Press Release No. 22/240

Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] and the second review of the Extended Credit Facility (ECF) Arrangement for the Democratic Republic of Congo (DRC). The completion of the Second Review allowed an immediate disbursement equivalent to 152.3 million SDR (about US$ 203 million) to support balance-of-payment needs, bringing the aggregate disbursement to date to 456.9 million SDR (about US$653 million).

The DRC’s macroeconomic environment has improved since the last Article IV consultation in 2019. The authorities have adopted prudent macroeconomic policies, most visibly by halting central bank financing to the government. Despite the COVID-19 pandemic, considerable macroeconomic gains were achieved in 2021 and reform momentum under the ECF arrangement was sustained. The economy rebounded more than envisaged with growth at 6.2 percent, supported by non-extractive growth. Consumer Price Index (CPI) inflation declined to 5.3 percent year-on-year, accompanied by a stable exchange rate as the central bank stopped providing financing to the government. The fiscal outturn was better than projected, as higher fiscal revenues and external financing provided space for additional spending, mostly on investment although domestic arrears accumulated. The external position improved, and gross international reserves increased to US$3 billion at end 2021. However, despite excess liquidity, private sector credit remains subdued at 7 percent of the GDP and the banking sector faces vulnerabilities. Fragility continues to hinder inclusive growth as 72.5 percent of the population is in poverty and access to basic public services is severely under-provisioned.

Progress under the Fund-supported program remains satisfactory. End-December 2021 quantitative performance criteria (QPCs) and all but one (on social spending due to shortcomings in inter-ministerial coordination) indicative targets were observed. Four out of five structural benchmarks (SBs) were met, pending the publication of one mining contract. Progress on two end-June 2022 SBs is slightly delayed, and staff proposes resetting to end-September. Efforts to implement structural reforms are being stepped up.

In 2022, the DRC’s economy is facing some headwinds from the war in Ukraine, which has increased the cost of living and the fiscal costs associated with the fuel subsidy. Despite the deteriorating global economic prospects, the outlook remains favorable sustained by improved mineral prices. Growth has been revised down to 6.1 percent (6.4 percent previously) and inflation revised up to 11 percent due to imported prices. The domestic fiscal deficit (program target) is projected to widen by 0.4 percentage points of GDP, to 1.4 percent of GDP as the higher mining revenues will not fully compensate for the increased fiscal costs associated with the fuel subsidy and higher domestically financed investment for priority social infrastructure projects. The authorities have increased domestic fuel prices, but more efforts are needed to reduce untargeted subsidies and budget costs while supporting vulnerable households through targeted social transfers. Furthermore, spillovers from the war in Ukraine may further increase international food prices and slow global activity, worsening external and fiscal balances, inflationary pressures and food insecurity. The medium-term outlook provides opportunities to consolidate macro stability and scale up structural reforms, though significant downside risks remain, and severe fragility persists.

At the conclusion of the Executive Board’s discussion, Mr. Okamura, Deputy Managing Director and Chair stated:

“Macroeconomic performance in 2021 was marked by high growth, contained inflation, and strengthened fiscal and external positions. Performance under the Extended Credit Facility arrangement continues to be satisfactory. Growth prospects remain favorable in 2022, but downside risks have increased from the worsened external environment.

“The fiscal deficit is expected to widen in 2022 as higher subsidies and social infrastructure spending are only partially compensated by higher-than-envisaged revenues. Continued revenue mobilization, contained current spending—including through fuel subsidy and civil service reforms—and well-managed fiscal risks are key to create space for priority investment. Strengthening fiscal institutions and governance, including by enhancing budget credibility and cash management, is crucial to improve public financial management and avoid domestic arrears accumulation. Improving public investment management will enhance efficiency and transparency.

“Strengthening the monetary and exchange rate policy frameworks will support price stability and external sustainability. Continued efforts to accumulate reserves buffers while enhancing the role of the exchange rate as a shock absorber are paramount to build resilience to external shocks. Efforts to strengthen the independence, governance, and safeguards of the Central Bank of Congo need to continue, as well as reforms to strengthen banking regulatory, supervisory, and resolution frameworks.

“Advancing structural reforms and strengthening policy frameworks, including in natural wealth management, are key to promoting higher and sustainable inclusive growth, as the global energy transition provides an opportunity for development. Continued efforts to improve mining sector transparency, the anti-corruption and AML/CFT frameworks, the business climate, and governance would support private sector development, economic diversification, and competitiveness.”

Executive Board Assessment [2]

“Executive Directors agreed with the thrust of the staff appraisal. They welcomed the higher growth and the strengthened fiscal and external positions in 2021 and the satisfactory performance under the ECF arrangement. While growth prospects remain favorable in 2022, Directors noted increased downside risks from the worsened external environment with the war in Ukraine, including higher fuel and food prices and volatile commodity prices. They encouraged the authorities to continue pursuing prudent macroeconomic policies and remain steadfast in their program implementation.

“Directors noted the small widening of the domestic fiscal deficit in 2022 as the near-term revenue overperformance provides space for higher spending related to fuel subsidies and investment. They stressed the importance of creating room for infrastructure and human investment through tax policy and tax administration reforms, contained current spending, and well-managed fiscal risks. Directors welcomed the authorities’ commitment to reform fuel subsidies and the civil service. They emphasized that strengthening fiscal institutions and governance, including enhancing budget execution and cash management, is crucial to improving public financial management and avoiding domestic arrears. Addressing weaknesses in public investment management can help enhance absorption capacity and efficiency. Directors also highlighted the need to improve debt management, while seeking concessional and grant financing.

“Directors encouraged the authorities to strengthen the monetary and exchange rate policy frameworks to support price stability and external sustainability. They supported adopting a tightening monetary policy bias given increasing inflation. They noted that continued reserves accumulation and enhancing the role of the exchange rate as a shock absorber are crucial to building external resilience. Directors highlighted the need to sustain efforts to strengthen the central bank’s independence, governance, and safeguards, along with reforms to enhance the banking regulation, supervision, and resolution frameworks to address banking sector vulnerabilities.

“Advancing structural reforms and strengthening the policy framework, including resource wealth management, are key to promote higher and sustainable inclusive growth as the global energy transition provides the country an opportunity for development. Directors encouraged continued efforts to improve mining sector transparency including through timely publication of contracts, strengthen the anti-corruption and AML/CFT frameworks, and enhance governance to support private sector development, diversification, and competitiveness.

“It is expected that the next Article IV consultation with the Democratic Republic of the Congo will be held within 24 months, in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.”