The Executive Board of the International Monetary Fund (IMF) today approved a three-year, SDR 346.45 million (about US$551.45 million) arrangement for the Democratic Republic of the Congo under the Poverty Reduction and Growth Facility (PRGF). The Executive Board also approved additional interim assistance of SDR 45.66 million (about US$72.68 million) under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative to reduce the DRC's debt service payments to the IMF.
Satisfactory completion of the first review of the government's PRGF-supported economic program is a key requirement for the DRC to reach the completion point under the enhanced HIPC Initiative and to benefit from the Multilateral Debt Relief Initiative (MDRI), which together could result in relief from the vast majority of the country's external debt. Other requirements for the HIPC completion point are 12 months of satisfactory implementation of the government's Poverty Reduction and Growth Strategy (PRGS) and other measures--including in social areas such as healthcare and education--which were agreed when the DRC reached its HIPC Decision Point in July 2003.
Following the Executive Board's discussion of the Democratic Republic of the Congo, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, said:
"The Democratic Republic of the Congo (DRC) has made important socioeconomic progress since 2001, demonstrated by the political transition to a democratically-elected government, robust rates of economic growth, and the taming of hyperinflation. Nonetheless, socioeconomic conditions remain poor; the country's infrastructure is dilapidated; and the country's external debt is unsustainable. The global economic crisis has further aggravated these conditions.
"The new three-year PRGF arrangement will support the authorities' implementation of their poverty reduction and growth strategy and economic reform program. The key priorities are to generate strong economic growth, reduce inflation to single digits, strengthen public financial management, achieve debt sustainability, and accelerate structural reforms.
"Prudent and credible fiscal policies are key to addressing fiscal dominance over monetary policy and making progress toward fiscal sustainability. The authorities aim to bolster domestic revenue, strengthen expenditure management, and implement a prudent wage policy to support fiscal consolidation while expanding priority spending programs. The authorities are committed to avoiding recourse to bank financing over the medium term.
"Monetary policy will continue to focus on reducing inflation. The central bank aims to enhance the effectiveness of monetary policy by improving its liquidity forecasting capacity and strengthening coordination with the Treasury. Completion of the restructuring and recapitalization of the central bank is important to enhance the central bank's credibility and independence. The central bank's supervision of the commercial banks also needs to be strengthened.
"The DRC's flexible exchange rate regime has served the country well. The central bank will limit intervention in the foreign exchange market to smoothing short-term volatility and achieving its gross official reserve target.
"Strong and sustained economic growth requires implementation of key structural reforms. The authorities will focus on public enterprise reform, improving governance, and streamlining the business regulatory environment.
"Given the DRC's high debt burden, the authorities recognize the need for prudent debt management. They aim to meet the enhanced HIPC Initiative requirements and triggers to reach the completion point and receive debt relief under the Multilateral Debt Relief Initiative as early as possible. Continued highly concessional assistance from the donor community will be necessary to support the authorities' reform efforts."