## 1. Status of the ECF-Supported Program ## Source details **Canonical URL:** [1. Status of the ECF-Supported Program](https://www.imf.org/-/media/files/publications/cr/2020/english/1cogea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1cogea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1cogea2020001.pdf.json) --- ### Background and program status - ECF-supported program approved on July 11, 2019: - Arrangement gives Congo access to SDR 324 million (about $446.7 million) representing 200 percent of quota. - First disbursement: SDR 32.4 million (about $44.7 million) made upon program approval. - Authorities’ implementation steps: - Prudent execution of the 2019 budget. - Preparation of a 2020 budget consistent with main program parameters. - Progress on structural reforms targeting governance improvements; some reforms delayed. - Debt restructuring and arrears clearance: - Negotiations intensified in November/December with confidence an agreement could be achieved in 2020Q1. - Upcoming budget support expected to help clear external official arrears of about USD$181 million at end-September (1.7 percent of GDP). - Government accumulated new external arrears with official creditors (about USD20 million) contributing to a missed continuous prior condition on external arrears. ### Recent economic developments — growth, inflation, external sector, banking - Growth and production: - Overall growth for 2019 revised down to 2.2 percent (from 5.4 percent in original request), almost entirely explained by lower-than-expected oil production expansion. - Oil production has been increasing since 2015; peak oil production projected around 140 million barrels in 2020, then expected to decline as fields mature. - Non-oil growth expected to turn moderately positive in 2019; growth rate likely slightly below 1 percent (non-oil: “below 1 percent”). - Non-oil level driven by agricultural and transportation sectors; many other sectors remain in recession. - Inflation: - Overall inflation at 1.8 (y/y) at end-October and expected to remain around 2 percent by year-end. - Food prices declined by about 0.3 percent over the last 12 months; non-food inflation up by 4.1 percent over the same period. - Fiscal developments: - Overall fiscal position improved: deficit of about 7½ percent of GDP in 2017 to a surplus of 6½ percent of GDP in 2018. - Surplus could reach 8¾ percent of GDP in 2019 if trends up to 2019Q2 continue. - Non-oil primary deficit expected to improve from 28.1 to 24.8 percent of non-oil GDP between 2018 and 2019. - Government froze about 20 percent of overall spending appropriations; social spending levels remain low. Non-oil revenues about 2 percent below target at end-June. - External sector and reserves: - Current account: surplus of about 7¼ percent of GDP in 2018; expected about 8 percent of GDP in 2019. - Net foreign assets imputed to Congo reached CFAF 476bn in 2019Q3 — 89 percent higher than at end-2018; this level covers about 1½ months of imports. - Broad money increased by 12 percent y/y; credit to private sector down by about 9½ percent (y/y) in September. - Banking sector: - Banking sector solvent but under stress; NPLs rising to 24 percent of gross loans. - Deterioration tied to declining economic activity and insufficient progress in reducing public sector arrears to suppliers. ### External position assessment - Quantitative assessment tailored to non-renewable resource exporters: - Current account around 17 percent below the norm in the medium term. - Methodology suggests exchange rate overvalued by about 15 percent. - Policy implications to close external gaps: - Adjustment of the non-oil primary balance per baseline. - Improvements in business environment and diversification. ### Outlook and risks - Near-term outlook: - Short-term outlook challenging but early signs of stabilization and recovery. - Expansion in oil production accounts for large share of projected recovery; risk of slower increase if technical issues recur at Banga-Kayo. - Non-oil growth expected to pick up gradually as government implements domestic arrears clearance strategy. - Overall fiscal surplus over 2019–20 projected to exceed 8 percent of GDP; expected to remain close to this level over medium term. - External current account surplus expected to remain high in 2019–20, then decline as oil production falls from short-term peaks. - Debt and arrears: - Congo considered in debt distress due to accumulated external and domestic arrears. - By September 2019: accumulated USD$181 million in official bilateral external arrears, plus stock of unrestructured pre-HIPC arrears. - Total public debt at end-September 2019 estimated at 87.8 percent of GDP; external public debt at 62.3 percent of GDP, with about 20 percent of GDP in arrears. - PV of total public debt in 2019: 74 percent of GDP; PV of external debt: 52 percent of GDP. - Debt-service-to-revenue ratio at 37 percent; debt-service-to-exports ratio at 14 percent; both above sustainability benchmarks. Indicators projected to worsen in 2020–21. - Risk categories and contingencies: - Global: energy price swings (current levels around $60 per barrel vs authorities’ assumption of $55 in 2020 budget), weaker global growth affecting oil prices/FDI. - Country-specific: political risk, difficulty sustaining large primary surpluses, lower-than-expected private investment. - Other: delays in budget support disbursements or commercial debt restructuring. ### Box — Program objectives, performance, and conditionality - Program objectives: - Restore fiscal sustainability through strong fiscal consolidation and debt restructuring. - Improve governance (including PFM). - Protect vulnerable groups. - Support regional stabilization in CEMAC. - Performance at end-June: - Quantitative fiscal targets met (floor on basic non-oil primary balance; ceiling on net domestic financing). - Prior actions on zero ceilings for non-concessional financing and guarantees met. - Continuous prior condition on external arrears missed due to new external arrears (~USD20 million). - Three indicative targets missed: poverty-reducing spending, non-oil revenues, disbursements of external loans for investment projects (latter two by small margins). - Structural progress: implementation decrees for Transparency Commission and Anti-Corruption High Authority prepared; delays on privatization strategy and automatic fuel pricing mechanism. - First review: - Postponed to allow time to obtain credible assurances on debt restructuring terms consistent with restoring public debt sustainability. - Authorities remain committed to completing external commercial debt restructuring and clearing official external arrears ahead of the first review. --- ### Fiscal strategy, revenues, and spending priorities ### Fiscal strategy and quantitative targets - Staff recommended: - Reduce non-oil primary deficit to about 25 percent of non-oil GDP in 2019 and pursue adjustment toward 15 percent by 2023–24. - This represents: - an adjustment of about 3 percentage points in 2019, and - an additional average adjustment of about 2 percent of non-oil GDP per year over the projection period. - Stance approximates a conservative Permanent Income Hypothesis (PIH) rule (with caveat for low-income countries). - Projected macro-fiscal outcomes: - Implementation would place public debt on a strong downward path and allow Congo to rebuild fiscal and external buffers. - Imputed net foreign assets would triple to cover about 4 months of imports. ### Revenue mobilization and current spending containment - Revenue projections and measures: - Non-oil revenues would increase by 4.6 percent of non-oil GDP in 2020. - Further annual increases of about 1 percent of non-oil GDP per year over 2021–22, stabilizing at around 34½ percent by 2023. - Tax arrears and exemptions: - Total stock of tax arrears estimated at CFAF 704 bn (27.7 percent of non-oil GDP). - Tax exemptions associated with oil sector: 18 percent of non-oil GDP in 2018. - Exemptions under investment code: additional 6 percent of non-oil GDP. - Spending composition and public investment: - Investment budget fell to 5½ percent of non-oil GDP in 2018. - Authorities aim to expand public investment toward 13 percent of non-oil GDP by 2023 via savings in current spending. - Containment priorities: - Contain wage bill, transfers and subsidies to generate fiscal space for public investment. ### Fiscal risks, contingency measures, and authorities’ views - Key fiscal risks for 2020: - (i) Non-oil revenues underperform. - (ii) Oil production does not ramp up to 140 million barrels as expected. - (iii) Containment of non-priority spending delayed. - Contingency measures: - Speed up recovery of tax arrears. - Curb tax exemptions; ensure Tax and Custom Directorates have adequate resources. - Ensure adequate social spending and stronger outreach to build constituency for reforms (e.g., fuel subsidies, oil-related transfers). - Authorities’ indicated measures: - Legislative and administrative measures; creation of a Fiscal Policy unit; interconnection of Customs Directorate, General Directorate for Domestic Taxes, and the Treasury. - Expected fiscal yield: 2020 Budget measures could yield about 1.6 percent of non-oil GDP. - Effective recovery of tax arrears by Tax Directorate could raise non-oil revenues by an additional 6 percent of non-oil GDP. - Authorities intend to pay audited domestic arrears through issuance of 5–7 -year debt certificates. --- ### Debt sustainability, restructuring, and arrears management ### Debt assessment and baseline projections - Classification: Congo considered “in debt distress.” - Key stock and flow indicators (selected): - Total public debt at end-September 2019: 87.8 percent of GDP (other text: US$ 9.5 billion = 88 percent of GDP by September 2019). - External public debt at end-September 2019: 62.3 percent of GDP; about 20 percent of GDP in arrears. - PV of total public debt in 2019: 74 percent of GDP; PV of external debt: 52 percent of GDP. - PV of external debt-to-GDP around 52 percent, projected to decline slowly and reach 30 percent only in 2031 under baseline. - Debt-service-to-revenue ratio: 37 percent; debt-service-to-exports ratio: 14 percent. - DSA conclusions: - Implementation of fiscal strategy improves debt dynamics but is not sufficient to restore sustainability in the medium term absent additional debt restructuring. - Clearance of arrears necessary to end debt distress; restructuring of external commercial debt essential to ensure medium-term sustainability. ### Arrears, domestic audit, and payment strategy - External arrears: - By September 2019: accumulated USD$181 million in official bilateral external arrears; stock of unrestructured pre-HIPC arrears. - External arrears increased to CFA 1364 billion (USD 2.2 billion) by end-September 2019 (most driven by an 800 billion CFAF increase in arrears with oil traders). - Domestic arrears and audits: - Stock of domestic arrears at end-2018 estimated at about 14½ percent of GDP (may decline once second audit finalized). - First phase audit covered fiscal years 2014–16 (CFAF 528 billion audited); auditor methodology may reject up to 75 percent of initial gross claims. - If large share rejected, authorities may not need to restructure domestic debt to restore sustainability. - Authorities intend to pay audited arrears via 5–7 -year debt certificates that private sector agents could discount in the banking sector. - Risks and safeguards: - Need to avoid using Treasury resources planned for the year to settle improperly recorded arrears. - Strengthen commitment control and cash management to prevent new arrears. - Staff proposed auditing spending and documentation by the Audit Court. ### Stress tests and vulnerabilities - Stress-test findings: - Exports shock yields severe increases in debt burden indicators (PV debt-to-exports can exceed 210 percent at peak under a one standard deviation export shock). - Depreciation shock has large impact on debt-service-to-revenue ratio. - Commodity price shock leads to prolonged breaches of PV debt-to-GDP and PV debt-to-exports. - Contingent liabilities: - Non-guaranteed SOE debt estimated at 9 percent of GDP; assumption half could end up on central government balance sheet. - PPP capital stock estimated at 4.6 percent of GDP; assumption 35 percent of PPP stock may become government liabilities. - Rejected domestic arrears estimated about 6.3 percent of GDP; an additional 7.4 percent of GDP external claim litigated. - Policy response required: - Complete commercial debt restructuring (esp. oil traders). - Clear external official arrears. - Strengthen debt recording, monitoring, and medium-term debt management strategy. --- ### Social protection, governance, PFM, and structural reforms ### Social spending and protection of vulnerable groups - Execution shortfall: - At end-June 2019, authorities had spent about 1/3 of the level of social spending allocated to critical social programs (health, education and cash transfers). - Staff recommendations: - Increase social spending to protect vulnerable groups, expand cash transfer system, allocate budgetary resources to support women (training centers, combating gender-based violence). - Ensure timely budget support disbursements and strengthen PFM to prevent Treasury settlement of prior-year spending crowding out priority social spending. ### Governance and PFM reforms — progress and gaps - Progress reported: - Adoption of a new asset declaration law for senior officials. - Establishment of a High Authority on Corruption with investigative powers and a Transparency Commission with civil society participation. - Greater transparency in oil revenue management: KPMG oil reconciliation reports; law requiring annual external audits of SNPC; publication of 2018 audit report. - Publication of monthly economic data and early online publication of draft 2019 Budget. - Independent audits of domestic arrears prior to payment. - Remaining gaps and recommended follow-up: - Implementing decrees and adequate budget resources for anti-corruption institutions; ensure investigative capacity and prosecution. - Ensure oil revenue reports are broadly discussed in Parliament to foster accountability. - PFM weaknesses: Treasury used opaque mechanism in 2019 to settle payment orders from previous years (~3 percent of GDP) that should have been classified as domestic arrears and audited prior to payment; settlement crowded out clearance of other audited arrears and social spending. - Reform actions recommended: - Adopt expenditure tracking software (SIGFIP) to track commitment-to-payment phases. - Expedite: (i) new organizational structure for Ministry of Finance and Budget; (ii) medium-term strategy for PFM reforms with a three-year rolling action plan; (iii) comprehensive list of all government accounts and transfer balances to Treasury Single Account; (iv) adopt a Law on organization and functioning of the Audit Court. - Improve enforcement of legal claims via specialist training in judiciary and publication of judicial decisions; collect data on court proceedings. ### Diversification