Press Release: IMF Executive Board Completes First Review Under the Republic of Congo's PRGF Arrangement and Approves US$11.41 Million Disbursement
August 3, 2005
The Executive Board of the International Monetary Fund (IMF) has completed the first review of the Republic of Congo's performance under an SDR 54.99 million (about US$84.4 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No.04/262). The completion of the review enables the release of a further SDR 7.86 million (about US$11.41 million), which will bring the total amount drawn under the arrangement to SDR 15.72 million (about US$23.47 million).
In completing the review, the Board waived the nonobservance of one quantitative performance criterion relating to the floor on external arrears payments and one structural performance criterion relating to the completion of external audits of oil costs for 2003 for all production-sharing contracts. The Board also approved modification of a quantitative performance criterion on external arrears payments.
Following the Executive Board's discussion on the Republic of Congo's economic performance, on August 1, 2005, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:
"The Republic of Congo (hereafter "Congo") has made a good start in implementing its medium-term program, which is supported by an arrangement under the Fund's Poverty Reduction and Growth Facility (PRGF). The security situation has been improving with the government's program for demobilizing former combatants moving forward, although with some delays.
"Macroeconomic performance strengthened over the past year and a half. Improved economic management, coupled with an exceptionally favorable international environment—in particular, a strong rise in oil prices—resulted in an increase in economic growth and a significant strengthening in the fiscal and current account balances. However, inflation accelerated in 2004, owing primarily to supply disruptions on the Pointe Noire-Brazzaville rail line and banks have remained cautious about advancing credit, amid persistent fragility in the banking system.
"There has also been a welcome improvement in governance. This has included steps to enhance transparency with regard to oil sector transactions, such as the publication of the full 2003 audit report of the national oil company and the quarterly reports of the certification of oil revenues.
"Notwithstanding the recent positive developments, Congo continues to face major challenges. These include the need to tackle structural weaknesses in key sectors of the economy, including banking, electricity, and refined petroleum products, and to address widespread poverty by working toward the Millennium Development Goals (MDGs). Meeting these challenges will require structural reforms and prudent macroeconomic management. In this context, the authorities plan to use oil revenues in excess of budget assumptions to raise spending on poverty-related outlays, accelerate the clearance of arrears to external creditors, and normalize relations with domestic creditors. Measures are also being taken to strengthen the management of public finances and the monitoring of public spending, to improve the business climate, and to enhance the overall governance framework.
"To accelerate progress toward achieving the MDGs, poverty-related spending is to be raised by about one percent of GDP in 2005 relative to the original program. Some of the challenges facing Congo are already being addressed this year, and additional resources will be devoted to the priority sectors identified in the interim Poverty Reduction Strategy Paper.
"Based on a preliminary debt sustainability analysis, jointly undertaken by IMF and World Bank staff, Congo's external debt burden would remain above the HIPC threshold even after application of traditional debt-relief mechanisms. Congo is thus likely to qualify for early assistance under the enhanced HIPC Initiative provided its macroeconomic program, supported by the PRGF arrangement, remains on track. Debt relief under the enhanced HIPC Initiative would help accelerate progress toward meeting the MDGs, although capacity constraints would need to be tackled with Fund and donor technical assistance to enable absorption of related resources," Mr. Carstens said.
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.