IMF Executive Board Concludes 2019 Article IV Consultation with the Democratic Republic of the Congo

IMF News, September 3, 2019

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IMF Executive Board Concludes 2019 Article IV Consultation with the Democratic Republic of the Congo

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Bibliographic details

• Published: September 3, 2019

Overview

• Article IV consultation concluded on August 26, 2019.
• DRC faces considerable development challenges despite a rich natural resource base and is grappling with its worst ever outbreak of Ebola.
• The peaceful political transition earlier in 2019 provides an opportunity for reforms to reduce poverty, create jobs, and promote inclusive growth.
• Prudent macroeconomic policies have supported a recovery from the fall in export prices in 2016–17; consolidating and building on these gains is critical.

Recent macroeconomic developments and outlook

• Real GDP growth:
  • 2018: 5.8 percent
  • 2019 (projected): 4.3 percent (falling as copper and cobalt prices decline from 2018 highs)
• Inflation and exchange rate:
  • Inflation fell to 7.2 percent in 2018.
  • The Congolese franc depreciated by 2 percent in 2018.
• Fiscal outcomes:
  • 2018 recorded a small budget surplus of 0.4 percent of GDP, driven by strong export prices, higher export volumes, and higher tax rates for mineral exports under the 2018 Revised Mining Code.
  • 2019 projected fiscal deficit: 0.2 percent of GDP (with mining revenues lower than in 2018).
• External sector:
  • Current account deficit:
  • 2018: 4.6 percent of GDP
  • 2019 (projected): 3.5 percent of GDP
  • Central bank foreign reserves:
  • 2018: 2.6 weeks of imports
  • 2019 (projected): 3.7 weeks of imports

Structural and fiscal challenges

• Domestic revenue mobilization remains weak and will remain well below the Sub-Saharan Africa average on current policies despite the 2018 Revised Mining Code.
• Underlying factors limiting revenue:
  • Proliferation of taxes and tax institutions
  • Widespread fiscal exemptions
  • Narrow tax base
  • Long, porous borders
• Budget credibility issues:
  • Budget projections have tended to deviate widely from outturns.
  • Emergency spending procedures have been widely used.
  • Large domestic arrears have accumulated.
• Recommendations to enhance revenue and fiscal management:
  • Reduce exemptions.
  • Enlarge the tax base.
  • Simplify the tax system.
  • Improve tax administration and border control.
  • Further integrate mining revenue into the treasury.
  • Generate realistic revenue and expenditure projections to improve budget credibility.
  • Restore the expenditure chain and restrict emergency spending procedures.
  • Streamline the civil service and improve remuneration to increase efficiency.
  • Vet public investment projects carefully, avoid costly borrowing and collateralized loans, and develop a strategy to clear domestic arrears.

Monetary policy, financial sector, and reserves

• Monetary policy constraints:
  • Hampered by high levels of dollarization.
• Central bank reform:
  • A new Central Bank Law enacted in 2018 aims to reinforce central bank independence, increase its capital, and enhance supervision capacity.
  • Recapitalizing the central bank was recommended to strengthen independence and capacity to conduct monetary policy and promote financial stability.
• Directors urged the central bank to increase foreign reserves to enable market stabilization interventions, as warranted.
• Financial regulation and inclusion:
  • Improve regulation and align the draft banking law with international standards.
  • Improve the AML/CFT framework by implementing priority actions from the evaluation report of the Central African Anti‑Money Laundering Action Group.
  • Promote microfinance to foster inclusive growth and financial inclusion.

Governance, natural resources, and business climate

• Transparency and accountability challenges in natural resource management:
  • A 2011 decree requiring publication of all mining, oil, and forestry contracts has not been fully applied.
  • Audited financial statements of some state enterprises are not publicly available.
  • IMF will conduct a governance assessment mission in October.
• Executive Directors’ governance recommendations:
  • Public tendering of mining assets.
  • Publication of all mining contracts.
  • Disclosure of true ownership of contractual parties.
  • Publication of audited financial statements of state enterprises.
  • Expedite passage of the anti‑corruption law and the law establishing an independent anti‑corruption commission.
• Business climate constraints:
  • Complexity of taxes, judicial vulnerabilities, and weak infrastructure increase production costs.
  • Priorities to improve business climate: reduce red tape, simplify the tax system, and reform the judiciary.

