## _cr15263

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### Background and recent context
- Growth averaged 5 percent over the last 5 years as government spending was ramped up, financed mostly by rising oil receipts.
- Low international oil price environment increases urgency for fiscal consolidation and reorientation of public investment toward raising potential growth of the non-oil economy.
- Presidential elections planned for mid–2016; constitution prevents President Sassou N’guesso running for a third term; May 2015 government dialogue on constitutional reform met opposition boycott.

### Recent policy actions and fiscal outcomes
- Supplementary 2014 budget expanded spending for All Africa Games (AAG) in 2015; 2015 budget initially based on $70 per barrel oil price, later supplementary budget based on $55 per barrel (Parliamentary approval pending).
- Only 30 percent of monthly budget allocations for current expenditures were released in 2015 (except wage bill and salary component of transfers executed in full).
- Key 2014 macro statistics and fiscal outcomes:
  - GDP growth: 6.8 percent in 2014 (up from 3.3 percent in 2013).
  - Inflation (end–period y/y): 0.5 percent at end–2014 (down from 2.1 percent at end–2013).
  - Overall fiscal deficit: 8.5 percent of GDP in 2014.
  - Oil receipts declined by 5 percent of GDP in 2014 despite a 3 percent increase in production.
  - Basic non-oil primary deficit: 72.1 percent of non-oil GDP in 2014 (improved from over 74 percent).
    - Current expenditures rose by 2.5 percent of non-oil GDP vs 2013.
    - Domestically-financed on-budget capital spending increased by 2.7 percent of non-oil GDP.
    - Non-oil revenues fell by 0.5 percent of non-oil GDP vs 2013.
    - Off-budget expenditures decreased by 3.2 percent of non-oil GDP.
    - Domestic arrears payments amounted to 1.5 percent of non-oil GDP in 2014, down by 4.9 percent of non-oil GDP from 2013.
    - Foreign-financed capital expenditures decreased by 7.1 percentage points of non-oil GDP to 11.6 percent of non-oil GDP.
  - Financing of the 8.5 percent of GDP fiscal deficit in 2014:
    - Drawing on government deposits held abroad: 2.1 percent of GDP.
    - Borrowing from the regional central bank: about 5.2 percent of GDP.
  - Current account deficit widened to 5½ percent of GDP in 2014.
  - Official reserves at the BEAC: increased by CFAF 189 billion to CFAF 2,698 billion at end-2014; repatriation included CFAF 141 billion from China and CFAF 427 billion from commercial banks’ deposits held abroad.
  - International reserves and government deposits at the regional central bank: about 9½ months of prospective imports and 20 percent of GDP, respectively.

### Monetary and financial sector developments
- BEAC measures caused banks to reduce net foreign assets by CFAF 427 billion (6.4 percent of GDP) during 2014, to CFAF 165.5 billion at end–2014.
- Credit to the economy: 27.6 percent growth in 2014 (up from 16½ percent in 2013).
- Private credit ratio: 15 percent of GDP.
- Public debt: about 36½ percent of GDP in 2014 (up from 32 percent in 2013 and 20 percent in 2010).
- Ratings: two of three agencies maintained strong sovereign rating; S&P downgraded from B+ to B.
- Banking sector concerns:
  - Three (out of 10) banks below COBAC CFAF 10 billion capital minimum; two have recapitalization plans; third may be converted into SME bank with government participation.
  - NPL ratio: 2.5 percent in 2014 (more than doubled).
  - Stress tests indicate vulnerability to reclassification of performing loans to NPLs.
  - NPLs (net of provisions) to capital: 4.7 percent in 2014.

### External sector and competitiveness
- Oil comprises 80 percent of foreign exchange earnings.
- Non-oil current account deficits: 26 percent of GDP in 2014.
- Real effective exchange rate: depreciated by 2.6 percent in 2014.
- Doing Business: Congo ranks in the lowest 10 percentile on World Bank’s overall score; low scores for Getting credit, Getting electricity, Quality of the insolvency regime.
- Infrastructure gaps persist: electricity supply inadequate, unreliable, and costly; limited transport improvements; ICT made greatest catch-up.

### Near- and medium-term outlook (baseline and projections)
- Oil production expected to decline in 2015 mainly due to delay in a new oil field.
- GDP growth projections:
  - 2015: 1 percent.
  - 2015–20: average about 3 percent per annum.
- Government deposits at the BEAC: expected drawdown of 6.5 percent of GDP in 2015.
- Non-oil growth projected to slow to about 3 percent in 2015–16.
- Inflation: projected at 2½ percent over the medium term.
- Production dynamics: new oil fields expected to improve balances through 2018; from 2018 trend reverses as oil production declines.
- Selected macro projections (GDP and prices, 2013–20 series):
  - GDP at constant prices (annual percent change): 3.3, 6.8, 1.0, 6.5, 7.0, 3.4, -1.6, 0.3.
  - Consumer prices (period average): 4.6, 0.9, 0.9, 1.7, 2.5, 2.5, 2.5, 2.5.
  - World oil price (U.S. dollars per barrel): 104, 96, 59, 64, 67, 70, 71, 71.
  - Oil production (Millions of barrels): 88, 91, 88, 104, 124, 128, 107, 98.

### Alternative scenarios and their implications
- Downside scenario (continued high government spending):
  - Fiscal adjustment postponed by replacing declining oil revenues with external borrowing.
  - Short-term boost to growth but increased inflation erodes competitiveness; higher imports and deteriorating current account over 2016–2018.
  - Projected public debt exceeds 60 percent of GDP by 2019 as oil production/receipts decline from 2018.
  - Drawing down reserves would be required, triggering sharper fiscal adjustment to preserve reserves and the exchange rate peg.
  - Medium- to long-term outcome: lower growth and permanently deteriorated overall debt position.
- Upside policy scenario (improving public sector investment efficiency):
  - Implement PEFA and PEMFAR recommendations and enhance inter-agency coordination.
  - Increased investment efficiency yields higher growth in all years relative to baseline.
  - Medium-term current account slightly worsens due to higher imports; overall fiscal balance and reserves higher than baseline.

### Fiscal policy: key findings and recommended actions
- Urgency of fiscal adjustment heightened by limited lifetime of oil reserves and oil price decline.
- Draft supplementary 2015 budget: authorities project narrowing non-oil primary fiscal deficit to about 42 percent of non-oil GDP from 81.2 percent in 2014; staff projects a narrower adjustment to 57 percent of non-oil GDP in 2015.
- Consolidation mainly via reductions in domestically-financed investment spending, dampening non-oil growth (projected decline to 3.2 percent per annum in 2015–2020 vs almost 8 percent per annum in prior five years).
- Tradeoffs for 2015: drawdown government deposits at central bank vs additional fiscal adjustment vs additional borrowing.
  - Maintain deposits at regional central bank to support peg; external sustainability requires maintaining reserves above five months of imports.
- Recommended medium-term fiscal strategy components:
  - Strengthen fiscal reporting, include overseas deposits and off-budget expenditures in reporting; include off-budget spending above the line and financing from changes in offshore deposits below the line in monthly TOFE.
  - Adopt a multi-year perspective: staff recommended reducing the non-oil primary deficit to about 40 percent of non-oil GDP over the next five years.
  - Strengthen commitment control to stem domestic arrears accumulation.
  - Enhance macroeconomic surveillance and coordination at the regional level (CEMAC).
- Measures to minimize adverse impact of consolidation on growth and poor:
  - Strengthen non-oil revenue collection: minimize reduced VAT rates and tax exemptions; strengthen tax and customs audits; bring non-filers into the tax net.
  - Reprioritize capital spending, including off-budget capital spending; prioritize projects with clear impact on growth potential; include maintenance costs in budget planning; consolidate off-budget investment under the budget process.
  - Rationalize subsidies: energy subsidies amounted to about 4 percent of non-oil GDP in 2014 and have declined to about ½ percent of GDP with fall in oil prices; consider phasing out petroleum product subsidies, possibly timing reform with a pilot cash transfer program.
  - Options to control government wage bill growth: announced multi-year wage increases will push wage bill to peak at nearly 14 percent of non-oil GDP in 2017, from less than percent 10 percent in 2013; increases in wage rates should be moderated.
- Prepare contingency plans and maintain close monitoring of budget execution through comprehensive monthly fiscal reports.

### Debt management, DSA findings, and borrowing policy
- Public/external debt trends:
  - Public debt rose to about 36½ percent of GDP in 2014.
  - Gross public external debt: just over 20 percent of GDP at end–2010; around US$2.4 billion end–2010 and around US$4.9 billion end–2014.
  - External arrears stock at end–2014: US$683.7 million.
  - Bilateral creditors nearly two-thirds of total debt; China accounted for large share.
  - Characteristics of China loans: denominated in US dollars, 20 years maturity, 5 years grace period, 0.25 percent interest rate.
- DSA classification and risks:
  - Conclusion: Republic of Congo faces a moderate risk of debt distress (higher risk vs prior year).
  - Under baseline, PV of debt-to-GDP temporarily breaches policy-dependent indicative threshold in 2015 and 2016.
  - Stress tests: multiple breaches; exports shock identified as most extreme shock (oil ~80 percent of exports).
  - Net debt analysis accounting for sizable government deposits at BEAC classifies Congo as at “moderate risk of debt distress”; sustained breaches occur only under stress tests.
  - If new borrowing is less concessional, risk of debt distress could rise.
- DSA baseline and selected projections (2013–20 and beyond):
  - External public debt (percent of GDP): 32.0, 36.4, 48.5, 44.3, 38.0, 36.7, 37.6, 38.6 (2013–20).
  - External public debt (after debt relief) (percent of GDP): 68.8, 86.0, 122.4, 110.3, 99.6, 95.1, 98.1, 102.7 (2013–20).
  - Gross official foreign reserves (CFAF billion): 2,509; 2,698; 2,194; 2,015; 2,109; 2,154; 1,753; 1,565 (2013–20).
  - Reserves (Months of imports): 7.4, 9.3, 6.5, 5.9, 5.9, 5.9, 5.3, 5.0 (2013–20).
  - Nominal GDP (Billions of CFA francs): 6,657; 6,689; 5,528; 6,421; 7,848; 8,007; 7,633; 7,265 (2013–20).
  - Total gross financing need (Billions of U.S. dollars) (selected series): -1.9, -1.9, -1.9, 1.1, 0.6, 0.2, 0.4, 1.2, 0.8, 0.6, 0.5, 0.4, 0.7, 0.1, 0.3.
- Recommended debt management actions:
  - Pursue prudent borrowing policy keeping NPV of net debt below indicative DSA thresholds.
  - Develop a medium-term debt strategy (MTDS), strengthen skills to evaluate financing offers, enhance transparency in debt and asset management.
  - Strengthen institutional and analytical capacities before issuing government bonds in local/regional markets; coordinate with CEMAC partners.

### Public financial management (PFM) and investment efficiency
- PFM challenges and execution shortcomings:
  - Failure to adhere to budget allocations during execution.
  - Budget coverage incomplete for revenues and expenditures.
  - Weak commitment control, especially for investment.
  - Frequent in-year budget adjustments; weaknesses in accounts preparation; persistence of domestic payment arrears at some 5.5 percent of GDP.
- Legal and institutional reforms:
  - Adoption of Organic Law in 2012; transposition of six CEMAC PFM Directives underway.
  - Draft fiscal responsibility and transparency (FRT) law prepared; draft law awaiting Council of Ministers ratification.
  - Efforts to improve expenditure management under IT system (SIDERE) and program budgeting development.
- PEMFAR follow-up recommendations:
  - Prioritize budget allocations to agriculture and social sectors (health and education); build capacity in these ministries for PFM and M&E.
  - Broaden scope of budget documentation and fiscal reporting; consolidate off-budget spending.
  - Ensure reliable forecasts of fiscal aggregates and strengthen commitment controls and procedures to prevent arrears accumulation.
  - Tighten in-year adjustment procedures; take multi-year perspective for investment commitments; link NDP to budget allocations.
  - Rationalize IT systems to ensure full coverage and inter-operability.
- Public investment efficiency:
  - Improve investment efficiency to close gap above average for Low Income Developing Countries.
  - Enhance project selection methods and include maintenance costs in budgets; consolidate off-budget investment.

