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).
[1]
The ECF-supported program aims to help the Republic of Congo restore
macroeconomic stability and achieve higher and more inclusive growth. The
program seeks to 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).
At the conclusion of the IMF staff visit, Mr. Segura-Ubiergo issued the
following statement:
“Economic activity remained subdued in 2018, with overall growth below 1
percent, but there are 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
and a gradual recovery in non-oil growth driven by agriculture, forestry
and transportation. Inflation remains low, and the strong expansion in oil
exports, combined with a prudent execution of the 2018 budget, helped
produce large surpluses in the external current account and overall fiscal
position.
“However, financial conditions remain tight and vulnerabilities in the
banking sector are increasing, with non-performing loans rising to 23
percent of gross loans at end-December 2018, in part due to the rising
domestic arrears, which exceeded 15 percent of GDP in 2018.
The adoption of a credible plan to prioritize the repayment of social
arrears (especially pensions), and resolve domestic arrears to
government suppliers will be essential to protect basic income, support
growth and preserve financial sector stability.
This has become one of the most urgent economic priorities in the
short-term.
“The strengthening of the fiscal position has been particularly impressive,
with the overall fiscal balance improving from a deficit of 7.4 percent of
GDP in 2017, to a surplus of 6.8 percent in 2018. This improvement has been
driven by a large expansion in oil revenues, and strong efforts to contain
spending levels. Similarly, the 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, thanks to the stronger fiscal position
and higher nominal GDP driven by rising oil production and prices.
“The 2019 Budget appropriately seeks to pursue the authorities’ fiscal
consolidation efforts. Preliminary data from the first quarter suggests
that budget execution remains prudent and the authorities are on track to
achieve their fiscal objectives for the year. The mission welcomed the
authorities’ efforts to prepare a detailed plan to boost non-oil revenue
collections to correct the sharp decline observed in 2018. It also
recommended an expansion of social spending relative to the 2019 budget,
including the Lisungi cash transfer system and other priority social
programs in the health and education sectors.
“The recent agreement to restructure the Republic of Congo’s bilateral debt
with China represents a decisive step to restore debt sustainability. It
should be accompanied by the finalization of the authorities’ previously
announced strategy to seek a restructuring of their external debt owed to
commercial creditors, especially the debt accumulated with oil traders. In
this regard, the authorities, assisted by their financial and legal
advisors, should continue to pursue good faith negotiations with their
creditors, taking into account the Republic of Congo’s resource envelope.
“The authorities have also made substantial progress in the implementation
of their structural reform agenda, including through the preparation and
publication of a study on governance, and the recent adoption of three laws
aimed at controlling corruption. They are also committed to implementing
additional measures to increase transparency in the management and
accounting of oil revenues. In this regard, they will 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. They
will also publish by end-May the oil reconciliation tables audited by KPMG.
“Upon return to headquarters, and once the 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 the consideration of its
Executive Board.
“The mission would like to thank the Congolese authorities for the
constructive discussions and warm hospitality.”
[1]
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, and other
senior government officials, representatives of the private sector,
and international development partners.
