AMR: DRC

GDP growth – weak prospects

Even before the pandemic, we had forecast economic growth to slow in 2020 because of the suspension of copper and cobalt production at large mines. Disruptions due to the pandemic now compound this. We see a contraction of 4.5% y/y this year, with any kind of recovery only likely late next year.

Balance of payments – in crisis

The DRC’s balance of payments position is set to deteriorate further. Since mineral exports account for over 90% of exports, any disruptions in exports would intensify external stress. Moreover, FX reserves have on average have been declining over the past year, which also points to underlying BOP pressures. FX reserves are low and cover about 2 to 3-w of import cover.

Monetary policy- on hold, for now

The BCC is likely to leave the policy stance unchanged over the next 4-m after increasing the policy rate to 18.5% from 7.5%. A depreciating currency and mounting inflationary pressures motivated the MPC to hike rates in Aug.

FX outlook – upside risk

We expect USD/CDF to end Q3:20 at 1,972 and Q4:20 at 2,061. Considering external pressures, CDF depreciation seems inevitable this year. However, the magnitude or timing of depreciation is uncertain. Notably, the government’s continued reliance on the central bank to finance the budget could precipitate a series of devaluations, posing meaningful upside risk to the outlook.