Abstract
This paper examines Congo’s 2004 Article IV Consultation and New Staff-Monitored Program (SMP). In the context of improved security, the pace of economic activity in the non-oil sector has increased. Non-oil real GDP increased by about 10 percent per year on average during 2000–03. Consumer price inflation decelerated significantly in the postwar period. The fiscal position in 2003 improved from the exceptionally poor performance of 2002, but the underlying fiscal effort was weak relative to the 2003 budget.
1. This supplement contains information on recent economic developments in the Republic of Congo since the circulation of the staff report for the 2004 Article IV consultation and new staff-monitored program. The information does not alter the thrust of the staff appraisal.
2. The implementation of the staff-monitored program (SMP) was broadly satisfactory through end-April (see Appendix III of the staff report for the details of the SMP).
All end-March quantitative targets were met. In particular, the primary fiscal balance was met by a comfortable margin owing to higher-than-projected non-oil revenues and enhanced expenditure control. No new domestic arrears were accumulated. In addition, external debt service payments due to multilateral institutions and Paris Club creditors on post-cutoff-date debt were made on a timely basis and the ceiling on domestic arrears payments was respected.
Most structural targets were met. Particularly noteworthy were the external certification of oil revenues in 2003 and the adoption of an action plan for the reform of the accounts and operations of the national oil company (SNPC), as well as publication on an internet site (www.congo-site.cg) of the above-mentioned SNPC action plan, the reports from the oil revenue certification, and parts of the 1999–2001 audit of the SNPC. However, three structural measures were only partially implemented. First, not all of the production sharing agreements (PSAs) with oil companies already published in the official gazette were posted on the internet. Second, the information published on financial transactions carried out by the SNPC on behalf of the government in 2002–03 was incomplete, especially with respect to interest costs and commissions. Third, while significant progress has been made in centralizing revenues at the treasury, forestry tax revenues (which represent about 6 percent of non-oil revenues) have yet to be transferred to the treasury. The government plans to rapidly take corrective actions on all these measures.
3. On the basis of the broadly satisfactory implementation of the SMP through end-April, the staff initiated negotiations in May 2004 on a program that could potentially be supported by a new three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). The conclusion of these negotiations with a recommendation in support of such a new arrangement would be conditional on (i) continued good implementation under the SMP through end-June 2004, (ii) completion of all the SMP structural measures, (iii) implementation of possible prior actions to be determined in the course of the PRGF negotiations, and (iv) obtaining full financing assurances. In addition, staff would need to have adequate information on the 2003 financial settlement between the government and an international oil company.