INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND THE DEMOCRATIC REPUBLIC OF THE CONGO Joint World Bank-IMF Debt Sustainability Analysis September 2019 Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA) and Annalisa Fedelino and Vitaliy Kramarenko (IMF) The Democratic Republic of the Congo: Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress: Moderate Overall risk of debt distress Moderate Granularity in the risk rating Limited space to absorb shocks Application of judgment No According to the updated Low-Income Country Debt Sustainability Framework (LIC DSF), the Democratic Republic of the Congo (DRC)’s debt-carrying capacity was assessed as weak.1 DRC remains at a moderate risk of external and overall debt distress, with limited space to absorb shocks. The debt coverage has been improved since the last DSA, especially on domestic debt. The external nominal debt ratios are lower than at the time of the 2015 DSA, however the country shows vulnerability in debt repayment capacity, even under the baseline, due to weak revenue mobilization. Most external debt thresholds are breached under the stress tests, highlighting the country’s vulnerability to external shocks. Given limited buffers, prudent borrowing policies are essential by prioritizing concessional loans and strengthening debt management policies. 1DRC Composite Indicator (CI) score is 1.98, which corresponds to a weak debt-carrying capacity as confirmed by April 2019 WEO assumptions and 2017 Country Policy and Institutional Assessment (CPIA). PUBLIC DEBT COVERAGE 1. Public and publicly-guaranteed (PPG) external and domestic debt covers debt contracted and guaranteed by the central government, the Central Bank of Congo (BCC), provinces, and part of state-owned enterprises (SOEs). The public debt department (Direction Générale de la Dette Publique, DGDP) under the Ministry of Finance publishes quarterly and annual reports on its website with information on domestic and external debt based on the residency criteria. The reports summarize the debt of the central government, debt of SICOMINES (a joint venture stemming from an agreement between the Congolese government and Chinese investors) and Gécamines, guaranteed external debt of SOEs managed by the government, provinces (only the province of Maniema is missing, out of 26 provinces), and BCC’s debt. Data on private sector’s and other public institutions’ debt are not available. Other public institutions do not have the capacity to borrow externally without a government guarantee. The authorities believe that other SOEs have not borrowed externally, however they do not receive any regular report from them. The authorities are committed to broaden the debt coverage, especially to improve SOEs debt reporting in terms of debt stock and debt service. Sicomines’ infrastructure loans has a government guarantee which can only be called after 2034. Its debt service should be repaid by 2026 and is collateralized by Sicomines’ earnings.2 Text Table 1. Democratic Republic of the Congo: Coverage of Public and Publicly Guaranteed Debt and Parameters for Contingent Liability Shocks for the Tailored Stress Test Definition of external/domestic debt Residency-based Is there a material difference between the two criteria? No Public debt coverage Subsectors of the public sector Check box 1 Central government X 2 State and local government X 3 Other elements in the general government 4 o/w: Social security fund 5 o/w: Extra budgetary funds (EBFs) 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) X 8 Non-guaranteed SOE debt X Public debt coverage and the magnitude of the contingent liability tailored stress test The central, state, and local governments, central bank, 1 The country's coverage of public debt government-guaranteed debt, non-guaranteed SOE debt Default Used for the analysis Reasons for deviations from the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 2 Some public institutions are not reporting to the DGDP. 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 0.5 The DGDP does not receive regular reports from SOEs. 4 PPP 35 percent of PPP stock 0.00 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5 Total (2+3+4+5) (in percent of GDP) 7.5 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a Sources: Congolese authorities. IMF staff calculation. 2 Box 1, Debt Sustainability Analysis, IMF Country Report No. 15/280 2 BACKGROUND AND RECENT DEVELOPMENTS 2. From 2014 to 2017, the Congolese economy deteriorated sharply in the wake of a commodity price shock and a political crisis. The sharp fall in the price of copper—which accounted for over 50 percent of total exports of goods and services— between 2014 and 2016 and the uncertainty caused by the delay in holding general elections hurt economic growth, exports, and fiscal revenues, unleashing a spiral of currency depreciation and inflation. By the end of 2016, the price of copper had lost 45 percent of its value relative to 2011. Furthermore, donors stopped providing budget support because of delays in conducting the presidential elections. Government deposits at the BCC were largely depleted by the end of 2016 and the fiscal rule of no BCC financing of the budget—introduced in 2011—was breached. Domestic arrears were also rising. The end-of-period inflation rate rose to 23.6 percent in 2016, driven, at least in part, by central bank financing of the fiscal deficit. Foreign reserves dropped from about 6 weeks of imports in January 2016 to less than 2 weeks by end-2017. The exchange rate depreciated by 71 percent between end-2015 and end-2017, the largest depreciation in SSA over that period. Conversely, the current account deficit narrowed modestly to 3.1 percent of GDP in 2016, as a decline in imports compensated for dwindling exports. All this induced a fall in GDP growth from 6.9 percent in 2015 to 2.4 percent in 2016 and 3.7 percent in 2017. 