## _cr0974 — Executive Summary and Selected Sections ## Source details **Canonical URL:** [_cr0974 — Executive Summary and Selected Sections](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0974.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0974.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0974.pdf.json) --- ### Executive summary — recent performance and program request - Growth strong in the first semester of 2008 as oil production resumed and activity in telecommunications, construction, and transport remained buoyant. - Inflation rose 5.7 percent (y-o-y) through June 2008; non-food prices rose by 6.7 percent in the same period; recent data pointed to a further small rise in prices before moderating. - External sector strengthened recently reflecting debt restructuring, relatively high world oil prices, and strong oil production. - Performance under a Staff Monitored Program (SMP) was broadly satisfactory through end-June 2008; fiscal targets were comfortably met. - Authorities requested a three-year PRGF arrangement covering 2008-11 in an amount equivalent to SDR 8.46 million (10 percent of quota), interim-HIPC assistance, and completion of the financing assurances review. - Staff supports the three-year arrangement and identified two main program risks: potential weakening of ownership, and senatorial and presidential elections in 2009 that could create pressures to spend and cause a lapse in fiscal discipline. ### Recent economic developments and prospects - Real GDP growth projected about 7.6 percent in 2008, reflecting resumption of oil production and solid non-oil activity. - Current account projected to swing from a deficit of 26 percent of GDP in the previous year to a surplus of 0.6 percent of GDP in 2008. - Non-oil exports account for less than 6 percent of GDP. - Foreign direct investment could reach more than 23 percent of GDP in 2008, driven by investments in newly discovered oil fields. - Real effective exchange rate appreciated sharply since 2007, mainly reflecting higher domestic inflation relative to trading partners. - External public debt declined sharply in recent years; arrears with some Paris Club creditors accumulated (CFAF 10.1 billion, about US$ 23.8 million). - Under a June 2006 framework with China, concessional loans discussed amount to about US$ 1 billion with terms: 20-year maturity, 5-year grace period, interest rate 0.25 percent, biannual repayments, estimated grant element about 52.7 percent. ### Fiscal and monetary performance - Non-oil basic primary deficit dipped to 55.7 percent of non-oil GDP in 2007; on present policies it should improve significantly in 2008. - Through June 2008, fiscal targets under the SMP were comfortably achieved; a supplementary budget reflected higher-than-projected oil revenue, tariff and tax reductions, and additional pro-poor and capital spending financed through interim HIPC assistance. - Broad money growth was 16 percent through mid-year; net foreign assets rose to US$3.5 billion; credit to the economy expanded. - Government repaid a large proportion of statutory advances from BEAC and stepped up treasury coordination. - Banking system broadly sound; all four commercial banks comply with prudential ratios except for risk concentration; nonperforming loans increased slightly but provisioning rose and domestic deposits increased. ### Structural reforms and governance actions - Progress during the SMP on triggers for the floating HIPC completion point. - Public financial management: - Adoption and start of implementation of a PFM action plan. - Draft public investment management plan produced. - Consolidation of government accounts with BEAC. - Transparency and extractives: - Became a candidate country for EITI in February 2008; first EITI report initiated (expected by end-2008). - Quarterly certification of oil revenue by an international audit firm (KPMG) continued. - Oil sector reforms: - Reform program for state-owned refinery (CORAF) adopted and implementation begun. - Initial draft actions to commercialize Congolese oil prepared. - Public procurement transparency: - Publication on the internet of all invitations to bid and bids for government procurement contracts above CFAF 200 million. ### Performance on the 2008 SMP (Jan–Jun 2008) - SMP objectives: stabilize the economy, consolidate fiscal stance, reverse expenditure slippages, and continue structural reform in PFM, public enterprises (mainly oil), governance, and transparency. - Performance broadly satisfactory: all quantitative targets were observed; external arrears to some Paris Club creditors accumulated (CFAF 10.1 billion, about US$ 23.8 million). - Structural benchmarks met include: - Plan/timetable for reforming CORAF (observed). - Technical and financial audit of current transfers and sample of 2006 capital expenditures (observed). - Quarterly certification of oil revenue (observed). - Publication of procurement above CFAF 200 million (observed). - Structural benchmarks not observed included: - Adoption of a comprehensive action plan to address institutional/procedural deficiencies in oil commercialization (deadline March 31, 2008). - Adoption of a three-year action plan to strengthen public investment management (deadline June 30, 2008). - Quarterly petroleum price adjustments to keep subsidies within budgeted CFAF 35 billion for 2008 were not observed. - Provision of monthly information on petroleum price structure and CORAF income statement and cash flow was not observed. ### Medium-term challenges and policy priorities - Primary medium-term challenges: - Improve competitiveness of the non-oil sector. - Raise output growth through diversification beyond oil. - Consolidate the fiscal position to preserve oil wealth for future generations. - Policy actions include: - Improve business climate and liberalize trade. - Deepen financial intermediation. - Continue reform of public enterprises. - Improve governance and transparency. - Implement development strategies in key sectors (agriculture, manufacturing, mining, forestry, infrastructure, labor skills). ### PRGF arrangement design, financing, and conditionality - Authorities request a three-year PRGF arrangement covering 2008–11; staff supports PRGF in amount equivalent to SDR 8.46 million (10 percent of quota), interim-HIPC assistance, and completion of the financing assurances review. - Proposed PRGF access and phasing (SDR and percent of quota): - December 2008: 1,208,570 SDRs, 1.43 percent of quota - April 2009: 1,208,570 SDRs, 1.43 percent of quota - October 2009: 1,208,570 SDRs, 1.43 percent of quota - April 2010: 1,208,570 SDRs, 1.43 percent of quota - October 2010: 1,208,570 SDRs, 1.43 percent of quota - April 2011: 1,208,570 SDRs, 1.43 percent of quota - June 2011: 1,208,580 SDRs, 1.43 percent of quota - Total: 8,460,000 SDRs, 10.00 percent of quota - Proposed PRGF access: SDR 8.46 million (10 percent of quota), to be disbursed in seven equal tranches. - Interim HIPC assistance amount: SDR 77,000 to be used to cover 98 percent of PRGF interest payments falling due during the twelve-month period following Executive Board approval. - Congo’s outstanding credit to the Fund at end-September 2008: SDR 23.58 million (27.87 percent of quota). - With the proposed PRGF arrangement Congo’s obligations will peak in 2014 at SDR 5.4 million, representing about 0.1 percent of exports. ### Structural conditionality priorities (Box 3) - Focus areas: PFM, oil sector reform, financial stability and deepening intermediation. - PFM conditionality to support: - New economic, functional, and administrative budget classification. - Development of a medium-term expenditure framework. - Better public investment management. - Oil sector conditionality to support: - Repatriation of oil revenue in a timely manner and quarterly certification. - Adoption of a comprehensive plan with timetable to address procedural deficiencies in commercialization of Congolese oil. - Finalize a strategic study of the sector. - Establish a new petroleum-product pricing regime to help eliminate subsidies and depoliticize pricing decisions. - Financial sector conditionality to support adoption and implementation of a financial sector strategy. ### First-year economic and policy targets (2008–09) - Growth and inflation targets: - Real GDP growth target in the non-oil sector: 8½ percent in 2008-09. - Inflation target: moderation to 3 percent by year-end. - 2008 fiscal stance: - Reduce basic non-oil primary deficit to 43.2 percent of non-oil GDP, achieved by strong non-oil tax collections, firm control of public spending, and projected decline in fuel subsidies by about 1.6 percent of non-oil GDP following an average 13 percent fuel price increase on October 1, 2008 (prior action). - 2009 fiscal outlook: - Basic non-oil primary deficit envisaged to decline to 40.2 percent of non-oil GDP. - Non-oil tax revenue projected to increase slightly to about 21.1 percent of non-oil GDP. - Pro-poor and domestically-financed capital spending to rise as a share of non-oil GDP. - PFM structural performance criteria and actions: - Submit budget using new classifications (structural performance criterion for December 2008). - Finalize and adopt a three-year action plan to improve public investment management (structural performance criterion for December 2008). - Prepare a medium-term expenditure framework (structural performance criterion for June 2009). - Continue quarterly certification of oil revenue and lodge proceeds in the Treasury within 45 days (continuous criteria). - Monetary and financial sector: - BEAC projection: broad money growth for Congo about 13 percent for 2009. - Authorities to continue reducing statutory advances, aiming to repay them fully by end-2008. - Government to adopt by end-year a financial sector strategy prepared with Fund staff. ### Petroleum-product pricing and fuel subsidy reform - Prior action: across-the-board fuel price adjustments implemented on October 1, 2008 by an average of 13 percent. - Projected fiscal impact of the October 1, 2008 increases: - Subsidies decline to no more than CFAF 75 billion in 2008 (about 4.8 percent of non-oil GDP). - Full-year impact in 2009: subsidies expected to be CFAF 45 billion, or 2.5 percent of non-oil GDP. - Structural performance criterion: adopt by end-March 2009 a new petroleum-product pricing regime to phase out fuel subsidies by mid-2011. ### Program monitoring, quantitative targets, and reporting - First-year monitoring through biannual quantitative performance criteria for end-December 2008 and end-June 2009 and structural performance criteria and benchmarks. - Quantitative targets (examples, cumulative from January): - Non-oil primary fiscal balance (floor): -673, -211, -412, -560, -710 (values as reported in Table 1). - Ceilings on new medium or long-term nonconcessional external debt, new short-term external debt, new oil-collateralized external debt, and new nonconcessional external debt by SNPC: 0.0 (continuous). - New external arrears on nonreschedulable debt and new domestic arrears: 0.0 (continuous). - Memorandum items (examples reported): - Oil revenue (examples): 2,079; 402; 820; 1,259; 1,716. - Non-oil primary revenue (examples): 328; 931; 862; 803; 73. - TMU definitions: - Non-oil basic primary fiscal balance defined as total non-oil revenue excluding grants minus total expenditure (including net credit), excluding interest payments, foreign-financed capital expenditure, and expenditure financed by interim HIPC assistance. - Oil revenue defined as government’s net proceeds from sale of oil, including provision for diversified investments, royalties, and government’s share of excess and profit oil; excludes prepayment and prefinancing; projections account for the 45 day lag between shipment date and receipt by the Treasury. ### External debt and debt sustainability analysis (DSA) - Joint IMF–World Bank DSA: Congo at high risk of debt distress. - Debt ratios improved significantly owing mainly to London Club creditor debt relief in November 2007 and projected to decline further under baseline reflecting strong oil revenue and fiscal consolidation. - External public debt (selected ratios and projections): - External public debt (end of period) (Percent of GDP): 2006: 81.5; 2007: 72.9; 2008: 51.9; 2009: 54.7; 2010: 43.3; 2011: 44.6. - External public debt (levels examples): 2006: 99.1; 2007: 88.8; 2008: 64.8; 2009: 63.1; 2010: 46.6; 2011: 49.7. - DSA baseline assumptions and sensitivities: - Projected oil resources assumed about 1.6 billion barrels (proven). - Real rate of return on government financial assets assumed to increase to 3½ percent over the medium term. - Alternative scenarios underscore vulnerability to lower world oil prices and lack of fiscal adjustment: - Under a Lower World Oil Prices and No Fiscal Adjustment scenario (oil prices 1 standard deviation lower, non-oil basic primary deficit kept at 55 percent of non-oil GDP), the NPV of debt-to-GDP breaches thresholds and rises sharply (examples: reaches 290 percent in 2028 under that simulation). - In the baseline, debt service is projected to decline to about 4.2 percent of exports in 2009 and to 1.9 percent over the medium term. - Assessment: prudent fiscal stance and debt management are essential; HIPC completion and MDRI relief would improve indicators but sustainability remains sensitive to oil price shocks. ### Program risks and vulnerabilities - Ownership and implementation risk: past uneven performance attributed to lack of ownership and narrow constituency for reform; new political and technical apparatus should help but ownership could weaken. - Political cycle and spending pressures: Presidential and senatorial elections in 2009 could create spending pressures and slow reform, particularly in politically sensitive areas such as the oil sector. - External vulnerabilities: heavy dependence on oil exposes Congo to world oil price shocks; non-oil sector competitiveness affected by REER appreciation and structural constraints. ### Key macroeconomic projections and selected indicators (selected values preserved) - GDP at constant prices (annual percent change): 2006: 6.2; 2007: -1.6; 2008: 7.6; 2009: 12.7; 2010: 12.3; 2011: 1.3. - Oil GDP growth (annual percent change): 2006: 6.8; 2007: -17.2; 2008: 9.0; 2009: 23.1; 2010: 21.6; 2011: -10.2. - Non-oil GDP growth (annual percent change): 2006: 5.9; 2007: 6.6; 2008: 7.0; 2009: 8.5; 2010: 8.0; 2011: 7.4. - Consumer prices (period average): 2006: 4.7; 2007: 2.6; 2008: 4.5; 2009: 4.2; 2010: 3.0; 2011: 3.0. - World oil price (U.S. dollars per barrel): 2006: 64.37; 2007: 71.19; 2008: 99.86; 2009: 68.07; 2010: 75.0; 2011: 79.3. - Oil production (Millions of barrels): 2006: 98.7; 2007: 81.7; 2008: 89.0; 2009: 109.6; 2010: 133.2; 2011: 119.6. - Gross official foreign reserves (Billions of CFA francs): 2006: 920.4; 2007: 983.1; 2008: 2,078.3; 2009: 2,801.6; 2010: 4,231.9; 2011: 5,755.5. - Months of imports (f.o.b.): 2006: 10.6; 2007: 9.3; 2008: 19.4; 2009: 23.4; 2010: 30.1; 2011: 38.5. - Reserves as percent of GDP: 2006: 22.8; 2007: 26.8; 2008: 42.0; 2009: 59.6; 2010: 70.8; 2011: 96.2. - Fiscal ratios (percent of GDP): - Total revenue: 2006: 141.5; 2007: 113.5; 2008: 155.5; 2009: 121.1; 2010: 142.4; 2011: 132.6. - Total expenditure: 2006: 87.2; 2007: 84.2; 2008: 72.4; 2009: 73.3; 2010: 69.1; 2011: 65.5. - Non-oil primary balance ( - = deficit) (Percent of GDP): 2006: -51.3; 2007: -55.7; 2008: -43.2; 2009: -40.2; 2010: -36.9; 2011: -33.5. - Banking sector indicators (selected): - Regulatory capital to risk-weighted assets (percent): 2004: 4; 2005: 12; 2006: 14; 2007: 16. - Nonperforming loans (percent): 2004: 7; 2005: 3; 2006: 2; 2007: 3. - Loan/deposits (percent): 2004: 57; 2005: 34; 2006: 27; 2007: 26. ### Staff appraisal — key findings and recommendations - Non-oil sector growth buoyant but narrowly based; not yet high enough to reduce poverty significantly. - Policies needed: fiscal consolidation, PFM reform, improvement of business environment, trade liberalization, financial intermediation, public enterprise reform, and governance/transparency enhancements—particularly in the oil sector. - Debt remains at high risk of distress; prudent debt management and highly concessional external borrowing are recommended. - Final staff recommendation: support a three-year PRGF arrangement in an amount equivalent to SDR 8.460 million, a first disbursement of SDR 1.209 million, and interim-HIPC assistance in an amount of SDR 77,000; support completion of the financing assurances review. *Source: IMF staff — Executive Summary, Memorandum of Economic and Financial Policies, Technical Memorandum of Understanding, and Joint IMF–World Bank DSA (content unit _cr0974).