1. The Central African Republic is firmly pursuing a process of democratization, one stage of which was the formation in February 1997 of a more open government aimed at ensuring a return to lasting political stability and improved security, regaining the confidence of the population as well as domestic and foreign investors, and achieving satisfactory economic growth. Such an environment is essential to increasing employment, boosting per capita income, and reducing the poverty that poses a genuine threat to the maintenance of social peace in the Central African Republic. The authorities are aware that achievement of these objectives requires an integrated approach, including in particular the systematic implementation of a program of economic adjustment and structural reforms.

2. The Central African Republic is a vast, landlocked, and sparsely populated country that is handicapped by the predominance of subsistence agriculture, an extremely limited transportation network, and a legacy of deficient macroeconomic management. The country also is beset by a sizable domestic and external debt burden, which worsened in the course of the mutinies that occurred in 1996–97. Moreover, the country's low per capita income severely restricts the scope for generating sufficient domestic savings to finance the most basic investments in physical and human capital. In such circumstances, and given the country's available resources and limited institutional and administrative capacity, priorities have to be set to facilitate decision making and reduce the risks associated with economic activity.

3. The authorities recognize that formulating and implementing such priorities will require a consensus within the government, as well as the full and unwavering support of the country's citizens and political and social groups. Such a process must be based on an open and pluralistic form of society, characterized by dialogue and reconciliation, more ample information flows, enhanced accountability on the part of public authorities, a campaign against rent-seeking behavior, corruption, and patronage, improved institutional functionality and responsiveness, transparency, and the establishment of a legal system that can ensure the strict enforceability of contracts in every area of economic activity. In a spirit of openness, the authorities will make the text of this economic adjustment and structural reform program available to the people of the Central African Republic and to the international and bilateral donors and creditors, who it is calling upon to support its reform process through appropriate and generous financial and technical assistance.

4. The authorities' main medium-term policy objective is to reduce poverty substantially through a steady and sustainable increase in per capita income, in a stable economic environment. To this end, the authorities will pursue economic policies and structural reforms that foster the achievement of the following objectives by 2000: (a) average annual growth of real GDP of 5.2 percent, so as to increase annual real per capita income by nearly 2.7 percent; (b) an average annual inflation rate of about 2.5 percent; and (c) an external current account deficit contained at about 5 percent of GDP (Table 1).

5. The authorities are convinced that the restoration of lasting macroeconomic stability requires the steadfast implementation of sound fiscal policies. Such policies are aimed at reducing the overall fiscal deficit (excluding grants) from 6.5 percent of GDP in 1997 to 4.6 percent of GDP in 2000 through a strengthened administrative capacity in the relevant agencies and genuine transparency in government financial operations. The pursuit of such fiscal policies, accompanied by a prudent monetary policy at the regional level, should also help reduce inflationary pressures. It will also help to increase savings, which is necessary to meet essential needs in the areas of education and health and basic infrastructures, to fight poverty, and to promote private investment.

6. Consistent with an economic development strategy based on private sector activity and aimed at increasing substantially productivity and the economy's overall responsiveness, the government will withdraw rapidly from all economic activities associated with the production and marketing of goods and services. Thus, the authorities will redefine and scale down the role of government and, in so doing, broaden the scope for private sector activity through the privatization of public and semipublic enterprises, and the creation of a legal and regulatory environment that encourages private initiative and broadens economic opportunities. To this end, and to support the export of commodities in the production of which the Central African Republic has a proven comparative advantage, the authorities will pursue a program of structural reforms and outward-oriented economic policies based on the maintenance of international competitiveness. Moreover, with a view to facilitating the country's integration into the world economy, the authorities will lend their full support to international efforts to liberalize trade and payments, and they will actively participate in the various economic initiatives under way to increase integration in the subregion. The authorities will also prepare a program of structural measures that includes (a) actions to improve significantly the functioning of public administration in general, and financial management in particular; (b) the privatization of nonfinancial public enterprises; (c) the restructuring and privatization of the banking system; and (d) changes to the legal and regulatory environment that foster the emergence of efficient domestic markets and the establishment of mechanisms and institutions that support the smooth functioning of a market economy.

7. Given the size and low population density of the country, the authorities will examine the scope for concentrating administrative efforts and financial resources on "growth poles"—regional centers with the largest and most immediate development needs and potential. At the same time, with the assistance of the World Bank and interested donors and creditors, the authorities will develop a framework for coordinating foreign aid and strengthening the administrative capacity and development potential of local communities. The authorities will also redefine and intensify their collaboration with domestic private development institutions and external donor organizations such as the United Nations Development Program (UNDP), United Nations Children's Fund (UNICEF), World Health Organization (WHO), and nongovernmental organizations (NGOs), in order to improve the provision of basic social and community services to the population, including in remote areas.

