KINSHASA (Reuters) - The cash-strapped Democratic Republic of Congo will be forced to revise its 2009 budget unless it can rein in rampant inflation and reverse the slide of its currency, the budget minister said on Tuesday.
The vast central African nation’s mining-driven economy has been crippled by the global economic downturn which has led to a fall in demand for mineral exports, its primary foreign currency earner.
In March, the International Monetary Fund slashed Congo’s 2009 growth forecast to 2.7 percent from an October projection of over 10 percent.
Average annual inflation will likely hit 31 percent, more than double the central bank’s expectations when the budget was passed last year, while the Congolese franc has hovered around 800 francs to the dollar for much of early 2009, well above its mid-2008 level of 560 francs to the dollar.
“None of the economic indicators are the same. So we’ll probably, not probably, we must move towards a revision of the budget,” Michel Lokola told Reuters in an interview on Tuesday.
This year’s planned spending of around 2.9 trillion francs had been evaluated at an exchange rate of 585 francs to the dollar, creating a budget of around $5 billion — a $1.5 billion increase from 2008.
However, the fall of the Congolese franc has largely erased that budget growth. Meanwhile income from mining and oil exports, which make up around 60 percent of state revenues, has plummeted.
Benchmark world prices for copper, Congo’s primary mineral export, on the London Metal Exchange traded at around $4,520 per tonne on Tuesday, down from a record high of almost $9,000 per tonne last July.
Last month, in an effort to head off an expected budget shortfall and stabilise the struggling franc, Congo froze all non-priority spending and halved operational spending for government institutions.
The effect in the short-term has been promising, creating a $6.4 million budget surplus for the first four months of 2009.
Central bank interventions in local currency market, backed by an IMF disbursement of around $200 million in emergency funds, have now brought the exchange rate below 800 francs to the dollar for the first time in months.
“The efforts that the government is currently undertaking are aimed at bringing the exchange rate back to around 585... and to help the fiscal institutions to maintain their revenue levels,” he said.
“If by June, we win this battle, then we can avoid revising the budget.”
A recent pledge by G20 nations to fund $500 billion in IMF Special Drawing Rights could help Congo further by boosting foreign currency reserves. The World Bank has already handed over $100 million to pay teachers’ salaries and the government’s utility bills. And the European Union and African Development Bank are expected to follow suit.
Congo also hopes to finalise a formal programme with the IMF in June that could entail around $500 million in direct budgetary support.
All of this will help buoy Congo’s limping economy, Lokola said, but a long-term recovery cannot be created domestically.
“We are an economy that is vulnerable to external shocks. So we cannot get out of this crisis ourselves. We are waiting for all of these bailout plans that are being created in the West to stimulate demand for our raw materials.”