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Democratic Republic of the Congo: Staff Report for the 2015 Article IV Consultation

Author(s):
International Monetary Fund. African Dept.
Published Date:
October 2015
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Strong Macroeconomic Performance, but High Vulnerabilites

1. DRC’s macroeconomic performance remained strong. Real gross domestic product (GDP) growth in 2014 is estimated at 9.2 percent,3 essentially driven by copper production and the service sector (telecommunications, trade, and transport). Year-on-year inflation stabilized at 1.0 percent at end-December 2014. The fiscal position recorded a small surplus in 2014 despite a one percentage point of GDP increase in expenditures, driven by higher exceptional spending on security in the context of the fiscal anchor adopted in 20094 while government revenue (excluding grants) increased only marginally (0.4 percentage points of GDP). The external current account deficit narrowed to 9.2 percent of GDP in 2014 from 10.6 percent of GDP in 2013, reflecting an improvement in the terms of trade and strong mineral export volumes.5 Sustained inflows of foreign direct investments (FDI) contributed to an overall balance of payments surplus, despite decreasing official capital transfers. However, international reserves fell in U.S. dollar terms (See Figure 1). The exchange rate remained relatively stable since 2010, even though the de-jure exchange rate arrangement is floating.

Figure 1.Democratic Republic of the Congo: Recent Economic Developments

Sources: Congolese authorities and IMF staff estimates.

2. The financial health of the banking system seems to have improved somewhat in 2014. Average ratio of regulatory capital-to-risk-weighted assets improved slightly in 2014 as did profitability and liquidity ratios. However, the quality of the portfolio deteriorated with non-performing loans to total gross loans increasing to 6.9 percent from 5.4 percent in 2013.

3. Nonetheless, vulnerabilities remain elevated:

  • Weak competitiveness. While there is no sign of an exchange rate misalignment for DRC in 2014 other indicators show that DRC’s competitiveness is impaired by structural bottlenecks and a challenging business climate. Electricity shortages are becoming a hindrance to economic activity, particularly mining.

  • Low official reserves. Official reserves declined by US$118 million in 2014 to US$1.6 billion, enough to cover only 1.6 months of next year’s projected imports compared with at least 11.5 months as estimated in the reserve adequacy assessment (see Appendix III).

  • Central bank and financial sector vulnerabilities. The financial position of the Central Bank of Congo (BCC) remained precarious, undermining the conduct of monetary policy. As underscored by the 2014 FSAP, the insurance and pension systems are also in a dire financial position, as are many microfinance institutions (MFIs).

4. DRC continues to display some characteristics of fragility, such as:

  • Fractious political setting. The political situation remains fluid essentially because two major opposition parties still question the legitimacy of the president following the disputed 2011 presidential elections. These parties also declined to join the government of national cohesion appointed last December.

  • Heightened political uncertainty. Seven elections at a total cost of $1.1 billion are to be held between October 2015 and November 2016 without any clear indication of how they will be financed.6 Mixed signals about whether the incumbent president will abide by the term limit imposed by the Constitution are adding to the political uncertainty. Also, a constitutionally-mandated increase in the number of provinces from 11 to 26 enacted in May 2015 further increases uncertainty about the electoral process.

  • Residual security risks. Residual rebel activities in the eastern provinces and delays in institutional reforms, including the security sector reform (SSR)7 are making lasting peace in the east elusive.

5. Implementation of past policy recommendations was broadly satisfactory, but key structural reforms continued to lag (see Appendix I). These relate to the Central Bank and the Commercial Bank Laws, the Mining Code, the recapitalization of the BCC, and measures aimed at enhancing transparency in the management of natural resources and strengthening the corporate governance and accountability of major state-owned enterprises (SOEs). Similarly, reforms to strengthen financial stability, banking supervision, and resolution of financial crises made little progress (see Table 8).

Table 1.Democratic Republic of the Congo: Selected Economic and Financial Indicators, 2012–20
201220132014201520162017201820192020
Act.Est.Proj.
(Annual percentage change; unless otherwise indicated)
GDP and prices
Real GDP7.18.59.29.28.58.37.56.75.4
GDP deflator4.79.31.32.21.42.32.52.62.6
Consumer prices, period average2.10.81.01.01.72.52.52.52.5
External sector
Exports, f.o.b. (U.S. dollars)−9.514.117.34.013.28.111.410.47.0
Imports, f.o.b. (U.S. dollars)−10.015.219.5−3.06.314.512.811.011.2
Export volume−3.422.810.110.612.97.210.69.56.2
Import volume−10.810.726.911.55.411.610.89.49.5
Terms of trade−5.6−6.39.25.4−0.8−0.30.10.30.5
(Annual change in percent of beginning-of-period broad money)
Money and credit
Broad money21.118.114.29.3
Net foreign assets22.92.32.72.8
Net domestic assets−1.915.711.36.6
Domestic credit−4.614.514.92.1
Of which:
Net credit to government (annual percent change)−18.93.62.6−7.3
Credit to the private sector (annual percent change)25.626.522.720.1
(Percent of GDP; unless otherwise indicated)
Central government finance
Revenue and Grants17.215.314.616.116.816.616.817.117.4
Revenue14.412.913.313.714.114.514.815.115.4
Grants2.92.41.32.42.72.11.91.91.9
Expenditure15.413.414.415.316.616.416.517.117.5
Overall balance (including grants)1.51.60.10.50.0−0.10.1−0.2−0.3
Investment and saving
Gross national saving5.84.76.68.07.06.87.48.48.9
Government−2.5−3.7−2.2−1.2−1.8−1.5−1.2−1.4−1.3
Nongovernment 18.38.48.89.28.78.38.69.810.2
Investment12.715.315.715.514.716.217.618.620.0
Government4.66.26.46.45.76.56.66.87.0
Nongovernment8.19.19.39.18.99.711.011.713.0
Balance of payments
Exports of goods and services35.632.334.332.834.033.133.934.734.6
Imports of goods and services40.038.041.837.336.437.438.338.839.8
Current account balance, incl. transfers−6.9−10.6−9.2−7.5−7.7−9.4−10.1−10.1−11.2
Current account balance, excl. transfers−9.8−14.0−13.8−11.3−9.5−11.1−11.6−11.6−12.6
Overall balance2.20.20.10.30.50.60.70.50.4
Gross official reserves (weeks of non-aid-related imports of goods and services)7.16.26.25.54.63.93.53.13.2
(Percent of GDP)
External public debt
Total stock, including IMF16.613.611.513.514.416.518.820.221.7
Present value (PV) of debt19.413.515.211.012.513.915.416.016.7
PV of debt (percent of exports of goods and services)54.341.944.233.636.942.145.646.348.5
Exchange rate, (CDF per U.S. dollar)
Period average919920925
End-of-period915926925
Memorandum item:
Scheduled debt service181.7194.6189.0223.7245.4354.9317.2293.8286.6
Percent of exports of goods and services1.81.81.51.71.72.21.81.51.4
Percent of government revenue4.64.64.04.14.05.14.13.43.1
Gross official reserves (end-of-period, millions of U.S. dollars)164516951577153414821418139413441305
Nominal GDP (CDF billions)25,34430,05133,22437,05640,77445,21049,81854,49358,931
Nominal GDP (U.S$ million)27,56632,67635,91839,98243,66547,93752,30056,64260,648
Sources: Congolese authorities; and IMF staff estimates and projections.

The projections for 2011 and beyond account for mining companies profit outflows.

Projections are based on calculations under the 2010 HIPC Debt Sustainability Analysis (EBS/10/121, 06/16/2010). Includes assistance beyond the terms of the enhanced HIPC Initiative granted by some Paris Club creditors. Exports are a trailing three-year moving average.

Sources: Congolese authorities; and IMF staff estimates and projections.

The projections for 2011 and beyond account for mining companies profit outflows.

Projections are based on calculations under the 2010 HIPC Debt Sustainability Analysis (EBS/10/121, 06/16/2010). Includes assistance beyond the terms of the enhanced HIPC Initiative granted by some Paris Club creditors. Exports are a trailing three-year moving average.

