## 1.    Mining Sector: Potential Waiting to be Unlocked

## Source details

**Canonical URL:** [1.    Mining Sector: Potential Waiting to be Unlocked](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13282.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13282.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13282.pdf.json)

---

### Key facts and resource endowment
- Iron ore reserves are estimated to exceed 10 billion tons.
- Potassium reserves are assessed at about 1 billion tons.
- Phosphate reserves are assessed at about 500 million tons.
- To date, mining activity is confined to artisanal diamond and gold production.
- Following the 2005 Mining Code:
  - 48 prospecting permits have been awarded to 28 companies.
  - 49 exploration permits have been awarded to 26 companies.
  - 3 production permits have been awarded to 2 companies.

### Current projects, capacities, and timelines (as reported)
- One project (Mayoko exploited by DMC-Exxaro) expected to start by end-2013 with a modest 130,000-ton output, and will likely reach 7 million tons per year by 2017.
- A Chinese company was expected to take over a project on the border of Cameroon and Congo but the transaction was cancelled in April 2013 due to weaker growth in China.
- Extract from the project table (columns preserved: Reserves (million tons); Investment (millions US$); Annual Production (million tons) 1/; Current Status; Beginning of production):
  - MPD | Iron | Zanaga | 6,800 | 9,700 | 30 | Prefeasibility study | 2018-19
  - Core Mining | Iron | Avima | 2,290 | 4,500 | 35 | Feasibility study | 2016
  - Congo Iron | Iron | Nabeba/Shanga | 230 | 4,000 | 22 | Feasibility study | 2016
  - DMC | Iron | Mayoko/Lekoumou | 685 | 1,600 | 7 | Feasibility study | 2013
  - Congo Mining | Iron | Mayoko | 3,100 | 500 | 5 | Reserves assessment | 2014
  - Total Iron | — | — | 13,105 | 20,300 | 99 | — | —
  - MPC | Potassium | Mengo (Kouilou) | 33 | 1,600 | 0.600 | — | 2014
  - Sintoukola Potash | Potassium | Sintoukola (Kouilou) | 804 | 1,200 | 0.600 | — | 2015
  - SOREM I | Polymetals | Boko Songho/Yanga Koumbaza | n/a | 500.012 | 0.012 | — | 2012
  - Lulu | Polymetals | Mindouli-Mpassa | 60 | n.a. | 0.020 | — | n.a.
  - Cominco | Phosphate | Cominco | 454 | n.a. | 4.000 | — | 2014
  - Total non-iron | — | — | 1,351 | 2,850 | 5.232 | — | —
- Sources for the project table: Ministry of Mines and Hydrocarbon and mining companies.
- Note: "1/ Full production stage."

### Constraints and bottlenecks to development
- Main bottlenecks identified:
  - Lack of adequate transportation infrastructure (roads, rail, port capacity).
  - Unreliable power supply.
  - Scarce skilled labor.
- Specific infrastructure observations:
  - For some projects (e.g., Mayoko), infrastructure exists but current capacity levels are inadequate to support production at full capacity.
  - For projects in northern parts of the country, infrastructure does not exist and would need to be developed from ground up.
- Global conditions affecting projects:
  - Delays and cancellations (example: Chinese takeover cancelled April 2013) linked to uncertain global economic conditions and weaker growth in China.

### Economic potential and implications
- Mining sector could contribute significantly to growth if transport, power, and skills constraints are addressed.
- Staff estimate cited: real GDP growth would rise to 9 ½ percent in 2014–16 if iron ore production increases to an annual average of 9 million tons compared with 2.5 million tons/year under the baseline scenario.

### Policy implications and priorities highlighted
- Address transport infrastructure and power supply deficits to unlock mining potential and enable projects to reach full capacity.
- Improve labor market skills relevant to mining sector demands.
- Consider project-specific infrastructure planning where infrastructure does not exist (northern projects) versus capacity expansion where infrastructure exists but is inadequate (Mayoko).
- Monitor global demand conditions (notably China) that can affect project financing and investor commitments.

*Prepared by Samuel Fahlberg and Ivohasina Razafimahefa. Source: Republic of Congo — IMF country report content provided in the supplied PDF.*

### 1.    Mining Sector: Potential Waiting to be Unlocked ____________________________________________ 8

### 1.    Mining Sector: Potential Waiting to be Unlocked

### Key facts and resource endowment
- Iron ore reserves are estimated to exceed 10 billion tons.
- Potassium reserves are assessed at about 1 billion tons.
- Phosphate reserves are assessed at about 500 million tons.
- To date, mining activity is confined to artisanal diamond and gold production.
- Following the 2005 Mining Code:
  - 48 prospecting permits have been awarded to 28 companies.
  - 49 exploration permits have been awarded to 26 companies.
  - 3 production permits have been awarded to 2 companies.

### Current projects, capacities, and timelines (as reported)
- One project (Mayoko exploited by DMC-Exxaro) expected to start by end-2013 with a modest 130,000-ton output, and will likely reach 7 million tons per year by 2017.
- A Chinese company was expected to take over a project on the border of Cameroon and Congo but the transaction was cancelled in April 2013 due to weaker growth in China.
- Extract from the project table (columns: Reserves (million tons); Investment (millions US$); Annual Production (million tons) 1/; Current Status; Beginning of production):
  - MPD | Iron | Zanaga | 6,800 | 9,700 | 30 | Prefeasibility study | 2018-19
  - Core Mining | Iron | Avima | 2,290 | 4,500 | 35 | Feasibility study | 2016
  - Congo Iron | Iron | Nabeba/Shanga | 230 | 4,000 | 22 | Feasibility study | 2016
  - DMC | Iron | Mayoko/Lekoumou | 685 | 1,600 | 7 | Feasibility study | 2013
  - Congo Mining | Iron | Mayoko | 3,100 | 500 | 5 | Reserves assessment | 2014
  - Total Iron | — | — | 13,105 | 20,300 | 99 | — | —
  - MPC | Potassium | Mengo (Kouilou) | 33 | 1,600 | 0.600 | — | 2014
  - Sintoukola Potash | Potassium | Sintoukola (Kouilou) | 804 | 1,200 | 0.600 | — | 2015
  - SOREM I | Polymetals | Boko Songho/Yanga Koumbaza | n/a | 500.012 | 0.012 | — | 2012
  - Lulu | Polymetals | Mindouli-Mpassa | 60 | n.a. | 0.020 | — | n.a.
  - Cominco | Phosphate | Cominco | 454 | n.a. | 4.000 | — | 2014
  - Total non-iron | — | — | 1,351 | 2,850 | 5.232 | — | —
- Sources for the project table: Ministry of Mines and Hydrocarbon and mining companies.
- Note: "1/ Full production stage."

### Constraints and bottlenecks to development
- Main bottlenecks identified:
  - Lack of adequate transportation infrastructure (roads, rail, port capacity).
  - Unreliable power supply.
  - Scarce skilled labor.
- Specific infrastructure observations:
  - For some projects (e.g., Mayoko), infrastructure exists but current capacity levels are inadequate to support production at full capacity.
  - For projects in northern parts of the country, infrastructure does not exist and would need to be developed from ground up.
- Global conditions affecting projects:
  - Delays and cancellations (example: Chinese takeover cancelled April 2013) linked to uncertain global economic conditions and weaker growth in China.

### Economic potential and implications
- Mining sector could contribute significantly to growth if transport, power, and skills constraints are addressed.
- Staff estimate cited: real GDP growth would rise to 9 ½ percent in 2014–16 if iron ore production increases to an annual average of 9 million tons compared with 2.5 million tons/year under the baseline scenario.

### Policy implications and priorities highlighted
- Address transport infrastructure and power supply deficits to unlock mining potential and enable projects to reach full capacity.
- Improve labor market skills relevant to mining sector demands.
- Consider project-specific infrastructure planning where infrastructure does not exist (northern projects) versus capacity expansion where infrastructure exists but is inadequate (Mayoko).
- Monitor global demand conditions (notably China) that can affect project financing and investor commitments.

*Prepared by Samuel Fahlberg and Ivohasina Razafimahefa. Source: Republic of Congo — IMF country report content provided in the supplied PDF.*

### 14.      The authorities concurred with the pertinence of the proposed medium- and

### _cr13282 - 14.      The authorities concurred with the pertinence of the proposed medium- and

### Medium- and Long-Term Fiscal Framework; Public Expenditure Quality
- Authorities concurred with the pertinence of the proposed medium- and long-term fiscal framework and appreciated the proposed front-loading of investment spending to address infrastructure and skills constraints.
- Authorities recognize absorptive capacity limits in budgeting government outlays but argued that Congo’s large and pressing development needs justify prudent spending flexibility beyond the targets under the proposed fiscal framework.
- Some members of Parliament advocated casting the proposed fiscal framework in a law to make it legally binding; authorities might request technical assistance from the Fund to this end.
- Authorities concurred with staff’s assessment of poor quality of expenditure and committed to working closely with the World Bank to seek improvements, including in the operation of the Large Infrastructure Project Unit.
- Administrative reforms already begun:
  - Appointed budget controllers and procurement managers in each ministry.
  - Initiated World Bank-guided public expenditure reviews for key sectors.
  - Requested Fund technical support in strengthening the PFM legal framework based partly on an evaluation of the reforms introduced in 2008, and implementing the regional CEMAC PFM directives.

### Addressing Vulnerabilities to External Shocks
- Key exposure:
  - Oil accounts for 65 percent of GDP, 75 percent of government revenue, and 80 percent of exports.
- Staff considered three downside scenarios and simulated impacts on real GDP relative to the baseline for 2018:
  - Scenario (i) gradual but persistent deterioration of growth in euro area: real GDP in 2018 lower by 6.2 percent.
  - Scenario (ii) weakening of investment demand in the BRICs (plus South Africa): real GDP in 2018 lower by 8.4 percent.
  - Scenario (iii) plunge in oil price to its 2009 level: real GDP in 2018 lower by 35.6 percent.
- Authorities concurred on the need for rigorous implementation of precautionary and corrective policy measures, focusing on:
  - Achieving additional fiscal savings.
  - Continued strengthening of foreign exchange reserves.
  - Strengthening non-oil revenue collection.
  - Diversifying the production base.
  - Improving quality of public expenditure while exercising spending restraint.

