CONGO ECONOMIC UPDATE THIRD EDITION Adjusting for better social and economic development in an era of LOW OIL PRICES Se pte mb er 20 1 6 © 2016 International Bank for Reconstruction and Development / International Development Association or The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Website: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices CONTENTS ABBREVIATIONS AND ACRONYMS IV ACKNOWLEDGMENTS VI FOREWORD VII KEY MESSAGE VIII PART 1: THE CONGOLESE ECONOMY TODAY 1.0 Recent Economic Developments 3 1.1 A weak economy as low oil prices and weak global economy bite 5 1.2 Low inflation amidst low demand and a tight monetary policy stance 9 1.3 The external current account deficit worsens as low oil prices persist 10 1.4 Minimal adjustment to oil price shock cements a more expansionary fiscal deficit and higher debt 12 2.0 Congo’s economic outlook for 2016–2018 16 2.1 Moderate real sector growth expected within a gloomy international context 16 2.2 Congo’s economy remains vulnerable to various internal and external risks 19 2.3 A stronger adjustment effort is needed to mitigate the risks 20 PART 2: ADJUSTING FOR BETTER HUMAN CAPITAL 3.0 Highlighting the gaps in human capital development in Congo 27 3.1 Suboptimal educational outcomes suggest Congo is not building sufficient human capital 29 3.2 Congo is a rich country with poor health outcomes 35 4.0 The Government must adjust without sacrificing the social sectors 44 4.2 Fiscal space to come from higher allocations and spending better 49 ANNEX TABLES 53 LIST OF FIGURES Figure 1: GDP growth in resource-rich countries mainly declined during 2015 5 Figure 2: Projected and estimated GDP growth of 2015 in selected oil countries 6 Figure 3: Contribution of productive sectors to GDP growth, 2006–2015 7 Figure 4: Drivers of demand in GDP growth, at constant prices, 2006–2015 8 Figure 5: Trends of the foreign exchange rate and prices of oil and logs 9 ii Figure 6:Current account balance of selected oil countries in SSA 10 Figure 7: Trends of domestic arrears and budget surplus over 2008-2015, in percent 14 Figure 8: Recent adjustments in Congo’s Credit Ratings (2013-2016) 15 Figure 9: Prospects of real GDP growth over 2016-2018, in percent 16 Figure 10: Trend of total revenue and total spending depict a real adjustment over 2015-2018 18 Figure 12: State of Congo in terms of Human development and Education Indexes, in 2014 23 Figure 11: Shift in sector shares of budget allocations between 2002-2008 and 2009-15 23 Figure 13: Evolution in the Primary Completion Rate, 1971-2012 29 Figure 14: Gross enrollment rate in secondary school, Congo and comparator oil-producing countries 30 Figure 15: Percentage of 6th graders meeting “sufficient” competency goals 30 Figure 16: Government expenditure on education, as percentage of total (executed budget), 2010-2014 32 Figure 17: Disparities in secondary school net enrollment rates, by multiple dimensions of disadvantage 33 Figure 19: Probability of living below the absolute poverty line, by level of education, 2011 34 Figure 18: Market share for providers of education 34 Figure 20: Top causes of all ages DALYs, 2013 35 Figure 21: Mortality of infants by mother’s education and household wealth quintile 37 Figure 22 Categorization of child malnutrition by household wealth quintile, 2005 and 2011-12 37 Figure 23: Health expenditure in relation to income and government health expenditure as a share of total government spending—A comparison with other countries in SSA region, circa 2011 39 Figure 24 The number of physicians per 1,000 people against per capita income across Sub-Saharan Africa over the period 2010-2014 40 Figure 25: MOHP budget allocation for health staff and poverty rate by department, 2011 (percent) 41 Figure 26: Sub-Saharan African countries: Availability of hospital beds per 1,000 people by logarithm of PPP per capita income, circa 2010-2014 42 Figure 27: Original and final budgets by education sub-sector, 2012, 2014 and 2015 49 Figure 28: Sector budgets in percentage of the total budget in 2015 and 2016 50 Figure 29: Change in the capital budget for main sectors in 2015 and 2016 51 LIST OF BOXES Box 1: Diversification drive revives cement manufacturing 8 Box 2: The Congolese domestic arrears problem exacerbated by data problem 13 Box 3: Why the recent oil shock is more permanent than temporary 21 Box 4: Planning now for better revenue management 22 Box 5: Performance Based Financing to improve service delivery in the health sector 46 iii CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices ABBREVIATIONS AND ACRONYMS AOGC Africa Oil and Gas Corporation BEAC Banque des Etats de l’Afrique centrale (Bank of Central African States) CEC Centrale Electrique du Congo (Gas Power Plant of Congo) CED Centrale Electrique de Djeno (Gas Power Plant of Djeno) CEMAC Communauté économique et monétaire de l’Afrique centrale (Economic Community of Central African States) CGAPSE Comité de Gestion des Approvisionnements en Produits de Santé Essentiels (Supply Management Committee for Essential Health Products) CIMAF Ciment d’Afrique COMEG Congolaise de Médicaments Essentiels et Génériques (Congolese Company of Generic Essential Drugs) CPA Complementary Package of Activities CPI Consumer price index DALY Disability-adjusted life year DHS Demographic and Health Survey DPT Diphtheria, Pertussis (whooping cough), and Tetanus DRC Democratic Republic of Congo DSA Debt Sustainability Assssment DSCERP Document de stratégie pour la croissance, l’emploi et la réduction de la pauvreté (DSCERP 2012- 2016) ENI Italian oil company EU European Union FDI Foreign direct investment GDP Gross domestic product HiA Health in Africa HIPC Heavily Indebted Poor Countries HIV/AIDS Human immunodeficiency virus/acquired immunodeficiency syndrome IFC International Finance Corporation IMF International Monetary Fund IMR Infant mortality rate MEPSA-JEC Ministére del’Ensgienement Primaire et Secondaire, chargé de l’Alphabétisation (Minister of Primary & Secondary Education, Qualifying Training and Employment) MFM-AFR 2 Second Unit of the Macro Fiscal Management in Africa iv MOHP Ministry of Health and Population (Ministère de la santé et la population) MPA Minimum Package of Activities MWh Megawatt- Hour NHA National Health Accounts NHDP National Health Development Plan NHP National Health Policy NOPB Non-oil primary balance NTD Neglected tropical disease OPEC Organization of Petroelum Exporting Countries PBF Performance-Based Financing PDSS II Health System Strengthening Project II PMTCT Prevention of mother to child transmission of HIV PND Programme National de Dévelopment PPP Purchasing Power Parity PRSP Poverty Reduction Strategy Paper RAMU Régime d’Assurance Maladie Universelle (Universal Health Insurance Coverage) ROC Republic of Congo SMEs Small and Medium Enterprises SNPC Société nationale des petroles du Congo (Congolese oil Company) SONOCC Société nouvelle des ciments du Congo (New Enterprise of Cements in Congo) SSA Sub Saharan Africa STH Soil-transmitted Helminths TOTAL E&P French oil company TEVT Technical Education and Vocational Traning UHC Universal health coverage UNOC Union nationale des Opérateurs économiques du Congo (National Union of Congolese Investors) US$ United States Dollar US$/b United States Dollar per barrel WHO World Health Organization XAF CFA Francs, Currency of central africa countries. YLL Years of life lost v CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices ACKNOWLEDGMENTS This third edition of the Republic of Congo Economic Update was prepared by a team led by Rachel Sebudde, with this team consisting of Etaki Wa Dzon, Fulbert Tchana Tchana, Kirsten Majgaard, Ricardo Bitran, György Bèla Fritsche, Hadia Samaha and Meskerem Mulatu. The report was prepared in close cooperation with a government team led by Michel Niama (Director-General of the Economy), with this team including Pr. Alexis Elira Dokekias (Director-General of Hospitals and Health Services), Jean Christophe Okandza (Director-General of Planning and Development), and M. Emeriand Dieumerci Kibangou (Director of Studies and Planning of the Health Ministry). The update benefited from insights and input provided by a number of peer reviewers, including Paul Jacob Robyn, Jean-Pascal Nganou, and Cristina Isabel Santos Panacos. It also benefited from ideas and input provided by Emmanuel Pinto Moreira (Lead Economist and Program Leader for the Republic of Congo and the Democratic Republic of Congo), Luc Laviolette (Program Leader for the Republic of the Congo and the Democratic Republic of the Congo), Albert G. Zeufack (Practice Manager, Global Practice for Macroeconomics and Fiscal Management, MFM-AFR2), Kevin Carey (Acting Practice Manager, Global Practice for Macroeconomics and Fiscal Management, MFM-AFR2, starting from May 2016), Djibrilla Adamou Issa (Country Manager, the Republic of Congo), Yisgedullish Amde (Program Coordinator for the Republic of Congo and the Democratic Republic of Congo), and Ahmadou Moustapha Ndiaye (Country Director, the Republic of Congo and the Democratic Republic of the Congo). Josiane Maloueki Louzolo and Karima Laouali Ladjo and country team colleagues provided invaluable assistance during the report’s preparation. Franck Sidney Chrysantheme Bitemo managed the communication and dissemination strategy. Irfan Kortschak provided professional editing services. Design + Print : Mail to - info@artifield.com vi Foreword from Director The decline in international oil prices than four out of every ten primary school allow for a more balanced fiscal strategy over the past two years has resulted graduates would have sufficiently learnt that supports both accumulation of into an economic crisis in the Republic to read, write or solve standard primary physical capital and improvements of Congo that could forestall the mathematical problems. in social services, and to improve transformation efforts to move the efficiency and effectiveness of public This third Edition of the Congo Economic country towards higher middle income spending. Improving efficiency would Update discusses the importance of status. A key strategy that Government not only contribute to better outcomes undertaking fiscal adjustments to has pursued in recent years has been in social sectors, but would also accommodate the new reality of lower to adjust the fiscal policy to provide contribute to raise long term growth for oil revenues and to shift into a more more resources for capital development the economy. balanced and inclusive development in line with the National Development strategy. The external environment I am pleased to introduce this third Plans. This strategy is expected to be confronting Congo is expected to Edition of the Congo Economic Update continued into the medium term in order remain difficult, as oil prices, in series. I hope that it will serve as to address the binding constraints on particular remain low. One key risk to valuable input to policy debates, and growth, most notably the country’s huge Congo’s development strategy remains motivate a comprehensive set of actions infrastructure deficit. However, the the high degree of dependency on to support Congo’s development intention to increase the level of capital the highly volatile oil revenues. This efforts. investment has neither been matched underscores the fundamental need by similar ones to raise investments in for economic diversification, and for human capital development nor with investing in the country’s capacity to effort to make public spending more generate more non-oil revenues, and efficient and effective. At above US build fiscal buffers through fiscal rules. $ 3000 per annum, Congo has a per Another risk relates to the failure to capita income far higher than many sufficiently invest in social sectors, for other African countries. Yet, the country which vulnerabilities are increasing has serious deficiencies within the with the rapid urbanization, young education and health sectors that have Ahmadou Moustapha Ndiaye and fast growing population, and civil resulted into poor social economic unrest. Therefore, it is important that World Bank Country Director outcomes. As an example, one in every the Government of Congo rationalizes twenty eight children born in Congo do public spending to create room for Republic of Congo and Democratic not see their first birthday; and not more investments in education and health to Republic of Congo vii CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Key Message By end of 2015, the country’s finances had declined Since around 2000, the Government has made severely compared to what it had been the previous year, substantial efforts to rebuild the education system as the fiscal and external current deficits reached the after the dilapidation of civil war. Today, access to equivalent of 18 percent and 13 percent, respectively, education in Congo compares favorably with that of of GDP. With public debt rising to over 70 percent of many sub-Saharan African countries, but still worse GDP, the risk of debt distress heightened, contrasting than for other countries outside the region at the same the situation only five years ago when a large part of level of income. Not only is Congo’s level of access to the country’s debt was forgiven. Without the requisite education poor, learning outcomes are also meager. adjustment, economic management in Congo has Around two-thirds of primary school graduates do become more complicated. Indeed, six months later, not have sufficient competencies in literacy and Congo did not pay on time both interest and principle numeracy. In the health sector, the average citizen due on its only international bond. This prompted of Congo loses half the years of life due to HIV/AIDS, credit rating agencies to downgrade the country’s malaria, diarrhea or lower respiratory infections. creditworthiness. While some rating agencies reversed On a positive note, most mothers attend antenatal their actions after the payment was effected, Congo’s clinics, with 93 percent of births attended by skilled credit rating stood at levels far lower than what they birth attendants. Even so, 442 out of every 100,000 were in 2015. This has reduced the price of the country’s mothers die during child birth, while four out of every bonds, and made it even more difficult for the country to 10 children are chronically malnourished. Congo’s access international financing. These developments re- performance in these areas is much worse than emphasize the need for macro adjustment. The question might be expected for a country with significant is whether such adjustment can allow the current endowments and with an average annual per capita infrastructure development drive to be balanced with income in excess of US $ 3,000. more spending in the social sectors to improve social economic outcomes. Over the past five years, the Government has prioritized investments in the development of infrastructure, in order to facilitate the achievement of a higher rate of economic growth. This has resulted in underinvestment in the health and education sectors, with expenditure These are indications of serious deficiencies in Congo’s on these sectors accounting on average for about four health and education systems. On average, out of every percent and 10 percent, respectively, of the total value 10 students that graduate from primary school in Congo, of the budget. This is far too little to enable Congo to six are not able to read and understand a primary grade build its human capital. In addition, inefficiencies and reader while seven are not able to solve a standard capacity issues within social sectors often mean that the primary mathematical problem. Four out of a thousand allocations for these sectors are not utilized within the childbearing women die as a result of giving birth. Of planned budget of this period year or do not generate every 20 children, at least one does not live to see their good returns. At present, the Government faces a fiscal fifth birthday while four are stunted. crisis, as a result of the dramatic decline in global oil prices. This requires urgent adjustments. How these adjustments are implemented will determine whether Congo can support a balanced growth of physical assets and human capital, both of which are critical for accelerating and sustaining high economic growth and development. viii As in the previous editions, the third Congo Economic Update presents an assessment of the current state of the economy, before addressing a specific theme of significance for the country’s development. This edition argues that the current fiscal crisis in Congo resulting from the decline in global oil prices will make it difficult for the country to sustain fast growth unless the country adopts more prudent fiscal management and a balanced approach that builds both physical capital and achieves significant improvements to human capital. Therefore, a deliberate effort has to be made to ensure that the fiscal adjustments do not result in major decreases to the level of expenditure on health and education. In addition, the Government must implement measures to improve the level of efficiency and effectiveness of spending in these sectors. PART 1: THE CONGOLESE ECONOMY TODAY Congo’s rate of economic growth declined from 6.8 percent in 2014 to 2.6 percent in 2015. This deceleration in economic growth was primarily due to the decline in global oil prices and to the associated decline in the level of Congo’s production of oil. As a result of these factors, the rate of growth of the oil sector declined by 5.4 percentage points in 2015. Benefiting from recent efforts to diversify the economy, the non-oil sector grew at the rate of 4.9 percent, with this growth primarily driven by the strong performance of the manufacturing, transportation, and telecommunications sub-sectors. This notwithstanding, Congo’s economic performance has been more severely affected by low average global oil prices than most other African resource rich countries, excluding South Sudan. This is mainly because Congo’s economy is much more dependent on oil than many other countries. Despite the low rate of inflation, liquidity conditions remained tight throughout 2015, acting as a constraint on access to credit by the private sector. The tight monetary policy stance in Congo was consistent with the policy within the Franc zone until the latter part of the year, when the benchmark interest rates were reduced by 50 basis points and reserve requirements for Congolese banks were reduced from 14 percent to 7 percent. With low oil prices, Congo economy is now faced with a twin-deficit. On the one hand, with the lower than anticipated fiscal revenues and export receipts during 2015, Congo is faced with worsening deficit positions on both the fiscal side and the external side. The value of the fiscal deficit has almost tripled over the past year, increasing from the equivalent of 5.5 percent of GDP in 2014 to 18.3 percent in 2015. The Government’s adjustment measures have been insufficient to counteract the impact of the decline in oil revenues. The external current deficit also deteriorated, from a value equivalent to 5.6 percent of GDP in 2014 to 13.2 percent in 2015. Part of the budget deficit was financed by drawing on reserves saved by the state and through statutory advances from the Bank of Central African State (BEAC). However, these sources of financing were inadquate and Government increased its external borrowing by 14 percent, pushing Congo’s stock of external debt to a value equivalent to 52 percent of GDP by end of 2015. This creates the risk of debt distress, despite Congo’s successful participation in the Highly Indebted Poor Countries (HIPC) debt initiative only five years ago. Congo’s outlook for growth in the short to medium-term future remains poor, with only a slow recovery to global oil prices anticipated and with Congo’s oil production expected to lag even in the case of recovery. In 2016, the real rate of GDP growth can be expected to increase to 3.8 percent. It is expected to remain at roughly this level at least until the end of 2018. The expected increase in oil production should contribute to a stabilization in the rate of growth of GDP growth in coming years, with this rate anticipated to reach 3.5 percent in 2017 and around 3.6 percent in 2018. With this translating into only a modest per capita growth rate, the decline in the rate of poverty is also expected to be modest. However, the anticipated continuation of low average global oil prices creates opportunities for reforms to eradicate Congo’s deficits, placing the country in a better position to benefit from the eventual recovery in these prices, with a more dynamic private sector and better systems of public finance management. ix CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices The high degree of dependence on highly volatile oil revenues, the high level of domestic arrears, and Congo’s over-exposure to Chinese financing are key risks to realizing the growth forecast. These risks must be managed carefully, as must vulnerabilities related to the country’s high rate of urbanization, its large young population, and political and security related risks. The Government needs to implement serious reforms to increase the value of non-oil revenues, to rationalize expenditures, to generate fiscal savings that can act as a buffer that can be used in turbulent times. This would require that fiscal operations are based on fiscal rules that restrict spending to levels consistent with a healthy non-oil primary balance and allow for accumulation of an equity fund. Reforms are also crucial to improve efficiency and effectiveness of capital investments as well as the spending within the social sectors. Since 2012, imprudent economic management has not allowed the Congolese economy to minimize negative effects of volatile oil prices. Adopting these fiscal rules can help change this under the current crisis. Adopting these fiscal rules can help change this under the current crisis. Therefore, ensuring that recurrent expenditures are contained within reasonable levels, and that its investments in infrastructure and social sectors are balanced appropriately, will be crucial. As an example, expenditure on the public wage bill could be restricted so that it amounts to no more than the equivalent of 6.9 percent of non-oil GDP and government expenditure on goods and services to no more than 9.8 percent of non-oil GDP. In this context, reducing or eliminating fuel subsidies would create increased fiscal space for social spending combined with a positive environmental impact. In terms of capital investment, the Government should also change the composition and level to better balance the emphasis between infrastructure and the social sectors. This way the physical capital accumulation can come hand-in-hand with improvements in social service provision. The impact of declining oil prices on Congo’s economy underscores the fundamental need for economic diversification. The agriculture sector has significant untapped potential to support economic diversification, but will require key policy reforms (particularly in the area of land tenure), investment in infrastructure, and the development of capacities to facilitate participation in high potential value chains. At the same time, institutional reforms are necessary to improve the business climate. Some positive steps have been taken in this direction, such as when the Council of Ministers adopted a new hydrocarbons code on March 25, 2016, with this code defining a larger role for national firms and increasing the state’s share of oil profits. Even if the code’s adoption will have only a marginal impact on the Government’s revenues from the oil sector in the forecast period, with new investment being constrained by the slump in oil prices, just a slight increase in the Government’s share of oil revenues will play a positive role in restoring the fiscal surplus in 2017. PART 2: ADJUSTING FOR BETTER HUMAN CAPITAL Congo has struggled to achieve significant improvements in social outcomes for the majority of its citizens in recent years. This is in spite of its large endowment of natural resources, and despite benefiting from higher average oil prices over recent years at least to 2014 and from its participation in a major debt relief initiative, all of which enabled Congo to record high rates of economic growth and to generate significant financial resources for the Government. With a gross secondary school enrolment rate of 64 percent, with 75 percent of primary leavers not attaining sufficient foundational skills in literacy and numeracy, with a huge disease burden, and with high maternal and infant mortality rates, Congo’s social indicators are considerably worse than many other countries at the same level of income in or out of Africa. The moderate levels of public financing of social sectors and its inequitable allocation remain central policy problems that result in limited physical and economic access to quality services. The impressive plans within both the health and education sectors have to be funded for the anticipated socio-economic transformation to materialize. For instance, if fully rolled out, the universal health coverage system would ensure access to health for the entire population. With the current budget for the health sector reaching no more than 1.7 percent of GDP, allocating sufficient resources for such initiatives is impossible. x Furthermore, there are inherent inefficiencies in the way resources are spent and allocated for the priorities within the sectors, as well as in the policies pursued. Within the education sector, for instance, the