IMF Survey: IMF, World Bank Support $12.3 Billion Debt Relief for DR Congo

IMF News, July 1, 2010

Source details

Canonical URL: IMF Survey: IMF, World Bank Support $12.3 Billion Debt Relief for DR Congo

The IMF and the World Bank decided June 30 and July 1, respectively, to support debt relief worth $12.3 billion for the Democratic Republic of the Congo under the Heavily Indebted Poor Countries Initiative (HIPC).
The Democratic Republic of the Congo reached the HIPC Initiative’s final stage, or completion point, and therefore also qualifies for debt relief under the Multilateral Debt Relief Initiative (MDRI).
The decision will generate total debt service savings of $12.3 billion in debt relief, equal to $7.9 billion in present value terms (the discounted sum of all future debt service obligations).

$12.3 billion total debt relief
$7.9 billion in present value terms
$11.1 billion under the enhanced HIPC Initiative
$1.2 billion under the MDRI
Debt relief from the IMF totals $491 million
Debt relief from the International Development Association (IDA) totals $1.8 billion
The remainder is expected to come from official and commercial creditors

Additional resources released by the debt relief will help create room in the budget for spending on priority programs such as roads, schools, and hospitals.
The significant reduction in the country’s debt burden is expected to help improve prospects for private investment.

Since 2001, the country made significant progress in political and economic reform, ending a decade-long conflict and establishing democratic governance by 2006.
In December 2009, the IMF Executive Board approved a three-year arrangement under the Extended Credit Facility (ECF) equivalent to $551 million to support the authorities’ economic reform program.
Satisfactory implementation of the ECF-supported program, together with measures defined at the HIPC interim stage, were prerequisites for reaching the HIPC completion point and debt relief under the MDRI.

Despite the global financial crisis, the DRC continued reforms guided by the ECF-supported program.
In 2009, steep declines in export prices and the slowdown in external demand curtailed economic growth while inflation rose significantly following a sharp depreciation of the Congolese franc vis-a-vis the U.S. dollar.
Economic growth is estimated at 2.8 percent in 2009, down from 6.2 percent in 2010.
Good revenue performance and expenditure restraint—supported by reforms in revenue management and public financial management—contained fiscal imbalances and curtailed government recourse to central bank financing.
Tight monetary policy reduced pressures on the exchange rate and inflation.
An increase in the share of investment in overall government spending helped mitigate the impact of the global financial crisis on domestic demand.
Authorities met conditions for the HIPC completion point by accelerating reforms in the social sectors, economic governance, and debt management.

Findings and challenges:

The Democratic Republic of the Congo remains one of the poorest countries in Africa despite immense natural resources; past economic mismanagement and conflict destroyed social and economic infrastructure and limited progress toward the United Nations Millennium Development Goals.
More needs to be done to make progress toward the Millennium Development Goals even after debt relief frees up resources for priority spending, especially human capital formation.

Policy recommendations:

Consolidating macroeconomic stability:
- Maintain fiscal discipline to avoid re-emergence of financing fiscal deficits with money creation.
- Strengthen domestic revenue mobilization.
- Establish rule-based public financial management.
- Strengthen central bank independence, including through its recapitalization, to support effective monetary policy that keeps inflation in check.
Pro-poor and pro-growth budgets:
- Improve the quality of government spending.
- Focus reconstruction on physical infrastructure such as roads and railroads and on rebuilding human capital in line with the authorities’ poverty reduction and growth strategy.
Improving the business climate:
- Advance reform of public enterprises, especially those that provide growth-critical services.
- Improve governance and the business climate, including by enhancing property rights protection by harmonizing regulations with the protocol of the Organization for the Harmonization of African Business Law and adhering to the Extractive Industries Transparency Initiative.

IMF Survey online, July 1, 2010