40334 INTERNATIONAL MONETARY FUND INTERNATIONAL DEVELOPMENT ASSOCIATION DEMOCRATIC REPUBLIC OF THE CONGO DecisionPointDocumentfor the Enhanced Heavily IndebtedPoor Countries(HIPC) Initiative Preparedby the Staffs o f the Intemational Monetary Fundand the International Development Association' July 14. 2003 Contents Page List o fAcronyms and Abbreviations......................................................................................... 4 I.Introduction............................................................................................................................ 5 I1. Assessment of Eligibility ...................................................................................................... 6 A.PRGF and IDA Status............................................................................................... 6 B. Dimensions of Poverty.............................................................................................. 6 C. Recent Political and Security Developments ............................................................ 7 D. Macroeconomic and StructuralAdjustment Record................................................. 7 I11.Medium-TermStrategy for Poverty Reduction................................................................... 9 A.The PRSP Formulation Process................................................................................ B. Macroeconomic Objectives., .................................................................................. 9 -10 C. Governance, Structural, and Institutional Reforms................................................. 11 D. Social and Sectoral Policies.................................................................................... 13 IV.Debt SustainabilityAnalysis and Enhanced HIPC InitiativeAssistance .......................... 15 B.Long-Term Macroeconomic Assumptions.............................................................. 18 A.The Structure o fExternal Debt............................................................................... 16 C. Long-Term Macroeconomic Risks.......................................................................... 19 D.EnhancedHIPC InitiativeAssistance ..................................................................... 21 E. Impact of the Enhanced HIPC Initiative ................................................................. 23 V. The AFloating Completion Point........................................................................................... .Floating Completion Point Triggers ....................................................................... 24 24 'Approvedby Dona1Donovan and Anthony Boote (IMF) and Callisto Madavo andGobind Nankani (IDA). - 2 - B.The Views o fthe Authorities .................................................................................. 25 25 D. The Use andMonitoringofEnhancedHIPC Initiative DebtRelief....................... C. Monitoring the Floating CompletionPoint Triggers .............................................. 25 E.Progress Toward the MillenniumDevelopment Goals ........................................... 26 VI. Issues for Discussion ......................................................................................................... 27 Boxes Selected Poverty and Living Standard Indicators........................................................... 28 2. 1. Status o f the DRC's Arrears Clearance Arrangements with External Creditors ............29 3. 4. Comparison between the Preliminary Document and the Decision Point Document....30 31 5. Main Assumptions inthe Debt Sustainability Analysis ................................................. 32 6. Sources of Growth .......................................................................................................... Triggers for the Floating Completion Point.................................................................... 33 7. MillenniumDevelopment Goals for 2015 and Targets.................................................. 34 Figures 1. Composition o f the Stock o f External Debt at End-December 2002. Before Full Use o f Traditional Debt-Relief Mechanisms............................................ 35 2. Composition o f the Stock o f External Debt at End-December 2002 Composition o f External Arrears at End-December 2001, by Creditor Type ................36 After FullUse o f Traditional Debt-ReliefMechanisms ............................................. -35 4. 3. Effect o f Debt Relief inNPV Terms on NPV o f Public External Debt. End-2002........37 5. External Debt Profile. Net Present Value o f Debt-to-Exports Ratio. 2002-22 ..............38 6. External Debt Profile. Net Present Value o f Debt-to-GDPRatio. 2002-22 ...................39 7. Net Present Value o f Debt-to-Exports Ratio. Different Scenarios. 2003-22 .................40 Tables 1. Selected Economic and Financial Indicators. 2000-05 .................................................. 41 2. Balance o f Payments Summary. 2000-22 ...................................................................... 43 3. Summary o f Central Government Financial Operations. 2000-05 ................................ 44 4. Stock o f External Arrears at End-2001........................................................................... 45 5. Nominal Stock and Net Present Value o f External Debt Outstanding. by Creditor 6. Group. Before and After Traditional Debt Relief. at End-December 2002.................46 Enhanced HIPC Initiative Assistance under a Proportional Burden-Sharing 7. Approach...................................................................................................................... 47 48 8. Discount andExchange Rate Assumptions. End-2002 .................................................. Net Present Value o f External Debt after FullU s e o f Traditional Debt-Relief 49 9. Mechanisms. 2002-22 ................................................................................................. External Debt Service, 2003-22 ..................................................................................... 10. Net Present Value o f External Debt after EnhancedHIPC Assistance, 2002-22 ..........50 51 11. External Debt Indicators under Different Scenarios, 2002-22 ....................................... 52 - 3 - 12. External Resource Transfer, 2003-22 ............................................................................ 53 13 Long-Term Macroeconomic Assumptions, 2002-22 ..................................................... 14. Possible Delivery o f IDA Assistance under the EnhancedHIPC Initiative, 2003-25 ...54 15. Possible Delivery o f IMF Assistance under the Enhanced HIPC Initiative, 2003-12 ...55 56 16. Possible Delivery o f AfDF and AfDB Assistance under the Enhanced HIPC Initiative, 2003-31 ........................................................................................................................ 57 17. The Fiscal Impact o f the Enhanced HIPC Initiative....................................................... 58 18. Paris Club Creditors' Delivery of Debt Relief under Bilateral Initiatives beyond the Enhanced HIPC Initiative ...............,........,,.,,..,,.....,,,.....,.,....,.............................. ..59 19. Enhanced HIPC Initiative: Status o f Country Cases Considered under the Initiative, June 2003 ..................................................................................................................... 60 Appendices I. DebtManagementIssues.........................,,....,,,..............................................................61 11. Budget Tracking Statements...,,,,,,,,,,,,,,,..,,,.........,,.....,,,,.....,.,.........,,...,,,,,,.................... 62 - 4 - List of Acronyms andAbbreviations AAP Assessment and Action Plan AfDB African Development Bank AfDF African Development Fund BADEA Arab Bank for Economic Development in Africa BCC Banque centrale du Congo BDEGL Banque de developpement des Etats des Grands Lacs BEAC Banque des Etats de 1'Afrique Centrale CIRR Commercial interest reference rate DMFAS DebtManagement and Financial Analysis System DRC Democratic Republic o f the Congo DSA Debt sustainability analysis EMRRP Emergency Multi-Sector Rehabilitationand Reconstruction Project EIB European Investment Bank ERC Economic Recovery Credit EU European Union GDP Gross domestic product HIPC Heavily IndebtedPoor Countries HIV/AIDS Human immunodeficiency virdacquired immunodeficiency syndrome IBRD InternationalBank for Reconstruction and Development IDA InternationalDevelopmentAssociation IFAD InternationalFundfor Agricultural Development IMF InternationalMonetary Fund I-PRSP InterimPoverty Reduction Strategy Paper JSA Joint staff assessment LAN Local area network MDGs MillenniumDevelopmentGoals MONUC UnitedNations Observation Mission N G O Nongovernmental organization N P V N e t present value ODA Official development assistance OGEDEP Office de gestion de la dette publique OPEC Organizationo f PetroleumExporting Countries PEG Government Economic Program PPA ParticipatoryPoverty Assessment PRGF Poverty Reduction and GrowthFacility SDR Special drawing rights SMP Staff-monitoredprogram UN UnitedNations UNCTAD UnitedNations Conference on Trade and Development - 5 - I.INTRODUCTION 1. This paper presents an assessment o fthe Democratic Republic of the Congo's (DRC) eligibility for assistance under the enhanced Initiative for Heavily Indebted Poor Countries (enhanced HIPC Initiative). The Executive Boards o f the IMF and IDA discussed the preliminary HIPC document (EBS/02/88, 5/24/02, and IDA Report No. 24213, 5/23/02) for the DRC on June 12 and 13,2002, respectively. At that time, the government's interimpovertyreduction strategypaper (I-PRSP) (EBD/02/81, 5/28/02, and IDA ReportNo. 24216, 5/24/02) and thejoint staff assessment (JSA) (EBD/02/82, 5/28/02, and IDA Report No. 24216) were also discussed. On that occasion, Directors made a preliminary determination that the DRC could be eligible for assistance under the enhanced HIPC Initiative on the basis of its heavy debt burden, its track record o f performanceunder IDA- and IMF-supportedprograms, and its status as an IDA-only and Poverty Reduction and Growth Facility (PRGF)-eligible country. Executive Directors also indicated that the I-PRSP provided an adequate basis for concessional assistance from IDA and the IMF.Most Directors indicated that the DRC could reach a decision point inearly 2003, provided that (a) adequate progress continuedto be made under the peace process; and (b) the country remained on track with its IDA- and PRGF-supportedprograms. 2. Over the pasttwo years, the DRC has made remarkableprogressin consolidating the peaceprocess(althoughoutbreaksofviolence continueto occur),stabilizingthe economic situation, and creatingthe conditionsfor sustainableeconomic growthand povertyreduction.An all-inclusive transitional government was nominatedon June 30,2003, to be followed by free and transparent elections after two years. The satisfactory performance under the IMF staff-monitored program (SMP), covering June 2001 to March 2002, paved the way for a PRGF arrangement o f SDR 580 million, approved by the IMF's Executive Board on June 12, 2002, and renewed IDA lending, including an Economic Recovery Credit (ERC) o f SDR 360.4 million(approved by IDA ExecutiveDirectors on June 13,2002) and an Emergency Multi- Sector Rehabilitation andReconstructionProject (EMRRP) o f SDR 358.8 million (including an IDA grant o f SDR 31.6million), which was approvedon August 6,2002.* The first review ofthe PRGF-supportedprogram was concluded by the Executive Board o f the IMF on March 24,2003. The forestry sector tranche o f IDA'S ERC was released on February 14,2003, and the mining sector tranche on June 25,2003. The DRC's demonstrable progress inthe areas o f peace and economic reform, as well as its heavy debt burden, continue to warrant an early HIPC Initiative decision point. Althoughthe outbreaksof violence imply risks,inthe opinionof the IDA andIMFstaffs, the DRC has metthe conditionsfor reachingthe decisionpoint. 3. This paper is organized as follows: Section I1provides background information on the DRC's eligibility for assistance under the enhanced HIPC Initiative, the dimensions o fpoverty, political and security developments, and the macroeconomic and structural adjustment record to The proceeds of the first purchase under the PRGF and the first tranche of the ERC were used mainly to repay bridge loans that had been obtained to clear the DRC's arrears with the IMF and IDA,amountingto SDR 403.9 million andUS$328.6 million, respectively. - 6 - date; Section I11discusses the PRSP process and the medium-term macroeconomic objectives, as well as the structural and sectoral reforms to be implementedbefore reachingthe completion point; Section lV presents the debt sustainability analysis (DSA); Section V lists the floating completion point triggers, specifies how enhanced HIPC Initiative assistance after the decision point will be used and tracked, and discusses expected progress toward meeting the Millennium Development Goals (MDGs) as a result o f the enhanced HIPC Initiative assistance; and, finally, Section VI presents issues for discussion by the Boards o f Executive Directors. 11. ASSESSMENTELIGIBILITY OF A. PRGF and IDA Status 4. The DRC is currently an IDA-onlycountry,with a nominalper capita GDP of about US$99in 2002; it is eligibleto receive resources under the PRGF.As demonstrated in Section IV, the DRC will continue to need substantial concessional assistance from the international community inthe mediumterm, and i s likely to remain an IDA-only and PRGF- eligible country for many years to come. B. Dimensions of Poverty 5. Over three decades of economic and financial mismanagement, corruption and civil strife have caused nominal GDP per capita to decline dramatically from US$286 at independence in 1960 to US$99 in2002. Since 1996, widespread suffering from a war involving the armies o f seven other African nations and several militias has claimed over 3 million lives, directly through combat and indirectly through war-induced deprivation. It i s estimated that 80 percent o f the population lives on less than US$0.20 per day. Emerging from this decay and destruction, the DRCmay be decades away from reachingthe MDGs.~ the year 2001, the 2003 United For Nations (UN)human development index ranked the DRC 167thout o f 175 countries. 6. The effects of widespreadpoverty are reflectedinthe DRC's social statistics (Box 1). Infantandchildmortality rates are well above the already highaverages for sub-Saharan Africa. The HIV/AIDS prevalence rate i s especially high inthose regions that have been affectedby conflict, particularly amongwomen. The number o f people newly infected with HIV increased by a factor o f 16between 1990 and 2000. By December 2000, about 1.1million people were known to be living with HIV/AIDS, and close to a million children had been orphaned by AIDS. Life expectancy declined from 52 years in 1994 to 41 years in2001. Malaria kills over 500,000 people per year, while more than 12.5 million were infected in2000 by the parasite causing sleeping sickness. Also, the incidence o f tuberculosis and diarrheal diseases (including cholera and typhoid fever) has increased significantly. 7. The I-PRSP finds that 37 percent o fthe population has no access to any kindof formal health care. In 1995, only 18 percent o f households hadaccess to hygienic latrines and The MDGs inthe DRC context are described in Section V(E). - 7 - 41 percent to potable water. Inthe eastern provinces, 41 percent o f children under 5 years o f age are malnourished and 26 percent are severely malnourished. The child vaccination rate i s 29 per- cent. Educational statistics are similarly discouraging. Although literacy rates inthe DRCremain higher than the average for sub-Saharan Africa, gross enrollment rates are lower and declined substantially between 1985 and 2000. Inaddition, the latest UNICEF survey (2001) shows that only 17percent o f children are admittedto primary school at the legally required age o f 6 years, against 23 percent in 1995. The admission rate inurbanareas i s 33 percent, and inrural areas 10 percent. Only 34 percent o f children incities and 20 percent inrural areas, entering primary school, reach fifth grade, while 31percent o f children aged 6-14 have never attended school. C. Recent Political and Security Developments 8. Remarkable progress has been made in consolidating the peace process. The new Transitional Constitution was enacted on April 4,2003. Major General Kabila was sworn in as President o f the DRC on April 7,2003 for a two-year transition period, after which free, fair and transparent elections are to be held.An all-inclusive transition government, comprising the President, four vice-presidents, 36 ministers, and 25 vice-ministers, was nominated on June 30, 2003. An international committee has been established to monitor the transition process. 