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.
The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of the Democratic Republic of the Congo’s (DRC) performance under a SDR 580 million (about US$861 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/27). The completion of the review enables the release of a further SDR 26.7 million (about US$40 million), which will bring the total amount drawn under the arrangement to SDR 527 million (about US$782 million).
In completing the review, the Board waived the nonobservance of performance criteria pertaining to the floor on the net foreign assets of the Central Bank of the Congo (BCC), the ceiling on net domestic assets of the BCC, and the ceiling on net bank credit to the government. The Board also concluded that progress on the development of DRC’s full Poverty Reduction Strategy Paper (PRSP), as evidenced by the PRSP Preparation Status Report, is satisfactory and provides a sound basis for continued access to IMF concessional assistance.
The Board also approved the authorities’ request for additional interim assistance of SDR 1.131 million (about US$1.7 million) under the enhanced HIPC Initiative.
Following the Executive Board’s discussion on the Democratic Republic of the Congo’s economic performance, Anne Krueger, First Deputy Managing Director and Acting Chair, stated:
“The Congolese authorities are to be commended for their efforts to implement successfully the PRGF-supported program despite on-going security problems, and to achieve effective reunification, notably through the appointment of provincial governors, the preparation of a national Demobilization, Disarmament, and Reintegration program, and the drawing up of a tentative calendar for elections in the second half of 2005.
“Nonetheless, major challenges remain in demobilizing combatants and successfully holding elections, together with rehabilitating administrative capacity in the reunified provinces and adopting and implementing an effective fiscal decentralization law. The international community needs to continue to assist the authorities in their efforts with timely and well-coordinated support.
“The satisfactory implementation of fiscal and monetary policies under the program, accompanied by good progress on the structural side, despite some delays, has enabled the country to move from stabilization to reconstruction, as envisaged in its Interim Poverty Reduction Strategy Paper (I-PRSP). However, in the period leading up to the elections in the second half of 2005, the authorities need to maintain their good coordination of economic and financial policies and the momentum of structural reform.
“The authorities have formulated a sound set of priorities for 2004, namely, the implementation of a fiscal decentralization plan, demobilization of soldiers, the maintenance of a relatively constant level of security spending while boosting pro-poor spending, and the continued building up of foreign reserves. On the structural side, the authorities intend to focus on improving governance, including through implementing a law to combat money laundering and passage of a law on corruption, the restructuring of public enterprises and the banking system, and the settlement of the government’s net domestic cross-arrears with the private sector, supported by the recently approved supplementary budget.
“To bolster the fiscal position, the authorities should continue to implement comprehensive tax reform to broaden the tax base and improve tax administration. Public expenditure management will benefit from the use of the new budget classification and better procedures to control spending.
“On fiscal decentralization, the authorities have developed a set of principles to ensure fiscal controls at the provincial level that include requiring a balanced budget and constraints on debt issuance by provincial governments. The volatile security situation in the eastern part of the country represents a serious risk to the program, particularly as regards the achievement of fiscal and poverty reduction targets. The forthcoming Regional Peace Conference for the Great Lakes Region could be critical to helping stabilize this region.
“The Central Bank of the Congo (BCC) should continue to aim at price stability within the framework of the floating exchange rate system. In this context, monetary policy instruments should be further strengthened to allow, inter alia, the build up of foreign reserves to a comfortable level. Restructuring of the central bank and commercial banking system is progressing and needs to be sustained.
“The authorities are making efforts to promote a healthy private sector, and include most notably the forthcoming external audit of the diamond sector. These efforts need to be accompanied by measures to ensure good governance and transparency in natural resource activities in accordance with the recently adopted investment, mining, and forestry codes.
“Despite some delays, overall progress toward completing a full high-quality PRSP by August 2005 has been satisfactory and warrants continued support,” Ms. Krueger said.
The PRGF is the IMF’s concessional facility for low-income countries. PRGF-supported programs are 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 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 5 ½-year grace period on principal payments.