### Enhancing External Sustainability and Competitiveness
- Exchange rate and external position:
  - REER appreciated by 3.8 percent in real terms between June 2012 and April 2013.
  - CGER-based quantitative evaluation indicates no significant misalignment; tailored external sustainability analysis for oil-exporting countries confirmed these findings.
- Structural impediments to competitiveness:
  - World Bank’s 2013 Doing Business Indicators Report ranks Congo 183rd out of 185 listed countries.
  - Primary investor concerns: difficulties in starting a business, dealing with tax administration, and obstacles to trading across borders.
  - Governance weaknesses: government efficiency and quality of regulations lag comparators.
- Authorities’ reforms:
  - Reform plan with IFC support focuses on streamlining administrative procedures for enterprise creation, land registration, building authorization, and cross-border trade.
  - Established an Investment Promotion Agency expected to become operational in the coming months.

### Promoting Inclusive Growth; Labor Market, Education, Social Programs
- Poverty and public goods:
  - Poverty is pervasive; provision of public goods is scarce despite scaled-up public investment.
  - Text Table 3 (excerpt) — Availability of Public Goods, 2011 (In percent of household group):
    - Drinking water50.272.664.2
    - Public transportation38.160.752.2
    - Electricity1852.339.5
- Labor market:
  - International Labor Organization estimates unemployment rate at 16 percent and underemployment to be severe.
- Education and skills:
  - Reforms of the education system prioritized with significant allocations in the 2013 budget.
  - 2013 budget allocates CFAF 200 billion (2.8 percent of GDP) to capital outlays for education (compared with CFAF 69 billion (0.9 percent of GDP) in 2012).
  - Specialized centers for technical and vocational training being set up; public-private platform to align curricula with private sector needs.
- Employment and social safety nets:
  - National Employment Policy expected to be finalized later this year.
  - Interim measures: paid internship program for unemployed youths, labor-intensive public works, self-employment programs, rural employment development initiative.
  - Conditioned cash transfer projects are being executed and expected to expand with partner support (including World Bank).
  - Implementation constraints: delays in obtaining budgeted funds; staff urged expedited implementation and timely funding, plus mobilization of technical assistance.
- Special Economic Zones (SEZ):
  - Feasibility studies completed for three of four zones; governing legal frameworks not yet finalized.
  - Staff urges refraining from extending preferential fiscal incentives to SEZ participants and limiting government role to providing infrastructure and facilitating administrative procedures.

### Financial Sector and Access to Finance
- Financial soundness and development:
  - Most financial sector soundness indicator thresholds are met, except risk concentration.
  - Financial depth—ratio of credit to GDP—remains modest at 10 percent in 2012 despite recent acceleration of credit to the private sector.
  - High concentration of credit reflects lack of economic diversification and predominance of a few major activity areas and players in the formal sector.
- Recommended measures:
  - Improve property rights and creditor protection frameworks to improve access to financial services.
  - Implement a one-stop shop for land title registration to strengthen land property-based loan collaterals; staff urged expeditious implementation.
  - Expand coverage of Congo’s credit registry.
  - Shorten court procedures related to legal disputes affecting the financial sector.

### Economic Policy Management, Regional Obligations, and Data
- Policy coordination:
  - Policy coordination weakened after HIPC completion point in 2010 and expiration of the ECF arrangement in 2011; monitoring committee under the program has become idle.
  - Gaps emerged in timeliness and quality of macroeconomic and structural data.
  - Authorities agreed to remedial actions: weekly monitoring of budgetary operations; commitments to improve collection and dissemination of macroeconomic data.
  - Staff recommended establishing a centralized institutional policy design and monitoring framework; Fund available for continued policy advice and technical assistance.
- CEMAC convergence and reserves pooling:
  - Republic of Congo complied with nearly all CEMAC quantitative convergence criteria at end-2012.
    - Basic fiscal balance showed a surplus of 10.5 percent of GDP against a floor of zero percent.
    - Total public debt—domestic and external—amounted to 31.3 percent of GDP against a ceiling of 70 percent.
    - No accumulation of domestic or external arrears recorded.
    - Inflation reached 7.5 percent (year-on-year) against a threshold of 3 percent; one-off price spike subsiding and inflation should gradually decline to close to the regional target level by 2014.
  - Observance of regional obligation on reserves pooling remains problematic; authorities hold sizable portions of oil revenues in overseas accounts outside regional central bank due to higher remuneration “in the context of a multi-pronged alliance with a strategic partner”.
  - Staff urged strict compliance with regional CEMAC obligations and pledged authority engagement with ongoing review of reserves pooling framework.
- Debt sustainability:
  - Updated Debt Sustainability Analysis (DSA) confirms low risk of debt distress; debt profile improved significantly since HIPC completion point in 2010 with continued reliance mainly on concessional borrowing.
  - Medium-term prospects favorable in context of infrastructure-building partnership with China; debt burden ratios remain comfortably below policy thresholds under baseline and alternative shocks scenarios.
  - Text Table 4. Debt Indicators (as presented):
    - PV of External Debt
      - In percent of GDP18.38.18.230
      - In percent of exports24.314.327.7100
      - In percent of government revenue39.822.326.5200
    - Debt service
      - In percent of exports2.62.71.815
      - In percent of government revenue4.24.21.718
- Data issues:
  - Data communication to Fund staff became somewhat sporadic after expiration of ECF-supported program in 2011.
  - Authorities taking steps to improve timeliness and quality of macroeconomic data and have resumed regular communication of fiscal data to Fund staff.

### Staff Appraisal — Key Findings and Policy Recommendations
- Overall assessment:
  - Republic of Congo remains on a path of strong growth, but significant gains in poverty reduction have yet to materialize.
  - Medium-term policy agenda appropriately aims at budget consolidation while scaling up investment, fostering economic diversification and private sector development, and improving governance and transparency.
- Fiscal policy and public investment management:
  - Continued close adherence to stability-prone fiscal policies is key to consolidating macroeconomic stability.
  - Staff welcomes efforts to strengthen non-oil revenue collection in context of a new fiscal rule that protects spending against oil revenue volatility.
  - Staff urges expanding and casting the newly introduced fiscal rule in a framework that accounts for the exhaustibility of oil reserves as well; underscores timely implementation of World Bank-supported measures to improve public investment management.
  - Proposed rule-based fiscal framework should seek significant fiscal savings over the long term to build buffers and sustain expenditures in the post-oil era.
  - Congo should continue adhering to a prudent borrowing policy to preserve long-term debt sustainability after HIPC/MDRI debt relief.
- Competitiveness and business environment:
  - REER in line with fundamentals but competitiveness stifled by structural impediments; staff encourages prompt implementation of IFC-agreed reforms and making Investment Promotion Agency fully operational.
- Governance, transparency, and social programs:
  - Authorities reached compliant status under the EITI; urged to expedite adoption of the fiscal transparency law under review in Parliament.
  - To promote employment and diversify the economy, government developing SEZs, strengthening technical and vocational education, and introducing employment-support programs; staff advises avoiding special fiscal incentives for SEZs and focusing on infrastructure and administrative facilitation.
  - Timely availability of budgeted funds is critical for program implementation.
- Vulnerabilities and regional obligations:
  - Authorities should be vigilant to risks related to downward pressures on world oil prices; uncertainties in the Euro area and weakening investment in emerging markets could cloud the outlook.
  - Congo should fully comply with CEMAC obligations; staff urges full observance of relevant CEMAC commitments and timely provision of standard macroeconomic data to the Fund for effective surveillance.

*Source: Excerpt from IMF staff report chapter on the Republic of Congo (section covering paragraphs 14–35).*

### 36.      Staff recommends that the next Article IV consultation be conducted on the

### _cr13282 - 36.      Staff recommends that the next Article IV consultation be conducted on the

### Recommendation on Article IV timing
- Staff recommends that the next Article IV consultation be conducted on the standard 12-month cycle.

### Recent developments and medium-term outlook (Figure 6 highlights)
- Growth has been relatively robust.
- Inflation accelerated but is expected to subside.
- The fiscal position is expected to be stronger than the pre-shock performance.
- The fiscal buffer is broadly strengthening, and private sector credit is expanding. 1/
- International reserves are building up. 1/
- The debt profile has improved but requires a prudent policy.
- Note: 1/ Currently, the authorities are keeping a large part of their revenue in off-shore accounts. This macroeconomic framework assumes a full repatriation and pooling at the BEAC as of end-2013.

### Key production, price, and external sector indicators (Table 1 — selected entries)
- GDP at constant prices: 8.8 3.4 3.8 5.8 4.8 7.7 7.3 10.1 4.7
- Oil (annual percent change): 13.8 -4.8 -9.6 -2.6 -4.0 8.3 -0.5 15.2 -3.0
- Non-oil (annual percent change): 6.5 7.4 9.7 8.8 7.6 7.6 9.6 8.7 6.8
- GDP at current prices: 31.3 14.5 2.6 0.8 -1.1 7.1 4.7 13.0 2.6
- GDP deflator: 20.7 10.7 -1.2 -4.7 -5.6 -0.5 -2.4 2.6 -2.0
- Consumer prices (period average): 5.0 1.8 5.0 4.5 3.0 2.9 2.8 2.7 2.6
- Exports, f.o.b. (CFA francs): 56.2 16.0 -1.6 -7.0 -6.0 6.0 0.7 14.6 -2.3
- Imports, f.o.b. (CFA francs): 30.6 25.3 6.9 -8.9 -1.5 6.4 3.4 5.1 3.5
- Export volume: 13.1 -0.8 -7.0 -3.1 -1.7 8.5 2.3 14.1 -0.2
- Import volume: 26.0 18.6 -7.1 -4.7 -3.7 7.9 1.4 5.7 2.8
- Terms of trade (deterioration - ): 34.5 11.3 0.4 -1.9 -3.1 -2.7 -2.6 -2.8 -2.8