3. Since 2018, the economy has started to recover. Supported by a rebound in commodity prices, GDP growth was 5.8 percent in 2018, while 12-month inflation has fallen sharply to less than 5 percent and the exchange rate has stabilized. Strict budgetary discipline led to overall fiscal surpluses in 2017-18 and a balanced position is projected for 2019. However, international reserves have been low, below 3 weeks of import coverage, a critical vulnerability that needs to be tackled decisively. Text Table 2. Comparison between 2015 and 2019 DSA PPGE debt to PPGE debt to PPGE debt to GDP ratio exports ratio revenue ratio Previous Current Previous Current Previous Current 2015 14.3 13.3 43.5 48.3 104.3 97.5 2016 14.7 14.8 43.2 45.2 104.4 132.6 2017 16.7 15.7 50.5 50.7 115.7 160.6 2018 19.0 13.6 56.1 39.8 128.0 130.1 2019 20.3 13.1 58.6 50.6 134.0 127.0 2020 21.5 12.6 62.2 49.0 139.4 126.2 2021 22.6 11.9 67.3 46.8 143.0 113.7 2022 22.5 10.8 68.8 41.6 137.1 100.1 2023 21.7 9.6 67.3 37.1 126.8 87.8 2024 20.9 8.8 66.3 33.3 122.0 78.0 avg 2025-38 20 5.5 66.7 22.4 103 52.6 Sources: Congolese authorities and IMF staff calculations and projections. 3 4. DRC’s external debt has remained low following debt relief at the beginning of the decade. After DRC reached the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) initiative and benefited from assistance under the Multilateral Debt Relief Initiative (MDRI) in July 2010, external debt has fallen from $13.7 billion at end-2009 to US$6.4 billion by end-2018. The ratio of public and publicly-guaranteed external debt (PPGE) to GDP dropped to 22 percent in 2010 and to 13.6 percent in 2018. The low stock of external debt reflects mostly adverse external borrowing conditions: new disbursements in 2017-18 were only US$27.5 million or 0.07 percent of GDP. The country carries external arrears to bilateral and commercial creditors amounting to 0.7 percent of GDP. However, the authorities are under discussion with creditors to resolve outstanding issues. Text Table 3. External Arrears as of End-2018 External arrears are limited and date from pre-HIPC Completion Point, amounting to US$328.7 million. Four non-Paris Club creditors hold claims against the DRC for half of the total amount in arrears and are in negotiation or under reconciliation process. The remaining half are claims to commercial creditors. Amounts have been reconciled but there are cases under litigation. A 5-year schedule for the repayment of external arrears has been assumed, starting in 2021. Democratic Republic of the Congo - External Arrears 2018 Nominal in millions Percent of of US$ GDP Est. Total External Arrears 329 0.7 Bilateral creditors 164 0.3 Commercial creditors 1/ 165 0.3 Memo item: GDP 47,099 1/ Includes Sicomines debt Sources: Congolese authorities; IMF staff estimates 4 Text Table 4. Democratic Republic of the Congo: Total Public Debt Stock, 2018 Nominal in millions Percent of Percent of Percent of of US$ GDP Public Debt External Debt Est. Total Public Debt 9,475 20.1 100 Of which: arrears 3,403 7.2 36 Total External Debt 6,401 13.6 68 100 Of which: arrears 329 0.7 3 5 Multilateral creditors 1,916 4.1 20 30 Bilateral creditors 1,240 2.6 13 19 Commercial creditors 1/ 3,245 6.9 34 51 Total Domestic Debt 3,074 6.5 32 1/ Includes Sicomines debt Sources: Congolese authorities; IMF staff estimates 5. About half of the public external debt is owed to official creditors. At end-2018, 30 percent of the debt was owed to multilateral creditors and 19 percent to bilateral official creditors, a significant increase from 4 percent in 2014 due to borrowing from non-Paris Club creditors. The share of debt owed to commercial creditors has remained stable with a third of the external debt (see Text Table 5). Sicomines’ debt represents almost 40 percent of total external debt. It is assumed to be repaid over 10 and 15 years for mining and infrastructure projects, respectively. 6. The overall domestic debt is composed of arrears. As of 2018, total domestic debt was equivalent to US$3.1 billion, or about one third of total public debt. Reconciled legacy arrears equal US$1.9 billion, or almost 60 percent of domestic public debt. They have been audited and fall into 5 categories: financial debt, social debt, judiciary debt, suppliers, and rent and other services. Other legacy arrears amounting to about US$3 billion have still to be audited. According to the authorities, in the past, only 20 percent of audited arrears became validated. VAT arrears represent the second largest category of arrears with almost a quarter of the domestic debt. They are expected to be repaid against taxes due. Arrears from provinces are also included in the stock of domestic debt. Only one province did not report its stock of arrears but, according to the authorities, its amount should be marginal. 