## 1. Revenues to GDP Ratios for DRC and Peer Countries

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---

### A. Recent dynamics and composition
- Domestic revenue mobilization (DRM) in the DRC: 13.7 percent of GDP in 2023.
- General government revenue (excluding grants): peaked at 15.4 percent of GDP in 2022; averaged 11.3 percent during 2010-2019.
- Revenue gap versus peers:
  - Difference to SSA average in 2023: 5.1 percentage points.
  - 10-year average difference: 6.8 percentage points.
- Main revenue drivers in recent improvement:
  - Corporate income taxes: 3.6 percent of GDP in 2023.
  - Taxes on goods and services: 3.5 percent of GDP in 2023.
  - Non-tax revenues: 3.4 percent of GDP in 2023.
- Underperforming bases relative to SSA:
  - Personal income taxes (PIT): 1.3 percent of GDP (past three years) vs SSA 2.9 percent of GDP in 2023.
  - Taxes on international trade and transactions: 1.0 percent of GDP (past three years) vs SSA 2.6 percent of GDP in 2023.
  - Goods and services taxes: DRC ~3.5 percent of GDP vs SSA average 5.6 percent of GDP in 2023.
- Policy note: VAT (goods and services tax) enforcement identified as a relatively feasible channel for revenue gains and to address informality.

### B. Extractive- and non-tax revenue features
- Royalties from mineral production: 1.1 percent of GDP in 2022; 0.7 percent of GDP in 2023.
- Dividends and other income from profit-sharing agreements: described as minor components.
- Mining-sector revenues: roughly one-third of the government's domestic revenues.
- Principal mining revenue components and shares (2018-22 average): Income tax; Mining royalties; Import and customs duties; Windfall profit tax; VAT; Other (shares presented in source).
- Average mining-sector revenue (USD millions):
  - 2013-2017: USD 4,002 million.
  - 2018-2022: USD 5,   541 million.
- Observed near-perfect correlation between domestic revenues and copper prices (visualized in source Figure 4).

### C. Revenue administration roles
- Direction Générale des Impôts (DGI): main contributor to mining-sector revenue, with increased contributions during 2018-2022 mainly from corporate income tax collection.
- Other agencies involved in collection: DGDA, DGRAD.

### D. Tax structure comparisons and priority areas
- DRC underperforms peers in: personal income taxation, VAT/goods-and-services taxation, and international trade taxation.
- Goods and services taxes stable at ~3.5 percent of GDP but well below SSA average of 5.6 percent.
- Significant scope to increase domestic revenues via stronger VAT/goods-and-services tax collection contingent on addressing informality and tax administration capacity.

### E. SFA tax potential estimates
- Method: stochastic frontier analysis linking tax-to-GDP to structural predictors (GDP per capita; share of agriculture value added; openness to trade; size of international aid; rural population share; debt service to GNI); data span 1990-2022 and 34 SSA countries.
- Estimated theoretical tax capacity for DRC: close to 19 percent of GDP in recent years; tax potential has been steadily above 15 percent over the last two decades.
- Gap between actual tax-to-GDP and the tax frontier: average 10.7 percentage points over the last decade.
- Benchmarks:
  - FAD’s 2023 SDN: tax potential of Low-Income Developing Countries (LIDCs) = 19.9 percent of GDP in 2020.
  - FAD’s average tax effort (observed/tax frontier) for LIDCs: 0.67 in 2020.
  - DRC’s tax effort: 0.36 in 2020.

### F. Impediments to effective revenue mobilization
- Complexity and fragmentation:
  - Hundreds of tax categories managed across central, provincial, and ETD levels and several revenue agencies (DGI, DGRAD, DGDA).
  - Absence of a General Tax Code; fragmented legal framework lowers transparency and facilitates corruption.
  - Up to 137 possible types of taxes/charges by the 26 provinces; and 38, 34 and 38 possible types by cities, communes and chieftaincies, respectively.
- Exemptions and tax expenditures:
  - Estimated central government revenue loss from exemptions: 5.7 percent.
  - Estimated loss from tax expenditures: 22.3 percent.
  - Discretionary management of exemptions and strategic partnership regimes.
- Revenue management and collection inefficiencies:
  - Proliferation of collection channels and discretionary management lead to dispersion and mismanagement of public funds.
  - Strained relations and frequent disputes between mining operators and revenue agencies.
  - Poor information sharing and coordination among ministries and agencies, affecting tax base estimation and collection.
- Tax administration performance (TADAT 2023):
  - “Weak” ratings (D scores) in 26 of the 32 dimensions.
  - Since 2016, only three dimensions improved and three deteriorated.
  - Specific weaknesses: insufficient efforts to identify new taxpayers; weak audit capabilities; limited use of third-party data; DGI lacks formal mechanisms to detect frauds, errors, or omissions in taxpayer declarations.

