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—Debt Sustainability Analysis

International Monetary Fund. African Dept.

doi:10.5089/9798400231926.002.A002

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International Monetary Fund. African Dept.

International Monetary Fund. African Dept.
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Publication Date:: 15 Feb 2023

eISBN:: 9798400231926

ISBN:: 9798400231926

Language:: English

Keywords:: arrears repayment; short-term debt; GDP deflator; debt ratio; debt service statistic; Oil prices; Arrears; Debt service; Global

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REPUBLIC OF CONGO

Abstract

REPUBLIC OF CONGO

Title page

REPUBLIC OF CONGO

SECOND REVIEW UNDERTHE THREE-YEAR EXTENDED CREDIT FACILITY ARRANGEMENT, REQUESTS FOR MODIFICATION AND WAIVERS OF NONOBSERVANCE OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—DEBT SUSTAINABILITY ANALYSIS

December 19, 2022

Republic of Congo: Joint Bank-Fund Debt Sustainability Analysis

Approved By

Vitaly Kramarenko and Geremia Palomba (IMF) and Marcello Estevão and Abebe Adugna (IDA)

The Debt Sustainability Analysis (DSA) has been prepared jointly by IMF and International Development Association staff, in consultation with the authorities, using the debt sustainability framework for low-income countries approved by the Boards of both institutions.

The overall and external debt^¹ of the Republic of Congo are classified as “in distress”, reflecting outstanding external arrears and remaining uncertainty about the magnitude of valid domestic arrears—but debt is assessed as “sustainable”. Recently, arrears to one commercial supplier were fully paid and agreements were signed for settling arrears with two Chinese commercial creditors.

Improved debt management (including restricting new external financing to concessional terms), fiscal discipline, higher oil prices, and recently completed debt restructuring (including resolution of arrears, nominal haircuts on the outstanding stock, maturity extensions, and interest rate reductions) are projected to help all external liquidity and solvency indicators fall below their thresholds by 2026 under the baseline scenario.^² Oil price assumptions (based on the October 2022 WEO assumptions) and higher non-oil growth supported by the authorities’ reform agenda, coupled with increased debt amortization (tied to high oil prices), are expected to reduce the public debt-to-GDP ratio and help avoid accumulation of new domestic arrears. Nevertheless, there are major external and overall debt-related risks, as signaled by the PV of the public debt-to-GDP indicator exceeding its benchmark until 203 7 and three external debt indicators breaching thresholds, though these are contained within 4 years. The upward revision in the overall debt-to-GDP ratio over the medium-term, largely driven by the impact of historical GDP revisions on nominal GDP forecasts, has increased debt-related risks. Even though the PV of overall public debt-to-GDP ratio breaches its benchmark extensively, it is assessed as sustainable given that the risks are mitigated by i) steady and significant declines in the relevant ratios going forward, and ii) availability of financing from CEMAC regional financial markets.

There are several risks to debt sustainability. The debt sustainability assessment is highly vulnerable to negative oil price shocks. Tighter conditions in regional markets (CEMAC banking systems) could be a downside risk if the government’s financing needs exceed the current baseline projections.

Going forward, the authorities are encouraged to continue pursuing fiscal consolidation, enact policies for diversification to reduce risks and prepare for reduced long-term oil production and demand, clear domestic arrears, and continue enhancing debt management.

Public Debt Coverage

1. The coverage of public debt in this DSA is limited to central government debt and oil-backed debt contracted by the national oil company (SNPC), the largest state-owned enterprise. State and local governments in Congo are not allowed to borrow and depend on local taxes and transfers from the central government. Debt from oil-backed pre-financing arrangements contracted with oil traders through SNPC and guaranteed by the central government is included in the analysis. The debt of other state-owned enterprises (SOEs) and non-guaranteed debt of SNPC are included as contingent liabilities^³. Efforts are underway to compile information on SOEs with a view to expanding the DSA coverage to general government debt, which would include the majority of SOEs. This will require detailed data on revenues, spending, debt, and debt service of these SOEs. Supported by the Extended Credit Facility Arrangement (ECF) arrangement and the FY 2022 performance and policy actions (PPA) under the World Bank’s Sustainable Development Finance Policy (SDFP), the authorities are making on-going efforts to address the limited coverage on SOE debt and financial performance. Ministerial orders have been issued instructing the 10 largest SOEs to regularly share data on all their debt with the central government (a first round of this unaudited information has been published). As a next step, the ECF arrangement includes a March 2023 structural benchmark where the government intends to publish a comprehensive annual debt report that will include detailed information on the guaranteed and unguaranteed debt of the 10 largest SOEs. Efforts are underway, supported by IMF and WB technical assistance, to centralize SOE debt information in a single debt database managed by the Congolese debt office and to include this information in all annual debt reports. A comprehensive debt management strategy was recently established as part of the conditionality under the ECF. In terms of the social security system, there are two entities: (i) a more autonomous CNSS that collects contributions to pay retirees from both the private sector and public enterprises; and (ii) the Caisse de Retraite des Fonctionnaires (CRF) for public administration employees. Both are under the wardship of the Ministry of Labor. Domestic debt includes social arrears related to unpaid pensions. In 2022, CNSS related arrears were repaid in full, while for CRF, CFAF 44 billion were paid out of an outstanding debt of CFAF 107 billion.

2. The distinction between domestic and external debt is mostly determined on a currency basis, as opposed to a residency basis. This is because large amounts of the country’s debt are subscribed by banks within the regional CEMAC market (i.e., within the currency union), where BEAC is not yet able to accurately monitor the holder of these instruments within CEMAC. For creditors whose residency can be tracked, debt is defined on a residency basis. Though nearly half of the treasury auctions are subscribed by non-resident banks, the lack of data on post-subscription treasury bond trade makes it difficult to infer the actual holdings of Congolese debt by the non-resident banks.

3. Contingent liabilities are elevated and pose a risk. The contingent liability stress test of 26 percent of GDP is customized to account for vulnerabilities associated with legally disputed claims of domestic arrears, arrears under audit, non-guaranteed SOE debt, and litigated debt (Text Table 1). Non-guaranteed debt of the 10 largest SOEs is estimated at 31 percent of GDP ^⁴-^⁵, and under the stress test, it is assumed that one third of this amount could end up on the central government balance sheet (10 percent of GDP), while the rest can be paid through the liquidation of SOE assets. In addition, Congo’s total PPP capital stock is estimated at 6 percent of GDP, with 35 percent of this stock assumed to end up on the government balance sheet under the stress test. To account for a financial sector crisis, the default value of 5 percent is applied to the government balance sheet given the limited size of the banking system. Debt vulnerabilities are also affected by claims of domestic arrears that were rejected by an audit but are being legally contested (about 6 percent of GDP), arrears under audit not included in the forecasts assumptions (2 percent of GDP), an external arrears claim of 2 percent of GDP which is currently being litigated (and not included in the debt stock), and other elements of government debt (adding up to 9 percent of GDP).^⁶ The contingent liability test is also calibrated to account for these potential risks to the public sector balance sheet.

^{Text Table 1.}

Republic of Congo: Coverage of Public-Sector Debt and Design Stress Tests of Contingent Liability^¹

^¹The contingent liability (CL) shocks include a CL shock applied only to external debt to consider the impact of a situation where foreign currency debt service to foreign-owned resident companies are repatriated to the parent companies abroad.

^²The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country’s public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE’s debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%.

^{Text Table 1.}

Republic of Congo: Coverage of Public-Sector Debt and Design Stress Tests of Contingent Liability^¹

	Subsectors of the public sector		Check box
1	Central government		X
2	State and local government
3	Other elements in the general government
4		o/w: Social security fund	X
5		o/w: Extra budgetary funds (EBFs)
6	Guarantees (to other entities in the public and private sector, including to SOEs)		X
7	Central bank (borrowed on behalf of the government)		X
8	Non-guaranteed SOE debt

1	The country's coverage of public debt	The central government plus social security, central bank, government-guaranteed debt
		Default	Used for the analysis	Reasons for deviations from the default settings
2	Other elements of the general government not captured in 1.	0 percent of GDP	9.05	Litigated debt; contested domestic debt under audit; rejected domestic arrears
	of which: litigated debt		2.05
	of which: contested domestic claim under audit		5.5
	of which: rejected domestic arrears		1.5
	of which: domestic arrears to residents swapped for forex debt		0
3	SoE’s debt (guaranteed and not guaranteed by the government)^²	2 percent of GDP	10	SOE’s debt not guaranteed by the government
4	PPP	35 percent of PPP stock	2.00
5	Financial market (the default value of S percent of GDP is the minimum value)	5 percent of GDP	5
	Total (2+3+4+5) (in percent of GDP)		26.0

^{Text Table 1.}

Republic of Congo: Coverage of Public-Sector Debt and Design Stress Tests of Contingent Liability^¹

	Subsectors of the public sector		Check box
1	Central government		X
2	State and local government
3	Other elements in the general government
4		o/w: Social security fund	X
5		o/w: Extra budgetary funds (EBFs)
6	Guarantees (to other entities in the public and private sector, including to SOEs)		X
7	Central bank (borrowed on behalf of the government)		X
8	Non-guaranteed SOE debt

1	The country's coverage of public debt	The central government plus social security, central bank, government-guaranteed debt
		Default	Used for the analysis	Reasons for deviations from the default settings
2	Other elements of the general government not captured in 1.	0 percent of GDP	9.05	Litigated debt; contested domestic debt under audit; rejected domestic arrears
	of which: litigated debt		2.05
	of which: contested domestic claim under audit		5.5
	of which: rejected domestic arrears		1.5
	of which: domestic arrears to residents swapped for forex debt		0
3	SoE’s debt (guaranteed and not guaranteed by the government)^²	2 percent of GDP	10	SOE’s debt not guaranteed by the government
4	PPP	35 percent of PPP stock	2.00
5	Financial market (the default value of S percent of GDP is the minimum value)	5 percent of GDP	5
	Total (2+3+4+5) (in percent of GDP)		26.0

Background

A. Evolution and Composition of Public Debt

4. Public debt in the Republic of Congo is expected to decline from 108 percent of GDP at end-2021 to 99 percent of GDP at end-2022^⁷. The decline in the debt-to-GDP ratio primarily reflects the authorities’ efforts to remain current on scheduled debt service payments—where debt service to the two largest external commercial creditors is tied to oil prices and sizeable when oil prices are high. The conditionality under the ECF arrangement helps limit new external financing and Congo has not accumulated any new arrears since the start of the ECF arrangement. Compared to the last published DSA, the overall debt-to-GDP ratio in 2022 has been revised up by 16 percentage points, mostly driven by the impact of historical GDP revisions on nominal GDP projections, with additional contributions from new social debt and revised projections of domestic borrowing and assumed acceptance rates of unaudited arrears.

