Country Report Central African Republic October 1998 Main report

Economy: ESAF programme balances austerity with social programmes

As in a number of other ESAF programmes introduced in Africa over the past two years, the targets and policies set out by the IMF for the CAR government stress both financial austerity and social policy. Like other Franc Zone states, the CAR has committed itself to a drive to bolster revenue and curb spending, keeping the monetary situation under tight control. The medium-term goal is to stabilise inflation at about 2.5%, which should be attainable, given that the tight monetary stance taken by the regional central bank, the Banque des etats de l'Afrique centrale (BEAC), kept the rate of consumer price rises down to almost zero in 1997; in 1998 the rate is forecast at 2.6%. The fiscal deficit is targeted at 6.2% of GDP this year, falling to about 4.6% in 2000; again, this should be manageable, given that last year's deficit was only 6.4%.

However, the new ESAF performance targets will not be met without difficulty. Spending restraint in 1997 effectively amounted to an undeclared policy of non-payment of public-sector salaries. Now, given the IMF programme constraints, the government will only be able to reduce arrears gradually, as the drive to boost revenue begins to produce results and as budget aid trickles in from outside donors. Aid will not be on a vast scale, and the ESAF disbursements themselves are not large, at SDR16.5m ($22m) for the first 12 months, in two instalments.

Moreover, the government may have to find room for above-average cuts in some areas, in order to meet Fund requirements for an increased share of public expenditure to go into social programmes, particularly to boost school enrolment and literacy rates and to improve the supply and quality of healthcare. A planned reduction in the number of security and military personnel will release some resources, but could prove politically risky. Donors may well help with start-up and other capital costs for social services, but the IMF will want to see the current costs of these met from government revenue in the long term. As the Fund itself pointed out in its official announcement of the ESAF: "The successful implementation of the programme ... depends on a critical improvement in fiscal performance to increase public savings, as well as timely and adequate external technical and financial assistance."

© 1998 The Economist lntelligence Unit Ltd. All rights reserved
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