DRC: Redirection of spending towards security and elections at the expense of arrears payments, according to the IMF.

Limited budgetary space due to underperformance in revenues, spending in the DRC has been redirected towards security and elections at the expense of the settlement of arrears, and the domestic fiscal deficit for 2023 is projected at 0.8% of GDP. This was indicated in a statement by the International Monetary Fund (IMF) made public on December 15.

According to the IMF, budgetary policy will focus on revenue mobilization and will be supported by progress in public financial management and investment reforms.

"The progress made under the Extended Credit Facility (ECF) program has been generally satisfactory. All performance criteria (PC) as of end-June 2023 have been met except one: the PC for the domestic budget balance was not achieved due to underperformance of central government revenue and insufficient expenditure adjustments," the statement says.

According to the institution, all indicative targets (IT) as of end-June 2023 have been met, except for two: one related to the social spending floor and one related to the central government revenue floor.

"Structural reforms are advancing, albeit at a slower pace: out of nine structural benchmarks, six have been met, two were implemented with delays, and the last concerning the recapitalization of the Central Bank has been partially met and postponed," adds the IMF.

A resilient economy

The Board of Directors of the International Monetary Fund has completed the fifth review of the Extended Credit Facility arrangement with the Democratic Republic of the Congo. The decision allows an immediate disbursement of 202.1 million dollars in favor of international reserves, in order to continue building international reserves.

This disbursement supports the balance of payments needs, bringing the total disbursement to date to approximately 1219.1 million dollars. Despite the difficult socio-political and security situation, the IMF statement recalls, the authorities remain committed to preserving the program's goals, including limiting macroeconomic slippages and continuing to implement the economic reform program.

"The socio-political and security situation is becoming increasingly complex, reflecting the upcoming general elections on December 20, 2023, and the ongoing conflict in the east of the DRC. Despite this context, the economy remains resilient, with real GDP growth projected at 6.2% in 2023, powered by a consistently dynamic extractive sector despite negative terms of trade shocks. The strong depreciation of the Congolese franc has impacted inflation, which reached 23.3% year-on-year in July 2023, before decreasing moderately following measures taken by the Central Bank of Congo."

Although growth remains resilient, budgetary, depreciation, and inflationary pressures are high. This challenging macroeconomic context calls for prudent budgetary policies, including limiting non-essential spending and improving spending efficiency, governance, and transparency. Efforts to strengthen the implementation of monetary policy are also needed.