Real GDP growth was an estimated 2.0% in 2018, after two years of contraction in 2016 (2.8%) and 2017 (3.1%). The recovery, which is not enough to reduce a 40% poverty rate, is due to rising oil prices and increased domestic production of hydrocarbons, supported by private investment in the Moho Nord oil field and increased exports of oil products. The fiscal deficit was an estimated 4.8% of GDP in 2018, down from 12.5% in 2017, thanks to an increase in revenue (13%) and a reduction in expenditure (24%) as part of the fiscal consolidation measures under the Central African Economic and Monetary Community (CEMAC) regional program.
As a CEMAC member, Congo is part of a regional strategy launched in 2017 to address the fiscal and external imbalances experienced by all countries in the zone following the fall in oil prices in 2014. This regional program, supported by technical and financial partners, is producing encouraging results, though additional and coordinated efforts are still needed.
Public debt remains a major concern: total public debt was around $10.6 billion at the end of 2017, or 118.5% of GDP, almost six times the 2010 level (20% of GDP). Although the debt ratio in 2018 decreased to 86%, in view of the recovery in growth and the rise in budgetary revenues, debt restructuring remains necessary to restore medium-term sustainability.
Tailwinds and headwinds
The economic recovery that began in 2018 is projected to gain momentum in 2019 with real GDP growth of 3.7%, driven by higher oil production and higher global oil prices. The improvement in electricity production resulting from the commissioning of the Liouesso hydropower plant, which will generate an additional 19.2 MW, is expected to enhance the competitiveness of the manufacturing sector. In addition, reforms aimed at strengthening the business climate should help boost investment. A contraction of 0.1% in real GDP is projected in 2020 due to declining oil production, which in turn is due to the depletion of reserves in some wells. Inflation is projected to remain under control at 1.6% in 2019 and 2.0% in 2020. The budget and current account balances are projected to improve.
But the favorable economic prospects are not immune to some threats. A drop in oil prices could increase pressure on the fiscal and external accounts as well as on the financial sector, which depends heavily on oil revenue. It is also important to improve the ratio of nonperforming loans, which has increased over the past two years due to the impact of the government’s arrears to private providers. Moreover, unsuccessful disarmament, demobilization, and reintegration could be detrimental to the political and security environment, which is stable today.
Like other CEMAC countries, Congo faces important challenges. With the oil sector accounting for 55% of GDP, 85% of exports, and 80% of budget resources in 2017, the economy has not coped well with the fall in oil prices. Its necessary diversification requires improvements in the business climate and economic governance. Improved governance remains essential for macroeconomic rebalancing, the sustainability of public finances, good debt and spending management. It also requires strengthening human capital.
As a result of the oil boom, Congo has invested heavily in developing infrastructure (transport and energy) that could support the country’s development efforts. The country has enormous potential for higher value added activities and productive employment. Congo has an immense potential in natural resources including forests and mines.
Guide to Buying Bonds
Procedures for market participation
The BEAC organizes the auction on behalf of the states. The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.
At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.
The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.
Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program.
The six National Treasures issue in turn at regular intervals. Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year. Each National Treasury can issue T-Bonds monthly. The auctions are scheduled to take place every Wednesday. However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day.
A shift schedule was developed for planned Wednesday auction sessions:
- Cameroon: 1st Wednesday of the month
- Central Africa - Congo: 2nd Wednesday of the month
- Gabon: 3rd Wednesday of the month
- Equatorial Guinea-Chad: 4th Wednesday of the month
These emissions will occur at regular time intervals and are publicly known.
The total amount of the twelve issuances will be released in the Finance Act each year. For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year. This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the emission will not be announced at this time.
However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.
On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.
The settlement of transactions takes place at T+3.
The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.
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Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.
Openness to international investors
Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.
This is no restriction on foreign ownership in the CEMAC zone.
Restrictions on FX and profit repatriation
There are no restrictions on obtaining foreign exchange.
The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.
Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease payments.