Democratic Republic of the Congo
2012 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Democratic Republic of the Congo

Economic performance in the Democratic Republic of the Congo (DRC) has improved markedly. To safeguard the fiscal position, the government has to rigorously monitor budget execution and reduce nondiscretionary spending. The current monetary and floating exchange rate regime should be maintained. Recent efforts to shore up financial stability and develop the banking sector give opportunities for closer regional and global financial integration. Institutional weaknesses, the business environment, and establishing a strong foundation for the exploitation and development of DRC’s natural resources will be critical.

Abstract

Economic performance in the Democratic Republic of the Congo (DRC) has improved markedly. To safeguard the fiscal position, the government has to rigorously monitor budget execution and reduce nondiscretionary spending. The current monetary and floating exchange rate regime should be maintained. Recent efforts to shore up financial stability and develop the banking sector give opportunities for closer regional and global financial integration. Institutional weaknesses, the business environment, and establishing a strong foundation for the exploitation and development of DRC’s natural resources will be critical.

Background

1. In the past few years, economic performance in the Democratic Republic of the Congo (DRC) has improved markedly, although progress in alleviating poverty and meeting the Millennium Development Goals has lagged. Prudent macroeconomic policies and structural reforms have underpinned this performance and led to the DRC receiving debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in mid-2010. This debt relief—the largest amount to any eligible HIPC country—reduced the DRC’s external debt burden from about 136 percent of GDP in 2009 to about 35 percent at the end of 2010. Regrettably, the level of poverty probably remains high—about 70 percent of the population—and the DRC is unlikely to meet any of the MDGs.1

2. In the November 2011 elections, President Kabila was reelected and his coalition partners won a majority in parliament. This brought with it a measure of political and social stability and expectations that the thrust of economic policies would continue. While some key reforms have been pushed forward, poor performance in the management of public finances, external debt, and natural resources has emerged. Along with the deteriorating security situation in the eastern provinces, these weaknesses could undermine recent progress and jeopardize the completion of the fourth and fifth reviews of the authorities’ Extended Credit Facility (ECF) arrangement.2

3. In the context of the Article IV consultations, the authorities have been receptive to the IMF’s advice, although they have addressed the recommendations from the previous discussions with varying amounts of determination and vigor. The cornerstone of their efforts has been fiscal consolidation, where they have responded positively to the IMF’s call for spending restraint and the end to inflationary fiscal financing from the Central Bank of the Congo (BCC). Monetary and financial sector policies have moved in the right direction but progress has been slower than expected. Likewise, structural reforms to enhance public financial management (PFM) and natural resource management are being undertaken, although the political will to tackle the most difficult issues has waned. The authorities are making concerted efforts to implement the 2010 safeguards assessment recommendations, including the BCC’s move to International Financial Reporting Standards.

4. The 2012 Article IV discussions kept the focus on many of these same issues, but shifted the timeframe from the short-to-medium term. The staff team exchanged views with the authorities and stakeholders on the following main issues: anchoring fiscal policy to strengthen credibility and sustainability; improving the efficacy of monetary policy in the context of serious constraints; and making the economy more robust and less vulnerable to shocks.

Context, Outlook, and Risks

The economy shows remarkable resilience

5. Macroeconomic performance in the DRC was strong during 2010–11 even though the global economy remained weak, external financial support was limited, and the national elections in November 2011 created significant uncertainty. Solid progress was made toward meeting many of the country’s medium-term economic objectives.

  • The DRC’s weak financial linkages with the euro area countries have largely shielded it from the turmoil there. Strong trade and investment inflows from non-European countries, driven mainly by the mining sector, have helped support economic activity in the past few years. This activity broadened to the manufacturing and tertiary sectors (telecommunications, beverages, construction) and real GDP growth expanded by about 7 percent in 2010–11 (Table 1, Figure 1).

  • Inflation was above the BCC’s single-digit target in 2011, mainly because of high global food and fuel prices early in the year but has since been on a downward trend. Domestic prices bumped up at the beginning of 2012 alongside the introduction of the value-added-tax, but inflation has regained its downward path to just below 10 percent through July (Figure 1).

