## 1codea2019003

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### Executive summary and program request
- New government took office on September 6, 2019; 66-strong government (49 ministers and 17 vice-ministers); Kabila’s coalition (KCC) holds 70 percent of government positions.
- Country context: per capita income of about US$470; ranked 154 out of 156 countries in 2018; highly fragile and prone to health and humanitarian crises.
- Ebola epidemic (started August 2018) as of November 3: 3,274 confirmed cases, including 2,185 deaths. International financial assistance mobilized: US$287 million.
- Authorities requested an RCF disbursement of SDR 266.5 million (25 percent of quota) to meet urgent balance of payments needs.
- A Staff-Monitored Program (SMP) running up to May 2020 will monitor implementation and provide time to develop a medium-term reform strategy potentially supported by an ECF.
- Governance assessment mission planned to assist anti-corruption and governance measures.
- Staff supports the RCF request based on policy commitments in the MEFP.

### Recent macroeconomic developments and technical indicators
- Growth:
  - Real GDP growth projected to decelerate to 4.5 percent in 2019 from 5.8 percent in 2018.
  - Extractive GDP growth projected to fall from 16.9 percent to 5.4 percent in 2019.
  - Non-extractive GDP growth projected to accelerate to 4.2 percent in 2019.
- Reserves and external position:
  - BCC gross foreign exchange reserves: US$657 million at end-December 2018 → US$302 million at end-October 2019 (about one week of imports).
  - BCC foreign currency deposits held at local commercial banks: US$533 million, of which US$247 million as collateral for government loans and term deposits.
- Fiscal and financing:
  - Domestic arrears: 6.6 percent of GDP as of end-September 2019.
  - By end-October 2019 BCC advances reached CF603 billion (0.7 percent of GDP).
  - Central government domestic balance had reached a deficit of 1.1 percent of GDP as of end-October 2019.
  - Treasury bills and bonds placement restarted in October 2019 after a long hiatus.
- Monetary and banking:
  - Monetary base increased by about 35 percent by end-October 2019 compared to end-2018.
  - Broad money projected increase: 13 percent by end-2019 (compared to 30 percent as of end-2018).
  - NPLs increased to 16.1 percent at end-September 2019.
  - Banking system relatively well-capitalized and profitable; three small banks have insufficient capital (two with Tier 1 capital under the 6 percent minimum; one at 7 percent).
  - Correspondent banking: only one bank retains a US dollar correspondent.

### Main policy commitments (authorities’ program)
- Fiscal anchor: discontinue central bank financing of the deficit.
- Revenue measures:
  - Restore the functioning of the VAT.
  - Enforce the personal income tax (IPR) on entirety of compensation.
  - Start reducing tax exemptions.
- Expenditure control:
  - Stronger spending controls based on a Treasury Plan capping budgetary commitments of all governmental units.
- Central bank foreign assets:
  - Transfer unencumbered BCC foreign currency deposits placed in local commercial banks to BCC accounts abroad to increase official foreign reserves.

### SMP conditionality, prior actions, and benchmarks
- RCF prior action (Dec 5, 2019): Transfer USD 160 million in FX deposits from BCC accounts at domestic commercial banks to BCC accounts in overseas banks, to be accounted for as reserves.
- Structural benchmarks and prior actions (selected):
  - Publish complete audited 2018 BCC financial statements on BCC website (December 2019).
  - Make DGI responsible for payment of VAT refunds to mining companies via escrow (January 2020).
  - Enforce personal income tax withholding on total compensation of public employees starting January 2020.
  - Publish a 2020 Treasury Plan on Ministry of Finance website (end-January 2020).
  - Lift suspension of VAT collection for mining companies at customs (March 2020).
- Indicative quantitative targets under SMP (highlights):
  - Floor on changes in net foreign assets of the BCC (US$ millions): -146 (2019 end-year); 116 (2020 end-year); 231 (2020 March).
  - Ceiling on placement of Treasury bills and bonds by the central government (CF billions): 150 (2019 end-year); 80 (2020 end-year); 150 (2020 May).
  - Ceiling on net central bank credit to government (CF billions): 55 (2019 end-year); 400 (2020 end-year).
  - Floor on domestic balance - cash basis (CF billions): -86 (2019 end-year); 256 (2020 end-year).
  - Ceiling on contracting/guaranteeing new nonconcessional external debt (US$ millions): 150 (2019 end-year); 86 (2020 March).

### Fiscal policy, 2019–2020 outlook and Treasury Plan
- Government 2019 targets:
  - Limit 2019 domestic fiscal deficit (cash basis) to 1 percent of GDP.
  - Limit 2019 overall fiscal deficit (cash basis) to 2.3 percent of GDP.
  - Target domestic balance surplus of 0.1 percent of GDP for November and December 2019.
- Draft 2020 budget (cabinet approved):
  - Spending envelope approaches US$10 billion (20 percent of GDP), an increase of over 60 percent compared to projected 2019 budget outcome.
  - Draft 2020 budget foresees an overall fiscal deficit of 0.4 percent of GDP.
  - Projected closure of MUMI mine in 2020–2021: estimated income tax losses of about 0.5 percent of GDP.
  - Authorities agreed to base 2020 execution on realistic revenue adjustments implying a gap of 4.7 percent of GDP.
- Key fiscal figures (percent of GDP) — Jan-Oct Prel.; Proj.; Finance law; Proj. (as presented):
  - Revenue and grants: 9.5; 11.1; 17.7; 12.7
  - Revenue: 8.8; 10.3; 16.0; 11.3
  - Grants: 0.8; 0.8; 1.8; 1.4
  - Expenditure: 11.4; 13.8; 18.1; 13.3
    - Current expenditure: 9.2; 10.6; 11.9; 10.1
    - Capital expenditure: 2.0; 2.9; 5.8; 3.0
  - Overall fiscal balance (commitment basis): -1.9; -2.7; -0.4; -0.6
  - Domestic fiscal balance (cash basis): -1.1; -1.0; -0.3; -0.3
  - Overall fiscal balance (cash basis): -1.4; -2.3; -0.4; -0.6

### Revenue mobilization measures (projected >20 percent increase in government revenue next year)
- VAT reforms:
  - Transfer VAT refund payment responsibility to DGI via escrow fed by DGDA VAT from mining companies and a fraction of VAT collected by DGI.
  - Discontinue blanket VAT exemptions for mining companies (end-January 2020 structural benchmark).
  - No new VAT exemptions or renewals granted (in accordance with law).
- Personal income tax enforcement:
  - Withhold income tax on entirety of compensation for government employees starting with January 2020 pay (end-January 2020 structural benchmark).
- Other measures:
  - Rationalize survey fees and payments at ports of entry.
  - Start reducing tax exemptions; include 2017 tax expenditures report as annex to 2020 budget law.
  - Mobilize one-off revenues by transferring unused earmarked resources from public entities to the Treasury (dependent on bilateral agreements).

### Monetary policy, reserves, and BCC measures
- Monetary objectives:
  - Keep inflation in single digits; target inflation around 7 percent medium-run (BCC objective).
  - BCC operational target: keep money base growth below 10 percent in 2020 (document also references less than 12 percent in some sections).
- BCC measures:
  - Use issuance of short-term BCC bonds, reserve requirement ratios, and Treasury securities; design new repo instruments and open market operations.
  - Stop providing advances and loan guarantees to the government.
  - Transfer unencumbered BCC FX deposits in domestic commercial banks abroad starting December 2019 (prior action for RCF).
    - Unencumbered BCC FX deposits in domestic commercial banks reached around US$241 million at end-October.
    - Expected gross official reserves to increase to at least US$1,078 million by end-December 2020 with expatriation of deposits, RCF disbursement, and projected fiscal adjustment.
  - Recapitalization plan: convert CF113 billion in equity and inject CF104 billion in new equity contributions from the government (to materialize over medium term).
  - Audited BCC financial statements for 2018 to be fully published in coming months (end-December 2019 structural benchmark).
  - Safeguards assessment mission planned for early 2020.

### Banking supervision, financial stability, and AML/CFT
- NPLs: 16.1 percent as of end-September 2019.
- Banking system: relatively well-capitalized, profitable, and liquid; three small banks with insufficient capital (two under Tier 1 6 percent minimum; one at 7 percent).
- Regulatory reforms under consideration:
  - Implementation of Pillar II of Basel II.
  - NFSR requirements and market discipline pillar from Basel III.
  - Migration to IFRS 9 in process.
  - Fund TA to strengthen CAMELS supervisory ratios and other supervision capacity.
- Correspondent banking risk: only one US dollar correspondent remains; technical mission requested from US Treasury.
- AML/CFT:
  - DRC admitted as associate member of GABAC; mutual evaluation by GABAC experts initiated; findings to be published in October 2020 at the latest.

### Social policies and public initiatives
- Free basic education:
  - Gap estimated at 1 percent of GDP per year to cover teachers’ direct salary supplement and basic school needs (roughly US$50 per school per month).
  - As of end-October 2019, initiative brought about 2.4 million children back to school.
- Health: preparation to introduce universal health insurance coverage; emphasis that initiatives proceed only with adequate financing.
- President’s 100-day program: spending pace to be adjusted to available resources.

### Debt sustainability, public debt profile, and stress tests
- DSA conclusions:
  - DRC remains at moderate risk of debt distress.
  - External debt in 2018: equivalent to 13.7 percent of GDP; Sicomines liabilities represent almost 40 percent of external debt.
  - Total public debt (end-2018): 9,476 (millions of US$) — 20.1 percent of GDP.
  - Total external debt (end-2018): 6,401 (millions of US$) — 13.6 percent of GDP.
  - Total domestic debt (end-2018): 3,074 (millions of US$) — 6.5 percent of GDP.
  - PV of PPG external debt-to-GDP ratio peaks at 9.2 percent in 2019 (threshold 30 percent).
  - Debt service-to-revenue: 11.3 percent in 2019 (threshold 14 percent).
- Stress-test findings:
  - Commodity price shock is the most extreme shock for PV of debt-to-GDP and to revenue.
  - PV of debt-to-GDP peaks at 31.7 percent under a specified shock (below 35 percent threshold) in 2021 and declines thereafter.
  - Combined contingent liabilities shock could push debt service-to-revenue to more than 50 percent in 2021.
- Contingent liability shock assumptions used in tailored stress test:
  - SOEs (guaranteed and not guaranteed): 0.5 percent of GDP.
  - Financial market (default value): 5 percent of GDP.
  - Total contingent liability shock used: 7.5 percent of GDP.
- Arrears:
  - External arrears as of end-2018: 329 (millions of US$) — 0.7 percent of GDP.
  - Domestic arrears (composition end-2018): reconciled legacy arrears 1,866 (millions of US$) — 4.0 percent of GDP; VAT arrears 799 (millions of US$) — 1.7 percent of GDP; total domestic debt 3,074 (millions of US$) — 6.5 percent of GDP.
  - Authorities expect to repay 72 percent of legacy arrears.
- Policy implications:
  - Prioritize concessional borrowing; avoid non-concessional borrowing that worsens risk profile.
  - Increase domestic revenue mobilization to reduce vulnerability and improve debt repayment capacity.
  - Refrain from accumulating additional domestic arrears and prepare realistic repayment plans.