### G. Policy implications and recommended actions (from revenue chapter)
- Revenue mobilization potential: about 10 percentage points of GDP under more efficient tax policy and tax collection (per stochastic frontier estimates).
- Short- and medium-term steps signaled:
  - Step up goods and services tax collection efforts (VAT enforcement) to address informality and boost revenues.
  - Implement tax administration reforms following TADAT recommendations, with emphasis on tax avoidance in the mining sector.
  - Address complexity and fragmentation of the tax system, prepare a comprehensive General Tax Code, and limit discretionary exemption regimes.
  - Improve coordination and information sharing across agencies.

---

### Evidence on tax concentration, evasion risks, and FDI patterns

### Concentration and FDI patterns
- Top ten Multinational Enterprises in terms of copper exports: ~63 percent of total DRC exports in 2023.
- Countries of origin for large copper exporters: China, Canada, Switzerland, Kazakhstan and UK.
- Cobalt sector concentration: 9 firms account for ~80 percent of total exports; origins primarily China, Switzerland and Kazakhstan.
- FDI inflows: more than 60 percent comes from Mauritius.
- Mauritius: FDI to GDP ratio of about 2,000 percent; top-5 inbound source for seven of 15 resource-intensive SSA economies; its share in DRC FDI is the highest in Africa.

### Measures against profit-shifting and current constraints
- Tax measures enacted:
  - Limits on deductibility of interests on loans between a company in DRC and its foreign shareholders.
  - Recognition of undue benefits to foreign entities as indirect profit distribution.
  - Stringent criteria for deductibility of payments for services from abroad suppliers.
  - Finance Law 2015 requires firms with notable foreign connections to provide transfer pricing documentation.
- Other instruments: Mining Code provisions and OHADA Treaty guidelines, despite absence of explicit thin capitalization rules.
- Key constraint: tax administration’s limited capacity to audit complex transactions; bolstering audit capabilities is crucial to address transfer pricing and profit shifting.

### Short- and medium-term policy recommendations (extracted)
- Implement short-term revenue mobilization and fiscal adjustment in parallel with structural reforms to improve tax administration to avoid increasing tax harassment and impeding firm entry/dynamism.
- Simplify the tax system: reduce number of taxes and consolidate collection under fewer agencies; accelerate preparation of a comprehensive General Tax Code with World Bank and IMF support.
- Strengthen governance frameworks to improve revenue management and reduce corruption:
  - Enhance transparency in tax exemptions.
  - Improve credibility of the budget process.
  - Adopt clear, non-discretionary processes for tax collection.
- Enhance inter-agency coordination and information sharing to improve tax base estimation and collection efficiency.
- Increase public engagement and transparency on use of tax revenues to boost voluntary compliance and reduce avoidance/evasion.
- Limit introduction of exemptions because effects are uncertain and may incur considerable revenue losses.

---

### Social spending, budget execution, and prioritization challenges

### Macroeconomic and social context
- Average growth: 6.1 percent between 2002 and 2023 (SSA average: 4.1 percent).
- Mining sector growth average: 11.3 percent over same period.
- Poverty and displacement:
  - Nearly 64 percent of the population lived in extreme poverty in 2023 (World Bank international poverty line = $2.15 a day).
  - By end-December 2023: almost 6.5 million internally displaced persons due to conflict.
- Education and health coverage:
  - Primary enrollment: about 66.1 percent of school-aged population (SSA average 47.2 percent).
  - Secondary enrollment: 33.0 percent (SSA average 39.1 percent).
  - DRC spends an average of US$7 per child in primary school vs US$11 for SSA countries.
  - Human Development Index rank: 164th out of 174 countries.

