December 2007

AFRICAN DEVELOPMENT BANK GROUP

CENTRAL AFRICAN REPUBLIC DECISION POINT DOCUMENT

UNDER THE ENHANCED HIPC INITIATIVE

i

TABLE OF CONTENTS

Page

List of Acronyms and Abbreviationshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip ii

Executive Summaryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip iv

I Introduction hellip helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 1

II Assessment of CARrsquos eligibility for HIPC Assistancehelliphelliphellip 1

III Debt Stock and HIPC and MDRI Assistance helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 4

IV Debt Sustainability and Sensitivity Analyseshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 6

V Completion Point Triggershelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 7

VI Bank Group Interventions in CARhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 8

VII Debt Relief Delivery Modality 9

VIII Indicative Financing Arrangementshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 10

IX Recommendationshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 10

Tables

Table 1 Nominal and Net Present Value of CARrsquos Debt Stock as at

end-2006 helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 4

Table 2 Creditor Participation in the HIPC Initiative Assistancehelliphellip 5

Table 3 Indicative Financing Arrangementshelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 10

Charts

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank

Group Debt Service Profilehelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 9

Annexes

Annex 1 African Development Bank HIPC Debt Relief Schedule for

Central African Republic

Annex 2 African Development Fund HIPC Debt relief Schedule for

Central African Republic

Annex 3 African Development Bank Structure of HIPC Debt Relief

in Terms of Currency

Annex 4 Central African Republic Discount and exchange Rate

Assumptions as of end-December 2006

Annex 5 African Development Bank Group Central African Republicrsquos

Debt Service Profile

Annex 6 IMFWorld Bank HIPC Decision Point Document for

Central African Republic

ii

LIST OF ACRONYMS AND ABBREVIATIONS

AFD French Development Agency

ADB African Development Bank Group

ADF African Development Fund

APR Annual Progress Report

BADEA Arab Bank for Economic Development in Africa

BDEAC Central African States Development Bank

BEAC Bank of Central African States

BWI Bretton Woods Institutions

CAD Canadian Dollar

CAR Central African Republic

CFA African Economic Community Franc

CHF Swiss Franc

CNY Chinese Yuan

CPAR Country Procurement Assessment Review

CPIA Country Policy and Institutional Assessment

CSP Country Strategy Paper

DKK Danish Krone

DSA Debt Sustainability Analysis

EDFEIB European Development FundEuropean Investment Bank

EU European Union

EUR Euro

FDI Foreign Direct Investment

GBD Pound Sterling

GDP Gross Domestic Product

GNI Gross National Income

HIPCs Heavily Indebted Poor Countries

HIVAIDS Human Immunodeficiency VirusAcquired Immune

Deficiency Syndrome

IBRD International Bank for Reconstruction and Development

IDA International Development Association of the World Bank

IMF International Monetary Fund

IMF-SMP IMF Staff-Monitored Program

I-PRSP Interim Poverty Reduction Strategy Paper

JISN Joint Interim Strategy Note

JPY Japanese Yen

JSA Joint Staff Assessment

LICUS Low Income Countries under Stress

MDGs Millennium Development Goals

MDRI Multilateral Debt Relief Initiative

MampE Monitoring and Evaluation

NGO Non-governmental Organization

NOK Norwegian Krone

NPV Net Present Value

PARCPE Economic Planning and Capacity Rehabilitation Support Project

PAREG Economic Reform and Governance Support Program

PBA Performance-Based Allocation

PCCF Post Conflict Country Facility

PPE Pro-Poor Expenditure

PRGF Poverty Reduction Growth Facility

PRSP Poverty Reduction Strategy Paper

RMC Regional Member Country

SDR Special Drawing Rights

SEK Swedish Krona

iii

SMP Staff Monitored Program

SWAp Sector-Wide Approach

UA Unit of Account

USD United States Dollar

iv

CENTRAL AFRICAN REPUBLIC ndash DECISION POINT DOCUMENT

UNDER THE ENHANCED HIPC INITIATIVE

EXECUTIVE SUMMARY

Background In September 2007 the Central African Republic (CAR) became the

26th

Regional Member Country (RMC) to reach decision point under the enhanced

HIPC Initiative As a result the Boards of Directors of the IMF and the World Bank

approved a HIPC assistance of US$ 583 million in end-2006 NPV terms for the

country

Assessment of Requirements for the Decision Point Central African Republic is

eligible for HIPC assistance at decision point in view of (i) the evidence of

widespread poverty in the country (ii) the un-sustainability of CARrsquos external debt

stock and (iii) the progress being made in the transformation of the country through

the implementation of economic reforms

HIPC Assistance at Decision Point and its Breakdown The total debt relief to

Central African Republic is estimated at US$ 583 million in end-2006 NPV terms

broken down as follows (i) multilateral debt relief US$ 365 million (626 percent)

and (ii) bilateral and commercial debt relief US$ 218 million (374 percent) The debt

relief from the ADB Group is estimated at US$ 8538 million in end-2006 NPV terms

accounting for 234 percent of the multilateral debt relief and 146 percent of the total

debt relief Of the total assistance of US$ 8538 million in end-2006 NPV terms from

the ADB Bank Group US$ 4283 million in end-2006 NPV terms has already been

provided through the Bank Grouprsquos arrears clearance operation leaving a balance of

US$ 4255 million in end-2006 NPV terms equivalent to US$ 5502 million in

nominal terms for HIPC relief

Debt Relief under the MDRI Upon reaching completion point CAR would qualify

for additional debt relief from the three multilateral financial institutions IDA IMF

and the ADF under the Multilateral Debt Relief Initiative (MDRI) The MDRI debt

relief would lead to a total reduction of about US$ 2783 million (in nominal terms) in

debt service to these institutions broken down as follows IDA US$ 181 million

IMF US$ 16 million and the ADF US$ 957 million

Debt Sustainability and its Sensitivit CAR external debt at end-2006 is estimated at

US$ 8559 million in NPV terms equivalent to 470 percent of the NPV of debt-to-

exports ratio After full delivery of HIPC Initiative assistance committed at decision

point CARrsquos external debt will be reduced to US$ 2731 million equivalent to 150

percent of the NPV of debt-to-exports ratio CARrsquos NPV of debt-to-exports ratio is

expected to fall gradually from 150 percent as of end-2006 to 66 percent by 2026 The

ratio of NPV of-debt-revenue is also expected to decline from 185 percent to 579

percent within the period while the ratio of debt-service to exports is expected to

decline from an average of 14 percent to below 10 percent1 Debt relief from MDRI

will further improve the debt ratios

1 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC)

Initiative ndash Decision Point Document September 11 2007

v

The sensitivity analysis of the long-term debt shows that less concessional borrowing

and lower growth in exports will worsen CARrsquos external debt indicators This

underscores the importance of securing external resources on highly concessional

terms avoiding non-concessional borrowing as well as diversifying exports to

maximize the benefits of HIPC debt relief towards debt sustainability It also calls for

continued fiscal prudence and policies to support broad-based economic growth and

export diversification

Delivery Modality and Indicative Financing Arrangement It is proposed that the

Bank Group makes a commitment to provide Central African Republic a debt relief of

US$ 4255 million in end-2006 NPV terms from January 2008 to July 2020 Twenty

(20) percent of the debt relief would be financed from internal resources 40 percent

from the European Commission pledges and 40 percent from the HIPC Trust Fund

The assistance will relieve CAR of up to 80 percent of its debt service obligation to

the Bank Group each year until 2020

Recommendations The Boards of Executive Directors are invited to approve (i)

Central African Republicrsquos qualification for HIPC assistance at decision point under

the enhanced HIPC Initiative and (ii) the proposed total HIPC assistance of US$

8538 million in end-2006 NPV terms of which US$ 4283 million in end-2006 NPV

terms has already been provided to CAR through the Bank Grouprsquos arrears clearance

operation leaving a balance of US$ 4255 million in end-2006 NPV terms equivalent

to US$ 5502 million in nominal terms for HIPC debt relief

1

CENTRAL AFRICAN REPUBLIC

DECISION POINT DOCUMENT UNDER THE ENHANCED HIPC INITIATIVE

I INTRODUCTION

11 In September 2007 the Central African Republic (hereafter CAR) became the 26th

Regional Member Country (RMC) to reach Decision Point under the enhanced Heavily Indebted

Poor Countries (HIPC) Initiative and qualified for debt relief As a result the Boards of

Directors of the IMF and the World Bank approved a debt relief package of US$ 583 million in

end-2006 NPV terms for the country

12 This document submits for consideration by the Boards of Directors Managements

proposal for the Bank Group to provide debt relief to the CAR under the Enhanced HIPC

Initiative in collaboration with other development partners at the decision point It also

highlights the conditions for reaching the completion point that have been agreed upon with IDA

and the IMF

13 The document is organized in nine sections Following this introduction Section II

assesses CARrsquos eligibility for the HIPC assistance Section III presents the breakdown of the

total debt stock and the assistance under the HIPC and Multilateral Debt Relief Initiatives