### Financial sector development and inclusion
- Policy advice to promote financial access and intermediation:
  - Accelerate implementation of centralized balance sheet bureau; strengthen credit registry.
  - Establish property registry and unique land-title registration window.
  - Strengthen judicial framework and capacity on financial sector issues.
  - Encourage microfinance and mobile banking; continue electronic payment system for taxes/utilities; develop bank branch network.
  - Put in place a financial sector development strategy with prioritized time-bound actions.
- AML/CFT: operationalize financial intelligence unit (ANIF-Congo) and ensure adequate budget for independent core functions; ensure compliance with CDD.

### Data quality, statistics, and coordination
- Data shortcomings: weaknesses and delays in national accounts, monetary, fiscal, and external sector statistics; IIP not compiled.
- Recommendations:
  - Operationalize National Strategy for Statistics Development (NSSD); ensure adequate funding to statistics agency.
  - Clarify agency responsible for national accounts and debt data; unify statistics across agencies.
  - Improve timeliness and quality of macroeconomic data to support reforms and Article VIII obligations.

### Long-run wealth, public capital stock, and balance-sheet perspective
- Congo begins as a net debtor; wealth drawn down over time with net financial asset position projected in the order of –20.3 percent of GDP in 2034.
- Under high-efficiency public investment assumption:
  - Unadjusted public capital stock projected in the order of 194 percent of GDP in 2034.
- Interest rate used in automatic dynamics: 6.5 percent.
- Selected balance-sheet projections (CFA francs, billions):
  - Assets (2013–20): 60,740; 57,274; 54,015; 52,174; 50,060; 46,284; 42,545; 39,073.
  - Oil reserves (2013–20): 50,646; 46,644; 43,970; 40,485; 35,630; 30,808; 26,642; 23,072.
  - Public capital stock (2013–20): 7,749; 8,708; 8,483; 10,167; 12,639; 13,413; 13,822; 13,915.
  - Net worth (CFA francs, billions) (2013–20): 58,199; 54,475; 51,007; 49,072; 46,890; 43,188; 39,552; 36,184.
  - Wealth (2014–20 series): 11,780; 10,733; 9,764; 8,731; 7,734; 6,684; 5,381.
- Implications:
  - Elevated public capital stock may come at cost of eroding financial buffers; improving investment efficiency and PFM is essential to maximize returns and protect wealth.
  - To prevent rapid drawdown of total financial wealth, Congo needs to address public expenditure levels and cancel non-priority expenditures and low value-added investment projects.

### Staff appraisal and policy priorities (summary)
- Immediate guidance:
  - Pass the 2015 supplementary budget swiftly and monitor implementation closely.
  - Weigh responses carefully to revenue shortfalls and expenditure overruns.
  - Maintain deposits at the regional central bank as a buffer and prepare contingency plans for downside risks.
- Medium-term framework:
  - Safeguard fiscal and debt sustainability via coherent medium-term fiscal adjustment; anchor policy on gradual multi-year reduction in non-oil primary deficit.
  - Adhere to prudent borrowing policy and coordinate within revised CEMAC surveillance.
- Expenditure and revenue priorities:
  - Orient public expenditure toward inclusive growth and pro-poor programs; strengthen link between NDP and budgets; boost non-oil revenues by limiting reduced VAT rates and tax exemptions; follow up on PEFA and PEMFAR to strengthen budget execution and spending quality.
- Financial sector & statistics priorities reiterated: improve credit registry; establish property registry; strengthen judicial framework; promote microfinance/mobile banking; maintain reserves above five months of imports; operationalize NSSD and unify statistics.

_Italic: Source — IMF staff report content provided in the supplied document._

### 1. Public Expenditure and Accountability Framework Assessment and Recommendations _______ 19

### 1. Public Expenditure and Accountability Framework Assessment and Recommendations _______ 19

### Background
- Growth averaged 5 percent over the last 5 years as government spending was ramped up, financed mostly by rising oil receipts.
- Large infrastructure gaps persist; the 2011 household survey showed limited progress in reducing poverty and inequality.
- Low international oil price environment increases urgency for fiscal consolidation and reorientation of public investment toward raising potential growth of the non-oil economy.
- Public investment program should be clearly oriented toward raising potential growth of the non-oil economy and combined with a stronger policy focus on the costs of doing business and competitiveness issues.
- Presidential elections are planned for mid–2016; the constitution does not allow President Sassou N’guesso to run for a third term. In May 2015 the government launched a dialogue on constitutional reform; opposition parties announced a boycott.

### Recent policy actions and recommendations follow-up
- An expansionary supplementary budget was approved in September 2014 for increased spending on the All Africa Games (AAG) to be held in Brazzaville in 2015.
- In view of the oil price decline, the 2015 budget envisaged some consolidation; the Cabinet approved a supplementary budget with additional fiscal adjustment to fully take into account the decline in oil prices, but the authorities did not adopt the recommended medium-term fiscal framework targeting a decline in the nonoil primary deficit.
- Under the Public Expenditure Management and Financial Accountability Review (PEMFAR), authorities are reviewing, with development partners, the scope for improving the efficiency and quality of public expenditures.
- Some government deposits in China have been repatriated to the Bank of Central African States (BEAC), in line with regional reserves pooling arrangements.

### Recent economic developments (key findings and statistics)
- Growth rose to 6.8 percent in 2014, up from 3.3 percent in 2013, driven by a rebound in oil production and strong non-oil sector performance.
- Inflation decelerated from 2.1 percent at end–2013 to 0.5 percent at end-2014 (year-on-year).
- The overall fiscal deficit amounted to 8.5 percent of GDP in 2014, a near doubling from 2013.
- Oil receipts declined by 5 percent of GDP in 2014 despite a 3 percent increase in production.
- The basic non-oil primary deficit improved from over 74 percent to 72.1 percent of non-oil GDP in 2014.
  - Current expenditures rose by 2.5 percent of non-oil GDP compared to 2013.
  - Domestically-financed on-budget capital spending increased by 2.7 percent of non-oil GDP.
  - Non-oil revenues fell by 0.5 percent of non-oil GDP compared to 2013.
  - Off-budget expenditures decreased by 3.2 percent of non-oil GDP.
  - Domestic arrears payments amounted to 1.5 percent of non-oil GDP in 2014, down by 4.9 percent of non-oil GDP from 2013.
  - Foreign-financed capital expenditures decreased by 7.1 percentage points of non-oil GDP to 11.6 percent of non-oil GDP.
- In response to the decline in oil prices, the fiscal deficit of 8.5 percent of GDP was mainly financed by:
  - Drawing on government deposits held abroad: 2.1 percent of GDP.
  - Borrowing from the regional central bank: about 5.2 percent of GDP.
- The current account deficit widened by one percent of GDP to 5½ percent of GDP in 2014.
- Official reserves held at the BEAC increased by CFAF 189 billion to CFAF 2,698 billion at end-2014, partly due to repatriation of government deposits held in China (CFAF 141 billion) and commercial banks’ deposits held abroad (CFAF 427 billion).
- International reserves and government deposits at the regional central bank remain at about 9½ months of prospective imports and 20 percent of GDP, respectively — the highest among CEMAC members.
- The 2015 budget was based on an oil price assumption of $70 per barrel; in Q1 Congo received less than $50 per barrel. In late-May the Council of Ministers adopted a supplementary budget based on an oil price of $55; Parliamentary approval is pending.
- Only 30 percent of monthly budget allocations for current expenditures were released in 2015 (except for the wage bill and the salary component of transfers, executed in full); implementation of lower-priority projects was slowed.

### Monetary and financial sector developments
- BEAC measures in May and July 2014 instructed banks to conduct foreign exchange transactions directly with the regional central bank, causing banks to reduce their net foreign assets (NFA) by CFAF 427 billion (6.4 percent of GDP) during 2014, to CFAF 165.5 billion at end–2014.
- Credit to the economy accelerated to 27.6 percent in 2014, up from 16½ percent in 2013.
- The ratio of private credit to GDP remains at 15 percent of GDP.
- Public debt rose to about 36½ percent of GDP in 2014, up from 32 percent of GDP in 2013 and from 20 percent of GDP in 2010.
- Two of three ratings agencies maintained Congo’s strong sovereign rating; S&P downgraded Congo from B+ to B as part of a reassessment for oil exporters.

### External sector and competitiveness
- Oil comprises 80 percent of foreign exchange earnings.
- Congo is the 4th largest oil producer in SSA (figure context).
- Non-oil current account deficits remained large at 26 percent of GDP in 2014, signaling competitiveness concerns.
- Real effective exchange rate depreciated by 2.6 percent in 2014, yet non-oil exports remained weak.
- Congo ranks in the lowest 10 percentile on the World Bank’s overall ‘Ease of Doing Business’ score, with particularly low scores for:
  - Getting credit
  - Getting electricity
  - Quality of the insolvency regime

### Business environment, governance, and infrastructure (findings)
- Governance indicators are similar to other CEMAC countries but lower than expected for countries with similar income levels.
- Congo has made limited gains in improving governance, on par with the region.
- Infrastructure gaps remain despite some progress; ICT showed the greatest catch-up, while access to water and sanitation, electricity supply, and transport improvements remain limited.
- Electricity supply is inadequate, unreliable and costly.
- Improvement in transport has been very limited.

### Key risks highlighted
- Sharp lower oil receipts will constrain efforts to address development challenges and could give rise to tensions and instability.
- High dependence on oil and uncertainty about future oil prices and demand in key export markets increase vulnerability.
- Rising public and external debt and the deterioration in the fiscal and current account balances in 2014 increase macroeconomic risks.
- Competitiveness challenges and significant infrastructure gaps threaten non-oil export performance and diversification.

*Source: IMF staff report excerpt — “1. Public Expenditure and Accountability Framework Assessment and Recommendations”*

### 16.      The near- and medium-term outlook will be shaped by developments in the oil

### _cr15263 - 16.      The near- and medium-term outlook will be shaped by developments in the oil

### Near- and medium-term macroeconomic outlook
- Oil production is expected to decline in 2015 mainly due to the delay in the coming on stream of a new oil field.
- GDP growth:
  - 2015: 1 percent.
  - 2015–20: average about 3 percent per annum.
- Government deposits at the BEAC: expected drawdown of 6.5 percent of GDP in 2015.
- Non-oil growth:
  - Projected to slow to about 3 percent in 2015–16 as public investment spending contracts and mining projects are delayed.
- Inflation: projected at 2½ percent over the medium term, underpinned by the pegged exchange rate regime.
- Production dynamics:
  - Expected increase in oil production from new oil fields coming on stream should improve fiscal and external balances through 2018.
  - From 2018, trend reverses as oil production declines.

### Alternative scenarios and implications
- Two alternative scenarios were analyzed: a “downside” scenario (continued high government spending) and an “upside policy” scenario (improving public sector investment efficiency).
- Downside scenario (continued high spending):
  - Fiscal adjustment postponed by replacing declining oil revenues with external borrowing.
  - Short-term boost to growth from higher spending but increased inflation would erode competitiveness.
  - Higher imports and deteriorations in the current account deficit over 2016–2018.
  - Projected decline in oil production and receipts from 2018 would lead public debt to exceed 60 percent of GDP by 2019.
  - Continued high spending would need to be financed by drawing down reserves, eventually triggering the need for a sharper fiscal adjustment to preserve reserves and buttress the exchange rate peg.
  - Medium- to long-term outcome: lower growth and a permanently deteriorated overall debt position.
- Upside policy scenario (improving investment efficiency):
  - Achieved by implementing the PEFA and PEMFAR recommendations and enhanced coordination between government agencies.
  - Increased investment efficiency leads to higher growth in all years relative to the baseline.
  - Higher growth slightly worsens the medium-term current account owing to higher imports.
  - In the medium term, the overall fiscal balance and reserves are higher than in the baseline.

### Risks to the outlook
- Risks are broadly balanced.
- Global risk: prolonged period of low oil prices.
- Without a clearly articulated medium-term fiscal consolidation plan:
  - Accumulation of domestic expenditure arrears could accelerate.
  - Risks to debt sustainability increase.
  - Could significantly undermine economic resilience, fiscal space for diversification and poverty reduction, and could give rise to tensions and instability.
- Upside risk: improvements in public sector investment efficiency.

