Republic of Congo
Fifth and Sixth Reviews Under the Three-Year Arrangement Under the Extended Credit Facility and Financing Assurances Review: Staff Report; Staff Statement and Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Congo.

In this study, macroeconomic development, its performance, and outlook are reviewed. Narrowing of the infrastructure gap and public financial management (PFM) are focused to safeguard investment quality. Fiscal reform has been introduced to improve the design of the tax system and to strengthen fiscal institutions that the FAD technical assistance (TA) mission introduced. A comprehensive action plan has been introduced to improve the business climate. The outstanding debt issues are being resolved.

Abstract

In this study, macroeconomic development, its performance, and outlook are reviewed. Narrowing of the infrastructure gap and public financial management (PFM) are focused to safeguard investment quality. Fiscal reform has been introduced to improve the design of the tax system and to strengthen fiscal institutions that the FAD technical assistance (TA) mission introduced. A comprehensive action plan has been introduced to improve the business climate. The outstanding debt issues are being resolved.

I. Introduction

1. In 2011 the authorities plan to scale up public investment to address longstanding development needs, while continuing to save a significant share of oil revenue. With oil production in mature fields expected to decline following its peak next year, policies aim to raise non-oil growth and reduce poverty through building a foundation of basic infrastructure and developing a business-friendly environment.

2. The authorities are confident that the policy framework laid out in their Memorandum of Economic and Financial Policies (MEFP, December 20, 2010) remains relevant, achievable and consistent with their policy objective of balancing development needs and fiscal sustainability. They are implementing action plans to strengthen public investment quality and the business climate, and taking measures to boost non-oil revenue while restraining current spending.

II. Developments, Program Performance and Outlook

3. Macroeconomic performance strengthened in 2010, largely as a result of domestic factors. Both oil production and non-oil activity (construction, telecoms, forestry) rose (Figure 1). Inflation ticked up in line with global developments, mitigated by positive supply shocks to agriculture and fixed domestic fuel prices. There are signs that activity in the non-oil sector continued to accelerate in the first quarter of 2011, while oil production declined by about 7 percent because of unscheduled stoppages.

Figure 1.
Figure 1.

Republic of Congo: Recent economic developments, 2008–10

Citation: IMF Staff Country Reports 2011, 255; 10.5089/9781462341566.002.A001

Source: IMF with authorities’ data.

4. The external position further strengthened in 2010. The bounce in oil prices shifted the current account into surplus, while debt relief following the HIPC Completion Point (January 2010) reduced external liabilities significantly. Gross official foreign assets climbed. At end-2010 net debt dropped to 3½ percent of GDP (Figure 2).

Figure 2.
Figure 2.

Republic of Congo: External sector developments, 2008–10

Citation: IMF Staff Country Reports 2011, 255; 10.5089/9781462341566.002.A001

Source: IMF with authorities’ data.

5. The authorities observed all continuous, end-December 2010 and end-March 2011 performance criteria (Text Table 1).

Text Table 1.

Quantitative targets, 2010–11

(Billions of CFA francs; cumulative from January; unless otherwise indicated)

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Excluding rescheduling arrangements and disbursements from the IMF; the minimum grant element is set to 35 percent.

Continuous.

The zero ceiling on nonconcessional external debt does not apply to forthcoming external loans from the European Investment Bank and the Central African States Development Bank, as specified in paragraph 11 of the Technical Memorandum of Understanding.

The zero ceiling also applies to new (i) external debt with an original maturity of less than one year, (ii) oil-collateralized external debt contracted by or on behalf of the central government, (iii) nonconcessional external debt with a maturity of more than 1 year contracted or guaranteed by SNPC, (iv) external arrears on nonreschedulable debt, and (v) to new domestic arrears.

  • The target on the basic non-oil primary deficit (BNOPD) was met. The higher (but still negative) net domestic financing of government relative to the indicative target is explained mostly by lower-than-envisioned oil revenues and higher accumulation of deposits abroad, which are now being repatriated. The fifth review was delayed pending clarification of financing flows, including foreign deposits.

