AFRICAN DEVELOPMENT BANK GROUP
Public Disclosure Authorized CENTRAL AFRICAN REPUBLIC
ECONOMIC AND FINANCIAL REFORM SUPPORT PROGRAMME
RDGC/ECGF/PGCL DEPARTMENTS
March 2017
Public DisclosurePublic Authorized
Translated Document
TABLE OF CONTENTS
ACRONYMS AND ABBREVIATIONS ...... i PROGRAMME INFORMATION ...... ii LOAN/GRANT INFORMATION ...... ii I. PROPOSAL ...... 1 II. COUNTRY AND PROGRAMME CONTEXT ...... 1 2.1. Political Situation and Governance Context ...... 1 2.2. Recent Economic Developments, Macroeconomic and Budget Analysis ...... 2 2.3. Competitveness of the Economy ...... 4 2.4. Public Finance Management ...... 5 2.5. Inclusive Growth, Poverty Situation and Social Context ...... 6 III. GOVERNMENT’S DEVELOPMENT PROGRAMME ...... 7 3.1. Government’s Overall Development Strategy and Short-Term Priorities ...... 7 3.2. Constraint to Implementing the National Development Programme ...... 7 3.3. Consultation and Participation Process ...... 8 IV. BANK SUPPORT FOR THE GOVERNMENT STRATEGY ...... 8 4.1. Linkage with the Bank Strategy ...... 8 4.2. Compliance with Eligibility Criteria ...... 9 4.3. Collaboration and Coordination with Other Partners ...... 9 4.4. Linkage with Other Bank Operations ...... 10 4.5. Analytical Works Underpinning the Programme ...... 11 V. THE PROPOSED PROGRAMME ...... 11 5.1. Programme Goal and Objective ...... 11 5.2. Components, Objectives and Expected Results ...... 11 5.3. Policy Dialogue ...... 16 5.4. ADF Grant and TSF Grant Conditions ...... 16 5.5. Application of Good Practice Principles on Conditionality ...... 18 5.6. Financing Needs and Arrangements ...... 18 5.7. Application of Bank Policy on Non-Concessional Debt Accumulation ...... 19 VI. PROGRAMME IMPLEMENTATION...... 20 6.1. Programme Beneficiaries ...... 20 6.2. Social and Gender Impact ...... 20 6.3. Impact on Climate Change ...... 20 6.4. Implementation, Monitoring and Evaluation ...... 20 6.5. Financial Management and Disbursement ...... 20 VII. LEGAL INSTRUMENTS AND AUTHORITY ...... 22 7.1. Legal Instruments ...... 22 7.2. Conditions Associated with Bank Intervention ...... 22 7.3. Compliance with Bank Group Policies ...... 23 VIII. RISK MANAGEMENT ...... 23 IX. RECOMMENDATION ...... 23
Tables
Table 1 - Key Macroeconomic Indicators ...... 4 Table 2 - Preliminary Measures and Triggers ...... 17 Table 3 - Projected Financing Needs and Sources (in CFAF billion) ...... 19 Table 4 - Risks and Mitigation Measures ...... 23
List of Figures and Boxes
Figure 1 - CAR – Bank Portfolio as at 31/10/2016 ...... 10
Annexes
ANNEX 1 – Letter of Development Policy ANNEX 2 – Conditions for Use of General Budget Support ANNEX 3 – Matrix of Programme Measures ANNEX 4 – Relations between CAR and IMF ANNEX 5 – Key Macroeconomic Indicators ANNEX 6 – Donor Interventions in CAR ANNEX 7 – Fiduciary Framework-Related Measures during the Exceptional Crisis Period ..... ANNEX 8 – Bank Portfolio in CAR as at 31 October 2016 ANNEX 9 – Administrative Map of CAR
CURRENCY EQUIVALENTS As at 30 September 2016
Currency Unit CFA F (XAF) 1 Unit of Account = XAF 821.6189 1 Unit of Account = EUR 1.2525 1 Unit of Account = USD 1.3943
FISCAL YEAR (1 January – 31 December)
ACRONYMS AND ABBREVIATIONS
ACCT Central Treasury Accounting Agency ADF African Development Fund AfDB African Development Bank BEAC Bank of Central African States CAR Central African Republic CCIMA Chamber of Commerce, Industry and Crafts CFAF Central African Financial Cooperation Franc CMCAA Joint Business Improvement Consultation Framework CNLC National Anti-Corruption Committee CRBS Crisis Response Budget Support CSP Country Strategy Paper CS-REF Economic and Financial Reform Monitoring Unit DDRR Disarmament, Demobilization, Reintegration and Repatriation DGB General Directorate of Budget DGDDI General Directorate of Customs and Indirect Taxes DGID General Directorate of Taxes and Property DGTCP General Directorate of Treasury and Public Accounting ECCAS Economic Community of Central African States EITI Extractive Industries Transparency Initiative EU European Union FSF Fragile States Facility GBSF General Budget Support Framework GDP Gross Domestic Product GESCO Public Finance Management Support Information System IMF International Monetary Fund MDG Millennium Development Goals MFB Ministry of Finance and Budget MINUSCA United Nations Integrated Multidimensional Mission in CAR MoU Memorandum of Understanding NGO Non-Governmental Organisation PARCGEF Economic and Financial Management Capacity Building Support Project PEFA Public Expenditure and Financial Accountability PFM Public Finance Management PBO Programme-Based Operations PUASCRE Emergency Crisis Exit and Economic Recovery Support Programme PURD Emergency Programme for Sustainable Recovery in CAR RCF Rapid Credit Facility i
RCPCA National Strategy for the Recovery and Peacebuilding in the Central African Republic (RCPCA) TFP Technical and Financial Partners TSF Transition Support Facility TSFO Table of State Financial Operations UA Unit of Account UNDP United Nations Development Programme USD United States Dollar WB World Bank
PROGRAMME INFORMATION
INSTRUMENT: General budget support (GBS)
PBO DESIGN MODEL: Programme-based budget support
LOAN/GRANT INFORMATION Client Information
DONEE: Government of the Central African Republic
EXECUTING AGENCY: Ministry of Finance and Budget
Financing Plan
2016 2017 (*) Instrument Loan Grant Loan Grant ADF 2.70 5.00 TSF - Pillar I 8,02 5.00 TSF (Cancellation/restructuring) 1.56 Total 10.72 1.56 10.00 Total Cost 12.28 10.00 (*) Indicative amount
Key Information on TSF and ADF Financing
ADF / TSF Loan/Grant Currency EUR Type of interest Fixed Interest margin * 0% Service commission 0.75% per year on the amount of the unpaid disbursed loan 0.5% on the amount of the undisbursed loan 120 days after the Commitment fee signing of the Loan Agreement Other expenses Not applicable Maturity 40 years Grace period 10 year Deadlines Biannual
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Key Information on TSF Grant Financing
Grant Currency (EUR) Interest Type* (Not applicable) Interest Rate Margin* (Not applicable) Commitment Charge* (Not applicable) Other Charges* (Not applicable) Repayment Period (Not applicable) Grace Period (Not applicable)
*if need be
Implementation Schedule – Key Milestones (projected)
Concept Note Approval (21 September 2016) Programme Approval (10 March 2017) Effectiveness (15 March 2017) Completion (31 December 2017) Last Disbursement (31 December 2017)
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Programme Executive Summary
General . Programme name/number: Economic and Financial Reform Support Programme programme (PAREF)/SAP Id. P-CF-K00-006. overview . Geographic scope: Nationwide
. General schedule: 15 months (1 October 2016 - 31 December 2017) . Financing: TSF grant UA 1.56 million; TSF loan UA 8.02 million; ADF loan UA 2.70 million . Operational instrument: General Budget Support (GBS) . Sector: Economic governance Programme . PAREF comes in a context of normalization of the country’s institutions, with the outcomes and adoption of a new constitution in December 2015 and the election of a new president in direct February 2016. The Programme is part of continuing measures supported by the two beneficiaries Crisis Response Budget Support (CRBS) operations, which assisted the transitional government in restoring the capacities of the financial and social administration. PAREF will include more structuring measures to help boost the economy and improve public finance management. The implementation of programme measures are expected to result in (i) an increase in tax revenue from 7.1% of GDP in 2015 to 8.7% of GDP in 2017; (ii) a reduction in public procurement by direct negotiation from 90% in 2015 to less than 50% in 2017; (iii) a reduction in the number of business start-up days, from 22 days on average in 2015 to less than 14 days on average in 2017; and (iv) a decrease in the cost of creating businesses from 204% of income per capita in 2015 to less than 150% of income per capita. . The Programme’s direct beneficiaries are the public administration and structures in charge of Programme-supported reforms. The final beneficiaries are the Central African people. Alignment on . PAREF is aligned with the Bank’s Interim Assistance Paper covering the period 2014- Bank priorities 2016, Pillar 2 of which concerns restoration of institutional capacities and promotion of good governance. The programme also ties in with the Bank’s High 5 priorities, by contributing to improving the living conditions of the population. It is also consistent with the guidelines of the 2014 – 2018 Governance Action Plan (GAP II), and the Bank Strategy to address fragility and strengthen resilience in its Regional Member Countries during the period 2014-2019. Indeed, the Programme supports governance in economic sectors, State building, capacity building in economic management, provision of basic social services and support to the private sector. . Furthermore, the Programme remains aligned with the pillars of the new National Recovery and Peacebuilding in the Central African Republic (RCPCA) Strategy being prepared by government. Needs assessment . Most of the country’s challenges, identified under the Bank’s two previous support and rationale operations, are still relevant. Indeed, the return to constitutional order has not yet resulted in a total normalization of the situation. The country remains fragile, with persistent intercommunity tensions leading at times to violence with loss of human life. It should be noted that CAR’s fragility is not only connected to the 2013 crisis, but also the result of deterioration of the economic, social, security and governance situation in the country. There are still more than 420,000 displaced persons and about 467,000 Central African refugees in neighbouring countries. The restoration of security and national reconciliation are major challenges for government. The reestablishment of health and education systems is also a major challenge, despite the efforts made in the last two years to redeploy health personnel and teachers. On the economic front, the recovery is gradual but still insufficient to create jobs and generate the necessary resources for the financing of primary expenditure. . In light of the foregoing, the country’s Technical and Financial Partners (TFP) agreed to continue their budget support, in the three coming years, with a view to consolidating the transition’s achievements and sustainably stabilizing social peace. AfDB support ties in with this joint effort.
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Harmonisation . Before the March 2013 crisis, a General Budget Support Framework (GBSF) defined the framework for TFP intervention in CAR. This framework has not yet been updated; however, TFPs, engaged since 2014 in budget support operations, consult regularly to conduct joint missions in CAR, under the leadership of the IMF. The current operation was prepared during a joint mission in CAR in May 2016 with the IMF, World Bank, EU and France. During appraisal, exchanges continued with TFPs and all State and private sector structures involved in economic and financial reforms. . PAREF-supported measures were subject to in-depth discussions with all stakeholders. The appraisal mission’s aide-mémoire was shared for proper harmonisation of interventions. Bank’s value- . The Bank’s comparative advantages stem from its experience in implementing the two added previous CRBS operations and the successful articulation of Programme measures with the Economic and Financial Management Capacity Building Support Project (PARCGEF). Through these operations, the Bank has been participating actively in dialogue for the last three years and assists government technically in public finance management and capacity building for private sector support structures. Contributions to . Gender equality in CAR is established by the new constitution adopted in December 2015. gender equality In his general policy declaration, the Prime Minister announced that legal systems would and women’s be strengthened to protect women’s rights. To this end, government intends to empowerment operationalise the Joint Rapid Intervention Unit against Sexual and Gender-Based Violence and a Comprehensive Care Centre for Victims of Violence. . PAREF will contribute to improving women’s living conditions through the revival of the agricultural sector, which employs mostly women and budgetary allocations for implementation of the strategy to assist women victims of violence. Policy dialogue . Dialogue under the programme will concern reforms and measures that will have and associated structuring effects on the country’s medium-term economic and financial situation. These, technical particularly, are issues relating to control of exemptions and the updating of the taxpayers’ assistance file; the improvement of budget execution, especially in social sectors; the establishment of a new integrated public finance management system; the strengthening of dialogue between public authorities and the private sector; and governance in the cotton, mining and forestry sectors. The Bank will continue its technical support through PARCGEF, and dialogue on these issues will be conducted jointly with other TFPs.
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RESULTS-BASED LOGICAL FRAMEWORK Country and Programme Title: CAR – Economic and Financial Reform Support Programme Programme Goal: Contribute to the improvement of public finance management and the revival of economic growth Results Chain Indicators Means of Risks/ Indicator Baseline Situation Target Verification Mitigation measures Contribute to consolidating Real GDP growth rate 4.5% in 2015 5.2% in 2016 IMF report
economic growth and improving 5.0% in 2017 the social and humanitarian Human development UNDP World situation index 0.35 in 2014 0.40 in 2017 Development Report Impact Outcome 1: Tax rate 7.1% of GDP in 2015 8,1% in 2016 TSFO (IMF) Political and security risk Improvement of tax revenue 8,7% in 2017 related to fragility of public institutions and the Outcome 2: Percentage of public [90]% in 2015 [70]% in 2016 Procurement audit prevailing climate of
Improvement of procurement procurement by direct [50]% in 2017 report (ARMP) insecurity in certain areas transparency negotiation in Bangui and the country’s provinces.
