Document of The World Bank

Report No: 27447

IMPLEMENTATION COMPLETION REPORT(IDA-33050)

ON A

CREDIT

IN THE AMOUNT OF US$20.0 MILLION

TO THE

CENTRAL AFRICAN REPUBLIC

FOR A FISCAL CONSOLIDATION CREDIT

December 30, 2003

POVERTY REDUCTION AND ECONOMIC MANAGEMENT (AFTP3)AFRICA REGION

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 15, 2003)

Currency Unit = CFAF CFAF 1 = US$ 0.001853

US$ 1 = 539.6

FISCAL YEARJanuary 1- December 31

ABBREVIATIONS AND ACRONYMS

AfDB African Development BankBEAC Banque des Etats de l’Afrique Centrale (Central Bank)CAR Central African RepublicCFAF CFA FrancCTP-PAS Comité Technique Permanent de Suivi du Programme d’Ajustement StructurelENERCA Energie de Centrafrique (Power company)EU European UnionFCC Fiscal Consolidation CreditGDP Gross Domestic ProductIDA International Development AssociationIMF International Monetary FundLICUS Low-Income Countries Under StressOED Operations Evaluations DepartmentMINURCA Mission des Nations Unies pour la République CentrafricainePETROCA Compagnie des Pétroles de CentrafriquePSP Policy Support ProjectPRGF Poverty Reduction and Growth FacilityQAG Quality Assurance GroupSDR Special Drawing RightsSMP Staff Monitored ProgramSOCATEL Société Centrafricaine de TélécommunicationsSOCOCA Société de Coton de CentrafriqueSODECA Société de Distribution d’Eau de CentrafriqueTSSN Transitional Support Strategy NoteUN United NationsUNDP United Nations Development Program

Vice President: Callisto E. MadavoCountry Director: Ali M. KhadrSector Manager: Cadman A. Mills

Task Team Leader: Abdoulaye Seck

CENTRAL AFRICAN REPUBLICCAR - Fiscal Consolidation Credit

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 86. Sustainability 117. Bank and Borrower Performance 118. Lessons Learned 129. Partner Comments 1310. Additional Information 13Annex 1. Key Performance Indicators/Log Frame Matrix 15Annex 2. Project Costs and Financing 16Annex 3. Economic Costs and Benefits 17Annex 4. Bank Inputs 18Annex 5. Ratings for Achievement of Objectives/Outputs of Components 19Annex 6. Ratings of Bank and Borrower Performance 20Annex 7. List of Supporting Documents 21Annex 8. Government's Contribution 24Annex 9. QAG Report 36

Project ID: P060092 Project Name: CAR - Fiscal Consolidation CreditTeam Leader: Abdoulaye Seck TL Unit: AFTP3ICR Type: Core ICR Report Date: December 29, 2003

1. Project DataName: CAR - Fiscal Consolidation Credit L/C/TF Number: IDA-33050

Country/Department: CENTRAL AFRICAN REPUBLIC Region: Africa Regional Office

Sector/subsector: Central government administration (25%); Crops (25%); General finance sector (25%); Roads and highways (13%); General industry and trade sector (12%)

Theme: State enterprise/bank restructuring and privatization (P); Tax policy and administration (S); Public expenditure, financial management and procurement (S); Regulation and competition policy (S); Legal institutions for a market economy (S)

KEY DATES Original Revised/ActualPCD: 07/10/1998 Effective: 12/15/1998 01/28/2000

Appraisal: 10/14/1999 MTR:Approval: 12/16/1999 Closing: 06/30/2001 06/30/2003

Borrower/Implementing Agency: GOVERNMENT OF THE CENTRAL AFRICAN REPUBLICOther Partners:

STAFF Current At AppraisalVice President: Callisto E. Madavo Jean-Louis SarbibCountry Director: Ali Khadr Serge MikhailofSector Manager: Cadman A. Mills Luca BarboneTeam Leader at ICR: Abdoulaye Seck Slaheddine KhenissiICR Primary Author: Abdoulaye Seck

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: U

Sustainability: UN

Institutional Development Impact: N

Bank Performance: U

Borrower Performance: U

QAG (if available) ICRQuality at Entry: U U

Project at Risk at Any Time: Yes

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

3.1.1 The development objective of the Fiscal Consolidation Credit (FCC) was to help the State carry out its basic functions in a post-conflict context, with an immediate objective of timely payment of wages to government employees and the military. The objective was consistent with the Government’s main development objective – articulated in the May 1998 Policy Framework Paper (PFP) – which was to create the conditions for civil peace and sustainable development. Measures supported by the Credit aimed at fiscal consolidation and included: (i) revenue-enhancing measures and reforms in public expenditure management for more efficient and transparent spending; (ii) the privatization of five key banks and enterprises to improve their fiscal impact through reduced losses and subsidies.

3.1.2 The FCC in the amount of SDR14.4 million (US$20 million equivalent) was approved by the Executive Directors on December 16, 1999, with an initial closing date on June 30, 2001. The first of three tranches of the credit, amounting to SDR6.5 million (US$9 million), was released on January 28, 2000, upon effectiveness. The second tranche of SDR3.6 million (US$5 million) was released on December 22, 2000 after a partial waiver on one condition related to financial transfers to the Road Fund. In June 2001, the Bank agreed to the authorities’ request to extend the FCC by two years, to June 30, 2003. In April 2002, the Executive Directors also approved an amendment of the conditions for the release of the remaining floating tranche of SDR4.3 million (US$6 million), to take into account the adoption of a new institutional framework to enhance the privatization prospects of the electricity and telecommunications companies, and the impact of the deteriorating security conditions in the country. In June 2003, arrears to the Bank and lack of a satisfactory macroeconomic framework led to the closing of the credit and the cancellation of the undisbursed balance of SDR4.3 million.

Context

3.1.3 The FCC was part of a multifaceted international effort to consolidate CAR’s political and security condition following four military mutinies in 1996-1997. The mutinies had a severe and lasting impact on the economy and the social situation. International mediation led to the Bangui Agreement of January 1997, which called for: (i) national reconciliation; (ii) the restructuring of the military; and (iii) an economic and public finance program with the Bretton Woods Institutions. A National Reconciliation Conference took place in February/March 1998. A cease-fire arrangement was enforced until mid-April 1998 by an Inter-African Mission to Monitor the Implementation of the Bangui Agreements (MISAB), and from mid-April 1998 to early 2000 by a United Nations Peacekeeping operation (MINURCA). A disarmament program, and restructuring of the defense and security forces, was implemented with the support of UNDP.

3.1.4 The economic reform program under the Bangui Agreements started in the spring of 1998 when CAR reached an agreement with the Bretton Wood institutions on a 1998-2000 Policy Framework Paper (PFP). A donors' meeting organized by the Bank in June 1998 indicated general support for the program under the PFP. The Fund’s Executive Board approved an Extended Structural Adjustment Facility (ESAF) on July 20, 1998. The Paris Club extended debt relief on Naples terms on September 25, 1998. It was in that context that the Bank started the

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preparation of a Structural Adjustment Credit whose appraisal hinged on the implementation of key economic reforms, especially the privatization of petroleum products imports and distribution.

3.2 Revised Objective:

The original development objective remained unchanged throughout project implementation. This was certainly a shortcoming in the credit supervision as it became increasingly clear that the development objective would not be achieved and a retrofitting of the operation was needed. The Bank amended the conditions of the third tranche release - as described below - but that came too late and was still ambitious.

3.3 Original Components:

The project had two components: (i) a public financial management component which aimed at improving revenue collection, introducing more efficient and transparent spending management, ensuring the regular payment of salaries, and gradually settling domestic and external arrears; and (ii) a public enterprises reform component which aimed at reducing losses of and subsidies to five public enterprises.

3.4 Revised Components:

3.4.1 Components were not modified during the implementation phase. However, after a reassessment of market conditions in the water, electricity and telecom sectors, tranche release conditions pertaining to the public enterprises component were amended in April 2002. The purpose of the amendment was to increase the managerial and operational efficiency of the utilities while their privatization was being completed. The amendment sought also to merge the water and electricity companies – instead of working with a separate electricity company as envisaged in the original credit – to enhance the prospects for their privatization.

Design

3.4.2 The FCC was designed as a multi-tranche structural adjustment credit to maintain Bank leverage and the pressure for reform, and to respond to the constraints of the cash management program agreed with the IMF under the ESAF. It was also intended to strengthen the position of reformers by signaling a sustained support by the Bank, thus reducing the risk of backtracking. While the choice of the lending instrument appears to have been appropriate, the policy content was not commensurate with the appetite for reform and weak implementation capacity in the Central African Republic (CAR). The Bank had recognized that past adjustment operations in the CAR overestimated the Government’s commitment to reform and its implementation capacity. In the preliminary stage of credit preparation, it sought to focus on a limited number of measures aimed at fiscal consolidation, factoring in capacity constraints, and relying on critical up-front actions demonstrating commitment to reform.

3.4.3 However, during further project preparation, the policy content of the FCC expanded rapidly as the Bank sought to balance the goal of a modest and doable reform program with the

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need to address a dismal fiscal situation and assuring that there was a reasonable prospect for lasting policy reform. Members of the OC meeting held on June 3, 1998 emphasized their concerns over the governance issue and urged IDA not begin to lend until there was some demonstration that the issue was being addressed. Following a pre-identification mission in September 1998, the team leader wondered if, by itself, the privatization of petroleum distribution was worth a first tranche of the proposed credit, and suggested considering actions in the diamonds and forestry sector to strengthen the fiscal base. As a result of these concerns, the ROC package included thirteen conditions for the release of the second tranche of the proposed credit. The expansion in policy content also occurred in the form of significant cross-conditionalities: several conditionalities for ESAF review were by and large the same as the upfront actions required by the Bank for the appraisal of the FCC.

3.5 Quality at Entry:

The project was reviewed in QEA3 (1999) and received an overall satisfactory rating for quality at entry. Among the factors that may have justified that rating was the collaborative work with the IMF and the UN to bolster the restoration of stability in the CAR, and the alignment with country priorities as stated in the 1998 PFP. However, a QAG supervision panel in 2002 rightly felt that given the country’s political and social instability and weak implementation capacity, the overall design of the operation at entry had been overly ambitious. The QAG panel also noted the lack of a clearly defined macroeconomic framework and quantitative fiscal targets as the ESAF was off-track with no clear indication of when an agreement could be reached with the IMF. The QAG panel felt these initial handicaps had not been overcome during implementation and had hampered credit performance.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

In terms of achievement of the development objectives, the outcome of the credit is rated as unsatisfactory. The Government of CAR is still not adequately carrying out its basic functions. Notably, it has continued to accumulate salary arrears to government employees, the military and external creditors. CAR has also remained unstable throughout project implementation. In the fall of 2000, public workers went on strike to protest the accumulation of salary arrears. There was growing civil unrest, and in May 2001, an attempted coup was led by a former head of State, General Andre Kolingba. In November 2001, there was another coup attempt, this time led by former Army Chief General Francois Bozize. When the latter coup attempt was defeated with the support of troops from Libya, General Bozize fled to Chad from where he launched counterattacks. After a first unsuccesful assault in October 2002, his troops entered Bangui on March 15, 2003, and seized control from President Patasse. General Bozize is now the new self-proclaimed President of CAR. To a large extent, CAR has come full circle its pre-FCC situation, emerging from violent conflict, public finances in dire straits, and with a fragile stability maintained with the support of an international peacekeeping force (CEMAC and France).