8. The authorities are also convinced that the determined and steadfast implementation of the economic strategy and reforms described herein will increasingly win the trust and support of the general public, as well as of domestic and foreign investors. They believe that such a development could promote the emergence of a virtuous circle, as an improved economic and financial environment, which would create the confidence needed for an upturn in private saving and investment and higher economic growth. In this context, assuming a substantial improvement in fiscal performance and a rapid implementation of the planned structural measures, gross domestic saving would increase from 6.7 percent of GDP in 1997 to 9.9 percent of GDP in 2000, while gross domestic investment would rise from 9 percent of GDP in 1997 to 13.2 percent of GDP in 2000.

9. The authorities believe that the new political system and the ongoing democratization process will entail changes in the way the government functions. Consolidating and maintaining political stability, and achieving economic and social progress as expected will require that the spirit and letter of the new Constitution be reflected in day-to-day action under a system of good governance and respect for the law. With the assistance of international organizations and interested bilateral donors, the authorities will also examine the human and financial resources requirements for a lasting improvement in the country's internal security situation. Finally, in accordance with the Constitution, they will seek to decentralize decision making and increase the participation of regional and local governments in the political process.

10. The authorities are resolved to consolidate political stability through the full implementation of the provisions set forth in the Bangui Agreement. In particular, they have been developing a plan to restructure the C.A.R. armed forces, the implementation of which began in April 1998. They will also introduce in the near future a program for demobilizing some troops and reintegrating them into the economy, consistent with the recommendations of the National Conference on Defense. The aim is to rebuild a national republican army, that would contribute to economic development and whose size would be consistent with the security requirements and financial capabilities of the country. This project will be carried out with financial assistance from certain donors and creditors, and its impact on the country's public finances is expected to be minimal.

11. The authorities intend to enact a comprehensive reform of the civil service, with a view to enhancing government efficiency significantly and improving the responsiveness of the administration to the changing needs of society. To this end, they will accord a high priority to the full and effective implementation of the civil service statute of April 1994, including its amendments that pertain to strengthening the incentive system, clarifying career streams, placing greater emphasis on merit in salary adjustments and promotions, and stiffening penalties for misconduct. Finally, to increase productivity in the civil service, the authorities will set up comprehensive and well-targeted training programs for civil servants. However, success in carrying out this civil service reform program will require adequate financial and technical assistance from foreign partners. The authorities call upon donors to support their efforts in this area.

12. The authorities recognize that formulating and implementing sound economic policies are essential to establish credibility and regain confidence at home and abroad. They will continue their efforts to improve substantially economic management through the timely formulation and systematic implementation of coherent and transparent economic, structural, and regulatory policies. In this connection, the prerogatives of the Interministerial Committee on Economic and Structural Adjustment (IC) set up in 1995 will be made more effective through appropriate changes in its focus and mode of operation. In this respect, among other measures, the IC will henceforth meet at least once a month to review outstanding policy issues, prepare decisions, and assign responsibilities for task execution. The IC will base its deliberations on statistical data on the national accounts, government finance, the monetary survey, and the balance of payments, and on concise reports on program implementation prepared monthly by the Permanent Technical Committee. These reports will also be provided to the Bretton Woods institutions and to donors and creditors active in the Central African Republic. The IC will steer and monitor the government procurement process, and the agency responsible for this function will be part of the Ministry of Finance and Budget.

A.  Fiscal Management and Policies

13. The authorities believe that the efficient and transparent management of public finance and the conduct of sound fiscal policies constitute the cornerstone of their medium-term adjustment program. Accordingly, while substantially reducing the fiscal deficit, they will give the highest priority to achieving (a) a lasting strengthening of the functioning and operations of the Ministry of Finance and Budget; and (b) a significant improvement in the tax system and a reorientation of government spending in favor of the priority sectors of health and education. In this connection, they will reorganize the Ministry of Finance and Budget, strengthen its administration and staffing, and streamline the budget process. Moreover, they will implement revenue and expenditure policies designed to achieve a sustainable fiscal deficit and cover public debt service while contributing appropriately to the maintenance of economic stability.

Fiscal management

14. Improving the management of public finance entails a strengthening of tax administration, the control of public resources, and transparency in government financial operations. Efforts in these areas are essential to restore the credibility of fiscal policies and underpin the authorities' commitment to reduce the fiscal deficit. To this end, the responsibilities of the various departments and sections of the Ministry of Finance and Budget, as well as the qualifications and skills of its staff, will be reviewed in light of the ministry's new organization chart—which could be adapted as necessary to enhance its effectiveness. In support of this objective, a training program will be established with donor assistance. Moreover, close attention will be given to enhancing the integrity of the ministry and its staff.

