Documentof The World Bank The African DevelopmentBank FOR OFFICIAL USEONLY ReportNo. 49583-CF INTERNATIONALDEVELOPMENTASSOCIATION INTERNATIONALFINANCIAL CORPORATION MILTILATERAL INVESTMENTGUARANTEE AGENCY AND AFRICAN DEVELOPMENT BANK JOINT COUNTRY PARTNERSHIP STRATEGY (CPS) FOR CENTRALAFRICANREPUBLIC FOR THE PERIOD2009-2012 JULY 31,2009 CentralAfrica Department(CountryManagementUnit AFCC1) The African DevelopmentBank(CentralRegionDepartment - ORCE) This documenthas arestricteddistribution andmay be usedby recipients only inthe performanceoftheir official duties. Its contents may not otherwise be disclosedwithout AfDB and World BankGroup authorization. FOR OFFlCIAL USE ONLY TABLE OF CONTENTS I COUNTRYCONTEXTANDRECENTDEVELOPMENTS . .......................................... 1 A . Country andPolitical Context............................................................................................ i B. Economic Contextand Outlook.......................................................................................... 2 C. Poverty ProjYe.................................................................................................................... 5 I1 STRUCTURALAND SECTORALDEVELOPMENTAND CHALLENGES . ..............7 A. CAR'SMain Strengthsand Weaknesses............................................................................. 7 B. Governance,Corruption andPublic Sector Management................................................. 7 C. Private Sector Development............................................................................................... 9 D. Trade andRegional Economic Integration ........................................................................ 9 E. SustainableDevelopment................................................................................................. I O F. HumanDevelopment........................................................................................................ 12 I11 CAR'S DEVELOPMENTPRIORITIES . .......................................................................... 13 IV DEVELOPMENTEFFECTIVENESS . ............................................................................. 14 A. Overview of Donor Support.............................................................................................. 14 B. Aid Coordination.............................................................................................................. 15 V. LESSONSLEARNEDFROMTHE JOINT INTERIM STRATEGY .......................... 16 VI AFDB AND WORLD BANKGROUPJOINT COUNTRYPARTNERSHIP . STRATEGY ................................................................................................................................. 18 A. CPSStrategic ObjectiveandPrinciples........................................................................... 18 B. Resources and Financing ................................................................................................. 19 C. CPSStrategicFramework................................................................................................ 22 D. CPSProgram and ExpectedOutcomes............................................................................ 23 E. Cross-cuttingIssues.......................................................................................................... 28 F. CPSDialogue with CARAuthorities andParticipatoly Approach.................................. 29 G. Joint CPSMonitoring....................................................................................................... 29 H . Risk Management andMitigation..................................................................................... 30 I. Scaling-Up and Exit Strategy........................................................................................... 31 Table 3: Summary of WBG Non-Lending Support to CAR during CPS Period..............20 Table 2: ProposedWBG Financingfrom IDA 15 and 16 andTrust andVertical Funds .19 Table 1:ExternalDebt Service. 2008-2010 ........................................................................ 5 Table 4: ADB Indicative Program(2009-2012) ................................................................ 21 This document has a restricted distribution and may be used by recipients only in the performance of their official duties.Its contents may not be otherwise disclosed without World Bank authorization. Figure 1:Government Revenue. 2004-2012 ................................................................................... 4 Figure 2: Donor Re-engagement inCAR since 2002 .................................................................... Figure3: CPS Axes and ExpectedResults.................................................................................... 15 23 Box 1: Impact ofthe international financial crisis on CAR ............................................................ Box 2: PRSP 2008-2010 Objectives, Pillars, and Expected Results ............................................. 3 Box 3: : JISN FY2007-2008 Outcomes......................................................................................... 13 16 Box 4: Baseline Macroeconomic Assumptions ............................................................................ 43 Annex 1:Results Matrix for CAR CPS (FY09-FY12) .................................................................. 33 Annex 2 Central African Republic: Debt Sustainability Analysis Usingthe Low-Income . Country Framework ....................................................................................................................... 41 Annex 3: Summary of Current Donor Engagement ...................................................................... 46 Annex 4: Analytical Work by the AfDB andthe World Bank for 2009-2012 .............................. 47 Annex 5 (a): Main Economic Indicators for 2004-2012 ................................................................ 48 Annex 5 (b): Central Government's Operations for 2004-2012 (inCFA billion) 49 Annex 5 (c): Central Government's Operations for 2004-2012 (inpercentageo f GDP) 50 Annex 5 (d): Balance ofPaymentsfor 2004-2012 (inCFA billion) 51 Annex 6:Central African Republicat aglance ............................................................................. 52 Annex 7: IBRD/IDA Program Summary ...................................................................................... 55 Annex 8: CAR IFC and MIGA Program, FY2005-2009 .............................................................. Annex 9: IFC-Committedand DisbursedOutstanding InvestmentPortfolio............................ 56 Annex 10: Central African Republic: Country FinancingParameters.......................................... 57 58 MAP IBRD33384 ii CURRENCYEQUIVALENTS ExchangeRateEffectiveDecember 1,2008 Currency Unit = Franc CEA US$1 = 509FCFA U A 1 = lSDR UA 1 = US$1.495071 UA 1 = 736.928FCFA 1FCFA = US$0.002 FISCAL YEAR World Bank Group: July 1 - June30 African DevelopmentBank:January 1 - December31 ABBREVIATIONSAND ACRONYMS ACC Anti-CorruptionCommittee ADF African DevelopmentFund(Fonds afiicain de dheloppement) AEPA Drinking Water Supply and Sanitation AFLEG African ForestLaw and Governance AfDB African DevelopmentBank APRD Popular Army for the Restorationofthe Republicandof Democracy AWF African Water Facility BEAC Bank of CentralAfrican States BONUCA UNPeacekeepingOffice inCAR CAP CommonApproach Paper CAR CentralAfrican Republic CASA Conflict-AffectedStates inAfrica CBFF CongoBasinForestFund CEMAC Monetary andEconomicCommunity of CentralAfrica (Communaute'Economique et Mone'taire des Etats d'Afiique Centrale) CFA African FinancialCommunity (Communaute'FinanciBreAfiicaine) CFAA Country FinancialAccountability Assessment COMIAF ForestryCommissionof CentralAfrica CPC Permanent Framework for Dialoguebetweenthe Government andthe Privatesector CPS Country PartnershipStrategy CRN Country Re-EngagementNote DSDSR RuralSectorDevelopment Strategy Paper DSA DebtSustainability Analysis DTIS Diagnostic Trade IntegrationStudy ECCAS EconomicCommunity of CentralAfrican States (Communaute'Economique des Etats d'Afiique Centrale, CEEAC) EFAETI Educationfor AlVFast TrackInitiative EITI ExtractiveIndustriesTransparency Initiative EMGRG EconomicManagementandGovernanceReformGrant ENERCA NationalElectricUtility ERSP EconomicReformSupportProgram EU EuropeanUnion FDPC DemocraticFrontofthe CentralAfrican People(Front de'mocratique dupeuple centrafiicain) FDS Defense and Security Forces FSF FragileStates Facility GBV Gender-BasedViolence GESCO Budget DirectorateAutomated ExpenditureRecording System GICA Groupement Interprofessionnelde Centrafrique GSM Global System for Mobile Communications (GroupeSpe'cial Mobile) HDI HumanDevelopmentIndex ... 111 HIPC Highly IndebtedPoor CountriesInitiative IFC International FinanceCorporation IGE GeneralState Inspectorate IGF GeneralFinanceInspectorate IPD Inclusive PoliticalDialogue JCPS Joint Country PartnershipStrategy JISN Joint Interim Strategy Note JSDF Japanese SocialDevelopmentFund LIC Low-Income Country LICUS Low Income CountriesUnder Stress initiative MDG MillenniumDevelopmentGoals MDRI Multi-lateralDebtReliefInitiative MDRTSP Multi-CountryDemobilization andReintegrationTransitional SupportProgram MEPCI Ministry ofthe Economy, PlanningandInternational Cooperation MIGA Multi-LateralGuaranteeAgency MFB MinistryofFinanceandthe Budget MLCJ Movement of CentralAfrican Liberatorsfor Justice MOU Memorandum ofUnderstanding MTEF Medium-Term ExpenditureFramework NEPAD New Partnershipfor Africa's Development ocss Social Security Authority OHADA Organizationfor Harmonization ofBusiness Law inAfrica ODA Official DevelopmentAssistance OECD Organization for Economic Co-operationand Development PACEBCO Congo Basin EcosystemConservation PARCPE SupportProgramfor the Rehabilitation of Economic Planning Capacities PARD Popular Army for the Restorationof Democracy PARE SupportProgramfor Economic Reforms PBC UnitedNations PeaceBuildingCommission PBA Performance-BasedAllocation PCDAGV Community Project for the Developmentand Support of Vulnerable Groups PEFA Public ExpenditureandFinancial Accountability Assessment PFM Public Financial Management PPAC Comprehensiveand ExtendedMulti-Annual Vaccination Program PPIAF Public Private PartnershipAdvisory Facility PRGF Poverty ReductionandGrowthFacility PRODEBALT Lake Chad BasinRegional DevelopmentProject PRSP Poverty ReductionStrategyPaper REED ReducingEmissionsfrom Deforestationand ForestDegradation REER RealEffective ExchangeRate RIAS RegionalIntegration Strategy SDR SpecialDrawing Rights SIP Small InvestmentProgram(MIGA) S M E Small and MediumEnterprises SPF State andPeace-buildingFund TDRP Transitional Demobilization and ReintegrationProgramfor the Great Lakes TSA Treasury Single Account U A UnitofAccount UFDR Unionof DemocraticForcesfor Unity UNAIDS Joint UnitedNations Programon HIV/AIDS UNDP United Nations Development Program UNPC National Unionof Central Afiican Employers (UnionNationale du Patronat Centraf icain) USAID UnitedStates Agency for InternationalDevelopment WB World Bank WBG World Bank Group WEF World EconomicForum iv WORLD BANK AFRICANDEVELOPMENT BANK Vice President: ObiageliK.Ezekwesili Vice President: AloysiusUcheOrdu Country Director: MaryA. Barton-Dock Country Director: MohamedJ. Gharbi Country Manager JelenaPantelic LeadEconomist: AbdellatifBernoussi I Task TeamLeader: KatrinaSharkey Task TeamLeader: MamadouDiagne Task Team Members: LucRazafimandimby VictoriaGyllerup JelenaPantelic Nellie Sew KwanKan MilaineRossanaly INTERNATIONAL FINANCE MULTILATERAL INVESTMENT CORPORATION GUARANTEEAGENCY Vice President: ThierryTanoh Vice President: IzumiKobayashi Country Director: Yolande Duhem ChiefEconomist& Resident Director, Economics & Representativeand PolicyGroup: Frank Lysy Task TeamLeader: JustinKouakou Sr. RiskManagement Strategy Unit: Frank Douamba Officer: ThomasVis V Acknowledgements The Central African Republic Country Partnership Strategy benefitted from the valuable contributions and inputsofthe following colleagues: From the World Bank Group: Brigitte Bocoum, Yann Burtin, Serena Cavicchi, Moez Cherif, Deborah Davis, Janet Dooley, Sharon Felzer, Victoria Gyllerup, Bernard Harbome, Margo Hoftijzer, Mary Kathryn Hollifield, Barbry Keller, Larisa Leshchenko, Evelyne Madozein, Jean- Francois Marteau, Enrique Pantoja, Luc Razafimandimby, Milaine Rossanaly, Christopher Saunders, Nellie Sew Kwan Kan, DavidTchuinou, Meike Van Ginneken, Barbara Weber, Michel Welmond, and all members of the WBG Central African Republic Country Team. From the African Development Bank: Mouldi Ayachi, Malinne Blomberg, Ali Eyeghe, Athanase Gahungu, Patrice Horugavye, Toussaint Houeninvo, Margaret Kilo,. Ahmed Ismail Mahdi, Samuel Mba, Jean-Marie Meng Lihinag, Monia Moumni, Jean-Baptiste Nguema-0110, Boukary Savadogo, Samba-Bocary Tounkary, Amadou Ibrahima Traore, Ali Yahiaoui, and all the membersof the AfDB Central African Republic Country Team. vi EXECUTIVE SUMMARY i. TheCentralAfricanRepublic(CAR)isoneofthepoorestcountriesinSub-Saharan Africa. Following presidential and legislative elections in 2005, CAR's political situation has improved. Political reconciliation launched in early 2008, including a ceasefire agreement with the main rebel group and a peace accord betweenthe Government and the opposition parties have been concluded successfully. This led to the Inclusive Political Dialogue (IPD), which includes formation of a Government of National Unity; revised status of political parties, and the separation of powers. The IPD, which also aims to ensure transparent and fair national elections in 2010, and implementation of decentralization, shows early promise, but its implementation remains unfinished. Overall, national reconciliation is progressing, while the security situation remains fragile. ii. Sustained progress will be needed to bring about lasting peace and economic recovery. CAR'S challenges are magnified by the impacts of the global economic crisis on the country's growth and on tax and export revenues. CAR has nevertheless shown its commitment to sustaining a good macroeconomic program, governance reform, and service delivery improvements. The Government reached the HIPC Decision Point in 2007 and is on track to reach HIPC Completion in mid-2009. Hence, the country's prospects are good for achieving development results and improving the quality of life o f CAR's citizens, but continued reform and support from the international community is necessaryto ensure stability. iii. CAR'sPovertyReductionStrategyPaper(PRSP), coveringtheperiod2008-2010, was validated by development partners at the Brussels Round Table in October 2007. The PRSP continues to constitute the reference document for programming external support. It consists of four strategic pillars: Pillar 1: Restore security, reinforce peace efforts and prevent conflict; Pillar 2: Promote good governance and the rule of law; Pillar 3: Rebuildand diversify the economy; and Pillar 4: Develop human resources. iv. The Country Re-EngagementNote of mid-2004 marked the re-establishment of the World Bank Group's relationshipwith CAR, following a period o f suspension due to CAR's extended instability and accumulation of unsustainable arrears. The CRN remained ineffect until it was superseded by a Joint African Development BanWWorld Bank Interim Strategy Note (JISN) for FY2007-2008. The JISN sought to harmonize support from CAR'S key development partners, and to demonstrate their shared resolve to (a) address the country's aggravated arrears problem; (b) facilitate access to the Highly Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI); (c) support Government efforts to provide basic services; and (d) reinforceGovernment action to stabilize the social and political environment. vii v. Many of the activities launched under the JISN are still in progress. The total committed World Bank portfolio of US$76 million and AfDB portfolio of UA 41.8 million (US$62.6 million) providetargeted support to economic governance, capacity development, and basic service delivery. Despite huge capacity constraints and an unfinished peace-building process,the efforts undertakenjointly by the two banks are beginningto producetangibleresults. Going forward, the concessional funding limitations under IDA and ADF respectively highlight the need for innovative approaches and instruments including trust funds, vertical funds, and other resources promoting regional integration. Total current and potential financing from the WBG for the CPS periodis estimatedat US$181million. vi. This Country Partnership Strategy (CPS), prepared jointly by the World Bank Group (WBG) and the African Development Bank (AfDB), lays out the strategy and planned lendingand non-lendingsupport from the two institutions to CAR for the FY09-12period(July 2008-June 2012). For the first time, the CPS integrates the InternationalFinance Corporation (IFC) and the MultilateralInvestmentGuaranteeAgency (MIGA) into the partnership. The CPS builds on results achieved under the JISN, and sustains and deepens support provided through current programs. The CPS provides support to PRSP Pillars 2 (governance) and 3 (diversification), with limited WBG support to PRSP Pillar 4 (human development). Analytical andadvisory work bythe two institutionswill target priority sectors andtopics where information gaps hamper sound policy making and appropriate donor responses. The CPS sends a clear message that, following its protracted absence, the international community is ready to sustain supportto CAR'Seffortsto achievesustainable developmentresults. vii. The CPS is selective based upon CAR'Spriority needs, the comparative advantages of both banks, and harmonizatiodcoordination with other donors. Coordination is particularly critical with the UnitedNationsDevelopment Program(UNDP) and other partners with specific mandates in the areas of peace and security. The CPS also optimizes thejoint responsethrough increased`WBGpresenceonthe ground. viii. By the end of the CPS period, the followingoutcomesare expected: PRSPPillars2 and 3, with WBG andAfDB support: 0 Improvedpublic finance management, revenuemobilizationand governance; 0 Improvedtransparencyandaccountabilityinnaturalresource management; Improvedinvestmentclimate andopportunities for privatesector-ledgrowth; 0 Strengthenedeconomic infrastructure; 0 Improvedaccess to basic urbanand local community infrastructure;and Increasedagriculturalproductivityandcommercialization. Pillar 4, with limitedWBG support: 0 Improvedaccess to andqualityof educationandhealthservices. ix. CPS implementationis susceptibleto five broad risks: 0 TheJirst is a risk of sporadic violence inthe northand center of the country. Inaddition, CAR'S landlocked position in an unstable sub-region makes the country susceptible to destabilizinginfluences fromthe cross-bordermovementof armedrebelgroups. viii A second risk stems from CAR'Sexposure to shocks and its vulnerability to negative impacts on its current account, reserves, revenue, and growth. The global economic crisis, combinedwith other external shocks and security issues, has had a negative impact on these variables. Third