Congo’s Government Halts VAT Repayments to Support Currency

DRC, Capital Markets in Africa — The Democratic Republic of Congo’s government suspended the payment of value-added tax reimbursements to all companies until further notice to reduce pressure on the domestic currency and shore up government finances.

The suspension is a “temporary measure,” said Gerard Mutombo, cabinet director at the Finance Ministry. The decision was taken by Prime MinisterMatata Ponyo Mapon, according to a letter to the central bank sent by Vice Finance Minister Albert M’Peti Biyombo, a copy of which was obtained by Bloomberg and confirmed by central bank spokesman Plante Kibadi.

“The first reaction of beneficiaries of VAT reimbursements is to go the market and exchange for dollars, which increases pressure on the Congolese franc,” Mutombo said by phone from Kinshasa, the capital.

Congo is the world’s largest source of cobalt, Africa’s biggest copper producer and a major exporter of gold and tin. Mining companies including Baar, Switzerland-based Glencore Plc, Phoenix, Arizona-based Freeport McMoRan Inc., London-listed Randgold Resources Ltd. and Johannesburg-based AngloGold Ashanti Ltd. all operate in the central African nation and will be affected by the decision.

Commodity Collapse 
The collapse in the prices of copper, oil and other key exports has reduced government revenue in Congo in the past 12 months. In 2015, the government posted a budget deficit of 190.1 billion Congolese francs ($205 million), about 5 percent of government spending. This year, the Treasury is already running a deficit of 276.2 billion francs, the prime minister’s office said a statement published April 18 on its website. With no existing access to debt markets to fund the deficit, Congo’s foreign-exchange reserves dropped to $1.27 billion by April 14 from $1.5 billion at the end of December.

In addition to limiting the capacity of the government to meet VAT reimbursement obligations, the decline in reserves has increased pressure on the franc. After more than five years of stability, the currency has slid from 927 per dollar in November to 945 by April 15. It’s quoted at 976 by street traders on the informal parallel market, according to the prime minister’s office.

The government is already behind on the payment of VAT reimbursements to many companies, particularly in the mining industry, which Mutombo said the government will address.

Source: Bloomberg

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