15. The national budget, as the legal instrument for implementing the government's fiscal policy and fulfilling the obligations ensuing therefrom, must reflect the new political environment. In this spirit, the authorities will ensure the complete transparency of the budget process, establish clear and simple guidelines on the timetable and procedures for preparing the Budget Law, and ensure that these guidelines are closely adhered to. Henceforth, the budget will be submitted to the National Assembly before the end of the closing budget year and voted upon at the latest in December of the year preceding the new budget year. Moreover, all off-budget expenditure will be eliminated from 1998 onward, and any significant deviations from the approved budget that may arise in the course of the year will be regularized in the form of a revised finance bill, requiring National Assembly approval. In addition, the monitoring of budget execution will be improved through the preparation of a monthly report on tax and nontax revenue and on expenditure by ministry and by major economic category, as well as through quarterly report and an annual report on budget execution (loi de règlement). These three reports will be made available to the National Assembly. Finally, the 1999 budget will be prepared in the context of a medium-term public finance program developed in consultation with the International Monetary Fund and the World Bank.

16. To achieve its fiscal policy objectives, the government is committed to tightening budget controls significantly. The Office of the President, ministries, and other government institutions will have to abide strictly by the relevant appropriations under the approved budget. In addition, unlawful bank accounts of ministries were closed permanently as of April 1998. To keep overall spending in line with the approved budget and within available resources, the Treasury of the Central African Republic will each month prepare a three-month rolling cash budget, as part of an annual cash budget reflecting external aid projections, and it will make recommendations about the prudent pace of expenditure authorizations. Significant deviations from these recommendations will require prior approval by the government.

Fiscal policy

17. The authorities are aware that a credible and effective fiscal policy presupposes the achievement of a sustainable fiscal deficit. At the same time, they realize that the economic and social development of the country will require substantial investment in human and physical capital. To reconcile these two requirements, priority should be given to mobilizing effectively tax and quasi-tax revenue, and to controlling and restructuring expenditure to improve its quality. The main objective of fiscal policy during the program period is, therefore, to improve the primary balance of the central government by 2 percentage points of GDP, in order to generate a primary surplus of 1.3 percent of GDP in 2000. Thus, the overall budget deficit would decline to a sustainable level, and resources would be made available for clearing domestic and external arrears (the latter by end-1998), funding critical public investment, and promoting an increase in the share of credit to the private sector. Given the pressing needs of several priority sectors and the necessity of maintaining an appropriate level of current expenditure, particular emphasis will be placed initially on improving markedly the collection of revenue. Accordingly, the authorities aim at increasing total revenue from an average of 7.5 percent of GDP in 1995–97 to 10.8 percent in 2000. Primary current expenditure is projected to decline by about 2 percentage points to 5.6 percent of GDP from 1997 to 2000, while capital expenditure is expected to increase by almost 3.5 percentage point to 8.7 percent of GDP over the same period.

Government revenue

18. The authorities believe that a substantial increase in revenue is essential to clear the arrears accumulated through end-December 1997, avoid the emergence of new arrears, and enable the government to fulfill its proper role in the country's development process. Government revenue policies will therefore be based on three pillars: (a) the centralization of all actual tax and quasi-tax revenue under the sole authority of the Ministry of Finance and Budget; (b) improvements in the administration and collection of taxes and customs duties; and (c) a gradual but comprehensive tax reform. Improving the administration and collection of taxes will involve, above all, close cooperation between revenue departments—pending their integration at a later stage—including the establishment of computer linkages, the common usage of single taxpayer identification numbers, and the sharing of taxpayer information. The authorities will intensify their fight against tax fraud and evasion by establishing and enforcing clear operational procedures and codes of conduct. Moreover, they will reorganize the revenue departments and adjust their responsibilities in line with observed needs. In particular, the recently created subdirectorate for the taxation of large enterprises will be responsible for collecting all applicable taxes. Finally, the authorities will step up the computerization of the revenue departments, ensure that tax bases are properly assessed, strengthen taxpayer monitoring—particularly the accurate assessment of import duties—and secure the collection of back taxes in a firm manner.

19. Fiscal policy will continue to take into account the regional initiatives begun in the context of the indirect tax and customs reform in the CEMAC (Communauté Economique et Monétaire de l'Afrique Centrale). The principal objectives of this reform are to (a) broaden the tax base to make fiscal policy more efficient and more equitable; and (b) consolidate and simplify the tax system to make it more transparent and easier to administer. In a first phase, the broadening of the tax base will rely mainly on the elimination of all exemptions other than those covered by the Vienna Convention and UDEAC (Central African Customs and Economic Union) Act No. 2/221 of April 30, 1992. In particular, all special enterprise agreements (conventions d'établissement) will be renegotiated, and exemptions that do not comply with the CEMAC reform and/or the General Tax Code and the Customs Code will be eliminated. In a second phase, the tax base will be broadened by gradually expanding the taxation of small and medium-sized enterprises. Consideration will also be given to introducing simple and effective means to tax the agricultural sector.