5 Text Table 5. Democratic Republic of the Congo: Total Stock of Domestic Debt, 2018 Nominal in in percent in total US$ million of GDP domestic debt Reconcilied legacy arrears 1,866 4.0 60.7 Arrears from provinces 147 0.3 4.8 Arrears to oil companies 262 0.6 8.5 VAT arrears 799 1.7 26.0 Total 3,074 6.5 100.0 Sources: Congolese authorities; IMF staff calculations UNDERLYING ASSUMPTIONS 7. The medium- and long-term macroeconomic framework underlying the DSA is consistent with the baseline scenario presented in the 2019 Article IV Staff Report. Compared to 2015 DSA, GDP growth assumptions are more conservative in the first half of the projections’ period though growth is projected to pick up in the second half (Box 1). Similarly, fiscal policy is projected to be tighter than assumed under the 2015 DSA in the first half of the projection period but to loosen up in the second half. These assumptions carry over into the projected paths for public and private investment as well as for imports. Text Table 6. Democratic Republic of the Congo: Macroeconomic Forecast and Assumptions Exports of goods Imports of goods Current account Real GDP Growth Revenue (excluding Overall fiscal deficit and services and services balance (percent (percent change) grants) growth (percent of GDP) growth growth of GDP) Previous Current Previous Current 1/ Previous Current 1/ Previous Current Previous Current Previous Current 2015 9.2 6.9 14.3 2.2 -0.8 -0.2 6.5 -17.2 -0.7 -19.1 -7.4 -3.8 2016 8.5 2.4 12.3 -21.0 -0.2 -0.3 13.2 14.9 6.6 11.5 -7.6 -4.1 2017 8.3 3.7 12.9 -10.2 -0.2 1.6 7.0 -3.0 12.9 -8.3 -9.4 -3.2 2018 7.5 5.8 12.0 33.8 -0.3 0.6 11.6 38.0 11.5 36.1 -10.1 -4.6 2019 6.7 4.3 10.5 3.0 0.0 0.8 10.8 -20.9 9.9 -19.0 -10.1 -3.5 2020 5.4 3.9 9.1 1.6 0.1 0.8 6.8 4.3 9.8 5.6 -11.2 -4.2 2021 3.7 3.4 7.3 10.2 -0.4 1.2 1.8 4.0 -2.1 5.2 -7.9 -4.4 2022 4.9 4.5 9.7 8.5 -0.5 1.2 2.9 7.6 3.7 6.9 -7.9 -4.3 2023 4.5 4.3 10.0 8.3 -0.6 1.3 4.0 6.4 3.7 7.5 -7.7 -4.4 2024 3.8 4.6 5.2 8.4 -0.4 1.3 2.8 7.4 2.7 7.9 -7.4 -4.5 avg. 2025-39 3.6 4.5 6.5 5.3 1.0 0.7 3.5 5.4 2.3 5.1 -5.7 -3.7 Sources: Congolese authorities and IMF staff calculations and projections. 1/ Adjusted with Sicomines and Gecamines' debt service projections. 6 Box 1. Democratic Republic of the Congo: Macroeconomic Assumptions for 2019-39 Real GDP growth. GDP growth over the medium term would average almost 4 percent driven by sustained increases in mining production and a gradual recovery in investment. The newly elected President laid out his development plan that aims at supporting private sector activity, particularly in the agriculture, energy, and tourism sectors. He also plans to increase public investment, specifically in infrastructure. Inflation. Inflation is projected to stabilize at around 5 percent, below the 7 percent target of the BCC, as the economy slowly recovers. Primary balance. The primary fiscal balance is projected to stay close to zero percent of GDP on the basis of prudent fiscal policies and still limited access to external credit. Capital expenditure would reach 3.9 percent of GDP at the end of the projection period. It would be initially financed mostly through foreign sources, but domestic financing would increase gradually to represent about half of its financing. Revenues are computed as central government revenues plus revenue from SOEs assumed to be equivalent to their debt service flows. The latter represent an average of 4.4 percent of total revenues over the repayment period. Current account balance. The current account balance has been stable while significantly affected by the developments in the mining sector. After a recovery in 2017, the current account deficit increased again in 2018 mainly due to capital equipment and other imports. Mineral export constitutes significant portion of export and projected to improve, on average, over the medium term while import is projected to rise gradually on the back of increasing demand for capital goods and intermediates for infrastructure investment. Thus, the current account deficit would average around 4 percent of GDP over the medium term.” FDI inflows. FDI inflows are projected to remain at around 4 percent of GDP. Investment flows are projected to increase in the non-mining sector to compensate for an assumed slowdown in investments in the mining sector due to increased taxation under the new mining code. Gross official reserves are expected to gradually rise over the medium term to about 5 weeks of imports. Financing assumptions. Public debt is expected to increase slowly to help finance the investment program of the new government. However, public investment is assumed to increase gradually to about 3 percent of GDP over the medium term. External financing is projected to be a mix of concessional loans (accounting for half of it) and bilateral and commercial loans. Part of the financing of public investment projects would also stem from foreign grants. Additional government financing needs are assumed to be covered by treasury bonds issuance in the domestic market. The financing mix is projected to remain unchanged over the projection period as it is assumed that DRC would not be able to switch from concessional to non-concessional borrowing. 8. The realism tool’s outputs compare the DSA projections to cross-country experiences and to DRC’s own historical experience (Figures 3 and 4). • Debt drivers: Over the last 5 years DRC’s external debt has barely changed (it actually fell), in contrast to LICs’ upward PPGE debt trend. With regard to total public debt, the main driver behind its increase was the extension of debt coverage. • Fiscal adjustment and growth. As noted in the staff report, the baseline is a sub- optimal scenario that assumes limited structural reforms and weak domestic revenue mobilization and limited access to external financing. The baseline scenario will not be sufficient to generate inclusive and sustained growth over the medium- to long-terms. 7 Compared to the previous DSA, the stock of PPG external debt is lower in 2018 than anticipated in 2015 reflecting adverse borrowing conditions over recent years. 