IMF Executive Board Concludes 2019 Article IV Consultation with the Democratic Republic of the Congo
September 3, 2019
On August 26, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Democratic Republic of the Congo.
DRC faces considerable development challenges despite its rich natural resource base. The country is currently grappling with its worst ever outbreak of the deadly Ebola disease.
The peaceful political transition earlier this year, the first in the country’s history, provides an opportunity for reform to reduce widespread poverty, create jobs, and promote inclusive growth. Prudent macroeconomic policies have helped stimulate a recovery from the fall in export prices in 2016-17. It is critical to consolidate and build on these gains.
Real GDP growth reached 5.8 percent in 2018, buoyed by stronger copper and cobalt prices and increased production. Inflation fell to 7.2 percent and the Congolese franc depreciated by only two percent in 2018. A small budget surplus of 0.4 percent of GDP was recorded, thanks to strong export prices and higher export volumes, as well as higher tax rates for mineral exports under the 2018 Revised Mining Code. Central bank foreign reserves rose to 2.6 weeks of imports. On the other hand, the current account deficit increased to 4.6 percent of GDP.
GDP growth is expected to fall to 4.3 percent in 2019 as copper and cobalt prices fall from their highs of 2018. A fiscal deficit of 0.2 percent of GDP is projected, with mining revenues lower than in 2018. The current account deficit is projected to fall to 3.5 percent of GDP with central bank foreign reserves rising to 3.7 weeks of imports.
On current policies, revenues in DRC will remain well below the average for Sub-Saharan Africa despite the positive impact of the 2018 Revised Mining Code. The proliferation of taxes and tax institutions; widespread fiscal exemptions; a narrow tax base; and long, porous borders; are the underlying factors. Budget projections have tended to deviate widely from outturns, undermining the credibility of the budget process and parliamentary oversight. Emergency spending procedures have been widely used, and large domestic arrears have been accumulated.
Monetary policy has been hampered by high levels of dollarization. A new Central Bank Law was enacted in 2018 to reinforce the independence of the central bank, increase its capital, and enhance its capacity to supervise the financial system.
Transparency and accountability in the management of natural resources are major challenges facing DRC. A 2011 decree requiring the Government to publish all mining, oil, and forestry contracts has not been fully applied. Audited financial statements of some state enterprises are not available to the public. The IMF will be conducting a governance assessment mission in October.
The business climate remains difficult due to a wide range of factors, notably the complexity of taxes, and judicial vulnerabilities. Weak infrastructure results in high production costs.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for pursuing prudent macroeconomic policies that helped reduce inflation and stimulate a recovery from the fall in export prices in 2016–17. However, the DRC faces deep‑seated challenges, including widespread poverty, and the outlook is subject to downside risks, including from the Ebola epidemic. Against this background, Directors welcomed the authorities’ re‑engagement with the Fund, and stressed that the peaceful political transition provides an opportunity to put in place transformational reforms to strengthen public finances, boost growth of the non‑extractive sector, tackle corruption, and reduce widespread poverty. Directors noted that the DRC would need the support of the international donor community and assistance in building capacity. Some Directors encouraged the authorities to continue to build an adequate track record of policy implementation.
Directors emphasized that enhancing domestic revenue mobilization is imperative to finance acute development and social needs. They recommended reducing exemptions, enlarging the tax base, simplifying the tax system, and improving tax administration and border control. They also encouraged further integrating mining revenue into the treasury.
Directors also highlighted the need to improve public financial management and the efficiency of public expenditure. They noted that generating realistic revenue and expenditure projections is key to improving the credibility of the budget process. Restoring the expenditure chain and restricting the use of emergency spending procedures would promote transparency and accountability. Directors noted that streamlining the civil service and improving remuneration would increase its efficiency. To maintain debt sustainability, Directors highlighted the need to carefully vet public investment projects, avoid costly borrowing and collateralized loans, and develop a strategy to clear domestic arrears.
Directors agreed that refining the monetary policy framework would enhance its effectiveness. They urged the central bank to increase its foreign reserves to enable it to intervene to stabilize the market, as warranted. They noted that recapitalizing the central bank would help strengthen its independence and enhance its ability to conduct monetary policy and promote financial stability.
Directors stressed that improved regulation is important to help safeguard and develop the financial system. In this context, they suggested aligning the draft banking law with international standards. To improve the AML/CFT framework, Directors encouraged the authorities to implement the priority actions that would be identified in the evaluation report of the Central African Anti‑Money Laundering Action Group. Directors noted that promoting microfinance would foster inclusive growth and financial inclusion.