is a risk associatedwith popular expectations of the Inclusive Political Dialogue (IPD) launched in 2008, which promises a return to peace, stability and a better quality of life. CAR'S state institutions, including the police and judiciary, remain fragile and underdeveloped.Widespread unemployment, and the perceptionthat the early peace has not yet yieldedtangible benefits, posesariskto stability. Afourth risk is that the legacy of corruptionand abuse of power may continue to thwart effectivepolicy implementationandGovernment's abilityto regainthe population's trust. Fifth is the risk of Government's weak capacityto implementreforms. x. In recognition of these risks, the CPS provides support and incentives for CAR to persist with reform efforts. Italso provides for close monitoringof the macroeconomicsituation by both banks in collaboration with the InternationalMonetary Fund. In addition, the CPS provides for projects targeting community development and service delivery improvements, to help mitigaterisks of instability. The IFC and MIGA will explore employment creation through expansionof privatesector developmentopportunities. Projectswill be designedusing emerging good practice from the World Bank's Governanceand Anti-Corruption(GAC) Initiativein order to offset corruption risks, monitor achievement of results, and strengthen local implementation capacity. Should the macro-economic situationchange in the course of CPS implementation, the WBG would also re-consider the balance between investment lending and development policy lending. ix Transitionto Peace andStability in CAR A Viewfrom Kaga-Bandoro' Kaga-Bandoro,population 68,000, stretches along the busy road 200 miles north of Bangui. It is beginning its rebirth as a vibrant prefecture. Waves of violent conjlict had devastated Kaga- Bandoro since civil war broke out in 2002. When humanitarian organizations arrived there in 2007, more than 22 percent of the population had been suffering from long periods of displacementand insecurity.As the localfield coordinator of the International Rescue Committee (IRC) described the situation, "More than 28,000 people, who had beenforced to live `hunting and hiding' in the bushesfor about twoyears, were slowly starting to resettle along the road. Today, Kaga-Bandoro has drinking water holes, primary and vocational schools, a community center, pharmacies, a Gender-Based Violence (GBv) Group, and a functioning hospital providing pediatric care to thousands of children. More than a dozen international NGOs are now shifting their support from emergency to durable solutions. Their work continues to be dificult due to thepopulation 's persistent lack of trust in the authorities. As security begins to return to CAR'Svillages, development interventions are helping to rebuild trust andfoster community development.In Kaga-Bandoro today, children talk about theirfuture and womenarefinding ways to increase their household income. Organizationssuch as the GBV Center are ensuring that victims of sexual violence have access to psychological support and training to help them generate income. Primary school enrollment is increasing and community teachersare beingrecruited. Marie, a refugee from the Democratic Republic of Congo, explains how the skills acquired at the GBV Center helped her regain confidence in herselfand start a small business. Evelyne, a victim of domestic violence, describes the change in family dynamics when she transferred her newly acquired soap-making skills to her husband "He is now producing soap while I cultivate vegetables," says Evelyne. "He is no longer violent with me or the children andIam able to talk to him about things." The ranks of children attending community schools are swelling rapidly, but teacher availability remains limited. The community school at Patcho in Kaga-Bandoro prefecture is bursting with 236pupils served by 3 community teachers. Children's enthusiasm, however, is insuppressible: "Iwantto be apilot, saysSylvain; "Iwantto be adoctor to helpthefamily, says Vincent; I' " and many othersfollow the chorus. Kaga-Bandoro is a telling example of many villages in the northern part of Central African Republic. Afer years of displacement,people are slowly returning to normalcy. Community projects, youth empowerment, and gender-based initiatives supported by international organizations areproducing results. Names of individualshavebeenchangedto protectprivacy. X I.COUNTRYCONTEXTANDRECENTDEVELOPMENTS A. Country andPoliticalContext 1. CAR is a country of some four million people and is endowed with rich forest and mineral resources and geographically located at the cross-roads of Sub-Saharan Africa. Approximately20 percent of the population lives in Bangui,the capitalcity. The country is also at the cross-roads of transition from extended instability to a new phase of peace and nation-buildingand economic recovery, for which sustained support from the international community is required.CAR'Swealth innatural resources belies the fact that CAR remains one of the least developed countries in the world (ranking 178th out of 179 on the 2008 Human Development Index), inpart due to its landlocked position, weak institutions, poor transportation system, unskilled work force, and political and military crises. The country was an aid orphan up to 2006, when a spike in donor support was used to clear CAR'S arrears to the World Bank and the ADB. Overall donor flows have increasedsince 2006, but the volume of external assistance remains largely insufficient to support the country's efforts to maintain stability and attain many of the MillenniumDevelopment Goals (MDGs). 2. CAR'Spoliticaland security situation remains fragile, exacerbated by the insufficient presenceof centralauthorityin some partsof the territory. The country has enduredyears of political instability and episodic low-intensity conflict, all of which have ledto the destruction of much of its infrastructure and social fabric. In March 2003, the country underwent a regime change and the establishment of a transitional government, which successfully held national elections in 2005 resultinginthe free election of the incumbent President and his allies. 3. Centralto the Government's vision is the consolidationof peacethrough dialogueand rebuilding of trust. Peace talks resulted in a peace agreement with the key rebel groups: the Front de`mocratique du peuple centrafricain (FDPC) and the Union des forces dbmocratiques pour le rassemblement (UFDR) in 2007, and the Arme`e populaire pour la restauration de la rbpublique et la de`mocratie (APRD) in mid-2008. The peace process led to the holding of an Inclusive Political Dialogue (IPD) in December 2008 which involved the ruling party, all opposition parties, rebel groups, civil society, and major religious groups. The IPD led to agreementsto form a Government of National Unity, revise the status o f political parties and the separation of powers, hold transparent and fair national elections in 2010, and implement decentralization, including municipal and regional elections. The National Unity Government, headed by the incumbent president, was formed in January 2009, but the short-term security situation remains uncertain because of sporadic violence, especially in the north and northeast. Some rebel movements (the Front dbmocratique du peuple centrafiicain (FDPC) and the Mouvement de libbration centrafricaine pour la justice (MLCJ)) accuse the Government of mishandling the disarmament and reintegration process by withholding financial assistance for their former combatants, and threaten to end the peace process. In this context, the UN Peace- Building Commission(PBC) adopted a Strategic Framework 2009-20 11 for CAR inMay 2009 to focus on security sector reform, governance and the rule of law, and support to development hubs. The prospects for lasting political stability will depend on how faithfully the IPD recommendations and the UNPBC's Strategic Framework are implementedand, in particular, on the successfulorganization of presidential andparliamentary elections in2010. 1 B. EconomicContextandOutlook 4. CAR'Seconomy is dominatedby the primary sector,which accounted for 52.2 percent of GDP in 2008, followed by the tertiary sector (30.5 percent) and the secondary sector (12.1 percent). Subsistence agriculture (28.5 percent of GDP) and livestock (12.5 percent of GDP) are the main activities in the primary sector. Forestry, extractive industries (mainly diamonds), and export crops (coffee and cotton) contribute a smaller percentage of GDP, although these sectors are the main sources of export revenue. 5. Since 2004, economic recovery has gained momentum as the country has begun to recover from the long period of instability. Real GDP increased from -4.6 percent in 2003 to 4.2 percent in 2007 during a period which was marked by the implementation of key reforms. Despite decreasing public investment, overall investment has increased, supported by private investment in the mining, forestry and telecommunications and transport sectors. Foreign investment increased and regular payment of public wages supported higher demand and consumption. Poor infrastructure, insecurity in rural areas, lack of adequate extension services, and declining performance of cash crops (coffee and cotton) as a result of declining international prices and insecurity, have ledto relatively low growth inagriculture. 6. Over the course of 2008, CAR'S economy has been affected by the changing internationalenvironmentand a number of shocks (breakdown at the main hydropower plant, with concomitant power outages; the increase in oil and food prices; and appreciation o fthe Euro against the U S dollar). The real GDP growth rate was estimated at 2.2 percent in 2008 against pre- crisis projections of 4.9 percent. The global economic slowdown has negatively impacted CAR'S exports, which declined by more than 20 percent in 2008 compared to 2007 (Box 1). Furthermore, weak external financing has led to a decline of public investment,which contributed to slowing ofthe pace of growth in2008. 7. Economic recoveryis likely to be gradual, with a projected2.4 percent growth rate in 2009 and average growth of 4.0 percent over the CPS period (2009-2012). Such a scenario pre-supposes improved security; regular public wage payments to sustain internal demand and social stability; and greater investment (which is projected to rise from 10.2 percent of GDP in 2008 to 14.2 percent by 2012) in electricity, roads, telecommunications, and other areas critical for growth. This scenario also pre-supposes: (a) decisive domestic reforms, including governance reforms in the mining and forestry sectors; (b) improvements in the business climate, including increases in credit to the private sector; and (c) employment gains in the industrial and service sectors. 8. CAR has had a Poverty Reduction and Growth Facility (PRGF) program over 2007- 2009 with the IMF, which has remained on track. The fourth review of the PRGF was conducted in April 2009 and discussed by the Board of the IMF in June 2009. Sound macroeconomic policy has improved CAR'S performance in meeting the regional economic convergence criteria set by the Central African Economic and Monetary Community (CEMAC). The regional monetary arrangements and monetary policy of the regional central bank, BEAC (Banque des e`tatsde 1'Afrique centrule),have kept average inflation below CEMAC's economic convergence criterion between 2004 and 2007. However, the compound effect of higher food and oil prices in the first semester of 2008 led to temporarily higher inflation in 2008, estimated at 2 9.3 percent. Inflation is projected to fall under the CEMAC criterion over the CPS period. Box 1: Impactof the internationalfinancial crisis on CAR The main impact of transmission of the international financial crisis has been the weakening of world demand and prices of commodities, which led to a decline in economic activity especially in the forestry and mining sector which accountfor approximately 82 percentof exports. Forestry sector: In 2008, timber exports fell by 24.1 percent comparedto 2007 and by 36.8 percent comparedto pre- crisis projections. Six out of 9 timber companies closed their wood processing units, resulting in the layoff of 1335 employees and a decrease o f 28 percent o f the wage bill in this sector, which is one o f the few formal industrial activities of the country. The share of the forestry sector in GDP dropped by 1.9 points between 2007 and 2008. The downward trend of timber demand is expected to continue in 2009, according to the International Tropical Timber Organization(ITTO). Mining sector: Diamondexports in 2008 fell by 25.5 percent comparedto 2007 and by 38 percent compared to pre- crisis projections.Taxes collected from diamond exports dropped by 18 percent between June 2007 and June 2008. Several small scale mining sites have stopped their activities while the large mining companies have started to cut downon their investmentandproductionprograms. Exfernal accounts: Export of goods has declinedby 23 percent in 2008 against pre-crisis projectionsof 17.6 percent increase, and are projected to decline fitrther (-17 percent) in 2009. This situation has resulted in an increase of the current accountdeficit (includingtransfers) from -6.1percentof GDP in 2007 to -9.9 percentin 2008. Public revenues: Compared to pre-crisisprojections, revenues losses amounted to 23.6 percent of exports taxes and 3.7% of fiscal revenues in 2008. Public expenditures should increase to meet the investments and fiscal stimulus measures needed to support economic recovery and mitigate the impact of the crisis on the forestry sector. This will leadto deficit of the domesticprimarybalancein 2009. Economic growth: The global financial crisis has weakened growth to 2.2 percent in 2008 and 2.4 percent in 2009 against4.2 percentin2007 andpre-crisisprojectionsof4.9 percentfor 2008 and 5 percentfor 2009. 9. Fiscal policies have been marked by improved domestic revenue mobilization and efficient fiscal consolidation over the recent past (Figure 1). The domestic primary balance remained positive between 2006 and 2008 due to continued improvement in domestic revenue mobilization, which reached 7.9 percent o f GDP in 2008, the highest level since 2003, despite the global financial crisis. Yet tax revenue remains low, even by Sub-Saharan African standards and any gains have been achieved through fiscal consolidation. Tax revenue i s projected to average 8.7 percent o f GDP over the CPS period. However, in order to maintain a level o f expenditure critical for ensuring recovery - estimated at slightly more than 16.5 percent o f GDP - the domestic primary balance would be negative in 2009-10, therefore reversing recent trends, before turningpositive inthe outer years. The overall fiscal deficit, excluding grants, would significantly increase in2009-10 and remain highcompared to performance prior to 2008. 3 Figure 1: GovernmentRevenue, 2004-2012 (Yoof GDP) 1 Fiscalrevenues W N o n fiscal revenues Grants 45 40 35 30 25 20 2004 2005 2006 2007 2008 2009 2010 2011 2012 10. A substantialincrease in tax revenueswill thereforebe critical for meeting CAR'Skey fiscal obligations, which include: the high share of public wages in the budget. Public salaries and wages represent nearly 50 percent of the recurrent budget, and constraints in the Government's ability to meet these expenses could be a source of social tension and instability.2So far, with support from donors, CAR has succeededinpayingsalaries on a regular basis.The Governmentis also undertakingambitious medium-termreforms aimedat addressingthe burdenofpublic wages on the budgetwhile ensuringthe quality of public service delivery.To this end, the Government has adopted a new organic framework for public administration, and a revised civil service statute including new remuneration and performance evaluation systems. the signijkant amount of domestic arrears and debt to commercial banks. Domestic public debt, including salary and pension arrears, debt to suppliers accumulated mostly during the period of conflict (1998-2003), and debt to commercialbanks, represents 22 percentofthe 2008 GDP. The Governmentadopteda settlement planinNovember 2008, but lacksthe resources to fulfill the settlement arrangements. external debt service. Even after the HIPC CompletionPoint is reachedaround end-June 2009, external debt service obligations(Table 1) will still represent a significant source of outflows. 'Forinstance, a delay inthe payment o f public salaries inDecember2007 led to demonstrationsanda publicsector strike, andeventuallyto a Governmentre-shuffleinJanuary2008. 4 Table 1: ExternalDebt Service, 2008-2010 (in US dollars million) 2009 2010 2011 2012 Multilateral 7.0 1.8 2.1 1.4 Official Bilateral 0.5 4.6 4.6 15.9 Commercial" 0.8 0.4 0.4 2.1 NewDebt*' 0.2 0.2 0.3 0.4 Total 8.5 7.0 7.3 19.9 Note: IncludesbeyondHIPC assistance andMDRIdebt relief. ''Debtservicetoservice these creditors i s subjectto participationinthe HIPC Initiative. Reflectsdebt on the projectedborrowingneededto close the current account gap as well as the repurchase with PRGF resources of SDR 12.53 million previously drawn under the Fund`s EPCA Sources:World BankHIPC Unit, IMF. 11. CAR'S external position reflects the country's vulnerability and dependence on foreign aid (Annex 3). The current account balance is structurally in deficit as a result of significant import constraints, and concentration of exports on primary commodities, which leaves it vulnerable to the terms of trade movement. Following the financial crisis, the current account deficit, including public transfers deteriorated from 6.1 percent of GDP in 2007 to 9.9 percent in2008. It is projected to remain at the same level until2012. The deficit on the services account is also forecast to remain high, as a result of import-related services and high transport costs, and the income account would remain in deficit due to interest payments on the external debt. Projected international reserve fluctuations duringthe CPS period reflect such vulnerability, with an averageof 3 months of imports, down from 3.5 months in2008. 12. Full deliveryof HIPC and MDRIwould allow much faster up-front reduction of debt ratios. A Low Income Country Debt Sustainability Analysis (LIC DSA) performed inMay 2009 (Annex 2) shows that, following attainment of HIPC Completion Point, all debt indicators are projected to remain below the relevant thresholds throughout the projection perioda3These ratios are projected to gradually decline over time, assuming that the main risksare controlled through a prudent fiscal stance, stabilizations measures, and new borrowing on concessional terms. It will remain important for CAR to maintain a stable socio-political environment, in addition to sound policies to support improvement ineconomic performance. C. Poverty Profile 13. CAR still has one of the highest poverty rates in Sub-Saharan Africa, despite its considerable economic potential. Household survey data, collected with the support of the UNDP, indicate that 67.2 percent of the population lived below the poverty line in2003.4 Poverty was higher, at 71.7 percent, inrural areas, which accounted for 62 percent of the population; and inregions that had suffered from armed conflict. It was lowest inthe capital, which hadthe basic social infrastructure and highest economic activity. According to the Participatory Poverty 3The scenario assumes that CAR reachedthe CompletionPoint inJune 2009. 