9. DRC’s debt carrying capacity is classified as weak (Text Table 2). The classification of debt carrying capacity is guided by the composite indicator (CI) score, which is determined by the World Bank’s CPIA and other variables, such as real GDP growth, import coverage of foreign exchange reserves, remittances as percent of GDP, and growth of the world economy. The CI also incorporates forward-looking elements, with the calculation based on a 10-year average (5 recent years of historical data and 5 years of projections). DRC’s CI is 1.98 and is below the previous vintages. It can be explained by lower CPIA, which accounts for more than half of the total components of the CI index. DRC is a fragile state and highly vulnerable to external shocks. A tailored stress was set up for a commodity price shock as the country’s main export products are copper and cobalt. Regarding the contingent liability stress test, a shock of 7.5 percent of GDP was used. The shock includes the default value of 5 percent of GDP for financial markets, a zero percent of GDP for risks associated with private-public partnerships (PPPs) as there are no PPPs in DRC, and 0.5 percent of GDP for SOEs to acknowledge the risk of having unreported debt due to the lack of regular reporting between the authorities and SOEs (Text Table 1). Text Table 7. Composite Indicator and Threshold Tables Debt Carrying Capacity Weak Classification based on Classification based on Classification based on the Final current vintage the previous vintage two previous vintages Weak Weak Weak Weak 1.98 2.04 2.09 Applicable thresholds APPLICABLE APPLICABLE EXTERNAL debt burden thresholds TOTAL public debt benchmark PV of total public debt in PV of debt in % of percent of GDP 35 Exports 140 GDP 30 Debt service in % of Exports 10 Revenue 14 Note: The current vintage refers to the 2019 April WEO vintage; The previous vintage refers to the 2018 October WEO vintage. 8 EXTERNAL DEBT SUSTAINABILITY Baseline 10. External debt levels are lower than projected in the 2015 DSA. PPG external debt to GDP stood at 13.6 percent of GDP at end-2018 versus a projected 24.8 percent of GDP in the 2015 DSA. A lower debt level reflects much lower borrowing flows than assumed under the previous DSA. The present value of debt to GDP ratio, reflecting the concessionality of DRC’s debt, was 10.8 percent in 2018, and is anticipated to decline over the medium term (Table 1 and Figure 1). 11. External debt would be sustainable under the baseline scenario, but with vulnerabilities stemming from some structural weakness. All indicators remain well below the indicative thresholds for the PV of debt ratios and for the debt service-to-exports ratio. Specifically, the PV of PPG external debt-to-GDP ratio peaks at 10.3 percent in 2019 against a 30 percent threshold. However, the debt service-to-revenue reaches the threshold (14 percent) in 2020 and declines steadily throughout the rest of the projection period. The latter results highlight a key weakness of the Congolese economy. The low level of government revenues undermines debt sustainability and the ability of the government to borrow externally to finance its development and public investment plans. Alternative scenarios and stress tests 12. Several external debt ratios breach their thresholds under the extreme shock 3 scenario (Figure 1). Under the exports shock scenario, the ratios of the PV of debt-to-exports, debt service-to-exports and debt service-to-revenue breach their respective thresholds, reflecting DRC’s vulnerability to export shocks. The mining sector constitutes the main source of export receipts and a key driver of economic growth (Box 2 – in the staff report) and it is very sensitive to the volatility of international prices. The results also highlight the need to build buffers given low FX reserves at the BCC. 13. The low level of revenues explains why the country is classified as having a moderate risk of debt distress despite a low stock of external debt. As shown in Figure 5, the debt service- to-revenue ratio shows limited space for additional borrowing in the short term without worsening the debt rating. Revenues averaged only 9.5 percent of GDP in 2016-17, compared with 20 percent of GDP in SSA. Increasing revenue mobilization is a priority to create fiscal space to be able to invest in much needed infrastructure and priority sectors and generate inclusive growth. 14. Risks stem from commodity prices and the ability to carry meaningful reforms. As illustrated in the commodity price stress test, the country is highly vulnerable to external shocks because it is strongly dependent on volatile mining exports. The DRC needs to build buffers through prudent macroeconomic and indebtedness policies. The DGDP needs to prepare a medium-term debt strategy consistent with the sustainability of debt and efficient use of borrowed 3Nominal export growth (in USD) is set to its historical average minus one standard deviation, or to the baseline scenario’s projection minus one standard deviation, whichever is lower in 2021-22. 