The economic situation of the Republic Democratic of Congo in 2021 – Outlook 2022

The DRC, whose economy remains highly dependent on the mining industry, which is subject to the international prices risks, is a State that remains vulnerable. The growth outlook for 2021 and 2022 are however more convenient. In 2019, the drop in prices of raw materials had severely weakened its economic framework to the point of requiring IMF emergency response. The sudden rise of international prices in 2020 has allowed the economy to absorb a part of the health crisis effects and to achieve a slight increase (+1,7%). Furthermore, the IMF approved in July 2021 a program of 3 years with the DRC supported by an Extended Credit Facility (ECF), for an amount of 1.5 billion $, noting that the country had not known an IMF program with funding for almost 10 years.

1-      The DRC experienced a positive growth in 2020 despite the impact of COVID

The DRC economy is very specialized, highly dependent on the mining industry: 95% of its exports are raw materials (mainly copper and cobalt, 40% of which goes to China). This high exposure to the mining industry makes it highly dependent on global prices development, but also not very redistributive: three quarters of the population are living in extreme poverty (<1,9$/day), a situation which have worsened in 2020.

Nevertheless, despite the impact of COVID-19, the economic activity has experienced slight economic growth last year, due to the resilience of the mining industry. The IMF data suggest a positive GDP growth of 1.7% in 2020, compared to an estimate of -1.7% in summer, due to a faster rebound than anticipated in raw material prices, driven by the Chinese demand.

However, the burden of the pandemic has been especially noticeable in the service sector, resulting in GDP contraction excluding extractive industries, in decline compared to 2019. In the context of the health crisis, job losses were significant at the beginning of the year. About 20% of households living in Kinshasa had to reduce their consumption. The public finance situation has worsened as well, and the expenses related to COVID response has led to significant deficits, funded by the currency issuance of the Central Bank (CBC). This has led to an increase in inflation rate, which reached 41% during the year. The intervention of the IMF, which requested and managed to reduce the budget in cash management and the cessation of advances of the CBC, limited inflation rate to 16% and the depreciation of the Congolese franc of 15% over the year in comparison with the dollar.

2-      The growth outlook is favourable for 2021 and beyond

Growth could reach 4.9% in 2021, according to IMF forecasts and return to its pre-crisis level of 6% starting 2022 (5.6% in 2022). This significant recovery is expected to continue to be driven by the mining sector. The CBC also anticipates a recovery in 2021 assuming, however, that there won’t be a new wave of COVID, and that the vaccination campaign runs smoothly. The introduction of copper mining from Kamoa since July 2021 and the good pricing of copper and cobalt (50,000 USD by the end of August 2021 compared to 32,000 USD by the end of December) should confirm these forecasts. Inflation would be limited to 6%, with the IMF’s projections for 2022 anticipating a stabilization of price increases (6.3%).

Despite cash flow problems, the debt remains sustainable and is estimated at nearly 10.2 billion USD (21% of GDP), of which 6.6 billion USD is external debt (13,5% of GDP). This debt, moderate compared to the countries of the sub-region, is mainly of external borrowings. According to the IMF’s latest sustainability analysis, debt risk remains moderate. Although the level of debt is relatively low as a percentage of GDP, insufficient tax revenues as well as limited capacities to respond to external shocks limit nowadays the possibility of lending. The country is eligible for the G20 and Paris Club Debt Service Suspension Initiative (DSSI). It benefits notably from France, which is one of its official creditors.

3-      IMF support and a new political dynamic more convenient to reforms confirms these outlooks

In April 2019, President Tshisekedi resumed dialogue with the IMF. An article IV review, the first since 2014, went off well in June 2019. A reference program (Staff Monitored Program) set up in early 2020 marked the normalization of relations with the IMF, after almost 10 years of absence.

The IMF approved a three-year 1.52 billion US $ Extended Credit Facility agreement in July 2021. The approval of the CEF agreement resulted in the immediate disbursement of approximately 217 million $, which systematically raised the level of country’s foreign exchange reserves.

The CEF arrangement will focus on three key areas: (i) enhanced domestic revenue mobilization to increase budget flexibility for infrastructure and social expenditure; (ii) strengthening governance, especially natural resource management and transparency, and (iii) strengthening the monetary policy framework and central bank independence. Moreover, the DRC will benefit from 1.5 billion USD of SDRs out of the 33 billion USD of SDRs expected for African countries to respond to the crisis.