AFRICAN DEVELOPMENT BANK GROUP

CENTRAL AFRICAN REPUBLIC

ECONOMIC AND FINANCIAL REFORM SUPPORT PROGRAMME

RDGC/ECGF/PGCL DEPARTMENTS

March 2017

Translated Document

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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

i

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

ii

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

Commitment fee 0.5% on the amount of the undisbursed loan 120 days after the

signing of the Loan Agreement

Other expenses Not applicable

Maturity 40 years

Grace period 10 year

Deadlines Biannual

iii

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)

iv

Programme Executive Summary

General

programme

overview

Programme name/number: Economic and Financial Reform Support Programme

(PAREF)/SAP Id. P-CF-K00-006.

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

outcomes and

direct

beneficiaries

PAREF comes in a context of normalization of the country’s institutions, with the

adoption of a new constitution in December 2015 and the election of a new president in

February 2016. The Programme is part of continuing measures supported by the two

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

Bank priorities

PAREF is aligned with the Bank’s Interim Assistance Paper covering the period 2014-

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

and rationale

Most of the country’s challenges, identified under the Bank’s two previous support

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.

v

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-

added

The Bank’s comparative advantages stem from its experience in implementing the two

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

and women’s

empowerment

Gender equality in CAR is established by the new constitution adopted in December 2015.

In his general policy declaration, the Prime Minister announced that legal systems would

be strengthened to protect women’s rights. To this end, government intends to

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

and associated

technical

assistance

Dialogue under the programme will concern reforms and measures that will have

structuring effects on the country’s medium-term economic and financial situation. These,

particularly, are issues relating to control of exemptions and the updating of the taxpayers’

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.

vi

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

Verification

Risks/

Mitigation measures Indicator Baseline Situation Target

Imp

act

Contribute to consolidating

economic growth and improving

the social and humanitarian

situation

Real GDP growth rate

Human development

index

4.5% in 2015

0.35 in 2014

5.2% in 2016

5.0% in 2017

0.40 in 2017

IMF report

UNDP World

Development Report

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Outcome 1:

Improvement of tax revenue

Tax rate 7.1% of GDP in 2015 8,1% in 2016

8,7% in 2017

TSFO (IMF)

Procurement audit

report (ARMP)

Doing Business

Report (WB)

Political and security risk

related to fragility of

public institutions and the

prevailing climate of

insecurity in certain areas

in Bangui and the

country’s provinces.

This risk is mitigated by

the return to constitutional

order and gradual DDRR

implementation

Macroeconomic risk:

High economic contraction

and dependence on

external assistance

Mitigation measures:

Recovery of activities and

exports in the mining

sector, commitment of

TFPs for budget assistance

during the three coming

years.

Fiduciary risks: High

imbalances on the budget

circuit and control systems

Mitigation measures:

Reform programmes

supported by the IMF and

other TFPs include

measures to improve

public finance

management and

transparency.

Outcome 2:

Improvement of procurement

transparency

Percentage of public

procurement by direct

negotiation

[90]% in 2015

[70]% in 2016

[50]% in 2017

Outcome 3:

Improvement of the business

environment

Average number of days

for business creation

Cost of business creation

(in % of income per capita)

22 days in 2015

204% in 2015

< 14 days in 2017

< 150% in 2017

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COMPONENT I: Improvement of tax revenue mobilisation and public expenditure management

Sub-component 1-1 Improvement of tax revenue

1.1.1 Preparation of an interim

report as at 30 August 2016 on the

situation of exemptions granted by

the Inter-ministerial Committee in

charge of Tax and Customs

Exemptions (prerequisite)

1.1.2 Revision of the legal,

regulatory and institutional

framework for granting and

managing exemptions (trigger)

1.1.3 Census of taxpayers and

updating of the taxpayers’

database in the new taxation

management system

(SYSTEMIF4)

