52635 INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL MONETARY FUND REPUBLIC OF CONGO Enhanced Heavily Indebted Poor Countries (HIPC) Initiative Completion Point Document and MultilateralDebt Relief Initiative (MDRI) Prepared by the Staffs o f the International Development Association and the International Monetary Fund Approved by Obiageli K. Ezekwesili and Otaviano Canuto (IDA) Sharmini Coorey and Dhaneshwar Ghura (IMF) January 6,2010 2 Contents Page Acronyms ................................................................................................................................... 4 Executive Summary ................................................................................................................... 5 I. Introduction ................................................................................................................... 6 I1. Assessment o f Requirements for Reaching the Completion Point ................................ 6 A . PRSP and Poverty Monitoring ........................................................................ 10 B. Macroeconomic Performance.......................................................................... 11 C . Public Expenditure Prioritization ................................................................... -13 D. Public Financial Management ......................................................................... 15 E. Governance ...................................................................................................... 19 F. Structural Reforms ........................................................................................... 26 G. Social Sector Reforms ..................................................................................... 27 H. Debt Management............................................................................................ 28 I11. Updated Debt Relief and Debt Sustainability Analysis ............................................... 29 A . Data Reconciliation ......................................................................................... 29 B. Status o f Creditor Participation in the Enhanced HIPC Initiative ................... 30 C . Debt Outlook after HIPC Assistance and Consideration for Exceptional Topping-Up o f HIPC Assistance ................................................................ 33 D. Creditor Participation in the Multilateral Debt Relief Initiative., ..................... 34 E. Debt Sustainability Outlook, 2009-28 ............................................................ 35 F. Sensitivity Analysis ......................................................................................... 37 I V. Conclusion ................................................................................................................... 38 V. Issues For Discussion .................................................................................................. 39 Boxes 1. Status of Floating Completion Point Triggers ............................................................... 7 2. Baseline Macroeconomic Assumptions....................................................................... 36 Figures 1. Composition o f the Stock o f External Debt by Creditor Group .................................. 40 2. External Debt and Debt Service Indicators for Medium-and Long-Term Public Sector Debt. 2009-28 .................................................................................. 41 3. Sensitivity Analysis. 2009-28 ..................................................................................... 42 Tables 1. Revised Nominal Stocks and Net Present Value o f Debt at Decision Point by Creditor Groups as o f end-December 2004 ....................................................... 43 3 2. Estimated Assistance at Decision Point (Amended) ................................................... 44 3. Comparison o f Discount Rate and Exchange Rate Assumptions ................................ 45 4. Status o f Creditor Participation Under the Enhanced HIPC Initiative ........................ 46 5. Nominal and N e t Present Value o f External Debt Outstanding at end-December 2008 ............................................................................................ 47 6. N e t Present Value o f External Debt ............................................................................ 48 7. External Debt Service after Full Implementation o f Debt-ReliefMechanisms ..........49 8. Key External Debt Indicators, 2008-28 ...................................................................... 50 9. Sensitivity Analysis, 2009-28 ..................................................................................... 51 10. Delivery o f IMF Assistance Under the Enhanced HIPC Initiative and the MDRI, 2006-1 5 ...................................................................................................... 52 11. Delivery o f World Bank HIPC Assistance and MDRI to 2006-44 ............................. 53 12. Paris Club Creditors' Delivery o f Debt Relief Under Bilateral Initiatives Beyond the HIPC Initiative..................................................................................... 54 13. HIPC Initiative: Status o f Country Cases under the Initiative, March 3 1, 2009 .........55 Appendices I. Debt Management........................................................................................................ 56 I1. Debt Sustainability Analysis using the Low-Income Country Framework ................. 58 4 ACRONYMS AfDB African Development Bank AfDF Africa Development Fund APR Annual Progress Report ARMP Agence de Regulation des Marche's Publics (Public Procurement Regulatory Authority) ARV Anti Retro Viral BEAC Banque des Etats de 1'Afiique Centrale (Bank o f Central African States) CEMAC Communaute' Economique Mone'taire de 1'Afiique Centrale (Central African Economic and Monetary Community) CFAA Country Financial Accountability Assessment DGMP Public Procurement General Directorate DMFAS Debt Management and Financial Analysis System DSA Debt Sustainability Analysis DTIS Diagnostic Trade Integration Study EC European Commission EITI Extractive Industries Transparency Initiative EU European Union GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome IDA International Development Association IMF International Monetary Fund JSAN Joint Staff Advisory Note LDP Letter o f Development Policy LICUS L o w Income Countries under Stress MDGs Millennium Development Goals MDRI Multilateral Debt Relief Initiative NGO Non-Governmental Organization NPV Net Present Value PFM Public Financial Management PRGF Poverty Reduction and Growth Facility PRS Poverty Reduction Strategy PRSP Poverty Reduction Strategy Paper U N United Nations UNDP UnitedNations Development Program VAT Value Added Tax 5 EXECUTIVE SUMMARY I n March 2006, the Executive Boards of IDA and the IMF agreed that the Republic o f Congo (Congo) had met the requirements for reaching the decision point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC). The amount o f debt relief committed at the decision point was US$1,679 million in net present value (NPV) terms at the end o f 2004, calculated to reduce the NPV o f eligible external debt to below the threshold o f 250 percent o f fiscal revenue at end-2004. I n the view o f the IDA and IMF staffs, Congo has fulfilled all o f the conditions to reach the completion point. All key decisions, actions, and measures required to achieve the floating completion point triggers have been taken, including a satisfactory track record o f implementation in public investment management, procurement, governance and anti- corruption and o i l sector management. As a result o f the debt reconciliationexercise for the completion point, the NPV of eligible external debt at end-2004 after traditional debt relief has been revised downward from US$ 5.2 billion to US$ 5.1 billion. The common reduction factor has declined from 32.4 percent to 3 1.1 percent. Consequently the required HIPC assistance in end-2004 NPV terms has been revised downward from US$ 1,679 million at the decision point to US$ 1,575 million. So far, financing assurances have been provided by creditors representing 80.6 percent o f HIPC debt r e l i e f estimated at decision point. Upon reaching the completion point under the enhanced HIPC Initiative, Congo will also qualify for additional debt relief under the MultilateralDebt Relief Initiative (MDRI). Debt r e l i e f under the M F would imply a stock o f debt reduction o f US$ DU 177.7 million (net o f HIPC assistance) in nominal terms, saving the country US$201.3 million o f debt service through 2043. This additional relief would be provided via debt stock reductions at the Completion Point by IDA (US$ 161.2 million), the AfDB (US$9.1 million), and the IMF (US$ 7.4 million). Full delivery of HIPC assistance together with additional bilateral assistance beyond HIPC and MDRI debt relief at the completion point would reduce Congo's external debt burden significantly. The NPV o f debt-to-revenue ratio at end-2010 would drop to 39 percent and gradually fall over time under the baseline scenario. The staffs recommend that the Executive Directors o f IDA and the IMF approve the completion point for the Republic o f Congo under the enhanced HIPC Initiative. 6 I. INTRODUCTION 1. This paper discusses the Republic o f Congo's (Congo) progress under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC). In the view o f the staffs o f the International Development Association (IDA) and the International Monetary Fund (IMF), this progress i s sufficient for recommending to their respective Boards o f Executive Directors the approval o f the completion point for Congo under the enhanced HIPC Initiative. The authorities have fully implemented the completion point triggers on the Poverty Reduction Strategy (PRS), macroeconomic stability, public financial management, governance, reforms in the health and education sectors, and debt management; and have also established a satisfactory track record o f implementation in public investment management, procurement, and governance and o i l sector management. 2. This paper builds on two HIPC progress reports, which were submitted for the Boards in May 2007 and October 2008, respectively. These progress reports highlighted both achievements and difficulties in meeting specific triggers and thereby helped build momentum in moving forward towards completion point. 3. I n March 2006, the Boards o f Executive Directors o f IDA and the IMF agreed that Congo had met the requirements for reaching the HIPC decision point. The amount o f debt relief committed at the decision point was U S $ 1,679 million in NPV terms, calculated to reduce the NPV o f debt-to-fiscal revenue ratio below the threshold o f 250 percent on the basis o f end-December 2004 data. Such relief represented an overall reduction o f 32.4 percent in the N P V o f all public- and publicly-guaranteed external debt as o f end-December 2004, after application o f traditional debt relief mechanisms. At the same time, the two Boards approved interim debt relief to Congo. Executive Directors had determined that the floating completion point would be reached when the triggers in Box 3 o f the Decision Point Document will have been met. 4. This paper i s organized as follows. Section I1assesses Congo's performance in meeting the requirements for reaching the completion point under the enhanced HIPC Initiative. Section I11provides an updated debt relief and debt sustainability analysis (DSA), including the status o f creditor participation, and delivery o f debt relief under the HIPC and MDRI Initiatives. Section I V summarizes the main conclusions, and Section V presents issues for discussion by Executive Directors. 1 1 . ASSESSMENT REQUIREMENTS FOR REACHING THE COMPLETION POINT OF 5. I n the view of the staffs of IDA and the IMF, Congo has met in full all o f the triggers for reaching the completion point (Box 1). All key decisions, actions, and measures required to observe the triggers have been taken, including a satisfactory track record o f implementation for public investment management (trigger 4.ii), procurement (trigger 4.iii), governance and anti-corruption (trigger 5), improvement in the internal controls and accounting o f the state-owned o i l company (SNPC) (trigger 5.9, and o i l commercialization (trigger 5 .ii). assess the performance o f these specific triggers, the To staffs and the authorities had agreed on a series o f actions and indicators that would constitute satisfactory implementation as detailed below. 7 Box 1: Status of Floating Completion Point Triggers I Trigger 1. PRSP: Preparation of a full PRSP through a participatory process and satisfactory Observed. APR submitted to Boards implementation of its recommended actions for at least one year, as evidenced by an Annual jointly with the Completion Point Progress Report (APR) submitted by the government to the staffs of IDA and IMF. document. 2. Macroeconomic stability: Maintenance of macroeconomic stability as evidenced by Observed. 2naPRGF review satisfactory performance under the PRGF-supported program as well as any IMF successor completed on November 30,2009; program. and staffs assessment is that the 3' review could be completed as envisaged in May 2010. 3. Public expenditure priorities: Alignment of public spending priorities in accordance with Observed. Relative spending on pro- the priorities identified in the I-PRSP, and, when completed, the PRSP, reflecting emphasis poor sectors has increased. on pro-poor growth. 4. Public finance management: (i) Establishment of a functional classification system for government expenditures, including Observed. Budget 2009 prepared poverty related expenditures, consistent with the IMFs Government Finance Statistics and executed with the new manual, and preparation of government budgets using this new classification; classification system. (ii) Implementationof a new public investment management system to provide rigorous Observed. Public investment selection, and efficient execution and monitoring of the projects; submission of draft public management action plan and investment programs to IDA for review; selected key measures implemented. Draft 2010 investment program submitted to IDA. (iii) Adoption and satisfactory implementation by the government of a new procurement code Observed. New code adopted with (that promotes transparency and competition), in line with international best practice; and application texts. New institutions established. The code has been satisfactorily implemented since October 2009. (iv) Adoption by the government of a medium-term expenditure framework (MTEF) for Observed. Main elements of MTEF sustainable management of government expenditures and revenues, with technical prepared and used as basis for assistance from IDA and IMF. preparation of draft budget 2010. An MTEF committee was formally created, and the government adopted an oil revenue model as basis for the MTEF projection. 5. Governance and natural resource management Governance: Completion of a diagnostic governance and corruption study by an Observed. Institutions established independent group of internationally reputed experts, assisted by a national anti-corruption and diagnostic study completed. Anti- committee, based on terms of reference prepared in consultation with IDA and IMF staffs. corruption law and the anti-corruption The terms of reference and composition of the national anti-corruptioncommittee will be action plan adopted and satisfactory to IDA and IMF staffs. Adoption by the government of an action plan, prepared in disseminated; agreed implementation consultation with IDA and IMF staffs, to improve governance and reduce corruption, and steps taken. sustained implementation of such action plan during the completion of the audits referenced in subsections 5(i) and 5(ii). Assessment of the implementation of the action plan by IDA and IMF staffs on the basis of an independent review by international experts acceptable to IDA . and the IMF. 8 Box 1 (cont.): Status of Floating Completion Point Triggers Trigger Statuslcomments Oil sector: (i) Assessment by IDA and IMF staffs, based on successive annual audit opinions by an Observed. Remaining technical independent firm of international reputation, and certified by the national anti-corruption reservations of audits of 2006 and committee, that SNPC's internal controls and accounting system are in line with international 2007 have been removed, in standards and best practices; particular through the introduction of a new analytical accounting system meeting international standards, which was successfully used to produce the 2008 accounts. (ii) Preparation, by an independent firm of international reputation, of a diagnostic study of the Observed. A diagnostic study was practices for the commercialization of oil by SNPC, based on terms of reference prepared in completed in 2007, and an action consultationwith IDA and IMF staffs. Assessment by IDA and IMF staffs, based on plan adopted in 2009. In the interim, successive audit opinions by an independent firm of international reputation, that the oil commercialization practices were commercialization of oil by SNPC has been brought into line with international best practice improved by increasing the number on the basis of the recommendations of the diagnostic study, and results in competitive and of clients, ending prepayment of fair market values to Congo for the oil sold; and cargos, and transferring receipts to the treasury within 15 days. A new set of procedures meeting international standards was adopted, an oil commercialization database was established, and COTRADE was integrated into SNPC. A statistical analysis of data shows that prices received by Congo on oil sales are broadly in line with those of international oil companies selling similar oil on their own behalf. (iii) Adoption and application by the government, certified by the national anti-corruption Obsewed. Statements for 2007, committee, during the completion of the audits referenced in 5(i) and 5(ii), of a legal text 2008 and 2009 were verified by Cour stipulating: de Comptes and the report evaluated by the national anti-corruption compulsory declaration, to the National Auditing Office (Cour des Comptes), by the committee. members of the Executive Board of SNPC and those having a management mandate within SNPC and its subsidiaries, at the moment of their nomination and annually thereafter, of their participation or other interests in companies having business relations with SNPC or its subsidiaries as well as the verification and annual publication of the aforementioned declarations by the National Auditing Office (Cour des Comptes). divestiture by the members of the Executive Board of SNPC and by those having management responsibilitieswithin SNPC or any of its subsidiaries of such participations andlor other interests, within a time period of 6 months after their nomination and prohibition of the taking of any interest in companies having business relations with SNPC during the period of their mandate. 9 I Box 1 (cont.): Status of Floating Completion Point Triggers Trigger I Statuslcomments Forestry sector: Review of forestry sector management and legislation with IDA assistance; adoption by the Observed. The review was government of measures recommended by the review to promote competition, transparency, completed, the forestry code's fiscal and sustainable development in this sector. provisions were amended, and decrees were adopted on i) transparent competitive concession award, ii) environmental and social impact assessment iii) resolution of conflicting usage of forest lands; and iv) forest land gazetting procedures. The fiscal reform package was submitted to parliament. 6. Structural reform: Review and adoption of a regulatory framework for the Observed. Decree adopted on telecommunications sector establishing competition at the level of internationalgateways and ensuring competition at the level of the wireless local loop. international gateways, new legislation on the Post and Telecommunications and law on telecom regulation adopted. 7. Social sectors: Observed. Census Education: Implementation during 2006 of a strategy to eliminate fictitious workers from the recommendations implemented and education budget and increase teacher staff by, at least, 1,000 each year in basic education more than 2000 new teachers hired. until 2007. Health: Increase to, at least, 60 percent the share of generic drugs in total expenditures on Observed. Sufficient budget drugs by the central purchasing agency. allocations were made in 2008 and 2009, although disbursements have not been timely. An audit to improve execution is planned. HIWAIDS: Increase in the number of voluntary AIDS counseling and testing centers with Observed. There are about 60 associated measures (staff, equipment, and awareness campaign) from 4 at present to, at testing centers currently. least, 10 in 2006 and 15 in 2007. 