Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with the Democratic Republic of the Congo

September 21, 2007

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 07/116
September 21, 2007

On September 05, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Democratic Republic of the Congo (DRC).1


The DRC has made significant economic and political progress since 2001, after years of conflict and political instability. Adoption of prudent macroeconomic policies resulted in rapid disinflation and the stabilization of the exchange rate. The implementation of structural reforms made the economy more open, removed major price distortions, and strengthened macroeconomic policy management. These, combined with improved confidence fostered by progress on the political and security fronts—including the formation of a transition government of national unity in 2002—helped increase investment and renew growth.

However, economic performance weakened starting in 2005, as the government's focus turned to the drafting of a new constitution and the preparation for general elections. In 2006, large money financed government overspending, primarily for security and the elections, resulted in the Congo franc to depreciate by 15 percent against the US dollar, 12-month inflation to rise to 18.2 percent, and gross international reserves to decline to US$150 million (3 weeks of imports). Real GDP growth, which had picked up to 6.5 percent in 2004-05 slowed to 5 percent in 2006 because of weak manufacturing production and a drop in diamond exports. Major reforms suffered delays, including those in the mining sector, public enterprises, the civil service, the social sectors, customs administration, and the central bank.

The first democratic elections in four decades were successfully held in 2006, bringing to an end the mandate of the transitional government and leading to the formation of a new government in February 2007.

The new government has taken steps to reestablish macroeconomic discipline. Strong revenue collection and expenditure restraint reduced net bank credit to the government. This tightened liquidity conditions and contributed to a decline in base money. Consequently, since last May, the Congo franc has appreciated by 12 percent, annualized inflation declined to 12 percent and international reserves increased to US$190 million. Preliminary data indicate that real GDP could grow by 6½ percent in 2007. However, the DRC accumulated external arrears vis-à-vis bilateral creditors, and its external debt remains unsustainable.

Despite recent improvement, risks to macroeconomic stability remain high. In particular, the 2007 budget promulgated last July is very expansionary. It calls for a very large increase in domestically financed spending, including on wages, which is unlikely to be matched by a commensurate increase in revenue.

Executive Board Assessment

They commended the authorities of the Democratic Republic of the Congo (DRC) for the successful completion of the first democratic elections in four decades, and encouraged the new government to work with all parties to improve security and bring peace to all the country's provinces.

Directors noted that the generally prudent macroeconomic policies implemented by the new government have contributed to some encouraging results, with improved fiscal position, reduced inflation, strengthened international reserves, and an appreciation of the Congo franc. They regretted, however, the recent spending pressures in the wake of the expansionary 2007 budget and the delays in structural reforms. Against this background, and with continuing security concerns, Directors considered that the economic situation remains challenging. They called for early actions to further strengthen fiscal discipline, improve governance, and carry forward structural reforms to lay the basis for sustained growth and progress toward the MDGs. Directors stressed that the 2007 program monitored by Fund staff (SMP) provides an opportunity to establish credibility for good economic management and pave the way for a medium-term program that could be supported by a PRGF arrangement. In this context, Directors noted that, under the SMP, all quantitative benchmarks for end-June and several structural benchmarks have been met. Strong leadership will be important to build a broad consensus for the needed reforms and ensure their effective implementation. While also underscoring the importance of strong implementation, some Directors called on the authorities and the staff to work towards early consideration of a new PRGF-supported program.

Directors stressed that the implementation of the 2007 budget, as promulgated, would put macroeconomic stability at risk. Optimistic revenue projections and a concomitant expansion of spending would likely lead to a new cycle of widening fiscal deficit, rapid money expansion, depreciation of the currency, and rising inflation. Directors also noted that the large increase in the wage bill would undermine fiscal sustainability and crowd out pro-poor spending. They encouraged the authorities to take the necessary measures for meeting the fiscal objectives of the 2007 SMP, and noted their assurances on the implementation of a Treasury cash-flow plan consistent with the SMP.

Directors stressed the need for the government to continue avoiding central bank financing of fiscal deficits, as this has helped improve macroeconomic stability. They considered improving public financial management (PFM) critical in this regard, and more generally, underscored its importance for enhancing the efficiency and credibility of the budget process. Directors called for reforms to strengthen tax administration and revenue collection, rationalize expenditure procedures and improve expenditure prioritization, better track pro-poor spending, and establish an affordable and efficient civil service. Directors noted the authorities' planned devolution of government revenue to the provinces. They encouraged the authorities to proceed cautiously, in line with the devolution of spending responsibilities and taking into account PFM capacity building requirements in the provinces.

Directors noted that monetary policy should remain tight to reduce inflation. This requires strengthening monetary policy management and enhancing the central bank's credibility and independence. Reinforcing financial sector supervision is also needed to strengthen the banking system and deepen financial intermediation.

Directors noted that the floating exchange rate regime is appropriate for the DRC and has served the country well. They encouraged the authorities to limit interventions to smoothing short-term fluctuations, and achieving the central bank's international reserve target. Directors encouraged the authorities to lift the remaining exchange restriction and multiple currency practice.

To promote growth and reduce poverty, Directors emphasized that the medium-term policy agenda should include bold strategies to combat corruption—especially in the natural resources sector—privatize public enterprises, strengthen the judiciary, and reduce the regulatory burden on business. In that regard, Directors called for the effective implementation of the relevant laws to fight corruption, money laundering, and the financing of terrorism. They welcomed the authorities' intention to meet the requirements of the Extractive Industries Transparency Initiative. Progress in these areas will be essential to mobilize donor support.

Directors emphasized that rural sector development and increased investment in human capital—health and education—will be critical in addressing entrenched poverty. In this regard, Directors encouraged the authorities to proceed with the costing of the proposed pro-poor programs and the development of mechanisms to monitor the effectiveness of the programs.

Directors noted that the DRC's external debt is unsustainable. They encouraged the authorities to quickly establish a track record for prudent policies and reforms to help advance toward qualifying for debt relief under the enhanced Heavily Indebted Poor Country and Multilateral Debt Relief initiatives. Directors underscored the need for prudent debt policy and strengthened debt management capacity.

Democratic Republic of the Congo: Selected Economic Indicators, 2004-08

  2004 2005 2006 2007

  (Annual percentage change)

Domestic economy


Real GDP

6.6 6.5 5.1 6.5 8.4

Consumer prices, end-of-period

9.2 21.3 18.2 12.0 8.0
  (Percent of GDP; unless otherwise indicated)

Government finance


Total government revenue

9.5 11.6 13.2 13.3 14.2

Total government expenditure1

15.6 19.9 22.1 18.0 19.4

Overall fiscal balance (payment order basis, including grants)

-4.1 -3.1 -0.7 1.2 0.8

Overall fiscal balance (cash basis, including grants)2

-2.2 -8.4 -0.1 1.4 1.2

External sector


Balance of payments


Exports of goods and services

30.3 34.0 31.7 32.2 33.5

Imports of goods and services

34.4 45.7 42.0 42.6 45.6

Current account balance, including transfers

-2.4 -10.6 -7.5 -9.6 -11.5

Gross official reserves (seeks of nonaid-related imports of goods

and services)

5.4 2.7 3.0 3.2 3.3

Sources: Congolese authorities and IMF staff estimates and projections.

1 Includes interest due before debt relief and expenditure financed by HIPC resources.

2 Cash balance after debt relief on interest payments.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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