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© 2010 International Monetary Fund

October 2010

IMF Country Report No. 10/328

Democratic Republic of the Congo: Poverty Reduction Strategy Paper—Progress Report

This poverty reduction strategy paper—progress report on the Democratic Republic of the Congo was prepared by the authorities of the Democratic Republic of the Congo as background documentation for the periodic consultation of the International Monetary Fund with the member country. It is based on the information available at the time it was completed in April, 2010. The views expressed in this document are those of the member country and do not necessarily reflect the views of the International Monetary Fund staff or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

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Democratic Republic of the Congo

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Inter-Ministerial Commission on Implementation of the National Poverty Reduction Strategy CI-SNLCP

REPORT ON IMPLEMENTATION OF THE GROWTH AND POVERTY REDUCTION STRATEGY

April 2010

table of contents

• table of contents

• acronyms

• executive summary

  • Context surrounding the preparation and implementation of the final GPRSP

  • Report methodology

  • Framework

• chapter 1. analysis of macroeconomic performance and expenditure

  • Introduction

  • 1.1. Recent developments in the Congolese economy

    • 1.1.1. Economic activity and prices

    • 1.1.2. Public sector

    • 1.1.3. External sector

    • 1.1.4. Monetary sector

    • 1.1.5. Economic situation at end-March 2010

  • 1.2. Expenditure analysis

    • 1.2.1. Analysis of budget expenditure by category

    • 1.2.2. Public expenditure in relation to GPRSP priorities

  • 1.3. Medium-term macroeconomic prospects

• chapter 2. actions implemented

  • Introduction

  • 2.1. Promoting good governance and consolidating peace through strengthened institutions

    • 2.1.1. Security and judicial governance

    • 2.1.2. Political and administrative governance

    • 2.1.3. Economic governance

  • 2.2. Policies supporting economic growth

    • 2.2.1. Agriculture and rural development

    • 2.2.2. Forest and the environment

    • 2.2.3. Mines and hydrocarbons

    • 2.2.4. Energy

    • 2.2.5. Transportation infrastructure

    • 2.2.6. Industry

    • 2.2.7. Trade

  • 2.3. Improved access to basic social services and reduced vulnerability

    • 2.3.1. Education

    • 2.3.2. Health

    • 2.3.3. Water and sanitation

    • 2.3.4. Social protection

  • 2.4. The fight against HIV/AIDS (one of the GPRS pillars)

    • 2.4.1. Preventing and stabilizing HIV and STI transmission

    • 2.4.2. Speeding treatment and improving the quality of life of persons living with HIV/AIDS

    • 2.4.3. Mitigating the socioeconomic impact of HIV/AIDS on the community

    • 2.4.4. Building coordination, monitoring and evaluation capacities at all levels

  • 2.5. Support for local initiatives

  • 2.6. Strengthening capacities

• chapter 3. monitoring and evaluation

  • 3.1. Institutional framework

  • 3.2. Monitoring and evaluation tools

• conclusion

  • Closing remarks

• annexes

Acronyms

EXECUTIVE SUMMARY

The Government of the Democratic Republic of the Congo (DRC) issues its report on the implementation of its Poverty Reduction and Growth Strategy Paper (GPRSP) for 2009, in the context of achieving completion point triggers under the enhanced initiative for Heavily Indebted Poor Countries (HIPC). The DRC aims to qualify for substantial external debt cancellation under both the HIPC Initiative and the Multilateral Debt Reduction Initiative (MDRI).

The GPRSP was prepared in two phases. In the first phase, an interim poverty reduction strategy paper (PRSP-I) was put in place for practical reasons relating notably to limitations of the statistical apparatus and weakened human and institutional capacities in formulating development policies, the delayed consequence of years of political, economic, and social instability. Through the successes of one year’s implementation of the PRSP-I and six months’ execution of the program supported by the Poverty Reduction and Growth Facility (PRGF), a key component of the PRSP-I, the DRC reached the decision point under the enhanced HIPC Initiative in July 2003 and was granted debt relief representing approximately 90% of the State’s debt service, which was used to finance spending to combat poverty.

In the second phase, a final version of the poverty reduction strategy (which had since become the Growth and Poverty Reduction Strategy Paper, GPRSP) was developed through a participatory approach. The final version of the first-generation GPRSP was first adopted by the transition government in July 2006, and subsequently endorsed by the government elected through free and democratic elections in March 2007. It was approved by the World Bank Board of Directors and the IMF Executive Board in March and April, 2007, respectively. Following practical difficulties, the action plan for implementation of the first-generation GPRSP was finalized in July 2007.

