2009 CAR BUDGET ANALYSIS

UNCLAS SECTION 01 OF 03 BANGUI 000104

SENSITIVE
SIPDIS

DEPT FOR AF/C
PARIS FOR RKANEDA
LONDON FOR PLORD
AFRICOM FOR KOCH

E.O. 12958: N/A
TAGS: EFIN ECON PGOV EAID
SUBJECT: 2009 CAR BUDGET ANALYSIS


1. (SBU) SUMMARY: The National Assembly of the Central African
Republic adopted the 2009 national budget on February 2, 2009
during a special session. A final copy of the budget is now
available to the public. The 2009 budget increased by 14.2
percent compared to 2008. The CARG resources are estimated at
USD 334.9 million. The total expenditures are estimated at USD
362.1 million with an estimated deficit of USD 27.3 million.
This budget, like in 2008, is built to take into account the
Central African Government's Poverty Reduction Strategy Document
priorities. Post believes its assumptions to be unrealistic
considering the global financial crisis and the internal
economic weaknesses of the CAR itself. END SUMMARY.

2. (SBU) 2009 budget's assumptions and general trends - Economic
prospects for CAR will depend on the country's stability and the
recovery of some key economic sectors that have been disrupted
by the various mutinies, coup attempts and rebellions that the
CAR has faced over last ten years. The Ministry of Economy and
Planning estimated the country's GDP for 2009 at USD 1.9 billion
and its economic growth at 3.9 percent. Post believes these
estimates to be exaggerated when taken in the context of the
international economic and financial crisis as well as the CAR's
own internal political, social and economic crises.

3. (SBU) Overall, the 2009 budget is built to sustain the
implementation of the Poverty Reduction Strategy Document. The
Central African Government's assumptions are:
- The 2009 budget implementation will take place in a context of
restored security and peace throughout the country as result of
the Inclusive Political Dialogue. Unfortunately, the Inclusive
Political Dialogue has not yet resulted in peace and stability
and if anything, the rebellions appear to be once again
increasing.
- An effective return of the foreign direct investment
especially in the sectors of mining, forestry and construction
works - difficult to foresee considering global conditions.
- The reinforcement of relationships with international
partners, especially with Word Bank and IMF through the reaching
of the Initiative for Heavily Indebted Poor Countries decision
point. (NOTE: in discussion with Post, the World Bank and the
IMF have been cautiously optimistic with the performance of the
Central African Ministry of Finance and Budget.)
- This budget was built to promote the fight against poverty as
well as the strengthening of economic growth through the
mobilization of additional resources in the framework of the
Poverty Reduction Strategy Document's (PRSD). Its
implementation gives priorities to key development sectors such
as the building/rebuilding of infrastructure, farming and
fisheries among others.

4. (U) On the public finance management side, the CARG intends
to pursue some stabilization measures through:
- Improvement in tax collection by various services of the
Ministry of Finance and Budget.
- Priority given to the fight against poverty as stated in the
PRSD.

4. (U) The CARG expects its internal resource mobilization
efforts to be complemented by a significant external resources
disbursement within the framework of the Poverty Reduction and
Growth Facility Program supported by IMF. This should amount to
USD 20.2 million of committed resources.

5. (U) On the expense side, the 2009 budget increased sharply,
by 20 percent, compared to 2008. Overall, budget expenses
related to the fight against poverty amount to USD 63.6 million.
Out of this amount USD 54.2 million are earmarked for investment
expenses covering the government following priorities:
- Restoration of security, peace consolidation and conflict
prevention.
- Promotion of good governance and state of law, targeting
corruption in particular.
- Rebuilding and diversification of the economy by promoting the
country's exploitation of its various natural resources in
agriculture, tourism and mining.
- Promotion of the human resources by improving education and
health services provided by the government.