20. Efforts to simplify the tax system and increase its efficiency will concentrate on the timely replacement of the existing turnover tax system with a full-fledged value-added tax (VAT) system, featuring a single rate and a tax threshold. This reform will be complemented by the introduction of a simplified system for small businesses in the form of a single, comprehensive tax (impôt synthétique). Similarly, the direct tax system will be simplified, specifically through a reduction in the number of income tax brackets. Finally, the special arrangements currently covering the taxation of the main export sectors (timber, cotton, diamonds, and coffee) will be reviewed and adapted as needed, to ensure both the international competitiveness of domestic producers and an appropriate level of tax revenue from the exploitation of these resources.

Government expenditure

21. The authorities believe that improved expenditure control and preferential spending on health and education, the fight against poverty, and the construction of basic infrastructure are essential components of a sound fiscal policy. Consequently, they will strengthen the mechanisms for programming, implementing, and monitoring expenditure at all levels of government. Expenditure not included in the Budget Law will be permanently eliminated. In particular, with the assistance of the World Bank, the authorities will conduct an annual public expenditure review and establish a three-year rolling public investment program (programme triennal d'investissement public, or PTIP). Given the severe resource constraints the country is likely to face in the years ahead, particular attention will be given to the establishment and observance of expenditure priorities, based on national development objectives and the need for cost effectiveness. Consequently, as part of the annual budget process, all expenditure programs will be scrutinized systematically for possible savings. Finally, with a view to rationalizing and streamlining expenditure management over the medium term, the linkages between the PTIP and the current budget will be spelled out more clearly, and the recurrent expenditure associated with new investment will be systematically evaluated in the course of preparing the PTIP.

22. Expenditure control should begin with the wage bill, which absorbs a disproportionate share of available budgetary resources and remains very high compared with spending on other goods and services. Therefore, the share of the wage bill in total revenue will be gradually reduced from an average of 62 percent in 1995–97 to 33 percent in 2000. In addition, the ratio of the wage bill to spending on goods and services will be lowered from an average of 2.5 in 1995–97 to 2.3 in 2000. To this end, the scope for reducing the government payroll will be fully utilized, and nominal wage increases will be strictly limited, based on available budgetary resources. In particular, the number and proportion of senior staff positions will be reduced. Moreover, with the help of computerization and the harmonization of information between the Ministry of Civil Service and the payroll department of the Ministry of Finance and Budget, the payroll will be carefully checked and "ghost workers" eliminated. In addition, the nature of, and justification for, government transfers and subsidies will be reviewed systematically, and appropriate cuts will be made in light of the results of the review. The resulting savings will be used primarily to cover spending geared toward increasing the productivity of civil servants and improving the supply of public services, in particular in the priority sectors of health and education. Consequently, the overall share of spending on health and education in total expenditure (excluding debt service) will be raised from 26 percent in 1997 to 30 percent in 2000.

23. From the start of the program, substantial efforts will be made to settle external payments arrears. Given the shortage of domestic resources over the program period, however, progress in the settlement of arrears will largely depend on assistance from donors and creditors, including in the form of debt-service reduction. Domestic payments arrears to government suppliers and civil servants will be eliminated gradually, both to restore the credibility of the government within the country and to support economic activity. First, the authorities will establish a complete inventory of claims and carefully check their validity. Second, a timetable will be drawn up for the settlement of claims, based on available resources. Even so, eliminating part of the domestic payments arrears will necessarily involve the issuance of government securities, at least initially. In the process of clearing domestic payments arrears, the authorities will also need to ensure that all claims are treated equitably, and avoid any favoritism or arbitrary decisions.

B.  Monetary and Financial Sector Policies

Monetary policy

24. Monetary policy in the Central African Republic will continue to be conducted within the institutional framework of the CEMAC, which aims at preserving the internal and external stability of the regional currency, the CFA franc, by ensuring that domestic credit expansion is consistent with international reserves objectives. Accordingly, the authorities will abide by the statutory ceiling on central bank advances to the government, which will help free sufficient resources for expansion of the private sector and strengthen its role in economic development. Consistent with international reserves objectives and in support of exchange rate stability, the Bank of Central African States (BEAC) will maintain an adequate positive interest rate differential between its main intervention rates and those in the anchor currency. In recognition of the implications of a common currency, and considering the increasing financial integration in the BEAC zone, monetary programming for the national economy will be complemented by consolidated monetary programming for the zone of issue as a whole.

25. In addition, the authorities will encourage the BEAC to rely on indirect instruments of monetary policy, with emphasis on positive and negative auctions. In conducting monetary policy, the BEAC will focus more and more on managing the volume of liquidity to be injected or withdrawn, and it will leave the determination of interest rates to the markets. In the same vein, the floor and ceiling on commercial banks' deposit and lending rates will be eliminated and the refinancing facility for medium-term credits abolished, in accordance with the timetable prepared by the BEAC.

