Front Matter

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© 2005 International Monetary Fund

October 2005

IMF Country Report No. 05/374

Democratic Republic of the Congo: 2005 Article IV Consultation, Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Waiver of Performance Criteria, Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries, and Request for an Extension of Arrangement—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 2005 Article IV consultation with the Democratic Republic of the Congo, the fifth review under the three-year arrangement under the Poverty Reduction and Growth Facility, requests for a waiver of performance criteria, additional interim assistance under the enhanced Initiative for Heavily Indebted Poor Countries, and request for an extension of arrangement, the following documents have been released and are included in this package:

  • the staff report for the combined 2005 Article IV Consultation, Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Waiver of Performance Criteria, Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries, and Request for an Extension of Arrangement, prepared by a staff team of the IMF, following discussions that ended on May 31, 2005, 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 August 12, 2005. 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 September 5, 2005 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 September 5, 2005, 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 listed below has 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 authorities of the Democratic Republic of the 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

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Price: $15.00 a copy

International Monetary Fund

Washington, D.C.

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INTERNATIONAL MONETARY FUND

DEMOCRATIC REPUBLIC OF THE CONGO

Staff Report for the 2005 Article IV Consultation, Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Waiver of Performance Criteria, Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries, and Request for an Extension of Arrangement

Prepared by the African Department

(In consultation with the Finance, Fiscal Affairs, Legal, Monetary and Financial Systems, Policy Development and Review, and Statistics Departments)

Approved by Michael Nowak and Anthony Boote

August 12, 2005

  • Discussions for the 2005 Article IV consultation and the fifth review under the PRGF were held in Kinshasa during November 9–23, 2004, February 15–22, 2005, and May 24–31, 2005 by staff teams comprising Messrs. Briançon (head), Ben Ltaifa, Gons, Hartley (all AFR), Ioannou (PDR), Mati and Williams (both FAD), and Kouwenaar (Senior Resident Representative). Mr. Guétat, Advisor to the Executive Director for the Democratic Republic of the Congo (DRC), also participated in policy meetings.

  • The review, which is based on the end-September 2004 test date, has been delayed due to macroeconomic slippages and noncomplying disbursements made to the DRC (www.imf.org, August 9, 2005). Three out of 11 quantitative performance criteria for end-September 2004 were not met because of increased security expenditure and weak spending procedures. The structural performance criterion was not met, but the measure was implemented in January 2005.

  • The team met with the Vice Presidents for Economic and Financial Affairs and for Social and Cultural Affairs, the Ministers of Finance, Budget, Political and Security Affaires, Economy, Planning, Mining, Energy, Education, and Health the Governor of the Central Bank, the President of the National Assembly, members of the General Accounting Office, representatives of the business community, and donors.

  • On June 12, 2002, the Executive Board approved a three-year arrangement under the PRGF in the amount of SDR 580 million (108.8 percent of quota), with disbursements totaling SDR 526.7 million so far. An additional SDR 26.7 million would be disbursed at the completion of this review. The arrangement was extended to October 31, 2005 on June 7, 2005 and the authorities are requesting a further extension until March 31, 2006 to complete the last review.

  • In July 2003, the DRC qualified for US$6.3 billion in debt relief in net present value (NPV) terms when it reached the decision point under the enhanced HIPC Initiative. It could reach the completion point in the second half of 2006, one year after the anticipated completion of the Poverty Reduction Strategy Paper (PRSP), the preparation of which is proceeding broadly as planned. The authorities are requesting an additional annual tranche of IMF interim assistance under the enhanced HIPC Initiative.

  • The DRC maintains a floating exchange rate regime. The DRC has accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the Fund’s Articles of Agreement. The DRC maintains one identified exchange restriction and one identified multiple currency practice subject to the provision of Article VIII. Summaries of the DRC’s relations with the Fund and the World Bank Group are presented in Appendices II and III, respectively.

