## _cr06148 ## Source details **Canonical URL:** [_cr06148](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06148.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06148.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06148.pdf.json) --- ### Introduction and purpose - Assessment of eligibility of the Republic of Congo (hereafter “Congo”) for assistance under the enhanced HIPC Initiative. - Rationale for preliminary determination: - heavy debt burden, - track record under IDA- and IMF-supported programs, - status as an IDA-only and PRGF-eligible country. - Directors’ timing view: could reach decision point by end-2005, conditional on satisfactory policy implementation. - Debt sustainability snapshot: NPV of debt-to-government fiscal revenues well above the HIPC threshold of 250 percent on the basis of end-2004 data. - Role of debt relief: would help accelerate progress toward meeting the Millennium Development Goals (MDGs). ### Poverty and living standards — key indicators and trends - Long-term income and poverty: - Per capita real GDP in 2004 about 70 percent of its 1984 level. - World Bank estimate: 70 percent of the population lives below the poverty line (defined as US$1 per day) compared to about 30 percent in 1993. - 2004 UN human development index rank: 144 out of 177. - Unemployment affects more than 50 percent of the active population. - Selected indicators (Box 1, values preserved): - Population (in millions, 2004): Republic of Congo 3.8; Sub-Saharan Africa 688 - Population growth (in percent): 3.0; Sub-Saharan Africa 2.4 - GNI per capita (U.S. dollars, 2004): 770; Sub-Saharan Africa 450 - Life expectancy (in years): 52; Sub-Saharan Africa 46 - Infant mortality rate (per thousand): 81; Sub-Saharan Africa 105 - Child under 5 mortality rate (per thousand, 2003): 108; Sub-Saharan Africa ... - Maternal mortality rate (per 100,000 live births): 510; Sub-Saharan Africa ... - HIV/AIDS estimated prevalence rates (urban areas, 2003, in percent): - By gender: Male 3.8; Female 4.7 - By age group: 15-19 1.2; 20-29 3.7; 30-39 6.6; 40-49 6.6 - Illiteracy rate (percent of population age 15+, latest single year available 1996-2002): Republic of Congo 17; Sub-Saharan Africa 37 - Gross primary enrollment rate (percent of school age population, latest single year available 1996-2002): Republic of Congo 97; Sub-Saharan Africa 86 - Male 101; Sub-Saharan Africa 92 - Female 93; Sub-Saharan Africa 80 - Impact of conflicts in the 1990s: - Child soldiers: 5,000 - Displaced persons: 1,000,000 ### Political and security developments - Elections and transition: - Elections held January-June 2002 (constitutional referendum; presidential, legislative, local, senatorial elections). - Four-year political transition completed; improved stability established prerequisites for decision point. - Cabinet reshuffle in early January 2005. - Security incidents: - Rebel attacks forced suspension of Brazzaville-Pointe Noire rail line late last year. - Rebel attack on a UNDP convoy in the Pool region in April 2005. - Skirmishes in October 2005 in a suburb of Brazzaville. - Government signed a peace accord with a hold-out rebel group and launched demobilization. ### Macroeconomic recovery and fiscal governance (2000–04 and recent) - Growth and inflation: - Non-oil real GDP increased by about 9½ percent per annum on average during 2000-04. - Consumer price inflation declined significantly. - Fiscal improvements since late 1990s: - Basic primary fiscal balance improved; recent significant improvement attributable to tighter control of expenditure, high oil revenues, mobilization of non-oil revenues. - Table 1 selected historical indicators (values preserved as in source): - Per capita GDP (in 1995 US dollars): 1980-84 982; 1985-89 979; 1990-94 883; 1995-99 796; 2000-04 795 - Real GDP growth: 1980-84 14.3; 1985-89 -0.7; 1990-94 -0.1; 1995-99 1.7; 2000-04 4.2 - Oil real GDP growth: 12.5; 9.3; 3.8; 9.1; -3.3 - Non-oil real GDP growth: 14.9; -3.3; -1.7; -2.8; 9.6 - Consumer price inflation: 3.7; -2.8; 9.0; 7.4; 1.9 - Total domestic revenue (excl. grants, percent of GDP): 34.1; 25.8; 24.3; 25.7; 29.1 - Primary expenditure and net lending (percent of GDP): 24.3; 22.9; 26.4; 21.6; 22.4 - Basic primary budget balance (percent of GDP): 9.8; 2.9; -2.2; 4.2; 6.7 - Trade balance (percent of GDP): 23.3; 25.6; 24.3; 40.1; 53.3 - External debt (percent of GDP): 89.6; 176.6; 217.5; 236.9; 180.8 - Real effective exchange rate (index, 1990=100): 96.7; 98.8; 92.7; 79.3; 80.8 - Terms of trade (index, 1990=100): 179.6; 125.8; 84.1; 78.0; 127.4 - Oil price (U.S. dollars per barrel): 33.3; 18.7; 19.2; 17.4; 28.9 - Adult illiteracy ratio (percent of people ages 15 and above): 46; 38; 30; 23; 19 - Secondary school enrollment ratio (in percent of children of secondary school age): --; 74; 75; 54; 34; 42 - Immunization ratio (percent of children under 12 months for immunization against diphtheria, tetanus, and polio): --; 50; 70; 67; 33; 31 - Life expectancy at birth (in years): --; 50; 51; 51; 51 ### Public finance reforms and revenue measures (Box 2 highlights) - Budget framework reforms: - Centralization of revenues and expenditures; phasing out off-budget spending by oil companies. - Reduction of delays in budget submission to parliament; improved coordination between Finance and Planning. - Strengthened management and technical capacity at the Finance Ministry. - Revenue mobilization measures: - Quarterly certification of oil revenues by an audit firm of international reputation. - Certification of 2004 forestry tax revenues. - Completion of “cost oil” audits for 2003 for all production-sharing contracts. - Dividend policy for SNPC (adopted March 2004): reserve at least 30 percent of the 2003 net profits to the Treasury and 20 percent in subsequent years. - Expanded territorial coverage of tax and customs administration; operational audits; computerization; single taxpayer identification number (NIU). - Expenditure and cash management: - Data tracking of spending at commitment, payment order, and cash payment stages. - Preparation of regular data to track poverty-related spending. - Abstention from contracting new oil-collateralized debt. - Significant reduction of exceptional spending procedures (paiement par anticipation). - Preparation of consolidated treasury accounts. ### Oil sector reforms and transparency (Box 3 highlights) - Progress and remaining weaknesses: - Considerable progress in reforming the oil sector and improving transparency; major weaknesses remain in SNPC internal controls, management information, accounting, marketing, and awarding concessions. - SNPC auditing and monitoring: - Audits of SNPC financial accounts for 1999-2001, 2002, and 2003 by an audit firm of international reputation. - Adoption in March 2004 of a plan to implement audit recommendations. - Creation in 2003 of the Oil Monitoring Unit (OMU) in the Ministry of Finance. - Transparency measures: - Publication of the 2003 SNPC audit and significant excerpts of other audits; publication of PSAs and oil-related data. - Public seminars and commitment to EITI (June 2004). ### Recent PRGF performance and program implementation - IMF engagement: - EPCA in 2000 equivalent to SDR10.6 million. - Four staff-monitored programs (SMPs) during 2001-04. - Three-year PRGF arrangement approved December 6, 2004 equivalent to SDR 54.99 million (65 percent of quota). - Quantitative performance criteria (end-September 2005) — preliminary indications: - Eight of ten quantitative performance criteria preliminarily met (listed in source: ceilings and prohibitions on various debt and arrears actions). - Missed targets: - Floor on the primary fiscal balance missed. - Minimum payment on external arrears missed (authorities adhered to Paris Club rescheduling). - Primary fiscal surplus shortfall at end-September 2005: fell short by CFAF 113 billion (3.6 percent of GDP). - Contributing factors: - CFAF 80.7 billion (2.6 percent of GDP) in oil revenues not transferred by end-September to protect assets; repatriated in early November 2005. - Expenditure overrun equivalent to 0.6 percent of GDP (transfers to CORAF and payments to private oil companies). - Increased fees and commissions related to asset protection. - Structural benchmarks: two Q3 2005 structural performance criteria observed (automatic price adjustment action plan; certification of forestry revenues for 2004). Most structural benchmarks observed; some access issues for oil auditors noted. ### PRSP process and poverty reduction strategy - I-PRSP prepared in 2004; five pillars: - (i) consolidation of peace and good governance; - (ii) consolidation of macroeconomic stability and promotion of key economic sectors; - (iii) improving access to basic social services and social protection; - (iv) improving access to infrastructure; - (v) strengthening the fight against HIV/AIDS. - Full PRSP expected by late 2006; household survey underway expected end-March 2006; CWIQ implementation planned. - JSAN recommendations: widen participatory process, improve data quality and availability, focus on fiscal transparency, economic growth, public finance management, and legal framework. ### Medium- and long-term macroeconomic projections (baseline assumptions and outcomes) - Baseline assumptions: - Continued peace, sound macroeconomic policies, increased investment in infrastructure and human capital, structural reforms, improved transparency and governance. - Baseline projections: - Real GDP growth projected close to 5 percent per year during 2005-24. - Oil production expected to increase until 2010 then decline over the following two years due to depletion. - Non-oil real GDP growth projected to rise steadily. - Projected growth below that needed to halve poverty headcount (about 8 percent per annum in the non-oil sector), but considered realistic. - Key projection values (selected from tables and preserved where presented): - Real GDP growth projected at close to 5 percent per year during 2005-24 (text). - Non-oil real GDP growth averaged about 3.3 percent per year during 1980-2004 (reference). ### Debt sustainability analysis (DSA) — end-2004 baseline and post-relief outcomes - Debt stock and structure (end-2004, NPV terms): - Public and publicly guaranteed external debt estimated US$9.2 billion nominal, or $9.0 billion in NPV terms before Paris Club treatment. - NPV of debt corresponds to 661 percent of fiscal revenues, and 252 percent of exports as of end-2004. - End-2004 NPV of debt (Table 2 summary): - Total NPV of debt: 9,007 (Million U.S. dollars) — Percent of total: 100 - Multilateral: 363 — Percent of total: 4 - Official bilateral: 5,275 — Percent of total: 59 - Paris Club: 4,995 — Percent of total: 55 - Other: 280 — Percent of total: 3 - Commercial: 3,370 — Percent of total: 37 - Memorandum items: Total debt in nominal terms 9,248 — of which oil-collateralized debt 378 — NPV of debt after traditional debt relief (assuming Naples terms) 5,176. - DSA key projections and thresholds: - Enhanced HIPC Initiative fiscal revenue threshold: 250 percent. - NPV-of-debt-to-revenue ratio: - 2004 (after traditional relief): 250 percent at end-2004. - 2005 (after full delivery of enhanced HIPC, including new borrowing): 162 percent in 2005. - Projected to fall to about 66 percent by 2024. - Assumed growth underpinning projections: GDP growth 5 percent a year; export growth 9 percent a year. - External debt service as ratio of revenues: - 2005 estimated: 32 percent. - Close to 32 percent until end-2007 (assumed completion point date for simulation). - Expected to fall sharply after 2009 and remain below 10 percent thereafter; from 2010 onward expected to remain around 5 percent. - NPV of external debt at end-2004 after traditional relief (memorandum): 5,176 (Million U.S. dollars). ### Enhanced HIPC assistance — amounts, burden-sharing, modalities - Enhanced HIPC assistance required to reach NPV debt-to-revenues target of 250 percent: US$1,679 million in end-2004 NPV terms. - Breakdown of enhanced HIPC relief (NPV terms): - Multilateral creditors: US$118 million. - Paris Club bilateral creditors: US$913 million. - Commercial creditors: US$590 million. - Other official bilateral creditors: US$58 million. - Total debt service relief over time under assumed time profile and modalities: about US$2,906 million. - Assumptions on modalities: - Paris Club: Cologne terms flow rescheduling at decision point; remaining assistance at completion point through stock-of-debt operation. - IMF assistance: total US$8.08 million in NPV terms; interim assistance delivered a year after decision point if financing assurances in place; most IMF relief delivered following completion point. - IDA assistance: total US$49 million in NPV terms; begins providing relief immediately after decision point; relief becomes irrevocable at completion point and continues until 2021. - AfDB Group assistance: arrears clearance under PCCF. - Treatment for non-Paris Club official bilateral and commercial debt assumed comparable to Paris Club. - Commercial debt litigation: some commercial debt estimated at 11 percent of total NPV outstanding remains subject to legal action by creditors. ### Sensitivity analysis and alternative scenarios - Two alternative scenarios simulated post-HIPC assistance (summarized): 1. Lower oil prices scenario: - International market price for oil assumed 40 percent lower throughout forecast period relative to baseline. - Prudence factor unchanged at US$4/barrel; second-round effects on GDP accounted for. - Over 2005-14 the NPV-of-external-debt-to-revenue ratio on average higher by about 30 percentage points per year relative to baseline. 