Republic of Congo Economic Update: Designing fiscal instruments for sustainable forestry and economic growth

 

A new World Bank report released today shows that the Congolese economy is gradually recovering, with GDP growth estimated at 1.9% in 2023. Growth is projected to reach 3.5% in 2024, supported by oil and non-oil activities that are expected to increase by 4.2% and 3.5%, respectively. The recovery remains fragile, owing primarily to the volatility of oil production.

The Eleventh Economic Update for the Republic of Congo notes that inflation accelerated to an average of 4.3% in 2023. Severe food insecurity is also increasing, affecting 59% of the population. Widespread poverty persists, with nearly one in two Congolese living on less than US$2.15 a day.

The report underscores how important it is for the Republic of Congo to design effective fiscal instruments for sustainable forestry and economic growth.

Forests cover two-thirds of Congo’s territory, and the country has successfully kept its deforestation rate low and stable despite economic development and illegal logging. Over the past decade, Congo has implemented major forest policy reforms to strengthen sustainability, including enacting a new forest code in 2020. Congo is committed to reducing its CO2 emissions by 32% by 2030, which will require external financial support of about $7.1 billion for climate change mitigationand adaptation. Despite the critical role played by Congo’s forests and by forests in the Congo Basin in general, international funding remains inadequate.

“To support the sustainability of forests despite budget constraints and limited international funding, Congo can consider climate-smart fiscal revenue instruments that align tax rates with the sustainability of timber production methods, such as the “bonus-malus” system introduced in some countries in the region,” noted Louise Pierrette Mvono, World Bank Resident Representative for the Republic of Congo.

To tackle the multifaceted challenges facing Congo’s forestry sector, the report recommends the following:

Combining fiscal instruments with better forest governance through improved law enforcement, monitoring, and transparency to help the Republic of Congo safeguard its forests while strengthening the role of the forestry sector in the economy;
Strengthening regional cooperation through harmonized regulations, improved law enforcement, and more effective alignment of forest fiscal policies that will help Congo Basin countries respond more effectively to cross-border challenges, enhance institutional capacity, and attract more international funding;
Providing scaled-up international support and compensation for efforts by Congo Basin countries to preserve their forests, which provide an essential global public good in the form of climate regulation and biodiversity services.

“The Republic of Congo is a step ahead of other CEMAC countries, having implemented the log export ban in July 2023. This measure promotes economic diversification and access to markets, as earlier investments in infrastructure and capacity and the introduction of the new forest code have made the transition easier,” added Vincent De Paul Tsoungui Belinga, Senior Economist and lead author of the report.

Distributed by APO Group on behalf of The World Bank Group.