DRC: Cautious optimism in Congolese economy this year says S&P
The credit rating agency S&P Global Ratings’ updated analysis of the DRC’s economic situation, which it has just made public, comes at a time when the Kinshasa government is going through a period of great upheaval.
Cautiously optimistic about the effects of the pandemic on the DRC this year, the credit rating agency stresses the importance of external support and is concerned about the “difficulties surrounding political decision-making.”
This includes the recent dismissal of Prime Minister Sylvestre Ilunga Ilunkamba and the office of the National Assembly, as well as the resignation of the president of the Senate – all reputed to be close to former President Joseph Kabila.
“A new parliamentary majority would help the president to implement his programme. But the risks remain great, and we anticipate that taking and implementing political decisions will continue to be very difficult,” said S&P analysts.
In its memo on 8 February, the agency did not fail to point out positive aspects. “The stable outlook for the Democratic Republic of Congo means that the negative effects of Covid-19 on the country’s economy, budget and balance of payments will be offset by significant emergency financial assistance from international partners.”
S&P even foresees a “relatively strong medium-term economic outlook”, due to “higher mining production, limited internal tensions and the resumption of relations with the international community.” Furthermore, “a substantial increase in public investment, in line with President Tshisekedi’s priorities, should sustain growth in the coming years.”
In July 2020, the country’s credit rating was CCC+ (level of “substantial” debt risks), but with a reduced outlook from “positive” to “stable.” S&P’s rating remains one notch above those assigned to the DRC by its competitors Moody’s (Caa2) and Fitch (CCC).
Emergency financial assistance
S&P insists on the areas that need improvement in the country, particularly budgetary, which all appear on the future Congolese government’s “to-do list”.
The agency’s main concern is the implementation of international financial support.
It says that “significant financial assistance from bilateral and multilateral partners continues to be vital to mitigate the impact of Covid-19 and enable the authorities to mobilise sufficient resources to contain the pandemic.”
In this regard, the DRC has been benefiting from an IMF support programme since the end of December 2019.
The fund’s board of directors had then approved a Staff-Monitored Programme (SMP) and a loan of SDR 266.5m (about $370m) under its Rapid Credit Facility (RCF) to help the country pay off its urgent debts.
It should be noted that the SMP is unfunded and aims to put in place a comprehensive strategy of reforms that could be supported by an expanded credit facility.
A country vulnerable to changes in the business climate
However, the Covid-19 pandemic has plunged the DRC into recession, with a contraction in growth of around 2%.
After a good performance in 2019 (with growth at +4.4%), the Congolese economy has been hit by a decline in external demand, particularly due to the country’s heavy dependence on the mining sector (25% of national GDP and 95% of the country’s exports), and disruptions in global supply chains.
In April 2020 therefore, the IMF released a $442m package and in June the government embarked on a nine-month programme to mitigate the pandemic’s impact on the economy.
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However, concerns remain about the country’s debt.
According to S&P, four African countries – Angola, Mozambique, the DRC and Zambia – are “extremely vulnerable to changes in the business and economic environment that are currently being exacerbated by the pandemic” and were therefore more likely than others to “fail to pay off their commercial debt.”
The country’s foreign exchange reserves have risen from nearly $100m in 2020 to $723m. A rebound to over $1bn is expected in 2021 and S&P forecasts a level of around $3bn by 2024. The net debt ratio remains moderate, around 12.9% of GDP, and should remain stable in the medium-term according to the agency.
In the search for fiscal rebalancing, the Congolese authorities have announced that they intend to embark on a new programme under the IMF’s Extended Credit Facility. S&P views this in a positive light saying that “it would result in a solid political anchorage, more funding and additional financial support from donors.”
According to the agency, discussions with other international partners are ongoing. This support, which will depend on the concrete implementation of reforms, is seen as “essential to strengthen the DRC’s fragile external position and to finance the president’s post-pandemic development plan.”
For the time being, the rating agency warns that “we may downgrade ratings if internal or security tensions intensify to the point that they threaten the DRC’s already fragile institutions and economy.” The outcome of the current reshuffle will therefore be closely monitored.