Abstract
IMF Country Report No. 22/210
Copyright Page
IMF Country Report No. 22/210
DEMOCRATIC REPUBLIC OF THE CONGO
THE 2022 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE DEMOCRATIC REPUBLIC OF THE CONGO
July 2022
In the context of the 2022 Article IV Consultation and Second Review under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria and Financing Assurance Review, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its June 29, 2022 consideration of the staff report on issues related to the Article IV Consultation and the IMF arrangement]
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 29, 2022, following discussions that ended on April 27 – May 9, 2022, with the officials of the Democratic Republic of the Congo on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 15, 2022.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staff[s] of the IMF and the World Bank.
A Statement by the Executive Director for the Democratic Republic of the Congo.
The documents listed below have been or will be separately released.
Selected Issues
© 2022 International Monetary Fund
Press Release
PR22/240
IMF Executive Board Concludes 2022 Article IV Consultation and the Second Review Under the Extended Credit Facility Arrangement for the Democratic Republic of the Congo
FOR IMMEDIATE RELEASE
Washington, DC -June 29, 2022: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 and the second review of the Extended Credit Facility (ECF) Arrangement for the Democratic Republic of Congo (DRC). The completion of the Second Review allowed an immediate disbursement equivalent to 152.3 million SDR (about US$ 203 million) to support balance-of-payment needs, bringing the aggregate disbursement to date to 456.9 million SDR (about US$653 million).
The DRC’s macroeconomic environment has improved since the last Article IV consultation in 2019. The authorities have adopted prudent macroeconomic policies, most visibly by halting central bank financing to the government. Despite the COVID-19 pandemic, considerable macroeconomic gains were achieved in 2021 and reform momentum under the ECF arrangement was sustained. The economy rebounded more than envisaged with growth at 6.2 percent, supported by non-extractive growth. Consumer Price Index (CPI) inflation declined to 5.3 percent year-on-year, accompanied by a stable exchange rate as the central bank stopped providing financing to the government. The fiscal outturn was better than projected, as higher fiscal revenues and external financing provided space for additional spending, mostly on investment although domestic arrears accumulated. The external position improved, and gross international reserves increased to US$3 billion at end 2021. However, despite excess liquidity, private sector credit remains subdued at 7 percent of the GDP and the banking sector faces vulnerabilities. Fragility continues to hinder inclusive growth as 72.5 percent of the population is in poverty and access to basic public services is severely under-provisioned.
Progress under the Fund-supported program remains satisfactory. End-December2021 quantitative performance criteria (QPCs) and all but one (on social spending due to shortcomings in inter-ministerial coordination) indicative targets were observed. Fourout of five structural benchmarks (SBs)were met, pending the publication of one mining contract. Progress on two end-June 2022 SBs is slightly delayed, and staff proposes resetting to end-September. Efforts to implement structural reforms are being stepped up.
In 2022, the DRC’s economy is facing some headwinds from the war in Ukraine, which has increased the cost of living and the fiscal costs associated with the fuel subsidy. Despite the deteriorating global economic prospects, the outlook remains favorable sustained by improved mineral prices. Growth has been revised down to 6.1 percent (6.4 percent previously) and inflation revised up to 11 percent due to imported prices. The domestic fiscal deficit (program target) is projected to widen by 0.4 percentage points of GDP, to 1.4 percent of GDP as the higher mining revenues will not fully compensate for the increased fiscal costs associated with the fuel subsidy and higher domestically financed investment for priority social infrastructure projects. The authorities have increased domestic fuel prices, but more efforts are needed to reduce untargeted subsidies and budget costs while supporting vulnerable households through targeted social transfers. Furthermore, spillovers from the war in Ukraine may further increase international food prices and slow global activity, worsening external and fiscal balances, inflationary pressures and food insecurity. The medium-term outlook provides opportunities to consolidate macro stability and scale up structural reforms, though significant downside risks remain, and severe fragility persists.
At the conclusion of the Executive Board’s discussion, Mr. Okamura, Deputy Managing Director and Chair stated:
“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 from the worsened external environment.
“The fiscal deficit is expected to widen in 2022 as higher subsidies and social infrastructure spending are only partially compensated by higher-than-envisaged revenues. Continued revenue mobilization, contained current spending—including through fuel subsidy and civil service reforms— and well-managed fiscal risks are key to create space for priority investment. Strengthening fiscal institutions and governance, including by enhancing budget credibility and cash management, is crucial to improve public financial management and avoid domestic arrears accumulation. Improving public investment management will enhance efficiency and transparency.