* ### Executive Summary ...................................................................................................... ### _cr0974 - Executive Summary ### Executive summary — recent performance and program request - Economic indicators in the first semester of 2008 were encouraging: growth strong as oil production resumed and activity in telecommunications, construction, and transport remained buoyant. - Inflation rose 5.7 percent (y-o-y) through June 2008; non-food prices rose by 6.7 percent in the same period. Recent data pointed to a further small rise in prices before moderating. - The external sector strengthened considerably recently, reflecting debt restructuring and relatively high world oil prices and strong oil production. - Performance under a Staff Monitored Program (SMP) was broadly satisfactory through end-June 2008; fiscal targets were comfortably met. - Some structural measures proved difficult to implement without further technical assistance; authorities were reluctant earlier in the year to adjust fuel prices to maintain budgeted subsidies but implemented a price adjustment in early October that will reduce subsidies significantly. - The authorities request a three-year PRGF arrangement (covering 2008-11) to support strong growth, low and stable inflation, fiscal and external sustainability, and structural reform in priority areas; the proposed arrangement is in line with the authorities’ Poverty Reduction Strategy. - Staff supports the request for a three-year arrangement in an amount equivalent to SDR 8.46 million (10 percent of quota), interim-HIPC assistance, and completion of the financing assurances review. - Two main program risks identified: potential weakening of ownership, and senatorial and presidential elections in 2009 that could create pressures to spend and cause a lapse in fiscal discipline. ### Introduction and policy context - Since 2003, following renewed peace and political stability, authorities focused on improving economic management and launched a PRGF-supported reform program in 2004 anchored on fiscal consolidation and ambitious structural reforms to boost non-oil growth. - Program implementation through 2006 was uneven; factors included the government’s inability to resist spending pressures as world oil prices rose, weak ownership, and institutional/administrative capacity weaknesses, especially in public financial management and the oil sector. - A Staff-Monitored Program (SMP) was introduced in 2007 to establish a satisfactory track record. - Late in 2007 the authorities established a policy committee (headed by the President) and a technical committee (headed by a special advisor) to oversee and support the program; this structure proved effective and helped complete a six-month SMP. ### Recent economic developments and prospects - Real GDP growth is projected to be about 7.6 percent in 2008, reflecting resumption of oil production and solid non-oil activity. - The current account is projected to swing from a deficit of 26 percent of GDP in the previous year to a surplus of 0.6 percent of GDP in 2008. - Non-oil exports account for less than 6 percent of GDP. - Foreign direct investment (FDI) could reach more than 23 percent of GDP in 2008, driven by investments in newly discovered oil fields. - The real effective exchange rate has appreciated sharply since 2007, mainly reflecting higher domestic inflation relative to trading partners. - Congo’s external public debt has declined sharply in recent years—partly due to Paris Club rescheduling and enhanced HIPC Initiative relief—but arrears with some Paris Club creditors have accumulated (CFAF 10.1 billion, about US$ 23.8 million); these are being addressed in rescheduling discussions. - Under a June 2006 framework agreement with China, discussions continue on new concessional loans amounting to about US$ 1 billion for infrastructure; negotiation terms involve 20-year maturity, 5-year grace period, an interest rate of 0.25 percent, biannual repayments, with an estimated grant element of about 52.7 percent. ### Fiscal and monetary performance - The non-oil basic primary deficit dipped to 55.7 percent of non-oil GDP in 2007; on present policies it should improve significantly in 2008. - Through June 2008, fiscal targets under the SMP were comfortably achieved, attributable to better control and monitoring of expenditures and unexpectedly high non-oil revenue (notably corporate income tax from oil company subcontractors). - A supplementary budget was adopted to reflect higher-than-projected oil revenue, tariff and tax reductions to mitigate food and energy price increases, and additional pro-poor and capital spending financed through interim HIPC assistance. - Broad money growth was 16 percent through mid-year; net foreign assets rose to US$3.5 billion; credit to the economy has expanded. - The government repaid a large proportion of its statutory advances from BEAC to better manage liquidity and stepped up treasury coordination with the regional central bank. - The banking system remained broadly sound; all four commercial banks comply with prudential ratios except for risk concentration; nonperforming loans increased slightly but provisioning rose and domestic deposits increased. ### Structural reforms and governance actions - SMP period saw progress on structural fronts and on triggers for the floating completion point under enhanced HIPC. - Public financial management: adoption and start of implementation of a PFM action plan, production of a draft public investment management plan, consolidation of government accounts with BEAC. - Transparency and extractives: became a candidate country to join the Extractive Industries Transparency Initiative (EITI) in February 2008 and initiated work on the first EITI report (expected by end-2008); quarterly certification of oil revenue by an international audit firm (KPMG) continued. - Oil sector reforms: adoption and beginning of implementation of a reform program for state-owned refinery (CORAF) and preparation of initial draft actions to commercialize Congolese oil to international standards. - Public procurement transparency: publication on the internet of all invitations to bid and bids for government procurement contracts above CFAF 200 million. ### Performance on the 2008 SMP (Jan–Jun 2008) - SMP objectives: stabilize the economy, consolidate fiscal stance, reverse expenditure slippages, continue structural reform in public financial management, public enterprises (mainly oil), governance, and transparency. - Performance: broadly satisfactory. Indicative target for the non-oil basic primary deficit was met comfortably. All quantitative targets were observed, but external arrears to some Paris Club creditors accumulated (CFAF 10.1 billion, about US$ 23.8 million). - Structural benchmarks: several were met (e.g., plan/timetable for reforming CORAF; technical and financial audit of current transfers and sample of 2006 capital expenditures; quarterly certification of oil revenue; publication of procurement above CFAF 200 million). Some benchmarks proved difficult without further technical assistance (e.g., adoption of a comprehensive action plan to address institutional/procedural deficiencies in oil commercialization; three-year action plan to strengthen public investment management). - Petroleum product price policy: authorities were reluctant earlier in the year to adjust prices to adhere to budgeted subsidies; they did not provide timely information on petroleum product prices during the SMP. ### Medium-term challenges and policy priorities - Primary medium-term challenges: - Improve competitiveness of the non-oil sector. - Raise output growth through economic diversification beyond oil. - Consolidate the fiscal position to preserve oil wealth for future generations. - Authorities’ policy actions to address these challenges include: - Improve the business climate and liberalize trade. - Deepen financial intermediation. - Continue reform of public enterprises. - Improve governance and transparency. - Put in place development strategies in key sectors. ### PRGF arrangement design and assessments - Authorities request: a three-year PRGF arrangement covering 2008–11 to support growth, low and stable inflation, fiscal and external sustainability, and structural reform; aligned with the authorities’ Poverty Reduction Strategy completed earlier in the year. - Fund staff assessment: given strength of the authorities’ medium-term economic and financial program and prior action already implemented (fuel price adjustment), staff supports the three-year arrangement in an amount equivalent to SDR 8.46 million (10 percent of quota), interim-HIPC assistance, and completion of the financing assurances review. - Identified program risks: weakening of ownership; senatorial and presidential elections in 2009 that could create spending pressures and a lapse in fiscal discipline. *Source: IMF staff — Executive Summary (content unit _cr0974).* ### 8. After two decades of relatively poor performance, Congo’s exports have picked ### _cr0974 - 8. After two decades of relatively poor performance, Congo’s exports have picked up ### Export performance and composition - Congo’s exports (nominal terms) have picked up over the past several years, expanding twice as fast as the average of its CEMAC partners, and four times faster than the average for sub-Saharan Africa as a whole. - Export volume growth remained tepid, especially in the non-oil sector: - Non-oil sector real export growth slowed from about 5 percent in the 1990s to about 2 percent in this decade. - The share of non-oil exports in total exports plunged to about 7 percent in 2007 from nearly 20 percent in 2003. - Charts (sources: Congolese authorities; and Fund staff estimates) show trends in: - Growth in export volumes (1990–2007). - Non-oil exports as a share of total exports (1990–2007). ### Constraints on non-oil export development - Key factors likely contributing to weak non-oil export performance: - Resource diversion to oil: - The prominence of the oil sector and high world oil prices have diverted productive resources from traditional exports (including timber) toward extraction and oil-related activities, reducing non-oil sector weight in total exports and in value added. - Real effective exchange rate (REER) appreciation: - Appreciation of the REER since 2003 has contributed to erosion of Congo’s competitiveness (see Box 2). - Institutional and infrastructure constraints: - Institutional weaknesses and inadequate elements facilitating FDI and private sector development. - Weak transparency and governance in natural resources. - Underdeveloped financial sector and fragile legal framework. - Poor business climate: World Bank 2008 Doing Business survey ranks Congo 178 out of 181 economies. - Infrastructure deficits: Internet costs high; only 5 percent of roads are paved (compared with 15 percent for the region); rail disruptions between Brazzaville and Pointe Noire. ### Real Effective Exchange Rate assessment (Box 2) - Nominal effective exchange rate appreciated by about 6.2 percent from end-December 2007 through June 2008, mainly due to euro appreciation (to which the CFAF franc is pegged). - Over same period, REER was 6.7 percent higher, reflecting higher inflation relative to Congo’s trading partners. - Regional analysis: CFA franc in line with fundamentals at end-2007; Congo’s REER estimated moderately above long-run equilibrium in 2007. - One estimate: REER overvaluation of about 7 percent in 2007 (with 2003–07 overvaluation driven by relatively high government consumption); estimate not robust to alternative specifications. - Alternative panel estimate for oil exporters: REER overvalued by about 14 percent. - Fiscal consolidation envisaged would help reduce the overvaluation over time. ### Diversification of the non-oil economy — priorities and measures - Authorities recognize need to accelerate private-sector-led growth and diversify away from oil; PRS emphasizes this. - Policy actions under way or planned: - Business climate reforms: - Simplify administrative procedures. - Enable application of OHADA business laws. - Create a “one-stop” window for establishing a business. - Enhance governance and combat corruption. - Trade liberalization: - CEMAC trade reforms including reduction of the maximum common external tariff (from 30 to 20 percent) and tariff rates, trade facilitation, harmonization of rules of origin. - Domestic customs reforms: bring customs code into line with international standards; fully implement the ASYCUDA system; remove nuisance taxes and surcharges. - Financial intermediation improvements: - Low financial intermediation: private sector credit to GDP is 2.1 percent (sub-Saharan African average: 17.4 percent). - Share of population with a formal bank account is less than 3 percent (CEMAC average: 26.8 percent). - Low loan/deposit ratio (~22 percent in Congo versus 80 percent for WAEMU and 48 percent for CEMAC). - Authorities plan to adopt and implement a financial sector strategy, expand public access to banking services, lower cost of credit, and improve credit information. - Public enterprise reform: - Rationalize operations of parastatals, especially in transport (CFCO railway), ports, and utilities (electricity, water, sanitation). - Targeted sectoral interventions: - Support agriculture, manufacturing, mining, and forestry. - Revive coffee and cocoa; address stagnant timber output growth. - Engage development partners and foreign cooperation for agricultural investment and technology transfer. - Encourage exploration, development, and FDI in minerals. - Rehabilitate infrastructure (energy, roads, telecommunications) and improve labor skills. ### Fiscal sustainability strategy - Authorities and staff agree on need for long-term fiscal sustainability to preserve oil wealth for future generations. - Permanent-income hypothesis (PIH) model considered and used to guide medium-term fiscal strategy. - Fiscal targets and rules: - Authorities intend to target for the long-term an annual reduction in the basic non-oil primary deficit—the program’s nominal fiscal anchor—of 3-4 percent over the next several years. - Staff estimates fiscal sustainability occurs when the basic non-oil primary deficit is in the range of 3-5 percent of non-oil GDP. - Operational considerations: - Staff urged adherence to the fiscal path despite authorities’ concern about need for flexibility to scale up infrastructure investment for MDGs. - Room to scale up investment conditional on efforts to: - (i) re-orient spending by reducing/eliminating poorly targeted spending (e.g., fuel subsidies); - (ii) rationalize low-priority programs; - (iii) improve public financial management; and - (iv) mobilize more domestic resources. - Non-oil revenue is relatively large at about 21 percent of non-oil GDP but stagnant; potential increases via tax and customs