8. External debt management: (i) Publication of the quarterly external debt data and projections on a government website; Observed. Quarterly data and and projections are available on the Ministry of Finance, Budget, and Public Portfolio web-site. (ii) Centralization of all information on debt, including collateralizeddebt, in the government's Observed. All information on debt debt agency (CCA). centralized in the CCA. 10 A. PRSP and Poverty Monitoring Preparation o a full PRSP through a participatory process and satisfactory f implementation o its recommended actionsfor at least one year, as evidenced by an f Annual Progress Report (APR) submitted by the government to the staffs o IDA and IMF. f 6. Staffs consider this trigger as met, since a full PRSP was adopted in April 2008 and satisfactorily implemented since then. The PRSP i s important step in consolidating the country's effort toward achieving macroeconomic stability, strengthening economic governance, and program ownership. It represents the first comprehensive national development plan since the end o f civil war in 2001 and has been instrumental in guiding Congo's policy framework. The PRSP's main elements include the need to: (i) improve governance and consolidate peace and security; (ii) promote growth and macroeconomic stability; (iii) enhance access to basic social services; (iv) improve the social environment and integration o f vulnerable groups into society; and (v) combat HIV/AIDS. 7. Staffs believe that the PRSP provided a sound basis for strengthening and diversifying the economy and reducing poverty.' The strategy derives part o f i t s strength from the broad and inclusive preparation process, which involved a series o f consultations in different regions with stakeholders from civil society, NGOs, and the private sector. The JSAN also commended the comprehensive poverty diagnosis on which the PRSP was based and welcomed the main elements as appropriate for the country's development objectives. In a number o f areas, needed improvements were identified by the staffs in the JSAN. 8. The 2006 poverty assessment (based on the 2005 poverty survey) significantly enhanced the understandingo f the causes, extent and distribution of poverty in Congo, yet will have to be strengthened and updated in the run up to the second PRSP. The 2005 poverty survey had revealed that just over 50 percent o f Congolese households live below the poverty line; and that the highest poverty incidence i s found in semi-urban and rural areas and almost 60 percent o f poor households are headed by women. A new assessment has been launched, which includes a second poverty survey aimed at producing comparable household and expenditure data. This will be critical for strengthening the availability and quality o f poverty and social data. 9. Concerningpoverty monitoring, efforts for strengtheningstatistical capacity are underway with an important first step being the adoption o f a new statistical framework law in July 2009. This law aims at reorganizing the institutional set-up for collection, treatment and analysis o f statistical information, and, in particular enhancing statistical coordination across the public administration. To operationalize the law, a new statistics strategy i s being prepared. This is expected to clarify roles and build the capacity o f institutions involved in data collection and analysis, which is an important reform area identified in the JSAN. In this regard statistical capacity should be improved in sector 'The IDA Executive Directors discussed the PRSP and the Joint Staff Advisory Note (JSAN) in October 2008. Both documents were circulated to IMF Executive Directors for information. 11 ministries as well and data used for monitoring PRSP implementation should also cover administrative elements, such as outputs from public or private sector entities. 10. Staffs consider that the implementationo f the PRSP was satisfactory, a s discussed by the JSAN on the Annual Progress Report (APR). The 2009 APR was adopted by the government in August 2009 and circulated to the Fund and IDA Boards together with this document. The JSAN notes that Congo has continued to progress with i t s PRSP implementation and it has not been deterred by the global financial crisis. Indeed, the difficult external environment has strengthened the authorities' resolve to diversify the economy, consolidate the fiscal position, and accelerate efforts to rehabilitate the economic infrastructure. Structural reforms have been stepped up, in particular, to enhance public financial management (adoption o f a new procurement code, introduction o f an MTEF, and a simplified expenditure chain). The APR reflects these advances and incorporates a number o f refinements made to the PRSP in the past few months. The APR also lays out a program for further strengthening the strategy, in particular for the monitoring and evaluation (M&E) framework and the statistical basis in order to monitor progress. B. Macroeconomic Performance f Maintenance o macroeconomic stability as evidenced by satisfactory performance under the PRGF-supported program as well as any IMF successor program. 11. s s Staffs consider this trigger a met, a performance under the PRGF arrangement has been satisfactory since its approval in December 2008. The completion o f the second review on November 30,2009 and the fact that the program has remained on track since then, provides a track record o f satisfactory performance. Economic policy implementation has strengthened during the past two years, due to closer program monitoring by the authorities and stronger ownership. This has led to an improvement in macroeconomic performance, although the global financial crisis has adversely affected external demand and weakened activity in the non-oil economy this year (Text Table 1). Overall real GDP growth is expected to expand by about 7% percent this year increasing to double digits next year, alongside the recovery o f the world economy and higher o i l production f i o m new fields. Inflation has been above the C E M A C convergence criteria during the past year or more but is trending downward and i s projected to fall to about 3 percent by the end o f 2010. 12. Preliminary fiscal data for end-November 2009 indicate the program remains on track and the third PRGF review i s expected to be completed a envisaged in May 2010. s Some budget overruns emerged at end September (equivalent to about 2.6 percent o f non-oil GDP) due to the transition to a new government (which took office in late September) and an acceleration o f some domestic public investment to take advantage o f favorable weather in the dry season. However, these overruns were addressed by end November through the authorities' efforts to maintain strong non-oil tax revenue collections; a stoppage in spending authorizations in mid-November, which allowed only non-discretionary payments to continue to avoid domestic arrears accumulation; and the drawdown o f HIPC resources to finance capital expenditure in line with the envisaged use o f these funds (the use o f HIPC, 12 rather than domestic resources, has the impact o f reducing the non-oil primary deficit under the program). The non-oil primary fiscal deficit was slightly below the program path at end November (by about CFAF 4 billion) and staff projects the under-execution o f the budget to continue through December, enabling the authorities to achieve the program's year-end performance criterion, excluding any outlays to address a refugee crisis in the northeast part o f the county.2 Indications are that the structural measures under the program are also on track. 13. T h e fiscal position has improved significantly since the decision point. The basic non-oil primary deficit reached 55.7 percent o f non-oil GDP in 2007 but has since declined sharply, and i s projected at about 37.3 percent o f non-oil GDP in 2009, owing to strong tax revenue collection and expenditure discipline. The tightening o f the fiscal stance has not inhibited the increase in pro-growth and pro-poor spending. 14. T h e external sector has experienced a mixed performance during the past several years, largely on account o f developments in the oil sector. The external current account has been in deficit since 2007 reflecting the volatility o f world o i l prices and technical problems that have led to fluctuations in o i l production. O n the other hand, external indebtedness has been reduced significantly, on account o f debt rescheduling and relief from the Paris Club, non-Paris Club creditors, and London Club creditors on favorable terms. Text Table 1. Republic of Congo: Selected Macroeconomic Indicators, 2004-09 2004 2005 2006 2007 2008 2009 (Proj.) (Annual percentage change, unless otherwise indicated) Economic growth and prices Real GDP 3.5 7.8 6.2 -1.6 5.6 7.6 Oil 0.5 12.5 6.8 -17.2 6.1 17.5 Nonoii 5.0 5.4 5.9 6.6 5.4 3.5 Consumer prices (end-of-period) 1.1 3.1 8.1 -1.7 11.4 3.2 External sactor Exports, f.0.b (CFA francs) 4.9 53.8 30.0 -12.3 24.0 -20.1 imports, f.0.b (CFA francs) 16.4 34.3 42.9 5.1 24.7 -8.7 Export miume -1.5 12.1 5.4 -16.9 7.2 16.1 import miume 12.1 20.0 32.2 4.2 15.2 1.9 Current account balance -7.3 2.2 1.5 -9.3 -1.5 -14.8 (including grants, in percent of GDP) (Percent of non-oil GDP) Government R na nce Rewnue and grants 69.9 108.2 141.5 113.5. 159.3 87.4 Oil rewnue 49.7 88.6 120.6 92.3 136.0 62.7 Nonoii rewnue and grants 19.5 19.6 20.9 21.2 23.3 24.7 Total expenditure 61.6 67.4 88.8 86.3 79.5 71.5 Owraii balance 8.4 40.8 52.7 27.1 79.8 15.9 (including grants, commitment basis) Non-oil primary basic balance (- = deficit) -25.9 -29.6 -51.3 -55.7 44.3 -37.3 Sources: Congolese authorities; and Fund staff estimates and projections. The fiscal situation at end 2009 and beyond could be adversely affected by a refugee crisis that has worsened recently; the UN estimates that more than 90,000 people have entered Congo to avoid ethnic violence in the Democratic Republic o f Congo. The Congolese authorities have provided resources to alleviate the situation, and they and the staff are monitoring developments closely; through the end o f November, CFAF 2 billion has been disbursed to address the situation. 13 C. Public Expenditure Prioritization Alignment o public spending priorities in accordance with the priorities identified in the I- f PRSP, and, when completed, the PRSP, reflecting emphasis on pro-poor growth. 15. Staffs consider this trigger as met, since public spending i s now better aligned with the priorities identified in the PRSP. Pro-poor expenditure increased from 4.1 percent o f GDP in 2003 to 7.0 percent in 2008 (Text Table 2). Indeed, the proportion o f pro-poor expenditure in total public expenditure continued to increase gradually from 13.8 percent o f total public expenditure in 2003 to 27.2 percent in 2008 (Text Table 3). Spending on power, water, sanitation, and infrastructure increased from 1.8 percent o f GDP in 2005 to 3.4 percent in 2008. The envelope for basic health and education also expanded, but to a lesser extent, rising from 2.1 percent o f GDP to 2.8 percent over the same period. In comparison, outlays for agriculture, employment and social protection remained constant as a share o f GDP. 14 Text Table 2. Republic of Congo: Pro-poor Expenditure, 2003-08 (in percent of GDP) 2003 2004 2005 2006 2007 2008 Basic health and HIV/AIDS 0.2 0.4 0.6 1.0 0.9 1.2 Basic education 1.7 1.5 1.5 1.4 1.6 1.7 Infrastructure 0.3 1.2 1.2 1.2 1.6 2.4 Power, water and sanitation 0.9 0.3 0.6 1.1 2.3 1.1 DDR and food for soldiers 0.9 0.7 0.7 0.8 1.5 0.7 Employment and social protection 0.1 0.1 0.1 0.1 0.1 0.0 Agriculture 0.0 0.0 0.1 0.1 0.1 0.1 Total 4.1 4.2 4.8 5.7 8.0 7.0 Memorandum item: GDP (in billions of CFA) 2,032 2,456 3,211 4,043 3,664 4,802 Sources: Congolese authorities; World Bank and Fund staff estimates. Text Table 3. Republic of Congo: Pro-poor Expenditure, 2003-08 (in percent of total public expenditure) 2003 2004 2005 2006 2007 2008 Basic health and HIVIAIDS 0.7 1.5 2.4 3.5 2.8 4.6 Basic education 5.6 5.6 6.2 5.3 4.9 6.4 Infrastructure 1.0 4.5 5.2 4.4 4.9 9.3 Power, water and sanitation 3.1 1.2 2.8 4.1 7.0 4.1 DDR and food for soldiers 3.0 2.6 3.2 2.8 4.6 2.7 Employment and social protection 0.4 0.2 0.4 0.2 0.2 0.1 Agriculture 0.0 0.1 0.5 0.4 0.2 0.6 Total 13.8 15.7 20.7 20.7 24.4 27.2 Memorandum item: Total public expenditure (in billions of 604 657 745 1,113 1,201 1,238 CFAF) Sources: Congolese authorities, World Bank and Fund staff estimates. 16. The ongoing reform o f public financial management (see below) i s expected to improve monitoring o f expenditure. The full PRSP provides medium-tern public expenditure projections and identifies those that are pro-poor, although only at an aggregate level. The streamlining and computerization o f the budget execution process, to be completed by the end o f 2010, should allow for real-time tracking o f all outlays, including the use o f HIPC debt relief. The use o f HIPC resources for public spending commenced in late 2008. These resources have been used to finance pro-growth and pro-poor spending in line with the Initiative. 17. The Government has continued to deposit interim HIPC assistance in the special Treasury account at the regional central bank (BEAC). The special account had an accumulated balance o f CFAF 45.9 billion at end-2008 (about US$ 104 million). In 2008 the 15 authorities met all prerequisites to use the HIPC special account, as the Executive and Consultative Committees on use o f HIPC resources are operational and an initial audit o f the special account covering the period March 2006 to August 2007 revealed no major problems and confirmed that all the savings were deposited into the account. A second audit reviewed the accounting and use o f HIPC funds during the period September 2007 to December 2008. This audit revealed that the savings deposited in the account were generally in order and confirmed the proper utilization o f the funds, particularly as regards procurement and financial management. I t s only recommendation concerned the need to institute a more regular record keeping on savings realized from debt relief. 18. The use o f HIPC resources for public spending commenced only in late 2008, due to some delays in properly setting up the HIPC account. For the first time, the Government allocated CFAF 25 billion o f these funds through the 2008 supplemental budget adopted by the Parliament in October 2008, and CFAF 7 billion were actually disbursed at end-year. In the 2009 budget, the interim HIPC relief allocation increased to CFAF 37 billion, composed o f CFAF 19 billion for new projects and CFAF 18 billion for the unused budget in 2008 that was brought forward. D. Public Financial Management 19. Staffs consider that the triggers in this area have been met. The adoption in 2008 o f a Public Financial Management Improvement Action Plan (PAGGFP) and a Public Investment Management Action Plan (PAGGIP) are particularly important in this regard. These two documents constitute a strong basis for the introduction o f fundamental reforms o f the public financial management system. 20. These measures were recently complementedwith the adoption earlier this year o f a decree supporting the rationalizationof budget execution procedures (expenditure chain) that will further strengthen reform. While not a trigger in itself, this decree provides a strong basis for implementing changes in public investment management and procurement. It will help to streamline procedures and controls at the commitment stage o f the expenditure chain (engagement) and w i l l be further developed through the computerization o f the main elements o f the public financial management system, which i s important to enhancing transparency and predictability o f expenditure procedures. In addition, a reform o f the payment system (Treasury) i s under design. Budget Classification Establishment o a functional classification systemfor government expenditures, f including poverty related expenditures, consistent with the IMF's Government Finance Statistics manual, and preparation o government budgets using this new classification. f 21. s Staffs consider this trigger as met, a a functional classification system was fully effective at the beginning of this year and was used'forpreparing and executing the 16 2009 budget. The classification was reformed with technical assistance from the IMF and it i s consistent with the Fund's 2001 Government Finance Statistics manual. The new classification system has been implemented at all levels o f g~vernment.~ Public Investment Management f Implementation o a new public investment management system to provide rigorous f f selection, and efficient execution and monitoring o the projects; submission o draft public investment programs to IDA for review. 22. On the basis o f the implementation record o f the public investment management reform, staffs consider this trigger as being met. The authorities have put in place basic reform elements for turning Congo's public investment management into a transparent and effective system, which will appraise and select projects on their expected economic and social costs and benefits, as well as transparently and effectively implements the public investment budget, and closely monitors budget implementation and project execution. This being said, in order to complete and make the new system function well, reform efforts will have to continue, in particular as regards building institutional and human capacity. 23. I n December 2008, the Government adopted a public investment management action plan. The plan was based on a detailed assessment on existing processes and capacity for managing public investments as well as an in-depth audit o f the public investment budget execution in 2006, conducted in the context o f the Bank's emergency recovery project. It outlines a comprehensive reform o f the whole cycle o f publicly funded projects, based o n the following principles: e Clarify roles and responsibilities o f different actors in public investment management, notably a gradual decentralization that will over time provide the sector ministries with increased authority. e Introduce a system that provides for a strategic selection o f public investment projects, based on an appraisal process that objectively assesses economic, social and environmental costs and benefits. e Integrate the public investment budget with the overall budget process through the MTEF, and thereby strengthen the multi-year planning horizon for public investments. e Strengthen transparency and effectiveness in the execution o f public investments, through ongoing reforms on procurement and expenditure chain. The h c t i o n a l classification i s used. The authorities are currently working with support from Fund staff to enhance the classification o f pro-poor spending using this classification, which would allow for a better mapping from the budget to the PRSP. 17 24. Based on this comprehensivemulti-year action plan, the Government implemented a set o f priority actions in 2009. These include: e A decree clarifying the role o f the Directors o f Planning (DEP) in sector ministries was adopted in August 2009. This decree strengthens the position o f the DEP in investment budget programming, project elaboration, appraisal, and monitoring o f the investment budget, and project implementation. e An indicative new budget calendar was adopted in August 2009. This calendar includes the preparation process for the tri-annual public investment program. e A new system for appraising and selecting new projects has been introduced through a circular letter from the Minister o f Planning. At the core o f this new system i s a project appraisal process that ensures that all projects eligible for budget financing comply with the following requirements: i) project objectives are consistent with national development objectives, ii) technical feasibility i s considered, taking into i) account available resources, i i costs are estimated in detail and there i s evidence that the proposal constitutes a least-cost option, iv) socio-economic returns are considered, as well as social and environmental impact, and v) a credible implementation plan i s presented. Project appraisals will be standardized, yet allow for flexibility in order to cater to project size and complexity. e A project evaluation fund was established, which provides financing and technical support to project appraisals. A proposal on the design o f this fund and i t s institutional anchoring has been adopted. The fund will be in place in early 2010, ready for the preparation o f a new project pipeline for the 201 1 budget. In addition, the government met its commitment o f providing adequate allocations for or financing o f project appraisals in the 2009 and 2010 budgets and o f subjecting all new projects larger than CFAF 500 million included in the draft 2010 budget to a technical and economic feasibility study. e A report on implementation o f the investment budget in the first semester o f 2009 was prepared, revealing significant improvements in respecting budget guidelines. 25. Draft public investment budgets have been submitted to IDA every year since the 2007 exercise, and staffs' comments have been taken into account. The exchange was particularly effective in the preparation o f the 2009 and 2010 investment budgets, when staffs' detailed comments were shared with the parliament for the budget session. Procurement f Adoption and satisfactory implementation by the government o a new procurement code (that promotes transparency and competition), in line with international best practice. 26. The staffs consider this trigger as met, since a new procurement code was adopted and implementedsatisfactorily. The new procurement code was adopted in May 18 2009 with a legal and regulatory framework in line with international best practice. The administrative and institutional elements to support the new code have also been put in place including the relevant secondary legal acts; the creation and staffing o f a general public procurement directorate (DGCMP), which is tasked with overall responsibility for public procurement policy; a regulatory authority (ARMP) to oversee the procurement function; and a contract management authority that will handle large and complex contracts on behalf o f the contract authority. 