## _cr10327

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---

### Background and scope
- Reviews the April 2010 Progress Report (PR) of the Poverty Reduction and Growth Strategy (PRGS) of the Democratic Republic of Congo (DRC).
- Historical context and timeline:
  - First full PRGS completed in July 2006 covering the period 2006–08; discussed by the Boards of Executive Directors of the IMF and World Bank in May and September 2007.
  - Newly elected government confirmed commitment after taking office in April 2007 and prepared a priority action plan (PAP) for July 2007–December 2008.
  - Government review of PRGS implementation over April 2007–December 2008 found implementation needed strengthening; implementation period of the first PRGS extended to end-2010 to allow time to achieve objectives and prepare a second generation PRGS.
- Structure of the JSAN:
  - Section II: poverty diagnostic.
  - Section III: authorities’ implementation of strategy and reform perspectives.
  - Section IV: monitoring and evaluation.
  - Section V: conclusions and issues for discussion.

### Poverty diagnostics
- Participatory preparation:
  - PRGS 2006–10 based on broad-based participatory preparation with countrywide surveys and extensive grassroots consultations.
- Statistical limitations and recommendations:
  - Capacity of the National Statistical Institute (Institute National de Statistique (INS)) remains constrained; monitoring poverty remains a challenge.
  - Poverty assessment basis: most recent poverty assessment published in 2006, drawn on the 1–2–3 survey completed in 2005.
  - Key statistic: over 71 percent of Congolese households live below the poverty line.
  - Staffs encourage the Government to:
    - Conduct a new household survey to update and strengthen poverty monitoring.
    - Increase analysis of data from smaller surveys.
    - Ensure the next-generation PRGS explicitly recognizes strategies to reduce vulnerability and ensure inclusive growth.

### Implementation progress and reform perspectives — Governance, decentralization, and security (A)
- Decentralization and public administration:
  - Adoption of a law on the administration of the provinces (Loi sur la Libre Administration des Provinces).
  - Increased involvement of provincial authorities in central government decision making, but slow implementation due to weak provincial institutions.
  - Provincial resources gradually increasing and amounted to some 2 percent of GDP in 2009, excluding provincial civil servants paid directly by the central government.
  - Staffs welcome efforts on census of civil servants, enforcing mandatory retirement, payroll system reform, and reviewing legal framework of public administration.
  - Staffs recommend focusing on strengthening public finance management and delivery of priority social services at the provincial level.
- Security sector reform:
  - Security sector reforms identified as fundamental priority for consolidating peace and development, especially in eastern provinces.
  - Progress examples:
    - Comité du Suivi de la Réforme de la Police established in 2007.
    - Comité Mixte de la Justice established in 2004.
    - Biometric census in the national army identified and eliminated ‘ghost workers’ and allowed an increase in salaries.
  - Staffs encourage prompt adoption of organic and general status laws for police and military that have been under consideration by Parliament since 2007 and 2009 to improve human rights situation and address gender-based violence.
- Transparency and accountability:
  - Persistent problems of poor accountability and transparency undermine public support.
  - Staffs urge greater use of social accountability mechanisms in public service delivery.
  - The 2010 user survey noted as useful for formulating future actions.

### Macroeconomic performance and policy (B)
- Growth, inflation, and reserves:
  - Growth fell from 6.2 percent in 2008 to 2.8 percent in 2009 due to global financial crisis and conflict in eastern provinces.
  - Inflation averaged 14.5 percent in 2003–08; rose to over 100 percent in April 2009 (on annualized basis) after sharp franc depreciation and uptick in central bank credit in late 2008.
  - Inflation declined to 15 percent at end April 2010, reflecting prudent monetary and fiscal policies.
  - Official reserves rose to the equivalent of seven weeks of imports by end-2009, up from one week at end 2008, buoyed by official balance of payments support including general and special SDR allocations.
- Fiscal and monetary policy implementation:
  - Central government revenue increased from 7.7 percent of GDP in 2003 to about 16 percent in 2009.
  - Fiscal reforms and improved commitment management helped contain fiscal deficit impact from the slowdown.
  - Monetary policy implementation complicated by liquidity forecasting difficulties in 2009; weaknesses subsequently addressed.
  - Increases in central bank policy rate and mopping up of excess liquidity helped contain excessive monetary growth.
  - Policy implementation during first half of 2010 broadly satisfactory; program objectives and targets for end-June likely to be achieved.
- Medium-term framework and policy priorities:
  - Medium-term macroeconomic framework in the PR is consistent with the Extended Credit Facility (ECF)-supported program.
  - Over-riding fiscal objective: avoid recourse to borrowing from the central bank.
  - Recommended supporting measures:
    - Ambitious reforms in tax and customs administration to mobilize fiscal revenues.
    - Prudent expenditure management.
    - Strengthen budget planning and execution to ensure consistency between budget plans, spending commitments, and payments.
    - Expedite central bank recapitalization and enhance independence to improve monetary policy effectiveness.

