IMF Executive Board Approves US$12.53 Million PRGF Arrangement for the Republic of Congo and Interim Assistance under the Enhanced HIPC Initiative

The staff report for the Republic of Congo’s combined 2008 Article IV Consultation and Requests for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility is discussed. To enhance external viability, the authorities recognize the need to improve competitiveness, raise output growth through diversification, and consolidate the fiscal position. The authorities are making a concerted effort to improve the business climate, liberalize trade, deepen financial intermediation, continue reform of public enterprises, improve governance and transparency, and put in place development strategies in key sectors.

Abstract

The staff report for the Republic of Congo’s combined 2008 Article IV Consultation and Requests for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility is discussed. To enhance external viability, the authorities recognize the need to improve competitiveness, raise output growth through diversification, and consolidate the fiscal position. The authorities are making a concerted effort to improve the business climate, liberalize trade, deepen financial intermediation, continue reform of public enterprises, improve governance and transparency, and put in place development strategies in key sectors.

ANNEX

Background

The Republic of Congo has experienced strong economic growm in 2008, reflecting the resumption of oil production after an oil-platform accident as well as solid non-oil activity, driven by the telecommunication, construction, and transport sectors. Real GDP growm is projected to be about 7.6 percent in 2008. In 2007 real GDP contracted by 1.6 percent due to a sharp decrease in oil production. Higher food and energy costs pushed up consumer price inflation in the first half of 2008, reaching 5.7 percent in the 12 months through June 2008. Inflation is expected to moderate in the second half of 2008. The fiscal policy performance has improved recently, after a period of budget slippages and delays in implementing structural reforms. Although the basic, non-oil, primary fiscal deficit dipped to 55.7 percent of non-oil GDP in 2007, based on present policies it should improve significantly mis year. Driven by high oil exports, the current account is projected to swing from a deficit of 25 percent of GDP last year to a surplus of 0.6 percent of GDP in 2008. Congo’s external public debt has declined sharply in the past several years, partly as a result of Paris Club debt rescheduling and debt relief from London Club creditors under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.

Program Summary

The authorities’ medium-term economic program is designed to support balanced growth, low and stable inflation, as well as fiscal and external sustainability. The macroeconomic framework for 2008-11 aims to achieve:

  • Annual real GDP growth in the non-oil sector of about 8 percent.

  • Low and stable inflation of about 3 percent per year.

  • An improvement in the external position with the current account moving into surplus this year, and a rising surplus in the medium term.

Medium-term policies to achieve these objectives include:

  • Gradual, but continued fiscal consolidation to ensure steady progress toward long-term sustainability, recognizing the finite horizon for oil production.

  • The regional central bank’s focus on keeping inflation low within the Central African Economic and Monetary Community (CEMAC).

  • Further opening of the economy through trade liberalization.

  • Structural reforms in areas critical to the success of the program, including strengthening of public financial management, improvement in the financial and operating performance of state-owned enterprises, and adoption and implementation of the financial sector strategy.

Republic of Congo: Selected Economic and Financial Indicators, 2004-08

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Unless otherwise noted.

Republic of Congo: 2008 Article IV Consultation, Requests for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries, and Financing Assurances Review: Staff Report; Staff Statement and Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Congo
Author: International Monetary Fund