Outcomes Average number of days 22 days in 2015 < 14 days in 2017 This risk is mitigated by Outcome 3: for business creation Doing Business the return to constitutional Improvement of the business Report (WB) order and gradual DDRR environment Cost of business creation implementation (in % of income per capita) 204% in 2015 < 150% in 2017 COMPONENT I: Improvement of tax revenue mobilisation and public expenditure management Macroeconomic risk: High economic contraction Sub-component 1-1 Improvement of tax revenue and dependence on external assistance 1.1.1 Report on the 1.1.1 Preparation of an interim 1.1.1 Preliminary 1.1.1 Report available Mitigation measures: situation of exemptions CICEFD report report as at 30 August 2016 on the report available before the end of Recovery of activities and situation of exemptions granted by 1.1.2 Instrument on the October 2016 exports in the mining 1.2.2 Framework not the Inter-ministerial Committee in revision of the legal, sector, commitment of yet revised 1.1.2 Revision of Copy of instrument regulatory and TFPs for budget assistance charge of Tax and Customs framework before June institutional framework during the three coming Exemptions (prerequisite) 1.1.3 Census under 2017 for granting and managing years. 1.1.2 Revision of the legal, way and DGID report exemptions SYSTEMIF4 being 1.1.3 Census made and regulatory and institutional Fiduciary risks: High framework for granting and 1.1.3 Updated taxpayers’ installed taxpayers’ database updated before June imbalances on the budget managing exemptions (trigger) database in SYSTEMIF4 1.1.4 Agreements 2017 circuit and control systems 1.1.3 Census of taxpayers and 1.1.4 Number of revised not yet revised CICEFD report updating of the taxpayers’ agreements 1.1.4 Revision of all Mitigation measures: database in the new taxation agreements concerned Reform programmes management system before June 2017 supported by the IMF and
(SYSTEMIF4) other TFPs include 1.1.4 Revision of exemption measures to improve agreements that will expire in public finance 2016 management and
transparency. Sub-component 1.2 Improvement of budget execution Copy of the manual 1.2.1 Validation of the expenditure 1.2.1 Expenditure 1.2.1 Manual and 1.2.1 Manual and guide and guide execution procedures manual – execution procedures guide being finalized prepared before trigger- and drafting of the budget manual and drafting of a September 2016 Copy of the preparation guide – prerequisite budget preparation guide 1.2.2 Instruments not Outputs yet adopted 1.2.2 Instrument instrument 1.2.2 Adoption of instruments 1.2.2 New instruments adopted before June adopted relating to the designation of credit 1.2.3 Audit of the 2017 managers and administrators for 1.2.3 Report on the existing system Copy of the validated better definition of the terms of specifications (GESCO) carried out 1.2.3 Specifications specifications their appointment and their duties and development of prepared in 2017 – trigger 1.2.4 Budget commitment current rate (excluding salaries) of Budget execution specifications 1.2.4 Reach at least a report prepared by the 1.2.3 Preparation of specifications the education, health and for migration to a new integrated 50% commitment rate General Directorate social affairs sectors 1.2.4 Commitment in 2017 public finance management rate estimated at 10% of Budget 1.2.5 Number of years of system. in 2014 1.2.5 Audits carried out audit carried out between Copy of the 2017 1.2.4 Increase in the budget in 2017 for the years 2012-2015 1.2.5 No audit Finance Law execution rate (excluding salaries) 2012-2015 carried out for the of the education, health and social 1.2.6 Officials appointed years 2012 - 2015 1.2.6 Appointment of affairs sectors members of the Copy of audit reports 1.2.6 Members of the 1.2.5 Audit of public contracts Conflict Resolution forwarded by ARMP Conflict Resolution Committee in 2017 1.2.6 Operationalisation of the Committee are not Conflict Resolution Committee at yet appointed Instruments on the the Public Contracts Regulatory appointment of Agency (ARMP) members of the Conflict Resolution
Committee
COMPONENT II : Improvement of the business environment and governance in the productive sectors
Sub-component 2.1 Improvement of the business environment and support to SMEs
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Country and Programme Title: CAR – Economic and Financial Reform Support Programme Programme Goal: Contribute to the improvement of public finance management and the revival of economic growth Results Chain Indicators Means of Risks/ Indicator Baseline Situation Target Verification Mitigation measures 2.1.1 Reports validated 2.1.1 Assessment of 2.1.1 Report on the Copy of the report forwarded by the 2.1.2 Clearance plan for losses being carried assessment of losses out validated in 2016 and Ministry of Finance domestic arrears of the 2.1.2 Audit of adoption of measures 2.1.1 Assessment of losses and period 2012-2014 Copy of the arrears domestic arrears of in 2017 damage suffered by enterprises clearance plan 2.1.3 GUFE procedures the period 2012- 2.1.2 Arrears clearance during the 2013 events approved by manual 2014 being finalized plan adopted before (prerequisite) government 2.1.4 Study on the 2.1.3 GUFE lacks a June 2017 2.1.2 Adoption of a clearance plan National Private Sector for domestic arrears of the period procedures manual 2.1.3 GUFE’s Copy of the Guarantee and Support 2012-2014 (trigger) and a financial and procedures manual and Fund procedures manual accounting financial and 2.1.3 Operationalisation of the management system accounting 2.1.5 Study on the Single Window for Business management system establishment of a 2.1.4 Study on the Copy of study and Registration (GUFE) established before June Management Centre National Private report on the 2.1.4 Establishment of a National 2017 within the Chamber of Sector Guarantee organisation of the Private Sector Guarantee and Commerce, Industry, and Support Fund 2.1.4 Study finalized in Support Fund roundtable Mines and Crafts being conducted 2016 and organisation 2.1.5 Operationalisation of an (CCIMA) of a roundtable for Copy of study and 2.1.5 Study for the capitalization of the approved Management Centre CCIMA report within the Chamber of Commerce, establishment of an Fund before the end of
Industry, Mines and Crafts approved 2017
(CCIMA) Management Centre being conducted 2.1.5 Study finalized in 2016 and an approved management centre operational in Bangui in 2017 Sub-component 2-2 Revival of productive sectors
2.2.1 Updating of the National 2.2.1 Plan updated 2.2.1 PNIASAN 2.2.1 PNIASAN
Agricultural Investment, Food 2.2.2 Decree on the being updated – updated before 30 Security and Nutritional preliminary report October Copy of PNIASAN enabling instruments of Programme (PNIASAN) - the Environmental Code available 2.2.2 Decree on the Copy of instrument prerequisite 2.2.2 Enabling enabling instruments of 2.2.3 Arrears clearance 2.2.2 Adoption of a decree on the instruments of the the Environmental rate enabling instruments of the Environment Code Code Text
Environmental Code (trigger) 2.2.4 Study report not yet adopted adopted in 2017 Report on the arrears 2.2.5 Number of areas 2.2.3 Revival of cotton and food 2.2.3 State arrears to 2.2.3 The sector’s situation crop production by clearing State declared compliant the sector not yet arrears cleared in 2017
arrears to business operators 2.2.6 Revised Mining cleared in 2015 2.2.4 Study on forestry Copy of the study and 2.2.4 Conduct of a study on Code 2.2.4 Study being taxation finalized in instrument on the tax conducted 2016 and a new tax Outputs forestry taxation and para-taxation system in order to make the timber 2.2.5 Four diamond system adopted in 2017 exploitation sector competitive producing areas 2.2.5 Achieve at least 2.2.5 Revival of mining declared compliant ten diamond producing production by continuing the in September 2016 areas declared Report of the implementation of measures for 2.2.6 Mining Code compliant in 2017 Ministry in charge of total compliance of diamond being revised 2.2.6 New Mining energy on the producing areas with the Kimberley Process Code adopted in 2017 Kimberley Process 2.2.6 Revision of the Mining Code Copy of the Mining to improve the sector’s Code attractiveness and industrialization
Total resources: UA 12.28 million
ADF grant – PBS: UA 2.7 million
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ie TSF grant - Pillars: UA 8.02 million TSF Grant (Restructuring/Cancellation: UA 1.56 million Activit -
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REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARDS OF DIRECTORS ON PROPOSED ADF AND TSF GRANTS TO THE CENTRAL AFRICAN REPUBLIC FOR THE EMERGENCY ECONOMIC AND FINANCIAL REFORM SUPPORT PROGRAMME (PAREF)
I. PROPOSAL
1.1. This proposal, submitted to the Board for approval, concerns a UA 1.56 ADF grant million, a UA 8.02 million TSF grant and a UA 2.70 million ADF loan to finance the first year of the Economic and Financial Reform Support Programme (PAREF).
1.2. PAREF’s objectives are in line with the Emergency Crisis Exit and Economic Recovery Support Programme (PUASCRE), financed by the Bank in 2014 and 2015 through two Crisis Response Budget Support (CRBS) operations. PUASCRE1 had been the Bank’s rapid response to help the country emerge quickly from the military and political crisis triggered in March 2013, when the ruling government was overthrown by Séléka rebels. PUASCRE was instrumental in restoring the normal functioning of public institutions and basic social services, whose capacities had been severely affected by the crisis. PUASCRE also contributed to the revival of private sector activities, by helping clear part of the State’s arrears to national suppliers. Now that constitutional order has been restored, the Bank, through PAREF, seeks to help government implement structuring reforms to sustainably improve governance in public finance management, the private sector environment, and promote the revival of productive sectors.
1.3 PAREF will take the form of a programme-based support operation (PBO) covering the 2016 and 2017 fiscal years. It will be financed by two general budget support (GBS) operations, namely an amount of UA 12.28 million in 2016 and an indicative amount of UA 10 million in 2017. In accordance with the Bank’s policy for PBOs, disbursements will be made in single tranches, depending on the implementation of a set of preliminary measures in 2016 and indicative triggers for the second phase in 2017. Programme-based support will help provide predictable financing to the Government of the Central African Republic (CAR), while facilitating dialogue on medium-term economic and financial reforms, thanks to the flexibility inherent in the programme-based approach.
II. COUNTRY AND PROGRAMME CONTEXT
2.1 Political Situation and Governance Context
2.1.1 The recent political context in CAR is marked by a return to constitutional order following the organisation of the December 2015 constitutional referendum as well as presidential and legislative elections in February and March 2016. The country’s security situation, which had already improved significantly in 2015, thanks to the support of the United Nations Integrated Multidimensional Mission in CAR (MINUSCA) and the French SANGARI forces, continued to be consolidated in 2016 with the deployment of the Central African Armed Forces (FACA). Prefectural authorities were partially deployed in the regions to gradually ensure the effective presence of the State. However, the country remains in a fragile situation, with pockets of insecurity after three years of a military-political crisis marked by intercommunity violence. Last June, clashes between vigilantes and police forces in Bangui led to the death of some ten persons. The disengagement of the French force initiated since the organisation of general elections reveals
1 See Technical Annex 1 for details on PUASCRE-2’s state of implementation 1
risks of renewed violence in the country. One of the major priorities of the new government is the implementation of the Disarmament, Demobilization, Reintegration and Repatriation (DDRR) process whose success depends on the sustainable integration of ex-combatants into economic activities and the opening up of several regions of the country.
2.1.2 As a reminder, CAR had been plunged into one of the most severe crises of its history in March 2013, when an armed rebellion from the country’s North overthrew the government that had been ruling for a decade. Thanks to international mediation and the support of the country’s technical and financial partners (TFP), a political transition was established and was able to restore the country’s constitutional institutions at the beginning of 2016. However, the crisis severely affected the country’s social climate and humanitarian situation and its production capacities in all economic sectors. The main challenges faced by the country in relation to factors of fragility are: (i) the restoration of security countrywide; (ii) social cohesion and the effective presence of the State on the entire national territory; and (iii) economic recovery through support to the private sector and the revival of productive sectors.
2.1.3 In terms of governance, CAR still remains at the bottom of the rankings in Africa and the world although some slight progress has been made in the last two years. Transparency International’s Corruption Perception Index (CPI) ranks the country in the 145th position among 168 countries, with a 24/100 rating. The 2016 edition of the Mo Ibrahim Index for Governance in Africa, shows a slight improvement in the country’s rating in 2015, but it is still ranked 52nd out of 54 countries. In 2008, government created a National Anti-Corruption Committee (CNLC) and formulated an anti-corruption strategy in 2012. But the 2013 crisis did not allow for its effective implementation. The new constitution provides for the establishment of a Higher Authority for Good Governance. In terms of transparency in natural resource management, CAR had joined the Extractive Industries Transparency Initiative (EITI) in May 2007 and was declared a compliant country in March 2011. However, owing to political instability, the country was temporarily suspended from the Initiative on 10 April 2013. In May 2013, it was also suspended from the Diamond Certification System under the Kimberley Process. Government has since then taken measures to secure and improve governance in production areas. These measures helped in partially lifting the embargo on 26 June 2015, especially in four production areas considered compliant with the Kimberley transparency standards. In the very short term, government also intends to relaunch the activities of the National Council for the Extractive Industries Transparency Initiative (EITI- CAR). In the area of public finance management (PFM), the country has made some progress thanks to the dialogue that was maintained with its key TFPs during the crisis. Although a new Public Expenditure and Financial Accountability (PEFA) review has not been conducted to assess this progress, there is a strong commitment by authorities to return to orthodoxy in PFM.
2.2 Recent Economic Developments, Macroeconomic and Budget Analysis
2.2.1 The country’s economic situation, severely affected by the crisis with a GDP contraction of about 37% in 2013, shows signs of gradual recovery. The real GDP growth rate rose to 4.8% in 2015 against 1% in 2014 and inflation dropped significantly from 11.6% in 2014 to 4.5% in 2015. Taking advantage of the gradual return of security in Bangui and the country’s main supply corridors for commodities and other capital goods, there is a revival of activities in trade, the timber sector and manufacturing.
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2.2.2 The rural and forestry sectors, which to date represent the main sources of wealth, employment and foreign exchange, are resuming gradually after a strong contraction in activities. The agricultural sector accounts for 45 % of GDP, 70% of active employment and more than 75% of national food consumption. The country has immense natural resources and agro- ecological conditions favourable for agriculture and livestock breeding, with 15 million hectares (ha) of arable land of which only about 800 thousand ha are cultivated each year. The crisis seriously disrupted farms, resulting in losses of means of production and destruction of crops, fields and small livestock. Thus, agricultural production fell by 46% in 2013 and then grew by 11% in 2014. With respect particularly to cotton, the country’s main export crop before the crisis, the sector is affected by destruction of production tools, State arrears to subsector actors and poor governance. In the forestry sector, logging companies had also reduced or suspended their activities, due to insecurity. Today, thanks to the gradual improvement of security, activities are resuming gradually. Government has prepared an action plan for cotton revival and targets a production of about 50,000 tonnes of seed cotton (about twice the output prior to the crisis) and the operationalisation of an oil mill by 2018. As concerns the forestry sector, there are plans for a forestry taxation study that will lead to recommendations for improving sector governance, industrialization and increased budgetary revenue from the sector.
2.2.3 In the mining sector, where production had slowed down significantly, owing to the 2013 embargo on diamond exports, activities resumed in 2016 with about 3,700 carats already exported. With the lifting of the embargo and the measures to secure production areas as well as the planned revision of the mining code, government intends to regain its pre-crisis production level of just over 350,000 carats by 2018.
2.2.4 The financial sector in CAR remains the least developed of the CEMAC zone and its contribution to economic recovery remains very limited. Only 1% of the population hold a bank account and only 0.5% has access to credit. The absence of appropriate guarantee instruments, the weaknesses of the judicial system and the scale of outstanding debts are the financial sector’s main constraints. The sector’s overall liquidity increased in 2015 but the quality of bank assets remains precarious.
2.2.5 At the level of public finances, government continued efforts to mobilise resources and control expenditure, especially the payroll. Domestic resources, which had dropped by half between 2012 and 2013, are going up gradually. In 2015, they reached 7.1% of GDP against 5.6 and 4.9 respectively in 2013 and 2014. The basic primary deficit dropped from -5.1% of GDP in 2014 to -3% of GDP in 2015. However, the public debt, estimated at 48.5% of GDP in 2015, is weakening the country’s financial sustainability. According to the external debt sustainability analysis carried out by the International Monetary Fund (IMF) in 2016, CAR is classified as a country at high risk of debt distress. This is due less to increase in public debt than to the collapse of GDP, tax revenue and exports. On 20 July 2016, the IMF approved a three-year SDR 83.55 million (about USD 115.8 million) arrangement for the country under the Extended Credit Facility (ECF). Under this programme, the IMF recommended that government use only concessional financing, with a grant element of at least 50%.
2.2.6 In terms of prospects, real GDP is expected to grow by 5.1 % on average during the next three years and inflation brought down to 3 % by 2019. For the year 2016, the GDP growth rate should stand at 4.5 % in real terms, driven by the revival of activities in all sectors and the boosting of public and private investments in the infrastructure sector (water, electricity). A supplementary
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finance bill adopted in September 2016 provides for a basic primary fiscal deficit of about CFAF 34.7 billion (3.3 % of GDP). A review conducted by an IMF mission at the beginning of September 2016, concluded that economic and financial performances at the end of August 2016 were overall in line with the programme’s objectives. Government should continue adjustment efforts to gradually reduce the primary budget deficit to -1.9% of GDP in 2017 and -1.4 % of GDP in 2018, which will help create the budget margins to finance poverty reduction expenditure and expand the productive base. Table 1 – Key Macroeconomic Indicators (in percentage of GDP, unless otherwise indicated)
GDP (real) 2013 2014 2015 2016 2017
Est. Prel. Prog. Proj.
Real GDP growth rate (in %) -36.7 1.0 4.8 4.5 5.0
Inflation rate (annual average) 6.6 11.6 4.5 5.1 4.5
Current account balance – including grants -3.0 -5.6 -9.0 -10.1 -9.6
Broad money (annual variation in %) 5.6 14.6 5.3 11.8 13.3
Public debt 38.5 51.1 48.5 47.2 40.6
Including domestic debt 24.0 36.3 34.0 30.3 25.7
Gross official reserves (import months) 3.7 5.1 4.2 4.0 4.5
Primary budget balance -7.0 -5.5 -3.0 -3.3 -1.9
Budget balance, including grants -6.3 3.0 -0.6 -4.1 -2.9
Budget balance, excluding grants -9.3 -7.8 -7.8 -9.0 -7.2 Source: Estimates of the IMF and Central African authorities 2.3 The Economy’s Competitiveness 2.3.1 The country’s economy, which is based mainly on the primary sector, has gone down sharply in terms of competitiveness since the onset of the crisis. The forestry sector, which before the crisis contributed about 10% of GDP and nearly 50% of the country’s exports, was particularly affected by the extent of looting of production tools as well as the displacement of the population. The mining sector which accounts for about 5% of GDP also witnessed a dramatic drop in its production with the embargo on the export of Central African diamond. According to the Kimberley Process certification scheme, exports of rough diamonds amounted to 371,000 carats in 2012, before the embargo in May 2013. In September 2016, diamond exports amounted to only 3,702 carats .The business environment, which remains one of the least attractive in the world, is plagued by lack of economic infrastructure (electricity, roads, telecommunications…), the prevailing insecurity in several areas of the country, the high cost of business creation and difficult access to credit and qualified human resources. The last World Bank 2015 Doing Business report ranks CAR in the 185th position among 189 countries. The crisis severely weakened the private sector and the economy’s competitiveness. Many enterprises have suffered significant material damage and financial losses
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owing to acts of violence in the country and accumulation of State arrears of payment. to local suppliers. 2.3.2 The measures envisaged by government to improve governance in productive sectors will help revive mining and agricultural production. An audit of cotton subsector arrears was carried out in 2016 with the support of the World Bank. This audit will lead to measures to clear the arrears and a reform in sector governance. In the wood and mining sectors, the forestry taxation reform and a new mining code should revive production. The Bank, through the Economic and Financial Capacity Building Support Project (PARCGEF), provides support to revitalize private sector promotion structures. 2.4 Public Finance Management The public finance management system in CAR is based on a legal and regulatory framework, which generally complies with international standards. However, it has many inadequacies at the institutional level. In 2010, before the crisis, a public finance management assessment according to the PEFA methodology, had highlighted weaknesses in the entire public expenditure chain. Government had then adopted measures to improve budget credibility, public accounting and control systems. The crisis plunged the country into bad practices, through the abusive use of exceptional expenditure execution procedures and non-compliance with administrative, financial and legal mechanisms. Thus, there are generally inadequacies in budget preparation, lack of budgetary discipline and transparency, insufficient qualified human resources, lack of reliable financial information and the absence of an adapted and robust information system.. 2.4.1 The computerized public finance management system (GESCO), now used by Budget and Treasury services, is affected by recurrent dysfunctions. This is one of the causes of delays in the production of State financial statements. Indeed, public accounts have not been produced since 2007. The Court of auditors faces human and material constraints that undermine its abilities to carry out external audit of public finances. It does not to date have financial autonomy. 2.4.2 The public contracts legal and regulatory framework, although generally in line with international standards, has major weaknesses resulting mainly from the political and military crisis in the country. Indeed, the organs provided for in the Public Contracts Code to ensure the regular functioning of the procurement process are not adequately operational. The General Directorate of Public Procurement (DGMP), responsible for public procurement control, functions in a relatively acceptable manner but with very limited operational capacities. The country’s four Procurement Services (SMP) do not seem to have the required capacities to meet the needs of all contracting authorities. The Public Procurement Regulatory Agency (ARMP), the core of the procurement system, is almost inexistent. Apart from the permanent secretariat, the other members are not in place, particularly members of the Conflict Resolution Committee (CRD). Public contracts have not been audited since 2010. 2.4.3 Since 2014, government has got down to restoring a public finance management system that complies with international standards. The main measures concerned the reduction of expenditure made from imprest funds; the creation and operationalisation of a Central Treasury Accounting Agency (ACCT), which is trying to address the backlog in the production of the 2010 to 2014 management accounts. There are also regular meetings of the Treasury Committee and the Monitoring and Public Finance Management Committee; and the gradual restoration of GESCO’s functionality. These measures were supported by TFPs and the Bank through PUASCRE and PARCGEF.
