Central African Republic needs to create conditions that will jump-start growth

• Pages: 36

Page 36

The Central African Republic (C.A.R.) has seen its economic and social conditions deteriorate steadily over the past decade, partly because of poor economic management but also because of political and military disturbances that culminated in the March 2003 coup, the IMF said in its annual review. As a result of the conflict, the country's capital stock eroded, the formal sector contracted, and the production of cash crops all but ceased. However, security has now improved and peaceful presidential and legislative elections took place during March-May 2005, paving the way for democratic rule.

Real GDP grew by only 1 percent in 2004, with activity in most sectors stagnating. The country's public finances remain weak, with revenue at only 8 percent of GDP in 2004, and the authorities continue to have difficulty controlling spending, particularly on public sector wages. As a result, domestic and external payments arrears have accumulated. Efforts to increase revenues have been hampered by lax tax and customs administration, rooted partly in corruption. The rising wage bill has absorbed a disproportionate share of the C.A.R.'s scarce resources.

The IMF Executive Board commended the C.A.R. authorities on the peaceful completion of elections and improved security.

Directors noted that...