6. (U) The 2009 budget details are as follows in USD million

2008 budget 2009 budget
Percent Change
Total resources 269.37 334.88
24.3
Domestic resources 194.33 221.96

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14.2
Budgetary assistance 12.10 33.96
180.6
External resources 62.93 78.96
25.2

Total expenses 301.83 362.14
20.0
Operational expenses 171.30 197.41
15.2
Total Investment 85.89 106.58
24.1
Government 22.96 27.63
20.3
Donors 62.93 78.95
25.4
Debt Service 44.63 58.14
30.3
Deficit 32.55 27.25
(19.4)

7. (U) Budget resources: As shown by the above table, the total
2009 CARG budget resources are estimated at USD 334.9 million,
an increase of 24.3 percent year over year. The domestic
resources are estimated at USD 222.0 million, an increase of
14.2 percent year over year mainly due to new measures including
the restoration of the full value added tax affecting imported
construction materials such as cement and metal sheet. As in
2008, significant tax exemption beneficiary's number decreased
(In 2008, many NGOs and churches involved in development
activities lost substantial tax exemption for their equipment
purchases). As a result, an increase of 14.2 percent in the
domestic resources can be noted. An expected increase of 25.4
percent of external resources compared to 2008 will support
public investment in priority sectors including infrastructure,
security, health and education. With a 180 percent increase,
budgetary assistance amounted to USD 34.0 million. Budgetary
assistance comes from France, China and European Union.

8. (U) Budget expenditures: The total estimated 2009 budget
expenditures are USD 362.1 million, an increase of 20 percent
year over year. The major expenditure rubrics are as follows:
- Wage bill: The bill is estimated at USD 80 million, which is
an increase of 6.7 percent, mainly due to the slight increase in
the number of recruited civil servants in the education, health
and security sectors. The general increase of civil servants'
salaries in the 2009 budget contributed to this increase as well.
- Goods and Services: Goods and services are estimated at USD 80
million, which is an increase of 26.3 percent compared to 2008
budget. This substantial increase is attributable to resources
devoted to the payment of Government's bills for telephone,
electricity and water consumption as well as payment of arrears
for previous years.
- Investment budget: Total investment expenses are estimated at
USD 106.6 million, against USD 85.8 million in 2008,
representing an increase of 24.1 percent.
- Internal resources: Internal resources devoted to investment
are estimated at USD 27.6 million up from USD 23.0 million in
2008, an increase of 20.3 percent.
- External resources: External resources were USD 79.0 million,
as increase of 25.4 percent compared to 2008. This increase is
due to the funding of development projects in energy, waste
disposal, communication, education and health sectors.
- In general, the related expenses in the ``fight against
poverty'' programs are estimated at USD 63.6 million, including
USD 54.2 million in related investment expenses.

9. (U) Debt Service
The debt service is estimated at USD 78.0 million. The breakdown
is as follows:
- Internal debts: USD 28.2 million
- External debts: USD 49.8 million

10. (U) Deficit : The 2009 deficit is estimated at USD 27.2
million, representing 1.4 percent of the GDP, as opposed to 1.8
percent in 2008. The Central African Government plans to fund
this deficit through the mobilization of internal as well as
external resources in the form of grants, loans, budgetary
support and/or debt cancellation.

11. (SBU) COMMENT: On the positive side, the prospects for
external resources to be mobilized in the framework of the
Poverty Reduction Strategy are possible. It should also be note
that the CARG recently reached the goals of the initiative for

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heavily indebted countries, meaning that a substantial portion
of the country's international debt service may be reduced. Yet,
Post still believes this budget has many more problems than
solutions:
- It is too optimistic in its assumption of the revival of
economic activities throughout the country. The December 2008
inclusive political dialogue was supposed to bring peace and
disarm rebel groups, but it has not reached these objectives.
Indeed, the CAR has seen a resumption of violence since its
signing.
- In terms of budgeted tax collection, although some
organizational efforts are notable, the closure of several
companies operating in forestry and mining sectors will likely
limit the level of potential tax receipts collected.
- No money budgeted for the 2010 elections.
As noted above, the international financial crisis, coupled with
the economic crisis affecting the Central African export
markets, and the lack of stability in the country, will hinder
greatly the optimistic assumptions of the 2009 budget. END
COMMENT
COOK