### Public finance management, revenue, customs, and debt management
- Revenue and tax administration:
  - Large Taxpayers Unit established and strengthened via computerization and improved collection procedures.
  - Further revenue strengthening suggested through rationalizing nuisance taxes and strengthening revenue collection from the mining sector.
- Customs and trade facilitation:
  - One-stop window established at two key border posts; import valuation strengthened.
  - Impact tempered by parallel processing of paperwork; staffs encourage improved trade facilitation to reduce transit periods and costs.
- Public Financial Management (PFM):
  - Transparent procedures for payments of urgent spending requests established.
  - Modernization of legal and regulatory PFM framework advanced; medium term PFM reform strategy plan designed and adopted.
  - Modern procurement law adopted and relevant institutions being established.
  - Staffs highlight need to improve consistency between commitment, treasury, and foreign exchange budget plans, and to effectively implement decentralization.
  - Recommendation: adopt a medium-term expenditure framework with regular budget execution reports to empower line ministries.
- Financial sector reforms:
  - Central Bank (Banque Centrale du Congo (BCC)) restructured and reorganized as first step toward recapitalization and financial independence; banking supervision being reinforced.
  - Supervisory weaknesses to address:
    - (i) regulation on classification and provisioning of non-performing loans;
    - (ii) off-site supervision including early warning system models;
    - (iii) on-site examination with in-depth analysis of loan files.
  - Staffs encourage strengthening central bank’s banking supervision capacity and close coordination with the Ministry of Finance.
- Debt management and SCCA:
  - Debt sustainability requires prudent debt management.
  - Congolese authorities managed negotiation of a Sino-Congolese Cooperation agreement (SCCA) amended to ensure long-term debt sustainability after debt relief.
  - Need to strengthen government planning for selecting investments with high growth impact and ensuring long-term funding for maintenance from recurrent budget.
- Debt recording and institutional arrangements:
  - Debt Management Agency (Direction Générale de la Dette Publique (DGDP)) centralized debt data; activated a computerized debt-recording system capable of recording disbursements, service payments, and generating monthly debt service projections.
  - Further measures needed:
    - (i) build technical capacity and acquire equipment to address operational risk affecting timely obligations;
    - (ii) ensure maintenance of an accurate and up-to-date debt database by improving processes and inter-agency coordination;
    - (iii) approval of an official debt management manual.

### Economic diversification and private sector development (C)
- Business climate and state-owned enterprises:
  - Authorities emphasized better business climate, including joining OHADA and improving Doing Business indicators ranking.
  - Staffs note reforms must include state-owned enterprises and agencies, addressing large social liabilities such as wage arrears and retirement indemnities.
  - Implementation of these reforms critical to alleviate growth bottlenecks.
- Agriculture and rural development:
  - PR identifies key obstacles: infrastructure, inputs, technology, and access to capital.
  - Authorities made progress expanding infrastructure, notably integrated transport networks; construction/rehabilitation of almost twice the length of rural roads as planned (see PR Table 1: page 35).
  - To move up the agricultural value chain, market failures in rural finance need addressing, especially access to capital.
  - Staffs suggest facilitating cross-border supply of key inputs and services and improving market access.
  - Adoption of an agriculture sector strategy with objectives:
    - (i) improving marketing efficiency;
    - (ii) enhancing productivity of traditional, smallholder-based agriculture;
    - (iii) re-capitalizing agricultural and livestock production through farm investments;
    - (iv) providing decentralized and de-concentrated support services to community-led initiatives.
  - Sectoral challenge: agricultural contribution to GDP declined dramatically between 1990 and 2001; sector needs additional resources and investment.
  - Recommendation: closer coordination among ministries and between central and decentralized levels; harmonized strategy for agriculture and rural development at lower public administration levels; pursue decentralization of decision making including budget execution in agriculture and rural development to improve donor coordination and service targeting.
- Forestry sector:
  - Staffs support role for forests in growth but urge better appropriation and fair division of fiscal revenues from forestry with provinces and territories as mandated by law.
  - Policy and legal framework for sustainable forest management improved; rights of local communities and indigenous people strengthened.
  - Staffs advise ensuring rural poor benefit from improved forest management via tax receipts and social infrastructure provided by concessionaires.
  - Progress in tax reporting by forest companies noted; need better control of illegal exports of “informal” sawnwood.
  - DRC has a formally approved “Readiness Plan” for REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries); an implementation program expected to be endorsed by the next Conference of the Parties to the UN Framework Convention on Climate Change.
- Mining and industrial development:
  - Governance in the mining sector is crucial to attract foreign investors; PR’s commitment to obtain EITI validation and use EITI++ framework welcomed.
  - Staffs are concerned about current governance constraints that limit investor pool; strengthening governance and ensuring contract stability needed to broaden investor participation.
  - PR optimistic about industrial development’s long-term role in growth and poverty alleviation; in the near term, agriculture, mining, construction, and trade are more likely to contribute significantly to growth.