9. However, outbursts of violence have continued to occur. In this context, fighting among rebel groups exploiting historical rivalries between two ethnic groups (the Hemas and the Lendus) in the northeast Ituri region has caused extensive civilian casualties, particularly inthe town o f Bunia. On May 30,2003, the UNSecurity Council authorized the establishmento f an InterimEmergency Multinational Force (IEMF) inBunia, comprising about 1,400 soldiers, including 700 soldiers from France, with a broader mandate than the existing UN Observation Mission inthe DRC (MONUC). The Council stressed that the IEMF was to be deployed on a strictly temporary basis in order to reinforce MONUC. It demanded that all parties to the conflict in Ituricease hostilities immediately, and that all Congolese parties and all states inthe Great Lakes region cooperate with the IEMFandMONUCto stabilize the situationin Bunia. A recent UNSecurity Council delegation that visited the Great Lakes region stated that stabilization of the situation in Ituri will require strong and sustained international pressure on all parties to the conflict, as well as their foreign allies, to cease hostilities, the provision o f arms, and the illegal exploitation o f the DRC's natural resources. President Kabila has requested an extension o f the IEMF's mandate beyond its current September 1,2003 expiration date. D. Macroeconomic and Structural Adjustment Record 10. The DRC has also made remarkable progress in stabilizing the macroeconomic situation and in laying the foundations for sustainable economic growth and poverty reduction, first via the SMP, and subsequentlyvia the Government Economic Program (PEG), covering April 2002-July 2005, supported by an arrangement under the IMF's PRGF, as well as IDA'SERC and E M W . - 8 - 11. The implementationof bold and heavilyfront-loadedmeasures under the SMP markeda turnaroundin the conduct of economic policythat has produced significant results,especially bybreakingthe vicious circle ofhyperinflation andcurrency depreciation. Important progress has been made in strengthening public finances via a return to normal budgetary procedures, including the centralization o f revenue and expenditure, and a reduction inthe use o f extrabudgetary channels. A monthly treasury cash-flow plan has been strictly implemented. 12. Through March 2003, performanceunderthe PRGF-supportedprogramwas broadly satisfactory. For the first time in 13 years, economic growthwas positive (about 3 percent) in 2002. The end-of-period inflation rate was about 16 percent inDecember 2002, sharply down from 135 percent the year before. At end-May 2003, end-of-period inflation stood at 4.6 percent, owing to the rise inthe prices o f petroleumproducts o f 9 percent inmid-February and 10 percent inmid-March. Adjusted for these two price increases, the inflation rate was about 2.5 percent, in line with the rate o f 6 percent initially projected for the end o f the year. Fiscal performance in2002 was better than programmed, with revenue slightlyhigher and expenditure slightly lower than anticipated. Inthe first quarter o f 2003, fiscal receipts (excluding grants) were inline with the program target, while overall expenditurewas lower. However, while overall fiscal performancewas broadly on track, the anticipatedshift inthe composition of expendituretoward pro-poor spending has not materialized,owing to a shortfall inforeign- financed investment and social outlays, and an increase in security- and sovereignty-related expenditure associated with the inter-Congolese dialogue and the security vacuum that developed after the withdrawal o f foreign troops. At end-2002, while the combined share o f defense, security, and institutional spending amounted to 48 percent of govemment primary expenditure,social expenditure accounted only for 7 percent o f government primaryexpenditure, instead o f the targeted 15 percent. 13. While implementing its stabilization measures, the DRC was able to initiate, mainly supported by IDA, (a) the rebuilding o f agricultural production and the enhancement o f food security; (b) the rehabilitation and reconstruction o f critical infrastructure; (c) the restoration o f essential social services and the rebuilding o f community infrastructure; and (d) the strengthening o f the institutional and administrative capacity o f the government, with technical assistance from IDA and the IMF. 14. Since early 2001, far-reaching structuralmeasures havebeenput inplace,resulting inthe removalof major economic distortions,notably via the unification ofmultipleexchange rates andthe liberalization o f prices, the latter including the introduction o f a transparent and automatic mechanism for the pricing o f petroleum products. Important changes inthe judicial and regulatory environment are also under way, as illustrated by the adoption o f new legislation on the exchange and payments system; a new banking law; new statutes for the Central Bank o f the Congo (BCC) that enshrine its independence inthe conduct of monetary policy; new investment, mining, forestry, and labor codes; the abolition o f the export monopoly and the implementation o f certification o f origin for diamonds; and the replacement o f exceptional militarytribunals by civil courts for business and economic affairs. - 9 - 15. Further structural and sectoral reformsare beingundertakenor initiated as follows: e Bankingsector reform.With a view to reviving financial intermediation and increasing the effectiveness of monetary policy, the following measures are being implementedwith IDA assistance, albeit with some delay compared with the original schedule: (a) the updating, by end-July 2003, o f the already completed audits o f four commercial banks; (b) the completion, by end-August 2003, o f audits o f the five commercialbanks that have not yet beenaudited; and (c) the drawing up and introduction, by end-December 2003, o f an appropriate recovery plan for those banks that are considered solvent on the basis o f the audits. Inaddition, the BCC i s implementing, with technical assistance fromthe IMF, an action plan aimed at improving its accounting system, management, and operations; e Concerningpublicenterprises,the Steering Committee on the Reform o fPublic Enterprises (COPIREP) has been established, and its members are being selected. The program o f voluntary separations (about 9,000 staff) at the public miningcompany GECAMINES, financed by IDA'SERC, will begin in late July 2003 and i s expected to be completedby December 2003. The restructuringplan o f GECAMINES i s expected to be approved by the govemment at the same time. The audit o f cross debts betweenpublic enterprises and the government i s expected to be finalized by September 2003. Based on the results o f the audit, a timetable will be established by end-2003 for the clearance o f certified arrears; and e The governmenthas continuedto stress the promotionof good governance and measuresto combat corruption. An anticorruption strategy and an anticorruption action plan were adopted inFebruary 2003. Results from the audits o fthe tax and customs administrations, as well as some public enterprises, were publishedinthe local press and led to the replacement o f a number o f high-ranking public officials. All IDA and most other extemally financed public projects are now subject to a transparent biddingprocess. Govemment budget execution for 2001 and 2002, as well as the yearly financial accounts o f the BCC, will be audited by the General Accounting Office and an intemational firm, respectively. The Code o f Ethics and Good Conduct, applying to all public servants, was publishedinNovember 2002. 111. MEDIUM-TERMSTRATEGYFORPOVERTYREDUCTION A. The PRSPFormulationProcess 16. In March 2002, the governmentproducedan I-PRSPthrougha participatory process that, inpreparationof the full PRSP, will broadenas the country reunifies. Consultations carried out in four provinces showed that the population considers the primary causes of poverty to be appalling governance at all levels, economic mismanagement, systematic plundering o f public and natural resources, the gross inadequacy o f public services, and the lack of maintenance o f economic and social infrastructure. The poverty reduction strategy that resulted from these consultations envisages three phases o f policy effort-stabilization, reconstruction, and development-and i s based on three pillars o f activity: (a) restoring peace andachieving good governance; (b) stabilizing the macroeconomic environment and achieving - 10- pro-poor growth; and (c) placing local communities in a central position inthe formulation and implementation o f social and development activities. The I-PRSP has been translated into the four main national languages. Although the participatory processes underpinning the I-PRSP4 were largely restricted to stakeholders inthe provinces under government control, all parties to the inter-Congolese dialogue unanimously endorsed the economic agenda o f the government embodied inthe I-PRSP. 17. A National Poverty Survey, one o fthe first steps plannedfor drawingup the full PRSP, has been under preparation since June 2002. It uses a focus-group method (field-tested during November-December 2002), which i s faster, but less comprehensive than a household s~rvey.~ The National Poverty Survey will identify poor groups and communities by reference to specific benchmarks (e.g., distance from schools, health centers, water wells). A full PRSP i s to be completed inthe third quarter o f 2005. 18. Thejoint assessment o f the I-PRSP by the staffs o f IDA andthe IMF concludes that the strategy paper provides an adequate basis for the development o f a participatory full PRSP and the provision o f concessional assistance. The Executive Directors o f the IMF and IDA endorsed thisjoint assessment on June 12and 13,2002, respectively. The recently issuedjoint staff assessment o f the authorities' PRSP Preparation Status Report o f June 2003 recommends that Directors reconfirm their earlier conclusions. B. Macroeconomic Objectives 19. The macroeconomic objectives for the period 2003-056 include, inter alia, (a) an average real GDP growth rate o f 6 percent over the period 2003-05, implying an average annual increase inper capita GDP of about 3 percent; (b) a reduction inthe annual inflation rate to 5 percent by 2005; and (c) a gradual increase in gross internationalreserves to about 11.5 weeks o f non-aid imports o f goods and services by 2005 (Table l).' These growthpatterns are consistent with those observed in other post-conflict countries, but imply levels well below those from before the war. 4I-PRSP, paras. 65-72. A large-scalehousehold survey would be o f questionable value ina country that i s emerging from war and subject to large movements o f displaced households and individuals. Longer-term scenarios are discussed in Section IV inthe context o f the DSA. 'Debt service, debt relief, and related social expenditure data inthis document are based on a debt sustainability analysis (DSA) usingend-2002 as the reference date, and differ from those in the staff report on the secondreview under the PRGFarrangement (EBS/03/98, 7/9/03), which is based on an end-200 1DSA. The change inreference date affects the balance o f payments and the budget over the mediumterm (see Tables 1and 3 for details). - 11- 20. The externalcurrent account deficit,including grants butbefore debt relief, is expected to widen to 8.1 percent o f GDP in2005 (Table 2). As in other post-conflict countries, imports o f investment goods, driven by the return of external assistance andreconstruction, will lead this trend. In principle,the programi s financedthrough2005, with the bulk o f program financing beingprovided by multilateral creditors, and project financing bybothmultilateral andbilateral creditors. At the December 2002 Consultative Group meeting, assistance inthe amount o f US$2.5 billion was pledged over the 2003-05 period. 21. Fiscal policywill continue to aim at continued consolidation while improving transparency andtracking o f public expenditure, as well as reorientingthe composition o f the budget toward pro-poor spending. Revenue (excluding grants) i s projected to increase from 7.9 percent o f GDP in 2002 to 10.2 percent in2005, and grants from 0.4 percent o f GDP to 5.7 percent (including HIPC Initiative assistance) (Table 3). Total expenditure (on a commitment basis) will rise from 10.4 percent o f GDP in 2002 to 20.2 percent in2005, driven by foreign- financed investment andthe resumption o f interest payments on external debt. The overall consolidated balance, on a cash basis and after debt relief, would widen to a deficit o f 3.6 percent o f GDP in2005. 22. The BCC will continue to pursuea monetarypolicy aimed at price stability inthe context o f the floating exchange rate regime. C. Governance,Structural,andInstitutionalReforms 23. Reducingcorruptionand improvinggovernance.The government is responding to widespread civil society skepticism about the commitment o f any Congolese government-past or present-to reducing corruption. T o this end, the government's anticorruption strategy, adopted inNovember 2002, focuses on (a) the establishment o f a credible legal, regulatory, and institutional framework to combat corruption; (b) the implementationo f effective sanctions against corruption; and (c) reform o f key public sector institutions. With regardto the legal, regulatory, and institutional anticorruption framework, the authorities have (i) an created anticorruption commission (inAugust 2002); (ii) supported independent civil society watchdog structures; (iii)adopted the Code o f Ethics and Good Conduct applicable to all public officials (inNovember 2002); and (iv) prepared an anticorruption law.8Sanctions will includewithdrawal o f business licenses and operating agreements, and fines. The government also intends to foster effective partnership among the public sector, civil society, the private sector, and international organizations specialized inthe fight against corruption, such as Transparency International and Interpol, and improve public access to relevant information. Finally, reform o f public institutions will include civil service reform, judicial sector reform, improved public finance management on both the revenue and expenditure sides, reform o f the procurement system, increased transparency and accountability at the local level, and a major effort to improve the quality of public services inpriority sectors (Le., health, education, rural development, andinfrastructure). The anticorruption law i s to be discussedby parliament inthe fourth quarter o f 2003. - 1 2 - 24. Civil service reform. The government is aware that a comprehensive reformo fthe public administrationi s needed to reduce corruption and to improvegovernance andpublic service delivery. Its strategy focuses on redefining the key missions o f priority ministries and public service agencies, as well as upgradingthe skill levels and productivity o f their staffs. In the meantime, with the strengthening o f revenue mobilization and the streamlining o f the civil service, salary levels will gradually increase from their relatively low levels, while maintaining fiscal sustainability. This will help to reduce corruption, while settingup broader incentives and control systems to improve productivity and performance. Thus, emphasis will be on (a) eliminating ghost workers from the civil service payroll; (b) puttinginplace a retrenchment program for civil servants havingreached the retirement age, for which assistance has been solicited from IDA; (c) undertaking a comprehensive civil service census; and (d) implementing a functioning and secure integrated personnel and payroll management system. 25. The management of publicfinancial resources.The 2002 Public Expenditure Review, which focused on the Assessment andAction Plan (AAP) andthe sectors that would benefit from HIPC Initiative assistance, has identified specific steps to strengthen public expenditure management inthe short and medium term. These include the implementation o f a new budget classification system and a rationalized budget expenditure chain, the full integration o f externally financed projects inbudget formulation andreporting, the rationalization o f control and audit procedures, andthe implementation o f a new accounting system.The I-PRSP (para. 15) calls for specific monitoring provisions to ensure that expenditures are compatible with the National Poverty Reduction Charter. 