### Authorities’ views (summary)
- Authorities more optimistic about non-oil growth in 2015, expecting buoyancy from agriculture and industry.
- AAG expected to boost tourism, commerce, and services; household consumption expected to remain robust, supported by rising public sector wages.
- Acknowledged uncertainty from the oil price shock impacting consumer and investor sentiment.
- Considered spillovers from slowdown in construction sector moderate, as large projects are mostly undertaken by foreign companies relying heavily on imports.
- Authorities reiterated commitment to prudent fiscal policy but noted spending pressures related to diversification plans and prioritized AAG and urbanization program spending.
- Authorities indicated unwillingness to adjust announced multi-year increases in civil servants’ salaries because of commitments to social partners.
- Authorities agreed that off-budget expenditures had caused discrepancies and agreed to consolidate off-budget spending in fiscal reporting going forward.

### Fiscal policy: key findings and recommended actions
- Urgency of fiscal adjustment increased by limited remaining lifetime of oil reserves and decline in international oil prices.
- Recent fiscal developments:
  - Supplementary 2014 budget deviated from a consolidation path; increased domestically-financed capital expenditures mainly for the AAG.
  - On-budget domestically-financed capital spending was under-executed following the oil price fall as authorities prioritized AAG and urbanization.
  - Elections in 2016 (presidential) and 2017 (legislative) create additional spending pressures.
- Draft supplementary 2015 budget tightens fiscal stance:
  - Authorities project narrowing of the non-oil primary fiscal deficit to about 42 percent of non-oil GDP from 81.2 percent of non-oil GDP in 2014.
  - Staff projects a smaller narrowing to a deficit of 57 percent of non-oil GDP in 2015.
  - Consolidation mostly reflects reductions in domestically-financed investment spending, which dampens non-oil growth (projected decline to 3.2 percent per annum in 2015–2020 vs almost 8 percent per annum in prior five years).
- Tradeoffs for 2015: weigh financing the fiscal deficit from drawing down government deposits at the central bank, additional fiscal adjustment, and additional borrowing from external or domestic sources.
  - Maintaining deposits at the regional central bank provides a buffer and supports the pegged exchange rate.
  - External sustainability requires maintaining reserves above five months of imports.
- Recommended medium-term fiscal strategy components:
  - Strengthen fiscal reporting, including reporting on overseas deposits and off-budget expenditures; include off-budget spending above the line and financing from changes in offshore deposits below the line in monthly TOFE.
  - Adopt a multi-year perspective: staff recommended reducing the non-oil primary deficit to about 40 percent of non-oil GDP over the next five years to ensure long-term fiscal sustainability.
  - Strengthen commitment control to stem domestic arrears accumulation.
  - Enhance macroeconomic surveillance and coordination at the regional level (CEMAC) and spearhead enhanced regional coordination in response to the shock.
- Measures to minimize adverse impact of consolidation on long-term growth and the poor:
  - Strengthen non-oil revenue collection: minimize reduced VAT rates and tax exemptions; strengthen tax and customs audits and inspections; bring non-filers into the tax net.
  - Reprioritize capital spending, including off-budget capital spending; rationalize projects by prioritizing those with clear impact on growth potential; improve project selection methods and include maintenance costs in budget planning; consolidate off-budget investment under the budget process.
  - Rationalize subsidies that disproportionately benefit the least needy: energy subsidies amounted to about 4 percent of non-oil GDP in 2014 and have declined to about ½ percent of GDP with the fall in oil prices; consider phasing out petroleum product subsidies, possibly timing reform with introduction of a pilot cash transfer program.
  - Consider options to control growth of the government wage bill: announced multi-year wage increases will push the wage bill to peak at nearly 14 percent of non-oil GDP in 2017, from less than percent 10 percent in 2013; increases in wage rates should be moderated.
- Prepare contingency plans and maintain close monitoring of budget execution through comprehensive monthly fiscal reports.

### Debt management and borrowing policy
- Adherence to a prudent borrowing policy essential to avoid jeopardizing debt sustainability.
- External debt has risen steadily; authorities intend to mobilize additional borrowing in addition to drawing down oil reserves.
- Staff urged:
  - Pursue a prudent borrowing policy keeping the NPV of net debt below indicative DSA thresholds.
  - Be aware that decline in oil prices and drop in nominal GDP cause the NPV of gross external debt to GDP ratio to temporarily breach the 30 percent of GDP threshold in 2015 and 2016.
  - Based on gross external debt metrics and sustained breaches in stress tests, this could lead to a downgrade to a “high risk of debt distress.”
  - Analysis based on net debt (accounting for sizable government deposits at the BEAC) indicates only sustained breaches under stress tests and classifies Congo as at “moderate risk of debt distress.”
  - If new borrowing is on less concessional terms than recent years, the risk of debt distress could rise.
- Recommendations to strengthen debt and asset management:
  - Develop a medium-term debt strategy (MTDS), strengthen skills for evaluating financing offers, and enhance transparency in debt and asset management.
  - Before issuing government bonds in local and regional markets, strengthen institutional and analytical capacities, draw up a strategy in collaboration with CEMAC partners to develop the regional government securities market, and detail financing requirements to be covered by government securities and other sources in the MTDS.

### Public financial management and investment efficiency
- Need to improve quality of government spending and public financial management to maximize returns and safeguard debt sustainability.
- Specific PFM reforms and investment-efficiency measures:
  - Implement PEFA and PEMFAR recommendations and enhance coordination between government agencies.
  - Improve investment efficiency to close a reported efficiency gap that is significantly higher than the average for Low Income Developing Countries.
  - Enhance project selection methods to boost quality of public investment and maximize long-run capital stock (Annex IV).
  - Ensure adequate provisions for maintenance costs in budget planning and consolidate any off-budget investment spending under the budget process.
  - Strengthen commitment control and fiscal reporting transparency to avoid accumulation of arrears and reconcile offshore deposit reporting (noting past discrepancies in TOFE and reported offshore deposit movements).

_Italic: Source — IMF staff report content provided in the supplied document._

### 29.      The PFM system faces a number of challenges in critical areas. Progress has been

### _cr15263 - 29.      The PFM system faces a number of challenges in critical areas. Progress has been

### Public financial management (PFM) challenges and execution
- Progress made: refining legislative framework for the budget, strengthening public procurement, developing a medium-term budget framework.
- Remaining shortcomings:
  - Failure to adhere to budget allocations during execution.
  - Budget does not provide full coverage of government revenues and expenditures (see ¶24).
  - Weaknesses in commitment control, particularly for investment expenditures.
  - Frequent recourse to in-year budget adjustments.
  - Weaknesses in accounts preparation complicating timely and accurate reporting of expenditures.
- Observable outcome: persistence of domestic payment arrears at some 5.5 percent of GDP and risks of further arrears from reductions in public spending.

### Legal and institutional reform efforts
- Since the adoption of the Organic Law in 2012, focus has been on transposition of the six CEMAC PFM Directives.
- Government actions under way:
  - Draft legislation on fiscal transparency, budget classification, and the chart of accounts.
  - Draft fiscal responsibility and transparency (FRT) law to establish guiding principles and include provisions on natural resources revenue transparency, complementing Congo’s compliant status under the Extractive Industry Transparency Initiative (EITI) since February 2013.
  - Efforts to improve expenditure management under the IT system (SIDERE) and development of program budgeting.
- Implementation gaps: PFM reforms are lagging in critical areas highlighted by the recent PEFA assessment; a clearer institutional framework and review of timeline/sequencing of activities are needed.

### PEMFAR-based policy recommendations to enhance equity and efficiency
- Prioritize budgetary allocations to the agriculture and social sectors (health and education) and build capacity of staff in these ministries in PFM issues while improving monitoring and evaluation of projects to address low execution rates.
- Improve allocations of public resources, including providing geographic coverage of the budget by regions or rural vs. urban areas.
- Pilot, and eventually mainstream, a pro-poor cash transfer program that is well-targeted and adequately monitored.
- Improve access to health care, for example by waiving user fees for the poor and compensating providers as part of the government’s universal health care coverage, to be rolled out over the medium term.
- Prioritize infrastructure spending with a stronger growth and human development impact.

### PEFA follow-up findings and recommended reform-plan elements (Box 1)
- PEFA progress noted: introduction of a medium-term budgetary framework, procurement reforms, clearer legal underpinnings from the 2012 budget framework law.
- PEFA identified scope to strengthen: credibility of budget allocations; scope and coverage of budget documents; timeliness and accuracy of accounting data; internal control; transparency.
- Critical cross-cutting issue: performance of IT systems underpinning the PFM system.
- Recommended critical elements for updated reform plan:
  - Broadening the scope of budget documentation and fiscal reporting and consolidating off-budget spending.
  - Ensuring reliable forecasts of fiscal aggregates and strengthening commitment controls and procedures to help prevent further accumulation of arrears.
  - Tightening procedures for in-year budget adjustments.
  - Taking a multi-year perspective in fiscal planning, in particular for commitments on investment projects.
  - Reinforcing the link between the National Development Plan (NDP) and budgetary allocations.
  - Rationalizing IT systems to ensure full coverage and inter-operability between key departments and modules.

### Authorities’ views on PFM and related reforms
- Authorities prioritize PFM reforms and view focus on the CEMAC Directives as appropriate; intend to move ahead with the FRT law before the end of the year.
- Ongoing projects are being postponed, not cancelled; authorities argue costs should not increase and arrears should not accumulate.
- Authorities note possible overstatement of payment arrears depending on accounting conventions and acknowledge the need for more comprehensive presentation of government fiscal operations.
- Geographic budget allocation information is seen as best addressed via the shift toward program budgeting.
- On public investment efficiency, authorities intend higher priority to quality concerns; consider current agriculture allocations appropriate given flanking rural policies.
- On cash transfers, plan to roll out the Lisungi project in the second half of 2015 with World Bank support across pilot districts.

### Financial sector vulnerabilities and recommended reforms
- Macro-financial linkages: decline in oil prices may have important spillover effects to the financial sector.
- Banking sector status:
  - Three (out of the 10) banks do not maintain capital above the COBAC CFAF 10 billion minimum; two have time-bound recapitalization plans; the third may be turned into an SME bank with government participation.
  - NPL ratio more than doubled to 2.5 percent in 2014 (from low levels).
  - Stress tests (January 2015 FSAP): banks vulnerable to re-classification of performing loans to NPLs.
- Risks: buildup of government arrears to domestic private sector operators could lead to a further increase in NPLs.
- Policy advice to promote financial access and intermediation:
  - Accelerate implementation of a centralized balance sheet bureau to strengthen accounting data quality.
  - Strengthen the credit registry.
  - Establish a property registry and a unique window to register land titles.
  - Strengthen the judicial framework (boost judges’ and tribunals’ capacity on financial sector issues).
  - Encourage microfinance and mobile banking via collaboration among commercial banks, microfinance institutions, and telecommunication companies.
  - Continue implementation of the electronic payment system for taxes and utilities and develop the bank branch network.
  - Work closely with COBAC and BEAC on financial innovations to ensure regional regulatory consistency.
  - Put in place a financial sector development strategy with a roadmap of prioritized time-bound actions involving all stakeholders and proactive monitoring.
- AML/CFT: operationalize the recently created financial intelligence unit (ANIF-Congo), ensure adequate budget for independent core functions, and ensure compliance with customer due diligence (CDD).

### Data quality, statistics, and policy coordination
- Need to improve quality and timeliness of macroeconomic data to support reform implementation and Article VIII obligations (e.g., IIP data, off-budget spending, deposits held abroad).
- Staff encouraged operationalizing the National Strategy for Statistics Development (NSSD), ensuring adequate funding to the statistics agency, clarifying which agency compiles national accounts and debt data, and unifying data across government agencies.
- Improve policy coordination and monitoring to enhance efficiency and effectiveness of macroeconomic and structural reform policies; PEMFAR highlights need for enhanced coordination for public investment planning, budgeting, and implementation.
- Opportunity: renewal of the 2012–16 NDP in 2016 to better embed development objectives in regional integration context.