  • Over the first two years of the program, the cumulative adjustment of the basic non-oil primary deficit (BNOPD) was broadly in line with the envisioned adjustment over the course of the whole three year ECF supported arrangement (Figure 3).

Figure 3.
Figure 3.

Republic of Congo: Basic non-oil primary balance to non-oil GDP (percent)

Citation: IMF Staff Country Reports 2011, 255; 10.5089/9781462341566.002.A001

Source: IMF with authorities data.

6. The authorities observed the two structural benchmarks aimed at improving oil governance, but encountered early difficulties with the new procurement code, observing this benchmark with delay.

  • Oil governance: The authorities have posted the oil certification reports for September and December 2010 on the ministry of economy, finance and budget website, and repatriated the proceeds of oil shipments to the Treasury within 45 days of shipment. Moreover, in December 2010 the EITI Board concluded that Congo had made “meaningful progress” in implementing EITI.1

  • Procurement: The structural benchmark requires that 80 percent of all contracts over $500,000 be subject to competitive bidding. Significant progress was made and the authorities brought various contracts in well below the expected cost. However, as can be expected, the transition was not without challenges, as line ministries have only recently begun to overcome significant teething problems and capacity constraints in implementing the new procedures and previously signed and ongoing contracts have to be brought under the new code. With 2011 annual procurement plans in place, by end-May the authorities had achieved a rate of about 90 percent.

7. The macroeconomic outlook is favorable, with the increasing stock of basic infrastructure likely to accelerate poverty-reducing non-oil growth. Oil production in currently operational fields is expected to peak in 2012, but new fields could come on stream starting in 2015, following ongoing negotiations to change the oil taxation regime (Figure 4). Non-oil growth will gain momentum as efforts to boost the business climate bear fruit and completion of public investment projects eases transport and supply bottlenecks. Strong oil prices and prudent policies will further strengthen the external position as external liabilities decline and gross official foreign assets rise to above 100 percent of GDP in 2013. A debt sustainability analysis (DSA, Informational Annex) indicates Congo is at low risk of debt distress and debt dynamics are robust to all standard shocks, but as is the case for the economy as a whole are highly sensitive to volatile international oil prices. Projected large asset accumulation over the longer term eliminates any external borrowing requirement.

Figure 4.
Figure 4.

Republic of Congo: Oil production profile and oil-dependence

Citation: IMF Staff Country Reports 2011, 255; 10.5089/9781462341566.002.A001

Source: Authorities’ data.

8. With a final test date of end-March 2011, program risks are limited, but looking ahead spending pressures may mount as oil prices climb. Clamors for further scaling up social spending and outlays on fuel subsidies may intensify, but so far, the impact of rising global food and fuel prices is being mitigated by good harvests, improved transportation and some administered prices.

III. Policy Discussions

The need for sustained consolidation and the already-large increase in investment spending slated for 2011 call for saving the bulk of the oil windfall. At the same time, macroeconomic stability and structural reforms to date have laid the foundation for taking policy making to the next level. The dialogue focused on the authorities’ efforts to strengthen tax policy and fiscal institutions. Efforts aimed at improving the business climate were also discussed.

A. Fiscal policy—Sustained consolidation while making the most of investment

9. Fiscal policy in 2011 focuses on narrowing the infrastructure gap, while continuing to save a sizable share of oil revenue. To this end, the authorities’ BNOPD projection of CFAF750 billion at end-December 2011 (-34.4 percent of non-oil GDP) allows for a 30 percent increase in domestically financed public investment. At current oil price projections, the government will save about 60 percent of total oil revenue (22 percent of GDP). Given the need for fiscal consolidation and the already-large increase in public investment, the authorities plan to save the bulk of any future oil windfall.

10. In order to create space for higher capital spending on basic infrastructure including roads and utilities, the authorities are taking the measures contained in the 2011 budget to increase non-oil revenue and restrain current expenditure.

