CAR’s Recurrent Revenues Show Improvement, but Expenses Surpass Projections

Bangui

The Central African Republic (CAR) has recorded a significant improvement in its recurrent revenues, with recoveries of past dues amounting to CFAF 4 billion and BEAC’s dividend distribution reaching CFAF 1.75 billion.

However, expenses have exceeded the government’s projections by CFAF 7.8 billion, mainly due to payments of overdue teachers’ benefits and recruitment of new education and security personnel.

Regional Financing Improves

Access to regional financing has also improved, with subscriptions to regional debt issuances rising from an average of below 20 percent in 2023Q1 to about 70 percent in May and June. In March, the authorities opened a credit line with a local bank to address cash management challenges due to undersubscribed auctions and subpar revenue collections from fuel sales.

On August 14, CAR raised CFAF 25 billion (1.5 percent of GDP) in a fully subscribed, syndicated issuance on the regional debt market, of which CFAF 15.3 billion were used to repay a maturing treasury bond.

Financial Soundness Remains Broadly Adequate

Aggregate financial soundness indicators remain broadly adequate, with:

• Banks’ capital adequacy ratio solid at 23.5 percent
• Short-term liquidity ratio standing at 151.8 percent

However, gaps on liquidity and concentration of non-performing loans (NPLs) among banks call for increased vigilance.

External Position Remains Weak

The external position remains substantially weaker than implied by fundamentals and desirable policy settings, due to:

• Lack of competitiveness
• Weak buffers
• Low donor support

Program Performance Mixed

Performance under the program has been mixed, with two of the three end-June quarterly performance criteria (QPCs) missed by small margins. The domestic primary balance exceeded its QPC by CFAF 2.5 billion due to small expenditure overruns, mostly in the security and education sectors.

The adjusted net domestic financing QPC was missed by around CFAF 8 billion, including as the treasury took advantage of improved investor confidence to frontload domestic financing.

Outlook Remains Uncertain

The medium-term outlook remains uncertain, with a slight markdown from the time of program approval. Real GDP is expected to rebound to 1.5 percent in 2024 as manufacturing and services recover, but growth could accelerate to 3.7 percent by 2026 if governance and business environment improve.

Inflation is expected to decline towards the CEMAC’s 3 percent convergence criterion, but further risks remain, including:

• Potential worsening of security challenges
• Continued donor support