Flash Report /

Republic of Congo: IMF complete first review mission for ECF, maintain Hold

    Stuart Culverhouse
    Stuart Culverhouse

    Chief Economist & Head of Fixed Income Research

    Tellimer Research
    7 November 2019
    Published byTellimer Research

    The IMF published a statement last night following the conclusion of a staff mission to conduct the first review of the Extended Credit Facility (ECF) and 2019 Article IV consultation for the Republic of Congo. The staff mission was held over 24 October - 6 November. No timing was given for the date of the Board discussion, as the review has not yet finished. 

    The statement noted that discussions with the authorities will continue on pending actions on the programme review. As we had anticipated in our recently published trip notes following the IMF/WB Annual Meetings on 5 November, we think there are two key conditions (prior actions) for completing the first review. First is clearance of official sector (bilateral) arrears. Second is restructuring of commercial (oil trader) debt. In its statement, the IMF noted that the authorities are committed to finalising its external debt restructuring although gave no more detail as to their current status, and encouraged the authorities to clear its bilateral arrears as soon as possible "and in line with earlier commitments", although no further detail was given. 

    The statement noted that real GDP growth in 2019 is expected to stabilise around 2%, with oil production being the main driver of growth. Non-oil growth could turn positive for the first time since 2015, due to recovery in agriculture, forestry and transport sectors, but will remain below 1%. The current account surplus is expected to reach 8% of GDP this year, amid encouraging signs of export diversification (away from oil), while imputed reserves have risen more than expected. However, financial conditions remain difficult with negative private sector credit growth. The IMF encouraged the authorities to speed up its domestic arrears clearance. 

    The statement noted that fiscal performance at end-June was mixed. The targets for the non-oil primary balance (as a % of non-oil GDP) and net domestic financing were both met. However, non-oil revenue collection has underperformed. Further fiscal consolidation will therefore be required to offset this revenue shortfall. However, no figures were given.

    The IMF however did commend the authorities for preparing a prudent 2020 budget, consistent with restoring fiscal sustainability. The IMF noted that rigorous implementation of the budget could lead to a reduction in the non-oil primary balance deficit from 24.8% of non-oil GDP in 2019 to 21.3%. The primary fiscal balance would remain in surplus and total public debt would fall below 75% of GDP, down from 118% in 2017.

    However, the IMF noted that greater efforts were need in the implementation of structural reforms, particularly on governance, transparency and anti-corruption. 

    We maintain our Hold recommendation on the REPCON 6% 2029 US$ bond, with a yield to average life of 9.2% (based on an indicative mid-price of 87.8 on Bloomberg), as of cob 6 November.