Financial sector policies

26. With a view to restoring confidence in the financial system, the authorities will ensure the timely privatization and restructuring of the three largest commercial banks, Banque Internationale pour le Centrafrique (BICA), Banque Populaire Maroco-Centrafricaine (BMPC), and Union Bancaire de l'Afrique Centrale (UBAC), and will close the other four banks (Banque Nationale Centrafricaine de Dépôts (BNCD), Banque Centrafricaine des Investments (BCI), Banque pour le Crédit Agricole et le Développement (BCAD), and Banque Nationale de Développement (BND)) by end-1998. Moreover, the government will not participate in the capital of new financial institutions. The authorities will also cooperate with the regional banking supervision agency (COBAC) to ensure that banking institutions abide strictly by the prudential and regulatory ratios and constitute provisions to cover nonperforming loans. More generally, they will fully support a strengthening of the authority of COBAC. In addition, they will encourage a widening and broadening of the range of financial services, in line with the growing demand and in accordance with prudential rules. In particular, the authorities will promote an expansion of financial services in rural areas. Finally, in support of regional integration, they will encourage the BEAC to develop efficient clearing and settlement systems, and grant licenses enabling banks to open and operate branches throughout the zone.

C.  External Sector Policies

27. With a view to improving resource allocation and benefiting from the gains of a more efficient economy, the authorities' external sector policies will favor openness and competition in a regional and global context. In particular, the authorities will keep the trade system free of quantitative restrictions and will further reduce the average level of protection. They will also continue to promote and implement the measures agreed under the CEMAC regional reform program (programme régional de réformes), which aims at strengthening integration within the economies of its member states. Consequently, the authorities will eliminate the remaining temporary surcharges and the generalized preferential tariff (tarif préférentiel généralisé) currently applied to intracommunity trade, in accordance with the timetable under the reform program established by CEMAC.

28. The Central African Republic will continue to maintain a foreign exchange system that is free of restrictions on the making of current payments and transfers. Moreover, in the regional context, the authorities will cooperate with the other CEMAC member countries to streamline and harmonize exchange regulations. The authorities will also endeavor to eliminate all external payments arrears and restore normal payments relations with multilateral and bilateral creditors. In addition, with a view to reducing the external debt and debt-service burden, they will negotiate with creditors debt relief and debt restructuring, and will contract new borrowing only on highly concessional terms. In support of these objectives, the authorities will take all measures needed to strengthen their debt-management system. It is expected that implementation of policies under the program will result in a sustainable external position by the early 2000s. While external debt service is projected to remain heavy over the medium term, the Central African Republic is unlikely to qualify for exceptional debt reduction under the HIPC Initiative.

D.  Structural Reforms

Reform of nonbank public enterprises and agencies

29. In keeping with their objective of reducing the role of government in the economy, the authorities will accelerate their program of withdrawing from commercial and industrial activities, while streamlining the operations of those government entities that will remain in the public sector. Public enterprises will either be privatized, liquidated, or placed under management contracts. Action in these areas will be carried out in close cooperation with the World Bank and will be based on thorough financial assessments, audits, and jointly prepared balance sheets. Moreover, the government will neither set up any nonfinancial public enterprises or agencies nor acquire any participation in semipublic enterprises. The program, which also includes the formal liquidation of enterprises no longer in operation and the settlement of cross debts, will be implemented on the basis of a list of priorities and a precise timetable.

30. Regarding other government entities, particular attention will be given to restoring the financial stability and viability of the social security office (OCSS). Poor management and insufficient contributions have weakened the financial position of this institution, leading to a widening gap between the statutory benefits that will have to be provided in the future and the financial resources obtained from government and private employer contributions. To examine these and other related issues, the authorities have requested the assistance of the International Labor Office (ILO), with a view to preparing a study on the management of the OCSS and establishing an actuarial balance for the institution's pension section. In light of this study, the authorities will revise the social security legislation if and where needed. They will also prepare an action plan to restore financial health and management efficiency.

Establishment of a legislative and regulatory framework favorable to private sector development

31. In support of their objective of making the private sector the engine of growth, the authorities will take all necessary steps to make the framework governing private sector activity more transparent and reliable. Consequently, they will seek to strength the legal system in a comprehensive manner and, in particular, will revise laws and regulations that hinder private initiative. As far as possible, these actions will be taken in the context of ongoing regional initiatives, such as those of the Organization for the Harmonization of Business Law in Africa (OHADA) and the CEMAC. The authorities will continue their liberal price policy and will decontrol the retail prices of petroleum products. They will also eliminate the few remaining monopolies and, more generally, facilitate market access while simplifying administrative formalities. The authorities will clarify and strengthen property rights throughout the country. In addition, to ensure greater labor market flexibility, they will initiate a dialogue with the social partners on labor market issues and will make appropriate adjustments in the Labor Code. Lastly, they will introduce in 1999 an Investment Charter that will clearly define the provisions in favor of investors, in accordance with the General Tax Code and the Customs Code.

