Statement by an IMF Staff Mission to the Republic of Congo

Press Release No. 06/229
October 25, 2006

The following statement was issued today in Brazzaville by Mr. Joannes Mongardini, IMF Mission Chief for the Republic of Congo:

"An IMF staff team visited Brazzaville during October 12-25, 2006, to hold discussions on the 2006 Article IV Consultation and the third review under the Republic of Congo's Poverty Reduction and Growth Facility (PRGF) arrangement with the IMF.1

"Economic growth has remained strong in 2006, but inflationary pressures have also increased significantly. Helped by rising oil production but also robust growth in the nonoil sector, real GDP is expected to grow by 6½ percent. At the same time, inflation is on a rising trend, registering 5½ percent in Brazzaville in August, reflecting limited absorption capacity as well as supply and transportation problems. Strong oil exports have pushed the external current account surplus higher.

"Fiscal policy has been marked by large spending overruns in the first half of 2006, and the 2006 supplementary budget passed by parliament in mid-October will further add to the fiscal slippage. The fiscal outturn at end-June 2006 registered substantial overruns in both current and capital spending, leading to a slippage in the primary balance of 2½ percent of GDP, compared with the targets of the authorities' own program, which is supported under the PRGF arrangement. The additional spending authorized by the supplementary budget will result in a fiscal slippage of up to 5 percent of GDP by end-2006. This is inconsistent with the PRGF-supported program, as it raises inflation, jeopardizes macroeconomic stability, and significantly reduces the quality of government spending, given the weaknesses in the management of public resources. The mission cannot therefore recommend the completion of the third review under the PRGF arrangement.

"The discussions with the authorities focused on bringing the PRGF-supported program back on track. It was agreed, in particular, that the 2007 budget will need to be based on a moderate growth of both current and capital spending to ensure macroeconomic stability and fiscal sustainability. The budget will need to be complemented by structural measures to reduce current transfers, strengthen budget control, and improve the quality of spending. In addition, the World Bank is expected to assess the investment budget, with a view to ensuring an appropriate emphasis on pro-poor spending, as envisaged under the triggers to reach the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Satisfactory performance in these areas will be required before discussions on the PRGF-supported program can resume.

"The authorities agreed that poverty alleviation should be a central focus of their policies. In this context, the government will shortly adopt a final Poverty Reduction Strategy Paper (PRSP)-produced after broad consultations with the population-which summarizes the social needs as prioritized by the Congolese people. It will be essential in the final PRSP to link sectoral strategies to the achievement of the UN Millennium Development Goals (MDGs), and ensure consistency with annual budgets, starting with the 2007 budget.

"The authorities have made further efforts toward instituting international best practices in the transparent use of Congo's natural resources. A presidential decree has been signed to establish the consultative and executive committees under the Extractive Industry Transparency Initiative (EITI), charged with overseeing the transparency of oil-related transactions. The diagnostic study on the marketing of oil by the Société Nationale de Pétrole du Congo (SNPC) is expected to be completed by end-2006. Finally, the government has revised the mining law and submitted the required information on the reserves, production, and export of diamonds in order to reintegrate the Republic of Congo into the Kimberley process.2

"Discussions with members of parliament, labor and employer organizations, and representatives of civil society and donors confirmed that major governance challenges remain. Key areas for reform include the establishment of an anti-corruption committee with meaningful representation by civil society and the submission to parliament of an anti-corruption law later this year that regulates conflicts of interest in public administration, and permits tackling fraud. The final version of the audit of awarding the Marine XI oil concession will be published shortly."


1 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.

2 For more information on the Kimberley process, see http://www.kimberleyprocess.com:8080/site/.


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