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© 2003 International Monetary Fund

June 2003

IMF Country Report No. 03/161

Democratic Republic of the Congo: 2003 Article IV Consultation, First Review Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criteria—Staff Report; Staff Statement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Democratic Republic of the Congo

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2003 Article IV consultation with the Democratic Republic of the Congo, first review under the Poverty Reduction and Growth Facility, and request for waiver of performance criteria, the following documents have been released and are included in this package:

  • the staff report for the combined 2003 Article IV consultation, first review under the Poverty Reduction and Growth Facility, and request for waiver of performance criteria, prepared by a staff team of the IMF, following discussions that ended on November 12,2002, with the officials of the Democratic Republic of the Congo on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 4, 2003. 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 March 24, 2003 updating information on recent economic developments.

  • a Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its March 24,2003 discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.

  • a statement by the authorities of 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 Democratic Republic of the Congo*

  • Technical Memorandum of Understanding*

  • Selected Issues Paper and Statistical Appendix

  • * May also be included in the 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

Copies of this report are available to the public from

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staff Report for the 2003 Article Iv consultation, First Review Under the poverty Reduction and Growth Facility, and Request for Waiver of Performance criteria

Prepared by the African Department

(In consultation with the Fiscal Affairs, Legal, Monetary and Exchange Affairs, policy Development and review, statistics, and treasure’s Departments)

Approved by amor Tahari and Shigeo Kashiwagi

February 4, 2003

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  • Executive Summary

  • I. Introduction

  • II. Recent Political and Security Developments

  • III. Recent Economic Developments and Performance Under the 2002 Program

    • A. Performance Under the Staff-Monitored Program

    • B. Performance Under the PRGF-Supported Program

  • IV. Report on the Discussions and the Program for 2003

    • A. Key Lessons and Challenges

      • Key lessons from the past

      • Challenges for the future.

    • B. Medium-Term Growth and Balance of Payments Prospects

    • C. Macroeconomic Framework for 2003

      • Fiscal policy

      • Monetary and financial sector issues

    • D. Social, Structural, and Sectoral Policies, and Other Issues.

      • Social policies

      • Structural and sectoral reforms.

      • Statistical issues, administrative capacity building, and technical assistance

  • V. PRGF Arrangement Monitoring

  • VI. Staff Appraisal

  • Boxes

  • 1. Structural Conditionally

  • 2. Banking Sector Issues

  • 3. External Debt and the Paris Club Rescheduling

  • 4. Sources of Growth.

  • 5. Sensitivity to Lower Export Growth

  • 6. Key Issues and Measures in the Fiscal Area

  • 7. Technical Assistance

  • Figures

  • 1. Selected Fiscal and Monetary Indicators

  • 2. Exchange Rate Indices, January 1996-October 2002

  • 3. External Debt at End-2001

  • Tables

  • 1. Fund Position During the Period of the PRGF Arrangement, 2002–05

  • 2. Proposed Schedule of Disbursement Under the PRGF Arrangement, 2002–05

  • 3. Selected Economic and Financial Indicators, 2000–05

  • 4A. Summary of Central Government Financial Operations, 2000–05

  • 4B. Summary of Central Government Financial Operations, 2000–05 (in percent)

  • 5. Monetary Survey, 2000–03

  • 6. Balance of Payments Summary, 2000–05

  • 7. Nominal and Net Present Value of, and Arrears on External Debt Outstanding by Creditor Group, End-December 2001

  • 8. Debt Service on External Debt, 2001–05.

  • 9. Financing Requirements, 2002–05

  • 10. Selected Poverty and Living Standard Indicators

  • Appendices

  • I. Letter of Intent.

    • Attachment I. Memorandum on Economic and Financial Policies for 2002–03.

      • Table 1. Selected Economic and Financial Indicators, 2000–05.

      • Table 2A. Monthly Treasury Cash-Flow Plan, 2002.

      • Table 2B. Monthly Treasury Cash-Flow Plan, 2003

      • Table 3. Action Plan to Strengthen the Institutional Capacity of the Central Bank of the Congo

      • Table 4. Quarterly Quantitative Performance Criteria, 2002

      • Table 5. Quarterly Quantitative Performance Criteria and Benchmarks, 2002–03.

      • Table 6. Prior Actions, Structural Performance Criteria and Benchmarks, 2002 and 2003.

