Republic of Congo: Staff Report for the 2015 Article IV Consultation—Informational Annex

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.

Abstract

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.

Relations With the Fund

A. Financial Relations

(As of June 9, 2015)

Membership Status: Joined: July 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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Latest Financial Arrangements:

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Formerly PRGF.

Projected Payments to Fund: 2

(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.

Implementation of HIPC Initiative:

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Assistances committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Implementation of Multilateral Debt Relief Initiative (MDRI):

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Debt Relief by Facility (SDR Million)

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The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable

Decision point - point at which the IMF and the World Bank determine whether a country qualifies for assistance under the HIPC Initiative and decide on the amount of assistance to be committed.

Interim assistance - amount disbursed to a country during the period between decision and completion points, up to 20 percent annually and 60 percent in total of the assistance committed at the decision point (or 25 percent and 75 percent, respectively, in exceptional circumstances).

Completion point - point at which a country receives the remaining balance of its assistance committed at the decision point, together with an additional disbursement of interest income as defined in footnote 2 above. The timing of the completion point is linked to the implementation of pre-agreed key structural reforms (i.e., floating completion point).

Safeguards Assessment:

The Bank of the Central African States (BEAC) is the regional central bank of the Central African Economic and Monetary Community (CEMAC). As with other regional central banks, the BEAC is subject to a safeguards assessment every four years. The quadrennial assessment in 2013 occurred against the backdrop of significant change at the BEAC to address governance challenges and control failures that emerged in 2009 and led to close engagement in the period after through close IMF monitoring of safeguards “rolling measures.” The BEAC also embarked on a reform and modernization plan (RMP) to strengthen controls. The 2013 assessment concluded that despite some progress made by the BEAC in reinforcing its safeguards framework, further actions were needed to fully restore sound governance and control, including through amendments to the BEAC charter and commitment to achieve the RMP. The assessment also recommended maintaining the annual monitoring visits to the BEAC to follow up on progress on implementing the safeguards rolling measures and advancing work on the BEAC’s own reform plan in the context of new program requests and reviews to CEMAC countries. Consistent with this close engagement, a safeguards staff visit to the BEAC was conducted in April 2015. Staff concluded that while the BEAC continues the implementation of its reform plan, slippages have occurred and the timeframe of the RMP has been revised. Progress on implementing the safeguards rolling measures has been mixed, and priority recommendations on amendments to the BEAC charter and adoption of an internationally recognized financial reporting framework (IFRS) are delayed. The BEAC has requested IMF technical assistance to advance the implementation of the above recommendations, and steps for the prompt delivery of these actions have been initiated. Strong actions and close coordination with member states to gain consensus will be needed in the period ahead for the BEAC to conclude its reforms and the outstanding safeguards recommendations. Progress on implementation of the latter will remain subject to monitoring by the IMF, as a condition to continuing new program requests and reviews for CEMAC member countries.

B. Nonfinancial Relations

Exchange System:

The de jure and de facto exchange rate arrangement of the Central African Monetary Union (CAMU) is a conventional peg. Congo has accepted the obligations of Article VIII, Sections 2, 3 and 4 and maintains no separate legal tender. The regional currency is the CFA franc, which is pegged to the Euro at a fixed rate of CFAF 655.95 =Euro 1. Congo does not impose any restrictions on the making of payments and transfers for current international transactions.

Article IV consultations:

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 were held in Brazzaville on May 13 –26, 2014. The consultation was concluded by the Executive Board on July 21, 2014 when the staff report (Country Report No. 14/272 at www.imf.org) was discussed.

Technical Assistance

Technical Assistance Received 2012–2015

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World Bank World—Joint Action Plan

The IMF and the World Bank teams maintain an ongoing exchange of views on relevant macroeconomic and structural issues in the Republic of Congo. Cooperation during the last year has included discussions related to the macroeconomic situation in Republic of Congo; the ongoing Public Expenditure Management and Financial Accountability Review (PEMFAR); progress in the achievement of the Millennium Development Goals (MDG); and updates on the status of World Bank country programs. These World Bank country programs are aimed at improving competitiveness and development outcomes and include a conditional cash transfer program and measures to improve rural area productivity through investment in roads, programs to develop seeds and the training of farmers. A full DSA is jointly prepared by the two teams for the 2015 Article IV consultations; a DSA—full or update—will also be conducted in 2016.

Republic of Congo: IMF and World Bank Joint Action Plan

(As of June 9, 2015)

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Statistical Issues

(As of June 9, 2015)

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Republic of Congo: Table of Common Indicators Required for Surveillance

(As of June 9, 2015)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discounts 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. Data not provided by the authorities due to technical capacity constraints.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents. Data not provided by the authorities due to technical capacity constraints.

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