External debt decreased from 65 percent of GDP at end-2020 to 62 percent of GDP at end-2021. The external debtto GDP ratio was revised upwards relative to IMF Country Report No. 22/226 due to a revision of historical GDP statistics, in line with continued improvements in compilation of statistics, supported by technical assistance from the IMF and other development partners.
A large share of external debt is owed to China and Chinese companies (19¼ percent of GDP) and oil traders 9¾ percent of GDP, see Tables 1a and 1b). Under the Fund-supported ECF arrangement and World Bank PPA under the SDPF, the contracting of new external debt is restricted to be on concessional terms.
The authorities are committed to service the debt rescheduled under DSSI, where debt service payments under phase 1 began in mid-2022. Debt service for all phases of the DSSI will continue through end-2027.
Agreements with Abu Dhabi and Libya have been concluded on treatment of pre-HIPC arrears, including substantial haircuts; and agreements in principle have been reached on arrears to Brazil and pre-HIPC arrears to Russia. The authorities are in the process of resolving arrears to India’s Exim Bank ($23 million). Agreements have been concluded on commercial arrears in foreign and local currency ($140 million and CFAF 450 billion, respectively) with two Chinese commercial creditors. Discussions towards the resolution of arrears with a third Chinese commercial creditor ($25 million) are underway.
The authorities cleared arrears to one commercial supplier in 2022 and are engaged in discussions to resolve arrears owed to the remaining 9 commercial suppliers ($17 million).
The authorities contest $245 million of pre-HIPC arrears owed to a supplier as part of a broader litigation case.^⁸ The authorities have requested HIPC treatment for another $203 million of pre-HIPC arrears, which are included at face value in the DSA
Domestic public debt decreased slightly from 47 percent of GDP at end-2020 to 46 percent of GDP at end-2021. The perimeter of domestic debt includes government borrowing from commercial banks and non-bank commercial institutions (more than half of government borrowing, mainly in the form of bond issuances), commercial arrears (one fifth of government borrowing), social debt (one tenth of government borrowing, including social arrears), and the rest statutory advances from BEAC (the regional central bank).^⁹

^{Table 1a.}

Republic of Congo: Gross Public Debt by Creditor, 2021–22

Sources: Congolese authorities; and IMF staff estimates

^{Table 1a.}

Republic of Congo: Gross Public Debt by Creditor, 2021–22

				Dec 30,2021			Aug31,2022 Prel.
				CFAF billion	USD billion	percent of GDP	CFAF billion	USD million	percent of GDP
Total public debt				7256	12504	107.9	8244	12567	105.4
External debt				4136	7127	61.5	4003	6103	51.2
	Of which: arrears			1286	2216	19.1	305	466	3.9
	Multilateral and other creditors			550	948	8.2	736	1121	9.4
		IMF		24.0	41	0.4	138.3	211	1.8
		IDA/IBRD		226	390	3.4	277	422	3.5
		AfDB		241	415	3.6	241	367	3.1
		I FAD		14	24	0.2	15	23	0.2
		Others		45	78	0.7	64	98	0.8
	Official bilateral			1802	3106	26.8	1886	2875	24.1
		Paris Club		273	470	4.1	311	474	4.0
			Brazil	57	98	0.8	62	95	0.8
			Belgium	89	153	1.3	81	124	1.0
			France	106	183	1.6	143	218	1.8
			Russia	17	30	0.3	21	32	0.3
			Switzerland	4	6	0.1	4	6	0.0
		Non-Paris Club		1530	2636	22.8	1575	2401	20.1
			China	1257	2166	18.7	1308	1993	16.7
			India	68	117	1.0	55	85	0.7
			Kuwait	32	55	0.5	35	54	0.5
			Saudi Arabia	46	80	0.7	52	80	0.7
			Turkey	45	77	0.7	40	62	0.5
			Pre-HIPC arrears (not restructured)	129	222	1.9	77	118	1.0
	Private Creditors			1783	3073	26.5	1382	2107	17.7
		Chinese companies		284	489	4.2	196	299	2.5
		London Club (eurobond)		140	241	2.1	149	227	1.9
		Oil-prepurchased debt		909	1567	13.5	761	1160	9.7
		Afreximbank		54	94	0.8	48	73	0.6
		Suppliers		396	682	5.9	228	348	2.9
Domestic debt				3120	5377	46.4	4240	6464	54.2
		BEAC advances		572	986	8.5	572	872	7.3
		Commercial banks and non-banks		1534	2643	22.8	2094	3192	26.8
		Audited and validated arrears reported by CCA		1014	1748	15.1	1575	2400	20.1
			Commercial	643	1108	9.6	1158	1765	14.8
			Social and pensions	371	640	5.5	417	635	5.3

Sources: Congolese authorities; and IMF staff estimates

^{Table 1a.}

Republic of Congo: Gross Public Debt by Creditor, 2021–22

				Dec 30,2021			Aug31,2022 Prel.
				CFAF billion	USD billion	percent of GDP	CFAF billion	USD million	percent of GDP
Total public debt				7256	12504	107.9	8244	12567	105.4
External debt				4136	7127	61.5	4003	6103	51.2
	Of which: arrears			1286	2216	19.1	305	466	3.9
	Multilateral and other creditors			550	948	8.2	736	1121	9.4
		IMF		24.0	41	0.4	138.3	211	1.8
		IDA/IBRD		226	390	3.4	277	422	3.5
		AfDB		241	415	3.6	241	367	3.1
		I FAD		14	24	0.2	15	23	0.2
		Others		45	78	0.7	64	98	0.8
	Official bilateral			1802	3106	26.8	1886	2875	24.1
		Paris Club		273	470	4.1	311	474	4.0
			Brazil	57	98	0.8	62	95	0.8
			Belgium	89	153	1.3	81	124	1.0
			France	106	183	1.6	143	218	1.8
			Russia	17	30	0.3	21	32	0.3
			Switzerland	4	6	0.1	4	6	0.0
		Non-Paris Club		1530	2636	22.8	1575	2401	20.1
			China	1257	2166	18.7	1308	1993	16.7
			India	68	117	1.0	55	85	0.7
			Kuwait	32	55	0.5	35	54	0.5
			Saudi Arabia	46	80	0.7	52	80	0.7
			Turkey	45	77	0.7	40	62	0.5
			Pre-HIPC arrears (not restructured)	129	222	1.9	77	118	1.0
	Private Creditors			1783	3073	26.5	1382	2107	17.7
		Chinese companies		284	489	4.2	196	299	2.5
		London Club (eurobond)		140	241	2.1	149	227	1.9
		Oil-prepurchased debt		909	1567	13.5	761	1160	9.7
		Afreximbank		54	94	0.8	48	73	0.6
		Suppliers		396	682	5.9	228	348	2.9
Domestic debt				3120	5377	46.4	4240	6464	54.2
		BEAC advances		572	986	8.5	572	872	7.3
		Commercial banks and non-banks		1534	2643	22.8	2094	3192	26.8
		Audited and validated arrears reported by CCA		1014	1748	15.1	1575	2400	20.1
			Commercial	643	1108	9.6	1158	1765	14.8
			Social and pensions	371	640	5.5	417	635	5.3

Sources: Congolese authorities; and IMF staff estimates

^{Table 1b.}

Republic of Congo: Decomposition of Public Debt and Debt Service by Creditor, 2021 -23^1/

^¹As reported by Country authorities according to their classification of creditors, including by official and commercial. Debt coverage is the same as the DSA.

^{^2/}A breakdown of commercial creditors, including debt owed to oil traders, is not shown in the table due to capacity constraints/confidentiality clauses.

^³Multilateral creditors are simply institutions with more than one official shareholder and may not necessarily align with creditor classification under other IMF policies (e.g. Lending Into Arrears).

^⁴Debt is collateralized when the creditor has rights over an asset or revenue stream that would allow it, if the borrower defaults on its payment obligations, to rely on the asset or revenue stream to secure repayment of the debt. Col lateral ization entails a borrower granting liens over specific existing assets or future receivables to a lender as security against repayment of the loan. Collateral is “unrelated” when it has no relationship to a project financed by the loan. An example would be borrowing to finance the budget deficit, collateralized by oil revenue receipts. See the joint IMF-World Bank note for the G20 “Collateralized Transactions: Key Considerations for Public Lenders and Borrowers” for a discussion of issues raised by collateral.

^⁵Includes other-one off guarantees not included in publicly guaranteed debt (e.g. credit lines) and other explicit contingent liabilities not elsewhere classified (e.g. potential legal claims, payments resulting from PPP arrangements).

^⁶Domestic debt service includes arrears repayment.

^⁷T-Bills and T-Bonds are grouped together.

^⁸Calculated with debt stock and GDP in local currency units.

^{Table 1b.}

Republic of Congo: Decomposition of Public Debt and Debt Service by Creditor, 2021 -23^1/

						Debt Stock (end of period)			Debt Service
						2021			2021	2022	2023	2021	2022	2023
						(In Million US$)	(Percent total debt)	(Percent GDP) ^⁸	(In Million US$)			(Percent GDP)
Total						12,504	100	107.9	2,312	2,886	2,286	19.1	22.9	18.0
	External					7,127	57	61.5	985	1,427	1,107	8.1	11.3	8.7
		Multilateral creditors^²,^³				948	7.6	8.2	34	55	64	0.3	0.4	0.5
			IMF			41	0.3	0.4	…	…	…		…	…
			World Bank			390	3.1	3.4	…	…	…		…	…
			ADB/AfDB/IADB			415	3.3	3.6	…	…	…		…	…
			Other Multilaterals			102	0.8	0.9	…	…	…		…	…
				o/w: BDEAC		55	0.4	0.5	…	…	…		…	…
					IFAD	24	0.2	0.2	…	…	…		…	…
		Bilateral Creditors				3,106	24.8	26.8	364	321	356	3.0	2.5	2.8
			Paris Club			470	3.8	4.1	24	66	76	0.2	0.5	0.6
				o/w: France		183	1.5	1.6	…	…	…		…	…
					Belgium	153	1.2	1.3	…	…	…		…	…
			Non-Paris Club			2,636	21.1	22.8	341	255	279	2.8	2.0	2.2
				o/w: China		2,166	17.3	18.7	…	…	…		…	…
					India	117	0.9	1.0	…	…	…		…	…
		Commercial creditors^²				3,073	24.6	26.5	586	1,051	687	4.8	8.3	5.4
		o/w: Bonds				241	1.9	2.1	43	41	40	0.4	0.3	0.3
		Other international creditors				2,832	22.6	23.3	543	1,010	648	4.5	8.0	5.1
				o/w: Largest two creditors		1,556	12.4	12.8	…	…	…		…	…
					Others	1,276	10.2	10.5	…	…	…		…	…
	Domestic^⁶					5377	43.0	46.4	1327	1459	1179	10.9	11.6	9.3
		T-Bills^⁷				…	…	…	…	…	…		…	…
		Bonds^⁷				2643	21.1	22.8	739	844	829	6.1	6.7	6.5
		Loans				986	7.9	8.5	22	26	26	0.2	0.2	0.2
Memo items:
	Collateralized debt^⁴
			o/w: Related			1,567	…	13.5	…	…	…		…	…
			o/w: Unrelated			…	…	…	…	…	…		…	…
	Contingent liabilities
			o/w: Public guarantees			…	…	…	…	…	…		…	…
			o/w: Other explicit contingent liabilities^⁵			277	…	2.4
	Nominal GDP					12,131	…	…	…	…	…		…	…

^¹As reported by Country authorities according to their classification of creditors, including by official and commercial. Debt coverage is the same as the DSA.

^{^2/}A breakdown of commercial creditors, including debt owed to oil traders, is not shown in the table due to capacity constraints/confidentiality clauses.

^⁶Domestic debt service includes arrears repayment.

^⁷T-Bills and T-Bonds are grouped together.

^⁸Calculated with debt stock and GDP in local currency units.

