Congo-Brazzaville: IMF Executive Board Concludes 2021 Article Iv Consultation With the Republic of Congo

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Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of Congo on Friday, September 24, 2021.

The COVID-19 pandemic and oil price shocks have taken a deep toll on the Congolese economy but there are signs of recovery. Positive non-oil economic growth is expected this year, buoyed by the easing of lockdowns, gradual vaccine rollout, social spending, domestic arrears repayments, and some expansion of agricultural and mining activities. The contraction of oil production has slowed as oil field access and investment normalize; and the value of oil revenues and exports are rising on the back of higher oil prices. Overall growth is projected to be around zero percent in 2021 with subdued inflation (2 percent) and a current account surplus (12 percent of GDP).

Fiscal policy continues to balance difficult trade-offs: the fight against the pandemic, essential support for a resilient economic recovery, and prudent debt management.

The non-oil primary deficit is expected to widen to 17 percent of non-oil GDP in 2021, driven by spending on social assistance, health care, education, and infrastructure. Grants from development partners are lower than last year but non-oil revenues are improving and reductions in transfers and subsidies to state-owned enterprises and cuts in goods and services spending are helping create fiscal space. The non-oil deficit is mainly financed by improved oil revenues.

Debt sustainability has been restored though significant debt vulnerabilities remain, with overall debt anticipated at 84 percent of GDP by end-2021. Substantial repayments of domestic arrears and external debt have been facilitated by restructuring of external commercial loans, improved debt management, fiscal discipline, and oil revenue windfalls. Immediate liquidity needs are also supported by the G20 Debt Service Suspension Initiative (DSSI). However, liquidity risks and vulnerabilities to negative oil price shocks are elevated. Pending clearance of external arrears and conclusion of remaining restructuring negotiations, debt is classified as being in "distress".

Over the medium and long terms, the main challenges will be exiting fragility while adapting to climate change and reduced oil revenues in response to the global transition to low-carbon economies. Non-oil economic growth is expected to gradually recover driven by economic diversification and resilience-building--which will benefit from continued governance and business environment reforms, increased social and infrastructure spending, and prudent debt management. The outlook is subject to high uncertainty amid risks of new waves of the pandemic, volatile oil revenue prospects, climate change shocks, and successful reform implementation. On the upside, investment in mining and oil and gas could rise with new field discoveries and accelerated reform implementation could catalyze more concessional financing.

Executive Board Assessment [2]

"Executive Directors agreed with the thrust of the staff appraisal. They noted that the Republic of Congo has been hit hard by the COVID-19 pandemic and oil price shocks. The recovery is expected to take hold in 2022, while considerable uncertainty surrounds the outlook. Directors agreed that achieving the growth needed to exit fragility and sustain progress in poverty reduction will require strong efforts to address structural impediments, build climate resilience, and diversify the economy. Strengthened governance and transparency is critical to secure much-needed financing from the Fund and development partners in support of the authorities' adjustment efforts. In this context, Directors welcomed the authorities' intention to engage in discussions with the Fund on a possible Extended Credit Facility arrangement.

"Directors welcomed the authorities' fiscal prudence and debt restructuring efforts that have contributed to debt sustainability. They agreed that fiscal policy should continue to support the recovery in the near term, through increased spending on health and social assistance, as well as payment of domestic arrears. Noting that debt-related risks remain substantial, Directors stressed the importance of medium-term fiscal consolidation, enhanced debt management and transparency, and non-oil revenue mobilization. They recommended a comprehensive review of the fiscal regime of the oil sector, reduced transfers to state-owned enterprises (SOEs), and improved public investment efficiency. Directors highlighted that these measures would help to create space for much-needed social and infrastructure spending. Given financing constraints, they supported the authorities' plan to use the newly allocated SDRs for critical social programs.

"Directors welcomed ongoing efforts to reduce financial sector vulnerabilities, including through domestic arrears clearance. Nonetheless, the still high non-performing loans call for continued close monitoring of the banking sector.

"Directors urged further efforts to improve governance and transparency. They welcomed the progress toward adopting a new anti-corruption law and encouraged strong focus on implementing the anti-corruption architecture, supported by measures to improve SOE governance and enhance public financial management more broadly.

"Directors emphasized the importance of advancing structural reforms to support economic diversification and adaptation to climate change. They encouraged the authorities to continue improving the business environment, facilitating private sector investment, and fostering competitiveness."

Table 1. Republic of Congo: Selected Economic Indicators, 2019-26

2019

2020

2021

2022

2023

2024

2025

2026

Est.

CR 20/261

Prel.

Proj.

(Annual percentage change unless otherwise indicated)

Production and prices

GDP at constant prices

-0.4

4.6

-8.2

-0.2

2.3

2.7

6.3

1.7

0.4

Oil

1.4

9.5

-8.5

-2.9

1.0

1.5

11.5

-2.4

-7.1

Non-oil

-1.7

2.5

-8.0

0.9

3.1

3.4

3.7

3.6

3.6

GDP at current prices

-1.1

3.4

-20.8

17.5

2.8

2.3

6.4

2.5

1.9

GDP deflator

-0.7

-1.1

-13.7

17.7

0.4

-0.4

0.1

0.8

1.5

Non-oil

2.2

1.8

1.8

2.0

2.8

3.0

3.0

3.0

3.0

Consumer prices (period average)

2.2

2.1

1.8

2.0

2.8

3.0

3.0

3.0

3.0

Consumer prices (end of period)

3.8

2.5

0.5

2.7

3.0

3.0

3.0

3.0

3.0

External sector

Exports, f.o.b.