27. The authorities completed all of the administrative elements to support the satisfactory implementation of the new code. The operational unit o f the regulatory body that includes the general directorate and the bidders' complaint unit have been put in place to ensure that effective procedures are implemented for resolving disputes, and any other complaints that may arise during the procurement process. Procurement units have been set up in five line ministries that include Education, Health and Agriculture, and these units have been equipped and staffed. 28. T o facilitate implementation, a manual o f procedures for executing agencies, standard bidding documents, and a description of the general conditions o f contracts have been prepared, and a training program i s underway.All key staffs in the new procurement institutions are in position: the Director General o f the procurement agency was appointed as the code's regulations require, three key technical directors were recruited, and over 100 trainers have been trained in the new procedures. The staffs judge that the capacity o f the procurement agency in terms o f processing time and compliance with standards is satisfactory, which has been demonstrated through the tendering o f three contracts through the new ~ y s t e mThese contract awards were made in full conformity with the legal and .~ regulatory framework o f the new code. Medium Term Expenditure Framework Adoption by the government o a medium-termframework (MTEF)for sustainable f f management o government expenditures and revenues, with technical assistancefrom IDA and IMF. 29. Staffs consider this trigger as met, since the main elements o f a full MTEF are in place and it was used to prepare the 2010 budget. Recent developments include: e Adjustments to the MTEF to ensure consistency with the macroeconomic framework underlying the authorities' PRGF arrangement and the draft 2010 budget. An internally consistent macroeconomic framework served as the starting point for the 20 10 budget preparation. A technical committee comprising members o f the More than 300 contracts were sent back to the procuring ministries/agenciesby the Director General o f the procurement agency, for not complying with the requirements o f the new code. 19 Ministries o f Planning and Finance and the B E A C has been established to prepare the macroeconomic framework (in consultation with Fund staff) going forward. 0 O n the basis o f the macroeconomic framework, a central MTEF was prepared with indicative allocations for all sectors over the next three years. This central MTEF was attached to the APR, providing for the first time a comprehensive and coherent translation o f the PRSP priorities into budgetary allocations. 0 The authorities' progress in preparing sector MTEFs has exceeded expectations. These sector MTEFs contain sector-specific policy objectives, indicators to measure progress (along with targets), and a l i s t o f priority programs designed to meet these objectives. The programs are then broken down into specific activities with cost estimates. Initial efforts to develop sector MTEFs in education, health, transport, and agriculture were extended to all o f the major ministries (20 in total). The efforts to broaden the MTEF are welcome, although detailed strategies and program and costs will need to be developed; such strategies exist now in the education, health, and transport sectors. a Given the prominence o f budgetary o i l revenue, the adoption o f a new o i l revenue model i s an important advancement for improving the quality o f these projections. The model was developed by international experts using information on field reserves, production profiles, operating costs and o i l prices collected fi-om all operators or estimated by the Ministry o f Hydrocarbons as necessary, in collaboration with the state-owned o i l company. The model can simulate and forecast gross oil revenue received by the Treasury, crude o i l transfers to the state-owned o i l refinery to supply the domestic market, SNPC costs to estimate net state revenue, as well as the projection o f debt payments. For the implementation o f the model, a team comprised o f representatives o f the concerned agencies was set up to install and manage the model. A core team o f government officials has received extensive training and i s now able to operate the model. Training activities will continue and will be extended to a wider group o f users. 30. I n the period ahead, the main challenge will be to further consolidate these elements with a view to ensuring the MTEF informs all future budgets. Among other things, this will require refining the sector MTEFs and full use o f the o i l revenue model. In this regard, making the inter-ministerial and technical committee permanent could facilitate these efforts. E. Governance Governance and anti-corruption f Completion o a diagnostic governance and corruption study by an independent group o f internationally reputed experts, assisted by a national anti-corruption committee, based on terms o reference prepared in consultation with IDA and IMF staffs. The terms o f f f reference and composition o the national anti-corruption committee will be satisfactory to 20 IDA and IMF staffs. Adoption by the government o an action plan, prepared in f consultation with IDA and IMF staffs, to improve governance and reduce corruption, and f f sustained implementation o such action plan during the completion o the audits referenced in subsections 5(i) and 5(ii). Assessment o the implementation o the action f f plan by IDA and IMF staffs on the basis o an independent review by international experts f acceptable to IDA and the IMF. 3 1. Staffs consider this trigger as met, since the government has made substantial progress in strengthening the institutionalframework for the fight against corruption and improvinggovernance. A governmental Anti-corruption Commission has been established based on terms o f reference agreed with IDA and IMF staffs, initially at the level o f the Prime Minister, but now placed under the authority o f the Presidency. I t s mandate i s the formulation, coordination and implementation o f the government's anti-corruption strategy. 32. An independent Anti-Corruption Observatory was established by law in September 2007 and its members were nominated by government decree a month later. The Observatory is chaired by a representative o f the ecumenical churches and more than half o f its members come from civil society organizations (including trade unions and the EITI committee). The law provides the Observatory with a broad mandate to review governmental initiatives related to governance and corruption, including all audits o f state- owned enterprises and procedures for issuing natural resource concessions. Due to the nature o f its membership, the Observatory i s able to perform its mandate independently, notably to critically assess the anti-corruption strategy implemented by the government. Both the Commission and the Observatory have a permanent secretariat located in their respective premises, although the offices o f the Observatory are s t i l l being upgraded. Appropriate resources for the operational expenditures o f both institutions were included in the 2008 and 2009 budgets, but disbursements have not been made in a timely manner. 33. I n February 2009, a diagnostic study on governance and corruption was completed by a firm o f internationalreputation. The study provides an in-depth assessment o f perceived levels o f corruption as well as their causes, and offers recommendations on how to address them. The diagnostic study served as the basis for the design o f the government's Anti-Corruption action plan. 34. The Anti-Corruption action plan was adopted by the government in August 2009 and i s currently being implemented, including through a communicationprogram aimed at informing the relevant constituencies of its mandate and activities. The Action Plan was reviewed by an expert o f international reputation in March 2009 and found to be satisfactory. The action plan highlighted five sectors most at risk o f corruption: o i l production and marketing, forestry, public financial management, justice and police, and the social sectors. The action plan addresses specifically each o f these five priority sectors and includes actions to reduce the risk o f corruption and to enhance governance, as well setting a clear timetable, and the criteria against which implementation will be assessed. 21 35. A new Anti-Corruption Law has been adopted by the Parliament to support the t w o institutions in their fight against corruption. The Anti-Corruption Law was prepared by an international firm under the supervision o f the Anti-Corruption Commission. It was adopted by the Parliament in August 2009. The Law i s penal in nature and contributes significantly to consolidating and strengthening the existing legislation on fraud and corruption. I t also includes references to international best practices to ensure the conformity o f the Congolese legislation to international laws and regulations on corruption. 36. The Observatory has fulfilled its monitoring mandate so far by providing an independent evaluation o f the progress on key elements o f the HIPC-related reform program. While the Observatory has a broad mandate to review any government documents related to issues o f governance and corruption, it has been directed through the HIPC conditions to review and comment on documents related to procurement, governance and o i l sector management. Documents reviewed by the Observatory include (i) new the procurement code and i t s secondary legislation, (ii) Governance Diagnostic Study; (iii) the the Governance and Anti-Corruption Action Plan and the Anti Corruption Law, including a review o f implementation during the first 3 months after i t s adoption, (iv) the SNPC audits for 2006 and 2007, (v) the action plan on O i l Commercialization and oil commercialization procedures, and (vi) the conflict o f interest declarations o f SNPC's management. For each o f these documents, an official opinion was issued. Going forward, the Observatory w i l l also have responsibility for actively monitoring the application o f the procurement code, as well as continuing to review the implementation o f the Anti-Corruption action plan by the Commission, the application o f the Anti-Corruption Law, and the implementation o f the oil commercialization action plan by SNPC. 37. The anti-corruptionaction plan has been implemented satisfactorily. The staffs have verified that: the anti-corruption law i s fully in force; the Anti-Corruption Observatory was indeed consulted on specified documents as noted above; and a campaign to sensitize senior government officials and the population in general on anti-corruption issues was undertaken. Oil Sector Governance Audit o SNPC accounts f Assessment by IDA and IMF staffs, based on successive annual audit opinions by an independentfirm o international reputation, and certified by the national anti-corruption f committee, that SNPC's internal controls and accounting system are in line with international standards and best practices. 38. Staffs consider this trigger as met, since annual audits have shown improvement in the quality of SNPC's internal controls evidenced by a reduction in the number and severity o f reservations pointed out by the auditors. Over the past several years, SNPC has made efforts to eliminate a number o f audit reservations in particular, through accurately 22 valuing the assets received from i t s predecessor company (Hydro-Congo), restructuring i t s operations to reduce the number o f subsidiaries, and the introduction o f a new and modern analytical accounting system. 39. The 2006 and in particular the 2007 external audits showed improvement and the remaining reservations are mostly technical in nature. The audits o f the consolidated accounts o f SNPC for both years conducted by an internationally reputed audit firm and certified by the national anti-corruption committee have been completed and are posted on the MEFB website together with SNPC management comments. Compared with previous years, these audit reports show relative progress, but remain qualified. The qualifications relate to accounting standards and procedures, internal controls, management o f bank accounts and reporting, mostly in the context o f joint-venture operations between SNPC and private operations, as well as financial relations between SNPC and the central government. Also, SNPC clarified previously unsubstantiated legal fees which were paid to resolve litigation involving the government. 40. I n the staffs view, the introduction of a new analytical accounting system has addressed most o f the remaining audit reservations. The new financial system i s now in place and has been used to prepare the 2008 financial statements. This should result in the 2008 audit-which has been launched and i s expected to be completed by early 2010- reflecting significant improvement in the quality o f financial statements. This improvement has already been confirmed in the draft audit report that has been shared with staffs. Efforts to strengthen the internal control system should continue in the period ahead. Oil commercialization Preparation, by an independentfirm o international reputation, o a diagnostic study o f f f the practicesfor the commercialization o oil by SNPC, based on terms o reference f f prepared in consultation with IDA and IMF staffs. Assessment by IDA and IMF stafls, f based on successive audit opinions by an independentfirm o international reputation, that the commercialization o oil by SNPC has been brought into line with international best f f practice on the basis o the recommendations o the diagnostic study, and results in f competitive andfair market values to Congofor the oil sold. 4 1. Staffs consider this trigger as met, since o i l marketing practices and governance have undergone major improvements since 2005. The settlement with litigating creditors holding validated claims has enabled SNPC's oil trading subsidiary, COTRADE, to return to more transparent and market-driven commercialization practices for the export o f Congolese crude oil, and the timely repatriation o f oil revenue to the Treasury. I t has also removed the threat o f legal seizures and eliminated wasteful practices and financial costs to avoid these creditors. In particular, as part o f the adoption o f measures in line with an action plan agreed with the staffs (see below), the authorities have eliminated the practice o f requesting prepayments for cargos alone, which has significantly reduced oil marketing costs, and increased the number o f i t s regular clients from 4 in 2005 to 14 in 2009. In addition, 23 significant improvements were made in the transparency o f o i l sales: COTRADE and SNPC now transfer revenue on the basis o f realized prices rather than the so-called fiscal price, which was an average o f sales by international companies extracting oil in Congo. Transfers to the treasury are made within 15 days o f receipts. These transfers are reconciled with budget data and certified on a quarterly basis by an international auditing firm and posted on the government's website. 42. A diagnostic study on oil commercialization was completed in M a r c h 2007. This study was published on the government's website, and submitted to the IMF and IDA for comments. The government developed an action plan based on this study which initially had failed to address key issues related to commercialization practices. An international expert was recruited to advise the authorities on such matters and an action plan acceptable to the staffs was adopted in May 2009. This version o f the plan was also reviewed and accepted by the Anti-Corruption Commission and Observatory as envisaged under this HIPC trigger. The action plan contains measures to be undertakenby SNPC and its subsidiary COTRADE directly, as well as administrative measures and studies that require the assistance o f an oil- trading consultant firm. 43. Key actions envisaged in the action plan have been completed. In addition to the above-mentioned use o f marketed oil prices for transfer to the Treasury and shortening o f the timeline o f transfers, these include: e The adoption o f amendments to current o i l marketing procedures, addressing three key recommendations made by an international consulting firm based on the review o f COTRADE procedures (the further strengthening o f the codification o f marketing procedures, tightening client selection procedures, and task separation in the marketing proces~)~; e Establishment o f commercialization database and adoption o f measures to strengthen it as a tool for decision-making and modeling o f Congolese crude o i l prices; e Adoption o f a formal internal reporting system and a training program; and e Integration o f the COTRADE as department into the national oil company, ensuring that the significant improvements in SNPC's accounting and control systems carry over to i t s o i l commercialization department. 44. Staffs have undertaken a statistical analysis o f price differentials to ascertain whether Congolese oil sold by government trades at competitive and fair market prices. While the above-mentioned oil commercialization database needs to be further populated with transaction-related information, staffs-on the basis o f the available data and information-are able to observe that prices received by SNPC for oil sold (Djeno and m This review was based on observations by an international expert f , the Bank and the Anti-Corruption observatory. 24 Nkossa) on behalf o f the government are broadly in line with those obtained by international o i l companies active in Congo (and selling oil on their own behalf). Such price data may not reflect fully competitive sales as these international oil companies could sell to their affiliates, but it does provide the closest benchmark. Staffs were able to compare SNPC's realizations with prices officially posted for Cabinda and Bonny Light, which show that SNPC's sales were broadly within or not far o f f the trading bandwidth o f these proxies. The limitations o f these proxies must be recognized, since unobserved differences in quality, traded volumes, and marketing between these proxies and Congolese oil are likely to impact their relative prices. Also the analysis shows a general improvement in the price differentials between Congolese oil and Brent since 2006, which i s consistent with the trend observed for crude oil sold by international oil companies active in Congo. 45. I t should be noted that oil marketing i s a dynamic process o f learning based on testing different marketing channels and improving data collection on oil sales. Over time and building on the sound and competitive procedures now in place, Congo could gain additional information to allow it to further adapt i t s trading techniques and strategies to changes in the international markets, which could allow it to further improve the prices it obtains for the oil sold. Declaration of interests by members o f the S N P C board and management Adoption and application by the government, certified by the national Anti-Corruption Commission, during the completion o the audits referenced in 5(i) and 5(ii), o a legal text f f stip dating: e compulsory declaration, to the National Auditing Office (Cour des Comptes), by the members o the Executive Board o SNPC and those having a management f f mandate within SNPC and its subsidiaries, at the moment o their nomination and f annually thereafter, o their participation or other interests in companies having f business relations with SNPC or its subsidiaries as well as the verification and f annual publication o the aforementioned declarations by the National Auditing Office (Cour des Comptes). a divestiture by the members o the Executive Board o SNPC and by those having f f f management responsibilities within SNPC or any o its subsidiaries o such f participations and/or other interests, within a time period o 6 months after their f nomination andprohibition o the taking o any interest in companies having f f business relations with SNPC during the period o their mandate. f 46. Staffs consider that this trigger has been met since 2006, when the government issued a decree on the preventionand resolution o f conflicts o f interest involving members of the Board and senior managers of S N P C (Decree No. 2006-32). Subsequently, all board members and managers have presenteddeclarations to the National Auditing Office (Cour des Comptes) confirming that they do not have any share or interest in any company that has relations with SNPC. The National Auditing Office has acknowledged 25 the receipt o f these declarations, and in an extension o f i t s core functions assessed the potential for conflict o f interest o f all SNPC board members and senior managers. The Office reports for 2007,2008 and 2009 have confirmed that there are no cases o f conflict o f interest. Forestry sector governance Review o forestv sector management and legislation with IDA assistance; adoption by the f f government o measures recommended by the review to promote competition, transparency, and sustainable development in this sector. 