Section IV provides a summary of the Debt Sustainability Analysis (DSA) and the sensitivity

analysis of the debt burden Section V discusses the completion point triggers while the Bank

Group interventions in CAR are reviewed in Section VI The details of the proposed delivery

modality for the debt relief are presented in Section VIII and the indicative financing

arrangement in Section VIII The recommendations for the Boardsrsquo consideration are provided in

Section IX

II ASSESSMENT OF CARrsquos ELIGIBILITY FOR HIPC INITIATIVE ASSISTANCE

21 CARrsquos eligibility for HIPC Initiative assistance is assessed from the following

viewpoints

(i) Extent of Poverty

(ii) External Debt Stock

(iii) Political and Security Developments

(iv) Impact of Economic Reform Agenda

A Extent of Poverty

22 CAR is one of the poorest countries in the world A 2003 household survey showed that

more than two-thirds of the population lives below the income poverty line of US$ 2 per day

with about one-third in extreme poverty living below US$ 1 per day Health care indicators are

among the worst in the world as a result of dilapidated facilities and shortage of medical

personnel medication and equipments Life expectancy has fallen from 50 years in the 1990s to

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

i

TABLE OF CONTENTS

Page

List of Acronyms and Abbreviationshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip ii

Executive Summaryhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip iv

I Introduction hellip helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 1

II Assessment of CARrsquos eligibility for HIPC Assistancehelliphelliphellip 1

III Debt Stock and HIPC and MDRI Assistance helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 4

IV Debt Sustainability and Sensitivity Analyseshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 6

V Completion Point Triggershelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 7

VI Bank Group Interventions in CARhelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 8

VII Debt Relief Delivery Modality 9

VIII Indicative Financing Arrangementshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 10

IX Recommendationshelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 10

Tables

Table 1 Nominal and Net Present Value of CARrsquos Debt Stock as at

end-2006 helliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 4

Table 2 Creditor Participation in the HIPC Initiative Assistancehelliphellip 5

Table 3 Indicative Financing Arrangementshelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 10

Charts

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank

Group Debt Service Profilehelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphelliphellip 9

Annexes

Annex 1 African Development Bank HIPC Debt Relief Schedule for

Central African Republic

Annex 2 African Development Fund HIPC Debt relief Schedule for

Central African Republic

Annex 3 African Development Bank Structure of HIPC Debt Relief

in Terms of Currency

Annex 4 Central African Republic Discount and exchange Rate

Assumptions as of end-December 2006

Annex 5 African Development Bank Group Central African Republicrsquos

Debt Service Profile

Annex 6 IMFWorld Bank HIPC Decision Point Document for

Central African Republic

ii

LIST OF ACRONYMS AND ABBREVIATIONS

AFD French Development Agency

ADB African Development Bank Group

ADF African Development Fund

APR Annual Progress Report

BADEA Arab Bank for Economic Development in Africa

BDEAC Central African States Development Bank

BEAC Bank of Central African States

BWI Bretton Woods Institutions

CAD Canadian Dollar

CAR Central African Republic

CFA African Economic Community Franc

CHF Swiss Franc

CNY Chinese Yuan

CPAR Country Procurement Assessment Review

CPIA Country Policy and Institutional Assessment

CSP Country Strategy Paper

DKK Danish Krone

DSA Debt Sustainability Analysis

EDFEIB European Development FundEuropean Investment Bank

EU European Union

EUR Euro

FDI Foreign Direct Investment

GBD Pound Sterling

GDP Gross Domestic Product

GNI Gross National Income

HIPCs Heavily Indebted Poor Countries

HIVAIDS Human Immunodeficiency VirusAcquired Immune

Deficiency Syndrome

IBRD International Bank for Reconstruction and Development

IDA International Development Association of the World Bank

IMF International Monetary Fund

IMF-SMP IMF Staff-Monitored Program

I-PRSP Interim Poverty Reduction Strategy Paper

JISN Joint Interim Strategy Note

JPY Japanese Yen

JSA Joint Staff Assessment

LICUS Low Income Countries under Stress

MDGs Millennium Development Goals

MDRI Multilateral Debt Relief Initiative

MampE Monitoring and Evaluation

NGO Non-governmental Organization

NOK Norwegian Krone

NPV Net Present Value

PARCPE Economic Planning and Capacity Rehabilitation Support Project

PAREG Economic Reform and Governance Support Program

PBA Performance-Based Allocation

PCCF Post Conflict Country Facility

PPE Pro-Poor Expenditure

PRGF Poverty Reduction Growth Facility

PRSP Poverty Reduction Strategy Paper

RMC Regional Member Country

SDR Special Drawing Rights

SEK Swedish Krona

iii

SMP Staff Monitored Program

SWAp Sector-Wide Approach

UA Unit of Account

USD United States Dollar

iv

CENTRAL AFRICAN REPUBLIC ndash DECISION POINT DOCUMENT

UNDER THE ENHANCED HIPC INITIATIVE

EXECUTIVE SUMMARY

Background In September 2007 the Central African Republic (CAR) became the

26th

Regional Member Country (RMC) to reach decision point under the enhanced

HIPC Initiative As a result the Boards of Directors of the IMF and the World Bank

approved a HIPC assistance of US$ 583 million in end-2006 NPV terms for the

country

Assessment of Requirements for the Decision Point Central African Republic is

eligible for HIPC assistance at decision point in view of (i) the evidence of

widespread poverty in the country (ii) the un-sustainability of CARrsquos external debt

stock and (iii) the progress being made in the transformation of the country through

the implementation of economic reforms

HIPC Assistance at Decision Point and its Breakdown The total debt relief to

Central African Republic is estimated at US$ 583 million in end-2006 NPV terms

broken down as follows (i) multilateral debt relief US$ 365 million (626 percent)

and (ii) bilateral and commercial debt relief US$ 218 million (374 percent) The debt

relief from the ADB Group is estimated at US$ 8538 million in end-2006 NPV terms

accounting for 234 percent of the multilateral debt relief and 146 percent of the total

debt relief Of the total assistance of US$ 8538 million in end-2006 NPV terms from

the ADB Bank Group US$ 4283 million in end-2006 NPV terms has already been

provided through the Bank Grouprsquos arrears clearance operation leaving a balance of

US$ 4255 million in end-2006 NPV terms equivalent to US$ 5502 million in

nominal terms for HIPC relief

Debt Relief under the MDRI Upon reaching completion point CAR would qualify

for additional debt relief from the three multilateral financial institutions IDA IMF

and the ADF under the Multilateral Debt Relief Initiative (MDRI) The MDRI debt

relief would lead to a total reduction of about US$ 2783 million (in nominal terms) in

debt service to these institutions broken down as follows IDA US$ 181 million

IMF US$ 16 million and the ADF US$ 957 million

Debt Sustainability and its Sensitivit CAR external debt at end-2006 is estimated at

US$ 8559 million in NPV terms equivalent to 470 percent of the NPV of debt-to-

exports ratio After full delivery of HIPC Initiative assistance committed at decision

point CARrsquos external debt will be reduced to US$ 2731 million equivalent to 150

percent of the NPV of debt-to-exports ratio CARrsquos NPV of debt-to-exports ratio is

expected to fall gradually from 150 percent as of end-2006 to 66 percent by 2026 The

ratio of NPV of-debt-revenue is also expected to decline from 185 percent to 579

percent within the period while the ratio of debt-service to exports is expected to

decline from an average of 14 percent to below 10 percent1 Debt relief from MDRI

will further improve the debt ratios

1 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC)

Initiative ndash Decision Point Document September 11 2007

v

The sensitivity analysis of the long-term debt shows that less concessional borrowing

and lower growth in exports will worsen CARrsquos external debt indicators This

underscores the importance of securing external resources on highly concessional

terms avoiding non-concessional borrowing as well as diversifying exports to

maximize the benefits of HIPC debt relief towards debt sustainability It also calls for

continued fiscal prudence and policies to support broad-based economic growth and

export diversification

Delivery Modality and Indicative Financing Arrangement It is proposed that the

Bank Group makes a commitment to provide Central African Republic a debt relief of

US$ 4255 million in end-2006 NPV terms from January 2008 to July 2020 Twenty

(20) percent of the debt relief would be financed from internal resources 40 percent

from the European Commission pledges and 40 percent from the HIPC Trust Fund

The assistance will relieve CAR of up to 80 percent of its debt service obligation to

the Bank Group each year until 2020

Recommendations The Boards of Executive Directors are invited to approve (i)