administration reforms (single taxpayer identification number, computerization, ASYCUDA), reducing exemptions, and aggressive collection of arrears. - Fiscal management and public investment: - Authorities are completing a three-year public investment management action plan (with development partner TA) to provide strategic focus, consider 2006 capital expenditure audit findings, and World Bank infrastructure priorities. - Efforts under way to adopt modern procurement procedures and train staff. - Noted assumptions underlying PIH estimates include: - Projected oil resources assumed at about 1.6 billion barrels (proven). - Real rate of return on government (financial) assets assumed to increase to 3½ percent over the medium term. ### External debt and risk of distress - Joint IMF–World Bank debt sustainability analysis: Congo at high risk of debt distress. - Debt ratios improved significantly owing mainly to London Club creditor debt relief in November 2007 and are projected to decline further over the long term reflecting strong oil revenue and projected fiscal consolidation. - Vulnerability remains to movements in world oil prices; a prudent fiscal stance is essential to achieving debt sustainability. ### Capacity building and data - Authorities stressed need to build institutional and administrative capacity to implement the economic program. - Technical assistance from the Fund (including AFRITAC), World Bank, and other donors is being coordinated to identify overlaps, gaps, and complementary efforts. - Additional assistance needed to implement ambitious PFM reform: - Draft medium-term expenditure framework. - Draft public procurement code in line with international best practice. - Comprehensive investment management program. - Assistance in reforming the oil sector (important for HIPC conditionality). - Provision of data to the Fund is broadly adequate for surveillance; priorities include improving timeliness and regularity of basic macroeconomic data. - Recent TA has aimed to strengthen national accounts, balance of payments, and fiscal data. ### The medium-term economic program (2008–11) — objectives and policies - Macroeconomic objectives consistent with the PRS: - Annual real GDP growth in the non-oil sector of about 8 percent (authorities consider this the minimum necessary to reduce poverty durably and advance MDGs). - Low and stable inflation of about 3 percent a year (in line with CEMAC convergence criteria). - Improvement in the external position with the current account moving into surplus this year and rising into the medium term; further strengthening expected when Congo reaches the HIPC completion point. - Medium-term policy measures: - Gradual but continued fiscal consolidation: - Target an annual decline in the basic non-oil primary deficit of 3-4 percent of non-oil GDP. - Projected reduction in the basic non-oil primary fiscal deficit from a projected 43.2 percent of non-oil GDP this year to 33½ percent in 2011, to be achieved through cuts in non-priority spending (elimination of fuel subsidies, restraint on wages and goods and services) and domestic revenue mobilization. - Regional central bank focus on keeping inflation low and allowing foreign reserves accumulation to support the fixed exchange rate regime. - Further opening of the economy through trade liberalization. - Structural reforms critical to program success: - Timely and full implementation of action plan to strengthen public financial management and enhance tax and customs administration. - Improve financial and operating performance of state-owned enterprises, notably in the oil sector. - Adoption and implementation of the financial sector strategy. *Source: IMF staff report content (chapter/section provided).* ### Box 3. Structural Conditionality for the Proposed PRGF Arrangement ### Box 3. Structural Conditionality for the Proposed PRGF Arrangement ### Structural conditionality: scope and priorities - Focus areas: PFM, reform of the oil sector, and financial stability and deepening intermediation. - Public financial management (PFM): - Priority to enhancing PFM to tighten control over budget execution and monitoring and to achieve consistency with the PRS. - Program conditionality will support: - A new economic, functional, and administrative classification for the budget. - Development of a medium-term expenditure framework. - Better public investment management, given the magnitude of these expenditures. - Oil sector: - Performance of the sector is critical to the macroeconomic outlook. - Program conditionality will support government efforts to: - Repatriate oil revenue in a timely manner and certify those receipts every quarter. - Adopt a comprehensive plan with a timetable to address procedural deficiencies in the commercialization of Congolese oil. - Finalize a strategic study of the sector. - Establish a new petroleum-product pricing regime to help eliminate subsidies and depoliticize pricing decisions. - Financial sector: - Program will support adoption by the government of a financial sector strategy drawn up in consultation with Fund staff. - Implementation of the strategy could be supported through conditionality on key elements. ### A. Economic policies for 2008-09 — headline targets and near-term stance - Growth and inflation targets: - Real GDP growth target in the non-oil sector: 8½ percent in 2008-09. - Inflation target: moderation to 3 percent by year-end. - Drivers of non-oil activity pickup: - Strong public investment, further broadening of growth, and spillovers from high oil production and projected investment in this sector. ### Fiscal policies (2008–09) - Rest of 2008 fiscal stance: - Consistent with SMP targets, including reduction of the basic non-oil primary deficit to 43.2 percent of non-oil GDP. - Achieved by strong non-oil tax collections, firm control of public spending, and projected decline in fuel subsidies by about 1.6 percent of non-oil GDP. - The decline in fuel subsidies follows an across-the-board increase in fuel prices by an average of 13 percent at the beginning of October (this increase was a prior action). - 2009 fiscal outlook: - Basic non-oil primary deficit envisaged to decline to 40.2 percent of non-oil GDP. - Reduction based primarily on nominal cuts in non-priority spending, including a further decline in fuel subsidies. - Pro-poor and domestically-financed capital spending to rise as a share of non-oil GDP, consistent with the PRS. - Non-oil tax revenue projected to increase only slightly as a share of non-oil GDP (to about 21.1 percent) because improvements in tax and customs administration would be mostly offset by the full-year impact of recent tax and tariff reductions. - PFM structural performance criteria and actions: - Prepare and submit to parliament next year’s budget consistent with PRGF targets using economic, functional, and administrative classifications (structural performance criterion for December 2008). - Finalize and adopt a three-year action plan to improve public investment management (structural performance criterion for December 2008). - Prepare a medium-term expenditure framework (structural performance criterion for June 2009). - Continue quarterly certification of oil revenue by a reputable international auditor and lodge proceeds in the Treasury within 45 days of oil sales (both continuous structural performance criteria). ### Monetary and financial sector policies - BEAC projection: - Broad money growth for Congo of about 13 percent for 2009. - Credit and intermediation: - Credit to the private sector should continue to increase strongly as private sector development speeds up and financial intermediation deepens. - Monetary operations: - Authorities intend to continue to reduce the stock of statutory advances, aiming to repay them fully by the end of 2008. - Work with CEMAC partners to develop the regional securities market. - Financial sector strategy: - Government will adopt by the end of the year the financial sector strategy established in collaboration with Fund staff. - Expected contributions: expand credit to the private sector; strengthen the legal framework; improve information on the cost of credit and credit history; diversify financial instruments; ensure the pension system is on a sound footing. ### External sector policies - Financing policy: - Authorities reaffirm commitment to finance development mainly through their own resources and to seek foreign financing only on highly concessional terms (minimum grant element of not less than 50 percent). - Debt relations and management: - Accelerate efforts to regularize relations with all creditors, including non-London Club and litigating creditors. - Priority to complete implementation of a new debt management strategy in line with CEMAC regional guidelines. - Regional trade liberalization agenda with CEMAC partners: - Reduce the maximum external tariff. - Remove remaining exemptions, surcharges and export taxes. - Harmonize rules of origin. - Facilitate trade. ### Structural policies (first-year focus) - Strengthen PFM and initiate financial sector reform. - Rationalize the oil sector with first-year focus: - Establish a new fuel pricing mechanism (structural performance criterion for March 2009) to help phase out fuel subsidies by moving prices toward import parity and depoliticize pricing decisions. - Continue to implement the action plan to improve operations and financial performance of CORAF. - Adopt a plan (with assistance of Congo’s development partners) to address institutional and procedural deficiencies in commercialization of Congolese oil (structural performance criterion for March 2009). - Prepare a strategic study on how the oil sector can make the greatest contribution to economic development. ### B. Program financing and capacity to repay the Fund — key figures - Debt sustainability: - Congo has not achieved debt sustainability, although rising oil production and exports give capacity to service external debt, including the Fund. - External public debt service: - Projected to decline to about 4.2 percent of exports in 2009 and to 1.9 percent over the medium term. - Proposed PRGF access: - SDR 8.46 million (10 percent of quota), to be disbursed in seven equal tranches. - Congo’s outstanding credit to the Fund: - At the end of September 2008: SDR 23.58 million (27.87 percent of quota). - No principal payments due to the Fund in 2008-09. - With the proposed PRGF arrangement Congo’s obligations will peak in 2014 at SDR 5.4 million, representing about 0.1 percent of exports. - Interim HIPC assistance: - Financing assurances received from external creditors account for 80 percent of total HIPC assistance; authorities eligible for interim HIPC assistance from the Fund. - Interim HIPC assistance amount: SDR 77,000, to be used to cover 98 percent of PRGF interest payments falling due during a twelve-month period following Executive Board approval. - HIPC completion: - HIPC debt release would improve external debt indicators; satisfactory progress on the PRGF arrangement and implementation of floating completion point triggers are required to secure debt relief. ### C. Program risks - Ownership and implementation risk: - Past uneven performance on previous programs mainly due to lack of ownership and narrow constituency for reform; new political and technical apparatus should help, but potential for ownership to weaken cannot be ruled out. - Political cycle and spending pressures: - Presidential and senatorial elections looming next year could create spending pressures, cause a lapse of fiscal discipline, and slow reform in politically sensitive areas (oil in particular). ### V. Staff appraisal — key findings and recommendations - Growth and poverty: - Non-oil sector growth has been relatively buoyant but narrowly based and not high enough to reduce poverty significantly. - Economic reform across the board, including fiscal consolidation, is needed over the medium term to make progress toward the MDGs. - Positive developments: - Relatively high world oil prices, increased oil production, and relative political and social stability provide momentum for accelerating growth and reducing poverty. - Satisfactory policy implementation during the SMP in the first half of 2008 is encouraging. - Policy priorities to sustain reform momentum: - Improve the business environment and reduce the cost of doing business. - Raise the quality of government services and make more effective use of public resources. - Diversify the economy and enhance competitiveness of the non-oil sector to promote employment and reduce income disparities. - Exchange rate and competitiveness: - Recent real effective exchange rate appreciation driven mainly by relatively high inflation compared with trading partners; fiscal consolidation will be important in reducing overvaluation over time. - Revenue mobilization and PFM: - Timely and comprehensive implementation of the new PFM action plan would promote smooth execution and careful monitoring of the budget. - Authorities must mobilize more domestic non-oil revenue to widen the spending envelope. - Structural reform agenda expected benefits: - Simplification of business regulations and application of OHADA business laws to improve business climate. - Trade liberalization to enlarge potential market. - Better financial intermediation to mobilize national savings for private sector development. - Improved performance of state-owned enterprises to generate activity and remove budgetary burdens. - Targeted interventions in key sectors could attract further FDI. - Governance and oil transparency: - More transparent and better governance, particularly in the oil sector, would help achieve program objectives; authorities should enhance monitoring and reporting of oil resources and address fraud and corruption. - Debt risk: - Congo remains at a high risk of debt distress; prudent debt management and debt relief are essential. - Authorities’ intention to pursue fiscal consolidation and foreign borrowing only on highly concessional terms is welcome. - Final staff recommendation: - Taking account of program strength and risk balance, staff supports a three-year PRGF arrangement in an amount equivalent to SDR 8.460 million, a first disbursement of SDR 1.209 million, and interim-HIPC assistance in an amount of SDR 77,000; staff also supports completion of the financing assurances review. *IMF Staff Report — Box 3. Structural Conditionality for the Proposed PRGF Arrangement* ### 43. Consistent with the practice for program countries, it is proposed that the next Article ### _cr0974 - 43. Consistent with the practice for program countries, it is proposed that the next Article ### Overview - The document presents selected economic and financial indicators, projections, and program conditionality for the Republic of Congo for the period 2006–15, with emphasis on 2006–12 and program years 2008–11. - Sources cited in the tables include Congolese authorities; BEAC; COBAC; and Fund staff estimates and projections. ### Macroeconomic projections and key real-sector indicators (Selected annual percentage changes and levels) - GDP at constant prices: 2006: 6.2; 2007: -1.6; 2008: 7.6; 2009: 12.7; 2010: 12.3; 2011: 1.3. - Oil GDP growth: 2006: 6.8; 2007: -17.2; 2008: 9.0; 2009: 23.1; 2010: 21.6; 2011: -10.2. - Non-oil GDP growth: 2006: 5.9; 2007: 6.6; 2008: 7.0; 2009: 8.5; 2010: 8.0; 2011: 7.4. - GDP at current prices (annual percent change): 2006: 25.9; 2007: -9.4; 2008: 35.2; 2009: -5.1; 2010: 27.1; 2011: 0.1. - GDP deflator (annual percent change): 2006: 18.5; 2007: -7.9; 2008: 25.6; 2009: -15.8; 2010: 13.2; 2011: -1.2. - Consumer prices (period average): 2006: 4.7; 2007: 2.6; 2008: 4.5; 2009: 4.2; 2010: 3.0; 2011: 3.0. - Consumer prices (end of period): 2006: 8.1; 2007: -1.7; 2008: 6.0; 