Common use of Medium-Term Strategy Clause in Contracts

Medium-Term Strategy. The authorities have designed a medium-term development and poverty reduction strategy (PRSP), in close cooperation with civil society and multilateral financial institutions. The progressive restoration of macroeconomic balance is indeed only a step, necessary but not sufficient, toward the return to healthy and sustainable growth. Indeed, the latter must reach, and remain at, 7% on the average in the non-oil sector for poverty, which still affects some 50% of the population, to be significantly reduced. In these circumstances, it is imperative for the Republic to diversify its economic base, which still depends on oil operations for up to 80% of export receipts and 70% of government revenue. The country hence remains highly vulnerable to exogenous shocks and faces an urgent need for broadening the sources of employment in the non-oil sector. At the same time, it continues to be confronted with very significant reconstruction requirements in transportation, energy generation and water supply, as well with the need to strengthen human capital and improve social services (education, health, etc.). Given the expected decline in oil production starting in the next decade, a central objective of the Government is to bring about a gradual modification of the structure of the economy by establishing over the next few years a framework conducive to the development of private activities in the non-oil sector. Attainment of this objective will call for completion of significant investments in infrastructure and in health and education. It will also require a measurable improvement in the business environment, in particular through the promotion of transparency and good governance, the reform of the judiciary and the fight against corruption. It is clear, then, that the country remains confronted with major challenges for its development. Against this background, the Congolese authorities invite their partners to beware of the somewhat artificial comfort caused by the current improvement in the country’s financial position in response to prevailing oil prices. This financial improvement is traceable mostly to the limited absorption capacity of the country against the huge needs identified by the populations in the context of the PRSP exercise. This is the very reason why the Government has decided to allocate part of the increase in its resources to a revenue stabilization fund. The resources of this fund, which are to be used in agreement with the IMF, are designed to smooth out public sector receipts over time so as to carefully spread the volume of public sector spending in accordance with the evolution of the economy’s absorptive capacity. This prudence is also aimed at establishing a cushion against potential exogenous shocks, such as a fall in oil prices or a drop in oil output. The Government of the Republic of Congo must reconcile the restoration of its financial relations with external partners with the expectations of the population regarding improvements in their living standards and the strengthening of the nation’s productive capacity. The authorities have therefore made the choice of taking advantage of the upturn in oil prices both to honor their obligations vis-à-vis foreign partners in a way that is compatible with the country’s medium-term payment capacity and to meet the most urgent domestic needs.