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DRC Monetary Policy to remain prudent in 2021

The goal is to ensure the stability of the main parameters of the macroeconomic framework during this year, explained the Director General, Jean-Louis Kayembe wa Kayembe. This stability was acquired at the cost of a tightening of monetary policy measures after the slippage observed in the development of economic indicators between the months of April and July 2020.

In his capacity as Director-General in charge of Monetary Policy and Banking Operations at the Central Bank of Congo (BCC), Jean-Louis Kayembe published his report for the year 2020. It emerges that his institution, the BCC , pursued an overall prudent monetary policy due to the spread of the adverse effects of the covid-19 pandemic in the country. Indeed, from abroad, the virus paralyzed several sectors of economic activity in 2019 around the world.

After its detection in Kinshasa in March 2020, it did not take long to feel the first effects on the national economy. As Jean-Louis Kayembe recalled, the harmful effects were transmitted to the national economy “through the channels of foreign trade, foreign direct investments and foreign donations”. In particular, a significant slowdown in economic activity was observed, with a growth rate of 0.8% at the end of September 2020 against 4.4% in 2019.

There is only one quick step between economics and finance. The weak revenue mobilization induced by the violent coronavirus shock and the expansion of public spending has resulted in successive monthly deficits. Hence the collective budget in the second half of 2020 to provide the country with realistic projections, thus dropping from 18.545 billion to only 9.272 billion Congolese francs. “Said deficits were covered, in addition to recourse to monetary financing from January to April, by sound financing, mainly budget support from the IMF and the ADB,” he continued.

All the efforts supported by the Bretton Woods partners and the African Development Bank (AfDB) in terms of budget support did not make it possible to avoid a contraction in foreign exchange reserves, amounting to US $ 708 million at at the end of 2020 against 818 million at the end of 2019. The numerous direct and indirect interventions of the BCC on the foreign exchange market caused this decrease. “The situation revealed the insufficient supply of foreign currency and the strong pressure on the foreign exchange market in 2020, which the Bank’s interventions helped to mitigate,” he said. The pressure on the foreign exchange market led to a depreciation of the national currency of 15% in 2020, compared to only 2% a year earlier.

The BCC’s battery of adjustments has certainly stabilized the situation. But there was a slippage in the main economic indicators between the months of April and July. The BCC then decided to tighten its monetary policy, with the signing of a Stability Pact between the government and the BCC. These measures resulted in the return of internal and external stability of the Congolese franc between August and December 2020.

For the new year, everything will be done to continue with prudent monetary policy as it is first a question of ensuring that this stability is maintained. Compliance with the Stability Pact should remain in force during this period to align expenditure with revenue. The challenge is to rule out any risk of a return to monetary financing. By combining the following three factors, control of the pandemic in the second half of the year, strengthening of economic growth and respect for the stability pact, it is possible to hope for a gradual decline in the rate of price formation.