E.  Sectoral Policies

Agriculture, livestock, and forestry

32. Promotion of the agriculture sector is the cornerstone of the country's economic development and poverty-reduction strategy for two reasons: (a) the agriculture sector can provide a large number of jobs for the vast majority of the population, and will doubtless remain the most important economic sector for many years; and (b) agriculture productivity and rural incomes must be raised in order to reduce poverty in the country. Consequently, the authorities will pay particular attention to creating conditions conducive to increasing and diversifying agricultural production and livestock development in an environment of orderly rural development and growing domestic trade.

33. In order to ensure an adequate increase in agriculture productivity, the authorities will seek to strengthen incentives and improve the infrastructure and capital stock. Regarding incentives, the authorities will continue to allow agriculture prices to play their market-clearing role and signaling function. In particular, the prices for the principal cash crops for exports will be allowed to respond to changes in international prices. Regarding infrastructure and capital stock, the authorities will seek to encourage the spread of basic mechanization, improve the supply of modern tools and high-quality seeds and fertilizers, broaden the network of rural roads, support the establishment of markets and distribution networks, and expand and strengthen extension services, including those of the Central African Agriculture Development Agency and the Central African Agronomic Research Institute. They will also explore the potential for developing agro-processing for the domestic and international markets.

34. The authorities will update the inventory of natural resources in the western part of the country. A master land-use plan will be developed based on this inventory, which will specify in particular areas dedicated to forestry and farm and local government lands. The Ministry of Water, Forestry, Hunting, and Fishing has been restructured. The authorities will ensure that the new administrative and legal framework, on which the new forestry taxation and price policies are based, will be used to (a) improve the use of forestry and other natural resources; (b) encourage forestry developers to manage the resources in a sustainable manner; (c) encourage local processing of logs; and (d) distribute forestry income equitably between the treasury and local communities. Finally, based on the March 1998 audit of the forestry sector, the government plans over the next three years to revise extensively the forestry taxation regime and its policy for awarding logging concessions, with a view to increasing efficiency and transparency and raising the rate of return for the national economy while safeguarding forestry tax revenue.

35. As regards livestock development, the authorities will encourage a more extensive and active participation—including through the sharing of management costs—of the private sector in animal husbandry by (a) providing protection against epizootic diseases; (b) obtaining the support of donors and creditors in establishing a viable input supply system; (c) strengthening the National Federation of Central African Cattle Breeders; (d) promoting the creation of private ranches; (e) upgrading pasture land; and (f) improving breeds. To ensure the peaceful cohabitation of farmers, cattle breeders, and hunters in areas of shared resource use, the authorities intend to strengthen the system of pasture, hunting, and farming rights and encourage the conclusion of negotiated agreements among residents. Finally, to stimulate agriculture activity and rural development, the authorities will support initiatives aimed at extending financial services to the rural areas, provided these initiatives are managed soundly and comply with fundamental prudential rules. The authorities will strive to improve the livestock sector on the basis of a certified audit of the National Agency for Livestock Development and the National Federation of Ranchers of the Central African Republic. Furthermore, they will encourage the creation of community-based saving and credit institutions, as well as the establishment of micro-credit schemes.

Mining policy

36. Mineral resources in the Central African Republic have so far been insufficiently exploited to benefit the country. To remedy this situation, the authorities will develop a new mining sector strategy; this will take the form of a mining policy statement and will be clarified into a new modern and efficient Mining Code. In particular, the government will no longer be authorized to engage in any form of mining operations. In parallel, the authorities will seek to reduce parallel market activity and fraud in mineral exploitation through appropriate changes in the tax and export duty regimes. These changes will be based on a study that will explore various options, such as mechanisms to auction licenses annually, the introduction of quarterly prepayments on all import duties payable on the basis of production targets or economic programs, and the use of international reference prices rather than posted values. At an appropriate time, the authorities will invite internationally reputable firms to explore the potential for a wider commercial exploitation of the country's mineral resources. The authorities will ensure that mining activity is subject to the provisions of the General Tax Code and the Customs Code, and that, especially as far as the fiscal regime is concerned, it is consistent with the new Investment Charter, which will replace the Investment Code in 1999.