^{Table 1b.}

Republic of Congo: Decomposition of Public Debt and Debt Service by Creditor, 2021 -23^1/

						Debt Stock (end of period)			Debt Service
						2021			2021	2022	2023	2021	2022	2023
						(In Million US$)	(Percent total debt)	(Percent GDP) ^⁸	(In Million US$)			(Percent GDP)
Total						12,504	100	107.9	2,312	2,886	2,286	19.1	22.9	18.0
	External					7,127	57	61.5	985	1,427	1,107	8.1	11.3	8.7
		Multilateral creditors^²,^³				948	7.6	8.2	34	55	64	0.3	0.4	0.5
			IMF			41	0.3	0.4	…	…	…		…	…
			World Bank			390	3.1	3.4	…	…	…		…	…
			ADB/AfDB/IADB			415	3.3	3.6	…	…	…		…	…
			Other Multilaterals			102	0.8	0.9	…	…	…		…	…
				o/w: BDEAC		55	0.4	0.5	…	…	…		…	…
					IFAD	24	0.2	0.2	…	…	…		…	…
		Bilateral Creditors				3,106	24.8	26.8	364	321	356	3.0	2.5	2.8
			Paris Club			470	3.8	4.1	24	66	76	0.2	0.5	0.6
				o/w: France		183	1.5	1.6	…	…	…		…	…
					Belgium	153	1.2	1.3	…	…	…		…	…
			Non-Paris Club			2,636	21.1	22.8	341	255	279	2.8	2.0	2.2
				o/w: China		2,166	17.3	18.7	…	…	…		…	…
					India	117	0.9	1.0	…	…	…		…	…
		Commercial creditors^²				3,073	24.6	26.5	586	1,051	687	4.8	8.3	5.4
		o/w: Bonds				241	1.9	2.1	43	41	40	0.4	0.3	0.3
		Other international creditors				2,832	22.6	23.3	543	1,010	648	4.5	8.0	5.1
				o/w: Largest two creditors		1,556	12.4	12.8	…	…	…		…	…
					Others	1,276	10.2	10.5	…	…	…		…	…
	Domestic^⁶					5377	43.0	46.4	1327	1459	1179	10.9	11.6	9.3
		T-Bills^⁷				…	…	…	…	…	…		…	…
		Bonds^⁷				2643	21.1	22.8	739	844	829	6.1	6.7	6.5
		Loans				986	7.9	8.5	22	26	26	0.2	0.2	0.2
Memo items:
	Collateralized debt^⁴
			o/w: Related			1,567	…	13.5	…	…	…		…	…
			o/w: Unrelated			…	…	…	…	…	…		…	…
	Contingent liabilities
			o/w: Public guarantees			…	…	…	…	…	…		…	…
			o/w: Other explicit contingent liabilities^⁵			277	…	2.4
	Nominal GDP					12,131	…	…	…	…	…		…	…

^¹As reported by Country authorities according to their classification of creditors, including by official and commercial. Debt coverage is the same as the DSA.

^{^2/}A breakdown of commercial creditors, including debt owed to oil traders, is not shown in the table due to capacity constraints/confidentiality clauses.

^⁶Domestic debt service includes arrears repayment.

^⁷T-Bills and T-Bonds are grouped together.

^⁸Calculated with debt stock and GDP in local currency units.

5. This debt sustainability analysis incorporates the impact of three restructuring agreements concluded with external private commercial creditors (oil traders). The restructuring agreement with the smallest of these three creditors was signed in 2020Q3 and included a substantial nominal haircut on the stock of outstanding debt, a maturity extension, and resolution of $61 million in external arrears. This debt was fully repaid by early-2022. The restructuring agreement with the largest creditor was signed in 2021Q1 and that with the remaining large creditor was signed in 2022Q1—both of these agreements include debt service formulated as a function of oil prices, a nominal haircut, a maturity extension, and an interest rate reduction.

^{Text Table 2a.}

Republic of Congo: Summary Table of Projected External Borrowing Program 2022–23

January 1, 2022-June 30, 2023

^{Text Table 2a.}

Republic of Congo: Summary Table of Projected External Borrowing Program 2022–23

January 1, 2022-June 30, 2023

PPG external debt			Volume of new debt, Jan 1, 2022 to June 30, 2023
PPG external debt			USD million	CFAF Billion	Percent
By sources of debt financing			522.7	329.4	100
	*Concessional debt, of which*		461.2	290.7	88
		Multilateral debt	327.3	206.3	63
		Bilateral debt	133.8	84.4	26
		Other	0.0	0.0	0
	*Non-concessional debt, of which*		61.5	38.8	12
		Semi-concessional	61.5	38.8	12
		Commercial terms	0.0	0.0	0
By Creditor Type			522.7	329.4	100
		Multilateral	327.3	206.3	62
		Bilateral – Paris Club	106.1	66.9	21
		Bilateral – Non-Paris Club	89.2	56.2	17
		Other	0.0	0.0	0
Uses of debt financing			522.7	329.4	100
	Infrastructure		267.7	168.7	51
	Social Spending		0.0	0.0	0
	Budget Financing		255.0	160.7	49
	Other		0.0	0.0	0.0

^{Text Table 2a.}

Republic of Congo: Summary Table of Projected External Borrowing Program 2022–23

January 1, 2022-June 30, 2023

PPG external debt			Volume of new debt, Jan 1, 2022 to June 30, 2023
PPG external debt			USD million	CFAF Billion	Percent
By sources of debt financing			522.7	329.4	100
	*Concessional debt, of which*		461.2	290.7	88
		Multilateral debt	327.3	206.3	63
		Bilateral debt	133.8	84.4	26
		Other	0.0	0.0	0
	*Non-concessional debt, of which*		61.5	38.8	12
		Semi-concessional	61.5	38.8	12
		Commercial terms	0.0	0.0	0
By Creditor Type			522.7	329.4	100
		Multilateral	327.3	206.3	62
		Bilateral – Paris Club	106.1	66.9	21
		Bilateral – Non-Paris Club	89.2	56.2	17
		Other	0.0	0.0	0
Uses of debt financing			522.7	329.4	100
	Infrastructure		267.7	168.7	51
	Social Spending		0.0	0.0	0
	Budget Financing		255.0	160.7	49
	Other		0.0	0.0	0.0

^{Text Table 2b.}

Republic of Congo: Type of New External Debt

(Millions of USD)

January 1, 2022-June 30, 2023

Note: All loans are on contracting basis.

^{Text Table 2b.}

Republic of Congo: Type of New External Debt

(Millions of USD)

January 1, 2022-June 30, 2023

	USD Million	CFAF Billion
*By the type of interest rate*
Fixed Interest Rate	461.2	290.7
Variable Interest Rate	61.5	38.8
Unconventional Loans	0.0	0.0
*By currency*
USD denominated loans	461.2	290.7
Loans denominated in other currency	61.5	38.8

Note: All loans are on contracting basis.

^{Text Table 2b.}

Republic of Congo: Type of New External Debt

(Millions of USD)

January 1, 2022-June 30, 2023

	USD Million	CFAF Billion
*By the type of interest rate*
Fixed Interest Rate	461.2	290.7
Variable Interest Rate	61.5	38.8
Unconventional Loans	0.0	0.0
*By currency*
USD denominated loans	461.2	290.7
Loans denominated in other currency	61.5	38.8

Note: All loans are on contracting basis.

6. This debt sustainability analysis also incorporates the impact of the G20 Debt Service Suspension Initiative (DSSI). Under the DSSI, the authorities obtained relief of $98 million of debt service due to bilateral creditors between May and December 2020 (equivalent to 1 percent of GDP), that was rescheduled under NPV-neutral terms. Under the second phase of the DSSI, an additional $105 million of debt service was rescheduled. Under the final DSSI extension, an additional $56 million of debt service was rescheduled. The authorities devoted the resources freed bythis initiative to increased spending in order to mitigate the health, economic, and social impact of the COVID-19 pandemic. The DSA includes the rescheduling—according to published terms—of all eligible debt, with the exception of debt under the Strategic Partnership loans from China, which the creditors have not agreed to reschedule and for which the authorities have continued making payments.

7. Weaknesses in public debt management and reporting remain. While the authorities published the terms of the 2019 debt restructuring agreement with China, operationalization of the agreement implied lower short-term liquidity relief than initially assessed. Moreover, the authorities continued accumulating excess deposits in the escrow account in China during 2020—though these were eliminated in 2021. Significant data revisions have resulted in upward revisions to the 2021 external debt stock. Moreover, the breaches of the zero ceiling on contracting new non-concessional external debt and the consultation clause under the program on signing of new external debt arrangements (as defined in the Technical Memorandum of Understanding) have exposed serious debt management and capacity challenges. For domestic debt, limited capacity, delays in information sharing and weak communication between relevant entities that collect debt information, and continued audit of arrears complicates debt reporting and management. The authorities are committed to resolving these issues with support from on-going IMF and World Bank technical assistance in the areas of debt management and reporting. Debt indicators, such as the public debt-to-GDP ratio, are also impacted by statistical revisions to GDP. Recent revisions reduced nominal GDP resulting in an increase of historical and projected values of the public debt-to-GDP ratio (H8).

^{Text Table 3.}

Republic of Congo: External Arrears Situation

Source: Congolese authorities and IMF staff estimates.

^¹Includes disputed debts and pre-HIPC claims.

^{Text Table 3.}

Republic of Congo: External Arrears Situation

			February 2022 stock			August 2022 stock			August 2022 (Excl. unrestructured pre-HI PC arrears)^¹
			CFAF billion	USD million	percent of GDP	CFAF billion	USD million	percent of GDP	CFAF billion	USD million	percent of GDP
Total			379	648	4.8	337	514	4.3	43	65	0.5
Multilateral and other creditors			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Bilateral			88.9	151.8	1.1	92.2	140.6	1.2	15.0	22.8	0.2
	Paris Club		0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Brazil	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Belgium	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		France	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Switzerland	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Russia	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Non-Paris Club		88.9	151.8	1.1	92.2	140.6	1.2	15.0	22.8	0.2
		United Arab Emirates	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Angola	66.4	113.4	0.8	74.1	113.0	0.9	0.0	0.0	0.0
		China	1.2	2.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		India Exim Bank	18.2	31.0	0.2	15.0	22.8	0.2	15.0	22.8	0.2
		Kuwait	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Saudi Arabia	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Turkey	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Postal debt	3.1	5.4	0.0	3.1	4.8	0.0	0.0	0.0	0.0
Private Creditors			290	495.8	3.7	245	373.2	3.1	28.0	42.6	0.4
	CMEC and Chinese companies		62	106.2	0.8	17	25.2	0.2	16.5	25.2	0.2
	Eurobond		0	0.0	0.0	0	0.0	0.0	0.0	0.0	0.0
	Afreximbank		0	0.0	0.0	0	0.0	0.0	0.0	0.0	0.0
	Oil traders		0	0.0	0.0	0	0.0	0.0	0	0.0	0.0
	Suppliers’		228	390	2.9	228	348	2.9	11.4	17.4	0.1

Source: Congolese authorities and IMF staff estimates.

^¹Includes disputed debts and pre-HIPC claims.