Central African Republicrsquos qualification for HIPC assistance at decision point under

the enhanced HIPC Initiative and (ii) the proposed total HIPC assistance of US$

8538 million in end-2006 NPV terms of which US$ 4283 million in end-2006 NPV

terms has already been provided to CAR through the Bank Grouprsquos arrears clearance

operation leaving a balance of US$ 4255 million in end-2006 NPV terms equivalent

to US$ 5502 million in nominal terms for HIPC debt relief

1

CENTRAL AFRICAN REPUBLIC

DECISION POINT DOCUMENT UNDER THE ENHANCED HIPC INITIATIVE

I INTRODUCTION

11 In September 2007 the Central African Republic (hereafter CAR) became the 26th

Regional Member Country (RMC) to reach Decision Point under the enhanced Heavily Indebted

Poor Countries (HIPC) Initiative and qualified for debt relief As a result the Boards of

Directors of the IMF and the World Bank approved a debt relief package of US$ 583 million in

end-2006 NPV terms for the country

12 This document submits for consideration by the Boards of Directors Managements

proposal for the Bank Group to provide debt relief to the CAR under the Enhanced HIPC

Initiative in collaboration with other development partners at the decision point It also

highlights the conditions for reaching the completion point that have been agreed upon with IDA

and the IMF

13 The document is organized in nine sections Following this introduction Section II

assesses CARrsquos eligibility for the HIPC assistance Section III presents the breakdown of the

total debt stock and the assistance under the HIPC and Multilateral Debt Relief Initiatives

Section IV provides a summary of the Debt Sustainability Analysis (DSA) and the sensitivity

analysis of the debt burden Section V discusses the completion point triggers while the Bank

Group interventions in CAR are reviewed in Section VI The details of the proposed delivery

modality for the debt relief are presented in Section VIII and the indicative financing

arrangement in Section VIII The recommendations for the Boardsrsquo consideration are provided in

Section IX

II ASSESSMENT OF CARrsquos ELIGIBILITY FOR HIPC INITIATIVE ASSISTANCE

21 CARrsquos eligibility for HIPC Initiative assistance is assessed from the following

viewpoints

(i) Extent of Poverty

(ii) External Debt Stock

(iii) Political and Security Developments

(iv) Impact of Economic Reform Agenda

A Extent of Poverty

22 CAR is one of the poorest countries in the world A 2003 household survey showed that

more than two-thirds of the population lives below the income poverty line of US$ 2 per day

with about one-third in extreme poverty living below US$ 1 per day Health care indicators are

among the worst in the world as a result of dilapidated facilities and shortage of medical

personnel medication and equipments Life expectancy has fallen from 50 years in the 1990s to

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

ii

LIST OF ACRONYMS AND ABBREVIATIONS

AFD French Development Agency

ADB African Development Bank Group

ADF African Development Fund

APR Annual Progress Report

BADEA Arab Bank for Economic Development in Africa

BDEAC Central African States Development Bank

BEAC Bank of Central African States

BWI Bretton Woods Institutions

CAD Canadian Dollar

CAR Central African Republic

CFA African Economic Community Franc

CHF Swiss Franc

CNY Chinese Yuan

CPAR Country Procurement Assessment Review

CPIA Country Policy and Institutional Assessment

CSP Country Strategy Paper

DKK Danish Krone

DSA Debt Sustainability Analysis

EDFEIB European Development FundEuropean Investment Bank

EU European Union

EUR Euro

FDI Foreign Direct Investment

GBD Pound Sterling

GDP Gross Domestic Product

GNI Gross National Income

HIPCs Heavily Indebted Poor Countries

HIVAIDS Human Immunodeficiency VirusAcquired Immune

Deficiency Syndrome

IBRD International Bank for Reconstruction and Development

IDA International Development Association of the World Bank

IMF International Monetary Fund

IMF-SMP IMF Staff-Monitored Program

I-PRSP Interim Poverty Reduction Strategy Paper

JISN Joint Interim Strategy Note

JPY Japanese Yen

JSA Joint Staff Assessment

LICUS Low Income Countries under Stress

MDGs Millennium Development Goals

MDRI Multilateral Debt Relief Initiative

MampE Monitoring and Evaluation

NGO Non-governmental Organization

NOK Norwegian Krone

NPV Net Present Value

PARCPE Economic Planning and Capacity Rehabilitation Support Project

PAREG Economic Reform and Governance Support Program

PBA Performance-Based Allocation

PCCF Post Conflict Country Facility

PPE Pro-Poor Expenditure

PRGF Poverty Reduction Growth Facility

PRSP Poverty Reduction Strategy Paper

RMC Regional Member Country

SDR Special Drawing Rights

SEK Swedish Krona

iii

SMP Staff Monitored Program

SWAp Sector-Wide Approach

UA Unit of Account

USD United States Dollar

iv

CENTRAL AFRICAN REPUBLIC ndash DECISION POINT DOCUMENT

UNDER THE ENHANCED HIPC INITIATIVE

EXECUTIVE SUMMARY

Background In September 2007 the Central African Republic (CAR) became the

26th

Regional Member Country (RMC) to reach decision point under the enhanced

HIPC Initiative As a result the Boards of Directors of the IMF and the World Bank

approved a HIPC assistance of US$ 583 million in end-2006 NPV terms for the

country

Assessment of Requirements for the Decision Point Central African Republic is

eligible for HIPC assistance at decision point in view of (i) the evidence of

widespread poverty in the country (ii) the un-sustainability of CARrsquos external debt

stock and (iii) the progress being made in the transformation of the country through

the implementation of economic reforms

HIPC Assistance at Decision Point and its Breakdown The total debt relief to

Central African Republic is estimated at US$ 583 million in end-2006 NPV terms

broken down as follows (i) multilateral debt relief US$ 365 million (626 percent)

and (ii) bilateral and commercial debt relief US$ 218 million (374 percent) The debt

relief from the ADB Group is estimated at US$ 8538 million in end-2006 NPV terms

accounting for 234 percent of the multilateral debt relief and 146 percent of the total

debt relief Of the total assistance of US$ 8538 million in end-2006 NPV terms from

the ADB Bank Group US$ 4283 million in end-2006 NPV terms has already been

provided through the Bank Grouprsquos arrears clearance operation leaving a balance of

US$ 4255 million in end-2006 NPV terms equivalent to US$ 5502 million in

nominal terms for HIPC relief

Debt Relief under the MDRI Upon reaching completion point CAR would qualify

for additional debt relief from the three multilateral financial institutions IDA IMF

and the ADF under the Multilateral Debt Relief Initiative (MDRI) The MDRI debt

relief would lead to a total reduction of about US$ 2783 million (in nominal terms) in

debt service to these institutions broken down as follows IDA US$ 181 million

IMF US$ 16 million and the ADF US$ 957 million

Debt Sustainability and its Sensitivit CAR external debt at end-2006 is estimated at

US$ 8559 million in NPV terms equivalent to 470 percent of the NPV of debt-to-

exports ratio After full delivery of HIPC Initiative assistance committed at decision

point CARrsquos external debt will be reduced to US$ 2731 million equivalent to 150

percent of the NPV of debt-to-exports ratio CARrsquos NPV of debt-to-exports ratio is

expected to fall gradually from 150 percent as of end-2006 to 66 percent by 2026 The

ratio of NPV of-debt-revenue is also expected to decline from 185 percent to 579

percent within the period while the ratio of debt-service to exports is expected to

decline from an average of 14 percent to below 10 percent1 Debt relief from MDRI

will further improve the debt ratios

1 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC)

Initiative ndash Decision Point Document September 11 2007

v

The sensitivity analysis of the long-term debt shows that less concessional borrowing

and lower growth in exports will worsen CARrsquos external debt indicators This

underscores the importance of securing external resources on highly concessional

terms avoiding non-concessional borrowing as well as diversifying exports to

maximize the benefits of HIPC debt relief towards debt sustainability It also calls for

continued fiscal prudence and policies to support broad-based economic growth and

export diversification

Delivery Modality and Indicative Financing Arrangement It is proposed that the

Bank Group makes a commitment to provide Central African Republic a debt relief of

US$ 4255 million in end-2006 NPV terms from January 2008 to July 2020 Twenty

(20) percent of the debt relief would be financed from internal resources 40 percent

from the European Commission pledges and 40 percent from the HIPC Trust Fund

The assistance will relieve CAR of up to 80 percent of its debt service obligation to

the Bank Group each year until 2020

Recommendations The Boards of Executive Directors are invited to approve (i)

Central African Republicrsquos qualification for HIPC assistance at decision point under

the enhanced HIPC Initiative and (ii) the proposed total HIPC assistance of US$

8538 million in end-2006 NPV terms of which US$ 4283 million in end-2006 NPV

terms has already been provided to CAR through the Bank Grouprsquos arrears clearance

operation leaving a balance of US$ 4255 million in end-2006 NPV terms equivalent

to US$ 5502 million in nominal terms for HIPC debt relief

1

CENTRAL AFRICAN REPUBLIC

DECISION POINT DOCUMENT UNDER THE ENHANCED HIPC INITIATIVE

I INTRODUCTION

11 In September 2007 the Central African Republic (hereafter CAR) became the 26th

Regional Member Country (RMC) to reach Decision Point under the enhanced Heavily Indebted

Poor Countries (HIPC) Initiative and qualified for debt relief As a result the Boards of