2. Lower non-oil GDP growth scenario: - Non-oil GDP growth assumed three-percentage points lower than baseline throughout projection period. - Over 2015-24 the NPV-of-external-debt-to-revenue ratio higher by about 25 percentage points per year relative to baseline. - Under both scenarios the NPV-of-debt-to-revenue ratio remains below the 250 percent threshold over the simulation period. - LIC DSA stress tests highlight principal vulnerabilities: fiscal relapse (“no reform” historical scenario) and depreciation shocks (including euro depreciation and a one-time 30 percent currency depreciation). ### Updated macro framework following higher oil prices (post-preliminary) - World oil prices projected increase: staff projected average increase of US$16.30/barrel per year during 2005-24. - Authorities recommended prudence: use oil prices set at US$10 per barrel below WEO projections from 2006 onward (contrasting with US$4/barrel prudence under baseline). - Updated DSA results with higher oil prices: - After traditional relief, debt burden falls significantly below the 250 percent threshold starting in 2005. - After enhanced HIPC: NPV-of-debt-to-revenue ratio would fall to 140 percent in 2005 and decline to about 44 percent by 2024 under the updated macro framework. - Preliminary 2006 budgetary and medium-term implications (selected): - Domestically-financed capital and current spending in 2006 would increase by about 40 percent and 13 percent respectively. - Projected cumulative long-term changes: - Domestic revenues projected higher by about 7.7 percentage points of GDP per year. - Domestically-financed primary spending higher by about 1 percentage point of non-oil GDP (but lower by 1 percentage point in relation to total GDP). - Primary fiscal surplus higher by about 8.7 percentage points of GDP. - Current account surplus projected to improve by some 3.3 percentage points of GDP. - Non-oil real GDP growth expected to be higher by about 1 percentage point per year. ### Floating completion point triggers and monitoring (Box 5 and related) - Completion point triggers include standard and sector-specific triggers for: - Public finance management (functional classification; public investment management system; procurement code; medium-term framework). - Natural resource management (oil and forestry sector audits, commercialization practices, conflict-of-interest rules for SNPC). - Telecommunications reform. - Basic health and education reform. - Selected trigger details: - PRSP: full PRSP through participatory process and satisfactory implementation for at least one year, evidenced by Annual Progress Report. - Macroeconomic stability: satisfactory performance under PRGF-supported program and any IMF successor program. - Public expenditure priorities: alignment with I-PRSP/PRSP. - Public finance management subtriggers: establishment of functional classification; implementation of public investment management system; adoption and implementation of new procurement code; adoption of medium-term framework. - Monitoring responsibilities: - IMF leads on macroeconomic stability and budget control. - IDA leads on PRSP preparation/implementation and sector-related triggers. - IMF and IDA jointly monitor oil and forestry transparency and external debt management improvements. ### Use, governance, and monitoring of HIPC assistance - Authorities committed to ensuring HIPC assistance is used to increase poverty-related spending. - Interim relief arrangements prior to completion point: - Interim relief discretionary for creditors and conditional on satisfactory program performance. - Interim debt-service savings to be deposited in a special treasury account at the regional central bank (BEAC) and limited to agreed poverty-reducing categories. - Spending monitored by a committee with donor and civil society observers and subject to annual independent published audits. - Requirements to secure effective use of debt relief: - Strengthen programming, management, and control of expenditures; improve service delivery. - Technical assistance by IDA and IMF on public expenditure management, procurement, oil revenue certification and reconciliation, and mobilization of non-oil revenues. ### Expenditure priorities for HIPC savings (Box 6) - Governance: results-based monitoring and evaluation; judicial reform. - Social protection: resettlement and reintegration of ex-combatants and civil strife victims; social safety nets linked to employment creation for youth. - Infrastructure/Urban: rehabilitate roads (particularly rural), water supply systems, and power grids. - Health: HIV/AIDS control; immunization, hygiene, oral rehydration salts, nutrition practices; bed nets; condoms; rehabilitate health infrastructure. - Education: raise share of expenditures on primary education; hire additional primary school teaching staff. - Rural: improve rural roads. ### Decision point assessment, financing assurances, and Board questions - Executive Board items for decision: - Agree Congo is eligible for relief under the enhanced HIPC Initiative and recommend approval of a decision point. - Endorsed enhanced HIPC assistance amount: US$1,679 million in NPV terms (Table 11). - Of this amount, US$48.9 million in NPV terms to be provided by IDA and US$8.08 million by the IMF. - Recommendation that IDA and IMF consider providing interim assistance once the 70 percent financing assurance threshold is reached. - Floating completion point: reached when triggers in Box 5 met and satisfactory assurances of other creditors’ participation received. - Financing assurances and timing: - Financing assurances obtained at decision point: 60 percent of outstanding debt. - Financing assurances required for IMF to provide interim debt relief: 70 percent. - Financing assurances expected in 2006 to reach 70 percent. - A debt deal with the London Club would allow financing assurances to exceed 80 percent (minimum required at completion point). ### Operational recommendations and next steps (as reflected in the paper) - Endorse decision point assessment and proposed decision point. - Request IDA and IMF to consider interim assistance in line with existing guidelines once 70 percent financing assurances secured. - Monitor and implement floating completion point triggers (public finance management, natural resource management, telecommunications, health and education). - Continue strengthening SNPC accounting, internal controls, management information systems, and marketing practices; complete audits and implement action plan recommendations. - Strengthen public expenditure management, procurement, and tracking of poverty-related spending with IMF and IDA technical assistance. - Ensure transparency and publication of oil and forestry revenue certification and manage arrears clearance in line with agreed frameworks. *Source: IMF staff report excerpts and tables from _cr06148 (Decision point assessment paper on Congo’s eligibility for assistance under the enhanced HIPC Initiative)._* ### 1. Selected Poverty and Living Standard Indicators ................................................................6 ### 1. Selected Poverty and Living Standard Indicators ### Introduction and purpose - This paper presents an assessment of the eligibility of the Republic of Congo (hereafter “Congo”) for assistance under the enhanced HIPC Initiative. - Executive Boards of the IMF and IDA made a preliminary determination that Congo could be eligible for assistance under the enhanced HIPC Initiative on the basis of: - its heavy debt burden, - its track record of performance under IDA- and IMF-supported programs, - its status as an IDA-only and PRGF-eligible country. - Directors generally agreed that Congo could reach its decision point by end-2005, provided that policy implementation under the government’s macroeconomic and structural program is satisfactory. - The debt sustainability analysis (DSA) indicates Congo’s external debt burden would remain above the HIPC threshold even after traditional debt-relief mechanisms, with the ratio of net present value of debt to government fiscal revenues well above the threshold of 250 percent on the basis of end-2004 data. - Debt relief under the enhanced HIPC Initiative would help accelerate progress toward meeting the Millennium Development Goals (MDGs). ### Background and qualification for enhanced HIPC Initiative assistance - Sections of the paper cover: - background information on qualification for debt relief under the enhanced HIPC Initiative, - dimensions of poverty, - political and security developments, - policy track record to date. - The paper discusses the PRSP process, medium-to-long-term macroeconomic objectives, sectoral and structural reforms to be implemented before reaching the completion point, key DSA results, floating completion point triggers, the use and tracking of enhanced HIPC assistance after the decision point, authorities’ views, and proposed issues for Executive Directors’ discussion. - Fiscal-window qualification criteria (as applied in Congo’s case): - export-to-GDP ratio of at least 30 percent, - revenue-to-GDP ratio of at least 15 percent, - Congo’s values as of 2004: exports-to-GDP ratio about 84.5 percent and revenue-to-GDP ratio about 32 percent. ### PRGF and IDA status - Congo is an IDA-only country, with a GNI per capita of US$770 in 2004 (World Bank Atlas methodology). - Congo is eligible to receive resources under the IMF’s Poverty Reduction and Growth Facility (PRGF). - Congo will continue to need concessional assistance and is likely to remain an IDA-only country and eligible for PRGF resources for the foreseeable future. ### Dimensions of poverty and living standards - Long-term trends and impacts: - Once classified as a lower-middle-income economy, Congo experienced a continuous decline in per capita income from the mid-1980s to the late-1990s. - Per capita real GDP in 2004 was about 70 percent of its 1984 level. - Poverty increased significantly, especially in the 1990s following the conflicts. - World Bank estimate: 70 percent of the population lives below the poverty line (defined as US$1 per day) compared to about 30 percent in 1993. - The 2004 United Nations human development index ranked Congo 144th out of a total of 177 countries. - Unemployment affects more than 50 percent of the active population, with youth particularly affected. - Impact of conflicts in the 1990s: three armed conflicts (1993, 1997, and 1998–99) had significant negative socio-economic consequences. ### Selected poverty and living-standard indicators (Box 1) - Population (in millions, 2004): Republic of Congo 3.8; Sub-Saharan Africa 688 - Population growth (in percent): 3.0; Sub-Saharan Africa 2.4 - GNI per capita (U.S. dollars, 2004): 770; Sub-Saharan Africa 450 - Life expectancy (in years): 52; Sub-Saharan Africa 46 - Infant mortality rate (per thousand): 81; Sub-Saharan Africa 105 - Child under 5 mortality rate (per thousand, 2003): 108; Sub-Saharan Africa ... - Maternal mortality rate (per 100,000 live births): 510; Sub-Saharan Africa ... - HIV/AIDS: Estimated prevalence rates (urban areas, 2003, in percent) - By gender: Male 3.8; Female 4.7 - By age group: 15-19 1.2; 20-29 3.7; 30-39 6.6; 40-49 6.6 - Illiteracy rate (percent of population age 15+, latest single year available 1996-2002): Republic of Congo 17; Sub-Saharan Africa 37 - Gross primary enrollment rate (percent of school age population, latest single year available 1996-2002): Republic of Congo 97; Sub-Saharan Africa 86 - Of which: Male 101; Sub-Saharan Africa 92 - Of which: Female 93; Sub-Saharan Africa 80 - Impact of conflicts in the 1990s: - Child soldiers: 5,000 - Displaced persons: 1,000,000 - Source for Box 1 data: World Bank, Economic and Social Indicators database. ### Recent political and security developments - Elections and political transition: - Following elections held in 2002 and improved stability, Congo established prerequisites for reaching the decision point under the enhanced HIPC Initiative. - Peace process steps: completed a four-year political transition period, held elections, and made progress in putting in place democratic institutions required by the Constitution. - Elections held during January-June 2002 included a constitutional referendum and presidential, legislative, local, and senatorial elections. - The cabinet was reshuffled in early January 2005. - Security remains fragile: - Rebel attacks late last year forced suspension of services on the Brazzaville-Pointe Noire rail line. - Rebel attack on a UNDP convoy in the Pool region in April 2005. - Skirmishes erupted in October 2005 in a suburb of Brazzaville. - The government signed a peace accord with a hold-out rebel group and launched a program to demobilize former combatants. ### Macroeconomic and structural reform record - Progress: - Emerging from conflict and low base, Congo made significant progress in macroeconomic, financial, and structural reforms. - Large challenges remain: enhance transparency in management of natural resources, strengthen budget management, address widespread primarily urban poverty, continue demobilization. - Selected historical indicators (Table 1, selected lines and values shown exactly as in source): - Per capita GDP (in 1995 US dollars): 1980-84 982; 1985-89 979; 1990-94 883; 1995-99 796; 2000-04 795 - Real GDP growth: 1980-84 14.3; 1985-89 -0.7; 1990-94 -0.1; 1995-99 1.7; 2000-04 4.2 - Oil real GDP growth: 12.5; 9.3; 3.8; 9.1; -3.3 (period alignment as in table) - Non-oil real GDP growth: 14.9; -3.3; -1.7; -2.8; 9.6 - Consumer price inflation: 3.7; -2.8; 9.0; 7.4; 1.9 - Total domestic revenue (excl. grants, percent of GDP): 34.1; 25.8; 24.3; 25.7; 29.1 - Primary expenditure and net lending (percent of GDP): 24.3; 22.9; 26.4; 21.6; 22.4 - Basic primary budget balance (percent of GDP): 9.8; 2.9; -2.2; 4.2; 6.7 - Trade balance (percent of GDP): 23.3; 25.6; 24.3; 40.1; 53.3 - External debt (percent of GDP): 89.6; 176.6; 217.5; 236.9; 180.8 - Real effective exchange rate (index, 1990=100): 96.7; 98.8; 92.7; 79.3; 80.8 - Terms of trade (index, 1990=100): 179.6; 125.8; 84.1; 78.0; 127.4 - Oil price (U.S. dollars per barrel): 33.3; 18.7; 19.2; 17.4; 28.9 - Adult illiteracy ratio (percent of people ages 15 and above): 46; 38; 30; 23; 19 - Secondary school enrollment ratio (in percent of children of secondary school age): --; 74; 75; 54; 34; 42 (table structure preserved as in source) - Immunization ratio (percent of children under 12 months for immunization against diphtheria, tetanus, and polio): --; 50; 70; 67; 33; 31 - Life expectancy at birth (in years): --; 50; 51; 51; 51 - Notes: 1/ Noninterest current expenditure plus domestically-financed investment. 2/ In percent of the children of secondary school age. 3/ In percent of children under 12 months for immunization against diphtheria, tetanus, and polio. - External support and program engagement: - IMF support: Emergency Post Conflict Assistance (EPCA) in 2000 equivalent to SDR10.6 million; four staff-monitored programs (SMPs) during 2001-04; three-year PRGF arrangement approved December 6, 2004 in amount equivalent to SDR 54.99 million (65 percent of quota) to support the government’s economic program through 2007. - IDA support: Post Conflict Economic Recovery Credit of US$37.6 million in July 2001; Economic Recovery Credit of US$30 million in December 2004 (focus on reforms in the oil sector and improving public investment performance); several ongoing investment projects including: - Transparency and Governance Capacity Building Project for US$7 million, - Emergency Infrastructure Rehabilitation and Living Conditions project for US$40 million, - Emergency Recovery and Community Support Project for US$41 million, - HIV/AIDS and Health project for US$19 million, - Support to Basic Education Project for US$20 million. - The Economic Recovery Credit is a two-tranche operation; second tranche conditional on multiple measures including SNPC action plan implementation and public investment and domestic debt measures (see source for full conditions). - African Development Bank (AfDB), European Union, and bilateral donors have provided assistance. - Agreement on December 16, 2004 between Paris Club creditors and Congo for a debt stock reduction and arrears rescheduling. *Source: IMF country document excerpt, “Selected Poverty and Living Standard Indicators.”