### Staff appraisal: macroeconomic performance, outlook, and policy priorities
- Recent outcomes:
  - Growth rose to 6.8 percent in 2014, driven by a rebound in oil production.
  - Inflation eased to 0.5 percent at end–2014 (year-on-year), driven mainly by lower global food prices.
  - Fiscal deficit amounted to 8.5 percent of GDP in 2014, a near doubling from 2013, owing mostly to increased spending and lower oil receipts.
- Outlook and risks:
  - Economy projected to expand by about 3 percent per annum during 2015–20 as new oil fields come on stream.
  - Fiscal consolidation implied by the supplementary budget expected to result in growth slowing to 1 percent in 2015.
  - Risks: oil price volatility, persistently low oil prices, accumulation of domestic payment arrears, and domestic instability.
  - Non-oil export performance is weak, indicating competitiveness concerns.
- Immediate fiscal policy guidance:
  - Pass the 2015 supplementary budget swiftly and monitor implementation closely.
  - Weigh responses carefully to revenue shortfalls and expenditure overruns.
  - Maintain deposits at the regional central bank to provide a buffer against additional shocks.
  - Prepare contingency plans for downside risks.
- Medium-term fiscal framework:
  - Safeguard fiscal and debt sustainability via a coherent medium-term fiscal adjustment strategy.
  - Anchor fiscal policy on a gradual multi-year reduction in the non-oil primary deficit due to limited oil reserve lifetime and continued low prices.
  - Adhere to a prudent borrowing policy to keep the NPV of net debt below indicative DSA thresholds; coordinate within a revised CEMAC macroeconomic surveillance framework.
- Expenditure and revenue priorities:
  - Orient public expenditure increasingly toward policies that support inclusive growth and pro-poor programs; strengthen link between NDP and annual budgets and focus on economic diversification.
  - Strengthen selection, evaluation, and monitoring of investment projects and budget for operating and maintenance costs.
  - Follow up on PEFA and PEMFAR recommendations to strengthen budget execution, procurement and disbursement processes, and improve efficiency and quality of spending.
  - Boost non-oil revenues by limiting reduced VAT rates and tax exemptions and reinforcing tax and customs administration.
  - PFM reforms should focus on improving investment quality, resolving arrears accumulation, and ensuring comprehensive fiscal reporting that consolidates off-budget spending, possibly with IMF technical assistance.
- Financial sector priorities reiterated: improve credit registry, establish property registry and unique land-title window, strengthen judicial framework, and promote microfinance and mobile banking.
- External sustainability:
  - Aim to maintain reserves above five months of imports to support the exchange rate peg.
  - Compliance with CEMAC reserves pooling requirements is reinforced by the decline in oil prices; staff welcomes repatriation of part of Congo’s overseas deposits and recommends continuation of this policy.
- Statistics priority: urgent strengthening of quality and timeliness of macroeconomic statistics, operationalize the NSSD, unify statistics across government agencies, and ensure the national statistics agency has adequate funding.

*Source: IMF staff report excerpt provided in the content unit.*

### 52.      It is recommended that the next Article IV consultation take place on the standard

### _cr15263 - 52.      It is recommended that the next Article IV consultation take place on the standard

### Recommendation
- It is recommended that the next Article IV consultation take place on the standard 12–month cycle.

### Selected Economic and Financial Indicators (highlights and projections)
- GDP at constant prices (annual percent change): 3.3, 6.8, 1.0, 6.5, 7.0, 3.4, -1.6, 0.3 (2013–20).
- Oil GDP growth (annual percent change): -10.2, 3.4, -3.4, 18.2, 18.8, 3.5, -16.4, -9.0 (2013–20).
- Non-oil GDP growth (annual percent change): 8.1, 7.9, 2.3, 3.4, 3.3, 3.4, 3.6, 2.9 (2013–20).
- GDP at current prices (annual percent change): -4.6, 0.5, -17.3, 16.1, 22.2, 2.0, -4.7, -4.8 (2013–20).
- GDP deflator (annual percent change): -7.7, -6.0, -18.2, 9.0, 14.2, -1.4, -3.1, -5.1 (2013–20).
- Consumer prices (period average): 4.6, 0.9, 0.9, 1.7, 2.5, 2.5, 2.5, 2.5 (2013–20).
- Consumer prices (end of period): 2.1, 0.5, 1.8, 2.1, 2.4, 2.5, 2.5, 2.5 (2013–20).
- Current account balance (percent of GDP): -4.5, -5.5, -10.7, -6.0, 3.4, 2.7, -3.0, -1.2 (2013–20).
- Gross official foreign reserves (CFAF billion): 2,509; 2,698; 2,194; 2,015; 2,109; 2,154; 1,753; 1,565 (2013–20).
  - Reserves (Months of imports): 7.4, 9.3, 6.5, 5.9, 5.9, 5.9, 5.3, 5.0 (2013–20).
  - Reserves (Percent of GDP): 38, 40, 40, 31, 27, 27, 23, 22 (2013–20).
- External public debt (percent of GDP): 32.0, 36.4, 48.5, 44.3, 38.0, 36.7, 37.6, 38.6 (2013–20).
- Broad money (growth): 0.7, 13.1, 1.6 (2013–15).
- Credit to the economy (growth): 16.5, 27.6, 15.5 (2013–15).
- Gross national saving (percent of GDP): 26.5, 29.9, 23.9, 25.4, 30.1, 29.0, 25.1, 26.0 (2013–20).
- Gross investment (percent of GDP): 30.9, 35.4, 34.6, 31.4, 26.7, 26.4, 28.1, 27.2 (2013–20).
- Central government: Total revenue (percent of GDP): 111.7, 93.9, 71.7, 80.1, 87.9, 86.1, 76.9, 68.6 (2013–20).
  - Oil revenue (percent of GDP): 82.1, 64.7, 39.6, 47.5, 55.1, 53.1, 44.0, 35.8 (2013–20).
  - Nonoil revenue (inc. grants and investment income) (percent of GDP): 29.6, 29.2, 32.1, 32.6, 32.7, 30.3, 32.7, 32.6 (2013–20).
  - Total expenditure (percent of GDP): 116.0, 110.9, 89.6, 84.0, 81.6, 76.2, 74.1, 67.2 (2013–20).
- Overall balance (deficit -, commitment basis) (percent of GDP, including grants): -4.3, -17.0, -17.9, -3.9, 6.2, 9.9, 2.8, 1.3 (2013–20).
- Non-oil primary balance (- = deficit) (percent of non-oil GDP): -85.7, -81.2, -57.3, -51.1, -48.6, -42.9, -40.9, -34.2 (2013–20).
- Basic primary fiscal balance (- = deficit) (percent of GDP): 14.1, -5.9, -5.6, 6.1, 15.1, 14.8, 3.2, 1.7 (2013–20).
- Basic non-oil primary balance (- = deficit) (percent of non-oil GDP): -68.0, -70.6, -45.2, -41.4, -40.0, -38.3, -22.8, -16.9 (2013–20).
- External public debt service (after debt relief) (percent of exports): 5.2, 6.6, 7.4, 6.9, 6.3, 7.6, 9.2, 8.3 (2013–20).
- External public debt (after debt relief) (percent of GDP): 68.8, 86.0, 122.4, 110.3, 99.6, 95.1, 98.1, 102.7 (2013–20).
- Nominal GDP (Billions of CFA francs): 6,657; 6,689; 5,528; 6,421; 7,848; 8,007; 7,633; 7,265 (2013–20).
- Nominal non-oil GDP (Billions of CFA francs): 2,796; 3,050; 3,098; 3,253; 3,434; 3,624; 3,845; 4,020 (2013–20).
- World oil price (U.S. dollars per barrel): 104, 96, 59, 64, 67, 70, 71, 71 (2013–20).
- Oil production (Millions of barrels): 88, 91, 88, 104, 124, 128, 107, 98 (2013–20).
- Nominal Exchange rate (CFA/USD, period average): 494, 494 (2013–14).
- REER (percentage change): 7.4, -2.6 (2013–14).

### Medium Term Balance of Payments (selected lines, Billions of CFA francs)
- Current account: -298, -367, -589, -384, 263, 213, -233, -89 (2013–20).
- Non-oil current account: -1,843, -1,766, -1,302, -1,305, -1,178, -1,376, -1,596, -1,236 (2013–20).
- Trade balance: 2,309, 2,067, 1,361, 2,357, 3,404, 3,283, 2,543, 2,408 (2013–20).
  - Exports, f.o.b.: 4,675; 4,509; 3,353; 4,590; 5,628; 5,644; 5,099; 4,609 (2013–20).
    - Oil sector exports: 4,039; 3,814; 2,564; 3,693; 4,619; 4,590; 3,976; 3,418 (2013–20).
    - Non-oil sector exports: 636; 694; 789; 897; 1,009; 1,054; 1,122; 1,191 (2013–20).
  - Imports, f.o.b.: -2,366; -2,442; -1,993; -2,233; -2,224; -2,361; -2,556; -2,201 (2013–20).
    - Government imports: -971; -905; -579; -656; -613; -789; -1,013; -687 (2013–20).
- Balance of services: -1,227; -1,223; -1,069; -1,308; -1,352; -1,346; -1,244; -1,147 (2013–20).
- Income: -1,190; -1,008; -627; -1,169; -1,516; -1,470; -1,269; -1,081 (2013–20).
  - Investment income: -1,133; -955; -592; -1,118; -1,451; -1,405; -1,214; -1,034 (2013–20).
- Capital account: 263; 130; 262; 528; 282; 27 (2013–18).
- Financial account: -903; 905; 918; 1; -193; -196; -195; -127 (2013–20).
  - Direct investment (net): 1,248; 1,311; 879; 1,393; 1,048; 1,021; 898; 783 (2013–20).
    - Of which oil sector: 1,109; 1,121; 799; 1,314; 970; 938; 808; 688 (2013–20).
  - Other investment (net): -1,338; -922; -819; -1,212; -1,241; -1,217; -1,093; -910 (2013–20).
- Overall balance of payments: -362, 54, -500, -177, 95, 45, -400, -188 (2013–20).

### Central Government Operations (selected fiscal data, Billions of CFA francs and percent of GDP)
- Total revenue and grants (Billions of CFA francs, selected years): 3,512; 3,123; 3,465; 3,193; 2,863; 2,648; 2,269; 3,237; 2,221; 2,606; 3,018; 3,120; 2,955; 2,756 (2016–20 budget and projections table entries).
- Oil revenue (Billions of CFA francs, selected years): 2,597; 2,295; 2,378; 2,250; 1,973; 1,479; 860; 2,205; 1,226; 1,545; 1,894; 1,924; 1,692; 1,440.
- Non-oil revenue (Billions of CFA francs, selected years): 741; 801; 885; 895; 857; 996; 1,236; 1,000; 955; 1,028; 1,094; 1,163; 1,231; 1,284.
- Total expenditure and net lending (Billions of CFA francs, selected years): 2,818; 3,243; 3,600; 2,831; 3,381; 3,055; 2,706; 2,880; 2,775; 2,732; 2,803; 2,762; 2,848; 2,703.
- Current expenditure (Billions of CFA francs, selected years): 1,022; 943; 1,106; 1,077; 1,106; 993; 1,010; 1,182; 1,011; 1,042; 1,123; 1,116; 1,150; 1,180.
- Capital expenditure (Billions of CFA francs, selected years): 1,796; 1,612; 2,495; 1,754; 1,624; 2,062; 1,696; 1,698; 1,164; 1,190; 1,181; 1,146; 1,198; 1,023.
- Off-budget expenditure (Billions of CFA francs): 0; 686; 800; 652; 0; 0; 600; 500; 500; 500; 500; 500; 500; 500 (sample entries).
- Non-oil primary balance (Billions of CFA francs): -1,914; -2,398; -2,518; -1,883; -2,478; -1,881; -1,291; -1,841; -1,774; -1,661; -1,668; -1,553; -1,571; -1,376.
- Basic primary balance (Billions of CFA francs): 1,288; 395; 326; 741; -180; 20; -106; 64; -174; 198; 520; 536; 125; 69.
- Basic non-oil primary balance (Billions of CFA francs): -1,309; -1,900; -2,052; -1,509; -2,153; -1,459; -869; -1,541; -1,400; -1,347; -1,374; -1,389; -876; -680.
- Overall balance, cash basis (Billions of CFA francs): 627; -300; -173; 225; -565; -407; -437; 255; -593; -194; 146; 324; 73; 19 (selected entries).
- Financing (Billions of CFA francs, selected): Foreign (net): 470; 433; 509; 216; 286; 265; 271; 118; 232; 155; 124; -53; -55; -15. Domestic (net): -1,098; -134; -288; -441; 280; 142; 166; -373; 360; 39; -270; -272; -18; -4.
- Stock of government deposits (Billions of CFA francs, memorandum): 2,448; 1,324; 982; 1,765; 982; 1,194; 1,194; 2,138; 622; 582; 852; 1,123; 1,141; 1,145.