It is important to recall that the implementation of the GPRSP beginning in July 2007 took place in an extremely challenging environment, marked by (i) the devastation of economic and social infrastructures, a formidable obstacle to private sector growth and development; (ii) uncertainties surrounding the preparation and staging of the first truly free and democratic elections in a climate of heightened tensions; (iii) renewed hostilities in the eastern region, bringing grave humanitarian consequences; (iv) the global food and energy crises; (v) the international financial crisis (the most serious since the Great Depression of 1929); (vi) the collapse in commodity prices and resultant contraction of government revenue; (vii) the lack of budgetary support since the 2006 suspension of the PRGF program; and (viii) weak human and institutional capacities, particularly in the areas of statistics, policy formulation, and the monitoring and evaluation of policy implementation.

The combination of these factors adversely affected the conduct of macroeconomic and sector policies.

Macroeconomic policies were implemented under the program supported by the Extended Credit Facility that took effect in July 2009 and was formally concluded in December 2009. The overall results were satisfactory. The economy grew by 2.8 percent, compared to a target of 2.7 percent, sparked by a third-quarter recovery in the mining sector and the attendant spillover effects in the tertiary sector. Inflation climbed to 53.4 percent, corresponding to an annual average of 46.1 percent, compared to a target of 48.7 percent. The indicative U.S. dollar-Congolese franc exchange rate was 902.7, representing a 29.2 percent depreciation compared to the same period of 2008.

This macroeconomic performance was the result of rigorous budgetary and monetary policies adopted in 2009 and pursued through third quarter 2010. Inflation declined from around 47.6 percent in February 2010 to 34.3 percent in March. In annualized terms, it stood at 19.6 percent in March compared to 50.9 percent in February and an annual target of 15 percent.

Viewed in terms of GPRSP pillars, public expenditure management demonstrates the importance of the strategic pillar “Promoting good governance and peace.” Spending for this pillar accounted for roughly 60 percent of primary expenditure in 2009, followed by pillar 3, “Promoting access to basic social services,” which declined slightly as a proportion of primary expenditure from 24.9 percent in 2008 to 23.6 percent in 2009. Pillar 2, “Support sectors with growth potential,” increased from 16.2 percent in 2008 to 16.5 percent in 2009.

The government recognizes that continued, sustainable growth in a stable macroeconomic climate is essential to reducing poverty. The medium-term macroeconomic objectives remain the same as agreed in the recent PRGF arrangement. Stated in quantitative terms, the objectives are: (i) reduce year-to-year inflation to 9 percent by end-2012; (ii) increase international reserves to 10 weeks of nonaid imports by end-2012; and (iii) achieve real GDP growth in the range of 6 percent per annum. The government intends to accelerate its program of reforms to achieve these objectives.

The accomplishments in regard to sector policies are highly encouraging. With respect to security, operations successfully reestablished peace and the government’s authority in the eastern and western parts of the country (the Goma peace accord, the Amani Programme for the Security, Pacification, Stabilization and Reconstruction of the Kivu Provinces, the joint Umoja Wetu operation with Rwanda, Kimia I and II, Operation Amani Leo, and the assimilation (brassage), disarmament, demobilization, and integration of ex-combatants).

There was notable progress in the administration of justice, including review of the Ministry of Justice organizational framework, the new Constitutional Court act awaiting adoption by the Parliament, the construction of a new Palais de Justice, and rehabilitation of courthouses, prosecutors’ offices and prisons in Kinshasa and the provinces.

Police reform efforts continued in the context of the Joint Discussion Group on Reform and Reorganization of the Congolese National Police (GMRRR), yielding the following preliminary results to date: (i) a preliminary draft framework law, which has been submitted to the Parliament; (ii) establishment of the Police Reform Monitoring Committee (CSRP); (iii) construction and equipping of an office building for the finance, budget, data processing, and human resources departments; and (iv) collection of data on police force staffing.

There were no significant developments in reform of the public administration in 2009, but 3,741 civil service positions were eliminated nationwide through retirements. Modest progress was made in the decentralization process, where a progressive approach was ultimately adopted in regard to the principle of transferring 40 percent of national revenue and authority to the provinces. The transfer of powers is currently limited to the functions of the provincial governments and assemblies, and is supported by an institutional and human capacity strengthening program. The proposed framework law on the organization and operations of the Independent National Electoral Commission and the proposed annex to the electoral law establishing the distribution of seats were adopted.

