“The Democratic Republic of Congo calls on the IMF to accelerate its effective provision of resources, without forgetting the imperative of alleviating African countries’ debt,” President Félix Tshisékédi told the United Nations General Assembly on 21 September in New York. Although he welcomed the $33bn that had been approved under Special Drawing Rights (SDR) for the continent, he urged developed countries to “reach $100bn in SDRs” for Africa.

Kinshasa can rejoice that some of Tshisékédi’s wishes have already been fulfilled. On the very day of his address in New York, the Banque Centrale du Congo (BCC) – which has been headed by Malangu Kabedi Mbuyi, a former IMF executive, since July – announced that the DRC’s foreign exchange reserves had reached $3.36bn on 17 September.

A 63% jump in foreign-exchange reserves in two months

This represents a 63% increase in two months, or a rise of $2.13bn in the country’s foreign-exchange reserves. The latter had plateaued below $800m during most of the first half of 2021.

“This level of reserves means that we have three months of import cover and therefore a little less stress. The BCC can also intervene in the foreign-exchange market to support the local currency, if necessary,” says economic analyst Al Kitenge.

The BCC’s foreign-exchange reserves has mostly been strengthened, thanks to IMF disbursements. The first disbursement ($217m) of the Extended Fund Facility (EFF), worth $1.52bn and disbursable in instalments over three years, took place in July. Two months after this disbursement, the DRC also received its share of the SDRs, (equivalent to $1.5bn), which the multilateral institution approved in June. These two disbursements alone represent 81% of Kinshasa’s monetary ‘safety net’ since June.

An IMF boost

The IMF’s support has helped Kinshasa get five years ahead of schedule when it comes to strengthening its foreign reserves. According to a July 2021 study, the IMF did not expect the DRC to reach the $3bn foreign reserves threshold on its own until 2026.

In fact, the IMF’s double boost comes on top of other financing that the fund has provided over the past two years, namely, a Rapid Credit Facility (RCF) of $368m, which was approved in December 2019 and allows “the authorities to meet their urgent needs in terms of balancing payments” by strengthening the foreign-exchange reserves.

The IMF had justified this assistance by “the recent fall in commodity prices, new spending initiatives and the relaxed expenditure surveillance during the political transition period”, which led to “a weakened fiscal position, mainly financed by the central bank” and a fall in international reserves “to dangerously low levels”.

Again in April 2020, the IMF approved a new $363m RCF “to assist the Democratic Republic of Congo in meeting balance-of-payments financing needs arising from the Covid-19 pandemic.”

The Fund’s predisposition to support the country sharply contrasts with the reticent attitude it had a few years ago. The institution had suspended a previous financing agreement concluded in 2012 after some mining contracts were left unpublished and amid tensions between former president Joseph Kabila’s administration and the country’s international partners – including the US, the IMF’s largest shareholder.

In contrast, Tshisékédi’s teams are strongly committed to pursuing the reforms that the Fund has recommended, including overhauling the central bank’s governance, which led, among other things, to Mbuyi’s appointment.

Illusory comfort

Although the multilateral institution’s interventions have allowed Kinshasa to reach a level of comfort faster than expected, Kitenge notes that this respite is the perfect moment to focus on the nature of goods that the DRC imports and to work on substituting certain imports with local production. “This comfort is illusory because, in the event of an exogenous shock (Covid-19 is one), imports are not the answer. Our economy’s resilience lies in the strength of domestic production of goods and services,” says the analyst.

The IMF expects the DRC’s current-account deficit to narrow from -2.1% of GDP in 2021 to -1.3% in 2026. However, this anticipated improvement in the country’s trade position is based on the assumption that the value of mining exports, whose volumes and prices have risen in recent months, will increase. Meanwhile, the Covid-19 crisis has reduced imports.

However, the extractive sector’s rebound could be disrupted by the review – announced by Kinshasa – of mining contracts. Moreover, imports of goods, which had fallen to $11.9bn in 2020, are expected to almost double by 2026 to reach $22.4bn, according to IMF forecasts. Failure to achieve the expected gains on exports, combined with a steep rise in imports, would very quickly eat away at the BCC’s ‘foreign exchange cushion’, as well as the Congolese franc’s equilibrium and, ultimately, the population’s purchasing power.

“We import everything from tomatoes to salted fish… The DRC needs to reach at least $7bn in reserves to be sure of being able to cope with any internal or external economic shocks that may occur,” says Valéry Madianga of Kinshasa’s Observatoire de la Dépense Publique. According to the analyst, this requires increased revenue mobilisation (tax reforms and fighting against corruption) and imposing a regular repatriation policy on a larger share of mining operators’ earnings, in accordance with the new mining code. “Otherwise, the country will remain dependent on IMF aid, which intervenes on an ad hoc basis,” says the researcher.

“Implementing new reserve-requirement regulations and transferring BCC foreign-currency deposits, which are currently in local commercial bank accounts abroad, will help increase reserves,” said the IMF in its July 2021 report.

In September 2020, the Tshisékédi administration had indicated that the amount to be repatriated was $8.1bn, out of a total of $12.6bn made in export earnings from mining products generated between July 2018 and June 2020. The BCC is expected to collect $4bn in foreign exchange through this mechanism.