* ### 11. The onset of peace in 1999/2000 boosted economic activity and contributed to ### _cr06148 - 11. The onset of peace in 1999/2000 boosted economic activity and contributed to ### Economic recovery and macroeconomic stability - Non-oil real GDP increased by about 9½ percent per annum on average during 2000-04, propelled by improvements in agriculture, commerce, and transportation. - The basic primary fiscal balance has improved since the late 1990s. - Consumer price inflation declined significantly, helped by: - the trend toward fiscal consolidation, - a more reliable supply line from Pointe-Noire to Brazzaville, - a strengthening of the euro (to which the CFA franc is tied) vis-à-vis the U.S. dollar. ### Fiscal position and governance since late 2003 - Recent significant improvement in the fiscal position attributable to: - tighter control of expenditure, - high oil revenues, - mobilization of non-oil revenues. - Public finance reforms undertaken with respect to the budget framework, revenue mobilization, and expenditure and cash management. - Government emphasis on improving governance, particularly oil sector management and transparency. - Remaining key weaknesses in oil sector management highlighted by increased transparency include: - SNPC’s accounting, - internal control, - management information system, - marketing of government oil. - Implementation of the action plan responding to SNPC audits has been slower than programmed, notably on: - strengthening accounting, - updating estimates of petroleum assets, - defining responsibilities within the corporate structure. - Significant steps to improve relations with creditors since the beginning of 2003, with differing degrees of success. - The government has contracted no new loans with maturity exceeding one year using oil as collateral since October 2002. ### Structural and sectoral reforms initiated or underway - Privatization and banking sector: - Privatization of state-owned banks was successfully completed. - The government temporarily took over a bank in critical condition to protect depositors, allow an orderly restructuring, and prepare it for reprivatization. - A restructuring plan, prepared with technical assistance from COBAC, was adopted by the bank’s board in December 2004. - The bank is under intensive surveillance by COBAC. - Legal and regulatory improvements to accompany liberalization, privatization, and private/public partnership in telecommunications, electricity, water, and petroleum distribution. - Distribution of refined oil products being privatized, although transfer of property titles not yet complete. - Private operators attracted in mobile telecommunications, with improvements in quality and price of service. - Corporate tax rate significantly reduced and an investment charter adopted to rationalize tax holidays. - Establishment of a one-stop window to facilitate investment procedures. ### Steps to strengthen public finance management (Box 2) - Budget framework: - Centralization of revenues and expenditures within the budget framework, including phasing out of off-budget government spending by oil companies. - Reduction of delays in preparing and submitting the budget to parliament. - Improved coordination between the Ministries of Finance and Planning on budget preparation. - Strengthening of management and technical capacity at the Finance Ministry. - Revenue mobilization: - Quarterly certification, by an audit firm of international reputation, that oil revenues due to the government by oil companies are consistent with proceeds registered at the Treasury. - Certification, by an audit firm of international reputation, of the 2004 forestry tax revenues. - Completion of “cost oil” audits for the year 2003, by audit firms of international reputation, for all production-sharing contracts. - Adoption in March 2004 by the government of a dividend policy for the SNPC, reserving at least 30 percent of the 2003 net profits to the Treasury and 20 percent in subsequent years. - Strengthening of territorial coverage by tax and customs administration through establishment of more provincial offices. - Operational audit of the General Directorates of Tax and Customs to enhance efficiency. - Launching of computerization of systems at the General Directorates of Tax and Customs. - Use of a single taxpayer identification number (NIU). - Expenditure and cash management: - Preparation of data tracking government spending at various stages of the expenditure circuit (commitment, issuance of payment orders, cash payments). - Preparation of regular data to track poverty-related spending. - Abstention by the government from contracting new oil-collateralized debt. - Significant reduction of exceptional spending procedures (paiement par anticipation). - Preparation of consolidated treasury accounts. ### Oil sector reforms and transparency (Box 3) - Considerable progress in reforming the oil sector and improving oil sector transparency; major weaknesses remain in SNPC internal controls, management information, accounting, marketing of government oil, and awarding concessions. - Measures to ensure full mobilization of government oil revenue: - Creation in 2003 of the Oil Monitoring Unit (OMU) in the Ministry of Finance to (i) forecast oil revenues based on fiscal parameters in Production Sharing Agreements (PSAs), (ii) compare forecasts with outcomes, and (iii) represent the Ministry’s interests in oil-related transactions. - Monitoring SNPC activities: - Audits of SNPC financial accounts for 1999-2001, 2002, and 2003 by an audit firm of international reputation covering consolidated statements, internal controls, and fiscal agency functions. - Audit of the 2002 financial accounts of the national oil refinery (CORAF) by an audit firm of international reputation. - Adoption in March 2004 of a plan to implement recommendations of the 1999-2001 SNPC audit to improve accounting, internal control, management information system, reporting and accountability. - Preparation of a strategy to refocus SNPC on core activities in the oil sector. - Enhancing transparency: - Publication on official internet sites of (i) the 2003 SNPC audit, and significant excerpts from the 1999-2001 and 2002 audits; (ii) the plan to reform SNPC’s operations; (iii) oil certification reports; (iv) PSAs; and (v) key oil-related data. - Seminars on the oil sector for parliamentarians in Brazzaville in November 2003, and for the public in Pointe Noire in May 2004. - Public announcement of commitment to adhere to the Extractive Industries Transparency Initiative (EITI) (June 2004). ### Recent performance under the PRGF arrangement - Preliminary indications: performance under the PRGF arrangement remained broadly on track; a full description to be undertaken in the context of the second review under the PRGF arrangement, planned for March 2006. - Quantitative performance criteria for end-September 2005: - Preliminary indications that eight of the ten quantitative performance criteria were met: - (i) a ceiling on the change in the net claims of the banking system on the government; - (ii) no new medium- or long-term nonconcessional borrowing; - (iii) no new external debt (including leasing) with an initial maturity of less than one year incurred or guaranteed by the government; - (iv) no new oil-collateralized external debt by or on behalf of the central government; - (v) a ceiling on new nonconcessional external debt contracted by the SNPC; - (vi) no new external payment arrears on nonreschedulable debt; - (vii) a ceiling on domestic arrears payments; - (viii) no new domestic payment arrears. - Missed targets: - The floor on the primary fiscal balance was missed by a large margin. - The minimum payment on external arrears was missed as authorities adhered to the December 2004 Paris Club rescheduling agreement, entailing lower-than-programmed payments on post-cutoff-date arrears. - Primary fiscal surplus shortfall at end-September 2005: - Fell short of its adjusted target by CFAF 113 billion (3.6 percent of GDP). - Key contributing factors: - CFAF 80.7 billion (2.6 percent of GDP) in revenue from oil sales not transferred to the Congolese Treasury from abroad by end-September in order to protect Congolese assets from litigating creditors; these revenues were repatriated in their entirety in early November 2005. - An expenditure overrun equivalent to 0.6 percent of GDP owing to (i) higher-than-projected transfers to CORAF to cover the company’s higher losses in the face of partial adjustment of fuel pump prices, and (ii) automatic payments to private oil companies for their 2004 oil delivery to CORAF that had remained unpaid. - Offset effects: although world oil prices were higher than programmed (raising the adjusted primary fiscal surplus target), positive revenue impact was partly offset by the sharp rise in the discount on Congolese crude oil. - Increased fees and commissions related to asset protection efforts. - Structural performance criteria and benchmarks: - Two structural performance criteria for Q3 2005 were observed: - Government adopted an action plan (including a timetable) for the introduction of an automatic price adjustment mechanism for refined petroleum products; plan envisages implementing a new price structure in 2006 following two studies with World Bank technical assistance. - Certification of forestry revenues in 2004 by an audit firm of international reputation completed and report submitted to the government. - Most structural benchmarks observed, including: - Adoption of a strategy to refocus SNPC activities on core oil sector activities with an implementation timetable. - Certification of oil revenues by an audit firm of international reputation for Q2 2005 and publication of the related report on the Internet site. - Implementation caveat: - Oil revenue auditors did not have direct access to treasury bank accounts for verifying oil revenues against cash receipts; an understanding on direct information access for oil revenue certification starting in the last quarter of 2005 was reached in November. - The benchmark on adoption of a comprehensive plan for the settlement of domestic arrears was missed; process for reaching agreement with creditors launched with IDA technical assistance from a private firm. - Treatment of domestic arrears would include treatment of social arrears, including preparation in 2006 of a settlement plan for the latter. - Banking system strengthening: - An audit firm of international reputation completed an audit of the statement of the loan portfolio as of March 31, 2005 of a bank in difficulty. - With COBAC assistance, the government prepared an action plan to strengthen recovery of the banking system’s nonperforming loans. - Authorities plan to request waivers for the two nonobserved quantitative performance criteria at the time of the second PRGF review. - Key issues for discussion at the next PRGF review: management of oil revenues; strengthening quarterly reconciliation/certification of oil revenues; marketing of government oil by the national oil company; awarding of contracts on oil concessions; governance and transparency; schedule of retail fuel price adjustment; status of CORAF’s losses. ### PRSP formulation and medium-to-long-term poverty reduction strategy - I-PRSP prepared in 2004 based on consultations with civil society and donors. - Five pillars of the I-PRSP: - (i) consolidation of peace and good governance; - (ii) consolidation of macroeconomic stability and promotion of key economic sectors; - (iii) improving access to basic social services and social protection; - (iv) improving access to infrastructure; - (v) strengthening the fight against HIV/AIDS. - IMF and IDA staffs consider the I-PRSP provides an appropriate framework for poverty reduction and use of resources under the enhanced HIPC Initiative. - JSAN recommendations: (i) widen the participatory process to include a larger component of civil society, (ii) improve data quality and availability with a household expenditure survey, (iii) continue focusing on targeted areas such as fiscal transparency, economic growth, public finance management, and legal framework. - Full PRSP process: - Government began preparation of a full PRSP. - Donors’ meeting organized in February 2005 with IDA assistance to evaluate I-PRSP implementation and prepare for full PRSP; outcome included creation of a donor coordination body to support the PRSP process. - A full PRSP is expected by late 2006. - Participation process for the full PRSP to be broadened and deepened by including civil society early. - Rapid poverty assessment conducted in June 2005. - A household survey underway expected to be completed by end-March 2006. - Implementation of the Core Welfare Indicators Questionnaire (CWIQ) will provide a benchmark assessment of social service delivery. - Steps needed to strengthen the country’s monitoring and evaluation system for the full PRSP. ### Macroeconomic objectives and projections - Projections used are those discussed in the preliminary HIPC document (Tables 4 and 5). - Forecasts based on assumptions of: - continued progress on peace and reconciliation, - sound macroeconomic policies, - increased investment in infrastructure and human capital, - structural reforms promoting a business-friendly environment, - policies enhancing transparency and governance and promoting institutions and rule of law. - Baseline scenario assumes Congo benefits from traditional debt relief mechanisms with significant downward impact on debt service and a composition shift of public expenditure in favor of pro-poor capital outlays. - Projected outcomes: - Real GDP growth projected at close to 5 percent per year during 2005-24, with a rise in investment. - Oil production expected to increase until 2010 as new oil fields come on stream, then decline over the following two years due to depletion of older oil fields. - Non-oil real GDP growth projected to rise steadily over the period due to higher investment and structural reforms promoting private sector activity. - Projected economic growth is below that needed to halve the proportion of the population living below the poverty line (about 8 percent per annum in the non-oil sector), but is considered realistic. - As a point of reference, non-oil real GDP growth averaged about 3.3 percent per year during 1980-2004. *Source: _cr06148 - 11. The onset of peace in 1999/2000 boosted economic activity and contributed to* ### 26. As a member of a monetary union, sound fiscal policy is the main domestic policy ### _cr06148 - 26. As a member of a monetary union, sound fiscal policy is the main domestic policy ### Macroeconomic and fiscal projections - Inflation is projected to average about 2 percent annually, mostly reflecting a prudent fiscal policy. - Projections assume an improvement in the non-oil basic primary fiscal balance from non-oil revenue mobilization and better expenditure management. - Recent measures taken to widen the tax base and extend the reach of the central administration include (Box 2): computerized links between customs and tax administration offices; use of the single