### Social spending levels and composition (2017-2022 and 2022 snapshots)
- Share of public social spending in total voted budget rose by almost 10 percent between 2017 and 2022, an increase of almost 0.8 percent of GDP.
- By 2022:
  - Social spending = 29.5 percent of total voted budget (4.6 percent of GDP).
  - General public services = 33.9 percent of total voted budget (5.2 percent of GDP).
- Salary payments: nearly half of the improved social budget.
- Functional allocation (annual average, 2017-2022): over 93 percent of central government social spending allocated to education (over 60 percent) and health (over 33 percent); social protection received 7 percent.
- Education spending: rose to 3.1 percent of GDP in 2022 (2017: 2.1).
- Health resources: 1.5 percent of GDP in 2022 vs 1.1 percent average during 2017-2021.
- Social protection: has not exceeded 0.5 percent of GDP for the past six years.
- 2022 total government revenues: 16.6 percent of GDP; tax revenue: 11.5 percent of GDP (comparators: SSA 23 percent; low-income countries 16 percent).
- 2022 public spending on education and health: 3.0 percent and 1.7 percent of GDP respectively (SSA averages: 5.8 percent and 5.4 percent).

### PDL-145T and external financing
- PDL-145T estimated cost: US$1.7 billion (2.7 percent of GDP).
- Financing: about half of the August 2021 SDR allocation used to partially finance PDL-145T (~US$714 million); other half retained to bolster international reserves.
- Implementing agencies: Central Coordination Office (BCeCo); Fragile States Facility (CFEF); UNDP.

### Budget execution patterns: primacy of current spending and under-execution of investments
- Primacy of current spending over capital expenditure:
  - 2022 primary education budget: only 9.5 percent of forecast allocated to domestically-financed investments (0.2 percent of GDP allocated to investments vs 2.1 percent of GDP for current expenditure).
  - Salary payments: nearly 67 percent of primary education budget (1.6 percent of GDP).
  - Ministry operating costs: 0.5 percent of GDP.
  - High wage bill explained partly by unpredictable bonus payments.
  - Health: 79 percent of public health budget allocated to current expenditure; 21 percent earmarked for investment from own resources.
- Execution gaps (examples from 2022):
  - Education:
    - Own-resources investments implemented: 13 percent of budgeted (0.03 percent of GDP implemented vs 0.23 percent of GDP budgeted).
    - Current expenditure implemented at 111 percent, driven by salary and operating-cost overruns.
  - Health:
    - Current expenditure implemented at 126 percent (2.5 percent of GDP implemented vs 2.0 percent budgeted).
    - Investments from own resources implemented at 31 percent.
- Excessive reliance on external financing for social investments increases vulnerability:
  - Education investments 2022:
    - Own resources: 37 billion CDF (0.03 percent of GDP).
    - External resources: 563.7 billion CDF (0.47 percent of GDP) — 94 percent of total investment in sector.
  - Health investments 2022:
    - Own resources: 165 billion CDF (0.12 percent of GDP).
    - External resources: 1,273.4 billion CDF (0.96 percent of GDP).

### Detailed execution statistics (selected, as reported)
- Education (Billion CDF, Approved → Implemented; execution rates shown in source):
  - Current: 2,922.13 → 2,545.62 (111% execution rate)
  - Salaries: 2,299.82 → 3,059.06 (103%? — see table entry)
  - Others current expenditures: 622.38 → 895.61 (144% execution rate)
  - Ministries: 572.18 → 886.45 (155% execution rate)
  - Investments: 647.46 → 601.33 (93% execution rate)
  - Domestically-financed investments: 297.43 → 7.65 (3% execution rate)
  - Externally-financed investments: 350.05 → 563.76 (161% execution rate)
  - Total: 3,569.43 → 3,855.92 (108% execution rate)
- Education (Percent of GDP, Approved → Implemented):
  - Current: 2.21 → 2.46
  - Investments: 0.49 → 0.46
  - Domestically-financed investments: 0.23 → 0.03
  - Externally-financed investments: 0.27 → 0.43
  - Total: 2.70 → 2.92
- Health (Billion CDF, Approved → Implemented):
  - Current: 994.83 → 1,042.41 (126% execution rate)
  - Salaries: 649.16 → 690.52 (106% execution rate)
  - Others current expenditures: 345.67 → 351.99 (133% execution rate)
  - Investments: 69.21 → 106.89 (29% execution rate)
  - Domestically-financed investments: 36.31 → 65.01 (31% execution rate)
  - Externally-financed investments: 633.61 → 1,273.41 (201% execution rate)
  - Total: 994.83 → 1,042.41 (114% execution rate)
- Health (Percent of GDP, Approved → Implemented):
  - Current: 1.99 → 2.51
  - Investments: 0.28 → 0.08
  - Domestically-financed investments: 0.12 → 0.03
  - Externally-financed investments: 0.48 → 0.96
  - Total: 2.27 → 2.59