26. Improvingthe qualityof publicservices and institutionsinpriority sectors. Major efforts are plannedto improve the quality o f services needed to reduce poverty (see subsection D) and promote private sector-led growth. A publicexpendituretracking exercise will be undertaken inkey sectors to assess the share of public resources that is actually spent on intendeduses and to verify that these resources arrive at their intended destinations (e.g., schools, health centers, agricultural extension services, and road maintenance units). This exercise will be complementedby (a) assessments by beneficiaries o f the quality of services provided, and (b) assessments by service providers of the difficulties encountered inthe provision o f services. Work i s under way on a comprehensive reform o f the government procurement system, with assistance from IDA. 27. Promotionof private sector development.A major objectiveof the government's economic programis to promoteprivatesector activitythrough (a) a new legal and regulatory framework and related institutions (Le., courts, arbitration centers, and regulatory agencies); (b) a revisedtax system, including simplified enterprise and indirect tax systems, based on a review that was completed inMarch 2003; (c) a reduction intransaction costs pertainingto enterprise creation and commercial transactions (e.g., through one-stop windows for investment and international trade transactions); (d) an improvement in financial intermedia- tion; (e) the reform of public enterprises; and (f)the settlement o f government arrears to private enterprises. Private sector development will be supported by IDA inthe context o f a Private - 13 - Sector Development and Competitiveness Project, currently under preparation, and future fast-disbursingoperations, whose preparations are to beginshortly. Bothtypes o f operation will be supported by specific conditionalities. D. Social and Sectoral Policies 28. The DRC is far from meeting the MDGs related to mortality, health, and education, Public contributions to social services (e.g., health and education) have declinedto negligible levels over the last two decades, mainly as a result o f a lack o f government resources and the effects o f conflict. The large-scale displacement o f people has also seriously disrupted the delivery of social services. 29. Health. Since 1975, health care delivery has been based on decentralized health zones,g and access to primaryhealth care services i s available to 50 percent o f the population, up from 10 percent in 1975. However, public health and health services delivery have deteriorated drastically over the past decade. K e y objectives inthe health sector for 2003-05 are (a) establishment o f a legal and regulatory framework suitable for the development o f public- private partnerships that are essential to an improvement in service provision; (b) reinforcement o f existing partnerships among the public, private and non-profit participants inthe sector, and local communities; and (c) better access to essential health services, through, among other things, rehabilitatedinfrastructureand improved humanresources, and better provision o f financing, medicine, and other inputs to local units, particularly for the 50 percent o f the population living intargetedhealthzones. To this end, the I-PRSP envisages the allocation o f at least 15 percent of the national budget to health sector spending by 2005, up from about one percent in2001. These resources will be complementedby continued assistance from foreign donors, particularlyunder the IDA-coordinated EMRRF', whose health component envisages assistance to 55 health zones that are currently unassisted. Thus, the DRC would be able, especially at the community and health zone levels, to begin combating HIV/AIDS, malaria, sleeping sickness and other diseases, and supporting vaccination campaigns. 30. Education. The coverage, quality, and equity of education have also deteriorated, especially in primary education." Government support o f public education has become virtually nonexistent. Multilateral and bilateral external financing for education (US$12 million in2002) lags far behind donor financing for other sectors. Most schools inthe DRC are operated A health zone i s a specific geographical area covering about 150,000 inhabitants and 200 communities. Each zone comprises 20 satellite health centers and a referral hospital. lo The country nearly achieved universal primary school enrollment inthe 1970s, but by 2001 net enrollment had fallen to about half of the 6-1 1-year age group. There are huge gender andother disparities within and amongprovinces. - 14- bynongovernmentalgroups, mainly churches, and are entirely financed by fees. The I-PRSP (para. 130) commits the government to providing free primary education and upgrading the quality o f teachers and teacher-training institutions. 31. To improveeducation,the authoritiesintendto conduct a thoroughanalysis of the educationsector and develop a strategicfinancingplanfor major reformby end-2005,in collaboration with private sector and civil society stakeholders and donors. The government will also ensure timely payment o f teacher salaries and will support programs that rehabilitate physical infrastructure, supply essential learning materials, and provide intensive in-service training. Also by end-2005, the government will have (a) clarified its role inprimary education vis-&vis other partners and drawn up a transparent framework for cost sharing inthe sector; (b) allocated at least 10percent o fthe national budget to education; (c) identified specific measures that will accelerate the implementation o f the Education for All Initiative;" (d) updated the national textbook policy and distributed 5 million textbooks to primary schools; (e) put in place and implemented a policy on teacher recruitment, training, and remuneration; (f)established a policyand operational mechanism for school mapping; and (g) renovated 200 primary schools. 32. Social protection.The I-PRSP emphasizes the need to support grassroots approaches based on local priorities. To achieve this goal, the Ministryo f Social Affairs i s usinga participatory approach, which includes other relevant government ministries, donors, nongovernmental organizations (NGOs), and community groups to develop a comprehensive strategy to deal with social protection issues. The primary objective for 2003-05 will be the development and implementation o f this strategy, as well as the development o f a coherent social-protection program, to be supportedby IDA. 33. Infrastructure.Neglect, mismanagement, andwar damage have ledto the near-collapse of the DRC's infrastructure. As the countrymovesfrom a periodof stabilizationto one of reconstruction,the governmentwill initiateduring2003-05 a long-termprocess of infrastructurerehabilitation,with assistance from the internationalcommunity. The I-PRSP (paras. 123 and 155) describes the authorities' program for infrastructure rehabilitation, andthe use o f community and regional service brigades to maintain this infrastructure. Development strategies have been prepared or are being drawn up for transport, water, sanitation (I-PRSP, paras. 139-142), and electricity. IDA'SEMRRP i s financing activities to improve road, river, rail, and air transportation, rehabilitate the electricity and water supplynetworks and, inmajor cities, improve solid waste services, maintain andrehabilitate streets and drainage systems, and control erosion. Particular attention i s being given to the rehabilitation o f major roads and rural tracks, to reduce the cost of transportation. 11 This worldwide initiative is intendedto ensure that by 2015 all children, especially girls, children in difficult circumstances, and those from ethnic minorities, have access to, and actually complete, free and compulsory primaryeducation o f good quality. In addition, it represents a commitment to eliminate gender disparities inprimary and secondary educationby 2005. - 1 5 - 34. Natural resources.The natural resource sector (i.e., miningand forestry) is expected to make a major contribution to economic growth, export earnings, and poverty reduction. New miningand forestry codes were adopted in2002 that aim at improvingtransparency and increasing the role o f the private sector. Concerningthe mining code, the implementingdecrees were issuedinApril 2003. By end-2005, the government intends to have (a) completedthe legal and regulatory reform programs inthe mining and forestry sectors; (b) significantly improved the capacity to enforce the new miningand forestry codes; (c) substantially restructured key public enterprises operating inthe miningsector through, inter alia, partnerships with the private sector; and (d) implemented a framework for community forestry management andthe distribution o f revenues to local communities. Strenuous efforts will be made inboth sectors to implement dissuasive sanctions against illegal exploitation. These policy reforms will be supported by future IDA operations and monitored under the government's I M F - and IDA-supported economic program. 35. Ruraldevelopment.Rural development is a key instrument for reducingpoverty and improvingfood security. Duringthe next three years o f reconstruction, the government intends to focus on improvingagricultural production capacity, enhancing the efficiency o f domestic marketing, and formulating a comprehensive development strategy. These activities are supported by the EMRRP, whose rural sector component i s focused on the rehabilitation o f rural access roads and tracks, and the provision o f agricultural extension services to farmers, particularly via distribution o f seeds and pesticides. Iv. DEBTSUSTAINABILITY ANALYSISANDENHANCED HIPC INITIATIVEASSISTANCE 36. The debt sustainabilityanalysis (DSA) presentedinthis section is an updateof the one presentedin the preliminaryenhanced HIPC Initiative document.'2Itwas prepared jointly by the Congolese authorities and the staffs o f the IMF andIDA, based on loan-by-loan data on external debt outstanding and disbursed as o f end-December 2002 provided by the authorities and creditors. l3The loan-by-loan debt reconciliation process has been completedwith all of the DRC's multilateral creditors, except one,l4 and the reconciledmultilateral data account l2 Data on debt, debt service, and debt relief are derived from the 2002-based D S A presented in this section, and differ from the estimates andprojectionspresented inthe IMFstaffreport for the second review underthe PRGF(EBS/03/98, 7/09/03), which were based on end-2001 debt data and preliminary estimates o f the impact o f the September 2002 Paris Club rescheduling. l3The debt stocks include short-term debt in arrears for more than one year. l4The only multilateral creditor whose debt has not been reconciled i s the Banque de dbveloppement des Etats des Grands Lacs (BDEGL), which i s based in Goma (eastern DRC). Communications with this creditor are difficult, andthe authorities have made good-faith efforts to establish contact, without a response. Based on the DRC authorities' data, the BDEGL's claims on the DRC at end-2002 account for less than 0.1 percent, innet present value (NPV) terms, o f the DRC's total stock o f debt (Table 5). - 1 6 - for about 37 percent of the total net present value o f the DRC's outstanding stock o f debt at end- 2002. The loan-by-loan reconciliation process has been carried out with most bilateral creditors via the review o f pending or signedbilateral agreements with Paris Club creditors under the September 13,2002 rescheduling. Overall, about 83 percent o f the net present value o f the DRC's total stock o f external debt outstanding at end-2002 is reconciled, although, insome cases, estimates were usedwhere full accounting data were ~navailab1e.l~The baseline projections presentedinthis section simulate the impact o f a hypothetical stock-of-debt operation by Paris Club creditors on Naples terms at end-2002, as well as comparable treatment by all other official bilateral and commercial creditors. The end-2002 exchange rates and discount rates used for the calculation o f the net present value (NPV) of debt are presented inTable 7.16 A. The Structureof ExternalDebt 37. The DRC's externalpublic and publiclyguaranteeddebt, in nominalterms, is estimatedat USU0.7 billionat end-December 2002 (Figure 1and Table 5). After the assumed full use o ftraditional debt-reliefmechanisms for bilateral andcommercial debt, and excluding the clearance o f multilateral arrears implemented in, or planned for, 2001-03, the stock o f external debt outstanding inN P V terms i s estimated at US$7.9 billion (Figure 2 and Table 5). Paris Club bilateral creditors account for the largest share o f this debt-54.8 percent, or US$4.3 billion inNPV terms, o f which the largest Paris Club bilateral creditor, the United States, accounts for US$1.2 billion inN P V terms. Multilateral creditors account for about 39.2 percent o f the N P V of debt outstanding, or US$3.1 billion. The mainmultilateral creditors are the African Development Bank (AfDB) Group (US$l. 1billion), IDA (US$1 billion), and the IMF (US$0.6 billion). Non-Paris Club official bilateral creditors and commercial creditors account for the remaining debt outstanding (US$274 million and US$200 million, respectively, in NPV terms). 38. Externalarrears. Owingto the DRC's failure to service its debt for nearly a decade, 80 percent o f the DRC's debt was inarrears at end-2001. Ofthe US$10.6 billion o f arrears that hadaccumulated at end-2001 (Table 4), about 16.9 percent, or US$I.8 billion, was owed to multilateral creditors-arrears to the AfDB Group totaled US$779 million; to the IMF l5 Among non-Paris Club official bilateral creditors, end-2002 debt stocks were taken from statements for Kuwait. For all other non-Paris Club official bilateral and commercial creditors, includingLondon Club creditors, estimates o f debt stocks were made usingavailable original disbursement and repayment schedules. Late penalties were estimated usingthe same method employed for Paris Club debt, namely, using either the original contractual interest rates or end- 2002 commercial interest reference rates (CIRRs). Public enterprise debt i s included, except for nonguaranteed bilateral and commercial debt, for which data were unavailable at the time o f the preparation o f this document. l6 The discount rates are the average currency-specific CIRRs for the six-month period July- December 2002. - 17- US$503 million; to IDA US$190 million; and to the IBRDUS$128 million. As o f end-2001, arrears o f US$8.2 billion were owed to Paris Club bilateral creditors, and an additional US$366 million and US$251 million in arrears were owed on non-Paris Club official bilateral and commercial debt, respectively. 39. Treatment of multilateralarrears. On June 12,2002, arrears to the IMFwere cleared through a bridge loan. Arrears to IDA and the IBRD, as well as those on the EuropeanUnion (EU) loan administered by IDA, were cleared on July 3,2002, also usingthe proceeds of a bridge loan (Box 2). The African Development Fund(AfDF) arrears were cleared on July 1, 2002 through a grant; those to the AfDB were consolidated with current maturities andreprofiled over 20 years, including a two-year grace period. Arrears to BEAC (Banquedes Etatsde 1'Afrique Centrale) were cleared on January 9,2001 and, more recently, arrangements to clear arrears to the International Fundfor Agricultural Development (IFAD) and the Arab Bank for Economic Development inAfrica (BADEA)were signed in December 2002 and March 2003, respectively. An agreement to clear arrears owedto the OPEC Fundwas concludedinApril 2003. The remaining multilateral creditors-with the exception o f the BDEGL-have arrears clearance procedures inplace based on agreed plans. Inline with the method agreed with multilateral development banks (MDBs), any debt reduction providedby multilateral creditors resulting from a concessional treatment o f arrears will count toward their contribution to assistance under the enhanced HIPC Initiative." 40. ParisClub agreement.The DRCreached a rescheduling agreement with the Paris Club on September 13,2002. The agreement provides for a flow rescheduling on Naples terms on pre- cutoff-date debt in arrears as o f end-June 2002 and current maturities falling due duringthe PRGF arrangement periodfrom beginning July 2002 to end-June 2005. The agreement includes exceptional treatment o f short-term debt in arrears for more than one year, post-cutoff-date debt, includingarrears, and a 100percent capitalizationofmoratorium interest on pre-cutoff-date debt, which i s to be repaid over eight years, includinga grace period o f four years. Non-Paris Club official bilateral creditors and commercial creditors are expected to provide debt relief on terms comparable to those o f the Paris Club. 41. Net positivetransfers.Duringthe process o fnormalizing its relations with the international community, the reschedulingo f arrears increases scheduled debt service from 2003 onward. On the basis o f normalized relations with external creditors, however, new external resources are expected to more than offset the increased debt-service obligations and will result innetpositive transfers duringthe interimperiodandbeyond(Table 12). 