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The Congolese authorities and the IMF team reached an agreement ad-referendum on a reform program that could be supported by the Rapid Credit Facility and a Staff-Monitored Program through end-May 2020; The Congolese economy faces multiple challenges with weakening economic growth, pervasive poverty, fragmented taxation system and fragile judiciary; Discussions focused on policies to strengthen macroeconomic stability, reinforce international reserves, and advance key structural reforms to address poor governance, a difficult business environment, and pervasive poverty.
An International Monetary Fund (IMF) team, headed by Mauricio Villafuerte, visited Kinshasa, Democratic Republic of Congo (DRC), over November 6–15, 2019 and reached an agreement ad-referendum with the Congolese authorities on a reform program that could be supported by the IMF’s Rapid Credit Facility (RCF), [1] coupled with a Staff-Monitored Program (SMP) through end-May 2020. [2] Subject to IMF management approval, the staff-level agreement on the RCF disbursement is expected to be submitted to the IMF Executive Board for its consideration in mid-December 2019.
At the end of the mission, Mr. Villafuerte issued the following statement:
'The Congolese authorities and the IMF mission reached an agreement ad-referendum on policies that would strengthen macroeconomic stability, reinforce international reserves, and advance key structural reforms to address deep-seated issues related to poor governance, a difficult business environment, and pervasive poverty. The SMP would provide an opportunity for the authorities, with assistance from their partners, to develop a deeper structural reform agenda that could eventually be implemented under a medium-term Fund-supported program.
'The Congolese economy faces multiple challenges. GDP growth is projected to weaken to 3.2 percent in 2020 and 4.5 percent in 2019, reflecting a slowdown in mining production. However, non-extractive GDP continues to accelerate, spurred in part by increased government spending. However, poverty remains pervasive and is exacerbated by armed conflict and deadly epidemics in some areas of the country. Weaknesses of the judiciary system and fragmented taxation discourage private investment, holding back the potential of an economy that enjoys several valuable natural endowments, including a young and dynamic population.
'Fulfilling the government’s ambitious developmental and social plans in a sustainable way requires focusing on revenue mobilization and getting spending priorities right. The government has introduced free basic education and undertaken infrastructure building and rehabilitation under the President’s 100-day program. As domestic revenue is insufficient to finance these initiatives, the central bank (BCC) has made advances to the government, which have led to an erosion of its international reserves to critically low levels. In this context, there is an urgent need to boost revenue and rein in and prioritize expenditures to anchor macroeconomic stability.
'The central bank’s immediate focus should be to build up its international reserves, while preserving low inflation. The transfer of its foreign currency deposits held with domestic commercial banks to its own bank accounts abroad would contribute to increase international reserves. To strengthen financial stability, the central bank should take steps to denominate banks’ mandatory reserves in the currency of the respective deposits. It should also continue to use instruments at its disposal to maintain low inflation and to intervene in the foreign exchange market to smooth out excess volatility.
'Improving governance and the business climate is critical, with emphasis on the management of natural resources and of state-owned enterprises. The authorities are committed to complying with requirements of the Extractive Industries Transparency Initiative (EITI). Steps should be taken to simplify taxation and reduce the tax burden. A national dialogue will be launched, and appropriate assistance sought with a view to addressing weaknesses in the judiciary system.
'The mission thanks the Congolese authorities for their warm hospitality, strong cooperation, and constructive and open discussions.”
The IMF team met with Prime Minister Ilunga Ilunkamba, Minister of Finance Sele Yalaghuli, Central Bank of Congo Governor Mutombo Mwana Nyembo, other senior government officials as well as representatives of civil society, private sector, and development partners.
[1] The RCF (http://bit.ly/2qTPO3g) is a lending arrangement that provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs.
[2] An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.
Distributed by APO Group on behalf of International Monetary Fund (IMF).
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