Central African Republic
Macroeconomic performance and outlook
The Central African Republic’s economy is improving, despite a difficult security and humanitarian environment. Real GDP growth increased from 3.8% in 2018 to 4.5% in 2019, spurred by the steady recovery of agricultural and mining activities. However, inflation rose to 3.5% in 2019 (up from 1.6% in 2018) due to food supply prob- lems and the security situation in some farming areas.
The fiscal balance was in surplus in 2019 (2.4% of GDP compared with 0.4% in 2018), thanks to better control of public expenditure and a gradual increase in revenue as a result of the implementation of fiscal measures. Following the IMF reform program, which was implemented in a satisfactory manner, another three-year program (2020–22) is being negotiated to strengthen and consolidate the country’s macroeco- nomic framework.
Despite an external position in structural deficit, the current account deficit fell from 8.3% of GDP in 2018 to 5.2% in 2019, due to the resumption of domestic production and improvement of current transfers. The country shows an elevated risk of overindebtedness, but the public debt ratio dropped from 48.5% of GDP in 2018 to 42.2% in 2019, reflecting the government’s prudent borrowing policy.
About 58% of job seekers are between 20 and 29 years old. Social inequalities are very high, especially in rural areas affected by conflict. Women represent 53.7% of the labor force, their illiteracy rate is higher than men’s, and 80% of women ages 15–49 have not had access to education.
Tailwinds and headwinds
The economic prospects are promising. Real GDP growth is predicted to reach 4.8% in 2020 due to an
improved security situation that should come in the wake of the peace and reconciliation agreement signed by the government and the rebel groups on 6 February 2019 in Bangui.
The increased capacity of Boali’s hydroelectric pro- duction and the plans to build the Boali 2 hydroelectric plant should increase the country’s electric capacity to 10MW and improve the water supply.
To reinvigorate agricultural and livestock farming, a project is under way to develop value chains and increase production in manioc, corn, rice, and livestock.
To improve its integration in Central Africa and its subregional exports, the Central African Republic rat- ified the African Continental Free Trade Agreement. Implementing various structural projects as part of the national development plan should help meet the coun- try’s many development challenges. The Bangui airport modernization project should encourage trade.
The Central African Republic, a transition country with a very long period of institutional and political insta- bility, now faces an infrastructure deficit, youth unem- ployment, high social inequalities, and weak human capacities. The Human Development Index ranked it 188 of 189 countries (52 in Africa) in 2018.
Impeding the country’s desire and ability to address these challenges are a lack of funding, sociopolitical instability, and administrative weaknesses. The imple- mentation of the peace agreement is lagging, and secu- rity tensions and the political polarization may under- mine the sociopolitical environment in 2020–21.
The ability to attract private investments continues to depend on a steady supply of electricity, greater eco- nomic and political stability, improved access to long- term financing for the private sector, and a healthier business environment.
Health sector preparedness
The CAR’s health system has limited preparedness and response capacity to deal with the pandemic. The 2019 Global Health Security Index ranked the CAR 159 among 195 countries globally and 37 among 54 in Africa, with a score of 27.3 of 100. The dysfunction of the health system is expressed in terms of limited governance, lack of drug supply, insufficient and obsolete equipment and infrastruc- ture, and a lack of qualified personnel. Only one hospital with limited capacity (12 beds equipped by WHO and a dozen doctors and nurses) is available to receive COVID– 19 patients.
Measures to limit the spread of COVID–19 and mitigate the impact on economic activities include closing the air- port to air traffic, except for cargo and humanitarian flights, strengthening hygiene systems, restricting movements between Bangui and the provinces, and closing schools and universities. In addition, the authorities have adopted fiscal and budgetary measures to support businesses through a support fund to prevent business failures and job losses. To cope with the spread of the COVID–19 pandemic and mitigate its adverse effects on the already fragile econ- omy, the government’s response plan, provisionally esti- mated at more than CFAF 150 billion, includes budgetary support, portfolio restructuring and loans, a moratorium on debt servicing, and additional aid managed by the WHO.
The French Development Agency, the African Develop- ment Bank, the World Bank, and the European Union plan to grant budget support to CAR in 2020. In addition, the IMF is planning two concessional loans under the Rapid Credit Facility and a moratorium on debt servicing under the Disaster Relief and Response Trust Fund. The CEMAC subregional monetary authorities have adopted a series of monetary easing measures, including the downward revi- sion of the key rate from 3.50% to 3.25% and the marginal lending facility rate from 6% to 5%.
The public debt / GDP ratio was 51.5% (69.2% external debt and 30.8% domestic debt). In 2018 49.3% (72.6% external debt and 27.4% domestic debt). The fall in domestic debt can be explained by the clearance of debt arrears. External debt is much higher than domestic debt. According to the 2018 debt management report, this is mainly explained by the public debt policy, based on the mobilization of external loans highly concessional at long maturities.
To optimize the impact of public debt on the economy of the country, the Central African Republic intends to diversify the sources of financing of the Public Treasury by strengthening the presence of the State on the domestic market of public securities while ultimately reimbursing the Assimilable Treasury Bills outstanding.
The Central African Republic has not defined a limited number of benchmarks. The governement issues on 13, 26 and 52 week maturities for short-term securities, but also on long-term maturities 2 years, 3 years and 5 years.
Yield curve calculation models
The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve.
The Brandt interpolation method is used in the CEMAC region.
Yield curve managed by
The yield curves established by the BEAC are updated and published every month. They are communicated to national public treasuries and other market players through the national directorates of the Central Bank and published on the BEAC website (www.beac.int). In addition, the data used to develop these curves are also published on the BEAC website at the same time as the curve.
Challenges in building an efficient yield curve
- Illiquid and limited secondary market: buy-and-hold investors
- Narrow investor base: only banks are involved in the bond market
- Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.
Guide to Buying Bonds
Procedures for market participation
The BEAC organizes the auction on behalf of the states. The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.
At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.
The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.
Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program.
The six National Treasures issue in turn at regular intervals.
Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year.
Each National Treasury can issue T-Bonds monthly. The auctions are scheduled to take place every Wednesday. However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day.
A shift schedule was developed for planned Wednesday auction sessions:
- Cameroon: 1st Wednesday of the month
- Central Africa - Congo: 2nd Wednesday of the month
- Gabon: 3rd Wednesday of the month
- Equatorial Guinea-Chad: 4th Wednesday of the month
These emissions will occur at regular time intervals and are publicly known.
The total amount of the twelve issuances will be released in the Finance Act each year.
For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year.
This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the emission will not be announced at this time.
However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.
On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.
The settlement of transactions takes place at T+3.
The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.
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Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.
Openness to international investors
Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.
This is no restriction on foreign ownership in the CEMAC zone.
Restrictions on FX and profit repatriation
There are no restrictions on obtaining foreign exchange.
The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.
Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease payments.