42. Comparisonwith the preliminarydocument.The end-2002 debt data usedinthis DSA reflect updated information obtained since the preparation o f the preliminary enhanced HIPC Initiative document. Prior to the preparation o f the preliminary document, the DRC had not l7 the See Attachment to "HIPC Debt Initiative: the Chairman's Summary o f the Multilateral Development Banks' Meeting," March 6, 1998, IDABecM98-90. - 1 8 - undertaken a full data reconciliation process since the previous Paris Club rescheduling in 1989. The estimate o fthe nominal stock of debt at end-2002 reflects the loan-by-loan reconciliation process undertakenby the authorities. The debt stock has decreased by US$2.2 billion over the end-2001nominal debt stock reported inthe preliminary document primarilydue to the 2002 Paris Club rescheduling (Box 3). The N P V o f debt after the assumed full use o f traditional debt mechanisms at end-2002, compared to the end-2001 total, has increased by about US$0.6 billion primarily due to exchange rate and discount rate movements, as well as disbursements from the IMF andIDA in2002. B. Long-TermMacroeconomicAssumptions 43. The underlyingmacroeconomic projectionsusedinthe DSA and agreed uponwith the DRC authoritiesassume continuedprogresstowardeffectivereunification.They also assume the continued implementation o f sound macroeconomic policies, as outlined inthe current three-year program supported by the IMF's PRGF, further structural reforms, and an improvement o f key social indicators through the implementation o f the DRC's poverty- reduction strategy (Box 4). Prospects for the mediumterm reflect anticipated investment inthe natural resource sectors, while the longer-termprojections anticipate a gradual return to prewar production and export levels.l8The long-term macroeconomic outlook i s also critically dependent on continued concessional assistance from donors beyond the resources expected to be provided under the enhanced HIPC Initiative. Loans are expected to account for a growing proportion o f gross financing, and under the PRGF-supported program all new external borrowing i s assumed to contain a grant element o f at least 35 percent. 44. The authorities'sound macroeconomic policies,whichhavebeeninplace since mid- 2001, andtheir ongoing far-reachingstructuralreforms are already acceleratingreal GDP growth.The outlook envisages aperiod o freconstruction (2002-05), followed by sustained development starting in2006. Annual real GDP growth i s projected to accelerate through the mediumterm, from 3 percent in2002 to 7 percent in2005 and 2006, before gradually declining to about 6 percent in 2009, 5 percent in2013, and 4 percent in 2020 (Box 4 and Table 13). This performance i s consistent with recent IMF findings on the sources o f growth inthe DRC (Box 5) and the experiences o f other post-conflict countries.l9 Institutional capacity buildingi s projected to permit a doubling o f the government's share o f GDP, so that revenue, excluding grants, will l8While most merchandise exports are produced inthe govemment-controlled areas o f the DRC, about 10 percent, invalue terms, are estimated to be exported from areas outside effective customs control. The IMF staff estimated unrecorded exports usingEUdata andthe IMF's direction o f trade statistics, adjusted by estimates calculated by the BCC. l9 In asample of 16 countries that experienced conflict inthe 1980s and 1990s, annual real GDP growth averaged 5.9 percent duringthe five post-conflict years, and some countries performed better (e.g., Mozambique, Lebanon, and Rwanda). - 19- increase from 8 percent o f GDP in 2002 to 16 percent in2022, a level that i s still well below the average for sub-Saharan Africa. 45. Economic recovery i s expected to be sustained by significant levels of official external financing (grants and loans), which in gross terms i s expected to reach 16.3 percent o f GDP in2005, before gradually decliningto about 3 percentby 2022 (Table 13). Official grants are expected to exceed official net loan flows until2020, and the share o f grants intotal official assistance i s expected to decline steadily until it reaches about 26 percent in2022. Official loan assistance i s assumed to be provided on IDA-comparable concessional terms until 2008; thereafter, the concessionality o f credits to the DRC would gradually decline. Foreign direct investment i s expected to respond to opportunities in, inter alia, the natural resource sectors. External loans to the private sector are also projected to become increasingly significant inthe mediumand long term as the economy strengthens. 46. Supported by external financing, public and, subsequently, private gross investment are projected to underpin growth and exports, especially through the next decade. Starting from an unusually small base, earnings from the export o f goods and services should recover sharply, rising from about 22 percent o f GDP in2002 to about 27 percent in2007, before declining gradually to about 25 percent by 2022. The export sector's contribution to the balance o f payments will be offset by imports o f investmentgoods relatedto reconstructionandrecovery inthe first half o fthe projectionperiod. Consequently, a surplusonthe trade balance of goods and services is not expected before 2019, and a surplus on the current account, includinggrants and after debt relief, i s not anticipated before 2016. 47. Looking forward, if real GDP growth averages 5.3 percent over the period 2003-22, as currently projected, it will take 12 years for real GDP to return to its 1990 level, Assumingthat the population continues to grow at an annual rate o f about 3 percent, itwill take 39 years to reach the 1990 level o f real per capita GDP, and 61 years to reach the 1960 level. C. Long-Term Macroeconomic Risks 48. The long-term macroeconomic objectives for the DRC are ambitious, and will be achieved only ifthe upturn in economic policies since early 2001continues steadily. A weaker policy stance or a return to past poor policy performance, as well as more volatile or lower export prices, would represent a major setback. This section, therefore, examines the possible economic outcomes inthe DRC ifthe government's reformprogram experiences delays and perhaps reversals, the security situation takes longer than expected to stabilize, and/or exports grow more slowly than currently projected. Patchy policy performance would dampen foreign investment and could lead to less concessional foreign assistance. Implementation of the infrastructure rehabilitationprojects underpinning the expected return to higher production levels would also slow down. Public investment would rise more slowly from its current level o f about 4 percent o f GDP.Expected investmentin export industries would behindered by transport bottlenecks. The combined effect o f these risks would cause a fall inthe growth rate o f merchandise export receipts to an annual average of about 1percent a year during 2003-22, sharply lower than the 8 percentprojectedunder the program. The government's fiscal position, - 20 - Corrected: 7/21/03 hampered by less rapid growth in tax revenues, would also weaken the capacity of the public sector to contribute to the delivery of basic health and education services. Key social indicators would be unlikely to show improvement and could even deteriorate further, exacerbating the consequences of the DRC's decline over the last several decades. 49. This "reduced-performance" scenario implies that average annual real GDP growth over the projection period (2003-22) could fall below 4 percent a year. With an annual population growth rate of about 3 percent, per capita incomes would rise annually by at most 2 percent during the projection period, but could decline in some years. The per capita real income of the DRC is currently one-fourth of what it was in 1960; under this scenario, it would take about two centuries to return to the 1960 level. 50. The NPV of debt-to-exports ratio would, under this scenario, never fall below 150 percent during the projection period. The total value of merchandise exports in 2022 would be about 70 percent lower than projected in the baseline scenario. Reduced export growth would also reduce real GDP and fiscal revenue growth, such that by 2022 nominal GDP and government revenue would both be about 40 percent lower than in the baseline scenario. Under these assumptions, the ratio of the NPV of debt to exports and the ratio of debt service to exports would average 633 percent and 17.1percent, respectively, during the period 2003-05. The corresponding figures for 2006-14 are 178percent and 14.6percent, respectively; those for the period 2015-22 are 253 percent and 16.0percent, respectively. In particular, the NPV of debt-to- exports ratio attains its lowest value at 165percent in 2009 and rises to 289 percent in 2022 (Table 11 and Figure 7). 51. The growth and debt sustainabilityoutcomes in this scenario would clearly be unacceptable for both the authorities of the DRC and the international community. This scenario highlights the critical importance ofjoint action by the international community, together with the government and civil society of the DRC, to implement policies that will support average annual real growth rates of at least 5-6 percent, as programmed. While this goal may seem ambitious, the experiences of Mozambique, Lebanon, and Uganda indicate that it is possible. For the government, this would require that macroeconomic stabilization (including prudent debt management), good governance, and a sound legal and regulatory framework supportive of outward-oriented private sector development remain high priorities. For the international community, this implies that good policy performance in the DRC will need to be rewarded with timely and adequate financial assistance on appropriately concessional terms, especially in the event of adverse external developments. 52. An alternative scenario incorporates the possibility that the concessionality on new borrowing could be lower than projected, which could result from higher interest rates, shorter maturities, and/or shorter grace periods. The scenario developed here looks specifically at the impact of a 3 percentage points increase in interest rates starting in 2003 and remaining in place throughout the projection period. Through 2008, higher interest rates are assumed to affect only official bilateral loans, while, from 2009 onward, interest rates are assumed to be higher on all nonconcessional loans. Additionally, the proportion of nonconcessional loans in long-term gross public disbursements is also assumed to be higher than in the base case, 30 percent on average -21 - Corrected: 7/21/03 during 2009-22, compared with 27 percent in the base case. Both export receipts and government revenues are assumed to remain unchanged from the baseline scenario. Under these assumptions, the ratio of the NPV of debt to exports would average 580 percent over the period 2003-05, while the debt service-to-exportsratio would average 14.4percent. The corresponding figures for 2006-14 are 110percent and 8.6 percent, respectively; those for the period 2015-22 are 136 percent and 9.6 percent, respectively. D. Enhanced HIPC Initiative Assistance 53. On the basis of the macroeconomic assumptions and projections outlined in Box 4, the DRC's external debt will remain unsustainable even after the full application of traditional debt-relief mechanisms. The NPV of the debt-to-exports ratio is estimated at 758 percent at end-2002 and would remain above 150percent throughout the 20-yearprojection period (Table 54. The total amount of enhanced HIPC Initiative assistance required to bring the ratio of the NPV of debt to exports to 150percent2' would be US$6.3 billion in NPV terms, implying a common reduction factor of 80.2 percent (Table 6).Based on proportional burden sharing, multilateral assistance would amount to US$2.5 billion in NPV terms, Paris Club creditors would provide US$3.5 billion, non-Paris Club official bilateral creditors would provide US$219 million, and commercial lenders US$161 million. 55. The modalities and timing of the delivery of enhanced HIPC Initiative assistance will be decided by each creditor following the approval of the decision point. Nevertheless, in order to assess the impact of enhanced HIPC Initiative assistance, which would provide debt-service relief totalin US$10 billion in nominal terms over time, the following assumptions have been made:2s: 0 Paris Club bilateral creditors are assumed to top up the September 2002 Naples flow rescheduling to Cologne terms (90 percent NPV reduction on eligible debt) during the interim period; the remaining amount of assistance is assumed to be delivered through a stock-of-debt operation on Cologne terms at the completion point; 2oThe NPV of debt-to-exports ratio is measured using the backward-looking three-year average of exports of goods and services. 2'The DRC does not qualify for enhanced HIPC Initiative assistance under either the fiscal or the openness criteria at end-2002: the DRC's revenue-to-GDP ratio was 7.9 percent and the exports-to-GDP ratio was 21.6percent, both of which are far below the required minima of 15 percent and 30 percent, respectively. 22The estimate of total nominal assistance does not include enhanced HIPC Initiative relief delivered through the concessional treatment of multilateral arrears. - 22 - e At least comparable treatment is assumedfor non-Paris Club officialbilateraland commercialcreditors; e Debt relief to be provided on debt owed to IDA will amount to US$831million inNPV terms. The clearance of IDA and IBRD arrears through a bridge loan and the use o f concessional resources through IDA resultedin an NPV reduction o f US$199 million, which will be appliedto IDA'Senhanced HIPC Initiative assistance. A further US$35 million inNPV terms of enhanced HIPC Initiativeassistance will be delivered through the IDA post-conflict grant that was approved by IDA'SExecutive Directors inJuly 2001.23 The balance o f assistance will be delivered after the decision point through a reduction o f debt service falling due on debt outstanding to IDA and disbursedat end- 2002, which will continue until 2025 (Table 14); e IMFassistance is estimated at US$472million inNPV terms. Ofthis amount, US$153 million was delivered inthe form o f the concessionality associated with the disbursement inJune 2002 under the PRGF arrangement that was approved following the clearance of arrears to the IMF. The IMF will commit the remaining balance o f US$319 million following the approval o f the decision point by the Boards o f IDA and the IMF.Disbursement o f interim relief, inthe form o f grants, will cover forthcoming debt-service obligations falling due to the IMF. Owing to the relatively low levels o f debt service that will fall due under the PRGF arrangement duringthe interimperiod, most o f the IMF's remainingenhanced HIPC Initiative assistance will be delivered following the completion point expected in2006, with debt-service reduction extendingthrough 2012 (Table 15); e Assistance from the AfDB Group will amount to US$905 million inNPV terms. AfDF arrears were cleared on July 1,2002 through a grant. AfDB arrears were consolidated with current maturities andreprofiled. The NPV reductionresultingfrom the clearance o f arrears andthe treatment o f interest on the consolidated amount will be applied to enhanced HIPC Initiative relief. The remaining enhanced HIPC Initiative assistance from the AfDF will be delivered through a reduction in debt service until 203 1, and the remaining enhanced HIPC Initiative assistance from the AfDB will be delivered through debt-service reduction on the principal of the reprofiled loans until 2023 (Table 16); and. e All other multilateralcreditors are assumedto provide debt-service reductions until their assistance meets the levels required by proportional burden sharing under the enhanced HIPC Initiative, net o f any NPV reductions achieved through their arrears settlement operations. 