Table 2a.Democratic Republic of the Congo: Central Government Financial Operations, 2012–20
201220132014201520162017201820192020
Act.Est.Proj.
(Billion CDF, unless otherwise specified)
Total revenue and grants4,3694,5884,8475,9576,8487,5048,3559,29610,233
Total revenue3,6393,8734,4255,0675,7336,5397,3978,2559,098
Tax revenue2,5652,8233,2493,8654,3895,0275,7246,4247,132
Income tax6899421,1301,4101,5711,7581,9512,1462,335
Individuals3605295776567368339361,0451,152
Businesses3294135547548349251,0151,1021,183
Revenue from goods264651566269768390
Wage taxes000000000
Taxes on goods and services1,8501,8352,0682,3982,7563,2003,6974,1954,707
Value added tax / Tax on turnovers1,1379631,1021,2861,4911,7512,0462,3272,615
Excises241332331369406450496542586
International trade4725406357438599991,1551,3261,505
Non-tax revenue1,0741,0491,1771,2021,3451,5121,6721,8301,966
Revenue from natural resources and telecoms689404279260301344387428452
Mining royalties9010843354456719097
Exceptional revenue from the mining industry30400000000
Oil royalty and rent168173131105121134143146148
Forest industry100000000
Telecoms125123106121136153172192208
Dividends from sate-owned entepries697362445055596163
Fees from sectoral ministries143182412460511578637697753
Other non-tax revenue1733632233334
Licenses242233334
Real estate transaction registration200000000
Penalties and fines1693230000000
Special accounts and budgets 1354391436480532586641694
Total grants7307164218901,1149659581,0421,134
Budget grants19322664448468490435466501
Of which: HIPC/MDRI debt relief 219319340448468490435466501
Project grants536490358442647476523576633
Total expenditures3,9104,0364,7955,6596,7647,4298,2169,31910,285
Current expenditures2,8133,2813,3343,7134,0795,2845,8886,6847,385
Salaries1,2201,4081,5831,8532,2432,4872,7853,1743,535
Interest due366359322319320385381382380
External debt235228222213207252236223208
Internal debt13113299106113134144159172
Goods and services8131,0168278337721,4191,6031,8412,051
Transfers4144976047077449921,1201,2871,419
Capital expenditures9273884071,2141,4041,6131,7411,9942,206
Foreign-financed694261318839629239421,0141,094
Domestically financed2333622773314426917999791,112
Central government691331069794266307377428
Transfers to provinces (capital)164229170235349425492603684
Exceptional expenditures 3170136622968000000
Foreign-financed000491600000
Domestically financed170136622476400000
Of which: elections317452476400000
Special accounts and budgets 10354391436480532586641694
Payment of domestic arrears69623196979899100101
Overall fiscal balance38949120202−13−2340−123−153
Financing needs 4−409−506−18349291329219419494
Total financing−409−506−18349291329219419494
Domestic financing−431−415−26−290−5552−55130219
Banking system−431−415−26−290−5552−55130219
Central bank−431−415−26−290−5552−55130219
Commercial banks000000000
Non-banks financial institutions000000000
Financing000000000
Debt relieg000000000
Proceed of assets sales000000000
Foreign financing23−91−157339346277274289275
New arrears000000000
Budget loans000000000
Project loans158640489476447418439461
Amortisation of external debt273392388409415483407447527
Debt relief137237231259285313262298341
Paid136155157150130170144150186
Financing gap000000000
Memorandum items
Gross Domestic Product (CDF billion)25,34430,05133,22437,05640,77445,21049,81854,49358,931
Gross Domestic Product (USD million USD)27,56632,67635,91839,98243,66547,93752,30056,64260,648
Sources: Congolese authorities and IMF staff estimates and projections.

From 2013, various funds and previously off budget items are included in the Budget.

Reflects calculation of HIPC Initiative assistance on the basis of the 2010 Debt Sustainability Analysis (EBS/10/121,16/06/2010).

Mainly security and elections.

Overall fiscal balance, minus HIPC/MDRI debt relief, plus debt relief on foreign interest payments.

Excluding grants, interest payments on external debt, and foreign-financed expenditures.

Sources: Congolese authorities and IMF staff estimates and projections.

From 2013, various funds and previously off budget items are included in the Budget.

Reflects calculation of HIPC Initiative assistance on the basis of the 2010 Debt Sustainability Analysis (EBS/10/121,16/06/2010).

Mainly security and elections.

Overall fiscal balance, minus HIPC/MDRI debt relief, plus debt relief on foreign interest payments.

Excluding grants, interest payments on external debt, and foreign-financed expenditures.

Table 2b.Democratic Republic of the Congo: Central Government Financial Operations, 2012–20
201220132014201520162017201820192020
Act.Est.Projections
Percentage of GDP, unless otherwise indicated
Total revenue and grants17.215.314.616.116.816.616.817.117.4
Total revenue14.412.913.313.714.114.514.815.115.4
Tax revenue10.19.49.810.410.811.111.511.812.1
Income tax2.73.13.43.83.93.93.93.94.0
Individuals1.41.81.71.81.81.81.91.92.0
Businesses1.31.41.72.02.02.02.02.02.0
Revenue from goods0.10.20.20.20.20.20.20.20.2
Wage taxes0.00.00.00.00.00.00.00.00.0
Taxes on goods and services7.36.16.26.56.87.17.47.78.0
Value added tax / Tax on turnovers4.53.23.33.53.73.94.14.34.4
Excises0.91.11.01.01.01.01.01.01.0
International trade1.91.81.92.02.12.22.32.42.6
Non-tax revenue4.23.53.53.23.33.33.43.43.3
Revenue from natural resources and telecoms2.71.30.80.70.70.80.80.80.8
Dividends from state-owned enterprises0.30.20.20.10.10.10.10.10.1
Fees from sectoral ministries0.60.61.21.21.31.31.31.31.3
Other non-tax revenue0.70.10.10.00.00.00.00.00.0
Special accounts and budgets 11.21.21.21.21.21.21.21.2
Total grants2.92.41.32.42.72.11.91.91.9
Budget grants0.80.80.21.21.11.10.90.90.9
Of which: HIPC/MDRI debt relief 20.80.60.11.21.11.10.90.90.9
Project grants2.11.61.11.21.61.11.11.11.1
Total expenditures15.413.414.415.316.616.416.517.117.5
Current expenditures11.110.910.010.010.011.711.812.312.5
Salaries4.84.74.85.05.55.55.65.86.0
Interest due1.41.21.00.90.80.90.80.70.6
External debt0.90.80.70.60.50.60.50.40.4
Internal debt0.50.40.30.30.30.30.30.30.3
Goods and services3.23.42.52.21.93.13.23.43.5
Transfers1.61.71.81.91.82.22.22.42.4
Capital expenditures3.71.31.23.33.43.63.53.73.7
Foreign-financed2.70.10.42.42.42.01.91.91.9
Domestically financed0.91.20.80.91.11.51.61.81.9
Exceptional expenditures 30.70.02.00.82.00.00.00.00.0
Foreign-financed0.00.00.00.10.40.00.00.00.0
Domestically financed0.70.02.00.71.60.00.00.00.0
Of which: elections0.10.00.10.71.60.00.00.00.0
Special accounts and budgets 10.01.21.21.21.21.21.21.21.2
Payment of domestic arrears0.30.20.10.30.20.20.20.20.2
Overall fiscal balance1.51.60.10.50.0−0.10.1−0.2−0.3
Financing needs 4−1.6−1.7−0.60.10.70.70.40.80.8
Total financing−1.6−1.7−0.60.10.70.70.40.80.8
Domestic financing−1.7−1.4−0.1−0.8−0.10.1−0.10.20.4
Banking system−1.7−1.4−0.1−0.8−0.10.1−0.10.20.4
Central bank−1.7−1.4−0.1−0.8−0.10.1−0.10.20.4
Commercial banks0.00.00.00.00.00.00.00.00.0
Non-banks financial institutions0.00.00.00.00.00.00.00.00.0
Foreign financing0.1−0.3−0.50.90.80.60.50.50.5
Project loans0.60.20.01.31.21.00.80.80.8
Amortisation of external debt1.11.31.21.11.01.10.80.80.9
Financing gap0.00.00.00.00.00.00.00.00.0
Memorandum items
Gross Domestic Product25,34430,05133,22437,05640,77445,21049,81854,49358,931
Gross Domestic Product (USD)27,56632,67635,91839,98243,66547,93752,30056,64260,648
Sources: Congolese authorities; and IMF staff estimates and projections.

From 2013, various funds and previously off budget items are included in the Budget.

Reflects calculation of HIPC Initiative assistance on the basis of the 2010 Debt Sustainability Analysis (EBS/10/121,16/06/2010).

Mainly security and elections.

Excluding grants, interest payments on external debt, and foreign-financed expenditures.

Sources: Congolese authorities; and IMF staff estimates and projections.

From 2013, various funds and previously off budget items are included in the Budget.

Reflects calculation of HIPC Initiative assistance on the basis of the 2010 Debt Sustainability Analysis (EBS/10/121,16/06/2010).

Mainly security and elections.

Excluding grants, interest payments on external debt, and foreign-financed expenditures.

Table 3.Democratic Republic of the Congo: Monetary Survey, 2011–15(At current exchange rates)
20112012201320142015
Dec.Dec.Dec.Dec.Dec.
Act.Act.Prel.Proj.
(CDF billions)
Net foreign assets834.91389.21457.81552.21662.6
Central bank19.2337.1393.4353.1311.0
Commercial banks815.71052.01064.31199.21351.5
Net domestic assets1,608.71563.72024.32409.32676.8
Domestic credit441.0326.6712.91118.41201.2
Net credit to government−521.0−977.9−872.8−784.3−1074.2
Credit to the private sector913.31147.21450.81780.52139.1
Credit to parastatals48.7157.3134.9122.2136.2
Credit to the economy962.01304.51585.71902.62275.4
Of which: credit to private sector913.31147.21450.81780.52139.1
Of which: credit to parastatals48.7157.3134.9122.2136.2
Other items, net (including valuation change)1,167.71237.21311.41290.91475.6
Difference of credit51.28.5−49.7−149.10.0
Difference of banks depositt−66.5−67.6−63.6−28.60.0
Of which: Valuation change22.819.252.942.134.7
Broad money (M2)2,418.42930.13460.43950.54316.7
Narrow money (M1)790.1883.81061.51180.21224.9
Currency in circulation615.3595.2692.9742.5722.0
Demand deposits174.7288.7368.6437.7502.9
Quasi money1,628.42046.32398.92770.23091.8
Time deposits in domestic currency17.525.730.435.6215.7
Foreign currency deposits1,610.82020.52368.52734.62876.1
(Year-on-year change, percent)
Net foreign assets−8.066.44.96.57.1
Net domestic assets46.0−2.829.419.011.1
Domestic credit588.8−25.9118.356.97.4
Net credit to government−30.687.7−10.8−10.137.0
Credit to the economy18.035.621.620.019.6
Of which: credit to the private sector16.725.626.522.720.1
Of which: credit to parastatals50.5223.0−14.3−9.411.5
Other items, net (including valuation change)12.55.96.0−1.614.3
Broad money (M2)23.121.218.114.29.3
Narrow money (M1)11.911.920.111.23.8
Quasi money29.425.717.215.511.6
(Annual change, percent of beginning-of-period broad money)
Net foreign assets−3.722.92.32.72.8
Net domestic assets25.8−1.915.711.16.8
Domestic credit19.2−4.713.211.72.1
Net credit to government11.7−18.93.62.6−7.3
Credit to the economy7.543.331.829.931.6
Other items, net (including valuation change)6.62.92.5−0.64.7
Broad money (M2)23.121.218.114.29.3
Narrow money (M1)4.33.96.13.41.1
Quasi money18.817.312.010.78.1
Memorandum items:
Nominal GDP (billions of Congo francs)22,59825,34430,05133,22437,056
Velocity (GDP/broad money)9.38.68.78.48.6
Foreign currency deposits (percent of M2)66.669.068.469.266.6
Foreign currency deposits (percent of total deposits)89.386.585.685.280.0
Net foreign assets of the BCC 119337393353311
Net domestic assets of the BCC 1790515591777850
Of which: Net credit to government from the BCC 1−428−752−680−648−938
Base money 18098529841,1361,161
Of which: currency in circulation 1647643760817666
Sources: Congolese authorities; and IMF staff estimates and projections.