2009: 3.0; 2010: 3.0; 2011: 3.0. ### External sector, trade, and balance of payments (levels in Billions of CFA francs where indicated) - Exports, f.o.b. (CFA francs) annual percent change: 2006: 26.7; 2007: -13.3; 2008: 34.7; 2009: 0.9; 2010: 35.2; 2011: -4.0. - Imports, f.o.b. (CFA francs) annual percent change: 2006: 52.1; 2007: 20.8; 2008: 1.5; 2009: 12.1; 2010: 17.5; 2011: 6.3. - Export volume (annual percent change): 2006: 7.8; 2007: -18.8; 2008: 8.7; 2009: 33.3; 2010: 21.3; 2011: -9.8. - Import volume (annual percent change): 2006: 40.0; 2007: 20.0; 2008: -10.1; 2009: 12.5; 2010: 13.8; 2011: 4.1. - Terms of trade (deterioration - ) (annual percent change): 2006: 0.8; 2007: 0.6; 2008: 13.7; 2009: -22.2; 2010: 5.7; 2011: -2.4. - Current account balance (percent of GDP, including public transfers) (mem.): 2006: 1.6; 2007: -26.1; 2008: 0.6; 2009: 1.2; 2010: 10.9; 2011: 8.7. - Trade balance (Billions of CFA francs, projection row includes 2009–12): 2009: 2,125; 2010: 1,486; 2011: 2,420; 2012: 2,299; 2013: 3,363; 2014: 3,056; 2015: 2,726. - Exports, f.o.b.: 2009: 3,172; 2010: 2,749; 2011: 3,703; 2012: 3,737; 2013: 5,052; 2014: 4,850; 2015: 4,551. - Oil sector exports: 2009: 2,976; 2010: 2,500; 2011: 3,433; 2012: 3,415; 2013: 4,705; 2014: 4,471; 2015: 4,139. - Non-oil sector exports: 2009: 196; 2010: 250; 2011: 270; 2012: 322; 2013: 348; 2014: 380; 2015: 413. - Imports, f.o.b.: 2009: -1,047; 2010: -1,264; 2011: -1,283; 2012: -1,438; 2013: -1,689; 2014: -1,795; 2015: -1,826. - Balance of services (Billions of CFA francs): 2009: -1,129; 2010: -1,590; 2011: -1,380; 2012: -1,422; 2013: -1,674; 2014: -1,622; 2015: -1,348. - Income (Billions of CFA francs): 2009: -916; 2010: -835; 2011: -991; 2012: -820; 2013: -1,052; 2014: -934; 2015: -769. - Financial account (Billions of CFA francs): 2009: -665; 2010: 409; 2011: 966; 2012: 457; 2013: 439; 2014: 598; 2015: 804. - Direct investment (net) (Billions of CFA francs): 2009: 522; 2010: 1,007; 2011: 1,174; 2012: 1,054; 2013: 1,126; 2014: 1,065; 2015: 1,030. - Gross official foreign reserves (levels, Billions of CFA francs): 2006: 920.4; 2007: 983.1; 2008: 2,078.3; 2009: 2,801.6; 2010: 4,231.9; 2011: 5,755.5. - Months of imports (f.o.b.): 2006: 10.6; 2007: 9.3; 2008: 19.4; 2009: 23.4; 2010: 30.1; 2011: 38.5. - Reserves as percent of GDP: 2006: 22.8; 2007: 26.8; 2008: 42.0; 2009: 59.6; 2010: 70.8; 2011: 96.2. - World oil price (U.S. dollars per barrel): 2006: 64.37; 2007: 71.19; 2008: 99.86; 2009: 68.07; 2010: 75.0; 2011: 79.3. - Oil production (Millions of barrels): 2006: 98.7; 2007: 81.7; 2008: 89.0; 2009: 109.6; 2010: 133.2; 2011: 119.6. ### Fiscal accounts and public finances (Percent of GDP and Billions of CFA francs) - Revenue and grants (Percent of GDP): 2006: 141.5; 2007: 113.5; 2008: 155.5; 2009: 121.1; 2010: 142.4; 2011: 132.6. - Oil revenue (Percent of GDP): 2006: 120.6; 2007: 92.3; 2008: 133.2; 2009: 97.0; 2010: 116.4; 2011: 103.9. - Non-oil revenue and grants (Percent of GDP): 2006: 20.9; 2007: 21.2; 2008: 22.3; 2009: 24.1; 2010: 26.0; 2011: 28.7. - Total expenditure (Percent of GDP): 2006: 87.2; 2007: 84.2; 2008: 72.4; 2009: 73.3; 2010: 69.1; 2011: 65.5. - Current expenditure (Percent of GDP): 2006: 58.5; 2007: 56.3; 2008: 45.1; 2009: 39.1; 2010: 34.4; 2011: 31.5. - Capital (and net lending) (Percent of GDP): 2006: 28.7; 2007: 27.9; 2008: 27.4; 2009: 34.2; 2010: 34.7; 2011: 34.0. - Overall balance (deficit -, commitment basis) (Percent of GDP): 2006: 54.3; 2007: 29.3; 2008: 83.1; 2009: 47.8; 2010: 73.3; 2011: 67.1. - Primary balance (deficit -) (Percent of GDP): 2006: 68.6; 2007: 36.6; 2008: 90.1; 2009: 56.9; 2010: 79.5; 2011: 70.5. - Non-oil primary balance ( - = deficit) (Percent of GDP): 2006: -51.3; 2007: -55.7; 2008: -43.2; 2009: -40.2; 2010: -36.9; 2011: -33.5. - External public debt (end of period) (Percent of GDP): 2006: 81.5; 2007: 72.9; 2008: 51.9; 2009: 54.7; 2010: 43.3; 2011: 44.6. - External public debt (levels, two noted series): 2006: 99.1; 2007: 88.8; 2008: 64.8; 2009: 63.1; 2010: 46.6; 2011: 49.7. - External public debt service (before debt relief) (Percent of GDP and other series): - As percent of GDP: 2006: 13.7; 2007: 10.7; 2008: 4.5; 2009: 4.2; 2010: 3.0; 2011: 1.9. - Other reported series (possibly different denominator): 2006: 25.3; 2007: 20.6; 2008: 7.4; 2009: 8.1; 2010: 6.0; 2011: 3.6. ### Central government operations (Table highlights, Billions of CFA francs and percent of non-oil GDP) - Table 3a (2009–11 projections): Revenue and grants (2009): 1,796; 2010: 1,579; 2011: 428 (Mar) / 1,121 (Jun) / 1,957 (Proj annual) depending on column detail. - Primary revenue (2009): 1,791; Oil revenue (2009): 1,531; Non-oil revenue (2009): 261. - Expenditure and net lending (2009): 1,106; Primary expenditure (2009): 916; Current expenditure (2009): 742; Capital expenditure (2009): 360. - Balance, commitment basis (including grants) (Percent of non-oil GDP table): 2006: 54.3; 2007: 29.3; 2008: 83.1; 2009: 47.8; 2010: 73.3; 2011: 67.1. - Basic primary balance and basic non-oil primary balance (Billions CFA francs / percent of non-oil GDP): Basic primary balance examples: 2009: 871 (Mar); Basic non-oil primary balance examples: 2009: -651 (Mar). ### Monetary and financial sector indicators - Monetary survey (Billions of CFA francs, selected): Net foreign assets (2006): 128.2; 2007: 12.8; 2008: 159.7; 2009: 86.3. - Net domestic assets (2006): -80.3; 2007: -5.4; 2008: -139.7; 2009: -72.9. - Net domestic credit (2006): -82.6; 2007: -3.2; 2008: -139.7; 2009: -72.9. - Net credit to government (2006): -84.4; 2007: -3.9; 2008: -149.5; 2009: -78.8. - Credit to the economy (annual percent change): 2006: 1.9; 2007: 1.1; 2008: 9.9; 2009: 6.0. - Broad money (percent changes): 2006: 47.9; 2007: 7.4; 2008: 20.0; 2009: 13.3. - Reserve money (percent change examples): 2006: 36.5; 2007: -11.8; 2008: 31.6; 2009: 2.0. - Velocity of broad money (Non-oil): Non-oil GDP/Average M2: 2006: 1.9; 2007: 2.0; 2008: 1.9; 2009: 2.0. ### Banking sector financial soundness indicators (2004–07, selected) - Regulatory capital to risk-weighted assets (percent): 2004: 4; 2005: 12; 2006: 14; 2007: 16. - Nonperforming loans (percent): 2004: 7; 2005: 3; 2006: 2; 2007: 3. - Provision as percent of past-due loans: 2004: 28; 2005: 84; 2006: 67; 2007: 81. - Liquid assets/total assets (percent): 2004: 39; 2005: 64; 2006: 61; 2007: 72. - Loan/deposits (percent): 2004: 57; 2005: 34; 2006: 27; 2007: 26. ### Fund exposure, access, and phasing under the proposed 3-Year PRGF Arrangement (2008–11) - Proposed access and phasing (SDR amounts and percent of quota): - December 2008: 1,208,570 SDRs, 1.43 percent of quota — Approval of the arrangement. - April 2009: 1,208,570 SDRs, 1.43 percent of quota — Completion of the first review (end-December 2008 test date). - October 2009: 1,208,570 SDRs, 1.43 percent of quota — Completion of the second review (end-June 2009 test date). - April 2010: 1,208,570 SDRs, 1.43 percent of quota — Completion of the third review (end-December 2009 test date). - October 2010: 1,208,570 SDRs, 1.43 percent of quota — Completion of the fourth review (end-June 2010 test date). - April 2011: 1,208,570 SDRs, 1.43 percent of quota — Completion of the fifth review (end-December 2010 test date). - June 2011: 1,208,580 SDRs, 1.43 percent of quota — Completion of the sixth (final) review (end-March 2011 test date). - Total: 8,460,000 SDRs, 10.00 percent of quota. - Memorandum: The Republic of Congo's quota is SDR 84.6 million. A test date of end-March 2011 is set to allow the final disbursement to take place before the end of the arrangement period. ### Quantitative targets and program conditionality (Jan 1–June 30, 2008; selected) - Quantitative targets (cumulative from January) for End-Jun. 08 and End-Mar. 08: - Nonoil primary fiscal balance (floor): Benchmarks/Actual: -198.5 / -194.8 / -398.6 / -371.2 (table shows multiple columns; exact mapping preserved). - New medium or long-term nonconcessional external debt contracted or guaranteed by the government (ceiling): 0.0. - New external debt with original maturity less than one year (ceiling): 0.0. - New oil-collateralized external debt contracted by or on behalf of the central government (ceiling): 0.0. - New nonconcessional external debt contracted by SNPC (ceiling): 0.0. - New external arrears on nonreschedulable debt: 0.0 / 0.0 / 0.0 / 10.1 (table columns preserved). - New domestic arrears: 0.0. - Memorandum items: Oil revenue (in billions of CFA francs) examples: 338.5; 342.7; 1,081.1; 930.7. Non-oil revenue examples: 77.0; 85.7; 153.9; 184.0. ### Structural benchmarks under the SMP (Jan 1–June 30, 2008) - Adopt a comprehensive action plan with timetable to address institutional and procedural deficiencies in commercialization of Congolese oil to align with best international practice. Deadline: March 31, 2008. Status: Not observed. - Adopt a comprehensive action plan with timetable for reforming CORAF, incorporating diagnostic study recommendations. Deadline: March 31, 2008. Status: Observed. - Completion of a technical and financial audit (independent, international firm) of current transfers and representative sample of capital expenditures for Jan 1, 2006–Dec 31, 2006; publication of audit report on Ministry website. Deadline: June 30, 2008. Status: Observed. - Adoption of a three-year action plan to strengthen public investment management with donor assistance. Deadline: June 30, 2008. Status: Not observed. - Quarterly adjustment in petroleum entry distribution and/or retail prices to ensure oil subsidies for 2008 remain within budget limits (CFAF 35 billion for full year); adjustments should not pass-through any decline in world oil prices. Timing: Four weeks after end of each quarter. Status: Not observed. - Quarterly certification of oil revenue by an internationally recognized audit firm (specifications as 2003 certification) with publication on Ministry website. Timing: Continuous, with one-quarter lag. Status: Observed. - Publication of all invitations to bid and bids for government procurement contracts above CFAF 200 million on government website. Timing: Continuous. Status: Observed. - No granting of new tax and customs exemptions (except under international conventions). Timing: Continuous. Status: Observed. - Centralization of all public revenues and execution of all public payments by the Treasury. Timing: Continuous. Status: Observed. - No recourse to emergency payment and cash advance procedures except as stated in the organic budget law. Timing: Continuous. Status: Observed. - Provision to Fund staff of information and projections concerning (i) the price structure of domestic petroleum products and (ii) the income statement and cash flow of CORAF. Timing: Monthly, with one-month lag. Status: Not observed. ### Millennium Development Goals table note - Table 10 begins MDG presentation with Goal 1: Eradicate extreme poverty and hunger — Target 1: Halve, between 1990 and 2015, number of people earning less than US$ 1 a day. (MDG table continues beyond provided excerpt.) *Sources: Congolese authorities; BEAC; COBAC; and Fund staff estimates and projections.* ### 1. Population below US$1 a day (in percent).................. ### _cr0974 - 1. Population below US$1 a day (in percent).................. ### Millennium Development Goal indicators (selected values from table) - Prevalence of child malnutrition (in percent of children under 5): 13.0, 11.8 - Population below minimum level of dietary energy consumption (in percent): 54.0, 59.0, 33.0, [18.5] - Net primary enrollment ratio (percent of relevant age group): 79.0, 44.0, 54.0 - Cohort reaching grade 5 (in percent): 60.0, 66.0, 73.0 - Youth literacy rate (in percent, ages 15-24): 93.0, [100.0] - Ratio of girls to boys in primary and secondary education (in percent): 83.0, 83.0, 89.0, 90.0 - Ratio of young literate females to males (in percent, ages 15-24): 95.0 - Share of women employed in the nonagricultural sector (in percent): 26.1 - Proportion of seats held by women in the national parliament (in percent): 14.0, 2.0, 12.0, 9.0, 7.0 - Under-5 mortality rate (per 1,000): 110.0, 108.0, 108.0, 108.0, 126.0, [73.3] - Infant mortality rate (per 1,000 live births): 83.0, 81.0, 81.0, 81.0, 79.0 - Immunization against measles (percent of children under 12 months): 75.0, 38.0, 34.0, 56.0, 66.0 - Maternal mortality ratio (modeled estimate, per 100,000 live births): 510.0, 740.0 - Proportion of births attended by skilled health personnel (% of total): 86.0, 86.0 - HIV prevalence among females (in percent, ages 15-24): 3.7, 2.3 - Contraceptive prevalence rate (percent of women ages 15-49): 44.0, 36.0 - Incidence of tuberculosis (per 100,000 people): 137.0, 240.0, 328.0, 367.0, 403.0 - Tuberculosis cases detected under DOTS (in percent): 67.0, 87.0, 57.0, 51.0 - Forest area (percent of total land area): 67.0, 66.0, 66.0, 66.0 - Nationally protected areas (percent of total land area): 18.0 - GDP per unit of energy use (PPP $ per kg oil equivalent): 2.3, 4.5, 3.9, 3.3 - CO2 emissions (metric tons per capita): 0.5, 0.5, 0.3, 0.4 - Access to improved water source (percent of population): 58.0, 71.0 - Access to improved sanitation (percent of population): 27.0, 20.0 - Fixed-line and mobile telephones (per 100 people): 2.9, 35.8 - Personal computers (per 1,000 people): 35.3, 13.1, 1.6, 2.4 ### Program request and financing (letter of intent highlights) - Republic of Congo requests a three-year arrangement covering the period 2008-11 under the Poverty Reduction and Growth Facility (PRGF) with access equivalent to SDR 8.46 million (10 percent of quota). - A disbursement equivalent to SDR 1.21 million would be available upon Executive Board approval. - Request includes interim-HIPC assistance of SDR 77,000 to cover 98 percent of PRGF interest payments falling due during a twelve-month period from Executive Board approval. - Prior action noted: raising fuel prices on October 1, 2008. - Disbursements in the first year linked to biannual quantitative performance criteria for end-December 2008 and end-June 2009 and to structural performance criteria and benchmarks (Table 2 of MEFP). ### Recent economic developments (selected factual findings) - An accident at the Nkossa oil platform led to a decline in overall real GDP last year; expected growth is 7.6 percent this year. - Economic activity in the non-oil sector supported by recovery in oil production and growth in telecommunication, construction, and transport. - Inflation: consumer prices rose by 5.7 percent in the twelve months through June 2008; expectation of a further small rise through the rest of the year, before moderating in 2009. - External position: projected current account surplus of about 0.6 percent of GDP in 2008, compared with a deficit of nearly 26 percent of GDP last year. - Outstanding stock of external public debt projected to decline to about 52 percent of GDP, compared with 81½ percent two years earlier. - Accumulated external arrears with some Paris Club creditors: about CFAF 10 billion. - Discussions with Chinese authorities for concessional financing with a grant element of 52.7 percent (Fund staff estimates), amounting to about US$ 1 billion. - Fiscal: non-oil basic primary balance projected to be about 43 percent of non-oil GDP in 2008; contrasted with 55¾ percent last year. ### Medium-term objectives and policy framework (targets and policy directions) - Non-oil sector growth target: about 8 percent per year to lift per capita income and generate employment. - Inflation objective: maintain about 3 percent per year. - Fiscal consolidation: annual decline in the non-oil basic primary deficit of about 3-4 percent of non-oil GDP per year; reduce deficit from projected 43.2 percent of non-oil GDP in 2008 to 33½ percent in 2011. - External sustainability: pursue grant financing, limit borrowing to highly concessional