47. Staffs consider this trigger as met since the government has completed a comprehensive and participatory forest and environmental sector review, and began implementation o f some o f its major recommendations. This includes the adoption o f a package o f legal and regulatory instruments to improve sector transparency and social and environmental performance. More specifically, the following presidential decrees have been adopted in September 2009 and assessed satisfactory by IDA and IMF staffs: A decree on forest concessions, which allows for greater competition and transparency in their award; A decree on social and environmental impact assessment, which provides full environmental and social assessment o f projects to be implemented in forest areas; A decree on gazetting forest lands, which enhances this process, including through local consultations; and A decree on contradictory use o f forest lands, which will help address cases where concessions or other permits have been issued for conflicting use o f forest lands (Le., cases where mining permits were awarded in national parks). 48. Measures also include the submission to Parliament o f a legal package on forest taxation (passed as an amendment to the Forest Law), aimed at improving sustainability o f the forest resource basis and fiscal revenue, in addition to improving the sector's economic performance. The changes to the relevant legislation include: * A change o f the basis o f the export tax assessment, from free-on-board to an ex- works or free-on-truck basis to take into account the transport costs and to facilitate the diversification o f harvests (enlargement o f the range o f species to refrain from high-grading or "creaming" o f the highest value species) in the concessions facing high transport costs due to their geographic location. An indexing o f the forest concession area tax on the productive surface as set by an agreed forest management plan. Forest concessions without an agreed management plan will have to pay the tax for the full granted area. 26 The transferability o f log export rights ("quotas") between forest enterprises on the basis o f the initial allocation o f 85/15 (85 percent o f the log production should be transformed in Congo, 15 percent can be exported as raw logs). In addition to the above amendments, the `surtaxe' (surcharge) for companies exporting more than the 15 percent o f log export rights allocated by an administrative act, has also been removed. 49. Finally, a measure was taken to correct inconsistencies between the article regulating the surface tax in the Forestry Law (2002) and legislation o f 2004 creating the Roads Fund (Fond Routier). The 2002 Forestry L a w was modified to stipulate that 5 0 percent o f the surface tax is allocated to the Roads Fund rather than local governments, as envisaged in the Forestry Law. However, it i s questionable that the allocation to the Road Fund meets the need to finance decentralized development, as stipulated in the Forestry Law. W h i l e this is an issue that needs to be addressed in future discussions, it does not constitute an impediment to moving ahead with the HIPC completion point. F. Structural Reforms Review and adoption o a regulatoryframework for the telecommunicationssector f establishing competition at the level o international gateways and the wireless local loop. f 50. Staffs consider the trigger related to telecom reforms as met, since the necessary legal reforms were adopted and implemented.The authorities had agreed with IDA and IMF staff on the following actions to meet the trigger: (i) full and unambiguous repeal o f the Decree no 2004-466, which reserved international gateway services and the wireless local loop to be the exclusive preserve o f SOTELCO, the public operator; and (ii) complete the revision o f the telecommunications package and the adoption o f new sectoral telecommunications/postal laws to set up an independent telecommunications regulatory authority and ensure clear and transparent regulatory regime. 5 1. The first part of the trigger was met when two PresidentialDecrees were published in March 2008. These decrees, respectively (i) conditions o f management o f set frequency spectrum consistent with best international practice, and (ii) repealed unambiguously an earlier decree (466 o f October 2004), and restored monopoly powers on international gateway. 52. The second part of the trigger was satisfactorily completed with the adoption by Parliament o f a new legal framework for the postal and telecom sectors in August 2009. With the help o f an international consultant, the government prepared: (i)law instituting a a regulatory agency for the sector, (ii) law on the regulation o f the electronic communications a sector and, (iii) law on the regulation o f the Postal Sector. In the process, comments by IDA a staff on the draft laws were incorporated. 27 G. Social Sector Reforms Education sector Implementation during 2006 o a strategy to eliminatefictitious workersfrom the f education budget and increase teacher staff by, at least, 1,000 each year in basic education until 2007. 53. Staffs consider the triggers in this area to have been met. The first element in this area concerns increasing the number o f primary school teachers. Since 2007, the authorities have recruited 1,618 primary school teacher and the recruitment o f a further 2,000 i s projected for this year, o f which 561 had been recruited through September. The total recruitment therefore already exceeds the 2,000 teachers to be hired as per the definition o f the trigger. 54. The second element concerns the elimination of ghost workers from the education budget. The census o f the education sector conducted in 2006 and subsequent verification uncovered 5,163 ghost workers, equivalent to about 22 percent o f total staff. Out o f this total number, 3,717 were identified as either working at other state institutions and the remaining 1,446 unidentified staff were removed from the wage bill as envisaged. The removal o f these ghost workers has created openings for new teachers, which the authorities are actively trying to recruit. HIVIAIDS f Increase in the number o voluntary AIDS counseling and testing centers with associated measures (staff, equipment, and awareness campaigns)from 4 at present to, at least, 10 in 2006 and 15 in 2007. 55. Staffs consider this trigger as met. The trigger required that the number o f voluntary testing centers should increase to 10 in 2006, and to 15 in 2007. This target has been substantially exceeded, as the number o f centers providing reliable and standardized testing and counseling services has increased from two in 2004, to 59 in 2008. I t i s anticipated that the number o f centers w i l l increase to 99 in 2012. Health sector f Increase to, at least, 60percent the share o generic drugs in total expenditures on drugs by the central purchasing agency. 56. s Staffs consider this trigger as met, a the budget has included a separate allocation for generic drugs to be purchased through the Central Drug Purchasing Authority (COMEG) since 2008. However, while the 2009 budget continues this practice, the disbursement o f the budgetary allocation for the purchase o f medicines through COMEG has been relatively low. The disbursement i s about CFAF 747 million for the purchase o f 28 anti-retroviral drugs, compared with the budgeted allocation o f CFAF 3 billion. For other drugs, there has only been a single disbursement o f CFAF 500 million in mid-September 2009, compared with about CFAF 7 billion allocated to this line item in the 2009 budget. Two COMEG requests for payment (the first and second quarter 2009 titles) are currently pending at the Ministry o f Finance, due to perceived problems in the inventory management system and procedures for purchases o f pharmaceuticals. 57. I n this regard, the government plans to launch a general audit of the COMEG with the objective o f streamliningthe budgetary resources allocated to this structure, as well as to enhance inventory management systems. This aims at preventing a repetition o f the situation in 2008, when a large quantity o f drugs had to be destroyed as they were past their expiry date. Also, if disbursements are not made on time, there i s a serious risk o f generic medicines and anti-retroviral drugs running out o f stock. From this perspective, it i s imperative that the government takes immediate measures to resolve this problem until the situation can be improved on the basis o f the audit recommendations. H. Debt Management f Publication o the quarterly external debt data and projections on a government website; and centralization o all information on debt, including collateralized debt, in the f government's debt agency (CCA). 58. Staffs consider that the debt management triggers are met. Data concerning the external debt stock and debt service projections have been provided o n the Ministry o f Finance, Budget, and Public Portfolio's website with quarterly frequency, including the latest information through end-September 2009. This information is being produced by the Caisse Congolaise d 'Amortissement (CCA), the unit in charge o f managing Congo's internal and external debt, using a computerized debt management system (DEMFAS). The second part o f the trigger i s also complied with, as all external debt contracted by government entities, including the SNPC and other state enterprises, are now included in the debt data registered and monitored by the CCA. 59. That being said, an ambitious program i s underway to further enhance debt management in Congo, and move to a more strategic approach to borrowing. Those efforts are based on a debt management diagnosis prepared with technical assistance from the World Bank and the BEAC. They also draw on a national debt strategy, which i s being prepared in line with C E M A C regional guidelines. These reform efforts have two main objectives: (i) further strengthen basic debt management functions, like collection, filing, to presentation o f debt data, and strengthening the internal and external control environment; and (ii) move gradually toward a more strategic approach to debt management, which to would include the issue o f Treasury bills. 29 RELIEF AND DEBT 111. UPDATED DEBT SUSTAINABILITY ANALYSIS A. Data Reconciliation 60. T h e debt stock at end-December 2004 has been revised d o w n w a r d relative to the decision point estimate. Together with the authorities, the staffs have reconciled more than 80 percent o f the debt stock at end-2004 against creditor statements and other supplemental sources o f information. The revised nominal debt stock at end-2004 has declined from US$ 9.3 billion to US$9.2 billion and the N P V o f debt after delivery o f traditional debt relief has decreased by US$ 105 million to US$ 5.1 billion (Table 1). Central government revenue reported at end-2004 (used to calculate the HIPC assistance at the decision point) has not been revised because there was no data revision since the decision point. 61. Part o f the revisions to the end-2004 debt data reflect data discrepancies and n e w information presented during the debt reconciliation exercise. The main results o f this exercise by type o f creditors are described as follows: M u l t i l a t e r a l creditors. There were no significant revisions to the decision point database for multilateral creditors. Paris Club creditors. The N P V o f debt o f the Paris Club has been revised downward slightly to reflect changes in the information provided more recently for Brazil, Germany, Italy, and Spainm6 o f end-December 2004 the N P V o f the Paris Club As debt now stands at US$4.9 billion (54.6 percent o f the N P V o f total external debt), compared with the decision point estimate o f US$ 5.0 billion. The primary Paris Club creditors at completion point would be France (33.8 percent o f the N P V o f total external debt) and Spain (3.8 percent o f the NPV o f total external debt). O t h e r bilateral creditors. As o f end-December 2004 the N P V o f debt owed to non- Paris Club creditors was US$291 million (equivalent to 3 percent o f the NPV o f total external debt). This amount was revised upward (by US$ 10 million in 2004 N P V terms) from the decision point estimate mainly due to changes in the principal arrears to Angola. C o m m e r c i a l creditors. As o f end-December 2004 the N P V o f debt owed to commercial creditors was US$3.4 billion (38 percent o f the N P V o f total external debt), o f which the London Club creditors held US$1.8 billion. This information has been revised to reflect that some o f these loans were sold to non-London Club creditors, and were not included in the 2007 London Club agreement with Congo. These loans went into litigation. The total outstanding loans held by commercial At the time o f the decision point, the values for some o f the loans for Germany and Spain were incorrect; for Brazil and Italy, the late interest calculations have been revised. 30 creditors remained the same, although some o f the holders were changed from London Club creditors to non London Club creditors. 62. The HIPC assistance calculated at decision point will be revised at completion point owing to a decline in the common reduction factor. The downward revision o f the end-December 2004 NPV o f debt after traditional debt relief from US$5.2 billion to US$5.1 billion results in a common reduction factor o f 3 1.1 percent, compared with 32.4 percent committed by creditors at decision point. The recalculation o f assistance i s in line with existing policy rules and i s above the minimum threshold (a change in the U S dollar amount o f HIPC relief o f 1 percent o f the targeted NPV o f debt after HIPC relief) for adjusting the common reduction factor in response to new information.' Consequently, the staffs recommend that debt relief under the HIPC Initiative estimated at US$1,679 million in NPV terms at the decision point be reduced to US$1,575 million (Table 2). B. Status o f Creditor Participation in the Enhanced HIPC Initiative 63. Congo has received financing assurances o f participation in the enhanced HIPC Initiative from creditors holding 80.6 percent o f the NPV o f HIPC assistance estimated at the decision point. Multilateral and Paris Club creditors have confirmed their participation in the HIPC Initiative while some non-Paris Club official bilateral and commercial creditors including the London Club creditors, have already signed agreements in the interim period providing their share o f debt relief. The staffs have encouraged the authorities to use concerted effort toward securing the participation o f the remaining creditors (Table 4). 64. Congo i s expected to receive about US$ 1.575 billion o f total HIPC debt relief in end-December 2004 NPV terms at the completion point. Bilateral creditors are the largest contributors, accounting for 57 percent, followed by commercial creditors (36 percent) and multilateral creditors (7 percent). 65. The total amount o f HIPC assistance committed by Congo's multilateral creditors at the decision point was US$ 117.7 million in end-2004 NPV terms, which has been revised downwards to US$112.9 (which represents about 7.2 percent o f HIPC debt relief) (Table 4). IDA, the IMF, and the European Union provided interim HIPC assistance, amounting to US$24.1 million in nominal terms through end-2009. 66. Debt relief from IDA would amount to US$47 million in end-2004 NPV terms, revised downward from US$49 million as determined at the decision point (Table 4 and Table 11). O f this amount, IDA i s delivering U S $ 13.1 million in NPV terms (US$ 14.4 ' See "Information Reporting in the Context of HIPC Initiative Assistance", approved by the members of the Executive Boards of the IMF (EBS/02/36) and IDA (IDA/SecM2002-013 l), March 4,2002. The targeted NPV o f debt i s that needed to bring the NPV of debt-to-revenue ratio to 250 percent after traditional and HIPC debt relief. 31 million in nominal terms) via a 50 percent reduction o f debt service falling due during the interim period through February 2010. Upon reaching the completion point, IDA would provide the remaining portion o f i t s assistance, amounting to US$33.9 million in end-2004 NPV terms through a 50 percent reduction o f debt service on eligible debt through the end o f 2020. 67. At the decision point, the IMF committed HIPC Initiative assistance o f SDR 5.637 million (equivalent to about US$8.971 million) in NPV terms. As a result o f the downward revision in the total amount o f HIPC assistance, there w i l l be a marginal revision in the IMF's HIPC assistance to SDR 5.395 million (equivalent to about US$ 8.586 million) in NPV terms at the decision point. The IMF has already provided SDR 0.9 million (equivalent to about US$1.4 million) in the form o f interim HIPC assistance in two tranches in December 2008 and December 2009. At the completion point, the IMF w i l l provide the remaining amount o f i t s share o f HIPC assistance through a stock-of-debt operation estimated at SDR 4.5 million in NPV terms (equivalent to about SDR 5.4 million in nominal terms) (Table 10). 68. The AfDB Group committed to provide US$42 million in end-2004 NPV terms in assistance at the decision point. More than the full amount o f r e l i e f committed under the HIPC Initiative was provided via a cancellation o f arrears in 2004-05, and as a consequence, the AfDB Group i s not obligated to provide additional HIPC relief at the completion point.8 69. The EU committed to providingUS$9.4 million in end-2004 NPV terms at the decision point, and provided approximately U S $ 9 million in NPV terms, o r about US$ 10.6 million o f relief during the interim period. Owing to the downward revision o f the common reduction factor, the EU's share o f HIPC relief was also revised downwards by about US$0.4 million in NPV terms. 70. Other multilateral creditors have also already contributed to debt relief. The Arab Bank for Economic Development in Africa (BADEA) and the OPEC Fund for International Development (OFID) provided a proportion o f their respective shares o f relief via concessional restructurings and rescheduling o f existing debt, and will provide the balance o f their commitments at the completion point. The International Fund for Agricultural Development (IFAD) will provide debt relief only at completion point (see Table 4 for further details). 7 1. Paris Club Creditors have agreed in principle to provide their share of assistance under the Initiative amounting to about US$3.0 billion in end-2004 NPV terms.9Paris * Under the guidelines for the enhanced HIPC Initiative, a creditor receives credit against the required provision o f debt relief for contributions to an arrears-clearance operation in a HIPC country. The assistance l?om Paris Club Creditors consists o f the traditional relief o f US$2,177 million, and the HIPC relief o f US$837 million in 2004 NPV terms. 32 Club creditors are expected to deliver their share o f relief through a stock-of-debt reduction under Cologne terms. The bilateral agreements implementing the December 2008 Paris Club minutes with all Paris Club creditors have been signed with the exception o f Brazil, UK and Russia. Congo has a single Official Development Assistance (ODA) loan administered by IDA that has been re-scheduled with the provision that it will be cancelled on reaching completion point.'O 72. Non-Paris Club bilateral creditors are assumed to provide HIPC relief in terms comparable to that of Paris Club creditors. The authorities have signed bilateral agreements in the interim period with Bulgaria, China, Cuba, Libya, and Romania." Negotiations are s t i l l ongoing with Kuwait, UAE, Saudi Arabia, Angola, and Algeria. 73. Congo negotiated a commercial debt restructuringagreement with London Club creditors in November 2007. The principal o f total eligible debt as o f November 2007 was US$3 10 million and creditors holding 92 percent o f this eligible debt participated in this agreement. This agreement included the issuance o f US$477 million o f Eurobonds maturing in 2029, which i s comparable to debt relief offered by Paris Club creditors. 74. Some o f non-London Club commercial creditors have also provided HIPC comparable debt relief. Commercial creditors holding US$282 million o f external debt as o f end-December 2004 NPV terms have provided debt relief by cancellations and rescheduling. Their participation in the HIPC Initiative was critical because this group o f creditors holds approximately 20 percent o f total debt in the end-2004 NPV term, which i s high compared with other HIPC countries. 75. Congo settled a long-standing dispute at the end of 2008 with litigating creditors holding claims validated by the courts, through payments (including legal fees and court-imposed penalties) totaling US$939 million (about 9 percent of GDP). At this point, there are three outstanding litigating creditors with claims calculated by the authorities totaling US$ 393 million. The settlement at end-2008 was on terms significantly less favorable than those of HIPC, with a discount factor calculated at 37 percent down from an estimated 79 percent reported incorrectly by the authorities earlier. The lower discount factor was attributed to the inclusion o f some debts covered by the London Club agreement as part o f claims held by litigating creditors. After correcting the error, the outstanding debt was revised downward, but the total settlement to those creditors remained the same. The error on loThis loan was originally a bilateral loan fkom a Paris Club creditor, which clarifies i t s qualification under the Paris Club. 'I Bulgaria, Libya and Romania have canceled approximately 78-80 percent o f their claims and Congo has paid o f f the remaining balance. China has provided 100 percent debt relief on some o f i t s claims in the interim period. Loans from Cuba were repaid (with no relief provided). l2Due to a confidentiality clause in the agreement, the authorities have not provided source information that would allow the staff to reconcile the related debt information and the discount factor. 