In billions of Congo francs at current exchange rates.

Sources: Congolese authorities; and IMF staff estimates and projections.

In billions of Congo francs at current exchange rates.

Table 4.Democratic Republic of the Congo: Balance of Payments, 2012–20
201220132014201520162017201820192020
Act.Est.Projections
(Millions of U.S. dollars; unless otherwise indicated)
Current account−1,906−3,479−3,291−2,984−3,350−4,504−5,286−5,729−6,784
Merchandise trade3302841169541,8811,2521,1951,220571
Exports, f.o.b.9,01610,29012,07212,55114,20615,36217,11718,89220,213
Of which: mining and oil8,86410,06011,74312,18813,77914,85616,51818,17919,364
Imports, f.o.b.−8,686−10,006−11,956−11,597−12,325−14,110−15,923−17,672−19,642
Of which: aid-related imports−1,208−265−694−1,604−1,257−1,192−1,145−1,211−1,283
Services−1,529−2,141−2,799−2,761−2,937−3,310−3,469−3,562−3,724
Receipts805271244562636525616754782
Expenditure−2,334−2,413−3,043−3,323−3,573−3,836−4,085−4,316−4,506
Of which: aid-related imports−128−44−107−187−147−139−134−141−150
Income−1,719−2,838−3,041−3,110−3,524−3,809−4,246−4,689−5,017
Receipts1949318391100109118126
Expenditure−1,738−2,887−3,071−3,193−3,614−3,908−4,355−4,807−5,143
Of which: interest payments 2−29−26−20−19−19−129−110−293−207
Current transfers1,0131,2172,4331,9331,2301,3641,2341,3011,385
Of which: official aid7831,0821,6551,552799833786831881
Capital and financial account1,0273,5453,2903,1213,5504,8105,6776,0417,052
Capital account80315326293541466508552596
Official583819230346252275299326
Private220146763195214233252270
Capital transfers (HIPC/MDRI)
Of which: from IMF
Financial account2243,3923,2642,8283,0104,3445,1695,4896,456
Official capital20−99−169366370294188200127
Gross disbursements172700528509474439456474
Scheduled amortization 3−152−169−169−162−139−180−252−256−347
Private capital (net)2043,4913,4332,4622,6404,0514,9825,2896,329
Of which: foreign direct investment1,1591,6981,7201,8662,0062,4042,9603,4154,056
Other private non-banking sector 4−9551,7931,7135976331,6462,0221,8742,273
Balance before errors and omissions−87966−1137200307391311268
Errors and omissions1,477−232000000
Overall balance5986532137200307391311268
Financing−598−65−32−137−200−307−391−311−268
Net change in non-IMF arrears000000000
Net banking sector reserves (increase = -)−598−65−32−137−200−307−391−311−268
Central bank−345−501194−28−30−70−25−3
Of which: Net IMF credit000−39−80−94−94−75−42
Commercial banks−253−15−150−141−173−276−320−286−264
Financing need before exceptional assistance000000000
Residual financing need (overfinancing = +)000000000
Of which: fiscal000000000
(Percent of GDP, unless otherwise indicated)
Memorandum items:
Debt service after debt relief (percent of exports of go)1.81.81.51.71.72.21.81.51.4
Current account balance (including official transfers)−6.9−10.6−9.2−7.5−7.7−9.4−10.1−10.1−11.2
Current account balance (excluding official transfers)−9.8−14.0−13.8−11.3−9.5−11.1−11.6−11.6−12.6
Gross official reserves (millions of U.S. dollars)1,6451,6951,5771,5341,4821,4181,3941,3441,305
Weeks of non-aid-related imports of goods and ser7.16.26.25.54.63.93.53.13.2
Sources: Congolese authorities; and IMF staff estimates and projections.

Two reclassifications were introduced in 2013. First, repatriation of profits by international companies operating in the natural resources sector passed from the financial account (other private non-banking sector) to the current account (expenditure under the income balance). Second, a larger part of official grants were registered under the current account (current transfers) for aid covering recurrent expenditures

Including interest due to the IMF.

Excluding principal repayments to the IMF.

Including unrecorded transactions. The latter may be substantial given weaknesses in statistics.

Sources: Congolese authorities; and IMF staff estimates and projections.

Two reclassifications were introduced in 2013. First, repatriation of profits by international companies operating in the natural resources sector passed from the financial account (other private non-banking sector) to the current account (expenditure under the income balance). Second, a larger part of official grants were registered under the current account (current transfers) for aid covering recurrent expenditures

Including interest due to the IMF.

Excluding principal repayments to the IMF.

Including unrecorded transactions. The latter may be substantial given weaknesses in statistics.

Table 5.Democratic Republic of the Congo: Selected Economic and Financial Indicators Under Alternative Scenario, 2012–20
201220132014201520162017201820192020
Act.Est.Proj.
(Annual percentage change; unless otherwise indicated)
GDP and prices
Real GDP7.18.59.29.710.18.77.66.85.4
GDP deflator4.79.31.32.72.94.54.84.84.9
Consumer prices, period average2.10.81.01.52.73.53.53.53.5
External sector
Exports, f.o.b. (U.S. dollars)−9.514.117.34.013.28.111.410.47.0
Imports, f.o.b. (U.S. dollars)−10.015.219.5−3.16.413.510.76.38.2
Export volume−3.422.810.110.612.97.210.69.56.2
Import volume−10.810.726.911.55.610.79.05.66.9
Terms of trade−5.6−6.39.25.4−0.9−0.40.10.30.4
(Annual change in percent of beginning-of-period broad money)
Money and credit
Broad money21.118.114.210.3
Net foreign assets22.92.32.719.3
Net domestic assets−1.915.711.3−8.9
Domestic credit−4.614.514.92.4
Of which:
Net credit to government (annual percent change)−18.93.62.6−7.2
Credit to the private sector (annual percent change)25.626.522.720.3
(Percent of GDP; unless otherwise indicated)
Central government finance
Revenue and Grants17.215.314.616.117.718.018.519.219.6
Revenue14.412.913.313.715.115.916.717.417.8
Grants2.92.41.32.42.72.11.81.81.8
Expenditure15.413.414.415.317.517.818.219.319.6
Overall balance (including grants)1.51.60.10.50.00.00.1−0.2−0.2
Investment and saving
Gross national saving5.84.76.68.37.38.29.410.612.0
Government−2.5−3.7−2.2−0.7−1.8−1.4−1.3−3.9−3.8
Nongovernment 18.38.48.88.99.29.610.814.515.9
Investment12.715.315.715.715.116.918.318.319.8
Government4.66.26.46.76.17.27.36.66.8
Nongovernment8.19.19.39.18.99.711.011.713.0
Balance of payments
Exports of goods and services35.632.334.332.833.733.033.634.134.0
Imports of goods and services40.038.041.837.236.136.636.735.835.8
Current account balance, incl. transfers−6.9−10.6−9.2−7.3−7.6−8.7−8.7−7.5−7.6
Current account balance, excl. transfers−9.8−14.0−13.8−11.2−9.4−10.4−10.2−9.0−9.0
Overall balance2.20.20.12.02.42.11.71.70.4
Gross official reserves (weeks of non-aid-related imports of goods and services)7.16.26.37.89.410.411.111.912.8
(Percent of GDP)
External public debt
Total stock, including IMF16.613.611.513.514.316.318.519.821.2
Present value (PV) of debt19.413.515.211.012.313.715.115.616.3
PV of debt (percent of exports of goods and services)54.341.944.233.937.242.145.646.548.7
Exchange rate, (CDF per U.S. dollar)
Period average919920925
End-of-period915926925
Memorandum item:
Scheduled debt service181.7194.6189.0223.7245.4354.9317.2293.8286.6
Percent of exports of goods and services1.81.81.51.71.72.21.81.51.4
Percent of government revenue4.64.64.04.13.74.63.62.92.6
Gross official reserves (end-of-period, millions of U.S. dollars)164516951577218929783652413247684729
Nominal GDP (CDF billions)253443005133224374064237448133542696076467172
Nominal GDP (U.S$ million)275663267635918399814409848633532355787062110
Sources: Congolese authorities; and IMF staff estimates and projections.

The projections for 2011 and beyond account for mining companies profit outflows.

Projections are based on calculations under the 2010 HIPC Debt Sustainability Analysis (EBS/10/121, 06/16/2010). Includes assistance beyond the terms of the enhanced HIPC Initiative granted by some Paris Club creditors. Exports are a trailing three-year moving average.

Sources: Congolese authorities; and IMF staff estimates and projections.

The projections for 2011 and beyond account for mining companies profit outflows.

Projections are based on calculations under the 2010 HIPC Debt Sustainability Analysis (EBS/10/121, 06/16/2010). Includes assistance beyond the terms of the enhanced HIPC Initiative granted by some Paris Club creditors. Exports are a trailing three-year moving average.