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2.5 Inclusive Growth, Poverty Situation and Social Context
2.5.1 The country’s humanitarian and social situation remains precarious, especially as the effects of destruction during the March 2013 crisis were intense. The incidence of poverty is estimated at 76% in 2015 against 65% before the crisis. The unemployment rate is very worrying, particularly among youths, who account for more than half of the population estimated at 4.9 million inhabitants in 2015. More than 47% of the active population is jobless, which increases social tensions. The crisis greatly affected the social situation of the population, with the destruction of means of production and the disorganisation of services in charge education, health, social affairs and agricultural supervision. The country further faces chronic food insecurity, which worsened with the crisis. Indeed, a survey conducted in October 2013 by the Central African Institute of Statistics and Economic and Social Studies (ICASEES), estimated that about 30% of the population is in moderate or severe food insecurity. The nutritional situation has also deteriorated due to the depletion of food consumption, the paralysis of health systems and lack of access to drinking water. It is estimated that about 28,000 children suffer from severe acute malnutrition and 75,000 children from moderate acute malnutrition. The 2015 UNDP World Development Report ranks CAR in the last but one position in the world (187th among 188 countries), with a Human Development Index (HDI) estimated at 0.350 in 2014.
2.5.2 At the health level, the last survey on health resource availability (HeRAMS) reveals that about one-third of the country’s 1,008 health institutions have been partially or totally destroyed, while 22% of health establishments are dysfunctional and 43% of health workers are community workers without any basic training. The country finds itself with 1 medical doctor for 27,000 inhabitants against a standard of 1 medical doctor for 10,000 inhabitants. To date, the major constraints faced by the health sector are: (i) inadequate national capital in infrastructure and equipment, chronic shortage of skilled personnel and inadequate workforce, collapse of the national supply system for inputs and pharmaceuticals, weak national health information system and low health expenditure which is below the average for Sub-Saharan Africa. Government has a 2006-2015 National Health Development Plan (PNDS) and a 2014-2016 Transition Health Sector Plan (PTSS), extended to 2017. The implementation of these plans, with the support of TFPs, should gradually improve the situation.
2.5.3 The already weakened educational system was not spared by the severe consequences of the crisis. Schooling had been virtually halted for two academic years, jeopardising the education of more than a million children. Vocational centres were looted and destroyed. With the irregularity in the recruitment of new teachers, the capacity of these centres was further reduced. According to a Cluster Education survey in CAR, published in April 2015, the enrolment rate dropped by 6% in 2014-15, relative to the pre-crisis period (2011-2012). The fear of violence, shortage of teachers and lack of school supplies were the main reasons for school dropout. However, the school map produced in April 2016 indicates a gradually improving situation (76% of functional establishments). The Ministry of Education has adopted a transitional plan covering the 2015-2017 period and extended up to 2018. It intends to train 500 teachers per year from 2016 to 2018. However, their effective recruitment is still hampered by the country’s limited budgetary resources.
2.5.4 The already difficult situation of women before the crisis deteriorated sharply with the increase in gender-based violence (GBV). The Gender-Based Violence Information Management System (GBVIMS), officially installed in 2014, has recorded 29% of sexual assault, 21% of rape, 18% of psychological violence, 16% of resource denial, 15% of physical assault and 1% of forced
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marriage. The interventions of non-governmental organisations (NGOs) and other TFPs present in the country aim to inform communities and encourage denunciation in order to ensure social and psychosocial care for victims. Generally, gender equality is not yet established in CAR, although the fundamental law adopted in December 2015 reaffirmed the country’s support for all International Conventions to Eliminate All Forms of Discrimination against Women. The illiteracy rate remains high among women: 68 % against 46.2 % for men. Women’s participation in decision-making also remains low. The Central African parliament has 11 female members of parliament out of 128. On the economic front, the production capacities of women operating mainly in the agricultural sector have witnessed a sharp drop due to violence in the rural area. This situation has aggravated the nutritional situation in the country. Government has committed to creating a Women’s Centre in Bangui and in all the prefectures. This is an exchange forum for women from all horizons and with various experiences that help strengthen their capacities. Legal systems will also be strengthened to protect women’s rights. To this end, government intends to operationalise the Joint Rapid Intervention Unit against gender-based sexual violence and a Centre for General Care of Victims of Violence.
III. GOVERNMENT’S DEVELOPMENT PROGRAMME
3.1 Government’s Overall Development Strategy and Short-Term Priorities
3.1.1 During the 2013 to 2015 political transition, government had relied on the Sustainable Recovery Emergency Programme (PURD). At the end of the political transition, government started formulating a new Recovery and Peacebuilding (RCPCA) strategy with the support of key development partners, including the Bank2. The new RCP strategy, which covers the 2017-2021 period, has three pillars: (i) support peace, reconciliation and security; (ii) renew the social contract between the State and the population; (iii) ensure economic recovery and the revival of productive sectors. Government estimates the financing needs to implement its development programme at about USD 3 billion. In order to obtain financing, the government presented this new strategy at Donors Roundtable in Brussels in November 2016 to raise funds. The Bank provides technical and financial support to the Government in its preparation of the round-table documents and its advocacy with major donors in the country.
3.1.2 For the 2016-2018 period, authorities will lay emphasis on the improvement of domestic resource recovery with a view to increasing the fiscal space necessary for financing priorities. The improvement of public finance management and the country’s humanitarian situation, private sector promotion and the revival of productive sectors will be continued. PAREF’s alignment with these government priorities gives assurances that the economic and social policy measures planned in 2016 and 2017 will be fully implemented.
3.2 Constraint to Implementing the National Development Programme 3.2.1 Most of the country’s constraints, identified under the Bank’s two previous support operations are still relevant. Indeed, the return to constitutional order has not yet resulted in the total normalization of the situation. Armed groups are still present on the territory and periodic clashes occur. At the same time, intercommunity tensions continue and sometimes lead to violence with loss of human lives. There are still more than 420,000 displaced persons and about 467,000 Central African refugees in neighbouring countries. In the capital Bangui, the Moslem community, estimated
2 The Bank provided technical and financial support to government in the preparation of roundtable documents and advocacy with key donors in the country. 7
at 36,000 persons, live in an enclave at PK5. The restoration of security and national reconciliation are major challenges for the government. The health and education systems are also major challenges, despite efforts made over the last two years to redeploy health personnel and teachers. 3.2.2 It should be noted that CAR’s fragility is not only due to the 2013 crisis, but also the result of a long deterioration of the country’s economic, social, security and governance situation. The analysis conducted by the Bank and several other TFPs revealed that the country’s key fragility factors include lack of social cohesion, characterized by recurrent community conflicts; the weak social contract between the State and the population due mainly to the poor quality of social services; the weakness of the judicial system and the defence and security forces; the existence of disparities between Bangui and the hinterland; poor natural resource management; non-treatment of past traumas and impunity; the insecurity that has prevailed for many years consequent upon successive rebellions and conflicts. The Bank’s comprehensive analysis on the country’s factors of fragility and sources of resilience is presented in Technical Annex 4. 3.3 Consultation and Participation Process The participatory process, which led to PURD’s preparation during the transitional period, was maintained in the preparation of the new RCP strategy. The inclusive and collaborative approach was based on: (i) broader consideration of the population’s needs by wider consultation of stakeholders including civil society, the private sector and local authorities; and (ii) the organisation of an international donor and investor conference. 3.3.1 This operation was prepared in a participatory manner through meetings in Bangui with members of government, State structures, the private sector and TFPs. At the end of the preparation and appraisal missions, review meetings were organised in the presence of all stakeholders to harmonise and confirm the various programme measures. IV. BANK SUPPORT FOR THE GOVERNMENT STRATEGY 4.1 Linkage with the Bank Strategy 4.1.1 PAREF is aligned with the Bank’s Interim Assistance Paper covering the 2014-2016 period the second pillar of which concerns the restoration of institutional capacities and the promotion of good governance. It should be noted that the Bank has started preparing a new country strategy paper that will be aligned with the national RCPCA strategy. 4.1.2 PAREF will contribute to achieving government’s objectives for economic recovery and the improvement of good governance. The programme is in line with the High Five institutional priorities of the Bank’s new Service Development Model approved by the Board on 22 April 2016 as well as the Bank’s Ten Year Strategy (2013-2022) as concerns its priorities in Fragile States. It is also consistent with the guidelines of the 2014 - 2018 Governance Action Plan (GAP II), and the Bank’s Strategy for Addressing Fragility and Building Resilience in its regional member countries during the 2014-20193 period For countries in a fragile situation like CAR, the various strategy papers recommend measures that help build the State, strengthen basic economic management capacities, and institute legitimacy thanks to the provision of public services for the resumption of activities. Programme measures aimed at improving public finance management and the business environment, and supporting the revival of activities, are in line with the above-mentioned strategies.
3 Ending Conflicts and Consolidating Peace in Africa – A Call for Action (ADB/BD/IF/2014/13 - ADF/BD/IF/2014/11) - 23 January 2014. 8
4.2 Compliance with Eligibility Criteria
4.2.1 The proposed general budget support (GBS) operation complies with the Bank’s policy on programme-based operations adopted in March 2012 (ADF/BD/WP/2011/38). An analysis of the country’s state of preparedness shows that CAR fulfils the conditions for use of GBS. Indeed, government has prepared a new strategy paper in a participatory manner. The country’s macroeconomic framework has improved in the last two years and prospects for accelerated growth are good. The fiduciary framework presents high risks owing to the country context which does not allow for the proper functioning of public finance control systems. Nevertheless, in agreement with other TFPs, fiduciary risk mitigation measures were adopted and are being implemented by government. These are: (i) the regular holding of treasury committee sessions with the participation of TFPs; (ii) the holding of Public Finance Monitoring Committee meetings under the chairperson of the Head of State; (iii) the continued streamlining of the public service file, with the technical and financial support of UNDP and the World Bank; and addressing the 2010-2014 management accounts backlog by the Central Treasury Accounting Agency. Other measures will complete these actions, namely the preparation and dissemination of a budget execution manual, the conduct of public procurement audits and the reduction of treasury advances. These measures will be monitored under PAREF. A comprehensive analysis of the country’s state of preparedness is presented in Annex 2 of this report.
4.3 Collaboration and Coordination with Other Partners
4.3.1 Prior to the March 2013 crisis, there was a comprehensive budget support framework (CGAB) in the Central African Republic (CAR) which defined the donor coordination framework in CAR. This framework has not yet been updated since 2014 during joint missions in CAR under the aegis of the IMF from 2014 onwards. The preparation of this operation was carried out during a joint mission in CAR in May 2016 with the IMF.
4.3.2 The appraisal mission’s aide-mémoire was distributed widely to all stakeholders with a view to harmonising interventions. The World Bank is envisaging a general budget support in 2016 and 2017 to finance a State Consolidation Support Programme (PACE). The areas targeted are tax revenue improvement, payroll control, budget transparency control, agricultural sector revival and ICT sector promotion. The European Union (EU) has planned budget assistance in 2016, 2017 and 2018. Its reform programme is being formulated. The IMF, on its part, through its ECF-supported programme, supports measures aimed at improving tax collection, financial and budget management, and consolidation of the financial system. In the social area, the UNDP, humanitarian agencies and NGOs are carrying out targeted actions in the areas of security, social, food security and drinking water.
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4.4 Linkage with Other Bank Operations
4.4.1 The Bank’s portfolio in CAR, as at 31 October 2016, comprises 5 national projects and four regional operations for a total package of UA 75.09 million. The portfolio’s performance is considered satisfactory despite the country’s volatile security situation. However, the various supervision missions and portfolio performance reviews laid emphasis on two points and the lessons learned are taken into account in the design of new projects. These are: (i) building the capacity of project implementation units and establishment of an Inter-ministerial Project Monitoring and Evaluation Committee; and (ii) building the capacity of local enterprises in the submission of bids and implementation of works.
4.4.2 In the governance sector, the portfolio comprised PUASCRE-2, entirely disbursed, and three institutional support operations including the Economic and Financial Management Capacity Building Project (PARCGEF4). As noted earlier, PAREF is a continuation of measures already technically supported by PARCGEF. These particularly are the improvement of the functionality of the main public finance management tool (GESCO), the taxpayer and tax revenue management system (SYSTEMIF) and the public debt management system (SYGADE). At the level of the business environment and private sector promotion, PARCGEF provides support to the One-Stop- Shop for Business Formalities (GUFE), the Chamber of Commerce and the Joint Consultation Framework for Business Climate Improvement between the State and the private sector (CMCAA).
Figure 1 - CAR – Bank Portfolio as at 31/10/2016 Agriculture 1% Several PAREF measures result from Environment Social 2% studies conducted under PARCGEF, 8% namely the assessment of losses and Multisector Transport damage suffered by enterprises 22% 32% during the March 2013 events, the study for the establishment of an SME guarantee and investment fund and the study for the establishment of Water and approved management centres. On sanitation the social component and the DDRR, Energy 5% PAREF is complementary to the 30% Emergency Basic Community Reconstruction Support Programme (PARCB), which aims, among others, at the socio-economic reintegration of more than 500,000 unemployed and out-of-school youths.
4.4.3 It should be emphasized that the key lessons learned from the implementation of PUASCRE-1 and PUASCRE-2 have helped in preparing this operation. Thus, PAREF’s design was based on the programme’s adaptation to the country’s fragile context. The programme first selected measures that are likely to be implemented by government itself, or with the assistance of the Bank and other technical and financial partners; the maintenance of continued dialogue with authorities on programme objectives all along the preparation process by integrating the various developments of the situation. Continued dialogue with authorities helped revise or postpone certain triggers.
4 PARCGEF has a disbursement rate of 70% on ADF resources and 49% on FSF resources. The project’s closing date is 30 December 2016. 10
4.5 Analytical Works Underpinning the Programme
4.5.1 This report was inspired by several working reports and documents: the documentation provided by authorities during joint missions, analyses contained in previous budget support operations, reports from other TFPs and studies conducted under PARCGEF (study for the creation of an SME guarantee and investment fund, assessment of losses and damage suffered by enterprises during the 2013 crisis). The programme was also based on IMF reports (Article IV and the ECF- supported reform programme); and aides-mémoires of World Bank missions. These documents highlighted the country’s main constraints, by proposing the intervention thrusts.
V. THE PROPOSED PROGRAMME
5.1 Programme Goal and Objective
PAREF’s goal is to contribute to improving public finance management and reviving economic growth. The programme will have an impact on the country’s economic growth and social situation.
5.2 Components, Objectives and Expected Results
5.2.1 The Economic and Financial Reform Support Programme (PAREF) seeks to consolidate the improvement of public finance management and support the revival of productive sectors. The programme will contribute to (i) improving tax collection; (ii) improving transparency and the budget execution rate, especially in the social sectors and; (iii) consolidating economic growth through an improvement of the business climate and governance in productive sectors (agriculture, forestry and mining).
5.2.2 The programme will have two components: (i) Component 1 – Improvement of tax revenue mobilisation and public expenditure management; (ii) Component 2 – Improvement of the business environment and governance in productive sectors. The two components are complementary and help revive economic growth in CAR. Tax revenue mobilisation and improved public finance management will enable government to gradually create the fiscal space to support economic recovery. The programme will be executed over 15 months, from October 2016 to December 2017.