loans, and achieve HIPC debt relief. - Public investment and management reforms: nearly completed measures to better control and manage public investment; draft three-year action plan to be finalized by end of year. - Oil sector: develop a sector strategy, rationalize state-owned enterprises, certify oil revenue to safeguard resources. - Financial sector development: deepen financial intermediation to support private sector. ### Program for 2008-09 (macroeconomic projections and structural policies) - GDP growth projections: 7.6 percent in 2008 and nearly 13 percent in 2009. - Inflation projection: about 4½ percent on average in 2008; moderation in 2009 expected. - Monetary policy: regional monetary authority to target growth of money aggregates in line with expansion of non-oil GDP. - Structural policies: strengthen public financial management, enhance governance and transparency, financial and oil sector reforms, implement enhanced HIPC Initiative triggers. ### Fiscal policy specifics and measures - 2008 fiscal stance maintained: reduction in non-oil basic primary balance to about 43.2 percent of non-oil GDP (from 55¾ percent in previous year). - Supplementary budget measures in response to food and energy price rises: - Temporary reduction of value-added taxes and tariffs on some food stuffs and staples. - Additional spending on agriculture, transportation, and generic drugs. - CFAF 25 billion (about 1.6 percent of non-oil GDP) in capital spending financed from interim HIPC assistance resources. - Budget will bear full cost of oil subsidies estimated at CFAF 75 billion this year. - 2009 budget targets: - Reduce non-oil basic primary balance to about 40¼ percent of non-oil GDP. - Adjustment via modest nominal cut in expenditures and higher non-oil revenue. - Allow increases in pro-poor spending (health and education) and higher domestically-financed public investment. - Domestically-financed investment projected to rise from 25.4 percent of non-oil GDP in 2008 to 26½ percent in 2009. - Finalize and adopt three-year public investment management action plan by end-December (structural performance criterion). - Revenue expectations: - Oil revenue expected to decline to about 97 percent of non-oil GDP in 2009 (from 133 percent of non-oil GDP in 2008) due to lower world oil prices despite higher production. - Non-oil revenue ratio expected to rise to about 21.1 percent of non-oil GDP in 2009. - Continuous structural performance criteria: - Repatriation of proceeds by the Treasury of oil shipments commercialized by private oil companies and SNPC, within 45 days of lifting (according to actual schedule of quantities and prices). - Quarterly certification of oil revenue through a reputable international auditor and posting audit results and replies to auditor questions on the government’s website. *Source: Republic of Congo — Letter of Intent and Memorandum of Economic and Financial Policies, Brazzaville, November 19, 2008.* ### 11. An important policy measure to free up budgetary resources for high priority ### An important policy measure to free up budgetary resources for high priority programs ### Petroleum-product pricing and fuel subsidy reform - Intention to adopt by end-March 2009 a new petroleum-product pricing regime that will ensure fuel price subsidies are phased out by mid-2011 (structural performance criterion). - New regime characteristics: - Prices adjusted at regular intervals. - Free from political intervention. - Prior action: across-the-board fuel price adjustments implemented on October 1, 2008 by an average of 13 percent. - Projected fiscal impact of the October 1, 2008 price increases: - Subsidies decline to no more than CFAF 75 billion in 2008 (about 4.8 percent of non-oil GDP). - Full-year impact in the following year: subsidies expected to be CFAF 45 billion, or 2.5 percent of non-oil GDP. ### Public financial management (PFM) and revenue mobilization - Continue implementation of the recently adopted PFM action plan covering procedures, monitoring, reporting, training, and computerization. - Key reforms and measures: - Consolidation of government bank accounts into a single Treasury account with the central bank to improve expenditure control. - Preparation and submission to parliament of a 2009 budget consistent with the targets under the proposed PRGF arrangement, using economic, functional and administrative classifications (structural performance criterion). - Preparation of a medium-term expenditure framework in consultation with development partners (structural performance criterion). - Simplification of the expenditure chain; unified payroll file for the civil service. - Continued prohibition on recourse to emergency payment and cash advance procedures, except where called for in the organic budget law. - Procurement code reform with World Bank assistance; publication on the government’s website of all invitations to bid and the bids themselves for contracts above CFAF 200 million. - Concerted effort to strengthen public investment management. - Measures to increase non-oil revenue: - Use of a single-taxpayer identification number. - Computerization and use of ASYCUDA software for customs. - Extension of tax services to the regions. - Reducing tax exemptions and refraining from new exemptions (except where permitted under international treaties). ### Monetary and financial sector policies - Monetary policy conducted regionally by BEAC, consistent with the fixed exchange rate regime and aiming to keep inflation low. - Expectations and operational steps: - Net foreign assets expected to increase significantly, primarily due to high oil production. - Broad money expected to expand by about 13 percent next year, in line with the nominal growth of the non-oil sector. - Government has steadily reduced statutory advances from the central bank and should repay them in full by year’s end. - Work with the central bank and CEMAC partners to develop the regional securities market to improve monetary policy efficacy. - Financial sector strengthening and deepening intermediation: - Adopt by end of this year the financial sector strategy developed with Fund staff and regional institutions (COBAC, BEAC, CIMA and CIPRES). - Strategy aims to: - (i) create conditions for an expansion of private sector credit; - (ii) strengthen the legal framework; - (iii) improve information on the cost of credit and default; - (iv) diversify financial instruments; - (v) reform the pension funds based on the results of recent audits; - (vi) implement recommendations of the audit of the insurance sector and of ARC. - Finalize the corporate financial statement registry and the central credit bureau by early next year. - Payment system and microfinance: - Reform the payment system and implement electronic transfer of balances between banks. - Strengthen supervisory mechanisms of microfinance institutions in cooperation with COBAC. - Accounting framework and software for COBAC supervision of microfinance institutions expected to be in place during 2009. ### External sector policies and trade liberalization - Emphasis on trade liberalization to improve international competitiveness and integrate regionally and globally. - Government actions and advocacy within CEMAC: - Encourage reduction of the maximum tariff rate under the common external tariff to 20 percent. - Remove remaining exemptions, surcharges and export taxes. - Harmonize rules of origin and enhance trade facilitation. - Financing and creditor strategy: - Development to be financed mainly with domestic resources; seek grants and assistance only on highly concessional terms (minimum grant element of 50 percent). - Use best efforts to obtain comparable treatment from suppliers, non-London Club creditors, and litigating creditors. - Seek to complete negotiations with the last remaining Paris Club creditor as soon as possible. - Enhance debt management capacity and implement a new strategy in line with CEMAC guidelines. ### Oil sector reform and governance - Strategic study of the oil sector to be undertaken with development partners, expected to be finalized in mid-2009; will include a critical assessment of institutions and enterprises operating in the sector. - Ongoing actions prior to the study’s completion: - Improve operating and financial performance of the national oil refinery (CORAF). - Improve returns from commercialization of government oil (through SNPC). - Implement the action plan adopted earlier this year to reform CORAF in the coming months. - Refine the draft commercialization strategy presented to development partners and put in place a comprehensive action plan with a timetable to address institutional and procedural deficiencies by end-March 2009 (structural performance criterion). - Goal: bring commercialization practices in line with international best practice, implying prices, marketing mechanisms, and fees comparable to those in other small oil-producing countries. - Operational requirement: - Repatriation of oil proceeds (to the Treasury) of oil shipments commercialized by private companies and SNPC on behalf of the government within 45 days after the actual shipment date (according to actual quantities, prices, and shipment dates) — Continuous (structural performance criterion/benchmark). ### Program monitoring, performance criteria, and timelines - First year monitored through biannual quantitative performance criteria for end-December 2008 and end-June 2009 and structural performance criteria and benchmarks. - Authorities to provide Fund staff all core data, appropriately reconciled and on a regular and timely basis, as specified in the Technical Memorandum of Understanding (TMU). - Prior action for the three-year PRGF arrangement: across-the-board fuel price increases by an average of 13 percent implemented on October 1, 2008, projected to reduce subsidies to no more than CFAF 75 billion in 2008. - Review schedule: - First review expected to be completed by April 30, 2009. - Second review expected by October 31, 2009. ### Quantitative targets and memorandum items (Table 1, selected figures) - Quantitative targets (non-oil primary fiscal balance (floor), and memorandum items) reported cumulatively from January; figures shown below are as in Table 1: - Non-oil primary fiscal balance (floor): -673, -211, -412, -560, -710 - New medium or long-term nonconcessional external debt (including leasing) contracted or guaranteed by the government (ceiling) 1,2: 0.0 0.0 0.0 0.0 0.0 - New external debt (including leasing) with an original maturity of less than one year (ceiling) 2: 0.0 0.0 0.0 0.0 0.0 - New oil-collateralized external debt contracted by or on behalf of the central government (ceiling) 2: 0.0 0.0 0.0 0.0 0.0 - New nonconcessional external debt with a maturity of more than 1 year contracted or guaranteed by SNPC (ceiling) 2: 0.0 0.0 0.0 0.0 0.0 - New external arrears on nonreschedulable debt 2: 0.0 0.0 0.0 0.0 0.0 - New domestic arrears 2: 0.0 0.0 0.0 0.0 0.0 - Memorandum items (Oil revenue; Non-oil primary revenue), as reported: - Oil revenue: 2,079 402 820 1,259 1,716 - Non-oil primary revenue: 328 931 862 803 73 ### TMU definitions and computation (selected points) - For end-December 2008, quantitative performance criteria and indicators evaluated in terms of cumulative flows from December 31, 2007; thereafter evaluated from December 31, 2008. - Government definition for TOFE and fiscal reporting: - Government refers to central government and excludes local governments, the central bank, and public entities with autonomous legal personality not currently covered by the TOFE. - Scope of TOFE includes the general budget, special Treasury accounts (including forestry and road funds), and the government debt management agency (Caisse Congolaise d’Amortissement, CCA). - Non-oil basic primary fiscal balance defined as total non-oil revenue excluding grants, minus total expenditure (including net credit), excluding interest payments on debt, foreign-financed capital expenditure, and expenditure financed by interim assistance under the enhanced HIPC Initiative. - Oil revenue defined as government’s net proceeds from the sale of oil, including provision for diversified investments, royalties, and government’s share of excess and profit oil; excludes prepayment and prefinancing; projections take account of the 45 day lag between shipment date and receipt by the Treasury. - Debt and concessionality definitions: - Debt defined per IMF Executive Board guidelines as current liabilities under contractual arrangements requiring future payments; includes loans, suppliers’ credits, leases, arrears, penalties and judicially awarded damages arising from failure to make payment under contractual obligations that constitute debt. - Loan concessionality assessed on the basis of the commercial interest reference rates (CIRRs) established by the OECD; a loan is concessional if the net present value-to-nominal value ratio is less than 50 percent (grant element at least 50 percent). For maturities exceeding 15 years, the ten-year OECD reference rate is used; for shorter maturities, the six-month market reference rate is used. - Concessionality requirement applies to central government and public enterprises. - Quantitative indicative target on external debt covers commitments incurred or guaranteed for which no value has yet been received or only partial drawings made; excludes IMF financing and Treasury bills and bonds issued by the Congolese Treasury in CFA francs on the CEMAC regional market. *Source: Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding, Brazzaville, November 19, 2008.