-4.9

2.0

-36.2

44.2

-0.9

-4.0

4.9

-5.2

-6.7

Imports, f.o.b.

-12.8

7.3

-25.3

14.7

7.9

5.1

6.9

0.3

-0.7

Export volume

0.3

8.9

-2.2

3.0

0.2

0.9

6.3

-0.3

-1.4

Import volume

-8.8

6.0

-19.8

-6.6

10.9

8.7

8.6

1.4

-0.2

Terms of trade (deterioration -)

-0.7

-7.5

-27.9

17.3

1.6

-1.7

0.3

-3.8

-4.8

Current account balance (percent of GDP)

0.4

5.1

-0.1

12.1

6.5

1.6

0.4

-1.7

-4.3

Net foreign assets

136.3

32.2

-8.0

11.0

10.6

30.5

14.4

15.2

21.2

External public debt (percent of GDP)

56.9

45.9

63.2

49.6

42.6

37.1

31.1

27.5

26.3

Monetary sector

Broad money

7.9

1.5

18.0

32.7

17.0

16.3

11.5

11.5

11.1

Credit to the private sector

-6.2

2.1

3.5

0.8

10.9

12.5

11.8

11.4

10.8

(Percent of GDP)

Investment and saving

Gross national saving

22.6

23.9

22.5

33.5

30.1

26.4

24.8

23.3

20.7

Gross investment

22.2

18.8

22.6

21.3

23.6

24.8

24.4

25.0

25.0

(Percent of non-oil GDP, unless otherwise indicated)

Central government finances

Total revenue

44.2

44.9

31.1

36.2

39.5

37.0

37.0

34.7

32.3

Oil revenue

29.1

26.0

15.3

21.6

23.1

20.6

20.4

17.8

15.1

Nonoil revenue (including grants)

15.1

18.8

15.8

14.6

16.3

16.4

16.6

16.9

17.2

Total expenditure and net lending

36.4

33.0

32.8

33.8

34.4

33.7

32.5

32.6

31.3

Current

30.3

26.2

27.8

28.2

27.4

26.4

25.8

25.7

24.9

Capital (and net lending)

6.1

6.8

5.0

5.6

7.0

7.2

6.7

6.9

6.4

Overall balance (deficit -, payment order basis, percent of GDP)

4.7

7.3

-1.2

1.5

3.3

2.2

3.0

1.5

0.8

Non-oil primary balance (- = deficit)

-15.9

-12.1

-15.2

-17.0

-14.9

-14.5

-13.1

-13.0

-11.4

Basic primary fiscal balance (- = deficit)2

13.1

13.9

0.2

4.7

8.3

6.1

7.3

4.7

3.7

Reference fiscal balance (percent of GDP)3

-3.4

2.6

2.6

0.4

-0.8

-2.0

-0.3

-0.5

-0.3

Primary balance (percent of GDP)

7.9

8.6

0.1

2.9

5.3

4.1

4.9

3.3

2.7

Financing gap (in percent of GDP) 4

0.0

5.8

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Total public debt (percent of GDP)

81.7

80.4

101.0

84.2

74.3

69.0

61.3

58.1

57.3

(Percent of total government revenue excluding grants)

External public debt service

25.6

32.2

36.6

34.4

33.5

29.4

24.7

21.6

10.3

(Billions of CFA francs, unless otherwise indicated)

Nominal GDP

7,494

7,775

5,937

6,976

7,168

7,336

7,806

7,999

8,150

Nominal oil GDP

2,961

2,985

1,691

2,607

2,538

2,405

2,539

2,379

2,153

Nominal non-oil GDP

4,533

4,790

4,245

4,369

4,630

4,931

5,267

5,620

5,997

Nominal GDP in US$ (millions)

12,791

13,281

10,329

12,744

13,303

13,814

14,884

15,416

15,826

Congolese oil price (U.S. dollars per barrel)

62

58

39

65

64

61

58

57

55

Oil production (Millions of barrels)

123

140

112

109

110

112

125

122

113

Nominal Exchange rate (CFA/USD, period average)

586

...

...

...

...

...

...

...

...

REER (percentage change)

-0.1

...

...

...

...

...

...

...

...

Sources: Congolese authorities; and IMF staff estimates and projections.

1 Staff Report for the 2019 Article IV Consultation (January 27, 2020; Country Report No. 20/26). For comparability, we used the rebased nominal GDP with the nominal growth projected at the time of the country report.

2 Revenue excluding grants minus total expenditures (excluding interest payments and foreign-financed public investment).

3 Overall balance minus 20 percent of oil revenues and minus 80 percent of the oil revenue in excess of the average observed during the three previous years.

4 Before exceptional financing due to external debt restructuring net of restructured contingent liabilities.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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