oil business should be a fiscal revenue source commensurate with the size of the activity and its importance to the economy. In this context, the Government has enacted a new Law in the first semester of2007 that seeks to address most ofthe above-mentioned aspects. The objectives of the Government’s reform are (i)to develop a stable market through open and fair competition between operators by diversifying its supply base from procurement and transport of product to handling, storage, and distribution; (ii)to generate a regular and steady stream of fiscal revenue to the State budget while ensuring supply at affordable prices; and (iii)to secure the country’s strategic reserve ofpetroleum products. In order to reach these objectives, the Government intends to launch a range of structural reforms as follows: (i)the strengthening of institutions involved in the management of the oil sector, and primarily the staffing of the newly-created regulatory agency, (ii)the revision and completion of the pricing structure in the oil sector; (iii)the revision of the sector legislation. This LICUS I11 component will provide resources to fund the technical assistance needed to carry out these reforms, building on earlier IDA support that helped 84 settle a dispute between the Government and Total, the only private firm operating in the oil sector. 14. Deepen reforms in the mining sector (US$500,000). The Association has been at the forefront in helping CAR improve governance and transparency standards in the management of national resources, and in particular in the mining and forestry sectors, through the LICUS I1 and the DPO program. The LICUS I1 funded an assessment ofthe mining sector; in this context, an international firm was recently recruited and is currently in the field to carry out a thorough assessment of the mining sector. The analysis will provide a useful sector diagnostics and will help the Government, the donor community and the private sector on how to promote and support business in this strategic area. LICUS I1 will also fund consultation of stakeholders in the mining sectors so that they can provide their input in the upgrading of the regulatory. The objective of this component is to recruit experts that will help to design standard investment agreements in the mining sector and to revise the mining code. 85 : En~a~e~n~~o~e~~a~~e and ECQomie Management Systems-EG -_ .-- -. hbjectives LICUS I LlCUS I1 (3,223,700) LlCUS 111 Outconies and ($1,592,320) ($2,000,000) Milestones -"--I Census of 86 Annex 6: Fund Relations Note Central African Republic-Assessment Letter to The Association INTERNATIONAL MONETARY FUND WASHINGTON D C 20431 February 19, 2009 hls. Obiageli Kalryn Ezekwesili Vice President Mican Region World Bank Dear Ms. Ezckwsili, Iam pleased to attach herewith thc staff's asse~snicntof reccnt economic developments in Central African Republic and progress undcr the Fund-supported program based on preliminary information through January 2009. We understand this uvdl l'acilitatc the prtlvision ofbudget support by the World Hank to Central hthcan Republic. Yours sincerely, A Antoinette M. Sayeh Director Afr.icaii Deparlmcnt Attachinent n~~SDRlS-#3$35726-vl-Central African Republic - 7-009 - Asscsrment Letter - Cavcr Lcttcr to Vioc PrcsiJent of Africiin Februiry 19, 20W (10'34 AM) 87 Ccntral Africuti RL‘public-Asscsjmeiit Letter fur the W‘orld Rank Hackground 1, In December 2006 the Executive Board approved a three-year’ arrangement undcr the Poverty Reduction and Growth Facility (I’KGF) for the Ccntrrrl African Republic (C.A.R). Thc access undcr PRCiF arrarigenicnl aniounts to SDR 36.2 million (65 percent ofquota). After conipleting thc second rcview uririer the PRGF arrangcirient in June 2008, the Excculivc Board approved an augmentnlion ofaccess cquivalcnt 10 SDR 8.355 million (1 5 pcrcent of quota), On Dcccmbw 22, 2008, tlic Executive Board coiiiplctcd the third review under the PRCF arruigeinenl. C.A.R. reached the decisiun point under the enhanced Highly Indebted Poor Country (HIPC) initiatiw in Septcnibcr 2007. Recent Economic Developments 2. The C.A.R. ~EOI~OIII~,though growing, is confronting