1.1.4 Revision of exemption

agreements that will expire in

2016

1.1.1 Report on the

situation of exemptions

1.1.2 Instrument on the

revision of the legal,

regulatory and

institutional framework

for granting and managing

exemptions

1.1.3 Updated taxpayers’

database in SYSTEMIF4

1.1.4 Number of revised

agreements

1.1.1 Preliminary

report available

1.2.2 Framework not

yet revised

1.1.3 Census under

way and

SYSTEMIF4 being

installed

1.1.4 Agreements

not yet revised

1.1.1 Report available

before the end of

October 2016

1.1.2 Revision of

framework before June

2017

1.1.3 Census made and

taxpayers’ database

updated before June

2017

1.1.4 Revision of all

agreements concerned

before June 2017

CICEFD report

Copy of instrument

DGID report

CICEFD report

Sub-component 1.2 Improvement of budget execution

1.2.1 Validation of the expenditure

execution procedures manual –

trigger- and drafting of the budget

preparation guide – prerequisite

1.2.2 Adoption of instruments

relating to the designation of credit

managers and administrators for

better definition of the terms of

their appointment and their duties

– trigger

1.2.3 Preparation of specifications

for migration to a new integrated

public finance management

system.

1.2.4 Increase in the budget

execution rate (excluding salaries)

of the education, health and social

affairs sectors

1.2.5 Audit of public contracts

1.2.6 Operationalisation of the

Conflict Resolution Committee at

the Public Contracts Regulatory

Agency (ARMP)

1.2.1 Expenditure

execution procedures

manual and drafting of a

budget preparation guide

1.2.2 New instruments

adopted

1.2.3 Report on the

specifications

1.2.4 Budget commitment

rate (excluding salaries) of

the education, health and

social affairs sectors

1.2.5 Number of years of

audit carried out between

2012-2015

1.2.6 Officials appointed

1.2.1 Manual and

guide being finalized

1.2.2 Instruments not

yet adopted

1.2.3 Audit of the

existing system

(GESCO) carried out

and development of

current

specifications

1.2.4 Commitment

rate estimated at 10%

in 2014

1.2.5 No audit

carried out for the

years 2012 - 2015

1.2.6 Members of the

Conflict Resolution

Committee are not

yet appointed

1.2.1 Manual and guide

prepared before

September 2016

1.2.2 Instrument

adopted before June

2017

1.2.3 Specifications

prepared in 2017

1.2.4 Reach at least a

50% commitment rate

in 2017

1.2.5 Audits carried out

in 2017 for the years

2012-2015

1.2.6 Appointment of

members of the

Conflict Resolution

Committee in 2017

Copy of the manual

and guide

Copy of the

instrument

Copy of the validated

specifications

Budget execution

report prepared by the

General Directorate

of Budget

Copy of the 2017

Finance Law

Copy of audit reports

forwarded by ARMP

Instruments on the

appointment of

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

vii

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

Verification

Risks/

Mitigation measures Indicator Baseline Situation Target

2.1.1 Assessment of losses and

damage suffered by enterprises

during the 2013 events

(prerequisite)

2.1.2 Adoption of a clearance plan

for domestic arrears of the period

2012-2014 (trigger)

2.1.3 Operationalisation of the

Single Window for Business

Registration (GUFE)

2.1.4 Establishment of a National

Private Sector Guarantee and

Support Fund

2.1.5 Operationalisation of an

approved Management Centre

within the Chamber of Commerce,

Industry, Mines and Crafts

(CCIMA)

2.1.1 Reports validated

2.1.2 Clearance plan for

domestic arrears of the

period 2012-2014

2.1.3 GUFE procedures

manual

2.1.4 Study on the

National Private Sector

Guarantee and Support

Fund

2.1.5 Study on the

establishment of a

Management Centre

within the Chamber of

Commerce, Industry,

Mines and Crafts

(CCIMA)

2.1.1 Assessment of

losses being carried

out

2.1.2 Audit of

domestic arrears of

the period 2012-

2014 being finalized

2.1.3 GUFE lacks a

procedures manual

and a financial and

accounting

management system

2.1.4 Study on the

National Private

Sector Guarantee

and Support Fund

being conducted

2.1.5 Study for the

establishment of an

approved

Management Centre

being conducted

2.1.1 Report on the

assessment of losses

validated in 2016 and

adoption of measures

in 2017

2.1.2 Arrears clearance

plan adopted before

June 2017

2.1.3 GUFE’s

procedures manual and

financial and

accounting

management system

established before June

2017

2.1.4 Study finalized in

2016 and organisation

of a roundtable for

capitalization of the

Fund before the end of

2017

2.1.5 Study finalized in

2016 and an approved

management centre

operational in Bangui

in 2017

Copy of the report

forwarded by the

Ministry of Finance

Copy of the arrears

clearance plan

approved by

government

Copy of the

procedures manual

Copy of study and

report on the

organisation of the

roundtable

Copy of study and

CCIMA report

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Sub-component 2-2 Revival of productive sectors