In regard to economic governance, the government continued its program to modernize the public financial management system and financial administrations (establishment of provincial tax centers, conversion of the Customs and Excise Office (OFIDA) from government enterprise to government agency, creation of a unit within the tax administration (DGI) responsible for strategic sectors such as mining and telecommunications) and a legal and regulatory framework (proposed public finance act, proposed customs code, promulgation of a public procurement code). The expenditure cycle was extended to all expenditures, including emergency expenditures, to ensure transparency and traceability of government financial operations. The government adopted the Strategic Plan for Public Finance Reform (PSRFP) in March 2010.

In regard to public debt, the prime minister issued a regulatory text confirming the central role of the Directorate of Public Debt (DGDP), and an automated debt management system was installed.

Other significant actions. A new regulatory framework (National Statistics System, SSN) governing the production and use of statistics in the DRC was implemented in February 2010. Laws providing for the conversion of public enterprises and the government’s withdrawal from commercial enterprises were implemented. The improved business climate, intended to improve the DRC’s position in the Doing Business ranking, was central to the DRC’s ratification of the OHADA Treaty. Also noteworthy was the creation of the Arbitration Center and National Mediation Center, which were provided with furniture, equipment, and information systems. Measures were implemented to simplify the creation of businesses. An AML/CFT and financial intelligence unit was established and began operations in October 2009.

To improve information on the employment situation in the DRC, two systems were implemented in February 2010, a registration system for individuals seeking employment and the Better Job Market Management through Effective Data Processing (PIEGMA) program.

Policies to support economic growth targeted agriculture, rural development, forests and the environment, mines and hydrocarbons, energy, and transportation infrastructures. The government adopted the harmonized agricultural and rural development strategy. It finalized a majority (30 of 42) of the implementing regulations under the 2009 forestry code. The first report under the Extractive Industries Transparency Initiative (ITIE), covering 2007, was produced in 2009 and is pending validation by an independent consultant. In regard to electricity production, an investment program funded the completion of a number of actions, including: (i) rehabilitation of Group 3 at the Inga 2 plant; (ii) acquisition of a Francis turbine runner at the Inga 2B plant; (iii) completion of a rehabilitation study for the Zongo plant; (iv) installation of a 500 KVA floating hydropower plant at Kananga; and (v) the provision of electric power to the city of Kindu.

In regard to transportation infrastructure, 22,900.60 kilometers of roads were completed, representing 113 percent of the target of 20,352.05 kilometers. The principal efforts involved modernization, rehabilitation, re-opening unpaved and rural roads, and large-scale maintenance projects.

Significant progress was made in providing access to basic social services. In the education sector, the government’s actions raised primary school enrollment from 64.1 percent in 2006 to 84.3 percent in 2008, compared to a target of 80 percent projected in 2005. Enormous challenges remain in regard to tuition-free, universal primary education and the achievement of Millennium Development Goals (MDGs). In the health sector, in addition to legal and regulatory measures, a number of national campaigns were conducted to combat disease (polio vaccination campaign, distribution of vitamin A and insecticide-treated mosquito nets, and vaccination of over 2 million infants under age one with financial support from the Global Alliance for Vaccines and Immunization (GAVI) and the United Nations Children’s Fund, UNICEF). Additional actions reduced the under-five mortality rate from 172 to 148 per thousand over the reporting period; stabilized the neonatal mortality rate at roughly 38 per thousand; and increased BCG vaccination coverage. Finally, in regard to urban and rural drinking water supply, the rehabilitation of water collection plants in Lukaya and N’kjili and construction of the second water collection plant in Boma served to increase access to drinking water to approximately 27 percent.

In regard to the fight against HIV/AIDS, the strategy focused on preventing and stabilizing the transmission of HIV and sexually transmitted infections (STIs), accelerating treatment, improving the quality of life of persons living with HIV/AIDS, attenuating the socioeconomic impact of HIV/AIDS on the community, and strengthening coordination, monitoring, and evaluation capacities at all levels.

In the chapter on institutional arrangements for implementation, monitoring, and evaluation, the government recognizes weaknesses in strategic coordination at both central and provincial levels. In contrast, the implementation, monitoring, and evaluation activities of sector-level entities proceeded as planned, with support from technical and financial partners (TFPs). Beginning in mid-2009, the government began to address the situation by instituting weekly meetings to monitor progress toward reaching the completion point triggers under the HIPC Initiative.