Directors concurred that fighting corruption and improving governance are crucial to boost the efficiency of public spending and growth prospects. To enhance transparency and accountability in the management of natural resources, they called for public tendering of mining assets, publication of all mining contracts, disclosure of true ownership of contractual parties, and publication of audited financial statements of state enterprises. Directors also urged the authorities to expedite the passage of the anti‑corruption law and the law establishing an independent anti‑corruption commission. They welcomed the authorities’ request for a Fund mission to conduct a governance assessment. Directors underscored the urgent need to improve the business climate to attract private investment and promote inclusive growth. Priorities include reducing red tape, simplifying the tax system, and reforming the judiciary.
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Table 1. Democratic Republic of the Congo: Selected Economic and Financial Indicators, 2016–24 |
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|
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|||
|
Act. |
Act. |
Prel. |
Projections |
||||||||
|
(Annual percentage change, unless otherwise indicated) |
|||||||||||
|
GDP and prices |
|||||||||||
|
Real GDP |
2.4 |
3.7 |
5.8 |
4.3 |
3.9 |
3.4 |
4.5 |
4.3 |
4.6 |
||
|
Extractive GDP |
-0.7 |
7.8 |
16.9 |
5.4 |
4.4 |
2.4 |
5.9 |
4.8 |
6.1 |
||
|
Non-Extractive GDP |
3.5 |
2.4 |
1.9 |
3.8 |
3.7 |
3.8 |
3.9 |
4.1 |
4.0 |
||
|
GDP deflator |
4.3 |
43.1 |
29.8 |
3.6 |
4.8 |
4.9 |
4.5 |
5.3 |
4.5 |
||
|
Consumer prices, period average |
3.2 |
35.8 |
29.3 |
5.5 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
||
|
Consumer prices, end of period |
11.2 |
54.7 |
7.2 |
5.5 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
||
|
External sector |
|||||||||||
|
Exports, f.o.b. (U.S. dollars) |
15.6 |
-2.8 |
38.3 |
-21.4 |
4.3 |
4.0 |
7.6 |
6.3 |
7.5 |
||
|
Imports, f.o.b. (U.S. dollars) |
14.9 |
-6.7 |
32.0 |
-20.2 |
6.9 |
5.5 |
6.9 |
7.5 |
7.9 |
||
|
Exports volume |
-6.0 |
9.7 |
20.8 |
4.6 |
3.0 |
2.8 |
7.3 |
5.6 |
6.2 |
||
|
Import volume |
-0.7 |
4.3 |
29.1 |
-18.3 |
5.4 |
5.3 |
6.6 |
7.1 |
7.1 |
||
|
Terms of trade |
-2.6 |
15.0 |
1.4 |
-11.0 |
-0.6 |
0.6 |
0.3 |
-0.1 |
-0.6 |
||
|
(Annual change in percent of beginning-of-period broad money) |
|||||||||||
|
Money and credit |
|||||||||||
|
Net foreign assets |
-4.8 |
29.2 |
10.2 |
4.0 |
3.6 |
4.7 |
5.9 |
4.7 |
4.3 |
||
|
Net domestic assets |
27.0 |
13.6 |
20.2 |
5.5 |
6.0 |
5.2 |
4.8 |
5.1 |
5.0 |
||
|
Domestic credit |
26.5 |
3.5 |
18.5 |
3.1 |
5.8 |
4.8 |
4.3 |
4.5 |
4.4 |
||
|
Of which: net credit to government |
11.8 |
-0.9 |
3.1 |
-0.1 |
-0.1 |
-0.1 |
-0.1 |
-0.1 |
-0.1 |
||
|
credit to the private sector |
14.1 |
0.6 |
20.3 |
0.4 |
3.6 |
2.2 |
2.4 |
2.9 |
4.5 |
||
|
Broad money |
22.2 |
42.8 |
30.1 |
9.5 |
9.6 |
9.9 |
10.7 |
9.8 |
9.3 |
||
|
(Percent of GDP, unless otherwise indicated) |
|||||||||||
|
Central government finance |
|||||||||||
|
Revenue and grants |
14.0 |
11.7 |
11.6 |
10.8 |
10.6 |