9 resources. In this regard, the authorities need to ensure the high quality of projects being financed and to prioritize concessional borrowing. PUBLIC DEBT SUSTAINABILITY Baseline 15. The most significant difference relative to the 2015 DSA is the increase in domestic debt. At the time of the 2015 DSA, reported domestic debt was negligible, representing only 0.3 percent of GDP at end-2014. Since then, the authorities have made strong efforts to account for and reconcile accumulated arrears to suppliers and VAT arrears to the private sector accrued during the recent economic crisis. Total domestic debt now represents 6.5 percent of GDP, which brings total public debt to 20.1 percent of GDP at end-2018. The ratio of the PV of total debt-to-GDP remains below the threshold during the projection period. The baseline scenario assumes an ambitious repayment profile of arrears over the next 15 years. A conservative assumption of full amount is projected to be repaid to provision for the unaudited amount. However, while repayment of legacy arrears from social and financial are repaid in full, legacy arrears from other categories are subject to a discounted payment. Overall, the authorities expect to repay 72 percent of the legacy arrears. The PV of public debt-to-GDP ratio would reach 16.7 percent in 2019, well below the 35 percent threshold, and would follow a downward trajectory the following years, declining to 5.1 percent by 2029. Alternative scenarios and stress tests 16. Stress tests confirm DRC’s vulnerability to external shock and repayment capacity. Based on the evolution of ratios of the PV of debt-to-GDP and to revenue, the most extreme shock is the commodity price shock, in line with the findings of the previous section (Figure 2). The PV of debt-to-GDP peaks at 30.2 percent, still below the 35 percent threshold in 2021 and declines thereafter. The most extreme shock for the debt service-to-revenue ratio stems from the one-time depreciation shock highlighting the vulnerability of an economy that lacks buffers. The ratio of debt service to revenue would reach 46 percent in 2021, while being forecasted to be below 14 percent in 2019. RISK RATING AND VULNERABILITIES 17. The external and overall risk of debt distress for the DRC remain moderate. Under the external indicators, the debt service-to-revenue ratio gets closer to the 14 percent threshold in the first years of projections and declines steadily afterwards. However, lower revenues or higher borrowing (or both) could push the rating to high risk of debt distress, even more so in the case of non-concessional borrowing. Moreover, as shown in the stress tests, the country is prone to severe shocks, especially through the export channel. External arrears are below 1 percent of GDP 10 qualifying as de minimus case, so they do not affect the risk rating consideration. Domestic arrears rose significantly in recent years and will likely increase further after completion of the audit of legacy arrears. It is important that the authorities refrain from accumulating additional domestic arrears and prepare realistic plans to repay them. The current low level of domestic debt still justifies the moderate risk of debt distress rating. Text Table 8. Democratic Republic of the Congo: Risk Ratings External Debt Distress Rating Overall Risk Rating Mechanical overall debt distress rating Moderate Moderate Final external debt distress rating Moderate Moderate Judgement was applied No No Sources: Country authorities; and staff estimates and projections. 18. Vulnerabilities have increased, especially on debt repayment capacity, despite lower total public debt levels than projected at the time of the 2015 DSA. The weak revenue mobilization is reflected in debt service-to-revenue ratios with limited space to absorb negative shocks, especially at the beginning of the projection period (Figure 5). A cautious borrowing policy, as well as prudent fiscal policy supported by domestic revenue mobilization and structural reforms including for better management of public investments, will be key to supporting the authorities’ ambitions to scale up public investment in infrastructure. AUTHORITIES’ VIEWS 19. The authorities broadly agreed with the overall assessment of the country ’s debt sustainability. The new government supported increased transparency and full disclosure of public debt. The authorities committed to further broaden debt coverage, especially for SOEs, and to audit the rest of the legacy arrears. While committed to prioritize concessional borrowing, they also noticed the scarcity of it. They agreed with the need to prepare a medium-term strategy to help frame the debt policy and strengthen debt management capacity. 11 Table 1. DRC: External Debt Sustainability Framework, Baseline Scenario, 2016-2039 (in percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2039 External debt (nominal) 1/ 17.6 16.9 13.7 13.3 12.7 12.1 10.9 9.8 8.9 8.1 7.4 6.8 6.2 5.9 4.6 23.3 9.3 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 17.6 16.9 13.7 13.3 12.7 12.1 10.9 9.8 8.9 8.1 7.4 6.8 6.2 5.9 4.6 23.3 9.3 Is there a material difference between the No two criteria? Change in external debt 4.2 -0.7 -3.2 -0.4 -0.5 -0.7 -1.1 -1.1 -0.9 -0.8 -0.7 -0.6 -0.6 -0.3 -0.1 Identified net debt-creating flows 2.0 0.0 -1.5 -0.2 0.1 0.1 0.0 0.4 0.7 0.9 1.0 1.0 1.0 0.4 -0.1 -1.7 0.5 Non-interest current account deficit 4.1 3.2 4.6 3.2 3.9 4.1 4.0 4.2 4.3 4.3 4.4 4.3 4.2 3.6 2.4 4.2 4.1 Deficit in balance of goods and services 6.1 3.7 3.6 3.4 3.8 4.1 4.0 4.3 4.5 4.5 4.6 4.5 4.4 3.8 2.8 4.4 4.2 Exports 32.8 31.0 34.1 25.9 25.7 25.5 25.9 26.0 26.4 25.4 25.3 25.1 24.7 24.6 23.3 Debt Accumulation Imports 38.9 34.7 37.7 29.4 29.5 29.6 29.9 30.2 30.9 30.0 29.9 29.6 29.0 28.3 26.2 2.5 60 Net current transfers (negative = inflow) -3.6 -3.4 -2.6 -2.6 -2.1 -2.2 -2.2 -2.3 -2.3 -2.3 -2.3 -2.2 -2.2 -2.2 -2.1 -4.2 -2.3 of which: official -3.2 -1.9 -0.6 -2.1 -1.8 -1.9 -2.0 -2.0 -2.1 -2.1 -2.1 -2.1 -2.0 -2.0 -2.0 2.0 50 Other current account flows (negative = net inflow) 1.6 2.8 3.5 2.4 2.3 2.2 2.3 2.2 2.1 2.1 2.1 2.1 2.1 2.0 1.6 4.0 2.2 Net FDI (negative = inflow) -2.5 -2.8 -2.7 -3.2 -3.6 -3.9 -3.7 -3.5 -3.4 -3.3 -3.2 -3.2 -3.1 -3.0 -2.3 -4.0 -3.4 1.5 Endogenous debt dynamics 2/ 0.5 -0.4 -3.3 -0.2 -0.2 -0.1 -0.3 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 40 Contribution from nominal interest rate 0.1 0.1 0.1 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 1.0 Contribution from real GDP growth -0.3 -0.6 -0.8 -0.6 -0.5 -0.4 -0.5 -0.4 -0.4 -0.3 -0.3 -0.3 -0.3 -0.2 -0.2 30 Contribution from price and exchange rate changes 0.8 0.2 -2.6 … … … … … … … … … … … … 0.5 Residual 3/ 2.2 -0.7 -1.7 -0.2 -0.7 -0.8 -1.1 -1.5 -1.6 -1.7 -1.7 -1.6 -1.6 -0.7 0.0 -4.8 -1.2 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 0.0 Sustainability indicators -0.5 10 PV of PPG external debt-to-GDP ratio ... ... 