* ### 11. For external debt with an initial maturity of less than one year (a continuous ### Joint IMF and World Bank Debt Sustainability Analysis — Republic of Congo ### Debt policy rules, ceilings, and arrears - External debt with an initial maturity of less than one year (a continuous quantitative performance criterion): normal short-term import and export credit are excluded, including prepayments. - Ceiling on any new nonconcessional external debt with a maturity of more than one year contracted or guaranteed by the SNPC (with or without government guarantee) will be observed continuously. - SNPC may borrow only to finance investments related to its core activities (research, exploration, production, refining and distribution of oil, construction of a Brazzaville headquarters, creation and strengthening of its database, etc.). - These investments must be included in the SNPC’s investment budget approved by its board of directors. - The ceiling on debt does not apply to changes in loan accounts with oilfield partners or to loans with maturities of less than one year. - Government commitment: not to accumulate external payment arrears on non-reschedulable debt (debt to Paris Club creditors contracted after the cutoff date and debt to multilateral creditors). Non-accumulation of external payment arrears is an indicator to be continuously observed. - Accumulation of external payment arrears is defined as: (i) the gross amount of external debt service payments due (principal and interest, including penalty and/or late interest, as appropriate) minus (ii) the amount actually paid during the period under consideration. ### Oil-collateralized external debt and prepayments - Oil-collateralized external debt: external debt contracted by giving an interest in oil. - Prefinancing: oil-collateralized loan repaid by the sale of the oil in a different calendar year. - New prefinancing by or on behalf of the government is strictly prohibited under the program. - Refinancing and/or deferral of the existing stock and/or due dates are permitted but should not give rise to an augmentation of the existing stock of oil-collateralized debt. - Prepayment: an advance payment by the purchaser of oil on a specific oil shipment. - Prepayment-related operations must be repaid within 6 months but in any case within the calendar year in which they were contracted. ### Domestic payment arrears - Domestic payment arrears of the government: the difference over the period under review between the amount of payments authorized and the actual payments made (within 90 days). ### Information for program monitoring — required data and reporting timetables A. Oil Sector (monthly, within four weeks after month end) - Monthly data on oil production by oil field, production costs, volume exported, export prices, and SNPC operations. - Breakdown of the share of crude oil that accrues to the government, by oil field, distinguishing the type of resource (royalties, profit oil, etc.). - Any change in tax parameters. - A breakdown of oil prices. - Monthly detailed list of shipments commercialized by SNPC on behalf of the government: type of product, date of loading, recipient, number of barrels, selling price (in US dollars and CFAF), and date of receipt of sale proceeds by the Treasury. - Actual and projected quarterly data to determine required subsidies in the fuel sector, including prices, quantities, and costs. B. Government Finance (various frequencies) - Provisional TOFE and annexes: monthly within four weeks from the end of the month; final TOFE and annexes within six weeks from the end of each month. - Annexes include: (i) breakdown of oil revenue in value terms with notes on computation; (ii) excess oil trends and any bonus payments; (iii) breakdown of tax and non-tax revenue, and central government expenditure (particularly transfers and common charges); (iv) report on emergency payment and cash advance procedures. - Monthly data on prices and taxation of petroleum products, including price structure details and a breakdown of tax revenue from oil products; reported within four weeks from month end. - Treasury balance to monitor expenditures (commitments, payment orders, payments for current and capital): quarterly, no later than four weeks after quarter end. - Data on public investment program implementation and financing sources: quarterly within four weeks from quarter end (linear estimates permitted if foreign grant/loan execution data unavailable). - Complete monthly data on domestic financing of the budget (net bank credit to, and net non-bank credit to the government): monthly within four weeks from month end. - Quarterly table used to monitor the expenditure process (commitments, payment orders, payments for operating and capital expenditures): quarterly, submitted no later than four weeks after quarter end. - Quarterly table for monitoring poverty reduction expenditures (pro-poor sectors defined in the poverty reduction strategy paper): submitted within four weeks of quarter end. - Monthly table of prepayments indicating nature of expenditures and justification for prepayments. C. Monetary Sector (monthly) - Preliminary monthly information within four weeks of month end: - Data on net bank credit to the government. - Consolidated balance sheet of monetary institutions, central bank survey, commercial banks survey. - Integrated monetary survey. - Table of lending and deposit rates. - Usual banking supervision indicators for banks and non-bank financial institutions, where necessary. - Final data for the integrated monetary survey: within six weeks of month end. D. Balance of Payments - Any revised balance of payments data (including services, private transfers, official transfers, and capital and financial account transactions) as soon as revised. - Foreign trade statistics (volume and price) prepared by the national statistics agency within three months of the end of the reporting month. E. Debt (monthly, within four weeks of month end) - Data on the stock, accumulation, and payment of domestic arrears. - Data on the stock, accumulation, and payment of external payment arrears. - Breakdown of estimated domestic and external public debt service, service due, and actual payments, including breakdowns of principal and interest and by creditor. - List and amounts of new external debt incurred or guaranteed by the government, including terms and conditions (currency, interest rate, grace period, maturity) stated in the original agreement. - Actual disbursements of foreign financial assistance (project and non-project), including new borrowing and any external debt relief granted by foreign creditors (CCA tables). F. Real Sector - Monthly itemized consumer price indices: within four weeks of month end. - Any revision of the national accounts. - Any other indicators and statistical data used to track overall economic developments, including forestry and wood-processing sector activity and monthly short-term economic bulletins. G. Structural Reforms and Other Data - Monthly detailed table concerning implementation of structural measures under the program. - Any study or official report on the economy of the Republic of Congo: within two weeks of its publication. - Any decision, order, law, decree, ordinance, or circular with economic or financial implications for the program: within two weeks from publication or, at the latest, from its entry into force. ### Recent debt stock, composition, and creditor relations - 2007 estimates: - Total external debt: US$ 6.3 billion or 73 percent of GDP (down from 255 percent in 2004). - Net present value: slightly above US$ 5 billion. - Creditor composition of outstanding debt: bilateral official creditors 65 percent; commercial creditors 27 percent; multilateral creditors 8 percent. - Domestic debt at end-2007: 8 percent of GDP. - Developments since previous DSA: - Agreements concluded with the London Club and all but one of bilateral Paris Club creditors. - Authorities reportedly paid the equivalent of 5.2 percent of non-oil GDP to litigating creditors to keep discussions moving forward. - London Club agreement: swap of US$2.1 billion in outstanding commercial debt and arrears of US$0.5 billion in new Eurobonds maturing in 2029, implying relief of over US$1.6 billion; participation rate was over 92 percent. - Debt management progress: - Quarterly debt service projections published (although not regularly). - Preparing a new external debt management strategy in line with CEMAC regional guidelines. - Recent DeMPA-based debt management performance assessment undertaken with regional central bank and World Bank technical assistance. ### Key macroeconomic assumptions in the baseline scenario - Baseline macro framework consistent with the proposed Poverty Reduction and Growth Facility arrangement and the authorities’ Poverty Reduction Strategy paper. - Main baseline assumptions (selected): - Real GDP growth of 3.4 percent over the long term (baseline takes account of proven oil reserves only, which amounted to about 1.6 billion barrels at end-2006). - Inflation averaging 3 percent per year (CEMAC convergence criterion). - Trend decline in exports and worsening external current account balance due to declining oil production. - Strong fiscal position mainly from build up of financial assets as counterpart to continued fiscal consolidation. - Medium-term world oil price projections: WEO assumptions until 2013, implying prices rising from US$ 68 per barrel in 2009 to US$ 83 per barrel in 2013 and constant in real terms thereafter. - Fiscal stance and sustainability: - Fiscal anchor: gradual reduction of the non-oil primary deficit; consolidation path consistent with a permanent-income hypothesis (PIH) model. - Sustainable non-oil primary deficit estimated at about 3-5 percent of non-oil GDP (compared with more than 40 percent of non-oil GDP currently). - Specific fiscal assumptions include: - Peak oil production of 133.2 million barrels in 2010, then declining gradually. - World oil prices per WEO until 2013 and constant in real terms thereafter. - Quality discount on Congolese oil assumed constant over the long term. - Real rate of return on government (financial) assets increasing gradually to about 3½ percent per year. - Oil quality discounts (2008 reference): - Discount on Congolese oil: between US$ 1 and US$ 25 per barrel in 2008, depending on quality. - Discount on gas: between US$ 35 and US$ 55 per barrel. - External borrowing and concessionality: - Profile of new external borrowing consistent with concessionality requirement under proposed PRGF. - Assumption: Congo receives World Bank financing on “hardened” terms from FY11 onwards and graduates to IBRD status in 2018. - Domestic debt assumed to be fully amortized over the next three years. - Note on historical and projected indicators (selected entries from baseline tables): - Historical average (1998-2007) Real GDP growth (percent): 3.4. - Projected long-run Real GDP growth (Average 2014-28): 3.4. - Inflation (percent) projected at 3.0. - Oil production (millions of barrels) projected trend: 89.7 (2008), 89.0 (2009), 109.6 (2010), 133.2 (2011), 119.6 (2012), 107.4 (2013), 94.2 (2014), 46.4 (2028). - WEO Oil prices: 36.4 (historical), 99.8 (2008), 68.0 (2009), 75.0 (2010), 79.3 (2011), 82.0 (2012), 83.0 (2013), constant in real terms thereafter. ### Assessment and vulnerability - Based on the joint IMF-World Bank Debt Sustainability Framework for Low-Income Countries, Congo’s gross external debt is assessed at high risk of distress. - Improvements in debt ratios largely reflect debt relief from London Club creditors in November 2007 and favorable world oil prices. - Long-term projections show declining debt ratios under the baseline, reflecting buoyant oil revenue and continued fiscal consolidation. - Alternative scenario demonstrates vulnerability to movements in oil prices; therefore pursuing a prudent fiscal stance is critical to achieving debt sustainability. *Prepared by staffs of the International Monetary Fund and the International Development Association (November 19, 2008).* ### 9. In the baseline DSA, Congo’s external debt burden ratios indicate a high risk of ### _cr0974 - 9. In the baseline DSA, Congo’s external debt burden ratios indicate a high risk of ### Baseline DSA findings - External debt burden ratios indicate a high risk of debt distress, although these ratios show a declining trend. - Despite the gradual reduction in the concessionality of new loans and the decline in oil revenue, total external debt falls over time as income from financial assets offsets the revenue loss caused by the decline in oil production. - The NPV of debt-to-GDP ratio: - Breaches the indicative threshold during 2008-17, then drops below the threshold in 2018 and remains there through the rest of the projection period. - Debt service ratios: - The debt service-to-exports and debt service-to-revenue ratios are projected to be below their respective thresholds throughout the projection period. - Impact of proposed concessional Chinese loans: - Concessional Chinese loans amounting to about US$1 billion are assumed disbursed over 5 years, beginning in 2009. - Negotiated financial terms assumed: 20-year maturity, 5-year grace period, an interest rate of 0.25 percent, with biannual repayments. - Staffs estimate the grant element of these loans at about 52.7 percent. - The impact on the DSA is limited: they contribute to a temporary 5-percent increase in the NPV of debt-to-GDP ratio because they account for a relatively small share of GDP (about 8 percent) and are concessional. ### Key external debt burden indicators (as presented) - Table 3. Republic of Congo: External Debt Burden Indicators, 2008-28 - 200820182028 - Thresholds 1 - NPV of debt in percent of: - GDP40291930 - Exports504538100 - Revenues (including grants)826554200 - Debt service in percent of: - Exports56515 - Revenues (including grants)88725 - 1 Based on Congo's 2008 classification as a weak performer ### Stress tests and historical scenario - Standardized stress tests: - Point to Congo’s vulnerability to various shocks. - Under the most extreme stress test, net non-debt creating flows are lower than the historical average (by one half standard deviation). Under this scenario, the NPV of external debt-to-GDP rises to 66 percent in 2013. - Caveat: this shock is of limited relevance because the historical period used to perform these tests is affected by a structural break (the civil war) and a temporary fall in oil production caused by an oil accident at the Nkossa oil platform. - Historical scenario: - Displays an unfavorable evolution of debt ratios over the medium term; most ratios worsen and the NPV of debt-to-GDP breaches indicative thresholds early before improving markedly thereafter. - The historical scenario has limitations for oil-producing countries like Congo because it assumes reserve accumulation similar to the baseline even under less favorable external developments. - Long-term and total public debt: - Total public debt evolves similarly to external debt given projected repayment of remaining domestic debt obligations over the next several years. - On a net basis, both stock and flow indicators display a declining trend over time. - Under the baseline scenario: - The NPV of debt-to-GDP becomes negative, because financial assets accumulate as a result of fiscal consolidation. - The debt service-to-revenue falls to 7 percent by 2028, compared with 13 percent currently. ### Vulnerabilities and buffers - Net public debt does not appear vulnerable to standardized DSA stress tests because the buildup of financial assets from fiscal consolidation provides a significant cushion against shocks. - However, public debt is vulnerable to oil price shocks and alternative assumptions on fiscal policy. ### Alternative macroeconomic scenarios A. Alternative scenario: HIPC and MDRI relief - Simulates full delivery of enhanced HIPC and MDRI assistance at the completion point (assumed June 2010). - Effects: - The NPV of debt-to-GDP is on average about 4 percentage points lower than under the baseline. - The NPV of debt service-to-exports is about ½ percentage point lower compared with the baseline. - Note: Remaining debt relief due at completion point is relatively small compared to savings from fiscal consolidation; impact on sustainability is limited. B. Alternative scenario: Lower World Oil Prices and No Fiscal Adjustment - Simulates a two-pronged shock: lower world oil prices combined with no fiscal adjustment. - Assumptions: - Oil prices are 1 standard deviation lower over the simulation period compared with the baseline. - The non-oil basic primary deficit in percent of non-oil GDP is kept at the level recorded in 2007 (55 percent). - The oil price shock is calibrated as one standard deviation of Brent crude prices over the period 1970-2006. This reduces future oil prices by US$19 per barrel, corresponding to average prices of around US$49 per barrel in 2009. - Outcomes: - Rate of debt accumulation increases; it reaches 32 percent by 2028 as oil revenue declines and income from financial assets is not sufficient to offset the combined shock and lack of fiscal adjustment. - The NPV of debt-to-GDP breaches the indicative threshold in 2008 and remains above this level throughout the projection period, rising sharply to 290 percent in 2028. - Debt service indicators also deteriorate, especially during the latter part of the simulation period. *Source: IMF country DSA text excerpt* ### 17. Under the baseline scenario, Congo’s external debt ratios indicate a high risk of ### Under the baseline scenario, Congo’s external debt ratios indicate a high risk of debt distress ### Baseline assessment - The baseline is predicated on world oil prices at around US$ 77 over the medium term, and a path of fiscal consolidation consistent with long-term sustainability. - Under the baseline scenario, Congo’s external debt ratios indicate a high risk of debt distress. - Baseline public sector debt (selected years, in percent of GDP and as reported in Table 1a): - Public sector debt (actual/projections row): 112.3, 80.8, 69.0, 23.9, 13.3, -14.0, -38.7, -62.8, -87.0, -168.8, -174.3 (years 2005–2018/2028 sequence as presented). - o/w foreign-currency denominated: 103.5, 85.7, 78.1, 51.3, 58.6, 46.3, 46.3, 46.4, 46.7, 48.1, 36.8, 23.7 (as presented). - Key macroeconomic assumptions (selected, as reported): - Real GDP growth (in percent): 7.8, 6.2, -1.6, 7.6, 12.7, 12.3, 1.3, 1.8, 1.4, 3.6, 2.9 (sequence shown). - Average nominal interest rate on forex debt (in percent): 1.6, 4.5, 2.7, 2.8, 2.1, 2.1, 2.0, 2.3, 2.2, 2.5, 2.8 (sequence shown). - Inflation rate (GDP deflator, in percent): 21.6, 19.5, 0.5, 35.2, -23.5, 13.7, -0.7, -2.0, -3.6, -0.5, 2.2 (sequence shown). ### Stress tests and alternative scenarios - Standardized stress tests and alternative scenarios point to Congo’s vulnerability to prolonged oil price shocks and slow fiscal adjustment. - The most extreme stress test is defined as the test that yields the highest ratio in 2018; specific identifications in figures: - In figure b. it corresponds to a Combination shock. - In figure c. to an Exports shock. - In figure d. to a Combination shock. - In figure e. to an Exports shock. - In figure f. to a Combination shock. - Sensitivity analysis (Table 1b and Table 2b) — selected outcomes (values presented in the source): - PV of Debt-to-GDP Ratio under Baseline and selected scenarios (extracts): Baseline 170, -24, -49, -73, -98, -177, -179 (sequence shown); A1. 