Democratic Republic of the Congo: why does money "no longer circulate"?

Text by: Sonia Rolley Follow

Since October 2019, the Democratic Republic of the Congo has formally returned to the International Monetary Fund (IMF) to avoid a major economic crisis. Several concrete measures have been put in place to control the country's deficit even when President Félix Tshisekedi insisted on the adoption of a historically high budget. Analysis.

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From the streets of the capital Kinshasa to the air-conditioned offices of the ministries, the spirits are heating up in this month of January, first anniversary in power of President Félix Tshisekedi . " The money is no longer flowing ," carried away a security guard. “ The prices are too expensive, people are not paid. Really, this country is cursed . Officials see their meager drafts cut. At the start of the year, income tax is deducted at source and even affects bonuses, which are often higher than wages. " On the little that President Kabila has left us, they want to cut 15%. The President of the Republic promised to improve the social conditions of the agents. A year later, he didn't give us a single franc! “, An agent protests with a few dozen others before the Ministry of the Civil Service.

His neighbor takes his whistle from his mouth to detail from the menu everything that the state has never paid him: housing, transportation and family allowances, as well as the health care provided for by Congolese law. He notes with great bitterness that despite a “ budget of 11 billion ” and many other promises, “ we are killing him ”. Too angry, he fails to recognize President Tshisekedi the free primary education that weighed so heavily on the Congolese portfolio. He denounces a " suicidal " policy led by " lambs become wolves ", without ever being told that it was one of the measures recommended by the International Monetary Fund (IMF) as part of a vast plan to consolidate public finances.

" 770 billion deficits " at the end of the nine months of transition

On January 27, 2020, the Minister of Finance, Sele Yalaghuli, belatedly delivers part of the explanation on the radio stations of Radio France International (RFI) by using the often taboo and always controversial words of " austerity policy ". His statement then has the value of a right of reply, several personalities in the coalition of President Tshisekedi - including his chief of staff Vital Kamerhe - having accused him, he who comes from the ranks of the platform of the predecessor Joseph Kabila, of obstructing the change promised by the new Congolese head of state. " We had to carry out, from September, an austerity policy because we are today in program with the International Monetary Fund (IMF)", justifies the minister, ensuring to have the support of the president as of his Prime Minister to contain the excessive deficit of his country. When, from the presidency to the most distant embassies, one complains of arrears of payment of wages and running costs, Mr. Sele Yalaghuli denies, ensuring that at his level, all is disbursed " even if it is with a little late . " Just barely does he recognize " two or three months " of payment arrears from suppliers in the Congolese state.

On September 6, 2019, after nine months of hard negotiations between the new and the former head of state, a coalition government was invested. Until then, the country was led, without parliamentary control, by an outgoing government and a newly installed president and spent according to two disbursement plans, that of the 2019 finance law and the 100 days program of the new head of state . At the end of this so-called transition period, the new Minister of Finance said that he had " discovered deficits of 770 billion Congolese francs [more than $ 450 million, editor's note] " in the coffers of the State. The Central Bank of Congo (BCC) had however warned the presidency of a slippage in public finances in April. The documents published each week by the institution attest to a growing increase in the deficit which reached some $ 130 million as of April 19, 2019.

In one of its weekly bulletins, the BCC attributed these deficits to the cost of President Tshisekedi's " emergency measures " which, according to the Congolese Central Bank, already accounted for almost a quarter of public spending in mid-April . The chief of staff and the spokesperson for the new head of state had stepped up to the plate in the local media, and as of April 30, the BCC corrected and announced without hesitation a surplus of $ 180 million.

An " austerity policy " since September?

The DRC is living in a " complex situation ", likes to recall Lambert Mendé, the spokesperson for the last government of Joseph Kabila. " But the future of the Congo depends on it ". After highly contested elections, Félix Tshisekedi, the son of the historic opponent, becomes president and all the assemblies are controlled by his predecessor. A year later, there has been little or no change in the security services, courts and tribunals, state-owned enterprises and even up to the Central Bank. But thanks to this strange ruling coalition, the new institutions weigh heavily on the state budget. The Observatory of Public Expenditure (Odep), a Congolese NGO, estimates the cost of new political institutions at more than a billion dollars and denounces a " sharing of the cake ". In the eyes of the 2020 finance law, the DRC has the equivalent of two bloated governments with 66 ministers and vice-ministers and 54 special advisers to the presidency with now the rank of minister.