5.2.3 Component I – Improvement of Tax Revenue Mobilisation and Public Finance Management
5.2.4 Sub-component 1.1 – Improvement of Tax Revenue Mobilisation:
a) Problems and constraints: The 2013 crisis had led to almost total paralysis of financial services, with the destruction and looting of administrative buildings, means of transport and other working tools. This situation had considerably affected the tax collection capabilities of customs and taxation services. With the support of TFPs and the Bank through PARCGEF, the institutional capacities of taxation services were gradually restored. PARCGEF provided rolling stock, IT and office automation equipment as well as training. However, tax and customs revenue mobilisation is still hampered by weak control of the taxable base and exemptions as well as control systems. The mechanisms for granting exemptions are not well mastered, resulting in enormous shortfalls for the country. A study conducted in August 2016 with financing from the World Bank estimated the shortfall at CFAF 11
125.4 billion during the 2014-2016 period, or twice the annual tax revenue. Regarding the tax base, the taxpayers’ database has not been updated for several years. Furthermore, the information systems used by the customs service (SYDONIA++) and the taxation service (SYSTEMIF) are either under-utilized or limited. b) Recent measures taken by government: Government took measures in 2014 and 2015 to address these difficulties. Thus, taxation and customs workers were redeployed in the various regions and on the country’s main supply corridors, in particular the main Bangui-Douala (Cameroon) corridor. Joint control brigades were established to limit fraud and tax evasion. Measures were adopted in the 2016 Finance Law to broaden the tax base and simplify the tax system. These mainly are the introduction of a specific taxation rate for micro and small enterprises, submission to the reduced rate of VAT and customs duties for certain products previously exempted and the introduction of the pre-filled declaration in property taxation. Several other measures are also envisaged during the period 2016-2018, notably the revision of the price structure of petroleum products; better monitoring of exemptions; the revision of the tax system in the diamond and wood subsectors; census of taxpayers; harmonisation of the General Tax Code with the CEMAC Directive on excise duties related to taxation on mobile telephony; better dissemination of tax instruments; improvement of the tax revenue information and management system; deployment of customs services in other border posts that have remained closed since the onset of the crisis; and the interconnection of Central African customs services with those of Douala for better control of goods coming from Cameroon. c) PAREF-supported measures: Produce a report on the review of exemption agreements effective as at 30 August 2016, showing exceptional exemptions (Prerequisite); Revision of the terms for approving draft agreements on exceptional exemptions in order to better control exemptions (2017 trigger); Updating of the taxpayers’ database (2017 trigger); Updating and dissemination of the General Tax Code (CGI); Interconnection of Central African customs services with those of Douala with a view to limiting cases of false declaration of goods; Measures to fight against fraud on VAT (joint control with the customs service based on crossed risks) – at least 5 controls carried out per year; and Review of the agreements on exemption measures that will expire on 31 December 2016 (2017 trigger).
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5.2.5 Sub-component 2.2 – Improvement of Public Expenditure Management:
a) Problems and constraints: At the level of public expenditure management, the country was confronted in 2013 with a loss of budget expenditure control, through abusive use of exceptional procedures, notably the use of imprest funds and public procurement by mutual agreement. The inadequacies of the computerized public finance management system, GESCO, had paved the way for bad practices, by weakening public expenditure control capacities. Government was unable to pay all the salaries of civil servants. The domestic debt to State suppliers and banks increased while social expenditure, excluding salaries, was executed at less than 12%. Public finance management is still hampered by weaknesses in the budget preparation process, commitment and procurement plans, the low capacity of procurement units and the generalization of public procurement by direct negotiation, the non-conduct of public contract audits since 2010, the public contracts institutional regulatory framework that remains incomplete; the low capacity of credit administrators and managers, due mainly to their replacement almost every fiscal year, and the non-production of public accounts since 2007.
b) Recent measures taken by government: With the support of TFPs, GESCO was made partially operational and a Central Treasury Accounting Agency (ACCT) was established in 2014. Furthermore, monthly meetings of the Treasury Committee were instituted. The census of State employees with the support of the World Bank and UNDP, helped in partially cleaning up the public service file and making some payroll savings. Other measures are underway for better compliance with financial orthodoxy. These include, among others, the establishment of a nomenclature of expenditure supporting documents; improvement of the public expenditure information and execution system; reduction in the use of exceptional procedures; resumption of public procurement audits as well as addressing the public accounts backlog..
c) PAREF-supported measures: PAREF will support the following measures: Preparation of a budget preparation guide (prerequisite); Preparation of expenditure commitment and procurement plans by all ministries, particularly the ministries of health, education and social affairs; Review of instruments on the appointment of credit managers and administrators and preparation of an expenditure execution procedures manual (2017 trigger); Appointment of credit managers and administrators within the statutory time-limits by all ministries, particularly the ministries of health, education and social affairs; Abolition of imprest funds for missions (excluding imprest funds for the Presidency and the Prime Minister’s Office); Appointment of members of the Conflict Resolution Committee in ARMP (2017 trigger); Conduct of public contract audits from 2012 to 2015 ; Budgetary allocation for the implementation of the assistance strategy for female victims of violence; Budgetary allocation for the strengthening of public services in charge of health and school equipment and supplies, the national health information system as well as the implementation of the training and deployment plan for the additional workforce in the education and health sectors; Increase in the budget execution rate (excluding salaries) of the education, health and social affairs sectors to about 50% in 2017 against 12% in 2014. 13
5.2.6 Component II – Improvement of the Business Environment and Governance in Productive Sectors.
5.2.7 Sub-component 2.1 – Improvement of the Business Environment and Support to SMEs:
a) Problems and constraints: The business environment in CAR deteriorated considerably with the March 2013 crisis. Enterprises are hampered by the shortage of economic infrastructure (energy, running water, roads…), difficult access to financing, the State’s arrears of payment to suppliers and the low capacity of private sector support structures. In addition to that there were losses and material damage suffered by enterprises during the 2013 crisis. PMEs are particularly impeded by the absence of a legal framework specific to their situation and the reticence of commercial banks to give them credit in the absence of adequate guarantees. Furthermore, support for support structures remains weak.
b) Recent measures taken by government: The Government has taken measures to improve dialogue with the private sector. The Joint Consultation Framework for Business Climate Improvement (CMCAA) was made operational in November 2015 by appointing its members with a view to conducting inclusive dialogue on business climate improvement measures. Several other measures are underway with Bank support through PARCGEF, in particular the improvement of the services of the Single Window for Business Formalities (GUFE); the Chamber of Commerce and the Centre for Support to SMEs and the Craft Industry (CAPMEA) and several other studies that will lead to the establishment of an SME guarantee and investment fund as well as approved management centres; clearance of the State’s arrears to suppliers; adoption of business support and revival measures to mitigate the effects of losses and damage suffered during the 2013 crisis. Government should continue these efforts in order to improve the country’s rating in the World Bank’s Doing Business ranking.
c) Programme-supported measures: In line with PUASCRE-2, PAREF will support the following measures: Validation of the report on the assessment of losses suffered by enterprises during the 2013 events (prerequisite) and adoption of measures to support the private sector in relation to losses suffered during the 2013 events; Audit of State arrears/liabilities for the 2012-2014 period and adoption of a plan for clearing these arrears and liabilities (2017 trigger); completion of the study for the establishment of a National Private Sector Guarantee and Support Fund; completion of the study for the creation of an approved management centre within the Chamber of Commerce, Industry, Mines and Crafts (CCIMA) ; Operationalisation of the CGA in Bangui ; Establishment of a financial management system for the Single Window for Business Formalities; and GUFE’s decentralisation to Berberati.
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5.2.7 Sub-component 2.2 – Revival of Productive Sectors:
a) Problems and constraints: The activities of productive sectors were suspended or greatly reduced due to the crisis. The mining sector, in particular, is dominated by small-scale production, with little change at the national level. The mining sector’s contribution to GDP and budget revenue has remained very low since 2013. The wood sector offers considerable potential (50 % of exports and second generator of employment in the country after agriculture) and remains to date the country’s main source of foreign exchange. However, the sector is still affected by weak governance and an ill-adapted tax system resulting in contradictions in wood export declarations and low revenue recorded by the State. On the agricultural front, cotton, the country’s main export crop before the crisis, is affected by the destruction of sector production tools, State arrears to cotton farmers and other subsector actors and poor sector governance. Government has prepared an action plan for its revival and targets a production of about 50,000 tonnes of cottonseed and the operationalisation of an oil mill by 2018.
b) Recent measures taken by government: In the mining sector, lifting of the embargo on diamond exports in June 2015 opened prospects for the sector’s revival. The downward revision of the sector’s tax system in the 2016 Finance Law made it possible to register thousands of artisans. Government efforts have made it possible to bring four diamond producing areas in the country’s west (Berberati, Boda, Carnot and Nola) into compliance in 2016. Government intends to extend the compliance area to at least five other towns by the end of 2017 (Gadzi, Bouar, Abba, Bozoum and Baoro). Other measures are also planned in the mining sector, notably the downward revision of export taxes on diamond and gold; and the review of the Mining and Petroleum Code to make it more competitive.
In the forestry sector, government has adopted a new Forestry Code to make it more competitive. It has also revised the tax system to ensure more equitable redistribution to local communities. It has further signed a Voluntary Partnership Agreement (VPA) with the European Community, within the framework of the international process for the implementation of forestry regulations, governance and trade in wood and its by-products. However, only 6 out of 14 exploitation and development permits granted in the south-west massif are operational and crossed debts between enterprises and the State persist. In this context, government intends to conduct a study on forestry taxation and para-taxation to make the sector more competitive. An audit of the taxation situation of forestry companies and an action plan to clear crossed debts/liabilities will be carried out.
In the agricultural sector, government’s ambition now is to increase the share of agriculture in national wealth in the very short term in order to ensure greater food security, create new jobs for youths, encourage agricultural entrepreneurship and foster the economy’s diversification and reflation. To this end, a roadmap was prepared in January 2016, taking into account the sector’s enormous potentials and its various constraints. It is in line with the National Agricultural Investment, Food Security and Nutritional Programme (PNIASAN) and the Country Programming Framework (CPF), updated to take the main concerns into account, in particular the vulnerability of grassroots communities, intercommunity conflicts, youth unemployment and poor governance, etc. Several important measures are planned, in particular the adoption of the decree on the organisation and operation of the Central African Agency for Food Health Security; approval of
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the organic instruments of the Ministries in charge of agriculture, livestock and the environment; publication of the law on agricultural professional organisations; and adoption of the enabling instruments of the 2001 law on the establishment and code of ethics of the National Association of Veterinary Doctors. As concerns cotton, government intends to clear arrears and consolidate the sector’s management with the support of the World Bank.
c) PAREF-supported measures: In the mining sector, continued implementation of measures for the compliance of at least 5 other production areas in 2017; and revision of the mining code (2017). In the agricultural sector, publish the agro- pastoral land code to ensure secure access to land by agricultural producers and promoters (2017); adopt a decree on the organisation of the profession of farm adviser (2017); deploy supervisors in the rural sector (2017); clear cotton sector arrears (2017 trigger); update the PNIASAN (prerequisite); adopt a decree on the organisation and operation of the Central Agency for Food Health Security (2017). In the forestry sector, finalize the forestry policy (2016); adopt a decree on the enabling instruments of the Environmental Code (2017); conduct a study on forestry taxation and para-taxation in order to make the forestry sector competitive (2017).
5.2.8 Programme results: The implementation of programme measures is expected to result in (i) an increase in tax revenue from 7.1% of GDP in 2015 to 8.7% of GDP in 2017; (ii) a reduction in public procurement by direct negotiation from 90% in 2015 to less than 50% in 2017; (iii) a reduction in the number of business creation days from 22 days on average in 2015 to at least 14 days on average in 2017; and (iv) decrease in the cost of starting a business from 204% of income per capita in 2015 to less than 150% of income per capita.
5.3 Policy Dialogue
PAREF is a policy-based reform, which comes after two crisis response budget support operations in CAR. In this context, dialogue will focus on reforms and measures that will have more structuring effects on the country’s medium-term economic and financial situation. These are particularly the mastery of exemptions; updating of the taxpayers’ database; the improvement of budget execution, especially in the social sectors; the establishment of a new integrated public finance management system to replace GESCO, which has shown its limits; the operationalisation of all public procurement regulation bodies and institutions; and the strengthening of governance in the cotton, mining and forestry sectors. Dialogue on these issues will be conducted jointly with other TFPs.
5.4 TSF Grant and TSF and ADF Loans Conditions
5.4.1 Preliminary Measures
On the basis of dialogue between the Bank and government, the latter plans to implement measures precedent to the programme’s presentation to the Boards of Directors. These conditions are indicated in the box below:
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(i) Satisfactory programme review supported by the IMF’s ECF;
Evidence: IMF Press Release after the October 2016 review
(ii) Produce a report on the review of exemption agreements in force as at 30 August 2016, showing exceptional exemptions (Prerequisite);
Evidence: Copy of the report forwarded to the Minister of Finance and Budget
(iii) Produce a methodological budget preparation guide;
Evidence: Copy of the Guide forwarded to the Minister of Finance and Budget
(iv) Finalize and validate the report on the assessment of losses and damage suffered by enterprises during the 2013 crisis;
Evidence: Copy of the validated report forwarded to the Minister of Finance and Budget
(v) Update the National Agricultural Investment, Food Security and Nutritional Programme (PNIASAN)
Evidence: Copy of the updated PNIASAN forwarded to the Minister of Finance and Budget
5.4.2 Triggers
Since the programme is a programme-based operation, it has triggers for the year 2017. These triggers concern measures on which the Bank has been conducting dialogue with other TFPs since 2014. These measures are mostly supported by TFPs and the Bank through PARCGEF, for economic and financial issues, or the Emergency Grassroots Community Reconstruction Support Programme (PARCB), for social issues.
Table 2 – Preliminary measures and triggers
Component Preliminary measures Triggers related to Phase 2
Component 1: Improvement of tax revenue mobilisation and public expenditure management
Satisfactory programme Status: An IMF mission was in CAR Census of taxpayers and update of the review supported by the IMF’s in September 2016 and expressed taxpayers’ database in the new tax revenue ECF satisfaction with the state of management information system implementation of ECF-supported programme measures Status: census preparatory work has started with PARCGEF support Factual elements required: IMF press release after the review mission
Produce a report on the review Status: Preliminary report available Review of instruments on the terms of of exemption agreements approving draft agreements on exceptional effective as at 30 August exemptions 2016, showing exceptional exemptions (Prerequisite); Factual elements required: Copy of Status: A study on the situation of the finalized report exemptions was conducted with the support of the World Bank
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Adoption of a methodological Status: Existence of a preliminary Review of instruments on the designation of guide for budget preparation; guide credit managers and administrators for better definition of the terms of their appointment and their duties; adoption of a procedures manual for expenditure execution Factual elements required: Copy of the finalized guide Status: A draft instrument is being examined by the Ministry of Finance and Budget; Existence of a preliminary manual
Component 2 : Improvement of the business environment and governance in productive sectors
Finalization of the assessment Status: Report on the assessment of Adoption of a plan for clearance of arrears of losses and damage suffered losses prepared with PARCGEF and liabilities (indicative trigger) by enterprises during the 2013 support. Its validation is underway. crisis Status: The audit of the 2012 to 2014 arrears Factual elements required: Copy of is under way the report validated by authorities
Updating of the National Status: Preliminary report available Total clearance of cotton sector arrears Agricultural Investment, Food (indicative trigger) Security and Nutritional Programme (PNIASAN) Status: An audit carried out with the support of the World Bank assessed the arrears
Adoption of a decree on the enabling instruments of the Environmental Code Factual elements required: Copy of the finalized report Status: Draft instrument being prepared
5.5 Application of Good Practice Principles on Conditionality
In accordance with the international consensus on good practices reflected in the Bank Group’s Policy on Programme-based Operations (PBO). This operation is aligned with good practices regarding conditionalities, namely; country ownership, burden sharing, disbursements predictability and realistic measures. The Bank's financing was backed by conditionalities discussed and shared with other TFPs, in the absence of a matrix of common measures. All measures adopted by the programme were proposed by various State structures and validated by authorities, after verifying their realism in the country’s post-crisis context. The predictability of disbursements is ensured by the programmatic nature of the operation, which provides flexibility in the conditionalities
5.6 Financing Needs and Mechanisms
5.6.1 The overall budget deficit (settlement base) in 2016 and 2017 (excluding programme grants) is projected at CFAF 43 and 32.8 billion, respectively. This deficit stems from the low tax revenue and the level of fixed expenses to restore economic and social infrastructure. Budget revenue, including project grants, is projected at CFAF 135.4 and 153 billion respectively in 2016 and 2017, or respective increases of 31% and 48% compared to the 2015 revenue and project grants. Public expenditure is also increasing, but to a lesser extent than revenue, in order to gradually improve the basic primary balance. Financing needs stand, respectively, at CFAF 50 and 48 billion in 2016 and 2017. Taking into account the Bank’s financing, they drop to CFAF 41.5 and 39.8 billion, respectively. Financing planned by the other TFPs will help cover the residual gap. The IMF 18
approved financing under the ECF for the years 2016, 2017 and 2018, for an overall amount of SDR 83.55 million (about CFAF 68.6 billion). The European Union plans general budget assistance of EUR 45 million (CFAF 29.5 billion) under the 11th EDF, for the 2017-2019 period. As for the World Bank, it has started preparing a State Consolidation Support Programme (PACE), with an indicative financing of USD 50 million (CFAF 29.4 billion) for the 2016-2018 period.
