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---

### Overview and context
- This Joint Staff Advisory Note (JSAN) reviews the first annual progress report (APR) on implementation of the Poverty Reduction Strategy (PRS) of the Republic of Congo (Congo).
- Congo’s first full PRS was adopted in April 2008, circulated to the IMF Board on August 8, 2008 (for information), and discussed at the IDA Board on October 2, 2008.
- The APR takes stock of the first year of PRS monitoring and implementation and was prepared through a participatory process with inputs from actors across the public administration and from outside the government.
- PRS main strategic pillars:
  - (i) strong governance and consolidation of peace and security;
  - (ii) moderate growth and macroeconomic stability;
  - (iii) improved access to basic social services;
  - (iv) a better social environment, which includes the integration of vulnerable groups;
  - (v) combating HIV/AIDS.
- JSAN structure: Section II—poverty diagnosis; Section III—central aspects of the strategy; Section IV—implementation progress; Section V—monitoring and evaluation; Section VI—conclusions and issues for Executive Directors.

### Poverty diagnosis — key findings and data gaps
- Current poverty statistics are based on the poverty assessment of 2006 using survey data from 2005.
- Key poverty figures from 2005-based data:
  - 50.7 percent of Congolese households live below the poverty line;
  - highest incidence of poverty occurs in semi-urban and rural areas;
  - almost 60 percent of poor households are headed by women.
- Statistical and survey program status:
  - Planned poverty survey program aims to update the 2005 household survey, enable region-by-region analysis, include surveys on employment and agricultural production, and update the 2005 Demographic and Health Survey.
  - The program is somewhat behind schedule owing to capacity constraints and delays in finalizing the 2007 census.
  - The 2007 census is critical to provide an updated and reliable statistical basis for surveys.
- Analytical gaps and recommendations:
  - Knowledge on how major policies and public spending affect income, employment, and social outcomes remains weak.
  - Staffs recommend pilot poverty and social impact assessments of key public spending initiatives and structural reforms.
  - Administrative data (e.g., wood production and exports, mining titles, road construction and maintenance, textbook distribution) should be produced and used more intensively for poverty monitoring.
  - Priority actions: complete and publish the 2007 census as soon as possible and conduct the second poverty survey using a method comparable to the first survey to ensure comparability.

### Strategic orientation, reform priorities, and resource allocation
- APR refines PRS pillars and emphasizes priority reforms:
  - (i) developing economic corridors (e.g., between Pointe Noire and Brazzaville);
  - (ii) promoting a dynamic private sector and improving the investment climate;
  - (iii) accelerating decentralization and local development;
  - (iv) further improving the quality and transparency of public financial management;
  - (v) enhancing institutional and administrative capacity.
- Staffs’ recommendations on strategy focus:
  - Further concentrate on a few key reform objectives with clearly formulated expected results, given weak institutional and administrative capacity and long-term nature of many reforms.
  - Clarify delineation of roles between public and private sectors to allow greater private sector provision of basic services.
- MTEF and sector strategies:
  - The MTEF exists and was used to prepare the 2010 budget; priority action plans with cost estimates were prepared in all key sectors.
  - The MTEF is only fully effective for sectors with well-developed sector strategies (transport, education, health).
  - Recommendation: prepare solid sector strategies in agriculture, water and energy to extend MTEF effectiveness.
- Public investment selection and spatial analysis:
  - New system launched to select publicly-financed projects to ensure alignment with the PRS and adequate economic and social returns.
  - Spatial analysis on infrastructure (prepared with World Bank support) can help prioritize investments where they have greatest impact on growth and social outcomes and support rebuilding economic corridors.