4 This is based on a monetary definition o f poverty, where the national poverty line is equal to CFAF156.079(US$3 12)per year per adult equivalent. 5 Analysis (2007),5 its three main causes are (a) poor governance, with the main complaint being abuse of power by state officials; (b) insecurity and lack o f economic opportunities connected to recent conflicts,6 which have led to the proliferation of urban banditry and extortion at road blocks, even in areas not directly affected by violent conflict; and (c) low incomes. 14. Promotionof sustainable human development is one of the four pillars of the PRSP, but the country lacks the means to adequately implement policies and achieve the goals envisagedin the areas of health and education. Recurrent conflicts have led to a deterioration of all social indicators, making it unlikely that CAR will achieve most o f the Millennium Development Goals (MDGs) by 2015. CAR ranks 178th out of 179 countries on the 2008 Human Development Index (HDI).This ranking clearly illustrates the difficult living conditions of the population and the low access to basic social services. Approximately 86 percent of the populationhas no access to health services, and 41percent of adults are illiterate. Life expectancy at birth is estimated at about 45 years, about ten years lower than the African average; and HIV/AIDS prevalence, which was 6.2 percent in 2006 for persons 15 to 49 years of age, is the highest in the CEMAC zone. Policies to prevent and treat HIV/AIDS, tuberculosis, and malaria are in place, but the mechanismsfor funding and implementation remain inadequate. 15. Human development and poverty in CAR have been negatively affected by political instability. The humanitarian situation in some parts of the country remains difficult, and more than one million persons have been affected by violence.' Thousands were displaced in 2008, adding to the already 295,000 internally displaced persons and 100,000 CAR refugees living in Chad, Sudan, and Cameroon. Most have sought refuge in urban centers or in rural areas in the south, and as a result have been cut off from their sources of livelihood. Food insecurity and chronic malnutrition are continuing problems, especially in the north, due to low agricultural productivity and poor access to health services and clean water. 16. CAR occupiesthe 153'dposition out of 177 countries on the UNGender Development Index. There are substantial disparities between girls and boys inaccess to education and literacy levels. The ratio of boys to girls is 65 percent in primary and secondary schools, and 67 percent for literate youth between 15 and 24 years of age. Access to prenatal and childbirth-related care, and to family planning services, is limited. The proportion of births attended by skilled health personnel is about 44 percent, while the maternal mortality rate is estimated at 1,100 per 100,000 births. Women rarely occupy positions of authority in resource management or political life, at either the local or national level. Women hold about 11 percent of seats inthe national assembly, and out of 32 members of Government, only four are women. In March 1992, CAR ratified the InternationalConvention on the Elimination of All Forms of Discrimination against Women, and in December 2004 the Constitution adopted guarantees of gender equality. It is also a cross- cutting objective ofthe 2008-2010 PRSP. The qualitative Participatory Poverty Analysis (PPA), undertakenin early 2007, aimed to capture public perceptionsofpoverty. Years of conflict have displaced a large proportion of the rural population and destroyed important economic and social infrastructure. 7Data from the UNOffice for the Coordination ofHumanitarian Affairs (OCHA), Consolidated HumanitarianAppeal for CAR, 2008. 6 11. STRUCTURAL AND SECTORAL DEVELOPMENTAND CHALLENGES ,A. CAR'SMain Strengthsand Weaknesses 17. CAR'S considerable economic potential includes: (i)diverse natural resources, with an extended surface of exploitable forest; (ii)favorable conditions for agricultural production; and (iii)extensive mineral potential, including diamonds, gold, uranium, iron and copper. These resources could constitute a solid basis for diversification and wealth creation, if managed in an equitable and transparent way. Since the re-engagement of the AfDB and the World Bank in 2006, the Government has demonstrated its willingness to implement the structural reforms that will contribute to better managementof these resources. 18. The root causes o f slow economic and social progress in CAR include its geographically landlocked location in an unstable sub-region, and its weak institutions with respect to political, economic and social governance. Key challenges, identified in the PRSP 2008-2010, are: (i) insecurity and weak social cohesion; (ii) weakness of the State's administrative capacity and political and economic governance; (iii)production system badly damaged by conflict; a (iv) poor diversification o f the economy; and (v) insufficient supply and low quality of basic socio-economic infrastructure. B. Governance, Corruptionand PublicSector Management 19. Governance indicators. CAR'Sgovernance indicators are lower than the average for Sub-Saharan Africa, as confirmed by: (a) the World Bank and EU-ledPublic Expenditure and Financial Accountability Assessment (PEFA); (b) the World Bank-led Country Financial Accountability Assessment (CFAA), the Treasury Audit report; and (c) UNDP and Transparency International reports on CAR'S anti-corruption progress. Despite these weaknesses, CAR has made tangible progress in terms of public financial management, natural resource management, procurement, the fight against corruption, and administrative reform. 20. Corruption. CAR has strengthened the legal framework for fighting corruption and improved its Transparency Internationalrankingfrom 162 of 180 countries in2007 to 151 of 180 countries in 2008. CAR has also begun to adopt reforms required under UN anti-corruption conventions. An Anti-Corruption Committee (ACC), including representatives from the Government, civil society, and the private sector was created in March 2008, and is finalizing an anti-corruptionstrategy. Incompliance with the Constitution and a Decree issued inMarch2008, Government members and high ranking officials have declared their assets. An Action Plan to address fraud and corruption inmining, forestry, and Treasury has uncovered more than 50 cases of corruption in Treasury and the Tax Directorate. The Government is also engaged in a participatory analysis designed to improve compliance with UNconventions. 21. Procurement. The Government has also introduced a new Procurement Code, and has established a Procurement Directorate and related regulatory bodies in the health, education, agriculture, and infrastructure ministries. It has also adopted standard bidding documents and procedural manuals. An Action Plan has been adopted to improve procurement standards and provide a framework for donor support inthe comingyears. 7 22. Publicfinance management. Tax revenue increases have been achieved through regular audits of large enterprises; the introduction of tax identificationnumbers and an integrated system for use by the customs andtax administrations; and major reductions of subsidies inthe oil sector. The Government is currently adopting measuresto curb tax exemptions. It is also strengthening the customs administration and implementing reforms aimed at identifying adequate transit regimes. 23. The Government has made tangible progress toward restoringthe integrity and credibility inpublic expendituremanagement.A Medium-TermExpenditureFramework(MTEF)for health, education, infrastructure, and agriculture sectors is being prepared for the 2010 budget. Expenditure control, which has been instrumental in maintaining fiscal stability, has been strengthened, including restoration of autonomy to the financial control directorate, and supervision o f cash managementby a Treasury committee headedby the President. Finally, non- donor mandated commercial bank accounts have beenclosed to achieve a treasury single account (TSA). Basic functional processes, the regulatory framework, and organizational structures responsible for data capture have also been strengthened. Accounting and reporting systems have been improved with the production of quarterly budget execution reports for the first time in CAR, using comprehensive budget classifications already used for the 2008 budget and new accounting classifications. An automated expenditure recording system (GESCO) at the level of the Directorate of Budget is being rolled out at the Treasury to integrate the monitoring and reporting of both systems. Lastly, the 2008 Government Accounts and Execution Law will be presentedto the Courts ofAccount and Parliament, respectively, inthe second semester of2009. 24. Natural resource management. A recent mining sector review conducted by the World Bank in collaborationwith the AfDB confirmed the need for reform o f the regulatory framework inaddition to capacity strengthening across the sector. Previous miningregulations and licensing practices were found to be unfavorable to investors and to the country. Institutional bottlenecks also reduced the effectiveness of mining sector operations, leading to smuggling, marginal revenue gains for the Government and non-transparent miningpractices. 25. CAR became an official member of the Extractive Industries Transparency Initiative (EITI) in November 2008, and published its first EITI report in March 2009. A new Forestry Code and a revisedMining Code based on international best practices were adopted in October 2008 and April 2009, respectively. Forestry taxes are now being used for community development schemes under the supervision of an inter-ministerial committee. Permanent and transparent communications have been introduced via newspaper and radio, to inform communities about revenue accruing to them and revenue-sharing mechanisms. Lastly, to ensure access for CAR'Stimber products into the EU, the country is implementingan Africa Forest Law and Governance (AFLEG) Action Plan to strengthen the legal framework for combating illegal logging and trade, as well as wildlife poaching. These initiatives are expected to enhance transparency and attract investment inCAR'Snatural resource sectors. 26. Public administrationreform. CAR'Spublicservice faces a huge deficit of professional and technical competencies,resultingin large part from extended periods of instabilityand human capital flight. Fifty-two percent of civil servants are over 45 years of age, and the recurrent arrears inthe Government wage bill provides little incentive for qualified young Central Africans to take up a public service career. The Social Security Authority (OCSS) has also accumulated a backlog of unpaid pension arrears. Since re-engagement in 2006, development partners have assisted the Government in restoring core functions, especially in economic 8 governance areas, but a comprehensive reform of the civil service, including improvement of terms and conditions of service and rehabilitation of basic infrastructure, remains a priority. C. Private Sector Development 27. Private sector-Zed growth. CAR'S private sector i s small by international standards. There are fewer than 25 large companies - defined locally as those with sales of more than US$2 million. The private sector is represented by two professional associations the Groupement Interprofessionnel de Centrafiique (GICA) for large companies and the Union Nationale du Patronat Centrafiicain (UNPC) for small enterprises. Key issues hampering private sector development include: (a) low capacity of SMEs (management, market access and access to credit); (b) weak business environment; (c) high internal debt of the Government to the private sector; (d) tense business-government relations; and (e) unstable electricity supply, which increases the cost `ofproduction. The business environment has improved marginally since 2006 due to the establishment of a permanent framework for consultation between the Government and the private sector and the introduction of a one-stop window for licensing (Guichet unique) and the reduction from 4 months to 14 days of the time needed to establish a company. However, entrepreneurship in CAR is at an early stage of development, and few new businesses have been established. Further, the few existing foreign businesses have been slow to expand their operations due to unpredictability in the legal and regulatory framework governing the business environment. Pending private sector reforms include a strengthened regulatory framework, and measures to ensure greater transparency inthe business environment. 28, Competitiveness. Inadequate economic infrastructure and scarcity of skilled labor are the main constraints to improved competitiveness. Most businesses are small and informal, and suffer from a chronic shortage of electricity, frequent power outages, high transportation costs, and low production capacity. Conflicts and weak investment in human capital have resulted in a dire shortage of skilled labor. D. Trade and RegionalEconomicIntegration 29. CAR'S progress towards economic integration and access to external markets has been hampered not only by extended periods o f instability but also by weak transport infrastructure linking CAR to neighboring countries. CAR is ranked 172"dout of 175 countries with respect to international trade, and its Freedom to Trade index is 51.4 out of 100 compared to 87.4 for the best performing country in Africa. Nevertheless, through CAR'S membership in CEMAC, the country has demonstrated commitment to economic cooperation and regional integration initiatives. The Government undertook several actions in 2008 to promote trade and regional integration, including the harmonization of CAR'S Trade Code with regional and international instruments. (As a member of CEMAC, CAR applies a most-favored-nation tariff of about 18 percent; and four tariff bands, with the highest being 30 percent, for consumer goods). The Government has also started to upgrade its customs infrastructure to facilitate the implementation of the CEMAC Customs Union. In coordination with its CEMAC neighbors, CAR is negotiating an Economic Partnership Agreement with the EU.In addition, CAR is a signatory to an OHADA (Organization for the Harmonization of Business Law in Africa) treaty which seeks to mainstream a uniform, modernized, legal framework for commercial activities in West and Central African countries which are part of the civil law tradition. Under the terms of the treaty, CAR and 16 West and Central African countries have adopted eight regional laws -- or Uniform 9 Acts - designed to improve company and contract laws, and arbitration. CAR is also receiving technical assistance from IFC's FIAS Investment Climate unit in an ambitious program of legal harmonization designed to improve registration, credit availability, investor protection, contract enforcement and business closing standards. E. SustainableDevelopment 30. Infrastructure. The vast majority of CAR'S population lacks access to even basic infrastructure, and low service levels are exacerbated by poor maintenance of existing infrastructure. The road network is in extreme disrepair, and often impassable during the rainy season. Paved roads hardly exist beyond the Bangui-Douala Corridor (which is not even completely paved). River transport (except for oil products) is marginal, as the Oubangui and Congo Rivers are navigable only four months a year. The net result of poor transport infrastructure is that basic goods are considerably more expensive than in non-landlocked neighboring countries. There is no sewerage network, and the absence of latrines and poor drainage pose critical health risks, including diarrhea and malaria. Urban services such as solid waste collection were discontinued duringthe war and needto be re-established. Information and communications technology needs are enormous. Urban infrastructure requires significant investment in responseto rapid urbanization as the rural population flees lawlessness in outlying areas. This problem is particularly acute in Bangui. The challenges in rural areas are likely to be even more enormous, although data on water supply, sanitation, cooking fuel, electricity, telecommunications, and transportation are scarce and unreliable. 3 1. More than half of CAR'Sterritory is sparsely populated. Spatial dimensions therefore have an important bearing on economic development. Conflict and violence resulting from the insufficient presence of government in many zones have resulted in significant displacement, including rapid and hazardous urbanization, especially to Bangui where economic activity is concentrated. Secondary cities remain relatively small, but have the potential to become growth poles. While such concentrations of economic activity are desirable for economic growth, the accompanying spatial disparities in welfare levels which accompany the concentration are not. A three-year European Commission program is centered on a development poles approach in secondary cities. The strategy, lendingand non-lending support, laid out inthe CPS complements the EU approach by focusing both on Bangui as CAR'S main economic engine, and on poverty reduction of vulnerable groups inrural areas. 32. Energy. Energy infrastructure is particularly dilapidated, and power outages are frequent. Less than one percent of Central Africans is connected to the grid of the national electricity utility, ENERCA. Installed electricity capacity includes: (a) two hydropower plants (Boali 1and Boali 2) with firm capacity of 14.9 megawatts; (b) a hydroelectric and regulation dam (Boali 3) which is not yet equipped with its 10 MW turbines, and operation of which has been pending donor support for many years; (c) a thermal power plant in Bangui equipped with 6 diesel generators, 5 o f which are not operational; (d) two transmission lines connecting Boali 1 and Boali 2 to Bangui; and (e) a distribution network. Theft of anti-pilfering devices, especially for lighting, and outdated lines severely limit transmission capacity. The distribution system is also outdated, with losses estimated at 45 to 5 0 percent of electricity distributed. In 2008, electricity shortages led to an acute crisis, resulting in the breakdown of the Boali 2 hydroelectric station supplying Bangui. In addition to power shortages and high energy losses, ENERCA suffers from 10 low collection rates, resulting in a dismal financial performance. From the regional energy perspective, CAR is a member of the Central Africa Power Pool, and an interconnection protocol has been signed between the Democratic Republic of Congo and CAR. Priority interconnection investments for the sub-region will be evaluated in the context of a regional interconnection master plan which is currently under development. 