At the end of its board meeting on July 3, the IMF concluded its multi-year program started in 2021 with the DRC, by validating the disbursement of the 7th and final tranche, for a total of approximately $1.5 billion. This is the first time that the DRC has completed such a program. Although at a slow pace, key reforms have been implemented. On this occasion, Gabriel Leost, the IMF Resident Representative in Kinshasa, gave an interview to RFI.
RFI: What are the key reforms put in place by the authorities that have enabled this programme to be completed?
Gabriel Leost : Before I talk about the key reforms, let me point out one element that has been indispensable, and that is political will. Embarking on an economic program supported by the IMF was a decision of the President of the Republic. And throughout the program, we were able to benefit from a commitment at the highest level of the State and that clearly allowed us to find solutions when we faced difficulties.
Regarding the reforms that have made it possible to advance in this program, there are first of all the actions that have made it possible to preserve a certain macroeconomic stability. This despite a very difficult internal and external environment: the post-Covid impact, the war in Ukraine with impacts on the price of imported foodstuffs, the volatility of prices of mining products, the intensification of armed conflicts in the East and of course the uncertainties linked to the electoral period.
Despite all these shocks, growth has remained strong, debt sustainability has been preserved and this is partly due to a relatively prudent budgetary policy and above all a key decision. It is perhaps even the key reform of this period under the programme, that of no longer resorting, for four years, to monetary financing of deficits. To be very concrete, this means that the government has not asked the Central Bank to print money, which could of course have very destabilising impacts on the currency and inflation. The government has spent strictly on a shoestring basis according to its available resources.
Have there been any other advances?
Other progress includes better mobilization of budget revenues, even if they still remain low overall. A rebuilding of the Central Bank’s international reserves. We have gone from barely $800 million at the beginning of the program to more than $5.5 billion today. This gives the Central Bank weapons in the event of an external shock.
Other key reforms launched concern the Central Bank to improve its monetary policy framework, to strengthen the stability of the financial sector with the implementation of a new banking law. Also, other more technical reforms in terms of governance, which help to strengthen the credibility and stability of the Central Bank.
I would also mention the decision to strictly limit state payments in cash. This was crucial both to comply with the anti-money laundering law, but also to limit inflationary pressures. Indeed, cash payments often have an immediate impact on the activity of exchange offices.
Finally, perhaps in terms of transparency, there has been some progress, particularly with the publication of mining contracts, including those that have been renegotiated. This was the case recently with the Sicomines mines-for-infrastructure contract. And then also, still in terms of transparency, the government’s support for control institutions. There has been a strengthening of the human and financial resources of the Court of Auditors and also of the General Inspectorate of Finance.
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Are there still any concerns?
More than just concerns, I would talk about challenges that remain very significant. For example, I mentioned earlier as a good point the low-cost budget execution without recourse to monetary financing. But this is done at the cost of a budget execution that is often ad hocwith decisions being made almost on a day-to-day basis, many difficulties in respecting the expenditure lines as they were voted and with dysfunctions in the expenditure chain. Too much expenditure continues to be made under emergency procedures, which poses problems both in terms of cash management and in terms of governance.
Progress is also certainly still too limited regarding the quality of spending. Efforts have been made. We saw this for example with free primary education and we also saw an increase in investment spending. But current spending still remains predominant to the detriment of priority spending such as investment and social spending. The idea, really, is to rationalize non-priority spending, in order to have more “budgetary space” for investment spending: infrastructure spending, social spending which are essential for the development of this country.
Despite all this, we still see very high inflation, estimated at 24%.
This is another area of concern that is also linked to the need to improve fiscal policy, and the coordination between fiscal policy and monetary policy. The inflationary pressures that we have seen in the Democratic Republic of Congo for a little over a year were certainly initially due to external factors such as the increase in the prices of certain imported products after the outbreak of the war in Ukraine, but they are also due to poorly calibrated or overly unpredictable budgetary expenditures, which complicate the action of the Central Bank to control inflation.
The Central Bank has an appropriate restrictive monetary policy. It has tools to deal with these inflationary pressures, but it needs visibility on government spending. Further improvement in forecasting and cash management is therefore essential.
Among the topics that create uncertainty, the conflict in the East. Can you explain why?
In the areas concerned, you have direct economic impacts of insecurity that prevent certain economic activities, travel, land exploitation. But beyond that, you have an effect of crowding out public spending, given the budgetary resources needed to ensure security spending. This means fewer resources for other types of spending.
This allows me to emphasize another important challenge, which is also a cause for hope given the potential that is there, which is the lack of diversification of the economy. Investments in energy, in roads, in connectivity in general must allow for diversification that is essential today. Exports are almost exclusively composed of mining products, 99%. So, it is really essential to diversify, starting with agriculture, the agri-food sector, and this involves energy, water, transport, connectivity, etc. And for that, it is also essential to improve the business climate and attract private investors who, despite the incredible potential of a French-speaking country of more than 100 million inhabitants, are still too often discouraged by administrative burdens, the lack of infrastructure, and the burdens of tax administrations.
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Overall, the economic context seems better, how is this felt in the daily lives of the Congolese?
I think that the difficulty is actually to see the first concrete impacts of this macroeconomic stabilization for the populations. It is very difficult for the populations to understand, while inflation is still around 20%, that without the reforms that have already been implemented, without the efforts of the government and the authorities that have been implemented in recent years, it could have been much worse. If, as was the case in the past, the Central Bank had started printing money, we might have had inflation of 100 or 200%.
This is why, once again, it is really essential to improve social spending and investment spending. Because that is what will have a real impact on the populations. One of the achievements of recent years that was partly supported by IMF disbursements is what was called the development plan for the 145 territories. These are investments at the territorial level, in health centers, in administrative buildings, in schools. There, we see a concrete benefit.
But clearly, considering the needs, the concrete impacts are still difficult to see and this is undoubtedly the main challenge of the years to come. The IMF is ready to continue to play its role in supporting the authorities. We will of course continue to discuss the best economic policies to implement. We will continue to provide technical assistance. And finally, the International Monetary Fund is still ready to continue to support the Democratic Republic of Congo with a new program and associated financing for which discussions will continue.