Table 6.Democratic Republic of the Congo: Millennium Development Goals, 1990–2014
1990199520002005201020132014
Goal 1: Eradicate extreme poverty and hunger
Employment to population ratio, 15+, total (%) (modeled ILO estimate)..66.266.366.166.066.2..
Employment to population ratio, ages 15-24, total (%) (modeled ILO estimate)..39.439.139.238.738.8..
GDP per person employed (constant 1990 PPP $)1,455.0830.0605.0642.0717.0....
Income share held by lowest 20%......5.5......
Malnutrition prevalence, weight for age (% of children under 5)..30.7....24.223.4..
Poverty gap at $1.25 a day (PPP) (%)......52.8......
Poverty headcount ratio at $1.25 a day (PPP) (% of population)......87.7......
Vulnerable employment, total (% of total employment)..............
Goal 2: Achieve universal primary education
Literacy rate, youth female (% of females ages 15-24)..............
Literacy rate, youth male (% of males ages 15-24)..............
Persistence to last grade of primary, total (% of cohort)........54.5....
Primary completion rate, total (% of relevant age group)........64.0....
Adjusted net enrollment rate, primary (% of primary school age children)..66.8..........
Goal 3: Promote gender equality and empower women
Proportion of seats held by women in national parliaments (%)5.4....12.08.48.910.6
Ratio of female to male primary enrollment (%)70.868.8....86.6....
Ratio of female to male secondary enrollment (%)..60.9....57.6....
Ratio of female to male tertiary enrollment (%)..............
Share of women in wage employment in the nonagricultural sector (% of total nonagr25.9............
Goal 4: Reduce child mortality
Immunization, measles (% of children ages 12-23 months)38.027.046.061.074.073.0..
Mortality rate, infant (per 1,000 live births)114.7114.7114.6104.992.486.1..
Mortality rate, under-5 (per 1,000 live births)176.0176.0175.9156.0130.7118.5..
Goal 5: Improve maternal health
Adolescent fertility rate (births per 1,000 women ages 15-19)136.9133.6130.9131.2134.0134.3..
Births attended by skilled health staff (% of total)........80.4..80.1
Contraceptive prevalence (% of women ages 15-49)........17.3..20.4
Maternal mortality ratio (modeled estimate, per 100,000 live births)1,000.01,100.01,100.0930.0810.0730.0..
Pregnant women receiving prenatal care (%)........88.8..88.4
Unmet need for contraception (% of married women ages 15-49)........24.2..27.7
Goal 6: Combat HIV/AIDS, malaria, and other diseases
Children with fever receiving antimalarial drugs (% of children under age 5 with fever)........39.1..29.2
Condom use, population ages 15-24, female (% of females ages 15-24)..............
Condom use, population ages 15-24, male (% of males ages 15-24)..............
Incidence of tuberculosis (per 100,000 people)328.0326.0327.0327.0327.0326.0..
Prevalence of HIV, female (% ages 15-24)0.70.80.80.70.50.5..
Prevalence of HIV, male (% ages 15-24)0.40.40.40.40.30.3..
Prevalence of HIV, total (% of population ages 15-49)1.31.51.51.41.21.1..
Tuberculosis case detection rate (%, all forms)18.031.040.055.056.051.0..
Goal 7: Ensure environmental sustainability
CO2 emissions (kg per PPP $ of GDP)0.10.10.10.10.1....
CO2 emissions (metric tons per capita)0.10.10.00.00.0....
Forest area (% of land area)70.770.069.468.768.0....
Improved sanitation facilities (% of population with access)17.018.722.626.430.0....
Improved water source (% of population with access)43.243.444.044.946.0....
Marine protected areas (% of territorial waters)3.84.44.44.44.4....
Goal 8: Develop a global partnership for development
Net ODA received per capita (current US$)25.74.63.834.856.138.1..
Debt service (PPG and IMF only, % of exports of goods, services and primary income......15.42.02.4..
Internet users (per 100 people)0.0..0.00.20.72.2..
Mobile cellular subscriptions (per 100 people)0.00.00.05.119.041.8..
Fixed telephone subscriptions (per 100 people)0.10.10.00.00.10.0..
Other..............
Fertility rate, total (births per woman)7.17.37.16.76.35.9..
GNI per capita, Atlas method (current US$)240140140210320430..
GNI, Atlas method (current US$) (billions)8.46.06.411.220.129.1..
Gross capital formation (% of GDP)9.19.414.411.820.720.6..
Life expectancy at birth, total (years)47.446.446.447.849.049.9..
Literacy rate, adult total (% of people ages 15 and above)..............
Population, total (billions)34.942.046.954.062.267.5..
Trade (% of GDP)58.752.227.044.090.774.7..
Source: World Bank, World Development Indicators
Source: World Bank, World Development Indicators
Table 7.Democratic Republic of the Congo: Financial Soundness Indicators for the Banking Sector, 2010–14
20102011201220132014

Prel.
Capital adequacy
Regulatory capital to risk-weighted assets29.131.729.723.524.5
Regulatory Tier I Capital to risk-weighted assets21.022.920.916.718.5
Asset quality
NPLs to gross loans5.94.24.35.46.9
NPLs net of provisions to capital10.18.011.014.621.5
Earnings and profitability
Return on assets (net income/total assets)0.61.11.11.61.7
Return on net income (net income/equity)7.817.911.720.623.2
Interest margin to gross income29.634.631.935.234.4
Non-interest expenses to gross income88.482.583.481.480.8
Liquidity
Liquid assets to total assets56.952.557.755.556.4
Liquid assets/total deposits to short-term liabilities123.1119.2121.3119.5123.9
Sensitivity to market risk
Net open in foreign exchange position to capital3.00.81.62.52.2
Foreign currency-denominated liabilities to total liabilities83.786.485.686.082.8
Foreign currency-denominated loans to total loans85.686.182.683.279.3
Source: Central Bank of Congo (BCC)
Source: Central Bank of Congo (BCC)
Table 8.Democratic Republic of the Congo: Key FSAP Recommendations
RecommendationsPriorityStatus
Financial stability, supervision, and crisis management
Complete the cleaning of the BCC’s balance sheet and its recapitalizationShort termIncomplete. Recapitalization Law has yet to be passed.
Adopt the draft law on Central Bank statutes, reinforcing its independence, responsibilities, and transparencyShort termIncomplete. Banking Law has yet to be passed.
Strengthen the BCC’s validation and analysis of dataShort termPartially implemented. Work needed to implement TA recommendations.
Establish a legal and operational mechanism for crisis prevention, preparation, and managementMedium termPartially implemented. Work needed to implement TA recommendations
Strengthen the legal and regulatory framework for bank intervention and liquidation as well as the crisis management frameworkMedium termPartially implemented. Work needed to implement TA recommendations
Set up effective risk-based supervisionMedium termPartially completed.
Strengthen regulations on provisioning and classification of non-performing loansShort termPartially completed.
De-dollarization
Create a medium-term roadmap for de-dollarization that takes into account the risks of de-dollarization.Medium termPartially implemented. Roadmap needs to be updated
Financial inclusion
Adopt a revised draft law on leasingMedium termLaw on leasing was adopted.
Strengthen supervision of microfinance and provide for the liquidation of institutions that are not viableShort termIncomplete.
Adoption of a viability restructuring (or liquidation) plan of the CADECO based on minimization of risks and fiscal costs.Short termIncomplete.
Financial infrastructure
Review and adopt the draft law on payment systemsShort termIncomplete.
Make the new credit registry operationalShort termPartially implemented.
Amend the law on commercial courts, adapting it to OHADAMedium termIncomplete.
Non-banking financial institutions
Promulgate an amended insurance code to strengthen governance and powers of the supervisorMedium termIncomplete. Legal protection of supervisors is still absent.
1 Short term: <12 months; Medium-term: 12 to 24 months.
1 Short term: <12 months; Medium-term: 12 to 24 months.

A Promising but Risky Outlook

6. The medium-term outlook is favorable. Real GDP growth is projected to remain strong at 9.2 percent in 2015—among the highest rates in the world—and average 8.4 percent in 2016–17 before stabilizing at around 6 percent in 2018–20. This projected growth path is predicated on a continued dynamism of the primary and tertiary sectors. Inflation is targeted at 2.5 percent, as fiscal policy remains prudent throughout the projection period. Despite a sustained increase in exports boosted by production of new copper mines (Sicomines) and gold, the current account deficit would increase to double digits by 2018 due to rising dividend outflows and imports. Even though the overall balance is expected to remain in surplus, international reserves would decline in the absence of interventions by the BCC.

7. This positive outlook is subject to a number of downside risks. These include: (i) a prolonged decline in commodity prices, (ii) deterioration of the political situation, and (iii) delays in implementing the revenue-raising measures8 combined with failure to contain spending pressures in the electoral context (see Table 9). The materialization of these risks would lead to slower overall growth, macroeconomic instability, and a significant drop in the level of official foreign exchange reserves. In particular, a significant slowdown in China could negatively affect copper prices9 and export earnings, lead to sustained lower fiscal revenues, and undermine macroeconomic stability and the poverty reduction efforts. The uncertainty related to the upcoming elections in 2015–16 is already causing a wait-and-see attitude among investors.

