Copper is up 14 per cent on the year, yet the central bank’s own dollar cushion is a third smaller than in December.

By Kanisa Magazine · November 2020

On 10 November 2020 the Democratic Republic of the Congo reported international reserves of US$5,857 million, equal to 5.36 months of imports. A year earlier the figure was US$4,378 million and 4.05 months. The headline is a third higher and the cover is the highest reading in the digest’s recent columns.

The second number sits two tables further on. The central bank’s own foreign-exchange position, the reserves it controls without anyone else’s deposit behind them, was US$692 million on the same day. That is 0.63 months of imports and a fall of a third from US$1,031 million in December 2019. Both figures are accurate. They measure different things.

Why the two diverge

The broad figure counts dollars that banks hold for customers.

A footnote to the Banque Centrale du Congo’s reserve table explains the gap. The broad series includes the deposits that commercial banks keep in foreign currency. The narrow series is drawn only from the BCC’s own position. Between the end of March and mid-November, broad reserves rose from US$4,010 million to US$5,857 million, while the narrow series stayed within a band between US$674 million and US$880 million.

The practical meaning is that the extra dollars in the system sit mostly on bank balance sheets, owed to depositors who can ask for them back. The central bank cannot pay a sovereign creditor from them, and it cannot sell them to defend the franc without the banks’ agreement. In October the narrow figure touched US$674 million, the lowest of the dates shown in the digest, even as the broad figure reached US$5,839 million.

What the commodity tape added

Copper helped; cobalt, coltan and oil did not.

The external accounts move on prices as much as volumes. London copper closed at US$7,028 a tonne on 20 November, up from US$6,183 at the end of 2019 and from US$4,763 at the end of March. Gold at US$1,865 an ounce was 22 per cent up on the year. Cobalt did less well: the LME quotation of US$32,000 a tonne was 4 per cent below December, and coltan in London slipped from US$58.50 to US$50.50 a pound. Brent, which matters because the country imports its fuel, was US$45 a barrel against US$66 a year earlier.

The net is a good year for the metal that dominates export earnings and a weaker one for the minor lines. Mining revenue arrives at the Treasury and the banking system in dollars, which explains how the broad reserves swelled without the central bank’s own position moving. The 2021 budget that the National Assembly accepted for examination on 13 November, about US$6.9 billion, places its hopes explicitly on the mining sector.

The official money behind the line

An IMF facility explains part of the year’s support.

On 22 April the IMF approved a disbursement of US$363.27 million under its Rapid Credit Facility, equal to 25 per cent of quota, to address a balance-of-payments shock from Covid-19 and lower mineral prices. It followed an earlier drawing in December 2019, so official money has been part of the arithmetic for most of a year.

The digest’s budget-in-foreign-currency section is a reminder that the state is a dollar spender as well as a dollar earner. Debt service, project payments and embassy costs come out of the same pool, which is why the narrow figure matters to the Finance Ministry even when the broad figure looks comfortable.

Reading the checkpoint

Treat the large number as a market buffer and the small one as the state’s purse.

For a bank, a mining company or a trader, the 5.4 months of cover is genuine comfort: dollars are available in the system, and the franc is not short of a counterparty. For a contractor to a ministry or a state company, the relevant figure is 0.63 months. The government’s capacity to pay in dollars depends on the narrow reserve, on mining receipts flowing into Treasury accounts, and on official lenders.

A sensible reading follows. Suppliers to the state should ask for dollar payment terms or escrow arrangements rather than assuming the broad figure protects them. Investors in the banks should ask what share of the reported reserves is a deposit liability. And anyone modelling Congolese import capacity should use US$5.9 billion for the market and US$692 million for the sovereign, and watch the gap between them narrow or widen with each weekly digest.