Congo Scales Back Eurobond Plans as It Seeks World Bank Help

  • Congo expects to receive as much as $600 million of assistance
  • Government had planned to offer up to $1 billion of Eurobonds

The Democratic Republic of Congo scaled back plans to sell $1 billion of Eurobonds and instead asked multilateral lenders for direct budgetary support after the collapse in commodity prices forced the government to cut spending.

Congo is seeking $250 million to $500 million of World Bank assistance, in addition to $100 million from the African Development Bank, which it may qualify for after a macro-economic review by the International Monetary Fund in June, said Vincent Ngonga Nzinga, deputy chief of staff in the prime minister’s office.

The collapse in world commodity prices has undermined the finances of Africa’s biggest copper producer and the world’s largest source of cobalt. The cabinet cut this year’s budget by more than a fifth on May 4 and said it will still need external support after a decline in state receipts left the government with a deficit of 88 billion Congolese francs ($95 million) compared with a surplus of 181 billion francs a year earlier.

“We cannot maintain economic stability by only playing on the budget, by reducing expenditure, that is why the government has contacted the IMF and the World Bank,” Ngonga, who is also the prime minister’s principal economic adviser, said in the capital, Kinshasa.

Debut Eurobond

Prime Minister Matata Ponyo Mapon announced last year that the government proposed to sell a debut Eurobond in 2016 to fund infrastructure investments. The government was deterred from those plans by the U.S. Federal Reserve’s decision in December to raise interest rates and the experience of other African countries that have issued Eurobonds in recent years, according to Ngonga.

“We should have launched the bond offer in April, but under current conditions we decided it would not be wise,” Ngonga said in an interview May 13. “We would have to expect an interest rate of between 12 and 14 percent.”

Discussions between Congo and the multilateral lenders began in Washington in April and will be concluded when an IMF delegation visits Kinshasa in June. For the funding to be released, the IMF must write a “comfort letter” to the World Bank that attests to the long-term viability of Congo’s macroeconomic framework, Ngonga said.

Budgetary support would also allow the central bank to rebuild dwindling foreign-exchange reserves, which fell to $1.19 billion on May 5 from $1.5 billion at the start of the year. Of those reserves, only $280 million is immediately available to the bank.

“This is why it is more urgent for us to access this budgetary support now,” Ngonga said, adding that the World Bank and AfDB financing may be available as early as September.

In the revised budget, which was discussed in parliament on Monday, there is still a provision for 256 billion Congolese francs ($276 million) from a bond issue. The government expects this money is more likely to come from the World Bank and the AfDB, according to Ngonga.

“If nothing is done we run the risk of suffering from hyperinflation, which is already hitting other countries, and of reliving the nightmare of the 1990s," Matata told lawmakers Monday. 

The nation struggled with average consumer price inflation of 684 percent during the 1990s, according to the IMF.

The IMF’s ability to approve multilateral budgetary support will also depend on an assessment of current standards of economic governance in the country. In 2012, the IMF canceled a $551-million loan program with Congo after the government failed to publish details of a copper-mining deal involving state-run miner Gecamines and billionaire Israeli investor Dan Gertler.

Discussions with the IMF about the publication of mining contracts have already begun and will continue in Kinshasa in the next month, Ngonga said.

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