Africa & Middle East Economic Monitor:

Congo Republic (Brazzaville) – spending & good governance challenge progress
Macroeconomic performance has been improving, admittedly on the strength of buoyant oil
conditions. GDP growth doubled in 2005 to 7.9% and is expected to slow from an estimated 7.2% in 2006 to less than 2% in 2007, as oil production falls, before recovering to 6.5% in 2008, as a new field come on stream. Macroeconomic policy has been under the guidance of an IMF arrangement - Poverty Reduction and Growth Facility (PRGF), but the country experienced performance problems due to delays in transferring oil revenues to the Congolese treasury. Nevertheless, containing spending on the eve of parliamentary elections is among the key
challenges for 2007. The “Second Review” under the Fund program took place in June 2006 and then the PRGF had to be extended. The PRGF has been the pillar of the international rescue package needed to regularize the Republic of Congo’s very difficult financial position. The country has been eligible to the first phase of the Enhanced HIPC Initiative in 2006. Meanwhile, the country liquidity position has been improving markedly and foreign exchange reserves have been equivalent to 7.5 months of import cover earlier in 2006.

Iran – plenty of foreign reserves and low external debt
The consolidation of power in the hands of hardliners, which have been exacerbated by populist rhetoric, has pushed to the country in isolation, particularly over the nuclear issue. Existing sanctions by the US have been extended, and investors’ sentiment has been increasingly “mixed” and fluctuating in between opportunity and risk. This should have adverse implications on the needs to upgrade the oil and gas sector over the longer run. However, over the shorter run, Iran enjoys plenty of liquidity with foreign exchange reserves that could be in the area of US$65bn by the end of the fiscal year 2006/07 (end in March) equivalent to one year of import of goods & services. Iran has never been “as liquidity as” in nowadays. External debt problems are also a story of the past, as the external debt is equivalent to 10% of GDP.

Nigeria – on the path of balance of payments viable and debt sustainable
Nigeria has recorded a solid performance for the past 24 months and the outlook is equally encouraging with GDP growth of 7% by 2007 due to buoyant oil conditions. It has implemented rigorously an economic reform program, which has been supported by the IMF. It met the conditionality of the First Review of the Fund program Policy Support Instrument (PSI). Fund Board discussions for the Second review is scheduled for the second half of December 2006. Oil windfalls have led to budgetary and external current account surpluses. Business conditions are challenged by high domestic interest rates (of 14%), an on-going banking reform and changes in the exchange rate policy. Nevertheless, the country is in the process of reaching balance of
payments viability and debt sustainability after the conclusion of the international financial package that was reached in October 2005. The liquidity position is more than comfortable with foreign exchange reserves equivalent to 15 months of import cover. The external debt has been falling from US$35.9bn two years ago to less than US$5bn in 2006.