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DR Congo Country Risk Report Q4 2017

DR Congo Country Risk Report Q4 2017

Core Views

An ongoing political crisis will undermine economic activity over thecoming quarters, as the lack of needed financing had led to fallingimports, rising inflation, and widespread insecurity. Downside risksare growing as the continuation of the crisis could further delay theresumption of needed capital inflows.

The Congolese franc will continue to depreciate over the comingmonths in light of external account imbalances driven by a lack offinancing, which will underpin double-digit inflation.

Imports will remain under pressure, which will have downside implicationsfor growth.

Stability will hinge on an improvement in the political environment.

Deteriorating security and uncertainty over policy direction havereduced donor assistance and dissuaded investment, both keysources of needed capital inflows.

Although elections are unlikely to be held in 2017, President JosephKabila will be forced to hold elections in 2018 by unrest and oppositionamong foreign donors.

Elections will led to a resumption of external financing and producemore clarity on policy direction, supporting investment and a stabilisationof the economy.

In 2018, strong mining sector production and stabilising externalaccounts will support an acceleration of economic growth.

Major Forecast ChangesWe have downgraded our real GDP growth forecast for 2018 to 4.2%,from 6.4%. This reflects our views that inflation will be higher andgovernment spending lower than we previously expected, weighingon consumption.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Non-Mining Activity Undermined By Political Crisis
The Democratic Republic of Congo ongoing political crisis will undermine economic activity over the coming quarters, as the lack of
needed financing had led to falling imports, rising inflation, and widespread insecurity. Downside risks are growing as the continuation of
the crisis could further delay the resumption of needed capital inflows.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
External Stability Rests On Political Improvement
Although the DRC's current account deficit will narrow over the coming quarters, its external accounts will remain under pressure as
political instability weighs on the capital inflows needed to cover its financing needs. A ban on common imports will likely spur further
inflation and undermine growth.
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: TOP 5 GOODS EXPORTS IN 2016
TABLE: TOP 5 GOODS IMPORTS IN 2016
Currency Forecast
CDF: Depreciation Set To Continue
The Congolese franc will depreciate over the coming months, reflecting severe strain on the DRC's external accounts. That said, over
a multi-quarter timeframe a resolution of the country's political crisis and mining sector growth will support a gradual stabilisation of the
unit.
TABLE: BMI CURRENCY FORECASTS
Monetary Policy
Inflation Will Continue To Rise
Inflation in the DRC is likely to continue rising into 2018 due to currency weakness, import restrictions and rising oil prices. Although
monetary policy will tighten, a high degree of dollarisation in the formal economy will limit its effect on inflation.
TABLE: COMPARISON OF Y-O-Y INFLATION FIGURES
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Struggles Will Undermine Growth
The Democratic Republic of Congo will continue to struggle to finance its operations while its political crisis persists, given lenders
unwillingness to extend credit to the central African sovereign. Although expenditure cuts will keep the deficit contained, salary arrears
and reduced subsidies will undermine economic activity.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Chapter 2: 10-Year Forecast
The DRC Economy To 2026
Size Will Prove A Double-Edged Sword
While the sheer enormity of the Democratic Republic of the Congo will help drive economic growth via a large population and wide
resource base, it will weigh on development of non-extractive sectors due to the challenges of developing adequate infrastructure and
state control over such a large territory.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Kabila's Defiance Extends Political Crisis
The Democratic Republic of Congo's political crisis will extend well into 2018, as the government of President Joseph Kabila continues
to delay overdue elections. With the opposition agitating for Kabila's departure and international lenders largely unwilling to deal with
Kabila's cash-strapped government, political uncertainty will continue to aggravate the country's economic struggles.
Long-Term Political Outlook
Prospects For State-Building Remain Slim Amongst Structural Headwinds
Domestic and international efforts at state-building in the Democratic Republic of Congo will be undermined by structural challenges,
varying in nature from the sheer size of the country to its lack of democratic roots. While political volatility will likely be a frequent
occurrence over our long-term outlook, these structural headwinds to stability will make it difficult for successive governments to
progress with the state-building project.
Chapter 4: BMI Global Macro Outlook
As Good As It Gets?
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: THE DEMOCRATIC REPUBLIC OF THE CONGO – MACROECONOMIC DATA AND FORECASTS

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