Front Matter Page
© 2002 International Monetary Fund
July 2002
IMF Country Report No. 02/145
Democratic Republic of the Congo: Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and for the First Annual Program—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Democratic Republic of the Congo
In the context of the Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and for the First Annual Program, the following documents have been released and are included in this package:
the staff report for a Three-year Arrangement Under the Poverty Reduction and Growth Facility and for the First Annual Program, prepared by a staff team of the IMF, following discussions that ended on May 4, 2002, with the officials of Liberia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 11, 2002. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a staff statement of June 12, 2002 updating information on recent developments.
a Press Release summarizing the views of the Executive Board as expressed during its June 12, 2002 discussion of the staff report that completed the review.
a statement by the Executive Director for the Democratic Republic of the Congo.
The document(s) listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of the Democratic Republic of the Congo*
Memorandum of Economic and Financial Policies by the authorities of the Demorcratic
Republic of the Congo*
* May also be included in staff report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to Publicationpolicy.imf.org.
Copies of this report are available to the public from
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Front Matter Page
INTERNATIONAL MONETARY FUND
DEMORCRATIC REPUBLIC OF THE CONGO
Requests for a Three-year Arrangements Under the poverty Reduction and Growth Facility and for the First Annual program
Prepared by the African Department
(In consultation with Fiscal Affairs, International Capital Markets, Legal, Monetary and Exchange Affairs, Policy Developments and Review, Statistics, and Treasurer’s Departments)
Approved by A. Bio-Tchané and S. Kashiwagi
May 29, 2002
A mission visited Kinshasa from February 26–March 14, and April 27–May 4, 2002, to conduct the second review of the staff-monitord program (SMP), discuss a medium-term program that could be supported by a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF), assess progress in the finalization of an interim poverty reduction strategy paper (I-PRSP), and complete a preliminary debt sustainability analysis (DSA) in the context of the preparation of a preliminary Heavily Indebted Poor Countries (HIPC) Initiative document.
The Democratic Republic of the Congo requests a three-year PRGF arrangement in support of its program covering the period April 1, 2002–July 31, 2005, in an amount equivalent to SDR 580 million (109 percent of the country’s new quota).
Progress toward peace continues and the case-fire has generally held since early 2001. The inter- Congolese dialogue has made progress in the context of the conference held in sun city, South Africa, from March 7 to April 19, 2002. It is expected that a new constitution will be adopted soon and that a transition government will be nominated in the near future, with free and transparent elections after about 30 months.
The mission met with President Kabila; Ministers of Economy, Finance and the Budget; Planning and Reconstruction; Mines and Energy; Health; and Justice; the Governor of the Central Bank of the Congo; the Economic Advisor to the President; and other senior officials of government and the central bank. The mission presented its conclusions to the Council of Ministers. The mission also met with representatives of civil society, including the press and the international community.
The mission comprised Messrs Clément (Head), Gons, Akitoby (all AFR), Laurens (MAE), Fournel (FAD), and Staines (PDR), Ms. Le (research Officer), and Mrs. Ng Choy Hing (Administrative Assistant) (both AFR). Mr Horton and Ms. Barro Chambrier (Executive Director) and his Assistant, Mr. Kudiwn, joined the mission toward the end of its stay.
The authorities have agreed to the publication of the letter of intent, the staff report, the I-PRSP and the joint staff assessment, and the preliminary HIPC Initiative document.
Contents
Executive Summary
I. Introduction
II. Modalities of Arrears Clearance
III. Background and Recent Political and Economic Developments
A. Political Developments
B. Performance Under the Staff-Monitored Program (SMP)
IV. Medium-Term Outlook, Objectives, and Policies
V. The Program for 2002
A. Fiscal Policy
B. Monetary, Exchange Rate, and Other External Policies
C. Structural and Sectoral Reforms
D. Transparency and Governance Issues
E. PRSP and Poverty Reduction
F. Administrative Capacity Building and Technical Assistance
G. Financing Requirements, Access, Capacity to Repay, and Risks
H. Program Monitoring
VI. Staff Appraisal
Boxes
1. Greater Great Lakes Region: Multi-Country Demobilization and Reintegration Program
2. The Staff-Monitored Program, June 2001-March 2002
3. The Strategy for Poverty Reduction
4. Key Elements of the Medium-Term Program to Be Supported by the PRGF
5. Sensitivity to Lower Export Growth
6. Key Issues and Measures in the Fiscal Area
7. Democratic Republic of the Congo and Other African Countries: A Wage Comparison
8. External Debt
9. Structural Conditionality Under the PRGF-Supported Program
10. Interim PRSP - Participatory Consultations
11. Technical Assistance
12. Projected External Assistance
Figures
1. Selected Fiscal and Monetary Indicators
2. Composition of the Stock of External Debt at end-December 2001
Tables
1. Fund Position During the Period of the PRGF Arrangement, June 2002-July 2005
2. Proposed Schedule of Disbursement Under the PRGF Arrangement, 2002-05
3. Quarterly Quantitative Indicators, June 2001-March 2002
4. Selected Economic and Financial Indicators, 2000-05
5A. Summary of Central Government Financial Operations, 2000-05
5B. Summary of Central Government Financial Operations, 2000-05 (in percent)
6. Monetary Survey, 2000-02
7. Balance of Payments Summary, 2000-05
8. Financing Requirements, 2002-05
9. Nominal, Net Present Value, and Arrears of External Debt Outstanding by Creditor Groups, End-December 2001
10. The Democratic Republic of the Congo and Sub-Saharan Africa: Selected Poverty and Living Standards Indicators 49
11. Quarterly Quantitative Performance Criteria and Indicators, June-December 2002
12. Structural Performance Criteria and Indicators, 2002
13. PRGF-Supported Three-Year Program–Prior Actions
Appendices
I. Relations with the Fund
II. Relations with the World Bank Group
III. Statistical Issues
IV. Governance and Transparency Issues
Executive Summary
The authorities of the Democratic Republic of the Congo (DRC) request a three-year PRGF arrangement in support of their program covering the period April 1, 2002–July 31, 2005, in an amount equivalent to SDR 580 million (109 percent of the country’s new quota). Clearance of arrears to the Fund before Board consideration of the PRGF arrangement is envisaged through a bridge loan. The authorities have prepared an interim poverty reduction strategy paper (I-PRSP), and finalized a preliminary debt sustainability analysis (DSA) in the context of the preparation of a preliminary HIPC document. A joint Fund and Bank staff assessment (JSA) of the authorities’ I-PRSP is provided.
