IMF Executive Board Approves US$1.52 billion ECF Arrangement for the Democratic Republic of the Congo
IMF News, July 15, 2021
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- Published: July 15, 2021
Overview
- On July 15, 2021, the IMF Executive Board approved a 3-year arrangement under the Extended Credit Facility (ECF) for the Democratic Republic of the Congo (DRC) in an amount equivalent to SDR1,066 million (100 percent of quota or about US$1.52 billion).
- Approval of the ECF arrangement enables the immediate disbursement of about US$216.9 million to reinforce international reserves.
- The ECF arrangement follows Fund emergency support to DRC under the Rapid Credit Facility (RCF) in December 2019, and April 2020 (for budget support), for a total of SDR533 million (50 percent of quota or US$731.7 million).
Financing and Disbursement
- Total ECF amount: SDR1,066 million (100 percent of quota or about US$1.52 billion).
- Immediate disbursement on approval: about US$216.9 million to reinforce international reserves.
- Prior IMF support referenced: SDR533 million (50 percent of quota or US$731.7 million) under RCF in December 2019 and April 2020.
Economic Context and Near-term Outlook
- The COVID-19 pandemic continues to severely impact the DRC, a fragile state with recurring health and security crises, high macroeconomic volatility, and weak institutions.
- Economic activity decelerated sharply in 2020 because of COVID-19.
- The non-mining economy experienced a contraction in non-extractive GDP of 1.3 percent in 2020.
- Weak revenues and increased spending pressures linked to the pandemic and the free education initiative led to a sizable fiscal deficit.
- Inflation spiked, fueled by a rapid exchange rate depreciation.
- Gross official foreign exchange reserves decreased to less than two weeks of imports.
- Recent tightening of policies and a strong performance of the mining sector are supporting ongoing macroeconomic stabilization.
- The near-term economic outlook remains uncertain and dependent on the evolution of the pandemic as well as on a stable political environment.
Reform Agenda and Program Priorities Supported by the ECF
- The three-year financing package will support an ambitious structural reform agenda focused on:
- Stepping up domestic revenue mobilization to increase fiscal space for infrastructure and social spending.
- Strengthening governance including natural resource management and transparency.
- Reinforcing the monetary policy framework and the central bank’s independence.
- The ECF arrangement is expected to catalyze budget and project support from external partners.
Policy Measures and Recommendations (as stated by the Acting Chair)
- Fiscal measures and revenue mobilization:
- Ensure a properly functioning VAT.
- Rationalize non-tax and parafiscal charges.
- Streamline tax expenditures.
- Modernize revenue administration.
- Spending discipline to increase social spending and avoid reliance on central bank financing.
- Prioritize concessional financing and relief under the Debt Service Suspension Initiative to support debt sustainability.
- Monetary and financial sector measures:
- Maintain low and stable inflation.
- Modernize the monetary policy framework.
- Strengthen the financial position, governance, and independence of the central bank.
- Enhance the risk-based supervisory framework and the oversight of banks.
- Boost foreign exchange reserves while allowing the exchange rate to act as a shock absorber.
- Governance and transparency:
- Strengthen governance, including natural resource management and transparency.
- Continue publishing mining contracts and ensure transparency of COVID-19 related spending.
- Enhance the AML/CFT framework to meet global standards.
- Implement measures to improve resilience to climate change.
Statement by Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair
- Highlights from the Executive Board discussion:
- “The Congolese economy has been severely impacted by the COVID-19 pandemic and is recovering, in part due to high mineral prices.”
- The authorities’ ECF request aims to address protracted balance of payment needs and support reforms to maintain macroeconomic stability, increase fiscal space, ensure debt sustainability, and promote sustainable and private sector-led economic growth.
- “The ECF arrangement is expected to catalyze financing from external partners.”
- Emphasis on commitments to create fiscal space for infrastructure and social needs while maintaining a moderate risk of debt distress.
- Emphasis on strengthening governance, transparency, AML/CFT framework, and climate resilience.
Press Release No. 21/217, IMF, July 15, 2021.