“Strengthening the monetary and exchange rate policy frameworks will support price stability and external sustainability. Continued efforts to accumulate reserves buffers while enhancing the role of the exchange rate as a shock absorber are paramount to build resilience to external shocks. Efforts to strengthen the independence, governance, and safeguards of the Central Bank of Congo need to continue, as well as reforms to strengthen banking regulatory, supervisory, and resolution frameworks.
“Advancing structural reforms and strengthening policy frameworks, including in natural wealth management, are key to promoting higher and sustainable inclusive growth, as the global energy transition provides an opportunity for development. Continued efforts to improve mining sector transparency, the anti-corruption and AML/CFT frameworks, the business climate, and governance would support private sector development, economic diversification, and competitiveness.
Democratic Republic of the Congo: Selected Economic and Financial Indicators, _2021–24
Democratic Republic of the Congo: Selected Economic and Financial Indicators, _2021–24
| 2021 | 2022 | 2023 | 2024 | |||||
|---|---|---|---|---|---|---|---|---|
| Est. | CR No. 22/3 | Proj | CR No. 22/3 | Proj | Proj. | |||
| (Annual percentage change, unless otherwise indicated) | ||||||||
| GDP and prices | ||||||||
| Real GDP | 6.2 | 6.4 | 6.1 | 6.9 | 6.7 | 6.9 | ||
| Extractive GDP | 10. 1 | 10. 4 | 10. 6 | 9.9 | 10. 1 | 9.0 | ||
| Non-Extractive GDP | 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, period average | 9.0 | 5.6 | 8.4 11. | 6.2 | 9.8 | 5.6 | ||
| Consumer prices, end of period | 5.3 | 5.8 | 0 | 6.2 | 6.8 | 6.1 | ||
| (Annual change in percent of beginning-of-period broad money) | ||||||||
| 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 finance | ||||||||
| Revenue and grants | 13.8 | 12.3 | 14.0 | 12.7 | 14.3 | 14.7 | ||
| Expenditures | 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 saving | ||||||||
| Gross national saving | 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 | ||
| Non-government | 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 (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 in percent of government revenue | 7.2 | 10. 6 | 8.4 | 8.6 | 7.6 | 7.5 | ||
Democratic Republic of the Congo: Selected Economic and Financial Indicators, _2021–24
| 2021 | 2022 | 2023 | 2024 | |||||
|---|---|---|---|---|---|---|---|---|
| Est. | CR No. 22/3 | Proj | CR No. 22/3 | Proj | Proj. | |||
| (Annual percentage change, unless otherwise indicated) | ||||||||
| GDP and prices | ||||||||
| Real GDP | 6.2 | 6.4 | 6.1 | 6.9 | 6.7 | 6.9 | ||
| Extractive GDP | 10. 1 | 10. 4 | 10. 6 | 9.9 | 10. 1 | 9.0 | ||
| Non-Extractive GDP | 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, period average | 9.0 | 5.6 | 8.4 11. | 6.2 | 9.8 | 5.6 | ||
| Consumer prices, end of period | 5.3 | 5.8 | 0 | 6.2 | 6.8 | 6.1 | ||
| (Annual change in percent of beginning-of-period broad money) | ||||||||
| 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 finance | ||||||||
| Revenue and grants | 13.8 | 12.3 | 14.0 | 12.7 | 14.3 | 14.7 | ||
| Expenditures | 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 saving | ||||||||
| Gross national saving | 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 | ||
| Non-government | 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 (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 in percent of government revenue | 7.2 | 10. 6 | 8.4 | 8.6 | 7.6 | 7.5 | ||
Title page
DEMOCRATIC REPUBLIC OF THE CONGO
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW
June 13, 2022
EXECUTIVE SUMMARY
Context. Considerable macroeconomic gains were achieved in 2021: the economic rebound was stronger than envisaged, driven by the non-extractive sector; CPI inflation declined to 5.3 percent year-on-year, accompanied by a stable exchange rate as the central bank stopped providing financing to the government; and an improved external position supported reserves accumulation. The 2021 fiscal outturn was also better-than-projected although domestic arrears accumulated. Despite excess liquidity, the banking sector faces vulnerabilities. The war in Ukraine is pushing up the cost of living and rising the fiscal costs associated with the fuel subsidy. Despite this and deteriorating global economic prospects, the outlook remains favorable and provides opportunities to consolidate macro stability and scale up structural reforms, though significant downside risks remain, and severe fragility persists.
