Abstract
IMF Country Report No. 22/226
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IMF Country Report No. 22/226
REPUBLIC OF CONGO
FIRST REVIEW UNDER THE THREE-YEAR EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR MODIFICATION OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF CONGO
July 2022
In the context of the staff report, 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.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 24, 2022 following discussions that ended on April 18, 2022, with the officials of the Republic of Congo on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on June 10, 2022.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
A Statement by the Executive Director for the Republic of Congo.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
PR 22/227
IMF Executive Board Concludes the First Review of the Extended Credit Facility Arrangement for the Republic of Congo
FOR IMMEDIATE RELEASE
Conclusion of this review enables the Republic of Congo to draw the equivalent of SDR 64.80 million (about US$ 87 million) as a disbursement under the Extended Credit Facility arrangement.
Economic recovery is gaining momentum but remains fragile against the backdrop of the COVID- 19 pandemic and global consequences of the war in Ukraine. More vigorous economic activity is being held back by rising inflation, as global food and oil prices surge.
Maintaining momentum in structural reforms and improving governance and transparency will be critical to attaining higher, more resilient, and inclusive growth. Key among these are reforms in public financial management (PFM), anti-corruption measures, and energy sector reforms.
Washington, DC – June 24, 2022: The Executive Board of the International Monetary Fund (IMF) concluded today the 1st review of the Republic of Congo’s SDR 324.0 million arrangement under the Extended Credit Facility (ECF), which was approved on January 21, 2022. This allows for the immediate disbursement of SDR 64.80 million (about US$ 87 million). This financing from the IMF will continue to help the authorities to implement their development policies, maintain macroeconomic stability and support economic recovery in the context of the pandemic and rising inflation.
Performance under the Fund-supported program has been satisfactory. All performance criteria were met, and program-supported structural reforms are advancing. A new public financial management (PFM) medium-term strategy and action plan are in place, a new anti-corruption law has been adopted, and good progress is being made towards publication of a decree on conflict of interests.
Fiscal policy will need to maintain the delicate balance between supporting a robust economic recovery while safeguarding debt sustainability. Part of the oil revenue windfalls should finance increased social assistance and tax deferrals initiated during the pandemic to help vulnerable businesses and households cope with high inflation.
Progress in procurement and management of debt and public finances, including public investment, remains essential to avoiding accumulation of domestic and external arrears and improving spending efficiency and quality. Debt management reforms, coupled with implementation of the new anti- corruption architecture, could also help cement recent gains in governance and transparency.
Policies under this ECF-supported program will continue to help reduce fragilities and place the Republic of Congo onto a path of higher, more resilient, and inclusive growth. It will also contribute to the regional effort to preserve external stability for the Central African Economic and Monetary Union (CEMAC).
At the conclusion of the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, made the following statement:
“The Republic of Congo’s recovery is gaining momentum but remains fragile amid the on-going COVID-19 pandemic and ripple effects from the war in Ukraine, particularly due to the rapidly rising food prices. The recovery is driven by improved oil revenues, while the non-oil sector faces headwinds from inflationary pressures. Risks to the outlook remain significant, including from lower oil prices and production, new pandemic waves, weak reform implementation, and climate shocks.
“Program performance has been satisfactory. All performance criteria were met and program- supported structural reforms are advancing. The authorities remain committed to pursuing a recovery that reduces fragilities and results in higher, more resilient, and inclusive growth.
“Fiscal policy aims at ensuring an appropriate balance between supporting the post-pandemic economic recovery, addressing repercussions of the war in Ukraine, containing inflationary pressures, and safeguarding debt sustainability. To this end, part of the oil revenue windfalls will finance arrears payments and increased social spending, and part will be saved to boost fiscal buffers and CEMAC regional reserves. It will also be paramount to implement the authorities’ revenue mobilization strategy, better prioritize public investment projects, strengthen cash management, and improve debt management. Public-sector liability management operations, including refinancing of external debt, should be consistent with debt sustainability.
“The authorities are encouraged to persevere in their ambitious structural reform agenda which, combined with the fiscal policies outlined above, will be key to unlocking financing from development partners as well as achieving private sector-led economic diversification. Priority reform areas include public financial management, governance, transparency, and financial inclusion. In the current environment, it would be particularly important to ensure oil revenues are managed transparently and to continue energy sector reforms.”