  • Revenue: Measures are in train to (a) broaden the tax base (single window for tax payments of forestry and telecoms royalties to the treasury; taxation of transactions related to public contracts); (b) reduce exemptions; and (c) improve tax administration, with particular emphasis on customs appraisal and control. Preliminary data through April indicate that the authorities are on track to exceed the budgeted 2 percentage point of non-oil GDP increase in tax revenue collection, with upside potential if further measures are adopted. However, customs revenue will fall short if negotiations with the oil sector fail to accord the minimum 5 percent customs duty envisioned in the budget.

  • Current expenditure: Measures aim to bring transfers and spending on materials and supplies down from the high levels experienced in 2010 due to one-off events, and curtail non-essential official travel. The authorities do not intend to raise domestic fuel prices, but have retooled the refinery to increase efficiency and raise domestic supply.2 Staff welcomed the expenditure restraint and efforts to boost efficiency at the refinery, but advised that the implicit subsidy resulting from not adjusting domestic prices should be transparently presented in the fiscal accounts.

11. In order to safeguard investment quality, the authorities are building on progress to date in public financial management (PFM). Guided by their December 2010 self assessment, they have developed and are beginning to implement a second-generation action plan covering 2011–13 (PAAGIP II) to strengthen investment efficiency. With the procurement code firmly in place, reforms focus on two areas: (a) improving upstream project selection and prioritization and (b) strengthening project implementation. More broadly, the authorities have made progress in strengthening the first three stages of the expenditure chain (i.e., commitment, liquidation, payment order). Staff welcomed the progress to date and the action plan, but noted that a key bottleneck to improvement is the severe weaknesses in the area of treasury operations and control. Staff also encouraged the authorities to revisit the projects slated to begin over the remainder of the current year given the setbacks that were incurred in preparation of the 2011 budget.

B. Reforming the tax system and strengthening fiscal institutions

12. The authorities’ noted that the tax system is not reaching its potential, even when compared to other countries in the sub-region. This is consistent with the findings of a 2009 FAD technical assistance (TA) mission, which identified deficiencies in fiscal institutions within a tax system which is unnecessarily complex.3 Tax evasion and avoidance are endemic—often aided by reduced rates for certain sectors (i.e., forestry, agricultural inputs)—while VAT and excise exemptions for the oil industry significantly reduce revenue potential.

Figure 5.
Figure 5.

Non-oil tax revenue to GDP in select countries, 2006–10 (percent)

Citation: IMF Staff Country Reports 2011, 255; 10.5089/9781462341566.002.A001

Source: IMF with authorities data.

13. In June 2010 the authorities launched a fiscal reform aimed at improving the design of the tax system and strengthening fiscal institutions, while raising revenue collection. The reform program for 2011–13 is based on the initial report of the Steering Committee and draws heavily on IMF TA recommendations, including those of a February 2011 FAD follow up mission (Box 1). The authorities have (a) conducted a survey of unauthorized fees charged by line ministries (parafiscalité), (b) unified the tax rate and simplified the tax regime for businesses with turnover less than CFAF 40 million (about $80,000), (c) implemented a unique taxpayer identification system, (d) are in the process of producing a tax expenditure document which will be submitted to parliament along with the 2012 draft budget law, and (e) have eliminated all exemptions not governed by international conventions, the general tax code and the investment code, although the latter is not always respected. The ministry of finance (MOF) is in the process of being reorganized by tax payer units, and computer systems linking all budget operations should be operational by end-2011. Ad hoc measures are also being taken to strengthen capacity, reduce tax evasion, improve taxpayer education and ease the cost of compliance.4

14. There was broad agreement that bolder reforms were needed, but these require increased political consensus. While recognizing the tradeoffs between improving tax competitiveness and increasing revenue collection, the authorities noted that vested interests and key sectors are resisting more sweeping reforms. They have struggled to achieve compliance of line ministries with the prohibition on ad hoc exemptions and fees, and face an uphill battle in garnering political support for eliminating remaining exemptions, including for the important oil sector, and the reduced VAT on the forestry sector. In order to create a space for dialogue and address the impasse, they have created six subcommittees comprised of both the public and private sectors.5 Staff encouraged the authorities to strengthen the MOF as an institution, including by amending the organic budget law to make the MOF the only institution charged with putting forward tax policy measures in the context of the draft budget law; to produce and submit to parliament an annual tax expenditure document; and to improve oil revenue projections through increasing transparency regarding the financial position of the national oil company. Staff also encouraged the authorities to use their position as chair of the CEMAC Council of Ministers to push for improvements in the regional excise and tariff system.