### Implementation progress and reform perspectives — Macroeconomic policies
- Staffs support the updated macroeconomic framework in the APR; the framework and fiscal stance were elaborated as part of the MTEF process with Fund and Bank staff and the authorities.
- PRGF arrangement supports formulation and implementation of macroeconomic and fiscal frameworks.
- Work is ongoing with Bank support to improve quality of oil revenue projections.
- Fiscal consolidation achievements and targets:
  - Non-oil basic primary deficit projected to fall to about 37.3 percent of non-oil GDP in 2009, from 55.7 percent in 2007.
  - Current expenditure tightened to 38 percent of non-oil GDP in 2009, from 56 percent two years earlier.
  - Authorities plan to reduce the non-oil basic primary balance to 27 percent of non-oil GDP by 2012 as committed under the PRGF arrangement.
- Revenue mobilization and spending control:
  - Authorities have embarked on an ambitious reform of tax and customs administration and tax policies and are committed to controlling spending.
- MTEF implementation needs:
  - Main MTEF elements in place: macro-fiscal framework, central MTEF allocations across sectors, and sector MTEFs for priority sectors.
  - Full implementation requires sustained institutional reform and capacity building, including detailed strategies with cost estimates and results frameworks in all major sectors.
  - Aim to prepare the 2011 budget using a fully-fledged MTEF approach.
  - Full implementation of the new oil revenue projection model is important to enhance macroeconomic and fiscal projections.
- Public financial management (PFM) reform highlights:
  - (i) New functional budget classification system introduced with the 2009 budget;
  - (ii) New procurement code made effective in October 2009;
  - (iii) New streamlined expenditure chain adopted and to be launched with the 2010 budget;
  - (iv) Program to link all customs agencies through specialized software (SYDONIA) advanced according to plans.
- Further reform needs in PFM:
  - Early-stage reforms need follow-through: utilize public investment management action plan given large capital resources and infrastructure needs; computerize the reformed expenditure chain; enhance internal and external controls; overhaul treasury management and public accounting.
  - Finalization of the Public Expenditure Review (PER) should help align budget allocations with PRS objectives and maintain an adequate balance between capital and recurrent spending.
  - Under-execution in HIPC-financed capital spending was caused by technical and procedural difficulties; issue resolved in mid-2009.
  - Staffs welcome progress on reforming the petroleum subsidy scheme, commitment to decentralizing resources for health and education service delivery, and restructuring state-owned enterprises running main utilities.
- Debt management improvements and remaining measures:
  - Government’s debt agency (CCA) continued to publish quarterly reports on external debt stock and debt service projections and arrears clearance on the government’s website.
  - Government identified measures to strengthen debt management: produce annual debt strategies; enhance coordination within government and with regional central bank on treasury and debt management; improve debt data security, auditing procedures, and analysis of costs and risks of new borrowing.
  - CCA collaborating with technical assistance providers: World Bank, Central AFRITAC, and BEAC.

### Implementation progress and reform perspectives — Post-conflict stabilization and good governance
- Peace consolidation and reintegration:
  - Political settlement with the rebel movement based in the Pool region reached in June 2008.
  - Major disarmament effort completed; reintegration of an estimated 14,000 rebels started in February 2009.
  - Full restoration of peace offers opportunity to strengthen institutions, support economic growth, and combat poverty.
- Anti-corruption and governance institutions and actions:
  - Governmental Anti-Corruption Commission and independent Anti-Corruption Observatory established in 2007.
  - Both institutions increased capacity and participated in preparation of the procurement code, the action plan on oil marketing, and financial audits of SNPC.
  - Anti-Corruption Action Plan approved by government in August 2009; new Anti-Corruption Law adopted by Parliament in August 2009.
  - Staffs encourage providing these organs with adequate resources and facilities and safeguarding their access to information and legal authority.
- Oversight and public access to information:
  - APR acknowledges need to enhance checks and balances, build oversight capacity in legislative and judiciary branches, and increase involvement of women, minority groups, civil society, and the media in policy formulation and implementation.
  - APR reports capacity building measures to enhance public accountability.
- Oil sector transparency and management reforms:
  - Adoption of the first EITI report on Congo by the national EITI committee reflects progress in opening oil sector management.
  - Continuation of quarterly certification of oil revenue posted on the Ministry of Finance’s website would allow monitoring of progress.
  - Audits of SNPC’s 2007 and 2008 accounts revealed important reservations largely related to limited accounting capacity; addressed by introducing an analytical accounting system at SNPC.
  - Significant progress made on implementing an oil commercialization action plan.
  - Staffs note that efforts to deepen and sustain more transparent and market-oriented practices in oil sector management need to continue.

### Forestry sector reforms and enforcement
- A comprehensive and participatory forest sector review was completed and legal texts revised; a package of legal and regulatory instruments to improve sector transparency and social and environmental performance has been adopted, including a forest taxation package passed as an amendment to the Forest Law aimed at improving sustainability of the forest resource base and fiscal revenue.
- Staffs note the importance of addressing these matters across all forestry zones to enable the sector to contribute sustainably to the economy.
- Key findings:
  - Only 5 out of about 50 Forest Management Units currently have Forest Management Plans and comply with the Forestry Law.
  - Other laws (minimum diameter of trees felled; minimum levels of industrial transformation of timber) are often not respected, particularly in the south of the country.
- Recommendation: Close monitoring and enforcement of legislation, including revoking concessions in case laws are not respected.