33 the discount factor and reconciled data was reported immediately to the staffs and the Paris Club, and the authorities have identified a number o f actions to prevent such mistakes in future. These actions include restructuring o f the debt unit by separating tasks for entryhecoding and verification o f data, training in risk management to improve the security and control o f the data, conducting regular audits o f informatioddata to ensure accuracy, and creating a legal affairs unit. C. Debt Outlook after HIPC Assistance and Considerationfor Exceptional Topping-Up o f HIPC Assistance 76. Congo's nominal stock o f external debt reached US$5,610 million at end- December 2008, compared with US$9,248 million at end-December 2004. Multilateral creditors accounted for 8.3 percent o f total debt and bilateral and commercial creditors accounted for 91.7 percent (Table 5). IDA, France, Brazil, Spain and the London Club creditors are Congo's largest creditors, accounting for 5.3 percent, 28.1 percent, 6.9 percent, 7.8 percent, and 8.1 percent, respectively, o f total outstanding debt. 77. The NPV of Congo's public and publicly guaranteed external debt at end- December 2008, after full delivery o f the assistance committed under the HIPC Initiative at the decision point, i s estimated at US$3.5 billion, equivalent to 63 percent of fiscal revenue (excluding grants) and 48.6 percent of three-year average o f exports. O f this amount, US$253 million i s owed to multilateral creditors, US$ 1,890 million to Paris Club creditors, and US$ 343 million to other bilateral creditors, and US$993 million to commercial creditors (all numbers in end-2008 NPV terms). 78. The staffs are o f the view that Congo does not meet the requirements for topping- up assistance under the Initiative. Topping-up could be provided only if debt ratios have deteriorated relative to the decision point projections. Congo does not qualify in this regard, since i t s NPV o f debt-to-revenue ratio after HIPC and additional bilateral relief i s far below the HIPC threshold o f 250 percent. This ratio was estimated at about 38 percent in 2008. l3 79. The NPV of debt-to-revenueratio declined in large part due to a significant increase in oil revenue (Text Table 4). Total revenue in 2008 was US$ 5,523 million, compared with US$ 1,586 million projected at the decision point. The increase in oil revenue reflected three main factors: i)relatively high world oil prices; ii)higher than projected l3 The EnhancedHIPC Initiative fiamework allows for the provision, on an exceptional basis, o f additional debt relief (or "topping-up") at the completion point. Additional debt relief i s provided if a country's actual debt burden indicators have deteriorated compared to the decision point projection, and this deterioration i s primarily attributable to a fundamental change in a country's economic circumstances due to exogenous factors (The Enhanced H I P C Initiative-Completion Point Considerations, EBS/O1/141 (8/20/2001) and IDA/SecM200 1 - 0539/1 (8/21/2001)). Additional debt relief may case be provided to bring a country's debt ratio to the relevant HIPC threshold at the completion point. To date, six countries have received topping-up assistance under the enhanced HIPC Initiative: Burkina Faso, Ethiopia, Rwanda, Malawi, Niger and Sao Tome and Principe. 34 i) production, and i i an increase in the government's share o f oil output (which rises as oil prices increase, as stipulated in its production sharing contracts with private operators). 80. T o summarize, the decline in the ratio o f the NPV o f debt-to-revenuemore than offset the increase in the ratio caused by the delay in interim assistance delivery (Text Table 4). The Fund-supported program went off-track in the latter half o f 2006. In response, the Paris Club stopped i t s interim assistance for almost two years until a new three-year PRGF arrangement was approved by the Fund's Executive Board in December 2008. Only after this date did the Paris Club reached understandings on further debt rescheduling. Text Table 4. Republic of Congo: Breakdown of the Increase of NPV of Debt-to-Revenue Ratio, end-December 2008' Percentage Percent of Total Points Increase NPV of debt-to-revenue ratio (as projected at the Decision Point) 122.9 NPV of debt-to-revenue ratio (actual) 63.0 Unanticipated change in the ratio -59.9 100.0 1. Due to changes in the parameters 0.5 -0.9 Of which: due to changes in the discount rates -0.1 0.2 Of which: due to changes in the exchange rates 0.7 -1.1 2. Due to unanticipated new borrowing 1.4 -2.4 Of which: due to higher than expected disbursements 0.1 -0.1 Of which: due to lower concessionality of the loans 1.4 -2.3 3. Due to unanticipated changes in revenue 51.3 252.6 4. Due to changes in HlPC relief and other factors' 89.4 -149.3 NPV of debt-to-revenue ratio (actual) 63.0 Bilateral debt relief beyond HlPC 24.6 NPV of debt-to-revenue ratio after full delivery of HlPC assistance and 38.4 bilateral debt relief beyond HlPC (actual) Sources: Staff estimates ' N P V of debt-to-revenue ratio after full delivery of enhanced HlPC assistance. * Congo's program went off track In the latter half of 2006. This affected the initial assumption of the timing of the completion point, and the expected interim relief. The revisions to the decision point debt database at completion point and the changes In the timing of Interim assistance delivery pushed this ratio up by 89.4 percentage points. D. Creditor Participation in the Multilateral Debt Relief Initiative 8 1. Contingent upon approval of the completion point, Congo would qualify for additional debt relief under the MDRI from the AfDF, IDA, and the IMF. MDRI debt relief (net o f HIPC assistance) would imply an additional cancellation o f principal payments owed to participating creditors o f US$ 177.7 million in nominal terms, and would save Congo US$201.3 million in total debt service through 2043. 82. AfDF. The AfDF would provide debt r e l i e f in addition to the HIPC Initiative already delivered, amounting to a reduction in Congo's debt stock o f US$9.1 million. This i s equivalent to a reduction in debt service o f about US$9.7 million between 2010 and 2039. 35 83. IDA. IDA would provide debt relief in addition to the HIPC Initiative under the MDRI amounting to a reduction in principal payments o f US$ 161.2 million, by irrevocably canceling payment obligations for credits disbursed before end-2003 and s t i l l outstanding on January 1, 20 10 (Table 11). MDRI debt r e l i e f from IDA would imply average debt service savings (net o f HIPC assistance) o f US$5.4 million per year through 2043, or the equivalent o f US$ 184.0 million in total debt service. 84. IMF. The IMF would provide MDRI debt r e l i e f amounting to estimated at SDR 4.8 million (equivalent to about US$7.4 million) covering the full stock o f debt owed to the IMF at end-2004 that i s s t i l l outstanding at the completion after full delivery o f HIPC debt relief (Table 10).14 E. Debt Sustainability Outlook, 2009-28 85. The baseline macroeconomic framework for the debt sustainability analysis takes into account recent developments.Key macroeconomic assumptions for the completion point DSA using the HIPC methodology are summarized in Text Table 5 and Box 2. Long- term growth assumptions are broadly similar to those used in the decision point debt sustainability analysis. However, near- and medium-term growth i s now assumed to be somewhat weaker, reflecting the adverse impact o f the global financial crisis. Meanwhile, fiscal revenue i s expected to rise to over 100 percent o f non-oil GDP, which i s significantly higher than the projections made at decision point, reflecting higher world o i l prices and oil production. The current assumption also indicates that external borrowing will be minimal given Congo's large increased oil wealth. Text Table 5. Republic of Congo: Long-term Macroeconomic Assumptions, 2009-29 2009-1 3 2014-18 2019-23 2024-29 (Annual percentrage change unless otherwise Indlcated) Natlonal Income and prioes GDP at constant prices 6.1 3.0 4.7 4.9 Oil 7.1 -9.7 -9.5 -9.5 Non-oll 5.9 8.9 6.5 5.7 Consumer prices (end-of-period) 3.0 3.0 3.0 3.0 External sector Exports of goods and sedces 6.8 4.1 -3.8 -0.8 Oil 7.1 -8.4 -8.0 -7.6 Nonoll 5.0 8.6 8.0 7.3 Imports of goods and aedces 4.7 1.2 3.3 5.4 1 01 3.7 -8.5 -7.8 -7.5 Non-oll 8.1 6.3 6.2 6.9 Current account balance (in percent of GDP) 0.6 0.7 -9.3 -15.7 Central government (In percent of non-oil GDP unless otherwise Indicated) Total rewnue and grants 130.1 87.7 60.8 45.4 Total expenditure 63.1 45.9 36.2 31.5 Non-oil primary baslce balance -30.4 -18.2 -10.6 -5.3 owrall balance 67.0 51.8 24.4 13.9 National Income Nominal GDP (in CFAF billion) 5.7 6.3 7.4 10.2 Oil 3.8 2.9 1.8 1.1 Nonoil 2.1 3.4 5.5 9.1 Nominal GDP (In US$ biilion) 12.1 13.2 15.5 21.3 Sources: Congolese authorities: and Fund estlmates and projections. l4As defined in the MDRI-I1Trust Instrument. 36 Box 2. Republic of Congo: Baseline Macroeconomic Assumptions Real GDP growth: Average annual overall real GDP growth for 2009-29 i s projected at 4.7 percent, slightly higher than the 3.6 percent averaged for 1999-2008 owing to higher oil production. For 2009-29 economic growth i s expected to be led by the non-oil sector; average real oil growth i s projected to be around -5.5 percent as production i s expected to diminish over time, and real non-oil growth i s expected to reach 6.2 percent. World oil price and production: Oil production i s expected to peak in 201 1 at 137 million barrels per year and then gradually decline to 24 million barrels per year in 2029. The Congolese oil export price i s projected to increase slightly more than international oil prices in the long term, owing to oil marketing reform. Inflation: Inflation i s projected to decline to 3.2 percent by the end o f 2009 and hold at 3 percent thereafter, reflecting BEAC's objective o f low inflation. This i s in line with the Central African Economic and Monetary Community (CEMAC) convergence criterion o f 3 percent. Current account balance: The current account balance i s expected to turn to a surplus o f 1.8 percent o f GDP in 2010, rising to around 5 percent for 201 1-2016, but may swing into deficit in 2017 because o f declining oil production. B y 2029, the deficit i s expected to reach over 15 percent o f GDP, which will be financed by foreign direct investment (FDI) and fiom oil revenue savings deposited in the oil stabilization account at the BEAC. F D I in the non-oil sector i s projected to grow by around 10 percent annually as Congo bolsters the investment environment. The share o f the non-oil sector in F D I i s projected to increase to over 80 percent in 2029 from about 10 percent in 2009. Government balance: The government i s expected to continue with i t s fiscal consolidation efforts, with the goal o f ensuring steady progress toward long-term sustainability consistent with a permanent income hypothesis model. The non-oil primary basic balance i s expected to reach the sustainable level o f 4-6 percent o f non-oil GDP by 2026. The overall fiscal balance i s projected to continue to record a surplus, but it will decline to about 10 percent o f non-oil GDP in 2029, from 70-90 percent in 2010-2012-again a result o f the projected decline in oil production. External assistance: Grants, mainly in the form o f technical assistance, are assumed to remain at around 1 percent o f GDP annually through 2029. New loans are expected fiom the French Development Agency (AFD), Arab Bank for Economic and Development in Afiica (BADEA), IDA, and China. From 20 19, Congo i s expected to obtain limited amounts o f non-concessional loans fiom the IBRD. Domestic borrowing: N o new domestic borrowing i s assumed for the entire projection period given Congo's abundant oil wealth. It i s assumed that domestic arrears will be fully repaid by 2014. 86. After reaching the decision point in March 2006, the authorities negotiated debt relief agreements with major creditor groups. Paris Club creditors provided flow relief on the basis o f Cologne terms. The authorities also negotiated a commercial debt restructuring agreement with the London Club which was finalized in November 2007. Several non-Paris Club creditors and commercial creditors settled their claims with Congo with HIPC comparable terms in the interim period. The Congolese have also eliminated a large portion o f their commercial debt under litigation at the end o f 2008, which corresponds to about 5 percent o f total debt outstanding in the 2004 NPV terms. 87. Thanks to these efforts, after the full delivery o f relief under the enhanced HIPC Initiative, the NPV o f debt-to-revenue ratio (including new borrowing) i s estimated to fall from 250 percent at end-2004 to 66 percent in 2010 (Figure 2 and Tables 8). The staffs' projections indicate that-assuming continued modest real income growth and total 37 revenue-the ratio would remain well below the HIPC threshold o f 250 percent over the entire projection period, reaching about 15 percent by 2029. 88. External debt service as a ratio o f revenue after the full delivery o f HIPC debt relief i s expected to remain below 10 percent over the projection period (Figure 2 and Table 8). This ratio in 2010 is estimated at 5 percent and projected to decline gradually in the long term. 89. Full delivery o f HIPC and MDFU debt relief at the completion point would significantly reduce Congo's external public debt. In end-December 2008 N P V terms, the stock o f debt would decline to US$3.7 billion at end-2010 (Table 6). Nominal debt service relief over the projected period would amount to US$4.6 billion, o f which US$201 million would be related to the MDRI (Table 7). F. Sensitivity Analysis 90. T w o alternative scenarios were carried out to simulate the trajectory o f Congo's external debt burden indicators after assuming full delivery o f enhanced HIPC assistance, additional bilateral assistance, and debt relief under the MDFU (Figure 3 and Table 9). These scenarios replicate those used at decision point to illustrate the vulnerability o f Congo's debt dynamics to various types o f exogenous shocks. Alternative Scenario 1: L o w e r oil price 91. This scenario assumes that the Congolese oil price i s lower than the baseline scenario by 25 percent. Lower Congolese o i l prices may materialize if the international o i l market deteriorates andor reforms on o i l commercialization fail to reduce the differential between international prices and Congolese prices. Lower o i l prices would result in lower fiscal revenue and lower exports (in value terms). In order to achieve the long-term sustainability in line with the permanent income model, the government would need to reduce public investment to some extent, which could cause weaker non-oil growth. The ratio o f the N P V o f external debt-to-revenue rises; over the period 2009-29 the ratio i s on average higher by about 8 percentage points per year relative to the baseline scenario. Alternative Scenario 2: L o w e r non-oil economic growth 92. This scenario assumes that non-oil economic growth i s lower than the baseline scenario by 2 percentage points. Lower non-oil growth may result from an adverse external environment, slow implementation o f structural reforms and consequently further erosion in the business environment, which would hamper private sector development. Lower non-oil growth would have an adverse impact on non-oil fiscal revenues and non-oil exports. The government would need to reduce expenditures, including public investment in infrastructure in order to safeguard fiscal resources, which itself could result in a further weakening o f non- o i l growth. The impact o f this shock, while not as pronounced over the medium term as the o i l price effect, would increase over time as the share o f the non-oil sector increases. The 38 N P V o f external debt-to-revenue over the period 2009-29 i s higher by about 1.5 percentage points per year relative to the baseline scenario. Under both scenarios, the N P V o f debt-to revenue ratio remains below the 250-percent threshold over the simulation period. 93. The sensitivity analysis indicates that Congo i s moderately vulnerable to shocks after the substantial debt relief it i s expected to receive at the completion point.15 Debt indicators deteriorate under alternative scenarios compared to the baseline scenario, but stay below the HIPC threshold o f 250 percent o f fiscal revenue for the entire projected period. The debt r e l i e f expected at the completion point would strengthen the resilience o f the country's debt indicators to shocks. It is s t i l l important that the government continues to strengthen debt management and maintain a conservative borrowing policy. At the same time, the government's commitment to maintain fiscal discipline and increase non-oil revenue, together with structural reform in key areas, would help to safeguard long-term debt sustainability. IV. CONCLUSION 94. I n the view o f the staffs o f IDA and IMF, Congo has met the requirements established in March 2006 for reachingthe completion point under the enhanced HIPC initiative. Staffs o f IDA and the IMF consider that Congo's performance in implementing the conditions specified for reaching the completion point has been satisfactory. I t has introduced the required measures to meet the objectives laid out under the eight triggers, and moved decisively to implement reforms in public investment management, procurement, governance and o i l sector management as envisaged. The main elements o f the HIPC reform program have been satisfactorily implemented. 95. Revisions to the end-2004 debt data have resulted in a downward adjustment in the amount o f HIPC debt relief. Consequently, the common reduction factor has declined from 32.4 percent to 3 1.1 percent. The amount o f HIPC debt relief required to reduce the N P V o f debt-to-revenue ratio to 250 percent on the basis o f end-December 2004 data has been lowered from US$ 1,679 million estimated at the decision point to U S $ 1,575 million. Financing assurances have been received regarding participation in the enhanced HIPC Initiative from creditors representing more than 80 percent o f the N P V o f debt at end-2004, after traditional debt relief mechanisms have been applied. 96. Full delivery of HIPC debt relief, and additional bilateral assistance beyond HIPC and MDRI, would considerably reduce Congo's external public debt. In end-2008 N P V terms, the stock o f debt would decline to US$2,014 million at the completion point. 15 This result i s different fiom that in LIC DSA because o f different borrowing assumption. Please see Appendix I1LIC DSA for detailed explanation. 39 97. I n light of the above, the staffs o f IDA and I M P recommend that the Executive Directors determine that Congo has reached the completion point under the enhanced HIPC Initiative. FOR V. ISSUESDISCUSSION 98. Executive Directors may wish to consider this report based on the following issues for discussion: a Completion point. D o Directors agree that Congo has reached the completion point under the enhanced HIPC Initiative, considering the emphasis in the decision point document on the need to establish a track record o f sustained performance? e Data Revision.Do Directors agree with staffs' recommendation that the revenue data and the updated stock o f debt in end-2004 NPV terms warrant a revision in the proposed amount o f HIPC assistance? e Creditor Participation.Do Directors agree that Congo's creditors have given sufficient assurances to irrevocably commit HIPC Initiative assistance to the Congo? 40 Figure I.Republic of Congo: Composition of the Stock of External Debt by Creditor Group, end-November 2004 and 2008 (in percent) End December-2004 Other multilaterals African Development Bank 2 Commercial- 37 ,/ Paris Club Non Paris Club 54 bilateral - 3 End December-2008 African Other multilaterals Development Bank - 1 IMF Commerc al 1 22 Non Paris Club Ioilateral 10 - Paris Club 60 Sources: Congolese authorities; and World Bank and Fund staff estimates. 41 Figure 2. Republic of Congo: External Debt and Debt Service Indicators for Medium- and Long-Term Public Sector Debt, 2009-28 Net Present Value of External Debt-to-Revenue (in percent) 300 200 After traditional debt relief mechanism --- -After enhanced HlPC assistance After additional bilateral assistance beyond HlPC assistance After MDRl and bilateral relief beyond HlPC assistance 100 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 Debt Service-to-Revenue (in percent) 14 - traditional debt relief mechanism -After --- 12 -After Enhanced HlPC assistance After bilateral debt relief beyond HlPC assistance after MDRl and bilateral debt relief beyond HlPC assistance 10 o L ' ' " ' ' l ~ ~ ~ 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 Sources: Congolese authorities; and World Bank and Fund staff estimates. 42 Figure 3. Republic of Congo: Sensitivity Analysis, 2009-28 Net Present Value of External Debt-to-Revenue (in percent) 80 - HlPC threshold -- 70 - --#E- Baseline scenario Lower oil pnce scenario I/ 60 - -Non oil GDP shock 21 50 - 40 - 30 - 20 - 10 - " 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 Debt Service-to-Revenue(in percent) 900 800 -- &Baseline scenario Lower oil pnce scenario 11 700 -Non oil GDP shock 21 600 500 400 300 200 100 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 Sources: Congolese authorities; and staff estimates '25 percent lower than baseline scenario. '2 oercentaae ooints lower than baseline scenario. 