### Central government finances (Table 1 — selected entries)
- Total revenue (including grants): 67.2 29.7 2.8 11.2 0.7 -4.0 3.6 5.9 -1.1
- Oil revenue (percent of total revenue): 88.2 29.8 0.3 7.5 -2.8 -8.3 0.3 3.6 -6.7
- Non-oil revenue (percent of total revenue): 24.2 23.2 16.1 9.4 12.0 10.5 13.8 12.3 10.5
- Total expenditure: 14.0 39.2 42.4 -9.2 -1.6 0.9 4.1 3.1 4.6
- Current expenditure: 8.3 1.6 48.2 -5.4 8.5 8.5 11.7 10.6 8.6
- Capital (including net lending): 21.5 82.0 38.6 -11.8 -9.1 -5.8 -3.5 -5.6 -0.8
- Overall balance (deficit -, commitment basis) 1/: 50.0 53.4 18.2 36.0 34.6 27.1 24.6 24.9 19.5
- Basic primary fiscal balance (- = deficit) 2/: 57.6 62.6 29.8 43.4 37.5 28.3 24.9 25.3 19.8
- Basic non-oil primary balance ( - = deficit) 3/: -34.4 -46.3 -62.9 -43.5 -39.4 -36.1 -32.2 -29.1 -26.6
- External public debt (end of period, percent of GDP): 20.2 23.0 25.2 21.4 21.6 19.5 17.6 14.1 12.3
- External public debt service (after debt relief): 3.3 14.0 2.4 4.9 4.4 4.7 4.3 4.2 4.1
- Gross official foreign reserves (In bln US$): 2,200 2,875 2,774 3,500 4,522 5,286 6,204 7,100 7,835
- Gross official foreign reserves (Months of imports): 8 9 9 12 16 17 19 21 22
- Nominal GDP (billions CFA francs): 5,947 6,807 6,983 7,039 6,961 7,459 7,811 8,824 9,052
- Nominal non-oil GDP (billions CFA francs): 1,911 2,096 2,470 2,817 3,109 3,403 3,843 4,282 4,695
- World oil price (U.S. dollars per barrel): 79 104 105 103 89 93 90 98 88
- Oil production (Millions of barrels): 115 109 99 99 69 92 100 99 114 111

### Medium-term balance of payments (Table 2 — selected entries)
- Current account (Billions of CFA francs): 229 400 -915 543 495 648 227 5
- Trade balance: 3,016 3,339 3,106 2,933 2,667 2,819 2,782 3,401 3,188
- Exports, f.o.b.: 4,712 5,464 5,378 5,003 4,705 4,989 5,025 5,759 5,629
  - Oil sector exports: 4,282 4,947 4,816 4,412 4,031 4,244 4,155 4,750 4,561
  - Non-oil sector exports: 430 517 562 591 674 745 870 1,009 1,068
- Imports, f.o.b.: -1,696 -2,124 -2,272 -2,070 -2,039 -2,170 -2,244 -2,357 -2,440
- Balance of services: -1,503 -1,497 -1,342 -1,234 -1,139 -1,280 -1,247 -1,300 -1,308
- Income: -1,134 -1,304 -1,659 -1,002 -1,023 -1,286 -1,248 -1,600 -1,571
- Current transfers (net): -151 -138 -196 -143 -156 -196 -238 -275 -304
- Capital account: 1,318 351 0 43 78 0 60 45 34 25
- Financial account: -1,193 268 -910 0 595 65 182 763 670 6
- Direct investment (net): 1,083 1,439 1,143 1,007 898 987 969 1,025 1,022
  - Of which: oil sector: 1,041 1,392 1,086 867 705 897 871 919 904
- Other investment: -2,276 -1,171 -1,152 -907 -302 -336 -142 -388 -316
- Overall balance of payments: 353 704 -90 1,453 1,025 767 920 897 736
- Financing (including reserve financing): -353 -704 90 -729 -1,025 -767 -920 -897 -736
  - IMF (net): -62 -1 -2 -3 -3 -2 -1 -1
- Exceptional financing 3: 530 -100 0 0 0 0 0 0 0
- Financing gap (- = surplus): 0 0 0 0 0 0 0 0 0

### Central government operations (Tables 3a–3c — selected entries)
- Table 3a totals (Billions of CFA francs): Total revenue and grants: 2,231 2,894 3,254 2,976 3,512 3,308 3,332 3,198 3,314 3,509 3,470
- Primary Revenue (Billions of CFA francs): 2,222 2,854 3,169 2,954 3,323 3,187 3,204 3,090 3,219 3,425 3,393
- Oil revenue (Billions of CFA francs): 1,758 2,283 2,549 2,291 2,597 2,462 2,392 2,192 2,198 2,277 2,125
- Non-oil revenue (Billions of CFA francs): 463 571 620 663 725 726 813 898 1,022 1,147 1,268
- Total expenditure and net lending (Billions of CFA francs): 1,275 1,774 2,984 2,526 2,712 2,293 2,255 2,275 2,369 2,443 2,556
- Current expenditure (Billions of CFA francs): 680 691 943 1,023 1,021 968 1,050 1,140 1,274 1,409 1,530
- Capital expenditure (Billions of CFA francs): 595 1,084 1,841 1,503 1,691 1,325 1,205 1,135 1,095 1,034 1,025
- Non-oil primary balance 1/ (Billions of CFA francs): -749 -1,157 -2,291 -1,840 -1,824 -1,475 -1,350 -1,304 -1,289 -1,246 -1,248
- Basic primary balance 2/ (Billions of CFA francs): 1,101 1,312 742 737 1,273 1,237 1,167 963 958 1,031 877
- Balance, commitment basis excluding grants (Billions of CFA francs): 952 1,084 210 440 657 940 996 863 900 1,033 889
- Balance, cash basis (Billions of CFA francs): 733 1,028 236 415 739 492 1,021 868 890 1,011 859
- Financing — Foreign (net) (Billions of CFA francs): -369 -603 405 -665 359 471 -4 -55 -77 -129 -128
- Memorandum items: Stock of government deposits (Billions of CFA francs): 1,269 1,680 2,321 1,349 2,448 2,312 3,330 4,143 4,956 5,838 6,569

### Fiscal ratios (Table 3b — percent of GDP and non-oil GDP highlights)
- Total revenue (percent of GDP): 116.8 138.1 131.7 120.5 119.8 117.4 107.2 94.0 86.2 82.0 73.9
- Oil revenue (percent of GDP): 92.0 108.9 103.2 92.7 88.6 87.4 76.9 64.4 57.2 53.2 45.3
- Non-oil revenue (percent of non-oil GDP): 24.2 27.2 25.1 26.8 24.8 25.8 26.1 26.4 26.6 26.8 27.0
- Expenditure and net lending (percent of GDP): 66.7 84.7 120.8 102.3 92.5 81.4 72.6 66.9 61.6 57.0 54.4
- Current expenditure (percent of GDP): 35.6 32.9 38.2 41.4 34.8 34.4 33.8 33.5 33.1 32.9 32.6
- Capital expenditure (percent of GDP): 31.2 51.7 74.5 60.8 57.7 47.0 38.8 33.4 28.5 24.1 21.8
- Basic primary balance (percent of GDP) 5/: 17.4 19.1 10.5 10.5 17.9 18.0 17.3 13.4 12.7 12.1 10.1

### Monetary and banking sector (Tables 4 & 5 — selected entries)
- Net foreign assets (Billions of CFA francs): 1,877 1,831 2,325 3,320 3,358 4,314
  - Central bank NFA: 1,788 1,656 2,062 2,766 2,676 3,405
  - Deposit money banks NFA: 891 762 635 546 839 09
- Net domestic assets (Billions of CFA francs): -908 -813 -911 -1,418 -1,055 -1,688
  - Net domestic credit: -893 -727 -928 -1,213 -669 -1,437
  - Credit to the economy: 167 218 325 462 667 861
- Broad money (Billions of CFA francs): 970 1,019 1,415 1,902 2,303 2,626
- Broad money (percent change): 36.4 5.0 38.9 34.5 21.1 14.0
- Reserve money (percent change): 43.3 -9.6 69.9 -3.5 16.3 9.2
- Credit to the private sector/Non-oil GDP: 10.7 12.8 17.0 22.1 27.0 30.5

Banking sector financial soundness indicators (percent, year-end)
- Regulatory capital to risk-weighted assets: 17.0 19.0 13.1 9.9 32.3
- Capital (net worth) to assets: 5.0 6.0 8.0 7.0 4.6
- Nonperforming loans: 2.0 2.0 1.1 1.2 2.8
- Provision as percent of past-due loans: 91.0 91.0 60.0 75.3 59.9
- Expense/income: 50.0 59.0 67.4 71.6 53.1
- Liquid assets/total assets: 66.0 59.0 51.4 42.7 57.0
- Loan/deposits: 35.0 39.0 40.6 39.2 43.5

### Implementation of the 2012 Article IV Recommendations (Table 6)
I - Introduce a simple fiscal rule to help anchor spending and saving objectives.
- Fiscal rule introduced through the 2013 budget: from oil revenue, annual allocation of CFAF 500 billion for current expenditure and CFAF 1000 billion for capital expenditure for 2013–15. If actual oil revenue exceed the spending allocation, save the difference.
- New measures from 2013: updating of taxpayers list, one-stop window for customs clearance, withholding tax on government contracts, upward revision of the tax on income from securities, excise tax on alcoholic beverages.

II - Improve PFM to enhance expenditure quality and strengthen accountability, in line with relevant regional guidelines.
- Policy response to the 2012 explosion: conduct a detailed costing of the losses and of policy responses; limit fiscal impulse to avoid triggering macro instability (inflation); ensure quality of expenditures; prioritize projects to make space for reconstruction spending.
- Organic law on financial operations of the State adopted in September 2012.
- Budget controllers assigned to each ministry to control payment orders.
- A manager in each ministry dedicated to the implementation of the procurement code.
- Response measures undertaken and to be undertaken reported (with a partial costing) to a cabinet meeting in February 2013.

III - Improve the business environment to begin removing structural impediments to growth.
- Avoid creating new distortions: instead of a Special Economic Zone, eliminate tax exemptions and tax holidays and streamline the tax system.
- An action plan designed and being implemented with support from the IFC.
- A one-stop window for customs clearance created.
- Statutes of the Investment Promotion Agency approved in a cabinet meeting in February 2013.
- Four special economic zones under creation (legal and fiscal framework under preparation).

IV - Observance of CEMAC obligations, especially on reserves repatriation and pooling requirements.
- Overseas deposits continue.
- Discussions underway with BEAC, including on reforms of the oil-savings management.