Directors of the IMF and the World Bank approved a debt relief package of US$ 583 million in

end-2006 NPV terms for the country

12 This document submits for consideration by the Boards of Directors Managements

proposal for the Bank Group to provide debt relief to the CAR under the Enhanced HIPC

Initiative in collaboration with other development partners at the decision point It also

highlights the conditions for reaching the completion point that have been agreed upon with IDA

and the IMF

13 The document is organized in nine sections Following this introduction Section II

assesses CARrsquos eligibility for the HIPC assistance Section III presents the breakdown of the

total debt stock and the assistance under the HIPC and Multilateral Debt Relief Initiatives

Section IV provides a summary of the Debt Sustainability Analysis (DSA) and the sensitivity

analysis of the debt burden Section V discusses the completion point triggers while the Bank

Group interventions in CAR are reviewed in Section VI The details of the proposed delivery

modality for the debt relief are presented in Section VIII and the indicative financing

arrangement in Section VIII The recommendations for the Boardsrsquo consideration are provided in

Section IX

II ASSESSMENT OF CARrsquos ELIGIBILITY FOR HIPC INITIATIVE ASSISTANCE

21 CARrsquos eligibility for HIPC Initiative assistance is assessed from the following

viewpoints

(i) Extent of Poverty

(ii) External Debt Stock

(iii) Political and Security Developments

(iv) Impact of Economic Reform Agenda

A Extent of Poverty

22 CAR is one of the poorest countries in the world A 2003 household survey showed that

more than two-thirds of the population lives below the income poverty line of US$ 2 per day

with about one-third in extreme poverty living below US$ 1 per day Health care indicators are

among the worst in the world as a result of dilapidated facilities and shortage of medical

personnel medication and equipments Life expectancy has fallen from 50 years in the 1990s to

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

iii

SMP Staff Monitored Program

SWAp Sector-Wide Approach

UA Unit of Account

USD United States Dollar

iv

CENTRAL AFRICAN REPUBLIC ndash DECISION POINT DOCUMENT

UNDER THE ENHANCED HIPC INITIATIVE

EXECUTIVE SUMMARY

Background In September 2007 the Central African Republic (CAR) became the

26th

Regional Member Country (RMC) to reach decision point under the enhanced

HIPC Initiative As a result the Boards of Directors of the IMF and the World Bank

approved a HIPC assistance of US$ 583 million in end-2006 NPV terms for the

country

Assessment of Requirements for the Decision Point Central African Republic is

eligible for HIPC assistance at decision point in view of (i) the evidence of

widespread poverty in the country (ii) the un-sustainability of CARrsquos external debt

stock and (iii) the progress being made in the transformation of the country through

the implementation of economic reforms

HIPC Assistance at Decision Point and its Breakdown The total debt relief to

Central African Republic is estimated at US$ 583 million in end-2006 NPV terms

broken down as follows (i) multilateral debt relief US$ 365 million (626 percent)

and (ii) bilateral and commercial debt relief US$ 218 million (374 percent) The debt

relief from the ADB Group is estimated at US$ 8538 million in end-2006 NPV terms

accounting for 234 percent of the multilateral debt relief and 146 percent of the total

debt relief Of the total assistance of US$ 8538 million in end-2006 NPV terms from

the ADB Bank Group US$ 4283 million in end-2006 NPV terms has already been

provided through the Bank Grouprsquos arrears clearance operation leaving a balance of

US$ 4255 million in end-2006 NPV terms equivalent to US$ 5502 million in

nominal terms for HIPC relief

Debt Relief under the MDRI Upon reaching completion point CAR would qualify

for additional debt relief from the three multilateral financial institutions IDA IMF

and the ADF under the Multilateral Debt Relief Initiative (MDRI) The MDRI debt

relief would lead to a total reduction of about US$ 2783 million (in nominal terms) in

debt service to these institutions broken down as follows IDA US$ 181 million

IMF US$ 16 million and the ADF US$ 957 million

Debt Sustainability and its Sensitivit CAR external debt at end-2006 is estimated at

US$ 8559 million in NPV terms equivalent to 470 percent of the NPV of debt-to-

exports ratio After full delivery of HIPC Initiative assistance committed at decision

point CARrsquos external debt will be reduced to US$ 2731 million equivalent to 150

percent of the NPV of debt-to-exports ratio CARrsquos NPV of debt-to-exports ratio is

expected to fall gradually from 150 percent as of end-2006 to 66 percent by 2026 The

ratio of NPV of-debt-revenue is also expected to decline from 185 percent to 579

percent within the period while the ratio of debt-service to exports is expected to

decline from an average of 14 percent to below 10 percent1 Debt relief from MDRI

will further improve the debt ratios

1 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC)

Initiative ndash Decision Point Document September 11 2007

v

The sensitivity analysis of the long-term debt shows that less concessional borrowing

and lower growth in exports will worsen CARrsquos external debt indicators This

underscores the importance of securing external resources on highly concessional

terms avoiding non-concessional borrowing as well as diversifying exports to

maximize the benefits of HIPC debt relief towards debt sustainability It also calls for

continued fiscal prudence and policies to support broad-based economic growth and

export diversification

Delivery Modality and Indicative Financing Arrangement It is proposed that the

Bank Group makes a commitment to provide Central African Republic a debt relief of

US$ 4255 million in end-2006 NPV terms from January 2008 to July 2020 Twenty

(20) percent of the debt relief would be financed from internal resources 40 percent

from the European Commission pledges and 40 percent from the HIPC Trust Fund

The assistance will relieve CAR of up to 80 percent of its debt service obligation to

the Bank Group each year until 2020

Recommendations The Boards of Executive Directors are invited to approve (i)

Central African Republicrsquos qualification for HIPC assistance at decision point under

the enhanced HIPC Initiative and (ii) the proposed total HIPC assistance of US$

8538 million in end-2006 NPV terms of which US$ 4283 million in end-2006 NPV

terms has already been provided to CAR through the Bank Grouprsquos arrears clearance

operation leaving a balance of US$ 4255 million in end-2006 NPV terms equivalent

to US$ 5502 million in nominal terms for HIPC debt relief

1

CENTRAL AFRICAN REPUBLIC

DECISION POINT DOCUMENT UNDER THE ENHANCED HIPC INITIATIVE

I INTRODUCTION

11 In September 2007 the Central African Republic (hereafter CAR) became the 26th

Regional Member Country (RMC) to reach Decision Point under the enhanced Heavily Indebted

Poor Countries (HIPC) Initiative and qualified for debt relief As a result the Boards of

Directors of the IMF and the World Bank approved a debt relief package of US$ 583 million in

end-2006 NPV terms for the country

12 This document submits for consideration by the Boards of Directors Managements

proposal for the Bank Group to provide debt relief to the CAR under the Enhanced HIPC

Initiative in collaboration with other development partners at the decision point It also

highlights the conditions for reaching the completion point that have been agreed upon with IDA

and the IMF

13 The document is organized in nine sections Following this introduction Section II

assesses CARrsquos eligibility for the HIPC assistance Section III presents the breakdown of the

total debt stock and the assistance under the HIPC and Multilateral Debt Relief Initiatives

Section IV provides a summary of the Debt Sustainability Analysis (DSA) and the sensitivity

analysis of the debt burden Section V discusses the completion point triggers while the Bank

Group interventions in CAR are reviewed in Section VI The details of the proposed delivery

modality for the debt relief are presented in Section VIII and the indicative financing

arrangement in Section VIII The recommendations for the Boardsrsquo consideration are provided in

Section IX

II ASSESSMENT OF CARrsquos ELIGIBILITY FOR HIPC INITIATIVE ASSISTANCE

21 CARrsquos eligibility for HIPC Initiative assistance is assessed from the following

viewpoints

(i) Extent of Poverty

(ii) External Debt Stock

(iii) Political and Security Developments

(iv) Impact of Economic Reform Agenda

A Extent of Poverty

22 CAR is one of the poorest countries in the world A 2003 household survey showed that

more than two-thirds of the population lives below the income poverty line of US$ 2 per day

with about one-third in extreme poverty living below US$ 1 per day Health care indicators are

among the worst in the world as a result of dilapidated facilities and shortage of medical

personnel medication and equipments Life expectancy has fallen from 50 years in the 1990s to