179, -7, -23, -42, -59, -112, -127; A2. 17, -5, -30, -56, -84, -114, -223, -320 (as presented). - PV of Debt-to-Revenue Ratio (extracts): Baseline 340, -52, -102, -151, -200, -390, -511; A1. 341, 9, -16, -48, -86, -121, -247, -360; A2. 34, -12, -64, -115, -173, -232, -490, -910 (as presented). - Debt Service-to-Revenue Ratio (extracts): Baseline 131, 48, 66, 68, 7 (as shown); alternative and bound-test outcomes presented in source tables. ### Key indicators and projections (external debt focus) - External debt (nominal, selected sequence as reported): 103.5, 85.7, 78.1, 51.3, 58.6, 46.3, 46.3, 46.4, 46.7, 48.1, 36.8, 23.7 (table sequence). - PV of external debt (selected projection entries): ......, 60.4, 39.8, 45.3, 35.8, 36.0, 36.1, 37.2, 28.7, 18.5 (as presented). - PV of external debt — in percent of exports (selected entries): ......, 73.6, 49.7, 52.3, 38.6, 40.1, 42.3, 46.3, 44.6, 37.8 (as presented). - PV of PPG external debt — in percent of government revenues (selected entries): ......, 141.6, 81.9, 100.5, 77.3, 75.5, 75.7, 77.3, 64.5, 54.4 (as presented). - PPG debt service-to-revenue ratio (in percent) — selected values: 25.8, 25.3, 20.6, 8.4, 10.1, 5.7, 5.6, 6.4, 6.5, 8.4, 7.3 (sequence shown). - Debt service-to-exports ratio (in percent): 11.9, 13.3, 10.7, 5.1, 5.3, 2.8, 3.0, 3.6, 3.9, 5.8, 5.1 (sequence shown). - Total gross financing need (billions of U.S. dollars) — selected entries: -0.3, -0.6, 0.4, -2.4, -1.9, -3.4, -3.1, -3.2, -2.6, -1.6, -1.4 (sequence shown). - Grant-equivalent financing (in percent of GDP) — selected projection entries: ........., 0.3, -0.7, 1.3, 1.6, 1.6, 1.7, 1.2, 1.2 (as presented). - Grant-equivalent financing (in percent of external financing) — selected entries: ........., 75.3, -104.0, 53.4, 55.4, 55.5, 55.6, 52.9, 57.0, 39.0 (as presented). ### Drivers highlighted in the analysis - The high residuals in part reflect the accumulation of reserves (from oil production) — noted under the contribution from price and exchange rate changes. - Endogenous debt dynamics and contributions (selected entries from Table 2a): - Endogenous debt dynamics: -48.1, -18.3, 3.2, -2.6, -6.3, -4.7, 0.3, 0.2, 0.4, -0.4, 0.0 (sequence shown). - Contribution from nominal interest rate: 2.6, 3.7, 2.3, 1.5, 1.2, 0.9, 0.9, 1.1, 1.1, 1.0, 0.6 (sequence shown). - Contribution from real GDP growth: -12.7, -5.1, 1.4, -4.1, -7.6, -5.7, -0.6, -0.8, -0.7, -1.4, -0.7 (sequence shown). - Contribution from price and exchange rate changes: -38.0, -16.9, -0.5, ........................ (as reported). ### Policy implications and vulnerabilities - The document emphasizes vulnerability to: - Prolonged oil price shocks. - Slow fiscal adjustment. - Stress tests and alternative scenarios indicate that under adverse shocks (e.g., Combination shock, Exports shock, one-time 30 percent depreciation, or less favorable financing), key debt indicators (PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt-service ratios) deteriorate substantially relative to the baseline (see sensitivity tables for scenario-specific numeric outcomes). *Source: Staff projections and simulations; excerpts from IMF Staff Report for the 2008 Article IV Consultation and Debt Sustainability Framework tables as presented in the source content.* ### Annex I—Republic of Congo: Relations with the Fund ### Annex I—Republic of Congo: Relations with the Fund (As of September 30, 2008) ### I. Membership - Status: Joined: 07/10/1963; Article VIII ### II. General Resources Account (SDR / Million) - Quota: 84.60 (Percent) / 100.00 (Quota) - Fund holdings of currency: 84.03 (Percent) / 99.33 (Million) - Reserve tranche position: 0.58 (Percent) / 0.68 (Million) ### III. SDR Department (SDR / Million) - Net cumulative allocation: 9.72 (Percent) / 100.00 (Allocation) - Holdings: 0.16 (SDR) / 1.67 (Million) ### IV. Outstanding Purchases and Loans (SDR / Million) - PRGF arrangements: 23.58 (Percent) / 27.87 (Quota) ### V. Latest Financial Arrangements - PRGF: Approval Date 12/06/2004; Expiration Date 06/05/2008; Amount Approved 54.99 (SDR Million); Amount Drawn 23.58 (SDR Million) - PRGF: Approval Date 06/28/1996; Expiration Date 06/27/1999; Amount Approved 69.48 (SDR Million); Amount Drawn 13.90 (SDR Million) - Stand-by arrangement: Approval Date 05/27/1994; Expiration Date 05/26/1995; Amount Approved 23.16 (SDR Million); Amount Drawn 12.50 (SDR Million) ### VI. Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs) - Forthcoming Principal: - 2008: 0.00 - 2009: 0.00 - 2010: 1.57 - 2011: 3.14 - 2012: 4.72 - Charges/interest: - 2008: 0.13 - 2009: 0.36 - 2010: 0.36 - 2011: 0.35 - 2012: 0.33 - Total: - 2008: 0.13 - 2009: 0.360 - 2010: 1.93 - 2011: 3.49 - 2012: 5.04 ### VII. Implementation of HIPC Initiative - Decision point under the enhanced HIPC Initiative: March 2006 - I. Commitment of HIPC assistance - Enhanced Framework Decision point date: March 2006 - Assistance committed by all creditors (US$ million): 1,679.00 - Of which: IMF assistance (US$ million): 8.08 - (SDR equivalent in millions): 5.64 - Completion point date: Floating - II. Disbursement of IMF assistance (SDR million) - Assistance disbursed to the member: -- - Interim assistance: -- - Completion point balance: -- - Additional disbursement of interest income: -- Notes: - "Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added." - "Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period." ### VIII. Safeguards Assessments - The Bank of the Central African States (BEAC) is the regional central bank of the Central African States. - Most recent safeguards assessment of the BEAC completed on August 30, 2004. - Assessment findings and recommendations: - Implemented a number of measures to strengthen its safeguards framework since the 2001 assessment. - Recommended further enhancements in external and internal audits, and financial reporting. - Latest monitoring results indicate the existence of certain vulnerabilities including in the system of internal controls. - Planned review: aspects of the BEAC safeguards framework to be reviewed in the context of the 2008 update safeguards assessment of BEAC that is underway. ### IX. Exchange Rate Arrangement - CFA franc pegged to the Euro at a fixed rate of CFAF 655.957 = Euro 1. - On September 30, 2008, the rate of the CFA franc was CFAF 776.39 per SDR. - Congo does not impose any restrictions on the making of payments and transfers for current international transactions. ### X. Article IV Consultations - Consultations on a 24-month cycle, based on the Board decision on consultation cycles in program countries. - 2007 consultation discussions took place in Brazzaville in October 2006. - The staff report was considered by the Executive Board on April 25, 2007. ### XI. FSAP Participation - N/A ### XII. Technical Assistance (selected entries) - Poverty and Social Impact Analysis — FAD — Mr. Gillingham, Ms. Lacoche, Mr. Manning — November 2007 - Budget functional classification — AFRITAC C — MMrs Lokpe and Nguenang; Mr. Penanje — July 2007; August 2008 - Public expenditure management — FAD — Mr. Bouley — August 2006 - Resident advisor on real sector — STA — Mr. Gbossa — Since February 2006 - Modernization of tax and customs administrations — FAD — Messrs. Montagnat-Rentier, Lesprit and Boilil — February 2004 - Balance of payments statistics — STA — Mr. Dessart — February 2007 - Multisector statistics — STA — Messrs. Marie, Maiga, and Mmes. Fisher, Matei, Razin, and Balvani — May 2002 - Resident expert on statistics — STA — Mr. Metreau — Since October 2001 - Balance of payments — STA — Mr. Fiévet — June 2001 - Budget, tax, and customs — FAD — Messrs. Bouley, Moussa, Brik, and Mrs. Tricoire — April–May 2001 - Resident tax expert — FAD — Mr. Laurent — 1995–97 - Tax administration — FAD — Mr. Grandcolas — Nov. 1995–Apr. 1996; Messrs. Grandcolas and Castro — November 1994 - Follow-up mission — FAD — Mr. Lepage — November 2003 - Budget functional classification — FAD — Messrs. Bouley, Helis, and Lepage — October 2003 ### XIII. Resident Representative - Resident representative: Mr. Yaya Moussa — took up his assignment in September 2005 *Statement by the IMF Staff Representative on the Republic of Congo — December 8, 2008* ### Annex II — JMAP Implementation Matrix (selected items) - Bank work program in next 12 months: Full CAS; PRSP/JSAN; AAA; Policy advice on infrastructure development; Governance/HIPC; Investment Climate Analysis; Public Expenditure Review - New Lending: Additional Financing — Education; Urban Development — FY09; June 2008; September 2008; December 2008; November 2008; December 2008; October 2008; FY 09; October 2008; December 2008; December 2008; February 2009; August 2009; June 2009; FY 2010 - IMF work program in next 12 months: First assessment under the Staff Monitored Program (SMP), Article IV consultation, and initiate discussions on the prospective PRGF arrangement — Mid-May 2008; July 2008 - Second assessment under the SMP, Article IV consultation, and finalize discussions on the prospective PRGF arrangement — End-August 2008; October 2008 - Collaborative product scheduling: - LIC-DSA — September 2008; October 2008 - PRSP Progress Report/JSAN — October 2008 ### Annex III — Statistical Issues: Key findings and progress - Overall: - Data provision has some shortcomings, but is broadly adequate for surveillance purposes. - Long delays in national accounts, balance of payments and government finance statistics are particularly problematic. - Statistical infrastructure is being slowly rebuilt after the late 90’s civil strife. - Since October 2001, an STA multisector statistics advisor (MSA) has been assisting the authorities. - May 2002 STA multi-sector mission: concluded macroeconomic statistics are weak; absence of a national statistical program; shortages of financial, physical, and human resources; recommended measures being followed up by the statistical advisor. - GDDS participation: Republic of Congo participates since November 5, 2003; metadata on the DSBB has not been updated or certified since 2003. - Real sector statistics: - National accounts data are weak with internal inconsistencies and inconsistencies with balance of payments statistics. - Informal sector estimates based on information dating back to 1978. - DGS completed national accounts estimates for 2005 (new base year) and initiated compilation of 2006 accounts with resident statistical expert assistance. - Employment data: annual central government employment from MoF but not consistent with civil service roster; private sector employment data unavailable. - Price indices: CPI weights for Brazzaville from 1977 (price reference December 1977) and Pointe Noire weights for 1989 (price reference January 1996); authorities intend to compile a CPI harmonized with CEMAC. - Government finance statistics (GFS): - Compilation has benefited from increased comprehensiveness and systematic compilation practices consistent with GFSM 2001 classifications. - Reported GFS data to STA for fiscal years 2004 and 2005 using GFSM 2001 template (reported in September 2008); data for 2006 and 2007 to be reported no later than June 2009. - High-frequency fiscal data not yet reported for publication in IFS. - Caisse congolaise d’amortissement (CCA) produces comprehensive external public debt stock data including arrears and projections; debt-stock data cannot be reconciled with balance of payments flow data. - No centralized comprehensive database on public enterprises; TOFE compilers lack access to financial statements of the Société nationale des pétroles congolais. - Monetary and financial statistics: - BEAC regularly reports monetary, interest rates, and exchange rate statistics for IFS publication though delays occur. - Accuracy of national monetary statistics may be affected by cross-border movements of BEAC banknotes; specific cross-border circulation percentages: - 6.2 percent of banknotes issued in the Congo by the BEAC national directorate circulate in Cameroon - 1.2 percent circulate in Gabon - Currency in circulation in the Republic of Congo includes 2.3 percent of banknotes from Cameroon - 3.2 percent from Gabon - BEAC started mid-2007 a project to migrate monetary statistics to MFSM methodology; regional workshop held December 2007 to finalize mapping; submission of standardized report forms pending. - External sector statistics: - BEAC national agency responsible for collection and dissemination of balance of payments statistics. - Balance of payments prepared annually; system designed to produce quarterly data. - Since 1995, data prepared using Balance of Payments Manual, Fifth Edition. - Balance of payments data for 1995 through 2005 published in IFS; STA working on updating series. - May 2002 technical assistance mission: compilation system conceptually sound but flawed in application due to absence of documented sources/methods, understaffing, insufficient training; opacity in oil sector transactions introduces imprecision; net investment flows overestimated by unrecorded disinvestment operations linked to tax regime for oil-drilling nonresident companies. - February 2007 STA follow-up recommended improvements to institutional arrangements for balance of payments compilation. ### Table of Common Indicators Required for Surveillance (As of October 1, 2008) — selected entries and dates - Exchange Rates — Date of latest observation: Current; Date received: Current; Frequency of Data: D; Frequency of Reporting: D; Frequency of Publication: D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities — Date of latest observation: Jun-08; Date received: Aug-08; Frequency: M; Reporting: M; Publication: M - Reserve/Base Money — Jun-08; Aug-08; M; M; M - Broad Money — Jun-08; Aug-08; M; M; M - Central Bank Balance Sheet — Jun-08; Aug-08; M; M; M - Consolidated Balance Sheet of the Banking System — Jun-08; Aug-08; M; M; M - Interest Rates — Aug-08; Sept-08; M; M; M - Consumer Price Index — Jun-08; Aug-08; M; M; M - Revenue, Expenditure, Balance and Composition of Financing – Central Government — Jun-08; Aug-08; M; Q; Q - Stocks of Central Government and Central Government-Guaranteed Debt — Jun-08; Aug-08; Q; Q; Q - External Current Account Balance — Jun-08; Aug-08; A; A; A - Exports and Imports of Goods and Services — Jun-08; Aug-08; A; A; A - GDP/GNP — 