Contents

  • Executive Summary

  • I. Background

  • II. Recent Developments and Performance Under the Program

    • A. Macroeconomic Policies

    • B. Structural Policies

    • C. Performance Under the PRGF-Supported Program Since March 2004

  • III. Report on the Discussions

    • A. Medium-Term Outlook

    • B. Macroeconomic Objectives and Policies for 2005

    • C. Risks

  • IV. Staff Appraisal

  • Boxes

  • 1. Past Fund Policy Advice and Government’s Response

  • 2. The Draft Constitution, Decentralization, and Fiscal Implications

  • 3. Banking Sector Issues

  • 4. Medium-Term Fiscal Strategy

  • 5. External Debt Sustainability

  • Figures

  • 1. Nominal and Real Effective Exchange Rates 2001–04

  • 2. Fiscal Developments, Annual 2000–05

  • 3. Monetary Indicators

  • Tables

  • 1. Fund Position During the PRGF Arrangement, 2002–10

  • 2. Proposed Schedule of Disbursement Under the PRGF Arrangement, 2002–06

  • 3. Selected Economic and Financial Indicators, 2003–08

  • 4. Summary of Central Government Operations, 2003–08

  • 5. Summary of Central Government Operations (in percent of GDP), 2003–08

  • 6. Monetary Survey, 2003–05

  • 7. Accounts of the Central Bank of the Congo, 2003–05

  • 8. Balance of Payments Summary, 2003–08

  • 9. External Financing Requirements and Sources, 2003–08

  • 10. Debt Service on External Debt, 2003–08

  • 11. Millennium Development Goals, 1990–2002

  • Appendices

  • I. Letter of Intent

    • Attachment I. Memorandum of Economic and Financial Policies for 2005

    • Attachment II. Technical Memorandum of Understanding

      • Annex I. Definition of External Debt

      • Annex II. Definitions of Poverty Reduction Spending

      • Annex III. Budget Tracking Statements

  • II. Relations with the Fund

  • III. Relations with the World Bank

  • IV. Progress Status of Triggers for Reaching the Floating Completion Point

  • V Statistical Issues

  • VI Debt Sustainability Analysis

Executive Summary

  • Since 2001, the DRC has experienced a significant turnaround under difficult circumstances. Per capita income has improved, inflation has dropped and the exchange rate has remained relatively stable while the transition government has made progress in reunifying the country and strengthening public institutions.

  • Performance under the program supported by the Poverty Reduction and Growth Facility (PRGF) has been uneven since mid-2004. Real GDP growth was close to 7 percent, but inflation surged and the Congo franc depreciated in late 2004 and early 2005. The authorities, have, however, taken steps in the first half of 2005 to address the shortcomings, which have in turn stabilized the macroeconomic situation. This bodes well for the implementation of the program for the rest of the year.

  • The fiscal outcome was mixed in 2004. The overall objective was met, but the composition of expenditure did not improve as envisaged with low levels of spending for public investment and social sectors partly offset by money-financed overspending for security and political institutions.

  • Following rapid money expansion in the second half of 2004, the Central Bank of the Congo (BCC) has tightened monetary policy in 2005. This has led to an appreciation of the exchange rate and the stabilization of consumer prices since May.

  • Implementation of structural reforms was slow in 2004. With the approaching elections and security tensions, the transition government had difficulty reaching a broad consensus on essential reforms. However, progress in key areas is essential to maintain high and sustainable growth, in particular in reforming the mining and forestry sectors and public enterprises.

  • Corruption remains a major obstacle to improvement in public resource management and the business climate. Although legislation has been adopted to intensify the fight against corruption, renewed impetus is needed to rebuild institutions, strengthen budget procedures and reporting, improve transparency in tax administration, and pursue the auditing and restructuring of public enterprises.

  • The most important risks to the program for the rest of 2005 relate to insecurity and social tensions. Bringing the political transition process to a successful conclusion is key and will require coordinated efforts to tackle simultaneously political, economic, and security challenges. In that context, accommodative fiscal and monetary policies on the eve of the elections remains a major risk. Insufficient external financial support could also jeopardize the transition process.

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Press Release No. 05/195

FOR IMMEDIATE RELEASE

September 1, 2005

International Monetary Fund

Washington, D.C. 20431 USA

IMF Executive Board Completes the Fifth Review Under the Democratic Republic of the Congo’s PRGF Arrangement and Approves US$39.2 Million Disbursement

Washington, D.C. 20431 • Telephone 202–623-7100 • www.imf.org

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Public Information Notice (PIN) No. 05/135

FOR IMMEDIATE RELEASE

September 29, 2005

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

IMF Executive Board Concludes 2005 Article IV Consultation with the Democratic Republic of the Congo

On August 29, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the 2005 Article IV consultation with the Democratic Republic of the Congo.1

Washington, D.C. 20431 • Telephone 202–623-7100 • www.imf.org

Democratic Republic of the Congo: Staff Report for the 2005 Article IV Consultation Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility Requests for Waiver of Performance Criteria Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries and Request for an Extension of Arrangement
Author: International Monetary Fund