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IMF Country Report No. 22/390

DEMOCRATIC REPUBLIC OF THE CONGO

THIRD REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE DEMOCRATIC REPUBLIC OF THE CONGO

December 2022

In the context of the Third Review under the Extended Credit Facility Arrangement, the Request for Modification of Performance Criteria and the Financing Assurance Review, the following documents have been released and are included in this package:

• A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its December 20, 2022, consideration of the Staff Report on issues related to the IMF arrangement

• The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 20, 2022, following discussions that ended on November 21, 2022, with the officials of the Democratic Republic of the Congo on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 8, 2022.

• A Statement by the Executive Director for the Democratic Republic of the Congo.

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

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623-7430 • Fax: (202) 623-7201

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Price: $18.00 per printed copy

International Monetary Fund

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© 2022 International Monetary Fund

Press Release

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PR22/452

IMF Executive Board Concludes 2022 Third Review Under the Extended Credit Facility Arrangement with The Democratic Republic of the Congo

FOR IMMEDIATE RELEASE

• The IMF Executive Board decision allows for an immediate disbursement of about US$203 million to the Democratic Republic of the Congo. This disbursement will help reinforce international reserves, given downside risks to the domestic and global economy outlook.

• Despite multiple shocks, economic activity has proven resilient supported by higher-than-envisaged mining production. Growth is forecast at 6.6 per cent in 2022, but inflation is expected to exceed 12 percent by end-2022.

• The Fund-supported program continues to support the authorities’ medium-term reform program to foster macroeconomic stability and sustainable development by stepping up domestic revenue mobilization, strengthening governance, and reinforcing monetary policy.

Washington, DC – December 20, 2022: The Executive Board of the International Monetary Fund (IMF) concluded the third review of the Extended Credit Facility (ECF) arrangement for the Democratic Republic of the Congo (DRC). The completion of the Third Review allowed an immediate disbursement equivalent to SDR152.3 million (about US$ 203 million) to support balance-of-payment needs, bringing the aggregate disbursement to date to SDR609.2 million (about US$812.4 million).

The DRC’s macroeconomic environment is showing resilience despite the spillovers of the war in Ukraine and the deteriorating global economic environment. Real GDP is showing resilience, with growth forecasted at 6.6 percent in 2022 supported by higher-than-projected mining production. Inflation is expected to exceed 12 percent by end-2022, due to higher global food and fuel prices exacerbated by the war in Ukraine and supply chain bottlenecks. The current account reached a surplus in the first half of the year driven by strong exports, and as of end-October, gross international reserves have reached about 2 months of imports, well-above the objective at the beginning of the ECF arrangement. The 2022 domestic fiscal balance (cash basis) is projected at 1.1 percent of GDP, in line with program commitments, despite unanticipated spending pressures raising from the escalating conflict in the East, increased outlays in ministries and public institutions, and arrears repayment to fuel distributors, funded by higher unexpected fiscal revenues mainly due to favorable mining developments.

Progress under the program remains satisfactory. All end-June 2022 quantitative performance criteria were met, and all indicative targets (ITs) except for two: the one related to health spending due to procurement delays; and the one related to the central bank’s guarantees for central government domestic loans due to monitoring shortcomings and despite the fact that no new guarantees were issued. Efforts to meet the social spending under the IT will require close monitoring during implementation. Four of six structural benchmarks were also met, and a fifth one was achieved with a small delay.

At the conclusion of the Executive Board’s discussion, Mr. Okamura, Deputy Managing Director and Chair stated:

“Macroeconomic performance in 2022 is strong, despite recurrent shocks. Growth is robust and external buffers have strengthened, notwithstanding rising global energy and food prices. Performance under the Extended Credit Facility (ECF) arrangement remains satisfactory. While growth prospects remain favorable in 2023, downside risks emanate from adverse terms-of-trade shocks and the conflict in the east.

“The fiscal deficit is expected to narrow in 2023. Sustained revenue mobilization and contained current spending in goods, services and subsidies are expected to provide space for social spending, infrastructure, and human capital investment, and arrears clearance. Saving revenue overperformance would support efforts to build buffers. Phasing out the fuel subsidy and establishing targeted social transfers are important measures to strengthen social safety nets to protect the vulnerable. Enhancing budget credibility should help the budget serve as a fiscal anchor under the program. Revamping the fiscal framework to manage resource wealth, strengthening the public investment framework, and accelerating public financial management reforms are necessary to enhance spending efficiency and transparency.