taxpayer identification number; streamlining of discretionary tax exemptions; and regular tax audits. - Non-oil revenues are projected to rise steadily to reach about 16½ percent of GDP by 2024. - The overall budget balance is projected to remain positive throughout the forecast period, but to decline significantly from 2012 onward reflecting a projected decline in oil revenues. - The authorities are assumed to continue implementing a conservative fiscal rule regarding oil revenue projections: oil revenues (and, consequently, expenditures) should be projected on the basis of conservative oil price projections (IMF WEO projected price minus US$4 per barrel). ### External sector, trade volumes, and financing needs - Export volumes are expected to grow by 3½ percent per year on average during 2005-24. - Import volumes are expected to grow by 5 percent per year on average during 2005-24. - As a result, the external current account balance would move to a small deficit position on average during 2005-24 (from a small average surplus position during 2000-04). - Immediate balance-of-payments need: need to settle large external arrears to commercial creditors amounting to some US$3.4 billion (74 percent of 2004 GDP). - Debt relief will be key to meeting these financing requirements. In 2005, financing is assured thanks to resources already committed by bilateral and multilateral donors, and financing assurances provided by Paris Club creditors. ### Governance, oil sector transparency, and SNPC reforms - Enhancing transparency in oil sector operations is a key aim of the government’s reform program; reforms supported in part by the IDA-financed Governance and Transparency Capacity Building Project included audits of the SNPC’s accounts (Box 3) and incorporation of key recommendations of the 1999-2001 audit into an action plan. - SNPC action plan implementation status (evaluation undertaken in early January 2006): - 9 out of the 20 actions have been completed. - Another 5 are near completion (including reinforcement of the Hydrocarbons unit in the Ministry of Finance; establishment of a human resources and training strategy; reconciliation of cross debts with the State for the period 1999-2003). - 6 actions are far from completion, pertaining to: study to model reserves and oil revenues (action 1); reform of the accounting system (action 6); verification of partner accounts (action 10); verification of past petroleum costs (action 12); study of petroleum reserves (action 13); elaboration of operating procedures and manuals for SNPC departments (action 15); establishment of a management information system (action 19). - Government intends to improve quarterly reconciliation of revenues, ensure marketing of oil by SNPC conforms to best international practice regarding prices obtained, fiscal take, and timely transfer of revenues to the Treasury; intends to commission studies with assistance of IDA and IMF, expected to be completed and recommendations implemented before the completion point. - Government intends to take measures to permanently eliminate potential or actual conflicts of interest among senior SNPC officials; several publicly identified conflicts were already addressed in 2005. - Commitment to EITI: government publicly announced in June 2004 its commitment to adhere to the Extractive Industries Transparency Initiative (EITI). Developments since June 2004 include: reaffirmation of commitment at Publish What You Pay round table in Pointe Noire in February 2005; naming in a March 2005 press communiqué as one of nine countries making progress; September 2005 EITI workshop that nominated a 25-member EITI Executive Committee and plans to prepare the Committee’s Action Plan. A government website was launched with information on EITI implementation in Congo. ### Public expenditure management and institutional reforms - Government plans for public expenditure management: - Adopt a functional classification of budget expenditure including for poverty related expenditures, with IMF and IDA technical assistance. - Streamline the spending chain to strengthen tracking of expenditures from commitment to payment stage. - Complete computerization of budget execution. - Review the public procurement system, with IDA technical assistance. - Adopt a medium-term budget framework (with IDA and IMF technical assistance) to improve management of oil- and non-oil revenues and map expenditures to PRSP priorities, taking into account sustainability. - Regular updates evaluating the level of reserves and the trajectory of oil production will be undertaken to obtain best estimates over the medium-long term. - World Bank and IMF assistance: World Bank to undertake a Country Integrated Financial Assessment and conduct a PEFA exercise; IMF to provide technical assistance through the Fiscal Affairs Department, and the Bank through Transparency and Governance Project and Emergency Recovery and Community Support Project. Expected outcomes: major reforms designed and implemented between decision and completion points, particularly regarding public expenditure efficiency (poverty reduction and public investment), procurement, certification and reconciliation of oil revenues, and mobilization of non-oil revenues. ### Forestry sector and natural resource management - Identified weaknesses: modest transfer of receipts to the treasury, illegal logging, weak regulatory framework, lack of transparency and competition in awarding concessions. - Actions taken: February 2005 Summit of Central Africa Heads of States on resource management and governance; auditing of forestry sector revenues for 2004 by an independent auditor; October 2005 three-month test project to strengthen control operations against illegal logging with international observers. - Planned actions with IDA technical assistance: undertake regulatory and institutional reforms, and adopt market-based instruments. ### Private sector development and infrastructure - Constraint: Congo’s external competitiveness suffers from high cost of doing business (World Bank’s Doing Business database cited). - Actions underway: reform legal and judicial framework for business, better guarantees of property rights, strengthen judiciary independence; consolidate privatization in refined petroleum products distribution, banking, and telecommunications; address telecommunications regulatory bottlenecks and competitive restrictions; rehabilitate and upgrade management of water and electricity utilities to improve service delivery and privatization prospects; continue efforts to complete concession of Pointe Noire–Brazzaville railways link. ### Governance and anti-corruption - Government intends to adopt and implement recommendations of a diagnostic governance and anti-corruption study to be undertaken by an independent group of internationally reputed experts, assisted by the national anti-corruption committee. ### Social and sectoral policies: education, health, HIV/AIDS, urban poverty - Education: “Education for All Action Plan” aims to reach universal primary enrollment by 2015 by improving access, quality and efficiency; short-term focus on rehabilitating war-damaged facilities and improving quality through decentralization, partnerships with civil society, training and hiring teachers, and eliminating fictitious teachers. Ministry of Education joined HIV/AIDS campaign. Medium-term objectives include improving access, quality, and relevance at secondary and higher education by updating technical education and university curricula, improving efficiency, and reforming higher education financing. - Health: National Health Development Plan ratified in June 2005; recruitment of health personnel has started; government negotiating a health project with the European Union to support the pharmaceutical sector including establishment of an independent national drug agency with management autonomy and to assist service provision in three sub-regions; ongoing dialogue with IDA to request assistance to finance health sector reforms. - HIV/AIDS: National Strategic Plan for Combating HIV-AIDS for 2003-06 prepared in 2003; 2004 IDA grant finances implementation of the National Plan in five sub-regions covering 82 percent of the population; Global Fund funding awarded to implement the National Strategic Plan for 2003-06; financing from IDA and Global Fund will ensure resources over the next three years; during 2006 the National Commission for HIV/AIDS will evaluate progress since 2003 and develop a new national strategic plan for 2007-09. - Urban poverty: Congo is highly urbanized with about 70 percent of the population residing in urban areas. Government decided (following June/July 2005 consultations) to focus on: (i) securing land ownership and tenure; and (ii) setting up financing mechanisms to improve the supply of housing. ### Debt sustainability analysis (DSA) and external debt structure - DSA prepared jointly by the authorities and staffs of IDA and IMF; based on loan-by-loan data for outstanding external public and publicly guaranteed debt as of end-December 2004. Joint IDA-IMF mission carried out a debt reconciliation exercise in September 2005. As of December 2004, about 80 percent of outstanding debt has been reconciled with creditors. - Financial obligations of the SNPC to private oil companies amounting to US$ 941 million do not constitute external debt; payments on these obligations are fully linked to the existence of oil revenues and no direct transfer from the government or state-owned enterprise takes place in the absence of oil revenues. - Congo’s public and publicly guaranteed external debt is estimated to be US$9.2 billion in nominal terms, or $9.0 billion in net present value (NPV) terms as of end-December 2004, before considering the Paris Club debt treatment. - This level of debt corresponds to an NPV of debt of 661 percent of fiscal revenues, and 252 percent of exports as of end-2004. - Key features of the debt structure (in NPV terms) at end-2004: - Together, debt to multilateral and official bilateral creditors accounts for about 63 percent of the total outstanding debt stock. Multilateral debt represents merely 4 percent of the total stock, while official bilateral debt accounts for 59 percent. - The remaining 37 percent of the debt is owed to commercial creditors. Of this amount, about 55 percent (or 22 percent of the total stock) is owed to non-litigating London Club creditors. The rest is owed to creditors of oil-collateralized loans (4 percent of total stock) and litigating creditors (10 percent of total stock). - Table 2 (NPV of Debt, end-2004) summary figures reported in source: - Total NPV of debt: 9,007 (Million U.S. dollars) — Percent of total: 100 - Multilateral: 363 — Percent of total: 4 - Official bilateral: 5,275 — Percent of total: 59 - Paris Club: 4,995 — Percent of total: 55 - Other: 280 — Percent of total: 3 - Commercial: 3,370 — Percent of total: 37 - Memorandum items: Total debt in nominal terms 9,248 — of which oil-collateralized debt 378 — NPV of debt after traditional debt relief (assuming Naples terms) 5,176. *Source: _cr06148 - 26. As a member of a monetary union, sound fiscal policy is the main domestic policy* ### 45. Some of the same characteristics described above help to explain why financing ### _cr06148 - 45. Some of the same characteristics described above help to explain why financing ### Financing assurances, decision point, and completion point - Financing assurances obtained at the decision point: 60 percent of outstanding debt. - Financing assurances required for IMF to provide interim debt relief: 70 percent. - Financing assurances expected in 2006 to reach the 70 percent threshold. - A debt deal with the London Club in line with the enhanced HIPC framework would allow financing assurances to exceed 80 percent (the minimum required at the completion point). - The absence of financing assurances of 70 percent at the decision point would not prevent other multilateral creditors from providing interim debt relief. ### Debt stock and Paris Club restructuring (end-2004 baseline) - Paris Club restructuring agreed: December 16, 2004, under Naples terms. - Stock of outstanding external debt assuming comparable treatment and clearance of multilateral arrears: US$5.2 billion in NPV terms as of end-2004. - Congo has either cleared, or put in place plans to clear, all arrears. ### Debt Sustainability Analysis (DSA) — key projections and thresholds - Enhanced HIPC Initiative fiscal revenue threshold: 250 percent. - Congo’s NPV of debt-to-revenue ratio: - 2004 (after traditional relief): 250 percent at end-2004. - 2005 (after full delivery of enhanced HIPC Initiative, including new borrowing): 162 percent in 2005. - Projected to fall and remain below 250 percent over the entire projection period, reaching about 66 percent by 2024. - Assumed GDP and export growth underpinning projections: GDP growth 5 percent a year; export growth 9 percent a year. - External debt service as ratio of revenues: - 2005 estimated: 32 percent. - Expected to remain close to 32 percent until end-2007 (assumed completion point date for simulation). - Expected to fall sharply after 2009 and remain below 10 percent thereafter. - From 2010 onward expected to remain at or below average burden in other post-decision point HIPCs, at around 5 percent. - World oil prices shock in the preliminary update: projected average increase of US$16.30/barrel per year over the DSA simulation period; DSA confirms debt overhang in 2004 but substantial alleviation after traditional relief and comfortable profile after enhanced HIPC relief. ### Sensitivity analysis scenarios and impacts - Two alternative scenarios simulated post-HIPC assistance: 1. Lower oil prices scenario: - International market price for oil assumed 40 percent lower throughout forecast period relative to baseline. - Prudence factor unchanged at US$4/barrel for second-round effects; accompanying second-round effects on GDP growth are accounted for. - Over 2005-14 the NPV-of-external-debt-to-revenue ratio is on average higher by about 30 percentage points per year relative to baseline. 