Press Release No. 19/154

IMF Staff Completes Staff Visit to the Republic of Congo

May 9, 2019

• IMF mission concluded discussions and reached an agreement, ad referendum, on a program that could be supported by an arrangement under the Extended Credit Facility (ECF).
• An economic recovery is expected with growth that could exceed 5 percent in 2019.
• Fiscal consolidation efforts and the agreement to restructure the Republic of Congo’s bilateral debt with China represent decisive steps to restore debt sustainability.

An International Monetary Fund (IMF) mission, led by Alex Segura-Ubiergo, visited Brazzaville during May 1-8. The team concluded discussions and reached an agreement, ad referendum, on a program that could be supported by an arrangement under the Extended Credit Facility (ECF). [1] The ECF-supported program aims to help the Republic of Congo restore macroeconomic stability and achieve higher and more inclusive growth. The program seeks to restore debt sustainability, improve governance, reduce corruption, protect vulnerable groups and achieve greater transparency and efficiency in the management of public resources, especially in the oil sector. The approval of a new Fund-supported program with the Republic of Congo will also contribute to the regional strategy of the Central African Economic and Monetary Union (CEMAC).

At the conclusion of the IMF staff visit, Mr. Segura-Ubiergo issued the following statement:

“Economic activity remained subdued in 2018, with overall growth below 1 percent, but there are early signs of stabilization after a deep recession since 2015. An economic recovery is expected in 2019 with growth that could exceed 5 percent in 2019, supported by a large expansion in oil production and a gradual recovery in non-oil growth driven by agriculture, forestry and transportation. Inflation remains low, and the strong expansion in oil exports, combined with a prudent execution of the 2018 budget, helped produce large surpluses in the external current account and overall fiscal position.

“However, financial conditions remain tight and vulnerabilities in the banking sector are increasing, with non-performing loans rising to 23 percent of gross loans at end-December 2018, in part due to the rising domestic arrears, which exceeded 15 percent of GDP in 2018. The adoption of a credible plan to prioritize the repayment of social arrears (especially pensions), and resolve domestic arrears to government suppliers will be essential to protect basic income, support growth and preserve financial sector stability. This has become one of the most urgent economic priorities in the short-term.

“The strengthening of the fiscal position has been particularly impressive, with the overall fiscal balance improving from a deficit of 7.4 percent of GDP in 2017, to a surplus of 6.8 percent in 2018. This improvement has been driven by a large expansion in oil revenues, and strong efforts to contain spending levels. Similarly, the non-oil primary deficit improved from 35.7 percent of non-oil GDP in 2017 to 28.7 percent in 2018. Total public debt (including domestic arrears) declined sharply from 118 percent of GDP in 2017 to around 91 percent in 2018, thanks to the stronger fiscal position and higher nominal GDP driven by rising oil production and prices.

“The 2019 Budget appropriately seeks to pursue the authorities’ fiscal consolidation efforts. Preliminary data from the first quarter suggests that budget execution remains prudent and the authorities are on track to achieve their fiscal objectives for the year. The mission welcomed the authorities’ efforts to prepare a detailed plan to boost non-oil revenue collections to correct the sharp decline observed in 2018. It also recommended an expansion of social spending relative to the 2019 budget, including the Lisungi cash transfer system and other priority social programs in the health and education sectors.

“The recent agreement to restructure the Republic of Congo’s bilateral debt with China represents a decisive step to restore debt sustainability. It should be accompanied by the finalization of the authorities’ previously announced strategy to seek a restructuring of their external debt owed to commercial creditors, especially the debt accumulated with oil traders. In this regard, the authorities, assisted by their financial and legal advisors, should continue to pursue good faith negotiations with their creditors, taking into account the Republic of Congo’s resource envelope.

“The authorities have also made substantial progress in the implementation of their structural reform agenda, including through the preparation and publication of a study on governance, and the recent adoption of three laws aimed at controlling corruption. They are also committed to implementing additional measures to increase transparency in the management and accounting of oil revenues. In this regard, they will transmit to Parliament three separate reports on (i) pre-financing contracts concluded by the national oil company (SNPC), (ii) all special agreements to finance infrastructure through in-kind payments from oil revenues, and (iii) all projects implemented by the Ministry of Public Works between 2014-17. They will also publish by end-May the oil reconciliation tables audited by KPMG.

“Upon return to headquarters, and once the authorities have implemented the pending actions as agreed during the mission, the IMF team will submit a report in support of the Republic of Congo’s request for a three-year arrangement under the Extended Credit Facility for the consideration of its Executive Board.

“The mission would like to thank the Congolese authorities for the constructive discussions and warm hospitality.”