### Infrastructure
- PR stresses potential benefit of electricity, transport, telecom and other infrastructure sectors for economic growth and poverty alleviation.
- Key findings:
  - Lack of infrastructure is a major constraint to growth.
  - Key principles identified in the PR for strengthening economic growth in this sector are reasonable.
  - Severe institutional and governance capacity constraints complicate application of these principles.
  - Need for significant investments and greater focus on maintenance to avoid neutralizing positive impact of investment.
  - Macroeconomic analysis underscores lack of government resources for such investment, and hence need to attract private capital.
- Recommendation:
  - Authorities may want to explore more actively alternative institutional arrangements, including public private partnerships, to allow the private sector the security to contribute to building and maintaining the required infrastructure.

### Provision of Social Services and Reduction in Vulnerability
- Coordination and financing:
  - PR highlights progress in delivery of social services and credits development partners.
  - Coordination with development partners has improved following adoption of the Kinshasa Agenda with improvement in thematic groups.
  - Staffs note authorities may want to make active use of the medium-term expenditure framework developed in close cooperation with the Ministries of Health, Education and Agriculture to improve effectiveness of financing (budget, households and development partners).
  - Recommendation: Encourage government to take greater leadership in implementation of the Kinshasa Agenda, with greater involvement of line ministries.
  - PR notes persistence of wide disparities in quality of service delivery between provinces; staffs recommend this be addressed explicitly in the second generation PRGS.

### Education
- Access and inputs:
  - Total enrollment (primary-higher education) increased from 12 million in 2006/07 to 13 million in 2007/08; this increase corroborated by field visits.
  - Medium-term expenditure estimates for 2006–09 show an increase in public resources for education and important financial contributions by local communities and parents.
  - Community response: communities established schools and recruited community teachers; about 40,000 community teachers the government agreed to migrate to the civil service payroll to reduce the burden on communities.
  - More than 21 million textbooks (Mathematics and French) and teaching guides were distributed to all primary schools (public and private).
- Quality and management:
  - Greater attention to in-service training and teacher supervision, though these remained broadly insufficient and of low quality.
  - Government beneficiary survey showed majority expressed generally a positive view on education quality, but student achievement assessments underscored acquired competencies were relatively low and pertinence of qualification remained an issue.
  - Government adopted a basic Education Strategy and priority action plan in March 2010 focusing on:
    - (i) improving access and retention in basic education;
    - (ii) improving the quality and the pertinence of basic education;
    - (iii) strengthening the management and governance of the system.
  - Staffs endorse these objectives but caution against hasty implementation of a free primary school policy given limited financial resources and organizational and logistical challenges.
- Recommendation:
  - Implement migration of community teachers in a transparent manner based on a civil service survey and objective criteria.

### Health
- Key trends and inputs:
  - PR surveys significant progress on key health indicators such as infant and under-five mortality; maternal mortality is difficult to assess but trends suggest improvements.
  - Progress attributed to gains in coverage with long-lasting impregnated bed nets, better performance of national immunization program, and improvements in access to essential drugs in public facilities.
- Challenges:
  - Access to medical supplies and qualified medical personnel remains problematic.
  - Vaccination coverage remains incomplete and is sometimes affected by recurrent shortages.
  - Procurement and distribution of pharmaceuticals have seen significant progress but sector remains very fragmented.
  - Health workforce increased but remains poorly distributed with imbalances between Kinshasa and other urban centers and the rest of the country.
- Recommendation:
  - Revised national health strategy should address management of the health work force, continued capacity building at the peripheral level, and lack of investments in primary care facilities.
- Financing:
  - Sector’s financing is strongly regressive and largely funded by household out of pocket expenditures and donor support.

### Combat HIV/AIDS
- Progress:
  - National strategy on HIV/AIDS making real, but slow, progress.
  - Blood transfusion is gradually becoming safer and there has been significant progress in dissemination of messages and community mobilization.
- Gaps:
  - Capacity to expand voluntary testing and counseling remains limited and less than 10 percent of eligible patients receive anti-retroviral drugs.
- Recommendation:
  - Build capacity to provide HIV services at the community level, requiring extensive staff training, functioning supply chains for ARVs, and adequate laboratory services.

