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© 2004 International Monetary Fund
July 2004
IMF Country Report No. 04/232
Republic of Congo: 2004 Article IV Consultation and New Staff-Monitored Program—Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Republic of 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 the 2004 Article IV consultation with the Republic of Congo and a new staff-monitored program, the following documents have been released and are included in this package:
the staff report for the 2004 Article IV consultation and a new staff-monitored program, prepared by a staff team of the IMF, following discussions that ended on March 5, 2004, with the officials of the Republic of Congo on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 12, 2004. 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 10, 2004 updating information on recent developments.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its June 10, 2004 discussion of the staff report that concluded the Article IV consultation.
a statement by the Executive Director for the Republic of Congo.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of the Republic of Congo*
Memorandum of Economic and Financial Policies by the authorities of the Republic of Congo*
Selected Issues Paper and Statistical Appendix
Technical Memorandum of Understanding*
*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
International Monetary Fund • Publication Services
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Price: $15.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
REPUBLIC OF CONGO
Staff Report for the 2004 Article IV Consultation and a New Staff-Monitored Program
Prepared by the African Department and Policy Development and Review Departments
(In consultation with the External Relations, Finance, Fiscal Affairs, Legal, Monetary and Financial Systems, and Statistics Departments)
Approved by Menachem Katz and Anthony Boote
May 12, 2004
The discussions for the 2004 Article IV consultation with the Republic of Congo (hereafter “the Congo”) were initiated in Brazzaville during February 5-20, 2004 and completed at headquarters during March 1–5, 2004. The letter of intent (LOI) dated March 31, 2004 outlines the government’s policies during January–June 2004 under the 2004 staff-monitored program (SMP).
The staff team consisted of Messrs. Ghura (Head), Karangwa, Leite, Ms. Linares (Administrative Assistant) (all AFR), Mr. Op de Beke (PDR), and Mr. Moussa (FAD). Staff members from the African Development Bank (AfDB) and the World Bank participated in the discussions.
The mission met with President Sassou-Nguesso; the presidents of the national assembly and the senate; Mr. Andély, Minister of Economy, Finance, and Budget; Mr. Moussa, Minister of Planning; Mr. Dzon, National Director of the Bank of Central African States (BEAC); other senior officials; and representatives of civil society and the donor community.
At the conclusion of the 2003 Article IV consultation on June 13, 2003 (Country report No. 03/193), Directors noted that performance in 2002 was disappointing, despite favorable oil prices, and expressed concern about the deterioration of the fiscal position. However, they welcomed the new government’s focus on reestablishing fiscal discipline and were encouraged by the improved performance during October 2002–March 2003. As for the length of the performance track record needed for consideration of an arrangement supported by the Poverty Reduction and Growth Facility (PRGF), Directors favored a 12-month period under an SMP ending in September 2003.
The Congo is on the standard 12-month consultation cycle, and together with other members of the Central African Economic and Monetary Community (CEMAC), has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement. Congo’s relations with the Fund are summarized in Appendix I.
Contents
Executive Summary
I. Introduction
II. Political, Social, and Economic Background
III. Program Implementation and Economic Developments in 2003
IV. Report on the Discussions
A. Medium-Term Challenges
B. Macroeconomic Outlook
C. Economic Program for 2004
D. Monetary and Financial Sector Issues
E. Transparency and Governance
F. Poverty Reduction
G. Statistics and Technical Assistance
V. Financing Gap, Capacity to Pay, and External Debt
VI. Regional Integration and Trade Regime
VII. Risks
VIII. Staff Appraisal
Boxes
1. Oil Revenue Discrepancy, 1999–2001
2. Program Implementation in 2003
3. Control by the Regional Central Bank on Current Transfers, 2003
4. Legal Settlement with an International Oil Company
5. Constraints on Economic Growth, 1980–9915
6. Institutions and Governance
7. Sources of Economic Growth, 1970–2003
Figures
1. Economic Activity and Prices, 2000–7
2. Effective Exchange Rates, January 1990–December 2003
Tables
1. Selected Economic and Social Performance Indicators, 1980–2003
2. Central Governance Operations, 2000–03
3. Budget Law and Execution, 2003
4. Fiscal Profile, 2002–07
5. Elements of the Capacity to Pay External Debt, 2003–07
6. Compliance with Regional Convergence Criteria, 2002–03
7. Selected Economic and Financial Indicators, 2000–07
8. Central Government Operations, 2000–07
9. Monetary Survey, 2001–04
10. Balance of Payments, 2000–07
11. External Debt Outstanding and Scheduled Debt Service, 2000–07
12. Elements of the Capacity to Pay External Debt, 2003–2007
13. External Financing Requirements, 2000–07
14. Millennium Development Goals, 1990–2015
Appendices
I. Relations with the Fund
II. Relations with the World Bank Group
III. Letter of Intent for the 2004 Staff-Monitored Program
Attachment I. Memorandum on Economic and Financial Policies
Table 1. Quantity Indicators, 2002–03
Table 2. Structural Indicators, January–June 2003
Table 3. Structural Indicators, July–September 2003
Table 4. Quantity Indicators, 2002–03
Table 5. Structural Indicators, October–December 2003
Table 6. Quantitative Indicators, 2004
Table 7. Structural Indicators for the Staff-Monitored Program
Table 8. Government Budgetary Operations, 2003–04
Attachment II. Technical Memorandum of Understanding
IV. Public Debt Sustainability Analysis
Figure 1. Indicators of Public and Publicly Guaranteed External Debt, 2003–23
Table 1. Sensitivity Analysis of External Public Debt, 2003–23
Table 2. Sensitivity Analysis of Public Sector Debt, 2003–23
Table 3. External Debt Sustainability Indicators, 2003–23
V. Bank of Central African States: Safeguards Assessment
VI. Statistical Issues
Executive Summary
Background
The gradual reestablishment of political stability and democratic institutions over the past four years has generated a sense of guarded optimism that the Congo is on the cusp of a structural break from the previous pattern of intermittent outbreaks of civil conflict. Over the past year, security improvements have been consolidated by the launch of the demobilization program for former combatants, and further progress has been registered with respect to the reestablishment of democratic institutions.
