Central African Republic

major macro economic indicators

(e): Estimate (f): Forecast *Including grants **Including international cooperation

RISK ASSESSMENT

Growth subject to internal insecurity and the global situation

While the Central African Republic (CAR) was only slightly affected health-wise by the COVID-19 pandemic, its global economic consequences, coupled with internal unrest and the outbreak of war in Ukraine, adversely affected growth in 2022. Although positive, the outlook for 2023 is subject to internal security developments, a deterioration of which could lead Cameroon to close the Douala (the region's main port located in Cameroon) - Bangui corridor as in 2021, thus blocking much of Central African trade. However, in 2023, the improvement in internal security - albeit still fragile - should continue to strengthen economic activity supported by an increase in private consumption associated with solid agricultural and industrial production. CAR's economy will benefit from its exports (more than 14% of GDP in 2021), in particular timber, gold, diamonds, coffee and cotton (which together account for 85% of its export earnings), which will be boosted by still-high prices and the recovery of trade, provided that the security situation does not deteriorate. Furthermore, social spending will be supported by the return of international aid. Nevertheless, the rise in import prices for oil and foodstuffs, on which CAR is heavily dependent, will weigh on the economic outlook. With the CFA franc pegged to the euro, inflationary pressures within CAR remain relatively moderate compared with some neighbouring countries. The Bank of Central African States (BCAS) is expected to follow the ECB's tightening of monetary policy and gradually raise its key rate to 4.5% by the end of 2022 and to 5.75% in 2023.

Increased dependence on external aid

The budgetary situation deteriorated significantly in 2021 due to a drop in public revenue, the postponement of budgetary support from donors (World Bank, EU, AFD) due to post-electoral political tensions, and the lack of transparency in security spending. However, it started to improve in 2022, and this should continue in 2023. Indeed, having noted satisfactory progress in the implementation of the reference programme approved in December 2021 (of which the objective is to help CAR face the economic challenges caused by the security crisis and to strengthen its governance), the IMF should again grant an extended credit facility (ECF) by the end of 2022. This would encourage a return of financing from other multilateral partners and allow the government to undertake structural reforms to strengthen public finances, fiscal transparency and governance. However, the implementation of these structural reforms could face difficulties if security problems continue to arise. In 2022, international donor grants are expected at 8% of GDP, or nearly 50% of total government revenue. Concomitantly, the public debt burden is expected to continue on its downward trend, while its external share (70%), mainly held by multilateral (IMF and World Bank) and bilateral (India, China, Congo) creditors, will represent over 30% of GDP in 2022.  The non-disbursement of the budget support initially planned for the first half of 2022, as well as the rise in import prices, has greatly increased the current account deficit. It is expected to narrow in 2023 thanks to an increase in exports.

Security at the heart of political issues

The CAR remains in a very precarious political and security situation since the start of a civil war in 2013. Despite a peace agreement signed in February 2019 between the government and the various rebel groups, aimed at integrating rebel representatives into the government and allowing the national army to regain control of the territory, the security situation remains much deteriorated, particularly following the contested re-election of President Faustin-Archange Touadéra in February 2020. Indeed, while the election focused on the security issues essential for economic recovery, frequent clashes still oppose the president's supporters to the Coalition of Patriots for Change (CPC, an armed movement created in 2020 by the merger of six rebel groups), which is marginalised. These confrontations prevented the holding of legislative elections, which finally took place between May and August 2021. They resulted in a relative majority for the presidential party with 40 of the 140 seats. However, it can count on several allied parties and independent deputies. In 2023, the government will therefore still face the challenges of restoring the country's security and territorial integrity in addition to inflationary pressures following the Russia-Ukraine war. The rollout of the COVID-19 vaccine also remains a concern, with only 22% of the population fully vaccinated by May 2022. Internationally, CAR's relations with the West will remain strained because of its links with Russia, particularly on the military level via the presence of instructors and the collaboration of its armed forces with the Wagner group, but also economically.  In addition, the CAR is also experiencing cross-border tensions with Cameroon due to the presence on its territory of rebel groups that undertake raids on its neighbour.

Last updated: November 2022