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4.2 Outputs by components:

4.2.1 Outputs will be assessed on the basis of compliance with key credit conditionalities (underlined items in the sections below), including the maintenance of an appropriate macroeconomic framework.

Macroeconomic Framework

4.2.2 Overall, macroeconomic management was not satisfactory throughout credit preparation and implementation. The authorities often came short of their revenue targets under the programs agreed with the IMF, and turned to costly bank financing and arrears accumulation to make up for large fiscal deficits. The IMF’s Executive Board approved a three-year arrangement under the ESAF in July 1998. The mid-term review under the first annual ESAF arrangement was completed only in June 1999, thus allowing the Bank to move forward with the appraisal of the FCC. However, in late 1999, discussions with IMF staff on a second arrangement under the PRGF (which replaced the ESAF) were not concluded because of revenue shortfalls and delays in implementing key prior action (privatization of PETROCA, and putting in place a new formula for setting cotton producer prices). The shortfall in revenue reflected the persistent evasion of customs duties as well as a large-scale fraud on the sales of tax-free petroleum products. In addition, the authorities did not raise the retail prices of petroleum products to account for the sharp increase in oil import costs.

4.2.3 With the risk that the Board presentation of the FCC could be delayed, the authorities took significant measures, including changes in the management of the customs department, increases in the retail prices of petroleum products, and the initiation of judicial proceedings against those involved in the fraud of petroleum products. On the basis of those measures, the IMF provided a Memorandum in support of Board presentation of the FCC in December 2000. However, it took one year before the IMF Board approved the second-year arrangement under the PRGF in January 2001. In May 2001, the first review of the PRGF was not completed due to revenue shortfalls. After a coup attempt in late May 2001, the PRGF was cancelled. Discussions with the IMF resumed in October 2001 when the authorities agreed with IMF staff on a six-month staff-monitored program (SMP). The successful completion of the SMP in June 2002 led to an agreement with the IMF on a three-year program to be supported by a Poverty Reduction and Growth Facility (PRGF). The presentation of the PRGF scheduled for November 2002 was cancelled after a coup attempt in late October 2002. Thereafter, plans to proceed with a disbursing IMF program remained very tentative, with the focus by Fund staff being to conclude the (by now long-overdue) Article IV consultation. In March 2003, discussions with the CAR authorities to conclude the Article IV discussions were again overtaken by a coup.

Public Finances

4.2.4 Increased transparency and accountability in public financial management through the extensive reform program supported by the Fund’s ESAF. Some measures were implemented on fiscal management although the overall picture remains bleak. On revenue management, all tax and non-tax revenue were brought under the sole authority of the Ministry of Finance and Budget. In January 2001, the authorities replaced the turnover tax with a value added tax at a single rate

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of 18 percent, and introduced a single and comprehensive tax for small businesses. The authorities also introduced a single tax identification number to facilitate the monitoring of taxpayers. In October 2001, they completed an overhaul of the tax administration management structure, including customs. On public expenditure management, off-budget spending was progressively phased out, and special commercial bank accounts of ministries were closed. Any deviation from the approved budget in the course of the year had to be approved by the National Assembly. The Treasury was tasked with preparing a monthly and a quarterly cash-flow management plan to keep spending in line with the approved budget and available resources.

4.2.5 Meet commitments to increase expenditure in education and health. This conditionality was not fulfilled. Under the 2001 budget law, the authorities raised the budget allocations to the health and education sectors by 25.6 percent in nominal terms while keeping the allocation for defense constant. The latter measure was symbolically significant in view of the security situation in the country. However, it was not translated into an increase in actual expenditures. A Bank mission in March 2003 found that actual government spending on education had declined in nominal terms by 30 percent since 2000, with a decline of 97 percent in capital expenditures and 5 percent in recurrent spending.

4.2.6 No accumulation of additional salary arrears during the period between March 31, 1999 and March 31, 2000. This specific condition was fulfilled, allowing the release of the second tranche of the credit. However, the government accumulated new salary arrears as early as June 2000 (before the release of the second tranche in December 2000). Overall, salary arrears remain a major issue in CAR.

4.2.7 Submission to IDA of an inventory of special tax exemptions granted to mining and logging operations from January 1, 1995 to December 31, 1998, and refraining from granting new special tax exemptions from the date of effectiveness. The authorities provided an inventory which showed that during that period, two logging companies and one mining company had been granted special tax exemptions. Since then, these exemptions have either expired or been suspended. No further special tax exemption has been granted since effectiveness and December 2000, at the time of the release of the second tranche of the FCC. However, in 2003, an audit of the forestry sectors revealed that compliance with tax law was still low among logging companies.

Public Enterprises Reform

4.2.8 Settlements of the obligations of PETROCA (the parastatal in charge of the import, storage and distribution of petroleum products) to the Road Fund, due in 1999. The rationale was to improve the performance of PETROCA and increase resources to the Road Fund, and avoiding public transfers from the central budget for road maintenance. The condition was not met as only 85 % of the obligations were settled, largely due to factors over which the Government had no control: about 30 thousands tons of petroleum product owned by CAR and stored in Kinshasa (DRC) were reportedly stolen in June 2000. The loss of these stocks prevented the complete fulfillment of the condition. With the privatization of PETROCA and the regular transfers of resources from the private distributors to the Road Fund, a new issue is the

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recurrent withdrawals from the Road Fund by the government to finance other expenditures. 4.2.9 Effective privatization of PETROCA and incorporation of SOGAL (the private company which was to take over from PETROCA the functions of import and storage of petroleum products). The import, storage and distribution of petroleum products are now completely privatized, which is a major achievement towards a long-sought reform. SOGAL was incorporated on June 16, 1999, with a minority government equity participation of 10 percent.

4.2.10 Privatization of two commercial Banks, BICA and UBAC. These two banks were privatized in 1999 but their situations remain difficult. BICA had non-performing credits accounting for 40% of its portfolio at end-June 2003. Most of the non-performing portfolio was built up after the privatization. The difficult political and economic situation has contributed to this situation, but poor management of the bank did play a role. The 2002 COBAC (Banking supervision commission) audit report stresses inadequate procedures for loan approval, lack of internal control, and poor accounting procedures. While the business community in Bangui has observed that the management of UBAC (now CBCA) has improved after the privatization, it also had significant non-performing credits, equivalent to 44% of its portfolio at end-June 2003.

4.2.11Submission of a realistic cotton sector financing plan for the 1999-2000 campaign, including appropriate producer prices and closing of one or more inefficient ginning plants, without recourse to medium term credit from the banking sector. In June 1998, the authorities increased the producer price for 1998/1999 from CFAF155 to CFAF170/kg. With the prevailing world prices, SOCOCA, the cotton parastatal, would have lost CFAF3 billion, which it could only finance with bank credits guaranteed by the Government. This would have jeopardized the restructuring of the banks, and the fiscal picture in 1999. The authorities introduced a mechanism for the determination of producer prices with a link to international prices, but they also made provision for a guaranteed price based on producers' cost, thus making the new mechanism ineffective in addressing a drop in international price. The authorities also closed one ginning plant but they reversed their decision in 2000. In addition, the recourse to medium term credit has not been discontinued, and it is a major burden on the commercial banks.

4.2.12 Approval by the Government of the strategy for the electricity sector, submission of the revised electricity code to Parliament, and bringing ENERCA to the point of lease. In December 1999, the authorities selected an international advisor for the privatization of ENERCA, and in 2000, they pre-qualified four international firms. In June 2000, they submitted to the Bank a draft Electricity Code and a draft Letter of Development Policy for the Electricity Sector. However, changed circumstances and a new approach to the privatization of the electricity and water sector now require that these documents be substantially revised.

4.2.13 Preparation of a regulatory framework for the water and telecommunications sectors, and creation of an autonomous regulatory body for the water, electricity and telecommunications sectors. There was some progress in the telecommunications sector. The Government prepared a Letter of Development Policy for the Telecommunications sector which the Bank found satisfactory. The sector has been also opened to competition with the granting of licenses to five private cellular phone operators, two of which have started activities. The autonomous regulatory

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body is not in place yet.

4.2.14 In April 2002, an amendment of the floating tranche conditions was proposed, as the Government had recognized that the completion of the public enterprise reforms would take time and thus required that measures be put in place to protect the assets of the electricity and telecommunications companies and increase their efficiency during the privatization process. The authorities agreed with the Bank on a new, pragmatic approach to privatization in light of the very difficult country circumstances.

4.2.15 The Government signed a management contract for SOCATEL (the telecommunications company) to: (i) safeguard financial and physical assets of the company prior to its privatization; (ii) strengthen billing and collection; (iii) improve technical efficiency and financial viability; and (iv) set performance targets, as well as a monitoring and evaluation framework. The effectiveness of the management contract has been limited by the continuous arrears buildup from the State and other public agencies/officials, as well as fraud.

4.2.16 The authorities also took seven specific up-front measures relating to the energy sector: (i) they approved a Letter of Development Policy for the electricity sector; (ii) they finalized terms of reference and issued tender documents for the appointment of an Independent Monitoring Expert for the independent and commercial operation of ENERCA; (iii) they selected the Consultant for the establishment of a multisectoral regulatory body; (iv) they approved a power theft reduction plan; (v) they approved ceilings on electricity benefits for the staff of ENERCA; (vi) they issued tender documents for the management contract for ENERCA; and (vii) they approved the proposal to merge the water and electricity companies.

4.3 Net Present Value/Economic rate of return:

Not applicable.

4.4 Financial rate of return:

Not applicable.

4.5 Institutional development impact:

The institutional development impact is uneven between sectors and is rated negligible overall. While there was some progress in public finance management with the introduction of a quarterly cash-flow plan, the VAT, and more transparent public spending, the problem of salary arrears resurfaced and political instablity negated all the achievements. The private sector is now involved in the telecommunications sectors and the distribution of petroleum products, although for the latter there remains scope for greater liberalization. There has been limited progress in establishing an autonomous multisectoral regulatory body.

