Press Release: IMF Approves Three-Year Loan for the Congo Under the ESAF
June 28, 1996
The International Monetary Fund (IMF) today approved a three-year loan for the Congo under the enhanced structural adjustment facility (ESAF)1 equivalent to SDR 69.48 million (about US$100 million) to support the Government's economic reform program for 1996-99. The first annual loan, equivalent to SDR 27.79 million (about US$40 million), will be disbursed in two equal semiannual installments, the first of which will be available on July 15, 1996.
The Congo's economic performance has improved substantially since mid-1994, as the authorities tightened fiscal, income, and credit policies to support the devaluation of the CFA franc. They also sought to increase the economy's ability to respond to the improved structure of relative prices by initiating or implementing a broad range of structural reforms in the oil, financial, and public enterprise sectors, as well as by improving the legal framework. The Government's management capacity has been strengthened; the primary budget balance has improved by more than 11 percentage points of GDP between 1993 and 1995; and civil service salaries and employment have been brought to more manageable levels. As a result, inflation has been brought back to low levels, and real non-oil GDP recovered modestly in 1995, after a large decline in 1994.
Medium-Term Strategy for 1996-99 and the 1996/97 Program
The main objectives of the medium-term program are to accelerate output and employment growth, attain sustainable fiscal and external positions by the end of the decade, and achieve external public debt sustainability over the long term. The main macroeconomic objectives for the 1996-99 program supported by the ESAF loans are to (a) achieve an average annual real GDP growth rate of more than 6 percent; (b) cut end-period inflation from 5.5 percent in 1995 to 2 percent during 1997-99; and (c) reduce the external current account deficit, excluding official transfers, from 25 percent of GDP in 1995 to about 11 percent of GDP by 1999.
Within this medium-term strategy, the first annual program, which covers the period April 1996-March 1997, aims at accelerating real GDP growth to 6 percent in 1996 and 9.5 percent in 1997; lowering inflation to 3 percent in 1996 and 2 percent in 1997; and reducing the external current account deficit to about 22 percent of GDP in 1996 and to about 16 percent of GDP in 1997. To achieve these objectives, the 1996 budget calls for a virtual doubling of the primary surplus to almost 12 percent of GDP, encompassing both an increase in revenue and a decline in spending. On the revenue side, the oil sector reforms and a projected increase in oil output are expected to raise government oil receipts from 13 percent of GDP in 1995 to 15.1 percent of GDP in 1996, and non-oil revenue is projected to increase from the equivalent of 11.8 percent of GDP in 1995 to 13.6 percent of GDP in 1996, through tax reforms, a broadening of the tax base, and a further strengthening of tax administration. On the expenditure side, non-interest expenditure will be reduced from 31.4 percent of GDP in 1995 to 29.5 percent of GDP in 1996, by reducing the civil service wage bill. Monetary policy by the regional central bank will continue to be directed at validating the parity of the CFA franc vis-a-vis the French franc. The rehabilitation of the banking system is a major objective of the authorities in the period ahead.
To unlock the Congo's growth potential in the non-oil sector and to stimulate the development of the private sector, the program entails, besides reforms in the civil service and the financial sector, a front-loaded range of reforms in the public enterprise sector and a further liberalization of the legal and institutional framework. Civil service reforms are expected to enhance the effectiveness of the central administration, and together with the emphasis on decentralization, should strengthen the provision of government services at the regional level and help reverse migration to urban areas.
The public enterprise reforms are aimed at dismantling monopolies and divesting the state from directly productive activities, thus opening up opportunities for private sector expansion; improving the provision and lowering the cost of key services (e.g., electricity, water, telecommunications, and transportation); and reducing the potential financial drain on the budget. The reform program focuses on the outright privatization, or the privatization of the management and operations, of the six largest public enterprises.
Addressing Social Costs
Under the program, a number of measures will be taken to alleviate the impact of adjustment on vulnerable groups, such as the retrenched public sector employees, the unemployed, and the poor. These measures will include the payment of severance benefits, the resumption of the regular payment of retirement and other social security benefits, assistance in finding new employment, and the improvement of agricultural support services. More broadly, the Government is committed to fighting poverty in all its forms; to this end, outlays on the social sectors will be raised substantially, both in real terms and as a proportion of total expenditure, starting with the budget for 1997.
The Challenge Ahead
With appropriate policies and debt relief, the Congo's balance of payments position and external public debt outlook should improve significantly over the medium and long term. However, even after taking into account expected disbursements from bilateral and multilateral creditors, the Congo will face a large financing gap in 1996 and relatively smaller and gradually declining gaps in subsequent years. Therefore, sustained policy implementation will be imperative for achieving the medium-term program objectives and securing adequate external financial assistance.
The Congo joined the IMF on July 10, 1963. Its quota2 is SDR 57.9 million (about US$84 million). Its outstanding use of IMF credit currently totals SDR 12.5 million (about US$18 million).
Sources: Congolese authorities; and IMF staff estimates and projections.
1. The ESAF is a concessional IMF facility for assisting eligible members that are undertaking reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years, with a 5-1/2-year grace period.
2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.