### Promote Community Dynamics
- Findings:
  - PR gives scarce mention to promotion of Community Dynamics, demonstrating limited progress.
  - Staffs emphasize community dynamics must be taken into account as a cross-cutting issue and encourage DRC authorities to promote local and community driven activities and develop tools to engage communities.
  - Staffs welcome government initiative to set up a committee for civil society capacity building and national and provincial consultations over 2008–09.
- Recommendation:
  - Further efforts to strengthen empowerment of civil society, particularly in governance, economic activities (such as agriculture) and in social sectors (particularly health, HIV/AIDS and education).

### Monitoring and Evaluation
- Data and coordination gaps:
  - PR highlights continued lack of data to assess impact of economic policies.
  - Staffs concur it is a challenge to obtain accurate information on economic developments and poverty indicators.
  - In absence of a framework for data sharing among agencies, ministries and donors, publication and effective dissemination of information remains elusive.
- Institutional mechanisms:
  - Implementation and monitoring mechanisms for the PRGS exist but need review and interventions should be budgeted as advised in the 2007 JSAN.
  - Staffs welcome rationalization of thematic groups and sub-groups from 45 to 19 but note further reduction and clarification of tasks and responsibilities is possible.
  - Despite existence of inter-ministerial monitoring mechanisms such as Unité de Pilotage du Processus du Document de la Stratégie pour la Réduction de la Pauvreté (DSRP) (UPPE) and le Comité Technique de suivi des Réformes (CTR), staffs note a general lack of a structured evaluation system within the Government which hampered evaluation of PAP 2008.
- Recommendations:
  - Authorities and donors should request the INS to coordinate formulation and implementation of a data collection and dissemination strategy to underpin monitoring and evaluation of the PRGS.
  - Government should push for a more pro-active role of sector ministries and inter-ministerial monitoring by the Committee to Monitor Pro-poor Spending (Comité de Suivi des Dépenses Pro-pauvres).
  - Ministry of Planning should reinforce evaluation capacities and budgeting of poverty alleviation initiatives.

### Conclusions and Issues for Discussion
- Core messages:
  - Developments demonstrate the DRC’s capacity for growth and poverty alleviation if the right incentives are provided, including security and a manageable business environment that allows investors to enjoy the fruits of their investments.
  - This applies to physical investment in all sectors and investment in human capital; the DRC population at every income level has shown willingness to make large financial sacrifices to address health and education needs.
  - Such capacity provides confidence that the DRC will move towards sustainable growth with poverty alleviation once security and governance issues are adequately addressed.
- Recent developments and cooperation:
  - Authorities’ commitment despite political challenges includes establishment of peace with Rwanda and renegotiation of the SCCA to contribute to sustainable external debt situation.
  - Cooperation with international partners can help mobilize massive development financing needs and help spread benefits of natural resources across the country to address spatial distribution of poverty and exclusion.
- Strategic priorities and risks:
  - Authorities’ short-term response builds on a vision of long-term development: commitment to decentralization of public services (education, health and agriculture) and use of a medium-term expenditure framework (MTEF) for the next generation PRGS.
  - Staffs note impressive progress since the 2002 peace agreements and applaud continued commitment to economic reforms, democratic elections, decentralization and vigorous implementation of the Kinshasa Agenda.
  - Going forward authorities will have to:
    - (i) find the right pace to pursue the decentralization agenda,
    - (ii) selectively engage in structural reforms to boost economic development, including modernizing public administration, restoring competitiveness of essential utility and transport services, improving the business environment, and
    - (iii) implement an incremental infrastructure plan in order to get out the vicious circle of conflict and enter into a virtuous cycle of development with a view moving of toward inclusive growth.
  - Staffs note the vision is not without risk but offers the best hope to address underlying grievances of the conflict, including lack of security–in particular for women.
- Consultation request:
  - Staffs would like Executive Directors’ views on whether they agree with this JSAN, in particular regarding:
    - (i) their views of PRGS implementation during the past 12-months July 2009–June 2010, and
    - (ii) suggestions on priority measures for further refining the PRGS and strengthening its implementation.