### External outlook, growth projections, and risks
- Growth projections:
  - Real GDP growth: 2016: 2.4; 2017: 3.7; 2018: 5.8; 2019 act./prel.: 4.5; 2020 proj.: 3.2 (annual percentage change).
  - Extractive GDP: 2016: -0.7; 2017: 7.8; 2018: 16.9; 2019: 5.4; 2020: -2.4.
  - Consumer prices (period average): 2019: 4.8; 2020: 5.0.
- External and commodity risks:
  - Decline in copper and cobalt production in 2020 projected to temporarily worsen current account; steady improvement expected as new projects (notably Kamoa-Kakula) come online.
  - Downside risks include disease outbreaks (measles, cholera), slowdown in China, monetization of fiscal deficit, escalation of armed conflicts, and loss of the only correspondent banking relationship.
- RAM likelihoods (staff subjective definitions):
  - “Low” indicates probability below 10 percent; “medium” indicates 10–30 percent; “high” indicates 30–50 percent.

### Data, reporting, and program monitoring
- SMP monitoring will require timely provision of data across 53 listed items (examples preserved in source), including daily, weekly, monthly, and quarterly reporting from BCC, Ministry of Finance, Budget Ministry, INS, CTR, DGI, and Ministère des Mines.
- SMP test dates: end-December 2019 (first review), end-March 2020 (first review), end-May 2020 (second review; select ITs).
- Monitoring troika chaired by Finance Ministry with Budget Ministry and BCC; CTR as secretariat.

### Key numeric figures (preserved exactly)
- RCF request: SDR 266.5 million (25 percent of quota).
- Unencumbered BCC FX deposits to be transferred abroad (prior action): US$160 million.
- Unencumbered BCC FX deposits in domestic commercial banks at end-October (reported): US$241 million.
- Projected gross official reserves by end-December 2020: US$1,078 million.
- Treasury issuance target for 2020: CF350 billion (net).
- Base money growth operational guidance: below 10 percent in 2020 (also referenced as less than 12 percent in some sections).
- NPLs level: 16.1 percent as September 2019.
- Free basic education annual gap: 1 percent of GDP (roughly US$50 per school per month).
- Text Table 1 revenue-impact items (preserved):
  - Witholding of income tax on bonuses of civil servants, central government employees, and members of political institutions: CF 432.5 billion
  - Cancellation of the compensation process of revenues: CF 461 billion
  - Transfer of part of special account proceed to the treasury — mining fund for future generation: US$ 10 million
  - FONERU: US$ 10 million
  - RVA: US$ 1 million

### Staff appraisal and conclusions
- IMF staff supports the RCF disbursement and the SMP as a platform to restore macroeconomic stability, rebuild reserves, and prepare a medium-term reform program possibly to be supported by an ECF in 2020.
- Immediate priorities: stop central bank financing, restore fiscal discipline, mobilize domestic revenue, strengthen spending controls, increase transparency and governance, and build FX buffers.
- DRC remains highly vulnerable to external shocks; restoring reserves and improving revenue mobilization are critical to sustain debt repayment capacity and macroeconomic stability.

*Source: EXECUTIVE SUMMARY and accompanying MEFP/TMU material (1codea2019003).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background and context
- A new government took office on September 6, 2019—eight months after the first ever peaceful transition of power. The 66-strong government (49 ministers and 17 vice-ministers) includes many newcomers; Kabila’s coalition (KCC) holds 70 percent of government positions.
- The country is highly fragile: per capita income of about US$470 (less than half its level in 1990), ranked 154 out of 156 countries in 2018, prone to health and humanitarian crises and violent conflicts.
- Ebola epidemic (started August 2018) as of November 3: 3,274 confirmed cases, including 2,185 deaths. International financial assistance mobilized: US$287 million.
- Structural weaknesses include a challenging business environment, corruption, poor infrastructure, and limited access to financing, which constrain private investment and inclusive growth.
- Domestic arrears: 6.6 percent of GDP as of end-September 2019.
- Official international reserves have fallen to critically low levels—equivalent to one week of import coverage.

### Request and program design
- Authorities request an RCF disbursement of SDR 266.5 million, or 25 percent of quota, to meet urgent balance of payments needs.
- A staff-monitored program (SMP) running up to May 2020 will monitor implementation and provide time to develop a medium-term reform strategy that could be supported by an Extended Credit Facility (ECF).
- A governance assessment mission will assist in formulating measures to tackle corruption and improve governance.
- The RCF disbursement, combined with the SMP, is intended to create space to develop a deeper structural reform agenda and potentially pave the way for an ECF in 2020.

### Main policy commitments (authorities’ program)
- Fiscal anchor: discontinue central bank financing of the deficit.
- Revenue measures:
  - Restore the functioning of the VAT.
  - Enforce the personal income tax.
  - Start reducing tax exemptions.
- Expenditure control:
  - Stronger spending controls based on a Treasury Plan that caps budgetary commitments of all governmental units.
- Central bank foreign assets:
  - Transfer unencumbered foreign currency deposits of the central bank placed in local commercial banks to the central bank’s accounts abroad to increase official foreign reserves.

### Staff’s assessment and conditionality
- Staff supports the RCF request based on strong policy commitments in the attached Memorandum of Economic and Financial Policies (MEFP).
- The RCF disbursement plus the SMP would provide an opportunity to develop a medium-term reform strategy that could be implemented under an ECF arrangement.

### Recent economic developments and technical indicators
- Growth:
  - Real GDP growth projected to decelerate to 4.5 percent in 2019 from 5.8 percent in 2018.
  - Extractive GDP growth projected to fall from 16.9 percent to 5.4 percent in 2019.
  - Non-extractive GDP growth projected to accelerate to 4.2 percent in 2019.
- External and reserve positions:
  - BCC gross foreign exchange reserves declined from US$657 million at end-December 2018 to US$302 million at end-October 2019 (about one week of imports).
  - BCC foreign currency deposits held at local commercial banks: US$533 million, of which US$247 million as collateral for government loans and term deposits.
- Fiscal and financing developments:
  - Budget execution through end-October 2019 reflected new spending initiatives and weaker controls, leading to BCC advances of CF603 billion (0.7 percent of GDP) by end-October.
  - BCC provided collateral for government loans from commercial banks around CF372 billion (0.4 percent of GDP) to finance subsidy compensations and strategic investment projects.
  - Treasury receipts were eroded by offsets for tax credits and arrears for VAT refunds (0.7 percent of GDP).
  - As of end-October 2019, the central government’s domestic balance had reached a deficit of 1.1 percent of GDP.
  - The government restarted placement of Treasury bills and bonds in October 2019 after a long hiatus.
- Monetary conditions and banking sector:
  - Monetary base increased by about 35 percent by end-October 2019 compared to end-2018, mainly due to increased net credit to government and other depository institutions.
  - Broad money projected increase: 13 percent by end-2019 (compared to 30 percent as of end-2018).
  - High mandatory reserve requirements on foreign currency deposits and a positive real policy rate were maintained.
  - Financial soundness: NPLs increased to 16.1 percent at end-September 2019.
  - The banking system remains relatively well-capitalized, profitable, and liquid; three small banks have insufficient capital (two with Tier 1 capital under the 6 percent minimum; one at 7 percent).
  - Correspondent banking relationships: only one bank retains a US dollar correspondent, creating elevated systemic risk.

### Social policies and public initiatives
- Free basic education:
  - Gap estimated at 1 percent of GDP per year to cover teachers’ direct salary supplement and basic school needs (roughly US$50 per school per month).
  - As of end-October 2019, the initiative brought about 2.4 million children back to school.

### Outlook and risks
- Growth and inflation:
  - GDP growth projected to decelerate further to 3.2 percent in 2020 due to planned suspension of Mutanda Mining (MUMI) in 2020–2021, the shutdown of Boss mining, and delayed start of new projects.
  - Non-extractive GDP growth projected to accelerate to 5.4 percent in 2020.
  - Inflation expected to remain stable at around 5 percent (below BCC medium-run objective of 7 percent).
- External outlook:
  - Decline in copper and cobalt production in 2020 projected to temporarily worsen the current account, with steady improvement thereafter as new projects (notably Kamoa-Kakula) come online.
- Risks:
  - Low official reserves (one week of imports) and reliance on central bank financing heighten balance of payments and macroeconomic vulnerability.
  - Political transition and weakened spending oversight contributed to renewed central bank financing and fiscal slippages.
  - Structural risks from weak business environment, pervasive corruption, and security/health shocks (e.g., Ebola, cholera, measles).

*Source: EXECUTIVE SUMMARY (1codea2019003).*

### 12.      The economic outlook remains subject to significant downside risks (RAM, Annex I).

### 1codea2019003 - 12.      The economic outlook remains subject to significant downside risks (RAM, Annex I)

### Economic risks and outlook
- Downside risks include:
  - Continued vulnerability to contagious diseases (measles, cholera) with significant adverse macroeconomic consequences.
  - Slowdown of the Chinese economy (main buyer of copper and cobalt) leading to loss of fiscal and export revenues.
  - Continued monetization of the fiscal deficit.
  - Intensification of armed conflicts.
  - Withdrawal of the only correspondent banking relationship.
- Upside factors:
  - New government reengagement with the international community, expected to increase project and budget support, positively impacting private investment inflows and overall economic activity.

### Policy discussions and program context
- Requested RCF disbursement intended to ease pressure on international reserves.
- SMP discussions focused on policies to:
  - Strengthen macroeconomic stability.
  - Reinforce international reserves.
  - Advance structural reforms addressing poor governance, difficult business environment, and pervasive poverty.
- Fiscal anchor: discontinuation of central bank financing of the deficit, supported by strong revenue mobilization and expenditure control.

### Restoring fiscal discipline (short-term and 2020 budget)
- Budget execution remainder of 2019 predicated on stopping recourse to central bank financing.
- Government targets for 2019:
  - Limit 2019 domestic fiscal deficit (cash basis) to 1 percent of GDP.
  - Limit 2019 overall fiscal deficit (cash basis) to 2.3 percent of GDP.
  - Targeted domestic balance surplus of 0.1 percent of GDP for November and December 2019.
- Draft 2020 budget (as approved by cabinet):
  - Spending envelope approaches US$10 billion (20 percent of GDP), an increase of over 60 percent compared to projected 2019 budget outcome.
  - Draft 2020 budget foresees an overall fiscal deficit of 0.4 percent of GDP.
  - Projected impact of announced closure of MUMI mine in 2020 and 2021: estimated income tax losses of about 0.5 percent of GDP.
  - Realistic revenue adjustments suggest a gap of 4.7 percent of GDP; authorities agreed to base 2020 execution on these more realistic assumptions.

