Press Release: IMF Executive Board Approves US$84.4 Million PRGF Arrangement for the Republic of Congo
December 7, 2004
The Executive Board of the International Monetary Fund (IMF) on December 6, 2004 approved a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Republic of Congo in an amount equivalent to SDR 54.99 million (about US$84.4 million) to support the government's economic program into 2007. The first disbursement will amount to SDR 7.86 million (about US$12.1 million).
Following the Executive Board's discussion of the Republic of Congo's IMF-supported economic program, Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"The Congolese authorities are to be commended for strengthening the policy framework for sustained economic growth and poverty reduction. Considerable progress has been made in consolidating political stability and improving macroeconomic conditions since the end of civil strife in 1999. As a consequence, growth of the non-oil economy has picked up, fiscal performance has improved, and inflation has abated.
"Transparency regarding oil sector operations has greatly improved in the Republic of Congo. Key oil sector information, including reports by independent and internationally-reputable audit companies on the operations of the state oil company and on oil revenue collection, is being published on the internet. This could serve as a model for other oil-producing countries. In addition, the Republic of Congo now participates in the Extractive Industry Transparency Initiative.
"Notwithstanding this progress, the Republic of Congo faces many challenges in the period ahead, including reducing poverty, indebtedness, and the economy's vulnerability to shocks. The authorities have formulated a three-year economic program to meet these challenges and help the Republic of Congo to advance toward the Millennium Development Goals. The program places priority on increasing the share of pro-poor spending in total spending-in line with the priorities laid out in the Interim Poverty Reduction Strategy Paper. Oil revenues in excess of budget projections will be used to accelerate the payment of non-reschedulable arrears to external creditors and to further normalize relations with domestic creditors.
"Structural reforms to be pursued include further expanding oil sector transparency, strengthening efforts to mobilize oil and non-oil revenue, and improving public finance management. The business climate and the overall governance framework will be enhanced to attract private investment. Actions to be taken in this regard include the effective launching of the Accounting Office and the National Anti-Corruption and Anti-Fraud Commission.
"The Republic of Congo could qualify for assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative if it establishes a solid track record of policy implementation in the program supported by the PRGF arrangement," Mr. Kato said.
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.
The Republic of Congo has made considerable progress since the end of its conflict. The three civil wars that took place in the Republic of Congo during the 1990s destroyed much of the country's economic fabric and caused a deterioration in living conditions. With the signing of peace accords in 1999 and 2003, economic growth has picked up in the non-oil sector, fiscal performance has improved, and inflation has abated. Elections at all levels of government between January and June 2002 have contributed to political stability, and the security situation has improved.
Performance in the 2004 IMF Staff Monitored Program (SMP) that preceded the start of today's PRGF was good. In the first half of 2004, all budgetary and financial targets were met, and all structural measures were completed, although some with delays. In addition, the authorities have taken steps to enhance the transparency of the oil sector, including publishing key oil sector information via the Internet. These advances stand in contrast to the weak implementation of the 2003 SMP.
Despite this progress, poverty remains widespread, and key social and economic indicators reflect the damage inflicted by years of conflict: per capita real GDP in 2003 was about 70 percent of its level in 1984. To address the situation, the authorities have prepared an Interim Poverty Reduction Strategy Paper (I-PRSP), which will guide them in their fight against poverty. The objectives of the strategy are twofold: to stimulate growth and to promote pro-poor development. The PRGF approved today is aligned with the I-PRSP and will support the government in its fight against poverty.
The central goals of the Republic of Congo's economic program are to further strengthen good governance, achieve non-inflationary pro-poor economic growth, and to normalize relations with external and domestic creditors.
Key objectives of the 2004-2007 program are an annual average growth rate of 5.5 percent, supported by non-oil GDP growth projected at an annual average rate of about 5.2 percent; an annual inflation rate of about 2 percent, based on sound fiscal policy and the pursuit of prudent monetary policy by the Bank of Central African States (BEAC); and a current account surplus amounting to, on average, about 1.5 percent of GDP.
Key fiscal objectives are to raise the share of resources targeted for pro-poor spending, in line with the priorities of the I-PRSP, and use part of additional oil resources to normalize relations with external and domestic creditors. A prudent fiscal policy will be followed, with expenditure geared toward poverty reduction. Resources will be allocated on the basis of the I-PRSP, with increased spending on health care and action to combat HIV/AIDS; basic education; basic infrastructure; water, energy, and urban sanitation; disarmament and reintegration of former combatants; and agriculture.
On the structural front, the focus will be on further enhancing transparency in oil sector operations and maximizing revenue collection from this sector; improving government expenditure control and strengthening the revenue department; and bolstering the financial sector, whose still limited capacity is one of the obstacles to growth.
External indebtedness is high, and the Republic of Congo plans to use additional oil resources to contribute to the clearance of arrears to multilateral institutions and Paris Club creditors. It also will use these resources to address domestic arrears on pensions and civil service salaries.
The Republic of Congo joined the IMF on July 10, 1963. Its quota is SDR 84.60 million(about $129.9 million), and its outstanding use of IMF resources totals SDR 10.85 million (about US$16.7 million).