 ECONOMY |
Sparsely populated in relation to its area, the Democratic Republic of the Congo is home to a vast potential of natural resources and mineral wealth. Agriculture is the mainstay of the economy, accounting for 57.9% of GDP in 1997. Main cash crops include coffee, palm oil, rubber, cotton, sugar, tea, and cocoa. Food crops include cassava, plantains, maize, groundnuts, and rice. In 1996, agriculture employed 66% of the work force.
Industry, especially mining, remains a great potential source of wealth for DRC. In 1997, industry accounted for 16.9% of GDP. The Congo was the world's fourth largest producer of industrial diamonds during the 1980's, and diamonds continue to dominate exports, accounting for $717 million or 52% of exports in 1997. The Congo's main copper and cobalt interests are dominated by Gecamines, the state-owned mining giant. Gecamines production has faltered in recent years, due in part to a competitive world copper market.
Despite the country's vast potential, under the Mobutu regime widespread corruption, economic controls, and the diversion of public resources for personal gain thwarted economic growth. The unrecorded and illicit transactions of Zaire's unofficial economy were estimated in the early 1990's to be three times the size of official GDP.
The Congo's record with multilateral and bilateral donors has been uneven. Despite a succession of economic plans financed by the World Bank and the International Monetary Fund (IMF) since independence, budgetary imbalance, inflation, and debt consistently plagued the Mobutu government. In early 1990, both the World Bank and the IMF suspended most disbursements, and most bilateral aid was cut off. Unable to make debt payments, Zaire's borrowing rights with the IMF were cut off in February 1992; its World Bank credits were frozen in July 1993. Despite the introduction of a new currency, the New Zaire (NZ), currency issuance remained disorderly, and large scale inflation rose to over 9,000% by early 1994.
In May 1997 the AFDL, led by Laurent Kabila, overthrew the regime of Mobutu Sese Seko. Under President Kabila the government and state enterprises began a program of reconstruction. The government began to reform the corrupt tax system, civilian police force, and repair the damaged road system.
In August 1998, a war broke out in the Democratic Republic of the Congo. At that time, some progress had been made in the economic reconstruction of the country, but major problems continued to exist in transportation infrastructure, customs administration, and the tax system. Government finances had not been put in order and relations with the IMF and World Bank were in disarray. Much of the government's revenue was kept "off book," and not included in published statistics on revenue and expenditure. Relations with the World Bank were on hold as a result of the government's failure to finalize an agreement for administration of the International Bank for Reconstruction and Development (IBRD) Trust Fund for the Congo.
The outbreak of war in the early days of August 1998 caused a major decline in economic activity that continues to the present. The country has been divided into rebel and government held territories, and commerce between them has stopped. The economic and commercial links among the various sections of the country are not strong, but they are important.
After a surge in inflation during August 1998, the government began enforcing price control laws. It also began regulating foreign exchange markets. Taken together, these measures have severely damaged the ability of businesses depending on imports to continue operations. The wide spread between the official rate for buying the new currency, Congo francs (FCs), and the black market rate for buying dollars has squeezed merchants forced to price their imported goods according to the official rate for buying local currency.
Faced with continued currency depreciation, the government resorted to more drastic measures and on January 1999 banned the widespread use of U.S. dollars for all domestic commercial transactions, a position it later adjusted. The government has been unable to provide foreign exchange for economic transactions, while it has resorted to printing money to finance its expenditure.
In this context, output is well below 1990 levels and per capita real GDP has plummeted from US$224 in 1990 to US$85 in 2000 (or 23 cents a day). Over the past three years alone, real GDP has fallen by 5 percent per year on average, while consumer prices rose at an annual average rate of 107 percent in 1998, 270 percent in 1999, and 554 percent in 2000. In the first four months of 2001, consumer prices rose by another cumulative 68 percent. The gap between the official and parallel exchange rates widened from 44 percent at end 1998 to 545 percent in mid-May 2001. Gross international reserves stood at the equivalent of only 2.2 weeks of imports of goods and nonfactor services at end 2000. External debt rose to 280 percent (or almost US$13 billion) of GDP at end 2000, with arrears accounting for about 75 percent of the total. Multiple exchange rates and controls on prices have resulted in significant distortions in relative prices, and in shortages of basic items as well as petroleum products. The regulatory framework has become heavy, lacks transparency, and has been applied arbitrarily, which has resulted in a climate of suspicion and economic insecurity that has discouraged investment. Poor maintenance has led to rundown infrastructure and productive capacity.