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5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

5.1.1 Actual developments in the security, socio-political and macroeconomic environments contrast sharply with the frameworks envisioned during the appraisal of the FCC in 1999 (see Table 1 below). Since mid-2000, CAR has been buffeted by regional instability, domestic civil unrest and military mutinies; and domestic and international oil crisis and other terms of trade shocks. As described in the section on the outcome of the credit, the security conditions proved more difficult than foreseen.

FCC Actual FCC Actual FCC Actual FCC ActualTerms of Trade 1.6 -3 9.3 -4.8 1.7 -10.7 0 -2.7

GDP Growth 5 3.4 5.2 2.6 4 1.5 4 1

Source: IMF draft Staff report for Actual figures and Report of the President for the FCC (P-7348-CA)

Table 1: Macroeconomic Environment: Projection and Outcome1999 2000 2001 2002

5.1.2 The seizure in DRC of about 30,000 tons of petroleum products imported by CAR and the disruption of river transit due to the civil war in the Equator Province of DRC created a domestic oil supply crisis. The Government of the CAR (GOCAR) responded to this crisis by turning to road transport from the Port of Douala (Cameroon) to import petroleum products, resulting in a doubling of transport costs (see Table 2).

Dec-99 Sep-00 Oct-00 1-May Import cost at seaport 1/ 116.5 241.4 241.4 165 Transportation costs 1/ 62.2 125 125 140

Costs in Bangui 214.8 432.4 432.4 489 Tax and duties/equalization 45.2 -172.4 -82.4 -139

Retail price in Bangui 260 260 350 350

1846636.1 Distribution costs and margin 2/ 66

Source: IMF, Staff Report EBS/00/289 and the Authorities, Privatization Committee.1/ Matadi (DRC) for December 1999, and Douala (Cameroon) from September 2000 onward.2/ The distribution of petroleum product is privatized since January 2001.

Table 2: Retail Prices of Kerosene (CFAF per liter)

5.1.3 The oil supply crisis in 2000 was compounded by the depreciation of the CFAF by 16 percent against the dollar and a 33 percent increase in the international oil prices. The shortage paralyzed economic activity and government’s revenue collection suffered as a result of the slowing economy as well as from the temporary freeze of domestic retail prices of petroleum products below their cost price (see Table 2). The GOCAR initially resisted a pass-through of the increased supply costs into domestic prices. However, in the face of a continuing erosion of petroleum revenues, the GOCAR raised the retail prices of petroleum products by 44 percent for diesel fuel, and 35 percent for kerosene and gasoline in October 2000. Poor households were

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severely hit by the increase in the price of kerosene – the product they most commonly use for cooking and lighting.

5.1.4 In addition to an increase in international oil prices in 2000-2001, the prices of CAR’s main export products (diamonds, timber, cotton and coffee) substantially declined in 2000-2002. Terms of trade have deteriorated by a cumulative 25.0 percent since the appraisal of the FCC, against the initial program estimate of +14.0 percent. The cotton price has declined by about 30 percent since September 2000, aggravating the difficulties of the cotton sector in CAR, with SOCOCA incurring large deficits. The coffee price in December 2001 was half the level in November 1999, the time of appraisal of the FCC, and currently is down by 44.3 percent compared to the 1999 level.

5.2 Factors generally subject to government control:

During the life of this project, government commitment to the privatization of petroleum products distribution was often in doubt. Following the severe shortage of petroleum products after the loss of stocks in DRC in 1999, Libya promised an in-kind grant of 55,000 tons of petroleum products. On June 16, 1999, the Government passed a decree establishing a committee to manage in-kind grants of petroleum products. The measure threatened to reverse the privatization process, as the committee would function in place of, or at least in parallel to, the private operators that were preparing to replace PETROCA. The decree also seemed to open the door to dual prices of petroleum products, which would have been another blow to the privatization of petroleum distribution. In addition, retail prices for oil remained unchanged during the summer, which entailed loss of revenue, unprofitable operations and further delays in the privatization process. Fortunately, the authorities did not renew the decree after it expired in September 1999. They secured a lasting arrangement with local businessmen to import petroleum products via Cameroon, a more expensive but safer route than the river route. In October 1999, they also took the politically difficult decision to raise the retail prices of petroleum products.

5.3 Factors generally subject to implementing agency control:Not applicable.

5.4 Costs and financing:

The aggregate financing of the three-year program discussed in the donors' meeting in June 1998 was not enough to fully fund the program. The financing for 1998 factored in proceeds of the privatization of PETROCA and SOCATEL, and disbursement from multilateral institutions, including the Bank and the African Development Bank (AfDB). The financing plan implied tight sequence of domestic actions and budget support operations. These proved to be completely unrealistic. The privatization of the two utilities could not be completed by December 1998. AfDB financing became increasingly uncertain as a quick-disbursing operation hinged on the clearance of AfDB arrears by mid-November 1998, which CAR could not do without the resources it expected from the proposed IDA credit. The tight financing situation and the related issue of negative net transfers had led to the widespread perception that the IMF and the Bank were primarily interested in repaying arrears to external creditors, and it had weakened the

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position of those supporting reforms. The concept note stressed that risk but the issue remained throughout program implementation.

6. Sustainability

6.1 Rationale for sustainability rating:

The development objectives were not achieved, which explains the overall sustaibaility rating of "unlikely". However, the sustainability of some achievements in petroleum product distribution and telecommunications sectors is likely. The privatization of the petroleum sector distribution was a major factor to the good revenue performance in 2002. Added to the expertise brought by TOTAL, a global company, a reversal is unlikely. Reforms in the cellular segment of the telecommunications sectors are also likely to hold because of broad public support: the two active private cellular phone operators are more efficient than the public operator and they were able to supply unmet demand. In the area of public finance management, the government has further deepened the diagnosis of key issues in 2002 with the support of the EU, and a follow-up institutional/capacity building operation is under preparation, again with EU financing. France has also stepped in with a technical assistance project to financial administrations.

6.2 Transition arrangement to regular operations:

Not applicable.

7. Bank and Borrower Performance

Bank7.1 Lending:

7.1.1 Overall Bank performance in designing the credit was unsatisfactory. On one hand, the Bank rightly joined an international compact with the IMF and UN to help stabilize CAR which was emerging from a series of military mutinies. The Bank recognized that the difficult environment should not deter assistance, and that failure to act would prove very costly in the future. This view has been confirmed recently with the findings of the LICUS task force. The development objectives under the credit were also consistent with the government’s own development priorities. On the other hand, the design of the operation was overly ambitious for a LICUS-type country with very weak implementation capacity and political and social instability.

7.1.2 Bank support to Government in the preparation of the reforms, particularly in the energy sector, was not timely. The Government justified the delay in privatizing ENERCA by the slow response of the Bank on specific technical questions, and the late availability of the PHRD grant to the energy sector. Credit preparation was constrained by limited knowledge and resources. The concept paper did however make a candid assessment, stressing the gaps in coverage of the mining and forestry sectors, legal and regulatory reform, and management of public expenditure. Lastly, there was no staff continuity as the credit has had three different task team leaders.

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7.2 Supervision:

Bank performance during supervision was unsatisfactory. In part due to continued political instability, the task team was unable to conduct regular supervision missions in order to maintain continuity in the policy dialogue. The absence of specific macroeconomic targets has also hindered the quality of supervision. Adequacy of supervision inputs and processes, as well as supervision of fiduciary/safeguard aspects were marginal. Supervision mission sometimes did not include enough expertise, reaching the point of one-man missions. In addition, they lacked coherence (e.g., different components of the program were supervised at different times). Advice provided by Bank to the Government was not timely and did not recognize the complexities, particularly with regard to the privatization component.

7.3 Overall Bank performance:

The Bank’s overall performance is rated unsatisfactory.

Borrower7.4 Preparation:

Government performance during preparation was unsatisfactory. Progress in implementing the conditions for appraisal and Board presentation were unduly slow, even after taking into account capacity constraints. Government ownership of some reforms, notably the distribution of petroleum products, was also questionable.

7.5 Government implementation performance:

The overall performance of the Government during FCC implementation was unsatisfactory. Implementation was normally supervised by an Inter-ministerial Committee for the Adjustment Program chaired by the Prime Minister, and managed by a Technical Committee in which all ministries concerned with the implementation of the program were represented. The CTP-PAS, a monitoring unit in the ministry of finances assumed the role of secretariat of the Technical Committee. In practice, the Inter-ministerial Committee has not met frequently and the CTP-PAS took the lead in monitoring project implementation. At first, CTP-PAS issued a monthly report on the execution of the fiscal program and a quarterly report on the implementation of structural reforms, but it subsequently discontinued the reporting. CTP-PAS's own performance was affected by a high turnover of its management, as it has had four managers since 1999.

7.6 Implementing Agency:

See Section 7.5.

7.7 Overall Borrower performance:

Overall Borrower performance is rated unsatisfactory.

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8. Lessons Learned

8.1 The credit had the potential to be an effective instrument in an emergency, post-conflict situation, for improving the provision of government services, stimulating private sector development, and generally enhancing the prospects for national reconciliation. The economic, political and social returns from such an investment in a post-conflict context are considerable. However to be effective, the design of the operation would have needed to be more sensitive to the lack of capacity in such situation. An operaton underpinned by more focused and less ambitious reform program with adequate technical assistance for building implementation capacity would have been more appropriate and made supervision more focused. Some important lessons learned include the following:

8.1.1 When faced with a strong political/reputational pressure to move in a difficult and poor security environment, the Bank should also consider the effectiveness and sustainability of its budgetary assistance, both factors bearing higher reputational risks in the medium to long term. The right approach is to state clearly that the Bank has endorsed the LICUS principles, and it is committed to stay engaged even in most difficult circumstances. However, for budgetary support, four factors should be taken into account: (i) a sound macroeconomic framework should be in place; (ii) there should be some prior investment in knowledge so as to design a relevant and realistic reform program; (iii) Bank support should be part of a broader international assistance package, with most donors endorsing a common platform; (iv) a candid assessment of the internal process in place to address unrest, including the quality of the national dialogue and reconciliation efforts, should be undertaken. In addition, a comprehensive plan for security reform should be implemented.

8.1.2 For a country like CAR emerging from a devastating conflict, with disruptions in administrative capacity and a distressed economy, the capacity to raise domestic revenue is most likely limited in the short-term, and therefore balance of payments support is needed. In establishing the country macroeconomic framework, revenue should be realistically estimated and there should be positive net transfers.

