S&P Global Ratings has adjusted its outlook on the Democratic Republic of Congo (DRC) from stable to positive, maintaining its 'B-' long-term and 'B' short-term sovereign ratings. This change reflects the country's notable economic expansion, strengthened foreign currency reserves, and successful implementation of fiscal reforms aimed at enhancing tax revenues. Despite persistent security issues, recent diplomatic agreements and projected robust growth in the mining sector underpin the optimistic forecast.
Key Points
- The Democratic Republic of Congo's economy has expanded by over 40% since 2020, with exports constituting 50% of GDP due to increased copper production and pricing.
- Fiscal reforms such as VAT invoicing standardization, removal of ad hoc mining exemptions, and reduction of fuel subsidies have strengthened government revenues to 14%-15% of GDP.
- Foreign currency reserves have reached $7.9 billion, sufficient to cover three months of imports, while inflation is expected to decrease to about 2% by 2025.
- Security issues remain a concern, although diplomatic initiatives like the Washington Accords and potential multibillion-dollar investments aim to enhance stability and regional economic integration.
S&P Global Ratings recently elevated its outlook on the Democratic Republic of Congo (DRC) to positive from a previous stable stance, all while reaffirming the nation's sovereign credit ratings at 'B-' for long-term and 'B' for short-term obligations. The agency highlighted key economic indicators supporting this upgrade, including dynamic growth metrics, the accumulation of foreign currency reserves, and improved tax revenue realized through fiscal policy reforms.
Since 2020, the DRC's economy has experienced a surge exceeding 40%, predominantly propelled by a thriving mining sector. Export activities now constitute half of the nation's GDP, a figure that has doubled since 2019, fueled largely by augmented copper production and rising market prices. This substantial growth in exports underscores the critical role of mineral commodities as a cornerstone of the DRC's economy.
As of late December, the country's foreign currency reserves were reported to stand at $7.9 billion, adequately covering imports for an estimated three-month period. Concurrently, S&P forecasts a progressive reduction in the current account deficit, anticipating a decline from 5% in 2023 to approximately 3.1% by 2028.
Fiscal discipline has improved through several measures implemented recently. The introduction of a standardized invoicing system in December aims to elevate value-added tax (VAT) collection efficiency. Additionally, the government has discontinued previously granted discretionary exemptions for mining entities and has curbed fuel subsidies. These initiatives are designed to stabilize government revenue at around 14% to 15% of GDP, representing a rise from an average of roughly 11% over the last decade.
Notwithstanding advances in economic governance, the DRC continues to face significant security concerns. On December 4, a U.S.-brokered agreement known as the Washington Accords for Peace and Prosperity was signed between the DRC and Rwanda. Accompanying this framework are supplementary accords targeting increased mining investments and fostering regional economic integration.
Parallel to this, Qatar has expressed intent to allocate up to $21 billion in investments through a peace process engaging the M23 rebel faction. However, ongoing violent incidents compel elevated security expenditures, which currently consume about 3.4% of the GDP annually.
Looking ahead, S&P projects the DRC's real GDP growth to maintain a robust 5% rate annually through 2028, outperforming many comparable economies. This trajectory is largely supported by strong demand in the copper and cobalt markets. Copper production, a leading economic driver, is expected to reach 3.3 million tonnes by 2025, a volume three times greater than levels recorded ten years ago.
To broaden its financing avenues, the DRC is planning to enter the Eurobond market with a proposed issuance of up to $750 million in 2026, part of an overall strategy to raise $3 billion.
Inflation rates have seen a marked reduction, falling from 23.6% in 2023 to approximately 2% in 2025, notably below the central bank's target of 7%. Supporting this downward trend, the central bank has incrementally lowered the policy interest rate from a high of 25% in August 2023 to 15% as of January.
S&P has indicated that further improvements in credit ratings would be contingent on continued growth in net foreign reserves, narrowing fiscal deficits, and demonstrable progress towards diversifying the economy alongside expanding government revenue sources.
Risks
- Persistent security challenges continue to require significant government expenditure, estimated at 3.4% of GDP, potentially diverting resources from development priorities.
- Despite positive economic momentum, reliance on commodity exports such as copper and cobalt exposes the economy to volatility in global demand and prices.
- Success of upcoming initiatives to diversify funding sources, including planned Eurobond issuance, depends on continued investor confidence in the nation's fiscal and economic reforms.