### Public administration reform and civil service management
- Progress reported on priority actions highlighted by the PRS for improving civil service management.
- Key actions and results:
  - The census of the public service has been completed and recommendations are under review.
  - Recommendations of the separate census of education staff, conducted in 2006–07, have been fully implemented as of June 2009.
  - This has freed up some 2,000 positions in the education sector, now being filled by newly recruited teachers.
  - Elimination of over 1,000 “ghost” teachers noted elsewhere in the report.
  - Computerization of the payroll and pension database is expected to be completed in 2010.
- Decentralization:
  - The first draft of the 2010 budget foresees some increase in transfer payments to departmental administrations for recruitment and management of health workers and teachers.
  - A mixed commission has been constituted to elaborate legal texts on transferring authority and responsibilities to local governments (collectivités locales).
  - Staffs emphasize revitalizing political and administrative decentralization to bridge urban–rural poverty gaps.

### Economic diversification and private sector development
- Strategic objective: Creation of a more competitive and diversified economy; growth of the non-oil economy is essential to counter the finite character of oil reserves and reduce macroeconomic risks from oil revenue volatility.
- Non-oil sector performance:
  - The non-oil economy grew by 5.4 percent in real terms in 2008.
  - Growth decelerated from 6.6 percent in 2007, partly due to the global crisis affecting forestry demand.
  - Demand for Congolese timber exports has contracted by more than 50 percent from its mid-2008 level.
  - Local demand (public and private) remained strong, supported by positive developments in the oil sector and public investment activity.
- Potential growth engines identified in the APR:
  - Development of transport and transit services (construction, logistics, trucking) — contingent on substantial rehabilitation and extension of transport infrastructure.
  - Agricultural production — currently highly underexploited: only 2 percent of the arable land is cultivated; no coherent and comprehensive strategy yet for lifting commercial agriculture from its embryonic state.
  - Development of the forestry sector — strong medium- and long-term export prospects; potential for tourism.
  - Extraction of mineral resources — prospective reserves of magnesium, gold, diamonds, and iron ore; several implementation decrees for the 2005 mining code issued; growing number of mining licenses (mostly exploration) issued in 2008.
- Infrastructure and utilities:
  - Major investments implemented: road between Brazzaville and Pointe Noire; the airport of Brazzaville; urban modernization infrastructure; investments to increase electricity generation and transmission.
  - Targets for electricity access by 2011: increase access to electricity from 45 to 60 percent for urban areas, and from 5 to 15 percent in rural areas, by 2011.
  - Staffs suggest concentrating public investments on pressing priorities identified by the Bank-supported spatial infrastructure analysis (multi-mode transport connection between Pointe Noire and Brazzaville and upriver; energy generation, transmission, and distribution).
  - Efficiency gains in infrastructure service provision (particularly energy) could provide a substantial share of additional resources needed to cover the infrastructure gap.
  - Restructuring of main utilities, enhancing management, and increasing private sector involvement are key; progress on structural reforms has been slow (railway company CFCO; road fund not yet a second generation road fund).
  - Draft 2010 budget announces restructuring of utilities as a key reform priority.
- Constraints to private sector development (survey-identified):
  - (i) the lack of reliable access to electricity;
  - (ii) political instability;
  - (ii) corruption, combined with a weak judiciary;
  - (iii) competition from the informal sector;
  - (iv) limited workforce skills;
  - (v) underdeveloped transport infrastructure;
  - (vi) a cumbersome and predatory tax and customs system; and
  - (vii) limited access to finance.
- Recommendation: Take swift reform actions focusing on a few critical constraints to create a better environment for private economic activities; leverage the new economic diversification project under preparation with the World Bank, the African Development Bank, and the EU; pursue concrete measures in the financial sector and on taxation per adopted reform plans with IMF support.

### Provision of social services
- Overall assessment: PRS findings on poor social outcomes and weak human capital remain valid despite improvements; most social indicators are low compared with peers, notably on maternal and child health, access to safe water and sanitation, food security and nutrition.
- Positive trends and investments:
  - Improvements in enrollment and completion rates at the primary and secondary levels.
  - Gradual increase in budgetary allocations to education (primary education in particular) and health since 2007, per the draft MTEF for 2010–12.
  - Rebuilding and rehabilitating infrastructure and facilities; provisioning of textbooks and pedagogic materials; hiring and training of teachers.
  - Achievements in health infrastructure: construction and rehabilitation of hospitals and integrated health centers.
  - Water supply: progress on construction of a new water treatment plant in Brazzaville; launch of a program to build 500 water access points in rural zones financed by HIPC resources.
- Health and education systems management:
  - Education: introduction of a management information system; enhancement of decentralized resources management and curricula development; three ministries agreed on broad outline of a sector strategy encompassing all sub-sectors; work ongoing on finalizing comprehensive education sector strategy with development partner support.
  - Health: internal reorganization of the Ministry of Health, Social Affairs and Family formalized by decree; introduction of free malaria treatment for children younger than 15 years; large distribution of bed nets; mixed record on availability of generic medicines due to institutional capacity problems and lack of funding.
  - The announced decentralization of recruitment and management of health workers and teachers should help improve access, particularly in rural areas.
- Financing and targeting:
  - Sector MTEFs prepared; health and education still substantially underfunded relative to other public expenditure categories and regional averages (as forthcoming PER shows).
  - PER finds intra-sectoral reallocations could improve pro-poor orientation, e.g., shifting more resources to basic education and skills development.
  - Indicative MTEF allocations for 2010–12 show a positive trend.
- Social protection:
  - Drafting legislation to reform formal social security and pension institutions is underway; reforms should extend reach to rural and marginalized groups.
  - Authorities encouraged to assess effectiveness of major existing transfer programs.
  - Implementation of a new fuel pricing mechanism is welcome (previous pricing policy had a regressive distributional impact).
  - Adoption of a new National Action Plan for Indigenous People is welcomed; swift implementation encouraged.
- Caution: Increasing inputs alone is insufficient; administrative quality remains weak especially in rural areas; capacity building in health and education needed.