10.8 10.4 9.9 9.3 8.2 7.2 6.4 5.7 5.1 4.5 3.9 3.7 2.8 PV of PPG external debt-to-exports ratio ... ... 31.7 40.2 38.7 36.4 31.7 27.8 24.4 22.4 20.0 17.8 15.9 15.0 12.0 -1.0 0 PPG debt service-to-exports ratio 2.2 1.9 1.4 5.4 5.4 5.5 4.7 4.6 3.8 3.8 3.4 3.2 3.1 1.9 1.0 2019 2021 2023 2025 2027 2029 PPG debt service-to-revenue ratio 6.4 6.1 4.6 13.5 14.0 13.3 11.4 10.8 9.0 8.9 8.0 7.5 7.2 4.5 2.4 Gross external financing need (Million of U.S. dollars) 813.1 366.3 1084.4 683.3 892.2 891.1 864.5 1108.7 1238.3 1373.8 1494.0 1486.1 1534.9 875.1 474.6 Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 2.4 3.7 5.8 4.3 3.9 3.4 4.5 4.3 4.6 4.0 4.1 4.1 4.2 4.2 5.1 6.1 4.1 GDP deflator in US dollar terms (change in percent) -5.6 -1.0 18.3 -0.2 1.4 1.5 1.1 1.9 1.1 1.6 1.7 1.7 1.7 1.7 1.8 3.2 1.4 Effective interest rate (percent) 4/ 0.4 0.3 0.4 2.4 2.4 2.3 2.2 1.9 2.3 2.1 2.0 1.8 1.6 1.4 1.5 0.4 2.0 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 14.9 -3.0 38.0 -20.9 4.3 4.0 7.6 6.4 7.4 2.0 5.1 5.2 3.9 5.6 11.1 12.9 2.8 of which: Private Growth of imports of G&S (US dollar terms, in percent) 11.5 -8.3 36.1 -19.0 5.6 5.2 6.9 7.5 7.9 2.7 5.5 4.8 4.0 3.3 7.9 9.6 3.1 14 Grant element of new public sector borrowing (in percent) ... ... ... 20.7 23.6 30.1 49.2 43.2 40.8 39.4 40.2 40.9 41.5 40.6 35.5 ... 37.3 Government revenues (excluding grants, in percent of GDP) 11.2 9.8 10.4 10.3 10.0 10.5 10.8 11.0 11.3 11.0 10.8 10.9 10.7 10.5 9.9 11.9 10.7 12 Aid flows (in Million of US dollars) 5/ 1040.5 754.2 537.1 854.8 1051.7 1168.9 1211.7 1282.7 1393.2 1458.3 1542.8 1632.2 1726.5 1816.7 3224.0 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 1.5 1.8 1.9 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.9 ... 1.9 10 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 62.5 65.7 72.6 88.7 87.9 88.0 87.8 88.1 88.4 88.6 88.6 89.1 ... 82.4 Nominal GDP (Million of US dollars) 36,640 37,615 47,099 49,014 51,627 54,174 57,257 60,819 64,313 67,997 71,933 76,143 80,634 85,455 159,518 8 Nominal dollar GDP growth -3.4 2.7 25.2 4.1 5.3 4.9 5.7 6.2 5.7 5.7 5.8 5.9 5.9 6.0 7.0 9.6 5.6 6 Memorandum items: 4 PV of external debt 7/ ... ... 10.8 10.4 9.9 9.3 8.2 7.2 6.4 5.7 5.1 4.5 3.9 3.7 2.8 In percent of exports ... ... 31.7 40.2 38.7 36.4 31.7 27.8 24.4 22.4 20.0 17.8 15.9 15.0 12.0 2 Total external debt service-to-exports ratio 2.2 1.9 1.4 5.4 5.4 5.5 4.7 4.6 3.8 3.8 3.4 3.2 3.1 1.9 1.0 PV of PPG external debt (in Million of US dollars) 5096.3 5115.7 5131.5 5022.3 4710.8 4387.0 4134.9 3869.9 3636.3 3402.6 3165.8 3149.2 4466.9 0 (PVt-PVt-1)/GDPt-1 (in percent) 0.0 0.0 -0.2 -0.6 -0.6 -0.4 -0.4 -0.3 -0.3 -0.3 0.0 0.2 2019 2021 2023 2025 2027 2029 Non-interest current account deficit that stabilizes debt ratio -0.2 3.9 7.8 3.6 4.4 4.8 5.1 5.3 5.1 5.2 5.1 5.0 4.8 3.9 2.5 Sources: Country authorities; and staff estimates and projections. 0 2/ Includes 1/ [r -public both Derived as and private g - ρ(1+g) sector external debt. + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 12 Table 2. DRC: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016-2039 (in percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 Historical Projections Public sector debt 1/ 17.6 16.9 20.3 19.3 18.3 16.9 15.0 13.2 11.8 6.9 23.9 12.5 Definition of external/domestic Residency- of which: external debt 17.6 16.9 13.7 13.3 12.7 12.1 10.9 9.8 8.9 5.9 23.3 9.3 debt based of which: local-currency denominated Change in public sector debt 4.2 -0.7 3.4 -0.9 -1.0 -1.4 -1.9 -1.8 -1.4 -0.6 Is there a material difference Identified debt-creating flows 3.3 -3.6 -4.9 -1.8 -2.0 -2.2 -2.3 -2.3 -2.1 -1.7 -4.8 -2.0 No between the two criteria? Primary deficit 0.2 -1.6 -0.7 -1.2 -1.2 -1.4 -1.5 -1.5 -1.5 -1.3 -2.0 -1.4 Revenue and grants 14.0 11.7 11.6 11.6 11.5 12.1 12.5 12.7 13.1 12.3 14.4 12.4 of which: grants 2.8 2.0 1.1 1.3 1.5 1.6 1.7 1.8 1.8 1.8 Public sector debt 1/ Primary (noninterest) expenditure 14.2 10.1 10.9 10.5 10.3 10.6 11.0 11.2 11.6 11.0 12.5 11.0 Automatic debt dynamics 3.1 -2.0 -4.2 -0.7 -0.8 -0.7 -0.8 -0.8 -0.6 -0.4 of which: local-currency denominated Contribution from interest rate/growth differential -0.4 -0.9 -1.2 -1.0 -0.9 -0.9 -0.9 -0.8 -0.7 -0.4 of which: foreign-currency denominated of which: contribution from average real interest rate -0.1 -0.2 -0.3 -0.1 -0.2 -0.3 -0.2 -0.2 -0.1 -0.1 of which: contribution from real GDP growth -0.3 -0.6 -0.9 -0.8 -0.7 -0.6 -0.7 -0.6 -0.6 -0.3 25 Contribution from real exchange rate depreciation 3.5 -1.1 -3.0 ... ... ... ... ... ... ... Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual 0.9 2.9 8.3 1.2 1.1 0.9 0.6 0.5 0.8 1.1 -1.1 0.9 5 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 17.5 16.6 15.6 14.2 12.4 10.8 9.4 4.8 2019 2021 2023 2025 2027 2029 PV of public debt-to-revenue and grants ratio … … 151.1 142.7 136.1 117.6 99.8 84.5 72.0 38.9 Debt service-to-revenue and grants ratio 3/ 5.1 5.1 4.1 12.0 12.2 14.4 12.4 11.6 9.7 5.2 Gross financing need 4/ 0.9 -1.0 -0.2 0.2 0.2 0.3 0.1 0.0 -0.2 -0.7 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 25 Real GDP growth (in percent) 2.4 3.7 5.8 4.3 3.9 3.4 4.5 4.3 4.6 4.2 6.1 4.1 Average nominal interest rate on external debt (in percent) 0.4 0.4 0.4 2.5 2.4 2.3 2.2 2.0 2.3 1.4 0.4 2.1 20 Average real interest rate on domestic debt (in percent) -3.8 -29.8 -22.7 -3.5 -4.6 -4.6 -4.3 -5.0 -4.3 -4.8 -11.6 -4.6 Real exchange rate depreciation (in percent, + indicates depreciation) 26.9 -6.7 -19.1 … ... ... ... ... ... ... -1.8 ... 