An International Monetary Fund (IMF) team led by Dalia Hakura, Mission Chief for the Republic of Congo, visited Brazzaville during October 25-November 7, 2016 to conduct discussions for the 2016 Article IV review of the Congolese economy. Discussions focused on assessing the macroeconomic impact of the sharp decline in oil prices and the short- and medium-term policies needed to safeguard macroeconomic stability and ensure debt sustainability, as well as structural reforms to promote sustained inclusive growth and reduce poverty.
At the end of the mission, Ms. Hakura made the following statement:
“The Republic of Congo’s economy continues to be severely impacted by the decline in international oil prices. Economic growth slowed to 2.3 percent in 2015 and is projected to be lower still in 2016. The slowdown reflects a decline in oil production and a sharp reduction in government spending to contain the fiscal deficit. Inflation which hit 4 percent in July 2016 (year on year) is expected to moderate and to average about 2.5 percent over the medium term.
“Against this backdrop, the near- and medium-term outlook will continue to be shaped by the unavoidable fiscal adjustment. Despite some consolidation efforts, the fiscal deficit exceeded 18.5 percent of GDP in 2015, up by 10 percent of GDP from 2014. Public debt rose above 70 percent of GDP at the end of 2015—thus breaching the CEMAC convergence criterion, and international reserves and government deposits have declined sharply. The financial sector has seen nonperforming loans increasing but remains broadly resilient.
“Substantial macroeconomic imbalances have emerged in 2016 on the back of lower-than-expected oil revenues and continued elevated spending, with increased recourse to fiscal and external buffers in the face of limited financing options. Public debt is high and international reserves have fallen below levels that are typically recommended for countries with pegged exchange rates and undiversified current account inflows. The mission discussed with the authorities strategies for stronger fiscal adjustment than currently envisaged in the draft budget for 2017 which would support fiscal sustainability in the Republic of Congo and mitigate growing risks to macroeconomic stability. Stronger fiscal adjustment would also support reserve adequacy at the CEMAC regional level. As international oil prices are expected to remain low and the remaining lifetime of oil reserves is limited, medium-term fiscal adjustment should be anchored on a further reduction in the non-oil primary deficit.
“Against the backdrop of tight budgetary constraints, the mission urges the adoption of realistic expenditure plans to prevent the emergence of new arrears while safeguarding social spending and counterpart funding for development projects. The authorities should also continue their efforts to rationalize public expenditures from their unusually high levels in recent years and improve the quality and efficiency of capital expenditures. The mission welcomes the authorities’ focus on mobilizing non-oil revenue, and strongly recommends broadening the tax base through a systematic review and selective elimination of tax exemptions, and strengthening tax and customs administration.
“Over the medium-term, a multi-pronged approach will be needed to support diversification with a view to achieving sustainable and inclusive growth. A medium term perspective in fiscal planning and improved commitment control would help prevent the accumulation of domestic arrears and curtail increases in public debt. A clear strategy for the repayment of existing arrears, in parallel to improvements to the business environment, such as strengthening governance and transparency and improving access to finance, will be essential to underpin broader private sector development and diversification.
“The mission met with Prime Minister. Mouamba; State Minister of Economy, Industrial Development, and Promotion of the Private Sector, Mr. Ondongo; Minister of Finance, Budget, and Public Portfolio, Mr. Nganongo; Minister of Planning, Statistics and Integration, Ms. Ebouka-Babakas; and senior officials of the National Directorate of the Central Bank, in addition to representatives of the parliament, civil society, the private sector, and development partners.
“The IMF stands ready to continue to work with the Congolese authorities to address their policy challenges. The Executive Board of the IMF is expected to consider the staff report on the 2016 Article IV consultation in January 2016. The mission wishes to thank the authorities for their warm hospitality and constructive cooperation.”
Distributed by APO on behalf of International Monetary Fund (IMF).