33. Overall, infrastructure needs far outweigh available funds and implementation 'capacity. The Government will have to meet these daunting challenges through regional collaborative approaches that can lower costs, especially for the transport, energy and telecommunications sectors. Trade-offs will need to be made between service levels and service coverage. Providing basic infrastructure services in a transparent and equitable manner will help to re-establish credibility and trust in the Government. New infrastructure development and rehabilitation o f existinginfrastructure assets will have to be combined with improvements to the institutional, financial, and human capacity required to operate and maintain systems. This will include community management in rural and peri-urban areas as well as more formal arrangements, combined with cost recovery, especially for higher service levels such as household connections. 34. Agriculture, livestock and rural development. CAR enjoys generous water supply and a diversified ecosystem, but only 4.4 percent of arable land is exploited. Some 67.2 percent of Central Africans live below the poverty line, mainly becauseof low agricultural productivity and lack of access to and from insecure areas, especially in the north of the country. Agricultural growth has stagnated below the population growth rate since the 1980s. The PRSP outlines the core needs for revitalizing the agriculture sector: (a) develop the capacity of rural people and organizations; (b) rebuild the capacity of the Ministry o f Rural Development and related sector institutions; (c) intensify and diversify agricultural output; and (d) rehabilitate rural infrastructure. 35. CAR is far from self-sufficient in food, even though food crops (cassava, peanuts, corn, millet and sorghum) occupy 75 percent of cultivated land. The food crisis of mid-2008 depressed food production. More than 80 percent of the rural population is involved in livestock, but production system is dominated by small-scale traditional practices. The Government's Rural Sector Development Strategy Paper (DSDSR) identifies four main challenges for the sector: (a) capacity building of producers and their organizations; (b) intensification and diversification of agriculture production, forestry, fishing and hunting; (c) infrastructure improvements to support production, preservation, storage, processing and marketing; and (d) strengthening of agriculture and forestry institutions. As part of this strategy, the Government also plans to undertake a "Surface Area-Yield Production" survey of major crops. CAR'Sability to implement the strategy is however severely underminedby insufficient finance and low institutional capacity. 36. Environment and climate change. CAR lies across two major climatic zones, the Sahelian to the north and the equatorial to the south, both of which are sufferingthe effects of deteriorating environmental conditions. While the country is endowed with abundant underground and surface water resources (estimated at 141 km3/yrand 56 km3/yrrespectively), both water basins are experiencing: (a) a steady decline in volume from year to year; and (b) deterioration of surface water quality, especially from rivers, creeks, and traditional wells. The Government is trying to address the looming environment and climate issues which threaten to accelerate desertification and a decrease in biodiversity. First, CAR has become a member of the Forestry Commission of 11 Central Africa (COMIAF), and has ratified the international conventions on climate change. Second, a National Environmental Action Plan and the 2008 revised Forestry Code target improved management of forestry and wildlife resources. The Forestry Code aims to improve transparency and competition in the awarding of logging permits, in addition to ensuring outreach to communities affected by the granting of such permits. Under the Code, a share of the forestry royalties and wildlife taxes will be kept in a trust account for forest development, community projects and tourism. F. HumanDevelopment 37. Education. Education outcomes in CAR are currently among the lowest in the sub-region. Resultingfrom extended instability, the education system suffereda loss of teachers, destruction of infrastructure, and low investment. In 1990/91, CAR'S primary school gross enrollment rate was 71 percent (10 percentage points above the average for French-speaking African countries), but by 20046, that rate had increased to only 75 percent (10 percentage points below these countries).' In 2007, one child out of four had never attended school, and only 24 percent of attending children completed the primary level. The conditions of instruction, as measured by students per teacher (111:l), students per classroom (100: 1) and textbooks per student (1:10) are extremely poor by any standard. Public financing for education accounts for only 3.2 percent of GDP, as against an average of 4.7 percent in Africa. In an effort to reverse the declining trend in CAR'S education outcomes, the Government has prepared a National Education Strategy, which provided the basis for successful application to the Education for All-Fast Track Initiative Catalytic Fundwhich approved a grant o fUS$38.0 millionto CAR inDecember 2008. 38. Health. CAR'S human development indicators are well below the Sub-Saharan average, and health service funding and provision are very poor. About 15 percent of children are underweightat birth and 19 percent are severely stunted. Life expectancy is 39 years. Maternal mortality was 1,355 per 100,000 in 2003', compared to 1,100 per 100,000 in2000 lo,and 986 per 100,000 in 199511.Positive developments include a decline in the child mortality rate (0-5 years) to 176 per 1000 children in 200612, from 220 per 1,000 in 200313. In the same period, infant mortality (0-1 years) fell from 132 to 106 per 1,000 infants. Immunizationtrends are improving, with 89.7 percent coverage for tuberculosis, 83.2 percent for polio, 84.2 percent for diphtheria, and 99.7 percent for yellow fever in 2007. Under-funded and short-staffed public health institutions constrain service delivery. Staff concentration in Bangui i s excessive, leaving health posts and hospitals in the rest of the country understaffed. Electricity shortages, and lack of gas and spare parts for generators, hinder hospitaloperations. Healthcenters providingpreventive and basic curative care are run by autonomous community management committees on a cost- recovery basis, which constitutes a barrier to access for much of the population. Inthe absence of the State, faith-based and humanitarian organizations and international NGOs also provide substantial health services to the rural population. The PRSP aims to improve health indicators between 2008 and 2010, by increasing access to health services, and reduce maternal mortality (to * Source-:World Bank,CentralAfricanRepublicEducationCountry StatusReport2008. 9 Source: MEPCI, Recensement Ge'ne'ralde la Population et de ['Habitat. 10Source: United Nations MDG data. 11Source: World Health Organization. Source:MEPCI, ThirdMultiple Indicator Cluster Survey. 13Source:MEPCI, Recensement Ge'ne'ralde la Population et de I'Habitat. 12 1,016/100,000), infant mortality (to 103/1,000), and child mortality (to 147/1,000). Other relevant Government strategies include the National Plan for the Development of Sanitation 2006-2015, the National Strategic Plan to Reduce Malaria, and the Comprehensive and Extended Multi- Annual Vaccination Program 2007-2011(PPAC). 39. HIV/AIDS. CAR is the tenth most HIV-infected country in Sub-Saharan Africa. The Government has definedthe HIV/AIDS epidemic as a national emergency, and infection rates are thought to be on the increase. UNAIDS estimates HIV prevalence in CAR at about 6.3 percent among persons between 15 and 49 years of age, which i s above the 3 to 5 percent rates in neighboring countries. I-IIV/AIDSand related opportunistic infections are a substantial threat to the country's economic and social development. The most active donors in support of HIV/AIDS prevention and treatment are the Global Fund, German cooperation, France, and USAID. Going forward, an expansion of HIV/AIDS counseling and testing will be needed to slow the upward trend in infection rates. Improved blood safety measures are also necessary, as is better care of patients with sexually transmitted diseases and tuberculosis. 111. CAR'S DEVELOPMENTPRIORITIES 40. CAR presented its first full PRSP (2008-2010) to the Boards of the World Bank and the IMF in December 2006. The PRSP (see Box 2 below) was also validated by all of CAR'S development partners during a Roundtable held in Brussels in October 2007. The PRSP is built on four pillars: (1) security, peace and conflict prevention; (2) good governance and the rule of law; (3) economic revitalization and diversification; and (4) human development. Gender promotion and sound environmental managementare cross-cutting issues ofthe PRSP. Box2: PRSP 2008-2010 Objectives,Pillars, and ExpectedResults Vision: The Government's vision, articulated in the Poverty Reduction Strategy, is to build a strong, united, and prosperous nation inconformity with the population's aspirations for peace, security, and good governance. Major long-term objectives: (a) double per capita income by 2015, based on strong, sustainable, balanced, and equitable growth; (b) expand access to basic social services to strengthen human capital; and (c) establish gender equality, especially inprimary and secondary education, by 2015, and eliminate all forms o f exclusion. Pillar I:(a) strengthening o f human and material capacity o f the Defense and Security Forces (FDS); (b) security sector reform; (c) sub-regional security, non-proliferation o f light weapons; and (d) re- establishment o f trust between the population and the security forces. Pillar 11: (a) promotion o f good governance, rule o f law and gender equity. Pillar 111: (a) modernization o f agriculture; (b) development o f natural resources; (c) art and cultural industries; (d) tourism; (e) transport infiastructure; (0 energy sector development; (g) information and communication technologies (ICT); (h) basic public utilities; (i)economic linkages to the sub-region and the global economy; and (j) renewal o f the partnership and coordination framework for foreign aid. Pillar IV: (a) education; (b) health and HIV/AIDS; (c) youth and sports; and (d) employment generation. Resultsexpected: (a) average annual growth of 9.5 percent during the period 2008-2010; and (b) reduction o f poverty to 56.6 percent by 2010. 13 41. The PRSP includes: (a) strong ownership and participatory process; (b) a useful poverty diagnostic, which drew upon all available data sources; (c) presentation of sector priorities and strategies; (d) presentation of targets mapped to the MDGs; and (e) a high level of public involvement. However, the PRSP would benefit from strengthened implementation and monitoring arrangements and stronger linkages between institutional policies and investment decisions. 42. The monitoring framework of the PRSP became active in March 2008; and the Government organized reviews of progress inJune andNovember 2008. The first annual progress report (APR) on PRSP implementation - a trigger for the HIPC Completion Point - was recently finalized. The APR reflected CAR'Sgood progress with PRS implementation in 2008, as well as the Government's efforts to address the most critical bindingconstraints to poverty reduction and growth, in key areas including political reconciliation, infrastructure, the social sectors and governance. However, the 2008 slowdown in economic growth, coupled with an overall PRSP financing gap, suggests that the overall ambitions of the PRSP may need to be revised if the volume of donor assistance does not increase. IV. DEVELOPMENTEFFECTIVENESS A. Overview of Donor Support 43. As a result of an extended period of instability,CAR receivedvirtually no aid between 2000 and 2006. In2006, a small number of donors beganto re-engagewith CAR, unitedby their resolve to: (a) address the country's unsustainable arrears; (b) facilitate access to HIPC and MDRI; (c) support Government efforts to provide basic services; and (d) reinforce Government action to stabilize the social and political environment. Official Development Assistance (ODA) to CAR more than doubled in 2006 compared to 2005 - from US$117 million to US$251 million (see Figure 2). However, the increase was mostly targeted to the settlement of CAR'S arrears to the World Bank andthe AfDB. That aside, donor support to CAR continues to grow. 44. While the total volume of aid for developmenthas increased, financing needs still far outstrip available resources and the number of partners engaged in CAR remains limited (see Annex 3). Certain sectors remain seriously underfunded, including health, education, agriculture and rural development. Over the past few years, there has been a significant increase in the humanitarian response led by the UNagencies and some 35 international NGOs. The UN Consolidated Appeal for 2008, for example, reportedly received some US $115 million for humanitarian efforts, largely but not exclusively focused in the north of the country. A similar figure is beingsought for 2009. In addition, two peace-keeping missions are currently present in CAR (UN-MINURCAT; and CEMAC MICOPAX). MINURCAT, which is based in Chad and northern CAR, costs some US$315 million per annum in assessed contributions from UN member states. Finally, the Bangui-based UN Peace-Building Office, BONUCA, has accessed some US$10 million from the UN Peace-building Fund in support of urgent peace-building activities. At thisjuncture in the transition to peace, the Government hopes that growing stability on the ground will allow for a progressive shift from humanitarian aid towards more aid for development efforts. Going forward, CAR'S ability to maintain stability and attain some of the MDGswill require mobilizationof significantly more external resources. 14 Figure2: Donor Re-engagement inCAR since2002 Humanitarian $2951~1 Development Arrears clearance- 2002 2003 2004 2005 2006 2007 2008 B. Aid Coordination 45. The aid coordination mechanism in CAR is designed to support PRSP implementation, which is the framework for all Government and donor interventions. The mechanism includes: (i)the National Committee chaired by the Prime Minister; (ii)a Government-Donor Committee chaired by the Minister of State for Planning, Economy and International Cooperation; and (iii)Sectoral Committees chaired by the leading ministry for each sector. The Organization for Economic Cooperation and Development's (OECD's) 2008 monitoringreport on implementation of the Paris Declaratio~'~indicatedthat CAR is still far from meeting the Declaration's objectives. Challenges relate to weak implementation of sector strategies; poor traceability of foreign aid disbursements in the budget; persistent difficulties inthe use of country systems; and weak nationalstatistical andmonitoring capacities. 46. Two recent initiativeswill help CAR and its partnersimprovethe prioritizationand sequencing of donor support in the transition to peace. First, the United Nations Peace- Building Support Office's draft Mapping of Resources and Gaps for Peace-building in the Central African Republic (December 2008) presents a useful analysis of ongoing national and international initiatives as a basis for future prioritization and sequencingo f donor support. Work i s now underway to further elaborate this mapping and to expand it beyond peace-building activities to include all areas of donor support. Second, the World Bank, the AfDB and the European Union (EU), launched in 2008 a multi-donor initiative entitled the Common Approach Paper (CAP) to specifically harmonize budget support operations in fragile states from 2010 onwards. The CAP aims to develop a common framework for evaluating the outcome of reforms supported through the budget. A standard Memorandum of Understanding (MoU) between donors and the CAR Government, and a common matrix of policy measures are being l4 2008 Survey on Monitoringthe ParisDeclaration. 15 developed, to focus on: (a) the macroeconomic framework (under supervision of the IMF); (b) structural measures, including governance, supported by the PRSP; and (c) public financial management-relatedmeasures derived from existinganalytical work. V. LESSONSLEARNEDFROMTHE JOINT INTERIMSTRATEGY The Joint World BanWAfrican Development Bank Interim Strategy Note (JISN) for FY2007-2008 sought to: (i) support economic recovery and strengthen public sector governance technical capacity development; and (ii) support human development, particularly for the poor. Despite huge capacity constraints, an unfinished peace-building process, and uneven governance, implementation of the JISN has been satisfactory, and has begun to produce results (see Box 3). The key factors accounting for this performance include the collaborationbetween the AfDB and the World Bank, including a strong commitment of the two institutions to respond jointly to the country's urgent needs. The two banks fulfilled their commitments under the JISN, and respondedto emergency situations with timely budget support. This support includes the AfDB's supplementary financing of UA 3.797 million (US$5.68 million) for the Economic Reform Support Program (ERSP) in December 2007, and UA 6.5 million (US$9.72 million) for the ERSP I1in October 2008. It also includes the World Bank's emergency assistance of US$2 million in March 2008, followed by the Economic Reform and Good Governance Support Program (US$8 million) inMay 2008. Box 3: JISN FY2007-2008 Outcomes J Clearanceofexternal arrearsto multilateralcreditors; J Implementationofstructuralreforms, leadingto attainment ofHIPCDecisionPoint; Control of cash advances for non-salary recurrent expenditures; J AdoptionofanAction Planbasedon institutional assessment ofthe mining sector; andadmission o f CAR as an EITI implementingmember country; J Reintegrationof7,500 ex-combatants; J Strengthening of the capacity of communities and domestic stakeholders to participate in PRSP preparationandmonitoring; J Increaseduse ofvoluntarycounselingandtestingfor HIV/AIDS; J Controlofcashadvancesfor non-salaryrecurrent expenditures; J Implementation of some 80 micro-projectsincommunities; and 4 Initiationofpublicworks inthree Banguidistricts, whichhavecreatedemploymentandproduced concrete infiastructureimprovements. 47. JISN implementationalso yielded important lessons for future engagement in CAR, including the need to (a) strengthen the linkage between strategic objectives and specific outcomes; (b) focus on basic infrastructure and service delivery as priority needs; (c) shift from a short-term emergency approach to one of longer-term economic recovery; and (d) assist the authorities in consolidating peace and security and strengthening the ownership of reforms by CAR stakeholders. 