Non-mining growth is projected to more than double in 2019, but total GDP growth will decelerate based on the assumption of a slowdown in mining activity; Stronger revenue mobilization is needed to enhance spending on infrastructure; Reducing regulations, simplifying tax payments, and improving governance should help to foster private sector investment.
An International Monetary Fund (IMF) staff team led by Mr. Mauricio Villafuerte, IMF Mission Chief for the Democratic Republic of the Congo (DRC), visited Kinshasa and Lubumbashi during May 22-June 5, 2019 to conduct the 2019 Article IV Consultation for the DRC.
At the end of the visit, Mr. Villafuerte made the following statement:
“Macroeconomic stability continued to consolidate in 2018 on the basis of prudent macroeconomic policies put in place since mid-2017 in the context of a sharp deterioration in terms of trade and political shocks and the withdrawal of donor support. GDP growth increased to 5.8 percent from 3.7 percent in 2017. Mining production grew faster than anticipated, driven by a sharp increase in cobalt prices, more than offsetting the slowdown in growth of the non-extractive GDP. In the span of just one year up to December 2018, the 12-month end-of-period inflation dropped from 54.7 percent to 7.2 percent, while the rate of exchange rate depreciation sharply decelerated from 31 percent to 2.7 percent. The 2018 fiscal deficit was contained at 0.1 percent of GDP, from a 0.5 percent of GDP surplus a year earlier, despite higher spending for the December elections entirely financed by own resources.
“GDP growth is projected to decelerate to 4.3 percent in 2019 based on the assumption of a slowdown in mining activity in the context of lower cobalt prices. By contrast, growth in the non-mining economy would more than double owing to higher public investment and post-election optimism. Over the medium term, overall growth would hover around 4 percent under current policies, though implementation of structural reforms should help boost growth, particularly in the non-mining sector. After declining further to 5.5 percent in 2019, inflation is projected to stabilize at around 5 percent over the medium term.
“The Article IV discussions, the first ones since 2015, focused on policies that would lead to diversifying the economy and tackling high levels of poverty and unemployment in the context of a rapidly expanding population. To that effect, reducing regulations, simplifying and consolidating taxes and nontax payments, improving governance, and stepping up the fight against corruption and rent-seeking should help improve the business environment and foster private sector investment. In this context, the IMF staff team encouraged the authorities to expedite the adoption of the proposed anti-corruption law and of the law creating an independent anti-corruption commission, as key measures to anchor the government’s credibility in charting a way forward for the DRC’s inclusive and sustained growth.
“The authorities’ plans to rehabilitate and build infrastructures are consistent with the objective of creating the basis for sustainable growth, though would require stronger revenue mobilization. The IMF staff team urged the authorities to work towards streamlining tax expenditures and consolidating various mining revenue streams into the Treasury, which would give the government more fiscal space and borrowing capacity to support public investment and social spending priorities. Enhanced transparency in the management of natural resources is critical in achieving this objective. As mining revenue can lead to volatile spending, the IMF staff team suggested to switch the formulation of fiscal policy to be underpinned by a non-mining fiscal balance and continue to exercise caution in public borrowing to preserve debt sustainability.
“Considering the high levels of dollarization in the financial system and the country´s vulnerability to external shocks, the IMF staff team encouraged the authorities to pursue efforts to sharply increase international reserves from their current low levels of around 3 weeks of imports´ coverage. Discussions also focused on the need to continue to strengthen risk-based controls and financial data quality, and finalize the AML-CFT framework to further improve financial stability.
“The mission thanks the Congolese authorities for their hospitality, openness, and cooperation. The Fund stands ready to support the authorities in their reform efforts and looks forward to future opportunities for continued cooperation.”
Distributed by APO Group on behalf of International Monetary Fund (IMF).