Republic of Congo: Staff Report for the 2012 Article IV Consultation—Informational Annex
Author:
International Monetary Fund. African Dept.
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Publication Date:
12 Oct 2012
eISBN:
9781475512830
Language:
English
Keywords:
ISCR; CR; business climate; surplus; report; economy; budget; I. fund relation; oil-drilling company; liability positions vis-à-vis nonresident; vis-à-vis nonresident; Balance of payments statistics; Government finance statistics; Monetary statistics
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The key issue facing Congo is how to use oil and mineral resources effectively in support of inclusive growth. Economic conditions are supportive--macroeconomic stability is in place, the terms of trade are favorable, and the external position is strong. External risks are mitigated by membership in CEMAC, under which all members benefit from the French convertibility guarantee, and large fiscal buffers. Yet, growth has not been inclusive. Over half of the population lives in poverty and a labor skills mismatch results in high unemployment and underemployment, especially among youth. The difficult business climate holds back diversification. On March 4, 2012 a munitions depot exploded in Brazzaville causing death and destruction; near-term policies focus on reconstruction and addressing the humanitarian crisis.

Abstract

The key issue facing Congo is how to use oil and mineral resources effectively in support of inclusive growth. Economic conditions are supportive--macroeconomic stability is in place, the terms of trade are favorable, and the external position is strong. External risks are mitigated by membership in CEMAC, under which all members benefit from the French convertibility guarantee, and large fiscal buffers. Yet, growth has not been inclusive. Over half of the population lives in poverty and a labor skills mismatch results in high unemployment and underemployment, especially among youth. The difficult business climate holds back diversification. On March 4, 2012 a munitions depot exploded in Brazzaville causing death and destruction; near-term policies focus on reconstruction and addressing the humanitarian crisis.

I. Fund Relations

Membership Status:

Joined: 07/10/1963; Article VIII.

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans:

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Financial Arrangements: None

Projected obligations to Fund: *

(SDR Million; based on existing use of resources and present holdings of SDRs):

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Safeguards Assessment:

The Bank of the Central African States (BEAC) is the regional central bank of the Central African States. The most recent safeguards assessment of the BEAC was completed on July 6, 2009. The findings of this assessment indicated that implementation of previous safeguards recommendations on financial reporting, internal audit, and internal control was limited, and that the changing risk profile of BEAC foreign exchange holdings, required further actions to strengthen safeguards at BEAC. Subsequent to the revelation of fraud in the Paris office (late 2009), a series of measures and longer term safeguard measures were agreed between the IMF and BEAC in order to continue with country programs. Consequently, BEAC adopted an action plan for 2010 with the aim of strengthening key safeguards. In addition, since 2010, BEAC and the Fund agreed on additional measures to address the weaknesses highlighted by the special audit and strengthen governance bodies. Fund staff is actively monitoring the implementation of these measures.

Exchange Rate Arrangement:

Congo’s currency is the CFA franc, which is pegged to the Euro at a fixed rate of CFAF 655.957 = Euro 1. Congo does not impose any restrictions on the making of payments and transfers for current international transactions.

Last Article IV Consultations:

Following completion of the three-year Extended Credit Facility (ECF) arrangement in August 2011, consultations with Congo are now on a 12-month cycle, based on the Board decision on Article IV consultation cycles. The last Article IV consultation discussions and the Fourth Review under the ECF arrangement were held in Brazzaville on November 9–23, 2010. The staff report (Country Report No. 11/67 at www.imf.org) was considered by the Executive Board on January 19, 2011.

Previous Fund Recommendations:

The staff and the authorities have intensively exchanged views regarding policy priorities in the context of the recent Article IV discussions and the ECF arrangement. During the 2010 consultations, Executive Directors cautioned about the mounting current spending pressures and called for striking an appropriate balance between the scaling up of capital spending in priority areas and fiscal sustainability. They also stressed the need for sustained improvements in public financial management to raise the quality of capital spending and to enhance the management, governance and transparency of oil revenues.

