Economic activity in the Democratic Republic of the Congo is said to be stabilizing even though growth in its oil sector is strong, the non oil sector remains in a deep recession, with a recovery likely to be slower than expected.
This however reflects diverging trends in the oil and non-oil sectors, as a result, overall growth is unlikely to exceed 1% in 2018, 1% point lower than earlier projections.
However, growth could recover further and reach about 3% in 2019, supported by rising oil production and recovering non-oil growth.
Inflation in the country is projected to remain below 2%, and the strong expansion in oil exports is expected to help produce the first surplus in the external current account since 2014.
Financial conditions remain very tight, and non-performing loans are rising.
Recently, a team from the International Monetary Fund (IMF) led by Alex Segura-Ubiergo paid a visit to Brazzaville to continue discussions with the authorities on the remaining steps needed to bring the Republic of Congo’s request for a three-year arrangement under the Extended Credit Facility (ECF) to the consideration of its Executive Board.
The proposed ECF-supported program aims to help the Republic of Congo restore macroeconomic stability and achieve higher and more inclusive growth.
In particular, the program seeks to restore debt sustainability and targets a wide range of reforms to improve governance, reduce corruption, and achieve greater transparency and efficiency in the management of public resources, especially in the oil sector.
The successful implementation of the program is expected to contribute to the external stability of the Central African Economic and Monetary Union (CEMAC) and build on the collective efforts of the other member states and regional institutions of the currency union.
After the meeting, the team informed that fiscal consolidation efforts have continued, but efforts are likely to fall short of earlier commitments for 2018.
The non-oil primary deficit is expected to decline from 35.7% of non-oil GDP in 2017 to 31.5 percent in 2018, this adjustment being about half the level that had been previously expected.
While the authorities have contained spending levels, non-oil revenues are projected to decline by 6% of non-oil GDP compared with 2017; about 20% lower than the initial target for the year.
At the same time, thanks to a substantial expansion in oil revenues, the overall fiscal balance is expected to shift into surplus in 2018.
To address non-oil revenue underperformance in 2018, a number of administrative and institutional issues will require immediate action.
For 2019, the mission recommended adjustments to the draft budget, to incorporate the impact of lower economic activity on non-oil revenues, and the need to reduce non-priority spending.
Reforms are needed to reduce fuel subsidies and increase the efficiency of decentralized government units that continue to register operational deficits.
At the same time, there is a need to protect critical social spending in favor of the most vulnerable groups of the population.
Substantial progress has been achieved in the implementation of the authorities’ structural reform agenda, including the publication of a diagnostic study on governance, the introduction of a legal requirement to publish annual audited financial statements of the Congolese national oil company (SNPC), and the online publication of production sharing agreements in the oil sector.
Additional progress is needed to strengthen the legal frameworks for the Commission on Transparency and the asset declarations regime, and to increase transparency in the management and accounting of oil revenues.
The IMF team is expected to continue discussions with the authorities on the remaining steps needed to bring the Republic of Congo’s request for a three-year arrangement under the Extended Credit Facility to the consideration of its Executive Board.
This however, will require some adjustments to the 2019 Draft Budget, implementation of reforms to improve governance and transparency, and the provision of explicit assurances on financing from external official creditors, including debt relief, which is needed to restore debt sustainability.