### Credibility, data, and monitoring limitations
- Budget planning and implementation processes are weak, undermining quality and prioritization of social spending.
- IMF technical assistance (March 2023) estimated additional spending required to make substantial progress on SDGs in five key areas: 43.9 percent of GDP in 2030.
- Data and monitoring gaps:
  - Need to specify coverage of social spending statistics and increase publication frequency for infra-annual monitoring.
  - Social spending currently identified only in “budget by function” and monthly ESB; ESB capture only spending within the expenditure chain and not spending outside the chain.

### Policy recommendations (social spending and budgeting)
- Build technical capacity in line ministries to improve projection of budget aggregates.
- Implement integrated information systems to improve budget preparation and execution monitoring.
- Improve budget transparency through effective inter-institutional coordination and compliance.
- Improve quality and frequency of publication of public social spending statistics and clarify coverage to enable infra-annual monitoring.
- Address structural discrepancies between forecasts and execution (capacity building, information systems, transparency).
- Continue reforms under the fiscal governance decree signed in October 2022 and pursue social-protection and para-fiscality legal reforms.

*Source: 1codea2024002-print-pdf*

### 1. Revenues to GDP Ratios for DRC and Peer Countries  _____________________________ 3

### 1. Revenues to GDP Ratios for DRC and Peer Countries

### A. Recent Dynamics and Key Findings
- Domestic revenue mobilization (DRM) in the DRC stood at 13.7 percent of GDP in 2023.
- General government revenue (excluding grants) to GDP peaked at 15.4 percent in 2022 and averaged 11.3 percent during 2010-2019.
- Revenue to GDP remains below peers:
  - Difference to SSA average in 2023: 5.1 percentage points.
  - 10-year average difference: 6.8 percentage points.
- Recent revenue improvements were driven primarily by corporate income taxation linked to the extractive sector.
  - Corporate income taxes: 3.6 percent of GDP in 2023.
  - Taxes on goods and services: 3.5 percent of GDP in 2023.
  - Non-tax revenues: 3.4 percent of GDP in 2023.
- Personal income and trade taxation underperform relative to peers:
  - Personal income taxes (PIT): 1.3 percent of GDP (past three years).
  - Taxes on international trade and transactions: 1.0 percent of GDP (past three years).
  - SSA averages for 2023: PIT 2.9 percent of GDP; trade taxes 2.6 percent of GDP.
  - SSA average for goods and services taxes in 2023: 5.6 percent of GDP (DRC: ~3.5 percent).
- VAT (goods and services tax) enforcement is highlighted as a relatively feasible channel for revenue gains given its potential impact on informality.

### B. Non-Tax and Extractive-Related Revenues
- Royalties from mineral production:
  - Peaked at 1.1 percent of GDP in 2022.
  - Subsided to 0.7 percent of GDP in 2023.
- Dividends and other income from profit-sharing agreements are minor components of revenue.
- Mining sector revenues represent roughly one-third of the government's domestic revenues.
- Principal mining revenue components and shares (2018-22 average):
  - Income tax; Mining royalties; Import and customs duties; Windfall profit tax; VAT; Other.
- Average mining-sector revenue (USD millions):
  - 2013-2017: USD 4,002 million.
  - 2018-2022: USD 5,   541 million.
- There is an almost perfect correlation between domestic revenues and copper prices (visualized in Figure 4).

### C. Revenue Administration and Collection Roles
- The Direction Générale des Impôts (DGI) is the main contributor to mining-sector revenue, with higher contributions during 2018-2022, primarily from corporate income tax collection.
- Other agencies involved: DGDA, DGRAD.

### D. Tax Structure Comparisons and Priorities
- DRC underperforms peers in: personal income, VAT, and international trade taxation.
- Goods and services taxes are stable in DRC (~3.5 percent of GDP) but substantially below SSA average (5.6 percent).
- Significant scope exists to improve domestic revenues via stronger VAT/goods-and-services tax collection, but requires addressing informality and tax administration capacity bottlenecks.