Fiscal reform—Recommendations and actions planned for 2011

A February 2011 technical assistance mission from the Fiscal Affairs Department (FAD) of the IMF conducted a follow up mission on tax policy. The wide-ranging recommendations are best carried out in the context of a comprehensive three year plan. However, previously identified measures require no further study and can be implemented now.

FAD TA recommendations for 2011 requiring no further study

Tax Policy

  • Reduce distortions and opportunities for tax avoidance: unify the minimum tax rate for all sectors; eliminate the reduced VAT rate on forestry products; and eliminate VAT exemptions on inputs to final products (e.g. agriculture products);

  • Simplify the customs clearance procedure to reduce the number of payments by importers;

  • Streamline tax incentives and eliminate remaining exemptions, which are mostly related to public enterprises, real estate properties, forestry, alcohol and tobacco prior to implementing further tax rate cuts; and

  • Eliminate fees or parafiscalité wherever it acts as an additional tax, rather than a price for a service.

Fiscal Institution Building

  • Prepare and present to parliament an annual tax expenditure document to increase transparency regarding the cost of the current tax system; provide a basis for analysis and discussion of tax proposals and tax reform measures; and enhance the legitimacy of the ministry of finance (MOF);

  • Include in the 2012 budget law a provision to make the MOF the only entity charged with putting forward fiscal policy measures to parliament as a first step to eventually amending the organic budget law. Proposals of other agencies would pass through a filter at the MOF, who would bear ultimate responsibility, and all proposals would transparently be put forth in the budget document; and

  • Increase the leadership role (versus oversight) of the steering committee on fiscal reform.

Authorities’ planned actions for 2011

  • Broaden the tax base by extending excises taxes to domestic sales of alcohol and tobacco products (sin taxes) and luxury goods (proposal—in the context of the CEMAC common external tariff);

  • Submit to CEMAC a proposal to zero rate capital imports under the common external tariff in order to encourage investment, while taxing companies on their profits;

  • Simplify taxation of the informal sector through a single flat turnover tax; and

  • Work to define the minimum tax that all businesses should pay to ensure that all companies make some contribution to the government (effective only in 2012).

C. Stepping up efforts to improve the business climate

15. In February 2011 the Council of Ministers adopted a comprehensive action plan to improve the business climate. The ultimate aim of the plan is to foster economic diversification and employment creation which will help raise the population out of poverty. The authorities noted that with the support of development partners, six topical working groups have been formed to study and implement measures aimed at achieving the plan’s ten objectives, which range from improving the fiscal and legal environment to supporting SMEs, improving access to credit and developing industrial zones. They noted that a framework is now in place for public-private dialogue, and with the help of the European Union progress has already been made in the area of trade and commerce, where a one-stop shop for business registration has been set up; consumer protection and competition laws have been drafted; arbitration manuals have been drawn up; and training is taking place throughout the country for judges and lawyers on OHADA law. Work is also gearing up to establish an SME promotion body, and they are currently considering various modalities to improve access to financing.6 All of these reforms will complement ongoing efforts to close the infrastructure gap over the medium term—a first section of the road from the port city to the capital will be completed this year; two sizable electricity generation plants came on stream in 2010, with work on distribution underway; and a new potable water facility is scheduled for completion in 2012.

16. Staff welcomed these initiatives and encouraged the authorities to push forward with them in the context of the broader reform agenda, given the important synergies that exist between the planned actions and ongoing work to improve basic infrastructure and reform customs. Various commission reports are currently under consideration by government. In this context, there was broad agreement that increased coordination and alignment of views among the multiple ministries, donors and consultants would be necessary to keep the reform agenda moving ahead. At the same time, staff encouraged the authorities to exercise caution in considering use of a guarantee fund for lending to SMEs given the potentially large fiscal costs associated with such a scheme.