### Government Cash Flow Schedule (selected lines, Billions of CFA francs)
- Deposits in banking system, beginning of period: 1,349; 1,324; 982; 622; 583; 852; 1,124; 1,142.
- Gross cash inflows: 2,889; 2,440; 1,610; 1,865; 2,193; 2,094; 1,891; 1,641 (2013–20 entries).
  - Oil receipts: 2,295; 1,973; 1,226; 1,545; 1,894; 1,924; 1,692; 1,440.
  - External debt placement: 497; 324; 374; 313; 294; 164; 195; 196.
  - Deposits from abroad: 591; 410; 0; 0; 0; 0; 0; 0.
- Gross cash outflows: 2,914; 2,781; 1,970; 1,904; 1,924; 1,823; 1,874; 1,637.
  - Non-oil primary deficit: 2,398; 2,478; 1,774; 1,661; 1,668; 1,553; 1,571; 1,376.
  - External amortization: 157; 180; 142; 158; 170; 217; 250; 210.
- Net cash flow: -25; -342; -360; -392; 70; 27; 21; 84 (2013–20).
- Deposits in banking system, end of period: 1,324; 982; 622; 583; 852; 1,124; 1,142; 1,146.
- Memorandum: Debt (Billions of CFA francs): 2,542; 2,799; 3,007; 3,103; 3,170; 3,096; 2,993; 2,889.
  - Domestic debt: 411; 364; 326; 257; 189; 154; 120; 86.
  - External debt: 2,131; 2,435; 2,682; 2,845; 2,981; 2,942; 2,873; 2,803.
- Overall balance (percent of GDP): -1.8; -7.8; -10.2; -2.0; 2.7; 4.4; 1.3; 0.7.
- Debt (percent of GDP): 38.2; 41.8; 54.4; 48.3; 40.4; 38.7; 39.2; 39.8.
- Government deposits in banking system (percent of GDP): 19.9; 14.7; 11.3; 9.1; 10.9; 14.0; 15.0; 15.8.

### Monetary Survey (selected lines, Billions of CFA francs and percent changes)
- Net foreign assets (Billions of CFA francs): 3,097; 3,000; 2,768; 2,294 (2012–15).
  - Central bank: 2,676; 2,406; 2,601; 2,101.
  - Deposit money banks: 422; 594; 166; 193.
- Net domestic assets (Billions of CFA francs): -794; -682; -145; 371 (2012–15).
  - Net domestic credit: -669; -542; 245; 41.
  - Credit to the economy: 667; 780; 979; 1,142.
- Broad money (M2) (Billions of CFA francs): 2,303; 2,319; 2,623; 2,664.
- Broad money growth (percent): 21.1; 0.7; 13.1; 1.6 (2012–15).
- Reserve money growth (percent): 16.3; -13.1; 44.6; -1.8 (2012–15).
- Total GDP growth (annual percent changes reported): 2.6; -4.6; 0.5; -17 (2012–15).
- Non-oil GDP growth (annual percent changes): 17.9; 13.3; 9.1; 1.6 (2012–15).
- Credit to the private sector/Non-oil GDP: 27.0; 27.9; 32.1; 36.8 (2012–15).

### Banking Sector Financial Soundness Indicators (end of period, percent)
- Regulatory capital to risk-weighted assets: 12.8 (2012); 11.9 (2013); 16.1 (2014); 15.6 (Feb-2015*).
- Capital to assets: 6.6 (2012); 8.2 (2013); 4.5 (2014); 4.2 (Feb-2015*).
- Nonperforming loans to total gross loans: 1.5 (2012); 1.2 (2013); 2.5 (2014); 2.8 (Feb-2015*).
- Nonperforming loans (net of provisions) to capital: 1.0 (2012); 0.3 (2013); 4.7 (2014); 5.1 (Feb-2015*).
- Return on assets: 1.6 (2012); 2.0 (2013); 1.0 (2014); n.a. (Feb-2015*).
- Return on equity: 27.8 (2012); 28.4 (2013); 23.4 (2014); n.a. (Feb-2015*).
- Liquid assets/total assets: 32.1 (2012); 25.2 (2013); 17.1 (2014); 15.1 (Feb-2015*).
- Note: *Latest available observation. Data were extracted in April 2015.

### Millennium Development Goals (selected indicators, various years)
- Employment to population ratio, 15+, total (%): 62.6 (1995); 63.7 (2000); 65.8 (2009); 66.0 (2011); 66.0 (2012); 66.1 (2013).
- Prevalence of undernourishment (% of population): 44.7 (1995); 30.1 (2000); 35.7 (2009); 35.0 (2011); 33.0 (2012).
- Primary completion rate, total (%): 69.5; 76.1; 73.0 (selected entries across years).
- Proportion of seats held by women in national parliaments (%): 2.0 (1995); 12.0 (2000); 7.3 (2009); 7.3 (2011); 7.4 (2012); 7.4 (2013).
- Immunization, measles (% of children ages 12–23 months): 38.0 (1995); 34.0 (2000); 63.0 (2009); 75.0 (2011); 65.0 (2012); 65.0 (2013).
- Mortality rate, infant (per 1,000 live births): 68.3 (1995); 76.5 (2000); 45.1 (2009); 39.4 (2011); 37.3 (2012); 35.6 (2013).
- Mortality rate, under-5 (per 1,000): 107.0 (1995); 121.0 (2000); 65.7 (2009); 55.7 (2011); 52.0 (2012); 49.1 (2013).
- Maternal mortality ratio (per 100,000 live births): 650 (1995); 610 (2000); 580 (2009); 560 (2011); 410 (2013).
- Prevalence of HIV, total (% of population ages 15–49): 5.8 (1995); 5.2 (2000); 3.1 (2009); 2.8 (2011); 2.6 (2012); 2.5 (2013).
- Mobile cellular subscriptions (per 100 people): 0.0 (1995); 2.2 (2000); 73.8 (2009); 91.9 (2011); 98.8 (2012); 105.0 (2013).
- GNI per capita, Atlas method (current US$): 430 (1995); 570 (2000); 1,950 (2009); 2,200 (2011); 2,480 (2012); 2,590 (2013).
- Life expectancy at birth, total (years): 52.9 (1995); 52.2 (2000); 56.6 (2009); 57.8 (2011); 58.3 (2012).

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

### Annex I. Authorities’ Implementation of 2014 Policy

### Annex I. Authorities’ Implementation of 2014 Policy Recommendations

### Fiscal Policy Anchor and Revenue Measures
- 2014 recommendation: Implement a fiscal anchor based on a reduction of the non-oil primary deficit over time to ensure fiscal and debt sustainability and accumulate wealth buffers for the post–hydrocarbon future.
- Authorities’ implementation:
  - The 2014 Supplementary budget deviated from the recommended fiscal consolidation path.
  - The 2015 Budget and 2015 Supplementary budget have put fiscal policy on a consolidation path.
  - The authorities have stopped short of adopting a fiscal anchor based on a reduction of the non-oil primary deficit over time.
  - The tax base for the VAT has been broadened, including the introduction of a tax on mobile telephone operators in 2015.

### Public Financial Management (PFM)
- 2014 recommendation: Bolster transparency and strengthen accountability of PFM in line with regional guidelines; improve budget execution and procurement/disbursement processes.
- Authorities’ implementation:
  - A draft fiscal responsibility and transparency law has been prepared to implement some CEMAC directives on public financial management; it would improve budget accounting, preparation, and execution. The draft law awaits ratification by the Council of Ministers.
  - Progress in discussions with staff on making fiscal reporting more comprehensive by including financing flows from overseas government deposits and off-budget spending.

### Fiscal Expenditures and Social Programs
- 2014 recommendations: Address social and economic infrastructure gaps by boosting the quality of public investment spending; expansion of ongoing employment and social safety net programs.
- Authorities’ implementation and assessment:
  - Efficiency and quality of public expenditures remains poor, suggested by frequent power outages and poor road conditions.
  - Efforts to improve selection, evaluation, and monitoring of investment projects as well as budgeting of operating and maintenance costs need to be strengthened.
  - Implemented measures:
    - A food security safety net has been implemented.
    - A national institute for professional training related to implementation of social protection programs has been established.
    - Employment programs to develop skills to meet private sector needs continue.
    - Infrastructure in the education sector has been upgraded.
    - The pilot program of targeted cash transfers was officially launched in 2014, and implementation continues.

### Business Climate and Financial Services
- 2014 recommendations: Strengthen the business climate; remove barriers to effective provision of financial services to foster private sector development and inclusive growth.
- Authorities’ implementation and assessment:
  - Measures taken:
    - Paying taxes made easier by reducing the corporate income tax rate and abolishing the tax on the rental value of business premises and on company-owned cars.
    - Minority investor protections improved by enhancing company disclosure and transparency requirements.
    - These measures are reflected in the 2015 World Bank ‘Doing Business’ survey.
  - Remaining challenges:
    - Congo’s business climate remains among the most challenging in the world.
    - Market depth, financial intermediation and access to finance continue to lag.

### Policy Coordination and Data
- 2014 recommendations: Enhance policy coordination and monitoring; improve data strength and timeliness.
- Authorities’ implementation and assessment:
  - Lack of coordination between government agencies continues to hamper efficiency and effectiveness of macroeconomic and structural reform policies.
  - Improving the quality and timeliness of data remains urgent.

### Regional Cooperation
- 2014 recommendation: Observance of CEMAC obligations, especially regarding reserves repatriation and pooling requirements.
- Authorities’ implementation:
  - The authorities repatriated a portion of their Chinese deposits in 2014 and in the first few months of 2015.

*Source: Annex I. Authorities’ Implementation of 2014 Policy Recommendations, Republic of Congo — IMF staff report.*

### 8.      As a result, Congo is unable to build up wealth buffers in the long run. Congo begins as a

### _cr15263 - 8.      As a result, Congo is unable to build up wealth buffers in the long run. Congo begins as a

### Long-run net financial assets and total wealth
- Congo begins as a net debtor (negative net financial assets), as the elevated levels of debt exceed assets.
- Wealth is drawn down over time, associated with continued high government spending and lower future oil revenues.
- Even as the non-oil primary deficit reduces over time, the legacy of high government expenditures is projected to leave Congo as a long run net debtor, with a net financial asset position in the order of –20.3 percent of GDP in 2034.
- As future oil revenues dissipate, long run total wealth will be negative.
- Methodological notes:
  - The initial net financial asset position at end 2014 is defined as the difference between government deposits at the BEAC and abroad and external and domestic debt.
  - Thereafter, the net financial asset position grows by the factor (1+r/1+g), where g is the nominal growth rate of non-oil GDP and r is the interest rate. This is known as the ‘automatic dynamics’ of the net financial asset position.
  - The interest rate is fixed at 6.5 percent, while growth varies endogenously according to the macro framework.
  - For 2015 onwards, net financial assets is then the sum of these ‘automatic dynamics’, plus present year oil revenues, and the non–oil primary balance.
  - Future oil revenues are discounted by product of the factor (1+g)/r. For example, to discount 2018 oil revenues back to end 2014, multiply oil revenues in 2018 by the product of (1+g)/r for 2015–18.

### Public capital stock outcomes and implications
- As a result of elevated expenditures and the drawdown in wealth, Congo is projected to build up a public capital stock well above that of the middle income country average.
- Assuming a high efficiency of public infrastructure investment expenditures, the fiscal consolidation path permits the accumulation of an unadjusted capital stock in the order of 194 percent of GDP in 2034.
- This elevated projected level of the public capital stock is a preliminary analysis and warrants further investigation.
- The elevated level of the public capital stock comes at the cost of completely eroding Congo’s financial buffers, with no wealth reserves left for future generations.

### Investment efficiency, public financial management, and quality of expenditures
- Potential inefficiencies in the public investment process and weak public financial management processes would imply a lower effective level of the public capital stock.
- The gap between the two estimated capital stocks under different assumptions on investment efficiency highlights the need for Congo to improve their PFM systems, in order to improve the quality of investment expenditures, maximize their return on public investment and the level of the public capital stock.
- To prevent the rapid drawdown of total financial wealth and the complete erosion of future financial wealth, Congo needs to address the level of public expenditures as a matter of priority.
  - For example, non priority expenditures and expenditures on investment projects with limited value-added in terms of economic development could be cancelled.
  - Maximizing the quality of expenditures would help boost the long run level of the capital stock.
- Swift implementation of reforms to public financial management practices and the enhancement of investment project selection methods are essential for boosting the quality of public investment spending and maximizing the level of Congo’s long-run public capital stock.