and non-oil growth priorities - Diversification strategy under NDP: - Three pillars: human capital, development of key non-oil sectors (agriculture, forestry, mining, tourism), and business environment. - Planned resource allocation: improve infrastructure (transportation and electricity) and increase investment in human capital. - Diversification remains low and has not improved in recent decades. - Sector-specific notes: - Agriculture: underdeveloped; PNIASAN aims to modernize family farming and promote agribusiness. - Forestry: “Fairly static” but growth potential; CAFI grant of $65 million to boost sector and increase domestic processing of logs. - Mining: nascent, with exports of copper, tin and other metals rising; projects such as Mayoko iron ore expected to ramp up. - Business environment and financial sector: - Staff recommends speeding reforms to improve market regulation and business environment (simplify licensing, create national real estate registry, reduce costs to start business, reform administrative fees). - Financial sector: expedite interim audit, implement domestic arrears repayment strategy to reduce NPLs, submit recapitalization plans for two non-systemic banks to COBAC. - Two distressed/non-systemic banks represent less than 3 percent of overall banking sector assets; one bank private (state owns 1/3), the other fully state-owned. ### Data, statistics, and capacity development - Need to improve economic statistics: - Authorities developing a new GDP series with change in base year. - Conditions for adopting new series: (i) Quality, consistency and reliability established; (ii) economic impact of modifications fully assessed. - Continued STA technical assistance missions. - Capacity development priorities (2020 focus): - Tax policy and administration to increase non-oil revenues. - PFM reforms (accounting, investment management, cash management, government finance statistics, debt management). - National accounts and external sector statistics; produce timely BoP and IIP data. - Governance reforms linked to AML/CFT and anti-corruption operationalization. --- ### Key statistics and projection highlights (selected exact figures preserved) - Growth and sectoral figures: - GDP at constant prices (selected sequence): -1.8 1.6 5.4 2.2 4.6 1.9 0.0 1.3 2.3 - Oil (growth rates, selected): 15.3 23.9 15.8 5.5 9.5 -1.6 -8.8 -6.1 -3.4 - Non-oil (growth rates, selected): -6.2 -5.5 1.0 0.8 2.5 3.6 4.0 4.1 4.2 - Non-oil sector growth: “likely to grow modestly in 2019 (below 1 percent)”. - Prices and external: - Consumer prices (period average sequence): 0.4 1.2 1.5 1.9 1.8 2.6 2.8 3.0 3.0 - Current account balance (percent of GDP sequence): -3.5 7.2 5.6 8.0 5.8 1.2 -2.1 -2.5 -2.9 - Net foreign assets sequence: -54.2 12.3 57.5 100.8 32.2 41.7 9.3 11.8 6.8 - Public finance (selected nominal/sectoral CFAF billion values from Table 2a preserved): - Total revenue and grants (2019–24 projections, selected): 1,888 2,048 2,086 2,149 2,182 2,216 2,253 2,338 - Oil revenue (2019–24): 1,288 1,257 1,340 1,246 1,191 1,119 1,069 1,057 - Non-oil revenue (2019–24): 594 763 719 875 963 1,063 1,148 1,246 - Capital expenditure (2019–24): 141 293 272 325 386 410 427 453 - Debt and arrears (selected): - Total public debt: US$ 9.5 billion = 88 percent of GDP (September 2019). - External public debt: around US$ 7.5 billion = 80 percent of GDP (end-2017); US$ 6.9 billion (2018); US$ 6.8 billion = 62 percent of GDP (end-September 2019). - External arrears: CFAF 453 billion (US$ 817 million) at end-2017; CFAF 520 billion (US$ 908 million) at end-2018; CFA 1364 billion (USD 2.2 billion) at end-September 2019. - Stock of tax arrears: CFAF 704 bn (27.7 percent of non-oil GDP). - Stock of domestic arrears (percent of GDP sequences): 36.8 31.1 28.0 17.9 8.5 3.1 0.7 0.0 (alternate series: 18.9 14.5 12.4 11.2 7.2 3.7 1.5 0.4 0.0). - External position and exchange rate: - World oil price (U.S. dollars per barrel sequence): 53 68 59 62 58 55 55 55 56 - Exchange rate assessments: EBA-lite range from undervaluation of 10 percent to overvaluation of 18 percent; staff assessment: overvalued by around 15 percent (text also reports an EBA-lite undervaluation of around 10 percent in revised results and REER undervaluation of about 4.3 percent in log terms in a different reconciliation). - Financial sector: - Non-performing loans (gross) to total loans (selected): 3.6 4.8 13.3 18.2 20.5 (Table 7). - Two distressed/non-systemic banks represent less than 3 percent of overall banking sector assets; one bank with state owning 1/3 of capital, the other fully state-owned. --- *Source: IMF staff report — "1. Status of the ECF-Supported Program" (extracted content).* ### 1. Status of the ECF-Supported Program _______________________________________________________ 9 ### 1. Status of the ECF-Supported Program ### Background - The political environment remains relatively calm; civil society remains vocal about governance challenges. - The ECF-supported program was approved in July. Authorities have taken steps toward effective implementation: - Prudent execution of the 2019 budget. - Preparation of a 2020 budget consistent with main program parameters. - Progress on structural reforms targeting governance improvements, though some reforms have experienced delays. - Debt restructuring and arrears clearance: - Authorities need more time to conclude restructuring of commercial debt (mainly involving oil traders) and to clear official external arrears. - Negotiations to conclude a debt restructuring agreement intensified in November/December; authorities were confident an agreement could be achieved in 2020Q1. - Upcoming disbursements of budget support are expected to help clear full amount of external official arrears of about USD$181 million at end-September (1.7 percent of GDP). - Last Article IV consultation was completed in 2015; this report focuses on completion of the 2019 Article IV discussions. ### Recent Economic Developments - Growth and production - Overall growth for 2019 revised down to 2.2 percent (from 5.4 percent in the original ECF-supported program request), almost entirely explained by lower-than-expected expansion in oil production. - Oil production has been increasing steadily since 2015, with a particularly large increase of over 20 percent in 2018. - Authorities expected a similar increase in 2019; projected increase is now more likely to take two years, with Congo reaching peak oil production of around 140 million barrels in 2020, then expected to decline gradually as fields mature. - Non-oil economy - Non-oil growth expected to turn moderately positive in 2019; growth rate likely slightly below 1 percent. - Non-oil level driven by agricultural and transportation sectors; many other sectors remain in recession. - Inflation - Overall inflation at 1.8 (y/y) at end-October and expected to remain around 2 percent by year-end. - Food prices declined by about 0.3 percent over the last 12 months; non-food inflation up by 4.1 percent over the same period. - Fiscal developments - Overall fiscal position improved substantially: deficit of about 7½ percent of GDP in 2017 to a surplus of 6½ percent of GDP in 2018. - Surplus could reach 8¾ percent of GDP in 2019 if trends observed up to 2019Q2 continue. - Non-oil primary deficit expected to improve from 28.1 to 24.8 percent of non-oil GDP between 2018 and 2019. - Government froze about 20 percent of overall spending appropriations; social spending levels remain low. - Non-oil revenues about 2 percent below target at end-June. - External sector and reserves - External current account: surplus of about 7¼ percent of GDP in 2018; expected to reach about 8 percent of GDP in 2019 due to recovery in oil exports and new mining exports. - Net foreign assets imputed to Congo reached CFAF 476bn in 2019Q3 — 89 percent higher than at end-2018; this level covers about 1½ months of imports. - Broad money increased by 12 percent y/y; credit to private sector down by about 9½ percent (y/y) in September. - External position assessment - Quantitative assessment tailored to non-renewable resource exporters suggests current account around 17 percent below the norm in the medium term. - Methodology suggests exchange rate is overvalued by about 15 percent. - Closing external gaps requires adjustment of the non-oil primary balance per baseline, improvements in business environment, and increased diversification efforts. - Banking sector - Banking sector solvent but under stress; NPLs rising to 24 percent of gross loans. - Deterioration due to declining economic activity and insufficient progress in reducing public sector arrears to suppliers; negative impact on construction and parts of tertiary sector. ### Outlook and Risks - Near-term outlook - Short-term outlook challenging but early signs of stabilization and recovery. - Expansion in oil production accounts for large share of projected recovery; risk of slower increase if technical issues recur at key oil field (Banga-Kayo). Authorities noted technical issues had been resolved and production increase would resume in 2020. - Non-oil growth expected to pick up gradually as government implements domestic arrears clearance strategy to boost confidence and credit growth. - Overall fiscal surplus over 2019–20 projected to exceed 8 percent of GDP, supported by relatively strong oil revenues as higher prices offset downward revision in production; expected to remain close to this level over medium term. - External current account surplus expected to remain high in 2019–20, then decline gradually as oil production declines from short-term peaks. - Debt and arrears - Congo considered in debt distress due to accumulated external and domestic arrears. - By September 2019, accumulated USD$181 million in official bilateral external arrears, plus stock of unrestructured pre-HIPC arrears. - Total public debt at end-September 2019 estimated at 87.8 percent of GDP; external public debt at 62.3 percent of GDP, with about 20 percent of GDP in arrears. - Debt assessed unsustainable absent restructuring. In 2019, PV of total public debt is 74 percent of GDP; PV of external debt is 52 percent of GDP. - Debt-service-to-revenue ratio at 37 percent; debt-service-to-exports ratio at 14 percent; both above sustainability benchmarks. Debt burden indicators projected to worsen in 2020–21. - Risk categories - Global risks: - Energy price swings; current levels around $60 per barrel vs authorities’ assumption of $55 in 2020 budget. - Weaker global growth could affect oil prices, FDI, and non-oil exports. - Country-specific risks: - Political risk linked to government’s ability to maintain stability and deliver reforms (good governance, transparency, arrears clearance, social spending). - Economic risk from difficulty sustaining large primary surpluses over time; requires reforms to boost non-oil revenues, control subsidy spending, and strengthen fiscal risk monitoring. - Lower-than-expected private investment could negatively affect non-oil growth. - Other risks: - Delays in disbursement of budget support from development partners could complicate budget management and arrears clearance. - Delays in completion of commercial debt restructuring could raise doubts about debt sustainability and harm confidence and investment. ### Box: Status of the ECF-Supported Program - IMF Board approved a three-year ECF arrangement on July 11, 2019. - Arrangement gives Congo access to SDR 324 million (about $446.7 million) representing 200 percent of quota. - A first disbursement of SDR 32.4 million (about $44.7 million) was made upon program approval. - Program objectives: - Restore fiscal sustainability through strong fiscal consolidation and authorities’ efforts to restructure debt. - Improve governance (including PFM) to promote more transparent and efficient use of public resources. - Protect vulnerable groups from burden of adjustment. - Support regional stabilization efforts in CEMAC monetary union. - Performance at end-June: - Quantitative fiscal targets at end-June (floor on basic non-oil primary balance; ceiling on net domestic financing to government) were met. - Prior actions (PCs) setting zero ceilings on non-concessional financing and new external financing guaranteed with future natural resource revenues were met. - Government accumulated new external arrears with official creditors (about USD20 million) due in part to delays in budget support; continuous PC on external arrears was missed. - Three indicative targets (ITs) on poverty-reducing spending, non-oil revenues, and disbursements of external loans for investment projects were missed (latter two by small margins). - Structural progress: preparation of implementation decrees for Transparency Commission and Anti-Corruption High Authority; delays on adoption of privatization strategy and decision to implement automatic fuel pricing mechanism. - First review and conditionality: - Submission to Parliament of an adequate 2020 Budget keeps macroeconomic framework underlying program adequate. - Staff and authorities reached understandings on policies needed to complete first review, including new critical PFM reforms to ensure timely budget execution and auditing of prior-year spending by Audit Court. - Postponement of first review needed to allow staff more time to obtain credible assurances on debt restructuring terms consistent with restoring public debt sustainability. - Authorities remain committed to completing external commercial debt restructuring and clearing official external arrears ahead of the first review. ### Policy Discussions (headline themes) - Main topics aligned with ECF priorities and authorities’ 5-year development plan: - Strategy to restore debt sustainability. - Structural reforms to foster good governance and tackle corruption. - Policies to improve business environment and prospects for economic diversification to sustain non-oil growth. - Fiscal sustainability as first pillar: - Objective to reduce net present value of external debt below 30 percent of GDP by 2023 to achieve a moderate level of debt distress. - Decline in public debt of about 30 percent of GDP observed in 2018 noted as impressive, but sustained efforts required to meet program objective. *Source: IMF staff report — "1. Status of the ECF-Supported Program" (extracted content).