*Source: _cr10327 - 24.      The PR stresses the potential benefit of electricity, transport, telecom and other*

### 1.      This Joint Staff Advisory Note (JSAN) reviews the April 2010 Progress Report (PR)

### This Joint Staff Advisory Note (JSAN) reviews the April 2010 Progress Report (PR)

### Background and scope
- Reviews the April 2010 Progress Report (PR) of the Poverty Reduction and Growth Strategy (PRGS) of the Democratic Republic of Congo (DRC).
- Historical context and timeline:
  - First full PRGS completed in July 2006 covering the period 2006–08; discussed by the Boards of Executive Directors of the IMF and World Bank in May and September 2007.
  - Newly elected government confirmed commitment after taking office in April 2007 and prepared a priority action plan (PAP) for July 2007–December 2008.
  - Government review of PRGS implementation over April 2007–December 2008 found implementation needed strengthening; implementation period of the first PRGS extended to end-2010 to allow time to achieve objectives and prepare a second generation PRGS.
- Structure of the JSAN:
  - Section II: poverty diagnostic.
  - Section III: authorities’ implementation of strategy and reform perspectives.
  - Section IV: monitoring and evaluation.
  - Section V: conclusions and issues for discussion.

### Poverty diagnostics
- Participatory preparation:
  - PRGS 2006–10 based on broad-based participatory preparation with countrywide surveys and extensive grassroots consultations.
- Statistical limitations and recommendations:
  - Capacity of the National Statistical Institute (Institute National de Statistique (INS)) remains constrained; monitoring poverty remains a challenge.
  - Poverty assessment basis: most recent poverty assessment published in 2006, drawn on the 1–2–3 survey completed in 2005.
  - Key statistic: over 71 percent of Congolese households live below the poverty line.
  - Staffs encourage the Government to:
    - Conduct a new household survey to update and strengthen poverty monitoring.
    - Increase analysis of data from smaller surveys.
    - Ensure the next-generation PRGS explicitly recognizes strategies to reduce vulnerability and ensure inclusive growth.

### Implementation progress and reform perspectives — Governance, decentralization, and security (A)
- Decentralization and public administration:
  - Adoption of a law on the administration of the provinces (Loi sur la Libre Administration des Provinces).
  - Increased involvement of provincial authorities in central government decision making, but slow implementation due to weak provincial institutions.
  - Provincial resources gradually increasing and amounted to some 2 percent of GDP in 2009, excluding provincial civil servants paid directly by the central government.
  - Staffs welcome efforts on: census of civil servants, enforcing mandatory retirement, payroll system reform, and reviewing legal framework of public administration.
  - Staffs recommend focusing on strengthening public finance management and delivery of priority social services at the provincial level.
- Security sector reform:
  - Security sector reforms identified as fundamental priority for consolidating peace and development, especially in eastern provinces.
  - Progress examples:
    - Comité du Suivi de la Réforme de la Police established in 2007.
    - Comité Mixte de la Justice established in 2004.
    - Biometric census in the national army identified and eliminated ‘ghost workers’ and allowed an increase in salaries.
  - Staffs encourage prompt adoption of organic and general status laws for police and military that have been under consideration by Parliament since 2007 and 2009 to improve human rights situation and address gender-based violence.
- Transparency and accountability:
  - Persistent problems of poor accountability and transparency undermine public support.
  - Staffs urge greater use of social accountability mechanisms in public service delivery.
  - The 2010 user survey noted as useful for formulating future actions.

### Macroeconomic performance and policy (B)
- Growth, inflation, and reserves:
  - Growth fell from 6.2 percent in 2008 to 2.8 percent in 2009 due to global financial crisis and conflict in eastern provinces.
  - Inflation averaged 14.5 percent in 2003–08; rose to over 100 percent in April 2009 (on annualized basis) after sharp franc depreciation and uptick in central bank credit in late 2008.
  - Inflation declined to 15 percent at end April 2010, reflecting prudent monetary and fiscal policies.
  - Official reserves rose to the equivalent of seven weeks of imports by end-2009, up from one week at end 2008, buoyed by official balance of payments support including general and special SDR allocations.
- Fiscal and monetary policy implementation:
  - Central government revenue increased from 7.7 percent of GDP in 2003 to about 16 percent in 2009.
  - Fiscal reforms and improved commitment management helped contain fiscal deficit impact from the slowdown.
  - Monetary policy implementation complicated by liquidity forecasting difficulties in 2009; weaknesses subsequently addressed.
  - Increases in central bank policy rate and mopping up of excess liquidity helped contain excessive monetary growth.
  - Policy implementation during first half of 2010 broadly satisfactory; program objectives and targets for end-June likely to be achieved.
- Medium-term framework and policy priorities:
  - Medium-term macroeconomic framework in the PR is consistent with the Extended Credit Facility (ECF)-supported program.
  - Over-riding fiscal objective: avoid recourse to borrowing from the central bank.
  - Recommended supporting measures:
    - Ambitious reforms in tax and customs administration to mobilize fiscal revenues.
    - Prudent expenditure management.
    - Strengthen budget planning and execution to ensure consistency between budget plans, spending commitments, and payments.
    - Expedite central bank recapitalization and enhance independence to improve monetary policy effectiveness.