### Balance-sheet perspective and risk management
- Preliminary analysis using a ‘balance sheet’ approach to public sector assets and liabilities highlights importance of increasing the quality of public expenditures in the medium term.
- The bulk of Congo’s net worth is composed of the proven value of oil reserves.
- A high level of public investment quality would be important to maximize the level of the public capital stock and hence increase growth.
- Improved public investment quality would help shield the public sector balance sheet from downside risks to the oil price outlook, as well as the projected decline in the value of proven oil reserves at present that is implied by current resource extraction rates.

### Key projected and reported numbers (selected from text and Table 2)
- Net financial asset position in the order of –20.3 percent of GDP in 2034.
- Unadjusted public capital stock in the order of 194 percent of GDP in 2034 (high efficiency assumption).
- Interest rate used in automatic dynamics: 6.5 percent.
- Table 2 (selected levels, CFA francs, billions; projections):
  - Assets: 2013: 60,740; 2014: 57,274; 2015: 54,015; 2016: 52,174; 2017: 50,060; 2018: 46,284; 2019: 42,545; 2020: 39,073.
  - Domestic deposits: 2013: 1,324; 2014: 981; 2015: 621; 2016: 582; 2017: 851; 2018: 1,123; 2019: 1,141; 2020: 1,145.
  - Foreign deposits: 2013: 642; 2014: 562; 2015: 562; 2016: 562; 2017: 562; 2018: 562; 2019: 562; 2020: 562.
  - Oil reserves: 2013: 50,646; 2014: 46,644; 2015: 43,970; 2016: 40,485; 2017: 35,630; 2018: 30,808; 2019: 26,642; 2020: 23,072.
  - Public capital stock: 2013: 7,749; 2014: 8,708; 2015: 8,483; 2016: 10,167; 2017: 12,639; 2018: 13,413; 2019: 13,822; 2020: 13,915.
  - Liabilities: 2013: 2,542; 2014: 2,799; 2015: 3,007; 2016: 3,103; 2017: 3,170; 2018: 3,096; 2019: 2,993; 2020: 2,889.
  - External debt: 2013: 2,131; 2014: 2,435; 2015: 2,682; 2016: 2,845; 2017: 2,981; 2018: 2,942; 2019: 2,873; 2020: 2,803.
  - Net worth (CFA francs, billions): 2013: /2 58,199; 2014: 54,475; 2015: 51,007; 2016: 49,072; 2017: 46,890; 2018: 43,188; 2019: 39,552; 2020: 36,184.
  - Net worth excluding oil reserves: 2013: 7,552; 2014: 7,831; 2015: 7,037; 2016: 8,587; 2017: 11,261; 2018: 12,380; 2019: 12,910; 2020: 13,111.
  - Wealth (/3): 2014: 11,780; 2015: 10,733; 2016: 9,764; 2017: 8,731; 2018: 7,734; 2019: 6,684; 2020: 5,381. (Wealth is defined as the sum of net financial assets and the present discounted value of future oil receipts.)
  - GDP (Memorandum): 2013: 6,657; 2014: 6,689; 2015: 5,528; 2016: 6,421; 2017: 7,848; 2018: 8,007; 2019: 7,633; 2020: 7,265.

*Source: IMF Staff estimates and calculations presented in the IMF staff report.*

### References

### _cr15263 - References

### References
- Gupta, S., A. Kangur. C. Papageorgiou and A. Wane, 2011, “Efficiency Adjusted Capital and Growth,” IMF Working Paper 11/217 (Washington, DC: International Monetary Fund).
- Kamps, C., 2006, “New Estimates of Government Net Capital Stocks for 22 OECD countries, 1960–2001,” IMF Staff Papers, Vol. 53 No. 1, pp. 120-150.

### Relations with the Fund — Financial Relations (As of June 9, 2015)
- Membership Status: Joined: July 10, 1963; Article VIII.
- General Resources Account:
  - Quota: 84.60 SDR Million (100.00 percent Quota)
  - Fund holdings of currency (Exchange Rate): 84.03 SDR Million (99.33 percent Quota)
  - Reserve Tranche Position: 0.58 SDR Million (0.68 percent Quota)
- SDR Department:
  - Net cumulative allocation: 79.69 SDR Million (100.00 percent Allocation)
  - Holdings: 70.35 SDR Million (88.28 percent Allocation)
- Outstanding Purchases and Loans:
  - ECF Arrangements: 11.24 SDR Million (13.29 percent Quota)
- Latest Financial Arrangements (Date of Expiration / Amount Approved / Amount Drawn):
  - ECF: Dec 08, 2008 / Aug 04, 2011 — 8.46 SDR Million approved / 8.46 SDR Million drawn
  - ECF: Dec 06, 2004 / Jun 05, 2008 — 54.99 SDR Million approved / 23.58 SDR Million drawn
  - ECF: Jun 28, 1996 / Jun 27, 1999 — 69.48 SDR Million approved / 13.90 SDR Million drawn
  - Note: Formerly PRGF.
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - 2015 Principal: 2.30; Charges/Interest: 0.00; Total: 2.30
  - 2016 Principal: 2.66; Charges/Interest: 0.01; Total: 2.67
  - 2017 Principal: 1.69; Charges/Interest: 0.01; Total: 1.70
  - 2018 Principal: 1.69; Charges/Interest: 0.01; Total: 1.70
  - 2019 Principal: 1.33; Charges/Interest: 0.01; Total: 1.34
  - Note: When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

### HIPC and MDRI Implementation
- HIPC Initiative — Enhanced Framework:
  - Decision point date: Mar 2006
  - Assistance committed by all creditors (US$ Million): 1,574.60
  - Of which: IMF assistance (US$ million): 7.73 (SDR equivalent in millions: 5.40)
  - Completion point date: Jan 2010
  - Disbursement of IMF assistance (SDR Million):
    - Assistance disbursed to the member: 5.40
    - Interim assistance: 0.90
    - Completion point balance: 4.49
    - Additional disbursement of interest income: 0.86
    - Total disbursements: 6.26
  - Notes:
    - Assistances committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.
    - Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.
- Implementation of Multilateral Debt Relief Initiative (MDRI):
  - MDRI-eligible debt (SDR Million): 7.86
  - Financed by:
    - MDRI Trust: 4.79 SDR Million
    - Remaining HIPC resources: 3.07 SDR Million
  - Debt Relief by Facility (SDR Million):
    - Eligible Debt Delivery Date January 2010 — PRGT: N/A; Total: 7.86

### Safeguards Assessment — BEAC
- The Bank of the Central African States (BEAC) is subject to a safeguards assessment every four years; the quadrennial assessment in 2013 occurred after governance challenges and control failures in 2009.
- 2013 assessment findings:
  - Some progress in reinforcing safeguards, but further actions needed to fully restore sound governance and control.
  - Recommended amendments to the BEAC charter and commitment to achieve the Reform and Modernization Plan (RMP).
  - Recommended continued annual monitoring visits to follow-up on safeguards rolling measures.
- April 2015 safeguards staff visit findings:
  - BEAC continues implementation of its reform plan but slippages occurred and the RMP timeframe was revised.
  - Progress on implementing safeguards rolling measures has been mixed.
  - Priority recommendations on amendments to the BEAC charter and adoption of an internationally recognized financial reporting framework (IFRS) are delayed.
  - BEAC requested IMF technical assistance; steps for prompt delivery have been initiated.
  - Strong actions and close coordination with member states will be needed to conclude reforms; progress will remain subject to IMF monitoring as a condition for new program requests and reviews for CEMAC member countries.

### Nonfinancial Relations
- Exchange System:
  - De jure and de facto exchange rate arrangement of the Central African Monetary Union (CAMU) is a conventional peg.
  - Regional currency: CFA franc, pegged to the Euro at a fixed rate of CFAF 655.95 =Euro 1.
  - Congo has accepted the obligations of Article VIII, Sections 2, 3 and 4 and maintains no separate legal tender.
  - Congo does not impose any restrictions on the making of payments and transfers for current international transactions.
- Article IV consultations:
  - Consultations are on a 12-month cycle.
  - Last Article IV consultation discussions held in Brazzaville on May 13 – 26, 2014.
  - Consultation concluded by the Executive Board on July 21, 2014 when the staff report (Country Report No. 14/272) was discussed.

### Technical Assistance Received (2012–2015)
- Selected TA missions (Subject — Department — Staff Member — Date):
  - National Accounts — AFRITAC — Hubert Gbossa — June 2015
  - Liability Management — AFRITAC — Helene le Manchec, Chaker Soltani — May 2015
  - Government Finance Statistics — STA — Vincent Marie — April 2015
  - Program Budgeting — AFRITAC — Abdoulaye Toure — April 2015
  - National Accounts — AFRITAC — Francois Ramde — March 2015
  - Balance of Payments Statistics — STA — Michel Dessart — February 2015
  - Debt Management — AFRITAC — Chaker Soltani — December 2014
  - Program Budgeting — AFRITAC — Marie Christine Uguen, Abdoulaye Toure, Christophe Moret — December 2014
  - Strengthening LTO/MTO Administration — AFRITAC — Anthony Ramarozatovo — November 2014
  - Program Budgeting — AFRITAC — Abdoulahi Mfombout — August 2014
  - National Accounts — AFRITAC — Hubert Gbossa — August 2014
  - Program Budgeting (remotely) — AFRITAC — Christophe Moret — July 2014
  - Program Budgeting — AFRITAC — Olivier Benon — June 2014
  - Liability Management — MCM — Chaker Soltani — February 2014
  - National Accounts — AFRITAC — Hubert Gbossa and Francois Ramde — February 2014
  - Government Finance Statistics — STA — Ciaran Judge — January 2014
  - National Accounts — AFRITAC — Francois Ramde — October 2013
  - Debt Management — MCM — Oumar Dissou — August 2013
  - Customs Administration — FAD — Yves Michel Soler — June 2013
  - Public Financial Management — AFRITAC — Christophe Maurin — June 2013
  - Public Financial Management — FAD — Maximilien Pierre Queyranne — December 2012
  - Budget preparation and IFMIS — FAD — Nicolas Marcel Botton — December 2012
  - Public Financial Management — AFRITAC — Blaise Yehouenou — June 2012
  - VAT Administration — AFRITAC — Louis Rene Ossa — May 2012
  - Customs Administration — AFRITAC — Ives Soler — April 2012
  - Treasury Operations — AFRITAC — Jean Pierre le Bouder — April 2012
  - Customs administration — FAD — Gilles Parent, Yves Soler, and Christian Breemeersch — January 2012
  - National Accounts — AFRITAC — Maxime Bonkoungou and Hubert Gbossa — January 2012
  - Treasury Operations — AFRITAC — Blaise Yehouenou and Eric Brintet — January 2012

### IMF–World Bank Cooperation and Joint Action Plan (As of June 9, 2015)
- Cooperation themes: macroeconomic situation, PEMFAR, MDG progress, World Bank country programs, debt sustainability analysis (DSA).
- Bank work program in next 12 months (Products — Expected Delivery):
  - 2nd Edition Economic Update — September 2015
  - Public Expenditure Management and Financial Accountability Review (PEMFAR) — June 2015
  - Trade Facilitation and Intervention — June 2015
  - Country Program Strategy (CPS) Progress Report — June 2015
  - Policy Note on Economic Diversification — December 2016
  - Systematic Country Diagnostic — June 2016
  - Transparency & Governance Repeat Project — June 2015
  - Water, Electricity & Urban Development SIL — December 2015
  - Agricultural Development and Rural Roads Rehabilitation Project — October 2015
  - Support to Economic Diversification Project — February 2016
  - LISUNGI Safety Nets Project — February 2018
  - Skills Development for Employability Project — September 2018
  - Health Sector Project — June 2019
  - Statistics Capacity Building Project — June 2019
- IMF work program in next 12 months:
  - Article IV consultation — 2015–16
  - Technical Assistance: MCM (Liability / Debt Management); AFRITAC (National Accounts); STA (Balance of Payments, GDDS+)
- World Bank request to Fund:
  - Macroeconomic updates for project documents — 2015–18
- Joint products in next 12 months:
  - Debt Sustainability Analysis — July 2015
  - Debt Sustainability Analysis — June 2016