2007; Aug-08; A; A; A - Gross External Debt — Jun-08; Aug-08; Q; Q; Q - International Investment Position — ...; ...; NA; NA; NA *Statement by the IMF Staff Representative on the Republic of Congo — December 8, 2008* ### 1. The following information has become available since the staff report was issued. ### _cr0974 - 1. The following information has become available since the staff report was issued. ### New information since the staff report - The information does not alter the thrust of the staff appraisal. - On December 8, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Congo. - On December 8, 2008, the Executive Board approved a three-year PRGF arrangement for the Republic of Congo in an amount equivalent to SDR 8.46 million (about US$12.53 million and 10 percent of quota). The first disbursement will be in an amount equivalent to SDR 1.21 million (about US$1.79 million). - The Board also granted interim assistance under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC) in an amount equivalent to SDR 77,000 (about US$ 0.11 million). ### Inflation and prices (latest available) - Overall consumer price inflation (CPI) rose to 7.8 percent in the twelve months through October 2008. - Food prices increased by 10.2 percent during this period. - Non-food prices rose by 4 percent during this period. - Food items account for 60 percent of the CPI. - The increase in the CPI was higher than projected, but the decline in global commodity and non-fuel commodity prices which began in the third quarter of this year should help to lower inflation through the end of 2008. - Staff estimates suggest that the authorities’ end-year inflation projection of 6 percent could still be reached. - High food and energy costs pushed inflation to 5.7 percent (year-on-year) through June 2008 (as reported in the Article IV background). ### Macroeconomic performance and projections - Overall real GDP growth in 2008 could reach about 7½ percent, with non-oil activity broadening; transportation, construction, and telecommunications sectors are particularly strong. - On current trends, the current external account is projected to swing from a deficit of 26 percent of GDP in 2007 to a surplus of 0.6 percent in 2008. - Foreign direct investment could reach more than 23 percent of GDP in 2008. - Congo’s external public debt has declined sharply in the past several years as a result of Paris Club rescheduling and debt relief from London Club creditors (in the context of the enhanced HIPC Initiative). - The real effective exchange rate has appreciated sharply since 2007, primarily reflecting Congo’s relatively high rate of inflation compared with its trading partners. ### Executive Board assessment — main findings and priorities - Directors welcomed Congo’s continued strong growth in 2008, the resumption of oil production, solid non-oil sector activity, and the significant improvement in the external current account position driven by high oil prices. - Directors noted higher food and energy costs pushed up inflation. - Directors welcomed improved policy implementation, including a new reporting and monitoring structure, and satisfactory completion of a staff-monitored program earlier in the year. - Key challenges identified: - Improve international competitiveness. - Raise output growth through diversification. - Strengthen fiscal consolidation and debt sustainability. - Address institutional and administrative bottlenecks hindering reform. - Make progress toward meeting the Millennium Development Goals. - Policy and reform priorities emphasized by Directors: - Pursue a broad-based approach to improve international competitiveness and diversify the economy. - Fiscal consolidation to create fiscal space for rebuilding infrastructure. - Persevere with structural reforms: enhance the business environment, reduce the costs of doing business, deepen financial intermediation through adoption of the financial sector strategy, raise the operating and financial performance of state-owned enterprises in the oil sector, and liberalize trade. - Re-orient spending by reducing or eliminating poorly targeted programs (such as general fuel subsidies). - Mobilize more domestic non-oil resources. - Enhance public financial management through timely and full implementation of the recently adopted action plan. - Improve management of public investment with assistance from development partners. - Strengthen governance and transparency, particularly in the oil sector; enhance monitoring and reporting of oil revenue; prevent fraud and promote best practices in use of public resources. - Regularize relations with all creditors, including remaining London Club and litigating creditors; seek foreign financing only on highly concessional terms. - Achieve satisfactory performance under the PRGF arrangement and timely implementation of policy triggers for HIPC Initiative debt relief. - A few Directors saw scope for a stronger pace of fiscal adjustment and expressed willingness to consider advancing the timetable for reaching the HIPC Initiative completion point to mid-2009 if sufficient progress can be made on the HIPC Initiative triggers. ### PRGF arrangement and program objectives - The authorities’ program targets a gradual but continued fiscal consolidation recognizing the finite horizon for oil production. - The program envisages a decline in the basic non-oil primary fiscal deficit of about 3 percent per year over the medium term to allow scaling up of public investment while ensuring a sustainable fiscal path. - The reduction is projected to come from cuts in non-priority spending and domestic revenue mobilization. - Structural reform agenda includes: - Further reform of public financial management (PFM) through timely and comprehensive implementation of a PFM action plan established with development partners. - Enhanced public investment management. - Adoption and implementation of a financial sector strategy to deepen intermediation. - Improved operating and financial performance of state-owned enterprises in the oil sector. - Trade liberalization. - Better governance and transparency in the use of public resources. - The drop in world oil prices is expected to help reduce general fuel subsidies and could facilitate the authorities’ intended move to a new pricing mechanism. ### Debt and external sustainability - Directors noted recent improvements in external debt indicators but that Congo remains at a high risk of debt distress. - Prudent debt management and debt relief are essential for external sustainability. - Authorities intend to finance development increasingly through their own resources and to seek foreign financing only on highly concessional terms. - Directors encouraged authorities to accelerate efforts to regularize relations with all creditors and to implement a new debt management strategy in line with CEMAC regional guidelines. - Satisfactory performance under the PRGF arrangement and timely implementation of HIPC triggers are essential. ### Selected economic and financial indicators (2004–08) — reported figures - Output and inflation (Annual percent change): - GDP at constant prices: 2004: 3.5; 2005: 7.8; 2006: 6.2; 2007: -1.6; 2008 Est. Proj.: 7.6 - Oil: 2004: 0.5; 2005: 12.5; 2006: 6.8; 2007: -17.2; 2008 Est. Proj.: 9.0 - Non-oil: 2004: 5.0; 2005: 5.4; 2006: 5.9; 2007: 6.6; 2008 Est. Proj.: 7.0 - GDP deflator: 2004: 16.8; 2005: 21.3; 2006: 18.5; 2007: -7.9; 2008 Est. Proj.: 25.6 - Consumer prices (end-of-period): 2004: 1.1; 2005: 3.1; 2006: 8.1; 2007: -1.7; 2008 Est. Proj.: 6.0 - External sector: - Current account balance (including public transfers) (Percent of GDP): 2004: 20.3; 2005: 11.8; 2006: 1.6; 2007: -26.1; 2008 Est. Proj.: 0.6 - External public debt service (before debt relief) (percent of exports of goods and services): 2004: 14.1; 2005: 11.9; 2006: 13.7; 2007: 10.7; 2008 Est. Proj.: 4.5 - Nominal effective exchange rate: 2004: 3.4; 2005: -0.4; 2006: -0.4; 2007: 5.1 - Public finance (Percent of GDP): - Total revenue: 2004: 69.9; 2005: 108.2; 2006: 141.5; 2007: 113.5; 2008 Est. Proj.: 155.5 - Total expenditure: 2004: 61.6; 2005: 64.7; 2006: 87.2; 2007: 84.2; 2008 Est. Proj.: 72.4 - Primary balance (deficit - ): 2004: 22.7; 2005: 58.1; 2006: 68.6; 2007: 36.6; 2008 Est. Proj.: 90.1 - Basic primary non-oil balance (percent of non-oil GDP): 2004: -25.9; 2005: -29.6; 2006: -51.3; 2007: -55.7; 2008 Est. Proj.: -43.2 - Oil sector: - World oil price (U.S. dollars per barrel): 2004: 37.8; 2005: 53.4; 2006: 64.3; 2007: 71.1; 2008 Est. Proj.: 99.8 - Oil production (Millions of barrels): 2004: 82.1; 2005: 92.6; 2006: 98.7; 2007: 81.7; 2008 Est. Proj.: 89.0 *International Monetary Fund — Public Information Notice and Press Release excerpts contained in the content unit.* ### 5.7 percent in the 12 months through June 2008. Inflation is expected to moderate in the second half ### _cr0974 - 5.7 percent in the 12 months through June 2008. Inflation is expected to moderate in the second half ### Overview and recent developments - Inflation: "5.7 percent in the 12 months through June 2008." Inflation accelerated recently due to high food and energy prices but "is expected to moderate in the second half of 2008." - Growth: "Growth is projected to reach 7.6 percent in 2008" driven by resumed oil production and buoyant non-oil activity (telecommunications, construction, transportation). - External position: Current account projected to swing from "a deficit of 25 percent of GDP last year to a surplus of 0.6 percent of GDP in 2008." - Public debt: "Congo’s external public debt has declined sharply in the past several years, partly as a result of Paris Club debt rescheduling and debt relief from London Club creditors under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative." - Program context: Authorities request support for a new three-year PRGF arrangement; PRSP finalized April 2008; moving toward HIPC completion point. ### Program summary — medium-term macro framework (2008–11) and targets - Macroeconomic objectives: - "Annual real GDP growth in the non-oil sector of about 8 percent." - "Low and stable inflation of about 3 percent per year." - "An improvement in the external position with the current account moving into surplus this year, and a rising surplus in the medium term." - Medium-term policy pillars: - "Gradual, but continued fiscal consolidation to ensure steady progress toward long-term sustainability, recognizing the finite horizon for oil production." - "The regional central bank’s focus on keeping inflation low within the Central African Economic and Monetary Community (CEMAC)." - "Further opening of the economy through trade liberalization." - Structural reforms including "strengthening of public financial management, improvement in the financial and operating performance of state-owned enterprises, and adoption and implementation of the financial sector strategy." ### Selected economic and financial indicators (highlights from tabulated data) - Output and inflation (annual percent change): - "GDP at constant prices: 3.5 (2004), 7.8 (2005), 6.2 (2006), -1.6 (2007), 7.6 (2008)" - "Oil: 0.5 (2004), 12.5 (2005), 6.8 (2006), -17.2 (2007), 9.0 (2008)" - "Non-oil: 5.0 (2004), 5.4 (2005), 5.9 (2006), 6.6 (2007), 7.0 (2008)" - "GDP deflator: 16.8 (2004), 21.3 (2005), 18.5 (2006), -7.9 (2007), 25.6 (2008)" - "Consumer prices (end-of-period): 1.1 (2004), 3.1 (2005), 8.1 (2006), -1.7 (2007), 6.0 (2008)" - External sector: - "Current account balance (including public transfers): 20.3 (2004), 11.8 (2005), 1.6 (2006), -26.1 (2007), 0.6 (2008)" - "External public debt service (before debt relief) (percent of exports of goods and services): 14.1 (2004), 11.9 (2005), 13.7 (2006), 10.7 (2007), 4.5 (2008)" - "Nominal effective exchange rate: 3.4 (2004), -0.4 (2005), -0.4 (2006), 5.1 (2007)" - Public finance (percent of GDP): - "Total revenue: 69.9 (2004), 108.2 (2005), 141.5 (2006), 113.5 (2007), 155.5 (2008)" - "Total expenditure: 61.6 (2004), 64.7 (2005), 87.2 (2006), 84.2 (2007), 72.4 (2008)" - "Primary balance (deficit - ): 22.7 (2004), 58.1 (2005), 68.6 (2006), 36.6 (2007), 90.1 (2008)" - "Basic primary non-oil balance (percent of non-oil GDP): -25.9 (2004), -29.6 (2005), -51.3 (2006), -55.7 (2007), -43.2 (2008)" - Oil sector: - "World oil price (U.S. dollars per barrel): 37.8 (2004), 53.4 (2005), 64.3 (2006), 71.1 (2007), 99.8 (2008)" - "Oil production (Millions of barrels): 82.1 (2004), 92.6 (2005), 98.7 (2006), 81.7 (2007), 89.0 (2008)" ### Fiscal policy (near-term and 2009 plans) - 2008: Fiscal stance to remain consistent with SMP targets, including reduction of the basic non-oil primary deficit to "43.2 percent of non-oil GDP." - 2009: Program envisages further decline in the basic non-oil primary deficit to "40.2 percent of non-oil GDP" through "nominal cuts in non-priority spending, including further decline in fuel subsidies." - Public financial management measures: - Submit next year’s budget to Parliament "consistent with the targets under the proposed PRGF arrangement" and use "economic, functional and administrative classifications." - Adopt a "three-year action plan to improve public investment management." - Prepare a medium-term expenditure framework to track pro-poor spending. - Continue "quarterly certification of oil revenues and lodge the proceeds in the Treasury within 45 days of oil sales." ### Monetary and financial sector policies - Exchange rate: Maintain the "pegged exchange rate regime." - Inflation: Continue actions "to maintain low and stable inflation in line with the CEMAC convergence criterion." - Statutory advances: Continue to reduce the stock of statutory advances "with a view to repaying them fully by the end of 2008." - Regional cooperation: Work with CEMAC partners "to develop the regional securities market." - Financial sector strategy: Adopt by the end of the year a strategy to: - "expand credit to the private sector," - "strengthen the legal framework," - "improve information on the cost of credit and credit history," - "diversify financial instruments," - "ensure that the country’s pension system is placed on a sound footing." ### Debt management and structural policies - Debt risk: "Despite recent improvements, Congo is still at high risk of debt distress." - Debt strategy and creditors: Commit to finance development through own resources and "seek foreign financing only on highly concessional terms"; accelerate regularization with "non-London Club and litigating creditors"; implement a "new debt management strategy, in line with CEMAC regional guidelines." - Structural agenda priorities: - Strengthen public financial management. - Enhance governance and transparency. - Accelerate financial and oil sector reforms. - Implement triggers under the enhanced HIPC Initiative. - Accelerate reform of public enterprises to enhance efficiency. - For the oil sector: finalize by mid-2009 "a strategic study on how this sector can make the greatest contribution to Congo’s economic development." ### Projections and policy implications - GDP: Overall real GDP "is expected to rise from 7.6 percent in 2008 to nearly 13 percent in 2009." - Inflation: "Inflation is planned to remain high this year, but to moderate in 2009." - Non-oil growth target: Authorities intend non-oil sector growth of "about 8 percent per year" as the minimum necessary for durable poverty reduction and MDG progress. - Infrastructure and social priorities: High priority on investment projects in "transportation, energy and water, as well as in the social sector." _Statement by Laurean Rutayisire, Executive Director for the Republic of Congo, December 8, 2008 — Document: _cr0974 - 5.7 percent in the 12 months through June 2008. Inflation is expected to moderate in the second half_._ --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0974.pdf_