Congo Republic – Lack of Loan Agreement Adds to Risk

President Denis Sassou-Nguesso is firmly in control following the predictable landslide victory of the governing PCT and its various legislative allies at elections held in 2017. The impotence of the divided opposition has been compounded by government repression that has resulted in the detention of two figures who challenged Sassou-Nguesso for the presidency in 2016.

However, the government faces significant near-term challenges on the economic front. A fiscal crunch resulting from a steep fall in oil income has been reinforced by the costs associated with an influx of refugees from neighboring Democratic Republic of Congo and the program of disarmament, resettlement, and humanitarian assistance outlined in a peace agreement reached with rebel forces in the restive Pool region in 2017. The government is seeking to restructure some $9.1 billion in public and publicly guaranteed debt, but creditors have conditioned their assent on the achievement of a lending agreement with the IMF.

The terms of a lending agreement would include positive steps by the government to reduce payment delays and corruption, both of which have deterred western investment, and left the government heavily dependent on investment, loans, and grants from China. As slowing growth and rising corporate debt cloud the outlook for the Chinese economy, officials in Beijing are more closely scrutinizing the country’s deals in sub-Saharan Africa. Recent delays in the development of the special economic zone in Pointe-Noire could be an indication that China is having second thoughts, making multilateral borrowing all the more necessary.

The government has pledged to crack down on the theft of state resources and the extortion rackets that operate throughout the bureaucracy, but any promises in that regard are appropriately greeted with skepticism, given the alleged embezzlement involving members of the president’s family and his political allies. In that vein, the legally suspect transfer of SOCO International’s stake in the offshore Marine XI oil bloc to a Marshall Islands-based shell company that has hired a close relative of the president to manage its Congo operation is discouraging, if not surprising.

Meanwhile, the difficulties associated with the refugee issue have been exacerbated by the flaring of inter-ethnic conflict in the border region and an outbreak of Ebola in the DRC. As for the peace in Pool, a lack of progress in efforts to disarm, demobilize, and reintegrate members of the Ninja militia led by Frédéric Bintsamou (also known as Pastor Ntumi) creates an ever-present risk that the cease-fire could collapse.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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