56. Statusof creditorparticipation.Based on the initial findings contained inthe preliminary document, IDA and IMF staffs have initiated consultations with multilateral creditors and the Paris Club regardingtheir willingness to support debt reliefto the DRC under 23See "Assistance to Post-Conflict Countries and the HIPC Framework" (SM/01/99, 3/30/01, and IDNSecMOl-0230, 3/29/01), footnote 18. - 23 - the enhanced HIPC Initiative. All o f the DRC's multilateral creditors, except the BEAC and the BDEGL,have indicatedtheir willingness to provide enhanced HIPC Initiative debt reliefto the DRC.Paris Club creditors have also indicatedtheir willingness to participate inthe enhanced HIPC Initiative for the DRC.Together, these creditor assurances account for 93 percent o f total enhanced HIPC Initiative relief. The DRC authorities are seekingconfirmation o f non-Paris Club official bilateral and commercial creditors' participation in the enhanced HIPC Initiative with proportional burden sharing. E. Impactof the EnhancedHIPC Initiative 57. TheDRC's externaldebt burdenwould be reduced significantlywith the deliveryof assistance under the enhanced HIPC Initiative(Figures4 and 5, and Tables 10 and 11). Under the baseline export projections, the NPV o f debt-to-exports ratio would decline from 758 percent in2002 to 97 percent in2009. TheNPV o fdebt-to-exports ratio, after enhanced HIPC Initiative relief, will remain relatively elevated duringthe interim period, owing to new borrowing to finance reconstruction. Inlater years, the NPV o f debt-to-exports ratio would remain below 150 percent through 2022, reaching about 92 percent at the end o f the projection period. 58. Other debt indicators would decline, inparticular the debt-service ratio, which would fall in2003 from 16.3 percent, after the application oftraditional debt-reliefmechanisms, to 13.4 percent after enhanced HIPC Initiative relief. Owing to the exceptional rescheduling o f post-cutoff-date arrears and short-term debt in arrears by Paris Club creditors,24 the ratio would fall further to 4.5 percent in2010, before rising slightly to 7.2 percent at the end o f the projection period in2022 (Table 9). Compared with the full application o f traditional mechanisms, enhanced HIPC Initiative assistance would generate savings and reduce debt service by an annual average o f about US$103 million per year during the interimperiod (2003-05). Debt- service savings would average about US$367 million per year during2006-12. Debt service payable after enhanced HIPC Initiative assistance i s expected to average US$214 millionper year duringthe period 2003-12. 59. The N P V o f debt-to-revenue ratio would fall from 1,794 percent after traditional mechanisms in2002 to 355 percent, after enhanced HIPC Initiative assistance, and will fall below 250 percent from 2007 through the remainder o f the projection period (Table 10). The debt service-to-revenue ratio would fall from 46 percent in2003, after traditional debt relief, to 38 percent, after enhanced HIPC Initiative assistance, before decliningfurther to 10percent in 2010; it will then remain relatively stable to the end o f the projection period (Table 9). 60. Bilateralassistance beyondthe enhanced HIPC Initiative.The expected delivery o f bilateral assistance beyond that requiredby the equal burdensharingenvisaged under the HIPC 24Underthe Naples flow restructuringby Paris Club creditors in September 2002, the last payments on the rescheduled post-cutoff-date arrears and short-term debt in arrears fall due in2009. - 24 - Initiative25would reduce the N P V o f debt-to-exports ratio to 101percent in2007, compared with the 112 percent that would be attained under the enhanced HIPC Initiative alone. The estimated amount o f possible bilateral assistance beyond the enhanced HIPC Initiative i s about US$88 million inNPV terms (see Figure 4). 61. Managementof debt sustainability.The long-term assumptions imply that additional external resource inflows, inthe form o f grants as well as loans, will ensure net positive transfers and make a large contribution to import financing for the rehabilitationand reconstruction programs (Table 12). At the same time, the govemment's economic program focuses on the twin objectives o f increasing exports and enhancing government revenue. The staff will continue to assess debt sustainability during the interimperiod and will make a comprehensive reassessment at the time o f the completion point. 62. The DRC's debt-management capacity is constrained (Appendix I).ensure long-run T o debt sustainability, a completion point trigger i s being set on the installation and activation at the public debt management office (OGEDEP) o f a computerizeddebt-recording system, covering all public and publicly guaranteed debt. This system will permit OGEDEP to produce monthly debt-service projections for the treasury cash-flow plan. V. THEFLOATING COMPLETIONPOINT A. FloatingCompletionPoint Triggers 63. The staffs of IDA and the IMFhave reachedunderstandingswith the authoritieson a series of completionpoint triggers, summarized inBox 6, which also reflect the views expressed by Executive Directors duringthe discussion o f the preliminary document. These include (a) the standard general triggers pertaining to (i) the preparation o f a full PRSP through a participatory process and one year o f implementation, duly documented in annual progress reports and confirmed as satisfactory by a JSA; (ii) maintenance o f macroeconomic stability as evidenced by satisfactory performance under the program supported by the PRGF arrangement; and (iii)utilization o f enhanced HIPC Initiative budgetary savings in conformity with agreements reached with IDA and the IMF (see below); and (b) specific and monitorable triggers on (i) public expenditure management; (ii) governance and service delivery inpriority sectors; (iii)sectoraldevelopmentstrategiesintherural,health,andeducationsectors, andrelated implementation plans; and (iv) improved debt management. These triggers are considered essential to the success of the enhanced HIPC Initiative inthe DRC. Assuming that the full PRSPis completed inthe third quarter of 2005, as is currentlyplanned, the enhanced HIPC Initiativecompletionpoint could be reachedin the third quarter of 2006. 25Assumedto be committed by some Paris Clubmembers on a voluntary bilateralbasis. - 25 - B. TheViews of the Authorities 64. The authorities of the DRCwelcome the possible contribution o fresources under the enhanced HIPC Initiative to their ongoing efforts to alleviate poverty. The government i s elaborating its poverty reduction strategy and i s committed to ensuringthat the PRSP process remains participatory and focused on poverty reduction. The government has prepared indicative plans for the use o f interimassistance under the enhancedHIPC Initiative. The government concurs with the triggers for a floating completion point outlined inBox 6 and hopes that donors will continue to support its efforts to reduce poverty. 65. The government also notes that the review o f external debt under the enhanced HIPC Initiative has provided an invaluable opportunityto improve its management and tracking of public sector external debt and to deepen its reforms aimed at improving the management o f public sector resources for poverty alleviation. C. Monitoringthe FloatingCompletionPoint Triggers 66. The staffs of the IMF and IDA will work together closely to monitorthe completion point triggers,with each institution leadingon issues where its staffhas primary competence, while also incorporating contributions of the staff from the other institutions. The IMF staff will take the lead inmonitoring macroeconomic stability, andbudgetcontrol and management; IDA staff will take the lead inmonitoring progress inthe preparation and implementationo f the PRSP, as well as progress on sector-related triggers, including those pertaining to governance and service delivery. Poverty-related expenditures (including those financed by enhanced HIPC Initiative resources) and progress in improvingdebt management will be monitoredjointly by both staffs. D. The Use andMonitoringofEnhancedHIPC InitiativeDebtRelief 67. The authoritiesare committedto ensuringthat the assistanceunder the enhanced HIPC Initiativeis usedto enhance poverty-relatedspending.Untilthe completion point i s reached, poverty-related expenditures, excluding those financed by external project assistance, are expected to increase by the amount o f HIPC assistance. A special account will be opened at the BCC, at least for the first year o f enhanced HIPC Initiative assistance, to record receipt o f enhanced HIPC Initiative assistance. Use o f the resources inthis account will be limited to financing agreed poverty-related expenditures, and to this end, the account will be subject to independent audits, with the results made publicly available. 68. The authorities have identified their overall poverty-related expenditures inthe 2003 budget usingtheir new economic, administrative, and functional classification system, with details on each project and program, including geographic location.26Progress inthis area was 26The supplementary budget for 2003 that will be presented to parliament inlate July 2003 (see EBS/03/98, 7/9/03) follows the same approach. - 26 - reviewedjointly by the IMF and IDA staffs at the time o f the second review under the IMF's PRGFarrangement (May-June 2003) and was found to be satisfactory. Poverty-related expenditure i s expected to include, inter alia, health (Le., medical equipment, provision o f medicine, rehabilitation o f health infrastructure, including health zones, health centers, and hospitals); education (Le., renovation and equipment o f schools, provision o f teaching materials and textbooks); agriculture and fisheries (Le,, cropping activities, fishing, and livestock production); rural andurban development (Le., rural roads and social housing); and social protection programs. 69. Monitoringand evaluationof poverty-relatedexpenditurewill take into account the recommendationsof the AAP that was prepared as part o f IDA'S2002 public expenditure review to help the authorities improve their capacity to monitor the use of poverty-related expenditure, including expenditurefinancedby enhanced HIPC Initiative assistance. In particular, the following will be done: 0 The overall composition o f expenditure will be tracked. Expenditures are beingclassified by function, administration, and economic nature based on the new budget classification system, and will be monitored by the authorities in consultation with IDA and IMF staffs to ensure a shift inthe composition o f expenditure toward priority sectors for growth and poverty reduction. New codes have been introduced to identifypoverty-related expenditure inthe budgets o f particular ministries, in accordance with the I-PRSP, and will be introduced to track the geographical distribution o f expenditure (Appendix 11); and 0 Public expenditure-tracking exercises, and related beneficiary-supplier assessments, will be undertaken inpriority sectors (e.g., health and education), with assistance from IDA, to assess whether budgetary resources are used, and publicly financed goods and services provided, as intended. 70. Furthermore, these monitoring and evaluation activities will involve substantial consultation with stakeholders inthe poverty-relatedexpenditureand service delivery chain, via a participatory monitoring/oversight committee to be created in July 2003. The committee will comprise national and local representatives of civil society, as well as members of the international donor community. This approach has been effectively followed in other countries. E. Progress Toward the MillenniumDevelopmentGoals 71. The analysis supporting the I-PRSP finds that structural constraints prevent the DRC from achieving the international goal o f reducing absolute poverty by half by 2015 and meeting the 2015 goal for absolute poverty reduction. Evena more modest objective of reducingthe incidence o f poverty from today's 80 percent to 60 percent would require a probablyunattainable average annual real GDP growth rate o f about 8 percent (assumingthat population growth continues at about 3 percent per year). Nevertheless, the DRC authorities remain determinedto make significant progress toward the MDGs (Box 7). - 27 - 72. The PEGwill support progress toward the MDGs inthe interim periodbetween the decision and completion points, while consolidating macroeconomic stability. It aims at raising the growth rate through a substantial increase inpublic and private investment, as well as a markedincrease in exports o f the DRC's abundant natural resources, while maintaining environmental sustainability. Efforts to raise the growth rate will be buttressedby the governance, structural, and institutional reforms outlined in Section 111. 73. Effectiveimplementationof the government's programsto improveaccess to health care, education, and social protectionwill clearly help the DRC makeprogress toward the health- and education-related MDGs. Inthe health sector, the key objective i s to design and implementa costed strategy that will improve access to health care for at least 50 percent o fthe population inthe targeted health zones. Education efforts will focus on designing a well-costed strategyfor the provision o f universalprimary education. VI. ISSUES FORDISCUSSION 74. This paper presents a decision point assessment o fthe DRC's eligibility for assistance underthe enhanced HIPC Initiative andseeks endorsement o fthis assessment. Executive Directors' views are sought on the following: 0 Eligibilityand decision point.D o ExecutiveDirectors agree that the DRC is eligible for reliefunder the enhanced HIPC Initiative and recommend approval o f a decision point? 0 Amount and deliveryof assistance. Consistent with a reduction o f the N P V o f debt-to- exports ratio to 150 percent, total assistance under the enhanced HIPC Initiative i s estimated at US$6.3 billioninNPV terms. Of this amount, US$472 million inNPV terms (the SDR equivalent will be determined on the day of the IMF Executive Board meeting) i s to be provided by the IMF, and US$831 millioninNPV terms by IDA.D o Executive Directors agree that the IMF and IDA should provide interim assistance between the decision and completion points in line with existing guidelines? 0 Floatingcompletionpoint.D o ExecutiveDirectors agree that the floating completion point will be reached whenthe triggers inBox 6 havebeenmet? Debt reliefwill be provided unconditionally only when both the completion point triggers have beenmet and satisfactory assurances o f other creditors' participationunder the enhanced HIPC Initiative for the DRC have been received. - 28 - Box 1. Selected Poverty and Living Standard Indicators (Inpercent, unless otherwise specified) Indicator DRC Sub-Saharan Africa Latest single year 1994-2000 Population, midyear (millions, 2001) 54 659 Population growth rate (2001) 2.7 2.6 Nominal GDP per capita (inU.S. dollars, 2002) 99 470 Infant mortality rate (per thousand, 1998) 128 91 Child mortality rate (per thousand, 1998) 207 162 Maternal mortality rate (per 100,000 live births) (1998) 1,289 ... HIViAIDS prevalence (adults, 2001) 4.9 8.0 HIVIAIDS prevalence among women inconflict areas (2001) 8.0 ... Literacy rate (2001) Male 83 69 Female 54 53 Gross school enrollment rate (1998) Male 49.7 85.0 Female 44.0 71.0 Impact o f conflict Child soldiers (thousands) 10.0-1 5.o Displaced persons (millions) 2.0-3.0 Deaths from war and deprivation (millions) 3.3 Sources: Congolese authorities; World Bank; and UnitedNations Children's Fund(UNICEF). - 29 - Box 2. Status of the DRC's Arrears ClearanceArrangementswith ExternalCreditors Multilateralcreditors IMF.Arrears inthe amountof SDR 403.9 million to the IMF were clearedon June 12, 2002 using the proceeds of abridge loan from Belgium, France, Sweden, and South Africa, which was, inturn, repaidthrough the first purchaseunderthe PRGFarrangementthat was provided on standardPRGF terms. World BankGroup.On July 3,2002, arrearsto the IBRD, IDA, and on the EUloan administeredby IDA, totaling USS331.3 million, were clearedusing the proceedsof abridge loan from Belgium and France, which, in turn, was repaidusing the first tranche of the ERC that was provided on standardIDA terms.' AfDB Group.US$48.9million inarrearsto the AfDF were clearedon July 1, 2002 using internal AfDF resources.Arrears to the AfDB totaling USS856millionwere clearedretroactive to July 1, 2002. Interest arrears were reducedby a partial payment funded by bilateral resources, an AfDF loan, and a USSl millionupfront paymentby the DRC. The remaining arrears were consolidated with current maturities and rescheduledover 20 years, including a two-year grace period. The initial interest payment on the consolidatedamountwill be paid through donor resources and will be transferredfrom the AfDB's net income into arevolvingaccount to ay interest on an ongoing basis. As a result, the DRC will not pay interest on the reprofiled loans. Y BEAC.An agreement was signedwith the BEAC on January 9, 2001 that rescheduledarrears totaling SDR 28.1 million over nine years, which includes a three-year grace period. IFAD. On December 7,2002, IFAD concludedan agreementwith the DRC to reprofile arrears amounting to USs8.4 million over five years, which includes a two and ahalf-year grace period. The initial payment of US$1.5 million was paid by abilateral donor. BADEA.An agreement was signedwith BADEA on March 20, 2003 that rescheduledarrears of USS32 million outstandingat end-March 2003 over 15 years with no grace period. OPEC Fund. An agreement to settle arrears was concluded inApril 2003. Arrears clearance procedures,based on agreedplans, are being finalized with the EU and the EIB. Paris Club creditors A flow reschedulingagreement on Naplesterms was concludedwith Paris Club bilateralcreditorson September 13,2002. 