Representatives of 11 European governments and the United States announced on September 15 to forgive USD 55.6 million of a total of USD 59.3 million owed by the Central African Republic to these countries from loans given since 1983. The cancelation marks an important step towards improving the CAR government’s standing among creditor countries and investors, and follows shortly after it reached its completion point under the ‘enhanced initiative for Heavily Indebted Poor Countries’ (HIPC) in June 2009.

The amount forgiven by these governments equals 6% of the Central African Republic’s total external debt.

The debt forgiveness by the group of ‘Paris Club’ member countries (Austria, Belgium, Denmark, France, Germany, Italy, Japan, the Netherlands, the Russian Federation, Switzerland, the United Kingdom and the United States) followed numerous consultations with the CAR government, making it an anticipated announcement after the successful HIPC completion point. Other governments and lender organizations are expected to announce similar debt forgiveness agreements in the following months.

The CAR owes a total USD 856.6 million to creditors in net present value, according to the International Monetary Fund. The IMF says it had received “satisfactory assurances” from creditors representing 82% of all HIPC-eligible debt to participate in the debt forgiveness scheme, while more governments are expected to participate in the future.

Although the large amount written off by creditors equals a significant financial and political relief for the Central African Republic, the country has only been able to repay a limited amount of debt in past years. According to the 2008 budget, USD 50.1 million were planned to be repaid in the previous year to donor countries and organizations, though only a fraction of the amount due could be serviced.

The CAR government has pledged to use the freed resources to finance activities highlighted in its current Poverty Reduction Strategy. In addition, according to UN officials, the freed resources have already enabled the administration to pay some of the arrears of civil servant salaries.

As another, possibly more important effect of this collective decision as well as the HIPC completion point, the Central African Republic is subsequently able to receive fresh loans for large long-term investments in its infrastructure.

Assessing the total amount owed and the share eligible for debt relief is a highly technical matter, causing multiple conflicting numbers to be used in different contexts. When counting the original or nominal value of loans, including bilateral, multilateral, and commercial debt of the CAR government, the total amounts to USD 1,086 million. In today’s terms (net present value), and after a series of structural adjustments and traditional debt relief, this amounts to USD 856.6 million.
63% of the CAR’s debt (USD 537 million) is owed to multilateral creditors, notably the World Bank’s International Development Agency and the International Monetary Fund. 32% (USD 276 million) were owed to individual governments (including the now canceled debt to Paris Club members), while the rest (USD 44 million) are outstanding payments to private businesses and lenders.

Among the largest bilateral creditors are Taiwan (USD 94 million), Argentina (USD 34 million), China (USD 25 million), former Serbia and Montenegro (USD 21 million), and Kuwait (USD 19 million).
The delegation of the Central African Republic at the Paris Club meeting was headed by Mr Abdalla-Kadre Assane, Delegate Minister for Finance and Budget in charge of Fiscal Revenue Mobilization.

CAR’s largest creditors (selection):

(adapted from IMF, June 2009, p45.)

More information:

Paris Club (press release)

Central African Republic: Enhanced Initiative for Heavily Indebted Poor Countries—Completion Point Document and Multilateral Debt Relief Initiative (PDF | 1MB)