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

iv

CENTRAL AFRICAN REPUBLIC ndash DECISION POINT DOCUMENT

UNDER THE ENHANCED HIPC INITIATIVE

EXECUTIVE SUMMARY

Background In September 2007 the Central African Republic (CAR) became the

26th

Regional Member Country (RMC) to reach decision point under the enhanced

HIPC Initiative As a result the Boards of Directors of the IMF and the World Bank

approved a HIPC assistance of US$ 583 million in end-2006 NPV terms for the

country

Assessment of Requirements for the Decision Point Central African Republic is

eligible for HIPC assistance at decision point in view of (i) the evidence of

widespread poverty in the country (ii) the un-sustainability of CARrsquos external debt

stock and (iii) the progress being made in the transformation of the country through

the implementation of economic reforms

HIPC Assistance at Decision Point and its Breakdown The total debt relief to

Central African Republic is estimated at US$ 583 million in end-2006 NPV terms

broken down as follows (i) multilateral debt relief US$ 365 million (626 percent)

and (ii) bilateral and commercial debt relief US$ 218 million (374 percent) The debt

relief from the ADB Group is estimated at US$ 8538 million in end-2006 NPV terms

accounting for 234 percent of the multilateral debt relief and 146 percent of the total

debt relief Of the total assistance of US$ 8538 million in end-2006 NPV terms from

the ADB Bank Group US$ 4283 million in end-2006 NPV terms has already been

provided through the Bank Grouprsquos arrears clearance operation leaving a balance of

US$ 4255 million in end-2006 NPV terms equivalent to US$ 5502 million in

nominal terms for HIPC relief

Debt Relief under the MDRI Upon reaching completion point CAR would qualify

for additional debt relief from the three multilateral financial institutions IDA IMF

and the ADF under the Multilateral Debt Relief Initiative (MDRI) The MDRI debt

relief would lead to a total reduction of about US$ 2783 million (in nominal terms) in

debt service to these institutions broken down as follows IDA US$ 181 million

IMF US$ 16 million and the ADF US$ 957 million

Debt Sustainability and its Sensitivit CAR external debt at end-2006 is estimated at

US$ 8559 million in NPV terms equivalent to 470 percent of the NPV of debt-to-

exports ratio After full delivery of HIPC Initiative assistance committed at decision

point CARrsquos external debt will be reduced to US$ 2731 million equivalent to 150

percent of the NPV of debt-to-exports ratio CARrsquos NPV of debt-to-exports ratio is

expected to fall gradually from 150 percent as of end-2006 to 66 percent by 2026 The

ratio of NPV of-debt-revenue is also expected to decline from 185 percent to 579

percent within the period while the ratio of debt-service to exports is expected to

decline from an average of 14 percent to below 10 percent1 Debt relief from MDRI

will further improve the debt ratios

1 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC)

Initiative ndash Decision Point Document September 11 2007

v

The sensitivity analysis of the long-term debt shows that less concessional borrowing

and lower growth in exports will worsen CARrsquos external debt indicators This

underscores the importance of securing external resources on highly concessional

terms avoiding non-concessional borrowing as well as diversifying exports to

maximize the benefits of HIPC debt relief towards debt sustainability It also calls for

continued fiscal prudence and policies to support broad-based economic growth and

export diversification

Delivery Modality and Indicative Financing Arrangement It is proposed that the

Bank Group makes a commitment to provide Central African Republic a debt relief of

US$ 4255 million in end-2006 NPV terms from January 2008 to July 2020 Twenty

(20) percent of the debt relief would be financed from internal resources 40 percent

from the European Commission pledges and 40 percent from the HIPC Trust Fund

The assistance will relieve CAR of up to 80 percent of its debt service obligation to

the Bank Group each year until 2020

Recommendations The Boards of Executive Directors are invited to approve (i)

Central African Republicrsquos qualification for HIPC assistance at decision point under

the enhanced HIPC Initiative and (ii) the proposed total HIPC assistance of US$

8538 million in end-2006 NPV terms of which US$ 4283 million in end-2006 NPV

terms has already been provided to CAR through the Bank Grouprsquos arrears clearance

operation leaving a balance of US$ 4255 million in end-2006 NPV terms equivalent

to US$ 5502 million in nominal terms for HIPC debt relief

1

CENTRAL AFRICAN REPUBLIC

DECISION POINT DOCUMENT UNDER THE ENHANCED HIPC INITIATIVE

I INTRODUCTION

11 In September 2007 the Central African Republic (hereafter CAR) became the 26th

Regional Member Country (RMC) to reach Decision Point under the enhanced Heavily Indebted

Poor Countries (HIPC) Initiative and qualified for debt relief As a result the Boards of

Directors of the IMF and the World Bank approved a debt relief package of US$ 583 million in

end-2006 NPV terms for the country

12 This document submits for consideration by the Boards of Directors Managements

proposal for the Bank Group to provide debt relief to the CAR under the Enhanced HIPC

Initiative in collaboration with other development partners at the decision point It also

highlights the conditions for reaching the completion point that have been agreed upon with IDA

and the IMF

13 The document is organized in nine sections Following this introduction Section II

assesses CARrsquos eligibility for the HIPC assistance Section III presents the breakdown of the

total debt stock and the assistance under the HIPC and Multilateral Debt Relief Initiatives

Section IV provides a summary of the Debt Sustainability Analysis (DSA) and the sensitivity

analysis of the debt burden Section V discusses the completion point triggers while the Bank

Group interventions in CAR are reviewed in Section VI The details of the proposed delivery

modality for the debt relief are presented in Section VIII and the indicative financing

arrangement in Section VIII The recommendations for the Boardsrsquo consideration are provided in

Section IX

II ASSESSMENT OF CARrsquos ELIGIBILITY FOR HIPC INITIATIVE ASSISTANCE

21 CARrsquos eligibility for HIPC Initiative assistance is assessed from the following

viewpoints

(i) Extent of Poverty

(ii) External Debt Stock

(iii) Political and Security Developments

(iv) Impact of Economic Reform Agenda

A Extent of Poverty

22 CAR is one of the poorest countries in the world A 2003 household survey showed that

more than two-thirds of the population lives below the income poverty line of US$ 2 per day

with about one-third in extreme poverty living below US$ 1 per day Health care indicators are

among the worst in the world as a result of dilapidated facilities and shortage of medical

personnel medication and equipments Life expectancy has fallen from 50 years in the 1990s to

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

v

The sensitivity analysis of the long-term debt shows that less concessional borrowing

and lower growth in exports will worsen CARrsquos external debt indicators This

underscores the importance of securing external resources on highly concessional

terms avoiding non-concessional borrowing as well as diversifying exports to

maximize the benefits of HIPC debt relief towards debt sustainability It also calls for

continued fiscal prudence and policies to support broad-based economic growth and

export diversification

Delivery Modality and Indicative Financing Arrangement It is proposed that the

Bank Group makes a commitment to provide Central African Republic a debt relief of

US$ 4255 million in end-2006 NPV terms from January 2008 to July 2020 Twenty

(20) percent of the debt relief would be financed from internal resources 40 percent

from the European Commission pledges and 40 percent from the HIPC Trust Fund

The assistance will relieve CAR of up to 80 percent of its debt service obligation to

the Bank Group each year until 2020

Recommendations The Boards of Executive Directors are invited to approve (i)

Central African Republicrsquos qualification for HIPC assistance at decision point under

the enhanced HIPC Initiative and (ii) the proposed total HIPC assistance of US$

8538 million in end-2006 NPV terms of which US$ 4283 million in end-2006 NPV

terms has already been provided to CAR through the Bank Grouprsquos arrears clearance

operation leaving a balance of US$ 4255 million in end-2006 NPV terms equivalent

to US$ 5502 million in nominal terms for HIPC debt relief

1

CENTRAL AFRICAN REPUBLIC

DECISION POINT DOCUMENT UNDER THE ENHANCED HIPC INITIATIVE

I INTRODUCTION

11 In September 2007 the Central African Republic (hereafter CAR) became the 26th

Regional Member Country (RMC) to reach Decision Point under the enhanced Heavily Indebted

Poor Countries (HIPC) Initiative and qualified for debt relief As a result the Boards of

Directors of the IMF and the World Bank approved a debt relief package of US$ 583 million in

end-2006 NPV terms for the country

12 This document submits for consideration by the Boards of Directors Managements

proposal for the Bank Group to provide debt relief to the CAR under the Enhanced HIPC

Initiative in collaboration with other development partners at the decision point It also

highlights the conditions for reaching the completion point that have been agreed upon with IDA

and the IMF

13 The document is organized in nine sections Following this introduction Section II

assesses CARrsquos eligibility for the HIPC assistance Section III presents the breakdown of the

total debt stock and the assistance under the HIPC and Multilateral Debt Relief Initiatives

Section IV provides a summary of the Debt Sustainability Analysis (DSA) and the sensitivity

analysis of the debt burden Section V discusses the completion point triggers while the Bank

Group interventions in CAR are reviewed in Section VI The details of the proposed delivery

modality for the debt relief are presented in Section VIII and the indicative financing

arrangement in Section VIII The recommendations for the Boardsrsquo consideration are provided in

Section IX

II ASSESSMENT OF CARrsquos ELIGIBILITY FOR HIPC INITIATIVE ASSISTANCE

21 CARrsquos eligibility for HIPC Initiative assistance is assessed from the following

viewpoints

(i) Extent of Poverty

(ii) External Debt Stock

(iii) Political and Security Developments

(iv) Impact of Economic Reform Agenda

A Extent of Poverty

22 CAR is one of the poorest countries in the world A 2003 household survey showed that

more than two-thirds of the population lives below the income poverty line of US$ 2 per day

with about one-third in extreme poverty living below US$ 1 per day Health care indicators are

among the worst in the world as a result of dilapidated facilities and shortage of medical

personnel medication and equipments Life expectancy has fallen from 50 years in the 1990s to