---

### E. Estimating Tax Potential (Stochastic Frontier Analysis)
- Method: stochastic frontier model linking tax-to-GDP to structural predictors (GDP per capita; share of agriculture value added; openness to trade; size of international aid; rural population share; debt service to GNI). Data from WEO and WDI covering 1990-2022 and 34 SSA countries.
- Estimated theoretical tax capacity for DRC: close to 19 percent of GDP in recent years; tax potential has been steadily above 15 percent over the last two decades.
- Gap between actual tax-to-GDP and the tax frontier: average 10.7 percentage points over the last decade.
- Benchmarking:
  - FAD’s 2023 SDN: tax potential of Low-Income Developing Countries (LIDCs) was 19.9 percent of GDP in 2020.
  - FAD’s average tax effort (observed/tax frontier) for LIDCs: 0.67 in 2020.
  - DRC’s tax effort: 0.36 in 2020.

---

### F. Impediments to Effective Revenue Mobilization
- Complexity and fragmentation:
  - Hundreds of tax categories managed by different government levels (central, provincial, ETDs) and several revenue agencies (DGI, DGRAD, DGDA).
  - Absence of a General Tax Code; fragmented legal framework reduces transparency and facilitates corruption.
  - Up to 137 possible types of taxes/charges by the 26 provinces; and 38, 34 and 38 possible types by cities, communes and chieftaincies, respectively.
- Exemptions and tax expenditures:
  - Estimated loss of central government revenue: 5.7 percent from exemptions; 22.3 percent from tax expenditures.
  - Discretionary management of exemptions and strategic partnership regimes.
- Revenue management and collection inefficiencies:
  - Proliferation of collection channels and discretionary management lead to dispersion and mismanagement of public funds.
  - Strained relations between mining operators and revenue agencies; frequent disputes over tax assessments and collections.
  - Poor information sharing and coordination among ministries and agencies, affecting tax base estimation and collection.
- Tax administration performance:
  - TADAT 2023 evaluation: “weak” ratings (D scores) in 26 of the 32 dimensions.
  - Compared to 2016, only three dimensions improved and three deteriorated.
  - Specific weaknesses: insufficient efforts to identify new taxpayers; weak audit capabilities; limited use of third-party data; DGI lacks formal mechanisms to detect frauds, errors, or omissions in taxpayer declarations.

### G. Policy Implications Highlighted in the Source
- Significant scope exists to improve tax-to-GDP by about 10 percentage points under more efficient tax policy and tax collection (per stochastic frontier estimates).
- Steps signaled by the source to strengthen DRM include:
  - Stepping up goods and services tax collection efforts (VAT enforcement) to address informality and boost revenues.
  - Implementing tax administration reforms based on recommendations from the recently published TADAT report, with a focus on tax avoidance in the mining sector.
  - Addressing complexity and fragmentation of the tax system (including the absence of a General Tax Code), discretionary exemption regimes, and improving coordination and information sharing across agencies.

*Prepared by IMF staff; content based solely on the supplied chapter excerpt.*

### 12.      Significant evidence suggest that tax evasion is substantial in DRC. The top ten

### 1codea2024002-print-pdf - 12.      Significant evidence suggest that tax evasion is substantial in DRC. The top ten

### Evidence on tax concentration, evasion risks, and FDI patterns
- Top ten Multinational Enterprises in terms of copper exports represent approximately 63 percent of total DRC exports in 2023.
- The countries of origin for these large copper exporters include China, Canada, Switzerland, Kazakhstan and UK.
- The cobalt sector is more concentrated: only 9 firms account for approximately 80 percent of total exports; their origin is primarily China, Switzerland and Kazakhstan.
- More than 60 percent of FDI inflows comes from Mauritius, described as an important investment “hub” with light taxation conducive to profit shifting.
- Mauritius has an FDI to GDP ratio of about 2,000 percent.
- Mauritius is in the top-5 inbound investment source for seven of the 15 resource-intensive economies of SSA and its share on FDI investment in DRC is the highest in Africa.

