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1 Title of presentation Macroeconomic Perspectives of the DRC By Laure Gnassou, Economic Affairs Officer MONUC 7 October 2009 ipad Afrique Centrale 2008, Kinshasa, RDC ipad Afrique Centrale 2009, Kinshasa, RDC

2 OUTLINE INTRODUCTION: Brief overview of the international financial crisis 1. Analysis of shocks 2. Macroeconomic developments in The DRC and Brettons Woods Institutions: Focus on the IMF 4. Key challenges of a post-conflict economy 5. Transition from militarized to peace economy in the Eastern DRC CONCLUSION

3 INTRODUCTION: Brief overview of the international financial crisis Since June 2007: the subprimes crisis in the US an international financial crisis. As of December 2007: Recession of the U.S. economy as of December 2007 Global impact. The DRC: Recession since September 2008 [ Growth rate (2008): 6.2%] Graph 1. Quarterly growth rate (activity index) from March 2000 to June 2009 Mining crisis throughout the country, in particular Katanga ********* Source: Central Bank of Congo, Research Department, June 2009

4 1. Analysis of shocks The DRC (a dollarized economy) External shocks Food crisis, energy crisis International financial crisis & decline in commodities markets Internal shocks Security crisis in the Eastern DRC (Kivus) & Province Orientale (Ituri) since August 2008 Impact on the DRC s economy Export revenues from mining, oil, and forestry sector & central bank's gross international reserves Delays investment projects Credits and in interests related to credits External aid Unemployment (estimates. in 2008:53.2%, in 2009: 58% of active pop. Source: BCC) Military and sovereignty-related overspending Unplanned diplomatic and humanitarian spending: Additional pressure on the 2008 and 2009 State budgets Macroeconomic instability The resilience of the country s economy is extremely weak to external & internal ipad Afrique shocks. Centrale 2008, Kinshasa, RDC

5 Focus on the confidence crisis in the Congolese franc Depreciation of the Congolese Franc against the USD since September 2008 Official exchange rate: * CDF= 1 USD (end September 2008) * CDF = 1 USD (9 January 2009) * CDF = 1 USD (12 January 2009) * = 1 USD (16 March 2009) * = 1 USD (7 April 2009) Measures set up by the crisis cell Inflationary pressures Loss of purchasing power Risk of social unrest Proactive monetary policy (under the Central bank s control) Tools & objective: To mop the excess of liquidity of Congolese franc Several measures, including several foreign exchange auctions conducted by the Central Bank of Congo (BCC): limited impact Orthodox budgetary policy (under Government's control) Objective: To stop overspending On-going security crisis in the Eastern DRC: Impossible to limit Military and sovereignty-related spending High risk of liquidity crisis: the DRC does not have margin of maneuver

6 2. Macroeconomic developments in 2009 Growth rate (2009): 2.7% Mid-February 2009 Inflation Annual inflation: % (as of 15 February 2009) BCC s gross international reserves -USD million against an annual objective of USD 270 million (as of 13 February 2009) Graph 2. International reserves of the Central bank of the DRC from end of May 2008 to 30 August 2009 Exchange rate CDF = 1 USD (as of 13 February 2009) Mid-September 2009 Graph 3. Official exchange rate CDF/1 USD from January to September 2009 Inflation Annual inflation: 50.75%(as of 13 Sept. 2009) BCC s gross international reserves -USD 887,85 million (as of 28 August 2009) Exchange rate CDF = 1 USD (as of 15 Sept. 2009) Source: Central Bank of Congo, Research Department, February to September 2009

7 3. The DRC and Brettons Woods Institutions: Focus on the IMF assistance to the DRC - March 2009: Rapid Accces Component of the IMF s Exogenous Shocks Facility: USD 195 million or an amount up to 25% of quota - July 2009: As a result of G20- increase in financial capacity of the IMF: USD million Note: IMF HQ in Washington D.C. - Next step: Conclusion of a medium-term economic programme (PEG II) supported by a Poverty Reduction and Growth Facility (PRGF) arrangement (waiting for the signature of the amendment to the Sino-Congolese agreement). The completion point Debt cancellation (End of December 2009, stock of debt: USD 11,199 million) Requirements: A track record on continued policy, structural reform implementation, the Sino- Congolese cooperation agreement Focus on debt sustainability Towards macroeconomic stability

8 4. Key challenges of a post-conflict economy -The mining policy of the DRC through the review of 61 mining contracts started on 11 June Chantiers: The infrastructure policy through the implementation of Sino-Congolese economic agreement of 17 September 2007 (on-going review of the agreement) -The oil policy. The oil production at the frontiers of the DRC entails significant security risk, given the existing border disputes -Review of forestry concessions launched in July The fiscal decentralization and the reinforcement of the capacity and role of local authorities - Economic reunification of the country: Focus on security crisis in the Eastern DRC

9 5. Transition from militarized to peace economy in the Eastern DRC Key military challenges of the DRC s economy in recession - Rudia II in Haut Uéle & Bas Uéle: FRPI - Iron Stone in Ituri (Irumu territory): LRA - Umoja Wetu in North Kivu: FDLR - Kimia II in North Kivu & South Kivu: FDLR CONCLUSION On-going security crisis in the Eastern DRC: Impossible to limit sovereignty-related spending (budgetary slippages):negative impact on macroeconomic stability Financing war during recession is extremely critical I thank you for your attention Source: DFID, 2008.