Faced with this exorbitant number of budgeted special advisers, the president's chief of staff, Vital Kamerhe, denied before ensuring that the information was discovered thanks to RFI. The main ally of the new head of state evokes " a monumental error " in the finance law when everywhere within the national executive, the technocrats denounce the extent of " political recruitments " and " prestige expenses " for one or other of the coalitions.

Faced with the multiplication of "crowding-out effects", each has its beasts. A foreign economist is carried away against all the " leaps of the sheep " (Bridges on major highways, note) launched in the capital " at the same time and without specific financial management " which have been creating for nine months huge traffic jams in the capital Kinshasa. One of his Congolese colleagues denounces, meanwhile, the multiplication of financial scandals " from 15 to 180 million " without any real explanations being given. " Each expense other than binding, that is to say salaries and operating costs, creates a crowding-out effect ," he explains before adding: " The State cannot at the same time spend and invest on several fronts and regularly pay its employees. Its resources are too limited due to corruption. "

Like the Lucha, he points to the multiplication of trips by the Head of State. Félix Tshisekedi made, according to the citizen movement, " five times around the earth at the equator ", spent almost a third of his time abroad, in an attempt to improve the image of his country. But the new president moves with dozens of collaborators to house and feed. " You can't talk about austerity when you see the price of the last trip to London and Davos, " said a foreign diplomat.

One week of foreign exchange reserves at the end of October

Austerity or not, the DRC has indeed grazed the worst and the Congolese Central Bank has played a big role in this situation. The IMF explains it from Washington. Its international foreign exchange reserves had melted to the point of reaching the critical level " of a week of imports at the end of October 2019 ". The monetary policy of the Congolese Central Bank has made the country " very vulnerable, in particular to the downward spirals of inflation ". If the IMF has granted the Congolese state an emergency loan of more than 368 million dollars, it is good to save the country and " complete the efforts of the BCC to replenish its foreign exchange reserves ". This money paid in December was placed in an account with the DRC Treasury in Switzerland to stabilize the exchange rate and prices in exchange for a promise from the government " to spend within its means ".

The Bretton Woods Institution report dated December 4, 2019 provides more details on the " advances and guarantees " provided by the BCC that destabilized the balance of payments. To finance free primary education and the 100-day program of the new head of state, write IMF experts, the Central Bank of Congo had advanced for " 603 billion Congolese francs " (0.7% of GDP) to the State, a practice which is however prohibited by Congolese law relating to public finances. It also guaranteed for " 372 billion Congolese francs " (0.4% of GDP) additional loans from public institutions in commercial banks. For this, it had repatriated part of its foreign exchange reserves there, violating all international recommendations on the subject. " It is not that the money no longer circulates, it is that the money that circulated before did not really exist and that resulted in inflation which is really the tax of the poor ", still explains the foreign economist.

The excesses are such that at least three of the 17 small banks in the Congolese banking system are not sufficiently capitalized, in particular due to unpaid loans contracted by public institutions, including the provinces. Others were already in liquidation. " All that is a thing of the past, the important thing is that we are all committed today to respecting financial orthodoxy ", assures a senior BCC official who does not deny anything, nor the slippages in public finances, nor the shortcomings of their main regulator. He promises to be content with issuing treasury bills, the only " healthy practice " of financing domestic debt.

The prices of certain commodities double between December and January

Despite IMF assistance, the inflationary spiral has not stopped. In Kinshasa, in January 2020, certain commodities saw their prices double. The fault does not lie only with the Central Bank and the use of the printing press. The economy of the DRC is so fragile that it remains sensitive to any external shock. To unbalance the prices, it is enough that a road between two cities of the East, Bunia and Kisangani, is so damaged that the transporters take twenty days more to join them or even that the United States decide to impose sanctions one businessman. The Lebanese Saleh Assi owns the Pain Victoire and Mino Congo industries, which are crucial for the distribution of bread and chicken in the capital. " We must not fall into the trap of blaming Félix Tshisekedi for the State of the Congo, he inherits moribund infrastructure, public enterprises in bankruptcy and a state apparatus, which for want of being paid well is corrupt, ”comments a relative of the new president. “ We must also recognize that coalition and free services are expensive, but they are not negotiable, donors must help us. "

One of President Tshisekedi's most sustained measures, both inside the country and abroad, is precisely free primary education, which alone costs $ 1.2 billion a year. It includes the payment of hundreds of thousands of Congolese teachers who had never been paid by the state, the improvement of salaries and amounts of operating costs until now modest. 80% of the cost of primary education has so far been borne by parents alone. Since the 1980s, children struggled to join the school benches because they could not pay the school fees at the start of the school year. Today, the classes are crowded and no longer have enough benches to accommodate them. The World Bank proposes to contribute to this historic measure up to a billion dollars over three years, the main part will therefore be assumed by the Congolese state itself which will have to prove at each stage that the money of the donors is well used.