The onset of peace in 1999–2000 has boosted the pace of economic activity in the non-oil sector. Consumer price inflation has abated in the post-conflict period, partly due to a more reliable supply from Pointe-Noire to Brazzaville. In an encouraging sign of a pickup in non-oil sector activity, credit to the economy grew in 2003 at a faster rate than non-oil GDP for the first time in three years. Nonetheless, key social indicators have continued to deteriorate, and the external debt burden is heavy.
The completion of the transition period to a democratic state and the gradual return to peace, thus far, has not been accompanied by the strict implementation of economic programs. Since 2000, one post-conflict emergency assistance and three subsequent staff-monitored programs(SMP) have not led to a medium-term program supported by the Poverty Reduction and Growth Facility (PRGF).
Performance under the 2003 SMP, covering the period January–September, was weak. While overall fiscal performance improved in 2003, key budget targets, including on non-oil revenue and expenditures, were missed. Continued weaknesses in treasury management necessitated the deferment of oil-collateralized debt to 2004. Although some key structural measures were not implemented, an effort to improve transparency in the oil sector was launched under the SMP and reinforced in the fourth quarter.
Article IV consultation issues
The discussions focused on the following key medium-term issues: (i) improving governance and transparency, starting with the oil sector; (ii) ensuring long-term fiscal sustainability; (iii) strengthening public expenditure management and institutional capacity; and (iv) creating favorable conditions for private sector expansion and poverty reduction.
The key policy challenges will be to enhance fiscal discipline while facing pressures for “peace dividends,” implement oil sector reform measures that may run counter to vested interests, and improve the statistical infrastructure in the face of significant institutional capacity constraints.
The authorities intend to establish the necessary track record to move to a possible PRGF-supported program by satisfactory implementation of an SMP during January–June 2004. The key objectives are to strengthen the framework for fiscal discipline and enhance oil sector transparency.
Issues stressed in the staff appraisal
The staff is encouraged by the recent progress on the security and political fronts. Accompanying this positive momentum, the staff welcomes the pickup in economic activity in the non-oil sector and deceleration of inflation. Nonetheless, the implementation of the 2003 SMP was weak and did not allow the Congo to move to a medium-term program supported by the international community.
The staff regrets the opportunity missed in 2003 by not using additional oil revenues to clear a significant amount of external arrears. The staff urges the authorities to use future additional oil revenues in accordance with stated program objectives and priorities.
The staff is encouraged by the authorities’ renewed determination to strengthen the framework for moving to a medium-term program for growth and poverty reduction that can be supported by the international community. The program for 2004 appropriately addresses the most pressing issues facing the Congo, and the authorities are encouraged to diligently implement the proposed measures.
The implementation of the SMP would be a necessary, but not sufficient, condition for moving to a PRGF-supported program. The Congo would also need exceptionally favorable treatment on arrears to official bilateral and commercial creditors on post-cutoff-date debt and to multilateral creditors. To improve the credibility of the government’s strategy, the staff urges the authorities to take decisive steps in improving transparency and accountability in the oil sector, and in mobilizing maximum domestic resources and utilizing them judiciously.
The Congo is faced with daunting challenges in moving onto a sustainable path of economic development. Increased focus on oil sector transparency and governance should be a key aspect of a strategy to lower the probability of future conflicts and to strengthen the decision-making process. Another key challenge is to improve the business climate by, inter alia, enhancing the overall governance framework and effectively combating corruption, and improving the efficiency in the delivery of public utility services.
Timely provision of reliable economic and financial data is essential for effective macroeconomic management and Fund surveillance. The provision of comprehensive information, including on oil-related activities, will help to convince development partners that domestic resources are being fully mobilized and will lend credibility to the ongoing reform efforts.
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June 10, 2004
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Public Information Notice (PIN) No. 04/72
FOR IMMEDIATE RELEASE
July 22, 2004
International Monetary Fund
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June 10, 2004
