MIL-OSI Translation: The Executive Board of the International Monetary Fund Concludes the 2022 Article IV Consultation and Review of the Extended Credit Facility for the Democratic Republic of the Congo

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MIL OSI Translation. Government of the Republic of France statements from French to English –

Source: IMF in French

June 29, 2022

Washington, DC: International Monetary Fund Executive Board Concludes Article IV Consultation [1] and the review of the Extended Credit Facility (ECF) for the Democratic Republic of Congo (DRC). The completion of the second review made it possible to immediately disburse an amount equivalent to SDR 152.3 million (about US$203 million) to meet balance of payment financing needs, bringing the total disbursement to date to SDR 456.9 million (about US$653 million).

The DRC’s macroeconomic environment has improved since the last Article IV consultation was conducted in 2019. The authorities have adopted prudent macroeconomic policies, one of the most visible being the ending of government financing by the central bank. Despite the COVID-19 pandemic, considerable macroeconomic progress was recorded in 2021 and the reform momentum initiated under the ECF-supported program was maintained. The economy rebounded faster than expected, with growth of 6.2% supported by growth in the non-extractive sectors. The change in the Consumer Price Index (CPI) fell to 5.3% year-on-year and was accompanied by a stable exchange rate, especially since the central bank stopped providing its state funding. Fiscal performance has been better than expected, as increased fiscal revenue and external financing have created room for additional spending, especially on investment, despite the accumulation of domestic arrears. The external position has improved, and gross international reserves have increased to $3 billion at end-2021. However, despite excess liquidity, credit to the private sector remains weak (at 7% of GDP) and the banking sector vulnerable. The fragility of the economy continues to paralyze inclusive growth, as 72.5% of the population lives in poverty and access to basic public services remains largely insufficient.

Progress under the program remains satisfactory. The end-December 2021 quantitative performance criteria and all but one indicative target (on social spending due to gaps in inter-ministerial coordination) were met. Four of the five structural benchmarks were met, pending the publication of a mining contract. Progress on the two structural benchmarks set for end-June 2022 is slightly behind schedule, and staff proposes to postpone them to end-September. Efforts to implement structural reforms are intensifying.

In 2022, the economy of the DRC is affected by the repercussions of the war in Ukraine, which has increased the cost of living and the budgetary costs linked to the fuel subsidy. Despite the deterioration in the global economic outlook, the situation remains favorable, thanks to the improvement in mineral prices. Growth was reduced to 6.1% (compared to 6.4% previously) and inflation increased to 11%, due to import prices. The domestic fiscal balance deficit (program target) could widen by 0.4 percentage point of GDP, to 1.4 percent, as the increase in mining revenues will not be enough to fully offset the increase in related fiscal costs. fuel subsidies, as well as increased domestically financed investments for priority social infrastructure projects. The authorities have raised domestic fuel prices, but will need to make additional efforts to reduce untargeted subsidies and fiscal costs, while supporting vulnerable households through targeted social transfers. In addition, the contagion effects of the war in Ukraine could further contribute to higher international food prices and a slowdown in global activity, which would exacerbate the deterioration of external and fiscal balances, inflationary pressures and food insecurity. The medium-term outlook offers an opportunity to consolidate macroeconomic stability and intensify structural reforms, although considerable risks remain and severe fragility persists.

At the conclusion of the Board’s deliberations, Mr. Okamura, Deputy Managing Director and Chairman, made the following statement.

“Macroeconomic performance in 2021 was marked by high growth, contained inflation, and strengthened fiscal and external positions. Performance under the Extended Credit Facility arrangement continues to be satisfactory. Growth prospects remain favorable in 2022, but downside risks have increased due to the deteriorating external environment.

The fiscal deficit is expected to widen in 2022, as higher subsidies and social infrastructure spending are only partially offset by higher-than-expected revenues. Continued revenue mobilization, containing current spending, including through fuel subsidies and civil service reforms, and managing fiscal risks well are essential to create space for priority investments. Strengthening fiscal institutions and governance, including improving fiscal credibility and cash management, is key to improving public financial management and avoiding the accumulation of domestic arrears. Improving public investment management will enhance efficiency and transparency.

Strengthening monetary and exchange rate policy frameworks will support price stability and external sustainability. Continued efforts to accumulate reserves while strengthening the role of the exchange rate as a shock absorber are key to building resilience to external shocks. Efforts to strengthen the independence, governance, and safeguards of the Central Bank of Congo must continue, along with reforms to strengthen banking regulatory, supervisory, and resolution frameworks.

Advancing structural reforms and strengthening policy frameworks, including in the management of natural wealth, are essential to promote stronger and sustainable inclusive growth, as the global energy transition offers an opportunity for development. Continued efforts to improve mining sector transparency, anti-corruption and AML/CFT frameworks, business climate and governance would support private sector development, economic diversification and competitiveness.”

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF conducts, usually annually, bilateral consultations with its member countries. An IMF staff mission visits the country, collects economic and financial data, and meets with national officials on the country’s economic developments and policies. Back at headquarters, the members of the mission draft a report which serves as a framework for the deliberations of the board of directors.

Table 1: Main economic and financial indicators, 2021-2024

2021

2022

2023

2024

East.

CR No. 22/3

Project.

CR No. 22/3

Project.

Project.

(Annual percentage change, unless otherwise indicated)

GDP and Prices

Real GDP

6.2

6.4

6.1

6.9

6.7

6.9

GDP (extractive industries)

10.1

10.4

10.6

9.9

10.1

9.0

GDP (excluding extractive industries)

4.5

4.5

4.1

5.4

5.1

5.9

GDP deflator

17.6

4.8

8.4

6.0

9.7

4.8

Consumer prices, average over the period

9.0

5.6

8.4

6.2

9.8

5.6

Consumer prices, end of period

5.3

5.8

11.0

6.2

6.8

6.1

(Annual change in percent of broad money at beginning of period)

Money and credit

Net foreign assets

41.5

35.3

32.7

27.4

20.8

20.3

Net domestic assets

-6.4

-5.6

4.6

-10.4

12.0

4.7

Domestic credit

1.9

9.1

9.8

8.0

6.9

5.4

Broad Money

35.1

29.7

37.3

17.0

32.8

25.0

(Percent of GDP, unless otherwise indicated)

Central government financial situation

Revenues and donations

13.8

12.3

14.0

12.7

14.3

14.7

Expenses

14.8

14.2

17.5

14.7

17.1

17.0

Domestic fiscal balance

-0.1

-0.9

-1.2

-0.4

-0.8

-0.1

Investment and savings

Gross National Savings

13.8

14.2

13.5

14.2

15.7

16.2

Investment

14.7

14.7

13.5

14.9

15.7

15.9

Not public

9.8

10.8

8.0

10.7

10.7

10.7

Balance of payments

Exports of goods and services

39.5

40.8

44.9

41.6

45.5

45.6

Imports of goods and services

39.2

40.7

42.7

41.2

42.7

42.4

Current account balance

-0.9

-0.5

0.0

-0.8

0.0

0.3

Gross official reserves (in weeks of imports)

6.3

7.8

8.3

8.5

9.5

10.3

External debt

17.6

17.1

18.3

17.6

18.9

18.9

Debt service as a percentage of government revenue

7.2

10.6

8.4

8.6

7.6

7.5

Sources: Congolese authorities; IMF staff estimates and projections

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Nico Mombrial

PHONE: 1 202 623-7100 EMAIL: MEDIA@IMF.org

EDITOR’S NOTE: This article is a translation. Apologies should the grammar and/or sentence structure not be perfect.

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