Congo freezes 'non-priority' spending as franc dives

By Joe Bavier

KINSHASA (Reuters) - Cash-strapped Democratic Republic of Congo has frozen all "non-priority" spending as part of efforts to save its sliding currency and boost purchasing power, a Central Bank official said on Monday.

Congo's mining-driven economy has crumbled this year as demand for mineral exports, its primary foreign currency earner, has dried up as a consequence of the global economic crisis.

Household purchasing power has fallen by a fifth this year as a result of the Congolese franc losing about 22 percent of its value against the dollar since the end of 2008 and a sharp rise in prices, the bank said.

It said the cumulative inflation rate in the first three months of 2009 was 22 percent and a readjustment of petrol prices this month risked spilling over to other goods and pushing the inflation rate higher still.

On Monday, the Central Bank used nearly $6 million of some $200 million in emergency funding disbursed last month by the International Monetary Fund, the first in series of operations to mop up excess liquidity and create demand for the franc.

For the new programme of bi-monthly currency market interventions to work, the government must avoid injecting new cash into circulation, bank officials said.

"Spending from the Treasury, by decision of the prime minister, has been frozen until further notice, with the exception of that which is linked to servicing the debt," read a document released by the bank.

Vincent Ngonga, director of studies at the Central Bank, said the measure targeted "non-priority" expenses and that henceforth the government will refrain from any spending that aggravates Congo's growing budget shortfall.