fast growing population and grade repetition have put significant pressure on budget resources and caused overcrowding. There are also dysfunctions in the management of human resources in the education sector. Moreover, this sector has been adversely affected by a lack of well-formed plans to determine staffing levels. In terms of the demand, the poor quality of data related to actual student numbers, unreliable demographic information related to incoming cohorts of school-age children, and the lack of reliable data related to the number of out-of-school children make it impossible to clearly project how many teachers will be needed to achieve universal primary enrollment. In terms of the supply, deployment decisions are not implemented rigorously, with an almost complete lack of sanctions on teachers absent without approved leave. There are no well-implemented controls on the movement of staff between regions or from teaching to administrative positions. There are no well-implemented systems to ensure the removal of personnel from the Ministry responsible for education budget once they leave the sector, with the Ministry itself lacking the authority to make decisions related to recruiting or paying teachers. These issues make it difficult or impossible to prepare a rational human resource plan for the sector. Without a sufficient basis to determine levels of teacher demand and teacher supply, the decisions made by the Ministry responsible for education on matters related to the recruitment and deployment of personnel will remain fundamentally flawed. Therefore, although Congo’s average pupil-teacher ratios are at acceptable levels compared with many other Sub-Saharan Africa countries, the distribution of teachers is extremely uneven, with some classes being taught with more than 80 students in a single classroom. In view of the tight fiscal situation on account of the decline in oil prices, tough decisions have to be made with respect to government spending, the allocations to the different sectors, and the efficiency and effectiveness of policies pursued within these sectors. The fiscal adjustment made must ensure a balanced approach that allows for building of physical capital and progress in the social sectors; and must be followed by non-fiscal measures that support efficiency of use of resources. This would therefore encompass a multilevel adjustment as follows: 1. Adjustment of the overall budget The first level of adjustment is at the overall budget allocation level through the following: • Reducing non-essential spending to increase fiscal space for social services: Adopting measures to control the public wage bill (6.9 percent of non-oil GDP) and to contain government spending on goods and services (9.8 percent of non-oil GDP) and reducing or eliminating fuel subsidies would create additional fiscal space to enable the Government to increase social spending. • Changing the composition of public spending to support a more balanced development strategy: In the recent past, the Government has largely concentrated on the development of physical infrastructure. The Government should examine its prioritization towards a more balanced development approach that allows investments in infrastructure to be made concurrently with the development of the social sectors, to improve service provision. • Improving the efficiency of public spending: The Government could implement a number of budget formulation and management reforms to promote decentralization, improved coordination and increased efficiency. In the health sector, for instance, allocating a greater proportion of the Government’s health budget to the regions with an emphasis on pro-poor expenditure may help reduce inequalities. The second level of adjustment would have to be within the sectors. While the adjustment in the overall budget allocation can realize more resources for the social sectors, these would have to be followed with improvements in efficiency in the way resources are utilized within the sectors to realize more value for money. xi CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices 2. Adjustment within the education sector Within the education sector, the areas in which efficiency gains can be made include the following: • Adopting a policy of automatic grade promotion: Introducing automatic grade promotion, at least between certain grades, could reduce spending and relieve overcrowding. Allocating an increased share of public financing to the poorest areas in the country and to urban areas with a high concentration of poor residents might be implemented to complement this policy by providing additional support to the most vulnerable. Global evidence indicates that grade repetition discourages families from keeping their children in school and does not lead to the gains in learning outcomes that might justify the costs and risks associated with a high dropout rate. • Enhancing human resource management through improvements such as better recruitment practices and better systems of remuneration and incentives: Improving the system of human resource management through sectoral civil service reforms, better recruitment practices, more efficient use of human resources, and improved management of the wage bill could greatly reduce wastage and facilitate the achievement of sustainable improvements into delivery of education services. In particular, there is a need to reduce the relative number of administrative staff, to improve salary transfers to rural areas, to ensure the payment of pensions within a reasonable time frame, and to ensure that “bénévoles” teachers are paid appropriately for their role in the effective implementation of the fee-free primary education policy. • Improving management of expenditure through better planning, and evidence-based management, and monitoring: To achieve this, it is necessary to invest in improving education data especially related to demographic information of the in-coming cohorts of school-age children, and the out of school children, in order to estimate the number of teachers needed in schools. Furthermore, the education system should adopt an incentive system that rewards good behaviors and punishes bad ones, together with a well implemented system of deployment of teachers and non-teaching staff across regions. This should facilitate formulation of a proper human resource plan for the sector to support a more efficient recruitment and deployment of personnel within the education sector and to distribute teachers more evenly and equitably across departments and to address intra-regional disparities between different schools. • Adopting measures to control the high unit costs of higher education and to reform the system of scholarships to ensure higher levels of equity and sustainability: A review should be conducted to ensure the adoption of measures to control the high unit costs of technical and vocational education and training and other forms of higher education. In addition, the scholarship system should be reformed to ensure that post-secondary education in Congo becomes more equitable and sustainable. Supporting more equitable access to post-basic education is a key element towards ensuring higher levels of equity and social mobility for the poorer segments of the population. 3. Adjustment within the health sector Within the health sector, the low levels of public financing and its inequitable allocation constrain access to quality services. With the Government’s limited fiscal space, it is crucial that existing financial resources are used efficiently and effectively. Possible ways to achieve this include the following: • Pursuing a more balanced strategy with respect to financing construction of hospitals on one hand, and lower level facilities and recurrent expenses to support service delivery: Reducing expenditure on hospitals, including through the new provincial hospital construction program, and allocating a higher proportion of the health budget to the development of healthcare centers and other decentralized facilities could improve allocative efficiency. This would require shifting the emphasis away from the construction of health facilities to financing service delivery, which alleviates the high financial barriers to access services. Financing lower levels of care through the defined service packages are more pro-poor and much more cost-effective than financing tertiary care. xii • Improving quality of services by institutionalizing performance-based financing reforms: This would entail directly financing select health providers to deliver defined benefit packages under the output-based-financing modalities to accelerate achievement of Universal Health Coverage. Financing of decentralized facilities, including for accredited private providers, will strengthen public-private partnerships, and increase the focus on results. In addition, involvement of civil society in verification and client satisfaction surveys will enhance good governance. • Improving the management of human resources to support better delivery of services in the health sector: This would require aligning human resource management reforms with the ongoing health financing reforms to enhance efficiency and effectiveness of available budgets while dovetailing with these reforms. • Improving the management of the medicines and drugs: Access to good quality affordable generic pharmaceuticals needs to be strengthened. This will entail providing more resources to the central medical stores and strengthening partnerships between the public sector and private sector, in particular in the distribution of drugs and medicines. • Streamlining the processes for flow of public funds by removing redundant controls to accelerate the rate of execution of investments within the health sector. • Streamlining administration of the health system to raise its efficiency. A young woman with her child recipient of Lisungi, Safety nets project leading an income generating activity in a market of Brazzaville (GLAD Communications Agency Services, 2016). xiii CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Hydroelectric dam of Djoué River (All right reserved, 2008) xiv PART ONE THE CONGOLESE ECONOMY TODAY 1 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices • Congo’s rate of economic growth has declined sharply over the past year, dropping from 6.8 percent in 2014 to 2.6 percent in 2015. This decline was primarily attributable to the sharp drop in global oil prices reaching 47.3 percent during the year, which in turn resulted into reduction in volume of oil produced in Congo. Economic activity in the oil sector declined by 5.6 percent. • The rate of economic growth of the non-oil sector stood at 4.9 percent in 2015, with growth driven by the good performance of the manufacturing, transport, telecommunications, commerce and restaurants sub-sectors. However, this sector’s rate of growth was also much lower than the figure of 7.9 percent recorded in 2014. • The average annual rate of inflation in 2015 stood at 2.7 percent, with this low rate the result of deflationary pressures related to the low oil prices and to the implementation of the tight monetary policy. • The external current account deficit widened over 2015, reaching a value equivalent to 13.2 percent of GDP. Combined with a double-digit fiscal deficit, this has resulted in a serious twin-deficit problem that requires urgent attention and adjustment measures. • Congo’s outlook for growth in the short to medium-term future remains poor, with only a slow recovery to global oil prices anticipated and with Congo’s production expected to lag even in the case of recovery. In 2016, the real rate of GDP growth can be expected to increase to 3.8 percent. It is expected to remain at roughly this level at least until the end of 2018. • While continued low prices present an opportunity for reforms, it is also the most significant source of risk for the Congolese economy. Other risks include over-exposure to the Chinese economy, high level of domestic arrears, and vulnerabilities related to Congo’s high rate of urbanization, the youth of its population and political and security related risks. 2 Brazzaville City, the centre of economic activity (Désiré Loutsono Kinzengele, 2016) 1.0 Recent Economic Developments In 2015, Congo’s economy grew by 2.6 percent, a far lower rate than the 6.8 percent recorded in 2014. This deceleration in economic growth was primarily due to the decline in global oil prices and to the associated decline in the level of Congo’s production of oil. As a result of these factors, the rate of growth of the oil sector declined by 5.6 percentage points in 2015. Benefiting from efforts to improve infrastructure, the non- oil sector grew at the rate of 4.9 percent, with this growth primarily driven by the strong performance of the manufacturing, transportation, and telecommunications sub-sectors. Despite the low rate of inflation, liquidity conditions remained tight throughout the year, acting as a constraint on access to credit by the private sector. With lower than anticipated fiscal revenues and export receipts, Congo is faced with worsening deficit positions on both the fiscal side and the external side. The value of the fiscal deficit almost tripled, increasing from the equivalent of 5.5 percent of GDP in 2014 to 18.3 percent in 2015, with the Government’s adjustment measures being insufficient to counteract the impact of the decline in oil revenues. The external current deficit also deteriorated, from a value equivalent to 5.6 percent of GDP in 2014 to 13.2 percent in 2015. Part of the budget deficit was financed by drawing on reserves saved by the state and through statutory advances from the Bank of Central African State (BEAC). In addition, external borrowing increased by 14 percent, pushing the Governments’ debt stock to 52 percent of GDP. This creates the risk of debt distress, despite Congo’s successful participation in the Highly Indebted Poor Countries (HIPC) debt initiative only five years ago. The failure to pay debt falling due in June 2016 generated anxiety as rating agencies downgraded Congo’s creditworthiness. While some rating agencies reversed their actions after the payment was effected, Congo’s credit rating stands at levels far lower than what they were in 2015. In recent years, Congo’s economy has been marked by a economic growth was largely due to a recovery in the production high degree of volatility, with the average rate of economic of oil throughout the year, with this sector growing at a rate of 3.1 growth insufficient to facilitate the achievement of national percent. This had represented a turnaround from the situation goals, despite good performance in 2014. In 2014, the rate of over the previous three years, during which period production real economic growth recorded a significant increase, reaching declined at an average annual rate of 8 percent. Meanwhile, 6.4 percent. This is almost double the average rate recorded the non-oil sector continued to grow strongly reaching a rate of in the period from 2011 to 2013. The acceleration in the rate of 7.8 percent during 2014, compared to the average rate of 8.4 1. World Bank, 2016, “Congo: Towards a more diversified economy – Recent developments and the road ahead”. A Policy Note on Economic Diversification. Washington DC. June 2016 3 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices percent during the previous three years. This indicates Congo is fiscal revenues by almost 20 percent; an increase in the fiscal has continued to benefit from the recent diversification effort, deficit from the already high level of 5.5 percent of GDP during spearheaded particularly by public investments in physical 2014 to more than triple that level (18.3 percent) in 2015; and infrastructure . The value of expenditure on public investments, a deterioration in the external current account to a level more particularly infrastructure, increased at an average annual rate than double the level recorded during 2014. If not managed of 10 percent to reach a figure equivalent to around 25 percent appropriately, this might have had the effect of further reducing of GDP in 2014. Overall, the average annual rate of growth over private sector demand, which was already declining on account the period from 2011 to 2014 stood at 4.2 percent. This was much of other factors, including the expulsion of undocumented lower than the figure of 8.5 percent per annum targeted under immigrants, who accounted for around four percent of Congo’s the National Development Plan (PND), which recognized this population. level as the minimum level required for the country to achieve the upper middle income status by 2030. Secondly, Congo had completed national elections in March 2016, with these elections expected to exert upward pressure Congo’s rate of economic growth in recent years had some on expenditures. Thirdly, the Government had committed positive impact in terms of poverty reduction, but it did not itself to a huge investment program. If managed appropriately, facilitate a significant reduction in inequality. In particular, this program created an opportunity to counter the cyclical a high proportion of youth remains undereducated and effects resulting from the low oil prices. Conversely, however, underemployed. In the period from 2005 to 2011, the proportion if managed inappropriately, it could rather have exacerbated of the population living under the national poverty line declined these effects. The challenge for policy makers has been to from 50.7 percent to 40.9 percent . In terms of the international 2 manage these issues carefully to mitigate their impacts while poverty line (based on US $ 1.9 a day of purchasing power remaining focused on an economic management drive intended parity, or PPP), the proportion of the population living under the to address more deeply rooted structural issues to facilitate the poverty line is estimated to have stood at 37 percent. Inequality, achievement of a higher level of economic growth and economic measured in terms of the Gini coefficient of consumption, was development over the longer term. estimated to stand at 0.46 in 2011, significantly higher than the median level for Africa, which stands at 0.43.3 There is also an increasing level of inequality in terms of the gap between urban and rural areas. Unemployment is particularly high for women, youth, and those living in the main cities, particularly Brazzaville and Pointe Noire, with the rate of unemployment for those aged from 15 to 29 years standing at about 32.7 percent, according to the 2011 ECOM Survey. A large proportion of those living below the poverty line depend heavily on subsistence agriculture or from low-productivity livelihoods in the informal sector. The formal sector is relatively small and dominated by the public sector. There are also significant differences in the level of participation in the labor force in terms of gender, with women significantly less likely to be employed in the public sector or in the formal private sector. At the beginning of 2015, it was clear that the Congolese authorities would need to manage a number of challenges if the economy was to remain on a positive trajectory. The first of these challenges related to the sharp decline in average global oil prices over the preceding year, with prices forecast to remain low into the medium-term future. This was expected to have a number of impacts, including a reduction in Congo’s 2. The Government estimate made in 2011 was 46.5 percent. Recent computations made in the poverty analysis by the World Bank in 2016 shows a significant decline from 50.7 to 40.9 percent between 2005 and 2011 3. http://www.wolframalpha.com/input/?i=Gini+index+of+African+countries 4 1.1 A weak economy as low oil prices and weak global economy bite In 2015, Congo’s economy grew at a rate of 2.6 percent. This in the non-oil sector. On the other hand, economic activity in was a significant deceleration compared to the rates recorded Zambia decelerated as the authorities adopted tighter policies to in the recent past, with the rate recorded in 2014 standing at 6.8 manage the pass-through effects of a steep depreciation of the percent. The deceleration in the rate of economic growth was kwacha and those of the drought on food prices. So, while Congo mainly due to a decline in the level of production by at least 5.6 is categorized as one of 12 countries in Africa most vulnerable to percent in oil-related sectors, accompanied to a lesser extent by terms of trade shock arising from the oil prices decline over the a deceleration in the rate of growth in non-oil sectors. In 2015, past three years, local developments, in particular anxiety about the average rate of growth for the non-oil sectors stood at 6.8 the March 2016 national elections, together with the low prices percent, compared to the rate of 7.6 percent in the previous strained the country’s finances and investments. The rate of year. Even though this was a decline, the sector has continued to economic growth in South Sudan also decelerated significantly, benefit from investments in physical infrastructure.4 although this could largely be attributed to the ongoing civil conflict in that country. By contrast, Cameroon seems to have Congo’s economic performance has been more severely displayed a high degree of resilience to these shocks, recording a affected by low average global oil prices than most other positive rate of growth over the year. The figures strongly indicate resource rich countries, excluding South Sudan. It is clear that Congo’s economy remains weak and highly vulnerable to that the end of the commodity price super cycle, and particularly shocks, including but not limited to shocks related to commodity the decline of the oil price, has had a severe negative impact price volatility. on many resource-rich economies in 2015, with the rate of growth decelerating by an average of about half a percentage In spite of the decline in economic growth, the performance point of GDP in Angola, the Democratic Republic of Congo, and of the Congolese economy was not as bad as had been Botswana in 2015. However, over the same year, the deceleration anticipated. With the oil price declining more intensely during the was significantly higher in Congo, with the rate of growth early part of 2015, analysts had anticipated that the growth rate declining by more than four percentage points. This deceleration would decline to 1.3 percent during that year. However, in spite was significantly higher even than in Nigeria, where growth of the intense deterioration in the country’s balance sheet, both decelerated from 6.2 percent to 3.2 percent, or Zambia, where public and private investments performed generated a rate of growth decelerated from 4.8 percent to 3.5 percent (see Figure overall GDP growth standing at 2.6 percent in 2015. Congo and 1). According to the World Bank’s Pulse5 , adverse domestic developments exacerbated the impact of declining oil prices in Cameroon were the only two countries among a selected group oil some countries. In Nigeria, for instance, electricity shortages, exporter comparators to record a rate of economic growth higher political uncertainty, and security threats, depressed activity than had been anticipated (see Figure 2). Figure 1: GDP growth in resource-rich countries mainly declined during 2015 Sources: Global Economic Prospects of January 2016 and World Bank staff estimates 4. World Bank, 2016, “Congo: Towards a more diversified economy – Recent developments and the road ahead”. A Policy Note on Economic Diversification. Washington DC. June 2016 5. World Bank, 2016, “Africa’s Pulse” Vol. 7, Washington DC, World Bank, April 2016. 