Table 9.Democratic Republic of the Congo: Risk Assessment Matrix1
Source of RiskRelative LikelihoodExpected Impact on the EconomyStaff Advice on Policy Responses
External Risks
Heightened risks of fragmentation/state failure/security dislocation in the Middle East and some countries in Africa, leading to a sharp rise in oil prices with negative global spillovers.Medium with medium-term time horizonAs a minor exporter of crude oil, DRC could benefit. However, import bill of refined products would increase and, in the absence of price adjustments at the pump, revenue will decline.Adjust domestic petroleum prices to fully pass through the increase in oil prices to consumers.
Structurally weak growth in the Euro area/Japan.High with medium-term time horizonLower demand for DRC’s exports resulting in Lower government revenue and a deterioration of the current account and slower accumulation of international reserves.Accelerate implementation of reforms to increase domestic non-natural resource mobilization to lessen dependence on fiscal revenues from the mining sector.
Sharp China slowdown in 2015–16, which could negatively affect commodity prices, copper in particular.Low with short-term time horizonSustained lower fiscal revenues and exports earnings leading to lower spending in priority sectors and investment, including threatening poverty reduction efforts.Build up international reserves to provide robust buffers against external shocks.
Domestic Risks
Delays in implementing revenue-raising measures and key structural reforms.High with short-term time horizonLower government revenue, crowding out spending on priority programs and loss of credibility of the BCC.Implement revenue measures and reinvigorate the structural reform process, in particular, the recapitalization of the BCC and its independence; increase transparency and good governance in the natural resources sector, including the SOEs.
Escalation of armed conflict.Medium with medium-term time horizonSlower economic activities in war-affected areas and severe strains on public finance, including diversion of resources to security related expenditures.Accelerate implementation of the Addis Ababa Peace Framework, particularly the reform of the SSR and the disarmament, demobilization and reinsertion program.
Political turmoil stemming from delays in the legislative and presidential elections.High with short-term time horizonDestruction of physical infrastructure and sharp drop in economic activity.Design contingent policies that would allow quick adjustment to the changing environment and provide budgetary resources for the elections.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

Authorities’ Views

8. The authorities broadly agreed with the outlook and characterization of risks. They projected near-term growth in line with staff projection, but are more optimistic about the medium term. They saw DRC as vulnerable to adverse shocks and expressed concern about the energy sector bottlenecks. They also acknowledged that a lack of progress in de-dollarizing the economy could intensify vulnerabilities in the financial sector. The authorities also underscored that security risks have not totally abated and could weigh in on economic activity in the affected regions.

Policy Discussions

Despite abundant natural resources and a robust macroeconomic performance in recent years, fiscal space remains limited and poverty widespread. The natural resource sector, particularly mining, has been the main driver of economic growth, which has so far not been inclusive. Against this backdrop, policy discussions focused on how to: (i) address competing demands stemming from election financing on limited budget resources in 2015–16, (ii) build more buffers to withstand possible shocks from both external and domestic sources; (iii) remove bottlenecks to private sector activity, and (iv) optimally exploit natural resources to increase the benefits to the population.

A. Building Resilience and Addressing Inequality

9. Policy buffers are presently insufficient given DRC’s vulnerabilities and the prospects of adverse commodity price developments. While macroeconomic performance remained strong over the past years, the hard-won gains could be reversed in the event of significant negative shocks to copper prices. The resulting deterioration in fiscal performance would make adherence to the fiscal anchor strenuous. Also, the high dollarization of the economy constrains the effectiveness of monetary policy and hampers banks’ liquidity management. Furthermore, the low level of international reserves limits the BCC’s ability to respond in case of a sharp depreciation of the exchange rate.

10. A faster reserve accumulation is needed to withstand shocks. Given the significant shortfall in DRC’s reserve holdings (see ¶3), staff recommended that the BCC accumulate more international reserves through active interventions in the foreign exchange market and be prepared to sterilize its purchases to limit the pass through to inflation. Staff encouraged a rapid recapitalization of the BCC, which together with the medium-term de-dollarization strategy adopted by the authorities will extend the reach of monetary policy and its effectiveness, and strengthen its lender of last resort function. It stressed, however, that success of the de-dollarization strategy is a long-term process requiring a stable macroeconomic environment, a credible central bank, effective banking supervision, and a sufficiently developed financial infrastructure.

11. Strong macroeconomic performance, but weak social indicators and high inequality. DRC’s strong growth over the past several years did not lead to significant job creation; poverty remains pervasive and unemployment is high,10 particularly among the youth (see Box 1). Although social indicators related education, health, access to water, and infant mortality have improved in recent years, DRC will likely not achieve any of the MDGs by 2015. Development of non-mining activities necessary to promote inclusion is hampered by structural bottlenecks and a challenging business climate. The World Bank Doing Business 2015 Report ranks DRC 184th (out of 189 countries), worse than most peer countries in the region (Text Table 1).11 The most recent Human Development Indicator shows that DRC has the highest percentage of its population living on less than $1.25 a day when ranked among its neighbors in the Great Lakes Region (Text Table 2).

Text Table 1.Ease of Doing Business Ranking, Selected African Countries
CountryRank
Rwanda46
Zambia111
Tanzania131
Uganda150
Burundi152
Congo, Dem. Rep.184
Chad185
South Sudan186
Central African Republic187
Libya188
Eritrea189
Source: World Bank, Doing Business 2015.
Source: World Bank, Doing Business 2015.
Text Table 2.Human Development Index, Selected African Countries
CountryRankValue
Zambia1410.561
Kenya1470.535
Rwanda1510.506
Tanzania1590.488
Uganda1640.484
Congo, Dem. Rep.1860.338
Source: UNDP, 2013.
Source: UNDP, 2013.

12. Diversification of the economy is a prerequisite to promote more inclusive growth. Economic diversification in the DRC lags behind compared to other sub-Saharan African (SSA) economies (see Box 2). Staff urged the authorities to accelerate the needed reforms to promote economic diversification and sustain the ongoing structural transformation. In particular, measures aimed at improving the business climate should be implemented to enhance the private sector’s role in growing the economy. These include simplification of: (i) the tax system to support higher non-mineral activity and promote inclusive growth, (ii) the regulation for granting construction permits and transfer of ownership, and (iii) facilitating access to credit while enforcing contracts. Government expenditures should be prioritized in favor of basic infrastructure, the agriculture sector where labor is intensive, and improving human capital.

Authorities’ Views

13. The authorities recognized the need to build policy buffers, but expressed concerns about the impact of a gradual depreciation of the currency on inflation as inflationary expectations could easily be rekindled given that memories of hyperinflation are still fresh. They pointed to some progress made in improving the business climate, particularly in the areas of starting a business and dealing with construction permits and legislations recently enacted,12 while recognizing that their efforts to promote private sector development are hindered by electricity bottlenecks. The authorities noted that the recent improvement in social indicators was the direct result of increased budget allocations to the education and health sectors and expressed optimism about the potential to develop agriculture based agro-industrial parks.13 They have liberalized the energy sector to allow production by independent power producers and are seeking financing for investments in power generation and transmission.

B. Increasing Fiscal Space and Enhancing Budget Credibility and Monitoring

14. Despite robust GDP growth and abundant natural resources, fiscal space remains too narrow and shrinking. DRC has one of the lowest revenue-to-GDP ratios in SSA as the natural resource sector, particularly mining, has not contributed its fair share through 2014 (see Box 3). Domestic revenue mobilization efforts slackened over the past two years with the revenue-to-GDP ratio falling from 14.4 percent in 2012—when a VAT was introduced with great initial success—to 13.3 percent in 2014. Taxes on goods and services fell the most due to weak revenue administration and an erosion of the tax base at customs. At the same time, spending pressures from stemming for the elections in 2015–16 and infrastructure for the new provinces present short-term trade-offs and may crowd out spending on priority social programs and infrastructure projects, which are essential to promote more inclusive growth. Spending pressures for electoral politicking may affect the quality of public spending.

Revenue

(percent of GDP)

Source: IMF staff estimates.

15. Stepping up domestic resource mobilization is critical. Increasing fiscal space will preserve the level of investments in basic infrastructure and priority social sectors and still ensure adequate financing of the elections. Efforts to increase revenues in the short term should start with improving the performance of the VAT, which deteriorated from 4.5 percent of GDP in 2012 to 2.9 percent of GDP in 2014. The administration of the VAT must be strengthened by the effective application of existing standard procedural rules, as well as by the modernization and simplification of procedures. Risk-based tax audits would allow better control of VAT credits and accelerate legitimate refunds. Staff urged the authorities to adhere to the fiscal anchor,14 given the political context and implement the measures included in the 2015 Finance Act aimed at aligning the current taxable customs values of petroleum products with their market values. It also recommended swift passage of a new mining code, strengthening oversight of SOEs, and implementing targeted anti-money laundering measures to optimize revenues from the natural resources sector.

16. Budget credibility is low. The large gap between actual and forecasted revenue and expenditures weakens the credibility of the budget (see Box 4 and Figure 2). Over the past five years, frequent budget overruns in some areas and revenue shortfalls have resulted in ad-hoc adjustments to spending in other areas and therefore in significant fluctuations of budget execution rates. The resulting reprioritization of expenditures by the executive branch without the legislative branch’s approval through supplementary budgets as provided by the Public Finance Law, undermines the latter’s role in the budget process.

Figure 2.Democratic Republic of the Congo: Indicators of Budget Credibility 1

Sources: Congolese authorities and IMF staff calculations.

1 Detailed execution data for 2014 is not available.

17. Realistic resources projections are essential for budget credibility. To minimize the risk of discrepancy between projections and outcomes, it is necessary to use past outturns as a basis for budget projections. Use of supplementary budgets is also a means to strengthen the credibility of the budget process. Tax measures attached to the draft budget must be adopted simultaneously with the budget law or otherwise the related resources deducted from the draft budget. Staff recommended including annual budgets in a medium-term budget framework (MTBF) aligned with the priorities in the poverty reduction strategy paper (PRSP), and better information sharing with donors to reduce discrepancies between budgeted external resources and outturns to enhance budget credibility.

Text Table 3.Democratic Republic of the Congo: Cumulative Impact of Revenue Measures, 2014–19(Percent of GDP)
Measure
Eliminationn of tax expenditures1.0
Tighter control of VAT base in non-resource sectors1.6
Strengthening of border controls1.0
Better control of natural resource tax base0.5
Total4.1
Sources: IMF staff estimates and projections.
Sources: IMF staff estimates and projections.

