2015 ARTICLE IV CONSULTATION—PRESS RELEASE; AND STAFF REPORT
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2015 Article IV consultation with the Republic of Congo, the following documents have been released and are included in this package:
A Press Release.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on a lapse of time basis, following discussions that ended on June 1, 2015, with the officials of the Republic of Congo on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 1, 2015.
An Informational Annex prepared by the IMF staff.
Debt Sustainability Analysis prepared by the staffs IMF and the World Bank.
The document listed below has been or will be separately released.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
Economic context. The Republic of Congo has been hit hard by the oil price shock. Fiscal and current account balances deteriorated in 2014 reflecting increased government spending and lower oil prices. Corrective measures are now being taken. Private sector activity is held back by infrastructure gaps, a difficult business climate, and a shallow financial system. Growth and spending have yet to translate into significant reductions in poverty and progress in this area lags peers. Persistent inequality could be a source of instability.
Outlook and Risks. The economy is projected to expand by about 3 percent per annum during 2015–20 as new oil fields come on stream. The fiscal consolidation implied by the proposed supplementary budget will hold back non-oil growth this year. Reduced oil exports earnings and budget revenues are expected to lower external and fiscal buffers in 2015. These should improve over the next three years in line with expanding oil output. Risks to the outlook relate to oil price volatility, persistently low oil prices, accumulation of domestic payment arrears, and domestic instability.
Policies. The 2015 supplementary budget should be passed swiftly and implementation monitored closely. Over the medium term, fiscal and debt sustainability should be ensured by a comprehensive and coherent fiscal adjustment strategy which incorporates lower projected oil prices and the limited remaining lifetime of oil reserves. Effort should also be made to bolster the quality of capital spending to maximize longer-term growth and poverty reduction, and strengthen public financial management. Strengthening the legal and institutional frameworks will support the business climate and financial sector development and inclusion. Further repatriation of overseas deposits would increase compliance with regional reserve pooling requirements and help safeguard the smooth operation of the exchange rate peg.
Anne-Marie Gulde and Bob Traa
Discussions took place in Brazzaville during May 19–June 1, 2015. The staff team comprised Ms. Hakura (head) and Messrs. McLoughlin, Jenkinson, and Issoufou (all AFR). The mission was assisted by Mr. Tchicaya-Gondhet de Trebaud (resident economist). The team met with the State Minister of Economy, Finance, Planning, Public Portfolio and Integration, Mr. Ondongo, and other senior officials. The mission also met with representatives of the private sector, civil society, and development partners. The mission team received research support from Messrs. Dernaoui and Mengistu, and administrative assistance from Mmes. Ng Choy Hing and Koulefianou (all AFR). The Republic of Congo is a member of the Central African Economic and Monetary Community (CEMAC). The common currency, the CFA franc, is pegged to the Euro.
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
A. Fiscal Policy: Developing the Non-Oil Economy to Protect the Poor
B. Public Financial Management Reforms
C. Promoting Financial Sector Development and Inclusion
D. Other Surveillance Issues
1. Public Expenditure and Accountability Framework Assessment and Recommendations
1. Macroeconomic Developments
2. Business Environment and Governance
3. Infrastructure Developments in the Republic of Congo
1. Selected Economic and Financial Indicators, 2013–20
2. Medium Term Balance of Payments, 2013–20
3. Central Government Operations, 2013–20 (Billions of CFA francs)
4. Central Government Operations, 2013–20 (Percent of non-oil GDP)
I. Authorities’ Implementation of 2014 Policy Recommendations
II. External Sector Assessment
III. Risk Assessment Matrix
IV. Fiscal Sustainability—The Impact of Lower Oil Prices
Front Matter Page
REPUBLIC OF CONGO
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
July 1, 2015
The African Department
(in Consultation with other Departments)
RELATIONS WITH THE FUND
WORLD BANK WORLD—JOINT ACTION PLAN
Front Matter Page
REPUBLIC OF CONGO
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
July 1, 2015
Anne-Marie Gulde-Wolf and Bob Traa (IMF) and John Panzer (IDA)
The Debt Sustainability Analysis (DSA) has been prepared jointly by IMF and World Bank staff, in consultation with the authorities, using the debt sustainability framework for low-income countries approved by the Boards of both institutions.
This debt sustainability analysis (DSA) concludes that the Republic of Congo faces a moderate risk of debt distress. This is a higher risk relative to the analysis prepared in the previous year.1 It confirms the vulnerability of the Congolese economy to external shocks, in particular to declines in oil prices and external demand, even in a baseline scenario with sustained fiscal adjustment. Under the baseline scenario for the current DSA, the present value of debt-to GDP ratio temporarily breaches the policy-dependent indicative threshold in 2015 and 2016. The other debt burden indicators are projected to remain below the policy-dependent indicative thresholds. Standard stress tests result in multiple breaches of these thresholds. The solitary breach under the baseline, coupled with these stress test breaches would normally give rise to a “high risk of debt distress” classification. However, an analysis based on net debt that takes into account Congo’s sizable government deposits at the regional central bank indicates that there are only sustained breaches of the thresholds under the stress tests. On this basis, Congo is classified as at “moderate risk of debt distress”. In order to increase the resilience of the Congolese economy, in addition to the fiscal adjustment assumed in the baseline scenario, efforts should continue to focus on diversification of the tradable sectors. Moreover, medium-and long-term fiscal and debt sustainability can be promoted through continued adherence to prudent borrowing policies and building of fiscal buffers.