Dollars in the vault were flat in February; the import bill they must cover was not.

By Kanisa Magazine · February 2022

Congo’s foreign-exchange reserves stood at US$3,480.12 million on 18 February 2022, almost exactly where they ended 2021. Yet the Banque Centrale du Congo’s own measure of import cover fell from 3.29 months to 2.48 months over the same stretch. The dollars are flat; the import bill they have to cover is not.

That divergence is the real February story in the external account. A reserve of US$3.5 billion sounds large, and against the US$708.89 million of December 2020 it is. But cover of ten weeks and five days, as the BCC now reports it, is a thinner buffer than the headline implies, and the digest was published a day before Russia’s forces entered Ukraine and put energy and grain prices in play.

The reserve line

Reserves moved in a US$25 million range through February, while months of cover dropped by a quarter.

The BCC digest lists US$3,465.65 million at 31 December, US$3,463.82 million at 31 January and US$3,484.48 million on 9 February. From 10 to 18 February the readings ranged between US$3,475.66 million and US$3,489.11 million. Cover, by contrast, went from 3.29 months at year-end to 2.37 months at 31 January and 2.48 months on 18 February. The central bank also notes that its reserves are drawn exclusively from its own foreign-exchange position.

Mechanism: what the cover ratio divides by

Cover is reserves divided by average monthly imports, so a stable numerator and a falling ratio mean imports rose.

If reserves are flat and cover falls by 24.6 per cent, the monthly import figure in the denominator must have risen by about a third. That is arithmetic, not commentary. It reflects an economy whose recovery pulls in machinery, fuel, flour and consumer goods faster than the central bank adds dollars. Meanwhile the dollar stock is held up by institutions: the IMF Board’s December decision cleared the programme’s first review and released US$212.3 million to reinforce reserves, noting that the rebound was stronger than projected on higher mining output and recovering non-extractive activity.

The rate that did not move

On 24 February the BCC set the dollar at 2,000.14 francs; the euro, at 2,269.38, carried the day’s currency risk.

The BCC’s rate page for 24 February shows 2,000.14 francs to the dollar and 2,269.38 to the euro, the day the invasion began. The franc’s anchor held. What changed that week was the outlook for dollar-priced energy and grain imports, which flow straight into the denominator of the cover ratio. A reserve that looks adequate at ten weeks can look tight if the import bill jumps.

What ten weeks buys

A 10 per cent rise in import prices would trim cover by about nine tenths of a week without any change in volumes.

Ten weeks is a workable cushion for an economy with a stable anchor. A 10 per cent increase in the dollar value of imports, with reserves unchanged, would cut ten weeks to about 9.1. For Congo, the likely sources of such a rise are fuel, which the country imports, and wheat. The central bank does not need to spend reserves to defend the franc at this level, but it has less room to absorb a second shock than the headline US$3.5 billion suggests.

Implications for importers and lenders

Price in dollars, hold local-currency costs low, and read each IMF review as a reserve event.

Importers should treat the cover ratio as the number that matters and should avoid contracts that assume the official rate will be defended at any import price. Local-currency borrowers can plan on a steady franc near 2,000 for now, but should keep a margin for the interbank premium. Lenders to trading companies should ask how much of a customer’s import bill is energy or grain, because those lines are exposed to the global price shock. The next programme disbursement matters because it adds to the numerator at the moment the denominator is rising. Until the ratio stops falling, assume a slimmer buffer than the dollar total shows.