5 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Congo’s oil sector suffered to a greater extent than had these investments expected to commence during 2015. However, been anticipated as oil companies adjusted their positions in to date, not all of these investments have materialized. Therefore, response to lower oil prices. No cancellations of investments while the value of oil-related FDI increased by 24 percent in 2015, in the oil sector were officially announced by oil-producing this increase was considerably lower than had been anticipated. companies operating in Congo. However, there are indications During the year, as the global price of oil dropped by about 47 that a number of companies delayed commitments, with this percent to US$ 50.75 per barrel, oil production declined from 91 resulting in a decrease in the value of oil-related FDI. In 2014, million barrels to 86.4 million barrels. This represents a decline in a number of companies, including SNPC, Total E&P, ENI Congo output of 5.6 percent over 2015, in contrast to initial projections and AOGC, had indicated that they would commence new of a small but positive increase of around 1.2 percent. This decline investments related to the exploitation of the Loango II, Zatchi in output was a reversal of the trend recorded in the sector during II, Djambala II, Foukanda II, Mwafi II, and Kitina II oil fields, with the previous year, when output increased by 3.1 percent. Figure 2: Projected and estimated GDP growth of 2015 in selected oil countries Sources: Global Economic Prospects of January 2015 and January 2016 Taxis are fuel refuel at one avenue of Brazzaville. (Clarence Tsimpo, 2016) 6 The non-oil sectors of the economy performed better than percent in 2015, down from the level of 37.0 percent recorded in had been anticipated, with performance boosted by slightly 2011. higher-than-expected levels of government expenditure. The low growth scenarios that projected that the rate of economic Apart from the spillover effects of hosting the All Africa Games, growth would sink to 1.3 percent during 2015 were based on the the resilience of the non-oil sector can also be attributed to the assumptions that the Government would maintain its commitment Government’s efforts to diversify the economy. Such efforts are to reducing expenditure by at least 30 percent throughout the evident in the cement industry (see Box 1). Therefore, the bulk year. If this commitment had been maintained, it would have of the increase in economic activity was driven by activities in the resulted in a decline in production within the non-oil sectors of secondary and tertiary sectors (see Figure 3). In particular, the around 2.4 percent. However, the authorities revised their public manufacturing sector recorded a rate of growth of 10.4 percent; expenditure projections in June 2015, partly to accommodate the transport and telecommunications sector of 7.8 percent; and the hosting of the All Africa Games in Brazzaville in September the commerce and restaurants sector of 7.2 percent. Tourism 2015, with this increase in expenditure boosting economic activity also grew strongly, largely due to activities related to the All and playing a role in enabling the non-oil sector to withstand the Africa Games held in September 2015. These activities played a negative effects of lower prices. As a result, the non-oil sector significant role in offsetting the decline in economic activity that recorded a rate of growth of 4.9 percent during the year, more resulted from the sluggish demand attributable to the difficulties than double earlier projections. This should have supported in the oil sector. In addition, and for the first time in years, the a further reduction in the poverty rate, with the World Bank delivery of public services was significantly impacted by the estimating that the proportion of the population living under the discontinuation of works; the accumulation of domestic arrears to US $ 1.9 per day poverty line will continue to decline to reach 35.3 SMEs; and the bankruptcy of a number of these SMEs. Figure 3: Contribution of productive sectors to GDP growth, 2006–2015 Source: Congolese authorities, as February 2016 Throughout 2015, the level of demand of the public sector was the key driver for the reduction in construction activity, has declined strongly. It is estimated that the Government particularly in the infrastructure sectors. As a result, the rate of reduced its expenditure by about 28 percent during 2015, with growth in public expenditure on capital investments declined from this reduction being driven by the Government’s realization that it 68 percent in 2014 to 32 percent in 2015. In the private sector, was likely to generate a much lower level of revenue from its main domestic demand was boosted by public and private spending on source of funding than it had previously anticipated. The most activities related to hosting the September 2015 All Africa Games significant impact of these reductions was on the capital budget. in Brazzaville. The strong decline in the rate of execution of public investments 7 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Box 1: Diversification drive revives cement manufacturing Under its economic diversification policy, included in the National Development Plan 2012-2016 (PND), the Government allowed significant investment in the cement industry and palm oil cultivation by private sector businesses. As a result of this policy, two new cement plants were installed during 2014. The first is the Forspak plant, located in Dolisie. This plant is financed by Chinese investors and is expected to produce 0.3 million tons of cement per year. The second plant is Cimaf, located in Hinda and funded by Moroccan investors, is expected to produce 0.5 million tons of cement per year to complete the first “Société nouvelle des ciments du Congo” (Sonocc) based in Loutété, with 0.22 million tons. With the installation of these facilities, it is estimated that total production of cement has reached 1.25 million tons per year, which helped to meet a large part of the domestic demand driven by the Government’s infrastructure development program, with the level of demand currently estimated to stand at 1.2 million tons per year. Consequently, the average price of cement per ton in the local market declined to almost half of previous levels, to XAF 136,000 per ton in late 2015. In order to close the remaining gap, it is envisaged that additional plants will come into operation. The next plant to come into operation will be Dangote Cement in Yamba, with Nigerian financing (with an output of 1.5 million tons per year) and Diament Cement in Mindouli (with 0.6 million per year). Once all these plants come into production, total cement output will increase to at least 3.35 million tons per year, sufficient to enable Congo to become a net exporter. With the strong deceleration in public demand, the private consumption stood at the positive rate of 5.0 percent. The rate sector was the main driver of economic growth over the year. of growth in the value of net exports also declined sharply from Private investment increased by 21.7 percent, the same rate of 11.8 percent in 2014, to the negative rate of (8.9) percent in growth recorded in the previous year. The contribution of private 2015, with the slump in the value of oil exports and the increase consumption to real GDP growth also increased significantly, in the value of imports to support deep water works related to with the rate of growth reaching 5.0 percent during 2015. In the development of new oil fields being the major factors for this contrast, the contribution of Government consumption was sharp deceleration. Overall, while the contribution of investments negative, standing at (6.5) percent. This was a reversal of the to GDP growth was negative, private consumption enabled the trend recorded in 2014, when the contribution of government economy to sustain a positive rate of growth (see Figure 4). Figure 4: Drivers of demand in GDP growth, at constant prices, 2006–2015 Source: Congolese authorities, as February 2016 8 1.2 Low inflation amidst low demand and a tight monetary policy stance With the maintenance of the tight monetary policy within the transmission channels to support Congolese economic activities, Franc zone during 2015, monetary conditions within Congo this measure was ineffective. The level of overall credit to the also remained tight. With the overall low level of demand, economy increased by 13 percent, mainly supported by the good the rate of inflation remained low, reaching an average annual performance of the private sector through commercial banks. level of 2.0 percent. With Congo’s membership in the Economic However, the value of total money supply to the economy stood Community of Central African States (Communauté Économique at a figure of only XAF 2329 billion, with this figure decreasing by et Monétaire de l’Afrique Centrale, CEMAC), it is required to 11 percent during 2015. This was exacerbated by the significant implement a monetary policy stance that is consistent with the decline in the value of net external assets, with this decline policies mandated by the community. Hence, it was not at liberty amounting to 44 percent. These conditions, together with the to adjust demand conditions in the economy without reference falling fuel prices that directly reduced transportation costs to these policies. With the continuing depreciation of the Euro and the price of imported consumer goods by an average of 3.1 against the US Dollar (see Figure 5), the value of Congo’s percent, exerted downward pressure on the rate of increase of currency depreciated by 19.6 percent over the year (US$1= XAF domestic prices. Thus, the overall rate of inflation was maintained 494 in 2014 to US$1= XAF 591 in 2015). In an effort to stimulate at the low level of 2.0 percent for 2015. While this rate is higher lending and to boost economic activity, the regional central bank, than the figure of 0.9 percent recorded for 2014, it remained well the Bank of Central African States (BEAC), lowered its benchmark within the CEMAC convergence criterion, which requires that interest rate by 50 basis points in July 2015 to an all-time low member states maintain a rate of inflation at a level lower than 3 of 2.45 percent. However, because of some weakness of the percent per annum. Figure 5: Trends of the foreign exchange rate and prices of oil and logs $/XAF $/m3 $/bbl Source: Global Economic Prospects of January 2016, Afristat database The BEAC’s subsequent monetary policy revisions relieved For Congo’s banks, this required reserve ratio was expected to liquidity conditions, stimulated domestic demand, and have declined from 14 percent on term deposits to 7 percent, increased domestic inflation. The rapid decline in bank liquidity allowing commercial banks additional space to increase loans, within the CEMAC region prompted further policy actions in with the total value of the increase expected to amount to XAF 121 addition to those implemented in mid-2015, which involved a billion (US$ 0.21 billion equivalent to 2.5 percent of GDP). The lowering of the benchmark interest rate by 50 basis points. These impact on domestic demand of this looser monetary policy stance further policy actions involved the decision by the BEAC to reduce was manifested in a faster rate of increase in domestic prices and banks’ reserve requirement by 50 basis points, an action that inflation rose to a peak of 5.7 percent per annum by April 2016. was expected to release nearly XAF 600 billion (US$ 1.2 billion, Since then, the rate of inflation had somewhat reduced, and stood equivalent to 12 percent of GDP) across all the regional banks. at 4.0 percent per annum by July 2016. 9 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices 1.3 The external current account deficit worsens as low oil prices persist In 2015, Congo’s external position deteriorated significantly. of XAF 2744 billion recorded in 2014. These factors resulted in a This deterioration was mainly due to the effect of low oil prices deterioration in the trade balance, with the deficit standing at a and a number of internal shocks on export revenues and foreign value equivalent to 27 percent of GDP. direct investment flows. As with other oil exporters in the region, the low oil prices resulted in a significant reduction to the value of The current account deficit increased sharply from a value Congo’s export revenues, from XAF 4.5 billion (US $ 6.5 million) in equivalent to 5.6 percent of GDP in 2014 to 13.2 percent in 2014 to XAF3.0 billion (US $ 3.8 billion) in 2015. This represents a 2015, with improvements in the services and income account decline of 32 percent, with Congo deriving about 85 percent of its failing to offset increases in the trade deficit. In the area of revenues from oil exports. The value of Congo’s non-oil exports services, there was an improvement in the balance of exchange, increased from XAF 695 million to XAF 782 million, representing with the value of net service imports declining from XAF 1,234 an increase of 12.5 percent. However, with the relatively small billion in 2014 to XAF 1,093 billion in 2015. The income account contribution of the non-oil sectors, this increase was insufficient also improved, with the deficit position declining by almost half, to offset the decline in revenues from the export of oil. In addition, from XAF 1,006 billion in 2014 to XAF 596 billion in 2015, due to Congo was impacted by a number of internally generated shocks, lower equity payments to non-resident holders. The reduction in including shocks resulting from measures to control non-regular the value of service imports is largely the result of the spillover immigrants, disruptions to power delivery and fuel shortages, and effect of low oil prices into lower transport and freight charges. politically motivated protests. These events all had a negative While the external positions of all oil exporting countries in the impact on trade and business. However, with the Government region deteriorated, the deterioration was particularly significant continuing to implement its infrastructure development program, in Congo, Chad, Equatorial Guinea and South Sudan (see Figure the value of imports remained high, largely due to the import of 6). Among these countries, only Gabon recorded a current account inputs to support this program. The total value of imports of goods surplus in 2014, although it also recorded a deficit in 2015. reached XAF 2736 billion during 2015, compared to the figure Figure 6:Current account balance of selected oil countries in SSA percent Source: Congolese authorities, as February 2016 10 Brazzaville - Pointe-Noire Road (All right reserved, 2012) Congo’s financial account contributes marginally to the overall real terms, the value of the Congolese Franc is estimated to have external position. This position declined by more than 83 percent depreciated by 2.8 percent. The International Monetary (IMF) to reach a value equivalent to 2.4 percent of GDP in 2015, with the has estimated that with this rate of depreciation, the Congolese decline largely due to the reduction in the value of foreign direct Franc could be overvalued by up to 20 percent from its real value, investments (FDI). By contrast, the corresponding figure in 2014 depending on the method of estimation used.6 stood at 11.4 percent of GDP, with the value of FDI declining from the figure of XAF 1,311 billion in 2014 to XAF 597 billion in 2015. The overvaluation of the Congolese Franc means that most of With more than 85 percent of FDI being allocated for investments the adjustment has been achieved by drawing on reserves of in the mining and quarrying sector, the low global price of oil is foreign currency. In the long term, this could act as a constraint the main factor driving the decline in the overall value of FDI. The on the development of the non-oil sector due to its negative contribution of investments in other sectors is minimal, with their impact on Congo’s competitiveness. In the face of declining oil value reaching only XAF 467 billion in 2015, compared to XAF 550 revenues, Congo’s reserves have declined from a value of XAF billion in 2014. 2,698 billion at the beginning of 2015 to XAF 1,380 billion at the end. At this level, Congo still maintained a level sufficient to cover Congo’s currency is currently overvalued as a result of the 5.7 months of imports at the end of 2015, lower than the equivalent sharp decline in the terms of trade and minimal adjustments of 7.7 months it maintained at the beginning of the year. If Congo through nominal deprecation. Over 2015, the average value of continues to maintain a policy of running down reserves to fill the the Congolese Franc depreciated against the US dollar by 19.6 shortfalls arising from the decline in the value of oil revenues, percent, declining from XAF 494 at the beginning of the year to it may run down its reserves to a point below that considered XAF 591 at the end. With the terms of trade deteriorating by up acceptable in terms of indications of its solvency. Thus, these to 31 percent over this period, and with no major inflows through policies are not sustainable. In addition, in the longer term, an the capital account, the currency is currently overvalued. The overvalued currency reduces the competitiveness of Congo’s depreciation in the value of the Euro relative to the Dollar could exports. This may be one reason why the contribution of the non- have provided some support to the currency, but this support was oil sector remains relatively insignificant, a phenomenon referred limited given the composition of Congo’s main trading partners. In to as the ‘Dutch disease’. 6. International Monetary Fund, 2016, Republic of Congo—Policy Note for the 2016 Article IV Consultation Washington DC. 11 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices 1.4 Minimal adjustment to oil price shock cements a more expansionary fiscal deficit and higher debt Prior to 2014, the Government maintained a policy of increasing supply of good-quality social services. the relative proportion of the budget allocated for capital expenditures, while at the same time striving to maintain fiscal In 2015, influenced by its recent history of strong fiscal balance. In the period from 2011 to 2013, the average value of performance and anticipating a speedy recovery to global budgeted capital expenditure amounted to approximately 20 oil prices, the Government recognized the need to adjust to percent of GDP, with this high level of capital expenditure being changing circumstances, although it underestimated the extent intended to address Congo’s significant infrastructure deficit. The of the necessary changes. Thus, the 2015 budget projected a allocations for capital expenditures were significantly higher than reduction in total expenditure of 20.2 percent in nominal terms. the allocations for recurrent expenditures, which were maintained In proportion to GDP, total expenditure was budgeted to decline at an average level of approximately 13 percent of GDP. In this from a value equivalent to 95.7 percent of non-oil GDP in 2014 period, the value of own revenues remained high, reaching an to 81.0 percent in 2015. Of this expenditure, 62 percent was to average of 42.4 percent of GDP, indicating that Congo recorded be allocated for capital expenditure. In terms of allocations to a fiscal surplus. This expansionist fiscal policy had the potential varying sectors, 32.1 percent of the total budget was allocated to to stimulate growth not just in the long term, but also in the short the infrastructure sectors, with relatively small allocations to the term, with its stimulating effect on construction and other activities education sector (8.4 percent) and health sector (7.9 percent). related to the development of infrastructure. During this time, the In proportion to non-oil GDP, the value of primary revenues was social sectors, particularly education and health, were squeezed, projected to decline from 91.8 percent in 2014 to 68.1 percent in with resources allocated to these sectors averaging about 8.9 2015, with this decline attributable to the decline in oil prices and percent of GDP in each case. production. While a decline in revenues from oil was anticipated, it was also anticipated that non-oil revenues might increase from However, since 2014, the decline in oil prices has altered 28 percent of non-oil GDP to 40 percent of non-oil GDP between Congo’s fiscal circumstances, with the country generating a 2014 and 2015. For the first time, it was expected that these primary fiscal deficit for the first time in a decade. In the context revenues would be supplemented by an increase in the value of of this deficit, there is a need for the Government to adjust its external grants, with this value increasing from the equivalent spending priorities. With the decline in the price of oil, the total of 1 percent of non-oil GDP to 5 percent in 2015. Therefore, the value of collected revenues has also declined. In 2014, this value approved budget projected that the basic primary balance would stood at XAF 2,800 billion, compared to the figure of XAF 3,100 shift from a deficit equivalent to 5.9 percent of non-oil GDP in billion recorded in the previous year. Over the same time period, 2014 to a surplus of 0.5 percent of non-oil GDP in 2015. This was the value of collected revenues in proportion to GDP declined from expected to be almost fully funded by drawings on assets held 40 percent to 28.7 percent. outside Congo, so as to limit the drawing down on reserves. In contrast, expenditures increased in proportion to GDP, In the actuality, the fiscal outturn was much more expansionary from 36.7 percent in 2013 to 45.4 percent in 2014. Funds than had been anticipated, with the value of collected equivalent to a value of up to 68.2 percent of non-oil GDP were revenues being significantly below the targeted level and allocated to the capital budget. Much of this increase was driven with expenditure being significantly in excess of these levels. by the need for investment in infrastructure in preparation for the The value of collected revenues stood at the equivalent of 28.7 2015 All Africa Games. The recurrent budget also increased as a percent of GDP, almost 20 percentage points lower than had proportion of GDP, from 13.6 percent to 15.84 percent, with the been projected. This shortfall was attributable to the authorities increase largely attributable to the need to finance the continued collecting less than half the anticipated value of oil revenues, with implementation of the civil service wage reform. Accordingly, the total value of collected oil revenues standing at the equivalent in 2014, Congo recorded a primary fiscal deficit of 0.2 percent of 10 percent of GDP. On the other hand, the value of collected of GDP (about XAF 680 billion), compared to the fiscal surplus non-oil revenues stood at the equivalent of only 18.7 percent of 15.6 percent of GDP recorded in 2013. In a situation where of GDP, with the collection of taxes weaker than expected on there is no rule to guide fiscal expenditures, the fiscal surplus account of low timber prices, with the authorities failing to collect accumulated over the past decade has been used both to finance any non-tax revenues. Overall, in 2015, the value of collected the development of infrastructure works and to maintain the revenues was about 11.3 percentage points lower than in 2014. 12 The shortfall in revenues notwithstanding, the total value of The fiscal deficit was mainly financed by the Government expenditures stood at the equivalent of 47 percent of GDP, drawing on external non-reserve assets, with the value of 11 percentage points lower than originally planned. With the funds from these sources amounting to the equivalent of 33.2 turnout for capital expenditure being lower than planned, the percent of GDP. Over the year, the Government drew heavily increased expenditure was the result of a resumption to off- on the fiscal reserves accumulated by the central bank or stored budget spending, with the total value of this spending amounting in Chinese banks over the past decade. Thus, the value of fiscal to the equivalent of 11 percent of GDP. In nominal terms, the reserves declined from the equivalent of 44 percent of GDP in Government reduced its overall expenditure by only 28 percent 2014 to 31 percent in 2015. The balance of financing needs was relative to the levels recorded in 2014. The areas in which met by drawing on its savings within the banking system, the value government expenditure increased were civil service wages and of loans from the domestic banking system is estimated to have salaries (with this expenditure increasing by 8.8 percent over the reached the equivalent of 1.5 percent of GDP. year); activities related to the All Africa Games activities (with this expenditure estimated to have reached a value equivalent to least With liquidity challenges persisting and making it difficult for 10 percent of GDP); and on activities related to the unplanned the Government to clear its bills, accumulated domestic arrears organization of the constitutional referendum.7 By contrast, remains a significant issue. According to official data from the expenditure on some items under the non-wage recurrent budget Ministry of Finance, the value of domestic arrears increased by that covers goods and services declined, as did expenditure on 0.5 percent of GDP during 2015 to reach a value equivalent to a number of new infrastructure projects. As a result, the overall approximately 7 percent of GDP by the end of the year. However, fiscal deficit reached a value equivalent to 18.3 percent of GDP, this is around half of the level of 15.8 percent of GDP which private almost double the figure of 5.5 percent of GDP recorded in 2014. investors have claimed (see Box 2). In fact, a number of entities The own resource primary balance8 also increased from a surplus involved in the development of infrastructure that have invested in of 15.6 percent of GDP to an unprecedented deficit of 11.9 percent public works have gone bankrupt. of GDP between the two years. Box 2: The Congolese domestic arrears problem exacerbated by data problem According to the Ministry of Finance, the total amount of Tower of Nabemba in Brazzaville city arrears owned to the private sector amounted to XAF 1200 (Désiré Loutsono Kinzengele, 2015) billion, equivalent to around 7 percent of GDP. However, during the General Assembly of the National Union of Congolese Investors (UNOC), held on 10 December 2015, private investors requested that the Government pay debts estimated to reach a total value of XAF 800 billion, allegedly accumulated over the past 15 years. Due to the long period for which these debts have been owing, the union demanded that these debts be cleared immediately. The union also requested that debts related to transactions conducted during the various wars in which the Congo has been involved should also be paid immediately. They estimate that their businesses have incurred losses amounting to a value of up to XAF 324 billion during the various civil wars in which the country has been involved. 7. A Constitutional Referendum was held in Congo-Brazzaville on 25 October 2015 regarding a proposal to change the constitution, primarily to modify the rules regarding presidential terms. 