Panafrican News Agency

IMF approves US$115.1 million ECF arrangement for Central African Republic

Bangui, CAR (PANA) - The Executive Board of the International Monetary Fund (IMF) on Friday approved a US$115.1 million three-year arrangement under the Fund’s Extended Credit Facility (ECF) for Central African Republic (CAR) to maintain macroeconomic stability, strengthen administrative capacity, governance and the business climate, and address the country’s protracted balance of payment needs.

 “The IMF Executive Board’s decision enables an immediate disbursement of US$16.4 million. Disbursement of the remaining amount will be phased in over the duration of the programme, subject to semi-annual reviews,” said the Board in a press statement made available to PANA on Saturday..

“Despite significant progress under the ECF arrangement that expired last July, the Central African Republic remains very fragile, with a volatile security environment, limited administrative capacity, poor governance, and lack of social cohesion,” remarked Mr. Mitsuhiro Furusawa, IMF Deputy Managing Director and Acting Chair after the Board’s discussion on the country..

“The new three-year programme supported by the IMF Extended Credit Facility will support the implementation of the February 2019 peace agreement and of CAR’s medium-term development strategy.

“It aims at maintaining macroeconomic stability, strengthening administrative capacity, governance and the business climate, promoting robust and sustainable growth, and reducing poverty.”

According to the statement, the CAR authorities’ programme of economic policies and reforms implemented under the three-year ECF arrangement that expired in July helped to restore economic growth, reduce fiscal and external imbalances, and strengthen public administration.

The new arrangement will help catalyzing external concessional financing from other development partners, which is critical to support CAR’s path out of fragility. The IMF will also continue its extensive capacity development on priorities that are aligned with the programme objectives.

“Structural reforms will aim at improving the government’s capacity to design and implement policies and reforms, enhancing governance, including through strengthening anticorruption institutions, and removing bottlenecks and regulatory impediments to private investment,” said Mr Furusawa.

“Fiscal policy will focus on enhanced revenue mobilization, spending prioritization, and strengthened public financial management. This will ensure that CAR’s considerable security, social, and infrastructure spending needs are sustainably met.”

He pointed out that continued financial and technical support from development partners will be critical to the programme’s success. Given its high risk of debt distress and limited revenue base, CAR will have to continue relying heavily on grant financing to finance its most pressing spending needs.

Mr. Furusawa emphasized that the CAR authorities work closely with their technical partners to ensure that capacity development focuses on priorities closely aligned with the programme objectives and is efficiently delivered.

Recent economic developments have been broadly satisfactory, with growth expected to recover to 4 ½ percent this year, mainly driven by the mining, forestry and construction sectors, the IMF noted.

As the inflationary pressures that resulted from the blockade of the main trade route between Bangui and Cameroon in March have abated, inflation is expected to be limited to 3¼ percent on average this year and less than 3 percent next year. The current account deficit is expected to narrow to 5.6 percent of GDP in 2019, thanks primarily to an increase in official transfers.

The CAR’s programme is supported by the implementation of policies and reforms by the CEMAC regional institutions in the areas of foreign exchange regulations and monetary policy framework, and to support an increase in regional net foreign assets, which are critical to program’s success.

Progress under the peace agreement signed in February 2019 remains fragile. Overall, CAR remains in a very fragile situation, with a volatile security environment, limited administrative capacity, poor governance, and lack of social cohesion.

The program will support the implementation of the peace agreement and of CAR’s medium-term development strategy. Fiscal policy will focus on revenue mobilization, spending prioritization, and strengthening public financial management, with a view to allow, over the medium term, the sustainable financing of CAR’s considerable security, social, and infrastructure spending needs.

Structural reforms will aim at improving the government’s capacity to design and implement policies and reforms, at enhancing governance, and at removing bottlenecks and regulatory impediments to private investment.

According to the IMF Executive Board, the medium-term outlook remains broadly favourable, provided security holds.

Given the peace agreement’s slow implementation, the CAR’s macroeconomic framework assumes no conflict resurgence but factors in only limited peace dividends at this juncture.

IMF said growth is expected to amount to 5 percent over the medium term, driven by the recovery in the mining sector, the implementation of structural reforms, and the gradual loosening of the energy and transportation bottlenecks. Inflation is expected to remain under the CEMAC ceiling of 3 percent over the medium term.

“However, risks to the outlook remain high. Political pressures and uncertainty could weaken policy and reform implementation in the run-up to the 2020–21 presidential and general elections. A renewal of violence could also exacerbate the humanitarian crisis and political instability,” the IMF.Executive Board has cautioned.

-0- PANA AR 21Dec2019