International Monetary Fund (IMF) Executive Board Completes the Fifth Review Under the Extended Credit Facility Arrangement with the Democratic Republic of the Congo

The IMF Executive Board has completed the fifth review under the Extended Credit Facility arrangement with the Democratic Republic of Congo. The decision allows for an immediate disbursement of US$ 202.1 million towards international reserves, to continue building buffers; Notwithstanding the challenging socio-political and security situation, the authorities remain committed to preserving program objectives, including by limiting macroeconomic slippages and continuing implementing the economic reform agenda; While growth remains resilient, fiscal, depreciation and inflationary pressures are high. This challenging macroeconomic context calls for prudent fiscal policies, including curbing non-essential spending and improving spending efficiency, governance, and transparency. Efforts to strengthen monetary policy implementation are also warranted.

The Executive Board of the International Monetary Fund (IMF) completed the fifth review of the Extended Credit Facility (ECF) arrangement for the Democratic Republic of the Congo (DRC) approved on July 15, 2021 (see PR 21/217). The completion of the fifth review allows an immediate disbursement equivalent to SDR152.3 million (about US$ 202.1 million) to support balance-of-payments needs, bringing the aggregate disbursement to date to SDR913.8 million (about US$ 1219.1 million).

The socio-political and security situation is increasingly challenging, reflecting the upcoming December 20, 2023 general elections and the ongoing conflict in Eastern DRC. Notwithstanding this context, the economy remains resilient, with real GDP projected at 6.2 percent in 2023, supported by the extractive sector which remained dynamic despite negative terms of trade shocks. The sharp depreciation of the Congolese franc weighted on inflation which surged to 23.3 percent year-on-year in July 2023, before declining moderately, following policy actions from the Central Bank of the Congo (BCC). The current account deficit remains elevated, as terms of trade deteriorated, and imports were higher than anticipated. Reserve accumulation slowed due to a shortfall in dollar-denominated mining tax revenues and the BCC’s interventions in light of exchange rate depreciation pressures. With limited fiscal space due to revenue underperformance, spending was reprioritized towards security and elections at the expense of arrears payments, and the 2023 domestic fiscal deficit is projected at 0.8 percent of GDP. Fiscal policy will focus on revenue mobilization and will be supported by progress in public financial and investment management reforms.

Progress under the ECF arrangement has been broadly satisfactory. All but one end-June 2023 quantitative performance criteria (PCs) were met: the PC on domestic fiscal balance was missed due to central government revenue shortfall and insufficient expenditure adjustments. The continuous PC on introduction of new multiple currency practices was also missed. All end-June 2023 indicative targets (ITs) were met except two: the one related to the floor on social spending and the one related to the floor on central government revenues. The structural reform agenda is advancing albeit at a slower pace: out of the nine structural benchmarks, six were met, two were implemented with delays, and the last one on the central bank recapitalization was partially met and rescheduled.

At the conclusion of the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director, and Acting Chair, made the following statement:

“The Democratic Republic of the Congo’s growth remains resilient despite the negative terms-of-trade shocks and the security and humanitarian crisis linked to the armed conflict in the east of the country. Notwithstanding efforts from the Central Bank of The Congo (BCC) to curb inflation, depreciation and inflationary pressures persist. Despite these headwinds, performance under the Extended Credit Facility arrangement remains broadly satisfactory. While growth prospects remain favorable for 2023 and 2024, risks are heavily tilted to the downside, emanating from the continued fighting, potential discontents on the electoral process, and adverse terms-of-trade shocks.

“The 2023 domestic fiscal deficit, though narrower compared to 2022, is expected to widen relative to the fourth review due to lower-than-envisaged revenues and insufficient adjustment in spending, which was reprioritized towards security and elections. Continued revenue mobilization, contained spending- including through the phasing out of fuel subsidies- and improved efficiency of the expenditure chain are critical for creating space for social spending, priority investment and arrears clearance. Reforms that strengthen fiscal governance and transparency, enhance budget credibility, and limit the usage of emergency procedures and cash management slippages should continue in order to strengthen public financial management and public investment management frameworks.

“Beyond the readiness of the central bank to tighten monetary policy, strengthening the implementation framework of monetary policy is critical for achieving price stability and enhancing the attractiveness of the Congolese franc. Continued efforts to accumulate reserves while safeguarding the role of the exchange rate as a shock absorber are paramount to building external resilience. Efforts to strengthen the governance and safeguards of the BCC and ensure its adequate capitalization need to continue. Implementing the new banking law and the remaining FSSR recommendations will help promote financial stability.

“Advancing reforms to improve governance and transparency, including in mining, strengthening the anti-corruption and AML/CFT frameworks, enhancing the business environment, and building climate resilience, will be critical for supporting private sector development and for promoting diversified, sustainable, and inclusive growth.”

Table 1. Democratic Republic of the Congo: Selected Economic and Financial Indicators, 2022-25

2022

2023

2024

2025

Est.

CR No. 23/244

Proj.

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Proj.

CR No. 23/244

Proj.

(Annual percentage change, unless otherwise indicated)

GDP and prices

Real GDP

8.8

6.8

6.2

4.7

4.8

5.3

5.6

Extractive GDP

22.2

11.7

9.1

4.3

4.4

4.0

6.4

Non-extractive GDP

3.1

4.4

4.7

4.9

5.0

6.1

5.3

GDP deflator

5.0

11.4

16.7

6.6

13.0

6.2

8.1

Consumer prices, period average

9.3

14.8

19.4

7.1

14.7

7.1

8.5

Consumer prices, end of period

13.1

11.5

20.8

7.1

11.6

7.0

7.0

(Annual change in percent of beginning-of-period broad money)

Money and credit

Net foreign assets

-7.0

22.9

29.8

8.9

10.7

14.1

13.2

Net domestic assets

10.4

-6.0

2.4

4.2

10.0

-0.7

2.8

Domestic credit

16.7

12.4

28.5

6.2

12.6

7.8

11.0

Broad money

3.5

16.9

32.3

13.1

20.7

13.4

16.0

(Percent of GDP, unless otherwise indicated)

Central government finance

Revenue and grants

16.9

14.8

14.3

16.5

14.9

16.8

14.7

Expenditures

17.5

16.1

15.9

17.6

16.3

18.2

15.8

Domestic fiscal balance

-1.2

-0.5

-0.8

-0.2

-0.6

-0.2

-0.4

Investment and saving

Gross national saving

6.8

4.6

5.1

7.9

6.8

12.0

9.3

Investment

11.8

10.1

10.4

11.8

10.8

14.8

12.6

Non-government

8.0

6.0

6.0

6.0

6.0

8.0

8.0

Balance of payments

Exports of goods and services

42.1

42.8

42.5

41.1

39.6

38.9

37.2

Imports of goods and services

46.9

48.2

48.0

45.6

45.2

43.2

42.6

Current account balance, incl. transfer

-5.0

-5.5

-5.3

-3.9

-4.1

-2.8

-3.2

Current account balance, excl. transfers

-6.1

-6.3

-6.1

-5.0

-5.4

-4.2

-4.6

Gross official reserves (weeks of imports)

8.3

10.0

9.6

10.2

10.4

11.2

11.0

External debt

Debt service in percent of government revenue

7.0

7.4

8.3

6.1

7.4

6.1

7.3

Sources: Congolese authorities and IMF staff estimates and projections.

Distributed by APO Group on behalf of International Monetary Fund (IMF).