0 Pre-cutoff-datedebt.Arrears on principal and interestdue as of June 30,2002 were rescheduled over 40 years, with a 16-yeargrace period for ODA loans; 67 percent of non-ODA loanswere cancelled, while the remaining 33 percentwere rescheduledover 23 years with a six-year grace period. 0 Short-term debt. Onehundredpercent of the amounts of principal and interest due as of June 30, 2002 will be repaid over seven years with a six-month grace period. 0 Post-cutoff-datedebt.One hundredpercentof the amounts of principal and interest due as of June 30, 2002 will be repaid over seven years with a six-month grace period. Other officialbilateraland commercialcreditors 0 The governmenthas initiated contactsto obtain at leastas favorable terms with other official bilateral and commercialcreditors. End-December2002 exchange rates were used inthese calculations - 30 - Box 3. Comparisonbetweenthe PreliminaryDocumentand the DecisionPointDocument (Inmillions ofU.S.dollars, unless otherwise indicated) Preliminary Decision Point Document li Document Percentage End-2001 End-2002 Difference Change Nominal stock o f extemal debt 12,880 10,659 -2,22 1 -17.2 Multilateral 3,332 3,591 258 7.8 Paris Club bilateral 8,780 6,353 -2,427 -27.6 Non-Paris Club official bilateral 435 437 2 0.4 Commercial 166 279 113 68.2 Short-term debt in arrears for more than one year 21 167 0 -167 ... NPV of extemal debt Before traditional mechanisms 12,130 8,404 -3,725 -30.7 After traditional mechanisms 7,267 7,868 601 8.3 Exports o f goods and services (three-year average) 996 1,038 42 4.2 NPV of debt-to-exports ratio (inpercent) 730 758 28 3.9 Common reduction factor (inpercent) 79.4 80.2 0.8 1.o NPV o f enhanced HIPC Initiative debt relief 5,773 6,311 539 9.3 ~~~~ Sources: Creditor statements; Congolese authorities; and staff estimates. li EBS102188 (5i24102) and IDA Report No. 24213 (5123i02). 21The decision point document does not have a separate category o f short-term debt inarrears for more than one year. Instead, this debt is classified with its relevant creditor country. - 3 1 - Box 4. MainAssumptions inthe Debt SustainabilityAnalysis The following macroeconomic assumptions have beenused for the 20-year baselineDSA projections: Real GDP growth averages 5.3 percent over 2003-22, rising from an average of 4.7 percent over 2002-04 to 7 percentover 2005-06, and subsequently deceleratinggradually to 4 percent. The annual rate of inflation, as measuredby the consumer price index, i s projected to decelerate from 16 percentin2002 to 5 percent in2005 andbeyond. The fiscal sector i s assumedto double its share in the economy and revenue, excluding grants, i s assumed to increase from about 8 percentof GDP in 2002 to 16percent in 2022. Gross official external financing (grants plus loans) is expectedto average 14.8percent of GDP during 2003-05 before declining to about 3 percentof GDP in2022, roughly the same share as inthe early 1990s.External financing, net o f principal repayments, i s expectedto remain positive throughout the projection period, averagingabout 12percent of GDP over 2003-05 before declining to about 1percentof GDP in2022. The composition of gross financing is expectedto shift away from grants toward loans. Official grants are assumedto average about 7.5 percent of GDP through 2003-05, to fall to about 1percentby 2022. All official grants are assumedto pass through the treasury from 2009 onward. Official loan financing is initially assumedto be mostly at concessionalrates on terms comparableto those of IDA. Modest amounts of governmentborrowingon nonconcessional terms (one-yeargrace period and eight-yearmaturity at a 5 percent interestrate) are assumedto start in2011. Private capital flows. Foreigndirect investmentis assumedto average about 4 percent of GDP during the projection period. Private borrowing on nonconcessionalterms (one-year grace period and five-year maturity at a 7 percent interest rate) is assumedto begin in2011. Growth in goods and services export receipts (in U.S. dollars) is assumed, after arelatively small increasein2003, to reachapeakrate of 15.4percent in2005, andthen to decline continuously to 3.4 percentby 2022. The share of exports of goods and services inGDP i s projected to rise from 21.6 percent in2002 to 27.2 percentin2008, andto decline gradually to 24.6 percentby 2022. Imports of goods and services inU.S. dollars are projectedto reach, after their steep increase in2002, agrowthrateof23.4percentin2004, anddecline continuously thereafter.However, the composition o f imports is expectedto shift significantly and aid-relatedimports are expectedto fall from about 11.5 percent of GDP in2005 to about 1percent by 2022. Gross official reserves are projected to reach 11.6 weeks o f non-aid imports of goods and services by 2005 and about 36 weeks of non-aid imports by 2022. - 32 - Box 5. Sources of Growth The staff of the IMF has conducteda study on the sourcesof growth inthe DRC (SM/02152,2106103). The main finding of this paper is that inappropriateeconomic policies (through their effects on total factor productivity and investment)badly hurt economic growth inthe DRC during 1960-2000. Looking forward, the study concludesthat the right policies are beingput inplaceto lay the foundation for reconstructionand improved economic performance. Growth accounting exercise. A growth accountingexercise is usedto decompose the sources of growth in output per worker betweenchanges inphysical capital per worker and total factor productivity (TFP). The mainresults are summarizedas follows: At the macro level. Annual output per worker postedanegativeaverage annual growth rate of 3.3 percent during 1960-2000. Negative TFP growth contributed to 60 percent of this decline, while the decline inphysical capital per worker accounted for 40 percent. At the sectoral level. Inthe agricultural sector, which experiencedzero average annualTFP growth during 1960-2000, negativephysical capital growth explainedthe negativeannual average growth of output per worker of 1.7percent over this period. Inthe transport sector, TFP declines accounted for 92 percent of the negativeannual average 6 percentgrowth of output per worker during 1960-2000. The mining sector recordedsome TFP growth gains, but mining output per worker fell by an averageof 4.1 percent per year, owing to the rapiddecline inphysical capital per worker. Sectoral contributions to real GDP. An analysis of sectoralcontributions to economy-wide growth indicates that the mining and transport sectors account for the negative average annual real GDP growth rate of 0.3 percent during 1960-2000. Policy determinants of growth. An econometric analysisof the policy determinants of growth reveals that highinflation rates and large budgetarydeficits hada substantialnegativeimpact on economic growth during 1960-2000. Politicalturmoil, conflicts, and war also exacerbated this poor performance. Medium-term growth prospects Sound macroeconomic policies and far-reaching structural reforms are alreadyhaving a positive effect on growth through improved resourceallocation. The DRC's growth prospectsare also enhancedby its untapped potential inthe mining, agriculture, forestry, and energy sectors. Copper production to date has declinedto about 5 percent of its 1985 peak of more than 500,000 metric tons; cobalt production has fallen by 70 percent frompre-conflict levels; zinc production has virtually ceased, comparedwith acapacity of 200,000 metric tons; gold production has practically ceased, comparedwith a capacity of 6 metric tons; tinproduction has ceased; and manganeseproduction i s very low, comparedwith a capacity of 360,000 metric tons. Inlight o fthe far-reaching structural andsectoralreforms being enactedandenvisagedunder the Government Economic Program(PEG), as well as the increase inforeign-financed projects, an average growth rate of 6 percent is projected over the next three years, 2003-05, which i s in line with that of other post-conflict countries. - 33 - Box 6. Triggersfor the FloatingCompletionPoint 1. PRSP Completion o f a full PRSP through a participatory process and its implementation for one year, duly documented inthe DRC's annual progress reports and confirmed as satisfactory by ajoint staff assessment (JSA). 2. Macroeconomic stability Continued maintenance o f macroeconomic stability after reaching the decision point, as evidenced by satisfactory performance under the PRGF-supportedprogram. 3. Use of budgetary savings Use o f budgetary savings resulting from enhanced HIPC Initiative-related debt-service relief during the interim period for poverty-related expenditures in accordance with the I-PRSP, with supporting documentation. 4. Public expenditure management (a) Implementation o f a modernized budget-execution system, providing information from commitment to payment, and allowing for the monitoring o f arrears; (b) adoption and implementation o f a double-entry government accounting system and a new chart o f accounts; and (c) production o f quarterly budget execution reports using economic, administrative, and functional classifications. 5. Governance and service delivery inpriority sectors (a) Completion o f a budget-tracking exercise on health, education, rural development, and infrastructure expenditure, consisting o f (i) monitoring the execution o f poverty-related public expenditure; (ii)evaluation by user groups o f the quality o f related public services; and (iii)evaluationbyserviceprovidersofconstraintstoeffectiveprovision;and(b)adoptionand implementation o f a new procurement code and key implementing decrees. 6. Social and rural sectors Adoption o f satisfactory sectoral development strategies and related implementation plans for health, education, and rural development. 7. Debt management Installation and full activation o f a computerized debt-recording system, covering all public and publicly guaranteed debt, as well as public enterprise debt not carrying the guarantee o f the State that can (a) produce monthly debt-service projections, and incorporate actual disbursement and debt- service payment execution data, and (b) support the centralization o f debt information ina single center. Inaddition, monthly debt-service projections will be published inadvance on a quarterly basis. - 34 - Box 7. MillenniumDevelopmentGoalsfor 2015 and Targets Targets for the DRC The DRC's Status Eradicateextreme poverty and Reduceby half the number of Urban average per capita hunger people whose income is less expenditure believed to be well than US$1per day. below US$lper day; and rural figure muchlower still (2001). Reduce from 16millionto 16 millionpeople 8 millionthe number of people malnourished(2000); chronic who suffer from hunger. childmalnutrition rate 13 percent. Achieve universalprimary Ensure that boys and girls Primary school completion education alike will be able to complete ratevaries by province from primary school. 27 percentto 72 percent (provincesunder government control, 2001). Promotegender equality and Eliminate gender disparity in Gross enrollment rate: empower women primary and secondary 49.7 percent (boys), education,preferably by 2005, 44.0 percent (girls). and at all levelsno later than 2015. Reduce child mortality Reduceunder-5-year-old 207 per thousand(1998). mortalityrate by 136per thousand, from 207 to 71. Improve maternalhealth Reduce maternalmortality by 1,289 per 100,000 live births 867 deaths per 100,000 live (1998). birthsto 422. Combat HIVIAIDS, malaria, Halt andbegin to reverse the HIV infectionrates increased and other diseases spread o f HIV/AIDS. sixteen-fold during 1990- 2000, and 8 percent of women inconflict areas are HIV positive. Halt and begin to reverse the Malaria caused 52.4 percent of prevalenceo f malaria and all registereddeaths; more than other major diseases. 500,000 deaths per year and 120million acute cases per year. Tuberculosis caused 40 percent of registereddeaths. Sleepingsickness caused 12.5 million infections. Ensureenvironmental Integratethe principles of New forestry code (2002) sustainability sustainable development into reflects sustainablepractices. country policies andprograms Ongoing pillaging of natural andreverse the loss of resources covered inreport to environmental resources. the UNSecurity Council (2002). Sources: I-PRSP (2002); and Public Expenditure Review, 2002. - 35 - Figure3. Democratic Republic of the Congo: Compositionof ExternalArrears at End-December2001, by Creditor Type (Inpercent oftotal) NominalValue of ExternalArrears:US$10,646 million Non-Paris Club bilateral Commercial Paris Club bilateral post- 3.4% 2.4% cutoff date Multilateral 11 no/ Paris Club bilateral pre- cutoff date 70.9% Sources:Congoleseauthoritiesand staffestimates. - 37 - Figure4. DemocraticRepublicofthe Congo:Effect ofDebt Relief inNPV Terms on NPV ofPublic ExternalDebt, End-2002 (In millions ofU.S.dollars) 12,000 - 10,000 - $8,404 $7,868 0 Before normalization After traditional After (unconditional) After possiblevoluntary mechanisms 1/ HIPC assistance 2/ forgiveness31 Sources: Congoleseauthorities; and staff estimatesand projections. 1/Net presentvalue after traditional debt reliefreflects ahypothetical stock-of-debt operation by Paris Club creditors on Naples terms at end-2002, and at least comparable action by other official bilateral and commercial creditors on eligible debt (pre-cutoffdate and non-ODA). 2/ Assumes interimrelief under the enhancedHIPC Initiative during August 2003-July 2006 and full delivery of assistance from the third quarter of 2006. For assumptionson the modalities by which relief is delivered, see footnote 3 of Table 9. 3/ Reflects assistancebeyondthe enhancedHIPC Initiative provided by some Paris Club creditors on a voluntary basis. - 38 - Corrected: 7/21/03 Figure 5. Democratic Republic of the Congo: External Debt Profile, Net Present Value of Debt-to-Exports Ratio, 2002-22 1/ (In percent) 800 700 600 500 400 300 200 100 0 I 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sources: Congolese authorities; and staff estimates and projections. 1/ Includes new borrowing from 2003 onward. - 39 - Corrected: 7/21/03 Figure 6. Democratic Republic of the Congo: External Debt Profile, Net Present Value of Debt-to-GDP Ratio, 2002-22 1/ (In percent) l - After traditional mechanisms -_-_HIPCAfter assistance 0 '2002 I 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 ~~ Sources: Congolese authorities; and staff estimates and projections. 1/ Includes new borrowing from 2003 onward. - 40 - Corrected: 7121/03 Figure 7. Democratic Republic of the Congo:Net Present Value of Debt-to-Exports Ratio, Different Scenarios,2003-22 1/ (In percent) 65C ~ Baseline scenario 60C 55c 1 1 1 Reduced performance scenario 500 450 - 1 'Lower concessionality on new borrowing 400 350 300 250 200 150 -------- 100 --c-- 50 Assumed completion point 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sources: Congolese authorities; and staff estimates and projections. 11Includes new borrowing from 2003 onward. -41 - Table 1. Democratic Republic of the Congo: Selected Economic and Financial Indicators, 2000-05 2000 2001 2002 2003 2004 2005 Staff Staff Staff Staff Staff Staff Report Report Report Report Report Report Est Est 121 131 HlPC 121 131 HlPC 131 HIPC 131 HIPC (Annual percentage changes) Output and prices Real GDP -7 -2 3 3 3 5 5 5 6 GDP deflator 516 403 27 27 27 14 14 14 8 Consumer prices, annual average 550 357 25 25 25 13 14 14 7 Consumer prices, end of period 511 135 15 16 16 6 8 8 6 External sector Exports, f o b (in US dollar terms) -8 -I 15 24 24 6 6 6 14 14 16 16 Imports, f o b (in US dollar terms) 49 19 33 31 31 29 22 22 23 25 20 19 Export volume -4 -5 14 15 15 I O 7 7 14 14 9 9 Import volume 51 24 31 30 30 26 12 12 23 24 18 18 Terms of trade -3 9 0 6 6 -6 -9 -9 0 0 6 6 Nominal effective exchange rate I1 -83 -84 -71 -71 -71 Real effective exchange rate I1 -18 -6 -58 -58 -58 (Annual change in percent of beginning-of-period broad money, unless otherwise indicated) Money and credit Broad money 493 217 22 26 26 17 20 32 Net foreign assets -710 -695 2 I O I O 9 16 27 Net domestic credit 343 31 -17 -16 -16 8 8 8 Net credit to the government 272 -7 -18 -17 -17 0 0 0 Credit to the private sector 61 37 0 I 1 8 8 8 Credit to parastatals I O 0 0 0 0 0 0 0 Central bank refinance rate (level in percent) 21 120 140 24 24 24 27 25 25 (In percent of GDP) Central government finances Revenue (excluding grants) 5 1 6 2 7 9 7 9 7 9 8 3 8 3 8 3 9 0 9 0 I O I I O 2 Grants (excluding humanitarian aid) 0 0 0 0 0.3 0 4 0 4 3 7 2 6 2 8 3 4 3 9 5 3 5 7 Expenditure 31 1 1 . 