2.2.1 Updating of the National

Agricultural Investment, Food

Security and Nutritional

Programme (PNIASAN) -

prerequisite

2.2.2 Adoption of a decree on the

enabling instruments of the

Environmental Code (trigger)

2.2.3 Revival of cotton and food

crop production by clearing State

arrears to business operators

2.2.4 Conduct of a study on

forestry taxation and para-taxation

in order to make the timber

exploitation sector competitive

2.2.5 Revival of mining

production by continuing the

implementation of measures for

total compliance of diamond

producing areas with the

Kimberley Process

2.2.6 Revision of the Mining Code

to improve the sector’s

attractiveness and industrialization

2.2.1 Plan updated

2.2.2 Decree on the

enabling instruments of

the Environmental Code

2.2.3 Arrears clearance

rate

2.2.4 Study report

2.2.5 Number of areas

declared compliant

2.2.6 Revised Mining

Code

2.2.1 PNIASAN

being updated –

preliminary report

available

2.2.2 Enabling

instruments of the

Environment Code

not yet adopted

2.2.3 State arrears to

the sector not yet

cleared in 2015

2.2.4 Study being

conducted

2.2.5 Four diamond

producing areas

declared compliant

in September 2016

2.2.6 Mining Code

being revised

2.2.1 PNIASAN

updated before 30

October

2.2.2 Decree on the

enabling instruments of

the Environmental

Code Text

adopted in 2017

2.2.3 The sector’s

arrears cleared in 2017

2.2.4 Study on forestry

taxation finalized in

2016 and a new tax

system adopted in 2017

2.2.5 Achieve at least

ten diamond producing

areas declared

compliant in 2017

2.2.6 New Mining

Code adopted in 2017

Copy of PNIASAN

Copy of instrument

Report on the arrears

situation

Copy of the study and

instrument on the tax

system

Report of the

Ministry in charge of

energy on the

Kimberley Process

Copy of the Mining

Code

Acti

vit

ies

Total resources: UA 12.28 million

ADF grant – PBS: UA 2.7 million

TSF grant - Pillars: UA 8.02 million

TSF Grant (Restructuring/Cancellation: UA 1.56

million

-

1

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

2

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.

3

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

4

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

5

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.

6

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

7

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.

8

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.

9

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.

10

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

Several PAREF measures result from

studies conducted under PARCGEF,

namely the assessment of losses and

damage suffered by enterprises

during the March 2013 events, the

study for the establishment of an

SME guarantee and investment fund

and the study for the establishment of

approved management centres. On

the social component and the DDRR,

PAREF is complementary to the

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.

Agriculture 1%

Social8%

Multisector22%

Water and sanitation

5%Energy30%

Transport32%

Environment2%

11

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

12

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).

13

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.

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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.

15

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

16

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:

17

(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

review supported by the IMF’s

ECF

Status: An IMF mission was in CAR

in September 2016 and expressed

satisfaction with the state of

implementation of ECF-supported

programme measures

Census of taxpayers and update of the

taxpayers’ database in the new tax revenue

management information system

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

of exemption agreements

effective as at 30 August

2016, showing exceptional

exemptions (Prerequisite);

Status: Preliminary report available Review of instruments on the terms of

approving draft agreements on exceptional

exemptions

Status: A study on the situation of

exemptions was conducted with the support

of the World Bank

Factual elements required: Copy of

the finalized report

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Adoption of a methodological

guide for budget preparation;

Status: Existence of a preliminary

guide

Review of instruments on the designation of

credit managers and administrators for better

definition of the terms of their appointment

and their duties; adoption of a procedures

manual for expenditure execution

Status: A draft instrument is being examined

by the Ministry of Finance and Budget;

Existence of a preliminary manual

Factual elements required: Copy of

the finalized guide

Component 2 : Improvement of the business environment and governance in productive sectors

Finalization of the assessment

of losses and damage suffered

by enterprises during the 2013

crisis

Status: Report on the assessment of

losses prepared with PARCGEF

support. Its validation is underway.

