Road side market, Brazzaville, Congo. The IMF program supports the country’s bid for higher and more inclusive growth. (photo: mtcurado/iStockphoto)
Congo: Promoting Inclusive Growth and Enhancing Governance
July 24, 2019
The Republic of Congo, the largest oil producer in the Central African Economic and Monetary Community (CEMAC) region, is still recovering after a severe economic crisis caused by the oil price shock of 2014. To help strengthen the country’s economy, the IMF has just approved financial assistance for the country under its Extended Credit Facility (ECF).
The IMF-supported program extends about $449 million to the Republic of Congo to support the government’s bid for higher and more inclusive growth, as well as improvements in governance and transparency.
In an interview with Alex Segura-Ubiergo, the IMF’s mission chief for Congo discusses some details of the program.
The IMF recently approved the ECF to Congo. It now has a program in place with five of the six CEMAC countries. What is the significance of this?
This is a very important step for the Republic of Congo and for the stability of the CEMAC’s monetary union. The program will play a key role in supporting the economic strategy endorsed by CEMAC heads of state at the Yaoundé summit of December 2016.
The agreement to extend $449 million to Congo under the EFC program will support the country’s effort to rebuild funds for a rainy day and contribute to the accumulation of reserves at the regional central bank.
The IMF-supported program will also help boost economic confidence in the country, promote inclusive growth and show that the region is succeeding in the implementation of a coordinated strategy to deal with the crisis triggered by the decline in oil prices in 2014.
Can you give us some background on the IMF’s approval of the loan to Congo?
The approval of the program was difficult. Given the complexity of the challenges the country was facing, discussions about the program took over two years. These challenges included the magnitude of the 2014 oil shock, limited institutional capacity, and serious governance and transparency concerns. In addition, program approval required that Congo secure financing assurances, including debt relief from key creditors, especially China.
IMF staff worked closely with the authorities to identify the sources of the crisis and present to the IMF Executive Board a strong package of measures for structural reforms, including actions to improve governance. This was needed to demonstrate that Congo was willing to change its economic policies and show that there was genuine ownership for the program.
What are the main objectives of the ECF? How will Congo achieve them?
The program focuses on three key areas:
• formulating policies to generate higher and more inclusive growth, including spending on programs that protect the poor and vulnerable groups;
• maintaining fiscal discipline to restore debt sustainability; and
• a special emphasis on structural reforms to improve governance and transparency.
Congo has been facing challenges in governance in the management of its oil sector, as well as achieving greater transparency and efficiency in public spending. To address the concerns on governance and transparency, the government has taken several steps such as the preparation of audited reports about the sale of its oil reserves, publication of contracts in the oil sector, the elimination of off-budget spending, and the focus on anti-corruption efforts, which includes the establishment of a new anti-corruption commission with investigative powers.
Are there any plans to help the poor in society and help reduce unemployment, especially among the youth and women?
This is one of the key objectives of the program. The authorities and IMF staff discussed ways to ensure that any reduction in public spending will not affect the poor and vulnerable groups. The program includes an increase in cash transfers for poor households, women, and other vulnerable groups. In addition, the program identifies policies that can help boost economic growth and create more jobs.
Additional measures will be defined over time. In making its recommendations, the IMF will be sensitive to the advice that it is receiving from civil society organizations as another important input. We have, in fact, encouraged the authorities to strengthen the dialogue with civil society so that program objectives are well understood. This dialogue will allow the government to build broader support for the program.
Given the explosion in public debt, what measures is the government taking to address this and stabilize its fiscal situation because this will obviously contribute to the stability of the wider CEMAC region?
The government has already taken decisive steps in this area with the approval and implementation of prudent budgets in 2018 and 2019. This has led to a remarkable turnaround in public finances, and Congo registered a fiscal surplus in 2018 and a sharp decline in public debt.
While part of this improvement is due to rising oil prices, the government has taken strong steps to contain spending as well. The most important package of measures going forward will focus on efforts to boost non-oil revenues, where performance has been particularly weak in recent years.
It will also be important to contain transfers and subsidies in the oil sector to ensure that sufficient resources remain available for public investment and social programs—both of which are needed for higher and more inclusive growth.
Can you tell us about the state of transparency and governance reforms in Congo?
Congo has implemented about 10 decisive structural reforms to improve governance and transparency. It is one of the most ambitious IMF-supported programs in this regard. This includes the requirement for senior government officials to declare their assets, the establishment of an anti-corruption commission, the publication of oil production agreements, the reform of the statutes of the national oil company (SNPC), which will now have its accounts audited every year, and the preparation of detailed reports that have been sent to Parliament on the use of oil revenues, oil-related debt, and large infrastructure projects.
In addition, the government has also started publishing more economic data on its website and prepared a first audit on domestic arrears. Going forward, it will be important to continue with these reform efforts, especially to ensure that recently approved anti-corruption laws are effectively operationalized and enforced.
How will the IMF ensure the smooth implementation of the program?
The main responsibility for the success of the program lies with the authorities. They have expressed their commitment to its success at the highest political level. IMF staff will monitor these commitments through bi-annual reviews where we will advise the authorities on progress, and we will suggest corrections if necessary.
For example, it will be crucial that the authorities maintain fiscal discipline but, at the same time, ensure adequate resources to protect vulnerable groups. Reforms to improve governance and transparency further will also be important. Crucially, Congo will need to finalize its strategy to restructure its commercial debt to ensure debt sustainability.
Lastly, engagements will also be held with representatives of civil society groups, parliamentarians, academics, and youth leaders as part of the review process.