The Executive Board of the International Monetary Fund (IMF) has approved a three-year SDR 580 million (about US$750 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Democratic Republic of the Congo (DRC). The DRC will be able to draw up to SDR 420 million (about US$543 million) under the arrangement immediately. The remaining SDR 160 million (about US$207 million) will be drawn in six equal installments following performance reviews.
The PRGF is the IMF’s concessional facility for low income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macro economic, structural, and social policies to foster growth and reduce poverty.
PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.
After the Executive Board meeting on the Democratic Republic of the Congo, Horst Köhler, Managing Director and Chairman, stated:
“The Fund welcomes progress made by the authorities to strengthen the peace process and the inter-Congolese dialogue, which should lead to the reunification of the country, the formation of a government of national unity, a new constitution, and free and transparent elections. The cease-fire has generally held since early 2001 and the withdrawal of foreign troops has started with the help of the UN Organization Mission (MONUC). Clearly, the return of peace and stability to the entire country will be a key element in the resumption of economic growth and a reduction of poverty. The Fund strongly encourages the authorities and all interested Congolese parties to buttress the progress toward peace and to promote an all-inclusive inter-Congolese dialogue with the full support of the international community, including the United Nations and the Organization of African Unity.
“The Fund commends the authorities for the steadfast implementation of their bold and front-loaded interim economic and financial program that has been monitored by the staff (SMP). The SMP (covering June 2001–March 2002) has produced significant results. In particular, the vicious cycle of hyperinflation and currency depreciation has been broken, the rehabilitation of public finances has progressed steadily, major economic distortions have been eliminated, and fundamental improvements in the judiciary and in the regulatory environment are being made.
“The Fund welcomes the clearance of the DRC’s arrears with the Fund and the forthcoming clearance of the DRC’s arrears with the World Bank, and commends the authorities for their actions to restore normal relations with the international community. It expresses its appreciation to Belgium, France, South Africa, and Sweden for having contributed to the financing of a bridge loan to clear the DRC’s arrears with the Fund and help pay the reserve asset portion of the increased quota subscription under the 11th General Review of Quotas. The Fund welcomes the treatment of the DRC’s arrears to the African Development Bank Group through a partial payment/partial consolidation approach. Other multilateral creditors have agreed in principle to consolidate the DRC’s arrears, and Paris Club creditors have agreed in principle to a comprehensive rescheduling on terms consistent with the program’s assumptions.
“The Fund commends the authorities for completing an interim PRSP, which provides the context for a national dialogue on the poverty reduction strategy and which contains a coherent analytic and operational framework for the design and the implementation of poverty reduction policies. The Fund endorses the recommendations of the joint World Bank and Fund staff assessment of the interim PRSP, which provides a sound basis for the development of a participatory full PRSP. The implementation of the interim PRSP and the preparation of a full PRSP represent a challenge for the Government which will need to be supported by extensive technical and financial assistance from the donor community.
“The achievements under the staff-monitored program have created a solid basis for a PRGF-supported program and have paved the way for debt relief under the enhanced HIPC Initiative. The main objectives of the authorities’ three-year program are realistic and consistent with the reconstruction phase outlined in their interim PRSP, which aims at creating an enabling environment to boost economic growth and begin reducing poverty.
“Achieving the program’s targets will call for further fiscal consolidation, a prudent monetary policy consistent with maintaining price stability within the framework of a floating exchange rate system, and a deepening of structural and sectoral reforms.
“Fiscal consolidation remains one of the cornerstones of the program. Key aspects of fiscal policy will include the timely implementation of measures to enhance revenue mobilization, strengthening the monitoring and tracking of expenditure, strict adherence to a monthly treasury cash-flow plan, and a shift in the composition of expenditure toward the social sectors. The presidential decree that stipulates that all budgetary expenditures require prior authorization from the Minister of Finance is especially to be welcomed.
“The new statutes of the central bank enshrine its independence in the conduct of monetary policy, and the on-going financial audit of the central bank by an internationally recognized firm is an important step. However, effective monetary policy and financial re-intermediation call for a financially sound banking sector. The authorities are therefore urged to accelerate their effort to restructure the commercial banks.
“The Fund welcomes the deepening and the sequencing of structural and sectoral reforms envisaged in the program. The strengthening of administrative capacity, with the timely help of the international community, will play a crucial role in ensuring program success. The focus of the reforms of public enterprises is appropriate, as this sector has been a major drain on budgetary resources and a locus of resource misallocation. With the help of the World Bank, timely implementation of reforms in the mining, forestry, water and electricity sectors, and in rural infrastructure will also be important to ensure sustainable economic growth.
“The authorities are to be commended for their determination to promote good governance and transparency. An anti-corruption strategy will be finalized soon and an action plan is being developed with the help of the World Bank. The authorities also plan to audit expenditure execution statements for 2001 budget by end-2002, while the 2002 budget, including military expenditure, will be audited by end-2003.
“Overall, the Fund considers that the PRGF-supported program represents an important step by the authorities to reconstruct the economy and revive growth, thus laying the basis for reducing widespread poverty. The authorities’ efforts deserve the timely support of the international community, technical assistance and highly concessional financial aid. The projections made in the preliminary HIPC Initiative document indicate that the NPV of debt-to-exports ratio would remain significantly above 150 percent during the interim period. The Fund considers that with continued strong performance under the PRGF arrangement, a decision point could be envisaged at the time of the first review of the program, expected in January 2003, and that the completion point could be reached in early 2006, Mr. Köhler said.