unexpected major shocks. Breakdowns at thc main hydro power plant during 2008 caused vcry serious power outages that have had negative uconamic and social cffects, and thc intornational financial crisis has ncgatiwly affected external demand for tjniber and diamond, the country’s innin exports, As a result, the growth estimate was rcviscd do.vc..nwitrdto 2.8 fiom 3,s percent expected previously. Average inflation for 2008 turncd aut to bc 9.3 pcrcmt coniparcd to 2.1 pcrccnt during 2004-07, Ncvcrthelcss, thc government has been nioying yigorously to achicw program objcctives. Rcvcnuc mobilization efforts haw brought steady increases in the doniestic revenue-to-GDP ratio, and the authorities control spending tightfy. 3. Despite the growtli slow do~n,overall economic perfor~nancein 2008 appears to tiare been satisfactory. Provisional budget cxcculion data for 2008 indicates thal revtnucs held up, expendilures ttlcre contained, and a sniall domcslic prirnary surplus was gencfiml, Donrcstic revenue increased by closc to IO percent, rcflecting ongoing efforts to improx*c rcvcnuc administration. Expenditures increased by lcss than programmed and the donicstic primary surphis is cstiniated to be somewhat bcltcr than progranimcd. Performance Under the PliGF-supported Program 4, Preliininnry data collected diiriay n. 3arruary 2009 staff visit suggest that orogrsni performaim for end-2008 appears to be broiidly satisfactory. Most. of the quantitativc targets through Dcccciibcr arc cxpccted to have bceiv nchievcd, and progress has becn madc with slructural rcfurrxis, atbeit in soma instanccs with cieiny. Key tileastires talw during thc last qiianer of 2008 and in ,lanuarp 2009 inchide the adjustment ofpetrolcurxi 2 line wilh thc attemalic qtiarterly pctrolcumpricing forniula ;and thc adoption and cation ofa plan to repay domestic arrears. There has bccn progr slructtirul reforms ta iirtprovc tax audits, facilitate administration of lnrgc w taxpaycrs, consolichte Ircasury ilccounls, improvc rhc public BCCOII hen public financial nianageineitt I1irough the introduciioii of a g mcni infornisrtion systeni, Risks and Clialhrrges 5. C.A.K.’s medium-tcrin outlook remahis positive, but several risks are merging as a consequetice of the current glottal financial crisis atid economic stotvdawn. Thc global economic $10 is affecting cxportv ly tiiiibcr an3 diatriands, and foreign direct inve Growtt~In 2009 is likely to be limited to 3 pcrccnt, coiiiparcd wi11i 4.5 pcrccnt project the I‘RCiF-silpporrcd program, Rcvc c shortrulls arc emer in 2009, particularly from thc Ibrcstry and mining sectors. Inflation is expected to conic down in 2009. The acceleration ofCPl inklation to 9.3 pcrccnt on averagc in 2008 is a conccm, but this mostly rctlects higher rood prices whose iiiipact sliould imdrratc this }car. 6. Continued support from the international comaiurtity 3s itnportailt to ensure rogram objectives. Additional resources arc rrccdcd lo consolidate pcticcc the succcssfU1 inclusivc political dialogue in December 2008 and in advance of ycncral elccti in 2010. Tlic 2009 Iiudgct docs not allocate suflicicttt r 10 scveral important progrrtins in thcsc areas, 7. Currelit estimates of external support will likely not alluw for a full execution nf the 2009 budget. Thc aulhorities are considering options to iziobilize revcnucs throughoul thc coursc of the year to i~eclprogram targcls and wc prioritizing expenditures so as to prutcct lhc most prcssing expenditure needs, The ncxt IMF mission will discuss a t surcs that niay be nccdd to cnsure a dntiicstic primary sui1,lus consistent witti the govcrnmcnt’s arrcars mpaymenl plan. 8’ The latest low-income country debt sustiiinnhllity atialysis (LlC-DS.4) conduetctl In December 2008 shows that C.A.R.’s esternal debt is at high risk of distress, Howvcr, following fult delivery ofEIIPC, MDRI, and other debt rcticf at Ibc HIPC canlplctiun piiit, exlernal dcbt dynamics are projected to beconlc nianagceblc. The HLPC cmpletion point could be reachcd in Junc 2009. Thc authorities‘ dctcrnzincd cKorts to improve treasury mnnagcnienr, notably tltro ugh the ostablishnicnt ofa Preawy singlc ~ccollnt rcgulnrimtion ofrelations with domsstic crcdilors, should t p kccp donicslic dubt at sustainable le~rcls. 89 3 9. A Fund mission visited Bangui In ,Jan~ii~~20119 irt preparation for the niiaiun for the 4t1' review under the PKCF arrangement$which is scheduled far April 2003, The mssiun, jointly with a World Bank tcani, will also ond duct ttic BSSCSSITICIII ofthc iloating triggers for lhc HIPC coiiiplrtion point and will prepare the coiriplction point document ifthc ion of ttic triggcrs arc salishcto~y.The Executivc Board 11 scheduled for June 2009. 