2. Lower non-oil GDP growth scenario: - Non-oil GDP growth assumed three-percentage points lower than baseline throughout projection period. - Over 2015-24 the NPV-of-external-debt-to-revenue ratio is higher by about 25 percentage points per year relative to baseline. - Under both scenarios the NPV of debt-to-revenue ratio remains below the 250 percent threshold over the simulation period. ### Alternative indicators and table excerpts (as presented) - Table 3 indicators (2004 and 2005, in percent; labels preserved): - NPV of debt-to-revenue ratio: 3/3 70 248 250 162 - NPV of debt-to-exports ratio: 4/ 173 138 117 90 - NPV of debt-to-GDP ratio: 119 94 80 61 - Debt service-to-revenue ratio: 3/...21...32 - Debt service-to-exports ratio: 4/...10...15 - Memorandum items: - Government revenue to GDP: 3/32 38 32 38 - Exports to GDP: 4/69 68 69 68 - Notes attached to the table: - All debt indicators refer to public and publicly guaranteed (PPG) debt and are defined after rescheduling, unless otherwise indicated. - Revenue is defined as central government revenue, excluding grants. - Exports of goods and services as defined in IMF, Balance of Payments Manual, 5th edition, 1993. Based on a three-year average of exports on the previous year. - Table columns labeled: After traditional debt relief mechanisms 2/ ; After enhanced HIPC assistance. ### Possible enhanced HIPC Initiative assistance — amounts, contributors, and modalities - Enhanced HIPC Initiative expected to reduce Congo’s external debt by about a third (after accounting for traditional debt relief). - Delivery of traditional debt relief lowers external debt-to-revenue ratio to about 370 percent. - To reach HIPC target of 250 percent implies a common reduction factor of 32.4 percent for all creditors. - Enhanced HIPC debt relief amount: US$1,679 million in end-2004 NPV terms. - Breakdown of enhanced HIPC relief (NPV terms): - Multilateral creditors: US$118 million. - Paris Club bilateral creditors: US$913 million. - Commercial creditors: US$590 million. - Other official bilateral creditors: US$58 million. - Total debt service relief over time under time profile and modalities: about US$2,906 million. - Assumptions on time profile and modalities: - Paris Club bilateral creditors: flow rescheduling on Cologne terms (90 percent NPV reduction) after decision point; remaining assistance at completion point through stock-of-debt operation. - IMF assistance: total US$8.08 million in NPV terms. - IMF interim assistance assumed delivered a year after decision point approval, provided necessary financing assurances are in place. - Principal repayment obligations on IMF PRGF loans start falling due in 2010. - Interim assistance from the Fund applied to cover IMF PRGF interest obligations between 2007 and end-2009. - Most IMF relief delivered following the completion point. - IDA assistance: total US$49 million in NPV terms. - IDA to begin providing debt service relief immediately following decision point approval; relief becomes irrevocable at completion point and continues until 2021. - AfDB Group assistance: entirely in the form of the arrears clearance operation under the framework for assisting post-conflict countries (PCCF). - Treatment for non-Paris Club official bilateral and commercial debt: assumed to be in line with Paris Club creditors. - Commercial debt litigation: some commercial debt estimated at 11 percent of total NPV of debt outstanding remains subject to legal action by creditors. - A deal with London Club creditors after the decision point is expected to raise financing assurances to over 80 percent. - All other creditors assumed to provide debt-service reduction starting at decision point or completion point depending on creditor practices until contributions meet enhanced HIPC Initiative requirements. ### Arrears clearance and AfDB PCCF arrangements (Box 4 summary) - AfDB PCCF framework for assisting post-conflict countries to clear AfDB arrears: cost shared by country, donors, and AfDB PCCF; proportions determined case by case. - Congo arrears clearance under adopted framework: - Country paid SDR34.3 million to clear one-third of total SDR100 million in arrears at end-2003. - Donors (France, Norway, and European Commission) pledged SDR32.4 million. - AfDB approved SDR33.3 million grant from PCC facility to complete arrears clearance plan. - BADEA consolidation and repayment: US$25.6 million consolidated in arrears in October 2001; repaid resumed in 2003; remaining repayments according to 2001 profile. - OPEC Fund arrears cleared via Commodity Import Program (CIP) of US$13 million; authorities repaid all but US$12.1 million in arrears outstanding as of end-2003; CIP financed payment during 2004; CIP loan to be repaid over 9 years on concessional terms. - EU arrears US$39.2 million cleared with a grant mostly through reallocation of US$38.2 million from European Development Fund resources. - Repayments in 2003: SDR 2.9 million to IFAD and US$1.5 million to BDEAC. - Paris Club treatment December 16, 2004: total of US$3,020 million treated under Naples terms; details on rescheduling terms preserved in source (pre-cutoff-date ODA rescheduled over 40 years with 16 years grace; 67 percent of pre-cutoff-date commercial credits cancelled; remaining rescheduled over 23 years with 6 years grace; arrears and part of interest re-profiled over October 1, 2004 – September 30, 2007). - As of September 2005, all bilateral agreements have been signed. - Ongoing discussions to settle arrears with non-Paris Club creditors (Algeria, Angola, Kuwait, Libya, Saudi Arabia); Saudi Arabia Fund expressed willingness to discuss further relief once Congo reaches decision point; Kuwait Fund willing to apply enhanced HIPC relief. - Government discussions with London Club Steering Committee to negotiate settlement of arrears following decision point. - Expectation to settle arrears with other active commercial creditors on terms comparable to enhanced HIPC Initiative. ### Floating completion point — triggers summary (Box 5 highlights) - Completion point triggers agreed between IDA/IMF staffs and authorities include standard triggers and sector-specific triggers for: - Public finance management. - Natural resource (oil and forestry sector) management. - Telecommunications reform. - Basic health and education reform. - Successive annual audits required for governance and oil sector triggers (triggers 5, 5(i), 5(ii), 5(iii)). - Selected trigger details: 1. PRSP: Preparation of a full PRSP through a participatory process and satisfactory implementation of its recommended actions for at least one year, evidenced by an Annual Progress Report to IDA and IMF staffs. 2. Macroeconomic stability: Maintenance of macroeconomic stability evidenced by satisfactory performance under PRGF-supported program and any IMF successor program. 3. Public expenditure priorities: Alignment of public spending priorities with I-PRSP/PRSP, reflecting pro-poor growth emphasis. 4. Public finance management: - (i) Establishment of a functional classification system for government expenditures, including poverty related expenditures, consistent with IMF’s Government Finance Statistics manual, and preparation of budgets using this classification. - (ii) Implementation of a new public investment management system for rigorous selection, efficient execution and monitoring of projects; submission of draft public investment programs to IDA for review. - (iii) Adoption and satisfactory implementation of a new procurement code promoting transparency and competition, in line with international best practice. - (iv) Adoption of a medium-term framework for sustainable management of government expenditures and revenues, with technical assistance from IDA and IMF. *Source: _cr06148 (excerpts).* ### 5. Governance and natural resource management ### 5. Governance and natural resource management ### Governance - Completion of a diagnostic governance and corruption study by an independent group of internationally reputed experts, assisted by a national anti-corruption committee, based on terms of reference prepared in consultation with IDA and IMF staffs. - The terms of reference and composition of the national anti-corruption committee will be satisfactory to IDA and IMF staffs. - Adoption by the government of an action plan, prepared in consultation with IDA and IMF staffs, to improve governance and reduce corruption, and sustained implementation of such action plan during the completion of the audits referenced in subsections 5(i) and 5(ii). - Assessment of the implementation of the action plan by IDA and IMF staffs on the basis of an independent review by international experts acceptable to IDA and the IMF. ### Oil sector - (i) Assessment by IDA and IMF staffs, based on successive annual audit opinions by an independent firm of international reputation, and certified by the national anti-corruption committee, that SNPC’s internal controls and accounting system are in line with international standards and best practices. - (ii) Preparation, by an independent firm of international reputation, of a diagnostic study of the practices for the commercialization of oil by SNPC, based on terms of reference prepared in consultation with IDA and IMF staffs. - Assessment by IDA and IMF staffs, based on successive audit opinions by an independent firm of international reputation, that the commercialization of oil by SNPC has been brought into line with international best practice on the basis of the recommendations of the diagnostic study, and results in competitive and fair market values to Congo for the oil sold. - Footnote: International best practice is understood to comprise arms-length market pricing, or where that is absent, reference to an established benchmark crude oil price for Congolese crude oils, with appropriate adjustments for transport and quality differentials. - (iii) Adoption and application by the government, certified by the national anti-corruption committee, during the completion of the audits referenced in 5(i) and 5(ii), of a legal text stipulating: - compulsory declaration, to the National Auditing Office (Cour des Comptes), by the members of the Executive Board of SNPC and those having a management mandate within SNPC and its subsidiaries, at the moment of their nomination and annually thereafter, of their participation or other interests in companies having business relations with SNPC or its subsidiaries as well as the verification and annual publication of the aforementioned declarations by the National Auditing Office (Cour des Comptes). - divestiture by the members of the Executive Board of SNPC and by those having management responsibilities within SNPC or any of its subsidiaries of such participations and/or other interests, within a time period of 6 months after their nomination and prohibition of the taking of any interest in companies having business relations with SNPC during the period of their mandate. - Rationale and context (from accompanying text): - Oil sector triggers pertain to (i) improving SNPC’s accounting system and internal controls; (ii) improving its marketing practices; and (iii) reducing the scope for conflict of interest by Executive Directors and high level staff (with a management mandate) within SNPC and its subsidiaries. - External auditors had considered SNPC’s accounts as “not auditable.” - SNPC monitors the oil sector and fiscal flows on behalf of the State, and markets about two thirds of the state share of Congo’s oil and about 40 percent of the country’s total oil revenues. - The marketing trigger seeks to obtain competitive and fair prices after adjusting for transport costs and price premium/discount, and to ensure that all revenues due to the State from SNPC and any private sector companies it employs are effectively remitted to SNPC and subsequently transferred to the Treasury. - Authorities agreed to provide to KPMG, as well as to IDA and IMF, the documentation requested by KPMG during the 2004 oil revenue certification process. - The third trigger targets removal and prevention of conflicts of interest. ### Forestry sector - Review of forestry sector management and legislation with IDA assistance; adoption by the government of measures recommended by the review to promote competition, transparency, and sustainable development in this sector. - Sectoral issues identified: - Enforcement of mandatory management plans to all production forests and sensitive buffer zones. - Coordination between the Ministries in charge of Forests and Finance in matters pertaining to the determination, collection and transfer of forest taxes to Treasury. - Review and improvement of the 2003 forest taxation regime and social responsibility clauses of forest companies (cahiers de charges). - Enhancement of the system for awarding forest contracts with more transparency and more prominent use of financial criteria. - Improved control over illegal logging and poaching through the use of third party observers. - Note: Forestry is described as the second most important productive sector in the economy and of particular importance from an environmental standpoint. ### Structural reform: Telecommunications - Review and adoption of a regulatory framework for the telecommunications sector establishing competition at the level of international gateways and the wireless local loop. - Context and concerns: - The October 2004 - 466 Decree restored monopoly powers on international gateway and instituted bottlenecks in providing complete exclusivity on the WLL (Wireless Local Loop) market to Sotelco, the incumbent operator. - Application of decree 466 would constrain the Congolese telecommunication sector and contradict worldwide regulatory practices by: - Constraining mobile operators to physically and/or financially transit all their international traffic through Sotelco, imperiling their economic sustainability. - Setting up exclusivity on the WLL, creating strong disincentives for investments in the sector. ### Social sectors - Education: - Implementation during 2006 of a strategy to eliminate fictitious workers from the education budget and increase teacher staff by, at least, 1,000 each year in basic education until 2007. - Objective in education: address crucial shortage of teachers to improve educational outcomes. - Health: - Increase to, at least, 60 percent the share of generic drugs in total expenditures on drugs by the central purchasing agency. - Objective in health: increase availability of and access to low cost high quality generic drugs. - HIV/AIDS: - Increase in the number of voluntary AIDS counseling and testing centers with associated measures (staff, equipment, and awareness campaign) from 4 at present to, at least, 10 in 2006 and 15 in 2007. - Objective: ensure those who wish to do so can know their serological status, change behavior to avoid infecting others, and seek treatment in a timely manner. ### External debt management - (i) Publication of the quarterly external debt data and projections on a government website. - (ii) Centralization of all information on debt, including collateralized debt, in the government’s debt agency (CCA). - Trigger objective: improve availability of debt related information and external debt management. ### Monitoring the Floating Completion Point Triggers - IDA and IMF staffs will work together closely to monitor the completion point triggers: - IMF staff will take the lead in monitoring macroeconomic stability and budget control and management. - IDA staff will take the lead in monitoring progress in the preparation and implementation of the PRSP, as well as progress on sector-related triggers (structural reforms, public expenditure management, and tracking of poverty-related expenditures). - IMF and IDA staffs will jointly monitor transparency in the oil sector and the forestry sector, and progress in improving external debt management. ### Use and monitoring of Enhanced HIPC Initiative debt relief - Authorities