Recent political and economic developments
To address the DRC’s alarming political and socio-economic situation, in early 2001 the new President, Joseph Kabila, formulated three main objectives: (i) to achieve peace through reactivation of the Lusaka peace accord; (ii) to buttress the inter-Congolese dialogue; and (iii) to resume normal relations with the international community, stabilize the macroeconomic situation and liberalize and open up the economy.
Progress toward peace continues and the ceasefire has generally held since early 2001. The UN Organization Mission (MONUC) has started Phase III of its operations, which provides for the disarmament and demobilization of rebel groups in the second half of 2002. On April 25, 2002, the World Bank’s Executive Board considered a multi-country demobilization and reintegration program for the Great Lakes region, which has already received strong support from the international community.
The inter-Congolese dialogue gained momentum at a conference in Sun City, South Africa. Although the conference ended without a global agreement, the government reached agreement with one of the main rebel groups, the Mouvement pour la Libération du Congo (MLC), headed by Mr. Bemba. Under this agreement, which was supported by about 80 percent of the representatives of civil society at the conference, Mr. Kabila will remain President while Mr. Bemba will become Prime Minister. A transition government will be nominated in the near future.
The authorities have steadfastly implemented a staff-monitored program (SMP) covering June 2001–March 2002, aiming principally at stabilizing the economic situation, and laying the foundation for the restoration of growth and reconstruction. Under the SMP, the authorities took bold and front-loaded measures, including the introduction of a unified floating exchange rate system in May 2001.
The SMP has already produced significant results, particularly the breaking of the vicious circle of hyperinflation and currency depreciation, and the rehabilitation of public finances, including a return to a normal budgetary process, the centralization of revenue and expenditure, and a reduction in the use of extrabudgetary channels. Progress in the structural area includes the removal of major economic distortions, notably via the unification of multiple exchange rates and liberalization of the prices of goods, including a transparent and automatic mechanism for the prices of petroleum products, and profound changes in the regulatory environment and the judiciary.
The PRGF-supported medium-term program (2002–05)
The government’s main objective over the medium term is to reconstruct and revive economic growth, so as to begin reducing the widespread poverty in the country. The program’s main quantitative objectives are (i) an average real GDP growth rate of about 5 percent; (ii) a reduction in the annual inflation rate to 5 percent; and (iii) a gradual increase in gross international reserves to more than two months of non aid imports of goods and nonfactor services by 2005.
To achieve these objectives, the envisaged macroeconomic policies include:
A fiscal policy geared at achieving further consolidation. Key aspects of fiscal policy include further improvements in the public expenditure management system in order to have full tracking of expenditure, a sustained strengthening of revenue mobilization, strict adherence to a monthly treasury cash-flow plan, and a shift in the composition of expenditure toward the social sectors.
A prudent monetary policy consistent with the overriding objective of price stability within the framework of a floating exchange rate system. Central to the successful implementation of monetary policy will be the revival of financial intermediation, particularly through the restructuring and effective surveillance of the banking system.
Structural and sectoral reforms will be deepened, aimed at creating an enabling environment for the resumption of growth and private sector-led activity, and instituting good governance and transparency.
Medium-term projections show that the country will need more favorable debt relief than under Naples terms. Following arrears clearance, all creditors are expected to provide debt relief, including HIPC assistance.
Issues stressed in the staff appraisal
The staff welcomes the authorities’ efforts to strengthen the peace process and the inter-Congolese dialogue that should lead to the reunification of the country. The staff notes that the return of peace and stability to the entire country will be a key element in the resumption of growth and reduction of poverty.
The authorities believe that the successful implementation of the SMP has created a solid basis for a PRGF-supported program. The staff concurs with this assessment and finds the main objectives of the three-year program realistic. The staff also finds the envisaged macroeconomic and structural policies consistent with the program’s objectives. In particular, the staff agrees that fiscal consolidation will remain one of the cornerstones of the program, and that effective monetary policy will require financial reintermediation and a financially sound banking sector. The staff concurs with the authorities that the floating exchange rate system remains appropriate.
The staff, however, points out that a number of risks remain for the program’s implementation. The first risk is related to the current instability in the Great Lakes region and the possibility of resumption of a full-fledged war. The second one is related to growing adjustment fatigue due in part to the lack so far of timely foreign project assistance.
Front Matter Page
June 12, 2002
Front Matter Page
Press Release No. 02/27
FOR IMMEDIATE RELEASE
June 12, 2002
International Monetary Fund
Washington, D.C. 20431 USA
