Press Release: IMF Executive Board Completes Second Review Under the Republic of Congo's PRGF Arrangement and Approves US$11.6 Million Disbursement
July 14, 2006Press Release No. 06/155
The Executive Board of the International Monetary Fund (IMF) has completed the second review of the Republic of Congo's performance under an SDR 55.0 million (about US$81.3 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 7.9 million (about US$11.6 million), which will bring the total amount drawn under the arrangement to SDR 23.6 million (about US$34.8 million).
In completing the review, the Board waived the nonobservance of three quantitative performance criteria relating to the floor on the basic primary fiscal balance and the floor on the payment of external arrears at end-September 2005, and the continuous performance criterion on contracted medium- or long-term non-concessional external debt , on condition that the information provided by the Congo to the Fund on performance under these criteria, and on the implementation of the measures is accurate.
Following the Executive Board's discussion on the Republic of Congo's economic performance, on July 14, 2006, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair stated:
"The Republic of Congo continues to make good progress in implementing its program supported by an arrangement under the Fund's Poverty Reduction and Growth Facility (PRGF). In 2005, the sharp increase in oil exports and a generally sound fiscal stance underpinned economic growth and a strengthened external current account and foreign reserves position, while inflationary pressures remained contained. Looking ahead, governance issues will need to be addressed decisively and fiscal management will have to be improved, with a view to ensuring that government expenditure and the country's oil revenue are better targeted to benefit the poor and help achieve the Millennium Development Goals.
"The key fiscal challenge during the period ahead will be to resist pro-cyclical spending pressure, which could jeopardize macroeconomic stability and undermine the overall quality of public spending, given the Congo's limited absorption capacity. For future years, the investment needs will have to be clearly defined in the forthcoming final Poverty Reduction Strategy Paper. In particular, investment spending will need to be executed within a sustainable medium-term fiscal framework, taking into account the likely evolution of future oil revenue and absorption capacity. At the same time, strengthened expenditure control, budget oversight and accountability enforcement will improve the efficiency of public spending. It is important that the authorities refrain from contracting new loans on non-concessional terms as this could endanger hard-earned debt sustainability.
"There is a critical need to strengthen transparency and governance in public resource management. For this purpose, the authorities are auditing a 2005 oil field concession, preparing a diagnostic study of the national oil company's marketing of government oil, and adopting an anticorruption law and establishing an anticorruption committee that assigns a central role to civil society.
"The authorities will also address the deep-rooted structural weaknesses in the refined petroleum products and electricity sectors to improve efficiency and limit their cost to the budget, so that more resources can be made available to benefit the poor in the Congo," 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.