### Monitoring and evaluation (M&E)
- Staffs call for strengthened M&E in the second year of PRS implementation to provide regular snapshots of reforms, spending programs and impacts; more regular publication of monitoring results would increase transparency.
- Priority M&E actions recommended:
  - Assess the functioning of the PRSP monitoring structure (National Poverty Reduction Committee and Permanent Technical Secretariat); explore options to simplify structure and increase legitimacy and capacity.
  - Prepare a new strategy on developing statistical capacity, based on the recently adopted statistics law, to enhance monitoring of PRS and sector policies; improve quality and availability of relevant data and clarify institutional roles and capacity.
  - Strengthen results orientation by ensuring all indicators have baselines, targets, and assigned responsibilities for providing and verifying data; APR changes often do not relate to PRS indicators; PRS indicators are short of data due to reliance on survey data; broaden use of administrative data systems where possible (e.g., vaccinations, school enrolment).
  - Focus monitoring on a subset of core PRS indicators for overview and detailed sector indicator sets linked to MTEFs and sector strategies to improve accessibility and accountability; link to MTEF to assess public spending against tangible results.
- Recommendation: Re-intensify dissemination and consultation on the PRS to enhance awareness and ownership; earlier PRS preparation benefited from extensive consultation across government, civil society, private sector and the general population; APR consultations were less intense and less broad.

### Conclusions, risks, and issues for discussion
- Achievements to build on:
  - Introduction of a comprehensive MTEF system.
  - Significant advances on key PFM reforms (procurement, expenditure chain and public investment management).
  - Progress on rehabilitating and expanding basic infrastructure.
- Priority measures recommended to strengthen PRS implementation:
  - Strengthen and update data and analysis on poverty and social outcomes by completing planned survey program and ensuring comparability with the last poverty survey of 2005; prepare a solid statistical capacity development strategy.
  - Further concentrate the PRS on a few key actions for maximum impact on poverty reduction, health and education, and integrate PRS strategic pillars with the new government structure.
  - Use the new MTEF as main instrument for resource allocation; refine it by strengthening underlying sector strategies with clear objectives, results frameworks and cost estimates.
  - Simplify the PRS results framework and make it more transparent for effective, regular public monitoring.
  - Re-intensify consultation efforts to broaden ownership, reaching minority and marginalized groups and development partners.
- Main risks to PRS implementation:
  - Volatile economic environment amid the crisis: continued fluctuations in international oil prices and a protracted slump in demand for Congolese forestry exports are primary risks; Congo is positioned to mitigate these through improved fiscal position and increasing oil production, but diversification away from oil and commodities remains important.
  - Weakening ownership of PRS reforms due to political economy pressures, especially from implementation of unpopular but critical measures (e.g., utility restructuring); potential reform slow-down after exit from the HIPC initiative.
- Suggested responses to risks:
  - Effectively implement PRS reforms and show early results;
  - Intensify dissemination and consultations;
  - Enhance public access to information on government action and public resource use.
- Issues for Executive Directors’ views:
  - (i) Their view of PRS implementation during the first year.
  - (ii) Their view of the suggestions on priority measures for refining the PRS and strengthening its implementation.

*This Joint Staff Advisory Note (JSAN) reviews the first annual progress report (APR) on implementation of the Poverty Reduction Strategy (PRS) of the Republic of Congo (Congo).*

### 1.      This Joint Staff Advisory Note (JSAN) reviews the first annual progress report

### This Joint Staff Advisory Note (JSAN) reviews the first annual progress report (APR) on implementation of the Poverty Reduction Strategy (PRS) of the Republic of Congo (Congo).