### Measures initiated to mitigate profit-shifting and current limitations
- Tax measures enacted include:
  - Limits on the deductibility of interests on loans between a company in DRC and its foreign shareholders.
  - Recognition of undue benefits to foreign entities as indirect profit distribution.
  - Stringent criteria for the deductibility of payment for service from abroad suppliers.
  - Finance Law 2015 requires firms with notable foreign connections to provide transfer pricing documentation.
- Some guidelines exist via the Mining Code and the Organisation de l’HArmonisation du Droit des Affaires Treaty, despite the absence of explicit thin capitalization rules.
- A key constraint: the tax administration's limited capacity to audit complex transactions, which hampers effectiveness of initiatives and suggests bolstering audit capabilities is crucial for addressing transfer pricing and profit shifting comprehensively.

### Short- and medium-term policy recommendations (extracted)
- Implement short-term revenue mobilization efforts (and generally fiscal adjustment) in parallel with structural reforms to improve tax administration; otherwise higher tax targets and/or a broadened tax base could increase the risk of tax harassment and impede firm entry/dynamism.
- Simplify the tax system by reducing the number of taxes and consolidating revenue collection under fewer agencies; accelerate preparation of a comprehensive General Tax Code with the support of the World Bank and the IMF.
- Strengthen governance frameworks to improve revenue management and reduce corruption, including:
  - Enhancing transparency in tax exemptions.
  - Improving the credibility of the budget process.
  - Adopting clear, non-discretionary processes for tax collection.
- Enhance inter-agency coordination by improving information sharing and coordination among government ministries, revenue agencies, and other stakeholders to facilitate more accurate tax base estimations and improve revenue collection efficiency.
- Increase public engagement and transparency about how tax revenues are used to improve public services and infrastructure to boost voluntary compliance and reduce tax avoidance and evasion.
- Limit the introduction of exemptions of all kinds as much as possible because their effects are uncertain and they may incur considerable cost in tax revenue losses.

### Box: Estimating tax potential using Stochastic Frontier Analysis (SFA) — methodological summary
- SFA assumes a one-sided random error so deviations from the highest observed tax revenue ratios occur only by underperformance relative to the frontier.
- Model specification (as presented):
  - ln(TR_it) = c + Σ β ln(X_it) + v_it − u_it
  - TR_it is the tax to GDP ratio in year t and country i.
  - X_it includes: GDP per capita in constant USD; share of agriculture value added in GDP; openness to trade (imports+exports/GDP); net ODA received as a share of GNI; rural population share; and debt service to GNI.
  - v_it is zero-mean symmetric stochastic error; u_it is non-negative inefficiency.
- Expected coefficient signs (as stated):
  - GDP per capita: positive relationship with tax revenues to GDP.
  - Share of agriculture value added: negative relationship with tax ratios.
  - Trade openness: positive relationship.
  - Size of international aid: negative relationship.
  - Rural population share: negative relationship.
  - Debt service to GNI: positive relationship.
- The analysis follows Benitez et al (2023) assuming a time-varying inefficiency SFA model for panel data; estimates use peer (SSA) countries from 1990 to 2021. All variables are in natural logarithms.