43 Table 1. Republic of Congo: Revised Nominal Stocks and Net Present Value of Debt at Decision Point by Creditor Groups as of end-December 2004 ' Nominal Debt Stock at End-December. 2004 NPV of Debt Before Rescheduling NPV of Debt After Rescheduling '' At Decision Point ,o,"$~~:~oint At Decision Point c o ~ ; ~ ~ ~ ~ A p b i n t At Dedsion Point ,x;Ei: ",bin, US$ Percent US$ Percent US$ Percent US$ Percent US$ Percent US$ Percant million of total million of total million of total million of total million of total million of total Total 9,2463 100 9,177 100 9,007 100 6,925 100 5,176 100 5,071 100 Multilateral 524 6 524 6 363 4 363 4 363 7 363 7 African Development Bank 138 1 136 2 121 1 121 1 121 2 121 2 African Development Fund 12 0 12 0 6 0 6 0 8 0 8 0 BADEA 21 0 21 0 16 0 16 0 16 0 16 0 European Union 40 0 40 0 29 0 29 0 29 1 29 1 IFAD 0 0 0 0 0 0 0 0 0 0 0 0 IDA 270 3 271 3 151 2 152 2 151 3 152 3 IMF 29 0 29 0 25 0 25 0 25 0 25 0 OFiD 13 0 13 0 13 0 13 0 13 0 13 0 Official bilateral and commercial 8,725 94 8,652 94 8,645 96 8,561 96 4,813 93 4,706 93 Paris Club 5,048 55 4,936 54 4,994 55 4,672 55 2,815 54 2,696 53 Belgium 81 1 61 1 85 1 84 1 36 1 36 1 Brazil 309 3 315 3 291 3 267 3 102 2 104 2 Canada 69 1 66 1 68 1 67 1 37 1 37 1 Denmark 2 0 2 0 1 0 1 0 0 0 0 0 France 2,942 32 2,956 32 3,002 33 3,016 34 1,729 33 1,731 34 Germany 301 3 282 3 308 3 269 3 136 3 134 3 Ireland 0 0 0 0 0 0 0 0 0 0 0 0 Italy 255 3 270 3 256 3 270 3 142 3 151 3 Netherlands 0 0 0 0 0 0 0 0 0 0 0 0 Russia 159 2 159 2 104 1 104 1 104 2 104 2 Spain 494 5 364 4 464 5 335 4 315 6 167 4 Switzerland 25 0 25 0 24 0 24 0 9 0 9 0 United Kingdom 346 4 348 4 332 4 335 4 164 3 165 3 United States 65 1 66 1 59 1 59 1 36 1 36 1 Non Paris Club bilateral 289 3 300 3 260 3 291 3 179 3 180 4 Algeria 20 0 I9 0 20 0 19 0 6 0 6 0 Angola 60 1 71 1 60 1 71 1 20 0 23 0 Bulgaria 2 0 1 0 2 0 1 0 1 0 0 0 China 47 1 50 1 39 0 40 0 34 1 35 1 Cuba 1 0 1 0 1 0 1 0 1 0 1 0 Saudi Arabia 64 1 63 1 64 1 63 1 51 1 47 1 Kuwait 49 1 49 1 49 1 49 1 41 1 41 1 Libya 28 0 26 0 28 0 28 0 9 0 9 0 Luxembourg ' 1 0 1 0 1 0 1 0 0 0 0 0 Romania 1 0 1 0 1 0 1 0 1 0 1 0 United Arab Emirates 17 0 17 0 17 0 17 0 15 0 15 0 Commercial 3,388 37 3,416 37 3,370 37 3,396 36 1,819 35 1,632 36 of which: London Club 2,177 24 1,625 20 2,177 24 1,825 20 679 17 721 14 Sources: Congolese authorities; and World Bank and Fund staff estimates. ' information based on end-December 2004 data available at completion point before signing bilateral agreements referred to in the December 2004 Pari8 Club agreement. Includes a stock-ofdebt operation on Naples terms at end-December2004; and comparable action by other official bilateral creditors on eligible debt (pre-cutoff and non-ODA). 'The increase in the NPV of debt for the offlcial bilateral creditors depends on the better documentation available at completion point 'Claims from Luxembourg are a part of the European Union loan that is administered by IDA. Revised to indicate the claims of the creditors who have parlicipated in the 2007 London Club agreement, 44 Table 2. Republic of Congo: Estimated Assistance at Decision Point (Amended)' (In millions of U S . dollars in end-December 2004 NPV terms, unless otherwise indicated)* Total Multilaterals Bilaterals Commercial Common Reduction Factor3 NPV of debt-to-exports target (in percent) 250 Assistance (decision point document) 1,679 118 971 590 32.45 Assistance (revised) 1,575 113 893 569 31.05 Memorandum items: Revised NPV of debt at end-20044 5,071 363 2,875 1,832 Central government revenues at ef1d-2004~ 1,399 Revised NPV of debt-to-revenue ratio (percent)' 363 Sources: Congolese authorities; and World Bank and Fund staff estimates and projections. ' Assumes proportional burden-sharing as described in "HIPC Initiative: Estimated Costs and Burden-Sharing Approaches" (EBS/97/127; 7/7/97, and IDNSEC M97-306;7/7/97), that is, after full application of traditional debt relief mechanisms. Using six-month backward-looking discount rates at end-December 2004 and end-December 2004 exchange rates. Each creditor's NPV reduction in percent of its exposure at the decision point (after hypothetical Naples stock at the end of the base year). Includes traditional debt relief; a hypothetical stock-of-debt on Naples terms with comparable treatment from non Paris Club creditors. Based on the latest annual data at the completion point on the end of period 2004 fiscal revenue excluding grants. 'After a hypothetical stock-of-debt operation on Naples terms at end December-2004. 45 Table 3. Republic of Congo: Comparison of Discount Rate and Exchange Rate Assumptions Discount Rates' Exchange Rates3 (in percent per annum) (US. dollar per Currency) At decision point At completion point At decision point At completion point end-December 2004 end-December 2008 end-December 2004 end-December 2008 Currency United Arab Emirates Dirham 4.64 4.65 0.27 0.27 Belgian Franc 4.82 5.27 0.03 0.03 Canadian Dollar 5.36 4.40 0.83 0.82 CFA Franc 4.82 5.27 0.00 0.00 Swiss Franc 3.48 3.80 0.88 0.94 Chinese Yuan 4.64 4.65 0.12 0.15 Deutsche Mark 4.82 5.27 0.70 0.71 Danish Kronor 4.94 5.05 0.18 0.19 Spanish Peseta 4.82 5.27 0.01 0.01 Euro 4.82 5.27 1.36 1.39 French Franc 4.82 5.27 0.21 0.21 Great Britain Sterling 6.01 5.75 1.93 1.46 Irish Punt 4.82 5.27 1.73 1.77 Italian Lira 4.82 5.27 0.00 0.00 Japanese Yen 2.15 2.26 0.01 0.01 Kuwaiti Dinar 5.03 4.45 3.39 3.62 Luxembourg Franc 4.82 5.27 0.03 0.03 Netherlands Guilder 4.82 5.27 0.62 0.63 Saudi Arabian Riyal 4.64 4.65 0.27 0.27 United States Dollar 5.03 4.45 1.oo 1.oo Special Drawing Rights 4.64 4.65 1.55 1.54 Norwegian Kronor 4.70 5.67 0.17 0.14 Swedish Kronor 5.38 5.1 1 0.15 0.13 Memorandum item: Paris Club cutoff date January 1,1986 Decision point March 9, 2006 Sources: European Central Bank; IMF, lnternationalFinancialStatistics; OECD; and staff estimates. 'The discount rates used are the average commercial interest reference rates (CIRRs) for the respective currencies over the six-month period ending in December 2008 for the completion point and in December 2004 for the decision point. For all Euro area currencies, the Euro ClRR is used. For all currencies for which the ClRRs are not available, the SDR discount rate is used as a proxy. End-of-period exchange rates. 46 Table 4. Republic of Congo: Status of Creditor Participation Under the Enhanced HlPC Initiative Debt Relief .Percentage Percentage Of Total in NPV of Total Assistance Modalities to Deliver Debt Relief T e 7 i ( y S $ Assistance pa,$^^^^ in Participating the Initiative African Development Bank 37.6 2.4 2.4 The AfDB Group's total debt relief under the HlPC Initiativewas estimated at $41.9 million in end-2004 NPV terms at the decision point. This was more than covered by the 2004-05 arrears clearance agreement.' African Development Fund 2.4 0.2 0.2 See above. BADEA 5.0 0.3 0.3 BADEA provided HlPC relief via the concessioneielement of an arrears restwcturing agreement in 2001, which was further revised in 2003, leaving about $2.4 million in end-2004 NPV terms to be delivered at the completion point. European Union 9,0 0.6 0.6 The EU's share of debt relief under the HlPC Initiativewas estimated at $9.4 million in end-2004 NPV t e n s at the decision point, whlch was revised downward to $9.0 million at the completion point owing to revisions of the debt stock and the common reduction factor. IFAD 0.1 0.0 0.0 The IFAD's share of HlPC relief amounts to $91 thousand in end- 2004 NPV terms, to be delivered at the compietion point. IDA 47.0 3.0 3.0 IDA'S remaining share of HiPC relief amounts to $33.9 million in end-2004 NPV terms to be delivered at the completion point. IMF 7.7 0.5 0.5 The IMFs remaining share of HlPC relief amounts to US$9.6 million to be delivered et the compietion point. OFlD 3.9 0.2 0.2 The OPEC Fund for international Development provided HiPC relief via a concessional arrears restructuring,leaving about US$4,1 million to be delivered at the completion point. Total multllateral 112.9 7.2 7.2 Paris Club creditors 837.0 53.2 53.2 Paris Club creditors will provide relief based on Cologne terms. The UK, Brazil and Russia are yet to sign bilateral agreements. Non-Paris Club creditors 2/ 55.8 3.5 0.6 Algeria 2.0 0.1 No agreement has been signed. Angola 7.3 0.5 No agreement has been signed. Negotiations are ongoing. Bulgaria 0.1 0.0 0.0 Signed an agreement In June 2008 that cancelled 77% of the claims. Congo has paid the remaining. China 11.0 0.7 0.4 China has provided 100%canceiiationsonly on some of its claims in the interim period. Cuba 0.4 0.0 All loans with Cuba have been repaid. Saudi Arabia 14.6 0.9 No agreement has been signed. Negotiationsare ongoing. Kuwait 12.7 0.8 No agreement has been signed. Negotiationsare ongoing. Libya 2.9 0.2 0.2 Signed an agreement in April 2008 that cancelled 80% of the claims. Congo has paid the remaining. Romania 0.2 0.0 0.0 Signed an agreement in June 2006 that cencelied 77.7% of the claims. Congo has paid the remaining. United Arab Emirates 4.6 0.3 No agreement has been signed. Negotiations are ongoing. Total bilateral 892.8 56.7 Total commerclal 566.9 36.1 19.7 of which: London Club 223.8 14.2 14.2 Signed an agreement in November 2007 which lead to the issuance of Euro bonds worth $477 million to be Daid over 22 years. of which: non-London Club 3/ 345.2 21.9 5.5 A few commercial crediton have provided debt relief in terms of cancellationsand reschedulingsthat are HlPC comparable. Total 1574.6 100.0 80.6 Sources: Congolese authorities, and World Bank and Fund staff estimates ' Under the HlPC Initiative guidelines, a creditor receives credit against the required provision of debt relief for contributions to an arrears dearance operation in a HlPC country. Non-Paris Club creditors holding 0.59% of the NPV of external debt after traditional debt relief have provided HlPC relief. 'Non-London Club creditors holding 5.49% of the NPV of external debt after traditional debt relief have provided HlPC relief. 47 Table 5. Republic of Congo: Nominal and Net Present Value of External Debt Outstanding at End-December 2008' (In millions of US$. unless otherwise indicated) Legal Situation' Net PresentValue of Debt' Nominal Percent NPV of debt Percent M e r additional M e r additional Debt oftotel of total HIPC bilateral relief bilateral relief (In percent of total debt) Total 5,610.3 100.0 5,051.3 100.0 3,479.0 2,118.5 100.0 Multilateral institutions 465.3 8.3 313.9 6.2 253.3 253.3 12.0 African DevelopmentBank 50.7 0.9 53.2 1.1 53.2 53.2 2.5 African DevelopmentFund 21.5 0.4 10.8 0.2 10.8 10.8 0.5 BADEA 12.3 0.2 10.8 0.2 7.9 7.9 0.4 European Union 30.7 0.5 22.1 0.4 20.2 20.2 1.o IFAD 8.0 0.1 4.0 0.1 3.9 3.9 0.2 IDA 296.4 5.3 174.5 3.5 132.2 132.2 6.2 iMF 38.2 0.7 31.0 0.6 22.8 22.8 1.1 OFlD 7.4 0.1 7.4 0.1 2.3 2.3 0.1 Official bilateral and commercial 5145.0 91.7 4737.5 93.8 3225.7 1865.2 50.5 Paris Club' 3395.4 60.5 3148.8 62.3 1889.9 737.0 34.8 Post-cutoff date 261.5 4.7 255.8 5.1 ... ... ... ... ..t t.. Pre-cutoff date 3133.8 55.9 2893.0 57.3 ODA 339.3 8.0 239.5 4.7 ... ... ... Non-ODA 2794.5 49.8 2853.5 52.5 ... ... ... by country. Belgium 75.9 1.4 62.6 1.2 ... ... ... Brazil 388.0 8.9 377.2 7.5 ... ... ... Canada 30.5 0.5 30.6 0.8 ... ... ... Denmark 0.0 0.0 0.0 0.0 ... ... ... France 1573.7 28.1 1453.4 28.8 ... ... ... Germany 312.3 5.8 300.7 6.0 ... ... ... Ireland 0.0 0.0 0.0 0.0 ... ... ... Italy 188.3 3.4 182.1 3.8 ... ... ... Nethellands 0.0 0.0 0.0 0.0 ... ... ... Russia 161.3 2.9 120.0 2.4 ... ... ... Spain 440.0 7.8 418.4 8.3 ... ... ... Swiheriand 17.4 0.3 16.6 0.3 ... ... ... United Kingdom 170.4 3.0 152.7 3.0 ... ... ... United States 37.5 0.7 34.5 0.7 ... ... ... Other official bilateral 542.4 9.7 480.5 9.5 342.9 333.1 15.7 Post-cutoff date 297.6 5.3 235.7 4.7 235.7 235.7 11.1 Pre-cutoff date 244.8 4.4 244.8 4.8 107.2 97.4 4.6 ODA 143.0 2.5 143.0 2.8 80.2 76.8 3.8 Non-ODA 101.8 1.8 101.8 2.0 27.0 20.5 1.o by countw: Algeria 21.6 0.4 21.8 0.4 4.4 4.4 0.2 Angola 80.2 1.4 80.2 1.8 16.1 16.1 0.8 ~u~garia' 0.0 0.0 0.0 0.0 0.3 0.0 0.0 China' 297.6 5.3 235.7 4.7 238.4 235.7 11.1 Cuba' 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Saudi Arabia 67.9 1.2 67.9 1.3 33.0 33.0 1.6 Kuwait 56.8 1.o 56.8 1.1 33.5 33.5 1.6 Libyaa 0.0 0.0 0.0 0.0 8.3 0.0 0.0 Luxembourg 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Romania' 0.0 0.0 0.0 0.0 0.4 0.0 0.0 United Arab Emirates 18.3 0.3 18.3 0.4 10.3 10.3 0.5 Commerciato 1207.2 21.5 1108.1 21.9 992.8 795.1 37.5 of M i d : London Club" 453.9 8.1 357.5 7.1 554.5 357.5 16.9 Sources: Congolese authorities end World Bank and Fund staff estimates. ' Information based on latest end December 2008 data available at completion point before signing bilateral agreements refering to the December 2008 Paris Club agreement. ' Includes Naples flows, es well es Cologne flow and cancellationsin the interim period from Paris Club creditors. The debt stock as of December 2008 is (based on data available et completion point) before signing bilateral agreements refemng to December 2008 Paris Club agreement. ' Assumes full delivery of HiPC assistance es of end-December 2008. ' Paris Club creditors deliver their share of assistance es a group. Actual delivery modalities are defined on a case-by-case basis. The bilateral agreements have been signed with all Paris Club creditorswith the exception of Brazil, the UK and Russia. ' A n agreement cancelling 77 percent of the claims was signed in 2008 end remaining claims have been paid. ' Congo has contracted that only one new loan from China in the interim period. A loan that was signed with China in 2003 was disbursed only after 2004. 'All the daims have been paid in 2006 without any provision of relief A agreement cancelling 80 percent of the claims was signed in 2008 and remaining daims have been paid. n ' A n agreement cancelling 77.7 percent of the claims was signed in 2008 and remaining deims have been paid. ' O HlPC comparable cancellations and resdedulings have been provided by some commercial creditors. In December 2008 the Republic of Congo eiso settled all of its claims to litigating creditors by paying a total amount of US$939 million. " A commercial debt restructuringagreement with the London Club was finalized in November 2007. The agreement entailed the issuance of USW77 million of Eurobonds maturing in 2029 with 5 percent paid at signlng. Creditors holding 92 percent of this eligible debt participated in this 48 Table 6. Republic of Congo: Net Present Value of External Debt' (In millions of U.S. dollars, unless othenvise indicated) Actual Projections Average 2008 2008 2010 2011 2012 2013 2018 2023 2028 2028 2008-18 2019-28 I.Aitartradltlonal debt-relief n n o h a n l s M ' 1 NPV of total debt (2+4) 4,777 4.948 4.581 4,263 3,844 3,880 3.822 2,882 1.828 1,530 4.082 2,878 2 NPV of outstandlng debt 4,777 4.648 4.142 3,848 3,165 2,732 2,374 1,802 1,044 787 3.250 1,880 official bilateral and commercial 4,463 4.344 3,855 3.378 2,816 2,503 2.188 1.788 883 728 3,013 1,558 Paris Club 2,410 2.381 2,140 1.803 1.671 1,437 1,280 1,028 582 450 1,704 812 Other Omcial bilateral 401 382 381 339 318 283 177 158 133 127 280 152 Commercial 1,652 1.581 1,354 1,138 828 773 733 585 248 148 1,018 484 Multllateral 314 302 287 270 249 228 175 134 80 71 237 122 Afncan Development Bank 53 44 35 26 17 8 0 0 0 0 17 0 Afncan Development Fund 11 11 11 11 11 10 10 8 7 8 10 8 BADCA 11 8 7 5 2 0 0 0 0 0 3 0 European Union 22 21 20 18 18 18 10 4 1 0 18 4 IFAD 4 4 4 4 5 5 4 4 3 3 4 4 IDA 175 175 178 178 175 174 150 118 70 82 188 108 IMF 31 32 31 28 22 15 0 0 0 0 18 0 OFlD 7 8 4 2 0 0 0 0 0 0 2 0 I .A1I.r onhanood HIPC a6slstanco I 1 NPV of total debt (2+4) 4,758 4.883 3.758 3.811 3,857 3,508 2.830 2,374 1,820 1,441 3,585 2,182 2 NPV O outstanding debt f 4,758 4.381 3,310 3,188 2,877 2,582 1,582 1,315 835 708 2,742 1,183 offiual bilateral and commercial 4,450 4,137 3,074 2.870 2,885 2.388 1.418 1.181 755 837 2,535 1,072 Pans Club 3.114 2.881 1,808 1,900 1.885 1.471 1,018 888 615 528 1,886 821 Other omcial bilateral 343 328 308 288 288 248 132 114 85 81 242 110 Commercial 883 848 860 780 710 647 268 188 45 16 827 140 Multllateral' 308 244 238 228 212 I98 184 134 80 71 207 121 Afncan Development Bank 53 44 35 28 17 8 0 0 0 0 17 0 Afncan Development Fund 11 11 11 11 11 10 10 8 7 8 10 8 BADEA 11 8 8 5 2 0 0 0 0 0 3 0 European union 20 21 20 18 18 18 10 4 1 0 I6 4 IFAD 4 4 4 4 5 5 4 4 3 3 4 4 IDA 171 134 137 138 140 142 140 118 70 62 143 108 IMF 31 24 23 23 20 14 0 0 0 0 13 0 OFlD 7 0 0 0 0 0 0 0 0 0 1 0 3 NPV of total debt after full delivery' 3,478 3,732 3,758 3.811 3,857 3,508 2,830 2,374 1,620 1,441 3.382 2,182 Multilateml (end-Doc 2008) 253 244 236 228 212 196 164 134 80 71 202 121 Bilateral 2,233 2,236 2,214 2.180 1,855 1,718 1,149 1,013 710 820 1,710 931 Commercial 883 849 880 780 710 847 288 188 45 I8 827 140 As assumed in the decision point 1,850 1,748 1,750 1,787 1,788 1,828 1,884 2,065 1,882 2,050 111. Aftor b l l a u n l dobt n l beyond HIPC aeaiatanco' . 1f 1 NPV of total debt (2+4) 4.4% 4,478 2,328 2.370 2,255 2,147 1.780 1,458 888 804 2,517 1,355 2 NPV of outstanding debt 4,488 4,174 1,877 1,755 1,478 1,200 542 388 210 171 1,874 358 official bilateral and commercial 4,242 3,830 1,841 1.528 1,284 1,004 378 285 130 100 1.472 235 Paris Club 3,114 2,881 886 878 508 338 0 0 0 0 780 0 Other official bilateral 333 318 288 278 258 238 121 104 87 83 232 100 Commercial 785 752 857 572 498 427 257 161 43 I8 481 135 Multilateral 253 244 238 228 212 I% 184 134 80 71 202 121 A m u n Development Bank 53 44 35 28 17 8 0 0 0 0 17 0 Amcan Development Fund 11 11 11 11 11 10 10 8 7 8 10 8 BADEA 8 8 8 5 2 0 0 0 0 0 2 0 European Union 20 21 20 18 18 16 10 4 1 0 18 4 IFAD 4 4 4 4 5 5 4 4 3 3 4 4 IDA 132 134 137 138 140 142 140 118 70 62 138 108 IMF 23 24 23 23 20 14 0 0 0 0 13 0 OFlD 2 0 0 0 0 0 0 0 0 0 0 0 3 NPV of total debt anerfull delivery' 2,118 2,011 1,877 1.755 1,476 1,200 542 388 210 171 1,262 358 Multllataral 253 244 236 228 212 188 164 134 80 71 202 121 Bilateral 1,070 1,015 884 857 787 577 121 104 87 83 578 100 Commercial 785 752 857 572 488 427 257 181 43 I8 481 135 IV. Aftor MDRl assl6tano~ and bllabral dabt rellof boyond HlPC asalshnoe 1. NPV of total debt (2+4) 4.381 4.388 2,218 2,280 2,147 2.038 1.688 1,378 858 873 2,411 1,285 2. NPV of outstanding debt 4.381 4.085 1.767 1,846 1,367 1.082 440 318 173 140 1.568 287 official bilateral and commercial' 4,242 3.830 1,641 1.528 1,264 1.004 378 265 130 100 1,472 235 Multllateral 148 135 126 117 104 88 62 55 43 40 88 52 Afncan Development Bank 53 44 35 28 17 8 0 0 0 0 17 0 Afncan Development Fund 5 5 4 5 5 5 5 8 8 5 5 8 BADEA 8 6 6 5 2 0 0 0 0 0 2 0 European Union 20 21 20 18 18 18 10 4 1 0 18 4 IFAD 4 4 4 4 5 5 4 4 3 3 4 4 IDA 40 38 38 38 40 41 43 41 33 32 41 38 IMF 17 17 18 18 17 13 0 0 0 0 10 0 OFiD 2 0 0 0 0 0 0 0 0 0 0 0 3. NPV of total debt aner full delivery' 2,014 2,205 2,216 2,280 2,147 2.038 1,888 1,378 958 873 1,888 1,285 Momonndum b m : 4. NPV of new borrowing 303 448 814 778 847 1,248 1.080 788 733 827 888 Sources: Conpolere authoritles: and Worid Bank and Fund staff estimates and projections. ' Refers to public and publlcly guaranteed ekiernal debt only and is dlscounbd on the basis of the average commercial Interest reference rate for the respective currency, derived over the six-month period prior to the latest date for which actual data are available (September 2008). ' Assumes a stock-of-debt operation on Naples terms (87 percant NPV reductlon) as of end December-2008. and at least comparable action by other oficiai bilateral and commercial creditors. For 2008 only, flgure represents NPV of total Multilateral debt aner conditional delivery of HlPC assistance through end-Dewmber 2008. From 2008 onwards, figures reflect full HlPC delivery. 'NPV of total debt assuming the entire HlPC Initiative assistanw Is tuily delivered as of end December-2008. Includes additional debt relief provided on a voluntary basis by the Paris Club beyond the requirements of the enhanwd HlPC framewo* as specified on Table 14. This corresponds to the situation after additional bilateral relief for Paris Club Creditors, 49 Table 7. Republic of Congo: External Debt Service After Full Implementation of Debt-Relief Mechanisms (In millions of U S dollars, unless othewise indicated) Annual Average 2009 2010 2011 2012 2013 2018 2023 2028 2029 2009-2018 2019-2029 After traditional debt-rellef mechanlsms ' Total debt service including new borrowing 374.3 740.8 706.4 876.2 606.1 289.9 349.9 421.0 433.2 439.3 368.2 Total debt service on outstanding debt 371.3 737.2 702.0 666.0 591.0 202.6 210.7 282.4 298.7 407.6 234.5 Mukilateral 26.8 28.5 30.8 33.6 31.8 15.6 16.6 15.6 12.8 25.3 15.5 African Development Bank 11.8 11.2 10.6 10.0 9.5 0.0 0.0 0.0 0.0 6.2 0.0 African Development Fund 0.5 0.6 0.6 0.6 0.6 0.7 0.6 0.9 0.8 0.6 0.7 BADEA 2.3 2.4 2.5 2.6 2.5 0.0 0.0 0.0 0.0 I.2 0.0 European Union 2.2 2.2 2.2 2.2 2.2 1.7 1.7 0.4 0.4 2.1 1.1 IFAD 0.1 0.1 0.1 0.1 0.1 0.3 0.3 0.3 0.3 0.2 0.3 IDA 7.6 7.4 7.9 8.8 9.6 12.6 14.0 14.0 11.2 10.3 13.4 IMF 0.1 2.6 5.0 7.4 7.4 0.4 0.0 0.0 0.0 3.9 0.0 OFlD 2.2 2.1 2.0 1.9 0.0 0.0 0.0 0.0 0.0 0.8 0.0 Official bilateral 189.2 401.6 365.4 367.5 356.6 134.3 121.0 162.3 173.3 237.3 138.2 Paris Club 152.9 363.1 346.9 329.7 319.3 110.0 109.9 150.7 161.2 201.2 128.6 Other official bilateral 38.3 38.5 38.5 37.8 37.3 24.3 11.1 11.5 12.1 36.0 11.6 Commercial 155.3 307.0 285.8 264.9 202.6 52.7 73.1 104.5 112.6 145.0 80.8 After enhanced HlPC assistance Total debt service including new borrowing 228.5 296.8 286.4 491.4 476.7 218.8 278.1 302.6 303.3 354.8 277.1 Total debt service on outstanding debt 225.5 293.2 282.0 481.2 481.6 131.4 139.0 164.0 168.8 323.0 143.4 Mukilateral 21.2 19.5 20.8 24.5 26.5 10.0 16.6 15.6 12.8 18.6 14.5 African Development Bank 11.8 11.2 10.6 10.0 9.5 0.0 0.0 0.0 0.0 6.2 0.0 African Development Fund 0.5 0.6 0.6 0.6 0.6 0.7 0.6 0.9 0.8 0.6 0.7 BADEA 2.3 0.0 1.6 2.6 2.5 0.0 0.0 0.0 0.0 0.9 0.0 European Union 0.2 2.2 2.2 2.2 2.2 1.7 1.7 0.4 0.4 1.9 1.1 IFAD 0.1 0.0 0.0 0.1 0.1 0.3 0.3 0.3 0.3 0.2 0.3 IDA 4.0 3.9 4.2 4.8 5.3 7.0 14.0 14.0 11.2 5.7 12.4 IMF 0.1 1.6 1.6 4.1 6.4 0.4 0.0 0.0 0.0 2.9 0.0 OFlD 2.2 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.2 0.0 Official bilateral 109.4 135.4 136.8 346.0 334.5 86.0 91.0 117.8 125.5 197.5 97.5 Paris Club 77.4 102.8 103.8 313.0 301.5 63.9 82.3 109.6 116.9 165.0 88.6 Other official bilateral 32.1 32.6 33.0 33.0 33.1 22.2 8.7 8.2 8.6 32.6 8.9 Commercial 94.9 138.3 124.3 110.7 100.5 35.4 31.4 30.6 30.6 106.9 31.3 After bllateral debt relief beyond HlPC' Total debt service including new borrowing 217.2 238.6 221.2 378.0 365.4 153.4 193.9 190.5 183.9 256.2 188.6 Total debt service on outstanding debt 214.3 235.0 216.8 367.9 350.3 66.1 54.7 51.9 49.4 224.5 53.0 Mukilaterai 21.2 19.5 20.8 24.5 26.5 10.0 16.6 15.6 12.8 18.6 14.7 Official bilateral 109.1 81.9 76.6 237.9 228.9 22.0 8.1 7.1 7.4 126.0 8.2 Paris Club 77.4 49.6 43.9 205.2 196.1 0.2 0.0 0.0 0.0 93.8 0.0 Other offrcial bilateral 31.8 32.3 32.7 32.7 32.7 21.7 8.1 7.1 7.4 32.2 8.2 Commercial 84.0 133.7 119.4 105.4 94.9 34.1 30.1 29.3 29.2 79.9 30.1 After MDRl asslstance and bllateral debt rellef beyond HlPC aaslstance Total debt service including new borrowing 217.2 234.8 215.6 372.1 359.5 147.6 182.5 179.5 175.7 251.1 176.5 Total debt service on outstanding debt 214.3 231.1 211.2 362.0 344.4 60.3 43.4 40.9 41.2 219.3 42.9 Multilateral 21.2 15.6 15.2 18.7 20.6 4.2 5.2 4.6 4.5 13.4 4.6 African Development Bank 11.8 11.2 10.6 10.0 9.5 0.0 0.0 0.0 0.0 6.2 0.0 African Development Fund 0.5 0.3 0.1 0.1 0.1 0.2 0.2 0.4 0.4 0.2 0.3 BADEA 2.3 0.0 1.6 2.6 2.5 0.0 0.0 0.0 0.0 0.9 0.0 European Union 0.2 2.2 2.2 2.2 2.2 1.7 1.7 0.4 0.4 1.9 1.2 IFAD 0.1 0.0 0.0 0.1 0.1 0.3 0.3 0.3 0.3 0.2 0.3 IDA 4.0 1.8 0.6 0.8 1.3 1.7 3.1 3.4 3.4 1.7 2.8 iMF 0.1 0.1 0.1 2.6 4.9 0.4 0.0 0.0 0.0 2.2 0.0 OFiD 2.2 0.