V - Compliance with the Extractive Industries Transparency Initiative.
- Declared “compliant” with the EITI standard on February 27, 2013.

### Risk Assessment Matrix (Table 7 — selected risks and assessments)
- Global risk (short/medium-term): Deeper than expected slowdown in Emerging Markets, reflecting lower than anticipated potential growth, which would trigger a substantial drop in commodity prices including oil and iron ore.
  - Relative likelihood: Medium
  - Expected Impact: High
  - Expected effect: Significant decline in oil prices would strain government revenue and could weaken aggregate demand, which might cause extensive deterioration of macroeconomic stability.

- Domestic risk (short/medium-term): Lower oil production due to maturing fields and extraction uncertainty.
  - Relative likelihood: Low
  - Expected Impact: High
  - Expected effect: Lower production would have similar impacts as the price-related risks.

- Global risk (medium-term): Protracted period of slower European growth, putting downward pressures on oil prices.
  - Relative likelihood: High
  - Expected Impact: High
  - Expected effect: Given dependence on oil (80 percent of exports and 75 percent of government revenue), lower exports and aggregate demand would weaken activity in non-oil sectors.

- Domestic risk (medium-term): Political instability related to potential constitutional amendment and future elections (next presidential elections planned for 2016).
  - Relative likelihood: Low
  - Expected Impact: High
  - Expected effect: Political instability and violence would disrupt economic activity and lead to large macroeconomic imbalances. Economic growth during the civil war was 5 percentage points lower than in years of peace.

*Sources: Congolese authorities; and Fund staff estimates and projections.*

### Annex 1. Medium- and Long-Term Fiscal Framework

### Annex 1. Medium- and Long-Term Fiscal Framework

### Background
- The budget of the Republic of Congo depends heavily on oil revenues, which have accounted for about 75 percent of total revenues on average since 2000 (60 percent in the 1990s).
- Under the current production pace of 100 million barrels per year, the proven reserves of about 2 billion barrels would be depleted in 20 years.
- Based on planning of oil companies that currently hold licenses, production is expected to oscillate around the current level through 2018. Thereafter:
  - Oil output would steadily decline at an annual average of about 17 percent.
  - By 2032 annual production would drop below 10 million barrels.
- Staff’s analysis assumes oil prices to decline by an annual average rate of 3 percent during the period 2013–18, and to remain constant in real terms thereafter.

### Key objectives
- Ensure medium- and long-term fiscal and debt sustainability.
- Begin addressing past fiscal policy pro-cyclicality and protect the budget from the volatility of oil revenue to prevent disruptive changes in spending plans.
- Contribute to closing large infrastructure gaps by allocating the bulk of oil revenue to investment spending.
- Take into account expenditure absorptive capacity to avoid upward pressures on domestic prices and preserve the quality of public expenditures.
- Pursue a prudent borrowing policy.
- Help build resource buffers for future generations.

### Anchor
- The framework uses the non-oil primary balance as policy anchor and:
  - Contains total expenditure at about 30 percent of GDP (compared to averages of 30 percent for oil exporting sub-Saharan African countries in 2012, 32 percent in SSA middle-income countries, and 33 percent in Middle East and North Africa).
  - Makes provisions for a gradual buildup of the stock of public capital to a middle-income country level of about 120 of GDP. Thereafter, it follows the path of capital accumulation of upper middle income countries, with a public investment effort of about 6 percent of GDP per year.
  - Stabilizes wealth in the long run.

### Implementation (policy design and sequencing)
- During 2013–20, when oil revenue is structurally above CFAF 1,500 billion, the authorities would:
  - Allocate CFAF 500 billion of oil revenue to current expenditures and CFAF 1,000 billion to capital expenditures.
  - Cover the remaining current expenditures and all other government financial obligations with collected non-oil revenue and mobilized loans and grants.
  - Direct all unspent resources to a strengthening of government deposits. The authorities would draw down the saved funds to protect spending if oil revenue falls below CFAF 1,500 billion. A ceiling would be set on the withdrawal to ensure a minimum stabilization buffer.
- Beyond 2020, with oil revenue structurally below CFAF 1,500 billion (based on existing oil exploitation licenses), investment spending would be gradually reduced as the economy would have already benefited from large public investments in earlier years.
- Staff expectations:
  - During 2013–20, 30 percent of oil revenue would be saved; 47 percent allocated to investment expenditures; and 23 percent directed to current expenditures.
  - Fiscal consolidation would continue, with the non-oil primary deficit narrowing from 52 percent of non-oil GDP in 2013 to 22 percent in 2020 and 3 percent in 2032.
  - During the projection period, total expenditure would average about 31.5 percent of GDP.
  - By 2020, the stock of public capital would have reached about 122 percent of GDP.
  - In 2032, total wealth would amount to about 185 percent of non-oil GDP.

### Key projected fiscal and macroeconomic figures (selected)
- Revenue and Grants (billion CFAF): 2012: 2,976; 2013: 3,308; 2014: 3,332; 2015: 3,198; 2020: 3,235; 2025: 3,578; 2030: 3,903; 2032: 4,288.
- Of which Oil revenue (billion CFAF): 2012: 2,291; 2013: 2,462; 2014: 2,392; 2015: 2,192; 2020: 1,600; 2025: 978; 2030: 378; 2032: 274.
- Non-oil revenue (billion CFAF): 2012: 663; 2013: 726; 2014: 813; 2015: 898; 2020: 1,567; 2025: 2,535; 2030: 3,453; 2032: 3,939.
- Total expenditure (billion CFAF): 2012: 2,526; 2013: 2,293; 2014: 2,255; 2015: 2,275; 2020: 2,834; 2025: 3,357; 2030: 4,027; 2032: 4,530.
- Current expenditure (billion CFAF): 2012: 1,023; 2013: 968; 2014: 1,050; 2015: 1,140; 2020: 1,819; 2025: 2,637; 2030: 3,273; 2032: 3,657.
- Capital expenditure (billion CFAF): 2012: 1,503; 2013: 1,325; 2014: 1,205; 2015: 1,135; 2020: 1,014; 2025: 720; 2030: 754; 2032: 872.
- Financing (billion CFAF): 2012: -450; 2013: -1,015; 2014: -1,076; 2015: -923; 2020: -402; 2025: -221; 2030: 125; 2032: 242.
- Of which External borrowing (billion CFAF): 2012: 286; 2013: 250; 2014: 125; 2015: 75; 2020: 0; 2025: 104; 2030: 114; 2032: 139.
- Non-resource primary balance (percent of non-oil GDP): 2012: -74.48; 2013: -52.35; 2014: -43.41; 2015: -38.31; 2020: -21.81; 2025: -9.28; 2030: -4.92; 2032: -2.97.
- Wealth (percent of non-oil GDP): 2012: 802.93; 2013: 694.69; 2014: 627.89; 2015: 570.89; 2020: 328.63; 2025: 246.85; 2030: 198.22; 2032: 186.15.
- Net financial assets (percent of non-oil GDP): 2012: 51.08; 2013: 82.73; 2014: 113.36; 2015: 136.40; 2020: 189.64; 2025: 185.00; 2030: 172.22; 2032: 165.52.
- Natural resource wealth (percent of non-oil GDP): 2012: 751.85; 2013: 611.96; 2014: 514.52; 2015: 434.49; 2020: 138.99; 2025: 61.85; 2030: 25.99; 2032: 20.62.
- Expenditure (% total GDP): 2012: 36.17; 2013: 32.58; 2014: 32.40; 2015: 30.50; 2020: 31.93; 2025: 31.75; 2030: 33.20; 2032: 33.13.
- Public capital stock (% total GDP): 2012: 98.11; 2013: 108.65; 2014: 116.11; 2015: 117.72; 2020: 121.59; 2025: 107.67; 2030: 93.46; 2032: 87.04.
- Debt-to-GDP ratio: 2012: 25.24; 2013: 29.42; 2014: 30.32; 2015: 26.77; 2020: 16.35; 2025: 12.40; 2030: 10.30; 2032: 9.42.
- Oil price (US$ per barrel): 2012: 105.01; 2013: 102.60; 2014: 97.58; 2015: 93.33; 2020: 91.05; 2025: 100.52; 2030: 110.98; 2032: 115.47.
- Oil production (million barrels): 2012: 98.55; 2013: 96.01; 2014: 92.20; 2015: 99.83; 2020: 78.22; 2025: 39.83; 2030: 10.18; 2032: 6.76.
- Non-oil GDP (billion CFAF): 2012: 2,470; 2013: 2,817; 2014: 3,109; 2015: 3,403; 2020: 5,687; 2025: 8,761; 2030: 11,623; 2032: 13,323.
- GDP (billion CFAF): 2012: 6,983; 2013: 7,039; 2014: 6,961; 2015: 7,459; 2020: 8,875; 2025: 10,573; 2030: 12,130; 2032: 13,674.

### Implications and strategic priorities
- The framework seeks to smooth spending through saving during high oil revenue years and drawing down buffers when oil revenue falls below CFAF 1,500 billion.
- Emphasis on directing a substantial share of oil revenue to public investment early (47 percent to investment during 2013–20) to close infrastructure gaps while preserving long-term wealth.
- The projected build-up of public capital stock to about 122 percent of GDP by 2020 is intended to support a transition toward lower investment needs beyond 2020 as oil revenue declines.
- The non-oil primary balance anchor aims to reduce pro-cyclicality and improve fiscal sustainability, with the non-oil primary deficit narrowing to -2.97 percent of non-oil GDP by 2032.

*Source: IMF staff calculations.*

### 2.      Large budgeted investments have not led to significant narrowing of the social

### 2.      Large budgeted investments have not led to significant narrowing of the social

### Public investment and infrastructure gap
- Congo’s average public investment budget during the last decade was about 50 percent higher than that in the WAEMU region.
- Expenditure per capita ranks third in the CEMAC region for the same period and is about four times larger than the average of the WAEMU region.
- Despite higher public investment and expenditure per capita, infrastructure outcomes remain weak:
  - Power outages remain frequent.
  - Road infrastructure is far from adequate.
- Figure and tables referenced: Public investment (Avg 2000–2013, Mn US dollars); Electricity production in 2010 (Thousand of Kwh); Paved roads (percent of total); Expenditure per capita (US$) — (data shown in source figures and Tables 1–2).