* ### 17. Staff emphasized the importance of reducing the non-oil primary deficit to about ### 1cogea2020001 - 17. Staff emphasized the importance of reducing the non-oil primary deficit to about ### Fiscal strategy and targets - Staff recommended reducing the non-oil primary deficit to about 25 percent of non-oil GDP in 2019 and pursuing the adjustment toward 15 percent by 2023–24. - This represents: - an adjustment of about 3 percentage points in 2019, and - an additional average adjustment of about 2 percent of non-oil GDP per year over the projection period. - Characterization: - The stance approximates a conservative Permanent Income Hypothesis (PIH) rule. - Noted caveat: the PIH rule is "not necessarily an optimal rule for low income countries with large development needs" but may be necessary when the resource horizon is short, debt levels are high, and public investment management is poor. - Projected macro-fiscal outcomes: - Implementation would place public debt on a strong downward path and allow Congo to rebuild fiscal and external buffers. - Imputed net foreign assets would triple to cover about 4 months of imports. ### Revenue mobilization and current spending containment - Revenue projections and measures: - Non-oil revenues would increase by 4.6 percent of non-oil GDP in 2020. - Further annual increases of about 1 percent of non-oil GDP per year over 2021–22, before stabilizing at around 34½ percent by 2023. - Substantial short-term potential to increase non-oil revenues given the large stock of tax arrears and plans to curb tax exemptions. - Tax arrears and exemptions (authorities’ estimates noted in text): - Total stock of tax arrears estimated at CFAF 704 bn (27.7 percent of non-oil GDP). - Tax exemptions associated with the oil sector accounted for 18 percent of non-oil GDP in 2018. - Exemptions associated with the investment code represented an additional 6 percent of non-oil GDP. - Spending composition and public investment: - Most fiscal consolidation to date relied on deep cuts in the investment budget, which fell to 5½ percent of non-oil GDP in 2018. - Authorities’ efforts to generate savings in current spending would help expand public investment toward 13 percent of non-oil GDP by 2023. - Specific containment priorities: - Contain the wage bill, transfers and subsidies to generate fiscal space for public investment. ### Debt sustainability, restructuring, and liquidity risks - Staff assessment: - Implementation of the fiscal strategy would contribute to a strong reduction in public debt but would not be sufficient to restore sustainability in the medium term. - Absent additional debt restructuring, the PV of external debt to GDP would remain above the sustainability threshold of 30 percent for the next decade. - Indicators and vulnerabilities: - Liquidity indicators projected to decline below their indicative thresholds by 2023. - Debt service to revenue indicator exhibits significant breaches over the next three years. - Shocks: - An export shock would cause the external debt-service-to-exports ratio to breach its threshold after 2025. - A depreciation shock would cause the external debt-service-to-revenue ratio to remain above its threshold in the medium term. - Recommended actions: - Clearance of arrears necessary to end debt distress. - Restructuring of external commercial debt is essential to ensure debt sustainability over the medium term. ### Domestic arrears: audit, payment, and management - Stocks and audit: - Non-performing loans increased to about 24 percent of gross loans by end-September (year implied in text). - The stock of domestic arrears at end-2018 is estimated at about 14½ percent of GDP (may decline once the second phase of the independent audit is finalized). - First phase audit covered fiscal years 2014-16; new audit covers 2017–18 and any remaining claims prior to 2014. - Auditor methodology may lead to large rate of rejection of initial gross claims of up to 75 percent. - Payment and restructuring approach: - If the auditor rejects a sufficient stock of gross claims, authorities may not need to restructure domestic debt to restore debt sustainability. - Authorities intend to proceed with payment of audited arrears through issuance of 5–7 -year debt certificates that private sector agents could discount in the banking sector. - Cash management and controls: - Need to avoid using Treasury resources planned for the year to settle improperly recorded arrears. - Strengthen commitment control and cash management to prevent new arrears. - Staff proposed auditing the spending and related documentation by the Audit Court. ### Social spending and protection of vulnerable groups - Execution shortfall: - At end June 2019, authorities had spent about 1/3 of the level of social spending allocated to critical social programs (health, education and cash transfers to poor households). - Staff recommendations: - Increase social spending to protect vulnerable groups from the burden of fiscal adjustment, including expanding the cash transfer system and allocating budgetary resources to support women (e.g., training centers and combating gender-based violence). - Ensure timely budget support disbursements and strengthen PFM to prevent Treasury settlement of prior-year spending crowding out priority social spending. ### Fiscal risks and contingency planning - Key fiscal risks for 2020: - (i) Non-oil revenues underperform relative to the ambitious target. - (ii) Oil production does not ramp up to 140 million barrels as expected. - (iii) Efforts to contain non-priority spending take more time. - Contingency measures recommended: - Speed up recovery of existing stock of tax arrears. - Curb tax exemptions by ensuring Tax and Custom Directorates have adequate resources. - Ensure adequate social spending levels and stronger outreach to build constituency for reforms (for example fuel subsidies and oil-related transfers). ### Authorities’ views on fiscal consolidation and reforms - Fiscal consolidation commitment: - Authorities indicated they continue to pursue an ambitious fiscal consolidation plan and submitted a 2020 Budget in line with IMF medium-term objectives. - Revenue measures under way: - Legislative and administrative measures, creation of a Fiscal Policy unit, stronger controls on tax exemptions and tax arrears. - Modernization of tax and customs administration through interconnection between Customs Directorate, General Directorate for Domestic Taxes, and the Treasury. - Review of tax exemptions, including for fuel imports for the domestic market, and possible loss of exemptions where contractual commitments were not met. - Expected fiscal yield (authorities’ indications): - Implementation of measures in the 2020 Budget Law could yield about 1.6 percent of non-oil GDP. - Effective recovery of tax arrears by the Tax Directorate could raise non-oil revenues by an additional 6 percent of non-oil GDP. - Debt restructuring process: - Authorities stressed that restructuring external commercial debt (mainly with oil traders) is crucial and that they have sent letters inviting creditors to accelerate negotiations. - Domestic arrears and audits: - Authorities expect initial estimates of arrears to decline once the second audit is finalized and reiterated intention to pay audited arrears via 5–7 -year debt certificates. - Authorities noted delays in budget support contributed to underperformance in social spending and plan to install new expenditure-tracking software (SIGFIP) in 2020. ### Governance and public financial management (PFM) reforms - Progress reported: - Adoption of a new asset declaration law for senior government officials. - Establishment of a High Authority on Corruption with investigative powers and a Transparency Commission with civil society participation. - Greater transparency in oil revenue management: publication of oil reconciliation reports by KPMG and enactment of a law requiring annual external audits of SNPC; publication of the 2018 audit report. - Publication of monthly economic data and early online publication of the draft 2019 Budget. - Implementation of independent audits of domestic arrears prior to payment. - Remaining gaps and recommended follow-up: - Anti-corruption framework requires implementing decrees and adequate budget resources; ensure High Authority on Corruption has adequate human and material resources; systematically investigate and prosecute corruption-related offences; align financial disclosure/asset declaration with international good practices. - Ensure reports sent to Parliament on oil revenue management are broadly discussed to foster accountability. - PFM weaknesses identified: - Treasury used an opaque mechanism in 2019 to settle payment orders from previous years (2015–17) that represented about 3 percent of GDP; these should have been classified as domestic arrears, sent to the debt management unit, and audited prior to payment. - Settlement of these arrears crowded out clearance of other audited arrears and left Treasury without sufficient resources to meet social spending targets. - Reform actions recommended: - Adopt new expenditure tracking software (SIGFIP) to track commitment-to-payment phases. - Expedite: (i) adoption of a new organizational structure for the Ministry of Finance and Budget; (ii) a medium-term strategy for PFM reforms with a three-year rolling action plan; (iii) a comprehensive list of all government accounts in the banking system and transfer balances to the Treasury Single Account; and (iv) adopt a Law on the organization and functioning of the Audit Court. - Improve enforcement of legal claims through specialist training within the judiciary and publication of judicial decisions; collect data on court proceedings to better allocate resources. _International Monetary Fund staff summary as presented in the source content._ ### 35. Reigniting growth in the ### Reigniting growth in the non-oil sectors ### Diversification strategy and priorities - Objective: Decrease economy’s reliance on the oil sector and on extractive industries broadly through the National Development Plan (NDP). - Three pillars of the authorities’ diversification strategy: human capital, development of key non-oil sectors, and the business environment. - NDP targets improved performance and competitiveness in the agricultural, industrial, and tourism sectors. - Planned resource allocation: improve infrastructure (transportation and electricity supply) and increase investment in human capital. - Diversification status: “Diversification remains low, even by regional standards, and has not improved in recent decades.” ### Agriculture - Status: Underdeveloped but an important source of potential growth; can improve food security and reduce reliance on food imports. - NDP targets: develop transport and production infrastructure essential to support the agricultural system and improve value chains. - PNIASAN (National Agricultural Investment and Food and Nutrition Security Plan) aims to modernize family farming and promote agribusiness by helping small producers' organizations access markets and engage with large operators. ### Forestry - Recent performance: “Fairly static in recent years, but has growth potential.” - Support: New $65 million grant from CAFI (Central Africa Forestry Initiative) expected to boost the sector. - CAFI push: increased transparency via adoption of a new forestry law, publication of forestry receipts, safeguarding community rights in forest areas, granting forestry concessions, and imposing fines. - Policy direction: develop greater value added by increasing domestic processing of logs through measures in the new forestry code. ### Mining - Status: Nascent mining sector beginning to gain momentum. - Exports: Notable increases in export of copper, tin and other metals — mainly to the Chinese market. - Investment horizon: Sector requires large investment commitments and is likely a long-term source of economic activity. - Projects: Congolese firm Sapro expects to ramp up output from Mayoko iron ore project; Glencore is targeting iron ore exports. ### Business environment and market regulation - Staff recommendation: Speed up reforms to improve market regulation and the business environment. - Positive step: Operationalization of the single window for property titling. - Outstanding reforms needing progress: - Simplification of the licensing process. - Creation of a national real estate registry. - Reduction of costs to start a business. - Reform of administrative fees to facilitate cross-border trade. - Expected impact: Reduce administrative burdens, improve business environment, and unlock growth potential in promising sectors. ### Financial sector and access to credit - Importance: Development of the financial sector is essential to support access to credit. - Staff recommendations: - Expedite finalization of the interim audit report. - Implement the domestic arrears repayment strategy to reduce private sector NPLs with banks and improve financial sector stability and access to credit. - Authorities should submit proposed recapitalization plans for two non-systemic banks to Commission Bancaire de l'Afrique Centrale (COBAC). - Bank notes: One bank is private (Congolese state owns 1/3 of capital); the other is public and entirely state-owned. Both banks represent less than 3 percent of overall banking sector assets. ### Data and statistics - Need: Improve economic statistics to support economic analysis. - Ongoing action: Authorities developing a new GDP series with a change in the base year. - Agreed conditions for adopting new series: - (i) Quality, consistency and reliability of the data established. - (ii) Economic impact of modifications (including changes in nominal GDP) fully assessed. - Continued support: STA technical assistance missions. ### Authorities’ views - Agreement on need to boost the non-oil economy and enhance the business environment, noting negative effects from the severe recession over 2015–18. - Acknowledgement: Crisis compounded by surge in domestic arrears from the government to the private sector and associated credit crunch. - Commitments: - Expedite the strategy to clear domestic arrears once the final audit report is finalized. - Simplify licensing procedures and improve main public archives through computerization. - Other measures planned under programs supported by AfDB and World Bank, focusing on areas performing poorly in Doing Business reports. ### Staff appraisal — macroeconomic outlook and risks - Growth and outlook: - Overall growth projection in 2019 revised down due to lower increase in oil production than anticipated. - Prospects for further increase in oil production in 2020 could boost growth. - Non-oil economy likely to grow modestly in 2019 (below 1 percent), driven by agriculture and transportation, while many sectors remain in recession. - Macroeconomic conditions: - Business confidence appears low due to delays in clearing domestic arrears. - Inflation remains under control. - (Imputed) net foreign assets rising faster than expected due to improving current account and new foreign exchange regulations. - Fiscal framework recommendations: - Continue strengthening medium-term fiscal framework; prudent expenditure policy in 2019 through September and draft 2020 budget consistent with fiscal consolidation and debt reduction. - Three risks needing focus: - Heavy reliance on non-oil revenue mobilization: step up efforts to curb exemptions, collect tax arrears, and pursue tax administration reforms including planned interconnection among customs, domestic tax directorate, and the Treasury. - Ensure adequate resources for critical social programs for vulnerable groups; pursue reforms to contain oil-related subsidies and strengthen monitoring of priority programs in the Treasury cashflow plan. - Strengthen PFM system to ensure annual budgets closed timely and Treasury