8.1.3 Preparation of relevant and good quality Economic and Sector Work (ESW) and policy notes is a critical prerequisite for a meaningful policy dialogue with the government and preparation of loans/credits.

8.1.4 Privatization of public enterprises and utilities involves complicated processes and requires careful sequencing. In designing an adjustment operation, much more thought needs to be given to the country's economic and political conditions, and its ability to implement difficult and complex reform measures.

8.1.5 For LICUS-type countries such CAR, the focus of the Bank assistance should be on building capacity in the government to implement reforms and improve delivery of services.

9. Partner Comments

(a) Borrower/implementing agency:

- 13 -

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

- 14 -

Annex 1. Key Performance Indicators/Log Frame Matrix

Area Objective Measures and Actions StatusPublic FinanceRevenue Increase revenue in a

transparent and efficient manner

Refrain from granting special tax exemptions to logging and mining operations. Unmet

Submit to IDA an inventory of special tax exemptions between January 1, 1995 and December 31, 1998 to logging and mining operations.

Done (2000)

Institute minimum turnover tax for diamond-purchasing bureaus DoneReplace turnover taxation with value added tax Done (2001)Introduce broad-based licensing for small-scale taxpayers Done (2000)

Expenditure Improve prospects for civil peaceImprove road maintenanceReverse deterioration in social indicatorsImprove fiscal transparency

No additional salary arrears during the 12 months preceding April 1, 2000 Done

Settlement of PETROCA’s obligations to the Road Fund due in 1999 Unmet1999 budget allocation for goods and services in education and health is 18.6 % and 15 % higher, respectively

Done (1999)

Closure of unlawful bank accounts of ministries Done (1999)Elimination of all off-budget spending Done (2000)

Cotton sector Reduce deficit of sector parastatal (SOCOCA)

Lowering of producer prices Done

Closure of one ginning plant Done but reversed

Adoption of flexible price setting mechanism UnmetNo financing of deficit by medium-term bank credit Unmet

Privatization of Public Enterprises

Reduce quasi-fiscal losses of and subsidies to public enterprises. Improve their transparency and efficiency.

Privatize BICA (commercial bank) Done (1999)

Privatize UBAC (commercial bank) Done (1999)Close all public enterprises that have ceased operations. Done (1999)Privatize petroleum products imports and distribution (liquidate PETROCA; settle rights of employees affected by privatization; agree with three oil companies on transfer of PETROCA’s assets; creation of SOGAL, to take over the importation and storage of petroleum products.)

Done (1999)

Approve strategy for power sector and submit revised electricity code to Parliament. UnmetPrepare regulatory framework for the water and telecommunications sectors. UnmetCreate an autonomous regulatory body for the water, electricity and telecommunications sectors. UnmetBring ENERCA, the power utility, to the point of lease. Unmet

Business Environment

Improve regulatory framework

OHADA legislation enacted. Done (1998)

Labor Code revised. Unmet

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Annex 2. Project Costs and Financing

(In SDRs million)

Bank Fiscal Year FY00 FY01 FY02 FY03

Appraisal Estimate 10.1 4.3 0 0

Cumulative 10.1 14.4 14.4 14.4

Actual 6.5 3.6 0 0

Cumulative 6.5 10.1 10.1 10.1

Actual as % of Estimate 64 70 70 70

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.20.00 0.00 0.00 14.00 0.00 0.00 70.0 0.0 0.0

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Annex 3. Economic Costs and Benefits

Not applicable.

- 17 -

Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation09/1998 9 (1) Country Director S S

(1) Country Manager(1) Sector Manager(1) Task Manager(3) Sr. Economists(1) Sr. Power Engineer(1) Economist

SupervisionOctober 29, 2001 1 (1) Task Manager S SMay 30, 2001 2 (1) Task Manager S S

(1) Resident EconomistJuly 30, 2001 1 (1) Task Manager S SFebruary 24, 2002 2 (1) Task Manager S S

(1) Sector Manager (Energy)

ICR1 (1) Team Leader

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 98 254Supervision 39 100ICR 3 11Total 140 355

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. Minutes of the Operations Committee Meeting of June 3, 1998 on a Post-Conflict Transition Strategy for the Central African Republic.

2. Office Memorandum. Project Concept Review Meeting memorandum and Concept Paper. September 25, 1998.

3. Office Memorandum. CAR Structural Adjustment Credit, Minutes of Concept Paper Review Meeting (October 2, 1998). October 9, 1998.

4. Back-to-office report and Aide-Memoire, Mission to Bangui, September 13-17, 1998. September 20, 1998.

5. Statement of Mission Objectives (October 16- November 2, 1998) for a Structural Adjustment Credit for the Central African Republic. October 7, 1998.

6. Project Information Document. Central African Republic – Structural Adjustment Credit. October 8, 1998.

7. CAR – SAC Mission – Status Report. October 23, 1998. (Email).8. CAR SAC – Review of BTOR of October Mission. November 10, 1998.9. Back to Office Report: CAR – Structural Adjustment Credit. November 11, 1998.10. Aide-mémoire de la mission de préparation d’une opération d’ajustement structurel et lettre de

transmission. 20 novembre 1998.11. Office Memorandum to Sven Sandstrom, Managing Director, on the mitigation of security risks

for the Structural Adjustment Operation in the Central African Republic. December 1, 1998.12. Office Memorandum on the Political, Security and Economic Context in the Central African

Republic, December 21, 1998.13. Letter of President Wolfensohn to UN Secretary General Kofi Annan on the link between the

presence of peacekeeping troops and the preparation of an adjustment operation. December 21, 1998.

14. Statement of Mission Objectives – Mission to Chad and CAR January 30-March 2, 1999. January 25, 1999.

15. Project Information Document. Central African Republic – Structural Adjustment Credit. January 26, 1999.

16. Interim report of a Bank-IMF mission to Bangui (Email). February, 21, 1999.17. Letter to the Prime Minister of the CAR on the preparation of the fourth Structural Adjustment

Credit (French, not signed). October 7, 1999.18. Office Memorandum. Central African Republic – Post Conflict Budget Support Credit (Cr

60092-CF). ROC Package. October 13, 1999.19. Office Memorandum. Central African Republic – Minutes of the ROC Meeting on Post-Conflict

Budgetary Support Credit (Cr 60092- CF) Tuesday October 19, 1999. October 28, 1999.20. Letter of the Minister of Finance, Plan and International Cooperation to the Country Director

on the Preparation of a Post-Conflict Budgetary Support. November 6, 1999.21. République Centrafricaine. Crédit a la Consolidation des Finances Publiques – Procès Verbal

Des Négociations. Novembre 17, 1999.22. Report and Recommendation of the President of the International Development Association to

the Executive Directors on a Proposed Credit of SDR14.4 million (US$20 million equivalent) to the Central African Republic for A Fiscal Consolidation Credit, November 24, 1999. Report No P-7348-CA.

23. Information Note to the Board and Statement by IMF Staff outlining recent macroeconomic developments in the Central African Republic. IDA/R99-188/2. December 14, 1999.

24. Central African Republic. State of the discussions concerning the Extended Structural

- 21 -

Adjustment Facility (ESAF). December, 1999.25. Statement to the Board for the Fiscal Consolidation Credit to the Central African Republic.

December 16, 1999.26. Development Credit Agreement for the Fiscal Consolidation Credit. January 6, 2000.27. Central African Republic – Fiscal Consolidation Credit (Cr. No 3305 CAR). Release of the

second tranche – Partial Waiver of One Condition. October 17, 2000.28. Statement of Mission Objectives (May 13-June 3, 2001).29. CAR: Office Memorandum – Fiscal Consolidation Credit. Extension of closing date for the IDA

Credit (Cr. No 3305-CAR). June 26, 2001.30. Back to Office Report for an Energy sector Mission to CAR. February 23, 2002.31. Aide Mémoire de la mission Energie en RCA (mars 10-24, 2002).32. President’s Memorandum: Central African Republic, Fiscal Consolidation Credit (Credit No.

3305-CAR) – Proposed Amendment to the Development Credit Agreement, March 20, 2002. IDA/R2002-0038.

33. CAR: Fiscal Consolidation Credit (ID: P060092) – Final Quality of Supervision Assessment (QSA5). November 20, 2002.

34. Archived Project Status Reports.

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Additional Annex 8. Government's Contribution

MINISTERE DE L’ECONOMIE, DES FINANCES, DU BUDGET, DU PLAN ET DE LA

COOPERATION INTERNATIONALE-=-=-=-=-=-=-=-=-=-=-=-

DEPARTEMENT DE L’ECONOMIE, DES FINANCES ET DU BUDGET

-=-=-=-=-=-=-=-=-=-=-=-C A B I N E T

-=-=-=-=-=-=-=-=-=-=-=-COMITE TECHNIQUE PERMANENT DU SUIVI DES

PROGRAMMES D’AJUSTEMENT STRUCTUREL-=-=-=-=-=-=-=-=-=-=-=-

REPUBLIQUE CENTRAFRICAINEUnité – Dignité – Travail

-=-=-=-=-=-=-

PROJET DU RAPPORT D’ACHEVEMENTDU CREDIT A LA CONSOLIDATION

DES FINANCES PUBLIQUES

- 23 -

Décembre 2003

SOMMAIRE

INTRODUCTION 3

I- OBJECTIF DU CREDIT ET CONDITIONS DE DECAISSEMENTS 3

II – TRANCHES MOBILISEES 4

III – MISE EN APPLICATION DES REFORMES 4MACROECONOMIQUES ET STRUCTURELLES 4

IV – EVALUATION DES RESULTATS DES REFORMES 5

V – CONCLUSION 6

VI - ANNEXE. 7

INTRODUCTION

Le présent rapport rend compte de l’exécution de l’Accord de Crédit de Développement N° 3305-002 relatif au Crédit à la Consolidation des Finances Publiques signé le 06 Janvier 2000. Cet accord a été conclu entre la Banque Mondiale représentée par Serge MICHAILOF, Vice-Président Régional et le Gouvernement Centrafricain représenté par Henri KOBA, Ambassadeur accrédité auprès des Etats Unis d’Amérique. Il met en relief successivement l’objectif du crédit, les performances des deux parties, les résultats, impacts et contraintes et les

- 24 -

arrangements futurs du crédit.

I- OBJECTIF DU CREDIT ET CONDITIONS DE DECAISSEMENTS

Suite aux progrès accomplis dans la mise en œuvre du programme conclu avec le FMI en juillet 1998, la Banque Mondiale a accordé à la RCA un prêt budgétaire dont le montant s’élève à 14,4 millions de DTS (Droits de Tirage Spéciaux) soit 11,6 milliards de Francs CFA pour consolider les finances publiques et stabiliser l’économie.