To facilitate monitoring and evaluation of the Growth and Poverty Reduction Strategy, appropriate indicators were defined in the sectors identified as priorities in the first-generation GPRSP (education, health (including HIV/AIDS), agriculture, rural development, transportation infrastructure, and water and sanitation).

In conclusion, the Congolese government is pleased to have initiated an effort, with support from its technical and financial partners, to systematize its medium-term development planning, and to have resolutely done so in a very hostile domestic and external context. The results achieved are less important than the ultimate adherence to an approach that represents a clear break with ad hoc practices that marked years of poor governance.

The first-generation GPRSP would have produced more successful results were it not for the constraints faced over the entire implementation period, chief among which were:

• – Limited internal resources to finance the GPRS, due to government revenue remaining low despite a relatively high rate of growth. This situation was exacerbated by a contraction of budgetary support following suspension of the program supported by the PRGF, which slowed the pace of reforms;

• – De-linking of the priority action plan (PAP), a key tool in implementing the GPRS, from the national budget, preventing it from being executed through the expenditure cycle. This situation is the result of lack of cohesion between the Budget Preparation and Monitoring Department, the Planning Department, and the sector ministries;

• – Lack of communication between the government and the Bretton Woods institutions, which initiated the planning approach through the GPRSP, in regard to the use of a tool that was in an experimental phase in a post-conflict country. This state of affairs was not conducive to the understanding or full-fledged adoption of such an approach;

• – Burdensome administrative procedures imposed on project execution by both TFPs and the government, impacting project cost evaluations in most cases;

• – Social and political uncertainties created by the tensions of the 2006 elections, exacerbated by the climate of insecurity in the eastern part of the country, and their repercussions for public financial management and macroeconomic stability;

• – The international food and financial crises followed by the collapse of commodities prices, which had devastating effects on economic activity and the management of public finances and currency.

Despite the constraints identified above, implementation of the GPRS produced encouraging results, as summarized below:

• - Social sector indicators (health, HIV/AIDS, education, water and sanitation) improved. The greatest gains were made in the education sector, where the various indicators are on par with those of sub-Saharan African countries.

• - The macroeconomic programs implemented during the period under review restored macroeconomic stability, as demonstrated by the conclusion of the IMF Extended Credit Facility in December 2009. However, the modest performance observed in regard to budgetary and monetary policies could have been strengthened if the reform program had not slowed, in which case the macroeconomic policies would have made a significant contribution toward reducing poverty.

• - The emergency sector programs, projects, and actions in the areas of planning, security, transportation infrastructure, health, education, and water have restored peace and security and improved socioeconomic conditions, albeit slightly, for the Congolese people. They had a genuine impact on poverty reduction, primarily in terms of improved economic and social infrastructures and access to basic social services. The results described represent the execution of only half of the actions planned.

• - The government recognizes that the strategic coordination of the GPRS was not commensurate with the importance of the issues at stake. It notes, however, that the weekly meetings instituted in the second half of 2009 to monitor progress on the HIPC Initiative completion point triggers signal a new direction in adapting government programs. In this regard, the government expects to intensify and rationalize its efforts in the context of the second-generation GPRSP.

Recommendations

The recommendations draw on the lessons learned from implementation of the first-generation GPRSP. They shed light on the options that could emerge from the participatory consultations on the second-generation GPRSP. Certain GPRSP pillars, noted below form the basis of tomorrow’s challenges:

1. Consolidating peace and security through continued actions to complete the pacification of national territory and end the humanitarian crisis, and by accelerating reform of the security sector;

2. Expanding the government’s capacity to deliver quality social services by creating consensus as to the government’s role and the need to better focus that role on its sovereign missions, and adapt the central and provincial administrations accordingly;

3. Promoting administrative and economic governance by continuing the decentralization process, adjusting it to reflect our available resources; through a relationship of accountability between government and the governed; through continued financial reforms and reforms of public enterprises; and through a genuine commitment to transparent mechanisms in managing natural resources (EITI++);

4. Strengthening the conditions of sustainable growth, through an improved business climate and implementation of a roadmap to raise the country’s standing in the “Doing Business” category; intensified support for sectors with growth potential and the road, energy, and transportation infrastructures; and implementation of an aggressive commercial policy;

5. Giving serious consideration to the effects of climate change and issues pertaining to nature conservation; and

6. Mobilizing the private sector (including through public-private partnerships) to address the problems of financing development programs.