48. AfDB portfolio. The active portfolio of AfDB operations in CAR as of January 2009 comprised four projects totaling UA 41.8 million (US$ 62.6 million), of which 29.0 percent, has beendisbursed. (This rate is 86.35 percent excludingthe Program for the Facilitationof Transport on the Douala-Bangui and Douala-Ndjamena corridors, which is a regional operation). Multi- sector projects comprise UA 12.8 million (US$19.1 million), or 30.57 percent of AfDB's total 16 portfolio in CAR; the public utilities sector, which enjoys the support of the African Water Facility, comprises UA 1.2 million (US$1.9 million) or 3.04 percent; and the transport sector comprises UA 27.8 million (US$41.5 million), or 66.39 percent. The portfolio is young, with an average project age of 1.4 years. Its performance is satisfactory, with an overall score of 2.4 on a scale of 3. 49. World BankGroup portfolio. In2006, the World Bank, the AfDB, the European Union, and Francere-engagedwith CAR, following five years o f the country beingin non-accrual status. The WJ3 portfolio became active inNovember 2006, and since that time, the following projects have been approved: Emergency Urban Infrastructure (US$18.0 million), Emergency Food Response (US$7.0 million), (restructured) Multi-sectoral HIV/AIDs, Health and Education Emergency Support (US$17.0 million), Emergency Energy (US$8.0 million), and Vulnerable Groups Community Development (US$8.0 million) The Bank also supported the CEMAC RegionalTrade and Transport Facilitation Project, with an allocation of US$24.0 millionto CAR, and the CEMAC Regional Financial Institutions project with an allocation of US$5.0' million to CAR. As of June 30, 2008, IFC had no committed portfolio in CAR, but recently posted a Representative in Bangui, whose main duties are to help improve the country's business environment and investment climate, build institutional capacity in regulatory bodies to enable reforms, reassureand support investors through the development of an active portfolio, help local financial intermediaries to develop products for the SME sector, and develop capital markets in Central Africa. This i s a prerequisite for IFC to issue a bond on the regional stock exchange. MIGA's gross exposure from investment guarantees in CAR is US$35.4 million. In the fourth quarter of FY08, MIGA issued its first coverage in the country, providing a guaranteeto French investors for a telecommunications project to develop a Global System for Mobile Communications (GSM)network and provide internet services. 50. Portfolio issues. The joint WB/AfDB country performance review in March 2008 and the AfDB country portfolio review in January 2009 revealed a number of procurement and financial management issues, including weaknesses inproject teams, the impact o f escalating oil prices on project costs, and pervasive institutional capacity constraints. Both banks have intensifiedtheir support to the monitoring activities carried out by project coordination teams, and conducted clinics on procurement and financial management issues. The posting in Bangui of seasoned World Bank expertise in sustainable development and fiduciary issues and the staffing of the recently-opened AfDB regional office (CAR and Cameroon) in Yaounde also marks strong WBG and AfDB commitment to capacity development and to resolving procedural issues (disbursement, non-objection approvals). 17 VI. AFDB AND WORLD BANK GROUPJOINT COUNTRY PARTNERSHIP STRATEGY A. CPS StrategicObjectiveand Principles 5 1. Support Implementation of CAR'S Povertv Reduction Stratew. The Country Partnership Strategy (CPS) of the African Development Bank and the World Bank Group lays out a shared strategy and lending and non-lending programs for CAR over the FY09- 12 period, in direct response to CAR's PovertyReduction Strategy (PRSP) 2008-2010. The CPS reaffirms the commitment of the AfDB and WBG - the InternationalDevelopment Agency (IDA), the International Finance Corporation (IFC), and the Multilateral InvestmentGuarantee Agency (MIGA) - to deliver on the principles of the Paris Declarationon Aid Effectiveness, and to consolidate results achieved under the Joint World BanWAfDB Interim Strategy Note (JISN) of 2007-2008. The strategy acknowledges that CAR has come a long way since the free elections of 2005 set the country on a path to peace, but recognizes that that continued progress, reinforced by adequate donor support, will be neededto sustainpeace and stability. 52. Tarpet Selectivity and Tangible Results. The CPS FYO9-12 represents the joint response of the AfDB and the WBG to support CAR's transition from extended instability to long-term economic recovery. It is tailored to build on the progress achieved with the Government under the JISN, and is designed to complement support from other donors in accordance with respective institutional mandates. Such selectivity is particularly important given the constraints on financing from the two banks (see Section B. below). On this basis, the two institutions have agreed to sustain and deepen their support to areas where they are already active and their efforts are beginning to show results: public finance management, transparency and accountability in natural resource management; strengthened economic infrastructure and private sector-led growth; and human resource development. This translates directly through two Axes intojoint support targeting PRSP Pillars 2 (governance) and 3 (diversification), with WBG support also directed to PRSP Pillar 4 (human development). The two banks are taking a more limitedrole with respectto Pillar 1(restore security, reinforcepeace efforts and prevent conflict), given strong leadership by the UN in this area and the more proscribed role for the banks given their institutionalmandates(see Section E). 53. Maximize Opportunities for Regional Intepration. CAR's small and landlocked economy is unable to expand its production base without access to a larger regional market and enhanced connectivity. As a result, the CPS will prioritize regional projects to accelerate the development o f CAR's economic potential. In so doing, the CPS will leverage relatively small country allocations under IDA and ADF respectively inorder to access more significant financing available from regional funds. 54. ProvideFrameworkfor Continuityof Support under IDA 16 and ADF 12. Since mid- 2008, the WBG and AfDB have frontloaded resources from their country allocations under IDA 15 and ADF 11 respectively to support Government efforts to address CAR's food, fuel and financial crises. As a result, resources for CAR will be constrained in the outer years of IDA 15 and ADF 11. The CPS mid-term review will be used to assess CAR's emerging development priorities and provide a basis for lendingscenarios under IDA 16 and ADF 12. 18 B. Resourcesand Financing Source of fundin I1 II 1 developmentof SmallandMediumEnterprises LICUS(EGEMAS) -EconomicManagement and 2009 $2 LICUSTrustFund I IImprovedAccountability EconomicManagement andGovernance ReformGrant 2o09 DPOI11 FinancialSector CEMAC RegionalInstitutionsSupport - 2009 $5 IDA15 I EITI Implementationsupport I 2009 I $0.3 I Multi-DonorTrust Fund I I Energy- Safe andReliablePublic Electricity I 2009 I $2.5 I State and peace-building FundI Telecom Regionalfiber optic infiastructureproject - (CAR-Cameroon-Chad) 2010 $17 IDA15 I Transport Additionalfunding for RegionalProgram - 2010 $55 IDA15 1 on Trade andTransportFacilitation Community development supportfor vulnerablegroups I 2009 I $8 I IDA15 CommunityRecovery-Northern CAR 2010 $3.5 State andPeace-buildingFund Urban Infrastructure. Additionalfundingfor the Programto rehabilitateurbaninfrastructureandservices 2010 $7 IDA15 Food Response project 2009 $8 GlobalFoodCrisisResponse Agriculture/Rural 2012 $10 IDA16 Education 2009 $38 EFAlFTI Catalytic Fund 15Resourcesfor regionalprojectsunder IDA 15, support fromthe State andPeace-buildingFund, andfundingunder IDA 16are indicative. 19 55. CAR's notional IDA 15 allocation (for FYs 2009 through 2011) is SDR21.9 million equivalent to approximately US$33 million. This includes a FY09 allocation of US$15 million, US$10 million for FYlO and a notional allocation of US$8 million for fiscal year 2011. The actual IDA allocation for CAR may vary annually on the basis of (a) the country's performance as assessedvia the Country Policy and Institutional Assessment indicators and the performance of the Bank's portfolio in CAR; (b) the country's performance relative to the performance of other IDA countries; (c) overall resourcesavailable to IDA duringthe IDA16 replenishment period; (d) changes in the list of active IDA-eligible countries, and (e) lending terms for which CAR qualifies under the IDA15 grant eligibility and allocation framework. CAR has made use of the IDA Fast Track initiative which has enabled front loading of 150% of the FY09 allocation. As a result, $22 million of CAR's IDA15 allocation was committed in FY09. A summary of WBG financing from IDA and other sources is found inTable 2. Table 3: Summary ofWBG Non-LendingSupport to CAR duringCPSPeriod - _ _ - Recent completions Year PRSPTechnical Assistance 2008 MiningSector Assessment 2009 Planned Public Expenditure Review 2010 Diamond Sector Assessment 2010 EITIsupport 2010 Country EnvironmentalAssessment 2010 Power UtilityReform Study (PPIAF) 2010 Communications for Development 2011 PRSP Technical Assistance 2011 Health Sector Assessment 2011 56. HIPC and post-HIPC assistancefrom Paris Club members, in additionto MDRIdebt relief (net of HIPC assistance), are expected to save CAR some U S U O millionperyear over a period of twenty years. As a result, and given the limited IDA allocation to CAR, no development policy operations are anticipated in the World Bank's support to the CPS. However, the macro-economic situation will be monitored closely to assess whether further World Bank budget support becomes necessaryto complement the development policy operation planned by the EU in 2010 and AfDB in 2011. Factors of concern relate in particular to (i) possible further negative impact from the global crisis on Government revenues; (ii)Government's limited flexibility to respond to shocks as evidenced by the projected negative domestic primary balance for 2010-11; and (iii)Government's ability to ensure timely payment of public sector wages, which constitute close to 50 percent of current expenditures. 57. CAR is also expected to benefit from the regional IDA through severalregionalprojects described in section C. below (CPS Outcome 5). Regional projects receive 2/3 of total project cost from the regional allocation, and 1/3 from the country allocation, with the country allocation capped at 20 percent of the total annual country allocation for each project. Given the limits to CAR's annual allocation relative to the size of regional projects, the share of the project funded by CAR'S country allocation is generally limited to 20 percent of the annual country allocation thus leveraging additional regional IDA. The notional allocation for regional projects in CAR under IDA 15 (FY09 through FY11) is approximately US$90.0 million. The amount of regional 20 IDA allocated to each regional project may vary subject to a review o f eligibility and regional externalities duringthe fundingstage. 58. CAR is also eligible for various World Bank-administeredtrust and vertical funds, including the State and Peace-building Fund and the Global Food Crisis Response Fund, among others. CAR is also expected to be eligible for the Multi-Country Reintegration and Transitional Support Program, which is currently being established. When taken together, the total amount o f current and potentialresources available from the WB rises to some US$l91million. Table 4: ADB IndicativeProgram(2009-2012) I ADFpublic sector window- National operations I m i b u i l d i n g I Secondment and Training Program I 2009 I US$2 I FSFTargetedSupport I ~~ ~~ ~~ ~~ Multi-sector Institutional Support Program 2010 UA2.5 ADF-11 PBA EconomicReforms SupportProgram, phase 111(PARE 111) 2011 UA 10 ADF-12 Community Development and Support to Vulnerable Groups FSF Project (PDCAGV) 2009 U A 8 Additional support Drinking Water Supply and SanitationProject (AEPA) II 2009 II U A 7 II ADF-11 PBA II 1 Economic I 1 I Infrastructure for Regional Integration I Regional project for developing Boali system's production ADF -11Regional Budget and interconnection with the DRC (CAR-DRC) 2009-2011 UA23-100 ADF-ll PBA Regional project for fiber optic infrastructure (CAR- ADF-11 Regional budget Cameroon-Chad) 2011-2013 US$35 ADF-ll PBA Ouesso (Congo), Bangui-Ndjamena(Congo, CAR, Chad) road II 2012-2013 1I TBD 1I ADF-12 Regional budget I project ADF- 12PBA Regional supportprogram for the conservationofthe Congo basin ecosvstems(PACEBCO) 2009 U A 32 ADF-11 Regional budget ogram for mobilization and International Trade Financin I Institutional Support Project for the Water and Sanitation I I I Sector 2009 EUR 1.96 African Water Facility 21 *** TBD: To be determined Informationregardingfuture regional operations and ADF-12 are indicative. 59. AfDB support will be channeled primarily through the ADF window. CPS activities planned for 2009-2010will be financed under ADF-11 and those envisaged for 2011-2012will be financed under ADF-12. CAR'S indicative performance-basedallocation (PBA) under ADF-11 i s UA 17.72 million (US$ 26.49 million) for 2008-2010. UA 6.5 million (US$ 9.72 million) was used to finance Phase I1of the Economic Reform Support Program (PARE 11) in October 2008. Thus, UA 11.22 million (US$ 16.77 million) are available for 2009-2010. Fromthat amount, UA 2.5 millionwill finance the Multi-Sector Institutional Support Program in 2010 and UA 7 million will finance the Drinking Water Supply and Sanitation Project (AEPA) in 2009. CAR is also eligible for Additional Resources (UA 11-85 million (US$ 17.72 million) under the Additional Support (of which UA 8 million will be used for the Community Development and Support to Vulnerable Groups Project (PDCAGV) in 2009 and UA 3.85 million for the Rural Infrastructure Rehabilitation Support Project (PARIR) in 2009), and for Targeted Support for about US$ 2 million that will contribute to finance the Secondment and Training Program envisaged for 2009. Inaccordance with ADF-11 financing modalities, CAR'Stotal contributionto regional operations for 2008-2010 has been capped at 10% of its PBA, or UA 1.731 million (US$2.65 million). Therefore, efforts will be made to mobilize resources from regional operations as well as additional resources from bilateral and trust funds managed by the AfDB, including the African Water Facility (AWF), the Congo Basin Forest Fund, and the NEPAD Project Preparation Fund.AfDB resourcesavailable to support CAR are shown inTable 4. C. CPS Strategic Framework 60. The CPS is built around two strategic axes (see Figure 4), which are aligned with PRSP Pillars 2,3 and 4. 0 Axis 1. Consolidation of Economic Governance and Institutional Capacity, in response to PRSP Pillar 2: Governance, Rule of Law and Gender Equity.The objectives of Axis 1 are to deepen and secure economic reforms and strengthen institutional capacity, ensure effective managementof the country's resources,and create an enabling environment for private sector development. Axis 2. Rehabilitationand Development of Socio-economic Infrastructure,in response to PRSP Pillar 3: Economic Diversification, and PRSP Pillar 4: Human Development. The objectives of Axis 2 are to ease the infrastructure bottlenecks hinderingthe rehabilitation and development of key sectors, and to improve basic service delivery and the living conditions of the population. Four cross-cutting issues are also addressed inthe CPS: State and Peace-building, Environment and Climate Change, Capacity Development and Gender Equity. 22 Figure 3: CPS Axes and Expected Results StrongEconomic Growth and Employment Creation Outcome3: Strengthened adm&istrative plunning and CPSUuicome 7: ImprovedAgriculture mnagement capacitJtat centraland and Livestock Productiviry local [evels CPSOutcome 8: ImprovedAccessto Outcome4: Impraved Invesimeni Quality Education and ffealtth Setices Climateand More Business Opportunitiesfor SME *AfDB is not associatedwith CPS Outcome 8 which is supportedbythe World Bank. D. CPS Program andExpectedOutcomes 61. A detailed Results Matrix layingout the CPS's two axes and expected outcomes is found at Annex 1. For Axis 1,outcomes infour areas are expected: CPS Outcome1.ImprovedPublic FinanceManagement andRevenueMobilization 62. The AfDB and WBG will deepen current assistance to public financial management and economic governance reforms laid out in the PRSP. Lending instruments include a series of harmonized development policy operations (DPOs), including the World Bank Economic Management and Governance Reform Grant I1 (EMGRG 11) for US$5 million, approved in March 2009; and AfDB's Economic Reform Support Program (ERSP) for UA 10 million (US$14.9 million), planned for 2011. These operations will: (a) strengthen the Government's capacity to carry out macro-fiscal analysis; (b) improve budget preparation, especially in the health, education, infrastructure, and agriculture sectors; (c) strengthen budget monitoring and reporting (inparticular, the integrated reporting system for the Budget Directorate and Treasury), 23 and production of annual Government Accounts and the Budget Execution Law; (d) build procurement management and audit capacities; (e) deepen ongoing reforms in the tax and customs administrations, and improvemanagement of exemptions; and (f)improvealignment of CAR's Anti-CorruptionLawwith UNconventions. 63, Support provided under the CPS will also reinforce the Government's macroeconomic strategy to raise foreign exchange earnings and improve fiscal stability and public spending efficiency, in line with PRSP objectives. The Government's adoption of appropriate policieswill help to improve the country's credibility and attractiveness to investors, foster competitionand employment generation, and maintain price stability. A World Bank-supported Public Expenditure Review (PER - FY10) will help to improve the efficacy and transparency of public expenditure management, building on the progress achieved since the re-engagement in 2006 with support through three World Bank development policy operations. The PER will also help to sustain the constructive dialogue launched under operations on improvements in tax and customsadministration. CPS Outcome2. Improved TransparencyandAccountability in NaturalResource Management. 64. World Bank support will build upon the findings of the WB-led mining sector review (AAA) carried out withinthe framework of the WBG's budget support operations by supporting the Government's implementationof the new Mining Code approved on April 28, 2009. The Code is designed to create a transparent and attractive regulatory environment for mining companies interested in investingin CAR. The World Bank will prepare a more in-depthreview of the diamond sector to assess the extent to which the Government is effectively capturing these key resource rents for development (FYIO). The CPS will also support CAR's efforts to comply with AFLEG and combat illegal forest exploitation andto facilitate CAR's access to EUmarkets. 