Transportation and communications

37. Given the vast size of the Central African Republic, the wide dispersion of its main economic activities, and its landlocked situation, an efficient and low-cost transportation system is a key requirement for the country's economic development and the maintenance of its international competitiveness. Nevertheless, financial resources for expanding the transportation system are in short supply. Thus, in collaboration with donors and creditors, the authorities will set up and implement a targeted program of rehabilitation and maintenance of high-priority roads to ensure the efficient functioning of the essential links between populations and production centers, as well as of the main export and transit routes. They will also redefine the role and structure of the Road Fund and take appropriate measures to improve its operations. In this connection, a user fee has already been adopted, and practical modalities for its implementation are in preparation. Controls on financial management of the Road Fund will be tightened, its administration made more efficient and cost effective, and its equipment privatized. In addition, a general framework will be developed and implemented for shifting an increasing share of general road maintenance and rural road construction to local communities and private companies. Finally, the authorities will seek to rehabilitate river transport on the Oubangui and restore it to a competitive level. To this end, they will also seek to conclude an agreement with the government of the Republic of Congo, with a view to restoring an efficient rail link from the Oubangui River to the coast.

38. The authorities are aware of the crucial role of telecommunications in the modern world. They are also convinced that the private sector must take the lead role in developing an appropriate infrastructure and efficient services. Therefore, the role of the state will be limited to defining a regulatory framework that promotes competition, provides low-cost services, and strengthens the capacity to respond to emerging demand. Regarding postal services, the authorities will accelerate the rehabilitation of the National Post and Savings Office and strengthen its administration and financial management, with the aim of reducing the need for budget support.

F.  Poverty Alleviation and Social and Environmental Policies

39. Despite its considerable natural and mineral resources, the Central African Republic's per capita income is one of the lowest in the world. Moreover, its social indicators are among the weakest in almost every respect. The deterioration of social indicators has been reflected in the suffering endured by the population and has hampered the country's economic and social development. The government is determined to change this situation fundamentally. Indeed, one of the main motives for its commitment to the economic and structural adjustment program is to achieve a sustainable increase in the rate of economic growth, in order to combat poverty and generate employment. In addition, over the program period and beyond, the authorities will increase significantly the share of spending on the social sectors in the total budget allocations, essentially with a view to raising school enrollment and literacy rates and to expanding the supply and improving the quality of health care. In addition, in cooperation with the local authorities, aid organizations, and donors and creditors, the authorities will finalize an outline for improving the supply of drinking water and sanitation in urban and rural areas. Finally, to create employment, they will favor labor-intensive methods in the execution of public investment in economic and social infrastructure.

Education

40. The authorities believe that improving education substantially is essential to enhance the country's prospects for economic and social development. To rationalize and strengthen their education strategy, they have enacted a law outlining education policies; in addition, the authorities are preparing a National Education Development Plan, in close cooperation with the World Bank and donors and creditors, and in accordance with the general principles and recommendations of the 1994 National Conference on Education. This detailed plan will focus on quality, effectiveness, accessibility, and equity, and give appropriate attention to the principles of decentralization and private sector participation, including that of charitable organizations, NGOs, and similar bodies. Within the overall education strategy, priority will be given to raising the primary school enrollment ratio and the enrollment ratio for girls. To achieve these objectives, the authorities will (a) increase the share of expenditure on education in total budget noninterest expenditure (see para. 22); (b) raise the share of expenditure on primary education in total education expenditure, and the share allotted to teaching materials; (c) lower spending on scholarships in the education budget; and (d) reduce the number of teachers assigned to administrative posts. Given the lack of budget resources, the government will define and implement a system of alternative financing for the sector, designed to mobilize resources from households and territorial governments to supplement the central government budget. In addition, the costs of university and vocational education will be increasingly borne by their beneficiaries. The government will conduct a public awareness and information campaign prior to implementing this change. Lastly, the authorities will further adapt their education policy to the needs of the economy.

41. Regarding the effectiveness of the education system, the authorities will first aim at improving the functioning of the two education ministries and ensuring the consistency and coordination of their activities. Moreover, they will strengthen the management and control of teaching staff and improve the monitoring of teacher performance. In this respect, teachers currently employed in the central administration will be assigned to schools, thereby providing understaffed schools with teachers, while weak performers and those who refuse to return to their teaching posts in the provinces will be eliminated from the payroll. The authorities will also endeavor to improve the quality of education by (a) broadening and strengthening teacher training, particularly for female teachers; (b) improving the supply of textbooks and school supplies; and (c) rehabilitating schools and constructing new ones. Moreover, they will review the curricula, especially for primary schools, and adapt them to the interests and needs of the population where appropriate. Finally, to broaden and strengthen awareness of the importance of education and facilitate its acceptance throughout the country, the authorities will undertake a wide-ranging media campaign to promote school attendance and community support for education.