15 Inflation rate (GDP deflator, in percent) 4.3 43.1 29.8 3.6 4.8 4.9 4.5 5.3 4.5 5.1 15.4 4.8 10 Growth of real primary spending (deflated by GDP deflator, in percent) -14.2 -26.1 13.8 0.4 2.4 6.3 8.0 6.8 7.9 4.2 4.2 4.3 Primary deficit that stabilizes the debt-to-GDP ratio 5/ -4.0 -0.9 -4.1 -0.2 -0.1 0.0 0.4 0.3 -0.1 -0.7 -3.0 -0.2 5 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 2019 2021 2023 2025 2027 2029 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central, state, and local governments, central bank, government-guaranteed debt, non-guaranteed SOE debt . Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 13 Figure1. DRC: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2019-202 PV of debt-to GDP ratio PV of debt-to-exports ratio 35 250 30 200 25 150 20 15 100 10 50 5 0 0 Most extreme shock: Exports Most extreme shock: Exports -5 -50 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 18 20 16 18 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 Most extreme shock: Exports Most extreme shock: Exports 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Historical scenario Most extreme shock 1/ Threshold Borrowing assumptions on additional financing needs resulting from the stress Customization of Default Settings tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Stress Terms of marginal debt Combined CL Yes Avg. nominal interest rate on new borrowing in USD 2.0% 2.0% Natural disaster n.a. n.a. USD Discount rate 5.0% 5.0% Commodity price No No Avg. maturity (incl. grace period) 29 29 Market financing n.a. n.a. Avg. grace period 5 5 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests interactions of the default settings for the stress tests. are assumed to be covered by PPG external MLT debt in the external DSA. Default terms "n.a." indicates that the stress test does not apply. of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 14 Figure 2. DRC: Indicators of Public Debt under Alternative Scenarios, 2019-2029 PV of Debt-to-GDP Ratio 40 35 30 25 20 15 10 5 Most extreme shock: Exports 0 -5 -10 2019 2021 2023 2025 2027 2029 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 300 20 18 250 16 200 14 12 150 10 100 8 50 6 4 0 Most extreme shock: Exports Most extreme shock: One-time depreciation 2 -50 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Most extreme shock 1/ TOTAL public debt benchmark Historical scenario Borrowing assumptions on additional financing needs resulting from the Default User defined stress tests* Shares of marginal debt External PPG medium and long-term 100% 100% Domestic medium and long-term 0% 0% Domestic short-term 0% 0% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.0% 2.0% Avg. maturity (incl. grace period) 29 29 Avg. grace period 5 5 Domestic MLT debt Avg. real interest rate on new borrowing 0.0% 0.0% Avg. maturity (incl. grace period) 1 1 Avg. grace period 0 0 Domestic short-term debt Avg. real interest rate -5.3% -5.3% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 15 Table 3. DRC: Sensitivity Analysis for Key Indicators of PPG External Debt, 2019-2029 (in percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of debt-to GDP ratio Baseline 10 10 9 8 7 6 6 5 4 4 4 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 10 10 8 7 6 4 3 2 1 0 -1 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 10 10 10 9 8 7 6 5 5 4 4 B2. Primary balance 10 13 15 14 13 12 11 10 9 9 8 B3. Exports 10 17 28 26 25 24 23 21 20 18 17 B4. Other flows 3/ 10 12 13 12 10 10 9 8 7 7 6 B5. Depreciation 10 13 9 8 7 6 5 4 4 3 3 B6. Combination of B1-B5 10 15 14 13 12 11 10 9 8 8 7 C. Tailored Tests C1. Combined contingent liabilities 10 15 14 13 12 11 10 10 9 8 8 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 10 12 12 11 10 9 8 8 7 6 5 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 30 30 30 30 30 30 30 30 30 30 30 PV of debt-to-exports ratio Baseline 40 39 36 32 28 24 22 20 18 16 15 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 40 37 33 28 22 17 12 7 3 -1 -2 0 40 35 31 24 17 11 6 1 -4 -8 -11 B. Bound Tests B1. Real GDP growth 40 39 36 32 28 24 22 20 18 16 15 B2. Primary balance 40 50 59 53 49 45 43 40 38 36 34 B3. Exports 40 94 225 210 198 186 184 175 162 152 142 B4. Other flows 3/ 40 45 50 44 40 36 35 32 29 27 25 B5. Depreciation 40 39 29 25 21 18 15 13 11 10 9 B6. Combination of B1-B5 40 65 52 68 62 57 54 49 45 41 39 C. Tailored Tests C1. Combined contingent liabilities 40 58 56 51 46 42 41 38 36 34 33 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 40 49 53 46 41 36 34 30 27 24 23 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 140 140 140 140 140 140 140 140 140 140 140 Debt service-to-exports ratio Baseline 5 5 5 5 5 4 4 3 3 3 2 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 5 5 5 4 4 3 3 3 2 2 1 0 5 5 5 4 4 3 3 2 2 1 0 B. Bound Tests B1. Real GDP growth 5 5 5 5 5 4 4 3 3 3 2 B2. Primary balance 5 5 6 5 5 4 4 4 5 5 3 B3. Exports 5 8 14 15 14 12 12 14 17 16 13 B4. Other flows 3/ 5 5 6 5 5 4 4 4 4 4 3 B5. Depreciation 5 5 5 5 4 4 4 3 3 3 1 B6. Combination of B1-B5 5 7 9 8 7 6 6 7 6 6 4 C. Tailored Tests C1. Combined contingent liabilities 5 5 6 5 5 4 4 4 4 4 2 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 5 6 6 5 5 4 4 4 4 4 3 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 10 10 10 10 10 10 10 10 10 10 10 Debt service-to-revenue ratio Baseline 14 14 13 11 11 9 9 8 7 7 4 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 14 13 12 10 9 7 7 