  • The external sector improved significantly as a result of HIPC debt relief but remains vulnerable to the volatile terms of trade, high import dependency on food and capital goods, narrow export base, and high level of dollarization of the banking sector. The DRC also continues to be at high-risk of debt distress because of the inclusion of the public guarantee on external borrowing under a Sino-Congolese joint venture (Sicomines, Annex I). The current-account deficit widened in 2011 (about 11½ percent of GDP) as commodity prices weakened from their high levels in 2010 and the value of imports increased, especially for food, fuel, and capital goods (Table 2).

Table 1.

Democratic Republic of the Congo: Selected Economic and Financial Indicators, 2009-15

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

IMF Country Report No. 11/190.

The projections for 2011 and beyond account for mining companies profit outflows.

Projections are based on calculations under the 2010 HIPC Debt Sustainability Analysis (EBS/10/121, 06/16/2010). Includes assistance beyond the terms of the enhanced HIPC Initiative granted by some Paris Club creditors. Exports are on a three-year backward moving average.

Figure 1.
Figure 1.

Recent Economic Developments

Citation: IMF Staff Country Reports 2013, 094; 10.5089/9781484331064.002.A001

Sources: Congolese authorities; and IMF staff estimates and projections.
Table 2.

Democratic Republic of the Congo: Balance of Payments, 2010–15

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

Including interest due to the IMF.

Excluding principal repayments to the IMF.

Including unrecorded transactions. The latter may be substantial given weaknesses in statistics.

Mainly arrears to Paris Club creditors.

The rebuilding of macroeconomic buffers supported recent developments

6. These buffers were improved along four of five dimensions (Figure 2).

Figure 2.
Figure 2.

Macroeconomic Buffers, 2009 and 2012

(Units indicated)

Citation: IMF Staff Country Reports 2013, 094; 10.5089/9781484331064.002.A001

Sources: Congolese authorities; and IMF staff estimates and projections.
  • Fiscal dominance has been reduced in the past few years, owing to the government’s expenditure restraint and commitment to zero (net) financing of the budget from the BCC (excluding the use of deposits from HIPC debt relief and several grants saved from 2010). This has helped break a vicious inflation-exchange rate depreciation cycle and brought the domestic fiscal deficit down from 2½ percent of GDP in 2009 to a projected deficit of 0.9 percent of GDP in 2012 (Tables 3a and 3b, Figure 3).

  • Expenditure control has been necessary to address the limited external financial support to the DRC—reflecting donors concerns over governance, especially in the natural resource sector—and slow progress in raising more domestic revenue. Recently, however, weaknesses in the budget process, inflated revenue projections, and a corresponding large expenditure envelope point to the need to bolster and better entrench PFM reforms (Annex II).

  • The improvement in the fiscal situation has also helped the BCC control liquidity and fight inflation. The BCC contains inflation through the issuance of central bank bills but data and capacity problems, as well as political pressures have made it hesitant at times to proactively tighten monetary policy. It has aggressively reduced its policy interest rate faster than justified by inflation developments, leading to relatively low real interest rates (Figure 3). More recently, the BCC’s own budgetary constraints prompted it to reduce its stock of central bank bills in order to reduce interest costs, leading to an unwarranted increase in liquidity.

  • External stability has been strengthened through HIPC debt relief and a buildup of international reserves (from about 6.3 weeks of import cover in 2009 to a projected 8.8 weeks this year, Figure 3), which provides a larger cushion against external shocks. Notwithstanding this progress, an even larger buffer is needed to bolster the DRC’s external stability, including from a projected widening of the current account deficit and growing dollar-deposits in the banking system. External borrowing should be consistent with maintaining external debt sustainability and only on highly concessional terms. The current account deficit has increased in the past few years, reflecting the volatility of the terms of trade (rather than deterioration in the DRC’s international competitiveness), high imports related to mining sector and infrastructure investments, and better accounting of income flows. Export volumes (mainly commodities) also expanded significantly in the same period. But the recent deterioration of the current account might also be linked to the ongoing difficult business environment, which influences the DRC’s international competiveness more than the level of the real effective exchange rate (REER). Indeed, according to the staff and authorities’ assessment, the REER is probably in line with the fundamentals (Annex III).

Table 3a.

Democratic Republic of the Congo: Central Government Financial Operations, 2010–15

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Sources: Congolese authorities and IMF staff estimates and projections.

IMF Country Report No. 11/190; the ratios are calculated on the basis of revised GDP figures.

In 2011 tax prepayments made by mining firms of $40mn, which will offset profit tax liabilities spread over 2013-14.