8.The basic primary balance is measured as the difference between the basic revenues and non-expenditures , excluding 13 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Figure 7: Trends of domestic arrears and budget surplus over 2008-2015, in percent percent Sources: The Congolese authorities The Government’s expansionary fiscal policies have resulted stock was reduced to a value equivalent to 20 percent of GDP. in higher levels of debt. These higher levels of debt have Unfortunately, Congo has not only tripled its level of debt since raised Congo’s risk of debt distress from low to moderate. then, it is also borrowing on more stringent terms. Even though the Government has not formulated a clear national debt strategy, it has recently increased risk of indebtedness. The Congo’s risk of debt distress has recently been changed Government signed with Chinese Government a Memorandum from moderate to high, a condition that was also confirmed of Understanding in February 2016, that’s amounting to US six months after when the country did not pay on time its $ 2.3 billion for the construction of the port in Pointe-Noire. principal and interest due on its only international bond. This port is expected to support the export of iron, potash, According to the debt sustainability analysis (DSA)9 , the re- phosphates and other mining products and thereby to facilitate classification was supported by the fast increase in debt as the development of the special and manufacturing economic well as the breaches of thresholds of all other debt indicators zone in Pointe-Noire as a means to achieve a higher level in the stress scenarios. The Central Bank reported in December of industrialization. However, a number of logistical issues, 2015, that Congo has been the first borrower at the regional including the poor quality of railway services and the insufficient central bank. Its statutory advances, accounted for 27.9 supply of electricity, could act as major constraints on the percent of the total borrowing of all countries, while Gabon had efficiency of this port. The Government has also contracted a 24.5 percent and Equatorial Guinea had 18.5 percent. A debt loan from the French Development Agency to a value of XAF 75 sustainability analysis that takes into account Congo’s sizable, billion (equivalent to US $ 128 million), equivalent to 8 percent but significantly diminished deposits at the regional central of the total value of the 2016 public investment program, bank and abroad would result in the same assessment. Indeed, to support a number of projects in the water, electricity and in June 2016 Congo missed to pay on time both principal and health sectors. Specifically, this loan is intended to enable the interest for its 2007 Eurobond. This prompted downgrading of Government to improve the distribution of water and electricity to the country’s population. With these new loans, the total value the country’s creditworthiness by key rating agencies - Moody’s of Congo’s public debt now amounts to about 71.2 percent of and Fitch downgraded Congo’s sovereign rating for investment GDP, compared to the figure of 48.5 percent of GDP recorded grade to speculative grade in early August 2016, which action in 2014. The value of external debt alone increased from 37.1 pushed the Eurobond to trade at 64 cents, the lowest level it has percent of GDP in 2014 to 52 percent in 2015. ever traded at since its inception. Even though the payment due has been cleared, the market remains highly uncertain about Congo’s rapidly increasing debt could reverse the benefits it what could happen with Congo’s finances. Standard and Poor’s realized when its debt was almost fully forgiven in 2010 under rating agency has reinstated Congo’s credit rating from SD/D the HIPC debt initiative. In 2010, Congo reached the defined (partial default) to B- (highly speculative) by mid-August 2016, completion point under the Highly Indebted Poor Countries but Fitch moved from RD to CCC, while Moody’s did not change (HIPC) debt initiative, which allowed it to write-off the entirety the rating. Overall the country’s credit ratings are still lower that of the debt it owed to multilateral creditors. As a result, its debt the levels attained in recent years (Figure 8). 14 Figure 8: Recent adjustments in Congo’s Credit Ratings (2013-2016) rating Sources: www.tradingeconomics.com/republic-of-the-congo/rating Road construction opening economic activity in the mineral rich area of Kombe (Clarence Tsimpo, 2015) 9. Joint International Monetary Fund (IMF) and the World Bank debt sustainability assessment, 2016 15 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices 2.0 Congo’s economic outlook for 2016–2018 The expected increase in oil production should contribute to a stabilization in the rate of growth of GDP in coming years, with this rate anticipated to reach 3.8 percent in 2016 and around 3.6 percent in 2017 and 2018. With this translating into only a modest per capita growth rate, the decline in the rate of poverty is also expected to be modest. However, the anticipated continuation of low average global oil prices creates opportunities for reforms to eradicate Congo’s deficits, placing the country in a better position to benefit from the eventual recovery in these prices, with a more dynamic private sector and better systems of public finance management. However, the heavy dependence on highly volatile oil revenues and over-exposure to the Chinese economy are key risks to realizing the growth forecast. These would have to be managed alongside vulnerabilities arising from a high rate of urbanization, a large young population, and political and security related perils. 2.1 Moderate real sector growth expected within a gloomy international context In the medium-term future, Congo’s economic outlook will be In this context, economic growth in Congo is expected to remain affected by the ongoing impact of low average global oil prices, subdued, with an anticipated rate of growth of 3.8 percent which are not expected to recover significantly at least until in 2016. It is anticipated that economic growth will remain at 2018. This situation necessitates major realignments in macro- roughly this rate in 2017 and 2018. This is a downward revision by economic policies. Commodity prices, particularly oil prices, about 2 percentage points compared to previous projections. The are expected to remain low into the medium-term future, with a negative impact of lower oil prices notwithstanding, a substantial global economic recovery expected to occur only gradually. In its increase in oil production will support growth, even with low oil most recent global economic forecast, the World Bank envisions prices having a negative impact on the non-oil sectors, which global oil prices to increase to an average of US$ 37 per barrel in are expected to grow at an average rate of about 3.6 percent 2016; to US$ 48 per barrel in 2017; and to US$ 51.8 per barrel in over this period. Oil production is now projected to increase by 2018. These prices are slightly higher than had been previously between 6 to 8 percent in 2016. This is significantly lower than forecasted. However, Congo’s public finances can only be the rate of 20 percent that had been projected in 2014. expected to experience a full recovery by 2018 at the earliest. Figure 9: Prospects of real GDP growth over 2016-2018, in percent percent Sources: World Bank Economic Prospects and European Central bank data 16 The increased production of oil will be the key driver of direction, such as when the Council of Ministers adopted a new Congo’s anticipated moderate rate of growth. In the medium hydrocarbons code on March 25, 2016 with this code defining a term, the activities of the Italian oil company, ENI, which has larger role for national firms and increasing the state’s share of commenced operations involving the exploitation of new natural oil profits. Even if the code’s adoption will have only a marginal gas discoveries, is expected to boost economic activity in the impact on the Government’s revenues from the oil sector in the Pointe Noire and Brazzaville areas. The activities of this company forecast period, with new investment being constrained by the are expected to increase gas production and to provide the main slump in oil prices, even a slight increase in the Government’s input for the gas power stations, Central Electrique du Congo share of oil revenues will play a positive role in restoring the fiscal (CEC) and Central Electrique de Djeno (CED), by developing surplus in 2017. an integrated, operational network. The commencement of production by Total Moho Nord, following Moho Phase 1 in On a positive note, persistently low oil prices will exert December 2015, should also significantly boost economic activity, downward pressure on inflation, with this likely to boost real although this development remains highly dependent on the level incomes in the context of a higher rate of growth in non-oil of international demand for oil. In addition, commencement of sectors. However, household demand will increase to a lesser work on the Brazzaville-Pointe-Noire highway should improve extent due to downside influences such as the high rate of the transportation infrastructure and boost touristic activities. unemployment and underemployment. Therefore, the primary sector is forecast to grow strongly, with oil output increasing by at least 4 percent on average and with the The sound implementation of fiscal policy remains critically secondary sector rebounding to grow at a rate of around 5 percent important for the achievement of the macroeconomic forecast as a result of increased activity within the cement and palm oil in 2016 and subsequent years. The total value of expenditure is industries. The tertiary sector should grow at a rate of around 2.9 projected to decline from the equivalent of 47 percent of GDP in percent, with this low rate the result of the continuing decline of 2015 to 38 percent of GDP in 2016. In nominal terms, this figure public services as government adjusts to reduced revenues on amounts to XAF 2,622 billion that was presented in the budget account of the low oil prices. speech for this year. This level of spending is slightly higher than the figure of XAF 2,407 billion recorded in the previous year. The impact of the decline in oil prices on Congo’s economy underscores the fundamental need for economic While the value of collected revenues is expected to reach diversification. It is feasible that economic diversification could only the modest level of 29 percent of GDP, the projected be achieved through an expansion of the agricultural sector reductions in expenditure will facilitate the achievement of in forthcoming years. The agriculture sector has significant a lower fiscal deficit, with this deficit expected to reach a untapped potential, with Congo having more than 10 million value of approximately 10 percent of GDP (see Figure 10). hectare of arable land, of which only 3 percent is currently being This level of deficit is far lower than the original level planned for cultivated. Despite these endowments, Congo currently imports by the Government in the 2016 budget, with this level standing more than 90 percent of its staple food, with these imports at the equivalent of 19.5 percent of GDP. For the first time, the amounting to an average annual value of around XAF 500 billion. deficit will be financed by a drawing down of savings, with the The Government has recognized this potential, with Congo’s withdrawal of XAF 300 billion (7.6 percent of the total revenues National Development Plan defining agriculture as one of the budgeted) deposited at the BEAC or at Chinese banks. It will major potential drivers of economic growth and job creation. also be partially financed through the issuance of regional However, the development of the agricultural sector would bonds within the CEMAC market. This option will protect Congo require key policy reforms (particularly in the area of land tenure), from foreign exchange risk. The Government is expected to be investment in infrastructure, and the development of capacities involved in the budget support agenda and in the implementation to facilitate participation in high potential value chains. At the of reforms to improve the collection of revenue and the quality same time, institutional reforms are necessary to improve the of expenditure, with these measures intended to facilitate the business climate. Some positive steps have been taken in this management of the fiscal and current account deficits in 2016. 17 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Figure 10: Trend of total revenue and total spending depict a real adjustment over 2015-2018 CFAF billions Sources: World Bank Economic Prospects and European Central bank data The issuance of new debt instruments to finance the deficit value of the 2016 budget had increased by 37 percent, while the will result in a higher debt burden, placing pressure on oil sector, which is the main source of financing for the budget, Congo’s debt sustainability. The external debt-to-GDP ratio was expected to continue experiencing a double whammy isprojected to increase from 52 percent in 2015 to 57 percent effect, with a decline in oil prices (47 percent) and a decline in in 2016. Moreover, with the new Chinese loans and with the oil output (5.4 percent). The Government was also accumulating commitments entered into during the China-Africa summit additional arrears to SMEs and was thus under pressure by in South Africa in December 2015, the debt burden could financial markets to refinance. As discussed in section 1.4, the increase to levels dramatically higher than the level of 20 situation was further deteriorated when Congo failed to meet its percent recorded in 2010, after Congo successfully fulfilled the obligation on its only international bond which fell due in June requirements of the HIPC initiative to write off a large portion of 2016. This downgrading of Congo’s sovereign credit rating will its debts to multilateral institutions. make contracting loans from the international financial market more expensive in coming months. In the context of a weak global economy, the external position will continue to deteriorate. The current account deficit is Given the moderate rate of growth in per capita GDP, only projected to stand at 16.6 percent of GDP in 2016, up from 13.2 very limited progress is anticipated in terms of reducing percent in 2015. Congo’s rates of poverty and inequality. Extreme poverty in terms of the proportion of the population living under $1.90 a The deterioration in the Government’s fiscal balance and subsequent failure to pay debt due on an international day (PPP) is projected to decline slightly from 35.3 percent in bond has been reflected by a downgrading in Congo’s 2014 to 34.8 percent by 2018, based on a household survey creditworthiness ratings by key rating agencies, and may conducted in 2011. The level of inequality is anticipated to further complicate access to external finances. In March 2016, remain roughly stable, with the Gini coefficient remaining Moody’s Investor Service had downgraded Congo’s sovereign unchanged, at around 0.46, at least until 2018. This reflects the rating from Ba3 to B1. Similarly, Fitch had downgraded the relatively weak linkages between the oil sector and the rest of country’s long-term foreign and local currency issuer default the economy, with a high level of vulnerability amongst those ratings (IDR) from B+ to B with a negative outlook. The negative who are employed. Little improvement in measures of shared outlook associated with the significant deterioration in fiscal prosperity is expected, with growth in levels of consumption of position and the lack of clear policies to address it formed the the bottom 40 percent expected to remain flat. basis for the downgrading in the ratings. In addition, the total 18 2.2 Congo’s economy remains vulnerable to various internal and external risks Congo’s economic outlook faces a number of risks, with the the Republic of Congo to the Export-Import Bank of China Exim most significant of these risks relating to its heavy dependence Bank. The reluctance of Sinosure, the main public Chinese credit on highly volatile oil revenues. Congo remains extremely insurance body, is linked to the fall in oil prices and doubts about vulnerable to volatility in oil prices. With poor performance Congo’s capacities to fulfil its repayment obligations. in the area of domestic revenue collection and considerable uncertainty regarding the direction of oil prices, there remains a Congo’s high rate of urbanization and its large young considerable number of risks to the financing of investments in population create specific vulnerabilities. The proportion of the country. With Government plans to invest in a number of large the population living in the six main municipalities stands at 61.8 infrastructure development projects and in improvements to basic percent, with 38.6 percent of the population below 15 years of services, the total value of the required investments is significant. age and 67.5 percent below 30 years of age. In addition, the Thus, financing risks may be substantial if these investments are population in the vast hinterland is very low (10.8 people per not properly managed and sequenced. In the short to medium sq. km2, compared to the average figure of 38.5 people per sq. term, there remains a high level of expectation regarding a km2 for Africa as a whole). This situation creates significant number of new investment contracts that were approved in challenges in terms of the provision of public services, the 2014 but that have yet to be signed, with investors showing a facilitation of economic growth, job creation and planning to tendency to bide their time and wait until the situation becomes meet the needs of the next generation. This situation probably more conducive. In this case, the Government must handle both also creates specific challenges and opportunities in terms issues related to price volatility and to public sustainability, as oil of connectivity, urban/rural divide, level of education, and is a nonrenewable resource. It must also implement measures to the emergence of service industry. The Government needs ensure the quality of its expenditure. To ensure optimal levels of to implement a range of policies to address social tensions, return with its limited resources, the Government must strive to particularly through policies to create a greater number of formulate a fiscal framework that includes the following elements: productive employment opportunities and to increase the (i) budget tracking indicators; (ii) fiscal rules that ensure the employability of the young people. sound management of price volatility in the short term; (iii) fiscal sustainability criteria; and (iv) rules on the accumulation and There are also significant political and security-related risks. management of reserves. It also must also strive to develop the On October 25, a constitutional referendum was conducted, as necessary capacities to implement reforms to enable it to increase a result of which changes to the constitution were ushered in to non-oil revenues revise provisions preventing the sitting president from running for another term. This constitutional change created significant Congo’s economy is subject to the risk of overexposure to political tensions, leading to a disruption of economic activities China. Any difficulties with disbursements from China could for about a week. After winning the presidential election held severely constrain the implementation of a large number of on March 20, 2016, President Sassou Nguesso was officially planned projects. The sustainability of Chinese financing for inaugurated for a third consecutive term in office. Following the development of infrastructure in Congo is an issue that these tensions, his term is likely to be affected by economic and needs to be addressed through the establishment of a strong public finance challenges and political tensions. These factors contingency plan. During the first half of 2015, the value of may result in the perceived necessity for unplanned government Chinese FDI to Africa fell by 40 percent, to reach the figure of expenditure. In addition, unions representing public servants US$ 1.19 billion by mid-November. Despite this decline, China are making increasingly strident demands for improved living has committed to providing US$ 60 billion in funding support, with this commitment made at the China-Africa Summit held in conditions and wages. In particular, these unions are demanding December 2015 in Johannesburg. Due to persistent external and that the Government implement all of the provisions included strengths constraints resulting from the current global economic in the agreement signed under the social dialogue. In part, deceleration, characterized by the collapse of natural resources these claims are becoming increasingly strident because of prices, countries heavily dependent on Chinese financing perceptions that the Government has engaged in a high level of must exercise a high degree of caution. Indeed, recently, the expenditure on prestige projects, with almost US$1 billion spent Chinese state-owned Export Guarantee Company (Sinosure) on the construction of the stadium for the All Africa Games, while expressed reluctance to accept a loan issued in summer 2015 by ignoring their needs. 19 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices 2.3 A stronger adjustment effort is needed to mitigate the risks The recent oil and commodities price decline is believed to the agricultural sector has excellent potential as a means to be the beginning of a new area of low commodity prices. The achieve this diversification. On the other hand, the Government decline in oil prices is not unprecedented, but many analysts should reduce non-essential expenditure by reviewing its have argued that these prices may remain at very low levels for public investment policies and practices. In fact, investment a long time (see Box 3). This permanent shock has already had expenditure has accounted for more than 60 percent of public implications to the structure of production sharing agreement expenditure during the past five years. However, low absorptive between Congo and oil companies, resulting in a sharp decline capacity and investment efficiency have limited the effectiveness of government revenues in the short and medium terms. Despite of this expenditure, indicating that there is a significant need for a forthcoming low-financing context, it’s time for the country a higher level of selectivity in public investment. to make appropriate adjustments and reforms to its economic policies. With its current limited fiscal space and with oil prices remaining low, the Government should adjust its overall First, the Government should implement a reform agenda expenditure to a greater extent. In one scenario of the price that will enable it to increase the value of its collected non- of oil increasing to about US $ 46.9 per barrel and production oil revenues and to rationalize its expenditures. On the one remaining at around 95.7 million barrels per year, then the hand, the Government could increase the value of collected Government would have to adjust its expenditure relative to revenues by mobilizing non-oil revenues to a greater extent. 