Continue to resort to debt, prepare for the future, while refinancing arrears at low cost. This is the objective of the next call to the markets of Congo Brazzaville, whose efforts the IMF welcomes while calling for better debt sustainability in the medium term.
A major financial transaction in a tense context. As the IMF warns of “unsustainable” debt, the Republic of Congo is preparing to launch a bond issue through public offering.
It is true that this loan provides for an interest rate of 6.25%, maturing five years, in line with recent transactions in the markets. The state plans to launch a bond, named EOCG 6.25% NET 2021-2026 on the markets of Central Africa, between March 12 and March 20, 2021; he intends to collect 100 billion CFA francs.
Congo will dedicate the proceeds of this issue to the financing of projects included in the 2021 Finance Law as well as to the partial clearance of domestic debt “in order to promote financial stability and non-oil growth,” a government statement said. Concrete projects are particularly in the areas of road, health, school and energy infrastructure as well as forestry economics.
Despite the structural reforms undertaken in recent years, the Congolese economy has been, like most economies around the world, affected by the Covid-19 pandemic. The fall in GDP reached 8%, calculates the IMF. The deterioration of the international environment and the contraction of national economic activity following the decline in oil production and revenues have negatively impacted the macroeconomic situation.
However, Congo’s economic outlook over the five years is improving. The revival of global demand for raw materials should support and turn around activity. The country should return to – modest – growth this year, while improvements are expected in the external accounts and the budget balance. The increase in GDP could reach 4.4% in 2022.
A major turning point!
The bond issue will promote non-oil growth while working for the economic diversification of the country, in a context of global reflection on the development of African countries in the post-Covid-19 period.
“We are in a particular period, both complex for the economies and societies of the continent, but very interesting since it gives us the opportunity to rethink our ways of acting for the development of our countries”, explains Calixte Nganongo , Minister of Finance and Budget.
Which invites “not to ignore the major turning point that we are experiencing”. The minister considers that the funding that the Congolese state will receive will enable it, in line with better economic conditions, “to mobilize its forces to improve governance, strengthen human capital and diversify the country’s economy.”
The government is supported by AX Capital Corporation for the advisory part, while the arranger and lead manager of the bond transaction is ESS Bourse, a company based in Douala, Cameroon.
We can bet that this operation will help reduce the Congo’s debt burden somewhat. The IMF has certainly welcomed, at the end of a mission which has just ended in the country, the “significant progress” made by Congo. What progress could facilitate the conclusion of an ECF (Extended Credit Facility) agreement.
Essential expenses in 2021!
However, “the rapid conclusion of debt restructuring agreements, consistent with restoring debt sustainability, will be essential for sustainable development and poverty reduction,” notes the Washington institution.
The IMF’s Pritha Mitra notes that despite a recession in 2020, “non-oil revenues have held up, thanks to revenue-boosting measures such as the introduction of electronic payments and a broadening of the tax base.”
In 2021, improved oil revenues will push the overall fiscal position into surplus. However, the non-oil primary deficit will increase, as social and capital spending increases to mitigate the impact of the pandemic and lay the groundwork for a resilient recovery.
In this context, judges the IMF, “Congo’s debt remains unsustainable”. After reaching 100% of GDP in 2020, public debt is expected to decline to around 87% this year. Congo has received debt service relief from official creditors for 2020 and the first half of 2021 as part of the G20 Debt Service Suspension Initiative.
The authorities plan to submit amendments to the anti-corruption law to parliament in the near future and adopt the domestic arrears audit report. Added to others, “these measures could lead to gains in terms of efficiency and more transparency in the management of public resources,” comments the IMF. Which nevertheless calls on the authorities to “step up their efforts”.
Reference: https://www.sikafinance.com/marches/cemac-congo-prepares-100-billion-fcfa-bond_26425