18. An alternative scenario with better outcomes. The main assumptions are that the authorities adopt staff policy advice, implement TA recommendations,15 and accelerate the stalled structural reforms, particularly the reforms of the central bank (expected to be completed by 2016). Under this scenario, growth would be higher, averaging about 9 percent during 2015–19 compared to 8 percent in the baseline; inflation is targeted to average 2.9 percent against 2.2 percent in the baseline and the exchange rate to depreciate gradually. The external current account improves, averaging 8 percent of GDP during 2015–19 against 9 percent of GDP in the baseline. A gradual depreciation of the exchange rate would allow for the much-needed reserves accumulation to increase resilience (Figure 2 and Table 5). The significant improvement in the revenue-to-GDP ratio is predicated on a steadfast implementation of recent the Fiscal Affairs Department (FAD) TA recommendations, namely (i) broadening the tax base, (ii) introducing e-procedures beginning with the VAT at the large taxpayer office, and (iii) developing risk-based compliance program for large- and medium-sized businesses.

Authorities’ Views

19. The authorities broadly shared staff’s assessment of the potential for revenue generation over the medium term. For the short term, they pointed to the weakness and governance problems plaguing the revenue administration and noncompliance by some taxpayers. They noted the recent progress made in implementing the recommendations of the Extractive Industries Transparency Initiative (EITI)16 and the National Conferences on Mineral Resources Management that would improve revenue from the sector. The authorities concurred with Staff’s views on the need to strengthen budget credibility by improving resources forecasts. They indicated that the budget allocations are based on the priorities of the PRSP. In addition, they emphasized that the medium-term expenditure framework is being strengthened. To this end, they are finalizing a decree on Fiscal Governance in the DRC that will be adopted soon. They underscored that efforts are being made by the CENI to reduce the cost of the elections to lessen pressures on the budget and, in this regard, may submit a supplementary budget to Parliament.

Text Table 4.Democratic Republic of the Congo: Selected Economic and Financial Indicators. Baseline and Alternative Scenarios, 2014–19
20142015201620172018201920152016201720182019
EstBaseline proj.Alternative scenario proj.
Real GDP9.29.28.58.37.56.79.710.18.77.66.8
Consumer prices, period average1.00.92,52.52.52.51.52.73.53.53.5
Fiscal revenue (% of GDP]13.313.714.114.514.815.113.715.115.916.717.4
Overall balance, including grants (% of GDP)0.10.50.0−0.10.1−0.20.5−0.10.00.1−0.2
Current account, including grants (% of GDP)−9.2−7.5−7.7−9.4−10.1−10.1−7.3−7.6−8.7−8.7−7.5
Gross reserves (weeks of non-aid imports of goods and services)6.85.54.63.93.53.17.89.410.411.111.9
Sources: Congolese authorities; and IMF staff estimates and projections.
Sources: Congolese authorities; and IMF staff estimates and projections.

C. Strengthening the Central Bank and Promoting Financial Sector Stability and Inclusion

20. The development of an efficient monetary policy operational framework has been hampered by a number of factors. These include: (i) high dollarization of the economy; (ii) the weak financial position of the central bank; and (iii) capacity constraints. Furthermore, the lack of instruments and the high dollarization are also important limitations to the BCC’s ability to steer domestic currency short-term rates. In addition, the absence of an active money market in both dollar and domestic currency severely undermines the transmission mechanism of monetary policy. Although the BCC strived to enhance staff technical qualifications on financial issues, capacity remains limited.

21. Strengthening the financial and operational autonomy of the BCC is essential. Staff urged the authorities to: (i) finalize the BCC recapitalization process as soon as possible; (ii) adopt the draft legislation on the statute of the BCC to enshrine its independence while strengthening accountability; and (iii) apply the terms of 2011 agreement17 on the rate of interest on securitized receivables of the state held by the BCC. It noted the commitment of the BCC to disengage from the hospital before the end of 2015 and encouraged it to continue its efforts to reduce its operating costs.

22. Financial intermediation, access, and market depth are limited. As underlined in the 2014 FSAP, financial deepening requires important structural reforms. These include enhancing supervision and strengthening crisis management practices, and improving the auditing and availability of credit information. Access to financial services compares poorly with peer countries.18 Furthermore, the limited role of microfinance institutions, a large part of which suffer from solvency problems and lack of capital, impairs access by small and medium enterprises (SMEs).

23. The stability of the financial sector must be strengthened to limit its exposure to shocks. The 2014 evaluation report on the stability of the financial sector has indeed shown that the financial system is particularly vulnerable to shocks, the lack of a risk-based supervision, inadequate regulation and a lack of rigor in the application of the monitoring device. In line with the main findings of the 2014 report evaluating the stability of the financial sector, the mission recommended to: (i) adopt the Commercial Bank Law; (ii) implement a risk-based monitoring; (iii) strengthen the workforce and the training of supervisors; and (iv) finalize the guidelines for the strengthening of regulations on provisioning and classification of non-performing loans.

24. Increasing access to financial services is necessary for inclusive growth. The benefits of financial inclusion are numerous and known. For households, access to financial services facilitates the accumulation of assets, risk management and consumption smoothing. For small and medium enterprises, financial inclusion is associated with an increase in investment, innovation and job creation. Staff encouraged the authorities to: (i) develop the financial infrastructure through the payment systems, making operational the new credit registry, increasing information on borrowers by setting up a credit bureau; (ii) support the reduction of costs of opening and managing accounts; and (iii) make the most of the opportunities offered by the development of new information and communications technology. Staff welcomed the adoption of the insurance code and called for its timely implementation to promote access to credit.

Authorities’ Views

25. The authorities agreed on the need to strengthen the central bank. They concurred with the staff’s view on the urgency of enhancing the credibility of the BCC. They indicated that its recapitalization should be accompanied by a plan to cut its operating costs and improve its governance. Against the backdrop of low aggregate credit and deposit levels—six and nine percent in terms of GDP, respectively—the authorities also recognized the importance of increasing access to finance. To this end, a new foreign exchange swap facility—arranged with the International Finance Corporation—was implemented to enhance financing. Furthermore, building on TA provided by the Fund, the authorities are focusing on: (i) enhancing consumer protection and mobile banking and (ii) strengthening the financial stability framework by reinforcing the work on de-dollarization of the economy and banking supervision.

Other Issues

26. The DRC’s risk of debt distress remains moderate as in the 2014 debt sustainability analysis (DSA). However, the DRC will need to continue its prudent policy and borrow mainly on concessional terms while strengthening its debt management capacity (see DSA).

27. Data quality needs to be improved. DRC’s data has some shortcomings but is broadly adequate for surveillance purposes. Staff urged the authorities to further strengthen capacity in data compilation, handling and, also, on capacities to perform statistical analysis. Staff also suggested the authorities to provide greater financial autonomy to the National Statistical Agency (INS).

Authorities’ views

28. The authorities agreed with the staff assessment but stressed that progress is being implemented in this area. They mentioned plans to improve collaboration across ministries and with the BCC and INS to produce more reliable data. The authorities welcomed the technical assistance provided in all these areas and, in particular, on national accounts statistics.

Staff Appraisal

29. After years of high growth rates and a stable macroeconomic environment, the DRC is now at a crossroads. Staff commends the authorities for their steadfast pursuit of prudent macroeconomic policies, which was instrumental in the attainment of macroeconomic stability in DRC. It is noteworthy that such a performance was achieved despite DRC’s fragility and limited external financial assistance. However, there is no room for complacency given looming vulnerabilities and the unsettled political and security situation. The prevailing pervasive poverty and high inequality calls for stronger efforts to diversify the economy, promote inclusive growth, and improve the social indicators.

30. The political and security situation remains challenging. DRC continues to exhibit the characteristics of a fragile state, which are exacerbating long standing vulnerabilities. Restoring lasting peace in the eastern provinces would help crowd in government expenditure for social sectors and infrastructure to support job creation. It is therefore important that the institutional reforms under the Addis Ababa Peace, Security, and Cooperation Framework, including the SSR be accelerated. Removing the political uncertainty related to the elections would help restore confidence of private investors.

31. There is an urgent need to rebuild policy buffers and enhance domestic revenue mobilization. The authorities are to be commended for pursing prudent fiscal policy despite a difficult environment. Their continued commitment to the fiscal anchor calls for the creation of more fiscal space in the short term to ease the expenditure trade-offs, while financing of the elections. They need to move expeditiously to implement the revenue-enhancing measures identified by Fund TA missions, build up international reserves, and improve budget credibility.

32. Strengthening of the central bank should not be delayed any further. Recapitalization of the BCC and passage of the Central Bank Law need to move forward to enable the central bank to fulfill its mandate. Putting the BCC on a sound financial footing while increasing its accountability will enhance its credibility and improve the effectiveness of monetary policy. At the same, the BCC should focus on its core activities. In this regard, the planned divestiture from the hospital is noted and should be accompanied by a rationalization of the BCC’s operating costs.

33. Promoting financial sector stability and development while improving inclusion will go a long way in sustaining strong economic growth. Enhancing supervision and crisis management practices, and improving auditing and availability of credit information could help expand financial deepening. Furthermore, the solvency problems and lack of capital of MFIs should be addressed to improve access by SMEs to financial services. It is also critical to reinforce implementation of the regulatory framework with effective on-site inspections; promote financial inclusion, and facilitate access to financial services.

34. Enhancing transparency and good governance in the mineral resource sector is critical for harnessing these resources for DRC development. The authorities are to be commended for the recent made progress in transparency of its extractive industries. Further measures are needed to strengthen the government’s oversight of the SOEs and ensure that they comply with the obligations to publish contracts of all mining operations and resort to competitive biddings when natural resource assets are sold. Enactment of a new mining code aligned with international best practices should lead to a higher contribution from the mining sector to government revenue.

