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Congo Economic Outlook
Real GDP growth was an estimated 2.0% in 2018, after two years of contraction in 2016 (2.8%) and 2017 (3.1%). The recovery, which is not enough to reduce a 40% poverty rate, is due to rising oil prices and increased domestic production of hydrocarbons, supported by private investment in the Moho Nord oil field and increased exports of oil products. The fiscal deficit was an estimated 4.8% of GDP in 2018, down from 12.5% in 2017, thanks to an increase in revenue (13%) and a reduction in expenditure (24%) as part of the fiscal consolidation measures under the Central African Economic and Monetary Community (CEMAC) regional program.
As a CEMAC member, Congo is part of a regional strategy launched in 2017 to address the fiscal and external imbalances experienced by all countries in the zone following the fall in oil prices in 2014. This regional program, supported by technical and financial partners, is producing encouraging results, though additional and coordinated efforts are still needed.
Public debt remains a major concern: total public debt was around $10.6 billion at the end of 2017, or 118.5% of GDP, almost six times the 2010 level (20% of GDP). Although the debt ratio in 2018 decreased to 86%, in view of the recovery in growth and the rise in budgetary revenues, debt restructuring remains necessary to restore medium-term sustainability.
Tailwinds and headwinds
The economic recovery that began in 2018 is projected to gain momentum in 2019 with real GDP growth of 3.7%, driven by higher oil production and higher global oil prices. The improvement in electricity production resulting from the commissioning of the Liouesso hydropower plant, which will generate an additional 19.2 MW, is expected to enhance the competitiveness of the manufacturing sector. In addition, reforms aimed at strengthening the business climate should help boost investment. A contraction of 0.1% in real GDP is projected in 2020 due to declining oil production, which in turn is due to the depletion of reserves in some wells. Inflation is projected to remain under control at 1.6% in 2019 and 2.0% in 2020. The budget and current account balances are projected to improve.
But the favorable economic prospects are not immune to some threats. A drop in oil prices could increase pressure on the fiscal and external accounts as well as on the financial sector, which depends heavily on oil revenue. It is also important to improve the ratio of nonperforming loans, which has increased over the past two years due to the impact of the government’s arrears to private providers. Moreover, unsuccessful disarmament, demobilization, and reintegration could be detrimental to the political and security environment, which is stable today.
Like other CEMAC countries, Congo faces important challenges. With the oil sector accounting for 55% of GDP, 85% of exports, and 80% of budget resources in 2017, the economy has not coped well with the fall in oil prices. Its necessary diversification requires improvements in the business climate and economic governance. Improved governance remains essential for macroeconomic rebalancing, the sustainability of public finances, good debt and spending management. It also requires strengthening human capital.
As a result of the oil boom, Congo has invested heavily in developing infrastructure (transport and energy) that could support the country’s development efforts. The country has enormous potential for higher value added activities and productive employment. Congo has an immense potential in natural resources including forests and mines.