### Overview and context
- Congo’s first full PRS was adopted in April 2008, circulated to the IMF Board on August 8, 2008 (for information), and discussed at the IDA Board on October 2, 2008.
- The APR takes stock of the first year of PRS monitoring and implementation and was prepared through a participatory process with inputs from actors across the public administration and from outside the government.
- The PRS is Congo’s first comprehensive national development plan since the end of civil war in 2001 and orients government action toward sustained and broad-based growth.
- PRS main strategic pillars:
  - (i) strong governance and consolidation of peace and security;
  - (ii) moderate growth and macroeconomic stability;
  - (iii) improved access to basic social services;
  - (iv) a better social environment, which includes the integration of vulnerable groups;
  - (v) combating HIV/AIDS.
- The JSAN structure: Section II—poverty diagnosis; Section III—central aspects of the strategy; Section IV—implementation progress; Section V—monitoring and evaluation; Section VI—conclusions and issues for Executive Directors.

### Poverty diagnosis — key findings and data gaps
- Current poverty statistics are based on the poverty assessment of 2006 using survey data from 2005.
- Key poverty figures from 2005-based data:
  - 50.7 percent of Congolese households live below the poverty line;
  - highest incidence of poverty occurs in semi-urban and rural areas;
  - almost 60 percent of poor households are headed by women.
- Statistical and survey program status:
  - Planned poverty survey program aims to update the 2005 household survey, enable region-by-region analysis, include surveys on employment and agricultural production, and update the 2005 Demographic and Health Survey.
  - The program is somewhat behind schedule owing to capacity constraints and delays in finalizing the 2007 census.
  - The 2007 census is critical to provide an updated and reliable statistical basis for surveys.
- Analytical gaps and recommendations:
  - Knowledge on how major policies and public spending affect income, employment, and social outcomes remains weak.
  - Staffs recommend pilot poverty and social impact assessments of key public spending initiatives and structural reforms.
  - Administrative data (e.g., wood production and exports, mining titles, road construction and maintenance, textbook distribution) should be produced and used more intensively for poverty monitoring.
  - Priority actions: complete and publish the 2007 census as soon as possible and conduct the second poverty survey using a method comparable to the first survey to ensure comparability.

### Strategic orientation, reform priorities, and resource allocation
- APR refines PRS pillars and emphasizes priority reforms:
  - (i) developing economic corridors (e.g., between Pointe Noire and Brazzaville);
  - (ii) promoting a dynamic private sector and improving the investment climate;
  - (iii) accelerating decentralization and local development;
  - (iv) further improving the quality and transparency of public financial management;
  - (v) enhancing institutional and administrative capacity.
- Staffs’ recommendations on strategy focus:
  - Further concentrate on a few key reform objectives with clearly formulated expected results, given weak institutional and administrative capacity and long-term nature of many reforms.
  - Clarify delineation of roles between public and private sectors to allow greater private sector provision of basic services.
- MTEF and sector strategies:
  - The MTEF exists and was used to prepare the 2010 budget; priority action plans with cost estimates were prepared in all key sectors.
  - The MTEF is only fully effective for sectors with well-developed sector strategies (transport, education, health).
  - Recommendation: prepare solid sector strategies in agriculture, water and energy to extend MTEF effectiveness.
- Public investment selection and spatial analysis:
  - New system launched to select publicly-financed projects to ensure alignment with the PRS and adequate economic and social returns.
  - Spatial analysis on infrastructure (prepared with World Bank support) can help prioritize investments where they have greatest impact on growth and social outcomes and support rebuilding economic corridors.