Title page
REPUBLIC OF CONGO
FIRST REVIEW UNDER THE THREE-YEAR EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR MODIFICATION OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW
June 9, 2022
EXECUTIVE SUMMARY
Context. Economic recovery is gaining momentum but remains fragile amid the on-going COVID-19 pandemic and Ukraine war’s ripple effects. Despite oil exports benefiting from high oil prices, the war’s impact on prices of food and other essentials weighs on households and businesses. Over the medium term, challenges from climate change and the global transition to low-carbon economies persist. In this context, steadfast reform implementation is needed to reduce fragility through job creation and higher incomes. Debt remains sustainable but is classified as “in distress” due to arrears; a financing assurances review was conducted. Debt vulnerabilities to negative oil price shocks remain. A three-year Extended Credit Facility (ECF) arrangement in the amount of SDR 324 million (200 percent of quota) was approved by the IMF Executive Board on January 21, 2022.
Outlook and risks. Real GDP growth in 2022 will be driven by improved oil production while non-oil activity will face headwinds from rising inflation. Key risks stem from lower oil prices and production, new pandemic waves, and weak reform implementation.
Program performance was satisfactory. All end-February 2022 performance criteria (PCs) and indicative targets (ITs) were met except the social spending IT. One end-March 2022 structural benchmark was met. The other was not but its key element—Parliamentary approval of the new anti-corruption law—was implemented in February.
Program strategy. The authorities continue to pursue a recovery that reduces fragilities and results in higher, more resilient, and inclusive growth. To this end, part of the oil revenue windfalls will finance social assistance and tax deferrals in 2022 and social spending and domestic arrears payments during 2023-27. Remaining windfalls will be saved to build buffers. Program fiscal targets continue to pursue fiscal consolidation in support of debt sustainability. Strengthened domestic revenue mobilization, enhanced management of public finances and debt, and energy and broader governance reforms remain a prominent part of program conditionality. The arrangement is helping catalyze development partner financing and will be supported by regional CEMAC efforts to maintain an appropriate monetary policy stance, build up regional reserves, and promote financial sector stability.
Approved By
Vitaliy Kramarenko (AFR) and Gavin Gray (SPR)
Discussions on an ECF-supported program were held virtually during March 31-April 13 and April 18, 2022. The staff team comprised Ms. Mitra (head), Ms. El Idrissi, Mr. Islam, Mr. Sulemane (all AFR), Mr. Chaudry (SPR), Ms. Liu (FAD), Mr. Turkewitz (LEG), Mr. Million (Resident Representative), Mr. Nsongui Tonadio (local economist), and Mr. Sarda (FAD long-term expert). Mr. Tsoungui (World Bank) joined the technical meetings. Ms. Akor provided research support and Ms. Adjahouinou assisted in preparing the staff report. The mission held discussions with the Hon. Mr. Andely Minister of Finance and other senior officials. The mission also met representatives of the private sector, civil society, and development partners.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
MACROECONOMIC OUTLOOK AND RISKS
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Fiscal Policy
B. Public Investment and Debt Management
C. Governance, Transparency, and Broader Structural Reforms
PROGRAM MODALITIES AND OTHER ISSUES
STAFF APPRAISAL
BOXES
1. Ukraine War’s Impact on the Republic of Congo
2. COVID-19 Pandemic in the Republic of Congo
FIGURES
1. Recent Economic Developments, 2012–22
2. Fund Credit Outstanding and External Debt Service Compared to PRGT UCT-Quality Arrangements
TABLES
1. Selected Economic and Financial Indicator, 2020–27
2a. Central Government Operations, 2020–27 (Billions of CFA francs)
2b. Central Government Operations, 2020–27 (Percent of non-oil GDP)
2c. Central Government Operations, 2020–27 (Percent of GDP)
3a. Quarterly Central Government Operations, Flows, 2022–23 (Billions of CFA francs)
3b. Quarterly Cumulative Central Government Operations, Flows, 2022–23 (Billions of CFA francs)
4. Medium-Term Balance of Payments, 2020–27
5. Monetary Survey, 2020–27
6. Financial Soundness Indicators for the Banking Sector, 2015–21
7. Gross Fiscal Financing Needs, 2022–27
8. Public Debt by Creditor, 2021–23
9. External Arrears, 2021–22
10. Indicators of Capacity to Repay the IMF
11. Proposed Schedule of Disbursements and Timing of Reviews under ECF Arrangement, 2022–24
12. Proposed Quantitative Performance Criteria and Indicative Targets, 2022–23
13a. Structural Benchmarks (January—March 2022)
13b. Proposed Structural Benchmarks, 2022–23
ANNEXES
I. Drivers of Congo’s Fragility
II. Risk Assessment Matrix
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies, 2022–24
Attachment II. Technical Memorandum of Understanding