Reflects revised calculation of HIPC Initiative assistance on the basis of the 2010 Debt Sustainability Analysis (IMF Country Report No. 10/360).

Exceptional expense includes spending for the Demobilization, Disarmament, and Reintegration (DDR) program, and cost of the elections.

The domestic fiscal balance is defined as revenue (excluding the signing bonus from the SCCA) minus total expenditure (excluding interest on foreign debt, foreign-financed capital, and exceptional expenditure).

Table 3b.

Democratic Republic of the Congo: Central Government Financial Operations, 2010-15

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Sources: Congolese authorities and IMF staff estimates and projections.

IMF Country Report No. 11/190; the ratios are calculated on the basis of revised GDP figures.

In 2011 tax prepayments made by mining firms of $40mn, which will offset profit tax liabilities spread over 2013–14.

Reflects revised calculation of HIPC Initiative assistance on the basis of the 2010 Debt Sustainability Analysis (IMF Country Report No. 10/360)

Exceptional expense includes spending for the Demobilization, Disarmament, and Reintegration (DDR) program, and cost of the elections.

The domestic fiscal balance is defined as revenue (excluding the signing bonus from the SCCA) minus total expenditure (excluding interest on foreign debt, foreign-financed capital, and exceptional expenditure).

Figure 3.
Figure 3.

Policy Performance

Citation: IMF Staff Country Reports 2013, 094; 10.5089/9781484331064.002.A001

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

7. Although progress in structural reform has been mixed, some reforms in key areas have been supportive of better economic performance. In particular, the authorities have been moving methodically, if unevenly, to put in place their Strategic Plan for Public Finance Reform with technical assistance (TA) from the IMF, World Bank, and development partners (Annex IV). Much of the IMF TA focuses on the fiscal planning process, helping to build tools for better macrofiscal forecasting and moving toward a medium-term budget framework with expenditure priorities guided by a new Poverty Reduction Strategy (PRS).

8. The authorities implemented a large number of measures supported by the World Bank to strengthen governance in the natural resource sector and they recently submitted the instruments to adhere to the Organization for the Harmonization of African Business Law (OHADA) in Dakar. The BCC intervened in mid-2010 to address problems with a large commercial bank to avoid a systemic crisis, while extending its efforts toward bolstering financial supervision and hastening the development of the banking sector. The BCC has also completed a pension reform and is in the process of shedding non-core activities to better focus on its mandate.

9. Still, other reforms have lagged and new issues have emerged, including weaknesses in PFM (i.e., an unrealistic 2012 budget), external debt management (emergence of external payments arrears) and problems in ensuring accountability and transparency in the operations of state-owned enterprises (SOEs) in extractive industries.

A. Outlook and Risks

The short-term outlook appears relatively benign

10. Recent global and domestic developments have not dampened investors’ appetite for ramping up near-term production, especially in the mining sector. On present projections, mining-related investments will continue to grow in 2012–16, providing a major impetus to real GDP growth, which could exceed 7 percent this year and 8 percent in 2013. While some of these investment plans could be scaled back if conditions worsen, any softening could be partially offset by the Sicomines project whose implementation has only recently begun.

11. The strong investment cycle will invariably lead to a widening of the current account deficit as a consequence of heavy capital imports. The larger current account deficit would also reflect the DRC’s rules on accelerated depreciation of investments for tax purposes, which allow for large tax deductions of investments that, consequently, increase income outflows in the current account. Fortunately, the deficit should be adequately financed over the medium term, by the strong inflows of direct investment from these mining projects (including Sicomes).

12. The prospects for an expansion of mineral exports over the medium term should lead to higher foreign-exchange earnings and with them, opportunities for the BCC to accumulate further international reserves. The authorities’ objective of 10 weeks of import coverage therefore is achievable, although the staff’s estimates using the IMF template for reserve adequacy suggest this objective should be set much higher to ensure external stability (Annex V).

