Economic Studies
Congo

Congo

Population 4.7 million
GDP per capita 2,206 $US
C
Country risk assessment
D
Business Climate
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) -0.1 -7.9 -0.2 2.5
Inflation (yearly average, %) 2.2 1.8 2.0 2.8
Budget balance (% GDP) 4.7 -1.2 1.5 3.3
Current account balance (% GDP) 0.4 -0.1 12.1 6.5
Public debt (% GDP)* 81.7 101.0 84.2 74.3

 

(e): Estimate (f): Forecast *Excluding disputed arrears, SNPC debt to oil companies, unsecured debts of public companies

STRENGTHS

  • Abundant natural resources (oil, gas, iron ore, timber, potash) and agricultural potential
  • Potential for economic diversification with the opening of free zones
  • Membership of CEMAC
  • Patience and discretion on the part of international and bilateral financial partners
  • Development projects funded by partners

WEAKNESSES

  • High dependence on oil (42% of GDP)
  • Weak manufacturing activity, leading to dependence on imported goods
  • Lack of communication, education, health and urban infrastructure
  • Insufficient progress in poverty reduction despite oil wealth (more than 50% of the population affected)
  • Unsupportive business environment: poor governance, corruption, informal economy
  • Lack of transparency on use of the oil windfall, despite progress in implementing the EITI standard
  • External and domestic over-indebtedness, not taking into account disputed arrears (14% of GDP), the unsecured debts of state-owned companies (9%) and the debt of the national oil company owed to operators, which alone increases the debt by a third

Risk assessment

A return to growth in 2022 at last?

The outbreak of the COVID-19 pandemic in 2020, and the subsequent decline in oil prices and production, amplified the economic difficulties linked to the decline of the oil sector and fiscal frailties. In 2021, despite tentative signs of recovery, economic activity contracted for the seventh consecutive year. In 2022, the country is expected to return to moderate growth. While the oil sector should continue to contribute to growth, it will remain constrained. The gradual loosening of OPEC+ production quotas and modest development investments should support a slight rebound in crude production, halting the downward trend due to aging oil fields, at least temporarily. Production volumes will nevertheless be lower than in 2019. In addition, despite the expected increase in oil revenues (about 80% of exports), the net contribution of trade is expected to remain a drag on activity, with imports poised to grow faster on the back of stronger domestic demand. Restrictions implemented to contain the COVID-19 pandemic should be gradually lifted as the vaccination campaign progresses (less than 10% of the population had received a first dose by November 2021), supporting private consumption. Consumption should also benefit from the clearance of public arrears, which include social transfers and pension payments. The improved health situation and the payment of arrears to private enterprises will buoy domestic investment. However, as a result of measures to restore fiscal sustainability, public spending and investment are expected to have a growth-suppressing effect. The CFA franc is expected to keep inflation close to the CEMAC criterion of 3%.

 

Fiscal policy focused on reducing public debt

After the fiscal balance returned to positive territory in 2021, the surplus should increase in 2022 as the authorities keep up their efforts to restore debt sustainability. They will aim to improve the collection of domestic non-oil revenues by, for example, launching a one-stop-shop for tax payments in 2021 and gradually scaling back certain tax exemptions. Oil revenues, which still account for nearly 60% of domestic resources, will also increase. On the expenditure side, the authorities intend to pursue measures to cut costs and the public wage bill (60% of non-oil revenues). While they will seek to safeguard spending on social programmes, capital expenditure will be limited. Fiscal prudence is aimed at restoring debt sustainability and meeting arrears payment commitments following restructuring agreements with some external creditors, such as China (June 2021) and Trafigura (March 2021). The country will continue restructuring negotiations, including with Glencore, a commodity trading company. Financing from the "Brazzaville Club", a consortium of four local banks, will continue to cover the payment of domestic arrears. This is helping to reduce the rate of non-performing loans and vulnerabilities in the banking sector. Arrears payments are expected to reduce the debt burden in 2022. An agreement with the IMF to free up more than USD 450 million in financial support under an ECF programme will underpin efforts to consolidate public finances and reduce dependence on oil.

 

In 2021, the country recorded a large current account surplus, due to a combination of import compression and increased oil exports. In 2022, although oil exports will continue to grow, the import bill is expected to rise more rapidly. The trade surplus will continue to be the main contributor to the current account surplus, with oil-related services and repatriation of foreign investment income maintaining the deficits in the services and primary income balances respectively. The balance of transfers, comprising public aid and expatriate remittances, has a marginal impact on the current account. While once again raised by the deterioration in CEMAC's terms of trade in 2020, the threat of devaluation for the CFA franc, which is pegged to the euro, seems to have receded, despite the fact that regional foreign exchange reserves remain relatively low (3.7 months of imports in 2021).

 

The regime maintains its hold on power despite social unrest

Denis Sassou Nguesso, who has been head of state since 1979, not counting the hiatus between 1992 and 1997, won the presidential election in March 2021 with more than 88% of the vote. Legislative elections scheduled for July 2022 are expected to deliver a new majority for his Congolese Labour Party (PCT). The opposition, which is divided and has limited financial resources, does not appear to be in a position to challenge and prevent the PCT winning an absolute majority. Despite the regime’s stable hold on power, the risk of social unrest remains high, fuelled by declining living standards (GDP per capita has been falling since 2013) and a high perception of corruption. In the short-term, the payment of some domestic arrears and progress in the vaccination campaign may ease some of the frustration with the government. The authorities are expected to continue to maintain close relations with China, the country’s main bilateral creditor and the primary destination for oil exports. France will also remain a privileged economic partner, despite ongoing French judicial investigations into misappropriated assets targeting people close to the president.

 

Last updated: February 2022

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