New Delhi: A team from the International Monetary Fund (IMF) led by Pritha Mitra, Mission Chief for the Republic of Congo, conducted a virtual mission with the Congolese authorities from March 31 to April 18, 2022, to discuss the first review of the three-year agreement for the Republic of Congo under the Extended Credit Facility.
At the end of the mission, Ms. Mitra made the following statement:
“The IMF team has reached a staff-level agreement with the authorities of the Republic of Congo on the completion of the first review under the Extended Credit Facility (ECF), which is subject to approval of the IMF Executive Board.
“Economic recovery is accelerating but remains fragile amid the COVID-19 pandemic and the global consequences of the war in Ukraine. Real GDP growth is projected to strengthen to 4.3% in 2022, driven by improved oil production and momentum in agriculture and mining, as well as continued vaccine deployment and the payment of domestic arrears, which contribute to the reduction of non-performing loans and the stability of the financial sector. . Stronger economic activity is being held back by rising inflation, projected at 3.5%, as global food and oil prices rise due to the war in Ukraine. High oil prices, if sustained, will benefit the economy, but there are significant uncertainties surrounding oil price projections.
“The debt is considered sustainable after a major debt restructuring and the implementation of a prudent fiscal policy. Nevertheless, debt vulnerabilities remain significant, especially in a context of high oil price volatility. Pending clearance of external arrears, the debt is classified as being in “distress”. Progress in procurement and debt and public finance management, including public investment, will be essential to avoid the accumulation of domestic and external arrears and improve the efficiency and quality of spending. Coupled with the implementation of the new anti-corruption architecture, debt management reforms will also contribute to consolidating recent gains in governance and transparency.
“Fiscal policy will need to maintain the delicate balance between supporting a robust economic recovery while preserving debt sustainability. Mobilizing revenue and streamlining inefficient subsidies to state-owned enterprises will be key to this process, allowing for gradual fiscal consolidation while increasing spending on social assistance, health care, education, and infrastructure. This spending prioritization will support higher, more inclusive and resilient growth. To this end, ongoing tax administration reforms need to be complemented by accelerating the recovery of tax arrears, a significant abolition of tax and customs exemptions, and concrete measures to increase oil-related tax revenues. The execution of the 2022 budget rightly targets a deficit of 15.3% of non-oil GDP.
“In this context, after financing debt service, part of the exceptional oil revenues should finance the tax deferrals initiated during the pandemic and strengthen social assistance to help, respectively, businesses and low-income households and ways to deal with high inflation. Accelerating measures to facilitate access to credit for small businesses will complement these measures. In 2022, any remaining windfall oil revenues should be used to build buffers against future shocks. Similarly, if high oil prices were to continue over the medium term, windfall revenues equivalent to about 2% of non-oil GDP per year would need to be channeled into essential social spending, including infrastructure, and payment of domestic arrears, while saving the rest.
“Performance under the program has been good. All quantitative performance criteria at the end of February 2022 have been met. The end-March 2022 structural benchmark for the new public finance management (PFM) medium-term strategy and action plan was met. The other structural benchmark was missed, but its most significant elements were implemented on schedule. Specifically, the new anti-corruption law was passed in parliament in February and ratified in March. The accompanying decree on conflict of interest rules and procedures has been delayed and is being drafted with the support of IMF technical assistance.
“The support of development partners will be crucial for the successful implementation of the authorities’ economic and structural reform strategy.
“The mission met with the Minister of Finance, Budget and Public Portfolio, Mr. Rigobert Roger Andely, and other senior government officials. The IMF mission also met with representatives of civil society, the private sector and development partners.