Adoption of a plan for clearance of arrears

and liabilities (indicative trigger)

Status: The audit of the 2012 to 2014 arrears

is under way Factual elements required: Copy of

the report validated by authorities

Updating of the National

Agricultural Investment, Food

Security and Nutritional

Programme (PNIASAN)

Status: Preliminary report available Total clearance of cotton sector arrears

(indicative trigger)

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

Status: Draft instrument being prepared Factual elements required: Copy of

the finalized report

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

19

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

grants -48.7 -36.9 -43.0 -33.8

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

21

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,

22

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:

23

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

public institutions and the prevailing climate of

insecurity in certain areas in Bangui and the country’s

provinces

This risk is mitigated by the return to constitutional order and gradual

DDRR implementation.

Macroeconomic risk: High economic crunch and

dependence on external assistance

Recovery of activities and exports in the mining sector, commitment of

TFPs for budget assistance during the three coming years.

Fiduciary risks: High imbalances on the budget

process and control systems

Reform programmes supported by the IMF and other TFPs include

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).

I

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

II

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.

III

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

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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

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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.

VII

• 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.

IX

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

X

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

XI

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,

XII

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

XIII

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

XIV

ANNEX 2 – Conditions for Use of General Budget Support

Conditions Assessment of the fulfilment of conditions

Government’s

commitment to

reduce poverty

While waiting for the preparation of the new national development strategy, the new

government has defined the country’s priorities through Government’s General Policy

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

stability

The country’s economic situation, which had been severely affected by the crisis, improved

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

assessment

The country’s fiduciary framework remains fragile, due to the weaknesses noted in public

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

stability

The socio-political situation has improved considerably with the return of constitutional

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.

XV

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

agreements effective as at 30 August 2016, showing

exceptional exemptions (Prerequisite)

Ministry of Finance

(Department of Legal

Affairs)

September

2016

1.1.2 Review instruments on the terms of approving draft

agreements on exceptional exemptions (indicative

trigger)

Ministry of Finance

(Department of Legal

Affairs)

June 2017

1.1.2 Census of taxpayers and updating of the taxpayers’

database in the new tax revenue management

information system (indicative trigger)

General Directorate of

Taxation June 2017

1.1.2 Updating and dissemination of the General Tax Code

(CGI)

General Directorate of

Taxation

December

2016

1.1.4 Interconnection of Central African customs services

with those in Douala

General Directorate of

Customs

December

2017

1.1.5 Measures to fight VAT fraud (joint controls with

customs services based on the crossed risks) – at least 5

controls per year

General Directorate of

Taxation / General

Directorate of Customs

2016 2017

1.1.6 Harmonise the CGI with the CEMAC Directive on

excise duties (Taxation on mobile telephony)

General Directorate of

Taxation

December

2017

1.1.7 Revise the agreements on exemption measures when

they expire in order to reduce level of exemptions –

indicative trigger

Ministry of Finance –

Inter-Ministerial

Committee on

Exemptions

June 2017

1.1.8 Reopen customs clearance offices and taxation offices

that were closed during the crisis

General Directorate of

Customs/General

Directorate of Taxation

December

2017

1.2 Improvement of budget execution

1.2.1 Validation of the expenditure execution procedures

manual (trigger 2017) and development of a budget

preparation guide - Prerequisite

General Directorate of

Budget

September

2016 June 2017

1.2.2 Review of instruments on the appointment of credit

managers and administrators for better definition of

the terms of their appointment and their duties –

indicative trigger

General Directorate of

Budget June 2017

1.2.3 Prepare procurement expenditure commitment plans for

all ministries, particularly the Ministries in charge of

health, education and social affairs

DG

Budget/DGMP/Sector

ministries

2017

1.2.4 Abolish imprest funds for missions (excluding imprest

funds for the Presidency and the Prime Minister’s

Office)

DG Treasury 2016 2017

1.2.5 Prepare specifications for the establishment of a new

public finance management system taking into

account the findings of the GESCO software audit

Department of IT

Services of the Ministry

of Finance and Budget

December

2017

1.2.6 Audit public contracts from 2012 to 2015 ARMP June 2017

1.2.7 Operationalise the Conflict Resolution Committee ARMP December

2017

1.2.8 Budgetary allocation to strengthen public services in

charge of health and school equipment and supplies as

well as the national health information system

Ministries in charge of

education, health and

social affairs

2017

XVI

Measures Responsible structures Implementation date

2016 2017

1.2.9 Budgetary allocation for the implementation of the

training and recruitment plan for the additional

workforce of the education and health sectors and

their deployment taking regional balance into account

Ministries in charge of

education, health and

social affairs

2017

1.2.10 Increase the budget execution rate (excluding salaries)

of the education, health and social affairs sectors

Ministries in charge of

education, health and

social affairs

2016 2017

1.2.11 Budgetary allocation for the implementation of the

assistance strategy for women and girls who are

victims of violence

Ministry of Finance,

Ministry of Social

Affairs

2017

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

the 2013 events (Prerequisite)