Conformément à l’accord de crédit, les décaissements devraient se faire en trois tranches à savoir :

- 1ère Tranche : 6,5 millions de DTS, soit 5,8 milliards FCFA - 2e Tranche : 3,6 millions de DTS, soit 2,3 milliards FCFA - 3e Tranche : 4,3 millions de DTS, soit 3,5 milliards FCFA

Il convient de rappeler que le premier décaissement était conditionné par la mise en place d’un cadre macro-économique satisfaisant, par référence aux indicateurs économiques qui satisfont les deux parties.

Le deuxième décaissement était lié quant à lui :1) à la non accumulation des arriérés des salaires à partir du 31 mars 2000 (paragraphe 8 de la lettre de Politique de Développement );2) à l’inventaire des exonérations fiscales accordées aux sociétés minières et forestières du 1er janvier 1995 au 31 décembre 1998 et à ne plus accorder de nouvelles exonérations à la date d’entrée en vigueur de cet Accord (paragraphe 6 de la lettre de Politique de Développement ) ;3) au règlement de toutes les obligations courantes de PETROCA dues au Fonds Routier entre le 1er janvier et le 31 décembre 1999 (paragraphe 21 de la lettre de Politique de Développement ).

En ce qui concerne le troisième décaissement appelé « tranche flottante », les conditions à son déblocage concernent :1) l’affermage de l’ENERCA (paragraphe 14 de la lettre de Politique de Développement) ;2) l’approbation de la stratégie pour le secteur de l’électricité et l’adoption par le parlement du nouveau code de l’électricité jugé satisfaisant par la Banque Mondiale (paragraphes 14 et 17 de la lettre de Politique de Développement) ;3) l’établissement d’un cadre réglementaire pour les secteurs des télécommunications et de l’eau (paragraphe 17 de la lettre de Politique de Développement ) ;4) l’établissement d’un organe de régulation pour les secteurs de l’électricité, des télécommunications et de l’eau ; il convient de rappeler que les fonctions et les termes de référence ont été jugés satisfaisants par la Banque (paragraphe 17 de la lettre de Politique de Développement ).

II – TRANCHES MOBILISEES

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La RCA a obtenu successivement deux décaissements sur trois depuis la conclusion de cet Accord de Crédit au Développement. Il s’agit essentiellement de la première tranche (6,5 millions de DTS, soit 5,8 milliards de FCFA) décaissée le 14 février 2000 et de la deuxième tranche (3,6 millions de DTS, soit 3,2 milliards de FCFA) mobilisée le 04 janvier 2001.

III – MISE EN APPLICATION DES REFORMES MACROECONOMIQUES ET STRUCTURELLES

Ce crédit a été octroyé sous forme d’appui budgétaire dans un contexte où le Gouvernement était engagé dans la mise en œuvre des réformes sur le plan des finances publiques et des réformes structurelles.

En effet, depuis juillet 1998, les politiques économiques et financières de la RCA étaient conçues dans le cadre d’un accord triennal appuyé par la Facilité d’Ajustement Structurel Renforcé (FASR) et remplacé par la Facilité pour la Réduction de la Pauvreté et la Croissance (FRPC). L’exécution de ce programme a rencontré d’énormes difficultés qui ont à la conclusion d’un programme de référence en 2001, couvrant la période d’octobre 2001 à mars 2002. Depuis lors, aucun autre accord n’est signé avec les institutions de Bretton Woods, compte des crise récurrentes.

1. Réformes macroéconomiques

De 2000 à 2002, les fondamentaux de l’économie révèlent :- un ralentissement de la croissance, passant des taux positifs de 1,8% en 2000 et 1% en 2001 à –0,8% en 2002 ;- de légères tensions inflationnistes obtenues en 2000 (3,2%) et en 2001 (3,8%) malgré un recul en 2002 (2,3%). Cela est consécutif aux crises de carburant de 2000 et aux coups de force manqués du 28 mai 2001 qui ont renchéri les coûts d’approvisionnement et de production ;- une stabilité de la pression fiscale autour de 9% du PIB ;- une stabilité du déficit du compte courant autour de –2% du PIB malgré une dégradation de -4,9% enregistrée en 2001 ;- une réduction de la masse monétaire qui passe d’un taux positif de 5,4% en 2000 à –4,3% en 2002.

Globalement, ces évolutions sont grandement liées aux chocs internes (événements politico-militaires de mai et novembre 2001 et ceux d’octobre 2002, etc.) et aux chocs externes (crise de carburant en 2000, effondrement des cours des matières premières, etc.).

Sur le plan pratique, les conditions de décaissement de la deuxième tranche citées plus haut

devraient se traduire par une augmentation des recettes de l’Etat, suite à la mise en application des recommandations des rapports TRAHIN et FOSSAT (cf. annexe). Cela s’est traduit, entre autres, par l’introduction de la TVA en remplacement de la TCA dans la loi de Finance 2000. Les progrès enregistrés au cours de cette période ont donc permis d’obtenir le 2e décaissement du Crédit à la

- 26 -

consolidation des finances publiques.

2. Réformes structurelles

Au niveau des conditions liées au processus de réformes structurelles, le gouvernement a adopté initialement une stratégie de réforme du sous-secteur de l ‘électricité basée sur l’affermage de la production, du transport, de distribution et de la commercialisation. Les principaux objectifs fixés consistaient à augmenter l’accès de la population urbaine et rurale à l’électricité.

Cependant, la réduction significative de SAUR International dans le capital social de SODECA a amené le Gouvernement et les bailleurs de fonds (Banque Mondiale et AFD) à opter pour le choix de la privatisation couplée de l’ENERCA et la SODECA ; car la situation financière et l’état des équipements des deux sociétés ne permettent pas d’attirer un investisseur. Cela permettrait de réaliser les économies d’échelle et susciter le désir des investisseurs privés.

A ce jour, le Gouvernement a pris deux arrêtés relatifs à l’adoption du principe de privatisation groupée des secteurs de l’eau et de l’électricité (Arrêté n° 012.02 du 20 février 2002) et à la fusion de SODECA et ENERCA (Arrêté n° 014.02 du 25 mars 2002). Et le processus suit son cours. Aussi, le code de l’électricité a-t-il été rédigé et transmis à la Banque Mondiale.

Quant à la politique sectorielle et le cadre juridique et réglementaire des télécommunications, le document a été rédigé, adopté par le Conseil des Ministres et transmis à la Banque Mondiale.

Concernant la mise en place de l’Agence de Régulation Multisectorielle, elle n’a pas encore été faite suite au retard survenu dans l’examen des propositions et la signature du contrat par le Cabinet Jones Day, Reavis & Pogue.

IV – EVALUATION DES RESULTATS DES REFORMES

La mise en œuvre de cet Accord de crédit s’est heurtée au début de l’année 2000 à la crise qui a frappé de plein fouet le secteur pétrolier. En effet, cette crise s’explique par la réticence des banquiers à financer la campagne 1999 – 2000 pour la simple raison que la société PETROCA qui a le monopole de distribution et de vente de produits pétroliers est en pleine privatisation. Cette société procurait environ 700 millions à l’Etat par mois au titre des taxes. Il convient de souligner que ce manque à gagner a joué négativement sur les résultats de l’exercice 2000 concernant les repères quantitatifs tels que les recettes et les dépenses de l’Etat.

Aussi, l’exécution à mi-parcours de ce crédit au cours de l’année 2001 a rencontré un obstacle majeur à savoir le coup de force des mois de Mai et Novembre 2001. Ces crises politico-militaires récurrentes ont remis en cause tous les efforts entrepris au début de ce programme et justifient en partie le niveau élevé des arriérés intérieurs.

- 27 -

De plus, la procédure trop longue du décaissement des fonds par la Banque Mondiale a défavorisé la RCA qui, par le biais des crédits relais de la BEAC, perd une bonne partie des fonds alloués en payant les intérêts débiteurs exorbitants. On peut noter, entre autres, le montant non négligeable du règlement des arriérés sur les prêts antérieurs concédés à la RCA par la Banque mondiale et qui s’élève à 388 millions de francs CFA lors du premier décaissement.

Par ailleurs, l’absence de l’assistance technique au titre de la TVA a beaucoup pénalisé et rallongé l’effet financier de cette nouvelle taxe sur les finances publiques en RCA. La formation sur le tas des contrôleurs en matière de la TVA n’a pas donné les effets escomptés en matière de recouvrement.

V – CONCLUSION

Au total, les décaissements de ce crédit effectués par la Banque Mondiale au début des années 2000 et 2001, se chiffrent à environ 9,1 milliards et ont permis d’exécuter les dépenses énumérées ci-haut. En outre, il convient de rappeler que ce crédit devrait jouer un rôle très déterminant sur la mise en œuvre de la politique économique n’eut été les crises et les difficultés connues.

En somme, le Gouvernement souhaite vivement renouer avec la Banque et attend son appui pour la relance socio-économique.

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VI – ANNEXE

A - REFORMES DOUANIERES

N° Recommandations Echéance Niveau d’exécutionA1 Nouvel organigramme de

la DouaneJanvier 2000F.M.I.

Fait. Cf Décret 01.282. quelques anomalies constatées et signalées au

Cabinet pour correctionsA2 Mutation interne des

cadres des douanes.Décembre 2000F.M.I.

Fait. Cf Décret n° 03.128 du 22.06.03 Arrêté n° 09/01 et Décision ministérielle n° 047 et 048 du 07.07.03 et Note de service n° 169/08/03.

A3 Problème de l’affectation de stagiaires en Douane

Janvier 2001F.M.I.

L’audit interne (Note n° 010 du 2.02.01) traite de l’intégration partielle

de certains stagiaires. Partiellement exécuté

A4 Intégration de la Douane au sein de l’O.M.D. (Organisation Mondiale des douanes)

Février 2001F.M.I.

Proposition de paiement échelonné des arriérés de contributions de la RCA par

l’O.M.D. Soumis au Ministère. Paiement partiel des arriérés

indispensables pour obtenir actions de formation de l’Organisation et que la R.C.A redevienne membre actif. Non

fait.B1 Assignation de résultats

mensuels de perception de recettes et de contentieux par service

Juillet 2000F.M.I.

Fait, 2003

B2 Renforcement de la collaboration Douane / SGS

Juillet 2000Janvier 2001F.M.I.

Fin de contrat avec SGS, la Douane est en pourparler avec la société BIVAC Internationale pour la

signature d’un nouveau contrat.B3 Mise en œuvre de la TVA Janvier 2001

F.M.I.Fait. Une note de service est venue préciser les modalités de mise en

œuvre de cette taxe (cf. note n° 006 du 8.1.01.) TVA appliquée aux hydrocarbures dans LDF 2002.