65. Since CAR became an EITI candidate country in November 2008, the country has two years to execute its EITI accession work plan, and has committedto working closely with civil society and mining operators. AfDB and World Bank support to EITI ++ implementationwill improve governance and accountability through: (a) Government capacity building in design, implementation, and monitoring of investment projects; (b) stakeholder capacity building in extractive industries budget transparency; and (c) debt and data management. The World Bank will makeavailable US$300,000 from a multi-donortrust fundto support Government's effortsto implement EITI.Opportunitiesto complement top-downaccountabilityprocesseswith bottom-up accountabilitymechanisms; full transparency of resources transferred between the government and the mining industry, and enforcement of CAR's environmental protectionlaws will also be pursued.Other potentialdonors includeAfDB andUNDP. CPS Outcome3: StrengthenedAdministrativePlanning andManagement Capacity at Central andLocalLevels. 66. Developing the capacity of public service institutions is a cross-cutting issue that is addressedin all AfDB andWBG operations in CAR.Additionally,bothinstitutionsare providing technical assistanceto strengthen PRSPimplementationandmonitoring. 24 67. TheAfDB supportsthe development of public service capacitythrough the Programfor the Rehabilitationof Economic PlanningCapacities (PARCPE), which was approved in 2006. The AfDB plansto reinforce its activity inthis area through targeted operations funded by its Fragile States Facility (US$2 million) in 2009, and a Multi-SectorInstitutionalSupport Project for core economic ministries and public finance bodies for UA 2.5 million (US$3.7 million) in 2010. Support will betargetedto staff secondments, economic and sector studies, andtraining CPS Outcome 4: Improved Investment Climate and More Business Opportunitiesfor Local SMEs 68. IFC, the WBG's private sector arm, will support improvement of the business climate and S M E development through its Conflict Affected States in Africa (CASA) program. IFC's operations will: (a) strengthen the institutional capacity of regulatory bodies; (b) reassure investorsthrough the development of an active portfolio; (c) help localfinancialintermediariesto develop products adaptedto SME needs; and (d) develop capital markets inthe sub-region. IFC will also develop leasing products, facilitate publidprivate sector dialogue, and provideventure capital-typefunding and services to SMEs through its Ventures Program, which is expected to provide venture capitalto about 50-100 enterprises, amountingto between US $100,000 and U S $500,000. Local demand for investment financing is expected to grow in response to CAR'S progress toward economic recovery. In the short term, demand by SMEs is expected to stem from: (a) construction and public works, with infrastructure projects funded by development partners; (b) trucking and river transport; (c) logging and wood processing; (d) restaurants and hotels. Investment demand in agribusiness, health and mining could also be envisaged once restructuringmeasuresinthese sectorsare addressed. 69. MIGA's guaranteeto S.A. OrangeParticipationsin2008 is helpingthe companyto develop a GSM network and provide internet services. Given CAR'Stransition from fragile to stable status, companies interested in setting up business in the country are expectedto be interested in political risk insurance, particularly against the risk of war and civil disturbance. MIGA is also ready to provide complementary support to IFC activities in construction, infrastructure (including energy and transport), agro-industry, manufacturing, and services. In addition, MIGA's Small InvestmentProgram (SIP), designed to provide rapidresponseto investments of less than US$lO million, i s suitable for SME investmentsin CAR. 70. The AfDB has recently introduced the Trade Financing Initiative and the Emergency Liquidity Facility, both of which providefinancial support to non-sovereignoperations in ADF- eligiblecountries sufferingfrom liquidity shortfallsdue to the global economic crisis. These new instrumentswill beusedto fund trade andprivateinvestment opportunities in CAR. 71. For Axis 2, outcomes in four areas are expected: CPSOutcome 5. ImprovedInfrastructure for RegionalEconomicIntegration 72. Energy. CPS support will help to reverse the serious deterioration of CAR'Senergy infrastructureand supply, and will improve the financialand managementcapacity of ENERCA, the energy utility. Complementary French Development Agency (e 4 million) and World Bank 25 (US$ 8 million) projects are helpingto partially restore reliable electricity supply from Boali 1 and two hydropower facilities to Bangui customers, including the water utility and hospitals. The two projects are also improving the financial and operating performance of the sector through the introduction of cost-efficient light bulbs, pre-payment meters, and a twinning arrangement with an energy utility in another African country. The CPS will also include a US$2.5 million grant from the World Bank-administered State and Peace-building Fund for emergency rehabilitation of hydropower facilities with emphasis on dam safety; rehabilitation of the distribution network; and technical assistance to improve corporate governance of the power sector. Provision of safer and reliable power service, mainly to Bangui, will make a significant contribution to security and public confidence during the important transition to stability. To support energy sector restructuring, the World Bank plans to use PublicPrivate Infrastructure Advisory Facility (PPIAF) resources to finance an energy sector reform study, while the AfDB will use trust funds to finance an Electricity Sector Master Plan study. 73. CAR's hydropower supply does not exceed 18 MW, which is far below the demand. To increase supply, AfDB will support financing for Boali 3 equipment and for extension of Boali 2 capacity, as part of a regional project that also includes DRC. When priority investments are identified under the Central Africa Power Pool, of which CAR is a member, opportunities for providing support from the WBG's IDA 16 allocation will be explored. 74. Telecommunications. WBG and AfDB plan to jointly finance Phase Io f the Regional Fiber Optic Cable project (CAR, Cameroon and Chad), which aims to install broadband fiber optic infrastructure linkingBanguito Maddougou in Cameroon over the pipeline linkingKribi in Cameroon to Doba inChad, thus offering CAR the opportunity to connect itselfat a lesser cost to the terminal station of the inter-continental submarine cable. The AfDB also plans to use bilateral and trust funds to finance a feasibility study on CAR's national fiber optic network. 75. Transport. CAR Government's infrastructure development strategy comprises three components: (i)reduction of the country's landlocked situation by strengthening linkages to the main regional ports; (ii)diversification of access routes; and (iii)development of transport infrastructure to development hubs. The World Bank plans to provide additional financing for the Central Africa Component of the CEMAC Transport & Transit Facilitation Project, which is an ongoing project financed by the AfDB, World Bank, French Development Agency, and EU; the WBG will mostly fund financing gaps from the three other donors and improve the linkage between the corridor and the nationalnetwork. The AfDB will undertake feasibility studies for (a) the Ouesso (Congo) -Bangui-Ndjamenaroad project; and (b) the Oubangui -Congo - Sangha River Transport project, as a basis for possible future AfDB funding. The support provided by AfDB and the World Bank assumes that the Government, through secure funding of the Road Maintenance Funds, and the other donors such as the EU are funding the bulk o f the national network's maintenance and development in some major cities. This impliesthat the sustainability of the national road maintenance policy and of the national transport investmentplanning will be an integralpart of the donor dialogue with the Government. CPSOutcome6. ImprovedAccess toBasic Urbanand CommunityInfrastructure 76. Urban infrastructure. The World Bank-supported Bangui Emergency Urban Infrastructure Rehabilitation and Maintenance Project (US$l8.0 million) supports Government 26 efforts to: (a) increase access to infrastructure and urban services in the most depriveddistricts of Bangui; and (b) deliver tangible improvements in citizens' lives, which are critical for social and political stability. Additional financing for the WB Urban Infrastructure Project will be prepared for delivery in FY10. To scale-up results in Bangui's urban rehabilitation, the AfDB will seek trust funds to conduct a study for a Bangui Urban Development Master Plan that will be carried out inconjunctionwith a Government-led CAR 2040 prospective study. The ADB has financed, through the African Water Facility (AWF), a feasibility study on Drinking Water Supply and Sanitation (AEPA) for 16 main cities, as a basis for an AfDB project in 2009 covering three larger cities and potential interventions of other partners. The AfDB's AWF also plans to maintain its support to CAR, through an Institutional Support Project for the water and sanitation sector. 77. Community infrastructure. The AfDB and the World Bank are co-financing a Community Project for the Development and Support of Vulnerable Groups (PCDAGV) for UA 8.0 million (US$11.9 million) and US $8.0 million, respectively. Expected outcomes include improved basic local government services, especially for the rehabilitation, capacity buildingand equipping of health and education centers in 9 of the country's 16 regions. The project is consistent with CAR's development hubs strategy and addresses central and southern regions. 78. An ongoing World Bank LICUS Trust Fund Grant for Community-Driven Development and Social Sector Project (US$2.7 million) is helping to build social capital, provide critical services, and regenerate economic activity in selected communities. Some 80 community micro- projects are close to completion, having improvedtangible service outcomes in health, education, managementof agriculturalproduce, and market place rehabilitation. CPSOutcome 7. ImprovedAgriculture andLivestock Productivity 79. The AfDB and World Bank respondedto the 2008 food crisis with projects in CARtotaling UA3.0 million and US$7.0 million, respectively. Going forward, the AfDB will finance a Rural Infrastructure Rehabilitation Project for UA 4.0 million (US$5.9 million). The project will target improvement o f rural roads, village water schemes, commercialization infrastructure, and research. The World Bank will prepare a follow-on rural development operation for US$lO.O million in FY12 designed to boost stabilization efforts; strengthen agricultural supply and food security (through improved planting material and inputs); and develop local technical capacity to improve productivity, post-harvest infrastructure, and marketing. Support from this operation would help to strengthen management capacities of the MinistryofRuralDevelopment andthe Agricultural ResearchInstitute. CPSOutcome 8. ImprovedAccess to Quality Education andHealth Services 80. Education. Finalization o f CAR's National Education Strategy in2007 provided the basis for CAR'S successful applicationto the Education for All-Fast Track Initiative Catalytic Fundfor a grant of US$ 38.0 million, facilitated by the World Bank. The grant will finance the first three- year phase of an ambitious program to meet the MDGs for education. Results are expected to include improved basic institutional capacity in the sector, but more predictable funding flows and systematic capacity building efforts will be needed during subsequent phases to sustain administrative infrastructure, strategic planning, and managerial improvements. 27 81. Health. The ongoing World Bank-financed(restructured) Multi-SectorHIV/AIDS, Health and Education Emergency Support Project (US$ 17.5 million) will continue to help CAR address HIV/AIDS and providebasic healthand primaryeducation services. The projectsupports service deliveryto civil society, and strengthensthe capacity of government to provide prevention, care andtreatment. It also supports improved emergencyhealthresponsesat the communitylevel, and provides HIV/AIDs trainingfor student-teachers.The WorldBankplanscarry out a HealthSector Finance Assessment to address long-standing insufficientbudget allocations to health and poor access to health services, especially for vulnerable groups. The analysis will also focus on building more effective partnerships betweenthe public and private sectors for improved health outcomes and achievement of the MDG. This will serve as the basis for a new WB-financed healthprojectfor deliveryinFY12. E. Cross-cutting Issues 82. State and Peace-building. The UNsystem, ledby its peacekeepingoffice in CAR (known as BONUCA), inpartnershipwith the EuropeanCommissionandkeybilaterals, is takingthe lead in supportingthe high-levelpoliticaldialogue betweenthe Government and oppositiongroups, as well as in security sector work. CAR is now formally also under the aegis of the UN Peace- building Commission, which has played a catalytic role in strengthening support for the peace process. Strategic support to the political process is underpinned by work on governance, electionsand security sector reform.Withintheir respectivemandates,the WorldBank andAfDB are also supporting the fragile transition. While UNDP i s taking the lead in demobilization efforts, the AfDB and World Bank plan to use resources from the new Multi-Country Demobilizationand ReintegrationTransitional Support Program (MDRTSP) to create jobs and support community initiatives in northern areas.16 The MDRTSP will complement UNDP's support to CAR. Further, in support of peace-building and security, a World Bank trust fund for low income countries under stress (LICUS countries) is strengthening capacity and systems for security expenditure management. Outcomes will include improved understanding of security sector finance, civilian governance and oversight. If pending applications are approved, funding from the World Bank-administeredJapanese Social DevelopmentFund(JSDF) and the State and Peace-buildingFund(SPF) will target communityrecoveryinnorthernareas, particularlyinthose with a high density of ex-combatants.Outcomes will include increased communityparticipation in localdevelopmentplanningandprojectimplementation. 83. Environment and climate change. The Congo Basin Forest Fund (CBFF) launched in June 2008; the AfDB-supported Lake Chad Basin Regional Development Project (PRODEBALT) approved in December 2008; and the Regional Program for Congo Basin Ecosystem Conservation (PACEBCO) approved in February 2009, will help the authorities to address critical environmental and climate change challenges. The World Bank is currently preparing a Country Environmental Assessment to be delivered in 2010. From the regional environment perspective, CAR participates in the GEF-supported Regional REDD (Reducing Emissions from Deforestationand Forest Degradation) Project for the Congo Basin.The REDD Project will continue to support CAR'S efforts to develop: (a) appropriate methodology for 16The programinthe Great Lakesarea is the TransitionalDemobilizationandReintegrationProgramfor the GreatLakes(TDRP). 28 reliable measurement of carbon stored in forests and resulting from deforestation and degradation; and(b) nationalcapacity for carbonmeasurement. 84. Capacity development. CAR'Sprofoundinstitutionaland humancapacity deficit will take manyyears to overcome. The CPS's Axes 1and2 will providethe framework for bothWBG and AfDB to develop on-the-jobcapacity in economic governanceand projectmanagement.Through implementation support, the two institutions will continue to help develop capacity across implementationagencies over the longer term, focusing especially on core economic ministries and the line ministries overseeing implementation ofjoint projects. In addition, both banks will work with the Parliament and other stakeholders to improve understanding of PRSP linkages to the national budget and to strengthen their capacity to monitor CPS implementation. They will also seek opportunities to mobilize the CAR Diaspora through possible term placements in Government and semi-state assignments, and through the creation of business promotion networks. Finally, the AfDB and WBG will continue to assess and address capacity challenges during the CPS period, drawing on good practice and lessons from recent World Bank country strategies, includingthose for Mali andRwanda. 85. Gender equity. The AfDB and WBG will make a concerted effort to support CAR'S national gender equity promotionand economic empowerment policy through their operational portfoliosand inconsultations on CPS implementationandmonitoring.AfDB's TargetedSupport will promote women's participationin socioeconomic development through technicalassistance anda secondmentprogramfor women's associations and groups. F. CPSDialoguewith CARAuthoritiesandParticipatory Approach 86. The CPS was prepared and will be monitored using a participatory approach based on the partnership principles of the Paris Declaration on Aid Effectiveness. An upstream mission of the World Bank Group (IDA, IFC and MIGA) and the AfDB took place in CAR in November2008 to discuss the main areas and expected outcomes ofjoint support underthe CPS. A recently completed Client Survey (May 2009) will provide valuable complementary input for CPS monitoring, and for sustaining client engagement in that process. Consistent with the internal processing requirements of the respective banks, downstream consultations were held betweenthe WBG and the Government, civil society organizationsandNGOs, the privatesector, the Parliament, anddevelopment partners in early May 2009. A CPS validationexercisewas held between the AfDB and the authorities in June 2009. Consultations providedan opportunity to engage on the CPS with domestic stakeholders includingParliament, civil society andNGOs, and the mass media. At the conclusion of the consultations, the authorities confirmedthat the CPS addresses the CAR'Smaindevelopment challenges and provides a sound basis for the AfDB and WBGto achievedesiredresults. G. Joint CPS Monitoring 87. The CPS has been designed with a clear focus on achieving and demonstrating tangible results, usingthe Results Matrix shown in Annex 1.CAR'SPRSP forms the basis for trackingprogress on each pillar, withjoint emphasis on Pillars 2 and 3, and specific WBG focus on Pillar 4. Results anticipated from the CPS will stem mainly from current operations and rapidly disbursing interventions, and the results framework is closely linkedto expected results 29 from the current and planned operational portfolio and analytical work. Efforts to link CPS outcomes directly to PRSP goals and monitoring indicators remain hamperedby weak statistical capacity inCAR to provide primary data, and slow implementationof the PRSP's monitoring and evaluation mechanisms. CPS monitoring and evaluation will therefore be carried out mainly in relationto the indicators and milestonescontainedinthe ResultsMatrix. 