settles domestic arrears from previous budget years only after proper recording (and audit) by the debt management unit or an independent audit. - Public debt management: - Staff support authorities’ plan to negotiate with external commercial creditors to reduce debt burden and reach a moderate level of debt distress by 2023. - Implement domestic arrears clearance strategy to contain rising NPLs, provide liquidity to private sector, and increase business confidence. - Avoid new accumulation of official external arrears and clear existing stock in line with earlier commitments. - Governance and transparency: - Staff welcomed steps to strengthen anti-corruption framework, improve transparency in management and accounting of oil revenues, and increase access to economic information (publication of 2018 audited financial statements of SNPC and draft 2020 budget on Ministry of Finance website). - Additional efforts needed: adopt implementing decrees for the High Authority on Corruption and for the Transparency Commission; ensure new institutions are properly resourced. ### Key statistics and projections (selected figures preserved) - Non-oil sector growth: “likely to grow modestly in 2019 (below 1 percent)”. - Agriculture and forestry support: CAFI grant of $65 million. - Banking sector: two distressed/non-systemic banks represent less than 3 percent of overall banking sector assets; one bank with state owning 1/3 of capital, the other fully state-owned. - From Table 1 (selected entries, exact values preserved): - GDP at constant prices: -1.8 1.6 5.4 2.2 4.6 1.9 0.0 1.3 2.3 - Oil (growth rates): 15.3 23.9 15.8 5.5 9.5 -1.6 -8.8 -6.1 -3.4 - Non-oil (growth rates): -6.2 -5.5 1.0 0.8 2.5 3.6 4.0 4.1 4.2 - Non-oil economy in 2019: “below 1 percent” - Consumer prices (period average): 0.4 1.2 1.5 1.9 1.8 2.6 2.8 3.0 3.0 - Current account balance (percent of GDP): -3.5 7.2 5.6 8.0 5.8 1.2 -2.1 -2.5 -2.9 - Net foreign assets: -54.2 12.3 57.5 100.8 32.2 41.7 9.3 11.8 6.8 - External public debt (percent of GDP): 80.0 61.3 58.1 55.2 52.7 52.8 51.5 48 46 - Credit to the private sector (12-month percent change): -5.4 -2.7 2.6 -1.5 2.1 2.4 5.8 7.0 7.8 - Total public debt (percent of GDP): 117.5 87.1 81.7 77.5 70.5 66.9 62.5 56.8 54.2 - Nominal GDP (CFA francs): 5,188 6,476 6,529 6,545 6,767 6,666 6,469 6,484 6,652 - Nominal oil GDP (CFA francs): 2,493 3,932 3,926 3,936 4,046 3,771 3,373 3,161 3,081 - Nominal non-oil GDP (CFA francs): 2,695 2,544 2,603 2,609 2,721 2,894 3,096 3,323 3,570 - World oil price (U.S. dollars per barrel): 53 68 59 62 58 55 55 55 56 - Oil production (Millions of barrels): 9 8 12 11 14 0?? (table shows sequence: 98 12 11 14 01 28 14 01 37 12 51 18 11 14) — source table formatting ambiguous; retained as presented in source. - From Table 2a (selected items, exact CFAF billion values preserved): - Total revenue and grants (2019–24 projections): 1,888 2,048 2,086 2,149 2,182 2,216 2,253 2,338 - Revenue (2019–24): 1,882 2,020 2,059 2,121 2,154 2,182 2,217 2,303 - Oil revenue (2019–24): 1,288 1,257 1,340 1,246 1,191 1,119 1,069 1,057 - Non-oil revenue (2019–24): 594 763 719 875 963 1,063 1,148 1,246 - Total expenditure and net lending (2019–24): 1,461 1,556 1,512 1,581 1,649 1,685 1,760 1,848 - Wages (2019–24): 363 374 374 393 403 416 446 478 - Capital expenditure (2019–24): 141 293 272 325 386 410 427 453 - Financing gap (CFAF billion): 0 36 226 0449 26968 -980 (table shows concatenated formatting; preserved sequence as in source). - Stock of domestic arrears: 9378 10732 488 2459 7240 (table formatting preserved as in source). - Policy recommendation: Next Article IV consultation recommended in accordance with Decision No. 14747-(10/96), adopted September 28, 2010, as amended. *Source: IMF staff report text provided.* ### Annex budgets and special Accounts ### Annex budgets and special Accounts (1cogea2020001) ### Fiscal balances and projections - Non-oil primary balance (percent of GDP): -28.1 -24.8 -24.7 -21.2 -19.6 -16.5 -15.4 -14.3 - Basic primary fiscal balance: 24.3 23.4 26.6 24.5 21.5 19.7 16.8 15.2 - Basic non-oil primary balance (percent of GDP): -26.4 -20.4 -20.3 -17.5 -15.6 -13.2 -12.3 -11.4 - Basic non-oil primary balance ― excluding oil-related transfers: -13.6 -15.9 -15.8 -13.0 -11.3 -9.1 -8.4 -7.6 - Reference fiscal balance (CEMAC definition): -12.1 -2.1 -2.1 7.5 12.9 13.6 11.2 9.4 - Primary balance: 22.6 23.4 26.6 24.5 21.5 19.7 16.8 15.2 - Overall balance, payment order basis: - Excluding grants: 16.6 17.8 21.0 19.8 17.5 16.1 13.8 12.7 - Including grants: 16.8 18.9 22.0 20.8 18.4 17.2 14.9 13.7 - Overall balance, cash basis: 16.2 18.9 22.0 20.8 18.4 17.2 14.9 13.7 ### Revenue composition (percent of GDP) - Total revenue and grants: 27.9 29.2 31.4 31.9 31.8 32.7 34.3 34.8 35.2 - Revenue (excluding grants): 27.3 29.1 30.9 31.5 31.3 32.3 33.7 34.2 34.6 - Oil revenue: 13.1 19.9 19.2 20.5 18.4 17.9 17.3 16.5 15.9 - of which: repayment of oil-prepurchased debt: 2.4 3.5 5.4 4.7 5.4 5.2 5.3 5.2 5.1 - Non-oil revenue: 14.2 9.2 11.7 11.0 12.9 14.4 16.4 17.7 18.7 - Direct taxes: 6.2 3.9 5.0 4.7 5.2 6.1 6.9 7.4 7.8 - Taxes on goods and services: 5.7 3.6 4.8 4.4 5.4 5.7 6.5 6.9 7.3 - Customs Receipts: 2.1 1.5 1.7 1.7 2.0 2.2 2.6 2.9 3.1 - Non-tax revenue: 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.5 0.5 - Grants: 0.6 0.1 0.4 0.4 0.4 0.4 0.5 0.6 0.5 ### Expenditure and composition (percent of GDP) - Expenditure and net lending: 35.2 22.6 23.8 23.1 23.4 24.7 26.0 27.1 27.8 - Current expenditure: 25.1 20.4 19.4 18.9 18.6 18.9 19.7 20.5 21.0 - Wages: 7.5 5.6 5.7 5.7 5.8 6.0 6.4 6.9 7.2 - Other primary current expenditure: 15.1 12.2 11.4 11.0 11.3 11.5 12.1 12.7 13.0 - Goods and services: 4.2 2.7 2.9 2.9 2.9 3.0 3.2 3.4 3.4 - Transfers: 9.4 8.9 8.0 7.6 7.7 7.8 8.1 8.5 8.8 - Social Transfers (Lisungi and others): ... 0.8 0.8 0.9 1.1 1.1 1.2 1.1 - Traditional transfers: 5.7 3.9 5.4 5.0 5.0 4.9 5.1 5.3 5.6 - Oil-related transfers: 3.7 5.0 1.8 1.8 1.8 1.9 2.0 2.0 2.0 - Common charges: 1.5 0.6 0.6 0.6 0.7 0.7 0.7 0.8 0.8 - Interest: 2.1 2.3 1.8 1.8 1.5 1.4 1.2 1.0 0.8 - Domestic interest: 0.6 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.1 - External interest: 1.6 1.9 1.5 1.5 1.2 1.1 1.0 0.8 0.7 - of which: on oil-prepurchased debt: 1.4 1.3 0.8 0.8 0.5 0.3 0.2 0.0 0.0 ### Capital expenditure (percent of GDP) - Capital expenditure: 5.5 11.3 10.4 11.9 13.4 13.2 12.9 12.7 - Domestically financed: 3.6 5.8 5.0 7.2 8.4 8.9 8.7 8.7 - Externally financed: 1.9 5.5 5.5 4.8 4.9 4.3 4.2 4.0 - (Alternate series, percent of GDP, other table): Capital expenditure: 7.9 2.2 4.5 4.2 4.8 5.8 6.3 6.6 6.8 - Domestically financed: 3.1 1.4 2.3 2.0 2.9 3.6 4.3 4.4 4.7 - Externally financed: 4.8 0.8 2.2 2.2 1.9 2.1 2.1 2.1 2.1 ### Financing and debt flows (percent of GDP and CFA francs where presented) - Financing (percent of GDP): -16.2 -32.8 -32.0 -37.3 -27.7 -19.4 -11.9 -13.7 - Foreign (net) financing (percent of GDP): -8.2 -20.7 -21.0 -17.9 -10.5 -8.1 -3.7 -0.2 - Drawings: 1.7 4.7 4.7 4.2 4.0 3.2 3.1 3.0 - Amortization due: -13.3 -25.4 -25.7 -22.1 -14.5 -11.4 -6.8 -3.2 - of which: on oil-prepurchased debt: -5.7 -11.6 -11.8 -11.4 -4.1 -4.1 -2.0 -- - Other foreign financing: 3.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Deposits in China: 3.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Domestic (net): -8.0 -12.1 -11.0 -19.5 -17.2 -11.2 -8.2 -13.5 - Banking system (net): 1.3 -5.6 -3.3 -10.9 -9.5 -6.4 -6.0 -12.9 - Central bank: 1.0 -5.8 -3.5 -10.1 -8.8 -4.0 -4.3 -12.1 - Commercial banks: 0.3 0.2 0.2 -0.7 -0.7 -0.6 0.0 0.8 - Nonbank financing: -9.3 -6.5 -7.7 -8.6 -7.7 -4.8 -2.2 -0.7 - Of which: Repayment of domestic arrears: ... -6.8 -7.9 -8.9 -8.4 -4.8 -2.2 0.7 - Of which: Debt service to ENI: -2.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ### Financing gap and expected/exceptional financing (percent of GDP) - Financing gap (- = surplus): 0.0 13.9 9.9 16.5 9.3 2.2 -2.9 0.0 - Expected financing (excluding IMF): 0.0 8.4 6.2 7.8 5.3 0.0 0.0 0.0 - IMF-ECF: 0.0 2.0 1.0 3.8 2.7 1.7 0.0 0.0 - Exceptional financing from debt restructuring (net of restructured contingent liabilities): 0.0 3.5 2.8 4.9 1.3 0.5 -2.9 0.0 ### Arrears, deposits, and memorandum items - Change in arrears: -0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - External change in arrears: 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Domestic change in arrears: -3.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Stock of domestic arrears (percent of GDP): 36.8 31.1 28.0 17.9 8.5 3.1 0.7 0.0 - (Alternate percent series in other table): 18.9 14.5 12.4 11.2 7.2 3.7 1.5 0.4 0.0 - Stock of government deposits (percent of GDP): 2.5 8.2 5.9 15.8 23.6 24.2 25.0 33.4 - (Alternate series): 1.8 1.0 3.3 2.4 6.3 10.2 11.6 12.8 17.9 - Non-oil GDP at market prices (CFAF billion): 2,544 2,602.8 2,609 2,721 2,894 3,096 3,323 3,570 - GDP at current market prices (CFAF billion): 5,188 6,476 6,528.9 6,545 6,767 6,666 6,469 6,484 6,652 ### Quarterly flows (selected aggregates, billions of CFA francs) - Total revenue and grants, annual totals and quarterly examples: - Annual: 2,086 (2018), 2,149 (2019 projection) - Quarterly examples: Q1 1,888; Q2 482; Q3 448; Q4 564; Q1 (later) 501; Q4 (later) 620 - Revenue (annual examples): 1,882 (Q1), 2,059 (annual), 2,121 (later annual) - Oil revenue, quarterly examples: 1,288 (Q1), 290 (Q2), 290 (Q3), 375 (Q4); later series: 269 259 349 368 - of which: repayment of oil-prepurchased debt (quarterly entries): 398 77 78 86 53 0 79 191 91 91 366 - Expenditure and net lending, annual totals and quarterly examples: - Annual: 1,512 (2018), 1,581 (2019 projection) - Quarterly examples: Q1 1,461; Q2 296; Q3 314; Q4 409; later Q1 316; Q2 379; Q3 434; Q4 454 - Capital expenditure (quarterly examples, domestically and externally financed): - Capital expenditure totals by quarter: 141 42 70 123 38 27 25 398 137 37 325 - Domestically financed examples: 92 25 29 43 33 129 374 465 491 95 - Externally financed examples: 50 174 180 51 43 15 54 73 -12 130 *Sources: Congolese authorities; and IMF staff estimates and projections.* ### Annex budgets and special Accounts ### Annex budgets and special Accounts (1cogea2020001) ### Fiscal balances, budgets, and special accounts - Interest: 147 263964120224869101 - Domestic: 24 58112157918 - External: 123 2031539817415982 - Capital expenditure1414211223427253151288325 - Domestically financed: 92 2554961293782146195 - Externally financed: 5017581381431569142130 - Off-budget expenditure: 0 00000000 - Net lending: 0 00000000 - Non-oil primary balance - 2 -714-79-221-417-646-62-223-409-578 - Basic primary balance: 618212389643809207354584770 - Basic non-oil primary balance - 3 -670-77-190-312-530-62-174-293-476 - ― excluding oil-related transfers: 4 -329-43-120-219-412-32-113-201-354 - Primary balance: 574211358538694207306469668 - Overall balance, payment order basis - Excluding grants: 421170292442547170237374539 - Including grants: 427185319474574185258400567 - Change in arrears: -1513323200000 - External: 5 67 13323200000 - Domestic: 6 -8200000000 - Overall balance, cash basis: 412198351506574185258400567 - Financing: -412-302-444-633-836-271-435-712-1,018 - Foreign (net): -210-271-351-447-548-157-265-350-486 - Drawings: 442317812312973114 - Amortization due: -339-176-203-347-671-158-294-423-601 - of which: on oil-prepurchased debt: -144...0-77-308-77-155-232-309 - Arrears cancellation: 000000000 - Other: 86-96-179-17900000 - Deposits in China: 8600000000 - Domestic (net): -203-31-93-185-288-114-170-362-532 - Banking: 34-5-23-75-88-83-97-232-297 - Central Bank (net): 27-4-29-80-93-86-100-238-277 - Commercial banks (net): 8-1655336-20 - Nonbank financing: -237-27-70-110-200-31-73-130-234 - Of which: Repayment of domestic arrears: 0-89-156-197-206-49-97-146-243 - Of which: Debt service to ENI: -74-10-10-1000000 - Of which: Carry over payments from 2018: 0-89-89-8900000 - Float: 071949400000 - Errors and omissions (- = overfinancing): 10493932610000 - Financing gap (- = surplus): 0003326185177312451 - Expected financing (excluding IMF): 0000161117117212212 - World bank: 00000117117117117 - African Development Bank: 000013100066 - France: 00003000030 - IMF-ECF: 0002626353570104 - Exceptional financing from debt restructuring: 7 000775-662530134 *Sources: Congolese authorities; and IMF staff estimates and projections.* --- ### Balance of payments (medium-term, Table 4) - Current account: -184 46736352039383-134-164-195 - Non-oil current account: -975-903-896-839-877-972-955-901-889 - Trade balance: 1,394 2,9242,8752,8792,8202,4752,0831,9621,940 - Exports, f.o.b.: 3,5565,1955,1975,1005,2034,9404,5744,4604,506 - Oil sector: 2,8064,4394,4474,3124,4024,1053,7003,4833,446 - Non-oil sector: 7507567497888018358739771,060 - Imports, f.o.b.: -2,162-2,270-2,321-2,221-2,383-2,465-2,491-2,498-2,565 - Oil sector: -655-961-1,021-939-1,022-1,016-977-922-916 - Government: -390-254-234-218-260-309-328-342-363 - Non-oil private sector: -1,117-1,056-1,067-1,064-1,101-1,140-1,186-1,235-1,287 - Balance of services: -913-1,452-1,545-1,438-1,511-1,479-1,402-1,346-1,346 - Oil sector: -680-1,193-1,271-1,164-1,247-1,205-1,122-1,064-1,059 - Non-oil sector: -233-259-274-274-264-274-279-281-287 - Income: -404-749-722-670-658-648-547-503-499 - Labor income: -8-34-32-30-30-25-19-14-13 - Investment income: -396-715-689-641-628-622-528-489-487 - Current transfers (net): -261-256-246-250-258-265-268-277-290 - Capital account: 80422222222151536 - Official grants: 301028282828151536 - Debt cancellation: 5700000000 - Non-financial non-produced assets: -6-6-6-6-6-6000 - Financial account: -146-535-580-573-630-73174345222 - Direct investment (net): 194190266266273272300315276 - Portfolio investment: -1-1-1-1-1-1-1-1-1 - Other investment: -339-724-845-838-902-345-12530-53 - Medium and long term: 54-518-744-757-506-202-213-9417 - Public sector: 185-229-538-548-486-305-252-122-7 - Drawings: 42444122123114116100103109 - Project: 21959122123114116100103109 - Program: 20500000000 - Other (collateralized): 0-150000000 - Amortization: -257-339-660-671-601-421-352-224-116 - Net change in arrears: 17 670000 - Private sector: -130-289-206-209-19103392824 - Oil: -142-290-219-222-3326242222 - Non-oil: 121131314771562 - Short term: -394-206-100-80-397-14288124-70 - Errors and omissions: 000000000 - Overall balance of payments: -249-64-194-30-214325519663 - Financing: 24964-168-230-235-302-123-101-77 - Reserve financing: 213-22-168-230-235-302-123-101-77 - Government deposits abroad: 35860000000 - Financing gap (- = surplus): 0 036226044926968-980 - Expected financing (excluding IMF): 0 0218161212153000 - IMF-ECF: 005226104785200 - Exceptional financing from debt restructuring: 3 0092731323816-980 *Sources: Bank of Central African States (BEAC) and IMF staff estimates and projections.