Abstract
IMF Country Report No. 23/89
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IMF Country Report No. 23/89
REPUBLIC OF CONGO
SECOND REVIEW UNDER THE THREE-YEAR EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR MODIFICATION AND WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF CONGO
February 2023
In the context of the staff report, 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.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 6, 2023, following discussions that ended on November 18, 2022, with the officials of the Republic of Congo on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on December 19, 2022.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
A Supplement to Staff Report: supplementary information, revised proposed decision, and Supplementary letter of intent
A Statement by the Executive Director for the Republic of 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
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© 2023 International Monetary Fund
Press Release
PR23/32
IMF Executive Board Concludes Second Review Under the Extended Credit Facility Arrangement for the Republic of Congo and Approves US$87 million disbursement
FOR IMMEDIATE RELEASE
The IMF Executive Board completed the second review under the Extended Credit Facility arrangement, enabling the Republic of Congo to draw the equivalent of SDR 64.80 million (about US$87 million).
Strengthened economic recovery is gaining momentum but risks from lower oil prices and production and weak reform implementation remain.
Sustained reform implementation spanning public financial and debt management, governance, and transparency will be critical to attaining higher, more resilient, and inclusive growth. Energy sector reforms will be particularly essential.
Washington, DC-February 6, 2023: The Executive Board of the International Monetary Fund (IMF) concluded today the second review of the Republic of Congo’s SDR 324.0 million arrangement underthe Extended Credit Facility (ECF), which was approved on January 21, 2022 (see Press Release No. 22/11). This allows forthe immediate disbursement of SDR 64.80 million (about US$ 87 million). This financing from the IMF will continue to help the authorities to implement their development policies, maintain macroeconomic stability and strengthen economic recovery amid high food inflation and an uncertain global environment.
Structural reforms under the authorities’ program are advancing, especially in procurement, management of public finances and debt, and publication of a decree on conflict of interests. However, four out of five performance criteria related to the fiscal position and debt were not observed, some substantially, but corrective measures have been taken to address these breaches.
Economic recovery is expected to further strengthen in 2023, with improved oil production and government spending on development. Over the medium-term, the role of the non-oil private sectoris projected to grow along with jobs and income levels. Food inflation is anticipated to decelerate towards theCEMAC inflation targets as international food prices decline. Key risks to this outlook stem from lower oil prices and production and weak reform implementation.
Fiscal policy will focus on reducing fragilities while maintaining debtsustainability. Development spending and payment of domestic arrears will be accelerated owing to the resources freed from reduced fuel subsidies in line with gradual fuel price deregulation. They will be coupled with targeted social assistance to protect the vulnerable. Concurrently, fiscal consolidation will be supported by revenue mobilization, including red ucing exemptions received by oil-related state-owned enterprises.
Building on recent advances, sustained structural reform implementation is needed. Improved management of public finances especially public investment and procurement-will facilitate larger, more effective, and higher quality development spending. In combination with improved debt management, these reforms will also end accumulation of arrears to domestic and external creditors. Broader governance reforms, encompassing anti-corruption and transparency, will also be critical for improving the business environment.
Policies under this ECF-supported program will continue to help reduce fragilities and place the Republic of Congo onto a path of higher, more resilient, and inclusive growth. It will also contribute to the regional effort to preserve external stability for the Central African Economic and Monetary Union (CEMAC).
At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:
“The Republic of Congo’s recovery has strengthened, though substantial risks remain amid an uncertain global environment and the spillovers from Russia’s war in Ukraine, which aggravated Congo’s already high food insecurity. Still high global oil prices and improved oil production, combined with public spending on infrastructure and social assistance, domestic arrears payments, and gradual reform implementation are supporting economic activity. Inflation is expected to decelerate in line with international food prices and regional monetary policy tightening. Key risks to this outlook include an intensification of spillovers from the war in Ukraine, climate shocks, lower oil prices and production, and weak reform implementation.
“Good progress has been made in advancing structural reforms but quantitative program performance has weakened. End-June performance criteria on the non-oil primary balance and net domestic financing were missed d ue to increased fuel subsidies which were not offset by oil-related dividend advances. The zero-ceiling performance criterion on new non-concessional external debt was also substantially breached as, in the process of regularizing arrears, local-currency debt was converted into U.S. dollars. However, strong corrective actions, including a reduction in fuel subsidies, have been taken recently. Sound program implementation in the period ahead remains important to ensure economic resilience and support the country’s social and developmental objectives.
“The authorities remain committed to pursuing higher, more resilient, and inclusive growth while maintaining macroeconomic stability and debt sustainability. To this end, it will be important for the authorities to consolidate the non-oil fiscal position while raising development spending. Key measures include broadening the tax base, collecting tax arrears, and reducing fuel subsidies consistent with gradual fuel price deregulation coupled with increased social assistance for the vulnerable. Strengthened management of public finances and debt will be critical to ensure more effective public spending, including to address the substantial infrastructure gaps, and debt sustainability.
“Much-needed economic diversification, founded in private investment, will hinge on deepening structural reforms, especially operationalizing the new anti-corruption architecture, improving governance and transparency, addressing the gaps in the AML/CFTframework, raising financial inclusiveness, and stepping up state-owned enterprise and energy sector reforms.”
