The second edition of the Central African Republic (CAR) Economic Update, which was published today by the World Bank, examines evolving economic trends in the country and proposes options to boost domestic revenue by improving tax and customs policy and administration.
Titled “Strengthening Domestic Revenue Mobilization
to Sustain Growth in a Fragile State,” the report notes that the
improved security situation is leading to brighter economic prospects, with the
real GDP growth rate estimated at 4.8% for 2019. The authors indicate that
although the country’s growth rate has outpaced that of countries in the Central
African Economic and Monetary Community (CEMAC) and Sub-Saharan Africa, it
continues to lag behind peer countries such as Burkina Faso, Malawi, Mali,
Niger, and Uganda.
“CAR has not experienced sustained growth since gaining independence in 1960. With the signing of the Political Agreement for Peace and Reconciliation in February 2019, the economic outlook is, however, positive,” states Wilfried A. Kouamé, World Bank economist and lead author of the report. “The successful implementation of the peace agreement is critical for jumpstarting growth. By implementing this agreement in the run-up to the elections, we are expecting growth of around 5% in the medium term.”
The report also reveals that
while CAR is still at high risk for debt distress, its efforts to streamline
public expenditure and clear domestic arrears are driving down the public debt
level to below CEMAC and Sub-Saharan Africa averages and bringing it closer to
the debt levels of its peers.
Han Fraeters, World Bank Country Manager for the Central African Republic, explains that “this report aims to help the government and its development partners identify opportunities and address challenges in order to move forward on combating extreme poverty. Domestic resources will therefore have to be mobilized to boost public revenue and enhance delivery of basic public services, which are pivotal to guiding the country into a virtuous cycle of peace and security. The upcoming elections will require sound fiscal discipline and provide a unique opportunity to place the country on a path of sustained growth.”
The report presents a number of options to address the growing needs of Central Africans:
Strengthen the social contract: The social contract between the State and its citizens, which is vital to mobilizing tax revenue, was undermined by the recent crisis. To strengthen the social contract, the State must undertake to improve the efficiency and quality of goods and social services, while restoring the trust of taxpayers to encourage them to move out of the informal sector and pay their taxes.
Broaden the tax base: CAR’s tax revenue currently accounts for approximately 8% of GDP, which is below its potential and among the lowest in Sub-Saharan Africa. CAR could consider increasing the tax rates on alcohol and tobacco products in the short term, and reducing the number of tax brackets that hinder business creation and development in the long term.
Improve property tax collection: Legislation on property taxation has not been updated to reflect recent economic developments. Current revenue collection is inefficient and is based on a declarative system that narrows the tax base. New legislation could generate close to CFAF 12 billion (roughly $22 million).
Limit tax exemptions: In 2016, tax exemptions were a major source of lost tax revenue for the country (almost CFAF 2.4 billion or roughly $4 million). A significant share of these exemptions were granted to the private sector and related primarily to VAT. The adoption of the new investment charter in 2017 and the implementation of reforms aimed at curbing tax exemptions and improving the business environment to attract private investment require the firm commitment of the authorities and a formal legal system to institute legal proceedings in the event of abuse.
Modernize the tax system: Strengthening tax administration capacity is critical to improving the tax system. This requires heavy investment in the computerization of public administrations and the purchase of the equipment and software needed to improve revenue collection. Computerization will help curb abuse and corruption, trace transactions related to taxes and duties, facilitate the sharing of information between tax and customs authorities, and enhance the efficiency of financial boards.
The World Bank Strengthens Support to Argentina’s Most Vulnerable Families
The World Bank Board of Directors today approved a new US$ 300 million operation to support Argentina’s efforts to strengthen its social protection system and minimize the impact of the crisis on the most vulnerable families.
The additional US$300 million in financing for the “Children and Youth Protection Project” seeks to improve coverage of family allowance programs administered by the National Social Security Administration (ANSES) and to accelerate the process to include 350,000 children who are still not covered by the Universal Child Allowance (AUH). It will also support the introduction of improvements in ANSES processes to guarantee continued coverage, especially when a parent loses a formal job.
“We appreciate the support of the World Bank in one of the topics on the agenda of the national government’s strategic priorities, which is to accompany those who have the least. This project advances in that direction,”. said Gustavo Beliz, Argentina’s Strategic Planning Secretary.