committed to ensuring HIPC assistance is used to increase poverty-related spending. - Requirements to secure effective use of debt relief: - Strengthen programming, management, and control of expenditures, and improve service delivery in key sectors. - Technical assistance on public expenditure management by IDA and the IMF will be essential to build adequate budget management capacity. - Interim relief arrangements prior to completion point: - Interim relief is discretionary on the part of all creditors and conditional upon maintenance of satisfactory performance under Bank- and Fund-supervised programs. - Spending of interim assistance will be controlled through use of a special treasury account at the regional central bank (Banque Centrale des Etats d’Afrique Centrale) where the interim debt-service savings will be deposited. - Expenditures from this account will be limited to agreed poverty-reducing categories, monitored by a committee comprising representatives in observer status from international donors and Congolese civil society, and subject to annual independent published audits. - Congo currently uses a budget classification by economic category to guide definition and monitoring of pro-poor spending; this system would be improved once the government adopts a functional classification of budget expenditure with IDA and IMF technical assistance. - Rapid introduction of a functional expenditure classification, and stronger public investment management and procurement, would help ensure debt relief assistance is focused on priorities identified in the I-PRSP and the PRSP once prepared. ### Authorities’ views - Authorities emphasize that Congo’s external debt remains unsustainably high and could further delay economic and social reform programs. - Authorities note a significant share of the population lives in poverty and lacks access to basic needs such as education, health, and safe water. - A decade of civil war resulted in further economic decline and massive unemployment. - Authorities state that since late 2002 Congo has embarked on an irreversible course to reinforce peace and political stability and implement policy reforms for sustainable growth and poverty reduction. - Authorities plan to settle arrears to all external private creditors in a way consistent with the framework of the enhanced HIPC Initiative. - Debt relief under the enhanced HIPC Initiative would help finance critical social and infrastructure programs and accelerate reconstruction, improving access to primary education, preventive health care, and urban and rural infrastructure. ### Expenditure priorities (Box 6) - Governance: - Finance a results-based monitoring and evaluation system, as a management tool for efficient public resources utilization. - Finance judicial system reform. - Social Protection: - Resettle and reintegrate ex-combatants and civil strife victims. - Provide social safety nets linked to employment creation, especially for youth. - Infrastructure/Urban: - Rehabilitate roads, particularly rural access roads. - Rehabilitate and expand coverage of water supply systems. - Rehabilitate power grids. - Health: - Intervene to control the spread of HIV/AIDS. - Promote immunization, good hygiene, the use of oral hydration salts, and good nutrition practices; the use of bed nets to prevent malaria, and condoms to prevent unwanted pregnancies and sexually transmitted diseases. - Rehabilitate health infrastructure. - Education: - Raise significantly the share of expenditures on primary education in total public expenditure. - Hire additional teaching staff (for primary schools). - Rural: - Improve rural roads. *Source: _cr06148 - 5. Governance and natural resource management* ### 60. This paper presents a decision point assessment of Congo’s eligibility for assistance ### Decision point assessment of Congo’s eligibility for enhanced HIPC Initiative ### Executive Board questions and decision items - Eligibility and decision point - Do Directors agree that Congo is eligible for relief under the enhanced HIPC Initiative, and do they recommend approval of a decision point? - Amount and delivery of assistance - To reduce the NPV of debt to revenues ratio to 250 percent, the total amount of assistance under the enhanced HIPC Initiative is estimated to amount to US$1,679 million in NPV terms (Table 11). - Of this amount, US$48.9 million in NPV terms is to be provided by IDA and US$8.08 million by the IMF. - Staff and management recommend that IDA and IMF (as soon as the 70 percent financing assurance threshold is reached) consider providing interim assistance in line with existing guidelines. Do Directors agree? - Floating completion point - Do Directors agree that the floating completion point would be reached when the triggers in Box 5 have been met and satisfactory assurances of other creditors’ participation under the enhanced HIPC Initiative have been received? ### Debt composition at end-2004 (before traditional debt relief operations) - Creditor group shares (Figure 1) - Paris Club bilateral: 56% - Non Paris Club bilateral: 3% - Commercial creditors: 37% - Multilaterals: 4% - Table 6 (Nominal and NPV of External Debt by Creditor Group at Decision Point, end-2004) - Total nominal debt: 9,248 (US$ million) - Total NPV of debt (column): 9,007 (US$ million) - Total NPV of debt (another column): 5,176 (US$ million) - Multilateral nominal: 524 (US$ million) - IDA nominal: 270 (US$ million) - IMF nominal: 29 (US$ million) - Paris Club nominal: 5,048 (US$ million) - France nominal: 2,942 (US$ million) - Spain nominal: 494 (US$ million) - United Kingdom nominal: 346 (US$ million) - Non Paris Club bilateral nominal: 289 (US$ million) - Commercial creditors nominal: 3,388 (US$ million) - Memorandum: of which London Club: 2,177 (US$ million) ### Debt and debt-service indicators, 2004–24 (Figure 2) - Two indicator series shown (percent): - NPV of debt-to-revenue ratio (After traditional debt relief; After enhanced HIPC Initiative) - Debt service-to-revenue ratio (After traditional debt relief; After enhanced HIPC Initiative) - Note: For 2005–07, the series includes arrears clearance of the Paris Club post cut-off debt as agreed in the December 2004 Naples flow agreement; under that agreement post-cut-off arrears are repaid with less favorable terms than under the traditional relief mechanism, resulting in lower debt service under traditional relief than after enhanced HIPC for 2005–07. ### Sensitivity analysis after HIPC Initiative, 2004–24 (Figure 3) - Scenarios presented (percent): - Baseline scenario - 40 percent drop in international oil prices - 3 percentage point drop in non-oil real GDP growth - Indicators shown: - NPV of debt-to-revenue ratio - Debt service-to-revenue ratio - Threshold lines shown for policy benchmarks (visual reference in figure) ### Selected economic and financial indicators, 2001–07 (Table 4 — key entries preserved as presented) - Real GDP growth (annual percentage change) — selected years and entries as in table: - GDP at constant prices: 3.8; 4.6; 0.8; 4.0; 3.6; 9.2; 9.2; 4.8; 1.5 (rows correspond to 2001–07 sequencing in table) - Oil: -7.5; -1.5; -7.2; 2.0; 0.5; 17.4; 16.7; 3.3; -6.3 - Non-oil: 12.5; 8.5; 5.4; 5.0; 5.2; 5.1; 5.5; 5.6; 5.6 - Central government finances (percent of GDP) - Total revenue (including grants): 3.7; -8.9; 6.6; 17.7; 21.6; 19.3; 37.2; -11.2; -12.4 - Of which: oil revenue: -7.6; -7.7; 6.1; 22.2; 25.8; 22.8; 49.7; -17.6; -20.5 - Total expenditure: 10.7; 15.6; -18.8; 0.3; 8.3; 8.7; -4.6; 2.0; 2.0 - Overall balance (deficit -, commitment): -0.7; -8.1; 0.4; 5.0; 3.9; 8.1; 14.8; 10.1; 5.5 - Primary balance (deficit -): 6.8; 1.2; 6.7; 10.1; 10.5; 13.2; 17.7; 12.6; 8.1 - External public debt and debt service (end of period and before debt relief) - External public debt (end of period) entries: 195.8; 180.3; 200.5; ...; 197.2; ............ - External public debt service (before debt relief) entries: 23.9; 25.0; 16.7; 13.6; 14.4; 11.7; 11.8; 9.3; 9.2 - External public debt (other series): 252.9; 221.2; 252.9; ...; 233.4; ............ - External public debt service (before debt relief) other series: 60.4; 75.0; 45.4; 36.7; 37.8; 28.8; 25.7; 22.3; 23.4 - Gross official foreign reserves (end-period) - Levels: 53.6; 22.2; 20.5; 24.2; 60.4; 39.8; 101.3; 149.9; 182.2 - In months of imports, c.i.f.: 1.3; 0.5; 0.5; 0.5; 1.3; 0.8; 2.0; 2.8; 3.4 - Nominal GDP (CFA francs, end-of-period): 2,048; 2,105; 2,072; 2,316; 2,294; 2,503; 2,685; 2,679; 2,604 - World oil price (U.S. dollars per barrel): 24.3; 24.9; 28.8; 36.1; 38.2; 33.3; 45.2; 39.8; 37.0 - Oil production (millions of barrels): 89.6; 88.0; 81.7; 83.3; 82.1; 97.9; 94.7; 97.9; 92.6 - Potential windfall oil fiscal revenue: 0.0; 0.0; 0.0; 9.8; 0.0; 144.3; 82.8; 121.8; 106.5 ### Long-term projections and averages (Table 5 — selected averages and levels) - Real GDP growth (percent change) averages: - 2004–10: 3.6; 5.8; 4.5; 5.1; 5.5; 4.1; 4.5; 4.5; 0.4.8 (as shown in table rows for multiple time horizons) - Sectoral and fiscal shares (percent of GDP) — selected memoranda: - Total revenue, incl. grants (averages): 32.5; 29.5; 27.1; 26.0; 25.0; 29.4; 30.2; 26.1; 28.1 - Fiscal revenue (of which oil) series: oil revenue 23.1; 19.1; 13.0; 9.9; 7.7; 20.7; 19.7; 10.3; 14.7 - Non-oil revenue series: 9.0; 9.7; 13.4; 15.5; 16.7; 8.3; 10.4; 15.2; 12.8 - World oil price (U.S. dollar per barrel) averages in projection tables: 38.2; 34.8; 34.8; 34.8; 34.8; 28.9; 36.6; 34.8; 35.7 - Oil production (millions of barrels) series across projection horizons: e.g., 82.1; 126.4; 94.5; 94.5; 94.5; 87.7; 102.5; 94.5; 98.5 ### NPV and nominal debt paths (Table 7 — selected entries) - After traditional debt-relief mechanisms (I) - 1. NPV of total debt (2+6) — 2004: 5,176 (US$ million) - Projection path (selected years): 2005: 5,040; 2006: 4,565; 2007: 4,080; 2010: 3,132; 2015: 3,093; 2020: 2,823; 2024: 2,333 - Averages: 2005–14: 3,748; 2015–24: 2,808 - 2. NPV of outstanding debt (3+4) — 2004: 5,176 (US$ million) - 2005: 5,005; 2006: 4,475; 2007: 3,955; 2010: 2,871; 2015: 2,584; 2020: 2,036; 2024: 1,311 - 5. Nominal stock of total debt (incl. new loans) — 2004: 5,501 (US$ million) - 2005: 5,368; 2006: 4,925; 2007: 4,436; 2010: 3,540; 2015: 3,629; 2020: 3,481; 2024: 3,106 - After conditional delivery of enhanced HIPC assistance (II) - 1. NPV of total debt after conditional delivery (2+6) — 2004: 5,500 (US$ million) - Projection path (selected years): 2005: 5,073; 2006: 4,662; 2007: 2,235; 2010: 1,750; 2015: 1,896; 2020: 2,048; 2024: 2,029 - Average 2005–14: 2,743; average 2015–24: 2,008 - NPV of total debt after full delivery (noted separately in table) - 2004: 3,497 (US$ million) - 2005: 3,278; 2006: 2,692; 2007: 2,235; 2010: 1,750; 2015: 1,896; 2020: 2,048; 2024: 2,029 - 2. NPV of outstanding debt (3+4) — 2004: 5,500 (US$ million) - 2005: 5,037; 2006: 4,573; 2007: 2,110; 2010: 1,489; 2015: 1,387; 2020: 1,260; 2024: 1,007 - 3. Official bilateral and commercial (after conditional delivery) — 2004: 5,188 (US$ million) - Paris Club (after conditional delivery) — 2004: 3,193 (US$ million) - 4. Multilateral (after conditional delivery) — 2004: 313 (US$ million) - IDA after conditional delivery — 2004: 144 (US$ million) - IMF after conditional delivery — 2004: 25 (US$ million) - New borrowing (projections shown): 2004: 0; 2005: 36; 2006: 90; 2007: 125; 2010: 261; 2015: 509; 2020: 787; 2024: 1,022 ### Policy recommendations and operational guidance reflected in the paper - Endorsement requested for the decision point assessment and for the proposed decision point. - Recommendation that IDA and IMF consider providing interim assistance in line with existing guidelines as soon as the 70 percent financing assurance threshold is reached. - Agreement sought on the floating completion point definition tied to triggers in Box 5 and satisfactory assurances of other creditors’ participation. *Source: Decision point assessment paper on Congo’s eligibility for assistance under the enhanced HIPC Initiative (text and tables as presented).* ### 6. NPV of new borrowing ### _cr06148 - 6. NPV of new borrowing ### NPV of new borrowing (series) - New debt (NPV of new borrowing, U.S. dollar base date exchange rate December 2004): 0; 36; 90; 125; 261; 509; 787; 1,022; 243; 762 - Of which: - Official bilateral: 0; 8; 12; 13; 48; 155; 296; 447; 47; 289 - Multilateral: 0; 28; 77; 112; 213; 355; 491; 576; 174; 473 - Grant element in new borrowing (in percent): 0; 53; 52; 47; 45; 43; 42; 41; 47; 42 - NPV of debt-to-revenues target (in percent): 1,679 Sources noted: Congolese authorities; and staff estimates and projections. Discounted on basis of average six-month commercial interest reference rate for respective currency as of end-December 2004. Conversion of currency-specific NPVs into U.S. dollars at base date exchange rate (December 2004). --- ### External debt indicators, 2004-24 (after traditional debt relief mechanisms) - NPV of debt-to-GDP ratio: 119; 94; 85; 78; 46; 41; 29; 18; average 2005 - 14 = 60; average 2015 - 24 = 30 - NPV of debt-to-exports ratio 3/ 4/: 173; 138; 111; 96; 65; 67; 55; 41; average 2005 - 14 = 83; average 2015 - 24 = 55 - NPV of debt-to-revenue ratio 5/: 370; 248; 255; 261; 160; 156; 113; 75; average 2005 - 14 = 200; average 2015 - 24 = 117 - Debt service-to-exports ratio: ...; 10; 18; 19; 4; 5; 5; 6; average 2005 - 14 = 10; average 2015 - 24 = 5 - Debt service-to-revenue ratio 5/: ...; 21434711111111; 25; 11 (table printed sequence contains concatenated digits as in source) Notes and definitions: - All debt indicators refer to public and publicly guaranteed (PPG) debt and are defined after rescheduling unless otherwise indicated. - NPV ratios use exports defined in IMF, Balance of Payments Manual, 5th edition, 1993; exports-based ratios use a three-year average of exports of the previous year. - Revenue defined as central government revenue, excluding grants. --- ### External debt indicators with enhanced HIPC assistance - After conditional delivery of enhanced HIPC assistance: - NPV of debt-to-GDP ratio: 126; 94; 87; 43; 26; 25; 21; 16; averages 2005 - 14 = 42; 2015 - 24 = 21 - NPV of debt-to-exports ratio 3/ 4/: 184; 139; 113; 53; 36; 41; 40; 36; averages 2005 - 14 = 58; 2015 - 24 = 39 - NPV of debt-to-exports ratio (existing debt only): 184; 138; 111; 50; 31; 30; 24; 18; averages 2005 - 14 = 53; 2015 - 24 = 25 - NPV of debt-to-revenue ratio 5/: 393; 250; 261; 143; 89; 96; 82; 66; averages 2005 - 14 = 135; 2015 - 24 = 82 - Debt service-to-exports ratio: ...; 15; 15; 13; 3; 2; 3; 3; averages 2005 - 14 = 7; 2015 - 24 = 3 - Debt service-to-revenue ratio 5/: ...; 32; 35; 34; 7; 5; 5; 6; averages 2005 - 14 = 17; 2015 - 24 = 6 - After unconditional delivery of enhanced HIPC assistance: - NPV of debt-to-GDP ratio: 80; 61; 50; 43; 26; 25; 21; 16; averages 2005 - 14 = 35; 2015 - 24 = 21 - NPV of debt-to-exports ratio 3/ 4/: 117; 90; 65; 53; 36; 41; 40; 36; averages 2005 - 14 = 48; 2015 - 24 = 39 - NPV of debt-to-revenue ratio 5/: 250; 162; 150; 143; 89; 96; 82; 66; averages 2005 - 14 = 116; 2015 - 24 = 82 Memorandum items (in