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CAR Economic Update: A Call for Domestic Revenue Mobilization to Sustain Growth

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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.

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Human Rights

Rohingya conference pledges to ‘remain steadfast’ in finding solutions to crisis

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A young Rohingya girl holds her brother outside a youth club in Cox's Bazar, Bangladesh. © UNHCR/Vincent Tremeau

A joint UN-hosted donor conference to rally international support behind Myanmar’s displaced Rohingya minority, ended on Thursday with a promise to continue engaging with concerned countries towards finding a long-term solution to their plight.

“We will continue to work together to maintain international attention on the Rohingya crisis and to shift from short-term critical interventions, to a more sustained and stable support”, said the closing statement from co-hosts the UN refugee agency (UNHCR), the European Union (EU), United Kingdom and United States.

“We are grateful to all who have participated…including those who have announced or pledged funding for the international humanitarian response, those who are supporting members of the Rohingya communities in other ways – not least by hosting them – and most importantly, representatives of Rohingya communities themselves”, the statement continued.

The appeal comes more than three years after the orchestrated violence that erupted in Myanmar, across Rakhine state, which saw hundreds of thousands of mainly-Muslim Rohingya flee their homes, in search of safety across the border in Cox’s Bazar, Bangladesh.

There are currently 860,000 Rohingya refugees in and around Cox’s Bazar, and an estimated 600,000 still in Rakhine state, who face ongoing violence and discrimination; and Malaysia, India, Indonesia, and other countries in the region, are together hosting nearly 150,000 Rohingya refugees.

Voluntary, safe, dignified return

“The voluntary, safe, dignified, and sustainable return of Rohingya refugees and others internally displaced to their places of origin or of their own choosing in Myanmar, is the comprehensive solution that we seek along with Rohingya people themselves”, the joint communique stated.

“To that end, we underscore the Secretary General’s call for a global ceasefire and the cessation of fighting to enable safe and unimpeded humanitarian access to all communities in need of assistance.”

The co-chairs urged Myanmar’s Government to resolve the crisis, and “take steps to address the root causes of the violence and displacement”, creating the conditions that would allow for sustainable returns.

“This includes providing a pathway to citizenship and freedom of movement for Rohingya, guided by the Advisory Commission on Rakhine State’s recommendations and encouraged and supported by countries in the region. Myanmar must provide justice for the victims of human rights abuses and ensure that those responsible are held accountable”, the statement continued.

Expressing thanks and support to the Government and people of Bangladesh, the co-chairs stressed that increased support for Rohingya, must go hand-in-hand with increased support for host communities.

“While we continue efforts to secure long-term solutions, a focus on more sustainable response planning and financing in Bangladesh, could more effectively support the government’s management of the response and maximize limited resources to benefit both Bangladeshi and refugee communities.”

$600 million pledged

The co-chairs announced new pledges of around $600 million in humanitarian funding, which significantly expands the nearly $636 million in assistance already committed so far in 2020 under the Bangladesh Joint Response Plan and the Myanmar Humanitarian Response Plan.

The crisis is having a “devastating effect on vulnerable members of Rohingya communities, particularly women and children who require gender and age-sensitive interventions” said the co-chairs, leading to vulnerable refugees “desperately attempting to reach other countries in the region.

UN Children’s Fund (UNICEF) Executive-Director, Henrietta Fore, said that thanks to Bangladesh and generous donors worldwide, UNICEF and other UN agencies such as UNHCR, migration agency IOM, World Food Programme WFP, and many NGOs, continue to serve and support vulnerable Rohingya children.

In addition to providing vital services such as health, nutrition, and sanitation, education is “critical for young Rohingyas to build better futures. And to one day voluntarily return and reintegrate into Myanmar with the safety and dignity they deserve.”

Support for 170,000 Rohingya children

“We’re giving parents and caregivers the training and tools they need to support their children’s education. More than 170,000 Rohingya children are being supported this way”, she said.

“Join our call to ensure a place for Rohingya children in both countries’ education systems and programmes. They need education where they live”, she told the conference.

Ms. Fore called on donors not to forget the daily struggles of Rohingya children who remain inside Myanmar. “They’re still facing discrimination, horrifying violence and intensifying conflict every day. The fighting needs to stop so children can return to school and play, and so refugees can return home safely if they choose.”

Rohingyas themselves ‘backbone of the response’

UN Emergency Relief Coordinator, Mark Lowcock, said it was vital to recognize that the Rohingya refugees themselves have been “the backbone of the response.”

“They volunteer as health workers, they distribute masks and they help protect their communities from the pandemic. And I think we are all need to be very grateful to them and encourage them to take up this kind of responsibility.”

Highlighting again the Rohingya communities that remain in Myanmar, he said 130,000 of them remain displaced in central Rakhine State where they have been since 2012, and another 10,000 have been displaced since 2017 in northern Rakhine.

“Those people continue to have their basic rights denied, they suffer extreme hardships in Rakhine State and elsewhere”, added relief chief Lowcock.

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Development

Vietnam’s Coastline Urgently Needs New Resilience Development Strategy

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The coastline of Vietnam is increasingly exposed to natural disasters, resulting in significant human and economic losses, but current risk management measures prove inadequate. A new resilience development strategy is urgently needed ─ otherwise, additional economic growth over the next decade in the range of billions of dollars could be wiped away by natural shocks, according to a new report by the World Bank.

The ongoing devastating storms and floods that battered the central part of Vietnam are the latest evidence of a worrying trend that natural risks, which have already been substantial, are intensifying due to rapid urbanization, economic development, and climate change. Resilient Shores, a report jointly developed by the government of Vietnam, the World Bank, and the Global Facility for Disaster Reduction and Recovery released today, provides some sobering statistics on how vulnerable the coastline is and who and what are most impacted.