2014 by 41.6 percent in 2016; by 43.0 percent in 2017; and by This could be achieved through a number of measures, including 46.6 percent in 2018. In the context of the budget, Congo would enlarging the tax base, increasing tax rates, and reducing still need to substantially reduce expenditure to XAF 1843.9 or eliminating loopholes in tax collection processes. While billion from XAF 2410.3 billion, within the sustainable program. increasing the tax rate is an attractive option, in itself it may With the global oil prices not recovering as fast as forecast by not be enough to address the identified risks. The Government the World Bank, oil prices could increase to an average of US$ may also need to diversify its tax base by reforming its tax 41.0 per barrel in 2016; to US$ 50.0 per barrel in 2017; and US$ code. More fundamentally, it needs to implement measures 53.3 per barrel in 2018, then the required adjustment would be to facilitate the diversification of the economy to be able to much more significant. raise tax on a broader base. In particular, the development of Young apprentice in mechanics in Pointe-Noire project funded by the World Bank. (Céline Gavach, 2016) 20 Box 3: Why the recent oil shock is more permanent than temporary The decline in oil prices since mid-2014 was partly a catching up to a broader trend of commodity price declines that had been well underway. After reaching deep lows during the global financial crisis, most commodity prices, including oil prices, peaked in the first quarter of 2011. Since then, prices of metals, agricultural and raw materials have declined steadily as a result of weak global demand and robust supplies. In contrast, oil prices fluctuated within a narrow band around $105/barrel (bbl) until June 2014. Through much of 2012 and 2013, the impact of softening global demand on oil markets was offset by concerns about geopolitical risks and pricing policies exercised by OPEC. As some of these factors unwound, oil price started to drop steeply in June 2014. By February 2015, the cumulative fall in oil prices was significantly larger than that in other commodity prices since their peaks in 2011. Oil prices have dropped by more than 70 percent since June 2014 and are expected to remain low for a long time. Underlying demand and supply conditions for oil determine long-run trends in prices, but short-run movements in market sentiment and expectations can play a major role in driving price fluctuations. In the recent oil price plunge, revisions of supply and demand expectations, while noticeable, were neither exceptional nor unusually large. However, the recent episode is unique in the sense that these changes in expectations coincided with three other major developments: a significant shift in OPEC’s objectives, receding geopolitical risks, and significant U.S. dollar appreciation. These factors together formed a “perfect storm” that was reinforced by longer-term shifts in supply and demand dynamics (see World Bank Group Policy research note entitled: “The Great Plunge in Oil Prices: Causes, Consequences, and Policy Responses » of March 2015)”. . In its April 2015 WEO update, the International Monetary Fund also observed that on the supply side, the advent and relative resilience of shale oil production and increased oil production by OPEC members play an important role. The WEO continues to argue that on the demand side, lower GDP growth in emerging markets has tended to reduce oil demand growth, especially in light of the secular increase in global oil efficiency, and is expected to continue to do so. While the slow down can be counteracted by the fast increasing demand driven by industrialization as well as demand for transport services and car ownership, increasing exploration of other sources of energy including natural gas and coal will also reduce demand for oil. Indeed the share of oil in the world’s primary energy consumption has declined from 50 percent to 30 percent between 1970 and 2016, while that for natural gas and coal was increasing steadily over the same period and reached 30 percent and 25 percent, respectively. In view of these factors, many analysist forecast that commodity prices can be expected to remain low for a long time for a number of factors. According to the World Bank’s Commodity markets outlook of July 2016, oil prices are projected to rise only moderately in the medium to long term and may not increase above $70/barrel before 2020. It further indicates that there are upside risks to the price forecast including further supply outages in OPEC countries (Iraq, Nigeria, and Venezuela), larger non-OPEC supply declines, and stronger demand. Nonetheless, downside price risks also abound, centering on slower market rebalancing because of weak demand, the return of lost production, and persistent high stocks. The Government should implement reforms that enable Congo to build a fiscal buffer if and when there is a recovery in global commodity prices. This can be achieved by adopting fiscal rules that allow it to spend within reasonable limits while saving for hard times, and also promote a culture of saving some of the resources from the future generations (see Box 4). 21 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Box 4: Planning now for better revenue management To achieve sound management of its oil resources, the Government should do the following: (i) The Government should implement fiscal rules based on the non-oil primary balance (ii) The fiscal rules should include a current and capital expenditure growth rule aimed at ensuring Congo maintains a healthy ratio between its non-oil primary balance and its non-oil GDP. (iii) The implementation of the fiscal rules should ensure that increases in government expenditures are restricted to ensure that these increases are consistent with the maintenance of the healthy Non-Oil Primary Balance /Non-Oil GDP ratio and the budgeted oil price. (iv) To achieve (iii) above, the Government should establish mechanisms to ensure a high level of transparency within government institutions and to improve the management of its revenues. (v) The Government should also adopt rules for the accumulation of savings in the stabilization fund. These riles should be applied consistently. The level of the Government’s funds currently available at BEAC are insufficient to effectively guarantee stabilization. (vi) The government should adopt transparent mechanisms and stringent conditions to determine if and when it is appropriate to transfer these funds to the Public Treasury. (vii) Given that Congo’s oil resources are non-renewable, a mechanism to accumulate savings in an equity fund to ensure that these resources continue to provide benefits for future generations should be developed and implemented. (viii) The Government should also adopt well-designed and strictly implemented investment policies to manage the equity fund. In particular, these policies should focus on the profitability of the fund’s investments and the associated risk level. If, for instance, a portion of the funds are invested in Congo’s economy, the Government should create an independent committee to assess the level of economic and social profitability of the associated projects before they are allocated funding from this source. (ix) In general, a well-designed medium-term expenditure framework is essential for the appropriate management of these resources to ensure that they provide ongoing benefits even after the eventual depletion of non- renewable natural resources. Finally, the Government should implement measures to increased expenditure on infrastructure has been extremely improve the efficiency and effectiveness of its capital questionable. In particular, it has failed to facilitate the delivery of expenditure program and to improve the efficiency and power and water services to a high proportion of the population, effectiveness the social sectors. In the periods from 2006 to which should be mitigated through the success of the “water 2010 and from 2011 to 2015, the budgets allocated to ministries for all” and “rural electrification” projects. While expenditure have undergone significant structural transformations due to the on the social sectors has also increased significantly, social high level of revenues received by the Government as a result of development indicators show that Congo has performed poorly generally high global oil prices (see Figure 11). With this structural relative to regional comparators with similar per capita GDP (see transformation, the Government spent an annual average of Figure 12). In this regard, the decline in oil revenues may also approximately 30 percent of GDP on capital investment in the be a force for change, creating opportunities to place increased period from 2009 to 2014. The principal beneficiaries were emphasis on the social sector while pursuing the development ministries involved in the development of infrastructure and of the infrastructure sector to build strong human capacities and the sovereign sectors, rather than those in the public finance to enable Congo to fulfil its aspirations of transiting into a high and economic affairs sector. However, the efficiency of this middle income country by 2025. 22 Figure 11: Shift in sector shares of budget allocations between 2002-2008 and 2009-15 (in percent of total budget) percent Source: The Congolese authorities Figure 12: State of Congo in terms of Human development and Education Indexes, in 2014 Education index Human development index (HDI) Source: Human Development Report 2015, United Nations Development Program 23 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Center of gas in Ndjeno, Pointe-Noire. (All right reserved, 2012) 24 PART TWO ADJUSTING FOR BETTER HUMAN CAPITAL 25 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Women members of a farming group on the southern outskirts of Brazzaville. (Franck Bitemo S.C.) • In spite of its large endowment of natural resources, in spite of benefiting from higher average oil prices over recent years, and in spite of benefiting from its participation in a major debt relief initiative, all of which enabled Congo to record high rates of economic growth and to generate significant financial resources for the Government, it has failed to achieve significant improvements in social outcomes for the majority of its citizens. • With a gross secondary school enrolment rate of 64 percent, with 75 percent of primary leavers not attaining sufficient foundational skills in literacy and numeracy, with a huge disease burden, and with high maternal and infant mortality rates, Congo’s social indicators are considerably worse than many other countries at the same level of income. • Congo has increased the level of resources allocated to both education and health sectors in recent years. However, allocations have varied significantly from year to year and budgets are often not efficiently executed. In addition, there are significant inefficiencies in the manner in which resources are expended and prioritized. • While the Government has formulated impressive plans to improve the performance of both the health and education sectors and to improve outcomes, such as through the implementation of a universal health coverage system, unless these plans are supported with the allocation of a sufficient level of funds, they will not be realized. • With the declining global oil prices, the Government has limited fiscal space in which to operate. In this context, fiscal adjustments are inevitable. However, given the importance of the development of the country’s human capital, it is vital that these adjustments do not adversely affect the social sectors. • Thus, while the Government must make adjustments to the overall budget to achieve a more balanced development for both physical and human capital, it should also prioritize implementation of measures aimed at improving the efficiency and effectiveness of expenditure. 26 A resident seeking livelihood on River Congo (Désiré Loutsono Kinzengele, 2011) 3.0 Highlighting the gaps in human capital development in Congo With its extensive endowment of natural resources, Congo substantial reduction in its debt services payment burden after it is a rich country in terms of per capita income. It has already successfully participated in the enhanced HIPC initiative, reaching achieved middle income status, a distinction shared by only a the completion point under this initiative in 2010. Following this small number of other sub-Saharan African nations. Congo has point, the Government’s expenditure on the payment of debt extensive deposits of iron ore, as yet unexploited potash, land, services declined from 20 percent of total expenditure in 2008 to and oil. It has a young population, and could therefore benefit 8 percent in 2013. from a demographic dividend. However, despite these excellent potentials, at present, Congo’s economy depends heavily on Congo’s fiscal surplus provided the Government with the revenues derived from the oil sector. Revenues from this sector financial resources to commit to multi-year infrastructure contribute to a greater proportion of the nation’s GDP than is the investments and to make significant salary increases to civil case of any other country in the region. Unfortunately, this high servants. During this period, the value of the budget increased level of dependency means that Congo’s economic performance to the equivalent of 43 percent of GDP, compared to the figure is strongly correlated with the price of oil, with these prices of 36 percent recorded in the period from 2008 to 2009. The historically showing a very high level of volatility and having most significant proportion of the increased financial resources decreased dramatically over the past several years. was allocated to capital investments, with expenditure on these investments growing at an average annual rate of 30 percent to In the period from 2008 to 2013, Congo appeared to be in a reach the average level of 18.8 percent of GDP during this period. strong fiscal position, with the value of domestic revenues On the other hand, over the same period, recurrent expenditures generally in excess of expenditure for most of the time. increased by an average annual rate of 13 percent, to reach an However, this strength was strongly related to the global average level of 13.8 percent of GDP. commodity price super cycle, characterized during that period by exceptionally high oil prices. In the period in question, the average With these developments, the average rate of growth of global oil price stood at about US$ 100 per barrel, about five times GDP over the past 10 years has stood at 6.8 percent. The higher than the average price of US$ 20 per barrel recorded during Government’s significant investments in infrastructure facilitated the period from 1990 to 2002. Congo also benefited from the an increase in the rate of growth of the non-oil sector, with this 27 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices growth reaching the average rate of around 8 percent, significantly higher than the overall rate of growth of GDP. These developments drove a significant increase in the growth of per capita incomes, with the average per capita income standing at US$ 3,147 in 2014. In spite of this strong economic performance, Congo failed to achieve significant improvements in social outcomes for the majority of its citizens. A large proportion of the population (46.5 percent) still lives below the poverty line, and inequality persists. While there has been some improvement in education and health outcomes in recent years, with the country recovering from previous social and political unrest and the related plight of human capital, progress still lags. Table 1: Selected economic and indicators for oil-exporting countries of Sub-Saharan Africa, 2014 Republic of Equatorial Variable Chad Nigeria Angola Gabon Congo Guinea Demography Population, total (million) 13.6 177.5 4.5 24.2 1.7 0.8 Rural population (%) 78 53 35 57 13 60 Income and inflation GDP per capita, PPP (current US$ ) 1,025 2,661 3,147 5,901a 10,772 18,918 GDP per capita growth (average past 5 years, %) 7.1 5.7 5.2 n.a. 6.3 -0.6 Oil rents (% of GDP) 23.3a 13.6a 56.8a 34.6a 42.4a 53.3a Inflation, annual (average past 5 years, %) 2.0 10.7 3.3 10.9 2.1 6.8 Inequality and poverty GINI index 43.3b n.a. 40.2b n.a. n.a. n.a. Poverty headcount ratio at national poverty line 46.7b n.a. 46.5 b n.a. n.a. n.a. (% of population) Poverty headcount ratio at $1.90 a day (2011 PPP) 38.4b n.a. 28.7b n.a. n.a. n.a. (% of population) Health indicators Life expectancy at birth 51a 52a 62a 52a 64a 57a Infant mortality rate (deaths per 1,000 live births) 85c 69c 33c 96c 36c 68c Maternal mortality rate* (per 100,000 births) 856 c 814 c 442 c 477 c 291 c 342c Adult (ages 15-49) HIV prevalence (%) 2.5 3.2 2.8 2.4 3.9 6.2 Prevalence of stunting, height for age (%U5) n.a 32.9 25.0 b n.a. 17.5 d n.a. Education indicators Primary completion rate (%) 38 76 74 50 n.a. 51 Gender parity index (primary and secondary school (%) 0.70 0.91 1.00 0.64 n.a. 0.89 Secondary gross enrollment rate (%) 22 44 55 29 n.a. 27 Youth literacy rate (%) 50 66 81 47 89 98 Government spending on education (% of GDP) 2.9 n.a. 4.4 f 3.5 n.a. n.a. Public and health spendinge Government total spending, GTS (% of GDP) 22.1 13.6 41.7 32.7 28.9 38.8 Public health spending, PHS** (% of GTS) 5.9 6.5 4.2 7.7 7.2 7.0 Total health spending, THS (% of GDP) 3.6 3.7 2.5 3.8 3.8 3.5 PHS (% of THS) 36.9 23.9 51.1 66.7 54.4 77.8 Out-of-pocket health spending (% of THS) 61.0 72.9 37.1 24.4 38.9 19.2 * Modeled estimate service delivery for all A public expenditure review of the education and health ** Public health expenditure consists of recurrent and capital spending from sectors.” It must be noted that Out-of-pocket health spending (% of THS) was government (central and local) budgets, external borrowings and grants (including measured in the country’s 2010 National Health Accounts study, but is believed to donations from international agencies and nongovernmental organizations), and have been grossly under-estimated. social (or compulsory) health insurance funds f. Data for Republic of Congo is calculated by the Authors’ based on government a Year 2013; b Year 2011; c Year 2015.; d Year 2012. expenditure data and World Bank GPD data. Education expenditure data for all other countries are based on the World Bank’s World Development Indicators, e. With the exception of Republic of Congo’s, all other data are for 2013 and come compiled from the Unesco Institute for Statistics from World Health Organization’s Global Health Expenditure Database at http:// apps.who.int/nha/database/Select/Indicators/en. For Congo, GTS (% of GDP) n.a. Not available. from from IMF Article 4 September 2013; the other data are from World Bank (2014) Source: World Bank’s World DataBank unless otherwise noted. “Enhancing efficiency in education and health public spending for improved quality 28 3.1 Suboptimal educational outcomes suggest Congo is not building sufficient human capital Education is linked to development in two major ways. Firstly, the development process by increasing their ability to participate the provision of high-quality educational services enables a in production processes, to access productive employment country to build its human capital and thereby to increase the level opportunities, and to improve their well-being. With Congo’s of productivity of its labor force. This factor is critically important rate of economic growth putting it on track to achieve upper- as a means to raise the overall level of productivity of a country middle income status, it is critically important that it makes the and thus to sustain a high rate of growth. Secondly, the provision appropriate investments in education to ensure that the population of these services creates opportunities for citizens to participate in benefits from these linkages. 3.1.1 Congo’s educational outcomes lag behind other countries at similar levels of development After years of deterioration in its human capital base as a an expansion in the supply of educational services. Government result of civil conflicts, Congo has made some progress policies to make basic educational services more affordable towards rebuilding this base. In the 1980s and 1990s, conflict to a greater proportion of the population have also played a and economic crises led to a substantial decline in the rate of strongly supportive role. In quantitative terms, Congo’s rates of participation in educational services. However, since around achievement compare favorably with the average sub-Saharan 2000, the Government’s sustained efforts to rebuild the education Africa, although from a historical perspective, Congo is now only system have resulted in a reversal of this trend, at least in terms barely reaching the same high level of access that it recorded in of the primary completion rate (see Figure 13). This recovery has the 1970s.10 The average citizen in the 20-24 year age group has driven increased access to education at all levels of schooling, now completed 8.5 years of education (8.2 years for females, and with this trend supported by a decline in the rate of poverty and 8.9 for male) according to 2011 HHS data. Figure 13: Evolution in the Primary Completion Rate, 1971-2012 Source: UNESCO Institute for Statistics, accessed through EdStats. However, Congo’s overall level of human capital development education cycle. However, the gross enrolment rate (GER) at is still lower than that of many other countries at comparable this level stands at only 64 percent. While this rate is better than income levels. In 2015, Congo ranked in 136th place out of 188 that recorded by other oil producing countries such as Angola countries on the UN Human Development Index. This ranking (39 percent) and Nigeria (46 percent), it is still significantly placed Congo higher than most other African countries, but well below that recorded by other countries at similar income levels below comparable lower middle income countries elsewhere elsewhere in the world, such as Malaysia (92 percent), Ecuador in the world. In terms of educational coverage, attendance at (96 percent), and Iran (101 percent). At the upper secondary lower secondary school is part of the compulsory 10-year basic levels, the gap is even more significant (see Figure 14). 10. Congo expanded the coverage of its education system early on, in the 1960s and 1970s, and achieved at that time a relatively well- developed education system compared with most other SSA countries. In the 1960s, Congo was a relatively industrialized economy. 29 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Figure 14: Gross enrollment rate in secondary school, Congo and comparator oil-producing countries percentage Source: UNESCO Institute for Statistics In addition, while there has been progress in terms of the who graduate. End-of-cycle tests at the primary level show that completion rate at the primary levels, Congo’s learning around two-thirds of primary school graduates have insufficient outcomes are generally poor, even compared to other sub- foundational skills in literacy and numeracy (see Figure 15). This Saharan African countries at lower income levels. At the basic is perhaps puzzling, given Congo’s strong historical tradition levels, more than 20 percent of enrolled students are required to in education, high rates of school participation, and its largely repeat grades, with poor learning outcomes even amongst those urban population. Figure 15: Percentage of 6th graders meeting “sufficient” competency goals percentage Source: PASEC 2014, CONFEMEN 3.1.2 Congo is choosing other spending priorities than educating its population While Congo has increased its level of expenditure on education percent in 2008 to 2.7 percent in 2012, before reaching a high of as a proportion of its GDP over recent years, these increases do 4.4 percent in 2014.11 Despite this upward trend, the proportion not match the increases in expenditure on other public goods is still low compared to the average figure of 4-5 percent of GDP and remain low compared to other countries. As a share of GDP, recorded by both low and middle income countries elsewhere in Congo’s public expenditure on education increased from 1.8 the world. In proportion to the total value of its public expenditure 30 budget, Congo has allocated 9 to 10 percent to the education in the execution of budgets. On a positive note, according to a sector in the period from 2010 to 2014. This is lower than the levels recent public expenditure review of the health and educational of 12.4 to 9.8 recorded during the period from 2004 to 2007, with sectors, the execution rates of budgets for education has the Government’s increased emphasis on capital investments. improved significantly in recent years. With Congo’s rapidly The total allocations to the educational sector are significantly expanding population, its population is on average far younger lower than the global average of around 15 percent. Thus, while than that of most other lower middle income countries. In this with the growth in the Government’s revenues from the oil sector context, the need both to increase the level of resources allocated government budgets have increased substantially, this has not to education and to ensure that the allocated resources are resulted in commensurate increases in the level of expenditure on effectively utilized to achieve at least the same rate of return as education. achieved by countries with similar levels of income is critical. Thus, there is a need not only for increased funding, but also for In order to achieve optimal outcomes, the increased allocation measures to improve the efficiency of expenditure to ensure the of financial resources needs to be matched by improvements optimal return on these increased investments. 3.1.3 Inefficiency in spending contributes to poor educational outcomes The underperformance of Congo’s education system is largely irrelevant to the development of a productive labor force, attributable to the poor quality of service delivery and to the with resources used ineffectively. While budget allocations poor management of resources. On the one hand, the poor to the sector have increased, a significant proportion of these management of human resources, including the management increases have been utilized to provide generous allocations for of the country’s teaching force, has resulted in deficiencies administrative staff, draining the system of essential resources in pedagogical management. In addition, the curriculum and and leaving little space for investment in quality inputs or reforms prescribed teaching methods do not follow recent developments to improve the effectiveness of the system. At both the primary and in good practice, with a strong emphasis on rote learning. Poor secondary levels, many schools utilize a system of double shifts. implementation capacities, rent seeking behavior, and poor While this increases the capacity of these schools, it results in a coordination have a negative impact on the quality of service reduction in the instruction time received by individual students. delivery. At the primary level, the rate of grade repetition has As household surveys demonstrate, the most frequent cause for actually increased in recent years, from 18 percent in 2010 to 23 dissatisfaction with the educational system cited by low income percent by 2012. This is a disturbing indication of the quality of households relates to their limited ability to access books and the management of the education system and of the services it educational supplies. Amongst higher income households, the provides. At other levels, the curriculum appears to be largely most frequent cause for dissatisfaction relates to overcrowding. Schoolgirls in primary school in the north of Brazzaville. (All right reserved, 2015) 11. World Bank staffs’ calculation based on government expenditure data (executed recurrent and investment budget) and World Bank GDP data. 31 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Figure 16: Government expenditure on education, as percentage of total (executed budget), 2010-2014 Source: World Bank staff calculation based on Government of Congo official data An increasing proportion of public resources are being than half of the expenditure on the sector in 2014. allocated to higher education rather than to primary and secondary level education. By 2014, almost half of the public In terms of the allocation of public resources, the emphasis resources allocated to education were allocated to technical on higher education increasingly disadvantages the poor. and vocational education training (TVET) and higher level The public expenditure review conducted in 2015 shows educational institutions, despite the fact that the number that public expenditure on primary education has a pro-poor of students enrolled at such institutions was substantially impact, while public expenditure on upper secondary and lower than the number enrolled at the basic levels. higher education tends to primarily benefit the non-poor.12 In Disaggregation of public expenditure on education at the large part, this is due to disparities in the rates of participation different levels during the period from 2010 to 2014 confirms at the secondary and higher levels in terms of ethnicity, region, these developments (see Figure 16). On average, expenditure rural-urban divide, disability or poverty status (see Figure 17). on education constituted approximately 9.5 percent of the These disparities have significant implications, with levels total value of government expenditure, with expenditure on of educational attainment being a strong predictor of future primary and secondary education declining in proportion to employment and income status. Thus, the education system the total expenditure on this sector, and expenditure on higher is a significant factor in ensuring inclusion and addressing education increasing. The proportion of resources allocated inequality, with this system able to play a positive role if it is to TVET increased in both 2013 and 2014. The relative shares structured to provide equal opportunities for children of all allocated to primary and secondary education dropped to less backgrounds. 