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

1

CENTRAL AFRICAN REPUBLIC

DECISION POINT DOCUMENT UNDER THE ENHANCED HIPC INITIATIVE

I INTRODUCTION

11 In September 2007 the Central African Republic (hereafter CAR) became the 26th

Regional Member Country (RMC) to reach Decision Point under the enhanced Heavily Indebted

Poor Countries (HIPC) Initiative and qualified for debt relief As a result the Boards of

Directors of the IMF and the World Bank approved a debt relief package of US$ 583 million in

end-2006 NPV terms for the country

12 This document submits for consideration by the Boards of Directors Managements

proposal for the Bank Group to provide debt relief to the CAR under the Enhanced HIPC

Initiative in collaboration with other development partners at the decision point It also

highlights the conditions for reaching the completion point that have been agreed upon with IDA

and the IMF

13 The document is organized in nine sections Following this introduction Section II

assesses CARrsquos eligibility for the HIPC assistance Section III presents the breakdown of the

total debt stock and the assistance under the HIPC and Multilateral Debt Relief Initiatives

Section IV provides a summary of the Debt Sustainability Analysis (DSA) and the sensitivity

analysis of the debt burden Section V discusses the completion point triggers while the Bank

Group interventions in CAR are reviewed in Section VI The details of the proposed delivery

modality for the debt relief are presented in Section VIII and the indicative financing

arrangement in Section VIII The recommendations for the Boardsrsquo consideration are provided in

Section IX

II ASSESSMENT OF CARrsquos ELIGIBILITY FOR HIPC INITIATIVE ASSISTANCE

21 CARrsquos eligibility for HIPC Initiative assistance is assessed from the following

viewpoints

(i) Extent of Poverty

(ii) External Debt Stock

(iii) Political and Security Developments

(iv) Impact of Economic Reform Agenda

A Extent of Poverty

22 CAR is one of the poorest countries in the world A 2003 household survey showed that

more than two-thirds of the population lives below the income poverty line of US$ 2 per day

with about one-third in extreme poverty living below US$ 1 per day Health care indicators are

among the worst in the world as a result of dilapidated facilities and shortage of medical

personnel medication and equipments Life expectancy has fallen from 50 years in the 1990s to

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

2

39 years in 2005 The prevalence rate of HIVAIDS was at the general epidemic level of 62

percent for the 15-45 years age group in 2005 The quality of education is very poor In

20042005 one child out of four had never attended school and only 31 percent of children

enrolled in primary school completed primary education About 40 percent of the population has

access to safe water and only 76 percent of the population uses electricity as a source of lighting

Under this situation CAR is unlikely to achieve the MDGs by 2015

B External Debt Stock

23 The stock of CARrsquos external public and publicly guaranteed debt outstanding as at end-

December 2006 after traditional debt relief is estimated at US$856 million in NPV terms This

is equivalent to 470 percent of CARrsquos exports of goods and services in NPV terms which is

well above the 150 percent threshold of NPV of debt-to-exports ratio under the HIPC Initiative

for debt sustainability CARrsquos external debt is therefore unsustainable and thus qualifies for debt

relief under the HIPC Initiative

C Political and Security Developments

24 For most of the period since independence in 1960 CAR experienced political instability

and successive periods of armed conflicts which resulted in weak governance and poor-socio

economic conditions In March 2003 a group came to power and set up a transitional

government A national dialogue was initiated during the transition period to facilitate the

building of consensus among various interest groups with diverse and conflicting agendas and to

define a roadmap for sustained national reconciliation and strengthening of the democratization

process for CAR However the implementation of the roadmap and strengthening of the

democratization process are constrained by the limited resources and deep-rooted challenges to

the rule of law A new constitution was adopted in December 2004 and elections held during the

first half of 2005 A new democratic government was then formed in July 2005 The new

government introduced a security sector reform which has improved the security situation in the

country but tensions still linger and the situation remains fragile Furthermore the government

has taken measures to hold an inclusive political dialogue that would allow CAR to build the

consensus necessary for meeting the challenges of reconstruction and peace-building

D Impact of Economic Reform Agenda

25 The successful elections and improved security provided an opportunity for an ambitious

economic reform agenda A three-year Poverty Reduction Growth Facility (PRGF) arrangement

with the IMF was approved in December 2006 which has resulted in significant improvements

in the economy Real GDP growth has increased from 22 percent in 2005 to 41 percent in

2006 and is estimated at 4 percent in 2007 The inflation rate has declined from 39 percent at

end-2006 to 16 percent at end-June 2007 The government has achieved its fiscal objectives

through tight control over expenditures improved public finance management and has

regularized its relations with domestic creditors The authorities have improved governance and

transparency and made progress in revenue mobilization through an improved tax and custom

administration Public procurement has been reformed and measures initiated to create an

enabling environment for private sector development With financial support from the Low-

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

3

Income Countries under Stress (LICUS) Trust Fund for the recruitment of technical assistants a

Poverty Reduction Strategy Paper (PRSP) has been prepared to provide a strategic direction for

poverty reduction

26 At the sectoral level the authorities are addressing the main obstacles to growth and

poverty reduction including

(i) the adoption of a new mining code in 2004

(ii) a reform in the oil sector

(iii) the adoption of a new electricity code in 2005 to encourage public-private partnership

to increase electric generation capacity

(iv) the development of an education strategy aimed at primary education for all and

(v) increasing the availability and quality of basic health care

27 Furthermore the government has developed a medium-to-long term macroeconomic

framework consistent with the PRGF arrangement Projections for the framework are as follows

(i) an annual real GDP growth of 42 percent over the period 2007-2026

(ii) an inflation rate of about 2 percent per annum over the long term

(iii) an overall fiscal deficit averaging about 03 percent of GDP

(iv) tax and non-tax revenue to rise to 94 percent of GDP in 2006 and 155 percent by

2026

(v) expenditures to increase to about 18 percent of GDP by 2026 with an increase in the

share of pro-poor spending in overall outlays

(vi) expected deficit to be financed by foreign loans on highly concessional terms

(vii) current account deficit to average about 45 percent of GDP over the period 2007-

2026

(viii) external grants to be the predominant form of financing over the period to enable the

government to increase poverty reducing expenditures in a fiscally sustainable way

and

(ix) official loan financing to be on concessional terms over the projection period

E Overall Assessment

28 From all the forgoing it is concluded that (i) there is evidence of widespread poverty in

CAR (ii) CARrsquos external debt stock is unsustainable and (iii) CAR is making progress in its

transformation from a post-conflict country through the implementation of economic reform In

the light of this CAR qualifies for debt relief at decision point under the enhanced HIPC

Initiative A copy of the relevant HIPC decision point document prepared by the Bretton Woods

Institutions (BWI) which provides detailed information for CAR reaching the decision point is

attached as Annex 62

29 While the economic recovery is modest the financial situation continues to be difficult

These undermine the governmentrsquos ability to provide services to its population In this

2 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

4

connection there is the need to show some tangible improvements in the living conditions of the

population in order to avoid increasing discontent in the country

III DEBT STOCK AND HIPC AND MDRI ASSISTANCE

A Debt Stock

31 CARrsquos public and publicly guaranteed external debt stock as at end-December 2006 is

estimated at US11 billion in nominal terms equivalent to US$ 8559 million in NPV terms as

highlighted in Table 1

32 Multilateral creditors The total debt owed to multilateral creditors is estimated at US$

6861 million in nominal terms US$5367 million in end-2006 NPV terms and equivalent to

about 63 percent of the total debt in both the nominal and NPV terms About 37 percent (US$

3981 million) of the nominal debt stock is owed to the IDA and 16 percent (US$ 1695) to the

ADF In NPV terms about 36 percent (US$ 3065 million) is owed to IDA and 15 percent (US$

1255 million) to the ADF

33 Bilateral and Commercial Creditors Bilateral and commercial creditors are owed US$

3446 million and US$ 562 million respectively of the nominal debt stock representing about 32

percent and 5 percent of the total debt stock respectively In NPV terms bilateral creditors are

owed US$ 2756 million (32 percent) of the total debt while commercial creditors are owed US$

436 million (5 percent) of the total debt stock

Table 1 Nominal and Net Present Value of CARrsquos Debt Stockr as at end-2006

(US$ million)