^{Text Table 3.}

Republic of Congo: External Arrears Situation

			February 2022 stock			August 2022 stock			August 2022 (Excl. unrestructured pre-HI PC arrears)^¹
			CFAF billion	USD million	percent of GDP	CFAF billion	USD million	percent of GDP	CFAF billion	USD million	percent of GDP
Total			379	648	4.8	337	514	4.3	43	65	0.5
Multilateral and other creditors			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Bilateral			88.9	151.8	1.1	92.2	140.6	1.2	15.0	22.8	0.2
	Paris Club		0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Brazil	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Belgium	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		France	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Switzerland	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Russia	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Non-Paris Club		88.9	151.8	1.1	92.2	140.6	1.2	15.0	22.8	0.2
		United Arab Emirates	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Angola	66.4	113.4	0.8	74.1	113.0	0.9	0.0	0.0	0.0
		China	1.2	2.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		India Exim Bank	18.2	31.0	0.2	15.0	22.8	0.2	15.0	22.8	0.2
		Kuwait	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Saudi Arabia	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Turkey	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Postal debt	3.1	5.4	0.0	3.1	4.8	0.0	0.0	0.0	0.0
Private Creditors			290	495.8	3.7	245	373.2	3.1	28.0	42.6	0.4
	CMEC and Chinese companies		62	106.2	0.8	17	25.2	0.2	16.5	25.2	0.2
	Eurobond		0	0.0	0.0	0	0.0	0.0	0.0	0.0	0.0
	Afreximbank		0	0.0	0.0	0	0.0	0.0	0.0	0.0	0.0
	Oil traders		0	0.0	0.0	0	0.0	0.0	0	0.0	0.0
	Suppliers’		228	390	2.9	228	348	2.9	11.4	17.4	0.1

Source: Congolese authorities and IMF staff estimates.

^¹Includes disputed debts and pre-HIPC claims.

B. Macroeconomic Outlook

8. Box 1 summarizes the main assumptions for key macroeconomic variables in the scenario underpinning the DSA:

Overall real GDP growth is projected at 2.8 percent for 2022, reflecting 3.3 percent non-oil growth and a 0.5 percent rebound of oil sector growth after an 11 percent contraction in 2021. In 2023, the overall real GDP growth is projected at 4.1 percent, on the back of non-oil GDP growth of 4 percent and oil GDP growth of 4.4 percent. Growth is expected to peak at 4.6 percent of GDP in 2024, primarily on the back of increased oil production. Over the long term, growth will average around 4.2 percent driven by strengthened non-oil growth as economic diversification gradually progresses, supported by the authorities’structural reform agenda as elaborated in the National Development Plan, the World Bank Development Policy Financing (DPF) program, and the IMF ECF arrangement.^¹⁰Concurrently, oil production levels will decline with the depletion of oil reserves.
The fiscal stance was loosened in 2022, due to a new subsidy for fuel imports and distribution. The non-oil primary deficit is expected to widen from 14.2 percent of non-oil GDP in 2021 to 15.7 percent of non-oil GDP in 2022. Owing to strong oil revenues, the overall balance is expected to improve from 1.8 percent of GDP in 2021 to 6.9 percent of GDP in 2022. Over the medium term, the authorities are expected to continue implementing fiscal adjustment to restore long-term fiscal sustainability and support building of regional international reserves.
Budget support was provided by France 2022H1 (EUR 30 million) and is expected from the World Bank atend-2022 ($50 million, Text Table 4). In 2020 and 2021, disbursements were lower than previously anticipated because of delays in both budget support and project financing, the latter related to the pandemic. The decline in disbursements beyond 2026 is in line with the authorities’ commitment to pursue prudent external borrowing.
In line with continued improvements in the compilation of statistics, supported by technical assistance from the IMF and other development partners, historical GDP and balance of payments statistics have been revised.^¹¹ As a result, nominal GDP is lower than in CR 22/226 and all ratios in percent of GDP are higher. This effect explains over 11 percentage points of the 2022 increase in the debt-to-GDP ratio. The other 5 percentage point increase of this ratio in 2022 is due to new social debt and revised projections of domestic borrowing and acceptance rates of unaudited arrears.
The DSA assumes that Congo continues to obtain the bulk of new external financing on concessional terms in the near and medium terms; the grant element remains around 35 percent over 2027–42.^¹²

^{Text Table 4.}

Republic of Congo: Projected Loan Disbursements (US$ Million)

Sources: IMF and WB staff calculations and projections.

^{Box 1.}

Main Macroeconomic Assumptions

Non-oil sector: In 2022, as the pandemic subsides, recovery of the non-oil sector is projected to take hold, growing at 3.3 percent. Non-oil growth is projected to improve gradually to 5 percent by 2026 (averaging 4.5 percent during 2023–27), as investment recovers, the implementation of structural reforms bears fruit, (especially, to protect and develop human capital and infrastructure and improve the business environment) and the economy diversifies in line with the commitments of the CEMAC Heads of State in August 2021. The CEM AC HeadsofState have committed to implement priority structural reforms to allow stronger, more inclusive and more sustainable growth with an emphasis on improving the management of public funds and governance (e.g., improving the preparation of public investment projects, strengthening the financial oversight of SOEs), business environment reforms and regional integration as well as human capital (e.g. greater focus on primary health care, social protection, and relevant professional training). Emphasis will be placed on improving infrastructure—fortransport, irrigation, water and sanitation, telecommunications, and electricity—removing trade barriers, improving contract enforcement, insolvency procedures, and investor protection will all support increased productivity in agriculture, food processing, forestry and wood products, ICT, tourism, and financial services. Beyond 2027, non-oil growth is projected to average 5 percent—somewhat lower than the historical average of 5.3 percent over 2008–17 but higher than the non-oil GDP growth in the 2021 Article IV framework—on the back of structural reforms and diversification efforts. GDP growth is expected to slow down for a brief period between 2032 and 2036 due to reduced oil production and rebounds thereafter when non-oil growth spurred by diversification efforts starts to dominate the sharp decline in oil production.

Key risks to the outlook include (i) intensification of spillovers from the war in Ukraine that could adversely impact investment, exports, imports, remittances, and inflation (ii) lower oil prices and production amid the rapidly evolving global transition to low-carbon economies (iii) adverse weather conditions weighing on agricultural production and (iv) investment could slow with further interest rate hikes and tightening external financing conditions. In the near-term, downside risks are elevated given uncertainties related to the ripple effects of the war in Ukraine, the pandemic, low vaccination rates, and oil prices and production. Medium-term risks are largely mitigated as governance reforms and the implementation of efforts to diversify and build resilience to climate change are expected to support development of the non-oil sector, which will create jobs and raise incomes.
Oil production and prices (applying October 2022 WEO projections): Oil production in 2021 remained subdued due to an unanticipated slowdown in production owing to the negative impact of the pandemic on oil production-related investments in 2020 that were necessary to maintain or increase production relative to 2020. Accordingly, oil production in 2021^¹ was substantially less than that in 2020 but is expected to gradually recover with a normalization of investment, resulting in higher production starting in 2022 and reaching levels close to those observed in 2020 in 2024. Production is projected to peak at 112 million barrels by 2024 (comparable to pre-pandemic levels) with new fields coming online and then to steadily decline to about 55 million barrels in 2041, barring new oil discoveries. There are large downside risks to oil prices. More broadly, high volatility of international oil prices and production uncertainties, including those related to the war in Ukraine, are substantial near-term risks; however, the contribution of oil to overall GDP, as well as exports and revenue, is expected to decline over the next 20 years, reducing long-term risks related to oil price volatility.
Inflation: Inflation is projected to average 3.5 percent (y/y) in 2022 dueto the war in Ukraine raising global prices for cereals, fertilizers, and fuel on food and fuel imports, transit costs for all imports, and prices of import substitutes. Headline and food inflation averaged 2.9 and 6.3 percent in January-August 2022. The impact of higher commodity prices on overall domestic prices could remain limited during the remainder of the year since staple food and retail fuel prices will continue to be regulated. Inflation is expected to decline to 3 percent by 2026 and remain close to 3 percent over the long term, consistent with the CEMACs convergence criteria (a 3 percent ceiling).
Current account balance: A current account surplus of 21.6 percent of GDP is anticipated for 2022, significantly higher than the current account balance of 14.5 percent of GDP in 2021. The surplus is primarily linked to high global oil prices in 2022.Thecurrentaccountis projected to remain in surplus over 2021–29 given high oil prices, oil production increases, and a gradual recovery in the non-oil sector. After that, with the projected decline in oil production, the current account is expected to shift to a deficit. The current account deficit is projected to average 8 percent of GDP over 2030–42, reflecting a long-term decline in oil production. Continued investment efforts as part of the diversification strategy will keep imports elevated, only partly offset by increased exports. As elaborated above, economic diversification will continue to support projected GDP growth.
Fiscal policy aims to reduce the debt burden and support growth. In 2021 (relative to 2020), oil revenues bolstered the primary balance while the non-oil primary balance deteriorated under pressure from higher pandemic-related spending on goods and services, social transfers, and grant shortfalls. Non-oil revenues remained stable, supported by gradual increases in non-oil economic activity and revenue-enhancing measures adopted over the past two years. Oil-related transfers also remained broadly similar to 2020 (as a percent of non-oil GDP)—where higher oil prices counteracted savings from continued reforms in the state-owned (SOE) electricity company and oil refinery. The shortfall in grants was mirrored in suppressed externally financed capital spending.

To restore fiscal sustainability, the fiscal loosening in 2022 driven by a significant rise in oil-related transfers (including a newsubsidy to SNPC for fuel imports introduced in the July revised 2022 budget) will be more than compensated during 2023–27. Consequently, after expanding by 1.4 percent of non-oil GDP in 2022, the non-oil primary balance is projected to adjust 6.9 percent of non-oil GDP during 2023–27. This adjustment is underpinned by measures supported by the ECF arrangement, World Bank DPF series, and technical assistance from the IMF, World Bank, and other development partners—including measures to improve tax compliance and collection of tax arrears, broadening the tax base (making compulsory the use of the Unique Identification Number (NIU), applying a medium-term strategy to streamline exemptions including in VAT), customs reforms, raising excise duties in line with CEMAC guidelines, continued implementation of energy SOE reforms to reduce transfers and improve SOE transparency (see IMF Country Report No. 22/49 fordetails) and collect more dividends from SOEs, and deregulation of retail fuel prices (complemented by expanded social assistance to protect the vulnerable). The concerted efforts the government is already making to take these measures forward, in addition to the recently completed debt restructuring, and efforts to settle remaining arrears and timely payments of all remaining debt demonstrates strong ownership towards budget and debt reforms and the ECF arrangement.

The projected primary balance surpluses are supported by the gradual adjustment in the non-oil primary balance but are mainly driven by substantial oil revenue windfall gains with prevailing high oil prices— where the large portions of the oil windfalls are saved as deposits in BEAC to support regional reserves accumulation. Downside risks to oil prices, their impact on the primary balance, and in turn on the DSA, are substantially mitigated by debt service to the largest external commercial creditors being tied to oil prices and access to Congo’s financial market.

