39006 CENTRAL AFRICAN REPUBLIC CHAIRMAN'S SUMMING UP Enhanced Initiative for Heavily Indebted Poor Countries (HIPC) Preliminary Document Informal Meeting of Board of Executive Directors of IDA March 8,2007 The Executive Directors considered the preliminary document of the Enhanced Initiative for Heavily Indebted Poor Countries Initiative (HIPC) for the Central African Republic (C.A.R) prepared by staffs of the World Bank and the IMF. Directors were supportive of the overall assessment and acknowledged the C.A.R.'s progress in making the transformation from post-conflict to recovery and its efforts in implementing structural and fiscal reforms. They also noted the recent approval of an IMF PRGF and the presentation of the Interim Strategy Note to the World Bank's Executive Board. Directors noted, however, that the C.A.R faces major challenges in reducing widespread poverty and reaching the Millennium Development Goals. Directors commended the Government's structural reform agenda to promote private sector development, as well as its initial efforts to enhance reporting and accountability, particularly in the mining and forestry sectors, and encouraged deepening and continuation of such reforms. Directors urged the C.A.R. to complete the PRSP as quickly as possible during 2007. According to preliminary estimates, the C.A.R's NPV of external debt exceeds the HIPC threshold of 150 percent of exports at end-2005 after full application of traditional debt relief mechanisms. On this basis and given the C.A.R.'s track record of performance under IDA and IMF- supported reform programs, as well as its current status as an IDA-only and PRGF-eligible country, Directors agreed that the C.A.R. is eligible for HIPC debt relief and may qualify for assistance under the Enhanced HIPC Initiative as soon as agreement is reached with the Government on Completion Point triggers. Directors generally agreed that the C.A.R. could reach its Decision Point by September 2007 at the time of the first review of the PRGF, provided that (i) the country remains on track with its macroeconomic program, supported by an arrangement under the PRGF and (ii) understandings are reached on appropriate Completion Point triggers. Directors were in general agreement with the areas of the proposed triggers for reaching the floating completion point but requested that the Decision Point document elaborate on their measurement. Several Directors cautioned against using too large a set of triggers and urged focus on those that are critical to the C.A.R.'s development and progress toward the MDGs. In this context, Directors stressed the importance of strengthening governance and public expenditure management, including the need to ensure that overall expenditures are focused on poverty reducing activities and the development of the private sector. The Executive Directors emphasized the need to put in place permanent mechanisms for expenditure tracking in general and poverty related expenditure in particular, as well as monitoring and evaluation of public services so as to provide their quality and accessibility, especially to the poor. They expect that the Decision Point document will address these issues. Directors indicated that the Decision Point document should further elaborate on the C.A.R.'s growth strategy and on its risks of returning to debt distress in the face of political uncertainties. They noted that the C.A.R.'s heavy debt burden would require strong export growth and additional external assistance in the form of grants to avoid a return to unsustainable debt. Directors also noted the importance of reducing the internal debt overhang, in particular domestic arrears, whose settlement could make an important contribution to restoring trust between Government and its economic as well as social partners. Directors welcomed the progress made in normalizing relations with the C.A.R.'s external creditors and the clearing of arrears to IDA and the African Development Bank through a cooperative effort with donors and the restarting of IDA'S financing operations in the C.A.R. Several Directors highlighted the importance of ensuring broad creditor participation, including non-Paris Club bilateral creditors.