### Implementation progress and reform perspectives — Macroeconomic policies
- Staffs support the updated macroeconomic framework in the APR; the framework and fiscal stance were elaborated as part of the MTEF process with Fund and Bank staff and the authorities.
- PRGF arrangement supports formulation and implementation of macroeconomic and fiscal frameworks.
- Work is ongoing with Bank support to improve quality of oil revenue projections.
- Fiscal consolidation achievements and targets:
  - Non-oil basic primary deficit projected to fall to about 37.3 percent of non-oil GDP in 2009, from 55.7 percent in 2007.
  - Current expenditure tightened to 38 percent of non-oil GDP in 2009, from 56 percent two years earlier.
  - Authorities plan to reduce the non-oil basic primary balance to 27 percent of non-oil GDP by 2012 as committed under the PRGF arrangement.
- Revenue mobilization and spending control:
  - Authorities have embarked on an ambitious reform of tax and customs administration and tax policies and are committed to controlling spending.
- MTEF implementation needs:
  - Main MTEF elements in place: macro-fiscal framework, central MTEF allocations across sectors, and sector MTEFs for priority sectors.
  - Full implementation requires sustained institutional reform and capacity building, including detailed strategies with cost estimates and results frameworks in all major sectors.
  - Aim to prepare the 2011 budget using a fully-fledged MTEF approach.
  - Full implementation of the new oil revenue projection model is important to enhance macroeconomic and fiscal projections.
- Public financial management (PFM) reform highlights:
  - (i) New functional budget classification system introduced with the 2009 budget;
  - (ii) New procurement code made effective in October 2009;
  - (iii) New streamlined expenditure chain adopted and to be launched with the 2010 budget;
  - (iv) Program to link all customs agencies through specialized software (SYDONIA) advanced according to plans.
- Further reform needs in PFM:
  - Early-stage reforms need follow-through: utilize public investment management action plan given large capital resources and infrastructure needs; computerize the reformed expenditure chain; enhance internal and external controls; overhaul treasury management and public accounting.
  - Finalization of the Public Expenditure Review (PER) should help align budget allocations with PRS objectives and maintain an adequate balance between capital and recurrent spending.
  - Under-execution in HIPC-financed capital spending was caused by technical and procedural difficulties; issue resolved in mid-2009.
  - Staffs welcome progress on reforming the petroleum subsidy scheme, commitment to decentralizing resources for health and education service delivery, and restructuring state-owned enterprises running main utilities.
- Debt management improvements and remaining measures:
  - Government’s debt agency (CCA) continued to publish quarterly reports on external debt stock and debt service projections and arrears clearance on the government’s website.
  - Government identified measures to strengthen debt management: produce annual debt strategies; enhance coordination within government and with regional central bank on treasury and debt management; improve debt data security, auditing procedures, and analysis of costs and risks of new borrowing.
  - CCA collaborating with technical assistance providers: World Bank, Central AFRITAC, and BEAC.

### Implementation progress and reform perspectives — Post-conflict stabilization and good governance
- Peace consolidation and reintegration:
  - Political settlement with the rebel movement based in the Pool region reached in June 2008.
  - Major disarmament effort completed; reintegration of an estimated 14,000 rebels started in February 2009.
  - Full restoration of peace offers opportunity to strengthen institutions, support economic growth, and combat poverty.
- Anti-corruption and governance institutions and actions:
  - Governmental Anti-Corruption Commission and independent Anti-Corruption Observatory established in 2007.
  - Both institutions increased capacity and participated in preparation of the procurement code, the action plan on oil marketing, and financial audits of SNPC.
  - Anti-Corruption Action Plan approved by government in August 2009; new Anti-Corruption Law adopted by Parliament in August 2009.
  - Staffs encourage providing these organs with adequate resources and facilities and safeguarding their access to information and legal authority.
- Oversight and public access to information:
  - APR acknowledges need to enhance checks and balances, build oversight capacity in legislative and judiciary branches, and increase involvement of women, minority groups, civil society, and the media in policy formulation and implementation.
  - APR reports capacity building measures to enhance public accountability.
- Oil sector transparency and management reforms:
  - Adoption of the first EITI report on Congo by the national EITI committee reflects progress in opening oil sector management.
  - Continuation of quarterly certification of oil revenue posted on the Ministry of Finance’s website would allow monitoring of progress.
  - Audits of SNPC’s 2007 and 2008 accounts revealed important reservations largely related to limited accounting capacity; addressed by introducing an analytical accounting system at SNPC.
  - Significant progress made on implementing an oil commercialization action plan.
  - Staffs note that efforts to deepen and sustain more transparent and market-oriented practices in oil sector management need to continue.

_This Joint Staff Advisory Note (JSAN) reviews the first annual progress report (APR) on implementation of the Poverty Reduction Strategy (PRS) of the Republic of Congo (Congo)._

### 27.      During the past year, the government has completed a comprehensive and

### _cr1068 - 27.      During the past year, the government has completed a comprehensive and

### Forestry sector reforms and enforcement
- A comprehensive and participatory forest sector review was completed and legal texts revised; a package of legal and regulatory instruments to improve sector transparency and social and environmental performance has been adopted, including a forest taxation package passed as an amendment to the Forest Law aimed at improving sustainability of the forest resource base and fiscal revenue.
- Staffs note the importance of addressing these matters across all forestry zones to enable the sector to contribute sustainably to the economy.
- Key findings:
  - Only 5 out of about 50 Forest Management Units currently have Forest Management Plans and comply with the Forestry Law.
  - Other laws (minimum diameter of trees felled; minimum levels of industrial transformation of timber) are often not respected, particularly in the south of the country.
- Recommendation: Close monitoring and enforcement of legislation, including revoking concessions in case laws are not respected.