12. World Bank 2015: Enhancing efficiency in education and health public spending for improved quality service delivery for all - A public expenditure review of the education and health sectors. 32 Figure 17: Disparities in secondary school net enrollment rates, by multiple dimensions of disadvantage Source: World Bank staff calculation based on Government of Congo official data The poor quality of public education has led to the emergence of a large private education sector. A significant and increasing Young apprentice proportion of Congo’s students attend schools operated by in mechanics in Pointe-Noire privately funded education services. According to the Sector recipient of a Strategy for Education (SSE), 27 percent of the country’s total project funded by the World Bank. expenditure on education is derived from private sources, at (Céline Gavach, 2016) the household level. At the primary level, according to a recent MEPSA survey (June 2015), up to 40 percent of students attend private non-religious schools. The high level of enrolment at private institutions is the result of perceived gaps in the quantity or quality of public educational services and of the high indirect costs of public services. However, for those in the lowest income brackets, the Government remains the primary provider of services (see Figure 18). Even at public primary schools, parents are often required to pay volunteer teachers or bénévoles,13 out of their own means, which can be a severe hardship for the poor. With more than a third of the population living in extreme poverty (below the $1.90 PPP a day benchmark), this suggests that only a limited number of students, from rich households, can access high-quality educational services. Thus, there has been a significant failure to ensure effective access to affordable services by those who need them most. 13. “Bénévoles” teachers represent around 14 percent of all teachers and earn around half or less of government teachers, according to the Sector Strategy for Education. 33 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Figure 18: Market share for providers of education percent Source: ROC Poverty Assessment using 2011 ECOM. Despite the sub-optimal performance of the educational levels of education is also correlated with significantly higher sector, the rates of return on participation in education are levels of participation in formal sector wage employment. With substantial in Congo. In particular, participation in higher the labor market affording a substantial skills premium, more levels of education are positively and strongly correlated with equitable access to post-basic education is a critically important significantly lower rates of poverty, with the correlation increasing factor for the achievement of higher levels of equity and social with the level of education (see Figure 19). Participation in higher mobility for the poorer segments of the population. Figure 19: Probability of living below the absolute poverty line, by level of education, 2011 34 3.2 Congo is a rich country with poor health outcomes As nations achieve higher levels of economic development, they brains of young children irreversibly, is an important precondition invest in their health systems to promote higher levels of human to maximizing human development outcomes. In Congo, development, supporting the development of human capital by measures to improve the health conditions of the population are ensuring that the workforce remains healthy and productive. Also, critically important to facilitating the achievement of poverty avoiding childhood malnutrition which damages the developing reduction and equitable growth. 3.2.1 Disease burden and poor health outcomes reveal major systemic weaknesses in the health system The Government has demonstrated a strong commitment Despite these commendable efforts, a number of structural to improving the health of Congo’s population. In addition, and institutional issues continue to constrain the achievement government programs have been supplemented by a number of of better health outcomes. In fact, in terms of a number of large externally funded development assistance projects that health indicators, Congo’s level of performance is little better seek to strengthen the health system and to provide increased than that recorded by a number of low income countries within protection for the vulnerable. Government health policy is guided the sub-Saharan African region. Congo’s population remains by a number of instruments, including the National Health Policy affected by a number of deadly and disabling diseases, many adopted in 2003 (NHP); the National Health Development Plan of them preventable. In particular, in 2013, the three most (NHDP II, 2012-2016); the Growth, Employment and Poverty significant contributors to the overall disease burden, measured Reduction Strategy Paper 2012-2016 (DSCERP); the “New Hope” in terms of the number of years lost to disease, disability or death (“Nouvelle Espérance”) 2002-2009; the Poverty Reduction (Disability-Adjusted Life Years, or DALYs) were HIV/AIDS; lower Strategy 2008-2010 (PRSP); the “Future Path” (2009-2016); respiratory infections; and malaria (see Figure 20). and the recently launched Universal Health Insurance Coverage (UHC) Plan (Régime d’Assurance Maladie Universelle, RAMU). Figure 20: Top causes of all ages DALYs, 2013 Source: IHME – GBD database, 2013 update. 35 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Despite the high rate of attendance by expectant mothers at from the rate of 5.0 recorded in 2011. The fertility rate among antenatal clinics and the high rate of attendance by skilled young women in the 15-19 age bracket is also high, standing at health workers at deliveries, four out of every 1000 mothers 119 per 1,000 women in 2014, a reduction from the figure of 126 still die during maternity and soon after giving birth..While recorded in 2011. this is comparable to other countries in the region, it is very high by global standards. Despite the high rate of participation The rate of infant and under-five mortality has nearly halved in antenatal care and despite the fact that 93 percent of births since 1990, bringing it to levels classified by the United are reported to be attended by skilled health workers (2012), Nations as ‘moderate’. However, the rates are still significantly the maternal mortality rate remains high, with this rate at 442 higher than the target set by the Government. In 2015, infant per 100,000 live births in 2013, a reduction from the rate of 494 mortality rate stood at 33 per 1,000 live births (down from 40 in recorded in 2011. The Government has set a goal of ensuring 2011), while the under-five mortality rate stood at 45 per 1,000 that the rate of births attended by skilled health workers live births (down from 56 in 2011). These rates are better than increases to 95 percent and the rate of maternal mortality any other Francophone sub-Saharan African country (see Table declines to less than 390 deaths per 100,000 live births by 2), but still significantly higher than the Government’s eventual 2016, with the eventual goal of achieving the level of no more goal of no more than 10 deaths per 1,000 live births for both than 100 deaths per 100,000 live births. According to the 2012 rates. Nonetheless, it is highly likely that the Government will Demographic and Health Survey (DHS), the rate of use of achieve its target for 2016 of ensuring that the infant mortality modern contraception stood at 22 percent. However, the fertility rate is lower than 38 per 1,000 live births and the under-five rate remains high, at 4.9 births per woman in 2013, a reduction mortality rate is lower than 59 per 1,000 live births. Table 2: Francophone SSA countries: Infant and under-5 mortality rates, 2015 GDP per capita 2014 Infant mortality rate (deaths Under-5 mortality rate (deaths (current US$) per 1,000 live births) per 1,000 live births) Benin 904 64 100 Senegal 1,067 42 47 Mauritania 1,275 65 85 Cameroon 1,407 57 88 Cote d’Ivoire 1,546 67 93 ROC 3,147 33 45 Gabon 10,772 36 51 Source: http://data.worldbank.org Prenatal consultations in an integrated health center in Brazzaville (All right reserved, 2016) 36 Despite these positive achievements, significant disparities 2012 survey reported that the child of a mother who had never in child health indicators remain in relation to socio- attended formal education was twice as likely to die before the economic status. The recent Demographic and Health Survey age of one as the child of a mother who had graduated from the (DHS) indicates that children of mothers with higher levels of senior secondary level. Similarly, the infant mortality rate was educational attainment are significantly more likely to survive significantly lower for children from better off households than their first year of life than the children of mothers with lower from poor households (see Figure 21). levels, although the gap has narrowed over time. The 2011- Figure 21: Mortality of infants by mother’s education and household wealth quintile Source: World Bank staff calculation using data from EDCS 2005 and EDCS 2011-12 While the rate of immunization against communicable diseases for measles is somewhat lower, standing at 80 percent (2014). amongst children has improved, the rate of stunting due to However, Congo suffers from a high rate of stunting, with the rate poor nutrition remains high. The rate of immunization coverage of below-average height for age in children under the age of five is improving, with the Government on track to achieve its target standing at 25 percent and with the rate of underweight standing of 90 percent. In 2014, 90 percent of children in the 12-23 month at 12 percent in 2011. The most recent DHS found that while the age bracket were reported to be adequately immunized against rate of malnutrition had declined, the gap between the richest and DPT, up from the figure of 80 percent recorded in 2011. The rate the poorest households had increased (see Figure 22). Figure 22 Categorization of child malnutrition by household wealth quintile, 2005 and 2011-12 Source: World Bank staff calcutaion using data from EDCS 2005 and EDCS 2011-12. 37 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices The rate of incidence of tuberculosis in Congo has remained transmitted helminths (STH) such as ascariasis (roundworm), unchanged over the past two decades, with this rate standing trichuriasis (whipworm) and ancylostomiasis (hookworm), at around four per 1,000 people. This disease is still rampant, constitute less than 2 percent of Congo’s burden of disease. with the current rate standing at 381 per 100,000 people, However, they also contribute to diarrheal diseases (7.1 percent virtually unchanged from the rate of 383 per 100,000 people of YLL) and protein energy malnutrition (4.2 percent of YLL).16 recorded in 2011. Unlike other health conditions, the rate of incidence of these NTDs in Congo has actually increased in recent years. The The rate of incidence of HIV has been declining. However, Government has set a target of reducing the rate of prevalence due to limited access to medical and psychological care of NTDs by 50 percent by 2016. by those affected, it remains the most significant cause of premature death in Congo. The rate of incidence amongst The rate of incidence of non-communicable diseases (NCDs) those in the 15-49 age bracket has been declining, decreasing is also on the increase, despite the Government having from an estimated 3.1 percent in 2011 to 2.8 percent in 2014. implemented a plan for the management of these diseases However, it remains the most significant cause of premature since 2007. The four main NCDs, which include cancers, death in the country, 14 with only limited access to medical diabetes, cardiovascular diseases and chronic respiratory and psychosocial treatment. The Government has set a target diseases, account for nearly 14 percent of the burden of disease of increasing the proportion of people infected by HIV/AIDS (measured in DALYs) in 2013,17 an increase from the rate of having access to treatment from 6.7 percent to at least 15 11 percent recorded in 2005. The World Health Organisation percent by the end of 2013. It has also set a target of reducing estimates that the probability of a citizen of Congo in the 30- the rate of incidence to less than 2.1 cases per 100 by 2016. 70 year age bracket dying from one of the four major NCDs to stand at 20 percent in 2014. The Government aims to reduce A number of tropical diseases, particularly malaria, remain the rate of prevalence of diabetes mellitus, hypertension and rampant, with a sub-optimal provision of care in cases of strokes by three quarters by 2016. However, as of 2014, Congo their occurrence. Malaria accounts for approximately 6 percent had yet to take action in terms of the WHO’s national systems of Congo’s burden of disease, but nearly 13 percent of years of response points, which include having an operational NCD life lost (YLL).15 The Government has set a target of reducing unit/branch or department within the MOHP and operational new cases of malaria to less than 50 per 1,000 people by 2016. multisectoral national policy, strategy or action plan that Neglected tropical diseases (NTDs), which include lymphatic integrates the management of a number of NCDs and shared filariasis, onchocerciasis, schistosomiasis, trachoma, and soil- risk factors, among other points. 3.2.2 Congo is not spending enough to improve the health of its population Despite the Government’s stated commitment to improving the total value of health expenditure stood at 4.1 percent in health outcomes, Congo still allocates a significantly lower 2013, but the public budget allocated to health stood at only 1.7 than average level of financial resources to health compared percent. The average per capita expenditure on health stood to other countries at its level of income. In 2011, Congo was at US$ 131, an increase from the figure of US$ 95 recorded ranked in the second quintile in terms of average per capita in 2011. The most recent National Health Assessment (NHA) income amongst all sub-Saharan African countries. However, also showed that the level of donor financing for health care in both in proportion to GDP and to the overall government Congo is relatively low by regional standards, as are community expenditure, its allocations to the health sector were among contributions and expenditure by enterprises. the lowest in the region (see Figure 23). In proportion to GDP, 14. GBD 2010, reported in IHME, no date. 15. GBD 2010, reported in IHME, no date 16. GBD 2010, reported in IHME, no date 17. GBD 2013, reported in IHME, no date 38 Figure 23: Health expenditure in relation to income and government health expenditure as a share of total government spending—A comparison with other countries in SSA region, circa 2011 Source: Compiled using World Bank Data Bank. Congo has a well-structured health system, with More than one half of all health care providers are privately decentralized service delivery. However, despite this structure, operated, with nearly all of these private healthcare providers most public expenditure is allocated to large hospitals. Congo’s (88 percent) operating for profit. The private health sector is public health care system is formally structured according to large, including a mix of both profit and not-for-profit providers, three hierarchical levels: central, departmental and peripheral/ including clinics, health centers, medical practices, laboratories operational. The Government health service delivery system and pharmacies. The private health sector is estimated to deliver consists of a national network of health facilities that are about a third of all health services and a half of all ambulatory distributed throughout the country and organized under a care. The private health sector plays a crucial role in enabling pyramidal referral system. In 2010, approximately one-third of Congo to achieve its universal health targets, even though 90 the MOHP’s executed budget was allocated at the hospital level, percent of these providers are located in urban and semi-urban with only 9 percent going to health centers. areas. Since 2011, the World Bank and IFC’s Health in Africa (HiA) initiative has been operating in Congo to improve public- The low level of public investment in health has led to a high private partnerships in this area by establishing better legislative level of out-of-pocket expenditure through the Ministry’s and regulatory frameworks and through other initiatives. cost-recovery policy at facility level. The National Health Accounts (NHA) for 2009-2010 show that 37 percent of all The decision as to whether to use public or private services is financing for health care came from households and that more complicated, with perceived advantages and disadvantages than a half of financing for government health providers came to each. On the one hand, public health service providers are from user fees incurred for curative and preventive services and perceived to have better technical platforms to provide care. medicines (NHA 2010). While they are generally perceived to have available, qualified personnel, moonlighting and absenteeism prevent them from Most household health expenditure involves payment for offering full-time, dedicated service in some areas. This results curative care, with a low level of expenditure on preventative in long delays and inflexibility with regards to payment terms care. Of household-level health expenditure, 51 percent is and conditions, which may alienate the poor. There are reports of expended on curative care, with another 40 percent utilized to public health service providers demanding informal payments. purchase medicines. This is particularly troublesome given the economic vulnerability of the population and its high rate of The quality of health services at public and private providers poverty. At present, there is no policy for the provision of waivers respectively is dependent on a number of factors. However, the to patients unable to pay fees. User fee levels are not set by quality of health services offered by public providers is generally the Government, with a significant degree of variation between perceived to be better than those offered by private providers, facilities. particularly for maternal care. Despite this perception, people 39 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices often choose to seek care at private providers because of the the private for-profit providers actually charge lower prices than proximity of their services in urban areas, their extended opening public providers, particularly for some preventive services, which hours and shorter waiting times, and perceptions that the quality are offered free of charge at point of use by private providers but of laboratory services that they provide is better than those of for a fee by the public providers. Another issue is that the private the public providers (R4D, Hera; 2012). The cost of provided providers often offer more flexible payment terms to poorer services is also an important determining factor. In some cases, patients who have difficulty paying. 3.2.3 Inefficiency in spending creates weaknesses in the health system The health sector faces capacity issues related both to its The rates of utilization of health services in the public sector ability to execute programs and to the prioritization and remain low both in rural and urban areas. It is estimated that allocation of funding. The budget execution rate of MOHP has the average citizen makes an annual average of only 0.2 curative been quite volatile from year to year, and in some instances ambulatory visits to government health facilities. Congo has amongst the lowest of all ministries, at about 56 percent overall. significantly fewer doctors in proportion to its population than This is only about one-third of the execution rate for investment does almost any other country in the sub-Saharan African region spending. (see Figure 24). Figure 24 The number of physicians per 1,000 people against per capita income across Sub-Saharan Africa over the period 2010-2014 Source: World Bank staff calculation, using World Bank Databank 40 There is also a shortage of other types of health workers at related issues. The number of hospital beds is insufficient to public health facilities, including pharmacists and specialists. meet the needs of the population (16 per 1,000 people), with this In addition, in the health sector, Congo’s human resources are number being significantly lower than that of other countries at unequally distributed geographically, with areas with the worst the same level of income (see Figure 26). provider-to-patient ratios being those with the highest rates of poverty (see Figure 25). In general, health workers, including Finally, the availability of affordable pharmaceutical products specialists, general practitioners, midwives and pharmacists, and medicines is a major issue, particularly for poor households. are disproportionately concentrated in urban areas. There Health facilities procure drugs from various sources, including are other major challenges in the area of human resources, the private sector. The private sector supply of medicines is not including challenges related to the quality and availability of well regulated, which makes their cost uneven, volatile, and both initial and in-service training, levels of motivation, systems unpredictable. Market prices are generally high, while the quality of incentives and remuneration, limited supervision, and other of drugs is suspect.18 Figure 25: MOHP budget allocation for health staff and poverty rate by area, 2011 (percent) Source: Ministry of Health and Population, Republic of Congo. 18. World Bank, November 23, 2013; Agence d’Information d’Afrique Centrale, 2015. 41 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Figure 26: Sub-Saharan African countries: Availability of hospital beds per 1,000 people by logarithm of PPP per capita income, circa 2010-2014 Source: World Bank staff calculation, using World Bank Databank Amongst other matters, the development of the sector (Results for Development Institute, HERA) found that in pharmaceutical sector requires effective systems to practice, this is only being implemented effectively for insulin, monitor and control the quality of medicines. This could be although approximately one-half of the drugs on the market achieved by strengthening systems to scrutinize applications are obtained from CGAPSE.24 These drugs are affordable and submitted by importers to the regulatory authority and to known to be of good quality, being sourced from reputable ensure the implementation of the appropriate laboratory tests. suppliers. Though the MOHP requires that government health The establishment of additional warehouses has facilitated service providers procure drugs through CGAPSE using their own the decentralization of activities, which should improve the budgetary resources or revenues generated from user fees, many performance of the pharmaceutical products procurement of these providers prefer to purchase drugs and supplies from agency (CGAPSE). 