Table 3 – Projected financing needs and sources (in CFAF billion) 2014 2015 2016 2017 Est. Prel. Prog. Proj. Total revenue and grants 58.6 103.1 135.4 152.0 Including: grants (excluding budget support) 17.3 36.6 45.5 50.0 Total net expenditure and loans 107.3 140.0 178.4 185.8 Including: interest payments 5.5 5.4 7.6 5.8 Including: capital expenditure 18.1 43.7 64.7 69.7 Overall balance (commitment base) excluding programme -48.7 -36.9 -43.0 -33.8 grants Including basic primary balance -43.1 -27.7 -34.7 -21.0 Accumulation of arrears ( (-) = reduction) -13.9 -10.1 -5.6 -7.5 Overall balance (settlement base) excluding programme grants -62.6 -47.0 -48.6 -41.3 External financing (net – less Bank contribution) 63.1 31.0 -4.5 -2.4 Domestic financing (net) 3.3 22.9 3.1 -4.3 Bank contribution 11.4 6.1 10.1 8.2 Financing 77.8 60.0 8.7 1.5 Errors and omissions -15.2 -13.0 0.0 0.0 Financing need 0.0 0.0 39.9 39.8 Financing identified 0.0 0.0 39.9 39.8 World Bank 8.8 8.8 IMF 19.9 19.3 European Union 10.8 9.8 Others 0.4 1.8 Residual financing gap 0.0 0.0 0.0 0.0
Source: IMF, Central African authorities and Bank estimates
5.6.2 The IMF already disbursed the first tranche of its assistance in July 2016, for an amount of CFAF 10.6 billion. In October 2016, the European Union disbursed CFAF 5.9 billion as assistance provided for under the 10th FSF. The World Bank, for its part, plans to disburse a sum of CFAF 8.8 billion in December 2016. Finally, CAR will receive budget support during the next three years, which will allow for the close monitoring of reforms and measures to ensure sustainability of results.
5.7 Application of Bank Policy on Non-Concessional Debt Accumulation
CAR is in the category of countries with access only to ADF resources. In 2016, the IMF updated the debt sustainability analysis (DSA), which confirmed that the risk of debt distress remains high. The IMF advised government to adopt a prudent debt policy consisting in prior use of grants and the financing of any residual financing needs through concessional loans, with a grant element of at least 50%. With regard to the Bank, budget support under the PAREF will be financed with a TSF grant and concessional ADF and TSF loans. These loans are zero-interest loans with a 40-year maturity and a 10-year deferral. The grant element is estimated at 61%, in line with the 50% required by the IMF.
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VI. PROGRAMME IMPLEMENTATION.
6.1 Programme Beneficiaries
The programme’s final beneficiaries are the same as those of the previous programme: the entire Central African population, or nearly 4.9 million inhabitants, and particularly the vulnerable segments. Directly, the programme will benefit government by helping close the financing gap.
6.2 Social and Gender Impact
6.2.1 The programme will have a positive impact on the country’s humanitarian situation, thanks to its support to the implementation of social measures. These mainly are budgetary allocations in 2017 for the strengthening of public services in charge of health and school equipment and supplies as well as the national health information system; and for the implementation of the training and recruitment plan for the additional workforce of the education and health sectors and its deployment, taking into account regional balance. The programme will also impact on the living conditions of women through agricultural, mines and forest sector revival as well as budgetary allocations in 2017, and implementation of the assistance strategy for women and girls who are victims of violence.
6.3 Impact on Climate Change
The proposed programme is a general budget support operation. It will not have any impact on the environment, and is classified in Category III. Nevertheless, the programme supports the adoption of one of the enabling instruments of the Environmental Code in order to strengthen the consideration of environmental aspects in the design of development programmes.
6.4 Implementation, Monitoring and Evaluation
The Ministry of Finance and Budget, as the chair of the Public Finance Reform Steering Committee (CPR), will be responsible for the implementation of PAREF. The CPR comprises officials of action plan implementation structures (Ministry of Finance and Budget, Finance Committee of the National Assembly, Court of Auditors, General State Inspectorate, Public Contracts Regulatory Agency), a representative of the Civil Society and representatives of TFPs. The Ministry of Finance and Budget will ensure that the administrative structures concerned play their full roles in the implementation of specific measures in their respective areas of competence. Daily programme monitoring and evaluation will be the responsibility of the Economic and Financial Reform Monitoring Unit (CS-REF), which will, on a quarterly basis, prepare a report on the implementation of PAREF-supported measures and reforms..
6.5 Financial Management and Disbursement
6.5.1 Country Fiduciary Risk Assessment
Fiduciary risk assessment (FRA) related to CAR’s public finance management (PFM) system was carried out by the Bank, as part of PAREF’s preparation in September 2016. This assessment is in accordance the Financial Management Policy for Operations financed by the Bank Group, the February 2014 directive on the Promotion of the Use of National PFM Systems and the March 2014
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operational directives for programme-based operations (PBOs). It follows from the assessment that the initial overall fiduciary risk is “high”, due to inadequacies noted in the current public finance management system despite the good governance promotion and public finance consolidation policy pursued by government. Public finance reforms are numerous and can only be achieved in a situation of sustainable stability in the country and a relatively sufficient time before the full results can be achieved. Difficulties related to the country’s current fragile context, poor governance and corruption are factors that do not promote the effective implementation of PFM reforms in the short term. The implementation of measures identified to mitigate the fiduciary risk go beyond Bank support. It requires government’s commitments and the combined efforts of all technical and financial partners in the country. Table 7 in the annex presents the risks considered high and the mitigation measures. The technical annex gives details of analysis on fiduciary risks..
6.5.2 Financial Management and Disbursement Mechanisms
Financial management: This programme is a budget support operation (non-targeted), whose objective is to help government finance the budget gap and implement reforms. Despite the high fiduciary risk level related to the use of the national PFM system, PAREF resources will be managed by the same system. Consequently, the Ministry of Finance and Budget, through the Central Treasury Accounting Agency (ACCT) will be responsible for monitoring the administrative, financial and accounting management of the said resources. The treasury committee (which includes TFPs) will continue to play its full role. So, the Bank and authorities have agreed on a specific mechanism for monitoring financial flows relating to the programme. This has to do mainly with (i) depositing programme resources in two special account at the BEAC’s headquarters; (ii) adequately recording operations on the said account with a view to producing reliable financial information in real time; and (iii) ensuring that an audit of financial flows is carried out by an independent external firm, at the end of the operation.
Disbursement: The annual financing of UA 11.54 million, will be disbursed in a single tranche subject to fulfilment, by the borrower, of relevant general and specific conditions as mentioned in Section 7.2 below. At the request of the borrower, the Bank will disburse the funds into the two special accounts opened in the books of the National Branch of BEAC in Bangui. The second annual tranche, estimated at UA 10 million, will be disbursed in 2017 after approval by the Boards of a simplified report on the status of implementation of the 2017 triggers. Therefore, a separate loan/grant agreement will be prepared for each phase of the programme-based operation.
6.5.3 Procurement
The legal and regulatory framework of CAR’s public contracts is based on Law No. 08.017 of 6 June 2008. It follows from the assessment made by the Bank in September 2016 that this framework, on the whole, is a satisfactory basis on which to build a coherent national procurement system. The review of national procedures for National Competitive Bidding conducted by the Bank in 2012 had already concluded that they are generally in conformity with relevant international standards. However, it should be noted that the socio-political crisis has led to a weakening of control mechanisms for the process of procurement and execution of public contracts. The institutional entities responsible for ensuring the system’s regular functioning, in particular regulation,
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procurement services, control and complaints management are not sufficiently functional; this does not guarantee the effectiveness of the procurement process and the system’s integrity. The Bank maintained dialogue with government on measures to restore and revitalize the public contracts institutional framework. In this respect, the establishment of the structures of the Public Contracts Regulatory Agency is a fundamental link for achieving the system’s integrity objectives. In view of efforts made by the Government and measures agreed on under this operation, the Central African public procurement framework, which is in a positive improvement trend, is a satisfactory basis for a budget support operation.
VII. LEGAL DOCUMENTATION AND AUTHORITY
7.1 Legal Documents
The legal documents that will be used under the programme are:
Loan Agreement on ADF resources in an amount not exceeding UA 2.7 million signed between the ADF and the Central African Republic;
Loan Agreement on TSF resources (Window 1) in an amount not exceeding UA 8.02 million signed between the Bank and the Central African Republic; and
A Letter of Agreement on TSF resources in an amount not exceeding UA 1.56 million signed between the Bank and the Central African Republic.
7.2 Conditions Associated with Bank Intervention
The prerequisites for the review of this transaction by the Boards have been described in paragraph 5.4.1. The Ministry of Finance has forwarded the documents attesting to the implementation of the preliminary measures to the Bank’s field office in the CAR. At this point, all conditions have been met. The other conditions related to the Bank’s intervention are prerequisites for implementation and disbursement.
Condition precedent to effectiveness: The effectiveness of each TSF and ADF Loan Agreement shall be subject to (i) the signing of both Agreements by the Central African Republic (the Borrower) and the Bank; and (ii) the Borrower’s fulfilment of the conditions set forth in Section 12.01 of the General Conditions Applicable to the Loan and Guarantee Agreements of the African Development Bank.
The effectiveness of the TSF grant is subject to the signing of the Agreement Letter (TSF) by the Central African Republic (Donee) and the Bank.
Conditions precedent to disbursement of the 2016 annual tranche: In addition to the above-mentioned effectiveness condition, disbursements of ADF grant and TSF grant resources are subject to the following precondition:
Provide evidence of the opening, in the books of the National Branch of BEAC in Bangui, of two special accounts to receive ADF grant and TSF grant resources. In addition to the above-mentioned effectiveness conditions, disbursements of TSF grant resources and TSF and ADF loans are subject to the following precondition:
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Provide evidence of the opening of three special accounts, in the books of the BEAC National Directorate in Bangui, to receive TSF grant resources, as well as ADF and TSF loans.
7.3 Compliance with Bank Group Policies
PAREF is in line with the guidelines of the Bank’s Ten Year Strategy and, more particularly, the pillar on governance. It is also consistent with the Bank Group Policy for Programme-based Operations, particularly the instrument relating to general budget. No exception is requested in relation to these Directives in this proposal.
VIII. RISK MANAGEMENT
Table 5 below globally presents the risks that can affect programme implementation or the achievement of results.
Table 4 – Risks and mitigation measures
Risks Mitigation measures
Political and security risk related to the fragility of This risk is mitigated by the return to constitutional order and gradual public institutions and the prevailing climate of DDRR implementation. insecurity in certain areas in Bangui and the country’s provinces
Macroeconomic risk: High economic crunch and Recovery of activities and exports in the mining sector, commitment of dependence on external assistance TFPs for budget assistance during the three coming years.
Fiduciary risks: High imbalances on the budget Reform programmes supported by the IMF and other TFPs include process and control systems measures to improve public finance management and transparency.
IX. COMMENDATION
Considering the foregoing, it is recommended that the Boards of Directors approve a TSF grant not exceeding UA 1.56million, a TSF loan not exceeding UA 8.02 million and an ADF loan not exceeding UA 2.70 million for the Central African Republic to finance the Economic and Financial Reform Support Programme (PAREF).
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ANNEX 1 – The Government’s Development Policy Letter 1. This development policy letter provides an update on the political context as well as the government’s strategic thrust relating to economic and social matters. It recalls the economic and financial policies currently being pursued by the government of the Central African Republic (CAR) and places them in a medium-term implementation context. 2. In a context of stabilization and gradual exit from the security and political crisis experienced by the country since 2013, the government is facing major economic and financial challenges and the many expectations of the population. Our strategic priorities for restoring growth and reducing poverty are: (i) restoring the security and sustainability of public finances; (ii) supporting external competitiveness and diversifying the foundations of economic activities to create the conditions for sustainable and inclusive growth; (iii) establishing the basis for good governance; and (iv) strengthening the country’s institutional framework and administrative capacity. 3. The government’s reform strategy will be supported by the "Support Programme for Economic and Financial Reforms - PAREF". The programme will be implemented over two years (2016 and 2017). The programme’s objective is, on the one hand, to improve the mobilization of tax revenues and control public expenditure and, on the other hand, to improve the business environment and governance of productive sectors.
I. CONTEXT
4. The recent organization of democratic elections marked the end of a three year transition. The referendum on the new December 2015 constitution and the elections of February 2016 involving presidential and legislative elections were organized in a peaceful atmosphere. This resulted in a return to constitutional legality and the establishment of state institutions guaranteeing more transparent and efficient governance with better prospects for the CAR if the security problem is solved.
5. The country is slowly emerging from the political and security crisis of 2013 which resulted in a major humanitarian crisis, the collapse of the economy and administration and a marked weakening of internal financial resources. In the face of the major challenges facing the country, the government is firmly committed to promoting national reconciliation and social peace. We also want to consolidate security, in particular, through the demobilization, reintegration and repatriation of armed groups. Finally, our priority is also to effectively implement an administrative, economic and financial reform programme to ensure economic recovery and reduce poverty. These reforms aim to improve human and administrative capacity by redeploying the administration; promoting transparency and admissibility; consolidating basic budget management through increased tax revenues and better control and allocation of public expenditure. As such, they aim to increase spending in priority sectors while ensuring a return to external debt sustainability and economic recovery.
6. The security situation is gradually improving. Securing the country was supported by the international community, with the establishment of the international mission to support CAR under the leadership of the African union (MISCA) and the French SANGARIS force. The transfer of I
peacekeeping operations to the United Nations Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA), mandated by the United Nations in September 2014, enabled the gradual deployment of peacekeepers throughout the country and European forces (EUROFOR). However, failure to disarm and demobilize ex-combatants is a constraint on a strong economic recovery. Moreover, it is necessary to pursue reforms of the country’s national security forces.
7. The international community’s was crucial in resolving the crisis. In addition to humanitarian assistance, CAR has receive multi-faceted support which has enabled the authorities to (i) cope with the impact of the crisis on the populations, especially through the provision of public services; (ii) promote the resumption of economic activities in the country; and (iii) implement economic, financial and administrative reforms. These have reduced the primary deficit from seven percent (7 percent) of GDP in 2013 to three percent (3 percent) in 2015, and improve revenue mobilization while controlling spending. These key reforms include: the establishment of a treasury management committee; the operationalization of the Treasury’s Central Accounting Agency (ACCT), better control and collection of taxes and customs; payroll control through careful examination of the civil service roster, gendarmes and police officers. All this through the adoption of a public finance reform action plan.
8. Moreover, economic recovery has been slow and will not quickly compensate for the 36.7% GDP contraction that occurred in 2013. The country is still heavily dependent on foreign aid to finance its primary expenditure, including wages, pensions and debt repayment. At end 2015, domestic revenue covered only 73% of expenditure. Finally, there are several structural rigidities, including lack of electricity, inadequate infrastructure, high transport and telecommunications costs, a weak educational system and a weak financial sector. These structural rigidities are slowing down the economic recovery and hampering private investment.
9. The security and political stabilization achievements as well as the resumption of economic activities recorded in 2015 enabled the government to request a supervision mission from the IMF under Article IV and the preparation of an Expanded Credit Facility (ECF). This mission, conducted with the participation of other partners (World Bank, African Development Bank, European Union), took place in May 2016. It made it possible to assess the country's macroeconomic framework and identify economic and financial reform measures. The IMF's Board of Directors approved the government's programme supported by the ECF on 20 July 2016. Support from the Bank, the IMF and other technical and financial partners has also led to the production of a set of analytical studies. They have therefore been used to prepare strategies and action plans for economic, financial, administrative or sector reforms.
II. GOVERNMENT PROGRAMME
10. The government’s general policy statement was presented to the national assembly at the beginning of June 2016 and approved by a vote of confidence. This, translated into a government programme, is structured around four pillars: (i) peace, security and social cohesion; (ii) economic recovery; (iii) politics and good governance; and (iv) social affairs and humanitarian actions.
11. These guidelines are inspired by the recommendations from the Bangui National Forum, enriched by the recent debates, as well as many meetings, including different categories of actors. II
The authorities, with the support of their technical and financial partners, finalize an assessment of the priorities and needs for rehabilitation and peacebuilding in CAR. This evaluation, which will be used to guide the government's economic and social development policies, was presented to the donor conference on 17 November 2016. The policy statement will be one of the reference documents for the interventions of development partners and the financing of development projects identified for the 2016-2018 period according to the following priorities:
1. Peace, Security and Social Cohesion
12. According to the country’s president, sustainable security and social cohesion are the first priorities. To this end, the government intends, once resources are mobilized, to implement the Disarmament, Demobilization, Reintegration and Repatriation (DDRR) process and the Security Sector Reform (SSR). This is a precondition for stabilization and economic recovery.
13. A national security policy with a view to realizing the actions to be implemented will be developed and its implementation will be based on four thrusts: (i) organization and operation of the national army; (ii) reinforcement of operational capabilities of the armed forces; (iii) the doctrine and implementation of a defense and security policy; and (iv) resource mobilization strategy. Security will lead to the administration’s redeployment throughout the country and the restoration of state authority, on the understanding that the return of decentralized authorities will have to be accompanied by a policy of decentralization; a factor for social cohesion and peace.
2. Economic Recovery
14. To improve the population’s living conditions, three objectives are targeted: (i) public finance consolidation; (ii) productive sector reforms; and (iii) international cooperation.
15. Economic recovery begins with better public finance management. This will include: (i) consolidating public finances in order to create the best conditions for optimizing government revenues; (ii) rigorously managing public expenditure; and (iii) allocating resources optimally in order to stimulate economic development. In this regard, the reforms envisaged to increase internal resource mobilization, public expenditure control - mainly the wage bill - will continue through the implementation of financial services action plans and payroll reorganization. In addition, attention will be paid to public procurement procedures.