### Statistical Issues (As of June 9, 2015)
- Overall assessment:
  - Data provision is broadly adequate for surveillance, but key shortcomings exist in national accounts, monetary, fiscal, and external sector statistics due to capacity constraints.
- National Accounts:
  - National accounts data weak, with inconsistencies internally and with balance of payments statistics.
  - NSI completed national accounts estimates for 2005 (new base year) and 2006–08 with AFRITAC Central assistance; NSI working to revise estimates up to 2012.
  - System of provisional accounts being implemented to provide recent-year estimates.
  - Coordination between Directorate General of the Economy and NSI is weak; NSI will be sole source going forward.
- Price Statistics:
  - CPI compiled monthly for Brazzaville and Pointe Noire.
  - Since August 2010, a new CPI measure with new weights and harmonized composition with CEMAC was introduced.
- Government Finance Statistics (GFS):
  - MEFPPI produces GFS data but submissions to the IMF statistical department are substantially delayed and limited to budgetary central government above-and-below the line transactions.
  - Debt data available from Caisse Congolaise d’Amortissement (CCA) but not integrated in GFS reporting; significant inconsistencies between debt stock and future debt service payments.
  - Fiscal financing transactions incomplete; inconsistencies and lags related to consolidation and intra-governmental transfers, particularly oil revenues.
  - No centralized, comprehensive database on public enterprises’ operations.
  - Republic of Congo reported GFS data to STA for fiscal years 2004 and 2005 using GFSM 2001 template; data for 2006–10 delayed.
  - High-frequency fiscal data not yet reported for publication in IFS.
  - Authorities intend to expand GFS reporting to extra budgetary units, social security funds and local government and improve timeliness.
- Monetary Statistics:
  - Reported to Fund by BEAC monthly in SRF format.
  - Depository corporation survey excludes deposit taking microfinance institutions.
  - Significant time lag in reporting to Fund missions.
  - Plans to include interest rate data on deposits and loans in future.
- Financial Sector Surveillance:
  - Republic of Congo reports to STA all core and some encouraged financial soundness indicators.
- Balance of Payments:
  - BEAC produces BOP data but substantial delays in submission to STA.
  - BOP mission of February 2015 assisted authorities to fill required reporting forms for data posterior to 2007 and urged National Committee of the Balance of Payments to validate data for 2011 onwards.
  - Data on the International Investment Position is not compiled.
- Data Standards and Quality:
  - Republic of Congo participates in the GDDS since November 5, 2003; metadata on DSBB not updated since 2003.
  - No data ROSC available.

### Table of Common Indicators Required for Surveillance (As of June 9, 2015) — Selected entries
- Exchange Rates: Date of latest observation: Current; Date received: Current; Frequency of Data: D; Frequency of Reporting: D; Frequency of Publication: D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: March 2015; Date received: June 2015; Frequency: M (data, reporting, publication).
- Reserve/Base Money: March 2015; Date received: June 2015; Frequency: M (data, reporting, publication).
- Broad Money: March 2015; Date received: June 2015; Frequency: M (data, reporting, publication).
- Central Bank Balance Sheet: March 2015; Date received: June 2015; Frequency: M (data, reporting, publication).
- Consolidated Balance Sheet of the Banking System: March 2015; Date received: June 2015; Frequency: M (data, reporting, publication).
- Interest Rates: Date of latest observation: May 2015; Date received: May 2015; Frequency: M (data, reporting, publication).
- Consumer Price Index: Date of latest observation: February 2015; Date received: May 2015; Frequency: M (data, reporting, publication).
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Date of latest observation: March 2015; Date received: May 2015; Frequency: M (data, reporting, publication).
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation: December 2014; Date received: May 2015; Frequency: Q (data, reporting, publication).
- External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP: Date of latest observation: December 2014; Date received: May 2015 (except GDP/GNP date received May 2014); Frequency: A (data, reporting, publication).
- Gross External Debt: Date of latest observation: December 2014; Date received: March 2015; Frequency: Q (data, reporting, publication).
- International Investment Position: Not available.

### Debt Sustainability Analysis (DSA) — Key Findings and Policy Implications
- Conclusion: Republic of Congo faces a moderate risk of debt distress, a higher risk relative to the previous year’s analysis.
- Vulnerabilities:
  - Confirmed vulnerability to external shocks, particularly declines in oil prices and external demand, even under baseline with sustained fiscal adjustment.
- Baseline and stress test outcomes:
  - Under the baseline scenario, the present value of debt-to-GDP ratio temporarily breaches the policy-dependent indicative threshold in 2015 and 2016.
  - Other debt burden indicators projected to remain below policy-dependent indicative thresholds.
  - Standard stress tests result in multiple breaches of thresholds.
  - Net debt analysis factoring government deposits at the regional central bank indicates sustained breaches only under stress tests.
- Classification rationale:
  - Despite solitary breach under baseline and multiple stress test breaches, net debt analysis leads to classification of “moderate risk of debt distress”.
- Policy recommendations:
  - Continue fiscal adjustment assumed in baseline.
  - Focus efforts on diversification of tradable sectors to increase resilience.
  - Promote medium- and long-term fiscal and debt sustainability through:
    - Continued adherence to prudent borrowing policies.
    - Building of fiscal buffers.
- Notes:
  - This DSA is based on end–2014 debt data; the 2014 DSA was based on end–2013 debt data.
  - Fiscal year for the Republic of Congo is January–December.
- Prepared jointly by IMF and World Bank staff, in consultation with the authorities, using the debt sustainability framework for low-income countries approved by the Boards of both institutions.
- Approved By: Anne-Marie Gulde-Wolf and Bob Traa (IMF) and John Panzer (IDA).
- Date: July 1, 2015.

*Source: REPUBLIC OF CONGO — STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION — INFORMATIONAL ANNEX (as provided in the source content).*

### 1.      Congo’s stock of external debt has continued its upward trend since the extensive

### 1.      Congo’s stock of external debt has continued its upward trend since the extensive 

### Debt stock, composition, and recent evolution
- Estimated total debt service savings from HIPC Initiative Completion Point (January 2010): US$1.9 billion.
- Gross public external debt: just over 20 percent of GDP at end–2010 (from about 55 percent of GDP in 2009).
- External debt stock:
  - End–2010: US$2.4 billion.
  - End–2014: around US$4.9 billion.
  - External arrears stock at end–2014: US$683.7 million (more than ⅔ related to commercial creditors; remainder owed to bilateral creditors under HIPC Initiative discussions).
- Debt-to-GDP ratio increased steadily over the past 3 years reflecting new borrowing, notably large disbursements under bilateral loan agreements with China contracted between 2006 and 2014.
- Creditor composition:
  - Bilateral creditors comprise nearly two-thirds of total debt.
  - Domestic public debt: around 5.4 percent of GDP at end–2014; consists mostly of domestic arrears (bulk involve pension arrears and unpaid social benefits).
- Characteristics of loans from China: denominated in US dollars and obtained on a concessional basis (20 years maturity, 5 years grace period, 0.25 percent interest rate).

### Debt service and creditor breakdown (selected figures from Table 1)
- Total reported debt stock (2010–2014 sequence in CFA/USDC units as presented):
  - 2010: 1,203
  - 2011: 2,434
  - 2012: 1,568
  - 2013: 3,325
  - 2014: 4,934
- Multilateral debt (2010–2014): 227, 459, 901, 919, 95
- Bilateral debt (2010–2014): 291, 589, 957, 2,031, 3,526
  - of which China (2010–2014): 182, 369, 761, 1,615, 3,180
- Private creditors (2010–2014): 685, 1,386, 520, 1,104, 1,003
- Total debt service (2010–2014): 72.6, 146.8, 65.7, 139.3, 356.7
  - Interest (2010–2014): 15.7, 31.8, 13.4, 28.5, 32.9
  - Amortization (2010–2014): 56.9, 115.0, 52.2, 110.8, 323.8
- Debt service by creditor type (selected):  
  - Multilateral (2010–2014): 8.2, 16.5, 7.4, 15.6, 12.1  
  - Bilateral (2010–2014): 23.6, 47.7, 37.5, 79.5, 290.2  
  - Private creditors (2010–2014): 25.1, 50.8, 7.4, 15.6, 21.5

### Assets, buffers, and net position
- Government gross external debt (percent of GDP):
  - 2013: 32.0
  - 2014: 36.4
- NPV of Gross External Debt /1 (percent of GDP):
  - 2013: 26.6
  - 2014: 26.8
- Gross reserves (including deposits abroad):
  - 2013: 47.3 percent of GDP
  - 2014: 44.7 percent of GDP
- Government deposits (including deposits abroad):
  - 2013: 29.5 percent of GDP
  - 2014: 19 percent of GDP
- Memorandum: Advances taken by the government in 2014: 5.4 percent of GDP.
- Total government deposits at end–2014 are equivalent to about 89 percent of the net present value of gross external public debt.

### Need to strengthen public debt and asset management
- August 2013 IMF public debt management technical assistance needs assessment recommended:
  - (i) strengthen the legal and institutional framework to cover the entire process of issuing and managing debt;
  - (ii) develop a medium-term debt management strategy and enhance transparency in debt management;
  - (iii) introduce a formal framework for managing the government's cash flows;
  - (iv) strengthen staff analytical capabilities with respect to managing the public debt.
- Congolese authorities are receiving ongoing technical assistance from the IMF’s Monetary and Capital Markets Department to strengthen debt management.
- Authorities are undertaking an audit of domestic arrears; intend to put in place a multi-year repayment plan once the audit is completed.

### Macro framework and underlying assumptions for the DSA
- General:
  - Framework consistent with the baseline scenario in the Staff Report for the 2015 Article IV Consultation.
  - Economic activity near- to medium-term expected to reflect developments in oil production and prices.
- Oil production and prices:
  - Oil production projected to reach peak production of about 128 million barrels in 2018 as new oil fields come on stream, then moderate thereafter.
  - Annual oil production projected at around 92 million barrels in 2015 and expected to peak at 128 million barrels in 2018.
  - Production projected to steadily decline over 2019–34 to about 13 million barrels in 2034.
  - International oil prices dipped in latter half of 2014 and are projected to stay below 80 dollars per barrel in the medium term; projected to increase from their 2015 low by an average of 5 percent over the period until 2020; thereafter assumed to remain constant in real terms.
- Non-oil sector:
  - Non–oil growth expected to average 3.2 percent over 2015–20; non-oil growth would stabilize at about 5 percent thereafter.
  - Estimated potential of mining in Congo is more than 50 million tons of iron per year; major mining projects assumed not to commence until 2021, with a small volume of production in that year.
- Inflation:
  - Annual average inflation decelerated to 0.9 percent in 2014 from 4.6 percent in 2015 (text presents 2015 figure as higher than 2014); in the medium term projected to stay below the CEMAC’s convergence criteria of 3 percent.
- Fiscal and public investment:
  - Authorities expected to tighten fiscal policy in near and medium term, scaling back capital expenditures and prioritizing projects.
  - Public capital stock projected to reach a level exceeding that typically observed in middle income countries.
  - Basic non-oil primary deficit on a cash basis projected to narrow from about 46 percent of non-oil GDP in 2015 to about 18 percent in 2020 and close to zero in the long run.
- External financing:
  - New gross external borrowing over 2015–22 expected to total around US$3.3 billion.
  - Assumed Congo continues to obtain external financing on highly concessional terms in line with the agreement signed with China in 2012; degree of concessionality assumed to lessen after 2025.
  - Grant element of new borrowing remains unchanged at about 48 percent (reflecting 5 years of grace period, 20 years maturity and low interest rate on loans); long-term grant element assumed around 28 percent after 2025.
  - In 2014, an additional CFAF 313 billion (about US$ 630 million) was disbursed under bilateral agreements with China (funds fully disbursed).