19,20 Congo has a pharmaceutical regulatory private suppliers. More than one half of all drugs and medical agency,21 but there is no legislative framework or other consumables found at public health facilities have been procured effective means to ensure its transparency and accountability. from the private suppliers, with nine import wholesalers being the However, there is at least a legislative framework to govern the source of the vast majority of these supplies. authorization of drugs sold on the market and the inspection of importation and production facilities. Procedures to facilitate the The private pharmaceutical market is not well regulated, and approval of new products are lacking, as are laws and measures is affected by both price and quality issues. Drugs sourced to prevent counterfeiting and to regulate marketing. Congo has from the private sector are sometimes more than 13 times more no drug quality control program. 22 expensive than the international reference price and more than five and a half times more expensive than the cheapest The quality of medicines procured by and provided through equivalent generic product (Agence d’Information d’Afrique public health facilities is generally good, although these Centrale, 2015). The lack of regulation and control of the private medicines constitute only around half of the supply on the drugs procurement system creates significant patient safety market. CGAPSE is responsible for procuring and supplying issues. While wholesalers and retailers must obtain government government hospitals and health centers with generic essential authorization to function, they are not subsequently subject to drugs and consumables.23 A 2012 assessment of the private any meaningful quality controls. 42 Field visit in the integrated health center in the Pool Region (All right reserved, 2013) 19. World Health Organization, http://www.aho.afro.who.int/profiles_information/index.php/Congo:Regulation,_quality_and_safety_ of_the_pharmaceutical_sector) 20. Comité de Gestion des Approvisionnements en Produits de Santé Essentiels (CGAPSE, formerly COMEG) 21. Autorité Réglementation Pharmaceutique 22. Ibid. 23. 24. World Bank, 2013 43 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices 4.0 The Government must adjust without sacrificing the social sectors With Congo’s high rate of economic growth resulting from the and health outcomes. With the current decline in average oil price boom and with its improved fiscal situation following global oil prices and the associated fiscal crisis in Congo, the HIPC debt cancellation initiative in 2010, there have been it may be difficult for the country to make significant social some increases in the level of expenditure on the social sectors gains in coming years unless a deliberate effort is made to in recent years. However, these increases have been limited ensure that the fiscal adjustment does not come at the cost and implemented unevenly, with significant variations from of the development of these sectors, with low levels of public year to year. Therefore, they have had only a limited positive financing being exacerbated by inequitable allocations and impact in terms of progress towards improving education inefficient spending. 4.1 Plans to improve health and educational outcomes must be sustained The Government remains committed to its endeavors to a traditionally under-funded category, with the care provided improve both health and educational outcomes. If the through the scheme for these groups consuming 60-70 percent Government’s measures to achieve these goals are sustained of its resources. The total cost of this program represented and implemented effectively, they will enable Congo to achieve just one percent of government health spending in 2010. The not just a higher rate of economic growth, but significant basic package provided through the scheme is referred to as improvements to its human capital. This will ensure that the the Minimum Package of Activities (MPA). This basic package growth that Congo achieves is inclusive, sustainable, and provides coverage for 23 preventive and curative health services equitable. The most significant aspects of the Government’s for community and health center patients. The Complementary programs in these sectors are as follows: Package of Activities (CPA) provides additional coverage for 18 low, medium and high-cost preventive and curative services (i) Reforming the health systems offered by first level hospitals. The cost of averting a single disability-adjusted life year (DALY) through the provision of To improve the performance of the health sector and to MPA services is estimated to stand at US$ 65, while the cost of strengthen its ability to address the burden of disease, averting a single DALY through the provision of CPA services is the Government has implemented a number of initiatives, estimated to stand at US$ 86. The combined projected annual ranging from ensuring universal health coverage to improving cost of providing these two benefits packages amount to a the quality and delivery of drugs and medicines. As the value roughly equivalent to 2 percent of the country’s per capita Government moves towards the full implementation of the GDP. According to WHO benchmarks, this can be categorized universal health coverage system, its major points of focus as highly cost-effective, with the cost per DALY averted include: (i) improving the allocation and quality of human significantly below Congo’s GDP per capita, which stands at US$ resources for health; (ii) implementing a Performance-Based 3,147 (2014). Financing (PBF) program to increase the uptake of key essential health services; (iii) strengthening administration and To improve both access to and the affordability of health management; and (iv) improving health financing. services, since June 2015, the Government commenced with Congo’s Universal Health Coverage (UHC) plan was first the implementation of a performance based financing (PBF) launched in June 2014. The UHC plan is intended to extend program. The commencement of the PBF program follows access to a defined package of basic and complementary health the implementation of a successful pilot program, conducted services to the entire population. The care provided is intended in the period from 2012 to 2013. The PBF program is being to target an estimated 70 percent of causes of years of life lost. implemented as a component of the second World Bank-funded With its design drawing on global good practice to ensure its Health Systems Strengthening Project (PDSS II). Although yet cost effectiveness, the UHC plan targets women and children, to be formally evaluated,25 the pilot resulted in a significant 25. A mixed-methods impact evaluation of the PBF program pilot is scheduled for 2019 to assess if PBF increases utilization and quality of maternal and child health services, and improves equity of access and contributed to behavior change. 44 uptake in the use of health services (see Table 2). The PBF is services to up to 86 percent of the population, with particular intended to improve health service delivery by changing the emphasis on the provision of these services to women and incentive structures for institutions at all levels of the health children under 5 years of age as a means of reducing maternal system (see Box 5). At an estimated cost of US $ 5 per capita and child mortality rates and thereby facilitating Congo’s per year, the PBF will ensure the provision of frontline health achievement of Millennium Development Goals in these areas. Table 3: Uptake of services in PBF pilot, January-March 2013 Service October-December 2012 January-March 2013 New curative consultations 16,460 25,342 Fully vaccinated children 1,889 2,970 Voluntary counselling and testing for HIV 490 751 PMTCT: pregnant mother tested 1,045 1,186 Institutional delivery 1,509 1,765 Modern family planning method acceptor 201 262 Second to fifth tetanus vaccination for a pregnant woman 3,537 3,792 Source: World Bank. Health System Strengthening Project II Project Appraisal Document. Report No: 81009-CG. November 25, 2013 Given the important role played by the private sector in with representatives of the private sector to develop a public- the delivery of health services, the Government is also private partnership. The Government currently spends less committed to working with this sector and implementing than 1 percent of its health budgets on medicines. To address measures to ensure that it contributes to the achievement the limited availability of medicines, it has committed to making of improved health outcomes. With assistance provided essential and generic drugs, reagents and medical devices of through the World Bank’s private-sector Health in Africa (HiA) sufficient quality available at all health centers. A pilot program initiative, the Government is taking steps towards revising the will be conducted to test the procurement of these products by legislative and regulatory frameworks covering the private the central medical stores from select international wholesalers. sector’s role in the delivery of health services to facilitate a In addition, private wholesalers have committed to opening a higher level of engagement. To ensure that the private sector business line of affordable generic drugs. The PBF program contributes optimally, the MOHP has conducted a review of the includes a number of performance contracts related to the legislative and regulatory framework with a view to revising this provision of pharmaceuticals, which is hoped to facilitate the framework to ensure its ability to facilitate the development of achievement of the Government’s goals in this area (see Box public-private partnerships. Additionally, a new law related to 5). The MOHP’s pharmaceuticals regulatory authority, central the private sector’s role in the delivery of health services was medical stores and district pharmacies are being monitored to promulgated in May 2015. These efforts have already facilitated determine their performance in terms of a number of indicators, significant advances, with the PBF program including provisions including: (i) the timely collection of pharmaceutical re- to contract out services related to the delivery of the basic supply orders from the health facilities; (ii) the quality of stock package of services with 70 percent of private sector facilities management of essential drugs and consumables; (iii) the in Pointe Noire and Brazzaville. In addition, a public-private timeliness and completeness of the processing of drug orders; roundtable conference on issues related to the procurement, (vi) the maintenance of minimum stock levels for essential provision and supply of pharmaceuticals and other matters was generic drugs; (v) quality assurance of generic drugs supplied conducted in October 2015. by select certified drug distributors; (vi) the certification of new drugs; (vii) the certification and quality assurance of pharmacies To ensure the availability of good quality, affordable generic based on a work plan and post-market surveillance; and (viii) drugs nationwide, the Government has initiated discussions the regulation of certified distributors. 45 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Box 5: Performance Based Financing to improve service delivery in the health sector The Government has commenced with the implementation of performance based financing (PBF) program to improve the delivery of health services to its population. Implemented as a component of the second World Bank-funded Health Systems Strengthening Project (PDSS II), the implementation of the program commenced in June 2015. The first phase of the PBF program will be implemented in the period from 2014 to 2019 with a budget of US$ 120 million, of which 86 percent involves the Government’s own funds. The cost of implementing this program is estimated to reach US$ 5 per capita per year. What is the PBF program? The PBF program is an arrangement between service providers and the Government intended to revise the incentive structure to improve service delivery. The PBF program involves the contracting of selected public and private health facilities to deliver health services to the population, with the performance of these facilities judged in terms of indicators included in contracts signed with district health administrations, the provincial health administration, select central ministry of health departments, and the central medical stores. The program also facilitates targeted interventions in the pharmaceutical sector, including the introduction of a cloud-based revamp of the health management information system and reforms to the management of human resources to improve equity and to enhance allocative efficiency. At a later stage, a DHIS2-based software will be introduced to expand the capacity of the national health information system. Who benefits from the PBF program? The PBF targets seven of Congo’s 12 health departments. These include Brazzaville, Pointe Noire, Bouenza, Cuvette and the pilot departments of Niari, Pool and Plateau. The combined population of these departments is 3.8 million, or 86 percent of the country’s population. The program specifically targets 1.9 million women and children under 5, with a specific stated goal of the program being to increase the rate of utilization and quality of maternal and child health services. The program is intended to improve access to services by negotiating to reduce fees for services provided both by public and private service providers. In addition, the program facilitates the provision of technical assistance the Ministry of Health and Population to improve budget formulation and allocation. It is intended that the program will facilitate geographic and quality equity adjustments to ensure the improved allocation of health budgets, with a better distribution of resources between health centers and hospitals. Differential fees will be established on the basis of rural hardship criteria. In the future, the PBF will implement measures to improve governance through the use of a cloud-computing application with a public frontend, with the mobilisation of civil society for verification and community feedback. How does it work? The PBF program provides financing to frontline health services through a system of output-based payments based on the quantity and quality of health services provided by public and private health centers and first level referral hospitals included in the program. PBF subsidies are used to negotiate downwards the user fees charged to the clients. The PBF payments are intended to supplement the facilities’ revenues. Health facilities can use 50 percent of income earned from user fees and PBF to supplement their salaries.(Fritsche, György Bèla; Soeters, Robert; Meessen, Bruno. 2014. Performance-Based Financing Toolkit. World Bank Training. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/17194 License: CC BY 3.0 IGO). The program also includes incentives for the provision of services to the poor, since it pays a higher fee for each unit of service delivered to a patient categorized as poor under the project, identified through community targeting and a proxy means test with the LISUNGI software. Twenty-five percent of the poorest beneficiaries will be issued with an identification card which exempts them from payment for all services under both packages at contracted health centers and hospitals, public and private. Since the performance bonuses are expected to be almost equivalent to the current out-of-pocket payments by poor households, it is expected that they will almost completely eliminate user fees for poor, which are still being supported by the project to meet the costs of the service. The non-poor may be required to make capped copayments for four services at public facilities and six at contracted private for-profit facilities. All other services are free of charge, being subsidized by PBF. This is intended to enable service providers to lower the fees imposed on the non-poor. The bonuses also cover a substantial portion of out-of-pocket payments for non-poor households. The program introduces a purchaser-provider split by establishing independent contracting agencies, though fund holding remains with the MOHP. Local civil society organizations are being mobilised to manage the contracts and to provide verification and counter-verification of the results and coaching, while grassroots organizations are being mobilised to measure service use and client satisfaction. How is quality of service assured? Quality is measured in terms of a quality check list, with this list providing a comprehensive quality assessment of more than a hundred items related to hygiene, drugs (availability, rational prescribing and management), clinical care, equipment availability, financial management and laboratory. The quality of health administration is also measured at district (CSS), departmental (DDS) and select departments at central (MOHP) level. 46 Prenatal consultations in the Kinkala hospital in the Pool region. (All right reserved, 2015) 47 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices As an integral component of the new poverty reduction (mathematics). The revision of the core curriculum is expected strategy implemented by Congo since 2012, a more to improve the quality of education by supporting the provision comprehensive social protection strategy has been of more relevant academic teaching or learning content as well developed, with this strategy mandating the implementation as a focus on more appropriate teaching/learning processes. of a safety net system that includes a significant health This will include developing scripted lessons for all primary component. The social safety net system includes a pilot cash teachers, especially those with weak content knowledge and/or transfer program, the LISUNGI program,26 which is intended pedagogic practice. to increase the level of access to health and education services for members of the poorest households in Brazzaville, Pointe In order to improve teacher management and teacher Noire and Cuvette. The pilot covers 5,000 households whose development, the government will put in place a personnel members include pregnant women and/or children 0-14 years database to help uniquely identify personnel based on of age and 1,000 persons aged 60 years and above. If this pilot their actual positions and track their careers, professional is successful, the Government aims to scale up the program to development, deployment, advancement, and eventually cover all of Congo’s poorest individuals and households within retirement. This database will help collect the data necessary, four years. It is estimated that the effective implementation including biometric data, for a better management of personnel. of a cash transfer program at the national scale could reduce It will include both the volunteer teachers (bénévoles), and the poverty rate to 38.9 percent. Based on a unique registry civil service teachers. Eventually, the idea is to have a single of potential beneficiaries and an associated information database (Fiche unique) that will be used to track teachers’ system, the program enrolls beneficiaries; track’s payments; careers at the Ministry of Civil Service and to pay their salaries tracks compliance with conditions; supports monitoring and at the Ministry of Finance. The Government will also review the evaluation; and produces reports. Beneficiaries are initially standards for recruitment into the teacher training colleges identified by community committees, with these candidate and invest in the improvement of the teaching quality at these beneficiaries then assessed using a proxy means test formula. colleges, so that future cohorts of teachers will be better Households identified as being below the food poverty prepared. threshold and to otherwise meet the program’s requirements will be validated and enrolled. Develop small, affordable school models for rural areas. Reaching children and youth in rural areas requires having (ii) Reforming the education system small school models that can operate at a manageable cost in sparsely populated areas with low enrollments. This is The government of Congo has recently adopted an Education particularly an issue in lower and upper secondary education, Sector Strategy 2015-2025. The strategy has three key where teachers are more specialized and a given school priorities: (i) Giving all children a 10-year quality basic therefore needs more teachers to cover the whole curriculum. education; (ii) Ensuring that education addresses the human Therefore, it is part of the education strategy to analyze the resources needs of a growing economy; and (iii) Improving need for and potentially develop such models for Congo, as a the management and efficiency of the education system. The means to improving equity while managing system costs. strategy includes a series of programs and reforms. Some of the key reforms with potential high impact on the education Strengthen the capacity of the key institutions in the sector, outcomes include: and raise accountability and transparency for resource use. One of the risks identified in the sector strategy is weak Improving teaching quality by carrying out a curriculum institutional capacity in the sector for implementing planned review in primary and lower secondary education to focus reforms. Therefore, the strategy pays particular attention to the more on literacy, math and science and to develop more need for strengthening the capacity in the sector for strategic effective teaching/learning processes. The last update of planning, financial and budget management, human resource curricula took place 15 years ago and there is a concern that management, school construction, communications, training the curricula are no longer appropriate, and that the focus and professional development, and monitoring and evaluation. on rote memorization has resulted in major gaps in problem- The strategy also proposes measures to improve accountability solving capacities in both literacy (French) and numeracy and transparency in the sector at all levels. 26. The LISUNGI software is being used by a variety of PDSS II programs, both to identify the poorest and give them free access to services at the point of use, and for the ‘Arc en Ciel’ (rainbow) program of targeted household visits which gives beneficiaries color-coded vouchers for specific conditions, behavior change communication and re-visits if vouchers are not redeemed. The ‘Arc en Ciel’ program is also being used to explore the delivery at community level of a Rapid Reaction Package for NTDs. 48 4.2 Fiscal space to come from higher allocations and spending better The recent decline in global oil prices is expected to lead (i) Adjusting for more allocations to the health and to a long-term reduction in Congo’s oil revenues. To education sectors ensure stability and the sustainability of economic growth Despite the increase in the Government’s financial resources in this context, it is vital that the Government undertakes over the past five years, the funding allocated to the social the appropriate adjustments. Since 2015, the Government sectors has been insufficient to facilitate the achievement has taken measures to improve its level of efficiency and to of improvements to human capital development to the level reduce its overall expenditure. However, if not implemented required for Congo to fulfil its aspirations. The budgetary appropriately, these reductions may seriously threaten the already low and unstable allocations of public funds to the funds allocated to the educational and health sectors have health and educational sectors. The Government’s stated varied significantly over the years and have remained generally commitment to improving social outcomes and to achieving low compared to other countries at similar levels of income. ongoing reforms needs to be supported by adequate financial While the funds allocated to the sector increased substantially resources. To this end, it is vital that the Government implement in the period from 2012 to 2014, there was a sharp contraction measures to ensure economic diversification beyond oil and to in 2015 due to the impact of the decline in global oil prices. The create increased fiscal space for social sectors into the future. educational sector was disproportionately affected, with the Although the Government may be tempted to abandon its social value of funding to this sector declining by 16 percent (see Figure and social safety net programs as a result of the reduction in its 27), compared to the decline of 10 percent to overall expenditure. revenues, the achievement of sustainable levels of high growth In part, it seems that the disproportionate reduction in funding and poverty reduction are heavily dependent on the quality of to this sector was the result of the Government’s expenditure the human capital. Therefore, the Government should implement commitments to support the All Africa Games in September and adjustments in a manner that allows additional resources to be to finalize a number of major works of infrastructure. allocated to the social sectors and to improve the efficiency of expenditure in these sectors. Figure 27: Original and final budgets by education sub-sector, 2012, 2014 and 2015 Source: World Bank staff compilation based on official government budget data. 49 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices With global oil prices anticipated to remain low throughout which the allocations in 2016 are roughly similar as to previous 2016 and with the Government’s commitments to expenditures years. On average, the value of allocations to each sector has related to the elections and the establishment of a number declined by 17.3 percent. However, this is significantly higher of new government institutions, the allocation to this sector for a number of sectors, including public finances and economic is expected to remain low in this year. These low levels of affairs (37.0 percent) and the social sector (23.3 percent). In allocations could have a significant negative impact on initiatives proportion to the total budget, the social sector decreased previously commenced to improve the performance of the marginally by 1 percentage point. By contrast, the production social sector. Under the 2016 budget, allocations have been sector, and public finances and economic affairs decreased by reduced for all sectors, with the exception of productive sectors around 4 percentage points in each case. By contrast, budgets (agriculture, livestock, forestry, industry and private sector, mine for the infrastructure and sovereignty sectors increased in and geology, hydrocarbons, SMEs, Commerce and Tourism), for proportion to the total value of the budget (see Figure 28). Figure 28: Sector budgets in percentage of the total budget in 2015 and 2016 Source: Government of Congo Finance laws of 2015 and 2016. A comparison of the capital budgets for 2015 and 2016 The first level of adjustment is at the overall budget allocation shows that there has been a significant decline in the value level through the following: of allocations across the board, although this has affected • Increasing fiscal space: Measures to control the public wage some sectors, particularly the social sectors, more than bill (6.9 percent of non-oil GDP) and government spending others. In particular, the infrastructure sector has been relatively on goods and services (9.8 percent of non-oil GDP) and unaffected, due to the need to complete works currently in reducing or eliminating fuel subsidies would create additional progress, with these works including the construction of 12 fiscal space to enable the Government to increase social general hospitals throughout the country and an urbanization spending. project in Bouenza. 