16. The reform of the productive sector rests mainly on the strategic orientations of each sector. These include: (i) revitalizing and modernizing the agro-pastoral sector; (ii) consolidating the forest sector through the effective application of the forest code and the traceability of the timber industry; (iii) reorganizing production in the extractive sector and updating its legal framework; (iv) improving the rate of access to electricity and diversifying sources of production; (v) large-scale revival of effective road maintenance works and implementing projects aimed at modernizing the Bangui M'Poko Airport; (vi) improving road, river and air transport services for both people and goods; and (vii) improving the business climate to promote investment and business development.
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17. Within the framework of international cooperation and mobilization of external resources, the government will negotiate with donors the formulation and adoption of new cooperation programmes for the financing of development programmes and projects.
3. Politics and Good Governance
18. This priority stems from the recommendations of the Bangui forum held in May 2015 with the participation of all the social segments of the country. The actions therefore aim at: (i) completing the implementation of resolutions adopted during the forum; (ii) restoring State authority; (iii) developing trade with the outside world, as well as market mechanisms; and (iv) establishing relations with emerging countries and the Arab world.
4. Social Affairs and Humanitarian Actions
19. Priority actions are part of the fight against the scourges that infringe human rights. To this end, a set of actions will be implemented. These include: (i) protecting the rights of women and children; (ii) developing humanitarian actions for the benefit of the people; (iii) establishing Local Peace and Reconciliation Committees (LPRC) and the Truth, Justice, Reparation and Reconciliation Commission; (iv) developing a sport that will contribute to peace, social cohesion and coexistence; (v) establishing a policy to promote employment and vocational integration, which is key to a fast return to social cohesion, stability, economic growth and lasting peace; (vi) developing health infrastructure and combatting aids, the second leading cause of mortality after malaria; (vii) raising the level of national education, one of the sectors deeply affected by recurrent crises.
III. RECENT ECONOMIC DEVELOPMENTS AND MEDIUM-TERM PROSPECTS
20. The national economy is mainly based on the agro-pastoral sector, which accounts for slightly more than 50% of the gross domestic product and employs more than 70% of the active labour force. Confronted with enormous security constraints during the 2013 crisis, the economy experienced a GDP contraction of 36.7% after a 4% growth in 2012. This was the consequence of poor performance of all economic sectors, related to the massive destruction and plundering of production tools, agricultural seeds and population displacement, particularly in agricultural and rural areas. As a result, domestic revenues fell by more than half while foreign trade (net) deteriorated drastically.
21. While the security situation remained globally unstable and volatile from 2013 to 2015, the implementation of the Transitional Government's Roadmap and Emergency Programme for Sustainable Recovery (PURD) led to the stabilization of macroeconomic aggregates. The programme led to a gradual resumption of economic activities with real support from the international community. Thus, there was economic recovery which translated to a real GDP growth rate of 1% in 2014 and 4.8% in 2015. Inflation declined by 11.6% in 2014 to 4.5% in 2015. This situation can be explained by the implementation of the government's economic and budgetary policy and the support of development partners. These include the mobilization of CFAF 74 billion budget support in 2014 and CFAF 42 billion in 2015. In terms of budget execution, the fiscal pressure rate reached 7.1% of GDP in 2015 compared with 4.9 per cent in 2014. This improvement is linked to the substantial increase in the level of government revenues IV
due to the authorities' determination to continue implementing reforms, despite the particularly difficult security situation. Primary expenditure was contained at 10.1% of GDP, which reduced the primary deficit to 3% of GDP in 2015. Public debt stood at 48.5% of GDP, compared to 51% % in 2014.
22. The medium-term economic outlook has improved. They are based on the following assumptions: (i) restoration of peace and security throughout the country; (ii) continuation of the national reconciliation process and redeployment of the administration; and (iii) effective implementation of the DDRR process. In addition to this, there is the lifting of the embargo on diamond exports and the implementation of our economic, financial and administrative reform programme. The implementation of a proper macro-economic and budgetary policy and our public investment programme will enable the Government to: (i) restore the sustainability of public finances; (ii) boost external debt sustainability; (iii) support competitiveness and broaden the bases of economic activities; and (iv) create conditions for sustainable and inclusive growth, particularly through the provision of public services. This process, supported by our technical and financial partners, will help the administration’s capacity building efforts as well as the implementation of public finance and good governance reforms, in particular, through greater transparency and accountability. Thus, economic growth should average 5% over the 2016-2019 period. The external current account deficit is expected to be about 9.7% of GDP due to significant reconstruction requirements, while the financing requirement is expected to decline from 4.8% in 2016 to 3.2% in 2019. In line with the price stability context, inflation could gradually decelerate as a result of the increase in agro-pastoral production to stabilize at 3% as from 2018, and in line with the CEMAC convergence criterion. In terms of fiscal policy, we will pursue a viable policy, while accumulating buffers to guard against potential shocks. The primary domestic deficit - which will be the anchor of fiscal policy will be 3.3% in 2016 and will be gradually reduced to 0.9% of GDP in 2019. This will reduce public debt.
IV. FINANCIAL AND ECONOMIC REFORMS
Financial Reforms
23. To improve our public finance management, we are implementing a five-thrust reform plan from 2016 to 2018: (i) boosting revenues; (ii) securing and managing the State treasury; (iii) facilitating and standardizing budget management; (iv) restore the true and fair view; and (v) restore the State’s credibility. We commit ourselves to diligently implementing this reform plan as well as the short- and medium-term action plans for the 2016-2018 period.
24. The review of the 2016 budget is the starting point for the reforms that will be pursued in future Finance Laws. These reforms will make it possible to take into account new strategies advocated in order to restore, in the medium-term, the viability of public finances and revive the economy whose foundations were disrupted by the last crisis. From this perspective, the medium- term outlook would lead to an increase in the mobilization of domestic revenues and the control of public spending.
25. The Government will implement a policy aimed at combating corruption and fraud in all its forms. In this context, it will ensure better use of public resources and strengthen good governance through existing frameworks such as the Public Finance Monitoring and Management Committee (PFMMC) and the Treasury Committee (TC) in which the Technical and Financial Partners are represented to ensure co-management of both own resources and external aid V
resources. This is reflected in the strict application of the law requiring any person appointed to the post of Minister to submit a declaration of assets before taking office. It also intends to set up a Committee of Elders which will bring together elements that will help to prepare the conditions for establishing a coherent anti-corruption framework in compliance with the international provisions in force. The other good governance challenge will be the strengthening of oversight institutions from 2016.
26. The pursuit of reforms to increase revenue mobilization is a Government priority. With budgetary revenues of only 7% of GDP, we recognize that the state of public finances is unsustainable because revenues are insufficient to cover our primary expenditures and honor our debt commitments. Faced with this situation, we will implement the measures identified in our action plan, prepared and adopted in 2016. The reforms aim at increasing domestic revenues from 7% of GDP in 2015 to 10.1% of GDP in 2016. The reforms will focus on:
• Strengthening the tax base and simplifying procedures. Several measures fall within this framework. On the one hand, we will improve VAT management, including through the prohibition of VAT collection at source as compensation for government revenue. On the other hand, we will improve the bases for valuing exports, strengthening controls and surveillance, particularly in the wood and diamond sectors, as well as simplifying procedures and even reducing incidental taxes. In this context, we intend to review the tax on the diamond industry, strengthen control of the distribution system, reduce fraud and improve the certification process. On petroleum taxation, we will adopt the decree reviewing the structure of oil prices in order to include International Platts prices as a new basis for calculation. In addition, with Bank support, we will carry out a census of taxpayers and, by June 2017, will update the taxpayer's file in the new tax revenue management information system. Similarly, several other measures will be implemented. These include the updating and dissemination of the General Tax Code, the opening of customs clearance offices and taxation departments that were closed during the crisis. We will also check VAT-related fraud through at least five joint controls conducted out each year by taxation and customs departments.
Improved tax and customs administration. We will continue to implement the measures with the support of our technical and financial partners. The key elements of the reform will include a review of the banking conventions to ensure better revenue collection, the conduct of a study to identify small revenues, the implementation of the pre-filled declaration on property contributions, and a review of the conventions on derogations. Other key aspects of the reform include the harmonization of the General Tax Code through the implementation of the CEMAC VAT and Excise Duty Directives; strengthening single global tax (SGT) control; strengthening the management of tax operations of large corporations; setting up the corporate citizen status; collection of arrears; and better taxpayer - public administration balance. Similarly, we will carry out an integrated computerization of the customs and tax networks, starting with the Béloko customs office, and later the link between Douala customs offices and Bangui. Lastly, we will accentuate the controls carried out by the administration of financial departments. In this regard, the Minister of Finance and Budget will adopt a decree introducing a risk management approach and quarterly controls of management posts by the General Finance Inspectorate (IGF), requiring that the main management positions be identified and at least monitored once per fiscal year.
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• Better management of exemptions in order to minimize them. It consists of a strict application of the texts in force, no longer granting exceptional exemptions, setting transparent and restrictive criteria relating to the granting of exemptions, and a re- reading of the texts on the procedures for approving draft agreements with exceptional exemptions. In this context, we are also undertaking to review the conventions on waivers when they expire in order to reduce the level of exemptions.
27. There are many public finance management challenges. Thus, we commit ourselves to: (i) fiscal discipline; (ii) restoring and standardizing the expenditure chain; (iii) continued efforts to control the wage bill; and (iv) operationalizing the accounting function. The Government will strengthen public finance governance through a return to normal budgetary procedures.
To meet the challenges of a simple, robust and transparent management of State credits and funds, preparatory measures have been taken. These include launching commitments of the 2016 budget and restoring the interconnections of the GESCO integrated budget management and accounting system. The interconnection of the GESCO budget and GESCO accounting modules created the conditions for restoring the expenditure chain. However, the connection between the budget and accounting modules remains problematic, limiting the scope of the measure. With this in mind, we will draw up, based on the findings of the audit of the GESCO application, the specifications for implementing a new public finance management system. Other measures, such as operationalizing the Central Accounts Treasury Agency (ACCT), have been fundamental steps in the public finance reform process, essential steps towards greater transparency in public expenditure management. To secure the management of the State Treasury and gradually extend the scope of the Treasury, we will continue to align available resources with priority expenditures to ensure a solid implementation of the treasury plan and to avoid the accumulation of arrears or outstanding payments. In this context, we have prepared a monthly cash flow plan for 2016 and 2017. Implementation will be monitored by the Treasury Committee which will continue to meet monthly under the chairmanship of the Minister of Finance and Budget. Prior to these actions, the expenditure execution procedures manual and the production of the budget preparation guide will first be validated and, by June 2017, conduct a review of the texts relating to the appointment of managers and credit administrators for better definition of the terms of their appointment and their terms of reference. With regard to the social sectors whose implementation of the budget is generally characterized by a low rate, recommendations have been made to set up procurement commitment plans and a significant budget allocation for the implementation of their actions, in particular, the strategy to assist women and girls who are victims of violence. Strategic actions will include, among others, civil service reforms which have had the support of the World Bank and the UNDP to clean up the civilian, gendarme and police personnel files. The Government wishes to pursue its efforts to improve mastery of the wage bill.
28. To ensure better control of the payroll, which is a budgetary item, the Minister of Finance and Budget will adopt a decree reviewing the timetable for the transmission of pay items on the proposal of the ACCT in consultation with the IGF in order to promote the necessary monthly checks. The objective of this measure is that a minimum of 50% of payroll is controlled by ACCT. Finally, to ensure better payroll control, we are committed to making available the pay table, the key work tool for the processing of salaries.
• The government intends to continue and accelerate the implementation of measures to strengthen public financial management. These measures covering the 2016-18
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period are organized around four priority objectives: (i) securing and managing the State treasury to gradually extend the scope of the Treasury; (ii) unblocking and standardizing budgetary management with a view to gradually reducing the amount for exceptional expenditure to 5%; (iii) restoring the true and fair view of the entire general budget and related budgets; and (iv) re-establishing the credibility of the State by fighting fraud and restoring creditors’ confidence.
• The Government also intends to: (i) adopt the nomenclature of the supporting documents of the expenditure governing the interactions between authorizing officers and accountants by a decree of the Minister of Finance and Budget; (ii) adopt by decree of the Minister of Finance and Budget the expenditure procedures manual; (iii) secure and strengthen Treasury management through the extension of the scope of the State's operations and identification of all state bank accounts in commercial banks; (iv) restore the expenditure chain; (v) strictly restrict the use of exceptional procedures (budget payment orders and cash payment orders) to a maximum of 5% of total expenditure, excluding salaries; (vi) restore normal budget expenditure (commitment / liquidation / scheduling / payment) procedures, including a strengthened Single Treasury Account (to include all revenue recovered by sector ministries, commercial banks, government agencies and petroleum products distribution sector), a working ACCT and activation of the budgetary and accounting modules of the GESCO computer system in support of public finance management. We also plan to consolidate the single treasury account by closing all Government accounts with commercial banks, with the exception of project accounts while preserving the stability of the banking system.
29. The domestic payments arrears clearance is at the heart of our fiscal consolidation programme and restoration of creditors’ confidence. The CAR signed a commitments consolidation agreement under the consolidated and unpaid credits to BEAC for arrears of CFAF 55 billion owed to BEAC. The on-going audit of commercial bank claims on the state, audits in other sectors such as cotton and forestry and the audit of our commercial, social and other debts which we intend to clear with the support of our technical and financial partners will serve as the basis for preparing and adopting a settlement plan by 30 June 2017. We intend to explore, in collaboration with the staff of the IMF and the World Bank, the possibility of securing these bank loans. We also intend to carry out an evaluation of VAT credits in order to prepare a settlement plan and eliminate any recourse to clearing operations. In the immediate future, priority will be given to the outstanding payments of suppliers in 2015 and 2016, followed by the 2013-14 commercial arrears, salaries and pensions estimated at CFAF 13.2 billion, which will be cleared in 2016 and 2017 respectively.
30. We will strengthen debt management. To mitigate debt distress risk in external debt caused by the collapse of tax revenues and exports, the government will seek, as a priority, to mobilize funding in form of grants, in consultation with IMF staff, through concessional loans, having a grant element of 50 percent. It will also pursue efforts to improve public debt management through training and by installing the new DMFAS 6.0 debt management and analysis software.
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Economic recovery
31. The CAR has just emerged from the emergency phase and has to move towards the reconstruction of its economy. To this end, it chooses to define and implement development strategies based on its economic potential. The government's challenge is to simultaneously create a supportive business environment for the private sector and provide support to businesses affected by the 2013 crisis in order to reduce poverty, promote the resumption of economic activities and support the competitiveness of the national economy. The policies should foster sustained, sustainable, inclusive and job-creating growth, especially for young and disadvantaged people.
32. To make the most of the economic recovery, reforms are needed to stimulate growth and promote formalization in employment-intensive sectors such as agriculture, especially the cotton and farming sectors. New jobs with obvious income-generating potential will help provide opportunities for young workers and, in particular, veterans and victims of violence, for economic progress through peaceful means, which will reduce incentives to seek income through crime and conflict. At the same time, the revival of agriculture and the forestry sector will depend on investment in the transport sector, especially the maintenance of secondary and rural roads that are essential to link producers to markets. One of the areas for improvement for growth potential is the development of the Information and Communication Technology (ICTs) sector to enable greater connectivity - in particular, access to voice, text, and mobile payments, across the country and abroad.
33. Beyond these aspects, the Government has not lost sight of the business environment improvement actions. In view of CAR's position in the Doing Business ranking, and having made operational the Joint Climate Change Framework for Business Climate Improvement (CMCAA) whose overriding objective is to improve dialogue with the private sector, the implementation of several actions identified within the framework of the recommendations made during the seminar organized by the National Credit Council in March 2015 is under way. Among these are the evaluation of the losses incurred by companies during the 2003 events and the feasibility study for the creation of a national guarantee and private sector support fund, for which the support of the partners is required to conduct and strengthen economic activities.
34. As a fundamental pillar of the Central African economy, the agro-pastoral sector accounts for about 50% of GDP and over 70% of jobs. This sector which was weakened during the 2013 crisis, as a result of the constant looting and destruction of production tools at all levels, including in the agricultural sector, therefore faces crucial challenges. Marginal productivity is low and has essentially stagnated over time. Agricultural systems, which are for the most part small in size, are still mainly subsistence-oriented and largely dependent on climatic conditions. The country's irrigation potential remains largely underdeveloped. Most farmers produce mainly food crops using traditional methods. Commercial agriculture is a marginal component of the sector, and the use of modern technologies and improved inputs is very limited. Public and private institutions, which are decisive in supporting a strong agricultural sector, are either weak or absent. Many years of under-funding and political instability have eroded the country's agricultural research and extension services. Many producers lack technical knowledge. In addition, the reduced size and scope of agricultural markets and input distribution systems limit the availability of high-quality seeds and fertilizers, improved animal species, veterinary supplies, agricultural tools and equipment. In 2015, the authorities adopted a law on seeds, the implementing decrees of which have not yet been signed, has delayed its implementation. In addition, the ability of producers to
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acquire improved inputs or to invest in physical capital is compromised by insufficient access to credit, as CAR has serious deficiencies in rural financial infrastructure. Access to external markets is also underdeveloped because of the high cost of transporting products on rural roads in poor conditions and lack of maintenance. This, in turn, reduces the opportunities for and competitiveness of producers and, in so doing, undermines initiatives that may be aimed at increasing and / or diversifying agricultural production.