### Education, unemployment, and skills training
- Youth unemployment exceeds 30 percent; labor force skills do not meet firms’ demands.
- The education curriculum is being revised to match labor market needs and help boost employment.
- Policy actions undertaken:
  - Higher priority to technical education.
  - Committee established to revise the education curriculum and a public-private consultation platform on related issues.
  - Creation of technical training centers, manned by 120 trainers in 12 areas.
  - A program to alternate in-school based education and on-the-field training is under preparation.
  - A memorandum of understanding with the private sector is being negotiated to provide an effective private-public sector collaborative framework.
- Note: See Annex I, IMF Country Report No. 12/283, for a detailed analysis of unemployment and the mismatch between education curricula and labor market needs in Congo.

### Employment programs and active labor measures
- The International Labor Organization estimates the unemployment rate at 16 percent.
  - Footnote: Figures on unemployment rates are subject to large margins of uncertainty. Surveys by the authorities showed unemployment rates of 19.4 percent in 2005 and 6.9 percent in 2011.
- Four types of programs under implementation:
  - (i) an internship program for unemployed youths;
  - (ii) a labor-intensive public works program;
  - (iii) a self-employment program;
  - (iv) a rural employment program.
- Skills acquired through the first two programs would allow beneficiaries to qualify for the latter two programs and secure long-term employment.
- To date, a total of 8,600 people have benefited from these programs; total labor force is about 1.5 million.

### Social safety nets: design, scale, and cost
- Social safety nets target the most vulnerable and aim to provide opportunities for autonomy:
  - Beneficiaries include people living with physical handicaps, unattended children, and the elderly.
  - Conditioned cash transfer programs for poor and vulnerable households are being implemented and will be enhanced with assistance from the World Bank.
  - Eligibility criteria include continuous schooling of children and regular health checks for all household members.
- Pilot and scale-up targets:
  - A pilot program would cover 5,000 households.
  - Objective of 250,000 households over a three-year period (for a total population of about 4 million).
- Complementary programs designed to reduce dependency on direct social transfers:
  - (i) labor-intensive public works with on-the-job training;
  - (ii) a social reintegration fund to support creation of economic activity and facilitate access to microcredit;
  - (iii) a community development program to facilitate access to basic social services while supporting community-based economic activities.
- Estimated cost for 2013–16: CFAF 218 billion (about US$ 436 million or 3 percent of 2012 GDP).

### Improving productivity of the investment budget and governance reforms
- Key reforms and actions to improve the productivity and impact of public investment:
  - Overhaul of the procurement code and operation of a new procurement agency.
  - Public expenditure review in key sectors of human development, including health, education and social protection.
  - Public Expenditure Management and Financial Accountability Review (PEMFAR) planned for 2014.
  - World Bank assistance in:
    - improving transparency and accountability in budget management, including human resources management and procurement;
    - strengthening internal and external controls (assistance to Independent Governance Observatory, Anti-corruption commission, Economic and Financial Commission of the Parliament, Supreme Audit Institution, State General Inspectorate, the media, and selected Non-Governmental Organizations).
- Implementation risks and policy emphasis:
  - Reported delays in disbursing budgeted funds for some employment programs should be addressed.
  - Ensure early implementation of the National Employment Program and expansion/rationalization of ongoing social safety net programs.
  - Sustain focus on vocational and technical training beyond the 2013 budget.

### Financial sector stability and development
- Structure and recent dynamics:
  - The financial sector is largely dominated by banks; the Congolese banking system comprised 9 banks as of end-December 2012, compared to 6 banks at end-2010.
  - Between 2003 and 2012 credit to the private sector increased almost nine-fold in nominal terms.
  - Annual credit growth rates exceeded 40 percent in each of the last three years (to 2012).
  - Deposits of firms and households rose by a factor of twelve between 2003 and 2012.
  - Ratio of deposits to GDP was 24.0 percent at end-2012 (compared to 6.8 percent in 2003).
  - Interest rate spreads declined from about 15 percentage points in the early 2000s to about 8 percentage points in 2012, driven mainly by lending rate dynamics.
- Credit composition (Text Figure 1):
  - Credit by maturity: 55.3 percent short-term; 43.9 percent medium-term; 0.8 percent long-term.
  - Credit by sector (percent): Agriculture 6.6; Extractive industries 2.2; Manufacturing 0.9; Electricity, gas and water 23.9; Construction and public works 26.5; Wholesale and retail trade, Transport & telecommunications 19.2; (figure labels imply additional sectoral shares shown in source).
- Financial depth and comparative performance:
  - Standard indicators show Congo lags peers with similar per capita GDP; values for private credit to GDP ratio, number of bank branches, depositors and borrowers (scaled by population) are well below median for comparator group.
  - Differences are less pronounced versus Sub-Saharan Africa benchmark, but Congo underperforms within SSA on most metrics.
- Policy measures and institutional reforms proposed by authorities:
  - Action plan to improve Doing Business ranking, including establishment of a business promotion center (Maison de l’entreprise) and a special fund for guarantees and support (FIGA—Fonds d’Impulsion, de Garanties et d’Accompagnement).
  - Policies aimed at removing constraints to credit supply, strengthening judicial framework, reducing information asymmetry:
    - Initiation of changes in certain COBAC regulations.
    - Acceleration of the launch of an arbitration center.
    - Creation of a centralized balance sheet bureau (Centrale des bilans) to improve availability and quality of accounting data.
  - Considerations: parameters of guarantee fund should account for potential budgetary implications if guarantees are called.
- Remaining challenges and recommended directions:
  - Functioning of the legal system needs improvement to better protect creditors’ rights: court procedures are perceived as slow and costly, with time to resolve insolvency in Congo estimated at 3.3 years.
  - Establishment of a comprehensive property register (Fonds national du cadastre) and one-stop shop to trace land titles are positive steps to address unclear property rights.
  - Expand credit registry coverage and enhance quality of information (e.g., include non-bank financial institutions and utility companies); consider moving from monthly dissemination to real time access.
  - Maintain prudential safeguards while improving access:
    - Loan to deposits ratio stands at about 40 percent (deemed low by most standards).
    - Banks hold large excessive reserves in the central bank (about 25 percent of total deposits at end-2012).
    - Share of non-performing loans in total loans is low at 2.8 percent and banks are well capitalized.
    - Rapid credit expansion warrants careful monitoring of financial soundness indicators.
    - Relaxing prudential regulations, particularly on individual exposure limits, could be counterproductive.
    - Focus should be on broadening investment opportunities, including through the newly launched regional government securities market.

*Source: REPUBLIC OF CONGO — INTERNATIONAL MONETARY FUND (extracted chapter content).*

### 7. In addition to banks, microfinance institutions could play an important role in

### 7. In addition to banks, microfinance institutions could play an important role in 

### Role of microfinance in fostering financial sector development
- Microfinance institutions can improve access to financial services for the poor and thereby foster financial sector development in Congo.
- Microcredit institutions were first introduced in the 1980’s under the framework of cooperatives and credit unions.
- Postal banking has been launched and can support development microcredit transactions.

### Sector size and key statistics
- As of 2009, about 62 microfinance institutions were operating in the country.
- The volumes of deposits and credits of the microfinance sector represented:
  - 14.4 percent of the financial system (deposits).
  - 9.1 percent of the financial system (credits).
- Data source cited: Republic of Congo—Poverty Reduction Strategy Paper, 2012–16.

### Policy actions and supervisory measures
- Authorities plan to enhance cooperation between commercial banks and microfinance institutions to improve availability of medium-term resources for the latter.
- The banking supervisory agency has developed accounting software for microfinance institutions to allow commercial banks to better assess their financial viability and the associated risks.

---

### Annex 5. Special Economic Zones

### Objectives and planned zones
- SEZ initiative aims at:
  - Accelerating investments.
  - Diversifying economic activities and exports.
  - Promoting employment creation.
  - Facilitating technology transfers.
  - Supporting integration to the global economy.
  - Ultimately reducing poverty.
- Four economic zones under consideration: Ouesso, Oyo/Ollombo, Brazzaville, and Pointe Noire.
- Feasibility studies are completed in all but the Pointe Noire zone.

### Targeted activities and government role
- Zones would host investments in agriculture and agro-industry, farming, wood factories, and building materials (including cement factories).
- Government contributions include providing required infrastructure and facilitating administrative procedures: land, roads, electricity, security, on-site tax and customs procedures, special arbitrage, expedited labor procedures.
- Legal and fiscal framework is currently being prepared; preferential fiscal treatments have not been ruled out but would be limited in compliance with relevant CEMAC regulations.
- A ministry in charge of developing SEZs was created at the office of the President of the Republic.

### International experience and risks
- SEZs have produced uneven results globally since the first modern SEZ more than 50 years ago.
- Successful examples: China, East Asia, some countries in Central and South America, and a few African countries (including Mauritius).
- Unsuccessful or weak examples cited:
  - Senegal: a SEZ closed in 1999 after attracting only 14 companies over 25 years.
  - Moin Free Zone in Costa Rica: received only three firms during its first eight years.
- The policy rationale: boost competitiveness of a specific geographical zone to spur broader economic activity over the medium- and long-term; outcomes vary significantly across countries.

*Source: IMF country report content provided in the input.*

### 3.      The most important factors for the success of a SEZ appear to be adequate

### 3.      The most important factors for the success of a SEZ appear to be adequate infrastructure, enabling regulatory framework, and light administrative procedures

### Key findings on SEZ performance
- The most important factors for the success of a SEZ are:
  - adequate infrastructure,
  - an enabling regulatory framework, and
  - light administrative procedures.
- Many SEZs failed because of:
  - prohibitive minimum requirements on job creation and initial investment,
  - a long and cumbersome process in obtaining permits,
  - rigid labor regulation, and
  - high infrastructure-related production costs (energy, telecommunications and transport).
- Various country experiences have shown that SEZs built and managed by private operators outperform those run by governments.
- Governments should provide infrastructure and facilities only to the gate of the zone, while private developers should:
  - bear the on-site costs, and
  - ensure operation on a cost-recovery basis.