IV. Other issues

17. The authorities noted that they will adopt the functional classification of pro-poor spending once the Poverty Reduction Committee has validated the methodology.7 This is expected in the coming months. Staff welcomed the improved monitoring that this could entail, but stressed that it was even more important to ensure that budgeted social funds are not only made available when requested but also used effectively. Strengthening treasury operations and expenditure monitoring of ministries in charge of social spending is vital to improving public service provision. The authorities should work with the development partners to strengthen capacity.

18. The authorities stressed their commitment to work toward resolving outstanding debt issues. Agreements have been signed with the vast majority creditors. Discussions with the outstanding non-Paris Club bilateral creditor will resume at the next Joint Commission meeting scheduled for 2012, and remaining bilateral institutions would need to respond to the Congolese offer. Regarding commercial creditors, cases with two litigating creditors are ongoing in the courts, while discussions to obtain comparable treatment with one creditor continue.

V. Staff Appraisal

19. The near-term outlook is favorable. Strong policies and improving external conditions will support macroeconomic stability, while fiscal consolidation in excess of original program targets and progress on key structural reforms have built resilience to shocks.

20. Sustained efforts to strengthen policies and the scaling up of investment in basic infrastructure bode well for a take-off in non-oil growth and durable poverty reduction. Given the already-large increase in investment and the need for fiscal consolidation over the medium term, the bulk of the oil windfall should be saved. Ensuring that pro-poor spending reaches its intended target groups may help quell clamors for higher spending—the main risk going forward.

21. Structural reforms have moved forward, particularly in the areas of PFM and oil wealth management. Especially notable in this regard is the implementation of the new procurement code which requires competitive bidding. The observance with delay of the structural benchmark containing an eighty percent threshold for larger projects reflects transitional challenges faced by line ministries and the need to bring ongoing projects under the code. That said, much remains to be done to address the severe weaknesses in treasury operations and control, and efforts to strengthen project selection and implementation should continue.

22. In the period ahead, increasing focus should be placed on strengthening policy making and building institutions, while continuing to work toward improving transparency and governance of oil wealth. Reforms underway in the fiscal area will help reduce the complexity of the tax system, improve efficiency and reduce tax avoidance and evasion. The ministry of finance should be strengthened, including by making it the sole institution responsible for putting forth tax policy measures in the context of the draft budget law. This should be complemented by annual production and submission of a tax expenditure document which presents the cost of current and proposed policies, which will help garner the needed support for deeper tax measures encountering resistance from vested interests. At the same time, increasing transparency regarding the financial position of the national oil company through an annual published audit would go a long way toward better understanding the consistent underperformance of fiscal oil revenues relative to projections.

23. The welcome initiatives to improve the business climate should continue in the context of the broader reform agenda to increase basic infrastructure and improve customs. Increased coordination and alignment among the multiple ministries, donors and consultants will be necessary to keep the reform agenda moving ahead.

24. Reaching the completion point has significantly reduced Congo’s debt burden. Best efforts to conclude bilateral agreements as soon as possible and good faith efforts to obtain comparable treatment from all remaining commercial creditors should continue. New debt should only be considered if extended on highly concessional terms.

25. Staff recommends completion of the fifth and sixth reviews under the ECF arrangement and disbursement of the sixth and seventh loans, in an amount equivalent to SDR 1,208,570 and SDR 1,208,580, respectively. Staff also supports the authorities’ request to rephrase the seventh disbursement to end-July to better align it with completion of the sixth and final review.

Table 1.

Republic of Congo: Selected Economic and Financial Indicators, 2008–13

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Sources: Congolese authorities; and Fund staff estimates and projections.

Country Report No. 11/67.

Including public transfers.

The increase in 2010 relative to the program reflects final accounts after HIPC debt relief.

Including grants.

Primary revenue (excluding interest income and grants) minus non-interest current expenditure minus domestically financed capital expenditure and net lending.