Resident Representative:

The resident representative, Mr. Oscar Edgardo Melhado Orellana, took up his assignment in September, 2009.

FSAP Participation: none

Technical Assistance Received April 2009–April 2012

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II. World Bank - IMF Collaboration

The IMF and the World Bank teams maintain an ongoing exchange of views on relevant macroeconomic and structural issues. The intense cooperation and the coordination include the following:

  • Article IV Consultations. World Bank representatives attended meetings during the 2012 IMF Article IV mission. This facilitated the discussions and provided valuable input, in particular in the areas of mutual interest such as public financial management.

  • Joint managerial action plan. The IMF and World Bank Republic of Congo teams met on July 8, 2011 to discuss a joint managerial action plan. The Fund provides economic updates crucial for the Bank’s sectoral work. The World Bank’s work program comprises work in seven areas: (i) Human development: engagement is broadly based in HIV, education, and health; (ii) Urban water supply and electricity sector reform: physical infrastructure as well as management of the sector; (iii) Agriculture and rural development: infrastructure provision, especially roads, and support in formulation of agricultural policies and expenditure programs; (iv) Economic diversification, including support in implementing the action plan to improve the business climate for the SMEs; (v) Governance: the current program is coming to an end and a new phase is being prepared; (vi) Telecommunications sector: development of fiber optic infrastructure in the context of the Central African Backbone project; and (vii) Forestry sector. The Bank’s work is supported by a Country Partnership Strategy (2010–12) which focuses on reducing oil dependence. A new CPS is expected to be discussed by the World Bank Board in September 2012. Future activities include support to a regional initiative to develop the main transport corridors, a forestry project to support the management of the forestry sector and a trade facilitation assessment. An Employment and Growth Study was completed in December 2011 covering the key challenges and labor market developments. A mining sector review is also being prepared.

  • Joint Staff Advisory Note on the Poverty Reduction Strategy Paper. The staffs have prepared a JSAN on the National Development Plan for 2012–16.

Republic of Congo: Table of Joint Managerial Plan Between the IMF and The World Bank

As of May 30, 2012

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III. Statistical Issues

(As of May 30, 2012)

Assessment of Data Adequacy for Surveillance

  • General: Data provision has shortcomings, but is broadly adequate for surveillance. The incomplete reporting of fiscal financing, and limited statistical coverage and long delays in the provision of national accounts and balance of payments statistics are particularly problematic. Since the occurrence of governance problems at the Bank of Central African States (BEAC), timely delivery of financial sector data has been hampered. Poor coordination among different governmental agencies is also an issue. Technical assistance has resulted in some progress but there is still a need to consolidate these gains and further strengthen statistical capacities.

  • National Accounts: National accounts data is weak, with inconsistencies both internally and with balance of payments statistics. The Directorate General of Statistics (DGS) of the Ministry of Finance (MoF) provides Fund missions with a breakdown of GDP by expenditures and sectors, both in nominal and real terms. In the context of moving to the SNA93 system of accounts, the DGS completed the national accounts estimates for 2005 (the new base year) and for 2006–07, with the assistance of a resident statistical expert and AFRITAC Central. The authorities are currently working with the AFRITAC Central to revise national accounts’ estimates back to 2000 and up to 2010. Annual data on employment in the central government are available from the MoF, but are not consistent with data from the civil service roster of the Ministry of the Civil Service. As part of the structural reforms undertaken in the context of the post-conflict program, the government completed an audit of public service employees, but the two civil service’s databases are yet to be unified.

  • Price statistics: Movements in the prices of commodities consumed by households are recorded for the capital city of Brazzaville and for Pointe Noire, the second largest city. Data are compiled on a monthly basis. Starting August 2010, the authorities introduced a new CPI measure with new weights and a new composition of the basket of goods and service. This new CPI is harmonized with that of other countries in the Central African Economic and Monetary Community (CEMAC). However, implementation of the new CPI suffers from severe deficiencies, given the fixed nature of the products followed, especially in the fast-moving telecoms sector.