90 Annex 7: Country at a Glance Central African Republic at a glance 4/8/08 Central Sub- Key Development Indicators African Saharan Low Republic Africa income Age dlstrlbutlon, 2008 (2007) Male Female Population, mid-year (millions) , 4.3 770 2,403 70.74 Surface area (thousand sq. km) 623 24,265 29,215 50.84 Population growth (%) 1.8 2.3 1.8 50.54 Urban population (X of total population) 36 36 30 4w4 GNI (Atlas method, US$ billions) 1.5 648 1,562 30.34 4 20.24 GNI per capita (Atlas method, US$) 350 842 650 GNI per capita (PPP, international$) 0 2,032 2,698 GDP growth (%) 4.0 5.6 8.0 20 10 0 10 20 GDP per capita growth (%) 2.1 3.2 6.1 percent (most recent estimate, 2000-2007) Poverty headcount ratio at $1 a day (PPP. %) 67 ' 41 Under4 mortality rate (per 1,000) Poverty headcount ratio at $2 a day (PPP. %) 84 ' 72 Life expectancy at birth (years) 39 47 59 Infant mortality (per 1,000 live births) 115 96 75 Child malnutrition (% of children under 5) 24 29 200 Adult literacy, male (X of ages 15 and older) 0 69 72 150 Adult literacy. female (% of ages 15 and older) 0 50 50 100 Gross primaryenroilment, male (% ofage group) 67 98 108 Gross primary enrollment, female (% of age group) 44 86 96 50 Access to an improved water source (Yo of population) 75 56 75 0 1880 1885 2000 2005 Access to improved sanitation facilities (YO of population) 27 37 38 0 Central African Republic 0 SubSaharan Afnca Net Aid Flows 1980 1990 2000 2007 (US%millions) Net ODA and official aid 110 249 75 95 IGrowth of GDP and GDP per caplta (Oh) Top 3 donors (in 2005): I France 69 71 19 35 10 United States 1 3 1 17 8 8 Germany 3 14 7 3 4 2 Aid (% of GNI) 0 13.8 17.0 8.0 7.0 2 Aid per capita (US$) 47 83 19 23 4 a 8 Long-Term Economic Trends -10 85 05 Consumer prices (annual % change) 14.7 -0.2 3.2 3.1 GDP implicit deflator (annual % change) 18.3 2.3 3.2 2.5 I +GDP -GDP per capita I Exchange rate (annual average, local per US$) 211.3 272.3 712.0 504.2 Terms of trade index (2000 = 100) 110 100 74 1980-90 1990-2000 200047 (average annualgrowth %) Population. mid-year (millions) 2.3 3.0 3.9 4.3 2.6 2.5 1.7 GDP (US$ millions) 797 1,488 959 1,651 1.4 2.0 0.1 (% of GDP) Agriculture 40.0 47.6 53.1 56.2 1.6 3.8 0.7 Industry 20.1 19.7 15.8 15.5 1.4 0.7 0.6 Manufacturing 7.2 11.3 7.0 7.6 5.0 -0.2 0.8 Services 39.9 32.7 31.0 28.3 1 .o -0.3 -1.7 Household final consumption expenditure 93.7 85.7 80.8 88.3 0.4 General gov't final consumption.expenditure 15.1 14.9 14.0 9.5 -3. 6 Gross capital formation 7.0 12.3 9.5 9.1 0.0 Exports of goods and services 25.2 14.8 19.8 14.8 -1.6 Imports of goods and services 41.1 27.6 24.1 21.7 -2.3 Gross savings 1.6 -0.4 8.2 4.9 Note: Figures in italics are for years other than those specifled. 2007 data are preliminary. Group data are through 2006. .. indicates data are not available. a. Country poverty estimate is for earlier period. b. Aid data are for 2005. Development Economics, Development Data Group (DECDG). 91 Millennium Development Goals Central African Republic With selecfed fargets to achieve behveen 7990 and 2075 (esbmate closesf to date shown, +/- 2 years) Goal 1: halve the rates for $1 a day poverty and malnutrition 1990 1995 2000 2005 Poverty headcount ratio at $1 a day (PPP, % of population) 66.6 Poverty headcount ratio at national poverty line (% of population) Share of income or consumption to the poorest qunitiie (%) Prevalence of malnutrition (% of children under 5) Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 52 Primary cornpietion rate (% of relevant age group) 29 23 Secondary school enrollment (gross, %) 77 12 Youth literacy rate (% of people ages 