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.2 0.0 Official bilateral 109.1 81.9 76.6 237.9 228.9 22.0 8.1 7.1 7.4 126.0 8.2 Commercial 84.0 133.7 119.4 105.4 94.9 34.1 30.1 29.3 29.2 79.9 30.1 Memorandum Items: Debt service of new borrowing 3.0 3.6 4.4 10.2 15.1 87.3 139.1 138.6 134.5 31.8 133.7 Nominal debt relief Under the enhanced HlPC initiative 145.8 444.0 420.0 184.8 129.4 71.2 71.7 118.4 129.9 84.5 91.1 Under the MDRl 0.0 3.9 5.6 5.9 6.0 5.8 11.3 11.0 8.2 5.1 9.9 Sources: Congolese authorities; and World Bank and Fund staff estimates and projections. ' Assumes a stock-of-debt operation on Naples terms (67 percent NPV reduction) as of end December-ZW8,and at least comparable action by other official bilateral creditors. * Includes additional debt relief provided on a voluntary basis by the Paris Club beyond the requirements of the enhanced HlPC framework 50 Table 8. Republic of Congo: Key External Debt Indicators, 2008 2028 - ' (in percent. unless otherwise indicated) Actual Estimate Annual Averages 2008 2009 2010 2011 2012 2013 2018 2023 2028 2029 ,b"' Aftertndltlonal debt rellef NPV of debt-to-GDP ratio 44 56 38 32 29 28 27 17 8 6 33 16 NPV of debt-to-exportsratio I' 67 70 58 46 36 35 47 48 32 27 46 45 NPV of debt-to-exportsratio (existing debt only) 67 66 51 41 31 26 31 31 19 14 36 28 NPV of debt-to-revenues ratio' 86 161 81 66 56 54 56 41 20 16 70 38 Debt service-to-export ratio ' ,.. 6 8 7 6 6 4 6 7 8 5 6 Debt service-to-revenueratio ... 12 13 11 10 9 4 5 5 5 7 5 After enhanced HlPC asaletance NPV of debt-to-GDP ratio 44 54 31 29 27 27 21 14 7 6 28 13 NPV of debt-to-exportsratio " 67 66 46 43 35 34 37 39 29 26 40 36 NPV of debt-to-exportsratio (existing debt only) 67 62 40 36 28 25 21 21 15 13 29 20 NPV of debt-to-revenues ratio' 86 152 67 59 53 52 44 33 16 15 61 31 Debt service-to-exportratio ' ... 4 3 3 5 5 3 5 5 5 4 5 Debt SeNiCe-tO-IeVWlUB ratio ' ... 7 5 4 7 7 3 4 3 3 6 4 After addltlonal beyond HlPC bilateral asslatinee NPV of debt-to-GDP ratio 42 52 19 18 17 16 13 9 4 4 20 8 NPV of debt-to-exportsratio I' 63 63 28 27 22 21 23 24 18 16 27 22 NPV of debt-to-exportsratio (existing debt only) 63 59 23 20 14 11 7 7 4 3 17 6 NPV of debt-to-revenues ratio' 61 146 41 37 33 32 26 20 11 10 43 19 Debt service-to%xport ratio' ... 3 2 2 4 4 2 3 3 3 3 3 Debt service-to-revenueratio ' ... 7 4 3 6 5 2 3 2 2 4 3 After MDRl NPV of debt-to-GDP ratio 41 51 16 17 16 15 12 8 4 3 19 8 NPV of debt-to-exportsratio" 61 62 27 25 21 20 22 23 17 16 26 21 NPV of debt-to-exportsratio (existing debt only) I' 61 57 22 16 13 10 6 5 3 2 15 5 NPV of debt-to-revenues ratio ' 80 142 39 35 31 30 26 19 11 9 41 18 Debt service-to-exporlratio ... 3 2 2 3 4 2 3 3 3 3 3 Debt service-to-revenueratio ... 7 4 3 5 5 2 3 2 2 4 2 Memorandum items: (in millions d U.S. dollars) NPV of debt after traditional debt relief 4,777 4.948 4,591 4,263 3,944 3,680 3,622 2,962 1.829 1,530 4,024 2,793 Debt service after traditional debt relief .., 374 741 706 676 606 290 350 421 433 439 362 NPV of debt after HlPC assistance 4,758 4,663 3,759 3,811 3,657 3,509 2,830 2,374 1,620 1,441 3,467 2,267 Debt sewice after HlPC assistance ... 226 297 286 491 477 219 278 303 303 355 274 NPV of debt after additional bilateral relief 4,496 4,476 2,326 2,370 2,255 2,147 1,790 1,458 996 804 2,319 1,400 Debt service after additional bilateral relief ... 217 239 221 378 365 153 194 191 184 256 167 NPV of debt after MDRi and additional bilateral relief' 4,391 4,366 2,216 2,260 2,147 2,039 1.689 1,379 956 873 2,213 1,326 Debt service after MDRi and additional bilateral relief' ... 217 235 216 372 359 148 163 160 176 251 177 GDP 10,774 6,596 12,062 13,305 13,470 13,166 13.810 17,064 23,367 25,029 12,646 18,035 Exports of goods and services ' 6,470 6,391 9,676 10,753 10,646 9,924 7,218 5,945 5,620 5,652 8,827 6,025 Exports of goods and sewices ( l y e a r mvg. avg.) " 7,152 7.081 8.179 6,940 10.358 10,441 7,632 6,129 5,630 5,630 6,869 6,198 Government revenue ' 5,523 3,076 5,646 6,433 6,837 6,604 6,490 7,165 8,939 9,432 6,244 7,482 Sources: Congolese authorities;and World Bank and Fund staff estimates and projections. ' All debt indiceton refer to public and publicly Quaranteed(PPG) debt and are defined after rescheduling,uniear othetwire indicated. ' Bared on a threeyearaverage of exports on the previous year (e.g., export average over 2005-07 for NPV of debt-to-exportsratio in 2007). ' Revenues are defined central government rewnuer, excluding grants. a6 'Assumes delivery of MDRi relief by IDA and lAD8 ' A . defined in iMF. Balenee o f P a p m t s Manual, 5th edition, 1993. 51 Table 9. Republic of Congo: Sensitivity Analysis, 2009-28 ' (In percent, uniess othelwise indicated) Projections Average 2009 2010 2011 2012 2013 2018 2023 2028 2029 2018 2029 '01'- A Bareilne Scenario NPV of debt-tc-revenue ratio' 72 39 35 31 30 26 19 11 9 34 18 Debt serviceto-export ratio 3 2 2 3 4 2 3 3 3 3 3 Debt serviceto-revenue ratio 7 4 3 5 5 2 3 2 2 4 2 Memorandum items (in millions of U S . dollars) NPV of debt 2,205 2,216 2,260 2,147 2,039 1,689 1,379 958 873 1,997 1,326 of which: new debt 303 449 614 779 947 1,248 1,060 786 733 927 1,025 Debt service 217 235 216 372 359 148 183 180 176 251 177 of which: new debt 3 4 4 10 15 87 139 139 135 32 134 Exports of goods and services,three year average 7,081 8,179 8,940 10.358 10,441 7,632 6,129 5,630 5,630 8,869 6,198 Exports of goods and services ' 6,391 9,676 10,753 10,646 9,924 7.218 5,945 5,620 5,652 8,827 6,025 Government revenue 3,076 5,646 6,433 6,837 6,804 6,490 7.185 8,939 9,432 6,244 7,482 E. Sensltlvlty Anilytls E-1. Lower oil pdce scenario ' NPV of debt-to-revenueratio ' 72 54 50 44 42 35 25 13 11 45 24 Debt service-to-exportratio 3 3 3 5 5 3 4 4 3 4 3 Debt servib-to-revenue ratio 7 6 5 8 7 3 3 2 2 6 3 Memorandum items (in millions of U.S. dollars) NPV of debt 2,205 2,216 2,260 2,147 2,039 1.689 1,379 958 873 1,997 1,326 of which : new debt 303 449 614 779 947 1.248 1,060 786 733 927 1,025 Debt service 217 235 216 372 359 148 183 180 176 251 177 of which : new debt 3 4 4 10 15 87 139 139 135 32 134 Exports of goods and services, three year averac 7,081 7,416 7,325 7,912 7,995 6,048 5,109 4,974 5,030 7,179 5,191 Exports of goods and services ' 6,391 7.386 8,199 8,152 7,635 5,771 5,014 5,021 5,103 6,987 5.106 Government revenue 3,076 4,102 4,563 4,868 4,878 4,819 5.560 7,270 7,730 4,598 5,843 B.2. Non 0 1 GDP shock 1 ' NPV of debt-to-revenueratio ' 72 39 35 32 30 27 22 13 12 35 21 Debt service-to-exportratio 3 2 2 4 4 2 3 4 4 3 3 Debt service-to-revenue ratio 7 4 3 5 5 2 3 2 2 4 3 Memorandum items (in millions of U.S. dollars) NPV of debt 2,205 2,216 2,260 2,147 2,039 1.689 1,379 958 873 1,997 1,326 of which: new debt 303 449 614 779 947 1,248 1,060 786 733 927 1,025 Debt service 217 235 216 372 359 148 183 180 176 251 177 of which: new debt 3 4 4 10 15 87 139 139 135 32 134 Exports of goods and services, three year averag 7,081 8,175 8,927 10,332 10,403 7,498 5.803 4,982 4,898 8,817 5,825 Exports of goods and services ' 6,391 9,664 10,727 10,605 9,878 7,055 5.568 4,891 4,830 8.759 5,597 Government revenue 3,076 5,629 6,397 6,775 6,712 6,156 6,387 7,242 7,497 6,111 6,531 Sources: Congolese authorities;and Wodd Bank and Fund staff estimates and projections. ' All debt indicators refer to public and publicly guaranteeddebt after full delivery of debt relief (includingdebt relief beyond the HIPC Initiativeand MDRl relief) Based on the end of period fiscal revenues excluding prants ' Exports of goods and services as defined In iMF, Balance ofPaymenls Manual. 5th edition, 1993. '25% iowerthen main scenario. 2 percentage points lower than main scenario. 52 w a r 0 0 0 ? r a m r (9 r * r r (9 r d (9 r 2 m N r r 6 6 0 o! r 2 m r r 2 N ;: m r r + 6 6 6 r r r 0 , 0 2 i3 r 0 0 r 0 r 0 $5 I B 0 ? m 0 r r r 0 , 0 0 ? r .- d B .- E e E v 8 .- 0 5 .- r E t a a r U 0 b I % 0 6 .- 7 B i E? .- E U 2 .- E 3 6 s v 8 53 x ? f ? x 2 x x x z x f 8 4 a r- r a h r : r- 19 h : h r- h r 2 t a m r s 2 : 2 4 (9 4 4 2 z a 4 E f 5 a 4 e 8 P s b E i ! 4 d # e 3 't B .8 s 5 ti E B hi g 'e' a 54 Table 12. Paris Club Creditors' Delivery of Debt Relief Under Bilateral Initiatives Beyond the HiPC Initiative ' Countrler covered ODA (In percent) Non.ODA(In percent) Provlslon of rellef Pre-cutoff date Post-cutoff date Pre-cutoff date Port-cutoff date debt debt debt debt Declrlon polnt Completion (In oercentl Dolnt Australia HlPCs 100 1w 100 100 Austria HiPCs 100 ' 100 - Case-bycase, flow stock Belgium HlPCs 100 100 100 100 flow stock Canada HlPCs - 31 -3 100 100 100 flow stock Denmark HlPCs 100 100 41 100 100 41 100 flow stock France HlPCs 100 100 100 100 flow 51 Stock Finland HlPCs 100 .81 100 - 61 Germany HIPCS 100 100 100 100 100 flow stock Ireland Italy HlPCs 100 100 71 100 100 71 1wflow stock Japan HlPCs 100 100 100 stock Netherlands,the HiPCs 100 81 100 100 90-100 flow (v stock 81 Norway HlPCs 9/ 9/ 1o/ 1o/ Russia HIPCS - 111 ~ 111 100 100 Stock Spain HlPCs 100 Case-by-case 100 Case-by-casa Stock Sweden HlPCs - 1u 100 stock Switzerland HlPCs - 131 - 131 90-100 1 u 90-1w flow stock United Kingdom HlPCs 100 100 100 100 151 100 flow 151 Stock United States HlPCs 100 100 100 100 161 100 flow Stock Source: Paris Club Secretariat. ' Columns (1) to (7) describe the additional debt relief providedfollowing a specific methodologyunder bilateral initiatives and need to be read as a whole for each creditor In column ( l ) , "HIPCs" stands for eligible COuntrieS effeclively qualfying for the HlPC process. A "100 percent' mention in the table indicates that the debt relief provided under the enhanced HlPC Initiativeframework will be topped up to 100 percent through a bilateral initiative. 1 Canada: including Bangladesh. Canada has granted a moratorium of debt service as of January 2001 on a 1 debt disbursed before end-March 1999 for 13 out of 17 HIPI with debt service due to Canada. Eligible CoUntrieSare Benin, Bolivia, Cameroon, Dem. Rep. Of Congo, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Rwanda, Sen Tanzania, and Zambia. 100% cancellation will be granted at completion point. As of July 2004, Canada has provided completion point stock of debt cancellationfor Benin, Bolivia, Guyana, Senegal and Tanzania. ' 100 percent of ODA claims have already been cancelled on HIPCs, with the exception of Myanmats debt to Canada. ' Denmark provides 100 percent cancellation of ODA loans and non-ODA credits contracted and disbuned before September27, 1999. France: cancellation of 100 percent O debt service on pre-cutoff date commercial claims on the government 8s they fall due starting at the decision point. Once f countries have reached their completion point, debt raiief on ODA claims on the governmentwill go to a special account and will be used for specific development projects ' Finland: no post-COD claims ' Italy: cancellation of 100 percent of all debts (pra- and post-cutoff date, ODA and non-ODA) incurred before June 20, 1999 (the Cologne Summit). At decision point, cancellation of the related amounts falling due in the interim period. At completion point, cancellation of the stock of remaining debt. 'The Netherlands: 100 percent ODA (pre- and post-cutoff date debt will be cancelled at decision point): for non-ODA: in some particular cases (Benin, Boliwa, Burklna Faso, Ethiopia, Ghana, Mali, Mozambique,Nicaragua, Rwanda, Tanzania, Uganda and Zambia), the Netherlandswill wite off 100 percent of the consolidated am on the flow at decision point; a1 other HiPCs will receive interim relief up to 90 percent reduction of the consolidated amounts. At completion point, all HiPCs will receive 1 100 per cent cancellation of the remaining stock of the pre-cutoff data debt. Norway has cancelled all ODA claims. lo Dua to the Current World Bank/lMF methodologyfor recalculatingdebt reduction naads at HiPC completion point, Norway has postponed the decisions on whether or not to grant 100% debt reduction until after the completion point. " Russia has no ODA claims ' 2 Sweden has no ODA claims. I' Switzerland has cancelled all ODA claims. I' In some particular cases (Central African Republic, Liberia, Republic of Congo, Sierra Leone, Togo), Switzerlandwill write off 100 percent of the remaining debt stock al completion point; all other HlPCs will receive debt raliaf according to Paris Club terms. l5United Kingdom: "beyond 100 percenr'full write-off of ail debts of HlPCs as of their decision points, and reimbursement at the decision point of any debt service paid before the decision point. United States: 100 percant post-wtoff date non-ODA treated on debt assumed prior to June 20, 1999 (the Cologne Summit). 55 Table 13. HlPC Inltlatlve: Status of Country Cases Consldered Under the Inltlatlve, June 30,2009 Target Assistance Levels ' Eshmated Total NPV of Debt-te (In millions of U S dollars, present value) Percentage Nominal Debt Deusion Completion Gov Bileteral and Reduction %Nice Relief Country Point Point Exports revenue Total commerual Mulhlateral in NPV of (In millions of (in percant) Total IMF' World Bank Debt' U 6 dollars) Completlon polnt n8ched under enhlnced fnmawork I 2 0 Benin Jul. 00 Mar. 03 150 265 77 189 24 84 31 460 Bolivia 1,302 425 876 84 194 2,060 original framwork sap. 97 sep. 98 225 448 157 291 29 54 14 760 enhanwd fnmwork Feb. 00 Jun. 01 150 854 268 585 55 140 30 1.3W Burkina Faso 553 83 469 57 231 930 original framwork Sep. 97 Jul. 00 205 229 32 196 22 91 27 400 enhanced ftamwork Jul. 00 Apr. 02 150 195 35 161 22 79 30 300 topping-up Apr. 02 150 129 I6 112 14 61 24 230 Burundi Aug. 05 Jan. 09 150 833 127 706 28 425 92 1.386 Cameroon Oct. 00 Apr. 06 150 1,267 879 322 37 178 27 4,917 Central African Rep. sept. 07 Jun. 09 150 578 186 362 27 207 68 804 Ethiopia 1,982 637 1,315 60 832 3,275 enhancedframework Nov. 01 Apr. 04 150 1,275 482 763 34 463 47 1,941 topping-up Apr. 04 150 707 155 552 26 369 31 1,334 Gambia, The Dec. 00 Doc. 07 150 67 17 49 2 22 27 112 Ghana Fob. 02 Jul. 04 144 250 2.188 1,084 1,102 112 781 56 3,500 Guyana 591 223 367 75 68 1.354 original frsmwork Doc. 97 May 99 107 280 256 91 I65 35 27 24 634 enhanced framework Nov. 00 Dec. 03 150 250 335 132 202 40 41 40 719 Haiti Nov. 06 Jun. 09 150 140 20 120 3 53 15 213 Honduras Jul. 00 Mar, 05 110 250 556 215 340 30 98 18 1,000 Madagascar Dec. 00 Oct 04 150 836 474 362 I9 252 40 1,900 Maiawi 1,057 171 886 45 622 1.628 enhanced framework Doc. 00 Aug. 06 150 646 164 482 30 333 44 1,025 l0Pphg-w ... Aug. 06 150 411 7 404 15 289 35 603 Mal 539 169 370 59 185 895 original framework sop. 98 sep. w 200 121 37 84 14 43 9 220 enhanced framework sep. 00 Mar. 03 150 417 132 285 45 143 29 675 Mauritania Feb. 00 Jun. 02 137 250 622 261 361 47 I00 50 1,100 Mozambique 2,023 1,270 753 143 443 4,3W original framework Apr. 98 Jun. 99 200 1,717 1,076 641 125 381 63 3,700 enhanced framework Apr. 00 sep. 01 150 306 194 112 18 62 27 600 Nicaragua Doc. 00 Jan. 04 I50 3,308 2,175 1,134 82 191 73 4,500 Niger 663 235 428 42 240 1,190 enhanced framework Dec. 00 Apr. 04 150 52 1 211 309 28 170 53 944 foppina-up Apr. 04 I50 143 23 119 14 70 25 246 Rwanda 696 65 631 63 383 1,316 enhanced framework Dec. 00 Apr. 05 150 452 56 397 44 228 71 839 toppinw Apr. 05 150 243 9 235 20 154 53 477 SBo To& and Princips 124 31 93 I 47 128 263 enhanced framework Doc. 00 Mar. 07 150 99 29 70 0 24 83 215 topping-up Mar. 07 150 25 2 23 1 23 45 49 SenegaI Jun. 00 Apr. 04 133 250 488 212 278 45 124 19 850 Sierra Leone Mar. 02 Dec. 06 150 675 335 340 125 123 81 884 Tanzania Apr. 00 Nov. 01 150 2,026 1,006 1,020 120 895 54 3,OW Uganda 1,003 183 820 160 517 1,950 original framework Apr. 97 Apr. 88 202 347 73 274 69 160 20 650 enhanced framework Feb. 00 May 00 150 658 110 548 91 357 37 1,300 Zambia Doc. 00 ADr. 05 150 2,499 1.168 1,331 602 493 63 3,900 . D d s i o n point reached under enhanced framework (9) Afghanistan Jul. 07 Floating 150 571 436 135 0 75 51 1,272 Chad May. 01 Floating 150 170 35 134 18 68 30 260 Cote dtvoire Mar. 09 Floating 250 3,005 2,311 694 38 402 24 3,129 Congo, Demouatlc Rep. of Jul. 03 Floating 150 6,311 3,837 2,474 472 831 80 10,389 Congo Rep. of Mar. 06 Floating 250 1,679 1,561 118 8 49 32 2,881 Guinea Dec. 00 Floating 150 545 215 328 31 152 32 800 Guinea-Bissau Dec. 00 Floating 150 416 212 204 12 93 85 790 Liberia Mar. 08 Floating 150 2.846 1,420 1,426 732 375 91 4,008 Togo Nov. 08 Floating 250 270 120 150 0 98 I8 360 Total assistance pmvldedlcommltted 42,690 21,870 20,686 5,407 9,729 71,664 Sources: IMF and World Bank Board decisionr, completion point documents, decision point documents. preliminaryHlPC documents, and stall calculations. ' Assistance levels are et wuntnes' respedive decision or completion points, as applicable. In perwnt of the net present value of debt at tho decision or completion point (as applicable). after the full use of traditionaldebt-relief mechanisms. ' Equivalent to SDR 1,698 million at an SDR/USD exchange rate of 0.644524 , as of October 4, 2007. 56 APPENDIX I. MANAGEMENT REPUBLIC OF CONGO: DEBT 1. Debt management in Congo has improved since the decision point was reached in 2006, particularly with respect to debt recording and reporting. Two such issues have also been included as the basis for HIPC completion point triggers (see text Box 1). As several issues remain to be addressed, the authorities have actively sought additional support from the World Bank and other partners in developing a detailed technical assistance and capacity building program to support further reforms and improvements. A technical assistance mission led by the Bank's treasury department has recently conducted an in-depth assessment o f capacity building needs. 2. I n Congo, debt management functions are undertaken by the Cuisse Congoluise d'Amortissement (CCA), which i s a quasi-independentagency responsible for undertakingnew borrowing on behalf o f the central government, and managing debt data and repayments. The CCA's mandate includes responsibilities like the development o f debt management strategies, participation in the negotiation o f new loans, and analytical functions related to the assessment o f the potential costs and risks o f new borrowing. 3. I n the area o f debt recording, the CCA has completed the installation of the UNCTAD Debt Management and Financial Analysis system (DMFAS). This system allows the authorities to record and monitor public external debt and on-lending operations. It provides detailed real-time information regarding loans and rates, which allow the C C A to make projections regarding debt service payments and coordinate with the Treasury and the Budget Directorate for the purposes o f budget preparation and cash management. The staff o f the C C A has received extensive training from U N C T A D in the use o f the software. 4. Debt reporting by the government has improved since the decision point. In line with the completion point trigger on debt management, the C C A provides the Ministry o f Finance with the data required to produce and publish on the Ministry's website quarterly reports regarding external debt stock, arrears, and quarterly flows.' It i s envisioned that this practice will continue in the future. 