“Readiness to tighten the monetary stance to bring inflation to the 7-percent target together with efforts to strengthen the monetary policy framework will support price stability. Further accumulation of reserves, while enhancing the role of the exchange rate as a shock absorber, is essential to external resilience. The recent adoption of the new banking law is crucial to strengthen financial sector regulation and supervision.

“Sustained efforts to improve governance, including in mining, strengthen the anti-corruption and AML/CFT frameworks, and enhance the business environment would support private sector development and competitiveness. Committing to specific climate-related reforms is also important to catalyze financing for green investments.”

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DEMOCRATIC REPUBLIC OF THE CONGO

THIRD REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, REQUEST FOR MODIFICATIONS OF QUANTITATIVE PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW

December 8, 2022

EXECUTIVE SUMMARY

Context. Macroeconomic gains under the program so far are partly overshadowed by recurrent shocks. Due to the war in Ukraine and global economic developments, the Democratic Republic of the Congo is experiencing a terms-of-trade shock associated with rising energy and food prices (pushing inflation above 12 percent) and falling prices for mining products. Compounding these headwinds, the escalation of the armed conflict in the east of the country is having major negative economic, security and humanitarian effects, the magnitude of which—if the situation persists or worsens further—could jeopardize recent progress.

Program performance. Progress under the Extended Credit Facility arrangement remains broadly satisfactory. All end-June 2022 quantitative performance criteria were met, together with all indicative targets except two, one related to health spending due to delays in procurement and another on the change in central bank deposits used as guarantee for central government loans. Four of six structural benchmarks were also met, and a fifth one was achieved with a small delay. Completion of the third review would make available the equivalent of SDR152.3 million to support balance-of-payment needs, with cumulative disbursements amounting to SDR609.2 million.

Key Policies. With elevated downside risks, prudent macro policies and structural reforms will sustain efforts towards mobilizing revenues, containing current spending, improving public investment management, strengthening the monetary and financial frameworks, enhancing governance, and promoting higher inclusive growth. The authorities agreed on measures to reinforce the credibility of the 2023 budget law in line with program objectives. The central bank is adequately tightening monetary conditions to bring inflation to the 7-percent target by 2024, while gradually strengthening its monetary and financial oversight frameworks. Other structural reforms focus on AML/CFT, governance including anticorruption and transparency in the mining sector, and the business climate. Building economic resilience will help reduce vulnerability to shocks.

Approved By

Annalisa Fedelino and Mark Flanagan

Contents

• CONTEXT

• RECENT ECONOMIC DEVELOPMENTS

• PROGRAM PERFORMANCE

• OUTLOOK AND RISKS

• POLICY DISCUSSIONS

• A. Sustaining Prudent Fiscal Policy Despite Significant Spending Pressures

• B. Strengthening the Monetary Policy Framework and Financial Stability

• C. Advancing Structural Reforms to Build Resilience in a Challenging Environment

• PROGRAM ISSUES AND FINANCING ASSURANCES

• STAFF APPRAISAL

• ECONOMIC DEVELOPMENTS AND PROSPECTS

• MACROECONOMIC AND STRUCTURAL POLICIES

• OTHER ISSUES AND PROGRAM MONITORING

• FIGURES

• 1. Real Sector Developments, 2017-22

• 2. External Sector Developments, 2017-22

• 3. Fiscal Sector Developments, 2017-22

• 4. Monetary and Financial Sector Developments, 2017-22

• TABLES

• 1. Selected Economic and Financial Indicators, 2021-27

• 2. Balance of Payments, 2021-27

• 3a. Central Government Operations, 2021-27 (Billions of CDF)

• 3b. Central Government Financial Operations, 2021-27 (Percent of GDP)

• 4. Depository Corporations Survey, 2021-27

• 5. Financial Soundness Indicators, 2020-22

• 6. Decomposition of Public Debt and Debt Service by Creditors

• 7. Capacity to Repay the Fund, 2022-33

• 8. Reviews and Disbursements Under the Three-Year Extended Credit Facility Arrangement

• APPENDIX

• I. Letter of Intent

• Attachment I. Memorandum of Economic and Financial Policies

• Attachment II. Technical Memorandum of Understanding

• ANNEXES

• I. Risk Assessment Matrix

• II. Enhancing Budget Credibility in the Democratic Republic of the Congo

• III. Revamping DRC’s Fiscal Framework for a Resource Rich Economy