B4 Faire respecter la Novembre 2000 Suivi plus rigoureux des régimes

- 29 -

réglementation des franchises et exonérations

F.M.I. suspensifs et exonératoires, notamment l’entrepôt de stockage

Interdire les magasins de vente hors taxes. Exceptés BAMAG et DIAS.

B5 Utilisation optimale de SYDONIA 2.7

Mars 2001F.M.I.

Projet de mise en place de SYDONIA ++ en attente. Utiliser toutes les

fonctionnalités et l’apport de fonds issu de la RIDT pour l’informatique

douanière. Application étendue à l’enregistrement des registres de gros et des régimes suspensifs. Non fait.

B6 Réactiver les enquêtes et le service de la révision (contrôle a posteriori)

Novembre 2000F.M.I.

Nomination depuis octobre 2001 d’un directeur des enquêtes et des brigades.

Résultats contentieux améliorés.B7 Faire gérer le

dédouanement des conteneurs par la Recette Principale.

Décembre 2000F.M.I.

Appui Recette Principale à la gare routière pour le dédouanement.

B8 Apurement des registres de gros, et des titres de transit D 15

Décembre 2000F.M.I

Fait l’objet d’une mission spécifique, afin de fixer une liste de redevables

récalcitrants et augmenter les recettes et le contentieux. En cours.

B9 Création d’une brigade mixte de contrôle Douanes – Impôts.

Décembre 2001 Dossier soumis au Ministère de tutelle. En instance.

B10 Protocole d’accord avec la douanes camerounaise sur le problème du transit

Février 2001 Application partielle.

C1 Problème de taxation aux droits de douane des hydrocarbures destinés à la RCA et en provenance du Cameroun.

Mars 2001F.M.I.

Aucunes explications fournies par le Cameroun suite diverses demandes de la Douane RCA. Problème porté au niveau de la CEMAC. Sans réponse.

C2 Réévaluer la politique de taxation de la filière bois ?

Janvier 2000F.M.I.

L’application des recommandations des états généraux.

C3 Revoir les procédures de dédouanement et prévoir un archivage des déclarations.

Juillet 2001F.M.I.

Fait, nomination effective d’un responsable des archives et

aménagement d’un local d’archives à la R.P. Prévoir texte de simplification sur les procédures de dédouanement.

C4 Mettre à jour la documentation professionnelle

Septembre 2001F.M.I.

Mise à jour du Code des douanes. Mais le nombre est insuffisant pour

tout le service.C5 Projet de texte sur

l’antenne des douanes Fait. Texte fixant les attributions de l’antenne des douanes de Douala et

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centrafricaines de Douala et Brazzaville.

Brazzaville déjà signé. Mise en place des 2 antennes.

C6 Plan de formation des agents des douanes

Septembre 2001F.M.I.

Retenir les thèmes et faire module de formation. Avis favorable de l’E.I.E.D pour formation et recyclage des agents

non formés ; en cours.C7 Demande de mise en

œuvre de dispositions particulières relatives à l’admission en franchise des produits importés par la Croix Rouge et œuvres assimilées.

Février2001

Note n° 006 du 15 février 2001. Note à la signature du ministre délégué pour compléter le dispositif d’aide à la lutte

contre les maladies infectieuses. En exécution actuellement.

D1 Sécuriser les enceintes douanières.

Novembre 2000F.M.I.

Partiellement fait. Achèvement mur enceinte de la R.P en cours et de la

direction générale à réaliser. Partiellement fait.

D2 Utiliser la RIDT pour équiper les services en informatique de gestion

Juillet 2001 Mission expert CNUCED pour remise à niveau SYDONIA 2.7 et perspectives de migration à la version 3. Non fait.

D3 Projet du PK 26 Financé par le budget de l’Etat, travaux stoppés

D4 Proposition de programme d’équipement pour la douane

Septembre 2001F.M.I.

Les recommandations de la journée de réflexion sur la Douane.

N° Recommandations Echéance Niveau d’exécutionA1 Nouvel organigramme de

la DouaneJanvier 2000F.M.I.

Fait. Cf Décret 01.282. quelques anomalies constatées et signalées au

Cabinet pour correctionsA2 Mutation interne des

cadres des douanes.Décembre 2000F.M.I.

Fait. Cf Décret n° 03.128 du 22.06.03 Arrêté n° 09/01 et Décision ministérielle n° 047 et 048 du 07.07.03 et Note de service n° 169/08/03.

B - REFORMES FISCALES

RECOMMANDATIONS DATE LIMITE DE MISE EN OEUVRE

NIVEAU D’EXECUTION

Création de la commission chargée de suivre la mise en œuvre des

30 avril 2001 Commission mise en place par note de service n° 155 du

- 31 -

recommandations

Maîtrise des exonérations

Application strictement la convention aux seuls besoins diplomatiques et exclure l’ensemble du personnel du bénéfice de la convention

N’accorder aucune exonération de TVA aux achats et aux importations réalisées par les ONG et associations

Ne pas renouveler les conventions d’exonération accordées à certaines entreprises

Immatriculation des contribuables

Initier une campagne d’information pour l’immatriculation des contribuables et attribuer le NIF à l’ensemble des entreprises recensées

Renforcer les sanctions en cas d’exercice d’une activité sans immatriculation

Utilisation du NIF par la Douane et le Trésor

Procédure de recouvrement

Appliquer le seuil d’assujettissement à la TVA à l’ensemble des activités

Réviser les modalités de recouvrement des impôts : IMF ; IS etc…

immédiat

Immédiat

Dés leur date d’expiration

31 Décembre 2001

Prochaine loi de finances

Immédiat

Prochaine loi de finances

Prochaine loi de finances

18/09/01

A gérer conjointement avec la Douane. Une note de mise en place de commission tripartite Affaires étrangères/ Finances/ Plan est envoyée aux différents départements.

Déjà en pratique

Suivi strict

Fait, poursuite de la sensibilisation ; des anomalies continuent d’être constatées, le DGID vient de donner des instructions pour repriser les choses.

Pas fait.

Fait pour la Douane et non pas le Trésor.

En dehors des cas d’exonération et d’activité exclus du champ d’application de la TVA, la TVA s’applique à l’ensemble des activités.

Collectif 2001

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Procéder au contrôle du prélèvement fait par les grossistes pour le compte des Impôts.

Exiger de la Douane la transmission mensuelle de la liste des importations pour lesquels elle a effectué le prélèvement

Développer le logiciel Systémique pour y intégrer l’édition automatique des bordereaux de transmission des recettes et l’enregistrement des actes de procédure

Mettre en réseau les services des Régies

Contrôle fiscal

Renforcer le contrôle ponctuel de la TVA

Créer la brigade mixte de contrôle impôts/douanes

Action au recouvrement

Relancer l’utilisation de la fermeture administrative des locaux professionnels pour cause de défaillance

Renforcer les moyens des services de recouvrement

Porter l’effectif des services de poursuite à 4/5 agents

Attribuer un budget annuel de fonctionnement aux services chargés du recouvrement, par affectation des frais de poursuite.

Immédiat

Immédiat et chaque fin de mois

Immédiat

Immédiat

Décembre 2001

Immédiat

Septembre 2001

Septembre 2001

Septembre 2001

Septembre 2001

Exécuté mensuellement

Non fait

En cours

Travaux en cours de réalisation En 2003

Plus de 190 contrôles

Non fait

Fait

En cours

Subordonné à l’organigramme en instance d’adoption

Pas fait

- 33 -

Ne plus confier le recouvrement de certaines côtes aux services du Trésor. Immédiat Fait

- 34 -

Additional Annex 9. QAG Report

QUALITY OF SUPERVISION ASSESSMENT (QSA5)Summary Assessment Sheet

(November 20, 2002)

COUNTRY: CAR PROJECT TITLE:

Fiscal Consolidation Credit

A. Overall assessment

The panel assessed the overall quality of supervision of CAR Fiscal Consolidation Credit (FCC) as Marginal.

The panel is aware that this operation was developed, approved and supervised under a very difficult political and social context that required extraordinary efforts from the task manager and the rest of the task team. However, the panel feels that Focus on Development Effectiveness, Adequacy of Supervision Inputs and Processes, Supervision of Fiduciary/Safeguard Aspects and Realism of Performance Ratings were all Marginal. Although the project had been reviewed in QEA3 (1999) and received an overall satisfactory rating, it was that panel's assessment that Technical and Economic Aspects and Bank Inputs and Processes were Marginal. That panel also indicated that insufficient recent ESW and the absence of a strong field presence limited the Bank's ability to engage major stakeholders and may undermine sustainability of reforms supported by the operation. The current panel feels that given the country's political and social instability and weak implementation capacity, the overall design of the operation at entry was overly ambitious and there was no clearly defined macroeconomic framework or quantitative fiscal targets for the operation. The Bank did not succeed in overcoming these initial handicaps. Based on the Bank's supervision effort so far, this panel has serious reservations about the likelihood that the development objectives of the project can be achieved and sustained.

B. Main problems encountered (when did they occur, and what were the main factors giving rise to them)

The FCC of SDR 14.4 million was approved in December 1999 to assist the government in carrying out its main responsibilities more efficiently and effectively through timely payment of wages to government employees, and by privatizing a few banks and the water, electricity and telecom enterprises to improve efficiency and the government's fiscal position. The first tranche of SDR 6.5 million was released in January 2000 and the second tranche of SDR 3.6 million was released in December 2000.

An attempted coup in May 2001, caused significant delays in implementation of the remaining program. The country has been under suspension since January 2002 with arrears to the Bank exceeding $9 million and by end-March 2002, there were significant shortfalls in the government's wage payment commitments. In April 2002, following a reassessment of market conditions in the water, electricity and telecom sectors, the Bank agreed to amend the conditions of the release of the floating tranche of SDR 4.3 million. The amended conditions were aimed at increasing the managerial and operational efficiency of the utilities, with the understanding that the merged water and electricity companies will be privatized by end-2002 (instead of 2000

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as envisaged in the original credit).

The amendment to the operation, although necessary, appears to have set over-ambitious goals, particularly regarding completion of the privatization component by end 2000. Lack of adequate preparation, including relevant policy notes/ESW, seems to have handicapped the task team in maintaining a meaningful policy dialogue with the government. Apparently mainly due to political instability, the task team was also unable to conduct regular supervision missions to maintain continuity in the policy dialogue. The last (and apparently the only full) supervision mission took place in May 2001 which coincided with the attempted coup. Moreover, the supervision missions appear to have lacked coherence, i.e. different components of the program were supervised at different times, TORs and aide memoires were inadequate, and the impact of these missions on overall project implementation are unclear.