Title page
REPUBLIC OF CONGO
SECOND REVIEW UNDER THE THREE-YEAR EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR MODIFICATION AND WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW
December 19, 2022
EXECUTIVE SUMMARY
Context. Strengthened economic recovery remains fragile amid high food inflation, driven by increased import costs following Russia’s war in Ukraine. High global oil prices are benefitting the Congo’s crude oil exports but higher refined fuel import costs were subsidized by the government, widening the 2022 non-oil fiscal deficit. Sustained reform efforts are needed for economic diversification, which would reduce Congo’s fragilities, create jobs, and raise incomes. Debt remains sustainable but classified as “in distress” due to arrears; a financing assurances review was conducted. The first review of the three-year Extended Credit Facility (ECF) arrangement (SDR 324 million, 200 percent of quota) was concluded bythe IMF Executive Board on June 24, 2022.
Outlook and risks. Real GDP growth in 2023 will be driven by improved oil production, a pickup in agriculture and mining activity, and government spending on development. Food inflation is expected to decelerate with the decline of international food prices. Key risks stem from lower oil prices and production and weak reform implementation.
Program performance. Three out of five performance criteria, one indicative target, and one structural benchmark were missed. Strong corrective actions were taken, including reducing oil-related subsidies, rapidly renegotiating external arrears payments, and addressing declaration shortfalls in the decree on conflict-of-interest rules.
Program strategy. The authorities continue to pursue higher, more resilient, and inclusive growth while maintaining macroeconomic stability and debt sustainability. To this end, the non-oil fiscal position will be significantly tightened in 2023—compensating for its loosening in 2022—and development spending increased. This is made possible by tax reforms and reduced oil-related subsidies consistent with a gradual fuel price deregulation coupled with increased social assistance for the vulnerable. Strengthened management of public finances, governance, and financial sector reforms remain essential to the program. The arrangement is helping catalyze development partner financing and will be supported by regional CEMAC efforts to maintain an appropriate monetary policy stance, build up regional reserves, and promote financial sector stability.
Approved By
Vitaliy Kramarenko (AFR) and Geremia Palomba (SPR)
Discussions on the review for an ECF-supported program were held in Brazzaville during September 20-October 4, 2022 and virtually during October 24–28 and November 18, 2022. The staff team comprised Ms. Mitra (head), Ms. El Idrissi, Mr. Islam, Mr. Sulemane (all AFR), Mr. Chaudry (SPR), Ms. Liu (FAD), Mr. Turkewitz, Ms. Zarazinski (both LEG), Mr. Million (Resident Representative), Mr. Nsongui Tonadio (local economist), and Mr. Sarda (FAD long-term expert). Mr. Tsoungi and Ms.Youbi (World Bank) joined the technical meetings. Ms. Akor provided research support and Ms. Adjahouinou assisted in preparing the staff report. The mission held discussions with the Hon. Mr. Ondaye Minister of Finance and Economy, Hon. Mr. Ngatse Minister of Budget, Hon. Mme. Ebouka-Babakas Minister of Planning and Statistics, Hon Mr. Itoua Minister of Hydrocarbons, Hon. Mr. Andely former Minister of Finance, and other senior officials. The mission also met representatives of the private sector, civil society, and development partners.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS, OUTLOOK, AND RISKS
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Fiscal Policy
B. Public Investment and Debt Management
C. Governance, Transparency, and Broader Structural Reforms
PROGRAM MODALITIES AND OTHER ISSUES
STAFF APPRAISAL
FIGURES
1. Recent Economic Developments, 2012–22
2. Fund Credit Outstanding and External Debt Service Compared to PRGT UCT-Quality Arrangements
TABLES
1. Selected Economic and Financial Indicators, 2021–27
2a. Central Government Operations, 2021–27 (Billions of CFA francs)
2b. Central Government Operations, 2021–27 (Percent of non-oil GDP)
2c. Central Government Operations, 2021–27 (Percent of GDP)
3a. Quarterly Central Government Operations, Flows, 2022–23 (Billions of CFA francs)
3b. Quarterly Central Government Operations, Flows, 2022–23 (Billions of CFA francs; cumulative from the beginning of the fiscal year)
4. Medium-Term Balance of Payments, 2021–27
5. Monetary Survey, 2021–27
6. Financial Soundness Indicators for the Banking Sector, 2015–22
7. Gross Fiscal Financing Needs, 2022–27
8. Public Debt by Creditor, 2021–23
9. External Arrears, 2022
10. Indicators of Capacity to Repay the IMF
11. Schedule of Disbursements and Timing of Reviews Under ECF Arrangement, 2022–24
12. Quantitative Performance Criteria and Indicative Targets, 2022–23
13a. Structural Benchmarks, 2022
13b. Structural Benchmarks, 2022–23
14. Prior Actions
ANNEXES
I. Food Insecurity
II. Drivers of Congo’s Fragility
III. Fuel Market
IV. Risk Assessment Matrix
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies, 2022–24
Attachment II. Technical Memorandum of Understanding