Executive Board assessment and policy priorities

• Directors commended authorities for prudent macroeconomic policies that reduced inflation and supported recovery from the 2016–17 export shock.
• Directors highlighted deep‑seated challenges, widespread poverty, and downside risks including the Ebola epidemic.
• Emphasis on using the peaceful political transition to implement transformational reforms to:
  • Strengthen public finances.
  • Boost non‑extractive sector growth.
  • Tackle corruption.
  • Reduce poverty.
• International support and capacity building are needed; some Directors encouraged building an adequate track record of policy implementation.
• Key Director recommendations summarized:
  • Enhance domestic revenue mobilization and integrate mining revenues into the treasury.
  • Improve public financial management, budget credibility, and expenditure efficiency.
  • Carefully manage public debt and avoid costly/collateralized borrowing.
  • Refine monetary policy framework and recapitalize the central bank.
  • Strengthen financial regulation and AML/CFT frameworks; promote microfinance.
  • Fight corruption, improve governance, and enhance transparency in natural resource management.
  • Improve the business climate to attract private investment and promote inclusive growth.

Key indicators (selected, as reported)

• GDP growth:
  • 2016: 2.4
  • 2017: 3.7
  • 2018: 5.8
  • 2019 (prel./proj.): 4.3
• Extractive GDP growth:
  • 2016: -0.7
  • 2017: 7.8
  • 2018: 16.9
  • 2019: 5.4
• Non‑extractive GDP growth:
  • 2016: 3.5
  • 2017: 1.9
  • 2018: 3.8
  • 2019: 4.1
• GDP deflator:
  • 2016: 43.1
  • 2017: 29.8
  • 2018: 3.6
  • 2019: 4.9
• Consumer prices, period average:
  • 2016: 3.2
  • 2017: 35.8
  • 2018: 29.3
  • 2019: 5.5
• Consumer prices, end of period:
  • 2016: 11.2
  • 2017: 54.7
  • 2018: 7.2
• Exports, f.o.b. (U.S. dollars, annual percent change):
  • 2016: 15.6
  • 2017: -2.8
  • 2018: 38.3
  • 2019: -21.4
• Imports, f.o.b. (U.S. dollars, annual percent change):
  • 2016: 14.9
  • 2017: -6.7
  • 2018: 32.0
  • 2019: -20.2
• Exports volume:
  • 2016: -6.0
  • 2017: 9.7
  • 2018: 20.8
  • 2019: 3.0
• Gross official reserves (millions of U.S. dollars):
  • 2016: 625
  • 2017: 601
  • 2018: 657
  • 2019 (proj.): 1,011
• Gross official reserves (weeks of imports):
  • 2016: 4.2
  • 2018: 2.6 (text)
  • 2019 (proj.): 3.7 (text)
• Central government finance (percent of GDP):
  • Revenue and grants:
  • 2016: 14.0
  • 2017: 11.7
  • 2018: 11.6
  • 2019 (proj.): 10.8
  • Revenue (selected years):
  • 2016: 10.4
  • 2017: 9.1
  • 2018: 10.0
  • 2019 (proj.): 10.5
  • Grants (percent of GDP):
  • 2016: 2.0
  • 2017: 1.1
  • 2018: 1.3
  • 2019 (proj.): 1.5
  • Expenditures (percent of GDP):
  • 2016: 14.5
  • 2017: 10.9
  • 2018: 11.1
  • 2019 (proj.): 11.5
  • Overall fiscal balance (commitment basis):
  • 2016: -0.5
  • 2017: -0.2
  • 2018: 0.2
  • 2019 (proj.): 0.1
• Current account balance, incl. transfers (percent of GDP):
  • 2016: -4.1
  • 2017: -3.2
  • 2018: -4.6
  • 2019 (proj.): -3.5
• External public debt, total stock, including IMF (percent of GDP):
  • 2016: 17.6
  • 2017: 13.7
  • 2018: 12.7
• Scheduled debt service (millions of U.S. dollars):
  • 2016: 349
  • 2017: 212
  • 2018: 224
  • 2019 (proj.): 739
• Exchange rate (CDF per U.S. dollars):
  • Period average:
  • 2016: 1,024
  • 2017: 1,480
  • 2018: 1,624

Press Release No. 19/322, IMF Communications Department (September 3, 2019).

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• Democratic Republic of the Congo and the IMF
• IMF Policy Advice -- A Factsheet
• The IMF and Good Governance -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home