Recession in DRC poses risk to Kenya economic outlook

The Democratic Republic of Congo, the sixth largest importer of Kenyan goods in Africa, is to experience a low growth rate of not more than 2.7 per cent in 2009.

This is a significant drop from the 5.7 per cent posted in 2008, but with chances of recovering in 2010.

This would be helped by a major campaign for debt forgiveness and loan rescheduling from the IMF, a development that would help Kenya’s economy.

Though the IMF does not give a forecast growth figure for DRC in 2010, research-based African Economic Outlook puts the growth at the same 2.7 per cent, which is lower compared to the expectations in neighbouring economies.

According to the IMF, Kenya’s economic growth is expected to hit four per cent in 2010, Uganda’s is expected to have at least seven per cent after June 2010 while Tanzania may reach 5.6 per cent.

The conflict-prone DRC has been weighed down by a huge debt and an IMF mission is now advocating that it be forgiven.

Debt forgiveness for DRC would be important for Kenya as it would improve the central African country’s ability to continue importing other goods instead of using its foreign exchange to pay debts.

In total, DRC imports Sh6 billion worth of goods from Kenya which also serves as a major entry point for its imported goods.

Eastern DRC is especially dependent on the Mombasa port.

The mission proposed that the Paris Club be asked to reschedule the debt due to the impact it has on the country.

Because of the governance and political problems facing the country earlier in the year, the IMF deferred an agreement on a new three-year programme, which would have included nearly $9 billion of debt reduction under the Heavily Indebted Poor Countries (HIPC) initiative.

The IMF mission led by Mr Brian Ames visited the DRC between October 27 and November 10, 2009 to review recent economic developments and their impact on the authorities’ economic programme, including the draft 2010 budget currently before Parliament.

Although the government-guaranteed infrastructure financing would significantly increase the country’s external debt burden over the medium term, the IMF and World Bank staff did not believe it would have a major impact on debt sustainability over the long term.

Nevertheless, in the absence of debt relief, the country’s indicators would continue to show a high level of debt distress, the IMF reasoned.

The IMF team said it had reached understanding with the Government on a revised framework that was consistent with its objectives of high growth, low inflation, increased foreign exchange reserves, and poverty reduction.