    • Attachment II. Technical Memorandum of Understanding

      • Annex I. Definition of External Debt

      • Annex II. Budget Tracking Statements

  • II. Relations with the Fund

  • III. Relations with the World Bank Group

  • IV. Safeguards Assessments—Summary of Conclusions

  • V. Implementation of Fiscal Measures, 2002–03

  • VI. Statistical Issues

  • VII. Tentative Work Program.

  • VIII. Public Information Notice.

Executive Summary

  • Following successful implementation of a staff-monitored program (SMP), the Executive Board approved on June 12, 2002 a PRGF arrangement in support of the three-year government economic program (PEG). In September 2002, Paris Club creditors granted exceptional debt relief beyond traditional Naples terms. The enhanced HIPC Initiative decision point document is tentatively scheduled to be discussed by the Executive Board in March 2003, once the debt sustainability analysis (DSA) has been finalized.

Recent political and security developments

  • Remarkable progress has been made in consolidating the peace process. Most foreign countries have completed their troop withdrawal. The inter-Congolese dialogue in Pretoria in December 2002 resulted in the signing of an agreement on power sharing in an all-inclusive transition government, which is to assume office soon. Free and transparent elections will be held after two years.

Recent economic developments

  • Through September 2002, overall performance under the PRGF-supported program was broadly satisfactory, with good progress in the structural area. The annualized rate of inflation for the first nine months of 2002 reached 11 percent, down from 135 percent in 2001, and economic growth is expected to be positive for the first time in 13 years. One out of nine quantitative performance criteria for end-September was not met and two of the three structural performance criteria were missed, but were observed subsequently with short delays. The two structural performance benchmarks for end-September were met.

  • In October-November 2002, there was a noticeable acceleration of inflation as well as a depreciation of the exchange rate, following an unanticipated increase in budgetary expenditure. A package of measures was implemented to address the situation and inflation subsided in December. It is estimated that the overall program targets for 2002 were achieved.

Article IV discussions and program for 2003

  • Main lessons from the past are: (1) the window of opportunity for achieving peace and stability tends to be relatively short in a post-conflict case such as the Democratic Republic of the Congo (DRC); (2) full ownership of the program at the highest level is essential; (3) a clear road map of well-sequenced measures and identification of technical assistance needs based on an early diagnosis of the situation is key; (4) contingent on successful implementation, the duration of a comprehensive and bold SMP should not be too long; and (5) timely and well-balanced international aid is essential to alleviate the social hardship of adjustment.

  • Main challenges for the future are, inter alia, to, (1) consolidate macroeconomic stability with continued deepening of far-reaching structural reforms consistent with the I-PRSP, in particular, (2) promote governance and improve the business climate; and (3) ensure that the reunification of the country does not jeopardize the results achieved so far.

  • In 2003, economic growth is expected to accelerate to 5 percent, and the end-of-period rate of inflation to continue to decelerate to 6 percent. Fiscal policy will aim at continuing consolidation while reorienting the composition of the budget toward pro-poor spending. Monetary policy will continue to aim at price stability in the context of a floating exchange rate, which has so far been appropriate for the country’s circumstances. The central bank will continue to implement strictly its detailed action plan to address lapses in accounting, internal audit procedures, and control and supervision of the banking system. The authorities intend to accept the obligations of Article VIII, Sections 2(a), 3, and 4; and deepen their structural reform agenda, including strengthening good governance.

Issues stressed in the staff appraisal

  • The staff urges the authorities and all parties involved to respect the terms of the peace agreement signed on December 17, 2002 in Pretoria.

  • Successful reunification will require well-coordinated efforts to simultaneously tackle political, economic, and security issues.

  • Timely implementation of measures to increase transparency in the expenditure process, including a new expenditure classification system and the rationalization of the expenditure chain to improve the tracking of poverty-related expenditure, remains critically important.

  • The staff encourages the authorities to persevere in their bold steps to improve governance and intensify the fight against corruption, money laundering, and the financing of terrorism.

  • The staff encourages the authorities to continue their efforts to complete a full high-quality PRSP.

  • A number of risks remain: (1) outbursts of violence and a security vacuum could degenerate into the resumption of widespread conflict; (2) coordination and implementation of the program could weaken as the government changes; and (3) further delays in external assistance could intensify adjustment fatigue.

  • Based on the overall progress achieved so far, the staff recommends completion of the first review under the PRGF arrangement.

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Public Information Notice (PIN) No. 03/52


April 16, 2003

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

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Press Release No. 03/40


March 24, 2003

International Monetary Fund

Washington, D.C. 20431 USA