13. Rising international food prices, however, may also complicate the task of the BCC. Although the magnitude will depend on the price increases on crops most relevant to domestic consumption, recent history points to significant pass-through from international food prices to inflation. If realized, this may jeopardize the achievement of the BCC’s single-digit inflation target this year and slow down the increase in international reserves.3

But downside risks are significant

14. The outlook is subject to a number of downside risks, a couple of which could have a severe impact on the DRC. Some of the risks stem from the potential for further weakness in the euro area that spills over into lower global growth, with adverse implications for already weakening commodity prices. Other risks could be homegrown; in particular, those stemming from fiscal slippages given expenditure rigidities if overly optimistic tax revenue projections are not realized, spending pressures from an escalation of the recent conflict in the eastern part of the country, or a reversal of governance reforms that put a freeze on investment (Table 5).

Table 4.

Democratic Republic of the Congo: Monetary Survey, 2009-13

(Current exchange rates)

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

In billions of Congolese francs at current exchange rates.

Table 5.

Democratic Republic of the Congo: Risk Assessment Matrix

(Scale—high, medium, low)

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15. Although the DRC authorities have made concerted efforts to rebuild the macroeconomic buffers, there is a strong rationale making them even bigger. A steep drop in commodity prices comparable in scope to the decline in 2009 and an escalating conflict that requires a substantial increase in security-related spending would have serious implications. Together with the authorities, the staff elaborated on these shock (or tail-risk) scenarios.

  • Plunging commodity prices: A 40 percent decline in commodity prices relative to the baseline (equal to two standard deviations from the historical average) in 2013, with a partial reversal toward the baseline in 2014 would lead to a sharp slowdown in mining investment and production. In the first year of the shock, this could knock 6 percentage points off real GDP growth and cause the current account deficit to balloon by more than 12 percent of GDP, and lower fiscal revenue by nearly 4 percent of GDP (Figure 4). The exchange rate would likely depreciate substantially, which in turn could lead to a spike in inflation.

  • An escalation of conflict in eastern DRC, similar to civil war in the mid-2000s. The direct impact on growth from increased insecurity could be muted because the country’s major mines lie outside the affected areas, though it is difficult to gauge the impact on investment. Also, an increase in security-related spending equal to 3 percent of GDP financed by the central bank in the absence of other financing options likely would have a smaller impact on growth and inflation than a sharp fall in commodity prices, assuming that the government cuts other spending items. At the same time, large cuts would likely have an adverse effect on budget execution and the quality of spending. In particular, sizable cuts to infrastructure spending would have a negative impact on growth over the medium term.4

Figure 4.
Figure 4.

Tail-Risk Scenarios—Plunging Commodity Prices and Domestic Conflict

(Deviation from the Baseline)

Citation: IMF Staff Country Reports 2013, 094; 10.5089/9781484331064.002.A001

Sources: Congolese authorities; and IMF staff estimates and projections.
Authorities’ views

16. The authorities appreciated the staff’s candid assessment of the economic outlook and agreed with the risk assessment. Indeed, they noted that rebuilding the macroeconomic buffers must be a primary objective of their economic program. They emphasized that the lessons learned from the global financial crisis in 2009—when commodity prices plunged, the exchange rate depreciated rapidly, inflation accelerated, and international reserves were nearly depleted—were deeply ingrained. Having said that, they did feel the economy is in a stronger position today to absorb external shocks because of better economic policy implementation and reduced security risks, notwithstanding the current problems in the eastern region.

17. Overall, the authorities also agreed with the staff’s analysis of the exchange rate and international competitiveness, and the need to accumulate more foreign reserves. However, they argued that reserve accumulation needed to be balanced against the possible implications from foreign exchange purchases on the exchange rate, whose changes immediately affect inflation. In light of the high cost of elections, debt service due after HIPC debt relief, and the reduction in balance of payments support, the authorities’ saw that building more reserves could have led to adverse macroeconomic effects. On external debt, the authorities felt that the risks related more to the use of external financing in terms of inefficient and wasteful public investment than to debt distress.

Policy Discussions

18. How to position macroeconomic and structural policies to further consolidate stability and accelerate growth with low and stable inflation, was the main focus of the discussions. The staff relied heavily on the experience across sub-Saharan Africa and other low-income countries, in providing its advice.

A. Anchoring Fiscal Policy

19. After a few years of relatively good performance, debt relief, and a change in government, discussions focused on the direction of fiscal policy. The staff expressed concern about a shift in the fiscal policy approach, as evidenced by the 2012 budget, leading to considerations about how to consolidate recent progress and sustain it over the medium term. Establishing a credible fiscal anchor would help.