5. However, capacity constraints and procedural deficiencies have prevented the agency from undertakingmany o f these functions on a regular basis. A recent serious mistake in reporting o n the terms o f settlement with litigating creditors at end-2008 to the Paris Club illustrates these remaining capacity challenges. In a first communication to the Paris Club, the authorities indicated an incorrect discount factor o f 79 percent for the terms o f the settlement. The error was detected during the Bank-Fund debt data reconciliation exercise for HIPC, upon which the authorities correct the discount factor to 37 percent. The error was attributed to the inclusion o f some debts covered by the London Club agreement as part o f claims held by litigating creditors. http://www.mefb-cg.net/dette ie/dette interieure.htm1 57 6. T o avoid such mistakes in the future, the authorities have identified a number o f key measures to further strengthen debt management capacity in the CCA and beyond. These include measures aimed at developing new procedures on producing annual debt management strategies, mechanisms for coordination between the CCA, the Ministry o f Finance, and the regional monetary authorities for the purpose o f treasury management and macroeconomic forecasting, debt data security and auditing procedures, as well as the analysis o f costs and risks o f potential new borrowing. The CCA i s closely collaborating with technical assistance providers, most notably the World Bank to implement these measures. 58 APPENDIX 11. REPUBLIC OF CONGO: DEBT SUSTAINABILITY ANALYSISUSING THE LOW- INCOME COUNTRY FRAMEWORK Based on thejoint IMF- World Bank debt sustainability fiamework for low-income countries (LICs), the risk o debt distressfor Congo will be moderate. This is due topresumed debt f relief under the enhanced HIPC Initiative, under which Congo's external and public debt burden indicators will improve significantly. Only under the most extreme scenario, would the debt indicators breach the relevant thresholds. I. BACKGROUND 1. The L I C DSA differs from the HIPC DSA in four main ways: (i) discount rate the for the L I C DSA i s fixed at 4 percent, compared to the currency-specific 6-month averages o f commercial interest reference rates for the HIPC DSA; (ii) L I C DSA uses WE0 the exchange rate projections instead o f the actual exchange rates at end-2008 used for the HIPC DSA; and (iii) exports used for various debt distress indicators in the L I C version are the latest annual projections rather than the three-year backward-looking average, and (iv) in the sensitivity analysis, the L I C DSA assumes that additional financing needs in the face o f shocks are filled by new borrowing, while the HIPC DSA assumes that additional financing needs are provided from the accumulated oil wealth with no new borrowing. 2. This DSA i s based on the stock o f debt at the end o f 2008. The previous full DSA, carried out during the 2008 Article I V consultation in November 2008, was based on the stock o f debt at the end o f 2007 and concluded that Congo's debt distress remained high.3 3. I t i s estimated that at the end o f 2008, total public debt including arrears was US$6.6 b i l l i o n 4 6 percent o f GDP-down from the peak o f US$12 billion in 2004. External debt amounted to US$5.6 billion, 57 percent o f GDP, o f which Paris Club creditors accounted for about 6 1 percent, followed by non-London Club commercial creditors and non-Paris Club bilateral creditors at 13 percent and 10 percent, respectively. Domestic debt i s relatively small, about 10 percent o f GDP, and mostly consists o f arrears o f wages, pensions, and liabilities to public enterprises. 4. Debt relief thus far substantially reduced external arrears, but they still stood at US$939 million at the end o f 2008; domestic arrears were US$965 million. Congo has made significant progress in pursuing debt relief across the board and reduced external arrears by 69 percent in 2004-08. The country has (i) concluded debt restructurings with the Paris Club in 2004,2006, and 2008; (ii) obtained debt relief from London Club creditors in * The three-year average of the CPIA index of Congo in 2006-2008 i s 2.73. According to the LIC DSF, Congo i s classified as a weak performer. See IMF document EBS/08/125. 59 2007; (iii) settled a long-standing dispute with litigating creditors holding court-validated claims in 2008; and (iv) received debt reduction from various non-Paris Club bilateral creditors and non-London Club commercial creditors, mostly on HIPC-comparable terms. The remaining external arrears are with non-London Club commercial creditors, mainly suppliers (US$ 694 million, or 73 percent o f total external arrears) and non-Paris Club bilateral creditors (US$245 million, or 26 percent). The government has also cut domestic arrears in half since 2004. 11. UNDERLYING ASSUMPTIONS DSA 5. This LIC DSA incorporates four revisions to the previous DSA: Global economic projections were aligned with the latest World Economic Outlook (WEO), although in both the current and the previous DSA the average oil price in 2009-14 was about the same at around US$78 per barrel. The macroeconomic assumptions for Congo were revised as outlined in Box 2 (main text). Because o f the global downturn, average real non-oil sector growth in 2009-14 was lowered from the previous 7.3 percent to 6.0 percent. Average real oil sector growth in the same period was raised from the previous 0.4 percent to 4.6 percent, mainly due to the prospects o f new oil production from new field^.^'^ Major changes have also been made with regard to some components o f the balance payments, reflecting the revisions in the authorities' data. This DSA uses the latest debt database, reconciled for the HIPC completion point DSA. Debt service projections were revised incorporating the full delivery o f HIPC/MDRI debt relief expected at the completion point. The external borrowing assumption was revised incorporating newly contracted and prospective loans as described below. 6. New external borrowing i s in line with the PRGF concessionalityrequirement until 2019 (minimum grant element o f at least 50 percent). I t i s assumed that over the projection period Congo will receive loans from the French Development Agency (AFD), Arab Bank for Economic and Development in Africa (BADEA), China and the World Bank. Total loan from the AFD amounts to 29 million, which i s projected to be disbursed in 2009.6 However, assumptions on future oil production remain conservative. For example, F D I was revised upward by more accurately recording reinvestment o f profits by oil companies and imports were revised downward by more accurately capturing oil sector-related goods and services. The loan i s for the Port Authority o f Pointe Noire to finance the rehabilitation o f the port's facilities. This loan, which precludes any loan guarantee from the government o f Congo, forms part o f a non-concessional external financing package amount to 67.1 million. The other creditors include the European Investment Bank (EIB) (continued) 60 Total f i o m the BADEA amounts to US$ 10 million, which i s assumed to be disbursed in the period o f 2010-2013. Total Chinese lending i s equivalent to US$ 1.6 billion, which is assumed to be disbursed until 2015 in line with the contract signed in 2008. IDA financing i s on "hardened" terms since Congo passed the IDA-only income threshold in 2007. Disbursement is expected to start with US$9 million in 2010 and US$ 18 million in 2011, and to increase gradually thereafter. Lending terms for both the Chinese and IDA "hardened" loans meet the PRGF concessionality requirement. However, Congo is expected to graduate to IBRD status in 2019 and start borrowing from the IBRD thereafter. 7. I t i s assumed that all external and domestic arrears remaining will be cleared by 2014 through repayment, cancellation and rescheduling. Congo i s committed to continuing its efforts to obtain HIPC-comparable debt relief from its remaining external creditors. It i s therefore assumed that roughly a half o f external arrears will be cancelled in 2010, and the rest rescheduled for repayment on various terms. Domestic arrears are projected to be repaid by 2014, which is incorporated in the government's budget planning. 8. As in the previous DSA, the external DSA i s run on a gross basis and the public DSA i s run on a net basis in order to examine the impact of oil wealth on debt indicators.Net debt i s defined as debt less liquid financial assets. For Congo, liquid financial assets are government deposits at the regional central bank, which mostly consist o f oil savings. DEBT 111. EXTERNAL SUSTAINABILITY ANALYSIS 9. I n the baseline scenario, all debt indicators remain below the threshold for the entire projection period after the HIPC completion point (Figure 1). Furthermore, despite the projected declining concessionality o f new loans and lower o i l revenues, all debt indicators trend downward as the size o f new borrowing remains relatively small. 10. The historical scenario appears less favorable than the baseline scenario in the medium term but more favorable in the long term. In the historical scenario, most debt indicators stay above the baseline scenario until about 2020 because projected o i l production, and therefore revenues and exports in the baseline scenario, i s much higher than the historical level. In the long run, the situation reverses, and in the historical scenario most debt indicators stay below the baseline scenario.' (29 million) and the Central Afiican States Development Bank (CASDB) (9.1 million). Since subsequent loans from the EIB and CASDB have not formally contracted, this L I C D S A includes only the loan fiom the AFD. The Board on the first review under the PRGF provided a waiver for the non-concessionality o f the AFD loan. 'The historical scenario shows negative debt ratios over the projection period because oil production under the historical scenario i s higher than the baseline after 2020. Under the design o f the DSA template, the additional (continued) 61 11. Stress tests indicate Congo i s still vulnerable to external shocks. In the most extreme tests, most o f debt indicators cross or stay above the threshold. Given i t s high dependency on the o i l sector, Congo i s very sensitive to changes in world commodity prices. This result i s significantly different fiom that in the HIPC DSA because o f different assumptions on new borrowing as described above. IV. PUBLIC DEBT SUSTAINABILITY ANALYSIS 12. The public DSA on a net basis paints a very different picture from the external DSA on a gross basis owing to Congo's oil wealth. Most debt indicators for the public DSA on a net basis turn negative as o i l savings accumulate rapidly over time (Figure 2). On a gross basis, however, the picture for public DSA i s similar to that for external DSA because domestic debt will shrink to less than 0.3 percent o f GDP by 2014, once the government pays back all domestic arrears. 13. Stress tests for public DSA on a net basis do not suggest any vulnerability. Rapidly growing oil savings w i l l be a strong buffer against shocks. V. CONCLUSIONS 14. Congo should be considered at moderate risk o f debt distress based on the results of the external DSA. The external DSA shows that in the baseline scenario debt indicators remain below the policy dependent thresholds, but increase when the country faces shocks. It i s important that the government continues to strengthen debt management and maintain a conservative borrowing policy. At the same time, the government's commitment to maintain fiscal discipline and increase non-oil revenue, together with structural reform in key areas, would help to safeguard long-term debt sustainability. oil revenue i s used to pay back debt and once it i s expunged, oil wealth accumulates (Le., shown in the figure as negative debt). 62 Figure 1. Republic of Congo: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2009-29 I / a DebtAccurnulation b.Wofdebt-to GDPratio 40 120 30 100 20 80 60 10 40 0 20 "4 n - -10 -20 -20 -40 I, 2009 2014 2019 2024 2029 -60 - Rateof DebtAccunulabon ----e Grant-equivslentfiranang (%of GDP) 2009 2014 2019 2024 2029 Grant element of nen, bcrrowng(%nght scale) c.PVof debt-to-exports ratio 250 1 d .PVof debt-to-revenue ratio I 250 200 200 150 150 100 100 50 50 1 0 0 -50 -50 -100 J * I -100 2009 2014 2019 2024 2029 2009 2014 2019 2024 2029 ::I e.Debt service-toexports ratio 35 1 3 30 20 /-\ 25 15 10 5 5 0 1 'I 0 -10 -5 ' - ~ I " -10 2009 2014 2019 2024 2029 - 2009 2014 2019 2024 2029 -Baseline Historicalscenario Most extreme shock I/ ~~~ Threshold Sources: Congolese authorities: and World Bank and Fund staff estimates and projections. I The m s t extreme stress test is the test that yields the highest ratio in 2019. In figure b. it corresponds ! to a Combination shock: in c. to a Bports shock; in d. to a Combination shock: in e. to a Bports shock and in picture f. to a Combination shock 63 Figure 2. Republic of Congo: Indicators of Public Debt Under Alternative Scenarios, 2009-2029 --- 50 - -Baseline Most extreme shock Pnmary Balance FIXPnmary Balance Histoncalscenano 0 . . . . . . . . -50 -100 -150 ----__ __-- -------- -200 -250 -300 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 I 100 PVof Debt-to-Revenue RatioY 0 -100 -200 -300 ----__________------ -400 -500 -600 -700 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 25 20 ' 15 10 . 5 ' O l . . . . . ' . ' . . . . . . . . . . . . 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 Sources: Congolese authorities; and World Bank and Fund staff estimates and projections. I/ The most extreme stress test is the test that yields the highest ratio in 2019. 2/ Revenues are defined inclusive of grants. 65 c 0 66 Table 3. Republic of Congo: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2006-2029 (In percent of GDP, unless otherwise indicated) Projections 2009 2010 2011 2012 2013 2014 201s 2029 PV of de bt-to GDP ratio Basellne 35 18 16 15 15 15 12 3 A. Altornatlvo 8conarlos A I . Key veriables at their historical averages in 2009-2029 11 35 31 36 41 44 46 24 ... A2. New public sector loans on less faborable terms in 2009-2029 2 35 18 17 17 17 17 16 6 B. Bound T o e 81. Real GDP growth at historical average minus one standard dewation in 2010-201 1 35 20 20 18 18 18 14 4 82. Export velue growth at historical average minus one standard dewation In 2010-201 I31 35 43 70 70 73 74 67 9 83. US dollar GDP deflator at historical awrage minus one standard dewation in 2010-2011 35 22 21 20 19 19 16 4 84. Net non-debt creating flows at hlstorical average minus one standard dewation in 2010- 35 34 49 49 51 51 40 7 85. Combination of 81-64 using one-half standard dewation shocks 35 65 106 106 111 112 86 14 8 6 . One-time 30 percent nominal depreciation relative to the baseline in 2010 51 35 23 21 20 20 19 16 4 PV of de bt-to-exports ratio BamoIIne 48 22 20 19 20 21 26 15 A. Altornmtlvo 8conarlos A I . Key mriables at their historical awrages in 2009-2029 I 1 48 38 45 52 59 64 60 ... A2. New public sector loans on less faborable terms in 2009-2029 2 48 23 21 21 22 24 31 28 8. Bound To- 81. Real GDP growth at historical average minus one standard dewation in 2010-201 1 48 22 20 19 20 21 26 15 82. Export m h o growth at historical average minus one standard deviation In 2010-201 1 3/ 48 81 146 150 185 174 197 71 83. US dollar GDP deflator at historical average minus one standard dewation in 2010-201 1 48 22 20 19 20 21 26 15 84. Net non-debt creating flows at historical awrage minus one standard dewation in 2010- 48 42 61 62 68 71 81 32 85. Combination of 81-84 using one-half standard dewation shocks 48 86 139 143 157 166 188 66 86. One-time 30 percent nominal depreciation relative to the baseline in 2010 51 48 22 20 19 20 21 26 15 PV of debt-to-revenue ratio Baseline 99 38 34 30 29 28 26 9 A. Altornatlve Scenarios A I . Key veriables at their historical averages in 2009-2029 11 99 66 75 81 86 88 63 ... A2. New public sector loans on less faborable terms In 2009-2029 2 99 39 36 33 33 33 33 17 B. Bound T o e 81. Real GDP growth at historical awrage minus one standard dewation In 2010-2011 99 42 40 36 35 34 31 11 82. Export velue growth at historical amrage minus one standard dewation in 2010-2011 31 99 91 144 138 142 141 123 25 83. US dollar GDP deflator at historical awrage minus one standard dewation in 2010-201 1 99 47 44 39 38 36 34 12 84. Net non-debt creating flows at historical average minus one standard dewation in 2010-99 72 102 97 99 98 86 19 8 5 . Combination of 81-84 using one-half standard dewation shocks 99 138 219 210 216 214 186 37 86. One-time 30 percent nominal depreciation relative to the baseline in 2010 51 99 50 44 40 38 37 34 12 Debt service-to-expotia ratio B a r llno 3 2 2 3 3 3 2 4 A. Altornatlve Scenarios A I . Key mriables at their historical amages in 2009-2029 11 3 3 2 4 3 4 6 ... A2. New public sector loans on less favorable terms in 2009-2029 2 3 2 2 3 4 3 3 4 B. Bound Tests 81. Real GDP growth at historical average minus one standard dewation in 2010-2011 3 2 2 3 3 3 2 4 62. Export velue growth at historical average minus one standard dedation in 2010-2011 31 3 4 5 9 10 14 23 22 6 3 . US dollar GDP deflator at historical awrage minus one standard dewation in 2010-2011 3 2 2 3 3 3 2 4 84. Net non-debt creating flows at historical average minus one standard dewation in 2010- 3 2 3 5 5 6 9 8 85. Combination of 81-64 using one-half standard dedation shocks 3 3 4 8 9 13 22 21 8 6 . One-time 30 percent nominal depreciation relatiw to the baseline in 2010 51 3 2 2 3 3 3 2 4 Debt servioo-to-revonue ratlo B a y IIne 7 4 3 5 5 4 2 2 A. Altornatlve Scenarios A I . Key veriables at their historical awrages in 2009-2029 I 1 7 5 4 6 5 5 6 ... AZ. New public sector loans on less favorable terms in 2009-2029 2 7 4 3 5 5 4 3 3 B. Bound T o e 61. Real GDP growth at historical awrage minus one standard dewation in 2010-2011 7 5 4 6 6 5 2 3 82. Export wlue growth at historical average minus one standard dewation in 2010-201 1 31 7 4 5 9 8 11 14 8 6 3 . US dollar GDP deflator at historical awrage minus one standard dedation In 2010-2011 7 5 4 7 6 5 3 3 84. Net non-debt creating flows at historical awrage minus one standard dewation in 2010- 7 4 4 7 7 8 10 6 6 5 . Combination of 81-84 using one-half standard dewation shocks 7 5 7 12 12 16 22 12 8 6 . One-time 30 percent nominal depreciation relatiw to the baseline in 2010 51 7 5 4 7 6 6 3 3 Memorandum item: Grant element assumed on residual financing (Le., financing required above baseline) 61 9 9 9 9 9 9 9 9 Sources: Country authorities; and Fund staff estimates and projections. 11 Variables include real GDP growth. growth of GDP deflator (in U.S. dollar terms). non-interest current account In percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as In the be 31 Exports velues are assumed to remain permanently at the lower lewl. but the current account as a share of GDP Is assumed to return to its baseline lewl after the shock (implicitly assuming an ofbetting adjustment in import lewls). 41 Includes official and privete transfero and FDI. 51 Depreciation is defined as percentage decline in doilarllocal currency rate, such that it newr exceeds I 0 0 percent. 61 Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as spcified in footnote 2. 67 Table 4. Republic of Congo: Sensitivity Analysis for Key Indicators of Public Debt, 2006-2029 (In percent of GDP, unless otherwise indicated) Projectlons 2009 2010 2011 2012 2013 2014 2019 2029 PV Of Debt-toODP RStlO Baseline 11 -24 -51 -61 -112 -143 -253 -246 A. Alternatlve scenarlos A l . Real GDP growth and primary balance are at historical auerages 11 -17 -35 -55 -76 -97 -173 -205 A2. Primary balance is unchanged from 2009 11 -12 -26 42 -59 -76 -134 -129 A3. Permanently lower GDP growth I / 11 -24 -50 -61 -113 -145 -259 -249 8. Bound tests 81. Real GDP growth is at historical auerage minus one standard dewations in 2010-20' 11 -23 -50 -60 -111 -142 -244 -212 82. Primary balance is at historical auerage minus one standard dewations in 2010-201 11 -12 -24 -55 -88 -1lQ -227 -227 83. Combinationof 81-82 using one half standard dewation shocks 11 -15 -31 -62 -94 -125 -227 -206 84. Onetime 30 percent real depreciation in 2010 11 -3 -32 -62 -94 -126 -236 -236 85. 10 percent of GDP increase in other debtcreating flows in 2010 11 -17 44 -75 -106 -137 -246 -241 PV of Debt-to-Revenue Ratio 2/ Baseline 32 -51 -103 -157 -215 -269 -535 -640 A. Alternatlve scenarios A l . Real GDP growth and primary balance are at historical auerages 32 -35 -71 -107 -144 -181 -367 -531 A2. Primary balance is unchanged from 2009 32 -26 -52 -61 -112 -142 -283 -336 A3. Permanently lower GDP growth 1/ 32 -50 -103 -157 -216 -272 -547 -646 B. Bound teats 81. Real GDP growth is at historical auerage minus one standard dewations in 2010-20` 32 48 -102 -155 -212 -266 -515 -550 82. Primary balance is at historical auerage minus one standard dewations in 2010-201 32 -25 -50 -108 -166 -223 460 -592 83. Combination of 81-82 using one half standard dewation shocks 32 -31 -64 -120 -180 -234 460 -535 84. Onetime 30 percent real depreciation in 2010 32 -7 -65 -121 -160 -236 -500 -61 5 85. 10 percent of GDP increase in other debtcreating flows in 2010 32 -36 -90 -145 -203 -256 -521 -626 Debt Servlce-to-Revenue Ratio 2/ Baseilne 16 8 6 6 6 5 2 2 A. Alternatlve scenarlos A l . Real GDP growth and primary balance are at historical auerages 16 8 6 16 18 20 19 21 A2. Primary balance is unchanged from 2009 16 8 7 18 19 23 24 27 A3. Permanently l w e r GDP growth I / 16 6 6 6 6 6 5 12 B. Bound tests 81. Real GDP growth is at historical auerage minus one standard dewations in 2010-20' 16 9 8 13 13 13 14 21 82. Primary balance is at historical awrage minus one standard dewations in 2010-201, 16 6 7 18 19 9 4 6 83. Combination of 81-62 using one half standard dewation shocks 16 Q 8 19 21 15 13 20 84. Onetime 30 percent real depreciation in 2010 16 9 8 10 6 7 4 4 85. 10 percent of GDP increase in other debtcreating flows in 2010 16 6 7 13 6 7 2 3 Sources: Country authorities; and Fund staff estimates and projections. l / Assumes that real GDP growth is at baseline minus one standard dewation diwded by the square root of the length of the projection period. 2/ Reuenues are defined inclusiue of grants.