IMF Staff Completes Staff Visit to the Republic of Congo

IMF News, May 9, 2019

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An International Monetary Fund (IMF) mission, led by Alex Segura-Ubiergo, visited Brazzaville during May 1-8.
The team concluded discussions and reached an agreement, ad referendum, on a program that could be supported by an arrangement under the Extended Credit Facility (ECF).
The ECF-supported program aims to help the Republic of Congo restore macroeconomic stability and achieve higher and more inclusive growth; restore debt sustainability; improve governance; reduce corruption; protect vulnerable groups; and achieve greater transparency and efficiency in the management of public resources, especially in the oil sector.
The approval of a new Fund-supported program with the Republic of Congo will also contribute to the regional strategy of the Central African Economic and Monetary Union (CEMAC).

Economic activity remained subdued in 2018, with overall growth below 1 percent.
Early signs of stabilization after a deep recession since 2015.
An economic recovery is expected in 2019 with growth that could exceed 5 percent in 2019, supported by:
- a large expansion in oil production;
- a gradual recovery in non-oil growth driven by agriculture, forestry and transportation.
Inflation remains low.
Strong expansion in oil exports, combined with prudent execution of the 2018 budget, helped produce large surpluses in the external current account and overall fiscal position.

The strengthening of the fiscal position:
- overall fiscal balance improved from a deficit of 7.4 percent of GDP in 2017 to a surplus of 6.8 percent in 2018.
- non-oil primary deficit improved from 35.7 percent of non-oil GDP in 2017 to 28.7 percent in 2018.
Total public debt (including domestic arrears) declined sharply from 118 percent of GDP in 2017 to around 91 percent in 2018, driven by the stronger fiscal position and higher nominal GDP from rising oil production and prices.
The 2019 Budget seeks to pursue fiscal consolidation; preliminary data from the first quarter suggests budget execution remains prudent and authorities are on track to achieve their fiscal objectives for the year.
The mission welcomed authorities’ efforts to prepare a detailed plan to boost non-oil revenue collections to correct the sharp decline observed in 2018.
The recent agreement to restructure the Republic of Congo’s bilateral debt with China represents a decisive step to restore debt sustainability.
Authorities should finalize their previously announced strategy to seek a restructuring of external debt owed to commercial creditors, especially debt accumulated with oil traders, and continue good faith negotiations with creditors taking into account the Republic of Congo’s resource envelope.

Financial conditions remain tight and vulnerabilities in the banking sector are increasing:
- non-performing loans rose to 23 percent of gross loans at end-December 2018.
- domestic arrears exceeded 15 percent of GDP in 2018.
The mission emphasized adoption of a credible plan to prioritize repayment of social arrears (especially pensions) and resolve domestic arrears to government suppliers to protect basic income, support growth, and preserve financial sector stability. This is identified as one of the most urgent economic priorities in the short-term.

Authorities have made substantial progress in implementing their structural reform agenda, including:
- preparation and publication of a study on governance;
- recent adoption of three laws aimed at controlling corruption;
- commitment to implement additional measures to increase transparency in the management and accounting of oil revenues.
Agreed reporting and publication measures:
- transmit to Parliament three separate reports on (i) pre-financing contracts concluded by the national oil company (SNPC), (ii) all special agreements to finance infrastructure through in-kind payments from oil revenues, and (iii) all projects implemented by the Ministry of Public Works between 2014-17.
- publish by end-May the oil reconciliation tables audited by KPMG.

Key policy priorities and recommendations:
- continue fiscal consolidation under the 2019 Budget while expanding targeted social spending relative to the 2019 budget, including the Lisungi cash transfer system and other priority social programs in the health and education sectors;
- prepare and implement a credible plan to prioritize and resolve social and domestic arrears, with special attention to pensions and government supplier arrears;
- boost non-oil revenue collections through a detailed plan to correct the 2018 decline;
- finalize and pursue debt restructuring strategies with commercial creditors, especially oil traders;
- increase transparency and governance in the oil sector through mandated reports and publication of audited reconciliation tables.
Upon return to headquarters, and once authorities have implemented the pending actions as agreed during the mission, the IMF team will submit a report in support of the Republic of Congo’s request for a three-year arrangement under the Extended Credit Facility for consideration by the IMF Executive Board.

The mission met with H.E. President Denis Sassou N’Guesso, Prime Minister Clément Mouamba, the Minister of Finance and Budget Calixte Nganongo, the President of the Technical Committee Lucien Ebata, the National Director of BEAC Michel Dzombala, other senior government officials, representatives of the private sector, and international development partners.
The mission thanked the Congolese authorities for constructive discussions and warm hospitality.

IMF Press Release No. 19/154, May 9, 2019.