The authorities are also committed to use the oil windfall gains to substantially reduce the stock of external and domestic arrears in the medium term. The gradual clearance of domestic arrears should provide more liquidity to the private sector and banks, stimulating private investment and non-oil sector growth. The authorities also plan to expand the tax base by gradually reducing tax expenditures (estimated at over 10 percent of GDP) and improving tax administration (through the operationalization of the one-stop shop for tax payments and of the digital platforms for tax declarations). Greater fiscal revenue mobilization together with external borrowing on concessional terms will reduce the debt service burden and allow the financing of critical infrastructure projects, which in turn will support the government’s diversification strategy as outlined in the new development plan (2022–26).
Domestic arrears payments: The authorities’ medium-term fiscal strategy prioritizes domestic arrears repayments—critical for economic and political confidence—while safeguarding social and domestically-financed capital spending and reflecting commitments to enhance debt sustainability. The authorities are developing a new domestic arrears repayments scheme which will begin in 2023. Should revenues fall short, domestic arrears repayments will be slowed. Clearance of domestic arrears is also helping alleviate macro-financial risks by reducing liquidity pressures and NPLs.
Loan disbursements: The authorities’ reforms agenda, supported by the ECF arrangement, will catalyze concessional budget financing, which will help reduce debt vulnerabilities while supporting critical public investment to support economic diversification efforts as well as social spending to protect the most vulnerable—all of which will facilitate higher, more inclusive, resilient, and sustainable growth (Text Table 4).

^¹ GDP increased by 1.5 percent in 2021, with 3.6 percent growth in the non-oil sector and 11 percent decline in the oil production in 2021.

9. Realism tools flag risks around the forecast, but there are mitigating factors. The fiscal adjustment-growth realism tool suggests that the projected overall real GDP growth path could be lower but staff assesses the projected growth and the fiscal path to be realistic. This is because overall real GDP growth is composed of two separate parts: oil and non-oil growth, where the impact of oil growth on overall real GDP dominates given the country’s oil dependence. Notably, only non-oil growth is impacted by fiscal adjustment policies and the path of non-oil growth is consistent with the realism tool. Concurrently, oil growth is driven by oil production, which is independent of fiscal adjustment policies. Risks, including from negative oil price shocks, are largely mitigated by repayments to the largest external commercial creditor being tied to oil prices, a gradual increase of government deposits at BEAC, and the availability of financing from Congolese financial markets—where banks have high liquidity, as corroborated by the high liquidity ratios for the domestic banks. The DSA also incorporates interest rates for domestic financing consistent with the historical trends and current market conditions. Further, in the long term, with structural and governance reforms and after exiting fragility, access to international capital markets can be a source of financing. Moreover, over the medium and long term, economic diversification efforts are supporting economic activity. Improvements in the primary surplus (owing to oil revenues in the near- and medium-terms and sustained consolidation efforts) is the main driver in reducing debt, with real GDP growth also contributing marginally (Figure 3). The realism tools show a history of large unexplained increases for external debt due to revisions to debt stock and debt service statistics.

^{Text Table 5.}

Republic of Congo: Comparison of Assumptions between Current and Previous DSA

Sources: Congolese authorities; IMF and WB staff calculations and projections.

^{Text Table 5.}

Republic of Congo: Comparison of Assumptions between Current and Previous DSA

	Average 2012–2021		2022	2023	2024	2030	2038
	New Loan Disbursements (billions FCFA)
Current DSA			316.4	411.7	374.5	130.9	115.9
1st Review		...	292	259	255	111.3	103.7
	Grant Element of New External Borrowing (in percentage points)
Current DSA			27.9	30.4	34.3	35.6	37.6
1st Review		...	30	28	33	38.1	29.3
	Primary balance (percent of GDP)
Current DSA			9.5	9.0	9.0	12.5	0.5
1st Review		-2.1	10	8	7	9.1	0.1
	Real GDP growth (percent)
Current DSA			2.8	4.1	4.6	4.2	3.9
1st Review		-1.7	4	5	7	3.8	3.2
	Current Account Balance (percent of the GDP)
Current DSA			21.6	8.5	3.1	-1.4	-12.2
1st Review		-0.1	17	8	5	-2.6	-5.0
	Congolese Oil prices (US dollars per barrel)
Current DSA			96.4	84.4	78.8	75.9	89.3
1st Review		69.2	96	85	78	77.5	91.2
	Brent Oil prices (US dollars per barrel)
Current DSA			100.5	88.6	83.4	79.2	92.8
1st Review		101.1	110.8	96.1	87.2	79.5	93.2

Sources: Congolese authorities; IMF and WB staff calculations and projections.

^{Text Table 5.}

Republic of Congo: Comparison of Assumptions between Current and Previous DSA

	Average 2012–2021		2022	2023	2024	2030	2038
	New Loan Disbursements (billions FCFA)
Current DSA			316.4	411.7	374.5	130.9	115.9
1st Review		...	292	259	255	111.3	103.7
	Grant Element of New External Borrowing (in percentage points)
Current DSA			27.9	30.4	34.3	35.6	37.6
1st Review		...	30	28	33	38.1	29.3
	Primary balance (percent of GDP)
Current DSA			9.5	9.0	9.0	12.5	0.5
1st Review		-2.1	10	8	7	9.1	0.1
	Real GDP growth (percent)
Current DSA			2.8	4.1	4.6	4.2	3.9
1st Review		-1.7	4	5	7	3.8	3.2
	Current Account Balance (percent of the GDP)
Current DSA			21.6	8.5	3.1	-1.4	-12.2
1st Review		-0.1	17	8	5	-2.6	-5.0
	Congolese Oil prices (US dollars per barrel)
Current DSA			96.4	84.4	78.8	75.9	89.3
1st Review		69.2	96	85	78	77.5	91.2
	Brent Oil prices (US dollars per barrel)
Current DSA			100.5	88.6	83.4	79.2	92.8
1st Review		101.1	110.8	96.1	87.2	79.5	93.2

Sources: Congolese authorities; IMF and WB staff calculations and projections.

C. Country Classification and Determination of Stress Test Scenarios

10. The composite index (Cl) is assessed at 2.2 and is based on the October 2022 World Economic Outlook (WEO) and 2021 World Bank Country Policy and Institutional Assessment (CPIA) data, indicating a weak debt carrying capacity for Congo. The methodology relies on computing a composite indicator (Cl) based on information from the CPIA score, external conditions as captured by world economic growth, and country-specific factors, including import coverage of reserves. The Republic of Congo’s low Cl score indicates a weak debt carrying capacity, reflecting mainly a low CPIA score and a low level of foreign reserves (Text Table 6). The Cl score is similar to that in the previous DSA which is based on the April 2022 WEO data, and the debt carrying capacity is unchanged compared to the previous (first review of the ECF arrangement) DSA.

^{Text Table 6.}

Republic of Congo: Composite Indicator Score

Source: IMF staff calculations. The CI cutoff value for medium debt carrying capacity is 2.69.

^{Text Table 6.}

Republic of Congo: Composite Indicator Score

Components	Coefficients (A)	10-year average values (B)	CI Score components (A*B) = (C)	Contribution of components
CPIA	0.385	2.714	1.04	47%
Real growth rate (in percent)	2.719	0.155	0.00	0%
Import coverage of reserves (in percent)	4.052	25.972	1.05	47%
Import coverage of reserves^2 (in percent)	-3.990	6.745	-0.27	-12%
Remittances (in percent)	2.022	0.000	0.00	0%
World economic growth (in percent)	13.520	2.898	0.39	18%
CI Score			2.224	100%
CI rating			Weak

Final	Classification based on current vintage	Classification based on the previous vintage	Classification based on the two previous vintage
Weak	Weak 2.22	Weak 2.30	Weak 2.31

APPLICABLE		APPLICABLE
EXTERNAL debt burden thresholds		TOTAL public debt benchmark
PV of debt in % of		PV of total public debt in percent of GDP	35
Exports	140
GDP	30
Debt service in % of
Exports	10
Revenue	14

Source: IMF staff calculations. The CI cutoff value for medium debt carrying capacity is 2.69.

^{Text Table 6.}

Republic of Congo: Composite Indicator Score

Components	Coefficients (A)	10-year average values (B)	CI Score components (A*B) = (C)	Contribution of components
CPIA	0.385	2.714	1.04	47%
Real growth rate (in percent)	2.719	0.155	0.00	0%
Import coverage of reserves (in percent)	4.052	25.972	1.05	47%
Import coverage of reserves^2 (in percent)	-3.990	6.745	-0.27	-12%
Remittances (in percent)	2.022	0.000	0.00	0%
World economic growth (in percent)	13.520	2.898	0.39	18%
CI Score			2.224	100%
CI rating			Weak

Final	Classification based on current vintage	Classification based on the previous vintage	Classification based on the two previous vintage
Weak	Weak 2.22	Weak 2.30	Weak 2.31

APPLICABLE		APPLICABLE
EXTERNAL debt burden thresholds		TOTAL public debt benchmark
PV of debt in % of		PV of total public debt in percent of GDP	35
Exports	140
GDP	30
Debt service in % of
Exports	10
Revenue	14

Source: IMF staff calculations. The CI cutoff value for medium debt carrying capacity is 2.69.

11. The DSA considers commodity price, natural disasters, and market financing shocks. Since oil exports represent more than 80 percent of Congo’s exports, the commodity price tailored stress test is triggered. Given susceptibility to natural disasters like floods, the natural disaster module is also triggered. Similarly, having issued a Eurobond (in the context of HIPC debt restructuring), the market financing shock is also activated. This scenario assesses rollover risks resulting from a deterioration in global risk sentiment, temporary nominal depreciation, and shortening of maturities of new external commercial borrowing.

Debt Sustainability Analysis

A. External Debt Sustainability Analysis

12. Under the baseline, breaches of three external debt indicators vis-a-vis Congo’s indicative thresholds are contained within 4 years (Figure 1). Under the current terms on the already restructured debt, all threshold breaches will be eliminated by 2026 under the baseline scenario. The PV of external debt-to-GDP ratio is 43 percent at end-2022 and is projected to decline to just under 30 percent in 2026, below the threshold. The debt service-to-revenues ratio, at 37 percent in 2022 is projected to decline to 13 percent in 2026 (below the 14 percent threshold), when most of the external commercial debt will have been repaid. In addition, the debt service-to-exports ratio is currently above its indicative threshold of 10 percent but is projected to decline to 8 percent by 2024 and remain below the threshold in subsequent years. The PV of debt-to-exports ratio is below its indicative threshold and projected to decline to an average of 34 percent over 2027–32.

13. All indicators of external public debt breach their indicative thresholds in stress test scenarios (Figure 1). Standard shock scenarios examine the implications of various shocks to the debt and debt-service paths based on the historical volatility of the country’s economic indicators, resulting in sharp increases in the debt burden and liquidity indicators in all cases. The exports shock stress test is the most extreme for all indicators, reflecting the Republic of Congo’s high dependence on oil exports and high volatility of oil exports. A decline in exports to a level equivalent to one standard deviation below their historical average in the second and third years of the projection period would cause the PV of debt-to-exports ratio to rise and remain elevated over the medium term, while the PV of debt-to-GDP would peak at 168 percent. While this shock is intended to simulate the impact of reduced oil export receipts (oil is 80 percent of exports) that could arise from a decline in oil prices, it does not account for debt service to the largest external commercial creditors being tied to oil prices (i.e., debt service in a given year declines with reduced oil prices). The market financing risk module indicates a moderate risk of heightened liquidity pressures. However, a heightened market stress event would not have a substantial impact on debt burden indicators (Figure 5), as Congo does not plan to issue market debt, and instead rely on concessional financing in the medium term to rein in debt vulnerabilities.^¹³

14. Reflecting unresolved external arrears of $65 million to a Chinese commercial creditor, India’s Exim Bank, and nine commercial suppliers, the external and overall debt is still assessed to be in-distress but sustainable. The DSSI treatment of all pre-HIPC arrears for which Congo requested treatment has already been received and authorities are committed to repay the DSSI rescheduled debt service as per schedule. The clearance of remaining external arrears would be required to end the ongoing episode of debt distress. As all the debt ratios fall below the debt thresholds within 5 years, debt is assessed to be sustainable.