### Assessment of fiscal incentives
- Fiscal incentives have proven to be of little effectiveness in the success of SEZs.
- Incentive packages have become broadly similar as countries are under pressure from competitors. Those packages often include:
  - tax holidays;
  - corporate tax reductions or exemption;
  - duty-free importation of raw material, capital goods, and intermediate inputs;
  - no restrictions or taxes on capital and profits repatriation;
  - exemption from foreign exchange controls (where applicable);
  - no charges on exports; and
  - exemption from most local and indirect taxes.
- Some of these incentives:
  - do not improve competitiveness,
  - create distortions, and
  - are a burden on the budget.
- Specific drawbacks noted:
  - profit tax holidays would most likely not be effective as companies are not making profit in the initial years of operation;
  - companies would be tempted to shift their income from non-tax exempt to tax-exempt companies through transfer pricing;
  - companies may focus on short-term investments because long-term ones do not benefit from tax holidays;
  - certain fiscal incentives can be considered as explicit or implicit export subsidies, breaching trade rules.

### Policy recommendations and interventions to improve competitiveness
- Prefer private sector-led zone operation with government provision of off-site infrastructure (to the gate) and private developers bearing on-site costs.
- Limit reliance on broad fiscal incentive packages that:
  - fail to improve competitiveness,
  - create distortions, or
  - impose budgetary burdens.
- Interventions that could improve competitiveness include:
  - accelerated depreciation,
  - free transfer of foreign currency in and out of the host country,
  - introduction of SEZs under regional trade agreements, and
  - facilitation of SEZs’ eligibility to local contents.

*Prepared by Ivohasina Razafimahefa and Samuel Fahlberg.*

### 4.      Congo’s stock of external debt has declined substantially thanks to

### 4.      Congo’s stock of external debt has declined substantially thanks to

### Debt stock and composition
- Comprehensive HIPC/MDRI debt relief reduced gross public external debt to just over 20 percent of GDP at end-2010 (from about 55 percent of GDP in 2009), after Congo reached the HIPC Initiative Completion Point in January 2010, resulting in estimated total debt service savings of $1.9 billion.
- The debt-to-GDP ratio increased to 25 percent of GDP in 2012 reflecting new borrowing, notably large disbursements under a bilateral loan agreement with China, contracted in 2006.
- Bilateral creditors currently comprise nearly two-thirds of total debt (Text Table 1).
- Domestic public debt is relatively low at 6 percent of GDP and mainly comprises arrears, including wage arrears to employees in the social sectors. An audit of government domestic arrears is underway; a repayment plan will be developed after the outstanding amounts are confirmed.

### Net debt position and assets
- Government deposits at BEAC stood at about 20 percent of GDP at end-2012.
- The government is holding deposits abroad and has extended loans to some African countries (for an estimated total of about 29 percent of GDP); thus, Congo’s net debt position is negative.
- The net public debt is expected to remain in negative territory throughout the projections horizon.
- Relative to GDP, the net debt position is projected to peak at the equivalent of a negative 105 percent of GDP around 2022 and gradually decline thereafter reflecting decreasing oil proceeds.

### Underlying macroeconomic assumptions (Box 1)
- Real GDP growth:
  - Non-oil sector projected to grow robustly by 7.5 percent during 2013–20; growth would stabilize at about 5 percent thereafter.
  - Mining production assumed to originate from only one project: production starts at 120,000 tons in 2013, augments to 2 million tons in 2015, and stabilizes at 7 million tons from 2017.
- Oil production and prices:
  - Oil production expected to fluctuate around 100 million barrels per year during 2013–18.
  - Based on existing licenses, production would decline by 15 million barrels per year during 2019–32, leading to a drop from 100 million barrels in 2012 to about 10 million barrels in 2032.
  - Prices at international markets projected to decrease by about 3 percent per year during 2013–18; thereafter assumed constant in real terms.
- Inflation:
  - Accelerated to 7.5 percent (year-on-year) in 2012; expected to drop to 4.1 percent by end-2013.
  - Projected to decline gradually below the CEMAC’s convergence criteria of 3 percent in the medium term.
- Current account balance:
  - Fluctuations driven by oil and mining exports/imports.
  - Expected to be positive until 2018, supported by the oil sector; turning to a widening deficit thereafter as iron ore production would not suffice to compensate for decline in oil production.
- Fiscal balance:
  - Authorities expected to continue adhering to the fiscal rule introduced in 2013.
  - The basic non-oil primary deficit would improve from about 63 percent of non-oil GDP in 2012 to 27 percent in 2018 and about 4 percent in the long run.
- External financing:
  - A second agreement with China is assumed in the medium-term, with total disbursements of US$ 1 billion during 2013–16 on highly concessional terms similar to the 2006 agreement.
  - In the long run, external borrowing would be needed to ensure a minimum public investment of about 6 percent of GDP.

### Forecasts on reserves and borrowing
- Current account expected to remain positive in the medium term, implying further increase in international reserves and no pressing external financing needs.
- New external borrowing in the medium term largely limited to a second bilateral loan with China of $1 billion, disbursed over four years starting in 2013 on concessional terms identical to the existing Chinese loan.
- In the longer run, declining oil exports and falling non-oil export receipts imply additional financing needs; the DSA assumes concessional financing with a grant element somewhat lower than that under the current China loan.

### Risks and stress-test results
- The macroeconomic outlook is subject to risks: adverse commodity price movements and slower external demand could trigger severe imbalances and require additional borrowing.
- All of Congo’s debt indicators are below the relevant country-specific debt burden thresholds under the joint Bank-Fund DSF for low-income countries; Congo is classified as a “weak” performer (CPIA ≤ 3.25), which implies lower debt sustainability thresholds.
- Standard bound tests produce only moderate increases in debt burden indicators:
  - A decline in exports to a level equivalent to one standard deviation below their historical average in the first two years would cause the PV of debt to GDP ratio to rise by about 4 percentage points and the PV of debt to export ratio by 10 percentage points at the peak.
- For most indicators (except debt-service to revenue), the most extreme scenario is associated with an export shock.
- Under the historical scenario, debt indicators decline very rapidly, but this scenario is considered less relevant for resource-rich countries and can result in negative debt-burden indicators (hence not shown).
- Adding domestic public debt does not change baseline conclusions, but the most extreme shock (real GDP growth in 2013–14 set at one standard deviation below its historical average) raises the PV of debt to GDP ratio substantially to over 50 percent in the outer years of the projection period.

### Conclusions and policy recommendations
- The DSA shows that the Republic of Congo continues to face a low risk of debt distress, unchanged from the 2011 DSA.
- All external debt indicators are well below country-specific indicative thresholds under the baseline and remain within sustainable bounds under standard stress tests.
- Given comfortable reserves, Congo is unlikely to need extensive external borrowing in the near future; the government should:
  - Adhere to its medium-term fiscal framework and save excess revenue according to the adopted fiscal rule.
  - If additional borrowing is needed, contract new loans on concessional terms to the extent possible to maintain debt sustainability.
- To increase resilience to exogenous shocks, policy priorities include:
  - Improving competitiveness and promoting economic diversification to reduce export volatility and strengthen debt service capacity.
  - Rigorously implementing the national program for improvement of the business environment launched with World Bank assistance.
  - Prioritizing improvements in electricity supply reliability and competitiveness, transportation services, and labor force quality to address weak physical and human capital.

*International Monetary Fund — Republic of Congo Debt Sustainability Analysis (excerpt)*

### 14.      The authorities broadly concur with the conclusions of the DSA. They expressed

### _cr13282 - 14.      The authorities broadly concur with the conclusions of the DSA. They expressed

### Authorities' stance
- "The authorities broadly concur with the conclusions of the DSA. They expressed commitment to continuing prudent external borrowing policies."

### Indicators of public and publicly guaranteed external debt (figures 2013–2033)
- Figures present baseline, "Most extreme shock" (the stress test yielding the highest ratio in 2033 for each panel), and threshold lines for:
  - a. Debt Accumulation: Rate of Debt Accumulation; Grant-equivalent financing (% of GDP); Grant element of new borrowing (% right scale).
  - b. PV of debt-to-GDP ratio.
  - c. PV of debt-to-exports ratio.
  - d. PV of debt-to-revenue ratio.
  - e. Debt service-to-exports ratio.
  - f. Debt service-to- (figure cut off in source).

- Note on most extreme stress tests (figure notes):
  - In figure b: corresponds to an Exports shock.
  - In figure c: corresponds to an Exports shock.
  - In figure d: corresponds to an Exports shock.
  - In figure e: corresponds to an Exports shock.
  - In figure f: corresponds to a One-time depreciation shock.

### Alternative scenarios and bound tests (Figure 2 summary, 2013–2033)
- Panels show PV of Debt-to-GDP Ratio, PV of Debt-to-Revenue Ratio (revenues inclusive of grants), and Debt Service-to-Revenue Ratio under:
  - Baseline, Most extreme shock, Growth scenario.
- "The most extreme stress test is the test that yields the highest ratio in 2023." (figure note)