### Key fiscal figures (2019–2020, in percent of GDP)
- Revenue and grants: 9.5; 11.1; 17.7; 12.7 (Jan-Oct Prel., Proj., Finance law, Proj. respectively as presented)
- Revenue: 8.8; 10.3; 16.0; 11.3
- Grants: 0.8; 0.8; 1.8; 1.4
- Expenditure: 11.4; 13.8; 18.1; 13.3
  - of which: Current expenditure: 9.2; 10.6; 11.9; 10.1
  - Capital expenditure: 2.0; 2.9; 5.8; 3.0
- Overall fiscal balance (commitment basis): -1.9; -2.7; -0.4; -0.6
- Domestic fiscal balance (cash basis): -1.1; -1.0; -0.3; -0.3
- Overall fiscal balance (cash basis): -1.4; -2.3; -0.4; -0.6
- Sources: Congolese authorities; and IMF staff estimates and projections.

### Revenue mobilization measures (projected >20 percent increase in government revenue next year)
- Restore functioning of the VAT by:
  - Transferring to the DGI responsibility of paying VAT credits to mining companies via an escrow account fed by VAT collected by DGDA from mining companies and a fraction of VAT collected by DGI.
  - Discontinuing blanket VAT exemptions for mining companies (end-January 2020 structural benchmark).
  - No new VAT exemptions or exemption renewals will be granted (in accordance with the law).
- Enforce the personal income tax (IPR) so all government employees pay income taxes on entirety of compensation (base salary plus bonuses and others) withheld at source starting with the January 2020 pay (end-January 2020 structural benchmark).
- Survey fees and payments at ports of entry to counter decline in customs revenue and rationalize/consolidate them in the medium-run.
- Start reducing tax exemptions; 2017 report on tax expenditures to be an annex to the 2020 budget law.
- Mobilize one-off revenues by transferring unused earmarked resources from public entities to the Treasury (timeline/quantification dependent on bilateral agreements).

### Spending control and Treasury Plan
- Government actions to control spending:
  - Communicate specific spending caps to line ministries and spending units.
  - Continue weekly meetings chaired by the Prime Minister to decide spending priorities.
  - Strictly respect spending chain steps and limit exceptional procedures to emergencies.
  - Adjust free basic education and President’s 100-day program to be consistent with available resources.
  - Strengthen control of spending commitments to avoid arrears accumulation.
- Treasury Plan:
  - Formulated on realistic revenue and financing projections consistent with a 0.4 percent of GDP deficit for 2020 and no access to BCC financing.
  - Treasury Plan to be posted on the ministry of finance’s website (end-January 2020 structural benchmark).
  - Issuance of Treasury bills and bonds to continue in 2020 with planned net placement of CF350 billion.
  - Plan to expand maturity of Treasury bills (currently 3 months) in 2020.

### Reintroduction of Treasury bills and bonds (Box 3)
- First four issuances of 90-day Treasury bills took place in October 2019, raising CF62 billion at a weighted average rate of 4.5 percent.
- Ministry of Finance’s net issuance goals: CF150 billion in 2019 and CF350 billion in 2020.
- Debt management technical assistance mission in November 2019 assisted with medium-term debt management strategy adoption.

### Monetary policy and financial sector stability
- Monetary and exchange rate objectives:
  - Keep inflation in single digits.
  - Build adequate international reserve buffer.
- BCC instruments and targets:
  - Use issuance of short-term BCC bonds and reserve requirement ratios; Treasury bills/bonds expected to play larger role.
  - New repo instruments and open market operations being designed.
  - BCC to keep money base growth (operational target) below 10 percent in 2020, adjusting policy rate or other instruments as needed.
  - Foreign exchange sales to be parsimonious to smooth FX volatility.
  - BCC to stop providing advances and loan guarantees to the government.
- Transfer of unencumbered BCC foreign currency deposits in local commercial banks to BCC accounts abroad starting December 2019 (prior action for the RCF).
  - Unencumbered BCC FX deposits in domestic commercial banks reached around US$241 million at end-October.
  - Expected that expatriation of deposits, RCF disbursement in December 2019, and projected fiscal adjustment in 2020 will help increase FX official reserves to at least US$1,078 million by end-December 2020.
- New deposits to be subject to reserve requirements in same currency as denomination to reduce currency mismatches (under assessment; phased application for future increases).
- Transparency and governance at BCC:
  - Audited BCC financial statements for 2018 completed and to be fully published in coming months (end-December 2019 structural benchmark).
  - Recapitalization plan: conversion of CF113 billion in equity and injection of CF104 billion in new equity contributions from the government (to materialize over medium term).
  - Safeguards assessment mission by Fund’s Finance Department set for early 2020.
  - BCC evaluating de-dollarization measures and updating as needed.

### Banking supervision and regulatory reforms
- BCC to improve supervisory capacity with Fund technical assistance.
- Authorities considering implementation of:
  - Pillar II of Basel II.
  - NFSR requirements and market discipline pillar from Basel III.
- Upcoming Fund TA to strengthen CAMELS supervisory ratios.
- Migration to IFRS 9 in process.
- Fund comments on draft revised Banking Law submitted; new Law expected to be passed in 2020.

### Social policies, private sector development, and governance
- Social priorities:
  - Free basic education introduced, expanding access for millions of children.
  - Preparation to introduce universal health insurance coverage.
  - Emphasis that initiatives proceed only with adequate financing in place.
- Business climate and judiciary:
  - Re-launch survey of illegal taxes, fees, and payments levied without authorization; cancel identified items.
  - Implement recommendations from TA missions on tax policy and revenue administration with partner support.
  - Organize national conference on judiciary reforms; seek technical assistance from judiciaries of advanced nations.
- Natural resources governance and transparency:
  - All new contracts in mining, hydrocarbon, and forestry sectors by public entities to be published on Ministry website.
  - With World Bank support, financial and functional audits of SOEs to be undertaken and published.
  - Authorities to facilitate IMF governance assessment mission, publish final report, and implement recommendations.
  - Implement 13 measures required by EITI validation process, hire an EITI national coordinator, and adopt governmental decree on EITI Executive Committee functioning.
  - A dozen previously unpublished mining contracts uploaded on official DRC EITI website in recent weeks.

### Capacity development, program design, and debt sustainability
- Capacity development strategy aims to:
  - Improve budget preparation and execution.
  - Strengthen banking supervision and regulation.
  - Reinforce revenue mobilization.
  - Improve national accounts and fiscal data (Annex II).
- Coordination with other TA providers emphasized, including participation in upcoming PEFA exercise.
- SMP specifics:
  - Covers period until May 2020; monitored by quantitative indicative targets and structural benchmarks (MEFP, Tables 1 and 2).
  - Indicative targets include: floor on BCC net foreign assets; ceiling on net central bank credit to government; ceiling on placement of Treasury bills and bonds; ceiling on contracting/guaranteeing new nonconcessional external debt; non-accumulation of external arrears; floor on domestic fiscal balance; zero ceiling on accumulation of wage arrears.
  - Test dates for first review: end-December and end-March; second review: end-May (select ITs).
  - Risks to implementation: inability to control spending pressures and delays in revenue measures.
- Debt sustainability:
  - DRC remains at moderate risk of debt distress.
  - In 2018, external debt was equivalent to 13.7 percent of GDP, with liabilities from Sicomines representing almost 40 percent of external debt.
  - Vulnerabilities include high debt-service-to-revenue ratios, underscoring need to increase revenue mobilization.
  - DRC carries external arrears to four non-Paris Club creditors from pre-HIPC period; making efforts to seek Paris Club comparable terms.
  - Capacity to repay the Fund: adequate in medium and longer terms but affected short-term by low reserves in 2019.
  - Key risks to repayment capacity: slowdown in Chinese economy and continued monetization of the fiscal deficit.

*Source: IMF staff summary of the Democratic Republic of the Congo SMP and related MEFP material as presented in the supplied chapter text.*

### 31.      An updated safeguards assessment of the BCC is planned for the first quarter of 2020.

### 1codea2019003 - 31.      An updated safeguards assessment of the BCC is planned for the first quarter of 2020.

### Safeguards assessment
- An updated safeguards assessment of the BCC is planned for the first quarter of 2020.
- The last assessment was completed in 2010.
- The new assessment will:
  - Review developments in the central bank governance and control framework, including progress in transitioning to IFRS.
  - Provide recommendations to address identified vulnerabilities.

### Staff appraisal — macroeconomic vulnerabilities and context
- The Congolese economy faces multiple long-standing fragility challenges and remains highly vulnerable to external shocks.
- DRC is described as a fragile state with pervasive poverty, massive development needs, and proneness to conflicts and humanitarian and health crises.
- Economic growth has been lackluster and private investment remains weak because of:
  - A challenging business environment.
  - Economic governance vulnerable to corruption.
  - Limited access to financing including from external sources.
- Recent factors weakening the fiscal position:
  - Recent fall in commodity prices.
  - Costs of new spending initiatives to increase access to education and reduce infrastructure gaps.
  - Looser spending oversight during the political transition period.
  - Fiscal weakening has been mostly financed by the central bank.
- International reserves have fallen to critically low levels: one week of import coverage.

### Fiscal policy and budget execution measures
- New government (took office in September) priorities:
  - Restore fiscal discipline.
  - Strengthen spending controls.
  - Mobilize domestic revenue.
  - Reinforce international reserves.
  - Improve governance and transparency.
- Immediate budget measures:
  - Tightening budget execution in the last weeks of 2019 by stopping recourse to central bank financing through strict implementation of a cash-based budget and raising one-off revenue sources.
  - Budget execution in 2020 will be anchored on the publication by end-January of a Treasury Plan based on realistic revenue and financing projections.
  - The Treasury Plan is a fundamental element of performance under the SMP and will:
    - Guide implementation of specific spending caps on line ministries and other spending units.
    - Anchor decisions on spending priorities in weekly meetings of top government officials in charge of public finances under the chairmanship of the Prime Minister.
  - Government commitment to strictly respect all steps of the spending chain and to limit exceptional spending procedures to emergency cases.
  - The free basic education initiative will be implemented gradually, with assistance from the World Bank.
  - The implementation pace of the President’s 100-day program will be adjusted to available resources.