### DSA baseline outcomes and projections (selected figures from Table 3)
- PPG Gross External Debt, Baseline Scenario (Percent of GDP, selected entries):
  - 2015DSA: 38.6, 34.0, 28.1, 26.4, 26.2, 26.0, 25.6 (for years 2015–2034 as listed)
  - 2014DSA: 25.4, 24.3, 21.2, 20.6, 20.6, 18.3, 13.7
- PV of Debt to GDP Ratio (2015DSA vs 2014DSA examples):
  - 2015DSA: 56.7, 43.1, 35.8, 34.1, 35.2, 42.0, 51.7
  - 2014DSA: 33.6, 33.1, 28.6, 28.7, 30.3, 36.6, 35.1
- Debt Service to Exports Ratio (2015DSA examples): 97.5, 84.7, 73.7, 68.4, 68.4, 75.1, 85.0
- Real GDP growth (annual percentage change) (2015DSA examples): 4.3, 3.5, 3.1, 3.9, 4.8, 2.6, 3.4
- Current account balance (percent of GDP) (2015DSA examples): -25.8, -26.0, -25.4, -24.5, -22.8, -10.8, 2.3
- Basic non-oil primary balance (percent of non-oil GDP) (2015DSA examples): 1.0, 6.5, 7.0, 3.4, -1.6, 2.4, 4.3
- Memorandum Items for New Loan Disbursements (billions FCFA) (2015DSA): 374, 300, 280, 150, 180, 200, 250
- Grant Element of New External Borrowing (2015DSA): 48.2 (repeated across listed years until decline to 28.1 in long term)

### Risk assessment, stress tests, and classification
- Classification context:
  - Joint Bank-Fund debt sustainability framework (DSF) classifies Congo as a “weak” performer, reflected in lower debt sustainability thresholds for such countries.
  - Thresholds for weak performers: PV of debt to exports = 100 percent; PV of debt to GDP = 30 percent; PV of debt to government revenue = 200 percent. Debt service thresholds: 15 percent of exports and 18 percent of revenue.
- Baseline DSA outcomes:
  - Under the baseline, all Congo’s debt indicators except the PV of debt to GDP ratio are below the relevant country-specific debt burden thresholds.
  - For 2015–16, PV of debt to GDP ratio breaches the policy-dependent indicative threshold, mainly reflecting the impact of lower international oil prices.
- Stress tests:
  - Three stress tests breach the indicative threshold significantly.
  - Export shock (decline in exports to one standard deviation below historical average in first two years) would:
    - Raise PV of debt-to-exports ratio by about 170 percentage points at its peak.
    - Raise PV of debt service-to-exports ratio by 18 percentage points at its peak.
  - Half standard deviation shock to exports would:
    - Raise PV of debt to GDP ratio by about 40 percentage points at its peak and keep it above the critical threshold throughout the forecast horizon.
  - Most extreme shock for several indicators is the exports shock (vulnerability driven by oil’s ~80 percent share of exports and volatility of oil prices/production).
- Risk of debt distress:
  - The baseline breach of the policy-dependent PV of debt to GDP ratio in 2015 and 2016 together with multiple stress-test breaches would give rise to a downgrade of Congo to a “high risk of debt distress.”
  - Under a historical scenario (variables at their 10–year historical averages) PV of debt to GDP and PV of debt-to-revenue ratios decline rapidly; however, the scenario is less relevant for resource-rich countries.
- Mitigating role of assets:
  - A DSA that accounts for Congo’s sizable government deposits at the regional central bank suggests Congo could be classified as at “moderate risk of debt distress,” since accumulated deposits permit reduction of the present value of gross external public debt obligations and relevant net debt stock and net debt service ratios remain comfortably below thresholds under the baseline.
  - Including deposits abroad would further support a “moderate risk of debt distress” rating.
- Public DSA (external + domestic public debt):
  - Adding domestic public debt (including domestic arrears) to external debt does not change the overall results.
  - Under the baseline, total public debt indicators tend to diminish over time.
  - Under an alternative ‘fix primary balance’ scenario (primary balance unchanged from 2015 onwards), all public debt ratios increase significantly.
  - Severe stress (real GDP growth in 2016–17 set at one standard deviation below historical average) raises PV of debt to GDP ratio in outer years (from 2019) and stabilizes at that higher level.
  - Accumulated official foreign reserves act as a buffer against potential shocks.

### Policy implications and recommended actions (as reflected in the source)
- Strengthen legal and institutional debt management framework to cover the entire process of issuing and managing debt.
- Develop a medium-term debt management strategy and enhance transparency in debt management.
- Introduce a formal framework for managing the government's cash flows.
- Strengthen staff analytical capabilities for public debt management.
- Complete the audit of domestic arrears and implement a multi-year repayment plan to protect buffers.
- Pursue fiscal consolidation in the near and medium term (scaling back capital expenditures and prioritizing projects) to reduce vulnerability to commodity-price shocks and to limit further public debt accumulation.

*Source: IMF staff report (Republic of Congo DSA and related sections in the provided PDF content).*

### 12.      The Republic of Congo’s authorities broadly concurred with the overall assessment of

### The Republic of Congo’s authorities broadly concurred with the overall assessment of moderate risk of debt distress

### Authorities' position and commitments
- Authorities broadly concurred with the overall assessment of moderate risk of debt distress.
- They reiterated commitment to prudent fiscal policy to:
  - alleviate financing needs; and
  - preserve government deposits at the central bank to provide a buffer against adverse shocks.
- Authorities reaffirmed that they do not want to repeat the experience from the beginning of the 2000s, when debt far exceeded the CEMAC convergence criteria.
- They assured staff of plans to continue to borrow only on highly concessional terms.
- Strategy in light of lower international oil prices continues to center around economic diversification.
- It is assumed that Congo is able to use its deposits at the central bank (US$2.46 billion at end 2014) to offset future debt service payments on bilateral loans with China.
- Although there are indications that domestic arrears may be substantially larger, these do not represent legally verified claims and therefore cannot be included in the DSA. The DSA’s standard stress test whereby the debt ratio is raised by 10 percent of GDP can be thought of as illustrating the effect of adding domestic arrears to the stock of domestic debt upon their possible verification.

### Staff assessment — risk of debt distress and debt dynamics
- Staff view: the Republic of Congo faces a medium-term moderate risk of debt distress.
- An analysis of net debt that takes into consideration the government’s large deposits at the regional central bank finds:
  - All external debt indicators are well below the country-specific indicative thresholds under the baseline scenario.
  - Three of these thresholds are breached for a sustained period under the various standard stress tests.
- In view of persistent low oil prices and decline in fiscal and external buffers, Congo may resort to external borrowing in the near future.
- The pattern seen in the last 3 years with respect to external borrowing underscores the constrained capacity to finance large infrastructure projects; this trend is expected to continue.

### Policy recommendations and priorities
- Anchor macroeconomic policies by a stability-oriented medium-term fiscal framework that:
  - targets a reduction of the non-oil primary fiscal deficit.
- Maintain gross official reserves above five months of prospective imports of goods and services to:
  - support the exchange rate peg; and
  - prepare for the post-oil era.
- New borrowing contracts should reflect similar concessional terms as recent ones in order to maintain debt sustainability, given constrained financing capacity.
- Improving competitiveness and promoting economic diversification to increase resilience to exogenous shocks:
  - Debt ratios are most sensitive to swings in exports; broadening the economic base by enhancing development of the non-oil sector would reduce export volatility and strengthen debt service capacity.
  - Efforts toward improving the business climate with assistance from the World Bank should help strengthen competitiveness and boost growth.
  - Priorities to address weak physical and human capital:
    - make electricity supply more reliable and competitive;
    - enhance the quality of transportation services; and
    - improve the quality of the labor force.

*Source: IMF staff assessment as presented in the Republic of Congo DSA chapter.*

### 15.      Focusing on policies to strengthen public debt and asset management and institutions

### Focusing on policies to strengthen public debt and asset management and institutions

### Policy recommendations and institutional priorities
- Strengthen public debt and asset management and institutions to enhance the authorities’ capacity to manage debt and fiscal policies.
- Raise the country’s CPIA rating through these reforms to increase the Congolese economy’s debt-carrying capacity in the DSA framework.
- Develop and integrate the regional debt market within the CEMAC area to broaden options for meeting the Republic of Congo’s financing needs.
- Pursue issuance of government securities as an alternative means of financing, conditional on strengthening institutions and analytical capacities.

### Debt sustainability analysis (DSA) findings and stress scenarios
- Projection horizon and framing:
  - DSA horizon: 2015–2035.
  - The most extreme stress test is the test that yields the highest ratio on or before 2025; in the figures provided, the most extreme stress test corresponds to an Exports shock in multiple panels.
- Stress scenarios highlighted:
  - Exports shock identified as the most extreme shock across multiple indicators in the 2015–2025 window.
  - One-time depreciation scenario is included among alternative scenarios.
  - Other bound tests include shocks to real GDP growth, US dollar GDP deflator, and net non-debt creating flows.
- Net vs. gross debt perspective:
  - Net debt calculations subtract USD 2.46 billion of government deposits held at the regional central bank from future debt service payments.
  - Figures present both gross and net indicators (PV of debt-to-exports, PV of debt-to-GDP, PV of debt-to-revenue, debt service ratios) under baseline, historical scenario, most extreme shock, and other scenarios.

### Key numeric findings, indicators, and assumptions (selected)
- Net debt adjustment:
  - Net debt is calculated by subtracting USD 2.46 billion of government deposits held at the regional central bank from future debt service payments.
- Time horizon for figures and tables:
  - Charts and tables cover 2015–2035.
- Representative DSA headline metrics and model inputs (as shown in tables):
  - External debt (nominal) series (selected entries): 2012: 25.7; 2013: 32.0; 2014: 36.4; 2015: 51.5; 2016: 46.1; 2017: 38.7; 2018: 36.7; 2019: 37.2; 2020: 38.1; 2021: 38.0; 2022: 37.7; 2023: 38.4; 2024: 38.6; 2025: 39.2; 2035 (average): 34.1.
  - Change in external debt (selected entries): 2012: 2.2; 2013: 6.3; 2014: 4.4; 2015: 15.1; 2016: -5.4; 2017: -7.4; 2018: -2.0; 2019: 0.4; 2020: 0.9.
  - PV of external debt (selected entries): 2015–20 average: 28.1; 2021–35 average: 26.4 (series entries shown across table).
  - PV of PPG external debt (in percent of exports, selected): values in table include figures such as 38.6, 56.7, 43.1, 35.8, 34.1, 35.2, 36.8, 37.6, 37.6, 39.1, 40.5, 42.0, 53.3 (as reported across projection years).
  - PPG debt service-to-revenue ratio (in percent) example series: 0.4, 0.5, 0.5, 7.4, 6.9, 6.4, 7.7, 9.3, 8.5, 8.7, 8.2, 4.5, 4.4, 4.6, 6.3 (as reported across years).
  - Total gross financing need (Billions of U.S. dollars) (selected entries): -1.9, -1.9, -1.9, 1.1, 0.6, 0.2, 0.4, 1.2, 0.8, 0.6, 0.5, 0.4, 0.7, 0.1, 0.3.
- Key macroeconomic assumptions (selected series as reported):
  - Real GDP growth (in percent) (series in table): 3.8, 3.3, 6.8, 5.2, 3.0, 1.0, 6.5, 7.0, 3.4, -1.6, 0.3, 2.8, 2.5, 1.8, 2.8, 3.7, 2.4, 0.0, 3.2.
  - Effective interest rate (percent) (series in table): 0.8, 0.9, 0.7, 2.3, 1.5, 0.6, 0.6, 0.7, 0.7, 0.7, 0.7, 0.7, 0.7, 0.6, 0.6, 0.5, 0.5, 0.8, 0.5.
  - Growth of exports of G&S (US dollar terms, in percent) (series in table): -8.6, -4.8, -2.7, 13.9, 25.3, -35.5, -35.2, 23.2, 1.8, -7.4, -6.8, 1.7, -4.6, -1.9, -0.9, -0.3, -0.6, 0.0, 0.5.
  - Grant-equivalent financing (in percent of GDP) (selected series): 3.8, 2.7, 2.0, 1.2, 1.5, 1.6, 1.7, 1.7, 1.7, 1.6, 1.6, 0.9, 1.2.
- Sensitivity analysis and bounds testing (selected outcomes):
  - Sensitivity tables report PV of debt-to-exports, PV of debt-to-revenue, PV of debt-to-GDP, debt service-to-revenue, and debt service-to-exports under baseline, alternative scenarios (e.g., A1: historical averages; A2: less favorable terms) and bound tests (B1–B6, including one-time 30 percent nominal depreciation). Across the sensitivity tables, some entries highlight large deteriorations under shocks (examples include multi-year spikes shown under B2 and B3 in tables).

### Implications and operational considerations
- Strengthening institutions, analytical capacity, and debt management systems is a priority to:
  - Enable development of a domestic government securities market.
  - Improve the ability to respond to export shocks and other stress scenarios that drive the most adverse debt outcomes in the near-term (through 2025).
  - Increase access to a broader menu of financing options, including within the regional CEMAC market.
- The DSA underscores the Republic of Congo’s vulnerability to external shocks—particularly export shocks—and the importance of institutional reforms to raise debt-carrying capacity and mitigate downside risks.

*Source: _cr15263 - 15.      Focusing on policies to strengthen public debt and asset management and institutions*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15263.pdf_