IMF Concludes 4th Review of Extended Credit Facility with DR Congo

• The IMF Executive Board decision allows for an immediate disbursement of US$203.3 million towards international reserves, given elevated downside risks to the economic outlook and the need to continue to build buffers.
• Ongoing macroeconomic pressures and looming risks call for prudent fiscal policy to preserve fiscal sustainability and macroeconomic stability, supported by tighter monetary policy to reduce inflationary pressures.
• The program remains focused on fiscal consolidation through mobilizing domestic revenue, curbing nonpriority spending and enhancing spending efficiency; building reserves buffers and capacity for policy formulation; and strengthening governance.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded today the fourth review of the Extended Credit Facility (ECF) arrangement for the Democratic Republic of the Congo (DRC) approved in July, 15 2021 (see PR 21/217). The completion of the Fourth Review allowed an immediate disbursement equivalent to SDR152.3 million (about US$203.3 million) to support balance-of-payment needs, bringing the aggregate disbursement to date to SDR761.5 million (about US$1,017 million).

The DRC's macroeconomic performance is showing resilience despite elevated uncertainty, heightened by the escalation of the armed conflict in Eastern DRC and the upcoming end-2023 elections. Real GDP growth is estimated at 8.9 percent in 2022 supported by higher-than-projected mining production, which also resulted in significantly higher revenue. Inflation reached 13 percent by end-2022, fueled by spending pressures and related exchange-rate depreciation and despite a decline in import prices. The current account deficit deteriorated to 5.3 percent of GDP, as higher export growth only partially compensated for higher imports and a more deteriorated service account. At end-2022, gross international reserves reached US$4.5 billion (about 2 months of imports). The end-2022 domestic fiscal deficit is estimated at 1.2 percent of GDP, in line with program commitments, though with different spending size and composition, primarily due to higher exceptional security-related spending, given the fiscal space created by higher revenue. Budgetary execution through May 2023 reveals a continuation of elevated exceptional spending and under execution in other spending, amid softening revenue performance.

Progress under the program remains satisfactory. All end-December quantitative performance criteria (QPCs) were met. All end-2022 indicative targets were met except two: the one related to the floor on social spending; and the one related to the ceiling on central bank's guarantees for central government loans due to monitoring shortcomings and even though no new guarantees were issued. All structural benchmarks (SBs) were met except the one related to publishing mining contracts due to delays. The authorities have now published all related agreements to the renegotiated mining contract with Ventora and the contract for the Primera Gold Joint Venture.

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 economy has shown resilience, despite the escalating conflict in the east and the lingering effect of past shocks. Growth is estimated at 8.9 percent in 2022, with higher-than-projected inflation as rapid public spending accelerated exchange rate depreciation. The conflict in the east has weighed down on public finances; lower-than-projected revenues in 2023 and higher exceptional spending are constraining other priority spending. Despite these headwinds, performance under the Extended Credit Facility (ECF) arrangement remains broadly satisfactory. Growth prospects remain favorable, while risks are tilted to the downside from the conflict in the east, the end-2023 elections, and adverse terms-of-trade shocks.

The fiscal deficit is expected to narrow in 2023, which will support monetary policy in curbing inflation. Lower revenues and higher exceptional spending warrant spending controls and reprioritization, with continued revenue mobilization efforts. Improved spending efficiency, tighter controls on spending under emergency procedures, and better cash management will improve budget execution and provide space for much needed social and development spending. Progress in fiscal structural reforms—including those related to the civil service, the fuel subsidy, the expenditure chain and the functioning of the Treasury, public investment management and budget credibility—is needed to enhance spending efficiency and governance.

Readiness to further tighten the monetary stance, strengthen the monetary policy framework, and enhance the independence and safeguards of the central bank will support price stability. Reserve accumulation will help build resilience against external shocks. Enacting regulations for the new banking law will strengthen financial supervision and resilience.

Reforms to strengthen the rule of law and the judiciary system, curb corruption, and improve transparency in the mining sector and public finances are critical to improve the business climate for private investment and economic diversification. Taking action to exit the FATF's grey list and implementing the new AML/CFT framework are also key. Implementing the country's ambitious climate agenda would also be important given the vulnerability to climate change.