September 1, 2005
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The Executive Board of the International Monetary Fund (IMF) has completed the fifth review of its performance under an SDR 580 million (about US$852.1 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/27), and a financing assurances review.
The completion of the fifth review enables the release of an amount equivalent to SDR 26.7 million (about US$39.2 million), which will bring the total amount drawn under the arrangement to an amount equivalent to SDR 553.3 million (about US$813.2 million).
The Board also approved the authorities' requests to extend the PRGF arrangement to end-March 2006 to provide time to complete the sixth review, and for additional interim assistance of an amount equivalent to SDR 1.13 million (about US$1.7 million) under the enhanced HIPC Initiative.
In completing the PRGF review, the Board waived the nonobservance of quantitative performance criteria pertaining to net domestic assets of the central bank, net bank credit to the government, and the continuous performance criterion prohibiting payment of government expenditures by the Central Bank of the Congo (BCC) not authorized in advance by the Minister of Finance, as well as of the end-September 2004 structural performance criterion on the selection of an international firm to conduct the external audit of the mining company La Société Minière de Bakwanga (MIBA).
Following the Executive Board's discussion on the DRC's economic performance, on August 29, 2005, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:
"The Democratic Republic of the Congo made further progress in 2004 and 2005 and the authorities have continued to implement wide-ranging macroeconomic and structural policies. Economic growth remained strong, but slippages occurred under the PRGF-supported program during the second half of 2004 and the first quarter of 2005 due largely to political and social tensions. However, the authorities remain committed to implementing a strong set of measures to restore and consolidate macroeconomic stability.
"Developments since mid-2004 have highlighted the fragility of the economic and political situation. Bringing the political transition process to a successful conclusion and improving the security environment by completing the reform of the army and the police will be key in restoring confidence. Against this background, the authorities are committed to accelerating the reform process, which is essential for rebuilding the economy, achieving high and sustainable growth, and reducing poverty.
"The authorities have established a macroeconomic framework for 2005 that is ambitious. The medium-term fiscal strategy aims to keep the deficit at a level compatible with debt sustainability. It focuses on mobilizing revenue and strengthening public expenditure management by modernizing tax administration and stepping up the fight against smuggling, fraud, and corruption. In addition, it will be important for the mining sector to contribute an adequate share of government revenue. On the expenditure side, the priorities are to ensure that resources for poverty reduction are effectively utilized in order to contribute to the achievement of the Millennium Development Goals (MDGs), and that outlays for security and political institutions are contained. Also essential is the ongoing strengthening of the civil service that will help tighten control over the payroll.
"Restoring price stability will require tightening monetary policy, including through actions to improve the effectiveness of monetary instruments. This needs to be accompanied by measures to strengthen the financial position of the central bank, as well as its internal management and control systems. Also, the strengthening of ongoing reforms in banking system supervision would contribute to the enhancement of financial intermediation. Intervention in the foreign exchange market should be limited to achieving the international reserve target and smoothing out short-term volatility.
"Improvements in governance will be key for improving the business climate and investor confidence, and for enhancing donor support. In this regard it will be important that the authorities take all necessary steps to enforce recently adopted legislation to intensify the fight against corruption, money laundering, and the financing of terrorism.
"The authorities are committed to completing preparation of a high-quality Poverty Reduction Strategy Paper (PRSP) through a broad participatory process—the final version of which is expected to be adopted in the fourth quarter of 2005—and to taking the actions required to reach the completion point under the enhanced HIPC Initiative by end-2006. In the meantime, every effort should be made to reach agreements with the remaining creditors that have not provided debt relief under the enhanced HIPC Initiative. The pursuit of a prudent external debt management policy and the securing of highly concessional foreign assistance are also necessary to maintain debt sustainability.
"Program implementation will continue to face a number of risks, mostly related to security, social tensions, and the potential impact of the political transition process on economic policy. The authorities are committed to bringing the political transition process to a successful conclusion as rapidly as possible. However, policy slippages before the elections remain a major risk and the authorities are encouraged to take the necessary measures to achieve the program objectives. In addition, timely external financial support will be essential for completing the transition process.
"It is regrettable that misreporting has occurred, relating to nonobservance of the budgetary expenditure performance criterion. However, since the amounts of the deviation from the performance criterion were minor and did not undermine the objectives of the program, and also, the government has adopted measures to prevent future deviations, the Executive Board agreed to grant a waiver on the nonobservance," Mr. Carstens said.