### External Debt Sustainability Framework — Baseline Scenario (Table 1, 2010–2033; in percent of GDP unless indicated)
- Historical and projection excerpts (selected key rows, exact values preserved):
  - External debt (nominal) 1/: 2010: 20.2; 2011: 23.0; 2012: 25.2; 2013: 21.4; 2014: 21.7; 2015: 19.6; 2016: 17.8; 2017: 14.3; 2018: 12.5; 2023 average: 8.6; 2023-33 average: 10.1.
  - Change in external debt: 2010: -34.3; 2011: 2.8; 2012: 2.1; 2013: -3.8; 2014: 0.3; 2015: -2.1; 2016: -1.8; 2017: -3.5; 2018: -1.8; 2023: 1.0; 2023-33 average: -1.1.
  - Identified net debt-creating flows: 2010: -33.0; 2011: -12.4; 2012: 9.0; 2013: -9.8; 2014: -4.6; 2015: 1.4; 2016: 1.3; 2017: 2.0; 2018: 5.1; 2023: 8.4; 2023-33 average: 8.6.
  - Non-interest current account deficit: 2010: -4.8; 2011: -6.0; 2012: 1.1; 2013: -2.6; 2014: 5.2; 2015: -8.1; 2016: -5.2; 2017: -0.9; 2018: -0.8; 2023: -2.7; 2023-33 average: -0.2.
  - Exports: 2010: 82.9; 2011: 83.8; 2012: 80.9; 2013: 75.1; 2014: 72.0; 2015: 71.3; 2016: 69.1; 2017: 70.1; 2018: 67.2; 2023: 50.0; 2023-33 average: 29.6.
  - Imports: 2010: 57.4; 2011: 56.8; 2012: 55.6; 2013: 50.9; 2014: 50.0; 2015: 50.7; 2016: 49.5; 2017: 46.3; 2018: 46.4; 2023: 48.8; 2023-33 average: 36.2.
  - Net FDI (negative = inflow): 2010: -18.2; 2011: -3.2; 2012: 6.4; 2013: -13.1; 2014: 11.2; 2015: -0.5; 2016: 1.5; 2017: 3.7; 2018: 3.3; 2023: 6.2; 2023-33 average: 5.8; 2023-33 additional: 1.5; 2019-33: -2.2; 2019-33 supplemental: 0.2 (values appear in table as sequence).
  - PV of external debt 4/: selected entries: 2013: 22.9; 2014: 18.3; 2015: 18.3; 2016: 16.5; 2017: 14.9; 2018: 12.0; 2023: 10.5; 2023-33 average: 6.8; further: 8.2.
  - PV of PPG external debt (same series as PV of external debt above).
  - PV of PPG external debt in percent of exports: series includes 28.3, 24.3, 25.4, 23.1, 21.6, 17.1, 15.6, 13.6, 27.7 (table entries).
  - PV of PPG external debt in percent of government revenues: series includes 53.9, 39.8, 39.2, 39.1, 35.7, 30.4, 27.5, 19.8, 26.5.
  - Debt service-to-exports ratio (in percent): series includes 1.2, 0.2, 0.2, 2.6, 2.9, 2.7, 2.6, 2.3, 2.3, 1.3, 1.8.
  - PPG debt service-to-revenue ratio (in percent): series includes 2.6, 0.4, 0.4, 4.2, 4.4, 4.6, 4.3, 4.1, 4.1, 2.0, 1.7.
  - Total gross financing need (Billions of U.S. dollars): series includes -2.7, -1.3, 1.1, -0.9, -0.2, 0.7, 0.7, 0.9, 1.3, 1.8, 2.7.
  - Non-interest current account deficit that stabilizes debt ratio: series includes 29.5, -8.8, -1.0, -4.3, -5.5, 1.2, 1.0, 0.8, 1.6, 6.3, 12.3.

- Key macroeconomic assumptions (exact series preserved):
  - Real GDP growth (in percent): 2010: 8.8; 2011: 3.4; 2012: 3.8; 2013: 4.6; 2014: 3.2; 2015: 5.8; 2016: 4.8; 2017: 7.7; 2018: 7.3; 2023: 10.1; 2023-33 average: 4.7; 2019-33 entries include 6.7, 6.6, 4.2, 3.3.
  - GDP deflator in US dollar terms (change in percent): 15.0, 16.1, -8.7, 12.7, 17.4, -1.5, -6.4, -1.2, -3.1, 2.6, -2.0, -2.0, -0.2, 2.0, -0.1 (series across table).
  - Effective interest rate (percent) 5/: 2.1, 0.9, 0.8, 2.6, 1.2, 0.8, 0.8, 0.8, 0.8, 1.0, 1.0, 0.9, 1.2, 0.8, 1.0.
  - Growth of exports of G&S (US dollar terms, in percent): 47.1, 21.4, -8.5, 18.3, 23.4, -3.3, -5.9, 5.5, 0.7, 14.6, -1.8, 1.6, 7.9, 0.0, -2.2.
  - Growth of imports of G&S (US dollar terms, in percent): 26.0, 18.6, -7.1, 18.5, 21.3, -4.7, -3.7, 7.9, 1.4, 5.7, 2.8, 1.6, 6.7, 0.0, 1.5.
  - Grant element of new public sector borrowing (in percent): series includes 32.9, 32.9, 32.9, 32.9, 23.8, 23.8, 23.8, 29.9, 23.8, 23.8, 23.8.
  - Government revenues (excluding grants, in percent of GDP): series includes 37.4, 42.0, 42.5, 45.9, 46.7, 42.1, 41.8, 39.4, 38.1, 34.4, 31.0, 33.6.
  - Aid flows (Billions of US dollars): 0.0, 0.1, 0.0, 0.2, 0.2, 0.1, 0.1, 0.1, 0.1, 0.0, 0.0; of which grants same series; concessional loans series zeros.
  - Grant-equivalent financing (in percent of GDP): series includes 2.2, 1.7, 1.1, 0.8, 0.4, 0.3, 0.5, 0.0, 0.2.
  - Grant-equivalent financing (in percent of external financing): series includes 48.4, 59.1, 62.7, 64.7, 97.8, 97.1, 26.0, 47.5, 44.9.

- Memorandum items (select):
  - Nominal GDP (Billions of US dollars): 12.0, 14.4, 13.7, 14.3, 14.0, 14.9, 15.5, 17.5, 17.9, 18.9, 28.7 (series).
  - PV of PPG external debt (in Billions of US dollars): 3.2, 2.6, 2.6, 2.4, 2.3, 2.1, 1.9, 1.3, 2.3.
  - (PVt-PVt-1)/GDPt-1 (in percent): -4.5, -0.3, -0.8, -0.9, -1.4, -1.2, -1.5, 1.1, -0.3, 0.1.

### Sensitivity analysis for external debt (Table 2, 2013–2033; in percent)
- Baseline values (selected indicators):
  - PV of debt-to-GDP ratio baseline series: 2013: 18; 2014: 18; 2015: 16; 2016: 15; 2017: 12; 2018: 10; 2023: 7; 2033: 8.
  - PV of debt-to-exports ratio baseline: 2013: 24; 2014: 25; 2015: 23; 2016: 22; 2017: 17; 2018: 16; 2023: 14; 2033: 28.
  - PV of debt-to-revenue ratio baseline: 2013: 40; 2014: 39; 2015: 39; 2016: 36; 2017: 30; 2018: 28; 2023: 20; 2033: 27.
  - Debt service-to-exports ratio baseline: 2013: 33; 2014: 33; 2015: 22; 2016: 12.
  - Debt service-to-revenue ratio baseline: 2013: 44; 2014: 45; 2015: 44; 2016: 22.

- Alternative scenarios (examples, exact entries preserved):
  - A1. Key variables at their historical averages in 2013-2033 1/: e.g., PV of debt-to-GDP ratio: series includes 18, 6, -10, -23, -36, -49, -98, -118 (table columns across years).
  - A2. New public sector loans on less favorable terms in 2013-2033: e.g., PV of debt-to-GDP ratio: 21, 8, 19, 17, 16, 13, 11, 8, 12 (table).
- Bound tests (examples):
  - B1. Real GDP growth at historical average minus one standard deviation in 2014-2015: entries across ratios include sequences such as 18, 19, 18, 19, 16, 13, 11, 7, 9 (table cells).
  - B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/: e.g., PV of debt-to-GDP ratio series includes 18, 27, 24, 22, 18, 15, 10, 12.

- Memorandum item:
  - "Grant element assumed on residual financing (i.e., financing required above baseline) 6/": series 24 repeated across columns.

- Notes (exact wording):
  - 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.
  - 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.
  - 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).
  - 4/ Includes official and private transfers and FDI.
  - 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.
  - 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

### Public Sector Debt Sustainability Framework — Baseline Scenario (Table 3, 2010–2033; in percent of GDP)
- Public sector debt (total) series: 2010: 20.2; 2011: 30.2; 2012: 31.3; 2013: 26.6; 2014: 26.1; 2015: 22.9; 2016: 20.2; 2017: 15.7; 2018: 13.2; 2023: 8.6; 2023-33 average: 10.1.
- Of which: foreign-currency denominated (same series as public sector debt above).
- Change in public sector debt: 2010: -34.3; 2011: 10.0; 2012: 1.1; 2013: -4.7; 2014: -0.5; 2015: -3.2; 2016: -2.7; 2017: -4.5; 2018: -2.5; 2023: 1.0; 2023-33 average: -1.1.
- Identified debt-creating flows: series includes -24.8, -18.9, -6.1, -14.7, -15.0, -14.0, -13.0, -14.4, -10.5, -2.3, 1.4.
- Primary deficit (percent of GDP): series includes -17.1, -16.6, -6.6, -14.0, 7.1, -14.6, -15.6, -12.5, -12.2, -12.2, -10.2, -12.9, -1.9, 2.0, -1.8 (table sequences).
- Revenue and grants (percent of GDP): series includes 37.5, 42.5, 42.6, 47.0, 47.9, 42.9, 42.4, 39.8, 38.3, 34.5, 31.0.
- Automatic debt dynamics and contributions (exact sequences preserved in table).
- Other sustainability indicators:
  - PV of public sector debt: series includes 29.1, 23.5, 22.7, 19.7, 17.3, 13.4, 11.2, 6.8, 8.2.
  - PV of public sector debt-to-revenue and grants ratio (in percent): series includes 68.2, 50.0, 47.5, 46.1, 40.8, 33.6, 29.1, 19.7, 26.5.
  - Gross financing need 2/: series includes -16.1, -16.4, -5.6, -11.8, -12.7, -9.8, -9.7, -9.9, -8.0, -1.3, 2.5.
  - Debt service-to-revenue and grants ratio (in percent) 4/: series includes 2.6, 0.4, 2.5, 6.0, 6.1, 6.4, 6.1, 5.9, 5.8, 2.0, 1.7.

- Key macro and fiscal assumptions (selected series repeated from Table 1):
  - Real GDP growth (in percent): 8.8, 3.4, 3.8, 4.6, 3.2, 5.8, 4.8, 7.7, 7.3, 10.1, 4.7, 6.7, 6.6, 4.2, 3.3.
  - Average nominal interest rate on forex debt (in percent): 2.1, 0.9, 0.8, 2.6, 1.2, 0.8, 0.8, 0.8, 0.8, 1.0, 1.0, 0.9, 1.2, 0.8, 1.0.
  - Inflation rate (GDP deflator, in percent): 20.7, 10.7, -1.2, 8.8, 14.6, -4.7, -5.6, -0.5, -2.4, 2.6, -2.0, -2.1, -0.2, 2.1, -0.1.
  - Grant element of new external borrowing (in percent): series includes 32.9, 32.9, 32.9, 32.9, 23.8, 23.8, 23.8, 29.9, 23.8, 23.8, 23.8.