20. Over the short term, fiscal policy must be aimed at maintaining expenditure control—the foundation for the authorities’ program so far—while re-focusing attention on the composition of the budget and its priorities. Raising more domestic resources by broadening the tax base is essential in light of the time-profile of tax revenue from the natural resource sector as a result of mineral tax policies (Annex VI), and limited external financial support. Targeting a domestic fiscal deficit of about 1 percent of GDP this year is appropriate and consistent with medium-term fiscal sustainability (Table 6).5

Table 6.

Democratic Republic of the Congo: Fiscal Position, 2011-12

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

Includes change in domestic arrears.

Note that the authorities’ 2012 GDP estimate used in the budget is CGF 17,261 billion, but for comparison we use the IMF staff estimate.

21. In this context, the overall resource envelope of the 2012 budget submitted by the government and approved by the parliament is overly ambitious. The budget contains domestic revenue projections about 3 percent of GDP higher than what can be considered feasible in the absence of credible tax policy measures or administrative reforms to support them.6 Higher spending associated with this revenue target—including for non-discretionary items such as wages, and current spending on political institutions that tend to be fully executed—could affect the quality of spending and, along with increased security-related outlays, raise the potential for significant expenditure slippages. Although the government’s desire to expand the budget envelope is understandable, depriving the budget of its disciplining role is not an adequate response to the country’s substantial development needs. Rather, it risks reversing hard-won progress in consolidating the fiscal position.

22. Instead, the staff argued that the authorities should publicly declare their commitment to zero central-bank-financing of the budget, while also targeting the domestic fiscal balance as the preferred measure of the fiscal stance. This would help anchor expectations; support the BCC, whose independence is still limited; and break the link between fiscal policy and inflation. Also, the staff indicated that it is premature for the DRC to use alternative measures of the fiscal stance, such as a non-resource primary balance, or adopt a fiscal rule in its place. International experience suggests that properly employing more sophisticated measures of the fiscal position or rules, in conjunction with a medium-term fiscal framework or fiscal rule, requires better quality statistics, especially for the natural resource sectors and strong PFM. Although the DRC is moving in the right direction in this respect, progress across the relevant parts of the government is uneven and often slow. A number of weaknesses still exist in public accounting, expenditure-chain management, the budget framework, and other aspects of PFM, which the new finance law and related strategic plan supported by significant TA aim to address.

23. Anchoring fiscal policy with zero central-bank-financing does not unduly constrain public spending if domestic revenue is increased. The introduction of a value-added tax earlier this year is an important step forward as are recent reforms to tax and customs administration (one-stop customs window, strengthening the capacity of the large taxpayer unit, improving IT systems). However, these measures can be undermined by the lack of concerted effort to close tax loopholes, eliminate exemptions and preferential treatment, raise fuel taxes, and collect more revenue from the natural resource sector and from SOEs. The staff estimates (in the baseline) that more than 1 percent of GDP in additional revenue could be raised this year through implementation of some of these measures. Adopting an automatic fuel pricing mechanism—a stated objective of the authorities—could add even more, while at the same time improve the quality of public spending by eliminating the fiscal cost of the current fuel pricing policy (Annex VII).

Authorities’ views

24. While downplaying concerns about short term fiscal risks, the authorities agreed with the staff’s overall analysis and viewed zero financing from the central bank as an important disciplining device in managing public finances. They stressed the importance of IMF TA to help them realize the full potential of the natural resource sector, and they agreed that further domestic revenue mobilization and PFM reforms are crucial for scaling up spending and raising its quality. They appreciated the staff’s analysis of fuel pricing and reiterated their intention to reform the current pricing regime. They did not perceive the 2012 budget as a departure from recent practice because it remained tied to the program’s fiscal anchor, with a fiscal stance only slightly more expansionary than the staff’s baseline.

B. Enhancing the Efficacy of Monetary Policy

25. Recent weaknesses in the financial and operating performance of the BCC have raised questions from the staff about the direction of its reform. These questions have been far reaching concerning central bank independence, the cost of monetary policy operations, and how to make it more effective. In this regard, a regime change was not seen as appropriate by the staff or the authorities.

26. The efficacy of monetary policy in the DRC is hampered by the high level of dollarization, institutional and administrative weaknesses, and a lack of central bank credibility. Recognizing these constraints discussions centered on the options to strengthen monetary policy and the BCC, with improvements to the status quo—supported by TA—being seen as preferable to any switch in monetary or exchange rate regime (Annex VIII). In taking this view, the staff understood that improvements to the current framework will take considerable time, including reducing the level of dollarization (Figure 5) and developing the financial market to ensure that monetary policy becomes highly effective and independent (Figure 6).7

Figure 5.
Figure 5.