### Public administration reform and civil service management
- Progress reported on priority actions highlighted by the PRS for improving civil service management.
- Key actions and results:
  - The census of the public service has been completed and recommendations are under review.
  - Recommendations of the separate census of education staff, conducted in 2006–07, have been fully implemented as of June 2009.
  - This has freed up some 2,000 positions in the education sector, now being filled by newly recruited teachers.
  - Elimination of over 1,000 “ghost” teachers noted elsewhere in the report.
  - Computerization of the payroll and pension database is expected to be completed in 2010.
- Decentralization:
  - The first draft of the 2010 budget foresees some increase in transfer payments to departmental administrations for recruitment and management of health workers and teachers.
  - A mixed commission has been constituted to elaborate legal texts on transferring authority and responsibilities to local governments (collectivités locales).
  - Staffs emphasize revitalizing political and administrative decentralization to bridge urban–rural poverty gaps.

### Economic diversification and private sector development
- Strategic objective: Creation of a more competitive and diversified economy; growth of the non-oil economy is essential to counter the finite character of oil reserves and reduce macroeconomic risks from oil revenue volatility.
- Non-oil sector performance:
  - The non-oil economy grew by 5.4 percent in real terms in 2008.
  - Growth decelerated from 6.6 percent in 2007, partly due to the global crisis affecting forestry demand.
  - Demand for Congolese timber exports has contracted by more than 50 percent from its mid-2008 level.
  - Local demand (public and private) remained strong, supported by positive developments in the oil sector and public investment activity.
- Potential growth engines identified in the APR:
  - Development of transport and transit services (construction, logistics, trucking) — contingent on substantial rehabilitation and extension of transport infrastructure.
  - Agricultural production — currently highly underexploited: only 2 percent of the arable land is cultivated; no coherent and comprehensive strategy yet for lifting commercial agriculture from its embryonic state.
  - Development of the forestry sector — strong medium- and long-term export prospects; potential for tourism.
  - Extraction of mineral resources — prospective reserves of magnesium, gold, diamonds, and iron ore; several implementation decrees for the 2005 mining code issued; growing number of mining licenses (mostly exploration) issued in 2008.
- Infrastructure and utilities:
  - Major investments implemented: road between Brazzaville and Pointe Noire; the airport of Brazzaville; urban modernization infrastructure; investments to increase electricity generation and transmission.
  - Targets for electricity access by 2011: increase access to electricity from 45 to 60 percent for urban areas, and from 5 to 15 percent in rural areas, by 2011.
  - Staffs suggest concentrating public investments on pressing priorities identified by the Bank-supported spatial infrastructure analysis (multi-mode transport connection between Pointe Noire and Brazzaville and upriver; energy generation, transmission, and distribution).
  - Efficiency gains in infrastructure service provision (particularly energy) could provide a substantial share of additional resources needed to cover the infrastructure gap.
  - Restructuring of main utilities, enhancing management, and increasing private sector involvement are key; progress on structural reforms has been slow (railway company CFCO; road fund not yet a second generation road fund).
  - Draft 2010 budget announces restructuring of utilities as a key reform priority.
- Constraints to private sector development (survey-identified):
  - (i) the lack of reliable access to electricity;
  - (ii) political instability;
  - (ii) corruption, combined with a weak judiciary;
  - (iii) competition from the informal sector;
  - (iv) limited workforce skills;
  - (v) underdeveloped transport infrastructure;
  - (vi) a cumbersome and predatory tax and customs system; and
  - (vii) limited access to finance.
- Recommendation: Take swift reform actions focusing on a few critical constraints to create a better environment for private economic activities; leverage the new economic diversification project under preparation with the World Bank, the African Development Bank, and the EU; pursue concrete measures in the financial sector and on taxation per adopted reform plans with IMF support.

