Previous Quarterly Editions
Expropriation Risk: 75 75 75 75 ►Political Violence Risk:68 68 68 68 ►Terrorism Risk:35 35 35 31 ►Exchange Transfer and Trade Sanction Risk: 73 73 73 73 ►Sovereign Default Risk:83 83 83 83 ►
TREND ►
Protest intensity to date* 2022 2023 Low LowUnrest risk in 2024**Cost of living: MediumAnti-austerity: Medium
The Central African Republic (CAR) is one of the world’s least developed countries, scarred by weak and inconsistent governance and continuing violent insecurity. Politics and security therefore dominate the agenda; the government has little capacity to focus on policy areas that relate to debt, such as fiscal policy, budget management or capital spending on infrastructure.
In country risk terms, the CAR is too weak to access most international bank lending or debt markets, and the political and security situation inhibits lost potential loan-financed, long-term development projects. Donors mainly provide grants, largely for short-term humanitarian needs. Consequently, the CAR has accumulated only limited volumes of external debt — equal to 34.2% of GDP, with total public and publicly guaranteed debt reaching 51.9% of GDP by the end of 2022. But because the country is so fragile, it is rated as high risk by credit insurers and export credit agencies, while even the modest absolute levels of debt that it has accumulated present a serious risk of debt distress, in the view of the International Monetary Fund (IMF).
Denied access to much international financing, the government has stepped up its borrowing from the central bank for the Central African Economic and Monetary Community (CEMAC); this has been consolidated into a single loan of 80.5 billion Central African francs (CFA) (US$129.2 million) with maturity extended to 20 years and a grace period up to 2025. The government has also borrowed heavily on the regional market, issuing CFA27 billion in government securities in 2021. Additionally, the government drew down its entire allocation of IMF Special Drawing Rights for that same year.
While the local and regional borrowing has staved off the risk of immediate debt crisis, the pressure is only postponed, particularly given the dim prospects for any sustained surge in growth and in government revenues. In bald statistical terms, the CAR’s current debt ratios are much stronger than those of Senegal, for example, but the country’s future ability to satisfy its debt obligations is far weaker.
About 60% of the CAR’s debt is owed to the IMF and the World Bank, and little is owed to private creditors. The country has already benefitted from several rounds of IMF and bilateral debt relief, and it seems plausible that further help will be given, provided that there is adequate political stability. In 2020, China canceled debt equal to 0.8% of GDP, and Serbia’s Energoprojekt canceled or rescheduled debt equal to 1.7%; however, the CAR also
owes arrears equal to 9% of GDP to Argentina, Equatorial Guinea, Iraq, Libya and Taiwan, while other bilateral debts equal to 6% of GDP are owed to India, China, Saudi Arabia, Kuwait and Congo. It is difficult to forecast what the likely future level of debt service, rescheduling or forgiveness on this varied portfolio might amount to in practice, but it could be difficult for the CAR — with such a fragile and aid-dependent income base — to manage.
The related political factors are as much diplomatic as they are internal. The leading domestic pressures relate to security in provincial areas and, in Bangui, political opposition. Urban dwellers are feeling severe cost-of-living pressures too. The World Bank pays the salaries of staff from seven ministries, but many other public servants are suffering pay arrears, and this is a serious source of discontent in Bangui. If debt service costs came to be perceived as a reason for the salary arrears — which is not the case currently — the issue would gain more political salience and could increase resentment of President Faustin-Archange Touadéra’s choices of international partners.
The CAR faces a huge challenge to attract serious and sustained foreign direct investment — and the country is also in desperate need of external technical capacity. This reduces the risk that any of the few foreign-owned assets might be expropriated. The risk that concession or management contracts for public assets could be terminated is similarly low.
Over the past five years, as President Touadéra has become more dependent on security cooperation with Russia and with the Wagner mercenary group, the CAR’s relationships with France, the United Nations and the West more generally have suffered from an erosion of trust and goodwill. That may have altered the calculation of expropriation or contract cancellation risk for assets in key resource sectors, particularly mining, where Wagner is active and seeking to grow.
However, recent months have seen signs of a cautious thaw in relations with France: overtures of goodwill from Paris have been reciprocated by Touadéra, who visited President Emmanuel Macron in September. Meanwhile, the United States has sought to extend offers of security cooperation. In this climate, the risk that Western investors could be the target of harsh treatment by the CAR government is probably reducing.
The risk of political violence persists. Despite the progress that Wagner has made in extending state control over more of the CAR’s national territory, the Coalition des Patriotes pour le Changement rebels remain active; recent weeks have seen numerous attacks on local communities in the Bamingui-Bangoran region in the north, where many villagers have sought sanctuary in the towns. Other armed groups or warlords also remain locally active elsewhere.
Moreover, a possibility of civil urban protest remains in Bangui, where a significant segment of the population opposed the constitutional change that now gives Touadéra the right to stand for a third term. Opposition leaders are continuing to campaign against the president. Salary arrears have already provoked strikes and could fuel wider protests if they persist.
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
The CAR so far seems to have escaped infiltration or attack by jihadist or other ideologically motivated terrorist groups. Neighboring Chad is a geographical buffer that shields the country from the activity of Boko Haram and the Islamic State-West Africa Province in the Lake Chad basin; however, in the current conditions of civil war and instability across both the Sahel and Sudan, the risk that terrorist groups might eventually make their way to the CAR cannot be excluded.
CAR belongs to the six-country CEMAC bloc, whose CFA franc single currency is pegged to the euro at a rate guaranteed by France. Member countries have been looking at reforms of the system, probably similar to those begun by the sister West African CFA bloc, which would leave the exchange rate peg intact.
But CEMAC exchange transfer risk is slightly higher than in West Africa because many member countries are dependent on revenues from oil, the price of which can be volatile. The bloc is thus less stable in economic terms, with an inconsistent record of fiscal management in member states.
The CAR’s human rights record is variable, with both armed rebel groups and Wagner mercenaries accused of abuses. But the fact that Touadéra is democratically elected should shield the country from potential sanctions.
While a sudden debt default seems unlikely, the CAR may well need to seek further write-offs or debt cuts by key creditors, notably including those outside the Paris Club and G20 groupings and thus not bound by the recent official collective debt reduction initiatives established to help poor countries.
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