Abstract
This 2007 Article IV Consultation highlights that the Democratic Republic of the Congo (DRC) has made significant economic and political progress since 2001, after years of conflict and political instability. Adoption of prudent macroeconomic policies resulted in rapid disinflation and the stabilization of the exchange rate. The implementation of structural reforms made the economy more open, removed major price distortions, and strengthened macroeconomic policy management. Executive Directors have encouraged the new government to work with all parties to improve security and bring peace to all country provinces.
September 5, 2007
This statement provides information on recent developments received since the staff report was issued. It does not change the thrust of the staff appraisal.
1. Recent macroeconomic indicators have been encouraging. In June-July, annualized inflation dropped below 12 percent, the end-year target; the Congo franc was stable, slightly below CF500 per US dollar; and gross foreign exchange reserves covered about 3 weeks of imports. The improved situation made it possible for the central bank to reduce its base rate from 50.0 percent at end-March to 22.5 percent in August.
2. Preliminary indications are that quantitative benchmarks under the staff monitored program (SMP) were met at end-June. A narrower-than-anticipated fiscal deficit on account of higher revenue led to a reduction in net credit to the government. This, however, may have been facilitated by unanticipated government revenue, the nature of which remains to be determined.
3. Pressure on spending has been building up following the promulgation of an expansionary 2007 budget in July. In particular, the government is unlikely to keep the wage bill below 5.5 percent of GDP as targeted under the SMP, since the budget calls for a wage bill equivalent to 6.8 percent of GDP. Already, parliamentarians have tripled their own salaries and teachers are asking a large pay raise before starting the new school year. Nevertheless, the authorities reiterated that they would continue implementing a treasury cash-flow plan consistent with the overall objectives of the SMP.
4. Three of the nine structural benchmarks under the SMP were met at end-June. These are the installation of a new computerized accounting system of the central bank, the external audit of the central bank 2006 accounts, and the installation of a new civil service payroll in Kinshasa. For the other benchmarks, the draft 2007 budget submitted to the National Assembly provided for higher expenditures (0.3 percent of GDP) compared with SMP fiscal framework; the organizational audit of the Central Bank (BCC) was completed in August instead of June, because the initial draft was considered unsatisfactory; the action plan to finalize the UBC/BC merger is yet to be adopted; the audit of the expenditure financed by HIPC resources was completed in June 2007, but the government is still working on an action plan to implement its recommendations; the audit of government expenditure for December 2006-Februry 2007 is not completed; and the main public-private partnership contracts have not been published.