September

2016

2.1.2 Audit the State’s arrears/liabilities for the period 2012-

2014 Ministry of Finance

December

2016

2.1.3 Adoption of a clearance plan for arrears and

liabilities (indicative trigger) Ministry of Finance June 2017

2.1.4 Adoption of private sector support measures in relation

to losses suffered during the 2013 events Ministry of Finance June 2017

2.1.5 Establishment of the National Private Sector Guarantee

and Support Fund - operationalise by June 2017 the national

committee responsible for monitoring the implementation of

Funds and organise by December 2017 a roundtable to

mobilise resources for its capital

Ministry of Planning;

Ministry of Trade 2017

2.1.7 Finalization of the study for the creation of an approved

management centre within the Chamber of Commerce,

Industry, Mines and Crafts (CCIMA)

Ministry of Trade;

CMCAA

December

2016

2.1.8 Operationalisation of the CGA in Bangui Ministry of Trade;

CMCAA

December

2017

2.1.9 GUFE - Establishment of GUFE’s financial

management system GUFE

December

2016

2.1.10 Proposal of a reform of GUFE’s status to strengthen its

management autonomy

December

2017

2.2 Revival of productive sectors

2.2.1 Continued implementation of Kimberley Process

measures to ensure production and export compliance by at

least 10 diamond producing areas

Ministry in charge of

mines

December

2017

2.2.2 Revision of the Mining Code Ministry in charge of

mines

December

2017

2.2.3 Partial clearance of cotton sector arrears in 2016 and

total clearance in 2017 (indicative trigger)

Ministry of Rural

Development

December

2016 June 2017

2.2.4 Increase by at least 20% the number of rural sector

supervisors in the various regions of the country

Ministry of Rural

Development 2017

2.2.5 Publication of the agro-pastoral land code Ministry of Rural

Development 2017

2.2.6 Adoption of the decree on the organisation of the

profession of agricultural adviser

Ministry of Agriculture

and Rural Development 2017

2.2.7 Updating of the PNIASAN (prerequisite) Ministry of Agriculture

and Rural Development

September

2016

2.2.8 Adoption of a decree on the organisation and operation

of the Central African Agency for Food Health Security

Ministry of Agriculture

and Rural Development 2017

XVII

Measures Responsible structures Implementation date

2016 2017

2.2.9 Approval of organic instruments of the Ministries of

Agriculture and Rural Development, Livestock and Animal

Health, Environment and Sustainable Development, and

Water Resources, Forestry, Hunting and Fisheries;

Ministry of Agriculture

and Rural Development;

Ministry of Livestock

and Animal Health;

Ministries of

Environment and

Sustainable

Development, and Water

Resources, Forestry,

Hunting and Fisheries;

2016

2.2.10 Publication of the law on agricultural professional

organisations

Ministry of Agriculture

and Rural Development 2017

2.2.11 Adoption of enabling decrees of the 2001 law on the

establishment and code of ethics of the National Association

of Veterinary Doctors

Ministry of Livestock

and Animal Health; 2016

2.2.12 Establishment of a committee in charge of

coordination and monitoring and evaluation of regional

agricultural development programmes (2016)

Ministry of Agriculture

and Rural Development 2016

2.2.13 Finalization of the forestry policy

Ministry of Water

Resources, Forestry,

Hunting and Fisheries

December

2016

2.2.14 Adoption of a decree on the enabling instruments of

the Environmental Code (trigger)

Ministry of Water

Resources, Forestry,

Hunting and Fisheries

June 2017

2.2.14 Conduct a study on forestry taxation and para-taxation

to make the sector competitive

DGI / Ministry of Water

Resources, Forestry,

Hunting and Fisheries

December

2017

XVIII

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.

XIX

ANNEX 5 – Key Macroeconomic Indicators

CAF

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 ... ...