  • Government finance statistics (GFS): Progress is underway to increase the comprehensiveness of the data through the adoption of systematic compilation practices and steps have been taken to computerize expenditure chain accounting. However, the recording of fiscal financing in the official TOFE is incomplete and results in large, unexplained statistical discrepancies. The Caisse Congolaise d’Amortissement (CCA) produces data on the outstanding stock of external public debt, including arrears and their composition, together with detailed projections on debt service due. These data are provided to Fund missions. However, the debt stock data cannot readily be reconciled with flow data in the balance of payments or the fiscal accounts, as a result of weak collaboration between the CCA and public works and the CCA and the BEAC. The CCA also produces domestic debt data. Concerns still exist with regard to the reconciliation of fiscal and monetary statistics. There is no centralized, comprehensive database on the operations of public enterprises. However, some information has been made available to Fund missions by individual enterprises. TOFE compilers do not have access to relevant financial statements of the Société Nationale des Pétroles Congolais (SNPC), which carries out several operations on behalf of the government (notably in the oil sector).

  • Monetary statistics: BEAC regularly reports monetary, interest rate, and exchange rate statistics for publication in IFS. In 2007, the BEAC started a project to migrate monetary statistics of member countries of the CEMAC to the methodology in the Monetary and Financial Statistics Manual (MFSM). As part of this project, a regional workshop was organized by the BEAC in December 2007 to finalize the mapping of source data from commercial banks to the MFSM concepts and framework. STA participated in this workshop to provide guidance and advice. Submission of data by the BEAC using the standardized report forms is pending. Following governance issues occurred in 2009 at the BEAC data delivery on financial system indicators has been hampered. The accuracy of national monetary statistics may be affected by large cross-border movements of BEAC issued banknotes among CEMAC member countries. However, the Republic of Congo is moderately affected by such movements: 10 percent of banknotes issued in the Republic of Congo by the BEAC national directorate circulate in Cameroon and 2 percent in Gabon, while currency in circulation in the Republic of Congo includes 0.9 percent of banknotes from Cameroon and 1.9 percent from Gabon. The magnitude of banknote movements between the Republic of Congo and CEMAC member countries other than Cameroon and Gabon is very small.

  • Balance of payments: Although BEAC produces balance of payments data, delays occur and data suffers from significant inconsistencies with other datasets. The opacity surrounding certain transactions in the oil sector introduces an extra layer of imprecision. In addition, net investment flows are overestimated by significant unrecorded disinvestment operations that are part of the tax regime arrangements obtained by nonresident oil-drilling companies. Balance of payments data for 1995 through 2005 are published in the Fund’s International Financial Statistics (IFS), and STA is working with the authorities in updating the data series. In February 2007, a follow-up STA balance of payments statistics mission made a number of recommendations aimed at improving institutional arrangements for balance of payments statistics compilation and validation. Progress in this regard has been slow, delaying the process for finalizing BOP data for 2005–10.

  • Data Standards and Quality The Republic of Congo participates in the General Data Dissemination System (GDDS) since November 5, 2003. However, the metadata posted on the Fund’s Dissemination Standards Bulletin Board (DSBB) has not been updated or certified since 2003. No data ROSC is available.

  • Reporting to STA The Republic of Congo reported (in September 2008) GFS data to STA for fiscal years 2004 and 2005 using the GFSM 2001 template—data for 2006–10 has experienced delays. High-frequency fiscal data has not yet been reported for publication in IFS. The compilation of GFS statistics to be reported to the Fund should be carried out in close cooperation with the division in charge of TOFE statistics.

Republic of Congo: Table of Common Indicators Required for Surveillance

As of May 30, 2012

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic non-bank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

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Cover IMF Staff Country Reports
Republic of Congo: Staff Report for the 2012 Article IV Consultation
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2012: Issue 283
Publisher:
International Monetary Fund
ISBN:
9781475512830
ISSN:
1934-7685
Pages:
59
DOI:
https://doi.org/10.5089/9781475512830.002