### Provision of social services
- Overall assessment: PRS findings on poor social outcomes and weak human capital remain valid despite improvements; most social indicators are low compared with peers, notably on maternal and child health, access to safe water and sanitation, food security and nutrition.
- Positive trends and investments:
  - Improvements in enrollment and completion rates at the primary and secondary levels.
  - Gradual increase in budgetary allocations to education (primary education in particular) and health since 2007, per the draft MTEF for 2010–12.
  - Rebuilding and rehabilitating infrastructure and facilities; provisioning of textbooks and pedagogic materials; hiring and training of teachers.
  - Achievements in health infrastructure: construction and rehabilitation of hospitals and integrated health centers.
  - Water supply: progress on construction of a new water treatment plant in Brazzaville; launch of a program to build 500 water access points in rural zones financed by HIPC resources.
- Health and education systems management:
  - Education: introduction of a management information system; enhancement of decentralized resources management and curricula development; three ministries agreed on broad outline of a sector strategy encompassing all sub-sectors; work ongoing on finalizing comprehensive education sector strategy with development partner support.
  - Health: internal reorganization of the Ministry of Health, Social Affairs and Family formalized by decree; introduction of free malaria treatment for children younger than 15 years; large distribution of bed nets; mixed record on availability of generic medicines due to institutional capacity problems and lack of funding.
  - The announced decentralization of recruitment and management of health workers and teachers should help improve access, particularly in rural areas.
- Financing and targeting:
  - Sector MTEFs prepared; health and education still substantially underfunded relative to other public expenditure categories and regional averages (as forthcoming PER shows).
  - PER finds intra-sectoral reallocations could improve pro-poor orientation, e.g., shifting more resources to basic education and skills development.
  - Indicative MTEF allocations for 2010–12 show a positive trend.
- Social protection:
  - Drafting legislation to reform formal social security and pension institutions is underway; reforms should extend reach to rural and marginalized groups.
  - Authorities encouraged to assess effectiveness of major existing transfer programs.
  - Implementation of a new fuel pricing mechanism is welcome (previous pricing policy had a regressive distributional impact).
  - Adoption of a new National Action Plan for Indigenous People is welcomed; swift implementation encouraged.
- Caution: Increasing inputs alone is insufficient; administrative quality remains weak especially in rural areas; capacity building in health and education needed.

### Monitoring and evaluation (M&E)
- Staffs call for strengthened M&E in the second year of PRS implementation to provide regular snapshots of reforms, spending programs and impacts; more regular publication of monitoring results would increase transparency.
- Priority M&E actions recommended:
  - Assess the functioning of the PRSP monitoring structure (National Poverty Reduction Committee and Permanent Technical Secretariat); explore options to simplify structure and increase legitimacy and capacity.
  - Prepare a new strategy on developing statistical capacity, based on the recently adopted statistics law, to enhance monitoring of PRS and sector policies; improve quality and availability of relevant data and clarify institutional roles and capacity.
  - Strengthen results orientation by ensuring all indicators have baselines, targets, and assigned responsibilities for providing and verifying data; APR changes often do not relate to PRS indicators; PRS indicators are short of data due to reliance on survey data; broaden use of administrative data systems where possible (e.g., vaccinations, school enrolment).
  - Focus monitoring on a subset of core PRS indicators for overview and detailed sector indicator sets linked to MTEFs and sector strategies to improve accessibility and accountability; link to MTEF to assess public spending against tangible results.
- Recommendation: Re-intensify dissemination and consultation on the PRS to enhance awareness and ownership; earlier PRS preparation benefited from extensive consultation across government, civil society, private sector and the general population; APR consultations were less intense and less broad.

### Conclusions, risks, and issues for discussion
- Achievements to build on:
  - Introduction of a comprehensive MTEF system.
  - Significant advances on key PFM reforms (procurement, expenditure chain and public investment management).
  - Progress on rehabilitating and expanding basic infrastructure.
- Priority measures recommended to strengthen PRS implementation:
  - Strengthen and update data and analysis on poverty and social outcomes by completing planned survey program and ensuring comparability with the last poverty survey of 2005; prepare a solid statistical capacity development strategy.
  - Further concentrate the PRS on a few key actions for maximum impact on poverty reduction, health and education, and integrate PRS strategic pillars with the new government structure.
  - Use the new MTEF as main instrument for resource allocation; refine it by strengthening underlying sector strategies with clear objectives, results frameworks and cost estimates.
  - Simplify the PRS results framework and make it more transparent for effective, regular public monitoring.
  - Re-intensify consultation efforts to broaden ownership, reaching minority and marginalized groups and development partners.
- Main risks to PRS implementation:
  - Volatile economic environment amid the crisis: continued fluctuations in international oil prices and a protracted slump in demand for Congolese forestry exports are primary risks; Congo is positioned to mitigate these through improved fiscal position and increasing oil production, but diversification away from oil and commodities remains important.
  - Weakening ownership of PRS reforms due to political economy pressures, especially from implementation of unpopular but critical measures (e.g., utility restructuring); potential reform slow-down after exit from the HIPC initiative.
- Suggested responses to risks: Effectively implement PRS reforms and show early results; intensify dissemination and consultations; enhance public access to information on government action and public resource use.
- Issues for Executive Directors’ views:
  - (i) Their view of PRS implementation during the first year.
  - (ii) Their view of the suggestions on priority measures for refining the PRS and strengthening its implementation.

* _cr1068 - 27.      During the past year, the government has completed a comprehensive and*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1068.pdf_