1 7 9 8.9 104 104 168 1 5 2 138 186 18 1 20 6 20 2 Domestic primary cash balance 41 - 3 9 0 6 1.4 1 4 1 4 2 1 1 7 1 7 3 0 3 1 4 5 4 5 Overall balance (commitment basis) -6.0 -1 6 -0 6 -2 0 -2 0 -4 8 -44 -2 7 -6 3 -5 I -5 2 -4 4 Overall consolidated cash balance 51 -4 I 0 5 -0.1 0 0 0 0 - 2 0 - 1 4 -07 - 3 7 -3 3 -3 4 -3 6 Investment and saving Gross national saving -12 0 5 9 2 Ill I 1 1 146 137 143 146 15 1 I 6 9 I 7 8 Government -5 6 -I5 1 3 1 3 1 3 4 8 3 1 3 9 4 4 5 1 7 0 7 0 Nongovernment 4 4 2 1 7 9 9 8 9 8 9 8 106 105 1 0 2 100 9 9 I O 8 Gross domestic saving 4 4 3 2 3 7 4 9 4 9 5 2 5 8 5 8 7 6 7 6 8 9 8 9 Government - 3 6 -02 1 1 1 1 1 1 2 5 2 1 2 1 2 9 2 7 3 8 3 7 Nongovernment 8 1 3 5 2 7 3 8 3 8 2 7 3 7 3 7 4 7 4 9 5 1 5 3 Investment 3 5 5 2 9 1 9 0 9 0 157 135 135 181 I 8 4 21 0 21 2 Government 61 0 5 0 1 I 1 I O I O 6 2 4 0 4 0 7 6 7 9 I O 0 I O 2 Nongovernment 71 3 0 5 1 8 0 8 0 8 0 9 5 9 5 9 5 105 I O 5 11 0 I 1 0 (In millions of US dollars, unless otherwise indicated) Balance of payments Exports of goods and services 963 961 1,109 1,189 1,189 1,178 1,265 1,265 1,437 1,437 1,659 1,659 imports of goods and services 920 1,067 1,405 1,415 1,415 1,781 1,686 1,686 2,063 2,080 2,448 2,461 External current account, incl. grants, before debt relief (in percent of GDP) -4.6 -4.7 -3.2 -2 9 -2 9 -5 0 -3 8 -2 5 -7 7 -7 0 -8 6 -8 1 External current account, excl. grants, before debt relief (in percent of GDP) -9 5 -10.2 -9.7 - 9 4 - 9 4 -142 -117 -103 -148 -14 1 -16 1 -15 6 External current account, incl. grants, after debt relief (in percent of GDP) 81 -4 6 -4 7 0.1 2 1 2 1 - 1 1 0 1 0 8 -35 -3 3 -4 1 -3 4 Gross official reserves(end of period) 51 22 86 75 75 178 191 222 254 287 341 381 Gross official reserves (weeks of non-aid-related imports) 3 . 8 1 4 4 2 3 6 3 6 7 7 8 0 9 4 9 1 1 0 2 I O 5 11 6 - 42 - Table 1 Democratic Republic ofthe Congo: Selected Economlc and Fmancial Indicators, 2000-05 (concluded) 2000 2001 2002 2003 2004 2005 Staff Staff Staff Staff Staff Staff Report Report Report Report Report Report Est. Est. 121 131 HIPC 121 131 HIPC 131 HIPC 131 HIPC External public debt Total stock, including IMF 91 12,609 13,280 9,890 10,434 10,659 10,159 8,728 8,203 9,082 8,551 9,474 8,942 Net present value of debt (NPV) IO1 11,888 12,504 7,163 8,404 7,456 7,734 7,838 8,055 8,131 8,244 Scheduled debt service (incl interest on arrears) 81 724 728 38 35 34 155 180 150 219 220 207 256 In percent of exports ofgoods 75 76 3 3 3 13 14 12 15 15 12 15 and services In percent ofgovernment revenue 331 218 8 8 7 22 30 25 30 29 20 25 Exchange rate Units of local currency per U S dollar (end of period) II1 50 312 382 382 382 418 418 Nominal GDP (in billions of Congolese francs) 297 1,464 1,911 1,915 1,915 2,281 2,298 2,298 2,627 2,627 2,989 2,989 Sources Congolese authorities, and staff estimates and projections I/Changeinannualaverage Minussignindicatesdepreciation 21For 2003, as of May 22 31Includes interest due on external debt (includes debt service on rescheduling) and, from 2003 onward, expenditure financed by resources released under the enhanced HIPC Initiative 41Revenue (excluding grants) minus expenditure (excluding interest on debt, foreign-financed expenditure, and HIPC-related expenditure) 51 Cash balance after interest rescheduling (including HIPC) Before 2002, excludes the central bank operations 61From 2003 onward, includes investment financed by resources released under the enhanced HIPC Initiative 71From 2003 onward, includes capital projects financed by nongovernmental organizations (NGOs) 81Negotiation of agreementswith Paris Club creditors, following the September 2002 Paris Club rescheduling, continued into 2003 and, as a result, amounts associated with these agreementsand due in 2002 were not finalized Consequently, amounts are carried over to 2003 when these agreementsare signed and the amounts due determined Similarly, amounts due to non-Paris Club and commercial creditors have not been finalized and are carried over to 2004 From 2003, debt service reflects possible assistance under the enhanced HIPC Initiative Debt-service data based on the end-2002 DSA in the present document, whereas debt service in the staff report for the second review of the PRGF-supported program based on the end-2001 DSA 91End-of-period debt stock, includingarrears and before possible enhanced HIPC Initiative assistance lO1The net present value ofexternal public debt is about 79 percent ofthe nominal value in 2002, reflecting the significant stock of arrears II1For2003,asofJune11 121See IMF EBS103112(2105103) 131See IMF EBS103198(7109103) - 43 - N :: -w N w N z -w w r c w u N 0 n w * w -w c N :: - N 0 0 w 8 8 c 5 B B x " w w N -8 8 - 44 - Table 3. DemocraticRepublicof the Congo: Summaryof CentralGovernment FinancialOperations,2000-05 2000 2001 2002 2003 2004 2005 Est Est Prel Est StaffReport HIpc StaffRepon HIPc StaffReport 131 131 I31 (In percent of GDP, unlessotherwise specified) Total revenue and grants 5 1 6 2 83 108 11 1 12 3 12 9 I 5 4 I5 9 Total revenue 5 1 6 2 7 9 83 83 9 0 9 0 I O 1 I O 2 Customs and excise (OFIDA) 1 7 2 1 2 9 3 7 3 7 4 5 4 5 5 0 5 0 Direct and indirect taxes (DGC) 13 I 5 2 1 23 23 23 23 2 9 2 9 Petroleum (royalties and taxes) 0 4 0 3 1 6 13 13 0 9 0 9 0 8 0 8 Off-budget revenue ' 13 1 7 0 6 0 1 0 1 0 0 0 0 0 0 0 0 Other 0 4 0 6 0 7 0 9 0 9 1 2 I 2 1 4 1 4 Total grants 0 0 0 0 0 4 2 6 2 8 3 4 3 9 5 3 5 7 Ofwhrch: HIPC assistance I1 0 4 0 7 1 1 1 7 2 2 2 6 Total expenditure 11 1 7 9 I O 4 15 2 13 8 18 6 18 1 20 6 20 2 Current expenditure 9 4 6 6 8 8 I O 9 9 4 10 5 9 4 9 6 8 8 Wages 2 5 1 6 2 1 2 2 2 2 25 2 5 2 2 2 2 Interest due 2131 2 1 13 3 2 5 1 3 6 5 0 3 9 4 4 3 6 Transfers and subsidies 0 8 0 3 0 3 0 9 0 9 0 5 0 5 0 6 0 6 Other current expenditure 4 1 3 3 3 2 2 7 2 7 2 4 2 4 2 4 2 4 Ofwhich: centralized payments 41 0 6 0 9 0 8 0 7 0 7 0 8 0 8 0 8 0 8 Off-budget expenditure 13 1 2 0 6 0 1 0 1 0 0 0 0 0 0 0 0 Capital expenditure 0 4 0 1 0 5 3 8 3 8 7 0 7 0 8 9 8 9 Foreign-financed 0 0 0 0 0 3 3 3 3 3 6 7 6 7 8 5 8 5 Domestic-financed 0 4 0 1 0 2 0 5 0 5 0 3 0 3 0 4 0 4 Other operations 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Guaranteeand Contingency Fund 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Net lending 0 1 0 0 0 4 0 0 0 0 0 0 0 0 0 0 0 0 Unallocated poverty-related expenditure 51 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 HIF'C-related expenditure 0 4 0 4 1 1 1 7 2 2 2 6 Overall balance (commitment basis) -6 0 -1 6 -2 0 -4 4 -2 7 -6 3 -5 1 -5 2 -4 4 Domestic pnmary balance (commitment basis) 61 -3 9 -0 3 1 1 1 8 1 8 3 2 3 2 4 6 4 6 Change in arrears 71 1 9 2 2 0 2 -0 1 -0 1 -0 1 -0 I -0 1 -0 1 Overall balance (cash basis, before interest rescheduling) -4 I 0 5 -1 8 -4 5 -2 8 -6 4 -5 3 -5 4 -4 5 Domestic primary balance(cash basis) 61 -3 9 0 6 1 4 1 7 1 7 3 0 3 1 4 5 45 Central bank operational result 81 -0 6 -0 4 .o 4 .o 4 -0 4 .o 3 -0 3 Overall consolidated balance (cash basis, before interest rescheduling) -2 4 -4 9 -3 2 -6 8 -5 6 -5 7 -4 8 Total financing 4 0 -0 4 2 6 4 9 3 2 6 8 5 6 5 7 4 8 Domestic financing 4 0 0 1 -1 0 0 0 0 0 0 0 0 0 0 0 0 0 Banks 4 0 -0 I -0 6 0 0 0 0 0 0 0 0 0 0 0 0 Nonbanks (certificates of deposit) 0 0 0 2 -0 4 0 0 0 0 0 0 0 0 0 0 0 0 Foreign financing 0 0 -0 5 3 6 4 9 3 8 6 8 5 6 5 7 4 8 Non domestic nonresident banks 0 0 -0 5 0 4 0 0 0 0 0 0 0 0 0 0 0 0 Amortization due before debt relief31 -7 9 -6 0 -4 8 -4 6 -2 8 -4 1 -4 1 -3 9 -5 7 Variation ofarrears 91 7 9 6 0 -188 0 0 0 0 0 0 0 0 0 0 0 0 0 New loans 0 0 0 0 1 3 3 5 3 5 6 5 7 0 6 7 7 7 Financing gap before debt relief 0 0 0 0 -194 5 -6 0 -2 5 -4 4 -2 7 -3 0 -2 8 Arrears consolidation 91 0 0 0 0 106 1 0 0 0 0 0 0 0 0 0 0 0 0 Arrears cancellation 91 0 0 0 0 81 8 0 0 0 0 0 0 0 0 0 0 0 0 Debt reliefbefore HIPC assistance 0 0 0 0 6 7 6 0 3 1 4 4 2 7 3 0 2 8 Financing gap after debt relief 101 0 0 0 0 0 0 0 0 -0 6 0 0 0 0 0 0 0 0 Discrepancy II1 -0 I 0 2 0 2 0 0 0 0 0 0 0 0 0 0 0 0 (Inpercent ofGDP, unlessothenvlse specified) Memorandum items. GDP (In billion of CGF) 297 1,464 1,915 2,298 2,298 2,627 2,627 2,989 2,989 Current pnmary expenditure (cash basis) 7 3 4 4 5 3 5.9 5.9 5 6 5 6 5 3 5 3 Domestic primary cash balance excl. unall exp -3 9 0 6 1 4 1.7 1.7 3.0 3 1 4 5 4 5 Overall consolidated cash balance 121 -4 I 0 5 0 0 -1 4 -0 7 -3 7 -3 3 -3 4 .3 6 Sources,Congolese authonties; and staffestimates and projections I 1 Reflects revised calculation ofHlPC assistancefrom 2002-based DSA HIPC assistance IS equal to (a) for official bilateral and commercial creditors, the difference between debt service due after a hypothetical Naples stock operation at end-2002 and debt service due after HIPC relief; and (b) for multilateral creditors, the difference between debt service due after arrears clearanceoperations and debt service due after HlPC relief. 21Scheduled interest before any treatment, plus interest on the September 2002 Park Club rescheduling from 2002, and interest on the rescheduling under the enhancedHlPC Initiative from 2003 Exludes interest on arrearsbefore 2002 31Negotiations ofagreements with Paris club creditors, following the September2002 Naples rescheduling, are still ongoing. As a result, amounts associatedwith these agreements and due in 2002 have not been finalized Consequently amounts are carried over to 2003 when it is expected that these agreements will be signed and the amounts due determined. Similarly, amounts due to non-Pans Club and commercial creditors have not been finalized and are camed over to 2004 From 2003 onward, debt service reflects possible rescheduling under the enhancedHIPC Initiative 41In 2001 and 2002, includes apreliminary estimate for accumulation of arrears on utilities (CGF 12 billion) Utilities payments and arrears to be surveyed in 2003 51 Contingent expenditure that will be mobilized only if the debt rescheduling assumptions matenalize 61The domestic pnmary balance is defined as revenue (excluding grants) less expenditure (excluding interest on debt, foreign-financed expenditure and HIPCdatedexpenditure) 71Internal and enemal arrears External arrears accruing in the first months of2002 before the debt reliefoperations are not show as they are consolidated during the same year 81 Central bank operational net losses amounted to CGF 15 7 billions in 2001 (Ipercent ofGDP). 91In 2002, arrears include interest and principal. 101Nonzero financing gap in 2003 owing to the revision ofdebt service data with the completion ofthe 2002-based DSA after the negotiation ofthe 2003 budget and completion ofthe UIF staffrepon for the second review ofthe PRGF.supported program Automatic adjusters will modify the program's performance critena to account for changes in programmed debt service. 111Discrepancy between monetary and fiscal data 121Cash balance after interest rescheduling (including HIPC) Before 2002, excludes BCC operations 131See IMFEBS103198 (7109103) - 45 - Table 4. Democratic Republic of the Congo: Stock of External Arrears at End-2001 (InmillionsofU.S. dollars, unless otherwise indicated) Arrears as o f Percent Creditor End-2001 11 o f Total Multilateral creditors 1,800.1 16.9 IBRD 128.0 1.2 IDA 189.6 1.8 AfDB Group 778.5 7.3 AfDB 737.9 6.9 AfDF 40.6 0.4 IMF 503.4 4.7 European Investment Bank 21.0 0.2 European Union (EUadministered) 79.8 0.8 European Union (IDA administered) 2.3 0.0 IFAD 7.6 0.1 BADEA 21.5 0.2 OPEC Fund 0.7 0.0 IFC 26.0 0.2 BDEGL 6.3 0.1 BEAC , 35.3 0.3 Bilateral and commercial creditors 8,845.6 83.1 Paris Club 8,229.4 77.3 Pre-cutoff 7,546.8 70.9 Post-cutoff 682.5 6.4 Non-Paris Club 365.6 3.4 Commercial 250.6 2.4 Total 10,645.6 100.0 Sources: Creditor statements, Congolese authorities, and staff estimates. liIncludesshort-termdebtinarrearsandestimatedpenaltyinterestonarrears. - 46 - Table 5. DemocraticRepublic of the Congo: NominalStockand NetPresentValue o f ExternalDebt Outstanding, by CreditorGroup, Beforeand After TraditionalDebtRelief, at End-December2002 NominalDebtStack After NPV of DebtAfter TradiuonalDebt NominalDebt Stack NPV of Debt TraditionalDebt Relief ReliefI1 US$million Percent US$nullion Percent US$million Percent US$mullion Percent of total of total of total of total Total 10,659.0 100 0 8,404.4 1000 10,127.0 100.0 7,868.1 100 0 Multilateral 3,590.6 33.7 3,084.3 36 7 3,590 6 35 5 3,084 3 39 2 IDA 21 1,511.6 I 4 2 1,036.5 12 3 1,511 6 I 4 9 1,036 5 13.2 AfDB Group 1,135.7 10.7 1,128.4 13 4 1,135.7 II2 1,128 4 14.3 AfDB 31 962.6 9.0 981 4 11.7 962.6 9 5 981 4 12.5 AfDF 31 173.1 1 6 147 0 1.7 173 I 1.7 1470 1.9 IMF 31 571 0 5.4 588 4 7.0 571 0 5 6 588 4 7.5 EuropeanInvestmentBank 25 2 0.2 25.2 0.3 25 2 0 2 25 2 0 3 EuropeanUnion 205 4 1.9 170 1 2 0 205.4 2.0 170 1 2.2 EU administeredby IDA 31 10 2 0 1 7 6 0 1 10 2 0 1 7.6 0. I IFAD 28 2 0 3 21 7 0 3 28 2 0.3 21.7 0 3 IFC 41 30.0 0.3 30 0 0 4 30.0 0.3 30.0 0.4 BADEA 21 7 0 2 21 7 0 3 21.7 0 2 21 7 0.3 OPEC Fund 0 7 0 0 0.7 0 0 0 7 0.0 0.7 0 0 BDEGL 7.8 0 1 7.8 0 1 7 8 0.I 7.8 0. I BEAC 315/ 43 0 0.4 46 2 0 5 43 0 0.4 46.2 0.6 Bilateralandcommercial 7,068.4 66 3 5,320 I 63 3 6,536 3 64 5 4,783.8 60 8 Paris Club 61 6,352.7 59.6 4,608 5 54.8 6,043.4 59 7 4,310.1 54 8 Pre-cutoffdate 5,282.8 49.6 3,701.2 44 0 4,973 5 49.1 3,402.8 43.2 ODA 794 5 7 5 530.5 6 3 627 6 6.2 370 2 4 7 Non-ODA 4,488 4 42.1 3,170.7 37.7 4,345.9 10 6 3,032 6 38.5 Post-cut~ffdate 1,069.9 100 907 3 10 8 1,069.9 2.7 907 3 11.5 ODA 275.1 2 6 208 9 2 5 275.1 2 7 208 9 2 7 Non-ODA51 794 8 7 5 698 4 8 3 794 8 7 8 698 4 8.9 Austria 97 I 0 9 44 3 0.5 97.1 1.0 44.3 0 6 Belgium 1,361.0 12 8 591.3 7.0 1,298.7 12 8 522.8 6 6 Brazil 1 7 0 0 I 5 0.0 1.7 0 0 1.5 0.0 Canada 30 7 0 3 22 9 0.3 30.7 0.3 22.9 0.3 France 1,074 9 10.1 865 6 10 3 1,074 9 10.6 865 6 11.0 Germany 415 1 3 9 337 1 4 0 415.8 4 1 334 0 4.2 Italy 529 I 5.0 422.3 5 0 529 I 5.2 422 3 5.4 Japan 696.3 6 5 562 6 6 7 682.9 6.7 540 0 6 9 Netherlands 284.2 2 7 253 4 3 0 239 0 2 4 2105 2 7 Norway I 9 0 0 2 I O 4 0 1 I 9 0 0 2 10 4 0 1 Spain 18 I 0 2 15.8 0.2 18 I 0.2 15.8 0 2 Sweden 116.I 1 1 67 I 0.8 116.1 1.1 54 8 0 7 Switzerland 11.3 0. I 10 3 0 1 II3 0.I 10.3 0 1 UnitedKingdom 123 5 I 2 93 6 II 123 5 1.2 93.6 1 2 UnitedStates 1,574 8 14.8 1,310 3 I5 6 1,385 6 I3 7 1,161.2 14.8 Other official bilateral 436 9 4.I 433.0 5 2 290.1 2 9 273.6 3 5 Pre-cutoffdate 281.8 2 6 281.9 3.4 138.3 1 4 I29 2 1 6 ODA 27.7 0.3 27 1 0 3 27.7 0 3 I 9 5 0.2 Non-ODA 254.2 2 4 254 2 3.0 110.6 15 IO9 7 18 Post-cutoffdate 155.1 I 5 151 I 1.8 151.9 0.3 144.4 1 8 ODA 29 0 0 3 25 9 0 3 29.0 0 3 24 2 0.3 Non-ODA51 126 I 1.2 125 2 1 5 122.9 1 2 120 I 1 5 Burundi 4.0 0.0 4.0 0 0 1.3 0 0 1 3 0 0 Chma 38.8 0.4 35.5 0.4 38.8 0 4 33 7 0.4 Egypt 9 3 0.I 9 3 0 1 9 3 0 1 9 1 0 1 Israel 18.3 0 2 I8 3 0 2 18 3 0 2 18.0 0 2 Kuwait 95 5 0 9 95.5 1.1 41.7 0 4 41.3 0 5 Narmbia 1.9 0.0 1.8 0.0 0.6 0 0 0.7 0.0 Rwanda 0 8 0.0 0.8 0 0 0.3 0 0 0.3 0 0 SaudiArabia 27 7 0 3 27.7 0.3 27.7 0.3 I 9 5 0.2 Serbia and Montenegro 48 4 0 5 48 4 0 6 37.4 0 4 36 8 0 5 Tarwan Provinceof China 37 1 0.3 36 4 0 4 37 1 0.4 36.0 0 5 UnitedArab Emirates 155.2 1.5 155 4 1 8 77 6 0 8 76.9 1.0 Commercial 278 8 2 6 278 6 3.3 202 8 2.0 200 1 2 5 Belgium 133 1 1.2 132.9 1.6 100.6 1 0 99.5 1.3 France 28.9 0.3 28.9 0.3 28.9 0 3 28 4 0 4 Germany 2.9 0 0 2.9 0.0 1.7 0 0 1.6 0.0 Italy 11.4 0.1 11.4 0.I 8.0 0 1 7 8 0.I Netherlands 3 1 0.0 3.I 0.0 3.I 0 0 3 1 0 0 SouthAfrica 21 0 0.2 21.0 0 2 21.0 0 2 20 6 0 3 Switzerland 20 2 0 2 20.2 0.2 20.2 0 2 19.8 0 3 U~ted States 0 3 0.0 0.3 0 0 0.I 0 0 0.1 0 0 LondonClub 57.9 0.5 57.9 0 7 I 9 3 0 2 19 1 0 2 Sources: Creditorstatements, Congoleseauthoritiesandstaffestmates. I1Reflects the September 2002 ParrsClub rescheduling, wth comparabletreatmentby other bilateralandcommercialcreditors,and a hpothetical rtock.of-debt operationonNaples terms at end-2002 by Paris Club creditors,with comparabletreatment by other official bilateralandcommercialcrdtors on ell@bledebt @re-cutoffand"an-ODA) 21The NPV of the stock of debt includestheNPV reductionresulongfrom the treatmentof IDA andIBRD arrears UIJuly 2002 31The NPV of the stock of debt includestheNPV reductionresulungfrom the treatmentof arrearsbefore end.2002 41IFC has indicated that althoughthe DRC OMS 50 percent of the sharesinLes Grands H6tels du Congo, the Company's debt to IFC inrespectofthat loan is not anoblxgaoon, either actualor contingent, of the govemment.A resrmchlringof IFC'stnvestment, associated wth a possibledilutionof the govemment'srhareholdmgm the Company, undernegotmon IS and may be subnuttedto IFC'sBoardof Directorsfor considerationandapprovd m thenear future consistentuqth IFC'sown policiesandprocedures 51Stacksmcludeshort-termdebtthat has beeninarrears for morethan a year. 61The Paris Clubcutoff date is lune 30. 