### Public finance management, revenue, customs, and debt management (continued in B & C)
- Revenue and tax administration:
  - Large Taxpayers Unit established and strengthened via computerization and improved collection procedures.
  - Further revenue strengthening suggested through rationalizing nuisance taxes and strengthening revenue collection from the mining sector.
- Customs and trade facilitation:
  - One-stop window established at two key border posts; import valuation strengthened.
  - Impact tempered by parallel processing of paperwork; staffs encourage improved trade facilitation to reduce transit periods and costs.
- Public Financial Management (PFM):
  - Transparent procedures for payments of urgent spending requests established.
  - Modernization of legal and regulatory PFM framework advanced; medium term PFM reform strategy plan designed and adopted.
  - Modern procurement law adopted and relevant institutions being established.
  - Staffs highlight need to improve consistency between commitment, treasury, and foreign exchange budget plans, and to effectively implement decentralization.
  - Recommendation: adopt a medium-term expenditure framework with regular budget execution reports to empower line ministries.
- Financial sector reforms:
  - Central Bank (Banque Centrale du Congo (BCC)) restructured and reorganized as first step toward recapitalization and financial independence; banking supervision being reinforced.
  - Supervisory weaknesses to address:
    - (i) regulation on classification and provisioning of non-performing loans;
    - (ii) off-site supervision including early warning system models;
    - (iii) on-site examination with in-depth analysis of loan files.
  - Staffs encourage strengthening central bank’s banking supervision capacity and close coordination with the Ministry of Finance.
- Debt management and SCCA:
  - Debt sustainability requires prudent debt management.
  - Congolese authorities managed negotiation of a Sino-Congolese Cooperation agreement (SCCA) amended to ensure long-term debt sustainability after debt relief.
  - Need to strengthen government planning for selecting investments with high growth impact and ensuring long-term funding for maintenance from recurrent budget.
- Debt recording and institutional arrangements:
  - Debt Management Agency (Direction Générale de la Dette Publique (DGDP)) centralized debt data; activated a computerized debt-recording system capable of recording disbursements, service payments, and generating monthly debt service projections.
  - Further measures needed:
    - (i) build technical capacity and acquire equipment to address operational risk affecting timely obligations;
    - (ii) ensure maintenance of an accurate and up-to-date debt database by improving processes and inter-agency coordination;
    - (iii) approval of an official debt management manual.

### Economic diversification and private sector development (C)
- Business climate and state-owned enterprises:
  - Authorities emphasized better business climate, including joining OHADA and improving Doing Business indicators ranking.
  - Staffs note reforms must include state-owned enterprises and agencies, addressing large social liabilities such as wage arrears and retirement indemnities.
  - Implementation of these reforms critical to alleviate growth bottlenecks.
- Agriculture and rural development:
  - PR identifies key obstacles: infrastructure, inputs, technology, and access to capital.
  - Authorities made progress expanding infrastructure, notably integrated transport networks; construction/rehabilitation of almost twice the length of rural roads as planned (see PR Table 1: page 35).
  - To move up the agricultural value chain, market failures in rural finance need addressing, especially access to capital.
  - Staffs suggest facilitating cross-border supply of key inputs and services and improving market access.
  - Adoption of an agriculture sector strategy with objectives:
    - (i) improving marketing efficiency;
    - (ii) enhancing productivity of traditional, smallholder-based agriculture;
    - (iii) re-capitalizing agricultural and livestock production through farm investments;
    - (iv) providing decentralized and de-concentrated support services to community-led initiatives.
  - Sectoral challenge: agricultural contribution to GDP declined dramatically between 1990 and 2001; sector needs additional resources and investment.
  - Recommendation: closer coordination among ministries and between central and decentralized levels; harmonized strategy for agriculture and rural development at lower public administration levels; pursue decentralization of decision making including budget execution in agriculture and rural development to improve donor coordination and service targeting.
- Forestry sector:
  - Staffs support role for forests in growth but urge better appropriation and fair division of fiscal revenues from forestry with provinces and territories as mandated by law.
  - Policy and legal framework for sustainable forest management improved; rights of local communities and indigenous people strengthened.
  - Staffs advise ensuring rural poor benefit from improved forest management via tax receipts and social infrastructure provided by concessionaires.
  - Progress in tax reporting by forest companies noted; need better control of illegal exports of “informal” sawnwood.
  - DRC has a formally approved “Readiness Plan” for REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries); an implementation program expected to be endorsed by the next Conference of the Parties to the UN Framework Convention on Climate Change.
- Mining and industrial development:
  - Governance in the mining sector is crucial to attract foreign investors; PR’s commitment to obtain EITI validation and use EITI++ framework welcomed.
  - Staffs are concerned about current governance constraints that limit investor pool; strengthening governance and ensuring contract stability needed to broaden investor participation.
  - PR optimistic about industrial development’s long-term role in growth and poverty alleviation; in the near term, agriculture, mining, construction, and trade are more likely to contribute significantly to growth.

