Central African Republic Arrears Clearance

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US$ 23.5 Million ADB Grant

-  Boards of Directors Approve Lifting of Sanctions Imposed on CAR

-  AfDB Group and Donors Each Clear 49.5% of CAR’s Arrears, while CAR clears the balance

Tunis, 20 December 2006 –The Boards of Directors of the African Development Bank and the African Development Fund, meeting today in a weekly ordinary session in Tunis, recognized that the Central African Republic had met the criteria for receiving financial assistance within the framework of the institution's Post Conflict Country Facility.

Accordingly, they decided to approve a grant of 15.57 million Units of Account (US$ 23.5 million or 11.7 billion CFA Francs) for CAR to help the country with its arrears clearance program.

The AfDB and ADF also committed to lift the sanctions imposed on CAR as soon as ADB and ADF received evidence of  donor irrevocable financial commitments. The financing arrangements for this operation had been concluded based on a  tripartite burden-sharing strategy between the country (which has already paid to the AfDB Group its contribution of 1%, equivalent to approximately UA 314,500 or US$ 474,000), the donors which have pledged to contribute 49.5% (UA 15.57 million) and the AfDB Post Conflict Country Facility, which will provide the remaining 49.5% (another UA 15.57 million).

The arrears clearance operation seeks to assist CAR in renewing relations with the donor community and securing future assistance under the Highly Indebted Poor country (HIPC) Facility in order to return to a sustainable debt situation. The AfDB Post Conflict Country Facility assistance is a key stage in the global reengagement process aimed at normalizing the country’s relations with its development partners for full resumption of their normal activities.

This arrears clearance operation entails exceptionally favorable treatment in the case of CAR, taking into account the unique aspects of the country’s situation, which is marked by serious economic and financial difficulties. CAR’s economic situation has, over the last years, been characterized by:

  • a protracted economic decline which has translated into a significant GDP decline and a marked increase in poverty;
  • a chronic budget deficit, aggravated by fiscal receipts that are constantly on the decline;
  • an unsustainable debt level with major internal and external payment arrears and indicators exceeding, by far, all the HIPC criteria;
  • major arrears in payments owed to private operators and in wages at unprecedented levels (over 30 months) which have contributed to bringing the internal debt up to approximately 26% of GDP;
  • extreme poverty characterized by one of the lowest human development index (HDI) rates and one of the largest proportions of persons living below the poverty level on the continent;
  • an extremely fragile security situation with obvious sub-regional implications.

To reverse this overall worrying trend and deepen ongoing structural and policy reforms so as to improve economic and global governance, the country is in urgent need of support from its development partners.

The Boards of Directors of the AfDB Group acknowledged that besides fulfilling the general conditions for Post Conflict Country Facility eligibility, the country had met the five criteria enabling it to be defined as a post-conflict country. It has made significant progress in restoring peace, improving economic and political governance and reviving economic activity, as well as in the disarmament reinsertion and resettlement of displaced populations. It is also classified as a post-conflict country (PCC) under stress by the World Bank and the IMF respectively.

CAR is eligible for debt reduction under the HIPC Initiative. It is satisfactorily undertaking structural and policy reforms in coordination with the international financial institutions and the donor community. Lastly, it has honored its commitment to finance its arrears to the AfDB Group and has collaborated with the Bank in mobilizing adequate resources from donors to wrap up the financing of the clearance operation. Considering its current situation and the government cash projections, CAR is considered to have made maximum efforts in paying its share of the proposed operation.

The 5 ADB criteria qualifying a country as a post-conflict country

a) The level of peace observed in the country;

b) The efforts made to establish good governance structures including sound legal and judiciary systems;

c) The resumption of normal economic activity;

d) The progress in the area of resettlement, disarmament and reintegration;

e) The position and opinions of international institutions, in particular those of the Bretton Woods Institutions.