Abstract
This 2005 Article IV Consultation highlights that the economic activity in the Democratic Republic of the Congo (DRC) started to recover in 2002, after declining for 13 years. Inflation declined from 511 percent at end-2000 to 4 percent at end-2003. Fiscal developments were mixed in 2004, with government revenue higher and expenditure lower than programmed. The main risks for the rest of 2005 relate to security and social tensions, which could worsen in the case of further delays in the transition process.
August 29, 2005
1. This statement provides information obtained after the finalization of the staff report. It does not alter the thrust of the staff appraisal.
2. On the economic front, preliminary data for the first seven months of 2005 suggest that real GDP growth for the year is in line with program projections. Annualized inflation has fallen from 54 percent at end-May to 35 percent at mid-August, and the inflation objective for the year still seems achievable. After a period of volatility in June and July, the value of the Congo franc has been appreciating for the past three weeks, reflecting the impact of fiscal tightening on base money, the growth of which has remained well within the program target.
3. Preliminary data for key aggregates indicate that the quantitative indicative targets for end-June are likely to have been met, except for net credit to government. The latter was due to a temporary acceleration of civil service and military wage payments at end-June, the date at which the political transition was expected to end—it was, in the event, extended by six months. As this process was not repeated in July, net bank credit to government fell back.
4. Preliminary estimates indicate that fiscal performance during the first seven months of the year was broadly in line with the program objectives. The overall fiscal balance recorded a surplus, instead of a deficit as projected, reflecting higher government revenue and lower government expenditure. However, the composition of expenditure remains an issue, with outlays for poverty reduction and investment projects much less than targeted.
5. Eight out of the nine prior actions have been fully met. The prior action on the implementation of spending procedures from commitment to payments between the Central Bank of the Congo and the Treasury is well-advanced with average time for payments having been sharply shortened to two and a half days instead of two days as stipulated. Further progress will take a little more time given the need to strengthen staffing and procedures. However, in view of the measures taken and the authorities’ continued efforts to improve procedures, staff considers that program objectives remain feasible and hence supports the completion of the fifth review under the PRGF arrangement.