The IMF is back in the Congo Brazzaville

img_2826

On April the 3rd of 2018, experts from the IMF came back to the Congo Brazzaville to continue négociations on country’s debt. This is the third time that the IMF has been in the country in order to bail it out from debts. The Congo has been seeking debts relief from the IMF because, 6 years after the country received a debt relief from this same institution, the government debt reached 77% of its GDP, exceeding the 70% limit imposed by the institutions called the CEMAC or the Central African economic and monetary community.

A country with a lot of potentiality

The Congo is strategically positioned in central Africa with a coastal front on the Atlantic Ocean and a deep water port in Pointe-Noire. For many years, the Congo Brazzaville played a crucial economic role in the Central Africa region. In fact, the country played the transit role in the region. In fact, many of the surrounding countries used its infrastructures for the transportation of their merchandise . Those days are long gone. However, this strategic position can still benefit the country.

The Congo also has a good natural resources base. As many of its peers in the central part of Africa, the Congo is a oil producer. And its economy mainly relies on the production of oil. The multinationals such as Total( French company), ENI (Italian multinational), the SNCP( National oil company) and some others are the main actors in the oil production activities.

Besides oil, this country in the middle of Africa is also rich of its forests which as we know is really important in world. The forest of the basin of Congo pays a second most important role in regulating the world climate.Saving the Congo basin . Other minerals such manganese, gold, potassium and many more. A big land that is arable and good for agriculture activities. Basically the country has all traits needed for an economic development. But why the country is having the financial crisis.

The roots of the financial debts in the Congo Brazzaville

The Congo Brazzaville crédit rating is D. Meaning the country has been unable to repay its massive debts to his creditors. The Congo has always been at risk of economic crisis because of its debt structure. According to an article Congo hidden debt darkens the outlook country rating the problem of the Congo is rooted in the structure of the date. In fact , the creditors of the Congo Brazzaville are mostly trading houses who are according to the author of the article, those lenders who are willing to “regularly lend money to resource rich clients in financial distress, when other lenders walk away.” The bottom line is this trading houses takes the risks of lending money to oil or resources rich countries regardless of its credit rating. These trading houses also charge really high interest since the money to repay their debt come from the production of oil. This is the gamble the trading houses such as Trafigura and Glencore took. These two creditors lent about $2 billions to the republic of Congo taking the risk of relying on oil revenue.And between 2005 and 2014 the Congo had its boom in oil production which in 2015 help the country to get its debt relief from the IMF.

However by 2014, the price of oil fell. Since then, the country has been unable to repay its debts. The solution country’s officials took was to seek debt relief from the IMF. The last time the IMF was in the Congo back in June of 2017 for the négociation, the organization officials pressure the country to take austerity measures in order to hope for credits: among those measures are spending cuts, work on good governance, give up on major infrastructure projects and many other. The population has been suffering from this situation. Families have been unable to meet their needs. Can the fall of oil prices be the only issues to the financial problems of the Congo.

Absolutely not, the Congo for many years has mainly relied on oil production for its economy.

The problem that the Congo Brazzaville is facing goes beyond the fact that the country bet on oil production and prices to repay its debts.

It is a deeper macroeconomic issue. It is important to consider that bigger picture. To understand all of this, economics 101 books will help. The theory of buyers and sellers who make decisions based upon what is their best interest ought to be considered. Inflation, unemployment, business cycle, fiscal policies and so for are important elements of the economy.

Between 2002 and 2014, years when the price of oil reached more than $100 per barrel , the country had its oil production boom ever with a lot of money coming in. It is safe to say that the oil production boom did not translate in a sustainable economic development .At the same period, there has been a failure of fiscal management. The Congo Brazzaville has fiscal a system that is govern by a tax code named ” code général des impôts” and also by diverse finance laws which are voted each year. These diverse finance laws are a set of instructions on how to apply to laws . And for 2017, instructions can be found in the fiscal law number 31-2016 of December 2016. This just to say that the country is armed with all the necessary tools to become turn around its economy,

However, like many of its peers in central Africa, the country is plagued with a corruption system that overall shadows all its strength and opportunities. Almost, all businesses that operate in the country are active or passive actors of that corruption. It is alleged that certain multinationals or may be most of them do not pay taxes at the regular rates set by the country’s tax code. If they happen to pay, it is alleged that the money do not reach its destination which is the public treasury of the Congo Brazzaville.

The IMF mission in the Congo put the question of corruption on the table and many other measures as a premise for qualifying the country for an structural adjustment program in order to fix the country’s debt problems. Hopefully, this time around, the négociations get a good outcome for the people of the Congo Brazzaville. Because at the end of the day it should be about them. But fixing a debt problem by contracted other debts is a not the best way to go. Spending versus revenues is the best way to go. And revenues should not only come from the production of oil which is actually a “curse” for the Congo Brazzaville. The revenues should come from a rigorous application of country ‘s fiscal laws. What will be the best mechanism to used to avoid corruption and actually for Congolese tax revenues to reach the public treasury? This is a question for another discussion .