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

Central African RepublicSelected Macroeconomic Indicators

-40,0

-30,0

-20,0

-10,0

0,0

10,0

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

%

Real GDP Growth Rate, 2004-2016

-4

-2

0

2

4

6

8

10

12

14

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Inflation (CPI),

2004-2016

-14,0

-12,0

-10,0

-8,0

-6,0

-4,0

-2,0

0,0

2 004

2 005

2 006

2 007

2 008

2 009

2 010

2 011

2 012

2 013

2 014

2 015

2 016

Current Account Balance as % of GDP,

2004-2016

XX

ANNEX 6 – Donor Interventions in CAR

Donor Project General

support

Sector

support Scope Observations

World

Bank

Education project X Construction and rehabilitation of classrooms. Improvement of learning and teaching quality

conditions

These two operations cover the social sectors in infrastructure rehabilitation and

the provision of emergency healthcare to

the population. These support operations are complementary to PUASCRE, which

supports the redeployment of teachers and

health personnel

Health project X Emergency healthcare

Institutional support to the Ministry of Health

FCP project in

public finance

management

X

Improvement of revenue collection and

budget preparation and execution procedures; improvement of State and public

administration presence The WB provides for budget support of

USD 50 million in 2016 and 2017 to finance PACE Emergency public

service restoration

project

X X

Payment of salaries and technical assistance

to the Ministry of Finance

United

Nations

UN peace

consolidation fund X

Emergency palliative measure to finance the

police and gendarmerie forces

UN support is complementary to that of other TFPs to take into account both the

general administration and the armed forces

IMF Budget support

X

Budget support through the Extended Credit Facility; the ECF-supported government

programme aims to restore macroeconomic stability, growth, job creation and poverty

reduction. It focuses on better revenue

mobilisation and greater expenditure efficiency in order to reduce the primary

budget deficit and increase social and

infrastructure expenditure

Programme measures are also supported by

the World Bank, EU, France and AfDB

(PAREF)

France Budget support / Technical

assistance

X

X

Budget support to the tune of USD 6 million; disbursed before June 2014 at the latest.

French technical assistance seeks to

strengthen the technical capacities of the

customs service and the Department of Public

Accounting

French budget support aims to help the

country meet its external commitments in relation to multilateral creditors. The

technical assistance component concerns

public finance management

EU Budget support and technical assistance

X X

Technical assistance targets public finance

structures TA to the CS-REF ; TA to the public finance

reform plan

TA to ACCT; TA to the customs service (SYDONIA, Petroleum taxation, Surveillance

Brigade)

The EU plans budget support during the

2017-2019 period

AfDB

Budget support

X

Budget support operation. Support for the

redeployment of the administration, improvement of tax revenue, public finance

management and economic recovery

Coordination is ensured by the IMF, WB, EU and France, which also support public

finance management structures. The Bank

intervenes in equipment and the provision of experts in various fields.

PFM and private sector technical

assistance

(PARCGEF)

X

Technical assistance to several departments on the expenditure chain (Taxation, Customs,

Treasury, Budget, Chambers of Commerce,

One-Stop-Shop for Business Formalities…)

Source: Roundtable of Donors and Central African authorities

XXI

ANNEXE7 – Fiduciary Framework-Related Measures during the Exceptional Crisis

Period

Element Assessment of

initial risk Main inadequacies Mitigation measures

1. Budgeting High

Absence of a system making it

possible to have reliable information

on the budget management of

projects and programmes financed by

external partners

Include project and programme budgets in

the budget management system in order to

ensure permanent and efficient monitoring

and control of the said budgets up to the

component level.

Harmonise the project budget schedule with

that of the State.

Harmonise budget classifications of the

projects and programmes of various donors

and then link them to the national budget

classification system.

2. Cash

High

Absence of formal procedures for cash

management,

Low cash flow control (unreliable cash

flow forecasts and disbursements) ;

Weak control over the management of

arrears and debt in general

Speed up the implementation of the

procedures manual

Improve the quality of the cash flow plan

3. Accounting

and

production

of financial

reports

High

Inefficient computerized accounting

system

Absence of procedures for the

recording of project operations

financed with external funds

Delay in the production of financial

statements

Establish a more efficient integrated PFM

system following precise specifications

Strengthen the technical capacities of human

resources;

Define a mechanism for recording project

operations financed by external donors

4. Internal

Audit

High

Inadequacy of human resources;

Low IGF capacities;

Absence of the code of conduct in the

administration ;

Procedures manuals ignored and ill-

adapted to the current context;

Inadequacy in the application of

procedures, including asset

safeguarding; inadequacy in

expenditure control

Prepare or update the procedures manual on

control according to internationally accepted

control standards

Strengthen IGF capacities, following a

general training plan;

Define a code of conduct and disseminate it;

Establish a mechanism to monitor the

recommendations of IGF missions.