Under the new President, Joseph Kabila, the political and security situation in the DRC has been improving since early 2001, thanks to the reactivation of the Lusaka cease fire agreement, involvement of the United Nations, and the enhancement of the inter-Congolese dialogue. A new reform-minded government was appointed on April 14, 2001, and on May 18, 2001, a presidential decree was signed liberalizing political activities.
| In addition, the authorities have started the process of liberalizing, restructuring, and revitalizing the Congolese economy, especially the private sector. In this context, understandings have been reached on an economic program covering the period June 2001-March 2002 that will be monitored by the staff of the IMF.
To address the alarming economic, financial and social situation, the authorities' program contains a critical mass of bold and front-loaded adjustment measures, aiming principally at breaking hyperinflation, stabilizing the economic situation, laying the foundation for a restoration of growth and reconstruction, and reducing poverty. To achieve these objectives, the macroeconomic policies envisaged in the program include, inter alia:
A restrained budgetary policy, centered around strict adherence to a monthly treasury cash plan;
A prudent monetary policy consistent with the objective of breaking hyperinflation. Central to the successful implementation of monetary policy will be the restoration of the independence of the Central Bank of the Congo (BCC);
The implementation of a floating exchange rate system. On May 26, 2001, the new system was put in place, thereby unifying the existing official and parallel market rates.
Far reaching reforms in the structural area would significantly reduce price distortions, strengthen the banking sector, restore economic security, and liberalize the economy.
STATISTICS
Economic and Financial Indicators
1997-2001 | | | 1997 | 1998 | 1999 | 2000 | 2001 | | | | | Est. | Est. | Prog. | | |
(Annual percentage changes)
| | Domestic Economy | | Real GDP growth | -5.6 | -1.6 | -10.4 | -4.3 | 0.0 | | End-of-period CPI inflation | 14.0 | 135.0 | 484.0 | 511.0 | 99.0 | | Average CPI inflation | 199.0 | 107.0 | 270.0 | 554.0 | 299.0 | | |
(In percent of GDP, unless otherwise indicated)
| | Financial variables | | Total fiscal revenue (excluding grants) | 9.4 | 5.9 | 4.6 | 4.8 | 5.2 | | Total expenditure 1/ | 20.2 | 12.1 | 9.8 | 10.5 | 7.1 | | Overall balance (commitment basis) | -10.8 | -6.2 | -5.2 | -5.7 | -1.9 | | Overall balance (cash basis) | -6.3 | -2.7 | -3.5 | -3.9 | -0.3 | | Broad money (change in percent) | 71.1 | 160.0 | 382.0 | 493.1 | 53.3 | |
(In millions of U.S. dollars, unless otherwise indicated)
| | External sector | Exports of goods
and nonfactor services | 1255.1 | 1240.3 | 1003.5 | 829.0 | 839.1 | Imports of goods
and nonfactor services | 1331.6 | 1368.9 | 1172.4 | 1224.3 | 1104.0 | External current account
(in percent of GDP) | -15. | -9.2 | -14.1 | -17.6 | -14.0 | | Real effective exchange rate 2/ | 22.7 | 3.9 | 168.8 | -22.3 | ... | | Sources: Congolese authorities; and IMF staff estimates and projections. | | 1/ Including interest due on external debt. |
2/ Annual averages based on official rates. Minus sign indicates depreciation. |
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. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. This PIN summarizes the views of the Executive Board as expressed during the July 13, 2001 Executive Board discussion based on the staff report.
|