1983. - 47 - Table 6.DemocraticRepublic ofthe Congo: EnhancedHIPC Initiative Assistance under aProportional Burden-SharingApproach 1/ 2/ (Inmillions ofU.S.dollars, unlessotherwise indicated) Total Bilateral 31 Multilateral 41 CommonReduction NPV of Debt- Factor 51 to-Exports Target (In percent) (In percent) ~~~~ ~ (In NPV terms at end-2002) 150 6,311 3,837 2,474 80.2 Memorandum items: NPV of debt 61 7,868 4,784 3,084 Paris Clubcreditors 71 4,310 93.4 Of which: pre-cutoffdate non-ODA debt 3,033 104.7 Non-ParisClubcreditors 31 474 93.4 Target NPV 1,557 Three-year averageof exports 81 1,038 NPV of debt-to-exportsratio 91 758 Sources: Congoleseauthorities and staffestimates 11The proportionalburden-sharingapproach is describedin "HIPCInitiative-Estimated Costs and Burden-SharingApproaches" (EBS/97/127,7107197 and IDNSecM97-306, July 7, 1997). 21Reflectsthe September2002 ParisClub reschedulingwith comparable treatment by other bilateraland commercial creditors,and ahypotheticalstock- of-debt operationon Naplesterms at end-2002 by Paris Club creditors, with comparable treatment by other official bilateraland commercial creditorson eligible debt (pre-cutoffand non-ODA). 31Includesofficial bilateraldebt, commercial debt, and short-termdebt in arrears for more than one year. 41Includesmultilateral short-termdebt in arrears for more than one year. 51 Eachcreditor'sNPV reduction in percent o f its exposure at the decision point. 61Basedon end-2002 dataafter full applicationof traditionaldebt-reliefmechanisms. 7/ Includesofficial bilateraldebt and short-term debt in arrears for more than one year. 81Goods and service exports, as definedin IMF,Balance ofpayments Manual, 5thedition, 1993. 9/ Basedon the three-year backward-lookingaverage of goods and services exports ending in the baseyear ofthe debt sustainability analysis (i,e,, 2000-02). - 48 - Table 7.Democratic Republic o fthe Congo: Discount and Exchange Rate Assumptions, End-2002 Currency Name Discount Rate 1/ Exchange Rate 21 (Inpercent) Austrian schilling 31 5.55 13.12 Belgian franc 31 5.55 38.47 Canadian dollar 5.88 1.58 Chinese yuan 4.82 8.28 Danish krone 5.78 7.08 Deutsche mark 3/ 5.55 1.87 Euro 5.55 0.95 Finnish markaa 31 5.55 5.67 Frenchfranc 31 5.55 6.25 Irishpound 31 5.55 0.75 Italian lira 31 5.55 1,846.35 Japanese yen 1.75 119.90 Kuwaiti dinar 4.82 0.30 Luxembourg franc 31 5.55 38.47 Netherlands guilder 31 5.55 2.10 Norwegian krone 7.76 6.97 Portuguese escudo 31 5.55 191.17 Saudi Arabian riyal 4.82 3.75 Spanish peseta31 5.55 158.66 Special drawing rights 4.82 0.74 Swedish krona 6.11 8.83 Swiss franc 3.42 1.39 U.K.pound 5.84 0.62 U.S.dollar 5.12 1.oo Memorandum item: Paris Club cutoff date June 30, 1983 Sources: OECD and IMF, International Financial Statistics. 1/ The discount rates used are the average commercial interest reference rates (CIRRs) over the six-month period prior to end-December 2002 (Le., the end ofthe most recent period for which actual debt and export data are available). 21The exchange rates are expressed in units o f national currency per U.S.dollar at end-December 2002. 3 / These currencies were replaced by the euro on January 1,2002. However, some creditors had not yet converted their databases to euros by end-2002. The exchange rates quoted here are based on the end-2002 rate o f currency unit per euro at end-2001 and then converted from euros to U.S.dollars at the end-2002 exchangerate. 1 - 49 - 5 2 w N 0 -:: N 0 0 0' N 00 N 5 N '0 w m - 0 I w I? w 2 N -w 0- N 8 m 0 e w 0 0 g * 0 8 N 0 1 - 50 - - 51 - Corrected: 7/21/03 Y " P N 2:. '"N ;;% - 0 0. 5 2 Corrected: 7/21/03 a 3 I 5 - Q wd m m w X I-: ! 0 n N. P " l-0 N n . . c. N - 53 - *3A2 /j a -2 a w f w E A wP 'o w -w h N A a B s wc :: N - 2 L A B w E x w " -* w 0 - 54 - - 55 - - m 0 3 n N m 0 01 0 B 8 0 0 8 8 8 8 B 8 0 8 8 w w o 0 - h B 9 - m - 7 I " w 0 - 0 - "ID 01 0 * n - W m NC h 8 B 3 4fG: iiE i I - 56 - A h "l 0 - " "N, m, Lo e 0. N N0 R 0 -c 10 m 9 2 0 " - 0 Ol"l*N N N BP P 0 3 V m " P P t. n t. 9 e - * - - j u3 00 6 N N m 0 % -9 a z x0 '0 0 R 2 0 . M W m N o m - N w w, P P N 0 m o m 6 - . - m 2 - - 0 nW w co *h 0 . . 8E m m x k? N O - - N 0 m o m 0 w w0- - - n 10 *B 0 B m . . Ln h m N O - - 10 0 " l o m n w w0 o - - m m*0 8 . . . 0 n m -P N w o - w " 0 P h 0 N o m - 0 0 0 w * 8 0 .. P . $ 8 . VI 3 -57- - m ', 0 m 0 N m N tP- mO 0 N N N P-m P O N 0 - N r-0 P o 0 N 0 0 N rP- wO N 0 "1 r--0m N 0 '0 P O P W 0 N k l e P oO P 0 0 N 0 r-0 P D ? 0 N G. 0 rP- 0O - 0 N 0 m 0 :: PoO P 0 P 0 PDO P ? 0 N 10 0 r-0 P o 0 0 N VI 0 rr-0 - m 0 N U 0 P m P O 0 N m 0 :: : rN- - 58 - Table 17. Democratic Republicof the Congo: The FiscalImpactof the EnhancedHIPC Initiative 2003 2004 2005 2006 (In millions of U.S.dollars) Relief given A. Interest due before HIPC debt relief 11 62.6 98.7 162.6 234.2 B.Interestpaid beforeHIPC debt relief l / 62.6 98.7 162.6 234.2 C. HIPC reliefon interest ... ... ... 30.1 D.Interest due after HIPC debt relief 11 62.6 98.7 162.6 204.1 E. Amortization due before HIPC debt relief I/ 120.3 201.3 319.8 447.2 F. Amortization paid before HIPC debt relief 11 120.3 201.3 319.8 447.2 G. HIPC reliefon amortization ... ... 54.5 H.Amortization due after HIPC debt relief l / 120.3 201.3 319.8 392.7 I.HIPCreliefprovidedasgrants21 3.8 15.5 19.0 29.5 J. HIPC relief provided as exceptionalfinancing 31 29.4 64.1 207.4 255.0 Total HIPC debt relief (C+G+I+J) 33.1 79.6 226.4 369.1 Net cash flow to the budget from HIPC debt relief B+F-(D+H-I-J) 33.1 79.6 226.4 369.1 Memorandumitems: Other donor flows 695.6 916.1 1070.3 912.5 Total net external flows (net external financing less debt servicedue) 525.8 719.7 814.3 600.2 (In percentof GDP) Impact on central government expenditure Baseline pre-HIPCdebt relieftotal expenditure 13.3 16.4 17.6 18.8 Post-HIPC debt relief total expenditure 13.8 18.1 20.2 21.0 Memorandumitems: Revenue, excludinggrants 8.3 9.0 10.2 11.0 Overall fiscal balance before HIPC debt relief -2.7 -5.1 -4.4 -3.2 Overall fiscal balance after HIPC debt relief 41 -3.1 -6.7 -6.8 -5.3 Sources: Congolese authorities; and staff estimates and projections. 11Negotiationof agreements with Paris Club creditors, following the September2002 Paris Club rescheduling, continued into 2003 and, as aresult, amounts associated with these agreements and due in 2002 were not finalized. Consequently,amounts are carriedover to 2003 when these agreements are signedand the amounts due determined. Similarly, amounts due to non-Paris Club and commercialcreditors have not been finalized and are carriedover to 2004. 21IncludesIMF relief. 31IncludesIDA relief. 4/ Reflects only the portion of enhanced HIPC Initiative relief provided as grants. - 59 - Corrected: 7121/03 ' 0 I O 0 0 z z 2 0 $$ j $ uB uB $ u Bd, V - 60 - Table 19. Enhanced HIPC Initiative: Status of Country Cases Consideredunder the Initiative, June 2003 Target EstimatedTotal NPV ofDebt-to- Assistance Levels 11 Percentage Nominal Debt Decision Completion Gov. (Inmillionsof U.S.dollars, present value) Reduction Service Relief Country Point Point Exports Revenue Multi- ~World in NPV of (Inmillionsof (Inpercent) Total Bilateral lateral IMF __- Bank Debt 21 U.S.dollars) Completion point reachedunder enhanced framework Benin Jul. 00 Mar. 03 150 265 77 189 24 84 31 460 Bolivia 1,302 425 876 84 194 2,060 Original framework Sep.97 Sep. 98 225 448 157 291 29 54 14 760 Enhancedframework Feb.00 Jun.01 150 854 268 585 55 140 30 1,300 BurkinaFaso 553 83 469 57 231 930 Original framework Sep. 97 Jul. 00 205 229 32 196 22 91 27 400 Enhancedframework Jul. 00 Apr. 02 150 195 35 161 22 79 30 300 Topping-up ... Apr. 02 150 129 16 112 14 61 24 230 Mali 539 169 370 59 185 895 Original framework Sep. 98 Sep. 00 200 121 37 84 14 43 9 220 Enhancedframework Sep. 00 Feb. 03 150 417 132 285 45 143 29 675 Mauritania Feb. 00 Jun. 02 137 250 622 261 361 47 100 50 1,100 Mozambique 2,023 1,270 753 143 443 4,300 Original framework Apr. 98 Jun. 99 200 1,717 1,076 641 125 381 63 3,700 Enhancedframework Apr. 00 Sep. 01 150 306 194 112 18 62 27 600 Tanzania Apr. 00 Nov. 01 150 2,026 1,006 1,020 120 695 54 3,000 Uganda 1,003 183 820 160 517 1,950 Original framework Apr. 97 Apr. 98 202 347 73 274 69 160 20 650 Enhancedframework Feb. 00 May 00 150 656 1I O 546 91 357 37 1,300 Decisionpoint reachedunder enhanced framework Cameroon Oct. 00 Floating 150 1,260 874 324 37 179 27 2,000 Chad May. 01 Floating 150 170 35 134 18 68 30 260 Ethiopia Nov. 01 Floating 150 1,275 482 763 34 463 47 1,930 Gambia, The Dec. 00 Floating 150 67 17 49 2 22 27 90 Ghana Feb. 02 Floating 69 250 2,186 1,084 1,102 112 781 56 3,700 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 Guyana 585 220 365 74 68 1,030 Original framework Dec. 97 May 99 107 280 256 91 165 35 27 24 440 Enhancedframework Nov. 00 Floating 150 250 329 129 200 40 41 40 590 Honduras Jul. 00 Floating 110 250 556 215 340 30 98 18 900 Madagascar Dec. 00 Floating 150 814 457 357 22 252 40 1,500 Malawi Dec. 00 Floating 150 643 163 480 30 33 1 44 1,000 Nicaragua Dec. 00 Floating 150 3,267 2,145 1,123 82 189 72 4,500 Niger Dec. 00 Floating 150 521 211 309 28 170 54 900 Rwanda Dec. 00 Floating 150 452 56 397 44 228 71 800 SHo Tome and Principe Dec. 00 Floating 150 97 29 68 24 83 200 Senegal Jun. 00 Floating 133 250 488 193 259 45 124 19 850 SierraLeone Mar. 02 Floating 150 600 205 354 123 122 80 950 Zambia Dec. 00 Floating 150 2,499 1,168 1,331 602 493 63 3,850 Preliminaly HIPC document issued CBte d'Ivoire Mar. 98 31 141 280 345 163 182 23 91 6 41 800 Total assistanceprovided/committed 25,117 11,619 13,327 2,044 51 6,397 41,545 Preliminary HIPC documentissued CBte dIvoire 61 ... ... 91 250 2,569 1,027 918 166 438 37 3,900 Congo, Democratic Rep. of the ... ... 150 5,773 3,580 2,193 400 700 79 9,800 Sources:IMF and World Bank Board decisions, completion point documents, decision point documents, preliminary HIPC documents, and staff calculations. 11Assistance levels are at countries'respective decision or completion points, as applicable. 21Inpercent of the net presentvalue of debt at the decisionor completion point (as applicable), after the full use of traditional debt-reliefmechanisms. 31Cdte dIvoire reachedits decision point under the original framework inMarch 1998. The total amount of assistance committed thereunderwas US$345 million inNF'V terms 41Nonreschedulabledebt to non-Paris Club official bilateral creditors and the London Club, which was already subject to a highly concessional restructuring, is excluded from the NF'Vof debt at the completion point in the calculation of this ratio. 51Equivalent to SDR 1,491 million at an SDRAJSD exchange rate of 0.7295, as of Februaly 28, 2003. 61It is suggested that enhanced HIPC relieffor CBte dIvoire overtakethe commitments made under the original HIPC framework. - 61 - APPENDIX I DemocraticRepublicof the Congo:DebtManagementIssues The Office de Gestion de la Dette Publique (OGEDEP), the principal agency charged with handling debt issues, i s part o f the Ministry o f Finance and Budget, but i s legally autonomous under legislation dating from 1977. Inpractice, OGEDEP does not have the technical and financial means to fulfill its mandate. The DRC lacks a clear process for the formulation o f debt policies, debt statistics are not published, debt-management activities are rarely evaluated and no well-established procedure exists for tracking information under the inter-agency Debt Management Committee, which i s intendedto coordinate the debt-management activities o f the Central Bank of the Congo (BCC), the Ministry o f Finance and Budget, OGEDEP, and certain line ministries. Coordinationwith macroeconomic policiesand debt strategy The Debt Management Committee, currentlychairedby OGEDEP, needs to be given a more comprehensive role inthe formulation o f the country's medium- and long-term borrowing strategies in order to coordinate macroeconomic policies and debt issues. It i s difficult for OGEDEP to evaluate debt service needs andtheir likely impact on either the budget or the balance o f payments. Similarly, OGEDEP i s not fully equipped to evaluate correctly the concessionality of a new loan to ensure that it conforms to the requiredlevel o f concessionality (35 percent) under the PRGF-supported program. One government entity needs to be made solely responsible for contractingnew borrowing. Managingoutstandingliabilities OGEDEP currently covers only public and publicly guaranteed debt. Public enterprise debt data i s incomplete andupdatedmanually. There i s only minimal tracking o f loans to public enterprises that are not guaranteed by the govemment (particularly those to GECAMINES). Timely and accurate debt-service payments can only be ensured with difficulty. Ministry o f Finance and OGEDEP staffs have limited capacity to undertake debt negotiations. Assistance from donors and technical agencies toward the creation and implementation o f well-defined medium- and long-term public debt management policies i s critical. Humanresources, technicalcapacity,and data quality OGEDEP's staff (about 35) is adequate. However, individual staffmembers lack skills, as well as a clear definition of their responsibilities. Remuneration i s poor, the potential for career development i s limited, and there i s no access to financial, analytical, or information-technology training. Despite these circumstances, OGEDEP's extemal debt statistics are o f reasonable quality. OGEDEPrecently receivedeight computers through a Belgiangovernment donation, but they are not connected in a local-area network (LAN).The debt management database, created in Access, i s extremely vulnerable as it i s stored on a single computer and simply collates manual calculations performed in ad hoc Excel files; this database does not allow OGEDEP to carry out fully dynamic DSAs. OGEDEP has been incontact with the AfDB for assistance inacquiring UNCTAD's DMFAS debt management software. - 62 - APPENDIX I1 DemocraticRepublicof the Congo: Budget-TrackingStatements Statement 1: Main budget-trackingstatement. Monthly,startinginAugust 2003 This statement describes expenditures according to the four phases o f the expenditure chain (commitment, liquidation, payment order, payment) on the one hand, andby type o f expenditure on the other, and cumulatively from the start o f the fiscal year. This statement should also have two intermediate columns for payment authorizations sent to the BCC and payment authorizations pending transmission to the BCC. A specific column for automatic payments (de`caissements d'office) will also be placednext to the column for payment orders. The last column o f the main budget-tracking statement i s the "Balances Outstanding" column, which i s the difference between payment orders signed by the responsible payment authorizing officer and actual payments by the BCC (not the difference between payment authorizations sent to the BCC and actual payments by the BCC). Statement 2: Main budget-trackingstatement by administrativeclassification.Monthly, startingin August 2003 Based on the main statement, this document will present expenditures by administrative classification (2002 revisednomenclature rather than classificationby type). Additionally, the statement will keep expenditures initiated by, and earmarked for, the Offices o f Ministers (Cabinets) separate from those initiated by, and earmarked for, the administrations. Statement3: Main budget-trackingstatement by geographicaldistribution.Monthly, startingin September 2003 Based on the balances of the main statement, this document will present expenditures by type, distinguishingbetween expenditures inKinshasa and those inthe provinces, Computer tools and training permitting, separate service codes will be assigned for Kinshasa and for each province; this will permit tracking o f distribution o f expenditures among the eleven provinces. Statement4: Main budget-trackingstatement, "Poverty-ReducingExpenditures." Monthly, startingin October 2003 Based on Statement 2, expenditures will be presented by type, with one line indicating the share o f expenditures identified as poverty-reducing expenditures. Statement5: Main budget-trackingstatement, "Major GovernmentFunctions." Monthly, startingin October 2003 Based on Statement 2, this document will present expenditures by major government functions (as defined inthe 2002 revised nomenclature).