Since his inauguration, the new head of state has also promised to ensure free primary health care and to get a quarter of the Congolese population out of extreme poverty in five years. Even as he multiplied trips to Washington to finalize the agreement with the International Monetary Fund, itself conditioned by strict control of spending, he urged the government and the Parliament to adopt a historically high budget of 11 billion dollars . The IMF representative in Kinshasa calls it unrealistic, provoking the ire of supporters of the new head of state. And yet, this budget is more than twice as much as the DRC was able to disburse in 2019. At the time, the Mutanda mine was one of the main contributors to the income tax, with more of $ 600 million paid to the state last year, but it has just suspended its activities for two years.

According to the latest report from the International Monetary Fund, the Congolese government already recognized, before its adoption, that " the projections for the 2020 budget were too ambitious ". A " cash flow plan " was formulated and had to be posted on the website of the Ministry of Finance by the end of January at the latest. It should be based on “ realistic projections of revenue and financing and compatible with a deficit of 0.4% of GDP for 2020 [$ 200 million]” and excludes any use of the printing press. More than the finance law promulgated since by Félix Tshisekedi, this document should " guide the execution of budgetary expenditure while avoiding payment arrears ".

Revenue mobilization, an " imperative national priority "

The Democratic Republic of the Congo is among the worst students in sub-Saharan Africa in terms of revenue mobilization and it will have to achieve the impossible. In his speech to the nation, President Tshisekedi made this mobilization an " imperative national priority " as much depends on the success of all or part of his program. The Deputy Prime Minister in charge of the budget and close to his cabinet director Vital Kamerhe, Me Jean-Baudouin Mayo Mambeke, defends the record of his government: " We have successfully observed the constraints of the International Monetary Fund, it is for that the IMF supported us with $ 368 million. If the review was not effective, we would not have accessed this credit ", but before going any further, the Bretton Woods institution suggested, in addition to controlling public spending and debt clearance, several structural reforms, some of which, although very ambitious, will probably not, at least in the short term, generate between $ 500 million and $ 1 billion in additional revenue. All monitored during three visits which should last until next June.

The Congolese government has already embarked on a first reform by generalizing the income tax to all state agents, but has promised the unions to pay all the allowances provided for by Congolese law, which could cost it even more expensive. VAT should be restored, but the arrears in its reimbursement to businesses are so numerous that they represent more than $ 350 million (0.7% of its GDP). Kinshasa has also committed to streamline the payment of taxes to various government entities at border crossings. 60 to 80% of the goods that enter Congolese soil do so fraudulently. Customs revenue remains modest and is only sparingly transferred to the Treasury accounts. Those who benefit from it are as many interests that the ruling coalition will have to shake up.

These " efforts ", the Congolese government must provide them " together with the Congolese people ", explains Me Jean-Baudouin Mayo Mambeke. But today, the vast majority of Congolese, including among the elite, have no idea of ​​the magnitude of the challenges, blinded by the political discourse that agitates the media and social networks almost daily. The variations in the exchange rate, the rise in prices and the impression that money no longer circulates, all are explained by the state of the finances of the DRC. When the Congolese head of state denounces blockages and evokes for the first time the idea of ​​dissolving the Assembly dominated by his predecessor, the President of the National Assembly, Jeanine Mabunda, returns him to the variations of the exchange rate and recalls that deputies and senators largely voted for its budget. The spike goes almost unnoticed, crushed by the debate on the political future of the ruling coalition.

The Deputy Prime Minister in charge of Budget refused to make any political comments and denied any lack of communication from the government on the reality of the country's economic situation. For Me Jean-Baudouin Mayo Mambeke, President Tshisekedi explained everything in his first speech to the nation. Depreciation and inflation are only the result of an ambitious policy. " You can't make omelettes without breaking eggs, " says Mayo Mambeke. " This is the price to pay and if we ever succeed, we will be able to access the extended credit facilities of the International Monetary Fund, the World Bank will support us. And the country will be financially credible internationally. "

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