* --- ### Monetary survey (Table 5) - Net foreign assets (Billions of CFA francs) - 2122521813414765013516318599361,0361,125 (central bank and deposit money banks components listed) - Net domestic assets: 1,5541,4431,4251,3921,3511,4621,4721,3621,3021,2351,1641,140 - Net domestic credit: 1,8071,7721,7241,6871,6721,6981,7081,5321,3671,3451,289990 - Net credit to the public sector: 59663662560965057654338518999-45-447 - Net credit to the Government: 60063463061164957554238418897-46-449 - Central bank: 484 51050748148844541227498 28-115-548 - Claims: 577575574574600600626704781776716644 - Deposits: -93-64-68-93-115-155-213-429-683-748-831-1,192 - Deposit money banks: 116124123130161126126100101103103104 - Claims on public agencies, net: -41-5-2 11 111195103 - Credit to the economy: 1,2121,1361,0991,0781,0221,1221,1651,1471,1781,2471,3341,437 - Credit to the Private Sector: 1,0921,0631,0271,0089531,0471,0911,0691,0951,1581,2391,335 - Other items, net: -253-328-298-294-320-236-236-170-65-110-125150 - Broad money: 1,7671,6951,6071,7331,8241,9631,8231,9932,1622,1712,2012,265 - Currency outside banks: 470445408469475515478523567569577594 - Demand deposits: 9879738949481,0381,1271,0461,1441,2411,2461,2631,300 - Time deposits: 309278304315310321298326354355360371 - Broad money growth rates and components reported with annual percent changes and other economic indicators (values preserved exactly as in source) - Broad money: -10.4-4.0-5.22.27.6 15.87.51.58.50.41.42.9 - Net foreign assets: -12.62.2-4.25.313.214.7 5.86.6 11.53.54.64.0 - Net domestic assets: 2.2-6.3-1.1-3.0-5.41.11.7-5.1-3.0-3.1-3.3-1.1 - Credit to the economy/Non-oil GDP: 45.044.6.........43.0--42.140.740.3 40.140.3 - Memorandum items: - Gross imputed official reserves (CFA billion): 277291274389489520458.27541056117912741323 - In months of imports: 0.840.9.........1.51.32.23.13.53.73.9 - Central bank liabilities to non-residents: 96.488.792.985.4114.2113.8139.6217.5295.0346.9344.3330.1 *Sources: BEAC; and IMF staff estimates and projections.* --- ### Gross financing needs (Table 6) - Financing needs (Billions of U.S. dollars): 5.14 7.307.847.217.437.216.816.256.0228.66 - External current account deficit excl. grants and oil exports: 4.706.696.696.066.416.486.205.865.8225.15 - Amortization on external debt: 0.440.611.151.151.030.730.610.390.203.51 - Financing: 4.777.347.507.167.077.266.906.596.1328.39 - Oil exports: 4.838.007.757.387.527.086.436.055.9928.41 - Current transfers: -0.45-0.46-0.43-0.43-0.44-0.46-0.47-0.48-0.50-1.79 - Capital transfers: 0.140.010.040.040.040.040.030.030.060.14 - Foreign Direct and portfolio Investment: 0.330.340.460.450.470.470.520.550.481.91 - External borrowing (drawings): 0.730.080.210.210.200.200.170.180.190.78 - Short-term flows: -0.68-0.37-0.17-0.14-0.68-0.250.150.22-0.12-0.91 - Other flows: -0.13-0.25-0.36-0.36-0.030.180.070.050.04-0.15 - Change in net official reserves (accumulation = ─): 0.367-0.040-0.29-0.39-0.40-0.52-0.21-0.18-0.13-1.53 - Financing Gap: 0.00.000.630.450.770.470.12-0.170.021.80 - Targeted level of gross imputed official reserves (billion of US$): 0.480.520.800.891.291.822.052.222.31 - In months of imports: 0.80.91.341.52.23.13.53.73.9 *Sources: BEAC; and IMF staff estimates and projections.* --- ### Financial soundness indicators (Table 7) - Regulatory capital to risk-weighted assets: 19.519.122.824.926.4 - Non-performing loans less provisions to capital: 4.67.933.039.441.1 - Non-performing loans (gross) to total loans (gross): 3.64.813.318.220.5 - Return on equity: 20.428.09.916.7... - Return on assets: 2.34.01.73.0... - Liquidity: Ratio of liquid assets to short-term liabilities: 116.1104.4146.6176.0161.1 - Total deposits to total (noninterbank) loans: 125.5102.890.589.191.0 - Gross loan (banks' book) - bn FCFA: 1,424 1,460 1,401 1308.01224.1 - Gross loan - annualized growth rate: 19.82.5-4.1-6.6-2.5 *Source: FSI database.* --- ### Public debt stock (Table 8) - Total public debt (CFAF billion / USD million / percent of GDP): multiple entries reported (values preserved exactly in table) - Examples from table: Total public debt52058631102.954738796118.6609711001117.55689 987387.8 5747953987.8 - External debt: 4154688882.142196781 91.4 41527492 80.03970689061.34080677362.3 - Of which: arrears: 378 6277.54367019.44538178.7520 9028.0 1364 226420.8 - Multilateral and other creditors: 1151902.31402253.01542783.02073603.22444053.7 - IMF: 7120.1580.1460.12.440.01.520.0 - IDA/IBRD: 661091.3761211.6761371.51091891.71232051.9 - AfDB: 13220.39140.229520.649 840.7 721191.1 - Official bilateral: 1768293235.01941312042.1 - Paris Club: 111185 2.2 1322122.92474454.8196340 3.0214 355 3.3 - France: 791321.6631011.452941.0641101.0661091.0 - Private Creditors: 2271 376544.92138343746.32026365539.019463378 30.12045 3395 31.2 - Oil-prepurchased debt: 14842461 29.41361218729.51190214822.91061 184116.41184 1966 18.1 - Glencore: 53087910.551482711.14478068.6385 6685.9441 732 6.7 - Trafigura: 8041332 15.9691111015.0605109211.7533 9258.2 582966 8.9 - Orion: 1512503.01562503.4139 250 2.7 - Domestic debt: 1051174420.81253201527.21944350937.517192984 26.51667 276725.5 - BEAC advances: 572949 11.357292012.45721033 11.05729938.8572950 8.7 - Domestic bond: 1842954.0198358 3.8160278 2.51572612.4 - Audited arrears in CCA: 1853073.71852984.0 2354244.53616275.63615995.5 - Unaudited and partially audited arrears: 747 134914.462610869.75779578.8 - Memorandum items: - Additional debt claimed by Commisimpex: 48678210.5 4868789.44868447.54868077.4 - Rejected claims1: 1573252834.1826149015.94157206.44156896.3 *Sources: Congolese authorities; and IMF staff estimates.* --- ### External arrears (Table 9) - Total end-2015 stock: 377.9; New arrears in 2016: 58.0; End-2016 stock: 436.0; New arrears in 2017: 17.0; End-2017 stock: 453.0; New arrears in 2018: 66.9; End-2018 stock: 52001363.92264.120.81066.51770.416.3 - Multilateral and other creditors: 0.04.84.8-0.64.22.66.88.013.30.18.013.30.1 - IMF: 0.00.00.00.00.00.00.00.00.00.00.00.00.0 - World Bank: 0.00.00.00.00.00.00.00.00.00.00.00.00.0 - Bilateral arrears: 95.513.5 109.023.2132.2-0.3131.9169.1280.72.6109.0180.91.7 - Paris Club: 0.011.511.519.130.629.760.390.1149.61.490.1149.61.4 - Brazil, Belgium, France, Switzerland reported with specific values preserved - Private creditors: 282.5 39.7 322.1-5.6316.564.6381.21186.51969.718.1949.41576.114.5 - CMEC and Chinese companies: 0.036.236.228.064.2-63.80.40.20.30.00.20.30.0 - Oil traders, Glencore, Trafigura, Orion, Suppliers reported with values preserved - Notes: End-2015 stocks are unrestructured pre-HIPC arrears; CMEC previously classified as official bilateral debt; table includes disputed debts (pre-HIPC claims). *Source: Congolese authorities and IMF staff estimates.* --- ### Sustainable Development Goals (Table 10) — Selected indicators (2018) - SDG1 No poverty: Poverty headcount ratio at $1.90 a day (2011 PPP) (in percent of population)1: 37.0 - SDG2 Zero hunger: Prevalence of undernourishment (in percent of population)¹: 40.3 - SDG3 Good health and wellbeing: Maternal mortality ratio (per 100,000 live births)¹: 378.0 - SDG4 Quality education: - Primary completion rate, female (in percent of relevant age group): 75.9 - Primary completion rate, male (in percent of relevant age group): 67.4 - Primary completion rate, total (in percent of relevant age group): 71.6 - SDG5 Gender equality: Proportion of seats held by women in national parliaments (in percent): 11.3 - SDG7 Affordable and clean energy: Access to electricity (in percent of population)¹: 66.2 - SDG8 Decent work and economic growth: GDP per capita growth (annual in percent): -1.5 - SDG9 Industry, innovation, and infrastructure: Manufacturing, value added (in percent of GDP)¹: 6.5 - SDG11 Sustainable cities and communities: Urban population (in percent of total): 66.9 - SDG12 Responsible consumption and production: Forest rents (in percent of GDP)¹: 4.7 - SDG14/15 Life below water / Life on land: Terrestrial and marine protected areas (in percent of total territorial area): 36.8; Terrestrial protected areas (in percent of total land area): 40.7 - SDG17 Partnerships for the goals: - Mobile cellular subscriptions (per 100 people): 95.3 - Fixed telephone subscriptions (per 100 people)¹: 0.3 - Notes: ¹As of end 2017. For the poverty headcount (SDG 1) the latest available data are in 2011. ²As of 2012. *Sources: World Bank Development Indicators and IMF staff estimates.* --- ### External Sector Assessment (Annex I) — Key findings and implications - Assessment: "The external position of the Republic of Congo is weaker than implied by fundamentals and desirable policy settings." - Quantitative assessment for exporters of non-renewable resources: - "The current account is around 17 percent below the norm in the medium term." - Driver: "Proven oil reserves will be exhausted in about 25 years and the country has not accumulated sufficient assets so far." - Exchange rate assessment: - EBA-lite and tailored approaches show a range from "an undervaluation of 10 percent to an overvaluation of 18 percent of Congo’s REER." - Staff assessment: "the exchange rate to be overvalued by around 15 percent." - Policy implication: - "Going forward, diversification is essential to mitigate the impact of decreased oil production on external imbalances." *Sources: IMF staff assessment as presented in Annex I.* *Italic: Sources: Congolese authorities; IMF staff estimates and projections; BEAC; FSI database; World Bank Development Indicators (as reported in the source document).* ### 1. The current account is improving thanks to favorable developments in the oil and ### 1cogea2020001 - 1. The current account is improving thanks to favorable developments in the oil and ### Current account developments and drivers - The current account moved from an average deficit of 50 percent of GDP over 2015–16 to a surplus of 7.2 percent in 2018 and is projected to reach a surplus of 8 percent in 2019. - Recent improvement is driven by two factors: - Oil-sector trade balance improvement in 2018 due to the ramp-up in oil production from a new offshore field (Moho Nord, the largest in Congo’s history) and the rise in oil prices since the 2016 troughs. Given the recent increase in oil prices and a lower-than-expected expansion in oil production due to temporary technical disruptions at one plant, the oil-sector trade balance in 2019 is projected to remain close to 2018 levels. - Non-oil-sector current account balance narrowed substantially since 2016, reflecting import compression associated with the large drop in public investment, and an increase in mining sector and other non-oil exports. - Estimates are preliminary as balance of payment estimates are reported with considerable lags and subject to relatively large revisions. ### Exchange rate movements and assessment - As of October 2019: - Nominal effective exchange rate was just 0.15 percent below its level the previous year. - Real effective exchange rate had decreased about 2.2 percent (y/y). - The CFA franc has depreciated by 1.4 percent against the U.S. dollar in the last year. - Interpretation: Since the REER depreciated more than the nominal effective exchange rate, this suggests inflation was accelerating on average faster in Congo’s trading partners than in Congo, implying a gain in trade competitiveness. - Revised EBA-lite current account model results: - Exchange rate undervaluation of around 10 percent (revised down from 21 percent in June 2019). - Change reflects a higher CA norm (due to improvements in the fiscal balance and reserves) and the volatility of regression-based assessments for commodity exporters. - REER EBA-lite index assessment: - Norm REER is 4.65 in 2019, actual level is 4.61 (all expressed in logs), implying Congo’s REER is undervalued by about 4.3 percent. - Summary reconciliation (as presented in source): - CA-Actual7.9% - Cyclical Contributions (from model)0.5% - Cyclically adjusted CA7.4% - CA-Norm1.8% - Cyclically adjusted CA Norm1.3% - Multilaterally Consistent Cyclically adjusted CA Norm2.0% - CA-Gap5.5% - of/which Policy gap2.06% - Elasticity-0.53 - REER Gap-10% - CA-Fitted4.5% - Residual3.5% - Natural Disasters and Conflicts0.6% ### Medium-term outlook for oil and the current account - Oil-sector current account projected to remain in surplus over the medium term, with oil production reaching a peak of 140 million barrels in 2020. - After 2020, deterioration in the current account is driven by lower oil production, projected to decline by an average of 5 percent between 2020 and 2039, absent new discoveries. - Increase in non-oil exports is not projected to be sufficiently large to compensate for the decline in oil exports, despite diversification efforts. - Under a consumption allocation (annuity) approach (Bems and de Carvalho Filho, 2009): - Proven oil reserves assumed at 1.6 billion of barrels plus a reasonable expectation of new discoveries. - Demographic transition assumption reduces population growth to 1.5 percent in the long run. - Staff assume a 9 percent return (broader interpretation including returns on human capital and infrastructure). - Implied current account norm hovers around 17 percent of GDP over the medium term with a constant real annuity rule, suggesting an 18 percent overvaluation of the real exchange rate. - Large current account norm translates into a large current account gap (around 17 percent in the medium term), driven by exhaustion of proven oil reserves in about 25 years and insufficient asset accumulation to date. - Fiscal savings norm is higher than current fiscal surpluses but converges to the desired level by 2023 as Congo accumulates financial assets and the non-oil primary balance converges to a PIH rule. ### Policy adjustment and recommendations - Policy adjustment is needed to close external gaps: - Authorities should adjust the non-oil primary balance as projected under the baseline, with the non-oil primary deficit declining toward 14 percent of non-oil GDP by 2024. - Enhance structural competitiveness and continue diversification efforts to help close external gaps and improve the current account balance in the medium and long term. - Trade and exchange-rate implications: - Static EBA-lite models may understate needs because they do not consider exhaustibility of natural resources; dynamic consumption allocation approaches indicate higher savings requirements. ### Diversification: status, challenges, and targeted reforms - Dependence on oil: - Oil has been dominant, accounting for over 95 percent of total exports in 2012. - Share of oil declined with fall in oil prices in 2015 and 2016, but has since increased. - Oil expected to remain primary export, accounting for 75 percent of exports by 2025. - Non-oil exports: - Wood exports stable and projected to account for around 3 to 5 percent of total exports in the medium term. - Sugar exports remain a very modest share. - Mining exports (especially copper) projected to account for around 2 percent of total exports starting in 2018. - Other agricultural and industrial products have increased slightly but are limited. - Export diversification and complexity: - Export diversification has decreased in recent decades and remains below the regional average. - Export diversification level lower than averages for both non-oil resource-intensive and non-resource-intensive countries in Sub-Saharan Africa. - Economic complexity is low but comparable to other countries in Sub-Saharan Africa. - Sector-specific policies: - Agriculture