35. Data quality needs improvement. Staff commends the authorities for regularly providing data broadly adequate for surveillance. It is imperative that the lack of resources for the production of key statistical data receives immediate attention. The authorities are encouraged to allocate more resources to statistics and leverage the capacity building assistance being provided by the Fund and other development partners for better outcomes.

36. Staff recommends that the next Article IV consultation with the DRC be held on the standard 12-month consultation cycle.

Box 1.Poverty in the Democratic Republic of the Congo

The Democratic Republic of the Congo (DRC) made progress in poverty reduction. Extending a continuous decrease since 1990, the share of the population living below the national poverty line receded by 8 percentage points between 2005 and 2012, to 63.4 percent driven by gains in the agriculture sector. Poverty reduction was most significant in rural areas (-14 percent). Yet, with high unemployment in the formal sector and precarious jobs in the informal sector, poverty remains pervasive, above the SSA average. The pace of poverty reduction has also varied widely across provinces.

While social indicators also improved, none of the Millennium Development Goals (MDGs) will be achieved by 2015. Health indicators improved significantly during the last decade. Life expectancy, which had decreased to 46.3 years by 2000, rose to 51.7 years in 2013, while the rate of child mortality decreased by 30 percent between 2007 and 2012. Progress was also made in the fight against communicable diseases and neo-natal care. However, geographical access and affordability continue to pose major obstacles to the delivery of health services. Progress was more significant in education with most indicators doubling between 2002 and 2012. Access to primary school is now quasi universal and exceeds the SSA average. Better quality in teaching, reduced inequities in access and achievements between social groups and also between genders are the next challenge.

Commitments from the authorities and support from donors have been decisive in education and health. Given the rapid population growth, continuous investments and spending in the sector combined with enhanced management, better traceability, and accountability will be needed.

Measures of Poverty in DRC

Source: Congolese authorities.

Health Expenditures per Capita

Source: Congolese authorities.

Box 2.Growth, Structural Transformation, and Export Diversification

While natural resources have delivered strong economic growth over recent years, the DRC faces challenges regarding export diversification. While manufacturing—mainly, mining activities—is of great significance to the development of the country, the value added of the service sector is essential to promote higher growth. The leading component of this sector is trade and commerce, which are indirectly linked to the mining activities mainly in the copper and zinc industries. DRC has maintained a steady sectoral share in the last decade, but has lagged behind the average of SSA countries in terms of its manufacturing and services as a share of GDP. Structural changes that followed after 2004 gradually brought the country to a much more favorable position today. However, DRC’s diversification has lagged vis-à-vis comparators in SSA because exports are concentrated on minerals, even though overall export diversification and product exports moved slightly upwards, based on exports of new minerals in the last decade.

Factor productivity could be enhanced to achieve higher growth rates. Growth decomposition shows that the contributions of capital and labor have not been significant in DRC. Moreover, human capital has shown a negligible contribution to economic growth while total factor productivity has been low and stable. Hence, prioritizing human capital development becomes critical to promote further inclusion and economic diversification.

Product diversification could be enhanced in DRC. Product diversification could yield growth gains. Based on the estimates in IMF (2014a), a one standard deviation increase in LIC’s export diversification raises the growth rate by about 0.8 percentage points.1 For the DRC, this translates into estimated growth gains of 0.2 percentage points if export diversification was raised to levels observed in comparators like Vietnam. Developing human capital could also have a significant effect on DRC’s growth rates. Improving infrastructure and trade networks, reducing barriers to entry for new products, and deepening financial markets would accelerate economic diversification

Economic Diversification

Source: World Economic Outlook, (IMF), World Economic Indicators (World Bank)

1 IMF, 2014a, “Sustaining Long-Run Growth and Macroeconomic Stability in Low-Income Countries—The Role of Structural Transformation and Diversification.” IMF Policy Paper, March.

Box 3.Contribution of the Natural Resources Sector to the Congolese Economy

The mining sector’s contribution to real GDP growth has been strong starting in 2010. The mining code adopted in 2002 fueled steady inflows of foreign direct investments and a shift from artisanal mining to industrial production. DRC became the fifth largest producer of copper in the world in 2014 with 1.065 million tons produced. The sector now generates around one fifth of GDP and has accounted for one third of the growth recorded since 2004. Despite the recent adverse price developments and prospects, mineral production is expected to increase over the medium term as new mines enter production stage.

However, spillovers to other sectors of the economy remain limited, especially on government revenue and employment. The mining industry largely operates as an enclave within the economy with little spillovers to other sectors. Direct employment from the formal sector represents less than 0.5 percent of the labor force in the DRC, reflecting its capital intensive nature. Due to the generous provisions of the 2002 mining code and weaknesses in revenue administration, payments to the public sector were estimated at only 3.8% of GDP in 2012.

DRC: Contribution to GDP Growth, 2010-14

Sources: Central Bank of Congo; and IMF staff estimates.

The contribution of the mining sector to public finances started to increase, but would benefit from better transparency and more accountability. With the end of the accelerated amortization granted to some major mining projects, as provided under the 2002 mining code, mining companies have started paying corporate tax in 2015. Also, a significant share of revenues from the mining sector has been mobilized directly by state-owned enterprises (SOEs) and provincial governments during the last five years. To harness these resources, corporate governance of the SOEs should be strengthened and a transparent dividend policy put in place.

A revision of the mining code is key to further improve the revenue profile from the mining sector. Ongoing discussions on a new mining code seek to address the limitations of the 2002 mining mode with a view to increasing government revenue without jeopardizing the profitability of new projects. Implementation of the FARI model provided to the authorities through technical assistance from the IMF is expected boost revenue from the sector. Increasing local value added in the production process represents another policy objective worth pursuing.

Mining Fiscal Regimes: DRC and Peer Comparators(in percent)
CountryRoyalty rate applying to copper 1/Corporate Income Tax 2/
Chile0-1420; 42
Congo, Dem. Rep.230
Indonesia425
Zambia, 2014 regime630 plus variable income tax
Source: FAD Fiscal Analysis of Resource Industries (FARI) database.

Based on production level and operating margin

If the company opted for the tax invariability regime

Source: FAD Fiscal Analysis of Resource Industries (FARI) database.

Based on production level and operating margin

If the company opted for the tax invariability regime

Box 4.Strengthening Budget Credibility and Monitoring Budget

Wide differences between actual and forecasted resources undermine budget credibility for a number of reasons. First, taxes not collected mean that some expenditure will not take place, which directly undermines budget credibility. Second, shortfalls in budgeted resources lead to ad hoc re-prioritizing and re-allocating of resources by the executive branch, thus reducing the Parliament’s role in the budget process. Third, the government seldom sends supplementary budget to Parliament.

There is a significant difference between budgeted resources and outcomes. The gap fluctuated between 48.6 to 71.9 percent over the past 5 years mostly on account of external resources, which fluctuated between 15 to 50 percent (see Figure 2). Both the grants and loans components of external financing have contributed to these outcomes. This calls into question the realism on the part of the authorities and foreign donors, the absorptive capacity, and the lack information sharing.

Difference between domestic revenue forecasted and outturns also contribute to the volatility in budget execution. This is so because tax and non-tax revenue projections are based not on previous years’ revenue outturns, but on budget projections. The result is that budget execution outturns have been on average 45 percent lower than initial projections, undermining budget credibility. It is therefore important a link be established between previous year’s outturns and current year projections during the budget preparation process.

Box 5.Financial Inclusion—Progress and Challenges

The Democratic Republic of the Congo (DRC) has made some headway toward financial inclusion over the past decade. Evidence is provided by the increase in the number of access points for financial services, as well as by the number of depositors and borrowers (Figure 1). In addition, a benchmarking analysis reveals that DRC performed in line with its potential. Better macroeconomic and political environment together with the “bancarisation” policy implemented from 2011 (i.e., the policy of paying civil servant employees through bank accounts), are the driving forces behind this progress.

Figure 1.Access to and Use of Financial Services

Despite this recent progress, financial inclusion in DRC remains low compared to regional peers in the Southern African Development Community (SADC). According to the 2014 FinScope Survey, the DRC has the lowest inclusion financial levels in the SADC region. Individuals at the bottom of the income distribution are the most financially excluded, in particular people making a living in farming activities.

Firms in DRC are also excluded. According to the World Bank Enterprise Survey, about 43 percent of enterprises in the DRC do not have a checking or savings account in 2013 as compared to an average of 13 percent for sub-Saharan Africa (SSA). More than 90 percent of enterprises in the DRC do not have a loan or line of credit, against 77 percent in SSA.

Financial literacy, income levels, and lack of trust in financial institutions are the main barriers to financial inclusion for households. The lack of access to financial services for firms is explained by the financial infrastructure gap and by weak judiciary and legal systems.

Policy measures to foster financial inclusion in the DRC include among others: (i) filling the infrastructure information gap, (ii) providing flexible regulatory environment to encourage the development of technology-based financial services, (iii) restructuring and strengthening the oversight of the MFIs, and (iv) promoting contractual savings. In addition, the authorities need to step up efforts to make government payments and collect taxes through financial institutions and fully exploit the mobile banking potential.

Appendix I. Implementation of Past IMF Recommendations

1. Implementation of past policy recommendations was broadly satisfactory. The authorities steadfastly adhered to the fiscal anchor, which has been instrumental in keeping inflation low. They continued to allocate more budgetary resources to education, health, infrastructure, and agriculture. Also, measures were taken to improve the business climate, but these did not translate in an improvement in DRC’s ranking in the 2015 doing business ranking and the business climate remains challenging. Progress continued to lag in the implementation of structural reforms, including in the natural resource sector, recapitalizing the Central bank of Congo (BCC), and passing key economic bills.

