Effects of COVID-19 on the DRC economy and policy responses from Central Bank of Congo and government

Abstract

This study examines the effects of the covid-19 pandemic on the Congolese economy and describes policies implemented by a vital Congolese policymaker, the Central Bank of Congo, to slowdown the spread and impact of the pandemic on real economy. The Covid-19 crisis proved detrimental to the Congolese economy as the economy proved weak, extroverted, and poorly diversified. Due to the Covid-19 pandemic, we noticed the decline of foreign exchanges (as a result of recession in China), public deficit, acceleration in the rate of price formation, currency depreciation that led to speculation on the foreign exchange market, and slowdown of economic growth. This macroeconomic instability negatively affected banking activity in the country, leading to deceleration in the rate of deposits and loans growth and a slight increase in non-performing loans. However, the banking sector remains resilient despite the covid-19 shock, which is largely due to the response policies adopted by the monetary authority to mitigate effects of the pandemic on economic activity and ensure progress of financial services. Essentially, most policies adopted by the Congolese authorities have an effect in the short run. While they may reduce the effects of covid-19 in the short run (as is currently the case), they are not likely to guarantee long-term competitiveness and resilience of the Congolese economy to exogenous shocks. The policies in place cannot allow economic recovery in the period after covid-19, including a return to protectionism (national preferences) rather than globalization. We recommend Congolese authorities to engage relevant structural reforms that can produce jobs and establish foundations for sustained growth that is less vulnerable to external or exogenous shocks. In order to protect against external shocks, the authorities will need to attack the real structural problems or bottlenecks that the Congolese economy faced for decades.