In reference to the important task of monitoring and evaluation, the government will face six major challenges: (i) reviewing and formalizing the monitoring-evaluation framework; (ii) securing the production of statistical data; (iii) renewing the operational and budgetary programming framework; (iv) implementing reporting tools: (v) developing a minimal framework for evaluating public policies; and (vi) increasing participation and communication.

INTRODUCTION

The Government of the Democratic Republic of Congo (DRC) issues its second report on implementation of its Growth and Poverty Reduction Strategy Paper (GPRSP) for 2009 and its projections for 2010. This fulfills a twofold commitment made in adopting the GPRSP: first, to prepare an annual report on progress under the National Growth and Poverty Reduction Strategy (GPRS) in reference to the objectives of that strategy and the Millennium Development Goals (MDGs). In this regard, a midterm report on progress in implementing the GPRSP (for the period April 2007 to December 2008) was issued at end-2008; and second, to accomplish, through the progress report, one of the triggers required to reach the completion point under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC).

The DRC is determined to accomplish all of the HIPC completion point triggers in order to qualify for cancellation of substantial stocks of external debt under both the HIPC and the Multilateral Debt Reduction Initiative (MDRI).

In view of its participatory nature, the GPRSP is the frame of reference for the development of the DRC’s economic and social development policies and programs. It establishes the approach and the clear, harmonized, shared objectives underlying the development of those policies and programs. It provides the framework for coordinating the efforts of the government and its social and external partners both in implementing the strategic pillars and in mobilizing the resources to finance implementation. The elected administration based its program and contract of governance (2007-11) on the strategic pillars of the GPRSP and secured its adoption by the Parliament in March 2007.

Preparation of the GPRSP occurred in two phases that required more than one year to complete due to practical difficulties, including limitations of the statistical apparatus and weakened human and institutional capacities in formulating development policies, the delayed consequence of years of political, economic, and social instability.

In the first phase, a participatory approach begun in 2001 led to the preparation of an interim version of the poverty reduction strategy paper (PRSP-I), in light of the difficult context marked by the initial steps away from armed conflict and government efforts to restore authority over the national territory and institute good governance. Through the successes of one year’s implementation of the PRSP-I and six months’ execution of one of its key components, the program supported by the Poverty Reduction and Growth Facility (PRGF), the DRC reached the decision point under the enhanced HIPC Initiative in July 2003 and was granted debt relief representing approximately 90% of the State’s debt service, which was used to finance poverty-reduction expenditures.

In the second phase, a final version of the poverty reduction strategy (which had since become the Growth and Poverty Reduction Strategy Paper, GPRSP) was developed through a participatory approach involving all sectors of the population and the development partners. At the end of the process, the final version of the first-generation GPRSP was adopted by the transition government in July 2006, and subsequently endorsed by the government elected through free and democratic elections in March 2007. It was then presented to the World Bank Board of Directors and the IMF Executive Board, which adopted it in March and April, 2007, respectively. Following practical difficulties, the action plan for implementation of the first-generation GPRSP was finalized in July 2007. It should be noted, however, that the actions undertaken in 2006 with government and external financing had previously been finalized in the context of the Growth and Poverty Reduction Strategy (GPRS).

In July 2006, when the final version of the GPRSP was adopted by the transition government, the DRC was no longer under the formal program supported by the PRGF under which the macroeconomic stabilization efforts could be evaluated. This was an important element missing from both the second Enhanced HIPC completion point trigger and Pillar 2 of the GPRSP. An IMF staff monitoring program was instituted to restore the necessary conditions for conclusion of the new program under the PRGF. However, while awaiting renewal of that program, which would support the macroeconomic stabilization and growth program as one of the pillars of poverty reduction, and to allow sufficient time to prepare the second-generation GPRSP covering the period 2011 to 2015, the government decided in July 2009 to extend the term of the first-generation GPRSP to December 31, 2010.

After several renewals of the IMF staff monitored program on grounds of insufficient results, the government succeeded in December 2009 in demonstrating the outcomes required to conclude a new program under the new Extended Credit Facility, thereby filling the gap in the GPRS and kindling hopes for achieving the HIPC completion point by no later than June 2010.

However, it is important to bear in mind the historical context in which the final GPRSP was prepared and implemented.