### Social spending context, allocation, and credibility issues
- Macroeconomic and social context:
  - DRC experienced average growth of 6.1 percent between 2002 and 2023, compared with an SSA average of 4.1 percent.
  - Mining sector growth averaged 11.3 percent over the same period.
  - In 2023, nearly 64 percent of the population lived in extreme poverty (measured by the World Bank’s international poverty line set at $2.15 a day).
  - By end-December 2023, almost 6.5 million internally displaced persons due to conflict.
  - Primary and secondary enrollment rates: about 66.1 percent and 33.0 percent of school-aged population respectively, compared to SSA averages of 47.2 and 39.1 percent.
  - DRC spends an average of US$7 per child in primary school, compared with US$11 for SSA countries.
  - The country's Human Development Index ranks 164th out of 174 countries.
- Social spending trends and composition:
  - Over the past six years, the share of public social spending (including salaries) in the total voted budget rose by almost 10 percent between 2017 and 2022, representing an increase of almost 0.8 percent of GDP.
  - By 2022, social spending held the second largest share of the total voted budget, estimated at 29.5 percent (equivalent to 4.6 percent of GDP); general public services came first at 33.9 percent (equivalent to 5.2 percent of GDP).
  - Salary payments account for nearly half of the improved social budget.
  - Allocation across functions (annual average, 2017-2022): over 93 percent of central government social spending was allocated to education (over 60 percent) and health (over 33 percent); social protection received just 7 percent.
  - Education spending rose to 3.1 percent of GDP in 2022 (2017: 2.1).
  - Health resources reached 1.5 percent of GDP in 2022 compared with an average of 1.1 percent of GDP during 2017-2021.
  - Social protection has not exceeded 0.5 percent of GDP for the past six years.
- Fiscal space and revenue mobilization:
  - 2022 total government revenues: 16.6 percent of GDP, of which 11.5 percent was tax revenue.
  - Averages cited for comparison: SSA 23 percent; low-income countries 16 percent.
  - In 2022, public spending on education and health amounted to 3.0 percent and 1.7 percent of GDP respectively, compared with SSA averages of 5.8 percent and 5.4 percent.
- External financing and the PDL-145T:
  - The 145 Territories Local Development Program (PDL-145T) estimated cost: US$1.7 billion (2.7 percent of GDP).
  - Financing sources: approximately half of the August 2021 SDR allocation is devoted to partially finance the PDL-145T (around US$714 million); the authorities retained the other half to bolster international reserves.
  - Implementing agencies: Central Coordination Office (BCeCo); Fragile States Facility (CFEF); United Nations Development Program (UNDP).
- Credibility and prioritization challenges:
  - Budget planning and implementation processes are weak, negatively affecting the quality and prioritization of social spending.
  - An IMF technical assistance report (March 2023) estimated additional spending required to make substantial progress on SDGs in five key areas at 43.9 percent of GDP in 2030.

*Source: 1codea2024002-print-pdf*

### 12.      A fundamental challenge is the primacy of

### 12.      A fundamental challenge is the primacy of 

### Primacy of current spending over capital expenditure
- In 2022, only 9.5 percent of the forecast primary education budget (0.2 percent of GDP) was allocated to domestically-financed investments, compared with almost 90 percent for current expenditure (2.1 percent of GDP).
- Salary payments represented nearly 67 percent of the primary education budget (1.6 percent of GDP).
- Ministry operating costs were estimated at 0.5 percent of GDP.
- The high wage bill is also explained by bonus payments, most of which are not predictable.
- Similarly, 79 percent of the public health budget was allocated to current expenditure, while only 21 percent was earmarked for investment from own resources.

### Execution gaps: over-execution of current spending, under-execution of investments
- Education sector:
  - Only 13 percent of own-resources investments in the education sector (EPST and ESU) were implemented in 2022, representing 0.03 percent of GDP implemented versus 0.23 percent of GDP budgeted.
  - Current expenditure in the education sector was implemented at 111 percent, driven by budget overruns in salary payments and operating costs.
- Health sector:
  - Current expenditure was implemented at 126 percent, equivalent to 2.5 percent of GDP, compared with 2.0 percent of GDP budgeted.
  - Investments from own resources were implemented at 31 percent.

### Excessive reliance on external financing and vulnerability to shocks
- Social investments are mainly financed by external resources, increasing vulnerability to external shocks.
- Education investments in 2022:
  - Own resources: 37 billion CDF (0.03 percent of GDP).
  - External resources: 563.7 billion CDF (0.47 percent of GDP) — 94 percent of total investment in this sector.
- Health investments in 2022:
  - Own resources: 165 billion CDF (0.12 percent of GDP).
  - External resources: 1,273.4 billion CDF (0.96 percent of GDP).

### Ongoing and proposed reforms to strengthen budget credibility
- Address structural discrepancies between forecasts and execution by:
  - Building capacity in line ministries.
  - Implementing integrated information systems.
  - Improving budget transparency through effective inter-institutional coordination and compliance.
- Decree on fiscal governance signed in October 2022 in line with FAD technical assistance recommendations.
- Specific reform actions under way:
  - Preparation and validation of the Policy and the National Strategy for the Social Protection of Vulnerable People and Groups.
  - Supporting the UN Humanitarian Response Plan (HRP): Government approved, in February 202, the UN HRP, estimated at US$2.25 billion, to intervene for more than 6 million war-displaced people in eastern DRC.
  - Financing access to basic social services: reforms mainly financed by the central government and the ADB to strengthen resource mobilization capacities of the National Social Security Fund; a law is being drafted to propose legal texts on para-fiscality, organization of solidarity, and corporate and mining companies’ social responsibility.