### Revenue mobilization measures and expected impact
- Measures being taken:
  - Restore normal functioning of the VAT system by reestablishing a credible mechanism to pay VAT refunds to mining companies.
  - Lift the suspension of VAT collection on mining companies’ imports.
  - Enforce collection of the personal income tax on all compensations of public employees.
  - Spearhead rationalization of tax exemptions by publishing a 2017 report on tax exemptions as an annex to the 2020 budget.
  - Suspend the offsetting of tax arrears against tax liabilities.
- Projected revenue impact:
  - These measures are projected to yield at least 1 percent of GDP in additional government revenue.

### Monetary and exchange rate policy stance
- Monetary policy objectives:
  - Keep inflation in single digits.
  - Help build an adequate international reserve buffer.
- BCC operational measures:
  - Continue focus on delivering price stability.
  - Design new repo instruments and open market operations to increase effectiveness of monetary policy.
  - Keep money base growth (its operational target) below 10 percent in 2020, adjusting its policy rate or other instruments as needed.
  - Conduct foreign exchange sales parsimoniously to smooth excess volatility in the FX market.
  - Stop providing advances and loan guarantees to the government.
  - Transfer BCC unencumbered foreign currency deposits placed in local commercial banks into its own accounts abroad to increase official foreign reserves and reduce economic vulnerabilities.

### Governance and business environment actions
- Important initial measures:
  - Make all new mining contracts publicly available to ensure transparency.
  - Continue smooth functioning of the EITI process for resource revenue transparency.
  - Publish new mining contracts and start reducing the tax burden and other unofficial payments.
- An upcoming governance assessment mission will help formulate measures to tackle corruption and improve governance.

### Reform strategy, external support, and capacity development
- Immediate priority: restore the critically low level of international reserves.
- Authorities have requested:
  - A Rapid Credit Facility (RCF) to help rebuild international reserves.
  - A Staff Monitored Program through end-May 2020 to support preparation of adjustment policies and a reform strategy.
- Emphasis on:
  - Formulating and implementing an ambitious, comprehensive, yet realistic reform strategy to deliver higher and inclusive growth.
  - Significant capacity development activities to strengthen institutions and deliver outcomes.

*Source: 1codea2019003 - 31.*

### 38.      Staff supports the authorities’ request for a disbursement under the RCF in the

### 1codea2019003 - 38.      Staff supports the authorities’ request for a disbursement under the RCF in the

### RCF disbursement request and program context
- Staff supports a disbursement under the RCF in the amount of SDR 266.5 million (25 percent of quota) to tackle urgent balance of payments needs linked to the very low level of international reserves and recommends its approval by the Board.
- An SMP has been agreed with the authorities and is presented to the Board for information.
- The SMP is intended to provide an opportunity to develop a deeper structural reform agenda that could eventually be implemented with support from an IMF Extended Credit Facility (ECF) arrangement in 2020.

### External indicators and trade
- Copper and cobalt prices have stabilized at a relatively low level.
- Copper export volumes are on an upward trend; cobalt export volumes have been volatile.
- Export values have declined compared to last year due to lower commodity prices.
- Imports, while volatile, slowed down in the first half of 2019, resulting in an improvement of the trade balance.
- International reserves fell to a very low level due to central bank financing of the fiscal deficit.
- Sources for indicators: Congolese authorities and IMF staff calculations.

### Real and fiscal indicators (high-level findings)
- The extractive sector has been the main source of growth over the last two years.
- Inflation has decelerated and stabilized at a low level.
- Revenues remain low despite the new mining code.
- Expenditures picked up reflecting the implementation of the 100-day Presidential program.
- The fiscal deficit remains contained, but domestic arrears have kept increasing.
- Net credit to the government increased in 2019.
- Sources: Congolese authorities and IMF staff calculations.

### Monetary and financial indicators (high-level findings)
- Credit to the private sector in both currencies is rising.
- A similar upward trend recorded in money supply.
- Deposits increased strongly following the rise in repatriation requirements under the new mining code, and commercial banks’ excess reserves increased.
- Nominal exchange rates have stabilized after strong depreciation of the Congolese franc.
- The real effective exchange rate level has largely reversed since the 2015–16 crisis.
- Sources: Congolese authorities and IMF staff calculations.

### Key statistics from Table 1: Selected Economic and Financial Indicators, 2016–2020 (highlights)
- Real GDP growth: 2016: 2.4; 2017: 3.7; 2018: 5.8; 2019 act./prel.: 4.5; 2020 proj.: 3.2 (annual percentage change).
- Extractive GDP: 2016: -0.7; 2017: 7.8; 2018: 16.9; 2019: 5.4; 2020: -2.4.
- Consumer prices, period average: 2016: 3.2; 2017: 35.8; 2018: 29.3; 2019: 4.8; 2020: 5.0.
- Exports, f.o.b. (U.S. dollars): 2016: 15.6; 2017: -2.8; 2018: 38.3; 2019: -19.2; 2020: -5.4.
- Imports, f.o.b. (U.S. dollars): 2016: 14.9; 2017: -6.7; 2018: 32.0; 2019: -19.5; 2020: 0.1.
- Gross official reserves (millions of U.S. dollars): 2016: 625; 2017: 601; 2018: 657; 2019: 829; 2020: 1,078.
- Gross official reserves (weeks of imports): 2016: 2.8; 2017: 1.9; 2018: 2.5; 2019: 3.3; 2020: 4.2.
- Nominal GDP (millions of U.S. dollars): 2016: 36,640; 2017: 37,615; 2018: 47,099; 2019: 49,906; 2020: 52,591.
- Overall balance (percent of GDP): 2016: -1.4; 2017: 2.0; 2018: 0.9; 2019: 0.6; 2020: 0.6.
- Current account balance, incl. transfers (percent of GDP): 2016: -4.1; 2017: -3.2; 2018: -4.6; 2019: -3.8; 2020: -4.3.

### Central government financial operations (Table 2 highlights)
- Revenue and grants (percent of GDP): 2016: 14.0; 2017: 11.7; 2018: 11.1; 2019: 11.1; 2020: 12.7.
- Revenue (percent of GDP): 2016: 11.2; 2017: 9.8; 2018: 10.0; 2019: 10.3; 2020: 11.3.
- Expenditures (percent of GDP): 2016: 14.5; 2017: 10.4; 2018: 11.1; 2019: 13.8; 2020: 13.3.
- Overall fiscal balance (commitment basis, percent of GDP): 2016: -0.5; 2017: 1.4; 2018: 0.0; 2019: -2.7; 2020: -0.6.
- Unpaid cumulative domestic financial obligations (cumulative): values reported in the source table (cumulative VAT credit reimbursements and other arrears).

### Monetary survey (Table 3 highlights)
- Broad Money (M2, billions of CDF): 2016: 5,276; 2017: 7,535; 2018: 9,801; 2019: 11,009; 2020: 11,191 (with quarterly Q1–Q4 2020 values).
- Foreign currency deposits (percent of M2): 2016: 67.0; 2017: 73.3; 2018: 75.2; 2019: 81.8; 2020: 80.8.
- Net credit to government (billions of CDF): 2016: 261; 2017: 264; 2018: 370; 2019: 1,445; 2020: 1,495 (with quarterly progression in 2020).
- Net foreign assets (central bank, billions of CDF): 2016: -453; 2017: -562; 2018: -306; 2019: -566; 2020: -381 (with quarterly Q1–Q4 2020 values).

### Balance of payments (Table 4 highlights, millions of U.S. dollars)
- Current account: 2016: -1,504; 2017: -1,211; 2018: -2,169; 2019: -1,873; 2020: -2,251.
- Exports, f.o.b.: 2016: 11,885; 2017: 11,548; 2018: 15,967; 2019: 12,904; 2020: 12,204.
- Imports, f.o.b.: 2016: -12,149; 2017: -11,340; 2018: -14,973; 2019: -12,047; 2020: -12,064.
- Current transfers: 2016: 1,335; 2017: 1,276; 2018: 1,211; 2019: 655; 2020: 859.
- Capital and financial account: 2016: 1,199; 2017: 2,530; 2018: 2,183; 2019: 2,153; 2020: 2,556.
- Overall balance (millions of U.S. dollars): 2016: -506; 2017: 750; 2018: 424; 2019: 280; 2020: 305.
- Gross official reserves (millions of U.S. dollars): 2016: 625; 2017: 601; 2018: 657; 2019: 829; 2020: 1,078.
- Debt service after debt relief (percent of exports): 2016: 2.9; 2017: 2.1; 2018: 2.8; 2019: 3.5; 2020: 5.1.

### Capacity to repay the Fund (Table 5 highlights)
- Total obligations (in millions of SDRs): 2019: 33.8; 2020: 33.8; 2021: 14.0; 2022: 4.1; 2023: 4.1; 2024: 4.1.
- Fund credit outstanding (end-period, in millions of SDRs): 2019: 329.3; 2020: 299.6; 2021: 289.7; 2022: 289.7; 2023: 289.7; 2024: 289.7.
- Fund credit outstanding (end-period, in millions of U.S. dollars): 2019: 453.2; 2020: 414.4; 2021: 402.8; 2022: 405.1; 2023: 407.6; 2024: 407.6.
- Fund credit outstanding (percent of quota): 2019: 30.9; 2020: 28.1; 2021: 27.2; 2022: 27.2; 2023: 27.2; 2024: 27.2.
- Note on concessional interest rates: the IMF Executive Board decisions referenced in the source effectively set interest rates to zero on ECF and SCF through June 2021 and possibly longer, with specific assumptions beyond June 2021 described in the source.

### Indicative targets under the SMP, 2019–May 2020 (Table 6 highlights)
- Floor on changes in net foreign assets of the BCC (US$ millions): 2019 end-year: -146; 2020 end-year: 116; 2020 March: 231.
- Accumulation of new central government loans guaranteed by the BCC (CF billions): 2019 end-year: 372; 2020 end-year: 00.
- Ceiling on changes in net central bank credit to government (CF billions): 2019 end-year: 55; 2020 end-year: 400.
- Ceiling on placement of Treasury bills and bonds by the central government (CF billions): 2019 end-year: 150; 2020 end-year: 801; 2020 May: 150.
- Ceiling on contracting or guaranteeing of new nonconcessional external debt, including EADs or the BCC (US$ millions): 2019 end-year: 150; 2020 March: 86.
- Floor on domestic balance - cash basis (CF billions): 2019 end-year: -86; 2020 end-year: 256.
- Memorandum items: Balance of payments support (US$ millions): 368 (2019 end-year); Contracting of new concessional external debt (US$ millions): 317 (2019), 154 (2020 March), 256 (2020 May); New disbursement of external budget and project loans, and grants (US$ millions): 613 (2019), 338 (2020 March), 541 (2020 May); Scheduled external debt service payments (US$ millions): 131 (2019), 64 (2020 March), 106 (2020 May).