88. CPS outcomes will be monitored collectively by the joint team and the Government. Increased WBG field presence in CAR will help to strengthen the effectiveness of CPS monitoring and evaluation. Annual Joint Country Program and Portfolio Reviews aligned with the Results Matrix, combined with more frequent mini reviews, will be carried out in close collaboration with other development partners. In 2010, a joint CPS Progress Report will be prepared, and mid-courseadjustments may be made in light of its findings, or shouldnew funding sources become available. A CPS Completion Report will be prepared at the end of the implementation period to assess overall CPS results and to draw relevant lessons for future support. 89. CPS consultations,along with a Client Survey (fieldwork finalized in May 2009), will form a baseline assessment for helping Government to strengthen domestic accountability for PRSP and CPS monitoring.Joint CPS Programand Portfolio Reviewswill provide a further opportunity to encourage stakeholder engagement in CPS monitoring, drawing upon emerging global goodpractice.Finally, based on emerging good practice from the WBG's Governance and Anti-Corruption Initiative (GAC-in-Projects), innovative approaches for initiating stakeholder participation at the project design stage will be used to strengthen the quality of project monitoring and evaluation, and to deepen nationalownership of developmentefforts. Suchefforts could include participatory budgeting, systematic public expenditure tracking by beneficiaries, and independent monitoring by NGOs. H. RiskManagementand Mitigation 90. Security and politicalrisk Despiterecent progress under the Inclusive Political Dialogue, CAR continuesto face the risk of sporadic violence in the north and center of the country. Risks stemming from CAR'S landlocked position in an unstable sub-region also make the country susceptible to the destabilizing influence of cross-border movement of armed rebel groups. In addition, groups of ex-combatantsawaiting reintegrationand rehabilitation opportunities, as well as political groups that have been marginalizedin the existing political context, continue to pose challenges to security. Cognizant of these risks, the CPS aims to support Government's commitment to pursue a realistic but comprehensive development plan which looks beyond national elections in 2010 and envisages providing services across most of the territory. The WBG and AfDB will also work within the framework of support provided through the UN system, which is taking the lead in security matters.Thejoint Multi-country Donor Trust Fundto Support Reintegration(MDRTSP), in addition to the state and peace-buildingtrust funds of both institutions, will help efforts to consolidatepeace and stability. However, sustained supportfrom all donorspresent in CAR will be needed to address this risk. 91. Macroeconomic risk. Given the export-based structure of its economy, CAR is seriously exposed to shocks, and is vulnerable to further negative impacts on its current account, reserves, revenue, and growth, and thereby on its ability to address poverty. The 2008 economic crisis, 30 combined with other external shocks, has had a significant impact on these variables. Appropriatepolicy adjustments and donor inflows will be needed over the medium term to help CAR address its challenging fiscal obligations. I n this regard, the emerging donor harmonization action plan led by the World Bank, the AjDB and the EU can help to reduce recent uncertainties in donor support. Given continued uncertainty with the world economic situation, should CAR'S macroeconomic situation change in the course of CPS implementation, the WBG would also re-consider the balance between investment lending and developmentpolicy lending in the CPS program 92. Expectations risk. The positiveoutcome ofthe InclusivePoliticalDialogueraisedpopular expectationsthat peace and stabilizationwill soon returnto CAR. However, the State institutions -includingthe policeandjudiciary-responsiblefor protectingcitizens' humanrightsremain fragile and underdeveloped. Widespread unemployment, and the perception that the early peace has not yet yielded tangible benefits, poses important risks to stability during the CPS period This risk can bepartially mitigated by IFC's and MIGA's support toprivate sector-led growth andjob creation, and through WBG/AjDB projects designed to develop regional, urban, and community infrastructure - including energy, transport, water, and telecommunications -and improvethepopulation's access to basic services. 93. Corruption risk. Corruption and the abuse of power and privileges continue to thwart effective policy implementation, poverty reduction, and the Government's ability to regain the population's trust. Despite outstanding challenges, the Government has demonstrated commitmenttofight corruption, byfinalizing an anti-corruption strategy, revising mining and forestry codes and legislation, and passing anti-corruption legislation. Further, the Government has shown its commitment to enhancing governance, transparency, and accountability through the adherence to measures designed tofulfill CAR'Srequirementsfor membership in the Extractive Industries TransparencyInitiative. 94. Institutionalcapacity risk. The Government's shortage of capacity to implement reforms posesanother significantrisk. This risk is mitigatedby the support providedby the WBG, AfDB and other development partners, but long-terminvestments in capacity development are urgently needed. This risk will be partially mitigated through CPS activities that build capacity at the project implementation level, and help to strengthen the capacity of specific government agencies in charge of implementing reforms. Implementation support provided by AjDB and WBG will continue to build the capacity of ministries and agencies and project teams. In addition, increased WBGpresence in CAR, including a recently opened IFC office and new staff appointments in sustainable development andfiduciary management, will reinforce the focus of workprograms on implementationand achieving results. I.Scaling-UpandExitStrategy 95. If current trends persist, the World Bank will continue to provide allocations from IDA; the AfDB will operate under ADF; and the IFC and MIGA will scale up engagement and actively explore private sector financing opportunities in CAR. Both the WBG and AfDB will also pursue alternative funding to overcome the severe constraints to their concessional financing windows. Satisfactory implementation of the investment portfolio would providean importantbasis for movingforwardwith the operationsoutlinedinthejoint strategy. 31 96. In the event of unsatisfactoryprogress on reform, the World Bank Group and AfDB would enter into dialogue regarding the basis of future operations. Should poor portfolio performance arise, the institutions would adjust their operations as needed, revising implementation schedules and planned activities, or, in the case of severe obstacles, would partially suspendtheir activities. Lack of progress on reform would also affect the private sector's appetite for investment and thus the ability of the IFC, MIGA and the AfDB to finance and guarantee private sector projects. Despite the significant challenges and risks, the institutions remain committed to helping CAR ensure that the population benefits from development efforts over the long term. 32 U m m $ . . . . m 2 . . . . . . L 0 U m h n =; L 4 1 I 1I E 5B v) U S E .. . II 4 fi U 6 . m a m um m d Y 0 s I- . . . . I . . m . -a 8 00 m . I . c z gH E $ 6m c1 3h . . . . . . . h m 0 d Annex 2. Central African Republic: Debt SustainabilityAnalysis Usingthe Low-Income Country Framework According to the analysis based on thejoint IMF-World Bank debt sustainabilityfiamework for low-income co~ntries,'~Central Afiican Republic (CAR) has a'moderate risk of debt distress.20 Thanks to debt relief under the enhanced HIPC initiative and MDN, CAR's external andpublic debt burden indicators improve sign$cantly through the projection period. The debt sustainability analysis shows, however, that CAR continues to be vulnerable to certain shocks and could breach the thresholdfor the NPV of external debt-to-exports ratio in the most extreme scenario. BACKGROUND 1. This analysis is based on the forward-looking debt sustainability framework for low-income countries (LIC DSA). The LIC DSA uses the reconcileddebt database prepared for the completion point HIPC DSA, and incorporates the impact o f HIPC and MDFU relief in the baseline scenario. The LIC DSA varies from the HIPC DSA because o f three key differences in the methodologies applied: (i)the discount rate inthe LIC DSA is fixed at 5 percent, compared to the currency-specific 6-month averages o f commercial interest reference rates (CIRR) used inthe HIPC DSA; (ii)WE0 exchange rate assumptions are used for calculating the present value o f debt in the LIC DSA, while an actual exchange rate at end-2008 i s used in the HIPC DSA; and (iii) exportsdenominatorintheLICDSAisbasedonthecurrentlevelofexportsofgoodsand the services, rather than the three-year backward-looking average in the HIPC DSA. 2. This LIC DSA incorporatesfour key updates relative to the previous one:21(i)debt relief is based on the actual calculations for the HIPC completion point rather than earlier preliminary estimates; (ii) the baseline scenario assumes lower real GDP growth, larger current account deficit, and worse fiscal balance outcomes in the near term, mainly due to the negative impact o f the current global crisis; (iii)real GDP growth is assumed to be lower by about 0.7 percentage point over the period; and (iv) the historical data for real GDP growth were recently revised by the authorities following technical updates, which affect the level o f nominal GDP in 2009 and thereafter. 3. Total public debt including domestic arrears of CAR is estimated at 79.4 percent of GDP at the end of 2008. External public and publicly guaranteed debt amounts to 56.8 percent o f GDP, o f which multilateral creditors account for more than half and official bilateral creditors for about one-third. Domestic public debt (including budgetary arrears and domestic debt o f public enterprises) amounts to 23 percent o f GDP. It consists o f outstanding credits to the government from domestic commercial banks (10 percent), government debt with the Bank for Central African States (BEAC, 30 percent), budgetary arrears (52 percent), public enterprise debt (4 percent), and nonbanks (5 percent). l9See "Debt Sustainability inLow-Income Countries:Proposalfor an OperationalFramework andPolicy Implications" (http://www.imf.org/externa~np/pdr/sustain/2004/020304.htm)and "Debt Sustainability in Low-Income Countries:Further Considerationson an OperationalFramework andPolicy Implications" (http://www.imf.org/external/np/pdr/sustain/2O04/091004.htm) 2oCAR'Spolicies and institutions, as measuredby the World Bank's Country Policy and Institutional Assessment (CPIA), are classifiedas a "weak performer." 21The previousjoint LIC DSA was publishedinDecember2008 (IMF Country ReportNo.09/43). 41 UNDERLYING ASSUMPTIONS DSA 4. The near-term macroeconomic outlook is influenced by the adverse impact of the internationalfinancial crisis. Despite favorable developments for the import price of oil, the sudden drop of timber and diamonds exports implies lower GDP growth and a worse external current account balance. Along with lower revenue projected for 2009, the additional spending necessary to consolidate the peace process and finance the 2010 elections moves the domestic primary balance into negative territory in 2009; however, the primary balance including grants remains in surplus. 5. Over the medium and longterm, CAR is presumed to achieve a steady-state growth path, supported by political and social stability. A sustained improvement in business confidence and higher investment should underpin these growth projections (Box 4). Growing exports of a diversified range of primary goods, including gold and uranium, are expected to lift real GDP growth to 5.5 percent in the medium term. Stronger exports will help improve the external current account deficit over time to around 4 percent of GDP, with financing primarily provided by private investment, highly concessional project loans, and the regional market for government securities expected to be launched in 2010. In order to preserve debt sustainability, fiscal policy would remain prudent. The authorities' fiscal anchor is the domestic primary balance, which would be in surplus until 2020. The primary balance including grants would be higher than the primary balance needed to stabilize the debt-to-GDP ratio for the projection period; thus, the debt-to-GDPratio could decline by some 10 percentage points to 20 percent of GDP by 2029. 6. The risks to CAR'S macroeconomic outlook, however, remain significant. Potentially, political uncertainty and a worsening social and security situation could hamper donor support and investor confidence. Exogenous shocks, including a prolonged impact of the global economic crisis on exports, could leadto slower growth, lower revenue, and deterioration in debt indicators.Moreover, insufficientinvestmentsininfrastructure, suchas roads, could cause delays in private sector investment projects that are needed to boost the CAR economy and reduce poverty. EXTERNAL DEBTSUSTAINABILITY ANALYSIS 7. Following HIPC and MDFUrelief, all debt indicators are expected to remain below the relevant thresholds throughout the projection period inthe baseline scenario. The net present value (NPV) o fthe debt service-to-export ratio andthe NPV o f the debt service-to-revenue ratio increase temporarily over the mediumterm due to debt service payments on new debts following the standard grace periods, but the ratios would stay well below the thresholds that define an excessive debt burden.All other debt indicators remainwell below the thresholds for the projectionperiod and show stable downward trends. 42 Box 4: BaselineMacroeconomicAssumptions Real GDP growth: Average annual real GDP growth for 2009-29 is projectedat 4.4 percent, which is predicatedon sustainedsecurity andpoliticalstability, an improvement inthe country's institutional andadministrativecapacity, andappropriatemacroeconomicpolicies. This environmentshouldencourage an increase inprivate investment, especially inforestry, mining, andtelecommunications.Public investmentininfrastructurewould help reviveagriculture, which dominates economicactivity.Withthese assumptions, the projectedgrowthrate is significantly higherthanthe historicalaverage, whichwas characterizedby conflictsandcivil strife. Inflation: After unexpectedlyhighinflationin2008, the GDP deflator is projectedto increase by 2% percenton average for 2009-29; this assumesthat inflationwill moderatepromptly from the currentlevel.The projectedinflationrate is inline withthe Central AfricanEconomic and MonetaryCommunity(CEMAC)'s convergence criterion of 3 percent (definedby the CPI). Current account balance: The current account deficit(includinggrants) i s projectedto average 7 percentfor 2009-29. The trade balance is projectedto improveover time, drivenby stronger exportperformanceas a result of structuralreforms andinfrastructure investmentsthat will enhance competitivenessand diversification ofthe exportbase; the deficits inthe servicesbalance would remainlarge.The current account deficits wouldbe financedprimarilyby official developmentassistance (project loans), foreigndirect investment, andregionalcapitalinflows from the future regionalgovernment securitiesmarket.A major gold miningproject is assumedto start in2011. The new forestry andminingcodes shouldpreparethe groundfor sustainedFDI inflowsinthese sectors. Government balance: The domesticprimarysurpluswouldbe insurplusuntil 2019 andthen declineto zero between2020-29. The overallfiscal deficit(includinggrants) is projectedto average about 1.2percentof GDP for 2009-29; withthe primarybalanceconsistentlyhigher than the one neededto stabilizethe debt-to-GDPratio. Domesticrevenueis projectedto rise from 10%percentof GDP in2009 to some 14percentat end-2029, mainly as a result of steady tax and customs administrationimprovementsandtax policyreformto renderthe tax code moregrowth compatible.Expendituresare projectedto rise from about 17percentofGDP in2009 to about 20 percentin2029 with most ofthe increases concentratedininfrastructureinvestments. External assistance: Total grants and loans are assumedto contributeabout 5.4 percentof nominalGDP inthe longrun. Grants are assumedto account for about 80 percentoftotalexternal assistance, with the grant element of new external loans averaging 52 percentfor the period. Domestic borrowing: It is assumedthat in2010, the governmentwill start accessing the securities marketsthat are beingdevelopedinthe CEMAC region.This will allow it to reducefinancing costs, improveliquidity managements, andrepaydomestic arrears. Giventhe continuedprudent fiscal policy stance, domestic debt is expectedto decline during the projectionperiod. Real interest rate on domestic currency debt: The average real interestrate on domestic currency debt (includingbonds from the regionalmarkets)shouldconvergeto about4.7 percentin the longrun. 43 8. The historical scenario appears muchmore favorable thanthe baseline scenario because o f severely compressed imports during CAR's history o f conflict. Thus, the historical scenario i s based on the average noninterest current account deficit o f only 2.2 percent of GDP, compared to the projecteddeficit o f 7 percent o f GDP under the baseline scenario; such scenario would be unlikely given recent trends and detrimental to economic growth and integration o f CAR into the world economy. 9. The boundtests underscore potentialrisks,especially regardinglowerexport growth. The most extreme stress test, which assumes a combination o f shocks but mostly affected by lower export value growth inthe CAR's case, would raise the NPV o fthe debt-to-exports ratio above the threshold for a prolonged period. 