millions of U.S. dollars): - NPV of debt after enhanced HIPC assistance: 5,500; 5,073; 4,662; 2,235; 1,750; 1,896; 2,048; 2,029; averages 2005 - 14 = 2,467; 2015 - 24 = 2,008 - Of which: existing debt only: 5,500; 5,037; 4,573; 2,110; 1,489; 1,387; 1,260; 1,007; averages 2005 - 14 = 2,224; 2015 - 24 = 1,246 - After traditional relief NPV of debt-to-revenue ratio 8/: 571; 338; 262; 227; 174; 163; 118; 80; averages 2005 - 14 = 208; 2015 - 24 = 122 - Debt service after enhanced HIPC assistance 7/: ...; 651; 632; 529; 145; 106; 134; 185; averages 2005 - 14 = 310; 2015 - 24 = 138 Key macro aggregates (millions of U.S. dollars): - GDP: 4,349; 5,379; 5,364; 5,217; 6,779; 7,483; 9,862; 12,669; averages 2005 - 14 = 6,176; 2015 - 24 = 9,779 - Exports of goods and services: 3,674; 4,428; 4,272; 3,985; 5,298; 4,678; 5,277; 5,834; averages 2005 - 14 = 4,565; 2015 - 24 = 5,236 - Exports of goods and services (three-year avg.) 3/ 4/: 2,989; 3,644; 4,124; 4,228; 4,830; 4,586; 5,160; 5,686; averages 2005 - 14 = 4,448; 2015 - 24 = 5,113 - Government revenue 5/: 1,399; 2,029; 1,789; 1,563; 1,962; 1,980; 2,508; 3,093; averages 2005 - 14 = 1,813; 2015 - 24 = 2,483 - Government revenue (three-year avg.) 5/: 906; 1,490; 1,739; 1,794; 1,797; 1,899; 2,390; 2,932; averages 2005 - 14 = 1,754; 2015 - 24 = 2,366 --- ### External debt service after full implementation of debt-relief mechanisms, 2005-24 (Table 9) Total debt service (including new debt) projections: - Total debt service (incl. new debt): 423; 773; 738; 212; 220; 286; 341; averages 2005 - 14 = 436; 2015 - 24 = 275 - After traditional debt-relief mechanisms 1/: 422; 772; 736; 206; 194; 250; 289; averages 2005 - 14 = 428; 2015 - 24 = 239 - Multilateral: 42; 34; 29; 25; 14; 13; 14; averages 2005 - 14 = 28; 2015 - 24 = 14 - Official bilateral: 380; 738; 707; 180; 180; 237; 275; averages 2005 - 14 = 400; 2015 - 24 = 225 - Paris Club: 174; 410; 396; 105; 119; 156; 167; averages 2005 - 14 = 227; 2015 - 24 = 145 - Other official bilateral and commercial: 206; 328; 311; 75; 60; 81; 108; averages 2005 - 14 = 173; 2015 - 24 = 81 Total debt service including new debt (alternative presentation): 651; 632; 529; 145; 106; 134; 185; averages 2005 - 14 = 310; 2015 - 24 = 138 After enhanced HIPC assistance 2/: - Total: 650; 630; 527; 139; 80; 98; 134; averages 2005 - 14 = 302; 2015 - 24 = 102 - Multilateral: 42; 27; 22; 30; 8; 7; 15; averages 2005 - 14 = 22; 2015 - 24 = 10 - Official bilateral: 608; 603; 505; 108; 72; 91; 119; averages 2005 - 14 = 280; 2015 - 24 = 91 - Paris Club 3/: 408; 318; 238; 67; 58; 72; 91; averages 2005 - 14 = 141; 2015 - 24 = 72 Memorandum items (debt service of new debt, in millions of U.S. dollars): table entries include concatenated series in source: 1226263552 8 36 (presented as in source). Notes: - 1/ Assumes a stock-of-debt operation on Naples terms (67 percent NPV reduction) at end-December 2004, and at least comparable action by other bilateral and commercial creditors. - 2/ As the Republic of Congo is expected to reach decision point in 2006, 2005 figures only reflect the due debt service before delivery of the enhanced HIPC initiative assistance. From 2006 onward, figures reflect the debt service after delivery of the enhanced HIPC assistance. - 3/ For 2005-07, includes arrears clearance of Paris Club post-cut-off debt as agreed in the December 2004 Naples flow agreement. --- ### Sensitivity analysis, 2004-24 (Table 10) Baseline scenario (assumes all HIPC assistance delivered unconditionally at end-2004): - NPV of debt-to-exports ratio 2/: 117; 90; 65; 53; 36; 41; 40; 36; averages 2005 - 14 = 48; 2015 - 24 = 39 - NPV of debt-to-revenue ratio 3/: 250; 162; 150; 143; 89; 96; 82; 66; averages 2005 - 14 = 116; 2015 - 24 = 82 - Debt service-to-revenue ratio 3/: ...; 32; 35; 34; 7; 5; 5; 6; averages 2005 - 14 = 17; 2015 - 24 = 6 Memorandum items (NPV of debt, millions of U.S. dollars): - NPV of debt: 3,497; 3,278; 2,692; 2,235; 1,750; 1,896; 2,048; 2,029; averages 2005 - 14 = 2,090; 2015 - 24 = 2,008 - Of which new debt: 0; 36; 90; 125; 261; 509; 787; 1,022; averages 2005 - 14 = 243; 2015 - 24 = 762 - Debt service: ...; 651; 632; 529; 145; 106; 134; 185; averages 2005 - 14 = 310; 2015 - 24 = 138 - Of which new debt: ... 1 2 2 6263552 8 36 (presented as in source) Alternative scenario I 4/ (assumes international oil prices drop by 40 percent): - NPV of debt-to-exports ratio 2/: 117; 95; 76; 69; 51; 61; 61; 59; averages 2005 - 14 = 63; 2015 - 24 = 61 - NPV of debt-to-revenue ratio 3/: 250; 182; 223; 200; 122; 136; 123; 107; averages 2005 - 14 = 156; 2015 - 24 = 123 - Debt service-to-revenue ratio 3/: ...; 36; 52; 46; 9; 7; 7; 8; averages 2005 - 14 = 23; 2015 - 24 = 7 Memorandum items (NPV of debt, millions of U.S. dollars): - NPV of debt: 3,497; 3,284; 2,733; 2,310; 1,913; 2,229; 2,595; 2,786; averages 2005 - 14 = 2,240; 2015 - 24 = 2,540 - Of which new debt: 0; 41; 131; 200; 424; 842; 1,335; 1,779; averages 2005 - 14 = 393; 2015 - 24 = 1,294 - Debt service: ...; 651; 633; 531; 147; 111; 148; 207; averages 2005 - 14 = 313; 2015 - 24 = 151 Alternative scenario II 5/ (assumes a drop of 3 percentage points of real non-oil GDP growth): - NPV of debt-to-exports ratio 2/: 117; 90; 66; 54; 38; 47; 51; 51; averages 2005 - 14 = 50; 2015 - 24 = 50 - NPV of debt-to-revenue ratio 3/: 250; 162; 152; 146; 93; 110; 107; 101; averages 2005 - 14 = 121; 2015 - 24 = 107 - Debt service-to-revenue ratio 2/ 3/: ...; 32; 36; 34; 8; 6; 6; 8; averages 2005 - 14 = 18; 2015 - 24 = 7 Memorandum items (NPV of debt, millions of U.S. dollars): - NPV of debt: 3,497; 3,278; 2,692; 2,240; 1,767; 1,974; 2,283; 2,492; averages 2005 - 14 = 2,110; 2015 - 24 = 2,244 - Of which new debt: 0; 36; 90; 131; 277; 587; 1,022; 1,485; averages 2005 - 14 = 263; 2015 - 24 = 998 - Debt service: ...; 651; 632; 529; 145; 108; 138; 194; averages 2005 - 14 = 310; 2015 - 24 = 142 Footnotes from source: - 3/ Revenues are defined as central government revenues, excluding grants. - 4/ Scenario I assumes international oil prices will drop by 40 percent. - 5/ Scenario II assumes a drop of 3 percentage points of real non-oil GDP growth. --- ### Enhanced HIPC Initiative: Assistance levels and burden-sharing (Table 11) - NPV of debt-to-revenues target (in percent): 250 - Total assistance distribution (NPV terms, end-2004): - Total: 5,176 (NPV of debt at end-2004) - Central government revenues at end-2004: 1,399 - NPV of debt-to-revenue ratio (percent): 370 - NPV of debt-to-revenues target (in percent): 250 - Multilateral Creditors: 363 - Paris Club Creditors: 2,815 (of which pre-cutoff date non-ODA: 1,673) - Non-Paris Club Bilateral Creditors: 178 (of which pre-cutoff date non-ODA: 36) - Commercial Creditors: 1,819 Assumption: proportional burden-sharing; using six-month discount and end-of-period exchange rates as of end-December 2004. Each creditor's NPV reduction at decision point measured as percent of its exposure at decision point. --- ### Paris Club creditors' delivery of debt relief beyond HIPC (Table 12) — selected entries - Many Paris Club members provide 100 percent cancellation of ODA and/or non-ODA pre-cutoff and in some cases post-cutoff debts, subject to country and date conditions. Entries in the table indicate, by creditor, provision of relief for pre-cutoff and post-cutoff ODA and non-ODA at Decision point and Completion point. Specific country-by-country and creditor-by-creditor provisions and notes are listed in the source table. Selected country/creditor policy notes (verbatim from source): - Australia: 100; 100; 100; - 2/ flow stock 2/ - Belgium: 100 3/ 100 3/ 100 - flow stock 3/ - Canada: 4/ 4/ 100 4/ 100 4/ flow stock 4/ - France: 100 6/ 100 6/ 100 6/ - flow 6/ flow/stock 6/ - Italy: 100 9/ 100 9/ 100 9/ 100 9/ flow 9/ stock 9/ - Japan: 100 100 100 - 10/ -stock 10/ Notes explain each creditor's specific modalities, e.g., timing, coverage of pre-cutoff and post-cutoff debt, flow vs. stock treatment, and conditions referenced to historical cutoff dates. --- ### Possible delivery of IMF assistance under the enhanced HIPC Initiative, 2005-15 (Table 13) - Total IMF assistance under enhanced HIPC Initiative: US$ 8.08 million in NPV terms (calculated on basis of data available at decision point, excluding interest earned on Republic of Congo's account and on committed but undisbursed amounts). - Delivery schedule (percent of total assistance, based on US$/SDR exchange rate as of October 26, 2005): table shows year-by-year percentage delivery profile for 2005-2015 with key entries: - IMF assistance—deposits into Republic of Congo's account: Interim assistance ...; Completion point assistance 8.0 - IMF assistance—drawdown schedule 4/: entries include 0.1; 0.1; 0.1; 1.4; 0.4 (years aligned in source) - Debt service due on IMF obligations 2/: 6.4; 4.4; 0.4; 0.4; 0.4; 2.6; 2.5 (principal/interest breakdown included in source) - Share of debt service due on IMF obligations covered by IMF assistance (in percent) 5/: -; -; 30.6; 30.5; 30.5; 54.5; 15.1 - Proportion (in percent) of each repayment falling due during the period to be paid by IMF Initiative assistance from the principal deposited in Rep. of Congo's account: -; -; -; -; -; 10.6; 13.4 Memorandum items (based on debt service data and exchange rates as of end-2004): - Total debt service due (in millions of U.S. dollars): 445.7; 343.3; 290.6; 270.3; 254.5; 119.1; 68.2 (years aligned in source) - Debt service due on IMF obligations (in millions of U.S. dollars): 12.7; 4.4; 0.1; 0.1; 0.1; 2.5; - - Debt service due on current IMF obligations after IMF assistance (in millions of U.S. dollars): 12.7; 4.4; -; -; -; 0.2; - Notes: - 1/ Total IMF assistance figure and calculation note is in source. - 3/ Interim assistance assumed deposited end-December 2006 when required 70 percent creditor participation secured; covers PRGF interest obligations over next twelve months. - 4/ Includes estimated interest earnings on amounts held in Republic of Congo's account and on committed but not yet disbursed amounts; assumed rate of return 5.25 percent in U.S. dollar terms. --- ### Estimated delivery of IDA assistance under the enhanced HIPC Initiative, 2006-21 (Table 14) - Debt service to IDA before HIPC Initiative assistance (selected entries, millions of U.S. dollars): 7.2; 7.2; 7.2; 7.1; 7.1; 7.0; 11.5; 11.2; 11.5; 8.1; 11.4 - Principal: 5.2; 5.2; 5.2; 5.2; 5.2; 5.2; 10.0; 10.0; 10.4; 6.3; 10.1 - Interest: 2.0; 2.0; 1.9; 1.9; 1.9; 1.8; 1.6; 1.2; 1.1; 1.8; 1.3 - Debt service to IDA after HIPC Initiative assistance: 7.2; 4.5; 3.5; 3.5; 3.5; 3.5; 5.7; 5.5; 9.7; 4.4; 6.3 - Principal: 5.2; 2.8; 2.0; 2.0; 2.0; 2.0; 4.7; 4.9; 8.8; 3.0; 5.5 - Interest: 2.0; 1.7; 1.6; 1.5; 1.5; 1.5; 1.0; 0.6; 0.9; 1.4; 0.8 - Total IDA assistance under HIPC Initiative (nominal, selected years): 0; 2.7; 3.6; 3.6; 3.6; 3.5; 5.8; 5.6; 1.8; 3.7; 5.1 - Percentage of debt service to IDA covered by HIPC Initiative assistance: 0; 37.0; 50.5; 50.5; 50.5; 50.5; 50.5; 50.5; 15.5; ...; ... Memorandum item: - Total Nominal Assistance: 70.7 Notes: - 1/ Principal and interest payments due to IDA correspond to prorated projections based on the disbursed and outstanding debt as at end-2004, converted into U.S. dollars using the exchange rate as at end-2004. --- ### Discount rate and exchange rate assumptions at end-2004 (Table 15) Discount rates (percent per annum) and exchange rates (currency per U.S. dollar) as presented: - United Arab Emirates Dirham: 4.64; 0.27 - Belgian Franc: 4.82; 0.03 - Canadian Dollar: 5.36; 0.83 - CFA Franc: 4.82; 0.002 - Swiss Franc: 3.48; 0.88 - Chinese Yuan: 4.64; 0.12 - Deutsche Mark: 4.82; 0.70 - Danish Kronor: 4.94; 0.18 - Spanish Peseta: 4.82; 0.01 - Euro: 4.82; 1.36 - French Franc: 4.82; 0.21 - Great Britain Sterling: 6.01; 1.93 - Irish Punt: 4.82; 1.73 - Italian Lira: 4.82; 0.00 - Japanese Yen: 2.15; 0.01 - Kuwaiti Dinar: 5.03; 3.39 - Luxembourg Franc: 4.82; 0.03 - Netherlands Guilder: 4.82; 0.62 - Saudi Arabian Riyal: 4.64; 0.27 - United States Dollar: 5.03; 1.00 - Special Drawing Rights: 4.64; 1.55 - Norwegian Kronor: 4.70; 0.17 - Swedish Kronor: 5.38; 0.15 Sources: OECD; and IMF, International Financial Statistics. Notes: - 1/ Discount rates used are the average commercial interest reference rates (CIRRs) for respective currencies over six-month period ending December 2004. - 2/ For all Euro area currencies, the euro CIRR is used. For other currencies without CIRRs (except Kuwaiti Dinar, for which U.S. dollar discount rate is used), the SDR discount rate is used as proxy. --- ### HIPC Initiative: Status of country cases considered under the initiative (Table 16) — highlights - The table lists target decision and completion points, estimated total assistance levels, NPV of debt-to-exports and debt-to-revenue ratios, percentage reduction in NPV of debt, and total nominal debt for multiple countries as of end-October, 2005. - Completion point reached under enhanced framework: Benin; Bolivia; Burkina Faso; Ethiopia; Ghana; Guyana; Honduras; Madagascar; Mali; Mauritania; Mozambique; Nicaragua; Niger; Rwanda; Senegal; Tanzania; Uganda; Zambia (with breakdowns of assistance, NPV, and nominal debt per country). - Decision point reached under enhanced framework: Burundi; Cameroon; Chad; Congo, Democratic Rep. of; Gambia, The; Guinea; Guinea-Bissau; Malawi; São Tomé and Príncipe; Sierra Leone. - Decision point reached under original framework: Côte d'Ivoire (March 1998). - Total assistance provided/committed (source totals): 33,070; 15,673; 17,261; 2,579; 8,156; 56,223 (presented as in source table aggregate lines). Sources and notes: - Sources include IMF and World Bank Board decisions, completion point documents, decision point documents, preliminary HIPC documents, and staff calculations. - Assistance levels are at countries' respective decision or completion points, as applicable. - In percent of the net present value of debt at the decision or completion point after full use of traditional debt-relief mechanisms. *Source: _cr06148 - 6. NPV of new borrowing (PDF chapter/section), Congolese authorities; IMF staff estimates and projections.