This Selected Issues paper discusses reforms that could generate higher revenues from the non-oil sector through measures to rationalize the tax code, broaden the tax base, and increase administrative efficiency. These efforts should be complemented by economic diversification policies that support non-oil growth and thereby expand the potential tax base. The paper also reflects on lessons learned from other country experiences that could be relevant for the Republic of Congo. The authorities should step up revenue mobilization as a key component of their medium-term fiscal strategy. This will require a well-sequenced structure of reforms that includes three key elements. First, the newly created Tax Policy Unit in the Ministry of Finance should reduce institutional fragmentation and facilitate the design, coordination and implementation of a medium-term revenue strategy. Second, the government should urgently address the erosion of the tax base generated by an excessive and discretionary use of tax exemptions that do not comply with existing laws and regulations. Finally, the government should continue to focus on rationalizing the tax code, and increasing administrative efficiency to recover tax arrears, including through the modernization of existing income tax systems.
Mr. Giovanni Melina, Hoda Selim, and Concepcion Verdugo-Yepes
This paper argues that oil revenue management and public investment in Congo are
vulnerable to corruption as a result of limited transparency and accountability. Corruption
has potentially contributed to poor macro-fiscal outcomes. The paper acknowledges the
authorities’ anti-corruption efforts made so far and proposes further critical reforms to
reduce remaining vulnerabilities. Using a dynamic stochastic general equilibrium model
results show that, depending on the reforms adopted, the potential additional growth can
range between 0.8 to 1.8 percent per year over the next 10 years, and debt can decline by
2.25 to 3 percent of GDP per year over the same period. These results suggest that macrofiscal
gains from anti-corruption reforms could be substantial even under conservative
This paper discusses the Republic of Congo’s enhanced Heavily Indebted Poor Countries (HIPC) initiative. If the Republic of Congo is to effectively use the resources generated by the oil windfall to reduce poverty and ensure sustainable and equitable growth, improved prioritization of public investment resources and improved project management practices are required. The establishment of institutional structures to monitor reforms is a key test of the resolve of the government to meet the HIPC triggers.