35. To this end, the government's response is reflected in the definition of a four-pronged strategy: (i) sustainable revitalization of the agro-pastoral sector and economic development; (ii) agriculture as a factor in national reconciliation; (iii) increase the professional integration of young people in the modernization of agriculture; and (iv) improve agricultural governance and competitiveness. Hence, PNIASAN, a tool for mobilizing resources to finance agro-pastoral projects. We will commit to updating this document, taking into account the current agricultural sector context and the vision of the government's agenda. Its implementation will be followed by other concrete actions to revitalize the agricultural sector.
36. The forest sector entered the regulatory phase with the adoption of a law creating the Forest Code in October 2010 in order to regulate its exploitation. To ensure transparency in the sector, the authorities adopted a strategy for the implementation of the FLEGT process developed by the European Union by signing a Voluntary Partnership Agreement with that institution in 2010. However, the implementation has witnessed some delays due to the 2013 crisis that greatly affected the sector, exacerbating the difficulties it faced, such as the low 70% wood processing required by the Code. There is significant demand for tropical wood products on international markets, and CAR’s wood remains competitive despite high transport costs. Prior to the 2013 crisis, the forest sector accounted for more than 6% of GDP, about half of total exports and about 10% of state revenues. The sector also creates significant number of jobs, especially in the provinces. Before the crisis, the sector accounted for about 4,000 direct jobs and 6,000 indirect jobs. The forest sector has a very strong legal and regulatory framework and meets international standards. Finally, the country has actively participated in international certification schemes and multilateral efforts to combat climate change.
37. Despite these positive measures, the crisis has largely halted activities in the forest sector. Almost all forestry companies have suspended operations, and most have suffered a significant amount of damage. The forest road network, for example, has been severely degraded and forestry companies do not always have the means to restore it. The issue of tax arrears hampers the sector’s development. Only 5 of the 14 logging companies are currently active. The search for solutions concerning tax arrears and the reassignment, under transparent conditions, of inactive concessions to new investors will therefore be decisive for this sector’s positive development in the future.
38. Strengthening governance, operations and the financial health of the Road Maintenance Fund (FER) and the National Equipment Office (ONM) is imperative to ensure the effective maintenance of our road network in order to restore the smooth flow of goods and people; that automatically becomes a prerequisite for the economy’s rapid recovery. Our transport infrastructure and services need large-scale investments to move towards the quality and efficiency needed to revitalize our economy. In the immediate future, the sector's priority is: (i) to establish an efficient road maintenance programming and enforcement system to protect existing infrastructure; and (ii) to ensure the sustainability of future investments, including through increased resources for road maintenance. This requires a significant improvement in road
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maintenance governance in order to establish the conditions for sustainable and efficient road maintenance with a view to attracting the necessary investment in this sector.
39. To meet these challenges, the Government intends to take a number of measures aimed at boosting the agricultural, forestry and transport sectors. Thus, with a view to improving transport sector governance, the Government has adopted the Road Maintenance Fund (FER) Operations Manual which defines, in particular, the scheduling of maintenance works (on-site or off-site); the definition of road works eligible for FER funding; and the formalization of contractual relations between the National Equipment Office (ONM), the Ministry and the FER. In direct support of the agricultural sector, the Government will adopt the texts relating to the operationalization of the Seed Code.
40. Pending the adoption of the input code, the Government commits to adopting an interministerial decree in 2017 on temporary arrangements for the importation and distribution of inputs (fertilizers, plant protection products and veterinary products). To strengthen the transport sector governance reforms, we commit to conducting an audit of the road maintenance fund, including an inventory of debts between the FER and the ONM and a plan for the clearance of these debts. To stimulate the forestry sector’s development, the government undertakes to conduct a technical and financial audit of forestry companies that do not implement their management plan. On the basis of this audit, in strict compliance with the legislation in force and by adopting a participatory and transparent approach, the government will take corrective action on inactive concessions, including the cancellation of concessions and the granting of concessions to new investors.
41. The Central African Republic (CAR) has a legal and regulatory framework for obsolete information and communication technologies (ICTs) and the public institutions responsible for governing the sector do not have the capacity to fulfill their mandate. Limited international connectivity leads to high prices and insufficient available bandwidth. Mobile phone services dominate the ICT sector, but prices remain high and service quality is poor. The national fixed telephone service suffers from serious technical and financial issues. Despite the strong competition between operators in the mobile telecommunications market, coverage remains very limited, especially in remote rural areas. This is due both to the low profitability of the services offered in a low-consumption market and the negative impact of security instability on infrastructure development and maintenance. To promote the development of the telecommunication sector which is of particular importance and rapidly requires an increase in the population's access to networks, the Government will implement reforms to promote it. The government will then have the draft law on electronic communications adopted by the Council of Ministers and send the draft law to the National Assembly before the end of 2016. The government will continue with reforms in the sector in 2017 through the following measures: (i) operationalizing a traffic control system by the Telecommunications Regulatory Authority (ART); and (ii) adopting a law to operationalize the universal service fund by the Council of Ministers in order to: (a) extend the geographical coverage of mobile networks in low income rural areas; and (b) promote the development of community ICT centres in targeted rural communities.
V. RECOVERY AND PEACEBUILDING PLAN
42. On the basis of the Prime Minister's four-priority programme submitted to the National Assembly in June 2016, the Government, with the support of the international community,
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conducted an assessment of the needs of the population through a popular consultative process in order to develop its five-year plan to promote recovery and peacebuilding in CAR. This plan identifies actions to be taken over the next five years (2017-2021). The implementation of the Recovery and Peacebuilding Plan in CAR (PRCPCA) is based on four main principles. This approach focuses on regional growth clusters, economic integration and diversification, the development of labor-intensive activities, and the social resilience of the population.
43. RCPCA actions are grouped into three pillars. The first pillar aims to restore peace, security and reconciliation, which are fundamental to the country’s recovery and normalization. This pillar comprises strategic thrusts whose implementation is spread out over the implementation period. These include: (i) support for the reduction of violence through disarmament and the reintegration of ex-combatants and children associated with armed groups; (ii) promotion of stability through security sector reforms; (iii) reform of the judicial institution and promotion of the end of impunity; (iv) facilitation of reconciliation and social cohesion, as well as the establishment of conditions for the return of refugees and sustainable solutions for displaced persons. The second pillar relates to the renewal of the social contract between the State and the population. Through this pillar, the State should strengthen its presence throughout the national territory and develop its capacity to provide basic social services such as education, health, water and sanitation. It should also ensure food security and resilience of the population, as well as good governance, including macroeconomic stability, public finance management and control, and the fight against corruption. Lastly, the last pillar is devoted to economic recovery and the revitalization of the productive sectors. Its implementation will provide the population with income-generating activities and employment opportunities in the major productive sectors. It is also focused on improving the business climate and promoting investment.
44. The RCPCA thus designed served as a negotiation medium at the Brussels donors' conference on 17 November 2016. For a total cost of US$ 3.161 billion, US$ 1.684 billion of which was used in the first three years, the government has recorded, at the end of negotiations, an announcement of US$ 2.268 billion corresponding to CFAF 1,130 billion. In accordance with the mutual commitment framework between the State and the international community based on aid effectiveness principles, the President of the Republic issued a decree setting up an operational institutional framework for the coordination, monitoring and implementation of this plan. This framework should focus on strengthening the absorptive capacities of the different implementation structures of the plan while ensuring a combination of the disbursement procedures of the resources dedicated to financing the actions identified in each area.
45. Moreover, at the Government’s request, the African Development Bank has carried out an audit of the budget support file for the 2016 to 2017 financial years. This dossier, which is currently being finalized, will enable the Government to mobilize resources, part of which will be allocated to post-round-table activities within the limits of the provisions of the above-mentioned decree stipulated in Article 13.
VI. INSTITUTIONAL FRAMEWORK FOR THE IMPLEMENTATION OF THE PROGRAMME
46. The Economic and Financial Reforms Monitoring Unit (CS-REF) is responsible for the monitoring of PAREF. The technical framework for monitoring and evaluating the various measures defined within the framework of the programme will be the ideal implementation
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framework. It comprises the designation of those responsible for implementing the measures. These focal points will monitor PAREF’s implementation at the level of the CS-REF. The CS- REF will also organize regular meetings with key reforms stakeholders to assess the implementation status.
Minister of the Economy, Planning and Cooperation
Félix MOLOUA
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ANNEX 2 – Conditions for Use of General Budget Support
Conditions Assessment of the fulfilment of conditions Government’s While waiting for the preparation of the new national development strategy, the new commitment to government has defined the country’s priorities through Government’s General Policy reduce poverty Statement. Government’s programme priorities are divided into 4 strategic thrusts: 1- peace, security and social cohesion; 2- economic recovery; 3- policy and good governance; and 4- social affairs and humanitarian action. Macroeconomic The country’s economic situation, which had been severely affected by the crisis, improved stability considerably in 2014 and 2015. The real GDP growth rate rose to 4.8% in 2015 against 1% in 2014 and inflation dropped significantly from 9.7% in 2014 to 4.8% in 2015. At the level of public finances, government improved resource mobilisation and contained the level of expenditure, especially the payroll. Domestic revenue, which had dropped by half between 2012 and 2013, started rising gradually. In 2015, domestic revenue reached 7.1% of GDP against 5.6 and 4.9% respectively in 2013 and 2014. The basic primary deficit rose from - 5.1% of GDP in 2014 to -3% of GDP in 2015. The public debt is estimated at 48% of GDP in 2015, a slight decrease relative to the 2014 level (51.1% of GDP). With the support of TFPs and the IMF under the ECF-supported reform programme, efforts will continue to maintain the macroeconomic framework. Fiduciary risk The country’s fiduciary framework remains fragile, due to the weaknesses noted in public assessment finance management. The computerized public finance management system (GESCO) is dysfunctional, with the excessive use of exceptional public expenditure procedures, the generalization of public contracts awarded by direct negotiation and the delay in producing public accounts and settlement laws. Government and TFPs, engaged in budget support, have agreed on a minimum platform to ensure transparency in public finance management, focused on the preparation and monitoring of a cash flow plan with the strong involvement of the Central Treasury Accounting Agency. Measures are underway to make GESCO fully operational, reduce the use of waivers for expenditure execution; streamline and consolidate the public service database, reduce contracts awarded by direct negotiation, carry out public procurement audits and address public accounts backlog. These measures will gradually reduce fiduciary risks. Political The socio-political situation has improved considerably with the return of constitutional stability order in 2016 following the election of the new Head of State. Security has also improved since the social dialogue organised in 2015 before the elections. Government intends to accelerate DDRR implementation to consolidate the security climate. Harmonisation Before the March 2013 crisis, a general budget support framework (GBSF) and a Protocol Agreement signed with all parties in December 2010 defined the framework for donor intervention in CAR. Although no longer operational since the crisis, TFPs engaged in budget support consult regularly to conduct joint missions in CAR, under the leadership of the IMF. Furthermore, UNDP organises regular meetings with TFPs to discuss security and humanitarian issues and harmonise the various interventions. This operation was prepared during a joint mission in CAR in May 2015, with the IMF, World Bank, European Union and France.
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ANNEX 3 – Matrix of Programme Measures
Measures Responsible structures Implementation date 2016 2017 I. Improvement of tax revenue mobilisation and public expenditure management 1.1 Improvement of tax revenue 1.1.1 Produce a report on the review of exemption Ministry of Finance September agreements effective as at 30 August 2016, showing (Department of Legal 2016 exceptional exemptions (Prerequisite) Affairs) 1.1.2 Review instruments on the terms of approving draft Ministry of Finance agreements on exceptional exemptions (indicative (Department of Legal June 2017 trigger) Affairs) 1.1.2 Census of taxpayers and updating of the taxpayers’ General Directorate of database in the new tax revenue management June 2017 Taxation information system (indicative trigger) 1.1.2 Updating and dissemination of the General Tax Code General Directorate of December
(CGI) Taxation 2016 1.1.4 Interconnection of Central African customs services General Directorate of December
with those in Douala Customs 2017 1.1.5 Measures to fight VAT fraud (joint controls with General Directorate of customs services based on the crossed risks) – at least 5 Taxation / General 2016 2017 controls per year Directorate of Customs 1.1.6 Harmonise the CGI with the CEMAC Directive on General Directorate of December
excise duties (Taxation on mobile telephony) Taxation 2017 Ministry of Finance – 1.1.7 Revise the agreements on exemption measures when Inter-Ministerial they expire in order to reduce level of exemptions – June 2017 Committee on indicative trigger Exemptions General Directorate of 1.1.8 Reopen customs clearance offices and taxation offices December Customs/General that were closed during the crisis 2017 Directorate of Taxation 1.2 Improvement of budget execution 1.2.1 Validation of the expenditure execution procedures General Directorate of September manual (trigger 2017) and development of a budget June 2017 Budget 2016 preparation guide - Prerequisite 1.2.2 Review of instruments on the appointment of credit managers and administrators for better definition of General Directorate of June 2017 the terms of their appointment and their duties – Budget indicative trigger 1.2.3 Prepare procurement expenditure commitment plans for DG all ministries, particularly the Ministries in charge of Budget/DGMP/Sector 2017 health, education and social affairs ministries 1.2.4 Abolish imprest funds for missions (excluding imprest funds for the Presidency and the Prime Minister’s DG Treasury 2016 2017 Office) 1.2.5 Prepare specifications for the establishment of a new Department of IT December public finance management system taking into Services of the Ministry 2017 account the findings of the GESCO software audit of Finance and Budget 1.2.6 Audit public contracts from 2012 to 2015 ARMP June 2017 December 1.2.7 Operationalise the Conflict Resolution Committee ARMP 2017 1.2.8 Budgetary allocation to strengthen public services in Ministries in charge of charge of health and school equipment and supplies as education, health and 2017 well as the national health information system social affairs XV
Measures Responsible structures Implementation date 2016 2017 1.2.9 Budgetary allocation for the implementation of the Ministries in charge of training and recruitment plan for the additional education, health and 2017 workforce of the education and health sectors and social affairs their deployment taking regional balance into account Ministries in charge of 1.2.10 Increase the budget execution rate (excluding salaries) education, health and 2016 2017 of the education, health and social affairs sectors social affairs 1.2.11 Budgetary allocation for the implementation of the Ministry of Finance, assistance strategy for women and girls who are Ministry of Social 2017 victims of violence Affairs II. Improvement of the business environment and governance in productive sectors 2.1 Improvement of the business environment and support to SMEs 2.1.1 Assessment of losses suffered by enterprises during September the 2013 events (Prerequisite) 2016 2.1.2 Audit the State’s arrears/liabilities for the period 2012- December Ministry of Finance 2014 2016 2.1.3 Adoption of a clearance plan for arrears and Ministry of Finance June 2017 liabilities (indicative trigger) 2.1.4 Adoption of private sector support measures in relation Ministry of Finance June 2017 to losses suffered during the 2013 events 2.1.5 Establishment of the National Private Sector Guarantee and Support Fund - operationalise by June 2017 the national Ministry of Planning; committee responsible for monitoring the implementation of 2017 Ministry of Trade Funds and organise by December 2017 a roundtable to mobilise resources for its capital 2.1.7 Finalization of the study for the creation of an approved Ministry of Trade; December management centre within the Chamber of Commerce, CMCAA 2016 Industry, Mines and Crafts (CCIMA) Ministry of Trade; December 2.1.8 Operationalisation of the CGA in Bangui CMCAA 2017 2.1.9 GUFE - Establishment of GUFE’s financial December GUFE management system 2016 2.1.10 Proposal of a reform of GUFE’s status to strengthen its December management autonomy 2017 2.2 Revival of productive sectors 2.2.1 Continued implementation of Kimberley Process Ministry in charge of December measures to ensure production and export compliance by at mines 2017 least 10 diamond producing areas Ministry in charge of December 2.2.2 Revision of the Mining Code mines 2017 2.2.3 Partial clearance of cotton sector arrears in 2016 and Ministry of Rural December June 2017 total clearance in 2017 (indicative trigger) Development 2016 2.2.4 Increase by at least 20% the number of rural sector Ministry of Rural 2017 supervisors in the various regions of the country Development Ministry of Rural 2.2.5 Publication of the agro-pastoral land code 2017 Development 2.2.6 Adoption of the decree on the organisation of the Ministry of Agriculture 2017 profession of agricultural adviser and Rural Development Ministry of Agriculture September 2.2.7 Updating of the PNIASAN (prerequisite) and Rural Development 2016 2.2.8 Adoption of a decree on the organisation and operation Ministry of Agriculture 2017 of the Central African Agency for Food Health Security and Rural Development XVI
Measures Responsible structures Implementation date 2016 2017 Ministry of Agriculture and Rural Development; Ministry of Livestock 2.2.9 Approval of organic instruments of the Ministries of and Animal Health; Agriculture and Rural Development, Livestock and Animal Ministries of 2016 Health, Environment and Sustainable Development, and Environment and Water Resources, Forestry, Hunting and Fisheries; Sustainable Development, and Water Resources, Forestry, Hunting and Fisheries; 2.2.10 Publication of the law on agricultural professional Ministry of Agriculture 2017 organisations and Rural Development 2.2.11 Adoption of enabling decrees of the 2001 law on the Ministry of Livestock establishment and code of ethics of the National Association 2016 and Animal Health; of Veterinary Doctors 2.2.12 Establishment of a committee in charge of Ministry of Agriculture coordination and monitoring and evaluation of regional 2016 and Rural Development agricultural development programmes (2016) Ministry of Water December 2.2.13 Finalization of the forestry policy Resources, Forestry, 2016 Hunting and Fisheries Ministry of Water 2.2.14 Adoption of a decree on the enabling instruments of Resources, Forestry, June 2017 the Environmental Code (trigger) Hunting and Fisheries DGI / Ministry of Water 2.2.14 Conduct a study on forestry taxation and para-taxation December Resources, Forestry, to make the sector competitive 2017 Hunting and Fisheries
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ANNEX 4 – Relations between CAR and the IMF
IMF Executive Board Approves Three-Year US$115.8 Million Arrangement under the ECF for the Central African Republic on 20 July 2016
On July 20, the Executive Board of the International Monetary Fund (IMF) approved a three-year SDR 83.55 million (about US$115.8 million, 75 percent of quota) arrangement under the Extended Credit Facility (ECF) for the Central African Republic. The approval enables the immediate disbursement of SDR 12.525 million (about US$17.4 million), while the remaining amount will be phased over the duration of the arrangement, subject to program reviews.
