Thomson Reuters Foundation

Inform - Connect - Empower

Congo to issue longer debt, cut reserve requirements to promote local currency

Source: Reuters - Wed, 19 Mar 2014 16:43 GMT
Author: Reuters
Tweet Recommend Google + LinkedIn Email Print
Leave us a comment

* Congo to issue longer-term, 3-month T-bills from April

* Central Bank cuts reserve requirements for franc deposits

* Government seeking to wean economy off dollar reliance

By Peter Jones

KINSHASA, March 19 (Reuters) - Democratic Republic of Congo will begin issuing longer debt maturities from April and slash reserve requirements for local currency deposits as it seeks to wean its economy off the U.S. dollar, a senior central bank official said on Wednesday.

Willy Mwana, director of studies and analysis at the central bank, said Congo would start to issue three-month Treasury bills from April 2 as part of a strategy to promote use of the Congolese franc and develop local financial markets.

Congo currently issues seven- and 28-day Treasury bills. Mwana said that around 80 percent of current issuance was one-month bills, suggesting there was strong demand from Congolese banks for longer maturities.

"The new bonds are a sign that we believe in Congo's macroeconomic stability which allows us to move towards bonds with a longer maturity," Mwana told Reuters. "The first offering will be on April 2."

Years of turmoil in the former Belgian colony made the U.S. dollar the default currency for banking and economic transactions but the government is pushing through a raft of measures to promote the franc on the back of increasing stability, in a bid to regain control over monetary policy.

The domestic currency has all but halted its depreciation against the dollar and inflation last year was just 1.1 percent.

A meeting of the central bank's monetary policy committee on Tuesday left the benchmark interest rate at 2 percent.

"Inflation is already very weak. The low interest rate will encourage investment and provide credit to the economy at a reasonable rate," Mwana said.

The central bank forecasts inflation will climb to 3.7 percent this year, driven by strong economic growth and increased consumption.

The government says Congo's roughly $20 billion economy is on track to expand by 9.5 percent in 2014, up from 8.5 percent growth in 2013.

That is one of the strongest growth rates in Africa, driven by a boom in the mining sector, which accounts for nearly a third of output. Congo produced a record 942,000 tonnes of copper in 2013 - ranking it as the continent's largest producer according to commodities analysts CRU Group.

SECONDARY DEBT MARKET

Congo is also rich in deposits of gold, diamonds, cassiterite and coltan but their development has been hindered by corruption, mismanagement and decades of war.

The vast majority of its 65 million population live in poverty, despite the country's mineral wealth. With the government having pacified the main rebel group in eastern Congo, policymakers hope Congo may be emerging from the turbulent decades since its independence in 1960.

"We are thinking about the creation of a financial market, so we need more titles of a longer maturity to create a secondary market," said Mwana. "Those who have three-month bonds will have to negotiate that bond on the market."

The central bank slashed the level of long-term, domestic currency depositions that banks must hold in reserves to 3 percent from 7 percent. For checking accounts, it lowered the level by 1 percentage point to 7 percent.

Reserves for foreign currency deposits remain unchanged at 8 percent for fixed and checking account deposits, Mwana said.

"This will free up liquidity and increase available credit," said Mwana. "It will encourage borrowing in Congolese francs." (Editing by Susan Fenton)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of the Thomson Reuters Foundation. For more information see our Acceptable Use Policy.

comments powered by Disqus
Most Popular
LATEST SLIDESHOW

Latest slideshow

See allSee all
FEATURED JOBS
Featured jobs