targeted in the 2018–22 National Development Plan (NDP) and PNIASAN: modernize family farming, promote agribusiness, improve access to land, rehabilitate rural roads, develop plant/animal/fish production, and training of small-scale farmers. - Forestry: target higher value added via increased domestic processing of wood; a new forestry law suggests requiring private companies to cede up to 15 percent of logs to the government to increase volumes for domestic processing, in return for lower national taxes. Current legal limit for logs as share of wood exports is 15 percent, though some companies have long-standing agreements. Authorities have considered an export ban on logs. - Business environment: - Doing Business 2019 sub-indices show room for improvement: Congo performs better than CEMAC and SSA averages on ease of acquisition of construction permits but lags on starting a business, registering property, access to credit, and access to electricity. - Recommendations: simplify administrative procedures for new businesses, improve access to credit, consider Special Economic Zones as laboratories for reforms. - Authorities have started reforms to simplify licensing, improve company register transparency, and reduce parafiscal charges; additional measures planned under World Bank and AfDB-supported programs. - Human capital: - NDP emphasizes human capital improvements, but limited progress due to limited resources allocated to social sectors. - Staff support World Bank initiatives and stress protecting social programs that support education and training while subjecting them to rigorous evaluation. ### Capacity development priorities (Annex II) - Congo is a medium intensity user of Fund technical assistance. - Main capacity development areas: (i) tax policy and administration; (ii) PFM, including accounting and investment management, cash management, government finance statistics, and debt management; (iii) national accounts and external sector; (iv) anti-corruption framework connected to the AML/CFT regime and governance/transparency reforms. - 2020 capacity development focus: - Support program objectives and public sector service delivery improvements. - Tax policy and administration to increase non-oil revenues. - PFM reforms with emphasis on efficiency and transparency in the preparation of fiscal tables (TOFE) and production of consistent Treasury accounts (Balance des Comptes du Trésor). - Real and external sectors: national accounts, production of high frequency data, and BoP statistics. - Governance reforms to strengthen anti-corruption framework and its operationalization. *Source: 1cogea2020001 - 1. The current account is improving thanks to favorable developments in the oil and non-oil sectors.* ### 3. The authorities expressed satisfaction with IMF TA, noting that it has targeted their ### 1cogea2020001 - 3. The authorities expressed satisfaction with IMF TA, noting that it has targeted their ### IMF Technical Assistance and Institutional Capacity - Authorities expressed satisfaction with IMF TA, noting that it has targeted their top priority needs. - Authorities indicated interest in further developing domestic capacity to strengthen institutions and implement TA recommendations to achieve objectives under their economic reform program supported by the IMF. - IMF staff coordination: - Staff has worked closely with functional departments (FAD, LEG, MCM and STA) and the regional technical assistance center (AFC) to ensure TA is targeted to priority needs and delivered in a well-sequenced manner. ### Priorities and Objectives (as identified by authorities) - Tax Policy and Administration - Focus should be to assist the authorities in their efforts to increase non-oil revenues. - Areas of particular importance include the review of tax exemptions, and the strategy to recover a large stock of tax arrears. - PFM - Address the serious problem of efficiency and transparency in the preparation of fiscal tables (TOFE) and the production of consistent Treasury accounts (balance des comptes du Trésor). - Avoid extrabudgetary spending, enforce spending controls, and produce final Treasury accounts shortly after the end of the fiscal year. - Real and External Sectors statistics - Improving data coverage, timeliness, and methodology of national accounts data, prices and high frequency data, and access to relevant sources. - Produce timely annual BoP data, start producing quarterly BoP statistics and the IIP data. - Expenditure Policy (Subsidies) - Developing strategy and timetable to reduce oil, water and electricity subsidies while protecting the most vulnerable segments of society. - Financial Sector - Ensure plans that the resolution of banks under stress follow best international practice, and to review the government’s strategy to keep rising levels of NPLs under control. - Compilation of FSI to the Fund. - Improving AML/CFT framework. - Governance - Strengthen the anti-corruption framework; a number of laws and decrees have been recently approved but they now need to be operationalized. ### Annex III — Authorities’ Implementation of 2015 Policy Recommendations (summary) - Fiscal and Debt Sustainability - Recommendation: Adopt multi-year budget planning focused on ensuring long-term fiscal sustainability; specifically, the non-oil primary deficit reduced to about 40 percent of non-oil GDP; clarify basis for non-oil revenue forecasts; pursue prudent borrowing to keep NPV of debt within DSA thresholds; develop medium-term debt strategy and enhance transparency in debt and asset management. - Implementation: Partially Implemented. - Authorities adopted a medium-term fiscal framework in line with the three-year ECF-supported program and indicated willingness to adjust it as needed. - "The non-oil primary balance is already well below the recommendation of reducing it below 40 percent of non-oil GDP." - Key objective: Keep the NPV of external debt below 30 percent by 2023. - This requires continued fiscal consolidation efforts and successful completion of the debt restructuring strategy. - Public Financial Management - Recommendations included strengthening commitment control to prevent arrears, strengthening capacity for regional bond issuance, updating the PFM reform plan, consolidating investment spending and energy subsidies on the budget, and improving investment efficiency. - Implementation: Partially Implemented. - Commitment controls strengthened to prevent extrabudgetary spending, but controls to prevent domestic arrears ineffective; domestic arrears have increased significantly. - Progress focused on transposition of the CEMAC directives and drafting of expenditure and accounting manuals with IMF TA support; implementation has shown limited progress. - IT system upgrade well designed but needs broader involvement of functional actors to ensure successful transition in 2020. - Statistics - Recommendations: Improve quality and timeliness of macroeconomic statistics; National statistics agency should have adequate funding and capacity enhanced. - Implementation: Partially Implemented. - Progress made in recovering backlog in national accounts and BoP production with IMF TA support. - Further progress undermined by resource constraints of the National Institute of Statistics. - Poverty and Inequality - Recommendations: Reprioritize public expenditures with focus on poverty and growth impact; rationalize subsidies (e.g., gasoline); move towards targeted cash transfer scheme. - Implementation: Partially Implemented. - A pilot cash transfer program launched in 2014 with World Bank assistance but operationalization delayed due to lack of resources. - Authorities reduced allocations for public investment as part of fiscal consolidation; stronger institutional system for public investment decisions not yet in place. - Substantial progress being made in 2019 to reduce oil-related subsidies. - Financial Sector - Recommendations: Implement centralized balance sheet bureau; strengthen credit registry; establish property registry and unique window to register land titles; strengthen judicial framework; operationalize financial intelligence unit (ANIF-Congo). - Implementation: Partially Implemented. - Reforms pursued through BEAC national directorate and COBAC with progress in issuing property titles and credit registries. - Procedures to increase due diligence for domestic and foreign politically-exposed persons regulated at the CEMAC level (April 2016). - ANIF-Congo is operational and has conducted initial outreach to banks through seminars. - Regional Cooperation - Recommendations: Respect CEMAC reserves repatriation and pooling requirements; develop strategy for deepening regional securities markets. - Implementation: Implemented. - Drawdown of off-shore holdings of foreign exchange reserves during 2016 helped cushion impact of lower oil revenues on official reserves. - Government repatriated in December 2018 the free component of FX deposits held in China. ### Risk Assessment Matrix — Key Risks, Likelihood, Impact, and Recommended Policy Responses - Global risks - Rising protectionism and retreat from multilateralism - Relative Likelihood: High - Impact if Realized: Medium - Assessment: Congo’s trade structure is largely dependent on oil; rising protectionism would undermine capacity to diversify away from oil. - Recommended Policy Response: - Reduce the “twin” deficits and ensure external sustainability. - Specific measures include rationalizing public capital expenditures while improving its quality and protecting the poor; and improving non-oil tax revenue collection. - Pursue further regional integration to expand trade within CEMAC, and with the rest of Africa, building on the AfCFTA. - Introduce reforms in areas where Congo can have a comparative advantage such as agriculture, agribusiness and tourism. - Weaker than expected global growth - Relative Likelihood: Medium (US); High (Europe, China); Medium (Large stressed emerging Economies) - Impact if Realized: Medium - Assessment: Weaker global growth could affect oil prices, FDI and non-oil exports, undermining diversification efforts. - Recommended Policy Response: - Rigorous implementation of the ECF-supported program to reduce vulnerabilities and increase capacity to attract investment. - Large Swings in Energy Prices - Relative Likelihood: Medium - Impact if Realized: High - Assessment: Volatility in oil prices complicates economic management; substantial decrease in oil prices would reduce fiscal buffers. - Recommended Policy Response: - Ensure plans to boost non-oil revenues are rigorously implemented. - Consider additional fiscal adjustment of non-priority spending if downside risks materialize. - Negotiate a price clause with oil traders that offers additional debt relief in case of lower oil prices. - Country-specific risks - Political Risk - Relative Likelihood: Medium - Impact if Realized: High - Assessment: Political stability depends on economic performance and delivery on key reforms (governance, transparency, clearance of domestic arrears, social spending). - Recommended Policy Response: - Maintain rigorous implementation of the program. - Increase outreach to the private sector and civil society. - Implement reforms to improve governance and plans to increase social spending. - Difficulties to sustain fiscal consolidation in 2020 and over the medium-term - Relative Likelihood: Medium - Impact if Realized: High - Assessment: Insufficient prioritization of spending, inconsistent arrears repayment, and increase in public debt could threaten macro stability. - Recommended Policy Response: - Improve coordination between government ministries to ensure spending is properly prioritized and program objectives are well understood. - Failure to complete the debt restructuring strategy for commercial debt - Relative Likelihood: High - Impact if Realized: High - Assessment: Delays would keep debt unsustainable and erode international support for the three-year ECF arrangement; could trigger delays in Fund disbursements and budget support from other partners. - Recommended Policy Response: - Authorities need to continue to pursue good faith negotiations supported by legal and financial advisors. - Other Risks - Relative Likelihood: Medium - Impact if Realized: High - Assessment: Possible delays in disbursement of budget support from key development partners could complicate budget management and clearance of official external arrears. - Recommended Policy Response: - Ensure not accumulating arrears with key development partners. - Meet reform efforts envisaged by budget support programs to unlock expected resources. ### Debt Sustainability Analysis — Key Findings and Vulnerabilities - Classification and overall assessment: - Risk of external debt distress: In debt distress - Overall risk of debt distress: In debt distress - Granularity in the risk rating: Unsustainable - Application of judgement: No - Main drivers and observations: - Republic of Congo classified as “in debt distress” based on assessment of external public debt indicators and continued buildup of external arrears. - Despite a recent restructuring agreement with China, external public debt remains unsustainable. - Net present value of external debt in percent of GDP is projected to remain above the indicative threshold in the medium term. - Debt service to revenue indicator exhibits significant breaches over the next three years. - Increase in debt reflects large fiscal deficits, a large terms-of-trade loss causing nominal GDP decline through deflation in the oil economy, and a decline in real GDP growth. - Domestic debt has been rising due to accumulation of domestic arrears and statutory advances from BEAC, further deteriorating overall public debt indicators: the net present value of public debt to GDP remains above its indicative threshold over the medium term. - Restoration of debt sustainability hinges on pursuit of fiscal consolidation, restructuring of private commercial claims, and clearance of arrears. - Public debt coverage and SOE considerations: - Coverage limited to central government debt but includes oil-backed debt contracted by SNPC. - Stock includes public and publicly guaranteed debt of the central government. - Local governments are not allowed to borrow. - Debt from SOEs not guaranteed by government is not included due to limited information. - SNPC: transparency improved with October 2019 publication of 2018 financial statement; information on debt and fiscal performance in other years remains limited except for government-guaranteed debt. - SNPC non-guaranteed debt associated with “carry” of investment activities by private sector companies; private companies pre-finance investments and recover via discounts on oil revenues. - Staff will continue efforts to compile information on SOEs to improve DSA scope in line with revised LIC-DSF guidelines. - Contingent liability stress test calibrations and figures: - Non-guaranteed SOEs debt is estimated at 9 percent of GDP; assumption that half of this amount could end-up on the central government balance sheet. - Congo’s total PPP capital stock estimated at 4.6 percent of GDP; assumption that 35 percent of this total stock may end up on the government balance sheet under the stress test. - Rejected domestic arrears estimated at about 6.3 percent of GDP. - An additional 7.4 percent of GDP external claim is currently being litigated (and not included in the debt stock). - The contingent liability test is calibrated to account for these potential risks to the public sector balance sheet. - Upside risk: ongoing independent audit of domestic arrears may substantially revise down the stock of domestic arrears incurred during 2017–18, which could mitigate contingent liability shocks. *Source: 1cogea2020001 - 3. The authorities expressed satisfaction with IMF TA, noting that it has targeted their (PDF chapter content).