C. Appropriateness and adequacy of actions taken by the Bank to resolve existing/potential problems

According to the documentation provided to the panel, the task team and the regional management concluded that although some progress had been made in implementation of the reforms supported by the project, the pace of implementation was too slow and a number of key conditions were not met. Specifically, the key conditions for release of the third and final tranche which had been expected to be met by August, 2000, remained unmet. The task team stepped up its efforts to assist the government in implementing the measures related to the specific conditions: it assisted the authorities in the preparation of management contracts; the Bank, together with the French Development Agency, helped the government in preparing an action plan for the reforms in the electricity and water sectors; and efforts were made to monitor progress regarding the implementation of reforms under the related Bank-funded "Policy Support" project.

Moreover, as indicated above, Bank management proposed amendments of conditions for release of the floating tranche. Although the proposed new conditions, agreed upon in a meeting between the government and Bank senior management, are expected to help increase the managerial and operational efficiency of the main utilities -- and seem quite appropriate by the panel, they still anticipate completion of the privatization of the merged water and electricity sectors by end-2002. Given that political instability and accumulation of arrears in salary payments as well as debt service to IFIs have continued and the macroeconomic framework remains off-track, it is the panel's view that the privatization component in the revised third tranche condition is unlikely to be completed within by end-2002. It is also the panel's assessment that the changes/amendments to the project should have been introduced much earlier.

D. Any Systemic Lessons

Privatization of public enterprises and utilities involve complicated processes and requires careful sequencing. In designing an adjustment operation, much more thought need to be given to country's economic and political conditions, and its ability to implement difficult and complex reform measures.

For LICUS-type countries, the focus of the Bank assistance should be on building capacity in the government to implement reforms and improve delivery of services.

Preparation of relevant and good quality ESW and policy notes is a critical prerequisite for a meaningful policy dialogue with the government and preparation of loans/credits.

Timely and focused management guidance for amending project design, policy dialogue and skill mix of the supervision missions, particularly in the initial phase of project implementation, is critical to the success of a

- 36 -

project.

E. Suggestions to the Task Team (List two or three factors that will require particular attention in the short/medium term to improve the prospects for achieving the project’s development objectives and long-term sustainability).

The following recommendations are made on the assumption of further delays in the Government's meeting the third tranche release conditions:

(1) Strengthen the staffing of the supervision/technical missions to provide timely advice to the counterparts in the government in dealing with the implementation issues and developing a medium-term strategy for reform and service delivery.

(2) Step up technical assistance (under the Policy Support project) to enhance the government's ability to implement reform measures and monitor progress towards the specified development outcomes.

(3) Prepare policy notes to help the policy makers better understand lessons learned from other similar experiences in the region and provide background technical material on the fiscal/financial impact of the various reform measures.

(4) Revisit the appropriateness of the measures requiring privatization by end-December 2002.

Rejoinder from the Region

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)Summary Assessment Sheet

COUNTRY: CAR PROJECT TITLE:

Fiscal Consolidation Credit

Recommended for Stage 2 Review

Major Issues Identified

Although some progress has been made under this operation, achievement of the identified development objectives is highly uncertain. Due to political instability, lack of adequate implementation capacity on the part of the CAR government, inadequacy of resources, and ambitiousness of the program goals, the likelihood that this operation's results will be sustainable is in serious doubt. The fiscal framework for this adjustment operation was unclear and there was no specific fiscal targets to be reached even though the operation was labeled as "Fiscal Consolidation." The amendment to the operation, approved by the Board in April 2002, although necessary, appears to have set over-ambitious goals (particularly regarding completion of the privatization component by end 2002). Lack of relevant ESW and other background technical work on CAR, have seriously handicapped the task team in both preparation of the operation and maintenance of a meaningful policy dialogue with the government. Moreover, in part due to continued political instability, the task team was unable to conduct regular supervision missions in order to maintain continuity in the policy dialogue. Supervision missions lacked coherence (i.e. different components of the program were supervised at different times). The documentation (in terms of TORs, aide memoires and back- to- office reports) related to the supervision missions is inadequate. A more timely and focused management guidance would have been beneficial to the task team.

Recommendation for Panel Skills

Country director for LICUS-type country, PREM Sector manager/lead macro economist; lead privatization specialist familiar with Africa; specialized panel members with post-conflict background.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)

Development Objectives (Part A to be completed by the Task Team and parts B and C by the Review Panel)

A. Development objectives outlined in the project’s documents or subsequent changes (Importance of development objectives addressed by the project: (H = High, M = Moderate, L = Low, N/A = Not Applicable)

(1) Development Objectives

i. Poverty Reduction Lii. Structural and Sector Policy Reform M

iii. Private Sector Development Hiv. Institutional Development/Capacity Building Hv. Human Development

1 NA

Comments: vi. Environmental Sustainability NA

vii. Infrastructure Development L

viii. Other (specify) NAix. Macroeconomic Management H

Comments (Please explain any material changes in DOs since project start):

1 Specify which one of the five following: (i) Achieve Universal Primary Education; (ii) Reduce Child Mortality; (iii) Improve Maternal Health; (iv) Combat HIV/AIDS, Malaria and other Diseases; (v) other Human Development.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)

(2) Outcomes

For each Development Objective identified above as High, describe the corresponding outcome that will serve as the primary indicator that it has been attained, and an interim benchmark to evaluate progress during implementation

i. Poverty ReductionOutcome: Interim Benchmark:

ii. Structural and Sector Policy Reform Outcome: Interim Benchmark:

iii. Private Sector DevelopmentOutcome: Private investment has increased in the petroleum distribution and power company and services to households and firms are more efficient.Interim Benchmark: Settlement of PETROCA’s obligations to the Road Fund. Liquidation of PETROCA. Settlement of rights of employees affected by privatization. Transfer of PETROCA’s assets to new private companies. Incorporation of SOGAL to take over the importation and distribution of petroleum products. ENERCA is brought to the point of lease.

iv. Institutional Development/Capacity BuildingOutcome: Enabling regulatory framework for private investors in the utilities sectors with no barriers to entries and fair competitionInterim Benchmark: An autonomous regulatory body is established and the regulatory framework for the utilities is revamped.

v. Human DevelopmentOutcome: Interim Benchmark:

vi. Environmental SustainabilityOutcome: Interim Benchmark:

vii. Infrastructure DevelopmentOutcome: Interim Benchmark:

viii. Other Outcome:

- 40 -

Interim Benchmark:

ix. Macroeconomic ManagementOutcome: Fiscal Sustainability through increased revenue in a transparent and efficient manner; transparency in expendituresInterim Benchmark: No granting of special tax exemptions to logging and mining operations. IDA has received an inventory of special tax exemptions as of end-December 1998. Introduction of a minimum turnover tax for diamond-purchasing bureaus. Consolidation of export turnover taxes into a single tax. Introduction of a Value Added Tax. Introduction of a broad-based licensing for small-scale tax payers. No further accumulation of domestic and external arrears. Closure of unlawful bank accounts of ministries. Elimination of all off-budget spending. Primary fiscal surplus which allows the State to face domestic and external obligations.

- 41 -

QUALITY OF SUPERVISION ASSESSMENT (QSA5)

B. Likelihood of achieving the stated development objectives (Panelists to assess the latest DOs using a scale of: (L = Likely; NL = Not Likely; UN = Uncertain; or N/A = Not Applicable)

(1) Development Objectives

i.Poverty Reduction UNii.Structural and Sector Policy Reform UN

iii.Private Sector Development UNiv.Institutional Development/Capacity Building UNv.Human Development

1 NA

Comments: vi.Environmental Sustainability NA

vii.Infrastructure Development UN

viii.Other (specify) NA

ix.Macroeconomic Management UN

Comments:

C. Sustainability:

(Panel’s judgment of the likelihood that the operation’s results will be sustainable in the longer- term)

Likely Unlikely Uncertain Comments: It is the panel's assessment that the design of this operation (both original and amended) is overly ambitious for a LICUS-type country with very weak implementation capacity and political and social instability. Also the implementation arrangements and risk mitigating measures are not well defined in the documentation provide to the panel. Based on these factors, it is the panel's view that achievement and sustainability of selected development objectives as noted above is uncertain.

1 Specify which one of the four following: (i) Achieve Universal Primary Education; (ii) Reduce Child Mortality; (iii) Improve Maternal Health; (iv) Combat HIV/AIDS, Malaria and other Diseases; (v) other Human Development.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)GUIDANCE QUESTIONNAIRE

Summary Assessment Sheet

Assessment Rating1 = Highly Satisfactory2 = Satisfactory3 = Marginal4 = UnsatisfactoryNA = Not Applicable

1. Focus on Development Effectiveness 3

2. Supervision of Fiduciary/Safeguard Aspects 3

3. Adequacy of Supervision Inputs and Processes 3

4. Realism of Project Performance Ratings 3

OVERALL ASSESSMENT 3

The overall assessment is not an average of the assessments of the constituent elements of supervision. Instead, the panel should use its judgment in weighing the relative importance of each given the country and the project context. In making the assessment, the panel should consider the importance of each category, and within each category, the various questions, to supervision quality.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)

Context:

A. With the experience of implementing and supervising the project to-date:

(a) Was project design at entry sound? NoComments: Given the country's political and social instability and weak implementation capacity, the overall design of the operation at entry was overly ambitious, particularly in regards to the privatization component. There was no clearly defined macroeconomic framework or quantitative fiscal targets for the operation. Although the project had been reviewed in QEA3 (1999) and received an overall satisfactory rating, it was that panel's assessment that Technical and Economic Aspects and Bank Inputs and Processes were Marginal. That panel also indicated that insufficient recent ESW and the absence of a strong field presence limited the Bank's ability to engage major stakeholders, which may have undermined sustainability of reforms supported by the operation.

(b) Was the project ready for implementation at approval? No

Comments: The overall progress towards the project's development objectives was very slow from the beginning. Two specific conditions (settlement of PETROCA's obligations to the Road Fund and incorporation of SOGAL) remained unmet for nearly six months after their expected date of implementation. Also, government ownership of the program was in doubt: according to the first PSR (6/26/2000), in response to an unexpected situation, the government threatened to "halt or even reverse the privatization process."

(c) Was overall implementation performance satisfactory prior to FY01?

No

Comments: Implementation was unduly slow from the beginning. Due to political instability, lack of adequate implementation capacity on the part of the CAR government, inadequacy of resources, and ambitiousness of the program goals, the implementation of the agreed program under this operation was slow and uneven. Lack of relevant ESW and other background technical work on CAR, may have seriously handicapped the task team in engaging the government in a meaningful policy dialogue. Moreover, in part due to continued political instability, the task team was unable to conduct regular

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supervision missions in order to maintain continuity in the policy dialogue. In addition, supervision missions lacked coherence (i.e. different components of the program were supervised at different times).