15-24) 48 59 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 60 Women employed in the nonagricultural sector (% of nonagriculturalemployment) 30 Proportion of seats held by women in national parliament (%) 4 4 7 77 Goal 4: reduce under4 mortality by two-thirds Underd mortality rate (per 1,000) 168 180 193 193 Infant mortality rate (per 1,000 live births) 102 107 115 115 Measles immunization (proportion of one-year oids immunized, %) 83 46 36 35 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 1,100 Births attended by skilled health staff (% of total) 46 44 Goal 6: halt and begin to reverse the spread of HIWAIDS and other major diseases Prevalence of HIV (% of DoDulation ases 15-49) 10 7 Contraceptive prevalence (k of women ages 15-49) 15 28 incidence of tuberculosis (per 100,000 people) 117 205 280 314 Tuberculosis cases detected under DOTS (%) 61 9 40 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an Improved water source (% of population) 52 59 70 75 Access to improved sanitation facilities (% of population) 23 24 26 27 Forest area (% of total land area) 37.2 36.8 36.5 Nationally protected areas (% of total land area) 16.6 C02 emissions (metric tons per capita) 0.1 0.1 0.1 0.1 GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent) Goal 8: develop a global partnership for development Fixed line and mobile phone subscribers (per 1,000 people) 2 2 4 27 Internet users (per 1,000 people) 0 0 1 3 Personal computers (per 1,000 people) 2 3 Youth unemployment (% of total labor force ages 15-24) Education indicators (%) Measles immunization (%of 1-year olds) I IC1 Indicators (per 1,000 people) I n n 50 25 20w 2002 2005 0 2:L1880 1895 2000 2005 +Primary net enrollment ratio (..) I OFixed + nubile subscribers +Ratio of girls to boys in primary B OCentral African Republic secondary education ( .) 0 Sub-Saharan Africa 0 Internet users Note: Figures in italics are for years other than those specified. .. indicates data are not available. 4/8/08 Development Economics, Development Data Group (DECDG). 92 SEPTEMBER 2004 SEPTEMBER 10 Bétaré Oya 8 6 4 2 Melganga ° ° ° ° This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, the part of The World Bank Group, any judgment on the legal status of territory, or endorsement or acceptance of such boundaries. N N N N ° N CAMEROON To To To To Batouri To To Yokadouma MAMBÉRÉ MAMB NANA- NANA- To To K HAUTE SANGHA HAUTE SANGHA a rre Gamboula Gamboula M Bouar M T a Tomori o omori m (1,420 m) Mt. Ngaoui (1,420 m) u É b n é t Car Carnot R R a r é in É É Baoro not s Bocaranga K OUHAM- OUHAM- Nola OUHAM- Baïbokoum a SANHA SANHA d Berberati Berberati PENDÉ PEND 16 e 16 ï To To ° ° E18 E18 Salo San Paoua gha É Bozoum M L CONGO o b b a a Doba y é e r To é Markounda Bossemb Bossembélé LOBA LOBAYE OUHAM OUHAM Bossangoa Bossangoa é Boda OMBELLA- OMBELLA- O l é MPOKO MPOKO u YE YE h a CHAD M BANGUI p ° o ° Mbaïki Mba E20 k E20 o ï Bimbo ki Bouca Mongoumba Sarh Libenge Damara To GRIBINGUI GRIBINGUI To To GRIBINGUI C GRIBINGUI K KÉMO- o K n Ma Maïkouma É g É o MO- Sibut MO- D Dékoa Gr U ibingui ï kouma é b B Bandoro Bandoro Kaga Kaga OF CONGO a koa n a g h DEM. REP. i BAMINGUI-BANGORAN BAMINGUI-BANGORAN r A Kouango Kouango o u Grimari Grimari k Bamingui B Bamingui a n g ° ° o E22 E22 r a n Nd Ndélé Ou a é ka l é OUAKA OUAKA Bambari Bambari Am Timan To To KOTTO KOTTO BASSE BASSE Y Yangalia angalia 08 120 Miles 80 40 160 120 80 0 40 0 B Mobaye Mobaye a Ippy Ippy h C r O u h l o â u Pata Pata i n Mingala Mingala e VAKAGA V ° V ° Bria E E24 AKAGA Ouango AKAGA Ouango d Bangassou Bangassou Ouanda e Ouanda K Bakouma Bakouma Djall Djallé o s Ouadda Ouadda tto HAUTE-KOTTO HAUTE-KOTTO é B o 200 Kilometers Birao Birao n Monga MBOMOU MBOMOU To To g M o b o ari s Y Yalinga alinga Nyala Kaouadja Kaouadja To To Rafa Rafaï Kafia Kingi ° C E h ï i n To ko CENTRAL AFRICAN Z Zémio é mio Dj Djéma é ma MBOMOU MBOMOU MBOMOU REPUBLIC AFRICAN CENTRAL HAUT- HAUT REPUBLIC O INTERNATIONAL BOUNDARIES PRFECTURE BOUNDARIES RAILROADS MAIN ROADS RIVERS NATIONAL CAPITAL PREFECTURE CAPITALS SELECTED CITIES AND TOWNS M u a b r o r m a o u - SUDAN Obo Naandi To To 10 6 8 ° ° ° N N N IBRD 33384 33384 IBRD