Press Release No. 03/124

Press Release: IMF Completes the Second Review Under the Democratic Republic of the Congo's PRGF Arrangement and Approves US$37 Million Disbursement

July 24, 2003

The Executive Board of the International Monetary Fund (IMF) has completed the second review of the Democratic Republic of the Congo's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, the Democratic Republic of the Congo will be able to draw up to SDR 26.7 million (about US$37 million) under the arrangement immediately.

The Board also granted waivers for the nonobservance of three quantitative performance criteria and one continuous performance criterion for end-March 2003 (most of which were missed by relatively small margins) pertaining to the floor on the net foreign assets of the Central Bank of the Congo (BCC), the ceiling on the net domestic assets of the BCC, the ceiling on net bank credit to the government, and the continuous criterion relating to the abolition of budgetary expenditure financed by the BCC without the prior authorization of the Ministry of Finance, as well as for the nonobservance of the structural performance criterion on the establishment of new expenditure procedures, which was met with some delay.

The Democratic Republic of the Congo's three-year PRGF arrangement was approved on June 13, 2002 (see Press Release No. 02/27 ) for SDR 580 million (about US$809 million). So far, the Democratic Republic of the Congo has drawn about SDR 446.7 million (about US$623 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. They are articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

Following the Executive Board's discussion on the Democratic Republic of the Congo on July 23, 2003, Horst Köhler, Managing Director and Chairman, stated:

"The authorities of the Democratic Republic of the Congo (DRC) have made clear progress in consolidating the peace process in a complex and difficult environment. The installation of an all-inclusive transitional government represents a promising step in this context. Stabilization of the security situation, with the strong support of the international community that the DRC will continue to need, will be key for achieving the objectives of the economic program.

"The authorities' implementation of their economic program to date, under difficult circumstances, has been broadly satisfactory. As a result, in 2002 economic growth turned positive again after thirteen years, inflation continues to decline, and the exchange rate has stabilized. The progressive return to a normal budgetary cycle has led to a strengthening of the public finances. Fiscal revenue mobilization measures have been implemented, and the business environment is improving as a result of overall good progress in implementing structural reforms. However, as a result of higher military and sovereignty-related expenditure and a shortfall in external project financing, the intended shift in government spending toward the social sectors and poverty reduction has not yet materialized. Given the fragile security situation, this will require continued strong support from the international community for maintaining peace and security.

"The authorities are encouraged to continue to vigorously implement their poverty reduction strategy, progressively extending its reach to the entire country. Structural reforms aimed particularly at restructuring the public enterprise sector, and at reconstructing the transportation, education, and health networks, will underpin the authorities' efforts to achieve sustainable economic growth and poverty reduction. Improved governance and reduction of corruption will be key for economic revival.

"In particular, the authorities need to continue to pursue fiscal consolidation, along with efforts to improve further the transparency and management of public expenditure. Ensuring cohesive policy implementation within the new all-inclusive government will be a major challenge, and performance under the program will remain subject to a number of risks. Against this difficult background, strong implementation of measures to increase the volume and strengthen the tracking of poverty-reducing expenditures will be critical for ensuring an effective use of the potential debt relief under the enhanced HIPC Initiative.

"Monetary policy should continue to aim at achieving price stability. The central bank intends to step up efforts to strengthen internal procedures and restructure the banking system.

"DRC's broadly satisfactory recent performance has paved the ground for reaching the decision point under the enhanced HIPC Initiative. A final decision on the DRC's debt relief under this is pending action this week by the World Bank's Executive Board. A press release will be issued jointly with the World Bank following those deliberations," Mr. Köhler stated.