22 The debt service-to- exports ratio would also exceed the threshold during2015 -2016 under the low export growth scenario. The deterioration o f debt indicators under these scenarios underline that continuous efforts are necessary to develop CAR's exports, including improving the business climate for foreign investments,reducing transport costs, and improving productivity. PUBLIC DEBT SUSTAINABILITY ANALYSIS 10. HIPC and MDRIdebt reliefwill improvepublic debt indicatorssignificantly since public externaldebt accounts for almost half of public debt stock. With an assumption o f lower program grants thaninthe recent past (0.7 percent o f GDP over the long term), and with well-managed financing, all debt indicators are expected to decline gradually. It i s assumedthat the government would continue its prudent fiscal policy by maintaining a domestic primarybalance surplus inthe medium term andbalance over the long term; mobilizing a higher domestic revenue-to-GDP ratio; and securing relatively low-cost financing such as highly concessional loans. Accessing the regional government securities markets startingin2010 would help eliminate expensive credits from commercial banks over the next several years and clear domestic arrears. Underthese assumptions, the NPV o f the public debt-to-GDP ratio would decline from 28 percent of GDP in2009 to 17 percent o f GDP in2029, while the NPV o f public debt-to-revenue ratio would fall from 174 percent to 90 percent. 11. All debt indicatorswould deteriorate rapidly if real GDP growthwere slower or debt-creatingflowswere to increase.Lower GDP growth represents the most extreme scenario: inthis case, boththe NPV o fthe debt-to-GDP ratio and the NPV o f the debt-to-revenue ratio as well as the debt service-to-revenue ratio would rise overtime. 22The combination of shocks consists of (i) RealGDP growth at historical average minusone-half standard deviation in2010-2011, (ii)Exportvalue growth at historical average minusone-half standard deviation in 2010-2011, (iii) S dollar GDP deflator at historical average minus one-half standard deviation in2010- U 2011, and (iv) Net non-debt creatingflows at historical averageminus one standard deviation in 2010- 2011. 44 DEBTDISTRESS QUALIFICATION AND CONCLUSIONS 12. CAR qualifies as having a "moderate risk of debt distress". All debt indicators improve dramatically following the HIPC completion point and debt relief under the MDRI,butits overall debtposition could still bevulnerable to avariety of shocks. The external debt indicators are particularly sensitive to export growth, indicating that diversifying the export base i s essential for preserving external debt sustainability. The public debt indicators are vulnerable to slower GDP growth and an increase indebt- creating flows, confirming that CAR needs to pursueprudent fiscal policies over the medium-termandto consolidate the basis for growth by fostering domestic security, maintaining political stability, and improving the country's institutional and administrative capacity. 45 $ e, h 5 3 0 P h R m d 3 8 3 3 a" m "E 2 q h 3 e Y a Esbin Be, cn Indicative Domain Approval Amount Sourceof funding (million) Study on food vulnerability 2009 TBD FSFTargetedSupport 1 Study of guidelmesforthe development andurbanizationo fthe I TiD I city of Bangui 2o09 FSF Targeted Support Others sources of funding at the level of theAjDB Study o fthe masterplan for the electrificationo f the country BilateraVtmst funds andinstitutionalsupport to the energy sector 2010 UA 3 To be sought for) I ~ ~~ Cross-cutting issues Assistance strategy for regional integration- CEEAC 2009 Growthdiagnosis -Identificationofmostsevere constraintsto growth 2009 I Portfolioportfolio Country review Country portfolio review 2011 PPIAF -Power UtilityReformStudy 2010 $0.5 World Bank Health HealthSector Assessment 2011 $0.03 Country Environmental Assessment 2010 $0.05 World Bank Africa RegionalIntegrationStrategy (RIAS 11) TBD World Bank * TBD: to be determined 47 Annex 5(a): Main EconomicIndicatorsfor 2004-2012 publicly guaranteed debt Grossofficial reserves (monthsof I6.4 I 6.5 I4.6 1 2.5 I 3.5 I 2.5 I 2.5 I 2.8 I 3.1 import cover) Memorandum items NominalGDP (CFAF bn) 670.7 712.1 772.2 820.6 882.3 943.3 1011.0 1087.0 1168.0 Gross investmentrate(% of GDP) 6.8 9.8 10.1 9.9 10.2 10.9 14.2 14.4 14.5 Private Investment 4.0 4.5 5.2 6.1 7.1 5.7 7.9 8.2 8.2 Source: IMF. 48 Annex 5 (b): Central Government's Operations for 2004-2012 (in CFA billion) I/ The amounts for 2009 includeexpenditurefor financing the peaceprocess(DDR). Excluding grants, interest payments,and capitalexpenditurefmanced with externalresources The amounts for 2006 take into account arrears clearanceby the World Bank andADB (CFAF 47.5 billion) and increase in arrears to bilateral creditors and afew multilateralcreditors (CFAF 6.9 billion) ' Takes into accountthe reschedulingand moratoriumagreement by Paris Club inApril 2007. IncludesHIPCIdebt relief by multilateral creditors and other bilateralcreditors. For 2008-09, debt serviceto commercial creditors and non- Paris Club members are also included As from 2010, all HtPCI and MDRl debt relief are included as inflows The differencein projections for 2009 and 2010 correspondsto the proposed increasedaccess to PRGF 49 Annex 5 (c): CentralGovernment's Operations for 2004-2012 (in percentageof GDP)' 50 Annex 5 (d): Balanceof Paymentsfor 2004-2012 (in CFA billion) debt relief expectedat completionpoint Takes into accountthe reschedulingand moratoriumagreementby the ParisClub inApril 2007. IncludesHIPCIdebt relief by multilateral creditors and other bilateral creditors. For 2008-09, debt serviceto commercialcreditorsand non-ParisClub members are also included. the amounts for 2006 take into accountarrearsclearance by the World Bank and ADB (CFAF 47.5 billion) and arrears to bilateral creditorsand afew ' multilateral creditors(CFAF 6.9 billion). The differencein projections for 2009 and 2010 corresponds to the proposedincrease accessto PRGF. The terms oftrade are calculatedon weightedaveragevalues, basedon linkedyears (with the exceptionof programcolumns). 51 Annex 6: CentralAfricanRepublicat a glance 4/6/09 Central Sub- Key Development Indicators African Saharan Republic Africa income Age distribution, 2007 (2008) Female Population,mid-year (millions) 4 4 800 1,296 75-79 Surfacearea (thousandsq. km) 623 24,242 21,846 Populationgrowth (%) 1 8 2 4 2.1 6064 Urban population(% of total population) 36 36 32 4549 GNI (Atlas method, US$ billions) 1 6 762 749 3034 GNI per capita(Atlasmethod,US$) 360 952 578 1519 GNI per capita(PPP. international$) 740 1,870 1,500 04 GDP growth(%) 2 8 6 2 GDP per capita growth (%) 20 10 0 10 20 0 9 3 7 percent (most recent estimate, 2003-2008) Povertyheadwunt ratioat $1.25a day (PPP, %) 50 Povertyheadwunt ratioat 52.00a day (PPP,%) 72 Under4 mortality rate (per 1,000) Life expectancy at birth (years) 39 50 I Infant mortality(per 1,000live births) 115 94 '85 7 250 1 Child malnutrition(% of childrenunder 5) 27 29 200 Adult literacy,male (Ohof ages 15 and older) 69 72 150 Adult literacy,female (% of ages 15and older) 50 50 Gross primary enrollment, male (% of age group) 67 99 100 100 Grossprimaryenrollment, female (Ohof age group) 44 88 89 50 Access to an improvedwater source (% of population) 75 58 68 0 Access to improved sanitationfacilities(% of population) 27 31 1890 1995 2000 2006 39 II OCBntralAfncan Republic OSubSaharanAfnca I Net Aid Flows 1980 1990 2000 2008 n (US$ millions) Net ODA and officialaid 110 249 75 134 Growth of GDP and GDP per capita (%) Top 3 donors(in 2006): France 69 71 19 27 United States 1 3 1 21 I 1 0 1 EuropeanCommission 11 33 6 14 5 Aid (% of GNI) 138 17.0 8 0 9 1 0 Aid per capita(US$) 47 83 19 31 5 Long-Term Economic Trends -10 95 05 Consumer prices (annual% change) 14 7 -0 2 3 2 9 3 GDP implicitdeflator (annual% change) 183 2 3 3 2 4 6 --O-GDP - GDP percapita Exchangerate (annualaverage, local per US$) 211 3 272 3 712 0 447 8 Terms of trade index (2000= 100) 110 100 85 1980-90 1990-2000 2000-08 (averageannualgrowth %) Population.mid-year(millions) 2 3 3 0 3 9 4 4 2.6 2.5 1.7 GDP (US$ millions) 797 1.488 959 1,970 1.4 2.0 0.6 (% of GDP) Agriculture 40 0 47 6 53 1 53 4 1 6 3 8 1 0 Industry 20 1 197 15 8 14 3 1 4 0 7 1 7 Manufacturing 7 2 11 3 7 0 7 3 5 0 -0 2 1 9 Services 39 9 32 7 31 0 32 3 1 0 -0 3 -1 1 Householdfinal consumption expenditure 93 7 85 7 80 8 94 9 2 0 Generalgov'tfinal consumptionexpenditure 15 1 149 140 3 5 -14 9 Gross capitalformation 7 0 12 3 9 5 10 3 2 5 Exportsof goods and services 25 2 148 198 14 4 0 1 Importsof goods and services 41 1 27 6 24 1 23 1 0 0 Gross savings 1 6 -0 4 8 2 4 2 Note Figuresin italicsare for years other thanthose specified 2008 data are preliminary indicatesdata are not available a Aid data are for 2006 DevelopmentEconomics, Development Data Group(DECDG) 52 Central African Republic Balance of Payments and Trade 2000 2008 I Governance indicators, 2000 and 2007 (US$ millions) Total merchandiseexports (fob) 159 151 Total merchandiseimports(cir) 162 281 Voiu, and accountability Net trade in goods and services -42 -221 Politlca stability Current account balance -12 -171 as a % of GDP -1.3 -0.7 Regulatoryquality Workers' remittances and Rule of law compensationof employees(receipts) Controlof wrrupeon Reserves, includinggold 134 117 0 25 50 75 100 Central Government Finance 02007 Country's percentile rank (0-100) 02000 h!gbrvehrea !m@ybeftsrratingr (% of GDP) Currant revenue(including grants) 13.7 14.0 Sourn: KaufmannXraayMastnrzA,Wotd Bank Tax revenue 7.0 0.0 Current expenditure 9.2 10.7 Technologyand Infrastructure 2000 2007 Overall surplus/deficit -1.0 0.2 Pavedroads(% of total) 2.7 Highestmarginaltax rate (56) Fixedline and mobilephone Individual subscribers(per 100people) 0 3 Corporate High technology exports (% of manufacturedexports) 0.1 0.0 External Debt and Resource Flows Environment (US$ mi/iionsj Total debt outstanding and disbursed 850 1.078 Agriculturalland (% of land area) 0 8 Total debt service 14 91 Forestarea (Iland area) of 38.8 36.5 Debt relief(HIPC. MDRI) 503 Nationallyprotectedareas (% of landarea) .. 16.6 Total debt (% of GDP) 09.4 54.7 Freshwaterresources per capita (cu. meters) .. 33,640 Total debt sewice (% of exports) 7.3 34.0 Freshwaterwithdrawal (W of internalresources) 0.0 Foreigndirect investment (net inflows) 1 24 CO2 emissions per capita (mt) 0.07 0.06 Portfolioequity (net inflows) GDP per unitof energy use (2005 PPP$ per kg of oil equivalent) Composition of total external debt, 2007 Energyuse per capita(kg of oil equivalent) Short-lcrm,87, /IBRD" x (US$ mi,lionsj IBRD Total debt outstandingand disbursed 0 Disbursements 0 Principalrepayments 0 Interestpayments 0 US$millions IDA Total debt outstandingand disbursed 391 Disbursements 13 Private Sector Development 2000 2008 Total debt service 9 Time requiredto start a business (days) 14 IFC (fiscaiyear) Cost to start a business(% of GNI per capita) 232.3 Total disbursedand outstandingportfolio Time requiredto registerproperty(days) --- 75 of which IFC own account Disbursementsfor IFC own account --- Rankedas a majorconstraintto business 2000 2007 Portfoliosales, prepaymentsand (% of managerssurveyedwho agreed) repaymentsfor iFC own account - n.a. n.a. MlGA Grossexposure Stock marketcapitalization(% of GDP) Newguarantees -- Bank capitalto asset ratio (%) Note: Figuresin italicsare for years otherthan those specified. 2008 data are preliminary ..indicatesdata 4/6/09 are not available. -indicates observation is not applicable. DevelopmentEconomics,Development Data Group (DECDG). 53 Millennium Development Goals Central African Republic With selected targets to achieve between 1990 and 2015 (estimate closestto date shown, +/- 2 years) Goal 1: halve the rates for extreme povertyand malnutrltlon 1990 1995 2000 2007 Poverty headcount ratioat $1.25 a day (PPP, % of population) Poverty headcountratioat national povertyline (%of population) Share of income or consumptionto the poorest qunitile (%) 2.0 Prevalence of malnutrition (% of children under 5) 23.2 24.3 Goal 2: ensure that chlldren are able to complete prlmary schoollng Primary school enrollment (net, %) 52 Primary completion rate (% of relevant age group) 29 24 Secondary school enrollment(gross, %) 11 12 Youth literacyrate (% of people ages 15-24) 48 59 Goal 3: ellmlnate gender dlsparlty In education and empower women Ratio of girlsto boys in primaryand secondary education(%) 60 Women employedin the nonagriculturalsector (% of nonagriculturalemployment) 30 Proportion of seats heldby women in national parliament (%) 4 4 7 11 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 168 180 193 193 infant mortality rate (per 1,000live births) 102 107 115 115 Measlesimmunization (proportionof one-yearolds immunized,%) 83 46 36 35 Goal 5: reduce maternal mortallty bythree-fourths Maternal mortality ratio (modeledestimate, per 100,000live births) 1,100 Births attended by skilled healthstaff (% of total) 46 44 Contraceptive prevalence(% of women ages 1549) 15 28 Goal 6: halt and begln to reverse the spread of HlVlAlDS and other major diseases Prevalenceof HIV(% of population ages 15-49) 6.4 6.3 Incidenceof tuberculosis (per 100,000 people) 117 205 280 314 Tuberculosiscases detected under DOTS (%) 61 9 40 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an imDrovedwater source Ph of population) 52 59 70 75 Access to improvedsanitationfacilities (% of population) 23 24 26 27 Forest area (% of total land area) 37.2 36.8 36.5 Nationally protectedareas (% of total landarea) 16.6 C02 emissions (metrictons per capita) 0.1 0.1 0.1 0.I GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) Goal 8: develop a global pamershlp for development Telephone mainlines (Der 100Deopie) 0.2 0.2 0.2 0.3 Mobilephone subscribers (per'lO0 people) 0.0 0.0 0.1 3.0 Internet users (per 100 people) 0.0 0.0 0.1 0.3 Personalcomputers (per 100 people) 0.2 0.3 [I Education lndlcators (%) Measles Immunization (%of I-year olds) ICT lndlcston (per 100 people) loo 1 - 4 1 , , , , , , , , 0 2000 2002 2004 2006 -o- 1990 1995 2000 20M 2000 2002 2004 2008 Primary net enrollment ratio (..) -0-Ratioofgirbtobopinprimaryasecondary OFued +mobile aubadbem Mlntemet usem education Ll oCsntralAfrican Republlc oSubSaharan Africa Note: Figures in italicsare for years otherthan those specified...indicatesdata are not available 4/6/09 DevelopmentEconomics, DevelopmentDataGroup (DECDG). 54 Annex 7: IBRD/IDA Program Summary As Of Date 04/3/2009 ProposedIBRD/IDA Base-Case LendingPrograma Strategic Implementationi Fiscal Proj ID UWMl Rewards b Risks year (H/ML) (H/ML) 2009 Community Development FY09 8.0 H L Emergency EnergyProject 8.0 H M Budget Support 5.0 H M CEMAC RegionalInstitutions 1.o Result 22.0 2010 IDA allocationto RegionalProjects 5.0 UrbanInfrastructureAdditionalFinance 7.0 Result 12.0 Overall Result 34.0 55 Annex 8: CAR IFC and MIGA Program,FY2005-2009 2005 2006 2007 2008 2009* Commitments (US$ml Gross 6.81 0 Net** 0 Net Commitments bv Sector 0 Financial Markets 100 0 Net Commitments bv Investment Instrument (9'0) Equity 100 0 *As of February 28,2009 ** IFC's Own Account only MIGA OutstandingExposure(Gross Exposure,$ milllion) As o f end of fiscal year FY2003 FY2004FY2005 FY2006 FY2007 FY2008 FY2009 as of 2/28/2009 GuaranteedInvestments into Central African Republic 0.0 0.0 0.0 0.0 0.0 39.0 30.7 GuaranteedInvestments Financedby CentralAfiican Inve: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 56 Annex 9: IFC Committedand DisbursedOutstandingInvestmentPortfolio - IFC - Committedand DisbursedOutstandingInvestmentPortfolio CAR As of February28,2009 (In USD Millions) Committed DisbursedOutstanding **Quasi Partici **Quasi Partici FY ADDrOVal ComDany - Loan Eauitv Eauitv *GT/RM pant Loan Eauitv Eauitv *GT/RM Dant IFC has no committedprogram 57 Annex 10: CentralAfrican Republic:CountryFinancingParameters Date: November 13,2006 The country financing parameters for the Central African Republic (CAR) set out below have beenapprovedby the RegionalVice President, Africa Region, and are beingposted on the Bank's internal website. These parameterswill be updatedduringpreparation of the next Country Assistance Strategy. Item Parameter RemarkIExplanation Cost sharing. 100% At this time, all projectsare expectedto be fmanced at Limit onthe proportionof loo%, given government's extremely smallbudgetand individualproject coststhat IDA inabilityto providecounterpartfunding. Inthe near may finance term, only whencofinancingis available will the Bank's cost share be less. OwnershipofBank-financed programsis beingensuredthrough a close relationship betweenthe Bank andthe Government'stop leadership. At the project level, ownershipis being ensuredthroughmeans such as close supervisionand capacity-buildingof governmentinstitutions, and placingprojectmanagementresponsibilitiesdirectly in the concernedministries. Recurrentcostfinancing. NOcountry- No country-levellimit is beingset on recurrentcost Any limitsthat would applyto the levellimit financing. Recurrentcosts maybe financed as needed overall amount ofrecurrent inindividualprojects,subjectto projector program- expendituresthat the Bankmay level assessment. IndeterminingBank financing of finance. recurrentcosts in individualprojects,the Bank will take into account sustainability issues at the sector and projectlevels, includinga considerationof implied hture budgetaryoutlays. Local costfinancing. Yes The requirementsfor localcost financingare met. The Are the requirementsfor IDA Bankmay finance localcosts inany proportions financingof localexpenditures requiredby individualprojects. met, namelythat: (i) financing requirementsfor the country's developmentprogramwould exceedthe public sector's own resources (e.g., from taxation and other revenues) andexpected domesticborrowing; and(ii) the financingof foreignexpenditures alonewould not enable IDAto adequatelyassist inthe financing of individualprojects? Taxes and duties. No Taxes andduties are consideredreasonable. The Are there any taxes anddutiesthat application ofthis generalapproachwill be subject to the Bankwouldnot finance? an ongoingmonitoringoftax policy andhow taxes are appliedto Bank-financedprojects. At the project level,the Bankwill consider whether taxes andduties constitutean excessivelyhighshare ofproject costs. 58 16°E 18°E 20°E 22°E 24°E This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. To Nyala C H A D To Birao Am Timan CENTRAL 10°N 10°N BahrOulou AFRICAN VA K A G A REPUBLIC B ahr Ao u k To Ouanda Kafia Kingi Djallé Djallé To Sarh B A M I N G U I - B A N G O R A N g o s d s Bon Maïkouma Maïkouma Bangoran e Ndélé Ndélé C hâin e 8°N To Pata Ouadda Kaouadja 8°N To Doba Baïbokoum SUDAN Markounda Gribingui Bamingui H A U T E - K O T T O untainsBocaranga Paoua Batangafo O U H A M - O U H A M G R I B I N G U I Kaga Yangalia Kotto MoMt. P E N D É Bandoro Ngaoui H A U T- To Ouham Bouca O U A K A Bria Yalinga Melganga Karre (1,420 m) Bozoum Bossangoa M B O M O U Dékoa Dékoa Ouaka Ippy KÉMO- KÉMO- Djéma Djéma 6°N Bouar GRIBINGUI 6°N M B O M O U To Baoro Bambari O uarra Bétaré Oya N A N A - Sibut Grimari Bakouma M A MMBamÉbéRréÉ Bossembélé Bossembélé Mpoko Lobaye Mbari Chinko Obo To O M B E L L A - Mingala Zémio Zémio Naandi Rafaï Rafaï Mbomou Carnot M P O K O B A S S E Damara Ubangi Kouango K O T T O Bangassou H A U T E S A N G H A BANGUI To CENTRAL AFRICAN Mobaye Berberati Monga To Mbaéré Boda Ouango Bimbo Batouri Gamboula L O B AY E 4°N REPUBLIC To Mbaïki Mbaïki Libenge To Kadeï Mongoumba Yokadouma Nola Tomori S A N H A DEM. REP. SELECTED CITIES AND TOWNS Salo OF CONGO 0 40 80 120 160 200 Kilometers PREFECTURE CAPITALS CAMEROON aSngha NATIONAL CAPITAL 0 40 80 120 Miles RIVERS CONGO MAIN ROADS SEPTEMBER IBRD 2°N RAILROADS PRFECTURE BOUNDARIES 33384 2004 Congo 16°E 18°E 20°E 22°E INTERNATIONAL BOUNDARIES