HIPC completion point reached in January 2010. In March 2010, the Paris Club granted 100 percent debt relief.

Table 2.

Republic of Congo, Medium Term Balance of Payments, 2008–13

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Sources: BEAC; and Fund staff estimates and projections.

Country Report No. 11/67.

Includes stock debt relief of the HIPC completion point.

Includes assumed disbursements under the new PRGF.

Includes flow debt relief from Paris Club and London Club, and payments to litigating creditors.

Table 3a.

Republic of Congo: Central Government Operations, 2008–13

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Sources: Congolese authorities; and Fund staff estimates and projections.

Country Report No. 11/67.

Primary revenue (excluding interest income and grants) minus noninterest current expenditure minus domestically finance capital expenditure (excluding HIPC-financed capital expenditure) and net lending.

HIPC completion point reached in January 2010. In March 2010, the Paris Club granted 100 percent debt relief.

Table 3b.

Republic of Congo: Central Government Operations, 2008–13

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Sources: Congolese authorities; and Fund staff estimates and projections.

Country Report No. 11/67.

Primary revenue (excluding interest income and grants) minus noninterest current expenditure minus domestically financed capital expenditure (excluding HIPC-financed capital expenditure) and net lending.

HIPC completion point reached in January 2010. In March 2010, the Paris Club granted 100 percent debt relief.

Table 4.

Republic of Congo: Monetary Survey, 2008–11

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Sources: BEAC; and Fund staff estimates and projections.

Country Report No. 11/67.

Table 5.

Republic of Congo: Quantitative targets, 2010–11

(Billions of CFA francs; cumulative from January; unless otherwise indicated)

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Excluding rescheduling arrangements and disbursements from the IMF; the minimum grant element is set to 35 percent.

Continuous.

The zero ceiling on nonconcessional external debt does not apply to forthcoming external loans from the European Investment Bank and the Central African States Development Bank, as specified in paragraph 11 of the Technical Memorandum of Understanding.

Table 6.

Republic of Congo: Structural Benchmarks under the ECF Arrangement, 2010–11

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Table 7.

Republic of Congo: Access and Phasing Under the 3-Year ECF Arrangement (2008–11)1

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The Republic of Congo’s quota is SDR 84.6 million.

Given that the fifth and sixth reviews have been combined, the authorities have requested a rephasing in order to better align the disbursement with the Board date.

Appendix 1—Supplemental Letter of Intent

Brazzaville, July 14, 2011

The Minister of Finance, Budget and Public Portfolio

To:

Ms. Christine Lagarde

Managing Director

International Monetary Fund

Washington, DC 20431

United States of America

Dear Managing Director:

Since reaching the HIPC Completion Point in January 2010, the Fund’s Executive Board completed the third and fourth reviews of Congo’s Extended Credit Facility (ECF) arrangement in August 2010 and January 2011, respectively. The Congolese government continues to implement a medium-term economic and financial program aimed at generating balanced growth, low and stable inflation, and fiscal and external sustainability. It is also determined to maintain the momentum of economic reform in order to accelerate growth and durably reduce poverty. In this regard, we believe the program objectives elaborated in our Memorandum of Economic and Financial Policies (MEFP) of December 2010 remain relevant and achievable.

The implementation of our Fund-supported program continues to be satisfactory and we observed all the continuous and quantitative performance criteria for end-December 2010 and end-March 2011. Notably, despite encountering current spending pressures in mid-2010, we were able to achieve the end-December program target. We attribute this strong performance to prudent budget management and the emerging benefits of public financial management and tax and customs administration reforms, as well as some tax policy changes. In 2011 we have stepped up tax reform, and are on track to surpass our ambitious tax collection target of 2 additional percentage points of non-oil GDP. In terms of financing, the higher net domestic financing of government is mostly explained by lower oil revenues and higher foreign deposits.