B. Public Debt Sustainability Analysis

15. An analysis of the Republic of Congo’s overall public debt highlights heightened overall debt vulnerabilities (Figure 2). The projected evolution of debt burden indicators suggests heightened vulnerabilities arising from public debt. Under the baseline scenario, the present value of public and publicly guaranteed debt-to-GDP (including domestic arrears and past direct financing from BEAC prior to initiation of the ECF arrangement) remains significantly above the 35 percent benchmark level associated with heightened vulnerabilities for countries with a weak debt carrying capacity until 2030 and then remains below the threshold for the remainder of the horizon. Even though the PV of public debt breaches its benchmark until 2030, it is assessed as sustainable given that liquidity risks are mitigated by i) its downward path going forward, ii) the availability of financing from Congolese financial markets, where banks have high liquidity ratios, and (iii) the availability of financing from CEMAC regional markets for smaller countries such as Congo, despite recent monetary policy tightening. This assessment of debt vulnerabilities is further supported by stress-tests; the growth shock stress test is the most extreme for public debt burden indicators, highlighting downside risk related to an inability to clear arrears if growth remains subdued. The shock also overestimates the impact on public debt as the implementation of priority structural reforms results in stronger, more inclusive, and more sustainable growth under the baseline. In contrast, historical scenarios point towards perennially rising PV of debt-to-GDP and PV of debt-to-exports ratios (Figure 2), which reflect large historical residuals^¹⁴ and low growth rates.

^{Text Table 7.}

Republic of Congo: Comparison of PPG Gross External Debt Indicators Baseline Scenario,

(Percent of GDP, unless otherwise indicated)

Sources: Congolese authorities; IMF and WB staff calculations and projections.

^{Text Table 7.}

Republic of Congo: Comparison of PPG Gross External Debt Indicators Baseline Scenario,

(Percent of GDP, unless otherwise indicated)

	2022	2023	2024	2027	2032
	PV of Debt-to-GDP Ratio
Current DSA	42.6	38.9	34.8	26.8	16.3
1st Review	39.9	35.2	30.5	24.5	15.5
	PV of Debt-to-Exports Ratio
Current DSA	47.2	47.0	44.3	41.3	30.0
2022 ECF 1st Review	50.7	48.2	42.9	41.5	30.3
	Debt Service-to-Exports Ratio
Current DSA	12.7	10.5	8.3	4.3	3.4
2022 ECF 1st Review	13.5	10.8	8.5	4.6	3.2
	Debt Service-to-Revenue Ratio
Current DSA	37.1	29.1	22.2	10.2	7.1
2022 ECF 1st Review	38.8	29.5	22.6	10.6	6.5

Sources: Congolese authorities; IMF and WB staff calculations and projections.

^{Text Table 7.}

Republic of Congo: Comparison of PPG Gross External Debt Indicators Baseline Scenario,

(Percent of GDP, unless otherwise indicated)

	2022	2023	2024	2027	2032
	PV of Debt-to-GDP Ratio
Current DSA	42.6	38.9	34.8	26.8	16.3
1st Review	39.9	35.2	30.5	24.5	15.5
	PV of Debt-to-Exports Ratio
Current DSA	47.2	47.0	44.3	41.3	30.0
2022 ECF 1st Review	50.7	48.2	42.9	41.5	30.3
	Debt Service-to-Exports Ratio
Current DSA	12.7	10.5	8.3	4.3	3.4
2022 ECF 1st Review	13.5	10.8	8.5	4.6	3.2
	Debt Service-to-Revenue Ratio
Current DSA	37.1	29.1	22.2	10.2	7.1
2022 ECF 1st Review	38.8	29.5	22.6	10.6	6.5

Sources: Congolese authorities; IMF and WB staff calculations and projections.

Risk Rating and Vulnerabilities

16. The overall and external debt of the Republic of Congo are assessed to be sustainable but debt is currently “in distress”. The assessment of debt distress is a result of the ongoing negotiations on resolution of arrears with a Chinese commercial creditor, India’s Exim Bank, and outstanding arrears to suppliers. Owing to higher oil prices and the downward trend in all the debt and solvency indicators, the breach in the debt service-to-revenue indicator is projected to be resolved by 2026 and the present value of external debt-to-GDP indicator is projected to fall below the threshold by 2026. These, combined with no new accumulation of domestic and external arrears, result in the overall and external debt being sustainable.

17. Risks of overall and external debt distress remain high given liquidity risks and vulnerability to negative oil price shocks. Liquidity risks, associated with an elevated public debt-to-GDP ratio (exceeding the threshold through 2030) and a large external debt service-to-revenue ratio (the indicator exceeds the threshold through 2023), are mitigated by the steady and significant declines in these ratios going forward, the availability of financing from Congolese financial markets, and diversification efforts that will bear dividends in the form of non-oil exports and higher contribution of non-oil sectors towards GDP growth. Going forward, the authorities are encouraged to continue pursuing fiscal consolidation, enact policies for diversification to reduce risks and prepare for reduced long-term oil production and demand, clear arrears, and enhance debt management. Nevertheless, the Debt Sustainability Assessment also remains vulnerable to oil price shocks and to food crisis following the war in Ukraine. A lower oil price could obstruct the authorities’ structural reforms and diversification efforts, whereas high food prices could prompt more social spending and spending on subsidies for food, jeopardizing the authorities plans of fiscal consolidation. Food inflation is expected to significantly outpace overall inflation in 2022 (food inflation reached 6 percent (y-o-y) in October 2022). Opposition to reforms (including due to social discontent) could slow fiscal consolidation and payment of domestic arrears, weighing on banks’ ability to lend to the private sector and subsequently economic growth prospects. Unfavorable oil production outcomes poses a significant downside risk to the DSA assessment, that could materialize if foreign direct investments fall below the required levels and could also materialize with an unfavorable response from the oil companies on authorities’ efforts for tax reforms in the oil sector.^¹⁵ Finally, further downward revisions to GDP statistics (118) could raise debt-to-GDP ratios again.

Authorities’Views

18. The authorities concurred with staff’s assessment that Congo is in debt distress and that debt is sustainable owing to favorable oil prices and the authorities’ reform and debt restructuring efforts. The authorities reiterated their commitment to remain current on all debt service obligations, while continuing efforts to improve debt management capacity, including planning and statistics. They have already prepared a comprehensive medium-term debt management strategy and published debt statistics of the 10 largest SOEs. As a next step, and as part of ECF arrangement’s structural conditionality, the government intends to publish a comprehensive annual debt report that will include detailed information on the guaranteed and nonguaranteed debt of the 10 largest SOEs.

^{Table 2.}

Republic of Congo: External Debt Sustainability Framework, Baseline Scenario, 2019–42

(Percent of GDP, unless otherwise indicated)

Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r – g – ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and p = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.

^{Table 3.}

Republic of Congo: Public Sector Debt Sustainability Framework, Baseline Scenario, 2019–42

(Percent of GDP, unless otherwise indicated)

Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government plus social security, central bank, government-guaranteed debt. Definition of external debt is Currency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.

^{Table 4.}

Republic of Congo: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2022–32

(Percent)

Sources: Country authorities; and staff estimates and projections.

^{^1/}A bold value indicates a breach of the threshold.

^{^2/}Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

^{^3/}Includes official and private transfers and FDI.

^{Table 4.}

Republic of Congo: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2022–32

(Percent)

	Projections ^1/
	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
PV of debt-to GDP ratio
Baseline	43	39	35	32	29	27	25	22	20	18	16
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	43	46	47	50	51	53	53	51	48	43	35
B. Bound Tests
B1. Real GDP growth	43	47	51	47	43	39	36	33	30	27	24
B2. Primary balance	43	45	56	55	53	52	51	49	46	43	40
B3. Exports	43	91	168	162	155	148	141	132	119	107	96
B4. Other flows ^3/	43	51	59	56	53	49	47	43	39	35	31
B5. Depreciation	43	50	45	41	38	35	32	29	26	23	21
B6. Combination of B1-B5	43	72	78	74	70	65	62	57	51	46	41
C. Tailored Tests
C1. Combined contingent liabilities	43	47	44	42	41	39	37	35	33	31	29
C2. Natural disaster	43	43	39	37	35	33	31	29	27	25	23
C3. Commodity price	43	51	59	57	55	53	51	47	43	39	36
C4. Market Financing	43	39	35	32	29	27	25	22	20	18	16
Threshold	30	30	30	30	30	30	30	30	30	30	30
PV of debt-to-exports ratio
Baseline	47	47	44	44	44	41	39	37	35	32	30
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	47	55	60	68	76	81	85	85	83	77	64
B. Bound Tests
B1. Real GDP growth	47	47	44	44	44	41	39	37	35	32	30
B2. Primary balance	47	54	71	75	79	80	81	81	79	77	75
B3. Exports	47	128	321	333	345	340	338	329	308	287	266
B4. Other flows ^3/	47	62	75	76	78	76	74	72	67	62	58
B5. Depreciation	47	47	45	44	44	42	40	38	35	33	30
B6. Combination of B1-B5	47	86	74	118	121	118	115	110	103	96	89
C. Tailored Tests
C1. Combined contingent liabilities	47	57	56	58	61	60	60	59	58	56	54
C2. Natural disaster	47	53	51	52	53	52	51	49	48	46	44
C3. Commodity price	47	77	90	92	93	88	85	82	78	74	69
C4. Market Financing	47	47	44	44	44	41	39	37	35	32	30
Threshold	140	140	140	140	140	140	140	140	140	140	140
Debt service-to-exports ratio
Baseline	13	11	8	5	5	4	4	4	4	4	3
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	13	11	9	6	6	6	6	8	9	9	10
B. Bound Tests
B1. Real GDP growth	13	11	8	5	5	4	4	4	4	4	3
B2. Primary balance	13	11	9	7	6	6	6	6	7	7	7
B3. Exports	13	18	25	19	18	17	16	22	31	30	28
B4. Other flows ^3/	13	11	9	6	6	5	5	6	7	7	6
B5. Depreciation	13	11	8	5	5	4	4	4	4	4	3
B6. Combination of B1-B5	13	13	14	9	9	8	7	10	11	10	10
C. Tailored Tests
C1. Combined contingent liabilities	13	11	9	5	5	5	4	4	4	4	4
C2. Natural disaster	13	11	9	6	5	5	4	4	4	4	4
C3. Commodity price	13	13	11	7	7	6	5	7	8	8	7
C4. Market Financing	13	11	8	5	5	4	4	4	4	4	3
Threshold	10	10	10	10	10	10	10	10	10	10	10
Debt service-to-revenue ratio
Baseline	37	29	22	13	12	10	9	9	8	8	7
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	37	30	25	16	16	15	15	17	19	20	20
B. Bound Tests
B1. Real GDP growth	37	35	33	20	17	15	13	13	12	12	10
B2. Primary balance	37	29	24	17	16	14	13	14	15	15	14
B3. Exports	37	43	44	33	30	26	24	32	45	42	39
B4. Other flows ^3/	37	29	23	15	14	12	11	13	15	14	13
B5. Depreciation	37	37	28	17	15	13	12	11	11	10	9
B6. Combination of B1-B5	37	37	31	20	18	16	14	19	20	19	17
C. Tailored Tests
C1. Combined contingent liabilities	37	29	23	14	13	11	10	10	9	9	8
C2. Natural disaster	37	29	22	14	12	11	9	9	9	8	8
C3. Commodity price	37	34	27	18	16	14	12	14	16	15	14
C4. Market Financing	37	29	22	13	12	10	9	9	8	8	7
Threshold	14	14	14	14	14	14	14	14	14	14	14

Sources: Country authorities; and staff estimates and projections.