- Notes (exact wording):
  - 1/ [Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]
  - 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.
  - 3/ Revenues excluding grants.
  - 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt.
  - 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

### Sensitivity analysis for public debt (Table 4, 2013–2033)
- Baseline and scenario entries (selected):
  - PV of Debt-to-GDP Ratio baseline: 2013: 23; 2014: 23; 2015: 20; 2016: 17; 2017: 13; 2018: 11; 2023: 7; 2033: 8.
  - PV of Debt-to-Revenue Ratio baseline: 2013: 50; 2014: 47; 2015: 46; 2016: 41; 2017: 34; 2018: 29; 2023: 20; 2033: 27.
  - Debt Service-to-Revenue Ratio baseline: 2013: 66; 2014: 66; 2015: 66; 2016: 22.
- Alternative scenarios and bound tests include:
  - A1. Real GDP growth and primary balance at historical averages.
  - A2. Primary balance unchanged from 2013.
  - A3. Permanently lower GDP growth 1/.
  - Bound tests B1-B5 include shocks for growth, primary balance, depreciation, and increases in other debt-creating flows (10 percent of GDP).

- Notes:
  - 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.
  - 2/ Revenues are defined inclusive of grants.

### Press Release excerpt — IMF Executive Board conclusion (Press Release No.13/332, September 10, 2013)
- "On August 30, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Congo on a lapse-of-time basis, and considered and endorsed the staff appraisal without a meeting."
- Country context excerpt:
  - "The Republic of Congo is endowed with abundant natural resources, notably oil and iron ore. Proven oil reserves are estimated at about 2 billion barrels; and the country has large iron ore deposits and a vast agricultural potential."
  - Recent macro performance: "Real Gross Domestic Product (GDP) growth averaged 6.5 percent during 2009–11, with robust activity in both the non-oil and oil sectors. Inflationary pressures were subdued, and the financial sector remained sound. Moreover, against the background of high oil prices, the government accumulated large fiscal savings. However, in contrast with the broadly satisfactory macroeconomic performance, the incidence of poverty stood at a high" (sentence incomplete in source).

*Source: IMF staff and country authorities as presented in the supplied content.*

### 46.5 percent in 2011. In 2012, economic developments were dominated by the authorities’

### _cr13282 - 46.5 percent in 2011. In 2012, economic developments were dominated by the authorities’

### Fiscal response and 2012 developments
- The authorities mounted a fiscal response to the explosion of an ammunitions depot in Brazzaville.
- The government’s swift response and reconstruction efforts led to a brisk increase in public outlays, which pushed end-year inflation to 7.5 percent (year-on-year).
- Spending was nevertheless lower than budgeted owing to capacity and other administrative constraints.
- The government’s financial situation remained broadly comfortable.

### 2013 outlook and near-term macroeconomic conditions
- Preliminary data point to somewhat weaker-than-initially-anticipated economic activity owing to a decline in oil production.
- Real GDP growth is projected at 5.8 percent in 2013.
- Inflation is easing as the effects of the 2012 sharp increase in government spending dissipate.
- Credit to the private sector remains strong.

### Medium-term prospects and risks
- Medium-term prospects are generally favorable: growth should remain robust in the non-oil sector, sustained by the Republic of Congo’s large oil revenues.
- Membership in the CFA franc zone should continue serving the country well as an anchor for macroeconomic stability.
- Main external risks: possible downward pressures on oil prices stemming from uncertainties in the Euro area and emerging markets.
- Domestic political risk: prospects hinge on ensuring the next presidential elections in 2016 are run smoothly.

### Executive Board assessment — key findings
- The Republic of Congo remains on a path of strong growth, but significant gains in poverty reduction have yet to materialize.
- Growth should be made more inclusive while preserving macroeconomic stability.
- The authorities’ medium-term policy agenda appropriately aims at:
  - seeking further gains in budget consolidation while scaling up investment to address large infrastructure and skills gaps;
  - fostering economic diversification and private sector development;
  - improving governance and transparency.
- Rigorous implementation of reforms in these critical areas is required to invigorate growth and enhance the effectiveness of the poverty reduction strategy.

### Executive Board assessment — policy recommendations
- Continue close adherence to stability-prone fiscal policies to consolidate recent gains in macroeconomic stability.
- Strengthen non-oil revenue collection within the context of the new fiscal rule that protects spending against the volatility of oil receipts.
- Expand the newly introduced fiscal rule and cast it in a framework that accounts for the exhaustibility of oil reserves.
- The proposed rule-based fiscal framework should seek the achievement of significant fiscal savings over the long term to build up buffers and sustain reasonable levels of expenditures in the post-oil era.
- Continue adhering to a prudent borrowing policy to preserve long-term debt sustainability after HIPC/Multilateral; Debt Relief Initiative (MDRI).
- Timely implement World Bank-supported measures to improve public investment management.
- Promptly implement agreed reform measures with the International Finance Corporation (IFC) to improve the business environment, including:
  - making the recently established Investment Promotion Agency fully operational;
  - streamlining the administrative requirements for engaging in business activities.
- Expedite adoption of the fiscal transparency law currently under review in Parliament.
- For Special Economic Zones (SEZs), avoid granting special fiscal incentives that create distortions and often give rise to abusive practices; focus instead on revamping infrastructure and advancing administrative facilitation.
- Step up efforts to ensure the timely provision of information to the Fund on the standard macroeconomic data required for effective surveillance.
- Fully comply with CEMAC obligations and observe relevant CEMAC commitments pending completion of the review of the BEAC’s reserves management framework.

### Financial sector and social measures
- The real effective exchange rate is in line with macroeconomic fundamentals, but external competitiveness is being stifled by structural impediments to private sector development.
- Authorities have reached compliant status under the Extractive Industries Transparency Initiative.
- The Government is developing Special Economic Zones (SEZs); strengthening technical and vocational education; introducing special employment-supporting programs; and setting up innovative social safety net arrangements to protect the most vulnerable.
- Timely availability of budgeted funds will be needed to ensure these programs are well implemented.

### Selected economic and financial indicators, 2010–14 (highlights)
- GDP at constant prices: 2010: 8.8; 2011: 3.4; 2012: 3.8; 2013: 5.8; 2014: 4.8 (Annual percentage change)
- Oil sector growth: 2010: 13.8; 2011: -4.8; 2012: -9.6; 2013: -2.6; 2014: -4.0 (Annual percentage change)
- Non-oil sector growth: 2010: 6.5; 2011: 7.4; 2012: 9.7; 2013: 8.8; 2014: 7.6 (Annual percentage change)
- GDP at current prices: 2010: 31.3; 2011: 14.5; 2012: 2.6; 2013: 0.8; 2014: -1.1 (Annual percentage change)
- Consumer prices (period average): 2010: 5.0; 2011: 1.8; 2012: 5.0; 2013: 4.5; 2014: 3.0
- Consumer prices (end of period): 2010: 5.4; 2011: 1.8; 2012: 7.5; 2013: 4.1; 2014: 2.9
- Current account balance (Percent of GDP): 2010: 3.8; 2011: 5.9; 2012: -1.3; 2013: 7.9; 2014: 5.0
- External public debt (end of period, Percent of GDP): 2010: 20.2; 2011: 23.0; 2012: 25.2; 2013: 21.4; 2014: 21.6
- Total revenue (Percent of non-oil GDP): 2010: 116.8; 2011: 138.1; 2012: 120.5; 2013: 117.4; 2014: 107.2
- Oil revenue (Percent of non-oil GDP): 2010: 92.0; 2011: 108.9; 2012: 92.7; 2013: 87.4; 2014: 76.9
- Nonoil revenue (inc. grants and investment income) (Percent of non-oil GDP): 2010: 24.7; 2011: 29.2; 2012: 27.7; 2013: 30.1; 2014: 30.2
- Total expenditure (Percent of non-oil GDP): 2010: 66.7; 2011: 84.7; 2012: 102.3; 2013: 81.4; 2014: 72.6
- Current expenditure (Percent of non-oil GDP): 2010: 35.6; 2011: 32.9; 2012: 41.4; 2013: 34.4; 2014: 33.8
- Capital (and net lending) (Percent of non-oil GDP): 2010: 31.2; 2011: 51.7; 2012: 60.8; 2013: 47.0; 2014: 38.8
- Overall balance (deficit -, commitment basis) (Percent of non-oil GDP)1: 2010: 50.0; 2011: 53.4; 2012: 18.2; 2013: 36.0; 2014: 34.6
- Basic primary fiscal balance (deficit -)2 (Percent of non-oil GDP): 2010: 57.6; 2011: 62.6; 2012: 29.8; 2013: 43.9; 2014: 37.5
- Basic non-oil primary balance ( - = deficit) (Percent of non-oil GDP): 2010: -34.4; 2011: -46.3; 2012: -62.9; 2013: -43.5; 2014: -39.4
- External public debt service (after debt relief) (Percent of total government revenue excluding grants)3: 2010: 3.3; 2011: 14.0; 2012: 2.4; 2013: 4.9; 2014: 4.4
- External public debt (after debt relief)3 (Percent of total government revenue excluding grants): 2010: 54.0; 2011: 54.8; 2012: 59.2; 2013: 46.6; 2014: 46.3
- Gross official foreign reserves (Billions of CFA francs): 2010: 2,200; 2011: 2,875; 2012: 2,774; 2013: 3,500; 2014: 4,522
- Nominal GDP (Billions of CFA francs): 2010: 5,947; 2011: 6,807; 2012: 6,983; 2013: 7,039; 2014: 6,961
- Nominal non-oil GDP (Billions of CFA francs): 2010: 1,911; 2011: 2,096; 2012: 2,470; 2013: 2,817; 2014: 3,109
- World oil price (U.S. dollars per barrel): 2010: 79; 2011: 104; 2012: 105; 2013: 103; 2014: 98
- Oil production (Millions of barrels): 2010: 115; 2011: 109; 2012: 99; 2013: 96; 2014: 92
- Nominal Exchange rate (CFA/USD, period average): 2010: 471; 2011: 510; 2012: 494

*Source: Authorities of the Republic of Congo; and IMF staff estimates and projections.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13282.pdf_