Central African Republic: Reforms to Remedy Fragility

SUMMARY

Despite facing the difficulties of a fragile state, the Central African Republic is showing resilience in the face of the global economic downturn. As the country consolidates its reform agenda, some optimism is warranted, the IMF says in its regular review of the country’s economy.

 
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  • Central African Republic shows consistent growth since end of conflict in 2003
  • Country faces significant challenges to enhance medium-term growth
  • Authorities need to implement policies aimed at fostering competitiveness
  • As the country embarks in the consolidation of its reform agenda, some degree of optimism is warranted, the IMF said in its regular review of the country’s economy.

    With security in the countryside improving gradually and a strong commitment by the authorities to reforms, the country has achieved macroeconomic stability and maintained economic growth, albeit at modest rates.

    Since the end of a destructive civil conflict in 2003, growth has averaged about 2.6 percent per annum, and inflation kept at low single-digit levels, except in 2008 when prices spiked with the global food and fuel crisis (see chart). Fiscal performance has strengthened.

    Also, critical public financial management reforms have been implemented with technical assistance from the IMF, the African Development Bank, the European Union and the World Bank. The debt burden has been reduced significantly after the country benefited from development partners’ help, providing fiscal space for critical social programs.

    Recovering from, the country pursued sound macroeconomic policies with assistance from the IMF and key development partners. After receiving IMF support twice under the Emergency Post-Conflict Assistance facility, the landlocked central African state completed in September 2010 a 3-year program under the Extended Credit Facility.

    Post-conflict risks

    Despite these hard-won gains, the authorities continue to address drawbacks of a fragile and post-conflict state: low domestic revenue mobilization, weak capacity and institutions, and an unsettled political context.

    Hardly exceeding the rate of population growth, the economic recovery has been too anemic to put a dent in poverty incidence. Improvement in social indicators has stalled as the consequence of limited and inequitable public provision of basic social services. The 2011 United Nations Development Program Human Development Report ranked the country near the bottom (179 out of 187 countries).

    Moreover, weak revenue collection constrains the country’s ability to invest in basic infrastructure and pro-poor programs. At less than 10 percent of GDP, the domestic revenue-to-GDP ratio barely covers current expenditures. As a result, the country remains dependent on donor assistance, which for...

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