*IMF staff Joint Staff Advisory Note (JSAN) summarizing the April 2010 Progress Report (PR) of the PRGS of the Democratic Republic of Congo.*

### 24.      The PR stresses the potential benefit of electricity, transport, telecom and other

### _cr10327 - 24.      The PR stresses the potential benefit of electricity, transport, telecom and other

### Infrastructure
- The PR stresses the potential benefit of electricity, transport, telecom and other infrastructure sectors for economic growth and poverty alleviation.
- The lack of infrastructure is a major constraint to growth; the key principles identified in the PR for strengthening economic growth in this sector are reasonable.
- Severe institutional and governance capacity constraints complicate the application of these principles.
- The report notes the need for significant investments in this sector and highlights the need for greater focus on maintenance to avoid neutralizing the positive impact of investment.
- The macroeconomic analysis underscored the lack of government resources for such investment, and hence the need to attract private capital.
- Recommendation: The authorities may want to explore more actively alternative institutional arrangements, including public private partnerships, that will allow the private sector the security to contribute to building and maintaining the required infrastructure.

### Provision of Social Services and Reduction in Vulnerability
- The PR highlights progress in the delivery of social services and credits development partners.
- Coordination with development partners has improved following the adoption of the Kinshasa Agenda with an improvement in the thematic groups used to organize dialogue and policy harmonization in various sectors.
- Staffs note that the authorities may want to make active use of the medium-term expenditure framework developed in close cooperation with the Ministries of Health, Education and Agriculture to further improve the effectiveness of the various sources of financing (budget, households and development partners).
- Recommendation: Encourage the government to take greater leadership in the implementation of the Kinshasa Agenda, with greater involvement of the line ministries.
- The PR notes persistence of wide disparities in the quality of service delivery between provinces, an issue that may be accentuated by decentralization; staffs recommend this be addressed explicitly in the second generation PRGS.

### Education
- The PR notes the successful increase in access to basic education.
- Data suggest total enrollment (primary-higher education) increased from 12 million in 2006/07 to 13 million in 2007/08; this increase is corroborated by field visits.
- Medium-term expenditure estimates for 2006–09 show an increase in public resources for education and important financial contributions by local communities and parents.
- Community response: rising demand led to establishment of schools by communities (under sponsorship of religious organizations) and recruitment of community teachers, about 40,000 of which the government agreed to migrate to the civil service payroll to reduce the burden on communities.
- Staffs support migration of community teachers in principle but encourage implementation in a transparent manner based on a civil service survey and objective criteria.
- Inputs provided: More than 21 million textbooks (Mathematics and French) and teaching guides were distributed to all primary schools (public and private).
- Training and supervision: Greater attention to in-service training and teacher supervision, though these remained broadly insufficient and of low quality.
- Outcomes: A government beneficiary survey showed majority expressed generally a positive view on education quality, but student achievement assessments underscored that acquired competencies were relatively low and the pertinence of qualification remained an issue.
- The Government adopted a basic Education Strategy and priority action plan in March 2010 focusing on: (i) improving access and retention in basic education; (ii) improving the quality and the pertinence of basic education; and (iii) strengthening the management and governance of the system.
- Staffs endorse these objectives but caution against a hasty implementation of a free primary school policy given limited financial resources and organizational and logistical challenges.

### Health
- The PR surveys significant progress on key health indicators such as infant and under-five mortality; maternal mortality is difficult to assess but trends suggest improvements.
- Progress attributed to significant gains in coverage with long-lasting impregnated bed nets, better performance of the national immunization program, and improvements in access to essential drugs in public facilities.
- Challenges: Access to medical supplies and qualified medical personnel remains problematic.
- Institutional capacity: Provincial and district staffs with managerial responsibilities are now better equipped; tools for decentralized planning have been developed and disseminated.
- Vaccination coverage remains incomplete and is sometimes affected by recurrent shortages.
- Procurement and distribution of pharmaceuticals have seen significant progress but the sector remains very fragmented.
- Health workforce: The number of health staffs has steadily increased but remains poorly distributed with imbalances between Kinshasa and other urban centers and the rest of the country.
- Recommendation: Staffs welcome the revised national health strategy and suggest it should address management of the health work force, continued capacity building at the peripheral level, and the lack of investments in primary care facilities.
- Financing: The sector’s financing is strongly regressive and largely funded by household out of pocket expenditures and donor support.