* ### 2. Public debt in the Republic of Congo has increased significantly in recent years, though ### 1cogea2020001 - 2. Public debt in the Republic of Congo has increased significantly in recent years, though ### Overview and recent trend - Public debt increased significantly in recent years, driven by rapid accumulation of new domestic and external debt to finance ambitious investment projects and raise public sector wages. - The trend reversed starting in 2018; total debt began to decline in 2018 and by September 2019 was below 2017 peak levels but remained substantially higher than at the start of the decade. - Total public debt amounted to US$ 9.5 billion, or 88 percent of GDP, by September 2019. ### External public debt: levels, composition, and arrears - Gross public external debt evolution: - Just over 20 percent of GDP in 2010 (post-HIPC Completion Point). - Around US$ 7.5 billion or 80 percent of GDP by end-2017. - Declined to US$ 6.9 billion in 2018. - Stabilized around US$ 6.8 billion, or 62 percent of GDP, by end-September 2019. - Major creditors and shares: - China: 20.4 percent of GDP. - Oil traders: 18.1 percent of GDP. - External payment arrears: - Increased from CFAF 453 billion (US$ 817 million) at end-2017 to CFAF 520 billion (US$ 908 million) by end-2018, driven largely by arrears with oil traders. - Some reductions in bilateral and other commercial arrears due to cancellations after court arbitrations and restructuring agreements (e.g., Saudi Arabia). - Rescheduling with China Machinery Engineering Corporation (CMEC) in February 2018 reduced post-HIPC external arrears by about US$115.8 million. - By end-September 2019, external arrears had more than doubled, reaching CFA 1364 billion (USD 2.2 billion), with most of the increase driven by an increase of 800 billion CFAF in arrears with oil traders. - Preliminary information suggests additional external official arrears have accumulated in October 2019. ### Domestic public debt and arrears - Domestic public debt rose from 15 percent of GDP at end-2014 to 25.5 percent of GDP in September 2019, as statutory advances and domestic arrears increased significantly. - 2019 estimates incorporate results of the first phase of the audit of domestic arrears which covered CFAF 528 billion and preliminary results from the ongoing audit of domestic arrears accumulated over 2017–2018. - Composition of domestic debt (percent of GDP): - Arrears to contractors in construction and transportation sectors: 8.8 percent of GDP. - Statutory advances from the regional central bank: 8.7 percent of GDP. - Pension arrears and unpaid social benefits: 3.4 percent of GDP. - Government debt to commercial banks: 2.4 percent of GDP (from issuance of bonds and Treasury bills since 2016). - Audit outcomes and contested claims: - Authorities initially disclosed a potential stock of CFAF 1573 billion of possible arrears in June 2017 but argued only CFAF 528 billion should be audited. - Independent audit from Ernst and Young found about 3/4 of the audited stock was rejected due to irregularities. - 2019 stock includes 8.8 percent of partially audited and not yet audited arrears recognized by the authorities, excludes other gross claims related to public works (6.4 percent of GDP) rejected after internal review; both stocks are subject to a new audit funded by the AfDB. ### Debt restructuring and program-related assumptions - The DSA incorporates the impact of the April 2019 restructuring deal with China, combined with the February 2018 agreement, providing total debt relief of about US$370 million over the IMF program period (2019–22). - The China agreements secure substantial debt relief immediately after the program (2023–28), reducing annual debt service by half, and generate a low and predictable stream of payments over 2029–45 (below 0.5 percent of GDP per year). - Authorities are negotiating restructuring with oil traders and are committed to completing restructuring of external commercial debt. ### Macroeconomic outlook and baseline assumptions (Box 1) - Fiscal consolidation: - Baseline assumes adjustment to the non-oil primary fiscal balance of about 10 percent of non-oil GDP over 2019–23 to rebuild fiscal and external buffers. - Primary balance is projected to remain in surplus from 2019 onwards. - External financing terms: - Baseline assumes external financing on concessional terms similar to the June 2019 DSA; grant element averages at 41 percent over 2024–28. - After 2028, new disbursements assumed less concessional, with grant element about 25 percent over 2028–39. - Real economy and sectoral projections: - Non-oil growth: projected to turn positive in 2019 and gradually improve to 4.1 percent in 2023; beyond 2023 projected to average 4.4 percent. - Oil production and prices: - 2019 expansion lower than previously anticipated due to temporary disruptions. - Oil production projected to peak at about 140 million barrels in 2020, then steadily decline to about 53 million barrels in 2039 absent new discoveries. - International oil prices projected to gradually increase to about $70 per barrel by 2035. - Inflation: 1.8 (y/y) at end-October 2019; expected to remain around 2 percent by year-end, increase gradually to 3 percent in 2024, and remain close to 3 percent long term. - Current account balance: - Revised upward in 2019 due to stronger exports of mining and non-oil goods and reduced oil-related imports. - Projected surplus over 2020–21; then average deficit about 2.5 percent over 2022–24. - Projected long-term current account deficit averages 12 percent over 2025–39. - Realism and risks: - Fiscal adjustment-growth realism tool flags that growth path could be optimistic given consolidation; staff judge projected growth realistic as driven by oil sector. - High projected contribution of the residual component to debt-creating flows in the next five years, similar to the last five years. - Delays in debt restructuring of commercial debt would undermine debt sustainability and negatively affect confidence and investment. ### Debt carrying capacity, stress tests, and scenario selection - Composite indicator (CI) based on October 2019 WEO data indicates weak debt carrying capacity for Congo; CI Score = 2.47 (CI rating: Weak). The CI cutoff value for medium debt carrying capacity is 2.69. - Weak CI primarily reflects low CPIA and low level of foreign reserves. - Tailored stress tests triggered: - Commodity price tailored stress test (oil exports represent more than 80 percent of Congo’s exports). - Market financing module (Congo is a holder of a Eurobond issued in the context of HIPC debt restructuring). ### Public debt coverage and contingent liability stress test design (Text Table 1 highlights) - Sub-sectors covered for analysis: - Central government: X - State and local government: X - Social security fund: X - Guarantees (to other entities including SOEs): X - Central bank (borrowed on behalf of the government): X - Non-guaranteed SOE debt: (not included in baseline; default shock of 2% of GDP may be applied per note) - Additional assumed/additive items and default values contributing to total (in percent of GDP): - Other elements of the general government not captured in 1.: 0 percent of GDP / 13.8 - Litigated debt (Commisimpex) and rejected domestic arrears: 3 SoE’s debt (guaranteed and not guaranteed by the government) 1/2 percent of GDP (table formatting in source is fragmented) - SoE's debt not guaranteed by the government: 4.5 - PPP 35 percent of PPP stock: 1.60 - Financial market (default value): 5 percent of GDP - Total (2+3+4+5) (in percent of GDP): 24.9 - Note: Disputed claims are not included in the baseline for program purposes; they are included when calibrating contingent liability stress tests. ### Governance and public debt management weaknesses - Key weaknesses identified (January 2018 IMF mission): - Insufficiently transparent debt management (lack of debt strategy to guide debt mobilization). - Lack of a formal Treasury management framework. - Non-compliance with several CEMAC debt management guidelines (e.g., debt management strategy not annexed to the finance law; loan agreements not ratified by the NCPD). - The National Committee for Public Debt (NCPD), created in 2008, had never been operational until recently. - Recent developments: - NCPD reactivated and adopted a manual of debt procedures (structural benchmark) during its first meeting on May 28, 2019. - Implementation of manual recommendations expected to ensure better coordination and monitoring of public debt management activities. ### Key numeric indicators (as reported) - Total public debt: US$ 9.5 billion = 88 percent of GDP (September 2019). - Public external debt: around US$ 7.5 billion = 80 percent of GDP (end-2017); US$ 6.9 billion (2018); US$ 6.8 billion = 62 percent of GDP (end-September 2019). - External arrears: - CFAF 453 billion (US$ 817 million) at end-2017. - CFAF 520 billion (US$ 908 million) at end-2018. - CFA 1364 billion (USD 2.2 billion) at end-September 2019. - Increase in arrears with oil traders: 800 billion CFAF (2019 up to September). - Domestic public debt: 15 percent of GDP (end-2014) → 25.5 percent of GDP (September 2019). - Domestic arrears covered by audit phase 1: CFAF 528 billion. - Domestic debt components (percent of GDP): contractors’ arrears 8.8; statutory advances 8.7; pension/social benefits arrears 3.4; debt to commercial banks 2.4. - China-related relief and impact: - Restructuring deals (Feb 2018 + Apr 2019) provide total debt relief ≈ US$370 million over 2019–22. - CMEC rescheduling reduced post-HIPC external arrears by about US$115.8 million. - Baseline macro assumptions highlights: - Non-oil growth: 4.1 percent in 2023; average 4.4 percent beyond 2023. - Oil production peak: about 140 million barrels in 2020; decline to about 53 million barrels in 2039. - Oil price: about $70 per barrel by 2035. - Inflation: 1.8 (y/y) at end-October 2019; about 2 percent by year-end 2019; 3 percent in 2024. - Current account deficit: average about 2.5 percent over 2022–24; average 12 percent over 2025–39. - Grant element of new external borrowing: averages at 41 percent over 2024–28; about 25 percent over 2028–39. - Composite Indicator (CI) Score: 2.47 (CI rating: Weak). The CI cutoff value for medium debt carrying capacity is 2.69. _Italic: Source — Republic of Congo: IMF staff report content as provided in the supplied PDF extract._ ### 9. Under the baseline, there are protracted breaches of the present value (PV) of ### 1cogea2020001 - 9. Under the baseline, there are protracted breaches of the present value (PV) of ### Baseline debt dynamics and projections - PV of external debt to GDP is currently around 52 percent and is projected to decline slowly but remain above the indicative threshold of 30 percent over the next ten years, reaching 30 percent only in 2031. - Commercial debt restructuring will still be needed to bring debt to sustainable levels by 2023 (in line with the current IMF-supported program). - Debt service-to-revenue ratio is currently above the indicative threshold of 14 percent but is projected to decline below 14 percent by 2023 and remain below this level thereafter. - Debt service-to-exports ratio is currently above its indicative threshold of 10 percent but is projected to decline to 10 percent by 2021 and remain below the threshold in the ten years after. - PV of debt-to-exports ratio is projected to remain stable over the next decade around 60 percent, below the threshold of 140 percent. - Text Table 3 highlights overall minor changes in baseline scenario projections of debt burden indicators between the current DSA and the previous 2019 DSA. ### Stress tests and shock scenarios - Standard bound tests (based on historical volatility) result in sharp increases in debt burden indicators in all cases. - Exports shock (most extreme for most indicators due to high dependence on oil exports): - A decline in exports to a level equivalent to one standard deviation below their historical average in the second and third years would cause the PV of debt-to-exports ratio to rise above 210 percent at its peak. - Under the same shock, PV of debt-to-GDP would rise to over 95 percent. - Under this stress scenario, the debt-service-to-exports ratio would still decline below the threshold of 10 percent by 2023 but would then rise above this threshold after 2025. - One-time depreciation shock has the largest impact on the debt-service-to-revenue ratio; under this shock, the ratio would decline below its indicative threshold of 14 percent after 2023. - Commodity price shock (triggered by reliance on oil exports) leads to prolonged breaches of PV of debt-to-GDP and PV of debt-to-exports. - Market financing risk module indicates a moderate risk of heightened liquidity pressures; however, the small size of the outstanding Eurobond (less than 3 percent of GDP) implies that a heightened market stress event would not have a large enough impact to bring debt burden indicators above their respective thresholds when they are otherwise below. ### External arrears and debt distress classification - External arrears are close to 21 percent of GDP and have been rising in recent years. - Arrears include those with oil traders (negotiations for debt restructuring are ongoing) and multiple official lenders. - The Republic of Congo is classified to be “in debt distress” due to the build-up of considerable external arrears. - Clearance of external arrears (through clearance of post-HIPC external official arrears and as part of debt restructuring for external commercial debt) would be required to end the ongoing episode of debt distress. ### Public debt vulnerabilities and stress-test findings - Under the baseline, the present value of public and publicly guaranteed debt-to-GDP (including domestic arrears and direct financing from the BEAC) is significantly above the 35 percent benchmark level associated with heightened public debt vulnerabilities for the entire period from 2019 until 2029. - Stress-tests further support heightened vulnerabilities arising from public debt. - Primary balance shock stress test is the most extreme for two indicators based on the present value of public debt, highlighting the need for strong fiscal adjustment over the medium term. - For the debt service-to-revenue ratio, the