Panafrican News Agency

CAR struggles to address economic challenges arising from security crisis

Bangui, Central African Republic (PANA) – The deterioration of the security situation in Central African Republic (CAR) at the beginning of the year and the prolonged closure of the trade corridor between the capital, Bangui, and Cameroon have had a substantial social and economic impact on the country and the population, according to staff of the International Monetary Fund (IMF).

A team of IMF staff has concluded a virtual mission to the country from 4 to 20 May 2021 observing that closure of the corridor cut-off of the country's main source of supply leading to a sharp rise in consumer prices and affected production owing to a lack of inputs.

“While the reopening of the corridor has allowed trade flows to resume, they remain lower than in the past. Even assuming it continues to recover gradually over the next few months, economic activity is expected to contract slightly this year, compared to the 3½ percent growth expected before the security situation deteriorated,” said Mr. Édouard Martin, the team leader, in a statement issued on Saturday.

“After rising sharply at the beginning of the year, inflation is expected to decline gradually, to just over 3 percent year-on-year by the end of 2021. Owing mainly to lower imports, the current account deficit would decline to about 6½ percent of GDP in 2021 from 8½ percent of GDP in 2020.

"The closure of the corridor also affected significantly public finances. Domestic government revenues in the first quarter were about 20 percent below expectations, while security spending increased sharply.”

The IMF team observed that increased spending on security combined with budgetary slippages at the end of 2020 and lower budget support, led to a rapid decline in government deposits with BEAC (Bank of Central African States)..

To ensure that the government can meet its financial obligations in the coming months, the IMF team emphasised the need to revise downwards non-priority expenditures to offset the increase in security expenditures in the context of the supplementary budget law.

“In view of the apparent resurgence of the pandemic, the IMF team also encouraged the authorities to accelerate the implementation of their vaccination strategy with the support of their technical and financial partners,” Mr. Martin pointed out.

During the mission, the Central African authorities and the IMF staff discussed economic policies and structural reforms that could form the basis of a staff-monitored programme (SMP) for the country.

Mr. Martin said that the discussions will continue in the coming days so as to reach an agreement that could be submitted for approval to IMF Management once the prior actions have been implemented.

The 7-month SMP will aim at helping the CAR authorities address the economic challenges caused by the security crisis and the Covid-19 pandemic.

Its satisfactory implementation would allow for the resumption of discussions under the Extended Credit Facility (ECF) supported programme in the first half of 2022.

The IMF team also discussed with the authorities a programme of structural reforms for 2021 aimed at improving governance and public financial management and strengthening domestic revenue mobilisation.

In particular, the authorities have committed to submit a new anti-corruption law to the National Assembly, systematically publish public contracts, and to make the e-procedures for tax filing and payment by large companies operational.

-0- PANA AR/MA 22May2021