Press Release No. 19/400

IMF Staff Completes Mission for the 2019 Article IV and First ECF Review with the Republic of Congo

November 6, 2019

• The economy is showing signs of modest growth and stability after the deep recession that started in 2014, but growth remains too low for poverty reduction and too dependent on developments in the oil sector.
• The authorities are committed to finalizing the restructuring of external debt following their previously announced strategy.
• Greater efforts are needed in the implementation of structural reforms, including those that target improvements in governance and anti-corruption.
• The authorities need to make available an adequate envelope of resources to support vulnerable groups.

An International Monetary Fund (IMF) mission, led by Alex Segura-Ubiergo, visited Brazzaville during October 24-November 6 to discuss the 2019 Article IV consultation and the first review of the IMF arrangement under the Extended Credit Facility (ECF). At the conclusion of the IMF mission, Mr. Segura-Ubiergo issued the following statement:

“Growth in 2019 is likely to stabilize around 2 percent— similar to the level observed in 2018. The main engine of growth continues to be the expansion in oil production, though this expansion has been lower than initially projected due to one-off technical difficulties in some oil fields. Non-oil growth could turn positive for the first time since 2015 thanks to the recovery in the agricultural, forestry and transportation sectors, but it will remain below 1 percent, and with many economic sectors still in recession. The mission welcomed the projected GDP expansion, but noted that growth remains too low to reduce poverty and too dependent on developments in the oil sector. Greater efforts are needed to improve economic management and advance reforms to support private sector activity to achieve higher and more inclusive growth. Inflation remains subdued, running at 1.7 percent year on year through September.

“The current account surplus is expected to reach 8 percent of GDP in 2019, in part due to growth in mining and forestry exports. These developments are particularly welcome as export diversification is essential to supporting a healthy balance of trade once oil production begins to decline. Imputed net foreign assets have increased more rapidly than anticipated this year, supporting the build-up of reserves at the regional level.

“Financial conditions, however, remain difficult. Credit growth to the private sector was negative and non-performing loans rose to 24 percent of gross loans at end-September. The mission noted that delays in the implementation of the government strategy to clear domestic arrears with the private sector are having a negative impact on economic confidence. The authorities should tackle this problem expeditiously to prevent a further deterioration in economic conditions that could jeopardize the modest progress achieved so far to stabilize the economy.

“Fiscal performance at end-June was mixed. On the one hand, the authorities have met the targets for the non-oil primary balance (in percent of non-oil GDP) and net domestic financing – two key indicators to ensure that public finances are placed on a sustainable path. At the same time, non-oil revenue collection was disappointing, and this underperformance continued at end-September. The mission recommended curbing tax exemptions, and strictly enforcing the collection of tax arrears. It also advised the government to respect their planned schedule for domestic arrears clearance to allow private sector companies to be able to meet their tax obligations in a timely manner. To offset the impact of lower non-oil revenues, further fiscal consolidation will be required during the remainder of the year. The government is also advised to avoid the accumulation of new external arrears, and to clear the remaining stock of external arrears to official creditors as soon as possible and in line with earlier commitments.

“Social spending – a key priority of the authorities’ program supported by the IMF- remains too low. The authorities need to make available urgently an adequate envelope of resources to support vulnerable groups, especially through the Lisungi cash transfer program. The government expressed its commitment to improving the efficiency and transparency of public finance management, including through the strict enforcement of their own budget rules and regulations.

“The authorities are to be commended for preparing a 2020 Budget that is consistent with the objective of restoring fiscal sustainability. The rigorous implementation of the budget could lead to a reduction in the non-oil primary balance deficit to 21.3 percent in 2020, from 24.8 percent of non-oil GDP in 2019. The primary fiscal balance would remain in surplus and this could help reduce total public debt below 75 percent of GDP. This would be a substantial achievement given that debt had reached about 118 percent of GDP in 2017. However, to restore debt sustainability, the authorities need to finalize the restructuring of external debt to commercial creditors, in line with their previously announced strategy, taking into account the Republic of Congo’s resource envelope.

“While there has been progress to date, greater efforts are needed in the implementation of structural reforms, including those that target improvements in governance, transparency and anti-corruption efforts. The authorities noted that implementation decrees needed to operationalize the new Anti-Corruption Authority and the Commission on Transparency initially planned for September would be approved in November. The mission also recommended that the authorities publish three reports that had been submitted to Parliament in May 2019 regarding the use of oil revenues. The authorities should also request an audit by the Audit Court of up to 3 percent of GDP of expenditures made during 2019 that were committed in previous years.

“The IMF mission team will continue discussions with the authorities on pending actions agreed upon during the visit. Once the authorities have implemented these pending actions as agreed during the mission, the IMF team will submit a report in support of the Republic of Congo’s request for the completion of the first review under the Extended Credit Facility for the consideration of its Executive Board.

“The mission met with the Prime Minister Clement Mouamba, the Minister of Finance Calixte Nganongo, the Director of the Central Bank Michel Nzombala, the Head of SNPC Raoul Ominga, and senior staff of the Ministry of Finance, Central bank and Oil Ministry. The mission also met representatives of the private sector, civil society and international development partners.

“The mission would like to thank the Congolese authorities for the constructive discussions and warm hospitality.”