(d) Could the problems encountered during implementation have been identified at entry?

Yes

Comments: Weak implementation capacity, serious fiscal and financial problems and difficult political and social conditions should have been taken into account in designing and preparing the project. A project underpinned by more focused and less ambitious reform program with adequate technical assistance for building implementation capacity would have been more appropriate and made supervision more focused.

(e) Any major changes prior to FY01 (through restructuring and/or MTR)?

No

Comments:

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)

Context:

B. Compliance with safeguard policies

(a) Please mark below the applicability of and compliance with safeguard policies:

Policy Applicability Compliance

i. Environmental Assessment (OP 4.01) No NAii. Natural Habitats (OP 4.04) No NA

iii. Forestry (OP 4.36) No NAiv. Pest Management (OP 4.09) No NA

v. Cultural Property (OPN 11.03) No NAvi. Indigenous Peoples (OD 4.20) No NA

vii. Involuntary Resettlement (OP 4.30) No NAviii. Safety of Dams (OP 4.37) No NA

ix. Projects on International Waterways (OP 7.50)

No NA

x. Projects in Disputed Areas (OP 7.60) No NA

(b) In case of any compliance issues, including those occurring prior to FY01, what were their nature and extent?

NA

Comments from Env:

Comments fromSD: NA

(c) Were appropriate measures taken to mitigate safeguard aspects that could have had adverse impacts?

NA

Comments from ENV (explain briefly the adequacy of mitigating measures and indicators/benchmarks used to monitor progress?):

Comments from SD (explain briefly the adequacy of mitigating measures and indicators/benchmarks used to monitor progress?): NA

C. In light of answers to questions under A and B, what should have been the supervision strategy/focus during FY01-02 ?

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The Bank's strategy toward CAR should have been to modify the design of the project as soon as the project began experiencing delays. A more pro-active, engaging supervision missions, with appropriate Management guidance, would have led to modifications in the design of the project much earlier than it actually occurred.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)

1. Focus on Development Effectiveness 3

1.1 Identification and Assessment of Problems 3(a) Timely Identification of Implementation Problems 3(b) Regard for Development Impact (including policy/institutional reform aspects)

3

Comments: Although major issues (such as unduly slow implementation) were encountered from the start (in January 2000), the project was not amended until April 2002.

1.2 Focus on Sustainability 3(a) Borrower and Stakeholder Ownership 2(b) Technical Assistance, Training and Capacity Building 3(c) Readiness for Operational Phase 3Comments: The project lacked adequate and timely project implementation arrangement and did not envisage adequate technical assistance.

1.3 Actions Taken and Follow-Up 3(a) Appropriateness of Advice and Proposed Solutions to the Borrower (including Action Plan)

3

(b) Appropriateness and Speed of Bank follow-up action (including e.g., cancellations, suspensions)

3

(c) Impact and Effectiveness of Bank actions (including risk management)

3

(d) Quality of Mid-Term-Review (if undertaken during FY01-FY02)

3

(e) Quality of Restructuring Plan (if undertaken during FY01-02)

NA

Comments: Advise provided by Bank to the Govt. was not timely and did not recognize the complexities concerning the privatization component. The quality of the policy dialogue was adversely affected by political instability and Bank's inability to properly supervise the project.

1.4 Effective use of CPPR (or other venues for portfolio review with the borrower) to resolve problems affecting the project?

2

Comments: In light of the delays in implementation of the project and serious difficulties encountered by the government in proceeding with the ambitious privatization program during a period of economic and political instability, the regional management and Bank's senior management (at the level of MD) visited CAR and reviewed, together

- 48 -

with the government, the progress made up to that point as well as the factors that had caused delays in the implementation of program. These discussions were helpful and led to the amendments to the project which were eventually approved by the Board in April 2002.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)

2. Supervision of Fiduciary/Safeguard Aspects 3With the experience of supervising the project during FY01-02, assess the adequacy of supervision of:

2.1 Procurement e.g., Post reviews, quality and timeliness of advice and follow-up action

NA

Comments:

2.2 Financial Management e.g., Accounting/auditing; financial information (e.g., PMRs), Special Account Reviews, SOE processes

2

Comments: This is an adjustment credit. Financial management fiduciary aspects were taken into consideration during project preparation and appraisal. Also, during project implementation, financial management were considered properly. Based on project documents and TTL explanations, the risk associated with financial management and proper use of funds had been low.

2.3 Legal Aspects e.g., Legal compliance; relevance of legal covenants; clarity/timeliness of advice

2

Comments:

2.4 Environmental Aspects e.g., Environmental impact, safeguard compliance

NA

Comments:

2.5 Social Aspect e.g., Social impact, safeguard compliance 3Comments: This operation is, at base, designed to provide support for payment of regular salaries to civil servants and to support a privatization process as a means of promoting fiscal consolidation and improving governance. Though the operation may not appear to have explicit social development objectives, in fact the successful payment of salaries to civil servants clearly has implications for the delivery of services to the population, and, more fundamentally, the operation is consciously attempting to establish the basis for important social outcomes, notably poverty reduction, and this is clearly recognized by the TT and Bank. For this reason, it is important that the operation, or a related operation, achieve the goals established, particularly as an i-PRSP has already been discussed at board, and a PRSP is now under preparation. The key issue is that the strategies envisioned in the

- 50 -

PRSP are unlikely to be successful unless the enabling conditions which were to be established under this operation become institutionalized. Although there were clearly extenuating circumstances, the Bank has not been able to adequately supervise the project, and it has been intermittent in its relationships with key stakeholders. The Bank needs to work harder to frankly assess the current situation and determine what is realistic in terms of medium term reform, and to help government to adjust its poverty reduction strategy in the light of those findings. More work needs to be done to build ownership within the country of the proposed reforms, and to build a constituency of support for reform among key counterparts and key elements of CAR society. There is a danger that the Bank and other stakeholders may attempt to move too fast on the specific strategies aimed at poverty reduction before they have addressed the overall environment in which those strategies must be implemented.

2.6 Performance and Progress Monitoring e.g., Use of key indicators, progress reporting, attention to results

3

Comments: This credit is an “adjustment credit” provided to CAR based on a commitment outlined in a Letter of Development Policy (LDP). The M&E system established (at entry) is a “Program Policy Matrix” which outlines specific measures and actions and a timetable that the CAR has agreed to carry these out in line with its LDP. Because the CAR has been under suspension of disbursements due to arrears accumulation, it has not been possible to address the weak implementation capacity of the borrower. A companion technical assistance credit (Policy Support Project) supports the strengthening of the borrower’s implementation capacity. Notwithstanding the problems faced by CAR, it appears that significant achievements have taken place and that CAR has implemented some of the measures outlined in the policy matrix. Supervision reports and aide memoires, highlight progress that has been made and keep track of the actions taken and to be taken. Hence, from a strict M&E point of view, the use of the policy matrix for this adjustment credit, and reporting of progress made by itself monitors and measures performance. The PSR should provide a summary of the policy measures that were agreed (refer to Annex B of the Presidents Report) and indicate whether the “targets” have been achieved in lieu of key performance indicators.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5)

3. Adequacy of Supervision Inputs and Processes 3With the experience of supervising the project during FY01-02, assess the quality of Bank inputs and processes:

3.1 Staffing 3(a) Staff Continuity 2(b) Supervision Skill Mix 3(c) Degree of Country Office Involvement and Contribution NAComments: The task team manager was changed right after the project became effective. There were only a few supervision missions, some of which lacked the necessary skill mix.

3.2 Supervision Activities 3(a) Mission Preparation/TORs, Frequency and Time Spent in the Field

3

(b) Quality of Interaction with Borrower outside of formal Missions?

2

Comments: There is no evidence of adequate supervision mission preparation. Based on the documentation provided to the mission, there is only one TOR for supervision mission. No TORs for the specialized supervision missions (e.g. telecom, energy) were supplied to the panel. The documentation (in terms of TORs, aide memoires and back- to- office reports) related to the supervision missions was inadequate. The missions were infrequent, though the regional Bank staff and the task team held policy discussions with their counterparts in the government on a number of occasions.

3.3 Quality of Supervision Documentation and Follow-up 3(a) Aide-Memoire and Follow-Up Letters (well organized, focused on key issues and solutions, readable?)

3

(b) Quality of supervision documentation received by the panel

3

Comments: In general, the documentation (in terms of TORs, aide memoires, back- to- office reports, follow-up management letters) related to the supervision missions was inadequate and lacked coherence. There is no supervision report on the fiscal situation even though the adjustment loan supported "fiscal consolidation."

3.4 Relationships 2(a) Relations with the Borrower (i.e., are they effective?) 2(b) Relations with Donors and other stakeholders (i.e., are 2

- 52 -

they effective?)Comments:

3.5 Management Inputs 2(a) Adequacy and Speed of Management Attention and Actions

2

i) Mission’s strategic focus and problem solving 2ii) Missions debriefing NA

iii) PSR and post-mission follow-up?

Comments:

3

(b) Adequacy of supervision budget Too Little Too Much About Enough

Comments:

(c) Effectiveness of Budget Use 3Comments: There was only one supervision mission led by the task manager; and there were only a few sectoral supervision missions. While a significant portion of the supervision budget appears to have been used for amending the project, more resources should have been utilized to provide advice to government counterparts in dealing with implementation issues and developing medium term strategies for reform.

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QUALITY OF SUPERVISION ASSESSMENT (QSA5) - GUIDANCE QUESTIONS

4. Realism and Quality of Project Performance Reporting (FY01-02)

3

4.1 Accuracy, Timeliness and Consistency with subsidiary ratings in PSR

2

Comments:

4.2 Appropriateness of risk ratings in PSR 3Comments: The critical risks were rated as "substantial" in FYs 00-01 and were downgraded to "moderate" in FY02. They should have been rated as "High" in all years, considering the political instability and weak implementation capacity of the government.

4.3 Adequate Justification for any change of ratings 3Comments: Rating changes were not adequately justified. The rating for M&E changed from NA in FY00 to S in FY01 and then to U in FY02 without giving any rationale. For procurement, it was not rated in FY00, rated "S" in FY01 and "U" in FY02. No explanations provided.

4.4 Adequate Explanation of DO and IP ratings 3Comments: There was inadequate explanation for improving the rating for IP in FY01 and then changing it back to "U" again in FY02.

4.5 Appropriate Use of Golden Flags, if applicable NAComments:

- 54 -

- 55 -