Estudos Econômicos
Central African Republic

Central African Republic

Population 5.1 million
GDP 449 US$
D
Country risk assessment
E
Business Climate
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 4.3 3.8 4.4 4.8
Inflation (yearly average, %) 4.5 1.6 3.5 3.0
Budget balance * (% GDP) -1.1 0.4 2.1 0.6
Current account balance ** (% GDP) -7.8 -7.9 -4.6 -5.4
Public debt (% GDP) 49.4 48.8 45.4 42.6

 

(e): Estimate. (f): Forecast. *Including grants. **Including Offcial tranfers.

STRENGTHS

  • Agricultural (cotton, coffee), forestry and mining (diamond, gold, uranium) potential
  • Substantial international financial support

WEAKNESSES

  • Extreme poverty (two thirds of the population lives below the poverty line)
  • Vulnerability of the economy to external shocks
  • Weak transport infrastructure and energy production capacity
  • Geographically isolated
  • Unstable political and security situation (a large part of the territory is controlled by armed rebel groups)

RISK ASSESSMENT

Growth hampered by the security situation

Growth should accelerate slightly in 2020, driven by forestry, agriculture and mining sectors. It will also be backed by international aid mobilised for infrastructure projects, notably in the energy and communications sectors. However, the country remains one of the poorest and is still exposed to a high level of violence. Growth will suffer from this very fragile context with an agricultural sector accounting for more than a third of GDP in 2018 and suffering from the regular outbreak of conflicts in rural areas. Nevertheless, wood production will maintain its good momentum, generating about half of exports, ahead of gold, coffee and cotton. On the other hand, official diamond production will remain limited, penalized by the embargo that still prohibits exports of diamonds produced in areas controlled by rebel groups. Domestic demand will remain low due to the high level of poverty and the large number of people in exile. Inflation will be close to the 3% target set by CEMAC, but it will continue to be highly volatile given its dependence on frequent disruptions in food supply. The CFA franc being indexed to the euro, inflation will also remain impacted by movements in the euro-dollar exchange rate.

 

Public finances bolstered by international aid

The agreement with the IMF under the Extended Credit Facility was signed in July 2019 with the payment of the sixth instalment of the loan, reflecting efforts to continue fiscal reforms. The government has managed to control its spending and increase the share of domestic revenues, although significant progress is required to expand tax collection throughout the country. By committing itself to continue on this path, the country should be able to obtain a new agreement with the IMF. Nevertheless, the balance of public accounts remains largely dependent on grants - notably from the World Bank and the European Union – which accounted for about 11% of GDP in 2019, or more than half of the budget. The new peace agreement has led to a significant increase in international involvement to finance its implementation. This additional budget support resulted in a higher than expected surplus in 2019, despite increased social and security spending. In 2020, domestic revenue growth will continue, while the share of grants in the budget should decline, leading to a reduction of the budget surplus. The ratio of public debt to GDP should decline further as arrears are paid off. However, the country remains exposed to a high risk of over-indebtedness.

Despite remittances from international partners and expatriates, which together accounted for 12.5% of GDP in 2019, the current account should show a large deficit in 2020, mainly due to the goods balance deficit (14% of GDP in 2019). The contraction of this deficit in 2019 was partly due to a decline in imports – more significant than that of exports – caused by the temporary closure of the main road linking Bangui to Cameroon. The increase in the current account deficit in 2020 (mainly driven by the projected cut in public transfers) should be limited. Subsidised loans from international organisations, whether project-related or not, will finance the current account deficit. In addition, foreign exchange reserves, pooled among CEMAC countries, have begun to rebuild, reducing the risk of a balance of payments crisis.

 

A tense security and political context

President Faustin-Archange Touadéra has been in power since the 2015/2016 elections which took place after a long period of civil war marked by the brief coup by the rebel coalition Seléka and the flight of former President François Bozizé in 2013. The next presidential and parliamentary elections will be held from December 2020 onward and will remain focused on the security issue. Despite a new peace agreement signed in February 2019 between the government and the various rebel groups, which has contributed to a reduction in violence, the security situation is still highly deteriorated. The factions of the ex-Seleka, a majority Muslim armed group, and the anti-Balaka, mostly Christians, continue to fight each other. Many other armed groups are taking advantage of this instability to try to impose themselves locally. The new peace agreement includes the integration of rebel group representatives into the government and allows the national army to regain control of the territory (70 to 80% being rebel-held) by relying on units composed of military from both the regular army and rebel groups. However, the implementation of this agreement will be difficult and highly uncertain. In June 2019, the country had more than 600,000 internally displaced persons – about 13% of the population – and as many refugees in neighbouring countries. The UN peace mission, Minusca, appears to lack sufficient resources and is suffering casualties.

Because of this unstable environment, the business climate will remain mediocre. The Central African Republic is one of the lowest placed countries in the Doing Business ranking, coming 184th out of 190 countries.

 

Last update : February 2020

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