most extreme shock is the newly introduced commodity price shock. ### Policy recommendations and capacity development priorities - Commercial debt restructuring is needed to restore sustainability by 2023, alongside fiscal adjustment as projected. - Authorities committed to not contracting new non-concessional loans before public finance sustainability is unequivocally restored or while Congo is still in debt distress or at high risk of debt distress. - Authorities committed to repayment of official external bilateral arrears and restructuring of external commercial debt, especially debt associated with oil traders. - Over the medium term, improve competitiveness and promote economic diversification to increase resilience to exogenous shocks: - Broadening the economic base by enhancing development of the non-oil sector would reduce export volatility and strengthen debt service capacity. - Efforts to improve the business climate with assistance from the World Bank should help strengthen competitiveness and boost growth. - Plans to develop the agricultural, industrial, and tourism sectors as laid out in the National Development Plan should help diversify the export base. - Strengthen public debt and asset management; capacity development needed to improve efficiency of institutions handling fiscal and debt policies: - Strengthen the legal and institutional framework to cover the entire process of issuing and managing debt by re-dynamization of the National Committee for Public Debt (NCPD) and clarification of its attributions. - Develop a medium-term debt management strategy and enhance transparency in debt management. - Introduce a formal framework for managing the government's cash flows. - Strengthen staff analytical capabilities with respect to public debt management. - Urgent need to strengthen debt recording and monitoring capacity and better track all potential liabilities of the government (collect data on major SOEs, contingent liabilities and publicly guaranteed debt currently not covered in official debt statistics and the DSA). - In line with MCM TA recommendations, develop a debt management strategy, append it to the budget law, and strengthen government cash flow management. ### Conclusion - Congo is assessed as being in external and overall debt distress. - Debt distress results from external arrears and accumulation of domestic arrears, and from protracted breaches of the PV of debt-to-GDP threshold under the baseline despite assumed strong fiscal adjustment. - There is no change in debt sustainability classification from the previous 2019 DSA. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 16. The authorities concurred with staff’s assessment that Congo is in debt distress, and ### 1cogea2020001 - 16. The authorities concurred with staff’s assessment that Congo is in debt distress, and ### Debt assessment and authorities' stance - Authorities concurred with staff’s assessment that Congo is in debt distress, and that debt is unsustainable. - Authorities expressed commitment to: - Maintain prudent fiscal and debt management policies. - Pursue a strategy to restructure Congo’s public debt in order to restore debt sustainability. - Authorities noted that macroeconomic assumptions underpinning the DSA analysis, including projections for oil production, should remain appropriately cautious while information on new oil discoveries is still being analyzed. - Authorities agreed that downside risks to the growth outlook exist, but the Congolese economy could benefit from development of new sectors (including mining and industry) as the 5-year National Development Plan is implemented and the economy becomes more diversified. ### DSA baseline indicators and projections (selected) - External debt (nominal) 1/: 91.4 80.0 61.3 57.2 53.9 54.0 52.7 49.0 47.4 36.7 19.5 50.8 47.4 - PV of PPG external debt-to-GDP ratio (selected projection row): ......54.1 51.5 47.2 46.0 44.3 41.2 40.1 30.1 31.3 17.8 - PV of PPG external debt-to-exports ratio (selected projection row): ......64.5 63.3 58.7 59.3 59.7 57.1 56.4 57.4 54.6 - PPG debt service-to-exports ratio (selected projection row): 13.1 9.0 8.5 14.4 12.6 9.6 8.7 6.0 3.7 6.0 5.4 - PPG debt service-to-revenue ratio (selected projection row): 23.4 24.0 24.6 37.3 32.3 23.1 19.1 12.6 7.6 8.6 4.3 - Gross external financing need (Million of U.S. dollars) (selected entries): 2433.0 424.5 -569.5 -194.1 -109.0 113.5 321.9 131.4 86.0 1236.7 2694.9 - Real GDP growth (in percent) (selected): -2.8 -1.8 1.6 2.2 4.6 1.9 0.0 1.3 2.3 2.4 3.3 3.4 2.0 - Nominal GDP (Million of US dollars) (selected): 7,787 8,932 11,664 11,200 11,553 11,489 11,234 11,306 11,616 12,970 21,806 - Government revenues (excluding grants, in percent of GDP) (selected): 33.2 27.3 29.1 31.5 31.3 32.3 33.7 34.2 34.6 38.1 41.5 38.5 34.7 (Note: all numeric values above are reproduced exactly as they appear in the source tables.) ### Public sector debt baseline and fiscal dynamics (selected) - Public sector debt 1/ (selected row): 118.6 117.5 87.1 79.8 71.8 68.3 64.0 58.4 55.2 40.0 20.4 73.1 57.3 - Change in public sector debt (selected): 15.6 -1.1 -30.4 -7.3 -8.0 -3.5 -4.3 -5.6 -3.2 -3.2 -1.4 - Primary deficit (selected): 17.8 5.2 -8.9 -10.6 -9.9 -9.4 -9.4 -8.6 -8.2 -4.8 -2.4 0.4 -7.9 - PV of public debt-to-GDP ratio (selected projection row): ......81.9 74.4 65.0 60.2 55.5 50.5 47.8 34.6 18.6 - Debt service-to-revenue and grants ratio (selected): 28.6 26.4 30.5 49.7 48.7 40.2 35.2 24.6 17.9 17.6 9.7 - Gross financing need 4/ (selected): 28.5 13.4 0.0 5.1 5.4 3.5 2.7 -0.1 -1.9 2.0 1.6 ### Stress tests, scenario analysis, and market‑financing risk - Multiple stress tests and tailored tests were performed; key stress drivers highlighted include: - Primary balance shocks (noted as most extreme shock in some indicators). - Commodity price shocks (most extreme shock for debt service-to-exports ratio). - Market-financing shocks. - Sensitivity analysis tables show baseline and alternative scenario values for key indicators (PV of debt-to-GDP, PV debt-to-exports, debt service ratios, debt service-to-revenue), with thresholds indicated (e.g., Threshold values: 30, 140, 10, 14 across different tables) and bold values indicating breaches of thresholds. - Market-financing risk indicators (selected series shown graphically in the source): - Debt service-to-revenue ratio (2019–2029 baseline trajectory shown). - PV of debt-to-exports ratio (2019–2029 baseline trajectory shown). - PV of debt-to-GDP ratio (2019–2029 baseline trajectory shown). - Debt service-to-exports ratio (2019–2029 baseline trajectory shown). ### Drivers of debt dynamics (baseline) - Figures identify contributions to debt changes from: - Real GDP growth. - Real interest rate / nominal interest rate. - Price and exchange rate changes. - Primary deficit. - Other debt-creating flows and unexpected changes (residuals). - Noted informational points: - Residual captures difference between anticipated and actual contributions on debt ratios. - For external debt, drivers include price and exchange rate, real GDP growth, nominal interest rate, current account + FDI, and change in PPG debt. ### Realism tools and fiscal adjustment paths - Historical Fund-supported program experience referenced for 3-year adjustment in primary balance (percentage points of GDP). - Fiscal adjustment and possible growth path figure shows: - Bars refer to annual projected fiscal adjustment (right-hand scale). - Lines show possible real GDP growth paths under different fiscal multipliers (left-hand scale). - Public and private investment rates and contribution to real GDP growth (5-year averages) are presented to assess realism of scenarios. - Note: Changes in investment partly reflect a methodological change in price index used to convert nominal investment to constant prices. ### Policy recommendations and actions implied by analysis - Continue and strengthen prudent fiscal and debt management policies. - Pursue public debt restructuring to restore debt sustainability. - Maintain cautious macroeconomic assumptions (especially oil production) until new oil discovery information is analyzed. - Promote economic diversification (mining, industry) under the 5-year National Development Plan to mitigate downside risks and support growth. ### Statistical, technical assistance, and program context (selected) - A full DSA was jointly prepared by IMF and World Bank teams for the ECF-supported program in June 2019. - The staff report includes detailed tables and figures on external and public debt sustainability, sensitivity tests, and realism tools. - Data shortcomings noted in national accounts, monetary, fiscal, and external sector statistics due to capacity constraints; AFRITAC Central assistance referenced. - Technical assistance missions and active IMF financial arrangements listed (e.g., ECF arrangement approved Jul 11, 2019; amount approved 324.00 SDR Million; amount drawn 32.40 SDR Million). *Source: Republic of Congo—Staff Report for the 2019 Article IV Consultation (Informational Annex), IMF (extracted content).* ### Introduction ### Introduction ### Overview - The Congolese authorities express appreciation for staff's candid policy discussions during the 2019 Article IV consultation and the in-depth analysis in the reports and the Selected Issues Paper (SIP). - The Congolese economy is recovering from the post-2014 oil price shock; strong adjustment measures combined with higher oil production have supported improvements in fiscal and external positions. - The authorities are committed to policies agreed under the ECF approved last July and aim to finalize a restructuring agreement with the country’s oil traders, hoping for an agreement during the first quarter of 2020. - The authorities view continued Fund assistance as critical to ensure fiscal and debt sustainability, strengthen governance, and foster stronger and more inclusive growth. ### Recent Economic Developments, Outlook, and Risks - Macroeconomic performance in 2019: - Growth strengthened to 2.2 percent in 2019 from 1.6 percent in 2018. - Non-oil GDP rose to 0.8 percent in 2019 (first increase since 2015). - Inflation remained contained at 1.9 percent in 2019. - The non-oil primary deficit narrowed to 24.8 percent of non-oil GDP in 2019 from 28.1 percent in 2018. - The current account surplus remained elevated in 2019, as in 2018, driven by high oil exports. - The country’s net foreign assets have increased, contributing to higher regional central bank foreign exchange reserves. - Outlook and drivers: - Gradual recovery is projected to continue over the medium term, supported by ECF policies and increased oil production. - Expected progress in clearance of domestic arrears should reinvigorate non-oil sectors and strengthen the financial sector. - Risks: - Authorities broadly share staff’s assessment of risks, notably potential global oil price volatility and delays in donor support affecting program implementation. - Authorities expect that policies under the ECF and efforts to accumulate larger buffers at the regional central bank will mitigate identified risks. ### Fiscal Policy - Past adjustment: - Substantial fiscal consolidation has been undertaken since the 2014 oil shock, primarily via drastic expenditure cuts, especially capital spending. - Public debt has declined significantly, particularly in 2018. - Medium-term objectives: - Authorities aim to continue fiscal adjustment to achieve more sustainable fiscal and debt positions. - They seek a favorable agreement with commercial creditors to bring overall external debt down to 30 percent of GDP in NPV terms within the next three years. - Authorities recognize the need to expand fiscal space for social spending (which ended the year lower than initially planned) and for infrastructure spending (which declined substantially). - 2020 budget and revenue measures: - The 2020 budget adopted by Parliament in December 2019 is in line with program objectives. - It targets higher non-oil revenues and streamlined current spending, including new measures to reduce subsidies to state-owned enterprises. - Reduction of tax exemptions envisaged under the 2020 budget is expected to significantly contribute to raising tax revenue. - The SIP provides analysis with insights on specific measures to improve revenue performance in Congo. - Donor support: - Authorities underline the importance of timely donor budget support to achieve program objectives, including social spending targets and clearance of external arrears, given the extremely tight fiscal position. ### Financial Sector - System soundness and challenges: - Overall solvency of the banking system continues to be sound although non-performing loans (NPLs) remain elevated. - Elevated NPLs weigh on banks’ balance sheets and constrain the financial sector’s role in supporting recovery. - The rise in NPLs is largely the result of the accumulation of domestic arrears by the public sector; expected clearance of these arrears will significantly reinforce the banking sector. - Supervisory actions: - Authorities, in collaboration with the regional banking commission (COBAC), are considering options to address difficulties of two non-systemic banks. ### Structural Reforms - Governance and transparency: - Improving governance and diversifying away from oil are central to the reform agenda. - Significant reforms in governance and transparency over recent years will continue, including reinforcing the anti-corruption framework and promoting transparency in the oil sector. - Authorities will adopt decrees needed for the Anti-Corruption High Authority and the Transparency Commission and provide adequate resources for them to become fully operational. - Authorities look forward to IMF technical assistance to further improve public financial management (PFM), ensure outstanding payments from previous budgets are addressed, and set up appropriate safeguards in line with international best practices. - Economic diversification and private investment: - Authorities plan to accelerate diversification by promoting sectors with comparative advantage, focusing on more productive agricultural and forestry activities. - Planned investments include enabling infrastructure (particularly transportation) and expanded power generation and distribution. - Efforts include promoting transparency in these sectors, improving the business environment by simplifying licensing procedures, and addressing weaknesses identified in the World Bank’s “Doing Business” reports with development partner assistance, to attract private investments and foster job creation. ### Conclusion - Authorities have made important strides in stabilizing the economy and raising growth prospects but recognize more must be done to achieve higher, sustained, and more inclusive growth. - To accelerate progress toward program objectives, they will maintain close engagement with the Fund and seek continued international community support for the reform agenda under the ECF. *Source: Introduction (1cogea2020001) — IMF country documentation.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1cogea2020001.pdf_