Health

42. In accordance with the National Health Development Plan (PNDS), the primary objective of the government's public health policy is to increase the availability, accessibility, quality, and use of health services, especially primary care for mothers and infants and rural populations. To this end, the authorities will focus initially on reevaluating the supply of medical care, consistent with the human and financial resources actually available. In addition, they will give priority to the provision of essential generic medicines throughout the country. In support of these objectives, they will increase the share of budgetary allocations for health from 8 percent of total expenditure (excluding debt service) in 1995–97 to 16 percent in 2000 and ensure that budget allocations are released fully and in a timely manner. At the same time, the authorities will promote preventive and basic care, which has the most impact on the health of the population.

43. The authorities will also strengthen the functioning of the health ministry, and they will streamline and improve the management of health services at all levels through appropriate personnel training. In so doing, the authorities will rely increasingly on the decentralization of decision making, including through the participation of communities in planning, managing, and financing health programs. Moreover, they will grant health institutions greater autonomy and responsibility for their own operations and budgets. In this context, and while broadening the application of the principle of direct cost recovery for medicines and medical services, particularly in tertiary services, the authorities, in cooperation with their partners, will examine the alternatives to financing the operating costs of these services.

44. Under the PNDS, the authorities will also prepare an integrated set of health care plans. These will focus mainly on family planning, vaccinations, prenatal and postnatal consultations, other types of maternal and infant health care, essential medicines, nutrition, and the control of endemic diseases notably malaria, AIDS, and tuberculosis—that are affecting a growing part of the population, especially the young working population. To ensure that these programs are effectively carried out, the authorities will establish clear objectives for the main implementation units. Lastly, with assistance from the WHO and other development partners, the authorities are planning to expand and intensify their information, education, and communication campaign. They recognize also that improved access to drinking water is essential for preventing diarrhea, malnutrition, and water-borne illnesses and will focus on this task, particularly in the rural areas with relatively high population densities.

Environmental policies

45. Environmental policies will be based on the National Environment Action Plan. In implementing the plan, scheduled for end-1999, the authorities will seek a desirable balance between environmental concerns, on the one hand, and the immediate needs of the population and sectoral strategies, on the other hand. Among the various approaches, priority will be given to (a) efficient but environmentally viable soil use, notably in the vicinity of population centers; (b) a balance between the need for fuelwood and the danger of deforestation; (c) the search for solutions to potential conflicts among the various users of natural resources; and (d) the issues of endangered species, poaching, and wildlife management. Moreover, with assistance from the UNDP and other partners, the authorities will finalize a water resources development program. Finally, to improve urban environments, particularly in Bangui, they will seek to organize community-based cleanup operations in the context of municipal development projects.

46. Implementing the measures described in this document should enable the Central African Republic to achieve a viable position in the medium term. Despite a steady increase in merchandise imports—mostly reflecting the need for materials, hardware, and equipment in connection with the public investment program—the external current account deficit is expected to narrow over 1998–2000, as the growth of agriculture and other exports is sustained, and the terms of trade improve slightly.

47. On the basis of budget and balance of payments projections, the gross external financing requirement of the Central African Republic will be CFAF 256 billion for the 1998–2000 period (Table 2). This results from (a) cumulative external current account deficits totaling CFAF 115 billion; (b) cumulative external debt amortization payments, including IMF repurchases, amounting to CFAF 44 billion; (c) private capital and international reserves movements resulting in net inflows of CFAF 12 billion; and (d) the settlement of all external arrears by end-December 1998, for CFAF 85 billion. In view of the expected disbursements of available external aid from multilateral and bilateral official sources, a residual financing gap of CFAF 139 billion is projected for the period 1998–2000, of which CFAF 93 billion for 1998. Covering this financing gap will require (a) the resumption of disbursements out of presently frozen official multilateral and bilateral financial assistance, as well as supplementary exceptional financing from official donors and creditors; (b) the rescheduling of part of the arrears and current debt service due on external obligations to the Paris and London Clubs; and (c) the use of IMF resources under the Enhanced Structural Adjustment Facility.

48. To assist its efforts to strengthen management capability, the government requests that a post be opened for an IMF resident representative in the Central African Republic. It also wishes to receive support from IMF Fiscal Affairs Department experts in the areas of taxation and the procedures for auditing and monitoring government spending, as well as from the Fund's Statistics Department. The government will also seek financial and technical support from the World Bank for the Permanent Technical Committee and institutional support in the social sectors, and from the African Development Bank to help strengthen the Central African Republic's institutional and administrative capacity. It will request technical and financial assistance from its official bilateral partners, including France; that country is expected to provide expert assistance in the areas of cash-flow accounting, budgeting and financial control, the civil service, customs, and the use of information technology. Lastly, it will request the continued cooperation of the UNDP and other UN specialized agencies, particularly for the demobilization program that is part of the ongoing preparations for the national plan to combat poverty. By end-1998, the government would like also to devise, through in-depth consultations with all its multilateral and bilateral partners a framework program to develop its management, institutional, and administrative capacities in support of the structural adjustment, economic recovery, and political stabilization policies.