* ### 1. Since the issuance of the preliminary document, world oil prices have increased ### 1. Since the issuance of the preliminary document, world oil prices have increased ### Impact of higher oil prices on macroeconomic framework - World oil prices have increased significantly—by a projected average of US$16.30/barrel per year during 2005-24. - Staff held preliminary discussions in October 2006 with the authorities on the impact of higher oil prices on the macroeconomic framework, including the 2006 budget. - Authorities recommended prudence: suggested oil prices used for the forecast should be set at US$10 per barrel below the WEO projections from 2006 onward (contrasting with US$4/barrel under the baseline scenario). - Authorities updated oil production projections: annual average production about 3.8 percent lower than under the baseline during 2005-24. ### Revised macroeconomic projections and key statistics (2000-24, selected) - Real GDP growth (in percent): 2000-04 average 4.1; 2005 9.2; 2006 4.8; 2005-24 4.8; (baseline and updated scenarios presented in text table). - Oil price (WEO, U.S. dollars/barrel): 28.94 (2000-04 average); 47.54 (2005); 43.83 (2006); 39.75 (2005-24 baseline); 54.46 (2005); 1.85 (2006); 6.0 (2005-24 updated scenario) — (values presented in the source table). - Price rule (U.S. dollars/barrel): 1/ 28.94, 52.39, 39.83, 35.75, 24.51, 1.84, 6.0 — (as presented in the source table). - Production (millions of barrels): 87.7 (2000-04 average); 94.7 (2005); 97.9 (2006); 98.5 (baseline 2005-24); 92.3 (2005 updated); 101.5 (2006 updated); 94.8 (2005-24 updated). - Domestic revenue (in percent of GDP): 29.1 (2000-04 average); 37.7 (2005 baseline); 33.4 (2006 baseline); 27.6 (2005-24 baseline); 39.4 (2005 updated); 41.6 (2006 updated); 35.3 (2005-24 updated). - Primary expenditures (in percent of GDP): 22.4 (2000-04 average); 20.1 (2005 baseline); 20.8 (2006 baseline); 23.0 (2005-24 baseline); 17.9 (2005 updated); 20.0 (2006 updated); 22.0 (2005-24 updated). - Primary fiscal balance 2/ (in percent of GDP): 6.7 (2000-04 average); 17.6 (2005 baseline); 12.6 (2006 baseline); 4.5 (2005-24 baseline); 21.4 (2005 updated); 21.6 (2006 updated); 13.2 (2005-24 updated). - Current account balance (incl. official transfers, in percent of GDP): 1.2 (2000-04 average); 4.9 (2005 baseline); 3.0 (2006 baseline); -0.6 (2005-24 baseline); 12.5 (2005 updated); 13.0 (2006 updated); 2.7 (2005-24 updated). - Memorandum items (Nominal GDP): Total (in millions of US dollars) 339,153 (2000-04 average); 795,364 (2005); 797,759 (2006); 6060,798? (2005-24 baseline and updated values shown in table) — (see source table for full list). - Memo per capita (in US dollars): 1,130 (2000-04 average); 1,630 (2005); 1,625 (2006); 1,855 (2005-24 baseline); 1,806 (2005 updated); 1,842 (2006 updated); 2,043 (2005-24 updated). Notes: - 1/ The projections incorporate a prudence factor, so that the WEO price forecast is reduced a fixed dollar value per barrel. - 2/ Revenue (excl. grants) minus noninterest current expenditure minus domestically-financed capital expenditure and net lending. ### Priorities for use of additional oil resources and cautions - Intended uses of additional resources (in line with PRGF-supported program): - Poverty-related spending. - Reduction of external and domestic payment arrears. - Reduction of government net claims on the banking system. - Seek IMF and IDA assistance to establish a framework for sustainable public finance management with significant oil revenues. - Cautions in scaling up spending: - Absorptive and institutional capacity constraints: shortage of trained personnel in health and education; shortage of adequate basic physical infrastructure; lack of a functional classification for expenditure tracking. - Need for rigorous project selection and monitoring. - Risks of inflationary pressures and “Dutch disease.” - Preliminary revised macroeconomic framework aims for prudence while accommodating higher priority spending. ### Preliminary 2006 budgetary targets and projected long-term changes (cumulative 2005-24, relative to baseline) - Domestically-financed capital and current spending in 2006 would increase by about 40 percent and 13 percent respectively. - Projected macro long-term cumulative changes: - Domestic revenues projected higher by about 7.7 percentage points of GDP per year. - Domestically-financed primary spending higher by about 1 percentage point of non-oil GDP (but lower by 1 percentage point in relation to total GDP). - Primary fiscal surplus higher by about 8.7 percentage points of GDP. - Current account surplus projected to improve by some 3.3 percentage points of GDP. - Non-oil real GDP growth expected to be higher by about 1 percentage point per year. ### Debt sustainability analysis (DSA) results - DSA confirms assessment in Section IV.D: with higher oil prices, Congo’s debt burden falls significantly. - After traditional debt relief mechanism, debt burden falls to significantly below the 250 percent threshold starting in 2005. - Under enhanced HIPC Initiative: - NPV of debt-to-revenue ratio would fall to 140 percent in 2005. - This ratio would subsequently fall steadily and remain significantly below the HIPC threshold over the entire projection period, reaching 44 percent by 2024. - Figure and tables indicate trends in external debt indicators (2004-24) and detailed projected indicators (NPV of debt-to-GDP, to-exports, to-revenue; debt service ratios; memo items). Selected table highlights (Republic of Congo: External Debt Indicators, under the Updated Macro Framework, 2004-24) - After traditional debt relief mechanisms 2/: - NPV of debt-to-GDP ratio: 119 (2004 actual); 85 (2005); 75 (2006); 69 (2007); 42 (2010); 39 (2015); 26 (2020); 16 (2024); 2005-14 average 55; 2015-24 average 27. - NPV of debt-to-exports ratio 3/4/: 173 (2004); 130 (2005); 95 (2006); 78 (2007); 54 (2010); 56 (2015); 40 (2020); 26 (2024); 2005-14 average 71; 2015-24 average 41. - NPV of debt-to-revenue ratio 5/: 370 (2004); 215 (2005); 181 (2006); 180 (2007); 109 (2010); 115 (2015); 78 (2020); 50 (2024); 2005-14 average 145; 2015-24 average 82. - After conditional delivery of enhanced HIPC assistance: - NPV of debt-to-GDP ratio: 126 (2004); 85 (2005); 77 (2006); 38 (2007); 24 (2010); 24 (2015); 19 (2020); 14 (2024); 2005-14 average 38; 2015-24 average 19. - NPV of debt-to-revenue ratio 5/: 393 (2004); 216 (2005); 184 (2006); 99 (2007); 61 (2010); 70 (2015); 57 (2020); 44 (2024); 2005-14 average 100; 2015-24 average 58. - After unconditional delivery of enhanced HIPC assistance 6/: - NPV of debt-to-GDP ratio: 80 (2004); 55?54? (table formatting—values shown contiguously in source table); 43?38?24?24?19?14 (2004-2024 sequence presented in the source). - NPV of debt-to-exports ratio 3/4/: 117 (2004); 84 (2005); 56 (2006); 42 (2007); 30 (2010); 34 (2015); 29 (2020); 22 (2024); 2005-14 average 41; 2015-24 average 29. - NPV of debt-to-revenue ratio 5/: 250 (2004); 140 (2005); 106 (2006); 99 (2007); 61 (2010); 70 (2015); 57 (2020); 44 (2024); 2005-14 average 84; 2015-24 average 58. - Memorandum items (in millions of U.S. dollars): - NPV of debt after enhanced HIPC assistance: 5,500 (2004); 5,073 (2005); 4,662 (2006); 2,235 (2007); 1,750 (2010); 1,896 (2015); 2,048 (2020); 2,029 (2024); 2005-14 average 2,467; 2015-24 average 2,008. - Of which existing debt only: 5,500 (2004); 5,037 (2005); 4,573 (2006); 2,110 (2007); 1,489 (2010); 1,387 (2015); 1,260 (2020); 1,007 (2024); 2005-14 average 2,224; 2015-24 average 1,246. - After traditional relief NPV of debt-to-revenue ratio 8/: 476 (2004); 316 (2005); 218 (2006); 172 (2007); 118 (2010); 120 (2015); 83 (2020); 54 (2024); 2005-14 average 159; 2015-24 average 87. - Debt service after enhanced HIPC assistance 7/: ...; 651 (2005); 632 (2006); 529 (2007); 145 (2010); 106 (2015); 134 (2020); 185 (2024); 310 (memo year); 138 (2005-14 avg). - GDP: 4,349 (2004); 5,960 (2005); 6,079 (2006); 5,932 (2007); 7,410 (2010); 8,025 (2015); 10,923 (2020); 14,480 (2024); 2005-14 average 6,726; 2015-24 average 10,845. - Exports of goods and services 3/: 3,674 (2004); 5,163 (2005); 5,552 (2006); 5,060 (2007); 6,282 (2010); 5,736 (2015); 7,490 (2020); 9,709 (2024); 2005-14 average 5,478; 2015-24 average 7,470. - Government revenue 5/: 1,399 (2004); 2,346 (2005); 2,528 (2006); 2,261 (2007); 2,874 (2010); 2,695 (2015); 3,624 (2020); 4,637 (2024); 2005-14 average 2,513; 2015-24 average 3,573. - Sources for table: Congolese authorities; and staff estimates and projections. - Footnotes in source explain definitions, assumptions on hypothetical rescheduling and timing of HIPC assistance delivery. ### National Oil Company (SNPC) financial obligations and characterization of advance accounts - DSA covered Congolese public and publicly guaranteed external debt accumulated as of end-2004, including external liabilities transferred by SNPC to the government (i.e., the Caisse Congolaise d’Amortissement). - No other SNPC liabilities were included because: - SNPC reported no external liabilities as of end-2004. - Advance accounts held by SNPC are not debt (per staff analysis). - SNPC overview: - SNPC is the largest public enterprise in Congo with special corporate governance allowing independent commercial operation. - Entrusted with fiscal agency functions: management of the state’s oil assets and marketing of the state’s in-kind oil revenue from PSAs. - SNPC assets and liabilities: - Assets estimated at about US$1.2 billion at end-2004 (largely participations in oil joint ventures, shares 15 to 50 percent). - Advance accounts liabilities totaled US$941 million as of end-2004. - Advance accounts arise because SNPC (and predecessor HydroCongo) did not pay cash for its share in joint ventures; funds are advanced by private partners to cover SNPC’s share of exploration/development costs (“carried interest”). - Joint-venture contracts: (i) advance accounts reimbursed from SNPC’s equity oil income once production starts, and (ii) reimbursement bounded to a fraction of oil income to ensure SNPC obtains a minimum cash flow. - Rationale for classifying advance accounts as not debt (based on information obtained by IMF and IDA staffs): - Joint-venture agreements do not reflect intention to create a creditor/debtor relationship. - SNPC has no obligation to make any payment to joint venture participants based solely on the advance accounts; payment is fully linked to existence of oil revenues and no direct transfer occurs in absence of oil revenues. - Advance accounts do not include current liabilities from provision of assets or services. - Joint-venture participants retain the right to participate in proceeds of any sale, which would otherwise be paid to SNPC and reduce advance account balances. - The “credit” aspect is absent; reimbursements expected immediately after receipt of sale proceeds. - Government confirmation: written statement to staff that SNPC did not have external debt with maturities exceeding 12 months at end-2004, and had not provided guarantees on external loans to third parties. ### Debt sustainability analysis using the LIC DSA joint framework - Annex assesses debt dynamics using the forward-looking LIC DSA (external and fiscal public debt templates); baseline macro scenario described in Section III.B. - LIC DSA confirms enhanced HIPC Initiative DSA assessment: without debt relief, Congo has debt ratios well above thresholds indicative of risk of debt distress: - NPV of debt-to-GDP ratio in 2005 well above the 30 percent indicative threshold. - Total debt service-to-revenue ratio above 30 percent. - HIPC debt relief would significantly improve Congo’s debt dynamics. - External debt dynamics: - Under baseline, debt-to-GDP falls below the 30 percent indicative threshold once projected completion point is attained and full HIPC debt relief comes on line in 2008. - Two debt-to-exports ratios both comfortably below thresholds after HIPC relief. - Standard stress tests show vulnerability of debt-to-GDP ratio to shocks: - Greatest vulnerabilities: lower export growth, lower GDP growth, depreciation of the euro (to which the CFA franc is tied) against the US dollar. - Under the “historical” scenario (ten-year averages), debt-to-GDP goes below the indicative threshold only in 2017, after peaking in 2011 as oil production declines. - Note: the historical scenario covers a wartime period when the economy contracted. _Italic: Source: IMF staff report (text and tables as provided in the source content)._ ### 5. Figure 2 portrays debt dynamics including Congolese domestic debt and taking ### _cr06148 - 5. Figure 2 portrays debt dynamics including Congolese domestic debt and taking ### Summary of Figure 2 findings - Coverage: Indicators of public debt are shown under alternative scenarios for 2005-24. - Main result: HIPC debt relief brings all three debt ratios (NPV debt-to-GDP, NPV debt-to-revenue, debt service-to-revenue) sharply down to sustainable levels. - Principal vulnerabilities (stress tests): fiscal relapse (under a “no reform” historical scenario) and euro depreciation. - Even under downside risks, the debt service-to-revenue ratio remains at modest levels over the simulation period. ### Scenarios and stress-test definitions - LIC DSA scenario definitions: - “historical scenario”: key variables (e.g., real GDP growth, current account balance, and FDI inflows) set at their historical average over the projection period. - “most severe” scenario (external DSA): captures impact on debt of a negative shock to FDI inflows. - Fiscal DSA scenario definitions: - “most severe” scenario: one time 30 percent currency depreciation. - “no reform” scenario: primary fiscal balance maintained at its historical level. - Note in Figure 2: “Most extreme stress test is test that yields highest ratio in 2015.” - Revenue definition used in Figure 2: “Revenue including grants.” ### Key projections and debt indicators (selected series and values preserved verbatim) - Projection horizon: 2005-24. - NPV of external debt (selected series values from table): 76.5, 52.3, 42.5, 35.0, 28.1, 20.5, 18.6, 16.9, 13.0, 9.2. - Debt service-to-exports ratio (in percent) (selected series values from table): 14.4, 14.3, 15.7, 14.3, 8.7, 7.0, 2.2, 1.5, 2.0, 2.4. - NPV of public sector debt-to-revenue ratio (in percent) (selected values): 314.2, 181.9, 167.5, 154.0, 80.2, 64.6, 50.1, 36.7. - NPV of public sector debt (selected values): 102.1, 69.3, 56.8, 47.1, 23.7, 17.5, 13.0, 9.2. - Public sector revenue and grants (percent of GDP) (selected values): 32.5, 38.1, 33.9, 30.6, 29.5, 27.1, 26.0, 25.0. - Gross financing need (billions of U.S. dollars) (selected values in external debt table): -0.3, -0.4, -0.2, -0.2, -0.3, -0.8, -1.2, -0.4, -0.6, -0.9. - Key macro assumptions (selected): - Real GDP growth (in percent) (series includes): 3.7, 2.9, 2.4, 9.4, 4.8, 1.5, 5.2, 11.6, 5.8, 6.4, 4.6, 5.2, 5.5, 4.2. - GDP deflator in US dollar terms (change in percent) (selected values): 17.5, 7.5, 16.6, 13.1, -4.9, -4.1, 1.3, 2.6, 0.7, 1.4, 0.5, 0.8, 1.1, 0.4. - Effective interest rate (percent) (series includes): 2.4, 4.4, 1.1, 2.2, 1.2, 1.0, 2.4, 2.2, 2.1, 1.8, 2.2, 2.2, 2.2, 2.2. ### Implications and policy-relevant observations - HIPC debt relief is critical to achieving sustainable public debt indicators across scenarios presented. - Maintaining reform momentum is important: the “no reform” historical scenario is identified as a main source of vulnerability and can materially worsen debt trajectories. - Exchange-rate shocks, specifically a one-time 30 percent depreciation, are highlighted as a major fiscal stress; the euro depreciation is noted in the narrative as a vulnerability. - Despite downside scenarios, projected debt service-to-revenue ratios remain at modest levels over the simulation period, implying near-term debt-service affordability under baseline and many stress scenarios. *Source: Staff projections and simulations (Figure 2 and associated tables, Republic of Congo: Debt Sustainability Framework, 2005-24).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06148.pdf_