11.3 |
11.7 |
12.0 |
12.3 |
||
|
Revenue |
11.2 |
9.8 |
10.4 |
9.5 |
9.1 |
9.7 |
10.0 |
10.2 |
10.5 |
||
|
Grants |
2.8 |
2.0 |
1.1 |
1.3 |
1.5 |
1.6 |
1.7 |
1.8 |
1.8 |
||
|
Expenditures |
14.5 |
10.4 |
11.2 |
10.9 |
10.8 |
11.1 |
11.5 |
11.8 |
12.2 |
||
|
Overall fiscal balance (commitment basis) |
-0.5 |
1.4 |
0.4 |
-0.2 |
-0.1 |
0.2 |
0.2 |
0.2 |
0.1 |
||
|
Non-natural resource overall fiscal balance |
-2.0 |
-0.9 |
-2.8 |
-2.3 |
-2.1 |
-2.1 |
-2.4 |
-2.6 |
-2.9 |
||
|
Investment and saving |
|||||||||||
|
Gross national saving |
8.2 |
8.9 |
7.1 |
8.9 |
8.6 |
8.8 |
9.3 |
9.0 |
9.4 |
||
|
Government |
-1.4 |
0.8 |
-0.4 |
-1.2 |
-1.3 |
-0.8 |
-0.5 |
-0.9 |
-0.2 |
||
|
Non-government |
9.6 |
8.1 |
7.5 |
10.2 |
9.9 |
9.6 |
9.8 |
9.9 |
9.7 |
||
|
Investment |
12.3 |
12.1 |
11.7 |
12.5 |
12.9 |
13.1 |
13.6 |
13.3 |
13.9 |
||
|
Government |
3.4 |
2.3 |
1.7 |
2.1 |
2.4 |
2.6 |
3.0 |
2.7 |
3.5 |
||
|
Non-government |
8.9 |
9.7 |
10.0 |
10.4 |
10.5 |
10.5 |
10.6 |
10.6 |
10.4 |
||
|
Balance of payments |
|||||||||||
|
Exports of goods and services |
32.8 |
31.0 |
34.1 |
25.9 |
25.7 |
25.5 |
25.9 |
26.0 |
26.4 |
||
|
Imports of goods and services |
38.9 |
34.7 |
37.7 |
29.4 |
29.5 |
29.6 |
29.9 |
30.2 |
30.9 |
||
|
Current account balance, incl. transfers |
-4.1 |
-3.2 |
-4.6 |
-3.5 |
-4.2 |
-4.4 |
-4.3 |
-4.4 |
-4.5 |
||
|
Current account balance, excl. transfers |
-7.3 |
-5.2 |
-5.2 |
-5.6 |
-6.1 |
-6.3 |
-6.2 |
-6.4 |
-6.6 |
||
|
Overall balance |
-1.4 |
2.0 |
0.9 |
0.3 |
0.3 |
0.4 |
0.6 |
0.4 |
0.4 |
||
|
Gross official reserves (millions of U.S. dollars) |
625 |
601 |
657 |
1,011 |
1,108 |
1,282 |
1,530 |
1,721 |
1,820 |
||
|
Gross official reserves (weeks of imports) |
2.8 |
1.9 |
2.6 |
3.7 |
3.9 |
4.2 |
4.6 |
4.8 |
5.0 |
||
|
(Percent of GDP, unless otherwise indicated) |
|||||||||||
|
External public debt |
|||||||||||
|
Total stock, including IMF |
17.6 |
16.9 |
13.7 |
13.3 |
12.7 |
12.1 |
10.9 |
9.8 |
8.9 |
||
|
Scheduled debt service (millions of U.S. dollars) |
349 |
212 |
224 |
739 |
773 |
805 |
755 |
774 |
668 |
||
|
Percent of exports of goods and services |
2.9 |
2.1 |
2.8 |
3.2 |
2.5 |
1.9 |
1.1 |
0.9 |
0.7 |
||
|
Percent of government revenue |
8.5 |
6.5 |
9.2 |
8.8 |
6.9 |
4.9 |
3.0 |
2.4 |
1.9 |
||
|
Exchange rate (CDF per U.S. dollars) |
|||||||||||
|
Period average |
1,024 |
1,480 |
1,624 |
… |
… |
… |
… |
… |
… |
||
|
End-of-period |
1,216 |
1,592 |
1,636 |
… |
… |
… |
… |
… |
… |
||
|
Memorandum items : |
|||||||||||
|
Nominal GDP (billions of CDF) |
37,517 |
55,676 |
76,496 |
82,660 |
89,970 |
97,559 |
106,551 |
116,956 |
127,800 |
||
|
Nominal GDP (millions of U.S. dollars) |
36,640 |
37,615 |
47,099 |
49,014 |
51,627 |
54,174 |
57,257 |
60,819 |
64,313 |
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|
Sources: Congolese authorities; and IMF staff estimates and projections. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. 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.
[2] At the conclusion of the discussion, the deputy Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
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