Statement by Kossi Assimaidou, 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

On behalf of my Congolese authorities, I would like to thank staff for the constructive policy dialogue during the recent missions held in Brazzaville in March and May-June 2011.

The Republic of Congo’s implementation of the ECF-supported program continues to be satisfactory. The authorities met all quantitative targets at end-December 2010 and end-March 2011, including the floor on the basic non-oil primary fiscal balance despite spending pressures in 2010. They also observed all structural benchmarks—though some with delay—notably the benchmark on the implementation of the new procurement code which ultimately exceeded the program threshold. My Congolese authorities will continue their efforts to strengthen governance in the oil sector, as can be seen through the observance of all structural benchmarks and the realization of meaningful progress towards EITI compliance.

Throughout the program, the authorities have maintained the momentum of economic reforms and have kept the fight against poverty at the core of their development agenda. An important goal is to close the country’s immense infrastructure gap, including by bringing water and electricity to the main urban centers. Another key objective of the investments underway is to promote the diversification of the economy away from oil production which is expected to peak next year, while encouraging job creation in the private sector.

The Republic of Congo, which currently chairs the ministerial committee of the Central African Economic and Monetary Community (CEMAC) and the Board of Directors of the Community’s central bank, BEAC, has reiterated its commitment to strengthen regional integration and address weaknesses at the regional institutions. Regarding more specifically the issue of the repatriation of foreign exchange receipts at the BEAC by member countries, I would like to underscore that my authorities take this issue very seriously. Accordingly, following a BEAC Board meeting held in Cameroun earlier this month, they have announced that they will comply with all obligations under BEAC rules. I would like to inform the Board that they have already initiated repatriation of part of these receipts, and that the repatriation of the remaining receipts held abroad should be finalized by the end of the year.

II. Recent Economic Developments

Congo’s macroeconomic performance in 2010 was robust and broad-based. While growth in the oil sector remained strong, non-oil real GDP growth continued to increase and is projected to reach double-digit rates by 2013—a sign of increased economic diversification that the investment program underway is intended to further enhance.

Higher oil prices have helped shift the current account balance from a large deficit of 8.2 percent of GDP in 2009 to a comfortable surplus of 4.6 percent of GDP in 2010. Inflation, on average, remained stable compared to last year, at around 5 percent, although slightly above the CEMAC’s convergence criterion of 3 percent.

The authorities have also successfully narrowed the basic non-oil primary deficit balance to 34.4 percent of GDP in 2010 from 44.3 percent in 2008 thanks to efforts on both revenues—through tax and customs administration reforms, tax policy changes—and expenditure management. In particular, the improved public financial management is yielding positive results.

III. Program Implementation Going Forward

The adjustment in the projected basic non-oil primary fiscal balance at end-December 2011 of 34.4 percent of non-oil GDP represents, over the three-year duration of the ECF-supported program, an improvement equivalent to 10 percent of non-oil GDP. The size of the fiscal consolidation corresponds to the amount envisioned at the time of the approval of the arrangement in December 2008.

Building on the progress made thus far, my authorities are determined to continue their fiscal consolidation efforts by taking decisive measures to further create fiscal space and enable a substantial increase in development spending. They intend thus to accelerate the diversification of the sources of revenue away from oil while making further efforts to reduce non-essential current expenditures. In this respect, they welcome the valuable recommendations made by recent FAD missions in Brazzaville. Based on the findings and recommendations of these missions, they have initiated an ambitious medium-term fiscal reform plan to help strengthen revenue mobilization, including through the elimination of exemptions and the improvement of tax administration. However, for capacity reasons, these recommendations will need to be sequenced over time. In 2011, the authorities plan notably to introduce excise taxes on alcohol and tobacco to further broaden the tax base, and also a single flat turnover tax to simplify the taxation of the informal sector.

As they pursue their infrastructure investment program, my authorities will give priority to further strengthening public financial management. They have undertaken a reform in this area that would help improve project selection, reinforce project implementation and enhance monitoring.

The Congolese authorities are aware that, in order to accelerate the diversification of the economy, additional investments in infrastructure alone will not suffice. It will be crucial to improve the business climate and attract investors—both foreign and domestic—to help promote activities in areas outside the oil sector. They are addressing this issue through a comprehensive action plan adopted by the government earlier this year. They thank their development partners for the assistance provided in this area, notably the EU, as their involvement was crucial in particular in drafting consumer protection and competition laws, drawing up arbitration manuals, and establishing a one-stop shop for business registration.

IV. Debt Sustainability Analysis

Since reaching the completion point of the HIPC Initiative early last year, Congo’s external position has improved markedly. In order to preserve external stability following the substantial debt relief granted under the HIPC Initiative and MDRI, my Congolese authorities are committed to maintaining a prudent debt strategy. As agreements have been signed with the vast majority of creditors, my authorities remain committed to working toward resolving outstanding debt issues with the remaining few creditors.

My authorities welcome the findings of the DSA, that Congo is at a low risk of debt distress and that debt dynamics are robust to the potential adverse shocks that could affect the country. They share the view on the need to preserve fiscal sustainability and pursue economic diversification as a way to shield public finances from oil price volatility.

V. Conclusion

In light of my authorities’ continued satisfactory progress under the Fund-supported program, I would like to request the Board’s support for the completion of the fifth and sixth reviews under the ECF.

Having reached the final review under the current arrangement, I would like, on behalf of my Congolese authorities, to express my deep appreciation to the Board and Management for the support provided over the years and the valuable recommendations made.

In the period ahead, my authorities will remain closely engaged with the Fund.

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.
Author: International Monetary Fund