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Republic of Congo: IMF Board approves new programme, as expected

  • IMF approved new three-year ECF for an amount of US$455mn (200% of quota) on Friday

  • New programme follows expiry of previous arrangement and aims to support post-pandemic recovery, strengthen governance

  • Public debt is now seen as sustainable, although we await programme documentation for more details; maintain Buy

Republic of Congo: IMF Board approves new programme, as expected
Stuart Culverhouse
Stuart Culverhouse

Chief Economist & Head of Fixed Income Research

Tellimer Research
24 January 2022
Published byTellimer Research

The IMF Board approved a new programme for the Republic of Congo (henceforth Congo) on Friday (21 January). It follows the staff-level agreement on a new programme that was announced on 8 November and comes after the premature expiry of its previous arrangement, a three year Extended Credit Facility (ECF) (approved in July 2019), last April.

The new programme is a US$455mn (200% of quota) three year ECF, consistent with what was announced in the staff-level agreement. An immediate disbursement of US$90mn was available upon programme approval.

According to the IMF's short statement (a full press release will follow), the programme is intended to help the country maintain macroeconomic stability and support its post-pandemic economic recovery. The statement noted that new waves of the Covid-19 pandemic are creating headwinds for the nascent recovery. The programme is expected to catalyse financial support from official donors.

The statement noted the importance of reducing debt vulnerabilities while implementing fiscal policy that supports the recovery and advancing structural reforms (including anti-corruption measures), measures to enhance transparency, improving governance and the business environment, and energy sector reforms.

Over the long term, the programme's objective is to help reduce fragilities and place the country on a path of higher, more resilient, and inclusive growth, and contribute to preserving external stability in the Central African Economic and Monetary Union (CEMAC).

As noted previously, after long-running concerns over debt sustainability (hence the previous arrangement), and debt restructuring agreements so far (and those still underway), the IMF now assesses Congo's public debt as sustainable; hence paving the way for the new programme, without the requirement for any further kind of restructuring (eg on the bonds). The IMF projected public debt to fall to 94% of GDP this year, as per the staff level agreement, from 101% in 2020, and to fall further over the medium term, under the planned fiscal consolidation path, although much hinged on the outlook for oil prices.

Republic of Congo: public debt (% of GDP)

However, no updated macroeconomic figures or projections were provided in the press release announcing board approval, so we await the publication of the more detailed statement, and staff report, for more information. The programme documentation will also provide details of the policy discussion, and the performance criteria and structural benchmarks against which programme implementation will be assessed.

We maintain our Buy recommendation on the REPCON 6% 2029 US$ bond, after our upgrade in November, with a yield to average life of 11.5% (based on an indicative mid-price of 82.8 on Bloomberg), as of cob 21 January. However, we recognise that the bond's small size (US$241mn outstanding now after the December amortisation payment) and illiquidity, as well as its low rating (Caa2/CCC+/CCC), may be a deterrent to some investors.

Yield on REPCON 6% 2029 (%)