### Prior actions and structural benchmarks under the SMP (Table 7)
- Prior Action (Dec 5, 2019): Transfer USD 160 million in FX deposits from BCC accounts at domestic commercial banks to BCC accounts in overseas banks, to be accounted for as reserves — rationale: Strengthen external position.
- VAT (January 2020): Minister of Finance to make the DGI responsible for payment of VAT refunds to mining companies (using a risk-based approach) through escrow accounts receiving proceeds from VAT collected by the DGDA from mining companies and a quota of overall VAT collected by the DGI — rationale: Increase revenue.
- Lift the suspension of VAT collection for mining companies at the customs (March 2020).
- PIT (January 2020): Enforce inter-ministerial circular imposing personal income tax withholding on the totality of compensation of civil servants, other public employees and employees of political institutions — rationale: Increase revenue.
- Publish a 2020 Treasury Plan on the Ministry of Finances' website, consistent with realistic receipts and financing previsions to serve as a guide for expenditure commitments (January 2020) — rationale: Rationalize expenditure.
- Publish the complete, audited 2018 financial statements of the BCC on the BCC's website (December 2019) — rationale: Strengthen BCC transparency.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### Annex I. Risk Assessment Matrix (RAM)

### Annex I. Risk Assessment Matrix (RAM)

### Potential Domestic Risks
- Loosening of the fiscal stance  
  - Likelihood/Time Horizon: Medium  
  - Expected Impact on Economy: Medium — Macroeconomic stability may be undermined if the government resorts to monetary financing.  
  - Policy Response:  
    - Prepare realistic budgets, aligning spending with available revenue and identified external financing sources.  
    - Endure prudent external borrowing.

- Deterioration of relationship between coalition partners  
  - Likelihood/Time Horizon: Medium  
  - Expected Impact on Economy: Medium — Policymaking would be undermined and economic uncertainty would increase.  
  - Policy Response:  
    - Maintain expenditure restraint and avoid monetary financing of government operations.

- Escalation of Ebola epidemic  
  - Likelihood/Time Horizon: Low / Low (for the whole country)  
  - Expected Impact on Economy: The current epidemic is taking place in areas not well integrated with the rest of the country and vaccination campaigns have been effective. Still, economic activity in those areas and trade with neighboring countries may be affected.  
  - Policy Response:  
    - Prepare contingency planning.  
    - Obtain external technical and financial support and mobilize domestic resources to fight the epidemic.

- Ongoing armed conflicts escalate  
  - Likelihood/Time Horizon: Low / Low (for the whole country)  
  - Expected Impact on Economy: Economic activity would be hurt though mostly in specific areas not well integrated with the rest of the country.  
  - Policy Response:  
    - Make room for a budgetary contingency for such an emergency.

- Withdrawal of the only correspondent banking relationship  
  - Likelihood/Time Horizon: Low / Medium  
  - Expected Impact on Economy: Short-term disruption of financial transfers to the rest of the world, with potential systemic effects to the whole economy. Substitution by less efficient payment service providers.  
  - Policy Response:  
    - Prepare contingency plans in case of operational or financial failures.  
    - Promote the opening of new correspondent banking relationships with other local banks.

### Potential External Risks
- Rising protectionism and retreat from multilateralism  
  - Likelihood/Time Horizon: Medium / Medium  
  - Expected Impact on Economy: Demand for export products and their prices would fall, hurting the domestic economy.  
  - Policy Response:  
    - Accumulate international reserve buffers. Diversify the structure of the economy and export sources.  
    - Increasing participation in regional trade area agreements (EAC and AfCFTA)

- Weaker-than-expected growth in China and globally  
  - Likelihood/Time Horizon: Medium / High  
  - Expected Impact on Economy: Demand for export products and their prices would fall, hurting the domestic economy.  
  - Policy Response:  
    - Accumulate FX reserve buffers.  
    - Diversify the structure of the economy and export sources.

### RAM explanatory note
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).  
- The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent).  
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

*Annex I. Risk Assessment Matrix (RAM) — DEMOCRATIC REPUBLIC OF THE CONGO — INTERNATIONAL MONETARY FUND*

### 12.      The 2020 budget seeks to fulfil the President’s ambition to improve the livelihood of

### 12.      The 2020 budget seeks to fulfil the President’s ambition to improve the livelihood of

### Budget objectives and Treasury Plan
- The government will continue free basic education and integrate any residual “100 day” program interventions into the budget and undertake associated spending following normal budgetary channels.
- The budget seeks to provide relief and basic services nationwide but acknowledges a challenge to increase revenue enough to meet budgeted spending plans.
- The government will prepare a realistic Treasury Plan to guide expenditure commitments by line ministries and spending units; the Treasury Plan will be posted on the website of the Ministry of Finance (structural benchmark).

### Domestic revenue mobilization (policy measures and benchmarks)
- Restore the functioning of the VAT by January 30 by:
  - (i) transferring back to the DGI the responsibility of paying VAT credits to mining companies (using a risk-based approach) through an escrow account fed by VAT collected by the DGDA from mining companies and a fraction of the VAT collected by the DGI, and
  - (ii) discontinuing blanket VAT exemptions for mining companies (structural benchmark).
- In accordance with the law, no new VAT exemptions or exemption renewals will be granted.
- Personal income tax (IPR) enforcement: all government employees, including civil servants, public agents, and members of political institutions will pay income tax on the entirety of their compensation (base salary plus bonuses and others) withheld at the source beginning with the January 2020 pay (structural benchmark).
- Survey fees and payments collected at ports of entry for rationalization and consolidation to reduce customs costs, fraud and smuggling incentives, and increase customs revenue.
- Attach the 2017 report on tax expenditures as an annex to the 2020 budget law to enhance transparency and support rationalization of exemptions.
- Digitize all internal receipts recovery procedures by revising legislation pertaining to means of debt payments to the central administration.
- Commit to stop the use of tax offsetting mechanisms.

### Fiscal targets, financing, and constraints
- The 2020 budget plan is predicated on no central bank advances.
- Domestic deficit limited to 0.3 percent of GDP.
- Overall deficit limited to 0.6 percent of GDP.
- The government intends to issue a net amount of CF350 billion worth of Treasury bills and bonds in 2020.
- Acknowledged uncertainty around amount and timing of budget support and/or concessional lending from development partners in 2020.
- World Bank and AfDB are understood to be prepared to disburse budget support soon after an ECF-supported program approval.

### Public financial management and debt policy
- Update public financial management reform strategy in 2020.
- Refine the medium-term macroeconomic framework to enhance budget credibility, including improved mining revenue forecasting and preparation of sectoral expenditure frameworks; IMF to provide technical assistance on PFM.
- Sign a decree establishing the Direction Générale du Trésor et de la Comptabilité Publique in the next few months.
- Implementation of a treasury single account remains a key medium-term objective.
- Debt policy tightened: DSA classifies the country in moderate risk of debt distress; policy guided by a medium-term debt strategy to be adopted by the Ministry of Finance by end-December 2019.
- Priority to contract concessional lending; any non-concessional borrowing must align with an improving debt profile and debt sustainability analysis.
- Commit to establish a mechanism for collecting and reporting data on SOEs debt stock and debt service on a quarterly basis, focusing initially on debt passed on to companies in the State’s portfolio.
- Commit not to run any external arrears.

### Monetary policy and financial system stability
- Monetary and exchange rate policy aim: keep inflation in single digits and build an adequate international reserve buffer.
- The BCC will use policy instruments (repo rate, issuance of BCC bonds, reserve requirement ratios) to control liquidity; base money growth should be restricted to less than 12 percent in 2020.
- Issuance of Treasury securities expected to have an increasingly prominent role in setting monetary policy targets.
- BCC and Ministry of Finance have taken steps to ensure maturing government Treasuries are repaid automatically via an escrow account receiving proceeds from T-bills and bonds issuance for repayments at maturity.
- Foreign exchange sales will be parsimonious and used primarily to smooth forex market volatility in the context of weak international reserves.
- Expatriation of forex deposits: most unencumbered BCC forex deposits in domestic commercial banks (US$160 million) will be transferred to BCC bank accounts abroad by December 5, 2019 (prior action).
  - BCC term deposits at commercial banks not yet matured will be transferred abroad upon maturity.
  - Foreign exchange deposits used as collateral against government loans will be transferred to BCC accounts abroad as soon as those collaterals are no longer necessary.
  - No new guarantees against government or BCC loans with BCC international reserves will be allowed henceforth.
- BCC to evaluate de-dollarization strategic measures and update them as needed.
- Study the possibility of constituting all new mandatory reserves in the currency of deposits and assess operational and monetary policy implications.
- Re-capitalization plan for the BCC (government decree): conversion of capital gains from assets revaluations worth CF113 billion into equity, and injection of CF104 billion in new equity contributions from the government; plan expected to materialize in the medium-term.
- BCC will publish audited financial statements for 2018 on its website by end-December (structural benchmark).
- Government will cooperate with IMF staff to prepare for a safeguard assessment of the BCC in early 2020 and will set a plan to reform the 2018 Central Bank Law based on recommendations.

### Banking sector supervision and risks
- Financial system remains stable; BCC to continue strengthening banking supervisory capacity with IMF technical assistance.
- Banking system: adequately capitalized, relatively profitable and liquid, but NPLs increased to 16.1 percent as September 2019.
- Implementation underway: Pillar II of Basel II, NFSR requirement and market discipline pillar from Basel III.
- Forthcoming technical assistance missions to implement CAMELS and ORAP rating systems.
- Efforts needed to conclude migration of accounting framework towards IFRS 9.
- BCC to review IMF comments on the draft new Banking Law for adoption in 2020.
- Country is down to one single correspondent banking relationship, raising systemic risk in a highly dollarized economy; BCC Governor requested a technical mission from the US Treasury to assess the DRC financial system.

### Anti-money laundering, countering terrorism financing, and governance
- Continue improving AML/CFT framework.
- DRC admitted as an associate member of the Action Group against Monetary Laundering in Central Africa (GABAC) following agreement on September 5, 2017.
- Mutual evaluation by GABAC experts initiated in line with FATF standards and methodology of 2012; findings to be published in October 2020 at the latest.
- The government will receive US$10 million in technical and training assistance under the U.S.-DRC Privileged Partnership for Peace and Prosperity (signed September 2019); detailed priorities in discussion with the State Department’s Bureau of International Narcotics and Law Enforcement Affairs.

### Inclusive growth, public services, and safety nets
- Broadening access to health care and education are key objectives.
- Free basic education introduced to provide access to millions of children.
- Government preparing introduction of universal health insurance coverage.
- President’s 100-day program financed construction/rehabilitation of public and social infrastructure improving living conditions and investment opportunities.
- Government will continue to explore avenues to create opportunities and reinforce safety nets for the most vulnerable.