To ensure the sustainable development of Vietnam’s coastal zones, we cannot ignore the challenges of natural shocks and climate change. To secure prosperity, we must invest in resilience,” said Tran Quang Hoai, Director General, Vietnam Disaster Management Authority, Vietnam’s Ministry of Agriculture and Rural Development.

The report estimates that 12 million people in coastal provinces are exposed to the threat of intense flooding and over 35 percent of settlements are located on eroding coastlines. Each year, an average of $852 million – or 0.5 percent of GDP – and 316,000 jobs in key economic sectors are at risk from riverine and coastal flooding.

Public facilities and infrastructure are also at risk, which means disruption of service delivery at the time when they are most needed. Severe flooding affects directly 26 percent of public hospitals and healthcare centers and 11 percent of schools in the region. More than one-third of Vietnam’s power grid is located in forested areas, at risk of being damaged by storm-induced fallen trees.

Despite much progress over the past decade, Vietnam’s current risk management scheme still faces significant challenges. Major shortcomings the report identifies include fragmented and incomplete risk information and ineffective enforcement of related regulations such as spatial planning, building codes, safety standards and systematic maintenance of infrastructure systems. For instance, the report shows that two-thirds of Vietnam’s sea dike system does not meet the prescribed safety requirements.

If the current trends of rapid economic development in high-risk areas continue, disaster losses are bound to increase,” said Carolyn Turk, World Bank Country Director for Vietnam. “It’s time for a new approach to balance the risks and opportunities so that Vietnam’s coastal regions can continue to be an engine of growth while being resilient to shocks.

The report presents a concrete action plan in five strategic areas that needs to be rolled out immediately and decisively.

  • Strengthening data and decision-making tools by establishing openly accessible natural disaster databases, as well as asset management systems for critical infrastructure.
  • Factoring risks in zoning and spatial planning based on the best available information.
  • Strengthening the resilience of infrastructure systems and public services by upgrading such assets in the most exposed and under-protected areas and updating existing safety standards.
  • Taking advantage of nature-based solutions by tapping into the protective function and economic contribution of ecosystems in a systematic manner.
  • Improve disaster preparedness and response capacity by upgrading the early warning system, strengthening local response capacity, improving social safety nets and implementing comprehensive risk financing.

Vietnam’s diverse coastline spans over 3,000 kilometers. The coastline’s wealth of natural endowments provides livelihoods for some 47 million people or half of the country’s population. The region also bears the brunt of natural disasters that hit Vietnam regularly.

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Energy News

Impact of COVID-19 on Commodity Markets Heaviest on Energy Prices

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While metal and agricultural commodities have recouped their losses from the COVID-19 pandemic and are expected to make modest gains in 2021, energy prices, despite some recovery, are expected to stabilize below pre-pandemic levels next year, the World Bank said.

Oil prices fell dramatically in the early stages of COVID-19 and have only partially regained pre-pandemic price levels, while metal prices declined relatively modestly and have returned to levels that preceded the shock, according to the semi-annual Commodity Markets Outlook report. Agriculture prices were relatively unaffected by the pandemic, but the number of people at risk of food insecurity has risen as a result of the broader effects of the global recession.

“The impact of COVID-19 on commodities has been uneven, and could have lasting effects for energy markets,” said Ayhan Kose, World Bank Group Acting Vice President for Equitable Growth, Finance & Institutions and Director for the Prospects Group. “When declines in commodity prices are short-lived, policy stimulus can buffer their impact. However, when prices remain depressed for an extended period, policy makers need to find solutions so their economies can adjust smoothly to a new normal. Because of COVID-19, the new normal for oil-exporting emerging and developing economies arrived earlier. In the post-COVID world, these countries need to be more aggressive in implementing policies to reduce their reliance on oil revenues.”

Oil prices are expected to average $44 per barrel in 2021, up from an estimated $41 per barrel in 2020. Demand is expected to rise only slowly as tourism and travel continue to be held back by health concerns and as global economic activity is anticipated to return to pre-pandemic levels only in the year after next. Supply restraint is expected to be eased steadily.  Energy prices overall —which also include natural gas and coal—are expected to rebound sizably in 2021, following large declines in 2020, an upward revision from April’s forecast. A resurgence of a second wave of the pandemic that results in more lockdowns and less consumption, and delays in vaccine development and distribution, could lead to lower energy prices than forecast.

Metal prices are expected to post modest increases in 2021 after falling in 2020, supported by the ongoing recovery in the global economy and continued stimulus from China. A prolonged period of weak global growth would lead to lower prices than forecast.

Agriculture prices are expected to rise slightly in 2021, following an estimated 3% increase in 2020 following some shortfall in edible oil production. Concerns about food insecurity remain relevant in several emerging market and developing economies. These concerns are prompted by hits to incomes from the global recession, bottlenecks in food availability at the local level, and border restrictions that have constrained labor supply. Food price inflation has spiked in several countries.

The pandemic is only the latest in a long history of shocks to commodity markets. A Special Focus looks at the nature of commodity price shocks on 27 commodities during 1970-2019. It finds that highly persistent (“permanent”) and short-lived (“transitory”) shocks have contributed almost equally to commodity price variation, although with wide variety across commodities. Permanent shocks account for most of agricultural commodity price variability while transitory shocks are more relevant in industrial commodity prices. The varied duration of such shocks points to a need for policy flexibility.

 A transitory commodity price shock may call for stimulative fiscal policy to smooth consumption; countries that depend on exports of commodities subject to cyclical price swings may want to build fiscal buffers during the boom phase and use them in the bust period to support economic activity. In countries that rely heavily on commodities that are subject to permanent shocks, structural policies such as economic diversification and broadening the tax base may be needed to facilitate adjustments to new economic environments.

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