### Data, monitoring, and publication improvements needed
- The government needs to strengthen the quality of social spending statistics by:
  - Clearly specifying coverage of social spending statistics.
  - Improving publication frequency to allow infra-annual monitoring.
- Current limitations:
  - Social spending is identified only in the “budget by function” in the public finance law and the Public Accountability Act, and monthly in the budget monitoring statements (ESB).
  - ESB provide information only on spending carried out in the expenditure chain and do not capture the high level of spending outside the chain.
- Authorities must improve the quality and frequency of publication of public social spending statistics and clarify the scope of their coverage.

### Key statistics and execution rates (selected, as reported)
- Education (Billion CDF, Approved → Implemented):
  - Current: 2,922.13 → 2,545.62 (111% execution rate)
  - Salaries: 2,299.82 → 3,059.06 (103%? — see table entry)
  - Others current expenditures: 622.38 → 895.61 (144% execution rate)
  - Ministries: 572.18 → 886.45 (155% execution rate)
  - Economic, Social Interventions: 38.43 → 9.21 (102% execution rate)
  - Investments: 647.46 → 601.33 (93% execution rate)
  - Domestically-financed investments: 297.43 → 7.65 (3% execution rate)
  - Project Counterpart: 2.00 → 0.03 (0% execution rate)
  - Investments from internal resources: 42.84 → 4.05 (9% execution rate)
  - Investments transferred to Provinces: 252.63 → 33.61 (13% execution rate)
  - Externally-financed investments: 350.05 → 563.76 (161% execution rate)
  - Total: 3,569.43 → 3,855.92 (108% execution rate)
- Education (Percent of GDP, Approved → Implemented):
  - Current: 2.21 → 2.46
  - Salaries: 1.74 → 1.79
  - Others current expenditures: 0.47 → 0.68
  - Ministries: 0.43 → 0.67
  - Economic, Social Interventions: 0.03 → 0.03
  - Investments: 0.49 → 0.46
  - Domestically-financed investments: 0.23 → 0.03
  - Project Counterpart: 0.00 → 0.00
  - Investments from internal resources: 0.03 → 0.00
  - Investments transferred to provinces: 0.19 → 0.03
  - Externally-financed investments: 0.27 → 0.43
  - Total: 2.70 → 2.92
- Health (Billion CDF, Approved → Implemented):
  - Current: 994.83 → 1,042.41 (126% execution rate)
  - Salaries: 649.16 → 690.52 (106% execution rate)
  - Others current expenditures: 345.67 → 351.99 (133% execution rate)
  - Ministries: 2.23 → 8.81 (74% execution rate)
  - Economic, Social Interventions: 4.93 → 9.51 (266% execution rate)
  - Investments: 69.21 → 106.89 (29% execution rate)
  - Domestically-financed investments: 36.31 → 65.01 (31% execution rate)
  - Project Counterpart: 69.21 → 106.80 (29% execution rate)
  - Investments from internal resources: 56.93 → 34.09 (60% execution rate)
  - Investments transferred to Provinces: 110.22 → 4.11 (13% execution rate)
  - Externally-financed investments: 633.61 → 1,273.41 (201% execution rate)
  - Total: 994.83 → 1,042.41 (114% execution rate)
- Health (Percent of GDP, Approved → Implemented):
  - Current: 1.99 → 2.51
  - Salaries: 1.62 → 1.76
  - Others current expenditures: 0.37 → 0.45
  - Ministries: 0.03 → 0.03
  - Economic, Social Interventions: 0.01 → 0.03
  - Investments: 0.28 → 0.08
  - Domestically-financed investments: 0.12 → 0.03
  - Project Counterpart: 0.28 → 0.08
  - Investments from internal resources: 0.24 → 0.10
  - Investments transferred to provinces: 0.48 → 0.02
  - Externally-financed investments: 0.48 → 0.96
  - Total: 2.27 → 2.59

### Policy recommendations (summarized from the text)
- Build technical capacity in line ministries to improve projection of budget aggregates.
- Implement integrated information systems to improve budget preparation and execution monitoring.
- Improve budget transparency through effective inter-institutional coordination and compliance.
- Improve the quality and frequency of publication of public social spending statistics and clarify their coverage to enable infra-annual monitoring.

*Sources: DRC authorities and IMF staff calculations.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1codea2024002-print-pdf.pdf_