### Improving governance, transparency, and business climate
- All new contracts entered by central government, provincial governments, SOEs, or other public entities in mining, hydrocarbon, and forestry sectors will be published on the Ministry website with relevant jurisdiction.
- With World Bank support, publish financial and functional audits of SOEs.
- Facilitate and support upcoming IMF governance assessment mission; commit to publication of its final report and implementation of main recommendations.
- Comply expeditiously with the 13 measures required by the EITI validation process:
  - Hire an EITI national coordinator in line with EITI procedures and code of conduct.
  - Adopt a governmental decree on the functioning of the EITI Executive Committee in line with EITI Board validation recommendations.
- Improve business climate: correct weaknesses of tax regime and judiciary to attract private and foreign investment.
- Re-launch the survey of all illegal taxes, fees, and payments levied by public entities without finance ministry authorization and proceed to cancel them.
- Organize a national conference with stakeholders to address judiciary issues and seek technical assistance from advanced-nation judiciaries for reform.

### Program financing and reserve projections
- A disbursement under the Rapid Credit Facility for 25 percent of quota will help replenish BCC international reserves.
- Including such disbursement, gross official reserves are projected to recover to above 3 weeks of import coverage at the end of 2019.
- Net foreign assets of commercial banks should continue to increase.
- In 2020, a net increase in central bank reserves and a smaller increase in commercial banks’ reserves are expected.

### Program monitoring, tests, and institutional arrangements
- SMP will have three test dates: December 2019, March 2020, and May 2020 with indicative quantitative targets and structural benchmarks as shown in attached Tables; criteria defined in the Technical Memorandum of Understanding (TMU).
- Monitoring done by a technical troika chaired by the Finance Ministry and composed of the Budget Ministry and the BCC; the CTR will be secretariat/reporting and reports will be shared with IMF staff on a set frequency.

### Key numeric figures and benchmarks (preserved exactly as in source)
- Treasury issuance target for 2020: CF350 billion (net).
- Domestic deficit limit: 0.3 percent of GDP.
- Overall deficit limit: 0.6 percent of GDP.
- Base money growth should be restricted to less than 12 percent in 2020.
- Unencumbered BCC forex deposits to be transferred abroad: US$160 million (prior action of December 5, 2019).
- BCC re-capitalization components: conversion of capital gains worth CF113 billion into equity; injection of CF104 billion in new equity contributions.
- NPLs level: 16.1 percent as September 2019.
- US$10 million in U.S. technical and training assistance (Privileged Partnership).
- Text Table 1 revenue-impact items:
  - Witholding of income tax on bonuses of civil servants, central government employees, and members of political institutions: CF 432.5 billion
  - Cancellation of the compensation process of revenues: CF 461 billion
  - Transfer of part of special account proceed to the treasury — mining fund for future generation: US$ 10 million
  - FONERU: US$ 10 million
  - RVA: US$ 1 million
- Indicative targets under SMP (Table 1 excerpt, as presented):
  - Floor on changes in net foreign assets of the BCC (US$ millions): -146 116 231
  - Accumulation of new central government loans guaranteed by the BCC (CF billions): 37 200
  - Ceiling on changes in net central bank credit to government (CF billions): 55 400
  - Ceiling on placement of Treasury bills and bonds by the central government (CF billions): 150 80 150
  - Ceiling on the contracting or guaranteeing of new nonconcessional external debt, including EADs or the BCC (US$ millions): 150 86 ...
  - Accumulation of external arrears (US$ millions): 0 0 ...
  - Floor on domestic balance - cash basis (CF billions): -86 256 ...
  - Memorandum items:
    - Balance of payments support (US$ millions): 36 800
    - Contracting of new concessional external debt (US$ millions): 317 154 256
    - New disbursement of external budget and project loans, and grants (US$ millions): 613 338 541
    - Scheduled external debt service payments (US$ millions): 131 64 106

### Prior actions and structural benchmarks (Table 2 highlights)
- Prior Action (Dec 5, 2019): Transfer USD160 million in FX deposits from BCC accounts at domestic commercial banks to BCC accounts in overseas banks to be accounted as reserves (Rationale: Strengthen external position).
- VAT (January 2020): Minister of Finance to make the DGI responsible for payment of VAT refunds to mining companies through an escrow account receiving proceeds from VAT collected by the DGDA from mining companies and a quota of overall VAT collected by the DGI.
- Lift suspension of VAT collection for mining companies at the customs (March 2020).
- PIT (January 2020): Enforce inter-ministerial circular imposing personal income tax withholding on total compensation (including salaries, bonuses, and other forms) of civil servants, other public employees and employees of political institutions (Rationale: Increase revenue).
- Publish a 2020 Treasury Plan on the Ministry of Finance's website, consistent with realistic receipts and financing previsions to serve as a guide for expenditure commitments (January 2020; Rationale: Rationalize expenditure).
- Publish the complete, audited 2018 financial statements of the BCC on the BCC's website (December 2019; Rationale: Strengthen BCC transparency).

*Source: Democratic Republic of the Congo — MEFP and Technical Memorandum of Understanding (December 3, 2019).*

### 4. The quantitative indicative targets have been established for end-May 2020 only for the

### 4. The quantitative indicative targets have been established for end-May 2020 only for the

### Variables with quantitative indicative targets (end-May 2020)
- Changes in the net foreign assets of the BCC;
- Accumulation of new central government loans guaranteed/collateralized by the BCC;
- Changes in net central bank credit to the government (central government);
- Changes in the placement of Treasury bills and bonds by the central government.

### Floors on the Net Foreign Assets (NFA) of the BCC — definitions and adjustments
- Definition (paragraph 5):
  - NFA = BCC gross foreign assets − total foreign liabilities.
  - Gross foreign assets = (i) monetary gold holdings of the BCC kept abroad; (ii) SDR holdings kept abroad; (iii) receipts in foreign currency; and (iv) convertible claims on nonresidents (foreign deposits and foreign securities).
  - Excluded from gross reserves: claims on residents in foreign exchange, nonconvertible currency holdings, and reserves that are encumbered or pledged (including reserve assets used as collateral or security for foreign third-party liabilities, and swap transactions).
  - Foreign liabilities = all BCC foreign exchange liabilities to nonresidents (including SDR allocations), including the IMF.
- Adjustments to NFA floors (paragraph 6):
  - Balance of payments support (BPS): NFA floors will be adjusted upward by an amount equivalent to 50 percent of total BPS in excess of the programmed levels. There will be no downward adjustments to the NFA floors for any shortfall in BPS.
  - External debt service payment: NFA floors will be adjusted (i) upward by an amount equivalent to under payment of external debt service relative to programmed amounts; and (ii) downward by an amount equivalent to the excess of external debt service payments relative to programmed amounts.
- Definitions referenced:
  - BPS (paragraph 7): all disbursed foreign grants and loans, excluding those tied to projects.
  - External debt service payments (paragraph 8): interest and principal due to foreign creditors (excluding the IMF).
  - Disbursements of external budget and project loans, and grants (paragraph 9): cash payments to the central government for contracted budget and project loans or grants by the government (excluding the IMF).

### Ceilings on accumulation of central government loans collateralized/guaranteed by the BCC
- Definition (paragraph 10):
  - Covers central government loans guaranteed by the BCC, including central government liabilities secured by liens over BCC deposits in local or foreign currency.

### Ceiling on Net Central Bank Credit to the Government (NCG) — definition and adjustments
- Definition (paragraph 11):
  - NCG = gross BCC claims on the central government − central government deposits at the BCC.
  - Government deposits related to externally financed projects are excluded from NCG for program monitoring.
  - All foreign currency denominated flows to the budget will be converted to domestic currency using the market exchange rate prevailing at the time of disbursement.
- Adjustments to NCG ceilings (paragraph 12):
  - BPS: NCG ceilings will be adjusted downward by an amount equivalent to 50 percent of total BPS in excess of the programmed level. There will be no upward adjustment to the NCG ceilings for any shortfall in BPS.
  - External debt service payment: NCG ceilings will be adjusted (i) downward by an amount equivalent to under payment of debt service relative to programmed amounts; and (ii) upward by an amount equivalent to the excess of external debt service payments relative to programmed amounts.

### Ceilings on the placement (net issuance) of Treasury bills and bonds by the central government
- Definition (paragraph 13):
  - Placement = net issuance of domestic bills, bonds and other similar securities used to finance central government operations.
  - Excludes short-term bonds issued by the BCC (“BCC bonds”) for monetary policy operations.

### Ceilings on Nonconcessional External Debt contracted or guaranteed by the public sector
- Public sector coverage (paragraph 14):
  - Central government, local governments, the central bank (BCC), state-owned enterprises, decentralized entities and nonprofit organizations controlled and financed by the central government. (Footnote lists examples: GECAMINES, SNEL, and MIBA.)
- Debt definition and measurement (paragraph 15):
  - Debt defined as set out in Executive Board Decision No. 6230 (79/140) Point 9, as revised on August 31, 2009 (Decision No. 14416-(09/91)).
  - For program purposes, external debt is measured on a gross basis using the residency criterion.
- Concessionality threshold (paragraph 16):
  - A debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element = (PV of debt − nominal value) / nominal value, where PV is calculated at contracting by discounting future debt-service payments using OECD currency-specific commercial interest reference rates (CIRRs).
  - For debt maturity ≥ 15 years: use ten-year-average CIRR; for maturity < 15 years: use six-month average CIRR.
  - Add margins for differing repayment periods as used by OECD: 0.75 percent for <15 years, 1 percent for 15–19 years, 1.15 percent for 20–29 years, and 1.25 percent for 30 years or more.
- Scope of the ceiling (paragraph 17):
  - Applies to contracted or guaranteed external debt by the public sector for which the equivalent value has not been received.
  - Excludes: (i) use of Fund resources; (ii) debts incurred to restructure/refinance/prepay existing debts to the extent new debt is on more favorable terms (including grant element > 35 percent); (iii) concessional debts; and (iv) normal import credits with maturity up to one year.
- Guarantee definition (paragraph 18):
  - Arises from any explicit legal obligation of the public sector to service a debt in event of nonpayment by debtor, or from any implicit legal or contractual obligation to finance partially or fully any shortfall incurred by the debtor.

### Ceiling on accumulation of external payment arrears
- Definition (paragraph 19):
  - External payment arrears = external debt service obligations (principal and interest) of the central government not paid on the contractual due date.
  - The ceiling on new external payment arrears applies continuously through the Staff Monitored Program (SMP) (i.e., until end May 2020).
  - Does not apply to arrears in process of renegotiation or where creditor has agreed to suspension of payments pending negotiations.

