Statement by the IMF Staff Representative

This paper discusses Congo’s Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF), and Requests for Waiver of Performance Criteria. Overall performance under the program was satisfactory and at end-March 2004, 8 out of the 11 quantitative performance criteria were observed. The structural performance criterion was met. Economic growth has been higher than envisaged, and inflation has decelerated more rapidly than programmed. As expected, the end-2003, fiscal objectives were missed by less than 1 percent of GDP.

Abstract

This paper discusses Congo’s Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF), and Requests for Waiver of Performance Criteria. Overall performance under the program was satisfactory and at end-March 2004, 8 out of the 11 quantitative performance criteria were observed. The structural performance criterion was met. Economic growth has been higher than envisaged, and inflation has decelerated more rapidly than programmed. As expected, the end-2003, fiscal objectives were missed by less than 1 percent of GDP.

1. The contents of this supplement reflect preliminary information obtained after the finalization of the staff report and does not alter the thrust of the staff appraisal.

2. On the political side, the situation in the east of the country has remained relatively calm since early June but potentially volatile. Most of the Congolese who fled to Rwanda and Burundi when the unrest started have returned. Occasional skirmishes continue to be reported. At end-June 2004, President Kabila appointed the national and provincial commanders of the new integrated national police. On June 28, the law on the new national army was adopted by the National Assembly. It is reported that at their meeting in Nigeria on June 24, 2004, the Heads of State of the DRC and Rwanda agreed on joint control of their border region in collaboration with the United Nations Observation Mission in the DRC (MONUC) and the African Union, as well as on full implementation of the July 2002 Pretoria agreement between the two countries on the withdrawal or expulsion of armed groups from the DRC.

3. On the economic front, preliminary data for the first four months of 2004 point to favorable developments in key indicators, suggesting that real GDP growth may well exceed the program projection of 6.3 percent in 2004. The cumulative rate of inflation—2.7 percent at end-June 2004—has remained well in line with the program target of 6 percent for the year. The exchange rate of the Congo franc has continued to be stable. The intervention of the Central Bank of the Congo (BCC) in the foreign exchange market continued to be timid in the second quarter of 2004, with zero net purchases.

4. On the monetary side, preliminary data for key aggregates through end-May 2004 are favorable, reflecting somewhat better-than-programmed budget execution as well as the disbursement of budget support by the World Bank in May 2004, and the quantitative indicative targets for end-June 2004 are likely to have been met. The preliminary results of the external audit of the three end-March 2004 quantitative performance criteria show that the margins by which net foreign assets (NFA), net domestic assets (NDA), and net credit to the government (NCG) have been missed are slightly lower than indicated in the staff report.

5. On the fiscal side, preliminary data for April-May 2004 show a higher domestic primary surplus than programmed (by 0.2 percent of GDP), largely reflecting higher tax revenue and slightly lower current primary expenditure. At end-May, net credit to the government appears to be well within the program target. In light of the recent events in the east of the country, the authorities have reassured the staff that they are taking all necessary actions to adhere to the program objectives, including maintaining security expenditures within their budget allocations.

6. All the three prior actions have been met, i.e. adoption of the 2004 supplementary budget law with main broad aggregates in line with the Memorandum on Economic and Financial Policies (MEFP), the Anticorruption Law, and the new Customs Code (MEFP, para. 80).

7. The implementation of structural reforms is progressing well. The National Assembly adopted the law on money laundering and the financing of terrorism on July 5, 2004. The final versions of six tax laws were adopted by Parliament in early July, including keeping the turnover tax rate on services at 18 percent (MEFP, para. 8). However, the government has decided to reserve the right to change by decree the turnover tax rate on “goods of social and strategic importance.” On the expenditure side, all expenditure items not channeled through the new expenditure procedures were reincorporated through April 2004, and the budget tracking statements (ESB) for April-May will be produced by mid-July. Finally, the protocols regarding incorporation in the expenditure system of payroll, public debt, and external resources were signed on July 8.

8. The DRC has remained current on its external debt service obligations through end-June 2004.

Democratic Republic of the Congo: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Waiver of Performance Criteria and Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries
Author: International Monetary Fund