^{^1/}A bold value indicates a breach of the threshold.

^{^2/}Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

^{^3/}Includes official and private transfers and FDI.

^{Table 4.}

Republic of Congo: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2022–32

(Percent)

	Projections ^1/
	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
PV of debt-to GDP ratio
Baseline	43	39	35	32	29	27	25	22	20	18	16
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	43	46	47	50	51	53	53	51	48	43	35
B. Bound Tests
B1. Real GDP growth	43	47	51	47	43	39	36	33	30	27	24
B2. Primary balance	43	45	56	55	53	52	51	49	46	43	40
B3. Exports	43	91	168	162	155	148	141	132	119	107	96
B4. Other flows ^3/	43	51	59	56	53	49	47	43	39	35	31
B5. Depreciation	43	50	45	41	38	35	32	29	26	23	21
B6. Combination of B1-B5	43	72	78	74	70	65	62	57	51	46	41
C. Tailored Tests
C1. Combined contingent liabilities	43	47	44	42	41	39	37	35	33	31	29
C2. Natural disaster	43	43	39	37	35	33	31	29	27	25	23
C3. Commodity price	43	51	59	57	55	53	51	47	43	39	36
C4. Market Financing	43	39	35	32	29	27	25	22	20	18	16
Threshold	30	30	30	30	30	30	30	30	30	30	30
PV of debt-to-exports ratio
Baseline	47	47	44	44	44	41	39	37	35	32	30
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	47	55	60	68	76	81	85	85	83	77	64
B. Bound Tests
B1. Real GDP growth	47	47	44	44	44	41	39	37	35	32	30
B2. Primary balance	47	54	71	75	79	80	81	81	79	77	75
B3. Exports	47	128	321	333	345	340	338	329	308	287	266
B4. Other flows ^3/	47	62	75	76	78	76	74	72	67	62	58
B5. Depreciation	47	47	45	44	44	42	40	38	35	33	30
B6. Combination of B1-B5	47	86	74	118	121	118	115	110	103	96	89
C. Tailored Tests
C1. Combined contingent liabilities	47	57	56	58	61	60	60	59	58	56	54
C2. Natural disaster	47	53	51	52	53	52	51	49	48	46	44
C3. Commodity price	47	77	90	92	93	88	85	82	78	74	69
C4. Market Financing	47	47	44	44	44	41	39	37	35	32	30
Threshold	140	140	140	140	140	140	140	140	140	140	140
Debt service-to-exports ratio
Baseline	13	11	8	5	5	4	4	4	4	4	3
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	13	11	9	6	6	6	6	8	9	9	10
B. Bound Tests
B1. Real GDP growth	13	11	8	5	5	4	4	4	4	4	3
B2. Primary balance	13	11	9	7	6	6	6	6	7	7	7
B3. Exports	13	18	25	19	18	17	16	22	31	30	28
B4. Other flows ^3/	13	11	9	6	6	5	5	6	7	7	6
B5. Depreciation	13	11	8	5	5	4	4	4	4	4	3
B6. Combination of B1-B5	13	13	14	9	9	8	7	10	11	10	10
C. Tailored Tests
C1. Combined contingent liabilities	13	11	9	5	5	5	4	4	4	4	4
C2. Natural disaster	13	11	9	6	5	5	4	4	4	4	4
C3. Commodity price	13	13	11	7	7	6	5	7	8	8	7
C4. Market Financing	13	11	8	5	5	4	4	4	4	4	3
Threshold	10	10	10	10	10	10	10	10	10	10	10
Debt service-to-revenue ratio
Baseline	37	29	22	13	12	10	9	9	8	8	7
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	37	30	25	16	16	15	15	17	19	20	20
B. Bound Tests
B1. Real GDP growth	37	35	33	20	17	15	13	13	12	12	10
B2. Primary balance	37	29	24	17	16	14	13	14	15	15	14
B3. Exports	37	43	44	33	30	26	24	32	45	42	39
B4. Other flows ^3/	37	29	23	15	14	12	11	13	15	14	13
B5. Depreciation	37	37	28	17	15	13	12	11	11	10	9
B6. Combination of B1-B5	37	37	31	20	18	16	14	19	20	19	17
C. Tailored Tests
C1. Combined contingent liabilities	37	29	23	14	13	11	10	10	9	9	8
C2. Natural disaster	37	29	22	14	12	11	9	9	9	8	8
C3. Commodity price	37	34	27	18	16	14	12	14	16	15	14
C4. Market Financing	37	29	22	13	12	10	9	9	8	8	7
Threshold	14	14	14	14	14	14	14	14	14	14	14

Sources: Country authorities; and staff estimates and projections.

^{^1/}A bold value indicates a breach of the threshold.

^{^2/}Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

^{^3/}Includes official and private transfers and FDI.

^{Table 5.}

Republic of Congo: Sensitivity Analysis for Key Indicators of Public Debt, 2022–32^1/

(Percent)

Sources: Country authorities; and staff estimates and projections.

^{^1/}A bold value indicates a breach of the benchmark.

^{^2/}Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

^{^3/}Includes official and private transfers and FDI.

^{Table 5.}

Republic of Congo: Sensitivity Analysis for Key Indicators of Public Debt, 2022–32^1/

(Percent)

	Projections ^1/
	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
PV of Debt-to-GDP Ratio
Baseline	96	90	82	78	74	70	61	51	43	34	29
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	96	102	108	118	128	138	147	158	170	182	193
B. Bound Tests
B1. Real GDP growth	96	113	137	143	147	150	145	139	133	127	128
B2. Primary balance	96	107	124	120	115	109	98	87	76	66	60
B3. Exports	96	113	138	134	129	123	113	100	87	74	65
B4. Other flows ^3/	96	102	106	102	98	93	83	72	61	50	44
B5. Depreciation	96	97	87	81	76	70	59	49	39	29	24
B6. Combination of B1-B5	96	104	119	119	118	116	109	101	93	85	81
C. Tailored Tests
C1. Combined contingent liabilities	96	112	103	99	94	88	79	69	59	49	44
C2. Natural disaster	96	100	92	88	84	80	71	61	52	43	38
C3. Commodity price	96	98	102	114	122	129	126	120	115	109	109
C4. Market Financing	96	90	82	78	74	70	61	51	43	34	29
TOTAL public debt benchmark	35	35	35	35	35	35	35	35	35	35	35
PV of Debt-to-Revenue Ratio
Baseline	305	290	270	271	264	247	218	185	155	123	108
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	305	329	358	407	450	483	520	561	607	651	693
B. Bound Tests
B1. Real GDP growth	305	365	450	488	514	521	509	493	477	460	464
B2. Primary balance	305	346	409	414	406	384	349	313	278	242	222
B3. Exports	305	365	456	463	457	435	402	361	315	269	240
B4. Other flows ^3/	305	329	349	352	346	327	296	259	222	185	163
B5. Depreciation	305	316	287	282	269	246	213	177	142	108	88
B6. Combination of B1-B5	305	336	391	410	417	409	387	361	336	309	299
C. Tailored Tests
C1. Combined contingent liabilities	305	362	340	341	333	312	281	247	214	181	164
C2. Natural disaster	305	323	303	305	299	281	252	219	188	157	141
C3. Commodity price	305	360	384	450	481	485	463	431	414	397	401
C4. Market Financing	305	290	270	271	264	247	218	185	155	123	108
Debt Service-to-Revenue Ratio
Baseline	73	52	50	47	49	47	45	38	29	22	13
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	73	54	57	65	79	88	99	104	110	117	120
B. Bound Tests
B1. Real GDP growth	73	63	77	82	94	99	103	97	90	84	75
B2. Primary balance	73	52	65	79	82	81	74	60	51	42	32
B3. Exports	73	52	51	51	54	51	49	46	45	36	27
B4. Other flows ^3/	73	52	51	49	51	49	47	42	36	28	19
B5. Depreciation	73	54	54	48	50	47	45	38	30	22	14
B6. Combination of B1-B5	73	54	61	69	75	75	77	68	59	51	41
C. Tailored Tests
C1. Combined contingent liabilities	73	52	66	63	67	66	56	47	37	29	19
C2. Natural disaster	73	53	57	54	58	56	51	43	34	26	17
C3. Commodity price	73	61	61	60	74	79	84	81	76	70	63
C4. Market Financing	73	52	50	47	49	47	45	38	29	22	13

Sources: Country authorities; and staff estimates and projections.

^{^1/}A bold value indicates a breach of the benchmark.

^{^2/}Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

^{^3/}Includes official and private transfers and FDI.

^{Table 5.}

Republic of Congo: Sensitivity Analysis for Key Indicators of Public Debt, 2022–32^1/

(Percent)

	Projections ^1/
	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
PV of Debt-to-GDP Ratio
Baseline	96	90	82	78	74	70	61	51	43	34	29
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	96	102	108	118	128	138	147	158	170	182	193
B. Bound Tests
B1. Real GDP growth	96	113	137	143	147	150	145	139	133	127	128
B2. Primary balance	96	107	124	120	115	109	98	87	76	66	60
B3. Exports	96	113	138	134	129	123	113	100	87	74	65
B4. Other flows ^3/	96	102	106	102	98	93	83	72	61	50	44
B5. Depreciation	96	97	87	81	76	70	59	49	39	29	24
B6. Combination of B1-B5	96	104	119	119	118	116	109	101	93	85	81
C. Tailored Tests
C1. Combined contingent liabilities	96	112	103	99	94	88	79	69	59	49	44
C2. Natural disaster	96	100	92	88	84	80	71	61	52	43	38
C3. Commodity price	96	98	102	114	122	129	126	120	115	109	109
C4. Market Financing	96	90	82	78	74	70	61	51	43	34	29
TOTAL public debt benchmark	35	35	35	35	35	35	35	35	35	35	35
PV of Debt-to-Revenue Ratio
Baseline	305	290	270	271	264	247	218	185	155	123	108
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	305	329	358	407	450	483	520	561	607	651	693
B. Bound Tests
B1. Real GDP growth	305	365	450	488	514	521	509	493	477	460	464
B2. Primary balance	305	346	409	414	406	384	349	313	278	242	222
B3. Exports	305	365	456	463	457	435	402	361	315	269	240
B4. Other flows ^3/	305	329	349	352	346	327	296	259	222	185	163
B5. Depreciation	305	316	287	282	269	246	213	177	142	108	88
B6. Combination of B1-B5	305	336	391	410	417	409	387	361	336	309	299
C. Tailored Tests
C1. Combined contingent liabilities	305	362	340	341	333	312	281	247	214	181	164
C2. Natural disaster	305	323	303	305	299	281	252	219	188	157	141
C3. Commodity price	305	360	384	450	481	485	463	431	414	397	401
C4. Market Financing	305	290	270	271	264	247	218	185	155	123	108
Debt Service-to-Revenue Ratio
Baseline	73	52	50	47	49	47	45	38	29	22	13
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	73	54	57	65	79	88	99	104	110	117	120
B. Bound Tests
B1. Real GDP growth	73	63	77	82	94	99	103	97	90	84	75
B2. Primary balance	73	52	65	79	82	81	74	60	51	42	32
B3. Exports	73	52	51	51	54	51	49	46	45	36	27
B4. Other flows ^3/	73	52	51	49	51	49	47	42	36	28	19
B5. Depreciation	73	54	54	48	50	47	45	38	30	22	14
B6. Combination of B1-B5	73	54	61	69	75	75	77	68	59	51	41
C. Tailored Tests
C1. Combined contingent liabilities	73	52	66	63	67	66	56	47	37	29	19
C2. Natural disaster	73	53	57	54	58	56	51	43	34	26	17
C3. Commodity price	73	61	61	60	74	79	84	81	76	70	63
C4. Market Financing	73	52	50	47	49	47	45	38	29	22	13

Sources: Country authorities; and staff estimates and projections.

