IMF Concludes 2024 Review, Sixth ECF for DRC

• The DRC's macroeconomic environment remains challenging, including from the security and humanitarian crisis in the East of the country. Against this backdrop, the authorities have maintained prudent macroeconomic policies.
• Performance under the program has been generally positive, with most quantitative targets met and key reforms implemented, albeit at a slow pace
• The economic outlook remains positive but is subject to substantial downside risks. This calls for continued prudent policies and increasing reform efforts in fiscal and monetary frameworks and in governance.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] and also completed the sixth and last review of The Extended Credit Facility (ECF) Arrangement for the Democratic Republic of the Congo. The completion of the sixth review allowed an immediate disbursement equivalent to 152.2 million SDR (about US$ 224.7 million) to support balance-of-payment needs, bringing the aggregate disbursement to date to 1,066 million SDR (about US$ 1,573.8 million).

The DRC's macroeconomic environment remains challenging since the last Article IV consultation, as the security and humanitarian crisis in the East of the country has worsened. Against this backdrop, the authorities have maintained prudent macroeconomic policy and are making progress on domestic revenue mobilization, even though revenues remain highly sensitive to international commodity price fluctuations. The continued refraining from monetary financing—a key anchor for the program—has been a significant achievement, and the Democratic Republic of the Congo (DRC) is at a moderate risk of external and overall debt distress. However, public financial management reforms have been slower than anticipated, and further efforts are needed to rationalize the earmarking of revenue for special accounts in the budget and to enforce the expenditure chain and cash management procedures. Foreign exchange reserves build-up has been much higher than expected but more needs to be done to strengthen the monetary and exchange rate policy frameworks.

Real GDP growth is estimated at 8.4 percent for 2023, supported by the robust growth of the extractive sector. Inflation remained high, peaking at 23.8 percent at the end of 2023, before easing gradually to 21.2 percent at end-May 2024. With higher spending for elections and security, the 2023 domestic fiscal deficit exceeded projections and reached 1.3 percent of GDP, despite good revenue performance in the last quarter of 2023. International reserves continued to strengthen, reaching nearly US$5.5 billion or about two months of imports at the end of 2023.

For the sixth and last review of the ECF Arrangement, all quantitative performance criteria were met except for the performance criterion on the domestic fiscal balance that was missed due to higher-than-expected exceptional spending mostly on security and the 2023 general elections. Corrective actions are being implemented to address the missed performance criterion. The structural reform agenda is progressing, albeit at a slower pace than envisaged.

The economic outlook remains positive but is subject to substantial downside risks. Economic growth is projected at 4.7 percent in 2024 and an average of 4.8 percent during 2024-28, supported by the continued expansion of major mines and a gradual acceleration of non-extractive sector growth. Inflation is projected to remain elevated at 17.2 percent on average in 2024 and reach 12 percent at end-December 2024, before gradually reverting to the Banque Centrale du Congo's target of 7 percent over the medium term. Fiscal pressures are expected to persist, but good revenue performance and efforts to contain non-priority spending will help narrow the domestic fiscal deficit below 1 percent of GDP in 2024 and over the medium term. The main risks to the outlook arise from the escalation of armed conflicts in the East, further inflationary pressures stemming from oil and food price volatility, with negative effects on the real disposable income of households, an abrupt growth slowdown in China, and an intensification of regional conflicts, including Russia's war in Ukraine and the conflict in the Middle East, which could weigh on export revenues and foreign direct investment.

At the conclusion of the Executive Board's discussion, Mr. Okamura, Deputy Managing Director, and Chair stated:

"Growth in the Democratic Republic of the Congo has remained resilient, primarily driven by a robust performance in the mining sector. Measures taken by the Central Bank, BCC, to tighten the monetary policy stance and alleviate pressures in the foreign exchange market have contributed to the modest moderation of the inflationary pressures. While the growth outlook is generally favorable, risks are tilted to the downside due to the persistent armed conflict in the East and further inflationary pressures stemming from oil and food price volatility.

"The Democratic Republic of the Congo has made significant progress under the ECF arrangement, although performance during the sixth review has been constrained by the persistent security and humanitarian crises, fiscal slippage, and ongoing inflationary pressures. This review notably marks the first successful completion of an Upper Credit Tranche (UCT)-quality program by the authorities, which has supported their efforts to sustain macroeconomic stability amid multiple external and domestic shocks.

"The domestic fiscal deficit for 2024 is projected to narrow compared to 2023, as higher mining revenue would help ease pressures from higher security spending and investment. Over the medium term, sustained fiscal discipline and a gradual move toward a resource-based fiscal framework, targeted public financial management reforms, including the enforcement of spending chain controls, will help curb procyclicality of spending, create space for investment and social spending, build resilience to shocks, and strengthen fiscal credibility.

"In addition to the BCC's commitment to further tighten monetary policy if necessary, ongoing reforms to strengthen the monetary policy implementation framework and FX intervention strategy are crucial steps to enhance the transmission of monetary policy and alleviate pressures in the FX market. Continued efforts to accumulate reserves while safeguarding the role of the exchange rate as a shock absorber are paramount to building external resilience.

"Advancing reforms to improve governance and transparency, including in mining, strengthen the anti-corruption and AML/CFT frameworks, and enhance the business climate is critical for supporting private sector development and for promoting diversified, sustainable, and inclusive growth.

[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.