### Ceilings on accumulation of wage arrears by the central government
- Definition (paragraph 20):
  - Wage arrears = approved personnel wages and salaries not paid for 60 days.
  - Wages and salaries include total compensation to central government employees, including permanent benefits.
  - Arrears will be valued on a cumulative basis from October 31, 2019.
- Public employees (paragraph 21): civil, police, and military personnel either statutory civil servants or contractual employees of the central government.

### Floor on the Domestic Fiscal Balance (cash basis)
- Definition (paragraph 22):
  - Domestic fiscal balance = (domestic revenue) − (domestically financed expenditure).
  - Domestic revenue = (total revenue and grants) − (grants).
  - Domestically financed expenditure = (total expenditure and net lending) − (externally financed investments) − (foreign interest payments) + (net accumulation of domestic arrears).

### Data to be reported for program monitoring purposes
- The authorities will provide IMF staff with the data needed to monitor the program within prescribed time limits.
- Monthly data on the domestic fuel price structure will also be provided to assess the fiscal cost of the fuel pricing policy.
- The table of reporting obligations contains 53 listed data items (Overview of Data to be Transmitted by the Authorities), examples include:
  - 1–6 (Daily, transmission expected 1 day): Amounts of foreign currency sold/purchased in the interbank market; average reference exchange rate FC/US$ on the interbank market; average reference exchange rate FC/US$ offered by commercial banks to customers; average reference exchange rate FC/US$ used in bureaux de change.
  - 7–9 (Monthly, 1–2 weeks): Detailed monetary situation; Detailed BCC balance sheet; BCC income statement.
  - 11, 12, 14–16 (Weekly/Daily/Monthly, 1 week): Reserves (mandatory and voluntary) of deposit institutions; Total amount of FC transactions in the interbank market; Stock and issuance of BCC bonds; Sales of foreign currency by the BCC; BCC interest rates term structure.
  - 17–18 (Weekly, 1 week): Consumer Price Index (BCC and INS).
  - 21 (Quarterly, 3 weeks): Capital and financial accounts of the Balance of Payments.
  - 27 (Weekly, 1 day): Issuance and amortization of Treasury bills and bonds: amounts, maturities, and interest rates.
  - 28–31 (Monthly/Weekly, 2–3 weeks/1 day): External debt service detailed by lender; updated amounts of external arrears; execution of the government cash-flow plan; promissory notes: stock, new issuance, rates and identity of creditors.
  - 32–35 (Monthly, 4 weeks): Revenues from customs and excise taxes; revenues from direct and indirect taxes; para-fiscal revenues; collection of receipts from natural resources.
  - 39–41 (Monthly, 3 weeks): Wage bill to be paid by employee category; wage bill effectively paid by employee category; number of employees by category.
  - 48–49 (Monthly, 1–3 weeks): Contracting of any new loans by the central administration guaranteed by the BCC; contracting of any new external debt issued and/or guaranteed by the BCC in favor of any central or local administration.
- Reporting responsibilities are allocated among producers such as BCC, MF, MB, INS, CTR, DGI, Ministère des Mines, with specified frequencies and transmission lags (examples preserved above).

*Source: IMF staff-monitored program informational annex (December 3, 2019).*

### 1.      Public and publicly-guaranteed (PPG) external and domestic debt covers debt

### 1.      Public and publicly-guaranteed (PPG) external and domestic debt covers debt contracted and guaranteed by the central government, the Central Bank of Congo (BCC), provinces, and part of state-owned enterprises (SOEs).

### Coverage and reporting
- Debt definition: Residency-based external/domestic debt.
- Reporting entities included in DGDP publications:
  - Central government
  - Central Bank of Congo (BCC)
  - Provinces (only the province of Maniema is missing, out of 26 provinces)
  - Part of state-owned enterprises (SOEs), including SICOMINES and Gécamines
- Exclusions / data gaps:
  - Data on private sector’s and other public institutions’ debt are not available.
  - Other public institutions cannot borrow externally without a government guarantee.
  - Authorities believe other SOEs have not borrowed externally but do not receive regular reports from them.
  - Some public institutions are not reporting to the DGDP.
- Authorities’ commitments:
  - Broaden debt coverage, especially to improve SOEs debt reporting in terms of debt stock and debt service.
- SICOMINES specifics:
  - SICOMINES’ infrastructure loans have a government guarantee which can only be called after 2050.
  - Its debt service should be repaid by 2027 and is collateralized by SICOMINES’ earnings.

### Public debt coverage checklist (selected items from Text Table 1)
- Central government: X (included)
- State and local government: X (included)
- Guarantees (to other entities, including SOEs): X (included)
- Central bank (borrowed on behalf of the government): X (included)
- Non-guaranteed SOE debt: X (included)

### Magnitude of contingent liability shock used in tailored stress test (Text Table 1)
- Other elements of general government not captured: 0 percent of GDP
  - Note: Some public institutions are not reporting to the DGDP.
- SOEs (guaranteed and not guaranteed): 0.5 percent of GDP
  - Reflecting risks from irregular data sharing with DGDP.
- PPPs: 0.00 percent of GDP
- Financial market (default value): 5 percent of GDP
- Total contingent liability shock used: 7.5 percent of GDP

### Data sources for reporting and tables
- Sources: Congolese authorities; IMF staff calculation.

---

### Background and recent macroeconomic developments
- Poverty and fragility:
  - DRC remains one of the poorest countries and is prone to health and humanitarian crises and violent conflicts.
  - The economy is highly dollarized, undiversified, and acutely vulnerable to commodity-price shocks and supply risks.
- Political context:
  - First peaceful presidential transition since independence took place in January 2019.
- Key macro indicators and projections:
  - GDP growth: 5.8 percent in 2018; projected 4.5 percent in 2019.
  - Inflation: 12-month inflation has fallen to around 5 percent.
  - Fiscal balances: overall fiscal surpluses in 2017–18; deficits of 2.3 percent of GDP (2019) and 0.6 percent of GDP (2020) projected.
  - International reserves: less than 2 weeks of import coverage in late 2019.
- External arrears as of end-2018 (Text Table 2):
  - Total External Arrears: 329 (Nominal in millions of US$) — 0.7 percent of GDP
  - Bilateral creditors: 164 (millions of US$) — 0.3 percent of GDP
  - Commercial creditors 1/: 165 (millions of US$) — 0.3 percent of GDP
  - Memo item GDP: 47,099 (Nominal in millions of US$)
  - Note: A 5-year schedule for repayment of external arrears has been assumed, starting in 2021.
  - Footnote: 1/ Includes Sicomines debt

---

### Public debt composition and stocks (end-2018, Text Table 3 and Text Table 4)
- Total Public Debt: 9,476 (Nominal in millions of US$) — 20.1 percent of GDP — 100 percent of public debt
  - Of which: arrears: 3,403 (millions of US$) — 7.2 percent of GDP — 36 percent of public debt
- Total External Debt: 6,401 (millions of US$) — 13.6 percent of GDP — 68 percent of public debt
  - Of which: arrears: 329 (millions of US$) — 0.7 percent of GDP — 5 percent of external debt
  - Multilateral creditors: 1,916 (millions of US$) — 4.1 percent of GDP — 30 percent of external debt
  - Bilateral creditors: 1,240 (millions of US$) — 2.6 percent of GDP — 19 percent of external debt
  - Commercial creditors 1/: 3,245 (millions of US$) — 6.9 percent of GDP — 51 percent of external debt
  - Footnote: 1/ Includes Sicomines debt
  - Sicomines’ debt represents almost 40 percent of total external debt (text).
  - Assumed repayment of SICOMINES debt: repaid over 10 years (mining) and 15 years (infrastructure) (text).
- Total Domestic Debt: 3,074 (millions of US$) — 6.5 percent of GDP — 32 percent of public debt
  - Composition of Total Domestic Debt (Text Table 4):
    - Reconciled legacy arrears: 1,866 (millions of US$) — 4.0 percent of GDP — 60.7 percent of total domestic debt
    - Arrears from provinces: 147 (millions of US$) — 0.3 percent of GDP — 4.8 percent of total domestic debt
    - Arrears to oil companies: 262 (millions of US$) — 0.6 percent of GDP — 8.5 percent of total domestic debt
    - VAT arrears: 799 (millions of US$) — 1.7 percent of GDP — 26.0 percent of total domestic debt
    - Total: 3,074 (millions of US$) — 6.5 percent of GDP — 100.0 percent of total domestic debt
  - Reconciled legacy arrears: 1,866 (millions of US$)
  - Other legacy arrears amounting to about 3,000 (millions of US$) have still to be audited (text).
  - Historical validation rate: in the past, only 20 percent of audited arrears became validated (text).
  - Authorities expect to repay 72 percent of the legacy arrears (text).

---

### Underlying assumptions and medium-term framework
- Growth and fiscal assumptions:
  - GDP growth assumptions: slightly more conservative near term, pick up later due to new mining projects; medium-term growth average "more than 4 percent" (Box 1).
  - Inflation projected to stabilize at around 5 percent.
  - Primary balance: projected to stay close to zero percent of GDP for 2022 and later years.
  - Capital expenditure: would reach 3.9 percent of GDP at the end of the projection period.
  - Revenues: computed as central government revenues plus SOE revenues assumed equivalent to their debt service flows, which represent an average of 4.4 percent of total revenues over the repayment period.
  - Current account deficit: would average around 3 percent of GDP over the medium term.
  - Gross official reserves: expected to gradually rise by 2021 to about 5 weeks of imports.
- Financing assumptions:
  - Short-term public debt expected to increase to finance the new government’s investment program, then decrease later.
  - Public investment assumed to increase gradually to more than 3.5 percent of GDP over the medium term.
  - External financing projected to be a mix of concessional loans and bilateral and commercial loans; part of public investment financed by foreign grants.
  - Domestic financing: additional government financing needs assumed to be covered by treasury bonds issuance in the domestic market.
  - Assumption: financing mix projected to remain unchanged; DRC not expected to switch from concessional to non-concessional borrowing.

