Moody's affirms Democratic Republic of the Congo's B3 issuer ratings

Investing.com -- Moody's Ratings has confirmed the B3 long-term local and foreign currency issuer ratings of the Democratic Republic of the Congo (DRC) government, maintaining a stable outlook. This affirmation reflects the macroeconomic risks arising from the ongoing conflict in the eastern region and lower commodity prices. Despite these challenges, the DRC's strong growth forecast and commitment to structural reforms are recognized.

Over the past three years, the DRC's foreign exchange reserves and government revenue have improved. However, the country's external and fiscal positions are still heavily dependent on commodities. This reliance is a significant credit constraint, especially considering the potential negative effects of US tariffs on global growth and demand for the DRC's commodities. The country's ability to absorb shocks is limited due to low per capita income, infrastructure deficiencies, and weak institutions.

The stable outlook indicates balanced medium-term risks. Moody's expects the risk of macroeconomic instability to persist but not intensify to the point of reversing the progress made toward greater resilience. The DRC's relatively low-cost mining sector is expected to continue driving high growth levels. However, the authorities' capacity to harness this growth for increased revenue or foreign exchange reserves will likely remain limited, despite gradual progress driven by International Monetary Fund (IMF)-supported structural reforms.

Downside risks include a potential escalation of the conflict in North and South Kivu and a potential slowdown in China due to US trade tensions, which could reduce commodity demand and prices. On the other hand, the DRC's economic fundamentals may improve more rapidly than expected, aided by prudent fiscal management, robust growth, and enhancements in its institutional and governance framework, supported by the IMF programmes.

The DRC's local currency (LC) and foreign currency (FC) country ceilings remain unchanged at B2 and B3, respectively. The one-notch gap between the LC ceiling and the sovereign rating reflects a high degree of unpredictability of government actions, domestic political risk, as well as the significant exposure of the economy to the mining sector. The one-notch gap between the FC ceiling and the LC ceiling reflects limited policy effectiveness and the relatively low openness of the capital account and convertibility risks given the track record of exchange rate volatility during episodes of commodity price shocks.

Moody's expects the DRC to sustain robust economic growth, averaging 6% from 2025 to 2027, and preserve external buffers supported by the resilient mining sector. However, the reliance on the mining sector for growth, government revenue, and foreign exchange proceeds, continues to expose the country to a lasting fall in commodity prices. The DRC's production of essential minerals such as copper and cobalt is supported by robust global demand, particularly from the electric vehicle industry, and its status as a low-cost copper mining country.

The government expects copper production, the country's main export, to reach 3.5 million tonnes in 2026, up from an estimated 3.1 million tonnes in 2024. However, as the mining sector continues to dominate the economy, the DRC remains highly vulnerable to prolonged low commodity prices leading to economic downturns, significant drops in government revenue, and weakening of the country's external position.

The government is expected to maintain fiscal discipline and advance structural reforms, supported by the new $1.7 billion Extended Credit Facility and $1 billion Resilience and Sustainability Facility from the IMF, aimed at enhancing climate adaptation and fiscal frameworks. The previous programmes with the IMF resulted in a significant revenue increase, with revenue averaging 14.8% of GDP during the programmes, compared to 12.0% between 2015 and 2020.

Political instability in the eastern provinces of North and South Kivu, exacerbated by the resurgence of the M23 rebel group, continues to pose significant risks to the DRC's credit profile, currently through government spending pressure but also because of the risk of further escalation. The involvement of regional powers like Rwanda which supports the M23 rebels according to the UN, adds layers of geopolitical risk. Despite ongoing diplomatic efforts, including mediation by Angola and intervention by Qatar, the conflict remains unresolved, with M23 continuing to control significant territory.

The DRC's ESG Credit Impact Score CIS-5 indicates a pronounced impact of ESG considerations on the current rating, which is lower than it would have been if ESG risks were not present. The country has a very high exposure to social risk, a moderate exposure to environmental risk, and a very weak governance that reduces the sovereign's capacity to absorb or mitigate adverse social and environmental trends.

Positive pressure on the DRC's ratings would develop if the ongoing implementation of structural reforms supported by the new IMF programmes led to stronger institutions and higher economic shock-absorption capacity than currently expected. Conversely, a downgrade of the DRC's ratings could occur if the implementation of structural reforms reversed, raising the prospect of deteriorating credit fundamentals or in case of a large economic or political shock leading to severe macroeconomic instability.

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