Creditors

Nominal Debt Stock

NPV of Total Debt Stock

US million Percent of Total US$ million Percent of Total

Multilateral Creditors 6861 631 5367 627

IDA (World Bank) 3981 366 3065 358

ADF 1695 156 1255 147

IMF 421 39 396 46

Other Multilaterals 764 70 651 76

Bilateral Creditors 3446 317 2756 322

Paris Club 720 66 473 55

Other Official Bilaterals 2726 251 2283 267

Commercial Creditors 562 52 436 51

Total HIPC Debt Relief 10868 100 8559 100

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

34 Arrears Clearance As a result of political and economic instability over the period

2001-2005 CAR accumulated payment arrears to almost all its creditors Since then CAR has

cleared or signed agreements to reschedule its arrears with some multilaterals and has initiated

negotiations with others Debt owed to the Paris Club was restructured under a new rescheduling

agreement Arrears to IDA were cleared through a bridge loan from the French Development

Agency The loan was in turn repaid from a grant approved by IDArsquos Executive Directors

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

5

Arrears to the ADF were cleared using the Bank Grouprsquos Post Conflict Country Facility (PCCF)

(495 percent) pledges from CARrsquos development partners (495 percent) and payment by CAR

(1 percent)

B HIPC Assistance

35 The total outstanding debt of US$ 8559 million in end-2006 NPV terms is equivalent to

470 percent of CARrsquos exports of goods and services in NPV terms Reducing the NPV of debt-to

exports ratio from 470 percent to the HIPC threshold of 150 percent would require a HIPC debt

relief of US$ 583 million in NPV terms (See Table 2) implying a common reduction factor of 68

percent The distribution of the HIPC assistance under the proportional burden-sharing approach

is presented in Table 2

Table 2 Creditor Participation in the HIPC Initiative Assistance

(US$ million)

Creditors

Debt Outstanding in end 2006 NPV terms (Pre-HIPC)

HIPC Assistance Debt Outstanding in end-2006 NPV terms (Post-

HIPC)

In end-2006 NPV terms

of Multilateral Assistance

of Total Assistance

Multilateral Creditors 5367 3650 100 626 1717

IDA (World Bank) 3065 2090 573 358 975

ADF 1255 850 234 146 405

IMF 396 270 74 46 126

Other Multilaterals 651 440 119 76 211

Bilateral and Commercial Creditors 3192 2180 374 1012

Total 8559 5830 100 2729

As of Exports 470 320 150

Sources IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision Point Document September 11 2007

36 Total HIPC assistance from multilateral creditors at decision point is estimated at US$

365 million (626 percent) in end-2006 NPV terms while that from bilateral and commercial

creditors is estimated at US$ 218 million (374 percent) The African Development Fundrsquos share

of the debt relief is US$ 8538 million in NPV terms equivalent to 234 percent of the

multilateral debt relief and 146 percent of the total debt relief The World Bankrsquos share is US$

209 million equivalent to 573 percent of the multilateral debt relief and 358 percent of the total

debt relief while the IMFrsquos share is US$ 27 million representing 74 percent of the multilateral

debt relief and 46 percent of the total debt relief

37 Of the total assistance of US$ 8538 million in end-2006 NPV terms from the ADB Bank

Group US$ 4283 million has been provided through the Bank Grouprsquos arrears clearance

operation Similarly US$ 66 million out of the total IDA assistance of US$ 209 million (in end-

2006 NPV terms) has been provided through its arrears clearance operation

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

6

C MDRI and Additional Bilateral Assistance

38 Upon reaching completion point CAR will also qualify for additional debt relief from the

IDA the ADF and the IMF under the MDRI These creditors would provide 100 percent debt

relief on all debt disbursed prior to their respective cut-off dates and still outstanding at the

completion point after the HIPC assistance The MDRI debt relief would lead to a total reduction

of about US$ 2783 million (in nominal terms) in debt service to these institutions broken down

as follows IDA US$ 181 million IMF US$ 16 million and the ADF US$ 957 million

39 The European Commission is expected to provide debt relief beyond HIPC through its

Least Developed Country (LDC) Initiative by canceling eligible debts still outstanding after

HIPC Debt relief on EIB loans could amount to US$ 35 million in nominal terms Additional

bilateral debt relief after the completion point will be determined on a case-by-case basis

310 Given the challenges of CARrsquos financial constraints the low inflows of official

assistance and the current heavy debt burden CAR will need significantly higher inflows of

foreign assistance beyond HIPC debt relief to support the governmentrsquos efforts of ensuring a

sustained economic development

IV DEBT SUSTAINABILITY AND SENSITIVITY ANALYSES

A Debt Sustainability Analysis

41 At end-2006 without HIPC assistance the NPV of CARrsquos total debt was estimated at

US$ 8559 million The NPV of debt-to exports and NPV of debt-to-revenue ratios were

estimated at 470 percent and 580 percent respectively These were well above the HIPC

thresholds of 150 percent for NPV of debt-to-exports ratio and 250 percent for NPV of debt-to-

revenue ratio With HIPC assistance and under the macroeconomic projections discussed in

Section II the NPV of CARrsquos total debt is estimated at US$ 2731 million in end 2006 NPV

terms CARrsquos NPV of debt-to-exports ratio is expected to fall gradually from 150 percent as of

end-2006 to 66 percent by 2026 The ratio of NPV of-debt-revenue is also expected to decline

from 185 percent to 579 percent within the period while the ratio of debt-service to exports is

expected to decline from an average of 14 percent to below 10 percent3 Debt relief from MDRI

would further improve the debt ratios

B Sensitivity Analysis of Debt Burden

42 The sensitivity of CARrsquos debt burden is analyzed under two scenarios (i) Less

concessional new borrowings assumed at 7 percent interest rate and (ii) lower export growth of

about 21 percent per annum The results show that with less concessional new borrowings the

NPV of debt-to exports ratio deteriorates substantially compared to the baseline but remain

below the 150 percent threshold and on a declining trend throughout the projection period The

debt service-to-exports ratio deteriorates more markedly compared to the baseline averaging

3 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

7

about 10 percent between 2017 and 2026 compared to 3 percent under the baseline This stress

test underscores the importance of securing external resources on highly concessional terms and

avoiding non-concessional borrowing in order to reduce the likelihood of a return to debt

distress4

43 Lower export growth would lead to a substantial deterioration of the debt ratios The ratio

of NPV of debt-to exports would rise in the long run to about 1273 percent in 2026 compared to

658 percent in the baseline scenario The debt service-to-exports ratio will also deteriorate in the

long run reaching 68 percent by 2026 compared to 33 percent in the baseline scenario This

also underscores the importance of diversifying exports to maximize the benefits of HIPC debt

relief towards debt sustainability and the need for prudent fiscal and debt management policies5

V COMPLETION POINT TRIGGERS

51 IDA and IMF Staff have agreed with the CAR authorities on the following completion

point triggers

(i) Preparation of a PRSP through a participatory process and a satisfactory

implementation of the recommended actions for at least one year from the date of the

approval

(ii) Maintenance of macroeconomic stability

(iii) Satisfactory implementation of asset declaration and disclosure by the Prime

Minister Members of the Government Members of the Constitutional Court and the

extension of the obligation to Senior Public Enterprise Officials and key Senior Civil

Servants

(iv) Structural reform to improve the regulatory oversight and reporting framework

(v) Improving the effectiveness transparency and accountability in public financial

management

(vi) Beginning of a civil service reform

(vii) Improving public debt management

(viii) At least 750 additional teachers at the primary school compared to the 2006-2007

level

(ix) Implementing measures to achieve a repetition rate of less than 20 percent at the

primary level in areas where schools operate normally

(x) Keeping DPT3 vaccinations at 80 percent or higher

(xi) Distributing 300000 treated mosquito nets and

(xii) Improving prevention of HIVAIDS by increasing the social marketing of condoms to

an annual level of at least 10 million

4 See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007 5See IDAIMF Central African Republic - Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ndash Decision

Point Document September 11 2007

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

8

VI BANK GROUP INTERVENTIONS IN CAR

61 Since 1972 the Bank Group has funded 23 operations in Central African Republic with a

net total commitment of UA 10998 million (equivalent to US$ 17267 million at current

exchange rates)6 UA 1372 million (equivalent to US$ 2154 million) from the ADB window

and UA 9626 million (equivalent to US$ 15113 million) from the ADF window The Bank

Group also co-financed two economic reform programs with the Bretton Woods institutions

(BWI)

62 CAR was placed under sanctions in 1994 due to arrears on its debt repayments and in

order to reduce its debt the Bank Group cancelled all its loans and grants in 1996 In December

2006 the Bank Group reached an agreement to clear CARrsquos arrears through its Post Conflict

Country Facility (495) CARrsquos Development partners (495 percent) and payment by CAR (1

percent)

63 Following a 2005-2006 Dialogue Paper the Bank Group and the World Bank prepared a

2007-2008 Joint Interim Strategy Note (JISN) for CAR to support a sustainable and shared

economic recovery The strategy focused on two pillars (i) strengthening the economic recovery

governance and the capacity of government and its economic and social development partners

and (ii) restoring and promoting human capital especially in favour of underprivileged classes

64 Under Pillar I the Bank Group would focus on arrears clearance and improvement and

effectiveness of government The Bank Group will also support the recovery of the productive

and private sectors through the removal of constraints facing the sectors and the creation of an

enabling environment for their development In that regard the following interventions have

been carried out in 2006 and 2007

(i) the arrears clearance operation for CAR was successfully carried out in December