^{^1/}A bold value indicates a breach of the benchmark.

^{^2/}Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

^{^3/}Includes official and private transfers and FDI.

Most of the external debt is defined on a currency basis, except for the creditors whose residency can be tracked, that are defined on a residency basis. An exam pie is the Regional Development Bank, BDEAC.

The composite index (Cl), estimated at 2.22 and based on the October 2022 World Economic Outlook (WEO and 2021 World Bank Country Policy and Institutional Assessment (CPIA) data, indicate a weak debt carrying capacity for Congo.

There are 31 SOEs in Congo, with government ownership ranging from 50 to 100 percent.

The DSA contingent liability stress test only considers the debt of the 10 largest (based on balance sheet size) SOEs due to lack of financial informationon other SOEs.

In line with continued improvements in compilation of statistics, supported by technical assistance from the IMF and other development partners, historical GDP and BoP statistics have been revised (see SR for the Second ECF Review).

The authorities continue to dispute this external claim to a foreign construction company. Disputed claims are not included in the baseline, as they are included when calibrating the contingent liability stress test (Text Table 1).

Due to the method of debt calculations within the DSA template, debt in percent of GDP in the DSA differs from the Staff Report which calculates the ratio through direct application of data reported by the authorities.

Claims that are disputed do not give rise to arrears for the purposes of the application of the Fund’s arrears policies or for performance criteria covering arrears.

As audits of 2019–20 government financials will be finalized in early 2023, the 2022 debt stock included an estimated 10 percent of GDP to account for partially audited and not yet audited domestic arrears.

For a list of structural benchmarks, please see IMF Country Reports No. 22/49 and No. 22/226.

The sectoral weights of the nominal GDP statistics for2019–21 have been revised, raising the weight of non-oil GDP sectors (e.g., services, manufacturing) and reducing the weight of the oil sector.

China has historically provided the bulk of Congo’s external financing on fairly concessional terms. The increased grant element after the end of planned budget support disbursements from multilateral partners reflects an assumption that China would remain the main creditor in the long term.

EMBIG data for the Republic of Congo is not available. The bond, due to mature in 2029, was trading with a yield to maturity of 11.12 percent and a spread of 680 bps over the 7-year US treasury bond as on November 8, 2022 (Source: Data Stream, https://www.federalreserve.gov/releases/h15/).

Historical residuals largely comprise the accumulation of external and domestic arrears.

However, thus far, the recently agreed new tax concessions have played in favor of increased investment by oil producers since the concessions have leveled the playing field across producers.

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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

Author:

International Monetary Fund. African Dept.

Volume/Issue:: Volume 2023: Issue 089

Publisher:: International Monetary Fund

ISBN:: 9798400231926

ISSN:: 1934-7685

Pages:: 124

DOI:: https://doi.org/10.5089/9798400231926.002

Keywords
Title page
Public Debt Coverage
Background
Debt Sustainability Analysis
- A. External Debt Sustainability Analysis
- B. Public Debt Sustainability Analysis
Risk Rating and Vulnerabilities
Authorities’Views

View raw image

Subscription of Congolese Treasury Securities

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^{Figure 1.}

Republic of Congo: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2022–32

View raw image

^{Figure 2.}

Republic of Congo: Indicators of Public Debt Under Alternative Scenarios, 2022–32

View raw image

^{Figure 3.}

Republic of Congo: Drivers of Debt Dynamics—Baseline Scenario

View raw image

^{Figure 4.}

Republic of Congo: Realism Tools

View raw image

^{Figure 5.}

Republic of Congo: Market-Financing Risk Indicators

Foresee

^{Table 5.}

Republic of Congo: Sensitivity Analysis for Key Indicators of Public Debt, 2022–32^1/

(Percent)

	Projections ^1/
	2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
PV of Debt-to-GDP Ratio
Baseline	96	90	82	78	74	70	61	51	43	34	29
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	96	102	108	118	128	138	147	158	170	182	193
B. Bound Tests
B1. Real GDP growth	96	113	137	143	147	150	145	139	133	127	128
B2. Primary balance	96	107	124	120	115	109	98	87	76	66	60
B3. Exports	96	113	138	134	129	123	113	100	87	74	65
B4. Other flows ^3/	96	102	106	102	98	93	83	72	61	50	44
B5. Depreciation	96	97	87	81	76	70	59	49	39	29	24
B6. Combination of B1-B5	96	104	119	119	118	116	109	101	93	85	81
C. Tailored Tests
C1. Combined contingent liabilities	96	112	103	99	94	88	79	69	59	49	44
C2. Natural disaster	96	100	92	88	84	80	71	61	52	43	38
C3. Commodity price	96	98	102	114	122	129	126	120	115	109	109
C4. Market Financing	96	90	82	78	74	70	61	51	43	34	29
TOTAL public debt benchmark	35	35	35	35	35	35	35	35	35	35	35
PV of Debt-to-Revenue Ratio
Baseline	305	290	270	271	264	247	218	185	155	123	108
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	305	329	358	407	450	483	520	561	607	651	693
B. Bound Tests
B1. Real GDP growth	305	365	450	488	514	521	509	493	477	460	464
B2. Primary balance	305	346	409	414	406	384	349	313	278	242	222
B3. Exports	305	365	456	463	457	435	402	361	315	269	240
B4. Other flows ^3/	305	329	349	352	346	327	296	259	222	185	163
B5. Depreciation	305	316	287	282	269	246	213	177	142	108	88
B6. Combination of B1-B5	305	336	391	410	417	409	387	361	336	309	299
C. Tailored Tests
C1. Combined contingent liabilities	305	362	340	341	333	312	281	247	214	181	164
C2. Natural disaster	305	323	303	305	299	281	252	219	188	157	141
C3. Commodity price	305	360	384	450	481	485	463	431	414	397	401
C4. Market Financing	305	290	270	271	264	247	218	185	155	123	108
Debt Service-to-Revenue Ratio
Baseline	73	52	50	47	49	47	45	38	29	22	13
A. Alternative Scenarios
A1. Key variables at their historical averages in 2022–2032 ^2/	73	54	57	65	79	88	99	104	110	117	120
B. Bound Tests
B1. Real GDP growth	73	63	77	82	94	99	103	97	90	84	75
B2. Primary balance	73	52	65	79	82	81	74	60	51	42	32
B3. Exports	73	52	51	51	54	51	49	46	45	36	27
B4. Other flows ^3/	73	52	51	49	51	49	47	42	36	28	19
B5. Depreciation	73	54	54	48	50	47	45	38	30	22	14
B6. Combination of B1-B5	73	54	61	69	75	75	77	68	59	51	41
C. Tailored Tests
C1. Combined contingent liabilities	73	52	66	63	67	66	56	47	37	29	19
C2. Natural disaster	73	53	57	54	58	56	51	43	34	26	17
C3. Commodity price	73	61	61	60	74	79	84	81	76	70	63
C4. Market Financing	73	52	50	47	49	47	45	38	29	22	13

Sources: Country authorities; and staff estimates and projections.

^{^1/}A bold value indicates a breach of the benchmark.

^{^2/}Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

^{^3/}Includes official and private transfers and FDI.

Risk of external debt distress	In Debt Distress
Overall risk of debt distress	In Debt Distress
Granularity in the risk rating	Sustainable
Application of judgement	No

Risk of external debt distress	In Debt Distress
Overall risk of debt distress	In Debt Distress
Granularity in the risk rating	Sustainable
Application of judgement	No

				2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
Total External Bilateral and Multilateral				510	643	587	297	277	209	219	218	209	185	185
Project Financing				254	290	302	297	277	209	219	218	209	185	185
	Of which:
	Multilateral and other creditors			254	262	186	180	204	120	129	129	120	96	96
		IMF		0	0	0	0	0	0	0	0	0	0	0
		IDA		61	85	98	105	113	54	62	69	58	53	53
		IBRD		64	52	73	73	87	59	59	49	49	29	29
		AfDB		0	0	0	0	0	0	0	0	0	0	0
		Others		129	125	16	2	4	6	8	10	13	15	15
	Official bilateral			0	29	116	117	73	89	89	89	89	89	89
		Paris Club		0	29	28	28	0	0	0	0	0	0	0
			France	0	29	28	28	0	0	0	0	0	0	0
		Non-Paris Club		0	0	88	88	73	89	89	89	89	89	89
			China	0	0	88	88	73	89	89	89	89	89	89
General Budget Financing				256	353	285	0	0	0	0	0	0	0	0
	IMF			174	172	87	0	0	0	0	0	0	0	0
	Other Development Partners			82	180	198	0	0	0	0	0	0	0	0

				2022	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
Total External Bilateral and Multilateral				510	643	587	297	277	209	219	218	209	185	185
Project Financing				254	290	302	297	277	209	219	218	209	185	185
	Of which:
	Multilateral and other creditors			254	262	186	180	204	120	129	129	120	96	96
		IMF		0	0	0	0	0	0	0	0	0	0	0
		IDA		61	85	98	105	113	54	62	69	58	53	53
		IBRD		64	52	73	73	87	59	59	49	49	29	29
		AfDB		0	0	0	0	0	0	0	0	0	0	0
		Others		129	125	16	2	4	6	8	10	13	15	15
	Official bilateral			0	29	116	117	73	89	89	89	89	89	89
		Paris Club		0	29	28	28	0	0	0	0	0	0	0
			France	0	29	28	28	0	0	0	0	0	0	0
		Non-Paris Club		0	0	88	88	73	89	89	89	89	89	89
			China	0	0	88	88	73	89	89	89	89	89	89
General Budget Financing				256	353	285	0	0	0	0	0	0	0	0
	IMF			174	172	87	0	0	0	0	0	0	0	0
	Other Development Partners			82	180	198	0	0	0	0	0	0	0	0

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Abstract

Title page

Public Debt Coverage

Background

A. Evolution and Composition of Public Debt

B. Macroeconomic Outlook

C. Country Classification and Determination of Stress Test Scenarios

Debt Sustainability Analysis

A. External Debt Sustainability Analysis

B. Public Debt Sustainability Analysis

Risk Rating and Vulnerabilities

Authorities’Views

Other IMF Content

Other Publishers

Asian Development Bank

Inter-American Development Bank

The World Bank

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Headings

Figures

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Foresee