Article IV Discussions. The consultation focused on how near-term policies will be calibrated to absorb the shock from the war in Ukraine and accommodate pressing needs; while reverting over the medium term towards strengthening fiscal credibility, preserving debt sustainability, and building buffers to improve economic resilience and promote higher and more inclusive growth. In particular:
The near-term revenue overperformance provides space for higher spending related to fuel subsidies and investment, with a small widening of the fiscal deficit. Medium-term challenges include improving public finance and investment management, fiscal governance, and the tax system. Replacing fuel subsidies with targeted social transfers will help reduce fiscal pressures.
The BCC remains adequately focused on price stability, while taking steps to improve the monetary policy framework despite dollarization. Exchange rate flexibility should be sustained to address terms-of-trade shocks and help preserve reserves buffers.
• Scaling up structural reforms remains critical to promote inclusive growth, including those enhancing governance and enhancing the business climate—both key to support investment, private sector development, economic diversification, and competitiveness
• Strengthening policy frameworks and institutions for example in natural wealth management and in monetary and exchange rate policy, will help DRC benefit from the global energy transition, providing an opportunity for development.
Program status. Progress under the program remains satisfactory. End-December 2021 quantitative performance criteria (QPCs) and all but one (on social spending) indicative targets were observed. Four of five structural benchmarks (SBs) were met. Progress on two end-June 2022 SBs is slightly delayed, and staff proposes resetting to end-September. Staff also proposes modification of three end-June 2022 QPCs to account for a more ambitious 2022 reserve accumulation path and for the use of the SDR allocation. Efforts to implement structural reforms are being stepped up.
Approved By:
Annalisa Fedelino and Geremia Palomba
Hybrid discussions were held during April 27 – May 9, 2022. The mission team comprised Mmes. Vera Martin (head), Touré and Pohl, and Messrs. Zerbo and Nolin (all AFR), and Ms. Pouokam (SPR). The mission was assisted by Messrs. Leost (Resident Representative) and Gbadi (local economist). L. Malcherek (LEG) joined some discussions. Messrs. R. N'Sonde and T. Nguema Affane (all OEDAF) participated in the meetings. The mission met with President of the Republic Chief of Staff Guylain Nyembo Mbwizya, Deputy Prime Minister and Minister of Public Service Jean-Pierre Lihau Ebua, Minister of Finance Nicolas Kazadi, Minister of Mining Antoinette Nsamba Kalambayi, BCC Governor Malangu Kabedi Mbuyi, other senior officials, development partners, as well as representatives of the private sector and civil society. Ms. H. Abu Sharar provided outstanding assistance in preparing this report.
Contents
EXECUTIVE SUMMARY
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
PROGRAM PERFORMANCE
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A Calibrating Fiscal Policy to Address Pressing Needs While Strengthening Fiscal Credibility
B. Strengthening Monetary and Exchange Rate Policy Frameworks to Support Price Stability and External Sustainability
C. Enhancing Financial Policies to Safeguard Financial Stability
D. Building Institutions to Promote Economic Diversification and Inclusive Growth
PROGRAM MODALITIES, FINANCING ASSURANCES, CAPACITY DEVELOPMENT,
AND DATA PROVISION
STAFF APPRAISAL
BOXES
1. Spillovers from the Global Turmoil
2. Food Insecurity and Spillovers from the War in Ukraine
3. Climate Change Strategy and Financing
FIGURES
1. Fragility Indicators
2. Real Sector Developments, 2016–22
3. External Sector Developments, 2017–22
4. Fiscal Sector Developments, 2017–22
5. Monetary and Financial Sector Developments, 2016–22
6. Governance Indicators
TABLES
1. Selected Economic and Financial Indicators 2021–27
2. Balance of Payments, 2021–27
3a. Central Government Financial Operations, 2021–27 (Billions of CDF)
3b. Central Government Financial Operations, 2021–27 (Percent of GDP)
4. Depository Corporations Survey, 2021–27
5. Financial Soundness Indicators
6. Capacity to Repay the Fund
7. Reviews and Disbursements Under the Three-Year Extended Credit Facility Agreement
ANNEXES
I. Key Recommendations of the 2019 Article IV Consultation
II. Findings from the Financial Sector Stability Review
III. Risk Assessment Matrix
IV. Fuel Price Subsidies
V Public Investment Management: Main Fundings of the PIMA Mission
VI. External Sector Assessment
VII. Dollarization in the Democratic Republic of the Congo
VIII. Anti-Corruption and Anti-Money Laundering/Combating the Financing of Terrorism Recent Progress and Recommendations
APPENDICES
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