“Argentina is struggling with Covid 19, which creates new public investment demands. In response to this difficult health and financial situation, the World Bank is supporting investments to protect the most vulnerable population,” said Jordan Schwartz, World Bank Director for Argentina, Paraguay and Uruguay. “This financing aims to make the social protection system more inclusive and effective, and to prevent families from slipping into poverty, or assisting them once that has occurred.”
The World Bank has supported the AUH program since it was first implemented in 2009. The program forms part of the broader ANSES family allowance system. This benefit is paid for each child under age 18 whose parents are unemployed or informally employed, or who are independent workers or domestic workers and who earn less than the minimum wage. Currently, more than four million children receive the AUH benefit and nearly nine million are covered by the group of family allowances. Participation in the program has increased beneficiaries’ school attendance and fulfilment of medical checkups.
Since 2016, the “Children and Youth Protection Project” has successfully contributed to closing AUH coverage gaps. Initially, over 1.5 million children could not be included in the eligibility process of ANSES programs – today the challenge is to include the 350,000 remaining children.
The additional project financing is a variable-spread loan with a 32-year maturity period and a seven-year grace period.
Mongolia: World Bank Mobilizes $2.2 Million to Strengthen Medical Diagnostic Services
The World Bank mobilized US$2.2 million to help strengthen Mongolia’s hospital services in the wake of the COVID-19 pandemic. The funding will be used to purchase the most needed medical diagnostic equipment in the country.
This immediate financing is being provided under the ongoing E-health project which seeks to improve integration and utilization of health information and e-health solutions for better health service delivery in selected pilot sites.
“This immediate financing will help Mongolia safeguard its people from the potential COVID-19 outbreak in the country and make sure that they have access to early diagnosis and care,” – said the World Bank Country Manager for Mongolia Andrei Mikhnev.
Diagnostic equipment procured under this funding include 15 stationary and 12 mobile digital X-ray equipment and 41 ultrasound machines. Deliveries are expected in the beginning of April.
“We believe that this additional equipment would strengthen the country preparedness to deal with disease outbreaks like COVID-19,” – said Dinesh Nair, Senior Health Specialist of the World Bank. “We will continue actively engaging with the government to help strengthen health systems, disease surveillance, and diagnosis.“
On March 17, the World Bank Group also pledged $14 billion in immediate support to assist countries coping with the health and economic impacts of COVID-19. This financing is designed to help member countries, among them Mongolia, take effective action to respond to, and, where possible, lessen the tragic impacts posed by the global pandemic.
Peru Will Receive US$ 50M from the World Bank to Strengthen Key Social Protection
The World Bank Board of Directors today approved a US$ 50 million loan to strengthen key policies and strategies to increase human capital accumulation in Peru, particularly in the most vulnerable social sectors.
The Human Capital Development Program will focus on improving the delivery of social protection and early childhood development services, especially at the local level, and in strengthening professional development and management systems in education. Guaranteeing access to quality social protection, health and education services throughout the lifecycle is crucial for ensuring that individuals can develop the basic knowledge and skills they need to become productive members of society.
Over the past two decades, Peru has sharply reduced its poverty and inequality rates. It has also made significant strides in education and learning, as well as in decreasing chronic malnutrition and in implementing early childhood development policies. Notwithstanding, the country needs to reinforce its investments in human capital to further narrow inequality gaps and to guarantee that prosperity reaches all social sectors.
“The Peruvian government has undertaken the challenge of making multisector efforts to guarantee that all children reach their enormous potential and that they can become key players in the country’s development,” saidMarianne Fay, the World Bank Director forBolivia, Chile, Ecuador and Peru. The World Bank is accompanying Peru in this effort. “We provide technical and financial assistance for development policies that invest in people and that help to unlock and accelerate the generation of human capital, as well as to create synergies in the investments made in early childhood development to maximize results,” she added.
To this end, the program seeks to improve the comprehensive delivery of social protection and early childhood development services, as well as education quality and management. It will also support priority political and institutional reforms in the social sector and the linkage of policies implemented by the Ministry of Development and Social Inclusion and the Ministry of Education.
The Ministry of the Economy and Finance will implement the program using a multisectoral and territorial approach, in close coordination with the Ministry of Development and Social Inclusion and the Ministry of Education.
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