6 5 5 2 0 14 14 12 10 10 8 7 5 4 3 -1 B. Bound Tests B1. Real GDP growth 14 15 14 12 12 10 10 9 8 8 5 B2. Primary balance 14 14 14 13 12 10 10 10 11 11 8 B3. Exports 14 15 17 17 16 14 14 16 19 18 15 B4. Other flows 3/ 14 14 14 12 12 10 10 9 10 9 6 B5. Depreciation 14 18 17 14 13 11 11 10 8 8 4 B6. Combination of B1-B5 14 15 16 14 13 11 11 11 11 10 7 C. Tailored Tests C1. Combined contingent liabilities 14 14 15 13 12 10 10 9 9 8 5 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 14 16 15 14 13 10 10 10 9 9 6 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 14 14 14 14 14 14 14 14 14 14 14 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 16 Table 4. DRC: Sensitivity Analysis for Key Indicators of Public Debt, 2019-2029 Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of Debt-to-GDP Ratio Baseline 17 16 14 12 11 9 8 7 6 5 5 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 17 13 10 7 5 3 1 0 -2 -3 -3 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 17 16 16 15 13 13 12 11 11 10 10 B2. Primary balance 17 18 20 18 16 15 14 12 11 10 10 B3. Exports 17 22 30 28 26 24 23 21 20 18 16 B4. Other flows 3/ 17 17 18 16 14 13 11 10 9 8 7 B5. Depreciation 17 18 15 13 11 9 7 5 4 3 2 B6. Combination of B1-B5 17 17 16 12 10 9 8 7 6 5 4 C. Tailored Tests C1. Combined contingent liabilities 17 21 19 17 16 14 13 12 11 10 9 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 17 17 16 16 15 15 14 13 13 12 12 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. TOTAL public debt benchmark 35 35 35 35 35 35 35 35 35 35 35 PV of Debt-to-Revenue Ratio Baseline 143 136 118 100 84 72 64 56 49 42 39 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 143 117 86 60 39 22 9 (3) (13) (23) (31) 0 12 6 8 7 7 6 8 7 7 7 6 B. Bound Tests B1. Real GDP growth 143 143 132 117 104 95 91 87 82 80 80 B2. Primary balance 143 161 164 145 127 113 105 98 88 82 78 B3. Exports 143 188 248 225 204 187 179 170 154 143 134 B4. Other flows 3/ 143 151 146 127 110 97 89 81 71 64 59 B5. Depreciation 143 154 129 106 86 68 56 44 31 21 13 B6. Combination of B1-B5 143 151 133 96 81 69 61 54 46 40 37 C. Tailored Tests C1. Combined contingent liabilities 143 180 159 139 123 108 101 93 85 79 75 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 143 157 147 137 126 116 111 106 101 99 100 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 12 12 14 12 12 10 9 9 8 8 5 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 12 11 12 9 7 5 5 3 3 2 0 0 12 6 8 7 7 6 8 7 7 7 6 B. Bound Tests B1. Real GDP growth 12 13 15 13 13 11 11 10 9 9 7 B2. Primary balance 12 12 15 14 13 11 11 11 11 11 8 B3. Exports 12 12 16 16 15 13 13 14 16 16 13 B4. Other flows 3/ 12 12 15 13 12 10 10 10 10 9 7 B5. Depreciation 12 13 17 15 14 11 11 10 9 8 5 B6. Combination of B1-B5 12 12 14 12 11 10 9 8 8 7 5 C. Tailored Tests C1. Combined contingent liabilities 12 12 16 14 13 11 10 10 9 8 6 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 12 13 16 14 13 11 11 10 10 10 8 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 17 Figure 3. DRC: Drivers of Debt Dynamics – Baseline Scenario Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 10 80 Residual 20 Previous DSA proj . 70 DSA-2012 15 Interquartile Price and 5 range (25-75) 60 exchange rate 10 50 Real GDP growth 0 5 Change in PPG 40 debt 3/ Nominal 30 interest rate 0 -5 20 Median Current -5 10 account + FDI -10 -1 0 0 Change in 5-year 5-year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PPG debt 3/ Contribution of Distribution across LICs 2/ historical projected -1 5 unexpected change change Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residu al 20 Current DSA 25 Previous DSA proj. DSA-2012 Other debt Interquartile 80 creatin g flows 20 range (25-75) 10 70 15 Real 60 Exchange rate 10 50 depreciation Real GDP 0 growth 5 Change in debt 40 Real interest 0 30 rate -10 20 -5 Primary deficit 10 -10 -20 Median 0 Chan ge in debt 5-year 5-year -15 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Distribution across LICs 2/ historical projected Contribution of change change -20 unexpected 1/ Difference betw een anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for w hich LIC DSAs w ere produced. 3/ Given the relatively low private external debt for average low -income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 18 Figure 4. DRC: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 10 1 Distribution 1/ 14 9 Projected 3-yr 8 12 In percentage points of GDP adjustment 3-year PB adjustment greater 7 10 than 2.5 percentage points 6 of GDP in approx. top In percent quartile 5 0 8 4 6 3 2 4 1 2 0 -1 2013 2014 2015 2016 2017 2018 2019 2020 0 Baseline Multiplier = 0.2 Multiplier = 0.4 Multiplier = 0.6 Multiplier = 0.8 more 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since possible real GDP growth paths under different fiscal multipliers (left-hand side scale). 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on the vertical axis. Public and Private Investment Rates (percent of GDP) 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA The Chart on Contribution to Real GDP growth is not presented due to missing data from 2015 DSA. 19 Figure 5. DRC: Qualification of the Moderate Category 2019-20291 PV of debt-to GDP ratio PV of debt-to-exports ratio 35 160 30 140 Threshold 120 25 (1-X)*Threshold 100 20 (1-Y)*&Threshold 80 15 60 10 40 5 20 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 12 16 14 10 12 8 10 6 8 6 4 4 2 2 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Some Substantial Threshold Baseline Limited space space space Sources: Country authorities; and staff estimates and projections. 1/ For the PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent. 20