The authorities’ ECF-supported program aims to entrench macroeconomic stability and create the conditions for sustained and inclusive growth, through structural reforms.
Following the Executive Board’s discussion on the Central African Republic, Mr. Mitsuhiro Furusawa, Deputy Managing Director, and Acting Chair, made the following statement:
“The return to democratic institutions in April 2016 offers the Central African Republic a unique opportunity to consolidate peace, foster inclusive economic growth, and rebuild national cohesion to exit the current state of fragility. Going forward, and building upon progress made during the transition, economic reforms and consolidation of peace should ensure lasting improvements in security conditions and economic development of the country.
“The new three-year program supported by the Extended Credit Facility seeks to restore macroeconomic stability through lowering the domestic primary deficit in order to restore debt sustainability, while ramping up poverty- reducing spending and critical capital investment. Donor support ensures the full financing of the first year of the program, and there are good prospects for financing the remainder of the program.
“The program’s structural reform agenda focuses on raising domestic revenue to bring it to the pre-crisis level through a review of tax policy, strengthening tax administration, and streamlining tax exemptions. Raising domestic resource mobilisation to the country’s potential over the medium term will be key to allow the government to scale up pro-poor and investment spending. Structural reforms also focus on strengthening public financial management, improving the efficiency of spending, and restoring control and transparency in the execution of the budget. Better control of the wage bill would allow new hiring in the priority health and education sectors. In addition, the authorities’ structural reform agenda also comprises measures to increase banking intermediation, improve the business environment, and build institutional capacity. Technical assistance to strengthen capacity development is a critical element of the program and the authorities have agreed to participate in the pilot IMF Capacity Building Framework.”
Annex
Recent Economic Developments
The 2013 crises and a protracted political transition in 2014–15 provide the context for recent economic developments. The economy contracted by an estimated 36.7 percent in 2013, and economic growth remained anaemic in the subsequent years, due to structural rigidities, poor infrastructure and limited energy supply. Inflation reached 11.6 percent in 2014, and receded to 4.5 percent in 2015 thanks to improved supply conditions and a fall in the prices of basic imports. During this period, the fiscal deficit widened on the back of declining domestic revenue, which collapsed to below 5 percent of GDP in 2014. Corrective measures implemented in 2015 allowed revenue to reach 7.1 percent. However, domestic revenue remains insufficient to cover salary payments and critical expenditure. The current account deficit has doubled to 9 percent of GDP, mainly reflecting a collapse in exports of diamonds and forestry products.
Program Summary
The government program, supported by the ECF, aims at restoring macroeconomic stability, economic growth, job creation and poverty reduction. The program focuses on enhancing revenue mobilisation and improving expenditure efficiency to lower the primary fiscal deficit and scale-up social and infrastructure spending. Measures to improve the business environment and access to credit should support private sector activity. Technical assistance and training will be critical to support the implementation of key reforms that will underpin an economic recovery. XVIII
ANNEX 5 – Key Macroeconomic Indicators
CAF Central African Republic Selected Macroeconomic Indicators
Indicators Unit 2000 2011 2012 2013 2014 2015 (e) 2016 (p)
National Accounts GNI at Current Prices Million US $ 932 2 175 2 217 1 460 1 585 ...... GNI per Capita US$ 250 480 480 310 330 ...... GDP at Current Prices Million US $ 960 2 196 2 170 1 538 1 723 1 614 1 746 GDP at 2000 Constant prices Million US $ 960 1 146 1 193 762 770 801 842 Real GDP Growth Rate % 1,9 3,3 4,1 -36,1 1,0 4,1 5,2 Real per Capita GDP Growth Rate % -0,1 1,3 2,1 -37,3 -1,0 2,0 3,1 Gross Domestic Investment % GDP 9,5 12,2 15,0 8,7 10,2 9,8 9,9 Public Investment % GDP 4,7 4,0 6,2 1,7 2,1 2,1 2,2 Private Investment % GDP 4,8 8,2 8,8 7,0 8,1 7,7 7,8 Gross National Savings % GDP 8,9 3,9 9,9 3,2 -0,6 -2,6 2,1
Prices and Money Inflation (CPI) % 3,2 1,2 5,9 6,6 11,6 5,6 4,7 Exchange Rate (Annual Average) local currency/US$ 712,0 471,9 510,5 494,0 494,4 591,4 603,1 Monetary Growth (M2) % 2,4 16,3 1,0 6,6 13,5 14,0 ... Money and Quasi Money as % of GDP % 16,2 23,1 21,8 33,9 34,3 34,9 ...
Government Finance Total Revenue and Grants % GDP 14,3 13,3 16,4 8,4 15,7 11,2 12,6 Total Expenditure and Net Lending % GDP 16,2 15,7 16,4 14,7 12,5 14,5 15,4 Overall Deficit (-) / Surplus (+) % GDP -1,8 -2,4 0,0 -6,3 3,2 -3,2 -2,8
External Sector Exports Volume Growth (Goods) % 17,6 4,1 11,3 -50,8 -40,3 19,7 42,8 Imports Volume Growth (Goods) % -5,2 -8,1 23,3 -29,3 76,3 8,4 17,5 Terms of Trade Growth % -2,9 284,5 -18,3 14,2 20,0 -14,9 -4,5 Current Account Balance Million US $ -13 -166 -100 -46 -105 -185 -89 Current Account Balance % GDP -1,3 -7,6 -4,6 -3,0 -6,1 -11,5 -5,1 External Reserves months of imports 6,9 3,5 3,7 6,1 4,9 4,9 ...
Debt and Financial Flows Debt Service % exports 18,8 3,7 9,1 9,1 7,8 9,2 10,4 External Debt % GDP 87,0 18,3 20,7 34,4 28,5 27,5 26,4 Net Total Financial Flows Million US $ 50 289 229 229 642 ...... Net Official Development Assistance Million US $ ... 269 227 202 610 ...... Net Foreign Direct Investment Million US $ 1 37 70 2 3 ......
Real GDP Growth Rate, 2004-2016 Inflation (CPI), Current Account Balance as % of GDP,
2004-2016 2004-2016 % 10,0 14 0,0 12 0,0 10 -2,0 8 -4,0 -10,0 6 -6,0 4 -20,0 -8,0 2 -10,0 -30,0 0 -2 -12,0
-4 -14,0
2012 2013 2014 2015 2016 2 007 2 010 2 014 2004 2005 2006 2007 2008 2009 2010 2011 2 004 2 005 2 006 2 008 2 009 2 011 2 012 2 013 2 015 2 016
2008 2013 2015 2005 2006 2007 2009 2010 2011 2012 2014 2016 -40,0 2004
Source : AfDB Statistics Department; IMF: World Economic Outlook, October 2015 and International Financial Statistics, October 2015; AfDB Statistics Department: Development Data Portal Database, March 2016. United Nations: OECD, Reporting System Division. Notes: … Data Not Available ( e ) Estimations ( p ) Projections Last Update: April 2016
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ANNEX 6 – Donor Interventions in CAR
General Sector Donor Project support support Scope Observations
Construction and rehabilitation of classrooms. These two operations cover the social Education project X Improvement of learning and teaching quality sectors in infrastructure rehabilitation and conditions the provision of emergency healthcare to the population. These support operations Emergency healthcare are complementary to PUASCRE, which Health project X supports the redeployment of teachers and World Institutional support to the Ministry of Health health personnel Bank Improvement of revenue collection and FCP project in budget preparation and execution procedures; public finance X improvement of State and public management The WB provides for budget support of administration presence USD 50 million in 2016 and 2017 to Emergency public finance PACE X Payment of salaries and technical assistance service restoration X to the Ministry of Finance project UN support is complementary to that of United UN peace Emergency palliative measure to finance the X other TFPs to take into account both the Nations consolidation fund police and gendarmerie forces general administration and the armed forces Budget support through the Extended Credit Facility; the ECF-supported government programme aims to restore macroeconomic stability, growth, job creation and poverty Programme measures are also supported by IMF Budget support X reduction. It focuses on better revenue the World Bank, EU, France and AfDB mobilisation and greater expenditure (PAREF) efficiency in order to reduce the primary budget deficit and increase social and infrastructure expenditure Budget support to the tune of USD 6 million; French budget support aims to help the disbursed before June 2014 at the latest. Budget support / country meet its external commitments in French technical assistance seeks to France Technical relation to multilateral creditors. The strengthen the technical capacities of the assistance X X technical assistance component concerns customs service and the Department of Public public finance management Accounting Technical assistance targets public finance structures TA to the CS-REF ; TA to the public finance The EU plans budget support during the Budget support and EU X X reform plan 2017-2019 period technical assistance TA to ACCT; TA to the customs service (SYDONIA, Petroleum taxation, Surveillance Brigade) Budget support operation. Support for the redeployment of the administration, Budget support improvement of tax revenue, public finance Coordination is ensured by the IMF, WB, X management and economic recovery EU and France, which also support public AfDB finance management structures. The Bank PFM and private Technical assistance to several departments intervenes in equipment and the provision sector technical on the expenditure chain (Taxation, Customs, of experts in various fields. X assistance Treasury, Budget, Chambers of Commerce, (PARCGEF) One-Stop-Shop for Business Formalities…) Source: Roundtable of Donors and Central African authorities
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ANNEXE7 – Fiduciary Framework-Related Measures during the Exceptional Crisis Period
Assessment of Element Main inadequacies Mitigation measures initial risk . Include project and programme budgets in the budget management system in order to ensure permanent and efficient monitoring . Absence of a system making it and control of the said budgets up to the possible to have reliable information component level. 1. Budgeting High on the budget management of . Harmonise the project budget schedule with projects and programmes financed by that of the State. external partners . Harmonise budget classifications of the projects and programmes of various donors and then link them to the national budget classification system. . Absence of formal procedures for cash . Speed up the implementation of the management, 2. Cash High procedures manual . Low cash flow control (unreliable cash . Improve the quality of the cash flow plan flow forecasts and disbursements) ;
. Weak control over the management of arrears and debt in general
. Inefficient computerized accounting 3. . Establish a more efficient integrated PFM system Accounting system following precise specifications . Absence of procedures for the and High . Strengthen the technical capacities of human recording of project operations production resources; financed with external funds of financial . Define a mechanism for recording project . Delay in the production of financial reports operations financed by external donors statements
. Inadequacy of human resources; . Low IGF capacities; . Prepare or update the procedures manual on 4. Internal High . Absence of the code of conduct in the control according to internationally accepted Audit administration ; control standards
. Procedures manuals ignored and ill- . Strengthen IGF capacities, following a
adapted to the current context; general training plan;
. Define a code of conduct and disseminate it; . Inadequacy in the application of . Establish a mechanism to monitor the procedures, including asset safeguarding; inadequacy in recommendations of IGF missions. expenditure control . Provide the CdC with the necessary means to . Low autonomy of the CdC, effectively ensure its mission ; considerably limiting its . Update the CdC’s organic instruments in order independence to strengthen the provisions relating to its . Limited knowledge of the CdC’s independence and financial autonomy;
mission by the administration and . Prepare the court’s procedures manual; 5. External citizens . Join INTOSAI ; audit High . Insufficient qualified personnel and . Provide the court with sufficient and
application of internationally qualified staff and ensure their continuing
accepted standards education. . Make known the CdC’s added value to the . Inadequacy of financial resources . Absence of formal procedures public and administration
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ANNEX 8 – Bank Portfolio in CAR as at 31 October 2016
Net Commitments (UA Disbursed Disbursement Sector Project Title Approval Date Signature Effectiveness Closing Date m) Amounts Ratio (%)*
A. NATIONAL PROJECTS Social Community Development and Vulnerable 22-July-09 24- July -09 24- July -09 30-Dec.-16 Group Support Project (PDCAGV) 8.00 3.73 46.66 Support Programme for Reconstruction of Grassroots Communities Phase 1 24-June-15 16- July -15 16- July -15 31- Dec.-19 (ADF) 9.55 0.18 1.87 Support Programme for Reconstruction of 24- June -15 16- July -15 16- July -15 31- Dec -19 Grassroots Communities Phase 1 (TSF) 5.00 0.00 0.00 Support Programme for Reconstruction of Grassroots Communities Phase 1 24- June -15 16- July -15 16- July -15 31- Dec.-19 (RWSSI) 0.45 0.00 0.00
Sub-Total 23.0 3.9 17.0 Multisector Economic and Financial Management Capacity Building Support Project 31-Jan.-11 25- Feb.-11 25- Feb.-11 4.00 2.7 67.96 30- Dec.-16 (PARCGEF) Economic and Financial Management Capacity Building Support Project 31-Jan.-11 25- Feb.-11 25- Feb.-11 0.50 0.24 48.01 30- Dec -16 (PARCGEF) Targeted Capacity Building Technical 25-Feb.-11 26- Feb.-11 27- Feb.-11 1.26 0.5 39.7 #N/A Support Statistics and PRSP Implementation 1-Nov.-12 31-May-13 31- May -13 1.35 0.85 63.40 19-June-16 Technical Support Sub-Total
Multisector 7.1 4.3 60.7 Water and First Water and Sanitation Sectoral Sub- Sanitation Programme for Bangui and Four 24-Oct.-12 6- Dec.-12 17- May -13 31- Dec.-17 Prefectures (ADF loan) 1.04 0.72 69.53 First Water and Sanitation Sectoral Sub- Programme for Bangui and Four 24-Oct.-12 6- Dec -12 6- Dec.-12 31- Dec.-17 Prefectures (FSF grant) 4.40 0.06 1.47 First Water and Sanitation Sectoral Sub- Programme for Bangui and Four 3- Dec.-15 9-March-16 9- March -16 31- Dec -19 Prefectures (GEF grant) 5.09 0.00 0.00 Sub-Total Water and Sanitation 10.53 0.79 7.48 SUB-TOTAL NATIONAL PROJECTS 40,64 9.01 22.18% B. MULTINATIONAL PROJECTS Energy Electrical Network Interconnection Project from the Boali Hydropower System Phase 19-Sept.-12 17- Dec.-12 17- Dec.-12 29.73 1.74 5.85 31- Dec -17 I Sub-Total Energy 29.7 1.74 5.85 Transport CEMAC Zone Transport Facilitation 5-July-07 29- Feb.-08 29- Feb.-08 99.13 31- Dec.-15 Programme (PFT CEMAC) 27.80 27.56 Supplementary Grant Programme for Transport Facilitation on the Douala- 2-July.-12 9-Aug.-12 9- Aug. -12 4.20 4.07 96.97 31- Dec.-15 Bangui/Douala-N’Djamena Corridors Sub-Total
Transport 32.0 31.6 98.8 Programme for Rehabilitation and Strengthening of the Resilience of Socio- Environment. 17- Dec.-14 14- May -15 14- May -15 2.19 0.00 0.00 30-Sept.-19 Economic Systems of the Lake Chad Basin, CAR Biodiversity Conservation Programme – 22-July-13 11-Nov.-13 11-Nov.-13 2.50 0.40 16.03 31- Dec.-17 CAR component Sub-Total
Environment 4.69 0.40 8.5 SUB-TOTAL MULTINATIONAL PROJECTS 66,42 33.77 50.84%
Total 107.06 42.78 39.96%
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ANNEX 9 – Administrative Map of CAR
This map has been provided by the staff of the African Development Bank (AfDB) Group exclusively for the use of the readers of the report to which it is attached. The names used and the borders shown do not imply on the part of the AfDB Group and its members any judgment concerning the legal status of a territory nor any approval or acceptance of these borders.
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