---

### Debt carrying capacity and stress testing
- Debt carrying capacity classification: Weak
  - Composite indicator (CI): 1.98
  - CI decline explained by lower CPIA; DRC considered fragile and highly vulnerable to external shocks.
- Applicable thresholds (Text Table 6):
  - PV of debt in % of GDP threshold: 35
  - PV of debt in % of exports threshold: 140
  - PV of total public debt in percent of GDP threshold: 30
  - Debt service in % of exports threshold: 10
  - Debt service in % of revenue threshold: 14
- Tailored stress tests:
  - Contingent liability shock used: 7.5 percent of GDP (composed as noted above).
  - Commodity price shock selected as tailored stress (main exports: copper and cobalt).
  - Realism tool findings:
    - Over last 5 years, DRC’s external debt has barely changed (it actually fell), unlike LICs’ upward PPGE trend.
    - Increase in total public debt mainly driven by extension of debt coverage.
- External Debt Sustainability - Baseline (summary of outcomes):
  - PV of PPG external debt-to-GDP ratio peaks at 9.2 percent in 2019 (threshold: 30 percent).
  - Debt service-to-revenue is 11.3 percent in 2019 (threshold: 14 percent), and steadily declines starting in 2021.
  - Conclusion: External debt sustainable in baseline, but vulnerabilities persist (low government revenues, low FX reserves).
- Alternative scenarios and stress tests:
  - Under extreme export shock, several external debt ratios breach thresholds:
    - PV of debt-to-exports, debt service-to-exports, and debt service-to-revenue breach respective thresholds.
  - Nominal export growth shock definition (footnote): set to historical average minus one standard deviation, or to baseline projection minus one standard deviation, whichever is lower in 2021–22.
  - Implication: High vulnerability to export shocks due to mining sector dependence; need to build FX buffers.

---

### Public debt sustainability and arrears repayment assumptions
- Public debt baseline:
  - Total domestic debt represents 6.5 percent of GDP; total public debt 20.3 percent of GDP at end-2018.
  - PV of public debt-to-GDP ratio would reach 16.4 percent in 2019 (threshold: 35 percent), and decline to 5.8 percent by 2029 under baseline.
- Arrears repayment assumptions:
  - Baseline assumes an ambitious repayment profile of arrears over the next 15 years.
  - Conservative assumption: full amount projected to be repaid to provision for unaudited amount.
  - Repayment treatment by category:
    - Legacy arrears from social and financial categories: repaid in full.
    - Legacy arrears from other categories: subject to discounted payment.
  - Overall repayment expectation: authorities expect to repay 72 percent of the legacy arrears.
- Risks and constraints:
  - Low revenue base: revenues averaged 9.5 percent of GDP in 2016–17 (compared with 20 percent of GDP in SSA).
  - Low revenues limit ability to borrow externally and create fiscal space for investment.
  - Need to prioritize concessional borrowing and ensure high quality of financed projects.

### Policy recommendations and priorities (extracted from analysis)
- Increase domestic revenue mobilization to create fiscal space and reduce reliance on external borrowing.
- Build FX reserves and buffers through prudent macroeconomic and indebtedness policies.
- DGDP to prepare a medium-term debt strategy consistent with debt sustainability and efficient use of borrowed resources.
- Ensure high quality and prioritization of public investment projects; prioritize concessional financing.
- Improve SOE debt reporting and regular reporting from public institutions to DGDP to reduce contingent liability risks.
- Focus on risk management given high exposure to commodity price volatility (copper and cobalt).

*Sources: Congolese authorities; IMF staff calculations.*

### 14.      Stress tests confirm DRC’s vulnerability to external shock and repayment capacity.

### 14.      Stress tests confirm DRC’s vulnerability to external shock and repayment capacity.

### Main stress-test findings
- Commodity price shock is the most extreme shock for the evolution of ratios of the PV of debt-to -GDP and to revenue (Figure 2).
- The PV of debt-to -GDP peaks at 31.7percent, still below the 35 percent threshold in 2021 and declines thereafter.
- The most extreme shock for the debt service-to -revenue ratio is the combined contingent liabilities shock (e.g., bank recapitalization).
- The ratio of debt service to revenue would reach more than 50 percent in 2021, while being forecasted to be below 10 percent in 2019.
- The country is prone to severe shocks, especially through the export channel.

### Risk rating and vulnerabilities
- The external and overall risk of debt distress for the DRC remain moderate.
- Under the external indicators, the debt service-to-revenue ratio is below the 14 percent threshold in the first years of projections and declines steadily afterwards.
- Lower revenues or higher borrowing (or both) could push the rating to high risk of debt distress, especially in the case of non-concessional borrowing.
- External arrears are below 1 percent of GDP qualifying as de minimus case, so they do not affect the risk rating consideration.
- Domestic arrears rose significantly in recent years and will likely increase further after completion of the audit of legacy arrears.
- The current low level of domestic debt still justifies the moderate risk of debt distress rating.

### Debt repayment capacity and policy implications
- Despite low total public debt levels, low debt repayment capacity remains one of the key vulnerabilities.
- Weak revenue mobilization is reflected in debt service-to -revenue ratios with only some space to absorb negative shocks, especially at the beginning of the projection period (Figure 5).
- Policy recommendations and priorities:
  - Refrain from accumulating additional domestic arrears and prepare realistic plans to repay them.
  - Maintain a cautious borrowing policy.
  - Pursue prudent fiscal policy supported by domestic revenue mobilization.
  - Implement structural reforms, including for better management of public investments, to support scaling up public investment in infrastructure.

*Source: 1codea2019003 - 14.      Stress tests confirm DRC’s vulnerability to external shock and repayment capacity.*

### 17.      The authorities broadly agreed with the overall assessment of the country’s debt

### 1codea2019003 - 17. The authorities broadly agreed with the overall assessment of the country’s debt

### Authorities’ assessment and commitments
- The authorities broadly agreed with the overall assessment of the country’s debt sustainability and the staff DSA finding of a moderate risk of debt distress.
- The new government supported increased transparency and full disclosure of public debt.
- Commitments by the authorities:
  - Further broaden debt coverage, especially for SOEs.
  - Audit the rest of the legacy arrears.
  - Prepare a medium-term strategy to frame debt policy and strengthen debt management capacity.
  - Prioritize concessional borrowing, while noting the scarcity of concessional resources.
  - Preserve the country’s moderate risk of debt distress, including by resorting in priority to concessional borrowing and strengthening debt management capacity.

### Risk ratings and debt framework (selected indicators)
- Final external debt distress rating: Moderate
- Mechanical overall debt distress rating: Moderate
- Judgement was applied: No
- Note in stress-test configuration: Threshold value shown as 1.9%
- Debt coverage definition under public DSA: central, state, and local governments, central bank, government-guaranteed debt, non-guaranteed SOE debt (residency-based)

### Key macroeconomic developments and outlook (authorities’ statement)
- Real GDP growth:
  - 2018: 5.8 percent
  - 2019 (projected/expected slowdown): 4.5 percent
- Inflation: around a twelve-month rate of 5 percent
- External reserves: international reserves dwindled to only one week of imports (due to central bank financing in foreign currency)
- Authorities’ outlook: more optimistic based on reform dividends, increasing private investment interest outside mining, and expected donor support; risks include further falling mineral prices and Ebola epidemic.

### Short-term policy package and near-term reform priorities
- Two-step strategy: short-run “easy-to-implement” measures to restore sound management, and second-stage medium-term reforms.
- Short-run package (SMP anchors early measures) around three building blocks:
  1. Increasing revenue mobilization and restoring fiscal discipline to end central bank financing.
     - Revenue measures include:
       - Resuming the functioning of the VAT including for mining companies.
       - Enforcing personal income tax for all government employees and all types of remunerations.
       - Surveying fees paid at the port of entry to parastatals (with medium-term reduction planned).
       - Transferring part of unused earmarked resources as one-off contributions to the budget.
       - Start reducing tax exemptions.
     - Fiscal controls include communicating spending caps to line ministries; weekly monitoring of spending commitments chaired by the Prime Minister; controls over the President’s 100-day and free basic education programs; restoring spending chain and PFM procedures.
     - Explicit commitment: end central bank (BCC) advances to the government.
  2. Enhancing monetary policy and strengthening the financial sector.
     - BCC to stop providing advances to the government and to use policy tools to keep inflation in check.
     - BCC committed to transferring its foreign currency holdings in domestic commercial banks to its accounts abroad to increase official foreign reserves.
     - Disbursement under the RCF expected to significantly improve reserves.
     - Banking sector measures:
       - New Central Bank Law enacted December 2018 reinforced bank supervision.
       - Most banks have complied with the US$30 million minimum capital requirement; planned increase to US$50 million at end-2020.
       - Fund TA to help strengthen BCC supervision capacity.
       - Consultations initiated with IMF’s Monetary and Capital Markets department and U.S. Treasury to address correspondent-banking issues.
       - Ongoing efforts to improve AML/CFT framework.
  3. Diversifying the economy to foster broad-based and inclusive growth.
     - Focus on attracting private investment outside mining, improving the business climate, providing infrastructure via the President’s 100-day program, tax reforms, enforcement of property rights, and enhancing the judiciary system.
     - Governance and anti-corruption measures: authorities welcomed governance assessment under the Fund’s governance framework to design meaningful reforms.
     - Social objectives: free basic education program targeting millions of poor children (supported by the World Bank) and a planned health care program to enhance human capital.

### Debt dynamics, stress tests, and sustainability signals (high-level)
- Public and external DSA projections and stress tests were presented for 2019–2029, with scenario analyses including historical scenario, commodity price shocks, combined contingent liabilities, and tailored stress tests.
- The DSA highlights the role of:
  - Endogenous debt dynamics (nominal interest, real GDP growth, price and exchange rate changes).
  - Identified net debt-creating flows and residual factors (including exceptional financing and valuation adjustments).
- Authorities noted that additional financing needs generated by stress tests are assumed to be covered by PPG external MLT debt in the external DSA, and default terms of marginal debt are based on baseline 10-year projections.

### Selected fiscal and debt posture indicators referenced by the DSA and authorities
- Public sector debt (selected years, percent of GDP): 2016: 17.6; 2017: 16.9; 2018: 20.3; 2019: 21.3 (historical/projections presented in detailed tables).
- External debt (nominal) and PPG external debt reported in detailed tables across 2016–2039 (projections and historical series included in source tables and figures).
- Gross external financing need (Million of U.S. dollars) shown in DSA tables for projection years (detailed series provided in source tables).
- Grant element of new public sector borrowing and grant-equivalent financing series are presented in DSA tables (detailed series provided in source tables).

*Source: IMF country documents and staff report material contained in the provided content unit.*

### Conclusion

### Conclusion

### Macroeconomic stability and reform commitment
- 16.Congo has strived to maintain adequate macroeconomic stability over the past period amid difficult circumstances.
- With little donor assistance, the country has successfully emerged from its first-ever democratic transition and embarked on a new development agenda.
- The authorities are convinced that Fund engagement will pave the way for scaled-up donor assistance, and they are hopeful that the SMP will be instrumental in preparing the ground for a Fund-supported medium-term program.

### Request for financial support
- 1 7.In view of Congo’s urgent balance of payment needs and the strong commitment of the authorities to reforms going forward, we would appreciate Executive Directors’ support for a disbursement under the Rapid Credit Facility.

*Source: 1codea2019003 - Conclusion*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1codea2019003.pdf_