Summary of Key Policy Recommendations
AreaSpecific RecommendationStatus
MDGs
  • Step up pace of reforms to promote diversified, sustainable and inclusive growth

  • Increase priority social spending and support pro-MDG public investments

In Progress

Implemented
Fiscal Sector
  • Maintain the fiscal anchor consisting of zero central bank financing of the fiscal deficit apart from the use of counterpart funds from the HIPC initiative and MDRI.

  • Increase domestic revenue mobilization by addressing known shortcomings and raising the contribution of the mining sector to the budget.

Implemented

In Progress
Monetary and Financial Sectors
  • Maintain a flexible exchange rate to be able to deal with exogenous shocks.

  • Recapitalize the central bank and bolster its operational independence and accountability.

  • Ensure swift passage of the central bank law to strengthen the BCC’s independence and governance.

  • Implement FSAP recommendations to promote financial sector stability and development

Not implemented

Not implemented

Not implemented

Partially implemented
Governance and Transparency
  • Enhance transparency and good governance in the management of natural resources.

  • Strengthen oversight of SOEs to avoid revenue losses, including from the sale of assets.

  • Adopt a mining code and petroleum law aligned with international best practices.

  • Strengthen the anti-money laundering framework to address the illegal exploitation of natural resources.

Not implemented

−-

−-

In Progress
Promote Inclusive Growth
  • Increase social spending and investment in labor intensive sectors such as agriculture.

  • Improve the business environment, including through infrastructure development to promote private sector participation in employment creation.

Partially implemented

Partially implemented
Appendix II. Alternative Scenario

1. The main assumptions underlying the alternative scenario are that the authorities adopt staff policy advice, implement technical assistance recommendations, and accelerate the stalled structural reforms, particularly the reforms of the central bank (expected to be completed by 2016). Under this scenario, growth would be higher and relatively more inclusive with relatively stronger contribution from the non-mining sector. Inflation is targeted to average 2.9 percent over the medium term against 2.2 percent in the baseline and the exchange rate to depreciate gradually. The revenue-to-GDP ratio increases from 13.3 percent in 2014 to 17.4 percent by 2019; and the external current account deficit, including grants narrows to single digit by 2019 (7.5 percent of GDP against 10.1 percent of GDP in the baseline). The gradual depreciation of the exchange rate would allow some build up of international reserves, making the economy more resilient to external shocks (Figure 2 and Table 5).

2. The improvement in the revenue-to-GDP ratio is predicated on a steadfast implementation of recent FAD TA recommendations (broadening the tax base, introducing e-procedures beginning with the VAT at the large taxpayer office, and developing risk-based compliance program for large and medium-sized businesses). Together with a prioritization of expenditures and improvement in the efficiency of spending, the fiscal space created will allow to cover the cost of financing the elections in the 2016 budget ($889 million) while devoting more resources to key infrastructure projects and priority social spending in health and education.

3. The alternative scenario is subject to a number of specific downside risks, including: (i) inaction by the authorities on the key reforms and on the implementation of the TA recommendations ahead of the elections, and (ii) a higher-than-targeted inflation rate, given the history of hyperinflation.

Figure II.1.Democratic Republic of the Congo: Baseline and Alternative Scenario

Sources: Congolese authorities and IMF staff estimates.

Appendix III. External Sustainability Assessment

1. Developments in the balance of payments position remain consistent with external stability. The real effective exchange rate is broadly in line with macroeconomic fundamentals. Nevertheless, the DRC’s competitiveness suffers from institutional constraints, lack of basic infrastructure, and a weak business environment. Against this backdrop, international reserves could be strengthened to protect the economy against potential shocks.1

2. Spurred by increasing mineral exports, the current account has been improving in recent years (Table 1). In 2014 the current account deficit reached 9.2 percent of GDP and is projected at 7.6 percent of the GDP in 2015 (baseline scenario). The balance of goods has been continuously positive since 2009, but the DRC remains a net importer of services (see Figure I.1). Moreover, the repatriation of profits by foreign companies operating in the natural resources sector lead to a negative primary income balance.

Figure III.1.Democratic Republic of the Congo: Components of the Current Account, 2005–14

(Percent of GDP)

Sources: Congolese authorities and IMF staff calculations.

3. The two approaches of the Consultative Group on Exchange Rate (CGER) methodology used to evaluate the REER indicate no major misalignment. Both the macroeconomic balance and the external stability balance approaches calculate the exchange rate misalignment as a percent change in the real exchange rate that is needed to close the gap between a current account norm and the underlying current account i.e., the current account balance projected over the medium term at prevailing exchange rates, calculated on a set of fundamental variables, including the fiscal balance, population growth, net foreign assets, GDP values, and FDI. In particular,

  • Macroeconomic balance approach: the current account norm is estimated through the projected values of medium-term fundamentals. This norm is estimated to lie between -5.8 and -8.2 percent of GDP based on coefficients estimated by Vitek (2013).2 Assuming an elasticity of the trade balance with respect to the real exchange rate of 0.7,3 the difference between the underlying current account and the current account norm indicates a REER negligible misalignment between 0.6 and 0 percent. A use of the CGER elasticity of the current account would imply a REER misalignment between 1.4 and 0.1 percent of GDP.

  • External sustainability approach: the current account norm is defined as the balance that would stabilize net foreign assets (NFA). The exchange rate misalignment is then equal to the adjustment necessary to bring the underlying current account to a level stabilizing the NFA. The current account balance necessary to stabilize the DRC’s NFA-to-GDP ratio at its 2020 level is estimated to be -6.8 percent compared with an underlying current account of -7.8 percent, implying an overvaluation of 0.2 percent.

4. The DRC’s competitiveness is impaired by structural bottlenecks and a challenging business climate. The 2015 Doing Business report ranks DRC 184th (out of 189 countries). Electricity shortages are among the key concerns among the business community. The 2015 Doing Business report ranks DRC 184th (out of 189 countries), worse than most peer countries in the region, stressing the administrative complexities, low access to finance, and inefficient tax policy. In this regard, the lack of progress on credit information and a weak judiciary system limit the capacity of the financial sector to develop and contribute to economic growth. The 2013 Human Development Index of the United Nations Development Program ranked DRC 186th out of 187 countries and territories listed.

5. DRC holding of international reserves could become insufficient to cushion the impact of external shocks. Given the fact that total U.S. dollar deposits in the banking system are currently larger than gross reserves and the volatility of commodity prices, DRC should hold gross reserves equivalent to at least 7.7 months of imports for a cost of holding reserves of 5 percent,4 against an actual 1.8 months (see Figure III.3 and III.4).5

Figure III.2.Doing Business, 2014

(Rank in total of 189 countries)

Source: Doing Business, World Bank.

Figure III.3.Democratic Republic of the Congo: Reserve Coverage, 2010–20

Figure III.4.Democratic Republic of the Congo: Optimal Level of Reserves (2014)

(Months of next year imports)

The authorities’ estimate is 9.5 percent.

The fiscal anchor, adopted in the context of the 2009 Extended Credit Facility-supported program, calls for zero financing of budget deficits from the central bank (apart from the use of counterpart funds from HIPC and MDRI).

In 2014, copper production and exports crossed the 1 million tons threshold, making DRC the world’s 6th largest copper exporter. The production of gold also more than doubled.

The Independent National Electoral Commission (CENI) estimates the funds needed for the elections in 2015 at $397 million against $247 million budgeted.

Essentially under the Addis Ababa Peace, Security, and Cooperation Framework for the DRC, signed in February 2013 by the UN Secretary General and 11 African heads of state aimed at fostering sustained peace.

In particular, measures underpinning the revenue projections in the 2015 Finance Act and the recommendations of an IMF February 2015 technical assistant (TA) mission aimed at improving the performance of the value-added tax (VAT).

The current slowdown in China has not, to date, affected copper exports.

The authorities’ recent data shows unemployment declined from a high of 60.8 in 2009 to 43 percent in 2014.

As pointed out in an independent evaluation of the Doing Business survey (see www.worldbank.org/ieg/doingbusiness), care should be exercised when interpreting these indicators given subjective interpretation, limited coverage of business constraints, and a small number of informants, which tend to overstate the indicators’ coverage and explanatory power.

A new Insurance Code and a law on leasing were adopted in March 2015, as was the Hydrocarbon Law in June 2015.

A pilot farm (Bukanga-Lonzo) started producing corn this year with the potential of reaching 250,000 tons annually by 2020 and a total investment of $500 million. However, it is capital intensive with modern farming techniques.

Adoption of an anchor that excludes mineral resources will be discussed in the context of the next Article IV consultation.

The IMF is helping build capacity targeting critical surveillance areas such as domestic revenue mobilization (including extractive industries), PFM, central bank modernization, and national accounts.

DRC became EITI compliant in 2014 and started a pilot project on disclosure of beneficial ownership of extractive companies.

In the context of a partial recapitalization of the BCC in 2011, it was agreed that the interest will be set by mutual agreement between the Treasury and the BCC.

Credit to the private sector is well below the average for SSA’s resource-rich countries despite the recent acceleration.

The real effective exchange rate assessment should be interpreted cautiously due to data limitation and the high dollarization of the economy but the REER seems to be broadly in line with the fundamentals.

Francis Vitek, 2013, “Exchange Rate Assessment Tools for Advanced, Emerging and Developing Economies”

Tokarick, Stephen, 2010, “A Method for Calculating Export Supply and Import Demand Elasticities”, IMF Working paper WP/10/180.

The reserve coverage should represent up to 14.3 months of next year imports for a cost of holding reserves of 2 percent.

The methodology balances the risk-reducing effects of reserves against their carrying costs. It estimates both the likelihood and the scale of a drop in domestic demand in a country and compares the benefits of holding additional reserves (which helps containing demand declines) with the costs of holding additional reserves (revenues foregone by investing in liquid and thus lower yielding foreign assets).

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