Press Release: Statement by an IMF Staff Mission to the Republic of Congo
April 3, 2006Press Release No. 06/69
The following statement was issued today in Brazzaville by Mr. Thomas Krueger, International Monetary Fund (IMF) Senior Advisor in the African Department, and Mr. Joannes Mongardini, IMF mission chief for the Republic of Congo:
"An IMF staff team visited Brazzaville during March 22-April 3, 2006, to hold discussions for the second review under the Republic of Congo's Poverty Reduction and Growth Facility (PRGF) arrangement with the IMF1.
"The mission took place against the background of the recent approval of the Decision Point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative by the Executive Boards of the IMF and the World Bank earlier this year (see Press Release No. 06/46). The achievement of the Decision Point represents a milestone in the government's efforts to ease the debt burden weighing on the Congolese economy's growth potential and its fight against poverty. The government has agreed to implement specific triggers for reaching the HIPC Completion Point, at which time about US$2.9 billion of the nominal external debt of the Republic of Congo will be cancelled. This is equivalent to about US$830 per capita, in a country where more than half of the population lives below the poverty line. The triggers for reaching the completion point include measures on macroeconomic stability, poverty alleviation, public finance management, governance, and external debt management that may take a few years to be implemented. These steps should help the Republic of Congo achieve the Millennium Development Goals.
"Macroeconomic performance in 2005 was dominated by oil sector developments. Real GDP growth reached almost 8 percent, reflecting a strong pickup in oil production and robust non-oil sector growth. Consumer price inflation moderated to 2½ percent, following the end of supply disruptions on the Pointe Noire-Brazzaville rail line, while the external current account surplus registered a large surplus, reflecting a strong oil-price related increase in export receipts. The fiscal situation also improved as oil revenues increased and expenditure remained broadly under control. There were, however, sizable slippages vis-à-vis the fiscal surplus targets at end-September 2005, although these were reversed to an important extent during the last quarter.
"The discussions focused on the government's policy program for 2006, and in particular on steps to sustain high growth, secure progress toward macroeconomic stabilization, and improve governance. The 2006 budget is in line with sustainable economic growth—projected to remain high at about 7½ percent—while allowing for a significant increase in public investment to improve energy infrastructure and the delivery of health and education. The authorities have taken a prudent approach to the use of oil revenues, saving a significant portion of the revenue in an oil stabilization account at the central bank. Fiscal policy will also be supported by measures to improve budget management, identify pro-poor spending, and prepare a medium-term budget framework, to be implemented by 2007.
"Poverty alleviation remains the key challenge for the authorities' policy agenda. A recently completed household survey identified large urban and rural pockets of poverty, affecting over 50 percent of the population. Based on this survey, and the ongoing demographic and health survey, the authorities have started identifying key measures to reduce poverty that will become part of the final Poverty Reduction Strategy Paper (PRSP), to be finalized by end-2006. A consultative process is underway in the preparation of the PRSP, and the mission expressed the hope that sufficient analysis and further broad-based consultations will be undertaken before the document is finalized.
"Strengthening good governance remains a major priority, and decisive steps in this area will be critical to achieve economic progress and secure an efficient, pro-poor use of public resources. The mission discussed these concerns with many stakeholders, including members of parliament, labor and employer organizations, and representatives of civil society and donors. As part of its strategy, the government has committed to submitting a new anti-corruption law to parliament later this year. An anti-corruption committee will also be established that will play a central role in advancing the governance agenda and providing domestic leadership on this critical issue.
"The authorities are also seeking to reach international best practices in the transparent use of Congo's natural resources. The government will shortly establish a consultative committee under the Extractive Industry Transparency Initiative (EITI) charged with overseeing the transparency of oil-related transactions. In addition, an action plan will be adopted to bring the marketing of oil by the Société Nationale de Pétrole du Congo (SNPC) up to international best practices. Finally, the government has amended the mining law and has undertaken two studies to ensure that Congo's production of diamonds is consistent with the Kimberley process.
"The mission reached broad understandings with the Congolese authorities on the performance assessment over the review period and on the policy program for 2006. The discussions with the authorities will continue during their forthcoming visit to Washington, on the side of the Spring Meetings of the Bretton-Woods institutions. If a final agreement is reached and approved by IMF management, the second review under the PRGF arrangement could be discussed by the IMF's Executive Board before mid-year."
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.