27 Thus, while the value of allocations for • Changing the composition of public investment: In the investment fell by an average of 46.6 percent in the period recent past, the Government has largely concentrated on from 2015 to 2016, the value of allocations to the social sector the development of physical infrastructure. The Government decreased by 60.7 percent.28 (see Figure 29). This has a number should examine its priorities and consider shifting the of implications for the adjustments required in Congo’s current emphasis towards the development of the social sectors to economic policies. improve service provision. 27. Infrastructure sector is the set of ministries construction and urbanism, energy and hydraulics, equipment and public works, transport and ICT. 28. Social sector includes the three ministries of education and ministries of: health, social affairs, Women affairs, Labor, scientific research and innovation, culture and sports. 50 Figure 29: Change in the capital budget for main sectors in 2015 and 2016 Source: Government of Congo Finance laws of 2015 and 2016. (ii) Improving efficiency of spending have a significant impact on the efficiency of government recurrent spending. Improving the system of human resource There are also gaps in the quality and efficiency of the management through sectoral civil service reforms, better performance of the education system. With the Government’s recruitment practices, more efficient use of human resources, declining fiscal space, the need to improve the effectiveness and improved management of the wage bill could greatly and efficiency of education expenditures, as a means to improve reduce wastage and facilitate the achievement of sustainable education outcomes and achieve equity, has become urgent. improvements to the delivery of services in this sector. In This creates an opportunity to strengthen the foundations of particular, there is a need to reduce the relative number educational service delivery and to develop a more sustainable of administrative staff, to improve salary transfers to rural education system. The areas in which efficiency gains can be areas, to ensure the payment of pensions within a reasonable made include the following: time frame, and to ensure that “bénévoles” teachers are paid appropriately for their role in the effective implementation of • A policy of automatic grade promotion: A policy change the fee-free primary education policy. introducing automatic grade promotion between certain grades, could reduce spending and relieve overcrowding. • Improved management of expenditure through better Allocating an increased share of public financing to the planning, and evidence-based management, and poorest areas in the country and to urban areas with a high monitoring: In recent years, the education sector has concentration of poor residents might be implemented to been adversely affected by a lack of well-formed plans complement this policy by providing additional support to to determine staffing levels. In terms of the demand side, the most vulnerable. Global evidence indicates that grade the poor quality of data related to actual student numbers, repetition discourages families from keeping their children in unreliable demographic information related to incoming school and does not lead to the gains in learning outcomes cohorts of school-age children, and the lack of reliable that might justify the costs and risks associated with a high data related to the number of out-of-school children make dropout rate. it impossible to clearly project how many teachers will be needed to achieve universal primary enrollment. In terms of • Enhanced human resource management through the supply side, deployment decisions are not implemented improvements such as better recruitment practices and rigorously, with an almost complete lack of sanctions better systems of remuneration and incentives: Within the on teachers absent without leave. There are no well- education system, the wage bill and other personnel costs implemented controls on the movement of staff between consume more than 80 percent of the budget. Therefore, regions or from teaching to administrative positions. There dysfunctions in the management of human resources are no well-implemented systems to ensure the removal of 51 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices personnel from the MEPSA-JEC budget once they leave the • Improving quality of services by institutionalizing sector, with the MEPSA-JEC lacking the authority to make performance-based financing reforms: This would entail decisions related to recruiting or paying teachers. These directly financing select health providers to deliver defined issues make it difficult or impossible to prepare a rational benefit packages under the output-based-financing human resource plan for the sector. Without a sufficient modalities to accelerate achievement of Universal Health basis to determine levels of teacher demand and teacher Coverage. Financing of decentralized facilities, including for supply, the decisions made by the MEPSA-JEC on matters accredited private providers, will strengthen public-private related to the recruitment and deployment of personnel will partnerships, and increase the focus on results. In addition, remain fundamentally flawed. Although Congo’s average involvement of civil society in verification and client satisfaction pupil-teacher ratios are at acceptable levels compared with surveys will enhance good governance. many other Sub-Saharan Africa countries, the distribution of teachers is extremely uneven, with a number of classes being • Improving the management of human resources to support taught with more than 80 students in a single classroom. better delivery of services in the health sector: This would To address this, it is necessary to distribute teachers more require aligning human resource management reforms with evenly and equitably across departments and to address the ongoing health financing reforms to enhance efficiency intra-regional disparities between different schools. and effectiveness of available budgets while dovetailing with these reforms. • Measures to control the high unit costs of higher education • Improving the management of the medicines and drugs: and to reform the system of scholarships to ensure higher Access to good quality affordable generic pharmaceuticals levels of equity and sustainability: A review should be needs to be strengthened. This will entail providing more conducted to ensure the adoption of measures to control the resources to the central medical stores and strengthening high unit costs of TVET and other forms of higher education. partnerships between the public sector and private sector, in In addition, the scholarship system should be reformed particular in the distribution of drugs and medicines. to ensure that post-secondary education in Congo more equitable and sustainable. Supporting more equitable access • Streamlining the processes for flow of public funds by to post-basic education is a key element towards ensuring removing redundant controls to accelerate the rate of higher levels of equity and social mobility for the poorer execution of investments within the health sector. segments of the population. • Streamlining administration of the health system to raise its Within the health sector, the low levels of public financing, efficiency. its inequitable allocation, as well as inefficiencies, constrain access to quality services. With the Government’s limited fiscal space, it is crucial that existing financial resources are used (iii) Mobilizing less costly external resources efficiently and effectively. Possible ways to achieve this include the following: According to the 2014 public expenditure review on human developement, spending in education is more efficient • Pursuing a more balanced strategy with respect to financing than on health. Both sectors are strongly affected by weak construction of hospitals on one hand, and lower level absorptive capacities and respectively presents good and worst facilities and recurrent expenses to support service delivery: socioeconomic indicators when compared to the SSA. The fiscal Reducing expenditure on hospitals, including through the space for increasing education and health spending, particularly new provincial hospital construction program, and allocating in the short-to-medium term, is likely to require external a higher proportion of the health budget to the development financing, with a strong preference for grants. In the current of healthcare centers and other decentralized facilities could constrained environment for financing, external concessional improve allocative efficiency. This would require shifting the financing will be especially important, and coordination among emphasis away from the construction of health facilities to development partners supporting investment in human capital financing service delivery, which alleviates the high financial will be essential. barriers to access services. Financing lower levels of care through the defined service packages are more pro-poor and much more cost-effective than financing tertiary care. 52 Landscape of a northern region of the Republic of Congo. (All right reserved, 2007) ANNEX TABLES 53 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Table 01. Republic of Congo: Selected macroeconomic indicators, 2011-2018 2012 2013 2014 2015 2016 2017 2018 Proj. GDP growth (constant prices, annual %) 3.8 3.3 6.8 2.6 3.8 3.5 3.6 GDP growth - oil (constant prices, annual %) -9.6 -10.0 3.4 -5.4 6.0 4.0 2.0 GDP growth - non-oil (constant prices, annual %) 9.7 8.1 7.8 4.9 3.3 3.4 4.1 Private Consumption growth (current prices, annual %) 7.9 9.9 3.8 5.8 2.9 1.9 8.9 Gross Fixed Investment (current prices, % of GDP) 43.2 41.3 48.4 57.9 63.9 69.0 65.6 Gross Fixed Investment - Public (current prices, % of GDP) 18.8 20.6 26.3 21.8 16.0 13.4 10.5 Gross Fixed Investment - Private (current prices, % of GDP) 24.4 20.8 22.1 36.1 47.8 55.7 55.1 Inflation, consumer prices (annual %, end of year) 1.8 7.5 2.1 0.5 3.0 2.6 2.6 Inflation, consumer prices (annual %, period average) 1.8 5.0 4.6 0.9 3.0 2.9 2.8 GDP deflator (annual %, average) 11.0 -3.8 -3.4 -5.7 -27.3 6.2 6.6 Nominal Exchange Rate (CFAF/US$, period average) 471.0 510.0 494.2 494.6 582.8 494.6 494.6 Real Effective Exchange Rate Index (2005=100) 107.9 106.4 112.3 .. .. .. .. Overall Fiscal Balance (commitment basis, incl. grants % of GDP) 6.1 8.2 -5.0 -18.3 -8.8 -3.6 -0.4 Overall Fiscal Balance (commitment basis, excl. grants % of GDP) 6.0 7.8 -5.5 -18.3 -8.8 -3.6 -0.4 Overall Fiscal Balance (commitment basis, incl. grants % of non-oil GDP) 56.3 18.5 22.2 -12.2 -36.6 -24.3 -14.9 Primary Fiscal Balance (% of GDP) 10.0 15.6 -0.2 -11.9 -2.6 1.7 2.8 Non-oil Primary Fiscal Balance (% of non-oil GDP) -44.7 -68.4 -47.5 -53.0 -51.9 -37.8 -30.8 Total revenue (excl. grants, % of GDP) 41.8 44.5 40.0 28.7 28.8 28.6 27.6 Oil revenue (% of GDP) 32.6 33.0 27.7 10.0 8.7 10.9 10.6 Non-oil revenue (% of non-oil GDP) 27.8 27.9 31.4 30.5 31.6 30.5 30.3 Merchandise exports (fob, current US$ billions) 8.7 7.3 6.7 7.2 4.9 5.7 6.6 of which oil exports (current US$ billions) 7.9 6.5 5.8 6.3 4.0 4.7 5.6 Merchandise imports (fob, current US$ billions) 6.7 8.6 9.1 0.0 0.0 0.0 0.0 of which oil exports (current US$ billions) 1.1 1.0 0.9 1.0 0.8 1.0 1.0 Current account balance (incl. transfers, % of GDP) 0.0 -1.3 -5.2 -6.2 -12.9 -14.4 -10.3 Foreign Direct Investment (net, current US$ bilions) 3.3 2.0 4.6 5.1 5.5 3.9 18.1 of which oil sector (net, current US$ billions) 2.7 1.2 3.4 3.5 3.8 1.5 15.5 Population, total (millions) 4.1 4.3 4.4 4.5 4.7 4.8 4.9 Unemployment Rate 6.9 .. .. .. .. .. .. Formal sector job creation (%, yoy) .. .. .. .. .. .. .. Poverty headcount ratio at national poverty line (% of population) 46.5 .. .. .. .. .. .. Inequality - Income Gini 0.4 .. .. .. .. .. .. Population Growh (annual %) 2.9 2.9 2.9 2.9 2.9 2.9 2.9 Life Expectancy 51.6 .. .. .. .. .. .. Infant mortality rate (per 1,000 live births) 39.4 37.3 35.6 .. .. .. .. 54 Table 02. Republic of Congo: Real GDP growth rates, 2012-2018 2012 2013 2014 2015 2016 2017 2018 Proj. Primary sector -5.2 -4.7 5.0 -0.9 4.8 4.2 3.0 Agric., livestock, hunt, fishery 7.8 8.5 8.2 7.7 2.9 4.6 4.4 Agric., livestock, 8.3 9.0 8.7 7.9 3.1 4.7 4.5 Hunt 5.2 5.8 5.0 5.8 1.4 4.2 4.5 Fishery 6.1 6.7 7.0 7.4 2.3 3.7 3.2 Forestry 3.0 3.1 6.0 6.7 2.3 5.0 7.6 Extractive Industries -9.6 -10.0 3.4 -5.4 6.0 4.0 2.0 Petroleum sector -9.6 -10.0 3.4 -5.4 6.0 4.0 2.0 Other extractive industries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Secondary sector 8.7 8.9 9.0 8.5 5.0 4.9 4.9 Manufacturing industries 8.6 9.0 8.5 10.1 5.0 5.0 5.0 Food industries 8.4 9.0 9.4 10.4 5.0 5.0 5.0 Other manufacturing industries 8.8 9.0 7.3 9.8 5.0 5.0 5.0 Electricity, gas and water 7.5 7.0 7.2 5.1 5.0 4.0 4.0 Constructions.& public works 10.5 10.2 12.1 4.5 5.0 5.0 5.0 Tertiary sector 10.8 7.9 7.5 3.0 2.8 2.4 3.5 Transports and Communications 9.1 9.1 7.1 7.8 5.0 3.0 4.0 Transports 8.6 8.5 7.0 8.0 5.0 3.0 4.0 Communications 9.8 10.0 7.2 7.6 5.0 3.0 4.0 Trade, restaurants, hotels 9.5 9.2 7.5 7.2 6.0 4.0 4.0 Public Administration 17.7 7.4 9.9 -8.0 -5.0 -5.0 -2.0 Other services 6.0 4.4 4.5 6.0 4.3 8.0 8.5 GDP at factor cost 3.7 3.1 6.8 2.5 3.8 3.4 3.6 Import taxes 8.1 8.1 5.2 6.0 3.3 4.8 5.2 GDP at constant prices 3.8 3.3 6.8 2.6 3.8 3.5 3.6 Non-oil 9.7 8.1 7.8 4.9 3.3 3.4 4.1 Mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Oil -9.6 -10.0 3.4 -5.4 6.0 4.0 2.0 55 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Table 03. Republic of Congo: Sectoral contribution of nominal output, 2012-2018, percent of GDP) 2012 2013 2014 2015 2016 2017 2018 Est. Proj. Primary sector 70.9 67.6 64.5 47.1 42.2 46.2 46.6 Agric., livestock, hunt, fishery 3.6 4.1 4.6 6.8 7.2 6.7 6.4 Agric., livestock, 3.0 3.4 3.8 5.8 6.1 5.6 5.4 Hunt 0.2 0.3 0.3 0.4 0.4 0.4 0.4 Fishery 0.4 0.4 0.4 0.6 0.7 0.6 0.6 Forestry 0.3 0.3 0.3 0.4 0.4 0.4 0.4 Extractive Industries 67.0 63.3 59.6 39.9 34.5 39.2 39.7 Petroleum sector 67.0 63.3 59.6 39.9 34.5 39.2 39.7 Other extractive industries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Secondary sector 7.8 8.8 9.8 14.9 16.5 15.6 15.6 Manufacturing industries 3.8 4.3 4.7 7.3 8.1 7.6 7.6 Food industries 2.8 3.1 3.5 5.4 5.9 5.6 5.6 Other manufacturing industries 1.0 1.2 1.3 1.9 2.2 2.0 2.0 Electricity, gas and water 0.6 0.7 0.8 1.1 1.3 1.2 1.2 Constructions.& public works 3.3 3.8 4.3 6.5 7.2 6.8 6.8 Tertiary sector 19.4 21.5 23.5 34.6 37.5 34.6 34.3 Transports and Communications 4.4 5.0 5.4 8.3 9.2 8.6 8.5 Transports 3.2 3.6 4.0 6.1 6.8 6.4 6.3 Communications 1.2 1.3 1.5 2.2 2.4 2.2 2.2 Trade, restaurants, hotels 6.0 6.8 7.4 11.2 12.5 11.6 11.5 Public Administration 4.1 4.5 5.1 6.6 6.7 5.7 5.4 Other services 4.9 5.3 5.6 8.5 9.1 8.7 9.0 GDP at factor cost 98.1 97.9 97.7 96.6 96.3 96.5 96.5 Import taxes 1.9 2.1 2.3 3.4 3.7 3.5 3.5 GDP at market prices 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Non-oil 33.0 36.7 40.4 60.1 65.5 60.8 60.3 Mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Oil 67.0 63.3 59.6 39.9 34.5 39.2 39.7 56 Table 04. Republic of Congo: Supply and Use of resources at current prices, 2012-2018, percent of GDP 2012 2013 2014 2015 2016 2017 2018 Est. Proj. Gross domestic product (GDP) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Domestic demand 76.9 87.6 95.6 145.0 144.5 126.3 120.7 Consumption 33.7 46.2 47.2 87.1 80.6 57.2 55.0 Public (Government) 8.9 8.2 9.5 13.5 11.8 10.3 9.7 Private 24.8 38.0 37.7 73.5 68.9 46.9 45.3 Domestic investment 43.2 41.3 48.4 57.9 63.9 69.1 65.7 Fixed expenditure 43.2 41.3 48.4 57.9 63.9 69.0 65.6 Public (Government) 18.8 20.6 26.3 21.8 16.0 13.4 10.5 Private (Enterprises et households) 24.4 20.8 22.1 36.1 47.8 55.7 55.1 Petroleum sector 19.9 15.0 15.4 20.6 22.3 20.3 19.2 Mining sector others secotrs (Non oil and mining) 4.5 5.7 6.7 15.5 25.5 35.4 35.9 Variation of stocks 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net exports 25.9 12.4 4.4 -45.0 -44.5 -26.3 -20.7 Exports of G and NFS (BOP) 93.2 84.3 80.4 60.5 54.9 59.7 60.4 Goods 90.0 80.8 76.6 54.9 48.9 54.1 55.1 Oil exports 85.6 76.5 72.1 48.3 41.8 47.4 48.1 Others exports (Non oil) 4.3 4.2 4.5 6.7 7.2 6.7 7.0 Non factor services 3.2 3.5 3.8 5.5 6.0 5.6 5.3 Imports of G and NFS (BOP) -67.3 -71.8 -75.9 -105.4 -99.4 -86.0 -81.1 Goods -36.9 -40.6 -43.7 -61.2 -54.2 -45.8 -43.4 Oil imports -7.3 -6.7 -6.8 -9.3 -8.7 -7.7 -7.2 Others imports (Non oil) -29.6 -33.9 -36.9 -51.9 -45.5 -38.1 -36.1 Non facteurs services -30.4 -31.2 -32.2 -44.2 -45.2 -40.2 -37.7 Total Supply 167.3 171.8 175.9 205.4 199.4 186.0 186.0 Total Use 170.1 171.8 175.9 205.4 199.4 199.4 199.4 57 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Table 05. Republic of Congo: Central Government Operations, 2012-2018, percent of GDP 2012 2013 2014 2015 2016 2017 2018 Proj. 1. Revenue and grants 42.0 44.9 40.4 28.7 28.8 28.6 27.6 Revenue 41.8 44.5 40.0 28.7 28.8 28.6 27.6 Oil and mining revenue 32.6 33.0 27.7 10.0 8.7 10.9 10.6 Oil revenue 32.6 33.0 27.7 10.0 8.7 10.9 10.6 Mining revenue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non oil revenue 9.2 11.5 12.2 18.7 20.1 17.6 17.0 Fiscal taxes 8.9 11.0 12.1 18.6 19.3 17.3 16.7 Non tax revenue 0.3 0.5 0.2 0.1 0.7 0.4 0.4 Grants 0.1 0.4 0.4 0.0 0.0 0.0 0.0 2. Expenditure and net lending 35.9 36.7 45.4 47.0 37.5 32.2 28.0 Current expenditure 14.7 13.6 15.8 22.4 19.5 17.1 16.1 Wage bill 3.6 3.9 4.6 7.7 7.6 7.1 6.9 Other current expenditure (primary) 10.9 9.3 11.0 13.1 11.5 9.7 9.0 Material and supplies 4.0 3.7 4.8 5.1 4.2 3.5 3.2 Common charges 1.6 1.4 1.5 3.4 1.9 1.6 1.6 Budget reserves 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Transfers 4.8 3.8 4.3 4.6 4.3 3.8 3.4 Local authorities 0.6 0.5 0.4 0.0 1.0 0.9 0.8 Interest on public debt 0.2 0.3 0.2 1.6 0.4 0.3 0.3 Domestic 0.0 0.0 0.0 0.0 0.0 0.0 0.0 External 0.2 0.2 0.2 1.6 0.4 0.3 0.3 Capital expenditure 21.2 23.2 29.7 24.6 18.1 15.0 11.8 Domestically financed 17.3 15.6 24.6 19.8 12.3 10.0 9.0 Externally financed 3.9 7.5 5.1 4.7 5.8 5.1 2.9 Net lending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Primary balance, domestic resources basis 10.0 15.6 -0.2 -11.9 -2.6 1.7 2.8 Non-oil primary balance -22.6 -17.4 -27.9 -21.9 -11.3 -9.2 -7.8 Balance, commitment basis, excluding 6.0 7.8 -5.5 -18.3 -8.8 -3.6 -0.4 grants Balance, commitment basis, including grants 6.1 8.2 -5.0 -18.3 -8.8 -3.6 -0.4 Change in arrears (- = decrease) -0.9 -2.6 -1.3 -2.3 0.0 -2.2 -2.1 Domestic (principal and interest) -0.9 -2.6 -0.7 -2.3 0.0 -2.2 -2.1 External (principal and interest) 0.0 0.0 -0.7 0.0 0.0 0.0 0.0 Balance, cash basis 5.2 5.6 -6.4 -20.6 -8.8 -5.8 -2.5 3. Financing -5.2 -5.6 6.4 20.6 8.8 5.8 2.5 Foreign (net) 2.7 5.4 16.7 33.2 16.2 14.7 10.6 Domestic (net) -7.9 -11.0 -10.4 -11.6 -10.2 -8.9 -8.2 Residual financing gap 0.0 0.0 0.0 -1.0 2.7 0.0 0 58 Table 06. Republic of Congo: Central Government Operations, 2012-2018, percent of non oil GDP 2012 2013 2014 2015 2016 2017 2018 Est. Proj. 1. Revenue and grants 139.3 127.2 122.2 83.8 62.5 59.4 61.5 Revenue 137.9 126.7 120.0 83.3 62.5 59.4 61.5 Oil and mining revenue 110.2 98.8 88.6 52.8 30.9 28.9 31.2 Oil revenue 110.2 98.8 88.6 52.8 30.9 28.9 31.2 Mining revenue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non oil revenue 27.8 27.9 31.4 30.5 31.6 30.5 30.3 Fiscal taxes 26.5 26.9 29.9 30.1 30.5 29.8 29.6 Non tax revenue 1.3 1.0 1.4 0.4 1.0 0.7 0.7 Grants 1.4 0.4 1.0 0.5 0.0 0.0 0.0 2.Expenditure and net lending 83.1 108.6 100.0 96.0 99.0 83.7 76.5 Current expenditure 33.3 44.4 36.9 39.0 34.4 38.3 38.6 Wage bill 10.0 10.8 10.8 11.4 12.3 13.1 13.5 Other current expenditure (primary) 22.8 33.1 25.4 27.0 21.6 20.4 19.0 Material and supplies 8.8 12.1 10.1 11.8 8.4 7.6 6.8 Common charges 3.2 4.9 3.8 3.6 5.7 3.5 3.2 Transfers 8.7 14.5 10.3 10.7 7.6 7.7 7.4 Local authorities 2.1 1.7 1.2 0.8 0.0 1.7 1.6 Interest on public debt 0.5 0.6 0.7 0.5 0.5 4.7 6.1 Domestic 0.0 0.0 0.1 0.0 0.0 0.5 0.0 External 0.5 0.6 0.6 0.5 0.5 4.2 6.1 Capital expenditure 49.7 64.2 63.1 57.0 64.6 45.4 37.9 Domestically financed 39.6 52.4 42.6 45.0 49.5 34.8 28.7 Externally financed 10.1 11.8 20.5 12.0 15.1 10.7 9.2 Net lending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Primary balance, domestic resources basis 65.5 30.4 42.4 -0.2 -21.0 -8.9 0.4 Non-oil primary balance -44.7 -68.4 -47.5 -53.0 -51.9 -37.8 -30.8 Balance, commitment basis, excluding grants 54.9 18.1 21.2 -12.7 -36.6 -24.3 -14.9 Balance, commitment basis, including grants 56.3 18.5 22.2 -12.2 -36.6 -24.3 -14.9 Change in arrears (- = decrease) -4.4 -2.8 -7.1 -1.7 -4.0 -4.3 -3.5 Domestic (principal and interest) -4.4 -2.8 -7.1 -1.7 -4.0 -4.3 -3.5 External (principal and interest) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Balance, cash basis 51.8 15.7 15.2 -13.9 -40.5 -28.6 -18.5 3. Financing -51.8 -15.7 -15.2 13.9 40.5 28.6 18.5 Foreign (net) -3.8 8.3 14.7 39.7 62.0 40.2 32.8 Project financing 0.0 0.0 5.9 6.5 5.5 5.7 5.8 Drawings 8.7 11.3 13.6 41.2 55.7 39.9 28.1 Amortization due (principal) -4.1 -3.0 -6.1 -8.0 -0.9 -1.3 -1.1 Debt rescheduling 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt cancellation 0.0 0.0 1.3 0.0 0.0 0.0 0.0 External debt relief obtained 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net short terms secured debt and other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Domestic (net) -48.1 -24.1 -29.8 -25.8 -19.7 -15.7 -14.3 Bank system -18.9 15.6 1.1 -2.7 2.5 2.8 2.7 Non bank system -29.2 -39.7 -30.9 -23.1 -22.2 -18.5 -17.0 Residual financing gap 0.0 0.0 0.0 0.0 -1.7 4.1 0.0 59 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices Table 07. Republic of Congo: Executed budget, 2008-2015, percent of the total budget 2009 2010 2011 2012 2013 2014 2015 Est. 1. Revenue and grants 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Revenue 100.0 98.9 100.0 99.0 99.7 98.2 99.9 Oil and mining revenue 86.0 69.8 79.0 79.1 77.7 72.5 69.9 Oil revenue 86.0 69.8 79.0 79.1 77.7 72.5 69.9 Mining revenue 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non oil revenue 14.0 29.1 21.0 19.9 21.9 25.7 30.0 Fiscal taxes 12.4 26.7 20.0 19.0 21.2 24.5 29.6 Non tax revenue 1.6 2.4 1.1 0.9 0.7 1.2 0.4 Grants 0.0 1.1 0.0 1.0 0.3 0.8 0.1 2. Expenditure and net lending 50.3 83.2 55.0 59.6 85.4 81.8 95.5 Current expenditure 31.8 46.9 30.5 23.9 34.9 30.2 38.3 Wage bill 6.7 13.1 8.1 7.2 8.5 8.8 11.2 Other current expenditure (primary) 19.0 28.3 19.8 16.4 26.0 20.8 26.6 Material and supplies 7.1 10.9 8.0 6.3 9.5 8.2 11.6 Common charges 1.7 2.0 2.2 2.3 3.8 3.1 3.6 Transfers 9.2 12.5 7.7 6.3 11.4 8.5 10.6 Local authorities 0.9 1.8 1.9 1.5 1.3 1.0 0.8 Interest on public debt 6.1 5.5 2.6 0.4 0.4 0.6 0.5 Domestic 0.4 0.7 0.1 0.0 0.0 0.1 0.0 External 5.7 4.8 2.6 0.4 0.4 0.5 0.5 Capital expenditure 18.4 36.2 24.5 35.7 50.5 51.6 57.2 Domestically financed 15.8 35.1 23.1 28.4 41.2 34.9 49.4 Externally financed 2.6 1.2 1.4 7.3 9.2 16.8 7.8 Net lending 0.0 0.1 0.0 0.0 0.0 0.0 0.0 3. Budget surplus 49.7 16.8 45.0 40.4 14.6 18.2 4.5 Budget surplus, percent of GDP 26.9 5.2 16.5 16.7 6.1 8.2 1.8 60 Table 08. Republic of Congo : Oil forecasts and realizations, 2006-2018, in million of barrels. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Proj. Forecasts 100.0 101.3 93.9 109.6 124.8 135.1 105.3 100.0 95.5 98.7 116.0 137.9 118.749 Executions 98.7 81.7 86.6 100.7 114.5 109.0 98.6 88.7 91.4 88.3 103.8 123.3 106.239 61 CONGO ECONOMIC UPDATE : Adjusting for better social and economic outcomes in an era of low oil prices For more information, please visit: http://www.worldbank.org/en/country/congo Join the discussion on: http://www.facebook.com/worldbankafrica http://www.twitter.com/worldbankafrica http://www.youtube.com/worldbank 64