5. External

audit

High

Low autonomy of the CdC,

considerably limiting its

independence

Limited knowledge of the CdC’s

mission by the administration and

citizens

Insufficient qualified personnel and

application of internationally

accepted standards

Inadequacy of financial resources

Absence of formal procedures

Provide the CdC with the necessary means to

effectively ensure its mission ;

Update the CdC’s organic instruments in order

to strengthen the provisions relating to its

independence and financial autonomy;

Prepare the court’s procedures manual;

Join INTOSAI ;

Provide the court with sufficient and

qualified staff and ensure their continuing

education.

Make known the CdC’s added value to the

public and administration

XXII

ANNEX 8 – Bank Portfolio in CAR as at 31 October 2016

Sector Project Title Approval Date Signature Effectiveness Net Commitments (UA

m) Disbursed Amounts

Disbursement Ratio (%)*

Closing Date

A. NATIONAL PROJECTS

Social Community Development and Vulnerable Group Support Project (PDCAGV)

22-July-09 24- July -09 24- July -09 8.00 3.73 46.66

30-Dec.-16

Support Programme for Reconstruction of Grassroots Communities Phase 1 (ADF)

24-June-15 16- July -15 16- July -15 9.55 0.18 1.87

31- Dec.-19

Support Programme for Reconstruction of Grassroots Communities Phase 1 (TSF)

24- June -15 16- July -15 16- July -15 5.00 0.00 0.00

31- Dec -19

Support Programme for Reconstruction of Grassroots Communities Phase 1 (RWSSI)

24- June -15 16- July -15 16- July -15 0.45 0.00 0.00

31- Dec.-19

Sub-Total

23.0 3.9 17.0

Multisector Economic and Financial Management Capacity Building Support Project (PARCGEF)

31-Jan.-11 25- Feb.-11 25- Feb.-11 4.00 2.7 67.96 30- Dec.-16

Economic and Financial Management Capacity Building Support Project (PARCGEF)

31-Jan.-11 25- Feb.-11 25- Feb.-11 0.50 0.24 48.01 30- Dec -16

Targeted Capacity Building Technical Support

25-Feb.-11 26- Feb.-11 27- Feb.-11 1.26 0.5 39.7 #N/A

Statistics and PRSP Implementation Technical Support

1-Nov.-12 31-May-13 31- May -13 1.35 0.85 63.40 19-June-16

Sub-Total Multisector

7.1 4.3 60.7

Water and Sanitation

First Water and Sanitation Sectoral Sub-Programme for Bangui and Four Prefectures (ADF loan)

24-Oct.-12 6- Dec.-12 17- May -13 1.04 0.72 69.53

31- Dec.-17

First Water and Sanitation Sectoral Sub-Programme for Bangui and Four Prefectures (FSF grant)

24-Oct.-12 6- Dec -12 6- Dec.-12 4.40 0.06 1.47

31- Dec.-17

First Water and Sanitation Sectoral Sub-Programme for Bangui and Four Prefectures (GEF grant)

3- Dec.-15 9-March-16 9- March -16 5.09 0.00 0.00

31- Dec -19

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 I

19-Sept.-12 17- Dec.-12 17- Dec.-12 29.73 1.74 5.85 31- Dec -17

Sub-Total Energy

29.7 1.74 5.85

Transport CEMAC Zone Transport Facilitation Programme (PFT CEMAC)

5-July-07 29- Feb.-08 29- Feb.-08 27.80 27.56

99.13 31- Dec.-15

Supplementary Grant Programme for Transport Facilitation on the Douala-Bangui/Douala-N’Djamena Corridors

2-July.-12 9-Aug.-12 9- Aug. -12 4.20 4.07 96.97 31- Dec.-15

Sub-Total Transport

32.0 31.6 98.8

Environment.

Programme for Rehabilitation and Strengthening of the Resilience of Socio- Economic Systems of the Lake Chad Basin, CAR

17- Dec.-14 14- May -15 14- May -15 2.19 0.00 0.00 30-Sept.-19

Biodiversity Conservation Programme – CAR component

22-July-13 11-Nov.-13 11-Nov.-13 2.50 0.40 16.03 31- Dec.-17

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%

XXIII

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.