Performance in the structural area has also been satisfactory. Over the period under review we observed the two structural benchmarks aimed at strengthening oil governance, and despite falling short of meeting the structural benchmark percentage on procurement, mainly due to previously signed contracts and their regularization, we are pleased with our progress on implementing the new procurement code. After facing significant teething problems early on at the ministerial level, procurement procedures are now solidly in place and transparency has been increased through the posting of our annual procurement report online. I can now report that all ministries have approved procurement plans in place for 2011 and as of end-May 90 percent of contracts above $500,000 have been subject to competitive bidding.

Building on our progress to date, we are committed to sustaining consolidation efforts through the end of the program and beyond, opening fiscal space for important development spending through lasting gains in non-oil revenue collection and restraint over non-essential current expenditure. As envisaged earlier, we project a basic primary non-oil deficit of CFAF 750 billion at end-December 2011 (34.4 percent of non-oil GDP). This includes a 30 percent increase in domestically financed capital expenditure aimed at addressing development needs. As a result, the fiscal adjustment over the course of the three-year ECF arrangement would be equivalent to a reduction of about 10 percent of non-oil GDP, as envisioned at the time of approval of the arrangement. Looking ahead, with infrastructure investment well underway, the 2012 budget will place increasing focus on improving social service provision in the areas of health and education, and on improving the quality of life of the Congolese people, including by bringing electricity and water to the main urban centers.

HIPC debt relief has led to a significant improvement in the government’s external position and we will continue to maintain a prudent external borrowing policy. This includes both borrowing on concessional terms and enhancing our debt management capacity in order to preserve external stability.

We will support these policy objectives through determined efforts to improve tax policy, safeguard investment efficiency and strengthen governance and transparency, especially in the areas of oil wealth management and fiscal operations. In this regard, in 2011 we will take further measures to reform the tax system and step up implementation of our action plan to improve public financial management, including measures to strengthen our monitoring and accounting of fiscal operations. Building on reforms put in place in the context of the HIPC process, we will continue to work toward EITI compliance.

The Congolese government highly values technical assistance, and has taken the lead in providing financial support to AFRITAC in order for it to continue to perform its important role of capacity building in the region. It is with the help of AFRITAC that we are making progress in using a functional classification to enhance the monitoring of poverty-related spending. The Poverty Reduction Committee is studying the proposal made by AFRITAC to ensure that the recommendations are in line with the poverty profile. Once this validation is completed, we will closely monitor such spending to gauge our progress in addressing social challenges.

As Chairman of the ministerial committee of the Central African Economic and Monetary Community (CEMAC) and the Board of Directors of the regional central bank (BEAC), we will strive to comply with our obligations under CEMAC including repatriation by the end of the year, address the weaknesses in BEAC and strengthen regional integration.

With the final test date under the program successfully behind us, it is with great pride that we request the completion of the fifth and sixth reviews and the disbursement of the sixth and seventh loans under the ECF arrangement. We also request that the seventh disbursement be re-phased to end-July in order to better align it with completion of the sixth and final review and subsequent expiration of the program.

However, while the program is coming to a close it is our firm intention and desire to remain closely engaged with the Fund, benefitting from its advice and technical assistance to enhance policy making and durably reduce poverty. In the future we will continue to consult closely with Fund staff providing all necessary information required for effective economic surveillance. The government intends to make the contents of this letter and those of the attached Technical Memorandum of Understanding (Attachment 1), as well as the staff report accompanying its request for completion of the fifth and sixth reviews of the program, available to the public and authorizes the Fund to arrange for them to be posted on the Fund’s website, subsequent to Executive Board approval of its request.

Sincerely yours,

/s/

Gilbert Ondongo

Minister of Finance, Budget, and Public Portfolio

Attachment

Table 1.

Republic of Congo: Quantitative targets, 2010–11

(Billions of CFA francs; cumulative from January; unless otherwise indicated)

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Excluding rescheduling arrangements and disbursements from the IMF; the minimum grant element is set to 35 percent.

Continuous.

The zero ceiling on nonconcessional external debt does not apply to forthcoming external loans from the European Investment Bank and the Central African States Development Bank, as specified in paragraph 11 of the Technical Memorandum of Understanding.