### Combat HIV/AIDS
- The PR reports the national strategy on HIV/AIDS is making real, but slow, progress.
- Blood transfusion is gradually becoming safer and there has been significant progress in dissemination of messages and community mobilization.
- Capacity to expand voluntary testing and counseling remains limited and less than 10 percent of eligible patients receive anti-retroviral drugs.
- Recommendation: Staffs welcome ongoing efforts to build capacity to provide HIV services at the community level; this requires extensive staff training, development of functioning supply chains for ARVs, and provision of adequate laboratory services.

### Promote Community Dynamics
- The PR gives scarce mention to promotion of Community Dynamics, demonstrating limited progress in this area.
- Staffs emphasize that community dynamics must be taken into account as a cross-cutting issue and encourage DRC authorities to promote local and community driven activities and develop tools to engage communities.
- Staffs welcome the DRC government’s initiative to set up a committee for civil society capacity building and congratulate the government on national and provincial consultations over 2008–09.
- Recommendation: Further efforts to strengthen empowerment of civil society, particularly in governance, economic activities (such as agriculture) and in social sectors (particularly health, HIV/AIDS and education).

### Monitoring and Evaluation
- The PR highlights a continued lack of data to assess the impact of economic policies.
- Staffs concur it is a challenge to obtain accurate information on economic developments and poverty indicators.
- In the absence of a framework for data sharing among agencies, ministries and donors, publication and effective dissemination of information remains elusive.
- Recommendation: Authorities and donors should request the INS to coordinate formulation and implementation of a data collection and dissemination strategy to underpin monitoring and evaluation of the PRGS.
- Existing mechanisms: Implementation and monitoring mechanisms for the PRGS exist but need review and interventions should be budgeted as advised in the 2007 JSAN.
- Staffs welcome rationalization of thematic groups and sub-groups from 45 to 19 but note authorities could further reduce the heaviness of mechanisms and clarify tasks and responsibilities.
- Recommendation: Government should push for a more pro-active role of sector ministries and inter-ministerial monitoring by the Committee to Monitor Pro-poor Spending (Comité de Suivi des Dépenses Pro-pauvres).
- Despite existence of inter-ministerial monitoring mechanisms such as Unité de Pilotage du Processus du Document de la Stratégie pour la Réduction de la Pauvreté (DSRP) (UPPE) and le Comité Technique de suivi des Réformes (CTR), staffs note a general lack of a structured evaluation system within the Government which hampered evaluation of PAP 2008.
- Recommendation: The Government, in particular the Ministry of Planning, should reinforce evaluation capacities and budgeting of poverty alleviation initiatives.

### Conclusions and Issues for Discussion
- Developments demonstrate the DRC’s capacity for growth and poverty alleviation if the right incentives are provided, including security and a manageable business environment that allows investors to enjoy the fruits of their investments.
- This applies to physical investment in all sectors and investment in human capital; the DRC population at every income level has shown willingness to make large financial sacrifices to address health and education needs.
- Such capacity provides confidence that the DRC will move towards sustainable growth with poverty alleviation once security and governance issues are adequately addressed.
- Recent developments indicate the authorities’ commitment to address key issues despite political challenges, including establishment of peace with Rwanda and renegotiation of the SCCA to contribute to sustainable external debt situation.
- Cooperation with international partners can help mobilize massive development financing needs and help spread benefits of natural resources across the country to address spatial distribution of poverty and exclusion.
- Authorities’ short-term response builds on a vision of long-term development: commitment to decentralization of public services (education, health and agriculture) and use of a medium-term expenditure framework (MTEF) for the next generation PRGS.
- Staffs note the impressive progress since the 2002 peace agreements and applaud continued commitment to economic reforms, democratic elections, decentralization and vigorous implementation of the Kinshasa Agenda.
- Going forward authorities will have to:
  - (i) find the right pace to pursue the decentralization agenda,
  - (ii) selectively engage in structural reforms to boost economic development, including modernizing public administration, restoring competitiveness of essential utility and transport services, improving the business environment, and
  - (iii) implement an incremental infrastructure plan in order to get out the vicious circle of conflict and enter into a virtuous cycle of development with a view moving of toward inclusive growth.
- Staffs note the vision is not without risk but offers the best hope to address underlying grievances of the conflict, including lack of security–in particular for women.
- Consultation request: Staffs would like Executive Directors’ views on whether they agree with this JSAN, in particular regarding: (i) their views of PRGS implementation during the past 12-months July 2009–June 2010, and (ii) suggestions on priority measures for further refining the PRGS and strengthening its implementation.

*Source: _cr10327 - 24.      The PR stresses the potential benefit of electricity, transport, telecom and other*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10327.pdf_