Foreign Currency Deposits, 2005 and 2010

(Percent of total deposits)

Citation: IMF Staff Country Reports 2013, 094; 10.5089/9781484331064.002.A001

Sources: IMF staff estimates.
Figure 6.
Figure 6.

Broad Money, 2005 and 2010

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 094; 10.5089/9781484331064.002.A001

Sources: IMF, World Economic Outlook and International Financial Statistics.

27. Several factors favor building on the status quo. The bipolar view would suggest considering a fixed exchange rate regime, although the staff is not persuaded that the DRC could import credibility this way. A hard peg or full dollarization would require significantly more international reserves to back the local currency than the BCC currently possess, on top of whatever level of reserves the authorities consider necessary to fulfill its lender of last resort function, and the DRC’s highly concentrated export base makes full dollarization or a fixed exchange rate a less attractive option. Under the status quo, the DRC maintains the option of a real devaluation to help absorb the external shocks that the economy frequently faces.

28. To improve on the status quo, the staff urged the authorities to accelerate the implementation of ongoing reforms. These reforms include recapitalizing the BCC and its restructuring it to align its operations with its core mandate; strengthening the BCC’s institutional capacity through better data, information, and analytical capacity; deepening financial markets to enhance the monetary transmission mechanism; and measures to encourage de-dollarization.8 These reforms would establish a more flexible and modernized monetary policy framework, anchored by a coherent forward-looking view where monetary aggregates are monitored and analyzed systematically along with a broad array of other macroeconomic and financial indicators, including inflation, output, interest and the exchange rate. Because most of these reforms will take time, the current constraints to an effective and independent monetary policy are likely to remain for some time.

Authorities’ views

29. The authorities welcomed the timely discussion on monetary policy reform options in light of ongoing central bank restructuring, and concurred with the staff’s view on the desirability and necessity of strengthening the current monetary and exchange rate regime. While ascribing recent weaknesses in the conduct of monetary policy to lack of coordination with fiscal policy and the financial constraints of the BCC, the authorities stressed the other constraints on the efficacy of monetary policy, especially high dollarization, and they expressed concern about moving further in that direction. In addition to the staff’s analysis, they argued that full dollarization would imply a loss of sovereignty and seignorage. The authorities intend to support and safeguard an independent monetary policy regime that also allows for a floating exchange rate, providing an important instrument to mitigate the impact of external shocks.

C. Making the Economy More Robust

30. Despite the recent improvement in economic policies and the buildup of the macroeconomic buffers, the DRC economy remains fragile and is vulnerable in two important respects. The financial sector is weak and underdeveloped, limiting growth prospects and the effectiveness of monetary policy; and governance and transparency must be further strengthened if the country is to maximize the benefits of its vast natural resource wealth, or it will risk a slowdown in its development.

Financial Sector Growth and Stability

31. Staff noted that DRC’s limited financial integration in the global economy implied that it was largely unaffected from the turmoil in the euro zone. Banks are mostly foreign owned but their financing is mainly domestic, and with a very modest scale of foreign assets and liabilities the direct effects of the turmoil are limited.

32. More important for the stability of the financial system is the challenges for banks’ profitability posed by the rapid entry of new banks. The 20 commercial banks that are now operating in the DRC do so in a high-cost environment that, even though spreads between deposit and lending rates remain at a relatively high level, squeeze profit margins.9 Return on assets at end-2011 was 0.5 percent, which is low compared with banks in neighboring countries, and amongst the lowest in the sub region. Reported financial soundness indicators show a highly capitalized banking system, although compliance with other prudential ratios remains mixed (Table 7).

Table 7.

Democratic Republic of the Congo: Financial Soundness Indicators, 2003-June 2012

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Source: Central Bank of the Congo (BCC), Directory of Bank Supervision.Note: Prudential norms were altered throughout the observation period. Application 3 covered 2003 to 2009; application 4, 2010; and application 5; since 2011.

Since 2009 the definition of interest margin to gross income has been made consistent with the IMF reference manuel whereby interest earnings, commissions, and other earnings are reported separately.