2006

(ii) a grant of UA 234460 (equivalent to US$ 3470007) from the Japanese bilateral

fund was approved in July 2006 for the finalization of the Poverty Reduction

Strategy Paper

(iii) UA 33 million (equivalent to US$ 488 million) approved in July 2006 under the

Economic Planning and Capacity Rehabilitation Support Project (PARCPE)

(iv) UA 65 million(equivalent to US$ 988 million8) approved for the Reform Support

Project in May 2007 for improving the budget process civil service reform and

computerization of key ministries and

(v) UA 1112 million (equivalent to US$ 16791 million9) approved in June 2007 for

the Douala-BanguiDouala-Ndjamena road project under the regional transport

facilitation program

6 Exchange rate in November 2007 UA 100 = US$ 157

7 Exchange rate in July 2006 UA 100 = US$ 148

8 Exchange rate in May 2007 UA100 = US$ 152

9 Exchange rate for June 2007 UA100 = US$ 151

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

9

65 A surplus of UA 359 million (equivalent to US$ 542 million10

) resulting from the

contributions by development partners during the arrears clearance operation will be disbursed

during the fourth-quarter of 2007

66 Under Pillar II the Bank Group will implement socio-economic projects aimed at

rehabilitating and equipping health facilities and schools and supporting the training of teaching

and health staff Pilot projects for improving the Water Facility will also be financed For the

2008-2009 program the Bank Group will support the economic reform program and the

hydroelectric projects 1 and 2 at Boali depending on the countryrsquos allocation under the ADF-XI

cycle

VII DEBT RELIEF DELIVERY MODALITY

71 In reaching its decision point it is proposed that the Bank Group makes a commitment to

provide Central African Republic with a debt relief of approximately US$ 4255 million in end-

2006 NPV terms or US$ 5502 million in nominal terms with effect from January 2008 as per

the debt relief schedule given in Annexes1 and 2 The structure of the relief in terms of currency

is presented in Annex 3 and the exchange rates in Annex 4

72 The debt relief assistance would relieve CAR of up to 80 percent of its debt-service

obligation to the Bank each year from January 2008 to July 2020 CARrsquos debt service profile

with the Bank Group before and after the HIPC assistance is provided in Annex 5 The impact of

the debt relief on CARs debt service profile is illustrated in Chart 1 below The provision of debt

relief as described is consistent with the rules and regulations of the African Development Bank

and the African Development Fund

Chart 1 Impact of Debt Relief on Central African Republicrsquos Bank Group Debt Service Profile

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(July)

Deb

t se

rvic

e (U

S$

mill

ions

)

Before HIPC Assistance Beyond HIPC Assistance

10

Exchange rate for December 2006 UA 100 = US$ 151

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

10

Legal Aspects of Debt Relief Operations

73 Under the enhanced HIPC framework debt relief for Central African Republic is to be

provided in accordance with the terms described in paragraphs 71 and 72 These terms will be

implemented by

(i) A Revised Debt Relief Agreement between the Bank Group and the Government of

Central African Republic

(ii) A Contribution Agreement between the Bank Group and IDA and

(iii) A HIPC Trust Fund Grant Agreement between the Bank Group the International

Development Association (IDA) and the Government of Central African Republic

VIII INDICATIVE FINANCING ARRANGEMENTS

81 The total debt relief of US$ 8538 million in end-2006 NPV terms is committed by the

Bank Group This includes US$ 4283 million in NPV terms provided through the arrears

clearance operation Hence the HIPC debt relief after the arrears clearance is US$ 4255 million

in NPV terms The financing arrangements are as shown in Table 3 below The European

Commission and the HIPC Trust Fund will each provide US$ 3415 million in end 2006 NPV

terms and the ADB Group will provide US$ 1708 million from its internal resources

Table 3 Indicative Financing Arrangements (US$ million in end-2006 NPV terms)

Sources of Financing Total Contribution Percent of the Total ()

Internal Resources European Commission Pledge HIPC Trust Fund TOTAL

1708

3415

3415

8538

20

40

40

100

IX RECOMMENDATIONS

91 The Boards of Directors are invited to

(i) Take note of the justification for Central African Republicrsquos qualification for HIPC

assistance at its decision point under the enhanced HIPC Initiative

(ii) Approve the decision point total debt relief of US$ 8538 million in end-2006 NPV

terms for Central African Republic according to the financing arrangements

presented in VIII The total debt relief includes a US$ 4283 million in end-2006

NPV terms already provided to CAR through the arrears clearance operation

leaving US$ 4255 million equivalent to US$ 5502 million in nominal terms to be

financed as net HIPC debt relief

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

11

Annex 1 AFRICAN DEVELOPMENT BANK

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADB

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 0 0 3592897

2009 0 0 3890902

2010 0 0 4215422

2011 0 0 4190341

2012 0 0 4500636

2013 0 0 4471277

2014 0 0 4444045

2015 0 0 4416455

2016 0 0 4390694

2017 0 0 4361275

2018 0 0 4333685

2019 0 0 4306096

2020 0 0 3905500

0 0 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

12

Annex 2

AFRICAN DEVELOPMENT FUND

HIPC Debt Relief Schedule

(US$ millions)

CENTRAL AFRICAN REP

Decision Point Date 28 September 2007

CALENDAR YEAR

TOTAL ADF

ADB PERCENT IN THE TOTAL

TOTAL (ADBADF)

2008 3592897 100 3592897

2009 3890902 100 3890902

2010 4215422 100 4215422

2011 4190341 100 4190341

2012 4500636 100 4500636

2013 4471277 100 4471277

2014 4444045 100 4444045

2015 4416455 100 4416455

2016 4390694 100 4390694

2017 4361275 100 4361275

2018 4333685 100 4333685

2019 4306096 100 4306096

2020 3905500 100 3905500

55019224 100 55019224 Summary

Total Nominal Relief US$ 55019224 mn

of which

ADB US$ 0000000 mn

ADF US$ 55019224 mn

Total NPV Relief 2006 NPV US$ 42552350 mn Duration 13 years

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

13

Annex 3

AFRICAN DEVELOPMENT BANK GROUP

Structure of HIPC Debt Relief in Terms of Currency

Institution Currency Amount (US$ million) Percent ()

ADF CAD 0424552 08

CHF 1555253 28

DKK 3430223 62

EUR 17957170 326

GBP 0281139 05

JPY 18292810 332

NOK 6898188 125

SEK 1041832 19

USD 5138056 93

TOTAL 55019224 1000

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

14

Annex 4

CENTRAL AFRICAN REPUBLIC DISCOUNT AND EXCHANGE RATE ASSUMPTIONS AS OF END-DECEMBER 2006

index

Discount Rate 1 Exchange Rate 2

Currency Name (In percent per annum) (Currency per US

dollar)

CAD Canadian Dollar 522 117 522 CFA CFA Franc 480 49807 480 CHF Swiss Franc 351 122 351 CNY Chinese Yuan 513 781 513 DKK Danish Krone 481 566 481 EUR Euro 480 076 480 GBP UK Pound 568 051 568 JPY Japanese Yen 257 11895 257 NOK Norwegian Kroner 505 626 505 SDR Special Drawing Rights 513 066 513 SEK Swedish Krona 473 686 473 USD US Dollar 589 100 589 Memorandum item Paris Club cutoff date January 1 1983

Sources OECD and IMF International Financial Statistics

1 The discount rates used are the average commercial interest reference rates over the six-month period

prior to end-December 2006 ie the end of the period for which actual debt and export data are available

2 The exchange rates are expressed as national currency per US dollar at end-December 2006

15

Annex 5

AFRICAN DEVELOPMENT BANK GROUP

CAR Debt Service Profile (In US$ million)

Year Before

HIPC Assistance Debt Relief

Beyond HIPC Assistance

2008 4491121 3592897 0898224

2009 4863628 3890902 0972726

2010 5269277 4215422 1053855

2011 5237926 4190341 1047585

2012 5625795 4500636 1125159

2013 5589096 4471277 1117819

2014 5555056 4444045 1111011

2015 5520569 4416455 1104114

2016 5488367 4390694 1097673

2017 5451594 4361275 1090319

2018 5417107 4333685 1083421

2019 5382619 4306096 1076524

2020 (July) 5350040 3905500 1444540

TOTAL 69242195 55019224 14222971

16

Annex 6

IMF World Bank HIPC Decision Point Document for

CENTRAL AFRICAN REPUBLIC

httpsiteresourcesworldbankorgINTDEBTDEPTDecisionPointDocuments21615779ID

AR2007-0239pdf

16

Annex 6

IMF World Bank HIPC Decision Point Document for

CENTRAL AFRICAN REPUBLIC

httpsiteresourcesworldbankorgINTDEBTDEPTDecisionPointDocuments21615779ID

AR2007-0239pdf