Press Release: IMF Completes Third Review Under the Democratic Republic of the Congo's PRGF Arrangement and Approves US$39 Million Disbursement
March 4, 2004
The Executive Board of the International Monetary Fund (IMF) completed the third review of the Democratic Republic of the Congo's performance under a SDR 580 million (about US$858 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/27). The completion of the review enables the release of a further SDR 26.7 million (about US$39 million), which will bring the total amount drawn under the arrangement to SDR 500.1 million (about US$740 million).
In completing the review, the Board waived the nonobservance of performance criteria pertaining to the floor on the net foreign assets of the Central Bank of the Congo (BCC), the ceiling on net domestic assets of the BCC, and the ceiling on net bank credit to the government.
The PRGF is the IMF's concessional facility for low-income countries. 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 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.
Following the Executive Board's discussion on the Democratic Republic of the Congo's economic performance, Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"The authorities are to be commended for their determined implementation of the PRGF-supported program. Performance under the program thus far has been broadly satisfactory. Real GDP growth in 2003 picked up, inflation fell sharply, and progress was made in carrying the reform program forward.
"As envisaged in its interim Poverty Reduction Strategy Paper, the country has moved on from the stabilization phase to the reconstruction phase, and the authorities have continued to make major progress in consolidating the peace process. The inauguration of the new, all-inclusive Government of National Unity in mid-2003 marks the formal completion of the peace and reunification process that was initiated in early 2001.
"Despite these impressive achievements, the Democratic Republic of the Congo (DRC) faces considerable challenges ahead. As regards economic policies, the main tasks will be to preserve macroeconomic stability, deepen structural reforms, promote an environment that is conducive to private-sector led growth, and combat widespread poverty. In the reconstruction process, it will be important to achieve the demobilization and reintegration of ex-combatants, the creation of an integrated army and police, and the rehabilitation of administrative capacity at the provincial level. In particular, it will be essential to pave the way toward free and transparent elections in two years' time. Timely, well coordinated, and generous support from the international community, including technical assistance, will be crucial for achieving these goals.
"A key priority under the program during 2004 will be to further consolidate the public finances, reduce spending on non-priority areas, and shift resources toward pro-poor spending. Full implementation of the new expenditure procedures and the continued strict adherence to a monthly cash plan should allow for improved expenditure control and more effective tracking of expenditure. On the revenue side, the authorities need to continue to implement their comprehensive tax reform, eliminate tax exemptions, and improve tax compliance. Fiscal sustainability will also require careful attention to debt management.
"The policies of the Central Bank of the Congo (BCC) have been successful in controlling inflation, within the framework of the floating exchange rate system. The BCC is encouraged to persevere in implementing its action plan aimed at improving its accounting, operations and management, and to carry out in a timely fashion the restructuring of the banking system.
"While progress has been made, the structural reform process needs to be deepened and extended to the reunified provinces, in particular as regards the promotion of good governance and the fight against corruption, and the creation of an appropriate economic and security environment for private investment. The authorities are encouraged to end promptly, with the help of the international community, the misuse of the DRC's natural resources. It will also be important to conduct an audit of the diamond sector, and continue the reform of the mining sector, implement the reform of public enterprises, strengthen the legal system and the judiciary, and reduce red tape," Mr. Kato said.